There have been a plethora of changes in the reporting requirements for not-for-profit organizations. The most significant change being an overhaul to the Form 990 requiring extensive disclosures. Due to the complexity of the new Form 990 released in 2008, the IRS allowed for a phase in period. However, as of 2010, any organization with gross receipts of at least $200,000 or gross assets of at least $500,000 is required to file the long form. Therefore, few non-profits are able to avoid the onerous requirements this season.
An information organizer has been developed to assist Form 990 filers. However, the organizer, like the Form, is long and overwhelming.
Based on a review of the long form disclosures, it would appear the IRS is trying to create transparency and mitigate abuses in the not-for-profit sector. Yet, what it feels like to the charitable organizations is a large burden on lean staff during a difficult economic time.
For the tax preparer, the time incurred to prepare the long form creates an interesting dilemma with regard to billing. The "improved" Form 990 does not generate more value for our clients, but does cause us and the client to incur more time. Therefore expenses are increased for both the client and the preparer. That said, much of the time incurred during the initial year of implementing the redesigned Form 990 is a learning curve and information gathering process that can be leveraged on in future years. Hence, we hope subsequent years of filing to provide a more efficient, cost effective and less frustrating process.
The IRS is willing to give some extra time to figure out the complex forms and thus will grant automatic extensions of time to file. However, failure to file a proper extension may result in a late penalty of $20 per day up to the lesser of $10,000 or 5% of the organization's gross receipts. Non-profits with gross receipts in excess of $1 million can be charged $100 per day up to a maximum of $50,000!
Meanwhile, the following new or increased fees (among others), are unlikely to be cost effective on any level to charitable organizations:
• Rulings for "unusual grants" now cost $400. Whether a grant is unusual is a subjective determination. A large donation could jeopardize an organization's public charity status. A prudent organization may wish to obtain a ruling prior to accepting such a donation.
• "Set aside" approval now costs $1,000. Amounts set aside by a private foundation for a specified project may be considered a qualifying distribution in the year they are set aside instead of the year paid. Private foundations hoping to avoid tax on undistributed income may wish to obtain prior approval from the IRS.
• IRS approval of grant making procedures by a private foundation for an individuals travel, study, etc. is $1,000. Grants made under a procedure that is objective and nondiscriminatory can avoid taxation.
• Return filing determination will cost $400. Organizations that believe they are exempt from filing can seek a determination of filing status from the IRS.
• A private foundation that wishes to become a public charity must now pay $400 for an advance ruling of public status.
What common rulings and inquiries is the IRS giving out for free?
• Confirmations of exemption if the original exemption status letter is misplaced or to reflect name and address changes.
• Determinations as to whether relief will be granted in certain circumstances for late filing of an exemption application.
• Acknowledgement that a Canadian registered charity is exempt under IRC 501(c)(3) or as a private foundation.
Perhaps the increased IRS fees are necessary to cover staffing to review the redesigned Form 990. Whatever the reason, it is clear that the IRS is indeed discouraging any non-profit organizations which may be motivated by profit margins. Our experience as a firm is that the organizations we work with are simply concerned with surviving this economic time and are driven by passion for the charitable intention for which they were established. Pavento, Ratcliffe, Renzi & Co., LLC wishes well to all the honorable non-profits and the people who run them. We also wish to remind those entities that filing deadlines and final extension deadlines, dependent upon your year end are fast approaching.
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