Other Recent IRS Private Letter Rulings

Date01 March 2021
Published date01 March 2021
March 2021 7
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
property. There was no recorded transfer of ownership
of the interest in the building.
The lack of transfer of the donor’s entire interest in
the property was also evidenced by the substance of the
transaction. An interest in the house was transferred but
there were limitations, in that unsalvaged building com-
ponents would be destroyed and that demolition would
ultimately have to be accomplished by the donors, by
their contractor. Again, the donors’ “attempt to claim
the value of the entire house as a charitable deduction”
was ruled “improper” (IRC § 170(f)(3)(A)).
Further, the court of appeals found that the appraisal
involved was not a qualified one, because it failed to
provide a value of the contributed property (IRC § 170(f)
(11)(C)). That is, the appraisal provided a value for every
component of the house. This is an independent basis
for denial of the claimed charitable deductions. [9.23,
21.3(a), 21.5(a)]
The IRS examined an organization that was claiming
exemption as a veterans’ organization under a group
exemption. This entity was found by the IRS to not
meet the requisite membership requirement and to
not be an organization of cadets, with its primary
activity being operation of a community youth
baseball team. It also conducted gaming activities
to generate revenue. The IRS concluded that this
organization did not qualify for tax exemption (under
IRC § 501(c)(19)) and thus must be removed from
the group exemption (Priv. Ltr. Rul. 202052016).
A nonprofit organization was formed to produce and
distribute films concerning religious themes. Under
appropriate circumstances, this purpose can be a
charitable one, as advancing religion. In this instance,
however, the IRS found that the production and dis-
tribution processes were too akin to those practiced
by for-profit entities. Although this organization
planned to partner with churches in this regard, the
financing arrangements were considered to unduly
benefit third parties. It used methods ordinarily used
in the for-profit industry to obtain the services of
producers, directors, actors, distributors, and other
film professionals. The IRS denied recognition of
exemption to this entity on the ground that its
principal activity amounts to a commercial business
undertaking Priv. Ltr. Rul. 202053020). [4.9(a)]
The IRS has again ruled that self-dealing is side-
stepped when, instead of receiving a promissory
note that would put a private foundation in the
position of being a creditor with respect to disquali-
fied persons, the foundation instead receives by gift
nonvoting units in a limited liability company that has
been assigned the note (Priv. Ltr. Rul. 202101002).
The foundation does not control the LLC. The foun-
dation’s holding in the LLC is not an excess business
holding because the entity will receive only passive
income. A similar ruling is discussed in greater detail
in the June 2019 issue (201907004). [12.4(a)]
A nonprofit organization was formed to monitor
events relating to a particular industry to ensure that
its members are kept current on common issues
facing the industry, including updates on state and
federal regulation. It conducts periodic meetings to
discuss these events. It also promotes industry best
practices, provides opportunities for advertising for
the sale of equipment, and posting job openings.
Its members are independent owners and opera-
tors in the industry. The IRS declined to recognize
this entity as an exempt charitable and educational
organization on the ground it is furthering the com-
mon business interests of its members—a violation
of the operational test (Priv. Ltr. Rul. 202102012).
The IRS, on January 4, issued its annual compilation of
the procedural rules in the tax-exempt organizations and
larger law contexts for 2021, including the following:
Procedures for letter rulings and information letters
generally (Rev. Proc. 2021-1, 2021-1 I.R.B. 1).
Procedures as to when and how an Associate office
within the Office of Chief Counsel provides technical
advice (Rev. Proc. 2021-2, 2021-1 I.R.B. 116).
A list of matters on which the IRS will not issue letter
rulings or determination letters (Rev. Proc. 2021-3,
2021-1 I.R.B. 140).
Procedures for issuing determination letters on issues
under the jurisdiction of the Director, Exempt Organ-
izations Rulings and Agreements (Rev. Proc. 2021-5,
2021-1 I.R.B. 250).
Overall, Rev. Proc. 2021-5 provides the procedures
for filing applications for recognition of tax-exempt sta-
tus, seeking determinations by means of Form 8940, and
for requesting determination letters. Also, it states the
procedures for withdrawal of requests for a determina-
tion letter, revocation or modification of determination
letters, and disclosure of these applications and deter-
mination letters. It discusses the interrelationship of the
declaratory judgment rules (IRC § 7428) and states the
user fee requirements. [26.1]
On January 5, the IRS issued updated procedures for
electronic submission of Form 1024-A (Rev. Proc. 2021-
8, 2021-4 I.R.B. 502). [26.4]

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