Transitional Procedures for Type III Supporting Organizations Failing Responsiveness Test

The IRS has issued transitional relief and filing procedures for certain charitable trusts that fail the responsiveness test for Type III supporting organizations. The procedures are intended for charitable trusts that received a determination recognizing their tax-exempt status under section 501(c)(3) and that met the requirements of section 509(a)(3) until August 17, 2007, and non-exempt charitable trusts described in section 4947(a)(1), that are treated for certain purposes as organizations described in section 501(c)(3), and that met the requirements of section 509(a)(3) until August 17, 2007. More information.

Standard Mileage Rates for 2008

The IRS has announced optional standard mileage rates for employees, self-employed individuals, or other taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. The rate for miles driven in service to charitable organizations remains unchanged from the 2007 rate of 14 cents per mile.
(1) Business 50.5 cents per mile
(2) Charitable contribution 14 cents per mile
(3) Medical and moving 19 cents per mile
For more information

IRS Leadership on Exempt Organizations

Current Climate for Charities - On October 22, 2007, Steven T. Miller, Commissioner, Tax Exempt and Government Entities, addressed the Independent Sector focussing on the current climate for charities.

IRS Role in Evolving Charitable Sector - On November 10, 2007, Steven T. Miller, Commissioner, Tax Exempt and Government Entities, discussed the IRS role in an evolving charitable sector.

Also: New Compliance Guides for 501(c)(3) Public Charities and Private Foundations Issued - These specialized publications for public charities and private foundations provide an overview of activities that could jeopardize exempt status as well as information on recordkeeping, reporting and disclosure compliance requirements.

Tax Considerations in Charitable Auctions

Have you ever attended a charity auction only to have the well-meaning auctioneer rally the audience by saying, "Come on everybody, it's deductible!" In this updated article, Ronnie C. McClure, Ph.D., CPA, suggests donors, bidders, and charitable organizations may be in for a surprise. Although auctions probably fall more under the category of "spontaneous" than "planned" giving, there are several interesting tax facts you might want know before the next gavel falls.

IRS Announces Priority Guidance Plan for 2007-2008

IRS has announced its priority issues for the next year, which include several topics related to nonprofits: forthcoming regulations on the new Form 990, the e-Postcard, new requirements for supporting organizations under the Pension Protection Act of 2006, and revocation standards for nonprofits that engage in excess benefit transactions. A full listing of the 2008 IRS agenda is available on their website.

ALSO: Hearing to Examine Whether Charitable Organizations Serve the Needs of Diverse Communities The U.S. House Ways and Means Subcommittee on Oversight explored the extent to which nonprofits are adequately serving diverse communities at a hearing held on September 24, 2007. Witnesses offered examples of their organizations' efforts, while also acknowledging that nonprofit services aren't sufficient to fill many community needs. Testimony will be transcribed and available for review on the House Ways and Means Subcommittee on Oversight website.

Payout Requirements for Type III Supporting Organizations

The IRS and Treasury have announced proposals regarding the payout requirements for Type III supporting organizations that are not functionally integrated, the criteria for determining whether a Type III supporting organization is functionally integrated, the modified requirements for Type III supporting organizations that are organized as trusts, and the requirements regarding the type of information a Type III supporting organization must provide to its supported organization(s) to demonstrate that it is responsive to its supported organization(s). Full Text - Go to page 753

Online EIN Application

The IRS announced that taxpayers can request an Employer Identification Number (EIN) (necessary, for example, for a corporation, a trust, or other nonprofit organization) through a Web-based system that instantly processes requests and generates identification numbers in real time. IR-2007-161

Notice on Car Donations

The IRS has issued Notice 2007-70 which changes where charitable organization that receive gifts of qualified vehicles such as autos, airplanes, and boats with claimed values exceeding $500 are to file a completed Forms 1098-C and 1096 for years ending on or after December 31, 2008. See Instructions.

