IRS treats a large trust distribution to a public charity as an "unusual grant" that will not upset its public-support status

Plain-English summary

A publicly supported charity must normally show that a large share of its funding comes from broad public support rather than a few big donors. A single very large gift can distort that math and threaten the charity's public-charity status. To prevent that, the rules let certain large, unexpected gifts from disinterested parties be treated as "unusual grants," which are set aside from the public-support calculation. Here the organization was named as a beneficiary of a trust and expected to receive substantial distributions over a period of years to fund its study and management activities. It asked the IRS to treat the trust distribution as an unusual grant. The IRS reviewed the facts, including that the trust's grantors did not control the organization and had no prior relationship with it or its officers, and concluded the distribution qualifies as an unusual grant under Treas. Reg. § 1.170A-9(f)(6)(ii). The grant was attracted by the organization's publicly supported nature, was unusual in amount, and would otherwise hurt its public-support status. The practical effect is that the organization can accept the large trust money without losing its status as a publicly supported charity.

Ruling snapshot

• Question: Does a large distribution to the organization from a trust qualify as an "unusual grant" excluded from the public-support calculation?
• Outcome: Approved (the distribution is an unusual grant)
• Key authorities: Treas. Reg. § 1.170A-9(f)(6)(ii); § 1.509(a)-3(c)(4); IRC § 509; § 4946

Full text (IRS public release)

Department of the Treasury                              Date: 06/13/2022
Internal Revenue Service
Tax Exempt and Government Entities                      Employer ID number:
PO Box 2508

Cincinnati, OH 45201

                                                        Person to contact:

                                                        Name:
                                                        ID number:
Release Number: 202235013                               Telephone:
Release Date: 9/2/2022

LEGEND                                                  UIL: 509.02-01
B = Trust
c dollars = $
D = Tax Year
e dollars = $
F = Family

Dear Applicant:

We have considered your request for recognition of an unusual grant under Treasury Regulation
Section 1.170A-9(f)(6)(i) 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 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 dollars 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.

Law:

Two sections of the Treasury Regulations set forth the criteria for an unusual grant. They are:

Letter 4787 (Rev. 10-2021)
Catalog Number 58230Y

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.

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 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 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.

Letter 4787 (Rev. 10-2021)
Catalog Number 58230Y

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

We'll make this determination letter available for public inspection after deleting personally identifiable information,
as required by IRC Section 6110. We've enclosed Letter 437, Notice of Intention to Disclose, and a copy of the
letter that shows our proposed deletions.

* 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.

If you have questions, please contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 437

Letter 4787 (Rev. 10-2021)
Catalog Number 58230Y