I have to File a What?

Transcription

1 I have to File a What? Less familiar tax forms AHLA Tax Conference October 15-16, 2012 Speakers Bob Vuillemot Polly Mihalkovic Principal Tax Director Ernst & Young, LLP Sentara Health Pittsburgh, PA Richmond, VA (412) (757) robert.vuillemot@ey.com pdmihalk@sentara.com Page 2 I Have to File What? 1

2 Circular 230 disclaimer Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. Page 3 Disclaimer Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. For more information about our organization, please visit Ernst & Young LLP is a client-serving member firm of Ernst & Young Global operating in the U.S. This presentation is 2012 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of U.S. and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are not necessarily those of Ernst & Young LLP. Page 4 I Have to File What? 2

3 Agenda Foreign Filings Forms Related to Charitable Donations Forms Requesting Certain Changes or Determinations Other Filings Remediation Strategies Page 5 Foreign Filings Identified in Schedule F A yes answer on any of lines 14, 15 or 16 of Form 990, Part IV triggers the requirement to complete Schedule F, Statement of Activities Outside the United States Page 6 I Have to File What? 3

4 Foreign Filings A yes answer on any of lines 1 6 of Schedule F, Statement of Activities Outside the U.S., Part IV, may trigger the requirement to complete Forms 926, 3520, 5471, 8621, 8865 and/or 5713 Page 7 Foreign Filings TD F Report of Foreign Bank and Financial Accounts See Form 990, Part V, Q4 Form 926 Transfer of Property to a Foreign Corporation Form 8865 Transfer of Property to Certain Foreign Partnerships Form 5471 Information Return of US Persons With Respect to Certain Foreign Corporations Form 8621 Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund Form 3520 Transactions with Foreign Trusts Form 5713 International Boycott Report Page 8 I Have to File What? 4

5 TD F Report of Foreign Bank and Financial Accounts (FBAR) Page 9 TD F Report of Foreign Bank and Financial Accounts Introduction to FBAR Anti-money laundering rules (31 U.S.C. 5314) gives the US Treasury power to require reporting of transactions or relationships with foreign financial agencies Not part of the Internal Revenue Code and some tax rules do not apply For example, no Mailbox Rule, no family attribution rules, definition of the US is different, no disregarded entities IRS substantial presence test is followed but no reliance on any tax treaty relief Historically administered by another branch of Treasury (Financial Crimes Enforcement Network (FinCEN)) Administration/enforcement transferred to IRS in 2003 SBSE Bank Secrecy Act and Fraud Division (FinCEN remains involved in guidance process) Page 10 I Have to File What? 5

6 TD F Report of Foreign Bank and Financial Accounts Purpose - To provide disclosure of financial or other interests (signature authority) in financial accounts located in foreign jurisdictions. Trigger Event - A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeded $10,000 at any time during the calendar year. Exempt organizations (EOs) may be subject to FBAR filing due to financial interests in foreign mutual funds or as a result of indirect control of foreign financial accounts United States - For FBAR purposes, the United States includes the States, the District of Columbia, all United States territories and island possessions. (A broader definition than in the Internal Revenue Code.) Page 11 TD F Report of Foreign Bank and Financial Accounts Penalties for failing to file a proper FBAR Non-willful civil penalty up to $10,000 per account per year Willful civil penalty minimum of $100,000 or 50% of the balance in each account at the time of the violation Willful violations may result in criminal penalties Civil FBAR statute of limitations is six years Criminal FBAR statute of limitations is five years But see discussion of the 2012 Offshore Voluntary Disclosure Program Page 12 I Have to File What? 6

7 TD F Report of Foreign Bank and Financial Accounts Administrative relief for individuals with signature authority but no financial interest In prior years, multiple notices had provided administrative relief for certain individuals with signature authority but no financial interest in foreign financial accounts However, the only relief currently available is for individuals with signature authority and no financial interest employed by public companies or certain other categories of for-profit entities including banks, SEC regulated companies, registered investment advisors, and their subsidiaries See FinCEN Notice Therefore, in most cases, individuals with signature authority over foreign financial accounts at any time during 2012 will need to file FBARs by June 30, 2013 Page 13 Form 926 U.S. Transferor of Property to a Foreign Corporation Page 14 I Have to File What? 7

