Posted By John Palatiello,
Friday, May 24, 2013
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The current controversy over the IRS’s politically tainted scrutiny of conservative 501(c)(4) organizations is focusing attention on the Exempt Organizations Division of the federal tax agency. As the Capitol Hill newspaper Roll Call reported, this IRS division has been a longstanding administrative problem. Moreover, it is the office that is responsible for assuring that exempt organizations comply with applicable tax laws. And, it is in charge of overseeing the activities of exempt organizations so that such entities do not engage in unfair competition with private sector, for-profit firms, including small business.
Exempt organizations are not required to pay taxes on revenue that are related to the purpose for which they receive tax exemption. However, such organizations, including MAPPS, are required to pay an unrelated business income tax, or "UBIT” on non-exempt revenue. For example, dues, conference registration fees, sponsorships, publications and other similar normal MAPPS revenues are not taxable because they directly support the association’s exempt purpose. However, revenue from the sale of advertising on our web site is subject to UBIT, inasmuch as that is not related to the mission of MAPPS and is solely for the business benefit of the advertiser. MAPPS can sell advertising, but we must pay tax on that revenue.
A look at the tax law affecting the entire family of 501(c) organizations is in order, to include IRS oversight and enforcement of commercial activities of nonprofit organizations and UBIT, as well as how the IRS is lax in enforcing the law to prevent unfair nonprofit competition with private enterprise.
Recently, the Exempt Organizations Division of the IRS, the very office now the subject of several investigations, conducted a Colleges and Universities Compliance Project, which looked at the UBIT payments (or lack thereof) of colleges and universities. The April 25, 2013 IRS Report, according to a news article, "found increases to unrelated business taxable income for 90 percent of the colleges and universities examined, totaling about $90 million. There were over 180 changes to the amounts of unrelated business taxable income reported by colleges and universities on Form 990-T; and disallowance of more than $170 million in losses and net operating losses that could amount to more than $60 million in assessed taxes."
As Accuracy in Academia has reported, at the same time the IRS Exempt Organizations Division was targeting conservative groups, it was being lax on universities engaging in commercial activities without paying UBIT on revenue from such activities, in unfair competition with private sector, tax-paying companies.
The underlying difficulty of tax fairness among exempt organizations and nonprofits is deeper and more longstanding. Gilbert M. Gaul and Neill A. Borowski of The Philadelphia Inquirer won a Pulitzer Prize for their investigation that identified rampant abuses of America's nonprofit tax laws. Many of the issues raised in this series are still evident today.
A 1980 report by the Small Business Administration also singled out universities as a major source of tax dollar-supported unfair competition with private companies, particularly small firms -- "Unfair Competition by Nonprofit Organizations With Small Business: An Issue for the 1980s” (June, 1984). SBA offered testimony, when requested by the House and Senate Small Business Committees in 1988 and 1996 and conducted some research on non-profit competition in 1999.
Many MAPPS member firms encounter unfair competition from universities. Look, for example, here, here or here, to see just a sampling. We’ve held sessions at MAPPS meetings on university competition.
The 1995 White House Conference on Small Business made this a priority issue when its plank read, "Congress should enact legislation that would prohibit government agencies and tax exempt and anti-trust exempt organizations from engaging in commercial activities in direct competition with small businesses.” That was among the top 15 vote-getters at the 1995 Conference and was number one among all the procurement-related issues in the final balloting.
An entire book has been written on this issue, Unfair Competition: The Profits of Nonprofits, James T. Bennett, Thomas H. DiLorenzo, Hamilton Press, 1989.
The Ways and Means Committee last held extensive hearings on this problem in 1987 and had GAO conduct an investigation. The Small Business Committee has also held hearings, but that was back in 1996.
I testified before the House Ways and Means Committee in February and later participated in a Roundtable hosted by Rep. Reichert and Rep. Lewis, who make up the House Ways and Means Committee Special Panel on Tax-Exempt Organizations.
To help Congress address this issue in more detail, focused on university competition with geospatial firms, please submit your examples of university competition to John "JB" Byrd, MAPPS Government Affairs Manager.
