Social Club’s Sale of Conservation Easement Taxed Favorably

Today’s edition of Tax Analysts’ Tax Notes Today (subscription required) contains several entries relevant to exempt organization lawyers.  One that especially interests me is Private Letter Ruling 201425016, which involves a country club exempt from federal income tax as an organization described in Section 501(c)(7) of the Internal Revenue Code (the “Code”).  The country club proposed to sell a conservation easement to a city and use the sales proceeds to improve its golf course, purchase personal property, and renovate and expand its facilities.  The Internal Revenue Service ruled that the sale would not jeopardize the organization’s exempt status, and that proceeds reinvested within three years after the closing of the sale of the conservation easement would not generate unrelated business taxable income because of Code section 512(a)(3)(D).  Further, the capital improvements contemplated in the ruling request that are made in the year preceding closing will constitute other property purchased and used directly in the performance of an exempt function for purposes of Code section 512(a)(3)(D).

Electronic Citation: 2014 TNT 120-34

JRB