On January 16, the IRS released its Exempt Organization Newsletter, Issue Number 2012-22. Topics include the following
- EO’s Annual Report and Workplan for the current fiscal year are now available
- IRS issues proposed regulations on shared responsibility provisions of the Affordable Care Act
- Legislative changes affecting EOs
- Voluntary Classification Settlement Program modified
- 2013 updated procedures
1. EO’s Annual Report and Workplan for the current fiscal year are now available
This year’s Workplantakes a special look at the many variables that go into EO compliance projects, the resources and agent training it takes to deliver a successful project and why most projects don’t fit neatly into a calendar year. To help exempt organizations better understand the compliance process, EO also is launching new Examinations webpages on audits.
Other Workplan highlights include reports on automatic revocation and reinstatement, spotlight articles on the Affordable Care Act, Determinations, governance and other topics, and new outreach and education activities.
2. IRS issues proposed regulations on shared responsibility provisions of the Affordable Care Act
Starting in 2014, certain employers – including certain for-profit, non-profit, and government entity employers – must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Dec. 28, 2012, the Treasury Department and the IRS issued proposed regulations on the Employer Shared Responsibility provisions. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers.
3. Legislative changes affecting EOs
The American Taxpayer Relief Act of 2012 extended a modification of the tax treatment of payments to controlling exempt organizations to January 1, 2014. The special rule previously applied only to payments received or accrued before January 1, 2012.
Generally, interest, annuities, royalties and rents received by controlling organizations from controlled entities are subject to tax under section 512(b)(13). However, exempt organizations may exclude “qualifying specified payments” from unrelated business income if received or accrued before January 1, 2014.
Other provisions in the Taxpayer Relief Act that affect charitable organizations:
The Pension Protection Act of 2006 contained several time-limited provisions for favorable tax treatment of certain contributions. These provisions generally expired at the end of 2007 and have been extended several times for two-year periods, most recently in 2010. Some, but not all, of these provisions are extended by the TRA. Specifically, TRA extends the following through the end of 2013:
- IRA Charity Contribution (Code Section 408(d)(8)(F), permitting a distribution of up to $100,000 tax-free from an IRA to a qualifying charity by those over 70 ½ years old. As in the previous extension, taxpayers have the month of January 2013 to elect to make charitable distributions treated as effective in 2012. See related article and IRS news release.
- Contribution of Conservation Easement (Code Section 170(b)(1)(E)(vi)), permitting favorable deductions for donating conservation interests in capital gain real property to charity
- Contribution of Food Inventory (Code Section 170(e)(3)(C)(iv)), permitting enhanced deductions for contributions of food inventories
- Contributions of property by S corporations (Code Section 1367(a)), limiting an S corporation shareholder’s reduction in basis of the S corporation’s stock to a pro rata share of basis (rather than fair market value) of property contributed by the corporation
Two provisions for enhanced charitable deductions – contributions of book inventories to public schools and corporate contributions of computer inventory – were not extended. These were in Code Sections 170(e)(3)(D)(iv) and 170(e)(6)(G), respectively.
4. Voluntary Classification Settlement Program modified
The VCSP, recently modified, is a voluntary program that provides an opportunity for taxpayers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes. To participate in this voluntary program, the taxpayer must meet certain eligibility requirements and apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.
The VCSP allows eligible taxpayers to obtain relief similar to that currently available through the Classification Settlement Program for taxpayers under examination.
The VCSP, originally released in Announcement 2011-64, has been modified in Announcement 2012-45.
5. 2013 updated procedures
Review the following annual procedure updates that affect tax-exempt organizations:
- Rev. Proc. 2013-4
Rulings and information letters; issuance procedures. Revised procedures are provided for furnishing ruling letters, information letters, etc., on matters related to sections of the Code currently under the jurisdiction of the Office of the Division Commissioner, Tax Exempt and Government Entities. Rev. Proc. 2012-4 superseded.
- Rev. Proc. 2013-5
Technical advice. Revised procedures are provided for furnishing technical advice to area managers and appeals office by the Office of the Division Commissioner, Tax Exempt and Government Entities, regarding issues in the employee plans area (including actuarial matters) and in the exempt organizations area. Rev. Proc. 2012-5 superseded.
- Rev. Proc. 2013-8
User fees for employee plans and exempt organizations. Current guidance for complying with the user fee program of the Service as it pertains to requests for letter rulings, determination letters, etc., on matters under the jurisdiction of the Office of the Division Commissioner, Tax Exempt and Government Entities Division, is provided. Rev. Proc. 2012-8 superseded.
- Rev. Proc. 2013-9
Determination letters and rulings. This document sets forth procedures for issuing determination letters and rulings on the exempt status of organizations under sections 501 and 521 of the Code. The procedures also apply to the revocation and modification of determination letters or rulings, and provide guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under section 7428 of the Code. Rev. Proc. 2012-9 superseded.
- Rev. Proc. 2013-10
This document sets forth procedures for issuing determination letters and rulings on private foundation status under section 509(a) of the Code, operating foundation status under section 4942(j)(3), and exempt operating foundation status under section 4940(d)(2), of organizations exempt from Federal income tax under section 501(c)(3). This revenue procedure also applies to the issuance of determination letters on the foundation status under section 509(a)(3) of nonexempt charitable trusts described in section 4947(a)(1). Rev. Proc. 2012-10 superseded.