On June 5, 2020, the Internal Revenue Service (“IRS”) issued proposed regulations on the excise tax on excess tax-exempt organization executive compensation under Section 4960 of the Internal Revenue Code (the “Excise Tax”). This tax, which was enacted as part of tax reform in 2017, applies to certain tax-exempt organizations (or related organizations) that pay annual remuneration in excess of $1 million or so-called “excess parachute payments” to certain “covered employees” (generally, employees who were among the five highest-compensated employees of the organization for a given taxable year or any prior taxable year in 2017 or later).
Our colleagues in Patterson Belknap’s Corporate and Tax-Exempt Organizations practices have published a number of recent alerts on the CARES Act's Paycheck Protection Program. These updates are linked below for your convenience.
The Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”) was signed into law by President Trump on June 5, 2020, which provides Paycheck Protection Program (the “PPP”) loan borrowers additional time to incur costs that count towards PPP loan forgiveness, reduces the portion of such costs that must be payroll costs, provides an additional exemption from the CARES Act’s loan forgiveness reduction provisions and extends the deadline to rehire workers in order to remain qualified for full forgiveness. The PPP Flexibility Act also allows businesses that receive loan forgiveness to defer payroll taxes and extends the PPP loan maturity date and loan deferral period.
Our colleagues in Patterson Belknap’s Employment Law and Employee Benefits & Executive Compensation practices have published a number of recent alerts on employment law and employee benefits considerations stemming from the Coronavirus pandemic.
The Small Business Administration (the “SBA”), in consultation with the U.S. Department of the Treasury (the “Treasury”), continues to issue guidance on the Paycheck Protection Program (the “PPP”) by updating its Frequently Asked Questions (the “FAQs”) guidance. The updated FAQs as of May 13, 2020 include additional guidance regarding (i) the SBA’s review process of a borrower’s required good-faith certification concerning the necessity of its PPP loan request (the “Necessity Certification”) and (ii) the further extension of the PPP loan repayment deadline for borrowers to repay their PPP loan proceeds and be deemed by SBA to have made the required Necessity Certification in good faith. Also on May 13, 2020, the SBA posted an Interim Final Rule on Loan Increases (the “Interim Final Rule on Loan Increases”), which provides for certain partnership and seasonal employer PPP loan recipients to increase their PPP loans based on prior guidance on calculation of the maximum PPP loan amount.
Our colleagues in Patterson Belknap’s Privacy and Data Security Law practice have published a number of recent alerts on privacy and cybersecurity law considerations stemming from the Coronavirus pandemic.
The Small Business Administration (“SBA”), in consultation with the U.S. Department of the Treasury (“Treasury”), continues to issue guidance on the Paycheck Protection Program (“PPP”) by updating its Frequently Asked Questions (the “FAQs”) release. The updated FAQs as of May 6, 2020 included additional guidance regarding (i) SBA review of PPP loans, (ii) impact of past layoffs on loan forgiveness, (iii) non-profit hospital qualification under the CARES ACT, (iv) PPP funds return deadline, and (v) applicant employee size standard. Additionally, on April 30, 2020, the SBA released the Interim Final Rule on Corporate Groups and Non-Bank and Non-Insured Depository Institution Lenders (the “Interim Final Rule”), which provides that a single corporate group is subject to a $20 million aggregate limit for all PPP loans received.
Following extensive publicity regarding large and publicly-traded businesses that have received loans under the Paycheck Protection Program (the “PPP”), on April 23, 2020, the Small Business Administration (the “SBA”) added additional guidance with Question 31 to its Frequently Asked Questions (“FAQs”, and Question 31, “FAQ No. 31”). On April 24th, President Trump signed into law a bill approving $484 billion in additional coronavirus relief, of which $310 billion will go toward commitments for general business loans through the PPP ($60 billion of which is specifically allocated to smaller lenders to help inject federal funds into rural areas). Congress also directed $50 billion to the Disaster Loans Program Account, $10 billion to Emergency EIDL Grants, $75 billion to health care providers and $25 billion to coronavirus testing.
