IRS Regulations Non-Profit Tax

2022 Non-Profit Tax Update

 

 

 

 

 

 

 

As we are into the second half of the year, we would like to inform you of some key information relating to the Internal Revenue Service (IRS) and Exempt Organizations:

IRS Updates

  • Employee Retention Credit: If your organization is expecting a refund for the employee retention credit and hasn’t received it yet, you should be aware that once the IRS has received the application, the IRS anticipates that it will take approximately 30 weeks to move along the process. If your credit is under $100,000, the application can be immediately processed. If your credit is over $100,000, the application will require a secondary review before processing.
  • Parking Tax Refund Processing: If your organization anticipates a parking tax refund, note that the refund process is still in progress for some organizations. The delay is due in part to these being paper filings. Unfortunately, due to the repeal of the tax, these refund filings have triggered some audits.
  • Secured electronic file sharing/ email permissions and electronic signatures accommodations have been extended to October 2023. The IRS continues to work on improvements to information sharing that do not involve phone calls.
  • Form 1024 must be filed electronically after April 4, 2022.
  • Remember all Form 990 Series returns must be e-filed; work with the e-help desk via the phone number sent with the e-file rejection. All ultimately must be accepted electronically.
  • The IRS is in the process of reorganizing as mandated by the Taxpayer First Act. Check out the latest IRS blog on the subject:  https://www.irs.gov/newsroom/taxpayer-first-act-irs-modernization
  • For further insight into the IRS, check out the Taxpayer Advocate Service 2023 Objectives Report to Congress released June 22, 2022

Other Matters to Monitor:

  • Remote Employees: Does your organization have remote employees residing in other states? Such arrangements may trigger the need to obtain authorization to do business in those states, may trigger charity registration and tax exempt/EO tax returns in those states, and may result in your organization requiring to follow that state’s laws with respect to your operations. There could be significant consequences for non-compliance, and there may be different requirements for temporary versus permanent employees. Remember to consider these factors before agreeing to a remote employee in another state.
  • Accelerating Charitable Efforts Act: The Accelerating Charitable Efforts Act (House Bill HR 6595) was introduced in February of 2022 in the House of Representatives (and was previously introduced in the Senate in June 2021 as Senate Bill S 1981). The goal of this bill is to reform tax laws that cover charitable donations to donor-advised funds and to ensure philanthropic funds are made available to working charities within a reasonable time period. Specifically, the bill, if enacted into law, would: aim to address the mismatch between deduction and distribution of assets, minimize ongoing donor control, and discourage warehousing of charitable assets; modify tax rules relating to donor advised funds (DAFs); disallow as a qualified distribution by a Private Foundation (PF) of any grant to a DAF; require disclosures on Form 990-PF of contributions made to DAFs; there would be new deduction rules for different categories of DAFs with the imposition of limitations on donor deductions for contributions; there would be a new excise tax on undistributed contributions held in DAFs, depending on the type of DAF; and there would be new public support rules requiring public charities that receive a grant from a DAF to treat the grant (for support test purposes) as a contribution from a PF instead of PC exceptions for community foundations.

We will continue to monitor the progress of this bill.

Non-Profit Management

Nonprofit Employee Retention and Recruitment: Considerations Other Than The Headcount

Elizabeth E. Krisher, CPA, CGFM

 

 

 

 

 

 

 

 

Organizations of all types are challenged with retaining and recruiting employees, including the nonprofit sector. Employee retention and recruitment requires a multi-faceted approach, involving a deliberate organization strategy, organization culture, and employee engagement in the mission of the organization.   As nonprofits seek creative solutions to their human resource needs, those solutions can have implications beyond impacts on employee headcount. Some key matters to consider:

REMOTE ONLY WORKERS:  If your organization has positions that can be filled by fully remote individuals, your pool of eligible applicants greatly expands, and highly prized talent can be obtained. That remote hire in another state or major metropolitan area is likely to bring requirements for filing of related state and local taxes employment taxes. They also can require conformity to any state or local municipal employee pay, leave, or workers compensation regulations. In addition, such a hire can trigger the need for business registration and business taxes in that new remote hire’s area as well as charitable entity registration.  State and local municipal approaches to remote workers and the types of filings required vary by state to state and locale to locale. To protect your organization, review the filing requirements via the appropriate state and local municipal websites and be prepared to file/register as needed within 30 days of the remote employee’s start date (best practice). Consultation with legal counsel on these matters could be advisable.

