202034007: A large unexpected bequest counts as an "unusual grant," so it won't cost a public charity its public-support status

Plain-English summary

A public charity (one that qualifies under IRC §§ 509(a)(1) and 170(b)(1)(A)(vi)) received an unexpected all-cash bequest from a decedent's estate. The gift was so large it threatened the charity's status as an organization that is "normally" supported by the general public, because a single big donation can swamp the one-third public-support math. The charity asked the IRS to treat the bequest as an "unusual grant," which lets it be left out of both the top and bottom of the public-support fraction. The IRS agreed. It found the donor had no prior connection to or control over the charity, the gift was an unrestricted bequest, and the funds will advance the charity's programs and a quasi-endowment. Because the gift fits Treas. Reg. §§ 1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(4), it is excluded from the support test, and the charity keeps its public-charity classification.

Ruling snapshot

• Question: Does an unexpected, unrestricted cash bequest qualify as an "unusual grant" that can be excluded from the public-support test?
• Outcome: Approved (grant characterized as an unusual grant)
• Key authorities: Treas. Reg. §§ 1.170A-9(f)(6)(ii), 1.509(a)-3(c)(4); IRC §§ 509(a)(1), 170(b)(1)(A)(vi)

Full text (IRS public release)

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

Number: 202034007
Release Date: 8/21/2020

Date: May 28, 2020
Employer Identification Number:

Person to Contact - ID#:

Contact Telephone Number:

LEGEND: UIL: 509.02-01
B = Name
x dollars = Amount

Dear

We have considered your August 5, 2019 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 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 a public charity under IRC Sections 509(a)(1) and 170(b)(1)(A)(vi).

You recently received notification that, pursuant to the Estate of B, you are to receive an all-
cash bequest totaling x dollars, with no restrictions as to its use. This bequest was unexpected
and will adversely affect your public charity status because of the amount.

You intend to use a portion of the funds to expand your mission outreach through the
establishment of pilot chapters and an expansion of services to health professionals practicing
and programming for

responding to a crisis in their community. Your programming is
being created in collaboration with thought leaders on trauma counseling and to ensure that
the introduction of a or trauma supports the necessary work led
by a mental health professional. This expansion work is a multi-year plan. A portion of the funds
received will also be used to create a quasi-endowment that will play a part in sustaining your
ability to continue to expand your outreach in future years.

The donor had no prior affiliation with you and did not create you. Neither did B during their life,
nor their Trust upon their passing, previously contribute a substantial amount to you.

Letter 4787 (2-2012)
Catalog Number 58230Y

Furthermore, B did not stand in a position of authority with respect to you and exercised no
control over you. None of your directors or officers are/were affiliated with B.

Law:

Treasury Regulation 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 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 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

Letter 4787 (2-2012)
Catalog Number 58230Y

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 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 Treas. Reg. Section 1.170A-9(f)(6)(ii). The size and
method of contribution is unusual compared to your typical level of support. 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).

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