1 – IRS Needs a Reminder on Its Reminder
2 – Brief Filed in Appeal of Terrorist Financing Case
3 – Observations of the IRS’ Chief Counsel on EOs
4 – Group Seeks Investigation of Voter Guides/Legislative Scorecards
Month: October 2010
EO Tax Journal 2010-157
1 – 501(c)(4) Requirements
2 – Doug Shulman’s New Pen Pals
3 – Revised Pub 557 Provides Practitioner Quiz
EO Tax Journal 2010-156
1 – Milton Hershey Must Be Rolling Over in His Grave
If it wasn’t so sad, it would be funny. I know I’m going to Pumpkin World and Jungle Joey’s on my next trip to Pennsylvania. For earlier reports on the Milton Hershey School, see email updates 2010-147 and 2010-149.
2 – What Audits of Colleges and Universities Are Telling Us
We’re continuing to complete transcripts of the recent EO Committee meeting in Toronto. Today I have the panel on colleges and universities. At first I thought it would be just a rehash of the interim report, but it turned out to be much more interesting than that.
EO Tax Journal 2010-155
It’s rare when all the local football teams win, even if by razor-thin margins — Maryland, Navy, Ravens, and Redskins. And the World Series is set — San Francisco Giants against the Texas Rangers. I have no rooting interest here, although John McGraw, the legendary Giants manager, did marry my grandmother’s sister, Minnie, in 1897. Unfortunately, Minnie developed appendicitis and died in 1899. That was before section 501(r), which is today’s health care tax topic.
The Effect of Health Care Reform on Hospitals
What follows are the September 24 remarks of Robert W. Friz, Pricewaterhousecoopers, Philadelphia, and Elizabeth M. Mills, Proskauer Rose, Chicago, as delivered to members of the EO Committee of the ABA’s Tax Section. The moderator of the panel is Ralph E. DeJong, McDermott Will & Emery LLP, Chicago.
EO Tax Journal 2010-154
What to do this weekend during those commercial breaks while watching baseball and football? I suggest reading Phil Hackney’s description of the “Role of IRS National Office Counsel and Area Counsel in EO Audits,” which follows. That way you can tell your spouse or significant other or cat that you have been working all day.
Discussion of Interaction of Chief Counsel and Exempt Organizations
What follows are the September 24 remarks of Philip T. Hackney, Senior Technical Reviewer, Exempt Organizations Branch 2, Office of Chief Counsel, IRS, Washington, as delivered to members of the Audit and Appeals Subcommittee of the EO Committee of the ABA’s Tax Section. The moderators of the panel are Diara Holmes and Marc Owens of Caplin & Drysdale, Washington.
EO Tax Journal 2010-153
This morning I went to hear Gordon Clay, Sarah Hall Ingram, Cathy Livingston, Ruth Madrigal, and Theresa Pattara speak at the ALI-ABA program on Tax-Exempt Charitable Organizations.
Here’s my from the trenches report. Cathy Livingston was a no-show. Apparently, she was not rescued with the Chilean miners, so she remains underground. Rumors that she has run off to join the Church of Scientology have been denied by the IRS Office of Public Affairs. Another no-show was Theresa Pattara — perhaps she was out searching for Cathy or both of them may have run off to join the Church of Scientology.
Ruth Madrigal and Gordon Clay were there. Ruth gave a rehash of legislative and guidance developments, which have been reported on before in these missives, and Gordon gave a rehash of congressional developments, which is a bit of an oxymoron, and these lack of developments have also been reported on before in these missives, so I’m going to continue on to the star of the show…. DRUM ROLL
EO Tax Journal 2010-152
My most requested feature is IRS phone numbers. Why I don’t know, since most of you report that no one calls you back or, if they do, they provide little useful information. There are a few exceptions. Steve Clarke, for example, has been helpful in regard to Form 990 questions. Some IRS people are downright unhelpful, but I’ll let you discover them on your own. Since Marv Friedlander retired, there has been no go-to person in EO. In fact, I think the IRS company line to EO practitioners is to not call the EO function, but instead to call the IRS tax help line at 1-800-829-1040.
I’m always open to hearing about readers’ experiences with calling the IRS. This is an area where “applying the tax law with integrity and fairness to all” is a critical issue — clearly another area where the ACT Committee should make some inquiries as to what is the official policy. If the EO function does not want practitioners to call, then they should make that announcement and then apply it uniformly, with no exceptions. It’s only fair that everyone be treated the same.
There should not be a group of well-connected practitioners who get their phone calls returned. The IRS should not be discriminating among practitioners. As the EO function has become less transparent in recent years, telephone access has become even more important. Clients are willing to pay for information from those who have access. The IRS should not be creating two classes of tax practitioners — the favored few and everyone else.