8 Form 926 U.S. Transferor of Property to a Foreign Corporation Purpose - To report certain transfers of property or cash to a foreign corporation by a U.S. citizen, resident, or corporation Commonly encountered by EO s when investing in foreign corporations directly, or indirectly through investment partnerships that invest outside the U.S. Trigger Events - A U.S. EO that transfers cash to a foreign corporation must report the transfer on Form 926 if Immediately after the transfer the EO holds directly or indirectly at least 10% of the total voting power or the total value of the foreign corporation, or The amount of cash transferred by the EO to the foreign corporation during the 12-month period ending on the date of the transfer exceeds $100,000 Page 15 Form 926 U.S. Transferor of Property to a Foreign Corporation Special Rule - If the transferor is a partnership (domestic or foreign), the domestic partners of the partnership, not the partnership itself, are required to file Form 926. Each domestic partner is treated as a transferor of its proportionate share of the property. Penalty - Equals 10% of the fair market value of the property at the time of the transfer Penalty is limited to $100,000 unless the failure to comply was due to intentional disregard $100,000 limitation does not apply if there was intentional disregard to file Page 16 I Have to File What? 8

9 Form 8865 Return of U.S. Persons with Respect to Certain Foreign Partnerships Page 17 Form 8865 Return of U.S. Persons with Respect to Certain Foreign Partnerships Purpose - To report information regarding controlled foreign partnerships, transfers to foreign partnerships, and acquisitions, dispositions, and changes to foreign partnership interests Encountered by EOs with investing activities outside the US. Required whether investments are direct or indirect Generally filed to disclose investments in foreign partnerships that exceed certain thresholds Trigger Events - There are different categories of filers Category 1 Filer - A U.S. person who controlled the foreign partnership at any time during the partnership s tax year. Control of a partnership is ownership of more than a 50% interest in the partnership. Page 18 I Have to File What? 9

10 Form 8865 Return of U.S. Persons with Respect to Certain Foreign Partnerships Category 2 Filer - A U.S. person who at any time during the tax year of the foreign partnership owned a 10% or greater interest in the partnership while the partnership was controlled by U.S. persons each owning at least 10% interests Category 3 Filer (most common for EOs) - A U.S. Person who contributes property during the tax year in exchange for partnership interest, if that person Owned directly at least 10% interest immediately after the contribution, OR The value of the property contributed when added to the value of the other property contributed by such person during a 12 month period exceeds $100,000 Category 4 Filer - A U.S. person that had a reportable event under section 6046A during that person s tax year. There are three reportable categories of reportable events : acquisitions, dispositions and changes in proportional interests Page 19 Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations Page 20 I Have to File What? 10

11 Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations Purpose - Used by the IRS to identify activities and income of the foreign corporation that give rise to taxable inclusions for US shareholders Also used by the IRS to identify related party transactions for transfer pricing review EOs with a captive foreign insurance company or significant amounts of investing activities outside the U.S. may be required to file Trigger Events - Filed by certain US shareholders, officers and directors of certain foreign corporations. There are currently four categories of filers Category 1 Filer - repealed by the American Jobs Creation Act of 2004 Page 21 Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations Category 2 Filer - U.S. citizen or resident who is an officer or director of a foreign corporation in which a U.S. person has acquired (in one or more transactions): 10% of the voting or participating shares of a foreign corporation; or An additional 10% or more (in value or voting power) of the outstanding stock of the foreign corporation Category 3 Filer - (Most common for EO s) A U.S. person who Acquires 10% of the voting or participating shares in a foreign corporation; Acquires voting power or participating shares that, when added to the shares owned on the date of acquisition, equals or exceeds 10% or more of the voting or participating shares; or Disposes of voting or participating shares in a foreign corporation that reduces ownership to less than 10% For purposes of Category 2 & 3 filers a U.S. person is generally defined as a citizen or resident of the U.S., a domestic partnership or corporation, or a domestic estate or trust Page 22 I Have to File What? 11

12 Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations Category 4 Filer - U.S. person (not defined the same as Category 2 & 3 filer, see Form instructions) who owned more than 50% of either the voting or participating shares of a foreign corporation for an uninterrupted period of at least 30 days during the foreign corporation s year Category 5 Filer - A U.S. shareholder who owned stock in a foreign corporation that is a Controlled Foreign Corporation (CFC). The stock must have been owned for at least 30 days during the year, as well as owned on the last day of the year. A U.S. shareholder is generally defined as a U.S. person who owns 10% or more of the voting shares of a CFC or owns any stock of a CFC that is also a captive insurance company Generally, a CFC is a foreign corporation that has persons qualifying as U.S. Shareholders that own more than 50% of the voting or participating stock of the corporation on any day of the year Page 23 Form 5471 Information Return of U.S. Persons with Respect to Certain Foreign Corporations Penalties for Non-Compliance Automatic monetary penalties under section 6038 for failure to file and/or late filing $10,000 per period per entity An additional $10,000 if form not filed within 90 days of IRS notice and $10,000 for each 30 days thereafter, up to $50,000 per period per entity Reasonable cause exception Potential criminal penalties under section 7203 for willful failure to file Suspension of the statute of limitations under section 6501(c)(8) recently amended by the HIRE Act. Prior to amendment, suspended the statute of limitations for issues related to items not properly reported on certain international information returns, including Form 5471 As amended, suspends the statute of limitations for the entire tax return until required information is provided (e.g., on an amended return), unless failure was due to reasonable cause If failure was due to reasonable cause, statute of limitations suspended for items related to the information not provided Amendment applies to tax returns filed on or after March 18, 2010 and all tax years for which the statute of limitations would otherwise be open as of that date Page 24 I Have to File What? 12

