2016 Not-for-Profit Tax Year-End Review

Transcription

1 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 ed to you within the next few weeks. To receive CPE credit you must respond to the polling questions, which are not available on mobile devices. Therefore, in order to receive CPE credit you must log in via a computer. Recording A recording of today s webcast will be available at capincrouse.com. Click Nonprofit Resources, and then select Webcast: Recorded from the list on the right Not-for-Profit Tax Year-End Review Dave Moja, Partner

2 In the News FLSA Overtime Final Rules On Hold! IRS Data-driven Decision Making (Queries) New Information Data Request (IDR) Procedure Safe Harbor for W-2 Errors (PATH) IRA Charitable Rollover Made Permanent Form 990 Extension Changes (One 6-month Form 8868) Form W-2 and 1099 January 31, 2017 Deadline Form 1095-B, 1095-C Deadline March 2, 2017 In the News UBIT: Catalog Sales TAM Are You an ALE? (Does it matter?) Form 5578 Filing? Post-election Expectations Dual-Use Facilities Expense Allocation Guidance Update from AICPA EO TRP Periodical Advertising FASB NFP Financial Statements 2017 Tax Reform? 2

3 FLSA Overtime Final Rules On Hold! On November 22, 2016, Texas Federal District Court Judge Amos L. Mazzant III issued a preliminary injunction temporarily delaying the implementation date of the new Department of Labor (DOL) overtime rule for executive, administrative, and professional employees scheduled to go into effect on December 1, The DOL can appeal the judge s ruling and it is uncertain whether such an appeal would be successful. The new Trump administration could elect to forgo an appeal and let the court s injunction stand. This eleventh-hour injunction has left things in a state of flux. Data-Driven Approach to EO Exam Selection IRS Exempt Organizations is taking a more data-driven approach to exam selection Greater reliance on Form 990 data Less emphasis on sub-sector compliance projects For example: Colleges & Universities, Hospitals, Employment Tax** 3

4 IRS Data-Driven Decision Making Exams moving from project-driven to data-driven Over 200 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 New Information Data Request (IDR) Procedure As part of the information-gathering phase of an IRS audit, IRS auditors make formal requests to taxpayers for information relevant to the audit by issuing IDRs. Under the new process: 1. Taxpayers will be involved in the IDR process. 2. Examiners will discuss the issue being examined and the information needed with the taxpayer before issuing an IDR. 3. The IDR must clearly state the issue and the relevant information that the examiners are requesting. 4

5 New Information Data Request (IDR) Procedure 4. If the taxpayer does not timely provide the information requested in the IDR by the agreed-upon date, including extensions, the examiner will issue a delinquency notice. 5. If the taxpayer fails to respond to the delinquency notice or provides an incomplete response, the examiner will issue a pre-summons notice to advise the taxpayer that the IRS will issue a summons unless the missing items are fully provided. 6. A summons will be issued if the taxpayer fails to provide a complete response to the pre-summons letter by its response due date. Safe Harbor for W-2 Errors (PATH) PATH ACT of 2015 Section 202. Safe harbor for de minimus 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,

6 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) *But see S CHARITY Act Form 990 One Extension Current Form 8868 two parts Two 3-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 6

7 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. Form 1095-B, 1095-C Deadline 3/2/17 The IRS has extended one of the due dates for 2016 information reporting requirements under the Affordable Care Act to give employers, insurers, and other providers additional time to gather and prepare the necessary information. The due date for the following has been extended to March 2, 2017 (previously January 31): 2016 Form 1095-B, Health Coverage 2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage Good-faith transition relief from penalties under Code Sec and Code Sec for 2016 information reporting requirements under Code Sec and Code Sec

8 UBIT Developments TAM Website, retail, and catalog sales were regularly carried on Even though Organization s research and educational activities were substantially related to its exempt purposes, the fact that the sales were conducted in conjunction with, or (in the case of its online catalog) through the same vehicles as i.e., the website Organization s exempt activities did not compel a conclusion that the sales were also substantially related. It is a Trade or Business Note: activity exceed level required to accommodate exempt purpose; but IRS did not revoke exemption Are You an ALE? (Does it matter?) 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! **What about Repeal and Replace? 8

