Category Archives: I.R.S.

DIY Nonprofit Law – Top Five Mistakes

The state form does not include the tax provisions that the IRS requires tax-exempt organizations to have. Would be founders that file using the state’s form Articles of Incorporation without including an attachment with the appropriate tax provisions will end up with a taxable nonprofit – a result almost no one intends. Continue Reading

Reporting Diversions of Nonprofit Assets

The Washington Post has identified over 1,000 nonprofit organizations that have reported a “significant diversion” of assets. Its important to note that there are over 1,616,000 tax-exempt nonprofits in the U.S. today; thus, these filings represent less than 1% of tax-exempt nonprofits. It’s also interesting to note that a quick review of Arizona’s list includes only 21 organizations – most of which reported the diversions in a clear, transparent, and confidence inspiring manner.Continue Reading

Senate Finance Committee Report Identifies Issues and Proposes Solutions

On June 13, 2013, the Senate Finance Committee released a cooperative, bipartisan report comprised of suggestions on how (and why) to change government regulations on tax-exempt/nonprofit organizations and on the rules of charitable giving. The Committee’s Report set forth a number of issues that need to be addressed in the nonprofit and charitable giving arena, and offer a number of potential solutions.Continue Reading

IRS Audits of Tax-exempt Entities

Although there are many reasons a nonprofit organization may be selected for an audit, several things heighten the chance of being selected. Things like irregularities on Form 990s, failure to file a Form 990, citizen complaints, having a relationship with another taxpayer currently being audited or receiving negative media attention can all increase your chance of being audited beyond the random internal IRS computer process.Continue Reading

IRS Launches Compliance Check of 1300 Self-declared 501(c)(4),(5) and (6) Organizations

As the IRS Exempt Organizations division indicated in its 2013 work plan, it is conducting a compliance check of self-declared tax-exempt organizations. The IRS recently mailed over 1,300 questionnaires to self-declared Section 501(c)(4), 501(c)(5), and 501(c)(6) organizations. The project is part of the IRS’ plan to gather information about self-declared exempt organizations, determine whether self-declared exempt organizations are complying with applicable tax-exempt law, and increase voluntary compliance.Continue Reading

Is it time for a Legal Audit?

A legal audit is an overview of an organization’s non-financial compliance, governance and risk management issues. Organizations typically consider a legal audit when new management takes over and wants to ensure they are starting with a clean slate or the in the wake of a costly mistake. Continue Reading

The Road To Hell Is Paved With Good Intentions: Top 10 Common Pitfalls for Employers

Sure, it takes a good deal more paperwork and money to maintain an employee versus using an independent contractor. But it’s more than worth it to make sure you are properly categorizing an employee. “Independent Contractor” does not have a finite definition under the law. Certain liabilities also don’t apply to independent contractors, such as worker’s compensation, FMLA, paid family leave benefits, unemployment insurance, and other various potential benefits. So, it can be tempting to try to wedge a person into an independent contractor position when they actually should be classified as an employee. Continue Reading

IRS Study Indicates Good Nonprofit Governance Leads to Better Tax Compliance

The IRS has released preliminary results from their study of tax-exempt organizations’ governance practices. As expected, the preliminary findings suggest that organizations with good governance policies are more likely to comply with tax laws. On April 19, Lois Lerner, the Director of the IRS’ Tax-Exempt and Government Entities Division, spoke on this issue at aContinue Reading

Self-Declared Exempt Organizations – A Guide to Ensure IRS Compliance

In its 2012 workplan, the IRS announced it will be paying closer attention to self-declared 501(c)(4), (c)(5) and (c)(6) organizations. These groups include social welfare organizations; labor, agricultural and horticultural groups; as well as business leagues and chambers of commerce. Such organizations consider themselves to be tax-exempt because of the nature of their activities, butContinue Reading

IRS 2012 Work Plan – What’s New for Nonprofits

Each year, the IRS publishes a report detailing what its focus will be regarding nonprofit organizations and compliance during the year to come. The following are some of the highlights from the 2012 Exempt Organizations Work Plan.Continue Reading

An Important Heads Up for Charities: The 2011 Form 990

The final Form 990 for the 2011 tax year has been released by the IRS and includes a few significant changes that charities should be aware of. Continue Reading

IRS Releases New Online Search Tool

The IRS launched a new online search tool, Exempt Organizations Select Check, to help users more easily find information about tax-exempt organizationsContinue Reading

Start-up Nonprofits Beware: Ensure your Tax Preparer is Registered with the IRS

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.Continue Reading

Nonprofits that Fail to Timely File Form 990 May Face Steep Penalties

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. Continue Reading

New Form 8940 for Miscellaneous IRS Approval Requests

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. PriorContinue Reading

Guidance from IRS on Cell Phone Rules Is Still Pending

Nonprofits may finally get some relief from the burdensome record-keeping requirements associated with employer provided cell phones. Currently, if an employer provides a cell phone to an employee and pays the costs of using the cell phone, the employee receives a fringe benefit. To the extent that the employee uses the employer’s cell phone forContinue Reading

Fiscal Sponsorship vs. Fiscal Agency

The term “Fiscal Sponsorship” describes an arrangement between a non-profit organization with 501(c)(3) tax exempt status and a project, often a new charitable effort, conducted by an organization, group, or an individual that does not have 501(c)(3) status. Fiscal sponsorship permits the exempt sponsor to accept funds restricted for the sponsored project on the project’s behalf. The sponsor, in turn, accepts the responsibility to ensure the funds are properly spent to achieve the project’s goals. This arrangement is useful for new charitable endeavors that want to “test the waters” before deciding whether to form an independent entity as well as temporary projects or coalitions that are looking for a neutral party to administer their funds.Continue Reading

Payroll Tax Holiday and Retention Credit for Hiring Unemployed Workers

To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector (meaning non-governmental) employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hires an unemployed worker and pays that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year. The benefit is available to both for-profit businesses and non-profit organizations.Continue Reading

2009 Tax Deductions for 2010 Haiti Earthquake Relief Donations

Congress recently passed a law permitting taxpayers to claim a deduction on their 2009 tax return for contributions to charities providing earthquake relief in Haiti made before March 1, 2010. Under prior law, donations made following the January 12 earthquake would not be eligible for a deduction until the donor files their 2010 tax return.Continue Reading

Lobbying – Yes You Can!

A common misconception among nonprofits is that they can’t lobby. In reality, this restriction applies only to private foundations, not public charities. Public charities are explicitly permitted to lobby so long as they adhere to limits.Continue Reading