Tax Planning and Compliance for Tax-Exempt Organizations, 2023 Cumulative Supplement E-Book
Jody Blazek
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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
An essential, timesaving guide for accountants, lawyers, nonprofit executives and directors, consultants, and volunteers - Completely updated for 2023 This book is an indispensable guide to navigating the complex maze of nonprofit tax rules and regulations. A clear and fully cited description of the requirements for the various categories of tax-exempt entities from public charities, private foundations, civic associations, business leagues, and social clubs to title-holding companies and governmental entities can be found. Practical guidance on potential for income tax on revenue-producing enterprises along with explanations of many exceptions to taxability is provided. Issues raised by Internet activity, advertising, publishing, providing services, and much more are explained. This useful annual supplement for 2023 will cover any and all changes and updates to the law within the previous 12 month period and will keep accountants, attorneys, and others up-to-date for the year ahead. * Features a variety of sample documents for private foundations, including penalty abatement requests and sharing space agreements * Provides helpful practice aids, such as a comparison of the differences between public and private charities, charts reflecting lobbying limits for different types of entities, and listings of rulings and cases that illustrate permissible activity for each type of organizations compared to impermissible activity
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Veröffentlichungsjahr: 2023
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Table of Contents
Cover
Become a Subscriber!
Title Page
Copyright
Preface
Keep Evidence of Returns Filed
Study the IRS Instructions, News Releases, and Technical Guides
New Private Letter Rulings and Notices
Inflation Reduction Act of 2022
Notes
PART I: Qualifications of Tax‐Exempt Organizations
CHAPTER 1: Distinguishing Characteristics of Tax‐Exempt Organizations
§ 1.4 Role of the Internal Revenue Service
§ 1.8 Developments Responding to COVID‐19
Notes
CHAPTER 2: Qualifying Under IRC § 501(c)(3)
§ 2.2 Operational Test
Notes
CHAPTER 3: Religious Organizations
§ 3.2 Churches
Notes
CHAPTER 4: Charitable Organizations
§ 4.1 Relief of the Poor
§ 4.3 Lessening the Burdens of Government
§ 4.5 Advancement of Education and Science
§ 4.6 Promotion of Health
Notes
CHAPTER 5: Educational, Scientific, and Literary Purposes and Prevention of Cruelty to Children and Animals
§ 5.1 Educational Purposes
Note
CHAPTER 6: Civic Leagues and Local Associations of Employees: § 501(c)(4)
§ 6.2 Qualifying and Nonqualifying Civic Organizations
§ 6.4 Neighborhood and Homeowner's Associations
Notes
CHAPTER 9: Social Clubs: § 501(c)(7)
§ 9.1 Organizational Requirements and Characteristics
§ 9.4 Revenue Tests
Notes
CHAPTER 10: Instrumentalities of Government and Title‐Holding Corporations
§ 10.6 Requirements for IRC § 501(c)(8) and § (c)(10)
Notes
CHAPTER 11: Public Charities
§ 11.2 “Inherently Public Activity” and Broad Public Support: § 509(a)(1)
§ 11.5 Difference Between § 509(a)(1) and § 509(a)(2)
§ 11.9 Supporting Organization: § 509(a)(3)
Notes
PART II: Standards for Private Foundations
CHAPTER 12: Private Foundations—General Concepts
§ 12.4 Termination of Private Foundation Status
Note
CHAPTER 13: Excise Tax Based on Investment Income: IRC § 4940
§ 13.2 Capital Gains
Notes
CHAPTER 14: Self‐Dealing: IRC § 4941
§ 14.2 Sale, Exchange, or Lease of Property
§ 14.5 Transactions That Benefit Disqualified Persons
Notes
CHAPTER 15: Minimum Distribution Requirements: IRC § 4942
§ 15.1 Assets Used to Calculate Minimum Investment Return
§ 15.2 Measuring Fair Market Value
§ 15.4 Qualifying Distributions
Notes
CHAPTER 16: Excess Business Holdings and Jeopardizing Investments: IRC §§ 4943 and 4944
§ 16.1 Excess Business Holdings
§ 16.2 Jeopardizing Investments
Notes
CHAPTER 17: Taxable Expenditures: IRC § 4945
§ 17.1 Lobbying
§ 17.3 Grants to Individuals
§ 17.4 Grants to Public Charities
Notes
PART III: Obtaining and Maintaining Tax‐Exempt Status
CHAPTER 18: IRS Filings, Procedures, and Policies
§ 18.1 IRS Determination Process
§ 18.2 Annual Filing of Forms 990
Transition for Form 990‐EZ
Forms 990 and 990‐PF
Form 990‐T
Form 4720
§ 18.3 Reporting Organizational Changes to the IRS
§ 18.4 Weathering an IRS Examination
Notes
CHAPTER 19: Maintaining Exempt Status
§ 19.1 Checklists
CHAPTER 20: Private Inurement and Intermediate Sanctions
§ 20.2 Salaries and Other Compensation
§ 20.10 Intermediate Sanctions
§ 20.11 New § 4960 Excise Tax on Excess Compensation
Notes
CHAPTER 21: Unrelated Business Income
§ 21.4 Definition of
Trade or Business
§ 21.8 Unrelated Activities
§ 21.10 Income Modifications
§ 21.11 Calculating and Minimizing Taxable Income
Notes
CHAPTER 23: Electioneering and Lobbying
§ 23.1 Election Campaign Involvement
§ 23.3 Tax on Political Expenditures
Notes
CHAPTER 24: Deductibility and Disclosures
§ 24.1 Overview of Deductibility
§ 24.2 The Substantiation and Quid Pro Quo Rules
§ 24.3 Valuing Donor Benefits
Notes
CHAPTER 25: Employment Taxes
§ 25.1 Distinctions Between Employees and Independent Contractors
§ 25.2 Ministers
§ 25.3 Reporting Requirements
Notes
CHAPTER 27: Cryptocurrency
§ 27.1 What Is Cryptocurrency?
