BCLP Charity Law

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501(c)(3) Hospitals – It is Time to Prepare for § 501(r)

IRC § 501(r) was enacted during 2010 to tighten the requirements that hospitals must satisfy to maintain IRC § 501(c)(3) status.  IRC § 501(r) also complements steps taken by the IRS in the last couple of years to increase hospital transparency and supplement the”community benefit” standard set out in IRS Rev. Rul. 69-545, including more detailed requirements for reporting charity care and community benefits in the redesigned annual federal information return form (Form 990, particularly Schedule H).  Under IRC § 501(r) a hospital organization that wants to retain its IRC § 501(c)(3) status must: (1) at least every three years conduct a community health needs analysis and develop a plan to meet these needs; (2) adopt, implement, and widely publicize written financial assistance and emergency care policies that must cover specified topics; (3) limit charges to persons qualifying for financial assistance to amounts charged to persons with

Company Foundation Scholarship Programs

July 17, 2010

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A corporate sponsored charitable organization may conduct a scholarship program for the benefit of its sponsoring corporation’s employees and/or children of such employees. Scholarships must be awarded on an objective and non-discriminatory basis. The scholarship program may not be used to induce employment or represent compensation for services, and availability must be limited by non-employment related factors. With respect to a corporate sponsored private foundation, the scholarship selection committee must also be independent from the private foundation and sponsoring corporation, and the scholarship program must be approved in advance by the IRS.  See IRS Rev. Proc. 76-47 for additional requirements. If the requirements are satisfied, donors who contribute to the charitable organization are entitled to an income tax deduction and the scholarship payment is not treated as taxable compensation to the employee.

Disaster Relief Programs for Company Foundations

A corporate sponsored charitable organization may conduct disaster relief and emergency hardship assistance programs for the benefit of its sponsoring corporation’s employees. With respect to a corporate sponsored “private foundation” (e.g., where the charitable organization receives substantially all of its support from the corporation), relief may be provided to employees who are victims of any Presidentially declared disaster, which may include an earthquake, flood, hurricane, or tornado. With respect to a corporate sponsored “public charity” (e.g., where the charitable organization receives support from the corporation and employees), relief may be provided to employees who are victims of any Presidentially declared disaster or any emergency hardship resulting from a severe personal crisis, such as a fire, accident, illness, death, or crime.

Relief must be provided based on an objective determination of need and the selection committee should be comprised of individuals who are not in a position to exercise substantial

Artists Seeking Grants – The Laws That Govern Givers

As government funding of private arts and education shrinks, grants from private foundations become more competitive.  There are many legal factors that affect foundations’ decisions to give away money. The laws can be very complex, but the following primer can help artists direct their energies when choosing foundations and crafting their applications:  Team Publication (Artists Seeking Grants – The Laws that Govern the Givers of the Grant).

Credit Card Rebates (aka Points) Eligible for Charitable Deduction

July 13, 2010

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The IRS recently decided, in PLR 201027015, that a taxpayer who directs her credit card “rebates” to a charitable organization is not required to include the amount in gross income and is entitled to a charitable deduction.

The facts are simple: taxpayers make purchases using their credit cards and as a result of the purchases, they earn “rebates.”  These rebates equal 1% of the taxpayer’s purchases, and the taxpayer can either receive cash back or direct the cash to a charitable organization.  The IRS holds that these rebates are not includable in the taxpayer’s gross income becase these “rebates” are adjustments to the purchase price paid for the item.  The problem is: what item??  Presumably the taxpayer purchased several items from several different retailers.  These facts are clearly different from the cell phone company who charges “$50” for my phone by making me pay $200 up front and requiring me to

Overview of Form 990 Governance Policies

The Form 990 includes numerous governance and management questions.   A brief summary of the more significant governance and management questions are provided below. The IRS has indicated that, although a negative response to a question on the Form 990 will not necessarily result in an audit, the IRS will use such negative responses in conjunction with other information on the Form 990 to determine whether further inquiry is necessary.  It is important for the leadership of public charities to become familiar with these provisions and should analyze each of the following:

  • Records Management Program – Form 990 asks whether the organization has a written document retention and destruction policy. Nonprofit corporations should adopt a document retention and destruction policy, along with a records retention schedule, utilizing the standards under Sarbanes-Oxley, 18 U.S.C. 1512(c), and the new Federal Rules of Civil Procedure regarding e-Discovery, Fed. R.

Here’s the Cheese, but Forget the Wine

July 11, 2010

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The IRS, in PLR 201025078, denied exemption under section 501(c)(7) to a winemaking club.   The club was formed for the specific purpose “to encourage the appreciation of winemaking, promote the responsible use of wine, educate wine tasters and home wine makers, and to promote and support the healthful creation of wine made without sulfites.”  Although the club, had it been properly managed, could have qualified under section 501(c)(3) as an educational organization, the club failed to qualify as exempt under any section due to its commercial nature.  Specifically, the club allowed anyone to become a “member” for a fee, didn’t allow its “members” any actual rights, and didn’t allow its “members” enough socializing amongst each other.  Perhaps if the wine club had been more exclusive in its membership and hosted more parties among its members, the IRS would have granted exemption.  Of course, the club should have also considered adding a few more disinterested board members and

Fertility Clinic not so Fertile (or Exempt)

July 10, 2010

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In Free Fertility Foundation v. Commissioner, the Tax Court affirmed the IRS’ denial of 501(c)(3) status to The Free Fertility Foundation—an organization that provides its founder’s sperm “free of charge to women seeking to become pregnant through artificial insemination or in vitro fertilization.” Interestingly, the court stated the “free provision of sperm may, under appropriate circumstances, be a charitable activity.” But The Free Fertility Foundation did not qualify because the class of potential beneficiaries is “not sufficiently large to benefit the community as a whole.” After all, the class of potential beneficiaries is limited to those that want the founder to be the biological father of their children. Further, the founder and his father choose recipients from applicants based on a “very subjective, and possibly arbitrary” process that includes a questionnaire on topics such as an applicant’s education, ethnicity, geographic location, fertility history and contribution

IRS Issues Final Regulations on Prohibited Tax Shelter Transactions

July 9, 2010

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The IRS has issued final Regulations under Section 4965 on excise taxes for prohibited tax shelter transactions involving tax-exempt entities and on related disclosure obligations and filing requirements.  The final Regulations may be view using the following link:  http://www.irs.gov/pub/irs-tege/4965fregs.pdf

Form 1023 – To File (Now) Or Not To File (Wait), That Is The Question

The date when an organization files its IRS Form 1023 application for federal tax-exempt status has an effect on the date the organization will be considered tax-exempt under Section 501(c)(3). If an organization files Form 1023 within 27 months after the end of the month in which it was legally formed, and the IRS approves the application, the effective date of Section 501(c)(3) status will be retroactive to the date of formation. If an organization does not file within 27 months of formation, Section 501(c)(3) status is generally effective as of the date it files the Form 1023 application (the postmark date).

For organizations with gross receipts exceed more than $10,000 annually, the U.S. Department of Treasury generally requires a fee of $850 to process a Form 1023 application (for organizations with gross receipts do not exceed $10,000 annually, the fee is $400). However, the IRS has been developing an

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