Group Exemptions: Rules Changes Proposed

For many decades, affiliated nonprofit organizations have enjoyed the “administrative convenience” offered by the Internal Revenue Service’s special group exemption procedures. While the program will continue, there are important changes on the horizon; the 4,000 or so “parent” groups in the United States and their more than 440,000 “subordinates” should know about and understand them. 

On May 1, 2020, the IRS issued Notice 2020-36, unveiling a proposed new revenue procedure to supersede the long-standing group-exemption rules of Revenue Procedure 80-27 adopted in 1980. 

The government has asked for – and encouraged – public comments that are due on or or before August 16, 2020. 

  Group Exemptions: The Old Rules

The 1980 revenue procedure which is about to be modified was – itself – an update to earlier rules for how the federal tax agency handled the tax exemption applications “on a group basis for subordinate organizations affiliated with and under the general supervision or control of a central organization.” 

In Group Exemptions: A Primer (April 22, 2016), we explained that a “group exemption letter” is a “variation of the usual and customary procedure of recognizing tax-exempt status on individual organizations. In appropriate circumstances, the IRS will officially recognize ‘a group of organizations as tax-exempt if they are affiliated with a central organization.’”  

This greatly streamlined path to obtaining and maintaining federal tax-exempt status is particularly popular with, among others, religious groups around the nation as well as disease research and support organizations which often have a national parent and affiliates in local communities. Under this format, each subordinate member of the group is listed on the parent organization’s group-exemption application. There is no need, then, for any of the subordinate organizations to apply for tax exemption separately and submit individual documentation and information. “A group exemption letter has the same effect as an individual exemption letter except that it applies to more than one organization.” Rev. Proc. 80-27 also includes a simplified path to certify and maintain the group exemption on an ongoing basis. 

In Group Exemptions: New Procedure (May 2, 2019), we alerted readers to an “important, but not widely publicized, procedural change in the annual reporting requirements.”  Under Rev. Proc. 80-27, a parent organization must “submit certain information to the IRS annually in advance of the close of its accounting period. 

To facilitate the provision of information under this requirement, the IRS historically mailed each central organization a list of its subordinate organizations for verification and return.” Beginning January 1, 2019, though, the IRS stopped automatically mailing out these lists on grounds that this convenience was (1) not required and (2) imposed a significant administrative burden on the agency whose budget had been slashed left and right in recent years. 

  Group Exemptions: In With the New

The IRS has been “upfront” that, while the group-exemption path to tax exemption is certainly a welcome favor to hundreds of thousands of U.S. nonprofits, this convenience was “instituted to relieve the Service from the burden of individually processing a large number of applications involving the exempt status of organizations that are affiliated with each other, and also are organized and operated for the same purpose.”

What the agency giveth, the agency can taketh away. 

No, the group-exemption program is not disappearing.  But it’s been forty years since the last major overhaul of the procedures: There has been tinkering around the edges, with “interim guidance and notices that have accumulated over many years.” And there have been changes in tax-exemption statutes and rules in the interim that relate in some way to the group-exemption rules. 

In Notice 2020-36, the agency explains that it “has considered how to reduce the administrative burden and increase the efficiency of the group exemption letter program, to improve the integrity of data collected for purposes of program oversight, to increase the transparency of the program, and to increase compliance by central organizations and subordinate organizations with program requirements.”  

The result “…[caps] a group exemption review project that has spanned more than a decade.” Many of the agency’s goals for the program, it notes, “are attainable only by updating the procedures currently described in Rev. Proc. 80-27.” For that reason, that Notice includes a proposed new revenue procedure, subject – though – to helpful transition and grandfather rules for existing group-exemption holders. 

The 63-page document Notice 2020-36 does not contain – as do many popular articles in newspapers and magazines these days – a convenient advisory at the top letting you know that it is a “4-minute read” or a “7-minute read” or otherwise how it will involve just a modest disruption of your usual quarantine schedule. It’s a heavy – but important read – for the affected organizations and their professional advisors. 

The accounting folks over at Ernest & Young LLP have published a helpful and more easily digestible summary of the key provisions; see After 40 years, IRS updates and modifies group exemption program with proposed revenue procedure (May 8, 2020).

They note that “…[f]or many central organizations, the new rules would have very little impact, due to the extensive grandfather rule. But the revenue procedure would create additional administrative burdens for many other central organizations, limit the types of organizations that would qualify as new subordinate organizations, and consequently would likely reduce the total number of group exemptions and subordinates.”

More specifically, “the proposed revenue procedure would add two requirements that a central organization would need to meet (subject to the transition period…) to obtain and maintain a group exemption: (1) have at least five subordinate organizations to obtain a group exemption and at least one subordinate organization thereafter; and (2) maintain only one group exemption.”

In addition, “[c]onsistent with Revenue Procedure 80-27, the proposed revenue procedure would require a central organization to establish that each subordinate organization included in the group exemption be affiliated with the central organization and subject to its general supervision or control. Unlike Revenue Procedure 80-27, however, the proposed revenue procedure defines, and would require subordinates to meet (subject to the grandfather rule …) the conditions of affiliation, general supervision, and control.” (emph. added)

  Comments Requested

“The Internal Revenue Service (IRS) is issuing this guidance in proposed form to provide an opportunity for public comment because the IRS recognizes that, if finalized, the proposed revenue procedure would make substantial changes to the procedures set forth in Rev. Proc. 80-27 and that the application of these new procedures may impose an additional administrative burden on central organizations with group exemption letters in existence on the date the final revenue procedure is published in the Internal Revenue Bulletin ….” 

The agency “requests comments on all aspects of the proposed revenue procedure, including applicable grandfather and transition rules.” In particular, though, the IRS invites thoughts – see page 20-21 of the Notice – about three specific matters:

  • “the administrative burden imposed by” certain of the information-gathering requirements by and between parents and subs;
  • “factors indicating that a subordinate organization is affiliated with a central organization …” and
  • “whether central organizations with more than one preexisting group exemption letter would benefit from procedures permitting the consolidation or transfer of one or more preexisting group exemption letters.”

Public comments are due on or before August 16, 2020; instructions are included on pages 20-21. 


Until the publication of any new and final revenue procedure in the Internal Revenue Bulletin –  (whether or not the agency adopts the proposed language in full or makes changes based on the public comments] – Revenue Procedure 80-27 continues in force and effect. “However, the IRS will not accept any requests for group exemption letters beginning June 17, 2020, until publication of the final revenue procedure or other guidance.”


Huge EO Scandals: Elusive Federal Oversight

EO's getting in trouble

In recent years, there’s been an almost perfect storm of conditions for people – famous, infamous, and otherwise – to commit wrongdoing through exempt organizations (EOs) but escape scrutiny or consequences. 

As the details of each high-profile scandal are splashed across the headlines, we collectively wonder whether any agency or official will take action about what seem to be brazen violations of the laws and regulations.

Sadly, more often than not, nothing happens. The Internal Revenue Service – and particularly the division with jurisdiction over EOs – has been so weakened by draconian budget cuts that effective federal oversight has almost disappeared. State attorneys general are valiantly acting to pick up the slack – with a success or two here and there – but they, t00, face multiple obstacles. 

According to anecdotal reports from professional advisors of EOs, there’s an unfortunate trickle-down-effect from letting the well-known perpetrators “skate” on this repeated, in-your-face, wrongdoing. These lawyers and accountants report it’s now difficult to get their clients to listen to them about “what they can and can’t do.” They “think we don’t know what we’re talking about when we tell them what the rules are.” EO Tax Journal 2020-1, Paul Strekfus, Editor [paywall]. 

  Gutting the Federal EO Budget 

The deliberate slashing of funds for the Internal Revenue Service in recent years is well documented. What’s less widely known is that, in earlier periods as well, the IRS has been a favorite target of Congress. In conjunction with The Atlantic, nonprofit investigative agency Pro Publica capably explains this long history of intentional neglect in How the IRS Was Gutted (December 11, 2018). 

Also taking up this narrative about the hollowing out of the IRS is Professor Philip Hackney of the University of Pittsburgh Law School. Formerly an attorney in the Office of the Chief Counsel (Treasury) in Washington, D.C., he argues in The real IRS scandal has more to do with budget cuts than bias (April 15, 2018) that this decimation of the tax agency has hit the Tax Exempt/Government Entities (TE/GE) Division particularly hard.  

“Conservatives have been seething since 2013,” according to Professor Hackney, “over what they say was an unfair effort by the IRS to scrutinize right-leaning organizations more closely than other groups seeking nonprofit status.” That was the so-called “Lois Lerner scandal” which has since been entirely debunked by the Treasury Department’s inspector general for tax administration. There was no more preferential targeting of right-leaning groups than for left-wing applicants in the almost impossible task of figuring out which organizations qualify for section 501(c)(4) tax-exempt status under the fuzzy definition of “social welfare organization.” 

As a first-hand witness of the informal comments Ms. Lerner made in May 2013 at a meeting of tax lawyers in Washington, D.C., Professor Hackney explains how he was was astonished at the bungled and misleading reporting of the event by the Wall Street Journal. The story was picked up by other media and partisan commentators who promptly labeled the IRS’s alleged actions “outrageous” and set off a firestorm. 

   EO Problems: Budget Not Bias

In the years since then there have been congressional and FBI investigations of the Internal Revenue Service and its employees. There have also been lawsuits by conservative groups. Treasury officials, stung by allegations that “partisan bureaucrats” had improperly targeted right-leaning organizations, settled a lawsuit by the Tea Party in 2017. This capitulation included a multi-million dollar payment and an apology including one from then-Attorney General Jeff Sessions.  Professor Hackney observes, though, that “… rather than proving that the IRS had picked on conservative groups, these inquiries detected managerial shortcomings” at the most. Agency  failings, including the notorious long waits for tax-exemption application approvals, “… have more to do with budget cuts than bias.” 

Nevertheless, and despite the express findings on this point in the Inspector General’s report,  “Republicans proposed new laws to curb nonprofit regulation.” This “scandal” has caused deep and unnecessary damage to the cause of federal charity oversight already burdened by Congressional underfunding.

Form-EZ: More EO Oversight Troubles

In mid-2014, there was another disastrous move by the Treasury and the Internal Revenue Service – caused in part by the massive budget cuts – that has only made the oversight problem worse. Federal officials introduced the heavily streamlined Form 1023-EZ. It was generally agreed that the Form 1023 tax-exemption application is too complex for small and mid-sized tax-exemption applicants. There was also a huge backlog and long wait for exemption approvals.  From the start, the nonprofit sector vigorously opposed the new Form 1023-EZ  on the grounds it is so short and simple that it can’t be an effective up-front screening tool. 

That’s exactly what happened. We’ve been covering this slow-moving train wreck since 2014 beginning with Is the New Form 1023EZ Too Easy? Part I – Introduction (September 10, 2014). By the middle of 2018, leaders of the nonprofit sector urged Congress to scrap the Form 1023-EZ entirely. As Tim Delaney of the National Council of Nonprofits characterized the express-lane character of the Form 1023-EZ review, it has become almost easier to get exemption approval than a library card. See Nonprofits to Congress: Ditch Form 1023-EZ (May 17, 2018). 


“The overall IRS budget fell by about 18 percent in inflation-adjusted terms from 2010 to 2017, from $14 billion to roughly $11.5 billion.” While Congress added some funds since then, this bump-up was largely made and earmarked by the Tax Cuts and Jobs Act of 2017 to help with implementation of this “highly complex new law.” 

The trend of gutting the IRS has otherwise continued and “eroded oversight” at the same time that the “number of aspiring nonprofits” has risen dramatically. There are more applicants but much less capacity to screen them up front or check them out at the back end by audit. And the data show that denials of tax exemption are now rare as are revocations of tax exemption.

We’ll continue this discussion in succeeding posts including how this dwindling oversight capability has allowed noncompliant groups to engage in – and continue – their wrongdoing in plain sight. 

Charitable Hospitals Behaving Badly

Patient Debt

Over the summer of 2019, there were important showdowns around the United States against certain charitable healthcare systems acting in decidedly uncharitable (and unlawful) ways. The hospital behemoths with overflowing coffers relentlessly hounded patients for every last nickel and dime. The victims included those least able to afford it; people earning just at or above the minimum wage – some of them the hospitals’ own employees!

By summer’s end, the avaricious health providers were “humbled” by enough public exposure and pressure to reverse course. The changes so far have led to significant relief to some beleaguered victims, but more needs to be done. 

And – of course – it should not have happened at all. 

   Hospitals’ Tax Exemption Deal 

The majority of the hospitals in the United States are nonprofit, nongovernmental institutions. They receive valuable federal, state, and local income tax exemptions along with other substantial tax breaks. That’s a bargain they make in exchange for an obligation “to provide community benefits, including charity care to low-income patients.”  

The Affordable Care Act of 2010 (ACA), designed to result in fewer uninsured and underinsured Americans needing financial assistance from hospitals, added new duties.  Nonprofit hospitals must have “financial assistance programs” although “the federal rules don’t say how much help, and they don’t say how poor you have to be to qualify or if you have to be insured or uninsured.” The ACA also “prohibits hospitals from taking ‘extraordinary collection actions.’” 

There were three major story arcs appearing beginning in May and June 2019 that highlight egregious flouting of the tax-exemption bargain as well as violations of the letter and spirit of the ACA. They exposed seedy practices of prestigious Johns Hopkins Medical Center (Baltimore), Methodist Le Bonheur Hospital (Memphis) and the University of Virginia Health System (Charlottesville). Included in these unconscionable policies were the continual piling on of penalties, interest, and attorneys’ fees to the original debt amounts followed by garnishment of wages, liens on property, and endless filing of enforcement actions.

According to research published recently in the Journal of the American Medical Association (about a study of Virginia nonprofit healthcare institutions), nonprofit hospitals are more likely than their for-profit counterparts to sue patients for payment.  And particularly disturbing are the results showing that these health providers are “suing to grab 0.1 percent of their total revenue.” Rolling in revenue, they still pursue payment of debts in all amounts, including some so small it makes little difference to the bottom line of the institution but traps debtors for a lifetime. 

   Hospitals’ Horror Stories 

Of the three stories, the most deeply reported is about Memphis’s Methodist Le Bonheur Hospital. There’s an important angle, too, in the identity of the crack reporting team that uncovered this sordid tale.  ProPublica, Inc. is a “nonprofit newsroom that investigates abuses of power. MLK50, a member of the ProPublica Local Reporting Network, did the heavy lifting on this remarkable series. Ironically, it is a nonprofit investigative group that protects the charitable beneficiaries that the nonprofit hospital here wrongfully exploits. 

The storyline from the ProPublica network begins on June 27, 2019. The opening article’s title is brutal but fair: The Nonprofit Hospital That Makes Millions, Owns a Collection Agency and Relentlessly Sues the Poor. It includes background information about the institution and the community it serves. A six-facility healthcare group (with an additional 150 outpatient centers, clinics and physician practices), Methodist Le Bonheur has an annual revenue of $2.1 billion and is the second-largest private employer in Shelby County, Tennessee. It boasts a commitment to a “culture of compassion.” But there are hard facts and figures confirming the intensity of the effort to collect every last penny owed. There are also absorbing case studies of some of the victimized patients. 

That same day, a follow-up article continues the tale: This Memphis Hospital System Flouts IRS Rules by Not Publicly Posting Financial Assistance Policies (June 27, 2019) “Nonprofit hospitals must post financial assistance policies for the public to see, including in emergency rooms. But Methodist Le Bonheur Healthcare’s five Shelby County emergency rooms had no signs or displays when a reporter checked.” 

And there’s a bigger problem: According to a review by MLK50/ProPublica of policies at Tennessee nonprofit hospitals, this one is “among the least generous in the state.” Although “… dozens of hospitals offer free or highly discounted care that helps shield low- and middle-income patients, regardless of insurance status, from crushing debt, Methodist does not.” Although a spokesperson explained that “it will work with … patients seeking assistance,” the evidence appears not to support that assertion.

   Aggressive Debt Collection 

Methodist Le Bonheur Hospital’s “handling of poor patients begins with a financial assistance policy that, unlike many of its peers around the country, all but ignores patients with any form of health insurance, no matter their out-of-pocket costs.” 

What follows, though, compounds the problem.  If Methodist Le Bonheur’s patients can’t pay their bills, they “face what experts say is rare: A licensed collection agency owned by the hospital.” Lawsuits follow. Finally, after the hospital wins a judgment, it repeatedly tries to garnish patients’ wages, which it does in a far higher share of cases than other nonprofit hospitals in Memphis.

“We found that Methodist Le Bonheur Healthcare filed more lawsuits and won more wage garnishment orders than any other hospital system in Shelby County” is what reported MLK50/ProPublica reported in How We Tallied Medical Debt Lawsuits and Wage Garnishments in Memphis (June 27, 2019). 

The next day’s installment adds more detail: Low-Wage Workers Are Being Sued for Unpaid Medical Bills by a Nonprofit Christian Hospital That Employs Them (June 28, 2019). The subheading adds a further troubling twist: “Methodist Methodist Le Bonheur Healthcare has sued many of its own employees over unpaid medical bills and garnishes their wages; its health care plan prevents them from going to competitors with better financial assistance.”

   Hospitals’ Practices Generally

The ProPublica series points out that this health provider’s policies and practices of aggressive collection efforts are neither mandatory nor universal. “Several nonprofit hospitals don’t sue patients at all, such as Bon Secours Hospitals in Virginia, which stopped pursuing debt suits in 2007, and the University of Pittsburgh Medical Center, which includes more than 20 facilities.” And the policy of the seven-hospital Methodist Health System in Texas is also different, according to a spokesperson: “We are a faith-based institution and we don’t believe taking extraordinary measures to seek bill payments is consistent with our mission and values.” It never “impose extraordinary collection actions such as wage garnishments, liens on homes, or credit bureau notification.” 

Turning to the legal system to settle debts is a choice, not a mandate, said Jenifer Bosco, staff attorney at the National Consumer Law Center, a nonprofit focusing on legal services for low-income and other disadvantaged people. “A lot of medical debts are just handled through the collections process,” she said. “Certainly some end up in court, but it seems like this hospital is especially aggressive” – especially in a city where nearly 1 in 4 residents live below the poverty line.

According to Senator Chuck Grassley (R-NE), aggressive debt collection practices are “contrary to the philosophy behind tax exemption.” Hospitals doing this “seem to forget that tax exemption is a privilege, not a right. In addition to withholding financial assistance to low-income patients, they give top executives generous salaries on par with their for-profit counterparts.”

   The Tide Turns

In the hours and days following publication of these damning articles, “Methodist declined repeated requests to interview its top executives.” But soon the crack investigative team reported progress. The titles of articles published in July 2019 preview the rapid, significant developments:

“The hospital system just announced major policy changes in response” to the MLK50 investigation. 

