2014 form 990: what’s new, what’s important march 20, 2015 deborah g. kosnett, cpa

2014 Form 990: What’s New, What’s Important

March 20, 2015

Deborah G. Kosnett, CPA

© Copyright Tate & Tryon 2015

What We’ll Talk About Today . . .

Overall changes to Form 990 for 2014 (there aren’t many)

Major changes to the 2014 Schedule A2014 Schedule L: definitional changesSpecial focus: Schedule J, page 1Form 990-T, Form 1023-EZ, other topics of interest

2


Form 990 2014: Form and Instruction Update


2014 Form 990 Core Form

Part VII – instructions clarify that reportable compensation should not be treated as deferred, if the deferral is not more than 2.5 months after the end of the calendar year from which it was deferred.

Part XI – clarifying instructions have been added for lines 5, 6 and 8

Appendix E (instructions) – new instructions are provided for group returns that include supporting organizations

4


Form 990 2014: Changes to Schedule A


MAJOR Addition to Schedule A for 2014

FIVE additional pages for Schedule AALL pages focus on supporting organizations (SO’s)

New Part IV covers Types I, II and III (functionally integrated) SO’s

New Part V covers Type III non-functionally integrated SO’s

Result of temporary and final regs issued in December 2012, which take effect 2014

6


What Is a Supporting Organization?

A special type of public charity – no need to pass the “support test”

Supports one or more other exempt organizations- Usually supports a §501(c)(3) charity . . . BUT- May also support a § 501(c)(4), (5) or (6) organization

Supported non-charities have to look like a charity, in terms of funding pattern

7


Supporting Org Types At a Glance . . .

Type I• “Operated,

supervised or controlled by”

• Parent/sub – SO board controlled by supported org

• Most common type

Type II• “Supervised or

controlled in connection with”

• Brother/sister – overlapping boards

• Less common type

Type III• “Operated in

connection with”

• Loose affiliation (sometimes a real stretch)

• Two sub-types: functionally integrated and non-functionally integrated

8


Due to Perceived Abuses . . .

The Pension Protection Act of 2006 added stricter requirements for ALL SO’s . . .

But especially for Type III’sA supporting organization is now a lot more like a private foundation, in terms of restrictions

9


Type of Relationship Test

Type I

Type II

Type III

Organizational Test

Operational TestNo Disqual

Persons Control Test

Purposes Limitation

Charity Specification

AND AND AND

AND

AND

Permissible Beneficiaries

Permissible Activities

Adapted from DiRusso, “Supporting the Supporting Organization”

OR OR

SO Structure at a Glance – Level 1

10


Type I Type II

Adapted from DiRusso, “Supporting the Supporting Organization”

Type III

Responsiveness Test

Integral PartTest

AND

Significant Voice

Charitable Trust

OR OR

“But For” Activities

Substantially All Income

“Greater Prong” “Lesser Prong”

“Prongs” are important concept, post-PPA

SO Structure at a Glance – Level 2

11


One Additional Change . . .

Schedule A instructions now indicate that a charity that has a public charity status other than section 170(b)(1)(a)(vi) may complete the Part II support test to demonstrate that it also qualifies under this section.

The advantage? Charities that qualify can use the Schedule B “special rule” that allows them to list only donors who gave > 2% of total contributions for the year.

14


Form 990 2014: Changes to Schedule L


Focus on Schedule L The 2014 instructions

provide for a more uniform definition of “interested persons” for Parts II – IV (no change for I)

Parts I – III, report transactions regardless of amount

Part IV – reporting thresholds

16


Simplified ‘Interested Person’ Definitions

Schedule L, Part I: disqualified person under §4958 Schedule L, Parts II – IV:

- Part VII current or former officers, directors, trustees, or key employees

- Creator or founder of the organization- Substantial contributor- Grant selection committee member (Part III)- Family member of any of the above- A 35% controlled entity of any of the above, in the

aggregate . . . there’s a change to what this means!

17


How To Determine “More than 35%” Control

An entity that is owned, directly or indirectly (for example, under constructive ownership rules of §267(c)), by a given person, such as the organization's current or former officers, directors, trustees, or key employees listed in Form 990, Part VII, Section 1, or the family members thereof (listed persons) as follows:• 1. A corporation in which listed persons own more than 35% of the total

combined voting power;• 2. A partnership in which listed persons own more than 35% of the profits

interest; or• 3. A trust or estate in which listed persons own more than 35% of the

beneficial interest.

