2015 closes with many tax changes that affect various exempt organizations

• Published date: 01 March 2016
• Date: 01 March 2016
• DOI: http://doi.org/10.1002/nba.30171

MARCH 2016

13

NONPROFIT BUSINESS ADVISOR

© 2016 Wiley Periodicals, Inc., A Wiley Company • All rights reserved

DOI: 10.1002/nba

2015–2016 Exempt Organization Tax Issues

2015 closes with many tax changes that affect

various exempt organizations

Editor’s Note:

This month, Larry Zimbler, MST, EA, returns

with Nonprot Business Advisor’s 2016 Special Tax

Issue, reviewing important changes made to laws

and regulations affecting exempt organizations. Be

sure to read Zimbler’s analysis, and always seek out

competent, professional advice to safely navigate

both tax and nontax compliance requirements.

2015 began as a relatively quiet year for tax-exempt

organizations although the December 31, 2014, ex-

piration of direct contributions to charity from an

Individual Retirement Account (IRA) up to $100,000

had been expected to be extended throughout the year,

date unknown, until the very end. Some of the quiet

was disturbed in September when the IRS proposed

alternate substantiation regulations for charitable

contributions, now withdrawn (discussed below). But

the big news in exempt organization taxation came

at the end of 2015 with the passage of the Protecting

Americans from Tax Hikes (PATH) Act of 2015 as

Title IV of the Consolidated Appropriations Act of

2016 (PL 114-113) enacted on December 18, 2015, as

well as new nancial reporting requirements for leases

announced early in 2016.

Beginning with law changes that came with the

PATH Act, a number of important provisions were

extended, made permanent or introduced into law of

importance to the exempt organization community.

Unless cited otherwise, quotes below are taken from

the Joint Committee on Taxation Technical Explana-

tion of the PATH Act.

Enhanced donation rules

PATH Act Section 112 amends the Internal Revenue

Code (IRC) Section 408(d)(8) to make permanent a

taxpayer’s ability to donate up to $100,000 directly from

their IRA account balance to a qualied organization:

“A qualied charitable distribution is any distribution

from an IRA directly by the IRA trustee to an organiza-

tion described in section 170(b)(1)(A) (generally, public

charities) other than a supporting organization (as de-

scribed in section 509(a)(3)) or a donor advised fund (as

dened in section 4966(d)(2)). Distributions are eligible

for the exclusion only if made on or after the date the

IRA owner attains age 70½ and only to the extent the

distribution would be includible in gross income (with-

out regard to this provision).” Charitable distributions

from IRA accounts in which the beneciary has basis

have special computational rules.

Donations from inventory

In addition to the above, PATH Act Section 113

amends IRC §170 to make permanent and expand the

ability to make donations of certain inventory items at

values higher than the adjusted basis, as would normally

be the case for contributions of inventory. For dona-

tions after 2015, the new law increases the maximum

amount allowed for this enhanced deduction to 15 per-

cent of “taxable income (without regard to the general

10 percent limitation for charitable contributions by a

C-Corporation).” Additional presumptions are now

codied in the valuation of donations of “apparently

wholesome food which cannot or will not be sold solely

by reason of internal standards of the taxpayer, lack of

market, or similar circumstances, or by reason of being

produced by the taxpayer exclusively for the purposes

of transferring the food to an organization described

in section 501(c)(3)…,” allowing the taxpayer to ignore

the internal reasons that the food could not be sold in

determining fair market value, and ending (perhaps) a

major area of conict with the IRS in this area.

Agricultural research

“A medical research organization is treated as

a public charity per se, regardless of its sources of

nancial support, and charitable contributions to a

medical research organization may qualify for the more

preferential 50 percent limitation.”

To qualify as a medical research organization, an

organization’s principal purpose or functions must

be medical research, and it must be directly engaged

in the continuous active conduct of medical research