Two events occurred yesterday at about the same time. One was the release of a letter (reprinted below) by the Chairman of the Senate Finance Committee, Senator Max Baucus. The other was a panel discussion titled “Political Activities of Exempt Organizations This Election Cycle” sponsored by the D.C. Bar, from which I hope to have a transcript in the near future.
Month: September 2010
EO Tax Journal 2010-138
Sarah Hall Ingram, TE/GE Commissioner, was the featured guest at yesterday’s panel discussion on nonprofit hospitals sponsored by VHA Inc. The focus of the discussion was new section 501(r) and its requirements.
EO Tax Journal 2010-137
Pulpit Freedom Sunday
In case you missed it, last Sunday (September 26) was the third annual Pulpit Freedom Sunday. You may have missed it because mostly it was ignored by the news media. I am reprinting below an item from ABC News and yesterday’s Alliance Defense Fund’s news release.
EO Tax Journal 2010-136
1 – Fresh Off the Wire
The New York Times continues its review of 501(c) organizations involved in politicking and the IRS that seemingly does nothing. Today’s article, “Hidden Under Tax-Exempt Cloak, Political Dollars Flow,” focuses on Americans for Job Security, “a pro-business group based in the Washington suburbs that had spent tens of millions of dollars since the late 1990s roughing up Democrats with negative advertisements around election time” that is “a front for a coterie of political operatives, devised to sidestep campaign disclosure rules.” Americans for Job Security is another nonprofit advocacy group that critics say “allow moneyed interests to influence elections without revealing themselves” by devoting itself “to politically charged ‘issue advocacy,’ much of it negative.”
Emboldened by Citizens United, Americans for Job Security, according to the Times, “paid close to $4 million for ads directly attacking nine Democratic candidates for Congress. That made it among the first to abandon the old approach of running ads that stopped just short of explicitly urging voters to elect or reject individual candidates.”
The article asks “whether, under cover of its tax-exempt mission ‘to promote a strong, job-creating economy,’ the group is largely a funnel for anonymous donations.” A director at Public Citizen is quoted as saying: “A lot of nonprofits game the system, but A.J.S. is unusual in that they so blatantly try to influence elections and evade disclosure. By any common-sense, reasonable interpretation of what they do, they are in violation of the rules.”
According to the article, “In 2007, Public Citizen filed complaints with the Internal Revenue Service and the Federal Election Commission, contending that Americans for Job Security spent the vast majority of its resources electioneering — running ads close to elections — contrary to I.R.S. guidelines for tax-exempt, nonprofit business groups. Public Citizen said it never heard back from the I.R.S.”
2 – Yesterday’s Update Continued
Today I am following up on the Associated Press story, “Tax-Exempt Status of 3 Bowls Challenged,” noted yesterday. What follows are a new release and excerpts from the complaint filed by Caplin & Drysdale on behalf of Playoff PAC.
EO Tax Journal 2010-135
1 – More on 501(c)(4) Politicking
2 – Alliance Defense Fund and Americans United Square Off Over Pulpit Freedom Sunday
3 – Devilish Plot to Destroy American Way of Life
EO Tax Journal 2010-134
I’ll focus on subscribers today. It’s nice to see that a goodly number of U.S. News “Best Tax Law Firms” subscribe to these missives. I can’t take credit for their rankings, but I hope I’m adding a little to their knowledge base. Speaking of subscribers, two were in the news yesterday — Jim Bopp on CBS News and Marc Owens in the New York Times. Marc probably wasn’t too happy to have his firm described as “a law firm popular with liberals seeking to set up nonprofit groups.” And it was great to see Sarah Hall Ingram quoted, as we haven’t heard from her since April. Sounds like the TE/GE Commissioner is advocating a “vote for” or “vote against” standard for political intervention.
EO Tax Journal 2010-133
1 – Alaska’s Sandy Deja’s Latest Interesting Tidbit — 990-N Filings
2 – “Most Disturbing Story of This Year’s Election” — New York Times Editorial
3 – Tax Issues in International Philanthropy — Outline Prepared for Friday’s ABA Meeting in Toronto
EO Tax Journal 2010-132
1 – Follow-up to Yesterday’s Tom Brady Article
2 – EOTJ Questionnaire Results
EO Tax Journal 2010-131
1 – Tom Brady Being Dissed in New England
As most of you know, I’m easily outraged. But it’s hard for even me to get outraged over a column in Tuesday’s Boston Globe over a “charity scandal.” While I’m reprinting the article for those who have not seen it, basically carmaker Audi is giving Tom Brady, the New England Patriots’ quarterback, the use of a car as a reward for his work with a charity, Best Buddies.
What I see is a win-win-win situation. One, the charity gets the benefit of having Tom Brady associated with it — free publicity that no doubt generates contributions from football fans to Best Buddies.
Two, Audi is just doing what corporations are expected to do — make their products attractive to the general public by having stars use and display their products.
Three, Tom Brady seems to be a decent guy who is getting the use of a car in return for his implicit or explicit endorsement. The author of the article appears to be a bit sloppy in saying that Brady got a $97,000 car. What he got it seems is the use of the car for a year, so his benefit is the cost of leasing the car for a year, which is much less than $97,000, although it appears he gets the use of a car every year, so maybe eventually it totals $97,000.
