Other Development

• Published date: 01 December 2020
• DOI: http://doi.org/10.1002/npc.30804
• Date: 01 December 2020

Bruce R. Hopkins’ NONPROFIT COUNSEL

8 December 2020 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

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)] ◆

OTHER DEVELOPMENT

◆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).