Article on Charitable Trust Management / Liability

The following is taken from the article: Charities In Distress: Governance and Standards In Troubled Times A charity also has obligations to its creditors, but not in abrogation of its duty to its donors. Whether a charity is in bankruptcy or state insolvency proceedings, or is simply trying to determine how to pay the bills, state law will determine the rights of creditors to assets held for charitable purposes. However, not all of a charity’s assets may be made available to pay the claims of creditors. The analysis under the law of the applicable state turns on whether the assets are held in a separate trust, or quasi-trust, whether the assets are held for specific purposes or, if the charity goes out of business, whether the court should apply principals of equity and determine the further use of assets held for specific purposes. A trust for the benefit of a charity will not ordinarily be subject to the claims of creditors, unless it can be revoked by the charity or was created by the charity for its own benefit. A trust created by a third party is generally not available to the claims of creditors. If the charity has ceased to exist, the trust will not fail; rather a state court will determine its further and best uses. Relying on these rules, some charities create separate fundraising entities to insulate those assets from the claims of creditors. Typically, however, an endowment is not legally a charitable trust. Nonetheless, an endowment created by a charity which solicited donors by representing the fund as a permanent fund for specific purposes may be deemed equivalent to a charitable trust and not subject to creditors’ claims. Donor intent, in short, trumps creditors’ claims where the fund is restricted for a particular purpose. Board-restricted assets ordinarily will be subject to creditors’ claims on the theory that they are revocable and self-settled. Also, to the extent that a debt is within the scope of the purposes of the endowment, some part of the endowment may be available to the creditor.

More on the Form 990

The IRS has finalized the 2009 Forms 990, 990-EZ, schedules and instructions, for filing in 2010-11. Learn about changes made to clarify and modify reporting requirements and find links to the new forms, schedules and instructions on IRS.gov. Click here.

Form 990 Information from the IRS

Form 990 series returns are required to be filed by most tax-exempt organizations, except for church and government-affiliated organizations. Form 990 is the IRS primary tool for gathering information about tax-exempt organizations, for educating organizations about tax law requirements and ensuring their compliance. Organizations use it to inform the public about their programs. In addition, most states rely on Form 990 to perform charitable and other regulatory oversight, and to satisfy state income tax filing requirements for organizations claiming exemption from state income tax. More Information.

New on Exempt Organizations

1. Rev. Proc 2010-8: New User Fees Apply to Exempt Organization Matters

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New user fees apply to Exempt Organizations exemption applications, ruling requests and other matters for 2010. Consult section 6 of Revenue Procedure 2010-8 to ensure that you include the appropriate fee with your application for exemption or other ruling or determination request.

Applicants for exemption from Federal income tax, other than those filing Form 1023, should be sure to include the revised Form 8718, User Fee for Exempt Organization Determination Letter Request, with their submissions.

2. Revenue Procedure 2010-4: Updated Procedures for Issuance of Ruling and Information Letters

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The IRS has revised procedures for for the issuance of ruling letters, information letters, etc., on matters related to Code sections under the jurisdiction of the Commissioner, Tax Exempt and Government Entities.

3. Revenue Procedure 2010-5: Updated Guidance for Issuance of Technical Advice

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Revenue Procedure 2010-5 explains when and how Exempt Organizations Technical provides technical advice to area managers and appeals offices regarding exempt organization matters and provides a general update of Revenue 2009-5.

4. Statistical Information of Interest to Tax-Exempt Organizations

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Review statistical studies of exempt organizations and individual noncash charitable contributions compiled by the IRS Statistics of Income Division and learn how to download and use EO Master File Data on IRS.gov.

Website Upgrade in Progress

My regular website is under construction - changing host and domain registrar. It may be hard to access for the rest of the year. Try www.ahereford.com in the interim. See next year's scheduled webcasts:

February 16, 2010: Basic Taxation of Religious - 2010 Update This popular one hour webcast will discuss the preparation of the tax return for religious with taxable income, including an update on 2010 tax issues.