I am very much against charities selling their soul to corporations in the guise of sponsorship arrangements, where the corporation’s interests are paramount and the charity ends up as a shill for the corporation’s products. But I don’t see anything wrong with the situation that so outrages the Boston Globe’s columnist. Am I missing something here?
2 – Old Business
In regard to yesterday’s discussion of the filing requirements for 501(c)(4) organizations, John Pomeranz of Harmon, Curran, Spielberg & Eisenberg, Washington, had this to say:
“Just to supplement Marc Owens’ excellent summary of the fate of non-1024-filing 501(c)(4)s, I remind you of the attached field service advice issued by the IRS ten years ago discussing the issue. This went out because Ogden was, at the time, routinely sending such filers a Form 1120 and saying, ‘Aren’t you supposed to filing this instead?’”
EO Tax Journal 2010-130
Yesterday, I asked, “Is 501(c)(4) Status Being Abused?” I can hardly keep up with the questions and comments this query has generated. As noted yesterday, some (c)(4)s are being set up to engage in political activity, and donors like them because they remain anonymous. Some commenters are saying, “Why should we care?”, others say these organizations come and go with such rapidity that the IRS would be wasting its time to track them down, others say (c)(3) filing requirements should be imposed on (c)(4)s, and so it goes.
EO Tax Journal 2010-129
1 – Is 501(c)(4) Status Being Abused?
2 – Revocation 201036031 — Private Benefit and Inurement Discussion
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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?
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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.
EO Tax Journal 2010-128
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.
EO Tax Journal 2010-127
1 – EO Attorneys Heading for Canada
2 – IRS Subject to Concerted Campaign Demanding Humane Society Audit
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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.
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EO Tax Journal 2010-126
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.)
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EO Tax Journal 2010-125
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
EO Tax Journal 2010-124
I’m assuming most of my readers are familiar with the Milton Hershey School. I first learned of it in the fifties when I was in grade school. While most of us discussed what Catholic high school in Baltimore we wanted to go to, a friend of mine would always say he was going to Hershey, Pennsylvania, for high school. As I knew, his mother was a widow raising four kids and sending her boys away to the Milton Hershey School was probably her best option. So my impression of the school over the years has been favorable.
But is the Milton Hershey School being bilked by its directors/managers? A letter sent out this week by a group of Hershey School alumni makes this complaint. This situation reminds me of the notorious Bishop Estate case, with lots of tough questions. Should the IRS consider applying section 4958? Should Senator Grassley get involved? Or must we rely on Pennsylvania Attorney General Tom Corbett, now running for governor, to address these concerns?
EO Tax Journal 2010-123
In regard to the IRS’ handling of the Z Street case (see August 27 and 30 email updates), Ellen Aprill has sent along current IRS procedures regarding terrorism cases. According to the IRS Manual Transmittal (reprinted below), “A terrorism case involves a situation where an organization has been designated as supporting or engaging in terrorist activities or demonstrates an intention or likelihood to undertake this type of activity.” Not surprisingly, the IRS has elaborate procedures for such cases.
In another IRS document (reprinted below), we have a rare appearance by the IRS Office of Chief Counsel for EO matters. In fact, documents coming out of EO Counsel have become so rare that old GCMs are now selling for thousands of dollars on eBay. In the most recent document, Phil Hackney has provided advice in applying section 501(q) to organizations assisting homeowners who are at risk of foreclosure.
IRS Issues Program Manager Technical Assistance
EO Tax Journal 2010-122
We won’t know whether a recent Tax Court case (reprinted below) was decided correctly until Jim Hasson has his next panel on UBIT, but I find the rationale used in this case confusing.
If the subject homeowners association is serving Ocean Pines, Maryland, population 10,496, is that a “community” for purposes of section 501(c)(4)? Even the IRS seems to say yes. If that’s a community, should it matter if services (day-time parking) are limited to members of that community? I don’t think so. The issue to me is whether the night-time parking is subject to UBIT, which it clearly is.
Correct me if I’m wrong, but isn’t a church or school analogy appropriate? A church or school restricts its parking to members or students during certain times. No one argues that is not a related use or subject to UBIT. But if the church or school is able to make money off its parking lot when not needed for church or school functions, that is subject to UBIT.
In the case under consideration, the court seems to get confused in its analysis, and focuses on the fact that the two parking lots at issue are eight miles away from the community of Ocean Pines. Why should this matter? The day-time parking clearly benefits the folks from Ocean Pines, but isn’t that part of the community benefit for which Ocean Pines Association received its 501(c)(4) status? The night-time parking is run like your typical commercial parking lot, so UBIT is appropriate on the receipts from this business activity.
Any other opinions?
I don’t know whether us beleaguered males should be outraged or not at an article in today’s New York Times discussing Under Armour sports apparel. According to an analyst for a market research group, “guys buy clothes to look cool or feel cool,” whereas “women buy for fit and color.” Okay, I don’t like the bozo implications, but women do have to admit we are cool.
Another Times’ article is a follow-up to an earlier Times’ story, and sort of a follow-up to my report yesterday on a Baltimore Sun article on compensation of hospital executives.
Practices of Dodgers’ Charity Are Said to Be Under Scrutiny
by Katie Thomas and Michael S. Schmidt, New York Times, August 31, 2010