Exempt Organizations Advisory - Taxpayer Advocate Report Addresses Issues for Exempt Organizations

Catherine W. Wilkinson (cwilkinson@steptoe.com)
Suzanne Ross McDowell (smcdowell@steptoe.com)

In her annual report to Congress, Nina Olson, the National Taxpayer Advocate, addresses the needs of small exempt organizations, issues for private foundations that invested in Ponzi schemes, and the need for a uniform definition of hardship withdrawal for qualified retirement plans. 

Small Organizations:  The report addresses the need for targeted research and increased collaboration to meet the needs of tax-exempt organizations. The report notes that many small exempt organizations need help with the myriad reporting requirements, but that the current staff level of the Exempt Organizations Customer Education and Outreach division is not sufficient to research and address the needs of all types of exempt organizations. The report recommends that the IRS design and implement an Exempt Organization Taxpayer Assistance Blueprint to develop an effective outreach plan to the exempt organization community. 

Private Foundations:  A second issue addressed by the Taxpayer Advocate is the lack of guidance for private foundations that were affected by Bernard Madoff and other Ponzi schemes. Guidance is needed to help foundations determine whether they can recover any excise taxes paid on investment income which in reality was nonexistent, whether investments can be re-valued for prior years, and whether the excise tax on jeopardizing investments may be applicable. 

Hardship Withdrawals from Retirement Plans:  Finally, the report recommends legislative action to provide a uniform definition of a hardship withdrawal from qualified retirement plans. Under current law, different retirement plans have different hardship withdrawal provisions which determine both whether a withdrawal is permitted and the tax consequences of any withdrawal. The report recommends that Congress establish uniform rules to address these discrepancies.

The full 2009 annual report is available here.