Early on December 2, 2017, the Senate passed the Tax Cuts and Jobs Act (the “Senate Bill”). This blog entry describes certain provisions of the Senate Bill that would have the most significant impact on the nonprofit community, including important differences between the Senate Bill and the prior version of the Senate bill and the bill passed by the House of Representatives (the “House Bill”) (both of which we described several weeks ago in “Updates for Tax-Exempt Organizations from the Senate Markup to the Tax Cuts and Jobs Act”). Continue Reading
Proskauer’s 22nd Annual Trick or Treat Seminar was held on Tuesday, October 31.
The Seminar discussed:
- New Rules for Tax-Exempt Bond Compliance
- The Excess Benefit Transaction Rules
- Hot Topics in Employee Benefits and Executive Compensation for Tax-Exempt Organizations
- Partnership Audit Rules: Considerations for Tax-Exempt Investors
Over the last several days, there have been significant developments relating to the Tax Cuts and Jobs Act, the pending tax reform legislation in Congress. On Thursday, a detailed summary of the Senate Finance Committee’s proposal was released (the “Senate Markup”), and the House Ways and Means Committee voted (in a 24-16, party-line vote) to advance their bill for consideration by the full House of Representatives (the “House Bill”). This alert describes certain provisions of the Senate Markup and House Bill that would have the most significant impact on the nonprofit community, including important differences between the two proposals. We described significant elements of the initial version of the House Bill last week in “New Rules for Tax-Exempt Organizations in the Tax Cuts and Jobs Act.”
House Republican Tax Bill Imposes Excise Tax on Wealthy Private Universities and Excess Compensation of Highly Paid Employees; Subjects State Pension Plans to UBTI Rules
On Thursday, November 2, House Republicans led by Speaker Paul Brady (R-WI) and Chairman of the House Ways & Means Committee Kevin Brady (R-TX), released the first public draft of the much-anticipated Tax Cuts and Jobs Act (the “bill”). (Our full coverage of the bill can be found here.)
In addition to providing substantial rate cuts for corporations and many pass-through businesses and repealing the estate tax, the 429-page document contains several provisions of interest to public charities and private foundations (as well as their advisors).
The United States Supreme Court unanimously ruled in favor of religiously-affiliated hospitals and healthcare organizations in holding that a pension plan need not be established by a church in order to qualify for ERISA’s church plan exemption. Petitioners are religiously affiliated non-profit healthcare organizations appealing decisions by the Third, Seventh, and Ninth Circuit Courts of Appeal that a church must establish an ERISA-exempt church plan. Respondents are current and former employees of these organizations.
On May 4, 2017, President Trump signed an executive order that directs the executive branch to limit its enforcement of the “Johnson Amendment.” As previously reported, the Johnson Amendment prohibits organizations that are exempt under section 501(c)(3) of the Internal Revenue Code from engaging in political campaign activities.¹ The executive order limits enforcement of the Johnson Amendment or any other adverse action against any individual or religious organization for speaking about moral or political issues from a religious perspective. The executive order is unlikely to have any meaningful practical effect because, as has been widely reported, the Johnson Amendment is not currently being enforced.
The executive order also directs the Secretaries of Treasury, Labor, and Health and Human Services to write regulations to address objections to the requirement in the Affordable Care Act that employers fund contraceptive health services for their employees. Continue Reading
On April 6, 2016, the Department of Labor under the Obama administration issued a new final rule and exemptions addressing when a person providing investment advice with respect to an employee benefit plan or individual retirement account is considered to be a “fiduciary” under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code. The fiduciary rule aimed to reduce the allegedly conflicted investment advice given to retirement savers, and was scheduled to become applicable on April 10, 2017. See our client alert here outlining the significance of the rule and the implications of the expanded definition of “fiduciary” for investment advisors and other related service providers. Continue Reading
Not-for-Profit Corporation Law (“NPCL”) § 715-b, enacted as part of the New York Nonprofit Revitalization Act (covered here and here), requires New York not-for-profit corporations with 20 or more employees and annual revenue in excess of $1 million to adopt whistleblower policies “to protect from retaliation persons who report suspected improper conduct.” Although the statute does not expressly authorize suits by whistleblowers, in Pietra v. Poly Prep Country Day School, No. 506586/2015 (N.Y. Sup. Ct., Kings Cty. October 1, 2016), acting Brooklyn Supreme Court Justice Loren Baily-Schiffman held that a former employee of Poly Prep Country Day School (the “School”), a New York not-for-profit corporation, had a private action against the School to recover damages resulting from the School’s alleged failure to adopt a whistleblower policy in accordance with NPCL § 715-b. Continue Reading
While speaking at the National Prayer Breakfast on February 2, 2017, President Trump reaffirmed his commitment to repeal the law that restricts organizations that are tax exempt under Section 501(c)(3) of the Internal Revenue Code (“Code”) from engaging in political campaign activities. This law, enacted in 1954, is commonly known as the Johnson Amendment since it was proposed by then-Senator Lyndon B. Johnson. During the breakfast, President Trump stated: “I will get rid and totally destroy the Johnson Amendment and allow our representatives of faith to speak freely and without fear of retribution. I will do that. Remember.” This statement is in line with President Trump’s campaign promises. In his acceptance speech at the Republican National Convention, Trump expressed his commitment to repeal the Johnson Amendment to provide freedom of speech to all Americans. Continue Reading
Form Deadline Is March 3, 2017
The U.S. Department of the Treasury recently released a revised Form SHC (with corresponding instructions), which is part of the Treasury International Capital (TIC) data reporting system. Form SHC is the mandatory five-year benchmark survey of the ownership of foreign securities (including selected money market instruments) by U.S. residents. The report is due to the Federal Reserve Board of NY (the FRBNY) by March 3, 2017 for data reportable as of December 31, 2016. U.S. persons who meet the reporting thresholds are required to file Form SHC even if they have not otherwise been contacted by the FRBNY.
