Exempt Organization Tax Update Schneider Downs Nonprofit Services - - PowerPoint PPT Presentation

Exempt Organization Tax Update

Schneider Downs Nonprofit Services Industry Group

Susan M. Kirsch July 16, 2009

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CURRENT ENVIRONMENT

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Cu Curr rrent nt Envi nviro ronmen nment

The Eco conomy

April 2009: IRS EO Director Promises Help to Tax Exempts During Economic Crisis

– Mergers and Acquisitions (New IRS Pub 4779) – UBIT – Governance – Prohibited Transactions

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Cu Curr rrent nt Envi nviro ronmen nment

Co Collegi giat ate Spo Sports

May 20, 2009: Senator Grassley calls for more disclosure of money in college sports after the Congressional Budget Office (“CBO”) released its report “Tax Preferences for Collegiate Sports.”

– CBO used Indianapolis Star database of financial information from164 Division 1 athletic programs. – Fact that congressional analysts had to rely on newspaper for source data highlights how little is available about how these programs work.

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Cu Curr rrent nt Envi nviro ronmen nment

Co Collegi giat ate Spo Sports (c

(cont

• nt.)

 Policy options highlighted in the CBO report include:

• Limiting the deduction of charitable contributions
• Limiting the use of tax-exempt bonds
• Limiting the exemption from income taxation
• Subject the income of athletic programs to UBIT

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Cu Curr rrent nt Envi nviro ronmen nment

Pay ayments to Resear archers

March 2009: Senator Grassley Investigates Payment to Harvard Researchers by Drug Companies.

– Requested Pfizer to provide details of its payments to at least 149 faculty members at Harvard Medical School. – Raised similar concerns (i.e. conflict of interest) about researchers at other universities.

August 2007: Sent letters to several universities seeking information about the reporting system applicable to academic researchers regarding

• utside consulting income.

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Cu Curr rrent nt Envi nviro ronmen nment

Co Compensat ation

February 2009: Senator Grassley issues remarks regarding The Chronicle’s Report addressing compensation for private college employees other than presidents.

– Colleges get big tax breaks to help them achieve their missions. – Trustees need to make sure assets are used in the best possible way to fulfill charitable mission. – Is $4 million for a single professor or football coach the best use of resources?

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Cu Curr rrent nt Envi nviro ronmen nment

Endowmen ents ts

January 2009: Senator Grassley sent letters to the 136 wealthiest colleges and universities.

– Requested data on student aid, cost of attendance, tuition increases and endowment spending over the last 10 years.

September 2008: Senator Grassley held a roundtable discussion on rising tuition costs and how endowments help offset those costs.

– Participants included cross section of the higher-education community. – No commitment on future legislation. – Senator Grassley prefers self-regulation.

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Cu Curr rrent nt Envi nviro ronmen nment

Alternat ative In Investments – Offs ffshore Blo Blocke cker Co Corporat ations

• May 2007: Senate Finance Committee (“SFC”) held

closed-door meeting to review nonprofits using the foreign blocker corporation as a tax planning tool when investing in hedge funds.

• September 26, 2007: SFC held a hearing to review the

issue resulting in proposals to restrict the endowments

• f educational institutions with respect to the

distributions and expenditures.

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Cu Curr rrent nt Envi nviro ronmen nment

Alternat ative In Investments – Offs ffshore Blo Blocke cker Co Corporat ations (c

(cont.

• nt.)
• 2008 Dirty Dozen Tax Scams including hiding income
• ffshore.
• February – March 2009: Senator Levin (D-Mich.) and

Representative Doggett (D-Texas) introduced bills S 506 and HR 1265 entitled “Stop Tax Haven Abuse Act of 2009”. These bills are designed to curtail alleged abuses

• f investments or businesses outside the U.S.

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What’s t’s Next

• May 2009: NAICU Washington Update

reported Senator Grassley is expected to step down as ranking member of the Senate Finance Committee in 2011 to become ranking member of the Senate Judiciary Committee.

• Unclear whether non-profit financing and

governance issues will remain a priority for Finance Committee after Grassley’s departure.

