New IRS Technical Guides: “Charitable” and Instrumentalities, Gov’t Corps & Federal Credit Unions

The IRS continues to publicly release Technical Guides that are replacing Audit Technique Guides (which appear not to be publicly available) that in turn appear to have replaced certain exempt organizations chapters previously found in Part 7 of the Internal Revenue Manual. The two most recent releases are TG 3-3 Exempt Purpose, Charitable IRC 501(c)(3) (Publication 5781) and TG 1 Instrumentalities of the United States, Government Corporations, and Federal Credit Unions – IRC 501(c)(1) (Publication 5780).

Publication 5781 “discusses tax law issues related to charitable purposes of organizations exempt under Section 501(c)(3) of the Internal Revenue Code of 1986.”

Publication 5780 provides the following background for Section 501(c)(1):

(1) Sections 509(a) and 501(c)(1) provides exemption from federal income tax to certain organizations created by Acts of Congress.

(2) Prior to The Tax Reform Act of 1984 (part of the Deficit Reduction Act of 1984, Pub. L. 98-369), an organization was exempt under Section 501(c)(1) if it was an instrumentality of the United States that was organized under an Act of Congress and was specifically granted tax exemption in the organizing Act.

(3) With the passage of the Tax Reform Act of 1984, the grant of tax exemption to an organization in its authorizing legislation was no longer sufficient for Section 501(c)(1) status. Unless an organization was exempt under its organizing Act, as amended and supplemented, before July 18, 1984, it can only qualify for Section 501(c)(1) exemption if the exemption is specifically provided for in Section 501(l) or if exempt from federal income taxes under Title 26 without regard to any provision of law which is not contained in Title 26 and which is not contained in a Revenue Act.

For more details about governmental entities and tax exemption, see Ellen P. Aprill, The Integral, the Essential and the Instrumental: Federal Income Tax Treatment of Governmental Affiliates, 23 Journal of Corporation Law 803 (1998).

Lloyd Mayer