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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

Rare IRS Guidance Regarding Single-Member LLCs

The IRS recently released an Information Letter (2010-0052) regarding the tax treatment of a single-member limited liability company (SMLLC) the sole member of which is a public charity.  The IRS confirmed the well-accepted position that a SMLLC is a “compontent part” of the exempt member which must treat the operations of the SMLLC as a branch or division.  The IRS went on to confirm that the SMLLC “receives the benefit of its owner’s tax-exempt status, including exemption from federal income tax, federal unemployment tax, and other federal taxes where applicable” but noted that a SMLLC is subject to certain federal excise taxes and employment taxes. 

The IRS also confirmed that a grant from a private foundation to a SMLLC the sole member of which is a public charity would be treated as a qualifying distirbution  and not a taxable expenditure, and expenditure responsibility generally will not have to be exercised by the private foundation.  The

Conduit Foundation Status – A Missed Opportunity for Private Foundations

Corporate and family sponsored charitable organizations typically qualify as private foundations because most of their support is provided by the sponsoring corporation or family. Under these circumstances, sponsoring corporations and individuals often limit their donations to cash contributions since the deduction for contributions of appreciated property to a private foundation is generally limited to the cost basis in the property. If the private foundation can qualify as a “conduit” foundation in the year of contribution, however, the amount of the charitable deduction with respect to a donation of appreciated property may equal the fair market value of such property, assuming there is no depreciation recapture with respect to the property.

A private foundation can qualify as a conduit foundation if it (a) satisfies the minimum distribution requirements for the current and all prior years and (b) makes additional distributions in an amount equal to

Medium-Sized Charities – It Is Time To Prepare For The New Form 990 Now

July 5, 2010

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The Form 990 was substantially revised in 2008.  To allow charities time to prepare, only charities with gross receipts ≥ $1 million, or total assets ≥ $2.5 million, were required to file the new Form 990 in 2008 (small and medium sized charities were required to file Form 990-N and Form 990-EZ, respectively).  The filing thresholds were reduced for 2009, and for the 2010 tax year and beyond, were further reduced and are established as follows:

  • Form 990 – Gross receipts ≥ $200,000, or total assets ≥ $500,000
  • Form 990-EZ – Gross receipts < $200,000, and total assets < $500,000
  • Form 990-N – Gross receipts normally ≤$50,000

As a result of these filing thresholds, many medium-sized charities must now prepare to file the new Form 990 in 2010.  The new Form 990 will require such charities to gather and disclose substantially greater information than before.  We strongly recommend that medium-sized charities become familiar with the new Form 990 now

Policy Time?

July 5, 2010

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Policy Time?

July 5, 2010

Authored by: Keith Kehrer

The new Form 990 now requires a tax-exempt organization to disclose whether it has adopted certain governance policies, including conflict of interest, whistle-blower, document retention, and joint venture policies, to name a few.  Although governance policies are not legally required, it is generally accepted that adopting and following governance policies increases the likelihood of compliance with federal and state law and the identification and solution of potential issues.  Despite the pressure an organization’s board may be under to adopt policies, however, it is important that an organization does not merely adopt policies in order to respond positively to the Form 990 questions.  Mere adoption of a policy, without more, is generally worse than having no policy.

Small Charities – Its not to Late to File Form 990-N

July 3, 2010

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Before 2006, small charities with less than $25,000 of annual gross receipts were not required to file Form 990.  After 2006, small charities are required to file Form 990-N (e-Postcard).   Failure to file Form 990-N for three consecutive years generally results in loss of tax-exempt status.  As of May 17, 2010, calendar year small charities that have not filed Form 990-N for the 2007 through 2009 tax years are in jeopardy of losing their tax-exempt status.   We suspect several thousands of small charities are currently in jeopardy of losing tax-exempt status for failure to file Form 990-N.

The IRS recently announced, however, that  it will do what it can to help small charities avoid losing their tax-exempt status.   Although the IRS has not clarified this statement, it is possible this statement means the IRS will not automatically revoke the tax-exempt status of every late filer.  If your small charity still has not filed, it is advisable to file Form 990-N as soon

Overview of Joint Venture Rules

July 1, 2010

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Overview of Joint Venture Rules

July 1, 2010

Authored by: Keith Kehrer

Joint ventures between Section 501(c)(3) organizations and for-profit parties are becoming more and more common.  The attached memorandum (which may be obtained by clicking the link below) provides a brief overview of tax issues related to joint ventures between tax-exempt and for profit entities:

Structuring Joint Ventures

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