2016 Form 990 and Instructions Changes

By: Laurie Hanson

The Form 990 and its many schedules remained largely unchanged for tax year 2016. The changes can be summarized pretty quickly, and include the following:

  1. For returns that cannot be electronically filed, the IRS previously considered returns that were delivered via USPS, FedEx and UPS as timely filed if postmarked at least by the due date of the return. The IRS has added DHL Express to this listing. Whenever a return is mailed to the IRS, regardless of the service used, we encourage you to obtain and retain the receipt for proof of mailing. That way, if the IRS later assesses a penalty for late filing, you’ll have proof that the return was filed on time and will be able to easily have the penalties abated.
  2. For tax years beginning after 12/31/15, the first extension for Form 990 and 990-EZ will cover a six-month period. A second extension is no longer available. Previously, two three-month extensions were available. Form 990 is due 4 ½ months after year end. The extension makes the return due 10 ½ months after year end. Thus, the final filing due date with extensions remains unchanged.
  3. The publicly supported charity definition has been updated to include an agricultural research organization under Internal Revenue Code (IRC) 170(b)(1)(A)(ix). This only pertains to IRC 501(c)(3) organizations that are exempt as a public charity and operate as agricultural research organizations. In other words, it doesn’t affect most organizations.
  4. Goods or services with insubstantial value have been indexed for inflation. The value of items valued at $10.60 or less that bear the organization’s name or logo and are given to donors in exchange for a donation need not be disclosed to the donor.
  5. For Hospitals, a few minor changes have been made to Schedule H to better reflect compliance with the final regulations under 501(r)..
  6. Form 990-T has been updated to include a specific line for tax on hospitals that are not compliant with IRC 501(r) regulations. The tax is not new. Only the line on the form is new.

Beyond Form 990 itself, you may be interested in the following nonprofit related tax issues:

If your organization hires veterans, you may be eligible for a credit against the employer portion of social security tax on wages paid to all employees. The credit applies to qualified first-year wages paid to qualified veterans who began work for the organization after December 31, 2014 and before January 1, 2020. The qualified veteran must be performing services in activities related to the purpose or function constituting the basis of the organization’s tax exempt status under IRC 501. The credit is claimed on Form 5884-C.

If your organization has foreign bank accounts with an aggregate value exceeding $10,000 at any time during the calendar year, Form 114 FinCEN, Report of Foreign Bank and Financial Accounts (FBAR) is required to be filed by April 15. A six-month extension is available. Previously, this form was due June 30 with no extensions.

Please feel free to contact your Eide Bailly nonprofit tax advisor to discuss any of the above items.

Reminder: New Submission Site for 990-Ns Started February 29th

1696By: Deb Nelson

For organizations required to file the Form 990-N e-Postcard, you now submit this filing through the IRS instead of the Urban Institute’s website. You must complete a short, one-time registration before you will be allowed to submit the filing. Take time to review your address and ensure it is current. The IRS sends reminder notices and if the address is wrong you won’t get this friendly reminder.

The Form 990-N is required for small tax-exempt organizations whose annual gross receipts are normally $50,000 or less. The filing is due annually by the 15th day of the 5th month after the close of your tax year. For organizations with a December 31 year-end, the filing due date is May 15 and for organizations with a June 30 year-end, the filing due date is November 15. Failure to file for three consecutive years will result in automatic revocation of your tax-exempt status.

Have the following information ready when you login to submit your filing:

  • Employer identification number
  • Tax year
  • Legal name and mailing address
  • Any other names the organization uses
  • Name and address of a principal officer
  • Web site address if the organization has one
  • Confirmation that the organization’s annual gross receipts are $50,000 or less
  • If applicable, a statement that the organization has terminated or is terminating

Does Your Organization Have the Right Year-End?

By: Deb Nelson1696

Have you found yourself asking why your organization operates on its current year-end? Whether it is a calendar year or fiscal year, organizations may benefit from examining whether the current year-end is still appropriate. Considerations may include:

Revenue Timing

If a large portion of your revenue is coming in right before year-end, it may make budgeting and year-end responsibilities more difficult. Changing the year-end to align with the organization’s operations may provide more flexibility and easier comparison to budget. For example, December 31 is right around the corner and many organizations receive substantial contributions in the last quarter of the year. It may make sense for those organizations to consider a June 30 or September 30 year-end.

Grant Cycles

If your organization is making or receiving grants on a specified schedule, this timing should be part of the conversation. If you receive significant grant revenue that has fiscal year-end timing and you operate on a calendar year-end, consider if there is benefit to align with the grant cycle to aid in the budget and reporting process.

