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• Author: Bruce R. Hopkins
• Profession: Leading authority on the law of tax-exempt organizations
• Pages: 1-40

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abatement

In general, the word “abatement” means an alleviation, lessening, mitigation, or reduction of

something. More technically, the IRS has the auth ority to “abate” all of t he rst-tier taxes

underlying the private foundati on rules, other than those concerning self-dealing;thepenal-

ties underlying the political expenditures rules; the penalties underlying the intermediate

sanctions rules; the penalties underlying the rules concerning hospitals’ failures;andthe

penalties underlying the donor-advised funds rules. These abatable taxes are known as qual-

ied rst tier taxes. Additional rules apply in connection with the potential for abatement of

second-tier taxes when there is a correction (IRC §§ 4961, 4962). [EO §§ 12.4, 21.10; PF §§

1.10, 5.15(f), 6.7(d), 9.10(b), 13.1, 13.7].

absolute percentage limitation

The phrase “absolute percentage limitation” refers to a provision of a state charitable solici-

tation act (or local law equivalent) containing a percentage, which, when applied to the total

expenses of a charitable organization,results in an amount of money that is less than the orga-

nization’s fundraising costs. The organization’s fundraising costs are consequently deemed, by

operationoflaw,tobedeemedunreasonable, thus preventing the organizat ion form soliciting

charitable contributions in the jurisdiction. The use of this type ofpercentage limitation was

struck down by the U.S. Supreme Court as a violation of the free speech rightsof the soliciting

charitable organizations. [F R §4.3; SMp. 152].

abuse of discretion

The phrase “abuseof discretion” arises in the context of court review of a decision byan admin-

istrative agency or an appellate c ourt review of a decisi on by a lower court. Both government

agencies and lower courts generally havebroad discretion in formulating their decisions. When

these fact-nders and decision-makers, however, arrive ata conclusion of law that is inconsis-

tentwith the facts and circumstances that were beforethe agency or lower court, the reviewing

court can nd an abuse of discretion and overrule that decision.

Bruce R. Hopkins’ Nonprot Law Dictionary, First Edition. Bruce R. Hopkins.

©2015 Bruce R. Hopkins. Published 2015 by John Wiley& S ons,Inc.

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2 ABUSIVE TAX SHELTER

abusive tax shelter

The phrase “abusive tax shelter” means a partnership or other entity, an investment plan or

arrangement, or anyother plan or arrangement, in connection with which a statement is made

by a person with respect to the allowability of ataxdeductionora tax credit , the excludability

of any income, or the secur ing of any other tax benet by re ason of holding an interest in the

entity or participating in the plan or arrangement which the person knows or has reason to

know isfalse or fraudulent as to any material matter.Abusivetaxshelteralsoreferstoinstances

in which there is agrossvaluationoverstatementas to anymaterial matter (IRC §6700(a)).

[EO §28.17(a)] (also Tax shelter).

accountable care organization

The Department of Health and Human Services has established a Medicare Shared Savings

Program that promotesaccountability for care of Medic are beneciaries, improvesthe coordi-

nation of Medicarefee-for-service items and services, and encourages investment in infrastruc-

ture and redesigned care processes for high-quality and ecient health care service delivery.

Groups of health care service providers, including tax-exempt organizations,andsuppliers

that have established a mechanism for shared governance and that meet criteria specied by

the HHS are eligible to part icipate as “accountable care organizations,” which essentially are

networksdesignedtoreducehealthcarecosts,undertheMSSP.[HC§13.5; EO §7.6(m); SM

pp. 5, 230].

accountable plan

An “accountable plan” is a reimbursement or other expense allowance arrangement that satis-

es the requirements of the federal tax law by including the elements of business connection,

substantiation,and return of amounts that are in excess ofsubstantiated expenses (IRC §62(c)).

Reimbursements that are not pursuant to an accountabl e plan are forms of gross income and

likely are automatic excess benet transactions.[GV§6.3(r); CU Q 7.28; SM pp. 279–280; LI

Q 6.28].

accountant

Theword“accountant”isusedtodescribeanindividualwhoseprofessionisthepreparation,

inspection, and auditing of the bo oks and records of other i ndividuals and organizations.

Most nonprot organizations usetheservicesofanaccountant,bothinthepreparationof

their books and records, including preparationof the appropriate annual information return,

and in the audit phase. [AR §7.2(d)(2); SM pp. 26, 27, 81, 241] (also Certied public accoun-

tant;Generally accepted accounting principles;Public accountant).

accounting method

Theterm“accountingmethod”isusedtodescribeoneofthemethodsbywhichafor-prot

organizationor a nonprot organization keeps its books an d records. It is bythis method that

the organization determines its revenue and expenses (both deductible and nondeductible)

and thus its net income, as well as its assets,liabilities,andfund balance. One of the principal

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ACCRUAL, OF INCOME 3

dierences among accounting methods is the timing of recognition of an item of income and

expense (IRC §446). [AR §7.2(d)(1); PF §§ 2.7(b), 6.5, 12.3(e), 15.4(a), 15.5, 15.6(a); CG §§

2.10, 6.14; CU Q 17.54; UB §11.5(a); SM p. 155] (also Accrual method of accounting;Cash

basis method of accounting).

accounting period

An organization’s “accounting period” is the period of time comprising twelve months, such

asthecalendaryearorascal year, that corresp onds to its tax year.[CG§2.9;UB §11.5(b)]

(also Annual accounting peri od).

accounting period, change of

A tax-exempt organization may decide to change its accounting period.Thisisdonebya

timely ling of its annual information return with the appropriate IRS Center for the short

period (occasioned by the change in the period) for which the return is required, indicating

on the return that a change of accounting period is being made. Generally, if an organiza-

tion is not required to  le an annual information re turn or a tax return reecting unrelated

business income,itisnotnecessarytootherwisenotifytheIRS that a change of accounting

period is being made. If, however, an organization has previously changed its annualaccount-

ing period at any time within the ten calendar yearsending with the calendar year that includes

the beginningof the short period resulting fromthe change of an accountingperiod, and if the

organization had a ling requirement at any time during the ten-year period, it must le an

applicatio n for a change in ac counting p eriod ( Form 1128) with the appropr iate IRS Center.

[PF §10.4(c); CU Q 17.57; RE Q 12.1].

accounting standards

See Generally accepted accounting principles.

accreditation

The term “accreditation” refers to a form of credentialing,bywhichanorganization reviews

the programs and other activities of other organizations for a particular purpose and approves

(or disapproves) the organizat ion by using a set of criter ia known to all of the organi zations

being reviewed. For example, an accrediting organization will periodically review colleges to

determine whether they should continue to be accredited as educational organizations or

to initially accre dit such an institution. An organization may also accredit programs of other

organizations.Most accrediting organizations are tax-exemptorganizations and will b e classi-

ed as charitable organizations where the organizationsbeing accredited are charitable orga-

nizations, or where the programsb eing accreditedare oper ated by organizations that are char-

itable organizations. [CU Q 5.45] (cf. Certication).

accrual, of income

See Accrue .