Wednesday, November 17, 2010

Faith-Based Organizations and Government Partnerships in Focus This Week

Three events bring the issue of policy regarding the federal government's partnership with faith-based organizations into the national spotlight this week:

H/t to the always insightful eNews from the Institutional Religious Freedom Alliance.

Tuesday, November 16, 2010

Comments by ABA/CalBar Nonprofit Committees Regarding Form 990

Lisa Runquist recently chaired a joint task force of the Nonprofit Organizations Committees of both the Business Law Sections of the American Bar Association and the California State Bar. The purpose of this committee was to draft comments to the IRS regarding the Form 990, Return of Organization Exempt From Income Tax.  Letters from both the ABA and CalBar with these comments were submitted to the IRS on November 8, 2010.

As the introduction to the comments states, "as attorneys who work regularly with nonprofit organizations, especially in the areas of entity formation, organization and governance, we are concerned about a number of the provisions [on Form 990] dealing with these areas." With the Form 990 revision in 2007, the IRS has become increasingly involved with overseeing the governance of tax-exempt organizations, in addition to their financial reporting and tax compliance. The comments of the committees are intended to help the IRS improve the governance related items on the Form 990 so that it enable organizations to more accurately reflect their legal requirements, structures and the practices in their responses.

A copy of the complete comment letter is available on the ABA website(pdf).

Monday, November 15, 2010

Failed to File 990s - What Now?

The IRS's October 15 last-chance deadline for the small exempt organization filing relief program has come and gone. If an exempt organization has failed to file a return for the past three consecutive years, it has had its exempt status automatically revoked, "by operation of law." The IRS does not have to take any further action in order for the revocation to take effect. A list of the organizations whose exempt status has been revoked will be posted on the IRS Website at some point, though it hasn't yet appeared. 501(c)(3) organizations that haven't filed will also be removed from Publication 78, the official list of organizations eligible to receive tax-deductible charitable contributions.

There is no way to undo the revocation, unless it was clearly an administrative error on the part of the IRS. An organization whose exempt status has been revoked may have its status reinstated by filing a Form 1023 Application for Recognition of Exemption, for 501(c)(3) organizations, or Form 1024 for all others. Even if the organization did not originally have to file for its exemption, it must do so now in order to have its exempt status reinstated. If the organization can give a reasonable cause for the failure to file past due returns, and it makes a written request together with the application, its exempt status can be reinstated back to the date of revocation. This would prevent gaps in the periods of exemption, which could be both administratively burdensome for the organization and a concern to donors.

For further information, see the FAQs regarding Automatic Revocation on the IRS website.

Tuesday, November 9, 2010

IRS Procedures for Health Insurance Credit for Exempt Organizations

Under the health care act signed into law this year (the Patient Protection and Affordable Care Act), a refundable tax credit is available to small organizations, including tax-exempt organizations, that purchase health insurance for their employees.  In order to prepare to administer this credit, the Internal Revenue Service released a draft version of Form 8941(pdf) on its website on September 7, 2010.  Form 8941, Credit for Small Employer Health Insurance Premiums, will allow both small businesses and tax-exempt organizations to calculate the tax credit, which may be claimed on filings beginning in 2011.

In addition, since exempt organizations normally do not file income tax returns (Form 990 is an information return, not a tax return), they will be able to claim the credit by submitting a soon-to-be-revised Form 990-T, regardless of whether the organization has unrelated business income liability. 

For 2010-2013, the maximum credit for exempt organizations is 25% of the premiums paid. In order to qualify, an organization must have no more than 25 full time employees and an average wage of $50,000. Full credit is only available to organizations with 10 full-time employees or less, with average wages of less than $25,000.

For further information, see the FAQs (Frequently Asked Questions) about the Small Business Health Care Tax Credit posted on the IRS website.