Resources

• Articles
• Legislative Updates
• Economic Recovery Services
• Newsletters
• Payroll Tax Guidelines

 

IRS Discusses Current Tax-Exempt Issues at Recent Conference

At the recent AICPA Not-For-Profit Industry Conference in Washington, DC, members of the IRS Exempt Organization (EO) Division provided insight on various topics of interest to the tax-exempt community.

Status of Cell Phones

IRS EO Division managers did mention the recent classification change regarding cell phones.  Starting in 2010, cell phones are no longer considered listed property under Code Section 280F.  However, it is unclear if the IRS now considers cell phones to be a working condition or de minimis fringe benefit that would allow their exclusion from employees’ compensation.  Peter Lorenzetti of the IRS cautioned that, for 2008 and 2009 audits, cell phone usage could still be an issue.  “But unless it is [a large dollar amount], we are probably not going to pursue it on audits.”

Profit Motive in UBI Activities

A practitioner in the audience asked the IRS officials if it is the Service’s position that a history of losses attributable to an unrelated business activity represents a de facto lack of profit motive.  “I would say yes,” Lorenzetti replied.  A fellow IRS manager added, “What we’re doing there is that we basically start with that position,” using the allowance of business deduction rules of Section 162.  “If we see consistent losses over a period of years, it is our position [under Code Section 183] there is no profit motive.”

Fast Track Settlements

According to Lorenzetti, fast track settlements, which started in other IRS divisions, are now a permanent part of how the IRS Exempt Organization Division does business.  The goal is to settle within 60 days of agreement to use the process.  Lorenzetti added that the benefits of fast track settlement include a shorter process and lower cost for the organization.  If a taxpayer does not like the settlement, he can still use the normal appeal route.  However, the IRS may not approve the fast track process if the case involves too many issues or abusive transaction list items.

Volunteers

Lorenzetti also cautioned organizations not to unintentionally convert their volunteers to employees.  This could occur, for example, if an organization gave a volunteer a $500 gift card, which is taxable compensation.  There is no such thing as a de minimis gift card amount, he said.  However, a “thank you” dinner would be allowed.

Group Exemption and Filing of Group Form 990s

Although no change has been made to date, the IRS Advisory Committee on Tax-Exempt and Government Entities recently recommended that the Service not only cease allowing group exemption holders the option of filing group Form 990 returns but also eliminate the authority of central organizations to file group exemptions at all.  The Committee cited lack of transparency to the IRS, states, and public about the activities of the subordinate organizations covered by a group exemption as the main impetus for the recommendation.

Takeaway for Healthcare Organizations

The current tax issues above are common to nearly all hospitals, healthcare systems, and tax-exempt healthcare organizations.  With the renewed focus of the IRS on healthcare in general, as well as the new tax requirements on tax-exempt hospital organizations, a thorough analysis of the current IRS issues and the corresponding risks to your tax-exempt entity may be warrented.

---

 

• If you would like to discuss these topics in detail, please contact Steve Feldbauer, JD
• For the latest tax updates, follow us on Twitter at http://twitter.com/alpernrosenthal