Bruce R. Hopkins - The Law of Tax-Exempt Organizations, 2021 Cumulative Supplement

A related organization's assets and net investment income are generally taken into account, for purposes of calculation of the excise tax, in determining whether an institution is an applicable educational institution and in computing the net investment income of an educational institution. If an organization is a related organization with respect to an institution under more than one of these definitions, the rule that attributes the largest amount of assets and net investment income to the institution must be applied. 108.24

There are three exceptions to this attribution rule, one being the above‐referenced rule that assets that are used directly in carrying out the institution's exempt purpose are not part of the excise tax base. In determining the attributions, assets and net investment income of a related organization are not taken into account with respect to more than one educational institution; there is to be an allocation between or among the institutions. 108.25 Unless a related organization is controlled by the educational institution or is a supporting organization with respect to the institution, assets and net investment income of a related organization that are not intended or available for the use or benefit of the institution are not taken into account by the institution. 108.26

1 96.1 National Philanthropic Trust, 13th Annual Report on Donor‐Advised Funds (Nov. 12, 2019).

2 96.2 In general, Hopkins, Donor‐Advised Funds: Law and Policy (Pittsburgh, PA: Dorrance Pub. Co., 2020).

3 105.1 IRC § 4968(b)(2).

4 108.1 T.D. 9917 (Sep. 18, 2020).

5 108.2 Reg. § 53.4968‐1(b)(2).

6 108.3 Id.

7 108.4 Reg. § 53.4968‐1(b)(3).

8 108.5 Reg. § 53.4968‐1(b)(4).

9 108.6 Reg. § 53.4968‐1(b)(5).

10 108.7 Reg. § 53.4968‐1(b)(5)(iv).

11 108.8 Reg. § 53.4968‐2(a). See supra note 104.

12 108.9 Reg. § 53.4968‐2(b)(1).

13 108.10 Reg. § 53.4968‐2(b)(2).

14 108.11 Reg. § 53.4968‐2(d).

15 108.12 IRC § 4968(d)(2); Reg. § 53.4968‐3(a)(1).

16 108.13 Reg. § 53.4968‐3(a)(2).

17 108.14 Id.

18 108.15 Id.

19 108.16 See §§ 29.7, 30.6.

20 108.17 Reg. § 53.4968‐3(b)(1)‐(3).

21 108.18 Reg. § 53.4968‐3(b)(1).

22 108.19 Reg. § 53.4968‐3(b)(2)(i).

23 108.20 Reg. § 53.4968‐3(b)(3).

24 108.21 Reg. § 53.4968‐3(b)(2)(ii)(A).

25 108.22 Reg. § 53.4968‐3(b)(2)(iii).

26 108.23 Reg. § 53.4968‐3(a)(3).

27 108.24 Reg. § 53.4968‐3(d)(1).

28 108.25 IRC § 4968(d)(1)(A); Reg. § 53.4968‐3(d)(2)(i).

29 108.26 IRC § 4968(d)(1)(B); Reg. § 4968‐3(d)(2)(ii).

§ 12.1 Federal Tax Law Definition of Private Foundation (a) Private Foundation Defined

§ 12.3 Categories of Public Charities(b) Publicly Supported Charities (c) Supporting Organizations

§ 12.4 Private Foundation Rules(f) Other Provisions

p. 286, note 7. Insert before last period:

; Rev. Proc. 2020‐5, 2020‐1 I.R.B. 241, § 7.03.

p. 300. Insert as second complete paragraph:

A tax‐exempt charitable organization with more than one unrelated business may aggregate its net income and net losses from all unrelated business activities for purposes of determining whether the organization is publicly supported under these rules. 155.1 That is, the bucketing rule 155.2 does not apply in this context. Nonetheless, organizations have the option of determining public support using their unrelated business taxable income calculated under the bucketing rule or in the aggregate.

p. 304. Insert as second complete paragraph:

A tax‐exempt charitable organization with more than one unrelated business may aggregate its net income and net losses from all unrelated business activities for purposes of determining whether the organization is publicly supported under these rules. 185.1 That is, the bucketing rule 185.2 does not apply in this context. Nonetheless, organizations have the option of determining public support using their unrelated business taxable income calculated under the bucketing rule or in the aggregate.

p. 302, note 167. Delete last sentence and insert:

Illustrations of organizations satisfying these requirements are the subject of Priv. Ltr. Ruls. 201936002, 201936003, and 201307008.

p. 305, note 193, first line. Insert following second period:

Supported organizations are the subject of IRC § 509(f)(3).

p. 309, note 234, first paragraph. Insert as last sentence:

An illustration of a situation where a tax‐exempt business league should have placed its substantial charitable and educational activities in a separate organization, such as a supporting organization, is provided in Priv. Ltr. Rul. 202017035.

p. 309, note 234, fourth paragraph, last line. Delete citation and insert:

F. Supp. 3d 949 (W.D. Wis. 2017).

p. 309, note 234, fourth paragraph. Insert as last sentences:

In a subsequent decision, this court held that the trustees of the supporting organization repeatedly breached fiduciary duties to the supported organization, to the end that the fees and costs owed to the supported organization must be paid by the trustees of the supporting organization personally, a trustee must be removed, and an institutional trustee selected (Cohen v. Minneapolis Jewish Fed'n, 346 F. Supp. 3d 1274 (W.D. Wis. 2018)). These decisions were affirmed, with the appellate court writing that “[w]e do not think it necessary to add to the district court's explanation of these decisions, all of which are either compelled by law (including the law of contracts and the Internal Revenue Code) or within the scope of remedial discretion allowed to a court by Wisconsin's law of trusts” (Cohen v. Minneapolis Jewish Fed'n, 776 Fed. Appx. 912, 913 (7th Cir. 2019)).

p. 321, last paragraph. Delete first sentence, including footnote, and insert:

Private foundations have, for decades, generally been subject to an annual excise tax of 2 percent on their net investment income, which could be reduced to 1 percent under certain circumstances; for tax years beginning after December 20, 2019, this tax is imposed at a rate of 1.39 percent. 362

1 155.1 Reg. § 1.170A‐9(f)(7)(v).

2 155.2 See § 25.5.

3 185.1 Reg. § 1.509(a)‐3(a)(3)(i), (4).

4 185.2 See § 25.5.

5 362 IRC § 4940. This law change was occasioned by enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 § 206; this act is Division Q of the Further Consolidated Appropriations act, 2020 (Pub. L. No. 116‐94).

§ 13.1 Concept of Social Welfare (b) Benefits to Members

§ 13.3 Conduct of Business

p. 326, first complete paragraph. Insert as last sentence:

Organizations that primarily engage in gaming activities cannot qualify as exempt social welfare entities. 11.1

p. 330, carryover paragraph. Insert as last sentence: