IRS updates

12/13/07 IRS releases FY2008 Implementation Guidelines with agenda for 2008. The IRS has released its FY 2008 Implementing Guidelines summarizing the EO Division’s accomplishments for 2007, and their program priorities for 2008. Highlights include a critical analysis of charities business practices, colleges and universities tax-exemptions, donor-advised funds, political activities, additional information on the new IRS for 990s, and donor overvaluation of charitable gifts.

For the Dec.13, 2007 Chronicle of Philanthropy article go to http://philanthropy.com/news/updates/index.php?id=3628. 

11/27/07 IRS Standard Mileage Deduction Rates to Increase on January 1, 2008. The IRS released the new Optional Standard Mileage rates used to calculate the deductible costs of operating a vehicle for business, charitable, medical, or moving purposes. Beginning January 1, 2008, the standard mileage rates for the use of a car will be 50.5 cents per mile if driven for business, 19 cents per mile if driven for medical or moving purposes, and 14 cents per mile if driven in service of a charitable organization. In 2007, the rates were 48.5 cents for business, 20 cents for medical and moving, and 14 cents for charitable service. For more information go to http://www.irs.gov/newsroom/article/0,,id=176030,00.html. 

11/16/07 New 990-N Postcard Return Rule Effective January 1, 2008. The IRS has announced that the new Form 990-N Electronic Notice or e-Postcard for small tax-exempt organizations is now available and will be required as of January 1, 2008. Small tax-exempt organizations, whose gross receipts are normally $25,000 or less, are not required to file Form 990. But as of January 1, 2008, these small organizations ARE required to file the form 990-N (e-Postcard) by May 15, 2008 (for tax period ending Dec. 31, 2007).

The e-postcard was enacted as part of the Pension Protection Act of 2006. It requires small organizations to provide the legal name of the organization; any DBA, mailing address, website address, taxpayer ID number; name and address of a principal officer; evidence of the continuing basis for the organization’s exemption from filing the Form 990; and upon termination, notice of that termination. Failure to file the notice for three consecutive years will result in revocation of tax-exempt status. 
IRS Announcement
IRS letter 

11/16/07 New IRS Commissioner concerned over self-governance & social benefit of tax exemptions. Steven T. Miller, the new IRS Commissioner for the Tax Exempt and Government Entities division, spoke at Independent Sector’s conference in Los Angeles, CA on October 22, 2007 about the current climate for charities. In the Commissioner’s speech he mentions concerns over blurred lines between for-profit and non-profit activities by charities, (citing gyms as one example) and the social benefit of tax exemptions . The Commissioner’s speech includes the following:

“It is an increasingly skeptical environment – an environment that is not as willing as before to extend the benefit of the doubt. Moreover, it is an environment in which some are questioning whether the public benefits that tax-exempt organizations are providing are commensurate with the organizations’ resources and the tax subsidies they receive. In addition, increased transparency has led to some absolutely legitimate questions about certain practices and what they cost the public.”

For text of Commissioner Miller’s October 22, 2007 remarks go to http://www.irs.gov/pub/irs-tege/stm_isector_10_22_07.pdf. 

The Commissioner also spoke at the Philanthropy roundtable on November 10, 2007 about the IRS role in an evolving charitable sector. The official transcript of that speech is posted on the IRS website at http://www.irs.gov/pub/irs-tege/stm_speech_--_philantoropy_roundtablestm1107.pdf. 