§ 27.2 What Are the Various Kinds of Cryptocurrency?
§ 27.3 Should Nonprofits Be Involved in Cryptocurrency?
§ 27.4 Cryptocurrencies and the Internal Revenue Service
Notes
Index
End User License Agreement
Guide
Cover Page
Practitioner's Guide to GAAP
Title Page
Copyright
Preface
Table of Contents
Begin Reading
Index
Wiley End User License Agreement
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Wiley Nonprofit Authority
Tax Planning and Compliance for Tax-Exempt Organizations
sixth edition
Rules, Checklists, Procedures
2023 CUMULATIVE SUPPLEMENT
Jody Blazek
Copyright © 2023 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.
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Preface
This supplement begins with a reminder that Forms 990 must be filed electronically, not physically.
Keep Evidence of Returns Filed
A worrisome, stale Internal Revenue Service (IRS) notice dated October 4, 2021, recently appeared in my email from a disgruntled person who had received a failure to file notice. She had personally handed an organization's return to a person at a window of her local post office, as she had in past years. She neither asked for, nor received, a receipt or evidence of that action, expecting she had properly and timely filed the Form 990. Two months later, the organization received a notice for failing to timely file the return.
The notice explained that the IRS was unable to promptly process and review materials taxpayers dutifully send to them in a timely manner according to deadlines they set. It said, “the IRS is experiencing delays in processing paper returns, including Form 1040, Form 990, and Form 8868, Application for Extension of Time to File, and others.” The notice said that the IRS encourages (actually requires) organizations to file these forms electronically. It also said, “If you file Form 990 on paper, you may receive a prematurely‐issued CP259A notice of non‐filing. If you file Form 8868 on paper, there may be a delay in receiving a CP211A notice confirming approval of your extension request. If you filed your return or extension request on paper, you do not need to take any further action. Please don't file a second return or contact the IRS about the status of your filing. We appreciate your patience.”
Notice that the IRS provided no steps the organization should take to document its dutiful submission of its return except to say don't file another copy. The notice did not impose a penalty for non‐filing and no such notice was issued. Eventually the organization can hope to search for the return with Google to find that indeed the IRS received the return despite the notice sent to say it had not been filed. It might also consider posting its return on its website and on the Internet. Failure to find it on the Internet might discourage donors. On August 4, 2022, I searched for a sample return and found that the 2017 return filed in 2018 was the only return that appeared. One must keep in mind that the IRS reporting systems are not necessarily up to date and to request copies of returns directly from the filing entity instead. When the organization itself is informed by the IRS that they did not receive the return when indeed it did, any documentation of its actions, like a printout of the transmittal letter or post office receipt that hopefully includes the date, should be saved. Additionally, they may want to submit the return and post it on the Internet. Since returns must now be electronically transmitted, a computer printout to evidence that fact should, if possible, be maintained.
Study the IRS Instructions, News Releases, and Technical Guides
Next, I recommend that readers always carefully read the instructions to IRS Forms 990, 990‐PF, 990‐T, and others that are required to be filed. In preparing this supplement, I'm glad I found useful information and IRS directions I was unaware of that I will add to my considerations as I review returns prepared by others in my office. Readers can also find a list of recent announcements and news on IRS News Releases, which are regularly released and available on the Internet. On August 15, 2022, the IRS announced that interest rates will increase for the calendar quarter beginning October 1, 2022.1 On August 4, 2022, News Releases for the Current Month, for example, were listed:
Kentucky storm, flooding victims now eligible for tax relief; October 17 deadline, other dates extended to November 15
Security Summit: Tell‐tale signs of identity theft tax pros should watch for
Security Summit warns tax pros of evolving email and cloud‐based schemes to steal taxpayer data
New IRS Strategic Plan: Agency issues five‐year plan with goal to help taxpayers
The IRS has updated and expanded its Audit Technical Guides. The guides initially focused and continue to include guides on the tax code series pertaining to private foundations and now include public charities, religious organizations, private and charter schools, and many more.
New Private Letter Rulings and Notices
Testing Kits: The costs incurred to obtain home testing kits to find the presence or lack of infection with the COVID‐19 virus can include hand sanitizer and sanitizing wipes, testing fluids and applicators, laboratory fees, or other costs incurred for the primary purpose of identifying presence of disease. The purpose of the cost must be to prevent the spread of COVID‐19 for public safety reasons. The costs are deemed to serve an exempt purpose.
Tax and Accounting Services: The IRS denied an application for exemption as a social welfare organization under section 501(c)(4) for two reasons: (1) failure to submit adequate information and (2) their opinion that operation of a business and tax return preparation services for qualified exempt organizations was not a tax‐exempt activity. The rationale was that such activity was normally a business activity for which market‐based fees are charged. The ruling did state that if such services are provided for free to poor people, that activity would possibly qualify as an exempt activity. No conclusion was reached for services provided at a reduced rate or below cost.
