debrariespptrevised - schneider downs · pdf file• 2010 results not yet released ... take...

7/26/2011

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Current Tax Issues for Exempt Organizations

Debra A. Ries, CPA MT

Schneider Downs & Co., Inc

[email protected]

412‐697‐5392

Agenda

• IRS EO 2010 Annual Report and FY 2011 Work Plan

• AICPA’s Top 11 Tax Issues for Exempt OrganizationsAICPA s Top 11 Tax Issues for Exempt Organizations

• Form 990 Changes

• Offshore Voluntary Disclosure Initiative

• Miscellaneous Newly Issued Guidance of Interest

• NFP Tax Compliance Risk

• What’s Coming in 2012 ‐ Lobbying versus Advocacy

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IRS 2010 EO Annual Report

3From IRS Exempt Organizations FY 2010 Annual Report

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IRS 2010 EO Annual Report Gross Annual Receipts Reported on 2008 Returns

Form 990


IRS 2010 EO Annual Report End of Year Total Assets Reported on 2008 Returns

Form 990


IRS 2010 EO Annual Report


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IRS FY 2011 Work PlanProjects to Process

Political Activities Compliance Initiative

• Over 250 organizations examined during 2004, 2006 and g g ,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 2007‐41 and Publication 1828

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Combined Annual Wage Reporting Project

• 2007 2010• 2007 ‐ 2010

• 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 Forms 941 filed

• Will aid in case selection and focused examination

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Executive Compensation Compliance Initiative: Loans Project

• Initiated in 2004 and preliminary results released in 2007• Project began with 200 compliance checks and 50 single issueProject began with 200 compliance checks and 50 single 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

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IRS FY 2011 Work PlanContinuing Initiatives / Collaboration

National Research Program – Study of Employment Tax Returns

• Tax Gap = $54 billion per year• Tax Gap = $54 billion per year

• Examination of 500 EOs per year for three years (2008 –2010)

• Worker classification issues

• Appropriate tax treatment of benefits

• Expense account reimbursements

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IRS FY 2011 Work Plan

Take‐Away Questions to Ask

Employee Benefits – Does your current policy provide for the appropriate tax treatment of employee benefits?

Expense Reimbursement – Is your policy tax compliant?

Worker Classification – Do you have a process in place to determine appropriate worker classification before making the first payment? Does the process provide for gathering recipient’s tax information?

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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

Take Away – Be mindful of Schedule G filing requirements

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International Focus

• International activities, transactions and accounts

• Foreign entities receiving exempt status• 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

More to come on reporting requirements for financial accounts later in the presentation 13

IRS FY 2011 Work PlanOngoing Initiatives

The College and University Questionnaire

• Sent to more than 400 schools

• Focus on UBI endowments and executive comp• Focus on UBI, endowments and executive 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

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Charitable Spending Initiative Phase I – examined organizations with:

• High fundraising expenses examined• 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

Take Away – Review your statement of functional expenses

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Form 990‐N Filing Requirements

• Added by Pension Protection Act of 2006

• Purpose – ensure information is current• Purpose – ensure information is current

• Affected – small tax‐exempt with annual gross received of $25,000 or less

• 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

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Form 990 as a Compliance Tool• Purpose ‐ increase compliance and promote and enforce complianceEO E i ti• EO Examinations uses ‐

• Identify non‐compliance and potentially non‐compliant EOs

• Develop targeted compliance projects• Inform and supplement educational efforts

• Research office developing risk models and refining compliance queries

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Section 501(c)(4), (5) and (6) Organizations

• Beginning FY 2011 increased focus on these associations• Beginning FY 2011, increased focus on these associations

• Additional information on new Form 990 will allow closer look at political activity, inurement and compliance

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Governance –

More to come later today

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Policies

Tax‐Exempt Bond Questionnaire

• 2007 – questionnaires sent to 207 EOs and 200 Government Issuers

IRS FY 2011 Activities ‐ July 1, 2011

Government Issuers• “Soft‐Compliance Check”• Purpose: Evaluate post‐compliance policies, practices and recordkeeping

• Full report posted on IRS.gov

• Take‐Away Questions – Are your post‐issuance monitoring procedures tax compliant? Do you have someone in charge of monitoring tax compliance?