10/10/07 IRS Designates Charitable Contributions of Certain LLC Membership as Transactions of Interest. The IRS has issued Notice 2007-72, designating certain transactions as having the potential for tax avoidance or evasion and alerting participants to required disclosures and potential penalties. In these transactions a taxpayer transfers a membership interest in a limited liability company that directly or indirectly owns real property to a section 501(c)(3) charitable organization or government entity, claiming a charitable contribution deduction for an amount significantly higher than the original purchase price paid by the taxpayer to acquire the interest. Charitable organizations that receive property in these transactions after August 14, 2007, are participants in these transactions for the first year in which their tax returns reflect the acquired interest, which is generally the year of receipt of the interest. For that year, the charity must disclose certain information to the IRS required by the reportable transaction regulations or be subject to penalties as described in the notice. News Release (IR-2007-143, Aug. 14, 2007)

10/10/07 IRS Issues NPRM on changes to payout requirements for Type III Supporting Organizations. The IRS and Treasury Department have issued an Advance Notice of Proposed Rulemaking describing rules they anticipate proposing regarding payout requirements for certain section 509(a)(3) supporting organizations. The rules address other aspects of the qualification requirements for functionally integrated Type III supporting organizations, which are not subject to certain restrictions adopted by the Pension Protection Act of 2006 for other Type III supporting organizations. The proposal would (1) require a non-functionally integrated Type III supporting organization to meet a payout requirement, and (2) limit the number of organizations that such organizations can support. Comments must be submitted by October 31, 2007 and must reference REG-155929-06. More information 

8/30/07 IRS Issues Priority Guidance Plan for 2007-2008. The Department of Treasury and Internal Revenue Service have released the joint 2007-2008 Priority Guidance Plan. This plan outlines the items that Treasury and the IRS expect to issue technical guidance on during the next year. It includes a number of projects of interest to charities. The Plan is listed on the IRS website at http://www.irs.gov/charities/article/0,,id=173225,00.html and posted at http://www.irs.gov/pub/irs-utl/2007-2008pgp.pdf. 

7/16/07 IRS Issues New Procedure on Application for Charitable Tax Exempt Status. The IRS has issued new procedures governing applications for charitable tax exemption status. Revenue Procedure 2007-52 sets forth the IRS’ procedures for issuing determination letters and rulings on the exempt status of organizations under §§ 501 and 521 of the Internal Revenue Code. The IRS generally issues determination letters and rulings in response to applications for recognition of exemption from Federal income tax. These new procedures also apply to the revocation or modification of determination letters or rulings. The procedure also provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under § 7428 of the Code. For a copy of the new Rev. Proc. 2007-52 at http://www.pgdc.com/pdf/rp-07-52.pdf. 

6/13/07 IRS ACT Report Proposes Voluntary Compliance Program. The Advisory Committee on Tax Exempt and Government Entities (ACT) has issued a report that proposes a Voluntary Compliance Program for Exempt Organizations. For more information go to http://www.irs.gov/charities/article/0,,id=98353,00.html, or directly to the pdf at http://www.irs.gov/pub/irs-tege/tege_act_rpt6.pdf (see pdf pages 61-101). 

6/13/07 IRS Releases Guidance on Qualified Conservation Easements. Notice 2007-50 provides guidance on new percentage limitations for qualified conservation contributions made by individuals under the IRC §170(b)(1)(E)(iii). For more information go to http://www.irs.gov/charities/article/0,,id=161145,00.html, or for the Notice go to http://www.irs.gov/pub/irs-tege/n-07-50.pdf. 

5/31/07 IRS to Focus on Executive Compensation. The IRS announced this week, that as a result of a recent IRS nonprofit executive compensation report and negative publicity of nonprofit hospitals, colleges and universities, executive compensation will be a focus of future IRS compliance projects. For recent IRS Report on Executive Compensation go to http://www.irs.gov/pub/irs-tege/exec._comp._final.pdf. 

5/24/07 IRS Investigating Charitable Donations of Overvalued Property. According to Kevin Brown, the IRS’ new Acting Commissioner, the IRS is investigating abuses of non-cash charitable contributions, where the interest in a piece of real property is donated to charity “at an apparently inflated value.” In a letter to Senate Finance Committee Chair Max Baucus (D-MT), Commissioner Brown identified 48 organizations, mostly based in New York, that were engaged in activities that yielded nearly $271 million in charitable deductions. The IRS is trying to identify taxpayers who participated in these transactions, and how widely the activity was conducted. The IRS is considering issuing a guidance statement on the matter, as well as possible legislative action.

