Tax and Legal Update for Churches

Recent Tax, Finance, and Legal Developments

Impacting Ministers, Missionaries, Churches, and Other Nonprofit Organizations

Evangelical Council for Financial Accountability 440 West Jubal Early Drive, Suite 130 • Winchester, VA 22601 540-535-0103 • 800-323-9473 • Fax 540-535-0533 ECFA.org

Updated as of October 31, 2011

______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

Recent Developments

1. Threats and options for the charitable income tax deduction. The charitable deduction, as we know it, is more at risk today than at any time in recent memory. Attention on the charitable deduction is primarily driven by federal deficit challenges and the desire of Congress to find additional revenue.

For the fourth time in his administration, the president has proposed to limit the value of the charitable tax deduction by reducing the tax benefits for charitable giving by high-income taxpayers in addition to proposing increasing the tax rates for the same taxpayers (including in the American Jobs Act that the administration introduced on September 8 and was subsequently defeated).

It is clear the administration believes one important way to improve the economy is for Americans to give less to charity. Recent studies indicate that a cap on the deduction could result in loss of charitable giving of $2.9 billion to $5.6 billion each year. To put this in perspective, $5.6 billion equates to eliminating all of the private donations each year to some of the top U.S. charities, such as the Red Cross, Goodwill, the YMCA, Habitat for Humanity, the Boys and Girls Clubs, Catholic Charities and the American Cancer Society combined.

The President’s special fiscal commission advocated the same idea, suggesting the charitable deduction should be replaced with a credit—the credit being as low as 12%.

The Congressional Budget Office report, “Options for Changing the Tax Treat- ment of Charitable Giving,” refers to charitable gift deductions as “subsidies” (the cost in foregone revenues to the federal government).1

On October 18, 2011, the Senate Finance Committee conducted a hearing on charitable gift incentives. Coming out of this hearing, the charitable deduction floor appears to be getting significant traction. A floor of perhaps $500 per year for single taxpayers and $1,000 for married taxpayers filing jointly is touted as improving the incentive aspect of the deduction by encouraging contributions at the margin. In other words, a floor would reduce the windfall that many taxpayers receive for charitable contributions they would have made with or without a tax benefit, and so could make the deduction more cost effective. A floor could have administrative benefits, by taking away opportunities to cheat on low-value contributions, especially of noncash property. Some might argue that the floor would not be fair to those taxpayers who currently give at or below the floor.

1 Options for Changing the Treatment of Charitable Giving, Congressional Budget Office, May 2011. ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

Such taxpayers might see their tax benefit eliminated, while others with more capacity to give would continue to get tax benefits for giving.

2. American Jobs Act of 2011 Would Limit Deductibility of Charitable Contributions for Certain Taxpayers. In an address to a joint session of Congress on September 8, 2011, the President outlined a package called the “American Jobs Act," including incentives for businesses and a payroll tax break for workers, help for the unemployed and much more.

The proposals would:

 Cut the payroll tax for employers in half to 3.1% on the first $5 million in wages.

 Eliminate the 6.2% payroll tax for organizations that increase their payroll by adding new workers or increasing the wages of their current workers (the benefit would be limited to the first $50 million in payroll increases).

 Create a tax credit of up to $4,000 for hiring workers who have been looking for a job for over six months.

 Create a new tax credit of up to $5,600 for hiring unemployed veterans who have been looking for a job for more than six months.

 Cutting social security tax for employees in half in 2012, from 6.2% to 3.1%. For 2011, workers pay 4.2% social security tax (down from 6.2% for 2010) on the first $106,800 of wages. Presumably, the OAASDI rate for self-employed individuals would be cut as well.

Among the proposals for funding the administration is also proposing a 28 percent limitation on certain deductions and exclusions, including the charitable contribution deduction. Jack Lew, the director of the White House Office of Management and Budget said, “the Congressional panel charged with finding at least $1.2 trillion in savings this fall as part of the agreement to raise the debt ceiling will have the option of accepting the payment proposals submitted by Mr. Obama, or proposing new ones of their own.”2

This section would limit the value of all itemized deductions and certain other tax expenditures for high-income taxpayers by limiting the tax value of otherwise allowable deductions and exclusions to 28 percent. No taxpayer with adjusted gross income under $250,000 for married couples filing jointly (or $200,000 for single taxpayers) would be subject to this limitation. The limitation would affect itemized deductions and certain other tax expenditures that would otherwise reduce taxable income in the 36 or 39.6 percent tax brackets. A similar limitation

2 Cooper, Helen, The New York Times – The Caucus Blog, http://thecaucus.blogs.nytimes.com/2011/09/12/obama- pleads-for-congress-to-approve-jobs-bill/ as accessed on 9/14/11. ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

also would apply under the alternative minimum tax. This section would be effective for taxable years beginning on or after January 1, 2013.3

The bill also addresses other issues effecting teachers, schools, first responders, the national infrastructure, matters reflecting the wireless spectrums, and a prohibition of discrimination in employment on the basis of an individual’s status as unemployed.

On October 11, 2011, the Senate rejected an amended version of the American Jobs Act. The amended version did not include a reduction in the charitable income tax deduction but featured a millionaire’s surtax.

3. IRS releases guidance on tax treatment of employer-provided cell phones. On September 14, the IRS released guidance stating that the value of employer provided cell phones is deductible by the employer without heightened substantiation and is excludable from the employee’s income as a fringe benefit. Notice 2011-72 provides that employer provided cell phones are excluded from the employee’s income as working condition fringe benefits, and that the substantiation requirements for deduction under section 162 are considered satisfied. This applies for tax years beginning after December 31, 2009.

This guidance applies only to cell phones provided for “substantial reasons relating to the employer’s business, other than providing compensation to the employee.” Cell phones provided for employee morale or good will, or to recruit prospective employees, are not provided for “noncompensatory business purposes.”

In conjunction with Notice 2011-72, the Service has released a Field Memorandum for field examiners, providing audit guidance on this issue. Among other things, it addresses the treatment of reimbursements for the business use of an employee’s personal cell phone. Before making reimbursements, organizations should generally require employees to submit a copy of the monthly bill and evidence that the bill has been paid.

