Only about 40 percent of the nearly 14,200 charities that reported receiving business income not related to their missions for the 2006 tax year wound up paying tax on those earnings, according to new statistics released by the Internal Revenue Service.

Charities reported a collective gross income from business activities of more than $6.45-billion, yet paid just $280-million in tax.

Under federal law, nonprofit groups must pay tax on income generated from business activities that are not "substantially related" to their charitable mission.

A 2008 Chronicle study of the business practices of 91 of the nation's largest charities found that many organizations take advantage of vague rules and specific exemptions built into statutes to legally avoid paying taxes. Fifty-one percent of the charities in the study listed zero taxable income or a loss for activities after they took deductions...

Tax deductions claimed by Americans for charitable contributions declined by 7.2 percent from 2007 to 2008, according to "preliminary data" from the Internal Revenue Service.

The tax agency will make a final report months from now.

The interim figures show a decline in deductions from $174.5-billion in 2007 to $161.9-billion in 2008.

The IRS said the number of tax returns filed with the deduction for charitable contributions declined by 4.7 percent, from 41.1-miliion in 2007 to 39.2-million in 2008.

The Senate has approved a jobs bill that has a tax credit that could provide $1-billion in savings to nonprofit groups and generate 8,000 to 18,000 new nonprofit jobs, according to an analysis by the Alliance for Children and Families.

The measure would exempt private employers, including nonprofit groups, from paying their share of Social Security taxes for employees they hire through the end of 2010. The new hires must have been out of work for at least 60 days.

They would get an additional $1,000 bonus if they kept the employee on the payroll for a full year.

The House of Representatives now will consider the Senate legislation.

For more information, read The Chronicle's previous coverage of the provision.

The Internal Revenue Service hired 155 new employees for its Exempt Organizations office, bringing the total to 921, Nikole Flax, an official in that division, told participants at the annual Washington Non-Profit Legal & Tax Conference.

The IRS has “heard from many of you about the concern of the retirement of many people within the service who have decades of knowledge,” Ms. Flax said. “The good news is that the IRS has been able to “replace some of the knowledge that we’ve lost.”

About 100 of the new employees are working in the tax agency’s examinations office, which audits nonprofit organizations, Ms. Flax said.

Several new employees are “tax law specialists” in Washington who are working to produce guidance, such as private-letter rulings that are sought by nonprofit groups that need approval of changes to their charitable mission or activities, she said.

...

The Internal Revenue Service has made final its 2009 Form 990 informational tax return that charities will file in 2010 or 2011.

To help charities understand the updated form, the IRS has released a list of changes made to modify and clarify reporting requirements in the revised form, as well as in the form's schedules and instructions.

For example, the IRS said that Line 2 in the form's Part VI: Governance, Management, and Disclosure, now "clarifies that, if two officers, directors, trustees, or key employees of the filer serve in similar positions with another tax-exempt organization, that involvement does not create a reportable business relationship between the two." Line 15 in the same Part VI defines "conflict of interest" for compensation arrangements.

The Form 990 is the primary document that charities file with the government each year.

The IRS also...

The federal Congressional Research Service has issued a report for members of the House and Senate that reviews the tax provisions for people who use their cars, trucks, and other vehicles as part of their volunteer work.

In recent years, key members of Congress have been trying to increase the standard mileage rate for charitable activities.

Under federal law, volunteers who drive their cars for charitable purposes may deduct 14 cents a mile for their car costs or be reimbursed by a charity at that rate without the payments being subject to federal income tax.

Without needing to seek Congressional approval, the Internal Revenue Service continually adjusts the mileage rate for business, medical, and moving expenses to account for inflation and other costs. The business rate is currently 50 cents per mile; the rate for medical and moving expenses is 16.5 cents.

As Congress returns to work this week after its December break, lawmakers will be taking up several key issues important to charities and donors.

Among them:

Estate tax. In 2001 Congress passed the current estate-tax law, which gradually phased out the tax through 2009 and repealed it for 2010. However, in 2011 the current law is set to expire and estate-tax levels that applied years earlier at higher rates are scheduled to go back into effect.

The House of Representatives last month passed a bill that would eliminate the 2010 repeal and permanently keep the estate tax at levels that were in effect in 2009.

Because the Senate has not yet voted on the provision, no estate tax exists currently.

The estate tax that applied in 2009 allowed heirs to exempt $3.5-million ($7-million for couples) and face a top tax rate of 45 percent. The estate tax that is scheduled to apply in 2011...

Four key members of Congress say they will introduce legislation that would encourage Americans to contribute cash to charities that help with “emergency aid and rebuilding efforts” in Haiti.

“The Senate-House plan would allow U.S. taxpayers to make charitable contributions to Haiti relief programs until March 1, 2010, and claim those contributions on their 2009 tax return,” said a statement from the members of Congress. “Under current law, taxpayers would have to wait until next year’s filing season to claim a tax deduction for Haiti-related contributions,” the statement said. “Today’s proposal is limited to cash contributions made specifically for Haiti disaster relief.”

One of the members of Congress, Sen. Max Baucus, the Montana Democrat who chairs the Senate Finance Committee, said that “by extending the period for charitable deductions, we make it easier for concerned citizens...

The American Hospital Association is asking Congress to drop provisions that would affect nonprofit hospitals from a final version of the health-care legislation under consideration.

The House of Representatives and Senate are beginning negotiations to merge bills they passed separately that would overhaul the health-care system.

The House bill did not include provisions for nonprofit hospitals, but the Senate measure did.

“The AHA does not believe that the new requirements for charitable hospitals and their ability to maintain tax exemption in the Senate bill are necessary and we urge the [House and Senate] conferees to remove these provisions from the final health-reform conference report,” the hospital association said in a January 7 letter to leaders of Congress.

The American Hospital Association particularly objected to two requirements in the Senate bill. It urged Congress to...

Gradual increases in the level of the federal estate-tax exemption in several recent years apparently did not cause wealthy people to change the shares of their estates that they left to charity, according to a new report from the Internal Revenue Service.

But the increases in the exemption level appear to have resulted in a “slight downward trend” in the percentage of wealthy people who made charitable bequests, the IRS said.

The tax agency’s report comes as Congress is wrangling over what to do about the future of the estate tax.

In 2001 Congress passed the current estate-tax law, which gradually phased out the tax through 2009 and repealed it for 2010. However, in 2011 the current law is set to expire and estate-tax levels that applied years earlier are scheduled to go back into effect.

The House of Representatives has passed a bill that would eliminate the 2010 repeal and...