ANNUAL TAX UPDATE & 2015 FORM 990 CHANGES 2/29/2016. March 1, Aaron Hershberger Director ahershberger@bkd.com

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1 ANNUAL TAX UPDATE & 2015 FORM 990 CHANGES March 1, 2016 Aaron Hershberger Director Jeanette Verrelli Senior Manager 1

2 TO RECEIVE CPE CREDIT 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 & address All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificates within 15 business days of live webinar 3 AGENDA Form 990 Changes Tax Update Other Tax Considerations for Tax- Exempt Organizations 4 2

3 Form 990 Changes 5 TAX BURDEN For-Profit Not-For- Profit 6 3

4 CHALLENGES IN 990 COMPLIANCE Biggest challenge is understanding IRS s ambiguous language & multiple definitions AICPA comments 1 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 1 AICPA Letter to IRS, Troy K. Lewis, Chair, AICPA Tax Executive Committee, June 17, CHALLENGES IN 990 COMPLIANCE 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 8 4

5 CHALLENGES IN 990 COMPLIANCE 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 9 FAILURE-TO-FILE PENALTIES 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) 10 5

6 PRIVATE DELIVERY SERVICES IRS-designated private delivery services list has been revised DHL Express was removed Additional FedEx & UPS options were added Zip code for private delivery service address changed 11 BUSINESS ACTIVITY CODES Several revisions have been made to the list for use on Part VIII, Lines 2 &

7 SCHEDULE A 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 13 SCHEDULE H Disclosures required under Rev. Proc should be included in Part VI provides correction & disclosure procedures for hospital orgs to follow so that failing to meet 501(r) requirements will be excused in certain situations 7

8 SCHEDULE H 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 FILING SEASON DUE DATES Due date changes for years beginning after December 31, 2015 Tax Type (Form) Form No. Current Due Date New Due Date Current Extended Due Date New Extended Due Date Partnership /15 3/15 9/15 9/15 S Corp 1120S 3/15 3/15 9/15 9/15 C Corp /15 4/15 9/15 9/15 (Until 2025) 10/15 (After 2025) Trust /15 4/15 9/15 9/30 Employee Benefit Plans /31 7/31 10/15 11/15 Tax-Exempt Organizations 990 / 990-T 5/15 5/15 8/15 (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 16 8

9 CHNA DUE DATES (HOSPITALS) Community Health Needs Assessment (CHNA) is required at least once every three years Is it time for your next CHNA? Date of Prior CHNA Due Date of Upcoming CHNA 03/31/ /31/ /30/ /30/ /30/ /30/ /31/ /31/ Tax Update 18 9

10 PATH ACT 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 19 PATH ACT 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 20 10

11 PATH ACT Temporary extensions Through 2019 Extension of new markets tax credit Through 2016 Extension of above-the-line deduction for qualified tuition & related expenses 21 PATH ACT 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 22 11

12 PATH ACT 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 23 PATH ACT 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 24 12

13 PATH ACT Tax administration Declaratory judgments for section 501(c)(4) & other exempt organizations Gift tax not to apply to gifts made to certain exempt organizations 25 PROPERTY TAX EXEMPTION CHALLENGES 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 26 13

14 COLLEGE & UNIVERSITY ENDOWMENT SPENDING REPORT In December 2015, The Congressional Research Service published a report describing possible changes to Federal income tax treatment of college & university endowments 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 endowments 4. Changing tax treatment of certain offshore investment strategies that use blocker corporations in connection with unrelated business income tax planning 14

15 IRS PRIORITY GUIDANCE PLAN Priority Guidance Plan List of IRS & Treasury projects for 12-month period ending June 30, 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 29 IRS PRIORITY GUIDANCE PLAN 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/

16 IRS PRIORITY GUIDANCE PLAN 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/ 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. KOSKINEN April

17 TE/GE PRIORITIES FOR FY 2016 Lays out initiatives TE/GE will specifically concentrate on Continuous Improvement Knowledge Management Risk Management Data-Driven Decision Making Employee Engagement 33 TE/GE PRIORITIES FOR FY 2016 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 34 17

18 IRS E-FILE RISK MODELING 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 35 IRS E-FILE RISK MODELING 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 36 18

19 TE/GE PRIORITIES FOR FY 2016 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 noncompliance 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 37 TE/GE PRIORITIES FOR FY 2016 Focus resources on five strategic issue areas 1. 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 38 19

20 TE/GE PRIORITIES FOR FY 2016 Focus resources on five strategic issue areas 4. 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 39 IRS DONATION SUBSTANTIATION PROPOSAL 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

21 FORM 1098-T REPORTING 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 41 FORM 1098-T REPORTING Caution 42 21

22 FORM 1098-T PENALTY RELIEF 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 & Other Tax Considerations for Tax-Exempt Organizations 44 22

23 CURRENT TAX ISSUES IRS audits Worker classification Compensation UBI Amended 990-T 45 MANAGING YOUR TAX RISK Experience Education Managing Tax Risk Processes Tools 46 23

24 MANAGING YOUR TAX RISK Outside Consultants Internal Knowledge Experience 47 MANAGING YOUR TAX RISK 990 Data Gathering Process Inter- Departmental Communication UBI Surveys Processes Annual Tax Planning Checklists 48 24

25 MANAGING YOUR TAX RISK Tax Preparation Software Tax Return Data Gathering Tools Tax Research Software Tools 49 MANAGING YOUR TAX RISK Continuing Professional Education Articles Communication of Tax Risks to Mgmt Roundtables Quantify Tax Risks Education Inter- Departmental Training 50 25

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27 CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at 53 THANK YOU! FOR MORE INFORMATION Aaron Hershberger Jeanette Verrelli 27

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