Month: August 2010

Current & Quotable

EO Tax Journal 2010-121

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I’m assuming all readers of this missive subscribe to the IRS’ EO Update, so unless there is something controversial — heaven forbid — I don’t comment on what the IRS has to say. I will say the latest issue (2010-20) is out for anyone who has been napping or, in the case of Bill Brockner, traipsing about Scotland.

In December, 2008, my incredibly shrinking hometown newspaper, the Baltimore Sun, somehow found the resources to do a devastating (for Maryland hospitals) investigative series on hospital debt-collection practices and lack of charity care, which may have been a factor in Congress passing section 501(r). While not as extensive, the Sun has found the resources to do another report on Maryland hospitals, this one focusing on executive compensation, using Form 990 data.

Hospital CEOs Get Seven-figure Salaries, Country Club Memberships

Critics Question Whether Nonprofits Should Pay So Handsomely

By Andrea K. Walker, The Baltimore Sun, August 28, 2010

Focus on IRS and Treasury

EO Tax Journal 2010-119

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A case filed on Wednesday, August 25, 2010, is attracting national attention, probably for all the wrong reasons. As a service to readers, I’m sending out a copy of the complaint (reprinted below) in the case of Z Street v. Shulman.

While I do not have any independent knowledge of the truth of the complaint’s allegations that there is “a special IRS policy in place regarding organizations in any way connected with Israel, and further that the applications of many such Israel-related organizations have been assigned to ‘a special unit in the D.C. office to determine whether the organization’s activities contradict the Administration’s public policies,’” I find these allegations hard to believe. I’ve been told that both the IRS Commissioner, Douglas Shulman, and the Director of Exempt Organizations, Lois Lerner, are Jewish and, even if not, I have too much respect for them to think that they would stand idly by while a “special unit” was put in place to administer an “Israel Special Policy,” as detailed in the Complaint. In view of the extreme sensitivity of these charges, it seems to me that the IRS must make a public response.

On Thursday, I said my job as an editor is to separate the wheat from the chaff. But what am I supposed to do if there is no wheat? TIGTA’s latest report, “Review of the Internal Revenue Service Criminal Investigation Division’s Non-Profit Fraud Referral Process,” (reprinted below) may have had some merit when it began, but it quickly became a road to nowhere. Even its intended recipient, CID, said thanks but no thanks. I’m reprinting the report on the wan hope that perhaps its statistics may be of interest to someone, or that someone can explain why this report should not be dismissed as make-work.

Focus on IRS and Treasury

EO Tax Journal 2010-118

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My job as an editor is to separate the wheat from the chaff. If you’re involved with section 527 political organizations, then you probably should read the following TIGTA report. If not, here’s all you need to know: First, as many as one out of every four Forms 8872 filed with the IRS have incomplete or missing contributor or recipient information. Second, the IRS is not following up on information it has requested from political organizations to verify compliance — even if the organization ignores the IRS request for information. You could say this is a truly voluntary compliance system.

TIGTA Report on Section 527 Compliance

Improvements Have Been Made, but Additional Actions Could Ensure That Section 527 Political Organizations More Fully Disclose Financial Information

Transcripts (Other)

EO Tax Journal 2010-117

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Come Fall, we’ll have a number of interesting programs coming our way – to be reported on here if you are unable to attend in person. But first, it’s time to wrap up any loose ends from the first half of this year. Today I have our final transcript from the annual Georgetown Law EO program. I won’t say we have saved the best for last, lest I offend those who participated in other sessions, but I can say, for those who weren’t there, it’s been worth the wait, and the discussion is as timely as it was in April.

Current Trends in State Charity Regulation

What follows are the April 23 remarks of Eric Carriker, Massachusetts Office of the Attorney General, Cindy Lott, Columbia Law School, New York, and Mark Pacella, Pennsylvania Office of the Attorney General, to attendees at the annual Georgetown Law program on “Representing & Managing Tax-Exempt Organizations.” The moderator of the session is Celia Roady of Morgan Lewis & Bockius, Washington, D.C.

