The IRS launched a new online search tool, Exempt Organizations Select Check, to help users more easily find information about tax-exempt organizations. Users can now go to one location on IRS.gov to search for:
- Organizations eligible to receive tax-deductible contributions (formerly listed in electronic Publication 78). Users may rely on this list in determining deductibility of contributions, just as they did with Pub. 78
- Organizations whose federal tax exemption automatically revoked for not filing a Form 990-series return or notice for three consecutive years (Auto-Revocation List)
- Form 990-N (e-Postcard) filers and their submissions
Select check includes new features such as the ability to search for organizations eligible to receive deductible charitable organizations (Pub. 78 data) by Employer Identification Number (EIN), which wasn’t possible previously. In addition, the Auto-Revocation List may now be searched by EIN, name, city, state, ZIP code, country, exemption type, and revocation posting date, rather than only by state. Finally, the data is now updated monthly instead of quarterly.
Section 501(c)(3) of the Internal Revenue Code allows for tax exemption for organizations organized and operated to foster national or international amateur sports competition so long as no part of the net earnings inure to the benefit of any private shareholder or individual. A parent run booster club must be organized so that it benefits the entire class of athletes or participants and does not benefit certain individuals over others.
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Charities should be aware that it is now illegal for anyone to receive compensation for preparing a return for someone else if they have not obtained a PTIN from the IRS first; a paid preparer who is not registered with the IRS is perpetrating fraud. If a charity chooses to work with an unregistered paid preparer, it opens itself up to IRS scrutiny and, possibly, denial of tax exemption plus additional attorneys’ fees to resolve any issues arising from the initial filing. Charities also need to keep in mind that the organization, regardless of whether or not a paid preparer was used, is ultimately responsible for the information in it’s exemption application.
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Fortunately, for nonprofits with reasonable cause for filing late, there is a silver lining. Code Section 6652(c)(3) provides that penalties assessed for late filing may be waived when the late filing was due to “reasonable cause.” Accordingly, the IRS will consider waiving the penalties (but not the interest) where the organization can prove the late filing was due to reasonable cause.
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With regard to distribution requirements that would impose a minimum distribution for DAFs and SOs like that imposed on private foundations, the Treasury study found that the average payout rate for Aggregate DAFs in 2006 (the first year the data was available) was 9.3% of assets. The payout rate for other DAFs was similar to or above the average. Compared with data indicating a payout rate for private foundations just about 5%, the Treasury concluded that a distribution requirement is unnecessary as DAFs already distribute above the 5%minimum for private foundations. The Treasury did note however, that a definitive conclusion could not be made with only one year of data so further research will be necessary to determine if a distribution requirement will be necessary in the future.
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When serving as a director or an officer of a nonprofit organization, a director’s duties shall be discharged: (i) in good faith; (ii) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (iii) in a manner the director reasonably believes to be in the best interests of the corporation. These duties are owed not only to the corporation, but also to its creditors. In discharging duties, a director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by one or more officers or employees of the corporation whom the director reasonably believes are reliable and competent in the matters presented as well as certain experts and committees. However, a director is not acting in good faith if the director has knowledge concerning the matter in question that makes otherwise permissible reliance on others unwarranted.
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Often prospective clients call us wanting to know whether we know of any dormant nonprofits that are going out of business that they could take over. The idea is that taking over an existing entity avoids the hassle and expense of incorporation, creating a governance structure and obtaining tax-exempt status for a brand new entity. Presumably, a new board of directors would be substituted in place of the old board and new officers would be elected.
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Initiatives and propositions can create a sneaky trap for the unwary charitable organization because while there are no candidates involved, campaign finance laws typically apply to express advocacy for or against a ballot initiative or proposition. Whether such communications are made for the purpose of influencing an election depends on whether the communications constitute “express advocacy”.
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We have urgent developments unfolding in Washington. Word tonight from Tim Delaney, head of the National Council of Nonprofits in Washington D.C., is that the Republicans may be willing to agree with a deal that would throw nonprofits under the bus. They may give up even more of the charitable tax deduction than we thought. They might even eliminate it for wealthy tax payers.
