In regard to Monday’s discussion titled “IRS Denies 501(c)(4) Status to Three Organizations Primarily Benefiting a Political Party,” Beth Kingsley of Harmon, Curran, Spielberg & Eisenberg LLP, Washington, has brought to my attention a 2003 denial letter that I should have included on Monday, so I’m reprinting it today. According to Beth, the 2003 denial letter is consistent with the latest denial letters.
PLRs, TAMs, and Denial Letters
EO Tax Journal 2011-118
Some interesting PLRs were released by the IRS last week. Today I’ll note the ones I found of most interest.
1 – IRS Denies 501(c)(4) Status to Three Organizations Primarily Benefiting a Political Party
2 – Three-Year Wait Rewarded in PLR 201128027
The IRS probably got it right in this private letter ruling (reprinted below), involving an ecumenical ministry that offers a broad range of social service programs to the poor and distressed or underprivileged, but lots of slippery slopes had to be scaled, at least in my opinion.
EO Tax Journal 2011-105
1 – More on Group Rulings
2 – PLR 201124024 — Right for All the Wrong Reasons?
EO Tax Journal 2011-88
Even though I have been ignoring them, practitioner complaints keep rolling in about the IRS’s Charities & Non-Profits homepage. I have my first report today on these developments titled, “Bobby, Please Come Back.”
With a number of readers expressing interest in the Driscoll and Freedom from Religion Foundation cases, mentioned yesterday, I’m reprinting Deirdre Dessingue’s synopsis of these two cases, which she prepared in connection with her April 29 presentation at Georgetown Law’s Representing & Managing Tax-Exempt Organizations program.
EO Tax Journal 2011-82
Recently-released PLR 201119036, reprinted below, deals with an organization planning on providing student housing. The IRS denial letter appears correct, but I find it interesting because it is the latest iteration of the IRS’s position regarding organizations providing student housing. And the IRS ruling position has, I believe, applicability beyond student housing and beyond universities, such as:
When is providing help to an exempt organization aiding its exempt mission and when is it a trade or business? When do you need a charitable class and when do you need to provide goods or services at below cost? When do you need control by a charitable organization, say, a university or hospital, and when can you be independent of such control? When does private benefit to vendors and service providers who are in control of an exempt organization outweigh the public benefit of their activities? Under what circumstances will a conflict of interest policy be ignored as a barrier to private benefit or inurement?
Obviously, we could have a daylong program on just these questions, and still not have any firm answers. That’s what makes EO tax law so fascinating and maddening. I’m also including my history of IRS pronouncements and case developments in this area. If anyone is aware of any other developments, please let me know.
Collegiate Housing Developments over the Years
EO Tax Journal 2011-66
1 – Old Business
2 – Good Ol’ Charlie Brown
3 – Excerpts from Denial Letter 201115026
4 – IRS’ Next Case?
EO Tax Journal 2011-63
1 – Old Business
2 – IRS Rules Noneducational Activities Outweigh Educational Activities
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1 – Old Business
As I expected, few huzzahs for my suggested legislative solutions to address the concerns of House Republicans about AARP. Most of my proposals have been made before by others (maybe not banning sponsoring NASCAR drivers). My intended point was that while House Republicans may not like what AARP is doing, AARP does not appear to be doing anything that is prohibited by current law. Rather than asking the IRS to investigate (see letter reprinted yesterday), the reality is that House Republicans should propose legislation if they are not happy with how AARP and similarly-situated organizations operate.
EO Tax Journal 2011-38
This week’s interesting private letter ruling is PLR 201108037, reprinted below. I find it interesting even though its outcome is so obvious that one has to wonder why the organization and its Power of Attorney representatives spent $10,000 to get the ruling. That’s one of my questions — why? And if I am correct that it is “so obvious,” why did it take the IRS over two years to rule? Or is that the time it now takes to get a PLR?
EO Tax Journal 2011-32
1 – More on “To Err Is Human, To Forgive Is Divine”
Alumni Hotels — Related or Not? Is the IRS Playing the Role of Norman Bates?
