Other Recent IRS Private Letter Rulings

• Published date: 01 October 2017
• Date: 01 October 2017
• DOI: http://doi.org/10.1002/npc.30386

Bruce R. Hopkins’ NONPROFIT COUNSEL

October 20178THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

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

of persons with common business interests and is

performing particular services to its members (Priv.

Ltr. Rul. 201733016). The IRS inexplicably tagged

on this sentence: “When you restrict privileges to

your members, you are lacking an essential element

of public representation and membership support

within the intent of Section 501(c)(6).” There is

no requirement, in the business league context, of

“public representation.” [14.2(a), 14.2(c)] ◆

PRIVATE BENEFIT (AND LOTS

OF IT) CORNER

• A nonprofit organization was established to provide

for the operation, care, maintenance, and improve-

ment of the common areas of an industrial park.

This entity’s members are the owners of lots in the

park. This organization was denied recognition as an

exempt social welfare organization because it is not

operated for the promotion of social welfare and is

conferring a “sufficient amount” of private benefit

on its members (Priv. Ltr. Rul. 201731017).

• Another organization was formed to provide for

maintenance, preservation, and architectural con-

trol of a small residential subdivision. Its function

is to maintain a road shared by its four members

(homeowners). Denying recognition as a charitable

entity, the IRS wrote that the organization’s activities

of “maintaining the gravel road shared by members

and collecting monthly fees from them to cover com-

mon costs provides direct benefits to these individu-

als that are more than insubstantial in nature” (Priv.

Ltr. Rul. 201733017). [20.12(a)] ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

◆A nonprofit organization, seeking recognition of

tax exemption as an agricultural entity, was formed to

ensure a permanent presence of commercial fishing in

a city. It purchases fish products from local fishermen,

its members, at a price higher than market value. These

products are sold in a retail outlet to generate funds

for these purchases. Products are sold to the public in

cooked and uncooked form. Not surprisingly, this orga-

nization failed to gain exemption recognition. First, the

IRS ruled that the sale of the members’ products pro-

vides them private benefit, in the form of services they

would otherwise provide for themselves (Priv. Ltr. Rul.

201729021). Second, noting that commercial fishing is

not a term within the meaning of agricultural, the IRS

ruled that the organization’s activities are not directed at

bettering the conditions of those engaged in agricultural

pursuits, improving the grade of products, or developing

a higher degree of efficiency in the field. [16.2, 20.12(a)]

◆A nonprofit organization was founded to provide

“operational and educational support of mentally dis-

abled, homeless, and people in transition looking for

long term residential care.” It did not succeed in its effort

to secure recognition of tax exemption as a charitable

entity, partially because its application for recognition

did not pass muster with the IRS, in that it recited “only

vague generalizations of the type of operations it had

planned” (Priv. Ltr. Rul. 201729023). Indeed, the infor-

mation supplied also was “unresponsive, incomplete,

[and] uninformative.” Another problem the organization

could not surmount was its inability to prove that it will

not be operated to serve the private benefit of a for-

profit business owned by one of its directors, which also

operates a transitional housing program. A third diffi-

culty was its dissolution clause, which is discussed above

(see the article beginning on p. 7). [20.12(a), 26.1(a)(iii)]

Quote of the Month: An article in the August 28

issue of the Bloomberg BNA Daily Tax Report discusses

some of the conflicts between tax reform and charitable

giving, such as an increase in the standard deduction

(reducing the number of itemizing taxpayers) and repeal

of the estate tax. Hadar Susskind, government relations

director at the Council on Foundations, is quoted: “It

clearly has a very, very significant negative impact on

charitable giving. It’s not all done for tax benefits, but it’s

also really clear that’s an important driver.” ◆

Each article in the newsletter on a tax-exempt organizations law topic ends with a citation to the appropriate chapter(s) or

subchapter(s) in Hopkins, The Law of Tax-Exempt Organizations, Eleventh Edition (Wiley, 2017 cumulative supplement). This is

done to provide ready access to additional and background information concerning these articles. For example, underlying infor-

mation concerning the third article in this issue is available in Chapter 15 § 5 of the book, and thus the citation is referenced as

[15.5]. Likewise, each article in the newsletter on a charitable giving law topic ends with a citation to the appropriate chapter(s) or

subchapter(s) in Hopkins, The Tax Law of Charitable Giving, Fifth Edition (Wiley, 2017 cumulative supplement). For example, under-

lying information concerning the first article in this issue is available in Chapter 9 § 7, and thus the citation is referenced as [9.7].

This newsletter is a stand-alone publication. An inventory of articles in the newsletter since its inception in 1983, and a subject

matter index, as well as an index of the court opinions, IRS revenue rulings and procedures, IRS technical advice memoranda,

and IRS private letter rulings discussed in the newsletter, are available at www.nonprofitlawcenter.com. For those who have the

books, the newsletter also provides monthly updates. Both books are annually supplemented. Questions concerning nonprofit law

developments in general may be sent to brucerhopkins@brucerhopkinslaw.com. Also, a comprehensive summary of nonprofit law

is available in the Bruce R. Hopkins Nonprofit Law Library, an e-book published by Wiley. Follow BRHopkins_NPLaw on Twitter.

The newsletter has a dedicated website. Please visit www.hopkinsnonprofitcounsel.com.