Update to the IRS Form 990 2012

2012 Form 990: What’s
New, What’s Important
February 26, 2013
Deborah G. Kosnett, CPA

IRS Highlights:
2012 EO Annual Report/
2013 Workplan

1
© Copyright Tate & Tryon 2013

2012 Workplan Results: Governance
Examined 10,743 EO returns
Completed “Governance Check Sheets” analysis
for charities under audit
Compliant charities were most likely to:
- Have a written mission statement
- Use comparability data for compensation decisions

- Have controls over use of charitable assets

- Have the entire Board review the 990 before filing

2

2012 Workplan Results: Auto Revocation
More than 450,000 organizations have lost
exempt status
About 30,000 have applied for reinstatement
IRS offered transitional relief for small orgs-
reduced fees, etc. through Dec. 31
IRS launched “Select Check” web site in 2012:
info on revocation, filings, eligibility to receive
deductible contributions
IRS also routinely sends out “compliance check”
notices to intermittent non-filers
3

2012 Workplan Results: Outreach
Initiated ‘virtual workshops’ - “What You
Need to Know About Automatic Revocation
of Exemption”
Made extensive use of introductory
workshops, webinars, e-newsletters
2013: In-person outreach for larger groups;
technology and ‘virtual content’ for smaller
orgs

4

2012 Workplan Results: Exam Process Info

Launched web pages that provide centralized
information on the EO exam process:
- Why an org might be selected for review
- Different types of exams (field, correspondence, etc.)

- What to expect during an exam

- Taxpayer rights

- Info on Fast Track Settlement

www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Audit-Process

5

2013 IRS Workplan: Form 990 Compliance

“The IRS uses the Form 990
responses to select returns for
examination, so a complete and
accurate return is in your best
interest.”
-- IRS FY 2013 Workplan

6


“As we examine organizations selected through this
data-driven approach, we find that the Form 990
responses of some organizations do not always
accurately reflect their activities. If those
organizations had been more careful in completing
their returns, they might not have been identified by
our indicators or selected for examination.”
-- IRS FY 2013 Workplan

7

 Compensation transparency – IRS will examine 200 orgs
- Focus on high gross receipts / very low total compensation
 Unlawful political campaign intervention – IRS will
evaluate 300 cases for possible examination
- IRS will also evaluate whether Forms 1120-POL should have
been filed
 Unrelated business income – IRS plans to examine orgs
with high gross UBI / no taxable income
 Charitable spending initiative – IRS sources/uses of
charitable funds exams will focus on medium/large orgs
- Focus on high fundraising income/low fundraising expense
8

2013 IRS Workplan: Governance
§501(c)(3) and (4) orgs will be examined for
governance practices
- Based on 2012 findings
- IRS checksheet will look for additional relevant factors
or practices
285 orgs that in 2009 reported a “significant
diversion of assets” – IRS will look at their before/
after governance practices

9

2013 IRS Workplan: §512(b)(13) Study
The Pension Protection Act of 2006 made some
changes to this code section – transactions with
controlled entities
PPA 2006 mandated Treasury to report on
administration of the changes and make
recommendations
IRS EO Division is starting to analyze data
gathered from 2,000 checksheets
No info on when this might be complete

10

2013 IRS Workplan: Employment Tax Compliance

IRS is in its 3rd year of an employment tax
compliance research project (National
Research Program (NRP))
EO has examined employment tax forms
filed by exempt orgs in 2008 – 2010
For 2013, EO will finish its analysis and
provide data to the IRS NRP for further
work

11

2013 IRS Workplan: Int’l Charitable Activities
 In 2012, EO looked at a sample of orgs that reported
foreign bank accounts. Findings:
- Failure to file FBAR reports
- Inadequate recordkeeping

- Lack of discretion and control over foreign funds

- Failure to file/incorrect filing of employment tax returns

 For 2013, IRS will focus on orgs with high amounts of
foreign grants
 IRS will also continue its “Gifts-in-Kind” exams,
focusing on excessive comp/limited charitable activity

12

2013 IRS Workplan: Group Rulings
IRS is currently sending out a Group Rulings
Questionnaire to > 2,000 randomly selected
“central” organizations
- 2011 Advisory Committee to TE/GE report questioned
utility of group exemptions
- Large numbers of subordinates have been auto-revoked

