IRS treats a large alumnus gift to a fraternity-linked charity as an "unusual grant" that won't sink its public-support status

Plain-English summary

A publicly supported charity has to keep getting enough small, broad-based donations to pass the "public support" test; one huge gift can distort that math and jeopardize its status. The tax rules let such a gift be treated as an "unusual grant" and pulled out of both sides of the support fraction, so it does not count against the organization. Here a charity associated with a fraternity expected a large, multi-year gift (paid in five annual installments, plus matching contributions) from an alumnus who did not create the organization, had not been a substantial past donor, and had no control over it. The IRS concluded the gift qualifies as an unusual grant under Treas. Reg. § 1.170A-9(f)(6)(ii) and § 1.509(a)-3(c)(4), because it came from a disinterested party, was attracted by the organization's publicly supported nature, was unusually large, and would otherwise hurt its public-support standing. The practical effect: the charity can accept the sizable gift without failing the public-support test and losing its favorable classification.

Ruling snapshot

• Question: May a large multi-year gift from a disinterested alumnus be excluded from the public-support computation as an "unusual grant"?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 1.170A-9(f)(6)(ii), 1.509(a)-3(c)(4); IRC § 4946

Full text (IRS public release)

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

Number: 202039020
Release Date: 9/25/2020

Date: June 29, 2020
Employer Identification Number:

Person to Contact - ID#:

Contact Telephone Numbers:

LEGEND:                                        UIL:

C = individual                                 509.02-01
D = name
E = year
F = fund name
G = year
y dollars = amount 1
z dollars = amount 2

Dear

We have considered your December 30, 2019 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 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:

You will receive a grant from C, an alumnus member of the D fraternity with which you are
associated. C is not one of your creators, has not previously contributed a substantial part of
your support or endowment, or stands in any position of authority within respect to you. Neither
C, nor any person standing in a relationship to C, has any control over you.

You are asking for approval of an unusual grant in the amount of z dollars. You have entered
into an agreement with C on the specifics of the grant. The grant was not expected and is
unusual when compared to the size of donations you normally receive. The funds are to be
used for:

• major repair projects to chapter houses

• promotion and preservation of D

• promotion of the Greek fraternity system in the context of undergraduate educational
• preservation of the central office staff at the national chapter of D

• emergency or urgent circumstances

Letter 4787 (2-2012)
Catalog Number 58230Y

C has agreed to a total gift of z dollars, to be paid in five annual installments commencing on E.
The proceeds of the initial gift should be placed in a separate special fund to be known as F.
Disbursements from F shall be made only in accordance with the other provisions of the
agreement.

C has also agreed to make additional contributions to match future gifts you may receive. The
matching gift, or portions thereof, will be contributed to you between now and G as certain
gifting thresholds are met. You will give C a quarterly report of its receipt of matching gifts
meeting the requirements of the agreement. For each y dollars received, C will provide
matching funds.

C’s grants were attracted by reason of your publicly supported nature. The proposed
contribution is certainly unusual and unexpected with respect to the amount thereof. The
proposed contribution, by reason of its size, would adversely affect your public support status
for the applicable period.

Law:
Treasury Regulations 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 Internal Revenue Code Section

4946(b)

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.

Letter 4787 (2-2012)
Catalog Number 58230Y

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
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:
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 because you are publicly supported,
• The grant was unusual or unexpected with respect to the amount and size, and
• 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:

a) The grant was not made by a person who created or contributed a substantial
amount of funds to you. The grantor does not stand in a position of authority or
exercise control over you.

b) The grant is in the form of cash.

Letter 4787 (2-2012)
Catalog Number 58230Y

c) You have carried on an actual program of public solicitation, have exempt activities,
and have attracted a significant amount of public support over the years.
d) You have met the public support test in past years.
e) It can be assumed you will be able to maintain a level of public support in the future.
We have sent a copy of this letter to your representative as indicated in your power of attorney.

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

Sincerely,

Director, Exempt Organizations
Rulings and Agreements

Letter 4787 (2-2012)
Catalog Number 58230Y