If an organization does not have a substantial noncompensatory business reason for providing a cell phone to an employee, or reimbursing the employee for business use of his or her personal cell phone, the value of the use of the phone, or the amount of the reimbursement is includible in gross income, reportable on Forms 941 and W-2, and for lay employees is subject to federal and state employment tax withholding.

4. Minister’s housing allowance constitutional challenge dropped/new lawsuit filed. On June 17, 2011, the Freedom from Religion Foundation (FFRF) and related parties agreed to a dismissal of their lawsuit challenging the constitutionality of tax exemptions for parsonages and other ministerial housing. A 2011 U.S. Supreme court decision involving a scholarship plan in Arizona raised serious questions as to whether the plaintiffs in the housing allowance case had legal standing to pursue their case. A housing allowance involves no direct

3 President’s Official Summary of the bill ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

transfer of tax revenues for religious purposes. Therefore, FFRP lacked standing to bring their case.

On September 13, 2011, FFRF filed a new case seeking a declaration that the clergy housing allowance violates the First Amendment. In this lawsuit, the foundation argues that the allowance “…violates the Establishment Clause of the First Amendment to the Constitution… by providing preferential tax benefits to ministers of the gospel.” Their argument includes that the individual plaintiffs, FFRF officers in the case, are receiving housing allowances from FFRF that do not qualify for the same tax status as it would if they were clergy.

The foundation also argues that in order for the IRS to review the application of the allowance that it must make inquiries to such an extent that it creates intrusions of the faith and thus entangles government and religion.

Finally, the foundation argues that the allowance is tantamount to a subsidy of religion and therefore violates the Establishment Clause of the Constitution.

The case has been filed in the United States District Court of the Western District of Wisconsin.

5. Tax Court allows multiple houses to be excluded under the housing allowance rules. In a 7-6 ruling, the Tax Court held that a Phil Driscoll, an ordained minister and Grammy Award-winning trumpeter who went to prison for tax evasion, didn’t owe federal income taxes on over $400,000 provided to him by his ministry as a housing allowance for a second home on a lake near Cleveland, TN.

The requirements for exclusion from income were satisfied because the minster used the allowance to provide a home or dwelling for himself and did not use the second home for any business purpose. The court concluded that nothing in the housing allowance law, its legislative history or the relevant regulations limited the phrase “a home” to only one home for purposes of the excludible parsonage allowance.

The U.S. Department of Justice has appealed the Tax Court decision. If the Tax Court decision stands, legislation will likely be introduced to disallow the exclusion of more than one home at a time under the housing allowance rules.

6. Model Protection of Charitable Assets Act to be submitted to state legislatures. The Uniform Law Commission has approved the Model Protection of Charitable Assets Act, which will now be introduced in a number of states around the country. The purpose of this act is to articulate the role the Attorney General or other state official has towards protecting charitable assets.

The model legislation requires that each state maintain a registry of nonprofit organizations within each state. In order to accomplish/populate this registry, each state will need to require nonprofits to file an annual report with the state if a nonprofit:

 is formed under the laws of that state,

 has its principal place of business in the state,

 holds more than $50,000 in assets in that state (other than those held primarily for investment purposes), or

 conducts certain activities in the state for a charitable purpose. (This may or may not include charitable solicitation in the state depending on modifications each state may make.)

The model legislation’s annual report would require certain identifying information in addition to requiring:

 a description of the most significant charitable activities;

 a response whether the organization has entered into a contract, loan, lease or other financial transaction with an officer, director, trustee, other fiduciary, or a family member (or related entity in which one has a material financial interest) of an officer, director, trustee or other fiduciary;

 a response whether the organization was aware of an embezzlement, theft, or diversion of charitable assets of the organization;

 a response whether any charitable assets have been used to pay a penalty, fine, or judgment, or whether any such have been paid by an officer, director, trustee or fiduciary on behalf of the organization;

 a response whether the organization is aware of the use of restricted funds of the organization for a purpose other than the charitable purpose specified in the restriction;

 a response whether the organization’s federal or state tax status has been modified.

Finally there are certain events which will be reportable events when they occur. They include:

 Dissolution, termination, or disposition of all or substantially all of the charitable assets

 Removing the organization from the jurisdiction of the state

 Removal of significant charitable assets of the organization from the state

 Any amendment of the record that describes the charitable purpose of the organization

 Certain proceedings in federal and state court involving the organization

The model legislation has been prepared with alternative language that may provide for exemptions for religious organizations and churches, but this would be up to each state’s legislature to determine which of these exclusions they may adopt.

7. ECFA comments to IRS on public disclosure of sensitive information. An important issue is currently under consideration by the Internal Revenue Service (IRS) relating to reporting of international activity data on the Form 990 that could have a significant impact on nonprofits. ECFA submitted a letter to the IRS to express strong concerns on this issue and to give ECFA members an opportunity to sign-on to this letter. ECFA believes this is not a tax compliance issue; it is a life safety issue that simply cannot be ignored or minimized.

After the draft of a revised Form 990 was circulated in 2007, ECFA opposed the inclusion of sensitive information on Schedule F of the form. This would have resulted in the mandatory public disclosure of specific international support recipients, placing in jeopardy the health and safety of countless workers and affiliate organizations around the globe.

The time-table for a response by the IRS on this issue has not been announced.

8. New Jersey additional mandatory solicitation disclosure proposal withdrawn. Faced with an overwhelmingly negative response from the state's nonprofits, the New Jersey Division of Consumer Affairs, in mid-August, withdrew a plan that would have restricted the language charities can use in soliciting donors.

Earlier the division had floated what it called a "pre-proposal" for a rule requiring that nonprofits tell potential donors they may designate which of the charity's programs their money should fund. It would also have required nonprofits to note in their fundraising appeals that any non-directed donations could be used for whatever purposes the charities chose, including general operating expenses— beyond what is required in nearly every other state.

Like most states, New Jersey requires organizations soliciting charitable contributions to disclose basic information about the charity to potential donors before requesting funds. Unlike New Jersey’s existing law that exempts “religious corporations” from the state’s basic disclosure requirements, the pre-proposed language issued by the state did not include any mention of an exemption for religious organizations.

9. ECFA joins coalition of ministries asking President Obama to respect religious freedoms in hiring. In its continued effort to uphold religious organization’s religious freedoms in hiring, ECFA and a coalition of ministries sent a letter to President Obama to counter a letter he had received from a group trying to curtail these freedoms.