New Exempt Organization Determination Procedures

The IRS has issued Rev. Proc. 2007-52, which provides updated procedures for issuing determination letters and rulings on exempt status under sections 501 and 521 of the Internal Revenue Code, effective July 23, 2007. These new procedures will be updated annually.

New Group Ruling Letter for Catholic Entities Available

The annual group ruling letter for Catholic Entities has been issued and is available on the internet at the following address: http://www.usccb.org/ogc/2007GroupRulingMemo.pdf The cover letter by the USCCB Office of General Counsel provides a helpful update on changes in tax law in 2007.

New Exempt Status Determination Procedures

Revenue Procedure 2007-52 sets forth the procedures for issuing determination letters and rulings on exempt status of organizations under section 501 and 521 of the Code. It also applies to revocation and modification of determination letters or rulings, and provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under section 7428. It will be published in IRB 2007-30 dated July 23, 2007.

New Information Reporting Requirement for Many Nonprofits

The IRS is mailing educational letters this month to more than 650,000 small tax-exempt organizations that may be required to submit a new annual notice, Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ. Exempt organizations with receipts of less than $25,000 will need to file the e-Postcard in 2008. Get more information in news release IR-2007-129.

IRS: Exempt Organization Developments

The IRS issued an advance copy of Rev. Proc. 2007-52 setting forth the procedures for issuing determination letters and rulings on exempt status of organizations under sections 501 and 521. These procedures also apply to revocation and modification of determination letters or rulings, and provide guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under section 7428.

In a separate development, the House Ways and Means Oversight Subcommittee will hold an overview hearing on tax exempt organizations according to Subcommitte Chairman John Lewis (D-GA). The hearing will focus on charities and foundations described in Internal Revenue Code section 501(c)(3) and will take place on Tuesday, July 24, 2007, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 10:00 a.m. More information.

IRS Unveils New "Life Cycle" Resource Tools

The IRS website has new information tools ("Life Cycles") to help guide tax-exempt organizations through the federal tax rules that pertain to them. These tools are resources for certain organizations exempt under IRC sections 501(c)(3), (c)(4), (c)(5), and (c)(6). The website provides information about points of intersection between organizations and the IRS with explanatory information and links to forms an organization may need to file with the IRS. Click here.

IRS Releases Discussion Draft of Redesigned Form 990 for Tax-Exempt Organizations

The IRS released for comment and discussion a draft Form 990, the annual return required to be filed by tax-exempt organizations to report information about their operations. The comment period lasts until Sept. 14, 2007. For details on providing comments, see news release IR-2007-117.

News from the IRS

1. Comments Requested on Draft Redesigned Form 990 The IRS released for comment and discussion proposed revisions to Form 990, Return of Organization Exempt from Income Taxation. The IRS hopes to have the form ready for use for the 2008 filing year (returns filed in 2009).
2. Report of the ACT The Advisory Committee on Tax Exempt and Government Entities (ACT) has issued a report on project recommendations for the Tax-Exempt and Government Entities Division. The report includes a proposal for an Exempt Organizations Voluntary Compliance Program.
3. Gaming Phone Forum Script The IRS has posted the script from a recent phone forum on "Gaming and Exempt Organizations."
4. Qualified Conservation Easement Guidance Notice 2007-50 provides guidance on new percentage limitations imposed by Internal Revenue Code section 170(b)(1)(E)(iii) on qualified conservation contributions made by individuals.

