Not-For-Profit/Exempt Organizations Blog : Non-Profit Lawyers & Attorneys : Proskauer Rose Law Firm : Tax & Corporate Law for 501(c), 501(3) Organizations

On Friday, January 22, 2010, President Obama signed into law a bill allowing taxpayers who made charitable contributions to the Haiti earthquake relief efforts to claim an itemizable deduction on their 2009 Tax Returns instead of waiting until next year to claim the deduction. 

The legislation also includes a provision that allows individuals who sent their contributions via text message to use their phone bills as proof of their contribution.  The bill must contain the name of the charitable organization and the date and amount of the contribution. 

The legislation was introduced by Ways and Means Committee Chairman Charles B. Rangel (D-NY) and a host of other co-sponsors.  Though not obligated to do so, charities assisting in the Haiti relief effort may want to make their donors aware of the possibility of the acceleration of deductions.

The IRS also announced on Friday that it has issued guidance designating the Haiti earthquake as a natural disaster for federal tax purposes.  The guidance allows recipients of qualified disaster relief payments to exclude those payments from income tax.  The guidance also allows employer-sponsored private foundations to assist employee victims in areas affected by the earthquake in Haiti without affecting their tax-exempt status.

For additional information on disaster relief, please refer to the IRS Publication 3833 on Disaster Relief and other disaster relief resources for charities and contributors on the IRS website.

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In Announcement 2009-88, set to be published in Internal Revenue Bulletin 2009-52, dated December 28, 2009, the IRS lists organizations that have failed to establish or have been unable to maintain their status as public charities or as private operating foundations.

Accordingly, grantors and contributors to these organizations may no longer rely on previous rulings or designations in the IRS's Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices under Section 508(b) of the Code. 

 

Notably, the listing does not indicate that the organizations have lost their status as organizations described in Section 501(c)(3) of the Code, which are eligible to receive deductible contributions.  Instead, these organizations are simply no longer public charities.

 

Continue reading for the full text of the Announcement.

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On November 24, 2009, the IRS issued its Priority Guidance Plan for 2009-2010.  The Plan contains 315 projects to be completed over a twelve-month period from July, 2009 through June, 2010. 

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The IRS has reported that user fees will increase for all applications for exemption (Forms 1023, 1024, and 1028) postmarked after January 3, 2010:

• $400 for organizations whose gross receipts are $10,000 or less annually over a 4-year period (Currently $300)
• $850 for organizations whose gross receipts exceed $10,000 annually over a 4-year period (Currently $750)
• $3,000 for group exemption letters (Currently $900).

What's More...

Cyber Assistant, a web-based software program designed to help 501(c)(3) applicants prepare a complete and accurate Form 1023 application, will become available during 2010.  Once the IRS announces the availability of Cyber Assistant,  the user fees will change again:

• $200 for organizations using Cyber Assistant (regardless of size) to prepare their Form 1023
• $850 for all other organizations not using Cyber Assistant (regardless of size) to prepare their Form 1023.

We will let you know as soon as Cyber Assistant is available.

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People have been whispering among themselves about the L3C, an emerging low-profit limited liability company structure that aspires to link business methods with charitable purposes and give socially oriented businesses greater access to investor capital.  The structure was created by Robert M. Lang, Jr., CEO of the Mary Elizabeth & Gordon B. Mannweiler Foundation.  Conceptually, the L3C is a hybrid not-for-profit/for-profit entity: like a not-for-profit, it has a primary purpose of charity, but like an LLC, it can have equity holders that have a right to distribution of profits.  Notably, although profit is allowed in an L3C, it cannot be a significant purpose of the organization.  Vermont passed the nation’s first L3C statute in April, 2008, effectively making the form legal in every state since a Vermont L3C can technically do business nationally (even internationally).  Illinois, Michigan, the Crow Indian Nation in Montana, Utah, and Wyoming have followed suit, and similar bills are currently pending in Arkansas, Missouri, North Carolina, Oregon, and Tennessee.

The L3C is taxed like any other for-profit entity and is not eligible for tax exemption under Section 501(c)(3) of the Internal Revenue Code.  L3Cs hope to encourage an influx of new capital into charitable causes that are too risky for for-profit ventures and that nonprofit dollars alone cannot sustain.  The L3C effectively creates a market for investment in companies that offer low rates of return, but contribute to the community, unlike the non-profit, which offers no rate (and sometimes a negative rate) of return on investment.  Therefore, if an entity has a charitable mission, but does not believe it can be profitable, or has a social mission, but probably could not secure program-related investments ("PRIs") from private foundations, it would be better off forming as a not-for-profit or for-profit entity, respectively. 

L3Cs envision a tiered investment structure. The first tier relies on PRIs to cover the areas of highest risk.  Under current law, private foundations are required to spend at least 5% of their net asset value annually.  PRIs essentially function as loans that will be, at least theoretically, repaid.  Even with no interest, the PRIs will still count as qualifying distributions towards the 5% requirement.  The L3C creators believe that private foundations will make PRIs with L3Cs because the PRI requirements are incorporated directly into the L3C structure itself, eliminating the need for private foundations to apply for private letter rulings from the Internal Revenue Service ("IRS"), which can take up to 18 months to process and cost $50,000 or more in legal fees, plus a substantial fee to the IRS. 

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