This letter provides an overview of the current law regarding these religious freedoms and urges President Obama to continue preserving these religious ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

freedoms. “We commend you and your Administration for maintaining current federal law and policy so as not to put new barriers in the way of religious organizations that wish to assist the federal government in the greatly needed “all hands” battle against poverty, illness, addiction and other challenges.”

ECFA was involved in a similar letter that went to Congress in 2010.

10. IRS Trims its list of nonprofits by 332,000. In June 2011, the IRS published a list of approximately 275,000 organizations that automatically lost their tax-exempt status because of the failure to file required annual returns for three consecutive years. The list will be updated monthly, and publication on the list serves as notice to donors that contributions are not tax-deductible.

The IRS provided guidance on the revocation process and how organizations can apply for reinstatement of their tax-exempt status. See Notice 2011-43, Notice 2011-44, Revenue Procedure 2011-36, and Announcement 2011-35. The IRS has also released Revenue Procedure 2011-33 which supersedes prior procedures regarding donor reliance for deductible contributions.

The IRS issued updates of the Automatic Revocation List on July 25 and August 11, 2011. On July 25, a handful of new names were added to the list, while over 1,700 names were taken off. On August 11, over 15,000 new names were added to the list, while only a few were taken off. In all, more than 332,000 organizations had their status revoked and a little more than 4,000 have escaped from the list.

11. IRS issues new form for miscellaneous determinations. The IRS has issued Form 8940 to use in making the following (and other) requests:

 Change in (or initial determination of ) the type of a section 509(a)(3) supporting organization

 Advance determination that a potential grant or contribution is an unusual grant, excluded from certain public support calculations

 Exemption from Form 990 filing requirements

A user fee of $400 is required for the above determinations.

12. Grassley seeks accountability from nonprofits receiving Federal funds. Senator Charles Grassley is seeking tightened standards for and accountability measures from nonprofit groups that would receive federal grants under a proposed expansion of a prison rehabilitation program. Grassley's amendment in the Judiciary Committee is meant to prevent situations like that of the Boys and Girls Clubs of America, which closed clubs nationwide as it accepted millions of dollars in federal grants while making extensive offshore investments to avoid U.S. taxes and paying millions of dollars in executive compensation. (The amendment was defeated along party lines.)

"The country faces a multi-trillion-dollar debt," Grassley said. "The government has to be more selective than ever about the criteria for the organizations that receive tax dollars through federal grants. If organizations are holding money off-shore to avoid paying taxes, they shouldn't be getting federal grants. If they accept federal grants, they should have to be transparent about executive compensation and fringe benefits. These are common-sense principles."

Grassley, ranking member of the Judiciary Committee, offered an amendment to legislation before the committee that would reauthorize grant programs to help prisoners re-enter society. The leading version of the legislation reauthorizing the Second Chance Act would authorize increased funding from $160 million for two years to $650 million over five years. The proposal expands the pool of applicants eligible for grants by opening eligibility to non-profit groups.

Grassley's amendment would add a number of good government provisions to the bill that would apply to all nonprofit organizations receiving federal grants through this program, including:

i. A requirement that nonprofits be defined as those recognized as tax-exempt charities by the Internal Revenue Service.

ii. A requirement that 10 percent of grant recipients be audited for compliance with grant requirements. Any grant recipient found to have violated a grant program would be excluded for two years.

iii. A prohibition to the Attorney General from providing any taxpayer dollars, in the form of grants, to any nonprofit that holds money in off-shore accounts for the purpose of avoiding paying unrelated business income tax.

iv. Increased transparency for grant recipients and the American taxpayers, by requiring that nonprofits receiving grants under this program disclose studies used to determine executive compensation for their organization. In audit after audit, the Inspector General has found unallowable costs and unauthorized expenditures of taxpayer grant dollars handed out to grantees across all Department of Justice programs, Grassley said. In some instances, these audits have questioned salaries and other fringe benefits paid to staff of grant recipients.

As part of an inquiry conducted last year, Grassley and his colleagues discovered that the Boys and Girls Clubs of America held more $50 million in off-shore equity and partnerships, including hedge funds and limited partnerships. This included funds held in the Cayman Islands, British Virgin Islands, and Bermuda. When asked why the money was held off-shore, the organization said the answer was to avoid paying unrelated business income tax under the Internal Revenue Code.

"While this practice isn't illegal, it's a loophole that I saw exploited in the many investigations and hearings I conducted as the chairman and ranking member of the Finance Committee," Grassley said. "As a senior member of that

committee, I'll continue to work to close that loophole for all charities. For now, it makes sense to question why the federal government should award taxpayer dollars, in the form of grants, to nonprofits that are holding millions of dollars in off-shore bank accounts for the purpose of evading the tax code."

Grassley added, "This amendment also will help to bring transparency to the determination of executive compensation at non-profits that receive federal grants. I've said repeatedly that the compensation studies used by charities to justify executive compensation have resulted in a race to the top. Making these studies available to the public for review would bring more accountability to the compensation-setting practices of nonprofits receiving grants under this program."

13. Media organization asks viewers to report an exempt organization to the IRS. In a previously unseen tactic, Fox News has made it very easy for its viewers to file a formal complaint against a rival organization—Media Matters, an organization recognized as exempt under Section 501(c)(3). The Fox News posting provides information about the 501(c)(3) prohibition against political campaign activities and provides a clickable link that takes the viewer to a pre- filled Form 13909, almost ready to go to the IRS. http://nation.foxnews.com/media-matters/2011/06/27/want-file-irs-complaint- against-media-matters-click-here

14. Heart of the Donor study indicates importance of parental modeling. A recent study released by Grey Matter Research & Consulting clearly shows that parental behavior has a very substantial correlation with the eventual behavior of children once they are grown. The study indicates that when today’s givers talk to their children about giving and volunteering, model the behavior, and share the experience with them, it has a long-lasting effect on kids.

Among people who say their parents frequently gave money to a place of worship when they were growing up, 55% themselves gave money to a place of worship in the last year. Among those who say their parents occasionally gave money to a place of worship, 39% are donors to a place of worship today. And among those who say their parents rarely or never gave money to a place of worship, 24% are themselves supporting a place of worship today.

