Text of the rulings: PLR 201239011 [PDF 549 KB]; PLR 201240036 [PDF 325 KB].
In each of the two rulings (which are substantially identical), the organization previously had failed the public support test and had become a private foundation as a result. Subsequently, the organization obtained an IRS ruling that it could terminate its private foundation status by operating as a publicly supported organization described in section 509(a)(2) for a 60-month period.
The organization planned to expand its operations, and needed additional funding for new facilities.
An individual who was (1) the organization’s incorporator, (2) initial agent for service of process, and (3) a substantial contributor since the organization’s formation, pledged to provide sufficient funding for the new facilities. The organization’s chairman and president was the individual’s spouse, and the organization’s executive director was the individual’s daughter.
The individual’s pledge was contingent on the organization raising sufficient additional funds to complete construction. The pledge was also contingent on the organization obtaining a favorable IRS ruling that the contribution would be excluded from the public support test as an unusual grant, so that it would not jeopardize the organization’s section 509(a)(2) status and would allow the individual to deduct the contribution to the extent of 50% of his contribution base.
The IRS ruled that the individual’s contribution would not be an unusual grant under the applicable regulations because:
- The individual had made multiple large contributions to the organization.
- The purpose of the contribution was to support the construction of a facility, which is the same purpose for which the initial contributions from the individual were used.
- Including this contribution, the overwhelming majority of the organization’s total support since inception would have come from the individual.
- The individual’s spouse and daughter are the organization’s president and executive director, respectively.
- The organization, since its inception, had not always attracted a significant amount of public support.
- The contribution was not attracted by reason of the publicly supported nature of the organization, but rather by the historical relationship with the individual, who was a disqualified person with respect to the organization.
- The contribution was not unusual or unexpected with respect to the amount, based on the individual’s contributions since the organization’s inception.
- The contribution was contingent on the organization raising sufficient additional funds to complete construction, and on a favorable IRS ruling that the contribution would be an unusual grant.
The IRS noted that, while any initial grant could be considered unusual and/or unexpected, subsequent grants from the same individual are logically more usual and more expected.
For more information, contact:
Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax)
+1 (202) 533-3084