2016 Western Conference on Tax-Exempt Organizations (WCTEO)

The 20th annual Western Conference on Tax-Exempt Organizations (WCTEO) will take place at the Millennium Biltmore Hotel in downtown Los Angeles this Thursday and Friday, December 1-2, 2016. The WCTEO has been my top go-to conference every year since starting NEO Law Group, and I’m particularly excited about this year, my first as a member of the planning committee. With a schedule that features panels led by some of the country’s top tax-law experts (no hyperbole!), I highly recommend the WCTEO to all of my professional colleagues serving or working in the nonprofit sector and am happy to talk with anybody considering attending. You can submit your name on the waitlist for registration here and you’ll be contacted by the staff to complete your registration.

Some Highlights from the Schedule:

  • Exempt Organization Practice: A Twenty Year Retrospective – Marcus Owens (former Director of the IRS Exempt Organizations Division).
  • Current Developments – Bruce Hopkins
  • Investing in the Future: What Does Mission Have to Do with It? – Jeffrey R. Hom,  David A. Levitt
  • Funding Through Exploitation – The Life Cycle of Nonprofit IP and Other Desirable Assets – Ofer Lion,  Michael I. Sanders 
  • A Twenty Year Prospective – Exempt Organizations Through 2036 – Ofer Lion,  Alexander L. Reid,  Jean L. Tom,  Stephanie Wilkinson

In addition, there are sessions on tax compliance issues, property tax exemption, private foundations, charitable solicitations, charitable giving, accelerators and incubators, and international activities, and an update from the IRS and Treasury. I’m looking forward to moderating an informative and fun session on crowdfunding with panelists Jeanette Lodwig, Arthur M. Rieman, and Jean L. Tom.

Check out this profile on WCTEO Co-Chair Ellen April: Loyola Tax-Law Leadership Exemplified in Conference.

Live Blog

Washington Update

Compliance Issues – Not Just Your 990

  • Form 990: Much more than financial information. Also mission, program services, governance, compensation, transactions with insiders, related organizations.
  • Who cares? IRS, media, individual donors, watchdog organizations (and state charity officials, state revenue authorities, potential board members, private foundations, corporate sponsors and donors, etc.).
  • Disclosures of uncertain items on Form 990 may be important to start statute of limitations (e.g., potential unrelated business taxable income).
  • IRS moving from a subsector-driven compliance model (e.g, universities and hospitals) to data-driven compliance model (from information submitted on the Form 990). Panel discussed several possible triggers of examination (audit) on the Form 990.
  • IRS TE/GE FY 2017 Work Plan – reinforces 5 issue areas of focus: (1) exemption; (2) protection of assets; (3) tax gap (e.g., employment taxes, unrelated business income taxes); (4) international (e.g., conduit to foreign persons or entities, inadequate oversight of grants); and (5) emerging issues (e.g., 501(r)).
  • For independence of directors, be careful if director has a material financial transaction with a related organization – nonprofit or for-profit (can blow her or his independence as a director).
  • Form L of the Form 990 – identifying business transactions with interested persons can be very challenging. Consider using a negative confirmation letter with no need to respond if the “interested person” (including any Schedule B contributors) has no disclosures to make.

Expanding Your International Footprint

  • Regulatory Trends: shifting enforcement of tax-related regulations, stricter immigration, linking immigration to tax reporting, NGO registration and reporting.
  • Many issues with operating outside of the United States, including unfamiliar laws of foreign countries, no existing legal structure in foreign country, different health and safety considerations.
  • War stories include independent contractors in foreign countries claiming to be employees, foreign parter non-compliance, detention of employees or volunteers.
  • Forms of international activities: grant to an existing overseas entity, collaboration with a partner organization. branch office, new NGO, new for profit subsidiary.

Exempt Organization Practice: A Twenty Year Retrospective

Former head of the IRS Exempt Organizations Division Marcus Owens provided a twenty-year retrospective and included some insightful thoughts for the future, including a forecast of problems for the IRS hidden by use of the Form 1023-EZ.

Expecting the Unexpected in Property Tax Exemption (California)

  • Even if you haven’t received an Organizational Clearance Certificate (OCC) yet, file with the County Assessor before the February deadline.
  • The court in the Jewish Comm Center Dev. Corp v. LA case in 2016 held that an operator of a property does not need to file an exemption claim with the assessor or hold an OCC issued by the Board of Equalization (BOE). The BOE has revised (but not yet released) BOE-267, Claim For Welfare Exemption (First Filing), and BOE-267-A, 20__ Claim For Welfare Exemption (Annual Filing), to remove instructions requiring that both the owner and operator must file a separate exemption claim form and each must hold a valid OCC issued by the BOE. In addition, the BOE has created a supplemental affidavit, BOE-267-O, Welfare Exemption Supplemental Affidavit, Organizations Operating On Claimant’s Real Property, for the property owner to demonstrate that the property is used exclusively for welfare exempt purposes by an operator that is organized and operated for an exempt purpose.
  • The “exclusive” use requirement for property tax exemption remains elusive to define. There are precedents both for a fairly strict interpretation  (“incidental use must be directly connected with, essential to, and in furtherance of the primary use”) and a more permissive interpretation (allowing for some non-qualifying uses).

Investing in the Future: What Does Mission Have to Do with It?

