Allied Charities of Minnesota
Excise Tax Information


Excise Tax Updates
July/August 1999 December 1998 Update Excise Tax Bulletin 10/10/1995
April/May/June 1999 Jan/Feb/Mar/April 1996 Excise Tax Bulletin 9&10/1995
Jan/Feb.Mar 1999 May/June 1996 Update

Special Excise Tax Bulletin Reprint
September/October 1995 Newsletter

In late September ACM was pleased to learn that our two year old effort to exempt Minnesota gambling licensees from federal wagering taxes (Form 730 & Form 11-C) had been resolved. The details of the resolution were explained in depth in the 8 page Allied Charities Of Minnesota Special Excise Tax Bulletin titled "ACM Successfully Negotiates Settlement On Federal Excise Wagering Taxes" that was mailed out to all current ACM Members & Associate Members on 10/10/95.

Since the Special Excise Tax Bulletin was mailed we have been able to clear up the confusion that existed as to where to file Form 8849 (Claim for Refund of Excise Taxes). ACM and the St. Paul Excise Tax Unit has been correct in requiring Form 8849 to be filed with Ogden, Utah. The Form 8849 instructions are technically inaccurate in that due to the fact that our 8849's deal with wagering tax claims they in fact need to be processed in Ogden, which deals with all Form 730 tax issues. So, even though the instructions give Kansas City's address, Ogden is the appropriate recipient.

Also, please note that AN IRS INTERNAL MISTAKE CAUSED NO FORM 730'S TO BE MAILED FOR SEPTEMBER 1995. TAXPAYERS STILL NEED TO TIMELY FILE SEPTEMBER 1995 RETURNS BY OCTOBER 31ST AND CAN DO SO BY COPYING A PRIOR MONTH'S FORM 730 AND CORRECTING THE MONTH & AMOUNTS TO SHOW SEPTEMBER 1995TOTALS. The Special Excise Tax Bulletin explains how to file "final" Form 730 if you are eligible.

If you receive a disallowance letter from the IRS on a refund claim please remember that you only have a 30-day response time if you disagree with the IRS ruling. (ACM Members might want to take advantage of the Special Offer from ACM tax counsel Eve Borenstein described in the Special Excise Tax Bulletin to assess your situation - you can contact Eve at 612-827-3477).

Excise Tax Reminder (Special Cautions For Non-501 (c) (3) Licensees)
May/June 1996  Newsletter

Background: In the last 18 months, ACM's efforts have yielded victories regarding whether Minnesota's lawful gambling licensees qualify for exception from the federal wagering (Form 730) and occupational (Form 11-C) excise taxes.

501 (c) (3) organizations enjoyed a complete victory when, in December of 1994, the National office of the IRS ruled in favor of our test taxpayer, finding that Minnesota 501 (c) (3) chapter 349 licensees who operated permissibly under relevant tax mandates had no private inurement occurring from their gaming activities and thus were not subject to either Form 730 or Form 11-C taxes.

Then, in October of 1995, an administrative understanding was reached with local excise IRS District officials for non-501 (c) (3) exemptlicensees. For these groups, excise tax issues have not gone away. Instead, under the general accord now in place, the IRS presumes that certain non-501 (c) (3)'s have no private inurement and are thus eligible for exception from these taxes.

It is imperative that non-501 (c) (3)s review the validity of these presumptions (discussed in the following paragraph) on a case-by-case basis, and continue to monitor both IRS posture and the organization's ongoing gaming expenditures, to avoid future excise tax assessments and/or penalties should private inurement be found to exist from non-bingo gaming.

At present, 501 (c) (4) licensees who are not veterans organization or fire relief associations enjoy a blanket presumption of no private inurement. This is not the case for fraternals (501 (c) (8)'s or (10)'s), veterans groups (501 (c) (4)'s or (19)'s), or social clubs (501 (c) (7)'s) who generally must establish eligibility for exception from tax by demonstrating that their payments from gambling proceeds toward property or facilities (i.e. Schedule D expenditures) as well as toward property taxes are insignificant (the IRS uses the phrase "de minimis") compared to the rest of the organization's gaming expenditures. With such presumptions/conclusions in place for specific prior tax periods upon which tax was already paid licensees' Form 8849 refund claims should be allowed (however, Knights of Columbus Councils and many social clubs have seen their refund claims denied no matter how strongtheir facts are that no private inurement exists). Similarly, for current and (and future) tax periods non-501 (c) (3) exempt taxpayers-licensees who determine their operations are presumptively or conclusively not generating private inurement can claim exception from these taxes*.

