Tax Planning and Compliance for Tax-Exempt Organizations, 2024 Cumulative Supplement E-Book

Jody Blazek

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Veröffentlichungsjahr: 2024

Beschreibung

An essential resource for the legal and finance professionals serving US-based tax-exempt organizations In the 2024 Cumulative Supplement to the latest edition of Tax Planning and Compliance for Tax-Exempt Organizations, a team of dedicated legal and accounting professionals delivers a timely and current discussion of the latest rules, pronouncements, legislation, and regulations affecting tax-exempt entities. In this Supplement, you'll discover clear and fully cited and supported descriptions of the requirements for a variety of categories of tax-exempt organizations, including public charities, private foundations, civic associations, business leagues, and social clubs. In this update, you'll find: * Coverage of every relevant and significant change to the taxation law governing tax-exempt organizations * Various sample documents and practice aids to save time and energy in the preparation of this year's financial documents * Practical guidance on the potential for income tax on revenue-producing enterprises Perfect for accountants, lawyers, executives, directors, and volunteers serving one of the many tax-exempt entities in the United States, Tax Planning and Compliance for Tax-Exempt Organizations: 2024 Cumulative Supplement is also an essential resource for consultants, managers, and other professionals working in or for tax-exempt organizations.

Leseprobe

Table of Contents

Cover

Table of Contents

Title Page

Copyright

Dedication

List of Exhibits

Preface

Notes

About the Author

Acknowledgments

CHAPTER 1: Distinguishing Characteristics of Tax‐Exempt Organizations

CHAPTER 1.3

CHAPTER 1.4 Role of the Internal Revenue Service

CHAPTER 1.5 Suitability as an Exempt Organization

Notes

CHAPTER 3: Religious Organizations

Notes

CHAPTER 4: Charitable Organizations

4.6 Promotion of Health

Note

CHAPTER 5: Educational, Scientific, and Literary Purposes and Prevention of Cruelty to Children and Animals

5.1 Educational Purposes

5.5 Fostering Amateur Sports Educational Purposes

Notes

CHAPTER 6: Civic Leagues and Local Associations of Employees: § (c)(4)

§ 6.2 Qualifying and Nonqualifying Civic Organizations

CHAPTER 6.2 Qualifying and Nonqualifying Civic Organizations

6.4 Neighborhood and Homeowner's Associations

6.5 Disclosures of Nondeductibility

Notes

CHAPTER 9: Social Clubs

9.1 Organizational Requirements and Characteristics

Notes

CHAPTER 11: Public Charities

11.2a Donor Advised Funds

Note

CHAPTER 12: Private Foundations—General Concepts

§ 12.1 Why Private Foundations Are Special

12.4 Termination of Private Foundation Status

Note

CHAPTER 18: IRS Filings, Procedures, and Policies

Note

CHAPTER 24: Deductibility and Disclosures

24.1 Overview of Deductibility

24.6 Inflation Reduction Act

CHAPTER 25: Employment Taxes

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

Table of Cases

Table of IRS Revenue Rulings

Table of IRS Procedures

Index

End User License Agreement

List of Tables

Chapter 12

EXHIBIT 12.1 Private Foundation Excise Taxes

Guide

Cover

Table of Contents

Title Page

Copyright

Dedication

List of Exhibits

Preface

About the Author

Acknowledgments

Begin Reading

Table of Cases

Table of IRS Revenue Rulings

Table of IRS Procedures

Index

End User License Agreement

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tax planning and compliance for tax‐exempt organizations

sixth edition

Rules, Checklists, Procedures

2024 CUMULATIVE SUPPLEMENT

Jody Blazek

Copyright © 2024 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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Library of Congress Cataloging‐in‐Publication Data:

Names: Blazek, Jody, author.

Title: Tax planning and compliance for tax‐exempt organizations : rules, checklists, procedures 2024 cumulative supplement / Jody Blazek.

Description: Sixth edition. | Hoboken : Wiley, 2024. | Includes index.