Among people who say their parents frequently gave money to a nonprofit organization (other than a church) when they were growing up, 52% themselves gave money to a nonprofit in the last year. Among those who say their parents occasionally gave money to a nonprofit, 46% are donors today. And among those who say their parents rarely or never gave money to a nonprofit, 26% are donors today.

Not only does parental involvement account for much of the question of whether people give, it also helps predict how generously they give. The more frequently parents engaged in six behaviors identified in the study, the more generously their children end up giving.4

4 Grey Matter Research & Consulting, March 29, 2011 ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

15. IRS increases the standard business mileage rate for the second half of 2011.The IRS announced an increase in the optional standard mileage rates for the final six months of 2011 (IRS Announcement 2011-40). Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51-cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

"This year's increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers."

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

16. Grassley closes televangelist investigation. Senator Charles Grassley, U.S. Senate Finance Committee member (R-IA), wrote to six media-based ministries in November 2007, based on requests for review from members of the public who wrote to him because of his previous tax-exempt oversight work. In addition, these ministries had received media coverage and attention from watchdog groups. One of the six ministries, Joyce Meyer Ministries, responded fully to Grassley’s inquiry and joined the ECFA in March 2009. Benny Hinn of World Healing Center Church also provided complete answers to all questions. Both ministries wrote to Grassley to explain they have undertaken significant internal governance reforms. “I appreciate these efforts,” Grassley said. “Self-correction can be more effective than government action. It’s something that’s worked with other entities I’ve looked at, such as the Nature Conservancy and the Smithsonian Institution and some top colleges that were amassing large endowments without increasing student aid.”

Four ministries either did not provide any information or provided incomplete information. Randy and Paula White of Without Walls International Church, Eddie Long of New Birth Missionary Baptist Church/Eddie L. Long Ministries, and Kenneth and Gloria Copeland of Kenneth Copeland Ministries submitted incomplete responses. Creflo and Taffi Dollar of World Changers Church International/Creflo

Dollar Ministries declined to provide any of the requested information. Findings regarding those organizations are summarized in the staff review.

Senator Grassley asked ECFA to lead an independent, national effort to review and provide input on major accountability and policy issues affecting such organizations.

Grassley’s request was made in conjunction with his release of a staff report on the results of his three-year inquiry into the financial practices of six media-based Christian ministries. Grassley is known for his focus on the financial practices of high-profile nonprofit organizations.

In response to Grassley’s request, ECFA has created the Commission on Accountability and Policy for Religious Organizations (ReligiousPolicyCommission.org).

In a January 5, 2011, letter to ECFA, Grassley asked the accreditation organization for “input on how to address these issues and to help facilitate discussion on whether these issues can be addressed without legislation.” He said, “ECFA has a proven track record of accountability with its member organizations and is uniquely situated to work with representatives from the religious and broader nonprofit community.”

The issues raised by Grassley's staff could potentially affect every house of worship and every member of the clergy in America, as well as most nonprofit organizations.

Following is a summary of the most significant issues, ideas, and questions raised by Grassley's staff in the report:

A. A proposal that the IRS establish an advisory committee for churches and religious organizations.

B. Whether churches should file the same highly-detailed annual information return that other nonprofits must file (Form 990).

C. Whether the income tax exclusion for housing allowances paid to clergy should be limited in some manner.

D. Whether the current prohibition against political campaign intervention by churches and other 501(c)(3) charities should be repealed or modified.

E. Whether the law should impose an excise tax (penalty) on nonprofit organizations that engage in excess benefit transactions.

F. Whether the current IRS audit protection for church leaders should be repealed.

G. Whether the “rebuttable presumption” of reasonableness for transactions between nonprofit organizations and their leaders should be eliminated. ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

H. Whether legislation is needed to remove uncertainty about the taxability of “love offerings” paid by church attendees to ministers through a church.

17. Fiesta Bowl investigation leads to numerous reforms to improve oversight and transparency. The Fiesta Bowl released the results of a far-reaching and comprehensive investigation by an independent Special Committee of the Board of Directors that examined issues related to (1) the reimbursement of campaign contributions; (2) a previous investigation conducted by former Arizona Attorney General Grant Woods; (3) excessive executive compensation; and (4) inappropriate expenditures and gifts. The Fiesta Bowl also announced that it terminated with cause John Junker as President and Chief Executive Officer.

An independent Special Committee uncovered many facts, including:

 An apparent scheme to reimburse at least $46,539 in improper campaign contributions.

 A flawed initial investigation and an apparent conspiracy to conceal the reimbursement scheme from the Board of Directors and state officials.

 Unauthorized and excessive compensation, non-business and inappropriate expenditures and inappropriate gifts.

Special Committee members Jim Bruner and Steve Whiteman added, “The Fiesta Bowl is a highly valued Arizona institution that provides numerous opportunities and millions of dollars of positive economic impact to the state and its citizens. We truly hope that the entire Fiesta Bowl organization can move forward and prove to be a shining example for other nonprofit organizations to follow.”

Some of the critically important corporate governance reforms that have been adopted are as follows:

 The Board of Directors will retain and work with an executive search firm to identify and hire a new Executive Director, Chief Financial Officer and General Counsel/Compliance Officer to oversee the business affairs of the organization and ensure that strict new policies and procedures are followed.

 The General Counsel/Chief Compliance Officer will report directly to the Audit & Compliance Committee, Executive Committee and the Board. The General Counsel/Chief Compliance Officer will be responsible for overseeing all legal and regulatory matters and for monitoring the compliance and enforcement of the Fiesta Bowl governance policies, including its conflict of interest policy, expense reimbursement policy, political activity policy, record retention and document destruction policy, travel policy and whistleblower protection policy.

 The Board of Directors will review and approve all compensation payable to Fiesta Bowl senior level and other key staff members. In addition, all expense reimbursements paid to the Executive Director or any director must now be approved by the Executive Committee. All expense reimbursements payable to any other officers also must be approved by at least one member of the Executive Committee. All members of the Executive Committee must be Directors.

 The Board of Directors has adopted a comprehensive whistleblower policy, including a “hotline” which will be monitored by an independent company. Any complaints can be reported anonymously and the Executive Committee will be immediately notified.

