Nonprofit Law Prof Blog

Independent Sector Calls for Suspension of UBIT siloing rule

The Independent Sector in an April 29, 2020 letter asked Congress to suspend the UBIT silo rule under section 512(a)(6) for 2019 and 2020. They estimate it would provide an average of $15,000 per impacted nonprofit.

"6. Suspend the “Siloing” Requirement for Unrelated Business Income for 2019 and 2020. Nonprofit organizations currently are struggling to comply with new, artificially strict accounting rules that prevent them from off-setting income with business losses. The CARES Act made it significantly easier for many for-profit businesses to reduce their taxes with losses while doing nothing to mitigate this unfair treatment of nonprofits. Suspending this provision will free-up an average of $15,000 per year in flexible funding that impacted nonprofits desperately need to keep their doors open and meet rising community needs."

In section 2203 of the CARES Act Congress suspended limits on net operating losses that it had imposed in the 2017 Tax Act. That has freed up capital for many wealthy individuals and businesses in a way that has been criticized in the popular press. Nonprofits too can take advantage of this relaxation to seek refunds from prior years where they were limited in taking NOLs against unrelated business taxable income. However, there is some difficulty in figuring out how to apply the UBIT siloing rules in this situation. Suspending those rules would give clarity to that problem and free up more dollars consistent with what Congress presumably intended in relaxing this rule for businesses.

Though it's not clear to me that this would free up money where it is desperately needed, because I was not a fan of the provision to begin with, I am inclined to think Congress ought to do this. It was not an essential addition to the taxation of exempt organizations, and it might free some money up that allows some nonprofits to make it to the other side of this health and financial crisis. 

Still, I think the most important thing Congress can do is to get dollars to nonprofits through either the PPP or directly through grants where the nonprofits are carrying out important activities in helping Americans through this Pandemic.

They also urge Congress to increase the temporary universal charitable contribution deduction that Congress included in the CARES Act from $300 per taxpayer to $4,000 for single and $8,000 for married filing jointly above the line charitable contribution deduction. I am skeptical of these universal charitable contribution deductions. I fear the efficiency here is small. A Penn Wharton analysis of the $300 deduction suggested it would enhance charitable giving by only 5 cents on every tax dollar. Additionally, the IRS is not set up to police fraud. Though it might get some needed dollars to charitable institutions, I fear the extra deduction would be abused in way taxpayers would know and would undermine American belief in the honesty and fairness of our system.

The Independent Sector letter was similar but different than one put out by the National Council of Nonprofits signed by a broad group of nonprofits. Broadly though there is national agreement that nonprofits need the help of the federal government.

Philip Hackney

Unemployment Insurance, the CARES Act, and Nonprofits

Thought today I would go over the unemployment provisions of the CARES Act. Though not necessarily focused on nonprofit organizations, some aspects open these provisions up to use by the nonprofit community. Additionally, like any business nonprofit leaders need to inform themselves of all the different sources of money out there to help patch us through this unprecedented crisis.

Most significantly for the nonprofit community Congress created Pandemic Unemployment Assistance in section 2102 of the Act. It is available to those not eligible for regular UI, such as the self-employed, the gig-economy, contract work or those who have already used up unemployment eligibility. It is available for 39 weeks, ending December 31, 2020. 

This provision is important to the nonprofit community because charitable nonprofits, for instance, are exempt from the unemployment insurance system and often do not pay into the system. One that some have worried would not be covered include churches and clergy. But the Department of Labor seems to indicate clergy are covered.

The Department of Labor has stated: The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways. The CARES Act includes a provision of temporary benefits for individuals who have exhausted their entitlement to regular unemployment compensation (UC) as well as coverage for individuals who are not eligible for regular UC (such as individuals who are self-employed or who have limited recent work history). These individuals may also include certain gig economy workers, clergy and those working for religious organizations who are not covered by regular unemployment compensation, and other workers who may not be covered by the regular UC [unemployment compensation] program under some state laws.  To access this benefit, the individual needs to show some Covid-19 impact on their work history.

Ultimately though you will have to check with your state as to whether your nonprofit's situation is covered.

The other major change that makes the unemployment provision particularly useful at building a bridge to when we can get back to work is that the weekly benefit has been increased by $600. This is on top of whatever amount the state already paid. This increase as currently scheduled runs from as early as March 29th through July 31, 2020. Some Democrats are working on getting that end date extended. Note that the start date of these new benefits is dependent upon your state.

