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Exempt Organizations

Exempt Organizations
November 2001

This last month has seen a number of developments in the exempt organization arena. While authoritative guidance in the form of regulations and revenue rulings is infrequent, there are several avenues for the issuance of informal guidance. Organizations and practitioners must often look to informal pronouncements for guidance on the possible tax treatment of current transactions.

Exclusive Provider Arrangements and UBIT

On August 14th, Thomas Miller, Acting Director, Exempt Organization Rulings & Agreements, issued a Field Memorandum discussing the taxability of exclusive provider arrangements. These are arrangements in which an exempt organization (often, a university) contracts with a vendor (e.g., a soft drink company) to be the exclusive provider of a product on campus. Since the issuance of proposed regulations on corporate sponsorship in 2000, the treatment of such arrangements has been uncertain. Do the payments received by the university in consideration of such exclusive provider arrangements automatically give rise to UBIT since they do not fall within the safe harbor for “qualified sponsorship payments?”

The Field Memorandum suggests that exclusive provider arrangements do not necessarily give rise to UBIT. Rather, such agreements may escape UBIT because they do not rise to the level of a trade or business. Alternatively, they may give rise to non-taxable royalty or rental income.

On a related issue, the memorandum explains that discounted rates for products negotiated as part of an exclusive provider arrangement should generally be treated as an adjustment to the purchase price, rather than as additional income.

IRS Continuing Professional Education Technical Instruction Program for 2002

The IRS has published its CPE text for 2002. These materials are designed for training purposes and cannot be cited as authority. However, they provide useful technical discussion of various topics as well as an indication of what the IRS position might be on certain issues.

The topics covered in the current text include the following:

  • Medical residents refund claims
  • Beauty pageants
  • Agency: Exempt organization and UBIT issues
  • Update on health care
  • IRC §501(c)(12) cooperatives
  • UBIT: Current Developments
  • Form 990
  • Election Year issues
  • Introduction to IRC §4958 (intermediate sanctions)

Reaction from practitioners to this year’s text has been favorable.

IRS Exempt Organization Implementing Guidelines for 2002

The Exempt Organization Implementing Guidelines describe the work plan for the upcoming year. The Implementing Guidelines identify three key areas of focus for the coming year:

  • Stabilizing the examination program by more clearly delineating examination and determination functions.
  • Enhancing the exempt organization division’s presence in the community through educational programs that will supplement examination activities.
  • Developing computer software to promote e-file products.

Disaster relief

The IRS has been very timely in issuing guidance in the aftermath of the September 11th tragedy. On September 17th, the IRS issued an advanced text of a special IRS publication entitled “Disaster Relief: providing assistance through charitable organizations.” The brochure provides guidance in several key areas:

  • Advice about using an existing charitable organization
  • Advice about establishing a new charitable organization
  • Guidance about how charitable organizations can help victims
  • Information about gifts and charitable contributions rules
  • Reference to other publications and sources of assistance

The brochure can be accessed through the IRS website at The website contains additional links to the numerous notices and publications that have been issued for individuals, businesses, and armed forces personnel. Additional publications that may be accessed via the website include:

  • Notices regarding relief from certain filing penalties
  • Quick refund procedures for those affected by the disaster
  • Tax information for donors and charities
  • List of new disaster relief organizations

Should you have any questions regarding the foregoing, please contact John Kikuchi at (925) 944-7666 or by email.

The information contained in this newsletter is general in nature and does not constitute tax advice or opinion. Applicability to specific situations should be determined through consultation with your tax advisor.

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