On September 28, 2017, the IRS Tax Exempt and Government Entities division released its FY 2018 work plan. Of interest to nonprofits and their advisors, the IRS is planning to make changes to Form 1023-EZ early in 2018. These changes are in response to the concerns of stakeholders regarding whether the 1023-EZ process requires too little information.
The Johnson Amendment ensures that 501(c)(3) organizations remain above the political fray by withholding exempt status (or revoking it) from organizations that engage in any amount of political activity. Requiring 501(c)(3) organizations to abstain from involvement in political activity ensures that they are able to remain dedicated to their missions without the distraction and divisiveness that partisan politics creates.
To reduce the risk to the tax-exempt organization, the tax-exempt partner should exercise sufficient power and control over the joint venture’s activities to ensure the joint venture operates in furtherance of its tax-exempt purposes. Tax-exempt organizations must be particularly careful when entering into joint ventures structured as partnerships or LLCs because the IRS attributes the activities of such entities to its owners.
Many tax-exempt organizations in Washington are still subject to business and occupation tax at both the state and local level. For B&O tax purposes, nonprofit organizations are generally presumed taxable in the same manner as for profit organizations.
Newly formed charities often encounter a chicken and egg problem. They wish to begin their operations before they receive formal approval of their tax-exempt status but they can’t attract funding until they receive their federal 501(c)(3) determination.
Code Section 506 aims to remedy this problem by requiring organizations to notify the IRS of their intent to operate as a Section 501(c)(4) organization. The IRS has developed a new form for this purpose “ Form 8976 “ that organizations should use to provide this notification.
Donors wishing to help the victims of a tragedy, a serious illness, or other major hardship are often surprised to learn that gifts earmarked for specific individuals are not tax deductible as charitable contributions. This rule catches many donors off guard as it is not intuitive that gifts made to individuals who are clearly in need would not be considered charitable.