PITTSBURGH PLANNED GIVING COUNCIL

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					PITTSBURGH PLANNED GIVING COUNCIL
LEGISLATIVE ALERT
MARCH 2011


     47th ANNUAL WASHINGTON                          Another theme at the Conference was the
                                                     recently-passed tax legislation, which kept the
        NONPROFIT LEGAL &                            "Bush tax cuts" and significantly changed the
          TAX CONFERENCE                             federal estate and gift tax. The Tax Relief,
                                                     Unemployment Insurance Reauthorization, and
I recently attended an annual conference in          Jobs Creation Act of 2010 ("2010 Tax Act") was
Washington, D.C. which brings me up-to-date          a focus of discussion, with the Conference
on legal developments for tax-exempt                 covering the provisions favorable to charities,
organizations. I am happy to report that I am        such as the IRA direct transfer and enhanced
primed with the latest and greatest tax and          deductibility of certain gifts including food
legal    information    affecting   tax-exempt       inventory,      book      inventory,    computer
organizations. The point of this newsletter is to    equipment given to schools, and S corporation
highlight, in a quick read, matters of which         appreciated gifts. On the subject of estate and
nonprofits should be concerned, and to allow         gift taxes, many speakers commented about the
nonprofits to delve further into such topics of      gift tax exemption being raised to $5M
need or interest (for example, ways to raise         (previously $1M), and the consensus is that this
charitable donations!).                              change opens the door for planning
                                                     opportunities involving charitable gifts. For
While I cannot possibly summarize all the            instance, the ability to give more to family could
learning derived from 2½ days of meetings, I         mean more split interest gifts, such as
can highlight a few themes that came from the        charitable gift annuities, and charitable lead or
Conference, and some of the IRS's regulatory         remainder trusts, which involve significant gifts
emphasis.                                            to family and charity. The increase in the $5M
                                                     exemption is through December 31, 2012, when
As far as themes go, I think most readers can        the estate and gift tax again goes into an
expect that there is an ongoing strong emphasis      uncertain legislative environment.             The
on nonprofit governance, as best reflected in        consensus of speakers was that donors and
the revamped IRS Form 990. Also, legislative         charities should work closely over the next 2
developments continue in the areas of tax            years to close gifts while the $5M gift
reform, tax rates, and simplification of the         exemption is definitely available. I have given
Internal Revenue Code, which are at the              up making any predictions on what Congress
forefront of legislative hearings. The Senate        might do in the future, and I will not therefore
Finance Committee has recently announced             try to say what might happen after December
that it will conduct a series of seven hearings on   31, 2012.
comprehensive tax reform, with the focus on
ways to make the Internal Revenue Code more          An interesting presentation was made on the
competitive and fair, while making it less           effect of the changes in the income tax rates.
complex. One of the seven hearings will focus        Laura Peebles, CPA/PSF from Deloitte Tax, LLP,
on tax-exempt organizations. The House of            made a compelling presentation that, in
Representatives' Ways & Means Committee              general, as we move past December 31, 2012,
also plans to hold several hearings on tax           the effect of the 3.8% Medicare Unearned
reform, although no definite information has         Income Tax and the planned return of various
yet been released.                                   phase outs and reductions in itemized
                                                     deductions is to erode the benefits of the
                                                     charitable deduction.     While the numbers
                                                     always must be run in every situation, it
appears that charitable donations will generally          Governance - the IRS will continue to
be better in 2011 and 2012 than they will be in            analyze data derived from Form 990
2013 and future years, assuming that the "Bush             and from its use of the IRS agent
tax cuts" are not continued. With the favorable            governance check sheet.
estate and income tax environment ending in               Form 990 as a compliance tool - the IRS
2012, there thus appears to be better tax                  will continue to use the redesigned
reasons for making charitable gifts now than               Form 990 to identify noncompliant tax-
there will be after December 31, 2012 (again               exempt organizations for audits,
assuming no further changes in the law).                   develop targeted compliance projects
                                                           (likely involving compensation) and
As far as IRS and Treasury Department plans,               inform and supplement IRS educational
IRS and Treasury are continuing to put a strong            efforts.
emphasis on governance, compensation and                  Colleges and universities - the IRS
