Not-for-Profit Insights

	September 17-18 BNKJ Supports Sandy Springs Festival Saturday, 9 a.m.-6 p.m. Sunday , noon-5 p.m. Sandy Springs Circle and Sandy Springs Historic Site
	Wednesday, September 28 Not for Profit and Healthcare Lunch Seminar 11:30 a.m.-1:00 p.m. Executive Compensation: Form 990 Reporting, Intermediate Sanctions and How to Avoid Penalties
	Wedsday, October 5 Real Estate Roundtable 11:30 a.m.-1:00 p.m. Subject: TBD Mailing list: Real Estate contacts Jeff Olson and Joe Skalski spearheading for BNKJ
	Wednesday, October 25 Introducing the First Architecture/Engineer Lunch Seminar 11:30 a.m.-1:00 p.m.
	Wednesday, October 27 Law Firm Roundtable 11:30 a.m.-1:00 p.m. Subject: General Accounting and Tax Issues for Law Firms
	Tuesday, December 6 Not for Profit Roundtable 11:30 a.m.-1:00 p.m.
	If you’re interested in any of the above events, please contact Teri Cloud at 770-261-5472 or tcloud@bnkj.com

In June, the Panel on the Nonprofit Sector (a panel convened by Independent Sector) issued its final report discussing the current state of the nonprofit sector and providing recommendations to Congress and the IRS to strengthen the transparency, governance, and accountability of charitable organizations. The Panel’s twenty-five members invited input from a wide variety of nonprofit representatives and conducted fifteen hearings to discuss the current issues.

The following is a brief list and discussion of the Panel’s recommendations. Most of the recommended law changes would primarily apply to organizations that currently file a Form 990 series return. Smaller organizations and religious organizations that are currently exempted from filing returns would generally be exempt from the recommended provisions.

Federal and State Enforcement – The Panel recommended that Congress increase resources allocated to the IRS for oversight and enforcement activities, as well as authorize funding to be provided to all states to establish or increase oversight, education, and enforcement of charitable organizations. The recommendation for state funding is to be done with matching dollars and not derived from fees. The panel also recommended that federal tax laws be amended to allow state attorneys general or others involved in overseeing charitable organizations on the state level the same access to IRS information that is currently available to state revenue officers.

IRS Reporting –The Panel recommended the IRS revise Form 990 series returns to provide more accurate, complete, and timely information including creating separate sections or schedules for questions related only to particular types of organizations and expanding information from supporting organizations and donor advised funds. The Panel also recommended that Congress amend laws to permit the IRS to require that all charitable organizations file their return electronically. In addition, the Panel directed the IRS to require that the Form 990 series returns be signed, under penalties of perjury, by the organization’s highest ranking officer and impose penalties on preparers who willfully omit or misrepresent information on the form. The Panel also recommended that Congress amend laws to require that all §501(c)(3) organizations be required to file an annual notice with the IRS with basic information if they are not required to file a Form 990 series return.

Periodic Review of Tax-Exempt Status – The Panel recommended that Congress NOT impose a new periodic review system for reviewing tax-exempt status; but instead directed Congress to authorize additional resources to the IRS for additional oversight including reviewing current information returns and conducting audits and investigations where warranted. The Panel did recommend that organizations seeking exempt status be required to file the Form 1023 electronically.

Financial Audits and Reviews – The Panel recommended that Congress should require charitable organizations with at least $1 million or more in annual revenues to have an independent audit and those with annual revenues between $250,000 and $1 million to have their financial statements reviewed by an independent public accountant. The Panel’s recommendation included a requirement that the financial statements be attached to the Form 990 series return and also be a public document.

Disclosure of Performance Data – The Panel recommended that Congress not require additional disclosure of performance data on the Form 990 series; but instead encouraged exempt organizations to disclose such information as exempt purpose achievements in the organizations annual report, website, or by other means.

Donor-Advised Funds – The Panel recommended that the laws and regulations governing these funds be strengthened to include provisions on a clear definition, minimum distributions, minimum fund activity, private benefit prohibition, and limitations on charitable deductions.

Type III Supporting Organizations – The Panel recommended that Congress establish minimum distribution requirements for Type III (operated in connection with) supporting organizations and also prohibit payments to or for the benefit of donors to such organizations. The recommendations also included limiting the number of supported organizations and requiring some additional disclosure – both at the type of application for exempt status as well as on its annual filings.

Abusive Tax Shelters – The Panel recommended that Congress make clear that all tax-exempt organizations are subject to the same rules as taxable corporations in reporting “listed” and other reportable tax shelter transactions.

Noncash Contributions – The Panel’s recommendations in this area included rules regarding contributions of appreciated property, conservation and historic façade easements, and clothing and household items. For appreciated property contributions, the Panel recommended strengthening the appraisal rules and increasing penalties on both the taxpayer and appraiser who overstate the value of the donation. The Panel recommended that Congress not limit deductions for contributions of clothing or household items but have the IRS establish a list of the value a taxpayer can claim for such items.

Board and Executive Compensation – The Panel discouraged paying compensation to board members of charitable organizations, but recommended that if compensation is paid to board members that the charity be required to disclose the amount and reasons for the compensation. For executive officers of the organizations, the Panel recommended that the IRS expand the disclosures required for compensation and distinguish between base salary, benefits, bonuses, incentive compensation, etc. as well as increase the penalties for approving excess benefit transactions.

Structure and Size of Governing Boards – The Panel recommended that tax-exempt organizations be required to have a minimum of three members on its governing board and at least one-third of the governing board be independent. Also, individuals who are barred from service on corporate boards or convicted of crimes related to breech of fiduciary duty should not be allowed to serve on boards of charitable organizations. Boards should include individuals that have some financial literacy. The Panel also recommended that all organizations should adopt and enforce a conflict of interest policy and disclose on its Form 990 that it has such a policy.

As mentioned above, this is just a brief summary of the Panel’s recommendations. The complete report as well as information about the Panel can be found at www.nonprofitpanel.org. The Senate Finance Committee is also analyzing the report in its preparation of charitable reform legislation which is due out soon.