Also, significantly, the CARES Act extends unemployment insurance for 13 weeks. In most states this makes unemployment run 39 weeks - 26 weeks for regular + 13 extra weeks.

The CARES act also provides federal funds to support work-sharing arrangements.

If you are interested in looking further, I have looked at a lot of online descriptions of the unemployment provisions, I found this document by the Jewish Federations of North America to be particularly useful.

Philip Hackney

Temporary Universal Charitable Deduction per taxpayer according to JCT

Because the new universal charitable contribution (above the line) deduction of $300 is per eligible individual, defined in Section 62(f) of the Code as an individual who does not elect to itemize deductions, some have suggested that married individuals might be able to deduct $600 rather than just $300. One of our longtime readers, NYU Professor Harvey P. Dale, pointed out there is strong reason to believe legislators did not intend that, and that the IRS and the Treasury Department will not likely interpret the Internal Revenue Code that way.

The Staff of the Joint Committee on Taxation released its “Description of the Tax Provisions of Public Law 116-136, the Coronavirus Aid, Relief, and Economic Security (‘CARES’) Act,” JCX-12R-20 (April 23, 2020). Footnote 76, on page 22, reads as follows: “The $300 limit applies to the tax-filing unit. Thus, for example, married taxpayers who file a joint return and do not elect to itemize deductions are allowed to deduct up to a total of $300 in qualified charitable contributions on the joint return.” In the text it also states that the universal deduction is only available in 2020. While neither of these statements is an ultimate legal authority, the Joint Committee description is a highly persuasive authority for the IRS and the Treasury Department. [N.B. I believe the temporary nature of the universal charitable contribution deduction is well textually supported as has been noted on here before because it is only available for tax years beginning in 2020.]

Also worth noting that in one study by the Penn Wharton Budget Model, very little of the tax dollars given up here are expected to spur charitable giving. They estimate that though the deduction will cost $2 billion, it will induce only an extra $110 million in charitable giving.

Philip Hackney 

The Paycheck Protection Program and Faith-Based Organizations

I'm going to end the week where I started it: with the Paycheck Protection Program.

Remember, the CARES Act created the PPP, which expands the SBA's loan program. Under the PPP the government can make or guarantee forgivable loans to small businesses--and, in an expansion or its previous mandate, small nonprofit organizations--provided those organizations use the funds for permissible purposes, including critically, for compensation.

The president signed the CARES Act into law on March 27. One week later, the SBA issued a FAQ dealing with the PPP and faith-based organizations. In essence, the FAQ clarified that the PPP was available to faith-based organizations under essentially the same terms as it was to any other nonprofit. That is, as long as the faith-based organization met the size limitations and used the money for purposes, it could participate in the PPP.

(It turns out that the SBA differentiated faith-based organizations from other nonprofits in one critical manner: while the law applies the same affiliation rules to nonprofits as it does to for-profit borrowers, the SBA announced that it will not look at the relationship between faith-based organizations where that relationship is based on religious teachings or other religious commitments. In regulations, the SBA went on to explain that applying the affiliation rules to religions that had doctrinal reasons for affiliating would impose a substantial burden on the organizations' free exercise, raising First Amendment and RFRA questions. Thus, the SBA said, it would take faith-based organizations at their word if they claimed their affiliation was based on religious requirements.)Ariz

Interestingly, in its April 3 FAQ, the SBA explicitly states that "loans under the program can be used to pay the salaries of ministers and other staff engaged in the religious mission of institutions" (emphasis mine).

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UBTI and Separate Unrelated Businesses

This morning, the IRS released proposed unrelated business taxable income regulations. (h/t to Law360 and Bloomberg Tax for reporting on the new regs!)

Some context: 2017's TCJA added section 512(a)(6) to the Code. That section says that, where a tax-exempt organization has multiple unrelated trades or businesses, it has to calculate unrelated business taxable income separately for each. Moreover, under that calculation, an organization's UBTI can't be negative. Effectively, then, the TCJA siloed UBTI losses. A tax-exempt organization could carry them forward to future years, but couldn't use them to offset UBTI from a separate trade or business.

The proposed regulations relax that siloing a little. Under the proposed regulations, a tax-exempt organization will determine the first two digits of the North American Industry Classification System for each of its separate unrelated trades or businesses.

