Top Legal and Tax Issues Facing Christian Not-for-Profits

Transcription

1 Top Legal and Tax Issues Facing Christian Not-for-Profits Dave Moja, Partner John Butler, Tax Counsel Tightening of Definitions 1

2 Definition Examples Related Organization Integrated Auxiliary Contribution Receipt Foreign Mission Agency Disqualified Person Minister New IRS Audit Procedures Analytics Use of Form 990 & other data to: 1. Stratify exempt organizations into major subsections and allocate examination cases among subsections 2. Focus on data-driven approach to identify the highest risk areas of non-compliance 3. Identify high non-compliance risk through (a) stakeholder input, (b) reliable outside data, and (c) public information 2

3 IRS Audits Five Issues for Future Exams Exemption Issues Looking for non-exempt purpose activities and private inurement Protection of Assets Disqualified Person issues Self-dealing Excess Benefit Tax Gap Employment Tax UBIT IRS Audits Five Issues for Future Exams International Activities Oversight of funds spent outside U.S. Foreign conduits FBAR requirements and FATCA Emerging Issues 501(r) Non-exempt charitable trusts (NECT) 3

4 Religious Freedom Does Changing Morality Create Tax Risks? Obergefell v. Hodges (6/26/15) Marriage is a fundamental constitutional right, so it violates the Due Process and Equal Protection Clauses of the 14 th Amendment for states to exclude homosexuals from marriage + The First Amendment ensures that religious organizations and persons are given proper protection as they seek to teach the principles that are so fulfilling and so central to their lives and faiths, and to their own deep aspirations to continue the family structure they have long revered 4

5 Some Questions: What are the risk areas that might interfere with effective ministry? How should we plan and strengthen our situation to best assure our effective ministries? Specifically, what are the tax risks? Risk: Loss of Tax Exemption Tax Exemption is Multi-Dimensional 1. Several distinct taxes Income Sales Property Others 2. Reporting to governments 3. Corollary issue: contribution deduction 5

6 Three Tax Exemptions Income Tax Mostly federal Nationally uniform Source of income Property Tax State Every state different Use of property Sales Tax State Every state different Nature of product, seller, or buyer Minister & Church Cases Freedom from Religion Foundation v. Lew and Koskinen (filed 11/22/13) Constitutionality of housing allowance Dismissed 11/13/14: No Standing because the plaintiffs had never been denied a housing allowance American Atheist, Inc. v. Shulman (filed 2013) Constitutionality of church 990 exemption Dismissed 2014: American Atheist never applied for exemption from filing Form 990 6

7 Pulpit Freedom Challenge & IRS Response Freedom from Religion Foundation v. Shulman FFRF claimed IRS favored churches in enforcement of prohibition of political involvement by 501(c)(3) organizations (11/14/12) Case Dismissed by agreement (8/1/14) IRS demonstrated to FFRF that it had flagged 99 churches for priority examination for political activity 2016 is an election year be careful out there! New Forms 7

8 Form 8928 Form 1095-C: ALE Reporting 8

9 Form 8940 Form 4506-A 9

10 Form 1042-S State and Local Tax (SALT) Issues 10

11 Issues Cash-strapped states, counties, and cities Every jurisdiction is potentially different Mastery of home state may not be enough State Taxes & Tax Exemption Property taxes Sales tax Unrelated Business Income (UBI) State treatment of LLCs 11

12 Charitable Solicitations 38 states & District of Columbia regulate charitable solicitation No uniform statute; every state is different Form 990 filing: religious organizations exempt in 26 states, but must register in 14 states Churches and integrated auxiliaries exempt in all but 1 state (Nevada) International Issues 12

13 International Issues More churches and organizations are doing overseas work without considering the tax reporting in USA: FBAR Ownership of foreign entities UBI from BAM activities Compensation paid to foreign national in USA International Issues, continued Foreign governments are more aware of potential income from taxing nationals working in their country. U.S. citizens working in a foreign country are subject to the foreign country s tax laws U.S. organization may be subject to a foreign country s payroll and other employment laws 13

14 Questions? Thank you. Dave Moja, Partner National Director of Not-for-Profit Tax Services John Butler, Tax Counsel Copyright CapinCrouse