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Governance and Compliance

April 25, 2012

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Governance and Compliance

April 25, 2012

Authored by: Keith Kehrer

In 2008, the Form 990 was re-designed to include, among other things, significant governance disclosures.  The IRS justified the disclosures in part on the belief that organizations with good governance are more likely to comply with the law.  Since 2008, the IRS has been studying the connection between governance and compliance.  Among other things, the IRS developed a governance checklist that was used in exams to probe governance practices.   In a recent speech, Lois Lerner, the IRS Director of Exempt Organizations, provided that the initial results of the IRS study confirm that good governance and compliance go hand and hand.  Ms. Lerner stated that exempt organizations with a written mission statement, those that follow the procedures of the rebuttable presumption to establish compensation, and those whose Form 990s were reviewed by the entire board of directors, are more likely to be tax compliant than those that do not follow those practices.   Ms. Lerner’s full comments

IRS Exempt Organization Newsletter 2012-8

April 23, 2012

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On April 19, the IRS released its Exempt Organization Newsletter, Issue Number 2012-08. Topics include the following:

  • Reminder: Don’t Include Social Security Numbers on Publicly Disclosed Forms
  • Verifying Exempt Status for Reinstated Organizations
  • Proposed Rules on Program-Related Investments
  • EO Director Speaks at Georgetown Law CLE
  • Guidance on Form 990 and 990-EZ Reporting of Joint Ventures and Other Partnerships
  • Tax Forums Offer Good Information for Exempt Organizations
  • Register for Upcoming Workshops for Small and Medium-sized 501(c)(3)s in Nebraska
  • Free Webinars on Identity Theft/Online Fraud and Ethics
  • IRS Releases Examples of Program-Related Investments

    The IRS released proposed regulations under Section 4944 providing additional examples of program related investments (PRIs) (PRIs are excepted from the jeopardizing investment rules).  The proposed regulations add nine new examples intended to illustrate that a wider range of investments qualify as PRIs than the range currently presented in Treas. Reg. § 53.4944-3(b). The proposed regulations do not modify the existing regulations; rather, they provide additional examples that illustrate the application of the existing regulations.  Generally, the charitable activities illustrated in the new examples are based on published guidance and on financial structures described in private letter rulings.

    ABA Tax Section Submits Comments on Scope of Section 514

    April 16, 2012

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    On April 9, 2012, the American Bar Association’s Tax Section submitted comments to the IRS on the scope of Section 514, the debt-financed income rules.  Although Section 512(b) generally provides that income from a charity’s passive investments is not subject to tax, to the extent the investments constitute debt-financed property (property which is held to produce income and with respect to which there is an acquisition indebtedness), such income is subject to the tax on unrelated business income.   Issues arise when an exempt organization borrows to fund its charitable program expenses, exempt activities, and related administrative expenses, while at the same time, on its behalf, its investment advisers are buying and selling investments that produce passive investment income.  As described in the comments, the IRS has in the past expressed informal concern that a borrowing to fund exempt activities is “acquisition indebtedness” attributable to investment assets when the debt, even though motivated by

    Section 107 Parsonage Allowance Exclusion Limited to One Home

    The United States Court of appeals for the Eleventh Circuit Court recently ruled that the parsonage allowance exclusion from gross income contained in section 107 of the Code is limited to the rental value of providing a single home. Commissioner v. Driscoll, 2012 U.S. App. LEXIS 2403 (11th Cir. 2012). The case involved a minister who claimed the parsonage allowance for both his principle residence and his lake house. In addition to turning back a minister’s expansive use of the parsonage allowance, the Eleventh Circuit’s decision addressed important issues related to the interpretation of ambiguous provisions of the Code.

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