Questionnaire seeks to examine central org/
subordinate relationships and reporting
New web page on group rulings:
www.irs.gov/Charities-&-Non-Profits/Group-Exemption-Rulings-and-
Group-Returns
13

2013 IRS Workplan: 990-N Misfilers
Since 2008, IRS has found numerous 990-N
erroneous filings:
- Orgs that are too large to file
- Supporting organizations (§501(a)(3)’s cannot file a 990-N)

- Orgs that filed both 990-N and another 990 (dual filers)

> 200 ineligible orgs that filed 990-N will be
notified of automatic loss of exempt status
IRS will examine > 200 dual filers to determine
future filing requirements

14

2013 IRS Workplan: “Self Declared” Exempt Orgs
§501(c)(4)/(5)/(6) orgs can declare themselves
exempt without asking for determination
IRS will send out a questionnaire to 2010/2011
“self-declarers” to determine correctness of
classification and compliance
IRS is no longer granting automatic retroactive
exemption to Form 1024 filers! (Rev. Proc. 2013-9)
- IRS is adopting the 27-month rule that now applies to
Form 1023 filers

15

2013 IRS Workplan: Miscellaneous
“Plain language” writing courses will be extended
to tax law specialists in Rulings and Agreements
Auto-revocation – IRS will update Automatic
Revocation List monthly
IRS will be developing new communications and
materials designed to meet the tax needs of small
exempt organizations
IRS will debut an interactive, educational online
version of Form 1023

16

Form 990 2012: Form and
Instruction Update

17

What’s New for 2012 – Core Form
 Part IV - Grants or other assistance to domestic orgs
or individuals that are designated for foreign
organizations must be reported on Schedule F
 Part VI – instructions for Question 3 clarify the
information to be provided on Schedule O: name the
management company, describe services, list
ODTKE’s compensated and amounts compensated.
 Part VI – an “other” box for Line 18 has been added
(disclosure of 990/990-T/1023/1024)

18

 Part VII – you now must
include average
hours/week for related orgs
 Section A provides
instructions for reporting
self-insured medical plan
benefits (page 31)
 Section B, independent
contractors – insurance
providers should not be
reported (nor public utilities,
either)
19

 Part VIII – You are no longer required to report
revenue from JV’s and partnerships on a K-1 basis
 Part VIII – a §501(c)(3) organization must treat all S
corporation income as UBI; gain on disposition of S
corporation stock is also UBI (§512(e))
 Part VIII – if you get any Forms 1099-K: report on
appropriate line based on nature of the payments
(i.e., contribution, income from sale of inventory)
- Keep 1099-K copies with your records

20

 Part IX – Line 3, grants
and assistance must now
include grants to U.S. orgs
or individuals that are
designated for foreign
orgs or individuals
 Part IX – new Line 11g: if
“other” fees > 10% of total
expenses, then detail on
Schedule O

21


Part IX – You are no
longer required to
report assets from JV’s
and partnerships on a
K-1 basis
Part IX – Line 6:
receivables reported
here trigger Schedule L
disclosure

22


Part XI – new lines
(because Schedule D
reconciliation is gone)
Part XII – simple
reformatting of compiled/
reviewed/ audited
statements question

23

What’s New for 2012 – Glossary
“Disqualified person” definition clarifies that if a 5-
year disqualification period ends within the org’s
tax year, it may treat the person as disqualified for
the entire year
“Grants and other assistance” no longer includes
“program-related investments” (Schedule F)
“Professional fundraising services” now includes
“preparation of applications for grants or other
assistance.”

24

What’s New for 2012 – Miscellaneous
If an organization accepts a contribution in the
name of one its programs, the donor
acknowledgement should indicate the
organization’s name – not the program’s name
IRS reminds filers not to include social security
numbers on 990 or 990-EZ
Form 990-EZ, Part IV – officer/director address no
longer required

25

What’s New for 2012 – The Schedules
Schedule A – disclose
only monetary support
in 11h(viii):
- “Monetary support”
includes payments to or
for use of members of
charitable class benefited
by the supported org;
payments to other SO’s
- Describe non-monetary
support in Part IV

