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Public
Policy News & Resources
 LEGISLATIVE
WATCH
PANEL
ON THE NONPROFIT SECTOR
 NEWS
AND CLARIFICATION FROM THE IRS
The National Taxpayer Advocate (January 14, 2010) has released her annual report on the most pressing problems with the IRS. One of the areas noted for research is the complexity of regulations facing tax-exempt organizations, most of which are very small entities. The specific overview of the problems faced by these nonprofits and the suggestions for remedies may be found here.
The full 300+ plus report by the Advocate may be found at: http://www.irs.gov/pub/irs-utl/1_09_tas_arc_vol_1_preface_toc_msp.pdf
Senate Measure Seeks to Spur Foundations to Give More (March 24, 2009)
The measure would change the way foundations are taxed on their investment income, replacing the current two-tiered system with a single tax rate.
http://www.nytimes.com/2009/03/25/us/politics/25charity.html?ref=politics
IRS Issues Final Forms 990 and 990-EZ (January 5, 2009) The IRS has issued the final forms and instructions for the new 990 and 990-EZ. It contains links to crucial information for these new forms including filing thresholds, forms, instructions and on-line mini-courses about the forms.
New regulations eliminate the advance ruling process, under which a section 501(c)(3) organization was required to file Form 8734 to establish that it had been a publicly supported charity during its first five tax years. (November 25, 2008) The new rules apply to organizations with advance rulings expiring on or after June 9, 2008. The IRS previously notified organizations of the need to file by sending Notice CP 158, enclosing a copy of Form 8734. With the elimination of the advance ruling period, this notice has been revised, and is now being used to notify organizations of the new rules; however, Form 8734 was inadvertently enclosed with the revised notice that was mailed to some organizations. An organization that received a form should not file it, unless its advance ruling period expired before June 9, 2008. See: http://www.irs.gov/charities/charitable/article/0,,id=188457,00.html
IRS Releases Revised Form 990 Instructions, Background Documents (August 26, 2008)
The Internal Revenue Service released revised instructions for the redesigned Form 990 this week, along with additional background documents to help nonprofits make the transition to the new form. As announced previously, adjustments were made in areas including: narrowing the definition of key employee; allowing reasonable efforts for obtaining information about interested or third parties in certain sections; and the standard for determining independence of board members. Clarifications were also made in reporting compensation, including revised definitions for deferred compensation, compensation paid by related organizations, and compensation paid to former employees. Other changes include a narrowing of the definition for “business relationship” in the Governance section, and clarifications on thresholds for reporting transactions with interested persons in Schedule L. Links to the instructions and background documents may be found at: http://www.irs.gov/charities/article/0,,id=181089,00.html
Source: IRS Newswire, Tax Analysts, BNA Daily Tax Report, Independent Sector PolicyDigest
IRS Issues Proposed Rule for Substantiation of Cash and Noncash Donations (August 11, 2008)
The Internal Revenue Service published proposed regulations Thursday to provide substantiation rules for both cash and noncash charitable donations. The new rules implement changes enacted by Congress in the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006. Among other changes, the new rules cover: recordkeeping requirements for all cash donations; rules for clothing and household donations; definitions of qualified appraisal and appraiser for donations of property over $5,000; and special rules for payroll deductions. The proposed rule also clarifies that the new rule requiring a bank record or written communication from the recipient is not required for a donor’s unreimbursed expenses of less than $250 related to rendering services or for cash contributions to a charitable remainder trust. Taxpayers are advised to keep some record of these donations, however. The IRS requests public comment by November 5 and will also hold a public hearing if one is requested. You may find the Federal Register announcement or the proposed rule here: http://edocket.access.gpo.gov/2008/pdf/E8-17953.pdf
Source: IRS Guidewire, Tax Analysts [via the Independent Sector’s Policy Digest]
IRS Requesting Comments on Proposed Rule for non-filers of Form 990 (August 4, 2008)
The IRS is requesting comments on its proposed Exempt Organizations Voluntary Compliance Program (EOVCP), which will collect certain information on certain non-filers of Form 990. The information will help the IRS meet its reporting requirements. Please see http://edocket.access.gpo.gov/2008/E8-17829.htm for further details, and for information on how to submit comments. Written comments should be received on or before October 3, 2008 to be assured of consideration.