May 18, 2010: Transfer to Another Religious Institute This one hour webcast will examine the process of transfer of a member to another religious institute, including the conditions and effects of the transfer. It will also discuss issues that arise in this process.

August 17, 2010: Civil Structures of Religious Institutes This webcast will examine those civil structures used by religious institutes to carry out their life and work in the civil sphere. Registration Blessed Christmas! Amy

Videos on New 990 - Application Fee Increase

990 Video Series IRS Exempt Organizations has launched a new case study and video program to help exempt organizations and their tax preparers better understand the newly revised Form 990 series which must be filed for the 2008 tax year. The case study includes a set of facts describing organizational and financial aspects of a hypothetical exempt organization, and a completed Form 990 based on those facts. A video series walks you through key reporting issues common to most organizations required to file Form 990.
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
• $850 for organizations whose gross receipts exceed $10,000 annually over a 4-year period
• $3,000 for group exemption letters.

A complete schedule of all user fees will be published in the annual procedure released in January 2010.
Cyber Assistant, a Web-based software program designed to help 501(c)(3) applicants prepare a complete and accurate Form 1023 application, will become available during 2010. Once the IRS announces the availability of Cyber Assistant, the user fees will change again:

• $200 for organizations using Cyber Assistant (regardless of size) to prepare their Form 1023
• $850 for all other organizations not using Cyber Assistant (regardless of size) to prepare their Form 1023.

IRS will announce when Cyber Assistant is available and the effective date of the user fee change. Subscribe to the EO Update to automatically receive an alert that Cyber Assistant is available.

IRS Publication on Group Exemptions

There is a new IRS publication on group exemptions. This fact sheet provides answers to questions of interest to parent organizations, subordinates and donors.

Charitable Giving Calculators

Calculators for charitable giving and other information about tax planning for charitable giving are found on the Food for the Poor website. Because of today's economic climate, donations are more necessary, and more complex gifts may be more helpful in meeting needs of charitable organization.

More IRS News

1. New! On-line Tool to Help EOs Complete 2008 Form 990: Form 990: Getting Started - A Case Study

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Thousands of tax-exempt organizations are in the process of gathering information and completing the redesigned 2008 Form 990. This new on-line tool uses a practical example to show organizations how to address key areas of the redesigned Form 990 and Schedules. An organization can compare its own situation to the case study and learn how to properly complete its own form.

Getting Started includes a sample filled-in Form 990 and Schedules A and O, prepared using information about a hypothetical organization's mission, board of directors, financial information and policies. This series of seven, short, on-line videos explain how to complete key sections of the Form 990 and highlights some of the form changes. Find this new on-line resource as well as other resources for 990 filers on IRS.gov

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2. New! Mini-Course Provides Overview of Form 990-EZ

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Because of changes in filing thresholds, many more organizations are eligible to file Form 990-EZ. To learn whether your organization may file the EZ and to learn more about this shorter, simpler form, watch this mini-course at www.StayExempt.irs.gov.

New from the IRS

1. Exemption Application User Fees to Change in 2010 User fees will increase for all EO applications for exemption (Forms 1023, 1024, and 1028), postmarked after January 3, 2010. Cyber Assistant, a Web-based software program designed to help 501(c)(3) applicants prepare a complete and accurate Form 1023 application, will become available during 2010. Once Cyber Assistant is made available, user fees for Form 1023 will change again.
2. New Process for Supporting Organizations to Change Public Charity Classification The IRS has modified the procedures for reclassifying section 509(a)(3) supporting organizations as public charities. Announcement 2009-62 updates procedures for such requests to be consistent with new regulations eliminating the advance ruling process.
3. Register Now for Fall Workshops for Small and Mid-Sized 501(c)(3) Organizations These introductory one-day workshops, designed for administrators or volunteers responsible for an organization's tax compliance, will be held in Philadelphia, PA on October 6, 7, and 8, 2009. Get more information and register online.
4. IRS on YouTube? A new IRS YouTube video site and an iTunes podcast site will help taxpayers learn more about tax provisions in the American Recovery and Reinvestment Act.