Broadly speaking, the NAICS uses six-digit numbers to classify the economy hierarchically. The first two digits represent one of 20 sectors; the third digit designates the subsector, the fourth digit the industry group, etc. By focusing solely on the first two digits rather than digging deeper down the NAICS codes, the IRS lets tax-exempt organizations to treat a wider breadth of unrelated businesses as being the same, and thus makes it more possible for a tax-exempt organization to offset UBTI in one endeavor with losses from another.

Samuel D. Brunson

Picture by Leaflet. CC BY-SA 3.0.

Novel Coronavirus and the Arts

It's clear that COVID-19 has (temporarily, we hope) devastated whole swaths of the economy. Gyms are closed, airline passengers are down by 95%, movie theaters are sitting empty.

And the pandemic has been devastating to the arts world, a world that quite frequently relies on public performance both to raise revenue and to encourage donors. The novel coronavirus has devastated the jazz world (which is my love), killing jazz legends and shutting down performance spaces.

And then there's dance, an art form perhaps less-well-known and less appreciated than jazz. In Illinois alone, dance companies expect to lose $4.5 million in revenue through April 30, and more if (as is likely) the shutdown lasts longer. Hubbard Street Dance Company, for instance, ended up cancelling the last week of its Decadence tour in Italy in February and then, hours before it opened the performance in Chicago, Gov. Pritzker ordered closed gatherings of more than 1,000 people, closing the performance before it opened.

So how do arts organizations survive? Fortunately, the federal government has provided some help, including the Paycheck Protection Program and $75 million to be distributed by the National Endowment for the Arts.

State and local governments have been stepping up too. Chicago and Illinois have joined together with the Arts for Illinois Relief Fund, which provides grants to artists and arts organizations. The Fund is funded by the city, the state, and private philanthropy (of both the wealthy and the ordinary person type).

Still, the ability of arts organizations to weather this storm, while backstopped by state and philanthropic money, is, at best, tenuous. Once we get past the current crisis, arts organizations may need to rethink their funding models.

In the meantime, while I'm familiar with the steps Chicago and Illinois are taking to protect nonprofit arts organizations, I am less aware of what other cities and states are doing. Does anybody have examples of COVID-19-related support that their city or state is undertaking to protect and shore up the arts?

Samuel D. Brunson

Paycheck Protection Act Take 2

Yesterday I blogged about the Paycheck Protection Program. In short, as part of the CARES Act, Congress expanded the SBA's loan-making authority. The SBA could, under the CARES Act, guarantee loans made to small businesses, loans that, if used for appropriate purposes, could potentially be forgiven. In addition, the CARES Act expanded the scope of borrowers to include not only small businesses, but also small nonprofit organizations.

Yesterday's discussion was largely academic, though. It turns out that in a short 13 days, borrowers had exhausted the full $349 billion Congress allocated to the PPP. With no money left, borrowers (for- or nonprofit) were out of luck.

But maybe they're not out of luck after all: The Hill is reporting that Congress and the president have reached a deal to provide more money to the PPP. While we don't have details yet, but expectations are that it will include another $310 billion, available to small businesses and nonprofits. That number will apparently include $75 billion for hospitals (and I'll be interested in seeing if there's any specific amount allocated to nonprofit hospitals, or if the $75 billion is for all hospitals).

Anyway, it's all questions for now, but this is good news for small nonprofits that hadn't yet gotten a PPP loan.

Samuel D. Brunson

Image by mohamed Hassan from Pixabay

Paycheck Protection Program and Affiliation

Last week, Lloyd mentioned three sections of the CARES Act of particular interest to the nonprofit community. One of those three sections is the Paycheck Protection Program, created under section 1102 of the Act.

Broadly speaking, the PPP expands the Small Business Administration's authority to make loans to small businesses either directly or indirectly. Under the PPP, essentially, the SBA guarantees 100% of covered loans. A borrower can only use these loans for specific purposes, including (among other things) payroll costs, mortgage interest, rent, and utilities.

Critically, to the extent a borrower spends the borrowed money in qualifying ways (payroll costs, mortgage interest, rent, and utilities), the loan will be forgiven.

And, while the SBA loan program traditionally applied only to small for-profit businesses, the PPP explicitly includes nonprofits.

