EO Tax Journal

Today is devoted to critiques and comments from retired IRSers Bill Brockner and Conrad Rosenberg, who together have almost 80 years of EO experience. Continue…

Yesterday, I went to the meeting of the Exempt Organizations Committee of the ABA’s Tax Section. I didn’t learn much, but that’s good, because that means I have been covering most of what has been happening in these pages. The big news, which happened outside the meeting, was the release of the Interim Report on Nonprofit Colleges and Universities Compliance Project, which is now available on irs.gov. For those short of time, Lois Lerner recommended reading the executive summary, which I’m reprinting below. Much will no doubt be written about the interim report, but here are items I found of interest right off the bat from the report (my comments in CAPS).

“The overall response rate was high (97%) … Additional follow-up will be conducted in the case of the 13 organizations that did not respond at all to the questionnaire, as well as those organizations that did not respond completely.” SHOULD WE SEND DUNCE CAPS TO THE 13 ORGANIZATIONS THAT DID NOT RESPOND?

“Nearly half (48%) of small colleges and universities reported never filing a Form 990-T, compared with 29% for medium and 4% for large colleges and universities.” I SUSPECT MOST COLLEGES AND UNIVERSITIES DO HAVE SOME UBIT. SEEMS LIKE SOME TARGETED AUDITS ARE IN ORDER.

“Consistent target and actual spending rates of approximately 5% of endowment assets were reported across all size categories.” WASN’T IT ME WHO SAID ON THURSDAY THAT “A FIXED RATE BECOMES IN EFFECT A CEILING”? SEEMS LIKE COLLEGES AND UNIVERSITIES HAVE FOLLOWED THE RATE THAT APPLIES TO PRIVATE FOUNDATIONS (SECTION 4942) TO A TEE.”

“In the case of large organizations, the highest paid employee (other than an [officer, director, trustee, or key employee]) was most often a sports coach (43% of organizations).” DOES THIS SURPRISE ANYONE?

“More than half of the organizations in each size category reported using the rebuttable presumption procedure to establish executive compensation.” THIS SURPRISES ME. I WOULD HAVE EXPECTED ALMOST 100%.
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Tomorrow the ABA’s EO Committee meets for its annual Washington get-together, with invited IRS guests leading off the meeting. My friend Rielle, who works at the IRS, swears she overheard the following conversation between Lois Lerner and Judy Kindell.

Lerner: Judy, what do we say if someone asks us about the PACI report?

Kindell: We could say we lost it.

Lerner: That’s kind of lame.

Kindell: How about if we say it’s been classified.

Lerner: That kind of conflicts with my transparency speeches.

Kindell: I got it. Let’s say Jack has it.

Lerner: But Jack’s retired.

Kindell: Jack retired and he took it with him.

Lerner: That’s perfect: “Jack retired and he took it with him.”

On another topic, I’m not sure the IRS got it right in Denial 201017067, reprinted below, but there are some missing or not revealed facts. Clearly there is a private benefit to anyone who gets a scholarship from a section 501(c)(3) organization, but usually that is not fatal to exemption. What we don’t like are rigged or automatic scholarships, so to me the question in Denial 201017067 is whether we have such a situation. Continue…

I’m sending along two recent comment letters on the proposed supporting organizations regulations, one from the ABA’s Tax Section and one from Ruth Madrigal of Caplin & Drysdale. These letters join many others that have been submitted. What I notice — and correct me if I’m wrong — is that all the comment letters are from or on behalf of supporting organizations. It’s too bad supported organizations seem left out of the conversation. I suspect the National Committee for Responsive Philanthropy, for example, does not have the resources to hire an advocate to argue on behalf of supported organizations.

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Today I have the April 22 remarks of Nan Downing, Director, EO Examinations. I believe this is her first major speech as director. Since many of you read these updates while traveling or commuting, I think you’ll find the headers helpful so you can read only what interests you. Next week I expect to have a transcript of the remarks of Doug Mancino and Marc Owens, who followed Nan’s session. They gave their perspective of IRS audit activities, not all favorable, so stay tuned.

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