Public Policy
The IRS has issued guidance in a number of areas to assist charities, foundations,
and donors in complying with provisions in the Pension Protection Act, which
was enacted on August 2006.
Revocation of status for failure to file Form 990
The IRS is reminding nonprofit organizations that their tax-exempt status could be revoked if they have not filed the required Form 990 or Form 990-N information return in the last three years. This requirement has been in effect since 2007.
Type III Supporting Organization Rules
The IRS released proposed rules for Type III supporting organizations which outline annual reporting requirements and criteria for determining whether they are “functionally integrated” with their supported organizations. For organizations that do not meet those criteria, the proposed rule would establish a five percent annual payout requirement. IS is considering filing comments on a few key questions and would appreciate input. Comments were due December 23, 2009.
Donor Advised Fund Guidance
Recently released guidance from the IRS identifies key areas that can determine whether a sponsoring organization of a donor advised fund qualifies for tax exemption. A new guide sheet asks a series of questions about the sponsoring organization’s control over its accounts and funds; whether it can ensure the funds will be used for charitable purposes; whether it requires a minimum yearly distribution from the funds and if not, whether it has explained how it will fulfill its tax-exempt purpose. Another series of questions addresses concerns about prohibited private benefits. An accompanying explanation provides background on rules affecting donor advised funds, answers what the IRS is looking for in response to guide sheet questions, and responses that might result in denial of exemption.
Donor Advised Funds and Supporting Organizations
The IRS requested public comments (Notice 2007-21) on issues to be included in a study of donor advised funds and supporting organizations. As required by the Pension Protection Act (PPA), the study will address the following issues:
- whether the tax deductions given to donors are appropriate given how donated assets are used and whether the donor and related parties receive any direct or indirect benefits;
- whether donor advised funds should be required to distribute specified amounts;
- whether the retention by donors of rights and privileges associated with the contribution (including advisory rights or privileges with respect to the making of grants or the investment of assets) is consistent with the tax treatment of donations as completed gifts; and,
- whether the issues raised above are also issues with respect to other forms of charities or charitable donations.
Other Guidance
Substantiation of Charitable Donations (PDF) – The Internal Revenue Service is proposing changes to substantiation rules for both cash and noncash charitable donation. The new rules implement changes enacted by Congress in the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006. The IRS had previously issued interim guidance on the changes, but this proposal will formally change the regulations. Among other issues 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;
· special rules for payroll deductions
Charity owned life insurance (PDF) – Under the PPA, certain exempt organizations are subject to new reporting requirements when they acquire life insurance contracts that are designed to give both the exempt organization and private investors an interest in the contract. The IRS is required to issue a
report on such
contracts and has requested public comments (Notice 2007-24 (PDF)) on the study and on forms that will be used for reporting.
Workplace giving programs – the IRS has clarified that pledge cards for along with a pay stub, Form W-2, or other document provided by an employer will satisfy the new cash contribution recordkeeping requirements in the Act. The documents must show the name of the charity and the amount donated.
Qualified conservation contributions (PDF) – the IRS released guidance (Notice 2007-50) on deductions for contributions of qualified conservation property, including answers to such questions such how the provision affects a donor's limits on other charitable contributions, when contributions can be carried forward to other tax years, and how it affects qualified ranchers or farmers....6/6/07
Form 990-N
Small nonprofits that are currently exempt from filing the Form 990 because they have annual gross receipts of $25,000 or less will be required to file a new Form 990-N Electronic Notice (e-Postcard) beginning in 2008. Read more about this new notice on the IRS website...11/16/07
Form 990-T
The IRS released guidance (Notice 2008-49) on public disclosure of the Form 990-T, Exempt Organization Business Income Tax Return that incorporates changes made by technical correction legislation (H.R. 4839) enacted in December 2007. The Notice clarifies that: a) public inspection of the 990-T will be limited to a three-year look-back period; b) the IRS, as well as the filing organization, is required to make the Forms 990-T publicly available; and c) disclosure includes any attachments, schedules and supporting documents that relate to imposition of the unrelated business income tax. The new guidance does not change guidance released in May 2007 (Notice 2007-45) which provided that the disclosure requirements apply to all charities that file a Form 990-T, including churches, regardless of whether they are required to file a Form 990. The IRS requests comments on the new guidance, especially with respect to schedules or attachments that should not be made available for public inspection when attached to the 990-T. See the IRS website for more information.
Last Updated: February 5, 2010
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