2011 Form 990 – Tax Update & New Developments

About BKD Higher Education Team

• Serve over 100 public and private colleges and universities

• Financial management• Tax research and opportunities• Resource management• Student financial aid assistance• Capital expenditures• Endowment/performance

About BKD

Joyce Dulworth, CPAPartner

jdulworth@bkd.com

Joyce has more than 25 years of experience providing tax services with a focus on colleges and universities, health care entities and not-for-profit organizations. She serves the needs of families and their private foundations and trusts through innovative personal financial and tax planning solutions.

Joyce performs comprehensive reviews of not-for-profit activities to identify and help mitigate exposure areas related to private inurement, intermediate sanctions, worker classification and unrelated business taxable income issues. She also has extensive experience dealing with IRS examinations, obtaining favorable determination letters and closing agreements.

Joyce is a member of the American Institute of Certified Public Accountants, Indiana CPA Society, Council on Foundations and the Fort Wayne Estate Planning Council. She currently serves on the board of the Foellinger Foundation and previously served on boards of several other organizations, including Big Brothers Big Sisters of Northeast Indiana. She is a frequent presenter for internal and external seminar programs and has authored numerous tax articles.

Joyce is a 1983 honors graduate of Ball State University, Muncie, Indiana, with a B.S. degree in accounting.

University of Nebraska - Lincoln

• For 143 Years, a Leader in Higher Education• The University of Nebraska–Lincoln, chartered in 1869, is an

educational institution of international stature. UNL is listed by the Carnegie Foundation within the "Research Universities (very high research activity)" category. UNL is a land-grant university and a member of the Association of Public and Land-grant Universities (APLU). The university is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools. UNL celebrated the 143rd anniversary of its founding on Feb. 15, 2012

University of Nebraska - Lincoln

Brad SheriffAssistant Vice Chancellor of Academic Affairs for Business and Financebsheriff2@unl.edu

• Brad Sheriff is Assistant Vice Chancellor of Academic Affairs for Business and Finance at the University of Nebraska-Lincoln. In this role, he oversees and directs the business operations and financial affairs of the University’s academic enterprise.

Brad’s career in higher education administration began in 1998 at the University of Illinois. During his nearly twelve years in the University’s Office of Business and Financial Services, he served in the positions of Business Analyst, Strategic Planning Coordinator, Administrative Director of Business Operations & External Relations, and Director of University Strategic Procurement. In 2010, Brad joined Indiana Wesleyan University as Associate Vice President for Business Affairs & Compliance. In this capacity, he led the areas of accounting and financial reporting, student accounts and cashiering, risk management and insurance, and procurement services. He also oversaw several auxiliary services and directed enterprise-wide compliance efforts.

Brad has participated with the Big Ten Controllers’ Group, the Big Ten Purchasing Directors’ Group, and is an active member of the Central Association of College and University Business Officers, serving on the Business and Finance Committee as well as the Audit Committee. He has also served on the Midwestern Higher Education Compact Master Property Program Leadership Committee and its Finance and Audit sub-committee. Brad has been a member of the Board of Directors of Educational & Institutional Cooperative Service, Inc. since 2010.

A Certified Management Accountant, Brad earned an MBA with honors from the University of Illinois–Springfield and a BA in Business Management with honors from Greenville College. In 2009, he completed the Harvard Institutes for Higher Education Management Development Program, offered through Harvard University’s Graduate School of Education.

Agenda

• 2011 Form 990 significant changes• Schedule F, J, H revisions• New focus & initiatives of IRS on exempt

organizations

2011 Form 990 Updates

• Core form generally similar to 2010 Form 990 Instructions continue to clarify information

• Filing thresholds for Form 990-EZ is same as in 2010 Less than $500,000 in total assets and Less than $200,000 in gross receipts

• To file Form 990-N postcard, organization normally must have less than $50,000 in gross receipts

2011 Form 990 Updates

• E-filing required for Form 990 filers with at least $10 million in total assets &

filing at least 250 returns in calendar year Informational returns include W-2s, 1099s, & 941s

Form 990-PF filers filing at least 250 returns in calendar year, regardless of asset size

