Tag 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

Download the Webinar Now!

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.

990 Policy Compliance Series – Compensation Policies

Compensation is one of the hottest topics facing non-profit organizations in recent years. The IRS has developed questions for non-profits to answer in order to shine a light on the compensation practices for the top earners of the entity. Again, these are not legally mandated policies, however, there are very specific requirements relating to the entity’s process in order to favorably answer the questions surrounding compensation practices.

The process for determining compensation for the individuals listed in Part VI, questions #15a and 15b must include following three elements:

1. Review and approval by a governing body or compensation committee. The members of the governing body or committee must be free of conflicts of interest surrounding the compensation arrangement under review. A conflict of interest by a member of the committee is deemed to be present if:

a. The member or his or her family member is participating in or economically benefitting from the compensation arrangement.
b. The member is in an employment arrangement subject to the direction or control of any person participating or economically benefitting from the compensation arrangement.
c. The member receives compensation or other payments subject to approval by any person participating or benefitting from the compensation arrangement.
d. The member has a material financial interest affected by the compensation arrangement.
e. The member approves a transaction benefitting the person participating in the compensation arrangement, who then, in turn, has approved or will approve a transaction providing economic benefit to the member.

2. Use of comparability data regarding the compensation arrangement being determined. The data being used must be for similarly qualified persons in functionally comparable positions at similarly situated organizations. Typically, non-profits will review the compensation for officers and key employees, which is disclosed in the 990s of other similar organizations. Form 990s of other organizations can be downloaded from websites such as Guidestar, or in Massachusetts, the Attorney General’s website for public charities.

3. Finally, all of the processes above should be documented in a timely manner with proper records kept as to what data were used, who participated in the process (and if they were free of conflicts of interest), when the discussion occurred, what deliberations transpired and what decisions were made.

If you follow the above process and you answer yes to either #15a or #15b, you must include a description in Schedule O. In that description you are required to identify the positions that were covered in the process to determine compensation above, and the year the process was last performed. If the organization did not compensate its officers, directors, top management official or other key employees, or if any of the above elements were not met, the answer should be “no”. A disclosure of why the answer is no is not required, but is allowed and could be helpful to explain the reason for answering “no”.

Read other articles in our “990 Policy Compliance” series:

Jeanne Pagnozzi Boston Accountant

Jeanne 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.

990 Policy Compliance Series – Conflict of Interest Policy

Continuing with our 990 policy compliance series is a discussion about what is required for a sound conflict of interest policy. Everyone can agree that an entity that uses public, government or donated funds should have a policy to address potential conflicts of interest with those that are controlling the organization. On Part VI of the 990, there is a three-part question regarding the existence of a conflict of interest policy and its components.

First, what is a conflict of interest (COI)? The IRS defines COIs as a circumstance that arises “when a person in a position of authority over an organization, such as an officer, director, manager or key employee (as defined by the IRS), can benefit financially from a decision he or she could make in such a capacity, including indirect benefits, such as to family members or businesses with which the individual is closely associated.”

The following criteria must be met in order to answer “yes” to the three-part question on Part VI of the 990 regarding your COI policy:

  • #12a: Is there a written policy? Answer yes only if a written policy is in place, as of the last day of the tax year, that defines conflicts of interest, identifies the class of individuals to which the policy applies, facilitates disclosure of information that can help identify potential conflicts of interest, and specifies procedures to be followed in managing conflicts of interest.
  • #12b: Are covered individuals required to disclose potential conflicts? Answer yes only if officers, directors, trustees and key employees (as defined by the IRS) are required to disclose or update annually (or more frequently) information regarding their interests and those of their families that could give rise to conflicts of interest.
  • #12c: Did the Organization regularly and consistently monitor and enforce compliance with the policy? The IRS does not define how this is to occur, but, if the answer is yes, then a narrative disclosure describing the process of how the policy is monitored and how conflicts are dealt with is required on Schedule O. Schedule O is the supplementary schedule that is used to provide any narrative or other information to answer required questions throughout the 990 or to provide any information that would be useful to the IRS or reader of the 990. In describing the process on Schedule O, include the following:
    • Explanation of which persons are covered by the COI policy.
    • The level at which determinations of whether a conflict exists are made and at what level they are reviewed.
    • Explanation of what restrictions, if any, are imposed on individuals with a conflict, such as prohibiting them from participating in the deliberations and decisions regarding the transaction under review.

