Focus on IRS and Treasury

I’m sending along two recent comment letters on the proposed supporting organizations regulations, one from the ABA’s Tax Section and one from Ruth Madrigal of Caplin & Drysdale. These letters join many others that have been submitted. What I notice — and correct me if I’m wrong — is that all the comment letters are from or on behalf of supporting organizations. It’s too bad supported organizations seem left out of the conversation. I suspect the National Committee for Responsive Philanthropy, for example, does not have the resources to hire an advocate to argue on behalf of supported organizations.

What I call ideological cases are among the most difficult cases the IRS’ EO Division must wrestle with. The Freedom Alliance, subject to a complaint letter by CREW (see below), features Newt and Ollie, two guys who are no strangers to the EO area. Can a Democratic Administration be trusted to handle a case of this nature?

Unfortunately, the IRS — in particular, its EO Division — appears to be in disarray when it comes to handling sensitive cases of this nature. For example, the latest PACI report is now over a year late. Equally troubling is the fact that the operations of the EO Division are becoming less and less transparent as it increasingly hides behind section 6103, the argument apparently being that section 6103, which now takes up 41 pages in the Internal Revenue Code (CCH edition), has become so complicated that no one at the IRS can know what can and cannot be released. At the same time, sections 6104 and 6110 are being increasingly ignored. Where is Sarah Palin — or is that Tina Fey? — when we need her most to shed some light on what is going on in Washington?

The Council on Foundations has talked a lot over the years about a centralized equivalency determination information repository, EDIR for short, and now wants Treasury (and I assume IRS) approval and guidance. I have no objection per se to EDIRs, but the proposal does highlight the need for guidance and clarification in what I consider a confused area of EO tax law.

COF, in its letter, reprinted infra, states: “It is well-established that an organization may further charitable purposes by providing a resource that supports or increases the efficiency of charitable work conducted by other organizations.” Well, yes and no. It seems to me this area of EO tax law has become confusing as to when an organization seeking 501(c)(3) status can gain it by helping other 501(c)(3)s on a fee-for-service basis at market rates. Sometimes the IRS says it’s okay, other times no. According to the COF letter, “Fees are only a bar to charitable status if, in their specific context, they negate the organization’s charitable purpose or indicate a substantial nonexempt purpose.” That sounds pretty close to “anything goes” to me. Maybe that should be the standard, but is it the standard now? If so, who set the standard, and where is it set forth?

In the old days, issues raised in the COF letter might have merited a GCM analysis by the Office of Chief Counsel. Today, GCMs are gone — to quote TE/GE Commissioner Sarah Hall Ingram, “I haven’t seen one in years” — and supposedly nothing has replaced them. As I’ve said before, equally mystifying is what folks in Counsel do do — I’m told I’m not the only one who has this question. I’m sure Cathy Livingston finds this question annoying, but perhaps she could address this in her May 7 remarks to the ABA.

Also in the old days, issues raised in the COF letter might have been the subject of a Technical Issue Meeting in the EO Division, but I’m told TIMs have gone the way of GCMs. I suppose it’s no wonder that Janne Gallagher directed her letter and her efforts to Treasury, since she probably concluded that no one at IRS would be willing to tackle the technical tax issues she is raising in her letter.

If anyone would like to address the technical tax issues raised in the COF letter, please do so. I don’t pretend to know the answers, but I suspect I’m not the only one confused as to what the law is — or should be — in this area.

For those of us who are not health care tax specialists, Milt Cerny sends along his firm’s explanation of the new legislation impacting tax-exempt hospitals. Marc Owens and members of Clergy VOICE supplement their February 23 letter to IRS Commissioner Douglas Shulman in a March 29 letter. For the earlier letter, see EO Tax Journal 2010-31, dated 2/24/10.

1 – Henry Ford II on the Ford Foundation

2 – Two EO Items Added to Priority Guidance Plan

In my opinion, the latest TIGTA report, reprinted below, describes a train wreck. The IRS might prefer perfect storm. The bottom line is pretty much the same — a story of failure.

1 – Coming Attractions

2 – AHA Concerned About Schedule H “Flaws”
___________________

1 – Coming Attractions

27th Annual “Representing & Managing Tax-Exempt Organizations” Conference
April 22-23, 2010, Washington, D.C.

Marc Owens, in a recent letter, reprinted below, is protesting a denial by the IRS Office of Appeals of his request for technical advice. Hey, the IRS already did its technical advice for the year (TAM 201005061). Two TAMs in one year? That’s asking a lot.

For those of you who live and die the Form 990, you probably spent the weekend studying the revised 2009 Form 990, schedules and instructions, posted last week by the IRS. For the rest of us, it’s more a matter of what we care about. What struck my fancy were two statements in the IRS announcement of significant changes, reprinted in its entirety below.