EO Tax Journal

1 – Is 501(c)(4) Status Being Abused?

2 – Revocation 201036031 — Private Benefit and Inurement Discussion
__________________________

1 – Is 501(c)(4) Status Being Abused?

The New York Times had an interesting article yesterday, “Interest-Group Spending Drives G.O.P. Lead in Ads,” about “an array of Republican-oriented organizations that are set up so that they can accept donations of unlimited size from individuals and corporations without having to disclose them.”

The article notes that one of the groups, Crossroads GPS, “is organized as a 501(c)(4) nonprofit, meaning it legally cannot devote more than half of its activities to politics, but it also means that it does not have to disclose its donors.” Also mentioned is Americans for Prosperity, “another 501(c)(4), which does not have to disclose its donors. Mr. Koch, who has mostly supported Republicans over the years, serves as the chairman of its sister-organization, Americans for Prosperity Foundation, which is much more limited in its political activities because it is set up as a 501(c)(3) nonprofit.”

As I noted yesterday, the less Lois Lerner and her folks do, the more they embolden those who would flout the prohibition on political campaign intervention.

Section 501(c)(4) organizations may engage in political activity, but not as their primary activity. I suspect many of the (c)(4)s being formed have few activities that are not political. Query for Lois, Rob, and Cindy: What’s being done in Cincinnati to make sure new (c)(4)s will be truly engaged in social welfare activities? Query for Lois, Rob, and Nan: Is anyone looking at existing (c)(4)s — those in the news — to make sure that they are truly engaged in social welfare activities?

I also suspect that many of these political (c)(4)s are operating in tandem with (c)(3)s so that donors can claim 170 deductions. Query for all of the above: Who is looking at these (c)(4)/(c)(3) combinations?
___________________________

2 – Revocation 201036031

In PLR 201036031, the IRS revoked an organization based in part on findings of private benefit and inurement. The facts are very detailed, but what I found of interest is the law and rationale portion of PLR 201036031. The IRS practically wrote a CPE article on what they consider the law of private benefit and inurement, with special emphasis on the much-maligned American Campaign Academy case. I’m setting out the IRS discussion in PLR 201036031 in case anyone is currently dealing with these issues — sort of a roadmap of the IRS’ views, and about all we now know about the IRS’ current thinking in this area.   Continue…

I’m glad I’m not Lois Lerner. Nothing personal, mind you, but a recent letter and a New York Times article (both reprinted below) about the U.S. Chamber of Commerce and related entities will reinforce impressions of the EO function as being unable to deal with tough cases.

For Doug Shulman, Steve Miller, Sarah Hall Ingram, Lois Lerner, and Nan Downing, surely at least one of them is thinking:

To audit or not to audit – that is the question:

Whether ‘tis nobler in the mind to suffer

The slings and arrows of outrageous fortune,

Or to take arms against a sea of troubles

And by opposing end them?

What to do? Opening an audit involving the U.S. Chamber of Commerce will bring a firestorm of criticism from Republicans who will charge White House complicity. Clearly a no-win situation for Commissioner Shulman whose budget may be in Republican hands next year. As explained to me by someone who should know, an IRS Commissioner may seek advice from his boss, the Secretary of the Treasury. The Secretary, in turn, may seek advice from his boss, the President. Does seeking advice from the President include his senior staff? I’m not sure. And does seeking advice or direction include advice on an audit? Can Obama tell Geithner to tell Shulman to audit the U.S. Chamber of Commerce? I think he can, but let me know if I’m wrong. Continue…

1 – EO Attorneys Heading for Canada

2 – IRS Subject to Concerted Campaign Demanding Humane Society Audit

___________________________

1 – EO Attorneys Heading for Canada

The next meeting of the EO Committee of the ABA’s Tax Section will be on September 24 in Toronto. The program features six panels, to be followed by the notorious cash bar. Who should I be betting on to say, “I’m the last person standing between you and the cash bar.”

Exempt Organizations Committee Schedule for September 24, 2010

8:45 am  News from the IRS and Department of Treasury.

Representatives from the IRS and from the Department of Treasury will speak on recent developments and pending guidance.

Moderator: Richard S. Gallagher, Foley & Lardner LLP, Milwaukee, WI.

