A large one-time grant to a community nonprofit is treated as an "unusual grant" that will not cost it public-charity status

Plain-English summary

A nonprofit that maintains parkland and runs community programs for residents of a large affordable-housing project asked the IRS to treat a big incoming grant as an "unusual grant." To keep public-charity status, an organization has to show it draws broad public support (the 33-1/3% support test), and one very large gift from a single source can skew that math and knock the organization out of publicly supported status. The unusual-grant rule lets such a gift be left out of the support calculation if it comes from a disinterested donor, is unexpectedly large, and would otherwise jeopardize that status. Here the money came from an outside investor connected to the refinancing of the housing project, a party that never created or controlled the nonprofit; the funds will pay for the organization's exempt programs; and the organization already meets the public-support test on its own and keeps soliciting the general public. The IRS concluded the grant is an unusual grant, so it is excluded from both parts of the support fraction and the organization stays publicly supported. The ruling turns on the specific facts and does not change the organization's exempt purpose or activities.

Ruling snapshot

• Question: Does a large one-time grant to a community nonprofit qualify as an "unusual grant" that is 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), 4946

Full text (IRS public release)

Department of the Treasury                              Date:
Internal Revenue Service                                07/08/2024
IRS Tax Exempt and Government Entities                  Employer ID number:

                                                        Person to contact:

Release Number: 202440013
Release Date: 10/04/2024

LEGEND

B = Name                                                UIL: 509.02-01
C = Location
D = Name
E = Name
F = Agency
q dollars = Amount

Dear

We have considered your 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 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 discussed below.

Facts:

You were formed to own and maintain for public access and enjoyment, parkland and to operate and maintain
community-based programs for the education and improvement of residents of B, one of the largest affordable
housing projects in C. Your mission has been to provide programs for the benefit of B residents and the
surrounding areas known collectively as D.

Several years ago, B was sold to a joint venture which has E as an affiliate. After this investment, you
assembled a new board which represents the community in order to have a greater impact on the area. You also
hired a new executive director with extensive experience in providing education, youth development and
supportive services to youth, families as well as has multiple advance degrees. Further you have since
broadened your mission to empower individuals to tap into their highest potential through collaboration,
supportive services, and an unwavering commitment to growth. In addition, you are dedicated to a long-term
investment in the needs and future aspirations of those you serve. To align with this mission, you have created
multiple programs and are focused on creating paths for economic opportunity through education and career
readiness and awareness.

Recently as a result of the refinancing of B, F required E to invest q dollars in D. It was then determined that the
most efficient use of these funds was to make the grant to you so you could provide services immediately to D

Letter 4787 (Rev. 11-2021)
Catalog Number 58230Y

while also building long term programs for D. The grant will be paid in three installments over three years.

You explained:

* Neither E nor any of its members, managers or officers have created or established any endowments on your
behalf and there are no affiliations with you on any professional level; and

* You have consistently attracted sufficient public support to meet the 33 1/3 percent test without the benefit of
any exclusions of unusual grants pursuant to Treas. Reg. Section 1.509-3(c)(3). In addition, you are actively
soliciting contributions from the general public and are launching a robust program of public solicitation that
you expect will result in attracting public support.

The grant substantially exceeds any funding you have received and comes at a time when you are beginning to
offer a variety of new programs for the benefit of your local community and represents a truly transformative
opportunity. However, upon receipt of the grant from E, your status as a publicly supported organization will be
jeopardized.

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

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 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 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.

Letter 4787 (Rev. 11-2021)
Catalog Number 58230Y

* 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.

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 is unusual or unexpected with respect to the amount.
* The grant would by reason of its size adversely affect you as normally being publicly
supported.

The grant also meets the requirements of Treas. Reg. Section 1.509(a)-3(c)(4) based on the following facts and
circumstances:

* The grant is not being made by a person who created you.

* E has not previously contributed a substantial part or endowment to you and has not stood in a position of
authority such as a foundation manager within the meaning of IRC Section 4946(b).

* E does not directly or indirectly exercise control over you, nor has been in a relationship described in IRC
Section 4946(a)(1)(C) through 4946(a)(1)(G).

* The transfer of cash 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.

* No material restrictions or conditions within the meaning of Treas. Reg. Section 1.507-2(a)(7) have been
imposed by E, 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'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 - Rulings, 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.

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

Letter 4787 (Rev. 11-2021)
Catalog Number 58230Y

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

Enclosures:
Redacted Letter 4787
Letter 437

Letter 4787 (Rev. 11-2021)
Catalog Number 58230Y