Wednesday, October 21, 2020
The Center for Civil Society Studies released a new report showing a seriously slowing of recovery of employment in the nonprofit space. I guess the good news is there still seems to be an overall recovery, but worrisome signs that the sector may sink back into employment loss.
From the report: "As part of our continued effort to track the ongoing impact of the coronavirus pandemic on nonprofit employment, we have analyzed data from the latest BLS Employment Situation Report to estimate nonprofit job losses through September 2020.
How did nonprofits fare in September?
Unfortunately, the month of September showed only a modest 2% recovery of nonprofit jobs compared to the situation we reported in August.1 The only major field that enjoyed a rebound of more than 10% overall was social assistance at 12.8%. What is more, September brought significant additional losses in the key field of education totaling nearly 50,000 jobs—a drop of 24% from August employment levels, as shown in Figure 1."
Monday, October 19, 2020
Figured readers would be interested in this look by Brian Mittendorf at the implications for Donor Advised Funds of Fairbairn v. Fidelity that appears in HistPhil.org.
"One way the concern that commercial DAFs are donor-centric arises is in the competition between sponsoring organizations. The lawsuit alleges that Fidelity Charitable differentiated itself from other charitable options by its “superior ability to handle complex assets,” even stating in correspondence about the possibility of receiving a gift of one particular type of asset that “Vanguard can’t do this but we do it frequently.” The general public may think of competition among charities as focusing on who can best put gifts to charitable use. It turns out this is an antiquated notion: the intense competition centering on seamlessly receiving and converting complex assets for donors presents a stark contrast.
A related issue is that DAFs increasingly are vehicles that provide disposal options to donors for illiquid assets. In the Fairbairn case, the assets donated were technically liquid (they were publicly traded) but the size of the donation would threaten share price if it were a sale instead of a donation, an eventuality that formed the basis for the lawsuit. However, donating such assets permits a tax deduction for the value, even though an outright sale at that value would be problematic. "
And, "A final issue that surfaces in the Fairbairn case is that some DAF sponsors may implicitly or even explicitly be beholden to their commercial affiliates. Legally speaking, Fidelity Charitable is a distinct entity from Fidelity Investments; as is the case for Vanguard Charitable and Vanguard; and so on. Yet, the shared names and logos underscore a nontrivial affiliation. Critics have argued that the commercial DAFs invest funds heavily in their affiliated investment companies and, as such, generate substantial fees for them. This, in turn, could create incentives to retain funds in investments rather than distribute them to charitable endeavors. The allegations in the Fairbairn case are consistent with this fear."
Friday, October 9, 2020
Given that we're well into election season, I thought I'd end my week highlighting a significant difference between a couple types of political organizations: 501(c)(4)s and 527 groups.
At a broad level, 501(c)(4) organizations are similar to 527 organizations: both are exempt from taxation and both can accept donations and spend those donations for political purposes. Donors do not get a deduction for donations to either type of organization.
There are, of course, some differences. 527 orgs face no limitations on their ability to spend money supporting candidates for office. The Code defines their exempt function as working to influence the selection of political figures. 501(c)(4) orgs, by contrast, have to be "primarily engaged" in promoting social welfare; the promotion of social welfare does not include supporting or opposing candidates for office. So 501(c)(4)s, unlike 527 orgs, cannot be organized with the sole purpose of supporting candidates for office.
But donors to 501(c)(4)s have a significant tax advantage, at least if they donate appreciated property. The donation of appreciated property to 501(c)(4) organizations is not a realization event. So, while the donor may not get a deduction, the donor also does not have to pay taxes on any imputed gain from the donation.
But in 1975, when Congress enacted section 527 of the Code, it also enacted section 84. Under section 84, the transfer of appreciated property to a 527 org is treated as a realization event and the donor is required to pay taxes on any appreciation as if the donor had sold the property to the political organization for its fair market value on the date of the donation.
