Form 990 and Tax Update Olivia A. Hutton, CPA

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1 Form 990 and Tax Update Olivia A. Hutton, CPA Certified Public Accountants and Consultants Connecting depth and insight with community values.

2 Your 990 should prove that you are: Organized and operated as a tax-exempt entity In compliance with applicable tax laws Well-governed and managed Furthering your mission through your exempt activities Providing valuable services to the public

3 IRS goals are: Increased transparency Good governance Increased accountability

4 Know your audience IRS State regulators Congress Media Foundations Potential donors Other groups Researchers Watch-dog groups

5 Which 990 should you file: 990-N if gross receipts under $50, EZ if gross receipts below $200,000 AND total assets below $500, if GROSS receipts over $200, T if unrelated business income (UBI) 990-PF if you are a private foundation Only churches are exempt from filing Churches file 990-T if they have UBIT

6 Tips Tip 1: Follow instructions Tip 2: File schedules behind the core form Tip 3: Good governance Tip 4: Highlight accomplishments Tip 5: Know who and what to report as compensation

7 990 Updates/Reminders Report a change in accounting period to IRS Report a change in name to IRS Report a change in responsible party to IRS Report change in address to IRS

8 990 Updates/Reminders Make page 1 and 2 catchy include statistics, accomplishments

9 Part VII Compensation Report average hours per week worked for related organizations in addition to hours worked for the filing organization Only check one position box for each person listed in the compensation table, unless both an officer and director/trustee Reportable compensation includes compensation reported on W-2 box 1 or 5 (whichever is greater)

10 Statement of Revenue Discounts on services cannot be reported as contributions Don t include donated use of facilities Clarifies definition of contribution Rental income includes real property rented, not just investment property Unrealized gains and losses reported on reconciliation of net assets

11 Statement of Functional Expenses Allowed to use any reasonable method to allocate expenses Proper allocation is important Donors want to know the extent their contributions are used primarily for the charitable purpose Others examine the allocations as well Salaries are reported on fiscal year, not calendar year

12 Schedule A Public Support Test Use Parts II or III for public support calculation Not required to use the same support test specified in your determination letter from the IRS

13 What may trigger an IRS audit Lobbying or political activities Unrelated business income Poor governance Excessive executive compensation International activities Related party transactions involving compensation

14 UBIT 3-part test: A trade or business activity Regularly carried on Not substantially related to exempt purpose

15 UBIT Exceptions Activities conducted by volunteers Convenience Sale of donated merchandise

16 UBIT Exclusions Interest and dividends Royalty income Rental income from real property (unless debt financed) Gains from sale of property

17 Form 1023 Changes As of February 2014, still 60,000 pending 1023s New/revised form for smaller organizations still in draft Reduces time preparing Reduces IRS time reviewing so can shift time to Form 990 compliance

18 Good Governance / Best Practices Board review of 990 Adopt policies so can answer yes Conflict of interest policy Whistleblower policy Document retention policy Process for determining compensation Gift acceptance policy Travel reimbursement policy

19 Good Governance / Best Practices # of board meetings should follow the requirement in your by laws Provide board with financial reports regularly Discuss the audit with the board or audit committee Discuss the management letter with the board or audit committee Adopt the management letter s recommendations

20 Thank you Olivia A. Hutton, CPA