The COVID-19 pandemic has impacted all aspects of life, restricting mobility and forcing federal, state and local governments to implement increasingly aggressive measures to curtail the spread of the virus. We have set forth below just some of the pertinent issues to consider. Although we have focused on New York law, these issues apply to leases generally. All companies’ needs are different and we are committed to helping you address the legal and operational challenges affecting your business.
Nonprofits Take on the COVID-19 Crisis: Art Museum Standards Temporarily Relaxed to Help Museums Meet New Economic Challenges
Long-standing standards applicable to art museums, particularly with regard to the use of deaccessioning proceeds, have been temporarily relaxed in order to help art museums meet the financial challenges presented by the COVID-19 crisis.
In an effort to provide additional relief in response to the COVID-19 emergency, the Internal Revenue Service and the New York Attorney General’s Charities Bureau have announced filing extensions for exempt organizations.
The Federal Reserve recently created, proposed and expanded several programs to relieve the economic impact of COVID-19 by providing liquidity to support credit markets. In general, the programs extend credit through special purpose vehicles capitalized with equity from the Department of the Treasury and debt from the Federal Reserve. Some programs provide credit to financial institutions to increase their lending capability, while others provide credit directly to businesses and municipalities. With the exception of the Commercial Paper Funding Facility, these programs will extend credit or make purchases until September 30, 2020, unless extended.
On April 6, 2020, the Small Business Administration (the “SBA”) in consultation with the Department of the Treasury released additional guidance reflecting the implementation of the Paycheck Protection Program (“PPP”) of the CARES Act in a Frequently Asked Questions (FAQs) format (the “FAQ”), and plans to update the guidance regularly. The FAQ makes clear that borrowers and lenders may rely on the guidance available at the time of their applications’ submission or approval so are not required to revise applications based on these FAQs. Going forward, we recommend that all borrowers consult the Department of Treasury’s website for current guidance before making an application.
The newly enacted Coronavirus Aid, Relief, and Economic Security Act (commonly known as the “CARES Act”) offers a wide range of benefits and incentives to help businesses weather the economic downturn caused by COVID-19. This alert covers five of the key programs offered to businesses and nonprofit organizations: the Paycheck Protection Program, the U.S. Treasury’s Direct Lending Program, Economic Injury Disaster Loans, tax relief, and enhanced deductibility benefits for charitable giving.
Nonprofits Take on the COVID-19 Crisis: Enhanced Deductibility Benefit for Large Cash Gifts to Charity and for Non-Itemizers
The newly enacted Coronavirus Aid, Relief, and Economic Security Act (commonly known as the “CARES Act”) includes provisions designed to encourage charitable contributions of cash, by allowing individual donors to charities to deduct up to 100% of their 2020 adjusted gross income (“AGI”), over and above the usual cap of 60% (or 50% if charitable contributions are made through a combination of cash and other assets). For corporate donors, the deduction cap is raised to 25%, over and above the usual cap of 10%. Unused deductions allowable under the CARES Act may be carried forward into future tax years, subject to the traditional deductibility limitations, which will be restored in 2021.
As we have previously reported, charitable organizations and employers are able to play an important role in providing disaster relief in response to the COVID-19 crisis. During this crisis, individuals may be seeking new ways to help, including by starting new charitable organizations. We describe below some alternatives to consider before forming a new charity, as well as a high-level summary of the necessary steps to form a new charitable organization.
As we previously reported, charitable organizations are able to play an important role in providing disaster relief in response to the COVID-19 crisis. Special rules are relevant to employers that wish to provide hardship support to their current and former employees during this time. In light of the unique nature of this crisis, additional guidance may be forthcoming from the IRS.
