Photo of David S. Miller

David Miller is a partner in the Tax Department. David advises clients on a broad range of domestic and international corporate tax issues. His practice covers the taxation of financial instruments and derivatives, cross-border lending transactions and other financings, international and domestic mergers and acquisitions, multinational corporate groups and partnerships, private equity and hedge funds, bankruptcy and workouts, high-net-worth individuals and families, and public charities and private foundations. He advises companies in virtually all major industries, including banking, finance, private equity, health care, life sciences, real estate, technology, consumer products, entertainment and energy.

David is strongly committed to pro bono service, and has represented more than 200 charities. In 2011, he was named as one of eight “Lawyers Who Lead by Example” by the New York Law Journal for his pro bono service. David has also been recognized for his pro bono work by The Legal Aid Society, Legal Services for New York City and New York Lawyers For The Public Interest.

Introduction

Tax-exempt organizations, while not generally subject to tax, are subject to tax on their “unrelated business taxable income” (“UBTI”).  One category of UBTI is debt-financed income; that is, a tax-exempt organization that borrows money directly or through a partnership and uses that money to make an investment is generally subject to tax on a portion of the income or gain from that investment.[1]  However, under section 514(c)(9),[2] “educational organizations” are not subject to tax on their debt-financed income from certain real estate investments.

The Mayo Clinic in Minnesota is one of the country’s leading hospitals.  Between 2003 and 2012, the Mayo Clinic was a partner in a partnership that borrowed money to make real estate investments.[3]

On November 22, 2022, U.S. District Court for the district of Minnesota held that the Mayo Clinic qualified as an educational organization within the meaning of section 514(c)(9) and, therefore, was not subject to tax on the debt-financed income from the partnership.[4]

Proskauer’s 26th Annual Trick or Treat Seminar was held virtually on Friday, October 29th and discussed timely topics and best practices specifically tailored to the not-for-profit community.

The seminar discussed:

  • Workplace challenges: Mandatory vaccinations, HERO act and other considerations
  • Tax proposals impacting nonprofit organizations
  • Employee benefits update

Amanda Nussbaum welcomed everyone and introduced the presenters.

On April 23, the Treasury Department and the Internal Revenue Service (the “IRS”) issued helpful proposed regulations under section 512(a)(6) of the Internal Revenue Code (the “proposed regulations”).  Section 512(a)(6) was enacted as part of the 2017 Tax Cut and Jobs Act (the “TCJA”) and requires exempt organizations (including individual retirement accounts) to calculate unrelated business taxable income (“UBTI”) separately with respect to each of their unrelated trades or businesses, thereby limiting the ability to use losses from one business to offset income or gain from another.[1]  In August 2018, the Treasury Department and the IRS issued Notice 2018-67 (the “Notice”), which provided interim guidance on the application of section 512(a)(6).  The proposed regulations liberalize and simplify the initial guidance in the Notice.  In short:

  1. Very helpfully, the proposed regulations use the two-digit North American Industry Classification System (“NAICS”) codes as the primary method of identifying separate trades or businesses, rather than the six-digit codes suggested in the Notice. This reduces the numbers of trades or businesses from over 1,050 under the Notice to twenty under the proposed regulations, which will greatly reduce the compliance burden for many tax-exempt entities and enhance their ability to use losses.
  2. The proposed regulations helpfully liberalize the rules contained in the Notice that allow tax-exempt entities to treat investment activities (including, in particular, “qualifying partnership interests” (“QPIs”)) as a single trade or business (and thereby aggregate net income and gains and losses from those investment activities). However, the proposed regulations should clarify that traditional minority rights that may be held by a tax-exempt entity in an investment partnership do not disqualify an interest in that partnership from being a QPI.

The proposed regulations will apply to taxable years beginning on or after the date the regulations are published as final; however, taxpayers may rely on the proposed regulations before they are finalized.  In addition, until the proposed regulations are finalized, exempt organizations may rely on a reasonable, good-faith interpretation of what constitutes a separate trade or business under current law or the methods described in the Notice for aggregating or identifying separate trades or businesses.

On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (“FFCRA”) (H.R. 6201), and on March 27, 2020, he signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (H.R. 748). This alert summarizes certain loan and tax-related provisions of these new laws that are most relevant to nonprofit organizations.

On October 23, 2019, Governor Andrew M. Cuomo, signed legislation incorporating the federal Johnson Amendment into New York law. As previously described, the Johnson Amendment denies tax-exempt status under section 501(c)(3) of the Internal Revenue Code (the “Code”) to (and imposes excise taxes on) any organization that engages in political campaign activities. The new legislation amended section 1116 of New York Tax Law, which will now deny tax-exempt status for N.Y tax purposes to any organization that engages in political campaign activities, either on behalf or in opposition of any candidate for public office.

As we have previously discussed, the 2017 tax reform act created a new excise tax under section 4960 of the Internal Revenue Code that will affect many tax-exempt employers.  The tax is 21% of certain compensation and can be triggered if an employee receives more than $1 million of

On December 31, 2018, the Department of the Treasury (“Treasury”) and the Internal Revenue Service (the “IRS”) released Notice 2019-09 (the “Notice”), which provides interim guidance under Section 4960 of the Internal Revenue Code.

Very generally, Section 4960 imposes a 21% excise tax on certain tax-exempt entities (and certain related

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”).

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).

Introduction

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.