The Law of Tax-Exempt Organizations, 2021 Cumulative Supplement. Bruce R. Hopkins
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to an organization formed to help homeowners struggling with mortgage debt in part because the entity did not confine its assistance to low‐income individuals (Priv. Ltr. Rul. 201921019).
§ 7.6 PROMOTION OF HEALTH
(a) Hospital Law in General
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Also, to qualify for exemption, a nonprofit hospital must have hospital care, or medical education or medical research, as its “principal purpose or function.”116.1
(b) Additional Statutory Requirements for Hospitals
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IRC § 501(r), added by § 9007(a) of the Patient Protection and Affordable Care Act (as to this subsection, the Act) (Pub. L. No. 111‐148, 124 Stat. 119 (2010)). The Act established the individual mandate, a requirement to maintain health insurance, accompanied by a tax penalty imposed on individuals who (unless exempted) failed to maintain the coverage (IRC § 5000A(a), (b)). This penalty, the shared responsibility payment, was reduced to zero effective January 1, 2019 (Tax Cuts and Jobs Act (Pub. L. No. 115‐97, 131 Stat. 2054 (2017) (TCJA))). The constitutionality of the Act is based on Congress's power to tax (Nat'l Fed'n of Independent Businesses v. Sebelius, 567 U.S. 519 (2012)). A federal district court held that the Act, as modified by the TCJA, is unconstitutional, because the individual mandate is now unconstitutional and the mandate is inseverable from the Act's remaining provisions (Texas et al. v. United States, 336 F. Supp. 3d 664 (N.D. Tex. 2018) (on appeal)). If this holding is upheld, IRC § 501(r) would be repealed.
§ 7.8 ADVANCEMENT OF EDUCATION
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Although accreditation of educational institutions is a charitable activity, a similar function with respect to individuals—certification—is not. The IRS is of the view that the primary purpose of a program of certification of individuals is to benefit the profession or other field involved and the individuals in their private capacity, with any charitable, educational, or similar “public” benefit (e.g., consumer education and protection) secondary. Thus, an organization that was recognized by the IRS as a charitable and educational entity, then merged with another organization and became primarily a certification entity, had its exemption revoked.321.1 Likewise, an organization that was recognized as a charitable entity, then implemented a program of certification of individuals and businesses in the travel industry, was deprived of its exemption because the program made “them more attractive to eco‐friendly consumers.”131.2 The IRS ruled that an organization, primarily engaged in the certification of its members' conduct of an organic farming method, could not qualify as an exempt charitable entity because the certification service provided a “substantial benefit” to its members and enables them to “gain[] a benefit over other similarly situated commercial entities.”131.3 If a certification program is not a charitable organization's primary function, it may be classified as an unrelated business.321.4 Certification programs are, however, suitable exempt activities for business leagues.321.5
§ 7.14 FUNDRAISING ORGANIZATIONS
(c) Other Exemption Issues
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In recent years, the IRS has occasionally drifted away from these general principles.497.1 That is, the agency may ignore the fundraising aspects of a particular case and focus instead on the nature of the underlying activity, finding that the activity is not an exempt function. For example, the tax‐exempt status of an organization, formed to raise money for charitable purposes by holding motorcycle rallies and making grants to charities, was revoked on the ground that the activities conducted by this entity are “primarily social in nature.”497.2 This case should have been resolved by application of the commensurate test.497.3
§ 7.15 INSTRUMENTALITIES OF GOVERNMENT
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A governmental entity may have a dual tax‐exempt status; that is, it may be recognized as a “conventional” tax‐exempt organization527.1 as well as a governmental body. Usually, in this circumstance, the IRS will take the position that the entity must comply with the applicable law associated with the conventional exempt status, such as a government hospital's (with dual status) obligation to adhere to the special rules for exempt hospitals527.2 and a state college or university's (with dual status) liability for the excise tax on excess compensation.527.3
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§ 7.17 QUALIFIED OPPORTUNITY ZONES
Qualified opportunity zones are designed to spur economic development and job creation in distressed communities throughout the nation and U.S. possessions by providing tax benefits to investors who invest capital into these communities. Taxpayers may defer tax on eligible capital gains by making an appropriate investment in a Qualified Opportunity Fund and meeting other requirements.572
A qualified opportunity zone is a population census tract that is a low‐income community that is designated as such a zone.573 The requisite designation occurs when the chief executive officer of the state in which the tract is located nominates the tract for the designation and the IRS certifies the nomination and designates the tract as an opportunity zone.574
Two principal tax incentives encourage investment in qualified opportunity zones. Deferral of inclusion in gross income for certain gains is provided to the extent the corresponding amounts are invested in a qualified opportunity fund.575 There is an exclusion from gross income of the post‐acquisition gains on investments in these funds that are held for at least 10 years.576
A qualified opportunity fund is an investment vehicle that is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property that holds at least 90 percent of its assets in qualified opportunity zone property.577 Qualified opportunity zone property is property that is qualified opportunity zone stock, a qualified opportunity zone partnership interest, or qualified opportunity