2 – Interesting Section 501(c)(6) Ruling
If I’m going to be critical of IRS rulings, I should also hand out bouquets. I’m not a (c)(6) expert (so tell me if I’m wrong), but I thought PLR 201105043, reprinted below, was well-done and the kind of thorough ruling that we should expect to see from the EO Division’s Rulings & Agreements office.
EO Tax Journal 2011-31
1 – How to “Elevate” When You Disagree with the IRS
Don’t forget to cc Lois and Nan.
2 – To Err Is Human, To Forgive Is Divine
Recently-released PLR 201106019 should be of interest to anyone active in the area of colleges and universities. The initial ruling, PLR 200625035, has been found to be in error and has been replaced by PLR 201106019.
3 – DAF Donors Beware
Background: Ray Styles made a $250,000 donation pursuant to a donor-advised fund agreement, only to find that his contribution had been commandeered by the DAF’s two sole directors and officers. For prior coverage, see Email Update 2010-114.
EO Tax Journal 2011-20
Today is catch-up day. Plus it’s the end of the month, time to clean off my desk. Could it be coincidental that there were no football games this past weekend? (The Pro Bowl — what one wag calls “the most pointless event in all of sports” — doesn’t count.) Tomorrow, unless we have another blast of snow, I’ll start sending out transcripts of the recent meeting of the EO Committee of the ABA’s Tax Section. I’ve already found the first two panels of interest — we even have a feisty Lois Lerner staring down the men. Stay tuned.
1 – Old Business
2 – More Old Business
3 – The Economist on Grassley and ECFA
4 – Another PACI Case?
5 – The Globalization of Philanthropy
6 – Potential Gift Tax Liability for Contributions to 501(c)(4)s
7 – IRS Denies Organization Seeking to Propagate the Genetic Integrity of Horses
EO Tax Journal 2010-129
1 – Is 501(c)(4) Status Being Abused?
2 – Revocation 201036031 — Private Benefit and Inurement Discussion
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1 – Is 501(c)(4) Status Being Abused?
The New York Times had an interesting article yesterday, “Interest-Group Spending Drives G.O.P. Lead in Ads,” about “an array of Republican-oriented organizations that are set up so that they can accept donations of unlimited size from individuals and corporations without having to disclose them.”
The article notes that one of the groups, Crossroads GPS, “is organized as a 501(c)(4) nonprofit, meaning it legally cannot devote more than half of its activities to politics, but it also means that it does not have to disclose its donors.” Also mentioned is Americans for Prosperity, “another 501(c)(4), which does not have to disclose its donors. Mr. Koch, who has mostly supported Republicans over the years, serves as the chairman of its sister-organization, Americans for Prosperity Foundation, which is much more limited in its political activities because it is set up as a 501(c)(3) nonprofit.”
As I noted yesterday, the less Lois Lerner and her folks do, the more they embolden those who would flout the prohibition on political campaign intervention.
Section 501(c)(4) organizations may engage in political activity, but not as their primary activity. I suspect many of the (c)(4)s being formed have few activities that are not political. Query for Lois, Rob, and Cindy: What’s being done in Cincinnati to make sure new (c)(4)s will be truly engaged in social welfare activities? Query for Lois, Rob, and Nan: Is anyone looking at existing (c)(4)s — those in the news — to make sure that they are truly engaged in social welfare activities?
I also suspect that many of these political (c)(4)s are operating in tandem with (c)(3)s so that donors can claim 170 deductions. Query for all of the above: Who is looking at these (c)(4)/(c)(3) combinations?
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2 – Revocation 201036031
In PLR 201036031, the IRS revoked an organization based in part on findings of private benefit and inurement. The facts are very detailed, but what I found of interest is the law and rationale portion of PLR 201036031. The IRS practically wrote a CPE article on what they consider the law of private benefit and inurement, with special emphasis on the much-maligned American Campaign Academy case. I’m setting out the IRS discussion in PLR 201036031 in case anyone is currently dealing with these issues — sort of a roadmap of the IRS’ views, and about all we now know about the IRS’ current thinking in this area.
