- 85 -
experienced considerable difficulty in applying SOP 87-2 and was
unable to conclude what portion of the 1988 direct mail campaign
expenses qualified as joint expenses. The accounting firm
essentially let petitioner itself decide how to categorize and
allocate the expenses.
The compensation that W&H received under the Contract by way
of direct payment by petitioner and by way of the value of W&H’s
use of the names generated by petitioner’s fundraising efforts,
exceeded reasonable compensation.
Respondent’s revocation of petitioner’s favorable letter
ruling retroactively to the start of the Contract was not an
abuse of discretion.
OPINION
I. Status Under Secs. 501(c)(3) and 170(c)(2)
Section 501(a) provides that “An organization described in
subsection (c) * * * shall be exempt from taxation under this
subtitle”.21
In order to be described in section 501(c)(3),22 an
21 Exceptions from this broad rule because of secs. 502
(relating to feeder organization), 503 (relating to prohibited
transactions by certain categories of transactions), 501(b)
(relating to unrelated business income), and various other
provisions of the Code do not appear to be issues in the instant
case.
22 Sec. 501(c)(3) provides, in pertinent part, as follows:
(continued...)
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