13 Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund Page 25 Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund Purpose - To report a direct or indirect ownership of passive foreign investment companies (PFICs) or qualified electing funds (QEFs) by a U.S. person What is a PFIC? Defined in section 1297, a PFIC is any foreign corporation that meets one of the following tests: Income Test - 75% or more gross income is from passive income (e.g. interest, dividends, capital gains), or Asset Test - 50% or more of the value of its assets either produce or are held for the production of passive income Page 26 I Have to File What? 13

14 Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund Who must file - U.S. person that is A direct shareholder, or An indirect shareholder Owner of a pass-through entity that is a PFIC shareholder Shareholder of a PFIC that owns shares in another PFIC 50% or more shareholder of a foreign corporation that is a PFIC shareholder EOs only have to file the Form 8621 if they have unrelated business income (UBI) from the PFIC - Temp. Reg. Section T(e) PFIC information may be reported on Schedules K-1 Page 27 Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund Qualified Electing Fund Method - If the PFIC meets certain accounting and reporting requirements, a PFIC shareholder can elect to treat the PFIC as a QEF The effect is that the PFIC shares are taxed like U.S. shares QEF Election is made by first U.S. investor Individual investor is bound by QEF election if made by US partnership Page 28 I Have to File What? 14

15 Form 8621 Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund Impact of IRC section 1298(f) - New section 1298(f) was added to the Code by the HIRE Act of This section requires all shareholders of a PFIC to file an annual report. Its application has been suspended until regulations are issued. Until the IRS issues guidance, the old rules apply Penalties - Currently there is no penalty for failure to file Page 29 Form 3520 Annual Return to Report Transactions With Foreign Trusts & Receipt of Certain Foreign Gifts Page 30 I Have to File What? 15

16 Form 3520 Annual Return to Report Transactions With Foreign Trusts & Receipt of Certain Foreign Gifts Purpose - To report certain transactions with foreign trusts, ownership of foreign trusts and receipt of large gifts or bequests from certain persons Trigger Events Grantors or beneficiaries of a foreign trust is required to file this form for each time there is a reportable transaction. US citizens and residents are required to report gifts/bequests received from foreign persons: Nonresident alien individuals (including foreign estate) of more than $100,000 or Foreign corporations or partnerships of more than $14,375 Page 31 Form 3520 Annual Return to Report Transactions With Foreign Trusts & Receipt of Certain Foreign Gifts A Reportable Event includes The creation of a foreign trust by a U.S. person, whether or not the trust has U.S. beneficiaries The transfer of any money or property, directly or indirectly, to a foreign trust by a U.S. person The death of a U.S. citizen or resident, if the foreign trust was treated as a grantor trust, in whole or part with respect to the U.S. decedent, or if the trust was included in the U.S decedent s gross estate, in whole or part A U.S. Person is a citizen or resident alien of the US, a domestic partnership, a domestic corporation, any estate (other than a foreign estate), and any domestic trust Page 32 I Have to File What? 16

17 Form Annual Return to Report Transactions With Foreign Trusts & Receipt of Certain Foreign Gifts Penalties - The initial penalty is the greater of $10,000 or 35% of the gross value of any property transferred to a foreign trust or 35% of the gross value of the distributions received from a foreign trust or 5% of the gross value of the portion of the trust s assets treated as owned by a U.S. person No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect Page 33 Form 5713 International Boycott Report Page 34 I Have to File What? 17

18 Form 5713 International Boycott Report Purpose - To report operations in or related to boycotting countries and the receipt of boycott requests and boycott agreements Trigger Events - If the organization had any operations in or related to any boycotting countries during the tax year The countries identified in the most recent notice are: Bahrain, Saudi Arabia, United Arab Emirates, Republic of Yemen, Oman, Qatar, Kuwait, Lebanon, Libya and Syria In addition, Iraq recently added in August 2012 Page 35 Forms Related to Charitable Donations Form 8282 Donee Information Return Form 8283 Noncash Charitable Contributions Form 8899 Notice of Income From Donated Intellectual Property Form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes Page 36 I Have to File What? 18