IRS issues directive for exempt organizations and Internet political activity (July 30, 2008)
The Internal Revenue Service on Monday posted a memorandum outlining how allegations of political activity on the internet should be handled. The memo, written for exempt organization (EO) revenue agents, establishes the electronic proximity between an EO and the site of a political message as the key to determining whether an EO is engaging in inappropriate political activity. Specifically, it instructs that links on websites to related organizations can be considered inappropriate political activity if the linking EO is “promoting, encouraging, or urging viewers to use the link to get information about specific candidates and their positions on specific issues.” The memo warns agents, however, that no guideline “appropriately reflects the facts and circumstances in all cases.” Via the Independent Sector’s Policy Digest. Read the full memo.
IRS Continues to Focus on Nonprofit Governance Issues (April 28, 2008) Speaking at an April 23 conference on nonprofit governance, Steve Miller, commissioner of the Tax Exempt and Government Entities Division at the IRS, said that nonprofit governance will continue to be a priority for the IRS despite federal jurisdiction. Miller said, “It is no longer a question of whether the IRS has a role to play, but what that role will be.” Senate Finance Committee Tax Counsel, Theresa Pattara, believes the IRS has the jurisdiction to regulate governance through its revised Form 990. Form 990 highlights the increased concerns that the IRS and lawmakers have on nonprofit governance issues. Furthermore, Pattara said, “To ensure that filers answer Form 990’s governance questions, Congress might formulate stronger penalties for organizations that file incomplete Forms 990.”
IRS Releases New Draft Instructions for Form 990; Requests Public Comments (April 21, 2008)
The IRS has released its draft instructions http://www.irs.gov/charities/article/0,,id=181089,00.html to the redesigned Form 990, an informational return that public charities and other tax-exempt organizations are required to file annually to report information about their operations. The draft instructions contain new tools designed to make reporting easier for organizations and to promote a more uniform reporting system. These new tools include a glossary of terms, a sequencing list that suggests the order to fill out the form and schedules, a table to help organizations determine where to report different types of compensation and benefits, and examples to illustrate definitions or new requirements. To ensure that the final instructions address the needs of the tax-exempt community, the IRS is requesting comments from the public. All comments are welcome, including suggestions that might further reduce complexity or burden to filers. Comments are due by June 1, 2008.
IRS Posts Guidance on Good Governance (February 28, 2008)
The IRS has posted guidance (http://www.irs.gov/pub/irs-tege/governance_practices.pdf) on its website outlining key areas of governance for nonprofits, including foundations. The document points that well-governed nonprofits are more likely to follow the law, safeguard charitable assets, and serve charitable interests. The document addresses areas of governance including mission, organizational documents, governing body, policies, financial statements, transparency and accountability.
Click here for additional IRS guidance.
Ratios, Performance Indicators to be dropped from Draft Form 990
(October 9, 2007)
The IRS will eliminate from the summary page of the proposed Form 990 questions on compensation percentages, fundraising percentages, and comparisons of an organization’s net assets to total expenses, IRS official Ronald J. Schultz said at a meeting September 28 of the American Bar Association. Schultz, senior technical advisor to the commissioner, Tax Exempt and Government Entities Division of the IRS, also stated that the part of the form reporting program service accomplishments will be moved to the front of the core form. At the ABA meeting, he acknowledged that the Service had not made final decisions on Schedule H dealing with hospitals, but suggested that there is a “pretty realistic chance” there will be transition relief of perhaps a one-year period for filing that schedule.
Source: Tax Analysts via Independent Sector.
IRS Lifting Ban on Type III Supporting Organizations Rulings
(October 9, 2007)
The Internal Revenue Service is lifting a seven-month ban on issuing private letter rulings on the status of nonprofit entities as Type III functionally integrated supporting organizations. According to Robert Choi, director of rulings and agreements in the Exempt Organization’s Division of the IRS, the Service made the decision to consider applications for that status because it now has more specific guidelines in place for determining qualifications. He also said the IRS will soon make public a “guide sheet” explaining the criteria. Source: BNA Daily Tax Report via Independent Sector.
