Tuesday, November 17, 2009
Item 1: It's time to review compensation packages and make sure they are properly designated for 2010. Review the package to make sure all components are properly stated and approved. Housing allowances should be separately stated and clearly approved by the right authority. Even if nothing is changing for 2010, restate the entire package and the housing allowance for good measure.
Item 2: Get ready for charitable contribution reporting. Review the way the software program is preparing receipts and make sure all the required items will be printed on the receipts. The IRS is giving taxpayers a lot of scrutiny in this area. Many agents are looking for receipts to be signed by someone in the organization and to be on organization letterhead. These are not requirements, but the agents are pursuing these issues as if they were requirements. If the receipts are going to be printed on plain paper, consider what can be done to make them look official. Please make sure the receipts contain the required wording, i.e., there were no goods or services given in exchange for the listed donations.
Item 3: Have the governing body approve the budget for 2010. This gives the employees the right to operate the organization during the year.
Item 4: Make sure the organization has a conflict of interest policy, a document retention policy and a whistleblower policy adopted by the end of the year.
Item 5: Get ready for payroll reporting!!!! Review all of the benefits provided to the employees and the payroll items to ensure that everything is properly reported on the Forms W-2. Remember that payroll is more than just what goes on the paycheck. The IRS is gearing up to do 6,000 payroll exams starting in 2010, so it is definitely time to get everything in order.
Item 6: Review all of the vendors and make sure they are properly marked to have the Forms 1099-Misc issued. Don't forget to key payments to LLCs as reportable on the Forms 1099-Misc. The IRS can assess a 25% backup withholding tax to the organization if it fails to issue a 1099-Misc when required.
While there are certainly many other demands on our time during this time of the year, it will be greatly beneficial to divert a little time to the above items prior to December 31st.
In early November, the IRS issued sets of Frequently Asked Questions (FAQ) for Schedules A and L of the Form 990. These are just a part of the FAQs that have been released this year to assist in clarifying various filing issues for 2008 returns. It is hopeful that some of this information will make it into the 2009 instructions.
Monday, October 5, 2009
During the course of an examination, the IRS noted a consistent pattern of expenditures for clothing, hair cuts, spa services, auto expenses, payments on personal credit cards and other miscellaneous personal living expenses. None of these expenses had been treated in the accounting records as compensation to the founder. However, the outside accountant would often take steps to clean up the activity after it had occurred by filing delinquent payroll tax returns and attempting to report the personal expenses as compensation to the founder.
The IRS found that the regular occurence of this activity over a period of years indicated that the organization was not operated exclusively for exempt purposes but rather for the private benefit of the founder. The exempt status was revoked. Additionally, the founder was required to pay the intermediate sanctions on personal expenses as well as pay the corrections amount required under IRC Section 4958 to another charity.
This ruling illustrates one more time the importance of drawing definite lines between the persons involved in an exempt organization and the organization. It is important that compensation be clearly defined and that there be no comingling of personal funds and organizational funds.
Private Letter Ruling 200928046 7/10/2009
Tuesday, July 28, 2009
- Find a preparer who is preparing several of these forms. This isn't a form that is easy to complete and organizations need competent professionals to help them navigate the form.
- Have the board adopt a conflict of interest policy, a document retention policy and a whistleblower policy before the end of 2009.
- Review the composition of the board of directors - does the organization need to increase the number of independent directors?
- Review the revenue and expense reporting to determine if the necessary information can be easily obtained from the current accounting system.
- Consider taking a class on the Form 990. This is good even for the executives that are not the "numbers" people of the organization. A three hour course will be offered as a part of the 2009 Ultimate Financial & Legal Conference hosted by my firm October 26th & 27th. There is still time to register.
- Print the form from the IRS website at http://www.irs.gov/ and see all the information that will be required. Don't wait until it is time to file the form to figure out what it's all about!
With the returns for 2010, all organizations with gross receipts greater than $200,00 will be required to file the full Form 990. Organizations with gross receipts of $50,000 to $200,000 will be filing Form 990-EZ. Organizations with gross receipts of less than $50,000 will file the Form 990-N or the epostcard.
Saturday, July 4, 2009
Whenever I work with a minister that has filed Form 4361, I always tell them it is their most valuable asset. An approved Form 4361 is very difficult to replace. Without the approved form it is hard to convince an IRS agent that the minister is exempt from Self Employment tax. The courts have allowed the exemption without an approved form where the minister has retained proof that he filed the form. Apparently, a Form 4361 that is properly completed and timely filed is rarely not approved by the IRS.
Every year I come in contact with ministers who do not have copies of their approved Forms 4361. To make matters worse, they also do not have any evidence of filing the form with the IRS. In the past, I have had little guidance to give to them regarding how to obtain a duplicate of the approved form. However, the IRS recently published a Minister Audit Technique Guide reviewing all the rules regarding ministers for its agents. One of the sections explains to the IRS agent what to do if the minister cannot provide his/her Form 4361.
The IRS gives its agents three avenues for confirming the exemption:
- For ministers who filed the Form 4361 after 1988, the agent can order a transcript for the year under audit. Included on this transcript should be an indicator that tells the agent the minister is exempt from Self Employment tax.
- If the transcript is not an option, the agent can contact the Taxpayer Relations Branch at the IRS Service Center where the Form 4361 was filed and request a copy of the form.
- The last option is to contact the Social Security Administration in Baltimore and ask them to provide confirmation of a minister's exempt status.
Sunday, June 28, 2009
If this blog is setting off alarms in your head, and you think your church or organization may have a reporting obligation in this area, then it is time to find out more information. For those who have not complied with this filing, the IRS does have a voluntary compliance program to help bring people and organizations into compliance without penalties.
If this update applies to you or your organization, more information on the subject may be located through the IRS website at www.irs.gov.
Wednesday, June 17, 2009
This case indicates the importance in identifying and properly reporting all aspects of a minister's compensation. While many of you may find the above items unusual, it is not unusual for a tax exempt organization to end up paying for personal expenses of its top executives. However, in most cases, the only amounts reported for payroll purposes are just what is run through the payroll system. This type of activity is one of the reasons the new Form 990 requires extensive reporting on compensation paid to an organization's officers, directors and key employees. Additionally, the IRS has in the past, and stated it will in the future, conducted examinations of the compensation section of specifically selected Forms 990.
Tax Tip: A nonprofit organization should review all of the payments made to or on behalf of staff members and determine which payments are taxable and which are not. Then properly treat the taxable benefits according to all the rules regarding payroll reporting and taxation.