Political Campaign Activities of Exempt Organizations

Revenue Ruling 2007-41 provides guidelines for exempt organizations on the scope of the the tax law prohibition of campaign activities by section 501(c)(3) tax-exempt organizations. The ruling sets out 21 factual situations involving 501(c)(3) organizations, including churches, and activities that may be prohibited campaign intervention. In each situation, the ruling applies tax law and regulations and concludes that prohibited political activity has or has not occurred.
The IRS also released its Report on the Political Activity Compliance Initiative for the 2006 election cycle. This report, PACI 2006, follows the report on prohibited political intervention in the 2004 election cycle, which was issued in February 2006.
Links:
http://www.irs.gov/pub/irs-drop/rr-07-41.pdf
http://www.irs.gov/pub/irs-tege/2006paci_report_5-30-07.pdf
IRS Reports on Political Activity Compliance Initiative (2004)

Utilizing Employees as Volunteers

When employees volunteer in their own workplace, it blurs the lines (factually and perceptually) between employment and voluntary engagement. It can become very difficult to distinguish between what employees do for salary and what they do voluntarily. This article looks at the legal and management implications of allowing staff to volunteer within the same organizational structure. Click here.

Nonprofit Employees and Volunteers

Fair Labor Standards Act (“FLSA”) provides that true volunteer activities are not impeded or discouraged while minimizing the risk that the FLSA’s minimum wage and overtime requirements were being abused by employers. Amending the act in 1985, Congress made clear that a volunteer may receive “no compensation,” but may be paid “expenses, reasonable benefits, or a nominal fee.” An individual will be considered a volunteer under the FLSA if the individual:
(1) performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered; although a volunteer can be paid expenses, reasonable benefits, or a nominal fee to perform such services;
(2) offers services freely and without pressure or coercion; and
(3) is not otherwise employed by the same public agency to perform the same type of services as those for which the individual proposes to volunteer. This last provision is explored in a newsletter available here.

Type III Supporting Organizations - Attorney Comments

Attorney Ruth Madrigal of Caplan & Drysdale wrote an open letter to Treasury Tax Legislative Counsel Susan Brown. In it, she discusses how any forthcoming guidance regarding Type III Supporting Organizations that support governmental entities should take into consideration the special circumstances that affect such organizations' abilities to meet the new "functionally integrated" requirements imposed by the Pension Protection Act of 2006. Full Text

Service to Provide Technical Guidance on PPA for TEOs

Notice 2007-45 provides interim guidance on section 6104(d)(1)(A)(ii) of the Internal Revenue Code, added by the Pension Protection Act of 2006. Section 6104(d)(1)(A)(ii) imposes a new requirement on all organizations exempt under section 501(a) and described in section 501(c)(3) to make available for public inspection a copy of their Form 990-T filed with the IRS. It will be published in IRB 2007-22 dated May 29, 2007.

IRS Guidance on Public Inspection of Form 990-T

Notice 2007-45 gives interim IRS guidance on section 6104(d)(1)(A)(ii) of the Internal Revenue Code, added by the Pension Protection Act of 2006. The Act imposed new requirement on all organizations exempt under section 501(a) and described in section 501(c)(3) to make their Form 990-T available for public inspection. Full text.

IRS Guidance on Telephone Refund for Churches and Nonprofits

The annual May 15 filing deadline is here for many nonprofits, and the IRS urges any of these organizations that paid the three percent telephone tax to be sure to request this special refund. The telephone tax refund is also available to churches and small tax-exempt organizations that don’t normally file annual returns with the IRS. Get details and additional links in news release IR-2007-99.

Guidance on Conflicts of Interest

Council on Foundations Issues Conflicts Guidance. When a foundation shares board members with grantees, is this simply mutual benefit or does it create a conflict of interest? The Council on Foundations has asked its members to ponder this issue, and it shares some of their opinions in a recent article. No surprises here: There are two sides to every story. As long as appropriate precautions are in place, grantees and grantors can all benefit. But if there are any concerns about the perception of favoritism or personal benefits, boards might want to reconsider this practice. Click Here

Foreign Gifts

The U.S. Department of the Treasury has posted a helpful risk-management grid to guide nonprofit organizations involved in international activities. This tool focuses on grantmaking and is designed to help charities (including foundations) comply with U.S. sanctions that prohibit transactions with suspected terrorists. The grid not only helps identify potential illegal activity or abuse but also serves as an additional due diligence tool. See Guide

