Public Charities' Affiliation Again Sets Tax Law Trap

Public Charities' Affiliation Again Sets Tax Law Trap The IRS granted a tax‐exempt charitable organization an extension of time to revoke its election of the expenditure test (IRC § 501(h)), thereby enabling it to sidestep tax penalties and perhaps loss of exemption (Priv. Ltr. Rul. 201804005).Three public charities operate to promote health; they are X (formerly known as Y), V, and W. V formally affiliated with Y. As part of that process, Z, an organization of which V is the sole member, became the sole member of Y. Y then changed its name to X.Prior to its affiliation with Y, V retained a “professional services firm” to perform due diligence on the operations and financial state of Y. Y had made the lobbying election. The matter of Y's revocation of the election in advance of the affiliation was not, during this due diligence effort, raised. A few weeks after the affiliation, it was discovered that the lobbying election had been made many years beforehand by Y. Forms 990 filed by Y reference this election.Given the amount of the lobbying expenses by V and its affiliates, and the potential risk to X in being viewed as affiliated with V, W, and other affiliates, X immediately consulted with its tax law advisors to assist in preparation of a request to the IRS for discretionary relief (Reg. § 301.9100). The above ruling is the result. Presumably, Y will timely file the revocation, to eliminate the possibility of an affiliated group and the attendant adverse tax law consequences. [22.3(d)(viii)]Commentary: This outcome has been reported at least once before. See the discussion of Priv. Ltr. Rul. 201239012 in the November 2012 issue. The lesson is that anytime there is an affiliation of public charities this matter of the lobbying election should be on the due diligence checklist. As noted, the fact of the election is referenced in the Form 990. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Bruce R Hopkins' Nonprofit Counsel Wiley

Public Charities' Affiliation Again Sets Tax Law Trap

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Publisher
Wiley
Copyright
Copyright © 2018 Wiley Periodicals, Inc., A Wiley Company
ISSN
1542-8419
eISSN
1542-8427
D.O.I.
10.1002/npc.30452
Publisher site
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Abstract

The IRS granted a tax‐exempt charitable organization an extension of time to revoke its election of the expenditure test (IRC § 501(h)), thereby enabling it to sidestep tax penalties and perhaps loss of exemption (Priv. Ltr. Rul. 201804005).Three public charities operate to promote health; they are X (formerly known as Y), V, and W. V formally affiliated with Y. As part of that process, Z, an organization of which V is the sole member, became the sole member of Y. Y then changed its name to X.Prior to its affiliation with Y, V retained a “professional services firm” to perform due diligence on the operations and financial state of Y. Y had made the lobbying election. The matter of Y's revocation of the election in advance of the affiliation was not, during this due diligence effort, raised. A few weeks after the affiliation, it was discovered that the lobbying election had been made many years beforehand by Y. Forms 990 filed by Y reference this election.Given the amount of the lobbying expenses by V and its affiliates, and the potential risk to X in being viewed as affiliated with V, W, and other affiliates, X immediately consulted with its tax law advisors to assist in preparation of a request to the IRS for discretionary relief (Reg. § 301.9100). The above ruling is the result. Presumably, Y will timely file the revocation, to eliminate the possibility of an affiliated group and the attendant adverse tax law consequences. [22.3(d)(viii)]Commentary: This outcome has been reported at least once before. See the discussion of Priv. Ltr. Rul. 201239012 in the November 2012 issue. The lesson is that anytime there is an affiliation of public charities this matter of the lobbying election should be on the due diligence checklist. As noted, the fact of the election is referenced in the Form 990.

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Bruce R Hopkins' Nonprofit CounselWiley

Published: Jan 1, 2018

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