As a result of the federal budget cuts required by Sequestration, the IRS has announced an 8.7% reduction in the amount of the refundable health insurance tax credit for nonprofit organizations. The automatic budget cuts went into effect on March 1, 2013, and the reduced tax credit rate will be in effect until September 30, 2013 (or intervening Congressional action), at which time the rate may be changed. The refundable health care tax credit is available for small employers, including nonprofit organizations, who provide health insurance for employees. For nonprofit organizations, the credit is a refund of payroll taxes which were required to be paid in during the year. See the IRS announcement at http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions.

Typically, for any gift over $75, charitable organizations must provide a written disclosure including an estimate of the fair market value of the items provided to the donor. However, this disclosure is not required in certain circumstances, such as when the gift is of a certain minimum amount and the items provided are “token items”, which are defined as low-cost items bearing the logo, colors or other identification of the organization. The amount that is considered “low-cost” is adjusted each year for inflation. For 2013, items with a cost of $10.20 or less are consider low-cost token items. The minimum amount of the gift must be $51 or more. Another exception to the disclosure rule is when an “insubstantial benefit” is provided to the donor, provided the benefit does not exceed 2% of the amount of the gift or a maximum of $102. For example, if the donor makes a contribution of $5,000, the charity could provide a benefit with a value up to $100 (2% of $5,000) without any disclosure requirement. See IRS Publication 1771 and Rev. Proc. 2012-41; 2012-45 IRB 1 for more information.

The Commission on Accountability and Public Policy for Religious Organizations has released its long-awaited report to Sen. Charles Grassley (R-IA) with their recommendations for government oversight of religious nonprofit organizations including churches. The report addresses areas such as executive compensation, housing allowance, IRS registration and tax reporting requirement for churches, and IRS audits of churches. The Commission takes a very strong stand against further intrusion by the government into the oversight of churches. However, the commission does make recommendations for better practices of developing systems for accountability and controls over executive compensation. To request a copy of the complete report, go to:
http://religiouspolicycommission.org/

Many nonprofit organizations conduct certain operations related to their charitable activities through a separately formed Limited Liability Company (LLC). Under existing US tax law, an LLC that is wholly owned is disregarded for tax purposes and its activities are combined with its owner. Thus, nonprofit organizations utilizing LLC’s assumed that the operations of their LLC entities would qualify as tax exempt and contributions to those LLC’s would be allowed as tax deductible. But clear guidance from the IRS on this issue was not forthcoming until this week when it issued Notice 2012-52 making it clear that donations to charity owned LLC qualify as tax deductible. This guidance is effective as of July 31, 2012; however, taxpayers can rely on this ruling for earlier tax years for which the statute of limitations for refunds or credits hasn’t expired under IRC Section 6511. See IRB 2012-35, 7/31/2012 which will be posted at http://www.irs.gov/irb/