Sponsoring Organization Ruled to Provide DAF Gift Substantiation

• DOI: http://doi.org/10.1002/npc.30394
• Published date: 01 November 2017
• Date: 01 November 2017

Bruce R. Hopkins’ NONPROFIT COUNSEL

7

November 2017

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

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

has the authority to impose fines and penalties for

violations of its rules and is authorized to provide a

police force to protect persons and property relating

to commuter rail, the IRS also ruled that the division

possesses substantial police power and thus qualifies

as a political subdivision. [7.15] ◆

SPONSORING ORGANIZATION

RULED TO PROVIDE DAF GIFT

SUBSTANTIATION

Although it is unfortunate that we don’t know about

the language at issue, it is interesting to note that the

IRS’s lawyers reviewed the documentation issued by a

sponsoring organization as substantiation for a gift to

a donor-advised fund and pronounced it adequate to

constitute a contemporaneous written acknowledg-

ment (informal Chief Counsel Advice Memorandum

201736023). This conclusion was reached with respect

to the general CWA requirement (IRC § 170(f)(8)(C)) and

the one imposed specifically in the context of donor-

advised funds (IRC § 170(f)(18)(B)).

The odd aspect of this CCAM is that it blesses the

“language in the sponsoring organization’s documenta-

tion,” while the statutes cited pertain only to whether the

acknowledgment was contemporaneous. Language in a

substantiation document is irrelevant to satisfaction of the

requirement that it be contemporaneous. [21.3] ◆

OTHER RECENT IRS PRIVATE

LETTER RULINGS

• A nonprofit organization was formed to host events

for members of the military of a certain rank at a par-

ticular location. The purpose of this entity is to boost

the morale of these individuals by hosting events

such as picnics and parties, and provide a medium

for the exchange of ideas, information, and profes-

sional knowledge. The IRS ruled that this organiza-

tion does not qualify for exemption as a charitable

entity because most of its activities are social and

recreational in nature, with minimal benefit to the

public (Priv. Ltr. Rul. 201731016). [4.5(a)]

• A private foundation, with the stated exempt pur-

pose of exhibiting artwork and providing artwork

to museums for exhibition in the United States and

Europe, was granted recognition of tax exemption.

It has been in existence for several years; the precise

number of years is redacted. During that period, the

foundation claimed to have had one exhibition over

two to three years, although it could not verify the

details. The IRS ruled that this inability of the foun-

dation to prove conduct of substantial exempt func-

tions is grounds for revocation of exemption (Priv. Ltr.

Rul. 201731019). [4.5(a)]

• A car club applied for recognition of exemption as a

charitable and educational entity. Its primary activity

is hosting car shows that are open to the public. At

these shows, vendors sell parts, memorabilia, and

other merchandise. The organization plans to have

seminars on maintaining and modifying classic cars.

Noting that “certain aspects” of this entity’s activities

may further charitable and educational purposes, the

IRS denied recognition because the organization’s

primary activity, the shows, are “significant social

and recreational” events (Priv. Ltr. Rul. 201736024).

Also, the IRS faulted this organization for not submit-

ting sufficient documentation to establish qualifica-

tion for exemption. [4.4, 26.1(a)(i)]

• Another organization that applied for recognition

as a charitable entity has as its purpose the provi-

sion of financial assistance to its members and their

dependents who have financial problems arising

from catastrophic illness, injury, or death. Members

are employees of a fire department. A secondary

function is support of charities in its community. This

organization also was denied recognition of exemp-

tion on the grounds it is violating the operational test

(Priv. Ltr. Rul. 201736025). In addition, the organiza-

tion failed to gain recognition of exemption because

it is providing unwarranted private benefits to its

members. [4.5(a), 20.12(a)]

• An organization, with the purpose of “unit[ing]

those engaged in the real estate profession for the

purpose of promoting and maintaining high stan-

dards of conduct in the profession,” was denied

recognition of exemption as a business league (Priv.

Ltr. Rul. 201736028). This language appears to be of

the exempt business league type. The IRS, however,

found that the organization’s primary activity is pro-

viding its members with access to a multiple listing

service for a fee, which was ruled to be performance

of particular services to the membership. In finding

this primary activity, the IRS rejected the organiza-

tion’s proffer of a small percentage of “time and

efforts,” relying instead on a much larger percentage

of revenue. [14.2(c)(i), (ii)]

• An organization sought recognition of exemption as

a charitable and educational entity. It was ruled to

fail the organizational and operational tests because

its purposes and activities include those that are

“professional, commercial, and trade association”

(Priv. Ltr. Rul. 201737013). This organization exists

principally to support a business league, which assists

US businesses in exporting their products. The entity

was also faulted for not having the requisite control

and discretion over use of its funds, for charitable

and educational purposes, by the business league.

[4.3(a), 4.5(a), 12.3(c)] ◆