Posted By Rich Breitlow,
Wednesday, October 12, 2011
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Richard Breitlow is an account executive with AGFA Materials Corporation, where he specializes in aerial photography product sales. He is the former chairman of the Aerial Acquisition Committee of MAPPS with more than 38 years’ experience in the aerial photography business.
Recently, President Obama proposed a Federal debt and deficit reduction plan that includes slower and longer depreciation schedules for business owned aircraft. While billed as eliminating a tax loophole for corporate executives’ jets, the proposal would also adversely affect small businesses, including aerial imagery and geospatial data collection operators. MAPPS has already commented
Now the "President’s Plan for Economic Growth and Deficit Reduction" has been released, including a proposed $100 per flight fee for air traffic control services. This double-whammy on the aerial survey profession is both economically unwise and politically burdensome and unfair.
Like other aviation related associations, MAPPS recognizes the need to pay for air traffic control (ATC) services. General aviation has historically paid for those services through fuel taxes, commonly referred to as "pay at the pump". The proposed $100 fee per flight would add a whole new accounting requirement and new level of government bureaucracy just to administer and enforce the new requirement. The best way for general aviation to pay for ATC services is to continue to pay at the pump. Whether the current amount taxed is appropriate, or should be raised is another argument. Certainly there is a lot of waste in FAA spending that should be eliminated before increases are considered.
The Obama Administration portrayed the proposed fee as a tax on corporate jets. However the actual wording only excludes military aircraft, public aircraft, recreational piston aircraft, air ambulances, aircraft operating outside of controlled airspace, and Canada-to-Canada flights. All aerial survey flights in controlled airspace would be subject to the proposed fee, regardless of aircraft type. MAPPS has gone on record in opposition to per flight air traffic control fees.
Adding a $100 fee per flight for ATC services would only further burden a profession already hard-hit by the decline in the housing market, and the economy in general, and would certainly have a negative impact on hiring. This fee would have just the opposite effect of the intent of the President's "jobs bill".
Lobbyists for commercial airlines have long favored measures to shift a larger share of the burden for ATC services to general aviation. However, attempts in the past to include a per flight ATC user fee or "charge" in the Federal Aviation Administration (FAA) Authorization bill have been met with stiff opposition.
The current effort will, and should, meet a similar fate.
While the President’s Plan for Economic Growth and Deficit Reduction appears to have little chance of passing Congress, parts of it could find its way into the "Super Committee's" plan to reduce the national debt and annual government deficit. This is where the real danger lies.
In order to protect the interests of the aerial survey profession, and the public and clients we serve, I suggest:
- the current Pay at the Pump method be preserved as the best way for general aviation to help pay for ATC services and the "fee per flight" concept be rejected,
- Identify "Super Committee” members who are aviation friendly and urge them to either reject the fee outright, or adopt wording to exclude flights that are primarily work operations, such as small businesses operating aircraft for aerial surveys.
- Identify FAA activities that can be reformed, eliminated or privatized to save money and explore a more balanced and equitable method of paying for FAA and ATC services that does not unfairly target general aviation generally or aerial survey operations in particular.
Posted By Nick Palatiello,
Thursday, September 15, 2011
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On September 12 MAPPS Executive Director John Palatiello was one of five witnesses who testified
at a public hearing by the Internal Revenue Service (IRS) entitled,
"Withholding on Payments by Government Entities to Persons Providing
Property or Services.” The hearing was to address legislation enacted by
Congress calling for a 3 percent withholding on all federal contracts,
including mapping, surveying and geospatial activities, with the IRS in
charge of implementing regulations on section 3402(t) of the Internal
Palatiello reiterated MAPPS opposition to the 3 percent withholding. He
said even with a recent change in the Federal Acquisition Regulation
(section 52.232-10), A/E firms, including those in surveying and
mapping, still face a potential retainage or withholding of 13 percent
on Federal contracts, an amount often in excess of the net profit. He
said small business cannot afford to be in the banking business, making
interest free loans to the federal government. He also said the
withholding will drive firms out of the Federal contracting market at a
time when we should be encouraging more competition.
As a means to help business, Palatiello urged that all long-term
contracts be grandfathered. In particular, an indefinite
delivery/indefinite quantity (ID/IQ) contract should be grandfathered,
and the 3%withholding should not apply to any task order entered into or
against the ID/IQ contract after the effective date of the IRS
regulation. The same policy should apply to other types of contract
vehicles, such as GSA Schedule and Basic Ordering Agreements (BOAs), he
told the IRS.
