On February 19, 2016, the IRS and Treasury Department issued proposed regulations regarding (i) prohibitions on certain contributions to Type I and Type III supporting organizations and (ii) requirements for Type III supporting organizations. These proposed regulations reflect changes to the law made by the Pension Protection Act of 2006, which changed the requirements an organization must satisfy to qualify as a Type III supporting organization.
IRS Rules on Domesticated Organization and Tax-Exempt Status
Late last year, the Internal Revenue Service (“IRS”) issued a letter ruling, PLR 201446025, providing that, in certain instances, a nonprofit corporation exempt under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and incorporated in State A was not required to file a new application for tax-exempt status (IRS Form 1023) when it changed its domicile to State B by filing “Articles of Domestication” in State B and “Articles of Conversion” in State A.
In the ruling, the law of State B stated that the corporation’s filing of “Articles of Domestication” would not affect its original incorporation date. The law of State B also stated that the corporation would be considered the same corporation as the one that existed under the laws of State A, the state in which the corporation was previously domiciled. Similarly, the governing law of State A stated that following the corporation’s filing of “Articles of Conversion,” the corporation would continue to exist without interruption and be able to maintain its same liabilities and obligations.
IRS Issues Final and Temporary Regulations on Supporting Organizations
Many practitioners have been anxious to leaf through regulations to confidently determine whether an organization is a “functionally integrated” or “non-functionally integrated” Type III supporting organization, and the implications of either classification.
On December 28, 2012, the Internal Revenue Service released the long-awaited final regulations for Type III supporting organizations, as well as temporary regulations addressing annual distribution requirements. The text of the temporary regulations also serves as the text of the proposed regulations. The final regulations describe all of the other requirements (outside of the annual distribution requirement explained below) of a Type III supporting organization’s relationship with its supported organization.
Charity Loses Tax Exemption Because of Private Inurement – Is Your Charity Immune?
In PLR 20113041, the IRS revoked the tax exemption of a public charity based on excess benefit and private inurement issues revealed during the course of its examination. This ruling highlights practices that charities should avoid in order to maintain their tax-exempt status. This ruling also confirms that the IRS is paying close attention to what charities are doing in their “back” offices.
CFA Institute Releases Investment Management Code of Conduct for Charities
The CFA Institute has released guidance on the management of the financial resources of philanthropic organizations. Specifically, the CFA Institute developed the Investment Management Code of Conduct for Endowments, Foundations, and Charitable Organizations to specifically address the management of what are typically longer-term or permanent financial assets of these organizations. Board members and officers should be aware of the principles articulated in the Code of Conduct to successfully manage the investment of these types of assets and to ultimately protect the organization’s investments.
IRS Announces how Exempt Organizations can Claim New Health Care Tax Credit
The IRS today has released a draft version of the form that small businesses and exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible exempt organizations — which do not generally file income tax returns — will claim the credit during the 2011 filing season.
Proskauer’s Pro Bono Initiative Committee Discusses Expansion
Earlier this month, the Metropolitan Corporate Counsel interviewed Scott Harshbarger, Chair of Proskauer’s Pro Bono Initiative Committee, and Stacey O’Haire Fahey, Pro Bono Counsel at Proskauer, about the Pro Bono Initiative at Proskauer. Harshbarger and Fahey are also members of the Firm’s Not-for-Profit/Exempt Organizations group.
In addition to the many pro bono matters, including asylum, adoption, and advocacy projects, on which the Pro Bono Initiative works, the Initiative also represents all kinds of not-for-profit and exempt organizations (including community organizations and start-ups) that meet the financial criteria for pro bono services.
IRS Offers Relief for Small Organizations that Failed to File Returns for Three Consecutive Years
Small not-for-profit organizations at risk of losing their tax exemption because of their failure to file the Form 990-N or Form 990-EZ for the 2007, 2008, and 2009 taxable years can preserve their status by filing these returns by October 15, 2010. The IRS announced yesterday a one-time relief program for these organizations that will give them a “pass” until October 15, 2010.
Two types of relief are available for small exempt organizations — a filing extension for the smallest organizations required to file Form 990-N and a voluntary compliance program (“VCP”) for small organizations eligible to file Form 990-EZ.
Could a New Quasi-Charitable For-Profit Be Emerging in the Tax Code?
A majority staff director for the Senate Finance Committee said that perhaps it might be time to consider the tax liability for an entity that is neither wholly charitable nor wholly for-profit. In fact, the director said that the Senate Finance Committee wrestled with the problem of a quasi-charitable entity in enacting the health care legislation, and said that the tax treatment of not-for-profit organizations might be revisited further in the tax reform context.
NJ Not-for-Profit Organization Loses Its Property Tax Exemption Because of For Profit Activities
In an interesting recent decision, International Schools Services Inc. v. West Windsor Township, N.J., the New Jersey Superior Court Appellate Division ruled that a not-for-profit organization whose purposes were to aid, promote and encourage educational organizations should lose its property tax exemption because its operation and use of the property was conducted for profit. This decision should make not-for-profits with affiliated for-profits or an ongoing working relationship with for-profits carefully scrutinize their activities with these for-profit entities.