Dissolving foundation's asset transfer qualifies as an unusual grant

Plain-English summary

A publicly supported charity serving injured special-operations veterans asked whether it could exclude a large transfer from its public-support calculation as an unusual grant. A dissolving foundation planned to transfer its remaining assets to the charity, and the transfer was large enough to threaten the charity's public-support status if counted normally. The IRS approved unusual-grant treatment because the parties' earlier relationship was limited, the charity had independent board members, the assets would further its exempt programs, and it expected to continue attracting public support. The IRS also treated the one-time dissolution transfer as similar to a bequest because the foundation would cease to exist and could not make future grants. No material restrictions or conditions would accompany the transfer.

Ruling snapshot

• Question: May the charity exclude the dissolving foundation's asset transfer as an unusual grant when applying the public-support tests?
• Outcome: Approved, the transfer qualifies as an unusual grant.
• Key authorities: Treas. Reg. §§ 1.170A-9(f)(6)(ii), 1.509(a)-3(c)(4), and 1.507-2(a)(7)

Full text (IRS public release)

Scanned document; transcription proofread from IRS OCR. Obvious scan misreads were corrected; wording is otherwise verbatim, and redacted identifiers appear as the IRS released them.

Internal Revenue Service Department of the Treasury
P. O. Box 2508
Cincinnati, OH 45201

Date: March 12, 2019
Employer Identification Number:

Number: 201923027 Person to Contact - ID#:
Release Date: 6/7/2019

Contact Telephone Numbers:

LEGEND: UIL:
B = foundation 509.02-01
c dollars = amount

Dear

We have considered your request, dated February 2018, 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 Treas. Reg. Section 1.170A-9(f)(6)(ii) and related provisions of the
regulations. The basis for our conclusion is set forth below.

Facts:

As part of your activities you provide injured, special operations combat veterans with outdoor
recreational programs in part to encourage and foster rehabilitation, recovery and transition. In
learning of your programs, B agreed to allow you use of their property to further your exempt
purposes. While doing so, B has also made the decision to dissolve, and as an organization
exempt under Section 501(c)(3) of the Internal Revenue Code must distribute its assets to
another qualified organization. B wishes to distribute its remaining assets to you as a step in its
dissolution process.

The amount of B’s distribution would total in the c dollars range and would substantially alter
your public charity calculations. As a result, it would adversely affect your public charity status.
While you have had the prior relationship of B allowing you use of its land it was not substantial
enough to be considered part of your support; support to date has come primarily from the
general public. Additionally, while you and B share board members, you have other
independent members, allowing for decision making to be made without conflict.

The contribution itself would technically be inter vivos due to the nature of B dissolving.
However, it is viewed more as a bequest due to the finality of B - there would be no concerns
over future grants as B would cease to exist. Finally, as this is a contribution on the dissolution
of B, no material restrictions or conditions would be placed on the grant.

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.

Letter 4787 (2-2012)
Catalog Number 58230Y

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) of the Code

d. directly or indirectly exercised control over the organization, or

e. was in a relationship described in Sections 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 Treas. Reg. Section

Letter 4787 (2-2012)
Catalog Number 58230Y


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 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:
Based on the information provided, the proposed 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 contribution is made by an individual with no ability to exercise control over you
and has never been a substantial contributor. The contributor has never held a
position of authority with respect to you nor have they ever directly or indirectly had
control over the functions of you.

• The transfer of the assets will further your exempt purpose and be used to fund your
programs in the future.

• You carry on a program to solicit funds to support your activities and reasonably
expect to attract public support after this transfer.

• The contribution is viewed as a bequest.

• No material restrictions or conditions within the meaning of Treas. Reg. Section
1.507-2(a)(7) have been imposed by the donor.

For all the foregoing reasons, the grant should be characterized as an unusual grant within the
meaning of Treas. Reg. Section 1.509(a)-3(c)(4).

We have sent a copy of this letter to your representative as indicated in your power of attorney.

Letter 4787 (2-2012)
Catalog Number 58230Y


If you have any questions, please contact the person listed in the heading of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4787 (2-2012)
Catalog Number 58230Y