The spread of the novel coronavirus (COVID-19) has caused dramatic upheaval to public health, social relations, and the economy. The full impact of the virus remains uncertain, and the coming weeks and months will present tremendous challenges domestically and abroad. Charitable organizations are well positioned and have a unique opportunity to help those affected by the virus. Over the years, the Internal Revenue Service has provided useful guidance on how 501(c)(3) organizations can provide aid during times of disaster. That guidance tends to evolve as society faces different types of disasters, and the needs of individuals differ depending on whether a disaster takes the form of a terrorist attack or a hurricane or—as we are quickly learning—a pandemic. The summary below is based on guidance developed to date, but may evolve as charitable organizations and the federal government develop innovative and vital approaches responding to the current crisis and its unique impacts.
Just in time for the holidays, Congress gave two gifts to tax-exempt organizations as part of the new government funding bill signed into law on December 20, 2019.
As we previously reported, the Tax Cuts and Jobs Act, which was signed into law at the end of 2017, imposes an excise tax on certain tax-exempt organizations equivalent to 21% of “excess compensation” (including certain severance payments) paid to certain current and former employees. Under the new Section 4960 of the Internal Revenue Code, the tax is payable by the tax-exempt organization and, if applicable, a “related organization” (on a proportional basis). Section 4960 defines excess compensation for such employees as (i) the amount of remuneration, other than “excess parachute payments,” in excess of $1 million and (b) any “excess parachute payment” (including severance or other payments made upon separation).
We previously reported on A.B. 10336-A (Paulin) / S.B. 8699 (Gallivan) (the “Bill”), which would amend Section 601(a) of the New York Not-for-Profit Corporation Law to raise the minimum number of members of a not-for-profit membership corporation from one to three. The Bill was signed into law by Governor Cuomo on December 21, 2018. It will go into effect on July 1, 2019. New York not-for-profit corporations, and all organizations with New York not-for-profit affiliates, should review the legislation to determine whether any action is required.
As we previously reported, the 2017 tax reform bill instituted an excise tax on the investment income of certain private colleges and universities under new Section 4968 of the Internal Revenue Code (the “Code”). The Internal Revenue Service (the “IRS”) and the Department of the Treasury (“Treasury”) have now issued Notice 2018-55 which provides guidance (including notification of an intent to issue regulations) regarding the calculation of net investment income for purposes of Code Section 4968(c).
Under newly released rules, certain tax-exempt organizations are no longer required to disclose personally identifiable donor information on their annual Form 990 filings. This change does not affect Section 501(c)(3) or Section 527 organizations.
The New York Assembly and Senate recently passed legislation – A.B. 10336-A (Paulin) / S.B. 8699 (Gallivan) (the “Bill”) – that would raise the minimum number of members of a not-for-profit membership corporation to three through amendment of Section 601(a) of the New York Not-for-Profit Corporation Law (the “NPCL”), which currently permits a minimum of one member. The Bill would provide an exception for membership corporations with a sole member that is a corporation, joint-stock association, unincorporated association or partnership, but only if that sole member is “owned or controlled” by at least three persons.
In recent months, news of Blockchain technology has filled headlines. The ability of Blockchain—which provides a decentralized means of recording and verifying transactions—to shape the financial sector has been widely reported, as have transactions involving Bitcoin and other cryptocurrencies using Blockchain technology. Programmers and businesses are quickly turning to various Blockchain platforms to develop new applications of this technology, even as regulatory bodies are beginning to pay increased attention to high-stakes cryptocurrency transactions.
A last minute addition to the budget appropriations bill enacted by Congress this month has created new opportunities for philanthropic planning. Section 41110 of the bill creates a limited exception from the private foundation excess business holdings excise tax under Section 4943 of the Internal Revenue Code.
After a short period of deliberations by the House of Representatives (the “House”) and the Senate, President Trump signed the final version of H.R. 1 into Public Law No. 115-97 on December 22, 2017 (the “New Law”). The New Law makes substantial changes to the Internal Revenue Code, and our previous alerts discussed the New Law’s evolution in detail and the impact on tax-exempt organizations of certain provisions of the initial versions of the New Law introduced by the House and the Senate.
On November 16, the House of Representatives passed an amended version of H.R. 1, the “Tax Cuts and Jobs Act,” by a vote of 227-205 (the “House Bill”). On November 20, 2017, the Senate Finance Committee released the Senate’s proposal for its own version of the bill (the “Senate Proposal”). Our previous alert discussed the impact on tax-exempt organizations of certain provisions of the House Bill and Senate Proposal.