3/28/07 IRS Posts Simple How-to for Nonprofits Filing for Telephone Excise Tax Refund. IRS release Publication 4589 which tells Nonprofits how to apply for and receive their telephone excise tax refund (TETR). You are encouraged to post this Publication in your organizations newsletter and on your website to help other nonprofits understand how to obtain their refund. For more information go to http://www.irs.gov/pub/irs-pdf/p4589.pdf. 

IRS posts Revenue Procedure Providing Relief for 527 Organizations. IRS posts Revenue Procedure providing relief for 527 Organizations a Safe Harbor provision, and a request for public comment. Revenue Procedure 2007-27 contains safe harbor provisions for 527 organizations that omit certain information from Form 8872. Also, the IRS requests written comments from the public by the July 2, COB deadline. For more information go to http://www.irs.gov/charities/political/article/0,,id=168623,00.html. 

IRS Tells Foundations to Use the “Business Master File” Information when Making Grants to Supporting Organizations. In determining whether a grantee is a public charity under IRC section 509 (a) (1), (2),or (3), an article explains how a grantor can access the IRS Business Master File (BMF) or may use a third party to obtain BMF information for the grantor. For more information go to http://www.irs.gov/charities/charitable/article/0,,id=168531,00.html. 

IRS Suspends Issuance Determination Letters for Supporting Organizations. In a February 22 memorandum the IRS announced a suspension of the issuance of determination letters under section 509(a)(3) of the Internal Revenue Code , where a §509(a)(3) organization seeks “functionally integrated Type III supporting organization” status pending the issuance of guidance. The Pension Protection Act of 2006 (PPA) enacted certain requirements that affect all §509(a)(3) supporting organizations, and effectively created a new category of Type III supported organization referred to as “functionally integrated.” Functionally integrated Type III organizations are excluded from certain new requirements under the PPA, such as the excess business holding rules of §4943 and the “payout rules.” This IRS suspension applies to applications for exemption seeking functionally integrated Type III supporting organization status as well as determination letter requests seeking a change in foundation status to functionally integrated Type III supporting organization. For more information go to http://www.irs.gov/charities/article/0,,id=160487,00.html.  For the Treasury Department memo go to http://www.irs.gov/pub/irs-tege/functionally_integrated_memo_.pdf.

3/14/07 Baucus and Grassley Ask IRS for List of Top Tax Avoidance Scams Involving Nonprofits. Senate Finance Committee Chair Max Baucus (D-MT) and Ranking Member Charles Grassley (R-IA) have asked the IRS to provide the Senate Finance Committee with the newest and most updated list of “tax avoidance scams” involving nonprofits. In a statement, Chairman Baucus said Congress needs to “stop those who are hiding behind tax-exempt status for their own gain.” For Grassley’s March 7 press release go to http://finance.senate.gov/press/Gpress/2007/prg030707.pdf

House Ways & Means Subcommittee to Hold Hearing on IRS Operations and Tax Gap. US House Ways & Means Oversight Subcommittee to hold hearing on IRS operations, the 2007 tax return filing season, and the “tax gap.” (the amount of unpaid taxes owed to the federal government). The hearing will take place on Tuesday, March 20, in the main committee hearing room, 1100 Longworth House Office Building, Washington, DC, beginning at 10 am.

House Ways & Means Subcommittee to Hold Hearing on IRS Operations and Tax Gap. US House Ways & Means Oversight Subcommittee to hold hearing on IRS operations, the 2007 tax return filing season, and the “tax gap.” (the amount of unpaid taxes owed to the federal government). The hearing will take place on Tuesday, March 20, 2007, in the main Committee hearing room, 1100 Longworth House Office Building, Washington DC, beginning at 10:00 a.m.

