Tax Compliance issues for Non Profit

Whether you've just started a nonprofit, recently submitted your organization's first Form 990, or are the executive director, it's important not to lose sight of your obligations under federal and state tax laws. From annual filing and reporting requirements to taxes on business income and payroll compliance, here's a quick look at what nonprofits need to know about tax compliance.

Annual Filing and Reporting Requirements: Form 990

Once you've applied for and received tax-exempt status under (Section 501(c)(3) and filed Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, your organization is officially a nonprofit, and is exempt from federal income tax under section 501(c)(3). Tax exempt status refers to exemption from federal income tax on income related to the organization's mission, as well as the ability to receive tax-deductible contributions from donors.

The next step is to comply with annual filing and reporting requirements, specifically, Form 990, Return of Organization Exempt from Income Tax.

Generally, tax-exempt organizations are required to file annual returns. If an organization does not file a required return or files late, the IRS may assess penalties. In addition, if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status.

There are four different Forms 990; which form an organization must file generally depends on its gross receipts. Forms 990-EZ or 990 are used for organizations with gross receipts of less than $200,000 and with total assets of less than $500,000. Form 990 is used for nonprofits with gross receipts greater than or equal to $200,000 or total assets greater than or equal to $500,000.

When gross receipts are less than or equal to $50,000, certain small organizations may file an annual electronic notice, the Form 990-N (e-Postcard); however, organizations eligible to file the e-Postcard may choose to file a full return. Private foundations file Form 990-PF regardless of financial status.

Form 990 is submitted to the IRS five and a half months after the end of an organization's calendar year. For example, for nonprofits whose calendar year ends on December 31st, the initial return due date for Form 990 is May 15. If a due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.

Extended due dates of three and six months are available for Forms 990; however, for Form 990-N the due date is the "initial return due date," e.g. May 15 and extended due dates do not apply.

NOTE: Unlike individual tax returns filed with the IRS, which may be postmarked on April 15, Forms 990 must be received (not postmarked) by the IRS before the May 15 due date.

Revised user fee Non Profit application

Beginning July 1, 2016, the IRS has changed the User Fee for IRS Form 1023-EZ from $400 to $250 for all applicants.  This new fee applies only to those Form 1023-EZ applications prepared and submitted after July 1, 2016.

In addition to lowering the application fee, we also expect the IRS to add several new safeguards to the Form 1023-EZ application process to continue discouraging non-qualified applications.  These new safeguards could include revisions to the actual Form 1023-EZ and increased follow-up correspondence with the IRS to verify appropriate formation documents and tax exempt provisions contained within those formation documents (Articles of Incorporation and Bylaws). 

If you are beginning the 501c3 application process yourself, or have questions about which form (and user fee payment) is appropriate for you to submit, please contact us directly at  9722003189  or you may email us at contact@ruchiguptacpa.com .  

Foreign Account Tax Compliance Act (FATCA)

FBAR/FATCA Compliance

Foreign banks from around the world are sending letters to account holders that they believe have, or had, a U.S. tax nexus (or other U.S. connection) requesting information to determine whether such account holders have disclosed their foreign bank accounts to the Internal Revenue Service (“IRS”). The letters from foreign banks generally require an account holder to disclose whether the account has been declared to the IRS through the filing of a Report of Foreign Bank and Financial Accounts (commonly known as the “FBAR”) form and/or a Form 1040 personal income tax return, participation in the various IRS Offshore Voluntary Disclosure Programs, or otherwise. Sometimes foreign banks request that the account holder submit an IRS Form W-9, which is generally required to be completed by U.S. account holders for tax reporting purposes.

The Foreign Account Tax Compliance Act (“FATCA”), a law enacted by Congress in 2010 and effective beginning July 1, 2014, is intended to identify noncompliance by U.S. taxpayers using offshore accounts. Under FATCA, foreign financial institutions will generally be required to comply with certain due diligence and annual reporting requirements regarding their U.S. account holders and enter into information sharing agreements with the United States. Foreign financial institutions that do not provide such information to the United States will face a stringent penalty—withholding of 30 percent of certain U.S. source payments such as interest and dividends.

Many U.S. taxpayers are receiving these letters because, in advance of the effective date of FATCA, foreign banks are undertaking the process of identifying account holders that have a U.S. tax nexus. A foreign bank may find that a taxpayer has a U.S. tax nexus through indicia such as having a phone number affiliated with an account that appears to be U.S.-based or a U.S. mailing address. If a foreign bank has identified an account as potentially having a U.S. tax nexus, the foreign bank is likely to send a letter to the account holder requesting the information discussed above. 

Discussion of Law:

U.S. citizens, U.S. individual residents, and a very limited number of nonresident individuals

who own certain foreign financial accounts or other offshore assets (specified foreign financial assets) must report those assets on Form 8938 and attach it to their income tax return, if the total asset value exceeds the appropriate reporting threshold.

The reporting requirement for Form 8938 is separate from the reporting requirement for the FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”) (formerly TD F 90-22.1). An individual may have to file both forms and separate penalties may apply for failure to file each form.

Sources:

//www.blankrome.com/index.cfm?contentID=37&itemID=3249

//www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA

Automatic Revocation of IRS Tax-Exempt Status for Nonprofits

Automatic Revocation of IRS Tax-Exempt Status for Nonprofits:

On June 8, 2011, the Internal Revenue Service (IRS) released a list of more than 275,000 nonprofits that had their tax-exempt status automatically revoked due to failure to file annual returns. Check HERE for the status of your tax exempt organization. If you need assistance to reinstate your organization due to automatic revocation by the IRS of your tax exempt status, please contact Ruchi Gupta CPA LLC to learn more.