 The Audit Committee has been restructured and is now known as the Audit & Compliance Committee. It will consist of board members who are financial experts or who have other substantial nonprofit organization financial expertise or experience. The Audit & Compliance Committee will oversee financial reporting matters and will also review and oversee the Chief Compliance Officer’s enforcement of the Fiesta Bowl Code of Ethics, policies and other legal and regulatory matters, including the Fiesta Bowl compliance requirements. The Audit & Compliance Committee will report directly to the full Board of Directors and the Executive Committee.

Duane Woods applauded the Board for taking these decisive actions to address and prevent future improprieties. “Clearly, the Board placed too much trust in a single executive without proper oversight, and has already acted to put into place new bylaws, policies and controls that will ensure such activities do not happen

again. We also plan to share the lessons learned from this experience with other bowls around the country and the BCS and seek further input on our reforms. We are committed to being a model nonprofit organization.” Woods added, “The Fiesta Bowl is legally bound and highly motivated to recover money that was misappro- priated and will be examining all of our options to do so. I want to thank Justice McGregor and our Special Committee for their thorough investigation. The Fiesta Bowl will continue its full cooperation with the Arizona Attorney General’s investigation.”

The Fiesta Bowl is a nonprofit organization founded by Arizona community leaders in 1971. Through the creation of the Festival of College Football, which is inclusive of more than 40 statewide events, the annual Fiesta Bowl Game and the Insight Bowl, the organization continues to promote volunteerism, athletic achievement and higher education. The Fiesta Bowl has hosted seven games that have decided the college football national championship, including four Bowl Championship Series title games. This season, the Fiesta Bowl and its 2900 volunteers will host the Insight Bowl at Sun Devil Stadium in Tempe, Ariz. and the Fiesta Bowl Game at the University of Phoenix Stadium in Glendale, Ariz.5

18. “Three Cups” controversy. Until recently, Greg Mortenson was known—and widely admired—as the best-selling author of Three Cups of Tea and the founder of a charity, the Central Asia Institute, that seeks to construct schools in conflict- torn areas of Afghanistan and Pakistan. But following accusations aired on the television show “60 Minutes” and by the writer (and fellow Himalayan mountain- climber) Jon Krakauer, he is now defending himself against charges that he has been using the organization for his own gain and lying about its accomplishments.

If the charges are true, Mr. Mortenson faces not only sizable personal penalties but also the prospect of the Central Asia Institute’s losing support and closing. Moreover, if this scandal affects public confidence in humanitarian groups generally, other charities may suffer, too. They may also face tighter regulation as concern about possible fraud at nonprofits spreads.

19. Charitable IRA rollover set to expire at the end of 2011. A provision known as the “Charitable IRA Rollover,” which allows taxpayers age 70½ or older to make tax-free transfers (of up to $100,000 per year) directly from their IRA to charities, is scheduled to expire on December 31, 2011.

The provision allows taxpayers, 70½ years old when the transfer is made, to make distributions directly to one or more charities from a traditional or Roth IRA. Such gifts can be made without increasing taxable income. Additionally, funds transferred from an IRA to a charity are not subject to Social Security tax income to higher tax levels, and do not count toward the minimum required distribution (MRD).

While we anticipate this tax break to be extended, action on this provision will likely wait until 2012.

5 http://www.fiestabowl.org/index.php/media_room/press_release/specialcommittee/ ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

20. Expanded 1099 requirements are repealed. The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 repealed:

 the requirement for nonprofits to report payments to companies for merchandise purchased in the aggregate of $600 or more (originally effective for 2012), and

 the requirement for nonprofits to report payments for services and merchandise to corporations (other than attorneys and certain health care providers) in the aggregate of $600 or more (originally effective for 2012).

The repeals under the new law were retroactive, thus reinstating the status quo for Form 1099 reporting as established prior to enactment of the 2010 Patient Protection and Affordable Care Act and the 2010 Small Business Jobs Act.

In general, charities must report payments to service providers in the aggregate of $600 or more, and the current exception for not reporting payments made to corporations (except attorneys and certain healthcare providers) remains intact.

21. Important Supreme Court “ministerial” case. The US Supreme Court on March 28th agreed to take an employment discrimination case involving the “ministerial exception.” The Court's eventual decision will be important for churches and also for parachurch organizations that define staff as ministers. And the decision will tell us how well the current Court will protect religious freedom. But the case isn't directly relevant for the religious hiring decisions of most parachurch organizations. That's because their hiring is protected by a different legal provision: the Title VII “religious exemption.”

The case of Hosanna-Tabor Evangelical Lutheran Church and School v. EEOC concerns whether Cheryl Perich, who was fired by a Lutheran elementary school in a dispute about her suitability to resume her teaching position after disability leave, is a "ministerial" employee. If so, then under the "ministerial exception" doctrine the courts and the government cannot second-guess the school's decision. The courts (not any legislature) created the "ministerial exception" because the Constitution requires the government not to interfere with churches, their ministers, and their ministries.

But who gets to decide which employees are “ministerial” employees? Although the courts agree on the doctrine, they disagree on how to apply it. Some trial and appeals courts have devised a variety of measures to assess whether particular job positions are sufficiently concerned with religious matters to be deemed “ministerial.” An actual pastor obviously is a minister, but what about a Salvation Army officer who spends her time operating the thrift shop—she’s ordained and her interaction with shoppers is a prime opportunity for ministry! Other courts have deferred to the decisions of the religious organizations: the whole point of the ministerial exception is to keep the courts and the government from imposing their views on religious entities. It will make a big difference to religious organizations with “ministerial” employees whether the Supreme Court defers to the

organizations’ judgments or instead tries to define what makes an employee a ministerial employee.

Yet this isn’t a case that is directly relevant to most faith-based organizations. That's because the religious hiring decisions of most parachurch ministries are protected by a different legal protection: the “religious exemption” that is built into Title VII of the 1964 Civil Rights Act (and into other federal, state, and local laws concerning employees). This exemption was created by Congress, not the courts, and it applies to every single job position in a religious organization, whether the position is “ministerial” or not. (On the other hand, it only protects hiring decisions based on religion, so there can be arguments about whether a decision was due to religious convictions or mere bias.)

