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501(c)(3) Hospitals – It is Time to Prepare for § 501(r)

IRC § 501(r) was enacted during 2010 to tighten the requirements that hospitals must satisfy to maintain IRC § 501(c)(3) status.  IRC § 501(r) also complements steps taken by the IRS in the last couple of years to increase hospital transparency and supplement the”community benefit” standard set out in IRS Rev. Rul. 69-545, including more detailed requirements for reporting charity care and community benefits in the redesigned annual federal information return form (Form 990, particularly Schedule H).  Under IRC § 501(r) a hospital organization that wants to retain its IRC § 501(c)(3) status must: (1) at least every three years conduct a community health needs analysis and develop a plan to meet these needs; (2) adopt, implement, and widely publicize written financial assistance and emergency care policies that must cover specified topics; (3) limit charges to persons qualifying for financial assistance to amounts charged to persons with

Company Foundation Scholarship Programs

July 17, 2010

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A corporate sponsored charitable organization may conduct a scholarship program for the benefit of its sponsoring corporation’s employees and/or children of such employees. Scholarships must be awarded on an objective and non-discriminatory basis. The scholarship program may not be used to induce employment or represent compensation for services, and availability must be limited by non-employment related factors. With respect to a corporate sponsored private foundation, the scholarship selection committee must also be independent from the private foundation and sponsoring corporation, and the scholarship program must be approved in advance by the IRS.  See IRS Rev. Proc. 76-47 for additional requirements. If the requirements are satisfied, donors who contribute to the charitable organization are entitled to an income tax deduction and the scholarship payment is not treated as taxable compensation to the employee.

Artists Seeking Grants – The Laws That Govern Givers

As government funding of private arts and education shrinks, grants from private foundations become more competitive.  There are many legal factors that affect foundations’ decisions to give away money. The laws can be very complex, but the following primer can help artists direct their energies when choosing foundations and crafting their applications:  Team Publication (Artists Seeking Grants – The Laws that Govern the Givers of the Grant).

Overview of Form 990 Governance Policies

The Form 990 includes numerous governance and management questions.   A brief summary of the more significant governance and management questions are provided below. The IRS has indicated that, although a negative response to a question on the Form 990 will not necessarily result in an audit, the IRS will use such negative responses in conjunction with other information on the Form 990 to determine whether further inquiry is necessary.  It is important for the leadership of public charities to become familiar with these provisions and should analyze each of the following:

  • Records Management Program – Form 990 asks whether the organization has a written document retention and destruction policy. Nonprofit corporations should adopt a document retention and destruction policy, along with a records retention schedule, utilizing the standards under Sarbanes-Oxley, 18 U.S.C. 1512(c), and the new Federal Rules of Civil Procedure regarding e-Discovery, Fed. R.

IRS Issues Final Regulations on Prohibited Tax Shelter Transactions

July 9, 2010

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The IRS has issued final Regulations under Section 4965 on excise taxes for prohibited tax shelter transactions involving tax-exempt entities and on related disclosure obligations and filing requirements.  The final Regulations may be view using the following link:  http://www.irs.gov/pub/irs-tege/4965fregs.pdf

Rare IRS Guidance Regarding Single-Member LLCs

The IRS recently released an Information Letter (2010-0052) regarding the tax treatment of a single-member limited liability company (SMLLC) the sole member of which is a public charity.  The IRS confirmed the well-accepted position that a SMLLC is a “compontent part” of the exempt member which must treat the operations of the SMLLC as a branch or division.  The IRS went on to confirm that the SMLLC “receives the benefit of its owner’s tax-exempt status, including exemption from federal income tax, federal unemployment tax, and other federal taxes where applicable” but noted that a SMLLC is subject to certain federal excise taxes and employment taxes. 

The IRS also confirmed that a grant from a private foundation to a SMLLC the sole member of which is a public charity would be treated as a qualifying distirbution  and not a taxable expenditure, and expenditure responsibility generally will not have to be exercised by the private foundation.  The

Medium-Sized Charities – It Is Time To Prepare For The New Form 990 Now

July 5, 2010

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The Form 990 was substantially revised in 2008.  To allow charities time to prepare, only charities with gross receipts ≥ $1 million, or total assets ≥ $2.5 million, were required to file the new Form 990 in 2008 (small and medium sized charities were required to file Form 990-N and Form 990-EZ, respectively).  The filing thresholds were reduced for 2009, and for the 2010 tax year and beyond, were further reduced and are established as follows:

  • Form 990 – Gross receipts ≥ $200,000, or total assets ≥ $500,000
  • Form 990-EZ – Gross receipts < $200,000, and total assets < $500,000
  • Form 990-N – Gross receipts normally ≤$50,000

As a result of these filing thresholds, many medium-sized charities must now prepare to file the new Form 990 in 2010.  The new Form 990 will require such charities to gather and disclose substantially greater information than before.  We strongly recommend that medium-sized charities become familiar with the new Form 990 now

Policy Time?

July 5, 2010

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Policy Time?

July 5, 2010

Authored by: Keith Kehrer

The new Form 990 now requires a tax-exempt organization to disclose whether it has adopted certain governance policies, including conflict of interest, whistle-blower, document retention, and joint venture policies, to name a few.  Although governance policies are not legally required, it is generally accepted that adopting and following governance policies increases the likelihood of compliance with federal and state law and the identification and solution of potential issues.  Despite the pressure an organization’s board may be under to adopt policies, however, it is important that an organization does not merely adopt policies in order to respond positively to the Form 990 questions.  Mere adoption of a policy, without more, is generally worse than having no policy.

Small Charities – Its not to Late to File Form 990-N

July 3, 2010

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Before 2006, small charities with less than $25,000 of annual gross receipts were not required to file Form 990.  After 2006, small charities are required to file Form 990-N (e-Postcard).   Failure to file Form 990-N for three consecutive years generally results in loss of tax-exempt status.  As of May 17, 2010, calendar year small charities that have not filed Form 990-N for the 2007 through 2009 tax years are in jeopardy of losing their tax-exempt status.   We suspect several thousands of small charities are currently in jeopardy of losing tax-exempt status for failure to file Form 990-N.

The IRS recently announced, however, that  it will do what it can to help small charities avoid losing their tax-exempt status.   Although the IRS has not clarified this statement, it is possible this statement means the IRS will not automatically revoke the tax-exempt status of every late filer.  If your small charity still has not filed, it is advisable to file Form 990-N as soon

Overview of Joint Venture Rules

July 1, 2010

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Overview of Joint Venture Rules

July 1, 2010

Authored by: Keith Kehrer

Joint ventures between Section 501(c)(3) organizations and for-profit parties are becoming more and more common.  The attached memorandum (which may be obtained by clicking the link below) provides a brief overview of tax issues related to joint ventures between tax-exempt and for profit entities:

Structuring Joint Ventures

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