Senate Tax Reform Working Groups Release Reports
The Senate Tax Reform Working Groups released their reports this week. The five groups were organized by Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) to assess needs and priorities for future tax code reform. They’ve been meeting for several months. Along the way, we’ve heard varying reports on their progress, with the deadline for these reports extended from the initial May date.
As expected, the working group reports took shape as a means for presenting options for tax reform rather than concrete proposals. They do not make firm recommendations. Included as options in the Individual and Business Working Group reports are many of the provisions the Council has been urging lawmakers to consider—including:
- Making permanent the IRA charitable rollover,
- Simplification of the private foundation excise tax,
- Mandatory E-filing of the Form 990, and
- Enhanced deductions for contributions of food and conservation easements.
For more information on the provisions in the report impacting philanthropy, see the Council’s summary. The Council will continue to engage with policymakers to convey the importance of philanthropy.
"Tax Extenders" Action in Senate Next Week?
This past Tuesday, Chairman Orrin Hatch (R-UT) of the Senate Finance Committee reported that he may work to advance the expired “tax extenders” and tax credits as soon as this month.
Remarks from Finance Committee member, John Thune (R-SD) indicated that a markup for a “tax extenders” bill is likely in the near future—perhaps as soon as July 21st. Further, Sen. Thune commented that he suspects this extender package would resemble the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act of 2014, a bill proposed in the Senate last year which would have extended these provisions for two years.
These advancements would mark the first step in the process to renew these provisions before the year’s end. Of course, the bills advanced by the House, including The America Gives More Act, would have made some tax provisions including the charitable tax extenders permanent (as opposed to another extension.) The Senate and House strategies would need to be reconciled if the House continues to advance efforts at permanence. The Council will continue to follow this issue closely, and we will inform you of any new developments.
Proposed Changes to the Fair Labor Standards Act (FLSA)
Last week, the Department of Labor (DOL) announced its proposed changes to the regulations issued under the Fair Labor Standards Act (FLSA). Specifically, these changes address exemptions for overtime compensation of executive, administrative, professional, computer, and outside sales employees—often referred to as “white collar exemptions.”
Nonprofit employers are subject to regulations under the FLSA, and if adopted, these changes would impact the way nonprofits are able to compensate their employees for work in excess of 40 hours per week.
Under the current framework, any nonprofit employee that fits into one of the “white collar” categories listed above and is earning $455 per week ($23,660 per year) or more is exempt, or ineligible, from receiving overtime compensation—unless the state in which the employer resides sets a higher minimum for exemption. The DOL’s proposed change would raise the minimum weekly salary to $970 in order to classify exempt ($50,440 per year). Ultimately, this would make fewer professional, or “white collar,” nonprofit employees eligible to receive overtime compensation. For more information about employee classification, visit this page, hosted by our colleagues at the National Council on Nonprofits.
If you are interested in submitting comments regarding this proposal, the comment period for this will end on September 4th. Click here for more information.
IRS to Process Form 990s Digitally by 2016
In the wake of court cases requiring it to release electronic versions of Form 990 data, the IRS announced on June 30th that it should be equipped to make e-filed 990 data electronically available by early 2016.
“The IRS has been actively considering how to incorporate new technology into its exempt organization return processing capabilities in order to better support the exempt organizations and those who use the Form 990 data. The IRS has made substantial progress in developing a technology solution that, when perfected, will allow the IRS to provide electronically-filed Form 990s in a machine-readable format. This solution will ensure that sensitive or personally identifiable information continues to be protected from public distribution,” the IRS said in its statement.
As our readers will recall, 990 e-filing has gained momentum over the past few years, with proposals put forth by former House Ways and Means Chairman Dave Camp and the Obama Administration. And, our colleagues with the Aspen Institute’s Program on Philanthropy and Social Innovation have been calling for machine-readable Form 990 data through the The Nonprofit Data Project.
For more on the Council’s take on electronic Form 990 data, please see our issue paper on this topic.
FASB Issues Exposure Draft for Proposed Changes to Nonprofit Accounting Standards
The Financial Accounting Standards Board (FASB) is an organization, designated by the Securities Exchange Commission (SEC), as the authoritative entity responsible for establishing financial accounting standards for nongovernmental organizations. It typically solicits input from the field on proposals that would change the standards that would govern the preparation of financial reports.
Last week, FASB issued a second wave of guidance, in the form of FAQs, regarding the proposed update to nonprofit financial accounting standards that was released in April. Comments will be accepted for this exposure draft through August 20th. See here for more information.
Do Foundations Owe Fiduciary Duties to Donor Advisors?
The concept of fiduciary duty is a fundamental principle in agency relationships in nonprofit organizations. Fiduciaries are obliged to discharge their duties of care and loyalty in good faith and with reasonable belief that their actions are in the beneficiary’s best interest.
Recently, a community foundation was asked by a prospective donor what fiduciary obligations, if any, the foundation owes its fund advisors. They reached out to Legal Affairs for guidance.
There are no other duties or obligations owed to advisors other than any contractual-type promises the community foundation makes in a fund agreement. The fund agreement should describe the donor’s advisory privileges regarding distributions and investments of the fund consistent with IRC § 4966, and the foundation should honor that right to the extent possible.
