By Casey Hale on 2/16/2021 12:42 PM

There is a widely held but misguided belief that a donor advised fund (“DAF”) is prohibited from making distributions to a private foundation. While the Pension Protection Act of 2006 imposed a myriad of restrictions on DAFs, it did not completely proscribe distributions from a DAF to a private foundation so long as the DAF sponsoring organization undertakes certain expenditure responsibility measures. Moreover, a DAF may make distributions to a private foundation even when a donor or donor advisor to the DAF is also a disqualified person with regard to the recipient private foundation.

Click here to read the complete White Paper.

By David Keligian on 6/29/2020 10:05 AM

Imagine playing in a competitive game where you know your opponent’s basic strategies and operating procedures. That’s a nice advantage, and one that taxpayers have with the Internal Revenue Service (“IRS”). Knowledge about IRS audit targets is actually pretty easy to come by, since the IRS announces them in a series of public communications. As far as IRS procedures, the IRS publishes them in exhaustive detail in the Internal Revenue Manual. This knowledge means you can lessen your chance of audit by following some fairly simple steps.

“I Have Nothing To Hide” Even if you believe you have no audit exposure, an audit can cost a great deal of professional time to successfully resolve. Professional time = fees and costs. I’ve also experienced many instances of agents proposing adjustments that made no sense. They were ultimately overturned, but that means time and money.

By Casey Hale on 4/15/2020 9:30 AM
Yesterday, the Internal Revenue Service (the “Service”) issued an EO Update bulletin, which addressed nine topics relevant to tax-exempt organizations.
The first of those topics helped further clarify information contained in Notice 2020-23, which the Service issued on Friday, April 10, 2020. (In Notice 2020-23, the Service expanded the Covid-19 relief provided to affected taxpayers by, among other things, extending the filing deadline for Form 990-series returns as well as certain other forms and payments made by tax-exempt organizations.) In the bulletin, the Service explains that the recently authorized filing-deadline extension applies to several forms and tax payments required of tax-exempt organizations, including:
By David Keligian on 3/4/2019 11:59 AM
My last article dealt with the doctrine of “rescission”—the ability to go back in time to “re-do” a transaction for tax purposes. If you comply with the rescission requirements, you can fix anything as long as the fix occurs in the same tax year. But as pointed out in the article, once the tax year closes, you are stuck with the tax consequences for that year, even if you rescind the transaction in a later tax year.

This article addresses a little known provision of partnership tax law that blesses changing a partnership agreement after the close of a tax year, retroactively to the beginning of the prior tax year. You have until the original due date of the tax return for the partnership to amend the partnership agreement. This means that for the 2018 tax year, I can amend the partnership agreement for 2018 until March 15, 2019. Unfortunately, extending the partnership’s tax return doesn’t extend the deadline for amending the partnership agreement, but even so the rule is quite liberal.

Why is...
By David Keligian on 2/28/2019 1:53 PM
On occasion, I come across interesting ideas involving taxation. It will be fun to share some of these ideas, and I will be doing a few more articles about some quirky areas of the tax law. Those "quirks" can help you achieve some results that you would normally not think were possible.

The concept of "rescission" is one such topic. Many areas of taxation impose extremely specific requirements. For example, to benefit from a Section 1031 exchange, you need to identify a certain number of replacement properties, specifically and in writing, by the 45th day after you sell your old property. Identify too many replacement properties? You lose and have to pay the tax. Identify the properties on the 46th day? You lose and have to pay the tax. Don’t identify the properties correctly? You lose and have to pay the tax.

That’s why it’s surprising that the Internal Revenue Service ("IRS") has blessed the concept of "rescission". Think of rescission as a tax time machine that lets you go back in time and...
By David Keligian on 10/26/2017 2:49 PM
Regardless of your party affiliation, expecting Congress to enact rational tax reform is - - at least for individual income taxes - - like asking your dog to parallel park your car. You're foolish if you expect a good result. To paraphrase one observer's comment, you can't expect reform from those who deformed our income tax laws to begin with.

Let's talk about one of the first principles mentioned in the "Unified Framework for Fixing Our Broken Tax Code" (the "Framework"). The Framework is supposed to make the tax code simple, fair, and easy to understand. But fixes such as adding a "zero tax bracket", combining 7 tax brackets into 3, and eliminating most itemized deductions don't simply do anything for most taxpayers.

Most individual tax returns are filed with software that makes the number of brackets, or what itemized deductions are allowed, simple to address. The same point applies to repealing the alternative minimum tax ("AMT"). Again, most tax return software automatically generates AMT...
By David Keligian on 5/28/2014 8:52 AM
The Salary Whipsaw. What is being “whipsawed”? As far as the IRS is concerned, it means them taking different positions on an issue depending on what position results in the most tax. One emerging area where the IRS “whipsaws” taxpayers involves what constitutes a “reasonable” salary.

A “reasonable” (i.e. deductible) salary for income tax purposes is really a factual question. Multiple factors can be considered—education, experience, company size, industry, operating results, and “market” salaries. Issues involving “all facts and circumstances” are always the hardest to argue with the IRS and Franchise Tax Board (“FTB”). But on the salary issue, the IRS devotes much more attention than the FTB to the issue.

The reason has to do with the high level of federal employment taxes (Social Security, Medicare, FICA, and FUTA). A good example of the salary “whipsaw” involves a comparison of a sole shareholder owned C-corporation to a sole shareholder owned S-corporation.

