Other Development

Published date01 December 2020
Date01 December 2020
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
IRS concluded that the VEBA is an employee-funded
association (Reg. § 1.509(c)(9)-3(b)) and ruled that
the proposed insurance will constitute a permissible
“life benefit” (Priv. Ltr. Rul. 202039003). [18.3]
A nonprofit corporation has as its purpose develop-
ment of employment opportunities for the welfare of
disabled individuals. Its program is the leasing of items
of modified property to these individuals, which are
designed to display advertising for businesses in pub-
lic places. The resulting advertising income will cover
the lease payments and generate additional income
to enable them to become self-sufficient. The IRS
ruled that this organization cannot be recognized as
a charitable entity because it fails the organizational
and operational tests because it is operating for a
substantial nonexempt commercial purpose (Priv. Ltr.
Rul. 202039019). The IRS wrote that the fact that
this entity provides services to disabled individuals “is
not sufficient to characterize the activity as charitable
because this lacks the donative element necessary to
establish this activity as charitable.” [4.9(g)]
A public charity that is associated with a fraternity is
to receive a contribution from an alumnus member
of the fraternity. This gift, which will be placed in a
special fund, is to be made in five annual installments.
This donor is not a creator of the charity, has not previ-
ously contributed a substantial portion of its support,
and is not in a position of authority with respect to the
charity. The size of the gift is such that its inclusion in
the charity’s public support fraction would adversely
affect its public charity status. The IRS ruled that this
contribution will be an unusual grant (Reg. § 1.170A-
9(f)(6)(ii); Priv. Ltr. Rul. 202039020). This is an odd
outcome, inasmuch as the purposes of the gift funds
include “major repair projects” at chapter houses
and “preservation of the central office staff” at the
fraternity’s national office. If this fraternity is an IRC §
501(c)(7) entity, these purposes do not appear to be
charitable or educational ones. [12.3(b)(i)]
An organization has as its mission the management
and disbursement of “monetary gift donations”
(redundancies do not get any better than that) pro-
vided by the residents of a retirement community for
its employees. The funds are available for the support
staff of the community who live below the poverty
line. At the end of each year, the money collected
is divided among the staff; everyone on the staff
receives these payments. The IRS declined to rec-
ognize exemption as a charitable entity in this case
principally on the grounds that it is serving private
interests, inasmuch as the group served consists of
predetermined individuals (Priv. Ltr. Rul. 202040008).
The fact that all of them have “established financial
need” is irrelevant. [20.13(a)]
It will be recalled that the US District Court for the
District of Columbia held that lawyers for True the Vote
are entitled to reasonable legal fees and costs incurred
because of discrimination by the IRS against the organi-
zation during the application-for-recognition process but
stayed the award, requesting more evidence (opinion
summarized in the August 2019 issue). The court, by
decision dated September 23, determined how the bill-
ing rates should be calculated and the number of hours
billed (which is less than the requested 4,545.15 hours
for lawyers and 368.5 for nonlawyers), and rejected the
government’s request for a 33 percent reduction of the
remaining fees. A final judgment was deferred until the
parties have calculated the exact amount owed to the
organization. [26.17]
Each article in the newsletter on a tax-exempt organizations law topic ends with a citation to the appropriate chapter(s) or
subchapter(s) in Hopkins, The Law of Tax-Exempt Organizations, Twelfth Edition (Wiley, 2019, 2020 supplement). This is done to
provide ready access to additional and background information concerning these articles. For example, underlying information con-
cerning the first article in this issue is available in Chapter 11 § 9(b) of the book; thus, the citation is referenced as [11.9(b)]. Likewise,
each article in the newsletter on a charitable giving law topic ends with a citation to the appropriate chapter(s) or subchapter(s)
in Hopkins, The Tax Law of Charitable Giving, Fifth Edition (Wiley, 2014, 2020 cumulative supplement). For example, underlying
information concerning the sixth article in this issue is available in Chapter 8 § 15(b) of the book; thus, the citation is referenced
as [8.15(b)].
This newsletter is a stand-alone publication. An inventory of articles in the newsletter since its inception in 1983, and a subject
matter index, as well as an index of the court opinions, IRS revenue rulings and procedures, IRS technical advice memoranda, and
IRS private letter rulings discussed in the newsletter, are available at www.brucerhopkinslaw.com. For those who have the books,
the newsletter also provides monthly updates. Both books are annually supplemented. Questions concerning nonprofit law devel-
opments in general may be sent to brucerhopkins@brucerhopkinslaw.com. Also, a comprehensive summary of nonprofit law is
available in the Bruce R. Hopkins Nonprofit Law Library, an e-book published by Wiley. Other law resources are referenced at www.
brucerhopkinsbooks.com. Follow BRHopkins_NPLaw on Twitter.
The newsletter has a dedicated website. Please visit wileyonlinelibrary.com/journal/npc.
Quote of the Month: “The numbers provided by IRS
show that dubious syndicated conservation easement tax
shelters are a growing problem. Using sham partnerships
to essentially buy tax breaks like this undermines the fair-
ness of the American tax system, deprives the Treasury of
revenue, and leaves all other taxpayers out to dry” (state-
ment of Senate Finance Committee Chairman Chuck
Grassley (R-IA), in a committee press release dated
September 21) (see the article beginning on page 5).

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