various "study" initiatives that have been in              continues to analyze data derived from
operation, including the following:                        its responses to its university
                                                           compliance         questionnaire,     and
      Executive compensation compliance                   currently         has       over        30
       initiative - the IRS will continue to               colleges/universities     under      audit
       evaluate tax-exempt organizations'                  examination. Much of the focus of this
       compensation and loan arrangements,                 review is on compensation and
       thereby assessing the intermediate                  endowments.
       sanction penalty and employment taxes              Academic institutions initiative - the IRS
       when appropriate.                                   is continuing its efforts to prepare
      Charitable spending initiative - The                future nonprofit leaders by providing
       Exempt Organizations Division of the                training about federal tax law
       IRS will be continuing its examination of           responsibilities. The IRS is conducting
       tax-exempt charities with high levels of            academic programs that involve
       fundraising expenses, organizations                 collaborations with college and
       reporting unrelated business activities             universities that have degree programs
       with relatively low levels of program               pertaining to the law of tax-exempt
       service expenditures, organizations                 organizations (IRS Announcement 2009-
       with high ratios of officer compensation            26).
       in comparison to programs service                  Charity care compliance by tax-exempt
       expenditures, and organizations with                hospitals - this compliance check
       low levels of program service                       project is still ongoing. Schedule H of
       expenditures in comparison to total                 IRS Form 990 also focuses on this area
       revenue.                                            and there was considerable discussion
      Consumer crediting counseling project               on the Patient Protection and
       and mortgage foreclosure assistance                 Affordable Care Act (commonly known
       organizations - the IRS continues to                as "Obamacare") provisions that have
       examine and revoke the tax-exempt                   new substantive requirements which a
       status of consumer credit counsel                   charitable hospital must satisfy to
       organizations, and is closely studying              maintain tax-exempt status.
       whether       mortgage        foreclosure
       assistance organizations are simply the     In the charitable giving area, there was again
       same as credit counseling organizations.    discussion over donors claiming charitable gift
       From the tone of most speakers, the IRS     deductions     where       the     substantiation
       will likely start to revoke the tax-        requirements were not satisfied. In Friedman v.
       exempt status of mortgage foreclosure       Commissioner, the Tax Court denied charitable
       assistance organizations.                   tax deductions for gifts of property with a value
                                                   of $435,000 where the substantiation was
                                                   inadequate, leading to $162,000 in tax
                                                   deficiencies and $32,000 in accuracy-related
penalties. In Lord v. Commissioner, the Tax
Court denied a charitable deduction for the gift
of a conservation easement with an ostensible
value of $242,500 because the appraisal did not
meet the IRS requirements. There is a strong
IRS focus on the denial of charitable tax
deductions where donors have not satisfied the      For more information, please contact:
strict letter of the substantiation requirements.    Jack Owen, Esq., PPGC's Chairman,
                                                           Legislative Affairs Committee
All in all, this annual Conference is a great way                        at:
for me to keep up with changes in the laws
affecting tax-exempt organizations. I am always          Rhoades & Wodarczyk, LLC
excited to make this information available to                The Grant Building
the tax-exempt community, and you are                   Suite 1030, 330 Grant Street
encouraged to call me with any questions.                   Pittsburgh, PA 15219
                                                         Telephone: 412.765.1020
                                                          Facsimile: 412.765.2240
      2011 Emerging Philanthropy                      E-Mail: jowen@rwattorneys.com
             Conference

Online registration is now open for the
Emerging Philanthropy Conference on April 27-
28, 2011, at the Hilton Garden Inn at
Southpointe. This annual Conference is hosted
jointly by the Pittsburgh Planned Giving Council
and AFP.       It is a great opportunity for
professional development, networking, planned
giving updates and in general, helps you to
recharge your fundraising batteries.

To learn more about the Emerging Philanthropy
Conference and to register, please visit
www.emergingphilanthropy.org. If you decide
to register, please take advantage of the
friendraiser feature that allows you to spread
the word and invite your colleagues to attend
the best regional fundraising conference in
Southwestern Pennsylvania.

I hope to see you at the 2011 Emerging
Philanthropy Conference.

				
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