p. 79, carryover paragraph. Insert as penultimate sentence:
In an extraordinary application of the commerciality doctrine, a nonprofit organization formed to combat organized theft and fraud that supports opioid and heroin addiction, by utilizing innovative software in conjunction with retailers and law enforcement agencies, was denied recognition of exemption as a charitable entity, with the IRS invoking the doctrine by characterizing the organization as merely providing a “service for a fee to retail stores.”360.1 The better analysis would have been to recognize exemption as an entity promoting health360.2 and lessening the burdens of government,360.3 with services to retailers cast as a means to larger exempt ends.360.4
(h) Contemporary Perspective on Doctrine
p. 81, note 371, fifth line. Delete an orga‐.
p. 81, note 371, sixth line. Delete nization providing and insert a provider of.
p. 81, note 371, seventh line. Delete an organization in two instances.
p. 81, note 371, eighth line. Delete an organization.
p. 81, note 371, ninth line. Delete and an organization.
p. 81, note 371, tenth line. Insert following closing parenthesis:
operating a tavern (Priv. Ltr. Rul. 202016019), and operating a used car dealership (Priv. Ltr. Rul. 202031010).
p. 82, note 394. Delete 20.12 and insert 20.13.
p. 82, note 395. Insert following existing text:
In one instance, the IRS applied the commerciality doctrine, then also held that much of an organization's activities constituted unrelated business (Priv. Ltr. Rul. 201918019).
p. 82, note 396. Delete text and insert:
For example, the IRS denied recognition as an exempt charitable entity to an organization that operated a banquet center available for fees to the public, on the ground that it was operating an unrelated business (Priv. Ltr. Rul. 201803009), as was the case where the primary activity of an organization was the sale and rental of durable medical equipment (Priv. Ltr. Rul. 201925015) and where an organization provided business development and marketing and consulting services for a fee to various types of nonprofit organizations (Priv. Ltr. Rul. 201925017). In other cases, the IRS revoked exempt status because the organization was engaging in substantially nonexempt activities (Priv. Ltr. Ruls. 201929021, 201926016). In one instance, the IRS applied the commerciality doctrine, where use of the private benefit doctrine would have been more appropriate (Priv. Ltr. Rul. 201941029).
p. 82, note 397, last line. Delete and insert:
303 F. Supp. 3d 1065 (D. Colo. 2018).
Notes
1 330.1 Priv. Ltr. Rul. 201846007.
2 359.1 Priv. Ltr. Rul. 202020024.
3 359.2 Priv. Ltr. Rul. 202021025.
4 359.3 Priv. Ltr. Rul. 202039019.
5 359.4 Priv. Ltr. Rul. 202041009.
6 360.1 Priv. Ltr. Rul. 202021026.
7 360.2 See § 7.6.
8 360.3 See § 7.7.
9 360.4 See § 6.3(b).
CHAPTER FIVE Nonprofit Governance
§ 5.3 Board Duties and Responsibilities (a) Duty of Care (b) Duty of Loyalty (c) Duty of Obedience
§ 5.7 IRS and Governance (c) IRS Ruling Policy
§ 5.3 BOARD DUTIES AND RESPONSIBILITIES
p. 89, second complete paragraph, second line. Insert
p. 89, second complete paragraph. Insert as last sentence:
These standards mean that board members are expected to regard and treat the nonprofit organization's assets and other resources with the same care with which they treat their personal assets and resources.
p. 89. Delete note 17.
p. 89. Insert following second complete paragraph, before heading:
The duties of the board of directors of a nonprofit, tax‐exempt organization essentially are the duty of care, the duty of loyalty, and the duty of obedience. Defined by case law and perhaps state statutory law, these are the legal standards against which all actions taken or not taken by directors are measured. They are collective duties adhering to the entire board.
(a) Duty of Care
The duty of care requires that each of the directors of a tax‐exempt organization be reasonably informed about the organization's activities, participate in decision‐making, and act in good faith and with the care of an ordinarily prudent person in comparable circumstances.
This duty of care is satisfied by attendance at meetings of the board and appropriate committees; preparation for board meetings, such as reviewing reports and the agenda prior to meetings of the board; obtaining information, before voting, to make appropriate decisions; use of independent judgment; periodic examination of the credentials and performance of those who serve the organization; frequent review of the organization's finances