It's probably worth pointing out that section 84 only applies where the fair market value of the property exceeds the basis at the time of transfer. A donor can't create a deduction by donating property that has lost value.
Also, thanks to Ellen Aprill for highlighting section 84 for me; it's an interesting point of deemed realization and it creates an interesting and (I suspect) unintentional break between 527 and 501(c)(4) organizations.
Samuel D. Brunson
Wednesday, October 7, 2020
Yesterday's NonProfitTimes had an extensive article detailing and analyzing two cases that the NRA is dealing with. In New York the Attorney General is seeking the dissolution of main 501(c)(4) organization and is seeking to bar four current and former executives from serving on the boards of any New York nonprofit organization.
In addition, the Attorney General of the District of Columbia has alleged that the NRA Foundation, an affiliated 501(c)(3) has inappropriately used its charitable funds for disallowed purposes, put the NRA's interests ahead of its own, and failed to operate independently.
It's a fascinating summary and analysis of what may prove to be an important (and very certainly will continue to be a high-profile) attempt to regulate nonprofits.
Samuel D. Brunson
Monday, October 5, 2020
Conservation easements have been having a day lately. As Lloyd pointed out a couple weeks ago, both the IRS and Congress are aggressively looking at conservation easements. And a week ago, the New York Times's bombshell story that it had received more than 20 years of President Trump's tax return data again.
We already knew in 2016 that Trump had claimed a deduction for conservation easements and Richard Rubin at the Wall Street Journal pointed out a month ago that his conservation easements were vulnerable to IRS challenge. But now we have a little more detail.
Before we get to that detail, though, a quick description of what a "conservation easement" is. As a general rule, to get a charitable deduction for the donation of property, the donor must give all rights in the property to an exempt organization. The Treasury regulations provide a limited exception to this rule, though: if a property owner donates a perpetual interest in land to a qualified recipient, the owner can take a deduction. Essentially, this donation prevents the property owner from developing the property.
Thursday, September 10, 2020
When singer, actress, and animal welfare activist Doris Day (born Doris Mary Anne Kappelhoff) died in May 2019 at the age of 97, she left almost all of her estate to the Doris Day Animal Foundation. Accordingly, the proceeds of the sale of Ms. Day's Monterey, CA, home -- listed recently for $7.4 million -- will go to the Foundation. The house sits on nine acres and includes a kitchen that Ms. Day dedicated to just cooking for her dogs.
Word of Ms. Day's pampering of rescued animals is legendary. As I have already noted, she cooked for dogs in a kitchen specially built for them. In an article published last week, the Wall Street Journal quoted people familiar with the situation saying that at some point, Ms. Day had as many as 50 dogs on the property.
Ms. Day was well known for her animal rights work and fundraising for that cause. She founded the Doris Day Animal Foundation (DDAF) in 1978 as the Doris Day Pet Foundation with a mission to help animals and the people who love them. As a grant-giving charity, DDAF funds other 501(c)(3) organizations throughout the United States that directly care for and protect animals.
The NonProfit Times reports that Ms. Day formed the Doris Day Animal League (DDAL) in 1987. The League was a national, nonprofit citizens' lobbying organization whose overriding mission was to reduce the pain and suffering of animals through legislative initiatives, education, and programs to develop and enforce statutes and regulations protecting animals. In 1995, Ms. Day and DDAL founded Spay Day USA. It is now known as World Spay Day and is under the auspices of the Humane Society of the United States.
In 2007, DDAL merged with the Humane Society of the United States, and the Doris Day Pet Foundation evolved into the Doris Day Animal Foundation, with which Ms. Day was active until her death last year. The Foundation now stands to receive millions from Ms. Day's estate.
Now that's a heart-warming story -- not only for animal lovers but for all humanity.
Vaughn E. James
Organizations making pledges and commitments for social causes continue to be in the news. The latest to jump in: the Boston Celtics and Boston Celtics Shamrock Foundation have announced that the two organizations are making a ten-year, $25 million commitment to address racial injustice and inequities in the greater Boston area.
