In This Issue:
Excess Benefit Transactions[dropcap]I[/dropcap]n recent years, the IRS has been increasing its audits of not-for-profit organizations. One of the hot button topics is asset protection, which includes the receipt of private inurement and private benefit transactions by persons who control the not-for-profit organization or who are related in some manner. A not-for-profit organization that is found to have violated the private inurement or private benefit rules faces the ultimate penalty of revocation of tax-exempt status.
While the private inurement rule is limited to circumstances where the benefits accrue to the organization’s insiders, the private benefits rule is not and extends to outsiders. Conversely, a de minimis or incidental amount of private benefits is permissible while no amount is private inurement is permissible.
Asset protection begins with good governance, including the following:
A process for determining the compensation of officers, directors, trustees, key employees and others in a position to exercise substantial influence over the affairs of the organization by persons knowledgeable in compensation matters and who have no financial interest in the determination;
• A written conflict of interest policy and procedures for monitoring compliance;
• A written document retention and destruction policy;
• A written whistleblower policy; and
• Written policies and procedures for evaluating participation in joint ventures, for-profit entities and sophisticated investments.
So, how should your organization protect itself to limit its exposure to IRS examination or tax-revocation? Below is a listing of measures that your organization should take:
• If you have not already done so, consider adopting the aforementioned key components of good governance as prescribed by the IRS;
• Review your procedures for determining the compensation and benefits of officers and directors;
• Ensure that your conflict of interest policy and document retention policy are being strictly followed; and
• Maintain a current list of disqualified persons and related parties.
If you have any questions regarding the specific IRS private inurement or private benefits rules, or would like assistance is adopting any of the governance documents noted above, please feel free to contact us.
Tax-Exempt Organizations Filing with IRS: Do Not Include Social Security Numbers or Personal Data
[dropcap]T[/dropcap]he Internal Revenue Service cautions tax-exempt organizations not to include Social Security numbers (SSNs) or other unneeded personal information on their Form 990, and consider taking advantage of the speed and convenience of electronic filing.
Form 990-series information returns and notices are due on the 15th day of the fifth month after an organization’s tax year ends. Many organizations use the calendar year as their tax year, which made Thursday, May 15 the deadline to file for 2014.
Many Groups Risk Loss of Tax-Exempt Status
By law, organizations that fail to file annual reports for three consecutive years will see their federal tax exemptions automatically revoked as of the due date of the third required filing. The Pension Protection Act of 2006 mandates that most tax-exempt organizations file annual Form 990-series informational returns or notices with the IRS. The law, which went into effect at the beginning of 2007, also imposed a new annual filing requirement on small organizations. Churches and church-related organizations are not required to file annual reports.
No Social Security Numbers on 990s
The IRS generally does not ask organizations for SSNs and in the form instructions cautions filers not to provide them on the form. By law, both the IRS and most tax-exempt organizations are required to publicly disclose most parts of form filings, including schedules and attachments. Public release of SSNs and other personally identifiable information about donors, clients or benefactors could give rise to identity theft.
Tax-exempt forms that must be made public by the IRS are clearly marked “Open to Public Inspection” in the top right corner of the first page. These include Form 990, 990-EZ, Form 990-PF and others.
What to File
Small tax-exempt organizations with average annual receipts of $50,000 or less may file an electronic notice called a Form 990-N (e-Postcard), which asks organizations for a few basic pieces of information. Tax-exempt organizations with average annual receipts above $50,000 must file a Form 990 or 990-EZ depending on their receipts and assets. Private foundations file a Form 990-PF.
Organizations that need additional time to file a Form 990, 990-EZ or 990-PF may obtain an extension. Note that no extension is available for filing the Form 990-N (e-Postcard).
Check Tax-Exempt Status Online
The IRS publishes the names of organizations identified as having automatically lost their tax-exempt status for failing to file annual reports for three consecutive years. Organizations that have had their exemptions automatically revoked and wish to have that status reinstated must file an application for exemption and pay the appropriate user fee.
The IRS offers an online search tool, Exempt Organizations Select Check, to help users more easily find key information about their federal tax status and filings of certain tax-exempt organizations, including whether organizations have had their federal tax exemptions automatically revoked.
The professionals in our firm can assist you in understanding the complexities of tax exempt organizations filing with the IRS.
The Affordable Care Act and Employers: Why Workforce Size Matters[dropcap]T[/dropcap]he Affordable Care Act contains several tax provisions that affect employers. Under the ACA, the size and structure of a workforce – small or large – helps determine which parts of the law apply to which employers.
The number of employees an employer had during the prior year determines whether it is an applicable large employer for the current year. This is important because two provisions of the Affordable Care Act apply only to applicable large employers.
1.The employer shared responsibility provision.
2.The employer information reporting provisions for offers of minimum essential coverage.
An employer’s size is determined by the number of its employees.
• An employer with 50 or more full-time employees or full-time equivalents is considered an applicable large employer – also known as ALE – under the ACA.
• For purposes of the employer shared responsibility provision, the number of employees a business had during the prior year determines whether it is an ALE for the current year. Employers make this calculation by averaging the number of employees they had throughout the year, which takes into account workforce fluctuations many employers experience.
• Employers with fewer than 50 full-time or full-time equivalent employees are not applicable large employers.
• Calculating the number of employees is especially important for employers that have close to 50 employees or whose work force fluctuates during the year.
To determine its workforce size for a year, an employer adds the total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each month of the prior calendar year. The employer then divides that combined total by 12.
If you have any questions regarding the Affordable Care Act, please feel free to contact us.