Other Recent IRS Private Letter Rulings

• DOI: http://doi.org/10.1002/npc.30837
• Published date: 01 March 2021
• Date: 01 March 2021

Bruce R. Hopkins’ NONPROFIT COUNSEL

March 2021 7

THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.1002/npc

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)] ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

• 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).

[19.11(a)]

• 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).

[4.5(a)] ◆

IRS ISSUES PROCEDURAL

RULES FOR 2021

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] ◆