In our next post we’ll cover the process for determining compensation for top earners at organizations.

Read other articles in our “990 Policy Compliance” series:

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.

990 Policy Compliance Series – What is an Independent Board Member?

On the 990, the first questions regarding the governing body are how many voting members are on the board and how many of those members are independent. A member of the governing body is considered “independent” only if ALL of the following four circumstances were applicable at ALL times during the organization’s tax year (fiscal year):

1. The member was not compensated as an officer or other employee of the organization or a related organization (simply put, any entity that is a parent, subsidiary, brother/sister, supporting/supported organization to the filing entity at any point during the year – see Schedule R instructions for more complete definitions). The member also was not compensated by any unrelated organizations for services provided to the filing entity or to a related organization. There is an exception for receiving compensation as an agent of a religious order (there are specific conditions that must be met).
2. The member did not receive total compensation exceeding $10,000 during the tax year from the filing entity and/or a related organization as an independent contractor (not including reasonable compensation for services provided in the capacity as a board member).
3. Neither the member nor any of his or her family members was involved in any transaction with the filing entity which is reportable on Schedule L (Transactions with Interested Persons – see IRS Schedule L filing tips for more detailed reporting requirements).
4. Neither the member nor any of his or her family members was involved in any transaction with a related organization that is reportable on Schedule L.

The IRS specifically states that the following circumstances do not indicate a lack of independence as a board member:

1. The member is a donor to the organization.
2. Religious exception (as discussed above).
3. The member receives benefit from the organization by being a member of the charitable or other class that is served by the organization.

Further, the IRS expects the organization to engage in all reasonable efforts to obtain the necessary information in order to determine whether members are independent. A good conflict of interest policy can help with this effort. Stay tuned for a future blog post on effective conflict of interest policies.

Read other articles in our “990 Policy Compliance” series:

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.


2013 Form 990 – Significant Changes

The IRS recently released the 2013 Form 990, 990-EZ and related schedules and instructions. In addition, a summary of the significant changes has been posted to the IRS website.

Key Changes to the 2013 Form 990

  • The instructions clarify that a short period return can only be filed electronically if either the “initial return” or the “final return” box is checked. Therefore, a short period return that is the result of a change in the organization’s accounting period must be paper-filed. In addition, the instructions clarify that any organization that changes its accounting period must report adjustment required by Section 481(a) in Parts VIII through XI and Schedule D, Parts XI and XII.
  • The instructions clarify what documentation must be attached to Form 990 to support a name change, termination, merger, dissolution or revocation of exemption.
  • The instructions for Part VII clarify reporting requirements for compensation to directors for non-director independent contractor services to the organization and related organizations.
  • Appendix E to the Form 990 instructions has been updated to clarify that the public inspection and disclosure requirements apply to not only the original returns, but to amended returns as well.

There are many other changes to the 2013 forms and instructions. Click here for a complete list of the changes to the Form 990, Form 990-EZ and the related instructions and schedules.

Kevin Fontant Boston Tax AccountantKevin Fontana is a manager in our tax department, Kevin has over ten years of accounting experience and oversees and coordinates tax compliance services for many of the firm’s corporate, partnership and individual clients. His privately owned clients span industries such as multi-location retail, distribution, manufacturing and real estate. In addition, Kevin oversees the tax compliance services for several non-profit clients, including independent schools, social clubs, historical societies and private foundations.