TIGTA Issues Updated Report on Processing of Certain Applications

• Published date: 01 December 2017
• DOI: http://doi.org/10.1002/npc.30407
• Date: 01 December 2017

Bruce R. Hopkins’ NONPROFIT COUNSEL

December 20176THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

Analysis

The IRS ruled that, although the agreement obligates

the foundation to reimburse the developer for its portion

of the rezoning costs and pay the success fee, the agree-

ment, by itself, does not create an unconditional and

legally enforceable obligation for the payment of a fixed

or determinable sum of money. Therefore, the agreement

alone was held to not cause the foundation to incur

indebtedness. Thus, the agreement will not give rise to

any acquisition indebtedness with respect to the property.

Under these facts, the IRS also ruled, the rent

received by the foundation is excludable in computing

its unrelated business income (IRC § 512(b)(3)). Because

the agreement will not cause the property to be treated

as debt-financed property, none of the lease proceeds

will be treated as unrelated debt-financed income (IRC §

512(b)(4)). [24.9(c), 25.1(h)(i), (ii)] ◆

IRS DEVELOPING NEW

APPLICATION FOR SOCIAL

WELFARE ORGANIZATIONS

The IRS, on September 27, unveiled its new applica-

tion for recognition of exemption to be filed by nonprofit

organizations seeking recognition as social welfare enti-

ties—Form 1024-A. Filing this form will entail attachment

of an activities statement and an attachment explaining

why the applicant should be excused from filing an annual

information return (if that is the case). A revenues and

expenses statement and a balance sheet are required.

Like Form 1023, Form 1024-A will make it clear that

the applicant must be a corporation, unincorporated

association, trust, or limited liability company. Explana-

tory attachments will also be required if the organization

receives payment for services rendered, engages in politi-

cal campaign activity, leases property, is a successor entity,

is connected with another organization, or has members.

This form will not be a substitute for the notice

requirement (IRC § 506), which requires timely filing of

Form 8976. [26.9] ◆

TIGTA ISSUES UPDATED

REPORT ON PROCESSING OF

CERTAIN APPLICATIONS

The Treasury Inspector General for Tax Administra-

tion, in a report dated September 28 and made public

on October 5, stated that it found that, from August

2004 through June 2013, the IRS potentially used 259

criteria to identify applicants for recognition of exemp-

tion for further review and that the IRS used 17 of these

criteria—“select criteria”—to review certain applicants.

TIGTA found more than 900 cases that could have been

selected for review based on the 17 criteria. This report

is titled “Review of Selected Criteria Used to Identify Tax-

Exempt Applications for Review” (2017-10-054).

Of these 900 cases, 181 had evidence of political

activities or indications of significant potential political

campaign intervention. As to this latter group, TIGTA

isolated 146 cases, determining that 83 of them were

processed based on the 17 criteria and 63 were processed

while the criteria were in use, although TIGTA could not

confirm these 63 cases were selected on the basis of the

criteria. The criteria included search terms such as “border

patrol,” “occupy,” “progressive,” and “we the people.”

It will be recalled that, in a prior report, TIGTA

determined that the IRS used “inappropriate criteria” to

select applicants for recognition of exemption for addi-

tional review (summarized in the July 2013 issue). Those

“potential political cases” audited by TIGTA unfolded

during May 2010 through May 2012.

The 17 criteria were selected by TIGTA as the result

of input from staff of congressional committees and the

IRS, as well as from training documents that were not

provided to TIGTA in the prior audit. This new report

consists of an analysis of the 146 cases, focusing on the

17 selected criteria. TIGTA did not make any recommen-

dations because, in the words of this report, the “proce-

dures in place when the 17 criteria were potentially used

by the IRS are no longer in effect.” [26.1(j)] ◆

TREASURY RECOMMENDING

ELIMINATION OR MITIGATION

OF CERTAIN PROPOSALS

The Treasury Department, in a report dated October 2,

recommended actions to eliminate or mitigate the “bur-

dens imposed on taxpayers” by eight regulations that

the department identified for review in accordance with

Executive Order 13789 (summarized in the May 2017

issue). The recommendations are that two proposed

regulations be withdrawn entirely, three temporary or

final regulations be revoked “in substantial part,” and

three regulations be “substantially revised.”

The withdrawal notice concerning the proposal to

redefine the term political subdivision (issued in connec-

tion with IRC § 103) was published on October 20. The

other regulation to be withdrawn is a set of proposed

restrictions on liquidation of an interest for purposes of

estate, gift, and generation-skipping transfer taxation

(issued under IRC § 2704). As to the former, the report

states that Treasury and the IRS “now believe that regu-

lations having as far-reaching an impact on existing legal

structures as the proposed regulations are not justified”

and that “more targeted guidance” may be proposed

“after further study of the relevant legal issues.” ◆