BONUSES:  No matter how an organization labels them, payments of cash and cash equivalents (gift cards, gift certificates, use of a credit card, etc.) to employees are never excluded from tax and should be processed through the organization’s payroll cycle and taxed accordingly. IRS Publication 15 is a good place to start when considering tax implications of payments to employees. Don’t forget your employee benefit plan provisions.   Consider how bonuses and other “out of the ordinary” payments to employees are treated for purposes of your employee benefit plan and ensure the appropriate processing for contribution purposes (both employee and employer) are followed.

FRINGE BENEFITS:  There are a wide array of fringe benefits that can be provided to employees that are excluded from employment taxes including educational assistance, employer provided cell phones, HSAs, and working condition benefits, etc.  Consult IRS Publication 15-B for further discussion.

TRAINING AND DEVELOPMENT:  Employer provided training and development directly related to maintaining and improving employee skills for their current positions (not a new type of work) are NOT taxable.  Review “education required by employer or by law”  and “education to maintain or improve skills” at the  IRS tax benefits for education information center .

 

Non-Profit Tax

IRS Woes Equal Trouble for EOs Too

Elizabeth E. Krisher, CPA, CGFM

 

 

 

 

 

 

 

 

With the 2022 personal tax filing season well underway, there has been a lot of attention on the issues facing the IRS as they try to fulfill their tax administrations duties. The IRS employees are trying, but with pandemic shutdowns, COVID protocols, retirements, and additional COVID relief duties such as personal stimulus checks and employee retention credit processing, the obstacles for the IRS as a whole have been significant.  Some key issues are highlighted in the National Taxpayer Advocate 2021 Annual Report to Congress:

  • The IRS had a backlog of over 35 million returns at the end of the 2021 filing season. Handling correspondence of any type remains a difficult task for the IRS, with 4.75 million pieces of paper correspondence that had not been worked on as of the date of the report.
  • The IRS has shrinking resources—The IRS budget was reduced 20% in inflation-adjusted dollars from the federal fiscal year (“FY”) 2010 to FY 2021. The IRS workforce lost 16,050 full time equivalent employees from its FY 2010 total of 94,711 to 78,661 in FY 2021.  The IRS has begun to ramp up recruitment but finding staff and training them takes months.
  • Only 1 out of 9 taxpayer calls was answered in FY 2021. Yes, 32 million calls were answered, but the IRS received a staggering 282 million calls in FY 2021.
  • The IRS has very limited ability to use digital communications (e.g. secure email).
  • E-filed returns process smoothly for the most part but there are various tax forms, schedules and attachments that cannot be e-filed and must be filed in paper.

While understandably much of the media attention has been focused on personal and business returns, exempt organizations have experienced the similar frustrations as any organization that has had difficulty e-filing their forms or has had to reply to an IRS notice can tell you. A unique aspect of IRS administration for exempt organizations is the  Exempt Organization Business Master File   (EO BMF).  The EO BMF is the record source of information about exempt organizations and the data in the BMF generally has to match key information in the return being filed in order for a Form 990 series return to be successfully e-filed.  The EO BMF is not updated on a timely basis and has generally lagged 60 days or more behind.  Common issues that arise include:

  • Erroneous auto-revocation of exempt status
  • Incorrect tax year-end information (even after a change in accounting period return has been filed)
  • Incorrect entity names or name changes not reflected in the EO BMF (even after a change in name return has been filed)
  • Organizations erroneously are deleted from the EO BMF, or they are not added timely to the EO BMF when exempt status has been received

Primarily these issues have to be resolved with hours of phone calls with multiple IRS representatives or long waits while the IRS handles the correspondence.  More can be learned about this by reading this AICPA blog on EO BMF issues .

