Allied Charities of Minnesota Newsletter

 Allied Charities of Minnesota is pleased to inform its membership that
we have reached a solution with the IRS on how to handle Form 730 filing
requirements for all periods prior to the IRS' announcement of their
change in position (which was communicated in the January 1999 Gaming
News and addressed back at last year's ACM Minnesota Lawful Gambling
Convention & Expo in St. Paul, as well as in the
January/February/March/April  & May/June ACM Newsletters).

 As you should know by now, the IRS' Exempt Organization Division (which
last summer was given audit authority for all excise taxes in addition
to exemption and employment tax mandates), believes that real property
tax payments made from gaming accounts constitute impermissible "private
inurement" for purposes of qualifying as an exempt organization who is
not subject to the taxes reported upon Forms 730 and 11-C.  It is their
position that such payment (in any amount), or other payments to improve
the organization's facility or other attributes which allow members to
benefit, are inconsistent with exception from the gaming excise taxes.
Of course, the Excise Tax Division had previously worked with Allied
Charities in defining what the IRS would hold as inconsistent with
exception, and back in 1995 an informal "10%" test was derived.  Same
tested the amount of real property taxes paid (and potentially other
private inurement-conveying expenditures) against net receipts (gross
profits). Groups who showed their potential "private inurement" payments
were under the 10% threshold (the so-called de minimus basis) were
allowed Form 730 refunds and obviously used such thresholds to establish
their exception from these taxes.

 Unfortunately, this topic is back in the limelight as that prior
position of the IRS is not accepted by the IRS' Exempt Organization
Division, which is why they came to Allied Charities last fall and
submitted their warning in the January 1999 Gaming News that even a
dollar of real property tax payments (from gaming accounts) would
subject exempt organizations to Form 730/11-C tax.  King Wilson and Eve
Borenstein have worked tirelessly to explain to the Exempt Organization
Division that their position, whether valid or not, would result in
unfair burdens on taxpayers who had relied on the IRS' prior 10%
threshold.

 VICTORY AND RESOLUTION -- Taxpayers who met the prior threshold test
for real property or schedule D payments constituting (in the IRS' eyes)
"private inurement" will not be back assessed Form 730 or Form 11-C tax
for any months prior to January 1999!!! The IRS told us early this month
that when they audit gaming licensees on back periods, they do not
intend to expend resources on evaluating whether appropriately charged
lawful purpose or allowable expenditure payments, of no greater than 10%
per year (of net receipts/gross profits), arguably inure to benefit
members and so convey fatal-to-exception "private inurement".  In essence, that leaves the old rule
intact through December 1998.

 NEW REGIME IN PLACE EFFECTIVE FIRST OF YEAR (1999) FORWARD -- Since
licensees making real property or Schedule D (i.e. "private inurement")
payments have been on notice since January that the Exempt Organization
Division posture is that any amount of such expenditures will void the
exception (i.e., the IRS will not respect the 10% threshold as a valid
read of the law), they will require licensees who make lawful purpose or
allowable expenditure payments that inure to benefit members (such as
real property tax payments on the organization's facility) to file Form
730's and Form 11-C's starting January 1999.

 What does this mean for those who have been relying on the prior
position of the IRS and have not restarted filing Form 730's, so that
now technically your 1999-required filings are late?  We achieved an
amicable resolution for administratively filing Form 730's without late
filing penalties (interest will likely attach however).  That result
follows:

Per the St. Paul Exempt
Organizations Group Office --

        Should this change in IRS posture result in your organization
now needing to backfile to pay January-August 1999 Form 730 tax (due to,
e.g., making May 1999 real property tax payment from gaming accounts),
those eight months' Form 730's should be submitted to the Cincinnati
Service Center with a note explaining that their apparent late filing is
not subject to penalty as being excused under reasonable cause -- then
explain that reasonable cause exists due to the fact that the IRS has
just clarified its tax position as to application of the tax and that
prior to the clarification you had followed the IRS' position as then in
effect.  Refer the Service Center, should they have any questions on
this clarification and your qualification as a result in establishing
reasonable cause, to Revenue Agent Stan Wiatros at 651-312-7732.