Are Big Charitable Deductions a Bad Deal?

A fantastic article in the New York Times Business Section discusses the tax implications on large charitable gifts, which have become the fashion lately.

A number of people are complaining that the charitable work being done by America’s wealthy by and through their charitable donations is not as effective as that money would be if it were taxed and collected by the U.S. Government.

Typically, for every three dollars that a high net worth individual donates to charity, the U.S. loses one dollar in estate tax revenue, which some say would be better spent by the Government.

Personally, I agree with a number of America’s wealthy (and hope to one day be so wealthy), that while you have taken away coin from the government’s coffers, you have placed into the world more than the government could have by way of tax collection. Simply stated, those three dollars that you spent on a public good, are three times more than the money the government could have collected. Additionally, that money is guaranteed to go towards a public good, as the tax code and regulations will not permit the deduction of charitable donations unless the gift is actually charitable in nature. Whereas, the government may use the collected revenue in any manner it sees fit, non of which may be charitable, or beneficial to disenfranchised or underrepresented persons.

To the high net worth individuals who continue to donate their capital to the betterment of our nation through charitable works, I say kudos to you, and may you not stop such donations any time soon, as they provide far better good to the country than your lessened tax dollars ever could.

In local news: Ann Lurie, president of Lurie Investments, in Chicago, and a former pediatric nurse, has pledged $100-million to Children’s Memorial Hospital. Her gift will help build a new facility in Chicago’s Streeterville neighborhood and will support pediatric-health research.
The new hospital, which will be named for Ms. Lurie and her late husband, Robert, will likely cost $850-million in all. Construction will begin in the spring, and the facility is scheduled to open in 2012.

Increasing Scrutiny of Non-Profits causing some problems

An interesting article was published this week regarding the scrutiny of non-profits. The gist of the Article is that Congressional committees, state attorneys general and now the Internal Revenue Service (IRS) are placing nonprofit organizations under scrutiny and sending them scrambling for legal advice on sound governance practices.

Excerpt:
The IRS jumped into the governance fray with a good governance practices "discussion draft" earlier this year and proposals for changes to Form 990, an annual financial document that many tax-exempt organizations must file with the IRS. The changes include a new governance section requiring information about an organization's board, governance practices and financial statement practices. The IRS is seeking comment on the proposed changes — which it hopes to roll out for the 2008 tax-reporting season — through Sept. 14.
There's a growing concern about practices in the tax-exempt area and an increased emphasis on how those organizations report activity to the IRS and comply with the law, said IRS spokesman Eric Smith. "The IRS isn't the only player, others have a role too, but we're part of the mix and the 990 filings is a part of it," Smith said. "Our real interest is helping organizations stay within the law." The IRS reporting changes will force nonprofit organizations to become more transparent and even more sensitive to governance issues, Rieman said. "It will compel organizations to be more aware of and more attentive to those new topics that the IRS is forcing organizations to address in more detail on their 990," Rieman said. "It's going to be more work for the organizations and more work for accountants and lawyers." In a June 28 letter to the Senate Finance Committee, the IRS Acting Commissioner Kevin Brown said that the agency is requesting a higher enforcement budget in 2008 to study reporting compliance by the tax-exempt sector and to add 109 staffers to its tax-exempt and government entities division to increase examinations. Smith said the tax-exempt sector's growth is prompting the increased compliance and enforcement efforts. "Any efforts we have in that area are tied toward matching our monitoring efforts with the importance and reach of that important sector," Smith said.

Form 990 Comments Due

The big news currently in the world of tax exempt entities is the proposed revisions to Form 990. As you may or may not know, Form 990 is the form which entities that are exempt from federal income tax are required to fill out on an annual basis in order to retain their tax exemption.



As noted in previous posts, the changes to Form 990 are going to move forward quickly, and thus the desire to influence the changes must be taken seriously, and non-profits and other exempt entities must submit their proposals and concerns to the Service fairly immediately, as the comment period ends September 14th, and the Service has indicated that it will not provide any extension on this period. As noted inWorchester Business Journal,
"The Form 990 will consist of a 10-page "core" that all filers must complete. This core form is supplemented by 15 schedules, identified alphabetically as Schedules A through R, that must be completed only if the filing entity engages in the activities covered by a particular schedule or must report information in addition to that required in the core form.

The first page of the core form will detail the organization's identifying information and summarize its key financial, compensation, governance, and operational information. The summary page will make the return more user-friendly.

The primary changes are in the areas of compensation, governance, activities outside the U.S. and fundraising/gaming. These have been IRS hot buttons for some time.

All in all, the timeline for Form 990 Comments is dwindling. The treatment of tax-exempt entities is similarly getting the short shrift in the commenting process, while when there are larger entities, or rather, entities with the lobbying ability, the comment period may be (and frequently is) extended to meet the deadlines of the entities regulated, not those of the IRS. Here however, because the IRS wants to have this issue tied up with a little bow and neatly and as quickly as possible, the deadline stands at the 14th of September, and the Service appears unwilling to extend such. Oh well. Tax exempt entities have been able to thrive in the systems in place by the Service since their inception, and no matter what the revisions to Form 990 provides, tax exempt entities shall so continue.

