The CotoBuzz Journal, Community Journalism

Hope that the Register's rental/lease contract with Laguna Woods Village was at fair market value under IRS Code 4958 501 (C) 4 Corporations and State of California Section 214.

CHAPTER 2: SPECIFIC REQUIREMENTS OF OWNER AND

OPERATOR

Section 214 requires that, to be eligible for the welfare exemption, both the owner and the user of

a property must meet specific requirements. The first step in determining welfare exemption

eligibility is to determine if the organization itself qualifies. In brief, an organization must meet

the following requirements:

· It must be organized and operated for exempt purposes;
· It must not be organized or operated for profit;
· The owner organization must have an IRC §501(c)(3) or Revenue and Taxation Code
§23701d letter of exemption;
· The user organization may also qualify with an IRC §501(c)(4) or Revenue and Taxation
Code §23701f or §23701w letter;
· Organization's earnings must not benefit any private shareholder or individual;
· Articles of Incorporation must contain an acceptable statement of irrevocable dedication of
the property to exempt purposes;
· Articles must contain an acceptable Dissolution Clause; and
· The property owner must be the owner of record on the lien date.
If the organization owning and operating the property does not qualify for exemption, its
property does not qualify, even if it is used for exempt purposes.

OWNED AND OPERATED REQUIREMENT

A nonprofit organization claiming the welfare exemption for its property may be a community

chest, fund, foundation, or corporation.47 In addition, it must be organized and operated for

religious, hospital, charitable, or scientific purposes.48 Property owned by an organization may

be eligible for the welfare exemption only if the nonprofit organization is organized and operated

for these specific purposes. While it is not necessary that the organization be organized wholly

for these exempt purposes, the primary purpose of the organization must be religious, hospital,

scientific, or charitable. The operation of the organization for exempt purposes will be

determined by its activities and use of the property

Revocation of Exemption

Substantive Requirements for Exemption Still Apply

IRC 4958 does not affect the substantive standards for tax exemption of an applicable tax-exempt organization under IRC 501(c)(3) or IRC 501(c)(4). This includes the requirements that the organization be organized and operated exclusively for exempt purposes, and that no part of its net earnings inure to the benefit of any private shareholder or individual.

Thus, regardless of whether a particular transaction is subject to excise taxes under IRC 4958, existing principles and rules continue to apply, such as the limitation on private benefit. Reg. 53.4958-8(a).

If an agent who is conducting an examination of an organization that is tax-exempt under IRC 501(c)(3) or IRC 501(c)(4) identifies issues involving potential private benefit or inurement, the agent should consider opening an IRC 4958 examination of the persons or persons involved in the potential private benefit or inurement transactions.

Paul Loughrey

Editor's Note: The above is a culmination of Mr. Lougherty's effort to get information on the office lease by the Orange County Register from the the Laguna Woods Village Homeowners' Association as evidenced by the following email transcript.

From: Paul Loughrey
Sent: Monday, December 21, 2009 3:44 PM
To: Ron Gonzales, OC Register
Subject: Rental Space in LWV
Good Morning Ron:
A few months back we had a meeting with your staff and you said,"I will get you the cost and square feet of your office renting space in LWV"
We are acquiring information about the fair market value of the various venders who are renting from us.
Would you please give me documented accounting (years 2002-2009) of your payments for our 501 (C) 4 exempt space in LWV.

Thank you for everything you have done for the shareholders in LWV.

Paul Loughrey

From: Ron Gonzales
To: Paul Loughrey
Sent: Monday, December 21, 2009 4:41 PM

Subject: RE: Rental Space in LWV
Paul: Help me. What’s this about? – Ron Gonzales

From: Paul Loughrey
Sent: Tuesday, December 29, 2009 9:13 AM
To: Ron Gonzales
Subject: Fw: Rental Space in LWV

Any information!

From: Ron Gonzales
To: Paul Loughrey
Sent: Wednesday, December 30, 2009 10:31 AM

Subject: RE: Rental Space in LWV

Paul: I’m not sure who told you we’d get you the amount we pay for rent, but it wasn’t me or Peggy Blizzard. What other avenues have you pursued to get the information? – Ron Gonzales

From: Paul Loughrey
Sent: Wednesday, December 30, 2009 12:36 PM
To: Ron Gonzales
Cc: Justin Wiggins
Subject: Re: Rental Space in LWV

Cheryl and I also asked you in our meeting with your staff. I have 10 witness that heard you say that you would get that information. As shareholders we are entitled to that information. We are not out to get you

but want full disclosure. This is not the time to stonewall!RS

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