Month: December 2010

Editor's Notebook

EO Tax Journal 2010-192

Paul StreckfusComments Off on EO Tax Journal 2010-192

Year 2010 Report

This will be my last email update for 2010. I tell people these missives are weekly updates, but you know they come out more frequently than weekly. At the same time, I cannot call them daily updates, which would require putting something out on days when there is nothing to report, and I’m not a believer in what is called “filler” in the trade. Maybe I should call them almost every day updates?!

2010 has been a year of change for me in that I’m out of the print business after many years of loving to see the finished product of a paper journal. But, as many of you have said to me, it’s about time. My concern about some people being wedded to paper appears unfounded, based on what to date has been a smooth transition to an all-digital world. I’m told the Big Four accounting firms pretty much ban paper publications from their offices. There, your computer is, in effect, your library, and I suspect even law firms are moving to paperless libraries.

As 2010 closes, all EO Tax Journal subscribers should have a password to the new website, eotaxjournal.com. If not, please let me know. The website currently has all the 2010 email updates, which contain all the information that was published in paper form in 2010. You no longer need to save email updates, and our search function should allow you to find what you are looking for much faster. We will continue to improve and expand the website in 2011.

What I think makes the EO Tax Journal different is threefold. One, it has a lot of information available nowhere else. The major tax services are mostly content to report what is handed to them. I scour numerous sources for information. That’s how I was able to identify eight universities that are currently being audited by the IRS. I’m not aware of any other publication compiling a list of this sort.

Two, the EO Tax Journal has a continuing dialogue going on with folks on the Hill, Treasury, and the IRS. Over 200 people in the IRS’ EO function receive the email updates, and they frequently voice an opinion, of necessity mostly anonymously. Since I frequently report on problems of IRS administration, concerns raised in the email updates come almost immediately to the attention of the top managers.

Three, because I formerly worked in the EO Division and have remained in contact with many others who have also worked there, I am able to get information not available to other tax services. One IRS official has complained that it is almost like I’m sitting in on many of their meetings! However, my efforts are only as good as my sources, so I encourage all readers to email me with their reactions to developments. No one’s viewpoint is ever ignored and is published if I’m given permission.

My overall goal is to improve the workings of the EO sector. Since my area of expertise is the tax law applicable to tax-exempt organizations, that’s my focus. As you probably know, I believe we need better EO tax laws and better regulation by the IRS and the states. I also try to encourage practitioners to join me in this effort. Too often it seems to me that the intended beneficiaries of the sector are lost sight of while we have arcane discussions of what is and is not permitted under the tax law.

I realize that in law school one of the first words of advice is that it’s okay for lawyers to get serial killers off on technicalities, but I believe tax practitioners in the EO sector must serve not only their clients but also the sector as a whole. The problem, as I see it, is that the folks with the money are not always working for the best interests of those who are the recipients of their services or grants. I realize my views are not always well-received, but I challenge those who disagree to speak up in 2011. I thank those who have communicated, either their agreements or disagreements or sometimes both in the same missive, in 2010, and I hope they will continue to do so in 2011.

Happy New Year!

Paul Streckfus
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Current & Quotable

EO Tax Journal 2010-191

Paul StreckfusComments Off on EO Tax Journal 2010-191

Is this the EO horror case of the year? Or is it the Hershey School? I thought Bobby Thompson was the guy who was famous for his “Shot heard ‘round the World.”

Navy Vets Leader Made an Unchecked Rise into Elite Circles
By Jeff Testerman and John Martin, St. Petersburg Times Staff Writers, December 27, 2010

Editor's Notebook

EO Tax Journal 2010-188

Paul StreckfusComments Off on EO Tax Journal 2010-188

1 – Holiday Reading

2 – COP Gets It Wrong

3 – Missed Opportunity?
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1 – Holiday Reading

Roger Colinvaux, described to me by Dean Zerbe as one of the smartest guys to have ever worked on the Hill, has written an article on Citizens United and the section 501(c)(3) political activities prohibition. It’s available at http://ssrn.com/abstract=1726407. To whet your interest, here’s his conclusion:

“Citizens United makes a Supreme Court challenge to the political activities prohibition likely, and a reexamination of the political speech of charities necessary. This Article has argued that although the political activities prohibition has flaws, it has largely been a noncontroversial rule that serves important purposes. Most critically, the prohibition draws an important line that acts as one of the few limitations on the charitable purpose requirement. Because of the prohibition, charities are not allowed to get involved in politics, which gives the charitable purpose requirement clarity and keeps the ‘independent’ sector independent. Although the risks of loosening the prohibition may be overstated, the gains from doing so are not apparent. There is real, if intangible, benefit to a charitable sector that is noble in purpose and free of partisan rancor. Furthermore, there is no easy alternative to the political activities prohibition. Accordingly, this Article has argued that the political activities prohibition should be retained. Of course, retention of the prohibition would not be possible if it were unconstitutional. Although Citizens United presents a challenge to the constitutionality of the prohibition, close analysis of the case results in several meaningful and critical distinctions that could and should lead to the conclusion that the political activities prohibition is not, for constitutional purposes, a burden on speech. This is not to say that present law is perfect — it is not. But the prohibition represents the evolution of a century of wrestling with the subject of political activity and charity, and the wisdom that the two are not compatible. Such wisdom should not be contravened.”

Focus on Congress

EO Tax Journal 2010-187

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The President signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 on Friday. I reviewed the Act for extenders of interest to EO practitioners. Here’s what I came up with:

Partial List and Discussion of Temporary Tax Provisions (“Extenders”) Extended

H.R. 4853, Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

Signed by the President on December 17, 2010

Listed are bill provisions as enacted, plus explanations provided by the Joint Committee on Taxation (footnotes omitted) in its December 10, 2010 technical explanation (JCX-55-10)

Editor's Notebook Focus on Courts

EO Tax Journal 2010-186

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It’s Friday, it’s snowy, and it’s cold. And the holiday season begins in earnest for many folks this weekend or maybe just shopping for that special gift for that special someone. (Those jewelry store ads are the worst.)

My advice: buy a book or read a court case. I have both for you today.

I didn’t expect to enjoy reading an 800-page book about Warren Buffett, but I did. I saw it in the library and thought, what the heck, if it doesn’t grab me in the first 50 pages, it can go back and I’ll start reading about Mickey Mantle (The Last Boy — and the End of America’s Childhood, by Jane Leavy).

Actually I found I could not put the Buffett book down (The Snowball — Warren Buffett and the Business of Life, by Alice Schroeder). As I think the author says, simple tastes, complex man.

We all know Buffett is giving billions to charity through the Gates Foundation. His views toward charity and charities developed over time. In the early seventies, he was delighted to help bring to light the Boys Town scandal. What was the key document in the investigation?

Here are Buffett’s quoted words: “I was sitting there in the family room doing the Form 990 for the Buffett Foundation, and it just hit me — if I had to file a return, maybe they did too.” Twenty days later they got the Boys Town Form 990 from the IRS. (Try doing that today.)

Later in the seventies, Buffett was getting advice about foundations from Walter Annenberg. His advice to Buffett: be very wary lest your money end up in the hands of a McGeorge Bundy, who Henry Ford II described as “the most arrogant son of a bitch in the country, who developed the lifestyle of an Arabian prince on Ford Foundation money.”

The book has the best definition of leverage I’ve seen. Leverage is like gasoline. In a rising market, a car uses more of it to go faster. In a crash, it is what makes the car blow up. A lesson seemingly always forgotten.

Tax Court Creates Another Tax Shelter? Pun Intended.

I’m reprinting an interesting 7-6 Tax Court decision. I personally agree with the dissenters. While the vast majority of ministers don’t have the problem of multiple homes, if I’m a televangelist with millions of dollars coming in, why not have ten homes and use this case to have the parsonage allowance under section 107 apply to all of them?

Editor's Notebook

EO Tax Journal 2010-185

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As promised, here’s my critique of the EO workplan, much of it taken from comments from readers over the past year. One reader did advise me, “Be nice to Lois, we don’t want her up and retiring on us.”

So, here goes, from page 1 to 29. Page 1 is a letter from Lois. It’s very positive — EO has had “a robust educational program, a more efficient determination process, and a comprehensive compliance program.” The “three major themes” are very catchy: “EO Integrates; EO Supports and Collaborates; and EO Invests.” Wonderful letter, beautiful photograph. How’s that for being nice?

Page 2 is labeled “Compliance.” Here’s where I start getting tough (sorry, Nan). Page 2 has a graph that is hard to read for these old eyes, but I’ll use my magnifying glass. The graph tells us that in FY 2009 — of 16,960 returns examined — 6,773 pertained to compliance checks and 10,187 pertained to traditional examinations.

