• New Tax Law Places New Burdens on Nonprofits
  • April 3, 2007 | Author: Cathy Carter Godshall
  • Law Firm: Buckingham, Doolittle & Burroughs, LLP - Akron Office
  • On August 17, 2006, the Pension Protection Act of 2006 was signed into law. It contains extensive reforms designed to end the abuse of the tax-exempt status of charitable organizations.

    The new rules place significant new burdens and restrictions on charities, including:

    ·        Fines and penalties increased.  The Act doubles the amount of excise taxes applicable to certain prohibited activities by charities and their officers, directors and trustees.

    ·        Recapture of tax benefit.  The tax benefit for gifts of tangible personal property for which a fair market value deduction is claimed will be adjusted if the property is not used for exempt purposes.

    ·        Donations of clothing and household items.  No deduction is allowed for contribution of clothing and household items that are not in good used condition.

    ·        Stricter record keeping for charitable contributions.  Contributions made by cash or check must be substantiated by bank record or written acknowledgement from the charity — even if less than $250.

    ·        Valuation and appraisal reform.  The accuracy-related penalties have been increased and the Act establishes a civil penalty on any person who prepares an appraisal that supports a tax position resulting in a substantial valuation misstatement.

    ·        Private foundation income tax increased.  The net investment income tax for private foundations has been increased to include capital gains, annuities, and other investment income.

    ·        New restrictions on payments from donor-advised funds and supporting organizations.  The Act applies a penalty tax on any grant, loan, compensation or similar payments from a donor-advised fund to a donor, donor advisor or a person related to them and on similar payments from a supporting organization to substantial contributors and persons related to them.

    ·        Penalty taxes on certain grants.  The Act imposes penalty taxes on donor advisors who recommend a grant made by a donor-advised fund if that grant results in more than incidental benefit to the donor advisor.

    ·        Excess business holding rules.  The Act limits the ability of donor-advised funds and supporting organizations to hold active business interests and imposes penalty taxes if the limits are violated.

    Please contact the members of the BDB Tax and Employee Benefits Group with any questions regarding the new legislation.