26

 Schedule B – accrual method organizations reporting
pledges of non-cash property must check the “non-cash” box
and fill out Part II, even if property not received by year-end
 Schedule C – special focus coming up
 Schedule D – Part IX, Reconciliation, has been eliminated
 Schedule D – donor-advised funds reportable in Part I are not
limited to funds or accounts that meet the GAAP “funds”
definition
 Schedule D – The FIN 48 footnote needs to be reported
regardless standards used to determine (FIN 48, ASC 740,
IFRS, or other)
 Schedule F – special focus coming up
27

 Schedule G – for Part II, Line 2, all contributions
related to a fundraising event should be reported, not
just charitable contributions
 Schedule H – hospital-related schedule, N/A
 Schedule I – removed a checkbox, nothing otherwise
 Schedule J – new example of how to report value of
benefits from a nonqualified benefit plan
Schedule K – significant new questions regarding sales
and dispositions of bond-financed property, rebates,
etc.

28

29

30

 Schedule L – special focus coming up
 Schedule M – definition of a “qualified organization”
for purposes of a qualified conservation contribution
 Schedule N – revision of “significant disposition of net
assets” to exclude grants or other assistance made in
the ordinary course of exempt activities
 Schedule N – organizations winding up but not yet
terminated should not fill out Part I, but may need to
complete Part II

31

Schedule R – new section in instructions
regarding what VEBAs need to report
Schedule R – 3 more examples of “indirect
control” for schedule reporting purposes
Schedule R – Part IV now has a “§512(b)(13)
controlled entity” column
Schedule R – Part V has a new item: “Dividends
from related organizations”

32

33

Form 990 2012:
Focus on Schedule C

34

Schedule C – What Are the Trigger Questions?

Identical
to 2012

35

Schedule C – Political Activity Reporting

36

Part I-A – for (Almost) Everyone

Report both direct and indirect political campaign
activities
- Line 1: requires a Part IV narrative description – even if
only activity is through a connected PAC
- Line 2: Correctly-handled PAC contributions are NOT
reported here; everything else is
Line 3: Report volunteer hours for the organization’s own
political activities – not those of connected PAC

37

Part I-B – Sec. 501(c)(3) ONLY

The term “political expenditure” means any amount paid or incurred by a
section 501(c)(3) organization in any participation in, or intervention in
(including the publication or distribution of statements), any political
campaign on behalf of (or in opposition to) any candidate for public
office. – §4955(d)(1)
 Part I-B asks about excise taxes imposed by §4955 in
connection with political expenditures …
 So, Part I-B is never filled out … unless a §501(c)(3) has
done something it shouldn’t have!

38

Part I-C – Everyone BUT Section 501(c)(3)

Report both political
contributions shunted to
your PAC and your own
political expenditures, if any

39

Part II-A – Lobbying under Section 501(h)

40

501(h) – When Things Go Somewhat Wrong

$1,100,000 excess
lobbying expenditures in
2011 ONLY

41

501(h) – When Things Go Horribly Wrong!

$75,000 in excess
grassroots expenditures
in TOTAL

42

What Happens When a §501(c)(3) Fails 501(h)?
 It does NOT get §501(c)(4) status (even though it might
otherwise qualify)
 It becomes a taxable organization (usually a corporation)
 GCM 39813: tax treatment of –
- Gross receipts of trade/business activities - taxable
- Income from investment and other formerly “excluded” activities -
taxable
- “Good faith” contributions – generally nontaxable under §102
- Donors may be subject to gift tax

43

There’s Nothing Like Self-Assessment . . .

Part II-B directly asks if lobbying
causes the organization to fall out
of §501(c)(3) …

44

Part III – Section 501(c)(4), (5), (6) Lobbying

"Dues payments, contributions or gifts to XYZ Association
are not tax deductible as charitable contributions for federal
income tax purposes. However, they may be deductible as
ordinary and necessary business expenses subject to
restrictions imposed as a result of XYZ's lobbying activities
as defined by the Budget Reconciliation Act of 1993. XYZ
estimates that the nondeductible portion of your 20XX dues
-- the portion that is allocable to lobbying -- is ___%.“

45

Form 990 2012:
Focus on Schedule F

46

Focus on Schedule F
2012 updates:
- Expenditures and investments in a single region are
to be reported on separate lines
- Foreign program-related investments go in Part I,
but not Parts II and III
- Grants and other assistance to US organizations or
individuals destined for foreign organizations are
reportable in Parts II and III
“ . . . To or for the use of foreign organizations, foreign
governments, foreign individuals, and U.S. individuals or
entities for foreign activity . . .”
47

Make Sure You Are Capturing All Expenses

“Expenditures include salaries, wages, and other
employment-related costs paid to or for the benefit of
employees located in the region; travel expenses to, from,
and within the region; rent and other costs relating to offices
located in the region; grants to or for recipients located in
the region; bank fees and other financial account
maintenance fees and costs; and payments to agents
located in the region. Report expenditures based on the
method used to account for them on the organization's
financial statements, and describe this method in Part V.”