Exempt Status Not Affected by Expanding Purposes

The IRS ruled that the tax-exempt status of a scientific research organization that studies indoor air quality will not be adversely affected when the organization expands its purposes to transform the region where it is located into a leader of environmental research.
Ltr. Rul. 200714026

TY 2006 EO Returns - Significant Changes

The instructions to the 2006 Forms 990 and 990-EZ and Schedule A incorporate significant changes to address legislation enacted in 2006 and comments received from the public. The following are highlights of the significant changes.
IRS officials have highlighted these changes in two public forums; resources from those events may also be of interest

Telephone conferences conducted on March 21 and 22, 2007. The text of the presentation can be found here.

A Tax Talk Today program highlighting legislative changes to exempt organizations tax law

click here
For more information, click here or see the What’s New section of the form instructions.

New Electronic Filing Requirement for Small Tax-Exempt Organizations

Annual Electronic Notice — e-Postcard (Form 990-N)

Beginning in 2008, small tax-exempt organizations that previously were not required to file returns may be required to file an annual electronic notice, Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ. This filing requirement applies to tax periods beginning after December 31, 2006.

For more information, click here
Frequently Asked Questions

Income From Trade Show Activities Not Unrelated Business Income

The IRS has ruled that income a tax-exempt trade group received from its activities with a for-profit trade show operator is not unrelated business income because the activities are substantially related to the trade group's exempt purpose.

"X is exempt from federal income tax as an organization described in section 501(c)(6) of the Code. X represents the a industry to government, media, business and consumers.

Y is a for-profit entity that owns and operates several trade shows for the a industry. The trade shows are held annually around the world, and promote and stimulate interest in the a Industry. The industry is promoted through exhibits and educational programming. The trade shows provide a gathering place for industry professionals to exchange ideas, know-how and exhibit their wares. The educational programming provides ideas for solutions to industry problems; offers trends and innovations; and, promotes awareness of the industry legislative objectives and legal compliance imperatives. The trade shows draw a wide variety of members of the industry, and also attract many consumers of industry products. They attract approximately u attendees and approximately v exhibitors and related staff.

X and Y entered into a b Agreement and subsequently executed a c Agreement that provide the terms and conditions by which X will sponsor two of the annual trade shows conducted by Y."

Under these conditions, the IRS determined that "Conference Net Profit Revenue and Sponsorship Revenue received by X is substantially related to the activities of the organization, and the income therefore is not unrelated business income."

Ltr. Rul. 200713024

Charitable Donation Denied for Lack of Substantiation

In 2003, the Taxpayers introduced receipts indicating they donated clothing and other miscellaneous goods eight times in 2003. These receipts do not list the specific items contributed and simply note that petitioners donated a certain number of bags. Taxpayers also introduced a worksheet they prepared when preparing their tax return that purports to list and value more specifically the items petitioners contributed. Taxpayers estimated the value of the clothing they donated at one-half the original cost but also admitted he did not think used clothing was worth half as much as it was worth new. Taxpayers did not introduce any evidence supporting their estimated value or regarding the quality of the donated items that would permit IRS to estimate its value.

While the Tax Court was convinced that taxpayers donated property to charity in 2003, taxpayers failed to provide any reliable evidence of the items they donated or their values. Taxpayers are therefore not entitled to deduct any additional amount for charitable contributions of property.

James A. Soholt et ux. v. Commissioner; T.C. Summ.