New IRS Exemptions (9/5/07)

Under the procedures announced in Notice 92-28, 1992-1 C.B. 515, the IRS on September 4 released six exemption rulings issued by the National Office's Exempt Organizations Division.
The rulings are primarily form letters recognizing exemption under section 501. (The rulings can be retrieved from Tax Analysts' customer service department under the document numbers listed. Call (800) 955-3444.)
The following organizations received exemption as organizations described under section 501(c)(3):
-1. Community Foundation of Charles County Inc., Waldorf, Md. Doc 2007-20300
-1. Miami Valley Academies, Moraine, Ohio. Doc 2007-20301

The following organization received exemption as an organization described under section 501(c)(15):
-1. Topper Reinsurance Ltd., Southfield, Mich. Doc 2007-20302

The following organizations received exemption as organizations described under section 501(c)(25):
-1. TR Continental Plaza Corp., Newport Beach, Calif. Doc 2007-20303
-1. TR Seaway Corp., Chicago. Doc 2007-20304
TR Turnpike Corp., Newport Beach, Calif. Doc 2007-20305 [

How to Evaluate Which Non-Profit is Right for You

The Seattle Times published an article on how to determine the effectiveness of an athlete’s non-profit or charitable entity. While there is a specific focus, there is a good deal of information about choosing the tax exempt entity that is right for you. The Article provides useful guidance and guidelines for the novice, and even the skilled as to the differences between foundations and charities, how to determine what size of charity you would like to donate to, and what good examples are in the industry of spending or donating money to raise money are. All in all it’s a great article for anyone who is interested in how non-profits operate, and how they work within the current tax exempt system.

And They're Off!

And we’re off. Classes started today at the Northwestern University School of Law, and the first of many long tax law orientated classes started the day, while studying the subject, and a night of sugar plum tax fairies are sure to the course de jour for the evening, and the next nine months. While today’s topic, International Tax, is not the subject of this blog, nor the purpose behind my re-enrollment into the world of academia, it did get the ball started, and as we all know, even the longest journey’s start with the first step. And they’re off!

Gov't Not So Tax Exempt Anymore

In an interesting story of biting the hand that feeds you, the government has decided to go after ... itself for unpaid taxes. So, it becomes clear to all of us, that the government is not the world's largest tax exempt entity, but rather is a good tax paying citizen, much like the rest of us.

A number of federal entities have been failing to withhold taxes from individuals, and all of these little failures have resulted in a staggering tax deficit for the United States. All in all, the current deficit for failure to properly withhold taxes by federal agencies totals greater than $45 Million. Amazingly, this amount is still paltry compared to the more than $6 billion that is not properly withheld from corporations in the United States.

Changes to Form 990

The IRS is intent on getting the proposed changes to Form 990 completed and in the book by their deadlines, thus their september deadline for comments is not going to change, even despite the push by charities to allow for more time in the comment period.

Tax Exempt Governance

I just wanted to point you all to an attorney in San Francisco who has published some information and guides as to corporate governance. His name is Gene Takagi and he has published on his blog a series of corporate governance articles and power points which are incredibly useful if you are dealing with that topic.

Baseball Chicago Style

So, today I sat among the mellowest of mellow fans in the "friendly confines" of Wrigley Field. Unfortunately the Cubs lost (by a lot) to the Houston Astros, but I was able to see a game at the famous Wrigley Field (at the tippy top row) and get to meet some other Northwestern students (it's all about networking!).

The Cold Shoulder - Taxes Style!

I know that this isn't necessarily associated with tax exempt entities, but I couldn't help myself. One of the recent tax related stories has been that the Federal Tax Exemption for americans living and working abroad does not apply to thoe persons living in Antarctica. Bloomberg has a great article on it. In summary, here is what's at stake.

The U.S. Tax Court ruled that the approximately 1,100 workers at the Amundsen-Scott South Pole Station, McMurdo Station or other areas on the southern continent don't qualify for a longstanding exemption for Americans living abroad. At issue in the tax cases is whether Antarctica qualifies as a foreign country for purposes of a 50-year-old law that allows Americans living abroad to exclude part of their income from U.S. tax. Most of the cases date to 2001 and 2002, when the exclusion amount was capped at $80,000; the amount is now indexed for inflation and was $82,400 in 2006.

"As Antarctica is not a foreign country for purposes of the code, we conclude that petitioner is not entitled to exclude the wage income he earned in Antarctica,"' Judge Juan F. Vasquez wrote in one of 15 cases with identical rulings relating to the issue of tax collection for Antarctic residents.

The U.S. generally taxes citizens on their worldwide income. To qualify for what is known as a Section 911 exemption, U.S. citizens must live outside the country for an entire tax year, or 330 days in any 12-month period. U.S. citizens are required to pay taxes in the country where they are living. However, as we learned, even living in Antarctica for at least 330 days in a 12 month period is not going to be enough to prevent the payment of income taxes to the ever vigilant tax collector in the U.S.

Introduction

Well, this is the first of what will hopefully be many blog entries to come. As an introduction let me tell you a little about myself. I was formerly an associate attorney at a large law firm in Nevada. While working there, I had an epiphany that what would make me most happy, from a legal standpoint, would be the advising of non-profit entities. The way to do that, is to become a specialist in the area of tax exemption in order to properly be able to advise such entities. That brings us to today. I have recently enrolled in the LLM in Taxation program at Northwestern University School of Law in Chicago, Illinois. I have uprooted my family and my life from Reno, Nevada, to the hustle and bustle of Chicago, and I couldn’t be happier about it.

My intention with this blog is to hopefully update it regularly to keep the interested public up to speed on the relevant tax law as it relates to tax exempt entities. I also intend to publish personal anecdotes and stories about the return to what is a very comprehensive and very difficult program of study. Both topics will be interesting (hopefully to all, preferably to most, but definitely to a few!)

Thanks for reading, and I look forward to keeping you up to date on a regular basis. Later Skaters!