Category: Laws & Regulations
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 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).
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.
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.
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 “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.
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.
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.
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.
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.
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.
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.
PATH Act 501(c)(4) Matters Update: Notification Requirement Postponed, Temporary Regulations and Additional Guidance to Follow
Since enactment of the PATH Act, exempt organizations have been waiting for IRS guidance on the new Section 501(c)(4) notification requirement and procedures for seeking IRS determination Section 501(c)(4) status. We’re still waiting for those specifics, but, with Notice 2016-09, the IRS has taken some of the time pressure off (both for itself and the affected organizations).
The people have spoken. After receiving widespread criticism, the Internal Revenue Service (“IRS”) has withdrawn proposed regulations regarding the substantiation of charitable contributions.
The end of the year brings a flood of gifts and grants to public charities, as well as perennial questions about how the donor will benefit in return.
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.
The IRA charitable rollover provision of the Internal Revenue Code, which allows individuals age 70½ or older to transfer, tax-free, up to $100,000 per year from an IRA to one or more eligible charities, has become permanent law, retroactive to January 1, 2015. This provision entered the Code as a temporary measure under the Pension Protection Act of 2006. Congress then extended it several times, most recently through December 31, 2014. It was made permanent when President Obama signed the Protecting Americans from Tax Hikes (PATH) Act of 2015 into law last Friday, and the provision will apply retroactively to all eligible IRA charitable rollovers made on or after January 1, 2015.
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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Thanks But No Thanks: Proposed Charitable Gift Substantiation Regulations Receive a Critical Response
On September 18, the Department of the Treasury and Internal Revenue Service (the “IRS”) proposed regulations relating to the substantiation of charitable contributions made to Section 501(c)(3) organizations. If approved, the proposed regulations would expand the ways in which charities can acknowledge donations. Under the current regulations, charities must provide a contemporaneous written acknowledgement to donors who contribute $250 or more stating (i) the amount of cash and a description of any property other than cash contributed; (ii) whether any goods or services were provided by the organization in consideration of the contribution; and (iii) a description and good faith estimate of the value of any goods or services provided. This acknowledgement is routinely provided as part of the “thank you’s” sent out by charities for contributions they receive, including those that fall below the $250 threshold.
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.
In April of this year, the Financial Accounting Standards Board (“FASB”) circulated a series of proposed changes to generally accepted accounting principles (“GAAP”) applicable to certain not-for-profits. These changes, which are intended to provide clearer information to donors, creditors, and other users of financial statements, may have a significant impact on not-for-profit financial reporting (which has remained largely unchanged for nearly twenty years) and will, among other things, (i) impact the reporting of operating performance in an entity’s statement of activities and related metrics in the statement of cash flows, (ii) require the use of the direct method for preparing the statement of cash flows, and (iii) modify the reporting disclosure of net assets and “underwater” endowments.
Final IRS Regulations Will Impact U.S. Private Foundation Grant-making to Foreign Charitable Organizations
The IRS has released final regulations that will impact how U.S. private foundations determine that a foreign charitable organization – i.e., one not organized under U.S. law or recognized as a public charity by the IRS – is the “equivalent” of a U.S. public charity for certain purposes. This determination is useful in the context of a private foundation’s compliance with the qualifying distribution rules under Section 4942 of the Internal Revenue Code (the “Code”) as well as with the taxable expenditure rules under Section 4945 of the Code.
One of the more contentious requirements imposed by the New York Non-Profit Revitalization Act is the new Section 713(f) of the Not-for-Profit Corporation Law, which states that no employee of a not-for-profit organization can serve as Board chair or hold any title with similar responsibilities. Implementation of Section 713(f) previously was delayed until January 1, 2016, and on October 26, Governor Andrew Cuomo signed into law a bill which delays the effective date, for another year, until January 1, 2017. According to the memorandum accompanying the bill, the delay is necessary because “the Legislature requires more time to study the impact of this prohibition on not-for-profit organizations.”
On September 15th, the Internal Revenue Service (the “IRS”) issued much anticipated guidance (the “IRS Notice”) that should help facilitate mission-related investing by private foundations organized as corporations.
Today, more than ever before, higher education lawyers are focusing their attention on issues of sexual harassment and sexual assault under Title IX of the Educational Amendments of 1972. Title IX protects people from sex discrimination in educational programs and activities at institutions that receive federal financial assistance.
In a recent article in Private Funds Management, Dahlia Doumar and Carl Merino discuss planning opportunities and challenges faced by private equity managers who are considering a donation of their carry or their stake in a management company to a donor-advised fund.
As the 2016 Presidential election season heats up—and in light of an internal memorandum on political activity audit procedures circulated within the IRS last month—we’d like to take the opportunity to remind our 501(c)(3) clients, colleagues and friends about of the federal tax law prohibitions on political activities conducted by 501(c)(3) organizations and the applicability of those prohibitions to the activities of employees of 501(c)(3) organizations.
A federal district court in New York has upheld the New York Attorney General’s policy requiring registered charities to disclose the names, addresses and total contributions of their major donors. This is the second federal court to rule on this issue, after the United States Court of Appeals for the Ninth Circuit upheld a similar requirement by California’s Attorney General in May in a suit brought by the Center for Competitive Politics, a 501(c)(3) public charity.
On June 16, 2015, the White House issued a press release highlighting private sector commitments and a series of executive actions related to investment in clean energy innovation. The release coincided with yesterday’s clean energy investment summit, at which Vice President Joe Biden described more than $4 billion of independent commitments by major foundations, institutional investors, and other long-term investors to fund climate change solutions, including innovative technologies with the potential to reduce carbon pollution.
Since the first social impact bond financing was launched in the United Kingdom in 2010, more and more attention is being directed to pay-for-success (or social impact) financing, both domestically and abroad.
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