Independent Sector comments on Form 990 Redesign (September 18, 2007)
The Independent Sector has released its comments on the proposed redesign of the Form 990. Among other recommendations, IS urged the IRS to:
• Delay implementation of the Core Form until Fiscal Year 2009 to permit organizations to make necessary changes to their accounting and record-keeping systems.
• Restructure the Summary Page to provide more information on the organization’s program activities, add information on government funding and variations in fund balances, and eliminate misleading financial ratios.
• Divide Governance information into practices that are required by law and those that are recommended for the organization’s consideration, and include a clear statement that not all recommended practices will be appropriate or cost-effective for all exempt organizations.
• Delay implementation and significantly recraft the new schedules dealing with international grants, hospitals, and non-cash contributions in order to avoid adverse consequences and minimize the burdens on charities.
• Click here for full details
IRS Released draft of the Form 990 (June 15, 2007)
The IRS released a draft of a major revision of the Form 990, which many tax-exempt organizations must file annually with the IRS and make available to the public. The new draft proposes significant changes to the ways in which public charities and other exempt organizations will report information on finances, fundraising activities, governance, executive and board compensation, and program services. The IRS has not proposed changes to the Form 990-PF.
The IRS is now asking for comments on the form. In order to have a new form available for use in Fiscal Year 2008, the IRS must complete its revisions before the end of this year. Because of this tight schedule, the public comment period is scheduled to close on September 14. IS will post an analysis of the new Form 990 on our website next week.
More information
IRS Report on Voluntary Compliance (June 15, 2007)
The Advisory Committee on Tax Exempt and Government Entities (ACT) has issued a June 13, 2007 Report, one section of which details a Proposal for an Exempt Organizations Voluntary Compliance Program. The full report may be found here: http://www.irs.gov/charities/article/0,,id=98353,00.html and is a PDF of 189 pages in length. For our Members’ convenience we have extracted the relevant section of the report, and you may find it here.
Political Campaign Activities of Exempt Organizations (June 1, 2007) (from the IRS Website) Revenue Ruling 2007-41 provides guidelines for exempt organizations on the scope of 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. In addition, you may review the IRS report on Political Activity Compliance Initiative.
New Q&A Document about 990 changes (May 3, 2007). The IRS has issued a new Question and Answer document about the changes in the instructions for Form 990. The document may be found at: Additional information about the changes in the 990’s instructions may be found in the transcript of a teleconference held by the Service in March: http://www.irs.gov/pub/irs-tege/2006_990_changes_phoneforumscript.pdf
Redesigned 990 available for comment in June (May 3, 2007). The IRS will make the revised 990 available for an extended comment period in June. The notice will be published in the Federal Register, and we will note it on this website as well.
Notice from IRS regarding using the Business Master File for determining Grantee Status (April 2, 2007)
The IRS has released a notice providing guidance on the use of Business Master File (BMF) data to determine a grantee’s public status under sections 509(a)(1), (2) or (3) of the IRS Code. The article contains instructions for accessing the Business Master File, as well as the conditions under which a grantor may rely on a third party supplying the data. The full article may be accessed at: http://www.irs.gov/charities/charitable/article/0,,id=168531,00.html
New IRS Webpage explaining rule changes for foundations and charities. (March 23, 2007)
The IRS has created a new webpage on its site that summarizes the key provisions of the Pension Protection Act of 2006 that affect nonprofits (including foundations). The page contains a clear breakdown of the key provisions and numerous links to more detailed explanations of reporting requirements, Act provisions, etc. This is a good resource for foundation managers, grants managers and other staff responsible for reporting and compliance activities.
IRS Issues Report on Study of Nonprofit Executive Compensation
(March 7, 2007)
The IRS has issued its report on Parts I and II of its compliance study of nonprofit executive compensations. Some of the key findings include that there are significant reporting errors. However, other than reporting errors, there is not widespread concern about abuses. Where problems have been found, significant fines have been assessed. Read the summary and report at http://www.irs.gov/pub/irs-tege/exec._comp._final.pdf
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