PLR 201214034 — RTO Does Not Lose Tax-Exempt Status When Structure Changes

Regional transmission organization (RTO) qualifies as tax-exempt, nonprofit organization under Sec. 501(c)(3). Originally, Federal Energy Regulatory Commission (FERC) only charged RTO with providing independent, open and fair access to electricity transmission systems to lessen the burdens of government. FERC then began to require RTO to take title to electricity and sell it to buyers at cost. RTO petitioned the Service to rule that it could maintain its tax-exempt status in spite of this change in structure. Additionally, the RTO asked that the Service not classify the amount received as payments for the electricity as unrelated business taxable income (UBTI).

If an organization is operated exclusively for charitable purposes, including lessening the burdens of government, the organization will be tax-exempt. Furthermore, unrelated trade of business is defined as “any trade or business that is not substantially related to the performance of an organization’s exempt purpose.”

In PLR 201214034, the Service found that the RTO may maintain tax-exempt status because the changes in operation are a result of FERC’s requirements and the change lessens the government’s burden. Additionally, the Service ruled that serving as a central counterparty to the transactions contributes importantly to RTO’s purpose, so payments from the sale of electricity are not classified as UBTI.

See PLR 201214034 – Operational Changes Won’t Jeopardize Exemption, Community Foundation of Broward, Apr. 24, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.