Tangled Webs Woven With CRT

• Published date: 01 June 2017
• Date: 01 June 2017
• DOI: http://doi.org/10.1002/npc.30326

Bruce R. Hopkins’ NONPROFIT COUNSEL

June 20172THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

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

ate these audits—the apparently elusive concept of the

high-level Treasury official. The proposal, that the direc-

tor of the Exempt Organizations Division be the individ-

ual in that position, emerged in 2009 (see the October

2009 issue). There has been near-total silence since.

Now comes a decision by the US District Court for

South Carolina, on March 7, that reaffirms that third-

party summonses are not bound by the limitations

inherent in the church audit rules, being authorized and

governed by IRC § 7609 rather than IRC § 7611 (Bible

Study Time, Inc. v. United States). The IRS initially sought

to determine whether to authorize a church tax inquiry,

inasmuch as the religious entity involved was claiming

to be a church. Of prime concern to the IRS was the

amount of compensation being paid to the organiza-

tion’s president and chief executive officer, in relation to

the excess benefit transactions rules.

The foregoing is sufficiently interesting, but this

court opinion notes that the organization challenged the

inquiry on the grounds that the IRS official who initiated

it was not sufficiently highly placed in the IRS strata to

lawfully launch a church tax inquiry. The letter authoriz-

ing the inquiry was signed by the director of the Exempt

Organizations Division. The IRS defended that letter, not-

ing that, in the words of the court, the director position

is “one step higher” than the position addressed in the

litigation. The lawyers for the organization insisted that

that position also was not sufficiently highly placed to

satisfy the statutory requirements.

Rather than pursue the matter further, the IRS issued

summonses to eight banks. The court ruled that third-

party summonses are governed solely by IRC § 7609,

even when the summons is issued in connection with a

church tax inquiry.

The question thus lingers: Is the IRS following the

proposed regulation, without any effort to issue it in

final form? The court opinion is silent on the existence

of the proposed regulation. [27.7(c)] ◆

TANGLED WEBS WOVEN

WITH CRT

The IRS ruled that a trust cannot be respected as a

qualified charitable remainder unitrust because it did not

function as a CRUT, that it is nonetheless a split-interest

trust, and thus that excise taxes will arise if there is a cer-

tain distribution of trust assets to a disqualified person or

if the trust terminates in accordance with a court order

(Priv. Ltr. Rul. 201714002).

Facts

Individual A had a large net worth, primarily in low-

basis, non-dividend-paying stocks. A and B engaged C

for financial and estate-planning advice. C recommended

retention of D, a lawyer reputed to be knowledgeable in

the realm of the law of charitable giving. C and D ultimately

advised A to create a CRUT. A did so, with A and B as the

trustees and X as the charitable remainder beneficiary.

A funded the CRUT with certain of his stocks, on the

advice of C and D that the CRUT could subsequently

sell the stock without incurring capital gain taxes. A

claimed a charitable deduction for this transfer. C and

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Address for Editorial Correspondence: Bruce R. Hopkins. email: brucerhopkins@brucerhopkinslaw.com

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