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WEEKEND INSIGHTS: Charitable Organizations and Illinois’ ROT

Nov. 15, 2020, 3:01 PM

This is a weekend roundup of Bloomberg Tax Insights, written by practitioners and featuring expert analysis on current issues in tax practice and policy. The articles featured here represent just a handful of the many Insights published each week. For a full archive of articles, browse by jurisdiction at Daily Tax Report, Daily Tax Report: State, Daily Tax Report: International, and Financial Accounting.

This week we look at establishing and operating a 501(c)(3) organization, Illinois’ ongoing marketplace facilitator tax problem, the OECD blueprint, making the most of the R&D credit in the fourth industrial revolution, and more. We’ll hear from:

  • James Standard of Taylor, English & Duma on the requirements to form and operate a charitable organization and the categories of tax-exempt purposes.
  • Jeff Friedman, Breen Schiller, and Dennis Jansen of Eversheds Sutherland on Illinois’ marketplace facilitator sales tax collection law
  • Daniel Bowie, Barry Freeman, and John Lamszus of Crowe on the new and questionable direction of the OECD’s digital taxation project
  • Shelby Ford and Chelsea Alspaugh of Crowe on Industry 4.0 and the R&D credit
  • Emine Constantin of TMF Group on the challenges digital technology has created for the global tax system
  • Jason Mutarelli of Valuation Research Corp. on valuation impairment in light of 2020 3Q results
  • Vinita Krishnan and Rahul Jain of Khaitan & Co. on cross-border deals with an India leg
  • Andy Spencer of Sovos Accordance on fiscal representation for U.K. businesses in VAT registration
  • Daniel Gutmann and Anaïs Okouda of CMS Francis Lefebvre Avocats on the French draft Finance Bill
  • Harold McClure on the use and abuse of the transactional net margin method in Indian transfer pricing cases
The Medstar Washington Hospital in Washington D.C. is not-for-profit.
Photographer: Daniel Slim/AFP via Getty Images

Many considerations must be addressed in forming and operating a charitable organization under Section 501(c)(3). In Part 1 of a two-part article, James Standard of Taylor, English & Duma LLP walks through the requirements under the statute and regulations and the consequences of failing to meet those requirements. Read: The Basics of Establishing and Operating a Charitable Organization—Part 1 In Part 2 the author examines the categories of tax-exempt purposes. Read: The Basics of Establishing and Operating a Charitable Organization—Part 2—Categories of Tax-Exempt Purposes

Like most states with a sales tax, Illinois enacted a marketplace facilitator sales tax collection law after the 2018 Wayfair decision. The intent was to “level the playing field” between online and in-store sales, but the state still hasn’t got it right for marketplace transactions fulfilled with in-state inventory, write Jeff Friedman, Breen Schiller, and Dennis Jansen of Eversheds Sutherland. The authors explain how such marketplace sellers will still owe both the Illinois retailers’ occupation tax (the ROT) and the state use tax for sales made in 2020. Read: Something Smells: Illinois Still Needs to Solve its Marketplace ROT Problem

The original BEPS project was based on the principle that profitability should be aligned with value creation instead of legal ownership. Daniel Bowie, Barry Freeman, and John Lamszus of Crowe see the latest iteration of the OECD’s digital taxation project moving in a direction that disregards long-established tax principles to tax a small subset of companies. Read: The OECD’s digital taxation proposal: A contradiction of the original BEPS project?

The Fourth Industrial Revolution is underway. Shelby Ford and Chelsea Alspaugh of Crowe look at what it means for 21st century businesses and how they can make the most of the research and development tax credit. Read: Why Industry 4.0 Matters to a Tax Department

Emine Constantin of TMF Group discusses the challenges digital technology has created for the global tax system, and looks at how different countries are addressing this through digital services taxes. Read: Digital Services Tax—a Necessary Evil?

