Recent IRS Private Letter Rulings

Published date01 February 2021
Date01 February 2021
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
FORMS 4720
The IRS, on December 16, announced a delay of
application of the requirement (IRC § 6033(n)) that
private foundations electronically file Form 4720 (Notice
2021-01). This mandatory electronic filing requirement
became law on enactment of the Taxpayer First Act
(summarized in the September 2019 issue).
Generally, of course, most categories of tax-exempt
organizations are required to file annual information
returns. The annual return for private foundations is Form
990-PF (Reg. § 1.6033-2(a)(2)(i)). Although the informa-
tion to be reported for a particular tax year is set forth in
the forms and instructions for that year, the tax regulations
also provides a list of information generally required to be
furnished by an exempt organization on its annual infor-
mation return (Reg. § 1.6033-2(a)(2)(ii)). This list includes,
in the case of private foundations, the information that is
required on Form 4720 (Reg. § 1.6033-2(a)(2)(ii)(J)).
The IRS noted that the information on annual infor-
mation returns generally is disclosable to the public (IRC
§ 6104(b); Reg. § 301.6104(b)-1(a)(1)). This means that
the Form 4720 filed by a private foundation is disclosa-
ble, whereas a Form 4720 filed by a person other than a
private foundation is not required to be disclosed.
The Taxpayer First Act accords the IRS the authority
to delay application of its amendments if the IRS deter-
mines that application of the amendments would cause
undue burden without a delay, but the delayed applica-
bility date may not be later than tax years beginning on
or after July 1, 2021 (Act § 3101(d)(2)).
The IRS is modifying Form 4720 so that private
foundations can electronically file the form. The coming
modifications to the form are also necessary to meet the
Act’s requirement that the IRS must make available to
the public in machine readable format the electronically
filed annual returns.
The IRS stated that a modified paper version of the
Form 4720 will be available at the beginning of 2021.
Private foundations may continue to file the paper ver-
sion of the form until electronic filing is available and
required. Once electronic filing is required, Form 4720
filed by private foundations after the applicability date
will have to be filed electronically in accordance with the
instructions to the form.
The Department of the Treasury and the IRS will com-
mence the process of removing the provision in the tax
regulations enabling private foundations and other per-
sons to jointly file the same Form 4720 (Reg. § 53.6011-
1(c)) because the changes wrought by the Act have
“rendered unfeasible” the ability for foundations and
others to jointly file the form electronically. [28.2(a)(iv)]
Spouses proposed to contribute their income inter-
ests in a charitable remainder annuity trust to a pri-
vate foundation they formed. It was represented to
the IRS that this assignment of the annuity interests
will result in a merger, under state law, of the income
and remainder interests. The IRS ruled that the trans-
fer will (1) not entitle these individuals to an income
tax charitable contribution deduction, (2) be recog-
nized as gift and not a sale for federal tax purposes,
(3) entitle them to a gift tax charitable deduction for
both the income and remainder interests, (4) not
result in an act of self-dealing, and (5) not subject
the trust or the foundation to a termination tax (Priv.
Ltr. Rul. 202047005).
An organization was found by the IRS to be a Type
III supporting organization but that classification
was, following an examination, revoked, sending
the entity into private foundation status (Priv. Ltr.
Rul. 202047011). The organization annually makes
grants to one or more of nine charities. The entity
tried to convince the IRS it is a Type II supporting
organization but that failed because the governing
boards of the two organizations do not consist of the
“same persons.” This ruling has several truisms, such
as “[h]aving one or two of its board members on
the board of a supported organization isn’t having
the same board members” and “having one board
member on a supported organization board isn’t
a majority.” Type III supporting organization status
could not be achieved because the entity did not
satisfy the responsiveness test, the integral part test,
or the notification requirement. [12.3(c)]
A nonprofit corporation was formed to inspire “fam-
ilies, memories, and communities to benefit families
in helping their children heal.” Its activities include the
provision of amusement rides, a Christmas display, a
Halloween walk-through, and rental of a party room.
Fees are charged. This organization was denied rec-
ognition of tax exemption as a charitable entity, on
the ground of violation of the operational test, in that
it is conducting substantial social and recreational
activities (Priv. Ltr. Rul. 202049005). [4.5(a)]
A nonprofit corporation was established to develop and
implement an open standard to enable the exchange
of certain data formats among its members. This
standard provides its members with a format/language
for applications that are used by the members’ cus-
tomers who produce or consume the data involved. In
general, the standard being provided allows its mem-
bers to build “common language” software products
for the industry. The entity licenses the standard
exclusively to its members for fees. The organization
has direct links on its website to its founders’ products

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