On February 19, 2016, the IRS and Treasury Department issued proposed regulations regarding (i) prohibitions on certain contributions to Type I and Type III supporting organizations and (ii) requirements for Type III supporting organizations. These proposed regulations reflect changes to the law made by the Pension Protection Act of 2006, which changed the requirements an organization must satisfy to qualify as a Type III supporting organization.
Every January, the IRS releases a series of revenue procedures detailing how organizations can obtain private letter rulings and determinations and listing issues on which the IRS will not rule during the coming year. This year’s procedures make clear that tax-exempt organizations will no longer be able to receive a ruling or any comfort from the IRS that changes in their operations are consistent with their tax-exempt status. In other words, exempt organizations are on their own.
Until recently, an organization could request a private letter ruling from the Exempt Organizations technical branch that a particular activity or transaction would not generate unrelated business taxable income or adversely affect exempt status. The IRS would not rule on factual issues, such as whether a proposed transaction was at a fair market value price, and would not rule on a few specific issues, such as whether participation in a joint venture with a for-profit entity would affect exempt status.
Proskauer’s 20th Annual Trick or Treat Seminar was held on Friday, October 30.
The Seminar discussed:
- Non-Profit Revitalization Act of 2013: Recent Developments and Outstanding Issues
- Recent Developments in Independent Contractor Misclassification
- Purpose Investing for Charities
- Benefits Update
Amanda Nussbaum welcomed everyone to the 20th Annual Trick or Treat Seminar, commented on some of the trends in nonprofit law over the last twenty years, and introduced the presenters.
On October 26, 2015, the IRS released final regulations under Sections 141 and 145 of the Internal Revenue Code concerning the use of property financed with tax-exempt bond proceeds. The bulk of the new regulations fill a long-reserved spot in Treasury Regulation Section 1.141-6 concerning allocation of bond proceeds to financed property. In addition, in an important new development, amendments to Treasury Regulations Sections 1.141-3 and 1.145-2 now provide that partnerships that include governmental entities or Section 501(c)(3) tax-exempt organizations can use and own bond-financed property. Permitted use is in proportion to the exempt’s ownership of the joint venture, except to the extent that the use generates unrelated business income for the exempt joint venturer. The new regulations can be applied to outstanding bonds as well as new bonds.
As we previously reported, the IRS has updated its guidance with helpful examples concerning program-related investments for private foundations. In its recently issued Notice 2015-62, the IRS provides further assurance that private foundations may take the accomplishment of charitable purposes into account in investing decisions, in addition to financial return.
Among other restrictions, private foundations are subject to Section 4944 of the Internal Revenue Code. Section 4944 imposes excise taxes on a private foundation that makes a “jeopardizing investment,” as well as on the foundation’s directors, officers, and management who knowingly participate in the making of the investment. Jeopardizing investments do not include “program-related investments.” These are investments made without any significant purpose of financial return. Notice 2015-62 does not address program-related investments; rather, it addresses investments having a charitable as well as financial purpose.
On September 16, 2015, the IRS issued proposed regulations concerning the time and manner for donee organizations to file information returns that report required information about charitable contributions. The proposed regulations would implement an exception to the requirement that a taxpayer who claims a charitable contribution deduction for any contribution of $250 or more to obtain substantiation in the form of a “contemporaneous written acknowledgement” from the donee organization.
Previously, some taxpayers have argued that donations can be substantiated by filing an amended Form 990, even years after the claimed donation is made; however, the IRS has rejected this position. Instead, pursuant to the proposed regulations, the IRS will develop an optional “specific-use information return for donee reporting” intended to provide for timely reporting, while also minimizing reporting burdens on donees and protecting donor privacy.
In April, the New York State Attorney General’s office released guidance addressing key provisions of the New York Not-for-Profit Corporation Law. For in-depth analysis of the Attorney General’s guidance, click here for an article by Proskauer attorneys Roger Cohen and Ellen Moskowitz. For this blog’s coverage of the New York Not-for-Profit Corporation law, click here.
The Financial Accounting Standards Board (“FASB”) has issued an exposure draft of a Proposed Accounting Standards Update, Presentation of Financial Statements of Not-for-Profit Entities, which would make significant changes to the current reporting rules. The FASB believes that each of the proposed changes will improve the usefulness of the information provided to stakeholders, reduce the complexity of reporting, or both. One significant focus of the changes is to make clear which funds are available for expenditure in the organization’s discretion and which are not. Continue Reading
On March 31, 2015, the Commissioner of the IRS reported in a speech to the National Press Club that the IRS is “under new management” due to major changes in management staff over the last few years. Many of these management changes, as well as changes in organization and procedures, were in the Tax-Exempt and Governmental Entities (TEGE) branch of the IRS.
Organizational Changes. Previously, an Exempt Organizations Rulings and Agreements branch was responsible for issuing exemption determination letters. This function was headquartered in Cincinnati but several types of applications were required to be referred to an EO Technical branch in Washington (formerly referred to as the National Office). EO Technical also issued private letter rulings and gave technical advice. This was unlike other branches of the IRS. Elsewhere branches of the IRS Chief Counsel’s office, rather than technical staff reporting to the associate commissioners, were responsible for the private letter ruling and technical advice function. In Announcement 2014-34, the IRS explained that its Tax Exempt and Government Entities Division (TE/GE) was being realigned. Technical responsibility for preparing technical advice and private letter rulings, as well as revenue rulings, revenue procedures, announcements, and notices, was shifted to TEGE Counsel effective January 2, 2015. The EO Rulings and Agreements branch will retain its authority to issue determination letters approving or denying tax-exempt status as well as miscellaneous determinations addressed in Form 8940. Continue Reading
Late last year, the Internal Revenue Service (“IRS”) issued a letter ruling, PLR 201446025, providing that, in certain instances, a nonprofit corporation exempt under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and incorporated in State A was not required to file a new application for tax-exempt status (IRS Form 1023) when it changed its domicile to State B by filing “Articles of Domestication” in State B and “Articles of Conversion” in State A.
In the ruling, the law of State B stated that the corporation’s filing of “Articles of Domestication” would not affect its original incorporation date. The law of State B also stated that the corporation would be considered the same corporation as the one that existed under the laws of State A, the state in which the corporation was previously domiciled. Similarly, the governing law of State A stated that following the corporation’s filing of “Articles of Conversion,” the corporation would continue to exist without interruption and be able to maintain its same liabilities and obligations.