In Hospital Humbled by ProPublica Will Raise Wages and Stop Suing Employees (August 1, 2019), The Nonprofit Quarterly’s Ruth McCambridge wonders if the “hospital” is “yet humble enough.” As of mid-summer, there were still unanswered questions including whether Methodist Le Bonheur will end entirely the practice of suing patients or whether it will refile the 100-plus lawsuits it dismissed in July. 


In Thousands of Poor Patients Face Lawsuits From Nonprofit Hospitals That Trap Them in Debt (September 13, 2019), the MLK50 team explains that “across the country, low-income patients are overcoming stigmas surrounding poverty to speak out about nonprofit hospitals that sue them.”

They issue a public call-to-action for more information, including first-hand accounts of people who have been named by nonprofit hospitals as defendants in collection actions.  “Federal officials are noticing. Help us keep the pressure on.”

The Parsonage Allowance: Constitutional, Once Again

“I assume it’s not just me who checks the 7th Circuit opinion pages multiple times a day to see whether the #ParsonageAllowance decision has been issued yet. I mean, everybody’s checking, right?” [Tweet 1/23/19 1:58 pm @smbrsun ]

In the fall of 2018, Sam Brunson sat in the federal courthouse in Chicago watching the oral argument hearing in Gaylor v. Mnuchin.  In the following months, he eagerly awaited the outcome of this long-running, controversial, lawsuit pending in the Seventh Circuit Court of Appeal.

The case was filed back in 2011 by the Freedom From Religion Foundation (FFRF) and had worked its way up (and – once – down) the federal court system in the Midwest for several years. The FFRF challenged the constitutionality of the housing tax break for clergy codified in Internal Revenue Code section 107(2). Titled “Rental Value of Parsonages,” the statute grants an exemption from gross income to “ministers of the gospel” for the value of a parsonage provided or the rental allowance included in compensation to be spent for housing. Commonly referred to as the “parsonage allowance” or the “clergy housing allowance,” this law has strong proponents and dedicated opponents.

By the way, the constitutional challenge in Gaylor v. Mnuchin is not about the odd “ministers of the gospel” language; that phrase has been interpreted to apply broadly to clergy of all religions. (Some tough calls, though, remain on who is “clergy” within a particular religion or denomination.)

The specific legal question pondered by the appellate judges in Gaylor that autumn afternoon is whether the tax break is allowable at all under the First Amendment of the U.S. Constitution.

Sam Brunson was not a party or counsel for either side, but he has more than a casual interest in this issue. He is Georgia Reithal Professor at Loyola University Chicago School of Law and author of God and the IRS: Accommodating Religious Practice in United States Tax Law (2018). Chapter 5 is titled “Housing Clergy.”   

The Parsonage Allowance: Pros and Cons

Internal Revenue Code section 107(2) has an effect only on a small portion of the population. Of course, for that affected group, it’s a very big deal indeed.  “That’s because the benefit is the most valuable one available to qualifying clergy, estimated to be worth nearly $700 million a year, according to the congressional Joint Committee on Taxation.”

To make a long story short, the plaintiff FFRP won the first round in federal district court several years ago; this victory was overturned by the Seventh Circuit on grounds that this plaintiff lacked standing to sue because it had never claimed the tax break. FFRP was allowed to start over, claim the parsonage allowance, have it denied by the IRS, and come back to court. Once again, the district judge, Barbara Crabb, ruled the statute unconstitutional. For the second time, the government appealed.

On March 15, 2019, Professor Brunson tweeted: “It’s Up!” with a link to the Seventh Circuit’s ruling just issued that afternoon. There followed a tweetstorm with more fulsome comments about the 3-0 decision written by Circuit Judge Michael Brennan, tossing Judge Crabb’s second ruling of unconstitutionality.

For Judge Brennan and his colleagues, the 65-year-old statute does not offend the First Amendment. It is now back in full force and effect in Illinois, Indiana, and Wisconsin. (For the rest of the nation, the statute was never in jeopardy.)

“FFRF claims Section 107(2) renders unto God that which is Caesar’s,” Judge Brennan wrote. “But this tax provision falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: neither commanded by the former, nor proscribed by the latter.”

To avoid any further discussion here of God, Caesar, or First Amendment “joints,” we offer a few articles on the topic for you to peruse at your leisure if you are so inclined.

For the rest of us, it’s enough to know in a general way that the “Court of Appeal for the Seventh Circuit in Chicago ruled on March 15, 2019 that the clergy housing allowance is a constitutionally permissible tax benefit.”


What happens next? Plaintiff Freedom from Religion Foundation has until about the middle of June to petition the Supreme Court to review the case. For a number of reasons, it’s unlikely the high court will accept this matter on appeal.

Possible Rate Hike for Some Nonprofits’ Mail

It’s a perk for nonprofits that doesn’t get as much attention or fanfare as the tax deduction for charitable contributions, but reduced postal charges are an important aid to the success of the mission of many organizations.

501(c)(3)s use the established “preferred postal rate” schedules to make important budgetary decisions for current and upcoming fiscal periods. From time to time, the United States Postal Service increases one or more of these rates. Ordinarily, though, a change like that happens only after the USPS follows a standard procedure that gives the affected stakeholders a chance to weigh in on any proposal as well as enough lead time to minimize the negative budgetary impact of any price hike.

Just recently, the USPS announced the possibility of a rate hike for certain types of mailings. The initial reaction has been swift and negative; there are concerns and questions, though, not only about the rate jump itself, but also by the irregular procedure being followed this time.

An extended public comment period ends on October 22, 2018; nonprofits are encouraged to voice their opinions before that date.

    A Proposal About A Postal Rate Change

On August 23, 2018, an “Advance notice of proposed rulemaking; request for comments” was posted in the Federal Register: “The Postal Service is contemplating amendment of the Mailing Standards of the United States Postal Service, Domestic Mail Manual (DMM®)” to revise content standards for USPS Marketing Mail® letter-size and flat-size pieces regardless of level of sortation.”

Specifically, the “proposed change would limit all USPS Marketing Mail, regular and nonprofit, letter-size and flat-size to content that is only paper-based/printed matter; no merchandise or goods will be allowed of any type regardless of ‘value.’” The result is that “(a)ll items not eligible to be sent as USPSMarketing Mail letter-size or flat-size pieces would need to sift to another product (e.g., Priority Mail®, Parcel Select®) to be mailed.”

This Federal Register announcement is about a possible change – not yet an actual one; “the Postal Service is contemplating amendment” … of the previous rules and standards. (emph. added)
USPS explains in the Federal Register announcement that it’s aware this idea may raise substantial concerns. That’s the reason, the agency writes, that it has posted this information earlier than usual and with an “extended comment periods” so that it can “… obtain as much customer and mailer feedback as possible.”