Identifiers: LCCN 2023057876 (print) | LCCN 2023057877 (ebook) | ISBN 9781394253654 (paperback) | ISBN 9781394253678 (adobe pdf) | ISBN 9781394253661 (epub)

Classification: LCC KF6449 .B58 2024 (print) | LCC KF6449 (ebook)

LC record available at https://lccn.loc.gov/2023057876

LC ebook record available at https://lccn.loc.gov/2023057877

Cover Design: WileyCover Image: © Lugiaz/Shutterstock

To all the wonderful nonprofit clients, seminar participants, and fellow CPAs and lawyers who serve nonprofits and ask me the questions that inspire my study and research and provide fuel for my books.

List of Exhibits

EXHIBIT 1.1

Organization Reference Chart

5

EXHIBIT 1.2

Suitability for Tax‐Exempt Status Checklist

19

EXHIBIT 1.3

Basic Tax and Financial Considerations in Starting a New Nonprofit Organization

20

EXHIBIT 1.4

Comparison of Requirements and Tax Attributes for IRC §§501(c)(2), (3), (4), (5), (6), and (7)

26

EXHIBIT 11.1

Differences Between Public and Private CharitableOrganizations

243

EXHIBIT 11.2

Different Categories of Organizations ExemptUnder §501(c)(3)

244

EXHIBIT 11.3

Form 990 Schedule A

248

EXHIBIT 11.4

Comparing the Attributes of Donor‐Advised Funds,Supporting Organizations, and Private Foundations

267

EXHIBIT 12.1

Private Foundation Excise Taxes

300

EXHIBIT 12.2

Cumulative List of Substantial Contributors

307

EXHIBIT 12.3

Tax Attributes Transferred to Successor Private Foundation

323

EXHIBIT 12.4

Transfers between Private Foundations

332

EXHIBIT 13.1

Distribution Timing Plan to Reduce Excise Tax

364

EXHIBIT 14.1

Compensation of Disqualified Person Checklist

390

EXHIBIT 14.2

Guidelines for Travel and other Expense Reimbursement

394

EXHIBIT 14.3

Expenditure Documentation Policy

407

EXHIBIT 15.1

Application of Qualifying Distributions and Carryovers

466

EXHIBIT 15.2

Request for Abatement Regarding Underdistribution

470

EXHIBIT 17.1

Request for IRS Approval of Individual Grant Program

517

EXHIBIT 17.2

Grant Approval Checklist

520

EXHIBIT 17.3

Certificate of Supporting Organization Type

522

EXHIBIT 17.4

Grant Payment Transmittal Letter

525

EXHIBIT 17.5

Grant Agreement

525

EXHIBIT 17.6

Expenditure Responsibility Control Checklist

536

EXHIBIT 17.7

Pre‐Grant Inquiry Checklist

536

EXHIBIT 17.8

Expenditure Responsibility Agreement—Version 1

539

EXHIBIT 17.9

Expenditure Responsibility Agreement—Version 2

540

EXHIBIT 17.10

Report to IRS on Form 990‐PF

541

EXHIBIT 17.11

Grantee Report

542

EXHIBIT 17.12

Sample Attachment to Form 4720

548

EXHIBIT 18.1

FORM 990 Part IV—Chart of Thresholds/Time‐Sensitive Answers

598

EXHIBIT 18.2

Independent Board Member

599

EXHIBIT 18.3

Offshore Hedge Fund Analysis

606

EXHIBIT 19.1

Annual Tax Compliance Checklist for §501(c)(3) Public Charity

621

EXHIBIT 19.2

2010 §501(c)(3) Public Charity Tax Preparer Checklist

625

EXHIBIT 19.3

Annual Tax Compliance for Tax‐Exempt Organizations—Short Form

627

EXHIBIT 19.4

Annual Tax Compliance Checklist for Non‐§501(c)(3) Organizations

628

EXHIBIT 19.5

Annual Tax Compliance Checklist for Private Foundations (PFs)

630

EXHIBIT 19.6

Annual Tax Compliance Checklist for Private Foundation (PF)—Short Form

634

EXHIBIT 19.7

Annual Tax Compliance Checklist for §527 PoliticalOrganizations (POs)

635

EXHIBIT 19.8

Annual Tax Compliance Checklist—Unrelated Business Income

636

EXHIBIT 19.9

Intermediate Sanction Checklist

638

EXHIBIT 19.10

Checklist for Website Exemption Issues

638

EXHIBIT 19.11

Checklist for Alternative Investments of Tax‐Exempt Organizations, Including Private Foundations

