Tax Guide for Nonprofits

Transcription

1 Tax Guide for Nonprofits 4 th Edition Stephen Fishman, J.D.

2 Chapter 1 Nonprofits and the IRS... 1 Learning Objectives... 1 Introduction... 1 What Do We Mean When We Say Nonprofit?... 1 Tax-Exempt Nonprofits... 1 Section 501(c)(3) Charitable Organizations... 2 Private Foundations and Public Charities... 3 The Life Cycle of a Nonprofit... 3 Creating Your Legal Entity... 4 Obtaining Tax-Exempt Status... 4 Ongoing Compliance... 5 Limitations on Your Nonprofit s Activities... 6 Documenting and Disclosing Contributions... 7 Annual Tax Filings... 7 Record Keeping... 8 Ending Your Nonprofit... 8 IRS Audits... 8 What Is an Audit?... 8 Who Gets Audited... 9 Types of Audits... 9 Audit Outcomes Appealing an IRS Audit Review Questions Review Answers Chapter 2 Annual IRS Filings The Form Learning Objectives Introduction The Nuts and Bolts of the Filing Process Why an Information Return? Who Is Exempt? Which Form Should You File? When to File Your Return When to File Your Return How to File Your Return What If You Don t File? The 990-N Postcard Filing As Simple as It Gets How to Complete and File Form 990-N Form 990-EZ: The E-Z Way Out General Background Information Parts I and II: Financial Information Part III: Program Accomplishments Part IV: ODTKE Disclosure and Compensation Parts V and VI: Additional Information Part VI: Payments to Key Employees or Contractors Signature Block Schedules Form 990: Just Hold Your Nose and File It Do You Really Have to File Form 990? Who Should Prepare Form 990? An Overview of the Form Getting Ready for Form Are Your Management Practices Up to Snuff? Identify and Disclose Family and Business Relationships... 52

3 Letting the Public See Your Report Card: Disclosure of Form Public Inspection of Returns Furnishing Copies of Returns What If Someone Harasses You? Penalties for Failure to Comply Notifying the IRS If You Terminate, Merge, or Contract Your Nonprofit Which Form to File When the Return Is Due Information You Must Disclose Significant Contraction of Your Nonprofit What to Do If the IRS Has Revoked Your Nonprofit s Tax-Exempt Status Reinstating Tax-Exempt Status If Your Nonprofit Was Previously Reinstated (Not Retroactively) Review Questions Review Answers Chapter 3 Record Keeping and Accounting Learning Objectives Introduction Why Keep Financial Records? Preparing Annual IRS Information Returns Showing You re Fulfilling Your Nonprofit Mission Showing You Qualify as a Public Charity UBIT Preparing Financial Statements Monitoring Your Budget What Does the IRS Require? A Tax Year An Accounting Method A Record of Income and Expenses A Paper Trail Asset and Liability Records Employment Tax Records How Long Should Records Be Kept? Do You Need an Independent Audit? Minding the GAAP Required Financial Statements Accounting for Restricted Funds Recording Pledges and Donations Review Questions Review Answers Chapter 4 Volunteers, Employees, and Independent Contractors Learning Objectives Introduction Volunteers The Backbone Workforce of Nonprofits What Is a Volunteer? Volunteer Work From Director to Intern Reimbursing Your Volunteers Know the Rules Accountable Plans The Key to Success With the IRS Local Transportation Costs Travel and Entertainment Expenses Unreimbursed Volunteer Expenses Requirements for Deducting Unreimbursed Expenses Substantiation of Volunteer Expenses Benefits and Freebies How to Show Your Appreciation Tax Free Working Condition Fringe Benefits ii

4 De Minimis Benefits Those Token Freebies Tax-Free Benefits for Volunteer-Employees Paid Help: Employees and Independent Contractors What s the Big Deal? How to Tell the Difference The Safe Harbor Rule for Independent Contractor Status Getting an IRS Advance Determination Classifying Corporate Officers and Directors Hiring Independent Contractors Procedures for Hiring Contractors Your Tax Reporting Obligations Filling Out Form 1099-MISC Filing Paper Form 1099s Hiring Employees The Tax Collector Role Reimbursing Your Employees Obamacare (Affordable Care Act) and Nonprofit Employers Is Your Nonprofit a Large Employer? Independent Contractors Not Covered by Employer Mandate Penalties Under the ACA Small Business Health Care Tax Credit Review Questions Review Answers Chapter 5 Charitable Giving The Basics and Cash Donations Learning Objectives Introduction Your Role as a Nonprofit Threshold Requirements for Deducting Donations The Donee Side It Must Be a Qualified Organization The Donor Side Only Those Who Itemize Can Deduct Annual Limits on Charitable Deductions Pease Limitation on Itemized Deductions What Can a Donor Contribute? When Is a Contribution Made for Tax Purposes? Special Gifts Earmarked, Restricted, and Conditional Earmarked Gifts Restricted Gifts Conditional Gifts If Your Nonprofit Provides Goods or Services Cash Contributions Contributions of $250 and Less Contributions of $250 and More Cash Gifts From IRAs Interest-Free Loans Quid Pro Quo Contributions Disclosure Statements Exceptions to the Quid Pro Quo Rules Charity Auctions Review Questions Review Answers Chapter 6 Property Donations Learning Objectives Introduction Annual Deduction Limit for Property Donations Long-Term Capital Gain Property iii

