Jacob I. Friedman

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The IRS released its Final Report on its five year study of the audit results of colleges and universities.  Lois G. Lerner, Director of the Exempt Organizations division of the IRS announced the “long awaited” posting of the report.

In 2008, the IRS sent a 33 page questionnaire to 400 randomly selected colleges and universities.  In 2010, the IRS released an Interim Report.  Following review of the responses and Forms 990 and 990-T, the IRS selected 34 schools for audit.  The audits were limited to two specific areas, unrelated business income tax (UBIT) and executive compensation.

The Final report was released on April 25, 2013.  The IRS points out that because the 34 organizations that were audited were not randomly selected, the schools do not represent a statistical sample.

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.

Proskauer’s 16th Annual Trick or Treat Seminar was held on Monday, October 31, 2011. The Seminar discussed:
Corporate Governance for Not-for-Profit/Exempt Organizations
Maintaining Tax-Exempt Status During Election Season
Investment Management under UPMIFA: What’s Required, What’s Good Practice
Executive Compensation & Employee Benefits Developments
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Treasury just released the 2011–2012 Priority Guidance Plan. The Plan lists 317 projects that are priorities for Treasury resources through June 2012. Included in these projects are 13 projects directly related to Exempt Organizations. Many of the other projects such as the 66 employee benefits, executive compensation and employment taxes may affect Exempt Organizations.
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In a tightly written plain English opinion, the D.C. Circuit Court of Appeals in Polm Family Foundation v. U.S. explained an important requirement of Type II supporting organizations.

To be a Type II supporting organization, a charity must satisfy three tests:

 

1.                  the organizational test set forth in IRC Section 509(a)(3)(A),

2.                  the relationship test set forth in IRC Section 509(a)(3)(B)(ii), and

3.                  the control test set forth in IRC Section 509(a)(3)(C).

While the district court  concluded that the charity failed both the relationship test and the control test, the Court of Appeals based its decision on the failure to satisfy the organizational test. The Court said that this test was the most straightforward. 

 

On the last day of 2010, the National Taxpayer Advocate, in its tenth annual report to Congress, recommended that Congress enact a statute of limitations on revocation of a charity’s tax-exempt status, to run concurrently with the current period of limitation on assessments. That period generally is (absent fraud, tax evasion or non-filing) either three or six years.  (This specific recommendation appears on page 391 of the report). 

Under current law, a charitable organization could face revocation of its tax-exempt status and a corresponding assessment in current years based on an audit of years that are closed for purposes of assessment (even though the charitable organization may have met all the requirements to maintain its tax-exempt status in the years open for assessment).

On Friday, December 17, 2010, the President signed into law the unwieldy titled, “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010”.   In order to help explain the provisions in the new law, the Joint Committee on Taxation issued a Technical Explanation.  The Tax Relief Act has many provisions which affect charities, such as changes to the estate tax, income tax rates, capital gains rates, a payroll tax cut, and other changes to the tax law. 

The most successful exempt organizations are those that are well-positioned to run effectively and efficiently. This seminar highlights certain laws and best practices that are necessary for an exempt organization to succeed in this new regulatory landscape.

  • This program will provide Exempt Organizations with information on:   
  • Best Practices for Board

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