However, qualifying nonprofits face the same requirements as for-profit businesses, including a cap on the number of employees. Like a small business, a nonprofit only qualifies if it employs 500 or fewer people. And, like, a small business, nonprofits are subject to the SBA's affiliation rules.

Because SBA loans have historically only been available to for-profit entities, the affiliation rules focus largely on ownership and control (especially of stock). This is, at best, an imperfect match for nonprofits, which generally lack equity owners. 

Presumably, in looking at affiliation in nonprofits, the SBA will look at the final two criteria: affiliation based on management or on identity of interest.

I'm hesitant to be too critical of a program thrown together quickly to deal with a worldwide pandemic. It inevitably is going to face unexpected problems, and grafting nonprofits onto a for-profit loan program seems almost built to raise those problems. As a result, I'll be interested in seeing how it ends up applying the affiliation rules to nonprofits. Still, this loan program will provide a lifeline to small nonprofits, making it easier for them to keep their employees and keep their physical spaces.

Samuel D. Brunson

Photo by The New York Public Library on Unsplash

More on the Temporary Nature of the Above-the-Line Charitable Deduction

Thanks to Lloyd for the follow-up post explaining why the above the line deduction is only for one year.

I strongly agree that the provision is temporary and blog to emphasize that point as this has been raised as an issue in other forums.

As Lloyd notes, the confusion stems from the fact that the above the line deduction in § 2204 of the CARES Act is effective for taxable years beginning after December 31, 2019 and does not contain a sunset. Without more this would be a permanent provision.

But the operative terms of the provision provide the sunset. The statutory text allows a deduction “In the case of taxable years beginning in 2020” for “contributions made . . . during the taxable year.”

The text “in the case of taxable years beginning in 2020” indicates that the provision is temporary. For calendar year taxpayers, any contribution made after the year 2020 would not be eligible for the deduction for the simple reason that the contribution would not be made in a taxable year that began in 2020. For example, if a calendar year taxpayer made a contribution in the year 2021, the deduction would not be available because the taxpayer’s taxable year did not “begin in 2020” but rather began in 2021. This is a plain, straightforward, and fair reading of the text – it applies only with respect to taxable years “beginning in 2020” and not to contributions made in taxable years that begin in a year after 2020.

I suppose there is some room for ambiguity if the language “In the case of taxable years beginning in 2020” is read to be the equivalent of “in the case of taxable years beginning in 2020 and for taxable years thereafter” but that obviously is not what the statute says. Nor does the operative language track the effective date, i.e., the statute does not say contributions may be made “In the case of taxable years beginning after 2019,” which clearly would have been a permanent provision.

One could argue that the provision is ambiguous as compared to other provisions in the statute that are, arguably more explicitly, made temporary. For example, changes to the itemized charitable deduction (which are contained in the very next section of the bill, § 2205) have more direct language. The title of § 2205 is “Modification of Limitations on Charitable Contributions During 2020,” a point emphasized in the text of each subsection, to wit: a “temporary suspension of limitations on certain cash contributions” (from the heading to 2205(a)); “such contribution is paid in cash during calendar year 2020” (from the text of § 2205(a)(3)(A)(i); and “In the case of any charitable contribution of food during 2020” (from the text of § 2205(b)). This bolded language (my emphasis) is more direct than the language for the nonitemizer deduction (“in the case of taxable years beginning in 2020”) thus suggesting that Congress could have been a bit more clear about the temporary nature of the nonitemizer deduction. But even so, “taxable years beginning in 2020” has a pretty straightforward literal meaning. Further, § 2205, like § 2204, also is without an explicit sunset; and in fact both provisions have the same effective date of “taxable years ending after December 31, 2019.” In other words, the drafters relied on the operative text of both provisions to create a sunset and not the effective date itself.

An additional contextually important factor is that revenue estimate for the nonitemizer provision was scored as a temporary provision, which is very strong contemporaneous evidence of what the drafters were thinking.

In short, any concerns about this provision being permanent do not appear persuasive, notwithstanding the absence of a sunset.

In any event, Congress has more work to do here. The above the line deduction is poorly designed and will in all likelihood operate just as a tax cut for those who were going to give $300 to charity anyway, and so will not generate much in the way of new giving.