5 Ordinary Income and Short-Term Capital Gain Property Valuing Property Donations An Art, Not a Science Your Nonprofit s Role in Determining Value Basic Valuation Rule: Fair Market Value Different Types of Property Donations Clothing and Household Items Vehicles Used Cars, Boats, and Aircraft Stock and Other Securities Real Estate Art, Antiques, Collectibles, and Unusual Gifts Conservation Easements Food Inventory Business Inventory Corporate Inventory and Equipment Documenting Property Donations Deadline for Providing Documentation Property Worth Less Than $ Property Valued at $250 to $ Property Valued at $500 to $5, Property Valued at $5,000 or More When a Nonprofit Sells Donated Property IRS Form Documentation Rules for Cars, Boats, and Airplanes Review Questions Review Answers Chapter 7 Excessive Compensation, Sweetheart Deals, and Other Ways to Get in Trouble With the IRS Learning Objectives Introduction A Nonprofit Is Not a Personal Piggy-Bank The IRS Intermediate Sanctions Minefield Disqualified Person + Excess Benefit = IRS Sanctions Automatic Excess Benefits Loans With Insiders Transactions With Disqualified Persons How to Avoid Problems With the IRS Identify Your Nonprofit s Disqualified Persons Follow IRS-Approved Procedures Have a Conflict of Interest Policy Excessive Compensation for Services: The Most Common Excess Benefit Preapproval of Compensation What Is Reasonable Compensation? What Is Included in Compensation? Using Comparable Compensation Data Document All Taxable Compensation Paid to DPs Reimburse Employee DP Expenses Under an Accountable Plan Correcting and Reporting Excess Benefit Transactions The IRS s Sentence of Death: Revocation of Tax-Exempt Status Private Inurement Private Benefit Review Questions Review Answers Chapter 8 Nonprofits That Make Money and UBIT Learning Objectives Introduction What Is UBIT? Is the Activity Related to Your Mission? iv

6 Is the Activity a Business? Is the Activity Regularly Carried On? Activities Exempt From UBIT When Your Volunteers Do the Work Thrift Shops and Donated Merchandise Donor Lists Convenience Activities Business Sponsorships Rental Income, Capital Gains, and Investment Income Low-Cost Giveaways Research Income Bingo Games Periodical Advertising Income Do You Owe UBIT? Filing UBIT Tax Returns Deadline for Filing Failure to File Form 990T Contents of Form Paying UBIT Review Questions Review Answers Chapter 9 Lobbying and Political Campaign Activities Learning Objectives Introduction Lobbying by Nonprofits What s Allowed and What s Not What Is Lobbying? Not All Advocacy Is Lobbying Nonpartisan Education Is Not Lobbying How Much Lobbying Is Too Much? Reporting Your Lobbying Time and Expenses Lobbying via the Internet If You Receive Federal Grants Political Campaign Activities An Absolute Ban What Activities Are Prohibited Voter Education, Voter Registration, and Get-Out-the-Vote Drives Candidate Appearances Voter Guides Individual Activity by Directors, Officers, and Employees Issue Advocacy Versus Political Campaign Activity Business Activity as Political Campaign Activity Websites Consequences of Violating the Rules Getting Around the Restrictions Forming a Social Welfare Organization Forming a PAC Review Questions Review Answers Chapter 10 Help Beyond This Book Learning Objectives Introduction Help From the IRS Other Helpful Publications and Websites Researching the Tax Law Review Questions Review Answers v

7 Appendix Forms IRS Form 990-EZ Sample Conflict of Interest Policy Rebuttable Presumption Checklist Family and Business Relationship Questionnaire Expense Report Glossary Index vi