This commitment is itself part of a larger effort announced by the National Basketball Association in August. The Celtics' initiative will be termed The Boston Celtics United for Social Justice. According to today's Philanthropy News Digest, the initiative
includes $20 million in cash and $5 million in media and in-kind assets in support of both the NBA's efforts and local programs, with a focus on six areas identified by the organization in discussions with community leaders and players: equity in education, economic opportunity and empowerment, equity in health care, criminal justice and law enforcement, breaking down barriers and building bridges between communities, and voting and civic engagement.
The Digest continues:
Planned projects under the initiative include creating an early-education center for low-income families; providing pro bono services to minority-owned businesses; assisting juvenile offenders through workforce development and academic completion opportunities; expanding The Playbook Initiative, the team's bias-prevention curriculum; and promoting voter registration and the importance of voting.
In discussing the initiative, Celtics forward, Jaylen Brown, stated, "Our goal is to have a direct impact now. We don't need to pacify the situation with empty gestures. We need to hold ourselves, the Celtics organization, and the City of Boston accountable. Monetary commitment is a great first step, but we need to commit to this process by creating a balance of short- and long-term change. The time is now."
I fervently agree.
Vaughn E. James
Wednesday, September 9, 2020
Today's Philanthropy News Digest is reporting that as part of a four-year, $1 billion pledge announced in June to advance racial equality and economic opportunity, Bank of America has announced commitments totaling $300 million.
The commitments include support for initiatives across ninety-one U.S. and global markets in four areas: $25 million for jobs initiatives in Black and Latinx communities, $25 million in support of community outreach and initiatives, $50 million for direct equity investments to minority depository institutions (MDIs), and $200 million in proprietary equity investments in minority entrepreneurs, businesses, and funds.
According to the Digest,
The $25 million for jobs initiatives will support up-skilling and reskilling programs for African-American and Latinx students through partnerships with eleven community colleges and ten public historically black colleges and universities (HBCUs) and Hispanic-serving institutions (HSIs). Recipients include North Carolina A&T State University, Atlanta Technical College, Dallas College-El Centro Campus, and Arizona State University -- Downtown Phoenix. The $25 million in support of community outreach initiatives includes funding to address needs and provide personal protective equipment in underserved and minority communities disproportionately impacted by the current COVID-19 public health emergency. The $50 million for direct equity investments in MDIs -- which includes awards of capital to First Independence Corporation in Detroit, Liberty Financial Services, Inc. in New Orleans, and SCCB Financial Corp. (parent company of Optus Bank) in Columbia, South Carolina -- will provide support for small business lending, housing creation, neighborhood revitalization, and other banking activities. Details of the $200 million proprietary equity investments will be announced at a later date.
According to Bank of America CEO Brian Moynihan, "These initial investments will address access to jobs and support for small businesses by creating more pathways to employment in communities of color and more support for minority entrepreneurs."
Vaughn E. James
Thursday, September 3, 2020
In response to the New York Attorney General's suit seeking dissolution against the National Rifle Association, David Cole (Legal Director, ACLU) penned a Wall Street Journal op-ed (paywall) entitled "NRA has a Right to Exist." At Volokh Conspiracy, Jonathan Adler (Case Western Reserve) agrees: "Cole is correct. If specific NRA officials have abused their positions they should be removed. If they committed crimes, they should be prosecuted. But the ability of the NRA's members to associate and pursue their political priorities should not be impaired due to the malfeasance of NRA officials."
Tuesday, August 25, 2020
On August 6th, New York attorney general Letitia James filed suit to dissolve the National Rifle Association, a powerful nonprofit quartered in New York. A 501(c)(4) tax-exempt organization, the NRA has stood for the protection of American second amendment rights since 1871: today, its leadership stands accused of seriously abusing organizational coffers and fraudulently concealing their actions. Attorney general James alleges in her complaint that the NRA at large instituted a culture of backroom dealing and illegal behavior which has resulted in the complete waste of millions of dollars in assets. As a tax-exempt charitable corporation, the NRA is required to use its resources to serve its members’ interests and advance its mission. James further asserts that the NRA’s internal policing mechanisms and boards routinely failed to put a stop to this illegal behavior, which is part of the reason why the attorney general now calls for complete dissolution of the organization.
