Public Policy
The IRS has issued guidance in a number of areas to assist charities, foundations,
and donors in complying with provisions in the Pension Protection Act, which
was enacted into law on August 17, 2006.
Donor Advised Fund Guidance
Recently released guidance from the IRS identifies key areas that can determine whether a sponsoring organization of a donor advised fund qualifies for tax exemption. A new guide sheet asks a series of questions about the sponsoring organization’s control over its accounts and funds; whether it can ensure the funds will be used for charitable purposes; whether it requires a minimum yearly distribution from the funds and if not, whether it has explained how it will fulfill its tax-exempt purpose. Another series of questions addresses concerns about prohibited private benefits. An accompanying explanation provides background on rules affecting donor advised funds, answers what the IRS is looking for in response to guide sheet questions, and responses that might result in denial of exemption.
Advanced Notice of Proposed Rulemaking on Supporting Organizations
In an August 2007 release, the IRS announced its plans for implementing changes enacted in the Pension Protection Act regarding payout requirements for Type III supporting organizations and criteria for determining whether a Type III supporting organization is functionally integrated. Comments on the Advanced Notice of Proposed Rulemaking were due October 31, 2007.
Donor Advised Funds and Supporting Organizations
The IRS requested public comments (Notice 2007-21) on issues to be included in a study of donor advised funds and supporting organizations. As required by the Pension Protection Act (PPA), the study will address the following issues:
- whether the tax deductions given to donors are appropriate given how donated assets are used and whether the donor and related parties receive any direct or indirect benefits;
- whether donor advised funds should be required to distribute specified amounts;
- whether the retention by donors of rights and privileges associated with the contribution (including advisory rights or privileges with respect to the making of grants or the investment of assets) is consistent with the tax treatment of donations as completed gifts; and,
- whether the issues raised above are also issues with respect to other forms of charities or charitable donations.
The study must be submitted (along with any recommendations from the IRS) by August 16, 2007 to the Senate Finance Committee and the House Ways and Means Committee.
Interim Guidance
IRS Notice 2006-109 (PDF) released
on December 4, 2006, provides interim guidance describing how private foundations
and sponsors of donor advised funds can clarify whether an organization
is a Type I, II, or functionally integrated Type III supporting organization
and whether their disqualified persons control a supporting organization
or any of its supported organizations. The IRS will rely on an existing Treasury regulation to define control as having authority to require an organization to make an expenditure or prevent an expenditure.
The interim guidance also addresses new rules for
which payments by supporting organizations to their substantial contributors
will be treated as excess benefit transactions, and the treatment of scholarships
awarded by donor advised funds. The guidance provided in Notice 2006-109 will apply until further guidance
or regulations are provided for these issues.
Classification of Public Charities and Supporting Organizations
On September 24, 2007, the IRS released a memo (PDF) and guidelines (PDF) outlining procedures it will follow for organizations seeking functionally integrated Type III supporting organization status. This memo supersedes an earlier memo of February 22, 2007 that temporarily suspended the issuance of determination letters to organizations seeking that status.
Public charities that are classified as supporting organizations under Section 509(a)(3) of the tax code are subject to several provisions in the Pension Protection Act. In November 2006, the IRS issued guidance
for public charities wishing to change from being classified as a supporting
organization to another
type of public charity.
The IRS has also clarified that grantors may rely on the IRS Business Master File (BMF) for the exempt classification of a grantee, and may use a third party to obtain the BMF data...4/12/07
Tax Talk Today Webcast
The IRS sponsored a web forum on new provisions in the Pension Protection Act. IRS experts and tax practitioners, including Independent Sector’s Pat Read, Senior Vice President for Public Policy and Government Affairs, participated in a discussion of the impact of these new rules on charities and their donors...3/13/07
Other Guidance
Substantiation of Charitable Donations (PDF) – The Internal Revenue Service is proposing changes to substantiation rules for both cash and noncash charitable donation. The new rules implement changes enacted by Congress in the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006. The IRS had previously issued interim guidance on the changes, but this proposal will formally change the regulations. Among other issues the new rules cover:
· recordkeeping requirements for all cash donations;
· rules for clothing and household donations;
· definitions of qualified appraisal and appraiser for donations of property over $5,000;
· special rules for payroll deductions
The IRS requests public comment by November 5 and will also hold a public hearing if one is requested. Read the proposed rule in the August 7, 2008 Federal Register.
Charity owned life insurance (PDF) – Under the PPA, certain exempt organizations are subject to new reporting requirements when they acquire life insurance contracts that are designed to give both the exempt organization and private investors an interest in the contract. The IRS is required to issue a
report on such
contracts and has requested public comments (Notice 2007-24 (PDF)) on the study and on forms that will be used for reporting.
Workplace giving programs – the IRS has clarified that pledge cards for along with a pay stub, Form W-2, or other document provided by an employer will satisfy the new cash contribution recordkeeping requirements in the Act. The documents must show the name of the charity and the amount donated.
Qualified conservation contributions (PDF) – the IRS released guidance (Notice 2007-50) on deductions for contributions of qualified conservation property, including answers to such questions such how the provision affects a donor's limits on other charitable contributions, when contributions can be carried forward to other tax years, and how it affects qualified ranchers or farmers....6/6/07
Changes to the Form 990
In June 2007, the IRS released a draft of a major revision of the Form 990, which many tax-exempt organizations must file annually with the IRS and make available to the public. The draft proposes significant changes to the ways in which public charities and other exempt organizations will report information on finances, fundraising activities, governance, executive and board compensation, and program services.
The IRS also posted information outlining significant changes to the 2006 Form 990, including compliance with the Pension Protection Act. Read the script of an IRS phone forum (PDF) on this topic...4/12/07
Form 990-N
Small nonprofits that are currently exempt from filing the Form 990 because they have annual gross receipts of $25,000 or less will be required to file a new Form 990-N Electronic Notice (e-Postcard) beginning in 2008. Read more about this new notice on the IRS website...11/16/07
Form 990-T
The IRS has released new guidance (Notice 2008-49) on public disclosure of the Form 990-T, Exempt Organization Business Income Tax Return that incorporates changes made by technical correction legislation (H.R. 4839) enacted in December 2007. The Notice clarifies that: a) public inspection of the 990-T will be limited to a three-year look-back period; b) the IRS, as well as the filing organization, is required to make the Forms 990-T publicly available; and c) disclosure includes any attachments, schedules and supporting documents that relate to imposition of the unrelated business income tax. The new guidance does not change guidance released in May 2007 (Notice 2007-45) which provided that the disclosure requirements apply to all charities that file a Form 990-T, including churches, regardless of whether they are required to file a Form 990. The IRS requests comments on the new guidance, especially with respect to schedules or attachments that should not be made available for public inspection when attached to the 990-T. See the IRS website for more information.
Last Updated: August 7, 2008
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