employer or designed to relieve the employer of a legal obligation for employee benefits.”
(v) Private Letter Rulings. The IRS has issued private letter rulings on this topic. In one of the first, the IRS ruled that a private foundation providing financial assistance to victims or families of victims of a natural disaster, violence, or terrorist acts of war; victims of discrimination, social injustice, or persecution; and artists was making qualifying distributions as long as the assistance was confined to “impoverished individuals with desperate financial needs.”50.7
In another instance, an emergency assistance program was maintained by a system of health care institutions to provide grants and/or loans to current and former employees of the system and their families and those of system affiliates. Beneficiaries of the program were confined to individuals who were needy and suffered economic hardship due to accident, loss, or disaster; the pool of eligible grantees numbered approximately 5,000 individuals. A committee administered the program, which entailed an emergency assistance fund; there were a formal application process, objective criteria, committee review procedures, limits on allowable assistance, and elaborate recordkeeping practices. The IRS ruled that operation of this fund would not adversely affect the tax‐exempt status of the institutions in the system, holding that the class of eligible beneficiaries was “sufficiently large and open‐ended to constitute a charitable class,” observing that support for the fund would be derived only from employee contributions and gifts from the public.50.8
The IRS ruled that a financial assistance program was not a charitable undertaking because a substantial portion of the charitable class to be aided consisted of employees of a related for‐profit corporation, thus causing unwarranted private benefit and self‐dealing involving the private foundation that would be conducting the program.50.9
§ 7.4 PROVISION OF HOUSING
p. 149, note 97. Insert following existing text:
The IRS denied recognition of exemption to an organization formed to help homeowners struggling with mortgage debt in part because the entity did not confine its assistance to low‐income individuals (Priv. Ltr. Rul. 201921019).
§ 7.6 PROMOTION OF HEALTH
(a) Hospital Law in General
p. 151, second complete paragraph. Insert as last sentence:
Also, to qualify for exemption, a nonprofit hospital must have hospital care, or medical education or medical research, as its “principal purpose or function.”116.1
(b) Additional Statutory Requirements for Hospitals
p. 153, note 130. Delete text and insert:
IRC § 501(r), added by § 9007(a) of the Patient Protection and Affordable Care Act (as to this subsection, the Act) (Pub. L. No. 111‐148, 124 Stat. 119 (2010)). The Act established the individual mandate, a requirement to maintain health insurance, accompanied by a tax penalty imposed on individuals who (unless exempted) failed to maintain the coverage (IRC § 5000A(a), (b)). This penalty, the shared responsibility payment, was reduced to zero effective January 1, 2019 (Tax Cuts and Jobs Act (Pub. L. No. 115‐97, 131 Stat. 2054 (2017) (TCJA))). The constitutionality of the Act is based on Congress's power to tax (Nat'l Fed'n of Independent Businesses v. Sebelius, 567 U.S. 519 (2012)). A federal district court held that the Act, as modified by the TCJA, is unconstitutional, because the individual mandate is now unconstitutional and the mandate is inseverable from the Act's remaining provisions (Texas et al. v. United States, 336 F. Supp. 3d 664 (N.D. Tex. 2018) (on appeal)). If this holding is upheld, IRC § 501(r) would be repealed.
§ 7.8 ADVANCEMENT OF EDUCATION
p. 177. Insert as first complete paragraph:
Although accreditation of educational institutions is a charitable activity, a similar function with respect to individuals—certification—is not. The IRS is of the view that the primary purpose of a program of certification of individuals is to benefit the profession or other field involved and the individuals in their private capacity, with any charitable, educational, or similar “public” benefit (e.g., consumer education and protection) secondary. Thus, an organization that was recognized by the IRS as a charitable and educational entity, then merged with another organization and became primarily a certification entity, had its exemption revoked.321.1 Likewise, an organization that was recognized as a charitable entity, then implemented a program of certification of individuals and businesses in the travel industry, was deprived of its exemption because the program made “them more attractive to eco‐friendly consumers.”131.2 The IRS ruled that an organization, primarily engaged in the certification of its members' conduct of an organic farming method, could not qualify as an exempt charitable entity because the certification service provided a “substantial benefit” to its members and enables them to “gain[] a benefit over other similarly situated commercial entities.”131.3 If a certification program is not a charitable organization's primary function, it may be classified as an unrelated business.321.4 Certification programs are, however, suitable exempt activities for business leagues.321.5
§ 7.14 FUNDRAISING ORGANIZATIONS
(c) Other Exemption Issues
p. 196. Insert as second complete paragraph, before heading:
In recent years, the IRS has occasionally drifted away from these general principles.497.1 That is, the agency may ignore the fundraising aspects of a particular case and focus instead on the nature of the underlying activity, finding that the activity is not an exempt function. For example, the tax‐exempt status of an organization, formed to raise money for charitable purposes by holding motorcycle rallies and making grants to charities, was revoked on the ground that the activities conducted by this entity are “primarily social in nature.”497.2 This case should have been resolved by application of the commensurate test.497.3
§ 7.15 INSTRUMENTALITIES OF GOVERNMENT
p. 200. Insert as first complete paragraph, before heading:
A governmental entity may have a dual tax‐exempt status; that is, it may be recognized as a “conventional” tax‐exempt organization527.1 as well as a governmental body. Usually, in this circumstance, the IRS will take the position that the entity must comply with the applicable law associated with the conventional exempt status, such as a government