A similar denial letter relying primarily on Rev. Rul. 70‐535, which addressed qualification for exemption for an organization formed to provide managerial, developmental, and consultative services to low‐ to moderate‐income housing projects.2 The fact that the organization provided such services for low‐ to moderate‐income projects was no indication that the organization's primary activity was itself charitable. It was not distinguishable, since carrying on a business in a manner like organizations operated for profit means “there was nothing charitable about the organization's activities.” The fact that these services are being performed for tax‐exempt corporations did not change the business nature of the activity. Importantly, the ruling indicated that the applicant needed to clearly provide facts that show why and how the activities do accomplish a charitable purpose.
Additionally, as a (c)(3) social welfare organization, it also must not be an action organization and may not participate, directly or indirectly, in a political campaign or encourage participation to support issues the candidates are recommending in their campaigns for public office.3
Scholarship Procedures: An association of labor unions requested approval for terms and requirements for postsecondary education program.4 Notices and terms of the scholarship award program will be posted in union halls and headquarters of the union. Union members can apply on behalf of their children or dependents for the upcoming academic semester at a college, university, or technical school. Criteria for selection will include grade point average, academic honors, memberships, extracurricular and volunteer activities while in high school, and an essay submission. The ruling specifically listed the following requirements:
You can't award grants to your creators, officers, directors, trustees, foundation managers, or members of selection committees or their relatives.
All funds distributed to individuals must be made on a charitable basis and further the purposes of your organization. You cannot award grants for a purpose that is inconsistent with IRC Section 170(c)(2)(B).
You should keep adequate records and case histories so that you can substantiate your grant distributions with the IRS if necessary.
We'll make this determination letter available for public inspection after deleting personally identifiable information, as required by Section 6110. We've enclosed Letter 437, Notice of Intention to Disclose—Rulings, and a copy of the letter that shows our proposed deletions.
We approved your procedures for awarding scholarships. Based on the information you submitted, and assuming you will conduct your program as proposed, we determined that your procedures for awarding scholarships meet the requirements of Section 4945(g)(1). As a result, expenditures you make under these procedures won't be taxable. Additionally, awards made under these procedures are scholarship or fellowship grants and are not taxable to the recipients if they use them for qualified tuition and related expenses (subject to the limitations provided in Section 117(b)).
Internal Revenue Service Exempt Organizations Division
Health Remedies and Juice Bar: No (1) charitable purposes stated in an organization's corporate charter or bylaws and no (2) provisions for dissolution for charitable purposes not surprisingly caused the IRS to deny tax‐exemption under section 501(c)(3). The ruling stated that the specific purposes “are to provide natural health remedies for conventional health ailments through lifestyle modification with health education by providing health seminars and information to the public and nutritional advice along with the sale of raw healthy drinks and foods at discounted prices to the public.” This PLR reminds us that there is both an organizational and operational test in seeking tax exemption. They failed the first prong!5
IRS Solution: Separately, but in same month, the IRS released the following announcement about donations to such nonexempt entities:
The Internal Revenue Service has revoked its determination that the organizations listed below qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986.
Generally, the IRS will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the IRS is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.
If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on September 6, 2022 and would end on the date the court first determines the organization is not described in section 170(c)(2) as more particularly set for in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.6
Community Center: An unincorporated entity's bylaws stated that it was formed as an unincorporated association on B date in C town. The bylaws state that it was established to maintain a meeting place that will benefit people in and around D and surrounding areas. The bylaws further state that upon termination or dissolution, any assets available for distribution shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax code.
The “community” in this case probably was a town or area of a town. The named mission activities certainly benefit the general public—charitable, educational, cultural, and disaster relief—purposes listed in the code that qualify for (c)(3) status. We are left to find which of the four other mission items were nonexempt purposes. Was it to foster community relationship? To provide and encourage participation in community events for all age groups? To extend community communications to D area residents? The IRS denied (c)(3) status since it found a substantial portion of the organization's activities were social and recreational.7 Note that the word “exclusively” means that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in IRC Section 501(c)(3). And an organization will be treated as a (c)(3) if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.8 The non‐(c)(3) activities were not, however, stipulated.
Patagonia Founder Gives Away the Company: A September 14 article from the New York Times, headlined “Billionaire No More: Patagonia Founder Gives Away the Company,” will interest folks working with tax‐exempt organizations.9 According to the article, “the Chouinard family has transferred their ownership of Patagonia, valued at about $3 billion, to a specially designed trust and a nonprofit organization. Patagonia will continue to operate as a private, for‐profit corporation, but all the company's voting stock is now in the Patagonia Purpose Trust controlled by the family.” The donated stock resulted in about $17.5 million in gift taxes. All of the nonvoting stock was donated to Holdfast Collective, a newly established section 501(c)(4) nonprofit organization to battle climate change under the direction of the family. Funding will come from Patagonia's annual dividends, now about $100 million.