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CURRENT DEVELOPMENTS

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Cu Curr rrent nt De Develo lopm pment nts

Employer-Pr

• Provided Cell Phones

Ju June 200 2009

• Cell phones are listed property (i.e., cars).
• Working condition fringe benefit treatment

available if substantiation requirements of IRC 274(d) are met (i.e. accountable plan).

• Notice 2009-46: IRS seeking comments on

proposals to simply cell phone business substantiation, due September 4th.

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Cu Curr rrent nt De Develo lopm pment nts

Employer-Pr

• Provided Cell Phones (c

(cont.

• nt.)

Three alternative methods being considered:

– Minimal personal use method (two proposed) – all use qualifies as business if employee establishes that a personal cell phone is available for use or a specified amount of minimal personal use is disregarded. – Safe harbor substantiation method – employer treats certain percentage as business. – Statistical sampling method – personal use methodology in Rev. Proc. 2004-29 permissible.

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Cu Curr rrent nt De Develo lopm pment nts

2009 009 Dirty Dozen Tax ax Scam Scams April 200 2009

• IRS names “abuse of charitable organizations

and deductions” to list.

• Attempts by donors to maintain control over

donated assets or income from donated property.

• Valuation of non-cash assets donated to

charity.

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IRS State of the Union

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IRS FY 09 EO Wor Work Plan and An Annual Repo port rt

– Annual Report – new initiative to provide statistical information on the EO division. – Highlights that the IRS has almost doubled enforcement contact between FY04 and FY08. – Governance. – Checklist for examining agents to determine whether an

• rganization’s governance practices impacted the tax

compliance issues identified during examination. – Form 990 governance questions to be used in potential compliance initiatives, including compensation and transactions with interested persons.

IR IRS Annu Annual Re Report

• rt

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June, 2009- Assistant Commissioner Ingram Speaks to Georgetown Conference

– Explosive growth of TE sector – Good governance as key – IRS steps to manage this growth

June, 2009-Independent Contractor vs. Employee

– New IRS presentation on issue – Also see IRS Pub 1779

IR IRS Annu Annual Re Report

• rt

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20 2008 08-09 Pri riori

• rity Guid

Guidanc nce Plan

• Pilot voluntary compliance program.
• Revenue procedure to modify Rev. Proc. 75-50 on the

publication requirement by a private school of its nondiscriminatory policy.

• Final regulations on excise taxes on prohibited tax shelter

transactions and related disclosure requirements.

• Proposed regulations on new excise taxes on donor advised

funds.

• Proposed regulations on IRS disclosure to state charity agencies.
• Guidance regarding contributions of inventory.
• Final regulations on substantiation and reporting requirements

for cash and noncash charitable donations.

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IR IRS 20 2009- 9-20 2013 13 Str Strate tegic ic Plan

Co Continued Oversigh ght of the Tax ax-E

• Exempt

Sect Sector

Provide outreach and guidance to ensure widespread adherence to the requirements for tax-exempt status. Proactively address misuse of tax-exempt

• rganizations and/or tax-exempt status.

Maintain focus on universities, hospitals and other major segments.

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Execu xecutiv tive Co Compen ensation tion

 200 Compliance Checks  50 Additional Single–Issue Exams  Focus on Organizations with Loans to Officers/Trustees  Continue Hospital Compliance Project Compliance Exams  90 Limited Scope Field Exams – Small and Mid-size 501(c)(3) Organizations  Review of Colleges/Universities via Questionnaires

IR IRS Execut utiv ive Co Compe pens nsation tion Re Review iews

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IRS COMPLIANCE INITIATIVES

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Co Compli plianc nce In Initi tiati tives

Co College ge & University Co Complian ance ce Questionnai aire

• UBI questions dominated (15 of 33 pages)
• The IRS requested the following for 47

activities:

– Identify whether activity was reported as a taxable and provide reason why any of the activities was not reported as UBI. – Identify those activities that derived a loss for the past 3 out

• f 5 years and explain using a code the reason for it.

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Co Compli plianc nce In Initi tiati tives

College & Universi sity ty Com

• mpliance

Qu Ques estion

• nnaire
• For UBI loss activities: Did taxpayer plan to make a

profit in the future? (e.g., activity was in start-up phase, costs were significantly greater than anticipated, etc.)