Roger Colinvaux

The Nonprofit Sector: A Research Handbook (3rd edition)

In existing news for nonprofit academics, Stanford University Press has published the third edition of the widely respected The Nonprofit Sector: A Research Handbook, edited by Walter W. Powell and Patricia Bromley. Here is the description:

The nonprofit sector has changed in fundamental ways in recent decades. As the sector has grown in scope and size, both domestically and internationally, the boundaries between for-profit, governmental, and charitable organizations have become intertwined. Nonprofits are increasingly challenged on their roles in mitigating or exacerbating inequality. And debates flare over the role of voluntary organizations in democratic and autocratic societies alike. The Nonprofit Sector takes up these concerns and offers a cutting-edge empirical and theoretical assessment of the state of the field.

This book, now in its third edition, brings together leading researchers—economists, historians, philosophers, political scientists, and sociologists along with scholars from communication, education, law, management, and policy schools—to investigate the impact of associational life. Chapters consider the history of the nonprofit sector and of philanthropy; the politics of the public sphere; governance, mission, and engagement; access and inclusion; and global perspectives on nonprofit organizations. Across this comprehensive range of topics, The Nonprofit Sector makes an essential contribution to the study of civil society.

Lloyd Mayer

IRS Guidance for Syndicated Conservation Easement Exams (and Another Federal Appellate Court Victory)

Late last month the IRS publicly released an Interim Guidance Memorandum for Syndicated Conservation Easement Examinations.  The memo focuses on how IRS Small-Business/Self-Employed Division and Large Business and International Division employees working on such examinations should handle situations where the statute of limitations has less than eight months left to run.  Hat tip: EO Tax Journal.

And just last week, the IRS had another court victory in a qualified conservation contribution deduction case, this time in the U.S. Court of Appeals for the Sixth Circuit. In Hoffman Properties II, LP v. Commissioner, the court upheld the disallowance of a $15 million claimed deduction because the contributor retained certain rights that allowed it to make changes to the facade and airspace at issue unless the recipient of the donation objected within 45 days. The court found that this provision meant the "perpetuity" requirement for a deductible contribution was violated and so the deduction failed. 

Lloyd Mayer

IRS Settles with Panera Bread Foundation - Agrees to 501(c)(3) Status

A year ago, two posts by Professor Darryll K. Jones appeared in this space criticizing the decision by the IRS to revoke the tax-exempt status of the Panera Bread Foundation. One post focused on the commerciality doctrine, the other focused on private benefit. No sign if IRS officials read those posts, but late last month the IRS signed a stipulated decision in the Foundation's Tax Court declaratory judgment action, agreeing that the Foundation qualified as an organization described in Internal Revenue Code section 501(c)(3). Alas, the stipulated decision also reveals that the Panera Cares Cafes ceased to operate in February 2019 and the Foundation does not intend to renew their operations. It is not clear to what the extent that fact drove the IRS' decision to enter into the agreement, given that it was the operation of the Cafes that fueled the IRS' concerns.

Hat tip: Russell Willis

Lloyd Mayer

ANSWER FOUND: Why the $300 Above-the-Line Charitable Contribution Is Only Available for Tax Years Beginning in 2020

Thanks to a sharp-eyed reader of this blog (NYU Professor Harvey Dale), I now have the answer to why the $300 above-the-line charitable contribution deduction is only available for contributions made during taxable years beginning in 2020. The relevant section of the CARES Act (2204) adds a paragraph to Internal Revenue Code section 62(a) that says the following (emphasis added):

(22) CHARITABLE CONTRIBUTIONS.—In the case of taxable years beginning in 2020, the amount (not to exceed $300) of qualified charitable contributions made by an eligible individual during the taxable year.”.

So while the effective date language only says "shall apply to taxable years beginning after December 31, 2019," the above quoted language limits the deduction to taxable years beginning in 2020. For the vast majority of individuals, the taxable year that begins in 2020 will be the 2020 calendar year. However, individuals are in some circumstances able to choose a non-calendar fiscal year for tax purposes (see IRS Publication 538, p. 4). So the Joint Committee on Taxation scoring publication was not completely accurate in describing the deduction as "sunset 12/31/20".

Lloyd Mayer

 

Coronavirus Nonprofit Law Additional Roundup: Chronicle on Philanthropy Coverage; JCT Scoring; DAFs & Private Foundations; State Guidance

As promised, here are some additional items relating to the effect of the pandemic on nonprofit law.

