Thursday, August 30, 2012

ABA Tax Comments on the PRI Regulations

As we previously reported here, the IRS issued proposed regulations on program-related investments (PRIs) under Code Section 4944.  These proposed regulations took the form of nine additional examples to be added to the existing PRI regulations that cover a variety of fact patterns, including equity investing, international activities, and credit enhancement. 

On August 8, 2012, the ABA Section of Taxation submitted comments to the IRS regarding the proposed regulations.  I know that many members of the Exempt Organizations Group of the Tax Section (specifically including David Chertoff, formerly of the MacArthur Foundation and Rob Wexler from Adler & Colvin in San Fransico) had worked tirelessly with the IRS for years to obtain an update from the IRS on the PRI regulations.  The comments themselves are summarized as follows:

  • The Tax Section requested that the preamble to the Proposed Regulations, which summarizes the types of transactions that the new PRI examples cover, be included in the Regulations themselves.   
  • The comments further request that the IRS issue additional examples in certain subtantive areas, such as mixed-income housing and nonprofit newspapers.   In its prior submissions to the IRS, the Tax Section proposed such examples.  I understand that one of the objections that the IRS raised was that it wanted the examples to describe activities that were clearly already charitable under existing law.  Examples in some of these new areas might have raised issues under Section 501(c)(3)/Section 170, and not just under Section 4944.
  • Finally, the Tax Section raised specific comments on some of the examples (example 11, regarding the for-profit subsidiary that developed vaccines; example 15, regarding international disaster relief, and example 16, regarding LLC investments.)

Congratulations to everyone at the ABA Tax Section - Exempt Orgs group for their success so far in getting *actual* proposed regulations on the books!  We look forward to seeing how those final regs turn out. 


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