Final Regulations Updating EO Reporting Requirements Issued

• Date: 01 August 2020
• Published date: 01 August 2020
• DOI: http://doi.org/10.1002/npc.30749

Bruce R. Hopkins’ NONPROFIT COUNSEL

4 August 2020 THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc

when a payment is contingent (Prop. Reg. § 53.4960-

3(d)), provide a three-times-base-amount test (Prop. Reg.

§ 53.4960-3(g)), and rules as to calculation of excess

parachute payments (Prop. Reg. § 53.4960-3(h)-(l)).

Additional Law

These proposed regulations include definitions of

various other terms, such as applicable year (Prop. Reg.

§ 53.4960-1(c)), employee (Prop. Reg. § 53.4960-1(e)),

employer (Prop. Reg. § 4960-1(f)), predecessor (Prop.

Reg. § 53.4960-1(h)), and remuneration (Prop. Reg. §

53.4960-2).

The proposal provides rules regarding when compen-

sation is paid; the entity that is liable for the excise tax

and how that tax is calculated, both as to excess remu-

neration and excess parachute payments; and allocation

of liability for the tax among related organizations (Prop.

Reg. § 53.4960-4).

For each tax year, with respect to each covered

employee, the taxpayer is liable for tax on the sum of

the excess remuneration allocated to the taxpayer with

respect to an applicable year and, if the taxpayer is an

ATEO, any excess parachute payment paid by the tax-

payer or a predecessor during the tax year (Prop. Reg. §

53.4960-4(a)(1)).

For example, if remuneration paid during a year by

more than one employer to a covered employee is taken

into account in determining the tax imposed on excess

remuneration, the taxpayer is liable for the tax in an

amount that bears the same ratio to the total tax as the

amount of compensation paid by the taxpayer bears to

the total amount of compensation involved (Prop. Reg.

§ 53.4960-4(c)(1)). [20.5] ◆

FINAL REGULATIONS

UPDATING EO REPORTING

REQUIREMENTS ISSUED

The Department of the Treasury and the IRS, on May

26, issued final regulations that (1) incorporate the rules

providing relief from donor disclosure requirements for

many categories of tax-exempt organizations that were

issued in 2018 by revenue procedure (summarized in

the September 2018 issue) and (2) generally update the

existing information reporting regulations applicable to

exempt organizations (T.D. 9898). These regulations are

essentially identical to the regulations in their proposed

form (summarized in the November 2019 issue).

The most notable (some would say controversial)

aspect of these regulations is revision of the prior regu-

lations to state that the need to provide the names and

addresses of substantial contributors generally applies

only to tax-exempt charitable (IRC § 501(c)(3)) and polit-

ical (IRC § 527) entities.

Notwithstanding the general relief from donor dis-

closure, tax-exempt organizations are still required to

report the amounts of contributions from substantial

contributors on their annual information returns, and

maintain the names and addresses of substantial contrib-

utors should the IRS need this information in the course

of examinations.

These regulations bring the overall tax regulations in

this context into conformity with the underlying statute

(IRC § 6033(b)(5)). That is, the Internal Revenue Code

only requires disclosure of donor information by charita-

ble and political entities. The prior regulations extended

that requirement, probably unlawfully, to nearly all cate-

gories of organizations.

Moreover, as Treasury and the IRS state in the pream-

ble to these final regulations, they “sought to balance

the IRS’s need for the information for tax administration

purposes against the costs and risks associated with

reporting of the information.” The preamble states that

the IRS “does not need the names and addresses of

substantial contributors to tax-exempt organizations not

described in section 501(c)(3) to be reported annually

on Schedule B of Form 990 or Form 990-EZ in order to

administer the internal revenue laws.” The IRS, it is said,

can obtain sufficient information from other elements

of these returns and can obtain donor information by

examination.

It is also noted in the preamble that “reporting the

names and addresses of substantial contributors on an

annual basis poses a risk of inadvertent disclosure of

information that is not open to public inspection.” These

regulations reduce the risk of inadvertent disclosure

of this information. The preamble takes notice of con-

cerns that supporters of certain causes or organizations

“face possible reprisals (such as harassment, threats of

violence, or economic retribution) if their status as con-

tributors is revealed publicly” and of “fear of exposure

and fear of reprisal [that] may have a ‘chilling effect,’ dis-

couraging or deterring potential contributors from giving

to certain tax-exempt organizations and reducing public

participation in organizations benefiting social welfare.”

Many commentators expressed their belief that

this “chilling effect,” in the language of the preamble,

“implicates constitutional rights such as freedom of

speech and freedom of association.”

In the preamble, Treasury and the IRS state that they

“agree with certain commenters that limiting the general

requirement to report names and addresses of substantial

contributors will reduce costs with respect to federal tax

compliance.” They determined “it is valuable to save

tax-exempt organizations the administrative burdens of

reporting and redacting” donor information. Moreo-

ver, the “potential burden on the IRS associated with

redacting Schedule B information is lessened when fewer

organizations are required to report names and addresses

on Schedule B.” [28.2] (See the Quote of the Month.) ◆