Chronicle of Philanthropy Coverage: The Chronicle of Philanthropy is providing a series of articles to help nonprofits deal with the coronavirus crisis. Notable entries relating to legal topics include:

• How the New $300 "Universal" Deduction Works (flagging not only the uncertainty about how long the deduction is available but also whether a married couple filing jointly can claim a $600 deduction)

• Ask an Expert: Eligibility for Federal Stimulus Funds and the New Charitable Deduction

• How to Apply for Stimulus Benefits

JCT Scoring of CARES Act: See the numbers below for the projected revenue effects of the CARES Act charitable contribution deduction provisions from Joint Committee of Taxation publication JCX-11-20. Perhaps most importantly, and as flagged by a commentator on my initial roundup, JCT takes the position that the $300, above-the-line charitable contribution deduction sunsets on 12/31/2020, although I still have not found statutory language to this effect.

Provision                                             Effective          2020  2021   2022 2023 2024 2025 2026 2027 2028 2029 2030 2020-25 2020-30

4. Allowance of partial above
the line deduction for charitable     tyba 12/31/19 -310 -1,241     ---     ---      ---     ---     ---      ---      ---     ---      ---       -1,551      -1,551
contributions (sunset 12/31/20)

5. Modification of limitations 
on charitable contributions              tyea 12/31/19 -1,080 -3,748 2,403 741  367     45     179   ---     ---     ---      ---       -1,272     -1,093

[Millions of Dollars; Years are Fiscal Years; tyba = taxable years beginning after; tyea = taxable years ending after]

DAFs and Private Foundations: As many nonprofits and particularly charities brace for a sharp downturn in donations, numerous commentators are calling on advisers and sponsoring organizations for donor-advised funds and management for private foundations and other funders to increase and modify their giving. Examples from the Chronicle of Philanthropy include:

• David Biemesderfer, Grantmakers Must Put Equity at the Forefront of the Coronavirus Response
• Alan Cantor, Save Lives Now, Grant Makers and Donors
• Terry Mazany, The Coronavirus Outbreak Could Prove Why Donor-Advised Funds Serve Society
• Lauren Smith, How to Help the Most Vulnerable Through the Pandemic

State Guidance: The New York Attorney General's Charities Bureau has issued Guidance for Charitable Nonprofit Organizations Facing the Challenges of the COVID-19 Pandemic. Topics covered include:

• How the Charities Bureau Can Help
• Registration with the Attorney General's Charities Bureau
• Additional Extensions of Times to File
• IRS Extended IRS Form 990 Filing Date
• Reserves, Restricted Assets, and Use of Endowment Funds
• Filing a Complaint with the Charities Bureau
• Resources for Charities

Lloyd Mayer

 

 

Bird-Pollan Presents "Taxing the Ivory Tower" at IU Tax Policy Colloquium Tomorrow

Professor Jennifer Bird-Pollan (U. Kentucky) will be presenting Taxing the Ivory Tower at the Indiana University Tax Policy Colloquium at 1:15 to 2:15 pm (EDT) tomorrow. If you are interested in attending (via Zoom), please contact Professor Leandra Ledermann at llederma@indiana.edu to receive the Zoom meeting information.

Lloyd Mayer

TE/GE FY19 Accomplishments Letter

Last month IRS Tax-Exempt and Government Entities (TE/GE) released its Fiscal Year 2019 Accomplishments Letter. Here are the Exempt Organizations highlights:

• Examinations: "Exempt Organizations completed examinations of 3,675 returns in FY19, including the Form 990 series (990, 990-EZ, 990-PF, 990-N, 990-T) and their associated employment and excise tax returns. We proposed revocations (without protest) for 60 tax-exempt entities as a result of these examinations."

• • "Exempt Organizations initiated and continued several compliance strategy examinations to address noncompliance in this sector, including: IRC 501(c)(7) entities . . . ; Previous for-profit . . . ; Private benefit and inurement . . . ; IRC Section 4947(a)(1) Non-Exempt Charitable Trust (NECT) organizations . . . ."

• • Continuing several data-driven compliance examinations.
•  
  • Examining entities that filed and received exemption using Form 1023-EZ.
•  
  • Continuing review of approximately 3,000 tax-exempt hospitals (on a rolling, three-year basis) for compliance with Internal Revenue Code section 501(r), with 812 reviews completed and 53 hospitals referred for examination (49 for possible Affordable Care Act noncompliance, with the most common issues being a lack of a Community Health Needs Assessment and a lack of financial assistance policies).

