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PLANNED GIVING COUNSEL FEBRUARY 14, 2006 HANK RAATTAMA. Outline. 2006 Legislation 2006 IRS Revocation of Exempt Status Regulations Compensation American University American Red Cross IRS Audit Letter Governance American University American Red Cross Governance Project.
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FEBRUARY 14, 2006
"Support for governance reforms in the House has changed to the vanishing 'point' and there is even less support in the Senate" 10/31/06
The Senate Tax Relief Act of 2005 (S. 2020/HR4297) contains only narrow reforms and several provisions that encourage charitable contributions. Although only a small percentage of EOs will be impacted by these changes, those affected must prepare now. Procedurally, the Senate amended/replaced H.R. 4297 with S. 2020, because tax legislation must originate in the House Art. I, Section 7 Const.). The House will then take up amended H.R. 4297 and send it to conference. The Senate will do that same. The Conference Bill will then go back to the House and Senate.
TITLE III--PROVISIONS RELATING TO CHARITABLE DONATIONS
Subtitle A--Charitable Giving Incentives
Sec. 301. Charitable deduction for nonitemizers.
Sec. 302. Tax-free distributions from individual retirement plans for charitable purposes.
Sec. 303. Modification of charitable deduction for contributions of food inventory.
Sec. 304. Basis adjustment to stock of S corporation contributing property.
Sec. 305. Modification of charitable deduction for contributions of book inventory.
Sec. 306. Modification of tax treatment of certain payments to controlling exempt organizations and public disclosure of information relating to unrelated business income.
Sec. 307. Encouragement of contributions of capital gain real property made for conservation purposes.
Sec. 308. Enhanced deduction for charitable contribution of literary, musical, artistic, and scholarly compositions.
Sec. 309. Mileage reimbursements to charitable volunteers excluded from gross income.
Sec. 310. Alternative percentage limitation for corporate charitable contributions to the mathematics and science partnership program.
Subtitle B--Reforming Charitable Organizations
Part I--General Reforms
Sec. 311. Tax involvement by exempt organizations in tax shelter transactions.
Sec. 312. Excise tax on certain acquisitions of interests in insurance contracts in which certain exempt organizations hold an interest.
Sec. 313. Increase in penalty excise taxes on public charities, social welfare organizations, and private foundations.
Sec. 314. Reform of charitable contributions of certain easements on buildings in registered historic districts.
Sec. 315. Charitable contributions of taxidermy property.
Sec. 316. Recapture of tax benefit for charitable contributions of exempt use property not used for an exempt use.
Sec. 317. Limitation of deduction for charitable contributions of clothing and household items.
Sec. 318. Modification of recordkeeping requirements for certain charitable contributions.
Sec. 319. Contributions of fractional interests in tangible personal property.
Sec. 320. Provisions relating to substantial and gross overstatements of valuations of charitable deduction property.
Sec. 321. Additional standards for credit counseling organizations.
Sec. 322. Expansion of the base of tax on private foundation net investment income.
Sec. 323. Definition of convention or association of churches.
Sec. 324. Notification requirement for entities not currently required to file.
Sec. 325. Disclosure to State officials of proposed actions related to exempt organizations.
Part II--Improved Accountability of Donor Advised Funds
Sec. 331. Excise tax on sponsoring organizations of donor advised funds for failure to meet distribution requirements.
Sec. 332. Prohibited transactions.
Sec. 333. Treatment of charitable contribution deductions to donor advised funds.
Sec. 334. Returns of, and applications for recognition by, sponsoring organizations.
Part III--Improved Accountability of Supporting Organizations
Sec. 341. Requirements for supporting organizations.
Sec. 342. Excise tax on supporting organizations for failure to meet distribution requirements.
Sec. 343. Excess benefit transactions.
Sec. 344. Excess business holdings of supporting organizations.
Sec. 345. Treatment of amounts paid to supporting organizations by private foundations.
Sec. 346. Returns of supporting organizations.
