Tax-exempt organizations, by definition, are exempt from federal income tax under various provisions of the Internal Revenue Code. However, some are directly involved in abusive tax avoidance transactions (ATATs). In addition, because they are tax-indifferent, tax-exempt organizations are, at times, used by for-profit entities as accommodation parties in these transactions.
Abusive Tax Avoidance Transactions Involving S Corporations
The Treasury Department and the Internal Revenue Service has issued guidance on certain kinds of abusive tax avoidance transactions involving S corporations and tax-exempt entities, such as charities. These transactions are structured to improperly shift taxation away from taxable S corporation shareholders to an exempt party, for the purpose of deferring or avoiding taxes.
In Notice 2004-30, the IRS says it intends to challenge these transactions on a number of grounds. It further declares that these abusive transactions are considered “listed transactions.” Participants in a listed transaction who are required to file tax returns must disclose their participation to the IRS. In addition, promoters of listed transactions must keep lists of investors and, in certain cases, register those transactions with the IRS.
Pension Protection Act of 2006 enacted several provisions to encourage conservation contributions while limiting abuses.
- Remarks of Steven T. Miller, before the Spring Public Lands Conference, Washington, DC (Mar. 28, 2006)
- Testimony of Steven T. Miller on the Tax Code and Land Conservation, before the Senate Finance Committee (June 8, 2005)
- Remarks of Steven T. Miller, before the American Society of Appraisers (Oct. 22, 2004)
- IR-2004-86, News release announcing issuance of Notice 2004-41 (June 30, 2004)
Corporation Sole Organizations
This revenue ruling IRS Warns of “Corporation Sole” Tax Scam, IRS News Release, IR-2004-42, March 29, 2004
- IRS Publication 1828, Abusive transactions
DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.