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Federal
President Bush signed the Pension
Protection Act of 2006 into law on
August 17, 2006 – a law of
particular significance for
tax-exempt organizations.
The Pension Protection Act of 2006
contains provisions applicable to
tax-exempt organizations. Following
are highlights of some of the
applicable provisions.
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Individuals who are at least 70
½ years old may exclude from
taxable income certain
distributions to certain public
charities or private operating
foundations of up to $100,000
per year from either a
traditional individual
retirement account (IRA) or a
Roth IRA. In order for this
exclusion from taxable income to
apply, a charitable distribution
must be made to a church or
public charity but not to
foundations, donor-advised
funds, supporting organizations,
or split interest vehicles
(e.g., a remainder trust).
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The Act retroactively extends
the Katrina Emergency Tax Relief
Act of 2005, to the extent that
donations of unused food
inventory to charities are
deductible. Eligibility
requirements are as follows: the
donor must be a business
(primarily but not exclusively
farms, restaurants, and grocery
stores), the food must be
“apparently wholesome,” and the
donor business must demonstrate
that the fair market value of
the food exceeds its cost to the
donor. There is also an
enhanced deduction for books to
public schools for qualifying
corporations.
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The Act doubles certain private
foundation and excess benefit
penalty excise taxes.
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Charities receiving a partial
interest in an item of tangible
personal property must take complete
ownership of the item within 10
years of the initial donation or the
death of the donor, whichever comes
earliest. Also, the charity must
take possession of the property at
least once during the
above-mentioned time frames and have
used the property for the
organization’s exempt purpose.
Noncompliance will result in a
recapture of all tax benefits plus
accrued interest, as well as a 10%
penalty.
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Credit counseling organizations must
charge fees that are consistent with
state law and are reasonable. The
Act also prohibits such
organizations from refusing service
to clients based upon their
inability to pay or unwillingness to
participate in debt management
programs. Moreover, the Act
prohibits loans to debtors, limits
payments to credit counseling
organizations from creditors, and
prohibits monetary compensation for
referrals, including those from debt
management services.
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Effective for periods beginning
after 2006, tax-exempt organizations
other than private foundations that
formerly did not have annual filing
requirements with the IRS because
their gross receipts are less than
$25,000 will have to file basic
contact and financial information
with the IRS every year. Failure to
file this annual notice for three
consecutive years will result in the
revocation of tax-exempt status.
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The Act prohibits loans or payments
from a donor-advised fund to a
donor, advisor, or family member,
and prohibits payments made from a
supporting organization to a
substantial contributor or related
person. The Act also contains
additional extensive new
requirements for donor-advised funds
and supporting organizations.
·
Section 501(c)(3) organizations
filing unrelated business income tax
returns (Form 990-T) must make these
filings available for public
inspection for all returns filed
after August 17, 2006.
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For a donor to take a tax deduction
for a monetary gift of less than
$250, the donor must have either a
bank record or receipt from the
charity. The documentation required
for monetary gifts at or exceeding
$250, a written acknowledgement from
the charity, remains the same.
·
Tax deductions for clothing and
household item donations are allowed
only if the items are in at least
good condition.
Please note that this article is a
broad overview and only highlights
some of the applicable provisions.
Tax-exempt organizations ought to
consult their advisors or the Pro
Bono Partnership for further
assistance. For the provisions of
the Act applicable to tax-exempt
organizations, please see
http://www.irs.gov/pub/irs-tege/ppacharitableprovisions.pdf.
A recent U.S. Supreme Court decision
broadens what the law considers
retaliation against workers who
complain about sexual harassment.
Title VII of the 1964 Civil Rights
Act allows employees to sue their
employers for retaliation against
complaining of sexual harassment.
Now, the U.S. Supreme Court
recognizes that retaliation can take
more subtle forms, both inside and
outside of the workplace. The new
national standard allows employees
to bring retaliation claims for acts
such as being excluded from a
training lunch, or being reassigned
to more physical labor tasks.
Employers ought to be aware that
even subtle reprisals, such as no
longer including an employee in
group lunches, meetings or
activities, may rise to the level of
retaliation under Title VII.
The
House passes the “Trifecta” Estate
Tax and Extension of Tax Relief Act
on July 29, 2006. The measure now
moves to the Senate for
consideration.
This Act, if signed into law, will
increase the Federal Minimum Wage
as follows: the current federal
minimum wage of $5.15/hour will be
raised by $2.10 over three years in
the following increments: to
$5.85/hour effective on January 1,
2007, then to $6.55/hour effective
on June 1, 2008 and finally to
$7.25/hour effective on June 1,
2009. For a detailed summary of the
“Trifecta” Estate Tax and Extension
of Tax Relief Act, please go
click here.
The IRS has released a new
Educational Fact Sheet on Political
Campaign Intervention that provides
guidance for nonprofits during the
upcoming 2006 election cycle.