In addition to attacking the organization at large, attorney general James lists in her complaint four individuals in the NRA’s leadership: the organization’s executive vice president, former treasurer/CFO, former chief of staff, and general counsel. James’ complaint includes an impressive amount of evidence indicating that these men channeled colossal sums of NRA resources into lavishing benefits on themselves and those closest to them. If successful, the attorney general’s suit will serve as a powerful reminder that no nonprofit organization, no matter how venerable its history may be, is above the fiduciary duties it owes to its members or its reporting duties to federal and state governments alike.
By David A. Brennen, Professor of Law at the University of Kentucky
For the attorney general's press release see:
The IRS hinted in June at further modifying an excise tax on highly-compensated employees of for-profit companies who also volunteer a portion of their time for nonprofit organizations. Section 4960, added to the Code in late 2017, imposed a significant tax on excess compensation to the five highest-paid officers of a nonprofit organization. Interpretation of this statute became the subject of debate in 2019 with the IRS’ release of 2019-04 I.R.B. 403 - a guidance on how to calculate taxes or liability under §4960. In that guidance, the IRS stated that the for-profit business employing an executive officer who also volunteers with or works for a tax-exempt business could be liable for the excise tax if the for-profit and tax-exempt businesses were deemed “related.” Following concerns voiced by commenters, the IRS proposed on June 11th of this year a possible exception to the definition of the five highest-paid employees of a tax-exempt organization. The §4960 exception applies if someone working with a tax-exempt organization works a number of hours no more than 10% of their total hours worked with related organizations that year and isn’t paid for their work with the tax-exempt organization. It appears that the IRS heeded industry concerns. Indeed, if for-profit companies don’t fear being held liable for an unexpected excise tax, then those for-profit companies will be more likely to allow their highly compensated employees’ dedicate spare time lending their valuable skills to tax-exempt organizations.
For the IRS' published proposal regarding this rule, see: https://www.federalregister.gov/documents/2020/06/11/2020-11859/tax-on-excess-tax-exempt-organization-executive-compensation
By David A. Brennen, Professor of Law at the University of Kentucky
Monday, August 17, 2020
On August 6, 2020, the New York Attorney General Letitia James filed a complaint against the NRA seeking restitution from officers and directors, removal of officers and directors, and the dissolution of the nonprofit organized in New York in 1871. While it looks like few think the suit for restitution and removal wrong, many are criticizing the AG for bringing the dissolution action.
I think she was right to bring the dissolution action, but I doubt a court will grant it, and I think that is all fine.
The AP provided a good rundown of the case and immediate reactions.
Last year when leadership in the NRA was in disarray and widely predicting that the misuse of the nonprofit by its officers and directors could lead to its dissolution, I wrote that this was highly unlikely:
"At the same time, I think it’s possible that the New York authorities investigating the group might remove officers and members of its 76-member board of directors. There is even a slight possibility, as NRA CEO Wayne LaPierre warned in a fundraising letter, that New York authorities could cause the NRA “to shut down forever.” But I doubt it."
Ruth Marcus has questioned the NY AG.
The NRA has filed a lawsuit challenging the AG action on many grounds including first amendment grounds, defamation, and procedural grounds trying to nullify the dissolution action. Asher Stoker has a nice tweet thread explaining why the procedural effort was unlikely to work. The NY AG amended its complaint to comply with the strict requirements of filing a dissolution.
The AG lays out the basis for dissolution on page 138-39 of the complaint:
- Under N-PCL § 112(a)(5), the Attorney General is authorized to maintain an action or special proceeding to dissolve a corporation under Article 11 (Judicial dissolution).
