annual tax update & 2015 form 990 changes · annual tax update & 2015 form 990 changes ......

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ANNUAL TAX UPDATE & 2015 FORM 990 CHANGES

Jeanette VerrelliSenior Manager

[email protected]

Aaron HershbergerDirector

[email protected]

March 1, 2016

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• Participate in entire webinar• Answer polls when they are provided• If you are viewing this webinar in a group Complete group attendance form with

• Title & date of live webinar• Your company name• Your printed name, signature & email address

All group attendance sheets must be submitted to [email protected] 24 hours of live webinar

Answer polls when they are provided

• If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar

TO RECEIVE CPE CREDIT

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AGENDA

Form 990 Changes

Tax Update

Other Tax Considerations for Tax-Exempt Organizations

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Form 990 Changes

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TAX BURDEN

For-Profit Not-For-Profit

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• Biggest challenge is understanding IRS’s ambiguous language & multiple definitions AICPA comments1 on 2015 Form 990

• General instructions – definition of “control” Requested glossary be revised to clarify definitions of control

& related organizations; specifically, brother/sister organizations

• Checklist of required schedules Requested Part IV Question 32 to be more specific & reference

definition of a significant disposition of assets included in Form 990 instructions

CHALLENGES IN 990 COMPLIANCE

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1 AICPA Letter to IRS, Troy K. Lewis, Chair, AICPA Tax Executive Committee, June 17, 2015

AICPA comments• Part VII – Type of Compensation Chart

Recommends adding wording to instructions to indicate that, if a particular item could qualify as more than one item on chart, organization would be compliant if it reported item in either column in Schedule J, Part II, Column B(ii) or B(iii)

• Schedule C – Indirect Lobbying Requests instructions to further clarify when indirect lobbying

is required to be reported• EX: When a portion of dues paid to a membership organization

are allocated to lobbying activities performed on behalf of member


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AICPA comments• Schedule F – “reasonable effort” • Schedule H Part IV – Mgmt Companies & Joint Ventures

Requests “More than 10% ownership required: See Instructions” to be added to title

• Schedule R Requests revision to heading to “Direct controlling entity

through indirect control” Guidance on reporting indirect partnership interests & Part III

redesign to enable reporting of direct & indirect interests Requests change to parent/sub control definition as it lacks

element of control as a result of board member overlap


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• A penalty of $20 a day—not to exceed lesser of $10,000 or 5% of organization’s gross receipts for year—is possible if returns are filed late, unless can show reasonable cause

• Organizations with annual gross receipts exceeding $1,015,500 (up from $1 million) are subject to a penalty of $100 per day, with a maximum penalty for any one return of $50,500 (up from $50,000)

FAILURE-TO-FILE PENALTIES

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• IRS-designated private delivery services list has been revised

• DHL Express was removed

• Additional FedEx & UPS options were added

PRIVATE DELIVERY SERVICES

• Zip code for private delivery service address changed

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• Several revisions have been made to the list for use on Part VIII, Lines 2 & 11

BUSINESS ACTIVITY CODES

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• Part I, Line 11g, column iii Removed IRC Section reference in heading

• Part VI – Supplemental Information Updated to include all explanations required from 2014 new supporting

organization sections

SCHEDULE A

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• Disclosures required under Rev. Proc. 2015-21 should be included in Part VI

• 2015-21 provides correction & disclosure procedures for hospital orgs to follow so that failing to meet §501(r) requirements will be excused in certain situations

SCHEDULE H

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• Schedule H, Part I, Line 7 Instructions clarify that Columns E & F shouldn’t contain

negative numbers. If a net community benefit expense is less than zero, enter zero

• Schedule H, Part V, Section B Expanded guidance has been provided for many questions

in “Facility Policies and Practices” section, used to measure compliance with §501(r) regulations

SCHEDULE H

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• Due date changes for years beginning after December 31, 2015

2017 FILING SEASON – DUE DATES

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Tax Type (Form) Form No.Current Due

DateNew Due

DateCurrent Extended

Due DateNew Extended

Due Date

Partnership 1065 4/15 3/15 9/15 9/15

S Corp 1120S 3/15 3/15 9/15 9/15

C Corp 1120 3/15 4/15 9/159/15 (Until 2025)

10/15 (After 2025)

Trust 1041 4/15 4/15 9/15 9/30

Employee Benefit Plans 5500 7/31 7/31 10/15 11/15

Tax-Exempt Organizations 990 / 990-T 5/15 5/158/15 (First)

11/15 (Second)11/15

FinCEN 114 6/30 4/15 None 10/15

Note: Due dates listed above are for entities with calendar year-ends

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• Community Health Needs Assessment (CHNA) is required at least once every three years Is it time for your next CHNA?