18

Schedule L’s intrinsic “35% control” definition is gone; you now look to the definition in the Form 990 glossary:


EO’s Are Now No Longer “Interested Persons”

19

Under the new 35% control definition, control has to do with ownership.

Also included in the Schedule L instructions (SALY)- “An interested person for purposes of Parts II-IV does not

include a section 501(c)(3) organization, an exempt organization with the same tax-exempt status (for example, section 501(c)(3) or 527 status) as the filing organization, or a governmental unit or instrumentality.” (pre-existing)

- As the“35% controlled entity” definition now references the 990 glossary (per the prior slide) . . .

Because you cannot have a “35% OWNED” nonprofit, we no longer have to worry about reporting related nonprofits

with overlapping boards!


A Couple More Key Exceptions to Part IV

20

Do not report, in Part IV of Schedule L:- “Transactions with publicly-traded companies in the

ordinary course of the publicly-traded company’s business, on the same terms as it generally offers to the public (or more favorable for the filing organization).” (new this year)

- Deposits into or withdrawals from a bank account (when the bank is an interested person) in the ordinary course of business, on the same terms as the bank offers to the general public. (pre-existing)


Harmonized “Reasonable Effort” Definition

21

For all parts of Schedule L, EO’s need only make a “reasonable effort” to obtain potentially reportable information

Example: distribute an annual questionnaire to each potentially “interested person”

You may rely on the information so obtainedPresumably, if some questionnaires are not returned, you have done your best


SPECIAL FOCUS: SCHEDULE J, PAGE 1 QUESTIONS


A Few Tips for Filling Out Schedule J, Page 1

23

Questions 1, 2, 3*, 5, 6, 7, 8 and 9 are answered only by the organization that pays and/or sets compensation for reportable employees.

Question 3 is starred (*) because an explanation is required regarding how a related organization establishes compensation of reportable employees, if the reporting organization has none

Question 4 is answered whether the organization or a related organization sets compensation.



24

Questions 8 and 9 are concerned with what is sometimes called the “first bite of the apple” rule

Fixed payments made to an employee under an initial contract are not subject to the section 4958 “intermediate sanctions” rules- There must be a binding written contract between the EO and a

person who was not a disqualified person immediately prior to the contract signing

Nevertheless, in Question 9 IRS asks if the initial contract was reviewed and approved following the section 4958 rebuttable presumption procedures



25

Questions 5 – 9 are filled out only by section 501(c)(3) and (4) organizations.*

Questions 5 and 6 relate to “contingent compensation” based on:- Organization revenues (Q5)- Organization net earnings (Q6)

Question 7 asks about any other non-fixed payments not covered in Q5 or Q6- What’s included here? Bonuses that are not based on

fixed formulas . . . those that involve discretion

* And also section 501(c)(29)’s – Qualified Nonprofit Health Insurance Issuers


Other Miscellaneous Changes

26

Cosmetic changes to Form 990 and its schedules- Addition of section 501(c)(29) organizations- Some minor wordsmithing:

Heading, Item B: changed “Terminated” to “Final return/terminated”

Part IV, Line 22: replaced “other assistance to individuals in the United States” with “other assistance to or for domestic individuals”

Part V, Line 8: asks if a donor-advised fund maintained by a sponsoring organization has excess business holdings



Form 990-EZ – 2014 Changes

27

There are not many! Mostly cosmetic- Added section 501(c)(29) organizations- Changed “terminated” to “final return/terminated”

We might see IRS add more questions to the EZ in future years, though, as a result of the greatly abbreviated Form 1023-EZ exemption application(more about 1023-EZ later)



Form 990-T – 2014 Changes

28

No real changes to the formRelevant instructional changes:

- Definition of “trade or business” clarifies that an activity must be conducted with the intent to make a profit to qualify as such (clarification/reminder; not new)

- Exclusion from UBI for qualifying specified payments under section 512(b)(13)(E) was extended through December 31, 2014 . . . This “extender” lives on another year but is currently not in effect for 2015

Form 990-T has not changed since 1971



Unrelated Activities Have Multiplied Over the Years

29

1971 . . .• Magazines• Newsletters• Show guides(all printed, of course)

2015 . . .• Magazines• Newsletters• Internet• Phone/tablet apps• Social media

• Facebook• Twitter• Linked-In

• YouTube• Podcasts


Form 990-T – What To Report and Where

30


What Is a Periodical?