For telephone and email access, there should be a uniform policy, and it should be adhered to, no exceptions. Discrimination in any form is truly repugnant to our belief in “truth, justice, and the American way of life.” Maybe the folks at IRS never watched Superman as kids. I know it was my favorite show.
EO Tax Journal 2010-151
1 – Old Business
2 – Partial Transcript of D.C. Bar Program on EO Politicking
The transcription process is always a challenge. In the case of a recent D.C. Bar program, I was unable to get a good recording of the remarks of Karl Sandstrom, one of the speakers. Rather than tossing the transcript, I am sending along the remarks of Jim Joseph and Marc Owens. If Karl would like to work on his comments, I would be happy to send him what we have.
With Halloween coming, I am reminded of what happened to one set of tapes I sent my transcriber a few years ago. Apparently her mailperson left the envelope containing the tapes on her door sill. The day being Halloween, trick-or-treaters who came by must have been irritated that she was not home to give them candy, so they ripped the envelope apart and threw the tapes in her bushes. When I told her later that the tapes should have arrived, she looked around and luckily found them intact in the bushes. I guess you could say a tape in the hand is worth two in the bush.
3 – Clergy VOICE’s Letter to IRS re the Fellowship Foundation
Last week I reprinted (Email 2010-148) a Washington Post article, “Sponsor of National Prayer Breakfast Received Money from Alleged Terrorist Group.” Today I’m reprinting the letter that was the basis for the article.
EO Tax Journal 2010-150
1 – New York Times’ Primer on EO Tax Law
2 – Ofer Goes Where Lions Fear to Tread: Is a Political Contribution a Gift?
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1 – New York Times’ Primer on EO Tax Law
Who would have guessed that the New York Times would devote two articles appearing today in its print edition to explain basic concepts of EO tax law. Of course we know “basic concepts” don’t take you far in EO election tax law, as it’s all facts and circumstances, as Judy Kindell is fond of explaining. The Times’Michael Luo gets it mostly right in his bold attempt to go where no IRS has gone before. I’ve noted in CAPS my comments.
EO Tax Journal 2010-149
1 – Old Business
2 – Upcoming Programs
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1 – Old Business
In regard to yesterday’s email update, former IRSer Bill Brockner chides me for not pointing out that Senator Durbin is incorrect in his press release in stating that “U.S. tax law requires that the primary purpose of 501(c)(4) organizations … cannot be political….” According to Bill, “There is no primary purpose test for (c)(4)s — including most if not all (c)s aside from (c)(3)s. What we have for (c)(4)s is a primary activity test, which is more quantifiable than a purpose test — if you can figure what and how to quantify.”
In regard to Wednesday’s email update, in which I noted recentPhiladelphia Inquirer articles about the Milton Hershey School, the newspaper has a blistering editorial today:
Inquirer Editorial: Hershey deals leave bad taste
EO Tax Journal 2010-148
This has to be a frustrating time for Democrats. Faced with a possible landslide against them in a couple of weeks, they are complaining to the IRS about Republican groups improperly using section 501(c)(4) status, the latest complaint in a letter reprinted below by Senator Durbin. While these allegations may be correct, I’m not sure what difference it would make even if the IRS were “to quickly investigate the tax status of Crossroads GPS and other [(c)(4)] organizations that are directing millions of dollars into political advertising without disclosing their funding sources,” as Durbin seeks. Yesterday’s Washington Post has added to the fray, with two more articles reprinted below.
The IRS is caught in the middle. And the political consequences could be severe if the IRS were to go after Republican groups. The next Congress could be in Republican hands, with the Republicans controlling not only the tax-writing committees but also the appropriations committees. Best to lay low if you are the IRS.
On the other hand, I can understand the frustration of Democrats. Lack of disclosure is killing them, and adding a Republican Congress to a Republican Supreme Court is going to make it very lonely for the current occupant of the White House.
For the IRS’ EO function, Republican control of Congress may not be so bad. If Senator Grassley regains the chair of the Senate Finance Committee, he should be able to move on his EO initiatives and to demand that the IRS become more active in the EO area.
EO Tax Journal 2010-146
More perils of Paul today. Read only if you need a break in your workday. Also, more politicking developments, read only if you can stand it.
I got up at 5 a.m. today so I could hear the Chief Counsel of the IRS, Bill Wilkins, speak at 8 a.m. at the American Health Lawyers Association’s annual tax program in Arlington, Virginia. As I was waiting for Wilkins to arrive, I was chatting amiably (yes, I can do that) with a fellow whom I assumed was an attendee. Turns out it was Bill Wilkins. My chance to present my strong views on the 509 regs and on how to proceed on section 7611, even my comments yesterday about the Office of Chief Counsel posting litigation developments, gone — gone in my morning haze. It’s obvious I’ll never make a good lobbyist. I hope I didn’t get Susan Brown in trouble. I told Bill she has the remarkable ability of speaking in perfect paragraphs. I suspect the next time Susan briefs Bill, he’ll be deciding whether I was telling him the truth or not.
