The BNN Tax-Exempt Organizations Blog

Mandatory Electronic Filing for All Forms in Form 990 Series

On July 1, 2019, the Taxpayer First Act (H.R. 3151) (the Act) was enacted.  The Act includes a wide variety of measures, most of which are intended to modernize and improve the Internal Revenue Service.  This post will focus on the set of provisions found in Section 3101 of the Act that will require that all Forms 990, 990-EZ, 990-PF, and 990-T be filed electronically (e-filed.)  Failure to comply with this requirement will result in substantial penalties.

Currently, Forms 990-T must be paper-filed.  Forms 990, 990-EZ, and 990-PF must be filed electronically, but there is a very significant exception that allows paper filing for organizations that filed fewer than 250 returns of any type (including 1099s, W-2s, 941s, etc.) during the calendar year that ended within the organization’s fiscal year. However, most Forms 990, 990-EZ, and 990-PF for short years must be paper-filed.

The new requirements are effective for tax years beginning on or after July 2, 2019, the date immediately after the Act’s enactment.  In the case of organizations with a December 31 fiscal year end, for example, the requirements first apply to the calendar 2020 returns, due on May 15, 2021 or, if an extension is properly filed, on November 15, 2021.  For organizations with a September 30 year end, the requirements first apply to the year ended September 30, 2020. For organizations with a June 30 year end, the requirements first apply to the year ended June 30, 2021.

The statute gives the IRS the right, but not the obligation, to delay the effective date for up to two years for (a) organizations that file a 990-T and/or (b) financially small organizations, defined as organizations with less than $200,000 of gross receipts and $500,000 of gross assets.

The vast majority of our tax-exempt organization clients who file a Form 990 already do so electronically, so this provision is irrelevant to them.  However, a significant portion of our private foundation clients currently paper-file their Form 990-PF.  In many cases, this is because the Form 990-PF instructions currently require the attachment of a schedule that lists the identity and value of each security held at the end of the year, and it is far more efficient to attach a copy of a year end investment portfolio statement than it is to manually enter each individual holding (they can number into the hundreds) into the tax preparation software.  The instructions do allow the reporting of governmental bonds as a lump sum total, but this accommodation is not available for other types of publicly traded securities.

Hopefully, this logistical issue will go away before electronic filing becomes mandatory.  It seems that one logical and easy way to accomplish this would be to amend the instructions to allow all publicly traded securities to be reported as a lump sum, with perhaps an exception if the foundation owns more than a specific percentage of the publicly held company, or if the investment exceeds a specific percentage of the foundation’s total assets.  Alternatively, the IRS could relax its current requirements that allow PDF attachments to e-filed Forms 990-PF only in very limited circumstances.

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Congress Allows Single Six Month Extension of Form 990 Series

The week before last, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 was approved quickly by both the House and the Senate and immediately signed into law by President Obama. The primary purpose of this stop-gap bill was to avoid a lapse in highway and transportation spending. The law contains several substantive tax provisions and, somewhat surprisingly, numerous provisions affecting the due dates of tax returns. The most widely-discussed of these are a change of the due date of partnership returns from April 15 to March 15 and a mirror-image change of the due date of C corporation returns from March 15 to April 15, both of which go into effect for tax years beginning after December 31, 2015.

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Foreign Tax Compliance a Growing Concern for Tax Exempt Organizations

In recent years, a growing number of our clients have taken advantage of international investment opportunities. From alternative investments that have holdings in foreign entities, to devoting part of a portfolio in a U.S. brokerage account to international equities, many of our clients find this type of diversification beneficial from an investment point of view. While we cannot comment on the benefits or drawbacks of holding these types of assets as investments from a financial perspective, there are an ever-increasing number of tax consequences of which our tax-exempt clients should be aware.

The IRS is becoming increasingly demanding in the type of disclosures required for organizations with these types of holdings. Over the past decade, the IRS has released several new forms and countless pages of guidance in an effort to gather information about the overseas activities of U.S. tax filers. Fortunately, at least for now, tax-exempt entities are not subject to nearly as many disclosure requirements as for-profit or individual taxpayers face. However, exempt organizations are not excused from all foreign disclosure filings. The most common forms that we run into with our tax-exempt clients are Forms 926, 8621, 8865, and FinCEN 114 (formerly TDF 90-22.1). Form 990 also contains a separate schedule, Schedule F, which tax-exempt entities that engage in foreign activities as part of their operations may have to file if certain thresholds are met.

Posted Under: Foreign tax, Form 8621, Form 926, PFIC

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IRS Is Looking to Use Form 990 Schedule K to Audit Exempt Organizations

This year’s AICPA National Not-For-Profit Industry Conference in Washington D.C. in June generated a lot of buzz with respect to Form 990’s Schedule K. If your organization has tax-exempt bond debt and files Form 990, you may be aware that the 2012 version of Schedule K featured some new questions. These questions were added to collect data on how closely organizations monitor their compliance with tax-exempt bond regulations. However, one of the biggest takeaways from this portion of the conference was that the IRS intends to use the answers to these questions as a potential trigger for an audit examination.

Arguably the largest area of focus for the IRS in the exempt organization world has been and continues to be unrelated business income (UBI). To that end, for a number of years, the IRS had been using the redesigned 990 to gather information about colleges and universities as there were perceived abuses specifically related to their athletic programs. Over the past couple of years the IRS used the information collected in annual 990 filings to examine these institutions for potentially unreported UBI. As the window on these examination projects begins to close, the IRS appears to be turning its attention to other types of exempt organizations – most notably hospitals and organizations maintaining tax-exempt bonds.

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Form 1023-EZ Is Now Available for Filing

Earlier this week, the IRS rolled out the final (and fileable) version of Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, along with the applicable instructions. This is a very significant development. This form enables many small organizations to file for expedited and, in most cases, almost automatic approval of 501(c)(3) status.  (Previously, I wrote about the draft Form 1023-EZ and some of the negative reactions to its proposal.)

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Raffles by Tax Exempt Organizations

Raffles have grown in popularity amongst public charities in recent year, and for good reason. Organizations that host these events often find that they are a great way to raise funds and to promote awareness for their causes.  While the income tax aspects of these events are not overly complex, there are some issues that your organization should be aware of before hosting one yourself.  The following is intended to provide a general overview of the tax compliance requirements for tax-exempt organizations conducting a raffle.

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