The Internal Revenue Service (the “IRS”) has issued Notice 2017-73 (the “Notice”) which outlines approaches the Department of the Treasury (“Treasury”) and the IRS are considering with respect to the regulation of certain issues relating to Donor Advised Funds (“DAFs”). Written comments on the issues raised in the Notice may be submitted by March 5, 2018.
On November 2, 2017, House Ways and Means Committee Chairman Kevin Brady (R-TX) introduced H.R. 1, the “Tax Cuts and Jobs Act” (the “Initial House Bill”). Our previous alert discussed the possible impact of certain provisions of the Initial House Bill on tax-exempt organizations. On November 16, 2017, the House of Representatives passed an amended version of H.R. 1 by a vote of 227-205 (the “Final House Bill”). The Final House Bill promises substantial changes to the Internal Revenue Code of 1986, as amended (the “Code”).
On November 2, 2017, House Ways and Means Committee Chairman Kevin Brady (R-TX) introduced H.R. 1, the “Tax Cuts and Jobs Act” (the “Bill”). At over four hundred pages, the Bill promises substantial changes to the Internal Revenue Code of 1986, as amended (the “Code”).
On October 5, Rep. Mark Walker (R-NC) introduced the Universal Charitable Giving Act of 2017 (H.R. 3988), which would allow individuals who do not itemize their deductions to receive income tax deductions for charitable contributions. Currently, only individuals who itemize their deductions can avail themselves of the charitable deduction. Individuals would be able to claim “above-the-line” deductions for charitable contributions, subject to a cap of one-third of the standard deduction (about $2,100 for individuals and $4,200 for married couples). The bill would not change the availability of the charitable deduction as it exists under current law.
The IRS will permit 401(k) plans, 403(b) plans, and certain other qualified plans to make plan loans through more streamlined procedures and hardship distributions under liberalized rules to participants and their family members who lived or worked in disaster areas that were impacted by Hurricane Harvey and Hurricane Irma, so long as those disaster areas were among those listed as eligible for individual FEMA assistance.
This morning, the Office for Civil Rights of the Department of Education issued a “Dear Colleague” letter rescinding the Obama administration’s school sexual assault guidance. The Department also issued a new set of Questions and Answers on Campus Sexual Misconduct. The new guidance follows a speech delivered by Secretary of Education Betsy DeVos earlier this month in which Secretary DeVos announced a formal rulemaking process regarding the process colleges and universities must follow with respect to Title IX-related complaints. We recommend that educational organizations review this new guidance.
Among the many elements of corporate housekeeping and compliance that demand the time and attention of directors and officers (and staff), minutes often seem like a burden. No one doubts that minutes matter. A well-documented board meeting creates an important historical record that can guide future deliberations and may prove useful during Board disagreements, litigation, Attorney General investigations, other governmental enforcement actions, or an audit by the IRS. However, clients often nervously ask whether there is a legal standard regarding how much detail minutes should contain.
A Q&A with Partner Tomer J. Inbar has been featured in the Stanford Social Innovation Review’s Summer 2017 Supplement, “Navigating Risk in Impact-Focused Philanthropy”. The Q&A, led by Maya Winkelstein of Open Road Alliance, focuses on understanding and managing the legal risks associated with a foundation’s programmatic work, which can help increase the likelihood that the work will have impact.
Last year, we posted about amendments to the New York Not-for-Profit Corporation Law (the “NPCL”) and the New York Estates, Powers and Trusts Law (the “EPTL”) here and here. As we noted, the amendments were signed into law last year and take effect on May 27, 2017 (with the exception of the amendment to NPCL Section 713(f) regarding employees serving as board chairs, which took effect January 1, 2017).
Earlier this week we reported on proposed bills regarding the repeal or modification of the “Johnson Amendment” which established the absolute prohibition on political campaign activity by 501(c)(3) charitable organizations. On May 4, President Trump issued an executive order, “Promoting Free Speech and Religious Liberty,” which, among other things, addresses enforcement of the prohibition by the Internal Revenue Service (IRS).