19 Forms Related to Charitable Donations A yes answer on lines 7c and/or 7g Form 990, Part V may trigger the requirement to complete Forms 8282 and/or 8899 Page 37 Forms Related to Charitable Deductions A yes answer on line 29 of Form 990, Part IV and completion of Schedule M, may trigger the requirement of completing Form 8283, Part IV, Donee Acknowledgement Page 38 I Have to File What? 19

20 Form 8283 Noncash Charitable Contributions Page 39 Form 8283 Noncash Charitable Contributions Purpose - Used to report information about noncash charitable contributions Trigger Events - A donee organization that receives property described in Part I of Section B must complete Form 8283, Part IV Property listed in Part I of Section B - Art, qualified conservation contribution, equipment, collectibles, securities, intellectual property, and other real property Page 40 I Have to File What? 20

21 Form 8283 Noncash Charitable Contributions Donee Acknowledgement The person acknowledging the gift must be an official authorized to sign the tax returns of the organization, or a person specifically designated to sign Form 8283 After completing Part IV, the organization must return Form 8283 to the donor The donee organization should receive a copy of Section B of Form 8283 Page 41 Form 8282 Donee Information Return Page 42 I Have to File What? 21

22 Form 8282 Donee Information Return Purpose - To assure that deductions for noncash gifts are fair. Donee organizations use Form 8282 to report information to the IRS and donors about dispositions of certain charitable deduction property. Trigger Events - Original and successor donee organizations must file if they sell, exchange, consume, or otherwise dispose of (with or without consideration) charitable deduction property (or any portion, as defined below) within 3 years after the date the original donee received the property. A yes answer on line 7c of Form 990, Part V, may trigger the requirement to complete Form 8282 Page 43 Form 8282 Donee Information Return Original donee - The first donee to or for which the donor gave the property Successor donee - Any donee of property other than the original donee Charitable deduction property - Any donated property (other than money and publicly traded securities) if the claimed value exceeds $5,000 per item or group of similar items donated by the donor to one or more donee organizations. This is the property listed in Section B on Form Page 44 I Have to File What? 22

23 Form 8282 Donee Information Return Exceptions to Filing (1) Items valued at $500 or less - The organization does not have to file Form 8282 if, at the time the original donee signed Section B of Form 8283, the donor had signed a statement on Form 8283 that the appraised value of the specific item was not more than $500 (2) Items consumed or distributed for charitable purpose - The organization does not have to file Form 8282 if an item is consumed or distributed, without consideration, in fulfilling its function as an EO When to File - Within 125 days of the date of disposition Page 45 Form 8282 Donee Information Return Penalties Failure to timely file complete form - The penalty is generally $50 per form Fraudulent identification of exempt use property - A $10,000 penalty may apply to any person who identifies in Part III tangible personal property the organization sold, exchanged, or otherwise disposed of, as having a use that is related to a purpose or function knowing that such property was not intended for such a use. For more details, see section 6720B. Page 46 I Have to File What? 23

24 Form 8899 Notice of Income From Donated Intellectual Property Page 47 Form 8899 Notice of Income From Donated Intellectual Property Purpose: Used by donees to report net income from qualified intellectual property to the donor of the property and to the IRS Trigger Event: If the organization received a charitable gift of qualified intellectual property A yes answer on line 7g of Form 990, Part V, may trigger the requirement to complete Form 8899 Page 48 I Have to File What? 24

25 Form 8899 Notice of Income From Donated Intellectual Property Qualified intellectual property - Qualified intellectual property is generally any patent, copyright, trademark, trade name, trade secret, know-how, software or similar property, or applications or registrations of such property Exceptions Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified A copyright held by a taxpayer Whose personal efforts created the property, or Whose basis in the property is determined by referencing the basis of the property in the hands of the taxpayer who created the property Page 49 Form 8899 Notice of Income From Donated Intellectual Property When to File - The donee is required to file Form 8899 with the IRS and provide a copy of the form to the donor by the last day of the first full month following the close of the donee s tax year Penalties - The organization may be subject to a penalty if it fails to file Form 8899 by the due date; fails to include all of the information required to be shown on this form; or fails to include correct information on this form. For additional information, see sections 6721 through Page 50 I Have to File What? 25

26 Form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes Page 51 Form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes A yes answer on lines 6 or 7 of Schedule M, Noncash Contributions, triggers the requirement to complete Form 1098-C. Page 52 I Have to File What? 26

