Walter Calvert spoke to the Association of Corporate Counsel Nonprofit Organizations Committee. He discussed the approaches being taken to gear up for enhanced post-issuance compliance in his session "Tax-Exempt Financing: Worth Considering in a Challenging Economy, But Be Aware of New Tax Compliance Burdens."
A benefit of 501(c)(3) tax-exempt status is the ability to borrow at tax-exempt interest rates. In this tough economy with increased pressures on operating budgets, a beneficial financial planning tool available to 501(c)(3) organizations is the use of tax-exempt financing to fund capital assets. In lieu of funding capital costs entirely from current revenues, an organization could, for example, fund new equipment purchases with a one-time bank loan structured as a tax-exempt lease-purchase agreement, or put in place a tax-exempt commercial paper program to fund periodic capital cost needs on an ongoing basis.
In weighing the costs and benefits of tax-exempt financing, one "cost" factor to consider is the ongoing responsibilities related to post-issuance tax law compliance. Recently, the expansion of Schedule K in the Form 990 implements the IRS's ever-increasing emphasis on post-issuance compliance by requiring extensive reporting on an exempt organization's outstanding tax-exempt debt.