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Thursday December 9, 2021

Private Letter Ruling

Cash Contribution Constitutes Unusual Grant

GiftLaw Note:
Charity is a public charity under Sec. 509(a)(2) and actively soliciting contributions from the public through its seminars, websites and word of mouth. In the past, Charity had been the recipient of small grants from various sources. Charity will receive a cash grant from an individual that is out of the ordinary in relation to the donations that it normally receives. The cash grant would enable Charity to significantly surpass its annual budget. The donor does not have any connection or authority in relation to Charity. As a condition for receiving the grant, Charity must use the grant funds for purposes of printing and promoting religious publications in accordance with its bylaws.

To qualify as a public charity, an organization must receive at least one-third of its support from the general public. If an organization fails this public support 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). Under 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 with respect to the amount and (3) would, by reason of its size, adversely affect the organization's status of being publicly supported. 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 be disregarded for purposes of the public support test.
PLR 202144032 Cash Contribution Constitutes Unusual Grant

11/5/2021 (8/10/2021)

Dear * * *:

We have considered your October 1, 2020, 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 are tax exempt under IRC Section 501(c)(3). You're currently classified as a public charity described in IRC Section 509(a)(2).

You will receive a grant from C in the amount of B, which is unusual in relation to the donations you normally receive and significantly surpasses your annual budget. This grant was not expected in that you were unaware of the opportunity to apply for the grant. If you are awarded the grant, it will be a cash grant. C is not in a position of authority over you and C is not one of your creators. As a condition for receiving the grant, you must use the grant from C for purposes of printing and promoting religious publications in accordance with your bylaws.

You are actively soliciting contributions from the public through your seminars, websites and word of mouth. In the past, you have been the recipients of small grants from various sources.

Law


Treas. Reg. Sections 1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(4) set forth the criteria for an unusual grant.

Treas. Reg. 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.
Treas. Reg. Section 1.509(a)-3(c)(4) states that all pertinent facts and circumstances will be taken into consideration to determine whether a particular contribution may be excluded. No single factor will necessarily be determinative. Such factors may include:
  • 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


The grant meets the requirements of Treas. Reg. Section 1.170A-9(f)(6)(ii) because the grant is from a disinterested party, and:
  • The grant was attracted by reason of your publicly supported nature
  • The grant is unusual or unexpected with respect to the amount
  • The grant will adversely affect your status as normally being publicly supported
The grant meets the requirements of Treas. Reg. Section 1.509(a)-3(c)(4) based on the following facts and circumstances.
  • The grantors are a disinterested party in that:
  • a. C did not create you
    b. C has not previously contributed a substantial part of your support or
    endowment
    c. C does not stand in a position of authority with respect to you
  • You have carried on an actual program of public solicitation and exempt activities and have received a significant amount of public support.
  • You expect to attract a significant amount of public support after the grant donation.
  • No material restrictions or conditions within the meaning of Treas. Reg. Section 1.507- 2(a)(7) have been imposed by the transferor upon the transferee in connection with such transfer.
For all the forgoing reasons, the grant should be characterized as an unusual grant within the meaning of Treas. Reg. Section 1.509(a)-3(c)(4).

If you have questions, you can contact the person shown at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Published November 12, 2021


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