On August 11, 2010, the commencement of the observance of Ramadan, a charity alert was issued by the United States Treasury Department. Treasury acknowledged the importance of charitable giving during the month-long observance and used this opportunity to express concern about possible exploitation of all charities by terrorist organizations. The alert outlines steps for charities and donors to take in order to “guard against terrorist abuse.”
Jacob I. Friedman
Will it Take a Constitutional Miracle to Save the Parsonage Exclusion?
By Jacob I. Friedman on
When we last blogged about the “seemingly innocuous five line tax benefit” in Section 107 of the Internal Revenue Code, a District Court judge in California was reviewing a complaint filed by the Freedom From Religion Foundation, a nonprofit membership organization challenging this 90 year old provision.
Eight years after President Bush signed the new law on May 20, 2002, Judge Shubb of the Eastern District of California (on May 21, 2010) declined to dismiss the latest challenge to the parsonage exemption. A finding of unconstitutionality can cost clergy billions of dollars in tax over the next few years. This burden would likely be passed on to the religious institutions that employ clergy.
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Applying for Tax Exemption? Toy with the IRS at Your Peril
By Jacob I. Friedman on
The Tax Court recently delivered some sound advice – do not play “cat and mouse” with the IRS. In Ohio Disability Association v. Commissioner, a Tax Court Memo filed November 12, 2009, the Tax Court rejected the petitioner’s request for a declaratory judgment that it qualified as a public charity. The court’s rejection was based on its inability to conclude that the organization would operate exclusively for exempt purposes.
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Parsonage: Are Clerics Employees or Self-Employed?
By Jacob I. Friedman on
Parsonage is a seemingly innocuous five line tax benefit in the Code. This “innocent” provision of the Code, Section 107, appears to have befuddled many ministers and their professional advisors, however.
About 90 years ago, Congress promulgated an exclusion from income for the rental value of the housing provided to a “minister of the gospel,” which includes priests, rabbis, imams and any other duly ordained, commissioned or licensed member of the clergy. Alternatively, the minister can exclude the rental allowance paid as part of compensation, to the extent actually used as rent or other costs of home ownership. Since 2002, the allowance is capped at fair rental value, including furnishings and appurtenances (such as a garage), plus the cost of utilities.
While there are IRS publications that explain the tax nuances of parsonage (e.g., Publication 517 and The Tax Guide for Churches and Religious Organizations), the unusual tax treatment of ministers can still be very confusing.
NY Endowment Funds: Fiduciary Obligations & The Prudence Standard
By Jacob I. Friedman on
With the plethora of news articles about charitable endowment losses as a result of investments with Bernie Madoff, it is incumbent on fiduciaries to review some fundamental laws on endowment. These laws differ in each state. This article will briefly review the rules applicable to endowments in New York.
An endowment fund is created when a person or entity donates money to a charity with the condition that the corporation cannot spend the money freely (commonly known as “permanently restricted”). The original donation is called the historic dollar value, that is, the aggregate fair value in dollars of (i) an endowment fund at the time it became an endowment fund; (ii) each subsequent donation to the fund at the time it is made, and (iii) each accumulation made pursuant to a direction in the applicable gift instrument at the time the accumulation is added to the fund. In New York, the governing board of an endowment fund operates under standards and guidelines from The New York Not for Profit Corporation Law (“NPC”), the New York Attorney General (“Attorney General”) and because New York has adopted it, principles of the Uniform Management of Institutional Funds Act (“UMIFA”).
Rules Governing Endowment Funds
New York law requires a governing board of a non-profit corporation to use all assets received for the purposes specified by the donor, including payment of reasonable and proper expenses. The board must also account for the endowment fund separate from other accounts. Further, the treasurer of the non-profit corporation must provide members of the board with annual reports of the fund’s assets and income, unless the donor states otherwise.
The Prudence Standard
Directors and officers of a non-profit corporation must discharge the duties of their positions in good faith and with the degree of diligence, care and skill which ordinarily prudent men would exercise under similar circumstances, according to the NPC and UMIFA. Before deciding whether to appropriate appreciation from endowment funds, the board must consider factors, such as the long and short term needs of the corporation in carrying out its purposes, its present and anticipated financial needs, expected return on total investments, price level trends and general economic conditions.