Thursday, August 5, 2010

Relief For Small Organizations Facing Revocation

The Pension Protection Act in 2006 enacted laws that require the IRS to revoke the tax exempt status of any organization that is required to file Form 990, but fails to do so for three consecutive years. (This is only effective for organizations that have a Form 990 filing requirement. It does not effect churches.) The first set of revocations was to be effective on May 17, 2010. However, the IRS became concerned that too many organizations did not fully understand the ramifications of not filing, and it created a leniency program.

If an organization has received a determination letter indicating it has a Form 990 filing requirement, then it must file either Form 990, Form 990-EZ or Form 990-N for each year of its existence. The IRS has granted an extension until October 15, 2010 for organizations to file one of these forms for each of the past three years or at least for 2009 for those eligible to file Form 990-N. This action will avoid revocation of the organization's exempt status.

If an organization does not qualify to file Form 990-N, and it should have filed Forms 990/990-EZ for each of the last three years, the IRS has created a voluntary compliance program. The organization must file returns for all three outstanding years and pay a compliance fee. The maximum compliance fee is $500 and the program relieves an organization from the assessment of penalties for late filing of the returns. This represents a savings of thousands of dollars since the late filing penalty is $20 per day for small organizations and $100 per day for larger organizations.

It is advisable that all organizations determine if they are in compliance with their filing requirements. The IRS has published a listing of organizations with planned revocation on its website. The lists are separated by state. If you have question regarding an organization, the lists may be reviewed to determine if the organization is scheduled for revocation.

With all of the extra effort expended by the IRS, it is anticipated the the revocations will be issued later this year. Additionally, if an organization has a return that has not been filed, it should pursue the voluntary compliance program as a remedy. If only one return is late, it should be filed through this program. After the end of this program, the IRS will probably be fairly unforgiving to late filers.

Monday, August 2, 2010

Form 1099-Misc Reporting Nightmare

Perhaps you have heard the ugly rumors of the increased mandatory reporting for payments to vendors. Unfortunately, it isn't all rumor, but it is truth. In an effort to make the health care bill "deficit neutral", the legislation included a provision that would require Forms 1099-Misc to be filed for virtually all vendor payments, including those to corporations, that exceed $600 for the year. It seems that this provision alone is anticipated to raise $17 billion of the nearly $1 trillion needed for the health care legislation. While this looked good on paper, no one attempted to consider the logistics or the cost to comply with such legislation. For example, what would be the cost to businesses to comply or better yet, could the IRS handle all of those Forms 1099-Misc. It is estimated that the provision will increase the filings by five fold. The provision is set to become effective in 2012. However, help may be on the horizon. It seems that both Democrats and Republicans are realizing this is not the best idea and something may have to be done. Rep. Dave Camp of Michigan has introduced H.R. 5893 to repeal this provision citing information that the compliance with the provision will cost American businesses more than the amount of revenue generated for the government. The cost is anticipated to be extremely burdensome to small business and small organizations. This translates into money diverted to regulatory compliance that a nonprofit should be able to use to fund its programs. At this point, we are watching Congress to see what will happen. We don't have to begin gearing up for the reporting just at this time, and have some time for Congress to save the day. Stay tuned to the final outcome on this issue and more guidance on when, or if, you will need to send a Form W-9 to Office Depot to gain their address and employer identification number.