Editor's Notebook Focus on Courts

EO Tax Journal 2010-115

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1 – More on Friends of Fiji

Following up on yesterday’s post regarding attorney Richard Fox’s recent letter to the IRS about Friends of Fiji, it has been reported in the tax press that an attorney for the House Committee on Oversight and Government Reform — who was involved in the committee’s ACORN investigation last year — has contacted Fox about Friends of Fiji’s tax-exempt status and the alleged self-dealing by its two directors. Hopefully, the IRS is already on the scene. If not, why not?

2 – Why Appeal a Slam Dunk?

When the Foundation of Human Understanding case came down last year, it was a brilliant recitation of facts and law by the chief judge of the U.S. Court of Federal Claims, resulting in the proper finding that the foundation did not qualify as a church. (Okay, I admit, one of my favorite EO attorneys, Milt Cerny, said the associational aspects of a church may need to be redefined in the internet age.)

If you’re still with me, then why appeal? To me, just a waste of time and money, but I suppose the foundation was determined — just like VSP is one determined litigant — and just like VSP, seeking cert is probably the next step for the foundation. In any event, I’m reprinting the court of appeals’ opinion, which makes relatively short shrift of the foundation’s arguments for church status.  

Focus on IRS and Treasury PLRs, TAMs, and Denial Letters

EO Tax Journal 2010-114

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1 – With friends like this, who needs enemies?

Friends of Fiji is no friend of Ray Styles, who made a $250,000 donation pursuant to a donor-advised fund agreement, only to find that his contribution had been commandeered by Friends of Fiji’s two sole directors and officers. Attorney Richard Fox has been battling on Styles’ behalf for a number of years. I am reprinting below Fox’s recent letter to the IRS seeking a review of Friends of Fiji’s tax-exempt status under section 501(c)(3) and liability under sections 4941 and 4945.

The Friends of Fiji scandal is not new news. Fox wrote about Friends of Fiji in a February 25, 2010 article for The Chronicle of Philanthropy. See “National Heritage Foundation Debacle Offers Lessons about Donor-Advised Funds.” In addition, Victoria Bjorklund mentioned Friends of Fiji in her April 6, 2009 remarks at Georgetown Law’s annual EO tax program. See transcript of “Charitable Giving Update,” EOTJ, vol. 14, no. 5, p. 50.

Based on the information set forth in Fox’s letter, it appears that Friends of Fiji no longer qualifies for tax-exempt status, and there is a real issue as to whether its two directors and officers, Gary Nerison and James Bickel, should be subject to self-dealing taxes under section 4941. Hopefully, the IRS’ Big Four for EO matters — Douglas Shulman, Steve Miller, Sarah Hall Ingram, and Lois Lerner — will give Nan Downing approval to initiate an overdue audit.

2 – What are we to make of Revocation 201032050?

I’ve been told that the IRS routinely approves applications from private medical practices as long as there is some educational activity. Why a private medical practice would want (c)(3) status has always been a mystery to me, but that’s a question for another day.

State Bar Reports

EO Tax Journal 2010-113

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1 – The New York State Bar Association Tax Section has submitted its Report No. 1217 to the Congress, to the Treasury, and to the IRS. (Have there really been 1,217 reports?) The latest report concerns section 514 of the Code, Unrelated Debt-Financed Income.

For those who are only vaguely familiar with section 514, the report gives a good rehash of section 514 and its history. For those interested in reforming or eliminating section 514, the report provides a detailed “reexamination,” which may set the tone for future debates. All in all, a good effort by the NYSBA.

2 – In regard to last week’s cubicle discussion, I’ve been told all cubicles are not created equal. Unfortunately, most cubicles are designed with the purpose of fitting the maximum number of people in the least amount of space. Think flying coach. However, well-designed cubicles — think flying first class — are designed to maximize efficiency and productivity. Still, most workers, if given a choice, will take four walls and a door, even if it’s a tiny office.

The tragedy of the EO Division is that it is worse off than before the reorganization and its move to 1750 Pennsylvania Avenue. While no one claims the office space — the bull pens — of 1111 Constitution Avenue are great, the building does have a certain charm, and it is where the action is. 1750 Pennsylvania Avenue may as well be in the middle of Alaska. Being near the White House has no cachet, unless you like staring through the fence.

