Other Developments

Published date01 December 2019
Date01 December 2019
December 2019 7
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
program who have been approved to receive medical
marijuana in the state, sought recognition of exemption
as a charitable entity. This organization also oversees the
dispensaries that distribute the marijuana. Not surpris-
ingly, this recognition was denied, with the IRS ruling
that the organization is engaging in activities that are
illegal under federal law and are contrary to federal
public policy (Priv. Ltr. Rul. 201940008). The fact that the
distribution of marijuana for limited purposes is legal in
the state was, of course, not determinative. [6.2, 6.3(i)]
A nonprofit organization was formed to serve member
organizations engaged in the accounting profession. Its
primary activity is provision of management consulting
services, with a focus on owners of small accounting
businesses. These fee-based services will be tailored to the
specific needs of each business. The IRS declined to rec-
ognize this entity as a tax-exempt business league, on the
grounds that it is providing particular services to its mem-
bers and is conducting a business ordinarily carried on for
profit (Priv. Ltr. Rul. 201940009). [14.2(b)(i), 14.2(c)(i), (ii)]
A nonprofit organization was formed to principally
provide billing, legal, accounting, human resources, per-
sonnel, and support staffing to health care companies for
a fee. This entity has a medical staff that sees patients in
their homes and provides services for them. The admin-
istrative services include purchasing of medical and office
supplies, developing and revising various policies and
operating procedures, establishing and maintaining credit,
and establishing and implementing guidelines for recruit-
ment, hiring, firing, and compensation of employees. Not
surprisingly, the IRS refused to recognize this organization
as an exempt charitable entity because it is operating in
a commercial manner (Priv. Ltr. Rul. 201940011). [4.9(g)]
A nonexempt charitable trust (an IRC § 4947(a)(1))
entity operating a scholarship grant program. The IRS
determined that the trust’s procedures for awarding these
grants comply with the requisite advance IRS approval
requirements (Priv. Ltr. Rul. 201940013). This trust, how-
ever, engaged in scholarship grantmaking before receiving
this IRS approval; it sought abatement of initial (IRC §
4945) taxes. The IRS granted the abatement request, on
the grounds that no grant funds have been diverted to
nonexempt purposes and the adopted grantmaking pro-
cedures meet the advance approval requirements (Reg. §
53.4945-1(d)(3)) (Priv. Ltr. Rul. 201940013). (This ruling
was issued in response to a private foundation’s request
in 2004. In Bloomberg Law’s Daily Tax Report, October 4,
it is noted that the IRS’s release of the ruling was “spear-
headed” by a Bloomberg Tax & Accounting customer’s
Freedom of Information Act request.) [12.4(e)]
A nonprofit corporation provides education, quality
goods and services, and a program to promote healthier
living for residents of a city. It has entered into agree-
ments with apartment complexes to provide, for a fee,
wellness events for the tenants. This entity is a “collabo-
ration” of local for-profit businesses, each of which are
represented on the board of this nonprofit organization.
The IRS applied the commerciality doctrine in denying
recognition of exemption as a charitable entity, although
it appears this is predominantly a private benefit doc-
trine case (Priv. Ltr. Rul. 201941029). The principal basis
underlying this ruling is that the nonprofit organization’s
activities promote the business interests of its board
members. [4.9(g), 20.13(a)]
The Office of Audit Services fiscal year 2020 Annual
Audit Plan reflects the Treasury Inspector General for Tax
Administration’s current IRS audit priorities. This plan,
released on October 7, includes 156 new and in-process
audits. Here are the planned audits in the tax-exempt
organizations context:
Determine whether the IRS processes are sufficient to
detect potentially noncompliant activities by exempt
Assess the overall effectiveness of the TE/GE Divi-
sion’s Compliance, Planning, and Classification
Unit Exempt Organizations examination selection
Review the TE/GE Division’s efforts to identify and
examine exempt organizations with unreported or
underreported unrelated business income tax.
Assess the IRS’s efforts to ensure that exempt organi-
zations with highly compensated employees comply
with excise tax reporting requirements.
Evaluate the IRS’s processing controls and guidance
related to excise taxes on the net investment income
of certain private colleges and universities.
Assess the implementation of the laws that impose
additional exemption requirements on hospital
As well it should, the government, on October 4, filed
an appeal of the Mayo Clinic decision (summarized in
the October 2019 issue) with the US Court of Appeals
for the Eighth Circuit. Technically, the issue in this case
is whether the clinic qualifies as an educational institu-
tion as that term is used in IRC § 514(c)(9)(C)(i)). The
true issue, however, is whether the primary purpose test
applies with respect to each category of public charity
listed in IRC § 170(b)(1)(A). [4.4, 8.3(a), 12.3(a)]
The Treasury-IRS Priority Guidance Plan for 2019–
2020, dated October 8, contains 203 projects. The
projects we are used to seeing remain on the list, includ-
ing those triggered by enactment of the Tax Cuts and

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