During his presidential campaign, President Trump promised to repeal the “Johnson Amendment” which established the absolute prohibition on political campaign activity by 501(c)(3) charitable organizations. After his inauguration, President Trump promised to “destroy” the amendment (specifically with respect to churches), and three bills have been introduced in the 115th Congress to modify the prohibition or eliminate it completely for all 501(c)(3) charitable organizations.
Many tax exempt employers sponsor Section 403(b) retirement plans to help their employees save money for retirement. A 403(b) plan offers the ability for an employee to make pre-tax contributions to the plan (similar to the way a 401(k) plan operates) and such contributions can be invested and are not subject to tax until the employee makes a withdrawal from the plan, which is usually after retirement. Under tax rules issued in 2007, all 403(b) plans were required to have a written plan document (no later than December 31, 2009) in order to maintain the tax favored status for an organization's plan.
In the twelve days since his inauguration, President Donald Trump has issued a flurry of executive orders relating to, among other things, the proposed repeal of the Affordable Care Act, the construction of oil pipelines, the building of a wall on the Mexican border, and immigration restrictions. These executive orders have begun the process of fulfilling many of the promises President Trump made during the campaign, and it seems likely that additional executive orders will continue to be issued.
A federal court development has delayed enforcement of the recently enacted New York State legislation (described in our prior blog post) requiring 501(c)(3) organizations to publicly disclose the identities of certain donors if those 501(c)(3) organizations make donations to 501(c)(4) organizations engaged in significant lobbying in New York.
Over the summer, we posted about Bill No. A. 10365B/S. 7913, containing amendments to the New York Not-for-Profit Corporation Law (the “NPCL”) and the New York Estates, Powers and Trusts Law (the “EPTL”) here. After introduction in May and passage by both houses in June, the bill was delivered to the Governor earlier this month and signed into law on November 28.
Bill No. A. 10742/S. 8160, introduced during the final hours of the spring legislative session and signed into law by Governor Andrew Cuomo, requires 501(c)(3) organizations to publicly disclose the identities of certain donors if those 501(c)(3) organizations make donations to 501(c)(4) organizations engaged in significant lobbying in New York. These new disclosure requirements will take effect on November 22, 2016.
Tax-exempt organizations will soon receive guidance regarding the issues most likely to trigger an examination by the Internal Revenue Service (IRS), says Sunita Lough, Commissioner of the IRS Tax-Exempt and Government Entities Division (TE/GE). On a recent call discussing TE/GE’s newly released FY 2017 work plan, Ms. Lough indicated that this interim guidance, which will likely come in mid-October, will be designed to provide nonprofits with a better understanding of how the IRS uses information document requests (IDRs) in order to more efficiently resolve compliance issues.
The 2016 U.S. presidential campaign has reached a fevered pitch, with a little over a month remaining before Election Day. After Monday’s debate between Hillary Clinton and Donald Trump, the stakes are high and the American public is turning to social media to express powerful emotions ranging from excitement to exhaustion, and to support their chosen candidate (or oppose the other).
The Internal Revenue Service (the “IRS”) has announced plans to update Revenue Ruling 67-390 that requires an organization to “re-apply” for tax-exemption if it changes its corporate structure, including in situations where an exempt organization reincorporates under the laws of another state (even where there is no change in corporate/charitable purposes).
On August 29, 2016, the United States District Court for the Southern District of New York dismissed in its entirety a complaint against the New York Attorney General filed by Citizens United and Citizens United Foundation, challenging the Attorney General’s policy of requiring charities to disclose the names, addresses, and total contributions of their donors in connection with registration to solicit funds in New York.
As we previously reported, in April 2015 the Financial Accounting Standards Board (“FASB”) circulated a series of proposed changes to generally accepted accounting principles applicable to certain not-for-profit entities in order to provide clearer information to donors, creditors, and other users of financial statements. On August 18, FASB issued the related accounting standards update.
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