Apparently, the decision to be a (c)(4), rather than a (c)(3), was made so that “Holdfast Collective can advocate for causes and political candidates in addition to making grant,” as stated on the Patagonia website. It is likely another reason was that Holdfast Collective as a (c)(3) would be a private foundation and a private foundation cannot own most of the stock of a for‐profit company per section 4943, unless we have a Newman's Own situation. There are other tax ramifications I have not seen discussed. I assume the stock donation to the (c)(4), Holdfast Collective, is not subject to capital gains or gift tax. I have not seen discussion of the tax status of the Patagonia Purpose Trust. I assume it is a taxable trust, but maybe not. “If anyone can add to the facts or analysis, please do.”10 For more, see “Patagonia Founder Gives Away Company: ‘Earth Is Now Our Only Shareholder,’” Washington Post, September 14, 2022, and the Patagonia website at Patagonia.com.
Inflation Reduction Act of 2022
H.R. 5376 was approved by the House of Representatives and the Senate and then signed into law by President Joe Biden on August 16, 2022. As its name implies, the tax act was designed to address the country's economic condition by encouraging investments in domestic energy production and manufacturing, causing reductions in the annual federal deficit, fighting inflation, and reducing carbon emissions by roughly 40 percent by 2030.
The history of this legislation includes provisions from the American Jobs Plan of Senator Joe Manchin and parts of President Joe Biden's Build Back Better Plan plus several other legislative proposals considered in the House of Representatives in 2021. Provisions of those bills included long lists of spending on issues to benefit parents and their children and schools, including child tax credits, paid family and childcare leave, and preschool funding, and also provisions for affordable housing, home care for the elderly and disabled, plus electric car credits, tax credits for solar collectors on buildings, and other concerns for individuals; these provisions were added to what eventually became the Inflation Reduction Act in November 2021.
H.R. 5376 imposes a 15 percent alternative minimum tax (AMT) on corporate profits based on the adjusted financial statement income11 of applicable corporations (other than an S corporation), a real estate investment trust (REIT), or regulated investment company (RIC) that will apply if that amount exceeds the taxpayer's regular tax including its base erosion and anti‐abuse tax (BAT) for the tax year.12 The tax applies to a corporation that meets the average annual adjusted financial statement income test (“Income Test”) for one or more earlier tax years that ends after December 31, 2021.13 This test averages annual adjusted financial statement income that exceeds $1 billion each year for the three‐tax‐year period (determined without regard to loss carryovers) ending with the tax year.14 Special rules for corporations in existence for less than three years and short corporate tax years apply.15 However, a corporation that is a member of a foreign parented multinational group, defined below, for any tax year is an applicable corporation if:
Members of the group (determined without regard to the exclusions of income that is not effectively connected and the inclusion of a pro rata share of a controlled foreign corporation's income) exceeds $1 billion and
The adjusted financial statement income of the corporation (determined without regard to loss carryovers) is $100,000,000 or the corporate general business AMT credit is limited to 25 percent of the taxpayer's net income tax exceeding $25,000, without regard to the special empowerment zone rules.
Where regular tax is higher than the minimum tax, a corporation may carry forward a credit for the net minimum tax for all prior tax years beginning after 2022 to reduce the taxpayer's regular tax including base erosion anti‐abuse tax.16
Notes
1
IR‐2022‐150.
2
Priv. Ltr.Rul. 202235011.
3
Section 501(c)(3)(d)(2).
4
Priv. Ltr. Rul . 202228023
5
Priv. Ltr. Rul 202235012.
6
Announcement 2022‐18, 2022‐36 IRB 190.
7
Priv. Ltr. Rul. 202236011.
8
Treas. Reg. Section 1.501(c)(3)‐1(c)(1).
9
News in
EO Tax Journal
2022‐172.
10
Paul Strekfus, editor,
EO Tax Journal
.
11
Prepared in accordance with generally accepted accounting principles (GAAP). This is a departure from the previous calculation of the corporate alternative minimum tax (“Old AMT”) rules, in place prior to the 2017 Tax Cuts and Jobs Act, where the starting point was taxable income.
12
Sections 55(a)(2) and 55(a)(3).
13
Section 59(k)(A).
14
Section 59(k)(1)(B)(i).
15
Section 59(k)(1)(E)(i) and Section 59(k)(1)(E)(ii).
16
Effective date. This provision is effective for tax years beginning after December 31, 2022.
PART IQualifications of Tax‐Exempt Organizations
Chapter 1
: Distinguishing Characteristics of Tax‐Exempt Organizations
Chapter 2
: Qualifying Under IRC § 501(c)(3)
Chapter 3
: Religious Organizations
Chapter 4
: Charitable Organizations
Chapter 5
: Educational, Scientific, and Literary Purposes and Prevention of Cruelty to Children and Animals
Chapter 6
: Civic Leagues and Local Associations of Employees: § 501(c)(4)
Chapter 9
: Social Clubs: § 501(c)(7)
Chapter 10
: Instrumentalities of Government and Title‐Holding Corporations
Chapter 11
: Public Charities
CHAPTER 1Distinguishing Characteristics of Tax‐Exempt Organizations
§ 1.4 Role of the Internal Revenue Service
§ 1.8 Developments Responding to COVID‐19
(a) CARES and SECURE Acts
(b) IRS Delays in Tax Payment and Return Due Dates
Before diving into new developments to pages of the sixth edition of Tax Compliance for Tax‐Exempt Organizations, I'll share an excellent list of suggestions for protecting your data and computer from cyber terrorists.
The following tips were written by AICPA's Not‐for‐Profit Section:
9 cybersecurity tips for small not‐for‐profit organizations
Numerous studies have shown that over 90 percent of corporate breaches start with a phishing email. But don't let that statistic lead you to believe that you can strengthen your controls over email and be safe. Recent reports are indicating that fraudsters are now successfully using voice‐generating artificial intelligence software to impersonate executives when perpetrating these crimes.