Form 8868 (extensions) may be filed electronically or in paper form

2011 Form 990 Significant Changes

• Instructions clarify who must file Governmental units & affiliates of governmental units

described in Rev. Proc. 95-48 if also section 509(a)(3) supporting organizations

Organizations required to file Form 990 series for given tax year must do so even if it has not yet filed Form 1023 or 1024 with IRS

Comment• Name and address of principal officer & web site

address should be current as of date of filing

2011 Form 990 Significant Changes

• Part VI, Governance, Management, and Disclosure Line 1a (total governing board members)

• modified to note that if governing body delegated broad authority to executive committee or similar committee, filing organization must explain in Schedule O

Line 1b (total independent governing board members)• clarifies director no longer loses independence because director

or their family member was key employee of entity that engaged in Schedule L reportable transaction with organization

2011 Form 990 Significant Changes

• Part VI, Governance, Management, and Disclosure Line 2 (business and family relationships)

• exempts from reporting certain business relationships in which officer, director, trustee or key employee of filing organization was key employee of another organization

Line 7b • expanded to ask if any governance decisions are reserved to, or

subject to approval by, persons other than governing body

2011 Form 990 Significant Changes

• Part VI, Governance, Management, and Disclosure Section B Policies

• Instructions clarify that organization may answer “yes” to any question that asks whether organization has particular policy if either its governing body or committee authorized by governing body that adopted policy was adopted by end of tax year

Section B, line 11 (providing copy of Form 990 to the board)

• Instructions clarify organization should answer “no” if it merely informs governing body members that copy of Form 990 is available upon request

• Comment

2011 Form 990 Significant Changes

• Part VII, Compensation Part VII, column (C) Position

• Organizations check only one “position” box for each person listed in compensation table, unless individual is both officer & director or trustee

Part VII reportable compensation• Reportable compensation for officers & employees includes

compensation reported in Form W-2 box 1 or 5 (whichever is higher)

2011 Form 990 Significant Changes

• Part VII, Compensation Part VII columns (D), (E) & (F)

• Left blank for short year returns in which there is no calendar year that ends within short year, unless return is final return

Part VII, column (F) • Do not report amounts deferred (i.e., accrued bonus) paid with

in 2 ½ months after end of tax year

2011 Form 990 Significant Changes

• Part VII, Compensation Part VII, column (F) other compensation

• Include amounts of annual increase or decrease in actuarial value of defined benefit plan

• Decreases in these amounts are disregarded for purposes of determining if compensation was more than $150,000

2011 Form 990 Significant Changes

• Part VII, Compensation The “transition rule” for non-section 501(c)(3)

organizations is eliminated & former highest compensated employees must be reported in Part VII if they meet requirements

Part VII, section B independent contractor compensation• Reported for calendar year ending with or within tax year• For short year return in which there is no calendar year that ends

with or within short year, do not report any information unless return is final return. If return is final, report compensation paid to contractor during short period

2011 Form 990 Significant Changes

• Part VIII, Statement of Revenue Losses from:

• Uncollectible pledges, • Refunds of contributions, or• Grant reversals

Report as “other changes in net assets or fund balances” on Part XI, line 5 Include explanation in Schedule O

The value of donated services & facilities should not be reported as revenue

2011 Form 990 Significant Changes

• Statement of Revenue Contributions of conservation easements

• Report consistently with reporting on the books and financial statements

Medicare & Medicaid payments Other governmental payments made to pay or reimburse

the organization for medical services provided to individuals who qualify under government program, and

Who select service provider• Report on line 2 (Program Service Revenue)

2011 Form 990 Significant Changes

• Statement of Functional Expenses Clarified classification of expenses

• Section 501(c)(12) organizations should report patronage dividends to members on line 4

• Payments to contractors for information technology services should be reported on line 14

• Medical supplies of health care organizations should be reported on line 24 (not line 13, office expenses)

• The heading includes new checkbox that indicates organization must check if its Schedule O contains response to question in Part IX

• Comment

2011 Form 990 Significant Changes

• Glossary revisions Control

• Clarifies that a managing partner is a partner designated as such in partnership agreement or regularly engaged in partnership management

