Archive for Tax

Watch our Webinar: Methods to Effectively Manage Your Non-Profit’s Tax Risk

Get Best Practices and Insights on Top Issues!

As a non-profit organization, you face different types of risks than for-profit companies. Board members and financial executives are often surprised at the extent of the tax exposures actually faced by tax-exempt organizations.

Non-profit organizations are open to many tax and reputational risks, as Form 990 tax filing is open for the world to see. Tax matters that may affect your organization include unrelated business activities, intermediate sanctions, donor and fundraising issues. Other topics such as fringe benefits, nonqualified deferred compensation arrangements, and joint ventures take on new significance from the perspective of your non-profit organization’s tax function.

To make matters even more challenging, the IRS has also announced it is increasing the use of data queries of tax filings for selection of tax-exempt organizations for examination.

Watch our webinar to learn more about:

  • The top 10 U.S. Federal issues facing non-profit organizations
  • Our predictions for IRS audit selection queries
  • Best practices for your tax risk function
  • Identifying red flags and minimizing tax/reputational risks with a diagnostic check-up

Who Should Watch: Board Members, Executive Management, Chief Financial Officers, Finance Department Members

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Tax Exempt and Government Entities Group FY2017 Work Plan – Part 2

shutterstock_117815818In one of our previous blogs we discussed that the Tax Exempt and Government Entities Group (TE/GE) of the Internal Revenue Service (IRS) released its Fiscal Year 2017 (FY2017) Work Plan. The work plan summarizes the Service’s accomplishments for fiscal year 2016 and outlines its focus for FY2017.

In addition to the five areas of focus for the TE/GE FY2017 work plan, there are a few additional areas of the IRS’s TE/GE FY2017 work plan that may be of interest to tax-exempt organizations, including:

  • 403(b) plan document requirement compliance checks;
  • Tax-exempt bond compliance; and
  • Fringe benefit tax exposure, unreported income and worker classification tax audits.
403(b) plan document requirement compliance checks

The IRS’s Employee Plans Examination Group will identify areas of noncompliance with employee benefit plans, and in FY2017 its compliance check projects will include a focus on reviewing 403(b) plan document requirements.

Tax-exempt bond compliance

The IRS’s Tax-Exempt Bond Group plans to continue to focus resources on areas of higher risk of noncompliance, new areas of noncompliance, and noncompliance identified through revised market segment areas. The principal exposure areas found in FY2016 referrals were “private use of bond financed property and arbitrage compliance failures.”

Fringe benefit tax exposure, unreported income and worker classification audits

The IRS is also planning to conduct specific Compliance Initiative Projects (CIP) in these high-risk noncompliance areas:

Fringe benefit tax exposure – this is a project to identify patterns of noncompliance with treatment of taxable fringe benefits and other unreported income.

Early retirement incentive plans – this project, due to constructive receipt rules, often results in employment tax exposure.

Worker classification project – this project identifies payments that are incorrectly reported on Forms 1099-MISC as consulting income rather than as Form W-2 employee wages, as well as identification of individuals whose primary source of earned income is from large dollar amounts reported on Form 1099-MISC.

As noted in our previous blog published, the IRS’s TE/GE group explained that it is focusing on improving processes and doing more with less.

Interestingly, one of the IRS’s newest transformational processes is for the TE/GE’s Knowledge Network teams to publish “Issue Snapshots.” These are brief technical analyses of specific audit issues commonly come across in examinations. These snapshots are published on the IRS website in furtherance of transparency to the public, which increases voluntary compliance. The IRS anticipates this will increase efficiency as IRS auditors will now have a starting point in developing tax positions and resolving audit issues raised in examinations. It will also allow the IRS to be more effective in ensuring consistency in their treatment across taxpayers.

The TE/GE has recently published a number of Issue Snapshots and is currently developing more than 20 additional snapshots applicable to tax-exempt organizations. One of the Issue Snapshots is an analysis of the difference between acknowledgements for corporate sponsorships of charitable events (charitable contribution revenue to the charity) versus advertising for the payors (unrelated business taxable income to the charity). Another Issue Snapshot is an analysis of tax guidance regarding what constitutes “reasonable cause” to eliminate penalties in certain situations for failure to file returns or to pay taxes. Click here to view TE/GE’s Issue Snapshots >>

Conclusions to tax issues are usually dependent on the specific facts and circumstances in a particular case, but tax-exempt organizations and their advisors should find the IRS’s thinking in these Issue Snapshots to be very informative guidance.

BlumShapiro offers the accounting, tax and business consulting expertise non-profits need today. We are one of the largest non-profit accounting service providers in New England. Our blend of accounting and tax expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with federal tax requirements, state and federal grant requirements, unrelated business income regulations, employment tax rules, charitable contribution giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

Laura Kenney is a Tax Director at BlumShapiro and has over thirty years of experience providing tax compliance and consulting services for public charities, higher education institutions, cultural institutions, foundations, individuals, estates and trusts, nonprofit organizations and healthcare organizations.