CHNA – DUE DATES (HOSPITALS)

Due Date of Upcoming CHNA

Date of Prior CHNA

03/31/2013 → 03/31/2016

06/30/2013 → 06/30/2016

09/30/2013 → 09/30/2016

12/31/2013 → 12/31/2016

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Tax Update

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• Protecting Americans from Tax Hikes (PATH) Act• Permanent extensions Special rule for qualified conservation contributions Tax-free distributions from individual retirement

plans for charitable purposes Extension & expansion of charitable deduction for

contributions of food inventory

PATH ACT

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• Permanent extensions Extension of modification of tax treatment of certain

payments to controlling exempt organizations Extension of basis adjustment to stock of S corporations

making charitable contributions of property

PATH ACT

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• Temporary extensions Through 2019

• Extension of new markets tax credit Through 2016

• Extension of above-the-line deduction for qualified tuition & related expenses

PATH ACT

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• Program integrity Modification of filing dates of returns & statements relating

to employee wage information & nonemployee compensation to improve compliance

• Forms W-2, W-3 & 1099 to be filed by 1/31• Effective for 2016 forms filed in 2017

Safe harbor for de minimis errors on information returns, payee statements & withholding

• Error < $100 = no penalty & no corrected form ($25 or less if tax withholding)

• Employee can request corrected form

PATH ACT

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• Program integrity Higher education information reporting only to include

qualified tuition & related expenses actually paid (covered in more detail later in presentation)

• Additional provisions Provide special rules concerning charitable

contributions to, & public charity status of, agricultural research organizations

Church plan clarification

PATH ACT

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• Tax administration Require Secretary of the Treasury to describe

administrative appeals procedures relating to adverse determinations of tax-exempt status of certain organizations

Require section 501(c)(4) organizations to provide notice of intent to operate

• File one-page notice of registration with IRS within 60 days of formation

PATH ACT

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• Tax administration Declaratory judgments for section 501(c)(4) &

other exempt organizations Gift tax not to apply to gifts made to certain

exempt organizations

PATH ACT

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• Some states have recently placed increased scrutiny on property tax exemptions for nonprofit hospitals New Jersey Illinois

• Illinois Fourth District Appellate Court ruled that Illinois statute authorizing hospital property tax exemptions is unconstitutional

PROPERTY TAX EXEMPTION CHALLENGES

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• In December 2015, The Congressional Research Service published a report describing possible changes to Federal income tax treatment of college & university endowments

• https://www.fas.org/sgp/crs/misc/R44293.pdf• Four areas of possible tax reform

1. Imposing a minimum payout rate on endowments

2. Imposing a tax on endowments or endowment earnings

COLLEGE & UNIVERSITY ENDOWMENT SPENDING REPORT

• Four areas of possible tax reform 3. Limiting charitable contribution deduction for certain gifts

made to endowments4. Changing tax treatment of certain offshore investment

strategies that use ‘blocker corporations’ in connection with unrelated business income tax planning

COLLEGE & UNIVERSITY ENDOWMENT SPENDING REPORT

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• 2015 - 2016 Priority Guidance Plan List of IRS & Treasury projects for 12-month period ending

June 30, 2016 https://www.irs.gov/pub/irs-utl/2015-2016_pgp_initial.pdf

• Projects related to exempt organizations Listing of completed projects as of February 5, 2016 Proposed regulations under §501(c)

relating to political campaign intervention• Project Suspended

IRS PRIORITY GUIDANCE PLAN

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• Projects related to exempt organizations Final regulations & additional guidance on §509(a)(3)

supporting organizations• Published 12/23/2015

Final regulations under §529A on qualified ABLE programs • Published 12/07/15


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• Projects related to exempt organizations Final regulations under §4942 & §4945 on reliance

standards for making good faith determinations• Published 9/25/2015

Final regulations under §4944 on program-related investments & other related guidance • Published 9/28/2015


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“ ”But after five years of budget cuts, and a hiring freeze that has lasted four years, people need to understand that the IRS is going to have to do less with less.

