Transcripts (ABA EO Committee)

1 – IRS — AWOL on Politicking?

2 – Political (c)(4)s and the Gift Tax

Today I have a transcript of the second panel of the October 21 meeting of the EO Committee of the ABA’s Tax Section. In case you missed it, a transcript of panel one was emailed yesterday. 

Exempt Organizations and Healthcare Reform under the Patient Protection and Affordable Care Act

1 – Rest in Peace

2 – The EOTJ Mailbag

3 – News from the IRS and Treasury

On Tuesday I received a response to my request for a current list of Exempt Organizations (HQ) personnel. If anyone sees any errors or omissions on this list, please let me know. Yesterday I went to the D.C. Bar program on “How the Taxpayer Advocate Can Assist Tax-Exempt Organizations with the IRS,” and I hope to have a transcript of this program in the near future.

IRS National Office Phone Numbers and Email Addresses
September 2011

Now that everyone is an expert on “blockers,” it’s on to “Practical Problems and Practical Solutions for Private Foundations,” which was the title of the last panel before the cash bar at the May 6 meeting of the EO Committee of the ABA’s Tax Section. Today I’m sending along the materials prepared for this session, with the transcript to follow “soon” — normal time, not IRS time.

1 – Call for Con Law Help Answered

As promised last week (see email update 2011-109), I begin this short week with a transcript of the panel discussion on “Update on UBIT Blockers” from the May 6 meeting of the EO Committee of the ABA’s Tax Section.

1 – More on EO CPE Textbook Chapters Being Excreted, Exorcised, Expurgated, Expunged, and Expelled

2 – Joint EO Subcommittees Transcript

As promised yesterday, today I have the transcript for the sixth and final panel of the January 21 meeting of the EO Committee of the ABA’s Tax Section. Yesterday I sent out the handout for this panel, which I’m sure everyone has now read. Speaking of reading assignments, I recommend Stephanie Strom’s article in today’s New York Times, “IRS Takes on Tax Abuse by Charity Support Groups.”

As you read the panel transcript, you will see that joining the list of those having made the now notorious bar quip is Doug Mancino, joining an exclusive club of EO notables (set out below). As I mentioned last year, the first few times I thought it was cute, but finally I said enough, that future references would be compiled. As I print out the remarks of recent honorees, I now wonder, who will rise to the occasion and make a bar quip come May? Or is mostly a January phenomenon, as reflected in the following list?

January 21, 2011 meeting: “This is the last panel between you and the bar so I’d like to keep us on time but fortunately for us Fred [Gerhart] has put a wonderful topic that will keep you glued to your seats and away from the bar during the next hour….” (Doug Mancino)

January 22, 2010 meeting: “I know it’s very hard to be on a panel that is followed by a cash bar….” (Elaine Waterhouse Wilson)

September 25, 2009 meeting: “We are now to our last panel of the day, the only panel standing between you and the cash bar.” (Fred Gerhart)

January 9, 2009 meeting: “Our last panel of the day and the last panel standing in the way of the cash bar is now approaching.” (Mike Clark)

May 9, 2008 meeting: “… hopefully we’ll hear from you either at the mike or, if it gets too close to five, out at the bar.” (Sarah Hall Ingram)

January 18, 2008 meeting: “We’re the last panel standing between you and the cocktail hour….” (Mike Clark)

Speaking of Doug Mancino, he is truly one of the giants of the EO bar, but I do have to take issue with one statement of his at the January EO Committee meeting (transcript reprinted below) where he said: “I saw the recent statistics from the IRS showing audit rates for all taxpayers. It was kind of interesting because the audit rate for nonprofit or tax-exempt organizations was, I believe, 3.7 percent….”

I’m not sure where Doug gets his 3.7 percent figure, but there is a wide disparity between his figure and the figures we’ve batted around recently in these email updates. Here’s what I said in Email Update 2010-185 (12/16/10) about audit information provided by the IRS:

“The graph [that is set out in the current IRS workplan] tells us that in FY 2009 — of 16,960 returns examined — 6,773 pertained to compliance checks and 10,187 pertained to traditional examinations. These figures sound like a lot, but we know, thanks to Sandy Deja and Marc Owens, that these figures need further examination. In my November 18 email update, Sandy points out that, of those 10,187 returns examined, only 3,445 were Forms 990 and 990-EZ. The rest were mostly employment tax returns (4,582) and 990-Ts (962). We also know, thanks to Marc, that most audits involve more than one year, so an audit of one organization may involve multiple 990s. My best guess was that this translated to 1,723 organizations being subject to a traditional audit in FY 2009. Marc was not as precise, estimating 1,500-to-2,000 audits. Regardless, we are talking a .002 audit rate, not 2 %, but .2 %, pretty close to infinitesimal, especially when you exclude targeted audits described later in the [IRS] report. So, my comment is that the IRS is leaving out some important data that the public may find of interest. Perhaps next year the report can include a statement that, out of an EO universe of 1.8 million entities, of which 1.2 million are (c)(3)s, only about 2,000 are subject to a traditional audit, and only about 1,000 are subject to a compliance check.”
____________________________

Update on Executive Compensation and Intermediate Sanctions

What follows are the January 21 remarks of Robert W. Friz, PricewaterhouseCoopers, Philadelphia, and Ralph E. DeJong, McDermott Will & Emery, Chicago, as delivered to members of the EO Committee of the ABA’s Tax Section. The moderator of the panel is Douglas M. Mancino, McDermott Will & Emery, Los Angeles.

The University of North Carolina Tar Heels’ 16-point lead wasn’t enough, as Duke won last night’s battle of central Carolina. Maybe UNC was distracted by its IRS audit.

1 – Correction

Yesterday I noted Lawrence Wright’s 24,000 word article in the current issue of the New Yorker about the Scientologists. I made the following comment: “Somewhat surprising, at least to me, is that nowhere in the 24,000 words is there any mention of the church’s battles with the IRS or the eventual IRS capitulation.”

One of my eagle-eyed readers said not so fast, and pointed out the following paragraph in the article:

“The Church of Scientology had recently gained tax-exempt status as a religious institution, making donations, as well as the cost of auditing, tax-deductible. (Church members had lodged more than two thousand lawsuits against the Internal Revenue Service, ensnaring the agency in litigation. As part of the settlement, the church agreed to drop its legal campaign.)”

So let me correct myself. Out of approximately 24,000 words, 55 words addressed the Scientologists’ battle with the IRS. That’s less than 1% of the story (.002), so I still consider that a significant omission if the objective of the article was to give readers a full understanding about the “church” and its history. I’ve read that the article is a prelude to a book, so maybe the battle with the IRS will receive more attention there.

My concern with the IRS’ recognition of the Church of Scientology has always been that it legitimized the organization, so that people who might have been skeptical about joining were reassured by the IRS’ recognition. The Church also used the IRS’ recognition as proof that it was a legitimate institution, able to say that the IRS saw it as no different from any other church. I’ve never thought that the evidence supported such a conclusion; instead, as the New Yorker article documents, the group appears to be more in the nature of a cult. And, lest we forget, the IRS ignored the Supreme Court’s decision in Hernandez in order to legitimize payments for services as tax-deductible contributions.

2 – Transcript of the Fifth Panel of the January 21 Meeting of the ABA’s EO Committee

Editor’s note: The handouts were sent out in yesterday’s email update.

Give It Back: Donor Fraud, Bankruptcy, Remorse or Mistake

1 – The EOTJ Mailbag

Paul, Lois Lerner recently said she did not know how many entities from the “At-Risk” list actually filed Form 990-Ns during the Voluntary Compliance Program. (See Email Update 2011-21.) I compared the EINs on the At-Risk list to the EINs on an October 15, 2010 list of filed 990-Ns. There were nearly 50,000 matches, indicating organizations that filed a 990-N sometime after the At-Risk list was issued. In other words, about 50,000 organizations listed on the original At-Risk list filed a 990-N during the VCP, thereby saving their exemptions. EO’s hard work to get the word out clearly helped a lot of small nonprofits save their exemptions.

Sandy Deja (exempts@aol.com)

Editor’s Note: Sandy, an Alaska accountant, is the author of the e-books, Prepare Your Own 501(c)(3) Application, and Regain Your Tax Exempt Status and Other Options After IRS Automatic Revocation, both available at www.501c3book.com.

2 – Transcript of Panel Four of the January ABA EO Committee Meeting

Employment Tax Issues in EO Audits

What follows are the January 21 remarks of Ann K. Batlle, Morgan, Lewis & Bockius LLP, Washington, Nancy O. Kuhn, Jackson & Campbell, Washington, and Michael D. Glass, Group Manager, Team Examination Program, Exempt Organizations, IRS, Fort Lauderdale, Florida, as delivered to members of the EO Committee of the ABA’s Tax Section. The moderator of the panel is Michael A. Clark, Sidley & Austin LLP, Chicago.

