Focus on IRS and Treasury

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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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?

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

A case filed on Wednesday, August 25, 2010, is attracting national attention, probably for all the wrong reasons. As a service to readers, I’m sending out a copy of the complaint (reprinted below) in the case of Z Street v. Shulman.

While I do not have any independent knowledge of the truth of the complaint’s allegations that there is “a special IRS policy in place regarding organizations in any way connected with Israel, and further that the applications of many such Israel-related organizations have been assigned to ‘a special unit in the D.C. office to determine whether the organization’s activities contradict the Administration’s public policies,’” I find these allegations hard to believe. I’ve been told that both the IRS Commissioner, Douglas Shulman, and the Director of Exempt Organizations, Lois Lerner, are Jewish and, even if not, I have too much respect for them to think that they would stand idly by while a “special unit” was put in place to administer an “Israel Special Policy,” as detailed in the Complaint. In view of the extreme sensitivity of these charges, it seems to me that the IRS must make a public response.

On Thursday, I said my job as an editor is to separate the wheat from the chaff. But what am I supposed to do if there is no wheat? TIGTA’s latest report, “Review of the Internal Revenue Service Criminal Investigation Division’s Non-Profit Fraud Referral Process,” (reprinted below) may have had some merit when it began, but it quickly became a road to nowhere. Even its intended recipient, CID, said thanks but no thanks. I’m reprinting the report on the wan hope that perhaps its statistics may be of interest to someone, or that someone can explain why this report should not be dismissed as make-work.

My job as an editor is to separate the wheat from the chaff. If you’re involved with section 527 political organizations, then you probably should read the following TIGTA report. If not, here’s all you need to know: First, as many as one out of every four Forms 8872 filed with the IRS have incomplete or missing contributor or recipient information. Second, the IRS is not following up on information it has requested from political organizations to verify compliance — even if the organization ignores the IRS request for information. You could say this is a truly voluntary compliance system.

TIGTA Report on Section 527 Compliance

Improvements Have Been Made, but Additional Actions Could Ensure That Section 527 Political Organizations More Fully Disclose Financial Information

We’re all familiar with section 501(c)(3), (c)(4), and (c)(7) organizations, but a big problem comes when we have an organization that straddles these sections. Some wags call (c)(3) the no-fun section — too much fun and you are a (c)(4) or (c)(7). In the PLR I am about to discuss, the organization even agreed not to promote fun or camaraderie, but to no avail.

1 – Hospital Groups Seek Schedule H Reporting on Consolidated Basis

2 – Annual ABA Guidance Wish List

All I can say is, hope springs eternal.

1 – Lois Lerner Addresses NACUBO

2 – HFMA Weighs In on New Requirements
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1 – Lois Lerner Addresses NACUBO

According to Bloomberg News, the IRS’ Lois Lerner, Director, Exempt Organizations, told the National Association of College and University Business Officers that nonprofit colleges and universities may be failing to report the full extent of their unrelated business taxable income to the Internal Revenue Service.

1 – Old Business

In regard to last Thursday’s email in regard to Revocation 201025083, I have been informed by the IRS that it has been pulled and replaced with a corrected version. You are to pretend that you never read “Second Chance Foundation” in the earlier version.

1 – Georgia on My Mind (or at least the IRS’)

2 – Today’s D.C. Bar Program to Discuss C&U Interim Report
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