Editor's Notebook

EO Tax Journal 2010-184

Paul StreckfusComments Off on EO Tax Journal 2010-184

1 – The EOTJ Mailbag

Milt Cerny, McGuireWoods LLP, Richmond, Virginia, had this to say about the Wisconsin Alumni Research Foundation’s recent letter on supporting organizations, reprinted here yesterday:

 “Paul, the letter to Treasury by Carl Gulbrandsen, Managing Director of WARF, regarding concern of the university community on the limited exception for government-related Type III supporting organizations to one entity, is correct when he indicate that this artificial restriction will hamper these organizations from fulfilling their mission. We represent a number of public universities with supporting organizations that support various activities and programs of the universities that are separately incorporated. To limit this support to ‘one supported organization’ is detrimental to the mission of many of these institutions. The limitation regarding financial support that the proposed regulations appear to place on what is ‘functionally related’ to determine ‘substantially all’ or the ‘substantial part’ test should be expanded to include other factors. Treasury regulations have recognized ‘qualitative’ rather than ‘quantitative’ measures such as financial support to measure substantially all or to satisfy substantial part tests. Carl has identified an important issue that needs correction. Milt.”

2 – EO Workplan Dropped under the EO Christmas Tree

With time rapidly running out for delivery this year and having missed Hanukkah, Lois Lerner and her elves presented the EO community with an early Christmas gift — the EO work plan. Who knows, the PACI report may be released in time for Kwanzaa, and maybe the IRS and Treasury will celebrate New Year’s Eve with the release of the final SO regulations.

The workplan is now posted on www.irs.gov. In remarks this morning to a frozen tax press (23 degrees at 9:30 am, with a high of 29 expected), Lois Lerner and her team reviewed the work plan, now titled “Exempt Organizations FY 2010 Annual Report and FY 2011 Work Plan.”

I’ll have my remarks on the report and work plan tomorrow. If anyone has reactions today, please send them along to me (pstreckfus@gmail.com) and I’ll include them in my missive tomorrow.
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Editor's Notebook Focus on IRS and Treasury

EO Tax Journal 2010-183

Paul StreckfusComments Off on EO Tax Journal 2010-183

1 – The EOTJ Mailbag

2 – Are the IRS and Treasury on the Verge of a Massive Giveaway?

3 – Latest Supporting Organization Letter to Treasury
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1 – The EOTJ Mailbag

In regard to Ron Schultz’s departure from the IRS, noted yesterday, Bonnie Brier, Senior Vice President, General Counsel & Secretary of New York University, had this to say:

 “Paul, As you often note (bemoan), with retirements over the past decade there has been a huge loss of experienced EO personnel, with a resulting loss of institutional EO knowledge. While talented people join EO, first they face the learning curve and then they may move on — either to other areas within the IRS or to private practice. While Ron Schultz’s return to private practice does not fit that usual mode of an IRS staffer retiring after a long and distinguished career in EO, I view it as another significant loss. Ron is a great listener, thinker and problem solver, someone who can take on a huge project with grace and candor and get it done. Beyond his intelligence and other talents, his ‘Minnesota nice’ went a long way in making him effective. In my view, he joined the Form 990 fray at exactly the right time to make for a better end product. Steve Miller certainly appreciated Ron’s talents, taking Ron with him as he moved up the IRS ladder. That was great for Steve and the IRS, but EO’s loss. So a ‘tip of the hat’ to Ron as he returns to private practice. Best, Bonnie.”

Current News and Developments

EO Tax Journal 2010-182

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1 – Ron Schultz To Leave IRS

2 – ABA To Meet in Florida

If you loved Del Boca Vista (remember those Seinfeld episodes?), you’ll love Boca Raton, Florida, where the ABA Tax Section will be having its winter meeting. For those lucky enough to go, I have the program schedule of the EO Committee. My plan is to listen to the tapes while watching the Super Bowl, although sometimes it can get confusing. Did Lois Lerner just score a touchdown? Did Ruth Madrigal intercept a pass?

3 – Samuel P. King, Judge and Critic of Hawaiian Charity, Dies at 94

No one new to the EO area should not know of the Bishop Estate. I’ve been fascinated by it ever since the seventies when I was assigned a ruling request by the estate. When it was denied, the estate’s lawyer went straight to Russell Long, then Chairman of Senate Finance, and got a rifle shot provision overturning the negative ruling. Now that’s having clout!

