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does not apply in this context. Nonetheless, organizations have the option of determining public support using their unrelated business taxable income calculated under the bucketing rule or in the aggregate.

       p. 304. Insert as second complete paragraph:

A tax‐exempt charitable organization with more than one unrelated business may aggregate its net income and net losses from all unrelated business activities for purposes of determining whether the organization is publicly supported under these rules.^185.1 That is, the bucketing rule^185.2 does not apply in this context. Nonetheless, organizations have the option of determining public support using their unrelated business taxable income calculated under the bucketing rule or in the aggregate.

       p. 302, note 167. Delete last sentence and insert:

      Illustrations of organizations satisfying these requirements are the subject of Priv. Ltr. Ruls. 201936002, 201936003, and 201307008.

(c) Supporting Organizations

       p. 305, note 193, first line. Insert following second period:

      Supported organizations are the subject of IRC § 509(f)(3).

       p. 309, note 234, first paragraph. Insert as last sentence:

      An illustration of a situation where a tax‐exempt business league should have placed its substantial charitable and educational activities in a separate organization, such as a supporting organization, is provided in Priv. Ltr. Rul. 202017035.

       p. 309, note 234, fourth paragraph, last line. Delete citation and insert:

      F. Supp. 3d 949 (W.D. Wis. 2017).

       p. 309, note 234, fourth paragraph. Insert as last sentences:

      In a subsequent decision, this court held that the trustees of the supporting organization repeatedly breached fiduciary duties to the supported organization, to the end that the fees and costs owed to the supported organization must be paid by the trustees of the supporting organization personally, a trustee must be removed, and an institutional trustee selected (Cohen v. Minneapolis Jewish Fed'n, 346 F. Supp. 3d 1274 (W.D. Wis. 2018)). These decisions were affirmed, with the appellate court writing that “[w]e do not think it necessary to add to the district court's explanation of these decisions, all of which are either compelled by law (including the law of contracts and the Internal Revenue Code) or within the scope of remedial discretion allowed to a court by Wisconsin's law of trusts” (Cohen v. Minneapolis Jewish Fed'n, 776 Fed. Appx. 912, 913 (7th Cir. 2019)).

§ 12.4 PRIVATE FOUNDATION RULES

      (f) Other Provisions

       p. 321, last paragraph. Delete first sentence, including footnote, and insert:

Private foundations have, for decades, generally been subject to an annual excise tax of 2 percent on their net investment income, which could be reduced to 1 percent under certain circumstances; for tax years beginning after December 20, 2019, this tax is imposed at a rate of 1.39 percent.³⁶²

Notes

      1 ^155.1 Reg. § 1.170A‐9(f)(7)(v).

      2 ^155.2 See § 25.5.

      3 ^185.1 Reg. § 1.509(a)‐3(a)(3)(i), (4).

      4 ^185.2 See § 25.5.

      5 ³⁶² IRC § 4940. This law change was occasioned by enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 § 206; this act is Division Q of the Further Consolidated Appropriations act, 2020 (Pub. L. No. 116‐94).

CHAPTER THIRTEEN Social Welfare Organizations

        § 13.1 Concept of Social Welfare (b) Benefits to Members

        § 13.3 Conduct of Business

       p. 326, first complete paragraph. Insert as last sentence:

Organizations that primarily engage in gaming activities cannot qualify as exempt social welfare entities.^11.1

§ 13.1 CONCEPT OF SOCIAL WELFARE

      (b) Benefits to Members

       p. 330, carryover paragraph. Insert as last sentence:

Likewise, an organization was denied recognition of exemption as a social welfare organization because its activities consisted of provision of maintenance services to its members, which were businesses owning lots in a commercial shopping property, in exchange for assessments.^54.1

§ 13.3 CONDUCT OF BUSINESS

       p. 336. Insert following carryover paragraph, before heading:

An organization was formed to operate a “holistic medicine establishment” selling medicinal marijuana products to patients with prescriptions from licensed physicians; it conducted a storefront business, being licensed by a state as a retailer of recreational‐use cannabis. The IRS denied recognition of exemption as a social welfare organization to this entity, on the ground that its primary activity was carrying on a business with the public in a manner similar to for‐profit organizations.^113.1 The IRS applied the commerciality doctrine in reaching this conclusion, finding that the organization “use[s] promotional policies to enhance sales,” “advertises goods and services,” sets margins at a level that “enables [it] to replace merchandise inventory,” and “maintain[s] a retail outlet with hours of operation that are competitive with other retail establishments.”^113.2 Notably, the IRS did not deploy the arguments that it uses in the charitable setting: namely, that the activity is illegal under federal law and is contrary to federal public policy.^113.3

Notes

      1 ^11.1 E.g., Priv. Ltr. Rul. 202015036.

      2 ^54.1 Priv. Ltr. Rul. 201907013.

      3 ^113.1 Priv. Ltr. Rul. 201941028.

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