Dec
29
2010

Dissolution of Private Foundations

Many 501(c)(3) organizations are finding it necessary to cease operations by dissolving or merging out of existence. In order to effectuate such, 501(c)(3) public charities only need to follow the state law requirements (such as filing articles of dissolution), distribute assets consistent with their organizational documents and file a final IRS Form 990.

But a private foundation that desires to cease operations, in addition to following the steps noted above for public chairites, must also take (more…)

Dec
21
2010

IRA Charitable Rollover Reinstated

The IRA Charitable Rollover was reinstated through 2011 as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Contributions for the 2010 tax year can be made retroactively through January 2011.

Dec
12
2010

Form 990 Thresholds for 2010 – Good News / Bad News

As you recall, a Form 990, Form 990-EZ, or Form 990-N is due for every 501(c)(3) charity, regardless of size, on the 15th day of the 5th month following the close of the taxable year end.  The IRS has changed the filing thresholds for 2010, which is good news for some, and bad news for others.  The good news first - the threshold for Form 990-N (e-Postcard), the least burdensome of the Form 990s, was doubled to now apply to organizations with gross receipts normally less than or equal to $50,000.  This is really good news for small charities.   The bad news is that the threshold for filing the full Form 990 was significantly reduced, requiring organizations with gross receipts ≥ $200,000, or total assets ≥ $500,000 to file for the 2010 tax year.  Organizations in between must file the Form 990-EZ.  Numerous “medium-sized” charities are now going to be subject to the substantially more burdensome Form 990 filing requirements.  It is worth noting, however, that much of the learning curve for the new Form 990 has already been achieved as the larger charities have completed the new Form 990 since 2008.

Written by in: Form 990
Dec
07
2010

Use it or Lose it

When I was a kid, my mother would always tell me to “move it or lose it” – although I am not 100% certain, I think she was telling me to please move out of her way.  As tax revenues have declined, we have seen local tax assessors more frequently telling charity owners of real property to ”use it [property] or lose it [property tax exemption].”  (more…)

Written by in: General
Dec
02
2010

Charity’s Activities Don’t Compute

PLR 201047033 involved an organization that had qualified under 501(c)(3) to provide computer materials and computer training to the poor. Upon examination of the organization’s 990 and its principal’s 1040, the IRS learned that the principal had been running a commercial business and asking his clients to make their checks payable to the organization.  The principal commingled his personal funds with the organization’s funds in one bank account.  And most of the checks written from the account were for personal expenses.  So, the organization effectively became a ”tax shelter…to conceal his personal income.” The principal claimed that there was no impropriety; rather, he received bad advice and was confused on how to properly file his and the organization’s returns.  (more…)

Nov
27
2010

Executive Compensation Remains IRS Focus

The IRS Director of Exempt Organizations, Lois Lerner, recently conveyed that the IRS will be looking into the results of its May compensation survey for executives of colleges and universities.  More than one-half of the colleges and universities surveyed reported that they followed the procedures set forth in Treasury Regulation 53.4958-6 to establish a rebuttable presumption that executive compensation is reasonable (such procedures are discussed in a prior blog entry).  The IRS will now be digging further to determine whether the colleges and universities precisely satisfied these procedures, with a particular focus on whether peer compensation is truly comparable and the decision was properly documented.   It is my belief the IRS will continue to focus on executive compensation and will not limit its inquiries to colleges and universities.  Therefore, it is strongly recommended that your charity precisely follow the procedures set forth in the Regulations now to protect the compensation from scrutiny.

Written by in: Governance
Nov
20
2010

Non-Sweet Allegations Against Hershey Trust

Thumbnail for version as of 16:07, 15 October 2009   Milton S. Hershey, confectioner, philanthropist, and founder of The Hershey Chocolate Company.

A self-proclaimed watchdog group, Protect The Hersheys’ Children, Inc., recently sent two letters to Congress and the Pennsylvania Attorney General’s office alleging board compensation abuse and misuse of funds at the Milton Hershey School Trust (the “Trust”) and the Milton Hershey School, both Section 501(c)(3) organizations.  The alleged compensation abuses relate to the purported payment of excessive compensation to the Directors of the Hershey Trust Company, a wholly-owned for profit subsidiary of the Trust, reported to total $1,118,146 for the part time work of ten directors.  Among the allegations regarding the misuse of funds include the Trust’s purchase of an insolvent luxury golf course. 

The Trust is now forced to defend its decisions in the “court of public opinion.”  In addition, it is quite likely that the IRS and Pennsylvania Attorney General will initiate investigations.  It is now up to the Trust to demonstrate there has been no wrong-doing.  In our experience, a charity’s ability to defend its decisions before the IRS and Attorney General will depend in part on its ability to provide adequate documentation regarding its decision making process.   Keeping detailed minutes and records to support each decision is a cumbersome process, however, every board (regardless of size) should ensure such a process is in place.  We will continue to follow the Hershey Trust allegations.  In the meantime, we encourage boards to consider whether it could support its decisions, often times several months or years in the future, with adequate documentation.

Written by in: General
Nov
14
2010

IRS Webinar for New Charities

The IRS has announced a free webinar that will provide a fast-paced overview by two experienced IRS agents on what new tax-exempts need to do (and what they will want to avoid) to follow IRS rules and keep their tax status in good standing in years to come. This 45-minute session will be held November 18 at 2 p.m. EST.  If you are a newly formed 501(c)(3) organization or an organization that wants a refresher, you can register and start off right by clicking here.

Nov
10
2010

What’s Your House Worth?

In Rolfs v. Commissioner, 135 T.C. No. 24, the taxpayers donated the lake house they had been living in to an exempt organization but were denied any charitable deduction.  The grounds for the denial were that the lake house’s value did not exceed the benefit the taxpayers received in return.  That return benefit was valued at $10,000.  The lake house was a “typical, albeit modest” lake house.  So, how in the world could you donate such a house and have it not be worth at least $10,000?  (more…)

Nov
06
2010

IRS Revises Key Publication

The IRS recently announced that it has revised IRS Publication 557, Tax-Exempt Status for Your Organization.  Publication 557 provides guidance regarding organizational issues, on-going filing obligations, and other tax rules impacting exempt organizations.  The Publication is an important resource for any tax-exempt organization and it is advisable that management review the Publication to help analyze whether the organization is complying with the tax law.

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