639

EXHIBIT 19.12

Checklist for Tax and Accounting Issues for Grants and Contributions Received

641

EXHIBIT 21.1

Commerciality Test Checklist

679

EXHIBIT 21.2

Components of Unrelated Business Income

680

EXHIBIT 21.3

Determining Regular Activity

681

EXHIBIT 21.4

Sale of Merchandise

686

EXHIBIT 21.5

Calculating the Taxable Portion of Advertising Revenue

698

EXHIBIT 21.6

Comparison of Form 990‐T Reporting for Corporation versus Trust

728

EXHIBIT 23.1

Permissible PAC Involvement

769

EXHIBIT 24.1

Sample Donor Disclosure Receipts

813

EXHIBIT 24.2

Tax Reporting/Withholding for Raffles and Drawings

819

EXHIBIT 24.3

Suggested Guidelines for Valuing Gifts

821

EXHIBIT 25.1

Flowchart: Employees versus Independent Contractors

829

EXHIBIT 25.2

Employee versus Independent Contractor IRS Checklist

830

EXHIBIT 25.3

Sample Contractor Engagement Letter

831

EXHIBIT 25.4

Employer Tax Requirements Checklist

841

Preface

This 2023 Cumulative Supplement starts with significant announcements that impacted tax compliance work for lawyers and accountants (who work with private foundations).

On June 1, 2023, the IRS began accepting e‐filed determination letter applications on Pay.gov. The IRS continued to accept paper Forms 5307 and 5316 through June 30, 2023. Now those forms will also have to be e‐filed.

In a News Release, the IRS has warned businesses to be wary of aggressive Employee Retention Credit (ERC) marketing. The IRS urges businesses to watch out for red flags that can signal trouble.

1

The IRS has released an Employee Retention Credit eligibility checklist to help businesses and tax‐exempt organizations determine if they qualify to claim the ERC.

Readers may gain caution in reading the three reviews of the court consideration regarding Short Stop Electric

2

focused on deduction of interest expense vs. its capitalization, accrued expenses for cash‐basis taxpayer, and allocation of personal vs. business use of assets.

Abbreviations designating types of Treasury Department pronouncements and rulings now include GLAM, in addition to PLR, TAM, and RP. A GLAM is a generic legal advice memo issued by the Office of Chief Counsel, not binding as tax code but usable as precedence regarding tax matters. Compared to a PLR, or private letter ruling that is an IRS response to a specific taxpayer question that, although it cannot be relied on, it is binding on the IRS.

Notes

1

IR 2023‐170, 9/14/2023.

2

Short Stop Electric, Inc., v. Commissioner, (2023) TC Memo 2023‐114.

About the Author

Jody Blazek was a founder and partner in Blazek & Vetterling (BV), a Houston‐based CPA firm focusing on tax, auditing, and financial planning for exempt organizations and the individuals who create, fund, and work with them. BV serves more than 600 nonprofit organizations providing audits and other financial reports, tax returns and compliance, and planning services.

Jody began her professional career at KPMG, then Peat, Marwick, Mitchell & Co. Her concentration on exempt organizations began in 1969, when she was assigned to study the Tax Reform Act that completely revamped the taxation of charities and created private foundations. From 1972 to 1981, she gained nonprofit management experience as treasurer of the Menil Interests, where she worked with John and Dominique de Menil to plan for and manage the Menil Collection, the Rothko Chapel, and other projects of Menil Foundation. She reentered public practice in 1981 and started the firm she now serves.

She is the author of six books in the Wiley Nonprofit Series: Tax Planning and Compliance for Tax‐Exempt Organizations 6th edition (2020). Nonprofit Organization Financial Planning Made Easy (2008), Revised Form 990 (2012), and IRS Form 1023 Preparation Guide (2005). She also coauthored with Bruce R. Hopkins, Private Foundations: Tax Law 5th edition (2020) and The Legal Answer Book for Private Foundations (2002).

