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Exempt Organizations

Exempt Organizations
October 2002

The IRS has just released its Fiscal 2003 Exempt Organizations Continuing Professional Education Text (“CPE text”). The CPE text is published by the IRS each year to provide guidance to its agents on a variety of issues of current interest. Although the CPE text does not constitute authority upon which taxpayers may rely, it does provide an indication of the position the IRS could take on the issues highlighted.

As is often the case, this year’s text contains a varied selection of topics. While the articles include technical guidance for agents, they are well-organized and readable. Articles are readily accessible via the IRS website at

This year’s text contains updates on employment tax issues, intermediate sanctions, disaster relief and current developments, as well as articles on:

  • Trusts: Common Law and IRC 501(c)(3) and 4947
  • Public Charity or Private Foundation Status
  • Disclosure, FOIA, and The Privacy Act
  • Housing Partnership Agreements
  • Form 990, Schedule A and Schedule B
  • IRC 501(c)(4), 501(c)(5) and 501(c)(6) Organizations (3 articles)
  • Political Campaign and Lobbying Activities of IRC 501(c)(4), (c)(5) and (c)(6) Organizations
  • Fraternity Foundation Grants

Trusts: Common Law and IRC 501(c)(3) and 4947. Tax exempt entities are not only formed as corporations, but often as trusts. The preface to the article indicates that EO examination and determination specialists often request basis information regarding trusts. The article discusses basic trust formation issues, non-exempt charitable trusts and split-interest trusts.

Public Charity or Private Foundation Status. The text includes a lengthy (200+ pages) article describing public charities and private foundations. The article review the various types of organizations described in IRC §170, as well as community trusts, supporting organizations, and private foundations.

Disclosure, FOIA, and The Privacy Act. There has been a trend in recent years towards increased disclosure of information relating to tax exempt organizations. Although the tax system relies on taxpayer voluntary compliance, there are corresponding concerns regarding privacy of tax information. The article discusses the challenge in reconciling disclosure and privacy issues reflected in the following:

  • IRC §6103: prescribes rules for confidentiality and disclosure of returns and return information.
  • IRC §6104: opens certain exempt organization documents to the public
  • IRC §6110: opens text of certain written determinations to the public
  • Freedom of Information Act: gives any person access to certain federal agency records, subject to certain exemptions that protect privacy.
  • Privacy Act: As described in the text, the Privacy Act “balances the government’s need to maintain information about individuals with the individual’s right to be protected against unwarranted invasions of privacy caused by federal agencies’ collection, maintenance, use, and disclosure of personal information.”

Housing Partnership Agreements. This article discusses low-income housing partnerships between private investors and tax exempt organizations. Although such partnerships may not be widespread, recent cases involving other types of joint venture between for-profit entities and tax exempt entities raise additional considerations in analyzing housing partnerships. Conversely, the types of provisions required in housing partnership agreements may also be recommended in other contexts.

Form 990, Schedule A and Schedule B. This article addresses, in question and answer format, basic issues regarding Form 990, Schedules A and B. The article is easy reading and may be of interest to those responsible for the annual Form 990 filing.

IRC 501(c)(4), 501(c)(5) and 501(c)(6) Organizations (3 articles); Political Campaign and Lobbying Activities of IRC 501(c)(4), (c)(5) and (c)(6) Organizations

The CPE text contains separate articles on IRC §501(c)(4), (c)(5) and (c)(6) organizations. Each is an extensive discussion of the requirements for formation and operation of these types of entities. The text also contains a lengthy article discussing the rules surrounding political and lobbying activities of these types of organizations.

Updates and current developments. The employment tax update reviews rulings and cases issued in the last few years. Employment tax issues such as employee vs. independent contractor status tend to the be highly factual. Although the IRS has prescribed factors that should be considered in worker classification, the weight to be given the various factors has not been clearly specified. The manner in which the law has been applied in particular factual situations may provide guidance for employers with similar types of workers.

With the issuance of final intermediate sanctions regulations in early 2002, the framework is in place for analyzing excess benefit transactions. The CPE text reviews recent cases and the basic issues under IRC §4958.

The IRS has made accessing and navigating the articles very easy through its website. Readers who are interested in particular topics are encouraged to use the website to scan specific articles.

Should you have any questions regarding the foregoing, please contact John Kikuchi at (925) 944-7666 or by email.

The information contained in this newsletter is general in nature and does not constitute tax advice or opinion. Applicability to specific situations should be determined through consultation with your tax advisor.

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