IRS Exempt Organizations Division Director Martha Sullivan has announced her retirement effective December 31, 2005. There is no word yet on a permanent replacement or acting director.

The IRS has issued regulations simplifying procedures for filing extensions for both individuals and business tax returns. Beginning with 2005 returns (due in 2006), individuals will use one IRS form (Form 4868) and receive an automatic six month extensions of time to file (until October 15). Similar rules have also been put in place for partnerships, trusts, and exempt organizations. These entities will now use a revised IRS Form 7004 to request an automatic six month extension to file their returns. Corporations could already receive a six month extension.

The IRS has issued a draft Form 990, Schedule A, and Schedule B for 2005. Changes to the form include:

Expanding Part III information for description of four largest program service expenditures;
Changing the layout of Part IV-A and IV-B for reconciliation between audited financial statements and tax return items;
Adding Part V-A which contains additional questions related to compensation of current officers, directors, and trustees;
Adding Part V-B which asks for information regarding compensation or other benefits given to former officers, directors, and trustees; and
Adding Schedule A, Part II-B for the listing of the five highest paid independent contractors excluding professional services.

The 2005 forms are expected to be issued in January, but this date could change based on legislative activity before the end of the year.

IRS Exempt Organization division has announced its Fiscal Year 2006 implementation guidelines. New critical initiatives include:

Soliciting information from tax-exempt hospitals about how they meet the community benefit standard under IRC §501(c)(3) and how they determine and pay compensation;
Examining charities that receive conservation of façade easements to curb the abuse in the area;
Examining abuses in the use of charitable trusts set up for personal benefit; and
Reviewing the role of charities facilitating abusive transactions.

Ongoing critical initiatives (identified in the 2005 guidelines) include:

Review of abusive tax avoidance transactions, including the review of new and existing exempt organizations involved with donor-advised funds, supporting organizations, and HUD housing programs;
Complete examinations of organizations that make foreign grants to support the government-wide anti-terrorism activities;
Complete examinations and issue report on initial findings of the compensation initiative; and
Continued elimination of abusive credit counseling practices.

Other compliance projects include:

Medical/Dental Resident FICA Claims
Credit Unions
Tax-Exempt Bonds
IRC Sec 527 political organizations
Political Activity compliance initiative
Disaster relief
Gaming

The IRS issued its priority guidance plan for 2005-2006. It includes the following items related to exempt organizations:

Guidance on donee reporting for car donations;
Guidance on downpayment assistance organizations;
Regulations under sections 501(c)(3) and 4958 regarding revocation standards;
Guidance under section 501(c)(15) regarding the calculation of gross receipts;
Guidance under section 527(l) with respect to the authority to waive taxes and amounts imposed on political organizations for failures to comply with notice and reporting requirements; and
Regulations under section 529 regarding qualified tuition programs.

 


The Senate passed the Tax Relief Act of 2005 on November 18. The Bill contained both charitable giving incentives and charitable section reforms, and will now go to the conference committee before it is presented back to the House and Senate for vote. Included in the bill are the following provisions (list not all inclusive):

  • Permits non-itemizers to take a deduction for cash contributions over $210 ($420 for joint filers). Itemizers are permitted to deduct the total of cash and noncash contributions over the $210/$420.
  • Creates new substantiation rules for contributions, reducing the documentation threshold from $250 to $100. The bill also adds penalties for overstating the value of items donated and modifies the qualified appraisal rules.
  • Strengthens the disclosure and reporting requirements for donations of noncash property to charity. The bill requires the IRS to develop a list of values for household goods.
  • Encourages contribution of real property for conservation.
  • Permits taxpayers over age 70 ½ to make tax-free distributions from IRAs directly to charitable organizations.
  • Enhances corporation deduction for contributions of food or book inventory.
  • Provides for excise taxes for participating in prohibited tax shelter transactions and for having an interest in applicable insurance contracts.
  • Increases the excise taxes on private foundations and public charities for excess benefit transactions, self-dealing, excess business holdings, and other taxes.
  • Adds new standards for tax exempt credit counseling agencies.
  • Changes requirements for qualifying as Type III (“operated in connection with”) supporting organizations, such as adding minimum distribution requirements and reporting requirements.
  • Increases restrictions on distributions from donor-advised funds, including minimum payout requirements.
  • Requires organizations that otherwise do not have to file annual returns, to notify the IRS each year.

 

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