• For taxable activities, identify the type of expenses

incurred (i.e. direct and indirect) and explain the cost allocation method used.

• IRS questioning accuracy of UBIT reporting and

lawmakers to consider taking action.

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Co Compli plianc nce In Initi tiati tives

Tr Trad ade/Bus /Business vs. Ho Hobby

• IRS Fact Sheet, FS-2008-23, discusses

appropriate guidelines for determining when an activity is a business or a hobby not engaged in for profit.

• Fact Sheet lists 8 key factors to assist

exempt organizations evaluate if NOL deduction should be .

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Co Compli plianc nce In Initi tiati tives

Form TD TDF 90 90-22 22.1 Forei eign Bank Acco ccount Rep Report

• Expanded the required “Persons” to complete form

to include foreign individuals that “do business in the U.S.” (suspended for 6/30/09 filing).

• Expansion of “financial interests” to include direct

and indirect investments in foreign corps and partnerships.

• Voluntary disclosure program expires September

23, 2009.

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Com

• mpliance In

Initiati tives es

Employment Tax ax Audits

• IRS National Research Program to improve

employment tax compliance to begin November, 2009.

• The program will last for three years, with up to

2000 tax examinations performed each year.

• Focus of review:

– Worker classification; – Fringe benefits; – Officer’s compensation; and – Reimbursed expenses/accountable plan.

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Com

• mpliance In

Initiati tives es

De Minimis Fr Fringe Be Benefi fits

IRS letter dated June 13, 2008 in response to an employer policy placing a $50 limit on excludable de minimis fringe benefits.

– Letter states that the $50 limit was not imposed by the IRC. – After providing examples such as occasional theater or sporting event tickets, the letter states: “[no] dollar limit is placed on any of these examples.”

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Co Compli plianc nce In Initi tiati tives

No No Additional al Cost Be Benefi fits

PLR 200908032: Baseball tickets provided to employees of a baseball organization may be excludable as no additional cost fringe benefit.

• Issue: Tickets to sold out games.
• Reserved tickets well in advance of the games

may prove problematic.

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Co Compli plianc nce In Initi tiati tives

Co Community Fo Foundat ations

• Questionnaires to 3,000 organizations
• Whether organizations qualify as

community foundations

• Initiating exams

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Ch Char aritab able Spe Spending In Initiat ative

• Long range study
• Focus on sources and uses of funds,

accomplishment of exempt purposes

Co Compli plianc nce In Initi tiati tives

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Co Compli plianc nce In Initi tiati tives

• Redesigned Form 990
• Request for Form 990-T
• Announcement 2008-2: covers public

disclosure responsibilities

• Information on procedures for requests to

IRS for copies of Form 990-T

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RECENT RULINGS

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Pri rivate te Lett tter Ru Ruli ling ngs

Merge gers an and Acq cquisitions

PLR 200902013 (Oct. 17, 2008): Two hospitals jointly operated a network of 6 medical clinics. Entering into a formal partnership agreement would not adversely affect the exempt status of the organizations.

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Pri rivate te Lett tter Ru Ruli ling ngs

Unrelat ated Bus Business In Inco come Tax ax (UBIT) BIT)

PLRs 200906053, 200904025, 200826026 – Favorable rulings to colleges and universities that centralized the investment of endowments in a single unitrust in which each endowment and the respect college or university are provided trust units.

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Unrelated ted Busines ess Inco come Ta Tax (UBIT) (cont.)

PLR 200832028 (Nov. 14, 2008) Community Foundation’s Services

 Not UBTI fees from grant-making services (e.g. assisting with the establishment of a grant-making program, designing a system of monitoring funded programs, reviewing grant requests, preparing research in specific areas of interest and identifying collaboration

• pportunities).

 UBTI fees from clerical and administrative services provided by community foundation to foundations and other grant-

making organizations.

Pri rivate te Lett tter Ru Ruli ling ngs

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Pri rivate te Lett tter Ru Ruli ling ngs

Privat ate Be Benefi fit and In Inurement

PLR 200849017 (Sept. 10, 2008)

Donor was granted organization an exclusive license to a patent with the right to sublicense to third parties. Donor received compensation from the income from organization’s sublicenses in order to continue development

• f the technology.

