Current Tax Issues for Exempt Organizations

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Lambert Eustace Golden
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1 Current Tax Issues for Exempt Organizations i Tod E. Wilson Schneider Downs Agenda IRS EO 2010 Annual Report & FY 2011 Work Plan AICPA s Top 11 Tax Issues for Exempt Organizations Form 990 Changes NFP Tax Compliance Risk Miscellaneous Newly Issued Guidance of Interest What s Coming in 2012 Lobbying versus Advocacy 2 IRS 2010 EO Annual Report 3 1

2 IRS 2010 EO Annual Report Gross Annual Receipts Reported on 2008 Returns Form IRS 2010 EO Annual Report End of Year Total Assets Reported on 2008 Returns Form IRS 2010 EO Annual Report 6 2

3 IRS FY 2011 Work Plan Projects to Process National Research Program Study of Employment Tax Returns Tax Gap = $54 billion per year Examination of 500 EOs per year for three years ( ) Worker classification issues Appropriate tax treatment of benefits Expense account reimbursements 7 IRS FY 2011 Work Plan Projects to Process Combined Annual Wage Reporting Project Compared SSA W 2 info to Form 941 info Examined 4,000 organizations each year Found officer comp on Form 990 but no W 2s or Form 941s filed Will aid in case selection and focused examination 8 IRS FY 2011 Work Plan Projects to Process Executive Compensation Compliance Initiative: Loans Project Initiated in 2004 and preliminary results released in 2007 Project beganwith 200 compliancechecks checks and50 singleissue issue exams Assessment of over $5.5 million in Section 4958 taxes Assessment of over $480,000 in employment taxes Assessment of over $400,000 on related Forms 1040 Found 91 instances where loans were not properly reported on Form 990 Currently being used to evaluate compensation in future projects 9 3

4 IRS FY 2011 Work Plan Projects to Process Supporting Organizations The Section 509(a)(3) Project Pension Protection Actof 2006 Over 300 Examinations, 280 Closed 30 were terminated; 72 had exemption revoked, 59 reclassified 10 IRS FY 2011 Work Plan Projects to Process Political Activities Compliance Initiative Over 250 organizations examined during 2004, 2006 and 2008 federal election years Issued warnings in half of the examinations Revoked exemption of seven organizations 2010 results not yet released Guidance issued Revenue Ruling and Publication IRS FY 2011 Work Plan Projects to Process The College and University Questionnaire Sent to more than 400 schools Focus on UBI, endowments andexecutive comp May 2010 published interim report 30 entities currently under exam with focus on UBI and comp practices Past Questionnaires Not Addressed in the Report Hospital Community Foundations Exempt Bonds 12 4

5 IRS FY 2011 Work Plan Continuing Initiatives Gaming Non Filer Project 2007 cross referenced information from 17 state gaming regulatory agencies to Form 990 database Examinations resulted in more than 1,300 delinquent return cases Charitable Spending Initiative Phase I examined organizations with High fundraising expenses examined UBI activity but low program service expenditures High ratios of officer comp to program service expenditures Low level of program service expenditures to total revenue Examinations began in 2010 and continue 13 IRS FY 2011 Work Plan Continuing Initiatives International Focus International activities, transactions and accounts Foreign entities receiving exempt status Information referred from joint International Tax shelter Information center Foreign addresses on Form 990 Gift in Kind Programs valuation issues Large private foundations with international operations or transactions 14 IRS FY 2011 Work Plan Continuing Initiatives Form 990 N Filing Requirements Added by Pension Protection Act of 2006 Purpose ensure information is current Affected small tax exempt with annual gross received of $25,000 or less ($50,000 or less for 2010 and future) Must electronically submit Form 990 N (e Postcard) Failure to file for three consecutive years revocation Revocation of exemption of more than 275,000 organizations this year 15 5

6 IRS FY 2011 Work Plan Continuing Initiatives Form 990 as a Compliance Tool Purpose increase compliance and promote and enforce compliance EO Examinations uses Identify non compliance and potentially noncompliant EOs Develop targeted compliance projects Inform and supplement educational efforts Research office developing risk models and refining compliance queries 16 AICPA Top 11 Tax Issues for Exempt Organizations 1. Governance 2. Unrelated Business Income 3. Compensation and Benefits 4. Employment Tax 5. Form International Issues 7. Bond Financing 8. Charitable Spending 9. Hospitals IRC Section 501(r) 10. Associations 11. Lobbying & Political Activity 17 AICPA s List of Hidden Treasures on IRS.gov Life Cycle of an Exempt Organization Common Errors EO Update Guide Sheets IRS Stay Exempt 18 6

2010 Form 990 Changes 19 2010 Form 990 Changes Core Form Space for narratives added to: E, G, K, L and R Form and instructions provide references to GAAP Part IV Check list of required schedules All

