Other Developments

• DOI: http://doi.org/10.1002/npc.30660
• Published date: 01 November 2019
• Date: 01 November 2019

Bruce R. Hopkins’ NONPROFIT COUNSEL

November 2019 7

THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.1002/npc

The IRS determined that WP Realty’s ownership and

operation of the club was an activity not engaged in for

profit (within the meaning of IRC § 183) and disallowed

deductions for the years at issue. The government’s

position was that Robertson operated WP Realty for

the benefit of the SGA, with his motive being philan-

thropy, not profit. The court reviewed the list of factors

to be weighed when considering whether an activity

is engaged in for profit (Reg. § 1.183-2(b)), holding

in favor of WP Realty. The court stated that, “[e]ven

though we agree with [the IRS] that Robertson initially

had the goal of creating a charitable organization, we

are convinced that WP Realty’s predominant, primary,

or principal objective was to realize an economic profit

independent of tax savings,” adding that “[o]nce WP

Realty was created, Robertson had the intent to make

a profit.” ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

◆An organization was incorporated to educate the

public about US democracy and the “continuing fight

for equality,” including statehood for a political unit (a

wild guess being the District of Columbia). It engages

in educational and advocacy activities. It urges citizens

to contact their federal representatives and senators

in support of an item of proposed legislation. The IRS

denied recognition of exemption as a charitable and

educational organization to this entity on the grounds

that it is an action organization (Reg. § 1.501(c)(3)-1(c)

(3)(i)), because its primary objective can be attained only

by the enactment of legislation (Reg. § 1.501(c)(3)-1(c)

(3)(iv)) (Priv. Ltr. Rul. 201932017). [22.3(c)(i), (iii)]

◆An attempt was made — it is not known why — to

have a charitable remainder unitrust recognized as a tax-

exempt charitable entity. Of course, this cannot be, inas-

much as payment of the income interest is unwarranted

private benefit and a nonexempt function. The IRS so

ruled, noting that the trust has “future charitable pur-

poses” (that is, its status once the charitable remainder

interest matures) (Priv. Ltr. Rul. 201935013). [12.1] ◆

BANKS, CREDIT UNIONS

BATTLE ERUPTS AGAIN

The American Bankers Association, by letter to the

leadership of the House Subcommittee on Oversight and

Investigations dated September 10, complained about

the $1.5 trillion credit union industry that “enjoy[s]

tax and regulatory preferences, even though many no

longer resemble the mission-focused institutions that

emerged out of the Great Depression.” The association

urged Congress to “take a fresh look at whether tax and

regulatory changes are needed.”

The letter states that “[i]t is no secret that commu-

nity banks, which compete directly with credit unions,

have long believed that the credit union industry holds

unfair and unwarranted tax and regulatory advantages.”

The association argued that Congress should examine

whether “all credit unions achieve the purposes that

underlie their special tax and regulatory treatment”

and “which credit unions benefit most from their tax

exemption.” The letter observes that a “growing body

of research shows that disproportionate benefits flow to

a small subset of the industry that no longer meets the

criteria necessary to justify this continued preferential

treatment: the largest 5% of credit unions, which enjoy

75% of credit union industry profits, and are each larger

than nearly 90% of the banks in this country.”

It is noted that the credit union industry was formed

to serve “a higher purpose of providing financial services

to those of ‘small means.’” The letter states that recent

research, by contrast, “shows that modern credit unions

are a contributing factor to the widening of economic

inequality.” It adds that the “largest credit unions in par-

ticular are expanding services to high-income customers,

promoting lucrative business lines (including commercial

real estate development and aircraft finance), and mak-

ing high-risk loans without adequate capital.”

This letter also calls on Congress to “conduct over-

sight into whether the [National Credit Union Admin-

istration] has met the moment,” stating that this type

of oversight and “serious reforms of the credit union

industry should be urgent priorities.”

The letter apparently was prompted by the recently

conducted National Association of Federally Insured

Credit Unions Congressional Caucus. This association

also directed a letter to the subcommittee’s leadership,

dated September 5. This letter references an attachment

that “outlines the great work that credit unions are doing

to serve their communities.” The letter adds that credit

unions are “proud of their track record in meeting the

needs of nearly 117 million members and being a stable

capital source for our nation’s small businesses.” [19.7] ◆

OTHER DEVELOPMENTS

◆The Treasury Department and the IRS, on August 28,

announced the release of the fourth-quarter update to

the 2018–2019 Priority Guidance Plan. The original plan

contained 239 guidance projects, 44 of which had been

completed before its publication. As of June 30, a total

of 150 projects on the updated plan were published. This

final quarterly update includes eight additional projects

and no surprises.

◆It will be recalled that a federal district court (W.D. Wis.)

held that the trustees of a supporting organization repeat-