Non-Profit Tax Update Betsy Krisher, CPA, CGFM

Transcription

1 Non-Profit Tax Update Betsy Krisher, CPA, CGFM July 18, 2018

2 Topics to be Covered 2

3 Session Topics Tax Cuts and Jobs Act Treasury and IRS EO Activities Treasury Priority Guidance Plan TE/GE FY2018 Work Plan TE/GE FY 2017 Accomplishments EO FY 2018 EO Actions ACT 2018 Report of Recommendations What Else You Should Know 3

4 Tax Cuts and Jobs Act 4

5 Tax Cuts and Jobs Act P.L An Act to provide for the reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 or 2017 Tax Act Passed December 22, 2017 Will be referred to as TCJA within presentation 5

6 Tax Cuts and Jobs Act Treasury and OMB Memorandum of Agreement April 11, 2018 Permits OIRA (Office of Information and Regulatory Affairs) division of the Office of Management and Budget (OMB) to review significant regulatory actions Proposed regulations on Section 512(a)(6) (UBTI silos) likely to be subject 6

7 Tax Cuts and Jobs Act Key Provisions to EO Community Section 512(a)(6) Separate Computation of UBIT Section 512(a)(7) UBI by Disallowed Fringe Section 4960 Tax on Excess Tax-Exempt Organization Executive Compensation Section 4968 Excise Tax based on Investment Income of Private Colleges and Universities 7

8 Section 512(a)(6) Separate Computation of UBIT Source: Cornell Law Institute

9 Section 512(a)(6) Separate Computation of UBIT Effective date: Taxable Years Beginning after December 31, 2017 Carryovers of Net Operating Loss- If arose from taxable years beginning before January 1, 2018, Subparagraph (A) of Section 512(a)(6) shall not apply and the UBTI of the organization, after application of Subparagraph (B) of Section 512(a)(6), shall be reduced by the amount of such net operating loss. 9

10 Section 512(a)(6) Separate Computation of UBIT A word about NOLs (IRC Section 172): Effective for NOLs arising in 2018 and thereafter, NOL can no longer be carried back; can only offset up to 80% of taxable income 20 year carryforward period is eliminated; carry forward indefinitely Appears existing NOLs prior to 1/1/18 are NOT subject to 80% limitation 10

11 Section 512(a)(6) Separate Computation of UBIT Matters to consider: How do you define a separate trade or business? What about passive income? Can there be a safe harbor threshold below which no disaggregation would be required? What about deemed UBI (controlled org payments, debt-financed income, fringe benefits (now))? 11

12 Section 512(a)(6) Separate Computation of UBIT AICPA has requested a delay in the effective date of Section 512(a)(6) from both Congress and Treasury ocacycommentletters.html 12

13 Section 512(a)(7) UBI by Disallowed Fringe Source: Cornell Law Institute

14 Section 512(a)(7) UBI by Disallowed Fringe Effective date: Disallowed Fringe Benefits provided from 1/1/18 Impacts 6/30/18 year end entities Applies to direct pay by employer and indirect (pre-tax arrangements) Estimated Payments Would file on the 2017 Form 990-T, line 12 Tax Rate: 21% (as a corporation) 14

15 Section 512(a)(7) UBI by Disallowed Fringe Matters to consider: What qualifies as the parking benefit? Is free parking in a lot free to any user a benefit? Does it matter if free lot is not owned by the NPO? How are cost allocations to parking and athletic facilities to be done? Are there valid ambiguities caused by the Senate failing to amend Section 274? 15

16 Section 512(a)(7) UBI by Disallowed Fringe Matters to consider: Does Section 15 apply if entirely new tax and then pro ration of tax change based on number of days? Is it better to pay this tax or make taxable and pay the related employment taxes and any municipal fines for not offering the benefit? Does anyone outside of the EO Community care about this? 16

17 Section 512(a)(7) UBI by Disallowed Fringe Matters to consider: Likely will have many new 990-T filers 990-Ts have to be paper filed; not likely to change soon New 990-T for 2018 to be out January 2019 Working to have the form be flexible with reporting so as not to box in the yet-to-be-issued guidance; guidance will be contained within the instructions Advocacy Efforts 17

