Federal Tax News
New Travel Mileage Rate for 2007
For 2007, the standard rate for business mileage is 48.5 cents per mile, an increase of four cents over the 2006 rate.
IRS Exempt Organizations See Busy Agenda for Fiscal Year 2007
In fiscal year (FY) 2007, the IRS's Exempt Organizations (EO) office will focus new compliance efforts on gaming, employment taxes, community foundations and unrelated business income of colleges and universities, EO Director, Lois Lerner, told reporters at a November 8 press briefing. The office released its FY 2007 work plan and a description of its activities for 2006 on the IRS website.
Included in the FY 2007 workplan, EO will begin to develop a project to review unrelated business income of colleges and universities and to look at the allocation of income and expenses between for-profit and nonprofit entities that are under large university systems. This project will be designed in 2007 and implemented in 2008, Lerner said.
Business Incubator Qualifies for Charitable Exempt Status
In PLR 200614030, the IRS ruled that the operation of a research and business incubator and the funding of a pre-seed capital fund further the charitable purposes of the organization. The organization was established as a supporting organization of a community college. The organization established a state-of-the-art high technology innovation center and resource hub with the goals that the incubator will ameliorate innovation and technology to advance education to college students and to attract, develop, retain high-technology and innovation-based industries to its geographic area. The IRS provided ruling to support its conclusion that this activity combats community deterioration and provides students with work experience, and that the funding of the pre-seed capital fund contributes importantly and directly to carrying out the school's educational purpose.
Procedures for Section 501(c)(3) Organizations to Change Public Charity Classification
In Announcement 2006-93, the IRS explains the procedures that section 501(c)(3) tax-exempt organizations may use to request a change in their public charity classification from supporting organization to public charity status. The Pension Protection Act of 2006 permits specified individuals to make contributions from their Individual Retirement Accounts ("IRA") to certain public charities without including the amounts in the contributor's income, except for supporting organizations described in IRC Section 509(a)(3).
Organizations currently classified as supporting organizations, as described in section 509(a)(3), may wish to seek reclassification as public charities under section 509(a)(1) or (2). This may be particularly applicable to college and university foundations currently classified as supporting organizations that wish to solicit donors for IRA funds (or donors may make those contributions directly to the school).
Academy Was Not Political Subdivision; Debt Was Issued on Behalf of State
A nonprofit corporation, organized for the purpose of operating as a public school academy, was determined to not be a political subdivision under Reg. §1.103-1(b) because it had not been delegated a substantial amount of the sovereign powers of the state. However, the debt of the academy was determined to have been issued on behalf of the state under Reg. §1.103-1(b).
The academy was using funds acquired from the state to make payments of principal and interest, pursuant to a lease-purchase agreement, on funds used to acquire educational facilities. The academy had designated the lease as a "qualified tax-exempt obligation" pursuant to Code Sec. 265(b)(3)(B). Under the state law pursuant to which the academy operated, a public school academy is a body corporate and a governmental agency, and the powers granted to it constitute the performance of essential public purposes and governmental functions of the state. Under the same state law, a public school academy is permitted to borrow money and issue tax-exempt bonds as full faith and credit obligations of the academy, pledging the general funds or other money available to repay the debt. However, such a debt does not constitute an obligation of the state or authorizing body.
The IRS concluded that the academy was a division of the state because education is a public purpose of the state and its operations are subject to the control and supervision of the university board and the state board of education. However, the academy was not a political subdivision because it did not possess a substantial amount of sovereign powers, such as the power to tax, the power to police and the power of eminent domain.
Finally, applying the criteria set forth in Rev. Rul. 57-187, 1957-1 CB 65, it was determined that the academy qualified as an "on behalf of" issuer of the state for purposes of Reg. §1.103-1(b). Therefore, the debt of the academy was issued on behalf of the state within the meaning of Reg. §1.103-1(b). Please read the following article for more information: TAM 200646017.
For further information on the items above contact: Catherine Bonnes at 269.567.4557 or Forrest Lewis at 517.336.7522.
