Large construction grant recognized as an unusual grant

Plain-English summary

A publicly supported charity expected a large, unexpected cash grant from a grantor with no prior connection to the organization. The charity planned to use the installments for a playground, basketball court, fencing, and a dugout field. Because counting the grant would jeopardize the charity's public-support status, it requested unusual-grant treatment. The IRS approved the request based on the grantor's independence, the grant's size and unexpected nature, the charity's prior public support and ongoing fundraising, the exempt use of the funds, and the absence of donor control or material restrictions.

Ruling snapshot

• Question: May the charity exclude a large construction grant as an unusual grant when computing its public-support percentage?
• Outcome: Approved
• Key authorities: IRC §§ 170, 501(c)(3), 509, and 4946; Treas. Reg. §§ 1.170A-9(f)(6)(ii), 1.509(a)-3(c)(4), and 1.507-2(a)(7)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 03/06/2025
Tax Exempt and Government Entities Employer ID number:
P.O. Box 2508
Cincinnati, OH 45201 Person to contact:
Name:
ID number:
Telephone:

Release number: 202522008
Release Date: 5/30/2025

LEGEND UIL: 509.02-01
B = Grantor
x dollars = grant amount
y dollars = grant amount

Dear :

We have considered your March 19, 2024 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 are tax exempt under Internal Revenue Code Section 501(c)(3). You are currently classified as a public
charity under IRC sections 509(a)(1) and 170(b)(1)(A)(vi). You expect to receive a grant from B in an amount
between x dollars and y dollars. The grant will be cash payable to you in several installments during the
progress of your construction projects. Upon the receipt of the grant from B, your status as a publicly supported
organization will be jeopardized.

There is no prior connection between you and B, because B has never provided funds that would constitute any
significant portion of your annual public support, or stood in a position of authority with regard to you, or any
person related to such person within the meaning of Internal Revenue Code section 4946(a)(1)(C) through 4946
(a)(1)(G). After the completion of the grant, no one affiliated with B will directly or indirectly exercise control
over your organization. You will have ultimate responsibility for the proper management and administration of
the funds from the grant, and you plan to use the funds to; (i) construct a new playground, (ii) construct a new
basketball court, (iii) build the fencing surrounding the basketball court, (iv) construct a new dugout field.

Your mission is to provide environmental protection, and construct parks and recreational places in your local
community. Your fundings generally come from small community grants, several different local foundations,
and fundraising events through annual dinner, basketball tournaments, video horse racing, and a corporate
signage at the park. In the past, you have 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). In addition, you are actively soliciting contributions from the general public and reasonably expect to attract
a significant amount of public support after this particular grant is received. You will continue to raise funds

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

from the public through donations and fundraising events.

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.

• 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

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

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 was attracted by reason of the publicly supported nature of your organization.

• The grant is unusual or unexpected with respect to the amount.

• The grant would by reason of its size adversely affects your organization 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 grant is not being made by a person who created you.

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

• B does not directly or indirectly exercise control over you nor is in a relationship described in IRC
  Section 4946(a)(1)(C) through 4946(a)(1)(G)

• The transfer of 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

• No material restrictions or conditions within the meaning of Treas. Reg. Section 1.507-2(a)(7) have
  been imposed by the donor

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.

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

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

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