Unfortunately, far too many nonprofits do not have or know of a policy that identifies how their organization handles cybersecurity risk, equipment usage, and data privacy. Cybersecurity is a real concern that all types of organizations, including all types and sizes of not‐for‐profits, must address.
This article offers tips and best practices related to both the personal and the technical aspects of cybersecurity that even the smallest nonprofits can employ.
Promote organization‐wide awareness
It is increasingly important for organizations and users to understand that the cybersecurity adversaries, also known as “bad actors,” are after people. Bruce Schneier, a seasoned cybersecurity professional, said, “Amateurs hack systems, professionals hack people.” Take spear phishing, for example, where bad actors send emails ostensibly from a trusted sender to get recipients to reveal confidential information.
Every member of an organization is responsible for security. Take the time to educate users on this fact and make security part of your culture:
Provide continual training.
Hold lunch and learns.
Post signs in the break room.
Cover a security topic during team meetings.
There are limitless examples of cyber breaches on the Internet that you can discuss. It takes little effort to talk about security and doing so will save headaches in the long run.
Understand the latest social engineering techniques
Bad actors are getting better and better at using social engineering to get us to provide information or click on links to download malware. Phishing is by far the most common method, followed by email, text, and phone. The days of offering money from a bank in Nigeria are over. Bad actors are getting more sophisticated. They prey on human emotions and personalize messages to make them seem real.
Ask yourself if a request makes sense. If it doesn't, don't act on it. Ask someone's opinion (e.g., your IT service provider). Be especially careful on phones. It is difficult to decipher real‐versus‐fake on small screens. Links are also harder to verify on mobile devices, because they may not be fully visible without clicking on them.
Amp up your passwords and use multi‐factor authentication
Have a unique, complex password for every system you use. If a bad actor cracks one username and password, they are likely to try other systems to see if they can get in with the same credentials and they can do this with amazing ease and speed. If you have trouble remembering multiple passwords, use a password manager to store them in a secure manner. NEVER store them in an Excel or Word file on your computer.
Use multi‐factor authentication (MFA) as a second layer of defense whenever it is offered. MFA is when the application you are signing into texts you a code or asks you to log in to an app on your phone to get the most recent code to authenticate. This functionality has saved people from breaches many times, yet only 21 percent of nonprofits have their employees using MFA.
Important note: If you receive a request to enter a code and you aren't trying to log in, do not use it and change your password on that application immediately.
Make sure you install—and update—anti‐virus software
At the bare minimum, have anti‐virus software installed on every machine within the organization and keep it up to date. While this is not foolproof, updated anti‐virus software can help prevent malware from infecting your machine or network if a user clicks on an infected link. Malware changes constantly, so be sure to install anti‐virus software updates as soon as the provider releases new virus signatures.
Install a spam and virus email filter
If you have a local email server, look into a spam and virus filter to prevent infected emails from getting to your users. If you subscribe to a cloud‐based email service, see if they offer this as an add‐on. This service will actively scan incoming emails and filter out the ones that are suspicious.
Install a firewall
The term “firewall” sounds expensive, but it doesn't have to be:
Download a web‐based firewall for free.
Buy a relatively cheap firewall to safeguard your Internet connection.
Get “endpoint protection” through your anti‐virus package for items like servers, workstations, and mobile devices that are used to connect enterprise networks.
The goal is to shield your computers from exposure to the Internet and discovery by the bad actors. Consider professional installation: for about an hour or two of consulting, an expert can install your firewall and make sure it is configured correctly to protect you.
Take advantage of the benefits of cloud providers
Most applications are now available in the cloud via providers that have the resources to keep your data secure. Take email, for instance. Large, reputable providers offer cloud‐based email service, among other offerings, for a monthly subscription fee per user. While that option may seem more expensive, it's important to consider the benefits of having that provider supporting your email and maintaining uptime and security.
Use caution when choosing service providers
Many small organizations are outsourcing their IT to service providers. For a monthly fee, the service provider handles all or part of your IT work so you can focus on business operations. Be sure you choose a reputable provider if you go this route. Check references and SOC reports, when available, and choose a provider that is well established. You will also want to be sure their service level agreement regarding uptime, service visits, and so on will meet your organization's needs.
Consider cyberinsurance
You may want to look into cyberinsurance. Depending on the coverage, it could be relatively inexpensive and could come in handy should your organization ever be breached. This insurance can help with the costs of reputational damage and recovery, among other potential challenges of a breach.
Cybersecurity is not a new topic, yet many organizations are still finding themselves ill‐prepared to handle cyber threats and attacks. A culture of awareness is critical for all organizations, regardless of size, type, or budget. Arming your people with the knowledge and tools they need to safeguard data and systems will go a long way in mitigating the threats the bad actors pose in today's business environment. In addition, there are tactics and strategies you can employ to further protect your organization against breaches that don't all cost a fortune. Consider the tips and best practices offered in this article and visit the Cybersecurity Resource Center for additional information.
Additional Resources
CGMA Cybersecurity Risk Management Tool
This tool helps companies monitor and manage the risk of cybersecurity threats and respond to potential breaches.
Podcast: Cybersecurity and Ransomware—Protecting Yourself from Attack
Hear cybersecurity expert Brian Edelman discuss recent ransomware attacks in this free podcast.
