Help for Nonprofits – ACC applauds IRS for making clear that helpful rule covers many program-related investments

Nonprofits confront many serious challenges in our society. And to really make a difference, they need the flexibility to support causes with a range of financial partnerships.

The IRS has recognized this in theory. But the rules haven’t been clear. Creative financial arrangements between nonprofits and their partners, called program-related investments, are covered by 26 C.F.R. § 53.4944-3. Even so, the government limited the broad potential for that rule, by offering examples that illustrated only a narrow range of nonprofit activities and financial arrangements. This has made it difficult for in-house counsel at nonprofits to give solid advice to their clients on what the IRS does and does not allow.

Now, that’s changing. The IRS has proposed amending the existing rule, by adding a wider range of examples. The new examples make clear that important nonprofit work involves not only helping economically disadvantaged people and neighborhoods, but also, for instance, supporting the arts. Just as important, the examples illustrate that the IRS approves of a broad range of financially innovative arrangements that nonprofits can use in support of their missions.

ACC and its Nonprofit Organizations Committee support amending the rule to include the new examples, and today filed a comment letter to that effect with the IRS. The letter states that the “additional examples that the IRS proposes would greatly increase the clarity of Section 53.4944-3,” and “applauds the IRS for proposing the additional examples, and encourages it to adopt them as soon as possible, to better help nonprofits fulfill their important missions.”

ACC’s letter is linked at the bottom of this post. The proposed amendment can be found at: http://www.regulations.gov/#!documentDetail;D=IRS-2012-0015-0001. The original regulation, 26 C.F.R. § 53.4944-3, can be found at: http://www.law.cornell.edu/cfr/text/26/53.4944-3.

And any ACC member who wishes to express support on her or his own behalf can do so at: http://www.regulations.gov/#!submitComment;D=IRS-2012-0015-0001. The deadline for comments is July 18.

ACC and its Nonprofit Organizations comment letter dated June 11, 2012