IRS Must Define Political Activity

From the WashingtonPost.com:

The Aug. 22 article "Ruling sets up IRS as overseer of groups' gifts to campaigns" portrayed the ineffectiveness of the Internal Revenue Service enforcing disclosure on political spending. While the problem stems in part from an agency operating on "tax time," a fundamental reason the IRS cannot meaningfully enforce rules on nonprofit groups' political activity is its failure to give clear rules defining what is considered "political”.

For decades, the agency has relied on a "know it when we see it" approach, otherwise called the "facts and circumstances" test. In contrast to clear, practical rules that define lobbying for nonprofits, groups interested in political advocacy have little guidance and must guess how regulators will characterize their messages. It is this regulatory failure that allows Americans for Job Security to claim that its ads are issue advocacy and not electoral activity.

In the wake of the Citizens United Supreme Court decision, the IRS needs to step up and take on the hard task of providing guidance that defines political activity. Nonprofit organizations struggling to comply with vague rules and the public deserve no less.

IRS Commissioner Doug Shulman's Remarks from the 990 Filing Extension Conference

From the IRS Newsroom:

Today, we’re announcing relief for small nonprofit organizations who are at risk of losing their tax-exempt status because they have missed or are about to miss the deadline for filing Form 990-N or Form 990-EZ with IRS. We believe it’s important to give these organizations an opportunity to preserve their valuable tax exemption.

Here’s why relief is needed: Back in 2006, Congress passed legislation mandating that all tax-exempt organizations, except churches and church-related groups, file annual returns with the IRS starting in 2007. This meant that very small organizations that had never filed before would have to start doing so.

This law also said that any organization failing to file for three consecutive years would automatically lose its federal tax-exempt status. So the IRS spent the past three years conducting an extensive and unprecedented outreach effort to alert very small organizations to their new filing responsibility. Among the examples, we have sent over 1 million letters to small nonprofit organizations alerting them about the filing requirement since the law was passed. But even with that effort, we found when we got to May 17, the first date that would trigger the three-year rule, we found that many organizations still had not filed a return.

So here is what we’re doing: We’re offering a two-part program to bring small organizations back into compliance. First, we’re extending the filing deadline to Oct. 15 for the smallest organizations, those with gross receipts of $25,000 or less. These are the groups that have to file the Form 990-N, the e-postcard. It’s very simple. All they need to do is provide eight information items. If an organization goes to our Web site, IRS.gov, supplies those eight items, and files electronically by Oct. 15, it will be back in compliance and its tax-exempt status will be intact.

We’re also offering relief for somewhat larger organizations, which are eligible to file the Form 990-EZ. For these groups, we’re launching a voluntary compliance program. Under this program, you file your three delinquent returns and pay a small fee. As long as you file by Oct. 15, you won’t lose your tax exemption. I should note that none of this relief is open to larger organizations that have to file the Form 990 or to private foundations that file Form 990-PF.

Preserve Your Organization's Tax-Exempt Status with IRS

Does the IRS recognize your organization to be a non-profit or have tax-exempt status? The IRS has announced a critical deadline for many tax-exempt organizations. If you want to preserve your organization’s tax-exempt status, you will need to file Form 990 by May 17th or risk the revocation of your federal tax-exempt status. Usually the deadline for filing this form is May 15th, if using the calendar year or the 15th day of the fifth month after an organization’s fiscal year ends. Since May 15th falls on a Saturday this year, Monday, May 17th is this year’s deadline.

Small tax-exempt organizations with annual receipts of $25,000 or less can file an electronic notice Form 990-N (e-Postcard). Tax-exempt organizations with annual receipts above $25,000 must file a Form 990 or 990-EZ, depending on annual receipts. Any private foundations file form 990-PF.

Since 2007, The Pension Protection Act of 2006 mandates that all non-profit organizations (other than churches and other church related organizations) must file this form with the IRS. If your organization does not file for three consecutive years it will automatically lose its federal tax-exempt status. Don’t let that happen, because otherwise, you may be taxed on any income received between the revocation date and your renewed exemption. You will have to reapply with the IRS to regain tax-exempt status.

