◆A nonprofit organization has as its primary activity the operation of a “banquet center” that is rented to the public for fees. It is used for events such as weddings, luncheons, parties, and business events. Catering services are also available. Advertising of the facility is accomplished by means of a website. The IRS, not surprisingly, ruled that these operations do not accomplish charitable purposes (Priv. Ltr. Rul. 201803009). What is surprising is that although the IRS discussed the commerciality doctrine in its law summary, it did not apply the doctrine as the sole basis for its analysis. Instead, the IRS focused on the fact that the operation of the banquet center is an unrelated business—a violation of the operational test. This ruling does note that the center is open to the public during regular business hours, and it uses its rental income to pay for the cost of sales, upkeep of the facility, employment of staff, and the making of interest payments on debt. (Yes, this property is debt‐financed.) These are activities, the IRS noted, that are “normally carried on by for‐profit businesses.” But this ruling offers a glimmer of hope: fact situations like this one can be analyzed
Bruce R Hopkins' Nonprofit Counsel – Wiley
Published: Jan 1, 2018
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