The Law of Tax-Exempt Healthcare Organizations 2017 Cumulative Supplement, Fourth Edition + website

CHAPTER THIRTY‐THREEGovernance

1. § 33.4A IRS Ruling Policy

p. 900. Insert following carryover paragraph, before heading:

§ 33.4A IRS Ruling Policy

Two categories of IRS private letter rulings principally constitute the basis for the policy of the IRS as to nonprofit governance. One category of these rulings concludes that the existence of a “small” board of an otherwise tax‐exempt organization is inherently providing a form of private benefit. The other category of these rulings holds that a board of an exempt organization dominated by related individuals is likewise inherently providing a form of private benefit. (Often these two elements are combined in a single ruling because of the existence of small boards dominated by or often consisting wholly of related individuals.)

A third, smaller, category of these rulings consists of findings by the IRS that a public charity is not entitled to tax‐exempt status because it refused to adopt a particular policy, such as a conflict‐of‐interest policy or an executive compensation policy. The IRS has stopped issuing rulings of the third type, presumably on the ground that to continue to do so would be blatantly inconsistent with the views of IRS officials as expressed in other contexts, such as the requirements inherent in the process for securing recognition of tax exemption, which clearly do not include adoption of certain policies.

In the first of the private letter rulings in the first category, issued in 2007, the IRS observed that ...