In a past life, I was going to be a doctor, so I took all the classes in college that future doctors must take. (That entire year of Organic Chemistry has proven to be indispensable to the daily practice of a public finance tax lawyer.) In many of our classes, we learned about how the different features we see in different species of life are a reflection of how those species have been shaped over time by the world they have inhabited. In some cases, entirely unrelated species converge upon the same adaptations and features, even though they lack a close common ancestor – a classic example is the use of echolocation by both bats and whales.

We find a similar phenomenon at work in the world of public finance tax. Over time, for a variety of reasons, states and their political subdivisions have created an assortment of what we can call “quasi-governmental entities” to accomplish various purposes. (Port authorities, development boards, etc.) We know that States and their political subdivisions enjoy many federal income tax benefits, so the question always arises – how many of these benefits does a particular quasi-governmental entity also enjoy? The different tests for each of these benefits have evolved separately, shaped in each case by specific entities that have been created and specific facts of specific cases and ruling requests. But they have also inevitably converged upon a few common traits that generally probe whether an entity is sufficiently connected to a State or political subdivision of a State to enjoy the particular federal tax benefit in question.

Building on Cindy’s post on instrumentalities from last week, we have attempted to compile a short research guide to these common classifications of quasi-governmental entities. Think of it as the public finance tax counterpart to the Field Guide to Birds, written by Roger Tory Peterson, the Official Ornithologist® of the Public Finance Tax Blog. First, a few general points:

• When confronted with a question about a quasi-governmental entity, you should ask: “What do we want this entity to do?” and not, per Marcus Aurelius/Hannibal Lecter: “What is it in itself? What is its nature?” The separate lines of authority governing each particular tax benefit may share common characteristics, but trying to reach a conclusion on one tax benefit based on a conclusion on a different one will inevitably lead to confusion and frustration.

• Related, and very important point: The classifications below are often not mutually exclusive. Just because one line of authorities on one tax benefit does not get you all of the tax benefits that you want – don’t stop there. For example, an entity described in Section 115(1) may also be an instrumentality of a State or political subdivision under Rev. Rul. 57-128 and its progeny, even though the two questions must be separately analyzed.

• Further related point – in general terms, you can think of the field guide as a continuum when read from top to bottom, progressing towards greater separation from a State or political subdivision (and therefore fewer tax benefits). However, the best approach is to focus on what you want the entity to be able to do, and analyze the authorities required to get you there.

• For a number of these different classifications, a separately incorporated quasi-governmental entity can often choose to obtain a ruling that it is an organization described in Code Section 501(c)(3), reach the same tax result, and obtain other non-tax benefits. It all depends on the basis that the entity chooses in its private letter ruling request.

• Many of these tests are based on old Revenue Rulings. In almost every case, there are much more recent private letter rulings, which you should study. (Rote disclaimer about not being able to rely on private letter rulings goes here.)

• The need for guidance in this area, which has been requested often in prior years by ABA, NABL, etc., should fairly quickly become apparent to you.

Without further ado, click here for the Field Guide.