Sunday June 16, 2019
Private Letter Ruling
Distributed Assets Constitute Unusual Grant
Charity is a public charity that provides injured, special operations combat veterans with outdoor recreational programs to encourage and foster rehabilitation, recovery and transition. B, an exempt organization under Sec. 501(c)(3), allows Charity to use its property to further its exempt purpose. B is now dissolving and, as such, must distribute its assets to another qualified organization. B wishes to distribute its assets to Charity without any restrictions, but Charity's receipt of this distribution would adversely affect its public charity status. To date, Charity has primarily received support from the general public, and B's prior support has not been considered substantial. Charity is requesting that the distribution from B be recognized as an unusual grant under Reg. 1.170A-9(f)(6)(ii) and related provisions.
To qualify as a public charity, an organization must pass the one-third public support test. If an organization fails this test, it must operate as a private foundation. A large contribution can threaten a charity's public status. However, a donation can be disregarded for the purposes of the public support test if it qualifies as an unusual grant by meeting the requirements of Sec. 1.170A-9(f)(6)(ii) and Sec. 1.509(a)-3(c)(4). In Sec. 1.170A-9(f)(6)(ii), a contribution can be excluded from the public support test if it is (1) attracted by reason of the publicly supported nature of the organization, (2) is unusual or unexpected in size and (3) would, by reason of its size, adversely affect the organization's publicly supported status. Section 1.509(a)-3(c)(4) lists additional factors to consider when determining whether a contribution is an "unusual grant." Many of these factors relate to the donor's relationship to the organization, the type of contribution made and the amount of public support that the charity has historically solicited and received. Here, the Service found the proposed distribution from B satisfies both tests. Therefore, it is an unusual grant and will not be taken into account for purposes of the public support test.
PLR 201923027 Distributed Assets Constitute Unusual Grant
Dear * * *:
We have considered your request, dated February 2018, for recognition of an unusual grant under Treasury Regulations Section 1.170A-9(f)(6)(ii) and related provisions.
Based on the information provided, we have concluded that the proposed grant constitutes an unusual grant under Treas. Reg. Section 1.170A-9(f)(6)(ii) and related provisions of the regulations. The basis for our conclusion is set forth below.
As part of your activities you provide injured, special operations combat veterans with outdoor recreational programs in part to encourage and foster rehabilitation, recovery and transition. In learning of your programs, B agreed to allow you use of their property to further your exempt purposes. While doing so, B has also made the decision to dissolve, and as an organization exempt under Section 501(c)(3) of the Internal Revenue Code must distribute its assets to another qualified organization. B wishes to distribute its remaining assets to you as a step in its dissolution process.
The amount of B's distribution would total in the c dollars range and would substantially alter your public charity calculations. As a result, it would adversely affect your public charity status. While you have had the prior relationship of B allowing you use of its land it was not substantial enough to be considered part of your support; support to date has come primarily from the general public. Additionally, while you and B share * * * board members, you have * * * other independent members, allowing for decision making to be made without conflict.
The contribution itself would technically be inter vivos due to the nature of B dissolving. However, it is viewed more as a bequest due to the finality of B there would be no concerns over future grants as B would cease to exist. Finally, as this is a contribution on the dissolution of B, no material restrictions or conditions would be placed on the grant.
Treas. Reg. Sections 1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(4) set forth the criteria for an unusual grant.
Treas. Reg. Section 1.170A-9(f)(6)(ii) states that, for purposes of applying the 2-percent limitation to determine whether the 33 1/3 percent-of-support test is satisfied, one or more contributions may be excluded from both the numerator and the denominator of the applicable percent-of-support fraction. The exclusion is generally intended to apply to substantial contributions or bequests from disinterested parties which:
Application of Law
Based on the information provided, the proposed grant meets the requirements of Treas. Reg. Section 1.170A-9(f)(6)(ii) because the grant is from a disinterested party, and:
We have sent a copy of this letter to your representative as indicated in your power of attorney.
If you have any questions, please contact the person listed in the heading of this letter.
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements
Published June 14, 2019