Small Businesses Get a Boost from Nonprofit Lenders

I am a huge proponent of people starting their own business—it is the American Dream to be successful at your own business!! Thank goodness that our government is focused on making it easier for small businesses to acquire loans. Community development financial institutions or CDFIs are certified nonprofit banks, credit unions, funds and venture capitalists which have been set up by the government to offer loans in low income and under-served urban and rural areas.

A Klipinger.com article explains how CDIFs can be more flexible. Read on!

Nonprofits: Are You at Risk of Losing Your Tax-Exempt Status?

Last week, Gina M. Lavarda of Iowa published a new report titled “Nonprofits: Are You at Risk of Losing Your Tax-Exempt Status?” Check out the following clip of her abstract courtesy of the Tax Prof. Alternatively, you can download a PDF of the full report by clicking here.

In 2004, the IRS studied 110 § 501(c)(3) organizations and found that seventy-five percent of them had violated federal tax law by engaging in political-campaign activities during the 2004 campaign period. The IRS learned that many of these organizations did not understand the broad scope of the political-campaign prohibition and that organizations’ leaders mistakenly spoke on behalf of their organizations rather than in their personal capacities separate from their organizations. Following the study, the IRS stated that any § 501(c)(3) organization that did not comply with federal tax law’s statutory requirements and restrictions risked losing its tax-exempt status.

As the 2008 campaign was in full swing, the IRS promised to step up its enforcement of § 501(c)(3) requirements. As a result, courts likely will face increased litigation related to § 501(c)(3) organization violations. This Note reviews the requirements and restrictions that are placed on § 501(c)(3) organizations, including the political-campaign prohibition. In addition, this Note proposes a test to assist courts, § 501(c)(3) organizations, and leaders of § 501(c)(3) organizations in determining when organizations’ leaders are acting or speaking on behalf of their organizations and when they are speaking in their personal capacities, exercising their First Amendment free-speech rights.

Nonprofits Wrong to Oppose Obama Tax Changes

From Beyondchron.org:

Nonprofit organizations across the nation are expressing opposition to one of the most progressive parts of the Obama budget: reducing the tax break for itemized deductions, including charitable contributions, that are taken by individuals making over $200,000 a year or married couples earning over $250,000. Under the plan, a taxpayer in the highest bracket who gives $100,000 a year to charity can deduct only $28,000 a year, not $35,000. Obama’s plan directs the tax savings toward universal health care. Charities are concerned that reduced deductions will translate into reduced donations, hurting nonprofits just as foundation and government support declines. But nonprofits opposing this progressive reform miss the big picture. Government, not private donors, should decide how tax dollars are allocated. For too long, wealthy people have been allowed to redirect their taxpayer dollars away from serving education, health care and other pressing public needs to boosting symphonies, operas and elite institutions like Harvard, whose endowment alone exceeded $36 billion in 2008.

Having spent my entire career heading a nonprofit, I always find it sad when my fellow nonprofit leaders become fronts for campaigns by the wealthy to perpetuate social injustice. We saw this in San Francisco when groups like Project Open Hand opposed (unsuccessfully) the city’s living wage law, and we are now hearing that many nonprofits are opposing President Obama’s plan to raise revenue for universal health care by limiting tax deductions by the wealthy.

A Charity Revolt?

According to the Wall Street Journal, “from the Ivy League to the United Jewish Appeal, petitions and manifestos are in the works” to oppose Obama’s charitable deduction reform. Many of the charities opposing the reform are based in New York City, whose Congressmember Charles Rangel heads the House Ways and Means Committee and whose Senator Chuck Schumer is influential on tax issues.

But as White House budget chief Peter Orszag explained on his blog, "If you're a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150. If you are Warren Buffet or Bill Gates and you make that same donation, you get a $350 deduction -- more than twice the break as the teacher."

So proponents of the Obama reform see it as a progressive strategy for funding universal health care. Opponents accuse the Obama Administration of “turning even philanthropy into a class issue”.