August 08, 2006

Congress Passes Charitable Reform Provisions as Part of Pension Protection Act of 2006

Several charitable reform provisions are on their way to becoming law, after passage by the U.S. Senate of the Pension Protection Act of 2006 (HR 4) late on August 3, 2006. HR 4 contains provisions that will:

  • Require tax-exempt organizations with gross receipts of less than $25,000 (which otherwise would not be required to file an annual information return (Form 990)) to file an annual notice with the IRS containing basic contact and financial information;
  • Authorize revocation of an organization's exempt status for failure to file Form 990 or the annual notice (for small organizations) for three consecutive years;
  • Double most of the private foundation penalty excise taxes and also the maximum penalties for managers of public charities and social welfare organizations engaged in transactions that confer an excessive benefit on certain insiders;
  • Broaden the definition of "investment income" subject to the private foundation investment income tax under Code section 4940;
  • Require Code section 501(c)(3) organizations to make available to the public their unrelated business income tax returns (Forms 990-T);
  • Impose new rules for donor advised funds and supporting organizations, including:
    • Effectively prohibiting grants from a private foundation to most "Type III" supporting organizations and to other supporting organizations that are controlled, or whose supported organizations are controlled, by one or more of the private foundation's disqualified persons;
    • Effectively prohibiting grants from a donor advised fund to most "Type III" supporting organizations and to other supporting organizations whose supported organizations are controlled by the donor or donor adviser(s) to that fund;
    • Requiring disclosure of additional information on Forms 990 for supporting organizations and organizations that manage donor advised funds; and
    • Imposing significant taxes on all grants, loans, compensation, or other similar payments from donor advised funds and supporting organizations to certain insiders (such as the donor or donor adviser(s) and substantial contributors), their family members, and organizations controlled by those individuals; and
  • Require the Secretary of the Treasury to undertake a study considering additional potential reforms with respect to donor advised funds and supporting organizations.
HR 4 will now be presented to President Bush for his signature. The full text of HR 4 is available at thomas.loc.gov.

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