Friday, April 17, 2009
Internal memoranda released by the IRS in the past few days indicate a view of a senior lawyer at the IRS that the commensurate-in-scope doctrine has little continuing relevance. The internal memoranda were released in compliance with a FOIA lawsuit brought by Tax Analysts. The memoranda date from July 2007. They are available for photocopying at the IRS' reading room in Washington, D.C., but they have not been released electronically.
The two memoranda were both written in response to exemption requests. In one case, an organization was created to accept donations of yachts, sell the yachts, and distribute the proceeds to charity. An initial proposal to deny exemption based on the failure to carry on a charitable activity commensurate in scope with the organization's resources was the subject of the memorandum. The reviewer found that the activity was not a typical commercial activity and that the commensurate-in-scope doctrine "was severely compromised" by the enactment of IRC 4942.
The second memorandum involved a nonprofit management organization that operated several charter schools through contracts with three private foundations. The proposal to deny exemption was based on the similarity between the activity carried on by the organization and activities conducted by for-profit companies managing schools. The same senior technician reviewer in the Office of the General Counsel, Michael Blumenfeld, said that competition in education by for-profit companies should not affect the exempt nature of educational activities that furthered purposes set forth in 501(c)(3).