On May 26, the Internal Revenue Service (“IRS”) and the U.S. Department of the Treasury issued final regulations (the “Final Regulations”) relaxing nonprofit donor disclosure requirements under section 6033[1] of the Internal Revenue Code (the “Code”) for many non-charitable tax-exempt organizations. Stated generally, section 6033 requires organizations exempt from taxation under section 501(a) (including section 527 political organizations) to file an annual information return with the IRS, such as a Form 990, Form 990-EZ, or Form 990-N. Section 6033 and the regulations thereunder grant the IRS discretionary authority to determine what information must be reported on such return in light of the efficient administration of the internal revenue laws.

The Final Regulations largely adhere to the proposed regulations issued in September 2019 (the “Proposed Regulations”) and provide that tax-exempt organizations other than section 501(c)(3) charitable organizations, such as section 501(c)(4) social welfare organizations and section 501(c)(6) trade associations, are no longer required to annually disclose the names and addresses of “substantial contributors” (those contributing $5,000 or more) on Schedule B of their Forms 990 or 990-EZ. The Final Regulations confirm, however, that all tax-exempt organizations must continue to report the amounts of contributions from each substantial contributor and maintain the names and addresses of such contributors in their books and records, should the IRS request this information at a later date. Moreover, the revised disclosure rule does not extend to section 501(c)(3) charitable organizations or section 527 political organizations, and such organizations must continue to disclose the names and addresses of substantial donors on annual information returns.

The Protecting Americans from Tax Hikes (“PATH”) Act of 2015, enacted in December 2015, requires organizations to notify the IRS if they desire to operate under Section 501(c)(4) of the Internal Revenue Code (“Code”).  (Only organizations described in Section 501(c)(3) of the Code are required to apply for and receive recognition of their tax-exempt status; other organizations, such as social welfare organizations described in Section 501(c)(4), may apply to the IRS for recognition of exempt status but are not required to do so in order to be exempt.) 

On June 21, 2016, the Internal Revenue Service (IRS) issued anticipated proposed Treasury Regulations prescribing rules under Section 457 of the Internal Revenue Code for the income taxation of deferred compensation arrangements for employees of tax-exempt organizations and state and local governments. The IRS also released new proposed Treasury Regulations under Code Section 409A.

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.

Every January, the IRS releases a series of revenue procedures detailing how organizations can obtain private letter rulings and determinations and listing issues on which the IRS will not rule during the coming year.  This year’s procedures make clear that tax-exempt organizations will no longer be able to receive a ruling or any comfort from the IRS that changes in their operations are consistent with their tax-exempt status.  In other words, exempt organizations are on their own.

Until recently, an organization could request a private letter ruling from the Exempt Organizations technical branch that a particular activity or transaction would not generate unrelated business taxable income or adversely affect exempt status.  The IRS would not rule on factual issues, such as whether a proposed transaction was at a fair market value price, and would not rule on a few specific issues, such as whether participation in a joint venture with a for-profit entity would affect exempt status.

On September 16, 2015, the IRS issued proposed regulations concerning the time and manner for donee organizations to file information returns that report required information about charitable contributions.  The proposed regulations would implement an exception to the requirement that a taxpayer who claims a charitable contribution deduction for any contribution of $250 or more to obtain substantiation in the form of a “contemporaneous written acknowledgement” from the donee organization.

Previously, some taxpayers have argued that donations can be substantiated by filing an amended Form 990, even years after the claimed donation is made; however, the IRS has rejected this position.  Instead, pursuant to the proposed regulations, the IRS will develop an optional “specific-use information return for donee reporting” intended to provide for timely reporting, while also minimizing reporting burdens on donees and protecting donor privacy.

On March 31, 2015, the Commissioner of the IRS reported in a speech to the National Press Club that the IRS is “under new management” due to major changes in management staff over the last few years.  Many of these management changes, as well as changes in organization and procedures, were in the Tax-Exempt and Governmental Entities (TEGE) branch of the IRS.

Organizational Changes.  Previously, an Exempt Organizations Rulings and Agreements branch was responsible for issuing exemption determination letters.  This function was headquartered in Cincinnati but several types of applications were required to be referred to an EO Technical branch in Washington (formerly referred to as the National Office).  EO Technical also issued private letter rulings and gave technical advice.  This was unlike other branches of the IRS.  Elsewhere branches of the IRS Chief Counsel’s office, rather than technical staff reporting to the associate commissioners, were responsible for the private letter ruling and technical advice function.  In Announcement 2014-34, the IRS explained that its Tax Exempt and Government Entities Division (TE/GE) was being realigned.  Technical responsibility for preparing technical advice and private letter rulings, as well as revenue rulings, revenue procedures, announcements, and notices, was shifted to TEGE Counsel effective January 2, 2015.  The EO Rulings and Agreements branch will retain its authority to issue determination letters approving or denying tax-exempt status as well as miscellaneous determinations addressed in Form 8940.

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.

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.