Having said all that, any group seeking retroactive refund or current/future period exception need be aware that the relevant presumptions concerning what constitutes private inurement are subject to IRS revision. Filing for a refund claim allows the periods claimed upon to be open for audit for an additional three years. Similarly, each new months Form 730 filing (with $-0- shown for wagers collected) starts a three year audit period. [Note that licensees who file "Final Returns" and stop Form 730 filing will have all unfiled-upon months open for audit without limit!] It has been our recommendation all along that before a licensee seeks exception for prior or current periods they consult with a qualified tax practitioner. It is particularity important to do this now and in the future as there is no guarantee that the IRS' position on these matters won't change. Organizations can (and should) protect themselves from penalties should audits reimpose liability on some periods for which taxes were not paid.

*Form 11-C exception can be noted on the form by using the following statement: No wagers are collected by the organization or its employees under §4421 (2) (B) since no private inurement occurs from taxpayers conduct of Minnesota Chapter 349 Lawful Gambling.

ACM sidenote - This article was prepared because of our concern that by not stategizing for the future or having consulted with a qualified tax practitioner, organizations will be disappointed if hit with back year's assessments with penalties and interest because of a misunderstanding of the private inurement concept. The article was not meant to create an opportunity to get billable clients for Eve. She had less than 10 groups take advantage of the ACM "Special Offer" and has given countless hours of free phone time to licensees and their accountants reviewing filing strategies and procedures. She is open to ongoing consults on these matters on a pure time basis (and she's fast!) at a discounted rate to ACM members. We encourage you to take her up on this offer if your organization and/or accountant needs further help in understanding this complicated issue.
 

ReprintSpecial Excise Tax Bulletin 10/10/95

ACM Successfully Negotiates Settlement on Federal Excise Wagering Taxes
Millions Of Dollars In Refunds Anticipated
 

As you know, Allied Charities' tax counsel, Eve Borenstein, has worked throughout 1995 to persuade the IRS that all of Minnesota's gambling licensees should be eligible for exception from imposition of federal wagering taxes [the law underwhich such taxes are imposed excludes from taxation those drawings conducted by organizations exempt under 501(c) when no portion of the gaming proceeds inure to the benefit of any individual]. In the last nine months we have secured two victories on behalf of Minnesota's 501(c)(3) gaming operators: 1) that due to the absence of any "private inurement", (c)(3)'s are not liable for Form 730's 1/4 of 1% wagering tax on pull-tabs and other "drawing"-type games (nor liable for Form 11-C's occupational tax upon sellers); and 2) (c)(3)'s are also entitled to the payment of refunds on properly-filed claims (generally, within 36 months from month of Form 730 filing) for all such prior-paid taxes.

Building on the resolution of these issues for (c)(3) licensees, ACM has continued to work to advance before the IRS a series of arguments specific to Minnesota's Gambling Control Board-regulated operations for individual classes of non-501(c)(3) licensees.

Our arguments have stressed that most, if not all of Minnesota's non-(c)(3) licensees are clearly deserving of exception from federal wagering tax excise taxes (Form 730 and Form 11-C) since Minnesota law precludes any real or potential "private inurement" from gaming proceeds.

At the end of September, 1995, the St. Paul Excise Tax Unit agreed to pay refund claims from certain categories of licensees who are exempt from federal income taxation via non-501(c)(3) classification based on the premise that within these categories, "private inurement" was presumed to be none or negligible. In plain English, this means that the IRS will now allow a majority of Minnesota licensees (though not all) to establish that Form 730 (as well as Form 11-C) need no longer be filed, as well as allow the payment of refund claims for past Form 730 taxes remitted by these groups! The next section of this report summarizes the progress we have achieved with the IRS' administrators in establishing that for 

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all) no (or at least no more than the most minimal) "private inurement" occurs and thus no liability for either Form 730 and Form 11-C filings should presently attach, nor have been