Who Must Report
Form SHC must be filed by all U.S. persons (including U.S. person affiliates of foreign entities) who are:
- U.S.-resident end-investors who invest for their own portfolios (such as pension plans, foundation, endowments and other institutional investors) and/or invest on behalf of others (such as investment managers and fund sponsors) at least $200 million of reportable foreign securities as of the close of business on December 31, 2016;
- U.S.-resident custodians who hold in safekeeping at least $200 million of reportable foreign securities for U.S. persons as of the close of business on December 31, 2016; or
- U.S.-resident end-investors and custodians who receive a letter from the FRBNY requiring them to report, even if the recipient of the letter does not meet the $200 million reporting threshold. The FRBNY has recently begun sending such letters to certain U.S. persons who are required to report on Form SHC.
In general, reportable securities include foreign equity securities, short-term debt securities (including selected money market instruments), long-term debt securities and asset-backed securities. Equity interests or other securities issued by foreign-resident funds or similar investment vehicles (e.g., interests issued by a non-U.S. master fund to a U.S. feeder fund) qualify as reportable securities. Reportable foreign securities do not include, among other things, direct investments (ownership of 10% or more of the voting securities of an entity); derivatives; loans and loan participation certificates; bank deposits; foreign securities temporarily acquired under reverse repurchase, borrowing or lending arrangements; the underlying security of a depositary receipt; or any U.S. securities.
In the case of an organization, reports should be filed on a consolidated basis by the top U.S.-resident parent entity in the organization and should include all reportable securities held or managed by all U.S.-resident parts of the organization, including all U.S.-resident branches, offices and subsidiaries. Generally, a U.S.-resident investment adviser that is subject to the reporting obligation will be required to file one consolidated report covering the reportable securities for all U.S.-resident parts of its own organization and for all U.S.-resident funds that it manages or sponsors. Furthermore, a U.S.-resident fund managed by a foreign-resident investment adviser that meets the reporting threshold will be required to submit a report.
Information Required by Form SHC
Form SHC is comprised of three schedules:
- Schedule 1 requests identifying information from the U.S. reporter and a summary of Schedules 2 and 3 (if applicable). Schedule 1 must be filed by all U.S. reporters that (i) meet the reporting threshold or (ii) were contacted by the FRBNY to report on Form SHC.
- Schedule 2 requests position-level data from a U.S. reporter on foreign securities for which (i) the U.S. reporter manages safekeeping for itself or its U.S.-resident clients or (ii) a U.S.-resident custodian does not otherwise manage the safekeeping (which includes, for the avoidance of doubt, foreign securities safe-kept directly at a foreign-resident sub-custodian or U.S.-resident or foreign-resident central securities depositories (“CSDs”)). A U.S. reporter must file a separate Schedule 2 for each reportable security. A U.S. reporter is exempt from reporting on Schedule 2 if the total fair value of foreign securities reportable on Schedule 2 is less than $200 million.
- Schedule 3 is used to report summary amounts for all foreign securities entrusted to an unaffiliated U.S.-resident custodian (excluding those entrusted to a U.S.-resident CSD). A U.S. reporter (including a U.S.-resident end-investor) must file a separate Schedule 3 for each U.S.-resident custodian with which the reporter has holdings of foreign securities that exceed $200 million, aggregated over all accounts with such custodian.
Completed reports may be submitted to the FRBNY on paper or electronically through the Federal Reserve Reporting Central System. The information collected on Form SHC reports may be used only for analytical and statistical purposes and to enforce the International Investment and Trade in Services Survey Act. The information may only be accessed by officials and employees (including consultants, contractors and their employees) designated to perform functions under such Act. Aggregate data obtained from reports on Form SHC will be publicly disclosed, but only in a manner that will not reveal information as reported by any individual respondent.
Additional information and guidance, including a copy of Form SHC and the Instructions, are available here. If you have any questions about Form SHC or the reporting requirements, please contact your Proskauer attorney.