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February 10, 2023

One-time cash grant from dissolving tax-exempt hospital to public charity constitutes an 'unusual grant'

  • In a private letter ruling, the IRS determined that a grant from a dissolving tax-exempt hospital would not adversely affect a public charity's qualification as a publicly supported entity because the grant constituted an "unusual grant."
  • The grant meets the definition of an "unusual grant" for several reasons, including, the dissolving hospital was no longer in a position to exercise influence; the donation was a one-time grant; and the donated cash was restricted for furthering tax-exempt purposes within the community.
  • This ruling provides a reminder that publicly supported charities should determine if any unexpected grants qualify as unusual grants that can be excluded from their support calculations so the grants will not adversely affect their public support percentages.

In a private letter ruling (PLR 202305020), the IRS has ruled a one-time cash grant that a tax-exempt public charity (the Taxpayer) anticipates receiving from a dissolving tax-exempt hospital will constitute an "unusual grant" and therefore will be excludible from the Taxpayer's public support calculation for purposes of determining whether the Taxpayer meets the public support test.


Prior to dissolution, the donor organization had been recognized as tax-exempt under IRC Section 501(c)(3) and classified as a hospital under IRC Section 170(b)(1)(A)(iii). The hospital's board of directors agreed to sell the hospital's assets to a third party and distribute a one-time cash grant to the Taxpayer, a publicly supported organization under IRC Sections 509(a)(1) and 170(b)(1)(A)(vi), enabling the funds to be used to continue serving the community. Some of the hospital's board members would serve on the Taxpayer's board. The only material restriction on the grant would require the Taxpayer to maintain a certain net worth for six years following the hospital's sale to ensure that the Taxpayer continues to be operated for tax-exempt purposes.


A tax-exempt organization may qualify as a public charity under IRC Sections 509(a)(1) and 170(b)(1)(A)(vi) if it meets one of two public support tests:

  • The 33-1⁄3% support test, requiring at least one-third of the organization's support over five years to be "public support" given by public charities, or by other donors to the extent a donor contributes no more than 2% of the tax-exempt organization's total support over those five years
  • The 10% facts-and-circumstances test, requiring that (i) at least 10% of the charity's total support over five years is "public support," (ii) the charity is organized and operated to attract additional public support on a continuous basis, such as through a continuous program to solicit donations from the public, and (iii) certain facts and circumstances indicate that the organization benefits and represents the broad interests of the general public

A public charity that is unable to pass one of these two public support tests would no longer qualify as a public charity and thus be reclassified as a private foundation. Treas. Reg. Sections 1.170A-9(f)(6)(ii) and 1.509(a)-3(c)(4) allow a public charity to exclude any qualifying unusual grants from both the numerator and denominator of its public support calculation, thereby preventing the unusual grant from decreasing its public support percentage.

Treas. Reg. Section 1.170A-9(f)(6)(ii) allows a publicly supported organization to treat a grant as an unusual grant if it satisfies all of the following requirements:

  • Was given based on the publicly supported nature of the organization
  • Consists of an unusual or unexpected amount of funding
  • Would, because of its size, adversely affect the organization's publicly supported status

Treas. Reg. Section 1.509(a)-3(c)(4) requires pertinent facts and circumstances to be taken into consideration in determining whether a contribution is excludible from a public charity's public support calculation; no single factor is necessarily determinative. Factors to be considered include whether:

  • The contribution was made by a person who: (1) created the organization; (2) has contributed a substantial part of the organization's support or endowment; (3) was in a position of authority in the organization; or (4) exercised direct or indirect control over the organization
  • The contribution was a bequest (less favorable) or an inter vivos transfer (more favorable)
  • The contribution was cash, readily marketable securities or assets that further the organization's tax-exempt purpose
  • The organization had solicited and attracted significant public support and had carried on tax-exempt activities before receiving the contribution
  • The organization is reasonably expected to attract significant public support after receiving the contribution at issue
  • The organization met the one-third public support test before receiving the contribution
  • The organization has a representative governing body without one person or a group of related persons maintaining control, as described in Treas. Reg. Section 1.509(a)-3(d)(3)(i)
  • The transferor has or has not imposed material restrictions or conditions described in Treas. Reg. Section 1.507-2(a)(7) on the transferee in connection with the transfer


The PLR lists facts and circumstances that the IRS considered in its analysis:

  • The grant is being made by a public charity, as opposed to an individual, business or private foundation
  • The grantor hospital is dissolving and will not be in a position to exercise influence
  • The contribution will be in cash expressly to further the Taxpayer's exempt purposes
  • The grant is a one-time donation; the Taxpayer will rely on public support in the future
  • The Taxpayer's representative governing board is composed of community leaders
  • The only material restrictions on the grant are that the Taxpayer maintain a certain net worth for six years and operate for exempt purposes

Based on these facts, the IRS concluded that the transfer would be considered an unusual grant under Treas. Reg. Section 1.170A-9(f)(6)(ii).


Recognizing and classifying a grant as unusual and excluding it from the public support calculation is a beneficial tool when tax-exempt organizations are close to failing either the 33-1/3% or the 10% facts-and-circumstances public support test. PLR 202305020 underscores the need for publicly supported charities, particularly those that don't meet (or narrowly meet) the 33-1/3% public support test, to closely monitor the grants they receive and determine if any would qualify as an unusual grant. A public charity may — but is not required to — request an IRS determination of whether a grant is an unusual grant by submitting Form 8940, Request for Miscellaneous Determination. If the response to the miscellaneous determination request is not received prior to filing, the tax-exempt organization may still be able to take a reasonable position that the grant qualifies as unusual, though there would be a risk that the IRS disagrees with the position.


Contact Information
For additional information concerning this Alert, please contact:
Exempt Organization Tax Services
   • Steve Clarke (
   • Melanie McPeak (
   • Morgan Moran (
   • Jay Qi (

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor