Published on July 21, 2016
1. #cbizmhmwebinar 1 CBIZ & MHM Executive Education Series™ Tax Considerations For Your Tax-Exempt Organization Brenda Booth & Craig Klein July 20 and 27, 2016
2. #cbizmhmwebinar 2 About Us • Together, CBIZ & MHM are a Top Ten accounting provider • Offices in most major markets • Tax, audit and attest* and advisory services • Over 2,900 professionals nationwide A member of Kreston International A global network of independent accounting firms *MHM is an independent CPA firm providing audit, review and attest services, and works closely with CBIZ, a business consulting, tax and financial services provider.
3. #cbizmhmwebinar 3 Before We Get Started… • To view this webinar in full screen mode, click on view options in the upper right hand corner. • Click the Support tab for technical assistance. • If you have a question during the presentation, please use the Q&A feature at the bottom of your screen.
4. #cbizmhmwebinar 4 CPE Credit This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar. External participants will receive their CPE certificate via email immediately following the webinar.
5. #cbizmhmwebinar 5 Disclaimer The information in this Executive Education Series course is a brief summary and may not include all the details relevant to your situation. Please contact your service provider to further discuss the impact on your business.
6. #cbizmhmwebinar 6 Brenda is a Director in the Tax Group and a member of the Not-For- Profit & Education Practice. She has more than 10 years of experience working with not-for-profit organizations in the education, health and human services, and cultural sectors. Brenda provides tax return preparation and review services, and a full range of tax consultation services benefitting educational and other 501(c)(3) organizations. Her areas of expertise include Form 990 reporting, tax reporting related to limited partnership investments, and unrelated business income. 617.761.0729 • [email protected] Brenda Booth, CPA, MSA Director Presenters
7. #cbizmhmwebinar 7 Craig is a Managing Director in the Tax Group and a member of the Not- For-Profit & Education Practice. Craig has more than 20 years of experience in the tax industry with significant expertise in not-for-profit taxation matters. He works with complex not-for-profit organizations including educational, health and human services, and cultural organizations. He assists his clients with their tax services needs including preparation and review of tax returns, advice and planning regarding unrelated business income, transactions, and issues related to maintenance of tax-exempt status. 617.761.0509 • [email protected] Klein, CPA, MBA Managing Director
8. #cbizmhmwebinar 8 Agenda 02 01 03 04 Political Prohibition05 State Issues Form 990 Legislative and Other Developments IRS Workplan: Key IRS Focus Areas for FY 16
9. #cbizmhmwebinar 9 IRS WORKPLAN: Key IRS focus areas for FY 16 • Focus has been on five strategic issue areas: • Exemption • Protection of Assets • Tax Gap • International • Emerging Issues
10. #cbizmhmwebinar 10 IRS WORKPLAN: Key IRS focus areas for FY 16 • Exemption Issues: • Non-exempt purpose activity • Organizations must be engaged primarily in activities which accomplish exempt purposes (the operational test of Reg. Section 1.501(c)(3) -1(c)(1)) • If an organization has a substantial nonexempt purpose, it may be ineligible for Section 501(c)(3) status • Private Inurement • No part of the net earnings of the organization may inure to the benefit of any private individual (Section 501(c)(3))
11. #cbizmhmwebinar 11 IRS WORKPLAN: Key IRS focus areas for FY 16 • Protection of Assets Issues: • Self-dealing • Excess benefit transactions • Loans to disqualified persons • Goal is to ensure that charitable funds are used for exempt purposes and not for the personal enrichment of insiders
12. #cbizmhmwebinar 12 IRS WORKPLAN: Key IRS focus areas for FY 16 • Tax Gap Issues: • Employment tax • Employee versus independent contractor classification • Proper compliance with applicable tax law • Unrelated Business Income Tax liability • Characterization of income as related versus unrelated • Expense allocation • Goal: Achieve compliance. These are the two largest IRS revenue sources from exempt organizations
13. #cbizmhmwebinar 13 IRS WORKPLAN: Key IRS focus areas for FY 16 • International Issues: • Oversight on funds spent outside the U.S. • Exempt organizations operating as foreign conduits • Report of Foreign Bank and Financial Accounts (FBAR) requirements
14. #cbizmhmwebinar 14 IRS WORKPLAN: Key IRS focus areas for FY 16 • Emerging Issues: • Non-exempt charitable trusts • IRS looking to ensure compliance with applicable rules. These entities are subject to some of the same requirements and restrictions as private foundations • IRC 501(r) • Enacted as part of the Affordable Care Act, the new criteria for tax exemption as a hospital • Every tax exempt hospital will be reviewed every three years to ensure compliance with rules
15. #cbizmhmwebinar 15 IRS WORKPLAN: Key IRS focus areas for FY 16 • IRS is required to use the most appropriate, cost- effective and least intrusive compliance (examination) approach • Enforcement may be by: • Field examinations • Correspondence audits • Compliance checks • Compliance reviews
16. #cbizmhmwebinar 16 Form 990 • 2014 • Schedule A (Public Charity Status) • Parts IV and V have been added for supporting organizations to demonstrate compliance with new, more complex regulations. • Part IV, Section A is applicable to all supporting organizations • Part IV, Sections B-E and Part V are completed depending on type of supporting organization (Type I, Type II, Type III Functionally Integrated, or Type III Non-Functionally Integrated)
17. #cbizmhmwebinar 17 Form 990 • 2014 (continued) • Schedule L (Transactions with Interested Persons) • There are no longer separate definitions of an interested person for purposes of Schedule L, Parts II, III, and IV • Interested Person: No longer includes an entity of which a current or former ODTKE was serving as an officer, director, trustee, or 5% partner New in 2014: Creator or Founder of the organization New in 2014: Substantial Contributor (defined as an individual or organization required to be reported on Schedule B) • Organizations required to make ‘reasonable effort’
18. #cbizmhmwebinar 18 Form 990 • 2015 • Schedule L • 990, Part IV, lines 28a – 28c checklist questions have not changed to reflect new (2014 & 2015) definitions on Schedule L • The instructions for Schedule L have been clarified for 2015 to state that the checklist questions should only be answered “yes” if the transaction is with an “interested person” as newly defined in the updated Schedule L instructions • There is no guidance provided in the instructions regarding disclosure of the name of substantial contributors on Schedule L, Part IV
19. #cbizmhmwebinar 19 Legislative Developments • Consolidated Appropriations Act of 2016, enacted 12/18/15 • Mass Transit Exclusion • Permanent extension of the maximum monthly exclusion amount for transit passes to match the exclusion for qualified parking benefits • Effective retroactively to 1/1/15 • For 2016, the qualified parking amount is $255
20. #cbizmhmwebinar 20 Legislative Developments • The Protecting Americans from Tax Hikes Act of 2015, enacted 12/18/15 (“Path Act”) • IRA Qualified Charitable Distribution • Permanent extension of tax-free distributions from IRA accounts to charities • Applicable to individuals at least 70.5 years old • May not exceed $100,000 per taxpayer per year
21. #cbizmhmwebinar 21 Legislative Developments • The Protecting Americans from Tax Hikes Act of 2015, enacted 12/18/15 (“Path Act”) • Section 512(b)(13) Qualified Specified Payment Rule • Relating to certain “specified payments” (e.g. interest, annuities, rents and royalties) paid to a controlling exempt organization by a “controlled” entity. • Applicable where payments are pursuant to a binding written agreement in effect 8/17/06 or subsequently renewed under substantially similar terms. • No UBI to the “controlling” organization to the extent payments don’t exceed FMV • This provision has been made permanent
22. #cbizmhmwebinar 22 Legislative Developments • S.2750, The Charities Helping Americans Regularly Throughout the Year Act (CHARITY Act) • Introduced 4/6/16 by Sen. Ron Wyden (D-Ore), ranking member of the Senate Finance Committee, and Sen. John Thune (R-S.D.) • Provides that… “it is the sense of the senate that: • Encouraging charitable giving should be a goal of tax reform, and • Congress should ensure that the value and scope of the deduction for charitable contributions is not diminished during a comprehensive rewrite of the tax code”
23. #cbizmhmwebinar 23 Legislative Developments • CHARITY Act (Continued) • Would allow an IRA owner who is age 70 ½ or older to exclude from gross income up to $100,000 per year of distributions made directly to donor advised funds (DAF’s). • Other DAF provisions • Would require sponsors of DAF’s to disclose: Whether they have an official policy on “inactive” or “dormant” funds. Average percentage distributed from all DAF’s during the current taxable year as well as the average payout over the most recent 3 year period
24. #cbizmhmwebinar 24 Legislative Developments • CHARITY Act (Continued) • Private foundation provisions • Would replace the current 2 tiered (1% or 2%) investment income tax with a flat 1% excise tax • Would create a limited exception to the excess business holding tax rules for certain philanthropic business holdings
25. #cbizmhmwebinar 25 Legislative Developments • CHARITY Act (Continued) • Miscellaneous other provisions • Would require all tax-exempt organizations to file Form 990 electronically • Would authorize the Treasury department to adopt Regulations to align the simplified standard mileage deduction rate for personal vehicle use for volunteer charitable services with the medical/moving expense deduction • Status: Referred to Senate Finance Committee
26. #cbizmhmwebinar 26 Legislative Developments • Corporate Integration • Senate Finance Committee Chair Orrin Hatch (R-UT) working to release a tax reform proposal • Objectives: • End double taxation of corporate earnings • End current tax code bias against equity financing • Improve international competitiveness of the US tax system • Not expected to be enacted in 2016 • To be incorporated into future tax reform proposals ?
27. #cbizmhmwebinar 27 Legislative Developments • Corporate Integration • Expected framework • Corporations would deduct interest and dividend payments • Shareholders and debtholders would be taxed on gross amount of dividend and interest income • 35% withholding tax imposed on distributions of interest and dividends • Shareholders and debtholders would claim tax credits on their income tax returns for withheld amounts • The concern: Tax exempt organizations would be unable to claim the tax credits, thereby increasing their tax costs
28. #cbizmhmwebinar 28 Other Developments • College & University Endowments • October 7, 2015: House Ways and Means Subcommittee on Oversight conducted a hearing on the rising costs of higher education and tax policy and tax treatment of endowments • December 2, 2015: Congressional Research Service (CRS) published report analyzing policy options for the tax treatment of endowments. • Policy options from CRS Report: • Minimum annual payout requirement • Tax on endowments or endowment earnings • Limitation on the charitable deduction for restricted gifts or term endowments • Limiting the use of offshore blocker corporations
29. #cbizmhmwebinar 29 Other Developments • College & University Endowments: • January, 2016: Rep. Tom Reed (R-NY) announced plans to propose a bill that would require colleges and universities with endowments over $1 billion to direct 25% of annual endowment income to financial aid • February 8, 2016: Senate Finance Committee and House Ways and Means Committee letter to 56 private colleges and universities with endowments over $1 billion requesting information about endowment management, endowment spending and use, donations and conflicts of interest
30. #cbizmhmwebinar 30 Other Developments • Private Museums • Sen. Orrin Hatch sent letters to 11 private foundation museum operators in November, 2015 • Sought information about: • How the museums make their art available to the public • Privileges received by founders and donors • Concerns: Lightly advertised museums that require reservations made weeks or months in advance, extent of private benefit • Hatch referred to the area of the tax law as “ripe for exploitation”
31. #cbizmhmwebinar 31 State Issues • State charity regulators’ concerns: • Fraud • Fundraising practices that are deceptive regarding: The portion of proceeds that will be spent on programs The charitable deduction a donor will be entitled to Key takeaway: Solicitations must be very carefully worded • Failure to comply with donor imposed restrictions
32. #cbizmhmwebinar 32 State Issues • State charity regulators’ concerns: • Charities’ control over use of their names on fundraising platforms • Charities must maintain control over all fundraising activities conducted on their behalf, including activities by employees, volunteers, professional fundraisers, fundraising counsel and commercial co-venturers
33. #cbizmhmwebinar 33 State Issues • State charity regulators’ concerns: • Compliance with fundraising regulatory requirements • Ensure that your organization’s fundraising professionals (professional fundraising counsel and professional solicitors) : Are properly registered Have filed copies of contracts with the state, as required Are reporting consistently with your organization
34. #cbizmhmwebinar 34 State Issues • Additional state charity regulators’ concerns: • High fundraising costs • Compensation • Gifts in kind • Joint cost allocations • Form 990 disclosures • Schedule G Listing of states where the organization is registered, versus • Part VI listing of states where Form 990 is required to be filed
35. #cbizmhmwebinar 35 State Issues • Submission of Form 990, Schedule B information with State filings • Recent decision: District Court in CA found Form 990, Schedule B information disclosure requirement unconstitutional as a violation of the first amendment (free speech) • Bill H.R. 5053 – would amend the IRC to prohibit the IRS from requiring a TE organization to include in annual returns the name, address, or other identifying information of any contributor. Bill passed House vote on 6/14/16. • Stay tuned
36. #cbizmhmwebinar 36 Political Prohibition • 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. • Per IRS: no new regulations related to political activity will become effective prior to November 2016 elections.
37. #cbizmhmwebinar 37 Political Prohibition • Potential Risk Areas: • Candidate appearances • An organization must extend equal opportunity for opposing candidates to speak • There should be no pro-candidate language when introducing candidate • Voting registration and drives • Allowed as long as they do not directly or indirectly encourage a citizen to vote for a specific candidate or political party • Registration events must allow individuals to register with the political party they choose • Employee participation in politics • Organizations are ultimately responsible for how their facilities and social media accounts are being used, so they should be careful that these areas remain absolutely free from political activity
38. #cbizmhmwebinar 38 Political Prohibition • Potential Risk Areas: (continued) • Websites • A website is considered a form of communication • If an organization posts something on its website that favors or opposes a candidate for public office, the organization will be treated the same as if it distributed printed material or made oral statements or broadcasts • Organizations should also double check language in links on their website. The language on a linked page could be a political candidate endorsement • For more information see IRS REV. RULE 2007-41
39. #cbizmhmwebinar 39 ? QUESTIONS
40. #cbizmhmwebinar 40 If You Enjoyed This Webcast… Upcoming Courses: • 7/20: Second Quarter Accounting and Financial Reporting Issues Update • 7/26 & 8/2: Eye on Washington – Quarterly Business Tax Update Recent Publications: • Proposed Regulations Will Greatly Affect Intra-Group Financing • Proposal to Simplify Goodwill Impairment • 3 Information Security Risks Facing Healthcare Organizations • Implementing the New Overtime Regulations: 5 Steps to Predicting and Controlling Costs • Three Points of Interest for the Construction Industry in the Revenue Recognition Standard
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42. #cbizmhmwebinar 42 THANK YOU CBIZ & Mayer Hoffman McCann P.C. [email protected]