Form 990 PF: Latest Compliance Strategies Meeting IRS Demands for - PowerPoint PPT Presentation

Presenting a live 110 ‐ minute teleconference with interactive Q&A Form 990 ‐ PF: Latest Compliance Strategies Meeting IRS Demands for Fiscal, Grant and Other Data From Private Foundations WEDNES DAY, FEBRUARY 22, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Amanda Adams Tax Partner Blazek & Vetterling Houston Amanda Adams, Tax Partner, Blazek & Vetterling , Houston Brian Y acker, Partner, YH Advisors , Huntington Beach, Calif. Milton Cerny, Counsel, McGuire Woods , Washington, D.C. Candice Meth, S Candice Meth, S enior Manager, EisnerAmper , New Y enior Manager, EisnerAmper , New Y ork ork For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .

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Form 990 ‐ PF: Latest Compliance F PF L t t C li Strategies Seminar Feb. 22, 2012 Amanda Adams, Blazek & Vetterling Brian Y acker, YH Advisors amanda.adams@ bvcpa.com byacker@ yhadvisors.com Milton Cerny, McGuire Woods Candice Meth, EisnerAmper mcerny@ mcguirewoods.com candice.meth@ eisneramper.com

Today’s Program Form 990-PF Review S lide 7 – S lide 27 [Amanda Adams] Calculating Minimum Distribution S lide 28 – S lide 34 [Brian Y acker] Critical Compliance Challenges With Form 990-PF S lide 35 – S lide 74 [Amanda Adams, Brian Y acker and Milt on Cerny] S lide 75 – S lide 91 Preparing For Future Form 990-PF Filings: Best Practices [Candice Met h]

Amanda Adams, Blazek & Vetterling FORM 990 PF REVIEW FORM 990 ‐ PF REVIEW

Part I: Analysis Of Revenue And Expenses Column (a) reflects revenue and expenses per books – cash or accrual. Column (b) reflects revenue and expenses that are subj ect to the § 4940 excise tax on net investment income. More about this calculation to come later. Column (c) reflects revenue and expenses that are included in the calculation of adj usted net income. For private operating foundations, this column is relevant to determining the spending requirement. For non-operating foundations, this column is generally not completed unless the foundation has income from a charitable activity. Column (d) reflects expenses which are treated as qualifying distributions. This column is relevant to determining satisfaction of both operating and non-operating foundations’ minimum spending requirements. 8

P Part II: Balance Sheets II B l Sh This section of the return presents the balance sheet of the foundation at the beginning and the end of the year. The FMV of assets held at the end of the year also is reported. A detailed listing of investments held at the end of the year (other than mortgage loans) is required. Lines 6 and 20 report receivables/ payables occurring between the foundation and disqualified persons. Having an entry on either of these lines could be a sign that impermissible self-dealing has h li ld b i h i i ibl lf d li h occurred. 9

Part III: Analysis Of Changes In NA Or FB This section of the return demonstrates the components of the change in net assets from the beginning of the year to the end of the year. For many cash-basis foundations, current income is the only change. For foundations that follow the accrual method and report their investments at fair market value, unrealized gains and losses are reported here. Returned grants are also reported in a d losses a e epo ted e e. etu ed g a ts a e also epo ted this section rather than as a reduction of expense or income in Part I. 10

P Part IV: Capital Gains And Losses IV C i l G i A d L After the passage of the Pension Protection Act of 2006 capital After the passage of the Pension Protection Act of 2006, capital gains and losses from the sale of virtually all capital assets became subj ect to the § 4940 tax on net investment income. Two important exceptions still exist: i t t ti till i t 1. Capital gains and losses subj ect to unrelated business income tax are not also subj ect to § 4940 tax. 2. Gains and losses from charitable-use assets held for at least one year are not subj ect to § 4940 tax, if the proceeds from sale are used to purchase similar charitable-use assets similar to the are used to purchase similar charitable use assets similar to the like-kind exchange rules of § 1031. Remember that all sales of publicly traded securities can be reported on a single line. Details are only required for non- t d i gl li D t il l i d f publicly traded securities. 11

Part V: Qualification For Reduced Tax The normal rate of § 4940 tax on net investment income is 2% . This section of the return provides a calculation that may enable the foundation to reduce the tax percentage to 1% . A ratio of qualifying distributions to non-charitable-use assets is calculated based on a five-year history. If current-year qualifying distributions equal or exceed the amount determined by d st but o s equal o e ceed t e a ou t dete ed by multiplying the five-year ratio by the current year’s average of non-charitable-use assets plus 1% of net investment income, then the foundation qualifies for the 1% the foundation qualifies for the 1% tax rate for the year tax rate for the year. Planning tips for reaching the 1% rate will follow later in the presentation. 12

P Part VI: Excise Tax VI E i T This section reports the tax due on the return as well as any payments made towards the tax. If the foundation was erroneously subj ect to backup withholding, such amounts can be reported here as credits toward the foundation’s tax liability. Foundations whose tax liability exceeds $500 for the year must Foundations whose tax liability exceeds $500 for the year must make quarterly tax payments (must deposit electronically). Those whose net investment income has exceeded $1 million in the past three years must base their 2 nd – 4 th quarter payments using h i 2 d 4 th h b i annualization calculations, which use actual income earned during the year. This can be problematic for those foundations with partnership investments on which they lack timely information. 13

Part VII ‐ A: Statements Regarding Activities Although questions 1(political activities) 6 (governing instrument) and 13 Although questions 1(political activities), 6 (governing instrument) and 13 (public inspection) search for possible non-compliance with the requirements of § 501(c)(3), the bulk of the questions in this part ask for information that does not necessarily have a negative impact on the information that does not necessarily have a negative impact on the foundation. Changes in activities, organizing documents, new substantial contributors and similar information is required to be reported. A new question is asked for 2011: Did the foundation make a distribution A new question is asked for 2011: Did the foundation make a distribution to a donor-advised fund over which the foundation or a disqualified person had advisory privileges? If “ Y es,” attach a statement. The statement must report whether the foundation treated the The statement must report whether the foundation treated the distribution as a qualifying distribution and how the distribution will be used for § 170(c)(2) purposes. One wonders whether the IRS One wonders whether the IRS plans to restrict grants to DAFs, as they plans to restrict grants to DAFs, as they have grants to supporting organizations. 14