Cybersecurity Fundamentals for Finance and Accounting Professionals Certificate
Develop your fluency and gain the confidence to make sound strategic decisions regarding cybersecurity risk and learn what you should be doing as a non‐IT professional to help protect your organization or clients from cyber threats.
Criteria for Management's Description of a Cybersecurity Risk Management Program
Use these criteria to design and describe your organization's cybersecurity risk management program.
Prepared by AICPA, Not‐for‐Profit Section.
Additionally, the IRS created the following new educational program.
2021 Nationwide Tax Forums Online course listing on October 10, 2021
WASHINGTON—The Internal Revenue Service today announced that 18 new self‐study seminars are available through the IRS Nationwide Tax Forums Online.
Tax professionals—CPAs, enrolled agents, Annual Filing Season Program participants, and others—can earn continuing education for $29 per credit.
The new seminars were recorded in July and August at the 2021 IRS Nationwide Tax Forum.
Advocating for Taxpayers in Order to Avoid Abusive Tax Schemes
Be Tax Ready—Understanding Rules for Due Diligence and the Child Tax Credit and Earned Income Tax Credit Under the American Rescue Plan Act of 2021
Charities & Tax‐Exempt Organizations Update
Closer Look at the IRS Independent Office of Appeals
Collection Flexibilities During Difficult Economic Times
Common Issues Presented to OPR and Best Practices to Address Them
Determining an Individual's Tax Residency Status
e
‐Services and You
Gig Economy
Helping You and Your Clients Steer Clear of Fraud and Scams
Key Enforcement Issues
Keynote Address
Keys to Mastering Due Diligence Requirements and What to Expect During a Due Diligence Audit
Overview of Taxpayer Civil Rights
Professional Responsibility Obligations when Practicing before the IRS: OPR and Circular 230
Retirement Plans—IRS Compliance Initiatives
Tax Law Changes from a Forms Perspective
Virtual Currency
These 18 courses are now available in addition to 37 sessions from previous years that are also available for credit.
I want to suggest again to readers to always carefully read the instructions to IRS Forms 990, 990‐PF, 990‐T and others that are required to be filed. Readers can also find some useful news and information on the IRS News, particularly if you are interested in both exempt and nonexempt entities, which is distributed as an email most days of the week. The July 21, 2021, version encouraged, for example, readers to look for Tax Law Answers and to Use the Interactive Tax Assistant to find answers to your tax law questions. An important news item on September 10, 2021, announced, for example, the deductibility of COVID‐19 tests in time for individuals to claim the deduction on the 2020 return.
§ 1.4 Role of the Internal Revenue Service
p. 14. Add at beginning of section:
The IRS's Tax Exempt and Government Entities (TE/GE) Division on an ongoing basis seeks to meet its responsibility to provide the best possible service to taxpayers as it administers its responsibility for enforcing the rules set forth in the federal tax code. Its role ranges from designing forms to writing instructions and memoranda to explain policies and procedures for filing tax returns, monitoring filing deadlines, and managing a trained staff to administer the tax filing system. On August 17, 2021, the Exempt Organizations Rulings & Agreements (EO R&A) office issued an Interim Guidance memorandum, Updated Procedures Relating to Direct Contact in the Determination Process, to its employees regarding procedures those employees should use when contacting entities that are applying for tax‐exempt status.
The memo notes that the following procedures apply to further ensure taxpayers’ effective participation in the exempt organization determinations process, to promote consistency in determinations procedures across TE/GE, and to clarify the Division's processes when the taxpayer authorizes a representative to assist. The memo stipulated the following steps the IRS personnel should follow in assisting tax filers.
If an organization does not submit a Form 2848 (Power of Attorney and Declaration of Representative) with its application for recognition of tax‐exempt status or during case processing, contact the primary contact person listed on the application to discuss issues or items in the application, to follow up on Letters 1312 requesting additional information, and to otherwise discuss determinations such as for a potentially adverse case (i.e., for all telephone inquiries) as currently described in Internal Revenue Manual (IRM) 7.20.1.6.
If an organization submits a valid Form 2848 with its application for recognition of tax‐exempt status or during case processing, IRS specialists will contact the authorized representative listed on the Form 2848 to discuss issues or items in the application, to follow up on Letters 1312 requesting additional information, and to otherwise discuss determinations such as for a potentially adverse case (i.e., for all telephone inquiries), except as listed below.
In the situations below, a specialist should contact the primary contact person listed on the application as currently described in IRM 7.20.1.6.
[If] Specialist cannot make contact with the authorized representative listed on Form 2848 within five business days of the initial attempt to contact the authorized representative. The specialist should confirm the authorized representative, the authorized representative's contact information, and preferences for future communications.
If the organization's primary contact, board member, officer, or other authorized person contacts the specialist directly, the specialist will discuss the application with that individual and confirm preferences for future communications.
If a Form 2848 or Form 8821 (Tax Information Authorization Form) is invalid and an additional information request is sent, a copy should be returned to the organization, explaining why the form is invalid. If no additional information is needed, a determination letter is prepared and sent to the organization. An additional information letter or determination letter is not sent to the person(s) designated on an invalid Form 2848 or 882.
