Home | Business News | Browse by Publication | M | Mondaq Business Briefing

Proposed Department of Treasury Intermediate Sanctions Regulations Give Guidance to Avoid Revocation of Tax-Exempt Status.

Article Excerpt
The Department of the Treasury released proposed regulations on September 9 concerning Section 501(c)(3) and 501(c)(4) tax-exempt organizations that provide important guidance for avoiding revocation of tax-exempt status. The "bottom line" of the proposed regulations is that excess benefit transactions under the intermediate sanctions rules will not cause the loss of an organization's tax exemption unless they are so extensive as to create questions about the organization's overall purposes and operations. Moreover, organizations that have procedures in place to detect and prevent transactions benefiting insiders, and that act on their own initiative to discover and correct such transactions, are unlikely to have their tax exemption revoked by the IRS even if they engage in excess benefit transactions. IRS officials and practitioners have predicted that the IRS would take this common-sense approach to enforcement but the proposed regulations are the first authoritative statement of this principle. Accordingly, the proposed regulations indicate specific steps exempt organizations can take to protect their tax-exempt status.

The proposed regulations clarify the relationship between the substantive requirements for tax exemption under Section 501(c)(3) and the imposition of intermediate sanctions excise taxes under Section 4958. The purpose of the proposed regulations is to provide guidance on the specific factors that the IRS will consider in determining whether a Section 501(c)(3) organization may jeopardize its tax exempt status as a result of...