July 2008
July 29, 2008
Foreclosure Law Includes New Federal Money for Housing Groups
The Housing Rescue and Foreclosure Act of 2008 — which President Bush signed into law July 30 — includes the creation of a permanent Housing Trust Fund that will provide as much as $300-million a year to increase the supply of low-income housing, especially rental units.
Money from the fund can be granted directly to nonprofit housing groups.
The National Low-income Housing Coalition, a charity in Washington, started a campaign to promote the creation of such a fund back in 2000. The campaign’s goal is to preserve and produce some 1.5 million affordable housing units over 10 years.
Some conservative lawmakers and groups have objected to the Housing Trust Fund component of the largely foreclosure-focused law, fearful that money could be channeled to charities with political (and left-leaning) agendas.
The law is the federal government’s most sweeping response yet to the housing market meltdown.
The law provides a number of ways that homeowners facing foreclosure can seek refinancing assistance, and provides mechanisms to regulate and shore-up Fannie Mae and Freddie Mac, the struggling government-sponsored financial entities that hold roughly half of the mortgages in the United States.
The law also establishes some $4-billion in emergency block grant money that local jurisdictions can use to acquire and rehabilitate foreclosed properties.
And it expands the low-income housing tax credit system that encourages developers to create more affordable housing units.
Michael Rubinger, president of the Local Initiatives Support Corporation, a housing charity in New York, called the law “the single most important piece of housing legislation we have seen in years.”
Family Group Does Not Qualify as Church, IRS Says
The Internal Revenue Service has told an organization that says it operates “for the advancement of Christianity and for other charitable purposes” that it does not qualify for a federal tax exemption as a church under Section 501(c)(3) of the U.S. tax code.
In its application for tax-exempt status, the organization said it conducts some “street ministry” activities, expects to rent a building and buy equipment to hold indoor services, and might one day start a religious school to educate young people.
The group said its board of directors has four members: its pastor, who is the founder and board chairman; his wife, who is the co-chair, secretary, and treasurer; a son, who is assistant secretary; and another son.
In its ruling, the IRS noted that no definition of “church” appears in the Internal Revenue Code.
However, the tax agency and federal courts have identified several factors that the government can use to decide whether an organization is a church for tax purposes.
Among them, the IRS said: the presence of an established congregation served by an ordained ministry; the provision of regular religious services and religious education for young people; and the “dissemination of a doctrinal code.”
“While the fact that an organization has a small congregation does not disqualify it from being considered a church,” the IRS said, “if such an organization is not actively engaged in trying to acquire new members, it will not qualify for exemption.”
But the revenue service said the group applying for a tax exemption in this case lacks “all of the significant elements” used to determine that an organization qualifies as a church.
The group did not provide the government with details about its street ministry, its current or future finances, or how it planned to communicate its presence to others as a way to recruit members, the IRS said.
“You do not have a group of people who come together on a regular basis and you do not hold regular religious services,” the tax agency said. “Your organization consists only of four members of a single family and you do not even hold regular services for those individuals. Furthermore, you have provided no evidence that you are actively seeking new members.”
The IRS continued: “You do not have an established place of worship, you do not have a membership distinct from another church or denomination, and you do not maintain schools or education activities either for the young or to prepare ministers.”
Thus, the tax agency concluded, the organization is not operating as a church or as any kind of charity.
In addition, the IRS said the group failed to prove that the people involved would not gain improper benefits from their relationship to the organization. “The structure of your organization indicates that it can be used to benefit private individuals,” it said, “and you lack safeguards that would help to prevent such use.”
As is its policy, the IRS did not identify the organization or people involved in its ruling.
July 28, 2008
IRS Provides Guidance on Charitable Trusts
The Internal Revenue Service has issued two new documents that affect charities that offer charitable remainder trusts and charitable lead trusts.
The first document offers guidelines for dividing a charitable remainder trust into two or more separate charitable remainder trusts without violating tax laws.
The second document contains sample forms for “inter vivos” nongrantor and grantor charitable lead unitrusts.
The full text of both documents are available through an IRS bulletin issued today.
July 24, 2008
IRS Is Exploring Whether Charities Use Overseas Companies to Avoid Taxes
The Internal Revenue Service is looking at whether charities are using offshore accounts and other tactics to avoid paying taxes on income earned in the United States.
Frank Ng, a top IRS official, told members of the Senate Finance Committee today that the agency is “evaluating the nature” of offshore investments by nonprofit groups that would otherwise be required to pay unrelated business income for their investment gains.
That acknowledgment, which came during a Finance Committee hearing on offshore investments, follows recent scrutiny of charities that are subject to unrelated business income tax.
The Chronicle found in a recent investigation that nearly half of the nation’s largest charities that receive unrelated business income pay nothing in tax on that income.
Sen. Charles Grassley, of Iowa, the senior Republican on the Finance Committee, has expressed concern that some of the institutions that are not paying unrelated business income tax are using overseas companies to help shield their income from the government.
