Fascinating and timely topic!  So far even the regional IRS office in
Hartford isn't aware of any implementing regulations for this
legislation.  Here are some particulars I've been able to glean in the
past two days.

1)  The Taxpayers Bill of Rights 2 is also known by its formal
designations as H.R. 2337 (sponsored by N. Johnson, R-CT), and P.L.
104-168.  You can access these on Congress' web page - Thomas.

2)  So far, the law as enacted only applies to 501(c)3 and 501(c)4
organizations.  Other non-profits such as some State universities
(501(c)1) are excluded from the provisions of the legislation as it
currently stands.

3)  As I said above, the IRS has not yet published implementing
regulations; but per the Hartford IRS, as they do they could "interpret
Congressional intent" and apply them to organizations not specifically
mentioned in the law.

4)  A good explanation of the relevant provisions of the bill can be
found at:

 http://www.haygroup.com/HAYWEB/1/NA/BOOKS/sanction.htm

5)  The relevant portions of the bill deal with "Excess Benefit
Transactions", which include unreasonable (below fair market value)
payment for property or goods.  The bill provides that in such "Excess
Benefit Transactions" the party benefiting from the transaction would be
liable for payment of an excise tax equal to 25% of the excess benefit,
and up to 200% of the excess benefit if the transaction is not corrected
before the IRS assesses the tax.

As I read the law, the benefiting party could be a research sponsor which
receives an excess benefit by virtue of negotiating IP rights for
consideration which is less than the fair market value of those rights.

The law also provides that the "officers, directors and trustees" of the
tax exempt organization could be liable to a penalty of 10% of the value
of the excess benefit (to a maximum of $10,000 per transaction) if they
knowingly participate in such transactions.

I believe we're way ahead of the curve on this one since the IRS hasn't
started writing the regulations yet.

Leonard P. Paplauskas
Assistant Vice Chancellor for Research
University of Connecticut Health Center
Farmington, CT  06030-5355
860-679-3173 (voice)
860-679-2670 (fax)
xxxxxx@adp.uchc.edu

 -----Original Message-----
From: Bill Rosenberg [SMTP:xxxxxx@banyan.ummed.edu]
Sent: Thursday, July 24, 1997 3:38 PM
To: techno-l
Subject: Intermediate  Sanctions Act

We have been informed by our general counsel that  Intermediate
Sanctions Act  which was part of the  Taxpayers Bill of Rights II
enacted on 7/30/96 gives the IRS the power to impose tax penalties on
 insiders  who benefit excessively in transactions with tax exempt
organizations.  It also imposes tax liabilities on organization managers
who knowingly participate in the transactions.  It is retroactive to
September 14, 1995 and allows the IRS to discipline individuals without
revoking the organization s exempt tax status.

Has anyone been advised that University tech transfer directors and
contract grant managers and other University personnel may be liable
under this law for actions such as sponsored research agreements that
benefit companies by giving away IP rights and/or having no royalties
due in exchange for minimum funding; deals with companies that assume
risks disproportionate to expected returns etc.?

I would appreciate views from the community.

 --
William S. Rosenberg, Ph.D.
Director of Licensing & Ventures
CVIP, University of Massachusetts
tel. 508 856 1626
fax 508 856 5004
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