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IRS FY 2011 Activities ‐ June, 2011

IRS Compliance Check – 403(b) Plans

• 300 institutions of higher education will be selectedg

• Focus – 403(b) retirement plans

• Purpose – assess compliance with Universal Availability rules and new written plan documentation rules

• Take‐Away – Seek professional assistance if you receive a compliance check questionnaire

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AICPA Top 11 Tax Issues for Exempt Organizations

1. Governance

2. Unrelated Business Income

3. Compensation and Benefitsp

4. Employment Tax

5. Form 990

6. International Issues

7. Bond Financing

8. Charitable Spending

9. Hospitals – IRC Section 501(r)

10. Associations

11. Lobbying and Political Activity 22

AICPA’s List of Hidden Treasures on IRS.gov

• Life Cycle of an Exempt Organization

• Common ErrorsCommon Errors

• EO Update

• Guide Sheets

• IRS Stay Exempt

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2010 Form 990 Changes

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IRS Announcement 2011‐36• Posed questions on 11 issues – asks for comments by

August 1A ti it C d ( )• Activity Code(s)

• Thresholds for Reporting Compensation• Reporting Compensation to Certain Management /

Leasing Companies • Reporting Revenue from Governmental Units• Indirect Foreign Expenditures• Scope of Reporting on Related Organizations –

Schedule R

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Core Form

• Space for narratives added to: E, G, K, L and R

• Form and instructions provide references to GAAPp

Part IV Checklist 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 2

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Part VI Governance, Management and Disclosure

• Only answer yes to questions asking if organization has a policy if the governing body* adopted the policy by thepolicy if the governing body 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)

*Subsequent guidance allows for committee of an organization’s Board to adopt set governance policies

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Part VII Compensation of Officer, Directors, Trustees, Key Employee, Highest Compensated Employees and Independent Contractors

• Filers must describe in Schedule O the average hours per week worked for related organization

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 in financial statements).


Part IX Statement of Functional Expenses

• Costs incurred to secure grants to provide program services is a program service expenseservices 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 and Reporting

• New part to provide for reconciliation of net assets from beginning of the year balance to end‐of‐year balance 29

Offshore Voluntary Disclosure Initiative

• General Rules

• Form TD F 90‐22.1 must be filed by all U.S. persons who have a financial interest in, or signature authority over a foreign bank account or financial account that exceeds $10,000 anytime during the year

• Foreign mutual funds or other pooled funds that issue shares to the• Foreign mutual funds or other pooled funds that issue shares to the general public have daily asset value determination and regulation redemption are reportable

• Hedge funds and private equity funds that do not meet this criteria are not reportable

• Signature or other authority means the authority to control the disposition of money, funds or other assets held in a financial account

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Timeline –

• June 2009 – FBAR deadline extended to September 29, 20092009

• IRS announced it will not impose penalties for delinquent FBARs if income timely reported

• August 2009 Notice 2009‐62– deadline extended to June 30, 2010 for 2008 and earlier calendar years if signature authority only (no financial interest)

• March 2010 Notice 2010‐23 – deadline extended to June 30, 2011 for 2008 and earlier calendar years if signature authority only (no financial interest)

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Timeline Continued ‐‐‐

• Final FBAR rules issued February 2011 and effective March 2011

• March 2011 – Revised FBAR Form and revised instructions issued to comply with rules issued in February

• May 2011 – Notice 2011‐54 further extends deadline to November 1, 2011, for 2009 and earlier calendar years for signature only FBARs (no financial interest); June 30, 2011 deadline remains in effect for 2010 calendar year FBARs

• June 17, 2011, IRS and FinCEN (Federal Crimes Enforcement Network) issues Notice 2011‐2 extending FBAR filing deadline until June 30, 2012 for a small subset of signature only FBAR filers

• July 18, 2011 – online FBAR filing option announced

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Current Initiative – OVDI

• Announced February 2011

• Available through August 31, 2011g g ,

Eligibility Requirements

• Reported all income from offshore sources

• No unreported tax liabilities

• Must complete Form TD F 90‐22.1 for calendar years 2003 through 2010

• Must include a reasonable cause statement33

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• OVDI includes relief for failure to file Forms 926 and 8865

• Form 926, Return by a U.S. Transferor of Property to a Foreign Corporationg p

• Penalty

• 10% capital contribution

• Maximum $100,000/return

• No maximum if failure was intentional

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• OVDI includes relief for failure to file Forms 926 and 8865

• Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnershipsg p

• Penalty

• $10,000/return

• Maximum: $50,000/return and 10% property transfer capped at $100,000

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Take inventory of all offshore alternative investments and offshore accounts and check for compliance.offshore accounts and check for compliance.

