Jacob I. Friedman

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Jacob I. Friedman heads Proskauer's Not for Profit/Exempt Organizations Practice Group and is the immediate past Chair of Proskauer's Tax Department. He has been a member of the Tax Department since 1975 and a Proskauer partner since 1983.

Jay has been involved in various facets of federal and state tax and employee benefits laws. In recent years, his major areas of practice have been the structuring of alternative investments for pension trusts and other exempt organizations; the rendering of fiduciary advice to ERISA trustees; and the implementation of employee benefit programs. Jay advises Proskauer's philanthropic and other not-for-profit clients on fiduciary and tax exemption issues and their specialized tax problems, including unrelated business income tax ramifications of diverse investments, such as venture capital, hedge funds, futures, natural resources, buyout funds and corporate finance.

Among the clients who regularly seek Jay's advice are the Bell Atlantic Master Pension Trust; Verizon Investment Management Corporation; Cooper Union; American Lung Association; AJC; and various major tax-exempt trusts.

Jay was instrumental in negotiating a successful resolution of a divisive conflict between two large not-for-profit institutions. His legal advice to the City of New York resulted in multiyear savings of large sums of money. He regularly is called upon to devise strategy in tax-exempt trust litigation and to handle complex administrative negotiations with the IRS. Jay has actively structured and negotiated numerous significant investments in the United States and abroad for multibillion-dollar tax-exempt entities.

Jay has lectured at seminars sponsored by Proskauer, The New York Law Journal, New York University, The New York State Bar Association and the International Association of Financial Planners on areas such as real estate investment, tax credits, unrelated business taxable income, ERISA, and negotiating strategy with the IRS. He chairs Proskauer's annual "Trick or Treat Tax-Exempt Seminar," held at the end of every October. He is a co-author of the ERISA Fiduciary Answer Book published by Panel Publications and a contributing author to Complete Guide to Nonprofit Organizations published by Civic Research Institute.

Jay is an honors graduate of New York Law School, where he was an Associate Editor of the Law Review, and holds an LL.M. degree in taxation from New York University School of Law. He is an Adjunct Professor of Law in New York Law School's graduate tax program. He is a member of the Bar Association of the City of New York, the American Bar Association and the New York State Bar Association, serving on various Tax and Exempt Organization committees. He is also a member of the board of Metropolitan Jewish Health System and a Fellow of the American College of Investment Counsel.


Articles By This Author

Applying for Tax Exemption? Toy with the IRS at Your Peril

Posted on February 5, 2010 by Jacob I. Friedman

The Tax Court recently delivered some sound advice – do not play “cat and mouse” with the IRS.  In Ohio Disability Association v. Commissioner, a Tax Court Memo filed November 12, 2009, the Tax Court rejected the petitioner’s request for a declaratory judgment that it qualified as a public charity.  The court’s rejection was based on its inability to conclude that the organization would operate exclusively for exempt purposes.

The opinion is instructive on how not to deal with the IRS in the exemption process.  Organizations seeking IRS recognition of tax exemption (which is required of almost all charities, except for churches) must file a 26-page Form 1023, which is explained in 38 pages of instructions.  The IRS also has extensive questions and answers further explaining Form 1023.

Notwithstanding the broad scope of the questions on the Form 1023, it is quite typical to receive further extensive questions from the IRS following its review of the Form 1023 submission package.  These questions usually seek elaboration on the current and proposed activities of the organization, compensation structure, information about the Board members, copies of documents referred to in the application (e.g., bond offering, leases, and employment agreements).  Some practitioners sometimes treat these supplemental IRS questions in a cavalier manner, considering them a nuisance.  This type of response is a mistake, as the petitioner in Ohio Disability Association v. Commissioner learned.  At a minimum, responding to IRS questions in this manner often leads to extensive delay in obtaining an IRS exemption letter.

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Parsonage: Are Clerics Employees or Self-Employed?

Posted on December 4, 2009 by Jacob I. Friedman

Parsonage is a seemingly innocuous five line tax benefit in the Code.  This "innocent" provision of the Code, Section 107, appears to have befuddled many ministers and their professional advisors, however.

 

About 90 years ago, Congress promulgated an exclusion from income for the rental value of the housing provided to a “minister of the gospel,” which includes priests, rabbis, imams and any other duly ordained, commissioned or licensed member of the clergy.  Alternatively, the minister can exclude the rental allowance paid as part of compensation, to the extent actually used as rent or other costs of home ownership.  Since 2002, the allowance is capped at fair rental value, including furnishings and appurtenances (such as a garage), plus the cost of utilities.

 

While there are IRS publications that explain the tax nuances of parsonage (e.g., Publication 517 and The Tax Guide for Churches and Religious Organizations), the unusual tax treatment of ministers can still be very confusing.

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NY Endowment Funds: Fiduciary Obligations & The Prudence Standard

Posted on November 11, 2009 by Jacob I. Friedman

With the plethora of news articles about charitable endowment losses as a result of investments with Bernie Madoff, it is incumbent on fiduciaries to review some fundamental laws on endowment.  These laws differ in each state.  This article will briefly review the rules applicable to endowments in New York.

An endowment fund is created when a person or entity donates money to a charity with the condition that the corporation cannot spend the money freely (commonly known as “permanently restricted”). The original donation is called the historic dollar value, that is, the aggregate fair value in dollars of (i) an endowment fund at the time it became an endowment fund; (ii) each subsequent donation to the fund at the time it is made, and (iii) each accumulation made pursuant to a direction in the applicable gift instrument at the time the accumulation is added to the fund. In New York, the governing board of an endowment fund operates under standards and guidelines from The New York Not for Profit Corporation Law (“NPC”), the New York Attorney General (“Attorney General”) and because New York has adopted it, principles of the Uniform Management of Institutional Funds Act (“UMIFA”).

Rules Governing Endowment Funds

New York law requires a governing board of a non-profit corporation to use all assets received for the purposes specified by the donor, including payment of reasonable and proper expenses. The board must also account for the endowment fund separate from other accounts. Further, the treasurer of the non-profit corporation must provide members of the board with annual reports of the fund’s assets and income, unless the donor states otherwise. 

The Prudence Standard

Directors and officers of a non-profit corporation must discharge the duties of their positions in good faith and with the degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances, according to the NPC and UMIFA. Before deciding whether to appropriate appreciation from endowment funds, the board must consider factors, such as the long and short term needs of the corporation in carrying out its purposes, its present and anticipated financial needs, expected return on total investments, price level trends and general economic conditions. 

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