Charitable Reform Provisions in S. 1321

Charitable Provisions Included in S. 1321, the Telephone Excise Tax Repeal and Taxpayer Protection and Assistance Act

1. Electronic filing – (Section 309) – makes statutory changes to allow the IRS to expand the mandatory electronic filing. Current law allows the IRS to require e-filing for very large organizations (over 250 employees). (consistent with recommendations of the Panel on the Nonprofit Sector).

2. Authorization of appropriations for tax law enforcement – (Section 709) – authorizes an additional $300 million to the IRS to combat abusive tax avoidance transactions. (Panel and IS support increased funding for IRS enforcement and oversight of charitable organizations).

3. Clarification of definition of church tax inquiry – (Section 317) – clarifies that the present-law church tax inquiry procedures do not apply to contacts made by the IRS for the purpose of educating churches with respect to the law governing tax-exempt organizations. (IS supported in the CARE Act)

4. Notification requirement for exempt entities not currently required to fine an annual information return – (enacted in the Pension Protection Act) – provides a new annual reporting requirement for nonprofits that do not currently file an annual information return (such as the 990) because their gross annual receipts do not exceed $25,000. The new report would cover the legal name of the organization; any name under which it does business; its mailing address and Internet web site address; its taxpayer identification number; the name and address of a principal officer; evidence of the continuing basis for the organization’s exemption from filing the 990; and upon termination, notice of that termination. Failure to file the annual notice for three consecutive years would result in revocation of tax-exempt status. There are no monetary penalties for failure to file the notice. The IRS would be required to notify every organization of this new requirement by mail, by Internet or by other means of outreach. (consistent with Panel recommendations and IS supported in the CARE Act).

5. Valuation and appraisal standards – (enacted in the Pension Protection Act) – similar to provisions included in S. 2020 (with a new provision addressing valuation in the context of estate or gift taxes), these would increase penalties for overstating the valuation on donated property for which an appraisal is required (gifts of property valued at over $5,000). Appraisers may also be subject to disciplinary action such as being suspended or barred from presenting appraisals to the IRS. The definition of “qualified appraiser” would be enhanced to require minimum education and experience requirements. (consistent with Panel recommendations).

6. Increased fines and penalties on charities and foundations – (enacted in the Pension Protection Act) – fines and penalties would be doubled for violations by private foundations and their managers of self-dealing minimum distribution, excess business holdings, jeopardizing investment, and taxable expenditures rules. (consistent with Panel recommendations).

7. Penalties for lobbying and political activities – (Section 412) – increases the penalty taxes for certain 501(c)(3) organizations that engage in more than the amount of lobbying allowed under tax law and for 501(c)(3) intervention in political campaigns. (New provision.)

8. Disclosure to state officials of proposed action related to exempt organizations – (enacted in the Pension Protection Act) – previously included in the CARE Act and S. 2020, under this provision the IRS would be permitted to disclose to appropriate State officers certain information about investigations of tax-exempt organizations. The information could only be used in connection with the administration of state laws regulating tax-exempt organizations or to facilitate the resolution of Federal or State issues relating to the tax-exempt status of an organization. (consistent with IS and Panel recommendations).

9. Oversight provisions that have previously been included in the CARE Act (and which IS supports):

   • Section 714 – Expand the number of written determinations by the IRS and related documents that are made available to the public.
   • Section 715 – Require tax-exempt organizations to include on its annual return (Form 990, 990-EZ or 990-PF) any name under which the organization operates or does business and any Internet website address of the organization.
   • Section 716 – Modify the reporting of capital transactions by private foundations. Requires that any information regarding capital gains and losses that is required to be furnished by private foundations in order to calculate the tax on net investment income would be furnished also in summary form.
   • Section 717 – Require the IRS to notify the public “in appropriate publications and other materials” the extent to which Form 990, 990-EZ and 990-PF are publicly available.
   • Section 718 – Expedited consideration of applications for exempt status by organizations that are organized and operated for the primary purpose of providing social services.
   • Section 719 – Extends declaratory judgment procedures similar to those currently available only to charities under section 7428 to other section 501(c) and 501(d) determinations. The provision would limit jurisdiction over controversies involving such determinations to the United States Tax Court.
   • Definition of convention or association of churches – (enacted in the Pension Protection Act) – Provides that an organization that otherwise is a convention or association of churches would not fail to so qualify merely because the membership of the organization includes individuals as well as churches, or because individuals have voting rights in the organization. (also in S. 2020).

Last Updated: September 29, 2006

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