This extended advance notice of the possibility of a rate change is helpful, of course, but the agency fails to mention a significant procedural irregularity in this process. Proposals for changes of this kind are usually submitted first to the Mailers’ Technical Advisory Committee (MTAC) of the USPS. As it happens, the MTAC has quarterly meetings; the next one is set for October 2, 2018. MTAC is “a way to get feedback, learn the possible impacts on mailers, and find a way to come up with creative solutions.” It has quarterly meetings; the next one is set for October 2, 2018.

“For some reason, [USPS] went straight to the Federal Register” this time, according to Stephen Kearney, executive director of the Alliance of Nonprofit Mailers (ANM).  The ANM was formed in 1980 by a group of nonprofits to represent the many organizations “that rely on affordable, effective postal mail to raise funds, communicate with donors, advocate, deliver publications, and achieve our missions.”

The ANM is leading the charge to find answers about the rationale and necessity of the possible postal rate hike as well as the reason why the usual procedure was abandoned.

     What the Postal Rate Change Will Mean

The reaction by nonprofits to the mere possibility of a rate change has been swift and negative.   Here’s why: Many organizations are dependent on use of premium items to attract and retain donors. “Donors … come to expect a trinket of some sort during a mail solicitation. Religious organizations, for example, often include plastic prayer cards or rosary beads.”

Under this idea floated by the USPS, though, “(s)omething as basic as using a metal or plastic paper clip could force a move from Marketing Mail, which used to be called Standard Mail. Organizations would be forced to Priority Mail, Parcel Select or another USPS rate.  Packages with goods and merchandise will have an Intelligent Mail package barcode (IMpb) and will travel through the package network stream, according to the USPS.”

The ANM’s Stephen Kearney predicts that such a change would have “‘a huge negative effect on nonprofits. It would rule out all front-end and back-end premiums that nonprofits have been sending for years.’”

Charlie Cardigan, senior vice president of the nonprofit division of Wiland, agrees that this proposed change would have a significant negative impact on the many nonprofits that depend on premiums as part of their fundraising programs. While many nonprofits are trying to reduce their reliance on premiums, “… that doesn’t happen overnight,” according to Cardigan.

   Postal Service Rationale for Change

In the August 23, 2018, Federal Register notice, the United States Postal Service offers an explanation for this mailing-rates shift idea: It is “to improve both processing and the delivery of goods and merchandise moving through the mail stream.”

Specifically, this change, if enacted, will:

  • “Facilitate levels of service expected for the processing and delivery of merchandise that include end-to-end tracking and visibility;
  • Move fulfillment of merchandise and goods out of USPS Marketing Mail, consistent with the transfer of fulfillment parcels out of Standard Mail (the predecessor to USPS Marketing Mail) in Docket No. MC2010-36; and,
  • Reduce operational inefficiencies when machines are unable to process letter-size or flat-size shaped inflexible items.”

We’ve included, verbatim, these jargon-filled bullet points. After reading them, we still have no idea why the USPS wants to eliminate this valuable postal benefit for the nonprofit community; we’re guessing you won’t understand it either.  


The Alliance of Nonprofit Mailers has posted information on its website about this proposal; see USPS Drops a Bomb on its Customers, dated August 29, 2018. The group will follow-up with “detailed suggestions and instructions for comments to all of [their] members, sponsors, friends and allies next week after the holiday weekend” urging everyone to participate before the end of the comment period on October 22, 2018.  Check back at the website for more information. 

Any person or organization wishing to submit an official comment can mail or deliver it to: Manager, Product Classification, U.S. Postal Service, 475 L’Enfant Plaza SW, Room 4446, Washington, DC 20260-5015. An alternative for comments and questions is emailing “ using the subject line “USPS Marketing Mail Content Eligibility.”

IRS Announces New 501(c)(3) Databases

A scenario repeated many times each day around the United States: A prospective donor is ready to sign a huge check to a favorite 501(c)(3) but wants assurances that the group is still eligible for tax-deductible contributions. Similarly, a foundation wants to award a grant to a worthy organization and needs confirmation of that group’s exempt status.

Particularly since 2006, this matter has taken on a new sense of urgency – and confusion. That year, Congress passed Internal Revenue Code section 6033(j) mandating automatic revocation of tax exemption for failure to file a Form 990 for three consecutive years.  Many organizations around the nation were caught in that trap.

There is new guidance from the IRS that will help organizations and donors alike answer these questions with confidence. Revenue Procedure (“Rev. Proc.”) 2018-32 was issued and effective on May 16, 2018. [In case you’re wondering, here “proc” rhymes with “rock.” You can now casually toss around your insider savvy as in: “It says so right here – in Rev. Proc. 2018-32.”]

This new 34-page document updates and supersedes earlier published advice and information – “scattered pieces of guidance dating back to 1981.” Back in the olden days – that is, 1981 – there were no online databases or online anything. The official list of which organizations had been granted tax-exempt status, and to which contributions were deductible, was Publication 78, Cumulative List of Exempt Organizations Described in [Sec.] 170(c). This hard-copy, bulky, document was updated at regular intervals. [Another insider tip: any and all IRS official publications are referred to as “Pub” – as in: “Check out the latest revision to Pub. 557.”]

  New Resource for 501(c)(3) Searches

The most important feature of Rev. Proc. 2018-32, is the updated, greatly improved search capability. In real time, with the click of your mouse, you can find out whether an organization is eligible to receive tax-deductible donations, along with additional helpful information. No longer are those “scattered pieces of guidance” – well – scattered.

The IRS now has five relevant, searchable, databases. This current menu of five online resources evolved over the years from that relic of a bygone era, Publication 78 in hard copy. Pub. 78 was first replaced by the Select Check online database. Select Check was renamed – and greatly expanded – in May 2018, as the Tax Exempt Organization Search (Pub. 78 Data).

   First Database: Organization Search

The key database is the first: the Tax Exempt Organization Search (Pub. 78 Data) lists all organizations eligible to receive tax-deductible contributions. Its new, expanded, capability now includes “deductibility codes” that show an organization’s status as a foundation under Internal Revenue Code section 509(a). (It does not, however, take the next step of indicating whether an organization qualifies for public charity status under 509(a)(1) or under 509(a)(2).)