Oversight Subcommittee Chairman John Lewis (D-GA) will address the estimated annual $345 billion tax gap, and ways in which the IRS can improve compliance. IRS Commissioner, Mark W. Everson, will be the only witness, and will address priorities in taxpayer services, examinations, collections, modernization, and staffing levels. Individuals or organizations may submit a written statement by close of business by April 3, 2007 for consideration by the Committee and for inclusion in the printed record.

For Advisory No. OV-3 go to http://waysandmeans.house.gov/hearings.asp?formmode=view&id=5671  for more information contact: (202) 225-5522

For the tax gap according to US Senate Finance Committee Ranking Member Grassley go to http://finance.senate.gov/press/Gpress/2007/prg031307a.pdf  and see how “...you can have a blue moon, [ ] blue cheese, and [ ] even [ ] blue suede shoes, but when it comes to balancing the budget you can’t do it with blue smoke.

1/31/07 IRS launches free online training module on 501(c)(3) tax compliance. IRS launches free web-based training module on tax compliance issues for 501(c) (3) charities. This new web-based training program covers a range of tax compliance issues facing small and mid-sized tax exempt organizations. For more information on the new IRS training module go to  http://www.irs.gov/charities/article/0,,id=166625,00.html.

1/3/07 IRS Issues New Guidance on the Telephone Excise Tax Refund. IRS has updated its instructions of how to claim the telephone tax refund (Notice 2007-11. Individuals and businesses are eligible for refunds of the long-distance portion of the federal telephone excise tax. This Guidance restates the standard amounts available for individuals, provides the formula for businesses and nonprofits to use to calculate their refunds, offers an estimation method for tax-exempt organizations to use to determine their credit or refund using a percentage of telephone bills between April and September 2006, and explains how to distinguish between local-only and bundled service. For more information go to http://www.irs.gov/newsroom/article/0,,id=164032,00.html. 

11/16/06 IRS Announces Formula for Charities to Use to Receive Federal Telephone Tax Refund. The IRS has just announced a formula for charities to estimate their federal telephone excise tax refunds.  IR-2006-179 provides a formula for charities to use to receive a refund on telephone excise taxes paid.   In May of 2006, the Treasury Department announced that it would stop collecting the federal excise tax on long-distance telephone service.  Refunds will be paid for these excise taxes billed during the 41 months between February 28, 2003 and Aug. 1, 2006.  Few charities took advantage of the refund because it was too complicated to demonstrate that the money was billed and paid.  The burden outweighed the benefit.  With this new formula, charities can benefit from the excise tax refund.   

PANO worked with the office of US Senator Rick Santorum to help negotiate this arrangement.  We thank PANO members for their participation, and we thank the Senator’s staff for their effort.  

To request a refund, tax-exempt organizations must complete Form 8913, Credit for Federal Telephone Excise Tax Paid.  To complete this form, tax-exempt organizations may determine the actual amount of refundable long-distance telephone excise taxes they paid for the 41 months from March 2003 through July 2006, or use the formula to figure their refunds.   Attach Form 8913 to your regular 2006 income Form 990-T. 

For a copy of IR-2006-179 go to http://www.irs.gov/newsroom/article/0,,id=164305,00.htmlIRS Form 8913

The IRS Form 8913 is now available to request a refund for the Telephone Excise Tax.

Background: 9/13/06 IRS Seeks Comment on Telephone Excise Tax refund for charities. The IRS is asking charities to help them develop the best procedure to refund the Telephone Excise Tax. Individuals and businesses are entitled to a tax refund on long distance services billed between March 1, 2003, and before July 31, 2006. While individuals are permitted to substantiate the refund by taking a snap-shot of a single month and prorating for the entire 41 months, businesses including nonprofits are required to produce actual phone bills and cancelled checks for all 41 months. This refund could provide a small boost to Pennsylvania’s nonprofit community, but only if the benefit outweighs the burden. Please help us to ensure that nonprofits in Pennsylvania are represented in this national conversation. Submit your recommendations to the IRS by September 15. For more information go to: http://www.irs.gov/businesses/small/article/0,,id=160214,00.html.  Specific instructions for a tax-exempt organization to obtain a refund (which can be done only on its 2006 Form 990T) see page 11 of the document at of http://www.irs.gov/pub/irs-drop/n-06-50.pdf. 

