November 13, 2012
Leave-Based Donation Programs
As it did with 9/11 and Katrina, the IRS has issued Notice 2012-69 granting favorable treatment to certain vacation/leave donation programs run by employers. In summary, it appears that an employee may release vacation or similar leave back to the employer. In return, the employer makes a cash donation to charity. Under the Notice, the payments from the employer must be made to Section 170(c) organizations "for the relief of victims of Hurrican Sandy" and must be made before January 1, 2014. (The Sandy Notice is almost exactly the same as the Katrina Notice and the revised 9/11 Notice).
If a program is structured appropriately, then the IRS will not treat the payments as income to the employee or take the position that the employee was in constructive receipt of funds. Of course, that means the employee cannot take a Section 170 deduction for the donation, since the value of the leave time will be fully excluded from his or her income - allowing the deduction would be double counting!
Interestingly, the Notice indicates that the the IRS "will not assert that an employer will only be permitted to deduct these cash payments" under Section 170 rather than Section 162. Thus, it appears that the employer may fully deduct the value of any foregone leave, even if Section 170's limitations might otherwise disallow part of the deduction.
I'm curious why the benefit to the employer - I'm also curious as to why there is no requirement that the value given to charity be somehow equal to the value of the leave surrendered. It seems like a potential "win-win-win" for employers. They get employees to release their vacation time, potentially for less than a cash out would be worth, and they get to take a deduction for it, without regard to Section 170 limits - as if it were still compensation paid under Section 162. Wondering outloud, it appears from the language of the Notice that an employer could get a full charitable contribution for other donations, and then take these donations on top. And they get the good PR to boot. That seems like a really good deal! (Don't get me wrong - I think such a program, and anything else that gets funds to our friends on the East Coast, is a good thing).
Finally, I wonder what an employer would have to do to demonstrate that the recipient charity is "for the relief of victims of Hurricane Sandy." If one gave a grant to the Red Cross for general operating expenses (or with a partial allocation to general operating expenses), would that be sufficent?
Okay - I'm not done wondering outloud quite yet. It seems like it is well within bounds of authority for the IRS to act on the assignment of income issue - after all, that's a pretty mushy, facts-and- circumstancy-type test. But what about the Section 162/170 determination? (I know,I know... say thank you, IRS.. and move along. Nothing to see here!)
November 12, 2012
More on Conservation Easements
With h/t to our friends at the TaxProf Blog:
Preservation Easements in an Uncertain Regulatory Future
Jess R. Phelps (Historic New England), Preserving Preservation Easements?: Preservation Easements in an Uncertain Regulatory Future, 91 Neb. L. Rev. 121 (2012):
While federal tax deductions are an important tool for organizations operating easement programs, recent IRS enforcement activity has called the future of this incentive into question--at least as currently constituted. Even if these incentives continue, the presence of continued regulatory uncertainty will make federally subsidized easements less viable unless enforcement activity decreases or easement-holding organizations begin to change how they protect privately-owned homes. However, these challenges provide easement-holding organizations a chance to step back and evaluate their accomplishments of the past thirty years. Many significant structures have been protected, but preservation easements lag far behind in numbers, impact, and public awareness when compared to land conservation efforts. The public has yet to fully “buy in” to the concept of preservation easements and are suspicious of efforts to provide funds to protect private residences.
For this perception to change, easement-holding organizations need to fundamentally re-evaluate the role they play within the preservation movement and determine whether a larger role is possible. There are a variety of ways that easement-holding organizations can shift their thinking and practices to expand the benefit provided through their programs. Similarly, there are clear alternatives to securing the preservation of significant historic resources via reliance on the federal tax incentives. In the end, the efforts of easement-holding organizations to respond to these challenges and reimagine the possibilities of preservation easements will go a long way toward fulfilling SPNEA's original vision of obtaining control of the most significant historic properties and “let[ting] them to tenants under wise restrictions.” Perhaps more importantly, these efforts can also expand upon this vision to protect the underlying stories and preserve a more meaningful spectrum of our collective architectural heritage.
