Other Recent IRS Private Letter Rulings

• Date: 01 February 2018
• DOI: http://doi.org/10.1002/npc.30431
• Published date: 01 February 2018

Bruce R. Hopkins’ NONPROFIT COUNSEL

7

February 2018

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

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

and held that the amended agreement is “defective,

both procedurally and substantively.”

The court ruled that the Trust “retain[s] some author-

ity to determine which of the [Federation’s] purposes [it]

will support,” adding that the Federation “is not free

to do whatever it chooses with the money it receives.”

Other issues remain in dispute, with the parties headed

for trial. [12.3(c)] ◆

PARTICULAR SERVICES RULE

DEFEATS TAX EXEMPTIONS

A nonprofit organization was formed to be the

entity negotiating and entering into a power purchase

agreement that is acceptable to its members and the

developer of the project, which is a new natural gas–

fired plant in a county. It enabled its members, who

are municipal and cooperative electric utilities, to col-

laborate in facilitation of development of the project;

develop proposed terms and conditions for the members

to buy energy; find opportunities for the cooperative

procurement of natural gas, natural gas transportation,

natural gas storage, and natural gas scheduling services;

and evaluate alternatives for the scheduling and taking

delivery of the members’ prorated share of output. The

agreement provides revenue assurance to help the devel-

oper obtain financing for the project. The IRS rejected

this organization’s efforts to become recognized as an

exempt business league, on the grounds it is organized

and operated to perform particular services for its mem-

bers (Priv. Ltr. Rul. 201749016).

Likewise, the IRS gave the proverbial short shrift

to an organization formed to advertise and otherwise

promote the products and services of the dealers of a

brand of automobile. Of course, this organization does

not benefit the entire automobile industry, nor does it

improve the business conditions within the industry. The

organization represents only a segment of that industry

and provides particular services to its members (Priv. Ltr.

Rul. 201750020). [14.2(c)(i), (ii)] ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

◆A nonprofit organization was formed to assist the

underprivileged, fund health care assistance, and engage

in rural development. It has a membership that pays

dues. In addition, members must contribute to an

emergency fund, which is used to assist in funeral

arrangements for deceased members. They also must

contribute to a sinking fund, which is used for marriage,

birth, graduation, illness, and death events. They further

must contribute to an entertainment fund. This was too

much for the IRS, which ruled that all this funding was

ample private benefit precluding qualification as a chari-

table and educational entity (Priv. Ltr. Rul. 201748010).

[20.12(a)]

◆The IRS likewise revoked the exempt charitable status

of an organization, the purpose of which is to provide

burial benefits and assistance to the surviving families of

deceased members (Priv. Ltr. Rul. 201748011). Again,

much too much private benefit. [20.12(a)]

◆Do as you’re told. A nonprofit organization was

granted recognition of tax-exempt and public charity

status. Its purposes are to make grants and loans to

individuals and institutions for various charitable and

educational purposes. Its application for recognition

stated that certain controls over the grantmaking pro-

cess would be in place. Moreover, during the applica-

tion review process, the IRS caused the organization to

amend its bylaws to add more controls; the IRS added

more advice on the point in the determination letter. Yet,

when the IRS showed up for an examination, the orga-

nization’s hapless president could not produce records

to substantiate solicitation of funds, the grant approval

process, the use of funds, and credit and debit card pur-

chases made by him and his spouse. The IRS revoked the

exemption (Priv. Ltr. Rul. 201749012). [28.20]

◆A nonprofit organization was organized to oper-

ate a facility for use by a fraternal beneficiary society

(an IRC § 501(c)(8) entity) and members of the public.

Events involved include parties and weddings. The IRS

declined to recognize this organization as a tax-exempt

charitable entity on the grounds it “conduct[s] the same

activities as a commercial venue and many of [its] activi-

ties are conducted in the same manner as commercial

enterprises” (Priv. Ltr. Rul. 201749017). This ruling need

not have hinged on the commerciality doctrine; rental

of property is rarely a charitable activity to begin with.

[4.5(a), 4.11, 19.4(a)]

◆The IRS decided that a nonprofit dog rescue organiza-

tion does not qualify as an exempt social welfare organi-

zation because it charges a fee for receiving a dog; dogs

must have recent veterinary records as to vaccinations,

spay/neuter, and heartworm test results; the organiza-

tion is selective as to the breed and type of dogs taken in

(strays are rejected); and there is no waiver or reduction

of fees based on income or need for the surrender or

adoption of dogs (Priv. Ltr. Rul. 201749020). The organi-

zation’s cause was not aided by the fact that its president

receives free room and board and access to two of its

vehicles. The IRS, concluding that this organization is

“operating a for profit business of the surrender and

sales of dogs for the private benefit of the president,”

retroactively revoked the self-declared exempt status of

this entity. [13.3, 27.3] ◆