Elizabeth M. Mills

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The American Taxpayer Relief Act of 2012 (“TRA”) (H.R. 8) passed by the Senate on January 1, 2013, passed by the House of Representatives early on January 2, 2013 and signed by President Obama, in large part addresses income and other tax rates without direct effect on tax-exempt organizations. Several provisions, however, will be of interest to tax-exempt organizations: the extension of several incentives to make certain charitable donations; the return of deduction limitations for certain individuals, including the charitable deduction; the absence of new limitations on tax-exempt financing; and the end of grants and loans to co-op nonprofit insurers exempt under the new provisions of Section 501(c)(29) of the Internal Revenue Code.

On July 31, 2012, the IRS issued Notice 2012-52 (the “Notice”), providing long awaited confirmation that a charitable contribution to a limited liability company that is wholly owned by a charitable organization, and classified as a disregarded entity for U.S. federal income tax purposes (an “SMLLC”), will be treated as a contribution to a branch or division of the charitable organization. Accordingly, a contribution made to an SMLLC will be deductible for tax purposes to the same extent as a contribution made directly to its sole member, the charitable organization.

A new provision which was slipped in to the annual announcement of procedures for exempt organization determinations and letter rulings provides a way for governmental entities to voluntarily terminate their Section 501(c)(3) status. This is important for governmental hospitals that otherwise could be faced with new exemption requirements and penalties.
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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.
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As we have previously reported, the Affordable Care Act (the “Act”) included additional requirements for tax-exempt hospitals to maintain their tax-exempt status; these changes are effective for tax years starting after March 23, 2010, the enactment date of the Act.  　

These additional requirements included Form 990 reporting obligations for …

In Mayo Foundation for Medical Education and Research v. United States , the U.S. Supreme Court upheld the validity of a Treasury Regulation that states that the student exception from FICA (Social Security and Medicare) tax does not apply to medical residents because they work at least 40 hours per week. Applying the deferential two-part standard of review from Chevron  the Supreme Court concluded that the relevant statutory provision was ambiguous and the regulation was a permissible interpretation of the statute.

For background on the medical resident FICA issue, click here.

As we have previously reported, since the 1990’s many academic medical centers and individual medical residents have filed claims with the IRS seeking refunds of FICA taxes paid on medical resident salaries based on the argument that the residents are students and thus exempt from FICA. In March 2010, the IRS announced that it would concede and pay outstanding claims for periods before April 1, 2005. April 1, 2005 is the date the new FICA regulation precluding student status for full-time workers  went into effect.

Last week, the IRS and Treasury Department released their annual Priority Guidance Plan for the 2010-2011 federal fiscal year.  The 34-page plan is available here.  The IRS exempt organizations web page identifies and lists eighteen items in the plan that affect exempt organizations.  Of the eighteen items, eleven were …

We have been closely following the medical resident FICA refund issue. As we noted in our blog entry in March on the topic, the IRS conceded that refund claims for FICA taxes for medical residents for the periods before April 1, 2005 will be paid. The IRS has now announced this month that it has begun sending letters to individual medical residents who filed individual claims for FICA refunds. These letters ask the individuals to submit copies of their claims.
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