Recaps from Proskauer's 16th Annual Trick or Treat Tax Exempt Seminar

by Proskauer - Not for Profit/Exempt Organizations

Proskauer’s 16th Annual Trick or Treat Seminar was held on Monday, October 31, 2011

The Seminar discussed:

  • Corporate Governance for Not-for-Profit/Exempt Organizations
  • Maintaining Tax-Exempt Status During Election Season
  • Investment Management under UPMIFA: What’s Required, What’s Good Practice
  • Executive Compensation & Employee Benefits Developments

In her introductory remarks, Amanda H. Nussbaum , Partner, highlighted the Congressional hearings on proposals to modify the structure of tax breaks for charitable donations. In addition, she also discussed recent state legislation adopting flexible purpose corporations - - new companies that are part social benefit and part low-profit entities such as the L3C - - and whether these types of companies were really necessary or whether they would just fade away. She also mentioned the IRS monthly updates of the list of the names of organizations whose tax-exempt status has been automatically revoked due to the failure to file a Form 990 for three consecutive years and some of the IRS's recent projects such as its college and university compensation and unrelated business income study and its governance check sheet.

Here are some take-away points from each presentation:

Corporate Governance for Not-for-Profit/Exempt Organizations. Edward S. Kornreich, Partner, described the responsibilities and obligations of the members of the board of a tax-exempt organization, particularly in regard to the unique issues related to conflicts among not-for-profit entities that have overlapping Board members. Recent information requests issued to not-for-profit boards, including those from the New York State Governor’s Task Force on Not-For-Profit Entities, were also discussed. 

Maintaining Tax-Exempt Status During Election Season. Stuart L. Rosow, Partner, reminded attendees that Section 501(c)(3) organizations are absolutely prohibited from engaging in any political campaign activity and violation of the prohibition can lead to revocation of tax-exempt status.  This prohibition does not preclude Section 501(c)(3) organizations from advocating a specific viewpoint on particular issues (though not legislation) related to an organization's exempt purpose.  Mr. Rosow emphasized that issue advocacy is permitted when the organization focuses expressly on issues and indicates no bias towards any particular political candidate.  Many tax-exempt organizations have officers and directors who engage in political campaign activities in their capacities as individuals and not as representatives of the organization.  Mr. Rosow provided certain guidelines to ensure such activities are not attributable to the organization and would not jeopardize the organization's tax-exempt status.  In addition, Mr. Rosow discussed that lobbying activities for Section 501(c)(3) organizations must be limited so as not to constitute a "substantial" activity and he explained the different methods for measuring whether an activity is "substantial."  Finally, Mr. Rosow also noted that the restrictions on lobbying and political campaign activity vary depending on the basis for the organization's tax exemption.  Section 501(c)(4), Section 501(c)(5) and Section 501(c)(6) organizations may engage in political campaign activity as long as it does not constitute the organization’s primary activity.  Section 501(c)(4), Section 501(c)(5) and 501(c)(6) organizations may engage in lobbying (even exclusively), provided that the lobbying activity is in furtherance of the organization’s exempt purpose.

Investment Management under UPMIFA: What’s Required, What’s Good Practice. Elizabeth M. Mills, Senior Counsel, described the investment provisions of the new Uniform Prudent Management of Institutional Funds Act (UPMIFA) and investment best practices for exempt organizations. The UPMIFA provisions concerning endowment spending and modification of gift restrictions have received the most attention. This is especially true in New York, where special provisions require contacting endowment donors to ask permission to operate under the new spending rules. However, UPMIFA also lays out specific fiduciary duties for boards and committees in managing investments. These include the duty of care (including the duty to use the special skills of the persons involved), the duty to minimize investment costs, the duty to investigate, the duty to diversify, and the duty to dispose of unsuitable assets. UPMIFA elaborates on the duty to invest with the care a prudent person would exercise by listing eight "prudence" factors a board or committee should consider, including, for example, the expected tax consequences of investment decisions. An exempt organization can delegate investment management functions to a professional or firm outside the organization so long as the organization exercises care in selecting and overseeing the agent and reviewing the agent's performance. Best practices include having a dedicated investment committee with a detailed charter outlining its duties and responsibilities, a written investment policy describing the investment goals and risk tolerance of the organization as well as such matters as asset allocation (required in New York), and regular oversight of investment advisors. 

Executive Compensation & Employee Benefits Developments.  Peter Marathas, Partner, reminded attendees that the IRS will soon release guidance on Code Section 457(f) "ineligible plans" that is intended to "synchronize" the rules for these plans with the rules under Code Section 409A. These rules will, among other things, establish strict standards for so-called severance plans under Code Section 457(f). In addition, Mr. Marathas discussed the enhanced fee disclosure rules applicable to ERISA-governed 403(b) arrangements and also explained the IRS's new guidance on the rules for terminating 403(b) plans. He reviewed some of the requirements of the Patient and Protection and Affordable Care Act (PPACA) for 2012, noting that the cost of coverage will be required to be reflected on Form W-2 for 2012 for all employers with more than 250 W-2 employees and that all health plans must issue a summary of benefits coverage in addition to summary plan descriptions starting in 2012. Mr. Marathas also noted that plan sponsors will have to being to report on the "quality of care" provided under their group health plans to both participants and Health and Human Services in 2012 and all plans will be required to pay a fee based on the number of members in the plan to fund research of comparative treatment, also beginning in 2012. 

A replay of the seminar is available by following the instructions below:

 Go to:

Login with your existing user name and password.
If you do not have a user name and password, please select the "New Student Registration" button to create a new account. You will need to enter the Proskauer Company Code: 9736529.
Select the "Catalog" tab at the top of the page. Select the "Enroll" button to the right of the course titled "Trick or Treat Seminar 10-31-11."
Select the "Continue" button in the pop up.
Select the "Launch" button to open the course and begin watching. Please be sure to allow pop-ups and click the boxes that appear on the screen to receive CLE credit.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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