7 2010 Form 990 Changes Form 990 Changes Core Form Space for narratives added to: E, G, K, L and R Form and instructions provide references to GAAP Part IV Check list of required schedules All 501(c)(3) organizations with a Section 501(h) election in effect must file Schedule C Section 501(c)(4), (5) and (6) organizations that receive membership dues must complete Schedule C, Part III Hospitals must attach copies of audited financial statements Controlling entities engaged in a 513(b)(13) transaction must complete Schedule R, Part V, line Form 990 Changes Part VI Governance, Management & Disclosure Only answer yes to questions asking if organization has a policy if the governing board adopted the policy by the end of the tax year Only business and family relationships of current (not former) DTKE are required to be reported Answer no to question asking if copy of Form 990 was provided to governing body before filing if any of the document was redacted (i.e., Schedule B omitted) 21 7

8 2010 Form 990 Changes Part VIII Statement of Revenue Donation of services (including value of advertising space or broadcast time) or donation of use of materials should not be reported (even if included din financial i statements). Instructions clarify how to report donations of certain items sold at auction. A revised example is included Form 990 Changes Part IX Statement of Functional Expenses Cost incurred to secure grants to provide program services is a program service expense Costs incurred to secure grants to provide service to general public should be reported as fundraising expense. If amount of miscellaneous expense exceeds 10% of total expenses, filer must itemize by type and report in Schedule O Part XI Financial Statements & Reporting New part to provide for reconciliation of net assets from beginning of the year balance to end of year balance Form 990 Changes Schedule F Statement of Activities Outside the United States Schedule G Supplemental Information Regarding Fundraising or Gaming Activities Schedule H Hospitals Schedule K Supplemental Information on Tax Exempt Bonds Schedule R Related Organizations and Unrelated Partnerships 24 8

9 State Filing Requirement Risks NFP Tax Compliance Risk Sales Tax Collection & Use Tax on Taxable Purchases Income Tax on UBI (federal, state, and local) Unclaimed Property Tax Returns State Tax Withholding and Unemployment Returns 25 NFP Tax Compliance Risk Nexus Triggers Physical Nexus Attribution Nexus (affiliations, alternative investments) License of Intangibles Out of State Activities Giving Rise to Nexus in Another State Telecommuting employees working from home Independent Contractors providing services in another state Equipment/Property/Inventory in another state License of Intangibles 26 NFP Tax Compliance Risk Charitable Solicitation Registration Exemption depends upon Nature of charity Type of solicitation Amount raised Unified Registration Statement National Association of State charities Officials & National Association of Attorney Generals 39 states & DC require registration Remember Form 990 Schedule G 27 9

10 Miscellaneous Newly Issued Guidance of Interest Hospitals IRC Section 501(r) Addedby Patient Protection andaffordable CareAct Must be satisfied on facility by facility basis Imposes four requirements Community Health Needs Assessment Financial Assistance Policy Limitation on Charges Collection Process 28 path=phon planid= plancatid loggedin= Miscellaneous Newly Issued Guidance of Interest Employer Provided Cell Phones Small Business Jobs Act of 2010 de listed cell phones Strict substantiation requirements of IRC Section 280F are no longer required Employee is required to provide substantiation of business use IRS Notice proposed four possible methods Evidence of a separate personal use device De minimis personal use exclusion Safe harbor (75%/25%) Statistical sampling method 29 Miscellaneous Newly Issued Guidance of Interest Notice Transitional Relief under IRC sec 6033(j) for Small Organizations Notice Application for Reinstatement and Retroactive Ri Reinstatement tt tfor Reasonable Cause under IRC sec 6033(j) IRS will not impose late filing penalties for any of the three consecutive years organization failed to file returns Automatically revoked organization does not need to file any 990, 990 EZ or 990 N that was delinquent at the time of automatic revocation Larger organizations seeking retroactive reinstatement must submit all delinquent returns 30 10

11 What s Coming in 2012 Lobbying versus Advocacy Lobbying Working to support or oppose specific legislative proposals Includes Preparation, research and planning Coordination with allies Contacts made to arrange a lobbying contact Direct versus grassroots 31 What s Coming in 2012 Lobbying versus Advocacy Specific exclusions from lobbying Materials made available to public or mass media Request for meeting or information Testimony before a committee or subcommittee Responding to a specific written request Responding to a published request for comment 32 What s Coming in 2012 Lobbying versus Advocacy The Section 501(h) Election Effective beginning of year in which Form 5768 is filed Same for revocation of election Most public charities are eligible to election 501(h) Not eligible includes churches, government units, some supporting organizations 33 11

12 Questions? 34 12

Federal Financial Requirements

American Society of Health-System Pharmacists Federal Financial Requirements ASHP s Financial Toolkit for Affiliates Kimberlee Berry [Pick the date] FEDERAL REQUIREMENTS NOTE: All IRS forms can be accessed