Fruitful Resolution Anticipated For Most Licensees
Given the intersection of Minnesota law with the provisions governing the federal wagering tax exception for otherwise tax-exempt organizations, the following Minnesota licensee categories will find that their facts and circumstances are presumptively assumed to either support or disallow their qualification for having no accessable Form 730 monthly liability for current and/or prior months (be aware, however, that such presumptions are not ultimately definitive -- if in fact an organization although presumptively assumed to be excepted from the wagering excise taxes actually has "private inurement" it will still be legally liable for the payment of such taxes!):

§501(c)(4)'s -- This classification of tax-exemption covers "social welfare organizations" and includes community benefit organizations such as Lions, Jaycees, Parents or "Booster" Clubs, and Sports Associations. Some veterans organizations and firefighters relief associations may also have been issued §501(c)(4) letters. THE COMMUNITY BENEFIT ORGANIZATIONS (Lions, Jaycees, Boosters, etc.), but not veterans organizations and firefighter relief associations -- each of which are separately described below, WILL BE PRESUMED TO NOT HAVE "PRIVATE INUREMENT", AND ON SUCH GROUNDS WILL BE EXCEPTED FROM THE FEDERAL WAGERING EXCISE TAXES.

Veterans Organizations -- These organizations may be tax-exempt under either §501(c)(4) or (c)(19), but are defined by their membership's status. These groups historic>

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innesota Statutes Chapter 349, were susceptible of the most potential for "private inurement". Many veterans posts did in fact contract for high dollar amount expansion, acquisition, or other improvement projects upon their facilities, and were entitled with Gambling Control Board pre-approval on projects in place prior to the cut-off date of April 23, 188, to continue to pay off their mortgages or other debt upon same from their
ongoing gambling proceeds. The IRS interprets such payments as representing "private inurement" to individual members of the post. Similarly, on post facilities which carry a high property tax valuation and annual assessment, the payment of real property taxes from gambling proceeds is also interpreted by the IRS as representing "private inurement" to the post's membership. Also, on post facilities which which have done repairs and maintenance the payment for same from gambling proceeds is interpreted by the IRS as representing "private inurement" to the post's membership. Given that approximately 10 - 15% of all veterans organizations show major dollars paid from gaming proceeds going to Schedule D and/or high property taxes, the IRS is not able to treat veterans organizations either all one way or the other (if they had to pick one it would likely be disallowance). Instead, based upon public information (real property tax records and Department of Revenue data on size of Monthly Gambling Reports' Schedule D) the IRS effective immediately will presumptively DISALLOW from exception from federal wagering excise taxes Minnesota licensees with sizeable Schedule D reported amounts and/or real property taxes burdens. Conversely, veterans organizations who do not own a facility, as well as veterans with minor amounts reported on Schedule D and with low real property tax assessments, will be presumptively assumed to qualify for exception from the federal wagering taxes and thus will have their claims ALLOWED.

Note that no bright line exists between allowance and disallowance, and many veterans organizations will fall in-between these two presumptions. As a result, veterans organizations are best advised to consult with a qualified tax practitioner and/or qualified tax counsel to ascertain whether they should:

   a) seek exception for prior or current periods;
    b) dispute a disallowance on claims already sought; or
    c) even reject an allowance of same.

[See the Special Offer at the end of this article regarding a unique service available to ACM members only in this area -- access to review services from ACM's tax counsel will be made available to groups who need the "private inurement potential" created through individual Schedule D Board-approved expenditures and real property tax lawful purpose expenditures.]

Firefighter Relief Associations -- Like veterans organization, these organizations are actually defined not by Code section number but by their mission and operations, as well as by name. They may be tax-exempt under a variety of tax-exempt classification (most commonly either §501(c)(3) or (c)(4)). These groups are perceived by both the excise tax and exempt organizations divisions of the IRS as having a potential for "private inurement". Particular to potential "private inurement" of gaming proceeds, it is notable that until State law changed in 1993 these Minnesota licensees could make lawful purpose contributions to a government entity, which in turn might fund pension trusts benefitting the Minnesota licensee's members. Given this clear potential for "private inurement", the IRS will presumptively DISALLOW from exception for federal wagering excise taxes firefighter relief associations for all periods prior to June 1993 (Minnesota licensees disallowed who can show that their lawful purpose expenditures did not go to pension funds should challenge the disallowance). For June 1993 and after, firefighter relief association associations will be be presumptively assumed to qualify for exception from the federal wagering taxes and thus will have their claims ALLOWED.