Users of Your Financial Information

Do you have third parties requesting your audit and tax return by a specific date during the year? Consider whether a change in year-end would make it easier to meet those timing restrictions. Early communication with third party users is beneficial to gain a full understanding of potential implications that may arise with a change. Financial institutions, grantors, and regulators are some of the parties to reach out to. You should also contact your accounting firm to discuss timing and availability for fieldwork.

Audit Reports and Tax Filings

A change in year-end has an impact on the presentation of your financial information, from both an audit and tax standpoint. An organization needs to consider whether they would complete two separate audits to address the change: one for the 12-month period and one for the short-period, or whether they would have one audit spanning a 12+ month period, for example 18 months. In addition, you also must consider the impact on presenting comparative information.  Regardless of what the organization chooses to do from an audit standpoint, a tax return cannot be filed for a period longer than 12 months.  Therefore, a short period return will need to be filed and financial information will be needed even if a longer time frame is used for audit purposes.  State solicitation requirements may also impact the decision for the audit report.  State solicitation reports may require the attachment of audited financial statements which may require an organization to obtain two separate audits due to timing requirements. As discussed above, third party users may also require two separate audits because of timing.

Changing your year end is a relatively easy process.  The year end will need to be approved by your board and likely will require an amendment to your organization’s bylaws (or Articles of Incorporation).  If your organization has not changed its year-end in the last ten years, there is no special form to request the change from the IRS. Instead, organizations need to file a short period tax return and indicate “Change of Accounting Period” on the top of page one. If there has been a change in the last ten years, the organization must file Form 1128 – Application To Adopt, Change, or Retain a Tax Year, with the short period tax filing. If your organization files Form 990-N, you must report the change on Form 990, Form 990-EZ, Form 1128, or by sending a letter to the IRS.

A Picture is Worth a… Lawsuit?

We like to leave all things legal to lawyers.  Occasionally, something comes across our radar, however, that involves a legal issue we are compelled toimagesCAFMJZ9W share.  Here are two that recently arose:

  • Copyright issues with unlicensed photography: In this Venable article, written by Joshua Kaufman, the dangers of borrowing images from the internet for use on your website are described. Take heed. And make sure you have permission to use the photography on your website!
  • Charitable fundraising under great scrutiny: In this article from Polsinelli, the authors describe recent regulator actions that provide some indication that extra scrutiny is being given when examining fundraising activities. Though the examples given are extreme and most charitable organizations do not operate fraudulently, the article provides a good reminder of the importance of an accurate Form 990 that provides the best possible view of your organization’s operations and management’s good stewardship of donations.

Should you find that you need a lawyer, here’s a recent post that provides tips on working with one.

Successful Lawsuit Could Mean Digitally Searchable Form 990s

DebNelsonBy:  Deb Nelson

All exempt organizations are required to make their current year Form 990 and two prior year returns available for public inspection. In addition, organizations exempt under IRC Section 501(c)(3) must make the current year Form 990-T and two prior year returns available. These forms contain a wealth of information including financial information, compensation information, listing of board members, grantee information, and information on policies and procedures. In addition, the IRS is required to provide copies of these returns upon request under the Freedom of Information Act (FOIA). Up until now, the IRS has only made the returns available in an image format which is not digitally readable.

Currently when the IRS provides returns to the public, they remove confidential information from the returns; e-filed and paper-filed, and convert them to image files. This image file is not easy to navigate and does not allow for data manipulation. As a result, watchdog groups like GuideStar, Charity Navigator and Urban Institute who receive these files from the IRS, spend significant time and money manipulating the image files prior to making the information available to the general public. For example, GuideStar converts the image files to PDFs for individuals to access. Charity Navigator inputs information from the returns into their own database to analyze nonprofits according to their standards.

Carl Malamud, of Public.Resource.Org., recently filed a lawsuit against the IRS to obtain Form 990s in a computer readable format for nine nonprofit organizations under the FOIA. Public.Resource.Org won the lawsuit against the IRS. The IRS has 60 days to produce Form 990s in a digitally readable format for the nine organizations named in the lawsuit.

This ruling could have a large impact on nonprofit organizations. Digitally readable formats will allow public users of these forms to more easily search for particular items to compare across organizations, such as compensation and lobbing expenses. Users of Form 990s can include prospective board members, current and former employees, reporters and media, and watchdog groups. In addition, his ruling may open the door to more requests by outside groups for digitally readable data. For example, GuideStar, Charity Navigator and Urban Institute may request computer readable format for all returns allowing them to minimize the time and effort required to provide the information currently available, or to offer more information. As a result, nonprofit organizations may be subject to a deeper level of scrutiny by individuals and groups and, therefore, should continually review their Form 990s from a public perception and be proactive and prepared to answer questions that may arise.