As we pointed out in our Oct. 19, 2010 entry, it might have been worthwhile to delay filing a new Form 1023 until the IRS launched its “Cyber Assistant” online version which enabled online filing at a substantreduced fee. However, buried in Internal Revenue Bulletin 2011-1 is the following statement:

“… the Service does not expect Cyber Assistant (a Web-based software program designed to assist organizations in preparing their application for recognition of exemption under § 501(c)(3) of the Internal Revenue Code (Form 1023)) to become available in 2011.”

Therefore, if you were waiting to file a Form 1023 until this service was available, you might consider proceeding with the paper version, even at the higher fee. Generally, an organization has 27 months from the date of formation to file the Form 1023, and if the tax exempt status is approved by the IRS, the organization will be deemed to be tax-exempt since the formation date (and donations to the organization since the formation date will generally be deductible to the donors).

On January 20, the IRS released its Exempt Organization Newsletter, Issue Number 2012-02. Topics include the following:

1. IRS Launches New Online Search Tool
2. IRS to Co-sponsor Conference on Nonprofit Governance
3. Academic Institution Initiative
4. Top 10 Helpful Features on the IRS Website

On January 12, the IRS released its Exempt Organization Newsletter, Issue Number 2012-1. Topics include the following:

1. Updated Procedures for Issuance of Rulings and Determinations
2. 2012 User Fees for Exempt Organizations Matters
3. More Guidance on Reporting Employer Health Care Coverage on Forms W-2
4. Renew Your Preparer Identification Number
5. Workshops for Small and Medium-Sized Exempt Organizations
6. SSA/IRS Reporter Features Informative EO Articles
7. Revised Form 2848, Power of Attorney and Declaration of Representative
8. Fact Sheet 2012-5, Choosing a Tax Preparer

In the weeks before the 2010 election, every other tv commercial seemed to be a political ad sponsored by a concerned citizens group regarding a particular candidate.    Most of these groups are organized as tax-exempt Section 501(c)(4) social welfare organizations or Section 501(c)(6) trade associations.  Although a Section 501(c)(4) or Section 501(c)(6) organization may engage in political campaign activities in furtherance of its exempt purposes (subject to applicable  state and federal campaign finance laws), such activities must not constitute the organization’s primary activities. See e.g., Rev. Rul. 81-95, 1981-1 C.B. 332; Kindell & Reilly, “Election Year Issues,” 2002 IRS EO CPE Text.  

Watchdog groups have been calling on the IRS to investigate many of the high profile organizations behind the ads, questioning whether these organizations should maintain their status as a Section 501(c) organization in light of what they would argue is substantial political activity.  As things heat up for the 2012 election year, I anticipate even more political ads sponsored by Section 501(c) organizaitons.  I also anticipate that there will be even more IRS scrutiny and resources devoted to compliance.  In order to protect tax-exempt status, any Section 501(c)(4) and Section 501(c)(6) organization that engages in political campaign activities should be cautious to maintain sufficient sufficient records to demonstrate that their primary activities are not political campaign activities.  This includes a proper allocation of expenses among the organization’s activities, such as overhead.

The IRS recently issued an Audit Technique Guide to provide guidance to IRS agents for the examination of charitable contributions of conservation easements.  The Guide incliudes a discussion of the general requirements for charitable contributions and additional requirements for contributions of conservation easements.  The Guide provides a good overview for advisors and donors exploring a possible contribution of a conversation easement.