EO Tax Journal

I hope to have the third panel of the February 4 daylong meeting of the TE/GE area councils this week, which featured the IRS’ Steve Clarke on Form 990 developments. One of the unsung heroes of that meeting is Nicola Toubia, who helps coordinate the EO portion of the gathering.

Since I’ve found her to be an interesting person, I asked her to share some of her background and views with us. I. no shrinking violet, have always considered myself a good judge of talent and I put Nicola on my list of future leaders of the EO tax bar. Much as I hate to say it, many of the current leaders of the EO tax bar are in their sixties, or rapidly approaching. While there is nothing wrong with this age group, to which I belong, we need to begin recognizing the next generation of leaders of the EO tax bar, and so I hope to begin interviewing folks in this category. I don’t want to be the sole judge of who’s who, so please send me your next-generation nominees.

Interview of Nicola Fuentes Toubia Continue…

On Tuesday I sent out a transcript of the first panel of the February 4 daylong meeting of the TE/GE area councils. Today I am emailing the transcript of the second panel, “Three Year Revocation, Consequences, Reapplying for Exempt Status” that followed the “Update from the IRS” panel.

Yesterday I had information the IRS released on its website under the title of “Delayed Filing Season for Certain Tax-Exempt Hospital Organizations.” Also yesterday the IRS released the 2010 instructions for Schedule H of the Form 990 with a somewhat extensive “What’s New” discussion that I am reprinting below.

Also yesterday (lots of yesterdays — sounds like a Beatles song), I noted that Lois Lerner said on Wednesday that the IRS will be putting a list of revoked small organizations on its website. So, like clockwork, the IRS had the following notice — yesterday — on its website:

1 – Format for Upcoming Nonfiler Automatic Revocation List Continue…

Yesterday I said I didn’t expect to hear much new from Lois Lerner and Ruth Madrigal at the luncheon program of the EO Committee of the DC Bar, so I was glad both of them were good sports about my negativity. I was mostly right, but there was some new news — and some surprising news that Lois and Ruth didn’t mention. Because of time constraints, I’ll have some of Ruth’s comments in a future email update. Continue…

Today I’ll be going to the luncheon program of the EO Committee of the DC Bar titled “The Year Ahead for Exempt Organizations.” Speaking will be the IRS’ Lois Lerner and Treasury’s Ruth Madrigal.

While I don’t blame Lois or Ruth, I doubt if I will have any new news to report, since they both spoke on February 1 to the ABA (see email update 2011-21). Lois will probably discuss the EO workplan again, which is now mostly old news. And Ruth, unless she’s bringing the final SO or 7611 regs with her, won’t have much new to report, either. She’ll probably discuss the Green Book (see email update 2011-30), but there’s not much new there, either. I’ll report tomorrow whether my sense of no new news was correct.

What would be interesting is if they both discussed why we are not seeing any precedential guidance. There’s clearly someone who has brought the process to a halt. The way the guidance process has worked in the past, nothing went out unless there was unanimous agreement among Treasury’s Office of Tax Policy, the Office of the IRS Commissioner, the Office of Chief Counsel, and, in the case of EO guidance, now the Office of the TE/GE Commissioner. I suspect one of these offices has become what — when I was at the IRS — we used to call the cork in the bottle, our little joke about IRS bottlenecks. I’m sure Lois and Ruth know what the problem is — or who is the cork — but of course mum’s the word.

Lois could respond to some of the concerns raised by practitioners at the February 4 TE/GE Councils meeting. (See, for example, yesterday’s email update.) Here’s one thorny problem that the IRS should give advice on now:

Your pro bono client, a calendar year section 501(c)(3) organization, failed to file a Form 990-N last year (and prior years) and it now realizes its exemption ended on May 17, 2010. You got them to send in a Form 1023 seeking retroactivity based on reasonable cause under section 6033(j)(3) — Retroactive Reinstatement if Reasonable Cause Shown for Failure. You also have been told your client may need to do two other things. One, it should pay estimated tax on or before March 15, 2011. Two, the client should file a Form 7004 so that they won’t have to file a Form 1120 until September 15, 2011, all of this for the period May 17, 2010 to December 31, 2010.

Query: If the IRS does not rule favorably on the Form 1023 seeking retroactivity before September 15, 2011, must the client file a Form 1120? If the IRS does rule favorably before the Form 1120 is filed, how does the client get its estimated tax payment back?

These are here and now questions for organizations that are losing their exemptions pursuant to section 6033(j). The IRS has had over four years to think about these problems and provide advice. May I ask, where is it? Must be that cork in the bottle!
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Today I start emailing transcripts of the February 4 daylong meeting of the TE/GE area councils. The first panel is “Update from the IRS,” starring Holly Paz. For those of you who went to the January 21 meeting of the EO Committee of the ABA Tax Section, there is some overlap, since both Holly and Lois Lerner discussed EO staffing and the EO workplan, among other topics. I’ve inserted head notes in the transcript so if you’ve heard enough about staffing or the workplan, you can skip to the next topic.

There is one major difference between the meetings. About halfway through her presentation, Holly stopped and said: “I want to make sure to leave some time for questions so I’ll turn it over to you.” With that, attendees spent the next half hour asking questions. In comparison, the ABA panel at which Lois spoke had three to four minutes for questions.

Having commented on this before, I decided to do some statistical analysis of the January EO Committee meeting. Of the six panels, spanning 345 minutes — that’s almost six hours — there was a grand total of 10 to 15 minutes for questions. The average for each panel, all but one of 60 minutes duration, was about two minutes for questions. So at the ABA EO Committee meeting, attendees listened for 330 minutes and asked questions for about 15 minutes.

Why is that? Is the committee leadership afraid that attendees are so uninformed or uninterested that they won’t ask questions if given more than a few minutes? Or are attendees there just for the sun and fun and who cares what anyone is saying? Or is the constant clock-watching, the terrible danger that a panel will go over its allotted time, the problem?

I was shocked several years ago when I was at another ABA committee meeting and the committee chair let the first panel, which featured IRS speakers, run on and on, as people kept asking questions. As the time for the meeting was coming to an end, the chair acknowledged that there was no time for the last panel and they would get to it the next time. As far as I could tell, no one was upset. Apparently, being on the last panel meant you might get booted to the next meeting. The EO Committee may not want to go this far, but a little flexibility might not be the end of the world.

Update from the IRS

What follows are the February 4 remarks of Holly Paz, Acting Director of EO Rulings & Agreements, IRS, as delivered at the TE/GE Councils’ annual meeting. The moderators of the panel are Christopher Ballard of Honigman Miller Schwartz and Cohn LLP, Ann Arbor, Michigan, and Mike Rachael of Ernst & Young, Atlanta. Continue…