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New Medicare Enrollment Requirements Will Burden Providers and Suppliers

On September 22, 2010, the Centers for Medicare and Medicaid Services (“CMS”) issued proposed rules that will dramatically change the enrollment process for Medicare providers and suppliers, including new enrollment following a change of ownership.  The proposed rules are intended to carry out various provisions of the Patient Protection and Affordable Care Act (“PPACA”), particularly section 6401, which requires that HHS develop procedures to screen Medicare providers for risk of fraud and abuse. The rules represent a shift in CMS’ anti-fraud strategy from one that pays first and asks questions later to one designed to prevent fraud before it starts.  These rules will impact many tax-exempt organizations, especially health care organizations.  For more information regarding these proposed rules, please click here.

October 2010 Presents An Even Better Time for a Charitable Lead Trust

September 22, 2010

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In July, I blogged about the low interest rate environment and how that results in a great opportunity for a donor with charitable objectives who also wishes to pass assets to the next generation free of federal estate or generation-skipping transfer tax. To read that posting about Charitable Lead Trusts, click here. Well, September rates ticked downward, and, in the last few days, the IRS announced the rates available for October transfers to such trusts as ticking down even more. Therefore, what I said before goes double now. (Well, not technically double, but meaning much more.) These lower rates mean that it’s even easier for these trusts to be productive to pass even more cash to lower generations free of transfer tax. So, if you think that the trust’s investment strategy could beat the IRS-decreed rate for October of 2.0%, while also benefiting charity, October is

Compensation Scrutiny – Protect Your Charity

September 20, 2010

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Recently, the IRS, state Attorney Generals, and charity watchdog groups have raised concerns regarding the payment of excessive compensation to charity executives.  For example, the redesigned Form 990 includes numerous questions regarding compensation and related practices.  The IRS has sent compensation questionnaires to thousands of hospitals and universities.  Recently, Protect the Hershey’s Children sent a letter to the IRS Commissioner, Senate Finance Committee, and Pennsylvania Department of Banking alleging board compensation abuses at the Milton Hershey Trust School and Milton Hershey School. 

I believe it is likely that charities will continue to experience heightened scrutiny of executive compensation from the public, IRS, and Attorney Generals, especially in light of the additional compensation data that is now available on the Form 990.  In addition to negative publicity, payment of excessive executive compensation may result in loss of the charity’s exempt status (private inurement), the imposition of excise taxes on the executive who received and the directors

A “Church” without Boundaries

September 17, 2010

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A “Church” without Boundaries

September 17, 2010

Authored by: Nathan Boyce

 

Recently, the Federal Circuit Court of Appeals upheld the revocation of church status for the Foundation for Human Understanding (106 AFTR 2d 2010-5862) because it did not satisfy the so-called associational test.  The associational test is a test used by courts to determine whether an organization constitutes a church for 501(c)(3) purposes and consists of asking whether the organization “includes a body of believers who assemble regularly for communal worship.”  The IRS and the courts generally avoid getting into the substance of the worship services of the various churches–as long as the believers associate with each other (and, in some churches, with venomous snakes).   

IRS Should Adopt a Notice Procedure for Activity Changes

September 15, 2010

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As we discussed in a prior post, a charity must notify the IRS of material changes in activities on its next Form 990.  This process is beneficial to the IRS and the public.  As I also discussed, in addition to the Form 990, a charity may (in its discretion) notify the IRS of material changes in activities through the Correspondence Unit (also referred to as the Adjustments Unit). 

In the past, when it seemed appropriate (e.g., where the activities were in a gray area or the charity was very conservative), we would submit a letter explaining the changes in activities to the Correspondence Unit and request an updated determination letter from the IRS that the charity was still exempt taking into consideration the new activities. On several occasions, the Correspondence Unit issued such an updated determination letter, which was of great benefit to the charity, providing assurance and comfort that the charity’s new activities were exempt. 

Recently, we

Made a Charitable Pledge? Consider Satisfaction with Your IRA

September 13, 2010

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When charitable pledges come do, some donors scramble to find ways to satisfy the pledge without a negative impact to current cash flow.   A donor’s use of a private foundation to satisfy the pledge is often unattractive since such a transfer could result in self-dealing to the extent the donor’s pledge is considered a legally binding obligation under applicable state law.  However, a transfer from the donor’s IRA in satisfaction of the pledge may represent a viable alternative.  In an Information Letter released August 20, 2010, to Harvey Dale (a well-known tax professor), the IRS concluded that a taxpayer who satisfies a pledge by making a qualified charitable distribution from his or her IRA directly to a charitable organization would not include the distribution in gross income (citing Rev. Rul. 55-410, which provides that the satisfaction of a pledge by means of a donation of appreciated or depreciated property does not give rise to a taxable gain

Percentage or Commission-Based Compensation

Often times a charity cannot afford to hire a professional fundraiser.  In addition, many fundraisers desire to be paid a commission based on a percentage of the revenues that they raise.  Therefore, offering a commission for fundraising services is often perceived as a “win-win” situation.  Before entering into any arrangement, however, a charity must consider certain limitations on so-called percentage or commission-based compensation under the federal income tax laws, including the private inurement, private benefit, and excess benefit / intermediate sanctions rules.  To avoid application of these rules, the commission, as well as the fundraiser’s total compensation (including the commission and any other compensation) must be reasonable.  For example, commissions must be paid for services actually rendered and commensurate with the services rendered.  The IRS has also suggested that a ceiling or cap on the maximum amount of compensation is an important factor to ensure that commission-based compensation is reasonable.  Commission-based compensation based on the achievement of charitable objectives or established to serve a

IRS Releases Form to Help Tax-Exempts Claim New Health Care Tax Credit

September 8, 2010

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The IRS today released a draft version of the form that tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible tax-exempt organizations –– which do not generally file income tax returns –– will claim the credit during the 2011 filing season.   Tax-exempt organizations will claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– also to claim the small business health care tax credit.  For more information, please click here.

Delaware Revised Statutes – Part II

Delaware Revised Statutes – Part II

September 6, 2010

Authored by: Nathan Boyce

I don’t like members. Not as individuals, but as a non-profit corporate law term of art, mostly because it so often leads to confusion.  I plan to rant more about this in a future blog. But for purposes of analyzing the changes to the Delaware General Corporation Law (“DGCL“) though, I will simply note that in many jurisdictions, a “member” is someone (other than a director or delegate) entitled to vote for directors; members also generally get to vote for important corporate actions, like mergers and dissolutions. And, in all jurisdictions I know of, a non-profit corporation may, but is not required to, have members. If it doesn’t, its directors themselves may vote for the next slate of directors and approve all corporate actions. As I noted in my August 19 post, unlike most jurisdictions, Delaware does not have a nonprofit corporation act; rather corporations that want to

Charities and Life Insurance – A Growing Trend?

Life insurance has always been an important part of charitable giving.  Although there are legitimate uses, over the years the IRS has identified certain abuses regarding the use of life insurance in charitable planning.  In our practice, we have seen a recent surge in charitable planning techniques involving life insurance.  Before your charity accepts a gift of life insurance, you should consider several issues, including the following:  (1) the application of Section 170(f)(10), the so-called “charitable split-dollar rules” (which, if applicable, impose an excise tax on the charity equal to 100% of the premium payments), (2) applicable state insurable interest laws, (3) private inurement, private benefit, and excess benefit rules, (4) unrelated business income rules (and debt-financed income rules, to the extent the life insurance was acquired with borrowed funds), (5) the partial interest rules (impacting both the income and gift tax deduction of the donor), (6) I.R.C. § 4944, the jeopardizing investment rules, and I.R.C. §

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