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Made a Charitable Pledge? Consider Satisfaction with Your IRA

September 13, 2010


When charitable pledges come do, some donors scramble to find ways to satisfy the pledge without a negative impact to current cash flow.   A donor’s use of a private foundation to satisfy the pledge is often unattractive since such a transfer could result in self-dealing to the extent the donor’s pledge is considered a legally binding obligation under applicable state law.  However, a transfer from the donor’s IRA in satisfaction of the pledge may represent a viable alternative.  In an Information Letter released August 20, 2010, to Harvey Dale (a well-known tax professor), the IRS concluded that a taxpayer who satisfies a pledge by making a qualified charitable distribution from his or her IRA directly to a charitable organization would not include the distribution in gross income (citing Rev. Rul. 55-410, which provides that the satisfaction of a pledge by means of a donation of appreciated or depreciated property does not give rise to a taxable gain

Percentage or Commission-Based Compensation

Often times a charity cannot afford to hire a professional fundraiser.  In addition, many fundraisers desire to be paid a commission based on a percentage of the revenues that they raise.  Therefore, offering a commission for fundraising services is often perceived as a “win-win” situation.  Before entering into any arrangement, however, a charity must consider certain limitations on so-called percentage or commission-based compensation under the federal income tax laws, including the private inurement, private benefit, and excess benefit / intermediate sanctions rules.  To avoid application of these rules, the commission, as well as the fundraiser’s total compensation (including the commission and any other compensation) must be reasonable.  For example, commissions must be paid for services actually rendered and commensurate with the services rendered.  The IRS has also suggested that a ceiling or cap on the maximum amount of compensation is an important factor to ensure that commission-based compensation is reasonable.  Commission-based compensation based on the achievement of charitable objectives or established to serve a

IRS Releases Form to Help Tax-Exempts Claim New Health Care Tax Credit

September 8, 2010


The IRS today released a draft version of the form that tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible tax-exempt organizations –– which do not generally file income tax returns –– will claim the credit during the 2011 filing season.   Tax-exempt organizations will claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– also to claim the small business health care tax credit.  For more information, please click here.

Charities and Life Insurance – A Growing Trend?

Life insurance has always been an important part of charitable giving.  Although there are legitimate uses, over the years the IRS has identified certain abuses regarding the use of life insurance in charitable planning.  In our practice, we have seen a recent surge in charitable planning techniques involving life insurance.  Before your charity accepts a gift of life insurance, you should consider several issues, including the following:  (1) the application of Section 170(f)(10), the so-called “charitable split-dollar rules” (which, if applicable, impose an excise tax on the charity equal to 100% of the premium payments), (2) applicable state insurable interest laws, (3) private inurement, private benefit, and excess benefit rules, (4) unrelated business income rules (and debt-financed income rules, to the extent the life insurance was acquired with borrowed funds), (5) the partial interest rules (impacting both the income and gift tax deduction of the donor), (6) I.R.C. § 4944, the jeopardizing investment rules, and I.R.C. §

Don’t Forget to Maintain Donation Records

September 2, 2010


In order to be entitled to a charitable deduction for cash donations, a donor must maintain records providing evidence of the donation.  For example, for tax years after August 17, 2006, a donor must maintain a bank record or a written receipt from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution in order to deduct any contribution of cash, check, or other monetary gift (additional rules apply for donations of $250 or more).

The Tax Court re-emphasized the strictness of this requirement in a recent case.  In Fessey v. Comm., T.C. Memo. 2010-191 (Aug. 30, 2010), the taxpayer alleged that he donated $920 in cash in 2004 to a church by way of $20 weekly cash donations made to the church’s offering plate.  The taxpayer provided the Court with a computer printout listing the date, amount, and recipient of his donations.  However, the taxpayer did not produce a receipt or any form

FAQs for Delinquent Form 990 Filers

August 30, 2010


FAQs for Delinquent Form 990 Filers

August 30, 2010

Authored by: Keith Kehrer

The IRS just released “Frequently Asked Questions” regarding its one-time relief for charities that face automatic revocation of tax-exempt status for failure to file Form 990, Form 990-EZ, or Form 990-N. As we discussed in our July 26 post, the IRS is providing limited relief to small charities that failed to file Form 990-EZ or Form 990-N for the past three years. The IRS estimates more than 300,000 charities may lose their tax-exempt status but is giving charities until October 15, 2010 to file the delinquent Form 990-EZ or Form 990-N and maintain tax-exempt status. The IRS released the Frequently Asked Questions, which may be accessed by clicking here, to provide additional information regarding this one time relief.

Change Your Activities? Don’t Forget to Tell the IRS

August 27, 2010


When a charity significantly expands or changes its activities, it must inform the IRS by disclosing the activities on its next filed Form 990.  The Form 990 includes questions regarding whether the filing charity has undertaken any significant activities not listed on a prior Form 990, whether the charity ceased conducting, or made significant changes in how it conducts any activities, and requires the charity to describe the changes in an attached schedule. The Form 990 also asks whether the charity made any significant changes to its articles or bylaws, and requires such documents be included with the Form 990.  Although disclosing the changes on the next Form 990 satisfies a charity’s obligation to update the IRS, it does not provide any comfort that the new activities do not jeopardize the charity’s exempt status because there is no guaranty any IRS agent will review (or approve) such changes.  

In addition to Form

Facing Late Filing Penalties – Don’t Despair (At Least Not Right Away)

August 22, 2010


Many small and medium sized charities are run almost entirely by volunteers and have little or no paid staff. It is not unusual for such charities to inadvertently fail to timely file Form 990 or Form 990-EZ. The IRS imposes a penalty of $20 a day for failure to timely file Form 990 or Form 990-EZ. The IRS will send a penalty letter to late-filing charities imposing the penalty with interest. Where the charity can show reasonable cause, however, we have had success convincing the IRS to abate and refund the late-filing penalty. For example, if the charity has a history of compliance, is run by volunteers (or has little or no paid staff), and puts procedures in place to ensure future compliance, the IRS has been willing to abate and refund the penalty. Although there can be no guaranty, if your charity is faced with a late filing penalty, contact your

Board Duties Part III – Duty of Obedience

August 12, 2010


The first and second installments of this series briefly discussed the duty of care and the duty of loyalty.  A third duty fiduciary duty imposed on charity board members is the duty of obedience (although some characterize the duty of obedience as a sub-set of the first two duties).  To satisfy the duty of obedience, a board member must act with fidelity, within the bounds of the law, to the charity’s mission as expressed in its Articles and Bylaws.  Therefore, it is important for every board member to carefully review the Articles and Bylaws, understand the charity’s mission, and consider this mission when making board decisions.

Board Duties Part II – The Duty of Loyalty

August 10, 2010


In the first installment of this series on board duties, we briefly discussed the fiduciary duty of care.  This second installment briefly discusses the fiduciary duty of loyalty.  To satisfy the duty of loyalty, a board member must act in the interest of the charity, and not act in their own interest or that of another person or entity.

The duty of loyalty primarily relates to conflicts of interest, corporate opportunity, and confidentiality. A conflict of interest is present whenever a director has a personal interest, whether direct or indirect, in connection with any proposed contract, arrangement or transaction. The mere presence of a conflict of interest, however, does not necessarily render a transaction void or voidable, or expose a director to liability.  When faced with a potential conflict of interest transaction, the board should consult the Internal Revenue Code (IRC Section 4941 or IRC Section 4958) and applicable state