Here the disputes revolve around whether the organization itself is actually a religious institution. In the recent religious hiring case involving World Vision (Spencer v. World Vision), the courts accepted that World Vision is a religious organization although it is engaged in humanitarian work. This case showed again how important it is that faith-based organizations make it very clear to the outside world that they take their religious convictions seriously and that their operations— including their employment decisions—are guided by those convictions.

Still, the Hosanna-Tabor case about the ministerial exception is a very important case for all faith-based organizations—and for our society as a whole. That's because the very heart of religious freedom is respect for the decisions and views of religious institutions and persons, even when their actions and choices conflict with what the courts, government, and the public deem to be proper.6

22. Supreme Court sharply limits establishment of religion suits challenging tax laws. In a 5-4 decision, the Supreme Court reversed a lower court decision holding that Arizona state tax credits for contributions to school tuition organizations violated the federal Constitution’s Establishment Clause. The Court did not, however, base its reversal on whether the tax credits —because they often benefited students at religious schools—actually violated the Establishment Clause. Instead, the Court in Arizona Christian School Tuition Organization v. Winn concluded that the plaintiffs challenging the credits lacked standing to even bring their suit because the tax credit was not the equivalent of a governmental expenditure that benefits religion. While taxpayers generally lack standing to challenge tax benefits received by other taxpayers, the Court has previously held in Flast v. Cohen that an exception to this general rule exists when a taxpayer is challenging such benefits on Establishment Clause grounds. Today, in the majority opinion written by Justice Kennedy and joined by Chief Justice Roberts and Justices Scalia, Thomas, and Alito, the Court limited that exception to situations where a legislature uses its authority “both to collect and spend tax dollars,” and then held that a tax credit is best seen as allowing citizens to “spend their own money, not money the State has collected from . . . other taxpayers.”

6 Institutional Religious Freedom Alliance, April 5, 2011 ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

The decision likely spells the end for a lawsuit filed in 2009 by well-known atheist Michael Newdow on behalf of several plaintiffs challenging the long-standing federal income tax exemption for pastoral housing allowances. In 2010, the United States District Court for the Eastern District of California refused to dismiss that suit in Freedom from Religion Foundation v. Geithner on standing grounds because the District Court concluded the Flast exception applied to tax benefits. That court will almost certainly now see a renewed motion to dismiss from the government defendants in that case. While the majority carefully distinguished a number of other cases, including one – Texas Monthly v. Bullock – that found a tax exemption had violated the Establishment Clause, Justice Kagan writing in dissent is almost certainly right that not only tax credits but also tax exemptions and deductions are now safe from taxpayer challenges based on the Establishment Clause even if such provisions benefit religious organizations generally. That said, and as Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, appears to acknowledge, such tax provisions likely could not escape constitutional challenge if they only benefited a particular religion.7

23. Grassley wants estimate of nonprofit tax exemption. As Senate tax writers continue to look at ways to make the tax code simpler and fairer for individuals and businesses, Sen. Charles Grassley (R-IA) recently suggested Congress first calculate the cost of the nonprofit tax exemption, which is not currently considered an expenditure.

Grassley, who long used his position as chair and then ranking member of the Senate Finance Committee to scrutinize various charitable scandals and nonprofit governance issues, said at a Senate Finance hearing on tax reform this month that the nonprofit sector has experienced tremendous growth in recent years and warrants congressional review. According to the Bureau of National Affairs (BNA), Grassley said Congress should specifically consider whether fee-for-service organizations such as hospitals and universities should continue to enjoy the same tax exemption as other types of charities.

“Let me be clear … I am not referring to those charities that are on the ground feeding the hungry, sheltering the homeless,” Grassley said at the hearing. “I’m talking about those charities which there may be no discernible difference between commercial, for-profit entities.”

Grassley said that getting a handle on the value of tax exemption can help legislators more accurately assess the extent to which charitable organizations are supported by the tax code, and weigh that against the charitable services that are provided. Over the years, Grassley has targeted inquiries at nonprofit hospitals and universities because they charge fees for their services similar to for-profit entities and yet enjoy tax-favored status. Nonprofit hospitals have to abide by a community benefit standard defined by the Internal Revenue Service (IRS) but Grassley has questioned that criteria and whether nonprofit hospitals are providing enough uncompensated care and other benefits to justify their tax exemption.

7 Law Professor Blog, Lloyd H. Mayer, April 4, 2011 ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

Senate Finance Committee Chairman Max Baucus (D-MT) has vowed to hold one hearing a week this year on tax reform, which he said is needed both to reduce the estimated $300 billion tax gap—the difference between the amount of taxes owed and taxes paid – and to make U.S. businesses more competitive in the global economy.8

Professor John Colombo of the University of Illinois College of Law is sounding the alarm about the latest threat to exempt organizations in the Nonprofit Law Prof Blog (www.lawprofessors.typepad.com/nonprofit/). Here’s part of what Professor Colombo had to say:

A report in BNA Daily Tax report is sending shivers down the spines of tax- exempt organizations. Sen. Charles Grassley, who has often used his perch as either the ranking majority or minority member of the Senate Finance Committee to impose reforms on (or to attack unnecessarily, depending on your viewpoint) tax-exempt organizations, is at it again. The BNA report indicated that Grassley wants an estimate of the cost of tax exemption and wants to put the issue of tax exemption on the table in the ongoing budget/tax-reform talks.

Grassley's immediate target appears to be exempt organizations that engage in fee-for-service activities (he apparently cited the case of OCLC, an Ohio nonprofit provider of library software services, which has been the subject of a lawsuit filed by California-based for-profit SkyRiver Technology Solutions), but his request that Congress estimate the cost of tax- exemption and treat it as a “tax expenditure” has far-reaching implications.

Unlike the deduction for charitable donations under section 170, tax exemption has never been treated as a “tax-expenditure” in the budget process. Though the whole concept of “tax-expenditure” is still somewhat controversial, it has been a part of the budget and tax policy landscape since Stanley Surrey pushed the concept during his tenure as Assistant Secretary for Tax Policy at the Treasury Department in the late 1960’s and oversaw the first tax expenditure budget in the US in 1968. In general, the concept of a “tax-expenditure” is based on the notion that certain tax benefits are the equivalent of government grants—that they are in essence “expenditures” by the government cloaked in the form of tax benefits. Thus the tax expenditure budget includes items such as the charitable deduction, the home mortgage interest deduction, and similar items that are widely accepted today as “government subsidies” and deviations from the normative base for the income tax.