48

A Few Details . . .
 Foreign investments held through a domestic entity are not
reportable (“domicile” is not foreign)
 You may round off both investments and expenses to the
nearest $1,000
 For 2012, you may skip allocating indirect expenditures to
foreign activities if you don’t already separately track them
 For “grants and other assistance” do not include salaries
or payments to independent contractors, or payments to
affiliates that are not separate legal entities
 Even if you have no expenditures for an activity, you must
report the activity in Part I if you derived more than
$10,000 in revenue from its operations
49

“Foreign Forms” Questions …

50

Don’t Slide Over the “Boycotting Countries” Question!

A “boycotting country” is:
- Any country that is on the list maintained by the
Secretary of the Treasury under §999(a)(3).
 The most recent list (August 2012) includes Iraq, Kuwait,
Lebanon, Libya, Qatar, Saudi Arabia, Syria, UAE, and Republic
of Yemen.
- Any other country in which your organization (or controlled
group of which your org is a member) has operations and of
which you know, or have reason to know, requires any person
to cooperate with or participate in an international boycott.
- There are some filing exceptions, to read the instructions to
Form 5713 carefully!

51

Form 990 2012:
Focus on Schedule L

52

Focus on Schedule L
 New columns in Parts I, II, III
 Part I asks for amount of tax
“incurred by” … formerly
“imposed on”
 Part II emphasis placed on
amounts reported in Part X
(balance sheet), lines 5, 6, 22
 Part IV clarification that bank
deposits/ withdrawals are not
reportable if made in ordinary
course of business

53

“Interested Person” Includes for Part IV:
An entity (other than a section
501(c)(3) organization, a section
501(c) organization of the same
subsection as the filing
organization, or a governmental
unit or instrumentality) more than Note that disclosure is
35% owned or controlled, directly or required only if there are
indirectly, individually or collectively, reportable transactions.
by one or more current or former But between related
exempt orgs, there usually
officers, directors, trustees, or key
are! See pages 3 and 4 of
employees listed on Form 990, Part Schedule L instructions.
VII, Section A, or their family
members.

54

How To Determine “More than 35%” Control

“For purposes of this Part IV, a nonprofit organization is
'more than 35%' controlled when more than 35% of its
directors or trustees either (a) consist of interested persons
of the filing organization, or (b) serve as directors or trustees
subject to powers held by one or more interested persons of
the filing organization to elect or appoint, or remove and
replace, such directors or trustees or the members that elect
or appoint them.”

55

Sch L threshold Not Reportable
business transactions?
Is That Org Reportable

Yes

Is other org a 501(c)(3) Yes
Not Reportable
or same 501(c) type?
on Schedule L?

No

> 35% control? No
Not Reportable

Yes

Reportable
On Sch L Pt IV


Schedule L “Related” Orgs – Effect on 990, Part VI
“Independent” voting members must
pass these two criteria (and 2 more):
3. Neither the member, nor any family
member of the member, was involved in a
transaction with the organization (whether
directly or indirectly through affiliation with
another organization) that is required to be
reported on Schedule L (Form 990 or 990-
EZ) for the organization's tax year.
4. Neither the member, nor any family member
of the member, was involved in a
transaction with a taxable or tax-exempt
related organization (whether directly or
indirectly through affiliation with another
organization) of a type and amount that
would be reportable on Schedule L (Form
990 or 990-EZ) if required to be filed by the
related organization.

57

Questions??

58

Update to the IRS Form 990 2012

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Update to the IRS Form 990 2012

Similar to Update to the IRS Form 990 2012 (20)

More from Tate & Tryon - Nonprofit CPA Firm

More from Tate & Tryon - Nonprofit CPA Firm (10)

Recently uploaded

Recently uploaded (20)

Update to the IRS Form 990 2012