THEY'RE COMING TO GET YOU: TAXES, TAXES, TAXES

DATELINE: January 4, 2010, Chicago

Happy New Year, nonprofit world.  Those greetings come both us and tax officials.  We will be writing about you in the New Year.  The taxing authorities will be looking to tax you, if the end of the last decade is any indication of what is to come.

Let’s begin with begin by looking at what is happening federally.  We have our eye on the proposed...

The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, has quickly become the go-to guide for nonprofit executives and advisors. So what are people saying about the Guide? In the October 2007 edition of the The Federal Lawyer, New York lawyer George W. Gowen and nonprofit authority, wrote: Jack Siegel knows his way around this backwater...Best of all, he doesn't write like an accountant (in deference to my brothers and sisters a the bar, I avoid adding lawyers to the assessment). His guide is to the point, practical, and readable....Even though the subtitle of this worthy book is Avoiding Trouble While Doing Good, doing good well is the book's operative theme. Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour. Buy your copy today at Amazon.com, Barnes & Noble, or John Wiley (the publisher).

securities transaction tax.  H.R. 4191’s title captures the prevailing sentiment—Let Wall Street Pay for the Restoration of Main Street Act (LWSPRMSA)--a sad day, they don't even bother with cute acronyms anymore).  The sponsor is Peter DeFazio (Democrat, Oregon).  Senator Thomas Harkin (Democrat, Iowa) plans to introduce similar legislation (or may already have done so).  The tax would be a 0.25% tax on securities transactions and a 0.02% tax on commodity future contracts and other derivatives.  (Iowa farmers, who were the reason commodity futures were invented must love Senator Harkin.)  Such a small amount. Who could possibly notice?  And the populace at large won’t care because there is an exception for retirement accounts and there is a $250 credit against ($500 in the case of a joint return).  Let’s soak it to the rich (never mind an impediment to the free flow of capital).

Surprise, Section 501(c) organizations!  Section 501 exempts you from taxes under Subtitle A, but the securities transaction tax would be imposed under Subtitle D to the Internal Revenue Code.  As we read the legislation, college, university, hospital, cultural institution, and other endowments would not be exempt from the tax.  Harvard’s endowment may be down, but if Representative DeFazio has his way, Congress still will be able to give Harvard a good kick, together with every other tax-exempt organization with investment securities. We hope they enjoy taxing the charities that invested with Bernie Madoff.  DeFazio continues the responsible and rational tax policy we’ve seen coming out of Washington lately—the estate tax is in limbo because our elected representatives can’t reach an agreement after nine years of trying, the IRA Roth conversion legislation reaches full maturity this year, which is basically offering the American taxpayer the opportunity to play tax Lotto with their retirement savings for no discernable policy reason except Congress’ need to accelerate tax collections, and distorting housing acquisition credits have been extended.

But it is not only your friends in the Congress who are out to get you.  We’ve been following the Pittsburgh tuition tax.  The idea for taxing college tuition payments as a proxy for otherwise exempt college real property surfaced in November.  Colleges in Pittsburgh  probably rejoiced late in December when Mayor Luke Ravenstahl withdrew his proposal.  The University of Pittsburgh and Carnegie Mellon have agreed to donate an undisclosed amount to the city, but the kicker is the New Pittsburgh Collaborative.  This is a group of stakeholders who will develop a proposal which Mayor Ravenstahl will take to the state legislature in an effort to increase Pittsburgh’s revenue stream.  One of the proposals being floated is removing the exemption for nonprofits from a tax on employee head count.  Don’t be surprised by calls to examine property tax exemptions.

Speaking of property taxes, poor Notre Dame.  Its football team didn’t have a stellar season and now the property tax assessor has sent it a bill for $23,353, according to WNDU.com (Nov. 10, 2009).  We aren’t surprised, given the property that is being put on the rolls.  The assessor is looking to the Hammes Bookstore, the Morris Inn, and the Burke Golf Course.  It also is negotiating over the Legends Restaurant.  In a Christmas Day story (taxes don’t celebrate anything), the Associated Press reports that the focus is on buildings used for business rather than charitable purposes.  St. Joseph County Assessor David Wesolowski told the AP, “We’re asking some tough questions to a lot of our exemption applicants."

Indiana passed a property tax cap for homeowners.  The populace, including Notre Dame professors and staff, love property tax caps.  The problem:  Government keeps spending and it needs to finance that spending so tax assessors are looking closer at property tax exemptions.  The county has also started billing taxes on an office building owned by Memorial Health Systems and property that the Mishawaka Fraternal Order of Police rent out for banquets and receptions.

As all levels of governments look for increased revenue in these difficult economic times, nonprofits should expect to see their tax exemptions come under increasing attack.  That’s our prediction for 2010.

Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good." Copyright 2010, Charity Governance Consulting LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "A Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good" and this web blog. For additional information call 773-325-2124