To accomplish its job of “giving and taking away an organization's tax‐exempt status,” the IRS receives and determines qualification for tax exemption for prospective nonprofit organizations that submit Form 1023 or 1024. A vast majority of other nonprofits qualifying 501(c) exempt entities are not required to file for approval. Their ongoing qualification, as well as those initially seeking and receiving approval, is monitored through the annual filing of Forms 990 that report their financial transactions and respond to countless questions about their mission, activities, persons in control, and importantly about program activities they conduct to accomplish their mission.
The IRS disseminates on the Internet and by release to tax and financial publications news about its activities, instructions for form preparation, and instructions for the vast array of rules that apply to a tax‐exempt entity. Those who serve nonprofits with their accounting and legal talents and other skills regularly study IRS pronouncements. Beginning in January and throughout the year new rules and guidance and redesigned forms are issued. For example, on January 4, 2021, Internal Revenue Bulletin 2021‐1 contained the following information:
ADMINISTRATIVE
Rev. Proc. 2021‐1, page 1.
This procedure contains revised procedures for letter rulings and information letters issued by the Associate Chief Counsel (Corporate), Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes), Associate Chief Counsel (Financial Institutions and Products), Associate Chief Counsel (Income Tax and Accounting), Associate Chief Counsel (International), Associate Chief Counsel (Passthroughs and Special Industries), and Associate Chief Counsel (Procedure and Administration). This procedure also contains revised procedures for determination letters issued by the Large Business and International Division, Small Business/Self Employed Division, Wage and Investment Division, and Tax Exempt and Government Entities Division. Rev. Proc. 2020‐1 superseded.
Rev. Proc. 2021‐2, page 116.
This procedure explains when and how an Associate office within the Office of Chief Counsel provides technical advice, conveyed in technical advice memoranda (TAMs). It also explains the rights that a taxpayer has when a field office requests a TAM regarding a tax matter. Rev. Proc. 2020‐2 superseded.
26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of correct tax liability.
Rev. Proc. 2021‐3, page 140.
The revenue procedure provides a revised list of areas of the Code under the jurisdiction of the Associate Chief Counsel (Corporate), the Associate Chief Counsel (Financial Institutions and Products), the Associate Chief Counsel (Income Tax and Accounting), the Associate Chief Counsel (Passthroughs and Special Industries), the Associate Chief Counsel (Procedure and Administration), and the Associate Chief Counsel (Employee Benefits, Exempt Organizations and Employment Taxes) relating to matters on which the Service will not issue letter rulings or determination letters. Rev. Proc. 2020‐3, 2020‐1 I.R.B. 131 is superseded.
26 CFR 601.201: Rulings and determination letters.
EMPLOYEE PLANS
Rev. Proc. 2021‐4, page 157.
This document updates Rev. Proc. 2020‐4, 2020‐1 I.R.B. 148, relating to the types of advice the IRS provides to taxpayers on issues under the jurisdiction of the Commissioner, Tax Exempt and Government Entities Division, Employee Plans Rulings and Agreements, and the procedures that apply to requests for determination letters and private letter rulings.
EXEMPT ORGANIZATIONS
Rev. Proc. 2021‐5, page 250.
This revenue procedure sets forth procedures for issuing determination letters on issues under the jurisdiction of the Director, Exempt Organizations (EO) Rulings and Agreements. Specifically, it explains the procedures for issuing determination letters on tax‐exempt status (in response to applications for recognition of exemption from Federal income tax under § 501 or § 521 other than those subject to Rev. Proc. 2021‐4, this Bulletin (relating to pension, profit‐sharing, stock bonus, annuity, and employee stock ownership plans)), private foundation status, and other determinations related to exempt organizations. These procedures also apply to revocation or modification of determination letters. This revenue procedure also provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under § 7428. Finally, this revenue procedure provides guidance on applicable user fees for requesting determination letters.
p. 14. Replace first two sentences in second paragraph with the following:
Organizations not organized for profit, but operated exclusively for the promotion of “social welfare,” qualify for exemption from income tax.1 Effective January 5, 2021, a new entity seeking to obtain recognition as a tax‐exempt §501(c)(4) organization may electronically file Form 1024‐A and pay fees on www.pay.gov.2 It is important to note, however, that their application seeking recognition is not required for U.S. tax reporting; exempt status is permitted so long as qualifications exist. Form 1024, however, may be required and useful for certain state tax purposes. Procedures for filing the request for recognition are regularly updated by the IRS.
A request for expedited handling of the application can be submitted. The request must be indicated on the form and a supporting written statement describing the circumstances and need for fast recognition should be submitted with the completed application. The individual or representative the entity authorizes to sign Form 1024‐A under a Power of Attorney must be an officer, a director, a trustee, or other official who is authorized to sign for the organization. A (c)(4) applicant was given 90 days beyond the announcement date to file the new Form 1024‐A. Importantly, Form 8976, Notice of Intent to Operate Under Section 501(c)(4), continues to be required.
p. 25. Add new subsection:
§ 1.8 Developments Responding to COVID‐19
Disruption of the normally smooth‐running tax reporting and collection system in the United States due to events surrounding the COVID‐19 pandemic beginning in March 2020 was extensive and in some ways disturbing in retrospect. In a humane way, we turned our attention to distancing and masking and other steps taken to curtail the viral spread.
We were filled with empathy and concern to stop the spread by protecting ourselves and citizens and establishing practices to do so.
