The IRS and Treasury Department have released their annual Priority Guidance Plan (the “Plan”) for the 2012-2013 fiscal year.  The 35-page Plan is available here and includes thirteen projects directly related to Exempt Organizations.  At least five other projects, such as final regulations under Section 170 regarding charitable contributions and guidance on Section 403(b) plans, are also likely to be of interest to Exempt Organizations.

The Internal Revenue Service (“IRS”) has extended the filing date to February 1, 2013 for an eligible exempt organization affected by Hurricane Sandy that previously had its exempt status revoked and is now applying for the reinstatement of its status.  As we have said in this blog entry, the Pension Protection Act of 2006 added Section 6033(j) to the Code, which provides for automatic revocation of the tax exempt status of any organization that fails to file the required information return (i.e., Form 990, Form 990-EZ or Form 990-N) for three consecutive years beginning in 2007.  Any organization subject to automatic revocation must reapply in order to have its tax-exempt status reinstated.

“Cause marketing campaigns,” or “commercial co-ventures” (i.e., advertising campaigns in which a company indicates that the purchase or use of its products will result in a charitable contribution) have long been a popular fundraising tool for charities. Some state charity authorities regulate cause marketing campaigns with a variety of requirements; some states do not regulate the practice. While such campaigns have grown into a billion-dollar-a-year industry, the perception is that they often fail to provide consumers with sufficient information to enable them to understand how their purchases will actually benefit charity. New York Attorney General Eric T. Schneiderman recently issued a set of best practices, entitled “Five Best Practices for Transparent Cause Marketing,” which are designed to promote transparency in cause marketing campaigns. These were developed in and for the state of New York but, as described below, we can expect other states to consider and possibly adopt these best practices as well.

The IRS recently issued proposed regulations amending the rules applicable to a private foundation’s good faith determination that that a foreign grantee is the foreign equivalent of a public charity or private operating foundation, grants to which will be “qualifying distributions” and not “taxable expenditures.” Most significantly, the proposed regulations expand the class of practitioners whose opinion may be relied upon by a private foundation for purposes of making a good faith determination that a foreign grantee is the foreign equivalent of a public charity or private operating foundation. A private foundation may rely on the proposed regulations for grants made on or after September 24, 2012.

Tax-exempt section 501(c)(4) organizations are defined by the Internal Revenue Code as “social welfare organizations.” Treas. Reg. section 1.501(c)(4)-1(a)(2) provides that the organization must be “primarily engaged in promoting in some way the common good and general welfare of the people of the community.” Some members of Congress and the IRS have recently taken an interest in section 501(c)(4) organizations. In a 1982 revenue ruling, the IRS suggested that the gift tax would apply to donations to such organizations, but the first indications of actual enforcement only appeared in 2011, when the IRS admitted that it had five gift tax audits underway for section donors to section 501(c)(4).

On July 31, 2012, the IRS issued Notice 2012-52 (the “Notice”), providing long awaited confirmation that a charitable contribution to a limited liability company that is wholly owned by a charitable organization, and classified as a disregarded entity for U.S. federal income tax purposes (an “SMLLC”), will be treated as a contribution to a branch or division of the charitable organization. Accordingly, a contribution made to an SMLLC will be deductible for tax purposes to the same extent as a contribution made directly to its sole member, the charitable organization.

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. The hearing was the second in a series examining compliance and transparency issues facing non-profit organizations.