Every year, the Internal Revenue Service updates its list of topics on which it (1) won’t issue rulings, (2) will ordinarily not issue rulings, and (3) won’t issue rulings because the issue is under extensive study (Rev. Proc. 2018-3).
The items on this year’s list of particular interest to charities and their clients are:
Topics on Which IRS Won’t Rule
1. Internal Code Section 102—Gifts and Inheritances.
Whether a transfer is a gift within the meaning of IRC Section 102(a).
2. IRC Section 170—Charitable, etc., Contributions and Gifts.
Whether a charitable contribution deduction under IRC Section 170 is allowed for a transfer of an interest in a limited partnership or a limited liability company taxed as a partnership to an organization described in Section 170(c).
- Whether a taxpayer who advances funds to a charitable organization and receives a promissory note may deduct as contributions, in one taxable year or in each of several years, amounts forgiven by the taxpayer in each of several years by endorsement on the note.
- Whether an organization is or continues to be described in Section 170(b)(1)(A) (other than clause (v)) or Section 170(c)(2)–(5), including, for example, whether changes in an organization’s activities or operations will affect or jeopardize the organization’s status as an organization described in those sections. The Associate Chief Counsel will rule, however, on specific legal questions related to IRC Section 170(b)(1)(A) or 170(c) that aren’t otherwise described in this revenue procedure. See Rev. Proc. 2018–5 for the procedures in obtaining determination letters on public charity status under Section 170.
3. IRC Section 501—Exemption from Tax on Corporations, Certain Trusts, Etc. Whether an organization is or continues to be exempt from taxation under Section 501(a) as an organization described in Section 501(c) or 501(d), including, whether changes in an organization’s activities or operations will affect or jeopardize the organization’s exempt status. The ACC Tax Exempt & Government Entities Division (TEGE) will rule, however, on specific legal questions related to IRC Section 501(c) or 501(d) that aren’t otherwise described in the revenue procedure. For example, although the ACC (TEGE) wouldn’t rule on whether a change in an Section 501(c)(3) organization’s activities would jeopardize the organization’s exempt status, the ACC (TEGE) would (subject to the limitations described in the revenue procedure) rule on whether such new activities would further an exempt purpose described in Section 501(c)(3). See Rev. Proc. 2018–5 for the procedures for issuing determination letters on tax-exempt status under Section 501.
4. IRC Sections 501, 511, 512, 513 and 514—Exemption from Tax on Corporations, Certain Trusts, Etc.; Imposition of Tax on Unrelated Business Income of Charitable, Etc., Organizations; Unrelated Business Taxable Income; Unrelated Trade or Business; Unrelated Debt-Financed Income. Whether a joint venture between a tax-exempt organization and a for-profit organization affects an organization’s exempt status, furthers an exempt purpose or results in unrelated business income.
5. IRC Sections 507, 664, 4941 and 4945—Termination of Private Foundation Status; Charitable Remainder Trusts; Taxes on Self-Dealing; Taxes on Taxable Expenditures. Issues pertaining to the tax consequences of the termination of a charitable remainder trust (as defined in Section 664) before the end of the trust term as defined in the trust’s governing instrument in a transaction in which the trust beneficiaries receive their actuarial shares of the value of the trust assets.
6. IRC Section 509—Private Foundation Defined. Whether an organization is or continues to be described in Section 509(a) including, whether changes in an organization’s activities or operations will affect or jeopardize the organization’s status as a public charity described in Section 509(a)(1)–(4). The ACC (TEGE) will rule, however, on specific legal questions related to Section 509(a) that aren’t otherwise described in this revenue procedure. See Rev. Proc. 2018–5 for the procedures for obtaining determination letters on public charity status under Section 509.
7. IRC Sections 511, 512, 513, and 514—Imposition of Tax on Unrelated Business Income of Charitable, Etc., Organizations; Unrelated Business Taxable Income; Unrelated Trade or Business; Unrelated Debt-Financed Income. Whether unrelated business income tax issues arise when charitable lead trust assets are invested with charitable organizations.
8. IRC Section 641—Imposition of Tax. Whether the period of administration or settlement of an estate or a trust (other than a trust described in IRC Section 664) is reasonable or unduly prolonged.
9. IRC Section 642(c)—Deduction for Amounts Paid or Permanently Set Aside for a Charitable Purpose. Allowance of an unlimited deduction for amounts set aside by a trust or estate for charitable purposes when there’s a possibility that the corpus of the trust or estate may be invaded.
10. IRC Section 664—Charitable Remainder Trusts. Whether the settlement of a CRT on the termination of the noncharitable interest is made within a reasonable period of time.
11. IRC Section1001—Determination of Amount and Recognition of Gain or Loss. Whether the termination of a CRT before the end of the trust term as defined in the trust’s governing instrument, in a transaction in which the trust beneficiaries receive their actuarial shares of the value of the trust assets, is treated as a sale or other disposition by the beneficiaries of their interests in the trust.