IRS Report on EO Executive Compensation

Executive Compensation Compliance Project
March 2007
In 2004, the Internal Revenue Service, through the Exempt Organizations Office of the Tax Exempt and Government Entities Division (EO), implemented the Executive Compensation Compliance Initiative (the Project). The Project encompassed Forms 990 and related returns for tax years beginning in 2002, and was divided into three parts. This report discusses Part I, involving compliance check letters sent to 1,223 organizations, and Part II, a separate project involving examinations of 782 organizations. Approximately 10% of the examinations remain open. Part III, which was initiated based on information gathered in Part II, will be discussed subsequently, as will our continuing work in the executive compensation compliance area. Click here

Tax Talk Today Program – Emerging Nonprofit Issues

The IRS invites you to an on-line program that will cover the changes affecting tax-exempt organizations resulting from the Pension Protection Act of 2006. The March 13, 2007 program will feature IRS subject matter experts. Click here.

Draft Principles on Self Regulation

The Panel on the Nonprofit Sector continues its efforts to help nonprofits do the right things right. Its new Advisory Committee on Self-Regulation of the Charitable Sector has carefully studied numerous existing standards and guidelines to get a better understanding of the needs of diverse charities. The result? A proposal that charities with $1 million or more in annual revenue and foundations with $25 million or more in assets implement 29 principles. While the period for public comment ended February 2, the recommendations are a great starting point for a self-directed accountability audit. Click here.

IRS on Good Governance Practices for Nonprofits

The IRS has prepared a discussion draft of preliminary guidelines designed to help charity boards promote good governance practices by the charities they serve. Click here for more information.

New Online Training for Tax Exempt Organizations

Obtaining and maintaining 501(c)(3) tax exempt status is crucial to the success of many organizations. This online training from the IRS provides the tools and knowledge to help you keep your organization’s exempt status intact. It consists of five interactive courses, which you can take individually and in any order. Click here.

See also the one hour program by Amy Hereford that explores legal issues involved in establishing or reestablishing a nonprofit organization. The program goes beyond the IRS tax issues to examine the range of requirements for keeping your organization in good legal health. The program is recommended to entrepreneurs, boardmembers and directors of both new and established nonprofits. Click here.

Accountability Guidelines for Higher Education

The Association of Governing Boards of Universities and Colleges (AGB) drafted a set of guidelines to keep university trustees on the right track. Despite recent scandals at some academic institutions, AGB wants to remind everyone that the overall performance of university trustees remains commendable. Documenting good policies and practices simply strengthens the public's trust in these institutions. Click here.

TY 2006 EO Returns - Significant Changes

The instructions to the 2006 Forms 990 and 990-EZ and Schedule A incorporate significant changes to address legislation enacted in 2006 and comments received from the public. The following are highlights of the significant changes.
Family and Business Relationships of Officers, Directors, Trustees and Key Employees: The definitions of family and business relationships used for purposes of completing Form 990, Line 51 must now also be used for purposes of completing Form 990, line 75b. See pages 32 and 35 of the Form 990 Instructions.
Compensation of Officers, Directors, Trustees and Key Employees from Related Organizations
* The definition of related organization (used for purposes of completing Form 990 line 75c) is clarified by listing eight specific relationships. See page 35 of the Form 990 Instructions.
* The definition of related organization excludes certain bank or financial institution trustees and certain common independent contractors.
* Organizations no longer have to report the amount of compensation where (1) the organization conducts joint programs or shares facilities or employees, (2) one or more persons exercise substantial influence over two organizations, and (3) volunteers control two organizations.
* The definition of substantial influence is clarified by referencing Internal Revenue Code section 4958(f)(1) and Regulations section 53.4958-3.
Supporting Organizations
* A supporting organization must now generally file Form 990 (or Form 990-EZ, if applicable), even if its gross receipts are normally less than $25,000. See page 2 of the 990 Instructions, and
* A supporting organization must provide additional information on Schedule A, page 3. See page 7 of Schedule A instructions.
Organizations Maintaining Donor Advised Funds
* Organizations maintaining donor advised funds must complete new lines 1a and 22a on Form 990. See pages 23 and 28 of Form 990 Instructions.
* Organizations maintaining donor advised funds must complete new lines 4a through 4g on the Schedule A. See pages 3 and 4 of the Schedule A Instructions.
Organizations with Controlled Entities
* Organizations with controlled entities must file Form 990 even if their gross receipts are normally less than $25,000. See page 2 of the Form 990 Instructions.
* Organizations with controlled entities must file Form 990 even if their gross receipts are normally less than $25,000. See pages 2 and 41-42 of the Form 990 Instructions and Code section 512(b)(13).
Organizations Paying Travel and Entertainment Expenses for Government Officials Organizations paying travel and entertainment expenses for federal, state and local government officials and their family members must separately report certain payments on Form 990, Line 43 as described on page 30 of Form 990 Instructions.
Organizations with Conservation Easements An organizations receiving or holding conservation easements must complete Schedule A, line 3c and attach a schedule with the information described on page 3 of the Schedule A Instructions.
For more information, see the What’s New section of the form instructions for 2006 Forms 990 and 990-EZ.

