New Private Letter Ruling Disregards Separate Existence of a Charity and Related Noncharity


A non-profit organization (the "Applicant") decided to operate a charitable endeavor it called "Facts" and "Acts". The idea was that the Applicant's website would host a news aggregation site, together with links to donate to recognized charities. So, for instance, the website might link a story about a natural disaster (Facts) with a link to contribute money, blankets or water to the victims (Acts). The website would also host a social networking system so like minded donors and organizations could connect and network. No fees would be charged to website users as the Applicant intended to rely on fundraising to cover costs. Because these activities appear charitable, the Applicant sought exemption under IRC § 501(c)(3).

Part of the website development plan involved operating a for-profit subsidiary. The affiliate was to generate taxable revenue through advertising and strategic partnerships. The affiliate would use data drawn from the website, in exchange for a licensing fee, to facilitate its for profit, taxable operations. Any excess funds would be directed to the non-profit to augment the non-profit's fundraising efforts. No exemption was sought with respect to the for-profit subsidiary.

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