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Exempt organizations and luxury taxes.

President Bush's veto of HR 11, the Revenue Act of 1992, indicates that tax advisers should consider the continued applicability of the luxury taxes imposed by the Revenue Reconciliation Act of 1990. Letter Ruling 9138012 concluded that a foundation that was exempt under Sec. 501(c)(3) as a qualified amateur sports organization to foster national and international competition in the sport of sailing was exempt from the Sec. 4002 luxury tax. This tax applies to the retail purchase price of a boat in excess of $100,000. The letter ruling reasoned that the foundation's use of the boats was equivalent to a business use of property by a for-profit corporation and therefore was exempt under Sec. 4002(b)(2), inasmuch as the foundation's boating activities did not constitute entertainment amusement or recreation.

A similar exception should apply to aircraft purchased by exempt organizations with similar exempt purposes and uses. However, to be exempt under Sec. 4003(c), 80% or more of the use of the aircraft by the purchaser must be in the trade or business of a forprofit corporation; presumably, there is an analogous 80% exempt purpose use requirement for Sec. 5011c)131 organizations.

From Steven M. Danowitz, CPA, Los Angeles, Cal.
COPYRIGHT 1993 American Institute of CPA's
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Author:Danowitz, Steven M.
Publication:The Tax Adviser
Article Type:Brief Article
Date:Jan 1, 1993
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