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Summary of Recommendations in the
Senate Finance Committee Report on the Nature Conservancy
At its June 8, 2005 hearing on “The Tax Code and Land Conservation: Report on Investigations and Proposals for Reform,” the Senate Finance Committee heard testimony from Dean Zerbe and Jonathan Selib, Republican and Democratic Committee tax counsels, who presented the Committee report on The Nature Conservancy.
Although the report focused on conservation easements, its executive summary contains a number of reform proposals that address property donations in general. While some recommendations apply solely to The Nature Conservancy, others would apply to all tax-exempt organizations.
Some of the more general proposals are listed below:
Conservation Easements
• The IRS should consider revoking the tax-exempt status of an organization that continuously fails to monitor and enforce conservation easements, or suspending tax-deductible contributions to those organizations.
• The IRS should have authority to impose excise taxes on officers and directors for failure to adopt and enforce policies that ensure monitoring of easements.
• The IRS should consider modifying the Form 990 to require more information regarding monitoring and enforcement of easements.
• Implementation of an accreditation system for conservation organizations to assure best practices.
• The Committee should consider limiting tax deductions for small easement donations and providing the IRS authority to pre-approve such deductions.
• The IRS should issue guidance on compliance regarding monitoring of easements.
• Tax opinions used to promote charitable deductions for conservation buyer programs should be subject to sanctions to be imposed on the provider of an inadequate opinion, the organization that solicited the opinion, and any donors who relied on the opinion.
• Organizations that conduct "conservation buyer" programs that sell land or water interests should adopt governance practices that require making those properties available for sale to the general public.
• The IRS should review law and guidance regarding partial interest rules and donative intent with respect to conservation programs.
Joint Ventures
• Exempt organizations should exercise due diligence with respect to analyzing the tax consequences of joint ventures
• The IRS should consider modifying the Form 990 to require more details on joint ventures involving capital contributions, funding commitments, or assets of the exempt organization that exceed a certain amount.
• The description in the Form 990 should state whether the venture is an unrelated trade or business or an exempt activity, and include the ownership interests of the parties.
Tax Planning
The staff recommends that the cost of tax advice obtained by an exempt organization for the benefit of a specific individual be borne by those who benefit, rather than by the exempt organizations.
Valuation
The IRS and Congress continue to explore means to improve the accuracy of appraisals.
Form 8283 (on which donors report property donations of over $500)
• The IRS should update this form and consider imposing reporting requirements on all donee organizations consistent with reforms that The Nature Conservancy has adopted. (TNC now requires donors to provide a copy of the appraisal with the Form 8283 and a written certification by the appraiser that IRS qualified appraisal standards have been followed.)
• The Committee and the IRS should consider imposing penalties on donee organizations that sign the 8283 when they are incomplete.
Form 990
• Reporting requirements with respect to material changes in structure and operations must be revised to provide bright line rules and include the establishment of new activities and programs.
• IRS should consider improved, more detailed reporting on the 990 with respect to program services revenue.
• Reporting requirements with respect to insider deals should be strengthened including a description of compliance with the organization’s applicable conflict of interest procedures.
Unrelated Business Income Tax and Form 990-T
• Congress and the IRS consider whether current UBIT rules adequately address the regular and continuous solicitation, acquisition and sale of non-charitable use property.
• The IRS should issue guidance on the applicability of the unrelated trade or business income tax to the sale of non-exempt use property.
• The Committee should consider adoption of the JCT recommendations for UBIT certification for large organizations. (The JCT proposal would require organizations with annual total gross revenues or gross assets of at least $10 million to include with Form 990 and 990-T filings a certification by an independent auditor or independent counsel that the organization’s filings accurately reflect the organization’s unrelated business income tax liability.)
• Form 990-T reporting rules must be re-written to assure that all material activities of an organization are disclosed. “This is especially important as many exempt organizations increasingly may resemble for-profit businesses in their activities and the manner in which they conduct them.”
Insider Deals
The report makes four recommendations for the IRS and the Committee to consider with respect to the reporting of insider deals by all exempt organizations. Including:
1) Certain transactions with Board members or affiliates of Board members should be accompanied by a determination that the transaction is fair and reasonable to the exempt organization. This determination should be supported by an appraisal or fairness opinion provided by an independent expert, unless the determination is obvious on its face. A copy of such determination and supporting documentation should be posted on the organization’s website and noted in the organization’s Form 990 filings;
2) Certain transactions with a Board member or affiliate of a Board member should be accompanied by an opinion of independent legal counsel (1) concluding that the exempt organization’s internal conflicts of interest policy has been satisfied; and (2) describing the material tax consequences to the exempt organization under Federal income tax laws;
3) Agreements between an exempt organization and its Board members or affiliates of Board members, as well as copies of the agreements, should be made public on the organization’s website. A complete and accurate description of the agreement should also be disclosed in the Form 990, and a notation that a copy of the agreement is available on the organization’s website should also be disclosed on the Form 990; and,
4) An organization’s press releases pertaining to a transaction or arrangement with a Board member or affiliate of a Board member should include a statement describing the relationship between the exempt organization and the contracting party.
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