In 2009, MAPPS testified
at an IRS oversight hearing opposing 3 percent withholding.
MAPPS is a member of the Government Withholding Coalition (the
Coalition), led by the U.S. Chamber of Commerce. The Coalition was
formed to seek repeal of Section 511 of Public Law No. 109-222, which
mandates the sweeping new requirement that federal, sate and local
governments withhold 3% of their payments for goods and services (the
government withholding regime).
Currently there is bi-partisan support in Congress to repeal the withholding. H.R. 674
and S. 164
intended to "amend the Internal Revenue Code of 1986 to repeal the
imposition of 3 percent withholding on certain payments made to vendors
by government entities.” The bills are cosponsored by a bipartisan group
of 250 members of the U.S. House of Representatives and 21 U.S.
Senators. This legislation is a priority for the Republican leadership
in the House and is scheduled to be debated this fall. President Obama
has included a delay in the effective date of the withholding in his
recently unveiled jobs package.
Posted By John Palatiello,
Thursday, September 15, 2011
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Obama - and almost every other political figure on the American
landscape – has at one time or another declared that small business is
the backbone of America’s economy. Then why is the President proposing
to raise taxes on the very entrepreneurs he’s counting on to create
| Photo provided by Keystone Aerial Surveys|
Monday, President Obama formally sent his "American Jobs Act” to
Congress. As promised in his address to Congress and the Nation last
Thursday, the package includes measures to pay for his latest proposal
to jump start the American economy. Included in the bill is a provision
on "General Aviation Aircraft Treated As 7-Year Property”. That’s tax
jargon for the President’s now infamous but inaccurate attack on a tax
loophole for corporate jets.
fact of the matter is most general aviation aircraft is owned by small
to mid-sized businesses, not corporate fat cats. These planes and
helicopters are not used to whisk CEO’s off to exotic destinations.
Rather, they are used for aerial photography in support of surveying and
mapping of new highways, monitor dangerous encroachment of underground
pipelines, conduct danger tree surveys to prevent power outages, apply
fertilizer and pesticides to crops for maximum yield of food by farmers,
researching the atmosphere and environment, keep an eye on traffic, and
move employees, customers, cargo and products.
President’s plan is based on polling and focus group sessions that show
average Americans frustration with tax loopholes that permit some
individuals and businesses to pay little or no taxes. In fact, what is
at issue is the length of time a taxpayer is permitted for depreciation
of an asset, in this case an airplane. Owners of business aircraft can
depreciate their investment over five years. President Obama has
proposed changing the depreciation schedule for general aviation
aircraft to seven years calling the current five year schedule a tax
loophole. The depreciation schedule for general aviation aircraft has
been in existence since the early 1980s. Business aircraft are treated
similarly to other assets such as cars, trucks, and certain equipment,
which can be depreciated over a five year period when purchased for
to the General Aviation Manufacturers Association (GAMA), in the first
six months of 2011, total general aviation airplane shipments worldwide
fell 15.5 percent, from 936 in 2010 to 791 this year. There is no doubt
the Obama proposal would only make this situation worse.
depreciation schedules create jobs. The faster a business can expense
capital equipment, the faster it can buy more – putting more people to
work. Making it difficult for businesses to purchase and depreciate
aircraft will not punish wealthy CEO’s, but reduce jobs for the pilots,
crews, mechanics, airport operations workers, and ultimately the folks
that work the assembly lines at aircraft factories. At a time when
application of digital aerial imagery, LIDAR and other airborne acquired
geospatial data is exploding, aerial photographers, surveyors, and
users of geospatial services will also see their jobs jeopardized.
is difficult to see how taxing aircraft supports the broader goal of
addressing the nation's job crisis. This proposal is virtually identical
to what happened in 1990 when Congress imposed a "luxury” tax on
yachts. The rich people who could afford these boats were unaffected,
but the workers built them lost their jobs. As a result, Congress
scrambled to repeal the tax. Pardon the pun, but Congress should not let
the plane tax proposal ever get off the ground.