Regularly scheduled and printed material . . .

. . . not associated with a specific event!Periodical rules are specific – little ‘wiggle room’If periodical rules do not apply, the publication is reported in 990-T, Schedule I, not Schedule J If periodical rules do not apply, an “ad” may not actually be taxable . . .- ‘Ad’ vs. ‘acknowledgement’

31


Non-Periodical Flow Chart – ‘Ad’ vs. ‘Acknowledgement’

32


Potential Attachments to Form 990-T

33


In Other News . . .

Senate Finance is considering a bill (S. 400) that would require IRS to provide notice of prospective revocation after an org’s failure to file after two consecutive years- Notice would have to be provided no later than 300 days after

the date of 2nd failure; provide compliance instructions- Would provide for possible reinstatement if org can

demonstrate it did not receive notice and makes a current year 990-series filing

Similar bill in the House (H.R. 811), now in Ways and Means

34


Tax Exemption, Re-Examined?

Trade and business league exemption- “Taxing the Unheavenly Chorus: Why Section 501(c)(6) Trade

Associations are Undeserving of Tax Exemption”

The NFL and other sports leagues- H.R. 3965, S. 1524 – PRO Sports Act – would prohibit major

professional sports leagues from gaining exempt status and would revoke The NFL’s exemption (prior Congress; died in committees)*

Nonprofit hospital systems- Last March, Pittsburgh filed a lawsuit against U of Pittsburgh Medical

Center, seeking to pull exempt status- Lawsuit was dropped, but Pittsburgh keeps trying to get PILOTs out of

its large nonprofits* A search of Thomas.gov turned up a reintroduced PRO Sports Act, H.R. 547

35


TE/GE 2014 ACT Report

The ACT (Advisory Committee on TE/GE) met last June; released a number of EO recommendations

Focused on UBI, post-College and University Study (UBI under-reporting):- Regulations project to formalize the “commensurate in scope test”

of Rev. Rul. 64-182- Formal guidance on allocation of indirect costs, w/safe harbor and

ID of unreasonable methods- Comprehensive revenue ruling on UBI issues affecting colleges:

dual use facilities, catering/food service, technology transfers, bookstores

- Web-based Form 990-T (we don’t even have e-file yet!)

36


Are EO Audits Increasing?We are seeing uptick in audits of our clients

- Employee plan audits- Form 990, 990-T or both

Most are “field audits’ involving agent visit / tour of facilities

IRS is reportedly no longer using market segments or exam projects- Audits are data-driven and issue-focused- Metrics derived from analysis of filed 990s- Focus areas: gaming, PF excise taxes, UBI

37


Treasury Priority Guidance PlanNumerous tax projects for 2014/15A few of the more important EO-related:

- Proposed regulations for section 501(c) organizations, related to political campaign intervention (supposedly early 2015!)

- Additional guidance on supporting organizations- Guidance under section 512 relating to allocation of expenses to

dual use facilities- Guidance on excise taxes on donor-advised funds and fund

management

Also authorized new Form 1023-EZ – new online-only streamlined application process for very small charities . . .

38


This is Form 1023-EZ . . . All Of It

39

Contents: contact info, officer/director listing, questions about organizational status, classification, and planned activities.


Form 1023-EZ Quick Facts Filed entirely online; $400 application fee Turnaround is very fast - days Only new charities with planned gross receipts < $50K and

total assets < $250K may use it Lowers the filing barrier for very small ‘plain vanilla’ charities Cannot file if: foreign org, LLC, successor entity, church,

school, hospital, or a supporting org Filers should walk thru educational instructions, fill out

eligibility worksheet, and possibly expect greater scrutiny down the road

IRS has instituted “Lean Six Sigma Organization” processes to streamline approvals of regular Forms 1023

40


AICPA Tax Proposal Compendium

This week, AICPA sent to 34 tax proposals to the Congressional taxwriting committees

Exempt organization recommendations:- Allow for a single six-month automatic extension for the entire Form

990 series- Make permanent the “tax extender” FMV exception for section

512(b)(13); remove the binding contract requirement- Expand the secton 509(f)(2) exception for supporting organizations

under section 509(a)(3) (having to do with qualifying for SO status if SO accepts gifts from certain persons)

These have been requested before; no guarantee of consideration

41


Questions??

42

2014 form 990: what’s new, what’s important march 20, 2015 deborah g. kosnett, cpa

Documents