Hot Exempt Organization Tax Issues for 2016

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1 Hot Exempt Organization Tax Issues for 2016 Dave Moja, National Tax Practice Leader EO Tax Issues IRS EO data-driven decision making Form 1098-T issues Employee gifts update! IRA charitable rollover made permanent Form deadlines and changes Church tax audits and the IRS IRS withdraws 1098-D regulations UBIT, international, other (IRS priorities) 1

2 IRS Data-Driven Decision Making Exams moving from project-driven to data-driven 190 data queries from 990 Core and Schedules Case selection model New approach has resulted in 90% change rate on filed returns Form 990-PF and 990-EZ in early 2016 IRS Data-Driven Decision Making The individual queries are categorized by the significance or risk of the potential issue by using return information and internal data sources to identify organizations for potential non-compliance. Obviously, the whole idea is that any time we re doing examinations, and again in a time of very limited resources, let s use our resources the best we can. Hopefully, something will be done with respect to high-risk organizations so where there s that potential for non-compliance, that s when the IRS examiner should be out there. 2

3 Form 1098-T Issues Penalty Relief for 2012 IRS Amnesty for 2013, 2014 No penalties for 2015 if procedures followed Schools must use Box 1 and ONLY amounts paid Students can only claim credits if they have a copy of Form 1098-T for a given year Employee Gifts Update! Ward, the CFO, at Marathon Bible College (MBC), a private college exempt under Internal Revenue Code section 501(c)(3), calls us with a question. MBC has historically given employees in the accounting department $15 Moonrox Coffee gift cards for their birthdays. Historically, MBC has considered these birthday presents as a de minimus fringe benefit for these employees. Ward asks if this is the correct treatment for tax purposes. Regrettably, we have to tell him that no, the gift cards should be taxable and included in compensation for the accounting department employees and reported in the employees Form W-2 each year. 3

4 Employee Gifts Update! PATH ACT of 2015 Section 202. Safe harbor for de minimis errors on information returns and payee statements. The provision establishes a safe harbor from penalties for the failure to file correct information returns and for failure to furnish correct payee statements by providing that if the error is $100 or less ($25 or less in the case of errors involving tax withholding), the issuer of the information return is not required to file a corrected return and no penalty is imposed. A recipient of such a return (e.g., an employee who receives a Form W-2) can elect to have a corrected return issued to them and filed with the IRS. The provision is effective for returns and statements required to be filed after December 31, IRA Charitable Rollover Made Permanent For taxpayers 70.5 years of age Up to $100,000 Direct distribution to a public charity PERMANENT No changes (i.e. higher limit, DAFs, 59.5 years old) 4

5 Form 990 One Extension Current Form 8868 two parts Two three-month extension opportunities Form 8868 one automatic 6-month extension Begins with tax years after 12/31/15 IRS working on new form $100 ($20) per day penalties still apply Form W-2 and 1099 Deadlines This new provision will require Forms W-2, W-3, and returns or statements to report non-employee compensation (such as Form 1099-MISC), to be filed on or before January 31 of the year following the calendar year to which such returns relate. The provision is effective for returns and statements relating to calendar years after the date of enactment (e.g., filed in 2017). In addition, electronically filed returns will no longer be eligible for an extended filing date. 5

6 Cadillac Tax As a provision of The PATH Act of 2015, the Cadillac Tax under the Affordable Care Act has been delayed two years. The excise tax on high-cost employer-sponsored health plans enacted as part of the ACA will first be effective in 2020 rather than 2018 as originally scheduled. Thus the first required reporting by providers and employers will now be in 2020 for the 2019 tax year. The so-called Cadillac Tax includes a 40% penalty against health insurance plans that provide benefits over certain thresholds to employees. Note that most governmental entities are exempted from this tax or penalty Inflation-Adjusted Amounts The annual exclusion for gifts remains at $14,000 for 2016, like it was for The gross income threshold for filing Form 990-T remains at $1,000 for 2016 the same as it has been since 1951! The OASDI maximum compensation base ( FICA limit ) is $118,500 for 2016, equal to the amount for The threshold for filing Form 990 electronically remains at $10,000,000 and 250 information returns. The foreign earned income exclusion rises to $101,300 for 2016, up from $100,800 in Token gift amounts for 2016 are $10.60, $106, and $53 6

7 IRS Mileage Rates Standard mileage rates moved down. The optional mileage allowance for owned or leased autos (including vans, pickups, or panel trucks) has decreased by 3.5 to 54 per mile for business travel after The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense also has decreased by 4 to 19 per mile for The charitable mileage rate remains steady at 14 per mile this amount is statutory. Extra Time to File Forms 1095-B and 1095-C In late 2015, the IRS announced extended deadlines for some of the filing of first-year Affordable Care Act (ACA) reporting forms. The IRS announced that it has extended the due dates for ACA reporting Form 1095-B, Health Coverage, and 1095-C, Employer-Provided Health Insurance Offer and Coverage Insurance. The new, extended due dates are as follows: March 31, Forms provided to employees (previously February 1) May 31, Forms files with the IRS if using a paper form (previously February 29) June 30, Forms filed with the IRS if filing electronically (previously March 31) 7