Grants & other assistance• Revised to exclude certain payments made by VEBAs

2011 Form 990 Significant Changes

• Glossary revisions Significant disposition of net assets

• Revised to exclude grants & assistance made in organization’s ordinary exempt-purpose activities

“Term endowment” renamed “temporarily restricted endowment”

• Includes donor-restricted endowments for a specific period• Other temporarily restricted net assets held in a donor-restricted

endowment• Including income from permanent endowments

Joint Ventures & Investments

• Organizations should report amounts reported on Schedules K-1 and not financial statement amounts Distributive share amounts reported on Part VIII,

Statement of Revenue Distributive share of partnership assets recorded to

organization’s ending Schedule K-1 capital account reported on Part X

Creates “book/tax” differences for Schedule D reconciliations

Optional

2011 Form 990 – Schedule F

• Organizations with foreign investments valued at over $100,000 must complete Schedule F, Parts I & IV

• Previous focus was on program activities, fundraising & grant making abroad

2011 Form 990 – Schedule F

• Schedule F, Parts II & III (grants and assistance to individuals) Completed based on organization’s grant activity outside

U.S. and inside U.S. for foreign purposes Comment

2011 Form 990 – Schedule H

• Most of Part V (501(r) reporting) mandatory for 2011 Questions 1-7 CHNA reporting optional for 2011

• Under 501(r), organizations operating as licensed hospital & tax-exempt [501(c)(3)] are required to complete CHNA at least once every three years, beginning with taxable years ending after March 23, 2012

2011 Form 990 – Schedule H

• Required sections focus on: Financial assistance policies, billing and collections, and emergency care

• Goals of increased disclosure ensure that hospitals: Limit charges for emergency/necessary care Comply with new billing and collection laws Complete required CHNAs

Increased Schedule J Explanations

• Substance of Schedule J similar to 2010• Methods to determine CEO/executive director

compensation Completed for reporting organization, not related

organizations Organizations should explain in Part III if organization relied on

related organizations using any of the methods listed to establish compensation

• Comment

IRS FY 2012 Work Plan

• Compliance: Using Form 990 IRS redesigned Form 990–promotes transparency &

compliance Provides IRS with wealth of information on exempt

organizations IRS has developed risk models to assess likelihood

of noncompliance by tax-exempt organizations

IRS FY 2012 Work Plan – IRS Focus

• 501(c)(4), (5) & (6) organizations IRS will send comprehensive questionnaire to assess

compliance in this area

• Political activity IRS continues to enforce rules relating to political

campaigns & campaign expenditures Comment

IRS FY 2012 Work Plan – IRS Focus

• 990-T & UBIT Review organizations that report unrelated business

activities but have not filed 990-T Analyze Form 990-T to develop risk models that will

help identify organizations that consistently report significant gross receipts from unrelated business income but declare no tax due

Comment

IRS FY 2012 Work Plan – IRS Focus

• Governance Review connections between certain governance

practices & tax compliance Comment

IRS FY 2012 Work Plan – General Work

• Colleges & universities• Disaster relief communication• Group rulings• Private foundations

Continued Increase in Audits

• Traditional examinations & compliance checks snapshot (FY 2004-FY 2011)

Source: http://www.irs.gov/pub/irs-tege/fy2012_eo_work_plan_2011_annrpt.pdf

Not-For-Profit Tax Alerts

• Significant 2013 & 2014 Business Tax Implications of Health Care Reform • How Tax Compliance Is Affecting Tax-Exempt Organization Governance • Gift Receipt Letters

Comment

• Fraternity Foundation - Loss of Exempt Status Comment

• Anonymous Donor Reporting• Revocation of Exempt Status for Failure to File• Updated Public Disclosure Rules for Tax-Exempt Applications • No More Identification of Split-Interest Trusts on IRS Form 990 • Filing Extension May Be Available for Exempt Organization Returns Reporting

Requirements Under FFATA • IRS to Survey Exempt Organizations Regarding 2010 Compliance Burden • Government Financial Troubles & Assistance

Expiring Provisions Effective December 31, 2012

• American Opportunity Tax Credit• Section 127 Employer – Provided Educational

Assistance• Student Loan Interest Deduction• Coverdale Education Savings Accounts

AICPA Suggested Changes to Form 990

• Minor• Technical• Helpful

Questions?