Category: In the News

In connection with the war in Ukraine, the United States has significantly enhanced its sanctions against the Russian Federation.  However, the Department of the Treasury’s Office of Foreign Asset Control (“OFAC”) recently issued a new General License, General License No. 27, which clarifies that the sanctions do not apply to certain humanitarian work in Ukraine and the Russian Federation.  Thus, nongovernmental organizations (“NGOs”) (including 501(c)(3) nonprofit charitable organizations) may engage in certain activities, either directly or by transferring funds in support, that would otherwise be prohibited under the sanctions.

On July 1, the Supreme Court issued a major decision concerning nonprofit donor disclosure laws and the First Amendment.  In Americans for Prosperity Foundation v. Bonta, No. 19-251, the Court held that a California law requiring charitable organizations to file their annual I.R.S. Form 990 Schedule Bs with the State—and thus disclose the names and addresses of major donors—is facially unconstitutional because it violates the First Amendment right to free association.  The Court reasoned that disclosure of donor information has a broad chilling effect on charities and their donors, even when the information is kept confidential and the information is already required to be provided in Federal tax filings.

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. 

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. 

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.

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).

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).

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.

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.

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.

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).

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.

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 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). 

A recently passed Delaware law contains new requirements for committees and subcommittees of nonstock corporations to vote and achieve quorum.  

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.

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”.

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.

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 IRS recently announced that, beginning February 29, 2016, Form 990-N (also known as the “e-Postcard”) will be filed through the IRS website rather than through the Urban Institute website.

The people have spoken. After receiving widespread criticism, the Internal Revenue Service (“IRS”) has withdrawn proposed regulations regarding the substantiation of charitable contributions.  

For a year that continued to prominently feature Section 501(c)(4) organizations – in politics, news, and public discourse and debates – it seems fitting to end 2015 with a summary of recent federal legislation that changes (or, in one case, prevents changes to) the rules applicable to Section 501(c)(4) organizations.  We anticipate that there will be more to come in 2016, so stay tuned for updates.

On October 27, 2015, the New York City Fair Chance Act (the “Act”) went into effect.  In passing the Act, New York City joined a growing number of cities and states that passed “ban the box” legislation.

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On December 11, 2015 Governor Andrew M. Cuomo signed into a law a bill amending New York’s Not-for-Profit Corporation Law (the “NPCL”), Estates Powers and Trusts Law (the “EPTL”) and Religious Corporations Law (the “RCL”).  The amendments are intended in large part to clarify certain provisions of the New York Non-Profit Revitalization Act of 2013 (the “Act”), which reformed statutory requirements relating to governance of not-for-profit corporations and wholly charitable trusts in the state and expanded the Attorney General’s enforcement powers; most provisions of the Act went into effect in 2014.