IRS COMMISSIONER JOHN A. KOSKINENApril 2015

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• Lays out initiatives TE/GE will specifically concentrate on Continuous Improvement Knowledge Management Risk Management Data-Driven Decision Making Employee Engagement

TE/GE PRIORITIES FOR FY 2016

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• Data-driven decision making Enables IRS to allocate resources to focus on issues where

they can have greatest impact Committed to integrating data into processes & procedures IRS e-file risk modeling


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• Form 990 as a source of comprehensive annual results & governance Preparation of Form 990 is not simply an administrative task! Is your organization giving it the attention it deserves? Your Form 990 tells a story; the IRS is listening

• Computer-driven analysis of Form 990 data is helping to identify targets

IRS E-FILE RISK MODELING

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• Computer-driven compliance audits Clear ramp-up of compliance enforcement activity Strained resources, still effective Looking for inconsistencies in responses or inaccuracies

• Indicative of simple misreporting, or• A broader attempt to mislead

Answers that conflict or contradict each other

IRS E-FILE RISK MODELING

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• In their own words “EO’s overarching compliance strategy is to ensure organizations enjoying tax-exempt

status comply with the requirements for exemption and adhere to all applicable federal tax laws. This strategy will be implemented through data-driven decisions with the intended goal of identifying and addressing existing and emerging high-risk areas of non-compliance with the optimal use of available resources.”

• In summary Issues to be determined with

data-driven analytics Focus on highest risk areas of

non-compliance Determine using Form 990 data And historical information


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• Focus resources on five strategic issue areas1. Exemption: Issues include non-exempt purpose activity &

private inurement, enforced primarily through field examination

2. Protection of Assets: Issues include self-dealing, excess benefit transactions & loans to disqualified persons, enforced primarily through correspondence audits & field examination

3. Tax Gap: Issues include employment tax & Unrelated Business Income Tax liability, enforced through compliance checks, correspondence audits & field examination


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• Focus resources on five strategic issue areas4. International: Issues include oversight on funds spent

outside U.S., exempt organizations operating as foreign conduits & FBAR requirements, enforced through compliance reviews, compliance checks, correspondence audits & field examination

5. Emerging issues: Issues include non-exempt charitable trusts & §501(r), enforced through compliance reviews, correspondence audits & field examination


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• IRS proposed regulations to implement a framework addressing the manner & timing for donee reporting under §170(f)(8)(D)

• Proposed regulations drew protests• Concerns regarding Need for donee reporting Donee organizations collecting &

maintaining TINs

• IRS withdrew proposed regulations in January 2016

IRS DONATION SUBSTANTIATION PROPOSAL

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• Colleges & universities will no longer have option of reporting amounts billed on IRS Form 1098-T

• All institutions will be required to report payments for qualified tuition & related expenses

• Change is effective for tax year 2016 forms

FORM 1098-T REPORTING

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FORM 1098-T REPORTING

Caution

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• IRS is waiving penalties assessed against any college, university or other educational institution for Forms 1098-T filed with an incorrect or missing taxpayer identification number (TIN). IRS is granting this relief for tax years 2012, 2013, 2014 & 2015

FORM 1098-T PENALTY RELIEF

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Other Tax Considerations for Tax-Exempt Organizations

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• IRS audits Worker classification Compensation UBI Amended 990-T

CURRENT TAX ISSUES

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MANAGING YOUR TAX RISK

Managing Tax Risk

Experience

Processes

Tools

Education

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Experience

Outside Consultants

Internal Knowledge

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Processes

UBI Surveys

990 Data Gathering

Process

Inter-Departmental

Communication

Annual Tax Planning

Checklists

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Tools

Tax Preparation

Software

Tax Return Data

Gathering Tools

Tax Research Software

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EducationQuantify Tax Risks

Communication of Tax Risks to

Mgmt

Continuing Professional Education

Articles

Roundtables

Inter-Departmental

Training

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QUESTIONS?

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• For questions, concerns or comments regarding CPE credit, please email the BKD Learning & Development Department at [email protected]

CPE CREDIT

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FOR MORE INFORMATION

THANK YOU!Aaron Hershberger | [email protected]

Jeanette Verrelli | [email protected]

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annual tax update & 2015 form 990 changes · annual tax update & 2015 form 990 changes ......

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