Risks In Making Grants To Orgs Awaiting Tax Exemption

Law360, New York (September 30, 2014, 10:20 AM EDT) -- Private foundations sometimes make grants to charitable organizations that have applied for, but not yet received, recognition as tax-exempt, charitable (i.e., Section 501(c)(3)) organizations by the Internal Revenue Service. With long wait times for determinations of exemption, this practice is increasingly common. A recent IRS private letter ruling serves as a strong reminder that the failure to exercise expenditure responsibility with respect to any grant made during that time period may result in penalty taxes on the grantor foundation.

In IRS Private Letter Ruling 201351027 (the "PLR"), a private operating foundation made a grant to an organization in which the foundation...

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