Held: Private inurement

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OTHER ENFORCEMENT MATTERS

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Re Rede desi signe ned For Form 99 990

“It’s a collaborative effort, but we really do have a ways to go.”

• Stephen Clarke

IRS Form 990 Redesign Project Manager May, 2009

• Susan M. Kirsch

SD Tax Shareholder

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Sc Schne neid ider Do Downs ns Solu Solutions tions

• GAP Analysis – SD’s electronic assessment of

client’s prior year Form 990

• Interactive web-based PBC (Prepared by Client)

Request

• Policy drafting and modification

– Internal and external

• Education
• Audit Committee and Board Participation

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In Inte teractive PBC

Key Players

– Client (Nonprofit Organization) – SD Audit Engagement Team – SD Tax Engagement Team – SD Technology Advisors

SD SD In Inte tegrate ted Se Service ice De Deli livery ry Mode Model

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In Inte teractive PBC

• Product Development Team:

– SD Tax – SD Technology Advisors

• Objectives:

– Educate Nonprofit Clients – Enhance Efficiency – Collect Form 990 data

Intr trod

• ducing

ing th the SD SD ezFOR zFORM

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SD SD ezFO zFORM RM

• Online system built to collect data from

clients using SD inSITE.

– SD inSITE is a tool developed by Schneider Downs. – Completely web based – no software necessary. – Secure using industry leading 256 bit data encryption (SSL).

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• Time Entry

– Time Clock – Time in by Shift – Time in Block – Time in by Project – Time in for Clients – Payroll Entry – Single Time Entry

• Time Export
• Time Approval

– By Detail – By Summary – For Client Time

• Expense Reporting

– Expense Entry – Expense Approval

• inSITE Reports
• Tickler
• Employee PTO

– Request – Approval

• Inventory Requisition
• Client Database
• Document Portal
• inSITE Reviews
• inSITE Administration
• Work in Progress

Calendar

SD SD inSIT inSITE Oth ther Off fferi ring ngs

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SD SD ezFO zFORM RM

• What is it?

– Internet based electronic form. – Allows multiple users at an organization to work concurrently. – Designed to ask only the questions appropriate for your

• rganization.
• Benefits

– Organizes all of the tax questionnaires and associated spreadsheets into one place. – Enables you to ask questions of the tax staff as you prepare your response. – Should reduce the time required by you and our staff to collect and organize the information for your tax return.

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SD SD ezFO zFORM RM

• Interactive

– Some questions will appear depending on answers to “trigger” questions. – Download & upload associated spreadsheets. – “Ask for Help” and “Tips” available. – The user can start and stop as necessary without losing work.

• Multi-user

– Client can assign sections to various staff members to spread the work.

• Staff gets access to approved sections only, not to the entire

form.

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SD SD ezFO zFORM RM – Clien Client Responsibil sponsibilities ities

• Assign question sections to the appropriate

staff.

• Complete all questions and related

spreadsheets.

That’s it!

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Login in Sc Scree reen

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In Introdu troduction tion Scree reen

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Que uestion stion Sample le

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Que uestion stion Tip Tip

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Dow Downlo nload & Uploa Upload Fi File les

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Quic uick Help Help Re Reque quest st

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Su Subm bmit it to to SD SD Eng ngagement nt Te Team

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Ro Roll llout

• ut
• Pittsburgh Client Introduction July 16, 2009
• 2009 Webinars scheduled

– 45 minutes in length – Introduction to functionality and how to use

• July 22: 10 am and 2 pm
• August 5: 10 am and 2 pm
• August 19: 10 am and 2 pm

To register for a training webinar visit:

www.schn schneiderdow

• wns.

s.com

• m/registe

ter

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Ques Questi tion

• ns?

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Ci Circ rcul ular ar 230 230 Discl closur

• sure

This advice is not

• t inten

tended ed or

• r writt

tten en to be use sed for, and it cannot be use sed for, the the purpose

• se of
• f avoiding any fed

ederal tax pen enalties es tha that may be impose

• sed, or for prom
• moting,

marke keting or

• r recom
• mmen

ending to anothe ther person son, any ta tax related ted matt tter.