The BNN Tax-Exempt Organizations Blog

Archives for 2014

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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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IRS Reporting Requirement Practically Prevents Most Private Foundations from E-Filing

If you’ve ever read through the IRS instructions for private foundations (and who hasn’t in their spare time?), you’ll have noticed that the IRS wants to know a lot about your organization.  Some of the detail the IRS is looking for makes sense. For instance, asking for information about charitable disbursement recipients ensures that private foundations are distributing funds appropriately. However, other information the IRS wants seems to only needlessly increase the administrative burden on the organization, tax preparers, and even (gasp!) the IRS as well.

Posted Under: eFiling, Private Foundations

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Thoughts on the Proposed Form 1023-EZ

The IRS recently issued a draft of a new Form 1023-EZ which, for many small organizations, would greatly simplify the process of obtaining tax-exempt status under Code Section 501(c)(3). The name of the form is “Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code”, and some have joked that the name is longer than the form itself.