It also has a section called the Exempt Organization Business Master File (EO BMF Extract) which has additional information on most tax-exempt organizations – not just the 501(c)(3)s eligible for the preferred tax-deductibility status. In this EO BMF Extract are data fields with the group’s name, EIN, the specific 501(c) classification, the exemption-ruling data, deductibility code, foundation code, and its status as an independent, central, or subordinate organization.

     Second Database: Automatic Revocation

The second database is the Automatic Revocation of Exemption List (or Auto-Revocation List). It names the 501(c)(3)s that have had their tax-exempt status revoked under Sec. 6033(j) for failing to file a required annual return or notice for three consecutive years.

If an organization has had its exemption revoked, it can follow certain procedures to try to re-establish its eligibility. These reinstated groups will be added back to the list of eligible organizations, but – for statutory reasons – the IRS must keep the organization’s name on the Auto-Revocation List, too; however, the reinstatement date will be noted.

     Third Database: Small Organizations

The third database includes information from the smallest, tax-exempt, organizations now required only to file a Form 990-N, sometimes called an “e-postcard.”

      Newest Databases

In May 2018, the IRS added two new databases to the already existing three databases described above.

The fourth database has images of Forms 990, Return of Organization Exempt From Income Tax, filed by exempt organizations on or after Jan. 1, 2018, that are available to the public under Internal Revenue Code section 6104.

The fifth database includes images of favorable IRS “determined letters” issued on or after January 1, 2014. “Determination letters” are the official documents notifying an applicant that its request for recognition of 501(c)(3) status has been approved.

    Additional Features in Rev. Proc. 2018-32

Highlights of additional, welcome, features explained in Rev. Proc. 2018-32:

  • Affirmation Letters: The IRS will issue letters to 501(c)(3)s in good standing, confirming their current eligibility to receive grants and tax-deductible donations and indicating their foundation status. The agency will also issue these affirmation letters to show and confirm name or address changes.
  • Reliance Rules Update:  There are detailed explanations of the most current reliance rules for donors, not only in connection with organizations which have always maintained their tax-exempt status in good standing but also in connection with groups on the Auto-Revocation List (which fact may or may not be known to the donor.)  There are also safe-harbor rules in connection with donations to organizations that have lost tax-exempt status.


The Tax Exempt Organization Search – that is, the first database – now allows users to search across all five databases. New Rev. Proc. 2018-32 modifies and supersedes  Rev. Proc. 81-6, Rev. Proc. 81-7, Rev. Proc. 89-23, and Rev. Proc. 2011-33.

Exempt Organizations: What’s New From the IRS

The Internal Revenue Service has recently announced substantive changes to application forms and procedures for tax-exempt status under sections 501(c)(3) and 501(c)(4) of the Internal Revenue Code. The IRS will reject applications on older – now obsolete – forms.

   Form 1023

The changes to Form 1023 are fairly minor. They include revisions consistent with new IRS procedures on public-charity status and on retroactive recognition of tax exemption.

   Form 1023-EZ

The Form 1023-EZ was introduced in mid-2014 to deal with a huge backlog in application processing. At that point, the wait time was as long as 18 months to 2 years.  The new procedure was also designed to counter legitimate criticism that the 26-page-long Form 1023 was unnecessarily burdensome for many smaller and mid-sized groups. 

Within a few months, the backlog problem was solved, but critics from many quarters have argued that it has been at too great a cost. Many observers, including government officials, acknowledge that it became much too easy to apply for tax-exemption. Too little information was required, and almost rubber-stamp approvals became the norm.  Since 2014, there have been tweaks to the 1023-EZ. The newest version is titled Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code; there is an accompanying explanation by the IRS here.

The original user fee for the Form 1023-EZ was $400.  Two years later, in mid-2016, that fee was reduced to $275.  Under the newest form changes, the $275 fee remains in effect. 

Key changes to the new Form 1023-EZ are:

  • The applicant is asked to provide a brief description of its mission or key activities; a new text box is added to Part III.
  • There are new questions about annual gross receipts, total assets, and public-charity classification. These items are also on the Form 1023-EZ Eligibility Worksheet in the Instructions to the form. Applicants must certify the worksheet has been completed.
  • Form 1023-EZ Eligibility Worksheet, Question 29, relates to a requirement that an automatically revoked organization (i.e., for failure to file 990s for 3 years in a row) must seek the same foundation classification it had at the time of automatic revocation. That is a condition for eligibility to file the new Form 1023-EZ. An applicant that is not seeking the same foundation classification must file the regular Form 1023.

According to the IRS, the purpose of these revisions is to make form selection easier for applicants and help the agency with the approval process.

   New Form 1024-A

The application procedure for 501(c)(4) social welfare organizations has changed significantly; there is an entirely new form: 1024-A. (The traditional Form 1024 that has been in effect for many non-501(c)(3) organizations continues to be the correct form for those categories – albeit the questions that previously applied to only 501(c)(4) organizations have been removed.)

On January 16, 2018, the Internal Revenue Service issued the final version of new Form 1024-A.  Earlier drafts had been published in 2017 along with the required request for public comment.  

The new 1024-A includes requests for information that are similar to the old Form 1024, including – for instance:

  • Details about the organizational structure of the entity;
  • Information about the organization’s officers, directors, employees, and independent contractors, and whether such individuals are compensated;
  • A narrative of the organization’s past, present, and planned activities;
  • Whether the organization will engage in electioneering activities;
  • Information about the organization’s membership, if any;
  • Whether the organization has a relationship with or is connected to another exempt or nonexempt organization;
  • Whether the organization receives payment for services;
  • Whether the organization plans to lease property;
  • Whether the organization plans to engage in foreign activities or grantmaking; and
  • Information on finances.

Applicants should read the instructions to Form 1024-A carefully to determine if additional attachments are required. Applicants must also include Form 8718, User Fee for Exempt Organization Determination Letter Request, and the correct user fee, which is $600.


For several years, the issue of eligibility for 501(c)(4) status has been highly controversial, especially regarding organizations that are described as at least somewhat political in nature. It has caused serious problems for the IRS, itself, which came under years-long fire for its handling of these sensitive applications. It’s unclear whether adoption of the new Form 1024-A will resolve any of the fallout associated with this issue.

501(c)(3) Politics Executive Order: What Effect?