- Under N-PCL § 1101(a)(2), the Attorney General may bring an action seeking the dissolution of a charitable corporation when “the corporation has exceeded the authority conferred upon it by law, or … has carried on, conducted or transacted its business in a persistently fraudulent or illegal manner, or by the abuse of its powers contrary to public policy of the state has become liable to be dissolved.”
Here is the N-PCL.
Many question the AG's partiality because she is a Democrat and so vocally stated she would investigate the NRA during her campaign, and called it a terrorist organization.
I encourage everyone to read the complaint. When you read the allegations of a long running, substantial, and extensive fraud on the members of the NRA, I am left wondering when the AG may use the dissolution provision that is in New York nonprofit law, if she does not use it now.
Importantly, and I think interestingly for the process, the New York statute states that the AG “may” bring a dissolution action under these circumstances. But, the judge then still has to decide.
N-CPL 1109 tells the judge what to take into consideration. It says:
(a) In an action or special proceeding under this article if, in the court's discretion, it shall appear that the corporation should be dissolved, it shall make a judgment or final order dissolving the corporation.
(b) In making its decision, the court shall take into consideration the following criteria:
(1) In an action brought by the attorney-general, the interest of the public is of paramount importance.
(2) In a special proceeding brought by directors or members, the benefit to the members of a dissolution is of paramount importance.
(c) If the judgment or final order shall provide for a dissolution of the corporation, the court may, in its discretion, provide therein for the distribution of the property of the corporation to those entitled thereto according to their respective rights. Any property of the corporation described in subparagraph one of paragraph (c) of section 1002-a (Carrying out the plan of dissolution and distribution of assets) shall be distributed in accordance with that section.
It seems to me that the appropriate way for this process to play out is for the AG to bring the dissolution action. She should present the evidence for that claim. It may be that the power structure associated with what we consider the NRA today is so impossibly entangled with the wrongdoers that it would be impossible for the NRA to be reformed to actually further the mission of the NRA. If that is the case, dissolution is the answer. I am just skeptical that this is the answer.
Though I do not believe in the same ideological beliefs that the NRA seeks to further, I do believe a robust defense of the Second Amendment should be a part of American life. I think the large membership is entitled to an organization that honestly and fairly furthers that mission. I believe we are better off in a world where the folks that believe in that right have good representation. Because of that, I find it hard to believe it will be impossible to reform the entity with that substantial membership in mind. That said, I think it possible the AG could prove her case. I think she should be allowed the respect to bring that forward. I think we will be better for it, including especially those who are conservatives. AG James is insisting on a rule of law. We should all be grateful to her for that commitment.
I shared my general thoughts with BBC World Tonight on the day the complaint was filed. You can listen to those starting at about 27:45 in on this link.
Many have wondered whether the NRA can just move out of New York to avoid the problem. The NY AG has the direct answer by tweet. No.
It is also worth watching the DC AG complaint against the NRA Foundation.
If you want a deep and rich understanding of the matter of the NRA I highly recommend the Gangster Capitalism podcast on the NRA.
Wednesday, August 5, 2020
Giving USA released its 2020 report a month and a half ago or so. And the report had some good news for nonprofits: in 2019, giving increased from $431.43 billion in 2018 to $449.64 billion in 2019. In inflation-adjusted dollars, that represents a 2.4% increase.
And by and large, that increase came across the board--giving by individuals, foundations, and corporations rose. (Giving by bequest was essentially flat.) No charitable sector received less, but education, public-society benefit societies, arts, culture, and humanities, and environmental and animal charities received the largest increase in donations.
And what about the pandemic? Giving USA reports that although giving was significantly down in the first quarter of 2020, 80% of donors intend to maintain or increase their giving over the pandemic.
But will that be enough? One survey reports that up to 1/3 of charities anticipate that they may have to close within the next year as a result of the pandemic. And the Johns Hopkins Center for Civil Society Studies estimates that nonprofits shed 1.6 million jobs between March and May.