9 Form 5578 Form 990 filers (Schedule E) Form 990 non-filers Church vs. School IRS Publication 1828 Post-election Expectations Trump s Tax Reform Plan Four tax brackets: 0%, 10%, 20%, and 25% Eliminate taxes on individuals earning less than $25,000 and married couples earning less than $50,000 Eliminate marriage penalty, alternative minimum tax, and estate tax Reduce business income tax rate to 15% 9

10 Dual-Use Facilities Department of Treasury Priority Guidance Plan For both the 14/15 year and 15/16 year, the Priority Guidance Plan has listed: Guidance under 512 regarding methods of allocating expenses relating to dual-use facilities Current language in the regulations allocate between the two uses on a reasonable basis Update from AICPA EO TRP Ed Priem: Information Document Requests (IDRs) Minister s Housing Allowance IRS Audits Data Analytics Donations/Charitable Contributions A Friendly Reminder Stipends Payroll Tax Guidance Plan 10

11 Periodical Advertising Troas Bible College (TBC) publishes an educational magazine, Rising Tides, the content of which is exclusively on TBC s website. TBC is a U.S. private college. In addition to grants and contributions, Rising Tides is supported in part by advertising revenues. TBC employs writers, researchers, a creative director, and an editorial director for its publication and also incurs expenses for website maintenance and overall administration. For purposes of the unrelated business income cost allocation rules of Section 1.512(a)-1(f) of the Income Tax Regulations, Rising Tides (TBC s website publication) is a periodical. Periodical Advertising Accordingly, TBC s expenses, depreciation, and similar items of deduction attributable to the production and distribution of the website publication, including the salaries of the publication staff, qualify as items of deductions directly connected with the unrelated advertising activity and may be used as deductions against the unrelated business income attributable to the sale of advertising in the website periodical. 11

12 Rules Section 1.512(a)-1(f) of the Income Tax Regulations provides that amounts realized from the sale of advertising in a periodical constitute gross income from an unrelated trade or business activity involving the exploitation of an exempt activity, namely the circulation and readership of the periodical developed through the production and distribution of the readership content of the periodical. Subject to the limitations of paragraph (d)(2) of the regulation, where the circulation and readership of an exempt organization periodical are utilized in connection with the sale of advertising in the periodical, expenses, depreciation, and similar items of deductions attributable to the production and distribution of the editorial or readership content of the periodical qualify as items of deductions directly connected with the unrelated advertising activity. Rules Section of the Income Tax Regulations provides rules for qualified sponsorship payments, and excepts from such rules the income from the sale of advertising or acknowledgements in exempt organization periodicals. A periodical is defined as regularly scheduled and printed material published by or on behalf of an exempt organization that is not related to and primarily distributed in connection with a specific event conducted by the organization. For this purpose, printed material includes material that is published electronically. TBC would report the advertising income and related expenses on Form 990-T, Schedule J, Part I. 12

13 Financial Statements of Not-for-Profit Entities Key Objectives Update, not overhaul, the current model Improve net asset classification scheme Improve information in financial statements and notes about: Financial performance Cash flows Liquidity Better enable NFPs to tell their financial story 13

14 Phase I Aim: Final ASU by mid-2016, effective for calendar year 2018 (fiscal year ) Net Asset Classes: Classification scheme Disclosure of board designated net assets Underwater endowments Expirations of capital restrictions Expenses/Investment Return: Expenses by nature; analysis of expenses by function and nature Netting of investment expenses against investment return Disclosure of netted investment expenses Enhanced disclosures about cost allocations Operating Measures: Modest improvements to disclosures for those that use an operating measure, especially about board appropriations, designations, and similar transfers Liquidity/Availability: Quantitative disclosures about availability Qualitative disclosures about liquidity Consideration of alternatives suggested by stakeholders (e.g., classified balance sheet) Statement of Cash Flows: Methods of presenting operating cash flows (direct/indirect) Phase II Operating Measures all other elements of the proposal, including: Whether to require intermediate measure(s) Whether and how to define such measure(s), and what items should or should not be included in the measure(s) Alternative disaggregation approaches suggested by stakeholders Statement of Cash Flows: Realignment of certain items Net Assets Current GAAP Unrestricted Temp. Restricted Perm. Restricted Revised GAAP + Disclosures Without Donor Restrictions* Amount, purpose, and type of board designations** With Donor Restrictions* Nature and amount of donor restrictions * NFPs may choose to disaggregate further ** New disclosure requirement 14

