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Jamie Bowles

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In April, the New York State Attorney General’s office released guidance addressing key provisions of the New York Not-for-Profit Corporation Law.   For in-depth analysis of the Attorney General’s guidance, click here for an article by Proskauer attorneys Roger Cohen and Ellen Moskowitz.  For this blog’s coverage of the New York…

The Financial Accounting Standards Board (“FASB”) has issued an exposure draft of a Proposed Accounting Standards Update, Presentation of Financial Statements of Not-for-Profit Entities, which would make significant changes to the current reporting rules.  The FASB believes that each of the proposed changes will improve the usefulness of the information provided to stakeholders, reduce the complexity of reporting, or both.  One significant focus of the changes is to make clear which funds are available for expenditure in the organization’s discretion and which are not.

The Advisory Committee on Tax Exempt and Government Entities (“ACT”), an IRS advisory panel, made several recommendations on issues relating to unrelated business taxable income (“UBTI”) in its annual report to the IRS (the “Report”).  In recent years, the IRS has focused on UBTI reporting for tax exempt organizations; issues relating to UBTI reporting were addressed in Colleges and Universities Project Final Report, which was released in April last year.  In light of the IRS’ increased focus on UBTI reporting, ACT selected UBTI as a focus for its annual project.

The IRS recently issued Notice 2014-4 (the “Notice”), which provides interim guidance for Type III supporting organizations seeking to qualify as functionally integrated by supporting governmental organizations.  In December 2012, the IRS issued final and temporary regulations that, among other things, set forth the requirements for an organization to qualify as a functionally integrated Type III supporting organization.  However, these regulations reserved Section 1.509(a)-4(i)(4)(iv) to provide additional guidance on the requirements for qualifying as a functionally integrated by supporting a governmental supported organization.

A supporting organization, described in Section 509(a)(3) of the Code, is an organization that supports one or more public charities (the “supported organizations”).  A Type III supporting organization is “operated in connection with” one or more supported organizations.  Under the Pension Protection Act of 2006, a Type III supporting organization that is “non-functionally integrated” must pay a certain amount to its supported organization, while a Type III “functionally integrated” supporting organization does not have any payout requirement.

Earlier this year the IRS issued drafts of the 2013 Form 990, Return of Organization Exempt From Income Tax, and 2013 Form 990 Instructions.   Although there were no major changes to the Form 990, there were several changes and clarifications in the draft instructions, including:

  • Short Period Returns.  The draft instructions clarify that a short period return cannot be filed electronically unless it is appropriately designated as an initial return or final return.
  • Change in Accounting Method.  The draft instructions provide that an organization that files Form 990-N (electronic postcard) must report its accounting changes on Form 990, Form 990-EZ or Form 1128.
  • Documentation.  The draft instructions clarify what documentation must be attached to Form 990 to support a name change, or by an organization that has terminated, dissolved, merged or had its exemption revoked by the IRS.
  • Public Support Test.  The draft instructions clarify when an organization can exclude from Schedule B contributors that fall below the greater-than-$5,000/2% threshold.  In order to limit the contributors an organization reports on Schedule B, an organization must complete the “support tests” in Schedule A, Part II.

The IRS recently released an Information Letter, written in response to a congressman’s inquiry about an unidentified charity’s unidentified practices, confirming that Section 501(c)(3) organizations may use the internet to raise funds.  The IRS stated that solicitations made through a website or e-mail should comply with the same rules that apply to other solicitations.  However, any organization raising funds over the internet should consider any state laws and regulations that may apply.

IRS Exempt Organizations group has sent out more than 1,300 questionnaires to self-declared Section 501(c)(4) social welfare organizations; 501(c)(5) labor, agricultural or horticultural organizations; or 501(c)(6) business leagues.  The questionnaires are part of IRS efforts to increase voluntary compliance, learn more about self-declared exempt organizations, and determine whether self-declared exempt organizations are complying with applicable tax-exempt law.  The questionnaires are directed to organizations that are not recognized by the IRS as tax-exempt, but claim exemption under Section 501(c)(4), (5) or (6) and filed a Form 990 for tax years beginning in 2010 or 2011.  Unlike most Section 501(c)(3) organizations, these types of exempt organizations are not required to apply to the IRS for recognition of exemption.

The Internal Revenue Service (“IRS”) has extended the filing date to February 1, 2013 for an eligible exempt organization affected by Hurricane Sandy that previously had its exempt status revoked and is now applying for the reinstatement of its status.  As we have said in this blog entry, the Pension Protection Act of 2006 added Section 6033(j) to the Code, which provides for automatic revocation of the tax exempt status of any organization that fails to file the required information return (i.e., Form 990, Form 990-EZ or Form 990-N) for three consecutive years beginning in 2007.  Any organization subject to automatic revocation must reapply in order to have its tax-exempt status reinstated.