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

Proskauer’s 16^th Annual Trick or Treat Seminar was held on Monday, October 31, 2011. 

The Seminar discussed:

• Corporate Governance for Not-for-Profit/Exempt Organizations
• Maintaining Tax-Exempt Status During Election Season
• Investment Management under UPMIFA: What’s Required, What’s Good Practice
• Executive Compensation & Employee Benefits Developments

In her introductory remarks, Amanda H. Nussbaum , Partner, highlighted the Congressional hearings on proposals to modify the structure of tax breaks for charitable donations. In addition, she also discussed recent state legislation adopting flexible purpose corporations - - new companies that are part social benefit and part low-profit entities such as the L3C - - and whether these types of companies were really necessary or whether they would just fade away. She also mentioned the IRS monthly updates of the list of the names of organizations whose tax-exempt status has been automatically revoked due to the failure to file a Form 990 for three consecutive years and some of the IRS's recent projects such as its college and university compensation and unrelated business income study and its governance check sheet.

Here are some take-away points from each presentation:

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The IRS presents webinars on a variety of subjects.  In August, the IRS presented a webinar conducted by two IRS representatives on the special rules affecting charities that make grants to foreign organizations or engage in activities in foreign countries.

In a fairly comprehensive course, the following significant points were made:

1.    A U.S. charity can do anything in a foreign country that it can do here, provided that the activity is consistent with the charity’s exempt purposes.

2.    For purposes of the rule that a charity may not devote a substantial part of its activities to legislative lobbying:

a.    lobbying includes action by the public in a referendum, ballot initiative, constitutional amendment or similar procedure;

b.    actions by executive, judicial or administrative bodies are not considered legislation;

c.    legislation includes foreign laws; and

d.    in certain countries ruled by authoritarian or theocratic regimes, it is questionable whether the governing body is a legislature or if a legislative process even exists.

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Treasury just released the 2011—2012 Priority Guidance Plan. The Plan lists 317 projects that are priorities for Treasury resources through June 2012. Included in these projects are 13 projects directly related to Exempt Organizations. Many of the other projects such as the 66 employee benefits, executive compensation and employment taxes projects may affect Exempt Organizations. 

Among the projects directly relating to Exempt Organizations are:

• Updating grantor and contributor reliance criteria; 
• Regulations on additional requirements for charitable hospitals;
• Final regulations on the new supporting organization requirements;
• Update on guidance for distributions by private foundation to foreign charities;
• Guidance on excess business holdings and program-related investments rules;
• Regulations on new donor advised funds rules; and
• Final regulations on church tax inquiries and examinations.

Treasury also released final regulations under various Code Sections to implement the redesigned Form 990 .  According to Treasury "All tax-exempt organizations required to file [990s] are affected by these regulations."

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In a tightly written plain English opinion, the D.C. Circuit Court of Appeals in Polm Family Foundation v. U.S.  explained an important requirement of Type II supporting organizations.

To be a Type II supporting organization, a charity must satisfy three tests:

 

1.                  the organizational test set forth in IRC Section 509(a)(3)(A),

2.                  the relationship test set forth in IRC Section 509(a)(3)(B)(ii), and

3.                  the control test set forth in IRC Section 509(a)(3)(C).

While the district court  concluded that the charity failed both the relationship test and the control test, the Court of Appeals based its decision on the failure to satisfy the organizational test. The Court said that this test was the most straightforward. 

 

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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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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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When we last blogged about the “seemingly innocuous five line tax benefit” in Section 107 of the Internal Revenue Code, a District Court judge in California was reviewing a complaint filed by the Freedom From Religion Foundation, a nonprofit membership organization challenging this 90 year old provision.

Over the years, there have been a number of challenges to the parsonage tax exemption based on church and state separation constitutional grounds.  In 2002, the Ninth Circuit sua sponte in Warren v. Commissioner asked the taxpayer and the government to brief the constitutional issue. The Court also asked Professor Erwin Chemerinsky of the University of Southern California to write an amicus brief, which concluded that the provision was unconstitutional.

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