Other Developments

• Date: 01 November 2016
• DOI: http://doi.org/10.1002/npc.30263
• Published date: 01 November 2016

Bruce R. Hopkins’ NONPROFIT COUNSEL

November 20168THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

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, Eleventh Edition (Wiley 2016, 2016 supp.). This is done to provide

ready access to additional and background information concerning these articles. For example, underlying information concern-

ing the third article in this issue is available in Chapter 11 § 8(b) and Chapter 12 § 3(b)(iii), and thus the citation is referenced as

[11.8(b), 12.3(b)(iii)]. 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, 2016 cumulative supplement).

For example, underlying information concerning the second article in this issue is available in Chapter 9 § 19 and Chapter 21 § 5(c),

and thus the citation is referenced as [9.19, 21.5(c)].

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.nonprofitlawcenter.com. For those who have the

books, the newsletter also provides monthly updates. Both books are annually supplemented. Questions concerning nonprofit law

developments 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. Follow BRHopkins_NPLaw on Twitter.

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and preserves the plots of land, and ensures that

structures on the land have clean drinking water.

Its members do not use the plots and structures on

them solely for recreational purposes. Not surpris-

ingly, the IRS is of the view that this organization

does not qualify as a tax-exempt social club (an IRC

§ 501(c)(7) entity), because it does not serve pur-

poses of “pleasure and recreation” but has activities

“related to home or land ownership,” and benefits

its members in their capacities as homeowners (Priv.

Ltr. Rul. 201638028). [15.1(b)]

• A nonprofit corporation was formed to provide

an outlet for farmers, cheesemakers, bakers, and

makers of crafts to sell their products to the public.

Membership in this entity is open to all residents of a

state who are “agriculture producers of vegetables,

fruit, flowers, fungi, meat, poultry, fiber, dairy, fish

or value-added items such as baked goods and

preserves.” This organization hosts a market for the

public every Saturday. The IRS ruled, as it should

have, that this entity is ineligible for recognition as a

tax-exempt business league (an IRC § 501(c)(6) orga-

nization) for two reasons (Priv. Ltr. Rul. 201639016).

One, the organization provides particular services to

its members. Two, the operation of a market where

members of the public purchase goods for consump-

tion is “akin” to a regular business of a kind ordinar-

ily carried on for profit. As to the first reason, the IRS

stated that this organization’s services to its mem-

bers provide “a convenience and economy of scale in

the conduct of their business they would otherwise

not have without your operation.” The IRS also held

that this organization does not qualify as an exempt

chamber of commerce. [14.2(b), 14.2(c)]

Note: In the previous ruling, the IRS devoted a considerable

portion of its analysis to the categories of time expended

by the organization. Forty percent of its time was for orga-

nizing, preparing for, and participating in and conducting

meetings. Thirty-five percent of the time was for managing

payments to market members in exchange for tokens. The

remaining 25 percent of time was expended in managing

the market. This approach may be contrasted with Priv.

Ltr. Rul. 201615014 (summarized in the June 2016 issue),

where the IRS ruled that the appropriate methodology for

measuring activities of nonprofit organizations for the pur-

pose of ascertaining eligibility for exemption is confined to

expenditures of money. [4.5(c)] ◆

OTHER DEVELOPMENTS

◆The House Subcommittee on Oversight, on Septem-

ber 13, held a hearing titled “Back to School: Review of

Tax-Exempt College and University Endowments.” The

focus of the hearing, however, was on tuition costs and

the use of endowment funds for student assistance. This

gave Rep. Tom Reed (R-NY) an opportunity to push his

Reducing Excessive Debt and Unfair Costs of Education

(REDUCE) act (not yet introduced), which would require

colleges and universities with larger endowments to

distribute a portion of endowment earnings for tuition

relief. Failure to make the requisite payout would trigger

excise tax penalties and perhaps loss of tax-exempt sta-

tus. Also, colleges and universities would be required to

develop a “cost containment plan” to hold down tuition

increases; failure to develop a plan would also result in

loss of exempt status. [11.9(b)]

◆The list of IRS private letter rulings eligible for reduced

user fees has a new addition: “substantially identical

letter rulings requested by taxpayers who are parties

engaged together in the same transaction affecting all

requesting taxpayers” (Notice 2016-59, issued on Sep-

tember 27). This policy is now in effect and will be in the

formal user fee schedule published in January. [26.1(d)]

◆The House vote on whether to impeach Commissioner

of Internal Revenue John Koskinen, originally scheduled

for September 15, was postponed at the last minute.

The reason: House leadership agreed to a hearing before

the House Judiciary Committee on September 21.

Quote of the Month: “Strict compliance with the

requirements [in the tax regulations] is sufficient to win

a [charitable] deduction, but it isn’t necessary” (Cave

Buttes, LLC v. Commissioner (see the second article in

this issue)). ◆