18 Section 4960-Tax on Excess Tax-Exempt Organization Executive Compensation Full statutory text: Any organization exempt from tax under IRC Section 501(a) will be subject to excise tax at corporate rate (21% current) on excess parachute payments and compensation in excess of $1 million (excluding excess parachute payments) paid to a covered employee. Includes remuneration paid with respect to employment of such employee by any related person or govt entity 18

19 Section 4960-Tax on Excess Tax-Exempt Organization Executive Compensation Covered Employee: 1 of 5 highest compensated employees of organization for taxable year OR Was a covered employee of the organization (or any predecessor) for any preceding tax year beginning after 12/31/16 Exceptions: Remuneration paid to a licensed medical profession for the performance of medical or veterinary services Excess parachute payments made to employees who are not highly compensated within the meaning of IRC section 414(q) Effective: Tax years beginning after

20 Section 4960-Tax on Excess Tax-Exempt Organization Executive Compensation Matters to Consider: Are independent contractors exempt from the tax because their remuneration is not wages? What is the allowed allocation methodology for medical services versus non-medical services? What compensation year to use fiscal or calendar? Who is the employer that has to be the universe for determination? Is entity issuing Form W-2 treated differently from those reimbursing for services? 20

21 Section 4968 Excise Tax based on Investment Income of Private Colleges and Universities Full statutory text: Imposes on each applicable educational institution for the taxable year a tax equal to 1.4 percent of the net investment income of such institution Net investment income shall be determined under rules similar to the rules of section 4940(c) Effective for tax years beginning after 12/31/17 21

22 Section 4968 Excise Tax based on Investment Income of Private Colleges and Universities Applicable Educational Institution Defined in section 25A(f)(2) which had at least 500 tuitionpaying students during the preceding taxable year, More than 50 percent of the tuition-paying students of which are located in the US, Which is not described in the first sentence of section 511(a)(2)(B) (relating to State colleges and universities), and The aggregate fair market value of the assets of which at the end of the preceding taxable year (other than those assets which are used directly in carrying out the institution s exempt purpose) is at least $500,000 per student of the institution. 22

23 Section 4968 Excise Tax based on Investment Income of Private Colleges and Universities Notice , posted 6/8/18 Indicates that plan to issue guidance that fair value at the end of 12/31/17 is the basis for figuring the tax on any resulting gain ( stepped-up basis ) Entities may rely on this notice while proposed regulations are being issued Losses may offset gains to extent of gains, no carryovers or carrybacks 23

24 Section 4968 Excise Tax based on Investment Income of Private Colleges and Universities Matters to Consider: More detailed guidance forthcoming regarding definitions and application 24

25 Tax Cuts and Jobs Act Other Provisions 60% AGI Limit For Cash Contributions (section 170(b)(1)(G) ) Closure of the substantiation loophole Impact of Increase in the standard deduction on charitable giving $12,000 Single, $18,000 HOH, $24,000 Married filing joint/surviving spouse Repatriation Tax Section 965 Implications 25

26 Treasury and IRS EO Activities 26

27 Treasury Priority Guidance Plan Priority Guidance Plans run July 1 to June 30 th. Comments accepted for inclusion for FY through June 15, 2018 Since passage of TCJA, focus has been on guidance for Act expected to continue through Many projects will carry over FY Not yet issued 27

28 PGP 3 rd Quarter Update Released May 9, Part I. Initial Implementation TCJA Item #10-UBIT silo ing Section 512 (a)(6) Item #18-excise tax on excess renumeration under section

29 PGP 3 rd Quarter Update 29

30 Tax Exempt Organization Search (TEOS) Use to find: Organizations eligible to receive tax-deductible charitable contributions (Pub 78 data) Automatically revoked organizations IRS Determination letters dated on/after 1/1/14 Form 990-series returns Organizations that have filed a Form 990-N (e- Postcard) 30

31 PGP 3 rd Quarter Update 31

32 PGP 3 rd Quarter Update 32

33 Current TE/GE Leadership Team 33

34 IRS Tax Exempt & Government Entities FY2018 Work Plan Issued September 28, TE/GE covers: Exempt Organizations Employee Plans Indian Tribal Governments Tax Exempt Bonds 34

35 IRS TE/GE FY2018 Work Plan Exempt Organizations Continue Knowledge Management Products Issue snapshots & audit tools; integrate K-Nets with new compliance strategies Technical information being placed on Audit Technique Guides (ATG) on website 35