C Corporation Example....
By Casey Hale on 12/21/2012 9:38 AM


Here's a short video on the history of the charitable deduction. Interestingly, just like today, it was on the Congressional chopping block back in 1917 when the country was faced with a huge budget crisis precipitated by World War I. It survived that crisis. But will it survive our current budget crisis almost 100 years later?

By Casey Hale on 12/20/2012 4:03 PM

A recent article published by The Chronicle of Philanthropy suggests that the nonprofit sector's efforts to convince the White House to preserve the charitable deduction may have paid off. The article indicates that the budget proposal the Obama administration gave to the Republicans earlier this week appears to preserve more generous write-offs for charitable deductions versus other deductions, such as mortgage interest, state taxes. etc. While White House officials have not yet confirmed the details, some Washington insiders are reporting that Obama's proposal preserves the charitable deduction's current rates. Of course, with all of the back and forth proposals, only time will tell where charitable deduction will end up. But still it is encouraging...
By Casey Hale on 12/19/2012 11:43 AM
The Service's publication earlier this year of Notice 2012-52 is a game changer for fiscal sponsorship. In that notice, the Service announces that going forward a donor may receive a charitable tax deduction for gifts to a domestic single-member limited liability company ("LLC") if the LLC is wholly owned by a 501(c)(3) organization. The Service will treat gifts to the single-member LLC just like a gift to the parent 501(c)(3) organization.

This is a great thing for 501(c)(3) organizations that engage in fiscal sponsorship and that house fiscally sponsored projects in wholly-owned single-member LLCs. Now donors that wish to support those fiscally-sponsored projects can make tax-deductible gifts directly to the project LLC. Whereas before, any tax-deductible gifts ultimately destined for a fiscally-sponsored LLC had to be channeled through the 501(c)(3) sponsor. This sometimes caused confusion for donors since the fiscally sponsored LLC could not raise funds for itself. Instead the staff of the fiscally-sponsored...
By Casey Hale on 12/14/2012 6:27 AM

For more in-depth information on the ongoing battle over the the charitable deduction and how it is affecting current gifts, the Nonprofit Law Prof Blog posted an entry yesterday that is definitely worth reading.

Also, here is a panel on Fox News discussing the fiscal cliff and the charitable deduction:


And on the other end of the media spectrum, here is MSNBC on the topic as well:


By Casey Hale on 12/13/2012 10:51 AM

The Washington Post published a story today covering the Obama Administration's struggle to convince the nonprofit sector to accept the administration's proposed curtailment of the charitable deduction. Needless to say, the White House is feeling significant push back from the nonprofit sector. Here's some of the key excerpts:

The White House and the nation’s most prominent charities are embroiled in a tense, behind-the-scenes debate over President Obama’s push to scale back the nearly century-old tax deduction on donations that the charities say is crucial for their financial health.

“It’s all castor oil,” said Diana Aviv, president of Independent Sector, an umbrella group representing many...
By Casey Hale on 11/6/2012 12:08 PM

Both The Huffington Post and ABC News included a story on their websites today about the IRS' suspension of enforcement actions against churches that engage in prohibited political activities.  According the story, the IRS suspended church audit activity back in 2009 and has no plans to resume church audits until the agency goes through a formal rule-making process on the issue.  This is especially interesting given Alliance Defending Freedom's ("ADF") recent promotion of Pulpit Freedom Sunday where...
By Casey Hale on 10/24/2012 8:37 AM


BNA reports (subscription required) that the IRS will not move forward with any church audits for the time being.  Even through the IRS has been bombarded with complaints about churches becoming actively involved in election activities, an IRS representative announced that it has been unable to respond for lack of clear guidance and, therefore, is suspending church audits until the rules regarding church audits are finalized.

By David Keligian on 10/6/2011 10:53 AM
Many politicians have repeatedly talked about the need for “the rich” to pay more income taxes. Even Warren Buffet has joined the debate. Regardless of whether Congress acts, the IRS has already taken matters into its own hands and has started scrutinizing wealthy taxpayers to an unprecedented degree.

The audit rate for taxpayers with an annual income of more than $1,000,000 is already eight times higher than the general population, which had a 1.1% audit rate. For those with $10,000,000 or more in annual income, the audit rate climbs to almost one in five returns—almost 20 times higher than the general population. However, the IRS is planning on increasing audit rates on wealthy taxpayers even more.

The IRS effort involves a new “wealth unit”. Audits will be conducted by a team of IRS agents who will focus not only on a taxpayer’s individual return, but the returns of all related entities. The scope of these audits will be much wider than a typical income tax audit.

For example, the...
By Matt Brown on 2/18/2011 8:15 AM

From the NYU Colloquium on Tax Policy and Public Finance

Link to Materials: Envy and Altruism in Hard Times

Kenneth Scheve (Yale University, Department of Political Science)


The politics of economic crises bring distributive economic conflict to the fore of national political debates. How economic activity is to be regulated and how policy should be used to transfer resources between citizens become central political questions and the answers chosen often influence the trajectory of policy for a generation or at least until the next crisis. This paper investigates how social preferences, specifically envy and altruism, influence individual policy opinions in these debates. I argue that social preferences have a powerful influence on support for policy alternatives which in turn shape the incentives faced by politicians in setting policy. I conduct original survey experiments in France and the United States and provide strong evidence that individuals care both about how economic policy alternatives affect their own interests and how they influence the welfare of others. Their concern about the welfare of others is consistent with inequality aversion -- both envy and altruism. The analysis focuses on key policy areas in the response to the current international economic crisis: trade policy, financial sector regulation, and tax policy. This preliminary draft presents the results from the United States only as the French survey is in the field.