Non-Profit Tax

With many non-profits looking ahead to the Form 990 November 15th filing deadline, there are several updates you should be aware of regarding the 990 series along with general exempt organization IRS updates.

2018 Form 990 Updates

As a reminder, be sure your organization is filing the correct 990 form. Form 990 series returns are due on the 15th day of the fifth month after an organization’s tax year ends, so for organizations with a June 30th year end, organizations must file by November 15th. A six month extension from the original due date can be obtained.

●Gross receipts normally less than $50,000 – File a Form 990-N – Remember 509(a)(3) supporting organizations are NOT eligible to file a Form 990-N; they must file a Form 990-EZ or Form 990.
●Gross receipts less than $200,000 and total assets less than $500,000 – File a Form 990-EZ or 990
●Gross receipts greater than or equal to $200,000 and total assets equal to or more than $500,000 – File a Form 990
●Private foundations, regardless of financial status – File Form 990-PF

What’s New on the 2018 990 Form?

There is a new question on Core Form Part V #15 regarding excess executive compensation.

IRC Section 4960 Tax on Excess Tax-Exempt Organization Executive Compensation imposes an excise tax (currently 21%) on (i) the amount of compensation in excess of $1 million paid by an Applicable Tax-Exempt Organization (ATEO) to its five highest paid “covered employees” and (ii) any “excess parachute payments” made to a covered employee. Compensation paid by “related organizations” counts. Exceptions do exist for certain medical and veterinarian professionals. Notice 2019-9 provides interim guidance on the provisions of the new IRS Section 4690 excise taxes on excess compensation paid by tax-exempt organizations to covered employees.

Another new question on Core Form Part V #16 is regarding net investment income of certain colleges and universities.

IRC Section 4968: Excise Tax based on Investment Income of Private Colleges and Universities imposes on each applicable educational institution, as defined, an excise tax equal to 1.4% of the institution’s net investment income and as described, a portion of certain net investment income of certain related organizations. The entity must have at least 500 full time tuition paying students (more than half of whom are located in the United States) and assets (other than those used in charitable activities) worth at least $500,000 per student. Proposed regulations were issued on June 28, 2019 and published in the Federal Register on July 3, 2019.

There are now Part X instructions on how to adapt Part X to ASU 2016-14 financial statements.

These instructions are as follows:

●Translate net assets without donor restrictions to Part X, line 27, unrestricted net assets.
●Give the option to record all net assets with donor restriction on Part X, line 29 or split between time and purpose restrictions to Part X, line 28 and perpetual restrictions to Part X, line 29.
●An increase in UBTI by disallowed fringe should be reported on Form 990-T. See discussion below on Form 990-T changes.

There are changes to Schedule B Reporting of Donor Information.

According to Rev. Proc. 2018-38, tax-exempt organizations [other than 501(c)(3) or Section 527 political organizations] are no longer required to report the names and addresses of their contributors on Schedule B. However, these organizations must continue to keep this information on file.

2018 Form 990-T Updates

●There is now a flat corporate tax of 21%.
●The corporate alternative minimum tax has been repealed; the prior year amount of credit carryforward can be refundable.
●There is a separate UBTI calculation for each trade or business; refer to the new Schedule M.
●This is a required change due to IRC Section 512(a)(6) regarding separate computation of Unrelated Business Taxable Income (UBTI) for organizations with more than one unrelated trade or business. Notice 2018-67 provides some interim guidance and transition rules.
●There is an increase in UBTI by disallowed fringe benefits; refer to Part III, line 34 on the form. This is a required change due to IRC Section 512(a)(7) Increase in Unrelated Business Taxable Income by Disallowed Fringe. UBTI is increased by any amount for which a deduction is not allowable because of Section 274 and which is paid or incurred by the organization after December 31, 2017, for any qualified transportation fringe (as defined in section 132(f), or any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(c)). This rule does not apply to the extent the amount paid or incurred is directly connected with an unrelated trade or business which is regularly carried on b(y the organization. Notice 2018-99 provides some interim guidance. If your organization provides parking to your employees, even free parking in your parking lot, this tax may apply to you; please consult your tax advisor.
●Notice 2018-100 gives limited relief to certain Form 990-T filers. Notice 2018-100 provides targeted relief for underpayment penalties for organizations that only had UBTI from qualified transportation fringe benefits (section 512(a)(7)).
●Net operating loss carrybacks are eliminated.
●If applicable, use Form 8992 for Global Intangible Low-Taxed Income (GILTI) reporting and attach to 990-T.
●If applicable, use Form 8993 for eligible deduction under Foreign-Derived Intangible Income (FDII) and GILTI under section 250 and attach it to Form 990-T.
●Organizations with no UBTI other than “parking tax” (an increase to UBTI under Section 512(a)(7) that are required to file form 990-T because their disallowed fringes are $1,000 or more) have to fill out only certain section of the Form 990-T. Specifically, only complete:

-The heading (above Part I), except C,E, H, and I;
-Parts III through V (complete only the relevant lines)
-Signature area

Exempt Organization Updates

Non-profits should continually refer to the IRS’s ongoing newsletter that provides important information for tax-exempt organizations. Important updates that may be relevant to your operations include:

The IRS has provided 3 tips to help with filing a more complete 990-Series Return:

●Issue 1 – Be sure to report your organization’s correct organization type by referring to the IRS Determination Letter sent to your organization. Don’t have a copy of this letter handy? You can request a copy from the IRS.

●Issue 2 – Many organizations forget to file required employment tax returns such as Forms W-2, 940, 941, or 945. Refer to the Employment Issues Course for guidance. This course discusses which forms to file, when they are due, public disclosure of your return along with tips to help prepare your Form 990-series return.

●Issue 3 – Missing attachments and schedules. Organizations often forget to attach the required schedules to their form 990/990-EZ filings. Be sure to carefully review Form 990, Part IV Checklist of Required Schedules, or Form 990-EZ-Part V, Other Information, and Part VI, Section 501(c)(3) Organizations Only to ensure all required schedules are submitted. The Form 990 Overview Course discusses which forms to file, when they are due, public disclosure of your return, and tips to help prepare the 990 series return.

●The IRS provides online training regarding exemption issues and is a useful resource for older and newer small to mid-size 501(c)(3)’s.

●As of January 1, 2019, the IRS has stopped mailing lists of parent and subsidiary accounts to central organizations for verification and return. Central organizations whose accounting periods end June 30, 2019, must submit their updates by April 1, 2019. Refer to the IRS website for additional information.

●Revenue Procedure 2019-5 updates the Exempt Organization determination letter procedures. Changes include:

-Adding references to “new” Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code
-Clarifying that the IRS won’t rule on a request under IRC Section 501(c)(6) for an organization whose purpose relates to a controlled substance that is illegal under federal law
-Increasing user fees for certain miscellaneous determinations from $1,000 to $2,000
-Changing the name of the Office of Associate Chief Counsel, Tax Exempt and Government Entities, to the Office of Associate Chief Counsel, Employee Benefits, Exempt Organizations and Employment Taxes