Focus on IRS and Treasury

Do EO tax practitioners need to know about section 403(b) plans? Yes and no. Probably enough to respond to a general inquiry about them. I assume that at most large firms the pension experts would step in if a 501(c)(3) client wanted to set up a 403(b) plan. At smaller firms I suppose it would be up to the EO practitioner. In one of my prior lives I actually set up a very simple 403(b) plan, mainly to see if any of the employees were interested.

One of the IRS’s 403(b) experts, Jason Levine, discussed these plans at the recent 47th annual Washington Nonprofit Legal & Tax Conference. I’m reprinting his outline, which readers may find as a check of their knowledge of this area, especially in light of some recent developments.

Section 403(b) Plan Update

1 – Compensation Update

2 – Proposed Regs Address Expanded Statutory Disclosures to State Officials
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1 – Compensation Update

The New York Times has an interesting article today, “Immune to Cuts: Lofty Salaries at Hospitals.” Here are salaries noted at New York hospitals:

• At Bronx-Lebanon Hospital, the chief executive was paid $4.8 million in 2007 and $3.6 million in 2008.

• At New York-Presbyterian Hospital System, the chief executive was paid $9.8 million in 2007 and $2.8 million in 2008.

• At Mount Sinai Medical Center, the chief executive was paid $2.7 million in 2008.

• At North Shore-Long Island Jewish Health System, an executive was paid $2.4 million in 2008

Are these salaries subject to review? According to the Times,

“Under current policies, the State Health Department monitors executive salaries, though much of the compensation data the hospitals provide to the state do not jibe with the tax forms that they must file. In any event, the state does not regulate the salaries, viewing them as decisions that are entirely up to the hospitals’ boards. ‘Basically, the state does not set compensation rates for private businesses, even if taxpayer funding is a major revenue stream,’ said Claudia Hutton, a spokeswoman for the Health Department. ‘We don’t have any authority to set compensation levels or even to advise.’ New legislation proposes to give that authority to the state.”

My comment: All these hospitals are listed in Publication 78, even though the spokeswoman for the New York Health Department calls them “private businesses.” Also, why does “the compensation data the hospitals provide to the state not jibe with the tax forms that they must file”? Are these “tax forms” the 990s?

2 – Proposed Regs Address Expanded Statutory Disclosures to State Officials

The IRS recently released proposed regulations under section 6104(c) of the Internal Revenue Code, as amended by the Pension Protection Act of 2006 (reprinted below). Section 6104(c) expands permitted disclosures to appropriate state officers, ASOs for short. I’ve reprinted section 6104(c) below for those who want to track how the proposed regs follow the statute.

The expansion of section 6104(c) disclosure should be helpful, but unfortunately its impact will be limited to those states that have dedicated charity officials. In addition to charities, section 6104(c) now covers other than section 501(c)(3) organizations, but only to the extent necessary to administer state laws regulating the solicitation or administration of charitable funds or charitable assets.

Query: Did these proposed regulations really require over four years to bring to fruition? And how many more years will it take to make them final?

Yesterday I said I didn’t expect to hear much new from Lois Lerner and Ruth Madrigal at the luncheon program of the EO Committee of the DC Bar, so I was glad both of them were good sports about my negativity. I was mostly right, but there was some new news — and some surprising news that Lois and Ruth didn’t mention. Because of time constraints, I’ll have some of Ruth’s comments in a future email update.

EO Excerpts from Treasury’s Green Book

“Something old, something new, something borrowed, something blue” describes this year’s Treasury/IRS wish list, as set out in the recently-released General Explanations of the Administration’s Fiscal Year 2012 Revenue Proposals. I’m reprinting items that I think are of interest to EO tax practitioners. The entire document is available at: http://www.treas.gov/offices/tax-policy/library/greenbk12.pdf

One item today, and tomorrow no report because —

— the TE/GE area councils meet tomorrow in my hometown of Baltimore featuring Steve Clarke, Matthew Giuliano, Liz Henn, Holly Paz, Johanna Som de Cerff, and Vicky Tsilas, all from the IRS. With luck, I’ll be able to provide readers of these missives with transcripts of what they have to say.

The weather gods seem to hate this annual gathering in Baltimore. Two years ago we had torrential rain, and there was water everywhere. Last year we had one of the major snowstorms, causing the program to conclude early so folks could get to the airport before it shut down. This year we are expecting the skies to remain clear until Friday night, when an “icy mix” is predicted, but hopefully everybody will be on their way by then. Getting here may be the problem for many attendees because of the current weather conditions in their hometowns, but my Chicago correspondents tell me they will make it to Baltimore even if they have to crawl all the way.

So hopefully I will succeed in my mission tomorrow, and recipients of these email updates can read about what was said in the warmth of their own house. (Sorry, I won’t have the transcripts in time for the Super Bowl in case that game turns boring.)

CREW Seeks IRS Investigation of the American Future Fund

1 – Tidings from Boca Raton

2 – Definition Impossible: Minister

3 – The Redaction Blues

4 – Quote of the Month

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1 – Comments of Marc Owens on Yesterday’s Outline on EO Employment Tax Issues

1 – Comments of Marc Owens on Yesterday’s Outline on EO Employment Tax Issues

“Paul, it’s useful to put Michael Glass’ comments on the employment tax project in the larger context of the FY 2011 EO Workplan [available at www.irs.gov/eo]. On page 24 of the Workplan, the National Research Program project is described as involving 1500 randomly selected organizations, not returns, with 500 organizations to be examined in each of the three years of the project’s life. This is in contrast to the reporting of EO audit statistics in the IRS’ Databook, which reports numbers based on returns, not entities.

It’s a shame so much bad blood has developed over the running of the Hershey School. Clearly an independent investigation is needed, and it does not appear it can or will happen in Pennsylvania. Alumni of the School would like the IRS to get involved. I doubt if the EO function of the IRS is up to such a daunting task plus a Democratic Administration investigating what seems to involve mostly Republicans in Pennsylvania may lead to a counter-investigation by the House Ways and Means Committee. Now that Senator Grassley has handed off, at least for the time being, his investigation of media-based ministries, I think he would be the ideal person to look into and report on the situation at the Hershey School. His Republican credentials should shield him from charges of partisan bias, and his reputation for being a man of integrity should shield him from charges of a cover-up if he ends up siding with the current trustees of the school.

For earlier reporting, see Email Updates 2010-147, -149, -156, and -157.

1- Proposal to Limit Retroactive Effect of Revocation

The IRS folks in EO should be happy that they mostly escaped the attention of Nina Olson, the Taxpayer Advocate, last year. Legislative Recommendation #6, reprinted below, appears at pages 391-395 of the National Taxpayer Advocate’s 2010 Annual Report to Congress.

2 – Comments on Bond-Financed Grants

Our friends in the tax-exempt bond community give us one more thing to worry about. For their letter to the IRS, see below.

1 – Love is in the Air — Baucus May No Longer Check “Single” Box

2 – No More Free Lunches and No Cyber Assistant in 2011, But Rulings Remain a Steal at $10,000

1 – 501(c)(4) Requirements

3 – Revised Pub 557 Provides Practitioner Quiz

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

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