12. IRC Section 1221—Capital Asset Defined. Whether the termination of a CRT before the end of the trust term as defined in the trust’s governing instrument, in a transaction in which the trust beneficiaries receive their actuarial shares of the value of the trust assets, is treated as a sale or exchange of a capital asset by the beneficiaries.
13. IRC Section 2031—Definition of Gross Estate. Actuarial factors for valuing interests in the prospective gross estate of a living person.
14. IRC Section 2055—Transfers for Public, Charitable and Religious Uses. Whether a charitable contribution deduction under Section 2055 is allowed for the transfer of an interest in an LP or LLC taxed as a partnership to an organization described in Section 2055(a).
15. Section 2512—Valuation of Gifts. Actuarial factors for valuing prospective or hypothetical gifts of a donor.
16. Section 2522—Charitable and Similar Gifts. Whether a charitable contribution deduction under Section 2522 is allowable for a transfer of an interest in an LP or LLC taxed as a partnership to an organization described in Section 2522(a).
Topics on Which IRS Ordinarily Won’t Rule:
1. Section 170—Charitable, Etc., Contributions and Gifts.
Whether a transfer to a pooled income fund described in Section 642(c)(5) qualifies for a charitable contribution deduction under Section170(f)(2)(A).
- Whether a transfer to a CRT described in Section 664 that provides for annuity or unitrust payments for one or two measuring lives qualifies for a charitable deduction under Section170(f)(2)(A).
- Whether a taxpayer who transfers property to a charitable organization and thereafter leases back all or a portion of the transferred property may deduct the fair market value of the property transferred and leased back as a charitable contribution.
2. Section 642—Special Rules for Credits and Deductions. Whether a pooled income fund satisfies the requirements described in Section 642(c)(5).
3. Section 664—Charitable Remainder Trusts.
- Whether a CRT that provides for annuity or unitrust payments for one or two measuring lives or for annuity or unitrust payments for a term of years satisfies the requirements described in Section 664.
- Whether a trust that will calculate the unitrust amount under Section 664(d)(3)—a net-income-with-makeup trust (NIM-CRUT)—qualifies as a Section 664 CRT when a grantor, a trustee, a beneficiary, or a person related or subordinate to a grantor, a trustee or a beneficiary can control the timing of the trust’s receipt of trust income from a partnership or a deferred annuity contract to take advantage of the difference between trust income under Section 643(b) and income for federal income tax purposes for the benefit of the unitrust recipient.
4. IRC Sections 2035, 2036, 2037, 2038 and 2042—Adjustments for Certain Gifts Made Within Three Years of Decedent’s Death; Transfers with Retained Life Estate; Transfers Taking Effect at Death; Revocable Transfers; Proceeds of Life Insurance. Whether trust assets are includible in a trust beneficiary’s gross estate under Sections 2035, 2036, 2037, 2038 or 2042 if the beneficiary sells property (including insurance policies) to the trust or dies within three years of selling such property to the trust, and (1) the beneficiary has a power to withdraw the trust property (or had such power prior to a release or modification, but retains other powers that would cause that person to be the owner if the person were the grantor), other than a power that would constitute a general power of appointment within the meaning of Section 2041, (2) the trust purchases the property with a note, and (3) the value of the assets with which the trust was funded by the grantor is nominal compared to the value of the property purchased.
5. IRC Section 2055—Transfers for Public, Charitable and Religious Uses.
- Whether a transfer to a pooled income fund described in Section 642(c)(5) qualifies for a charitable deduction under Section 2055(e)(2)(A).
- Whether a transfer to a CRT described in Section 664 that provides for annuity or unitrust payments for one or two measuring lives or a term of years qualifies for a charitable deduction under Section 2055(e)(2)(A).
6. IRC Section 2522—Charitable and Similar Gifts.
- Whether a transfer to a pooled income fund described in Section 642(c)(5) qualifies for a charitable deduction under Section 2522(c)(2)(A).
- Whether a transfer to a CRT described in Section 664 that provides for annuity or unitrust payments for one or two measuring lives or a term of years qualifies for a charitable deduction under Section 2522(c)(2)(A).
Lexicon Time
At this time, there aren’t issues of interest to charities that are “under extensive study.” What’s the difference between will “not ordinarily” rule and won’t rule because the issue is “under extensive study”?
IRS says “not ordinarily” means that unique and compelling reasons must be demonstrated to justify the issuance of a ruling or determination letter.
The category “temporarily not issuing” because “under extensive study” seems to offer more hope than “ordinarily” won’t rule. Still, being on the ordinarily won’t rule list is better than being on yet another list—IRS “will not” rule.
© Conrad Teitell 2018. This is not intended as legal, tax, financial or other advice. So check with your advisor on how the rules apply to you.
