Another Blow to the Perpetual Student!

The Tax Court held that a taxpayer could not deduct the $33,000 cost of obtaining a Harvard M.B.A. as an educational expense under Reg. § 1.162-5. Foster v. Commissioner, T.C. Summ. Op. 2008-22 (2/28/08). The court concluded that her Harvard M.B.A. both (1) met the minimum education requirements of her position as Vice- President of Marketing at Reshreshment Brands (at an $117,500 annual salary) within the meaning of Reg. § 1.162-5(b)(2), and (2) qualified her for a new trade or business within the meaning of Reg. § 1.162-5(b)(3).

The court distinguished two cases in which taxpayers had been allowed to deduct M.B.A. expenses (Sherman v. Commissioner, T.C. Memo. 1977-301; Allemeier v. Commissioner, T.C. Memo. 2005-207) because Ms. Foster had an engineering background and the Harvard M.B.A. qualified her for marketing positions. The court also approved a § 6662(a) accuracy-related penalty.

The Tax Court suggested that Ms. Foster's decision to remain in California and not attend the trial in Boston may have contributed to her defeat on both issues:
This case was tried in Boston, Mass., pursuant to petitioner's designation. Petitioner's counsel presented the case at trial without petitioner's testimony and attempted to prove the case through various documents. The Court sustained respondent's authenticity and hearsay objections to most of the documents petitioner's counsel sought to introduce. As a result of her failure to testify, the Court is left with a limited record. It would have been most helpful if petitioner had provided an explanation of her duties before and after receiving the M.B.A.

More Unrelated Business Income for Charities in Economic Downturn

When the economy starts to hit the skids, as is currently happening, people tightent their belt, and superfluous spending such as charitable donations is heavily reduced. As a result, charities engage in more business activity to hold them over until donations flow again. That speculation seems to have been concerned by a recent article in the 2008 Winter Statistics of Income Bulletin. The article states that unrelated business income tax liability rose a whopping 66% from 2003 to 2004. The SOI articles are always very well written, by the way. Wouldn't it be nice if we all just flooded the EO Division with emails thanking them for their work. The abstract of the report indicats:

Tax-exempt organizations produced a total of $9.5 billion of gross unrelated business income (UBI) for 2004, nearly 13 percent more than the 2003 amount. After offsetting total gross UBI with $9.0 billion of total deductions, the resulting UBTI (less deficit) for 2004 was $0.5 billion. Positive UBTI amounted to $1.3 billion for 2004, a 65-percent increase over 2003, and the associated UBIT was $364.6 million. After adjusting UBIT with certain credits and other taxes, the total tax reported on Form 990‑T was $367.7 million.

Guidance on the 990 Postcard

On February 25, 2008, the IRS issued guidance on the Form 990-N, the "e-Postcard," filing requirement of small tax-exempt organizations (i.e., those with gross receipts annually of $25,000 or less). The Pension Protection Act of 2006 requires such organizations to file the e-Postcard starting in 2008 for tax years beginning with 2007. Small tax-exempt organizations are now required to make e-Postcard filings by the 15th day of the fifth month following the close of their tax year. The filing is made electronically only, and the public can view the e-filings on the IRS website. Prior to the new e-Postcard requirement, small tax-exempts were not required to file either Form 990 or 990-EZ. Small tax-exempts still do not have to file these forms. Also, while there is no immediate penalty for failing to file the e-Postcard, those nonprofits that fail to file the e-Postcard for three consecutive years will lose their tax-exempt status. The IRS will send a notice reminding organizations of the obligation to file but the ultimate responsibility rest with the tax-exempt organization. As a result, the IRS is urging everyone -- individuals, accountants, lawyers and volunteers -- to spread the word to local charities. Tax-exempts included on a group return and churches are not required to make this filing. On the other hand, larger tax-exempts with receipts of more than $25,000, private foundations and 509(a)(3) organizations are required to continue filing Form 990 or 990-EZ but are not required to also file the e-Postcard.

As a practical matter, tax-exempt organizations whose volunteers, staffs and directors change more frequently than other types of organizations must be vigilant. That would include updating the IRS on address changes as a matter of practice or protocol. The law requiring the e-Postcard balances the purposes of the act (i.e., giving potential donors more information and informing the public) with the fragile administrative realities of many small tax-exempt organizations. This balance was struck under the law in the following way -- the law does not impose late filing fees for filing late, and an organization's tax-exempt status will not be revoked for failing to file until after three consecutive years of failing to file the e-Postcard.

