Other Recent IRS Private Letter Rulings

Published date01 November 2019
Date01 November 2019
DOIhttp://doi.org/10.1002/npc.30658
Bruce R. Hopkins’ NONPROFIT COUNSEL
November 2019 7
THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
The IRS determined that WP Realty’s ownership and
operation of the club was an activity not engaged in for
profit (within the meaning of IRC § 183) and disallowed
deductions for the years at issue. The government’s
position was that Robertson operated WP Realty for
the benefit of the SGA, with his motive being philan-
thropy, not profit. The court reviewed the list of factors
to be weighed when considering whether an activity
is engaged in for profit (Reg. § 1.183-2(b)), holding
in favor of WP Realty. The court stated that, “[e]ven
though we agree with [the IRS] that Robertson initially
had the goal of creating a charitable organization, we
are convinced that WP Realty’s predominant, primary,
or principal objective was to realize an economic profit
independent of tax savings,” adding that “[o]nce WP
Realty was created, Robertson had the intent to make
a profit.”
OTHER RECENT IRS PRIVATE
LETTER RULINGS
An organization was incorporated to educate the
public about US democracy and the “continuing fight
for equality,” including statehood for a political unit (a
wild guess being the District of Columbia). It engages
in educational and advocacy activities. It urges citizens
to contact their federal representatives and senators
in support of an item of proposed legislation. The IRS
denied recognition of exemption as a charitable and
educational organization to this entity on the grounds
that it is an action organization (Reg. § 1.501(c)(3)-1(c)
(3)(i)), because its primary objective can be attained only
by the enactment of legislation (Reg. § 1.501(c)(3)-1(c)
(3)(iv)) (Priv. Ltr. Rul. 201932017). [22.3(c)(i), (iii)]
An attempt was made — it is not known why — to
have a charitable remainder unitrust recognized as a tax-
exempt charitable entity. Of course, this cannot be, inas-
much as payment of the income interest is unwarranted
private benefit and a nonexempt function. The IRS so
ruled, noting that the trust has “future charitable pur-
poses” (that is, its status once the charitable remainder
interest matures) (Priv. Ltr. Rul. 201935013). [12.1]
BANKS, CREDIT UNIONS
BATTLE ERUPTS AGAIN
The American Bankers Association, by letter to the
leadership of the House Subcommittee on Oversight and
Investigations dated September 10, complained about
the $1.5 trillion credit union industry that “enjoy[s]
tax and regulatory preferences, even though many no
longer resemble the mission-focused institutions that
emerged out of the Great Depression.” The association
urged Congress to “take a fresh look at whether tax and
regulatory changes are needed.”
The letter states that “[i]t is no secret that commu-
nity banks, which compete directly with credit unions,
have long believed that the credit union industry holds
unfair and unwarranted tax and regulatory advantages.”
The association argued that Congress should examine
whether “all credit unions achieve the purposes that
underlie their special tax and regulatory treatment”
and “which credit unions benefit most from their tax
exemption.” The letter observes that a “growing body
of research shows that disproportionate benefits flow to
a small subset of the industry that no longer meets the
criteria necessary to justify this continued preferential
treatment: the largest 5% of credit unions, which enjoy
75% of credit union industry profits, and are each larger
than nearly 90% of the banks in this country.”
It is noted that the credit union industry was formed
to serve “a higher purpose of providing financial services
to those of ‘small means.’” The letter states that recent
research, by contrast, “shows that modern credit unions
are a contributing factor to the widening of economic
inequality.” It adds that the “largest credit unions in par-
ticular are expanding services to high-income customers,
promoting lucrative business lines (including commercial
real estate development and aircraft finance), and mak-
ing high-risk loans without adequate capital.”
This letter also calls on Congress to “conduct over-
sight into whether the [National Credit Union Admin-
istration] has met the moment,” stating that this type
of oversight and “serious reforms of the credit union
industry should be urgent priorities.”
The letter apparently was prompted by the recently
conducted National Association of Federally Insured
Credit Unions Congressional Caucus. This association
also directed a letter to the subcommittee’s leadership,
dated September 5. This letter references an attachment
that “outlines the great work that credit unions are doing
to serve their communities.” The letter adds that credit
unions are “proud of their track record in meeting the
needs of nearly 117 million members and being a stable
capital source for our nation’s small businesses.” [19.7]
OTHER DEVELOPMENTS
The Treasury Department and the IRS, on August 28,
announced the release of the fourth-quarter update to
the 2018–2019 Priority Guidance Plan. The original plan
contained 239 guidance projects, 44 of which had been
completed before its publication. As of June 30, a total
of 150 projects on the updated plan were published. This
final quarterly update includes eight additional projects
and no surprises.
It will be recalled that a federal district court (W.D. Wis.)
held that the trustees of a supporting organization repeat-

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