Crowe observation
Additional hiring by the IRS could mean that some of the remaining exempt organization projects also might get published during this plan year.
Following are observations regarding the exempt organization projects on the PGP:
Group exemption rulings
Revenue Procedure 80-27 provides procedures for requesting group exemption letters. The IRS has not accepted any ruling requests for group exemptions since June 17, 2020. Notice 2020-36 requested public comments on proposed procedures for obtaining rulings on tax-exempt status on a group basis for subordinate organizations affiliated with and under the general supervision or control of a central organization, as well as requirements for annual maintenance of a group exemption.
Unrelated business income
The PGP includes regulations under IRC Section 512 regarding the allocation of expenses in computing unrelated business taxable income (UBTI) and addressing how changes made to IRC Section 172 net operating losses (NOLs) by Section 2303(b) of the Coronavirus Aid, Relief, and Economic Security Act apply for purposes of IRC Section 512(a)(6). Many exempt organizations have questions about how these changes affect UBTI, including ordering rules for charitable contributions and NOL carryovers and allocation of expenses between UBTI silos, so guidance in this area will be helpful.
Self-dealing
The PGP includes guidance under IRC Section 4941 regarding a private foundation's investment in a partnership in which disqualified persons are also partners for the purposes of the self-dealing rules. As IRC Section 4941 prohibits nearly all direct and indirect transactions between a private foundation and a disqualified person, this guidance might provide insight focused on indirect transactions, definitions of control, and use of foundation assets to provide investment access to disqualified persons.
Disclosure of exempt organization information to states
Final regulations under IRC Section 6104(c) regarding the IRS notification of certain state officials of changes in an organization’s tax-exempt status were published on Aug. 16, 2022. Prior to the publication of these final regulations, only a few states had entered into disclosure agreements with the IRS. The final regulations might result in increased state participation, which could lead to greater enforcement of state laws governing certain tax-exempt organizations and their activities.
Limitation on church examinations
Regulations designate an appropriate high-level Treasury official under IRC Section 7611 for the purposes of church tax inquiries and examinations. Proposed regulations were published on Aug. 5, 2009. This project has been in the plan every year since 2010.
Donor-advised funds (DAFs) and supporting organizations
Amounts held in DAFs have increased dramatically over the past 10 years in both the number of accounts and the value held in those accounts. However, several concerns have been raised regarding whether DAFs are distributing a sufficient portion of the funds they hold and the interaction of DAFs and private foundations. While the IRS has increased its scrutiny of the use of DAFs in recent years, and bills have been introduced in Congress to tighten the rules on DAFs, little guidance has been published. Given this focus, it is possible that the following DAF guidance projects could be published in this plan year:
- Final regulations on IRC Section 509(a)(3) regarding supporting organizations. Proposed regulations were published on Feb. 19, 2016. The proposed regulations addressed changes imposed by the Pension Protection Act of 2006 relating to the new categories of Type I, Type II, and Type III supporting organizations.
- Regulations under IRC Section 4966 regarding DAFs, including excise taxes on sponsoring organizations and fund management.
- Regulations under IRC Section 4967 regarding prohibited benefits, including excise taxes on donors, donor advisers, related persons, and fund management.
- Regulations under IRC Section 4958 on expanded topics including DAFs and supporting organizations.
- Guidance regarding the public-support computation with respect to distributions from DAFs.