EO Tax Journal 2010-116
1 – 38 Comments and More Coming? (Notice 2010-39)
2 – IRS’ Role in Overseeing Political Expenditures to Grow? (Washington Post article)
3 – Rare School Case? (Denial Letter 201033039)
EO Tax Journal 2010-114
1 – With friends like this, who needs enemies?
Friends of Fiji is no friend of Ray Styles, who made a $250,000 donation pursuant to a donor-advised fund agreement, only to find that his contribution had been commandeered by Friends of Fiji’s two sole directors and officers. Attorney Richard Fox has been battling on Styles’ behalf for a number of years. I am reprinting below Fox’s recent letter to the IRS seeking a review of Friends of Fiji’s tax-exempt status under section 501(c)(3) and liability under sections 4941 and 4945.
The Friends of Fiji scandal is not new news. Fox wrote about Friends of Fiji in a February 25, 2010 article for The Chronicle of Philanthropy. See “National Heritage Foundation Debacle Offers Lessons about Donor-Advised Funds.” In addition, Victoria Bjorklund mentioned Friends of Fiji in her April 6, 2009 remarks at Georgetown Law’s annual EO tax program. See transcript of “Charitable Giving Update,” EOTJ, vol. 14, no. 5, p. 50.
Based on the information set forth in Fox’s letter, it appears that Friends of Fiji no longer qualifies for tax-exempt status, and there is a real issue as to whether its two directors and officers, Gary Nerison and James Bickel, should be subject to self-dealing taxes under section 4941. Hopefully, the IRS’ Big Four for EO matters — Douglas Shulman, Steve Miller, Sarah Hall Ingram, and Lois Lerner — will give Nan Downing approval to initiate an overdue audit.
2 – What are we to make of Revocation 201032050?
I’ve been told that the IRS routinely approves applications from private medical practices as long as there is some educational activity. Why a private medical practice would want (c)(3) status has always been a mystery to me, but that’s a question for another day.
EO Tax Journal 2010-105
1 – It’s Back!
The ALI-ABA program on Tax Exempt Charitable Organizations is back, “after a short hiatus,” according to the promotional materials, and scheduled for October 21-22 in Washington, D.C. Co-chairs Joe Lundy and Suzie McDowell have clearly put a lot of effort into putting together an interesting and informative program, but I wonder about the size of the audience, in part because their program is similar to other EO programs currently being offered.
EO Tax Journal 2010-102
1 – Old, Old Business
2 – PLR 201028044
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While Gmail has been a great improvement over AOL, I’m still having trouble with what I call Gmail’s stacking. When I send out an email update, I may get five immediate responses, “stacked” on top of the email update that I just sent out. I of course read them. So far so good. But if a sixth response comes in a couple of days later, I have to notice that my “stack” has grown from five to six. Multiply this by numerous email updates and I have stacks all over the place, and not knowing which ones may contain a new response. As I suggested in the past, instead of hitting reply, if you start a new email to me, that will go to the head of the class and have its own separate entry. I know, that’s a pain. I once again give this long-winded explanation because I owe Professor Ellen Aprill of Loyola Law School an apology because I lost in a stack her response to an email update last month, and only recently came across it as I was doing a compilation of email updates for the print issue.
EO Tax Journal 2010-94
I know folks are starting to bail out for the 4th of July, so I’ll just leave you with some tidbits to ponder over the long weekend.
One reader sent along these salary figures from a recent article on the University of Texas audit:
Mack Brown, head football coach, $5.1 million
Francisco Cigarroa, chancellor of the University of Texas System, $750,000
Rick Perry, governor, $150,000
My comment: If Mack Brown wins most, if not all, of his football games, his salary will probably be worth it to the University of Texas in terms of generating football revenue and pride in the university. If he doesn’t, he’ll be fired, and someone else will be receiving his $5 million.
