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:
- 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.
- 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.
- 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.
- 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.
- For Hospitals, a few minor changes have been made to Schedule H to better reflect compliance with the final regulations under 501(r)..
- 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.
By: Mike Herold
Many nonprofit organizations utilize single member limited liability companies (SMLLCs) in their operations. SMLLCs are popular vehicles for holding real estate and are an easy way to conduct separate activities in different locations. For example, a skilled nursing or senior care corporation might consist of various locations or centers each held within its own SMLLC. This provides a vessel for managing the operations and profitability of each location more effectively and accurately.
Because a SMLLC is considered a disregarded entity for federal tax purposes, the IRS allows the SMLLC to operate as a tax exempt entity without seeking its own application for tax exempt status. This makes the SMLLC a relatively low cost entity to create while affording the parent an additional level of liability protection through an isolating entity.
For more information on SMLLCs and tax exemption, read the full article here.
By Deb Nelson, CPA, Senior Tax Manager
In efforts to provide information about tax exempt organizations to the general public, the IRS has announced that data from previously filed and approved Form 1023-EZ applications will be available electronically.
The IRS released the streamlined exemption application in July 2014 to assist smaller organizations in obtaining tax-exempt status under 501(c)(3). Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible. The 1023-EZ contains limited information, but does include the following:
- Name, address and phone number
- Employer identification number
- Names of officers, directors and trustees
- Whether the organization is a corporation, unincorporated association, or trust
- Date of incorporation and applicable state
- NTEE Code that describes intended activities as well as several yes/no questions about activities; such as whether or not compensation will be paid to any officers, directors or trustees
- Type of classification – public charity or private foundation
This data will be updated quarterly on the IRS website and will allow taxpayers to more easily research information on tax exempt organizations. To read the full news release click here.
Social media is a requirement for the nonprofit sector – it allows organizations to reach a large audience with very little cost. However, most organizations are not aware of the potential tax implications. There is little guidance regarding online communications, but the IRS considers online communications to be similar to other forms of communication; thus, a website is considered a form of communication.
Facebook and Twitter have become the norm when it comes to communicating. Both forms allow for links to other websites that may or may not be related to the organization’s tax-exempt purpose. Organizations should be aware and continually monitoring content both on their own website as well as websites to which that they provide links. Organizations must consider whether the link is advertising – does it endorse products or provide qualitative information? Or is it only an acknowledgment? This area continues to change and requires organizations to be aware of potential risks.
The IRS has a free newsletter that helps nonprofit organizations stay abreast of developments in the tax-exempt world. Readers of “EO Update: e-News for Charities and Nonprofits” receive updates from the IRS about issues of tax policy, services and available information that impact tax-exempt organizations, such as:
news releases from the IRS related to exempt organizations;
new forms, guidance and other publications;
upcoming IRS training and outreach events
The updates are brief summaries with links to more extended discussions of content available on the irs.gov website.
The link to subscribe is http://www.irs.gov/Charities-&-Non-Profits/Subscribe-to-Exempt-Organization-Update.
The bill passed by Congress to address the “Fiscal Cliff” has some provisions that will be of interest to nonprofit organizations.
While the bill did not include a limitation on charitable deductions, it does include a limitation on itemized deductions for individuals with income in excess of $250,000 and married couples filing joint returns with income in excess of $300,000.
The bill did not extend the temporary 2% employee payroll tax holiday, resulting in a reinstatement of the 6.2% tax on the first $113,700 of wages. The rate had been reduced to 4.2% in 2009.
Some other items set to expire have been extended. These include IRA distributions by those age 70 ½ and older to charitable organizations, which can be made without including the withdrawal in the taxpayer’s gross income. The special rule for contributions of capital gain real property for conservation is extended and the charitable deduction by businesses for donations of food inventory has been enhanced.