Funding Through Exploitation – The Life Cycle of Nonprofit IP and Other Desirable Assets

  • Traditional intellectual property (IP): patents, copyrights, trademarks/servicemarks, trade secrets
  • Non-traditional IP: provision of assets to captive audiences, corporate sponsorships, naming opportunities, endorsements
  • IP license income or royalties (excluded from unrelated business income tax or UBIT) vs. service income (which, if unrelated, may be subject to UBIT)
  • Where IP is being transferred to a related organization, additional issues may arise, including conflicts of interest, resource-sharing, fair market value, and taxable subsidiary issues.
  • Fascinating discussion of National Geographic Society (nonprofit) – 21st Century Fox (for-profit) joint venture from Michael Sanders – 73% Fox; 27% NG equity split but 50:50 representation on board (based on IRS Revenue Rulings and seminal cases on joint ventures)
  • Big challenge is how to value nonprofit’s contribution to the joint venture if it involves non-traditional IP
  • Negotiating issues on behalf of nonprofit to joint venture with for-profit involves educating for-profit counsel regarding control requirements and critical provisions in the operating agreement to protect the nonprofit’s exempt status; also consider exit strategies in advance


  • About $16.2 billion was raised globally through crowdfunding in 2014 , and that number has been projected to reach $34 billion in 2015 . According to a 2013 study commissioned by the World Bank, crowdfunding is projected to become a $90-96 billion industry by 2025, almost twice the size of the current global venture capital industry.
  • Donation crowdfunding can be hosted on a site/platform owned and operated by either a nonprofit or for-profit organization.
  • Donation crowdfunding campaigns can be run by charities or individuals who may not may not be operating with a charity’s authority.
  • For fundraising campaigns run by charities, issues include mission-consistency, charitable class, conduit (jeopardizing a donor’s ability to deduct her contribution), registered vs. unregistered professional fundraisers, restricted gifts, and substantiating contributions; and, if rewards are involved, unrelated business income, commerciality, seller’s permit and sales tax, and quid pro quo written disclosures.
  • For fundraising campaigns run by individuals, issues include charity vs. charitable class vs. private beneficiaries, charitable trust jurisdiction, characterization of income, diversion of assets, charitable trust vs. consumer protection laws, delegation of authority with due care (including terms and limitations), and registration requirements.
  • Cautionary tales regarding over-reliance on an annual crowdfunding campaign. See, e.g., Technology Glitch Results in Day of Giving Fiasco (Nonprofit Quarterly).

Accelerators and Incubators

  • The terms “incubator” and “accelerator” are not defined in the law. However, according to UC Senior Counsel Thomas Schroeder, “these terms are commonly understood to refer to programs designed to nurture and accelerate the growth and success of private start-up companies by providing resources such as physical space in a collaborative environment with other start-ups, shared office equipment, technology and administrative services, mentoring and management training, networking opportunities, and, in some cases, capital or access to some other form of financing.”
  • There is still little guidance from the IRS regarding university incubators and accelerators and the circumstances under which they further 501(c)(3) educational purposes. For colleges and universities, they may want to tie the incubator to the students’ curricula. They must differentiate themselves for for-profit incubators in their exemption application and operations.
  • Other possible 501(c)(3) exempt purposes: scientific, charitable (relief of the poor, economic development, lessening the burdens of government)
  • Some of the tax issues for a 501(c)(3) incubator include: related or unrelated business activities, private benefit, in-kind payments of equity, and joint venture.

A Twenty Year Prospective – Exempt Organizations Through 2036

  • Ofer Lion: Nonprofits looking to access capital markets, high brow arts organizations tax-exempt status will be questioned (populist movements). 501(c)(3) hospitals will still be around (not all will convert or be forced to convert to for-profits) but there will be more consolidation. IRS will still be around to provide tax law enforcement over charities and other exempt organizations (perhaps doing less with less). More mission-related investments and shareholder activism (with 70% of U.S. equities being held by tax-exempt organizations).
  • Stephanie Wilkinson: Tax reform under Trump may severely and detrimentally impact charitable contributions (changes to standard deduction, limiting number of people who can get tax benefit of charitable contributions to 5%; elimination of estate tax). IRS will operate picking a few select areas of enforcement on which to focus; practitioners will specialize accordingly.
  • Jean Tom: Artificial intelligence (AI) using big data to help charities target particular prospective donors, virtual reality used in communications and fundraising, self-driving cars, drone deliveries, laws trying to catch up. With the devaluing of tax benefits associated with charitable contributions, despite the Trump-supported Johnson Amendment, which would blur difference between 501(c)(3)s and 501(c)(4)s (it would allow 501(c)(3)s to engage in electioneering), more 501(c)(4)s formed in place of 501(c)(3)s. More use of for-profit vehicles (instead of private foundations) to engage in charitable and other social good activities (like Omidyar Network and Chan Zuckerberg Initiative). Tech tools will help improve public accountability and self-regulation (where the public sector may fail).
  • Alex Reid: Increase in corporate civil rights, leadership by AI. Some DAF regulations! Challenge to charitable grantmaking as a charitable activity. Consumption tax in the form of exempting savings from income tax. Possible move of charitable contribution deduction moving ‘above the line” so not impacted by increase in standard deduction (but would only a type or part of charitable contributions move above the line?).