Thursday January 20, 2005
Complimentary Lunch & Learn
11:30 a.m. – 1:00 p.m.
Topic: Legislation affecting GA businesses
Host: George Israel Georgia Chamber of Commerce President
On October 22, President Bush signed the American Jobs Creation Act of 2004. This act’s most publicized provisions related to the repeal of the exclusion for extraterritorial income (ETI); however, the act touches just about every facet of federal income taxation. Some provisions of interest to individuals and small business owners include (1) limitation of cost of a sport utility vehicle (SUV) that may be expensed under Sec. 179 to $25,000; (2) election for taxpayers to take an itemized deduction of either state and local income taxes or state and local sales taxes; (3) Allowance of deduction of first $5,000 of start-up and organizational expenditures in the tax year that the trade or business begins and amortization of the remainder over 180 months; (4) new rules regarding whether deferral of income under nonqualified plans will be allowed; (5) election for all members of a family to be treated as one shareholder in determining number of shareholders in an S corporation; and (6) increase the maximum number of S Corporation shareholders from 75 to 100.
Of specific interest to charitable organizations are the provisions that relate to documentation for noncash charitable contributions, including provisions regarding donations of motor vehicles, boats, and airplanes. Documentation requirements for noncash contributions have been slightly modified; the biggest change being that these rules are now included in the Internal Revenue Code instead of just in the Regulations. Failure to meet the requirements will result in the disallowance of deduction for the donor. The requirement for a donor to obtain a qualified appraisal for noncash contributions of $5,000 or more still remains and some exceptions are available for inventory and publicly traded securities. The changes apply to contributions made after June 3, 2004.
For contributions of motor vehicles, boats, and airplanes of $500 or more made after December 31, 2004, the donor must obtain a contemporaneous written acknowledgement for the donation and such acknowledgement must be attached to the donor’s tax return in order to receive a deduction. A copy of the acknowledgement must also be sent from the charity to the IRS. The amount of the contribution deduction is limited based upon the charity’s use of the vehicle. If the vehicle is sold by the charity (without any material improvement to the vehicle or significant use by the charity in its exempt activities), the acknowledgement must include the sales price of the vehicle and the donor’s deduction is limited to the sales price. The charity is subject to penalties if it knowingly furnishes a false statement, fails to furnish a statement with all the required information, or does not furnish the statement within a timely manner.
Lobbying & Political Campaigning –
What every Tax-Exempt Organization should know
As the political campaign season winds to a close and we get ready for a new legislative year, there are several rules that exempt organizations should be reminded of related to lobbying and political campaigning.
First is the prohibition on political campaigning. Sec. 501(c)(3) organizations are prohibited from participating or intervening any political campaign on behalf of or in opposition to a candidate meaning that they cannot endorse a candidate, make donations to campaigns, or engage in fundraising. Sec. 501(c)(3) organizations can provide voter education in the form of distributing voter guides or sponsoring debates or forums. For debates or forums, an organization must invite all candidates for the particular race. The voter guides can’t show bias or have the effect of favoring one candidate over another.
Inevitably, candidates for public office love to get out and speak to as many groups as possible. If you invite a candidate to speak to your organization, you must provide equal opportunity for all candidates for the office to come speak, cannot indicate support for or opposition to candidate, and ensure that no political fundraising occurs. Your organization can invite candidate to speak in a non-candidate capacity, but the purpose must be clearly stated and guidelines put in place to deter candidate from campaigning.
Lobbying is a different issue. Lobbying is defined as an attempt to influence legislation. Some lobbying by Sec. 501(c)(3) organizations is allowed; however, it can’t be a substantial part of activities of the organization. Whether the activity is substantial is a subjective test determined by all facts & circumstances taking into account both time and money spent on lobbying activities and includes meeting with federal, state, and local legislature or representatives, mailings, paying for lobbyists, etc. Organization who may be considering investing time in a lobbying effort may want to make an election under IRC Section 501(h). Under this election, lobbying is measured by expenditures only and is an objective test versus the subjective facts & circumstances test.
EO Enforcement a Priority
The new director of the IRS Exempt Organization’s Division has made improving the division enforcement programs a priority. Per Director Martha Sullivan, she doesn’t want to sit and wait for an organization to be in the newspaper for it to be examined; but wants to improve the data review and automation. The division currently has four initiatives underway: credit counseling, antiterrorism, excess compensation, and abusive schemes. As part of these initiatives, the IRS has contacted nearly 2,000 charities and foundations to obtain more information about their compensation practices and procedures including how the organizations set and report compensation for their executives.
IRS sends delinquency notices
The IRS has mailed a large number of delinquency notices to exempt organizations who have failed to file returns. These notices are sent 4 to 5 months after a return is due if no return or extension has been filed. The IRS urges any organization that receives a notice to respond via fax or mail to the Ogden Return Processing Center as soon as possible. If an organization does not respond to the initial notice, a second notice will be sent. If an organization does not respond to a second notice, the IRS may begin collection efforts. Per the IRS, calling the customer account services phone number will not prevent future notices – only responding via fax or mail with the appropriate information will stop future notices. The initial notice provides three options for the organization’s response: (1) demonstrate that it has filed return, (2) file the return, (3) indicate sufficient reason for not filing.
IRS issues revised Form 1023
At the end of October, the IRS issued a revised Form 1023 – Application for Recognition of Exempt Status under Section 501(c)(3). The changes to the form are designed to help reduce application processing time as well as incorporate tax law changes made since the form was last revised in 1998. Also, several forms previously required to be submitted with Form 1023 are now incorporated within the revised form including Form 8718, User Fee. The instructions have also been rewritten and reorganized to be more user-friendly. The revised form and instructions are available on the IRS website at HYPERLINK "http://www.irs.gov" www.irs.gov. There is also a section on the website for frequently asked questions about the revised form.
Update on Class Action Lawsuits against Nonprofit Health Systems
Two significant items have developed in the ongoing class action lawsuits that were filed against 48 nonprofit health systems since June. The first was that the U.S. Judicial Panel refused to consolidate 28 of the lawsuits. The plaintiffs hoped for consolidation to strengthen their cases and to streamline the process. The panel ruled that centralization would not service the convenience of the parties nor was it justified in these cases as the facts and the law differ slightly among the states. The second development was that a judge in Birmingham dismissed one of the lawsuits because the charges has previously been tried in state court and the foundation of the suit – the Emergency Medical Treatment and Labor Act (EMTALA) did not apply in the case. While the outcome of the Alabama case is favorable for the defendants, we can’t be sure how the decision will affect the other lawsuits.