So what will the nonprofit sector look like when we finally emerge from the pandemic? At best it will look different.
Samuel D. Brunson
Tuesday, August 4, 2020
I recently posted an early draft paper to SSRN. Addressing Hate looks at both the nonprofit incorporation and the tax-exempt status of the 1916 Ku Klux Klan. Here's the abstract:
In 1944, the Ku Klux Klan officially suspended its operations. Two years later, it had entirely ended. In part this was the inevitable result of a decade of declining influence and membership. In part, though, it was the result of actions by the federal government and the state of Georgia.
In 1916 the Ku Klux Klan incorporated as a Georgia fraternal organization, following a model of the Masons and other fraternal organizations. It also claimed to be a tax-exempt fraternal beneficiary society under the new federal income tax. These legal statuses provided the Klan with legal rights and benefits and also shrouded it in a cloak of respectability: it could claim that it was not merely a terroristic white supremacist group, but that it provided fraternal benefits to its members and the surrounding community.
Its incorporation and tax status provided it with benefits, it also imposed obligations on the organization. The Klan ultimately proved incapable of meeting these requirements. It violated the terms of its corporate charter and of tax exemption as a fraternal beneficiary society. The Bureau of Internal Revenue assessed a $685,305 tax on the Klan and, when the Klan did not pay, filed a lien. The state of Georgia in turn revoked its corporate charter. While these moves did not cause the second Klan’s death, they did seal its death.
This Article relates the story of the Klan’s corporate and tax statuses. It focuses on this story both because the story has never been related in any detail and because it provides a perspective on how government can deal with contemporary white nationalist groups without violating the Constitution.
Samuel D. Brunson
Sunday, August 2, 2020
A little more than three weeks ago, President Donald Trump tweeted that the Treasury Department should investigate the tax-exempt status of universities as a result of their "Radical Left Indoctrination." Then Friday, TIGTA told Rep. Richard Neal that Treasury Secretary Mnuchin intends to follow through on some sort of investigation of the tax-exempt status of universities.
I'm not going to reiterate our entire analysis here, but Treasury and the IRS face three significant problems in investigating universities. The first is that, even if you assume that universities are politically biased--and even if you assume they teach that bias to students--that doesn't mean they can't be exempt. Tax-exempt educational institutions can endorse particular viewpoints.
Moreover, Treasury and the IRS run into two legal impediments in following through on this investigation. The first is section 7217, which prohibits the President from requesting that the IRS audit a particular taxpayer. The second is the Consolidated Appropriations Act, 2020 which, like the 2018 Act, prohibits the IRS from targeting groups for regulatory scrutiny on the basis of their ideological beliefs.
Samuel D. Brunson
Monday, July 20, 2020
COVID-19 pushed institutions of higher education into increasingly dire financial conditions, as exemplified by the recent mass layoffs of tenured faculty at the University of Akron. Although some of the worst hit have been state universities, who have seen the state funding levels drop overnight, nonprofit universities are hardly immune. As we enter a rocky period for universities and colleges, the research of Matthew Brucker (Howard) into university bankruptcy has become urgently (if unfortunately) relevant:
Bankrupt Public Colleges, forthcoming
Terminating Tenure: Rejecting Tenure Contracts in Bankruptcy, 92 AM. BANKR.L.J. 255(2018)
Bankrupting Higher Education, 91 AM.BANKR.L.J. 697 (2017)
Wednesday, July 8, 2020
Wednesday, July 1, 2020
This week, the Supreme Court released a couple opinions of interest in the nonprofit world. The first was Agency for International Development.
Background on the case: in 2003, Congress allocated billions of dollars to U.S. and foreign NGOs to combat HIV/AIDS abroad. That money was conditioned, however, on an organization having an explicit policy opposing prostitution and sex trafficking.
Some organizations that would otherwise qualify for these grants have found that a neutral stance toward prostitution is more helpful in their work, and oppose the policy requirement. Some U.S. NGOs filed suit and, in 2013, the Supreme Court held that the requiring that an organization have an explicit policy against prostitution to qualify for grant money violated the First Amendment. As a result, U.S. NGOs do not have to have an explicit policy opposing prostitution and sex trafficking.
