update to the irs form 990 2012

2012 Form 990: What’s New, What’s Important

February 26, 2013Deborah G. Kosnett, CPA

© Copyright Tate & Tryon 20131

IRS Highlights:2012 EO Annual Report/2013 Workplan


2012 Workplan Results: Governance

Examined 10,743 EO returnsCompleted “Governance Check Sheets” analysis for charities under auditCompliant 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

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2012 Workplan Results: Auto RevocationMore than 450,000 organizations have lost exempt statusAbout 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

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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-newsletters2013: In-person outreach for larger groups; technology and ‘virtual content’ for smaller orgs

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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

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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

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“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

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Compensation transparency – IRS will examine 200 orgs- Focus on high gross receipts / very low total compensationUnlawful political campaign intervention – IRS will

evaluate 300 cases for possible examination- IRS will also evaluate whether Forms 1120-POL should have

been filedUnrelated 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

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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 practices285 orgs that in 2009 reported a “significant diversion of assets” – IRS will look at their before/ after governance practices

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2013 IRS Workplan: §512(b)(13) Study

The Pension Protection Act of 2006 made some changes to this code section – transactions with controlled entitiesPPA 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 checksheetsNo info on when this might be complete

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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 – 2010For 2013, EO will finish its analysis and provide data to the IRS NRP for further work

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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

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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 reportingNew web page on group rulings:www.irs.gov/Charities-&-Non-Profits/Group-Exemption-Rulings-and-Group-Returns

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2013 IRS Workplan: 990-N MisfilersSince 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

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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

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2013 IRS Workplan: Miscellaneous

“Plain language” writing courses will be extended to tax law specialists in Rulings and AgreementsAuto-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

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Form 990 2012: Form and Instruction Update


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 FPart 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)

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What’s New for 2012 – Core FormPart VII – you now must

include average hours/week for related orgsSection 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)

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Part VIII – You are no longer required to report revenue from JV’s and partnerships on a K-1 basisPart 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

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What’s New for 2012 – Core FormPart IX – Line 3, grants

and assistance must now include grants to U.S. orgs or individuals that are designated for foreign orgs or individualsPart IX – new Line 11g: if

“other” fees > 10% of total expenses, then detail on Schedule O

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

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

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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.”

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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-EZForm 990-EZ, Part IV – officer/director address no longer required

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What’s New for 2012 – The SchedulesSchedule 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

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What’s New for 2012 – The Schedules 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

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What’s New for 2012 – The Schedules

Schedule G – for Part II, Line 2, all contributions related to a fundraising event should be reported, not just charitable contributionsSchedule H – hospital-related schedule, N/ASchedule I – removed a checkbox, nothing otherwiseSchedule J – new example of how to report value of

benefits from a nonqualified benefit planSchedule K – significant new questions regarding sales and dispositions of bond-financed property, rebates, etc.

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Schedule L – special focus coming upSchedule 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 activitiesSchedule N – organizations winding up but not yet

terminated should not fill out Part I, but may need to complete Part II

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

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Form 990 2012:Focus on Schedule C


Schedule C – What Are the Trigger Questions?

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Identical to 2012


Schedule C – Political Activity Reporting

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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 isLine 3: Report volunteer hours for the organization’s ownpolitical activities – not those of connected PAC

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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!

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

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Report both political contributions shunted to your PAC and your own

political expenditures, if any


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

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501(h) – When Things Go Somewhat Wrong

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$1,100,000 excess lobbying expenditures in

2011 ONLY


501(h) – When Things Go Horribly Wrong!

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$75,000 in excess grassroots expenditures

in TOTAL


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

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There’s Nothing Like Self-Assessment . . .

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Part II-B directly asks if lobbying causes the organization to fall out

of §501(c)(3) …


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

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"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 ___%.“


Form 990 2012: Focus on Schedule F


Focus on Schedule F2012 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 . . .”

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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.”

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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 $1,000For 2012, you may skip allocating indirect expenditures to

foreign activities if you don’t already separately track themFor “grants and other assistance” do not include salaries

or payments to independent contractors, or payments to affiliates that are not separate legal entitiesEven 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

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“Foreign Forms” Questions …

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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!

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Form 990 2012: Focus on Schedule L


Focus on Schedule LNew columns in Parts I, II, IIIPart 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, 22Part IV clarification that bank

deposits/ withdrawals are not reportable if made in ordinary course of business

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“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

35% owned or controlled, directly or indirectly, individually or collectively,

by one or more current or former officers, directors, trustees, or key

employees listed on Form 990, Part VII, Section A, or their family

members.

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Note that disclosure is required only if there are reportable transactions.

But between related exempt orgs, there usually are! See pages 3 and 4 of Schedule L instructions.


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.”

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Yes

No

Yes

Not Reportable

Not Reportable

Sch L threshold business transactions?

> 35% control?

Is other org a 501(c)(3) or same 501(c) type?

Not Reportable

Yes

Reportable On Sch L Pt IVIs

Tha

t Org

Rep

orta

ble

on S

ched

ule

L? No


Schedule L “Related” Orgs – Effect on 990, Part VI

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.

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“Independent” voting members must pass these two criteria (and 2 more):


Questions??

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update to the irs form 990 2012

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