Tag Archive for Non-profit tax

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.

 

990 Policy Compliance Series – Ensuring Transparent Governance and Operational Policies

As a tax-exempt organization, you are subject to a greater level of scrutiny from various sources than many other types of entities. Within the annual Form 990 filing, the IRS inquires about certain compliance, governance and management practices, which allows the government, donors and the general public to gain detailed knowledge about your organization. In Part VI of the 990, there are several policy and governance questions asked of filing entities, and, as laid out in the detailed instructions, there are some very specific requirements with which you must comply in order to answer affirmatively. Many of these policies are not legally mandated, and the non-profit faces no fines or penalties for not adopting the policies. However, all 990 filers are required to answer these questions, and certainly it is in the non-profit’s best interest to consider and adopt policies that help to ensure transparent and sound operational processes.

In the coming weeks, we will publish a series of posts on how to stay in compliance with certain 990 governance and operational policies as well as some further information to help you answer the questions appropriately.

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.

IRS Releases Draft Form 1023-EZ

The IRS recently released a draft of the new Form 1023-EZ “Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code”. This new “EZ” form is, as one would expect, much shorter and simpler than the regular Form 1023. The new short form is only three pages long, compared to the 26-page regular Form. The IRS estimates that completion of the short form will take only 14 hours, compared to the 101 hours it estimates as the time needed to complete the full form.

Use of the short form is limited to small organizations with actual and projected annual gross receipts not-to-exceed $200,000 and total assets of $500,000 or less. In addition, foreign organizations, LLCs, churches, schools, hospitals, health maintenance organizations and various other types of organizations are not eligible to use the short form. There is a 22-question eligibility worksheet in the instructions that must be completed before the Form can be submitted to the IRS.

The Form 1023-EZ is designed to reduce the burden on smaller organizations seeking exempt status, while at the same time allowing the IRS to focus more of its efforts on the compliance of organizations which have already been granted exempt status. The Form 1023-EZ has eliminated the need for applicants to include certain information, including copies of governing documents, financial data/projections, narrative descriptions of the applicant’s current and planned activities, and compensation arrangements with officers, directors, key employees, etc. It instead requires some basic information about the organization and a series of “yes or no” questions about its planned activities, including whether the organization will attempt to influence legislation, pay compensation to its officers, directors and trustees, engage in any activities with foreign organizations/individuals or related party transactions, have any unrelated business income, etc.

Thus far, the Form 1023-EZ has not garnered much support from tax and other professionals who specialize in not-for-profit tax issues. Criticism generally stems from the Form’s simplistic nature, and the general fear is that organizations will be formed by people who don’t fully understand what’s involved in running a charitable organization and that organizations are going to be granted exempt status that shouldn’t.

After the date of this blog post the IRS issued a final release of the Form 1023-EZ and its instructions. You can find updated details here >>

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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.