The IRS continues to implement the “three years and you’re out” rule for Form 990 non-filers added by the Pension Protection Act of 2006 (the “PPA”). That legislation amended Section 6033 of the Internal Revenue Code to provide that exempt organizations required to file a Form 990-series return (i.e., a Form 990, Form 990-EZ or … Continue Reading
On July 25, 2012, the Oversight Subcommittee of the House Committee on Ways and Means, led by Congressman Charles W. Boustany Jr., MD (R-LA), heard testimony from the IRS and experts in the tax exempt community on the growing complexity of non-profit organizational structures, tax issues concerning unrelated business income and the redesigned Form 990. … Continue Reading
Last week, the IRS Advisory Committee on Tax Exempt and Government Entities (“ACT”) held a public meeting at which the panel submitted its latest round of recommendations to senior IRS executives. At the meeting, the ACT’s Exempt Organizations project team presented a report containing several recommendations intended to improve the application process for organizations seeking … Continue Reading
Incorporating under Delaware law can be an attractive option for a not-for-profit organization because Delaware law often grants greater flexibility with respect to the governance and structuring of the organization. For example, under Delaware law, a corporation (whether organized for profit or not) is only required to have one director, whereas the majority of states require a not-for-profit organization to have at least three directors, and Delaware law does not require a corporation to have officers.
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It is essential that all public charities understand the basic rules surrounding their exemption. Indeed, achieving tax-exempt status is only half the battle - once an organization has established that it is tax-exempt, it must set up the proper checks to ensure that it meets ongoing compliance obligations. Plainly, certain activities can jeopardize an organization's tax-exempt status or subject it to penalties. Because the IRS revised its Compliance Guide for Public Charities and we are in such a highly regulatory environment, we thought it would be helpful to discuss some of the basic rules surrounding tax exemption.
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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.
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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.
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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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The IRS has reported that user fees will increase for all applications for exemption (Forms 1023, 1024, and 1028) postmarked after January 3, 2010: $400 for organizations whose gross receipts are $10,000 or less annually over a 4-year period (Currently $300) $850 for organizations whose gross receipts exceed $10,000 annually over a 4-year period (Currently $750) $3,000 … Continue Reading
People have been whispering among themselves about the L3C, an emerging low-profit limited liability company structure that aspires to link business methods with charitable purposes and give socially oriented businesses greater access to investor capital. The structure was created by Robert M. Lang, Jr., CEO of the Mary Elizabeth & Gordon B. Mannweiler Foundation. Conceptually, the L3C is a hybrid not-for-profit/for-profit entity: like a … Continue Reading
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