I also saw and spoke to Judy Kindell, but forgot to ask her my politicking question — again the morning haze. I’m sure the political intervention experts reading this can tell me whether political expenditures by a 100% controlled for-profit subsidiary can be attributed back to the (c)(3) parent. I assume the answer is no so long as organizational formalities are observed, but this seems like a big loophole, especially if you have overlapping boards. Anybody know for sure?
In his remarks, Bill Wilkins did say that Cathy Livingston is the new Health Care Counsel, leading a small group in his office to tackle projects connected with the Affordable Care Act. A number of us were concerned about Cathy because we had not seen her lately, fearing that she had been kidnapped by Tea Partiers who hate the IRS. According to an IRS spokesperson, Cathy’s new position is effective October 10 and her old position — Deputy Division Counsel/Deputy Associate Chief Counsel (EO/ET/GE) — will be posted. A lot of intriguing possibilities here, but I won’t speculate.
Following Bill Wilkins was a trio of IRSers, Steve Clarke, Garrett Gluth, and Peter Lorenzetti. I hope to have a summary of some of their remarks in the near future. While I am sure they were under orders to mention Form 990-N, if I hear one more reminder before Friday about the need for baby organizations to file, I will scream. Come Ocober 15, everyone at the IRS must promise never to mention the e-Postcard ever again. It’s really getting to be cruel and unusual punishment.
EO Tax Journal 2010-145
1 – More 501(c)(4) Developments
2 – Information on Recent Tax Court Litigation
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1 – More 501(c)(4) Developments
For earlier developments, see EO Tax Journal Updates 2010-116, 120, 128, 129, 133, 134, 135, 136, 139, 141, 142, and 143. As I noted in Email Update 2010-128 (9/13/10), “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.”
EO Tax Journal 2010-144
As promised, I have a transcript of the ABA remarks of Phil Hackney, Lois Lerner, and Ruth Madrigal. I think we all owe a debt of gratitude to Ruth for adding one more thing we need to know as EO tax practitioners, FATCA. If you’re not familiar with FATCA, Ruth explains all. And can we get a promise from Lois never to mention 990-N again after October 15? Probably not. Is that the form that takes only 96 hours to complete? Or is that the Form 1023? Let’s see, I charge $500 an hour, so that’s only $48,000 for my services. Because I’m a great guy, I’ll extend my 50% discount, so that’s only $24,000. For the Free Fertility Foundation, that’ll be a bargain if they got a promise of a fixed fee.
If all of this is not exciting enough, the IRS released a draft of the Form 990 (core form) for 2010. Here are some changes I noted:
• Part IV, Question 20b is new: “If [the organization operates one or more hospitals], did the organization attach its audited financial statements to this return? Note: All Form 990 filers that operate one or more hospitals must attach audited financial statements.”
• Part V, Questions 13 and 14 are new:
“13. Section 501(c)(29) qualified nonprofit health insurance issuers
a. Is the organization licensed to issue qualified health plans in more than one state? Note: See the instructions for additional information the organization must report on Schedule O.
b. Enter the amount of reserves the organization is required to maintain by the states in which the organization is licensed to issue qualified health plans.
c. Enter the amount of reserves on hand.
“14a. Did the organization receive any payments for indoor tanning services during the tax year?
b. If ‘Yes,’ has it filed a Form 720 to report these payments? If ‘No,’ provide an explanation in Schedule O.”
• Part XI, Reconciliation of Net Assets, is new.
• Part XII, Financial Statements and Reporting, which had been Part XI, has been tweaked to stress the need for explanations on Schedule O
EO Tax Journal 2010-143
For those who have had enough on the perils of (c)(4)s engaged in politicking, you can skip my reprint of the recent letter to the IRS from Democracy 21 and the Campaign Legal Center. For those who have had enough on the perils of Paul, you can skip my reprint of an article from the Baltimore Sun. Last week I reported on the rain and imminent flooding in my neighborhood. What I didn’t realize then is that a tornado came within a mile of my house. I’m always amused by local reporting, so the article follows. Tomorrow, barring rain and tornados, I expect to have the transcript of Lois, Phil, and Ruth in Toronto. That’ll make for good weekend reading while watching baseball and football.
National Weather Service Confirms Tornado near Pasadena
Downed Trees Reported in Lake Shore Neighborhood
By Jessica Anderson, The Baltimore Sun, October 1, 2010
The National Weather Service confirmed Friday that a tornado passed through the Lake Shore neighborhood east of Pasadena in Anne Arundel County during Thursday’s storm. Officials at the National Weather Service said the tornado reached maximum winds of 80 mph, with a path as wide as 200 yards and as wide as one mile long, passing within a half mile of Chesapeake High, Chesapeake Middle and Bodkin Elementary schools.
