Pension Reform Act Provisions & Nonprofits

The Pension Reform Act (H.R. 4) signed into law this summer includes numerous changes in the way nonprofits and foundations conduct business. The Act is long and complex. The following is a summary of those provisions that will affect many NPCC members.

  • The most noted provision is one that allows donors older than 70 and 1/2 years to rollover up to $100,000 of an IRA account to a charity without incurring any personal income tax liabilities.
  • The substantiation rules for charitable contributions of less than $250 now require a donor to secure and retain a receipt for a contribution if the donor wishes to itemize the contribution for tax purposes. The receipt or bank record must show the name of the organization, the date of the contribution, and the amount of the contribution. Previously, donors did not have to maintain such documentation for monetary gifts of less than $250; all they needed was a “reliable written record” of such gifts, a much broader standard. Note that a monthly credit card bill does not seem to suffice under the new rules. The new rules are effective for contributions made on or after January 1, 2007, so nonprofits should begin preparing systems to provide the needed receipts.
  • Beginning in 2008, nonprofits that do not file a Form 990 because their annual revenues are less than $25,000 will be required to submit a new electronic report to the IRS that includes basic information including the organization’s name and address, as well as evidence of the continuing basis for the organization’s exemption. While there are no monetary penalties for failure to file the notice, the IRS will revoke the tax-exempt status of any organization that does not file the form for three consecutive years.
  • In addition, the IRS will automatically revoke the exempt status of a nonprofit that fails to file three consecutive years of its Forms 990. In both of these cases, the IRS will publish a list of the names of the revoked entities.

Among other provisions of the Act, Unrelated Business Income Tax forms filed by 501(c)(3) organizations (IRS Form 990-T) will now be made public, and the IRS will now be able to share information with state officials regarding certain investigations into a nonprofit.

The IRS has more information at www.irs.gov/charities/article/0,,id=161145,00.html. Independent Sector has prepared a summary of the provisions that can be downloaded at www.independentsector.org, and Council on Foundations has information at www.cof.org. The text of the legislation can be found at http://thomas.loc.gov by running a search for H.R. 4.

This article originally appeared in the October 2006 issue of NPCC's monthly newsletter, New York Nonprofits. www.npccny.org