“Individuals who have questions about the tax treatment of BP claims payments or who are experiencing filing or payment hardships because of the oil spill will be able to work directly with IRS personnel at any of these locations on Saturday.”

For more information, see this IRS link.

Allowable and deductible can mean 2 different things?  First to the donee and then to the donor.

As long as the qualified charitable entity maintains control or “use of the funds” and uses these to further their exempt purpose, the contributions are allowable for the organization and deductible by the donor.

Donors may designate a program, ministry, event, project, endowment etc., of the qualified charitable entity as long as the church controls the funding. Be careful in not designating a specific individual as the recipient, this often disallows the deduction for the donor and the church is then required to report the funds as an “agency” transaction.

So the church can solicit contributions for general, administrative and fundraising functions? Yes, as long as the church retains control or “use of the funds” and the church is operating within its exempt purpose, as designated by its IRS code.

Questions? Give me a call or post a comment.

If that’s really true, then why are are nonprofit organizations involved in almost 10 percent of all fraud cases reported in the study?

We often let our desire to trust other people cloud our judgment. Especially people we hired personally and have spent years building relationships with Monday through Friday. Deep down, we all believe we’re exceptional judges of character.

And that’s when it happens. 

If the most important fraud control in place in your organization is the ability to judge character in the people you hire, you may already be a victim.

If you’re concerned that you may be the victim of a fraud, or want more information on preventing fraud, we can help.

1. Exemption  of payroll taxes for qualified employees. For qualified employees hired between February 3, 2010 and January 1, 2011, the employer’s share of Social Security taxes (6.2%) on salaries/wages earned after March 18 will be “credited” as reported under the quarterly payroll tax filings. Beginning with the second quarter (March – June) filing, Form 941 has been revised to include the exemption. In order to be considered a “qualified employee” the individual must have been unemployed during 60 days prior to starting work or have worked fewer than 40 hours during the 60 day period; didn’t replace another employee unless separation was voluntary or for cause; and no relationship to employer.
2. $1,000 annual business tax credit for each new employee retained for a least one year. This credit is 6.2% of the employee’s wages during the 52 consecutive week period, up to $1,000.

So what are the reporting requirements?

Beginning with the 2nd quarter reporting period, complete the additional items on Form 941, beginning with line 5a. The exemption can be applied to a future reporting period, are an overpayment may be requested.

For each “qualified employee”, retain a completed copy of W-11, “Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit”.

How does a tax-exempt organization claim the business tax credit? The IRS has not finalized how T-E organization will report the tax credits, but speculation has been Form 990-T. Stay posted for future clarification.

Nonprofit boards had begun to change their focus, but not enough to stop the continued reports of fraud, misuse of assets, and excessive compensation for top executives.  The result was increased public scrutiny, new legislation, and the most significant changes to Form 990 in over 25 years. Those changes effectively required the board of directors to take responsibility for the oversight and governance of their organizations.

Although the fundamental principles of governance have not changed, governance practices have been completely redefined as boards have become more proactive in protecting the mission of their organizations by ensuring compliance with legal, financial, and ethical standards, and monitoring the progress and overall performance of their organizations. Time will tell if the “new” governance paradigm will protect nonprofit organizations from even more burdensome regulation that will divert already limited resources from the mission.

UPMIFA was developed to improve the protection of donor intent with respect to expenditures from endowments and applies to charities organized as charitable trusts or as nonprofit corporations and trusts managed by charities. The Act does not apply to funds managed by trustees that are not charities or trusts managed by corporate or individual trustees. UPMIFA provides guidance and authority to charitable organizations concerning the management and investment of funds held by those organizations and imposes additional duties on those who manage and invest charitable funds to provide additional protection for charities and also protect the interests of donors who want to see their contributions used wisely. The Act updates the rules governing expenditures from endowment funds, whether donor restricted or board designated, to provide stricter guidelines on spending endowment funds and to give institutions the ability to cope more easily with fluctuations in the value of the endowment.

In addition to identifying factors that a charity must consider in making management and investment decisions, UPMIFA requires a charity and those who manage and invest its funds to 1) give primary consideration to donor intent as expressed in a gift instrument, 2) act in good faith, with the care an ordinarily prudent person would exercise, 3) incur only reasonable costs in investing and managing charitable funds, 4) make a reasonable effort to verify relevant facts, 5) make decisions about each asset in the context of the portfolio of investments, as part of an overall investment strategy, 6) diversify investments unless due to special circumstances, the purposes of the fund are better served without diversification, 7) dispose of unsuitable assets, and 8) in general, develop an investment strategy appropriate for the fund and the charity.

