upon the commerciality doctrine for determining that the organization was not operated exclusively in furtherance of an exempt purpose.
In a similar ruling, a nonprofit organization sought recognition of charitable tax‐exempt status for its proposed operation of a grocery store within an urban area USDA “food desert” that would provide residents with walkable access to affordable and nutritious foods to be sold at discount prices.111.8 These foods would otherwise be hard to obtain or overpriced for low‐income members of the community within reasonable walking distance. The organization would accept donated grocery items and would donate surplus groceries to other charities. The IRS nonetheless determined that the organization was not eligible for recognition of exemption because operation of a retail grocery store represents a substantial nonexempt purpose, and not a charitable purpose, and as a result, the IRS found it unnecessary to consider whether the additional purposes of alleviating conditions in a food desert is a charitable purpose.
NOTES
1 107.1 Priv. Ltr. Rul. 201710033.
2 107.2 Priv. Ltr. Rul. 201645017.
3 109.1 Priv. Ltr. Rul. 201743018.
4 111.1 Priv. Ltr. Rul. 201704018.
5 111.2 Priv. Ltr. Rul. 201814010.
6 111.3 Priv. Ltr. Rul. 201826015.
7 111.4 Priv. Ltr. Rul. 201835008.
8 111.5 Priv. Ltr. Rul. 201918019.
9 111.6 Priv. Ltr. Rul. 201925015.
10 111.7 Priv. Ltr. Rul. 202005021.
11 111.8 Priv. Ltr. Rul. 202015021.
CHAPTER FOUR Private Inurement, Private Benefit, and Excess Benefit Transactions
§ 4.4 Private Inurement—Scope and Types (j) Provision of Healthcare Services to One Individual or Family (k) Business Referral Operations (l) Still Other Forms of Inurement
§ 4.6 Essence of Private Benefit
§ 4.9 Excess Benefit Transactions (a) General Rules
§ 4.4 PRIVATE INUREMENT—SCOPE AND TYPES
p. 104. Insert following carryover paragraph, before heading:
(j) Provision of Healthcare Services to One Individual or Family
Organizations will be denied recognition of tax exemption as charitable entities, on the grounds of private inurement, if healthcare services are provided to only one individual or family. For example, an organization was denied exempt status because a substantial portion of its funds was to be used to pay for the medical and rehabilitative care of an individual who was related to each of the trustees of the organization.197.1 A nonprofit organization established to negotiate, receive funds, organize, and manage support for three special‐needs children of a family was denied recognition of exemption.197.2 A trust was held ineligible for exemption as a charitable entity because its function was to pay a family's medical expenses in the aftermath of an automobile accident.197.3 An organization formed to benefit children with special medical needs failed to qualify for exemption where it was operated for the benefit of one individual.197.4 An organization formed for the benefit of a specific child with autism, with the child's parents as its sole officers, failed to qualify for exemption.197.5 Another entity, raising funds for the benefit of orphaned children of one family, was denied recognition of exemption, even though they are needy and not related to the board members, because the recipients of the financial assistance are “preselected.”197.6
(k) Business Referral Operations
A nonprofit organization may seek recognition of exemption, usually as an educational entity, where, although it provides some educational benefits, its principal purpose is to serve as a means for generating business opportunities for its insiders. For example, an organization represented to the IRS that its educational activity was the conduct of workshops to provide first‐time homebuyers with information to help them achieve home ownership in an informed manner. In fact, the entity was operated by a team consisting of two real estate agents, a mortgage banker, an insurance agent, and a lawyer. Fees were not charged for the workshops; the operation was funded by the team members. Finding the organization to be a “medium to enrich the private businesses” of its insiders, the IRS found private inurement as the consequence of client referrals to the insiders’ private business ventures.197.7
Likewise, an organization providing services for foreclosure mitigation was found by the IRS to be a “conduit” linking potential customers to its founders in the nature of a “consulting referral service.”197.8
(l) Still Other Forms of Inurement
Promotion of the career advancement of an individual (an insider) within a nonprofit entity was ruled by the IRS to be a form of private inurement; an entity seeking classification as a charitable and religious organization was supporting the candidacy of its pastor for the position of a bishop of a church and denied recognition of exemption on this basis.197.9
§ 4.6 ESSENCE OF PRIVATE BENEFIT