36 IRS TE/GE FY2018 Work Plan Exempt Organizations-Compliance Program Compliance Strategies: Supporting Organizations Previous For-Profit Entities Private Benefit & Inurement Data-driven Approaches: Form 990, 990-EZ and 990-PF compliance models New model for Form 5227, Split Interest Trust Information Return Private Foundation anomalies 36

37 IRS TE/GE FY2018 Work Plan Exempt Organizations-Compliance Program Referrals, claims, and other casework: Continue to Pursue Referrals Address Requests for Refunds or Credits of Overpayment Post-Determination Compliance Statistical Sample of returns filed to ensure comprehensive compliance coverage 37

38 TE/GE FY 2017 Accomplishments 10 page document dated March 19,

39 TE/GE FY 2017 Accomplishments Examinations-Exempt Organizations 39

40 TE/GE FY 2017 Accomplishments Final Revocations 40

41 TE/GE FY 2017 Accomplishments EO Examinations-Federal State Local Govts 41

42 TE/GE FY 2017 Accomplishments EO Compliance Checks 42

43 FY2018 IRS EO ACTIONS Processed over 57K of tax exempt applications for status by the end of May Focus on timely determinations; applications over 270 days only 1.1% of inventory Leveraged exam agents to help keep up 43

44 FY2018 IRS EO ACTIONS January 2018 updated all application for status forms Form new public charity status for agricultural orgs Form 1023EZ- text box on significant activities; checklist questions added to the form Forms 1024 and 1024A Form 8976 for Form 501(c)4; enhanced platform to link to pay.gov to pay fee; non-payment primary reason for rejection 44

45 FY2018 EO ACTIONS Changed user fee schedule $600 flat fee for Form 1023 $275 fee for Form 1023EZ Reduced group exemption fee from $3,000 to $2,000 Looking for 2019 for fees to be paid through Pay.Gov or similar e-pay site Focusing on incomplete paper filed forms in the 990 series Missing or incomplete Schedules A, B, & O most common 45

46 FY2018 EO ACTIONS Continuing to leverage what seeing in the field & other data gained to determine exam Employment Tax Issues Focusing On: Early Retirement Incentive Plans Form W-2/Form 1099 mis-matches Payment of FUTA (c3/c4 related) Backup Withholding Notices (1099 missing information) 46

47 FY2018 EO ACTIONS Are in the process of hiring 100 additional EO agents; will use across functions 47

48 ACT 2018 Report of Recommendations 48

49 ACT 2018 Report of Recommendations Advisory Committee on Tax Exempt and Government Entities (ACT) Report Released June 7, Topic (s) Covered for Each Segment of TE/GE Employee Plans Exempt Organizations Indian Tribal Governments Tax Exempt Bonds 49

50 ACT 2018 Report of Recommendations Recommendations Regarding Incentivizing Universal E-filing for Form 990 Have Government-Wide Effort Mandate Electronic Filing Eliminate the $10 million threshold Encourage & Provide Incentives for Voluntary E- filing Prioritize the Development of Online Accounts for Organizations 50

51 What Else You Should Know 51

52 What Else You Should Know 990 Changes related to ASU Look to instructions; form will definitely lag Notice Guidance on Certain Payments Made In Exchange for State and Local Tax Credits Rev. Proc Redomestication 52

53 What Else You Should Know Philanthropic Enterprise Act-Contained within Bipartisan Budget Act of 2018-amended excess business holding rules for private foundations Proposed H.R Requiring Electronic Filing of Annual Information Returns on Form 990 and Form 8872 (political organization report of contributions and expenditures) 53

54 What Else You Should Know New Partnership Audit Regime Of concern to Treasury: EOs not paying someone else s tax and ability to control process for their issues General Partners need to care about tax status of EO partners Rev. Proc End to Some EO s Donor Disclosures Exempt Organizations other than Section 501(c)(3) are no longer required to report the names and addresses of their contributions on Schedule B but must still have information on hand if the IRS asks 54

55 What Else You Should Know Court on October 6, 2017 held ministers rental allowance exclusion (section 107(2)) to be unconstitutional (Gaylor v. Mnuchin (W.D. Wis.) ; injunctive relief under 180 days following final resolution of appeals; government filed notice of appeal to Seventh Circuit on February 8,

56 Questions? Contact Me! Betsy Krisher, CPA, CGFM President Pittsburgh Harrisburg Butler State College Erie Lancaster 56