Has your organization adopted an investment policy that complies with your state’s version of UPMIFA? Review your state’s requirements and make sure your policies conform to the prudent management of funds.

For additional information see http://www.upmifa.org.

For the State of Texas version of UPMIFA see http://www.statutes.legis.state.tx.us/SOTWDocs/PR/htm/PR.163.htm

What are the 2009 filing requirements? Most organizations (excluding churches) under Code Sec. 6033(a) must file one of the following applicable returns:

Form 990 - If gross receipts > $500,000 and total assets > $1,250,000

Form 990-EZ – If gross receipts < $500,000 and total assets < $1,250,000

Form 990-N – If gross receipts are “normally” $25,000 or less.

Form 990-PF – Exempt and taxable private foundations (no threshhold on revenue or assets).

Form 8868 – Application for extension to file the above returns.

These returns are due on the 15th day of the 5th month, following the organizations calendar/fiscal year-end.

For additional IRS information and frequently asked questions and answers, follow this link.

Are you in compliance? You have until midnight tonight, to file the required form.

Employer Responsibility. An “applicable large employer,” defined as an organization that employs at least 50 full-time employees during the preceding calendar year, that does not offer coverage to all of its full-time employees, or offers coverage that does not meet certain criteria is subject to an excise tax penalty.

Maintaining Existing Coverage. Employers will be able to avoid certain of the law’s requirements by maintaining the same coverage for their employees after the effective date of the law (March 23, 2010). But keep in mind that at this point, it’s not clear whether minor changes in coverage, even those dictated by insurance companies, will affect the determination that the same coverage has been maintained. These issues will be clarified in future legislation.

Employer Tax Credits. The new law provides for certain tax credits designed to increase levels of health insurance coverage. Tax-exempt organizations would get a 35% credit against payroll taxes.

FSA/HSA/HRA Restrictions.Starting in 2011, employees can no longer receive pre-tax reimbursements from their FSA/HSA/HRA account for non-prescription over-the-counter medications.  In addition, the excise tax on non-qualified HSA withdrawals increases from 10 percent to 20 percent.  Starting in 2013, employee contributions to FSAs will be capped at $2,500 annually, adjusted each year based on the consumer price index.

Employee Reporting. The new law requires employers to disclose on each employee’s Form W-2 the value of the employer-sponsored coverage provided to that employee.

Information Reporting.The new law also changes several tax provisions completely unrelated to health care. One of the most significant changes requires organizations to file Form 1099 for all payments aggregating $600 or more in a calendar year to a single payee, including corporations.

What is program related and what is unrelated? Here’s an example – A substance abuse center offers educational and counseling services to individuals based on need and income levels, helping them understand the signs of addiction. Because the center’s exempt purpose is rehabilitating individuals with addictions, this revenue stream is directly related to the exempt purpose. However, suppose the center operates a donut shop selling baked goods to the public. Is the donut shop related to the center’s exempt purpose? Probably not.

In order to qualify as unrelated income, the activity must meet all of the following characteristics:
1. Performance of a trade or business (profit motive in the selling of goods or services).
2. Regular activity (based on frequency and continuity, compared to commercial enterprises).
3. Not related to exempt purpose (does not significantly advance the exempt purpose of the organization).

If the activity meets all three requirements, there may be exceptions that eliminate the potential tax. These exceptions include:
1. Activity produced/conducted by unpaid volunteers.
2. Activity is for the convenience of the organization’s members, employees, students, patients, etc. (Example – a hospital’s parking garage available only to employees, patients and hospital visitors).
3. Merchandise sold, substantially received from public donations (Example – clothing thrift store selling merchandise donated by the community).

Most passive income (interest, dividends, royalties, rent) is exempt, however if the revenue is generated from property that is debt financed, the transaction must be analyzed and determined if it is excluded. Additional criteria impact passive income, so it is important to understand the requirements.

The exclusions and the “except fors” make UBIT complicated.
But rest assured, the IRS is looking for these types of activities.