IRS EO officials are aware of these issues and numerous groups continue to advocate for awareness and change, including the AICPA , EO Committee of the American Bar Association Tax Section, and TEGE EO Council .  Advocacy efforts have been helpful in having the IRS stop notices while they get caught up as discussed in more detail at IRS IR-2022-31, February 9, 2022, and the IRS has increased requested holds on accounts being levied for penalties and fines for generally 60 days rather than 30 days.

Due to the backlog in processing returns, the IRS on March 25th announced they are suspending issuance of 10 notices generally sent to tax exempt organizations about late return filings. The intent of this suspension is to avoid confusion when a filing is still in process. For more information on the suspended notices, refer to the update published in the Journal of Accountancy.

So what you can do if you are having an issue with the IRS?

  • If you are our client, please inform us of any notice received, and we will work with you on the approach. Remember that we can not speak to the IRS on your behalf without a recognized power-of-attorney on file.
  • Please be patient and expect delays while calling the IRS. While it can be frustrating to finally reach an IRS representative, remember that representative did not cause your issue and can only be a gateway to help you resolve it. Kindness and respect are always in order.
  • If you have submitted correspondence, send it by certified mail, return receipt requested and expect it to take 60+ days to work its way through the system.
  • E-file everything possible, and as our client, we will work with you do that.

 

Blog Employee Benefit Plans

Updates To IRS Correction Program For Retirement Plans

 

 

 

 

 

 

 

Did you know the Internal Revenue Service (IRS) has an Employee Plans Compliance Resolution System (EPCRS) that enables retirement plan sponsors to correct retirement plan failures? The EPCRS allows corrections in three different areas:

Self-Correction Program (SCP) – this program allows for the correction of certain plan failures without contacting the IRS or paying a user fee.

Voluntary Correction Program (VCP) – this program allows for the correction of failures not eligible for SCP and solicits approval from the IRS that the failures were properly corrected.

Audit Corrective Action Program (CAP) – this program corrects errors discovered during an IRS audit that can’t be corrected using SCP.

The IRS has made significant changes to the EPCRS in Revenue Procedure 2021-30.  These revisions include:

Overpayments Correction Options: This option enables plan sponsors to fix operational failures when plan participants or beneficiaries receive payments from defined benefit plans that exceed what is permitted by the terms of the plan, effective July 16, 2021. This reduces the need to seek repayment from participants or beneficiaries who received overpayments, and in some cases, does not require the plan sponsor to reimburse the plan for overpayments to participants.

Expansion of Self Correction for Significant Operational Failures: This extends the correction period of significant operational failures from two to three years, effective July 16, 2021.

Expansion of Self Correction for Retroactive Plan Amendments:  This makes it easier to use retroactive plan amendments to correct operational failures by removing the requirement that all participants in the plan benefit by the retroactive amendment, effective July 16, 2021.

Anonymous VCP submissions: Effective January 1, 2022, Rev. Proc. 2021-30 eliminates anonymous submissions under VCP.

Anonymous Pre-Submission Conferences: Effective January 1, 2022, the IRS will permit plan sponsors or their representatives to make an anonymous written request for a pre-submission conference to discuss a potential VCP submission at no cost to the plan sponsor. Following the pre-submission conference, if the plan sponsor submits a VCP request, it can no longer be anonymous.

Extension of Automatic Enrollment Failures: This option extends the sunset of the safe harbor correction method to correct missed elective deferrals for eligible employees subject to an automatic contribution feature in Section 401(k) or 403(b) plans.

Increased Threshold for De Minimis Correction Amounts:  This option increase from $100 to $250 the threshold for certain de minimis amounts for which a Plan Sponsor is not required to implement correction.

If you have any questions regarding your retirement plans, you can refer to the IRS website or contact us for additional information.

