Along with making significant changes to the rules for supporting organizations (“SOs”) and donor advised funds (“DAFs”) in the Pension Protection Act of 2006 (the “PPA”), Congress directed that Treasury conduct a study on the organization and operation of SOs and DAFs. Congress gave Treasury one year after the enactment of the PPA to submit a report on the study. On December 5th, more than four years past the prescribed deadline, Treasury finally released its long-awaited report to Congress.
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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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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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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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The IRS recently released a new list of FAQ and tips for Part VI of Form 990, which requires an exempt organization to provide certain information about its governing board and management, as well as its governance policies and disclosure practices. 

               Of particular interest is the clarification that questions in Section B (about whether an exempt organization has adopted certain governance policies such as a written conflict of interest policy and a written whistleblower policy) may be answered affirmatively if a committee of the board with the power to do so has approved such policies by the close of the tax year. This should come as welcome news to those exempt organizations that reacted negatively to a 2010 revision to the instructions, which stated that an organization should only answer yes to these questions if its entire governing board adopted the policies. Some exempt organizations complained that requiring full board approval was in contrast to their usual practice of delegating the authority to adopt such policies to a committee of the governing board. An IRS official indicated earlier this week that in addition to making this point clear in the new FAQ, the IRS will be revising the 2011 instructions to Form 990 accordingly. 

Some of the other key points of guidance in the new FAQ are highlighted below:

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.