The reorganization was supposed to bring greater prominence to the EO function. Well, they lied. If you just look at its space, the EO Division remains the sad sack of the IRS. Return it to 1111 ASAP.

Editor's Notebook Focus on IRS and Treasury

EO Tax Journal 2010-112

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Old Business

In regard to “Our Tongue-Tied IRS” (Email Update 2010-110), I’ve been told “It’s the cubicles, stupid,” as in “It’s the economy, stupid.”  

According to my informants, cubicle existence — at 1750 Pennsylvania Avenue, home of the EO Division — is a bummer, along with no library, no nothing. It’s flying coach in a plane full of unhappy passengers. JetBlue, anyone?

As one former IRSer has noted, “Cubicles are: ‘space efficient, personnel and work inefficient.’ The government wasted the money it saved on cubicles by wasting the time of very expensive personnel through constant interruptions and distractions. Why return a phone call when you are supposed to be quiet?”

My view: The overwhelming chorus seems to be that everyone hates cubicles. From my personal observations over the years, no one ever seems to be in their cubicles. Where they are I don’t know. Some may be working at home. Some may be working the night shift. Some may be working at Starbucks, but the short is, nobody may be at their cubicle when you call.

Cubicles are for cold callers and complaint centers, where no one lasts more than a month. Putting folks with 19 years of education or more in a cubicle is insulting and demeaning. The IRS is paying its tax law specialists $70,000 to $90,000 a year (the working grade salary in the EO Division). Rather then drive these folks to drink, at least give them a place where they can work and where they may want to be. “Penny-wise, pound-foolish” is the only way to describe the IRS’s treatment of its worker bees.

More Old Business

In regard to the Optimist Clubs’ rulings (Email Update 2010-111), former IRSer Conrad Rosenberg had these comments:

“Highlighting how nebulous the meaning of ‘social welfare’ can be, I once wrote (this would have been sometime during the neolithic age) a piece for either the late lamented EO Handbook or possibly for a CPE article. My illustration, as I remember it, postulated two diametrically opposed organizations, both of which would have no problem qualifying under (c)(4). The first was organized and operated primarily for the purpose of guaranteeing the preservation of certain acreage in South Philadelphia for the indigenous wildlife (mostly rats and squirrels); the second was intent on dedicating the identical tract to the development of a football stadium that would supposedly benefit the surrounding deteriorated community. The IRS would make no value judgment in deciding that both would meet the requirements of (c)(4), although an objective argument could well be made that neither would.”

Focus on IRS and Treasury

EO Tax Journal 2010-111

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We’re all familiar with section 501(c)(3), (c)(4), and (c)(7) organizations, but a big problem comes when we have an organization that straddles these sections. Some wags call (c)(3) the no-fun section — too much fun and you are a (c)(4) or (c)(7). In the PLR I am about to discuss, the organization even agreed not to promote fun or camaraderie, but to no avail.

Editor's Notebook Focus on Courts

EO Tax Journal 2010-110

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1 – Our Tongue-Tied IRS

Rather than just have one report on my IRS questionnaire, I will address concerns somewhat seriatim. One major concern appears to be the inability of practitioners to get through to someone at the National Office or, if a phone or email is returned, to get a substantive answer out of anyone in the EO Division.

Transcripts (Other)

EO Tax Journal 2010-109

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1 – Are You Willing to Die to Save on Taxes?

The current state of the estate tax remains in the news because when you die may make a big difference. The top estate tax rate in 2009 was 45%. Those who die in 2010 face no estate tax but have a carryover basis system. For 2011, if nothing happens, the top estate tax rate will be 55%. So when would you like to die or, better, your rich uncle?

The current issue of Charitable Gift Planning News(contactcgpn@aol.com) has this interesting, although morbid, comment: “Will the difference between no estate tax for a 2010 death, and a substantial tax upon death in 2011, prompt estate holders to ponder suicide (and heirs to think about murder)? The United States is a big country, with many millions of people, and we can expect some macabre stories of this sort to emerge as year-end approaches.”

My comment: Finally, an advantage to being a poor boy.

2 – Day Two of Georgetown Law’s EO Program

Now that I’ve finished sending out the ABA transcripts, I can get back to where I left off with the annual Georgetown EO program.