EXEMPT ORGANIZATION TAX AND LEGAL UPDATE YEE LEE LO, CPA SUZANNE TAYLOR, CPA WILLIAM S. MANNE, ATTORNEY May 16, 2014 PDXDOCS:2028767.5
TABLE OF CONTENTS Page I. IRS SCANDAL, OPERATIONAL AND PROCEDURAL ISSUES ................................ 1 A. IRS Scandal and New Players at the IRS ............................................................... 1 B. Taxpayer Advocate's 2013 Annual Report to Congress (dated as of December 31, 2013 and released January 9, 2014) ............................................... 2 C. "Streamlined" Retroactive Reinstatement Process (Rev. Proc. 2014-11) .............. 3 D. Tips For Moving Applications Along .................................................................... 5 E. Group Rulings and Exemptions ............................................................................. 5 II. 501(c)(4) ............................................................................................................................ 6 A. Streamlined Option for some 501(c)(4) (TEGE-07-1213-24) ............................... 6 B. Proposed 501(c)(4) Guidance ................................................................................ 6 III. INDUSTRY SPECIFIC UPDATES .................................................................................. 8 A. Final Report on Colleges and Universities Compliance Project ............................ 8 B. Proposed Revenue Procedure for Hospitals (Notice 2014-3) .............................. 10 C. IRS Appeals Decision Holding Clergy Housing Allowance Exclusion Unconstitutional ................................................................................................... 10 D. IRS Issues Guidance on § 501(c)(14) Credit Union UBIT .................................. 11 IV. FEDERAL LEGISLATIVE UPDATE ............................................................................ 12 A. Exempt Organization Provisions in Ways and Means Chairman's Tax Reform "Discussion Draft" .................................................................................. 12 B. President Obama's 2015 Budget Proposal ........................................................... 15 C. H.R. 4454 ............................................................................................................. 15 V. CHANGES TO FEDERAL FORMS ............................................................................... 16 A. Draft form 1023-EZ and instructions released for comment ............................... 16 B. Interactive Form 1023 .......................................................................................... 17 C. Form 990: 2013 Significant Changes ................................................................. 18 D. Form 990-T: 2013 Significant Changes .............................................................. 20 E. Form 8822-B ........................................................................................................ 20 VI. TYPE III SUPPORTING ORGANIZATIONS ............................................................... 20 A. IRS Issues Final and Temporary Regulations for Type III Supporting Organizations (TD 9605, 2013-11) ...................................................................... 20 B. Interim Guidance for Functionally Integrated Type III SO Supporting a Governmental Organization (Notice 2014-4) ...................................................... 22 -i-
TABLE OF CONTENTS (continued) Page C. Determination Letters Classifying Type III SOs (TEGE-07-0213-01) ............... 22 VII. QUALIFIED PLANS....................................................................................................... 22 A. The Public Good IRA Rollover Act ..................................................................... 22 B. Cafeteria Plans "use it or lose it" ......................................................................... 23 C. The Cooperative and Small Employer Charity Pension Flexibility Act of 2014 (HR 4275) ................................................................................................... 23 D. Compliance Checks on 457(b) plans ................................................................... 23 VIII. OREGON ......................................................................................................................... 23 A. Oregon State Bar committee working on revisions to ORS Chapter 65 .............. 23 B. Evergreen Aviation and Space Museum and Captain Michael King Smith Educational Institute "no action" letter issued by Oregon Attorney General ...... 23 C. Oregon hybrid business entities now a reality ..................................................... 23 D. HB 4039 confirms property tax exemption to nonprofit corporations for property that was offered, occupied, or used as low-income housing and granted exemption by county ............................................................................... 24 E. ORS 128.760 allows Attorney General to disqualify a charitable organization.......................................................................................................... 24 IX. WASHINGTON .............................................................................................................. 24 A. Senate Bill 6405 outlines how nonprofit tax-exempt property may be used without jeopardizing the property's tax-exempt status ........................................ 24 B. RCW 23B.25 established "social purpose corporations" ..................................... 24 X. ADDITIONAL UPDATES FROM IRS RE EXEMPT ORGANIZATIONS ................. 25 A. Revenue Procedures updating grantor and contributor reliance criteria under §§ 170 and 509 ........................................................................................... 25 B. Revenue Procedure to update Revenue Procedure 2011-33 for EO Select Check ................................................................................................................... 25 C. Guidance under § 4941 regarding a private foundation's investment in a partnership in which disqualified persons are also partners ................................ 25 D. Final regulations under § 4944 on program-related investments ......................... 25 E. Guidance regarding the new excise taxes on donor advised funds and fund management, as added by § 1231 of the Pension Protection Act of 2006 ........... 25 F. Regulations under §§ 6011 and 6071 regarding the return and filing requirements for § 4959 excise tax for community health needs assessments failures by charitable hospitals as added by § 9007 of ACA ........... 25 -ii-
TABLE OF CONTENTS (continued) Page G. Guidance under § 6033 on returns of exempt organizations ............................... 25 H. Final regulations under § 6104(c) ........................................................................ 25 I. Final regulations under § 7611 relating to church tax inquiries and examinations ........................................................................................................ 25 -iii-
EXEMPT ORGANIZATION TAX AND LEGAL UPDATE YEE LEE LO, CPA SUZANNE TAYLOR, CPA WILLIAM S. MANNE, ATTORNEY May 16, 2014 I. IRS SCANDAL, OPERATIONAL AND PROCEDURAL ISSUES A. IRS Scandal and New Players at the IRS 1. Scandal involving the IRS's improper handling of certain applications for exempt status under Section 501(c)(4). 2. Treasury Inspector General for Tax Administration ("TIGTA") released a May 14, 2013 report that finds, "inappropriate criteria were used to identify tax-exempt applications for review." Criteria used included Tea Party and other organizations, based upon their names or policy positions (instead of indications of potential political campaign intervention). Inappropriate criteria were in place for more than 18 months, resulting in substantial delays in processing certain applications as well as unnecessary information requests being issued. Of 296 applications reviewed by TIGTA as of December 17, 2012, 108 had been approved, 28 had been withdrawn, none had been denied, and 160 were open from 206 to 1,138 calendar days. 3. Acting IRS Commissioner Steven Miller resigned, Director of EO Division, Lois Lerner, was placed on administrative leave (she later retired). 4. On August 21, 2013, Representative Chris Van Hollen, Democracy 21, Campaign Legal Center, and Public Citizen file suit against IRS, in the United States District Court for the District of Columbia, "to compel agency action unlawfully withheld and unreasonably delayed, and to set aside agency action that is contrary to law." The suit alleges IRS has violated IRC for many years by allowing tax-exempt social welfare organizations to expend substantial sums on electoral activity without requiring disclosure of contributor's identities (disclosures otherwise required under § 527). (See, http://www.democracy21.org/wp- content/uploads/2013/08/Complaint-August-20-final-for-filing.pdf) 5. In late December, 2013, new IRS Commissioner John Koskinen was confirmed; a new TE/GE Commissioner, Sunita Lough, and a new EO Division Director, Tamera Ripperda, were named; and it was announced that Karen Schiller, who had been serving as acting director of EO rulings, -1- PDXDOCS:2028767.5
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