27 Form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes A donee organization must file a separate Form 1098-C with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500 The donee organization must also furnish a contemporaneous written acknowledgement of the contribution to donor under section 170(f)(12) containing the same information shown on Form 1098-C. Otherwise, the donor cannot claim a deduction of more than $500 for that vehicle Copy B of Form 1098-C may be used for this purpose Page 53 Form 1098-C Contributions of Motor Vehicles, Boats, and Airplanes Qualified Vehicle - Any motor vehicle manufactured primarily for the use of streets, roads, and highways; a boat; or an airplane. However, property held by the donor primarily for sale to customers, such as inventory of a car dealer, is not a qualified vehicle. Penalties - Section 6720 imposes penalties on any donee organization that is required under section 170(f)(12) to furnish an acknowledgment to a donor if the donee organization knowingly Furnishes a false or fraudulent acknowledgement in the manner, at the time, and showing the information required by section 170(f)(12) Fails to furnish an acknowledgement in the manner, at the time, and showing the information required by section 170(f)(12) Page 54 I Have to File What? 27

28 Forms Requesting Certain Changes or Determinations Form 3115 Application for Change in Accounting Method Form 8940 Request for Miscellaneous Determination Form 5768 Election/Revocation of Election by an Eligible 501(c)(3) Organization to Make Expenditures to Influence Legislation Page 55 Form 3115 Application for Change in Accounting Method Page 56 I Have to File What? 28

29 Form 3115 Application for Change in Accounting Method Purpose - Used to request changes in either an overall method of accounting or the accounting treatment of any item Trigger Events - The following are changes in accounting method that require approval from the IRS Switching from a cash basis method to an accrual basis method; Switching from an accrual basis method to a cash basis method; Change in method or basis used to value your inventory; and A change in depreciation or amortization method (exception: some changes in the straight-line method are permitted without permission from the IRS) Page 57 Form 3115 Application for Change in Accounting Method When Needed Automatic Changes - Generally, an organization must attach the 3115 to its federal income tax return for the year of changes Advance Consent Requests - An organization must file Form 3115 under the advance consent request procedures during the tax year for which the change is requested, unless otherwise provided by other published guidance Eos - See Revenue Procedure Fiscal year change is automatic if short return is filed. If the EO has previously changed its accounting period within the previous ten calendar years, it must also file Form Page 58 I Have to File What? 29

30 Form 8940 Request for Miscellaneous Determination Page 59 Form 8940 Request for Miscellaneous Determination Overview - In August 2011, the IRS released Form 8940, Request for Miscellaneous Determination, for EOs to use to request certain determinations about their tax-exempt status Purpose - EOs may use Form 8940 to make the following types of requests: Advance approval of certain set-asides for private foundations Advance approval of voter registration activities Advance approval of scholarship procedures for private foundations Ruling on whether an organization is exempt from the Form 990 filing requirements Advance approval that a potential grant or contribution constitutes an unusual grant Change or initial determination of type of section 509(a)(3) supporting organization Reclassification of public charity status Advance ruling request for termination of private foundation status Termination of private foundation status at the conclusion of the 60-month period Page 60 I Have to File What? 30

31 Form 8940 Request for Miscellaneous Determination The determinations requested on Form 8940 cannot be made on the basis of the one page form alone. The Instructions for Form 8940 detail the information required to support each of the nine types of requests. Additionally, Form 8940 requires user fees which differ based on the type of request. Determinations relating to set asides, voter registration and scholarships are $1,000 All other requests are $400 Page 61 Form 8940 Request for Miscellaneous Determination Potential benefits that may justify the time and expense Provides a definite and written conclusion to a tax question The determination can help clarify or provide a determination of an organization s public charity or private foundation status, or of a supporting organization s type. Additionally, the clarification helps avoid confusion to the public, private foundations and others who may be supporters. Private Foundations must obtain IRS approval of any scholarship program under section 4945(g) Page 62 I Have to File What? 31

32 Form 5768 Election/Revocation of Election by an Eligible 501(c)(3) Organization to Make Expenditures To Influence Legislation Page 63 Form 5768 Election/Revocation of Election by an Eligible 501(c)(3) Organization to Make Expenditures To Influence Legislation Section 501(c)(3) states that an organization exempt under that section will lose its tax-exempt status and its qualification to receive deductible charitable contributions if a substantial part of its activities are carried on to influence legislation. Section 501(h), however, creates a quantitative safe harbor - if the electing EO does not exceed its limits, its exemption will not be at risk. Page 64 I Have to File What? 32

33 Form 5768 Election/Revocation of Election by an Eligible 501(c)(3) Organization to Make Expenditures To Influence Legislation Eligible organizations - A section 501(c)(3) organization is permitted to make the election if it is not a disqualified organization and is described in: Section 170(b)(1)(A)(ii) (relating to education institutions) Section 170(b)(1)(A)(iii) (relating to hospitals and medical research organizations) Section170(b)(1)(A)(iv) (relating to organizations supporting government schools) Section 170(b)(1)(A)(vi) (relating to organizations publicly supported by a broad base of charitable contributions) Section 509(a)(2) (relating to organizations publicly supported by admissions, sales, etc.); or Section 509(a)(3) (relating to organizations supporting certain types of public charities other than those section 509(a)(3) organizations that support section 501(c)(4), (5), or (6) organizations) Page 65 Form 5768 Election/Revocation of Election by an Eligible 501(c)(3) Organization to Make Expenditures To Influence Legislation Disqualified Organizations - The following types of organizations are not permitted to make the election: Section 170(b)(1)(A)(i) organizations (relating to churches), An integrated auxiliary of a church or of a convention or association of churches, or A member of an affiliated group of organizations if one or more members of such group is described in A or B above Page 66 I Have to File What? 33

