Other Recent IRS Private Letter Rulings

• Date: 01 December 2017
• Published date: 01 December 2017
• DOI: http://doi.org/10.1002/npc.30410

Bruce R. Hopkins’ NONPROFIT COUNSEL

7

December 2017

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

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

ADMINISTRATION ISSUES

INTERIM FINAL RULES ON

INSURANCE COVERAGE

RELIGIOUS EXEMPTION

The IRS and other federal agencies, on October 6,

issued two interim final rules that expand the religious

exemption from the requirements of the Patient Protec-

tion and Affordable Care Act that health care insurance

coverage be provided for contraceptive care and services.

The rules expand exemptions to “protect religious

beliefs for certain entities and individuals.” The expanded

exemption encompasses nongovernmental plan spon-

sors that object “based on sincerely held religious beliefs,

and institutions of higher education in their arrangement

of student health plans” (T.D. 9827). The rules also pro-

vide certain “morally objecting entities” access to the

voluntary accommodation process (T.D. 9828). ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

◆The IRS approved a set-aside request, to fund an exhibit

hosted by a public charity because it will defer payment

of the funds until design and construction is underway,

demonstrate to prospective donors that the exhibit has

already attracted significant financial support, and allow

the grant funds to “be preserved and potentially grow

between now and the time they’re needed” (Priv. Ltr. Rul.

201738014). As always, the entire amount must be paid

within 60 months following the first set-aside. [12.4(b)]

◆This case was an easy one for the IRS: a nonprofit

organization operating as a mortgage broker to origi-

nate loans and serve as an intermediary between bor-

rowers and lenders, compensated by lenders by fees.

Quite correctly, the IRS observed that this function

serves a substantial nonexempt purpose (Priv. Ltr. Rul.

201739016). This entity was also held to transgress the

commerciality doctrine by being in direct competition

with other mortgage brokers in the industry. Moreover,

this organization was ruled to not have a “substantive,

ongoing program of public education” and not be in

compliance with several elements of the rules pertain-

ing to tax-exempt credit counseling organizations (IRC §

501(q)). [4.5(a), 4.11(d), 7.3(d)]

◆An organization had its tax-exempt status as a chari-

table entity revoked in part because its primary activities

in a foreign country were conducted in violation of

the country’s assets control regulations. The organiza-

tion stated on its website that it was engaging in civil

disobedience. The IRS ruled that, because the Office of

Foreign Assets Control had to intervene on several occa-

sions, this entity “increased the burden of government,

rather than lessening the burden of government” (Priv.

Ltr. Rul. 201740022). Also, the organization was faulted

for functioning as the fiscal sponsor of “multiple nonex-

empt programs/projects,” although the IRS added that it

“acted more as conduit than as a fiscal sponsor.” [26.11]

◆A nonprofit organization was recognized as a tax-

exempt charity because of its purposes to promote

democracy and education, assist those in need, and “pro-

mote brotherhood among all people.” The IRS audited

this entity, concluding that the “only activity observed

from the audit years” was rental of a facility as an apart-

ment house to the public. The IRS was quick to note that

the tenants “were not and are not of a charitable class.”

The IRS stated that, although the organization “expressed

intended near future programs,” since the organization

was not engaging in any exempt functions, its exempt

status is revoked (Priv. Ltr. Rul. 201742027). [4.5(a)]

◆The organizational test really makes a difference. A

nonprofit organization’s proposed activities, the IRS con-

ceded, appear to be charitable in nature. This organiza-

tion’s articles of incorporation, however, provide that it

may engage in any lawful activity for which a corporation

may be organized under state law—a statement of pur-

poses that is, of course, far too sweeping. Moreover, this

organization’s articles lack a dissolution clause. Worse yet,

the articles provide for the issuance of shares of stock,

carrying with them rights to dividends. These are three

clear violations (Priv. Ltr. Rul. 201742028). [4.3(a), (b)] ◆

IRS UPDATES TAX RATES,

INFLATION ADJUSTMENTS

FOR 2018

The IRS, on October 19, published annual inflation

adjustments for the tax-rate schedules and other tax

provisions for 2018 (Rev. Proc. 2017-58). Here are the

pertinent items:

• An exception from unrelated business income taxation

involving low-cost articles is applicable with respect to

articles with a cost of no more than $10.60. [25.2(j)]

• $5, $25, and $50 guidelines for disregarding the value

of insubstantial benefits received from a donor in return

for a fully deductible income tax charitable contribution

are $10.60, $53, and $106. [Appendices D–F]

• The annual per-person, -family, or -entity dues limita-

tion to qualify for the reporting exception regarding

certain exempt organizations with nondeductible

lobbying expenditures is $112 or less. [22.6(a)]

• The limitation regarding the exemption of annual dues

required to be paid by a member to an exempt agricul-

tural or horticultural organization is $161. [25.2(l)]

• The tax rate of 39.6 percent affects single individuals

whose income exceeds $415,050 ($466,950 for mar-

ried taxpayers filing a joint return).