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.
A recently passed Delaware law contains new requirements for committees and subcommittees of nonstock corporations to vote and achieve quorum.
PATH Act 501(c)(4) Matters Update #2: Notification Requirement Clarified; Temporary Regulations and Notification Form Issued
As specified in Notice 2016-09 (discussed in our recent blog post on the PATH Act), the IRS has issued temporary regulations describing new notification procedures and a notification form for certain (current and prospective) Section 501(c)(4) organizations.
On June 23, the people of the United Kingdom voted to leave the European Union. The decision to leave—commonly known as “Brexit”—has dominated headlines, rattled financial markets, and triggered political uncertainty in the United Kingdom and throughout the world. Although the United Kingdom has not yet formally initiated the two-year process to leave the European Union, political, financial, and legal experts are actively working to determine Brexit’s short- and long-term implications.
The New York State Assembly and Senate have passed a bill which, if signed by the Governor, would amend the Not-for-Profit Corporation Law (the “NPCL”) and the Estates, Powers and Trusts Law (the “EPTL”) to clarify and refine some of the changes to both laws effected as part of the 2013 New York Non-Profit Revitalization Act (the “NPRA”). Bill No. A. 10365B/S. 7913 was introduced on May 24, 2016. It passed the Assembly on June 15 and the Senate on June 16, just before the end of the legislative session, and should be delivered to the Governor sometime in the next several months.
We have recently written about the increasing importance of cybersecurity as an aspect of risk management for nonprofits in light of the proliferation of data security breaches across different sectors.
On May 10, 2016, the Internal Revenue Service (“IRS”) published proposed regulations that would impose additional reporting and record-keeping requirements on domestic “disregarded entities” that are wholly owned (directly or indirectly) by a foreign person (e.g., a U.S. limited liability company the sole member of which is a foreign corporation or individual).
Operating in China just became a bit more complex for foreign nongovernmental organizations (NGOs). China’s new “Law on the Management of Foreign Non-Governmental Organizations’ Activities within Mainland China”, which was passed at the 20th meeting of the Standing Committee of the 12th National People’s Congress on April 28, 2016, centralizes the regulation of the registration, management and reporting requirements for foreign NGOs with the Chinese Ministry of Public Security (MPS). The law applies to “foreign NGOs”, which are defined in the law as social organizations including foundations, social groups and think tanks. The law allows foreign NGOs to operate in the areas of economics, education, science, culture, health, sports, environmental protection and poverty and disaster relief while expressly forbidding them from funding or engaging in any for-profit, political or religious activities or engaging in any activities that “endanger state security” or “damage the national or public interest”.
We live in an era of increasingly prevalent cybercrime, and nonprofits are in the crosshairs. Harvard University, Penn State University and two BlueCross BlueShield entities are just a few nonprofit organizations that reported cyberattacks in 2015, breaches to their data security systems ultimately compromising thousands of personal, confidential and proprietary records.
On April 27, National Philanthropic Trust, a public charity dedicated to providing philanthropic expertise to donors, foundations and financial institutions, launched a website on the History of Modern Philanthropy.
Yesterday, Treasury and the Internal Revenue Service (IRS) finalized the regulations describing nine new program-related investment (PRI) examples that were first proposed on April 19, 2012. The final regulations incorporate several helpful amendments that were requested by comments received in response to the proposed regulations.
The IRS and the Department of the Treasury have released proposed regulations that address rules relating to Type I and Type III “supporting organizations” under the Internal Revenue Code (the “Code”) and applicable Treasury Regulations (the “Regulations”).
The Administration’s proposed budget for Fiscal Year 2017 features several proposals that would impact charitable organizations and their donors, including proposals to streamline the private foundation excise tax on net investment income, consolidate the deduction limits for charitable contributions and strengthen the requirements for qualified conservation easements.
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