34 Excise Tax Filings Form 720 Quarterly Federal Excise Tax Return Form 4720 Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code Page 67 Excise Tax Filings If an organization answers yes to Form 990, line 14, it should file Form 720 to report excise tax payments If an organization completed Part I of Schedule L, Transactions with Interested Persons, and a tax was imposed on the organizations managers or disqualified persons, Form 4720 must be filed to report and pay the tax on excess benefit transactions Page 68 I Have to File What? 34

35 Form 720 Quarterly Federal Excise Tax Return Page 69 Form 720 Quarterly Federal Excise Tax Return Purpose - Form 720 is used to report liability and pay excise taxes listed on the form Trigger Events: The EO is liable or responsible for collecting any of the federal excise taxes listed on Form 720, Parts I and II, for a prior quarter and a final return has not been filed; or The EO is liable or responsible for collecting any of the federal excise taxes listed on Form 720, Parts I and II, for the current quarter Page 70 I Have to File What? 35

36 Form 720 Quarterly Federal Excise Tax Return Form 990, Return of Organization Exempt From Income Tax, asks Did the organization receive any payments for indoor tanning services during the tax year? If yes, has it filed a Form 720 to report these payments? Section 5000B imposes a 10% tax on the amount paid for indoor tanning services. Enacted as part of the Patient Care and Affordable Care Act Only applies to Indoor tanning services. Does not include phototherapy services or payments to a qualified physical fitness facility Responsibility of the service provider to collect and remit tax Page 71 Form 4720 Return of Certain Excise Taxes Page 72 I Have to File What? 36

37 Form 4720 Return of Certain Excise Taxes Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code Reasons to file Form 4720: The initial taxes on private foundations and self-dealers, under sections 4941 through 4945 for self-dealing, failure to distribute income, excess business holdings, investments that jeopardize charitable purpose, and taxable expenditures; The initial tax on certain supporting organizations and donor advised funds for excess business holdings under section 4943; The section 4911 tax on excess lobbying expenditures by public charities that have elected to be subject to section 501(h) regarding expenditures to influence legislation. (Private foundations and section 4947(a) trusts are not eligible to make this election.); The section 4912 tax on excess lobbying expenditures that result in loss of section 501(c)(3) tax-exempt status; The section 4955 tax imposed on any amount paid or incurred by a section 501(c)(3) organization that participates or intervenes in any political campaign on behalf of, or in opposition to, any candidate for public office; Page 73 Form Return of Certain Excise Taxes Reasons to file Form 4720 (Continued): The section 4958 initial taxes on disqualified persons and organization managers of section 501(c)(3) (except private foundations), section 501(c)(4), and section 501(c)(29) organizations that engage in excess benefit transactions; The section 4965 taxes related to prohibited tax shelter transactions; The section 4966 taxes on taxable distributions by sponsoring organizations maintaining donor advised funds; The section 4967 taxes on distribution of prohibited benefits from donor advised funds; The section 170(f)(10) tax on any premiums paid on a personal benefit contract in connection with a transfer to an organization or charitable remainder trust for which a charitable deduction is not allowed to the transferor; and The section 664(c)(2) tax on the unrelated business taxable income of a charitable remainder trust. Page 74 I Have to File What? 37

38 Other Filings Form 8886 Reportable Transaction Disclosure Statement Form 8886-T Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction Form W-2G Certain Gambling Winnings Form 8594 Asset Acquisition Statement Under Section 1060 Form 8038-T Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate Page 75 Form 8886 Reportable Transaction Disclosure Statement Page 76 I Have to File What? 38

39 Form 8886 Reportable Transaction Disclosure Statement Overview - Any taxpayer that directly or indirectly participates in a reportable transaction reflected in its income tax return must attach Form 8886 Reportable Transaction - There are five reportable transaction categories (Treas. reg (b)) Loss transactions Transactions of interest Listed transactions Transactions with contractual protection Confidential transactions Page 77 Form 8886 Reportable Transaction Disclosure Statement When to File -EO must disclose on first return in which it participates in transaction, directly or indirectly, and in subsequent years Penalties - If not disclosed on Form 8886 Section 6707A penalty of $200,000 ($100,000 for individuals) no rescission Potential 30% section 6662A accuracy-related penalty - no reasonable cause exception Section 6501(c)(10) statute of limitations generally extended until one year after disclosure If disclosed on Form 8886 there is still a potential 20% section 6662A accuracy-related penalty with limited reasonable cause exception Page 78 I Have to File What? 39