Panelists: M. Ruth M. Madrigal, Attorney-Advisor, Office of Tax Policy, Department of Treasury, Washington, DC; Lois G. Lerner, Director, Exempt Organizations, IRS, Washington, DC; Philip T. Hackney, Senior Technical Reviewer, Exempt Organizations Branch 2, Office of Chief Counsel, IRS, Washington, DC.

9:45 am  Colleges and Universities – Current Audit Activity and What We Have Learned from the IRS Interim Report.

Panelists will discuss the key points to take away from the IRS’s college and university interim report that was released in May, and will review the principal issues that are surfacing in the current round of IRS “team examination program” audits of colleges and universities, including unrelated business income tax, compensation and related organizations (with a focus on section 512(b)(13)).

Moderator: A.L. (Lorry) Spitzer, Ropes & Gray LLP, Boston, MA.

Panelists: Diara M. Holmes, Caplin & Drysdale Chartered, Washington, DC; Lois G. Lerner, Director, Exempt Organizations, IRS, Washington, DC; Professor Bethany J. Bridgham, American University, Washington, DC.

10:45 am  The Effect of Health Care Reform on Hospitals.

This panel will explore the impact on tax-exempt hospitals of changes in the tax laws made by recent health care reform legislation, with special emphasis on new section 501(r) and its exemption requirements for hospitals.

Moderator: Ralph E. DeJong, McDermott Will & Emery LLP, Chicago, IL.

Panelists: Robert W. Friz, Pricewaterhousecoopers LLP, Philadelphia, PA; Elizabeth M. Mills, Proskauer Rose LLP, Chicago, IL.

11:30 am  Citizens United: Implications of Corporate Political Free Speech for the EO Sector.

This panel will explain how the Citizens United case and related federal election law developments affect exempt organizations, especially trade associations and labor unions.

Moderator: Rosemary E. Fei, Adler & Colvin, San Francisco, CA.

Panelists: Beth Kingsley, Harmon Curran Spielberg & Eisenberg LLP, Washington, DC; Holly Schadler, Lichtman Trister & Ross PLLC, Washington, DC; Greg Colvin, Adler & Colvin, San Francisco, CA.

12:15pm  Exempt Organizations Committee Luncheon.

Introduction: Terrance S. Carter, Carters Professional Corporation, Orangeville, ON.

Speaker: Cathy Hawara, Acting Director General, Charities Directorate, Canada Revenue Agency, Ottawa, ON.

1:30 pm  Expenditure Responsibility: Ten Puzzling Practical Problems.

Panelists will provide a brief overview of the expenditure responsibility rules applicable to private foundations and then discuss ten of the most puzzling practical issues that arise in family foundation and international contexts for both grants and program-related investments.

Moderator: Robert A. Wexler, Adler & Colvin, San Francisco, CA.

Panelists: Jerry McCoy, Law Office of Jerry J. McCoy, Washington, DC; Andrew C. Schulz, Council on Foundations, Washington, DC.

2:30pm  Crossing the Border: A Comparative View of Philanthropy.

This panel will explore the regulatory framework and planning options for charitable funding across international borders, with perspectives of both regulators and practitioners from both sides of the US-Canada border.

Co-Moderators: M. Elena Hoffstein, Fasken Martineau LLP, Toronto, ON; LaVerne Woods, Davis Wright Tremaine LLP, Seattle, WA.

Panelists: Philip T. Hackney, Senior Technical Reviewer, Exempt Organizations Branch 2, Office of Chief Counsel, IRS, Washington, DC; Susan Mott, Operational Policy & Appeals Liaison, Policy Planning & Legislation, Charities Directorate, Canada Revenue Agency, Ottawa, ON; Mark B. Weinberg, Weinberg & Jacobs LLP, Rockville, MD; Robert B. Hayhoe, Miller Thomson, Toronto, ON.

4:00 pm  Cash Bar.

____________________ Continue…

1 – More on Milton Hershey School

2 - Times Editorial on Charities and Their Corporate Sponsors

3 – IRS Releases Draft Form EOs Will Use to Calculate New Health Care Tax Credit; Form 990-T To Be Revised to Allow EOs to Claim Credit.

4 – How Many Deja Vus Can There Be? (Bartels Trust v. U.S.)

___________________________ Continue…

1 – Letters to the Editor of the Baltimore Sun (hospital CEOs maligned!)

2 – Lawmakers Love Their Charities and Their Corporate Sponsors (N.Y. Times)

3 – Summary of the Fourth International Conference of Charity Regulators Continue…