Revenue Administrative Bulletin 1989-4
Approved: March 15, 1989
CERTIFICATION PROCEDURE FOR MICHIGAN COMMUNITY FOUNDATIONS -
SINGLE BUSINESS TAX CREDIT AND INCOME TAX CREDIT
RAB-89-4. This Bulletin describes the procedure for certifying community foundations and describes the credit authorized under Section 38c of the Single Business Tax Act by Public Act 514 of 1988 and Section 261 of the Income Tax Act by Public Act 515 of 1988.
Public Acts 514 and 515 of 1988
The Michigan legislature has authorized a nonrefundable credit under the Income Tax Act and the Single Business Tax Act for contributions to certified Michigan community foundations.
The credit allowed is 50% of the amount contributed by the taxpayer not to exceed the following limits:
- $100 for a taxpayer other than a resident estate or trust filing singly under the Income Tax Act;
- $200 for a husband and wife filing a joint return under the Income Tax Act;
- The lesser of 10% of the taxpayer’s tax liability for the tax year before claiming any credits allowed by the Income Tax Act or $5,000 for a resident estate or trust;
- The lesser of 5% of the taxpayer’s tax liability for the tax year before claiming any credits allowed by the Single Business Tax Act or $5,000 for taxpayers filing under the Single Business Tax Act.
The credit is authorized for contributions made in tax years 1989 through 1991. In the case of fiscal year taxpayers, this includes fiscal tax years ending within the calendar years 1989 through 1991. The credit covers contributions made during the taxpayer's tax year to community foundations that become certified for that tax year later in that calendar year.
A fiscal year taxpayer whose tax year ends January 31, 1989, who made contributions in 1988 to a community foundation may claim a credit on its 1989 tax year return even though the recipient community foundation is not certified by the Michigan Department of Treasury until June of 1989. If this fiscal year taxpayer made contributions to a certified community foundation on or after February 1, 1991 through December 31, 1991, those contributions would not be eligible for the credit since they were made during the taxpayer's 1992 tax year.
The credit does not apply in a tax year for which the aggregate amount of the credit claimed by all taxpayers for all prior tax years exceeds $3 million.
The credit is computed separately from the credit authorized by Section 260 of the Income Tax Act of 1967, as amended, MCL 206.260; MSA 7.557(1260) and Section 38 of the Single Business Tax Act, as amended, MCL 208.38; MSA 7.558(38), for contributions to public institutions such as a public broadcast system, an institution of higher learning, a public library, a municipality or other authorized recipient.
Procedure for Certifying Community Foundations
Community foundations that submit application form C-1052 before April 30, 1989, will be considered for qualification. Applications received on or after April 30, 1989, shall be considered contingent upon staff availability.
To request form C-1052, call (517) 373-3672. The name of the community foundation will be placed on the mailing list and form C-1052 will be mailed to you as soon as it becomes available.
Complete form C-1052 and submit it to:
Community Foundation Unit
Hearings and Tax Research Division
P.O. Box 15128
Lansing, Michigan 48901
The Community Foundation Unit ("Unit") will review the applications and notify the applicants of their certification status by mail June 1, 1989. Another Revenue Administrative Bulletin will be issued to announce the list of certified community foundations.
A foundation's certification will automatically expire December 31, 1989. Thus, it will be necessary for a foundation to apply for recertification for the 1990 tax year by November 15, 1989. On June 1, 1990, the Michigan Department of Treasury will announce whether the credit will be allowed for tax year 1990 and which community foundations are certified for that tax year. Community foundations must reapply for 1991 certification by November 15, 1990, and Treasury will again make a determination by June 1, 1991, of whether the credit will be allowed and which community foundations will be certified.
An applicant may appeal an adverse decision of the Unit to the Revenue Commissioner. The appeal must be in writing and contain a statement of facts and grounds on which the appeal is based. Such a proceeding is not considered a contested case for purposes of the Administrative Procedures Act of 1969, as amended, MCL 24.203(3); MSA 3.560(103). Any further appeal will be governed by Section 22 of the Revenue Act, as amended, MCL 205.22; MSA 7.657(22).
A community foundation may lose its certification status if it:
- Loses its status as an IRC 501(c)(3) entity,
- Fails to meet the statutory criteria, or
- Falsifies or omits a material fact in any matter submitted to the Unit which misleads or distorts the qualifications or circumstances of the applicant.
Sanctions may include a refusal to recertify the community foundation for the next tax year or other penalty, depending on the facts and circumstances.
Statutory Criteria for Certification
A community foundation is defined as an organization that the Michigan Department of Treasury certifies as meeting all of the following requirements:
- Qualifies for exemption from federal income taxation under Section 501(c)(3) of the Internal Revenue Code.
- Is organized and operated to attract contributions primarily of a capital or endowment nature to support a broad range of charitable activities within the specific geographic area of this state that it serves, such as a municipality or county.
Contributions primarily of a capital or endowment nature are those that are invested on a long-term basis to provide for the growth of assets and monies for distribution. Foundations whose charitable activities have a limited number of targeted and specified activities, rather than serving a general charitable purpose of the specific geographic area, do not qualify.
- Is publicly supported as defined by the regulations of the United States Department of Treasury, 26 C.F.R. 1.170A-9(e)(10).
- Meets the requirements for treatment as a single entity contained in the regulations of the United States Department of Treasury, 26 C.F.R. 1.170A-9(e)(11).
Note: A single entity means:
- The organization must be commonly known as a community trust, fund or foundation or similar name conveying the concept of a capital or endowment fund to support charitable activities in the geographic area served.
- All funds must be subject to a common governing instrument (i.e., articles and/or bylaws or a master trust agreement).
- The organization must have a common governing body which directs the distribution of all funds for charitable purposes.
- The governing body must have the power to:
- Modify any restrictions or conditions on the distribution of funds if such limits become inappropriate;
- Replace any trustee, custodian or agent for breach of fiduciary duty; and
- Replace any trustee, custodian or agent for failure to produce a reasonable return of net income.
- The organization must prepare periodic financial reports treating all funds as funds of the organization.
- Is incorporated or established as a trust prior to January 1 of the year prior to the tax year for which the credit is claimed.
If an organization seeks certification so that its contributors can claim a credit for the 1989 tax year, the organization must show that it was in existence prior to January 1, 1988.
Applicants will be required to submit the following documentation:
- A copy of the determination letter or letter granting tax exempt status under Section 501(c)(3) of the Internal Revenue Code;
- A copy of the articles of incorporation and bylaws or trust documents;
- A copy of the most current 990 Federal tax return;
- Documentation of the governing body's powers of modification and removal, if not included in governing instruments or trust agreements; and
- A copy of the most current financial statement.
All materials submitted to the Unit will be subject to the confidentiality provisions of the Revenue Act, as amended, MCL 205.28; MSA 7.657(28). The reasons for or against certification are likewise subject to the confidentiality provisions, and will not be disclosed to the public.