15 Staying Current Sign up for electronic Action Alert FASB on Twitter Recently issued ASUs Project pages on FASB website Project summaries FASB in Focus executive summaries Podcasts/webcasts 2017 Tax Reform? A 21 st Century Tax System Built for Growth Overview Simplification for American Families & Individuals Individual Income Tax Rates Simplification of Tax Benefits for Higher Education Home Ownership Charitable Giving Competitiveness/Growth for All Job Creators Pro-America Approach for Global Competitiveness A New IRS for the 21 st Century 15

16 Congress is Busy! (Senate) The CHARITY Act (S. 2750) would: Make donor-advised funds an eligible charity for purposes of the IRA rollover law that permits an IRA owner at least 70.5 years old to exclude from their gross income up to $100,000 per year in distributions made directly from the IRA to certain public charities. Simplify how foundations are required to calculate the federal excise tax imposed on investment income. Congress is Busy! (Senate) Further, the CHARITY Act (S. 2750) would: Authorize the Treasury Department to adopt regulations that align the simplified standard mileage tax deduction rate for personal vehicle use for volunteer charitable services with that for medical and moving purposes. Promote transparency by requiring nonprofits to file their paperwork electronically. 16

17 Congress is Busy! (Senate) Further, the CHARITY Act (S. 2750) would: Encourage philanthropic enterprises wishing to donate profits to charity by creating a limited exception to the excess business holding tax rules. Express the sense of the Senate that the promotion of charitable giving be one of the goals of comprehensive tax reform House Ways & Means Tax Proposal Combine the various education-related tax breaks into one, making permanent the American Opportunity Tax Credit and making it more refundable (and hence more accessible to low-income students) than the existing higher education credits. The credit would be available only for the first four years of college in other words, excluding graduate education. Repeal several tax breaks that help students and families, including the in-school interest deduction on student loans, the exemption for most student loan forgiveness programs, and the popular tax break that flows to employers who pay their employees education expenses. 17

18 2014 House Ways & Means Tax Proposal Make taxable any tuition waiver or remission that college employees (or their children) get from their own or other postsecondary institutions a popular benefit for those working in higher education, including graduate students. Limit to $1,200 (in 2014) the amount of a student employee s earnings that are exempted from Social Security tax. Continue to exempt from unrelated business income tax the income that universities derive from research but only if the research is made available to the public House Ways & Means Tax Proposal Require colleges and other nonprofit organizations to pay tax on royalties that they derive from the sale or licensing of their name or logo, which could have significant implications for college sports programs. Include coaches among the higher education employees whose high salaries can trigger excise taxes for excessive compensation. Eliminate the tax break that allows patrons who buy tickets for college athletic events (including five-figure seat licenses for the right to buy tickets) to deduct up to 80% of the cost of their tickets as a charitable gift. 18

19 2014 House Ways & Means Tax Proposal Any sale or licensing by a tax-exempt organization of its name or logo (including any related trademark or copyright) would be treated as a per se unrelated trade or business, and royalties paid with respect to such licenses would be subject to UBIT. A tax-exempt organization would be required to calculate separately the net unrelated taxable income of each unrelated trade or business. In addition, any loss derived from an unrelated trade or business could only be used to offset income from that unrelated trade or business, with any unused loss subject to the general rules for net operating losses Thank you. Dave Moja, Partner CapinCrouse LLP dmoja@capincrouse.com Copyright CapinCrouse

20 20