As part of the Pension Protection Act passed in 1996, Congress added a new penalty for tax-exempt organizations that fail to file their annual return for three years in a row. Formerly, the only penalty was a monetary penalty. The new law has upped the ante to impose the ultimate penalty: loss of exemption. The penalty applies to organizations that fail to file Form 990, Form 990-EZ, as well as the relatively new Form 990-N. Form 990-N is a relatively new form that must be filed by tax-exempt organizations whose revenues normally fall below $25,000. Organizations that have their status revoked may apply for reinstatement based on reasonable cause for the failure to file. The first three year period is 2007 through 2009, which means that once the 2010 filing deadline passes for these forms (May 15, 2010 for tax-exempt organizations with calendar fiscal years), organizations that failed to file their Form 990s forms for those three years will automatically lose their tax-exempt status.
The benefit corporation concept has some similarities to the L3C model but is geared toward corporations rather than LLCs. Like the L3C, benefit corporations pursue a mission that goes beyond making a profit for owners and investors. Importantly, it also provides legal protection for board members that consider social and environmental issues when making decisions on behalf of the corporation.
Every year the IRS releases its “Dirty Dozen” list of tax scams. The list serves both as a warning of scams for taxpayers to avoid as well as a reminder of the IRS’ investigation and enforcement role. This year, the list includes “Abuse of Charitable Organizations and Deductions” .
To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector (meaning non-governmental) employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hires an unemployed worker and pays that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year. The benefit is available to both for-profit businesses and non-profit organizations.
An executive committee can be an effective governance tool, but not every board needs one. Executive committees should never ever replace the full board.
Congress recently passed a law permitting taxpayers to claim a deduction on their 2009 tax return for contributions to charities […]
Let’s be clear about one thing. No one owns a nonprofit corporation.
While there is no outright ownership, there is control. One of the fundamental questions I ask when forming a new nonprofit corporation is how board members will be selected. This is a key question because those who hold the power to select board members retain the ultimate authority over the corporation.
The possibilities are limited by the nonprofit corporation statute in the state where the corporation is domiciled.
A common misconception among nonprofits is that they can’t lobby. In reality, this restriction applies only to private foundations, not public charities. Public charities are explicitly permitted to lobby so long as they adhere to limits.
The L3C, or Low Profit Limited Liability Company, is a new legal entity that can be legally formed in six jurisdictions. The concept started in Vermont and is quickly catching on in other states across the U.S. including Illinois.
How is it different from an LLC?
The L3C’s primary purpose is to conduct activities that further a charitable or educational purpose. Earning a profit is its secondary purpose. Traditional corporate law requires that the owners’ interests are exclusively economic. This has been interpreted to mean that corporate directors have a duty to maximize profits for the company’s owners to the exclusion of virtually any other consideration. The statutory framework of the L3C turns the traditional view of the fiduciary duty to maximize the economic return for a company’s owners on its head. Instead, the L3C statutes require the managers to pursue the accomplishment of a charitable or educational purpose. They can earn a profit while pursuing their mission, but earning a profit can’t be a significant purpose of the company.
From protecting your brand to purchasing the goods needed to deliver your mission, contracts are an essential part any nonprofit business. Without solid contracts–the kind you can understand and actually use to protect your organization from broken promises and even litigation–meeting your mission can be an uphill battle. If you’re tired of having the same arguments with vendors and service providers or if you’re unsure of how to protect your brand, here are a few reasons why you should add “getting good contracts in place” to the top of your to-do list:
Fritz Schumacher published “Small is Beautiful – Economics as if People Mattered” in 1973. According to The Times Literary Supplement, it is among the 100 most influential books published since World War II and rightfully so.
For the last 60 years or so our way of life has been based on the premise that so long as there is demand there will always be supply. Schumacher wisely challenges these assumptions when he writes that sustainability is an impossibility when we are, “assuming all the time that a man who consumes more is ‘better off’ than a man who consumes less”, in an environment with finite resources.
E. F. Schumacher is clear about what economics can do and what it can’t do. Mainstream economists divide humans into producers and consumers. As consumers, consuming more will always be in our self-interest. As producers, efficiency is to be desired above all else. This breaks down, Schumacher says, as soon as we realize that producers and consumers are the same people with the same desires.
Yes, the rumors are true. CharityLawyer has formed her own law firm. My theme for 2010 is “Small is Beautiful” (which happens to be the title of the next book review). I started my career at a big four accounting firm with thousands of tax professionals, moved down the food chain to a national law firm of only 400 lawyers, and then to a regional law firm with a mere 200 lawyers. So, to continue the trend, I have started my own boutique law firm specializing in representing nonprofit and tax-exempt organizations. The firm is located in Phoenix, Arizona but will represent clients with respect to exempt organizations matters nationwide.
It appears that Congress will adjourn this year without reaching an agreement on transfer tax legislation. This means that a one-year repeal of estate and generation-skipping transfer (GST) taxes is scheduled to begin on January 1. The one-year repeal results from provisions in the 2001 tax act that reduced estate and GST taxes from 2001 through 2009, culminating in complete repeal in 2010. The provisions in the 2001 act are scheduled to “sunset” in 2011, meaning that estate and GST tax rates and exemptions will return to pre-2001 levels on January 1, 2011.
Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:
The joint Department of Treasury/Internal Revenue Service priority guidance plan for 2009-2010 contains the following items of interest to tax-exempt organizations:Revenue procedure to provide terms for hosts of Cyber Assistant software (used to generate Form 1023 exemption applications eligible for reduced user fee).
The Internal Revenue Service is at it again. The IRS recently released a Governance Check Sheet that its examination agents will use when examining charitable organizations (other than private foundations), along with a Guide Sheet providing instructions on how to use the Check Sheet. According to the IRS’s webpage for exempt organization governance issues, the Check Sheet “will be used by IRS’ Exempt Organizations Examination agents to capture data about governance practices and the related internal controls of organizations being examined. The data will be included in a long-term study to gain a better understanding of the intersection between governance practices and tax compliance.” These materials are in addition to the governance training materials previously released by the IRS.
In the last decade or so, directors and officers have faced an increased exposure to personal liability. While the bulk of legal actions have been against directors and officers of for profit corporations, judgments against and settlements by directors and officers of nonprofit corporations are increasing.
There are 28 different exemptions under Code Section 501, the most popular of which is Section 501(c)(3). If the corporation plans to qualify for tax-exemption under Section 501(c)(3), the articles must limit the corporation’s activities to tax-exempt purposes. Tax exempt purposes include:
testing for public safety,
to foster national or international amateur sports competition, or
promote the arts, or for the prevention of cruelty to children or animals.
A listing of the IRS and Treasury Department’s joint priority guidance plan for the 2009-2010 tax year.
Ellis Carter and Deanna Rader will be co-presenting a webinar on December 15th at 4:00 pm as part of the Arizona Charter School Association’s Charter Starter program. One of the first sessions that the program will offer is a webinar on the legal aspects of starting an Arizona charter school.