1 – Rare Clear Day Welcomed Attendees of Joint Meeting of TE/GE Area Councils

Last Friday, as planned, I went to the joint meeting of TE/GE area councils in Baltimore. In the not too distant future — the IRS and Treasury have ruined the use of the word “soon” — I hope to have transcripts of most of the sessions, so I won’t bother with summaries now.

I can say there were no shocking developments, nothing like in 2007 when Marv Friedlander handed out the very first draft of “Good Governance Practices for 501(c)(3)s” and a riot broke out, with the Baltimore police having to be called to restore order.

Friday’s program began with the IRS’ Holly Paz rehashing Lois Lerner’s January 17 ABA remarks (reprinted last week in Email Update 2011-21) . If Lois doesn’t watch out, she may have competition for best “rehasher.” Holly did affirm what was last week’s hot topic — that PTINs (Preparer Tax Identification Numbers) will be required if you prepare or help prepare a Form 990, 1023, or 1024. If this is news to you, see Notice 2011-6, “Implementation of Rules Governing Tax Return Preparers.”

The next IRSer on the podium was Matthew Giuliano, who discussed the three-year revocation cases. He promised that answers to all questions will be answered shortly on the IRS website, but in the meantime keep filing those e-Postcards (and Form 1023s, if now necessary).

The IRS’ Steve Clarke discussed the topic that has made him famous, the new Form 990. (How soon we forget Ron Schultz!) I’ll have to check the transcript, but I think Steve was the IRSer who said the governance questions are here to stay, and so stop complaining (or words to that effect).

I was glad to see two IRS bond people on the program, since I have been arguing for years that EO practitioners need to be aware of post-issuance compliance, which is generally ignored by hospitals and universities. In addition to this session, I hope to have a transcript of the recent ABA Tax Section program on “Practical Approaches to Implement Post Issuance Compliance after Issuance of Tax-Exempt or Direct Pay Subsidy Bonds,” so everyone can become a bond expert (or at least know enough to fill out Schedule K).

The session on EO tax compliance must have been too hot for the IRS to handle, as their designated speaker was unable to attend, but private practitioners Gerry Griffith and Joyce Hellums did their best to scare everyone into full tax compliance.

There was one final session on Circular 230, but I had to go home and feed the cats, so I’m afraid hungry cats won out over your professional responsibilities. Sorry about that.

2 – Transcript of the Third Panel of the January Meeting of the ABA’s EO Committee

Today’s transcript of the second panel of the January 21 meeting of the EO Committee of the ABA’s Tax Section relives a battle we had in these missives last year. On May 18, 2010, the IRS extended the filing deadline for many small organizations that had, under the law, lost their tax-exempt status as of May 17, 2010 for failure to file the Form 990-N (e-Postcard). I referred to this as the “Oh, never mind” notice in honor of SNL’s Emily Litella in Email Update 2010-72. The IRS notice set off a flurry of commentary (see Email Updates 2010-73,  -74, and -75).

Turning to the recent panel discussion, I’m inclined to agree with Victoria Bjorklund that “exemption is a privilege and so if you’re going to get it, you should be able to do something as simple as the 990-N filing.” The way I see it, section 501(c)(3) exemption is the greatest gift the IRS can give anyone. Forgetting UBIT, you can set up an organization that is not subject to income tax nor lots of other taxes and you can give this organization tax-deductible contributions. What a deal!

On the other hand, I’ve recounted in these pages the story of the late Dorothy Day and her Catholic Worker Movement. For those coming in late, the IRS in the seventies went after her for not filing Form 990s. Her response: “I’m too busy helping the poor; I have no time for filling out government forms.” Well, the New York media took this story and ran with it, contrasting the saintly Dorothy Day with the heartless IRS. Not the kind of publicity the IRS needs.

So the battle continues today in the guise of whether small, do-good organizations should be expected to file even something as simple as a Form 990-N or whether we should just leave them alone. The ABA panel discussion, reprinted below, is only the latest iteration of this debate.

As promised yesterday, today I’ll start sending out transcripts of the recent meeting of the EO Committee of the ABA’s Tax Section. The first panel is always “News from the IRS and Treasury.” I find what the IRS and Treasury folks don’t say or what they imply is often more interesting than what they actually say.

Here’s what I got out of what they had to say:

One, health care is where the action is — and where recognition and promotions lie if you work at the IRS. Everything else is now taking a back seat to the Affordable Care Act.

