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ANNUAL TAX UPDATE & 2015 FORM 990 CHANGES
Jeanette VerrelliSenior Manager
Aaron HershbergerDirector
March 1, 2016
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• Participate in entire webinar• Answer polls when they are provided• If you are viewing this webinar in a group Complete group attendance form with
• Title & date of live webinar• Your company name• Your printed name, signature & email address
All group attendance sheets must be submitted to [email protected] 24 hours of live webinar
Answer polls when they are provided
• If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar
TO RECEIVE CPE CREDIT
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AGENDA
Form 990 Changes
Tax Update
Other Tax Considerations for Tax-Exempt Organizations
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• Biggest challenge is understanding IRS’s ambiguous language & multiple definitions AICPA comments1 on 2015 Form 990
• General instructions – definition of “control” Requested glossary be revised to clarify definitions of control
& related organizations; specifically, brother/sister organizations
• Checklist of required schedules Requested Part IV Question 32 to be more specific & reference
definition of a significant disposition of assets included in Form 990 instructions
CHALLENGES IN 990 COMPLIANCE
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1 AICPA Letter to IRS, Troy K. Lewis, Chair, AICPA Tax Executive Committee, June 17, 2015
AICPA comments• Part VII – Type of Compensation Chart
Recommends adding wording to instructions to indicate that, if a particular item could qualify as more than one item on chart, organization would be compliant if it reported item in either column in Schedule J, Part II, Column B(ii) or B(iii)
• Schedule C – Indirect Lobbying Requests instructions to further clarify when indirect lobbying
is required to be reported• EX: When a portion of dues paid to a membership organization
are allocated to lobbying activities performed on behalf of member
CHALLENGES IN 990 COMPLIANCE
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AICPA comments• Schedule F – “reasonable effort” • Schedule H Part IV – Mgmt Companies & Joint Ventures
Requests “More than 10% ownership required: See Instructions” to be added to title
• Schedule R Requests revision to heading to “Direct controlling entity
through indirect control” Guidance on reporting indirect partnership interests & Part III
redesign to enable reporting of direct & indirect interests Requests change to parent/sub control definition as it lacks
element of control as a result of board member overlap
CHALLENGES IN 990 COMPLIANCE
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• A penalty of $20 a day—not to exceed lesser of $10,000 or 5% of organization’s gross receipts for year—is possible if returns are filed late, unless can show reasonable cause
• Organizations with annual gross receipts exceeding $1,015,500 (up from $1 million) are subject to a penalty of $100 per day, with a maximum penalty for any one return of $50,500 (up from $50,000)
FAILURE-TO-FILE PENALTIES
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• IRS-designated private delivery services list has been revised
• DHL Express was removed
• Additional FedEx & UPS options were added
PRIVATE DELIVERY SERVICES
• Zip code for private delivery service address changed
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• Several revisions have been made to the list for use on Part VIII, Lines 2 & 11
BUSINESS ACTIVITY CODES
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• Part I, Line 11g, column iii Removed IRC Section reference in heading
• Part VI – Supplemental Information Updated to include all explanations required from 2014 new supporting
organization sections
SCHEDULE A
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• Disclosures required under Rev. Proc. 2015-21 should be included in Part VI
• 2015-21 provides correction & disclosure procedures for hospital orgs to follow so that failing to meet §501(r) requirements will be excused in certain situations
SCHEDULE H
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• Schedule H, Part I, Line 7 Instructions clarify that Columns E & F shouldn’t contain
negative numbers. If a net community benefit expense is less than zero, enter zero
• Schedule H, Part V, Section B Expanded guidance has been provided for many questions
in “Facility Policies and Practices” section, used to measure compliance with §501(r) regulations
SCHEDULE H
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• Due date changes for years beginning after December 31, 2015
2017 FILING SEASON – DUE DATES
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Tax Type (Form) Form No.Current Due
DateNew Due
DateCurrent Extended
Due DateNew Extended
Due Date
Partnership 1065 4/15 3/15 9/15 9/15
S Corp 1120S 3/15 3/15 9/15 9/15
C Corp 1120 3/15 4/15 9/159/15 (Until 2025)
10/15 (After 2025)
Trust 1041 4/15 4/15 9/15 9/30
Employee Benefit Plans 5500 7/31 7/31 10/15 11/15
Tax-Exempt Organizations 990 / 990-T 5/15 5/158/15 (First)
11/15 (Second)11/15
FinCEN 114 6/30 4/15 None 10/15
Note: Due dates listed above are for entities with calendar year-ends
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• Community Health Needs Assessment (CHNA) is required at least once every three years Is it time for your next CHNA?
CHNA – DUE DATES (HOSPITALS)
Due Date of Upcoming CHNA
Date of Prior CHNA
03/31/2013 → 03/31/2016
06/30/2013 → 06/30/2016
09/30/2013 → 09/30/2016
12/31/2013 → 12/31/2016
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Tax Update
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• Protecting Americans from Tax Hikes (PATH) Act• Permanent extensions Special rule for qualified conservation contributions Tax-free distributions from individual retirement
plans for charitable purposes Extension & expansion of charitable deduction for
contributions of food inventory
PATH ACT
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• Permanent extensions Extension of modification of tax treatment of certain
payments to controlling exempt organizations Extension of basis adjustment to stock of S corporations
making charitable contributions of property
PATH ACT
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• Temporary extensions Through 2019
• Extension of new markets tax credit Through 2016
• Extension of above-the-line deduction for qualified tuition & related expenses
PATH ACT
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• Program integrity Modification of filing dates of returns & statements relating
to employee wage information & nonemployee compensation to improve compliance
• Forms W-2, W-3 & 1099 to be filed by 1/31• Effective for 2016 forms filed in 2017
Safe harbor for de minimis errors on information returns, payee statements & withholding
• Error < $100 = no penalty & no corrected form ($25 or less if tax withholding)
• Employee can request corrected form
PATH ACT
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• Program integrity Higher education information reporting only to include
qualified tuition & related expenses actually paid (covered in more detail later in presentation)
• Additional provisions Provide special rules concerning charitable
contributions to, & public charity status of, agricultural research organizations
Church plan clarification
PATH ACT
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• Tax administration Require Secretary of the Treasury to describe
administrative appeals procedures relating to adverse determinations of tax-exempt status of certain organizations
Require section 501(c)(4) organizations to provide notice of intent to operate
• File one-page notice of registration with IRS within 60 days of formation
PATH ACT
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• Tax administration Declaratory judgments for section 501(c)(4) &
other exempt organizations Gift tax not to apply to gifts made to certain
exempt organizations
PATH ACT
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• Some states have recently placed increased scrutiny on property tax exemptions for nonprofit hospitals New Jersey Illinois
• Illinois Fourth District Appellate Court ruled that Illinois statute authorizing hospital property tax exemptions is unconstitutional
PROPERTY TAX EXEMPTION CHALLENGES
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• In December 2015, The Congressional Research Service published a report describing possible changes to Federal income tax treatment of college & university endowments
• https://www.fas.org/sgp/crs/misc/R44293.pdf• Four areas of possible tax reform
1. Imposing a minimum payout rate on endowments
2. Imposing a tax on endowments or endowment earnings
COLLEGE & UNIVERSITY ENDOWMENT SPENDING REPORT
• Four areas of possible tax reform 3. Limiting charitable contribution deduction for certain gifts
made to endowments4. Changing tax treatment of certain offshore investment
strategies that use ‘blocker corporations’ in connection with unrelated business income tax planning
COLLEGE & UNIVERSITY ENDOWMENT SPENDING REPORT
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• 2015 - 2016 Priority Guidance Plan List of IRS & Treasury projects for 12-month period ending
June 30, 2016 https://www.irs.gov/pub/irs-utl/2015-2016_pgp_initial.pdf
• Projects related to exempt organizations Listing of completed projects as of February 5, 2016 Proposed regulations under §501(c)
relating to political campaign intervention• Project Suspended
IRS PRIORITY GUIDANCE PLAN
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• Projects related to exempt organizations Final regulations & additional guidance on §509(a)(3)
supporting organizations• Published 12/23/2015
Final regulations under §529A on qualified ABLE programs • Published 12/07/15
IRS PRIORITY GUIDANCE PLAN
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• Projects related to exempt organizations Final regulations under §4942 & §4945 on reliance
standards for making good faith determinations• Published 9/25/2015
Final regulations under §4944 on program-related investments & other related guidance • Published 9/28/2015
IRS PRIORITY GUIDANCE PLAN
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“ ”But after five years of budget cuts, and a hiring freeze that has lasted four years, people need to understand that the IRS is going to have to do less with less.
IRS COMMISSIONER JOHN A. KOSKINENApril 2015
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• Lays out initiatives TE/GE will specifically concentrate on Continuous Improvement Knowledge Management Risk Management Data-Driven Decision Making Employee Engagement
TE/GE PRIORITIES FOR FY 2016
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• Data-driven decision making Enables IRS to allocate resources to focus on issues where
they can have greatest impact Committed to integrating data into processes & procedures IRS e-file risk modeling
TE/GE PRIORITIES FOR FY 2016
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• Form 990 as a source of comprehensive annual results & governance Preparation of Form 990 is not simply an administrative task! Is your organization giving it the attention it deserves? Your Form 990 tells a story; the IRS is listening
• Computer-driven analysis of Form 990 data is helping to identify targets
IRS E-FILE RISK MODELING
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• Computer-driven compliance audits Clear ramp-up of compliance enforcement activity Strained resources, still effective Looking for inconsistencies in responses or inaccuracies
• Indicative of simple misreporting, or• A broader attempt to mislead
Answers that conflict or contradict each other
IRS E-FILE RISK MODELING
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• In their own words “EO’s overarching compliance strategy is to ensure organizations enjoying tax-exempt
status comply with the requirements for exemption and adhere to all applicable federal tax laws. This strategy will be implemented through data-driven decisions with the intended goal of identifying and addressing existing and emerging high-risk areas of non-compliance with the optimal use of available resources.”
• In summary Issues to be determined with
data-driven analytics Focus on highest risk areas of
non-compliance Determine using Form 990 data And historical information
TE/GE PRIORITIES FOR FY 2016
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• Focus resources on five strategic issue areas1. Exemption: Issues include non-exempt purpose activity &
private inurement, enforced primarily through field examination
2. Protection of Assets: Issues include self-dealing, excess benefit transactions & loans to disqualified persons, enforced primarily through correspondence audits & field examination
3. Tax Gap: Issues include employment tax & Unrelated Business Income Tax liability, enforced through compliance checks, correspondence audits & field examination
TE/GE PRIORITIES FOR FY 2016
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• Focus resources on five strategic issue areas4. International: Issues include oversight on funds spent
outside U.S., exempt organizations operating as foreign conduits & FBAR requirements, enforced through compliance reviews, compliance checks, correspondence audits & field examination
5. Emerging issues: Issues include non-exempt charitable trusts & §501(r), enforced through compliance reviews, correspondence audits & field examination
TE/GE PRIORITIES FOR FY 2016
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• IRS proposed regulations to implement a framework addressing the manner & timing for donee reporting under §170(f)(8)(D)
• Proposed regulations drew protests• Concerns regarding Need for donee reporting Donee organizations collecting &
maintaining TINs
• IRS withdrew proposed regulations in January 2016
IRS DONATION SUBSTANTIATION PROPOSAL
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• Colleges & universities will no longer have option of reporting amounts billed on IRS Form 1098-T
• All institutions will be required to report payments for qualified tuition & related expenses
• Change is effective for tax year 2016 forms
FORM 1098-T REPORTING
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FORM 1098-T REPORTING
Caution
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• IRS is waiving penalties assessed against any college, university or other educational institution for Forms 1098-T filed with an incorrect or missing taxpayer identification number (TIN). IRS is granting this relief for tax years 2012, 2013, 2014 & 2015
FORM 1098-T PENALTY RELIEF
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Other Tax Considerations for Tax-Exempt Organizations
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• IRS audits Worker classification Compensation UBI Amended 990-T
CURRENT TAX ISSUES
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MANAGING YOUR TAX RISK
Managing Tax Risk
Experience
Processes
Tools
Education
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MANAGING YOUR TAX RISK
Experience
Outside Consultants
Internal Knowledge
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MANAGING YOUR TAX RISK
Processes
UBI Surveys
990 Data Gathering
Process
Inter-Departmental
Communication
Annual Tax Planning
Checklists
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MANAGING YOUR TAX RISK
Tools
Tax Preparation
Software
Tax Return Data
Gathering Tools
Tax Research Software
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MANAGING YOUR TAX RISK
EducationQuantify Tax Risks
Communication of Tax Risks to
Mgmt
Continuing Professional Education
Articles
Roundtables
Inter-Departmental
Training
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QUESTIONS?
CONTINUING PROFESSIONAL EDUCATION (CPE) CREDITS
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The information in BKD webinars is presented by BKD professionals, but applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor before acting on any matters covered in these webinars.
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• CPE credit may be awarded upon verification of participant attendance
• For questions, concerns or comments regarding CPE credit, please email the BKD Learning & Development Department at [email protected]
CPE CREDIT
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FOR MORE INFORMATION
THANK YOU!Aaron Hershberger | [email protected]
Jeanette Verrelli | [email protected]