Re: Intermediate Sanctions Act Paplauskas,Leonard 28 Jul 1997 15:53 EST
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) email@example.com -----Original Message----- From: Bill Rosenberg [SMTP:firstname.lastname@example.org] 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 ============================================================== Gentle licensing professionals, all messages to Techno-L are public, archived permanently, and can be read by anyone with access to the WWW. Opinions expressed are those of the authors. Administrative email concerning the management of Techno-L should be sent to email@example.com.