The IRS Tax Exempt & Government Entities division (TE/GE) and Treasury Department have issued the 2024 - 2025 Priority Guidance Plan (PGP), addressing various regulatory projects affecting tax-exempt and government entities.

The PGP includes 10 guidance projects concerning tax-exempt organizations, which Treasury and TE/GE have identified as priorities for allocating resources through June 30, 2025:

1. Guidance revising Revenue Procedure 80-27 on group exemption letters, following up on proposed guidance provided in Notice 2020-36
2. Guidance illustrating the application of the regulations under IRC Section 501(r) for tax-exempt hospitals
3. Regulations under IRC Section 512 on the allocation of expenses in computing unrelated business taxable income (UBTI) and addressing how changes made to IRC Section 172 net operating losses (NOLs) by Section 2303(b) of the CARES Act apply for purposes of IRC Section 512(a)(6)
4. Guidance on the SECURE 2.0 Act changes to IRC Section 529
5. Guidance under IRC Section 4941 on a private foundation's co-investment in a partnership in which disqualified persons are also partners
6. Final regulations under IRC Section 4966 on donor-advised funds (DAFs), including excise taxes on sponsoring organizations and fund management (proposed regulations were published on November 14, 2023)
7. Regulations under IRC Section 4967 on prohibited benefits from DAFs, including excise taxes on donors, donor advisors, related persons and fund management
8. Regulations under IRC Section 4958 on DAFs and supporting organizations
9. Guidance on the public-support computation for distributions from DAFs
10. Final regulations designating an appropriate high-level Treasury official under IRC Section 7611 (proposed regulations were published on August 5, 2009)

The majority of the projects are carryovers from 2023–2024 PGP projects, except that guidance illustrating the application of the regulations under IRC Section 501(r) is new for FY2025. IRC Section 501(r) requires tax-exempt hospitals to:

1. Conduct a community health needs assessment at least once every three years
2. Adopt and publicize a financial assistance policy
3. Limit charges to persons eligible for financial assistance
4. Adopt an emergency medical care policy
5. Comply with restrictions on billing and collection practices

Implications

The annual Priority Guidance Plan and the TE/GE Program Letter provide insight into what projects Treasury and TE/GE will prioritize for the upcoming fiscal year. Most projects listed on the PGP are a continuation of projects from prior years and are likely to again be carried over into future years given resource limitations. For example, the PGP includes four carry-over items regarding DAFs, which have been on the PGP for several consecutive years, including IRC Section 4966 guidance for which the IRS issued proposed regulations last November (see Tax Alert 2023-1927). DAFs have become increasingly popular as charitable giving vehicles, though some critics of DAFs have called for stricter regulation of DAFs, including annual minimum DAF distribution requirements. Although Treasury and the IRS will not impose any minimum distribution requirements, it is possible they may apply a more expansive interpretation of IRC Sections 4966 and 4967 to justify stricter regulation of DAFs, donor-advisors and sponsoring organizations.

Another long-standing item on the PGP is guidance on the allocation of expenses when calculating UBTI. Exempt organizations have generally been allowed to use any reasonable method to allocate expenses between related and unrelated trade or business activities, but Treasury and the IRS have yet to specify any acceptable allocation methods. A related priority guidance item on the PGP is how to determine application of the 80% annual NOL deduction limitation under IRC Section 172 in calculating UBTI; in particular, whether that 80% limitation is applied on an IRC Section 512(a)(6) silo-by-silo basis, or against aggregate UBTI for a given tax year.

Exempt Organizations should consult with their tax advisors to better understand the implications of these priorities for their organization, or for help in determining whether to submit comments on proposed IRS guidance or recommendations for future IRS guidance.