For more information or to discuss your organization’s tax matters or how the FY2017 IRS work plan may affect your organization please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

The Tax Exempt and Government Entities Group (TE/GE) Releases New Tax Procedures for Examinations of Tax-exempt Organizations

Business people working in their office

The IRS’s Tax Exempt and Government Entities (TE/GE) division has recently issued significant new tax procedures for its examinations of tax-exempt organizations. The new process is expected to increase efficiency and accountability for both the IRS and the taxpayer. The Commissioner of TE/GE indicated that “(t)his process seeks to overcome issues that lead to prolonged cycle time and undue taxpayer burden.”

Highlights in the new tax procedures that specifically increase efficiency include:
  • The IRS examiner will research and identify the taxpayer’s specific potential audit issue(s) before he or she sends the audit letter to the taxpayer.
  • The auditor will call the taxpayer to discuss the issue(s) being audited and the items on the draft Information Document Requests (IDR), and will clarify the IDR, if needed, before finalizing.
Accountability will increase due to the following:
  • The taxpayer and auditor will agree on dates – taxpayer’s response date and examiner’s date to review the IDR response for completeness.
  • If the taxpayer’s response is complete, the examiner will let the taxpayer know that the response is complete, and the examination will proceed.
  • If the response is not complete, the examiner may grant certain extensions.
  • If the information request response remains incomplete, the examiner will follow certain enforcement steps, and will provide notification before each step –
    • Issuing a Delinquency Notice
    • Proposal of audit adjustment, summons for information, or proposal of revocation
    • If a summons will be issued, the IRS will first issue a “Pre-Summons Notice”.
  • If the taxpayer provides complete information prior to the response dates required for each of these enforcement steps, the examiner will notify the taxpayer, enforcement will end, and the examination will proceed.

In addition to these new procedures which will be in effect on April 1, 2017, the Commissioner of TE/GE also issued best practices as an attachment to its internal memo on the new IDR process.  Here is a link to the IRS‘s internal memo for the new required IDR process and suggested best practices.


Read Next: The Tax Exempt and Government Entities Group (“TE/GE”) Releases 2017 Work Plan

BlumShapiro offers the accounting, tax and business consulting expertise non-profits need today. We are one of the largest non-profit accounting service providers in New England. Our blend of accounting and tax expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with federal tax requirements, state and federal grant requirements, unrelated business income regulations, employment tax rules, charitable contribution giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

 Laura Kenney is a Tax Director at BlumShapiro and has over thirty years of experience providing tax compliance and consulting services for public charities, higher education institutions, cultural institutions, foundations, individuals, estates and trusts, nonprofit organizations and healthcare organizations.

For more information or to discuss your organization’s tax matters please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

Year-end planning: What can non-profits do now to prepare for 2017?

shutterstock_228440362As a non-profit, you are likely in the middle of your annual appeal and evaluating how to raise funds for the coming year’s operational budget. While you’re closing the calendar year and finalizing the last of your annual contributions, make sure you are also keeping tax processes top of mind. In this article, I offer some tips and best practices to save you time and frustration during tax season.

1. Be prepared – don’t let tax season sneak up on you

Have you collected W-9s for service providers and/or vendors? You’ll be getting those 1099 forms out in January so now is the perfect time to make sure you have what you need.  Be aware of deadlines and avoid getting stuck with interest and penalties. Due dates for the IRS 990 Form vary based on the end of your fiscal year. The 990 is due 4 1/2 months after the close of your fiscal year. If your fiscal year follows the calendar year, they are due May 15.

2. Spend your grants

One of the quickest ways to lose out on getting the same grant the following year is to not use all the money you initially received. Make it a practice to have multiple people regularly review your grants and ensure your programs are running as promised.

3. Say thank you (and document it)

All donations – regardless of size – deserve a quick and heart-felt recognition of thanks. Nothing makes donors happier, and more likely to repeat a donation, than receiving a prompt thank you from a charity they just supported.

Sometimes, you’ll need to do more than offer thanks. Donors who make contributions more than $250 need a donor acknowledgement letter to claim the deduction on their individual tax returns. A donor acknowledgment letter can be a letter, an email, or a postcard – the IRS doesn’t have a required format.

However, there are specific details you need to include in the acknowledgement to ensure that the donor gets his/her deduction. You must include the name of your organization and non-profit status (e.g. 501(c)(3) and the details of the contribution (date, method of payment, or description of contribution).

