College and University Tax Update. EACUBO Conference May 30, 2014

Transcription

1 College and University Tax Update EACUBO Conference May 30, 2014

2 Changes to the 2013 Form 990 Sixth year for the revised Form 990 No significant changes, mostly clarifications Ongoing interest in compensation transparency New IRS Form 990 team 2

3 Changes to the 2013 Form 990 Schedule A: New requirements for supporting organizations Appendix D: Public inspection requirements apply to original and amended returns Schedule F: Requires reporting of grants made to domestic persons that are designated for foreign beneficiaries (rather than grants made for foreign activity ) Investments in foreign-domiciled entities traded on a U.S. stock exchange do not require reporting 3

4 Changes to the 2013 Form 990 Schedule J: Payments made pursuant to voluntary separation agreement can be included in the definition of severance payments Schedule L: Expanded definition of interested persons in Part III 4

5 Changes to the 2013 Form 990-T Organizations do not need to file a Form 990-T to preserve net operating losses carried through tax years for which a Form 990-T was not required to be filed 5

6 IRS College and University Study Final Report - UBI A pattern of recurring losses indicates a lack of profit motive and the IRS disallowed reporting of activities for which the taxpayer failed to show a profit motive This resulted in more than $150 million of NOLs being disallowed Errors were also found in misallocation of expenses and misclassification of unrelated activities as related 6

7 IRS College and University Study Final Report - UBI Organizations may allocate expenses that are used to carry on both exempt and unrelated business activities, but they must do so on a reasonable basis and the expenses offsetting UBI must be directly connected to the UBI activities 7

8 Tax Reform Act of 2014 Overview Draft released in February 2014 Passage by 113 th Congress unlikely The draft is likely to affect future legislative efforts Objectives: To generate economic growth To bring down tax rates 8

9 Tax Reform Act of 2014 Overview To address special interest issues Reform provisions overview increase standard deduction, repeal AMT, tax long-term gains as ordinary income, modernize international system; make permanent R&D credit Exempt organizations policy Tax-exempt organizations play a vital role in American society-providing needed assistance to millions of people every day. However, many operate and more closely resemble taxable business, not tax-exempt charitable organizations. House Ways and Means Committee, Executive Summary, Tax Reform Act of

10 Tax Reform Act of 2014 Education Benefits Eliminate the deduction for student loan interest IRS Form 1098-T modified to report amounts paid, rather than amounts billed Repeal: Lifetime learning credits IRC 127 educational assistance program IRC 117(d) exclusion for qualified tuition reduction programs 10

11 Tax Reform Act of 2014 UBI Provisions Tax royalties from sale/license of organization s name or logo Tax corporate sponsorship payments if the sponsor acknowledgment refers to sponsor s product lines Exclusive sponsorships > $25,000 Impose tax on income from fundamental research that is not made publicly available Silo unrelated business activities and disallow netting of losses across all activities 11

12 Tax Reform Act of 2014 Penalty Provisions Anti-deferral: Require donor-advised funds to distribute contributions within five years of receipt Impose 1% excise tax on net investment income of private colleges and universities with more than $100,000 of assets per fulltime student Eliminate Type II and Type III Supporting Organizations 12

13 Anti-Abuse: Tax Reform Act of 2014 Penalty Provisions Double penalties related to late or incomplete Form 990 Increase manager penalty, public inspection of returns and tax shelter disclosure Impose 5% accuracy penalty on managers regarding Form 990-T (20% penalty already applies to organization) 13

14 Tax Reform Act of 2014 Compensation Provisions Compensation Tax: 25% excise tax on compensation over $1 million (current law may pay compensation exceeding $1 million if it reasonable) Payable by employer with respect to top five employees Includes deferred compensation and parachute payments 14

15 Tax Reform Act of 2014 Compensation Provisions Proposal that disqualified persons may no longer rely on compensation consultants to avoid excess benefit transaction excise tax Additionally, proposal imposes 10% excise tax on organizations participating in excess benefit transactions Organization may avoid the tax by following rebuttable presumption procedure Proposal treats athletic coaches as disqualified persons even if they work for a supporting organization 15

16 Tax Reform Act of 2014 Compensation Provisions Limit IRC 119 housing exclusion / convenience of the employer and for employees of educational institutions to $50,000/$25,000 MFJ Limit student FICA exemption to earnings less than $1,200 per year 16

17 Tax Reform Act of 2014 College Athletic Seating Rights IRC 170(i): Donors may deduct 80% of payment as a charitable contribution even if right to purchase tickets at games received in exchange for payment Proposal would repeal IRC 170(i) 17

18 Tax Reform Act of 2014 Tax Reform Proposals: Tax-Exempt Bonds Under current law, interest income from bonds issued by state and local governments is generally exempt from tax The proposal would repeal the exception for qualified private activity bonds on a prospective basis, meaning that Section 501(c)(3) bonds could no longer be issued on a tax-exempt basis The proposal would also eliminate advance refunding (i.e., issuing tax-exempt bonds to refinance outstanding bonds) 18

19 New Names and Faces John Koskinen, IRS Commissioner Sunita Lough, TE/GE Division Commissioner Donna Hansberry, TE/GE Deputy Division Commissioner Tammy Ripperda, Director of EO Division Mary Epps, EO Exam Director Moving EO Forward 19

20 Tax Reform Act of 2014 Political Activity Regulations Political activities of tax-exempt social welfare organizations IRS screening of exempt applications of conservative groups How much campaign activity may 501(c)(4) conduct? 20

21 Tax Reform Act of 2014 Political Activity Regulations Candidate-related political activity definition too restrictive Proposed regulations released in November 2013, withdrawn May 2014 The Voters Trust $1 million bounty 21

22 Form 1023: Exemption Application i Interactive 1023-EZ Streamlined Determination backlog Mid-summer release Registration system Immediate approval Unprecedented backlog Automatic revocation Sequestration Institutional distraction Staff reductions/retirements 22

23 Current Audit Activity IRC 457(b) Plan Compliance Checks Social Service Agencies/Fundraising Arts Cultural Organizations IRS shift in focus from exemption applications to exam function 23

24 FBAR Reminder U.S. persons with financial interests in or signature authority over financial accounts maintained with financial institutions located outside of the U.S. FinCEN Form 114 required for accounts > $10,000 during calendar year June 30, 2014 deadline 24

25 AICPA Tax Division Guidance Priority List Requests Extension process Single consolidated return for parent (central) and subordinates Public support test revisions Schedule R related party Update revenue procedure

26 FATCA Foreign Account Tax Compliance Act Purpose to gather information on U.S. tax evaders with offshore assets earning income not reported increase transparency for the IRS with respect to U.S. persons that are investing and earning income through non-us institutions Requires foreign payees to disclose significant U.S. investors & accountholders Foreign payees who fail to comply suffer penalty of 30% U.S. tax withholding on payments made to them from U.S. persons Final regulations package issued February 20, 2014, effective July 1,