Another reader wanted to know whatever happened to the Free Fertility Foundation case. It appears Tax Court Judge Maurice Foley has been sitting on this case since the reply briefs were filed in March 2008 (see EOTJ, vol. 13, no. 2, pp. 116-133, and vol. 13, no. 3, pp. 137-143). Productivity has never been a hallmark of the Tax Court.
Denial 201025078
EO Tax Journal 2010-66
Tomorrow the ABA’s EO Committee meets for its annual Washington get-together, with invited IRS guests leading off the meeting. My friend Rielle, who works at the IRS, swears she overheard the following conversation between Lois Lerner and Judy Kindell.
Lerner: Judy, what do we say if someone asks us about the PACI report?
Kindell: We could say we lost it.
Lerner: That’s kind of lame.
Kindell: How about if we say it’s been classified.
Lerner: That kind of conflicts with my transparency speeches.
Kindell: I got it. Let’s say Jack has it.
Lerner: But Jack’s retired.
Kindell: Jack retired and he took it with him.
Lerner: That’s perfect: “Jack retired and he took it with him.”
On another topic, I’m not sure the IRS got it right in Denial 201017067, reprinted below, but there are some missing or not revealed facts. Clearly there is a private benefit to anyone who gets a scholarship from a section 501(c)(3) organization, but usually that is not fatal to exemption. What we don’t like are rigged or automatic scholarships, so to me the question in Denial 201017067 is whether we have such a situation.
EO Tax Journal 2010-46
A bit of this and that today. I expect to have a transcript of an interesting governance discussion that occurred last week featuring Fred Goldberg, Lois Lerner, and Suzanne McDowell if — and this is a big if — my transcriber — a big fan of Kentucky — can recover from Kentucky’s loss to West Virginia in the NCAA Men’s Basketball Tournament.
1 – Ten Tips for Deducting Charitable Contributions
2 – Six Important Facts about Tax-Exempt Organizations
3 – Grassley on New Hospital Provisions
4 – Providing Administrative Services Will Not Constitute Unrelated Trade or Business (PLR 201012052)
5 – Transfer of LLC Units to PF Will Not Constitute Self-Dealing or Recognition of Gain to Donors (PLR 201012050)
EO Tax Journal 2010-40
My bookshelf
I kind of skimmed Sarah Palin’s book, Going Rogue, so I shouldn’t comment on what I didn’t really read. From another source, I learned that Palin has ancestors from County Roscommon in Ireland. Well, my mother’s family goes back to County Roscommon, too. Who knows, I may be a distant cousin. If Palin becomes President, someone remind her of that. I’d like to be an ambassador, preferably to a country where the living is good and the toasts never end.
EO Tax Journal 2010-32
1 – IRS Revokes PLR 200709065
I shouldn’t criticize the IRS for getting PLR 200709065 wrong, since I’ve said they should rule within a reasonable period of time and, if they get it wrong, fix it later.
EO Tax Journal 201-23
Monday’s email update on excerpts from Sarah Hall Ingram’s Feb. 5 remarks has drawn comments.
Former EO Branch Chief Connie Rosenberg had this to say:
“I think Sarah’s answer to the question about Service failure to publish formal guidance was quite truthful, if you parse it out carefully. What she said, in effect, was: we can’t figure out how to get publications out because we, collectively, can’t figure out how to stop tripping over each other. As Winston Churchill once said (whenever I’m not sure who said something, I always cite Churchill, and I’m usually right): the way to begin is to begin. The way to stop tripping over each other is to stop tripping over each other. Set up a formal procedure for initiating and clearing a publication; follow that procedure; establish due dates for movement at each stage of the process; appoint a high-ranking management official to monitor the due dates and insist that they be met, and provide consequences for the bureaucrat who fails to meet them; be prepared to deal with the consequences of actually making a decision. Those things are the jobs of management. It ain’t rocket science now, any more than it was 25 years ago, but it does take some guts.”