8 Affordable Care Act FTE1 = Full-time employees (30 hours/week) FTE2 = All others (hours divided by 130/month) Exclusions! (Seasonal, Work-study, etc.) FTE3 = Add FTE1 + FTE2 each month Divide by 12 for annual determination ROUND DOWN = 49! Affordable Care Act Small? What about a L.A.G.E.R.? 2014 = 99 or fewer FTEs (Transition) 2015 Determination 2015 = 49 or fewer (50+ FTE = ALE) 2016 Determination 2016 = Projections 2017 Determination Care-Act-Tax-Provisions-for-Small-Employers 8

9 Church Tax Audits IRS may only examine a church if they have a reasonable belief (on the basis of all facts and circumstances and with written notice) that the church: 1) does not qualify for exemption from income tax or, 2) may be carrying on an activity that is a trade or business unrelated to its exempt purpose. History Living Word Christian Center Church Tax Audits In a December 17, 2015 memo, the IRS states that: 1) I.R.C. section 7611 procedures apply to employment tax inquiries; 2) IRS examiners should not initiate any examinations on a church; 3) if for some reason an employment tax examiner encounters a church employment tax issue, the examiner should immediately contact a manager. 9

10 IRS Withdraws Section 170(f)(8) Regulations The proposed regulations were controversial because the procedure would have required donee organizations that elected to use those procedures to obtain, store, and send to the IRS donor Social Security numbers, thus posing a potential identity theft problem and other problematic issues. Proposed regs issued in Fall of 2015 Several pundits called them 1098-D regs Over 37,000 negative comments IRS withdrew proposed regulations on 1/7/16 IRS Priority Guidance Exemption Protection of assets Tax gap International Emerging issues 10

11 IRS Priority Guidance EXEMPT ORGANIZATIONS 1. Revenue procedures updating grantor and contributor reliance criteria under 170 and Revenue procedure to update Revenue Procedure for EO Select Check. 3. Proposed regulations under 501(c) relating to political campaign intervention. 4. Final regulations and additional guidance on 509(a)(3) supporting organizations. 5. Guidance under 512 regarding methods of allocating expenses relating to dual-use facilities. IRS Priority Guidance EXEMPT ORGANIZATIONS 6. Final regulations under 529A on Qualified ABLE Programs as added by 102 of the ABLE Act of Proposed regulations were published on June 22, Guidance under 4941 regarding a private foundation s investment in a partnership in which disqualified persons are also partners. 8. Final regulations under 4942 and 4945 on reliance standards for making good faith determinations. Proposed regulations were published on September 24, PUBLISHED 09/25/15 in FR as TD

12 IRS Priority Guidance EXEMPT ORGANIZATIONS 9. Final regulations under 4944 on program-related investments and other related guidance. Proposed regulations were published on April 19, PUBLISHED 09/28/15 in IRB as NOT (RELEASED 09/15/15). 10.Guidance regarding the excise taxes on donor advised funds and fund management. 11.Guidance under 6033 relating to the reporting of contributions. IRS Priority Guidance EXEMPT ORGANIZATIONS 12.Final regulations under 6104(c). Proposed regulations were published on March 15, Final regulations under 7611 relating to church tax inquiries and examinations. Proposed regulations were published on August 5,

13 UBIT Issues In Private Letter Ruling , the IRS came to the conclusion that the alumni association of a community college was subject to income from fees received from market vendors at a weekly flea market they hosted. The IRS found that the flea market activity was not substantially related to the association s exempt purpose of providing financial and civic support for the college. In addition, it was held that fees that generated from market vendors were not real property rents that are excluded from unrelated business taxable income. UBIT Issues College Buys a Mall! In PLR , Sole membership LLC/exempt supporting organization s ownership of retail center adjacent to university s campus won t be treated as UBTI or cause revocation of organization s exempt status. 13

14 UBIT Issues Unrelated Business Income Tax - 512(b)(13) Exclusion As part of the Protecting Americans from Tax Hikes Act of 2015, the section 512(b)(13) exclusion for payments of rents, royalties, annuities, and/or interest from a controlled organization to its tax-exempt parent was extended permanently retroactive to December 31, Donor-Advised Funds Priority Guidance Plan Pension Protection Act of 2006 changes Schedule D (Form 990) Part I Public sentiment and big funds Five-year payouts 14

15 International Issues FBAR focus FBAR due date changes (extension) Form 1042-S Foreign for-profits, NGOs, other structures Schedule F, Part IV Forms! Schedule F, Part 1, Line 2 wording on Part V Description that emphasizes the organization s control and discretion over the use of the funds Obergefell v. Hodges decision Exemption issues? Tax implications value of your tax exemption Charitable contributions Program services UBIT exclusions Property tax Sales tax Property tax projections Assessor s valuation comparisons? 15

16 Revenue Enhancement Opportunities Institutional uniquenesses Individual uniquenesses Brainstorming Black Red Green Blue Just-Add-Water Plan (JAW) Big, Audacious Plan (BAP) It Is Up to You! Alternative Revenue Sources Make Sure You Know IRS Deadlines Are You an ALE? Same-Sex Marriage Rulings 16

17 Thank you! Dave Moja, Partner National Tax Practice Leader CapinCrouse LLP

2016 Not-for-Profit Tax Year-End Review

2016 Not-for-Profit Tax Year-End Review The webcast will start at 1 p.m. Eastern Please note: Handout You can print or download the webcast handout at capincrouse.com/2016-nonprofit-tax-review CPE CPE certificates will be emailed to you within