The Covid-19 pandemic has affected almost all businesses—and for many in a manner that impairs goodwill. Jason Mutarelli of Valuation Research Corp. (VRC) updates his previous article to reflect third quarter results in his analysis of business valuations and impairment testing, including potential goodwill impairment. Read: Impairment Barometer After Third Quarter Results

As valuations become attractive, more global players are eyeing multinational businesses. Vinita Krishnan and Rahul Jain of Khaitan & Co discuss the key points to be considered in any cross-border deal involving an India leg. Read: Global Deals with an India Leg: Tax Nuances to Watch Out For

Andy Spencer of Sovos Accordance discusses the implications of fiscal representation for U.K. businesses and how to prepare from a financial perspective. Andy also discusses VAT registrations, reporting and recovery in relation to fiscal representation, and what businesses should be aware of. Read: Brexit and Fiscal Representation

Daniel Gutmann and Anaïs Okouda of CMS Francis Lefebvre Avocats discuss the tax measures relevant to businesses in the recently released French draft Finance Bill. Read: France: Draft Finance Bill for 2021

From the Archive

Bloomberg Tax contributors have been looking out for the not-for-profits as well during the pandemic.

The Covid-19 economic relief legislation includes components to assist nonprofit organizations. Fried Frank attorneys explained how the loans, tax benefits, unemployment benefit provisions, and emergency grants work for not-for-profit entities.

Employers can establish employee relief funds under tax code Section 501(c)(3) to provide tax-free financial assistance to employees affected by the Covid-19 crisis. Richard Fox and Joshua Headley of Buchanan Ingersoll & Rooney showed how these funds could be established and administered.

Severance plans have historically disqualified many employees from receiving state unemployment benefits. David Fuller of McDermott Will & Emery looked at a financially attractive alternative known as “supplemental unemployment benefit plans.”

Beyond Tax

What’s happening outside the world of tax?

Understanding the corporate culture of merging companies is essential to a successful deal, especially in middle-market M&A, Greenberg Traurig attorneys say. A clear communication plan helps buy-side and sell-side advisers to set the stage and guide employees by providing the information they need to understand, accept, and embrace what’s happening, and their roles. Read: Mid-Market M&A Takes Two to Tango: Know Your Dance Partner

The CARES Act provided historic, temporary relief to mortgage holders facing Covid-19-related financial troubles. R. Aaron Chastain, partner at Bradley Arant Boult Cummings LLP, looks at where mortgage lenders and servicers stand as the pandemic continues and federal agencies and state governments continue to adjust compliance requirements and rules. Read: The CARES Act at Six Months: What’s Ahead for the Mortgage Industry

The U.S. Attorney’s Office for the Southern District of New York has faced criticism this year for failing to provide defendants with exculpatory evidence and for playing politics in a case involving the president’s former attorney. Miller & Chevalier attorneys examine these cases and explain what the office must do to overcome any reputational harm. Read: SDNY Grapples with Judicial Rebukes

Lowenstein Sandler’s Julie Levinson Werner explores workplace diversity and inclusion efforts and says adopting quotas of a fixed percentage of individuals in certain roles by a certain date based upon race, gender, or other characteristics is legally risky. She suggests steps employers can take to reconcile the prohibition on unlawful race discrimination with the undisputed value and goal of improving the diversity of thought, perspective, and experience in the workplace. Read: Workplace Diversity—Getting It Right With Goals, Not Quotas

Exclusive Content for Bloomberg Tax Subscribers

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Intentionally or (in some instances) unintentionally terminating, toggling, or “turning off” a trust’s grantor trust status can produce perilous pitfalls that can leave the grantor trapped in a harsh and unkind reality. Generally, if grantor trust status is terminated, the trust will cease to be considered a grantor trust within the meaning of tax code Section 671. By David Kirk, Nickolas Davidson, and Paul Schuh of EY explain the risks and pitfalls that lie ahead if a termination occurs and how to help ensure the grantor’s safe passage navigating a path that will (hopefully) support their planning goal, which is the ultimate prize.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact Erin McManus at emcmanus@bloombergtax.com.

To contact the reporter on this story: Erin McManus in Washington at emcmanus@bloombergtax.com

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