40 Form 8886-T - Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction Page 79 Form 8886-T - Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction Purpose - Certain tax-exempt entities must disclose their involvement with any prohibited tax shelter transaction and disclose the identity of any other party to the transaction if known by the organization Prohibited Tax Shelter Transaction - Generally, prohibited tax shelter transaction is one of three reportable transactions listed transactions, confidential transactions, and transactions with contractual protection Page 80 I Have to File What? 40

41 Form W-2G Certain Gambling and Winnings Page 81 Form W-2G Certain Gambling and Winnings Purpose - Form W-2G is used to report gambling winnings and any federal income tax withheld on those winnings. A tax exempt organization conducting gaming activities may be required to withhold income tax and report on Form W-2G. If an organization files Form W-2G with the IRS, this should be reported on Form 990, Part V, line 1a and 1b. Page 82 I Have to File What? 41

42 Form W-2G Certain Gambling and Winnings The requirements for reporting and withholding depend on the type of gambling, the amount of the gambling winnings, and generally the ratio of the winnings to the wager. The following chart describes when a W-2G normally needs to be issued: Type of Game Threshold Instant/Pull-tabs $600 Bingo or Slot Machines $1,200 Keno $1,500 (reduced by wager) Poker $5,000 (reduced by wager or buy-in) Page 83 Form 8594 Asset Acquisition Statement Under Section 1060 Page 84 I Have to File What? 42

43 Form 8594 Asset Acquisition Statement Under Section 1060 Purpose - Both the seller and purchaser of a group of assets that makes up a trade or business must use Form 8594 to report such a sale if goodwill or going concern value attaches, or could attach, to such assets and if the purchaser's basis in the assets is determined only by the amount paid for the assets Trade or Business - A group of assets makes up a trade or business if goodwill or going concern value could under any circumstances attach to such assets. A group of assets can also qualify as a trade or business if it qualifies as an active trade or business under section 355 (relating to distributions of stock in controlled corporations). Page 85 Form 8594 Asset Acquisition Statement Under Section 1060 Form 8594 is attached to the purchaser and seller s income tax returns Tax-exempt organizations would attach Form 8594 to the Form 990 or 990-T Note that Form 8594 is not subject to public inspection and should therefore not be attached to public disclosure copies of the 990 or 990-T If you do not file a correct Form 8594 by the due date of your return and you cannot show reasonable cause, you may be subject to penalties. See sections 6721 through Page 86 I Have to File What? 43

44 Form 8038-T Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate Page 87 Form 8038-T Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate Under section 148(f), interest on a state or local bond is not tax-exempt unless the issuer of the bond rebates to the United States arbitrage profits earned from investing proceeds of the bond in higher yielding nonpurpose investments. Issuers of tax-exempt bonds and any other bonds subject to the provisions of section 148 must use this form to make arbitrage rebate and related payments. Page 88 I Have to File What? 44

45 Form 8038-T Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate Who Files? Issuers of tax-exempt bonds and any other bonds subject to the provisions of section 148 must file Form 8038-T to pay Arbitrage rebate Yield reduction payments A penalty In lieu of arbitrage rebate; or To terminate the election to pay a penalty in lieu of arbitrage rebate Penalties and interest on the failure to pay any of the above amounts on time Page 89 Remediation of Delinquent Filings Page 90 I Have to File What? 45

46 Delinquent Forms Internal Revenue Manual (IRM) discusses the procedures involved in handling nonfiled returns within IRS Examinations Enforcement Period - Policy Statement (P-5-133), IRM , Delinquent returns enforcement of filing requirements, discusses delinquent returns and the enforcement filing requirements The enforcement period generally is not more than six years. However, the extent to which delinquency procedures will be enforced will depend upon the facts and circumstances of each case, and by reference to factors ensuring evenhanded administration of staffing and other Service resources Page 91 Delinquent Forms Statute Considerations The normal statute of limitations will apply after a delinquent return is filed, despite the taxpayer's fraudulent failure to file a tax return prior to the submission of the delinquent return. Exceptions to the three year period for assessment may apply such as the six year assessment statute under section 6501(e) or the unlimited period for assessment as a result of a false or fraudulent return statute under section 6501(c)(1) The execution of a substitute return by the IRS does not trigger the running of the assessment or collection statutes Not properly reporting a required information return generally results in keeping the SOL open until three years after such return is filed, absent reasonable cause Page 92 I Have to File What? 46