Take advantage of the window of opportunity ‐‐the voluntary compliance program ends August 31, 2011.

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Miscellaneous NewlyIssued Guidance of InterestEducational Institutions

Dormitory and Hotel Rentals to Other than Students

• PLR 201106019 –• Revoked part of prior PLR 200625035• Prior guidance – determination was based upon rental activity being substantially related to exempt purpose

• In revocation, IRS ruled organization did not establish the non‐student stays at school’s living quarters were substantially related to the organization’s exempt purpose

Take‐Away – If you rent to non‐students, revisit your prior analysis

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Miscellaneous Newly Issued Guidance of InterestEducational Institutions

Graduate‐Level Tuition Waivers

• Field Attorney Advice 20103901Fy

• Allows Section 132 exclusion of graduate tuition in excess of limits of a Section 127 plan

Take‐Away – Revisit your current tax treatment of tuition waivers

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Miscellaneous Newly Issued Guidance of InterestEducational Institutions

Form 1099‐K Merchant Card and Third‐Party Network Payments ‐Required if:

• Deposits made by card holder or charges to account are permitted

• Institution is contractually obligated to pay participating merchants in settlement of transaction AND

• Card is accepted by one or more unrelated merchants

Take Away – determine whether your campus card meets these requirements as soon as possible

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Miscellaneous Newly Issued Guidance of InterestHospitals

IRC Section 501(r) –

• Added by Patient Protection and Affordable Care Act

• Must be satisfied on facility by facility basis• Must be satisfied on facility‐by‐facility basis

• Imposes four requirements

• Community Health Needs Assessment

• Financial Assistance Policy

• Limitation on Charges

• Collection Process

Announcement 2011‐37 – Part V Section B of Schedule H optional for 2010

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Take‐Aways –

Review Part V Section B to determine whether you are currently in compliance

Be mindful of implementation deadlines of each of the four requirements

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Mayo Foundation for Medical Education and Research et. al. v. U.S., 107 AFTR 2d 2011‐231 (January 11, 2011) –

• Supreme Court upheld an IRS regulation that medical residents, as full‐time employees of the hospital at which they work, are ineligible for the IRS Section 3121(b)(10) student FICA exemption

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Miscellaneous Newly Issued Guidance of InterestBooster Clubs

Booster Club Dues and Non‐Exempt Activity ‐ Program Manager Technical Assistance

• Issue – Can payments made to a charitable booster club Issue Can payments made to a charitable booster club qualify for a charitable contribution deduction?

• Chief Counsel Memo focused on tax consequences to individuals

• Additional issues raised by EO –

• Does crediting amounts raised by participant toward dues constitute private benefit?

• Are amounts credited to participant’s account income from services (employment taxes)?

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Miscellaneous Newly Issued Guidance of InterestEmployer‐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 2009‐46 proposed four possible methods –

• De minimis personal use exclusion –evidence of a separate personal use device or specified amount of minimal personal use

• Safe harbor (75%/25%)

• Statistical sampling method44

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NFP Tax Compliance Risk

Where’s your state return?

But we’re tax

exempt!

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return? exempt!

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State Filing Requirement Risks

• Sales Tax Collection and Use Tax on Taxable Purchases• Sales Tax Collection and Use Tax on Taxable Purchases

• Income Tax on UBI

• Unclaimed Property Tax Returns

• State Tax Withholding and Unemployment Returns

• Charitable Solicitation Requirements

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Nexus Triggers

• Physical Nexus

• Attribution Nexus (affiliations, alternative investments)

• License of Intangibles

Examples – 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 intangibles47


Charitable Solicitation Registration Exemption depends upon

• Nature of charity

• Type of solicitationyp

• Amount raised

• Unified Registration Statement

• National Association of State Charities Officials and National Association of Attorney Generals

• 39 states and DC require registration

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Take Aways

Review all out‐of‐state activities and check applicable state nexus criteria for each activity

Work with your Development Office to identify out‐of‐state solicitation

Remember – Form 990 Schedule G requires disclosure of states where you are registered to solicit

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What’s Coming in 2012 ‐ Lobbying versus Advocacy

Lobbying ‐‐

W ki t t ifi l i l ti l• 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

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Specific exclusions from lobbying

• Materials made available to public or mass media• 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

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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

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Questions?

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debrariespptrevised - schneider downs · pdf file• 2010 results not yet released ... take...

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