Everyone Else:

§501(c)(5)'s -- labor unions and agricultural or horticultural associations

§501(c)(6)'s -- professional and/or trade associations, chambers of commerce

§501(c)(7)'s -- social clubs

§501(c)(8)'s & (c)(10)'s -- fraternal beneficiary societies

Basically, all remaining Minnesota licensees not addressed in the preceding discussion regarding IRS presumptions (in other words, groups who are neither §501(c)(3) charities, §501(c)(4) community benefit associations, veterans organizations, or firefighter relief associations), will have their potential for "private inurement" evaluated by the IRS on the same grounds as that witnessed in the realm of the veterans posts -- if a facility is owned by the Minnesota licensee, what magnitude of Schedule D real property improvements or debt service is reflected, and what amount of real property tax burden is paid from gambling? For groups who do not own real property, such fact establishes an appropriate facts and circumstances argument that should result in the IRS presumptively ALLOWING the exception from federal wagering taxes to apply. For groups who own real property in which gaming is conducted, documenting the "non-inurement" nature of amounts of improvements paid for via Schedule D Board-approved amounts, coupled with low real property tax lawful purpose expenditures, need be accomplished to support exception from these taxes. Again, no clear bright line exists, and organizations are best advised to consult with a qualified tax practitioner and/or qualified tax counsel to ascertain whether they should seek exception for prior or current periods, dispute a disallowance on claims already sought (or even reject an allowance of same).

[As with veterans organizations, these groups should see the Special Offer at the end of this article regarding a unique service available to ACM members only in this area -- access to review services from ACM's tax counsel will be made available to groups who
need the "private inurement potential" created
through individual Schedule D Board-approved expenditures and real property tax lawful purpose expenditures.]

What To Expect From The IRS On Prior-Filed Claims

§501(c)(3) entities have been having prior-filed claims allowed and paid (check payments have been following taxpayer's return of allowance paperwork by approximately 2 months). For groups whose claims are only now being processed, paperwork re acceptance/allowance is now to be streamlined: it is expected that these groups will no longer be asked to execute and file a a form stipulating agreement to have $-0- of their claimed amount disallowed prior to IRS processing of payment checks.

§501(c)(4) community benefit organizations are likely to receive a letter from administrative processing unit of IRS stating that prior-filed claims are being allowed; this letter signifies that IRS processing of checks has been initiated. Expect receipt of payment checks in 6 - 8 months.

Veterans Organizations & Firefighter Relief Associations who have already filed claims -- 95% of such claimants now have their files physically located in the St. Paul Excise Unit where they are being individually evaluated:

a) those with presumptively disallowed periods will receive disallowance letter from St. Paul IRS on same starting this week; if you believe that the presumptive disallowance incorrectly situates your organization as one who has more that minimal "private inurement", a facts and circumstances argument need to be developed with a qualified tax practitioner and/or tax counsel IMMEDIATELY for appropriate communication to the IRS (disallowance letters will give you a 30-day response time);

b) those with presumptively allowed periods are likely to receive a letter from administrative processing unit of IRS stating that prior-filed claims are being allowed; this letter signifies that IRS processing of payment checks has been initiated. Expect receipt of payment checks in 6 - 8 months.

Everyone Else (§501(c)(5)'s; §501(c)(6)'s; §501(c)(7)'s; §501(c)(8)'s; and §501(c)(10)'s) -- some claimants have already been issued denials either through the St. Paul Excise Tax Unit or through the Ogden Service Center. If such denials were disputed per the process noted in the denial letter, it may still be possible to bring facts and circumstances arguments at this time to win a change-over, as appropriate, to an allowance. However, we understand that some of these have been formally closed by the IRS, which would mean that some of the periods claimed are no longer open under statute of limitation rules and the only recourse now is to bring court action. Hopefully, this will only be the case for a small number of groups. Given the analysis and results noted previously, Minnesota licensees in these categories who have yet to hear of disallowance or allowance should be prepared to bring favorable facts and circumstances forward IMMEDIATELY. It is to soon for us to be fully aware of what process will be utilized by the IRS on claims filed to-date which lack facts and circumstances supporting documentation.

