Gelman, Rosenberg and Freedman

"Alert" is a periodic communication from Gelman, Rosenberg and Freedman, CPAs, to keep our nonprofit clients, associates and friends informed on issues impacting the industry.

IRS Urges Nonprofits to File Tax Returns Even Though Deadline Has Passed
May 2010

As many of you know, the deadline for filing Form 990 (or Forms 990-EZ or 990-N) by nonprofit organizations is four and a half months after year-end. For calendar year organizations, these returns were due May 17, 2010. What you may not know is that this is the first year in which an organization could lose its tax exempt status due to non-filing.

The Pension Protection Act of 2006 included provisions that would revoke an organization’s tax-exempt status if it failed to file some version of the Form 990 series for three consecutive years. Because the non-filing years could not, by statute, start any earlier than with the 2007 form, a calendar-year organization that did not file any returns for calendar years 2007, 2008, and 2009 automatically lost its tax exempt status earlier this week.

However, IRS Commissioner Douglas Shulman recently issued a statement urging non-filers, and small nonprofits ($25,000 or less in average receipts) in particular, to file returns anyway, even though the deadline has passed. Mr. Shulman also indicated that the IRS will be providing guidance to organizations who have not filed in three years and that the IRS will do what it can to help them avoid losing tax-exempt status.

Small organizations can file the 990-N (generally referred to as the e-Postcard) through a link on the IRS website.

In December 2009, the IRS issued a new checklist for agents who examine tax exempt organizations. According to the IRS, the checklist is to be used “to capture data about governance practices and the related internal controls of organizations being examined. The data will be included in a long-term study to gain a better understanding of the intersection between governance practices and tax compliance.”

It is not meant to be a checklist of qualifications for maintaining tax-exempt status.

Perhaps the most interesting questions on the checklist relate to the auditor’s report. The checklist asks if a Management Letter was obtained, if it was reviewed by the Board or a committee, and if the organization acted on any of the recommendations.

It is unlikely that these checklist questions will change what an auditor puts into a Management Letter, but it is important to note that IRS examiners may now ask more questions about what was in the Management Letter.

DC Office of Tax and Revenue Removes Form 990 Filing Requirement
January 2009

Effective December 12, 2008, the District of Columbia repealed the statutory provision requiring tax-exempt organizations to file financial information with the Office of Tax and Revenue (OTR). Thus, organizations no longer need to submit a copy of Form 990 to OTR. According to OTR, the filing requirement was eliminated to ease the administrative burden both on itself and on the exempt organizations. (OTR noted that the change in the law was not released in time to revise the 2008 Individual Income tax booklet, which still lists the old filing requirement rules.)

Background

Most states recognize an organization's income tax-exempt status if it has been granted exemption by the Internal Revenue Service. Further, most states do not require an exempt organization to annually file financial information with the state unless it has unrelated business income or is soliciting charitable contributions from the state's residents. Historically, DC followed neither of these rules. Exempt organizations located in DC had to separately file for income tax exemption. If granted exemption, the exempt status was conditional upon an annual filing of certain financial information. That filing obligation could be satisfied by filing a copy of Form 990 with DC's Office of Tax and Revenue.

Although nonprofit organizations no longer need to file a copy of Form 990 with OTR, other filing obligations, including state charitable solicitation registration, may apply to exempt organizations. For a full list of the forms and requirements for operating a charitable institution within the District, please visit http://mblr.dc.gov/information/bbl/index.asp../mblr.dc.gov/information/bbl/index.asp.

New General Business License Required in DC
December 2008

Beginning this month, the District of Columbia will begin requiring nearly all organizations to have a valid District of Columbia Basic Business License (BBL). This new legislation affects both in-state and out-of-state for-profit and nonprofit organizations conducting business in the District of Columbia.

If you already have a business license, you must apply for an exemption. If your organization does not have a basic business license, you must obtain what is called a General Business License. Deadlines for compliance are determined by your organization's zip code.

The Department of Consumer and Regulatory Affairs (DCRA) has created a comprehensive information center where you can get all the information you need including requirements, deadlines, fees and application and exemption request materials.

Earlier this year, the Department of Labor (DOL) released a revised version of Federal Form 5500, Annual Return/Report of Employee Benefit Plan. The new Form 5500 will require many 403(b) plans to be audited that did not have to be audited in the past.

The new requirements apply to plans with fiscal years beginning on or after January 1, 2009. However, the revised Form 5500 requires that the Statement of Net Assets be fully comparative, so it is in an organization's best interest to begin planning as early as possible in order to provide accurate information for Fiscal 2008.

Beginning on the January 1, 2009 implementation date, most organizations that are subject to the Employee Retirement Income Security Act (ERISA) and have 100 or more eligible participants will need to have their 403(b) plan's financial statements audited. These audited statements will need to be attached to the plan's Form 5500 upon submission.

The new regulations, according to the IRS, will require plan sponsors to establish documentation standards, create requirements for working with investment providers, supply guidance on qualification standards, establish deferral deposit rules similar to a 401(k), clarify related employer rules, and supply termination privileges. All plans should have a written plan agreement, containing all material provisions, in place by December 31, 2008.

The regulations for 403(b) plans were first laid down by the IRS in 1964, and there has been little guidance on them since that time. The new requirements of Form 5500 represent the first time meaningful information regarding these plans will be reported.