Recent IRS Private Letter Rulings

• Published date: 01 June 2020
• Date: 01 June 2020
• DOI: http://doi.org/10.1002/npc.30735

Bruce R. Hopkins’ NONPROFIT COUNSEL

8 June 2020 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

Law and Analysis

The Tax Court first found that the appraisal involved

was not a qualified one because it is not an appraisal of

what the donor contributed (i.e., the 3,432 frames) but

is of the entire lot (i.e., the 349,629 frames). That is, the

court held, a qualified appraisal must be of the “same

property” that was contributed and that gave rise to the

charitable deduction.

The court wrote that although the appraisal

“included” the donor’s frames, “we (and the IRS) have

no way to determine whether what he alone contributed

is overvalued.” The court added: “This is the type of situ-

ation that Congress intended to prevent when it codified

more than 15 years ago the requirement that a taxpayer

claiming a charitable contribution deduction for the

donation of property worth more than $5,000 obtain a

qualified appraisal for the property contributed.”

The court also held that (1) the appraisal failed to

provide a description of the property contributed in req-

uisite detail, (2) the gift substantiation letter was deficient

because it did not contain the required goods-or-services

provision, (3) the donor did not substantially comply with

the appraisal requirements, and (4) the donor did not

have a reasonable cause defense (IRC § 170(f)(11)(A)(ii)(II))

because the accountant he relied on for tax law advice was

also a promoter of the program and thus not independent.

The IRS attempted to impose accuracy-related pen-

alties (IRC § 6662(a) and (h)). This attempt was unsuc-

cessful because the court held that the IRS failed to carry

its initial burden of production (IRC § 7491(c)) to show

that it complied with the procedural requirements (IRC §

6751(b)). The court noted that the IRS’s penalty approval

form did not show separate approval for these two pen-

alties. [21.5(a)] ◆

RECENT IRS PRIVATE LETTER

RULINGS

• An organization has been operating as a social

club specializing in ecology, conservation, and

preservation of fish and other wildlife in its region

for many years. It incorporated, attempting to qualify

as a charitable and educational entity, by providing

a “legal means and location for area youth and

adults to engage in outdoor activities, ecological

conservation and promote citizenship.” Its articles

of incorporation contain the same purpose clause as

the predecessor. The IRS rebuffed this organization’s

efforts to convert exempt status, ruling that it failed

the organizational and operational tests (Priv. Ltr. Rul.

202012013). [15.1]

• A trust was established for the purpose of raising

funds for an individual’s legal defense, including bail.

This entity is to remain active until this individual is

exonerated or all legal options have been exhausted.

Not surprisingly, the IRS ruled that the trust does not

qualify for exemption as a charitable organization

because it is benefiting a preselected, designated

individual and is serving private interests (Priv. Ltr.

Rul. 202014015). [20.13(a)]

• A nonprofit organization operating a medical mari-

juana dispensary sought recognition of tax exemp-

tion as a charitable and educational entity. It plans

to dispense prescribed cannabis medications to

qualified patients, provide information about these

types of medications, help patients understand the

instructions given by health care practitioners, and

monitor patients’ health and progress to determine

whether the medications are effective. As expected,

the IRS, noting that marijuana is classified under

federal law as a controlled substance, ruled that

this organization cannot be exempt because its

activities are illegal (Priv. Ltr. Rul. 202014019).

[6.3(i)] ◆

Quote of the Month: Independent Sector, in an April 6

press release, called on financial institutions that admin-

ister SBA loans to “prioritize nonprofits as loan recipi-

ents, recognizing them as essential to our nation’s safety

net,” observing that nonprofit organizations account for

one-third of the country’s workforce and are the “back-

bone of our recovery effort.”

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, Twelfth Edition (Wiley, 2019). This is done to provide ready access to

additional and background information concerning these articles. For example, underlying information concerning the second article

in this issue is available in Chapter 28 § 2(a)(iv) of the book; thus, the citation is referenced as [28.2(a)(iv)]. Likewise, each article in

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Law of Charitable Giving, Fifth Edition (Wiley, 2014, 2019 cumulative supplement). For example, underlying information concerning

the ninth article in this issue is available in Chapter 21 § 5(a) of the book; thus, the citation is referenced as [21.5(a)].

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