Sheep Ranching Property Considered Charitable Use Assets

A private foundation owned sheep ranching property that was used for two purposes. First, the foundation used the property has a place where it held retreats for clergy members. Second, the foundation used the property for “a research program ‘to enhance the quality, and the increase the production, of range sheep’ in western states.”

In PLR 201315031, the IRS held that the assets that were owned by the foundation should be treated as charitable use assets. The foundation was originally a Type III supporting organization before the enactment of the Pension Protection Act of 2006. Under the law, the foundation, which was organized as a trust, was integrated to a private foundation. The ranch was originally owned by a subsidiary that transferred those assets to a LLC that it formed. The foundation was assigned an interest in the LLC. The ranch itself operated at “loss” because of its purpose. It’s goal was introduce better breeding sheep to farmers. In carrying out its purpose, it would not sell the culled sheep for breeding, which were used for slaughter. The foundation argued that if it sold those sheep in would undermine their purpose. Here, the IRS accepted the proposed explanation from the farmers, and held that the foundation would not have to include “the value of the ranch…in calculating the foundation’s minimum investment return for purposes of the excise tax on undistributed income.”

See PLR 201315031 – Sheep Ranching As An Exempt Activity, Charitable Planning, Apr. 15, 2013.

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