Governance Law Alert

• DOI: http://doi.org/10.1002/npc.30705
• Published date: 01 March 2020
• Date: 01 March 2020

Bruce R. Hopkins’ NONPROFIT COUNSEL

March 2020 7

THE LAW OF TAX-EXEMP T ORGANIZATIONS MONTHLY

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

Overall, Rev. Proc. 2020-5 provides the procedures for

filing applications for recognition of tax-exempt status,

seeking determinations by means of Form 8940, and for

requesting determination letters. Also, it states the proce-

dures for withdrawal of requests for a determination letter,

revocation or modification of determination letters, and

disclosure of these applications and determination letters. It

discusses the interrelationship of the declaratory judgment

rules (IRC § 7428) and states the user fee requirements.

Among the notable changes from Rev. Proc. 2019-5

are (1) the announcement that an electronic version of

Form 1023 is expected to replace the paper version of

the application this year, (2) change of the reference

to “Appeals Office” to the “Independent Office of

Appeals” (in reflection of the dictate of the Taxpayer First

Act), and (3) changes in several determination letter user

fees as of July 1, 2020. ◆

JCT STAFF ISSUES REPORT

ON 2019–2023 TAX

EXPENDITURES

The staff of the Joint Committee on Taxation, on

December 18, issued its report on tax expenditures for

fiscal years 2019–2023 (JCX-55-19). The Congressional

Budget and Impoundment Control Act of 1974 defines

the concept of tax expenditures as "revenue losses

attributable to provisions of the Federal tax laws which

allow a special exclusion, exemption, or deduction

from gross income or which provide a special credit, a

preferential rate of tax, or a deferral of tax liability."

The tax expenditure for the income tax charitable

deduction currently is the ninth largest, at $248.3 billion.

The ones greater than it are as follows:

Net exclusion for pension

contributions and earnings

$1,413.5 trillion

Exclusion of employer contributions

for health care, health insurance

premiums, and long-term care

insurance premiums

$933.9 billion

Reduced tax rates on dividends and

capital gains

$845.3 billion

Credit for children and other

dependents

$596.2 billion

Reduced tax rate on income of

controlled foreign corporations

$409.9 billion

Earned income credit $366.5 billion

Depreciation of equipment in excess

of alternative depreciation system

$281.1 billion

Subsidies for insurance purchased

through exchanges

$271.4 billion

[1.2] ◆

SUPREME COURT CORNER

• The US Supreme Court will weigh in once again on the

reach of the ministerial exception, in determining the

scope of churches’ and other religious organizations’

ability to govern themselves and not be subject to

laws such as those prohibiting discrimination. The

Court announced on December 18 that it will hear

two cases on this point (Our Lady of Guadalupe

School v. Morrissey-Berru; St. James School v. Biel).

These cases involve lawsuits filed by teachers in

Catholic schools who are claiming employment

discrimination. The ministerial exception was

articulated by the Court in 2012 (Hosanna-Tabor

Evangelical Lutheran Church and School v. Equal

Employment Opportunity Commission (summarized

in the March 2012 issue)). [10.3(c)]

• In 2017, the Court ruled that a state’s policy of deny-

ing organizations the opportunity to compete for a

state grant for which they are otherwise qualified,

solely because the entities are churches, is a violation

of the First Amendment’s Free Exercise Clause (Trinity

Lutheran Church of Columbia, Inc. v. Comer) (sum-

marized in the September 2017 issue)). A variation

on that theme is before the Court again, in a case

concerning a program of state funding of education;

a state agency held that students attending religious

schools were ineligible for financial assistance. The

state’s supreme court struck down the program in its

entirety, on the basis of a provision in the state’s con-

stitution prohibiting use of state funds for religious

schools. The issue being presented to the Court is

whether it was constitutional for the state court to

eliminate the program because of the state’s consti-

tutional ban (Espinoza v. Montana Department of

Revenue). [10.1(a)(i)] ◆

GOVERNANCE LAW ALERT

Matters have been quiet on the governance front,

as to the IRS, for some time. This quietude was jarringly

broken when the IRS issued Priv. Ltr. Rul. 202001023

(discussed on p. 5). The ruling states: “Generally, a gov-

erning board [of a public charity] that consists primarily

of family members or of members who share a domestic

life, does not constitute an independent body, and has

an inherent conflict of interest when placed in a position

to approve financial transactions involving other mem-

bers of the family unit.”

In general, there is no requirement in the federal

tax law that the board of a public charity (or any other

category of tax-exempt organization) be “independent.”

Since 2017, the IRS has been ruling in this area, usually

on the basis of the private benefit doctrine and usually in