Blog COVID-19

New Grant Program: Community Navigator Pilot Program

Elizabeth E. Krisher, CPA, CGFM

The Small Business Administration (SBA) has launched a Community Navigator Program to strengthen outreach to underserved communities by partnering with organizations with deep roots in their communities. Through this program SBA will engage with states, local governments, SBA resource partners, and other organizations in targeted outreach for small businesses underserved communities. This program reflects a $100 million investment, as part of the American Rescue Plan Act of 2021, to establish Community Navigator Programs for individuals with disabilities and/or in minority, immigrant, rural, and other underserved communities across the country. Competitive grant awards will range from $1 million to $5 million for a two-year performance period. Applicants have until July 12, 2021, to submit their applications at grants.gov. Performance periods are projected to commence in September 2021. The following organizations are eligible to apply for this program:

  • State governments
  • County governments
  • Nonprofits having a 501(c)(3) status with the IRS, other than institutions of higher education
  • City or township governments

For more information on this program, review the SBA announcement page.

COVID-19

Small Business Administration Announces Shuttered Venue Operators Grant (SVOG) Program

On April 8th, the Small Business Administration (SBA) launched a portal for its Shuttered Venue Operators Grant Application. (Note that as of the date of this blog being posted, the site has been temporarily suspended due to technical difficulties, but we encourage you to regularly check the SBA site, so you can submit your application online once the site is back up and running again). This grant program provides emergency assistance for eligible venues impacted by the COVID-19 pandemic. As many non-profits fall into this category, we would like to provide you a summary of SBA’s guidance regarding the program:

Which Non-Profits Are Eligible To Apply?

  • Live venue operators
  • Live performing arts organization operators
  • Relevant museum operators, zoos and aquariums who meet specific criteria
  • Motion picture theater operators

Additionally, organizations must have been in operation as of February 29, 2020. Note that if your organization has received a Paycheck Protection Program (PPP) loan on or after December 27, 2020, the eligible grant amount you receive through this program will be reduced by the amount of your PPP loan. However, under law, entities will be ineligible for a PPP loan AFTER they receive a SVOG. Any PPP borrower that received a PPP loan before December 27, 2020, however, will not have the PPP loan amount deducted from any subsequent SVOG.

What Are The Grant Amounts?

  • For an eligible entity in operation on January 1, 2019, grants will be for an amount equal to 45% of their 2019 gross earned revenue OR $10 million, whichever is less.
  • For an eligible entity that began operation after January 1, 2019, grants will be for the average monthly gross earned revenue for each full month you were in operation during 2019 multiplied by six (6) or $10 million, whichever is less.

How Will The Grants Be Prioritized?

  1. First Priority (First 14 Days of Grant Awards): Entities that suffered a 90% or greater revenue loss between April 2020 through December 2020.
  2. Second Priority (Next 14 Days of Grant Awards): Entities that suffered a 70% or greater revenue loss between April 2020 through December 2020.
  3. Third Priority (Beginning 28 days after first and second priority awards are made): Entities that suffered a 25% or greater earned revenue loss between one quarter of 2019 and the corresponding quarter of 2020.
  4. Supplemental Funding (Available after all Priority Periods have passed): Recipients of first, second, and third priority round awards who suffered a 70% or greater revenue loss for the most recent calendar quarter (as of April 1, 2021, or later).

What Are The Allowable Use of Funds?

Grant funds may be used to cover the following expenses:

  • Payroll costs
  • Rent payments
  • Utility payments
  • Scheduled mortgage payments (not including prepayment of principal)
  • Scheduled debt payments (not including prepayment of principal on any indebtedness incurred in the ordinary course of business prior to February 15, 2020)
  • Worker protection expenditures
  • Payments to independent contractors (not to exceed $100,000 in annual compensation per contractor)
  • Other ordinary and necessary business expenses, including maintenance costs
  • Administrative costs (including fees and licensing)
  • State and local taxes and fees
  • Operating leases in effect as of February 15, 2020
  • Insurance payments
  • Advertising, production transportation, and capital expenditures related to producing a theatrical or live performing arts production. (May not be primary use of funds)

Grantees may not use award funds to buy real estate, make payments on loans originated after February 15, 2020, make investments or loans, or make contributions or other payments to, or on behalf of, political parties, political committees, or candidates for election.

What Recordkeeping Is The Grantee Responsible For?

Grantees will be required to maintain documentation demonstrating their compliance with the eligibility and other requirements of the program. They must retain employment records for four years following their receipt of a grant and retain all other records for three years. An SVOG award will count toward the Single Audit Act threshold.

For additional information, please refer to the SBA FAQ.