As you may know, the IRS revamped the Form 990 a few years ago. During this process a law was passed that requires an automatic revocation of tax exempt status for failure to file form 990, 990-EZ, 990-N or 990-PF for three consecutive years. Did you get that? You will lose your tax exempt status if you do not file your annual return three years in a row? If you do lose your status, you have to start the application process again. The IRS cannot reverse the revocation.
So let's review the rules on who must file. Most tax exempt organizations must file an annual return (except for these organizations). Here are four types of returns – 990, 990-EZ, 990-N, and 990-PF. The following thresholds are for the tax year 2009. The 990 must be filed if the tax exempt organization has gross receipts equal to or greater than $500,000 OR total assets equal to or greater than $1.25 million. The 990-EZ can be filed if the tax exempt organization has gross receipts equal to or less than $500,000 OR total assets equal to or less than $1.25 million. The 990-N must be filed if the tax exempt organization has gross receipts equal to or less than $25,000. Private foundations must file a 990-PF regardless of financial activity.
The 2010 tax year thresholds drop to $200,000 for gross receipts and $500,000 for total assets. The 990-N threshold increases to gross receipts equal to or less than $50,000. This can be confusing so I recommend you use the IRS charts.
Here is where this might affect you or someone you know. The 990-N is a relatively new form and small organizations simply may not be aware of the new filing requirements. Another example includes organizations with volunteer officers that rotate frequently. It is important that all tax exempt organizations, regardless of size have a process in place to ensure annual compliance. As you can see, annual compliance has become critical.
You can find more information on the annual filing requirements here. PSK is here to help. Please call to schedule an appointment if you need help with your organization’s annual filings.
Related to the last post on IRS & Cell Phones, I read the actual IRS Notice 2009-46. The IRS is considering three possible approaches, and they will allow public comment through September 4, 2009. Go here to see the details. What approach would you suggest?
The IRS Commissioner released this statement last week regarding the taxability of employer provided cell phones. There has been much confusion on this topic. The current law requires that the employee keep records supporting business use and personal use of employer provided cell phones. The employer is then required to include the value of personal use as wages.
These requirements can easily become overwhelming and impractical in this culture. It is good to see the IRS is agreeing that the rule is outdated and simplification is needed. Now it is up to Congress to fix it.
State requirements for exempt organizations vary from state to state. In Texas, a charitable organization can apply for exemption from sales tax paid on purchases and franchise tax. The application can vary depending on the type of organization. The exemption is granted based on the organization’s federal exemption.
Click here for a link to the guidelines for exempt organizations published by the Texas Comptroller of Public Accounts.
It is important to note that exempt organizations must collect tax on most of their sales. There are a variety of exceptions to this, so you really must research what you are selling. The state has a publication to guide exempt organizations on this matter.
One last piece of information I will leave with you is that you can search for exempt organizations registered with the state at the Comptroller’s website at this link.
Call us if you need help with your tax exempt organization’s state requirements.
The IRS has issued the 2009 version of IRS Publication 919, How Do I Adjust My Tax Withholding? as a result of the "Making Work Pay" credit in the American Recovery and Reinvestment Act of 2009 (ARRA).
Employees can use this publication to help them determine if their federal income tax withholding is sufficient, and, if necessary, prepare a new Form W-4 to adjust their withholding. The publication includes worksheets for projecting 2009 tax, withholding, and deductions. For 2009, a new worksheet (Worksheet 12) has been added on the "Making Work Pay" credit.The amount of the "Making Work Pay" credit is $400 (unless the person makes under $6,450; then it’s 6,2% of compensation). Because the credit is refundable (people can get it even if they owe no tax), most low-income workers will also qualify for the full credit. The credit is phased out for a married couple filing a joint return whose modified adjusted gross income (AGI) is between $150,000 and $190,000, and for other taxpayers whose modified AGI is between $75,000 and $95,000.
It is a good idea to look at Publication 15T and print out the employee notice (on page 73 of the publication) that you should provide to your employees explaining the changes. Some employees are beginning to discover after filing their 2008 personal income tax returns that they didn't have enough money withheld from their paychecks. Employees may really feel the shortfall in 2009 with the changes in the withholding rates.
… and charitable organizations make the 2008 list.