Editor's Notebook Focus on IRS and Treasury

EO Tax Journal 2010-180

Paul StreckfusComments Off on EO Tax Journal 2010-180

The annual Priority Guidance Plan is out, and that’s always a good time to both look forward and look back. I used to blast the IRS and Treasury for how little guidance they put out each year, but what I found was the more I blasted them, the less they did. It was almost as if they had a meeting each year and said, “Let’s really irritate Streckfus and do less than we did last year.” (Not that I think they care what I think.) So now I come to praise them for their output, no matter how meager.

How about those proposed regulations under §§ 509 and 4943 regarding the new requirements for supporting organizations, as added by § 1241 of the Pension Protection Act of 2006? They may be a disaster for supported organizations if the payout rate goes down to 3%, but let’s not focus on the negative. A great effort.

And how about those final regulations under §§ 4965, 6011, and 6033 on excise taxes on prohibited tax shelter transactions and related disclosure requirements as added by § 516 of the Tax Increase Prevention and Reconciliation Act of 2005? A major accomplishment.

And how about those proposed regulations under § 7611 relating to church tax inquiries and examinations? A wonderful job. Congratulations to all.

So what if they only got three EO guidance items out. It could have been two or one or even none. Two proposed regs and one final reg is not something to sneer at. That’s a hat trick in hockey or soccer, not an easy thing to do.

My favorite item appears under Employee Plans, why there I don’t know since it seems like an EO item. EP is seeking final regulations under § 512 explaining how to compute unrelated business taxable income of voluntary employees’ beneficiary associations described in § 501(c)(9). Temporary regulations were issued on January 29, 1986. Now that’s what I call temporary — only 34 years and counting.

EO Excerpts from 2010-2011 Priority Guidance Plan

Transcripts (Other)

EO Tax Journal 2010-179

Paul StreckfusComments Off on EO Tax Journal 2010-179

The IRS’ Steve Clarke frequently speaks on the Form 990, which is not surprising since he is the Form 990 project manager. I have had transcripts of his remarks this year — see Email Updates 2010-56 and 2010-165. He recently spoke again at the 2010 Western Conference on Tax Exempt Organizations, and I have had transcribed the portion of his remarks that go beyond his earlier comments.

2010 Form 990 Changes

Editor's Notebook Transcripts (ABA EO Committee)

EO Tax Journal 2010-177

Paul StreckfusComments Off on EO Tax Journal 2010-177

1 – The EOTJ Mailbag

Milt Cerny (mcerny@mcguirewoods.com) had this to say about Wednesday’s reporting that the Council on Foundations-convened Treasury Guidelines Working Group had decided to end its dialogue with Treasury over the Anti-Terrorist Financing Guidelines for U.S.-based charities.

“Paul, I read with regret the headline that ‘Charities End Dialogue with Treasury over Guidelines that Stifle Effective Global Grantmaking.’ I have followed the efforts of U.S. charities as they provided relief efforts, assisted foreign educational and cultural programs throughout the world, and helped reconstruct democratic civil societies in countries that were subjugated to totalitarian rule. The U.S. was and is the model for philanthropic and voluntary efforts. The world is changing, and while there has been limited abuse of charities for political ends, it does not justify the burdensome and overbroad restrictions that have been placed on charitable international grantmaking through so-called Treasury voluntary guidelines without appropriate rule-making notice for public comment and government reflection. However, I think the charitable community must continue the dialogue with Treasury until reasonable rules can be put in place to protect vital national interests and promote international philanthropy to create a viable civil society.”

My take: The situation for Treasury is a tough one. If they back off their guidelines and a terrorist organization gets money from a charity, they will be harshly criticized. So if I’m Chip Poncy (is that his real name?), the answer is simple — I ignore the complaints of the charitable sector now rather than risk getting dumped on later. This may not be the right answer, but in a highly charged political environment, it may be the only logical response.

2 – Weekend Reading

Crossing the Border: A Comparative View of Philanthropy

What follows are the September 24 remarks of Philip T. Hackney, Senior Technical Reviewer, Exempt Organizations Branch 2, Office of Chief Counsel, IRS, Washington, DC, Robert B. Hayhoe, Miller Thomson, Toronto, ON, Susan Mott, Operational Policy & Appeals Liaison, Policy Planning & Legislation, Charities Directorate, Canada Revenue Agency, Ottawa, ON, and Mark B. Weinberg, Weinberg & Jacobs LLP, Rockville, MD, as delivered to members of the EO Committee of the ABA’s Tax Section. The moderators of the panel are M. Elena Hoffstein, Fasken Martineau LLP, Toronto, ON, and LaVerne Woods, Davis Wright Tremaine LLP, Seattle, WA.