The tornado formed at about 9:46 p.m. over Cornfield Creek, knocking a sailboat on its side and then moving toward Milburn Circle in Lake Shore, where it knocked down several trees. The tornado left a trail of damage, running from southeast to northeast, and weakened, touching down a final time in the 8300 block of Dock Road at about 9:49 p.m. No injuries were reported as a result of the tornado.
Groups Seek IRS Investigation to Determine Whether “Crossroads GPS” Is Operating in Violation of Its 501(c)(4) Tax Status
EO Tax Journal 2010-142
Being President of the United States is no fun. It’s probably impossible to be a successful POTUS nowadays. And the criticism is never-ending. If I understand Connie Rosenberg’s views correctly, to run for President today means you must be insane, but that means you should not be President by reason of insanity!
I think another position where it is probably impossible to succeed is being Director of Exempt Organizations. While I’m not saying Lois Lerner is insane, she is in a no-win position. I have a certain amount of sympathy for Lois as I feel she has an impossible job. I sometimes feel that I’m also in a no-win situation, because if I criticize her, some readers say I am being mean and unfair. If I don’t criticize her, other readers say I’m being too easy on her. And then some readers go back and forth, first saying I am being mean, then saying I’m being too easy!
On Monday I noted my disappointment with Lois’ “I’m not going to talk about that” answer to a question at the NAAG/NASCO Conference. Later I heard from a reader who said I must have been sleeping through her presentation. He said Lois addressed the current problem of (c)(4)s, (c)(5)s, and (c)(6)s being involved in too much political activity by saying that organizations needed to be educated about what they can do in advocating their positions and candidates. My reader’s comment was that “education” is not what is needed. The (c)(4)s, (c)(5)s, and (c)(6)s currently in the news for their political involvement have sophisticated EO attorneys at their beck and call. While there is some confusion as to where advocating a position becomes advocating a candidate, the cases in the news are clearly in the political realm. According to my reader, what the IRS needs to do now is kick some butt, not “educate.”
EO Tax Journal 2010-141
The Congressional Research Service released a report titled “Tax-Exempt Organizations: Political Activity Restrictions and Disclosure Requirements,” which I’ve reprinted below. For those closely following these developments, there is nothing new. For folks who wish to be brought up to date, this report is a good synopsis of where we stand today.
Speaking of political activity, this morning I went to the ongoing NAAG/NASCO Conference to hear Lois Lerner and Ruth Madrigal speak. Not to my surprise, Lois and Ruth rehashed their recent ABA comments in Toronto, and I’ll have a transcript of those comments shortly. What did surprise me was Lois’ answer to this question by an attendee: “What about churches and preaching from the pulpit?” Lois emphatically answered: “I’m not going to talk about that.”
Normally I’d expect Lois to give the usual IRS gobbledygook answer, such as “We’re looking into that, but of course I can’t say anything about any particular church.” So what’s the difference in her saying, “I’m not going to talk about that.” Well, I’m not blaming Lois, since I’m sure she is merely reflecting the IRS’ say-nothing position, but the IRS should be talking about churches and politicking from the pulpit.
The Alliance Defense Fund is encouraging pulpit politicking. See Email Update 2010-137. I don’t see how the IRS can walk away from this challenge. Yet all we’ve heard from the IRS is, “I’m not going to talk about that.” Last week, Marc Owens may have said what Lois cannot say (see Email Update 2010-139). According to Marc, the IRS has “effectively abandoned the field” at a time of heightened political activity by all exempt organizations, including (c)(3)s. He added: “We seem to have a haphazard IRS enforcement system now breaking down completely.” Marc of course formerly held Lois’ job, so I don’t see how the IRS cannot respond to his comments, unless what he is saying is true, in which case there is no good response possible.
On a more cheery note, Ruth Madrigal’s predecessor, Emily Lam, has rejoined Skadden, Arps, Slate, Meagher & Flom LLP as Counsel in the Washington, D.C. office. Emily’s practice will focus on tax controversy and exempt organizations matters.
EO Tax Journal 2010-140
At the moment I feel like Noah, as I suspect most East Coast residents do. Instead of an Ark, I rely on my sump pumps to save me — and worry about losing the electricity that powers them. So far, so good, although at one point early this morning water was coming in through the walls faster than the sump pumps could expel it. Even the cats were getting nervous. Oh well, there’s always something to keep life interesting.
We can thank Victoria Bjorklund and her colleagues for some weekend reading, assuming your clientele includes foundations. The Form 990-PF does have a well-deserved reputation as the form from hell. Hopefully, improving the instructions as they suggest will make filling out the form easier.
ABA Seeks Changes to Instructions for the Form 990-PF to Increase Clarity for the Reporting Foundations and to Enhance Accountability to the Service and Transparency to the Public