Two, would the last person leaving please turn out the lights? In the TE/GE Commissioner’s office, Sarah Hall Ingram has gone to you know where and Joseph Grant, an EP man, is acting. Acting at the IRS usually means you do little or nothing, since you are mostly just a placeholder. In Chief Counsel, Cathy Livingston has also made the move to health care, leaving us with another EP person, Nan Marks. Meanwhile, Lois Lerner has a full staff with nothing much to do, except “collaborate.” Over at Treasury, Ruth Madrigal is discovering why Emily Lam left.

The resulting unhappy situation is that at the top leadership rungs of Treasury and IRS, there is no one with a forceful personality and the clout to push EO matters. The best example of total dereliction of duty is the failure to finalize the section 7611 regulations, which would take all of five minutes if there were any leadership. Incredibly, there was no mention of these regulations at the EO Committee meeting. I guess that train wreck is old business or best forgotten.

But who am I to say? Here’s the transcript of what transpired, so you can make up your own mind as to what they were really saying.

Last week I sent out the EO Subject Matter Directory (Email Update 2010-174) and, before that, the EO Division roster (Email Update 2010-171). In response, I got this missive from an IRS employee:

“Don’t cite my name (just call me T), but your information is outdated. Several of the individuals listed are managers and do not answer questions and others no longer work in EO.”

My response: The roster information is based on a listing of EO Division personnel dated September 7, 2010, sent to me by the IRS in response to a FOIA request. If managers do not answer questions, this is a new development. Unfortunately, my efforts this year to get information from Rob Choi about how the IRS handles practitioner phone calls has been met with overwhelming silence. As far as I can tell, there is no policy. Some folks return phone calls, some don’t. I say call and hope for the best.

Today I’m sending out phone numbers of EO field personnel. Here I’ll agree with T that some percentage of the information is outdated. Getting information out of the IRS about personnel in Determinations and Examinations is very difficult. My choice is to publish nothing or publish what I have. Here I believe something is better than nothing, but don’t expect 100% accuracy — maybe 80% accuracy is what I have.

Even though the IRS won’t confirm whether or how it will respond to phone calls, the EO Subject Matter Directory is a valuable resource, but those of us who have worked at the IRS know that some practitioners abuse the opportunities presented. Here are six rules of the road that everyone should abide by. Observing these rules might make the IRS folks more willing to return phone calls:

One, don’t call if you haven’t done your homework. It is not the IRS’ job to explain the basic intricacies of a Code section and the accompanying regulations.

Two, don’t expect to get definitive answers. If you’re lucky, someone at the IRS will make suggestions as to how you might proceed or warn you off certain approaches.

Three, do not later tell revenue agents someone at the IRS National Office has approved a course of conduct or a transaction during a telephone call. If you need a ruling, spend the $10,000.

Four, do not shop around among tax law specialists for a better opinion. The folks at the IRS usually become aware of someone going down their phone list.

Five, limit your phone calls. Calling more than once a month is probably too much.

Six, don’t push your weight around if you are a big shot as this often backfires either immediately or in the long run.

Today we have the intricacies of expenditure responsibility. Now if only the U.S. Government practiced expenditure responsibility, we wouldn’t need a national debt commission!

Expenditure Responsibility: Ten Puzzling Practical Problems

What follows are the September 24 remarks of Jerry McCoy, Law Office of Jerry J. McCoy, Washington, and Andrew C. Schulz, Council on Foundations, Arlington, Virginia, as delivered to members of the EO Committee of the ABA’s Tax Section. The moderator of the panel is Robert A. Wexler, Adler & Colvin, San Francisco.

A lot of fans of the Washington Redskins are going to be grumpy today, with the wheels coming off the bus after a loss that had been already counted as a win when the weekend began. I’m sure the Republicans aren’t expecting any such result tomorrow. To mark election day, I’m sending along the transcript of the recent ABA panel on the implications of Citizens United on exempt organizations. 

Citizens United: Implications of Corporate Political Free Speech for the EO Sector

What follows are the September 24 remarks of Greg Colvin, Adler & Colvin, San Francisco, Beth Kingsley, Harmon Curran Spielberg & Eisenberg, Washington, and Holly Schadler, Lichtman Trister & Ross, Washington, as delivered to members of the EO Committee of the ABA’s Tax Section. The moderator of the panel is Rosemary E. Fei, Adler & Colvin, San Francisco.

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.

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.