IRS Launches On-Line Workshop for Exempt Organizations

The Internal Revenue Service has launched a new Web-based version of its popular Exempt Organizations Workshop covering tax compliance issues confronted by small and mid-sized tax exempt organizations.
The free online workshop – Stay Exempt – Tax Basics for 501(c)(3)s – consists of five interactive modules on tax compliance topics for exempt organizations:
* Tax-Exempt Status – How can you keep your 501(c)(3) exempt?
* Unrelated Business Income – Does your organization generate taxable income?
* Employment Issues – How should you treat your workers for tax purposes?
* Form 990 – Would you like to file an error-free return?
* Required Disclosures – To whom do you have to show your records?
Users can access this new training program at www.stayexempt.org. Users can complete the modules in any order and repeat them as many times as they like. The online training website does not require registration and its visitors will remain anonymous.

See also the one hour program by Amy Hereford that explores legal issues involved in establishing or reestablishing a nonprofit organization. The program goes beyond the IRS tax issues to examine the range of requirements for keeping your organization in good legal health. The program is recommended to entrepreneurs, boardmembers and directors of both new and established nonprofits. Click here.

Nonprofit Statistics

Once again, we have access to an enlightening snapshot of our sector. The Urban Institute has compiled facts and figures that define the enormity and diversity of the nonprofit world. An estimated 1.4 million nonprofit organizations are registered with the IRS. Collectively, we generate $1.4 trillion in revenue and account for $3 trillion in assets. And, the numbers are rising on all fronts. These statistics help us understand the size and scope of the nonprofit sector as a whole. Report

Nonprofit Board Report

How are nonprofit organizations governed? Since 2003, Grant Thornton has surveyed nonprofit leaders about how our boards are structured, what policies we have in place, and how independent our governing bodies are. Over half of this year’s respondents indicate that they changed their governance practices during the past three years. The results shed light on board size, committee structures, audit practices, and key policies. Once again, nonprofit boards demonstrate that they take accountability seriously and update their practices accordingly. Report

Canon Law for Religious: Alienation Limit for 2007

For the year 2007, the amount which requires approval of the Congregation for Institutes of Consecrated Life and Societies of Apostolic life in cases of alienation of stable patrimony or business transactions which could have an adverse effect on the patrimonial condition of an institute or society is raised to $5,475,000 [the amount in 2005 was $5,165,000, and the amount in 2006 was $5,341,000]. This amount applies only to alienation or business transaction within the United States. Alienation and business transactions in other counties must follow the amount set for institutes and societies in each particular country. [See canons 638.3 and 1292]
Alienation and business transactions in other countries must follow the amount set for institutes and societies in each particular country or region. [See canons 638.3 and 1292].
Alienation Tax: The present tax usually charged for approval of an alienation is .1% of the actual selling price. Payment must be made in euros and presented to the Congregation prior to receiving the document of approval. Up to now, wire transfers have not been acceptable.
Adverse Business Transaction Tax: The tax now charged seems to be 50 euro.