Include a statement that no goods or services were provided by the organization in exchange for the contribution, if that was the case. If any goods or services were provided by the organization in exchange for the contribution, include a description and good faith estimate of the value of those goods or services (e.g. a fundraising dinner event where some of the funds received from the donor pays for the actual dinner, while the rest is a donation). Certain insubstantial goods or services like a sticker or coffee mug may be disregarded. Or, provide a statement that goods or services (if any) that the non-profit provided in return for the contribution consisted entirely of intangible religious benefits, if that was the case.

4. Come tax time, fill out the proper forms

Are you tax-exempt? According to the IRS, certain organizations and their affiliates that are: religiously based, a federal or state non-profit, or a disregarded entity of a larger charity, do not need to file an annual form.

If you don’t fall into any of the exemption categories, you’ll need to complete the 990 Form. However, there are several different versions of this form so make sure you are choosing the appropriate one. For example, if your organization’s gross receipts for the year total $50,000 or less, you must fill out Form 990-N. If your non-profit received more than $50,000 but less than $200,000 during the year and has less than $500,000 in assets, you can complete either Form 990-EZ or Form 990. On the other hand, if your group receives $200,000 or more annually, you’ll be obligated to complete Form 990. Private foundations must submit Form 990PF.

5. Consult tax professionals

Consulting professional tax help is always advised to make sure that you get the most out of your tax-exempt status, cover your bases, and protect your non-profit status. There are many tax professionals that offer pro bono help for non-profits and the benefits of properly filed taxes will only help the organization continue to fulfill its mission.

 

Shannon Crowley Massachusetts CPAShannon Crowley is an Accounting Manager at BlumShapiro. She can be reached at scrowley@blumshapiro.com. BlumShapiro, with more than 400 professionals and staff, offers a diversity of services, which include auditing, accounting, tax and business advisory services. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits, and litigation support and valuation. The firm serves a wide range of privately held companies, government and non-profit organizations, and provides non-audit services for publicly traded companies.

The Tax Exempt and Government Entities Group (“TE/GE”) Releases 2017 Work Plan

The Tax Exempt and Government Entities Group (TE/GE) of the Internal Revenue Service (IRS) recently released its Fiscal Year 2017 (FY2017) Work Plan. The work plan summarizes the IRS’s accomplishments for FY2016 and outlines its focus for FY2017.

TE/GE explains that it is focusing on improving processes and doing more with less. The work plan states that the department’s gold standard for any new program or process change will be that it is transparent, efficient and effective.

The use of “data-driven decision making” for audit selection is one iStock_000010827673_Smallof the IRS’s more important and effective process changes. The IRS previously indicated that there are over 190 queries in its data-driven case selection technique for Form 990, Return of Organization Exempt From Income Tax. The filters used in its return selection modeling process for examination of Forms 990 have not been made public, though tax-exempt organizations and their tax advisors are certainly aware of many of the exposure areas. Please see our blog published in February 2016 that highlights some common audit selection indicators.

The five strategic issue areas for FY2017 are a continuation of the FY2016 IRS work-plan focuses, and include the following:

Exemption – issues such as non-exempt purpose activity and private inurement.

Protection of assets – issues including self-dealing, excess benefit transactions and loans to disqualified persons.

Tax gap – tax liabilities arising from employment tax and from unrelated business income tax – audit adjustments for items such as excessive expense allocations, net operating loss deductions, rental activity, advertising, debt-financed rental and investment income.

International – issues such as funds spent outside the U.S., exempt organizations operating as foreign conduits and Report of Foreign Bank and Financial Accounts (FBAR) filing requirements.

Emerging issues – such issues as non-exempt charitable trusts and the new compliance requirements for tax-exempt hospitals.

The Exempt Organizations Rulings and Agreements group is expecting to continue to improve processing and timeliness of applications for tax-exemption. To increase its efficiency, last year the IRS began to reject incomplete applications, which they return with an explanation of the reason for the rejection. This ensures that only completed applications are assigned to review agents for review, thereby allowing for a more efficient and speedy process.

The IRS’s examination group is expecting to review private foundation returns that have irregularities. They are also planning on developing an “ongoing rolling statistical sample” review of tax-exempt organizations to assess the overall level of compliance of the exempt organization community. The IRS’s Exempt Organizations Examinations plans are expected to identify and address high-risk areas of noncompliance with the federal tax laws applicable to tax-exempt organizations.

Please contact us if you would like to discuss how the FY17 IRS work plan may affect your organization

For more information please contact Laura J. Kenney at lkenney@blumshapiro.com or at 617.221.1944.

BlumShapiro offers the accounting, tax and business consulting expertise non-profits need today. We are one of the largest non-profit accounting service providers in New England, our blend of accounting expertise and knowledge of non-profit organizations means we can offer you tremendous added value. We can assist you in complying with state and federal grant requirements, charitable giving rules, capital campaigns, endowment fund responsibilities and other specialized needs. Learn more >>

Laura J. Kenney, CPA
Tax Director

View Laura’s Bio Here >>

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

IRS Audits on the Rise for Tax Exempt Organizations

shutterstock_228440362Whether you are a board member, executive director, accounting manager or CFO of a non-profit organization, you should be aware that the Internal Revenue Service (IRS) is increasing their audits of the Form 990.

