Treasury, IRS Withdraw Proposed Rule for Gift Substantiation
Yesterday, the Treasury Department and the IRS announced it has withdrawn the proposed rule that would have created an alternative way for charitable organizations to acknowledge and substantiate gifts using taxpayer identification information.
As our readers know well, this proposed rule was concerning for several reasons and disliked by many in the sector. The Council submitted comments voicing these concerns, as did many others in the sector including the National Council of Nonprofits and Independent Sector.
Our concerns were also heard on Capitol Hill. Just before the 2015 Congressional session ended, bills were introduced in both the House (a second one, as well) and Senate to prohibit IRS funds from being used to advance the implementation of such a rule.
The withdrawal of this rule is a positive achievement, and a wonderful demonstration of the collective influence we can leverage as a charitable sector unified around policy issues.
DAFs & Child Sponsorship to Charities
A common question that comes to the Council is whether a donor advised fund (DAF) distribution may be made to support a named, individual child through a charity such as Save the Children, Unbound or World Vision.
The legal team believes that—generally—such grants are permissible.
We know the Pension Protection Act (PPA) expressly prohibits donor advised funds from making grants to individuals. However, these charities generally run their “child sponsorship” programs as a way to garner support for their broader programs. Of course, the legal team encourages foundations to conduct their own due diligence on these charities. We’ve found that most child sponsorship organizations combine the donations received for the greater good rather than give money to any one individual child. The sponsoring of a child is more symbolic in nature. Therefore, making a grant from the donor advised fund would not violate the PPA’s prohibition on grants to individuals.
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.
State Policy Action in 2015 Predicts Focus Areas in 2016
Foundations and nonprofits faced a dozen or more public policy trends at the state and local levels in 2015 that carry over into the New Year, according to a new report from the National Council of Nonprofits. Observing that “what’s past is prologue,” 2015-2016: Years in (P)Review first highlights the challenges and threats (Clear and Present Dangers section) the philanthropic and nonprofit communities faced in 2015 that are likely to carry over into 2016.
Among the challenges, state and local governments are turning with greater frequency to tax-exempt organizations seeking new revenues, whether by challenging long-standing property tax exemptions, levying new taxes and fees, or demanding “voluntary” payments in lieu of taxes (PILOTs). As a result of budget shortfalls or partisan gridlock, foundations and nonprofits are increasingly being called on to subsidize government services, absorb new burdens, or wait for reimbursements that can be late by six months or more. The near-loss of charitable deductions in five states was well documented throughout 2015. Perhaps the sleeper issue for 2015 that continues today is the disregard by state governments of nonprofit independence that can lead to burdensome regulation and intrusions into board autonomy if unchecked.
The “Years in (P)Review” report also identifies areas of progress for the sector in many parts of the country (Opportunities Abound section). Throughout this past year, foundations, nonprofits and governments learned of the game-changing impact of the federal grants reforms known as the Uniform Guidance, which expressly requires pass-through entities using any federal funds and federal departments/agencies to reimburse a nonprofit for the reasonable indirect costs it incurs in performing services on behalf of governments. The report specifically asks, “What can your nonprofit or foundation do to take advantage of the Uniform Guidance and spread the word to others?”
Also on the plus side, the report recognizes new giving incentives in Connecticut and Indiana that promote giving from businesses and giving to community foundations, as well as similar pending legislation elsewhere. Encouraging nonprofits and foundations to advance their missions, the report identifies ways organizations can “stand for your mission through everyday advocacy.”
Some issues on policy agendas cannot clearly be identified as a “challenge” or “opportunity,” and the report sets them out in a section entitled Swinging in the Balance. The report observes that interest “continues in new funding mechanisms such as social impact bonds (SIB) and pay-for-success (PFS) programs, even as the results have ranged from failure in New York, continued hope in Colorado, and mixed or disputed findings in Salt Lake City.” After recapping concerns expressed by nonprofits, the report asks, “Do new funding mechanisms “look better on paper than in reality” and violate the common-sense adage that “there’s no free lunch,” as one report recently declared, or is this a promising concept that is still being beta tested?”
Update on Financial Action Task Force (FATF)
In November, we mentioned that the Financial Action Task Force (FATF) is updating its Interpretive Note (IN) to FATF Recommendation 8, which sets standards for how countries can implement counterterrorism regulations that apply to nonprofits.
In response to public comment solicitation, the Council submitted comments on November 27th urging FATF to revise the IN to reflect an approach that is proportionate to the actual risk posed by individual charitable organizations. This week, we took our advocacy a step further and signed onto a global nonprofit coalition letter urging FATF to also consider revising the underlying Recommendation 8 standard.
Revising Recommendation 8 is important because the Recommendation has enormous influence over U.S. and other national laws governing nonprofits laws inspired by Recommendation 8 can often be overly restrictive and deter grantmaking and charitable giving in many countries, and this is a great opportunity to revisit the standard that leads to these laws.
National Taxpayer Advocate Names 1023-EZ Third Most Serious Problem
Taxpayer Advocate Service (TAS) is an independent organization within the IRS that exists to “protect taxpayers’ rights under the Taxpayer Bill of Rights, help taxpayers resolve problems with the IRS, and recommend changes that will prevent the problems.” This week, the organization released its 2015 Annual Report to Congress. Included in this report are 24 of what TAS considers the most serious problems faced by taxpayers.
The third most serious problem identified in this report is the Form 1023-EZ—which was created with the intent to serve as a streamlined application for 501(c)3 tax-exempt status. The report identifies the primary problem with this form as the requirement to “attest” rather than “demonstrate” (as is the case with the standard Form 1023) that fundamental aspects of qualification for an exempt entity are met, citing that a TAS analysis of a sample of 1023-EZ applications found that 37% did not meet the legal requirements for 501(c)3 exempt status.
As our readers may recall, state charity regulators and some nonprofit groups voiced their opposition to the use of this form on the grounds that it could undermine the integrity of the sector by making it easier for bad actors to receive tax-exempt status and hindering enforcement efforts.
As we reported in October of last year, the Tax Exempt & Government Entities Division of the IRS has named the review of the Form 1023-EZ a priority and is expected to begin evaluation of this form for potential improvements this year.