Revocation of exemption raises serious questions about overhead & charitable activity

Jack Siegel & Gene Takagi take a look at a controversial recent private letter ruling in which the IRS revoked a charity's tax exempt status. Note that PLRs, while instructive, are not binding precedent:

The IRS determined that the organization failed on all three parts. The IRS concluded that the grants did not qualify as being in furtherance of one or more exempt activities because the distributions were given to “other unrelated organizations to use in conducting their own program of exempt activities.” [This conclusion makes little sense to me. Grantmaking does not qualify as being in furtherance of an exempt purpose? - Ed.] Administrative costs played a large factor in the second and third parts of the test because the grantmaking activities only attributed for 13% of total expenditures over a four-year look-back period while salaries counted for 37% and general overhead at 50%.