Last month, the IRS issued final regulations entitled “Substantiation and Reporting Requirements for Cash and Noncash Charitable Contribution Deductions,” codified as Treasury Regulation Sections 1.170A-15 (cash), -16 (noncash), -17 (qualified appraisals and appraisers), and -18 (clothing and household items).
A Brief Case Study: Your nonprofit’s founder sends out an email in their official capacity to all of its members urging the them to vote for or against a political candidate or for or against a local proposition.
It may be a well-intended gesture, but a mistake that could result in excise taxes or the potential loss of your organization’s tax-exempt status.
The case of Salus Mundi Foundation et al v. Commissioner
On August 15, 2016, the Tax Court decided in Salus Mundi Foundation et al v. Commissioner, T.C. Memo. 2016-154, that two foundations were liable as transferees for a corporation’s unpaid federal tax liability after another foundation distributed to the foundations the proceeds of the sale of the corporation’s stock.
The history in this case involves a marital trust that initially owned all of the stock in a C corporation called Double-D Ranch. Later, a portion of the stock was transferred to the Diebold Foundation in New York. Subsequent to that, the Diebold Foundation in New York sold the stock and distributed the proceeds from the sale of Double-D Ranch stock to three foundations formed by the Diebold children, pursuant to a New York state-approved plan of dissolution.
Those responsible for managing a private foundation’s investment assets may not always understand the unique fiduciary and tax constraints imposed on private foundations and their managers by both state and federal law.
Why is this important?
Running afoul of the rules can result in costly excise taxes that can be imposed on both the foundation and its managers, and in the most extreme cases, can lead to revocation of tax-exempt status.
The Tax Court, in a case of first impression, has recently ventured into the perpetuity minefield. One Dr. Douglas Carroll and spouse Deirdre Smith, of Baltimore, Maryland, conveyed a conservation easement in 2005 over approximately 26 acres of open land in Maryland, mostly pastureland zoned for agricultural uses, to the Maryland Environmental Trust (MET) and the Land Preservation Trust (LPT). The former organization is a quasi-governmental agency, the latter a private, nongovernmental exempt organization. The protected property consisted of two parcels of unequal size; upon the smaller parcel sat the taxpayers’ two-story primary residence, and, on the larger, a small (1,000-square-foot) house where a farmhand tenant resided.
A promise to give is not a guaranteed charitable gift.
In an open letter to their newborn daughter last December, Facebook CEO Mark Zuckerberg and wife Priscilla Chan announced they will eventually give 99 percent of their Facebook shares during their lives to a variety of important social causes. Over the past several months, commentators have expressed both enthusiasm and concern with the manner in which the couple chose to commit their wealth to advancing these causes. Continue Reading What Does the Chan Zuckerberg Initiative Mean for Modern Philanthropy?
In July of 2014, the Internal Revenue Service (IRS) introduced a shorter application form to help small charities apply for 501(c)(3) tax-exempt status more easily. At that time, the Form 1023-EZ required a $400 user fee to be submitted with the application.
Effective July 1, 2016, the cost will drop to $275 for Form 1023-EZ filers, pursuant to recently issued Revenue Procedure 2016-32.