With the approach of the 2006
election cycle, the IRS is enhancing
its educational and enforcement
efforts to assist charities with
federal tax law compliance. This
new IRS Fact Sheet clarifies that
501(c)(3) organizations are
prohibited from directly or
indirectly participating in any
political campaign in support of (or
in opposition to) any candidate for
elective office at the federal,
state or local level. A violation
of this prohibition may result in
the denial or revocation of
tax-exempt status and the imposition
of excise taxes. The IRS Fact Sheet
also addresses topics such as voter
education, individual activity by
organization leaders, candidate
appearances and issue advocacy. To
download this Educational Fact
Sheet, please go to
www.irs.gov and type keyword:
IR-2006-36. For questions please
send your emails to
tege.eo.ceo@irs.gov.
The
new 1023 form, used to apply for
federal tax-exemption status, became
effective in June 2006 and will be
the exclusive form accepted by the
IRS as of December 1, 2006.
In June of 2006, the IRS updated the
October 2004 version of the 1023
application and accompanying
instructions. The primary change
pertains to the requested user fee
information in Part XI of the
application. As of December 1,
2006, the updated 1023 application
will be the exclusive form accepted
by the IRS. If a nonprofit submits
the old form application after this
date, the IRS will return the form
as “incomplete” and not consider the
application. To download the
revised 1023 application and
instructions, please go to
www.irs.gov/charities/charitable/index.html.
U.S.
Department of Treasury Revises
Antiterrorism Guidelines for Public
Charities
On September 29, 2006 the Treasury
enhanced existing guidelines that
provide procedures for public
charities to donate money and other
resources to international
philanthropic efforts. These
enhancements emphasize that
nonprofit groups must make certain
that both senior employees as well
as branch offices of foreign
nonprofits are not connected to
terrorist activity, a burden that
some nonprofits consider too
onerous. In an effort to protect
domestic nonprofit workers providing
services internationally, the
Treasury also added language to the
guidelines, reinforcing that public
charities are independent of the
U.S. Government. The dialogue
between the Treasury and nonprofit
sector will continue to develop
these guidelines in the future,
leading to new revisions based on
more accurate information. Please
click here to access the U.S.
Treasury’s antiterrorism guidelines.
Connecticut
Revisions
to the Connecticut Nonstock
Corporation Act to go into effect
October 1, 2006
On October 1, 2006 amendments to the Connecticut Business
Corporation Act and the Connecticut
Revised Nonstock Corporation Act
(which governs Connecticut nonprofit
organizations) will go into effect.
These amendments, contained in Pubic
Act 06-68 (http://www.cga.ct.gov/2006/ACT/PA/2006PA-00068-R00SB-00547-PA.htm)
contain several changes, include the
following:
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Changes regarding transactions
that constitute a conflict of
interest for a corporate
director, including expanding
the category of people whose
interest in a transaction will
be attributed to the director;
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Establishing a procedure for a
director who wants to take
advantage of a business
opportunity that might be
suitable for a corporation to
first present it to the board or
shareholders to obtain a
disclaimer, thereby protecting
him from liability; and
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Altering the rules on which
directors are qualified to
approve indemnification of
directors.
The amendments also contain several technical changes. For
more information about these changes
to the CT Nonstock Corporation Act,
please contact the Partnership.
IRS assesses Connecticut Youth Soccer League for Treating
Coaches and Referees as Independent
Contractors and not Employees
The Internal Revenue Service cited
the Fairfield United Soccer
Association (FUSA) for $334,441 in
back taxes and penalties for its
failure to withhold taxes for
coaches and referees over a two year
period. FUSA, a nonprofit soccer
league made up of approximately 45
teams, had treated the coaches and
referees as independent
contractors. After an audit of FUSA,
the IRS contended that the coaches
and referees should have been
treated as employees, with FUSA
withholding employment taxes. FUSA
is appealing the IRS ruling.
New
Jersey
The
New Jersey Appellate Division rules
that Independent Contractors may
qualify for protection under the New
Jersey Whistleblower Act.
In a New Jersey Appellate Division case, the court ruled
that the New Jersey Conscientious
Employee Protection Act (“CEPA”) may
protect independent contractors if
they satisfy a four-factor test.
CEPA allows employees to file claims
for employer retaliation when they
object to practices by the employer
reasonably believed to be in
conflict with law or public policy.
The court reasoned that independent
contractors could also sue a company
under CEPA if they met the following
criteria: (1) the employer has the
right to control the means and
manner of the worker’s performance;
(2) the employer supervised the work
performed; (3) the employer
furnished equipment and a workplace;
and (4) the employer controlled the
manner of termination. If
independent contractors can meet
this four-factor test, they qualify
as an “employee” under CEPA and may
file a claim under the Whistleblower
statute.
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