Monday December 11, 2023
Private Letter Ruling
Charitable Contribution Qualifies as Unusual Grant
Charity is a public charity and was named as a beneficiary of Trust. Charity has received partial distributions from Trust and expects to receive additional disbursements annually for a specified number of years. The funds from Trust will be used by Charity for the study, analysis and management of specified subjects. The grantors of Trust are a third party who have not previously supported Charity. The grantors are a disinterested party, do not directly or indirectly exercise control over Charity and do not have any connection to Charity, any organizations related to Charity or any organizations that govern Charity. Charity's receipt of this distribution would adversely affect its public charity status.
To qualify as a public charity, an organization must pass the one-third public support test. If an organization fails this 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 Reg. 1.170A-9(f)(6)(ii) and Reg. 1.509(a)-3(c)(4). In Reg. 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 in size and (3) would, by reason of its size, adversely affect the organization's publicly supported status. Regulation 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 determined that the grant is from a disinterested party who met the requirements of Reg 1.170A-9(f)(6)(ii) and Reg. 1.509(a)-3(c)(4). Thus, the charitable contribution qualifies as an unusual grant and will not impact Charity's public status.
We have considered your * * * request for recognition of an unusual grant under Treasury Regulation 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 Treas. Reg. Section 1.170A-9(Q(6)(ii) and related provisions of the regulations. The basis for our conclusion is set forth below.
You have been named as a beneficiary of B trust, in which you first received c dollars of disbursements in year D of the estimated e dollar s expected. You will receive approximately c dollars annually over approximately a * * *-year period. The money will be used for: 1) The study, analysis, and management of * * *, mechanical, and organic, and/or 2) The study, analysis, and management of * * *, and/or 3) The study, analysis, and/or management of the interaction between * * * and * * *.
The grantors of trust B, F, do not exercise control over you, or within, you. You have no prior relationship with F. None of your officers or directors have any relationship with F. This is your first interaction with B and F, and this is your first contribution from B.
Two sections of the Treasury Regulations set forth the criteria for an unusual grant. They are:
Treasury Regulation Section 1.170A-9(f)(6)(ii)
This section states that, for purposes of applying the 2% limitation to determine whether the 33 1/3% of-support test is satisfied or the 10% support limitation is met, 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.
Treasury Regulation Section 1.509(a)-3(c)(4)
This section 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 Internal Revenue Code (IRC) 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.
e. was in a relationship described in IRC 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 bullets a through 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 earned 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 Treas. Reg. Section 1.509(a)-3(a)(2) without the benefit of any exclusions of unusual grants pursuant to Treas. Reg. Section 1.509-3(c)(3);
- Whether the organization has a representative governing body as described in in Treas. Reg. Section 1.509(a)-3(d)(3)(i); and
- Whether 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.
Application of Law
The grant meets the requirements of Treasury Regulations 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
- If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how to notify us.
- If you agree with our deletions, you don't need to take any further action.
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements