Georgetown Law held its 38th Annual Representing and Managing Tax-Exempt Organizations conference (virtual edition) last week. Among the sessions at the conference was a perennial favorite: Update on Key Current Developments presented by exempt organizations attorney Bruce Hopkins. Below are some of the many highlights from his presentation:

  • IRS TE/GE FY 2021 Program Letter
  • IRS TE/GE FY 2020 Accomplishments Letter
    • Exempt Organizations division (EO) closed 95,864 determination applications in fiscal year 2020, including 85,509 approvals, 79,730 of which were approvals for 501(c)(3) status.
    • EO completed examinations of 3,240 returns in fiscal year 2020, including the Form 990 series (990, 990-EZ, 990-PF, 990-N, 990-T) and their associated employment and excise tax returns. Overall, 88% of closed examinations resulted in a tax change (change percentage) and 39% of the examinations were “picked-up” from a related examination (pick-up percentage). We proposed revocations (agreed and unagreed without protest) for 36 tax-exempt entities as a result of these examinations. 
  • Treasury and IRS 2020-2021 Priority Guidance Plan
    • Guidance on computation of unrelated business taxable income for exempt organizations with separate trades or businesses (IRC § 512(a)(6)) (final regulations issued on Nov. 19, 2020).
    • Proposed regulations regarding excise taxes on donor-advised funds and fund management.
    • Promulgation of final regulations and additional guidance on supporting organizations.
    • Final regulations concerning IRS authority to disclose exempt organization information to state officials.
    • Revision of the group exemption rules.
    • Guidance as to circumstances under which LLCs can qualify for recognition of tax exemption as a charitable organization.
    • Guidance concerning virtual currency.
    • Revenue ruling as to whether contributions of money received through crowdfunding site to pay for medical expenses are excludible from gross income on ground that contributions are gifts.
    • Assess whether streamlined application for recognition of exemption results in fewer compliant tax-exempt organizations. 
  • Tax Cuts and Jobs Act Guidance
    • Regulations on computation of unrelated business taxable income for separate trades or businesses under §512(a)(6), as added by section 13702 of the TCJA, and allocation of certain expenses by exempt organizations with more than one unrelated trade or business. Proposed regulations were published on April 24, 2020. See also UBIT Silos: Final Regulations (11/22/20)
    • Final regulations under §4960 (Tax on excess tax-exempt organization executive compensation), as added by section 13602 of the TCJA.
  • Law Pertaining to Tax-Exempt Organizations in General
    • Denials of recognition of exemption due to commerciality (for elements evidencing commerciality, see Living Faith, Inc. v. Commissioner (1991)). – Hopkins thinks the IRS has gone overboard on this.
    • Operation of political action committee by for-profit subsidiary of public charity, and contents of resources-sharing arrangement between the parties, cause charity to be considered engaged in political campaign activity (PLR 202005020).
    • IRS issued proposed revenue procedure setting forth updated procedures under which recognition of tax exemption may be obtained on group basis (Notice 2020-36).  – Hopkins thinks this is a radical, controversial proposal, and more overbearing than it ought to be.
    • U.S. Supreme Court, on January 8, 2021, granted certiorari in two cases concerning impact of disclosure of Schedule B donor information to states; Court to rule on whether forced disclosure chills free speech of charities and their donors (Americans for Prosperity Foundation v. Becerra; Thomas More Law Center v. Becerra. Arguments just began on April 26, 2021.
    • IRS wrote: “Generally, a governing board that consists primarily of family members or of members who share a domestic life, does not constitute an independent body, and has an inherent conflict of interest when placed in a position to approve financial transactions involving other members of the family unit” (PLR 202001023). – Hopkins says the correct approach is reflected in an earlier PLR: “While an organization will not be denied exemption merely because it is controlled by related individuals, such a situation provides an obvious opportunity for abuse and calls for an open and candid disclosure of your organization and operations” (PLR 201332013). 
    • Fidelity Investments Charitable Gift Fund prevailed in all aspects of litigation against it in case alleging violation of alleged promises made to two donors to a DAF. The opinion reinforces the law that property transferred to a true DAF is wholly owned and controlled by the DAF sponsoring organization, notwithstanding advisory rights of a donor or donor advisor (Fairbairn v. Fidelity Investments Charitable Gift Fund (2021)).
    • Payments for services provided by disqualified person, by means of disregarded entities, to private foundation to enable it to offer “charitable consulting” services and investment services to foundation and other charities ruled to not be acts of self-dealing because the payments are sheltered by the personal services exception (PLR 201937003).