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Wednesday October 28, 2020

Washington News

Washington Hotline

IRS Grants $36 Million For Tax Preparation

Each year, the IRS makes grants for the Tax Counseling for the Elderly (TCE) and the Volunteer Income Tax Assistance (VITA) programs. The grants for this year total over $36 million. These grants will help TCE and VITA to assist many individuals. There were 34 TCE grants and 273 VITA grants.

IRS Commissioner Chuck Rettig stated, "These two programs make a huge difference for people in need of tax assistance, and the IRS is proud to award these grants to help these groups to perform their important service. We appreciate the continuing interest in these programs from our partners, and we greatly appreciate the TCE and VITA volunteers across the country who make a difference for so many taxpayers."

The TCE program was established in 1978. TCE volunteers are required to complete training before providing tax counseling and assistance in preparing returns for individuals age 60 and older.

The VITA program targets underserved communities, including low-income individuals and those with limited English proficiency. VITA provides free federal tax return preparation and electronic filing. The grants to VITA will expand services for these underserved groups.

There are a wide variety of organizations who partner with the VITA and TCE programs. These partners include many nonprofits, faith-based organizations, community centers and large employers. IRS provides training for volunteers in tax law and the preparation of accurate tax returns.

The www.IRS.gov website includes a TCE webpage and a VITA webpage. Individuals who may want to volunteer for either program should visit the IRS Tax Volunteers webpage.

Editor's Note: The January tax-filing season will soon be here. November and December are an important time for TCE and VITA volunteers to be trained and prepared to assist the elderly and low-income individuals in 2021.

Did Nonprofits Lose Exempt Status Due to IRS Mail Backlog?


In an October 20, 2020 letter, House Ways and Means Oversight Subcommittee Chair Bill Pascrell Jr. (D-NJ) and six panel members urged the Trump administration to review and potentially reverse tax-exempt revocations of over 30,000 nonprofits.

The letter states, "We write today to find out why the Trump administration automatically revoked the tax-exempt status of, and sent erroneous revocation notices to, more than 30,000 nonprofit organizations around the country, including 28,000 charities as we enter the most popular time of year for Americans to make charitable contributions."

The letter notes that between May 1 and October 8, 2020, the number of organizations who faced automatic revocation for not filing IRS information returns for three straight years rose 20% compared with 2019. Even though the 2020 filing deadline was extended to July 15, many organizations had their tax-exempt status revoked as of May 15.

The letter continued, "This raises serious questions as to whether the IRS's systems properly accounted for the extension of the filing date to July 15 and whether IRS processing and correspondence backlogs may have impacted the receipt of timely-filed Forms 990."

The letter urges the IRS to review and potentially reverse erroneous automatic revocations. It also requests a hold on any other automatic revocations until the IRS processes the mail backlog.

The IRS currently has millions of pieces of unopened mail. It is quite possible that there are unopened IRS Forms 990 that bring nonprofits in to compliance with federal law requirements.

The letter was prompted by a request from the National Council of Nonprofits (NCN). NCN Vice President of Public Policy David L. Thompson stated, "Nonprofits from around the country reached out to our network complaining that their tax-exempt status had been revoked unjustly. Looking into the facts, we found a troubling spike in revocations."

Thompson suggested that the IRS had not updated its software to incorporate the July 15 delayed filing date for IRS Form 990. In addition, the IRS database may not be current and the automatic revocations could be in error.

Thompson concluded, "In the coming days, we hope the IRS will answer why it has increased the automatic revocation of 20% more nonprofits than last year. The public and nonprofit community need to know if the IRS data are reliable, or, as has now become apparent, organizations that scrupulously follow the disclosure laws can still be brought down by technological snafus and a lack of adequate oversight within the agency."

Editor's Note: The IRS has fewer budget resources this year and was shut down for a period of time due to COVID-19. It is quite probable that the IRS software was not updated to reflect the extended filing date of July 15, 2020.

International Charity Fraud Awareness Week


October 19 to 23 is the International Charity Fraud Awareness Week. A coalition of over 40 charities, law enforcement organizations and other entities banded together to support this campaign. The three goals of the campaign are to help nonprofits to be aware of fraud, check their financial and communication processes and protect the charity from fraudsters.

This campaign recognizes that nonprofits are particularly vulnerable to fraudsters. With remote work and lockdowns due to the COVID-19 pandemic, many charities could be subject to fraud and suffer financial losses.

IRS Director of Exempt Organizations and Government Entities Margaret Von Lienen stated, "Especially during these uncertain times, it is vital for everyone to remain vigilant against fraud, identity theft, scams and schemes. Cybercriminals are always on the lookout for new opportunities, and COVID-19 is just one more chance to take advantage of unsuspecting individuals and charities."

A major initiative of the campaign is to encourage charities to create good fraud prevention policies and communications. Charity staff who are in high-risk areas, such as finance, must understand the potential problems. A strong anti-fraud commitment from trustees and senior managers will encourage employees to be cautious and avoid risky conduct.

There are five recommended communications strategies to oppose fraud.
  • Key Messages — Nonprofits should work with human resources, leadership and finance to craft anti-fraud messages.
  • Little and Often — There should be regular fraud messages sent on a continuous basis. This will encourage greater awareness of the potential risk.
  • Variety of Media — Nonprofits should use posters, videos, self-study training sessions, fraud alerts and staff newsletters to increase awareness.
  • Simple and Understandable — Messages and communication should be clear and simple. Every staff member should understand how to recognize and report fraud. Leaders of departments should be particularly on guard for potential fraud.
  • Monitor Effectiveness — There should be regular reviews of fraud prevention communication. These include surveys and feedback from staff members to ensure that the program is effective.
A strong counter-fraud program will protect nonprofits and ensure they are better able to fulfill their charitable purpose.

Applicable Federal Rate of 0.4% for November — Rev. Rul. 2020-22; 2020-45 IRB 1 (16 October 2020)


The IRS has announced the Applicable Federal Rate (AFR) for November of 2020. The AFR under Section 7520 for the month of November is 0.4%. The rates for October of 0.4% or September of 0.4% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2020, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published October 23, 2020
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