But exempt status under 501(c)(3) has never been considered a tax expenditure, in part because characterizing exemption as a “subsidy” or “deviation” from the normative tax base has always been a controversial issue among tax policy experts. It is not clear whether exemption is a “deviation” from the normative tax base or simply a part of defining that

8 ASAE’s Inroads, March 12, 2011 ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

base. For example, would one consider our decision not to impose tax on the partnership as a separate taxable entity a “deviation” from the normative tax base (since we do impose an entity-level tax on most corporations)? Or would we just say that considering partnerships pass- through entities is simply a part of the overall definition of the normative base? And isn't it a little odd to call tax exemption a “subsidy” for organizations that spend all their income on a charitable class like the poor?

While I (Professor Colombo) am certainly sympathetic to Grassley's comment that some “charities” today look an awful lot like for-profit businesses, Grassley’s request to estimate the cost of exemption seems to move in the direction of including exemption as a tax expenditure, and is a really, really big deal from the tax theory/policy side.9

24. When donors commit fraud, nonprofits often pay the price. Hassan Nemazee pleaded guilty to leading a nearly $300-million fraud. He donated $1.1-million to charities that have now been asked to return the money.

Charities nationwide are facing an alarming demand from state and federal courts handling the clean-up of collapsed investment schemes: Give back donations.

In cases playing out across the country, hundreds of nonprofit organizations have been asked to return anywhere from a couple thousand dollars to millions of dollars each in response to government efforts to take back ill-gotten gains from financial frauds, like Ponzi schemes. A charity becomes a target of such recovery if it has received a gift from a donor who used illicit profits from a fraud scheme to make the charitable contribution.

The legal process, known as a clawback, is not new. But as the economic downturn has sped up the demise of big-time investment scams, more and more charities are learning that the gifts they received in good faith—and innocence— may not be theirs to keep if the donors turn out to be criminals. Some charity officials and legal experts say laws ought to be changed to better protect charitable gifts, but few such efforts are in the works.

“If it’s dirty money, I understand that you will be asked to give it back,” says Barbara-Ann Weinstein, chief executive of Family Central, a social-service provider, in Florida. “It’s just that this is something we never knew could happen and we are disgusted that anyone would take advantage of us and the children we serve by giving us this money. It is hurtful.”

Family Central returned a $25,000 gift it had planned to use to help secure a matching grant to subsidize child-care costs for low-income parents.

The money was a contribution from Scott Rothstein, a South Florida lawyer who pleaded guilty last year to running a $1.4-billion Ponzi scheme. Lawyers sorting

9 Paul Streckfus, EO Tax Journal March 18, 2011 ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

out Mr. Rothstein’s case are seeking the return of more than $2-million he contributed to about 30 charities.

Malvern Preparatory School was asked to return a $1-million pledge for its new weight room after the donor, Joseph S. Forte, was found guilty of running a $35- million investment scam.

One of the biggest beneficiaries, Joe DiMaggio Children’s Hospital, in Hollywood, Fla., returned $800,000 to federal authorities and removed a sign in its emergency room bearing the name of Mr. Rothstein’s foundation, according to local press accounts.10

25. Employee notification of the value of group health coverage. The Patient Protection and Affordable Care Act required generally that employers must begin to report on the Form W-2, Wage and Tax Statement the "aggregate cost" of "applicable employer-sponsored coverage" beginning with the 2011 tax year. In 2010, the IRS exercised its authority to delay this date, so that this reporting will not be mandatory for 2011 Forms W-2, but will be required beginning with the 2012 tax year.

Reporting the cost of group health insurance coverage will not cause employer- provided health care coverage to become taxable. According to the IRS, the W-2 reporting is for informational purposes only "to provide useful and comparable consumer information to employees on the cost of their health care coverage."

Then, in 2011, the IRS provided the following additional guidance on this topic:

 Effective for 2012 — The guidance generally applies beginning with Forms W-2 covering the 2012 year, i.e., the forms required for calendar year 2012 that employers generally are required to furnish to employees in January 2013 and then file with the Social Security Administration (SSA);

 Optional for 2011 — Employers are not required to report the cost of health coverage on any Forms W-2 required to be furnished to employees prior to January 2013. However, if an employer chooses to report earlier (e.g., on the 2011 Forms W-2 generally furnished to employees in January 2012) the employer may look to the 2011 guidance regarding that voluntary earlier reporting.

 Transition relief — The IRS also provided transition relief for certain employers and with respect to certain types of employer-sponsored coverage. This transition relief will continue at least through the 2012 Forms W-2, which must be furnished to employees in January 2013. This includes relief for:

o Employers that file fewer than 250 Forms W-2 o Forms W-2 furnished to terminated employees before the end of the year

10 Philanthropy.com, March 6, 2011 ______This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

o Forms W-2 for employees in multiemployer plans o Reporting the cost of HRAs o Reporting the cost of dental and vision plans o Reporting the cost of self-insured plans that are not subject to COBRA or similar continuation requirement

26. Small organization health insurance credit. A tax credit is provided for eligible small organizations for payments to purchase health insurance for its employees. The credit became effective for 2010. To qualify, a church or nonprofit must have:

 no more than 25 full-time employees (FTEs) employed during its tax year, and

 an average payroll of no more than $50,000.

For 2010, the maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations.

The maximum credit is available for organizations with 10 or fewer employees with an average wage of less than $25,000. Because the eligibility formula is based in part on the number of FTEs, not the number of employees, many organizations will qualify even if they employ more than 25 individual workers.

The health insurance credit is available by filing Form 8941 and claiming the credit on Form 990-T. A nonprofit organization that qualifies for the credit is entitled to receive it even if it does not have an income tax liability and even if it does not ordinarily file Form 990-T.

Even though the due date for 2010 tax returns has passed for most nonprofit organizations, it may still be possible for eligible organizations to claim the small business health care tax credit for 2010. Generally, income tax returns may be filed late, so long as they are filed within three years of the due date. If only a refund is due (i.e., there is no tax due), there is generally no penalty for filing late.

