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August 8, 2011
Summer IRS Update: 501(c)(4) Denials and Gift Tax, 501(c)(29) Guidance, and Expanded "Related Organization" Disclosure May Catch Some Churches
We previously blogged about the controversy surrounding the IRS's gift tax audits of donors to section 501(c)(4) tax-exempt social welfare organizations and about the IRS's denial of tax-exempt status for several nonprofit organizations seeking section 501(c)(4) status because of excessive private benefit to a political party and its candidates. In an update on the former topic,the IRS announced this summer that it was abandoning those audits because of "questions" (including from Republican Senators) that had arisen regarding the applicability of the gift tax in this context. In an update on the latter topic, the NY Times reported that the three groups at issue were units of Emerge America, a group that identifies itself as "the premier training program for Democratic women."
In less sensational but still important news, the IRS also issued initial guidance for the newly created section 501(c)(29) qualified nonprofit health insurance insurers, which were part of the federal health care reform legislation. The guidance addresses the requirements for tax exemption under this new category, as well as providing information regarding how such organizations may satisfy their annual filing requirements if they have not yet applied for recognition of their tax-exempt status (with guidance regarding how to make such an application still pending; the IRS stated it is not yet accepting applications).
Finally,in a little noticed (at least by this writer until it was brought to my attention by an more observant practitioner) and highly technical announcement relating to the redesigned Form 990, the IRS is asking for comment on whether its expanded requirements for reporting related organizations on Schedule R of Form 990 may be overly burdensome, including for organizations related to entities, such as churches, that are not required to file any version of the Form 990 themselves. The breath of the definition for related organizations, which includes not only parent and subsidiary entities but also brother/sister entities, raises the question of whether the existence of a single Form 990-filing entity in a group of religious organizations otherwise exempt from Form 990 filing requirements would lead to required, public disclosure of the entire structure and membership of the group and some of the transactions within the group. While an exemption from such reporting exists for a central organization and subordinate organizations covered by a group exemption, that exemption would not be available to all groups of religious organizations. It will be interesting to see what comments the IRS receives on this issue, and how it responds.
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