Other Recent IRS Private Letter Rulings

• Date: 01 August 2020
• Published date: 01 August 2020
• DOI: http://doi.org/10.1002/npc.30757

Bruce R. Hopkins’ NONPROFIT COUNSEL

August 2020 7

THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

not offer any comparison to alleged comparables,

and fails to explain whether other sales “involved

a willing buyer and a willing seller or were simply

a way to resolve litigated disputes.” The Tax Court,

of course, disallowed the deduction for lack of ade-

quate substantiation (Brannan Sand & Gravel Co.,

LLC v. Commissioner (June 4)). [21.4, 21.5]

• On June 8, the Tax Court issued a decision valuing a

conservation easement (Johnson v. Commissioner).

The donor claimed a charitable deduction in the

amount of $610,000; the court set the value at

$372,919. The parties agreed that the fair market

value of this easement should be determined by

calculating the difference between the underlying

property’s value before and after grant of the ease-

ment. The court favored the donor’s expert’s deter-

mination of the property’s pre-gift value and split the

difference between the sides’ experts’ analysis of the

after value. [10.1]

IRS NEEDS MORE TIME FOR

TAXPAYER FIRST ACT REPORTS

Commissioner of Internal Revenue Charles Rettig, in

letters to the Senate Finance Committee leadership on

April 17, announced that the IRS needs additional time

to complete the comprehensive customer service strat-

egy, organizational redesign, and comprehensive training

strategy reports required by the Taxpayer First Act. This

legislation, summarized in the September 2019 issue,

requires submission of some of these reports by the end

of September. The commissioner, citing “unprecedented

workforce and operational challenges brought on by the

COVID-19 emergency,” said he anticipates submission of

these reports in December.

Commissioner Rettig summarized the “extensive

outreach” conducted to date to ensure that the agen-

cy’s approach “fully integrates taxpayers’ needs and

perspectives.” The IRS’s TFA Office has been working to

develop new strategies, including regular meetings with

congressional staff. Prior to the pandemic, he wrote,

the IRS was “on track to timely deliver a consolidated

report detailing our comprehensive taxpayer experience

strategy, organizational redesign, and comprehensive

training strategy.”] ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

• A nonprofit organization was formed to operate a

“community tavern” in an attempt to “create a cul-

ture of philanthropy in a distinctive venue.” Its plan is

to sell locally brewed beer and wine to its supporters,

with the sales proceeds distributed to nonprofit organ-

izations. The IRS did not buy this brew, rejecting the

notion that this organization is eligible for tax exemp-

tion as a charitable entity (Priv. Ltr. Rul. 202016019).

Playing down the fundraising component and the

educational activities, the IRS ruled that the organi-

zation’s “main focus” is operation of a tavern. This,

said the IRS, is a business that is “ordinarily carried on

by commercial ventures organized for profit.” [4.9(a)]

• A nonprofit organization has a membership of com-

mercial fishers. It seeks to maintain the health of a

highly migratory species, in part by helping to solve

an overfishing problem. Its primary activity is sending

representatives to regional and international fishery

governing agencies’ meetings that have an impact

on the entity’s membership. The IRS denied recog-

nition of tax exemption as a charitable entity to this

organization, although it has some characteristics of

an environmental protection entity, on the grounds

that it has the substantial nonexempt purpose of

promoting the common business interests of its

members (Priv. Ltr. Rul. 202017031). [20.13(a)]

• A nonprofit organization was formed to advance

a form of cryptocurrency. Its software is free to

download and edit. Blockchain technology provides

anyone who wants access to observe and analyze

the chain data. The IRS rejected the notion that

this entity is educational in nature, writing that the

organization “merely provide[s] open source web

applications that can be used or modified by anyone

and used for whatever purpose that individual sees

fit” (Priv. Ltr. Rul. 202019028). The IRS added that

these activities are not charitable, in part because the

members of the public who may use the programs

are not a recognized charitable class. [4.5(a), 8.1]

• In a heavily redacted and lengthy ruling, the IRS

concluded that a nonprofit tax-exempt organization

has been operating in a “competitive commercial

fashion” to sell tax credits for the purpose of raising

funds for the benefit of, and providing services to,

for-profit partnerships. The agent wrote that this

entity provides “so much private benefit” to the

partnerships that exemption as a charitable organi-

zation is not warranted (Priv. Ltr. Rul. 202019029).

The agent also found that the organization materially

misrepresented its operations on its application for

recognition of exemption and thus that the revoca-

tion of exemption should be retroactive to the date

of its inception (in 2008). [4.9(a), 20.13(a), 27.3]

• The IRS ruled a distribution by a charitable lead

annuity trust, following all annuity payments to

two charities, of the remaining trust assets to the

remainder beneficiaries (all disqualified persons with

respect to the trust) will not constitute an act of

self-dealing (Priv. Ltr. Rul. 202021001). The IRS

also ruled that reimbursement by the trust of legal,