But that left foreign NGOs. And it's worth noting that at least some of the foreign NGOs pursing this grant money are affiliated with U.S. NGOs that aren't subject to the policy requirement
In Agency for International Development, the Supreme Court held that the policy requirement is valid with respect to non-U.S. organizations. It based that conclusion on two grounds:
Monday, June 29, 2020
This morning, my wife read the heartwarming story of a family that bought out a Chicago paletero's ice cream on Father's Day so that he could spend the day with his family. Rosaria Del Real immigrated to the U.S. in the 1960s from Zacatecas, Mexico, working various jobs until a couple weeks ago when he hurt himself and couldn't do carpentry anymore. At that point he started selling paletas to earn money.
The family that bought his paletas started a GoFundMe to help him retire; as of right now, it has raised a little over $62,500 for him.
I said up front that this is a heartwarming story. And in a way it is. But it also strikes me as a deeply troubling indictment of our current system. As much as I love paletas, becoming a paletero shouldn't be a retirement plan, and GoFundMe shouldn't be our social safety net.
And they don't have to be. In the first instance, government can provide a social safety net. And charities can supplement (or administer) that safety net. This morning I also read this story about California's $75 million Disaster Relief Assistance for Immigrants.
While the state is providing the aid, it has engaged 12 nonprofit organizations throughout the state to process applications and distribute the money. That strikes me as an innovative and exciting partnership between the government and the nonprofit sector, one that is more sustainable and more systemically useful than relying on GoFundMe.
Samuel D. Brunson
Friday, June 26, 2020
The TEGE Council has submitted comments on the proposed UBIT siloing rules under section 512(a)(6).
"We are pleased to announce that on June 23, 2020, the TEGE Exempt Organizations Council submitted comments to the IRS and Treasury in response to proposed regulations under Section 512(a)(6), commonly known as the UBIT Silo regulations. The comments were 101 pages, with exhibits, and represent a herculean effort on the part of the group below to spot issues, identify potential solutions, propose examples, and collaborate, coordinate, draft, and edit—all within the short window of time to submit comments for official consideration. Thanks to the committee for the generous gift of time, thought, and leadership. Thanks also to Alexander L. Reid (Regulatory Affairs Chair) and Chelsea Rubin for their leadership."
Here are some of the bottom line comments from the executive summary describing the 101 pages of comments:
"This section provides an outline of our recommendations, each of which is further explained below.
1. Taxpayers should be allowed to identify separate trades or businesses based on all applicable facts and circumstances, consistent with the other aspects of tax-exempt organization tax law. The NAICS codes should operate as a safe harbor for purposes of identifying separate trades or businesses.
2. Taxpayers should be permitted to change the identification of a trade or business (i.e. change the NAICS code assigned to its “silo”) within the first two years of operating a new trade or business regardless of the presence of any mistake in identifying the most appropriate NAICS code. There should be additional flexibility in revising the use of DB1/ 114583248.3 3 NAICS codes that, due to further experience with the rules and accounting for the activities, become better defined over time.
3. Investment activity is not an unrelated trade or business and should not be treated as an unrelated trade or business subject to 512(a)(6).
4. If the IRS and Treasury treat investment activity as an unrelated trade or business, then we recommend the following to make the regulations more administrable and less burdensome: a. Jettison the de minimis and control tests outlined in the proposed regulations for
purposes of determining when a partnership is an investment or an operating business and use applicable accounting standards instead. b. ERISA-covered trusts should be permitted to aggregate all unrelated trade or business activities together, including UBTI arising from a partnership, because ERISA oversight rules ensure that such plans do not engage in a trade or business through partnership activity.
c. Investments managed by registered investment advisors should be treated as qualifying investment activities that may be aggregated together."
There are 13 total executive summary points.