11/13/06

IRS Seeks Applications for TE/GE Advisory Committee. The Internal Revenue Service is seeking applications for vacancies on the Advisory Committee on Tax Exempt and Government Entities (ACT). The committee provides a venue for public input into critical tax administration areas. Two vacancies exist for Exempt Organizations. Members are appointed for two-year terms by the Secretary of the Treasury. Applications can be made by letter or by completing an application form available on the IRS website here. http://www.irs.gov/pub/irs-tege/act_membership_application_2006.pdf.  For additional information go to http://www.irs.gov/charities/article/0,,id=163733,00.html. 

IRS Announces New Procedures to Change Public Charity Classification. The IRS has announced new procedures for private foundations and supporting organizations to change their tax status so as to benefit from the IRA rollover provision under the Pension Protection Act of 2006. The Pension Protection Act permits specified individuals to make contributions from their Individual Retirement Accounts (“IRA”) to certain public charities without including the amounts in the contributor’s taxable income. The Act also restricted private foundations from making distributions to certain public charities. Charities like private foundations and supporting organizations were not permitted to benefit from these charitable giving incentives. Announcement 2006-93 explains how 501(c)(3) supporting organizations and private foundations that are currently classified under IRC § 509(a)(3) can change their tax-exempt classification to either 509(a)(1) or 509(a)(2). For a copy of the IRS Announcement 2006-93 at http://www.irs.gov/pub/irs-drop/a-06-93.pdf. 

IRS issues transitional guidance defining “qualified appraisal" for charitable deductions. The IRS has issued “transitional guidance” on the new definitions of “qualified appraisal" and “qualified appraiser” for certain charitable contributions under the Pension Protection Act of 2006. Under current law, a person contributing property and claiming a deduction of more than $5,000 must obtain a qualified appraisal from a qualified appraiser. Under Notice 2006-96 an appraiser’s qualifications may be based on among other things, background, experience, education, and professional memberships. The IRS and Treasury Department request comments on future guidance on the new provisions. Until regulations are issued, taxpayers may rely on Notice 2006-96 to comply with the new provisions. For a copy of IRS Notice 2006-96 go to http://www.irs.gov/charities/charitable/article/0,,id=163650,00.html.  For a copy of this Notice 2006-96 go to http://www.irs.gov/pub/irs-drop/n-06-96.pdf.

IRS increases 2007 optional standard mileage rate. On November 1, 2006, the Internal Revenue Service increased the 2007 optional standard mileage rate used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on January 1, 2007, the standard mileage rates for the use of a car, vans, pickups or panel truck, will be 48.5 cents per mile for business miles driven, 20 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service to a charitable organization. The prior 2006 rates were 44.5 cents per mile for business miles and 18 cents per mile for medical or moving purposes. The rate for charitable miles is set by statute [§170(i)]. The IRS raised this rate primarily due to higher prices for both vehicles and fuel in 2006. A copy of IRS Revenue Procedure 2006-49 is available at http://www.irs.gov/pub/irs-drop/rp-06-49.pdf.

11/07/06 IRS Issues new Implementing Guidelines for FY 2007. The IRS has issued its Implementing Guidelines for FY 2007. The Guidelines report on the IRS Exempt Organizations Division’s accomplishments in 2006, and describe the EO's program plan for 2007. In 2007, EO plans to enhanced enforcement of the tax laws, improved customer service, education and outreach, and a focus on better business processes through improved technology. A copy of the FY 2007 Exempt Organizations (EO) Implementing Guidelines is available at http://www.irs.gov/pub/irs-tege/fy07_implementing_guidelines.pdf.