• Determinations: "Exempt Organizations closed 101,880 determination applications in FY19, including over 92,000 approvals, approximately 86,000 of which were approvals for 501(c)(3) status."

• Staffing: Approximately 550 Exempt Organizations employees, with the overall workforce for TE/GE having increased nearly 5% over the prior year.

Lloyd Mayer

Coronavirus Nonprofit Law Initial Roundup: CARES Act; Extended Deadlines

This blog has been on hiatus as its contributors have dealt with moving their courses to online delivery, supporting students facing many stressful situations, and of course dealing with the personal impacts on us and our families of the pandemic. It therefore seems appropriate to start with an initial roundup of nonprofit law-related coronavirus topics before turning to other recent nonprofit law developments.

CARES Act: Many provisions of the CARES Act (Pub. Law No. 116-136) could be relevant to most nonprofits, but three provisions stand out in particular:

• Partial Charitable Contribution Deduction for Individual, Non-Itemizers (section 2204): Modifies Internal Revenue Code section 62 by adding paragraph (a)(22) and subsection (f) to allow individuals who do not itemize their deductions to deduct, above-the-line, cash charitable contributions (as defined in section 170(c)) of up to $300 total made in taxable years beginning after December 31, 2019. Supporting organizations and donor-advised funds are not eligible recipients, but private foundations are.

• Temporary Elimination or Increase of Limits on Certain Charitable Contribution Deductions (section 2205): Modifies IRC section 170 by eliminating the contribution base percentage limit on charitable contributions by individuals and increasing the taxable income percentage limit on charitable contributions by corporations from 10 percent to 25 percent for cash contributions made during the 2020 calendar year. Again, supporting organizations and donor-advised funds are not eligible recipients, but private foundations are.

• Small Business Administration Loans: Section 501(c)(3) organizations, including religious ones, are eligible to participate in the Paycheck Protection Program (sections 1101-1106) if they satisfy number of employee (usually 500 or less) and other requirements, and all private nonprofits are eligible to participate in the Emergency Economic Injury Grants program (section 1110) if they satisfy that program's number of employee (usually 500 or less) and other requirements. For more details about these programs, see the SBA website; there is also an informative webinar on the Pittsburgh Foundation's website (dated April 10th) on this topic, as well as additional webinars on other coronavirus, nonprofit-related topics.

Coverage: Independent Sector; National Council of Nonprofits. Interestingly, these summaries state that the above-the-line deduction provision applies to contributions made in 2020, but the statutory language appears to make this provision permanent in that it applies "to taxable years beginning after December 31, 2019" without any expiration date and so it should be available for cash contributions made after 2020 as well. An analysis by the University of Pennsylvania's Wharton School, which states the above-the-line deduction is only available for contributions made in 2020 (I believe incorrectly), predicts that deduction will cost $2 billion but will only increase charitable contributions in 2020 by $110 million.

Extended IRS and State Filing Deadlines: In Notice 2020-23, the IRS explicitly extended to July 15, 2020 the deadline for filing (and paying any related tax owed) Form 990-PF, Form 990-T, Form 990W, and Form 4920 if they otherwise would have been due on or after April 1, 2020 and before July 15, 2020. In addition, by cross-reference to Revenue Procedure 2018-58 (see Section 10) the IRS also also extended to July 15, 2020 the deadline for filing a wide range of forms relating to tax-exempt organizations, including Form 990, Form 990-EZ, Form 990-N, Form 1023, Form 8871, Form 8872, and Form 8976 if they otherwise would been due during the same time period. For an analysis of this cross-reference, see this post by Laura J. Kenney of Blum Shapiro. Hat Tip: EO Tax Journal.

The IRS has also announced in a memorandum that it is permitting examination agents and managers to use "an increased reasonable application of business judgment" when applying the otherwise applicable deadlines for responding to information document requests and follow-ups during enforcement actions. This "temporary deviation" from the otherwise applicable requirements for enforcing such deadlines is in effect through July 15, 2020.

Finally, states are extending deadlines for required filings by nonprofits. For example, the New York Attorney General's Charities Bureau has announced it will grant an automatic six-month extension for annual financial reports originally due after February 15, 2020.

More updates to follow. Stay safe.

Lloyd Mayer