Georgetown Law held its 39th Annual Representing and Managing Tax-Exempt Organizations Conference in-person and by livestream. Here are some of the highlights from the session on Key Current Developments presented by Jean Tom (Davis Wright Tremaine) and Ofer Lion (Seyfarth) with some of my notes and comments interspersed.

Annual Bruce R. Hopkins Memorial Session: 2022 Update on Key Current Developments

  1. The IRS’s “strict construction” of substantiation and appraisal regulations – no such thing as substantial compliance. For a charitable contribution to be deductible, certain requirements must be met. And when they are enforced or adjudicated on, there must be perfect compliance. So, charities should be very careful when providing donation receipts to help ensure donors have the written substantiation they need for a deduction. And donors should be very careful since it is their responsibility (and legally not the charity’s) to have the required written substantiation (although charities do have an obligation to provide a compliant written disclosure for quid pro quo contributions). For certain noncash gifts, a qualified appraisal may also be necessary.
    1. Charitable Contributions – Written Acknowledgments (IRS)
    2. Charitable Organizations – Substantiating Noncash Contributions (IRS)
  2. Trends from Senate Finance Committee Hearing on Charitable Giving Incentives
    1. Lessons from the pandemic – importance of the nonprofit sector and the charitable giving incentive
    2. Need to democratize giving and giving incentives – interest in restoring Universal Charitable Deduction, which expired December 31, 2021 (see, e.g., Year-end giving reminder: Special tax deduction helps most people give up to $600 to charity, even if they don’t itemize (IRS))
    3. Need for nonprofit voice in federal government – see, e.g., $50 Million NPO Bill Introduced In Congress (Nonprofit Times)
    4. Call to incentivize giving more now
  3. Continuing Battle Over DAF Regulation – Accelerating Charitable Efforts (ACE) Act – if passed (unlikely in my opinion), certain provisions will apply to filings and payments made beginning in 2022; one provision incorporated into the Biden FY23 Budget Plan is the treatment of private foundation grants to DAFs no longer being treated as qualifying distributions unless the DAF funds are distributed by the end of the next taxable year and the foundation maintains adequate records of such distributions – see FIRST IMPRESSIONS | President Biden releases FY2023 Budget (EY)
  4. IRS Notice on LLCs – IRS Notice 2021-56; see also ABA Comments and note conflicts with state laws
  5. Employer Sponsored Disaster Relief Programs – COVID remains a “qualified disaster” – see, e.g., Disaster Relief: Assistance by Employer-Sponsored Private Foundation; Employer Sponsored Disaster Relief Programs – Four Options to Consider (Seyfarth)
  6. Creating enforceable and more durable trusts and restricted grants – Third-party (not just AG) enforcement rights over trusts and restricted grants after the Barnes case – see Art of the Steal (film) – also consider “shark repellent” provisions that might have better protected the donor’s interests in the Barnes case (e.g., giving third party the right to transfer the donated art – considered by many to be the world’s best collection of Impressionist art – to Pittsburgh if the donor’s preferred museum in Merion could not maintain the art; the donated art instead ended up in Philadelphia due to efforts of enemies of the donor)
  7. Cryptocurrency, NFTs and DAOs – nearly 20% of Americans and 31% of American millenials have owned crypto (too big to ignore) – 4% of charities are accepting crypto but this percentage is rising quickly; crypto is treated as property, not (fiat) currency – to get a deduction, a donor needs a qualified appraisal | re: DAOs, see, e.g., DAO: What is it? What does it mean for nonprofits?
  8. Split dollar insurance compensation arrangements – employer loans premium to employee (avoiding 21% excise tax on compensation; and not creating tax liability to employee if loans bear interest at long-term AFR) – employee uses 1/2 to purchase life policy for retirement income and 1/2 to pay for life policy to repay the loan (from guaranteed death benefit) – see, e.g., Splitting the Difference: IRS Applies Exempt Organization Excise Tax to Split-Dollar Life Insurance Policies (Alston & Bird)
  9. Gifts of carried interests in investment funds – contribution of carried interests – a share of the profits of an investment fund (typically an LP) paid to the investment manager in excess of the amount that the manager contributes to the partnership – donee charity will want to negotiate for the removal of liability attached to the carried interest –clawbacks and contribution calls – see also The Biden Administration Tax Proposals: Impacts on Nonprofit Organizations (Venable: “The Green Book proposes to tax income or gain derived from certain “carried interests” in a partnership as ordinary income for taxpayers with more than $400,000 in income, effective for tax years after December 31, 2021. Consistent with treating income or gain derived from carried interests as ordinary income, the proposal would also repeal the three-year holding period for carried interests under section 1061 for taxpayers with more than $400,000 in income.”)
  10. The Newman’s Own exception, anyone? – not many examples but could be promising for some donors – see Be the Next Paul Newman – Give 100% of Your Business to Your Private Foundation, Newman’s Own Style (Seyfarth)
  11. Regulation of online giving: CA AB 488 and beyond – law that governs fundraising platforms and platform charities – see also Crowdfunding Laws: Platform Charities