Tax-exempt organizations have not been immune from the impact of the economic downturn that began in 2008. In response to flat or declining donation income, many organizations have sought to generate revenue through activities that could be considered commercial in nature. While engaging in commercial-type activities may be a viable alternative in many situations, tax-exempt organizations should recognize that such activities may give rise to unrelated business taxable income, or UBTI and may even call into question their tax-exempt status. Moreover, the lines between related and unrelated activities are not always clear. The attached article summarizes these issues.
On April 25, the IRS released its Exempt Organization Newsletter, Issue Number 2013-7. Topics include the following
- EO Director, at annual Georgetown conference, announces release of Colleges and Universities report
- New features debut on EO’s webpages
- Register for EO workshops
- Attend the Exempt Organizations Workshop at the 2013 Tax Forums
On April 4, the IRS released its Exempt Organization Newsletter, Issue Number 2013-6. Topics include the following
- IRS issues proposed regulations on Community Health Needs Assessments,requests comments
- IRS releases the Dirty Dozen tax scams for 2013
- Register for EO Workshops
- IRS releases FY 2012 Data Book
- Public comment invited on recommendations for 2013-2014 Guidance Priority List (more…)
On March 21, the IRS released its Exempt Organization Newsletter, Issue Number 2013-5. Topics include the following
- IRS Exempt Organizations to launch Self-Declarers Questionnaire
- IRS releases new required form for TEB VCAP submissions
- Notice 2013-14 provides guidance on extending tax credit to veterans’ employers
- IRS and Treasury issue proposed regulations on health insurance providers fee
- Register for EO workshops
- Retirement news for tax-exempt employers
- IRS has $917 million for people who have not filed a 2009 income tax return
Unless you’ve been under a proverbial (or actual) rock for the last several months, you are probably aware that the health reform law has a really big tax that could hit employers for not offering (or not offering good enough) health coverage to their full-time employees and dependents, referred to as play or pay (or “shared responsibility”) rules. We’ve discussed the proposed regulations previously here. But starting with this post, we are going to cover these rules in digestible portions. This will help you see some of the finer points of the rules, without having to swallow the entire regulations in a single sitting. In this first post, we’ll cover how you determine full-time employees (so you know who has to be offered coverage effective January 1, 2014)in a Q&A format. It’s worth noting the rules discussed here technically apply to all ongoing employees (we’ll touch on new hires later). (more…)
On March 4, the IRS released its Exempt Organization Newsletter, Issue Number 2013-4. Topics include the following
- Effect of Sequestration on Small Business Health Care Tax Credit
- Register now for EO workshops
- 2012 Form 990 and 990-EZ – Significant changes
- IRS Expands Voluntary Worker Classification Settlement Program
- IRS Nationwide Tax Forum information
- EO’s free e-newsletter helps keep charities and nonprofits up to date
- IRS Exempt Organizations wants graduate students for the summer volunteer program
Continuing our series of posts reporting on the recent TE/GE meetings, today we focus on the audit trends and issues that the IRS officials in attendance identified. In addition to providing insight on the IRS’s focus, the list serves as a good compliance checklist for plan sponsors. Are you making these errors? If so, you can (and should) fix them now before the IRS comes knocking.
Areas of Focus. At the outset, it’s helpful to know where the IRS is looking for trouble, so you can have some idea where agents are coming from when you get the dreaded audit letter. The officials at TE/GE gave these insights:
- Most audits are focused on 3 or 4 particular issues depending on the market segment (i.e., the business of the employer) and the size of the plan (generally less than 100 participants is a small plan while other plans are considered large). The IRS did not give examples of the issues on which they are focusing, but to the extent you or your advisors are aware of other IRS audits in your market segment and for plans of your size, you may be able to identify them.
- There is no current targeted audit project for governmental plans.
- 403(b) plans will be an area of focus going forward.
- With regard to 401(k) audits, there will be a heavy emphasis on internal controls. They mentioned this multiple times, so it’s a good idea to review and document your internal controls now so that you are prepared when the IRS audits.
- For defined benefit plans, they said they will focus on “issues around [the Pension Protection Act].” They did not elaborate, but presumably this will involve a focus on operational compliance with PPA changes.
Audit Trends. The IRS also identified a few common audit trends. Most of these are unsurprising, but again, serve as a good checklist for plan sponsors.
- First, they identified the following general trends:
- Failure to timely amend documents for law changes
- Failure to follow plan terms
- Using the incorrect definition of compensation for contribution, benefit calculation, or testing purposes
- Eligibility compliance issues, such as failing to exclude ineligible employees or include eligible ones
- On a more specific note, they identified the following as issues that were particularly prevalent in 401(k) plans:
- Failing to have internal controls (did we mention that they thought this was important?)
- Increases in plan loan defaults due to administrative errors (see our prior post about doing a quarterly checkup)
- Failing to make the top heavy minimum contribution in a top heavy plan (this is a bigger issue for smaller plans)
- In the 403(b) area, they reported that the following issues were common:
- Deferrals exceeding the 402(g) limit ($17,500 for 2013)
- Failure to comply with the universal availability rules
- Contributions in excess of the maximum limits under 415 ($51,000 for 2013)
- Plan loans that violate the loan rules on maximum loan amounts or maximum repayment periods (and, in some cases, have no documentation at all for the loan)
- Hardship distributions where insufficient documentation is obtained to demonstrate the hardship.
The following is a great opportunity to hear directly from IRS agents that specialize in tax-exempt organizations. I have attended this event in the past and found it useful and informative. This is a good event for 501(c)(3) directors, officers, leadership and staff.
Back by popular demand!
IRS Workshop for Small and Mid-sized 501(c)(3) organizations
Tuesday, April 30, 2013
9:00 a.m. to 4:00 p.m.
J.C. Penney Conference Center – University of Missouri – St. Louis
$45 before April 1, 2013 | $55 after April 1 | $70 at the door
Instructors: IRS staff
As every 501(c)(3) organization knows, IRS rules and regulations are stringent and ever-changing. Attend this special, low-cost workshop to hear directly from the IRS about the benefits and responsibilities under501(c)(3) and actions that may jeopardize the tax-exempt status of an organization.
Other topics will include:
- The definition of unrelated business income, including common examples and exceptions, filing requirements and charitable gaming.
- Classification of workers and filing requirements for employees and independent contractors.
- An overview of the Forms 990, 990-EZ, and 990-N (e-Postcard), including tips on recordkeeping and answers to frequently asked questions. Includes a presentation of resources and tools available to exempt organizations to help them file accurate, error-free returns.
- An overview of disclosures tax-exempt organizations are required to make.
On February 8, the IRS released its Exempt Organization Newsletter, Issue Number 2013-3. Topics include the following
- Recent changes affecting Type III Supporting Organizations
- 2012 tax year 990-series forms, schedules and instructions are available
- Automatic Revocation of Exemption List
- New webpages give a guided tour through the Examination process
- Read the Catalog of IRS Exempt Organizations Products & Resources
- Review upcoming dates and locations for EO workshops
- ALERT: PTIN System is open
The Best Lawyers in America, the oldest lawyer-rating publication in the U.S., has selected 156 Bryan Cave lawyers for inclusion in the 2013 edition. Selection is based on a peer-review in which leading attorneys cast almost 4.4 million votes on the legal abilities of other lawyers in their specialties.
Included in the rankings are the following attorneys from the Nonprofit, Religious, and Charitable Planning Team:
Stuart J. Lark
John R. Wylie
Richard R. Young
New York / Washington DC:
Lisa Van Fleet