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

Along with making significant changes to the rules for supporting organizations (“SOs”) and donor advised funds (“DAFs”) in the Pension Protection Act of 2006 (the “PPA”), Congress directed that Treasury conduct a study on the organization and operation of SOs and DAFs. Congress gave Treasury one year after the enactment of the PPA to submit a report on the study. On December 5th, more than four years past the prescribed deadline, Treasury finally released its long-awaited report to Congress. The report suggests that the current treatment of SOs and DAFs is appropriate and did not recommend any changes. While the report comes as good news to SOs and DAFs, some aren’t so keen. Senator Chuck Grassley (R–Iowa), denounced the study as disappointing, superficial, and a missed opportunity to “advance the ball in closing abusive loopholes.” For more, see his press release. Interested in whether SOs and DAFs should continue to be treated similarly to public charities, Congress asked Treasury to consider three specific questions regarding SOs and DAFs. A discussion of each question and Treasury’s response is discussed below.

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The IRS announced June 8, 2011 that approximately 275,000 organizations lost their tax-exempt status because they did not file annual returns for three consecutive years.  The IRS has published on its website separate lists of affected organizations for each state; OpenData also provides on its website a searchable combined list.

While Section 6033(a) of the Tax Code requires most tax-exempt organizations to file annual information returns, the Pension Protection Act of 2006 imposed a filing requirement on small organizations for the first time in 2007.  Despite the IRS’s information campaign over the last several years, it appears many organizations nevertheless remained unaware of their filing obligations and that, under Code Section 6033(j), organizations will lose their exempt status if they do not file for three consecutive years. 

 

 

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On the last day of 2010, the National Taxpayer Advocate, in its tenth annual report to Congress, recommended that Congress enact a statute of limitations on revocation of a charity’s tax-exempt status, to run concurrently with the current period of limitation on assessments. That period generally is (absent fraud, tax evasion or non-filing) either three or six years.  (This specific recommendation appears on page 391 of the report). 

Under current law, a charitable organization could face revocation of its tax-exempt status and a corresponding assessment in current years based on an audit of years that are closed for purposes of assessment (even though the charitable organization may have met all the requirements to maintain its tax-exempt status in the years open for assessment).

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On Friday, December 17, 2010, the President signed into law the unwieldy titled, “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010”.   In order to help explain the provisions in the new law, the Joint Committee on Taxation issued a Technical Explanation.  The Tax Relief Act has many provisions which affect charities, such as changes to the estate tax, income tax rates, capital gains rates, a payroll tax cut, and other changes to the tax law. 

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Proskauer's 15th Trick or Treat Seminar was held on Friday, October 29, 2010.  The Seminar discussed:

• Best Practices for Board Members
• The Effects of Health Care Reform
• Executive Compensation Developments
• Ethics Issues Facing In-House Counsel 

In her introductory remarks, Amanda H. Nussbaum, Partner, highlighted that on September 17, 2010, New York modified its laws governing the management and investment of charitable assets of New York not-for-profit organizations.  Specifically, the NYS legislature adopted, subject to certain modifications, the Uniform Prudent Management of Institutional Funds Act, ("NYPMIFA").  All charities are encouraged to review NYPMIFA in its entirety to fully understand the extent of the Act's new requirements.  NYPMIFA applies to all charitable assets, not just endowments, and can be found in more detail in our October 7, 2010 blog entry.

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The most successful exempt organizations are those that are well-positioned to run effectively and efficiently. This seminar highlights certain laws and best practices that are necessary for an exempt organization to succeed in this new regulatory landscape.

• This program will provide Exempt Organizations with information on:   
• Best Practices for Board Members
• The Effects of Health Care Reform
• Executive Compensation Developments
• Ethics Issues Facing In-House Counsel
• Tax Developments in 2010

  

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Charities and other exempt organizations that engage in cross-border charitable giving often conduct extensive due diligence before giving funds to international grantees.  If these charities are unaware of how the Foreign Corrupt Practices Act can affect their grantmaking and other activities abroad, they should become aware very quickly.  In fact, the FCPA is a real risk for U.S. exempt organizations that are operating globally and face pressures to make corrupt payments in order to obtain government support abroad.

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On August 11, 2010, the commencement of the observance of Ramadan, a charity alert was issued by the United States Treasury Department.  Treasury acknowledged the importance of charitable giving during the month-long observance and used this opportunity to express concern about possible exploitation of all charities by terrorist organizations.  The alert outlines steps for charities and donors to take in order to “guard against terrorist abuse.” 

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We tweeted live from the Georgetown Conference that occurred on April 22-23, 2010.  Our tweets from the conference highlight IRS next steps and agenda items, as well as discuss other topics of interest to exempt organizations.

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On March 9, 2010, the IRS issued guidance designating the earthquake that occurred in Chile in February, 2010 as a qualified 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 without affecting their tax-exempt status.

Qualified disaster relief payments include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance.  They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance.

The IRS will presume that disaster relief that a private foundation provides to employee-victims and their family members in areas affected by the earthquake in Chile is consistent with the foundation's charitable purposes.

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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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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