The IRS listed the misuse of charitable organizations as one of the 12 most egregious tax scams by taxpayers. Abuse by donors who try to maintain control over donated assets or income from donated assets is just one example. Taxpayers are also claiming overvalued property donations for a larger deduction. Finally, taxpayers are disguising private tuition payments as contributions to charitable or religious organizations.
This information is good to keep in mind. We all like to think that our donors have the best intentions but the IRS is saying that these scams are happening on a large scale basis. If you have someone who wants to control how their donation is used, you should know that the donation is considered a donor advised fund and is subject to strict rules.
Noncash contributions also have certain requirements. Individuals are required to file a form 8283 for noncash donations over $500. A form 8282 is generally required to be completed by the charitable organization (aka you) to report dispositions of certain charitable property made within 3 years after the donor contributed the property. Yes, I did say 3 years. Certain charitable property is any donated property other than money and publicly traded securities over $5,000.
Remember there are usually exceptions to the rules but I have listed the general rules.
Does your church have a coffee shop? Many churches have found that coffee shops are a great way to increase fellowship at their churches. Often times, PSK is asked about the tax and accounting issues that come along with coffee shops. These are great questions! Nonprofit organizations can be taxed on dollars that are earned from activities that are not related to their tax-exempt purpose. So, is selling coffee supportive of the church's tax-exempt status?
The IRS has some specific rules regarding coffee shops run by churches. If the shop is run by volunteers and the purpose of the shop is to provide a format for church members to congregate and have religious discussions, then the shop supports the exempt purpose of the church and income would not be taxable. If the church's coffee shop is attempting to compete with Starbucks, then there could be some tax ramifications. Whether or not that income is taxable, it is a good idea to code all coffee shop activity separate general ledger accounts, one account for income and another account for expenses.
Contact PSK if you have specific questions about your church's coffee shop!
Oh no! Two people came up with the same new way to ask an old question – besides the W-2 that I issue to an employee, can I give him/her a 1099 also, for special work done?
The answer is always the same – NO!
The new twist was this – Our minister sometimes receives stipends for services offered a church member (e.g., a wedding, funeral, baptism, etc.), but the check is written to the church. Can I issue a 1099 for these funds, since it's not a part of the budgeted salary? The answer is still NO!
Now if a member gives a stipend directly to a minister, that should be considered self-employment income and not reported on a W-2. If you have it, see Richard Hammer’s book, Church and Clergy Tax Guide: 2007. He’s a lawyer and CPA who’s an expert on church and clergy tax issues. Talking specifically about fees received for marriages, funerals, etc., he says “such fees ordinarily will be self-employment earnings for the minister if received directly from the members, and not employee wages.” Page 181.
But if the church accepts a check from a member that's supposed to be directed to the pastor, and then transfers it on to that pastor, those funds need to be shown on the pastor's W-2.
As part of your year-end payroll processing tasks, you might have a question or two about reporting minister's earnings and allowances on Form W-2. Maybe, you just need a refresher. Here are the general topics that we receive questions about.
Salary – Salary paid to minister is reported in Box 1.
Federal Withholding – May or may not be zero. Ministers are exempt from withholding requirements but may elect to have withholding. Enter the amount withheld.
Social Security, Social Security Withheld, Medicare, and Medicare Withheld – Ministers are considered self-employed for purposes of Social Security and Medicare taxes so these boxes are blank.
Housing & Utility Allowances – Should be reported in Box 14. Remember that housing and utility allowances should be officially designated by the church in advance.
All other boxes on the W-2 are generally the same for ministers and non-minister employees.
The IRS has an example of a Minister's Form W-2 in its Publication for Clergy and Religious Workers. See it at …
http://www.irs.gov/pub/irs-pdf/p517.pdf
Also, there is a good IRS Publication for Churches and Religious Organizations that cover a variety of tax issues. Check it out at …
http://www.irs.gov/pub/irs-pdf/p1828.pdf
It is getting to be that time of year to prepare for your year-end payroll processing. Have you ever been a lucky recipient of a letter from the Social Security Administration stating that you have reported incorrect names or social security numbers on your W-2's? Do you have a process in place to ensure you don't receive this letter?
Here is a link to a list of good business practices to ensuring your are issuing correct W-2's. http://www.ssa.gov/employer/critical.htm.
Stay tuned… my next blog post is on reporting minister wages.
