Private Letter Rulings - Cash Contribution Constitute Unusual Grant
GiftLaw Note:
Charity is a public charity that promotes the sport of X for all ages. The programs provided are specifically for underserved youth, veterans in wheelchairs and major events in the sport. Charity provides grants for youth players in need of financial assistance. Charity has a continuous program to solicit contributions from the general public. Charity is requesting advance approval of an unusual cash grant. The donor is a third party and does not have any connection to Charity, any organizations related to Charity or any organizations that govern the sport of X. Charity’s receipt of this distribution would adversely affect its public charity status.
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,” with no single factor as necessarily determinative. 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 satisfied the unusual grant requirements. Therefore, it is an unusual grant and will not be taken into account for purposes of the public support test.
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,” with no single factor as necessarily determinative. 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 satisfied the unusual grant requirements. Therefore, it is an unusual grant and will not be taken into account for purposes of the public support test.
12/27/2019 (10/2/2019)
Dear * * *:
We have considered your June 25, 2019, request 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 Section 1.170A-9(f)(6)(ii) and related provisions of the regulations. The basis for our conclusion is set forth below.
Facts
You were formed in the State of B on C. You are classified as a public charity under Sections 509(a)(1) and 170(b)(1)(A)(vi) of the Code. You were formed for the purpose of promoting the sport of D for youth, especially those in need of financial assistance. You have expanded your programs to include programs for all ages, including youth, and programs for veterans' wheelchair D programs, underserved youth, and major D events. You provide grants for youth players in need of financial assistance. You have a continuous program to solicit contributions from the general public.
You are asking for advance approval of an unusual grant in the amount of $x. The grant will come from E in the form of cash.
The grant request made to E was made by a third party without your knowledge. Neither the grant requestor nor E has any connection to you, any organizations related to you, nor to any of the D organizations that are the governing bodies for the sport of D. Further, the person who made the grant request to E has authority over decisions made by E.
Law
Treasury Regulations Sections 1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(4) set forth the criteria for an unusual grant.
Treasury Regulations 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:
- are attracted by reason of the publicly supported nature of the organization;
- are unusual or unexpected with respect to the amount thereof; and
- would, by reason of their size, adversely affect the status of the organization as normally being publicly supported.
- Whether the contribution was made by a person who
a. created the organization
b. previously contributed a substantial part of its support or endowment
c. stood in a position of authority with respect to the organization, such as a foundation manager within the meaning of Section 4946(b)
d. directly or indirectly exercised control over the organization, or
e. was in a relationship described in Internal Revenue Code Section 4946(a)(1)(C) through 4946(a)(1)(G) with someone listed in bullets a, b, c, or d above.
A contribution made by a person described in a. - e. is ordinarily given less favorable consideration than a contribution made by others not described above. - Whether the contribution was a bequest or an inter vivos transfer. A bequest will ordinarily be given more favorable consideration than an inter vivos transfer.
- Whether the contribution was in the form of cash, readily marketable securities, or assets which further the exempt purposes of the organization, such as a gift of a painting to a museum.
- Whether (except in the case of a new organization) prior to the receipt of the particular contribution, the organization (a) has carried on an actual program of public solicitation and exempt activities and (b) has been able to attract a significant amount of public support.
- Whether the organization may reasonably be expected to attract a significant amount of public support after the particular contribution. Continued reliance on unusual grants to fund an organization's current operating expenses (as opposed to providing new endowment funds) may be evidence that the organization cannot reasonably be expected to attract future public support.
- Whether, prior to the year in which the particular contribution was received, the organization met the one-third support test described in Section 1,509(a)-3(a)(2) without the benefit of any exclusions of unusual grants pursuant to Section 1.509-3(c)(3);
- Whether the organization has a representative governing body as described in Treasury Regulations Section 1,509(a)-3(d)(3)(i); and
- Whether material restrictions or conditions within the meaning of Treasury Regulations Section 1.507-2(a)(7) have been imposed by the transferor upon the transferee in connection with such transfer.
Application of Law
Based on the information provided, the grant meets the requirements of Treas. Reg. Section 1. 170A-9(f)(6)(ii) because the grant is from a disinterested party, and:
- was attracted by reason of the publicly supported nature of the organization;
- was unusual or unexpected with respect to the amount thereof; and
- would, by reason of their size, adversely affect the status of the organization as normally being publicly supported.
- The prospective grant is not originating from a person who has not created you, nor has any prior business, nor relationship;
- The prospective grant will be an inter vivos transfer;
- The prospective grant will be in the form of cash;
- You have a long history of carrying on programs of public solicitation and exempt activities, and you have been able to attract a significant amount of public support;
- You plan to continue to attract a significant amount of public support after the particular contribution, and in fact, to increase your public support;
- You have not prior applied for exclusions of unusual grants;
- You have a representative governing body as described in Treas. Reg. Section 1.509(a)-3(d)(3)(i); and
- No material restrictions or conditions within the meaning of Treasury Regulations Section 1.507-2(a)(7) have been imposed by the prospective grantor upon you, regarding the disposition of this grant.
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.
Sincerely,
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements