Other Recent IRS Private Letter Rulings

• DOI: http://doi.org/10.1002/npc.30215
• Date: 01 July 2016
• Published date: 01 July 2016

Bruce R. Hopkins’ NONPROFIT COUNSEL

7

July 2016

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

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

that may scrape the high end of the compensation

scale are reasonable when paid to devoted, hardwork-

ing, and creative (and maybe even lending) executives.

By the way, the $500,000 was held deductible, illus-

trating that an exempt organization can properly pay

funds for services rendered by a for-profit company,

operated by the nonprofit entity’s founders, where

both entities are bona fide and the compensation is

reasonable (contrary to some recent IRS private let-

ter rulings on the point). A win like this also reflects

another element: great lawyering. ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

• An association of innkeepers had its tax exemp-

tion as a business league (an IRC § 501(c)(6) entity)

revoked because it has evolved into an organization

the principal activities of which constitute the per-

formance of particular services for its membership,

including advertising by means of its website, inspec-

tion and reinspection of properties, ACH and credit

card processing, and sale of gift certificates (Priv. Ltr.

Rul. 201617010). For good measure, the IRS also

found violations of the private benefit and commer-

ciality doctrines. [4.11, 14.2(c), 20.2(a)]

• A nonprofit organization was formed to provide

training to softball and baseball umpires, and to coor-

dinate and schedule games and tournaments. The

organization is also involved in assigning umpires to

games and promoting ethical standards among base-

ball officials. Not surprisingly, the IRS ruled that these

activities are not charitable or educational in nature

(Priv. Ltr. Rul. 201617012). This entity was held to be

serving the private interests of the umpires, who are

paid for their services. Also, because the organization

is wholly fee-based, it was found to be operating in a

commercial manner. [4.11, 20.12(a)] ◆

FEDERAL COURT:

EXECUTIVE BRANCH ACTED

UNCONSTITUTIONALLY IN

SPENDING FUNDS FOR ACA

WITHOUT APPROPRIATION

The US Constitution provides that “[n]o Money shall

be drawn from the Treasury, but in Consequence of

Appropriations made by Law” (Art. I, § 9, cl. 7). The

US House of Representatives sued, claiming that the

Departments of Health and Human Services and Treas-

ury have been spending public monies, for Patient

Protection and Affordable Care Act purposes, that have

not been appropriated by Congress. At issue is ACA §

1402, which authorizes cost-sharing reduction reim-

bursements to insurers for deductibles, co-pays, and

similar charges (estimated to total $130 billion over 10

years). The US District Court for the District of Columbia,

on May 12, held that Congress has never appropriated

funds to implement this provision and thus that the

departments have been acting unconstitutionally in

funding these reimbursements to insurers (US House of

Representatives v. Burwell).

The opinion provides a primer on appropriations law,

noting the difference between an authorization and an

appropriation, and the law that the latter cannot be

inferred. The ACA appropriated funds for premium tax

credits, authorized in a neighboring provision (§ 1401).

The Consolidated Appropriations Act for 2014 did not

appropriate monies for these reimbursements. Yet, since

the beginning of 2014, these payments have been made.

The court rejected the departments’ argument that

appropriations for the reimbursement program may be

inferred because these two provisions of the ACA are

“economically and programmatically integrated.” This

argument, wrote the court, “is a most curious and convo-

luted” one, “whose mother was undoubtedly necessity.”

The departments also asserted that since there is

no language in the reimbursement provision about

appropriations, it may be assumed that it was already

funded. The court dismissed that assertion, stating that

Congress authorized the statute but did not appropriate

for it. “That,” the court continued, is “perfectly conso-

nant with principles of appropriation law”—“[s]o long

as programs are authorized, Congress may appropriate

funds for them, or not, as it chooses.”

The departments tried to use the King v. Burwell

rationale (summarized in the September 2015 issue), but

the court said that this case does not involve a “failure

in drafting” but a “failure to appropriate.” The penulti-

mate argument that flopped is that the court should find

it “nonsensical” or “absurd” for Congress to authorize

but not appropriate for a program. Finally, the argument

that the court should defer to the departments’ position

pursuant to the Chevron doctrine (summarized in the

May 2016 issue) was unavailing. ◆

OTHER DEVELOPMENTS

◆Once again (as discussed in the October 2015, Febru-

ary 2013, and June 2012 issues), a charitable contribu-

tion deduction for a gift of a conservation easement is

lost because, as of the date of the gift, the underlying

land was subject to debt that was not subordinated to

the easement (RP Golf, LLC v. Commissioner, April 28).

This case involved an easement on a golf course; the

deduction amount was claimed to be $16.4 million.