47 Delinquent Forms On March 18, 2010, the HIRE Act was enacted It included an important amendment to the statute of limitations under section targeting international transaction and investment reporting by US investors and related entities Post HIRE Act, the statute of limitations for assessment is normally three years from the date the information return is filed, or the due date of the return, whichever is later When foreign informational forms are omitted or deemed by the IRS to be incomplete, the statute of limitations does not run on the underlying return Reasonable cause exception now available Page 93 Delinquent Forms Penalties on Nonfilers - The penalties discussed below may apply in nonfiler situations Section 6651(a)(1) imposes a 5% monthly penalty on the amount required to be shown on a return for failure to file a tax return by the date prescribed (including extensions), up to a maximum of 25%, unless it is shown that the failure is due to reasonable cause and not due to willful neglect The fraudulent failure to file penalty under section 6651(f) increases the failure to file (FTF) penalty under section 6651(a)(1) from 5% per month to 15% per month, and the maximum penalty from 25% to 75% Taxpayers who do not have sufficient amounts withheld, and who fail to make estimated tax payments as required by law, may also be assessed a penalty for underpayment of estimated tax Page 94 I Have to File What? 47

48 Delinquent Forms Delinquent Tax Exempt and Government Entities Returns If a delinquent return within the jurisdiction of the Tax Exempt and Government Entities (TE/GE) operating division is discovered, the examiner will attempt to secure the return or the delinquency investigation will be forwarded to TE/GE for possible examination Section 6652(c)(1)(A) Failure to file penalty for a Form 990 is $20 per day, not to exceed the lesser of $10,000 or 5% of gross receipts. However, organizations with gross receipts in excess of $1m are subject to enhanced penalties of $100/day with a maximum penalty for any return of $50,000 Section 6033(j)(1) if more than three consecutive tax years have passed, i.e., 3 delinquent returns, there is an automatic revocation of tax exempt status Page 95 Handling Non-Compliance Offshore Voluntary Disclosure Program (OVDP) Goal - The OVDP provides an opportunity for taxpayers to disclose unreported foreign accounts, assets and income with fewer penalties than might be applied without the program, while avoiding criminal prosecution. Page 96 I Have to File What? 48

49 Handling Non-Compliance 2012 OVDP - On January 9, 2012, the IRS issued a news release announcing that the IRS was opening a third voluntary disclosure program Previous Programs 2009 OVDP applied to those taxpayers that voluntarily and timely disclosed unreported offshore income for OVDI Offshore Voluntary Disclosure Initiative (OVDI) gave taxpayers with undisclosed income from hidden offshore accounts for the tax periods the chance to get current with their taxes. The 2011 OVDI deadline was September 9, Page 97 Handling Non-Compliance 2012 OVDP Program: The new program is similar to the prior programs. The new OVDP terms apply to taxpayers who made offshore voluntary disclosures after the deadline for the 2011 OVDI program Differences The 2012 has an open-ended application period. However, the IRS cautions that the terms of OVDP could change at any time, and the IRS could limit eligibility for the program or even end the program abruptly. In addition to the agreements in the 2011 OVDI, the taxpayer must agree to cooperate with the IRS offshore enforcement efforts by providing information about offshore financial institutions, offshore service providers and other facilitators, if requested Page 98 I Have to File What? 49

50 Handling Non-Compliance 2012 OVDP Differences (Continued) For calendar year taxpayers, the voluntary disclosure period is the most recent eight tax years for which the due date of the return has already passed. This eightyear period does not include current years for which there has not yet been non-compliance. The IRS may announce that certain taxpayer groups that have or had accounts at specific financial institutions will be ineligible due to certain U.S. government actions in connection with the financial institution There are also some changes to the required submissions Page 99 State Programs Multistate Tax Commission s National Nexus Program A voluntary disclosure program whereby taxpayer may anonymously approach any or all of the program's member states in an effort to resolve potential tax liabilities simultaneously with multiple jurisdictions. Once the parties agree on the terms of the arrangement, the taxpayer identity is communicated to the states and the agreement moves forward to resolution Page 100 I Have to File What? 50

51 State Programs MTC (Continued): The benefits of voluntary disclosure are usually limited to look back period (e.g., 3-4 years) and abatement of penalties. Only companies that have not been contacted for audit can participate in a voluntary disclosure program. All but five states participate in MTC s Voluntary Disclosure Program Page 101 State Programs The five states that do not participate in MTC s Program: Illinois offers voluntary disclosure, but does not work through the Commission. However, Commission staff can provide a state contact person in Illinois to assist with voluntary disclosure in that state. Delaware, Nevada, New Mexico and New York do not participate nor currently offer voluntary disclosure programs Page 102 I Have to File What? 51

52 Questions? Page 103 I Have to File What? 52