Other Recent IRS Private Letter Rulings

• Published date: 01 February 2017
• DOI: http://doi.org/10.1002/npc.30290
• Date: 01 February 2017

Bruce R. Hopkins’ NONPROFIT COUNSEL

7

February 2017

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

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

Policy Opportunity #3

The IRS “could consider partnering with federal

agencies that specialize in programs and activities that

help promote community health in order to develop

broad guidance for hospitals regarding community

building efforts that promote community-wide health.”

This guidance, “disseminated by the agency under its

statutory oversight role, could bring broad public health

expertise to bear in identifying interventions that show

reasonable evidence of effectiveness, are associated with

successful outcomes, are feasible, and have the potential

to contribute to health improvement.” The report con-

tinues: “Working with experts drawn from public health

and health services research, the IRS also could develop

suggested goals and metrics for reallocating community

benefit spending toward community-wide activities that

promote health, and that may be useful to hospitals that

experience a decline in the need for charity care and

whose uncompensated care burdens begin to decline in

the face of expanded insurance coverage.”

In order to “provide the expertise it needs to develop

such guidance and reallocation metrics, the IRS could create

an interagency task force of experts in the social conditions

of health to work closely with the agency on policy devel-

opment.” Experts could be drawn from the Departments of

Agriculture, Health and Human Services, Education, Labor,

Housing and Urban Development, Transportation, Com-

merce, and Veterans Affairs, and other agencies whose

missions and areas of focus relate to the social determi-

nants of health. Also “critical to this task are experts in the

Treasury Department and the Federal Reserve who have

developed broad community development policies that

have the overall health of communities at their core.”

The “financial stake in policy reforms that use tax law

to more effectively advance health policy is considerable:

in 2011 hospitals reported more than $62.4 billion in

community benefit spending.” From a “tax-expenditure

perspective, the stake in such policy revision is also con-

siderable.” In 2011, “taxpayers invested almost $25 billion

nationwide to support tax-exempt hospitals.” The report

concludes: “Through a more comprehensive definition of

community benefit spending that emphasizes community-

wide health improvements, and through policy guidance

developed with the help of experts in the field of commu-

nity health, the IRS could align tax policy with twenty-first

century health policy goals.” [7.6(b)(ii), 28.3(o)] ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

• The IRS revoked the tax-exempt status of a charitable

organization due to its founder’s ignorance (Priv. Ltr.

Rul. 201647008). She used her personal checking

account for the organization’s financial affairs; she

could not explain certain transactions in and out of

this mingled account. Presumably unaided by counsel,

she watched the tax exemption for an entity of some

years’ existence dissolve, while pleading that she never

misused the organization’s funds. This set of facts

could have been remedied without too much difficulty.

Instead, the IRS found private inurement because the

entity’s funds are “readily available” for her “immedi-

ate and personal use.” Potential private inurement is

not, however, private inurement. The IRS lamented that

there are “no outside parties overseeing the organiza-

tion”; that is not a requirement of the federal tax law.

The IRS complained that “there is no annual indepen-

dent audit”; that is not a requirement of the law either.

On the face of it, this was unnecessarily harsh treat-

ment by the government. [5.7(c), 20.1]

• Here we go again. (See the November 2016 issue.)

A nonprofit organization was established to meet

the substantial requirements of a child who requires

medical care for his battle with a form of cancer. These

needs include therapy, transportation, uninsured medi-

cal costs, and home care. The child’s father is the sole

trustee of this entity. The organization receives funds

through appeals made by parents and siblings to

friends, coworkers, employers, and others. Tax exemp-

tion was retroactively revoked to the date of the orga-

nization’s formation (Priv. Ltr. Rul. 201648019). [6.3(a)]

• This, by contrast, is a new one. Individual A advised

individual B, while at a yard sale, that A could help

B open her own thrift store if she obtained the req-

uisite “license.” A convinced B that she could file

the necessary paperwork for this license. B agreed,

paying A a fee for her work. The filing turned out

to be an application for recognition of exemption

as a charitable entity; the “license” was a favorable

determination letter from the IRS. B opened a bank

account in the name of the successful applicant but

did nothing with the entity thereafter. The organiza-

tion was selected for audit, then had its exemption

revoked inasmuch as B was “duped” by A and the

organization was formed as part of a “tax scam”

(Priv. Ltr. Rul. 201649015). ◆

OTHER DEVELOPMENTS

◆The most famous act(s) of (ostensible) self-dealing,

to date: Media reports on November 23 inform that

the Donald J. Trump Foundation, in its annual informa-

tion return for 2015, reported that it had (or may have)

participated in one or more self-dealing transactions. An

article in that day’s New York Times may be the first in a

major media publication to make reference to disquali-

fied persons. [12.4(a)]

◆As of November 21, the IRS’s prototype determina-

tion letters resulting from successful Form 1023 and

Form 1023-EZ filings will contain identical text. An IRS