Effective for tax years beginning in 2008, the IRS extensively revised Federal Form 990to include a new summary page, a new governance section, enhanced reporting of executive compensation and an organization’s relationships with insiders and other organizations and new reporting for non-cash contributions, foreign activities, tax-exempt bonds and hospitals.

Now that several years have passed since the 990 revisions, the IRS has commenced auditing Form 990s based on “data-driven” criterion. This means organizations will be automatically selected for audit if certain data is detected by this automated process. The shift to “data-driven” assessments of an organization’s compliance with the federal tax laws, means that Form 990 preparation is more critical than ever. A properly prepared and executed information return will ensure that an organization’s chances for random audit selection are minimized and that exposure to income taxes, both on unrelated business income tax as well as other income by virtue of loss of exempt status, are kept at the lowest level possible.

Continue reading the article here >>

Donor Acknowledgment – Reminder as the end of the year approaches

iStock_000001334173MediumAs the calendar year end approaches, and we all get ready for 2016, this is to serve as a reminder about the requirements for donor acknowledgments. Many donors wait until the end of the calendar year to make their donations to non-profit organizations in order to receive an individual tax deduction. Management should make sure their procedures around donor acknowledgments are up-to-date and adhere to the IRS requirements.

In brief, a written acknowledgment for all contributions over $250 and for all quid pro quo contributions over $75 are typically required within 60 days after the contribution is received by the organization. For more information: Here is a link to a prior article on this matter as well as the IRS guidelines.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

State Registration Requirements for Fundraising

iStock_000012012741_ExtraSmallMost states require registration with the state agency before soliciting contributions. Solicitation of contributions generally includes any requests of the state’s residents by mail, phone, email, advertisement, etc., and is not dependent on whether contributions are actually collected. In the past, this requirement has not been enforced, mostly because the states lacked the resources. However, in recent years there were changes in the Form 990 that now require non-profits to provide information about their state registrations, bringing more attention to this requirement. Each state’s requirements and filings are different and vary greatly. Prior to the solicitation of contributions in other states, management of non-profits should reach out to the different state agencies to understand their requirements and how to register. The National Association of Sate Charity Officials (NASCO) website has a listing of all the state offices and contact information here.

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

What is Considered Unrelated Business Income?

shutterstock_130231046Non-profit organizations that have gross income of $1,000 or more from an unrelated trade or business are required to file Form 990-T with the IRS. But what is considered unrelated business income (UBI)? According to the IRS, for most organizations, an activity is an unrelated business, and therefore subject to unrelated business income tax (UBIT), if it meets the following three requirements.

  1. It is a trade or business;
  2. It is regularly carried on; and
  3. It is not substantially related to furthering the exempt purpose of the organization.

An example of possible UBI is a non-profit organization that regularly holds weddings or other events not related to the organization’s exempt purpose on their facilities. Another is a non-profit university that regularly charges the public for usage of a parking garage for unrelated activities. Note that there are a number of exclusions and exceptions to the general definition of UBI. Determining whether a certain activity is UBI is not usually black and white and requires some judgment and analysis. Annually, management should consider their current year operations to determine if there could possibly be any UBI. Management should seek help from their tax preparer for guidance. All management decisions should be supported and documented in writing. For more information and detail on UBI and examples and exceptions, please click on the following link to the IRS Publication 598.

 

Shannon Crowley Massachusetts CPAShannon Crowley is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Shannon oversees audit engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects. Shannon has worked with clients in a variety of industries, including healthcare, higher education, non-profit, manufacturing and distribution.

Introducing MassTaxConnect!

123shutterstock_90695362On November 30, 2015, the Massachusetts Department of Revenue (DOR) will replace the existing WebFile for business system with the new MassTaxConnect system. All entities that file and pay taxes to the DOR electronically will now be utilizing the new online system. Tax filings and payments include unrelated business income tax, sales tax, meals tax, withholding tax and more, so this change will impact a wide variety of organizations in the Commonwealth.

Some of the new features that promise to make the tax filing and paying experience more efficient include:

  • Send and receive secure e-messages
  • View errors prior to submission
  • File early and schedule payments online
  • Assign third-party access electronically
  • 24/7 access

Click here for more information and to get an advance look at the new system.

Jeanne Pagnozzi Boston AccountantJeanne Pagnozzi is a manager in BlumShapiro’s Accounting and Auditing Department, based in Quincy, Massachusetts, Jeanne oversees attest and tax engagements and is responsible for engagement planning, staff supervision and coordination with client personnel to ensure successful completion of projects.