Additional information is available on the IRS Website

And we're Back!

After an excruciatingly long wait, the tax exempt entity law student blog is back and is moving forward. The hope for this blog in moving forward is that it will grow and encourage an open dialogue with the reader (hopefully readers … but lets not get ahead of ourselves here!) about the practice of law in the field of tax exempt entities, and how to move that practice into an area where there can be an influx of money to the tax exempt world, as well as an increase in corporate good will for those socially conscious entities that are interested in moving in that direction. So … welcome back!

Thank you to Tiffany

Today, I would like to take a minute to express my warmest wishes and sincerest thank you to my wife, Tiffany. Today marks our first anniversary. I think that if you expand that out, it rally means first of many. Tiffany is the love of my life, the drive that keeps me going forward, and the fire in my belly that keeps me warm at night. I could never thank her for all of the things that she does, for all of the sacrifices that she makes, and for all of the love and support that she showers me with. Thank you Tiffany (sposa!) I love you with all of my heart, and I look forward to many more years of marital bliss!

IRS releases several publications relating to Exempt Organizations

Generally, Publication 4630 provides for general guidance for non-profits, and provides you with a “how to” and “where to” for the information that you may be in search of.

IRS Publication 1771 , Charitable Contributions-Substantiation and Disclosure Requirements, explains the federal tax law for organizations such as charities and churches that receive tax-deductible charitable contributions and for taxpayers who make contributions.

IRS Publication 4221 - PC addresses public charities and their activities that may jeopardize a charity's exempt status; Federal information returns, tax returns or notices that must be filed; Recordkeeping -- why, what, when; Changes to be reported to the IRS; Required public disclosures; Resources for public charities. IRS Publication 4221 - PF addresses these same issues with regard to private foundations.

In Local Tax News …

The Chicago Tribune has an interesting article today about taxes levied by the city of Chicago against its residents and non-residents alike. The focus of the story are what the tribune considers those many “nagging little” taxes that seemingly go unnoticed, but are there. The article focuses on what it considers the most egregious, the proposed tax on bottled water. Why not tax bottled water? Place a tax on externalities in order to attempt to prohibit waste and wasteful behavior.

Read the full article here

New Non-Profit Law Podcast

Our friend over at the Non-Profit Law Podcast, Tim Mooney, has released another in his fine series of non-profit law podcasts. I suggest that you get over there and check it out, it can be found here

If a President Falls at the Nature Conservancy will Anyone Hear It?

Long time staffer and president of the Nature Conservancy, Steven J. McCormick, who has served as president of the Nature Conservancy since 2001, abruptly stepped down from his post today after a controversial tenure in which the organization came under fire for land transactions and its relationships with for-profit businesses.

Mr. McCormick said in a written statement that he believes it is time for him to move on. “I’ve reached a personal and professional crossroads and concluded that my work at the conservancy is done,” Mr. McCormick said.

The Nature Conservancy is one of the largest environmental groups and ranked No. 20 on The Chronicle’s most recent list of the charities that raise the most from private sources. The Arlington, Va., nonprofit group raised $475-million from private sources in 2005.

Read the full article at the Chronicle of Philanthropy here

YouTube and Non-Profits, quite the grouping!

YouTube has launched the “YouTube Nonprofit Program YouTube Nonprofit Program. After filling out a basic application, your nonprofit organization may be a featured on the forthcoming YouTube nonprofit channel. This seems like a great way to get a message out across one of the most popular mediums currently. YouTube Nonprofit Program

News Bites Today:

Fair Trade Coffee … all the buzz, ½ the guilt

The New York Times has an interesting article on fair trade coffee today, and about how the industry is outpacing those regular coffee suppliers of the world. Take that Juan Valdez!

Read the full article here


Tribune Gets Tax Windfall

A court yesterday granted the Chicago Tribune a substantial refund after the restructuring of their former subsidiary, Matthew Bender.

Read the tribune article here

Congress Attempts to Convene Philanthropy Group

A Congressional caucus that was formed to discuss issues that affect the charitable world now has 25 members and will start meeting this fall. The issues that the new caucus will discuss are a tax bill that Congress is expected to adopt this fall and the proposed extension of legislation allowing some people to donate money from their individual retirement accounts to charity tax-free.

The caucus is intent on focusing on “increasing communication and dialogue between government and the foundation community with a common goal of increasing philanthropy and opportunities for all of our citizens.”

The chairs of the committee are Robin Hayes, Republican from North Carolina, and Stephanie Tubbs Jones, Democrat from Ohio.

The Democratic members of the caucus are: Neil Abercrombie, Hawaii; Yvette Clarke, New York; Susan Davis, California; Bob Filner, California; Rush Holt, New Jersey; Carolyn Maloney, New York; Kendrick Meek, Florida; Bobby Rush, Illinois; Jose Serrano, New York; Louise Slaughter, New York; Ellen Tauscher, California; Tim Walz, Minnesota; and Henry Waxman, California. The Republican members are: Vern Buchanan, Florida; Dan Burton, Indiana; Mike Conaway, Texas; Thelma Drake, Virginia; Phil English, Pennsylvania; Ron Paul, Texas; Jim Ramstad, Minnesota; Mark Souder, Indiana; Patrick Tiberi, Ohio; Fred Upton, Michigan.

Read the full article here

All rise … today is First Monday

Seeing as today is the first Monday of October, I thought that I would list out the Supreme Court cases with a tax relevance to be heard during this term.

Kentucky Department of Revenue v. Davis, No. 06-666
Date of Oral Argument: Nov. 7, 2007
Issue: Whether a state violates the dormant Commerce Clause by providing an exemption from its income tax for interest income derived from bonds issued by the state and its political subdivisions, while treating interest income realized from bonds issued by other states and their political subdivisions as taxable to the same extent, and in the same manner, as interest earned on bonds issued by commercial entities, whether domestic or foreign.

Knight v. Commissioner, No. 06-1286
Date of Oral Argument: Not Yet Scheduled
Issue: There is a deep, irreconcilable and widely noted conflict among the Second, Fourth, Sixth and Federal Circuits about the meaning of § 67(e) — which permits trusts and estates to deduct on their income tax returns certain administrative expenses — and whether the statute permits fees for investment management and advisory services to be fully deducted on trust’s and estate’s income tax returns. This is an important and recurring question of federal tax law that involves deductions by trusts and estates that total in the billions of dollars annually. The Question Presented is: Whether § 67(e) permits a full deduction for costs and fees for investment management and advisory services provided to trusts and estates.

CSX Transportation Inc. v. Georgia State Board of Equalization, No. 06-1287
Date of Oral Argument: Nov. 5, 2007
Issue: Whether, under the federal statute prohibiting state tax discrimination against railroads, 49 U.S.C. § 11501(b)(1), a federal district court determining the “true market value” of railroad property must accept the valuation method chosen by the State.

MeadWestvaco Corp. v. Illinois, No. 06-1413
Date of Oral Argument: Not Yet Scheduled
Issue: Is the attempt by Illinois to tax the approximately $1 billion gain realized by Petitioner when it sold its investment in Lexis/Nexis in 1994 (which it acquired in 1968 for $6 million and which functioned for 26 years as an independent, nonunitary business) in direct conflict with the decisions of the Court in Allied-Signal, Inc. v. Director, Division of Taxation, 504 U.S. 768 (1992), FW. Woolworth Co. v. Taxation & Revenue Department of New Mexico, 458 U.S. 354 (1982), and ASARCO Inc. v. Idaho State Tax Commission, 458 U.S. 307 (1982) and the Due Process and Commerce Clauses of the United States Constitution?

Boulware v. United States, No. 06-1509
Date of Oral Argument: Not Yet Scheduled
Issue: Whether the diversion of corporate funds to a shareholder of a corporation without earnings and profits automatically qualifies as a non-taxable return of capital up to the shareholder's stock basis, see § 301(c)(2), even if the diversion was not intended as a return of capital."

IRS Notes

The IRS will eliminate from the summary page of a redesigned Form 990 information return for tax-exempt organizations questions on compensation percentages, fundraising percentages, and comparisons of an organization's net assets to total expenses, an IRS official said on September 28. The IRS, which last summer released a draft form of a redesigned Form 990 information return for tax-exempt organizations that includes a summary page designed to provide a concise look at an organization's mission, will eliminate from that page questions on compensation percentages, fundraising percentages, and comparisons of an organization's net assets to total expenses. Read more at Tax Analysts


IRS releases its list of organizations that either did not meet, or no longer qualify for tax exempt status as public charities, and are not considered private foundations. See the full list here


In private letter ruling LTR 200739012, the Service has ruled that an organization hired by the state to provide behavioral healthcare services to state residents will not lose its exempt status when it contracts to provide medication services to another organization nor will the provision of services to the other organization constitute an unrelated trade or business. Read the full private letter ruling here


In private letter ruling LTR 200739014, the Service has ruled that an organization managing a down payment assistance program does not qualify for tax-exempt status as an organization described in section 501(c)(3) because it failed to maintain the documents required to justify its existence. Read the full private letter ruling here

I coulda been a contender … I coulda been somebody.

“You don't understand. I coulda had class. I coulda been a contender. I coulda been somebody, instead of a bum, which is what I am, let's face it.” Much like when it was first uttered in On the Waterfront, the audience response to Newt Gingrich’s similar statement is, “yeah … right.” But, that’s what’s happening with Newt Right now, he’s pulling out of his bid for the Republican nod for the presidential campaign, as he would rather stay as the head of his §527 Political Action Organization. If you have any interest, you can read more here

News Notes

Intuit/Quickbooks has put out a new “non-profit” version – QuickBooks: Premier Nonprofit Edition 2007. This version combines the convenience of QuickBooks with basic nonprofit functionality to provide smaller nonprofit organizations with an easy way to track expenses, record donations and monitor pledges, as well as provide users with a solid financial product that can be up and running in hours, not days. Learn more here

Yale Endowment Just Keeps Growing!

The Yale Endowment, which is the largest academic endowment in the U.S. just keeps getting bigger and bigger. The Endowment grew an impressive 28% this past year, and has topped the $22B (yeah, that’s “B” as in Billion) mark. The New York Times profiled the endowment and its growth in todays business section. Read the article here

From the world of Tax Exempt entities and the government partnering together

An Ohio nonprofit is taking its first-ever federal funding to jump-start a recycling awareness program in four area schools. Communities in Schools, the Columbus arm of the national dropout-prevention organization, has received $18,943 from the U.S. Environmental Protection Agency for its Recycling Awareness program that will take place in four elementary and middle schools in Whitehall City Schools. The grant is one of four distributed nationwide that total nearly $100,000.

Beth Urban, the organization's director of research and evaluation, said the funding will go to after-school programs in the school where students will begin recycling in environmental clubs, go on field trips to landfills and wastewater treatment plants and help initiate a school-wide effort to recycle more and trash less.

"At lot of times recycling isn't ingrained in people's mentality and they automatically throw everything away," Urban said, adding that part of the reason the program is reaching younger kids is because of a generational gap with parents. "A lot of time, parents don't think about (recycling)."

While the recycling program will take place in just four schools during the academic year, Communities in Schools has employees and programs in about 50 schools through partnerships with Whitehall and Columbus City Schools. The organization, opened in Columbus in 1993, is working with a 50-employee base and a $1.9 million budget that is funded through state and city grants along with United Way and corporate funding. Communities in Schools' Columbus branch received $2.38 million in public support during its 2006 fiscal year.

Carl’s Junior Partners with … PETA?

Yes, in the interest of social good, and social awareness, the fast food chain Carl’s Junior (and its affiliated Hardees) have agreed to immediately begin purchasing 15 percent of its pork from suppliers that do not use metal "gestation crates" to confine sows, and increase that to 25 percent by 2009; purchase 2 percent of its eggs from suppliers whose hens are not kept in wire cages by July 2008; and to issue a statement to poultry suppliers stating it will "give consideration to approved suppliers who actively explore and test controlled-atmosphere stunning systems," which animal rights groups consider the most humane way to slaughter chickens.

The agreement is aimed at the improvement of the welfare of animals that provide food for the 1,905 Hardee's restaurants and 1,101 Carl's Jr. restaurants. In a statement made by Jeff Mochal, a spokesman for Hardee's, he indicated, "We take the animal welfare concerns very seriously," Mochal said. "When you meet with PETA they make a pretty good case. We want to stay consistent with where the industry is at now and where it's heading." Carl’s Junior is the second major fast-food restaurant company this year to begin moving toward cage-free chickens and pigs, as Burger King announced similar changes in March.

This is yet another example of how the partnership of corporate America and organizations providing a social or philanthropic good benefits us all. Kudos to you Carl’s Junior and Hardees, you have just earned yourself another socially conscious customer!

Read the Chicago Tribune Article on this Story here.

Genius Awards … missed me again!

So, the John D. and Catherine T. MacArthur Foundation has named the 24 recipients of its 2007 MacArthur Fellowships, and sadly, once again, I was not named. The MacArthur foundation gives the fellowships, commonly referred to as the “genius awards” which recognize individuals from wide-ranging disciplines who show creativity, originality, and a commitment to continued innovative work. 16 of the fellows work at academic or other nonprofit organizations. So, clearly, the intelligence level of the nonprofit world is “keepin’ it real”

Read the article here