The IRS had their Exempt Organization Workshops this month, a day spent going over nonprofit and tax exempt issues. I picked up a couple of nice tidbits that I will share but first I want to go over two other items. The first is the IRS’s Winter 2009 Statistics Of Income Bulletin. It covers all types of tax returns but a highlight of the nonprofit sector:
Charitable and other tax-exempt organizations reported more than $10 billion in gross unrelated business income for tax year 2005. Between 2004 and 2005, total unrelated business income tax liability increased by 49 percent to $543.3 million.
The other item is the answer to another question:
For part 7 of the updated form 990, do we need to list our Executive Director’s and Director of Fiance’s compensation even if the don’t meet the Key Employee salary level of $150,000 or the $100,000 salary minimum for the 5 highest compensated individuals?
Yes you do as they are considered officers of the nonprofit based on the definitions and instructions to the form 990. The top management person and top financial person are now always considered officers and their compensation will be disclosed on the new form regardless of the dollar amount.
Now to the pearls of wisdom gleaned from the event:
Unrelated Business Income
“Everything is facts and circumstances, the law is gray.” That was my favorite line from the day when the presenters, IRS E.O. agents, were asked if there is any firm guidance for unrelated business income. For any group out there thinking about earning more income from a business-like activity, perhaps some kind of social enterprise, please read the IRS publication 598 (a PDF), that is all about unrelated business income. It includes what activities might be considered taxable and how to avoid taxable situations as well.
Audit Triggers
They mentioned three things in particular that get their attention:
- The IRS’s Annual Implementation Guidelines and Workplan (a PDF) list areas of the IRS’s focus and give us a heads up on what they consider to be issues of interest.
- Late Filings – Especially if the IRS has to remind you that your organization has neglected to file something. Chances are when you do file it will end up on someones desk rather than going through any automated systems. Be sure to know what you have to file and when you have to file it.
- Media leads – Is your organization on the front page of the newspaper / magazine / website? Is it bad news? Then you should expect a call from the IRS.
“Don’t leave assumptions to the IRS.”
They admit they have a tendency to assume the worst. But why should we leave anything for them to make assumptions about? The new form 990 leaves us ample room to describe our activities and explain our nonprofit’s situation either in the form or by using schedule O. Use your words.