Under current laws, institutions are able to use so-called blocker companies overseas to convert taxable profit from hedge funds into dividends, which are not taxed.
Committee aides have been looking at the structure of offshore hedge-fund investments by major universities. Many large foundations and nonprofit hospitals use similar tactics to protect their hedge-fund income from taxes.
Mr. Grassley, citing the Chronicle report, raised questions during today’s hearing about whether charities that are subject to unrelated business income tax are complying with the law and whether blocker companies are being used to help groups avoid the tax.
Aides said Mr. Grassley is also asking Mr. Ng for a detailed written response to these questions.
Carnegie Fund Backs National-Service Forum With White House Candidates
Presidential candidates John McCain and Barack Obama have been invited to weigh in on their plans for public service during a conference in New York City on September 11 and 12 organized by Time magazine and the Carnegie Corporation.
Both senators have strong backgrounds in public service and have said they would like to expand or improve current public-service programs such as AmeriCorps, as The Chronicle notes on the Campaign 2008 section of its Web site.
AARP, Target, and Service Nation — a national campaign of more than 100 organizations that want to promote expanded public-service opportunities— will also attend the forum. Senator McCain has confirmed his participation, according to the Carnegie Corporation, and Senator Obama is expected to attend.
The co-chairs of the conference will be Richard Stengel, managing editor at Time; Alma Powell; Caroline Kennedy; Carnegie’s president, Vartan Gregorian; and AARP’s chief executive officer, Bill Novelli.
The meeting will be opened by Michael Bloomberg , New York City’s mayor, and closed by California Gov. Arnold Schwarzenegger, who is the first governor to create a cabinet post to oversee service and volunteering.
To read more about the ways foundations and nonprofit groups can promote public service, see this opinion article from the latest edition of The Chronicle of Philanthropy.
Bill Would Encourage Charitable Efforts to Aid Midwest Storm Victims
A group of U.S. senators and House members from the Midwest have introduced a bill that would create tax incentives for charitable giving to help victims of the recent storms, tornadoes, and floods that have hit their region.
The Midwestern Disaster Tax Relief Act of 2008 would allow individuals and corporations to get unlimited charitable deductions for donations to relief efforts in the affected areas through the end of 2008.
The bill would also allow people who use their vehicles for disaster relief to deduct 41 cents per mile — or about 70 percent of the current business mileage rate through the end of 2009. The rates now are 14 cents per mile for charitable activities and 58.5 cents for business activities.
Volunteers could also exclude from their income reimbursements from charities for use of their vehicles up to the amount of the standard business rate through the end of 2009.
The bill, S. 3322, would also extend through 2009 provisions that expired at the end of 2007 that allow a variety of businesses, such as restaurants, grocery stores, or farms, to earn an “enhanced deduction” for donating surplus food to charity.
In general, federal law allows companies to deduct the production costs of certain goods they donate, which is usually below their fair market value.
The “enhanced deduction,” which is now limited to certain kinds of corporations, allows donors to deduct production costs, plus some of the difference between production costs and fair market value.
Sponsors of the new bill are 11 senators from Illinois, Indiana, Iowa, Kansas, Minnesota, and Missouri. They include Iowa Sens. Charles Grassley of Iowa, the senior Republican on the Senate Finance Committee, and Tom Harkin.
Five Iowa members of the House of Representatives also introduced the bill.
The legislation is similar to a proposal made by several senators last month who had hoped to pass it as an amendment to an unrelated bill designed to ease the housing crisis.
July 23, 2008
Nonprofit Groups May Be Aftected by Review of Offshore Tax Shelters
The Senate Finance Committee on Thursday is playing host to a hearing that will focus on the controversial use of offshore banks in places like the Cayman Islands to shield earnings from federal taxes.
The committee has not yet announced its list of witnesses for the hearing.
But for many nonprofit institutions that manage overseas funds, the session bears watching.
Two key leaders of the powerful committee — Sen. Max Baucus and Sen. Charles Grassley — have made previous statements that condemn the use of overseas accounts to block the federal government from collecting taxes on income from hedge funds.
Mr. Baucus, a Democrat from Montana, chairs the committee. Mr. Grassley, of Iowa, is its senior Republican member.
Under current laws, institutions are able to use so-called blocker companies overseas to convert taxable profit from hedge funds into dividends, which are not taxed.
Committee aides have been looking at the structure of offshore hedge-fund investments by major universities such as Harvard, Stanford, and Yale. Many large foundations and nonprofit hospitals use similar tactics to protect their hedge-fund income from taxes.
July 22, 2008
Site Takes Aim at Nonprofit Hospitals' Finances
Joe Novak sees a lot of abuse in the U.S. health-care system.
The former political and media consultant sees it in the profits earned by drug companies and the waste found in the insurance industry.
Mr. Novak also sees it in the financial practices of many nonprofit hospitals — an issue he believes does not get enough scrutiny.