The IRS states that in calculating average employee wages, the wages of a minister are excluded from the calculation (because the minister’s wages are not FICA wages). However, if the minister is an employee for income tax purposes, the minister may be counted in determining the number of employees to be included in the calculation. As a result of these provisions, an organization employing ministers could have average employee wages that are significantly lower than the organization might think would be the case at first glance.

Key Federal Tax Limits, Rates, and Other Data

2010 2011 2012 Standard deductions, exemptions, and exclusions: Married-Joint return $11,400 Married-Joint return $11,600 Married-Joint return $11,900 Head of Household $8,400 Head of Household $8,500 Head of Household $8,700 Standard deductions Single $5,700 Single $5,800 Single $5,950 Married-Separate returns Married-Separate returns Married-Separate returns $5,700 $5,800 $5,950 Personal & dependent exemption amount $3,650 $3,700 $3,800 Foreign earned income exclusion $91,500 $92,900 Social security: SECA (OASDI & Medicare) rate 15.3% 13.3% 15.3% FICA tax for employers 7.65% 7.65% 7.65% FICA tax for employees 7.65% 5.65% 7.65% OASDI maximum compensation base $106,800 $106,800 $110,100 Social security cost-of-living benefit 0% 0% 3.6% increase Social security full retirement age (FRA) 66 years 66 years 66 years Medicare Part B premiums – Basic $110.50 $115.40 $99.90 Earnings ceiling for social security (applies Below FRA: $14,160 Below FRA: $14,160 Below FRA: $14,640 to employment before FRA; special formula Over FRA: None Over FRA: None Over FRA: None in FRA year) Earnings limit in year FRA attained $37,680 $37,680 $38,880 Benefits and contributions: Maximum annual contribution to defined contribution plan $49,000 $49,000 $50,000 Maximum salary reduction for 401(k)/403(b) $16,500 $16,500 $17,000 401(k) & 403(b) over 50 “catch up” limit $5,500 $5,500 $5,500 Maximum income exclusion for $16,500 $16,500 $17,000 nonqualified plans in 501(c)(3) IRA contribution limit – age 49 and below $5,000 $5,000 $5,000 – age 50 and above $1,000 $1,000 $1,000 Highly compensated employee limit $110,000 $110,000 $115,000 Per diem and mileage rates and other transportation: Standard per diem: Lowest rates in Lodging $70 Lodging $77 Lodging $77 continental USA Meals & Incidentals $46 Meals & Incidentals $46 Meals & Incidentals $46 1/1 – 51 cents per mile Business auto mileage rate: 50 cents per mile 7/1 – 55.5 cents per mile 1/1 – 19 cents per mile Moving & medical auto mileage rate 16.5 cents per mile 7/1 – 23.5 cents per mile Charitable auto mileage rate 14 cents per mile 14 cents per mile 14 cents per mile Airplane mileage rate (1) $1.29 per mile $1.29 per mile Motorcycle mileage rate (1) 47 cents per mile 48 cents per mile Bicycle commuting rate $20 per month $20 per month Maximum value of reimbursement of business expenses (other than lodging) $75 $75 $75 without receipt Luxury automobile value (limit on use of cents-per-mile valuation of company $15,300 $15,300 automobile) Monthly limit on free parking $230 $230 $240 Transit passes/token – monthly tax-free limit $230 $230 $125 (1) Privately-owned vehicle mileage rates set by the U.S. General Services Administration Note: In some instances, the rate for a particular year may apply to a tax return filed in a subsequent year.

2010 2011 2012 Health savings accounts: Contribution limit: Individual $3,050 $3,050 $3,100 Family $6,150 $6,150 $6,250 Maximum annual out of pocket expense: Individual $5,950 $5,950 $6,050 Family $11,900 $11,900 $12,100 Minimum deductible: Individual $1,200 $1,200 $1,200 Family $2,400 $2,400 $2,400 Increase in annual contribution limit – 55 $1,000 $1,000 $1,000 and older Earned income credit: Taxable and nontaxable earned income of less than (to qualify for the earned income Single/Married Filing Joint Single/Married Filing Joint Single/Married Filing Joint dit) No qualifying child 13,460/18,470 13,460/18,470 13,660/18,740 One qualifying child 35,535/40,545 35,535/40,545 36,052/41,132 Two qualifying children 40,363/45,373 40,363/45,373 40,964/46,044 Three or more qualifying children 43,352/48,362 43,352/48,362 43,998/49,078 Long-term care insurance: Premiums deductible as medical expense based on the insured’s age before close of t 40 or less $330 $340 $350 41 to 50 $620 $640 $660 51 to 60 $1,230 $1,270 $1,310 61 to 70 $3,290 $3,390 $3,500 More than 70 $4,110 $4,240 $4,370 Form 990/990-T/990-N and 1099-MISC threshold: Threshold for filing Form 990 (if not Gross receipts >$500,000 Gross receipts >$200,000 Gross receipts >$200,000 otherwise exempt) Total assets >$1.25M Total assets >$500,000 Total assets >$500,000 Gross receipts <$500,000 Gross receipts <$200,000 Gross receipts <$200,000 Threshold for filing Form 990-EZ Total assets <$1.25M Total assets <$500,000 Total assets <$500,000 $10 million in total assets $10 million in total assets $10 million in total assets Threshold for filing Form 990 electronically & 250 information returns & 250 information returns & 250 information returns Under $25,000 Under $50,000 Under $50,000 Threshold for required filing Form 990-N in annual gross receipts in annual gross receipts in annual gross receipts Threshold for required filing Form 990-T $1,000 annual gross UBI $1,000 annual gross UBI $1,000 annual gross UBI Threshold for required filing of Form 1099- $600 $600 $600 MISC (payment for most personal services) Quid pro quo: Minimum contribution and maximum cost of Minimum gift: $48 Minimum gift: $48.50 Minimum gift: $49.50 token Maximum cost: $9.60 Maximum cost: $9.70 Maximum cost: $9.90 2% of gift, 2% of gift, 2% of gift, Maximum value of de minimus benefit but not more than $96 but not more than $97 but not more than $99 Other: Federal minimum wage per hour $7.25 $7.25 $7.25

Sec. 179 expensing limit $500,000 $500,000 $139,000 Gift tax annual exclusion $13,000 $13,000 $13,000