(a) CARES and SECURE Acts
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27. The $2 trillion stimulus bill was intended to provide financial relief to individuals and businesses directly affected by the coronavirus pandemic. Cash payments went to individuals earning below the income level listed below, along with grants to businesses. Awards of $1,200 per individual or $2,400 per couple plus an additional $500 for each qualifying child were paid. Eligible awardees were those with income below an income phase‐out based on adjusted gross income (AGI) beginning at $75,000 per individual and $150,000 per couple. Qualification was based on the individual's or couple's most recently filed income tax return. If the cash was not needed for immediate short‐term expenses, it could be used to pay down debt, invest in the stock market, or donate to a charity, local business, or a family member who “may need it during this challenging time.”
Extension of Filing Due Dates. The deadline for individuals to file 2019 income tax returns and pay balances of income tax due on April 15 was separately delayed by executive order until July 15. The CARES Act extended the deadline to make an IRA contribution to July 15. This delay plus the CARES Act grants provided immediate cash flow relief for some to take advantage of the extended IRA due date.
The age at which required minimum distributions (RMDs) are required was raised.
The first required minimum distribution is now required for the year in which one turns age 72 (70½ if you reach 70½ before January 1, 2020). The first payment deadline was delayed until April 1 of 2020 for anyone who turned 70½ in 2019. If you reach 70½ in 2020, you have to take your first RMD by April 1 of the year after you reach the age of 72. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.
Mandatory withdrawals were suspended for 2020. Those who had already taken a 2020 RMD from a retirement account had 60+ days to return the money. The original withdrawal was treated as a rollover to an IRA and not to be treated as a taxable distribution.
SECURE Act. The age requirements were similarly amended by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) effective on December 20, 2019. For defined contribution plan participants or Individual Retirement Account (IRA) owners who die after December 31, 2019, the SECURE Act requires the entire balance of the participant's account be distributed within 10 years. There is an exception for a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person, or a person not more than 10 years younger than the employee or IRA account owner. The new 10‐year rule applies regardless of whether the participant dies before, on, or after the required beginning date, now age 72. Roth IRAs do not require withdrawals until after the death of the owner.
While there is no provision that allows individuals to retroactively put a distribution back into their IRA account, an opportunity to do so was provided. Those who had already taken their 2020 RMD from an IRA had 60 days to return the money. The original withdrawal was treated as a rollover to an IRA and not to be treated as a taxable distribution.
Charitable Contributions. To incentivize additional charitable contributions to those organizations supporting and aiding those most affected by the virus, enhanced donation limitations were included:
Up to $300 of charitable
cash
contributions can be taken as a deduction against adjusted gross income (AGI), regardless of whether or not the individual itemizes.
For 2020, the 50 percent AGI limitation was eliminated, and individuals got a charitable contribution deduction for up to 100 percent of a person's AGI, for
cash (not appreciated property)
contributions.
Small Businesses. Small businesses have been some of the hardest hit as a result of the coronavirus pandemic. The CARES Act introduced many provisions to assist these small businesses, including:
Employers receive a credit for their portion of the payroll tax (7.65 percent) up to $10,000 of wages per employee if the business has been impacted by COVID‐19 or if revenue is 50 percent lower than the same quarter in 2019.
Payment of the 2020 payroll tax can be delayed, with 50 percent of the payroll tax due paid in 2021 and 50 percent in 2022.
Economic Injury Disaster Loans (EIDLs) are business loans for up to $2 million at an annual interest rate of 3.75 percent, with the first payment not due for one full year. If you apply for an EIDL, you can also apply for a $10,000 grant toward working capital. These loans can be used to pay and retain employees, make lease payments, pay operating costs, and so forth.
Small business owners may qualify for tax‐free loan forgiveness for the portion of the loan between March 1 and June 30. It could be forgiven if the funds are used to maintain payroll.
The Act suspends all rules that relate to the net operating losses (NOL) created under the 2017 Tax Cuts and Jobs Act (TCJA). Under the TCJA, NOLs were limited to 80 percent of taxable income and could not be carried back. NOLs can now be carried back up to five tax years with no income limit.
Loss limitations that were imposed under the TCJA have been suspended: $250,000 for single and $500,000 for joint filings. These losses can offset nonbusiness income.
Business interest deductibility has been increased from 30 percent of adjusted taxable income to 50 percent.
On its website, the IRS posted frequently asked questions (FAQs) on the effect of COVID‐19 on liens, levies, and other IRS collection activities.
The IRS joined the Treasury Department's efforts to ease suffering with its People First Initiative. The initiative provided significant delays in tax payment due dates and IRS examination and taxpayer settlement work as described below:
IRS unveils new People First Initiative; COVID‐19 effort temporarily adjusts, suspends key compliance program
On March 25, 2020, the IRS wrote, “To help people facing the challenges of COVID‐19 issues, the Internal Revenue Service announced today a sweeping series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to postponing compliance actions.”
“The IRS is taking extraordinary steps to help the people of our country,” said IRS Commissioner Chuck Rettig. “In addition to extending tax deadlines and working on new legislation, the IRS is pursuing unprecedented actions to ease the burden on people facing tax issues. During this difficult time, we want people working together, focused on their well‐being, helping each other and others less fortunate.”
“The new IRS People First Initiative provides immediate relief to help people facing uncertainty over taxes,” Rettig added: “We are temporarily adjusting our processes to help people and businesses during these uncertain times. We are facing this together, and we want to be part of the solution to improve the lives of all people in our country.”