With that in mind, the one-time aide to former Rep. William Lipinski of Chicago started a Washington nonprofit group called WhereTheMoneyGoes, which operates a Web site that uses public records to raise questions about the financial practices of nonprofit hospitals.
Recent posts on the site point to a building project at Sumner Regional Medical Center in Gallatin, Tenn., and the compensation packages paid to top executives at Bethesda Memorial Hospital in Boynton Beach, Fla., and Regional Health Care Services in Casa Grande, Ariz.
Mr. Novak is drumming up attention for his effort through a series of advertisements in The Washington Post, the first of which appeared Monday.
The ad, which points to the cash and investment reserves at three large nonprofit health-care institutions, asks readers why nonprofit hospitals aren’t using some of their reserves to reduce costs for patients.
“Not-for-profit hospitals have become very profitable,” the ad’s headline reads. “Newly posted data suggests that tax-exempt hospitals are contributing to the rising cost of health care.”
The criticism adds to an already lively debate about nonprofit hospitals among some lawmakers and nonprofit leaders.
Sen. Charles Grassley, an Iowa Republican, has been calling for more scrutiny of nonprofit hospitals — and has mentioned the possibility of legislation that would require such groups to spend more of their income on helping needy patients.
July 16, 2008
Vision Insurer Pushes Supreme Court to Restore its Tax-Exempt Status
A California eye-insurance provider is petitioning the U.S. Supreme Court to reverse a 2003 decision by the Internal Revenue Service to revoke its tax-exempt status.
VSP Vision Care, in Rancho Cordova, Calif., said it believes the IRS overstepped its bounds when it ruled in 2003 that the organization does not provide enough services to the needy to justify its tax-exempt status.
The organization, which is the nation’s largest eye-insurance provider, has continued to do business as a nonprofit organization, but is paying federal income taxes as it has attempts to get the decision reversed.
The U.S. Court of Appeals upheld the IRS’ decision in January, prompting the insurance company’s petition to ask the Supreme Court to review the case.
Earlier decisions had determined that the organization “is not operated exclusively for the promotion of social welfare.”
But the insurance company is continuing to fight those rulings and has hired Kenneth Starr, the former U.S. Solicitor General and the independent counsel in the Whitewater investigation into former President Bill Clinton, to help prepare its case.
“This case is really about determining what guidelines the IRS uses to define what constitutes a tax-exempt, not-for-profit organization,” Mr. Starr said. “VSP had a tax exemption for more than 40 years, has not changed their business philosophy or focus on the community, yet lost their tax-exempt status.”
VSP, which received its tax-exempt status in 1960, says the IRS’s 2003 decision — and the subsequent court decisions in its favor — jeopardizes the nonprofit status of other nonprofit health-care institutions.
“The district court’s decision, affirmed by the panel, ignores the health-care context of this case and fashions a test for exemption that calls into question the exempt status of numerous nonprofit health plans across the country,” the eye-insurance company said in its appeal.
July 09, 2008
IRS Told to Speed Up Applications for Nonprofit Status
The Internal Revenue Service has made progress in improving the speed at which it processes applications by groups seeking tax-exempt status.
But Nina E. Olson, the national taxpayer advocate, says the agency still is not moving fast enough.
Ms. Olson, who operates independently of other IRS offices and reports to Congress, said in a new report that she plans to work with the IRS’s tax-exempt and government-entities division to change the way the agency processes applications for nonprofit status.
To qualify as a tax-exempt organization, groups must file Form 1023, which includes information about a group’s proposed activities and operations.
Because of the number of applications it receives, the IRS has been slow to keep up with processing the Form 1023 — leading to lengthy delays for groups that are awaiting a ruling on their nonprofit status.
Ms. Olson said in her report to Congress that the IRS reduced its applications backlog by 55 percent as part of an effort to reduce these delays.
But the IRS must take additional steps to reduce processing time, she said.
The Chronicle wants to hear from organizations that have faced a lengthy delay when applying for nonprofit status with the IRS. How long did the process take and what effect, if any, did a delay have on your operations?
Click on the comments link below this post to share your experience.
July 01, 2008
IRS Urged to Move Quickly to Warn Charities Accused of Election Wrongdoing
A new federal report says the Internal Revenue Service has done a good job of increasing its efforts to educate churches and charities about federal law that bans political-campaign activity by such groups, and that it has improved the way it handles allegations of wrongdoing.
But the report said the tax agency needs to do more “to ensure that tax-exempt organizations receive timely notification that they might be involved in prohibited political activity” and to clarify to IRS employees the criteria it uses to evaluate cases through its Political Activities Compliance Initiative.
“These actions should increase the likelihood that tax-exempt organizations will stop the prohibited activities before the relevant election and that tax-exempt organization activities will be evaluated consistently and fairly,” said the report by the Treasury Department’s Inspector General for Tax Administration.
The report said that the IRS has already agreed with its findings and completed “several corrective actions.”
Federal law says that churches and charities may not “participate in, or intervene in (including the publishing or distributing of any statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”