2011 Western Conference on Tax Exempt Organizations

Published on: by Gene Takagi Category:EVENTS

Emily and I will be attending the 2011 Western Conference on Tax Exempt Organizations (WCTEO) co-sponsored by Loyola Law School and the IRS starting today. Among the speakers: Lois Lerner (Director, IRS Exempt Organizations), Diana Aviv (President and CEO, Independent Sector), Eve Borenstein, Ellen Aprill (Professor of Law, Loyola Law School), Bruce Hopkins, Jody Blazek, and Rob Wexler.

We'll be live tweeting the Conference and providing some highlights below (running list – most recent on top):

  • Bruce Hopkins: rental by exempt educational org to anyone other than students = unrelated business (change in IRS pos'n) PLR 201106019
  • Hopkins: nonprofit-for-profit joint ventures – no full attribution to 501c3 of JV activities in context of accountable care orgs
  • Hopkins: private inurement- statutory law applic to many exempt orgs; private benefit- common law s/b (but not) applic to 501c3 only
  • Hopkins: provision of consulting services for fee (even to nonprofits) may be basis for denying exemption PLR 201128028; 201141021 
  • Hopkins: medical research orgs – scientific activity analysis – PLR 201114035
  • Hopkins: look at IRS compliance questionnaire to colleges & universities – http://www.irs.gov/charities/article/0,,id=186865,00.html
  • WCTEO panelists argue: Are charities liable for not giving proper written substantiation of donation when it's donor's responsibility?
  • Form 990 Flags – 990 asks re: significant changes to governing docs; diversion of assets; process for compensation determination 
  • Donor substantiation – contemporaneous written acknowledgment – must contain magic language or no deduction – http://www.irs.gov/pub/irs-pdf/p1771.pdf
  • Retroactive revocation of tax exemption – omission of material fact; operated in manner materially different from represented
  • Louis Michelson – Incidental private benefit (permissible to charity) – see http://www.irs.gov/pub/irs-tege/eotopicc90.pdf
  • IRS can look at 1023 & 990 – if you are deceptive (including by omission), criminal penalties may apply – Mubayyid case
  • Some debate at WCTEO about United States v. Mubayyid. See also http://www.forbes.com/sites/peterjreilly/2011/09/13/form-990-and-the-war-on-terror/
  • IRS initiative to examine 6,000 employers (incl 500 nonprofits) over 2010-12 focusing on worker classification.
  • VCSP for employers who prospectively trt workers as employees (no interest, penalties, audit 4 past misclass) – http://www.irs.gov/pub/irs-drop/a-11-64.pdf
  • Nonprofit interns under federal labor laws (6 factor test): http://www.dol.gov/whd/regs/compliance/whdfs71.pdf
  • A little troubling. "Protection" of Volunteers Under Federal Employment Law: Discouraging Voluntarism http://bit.ly/t4fonM .
  • Dept of Labor opinion letter on volunteers: status limited to individuals "performing charitable activities" for nonprofits.
  • Things that do NOT make someone an independent contractor: issuing a 1099; worker's preference; industry standard.
  • Misclassification of independent contractors, interns, students, volunteers (s/b employees) – increasing enforcement & lawsuits! 
  • Nonprofit employers – wage & hour laws apply to you – mostly strict liability (no excuses) – inability to pay is no defense.
  • Easy to fall in trap of c3 directors considered interested in related exempt org (eg, c6) to which c3 pays for services – be careful.
  • Fred Goldstein – board members – don't let "best practices" get in the way of doing your job!
  • Goldstein – in a perfect world, all nonprofit directors know their fiduciary duties; but in some (high profile) boards, not realistic [got some pushback from the IRS rep]
  • Belinda Johns from CA AG – governance complaints primarily due to nonprofit boards not paying sufficient attention, lacking suff knowledge 
  • Johns – Complaint against Monterey County Aids Project still instructive re nonprofit director liability http://bit.ly/beqnsl
  • Johns – Board members witness embezzlement – report to DA (as stewards, must protect charitable assets)
  • Johns – CA AG's Registry of Charitable Trusts losing much of staff [budget cuts] – be patient
  • Diana Aviv of Independent Sector - too many (inefficient) small nonprofits – blame funders & donors giving solely on emotion & relationships
  • Aviv - charitable deduction – studies are clear the deduction increases giving, but it's a big philosophical issue on Hill
  • Aviv gives update on Independent Sector's Word on Washington
  • Aviv discusses public policy - see Independent Sector's Public Policy site
  • Unrelated business income – if deducting shared costs, there must be a reasonable basis for the allocation – see GCM 39843
  • Unrelated business income – if deducting indirect costs, there must be a proximate & primary connection to the unrelated business 
  • Only 7,000 of 300,000 orgs that lost tax-exempt status for failure to file 990s have filed for reinstatement.
  • IRS applications for tax exemption – 56% processed within 90 days – based on initial screen.
  • Exempt orgs (nonprofits) get IRS compliance check questionnaires over audits 3:1 in FY10 – complete or get audited.
  • IRS Exempt Orgs Div – 1.9M orgs to oversee w/ 900 employees incl 400 auditors. 

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See our posts on the 2010 WCTEO; the 2009 WCTEO (Day One and Day Two); and the 2008 WCTEO (Part One, Part Two, and Part Three).