For over a year, there’s been serious chatter in certain quarters about easing the 100% ban – the Johnson Amendment – on political campaign activities by 501(c)(3) organizations including churches and religious groups.
It was part of the GOP campaign rhetoric and has continued on in the new Administration. There’s disagreement, though, on the details. Should the ban be eliminated completely? Should the Johnson Amendment be modified to allow limited activity? Should there be a carve-out for religious organizations only? There is a strong consensus in the philanthropy community opposing any change at all.  Recently, we’ve highlighted this debate: “Will The 501(c)(3) Politics Ban Be Repealed?”;  “Why Change the Politics Ban: The Proponents’ View”; and “Opponents of Politics-Ban Repeal Speak Out.

  The 501(c)(3) Politics Executive Order

Speculation focused on whether lawmakers would seek a change by standalone legislation or include it as part of a comprehensive tax-overhaul package.
This uncertainty was swept away on May 4, 2017 with the White House issuing “Executive Order Promoting Free Speech and Religious Liberty. There are several sections; this link is to the full text.
Section 2 relates to 501(c)(3)s and the Johnson Amendment:

Respecting Religious and Political Speech.  All executive departments and agencies (agencies) shall, to the greatest extent practicable and to the extent permitted by law, respect and protect the freedom of persons and organizations to engage in religious and political speech.  In particular, the Secretary of the Treasury shall ensure, to the extent permitted by law, that the Department of the Treasury does not take any adverse action against any individual, house of worship, or other religious organization on the basis that such individual or organization speaks or has spoken about moral or political issues from a religious perspective, where speech of similar character has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign on behalf of (or in opposition to) a candidate for public office by the Department of the Treasury.  As used in this section, the term “adverse action” means the imposition of any tax or tax penalty; the delay or denial of tax-exempt status; the disallowance of tax deductions for contributions made to entities exempted from taxation under section 501(c)(3) of title 26, United States Code; or any other action that makes unavailable or denies any tax deduction, exemption, credit, or benefit.

   Analysis of the 501(c)(3) Politics EO

Experts hurriedly reviewed and analysed this Executive Order. Based in part on one or more drafts that were making the rounds, the American Civil Liberties Union and other opponents were poised to pounce.
Hours later, though, after time to digest the official (final) version, the general reaction was: “Meh.”
“There’s nothing ‘there’ there,” read one tweet. Another chimed in: “It’s a nothingburger.”
The ACLU stood down. It has bigger fish to fry.
Legal eagle Dahlia Lithwick does not mince words in “Lawyers to the Rescue!”: “Trump’s religious liberty executive order,” she writes, “reads like it was lawyered to death.”

There is a lingering question about whether the executive order on religious freedom Donald Trump signed in the Rose Garden on Thursday … did something, nothing, or less than nothing. Whatever it is the president ultimately did sign, it bore little to no resemblance to the draft orders that had been circulating on Capitol Hill and that had stirred such angst among progressives. It’s just unclear what this EO actually does. Two of the most controversial provisions—one that would have abetted religious conscience objectors in escaping the Affordable Care Act’s contraceptive coverage mandate and one that would have loosened prohibitions on participation in political campaigns by churches and other tax-exempt groups that accept tax deductible contributions—had been watered down thoroughly by the time Trump was brandishing his pen. So much so, in fact, that by the end of the day Thursday, conservatives were slamming the effort as ‘meaningless’ and ‘inadequate.’ Meanwhile, the ACLU—which had announced earlier in the day that it had planned to file a challenge—simply tweeted: ‘We thought we’d have to sue Trump today. But it turned out the order signing was an elaborate photo-op with no discernible policy outcome.’

   Additional Commentary and Analysis

“Would you like some onion rings with that nothingburger?” For those wanting to delve deeper into the May 4th Executive Order, there are many excellent analyses; see, for example:  


Undoubtedly, this May 4th Executive Order is not the last word on 501(c)(3)s and political campaign activity. It may be modified or Congress may decide to take additional action or – well – who knows these days?

What’s Up These Days with the Form 1023-EZ?

The Internal Revenue Service used to have a huge problem: it generally took 18 months to two years to process even a fairly straightforward 501(c)(3) tax-exemption application.
That’s when a big change was proposed: the introduction of the Form 1023-EZ for the many new, smaller, organizations.
We posted about that rollout in July 2014, and about the early reaction and results here, here, and here.  Tim Delaney, the President and CEO of the National Council of Nonprofits summed it up fairly well: “It’s easier to get tax-exempt status under Form 1023-EZ than it is to get a library card.”
It did, however, clear up the backup.

  So, How is the Form 1023-EZ Doing These Days?

The Taxpayer Advocate Service “is an independent organization within the IRS.”  Its job is “to ensure that every taxpayer is treated fairly and …[knows and understands its] …rights.”
Each year, the TAS issues a report to Congress that “analyzes the most serious problems facing taxpayers, recommends tax law changes to Congress, and presents original research studies into issues affecting taxpayers.”

  Report on 2015

About a year ago, in “Critics’ Concerns About Form 1023-EZ: Spot On,” we told you about the parts of the 2015 Annual Report to Congress, that relate to exempt organizations. It was brutal.
The “highlights” section on the cover had this observation: “Recognition as a Tax-Exempt Organization is Now Virtually Automatic for Most Applicants.” It went downhill from there.

The rebuke about the tax-exemption application process is one of 9 selected areas of concern. It is a ‘stinging indictment of the IRS’s “absurd” handling of applications for tax exemption, especially the recently introduced 1023-EZ “short form” designed for use by small new charities.

Specifically, the full 2015 TAS discussion on the Form 1023-EZ applications problem are summarized as:

  • The Form 1023-EZ “invites noncompliance, diverts tax dollars and taxpayer donations, and harms organizations later determined to be taxable.
  • The approval rate for 1023-EZ applications is 95%, but when the agency does a pre-determination review on a sampling basis, the approval rate is just 77% when documents or basic information are reviewed, “rather than relying only on the attestations contained in the form.”
  • In the same pre-determination samplings, almost 20% of applicants, “despite their attestations to the[ contrary, did not qualify for exempt status as a matter of law.”  These results are consistent with the Taxpayer Advocate Service’s own representative sample of 1023-EZ applications: “37% of the organizations … did not satisfy the legal requirements for exempt status.”

The National Taxpayer Advocate recommended revisions to the Form 1023-EZ; in particular, to –

require applicants to submit their organizing documents, unless they are corporations in states that make articles of incorporation publicly available online at no cost. Form 1023-EZ should also require applicants to submit a description of their actual or planned activities and financial information such as past and projected revenues and expenses. The IRS should make a determination only after reviewing the application and these supporting materials, and when there is a deficiency in an applicant’s organizing documents, the IRS should require the applicant to submit a certified copy of reformed articles before it confers exempt status.