If You Have Claims on Prior-PaidPeriods to Now File And/Or Believe That Form 730 Liability Should Now End

1) Make an appropriate determination with a qualified tax practitioner and/or qualified tax counsel that you have the facts and circumstances to support an exception from federal excise wagering taxes -- this means that facts and circumstances need to be evaluated for prior periods as well as present operations.

2) Assuming that your organization
meets the "no private inurement" exception based on failure to use gambling proceeds for members' benefit (either through applying same heavily toward real property tax payments or through Schedule D payments toward certain facility improvements), you need apply for refund on prior-paid months (see point 3 following) and/or cease filing and paying Form 730s for present periods (see point 5 following).

3) Form 8849 is the form used to file for refund of Form 730 taxes already paid. You must file refund claims for all months you seek refund of. Prior-submitted Forms 8849 only are good for the months claimed thereupon. You still need to file Form 8849 for subsequent months that had Form 730 taxes paid which were not yet claimed for refund. Remember that refund claims may be made on individual months of Form 730 filing as long as same is filed within 36 months of the later of the due date or actual filing/paying of the Form 730.

 Refund claims for prior-paid Form 730 are to be filed with the appropriate IRS Service Center*    (not the St. Paul Excise Tax Unit), explaining thereupon both --

4) Expect Form 8849 refund claims to be processed as follows: 5) Should your organization seek to end ongoing Form 730 and Form 11-C liability in light of your determination that exception from such tax is warranted under the facts and circumstances particular to your gaming operations' potential for "private inurement", either a "final" Form 730 or a Form 730 with $-0- wagers need to be filed. To effectuate a "final" filing, both wagers collected need be shown for the current month (at $-0-), and the box "final return" need be checked (also, write "Final Return" on the return).

*at this time there is some confusion on which IRS Service Center Form 8849 refund claims should be sent to -- we should should get clarification in the next few days and will include information in September/October ACM Newsletter due out in next week -- or call Connie Maw at St. Paul IRS Excise Tax Unit (612-290-3743).

What To Due When You Receive Your Refund Checks

When your refund checks come (note that you get a separate check for each month that you filed a refund claim for) please remember:
 

Special Offer

For veterans, fraternals, and other organizations who own real property in which gaming is conducted, ACM tax counsel Eve Borenstein, has agreed to provide for ACM members only an analysis of your property tax and Schedule D amounts to determine your organizations "private inurement" for a flat fee of $135 (this fee does not include filing of arguments and claims with IRS). If you are interested, please feel free to call Eve at 612-822-2677.
 

EXCISE TAX UPDATE -  JAN/FEB/MAR/APR 1996 NEWSLETTER

Last October ACM mailed out to all current ACM Members and Associate Members an 8 page Special Excise Tax Bulletin. We have recently had a number of requests for additional copies of this bulletin and thus have included a reprint of this important information as an insert in this Newsletter (see yellow pages).

During the last few months most, but not all organizations, have received letters from the IRS with a determination about their Protective Claims for Refund of Excise Taxes. If you received a disallowance letter from the IRS on a refund claim please remember that you only have a 30-day response time if you disagree with the IRS ruling (ACM Members might want to take advantage of the Special Offer from ACM tax counsel Eve Borenstein described in the Special Excise Tax Bulletin to assess your situation - you can contact Eve at 612-822-2677).

Please note the determination is based on a subjective basis looking at the individual facts and circumstances of each organization. You have the right to appeal the ruling and we recommend that you consult with a qualified tax practitioner and/or qualified tax counsel if your organization receives no "private inurement" from gaming proceeds.

One change since October is that the IRS has disallowed claims for Knights of Columbus organizations due to an old ruling that determined that Knights of Columbus organizations (whether you own own a building or not) do have "private inurement" from their gaming proceeds. St Paul has indicated that without a court reversal they have no choice but to use the old ruling. ACM tax counsel Eve Borenstein has been attempting to contact the Knights of Columbus state offices to discuss the situation but at this point Knights of Columbus organization are still liable for the excise taxes.

It is guesstimated that about $8 million in refunds with interest will be issued to Minnesota charities and excise tax savings in the future will be about $2 million per year.