But anything more than honoring that advisory right, the legal team cautioned, may set a dangerous precedent. When funds are transferred to a community foundation, they become the property of the foundation. In that regard, neither a donor nor an advisor is equivalent to an investor or shareholder because the fund assets do not belong to the donor. The fund agreement should clearly state the irrevocable nature of the funds, quashing the suggestion that the foundation has any type of fiduciary duty to the donor or advisor.
For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs team at email@example.com.
Access to the Council’s legal team is a valuable member benefit. Council attorneys are available to discuss your legal questions and to provide legal information by telephone, email and through our various publications and newsletters. This information is intended for educational purposes and does not create an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.
Exclusive from our colleagues at the National Council of Nonprofits.
New Jersey Judge Upends Nonprofit Hospital Property Tax Exemption
The financial and business dealings of a major nonprofit hospital in New Jersey are too profit-oriented to deserve property tax exemption under state law, a judge ruled last month. The opinion, which the judge suggested likely could be applied to all 72 nonprofit hospitals in the state, found that the operations of Morristown Medical Center and other nonprofit “hospitals have changed significantly… from their early origins as charitable alms houses providing free basic medical treatment to the infirm poor."
Of clear concern to the judge were the facts that health care professionals at the nonprofit hospital earned salaries that were competitive with their for-profit counterparts, and that private for-profit professionals earned profits on hospital grounds. The judge essentially ruled that times have changed, disallowed a longstanding tax exemption based on state law, and challenged the Legislature to change the law if it disagreed.
The case will likely be appealed on numerous grounds, including the judge’s decision to apply a new standard on nonprofit compensation that disregards IRS procedures and safe harbors. Hospital officials have said that payments for property taxes will reduce current "community benefits" such as charity care, Medicare services, training for future physicians, and operations at a local children's hospital.
Earlier this year, the same judge ruled against Princeton University in its petition to end a lawsuit filed by residents seeking to overrule the university’s property tax exemption. For the latest news, see the New Jersey Center for Non-Profits.
Council Submits FATF Comments
As our readers know, the Council has been actively engaging with the intergovernmental Financial Action Task Force (FATF) this year as they have taken steps that could shift the global regulatory environment for cross-border philanthropy.
FATF has a large impact on nonprofit activity worldwide because of its recommendation for anti-terrorist financing regulation of nonprofits, along with its Best Practices Paper for complying with the recommendation. For example, a recent FATF-inspired Mexican law, the subject of a Council conference call last week, places new burdens on grantmakers and grantees in Mexico.
Starting in the fall of 2015, FATF will undertake an evaluation of U.S. laws and regulations on counterterrorism, including those that affect cross-border philanthropy. The Council has recently taken action to engage FATF on behalf of U.S. grantmakers:
- FATF Secretariat Memorandum. Working with the Charity & Security Network as a valuable partner and co-signatory, on Monday the Council submitted a memorandum to the FATF Secretariat in advance of the U.S. evaluation to acclimate the FATF U.S. evaluation team to counterterrorism laws and regulations that impact the work of U.S.-based nonprofit organizations (NPOs). We also offered to meet with the evaluators when they arrive in the U.S. and convene a representative group of U.S. nonprofits and grantmakers to advise the team. You can read the full memorandum to the FATF Secretariat, along with the cover letter, here.
- Formal NPO Engagement with FATF. Last month, the Council, the European Foundation Centre, WINGS, and DAFNE co-signed a letter to the FATF President requesting adoption of a formal engagement process with the global nonprofit sector. At its June plenary, FATF agreed to formalize its engagement with NPOs, stating: "The FATF is committed to continuing a constructive engagement with NPOs on these important issues, and will continue doing so on an ad hoc basis, as needed, to facilitate its technical work. The FATF also agreed to enhance its engagement by holding an annual discussion with NPOs on specific issues of common interest."
Also at the June plenary, FATF implemented its revised Best Practices Paper on Recommendation 8 for combatting the diversion of charitable funds to terrorist purposes. This final version incorporates nearly all revisions put forth by NPOs globally, including the Council, and is a positive development for the sector.
The Council will continue to work with both FATF and U.S. policymakers on this and other global regulatory issues, and will keep you informed of important developments.
Council Hosts Webinar on Grantmaking in Mexico
On July 1, the Council on Foundations hosted a members-only conference call on Opportunities and Challenges for Grantmaking in Mexico. There were 46 participants registered to join the conversation, during which experts on grantmaking and civil society in Mexico shared their views on Mexican regulations. Specifically, the speakers addressed the effects of the Mexican anti-money laundering law. They also elaborated on how their respective organizations have chosen to navigate the Mexican philanthropic landscape.
You can read a summary of the conference call and download a full recording on the Council's website. There are also links to a variety of resources for understanding the Mexican laws and operating effectively in Mexico.
Charitable Giving Coalition Circulates Letter to Presidential Candidates
As our readers know, The Council is long-time, active member of the Charitable Giving Coalition—a group of organizations dedicated to preserving the charitable deduction. In a collaborative effort, this group recently drafted a letter that will be circulated to various presidential candidates.
The letter is intended to inform these candidates of the important role philanthropy plays in their communities, and to encourage them to consider the impact that a change to the charitable deduction could have as they consider different policy issues over the course of their campaigns.