FY 2006 EO IMPLEMENTING GUIDELINES 2006 INITIATIVES
130 Soft Audits – Churches and Politics – Political Activity Compliance Initiative (PACI)
(enforcement budget increased 23% compared to ½% overall)
EO Financial Investigations Unit (FIU)
Compliance Strategies and Data Analysis Unit (CSDA)
Exempt Organization Compliance Area (EOCA)
Proposed Regulations (REG. 111257-05) 9/9/05 Private benefit – § 1.501(c)(3)-1(d)(iii)Whether revocation of exempt status isappropriate because of excess benefit transactions – IRC Reg. § 1.501(c)(3)-1(g)(iv) – example #3
O is an educational organization. C, the founder, is employed by O. Significant funds were diverted to pay C's personal expenses. The O board did not inquire and did not know about the payments, although two board members were aware of the payments. The payments were excess benefit payments in § 4958. O took no action to recover the excess benefits.
Proposed Regulations (REG. 111257-05) 9/9/05 Private benefit – § 1.501(c)(3)-1(d)(iii)Whether revocation of exempt status isappropriate because of excess benefit transactions – IRC Reg. § 1.501(c)(3)-1(g)(iv) – example #3(Cont'd)
If your governance system is good, you will be able to prevent excess benefit transactions and if one is not prevented, a good governance system will prevent loss of exempt status.
"A second challenge we face is the excessive compensation of some executives of tax exempt organizations. I use this as an example of something we have seen across much of the tax exempt sector. Of course an exempt organization is entitled to pay reasonable compensation based on the value of services it receives. However, there are indications that organizations have allowed key executives too great a voice in determining their own compensation or have otherwise not done due diligence in setting compensation levels."
Internal Revenue Service
____________ ___, 2005
ABC Research Foundation
P.O. Box 1
Anywhere, FL 00000-0000
Contact Person/ID Number: John Doe/ 00-00000
Contact Telephone Numbers: Telephone: 1-817-000-2320
RE: Employer Identification Number: 00-0000000
Tax Year: 2003 (Year ending 12/31/03)
Dear Sir or Madam:
We are conducting an examination of Forms 990-PF, Return of Private Foundation, filed by certain private foundations, including yours. Our examination will help ensure compliance with section 4941 of the Internal Revenue Code, relating to self-dealing transactions. To achieve this goal, we need you to provide us with the information described below. In Part 1, line 13, column a) you reported $__________ as compensation of officers, directors, trustees, etc.
Please submit a breakdown of this amount by each individual payee's name. In addition, if an individual's compensation exceeded $10,000, please answer the following questions and submit the information request ed.
____________ ___, 2005
For any box checked below, please provide the information indicated.
____________ ___, 2005
Please send this information within 30 days from the date of this letter to:
Internal Revenue Service
123 K Street
Ogden, UT 12345
Attn: John Doe
If we do not hear from you within 30 days from the date of this letter, we will consider taking appropriate enforcement action.
If someone other than an authorized officer will be contacting us, you must send us an executed Form 2848, Power of Attorney and Declaration of Representative, using the above fax number. We have enclosed a copy of this form for your convenience.
If you have any questions, please contact the person named in the heading of this letter.
Thank you for your cooperation.
R. C. Johnson
Director, EO Examinations
"Much of the responsibility for this development must fall on university trustees who themselves are increasingly concerned only with raising money.
At American University, they seemed to be willing to overlook the president's transgressions as well the need for financial transparency as long as he was raking in the money. Until the leaked letter to several trustees, they had not required thorough audits of the president's office. Even after the revelations of Mr. Ladner's inappropriate expenses, many were reluctant to take action, because they were his friends and he had delivered what the trustees wanted."
Split dollar insurance policy?
Family engagement party
$200,000 for personal chef
$ 54,000 limousine services
Spouse garden club luncheon
1st class travel
Vacation home expenses
$100,000 social secretary
Forgive repayment of personal expenses
Forgive $1,000,000 premiums on life insurance
$1,750,000 deferred compensation
$950,000 1 time payment
The response to Katrina and the recent resignation of the President and CEO of the Red Cross have understandably raised questions about the Red Cross. Specifically whether the current board and governance structure meets the high level of competence and engagement that Congress and the public should expect from an organization that carries such serious responsibilities.
I. Board and Board Policy – March 30, 2006
Board of Directors – Composition and Operation
Conflicts of Interest
Meetings, Management and Minutes
Compensation – Board and Staff
Code of Ethics
Executive Director Compensation and Review & Term
Document Retention and Destruction Policy
Terrorism and Foreign Grants
Finances, Audit Committee and Internal Controls