IRS Asking About Group Rulings
Last month the IRS released information about the questionnaire that it is sending to more than 2,000 randomly selected central organizations to complete. The stated purpose of the questionnaire is "[t]o help us better understand the relationship between central or parent organizations of group rulings and their subordinates, and learn how they satisfy their exemption and filing requirements." These inquiries reflect the apparently continuing IRS concerns regarding groups rulings, as reflected in the IRS Advisory Committee on Tax Exempt and Government Entitites report relating to such rulings, issued in 2011.
McLaughlin & Small on Important Lessons to Be Learned from Federal Tax Cases
Our contributing editor Nancy A. McLaughlin (Utah) and Stephen J. Small (Law Office of Stephen J. Small) have posted Trying Times: Important Lessons to Be Learned from Recent Federal Tax Cases. Here is the abstract:
This outline was prepared for a panel discussion on recent case law developments in the conservation easement donation context that took place at the Land Trust Alliance national conference in Salt Lake City, Utah, in early October 2012. The four panelists were Nancy A. McLaughlin, Robert W. Swenson Professor of Law at the University of Utah SJ Quinney College of Law; Stephen J. Small, national expert on conservation easement donation transactions and one of the principal drafters of the Treasury Regulations interpreting Internal Revenue Code § 170(h); Karin Gross, Supervisory Attorney, IRS Office of Chief Counsel; and Marc L. Caine, Senior Counsel, IRS Office of Chief Counsel.
Brown et al. on Charitable Donations to Higher Education
Jeffrey R. Brown (Illinois - Department of Finance) and his co-authors have posted The Supply of and Demand for Charitable Donations to Higher Education. Here is the abstract:
donations are an important revenue source for many institutions of
higher education. We explore how donations respond to economic and
financial market shocks, accounting for both supply and demand channels
through which these shocks operate. In panel data with fixed effects to
control for unobservable differences across universities, we find that
overall donations to higher education – and especially capital donations
for university endowments or for buildings– are positively and
significantly correlated with the average income and house values in the
state where the university is located (supply effects). We also find
that when a university suffers a negative endowment shock that is large
relative to its operating budget, donations increase (demand effects).
This is especially true for donations earmarked for current use. We
conclude by discussing the importance of understanding how donations
respond to economic shocks for effective financial risk management by
colleges and universities.
Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Nonprofit and Voluntary Sector Quarterly October Issue Available
From the Editors’ Desk
In Memoriam: Elinor Ostrom
James E. Austin and M. May Seitanidi, Collaborative Value Creation: A Review of Partnering Between Nonprofits and Businesses: Part I. Value Creation Spectrum and Collaboration Stages
Lourdes Urriolagoitia and Alfred Vernis, May the Economic Downturn Affect Corporate Philanthropy? Exploring the Contribution Trends in Spanish and U.S. Companies
James Griffith, A Decade of Helping: Community Service Among Recent High School Graduates Attending College
Brett Agypt, Robert K. Christensen, and Rebecca Nesbit, A Tale of Two Charitable Campaigns: Longitudinal Analysis of Employee Giving at a Public University
Laurie E. Paarlberg and Stephen S. Meinhold, Using Institutional Theory to Explore Local Variations in United Way’s Community Impact Model
Kirsten Holmes and Alix Slater, Patterns of Voluntary Participation in Membership Associations: A Study of UK Heritage Supporter Groups
Roger Bennett, Why Urban Poor Donate: A Study of Low-Income Charitable Giving in London
Margaret Harris, Nonprofits and Business: Toward a Subfield of Nonprofit Studies
Marlene Walk, Book Review: The Jossey-Bass Handbook of Nonprofit Leadership and Management
Thomas Adam, Book Review: Charity in Islamic Societies
Janice Wassenaar Maatman, Book Review: The Nonprofit Challenge: Integrating Ethics into the Purpose and Promise of Our Nation’s Charities
Jonathan P. Hill, Book Review: Making Volunteers: Civic Life After Welfare’s End