  Report on 2016

Did the situation improve in 2016? The Taxpayer Advocate Service just issued its most recent report. Here’s how the relevant section of the 2016 Annual Report to Congress begins:

Form 1023-EZ: The IRS’s Reliance on Form 1023-EZ Causes It to Erroneously Grant … § 501(c)(3) Status to Unqualified Organizations.

The problem continues to be that the streamlined application requires applicants only to “attest that they meet the requirements for qualification as” 501(c)(3) organizations.
Since – now – “most applications” for 501(c)(3) status are “submitted on Form 1023-EZ” and, also, “the IRS approves 94 percent of Form 1023-EZ applications,” too many organizations that are either unqualified or are not eligible to use the Form 1023-EZ process, manage to slip through and get approved.

The IRS erroneously approves Form 1023-EZ applications at an unacceptably high rate. The IRS agreed to revise Form 1023-EZ to require a narrative statement of applicants’ activities, but additional information is needed. Analysis Treasury regulations generally require IRC § 501(c)(3) organizations to pass an “organizational test” by including acceptable purpose and dissolution clauses in their organizing documents. According to the IRS’s pre-determination reviews of a portion of Form 1023-EZ applicants, 25 percent do not qualify for exempt status because they do not meet this organizational test.

Next, the Report commented on the comparative results of representative sampling:

A 2015 TAS study of a representative sample of approved Form 1023-EZ applicants in 20 states that make articles of incorporation viewable online at no cost showed that 37 percent do not meet the organizational test. A similar 2016 TAS study showed that 26 percent of approved organizations do not meet the organizational test. In the 2016 TAS study, four percent of the approved organizations consisted of two limited liability companies; two churches; seven schools, colleges, or universities or supporting organizations; and one private operating foundation. Such organizations are never eligible to file Form 1023-EZ.
What are the current recommendations?

What are the current recommendations? The National Taxpayer Advocate recommends that the IRS require Form 1023-EZ applicants to submit their organizing documents, unless they are already available online at no cost, and summary financial information; and make a determination only after considering narrative statements and this additional information.

  New Form 990-EZ

There’s more news about the “EZ” 501(c)(3) process: The IRS has recently released an “updated Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, that will help tax-exempt organizations avoid common mistakes when filing their annual return.”

This new form “includes 29 ‘help’ icons describing key information needed to complete many of the fields within the form. The icons also provide links to additional helpful information available on These “pop-up” boxes share information to help small and mid-size exempt organizations avoid common mistakes when filling out the form and filing their return.

This change was made in part to encourage online filing which produces fewer errors than paper-filed returns.  


We’ll monitor and report on any new developments related to this alternate format available to many – though not all – 501(c)(3)s.

Renewed Efforts to Rein In College Endowments

Over the past year or so, there’s been significant attention and discussion about the multi-billion-dollar endowments enjoyed by some of the nation’s most prominent colleges and universities.
There have been “growing concerns in recent years about the massive nest eggs of the nation’s most prestigious institutions of higher learning.”  

These criticisms arise against a background of record-breaking fundraising. In 2015, for instance, Harvard University, received some $1.05 billion in charitable donations. This continues a trend in which the wealthiest schools receive a disproportionate share of the philanthropic dollars flowing nationwide into higher education.

  Endowments Concerns Raised Previously

Earlier in 2016, the Senate Finance and the House Ways and Means Committee “had issued joint letters to over 50 colleges and universities, each of which has an endowment valued at $1 billion or more. In that letter, there were 13 endowment-related questions; answers were requested by April 1, 2016.”

This isn’t the first time that officials and legislators have raised concerns over these massive endowment funds. In 2008, the IRS sent out compliance questionnaires to approximately 400 colleges and universities in connection with a larger IRS review program focusing on “the  growth of endowment funds, the compensation paid to fund managers, and whether more money from such funds should be used to offset the rising tuition rates being charged by educational institutions that are ‘charitable’ organizations.”

Congress was not at all mollified by the responses from these 50 educational institutions. This included the argument that some institutions, including Harvard University, have recently suffered slower-than-usual investment returns on their massive endowment portfolios.
In September 2016, Congressional leaders announced the scheduling of additional hearings for follow-up questions. Though the House Ways and Means Committee proceedings was “nominally about the tax-exempt status of college endowments, … much of the discussion focused on college affordability — a broader issue clearly on the minds of both Republicans and Democrats on the panel.” A spokeswoman for the House committee explained: “This is another step that the committee is taking to understand what colleges are doing to address soaring college costs through their endowments and nonprofit tax status.”
Lawmakers also sent an additional round of questions to some of those institutions.
The matter was also raised during the presidential election campaigns; the Democratic platform, for instance, called for free college tuition in some circumstances for certain students.

  Current Congressional Action on Endowments

A Congressional proposal raised last year is now being pushed forward again.
New York’s Republican Representative Tom Reed had, in early 2016, called for the universities with the largest endowments to “direct 25 percent of their annual endowment income to financial aid for middle- and working-class students – or lose their tax exemption.”
As originally set out, this measure would apply to institutions with endowments of $1 billion or more – estimated to be approximately 100 universities and colleges.
Now that proposal is being given new life, thanks to Rep. Reed who was recently vice chair of the then President elect’s transition team, and has moved into a position of greater influence. These institutions with $100-billion+ endowments would be called on to –

offer steep discounts to families with annual incomes of between $24,000 and $145,000. The proposal also would require all universities receiving federal aid to provide more disclosure about administrative salaries and perks and file “cost-containment plans” designed to keep tuition increases below the inflation rate.

This news has spooked not just the targeted universities but also wealthy donors. “The super-rich often slim their tax bills by swelling the coffers of their alma maters through donations for pet projects. Now, under a tax overhaul in Washington, the tax benefits of such gifts could be curtailed.” These one-percenters and their alma maters argue that this change in the rules regarding college endowments may force them to curtail charitable giving to universities that focus on other areas than general student education.
“This kind of restriction will not address the cost of higher education,” according to University of Southern California president. “At USC, which has a $4.6 billion endowment, Oracle Corp. co-founder Larry Ellison’s recent $200 million gift in support of a cancer research center would not be fully deductible under the Reed plan.”


This will be an interesting push-and-pull to watch at the beginning of this new Administration and new Congress. It’s anyone’s guess what the outcome will be.