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simple change in Arizona law would sync the state and federal information return processes, allowing a more simplified filing for small Arizona nonprofits with gross income between $25,000 and $50,000. The purpose of the recent change in federal requirements was to ease the burden of the annual filing for small nonprofits. To reconcile Arizona law with the Federal law, the Arizona legislature need only amend ARS §43-1242 C. 1 to read as follows:
“Need not file it if its gross income does not exceed fifty thousand dollars.”
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Increasingly, social entrepreneurs struggle to choose a legal form for their ventures. The traditional legal forms are not suited to blended social and profit-making purposes. Mangers of a for-profit socially responsible business can find themselves liable to shareholders for failure to maximize profit at all coasts. Conversely, managers of tax-exempt nonprofits conducting social entrepreneurial activities can find themselves liable to the IRS when they try to reward investors and incentivize results.
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// _if(document.location.protocol==’http:’){ var Tynt=Tynt||[];Tynt.push(‘bnIe-62pir34BVadbi-bnq’);Tynt.i={“ap”:”Read more:”}; (function(){var s=document.createElement(‘script’);s.async=”async”;s.type=”text/javascript”;s.src=’http://tcr.tynt.com/ti.js’;var h=document.getElementsByTagName(‘script’)[0];h.parentNode.insertBefore(s,h);})(); } // ]]> Tax-exempt organizations (other than private foundations) have the ability to influence legislation either as an insubstantial part of their activities or by making the 501(h) election and measuring their lobbying expenditures. However, state and federal laws often require principals and their lobbyists to register [...]
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// Some businesses want to be able to help their employees in times of need. When properly structured, such assistance can qualify as a tax-free gift to the employee. The structure for employee assistance funds hinges on several factors including the type of assistance employers intend to provide. For example, some types of employer sponsored [...]
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The IRS has announced a new relief program for employers that choose to come forward before they are audited by the IRS. This relief comes in the form of a voluntary program that permits employers to reclassify their workers and avoid being audited on payroll taxes related to misclassified workers for prior years. The program is known as the Voluntary Classification Settlement Program (“Settlement Program”).
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Occasionally, urgent board action is required yet it is not possible or practical to have the board meet in person or even over the telephone. In these cases, most states permit the board members to conduct official business by signing a unanimous written consent.
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From now on no part of the use of an employer provided cell phone will be treated as taxable income to the employee so long as it is provided primarily for business reasons. Instead, the business use of the cell phone will be considered a “working condition fringe benefit” or, a benefit where, if the employee were to pay for such property or services, such payment would be allowable as a deduction. In addition, personal use of the employer-provided phone will be considered a “de minimus fringe benefit” or a benefit in which the value of the property or service is so small as to make accounting for it unreasonable or administratively impracticable. The new rule applies to any use of an employer-provided cell phone occurring after December 31, 2009.
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While the need to replace a strong leader may open the door to merger discussions, at the end of the day, the decision to merge should stand on its own. The true hallmark of a merger’s success is an organization that can achieve a greater impact than its predecessors would have been able to achieve on their own.
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The 7th Circuit Court of Appeals recently issued an important legal decision that could affect many nonprofit organizations. In Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United States, Inc., the Court held that state fair dealership laws are applicable in the case of the Girl Scouts of the United State’s dealings with its chapters. While this was a relatively narrow ruling, the standards set could have wider implications for nonprofits that have chapters and affiliates.
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// The IRS has released a new form for tax-exempt organizations to use when they request determinations (other than initial exemption applications) about their tax-exempt status. In addition to foundation status issues, organizations will use Form 8940, Request for Miscellaneous Determination, to obtain advance approval of certain activities and exemption from Form 990 filing requirements. [...]
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We have blogged about the phenomenon of nonprofit hostile takeovers and the fact that no one owns a nonprofit. However, there is always control. Although nonprofits generally lack shares that can be owned and transferred, there are many ways to ensure a level of control or influence over a nonprofit entity. Those seeking to control a nonprofit or balance governance rights among different stakeholders need to understand the available options.
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