Jody was a past chair of the Tax‐Exempt Organizations Resource Panel and a member of Form 1023 and 999 Revision Task Forces for the American Institute of Certified Public Accountants. She serves on the national editorial board of The Exempt Organization Tax Review and is a member of the Volunteer Service Committee of the Houston Chapter of Certified Public Accountants. She is a founding director of Texas Accountants and Lawyers for the Arts and a member of the board of the Anchorage Foundation of Texas and Houston Artists Fund. She is a frequent speaker at nonprofit symposia, including AICPA Not‐For‐Profit Industry Conference and Private Foundation Summit; Heckerling Institute on Estate Planning; University of Texas Law School Nonprofit Organizations Institute; Texas, New York, and Washington State CPA Societies' Nonprofit Conferences; and Institute for Board Development among others.

Jody received a BBA from the University of Texas at Austin in 1964 and took selected taxation courses at South Texas School of Law. She loves to swim, go to the beach, and grow organic vegetables. She and her husband, David Crossley, nurture two sons, Austin and Jay Blazek Crossley, and their wives and three grandchildren.

Acknowledgments

The response to the fifth edition of this book was positive and encouraging; I am grateful for the opportunity to comprehensively update and to consider many issues in more depth. In 1969, when KPMG gave me the task of studying, interpreting, and communicating the new private foundation rules to our Houston clients, I began a search for information to interpret the nonprofit organization tax laws and procedures and often found it lacking. This book represents a compendium of checklists, client memoranda, and interpretive materials developed over the years to provide guideposts for compliance and tax planning for exempt organizations.

My experience has been enriched by a myriad of wonderful people with ideas for improving the human condition and saving the earth. The wealth of altruism and kindness shared by benefactors and volunteers in the nonprofit community is an inspiration. From the vantage point of the funder who wants to create a private foundation, the healer who senses the ability to cure a disease, and the artist who wants to paint a public mural, among many others, I have had the privilege of working with many people to figure out the best financial and tax mode in which to establish an entity that can accomplish those goals. My years as a KPMG tax specialist under the able tutelage of John Herzfeld and Lloyd Jard taught me that tax rules are not black and white; answers are complex and often gray. Achieving the best tax answer requires an exacting search, an ability to weigh alternatives, and the willingness to defend your choice.

As treasurer and chief financial officer of the Menil Foundation and The Rothko Chapel—the Houston‐based charitable ventures of Dominique and John de Menil—I had a unique hands‐on opportunity to manage nonprofit organizations. Returning to public practice in 1981, I continued my commitment to nonprofit organizations and started an accounting firm that focuses on exempt organizations and the people who work with and create them. In the early 1980s, a group of professionals created the Texas Accountants and Lawyers for the Arts (TALA). Our purpose was to improve the technical expertise and expand the body of law applicable to nonprofit organizations. With this goal in mind, seminars were organized and technical issues researched and reported. Since that time, the number of trained and willing volunteers with TALA and other pro bono organizations has multiplied many times. This book is partly a result of the questions asked as I teach continuing education seminars. It is intended to be a practical guide to establishing and maintaining taxexempt status for nonprofit organizations.

I also acknowledge the people who played an instrumental role in making this book possible. Bruce Hopkins, my coauthor for private foundation books, and Wiley editor Jeffrey Brown, in 1988, found merit in materials I proposed for the first edition of this book. Over the years, I have benefited from accomplished Wiley editors such as Marla Bobowich and Martha Cooley. Susan McDermott, my current editor and Brooke Graves pushed me to prepare this sixth edition and provided encouragement and invaluable assistance. Jennifer MacDonald, development editor, performed miracles in reviewing our manuscripts, and Melissa Lopez, production editor, combed through the maze of checklists, exhibits, and appendixes, greatly facilitating the process. Thanks to all of you.

On a professional level, I am indebted to my colleagues at Blazek & Vetterling who with me serve our more than 600 nonprofit clients. The countless questions our clients and other professionals present to us provide the fuel for materials considered and I thank them as well. Since 2001, I have had the enriching experience of serving as an advisor to Foundation Source. Working with their senior vice president for Legal Affairs, Jeffrey Haskell, I have been confronted with a wonderful array of private foundation questions. Assisting them to develop policies and procedures for an online administrative system for foundations has been a challenging and invaluable learning experience.

Finally, I am indebted to my husband, my sons, and my clients for their patience and support while I devoted time to this project.

CHAPTER 1Distinguishing Characteristics of Tax‐Exempt Organizations

CHAPTER 1.3

CHAPTER 1.4 Role of the Internal Revenue Service

CHAPTER 1.5 Suitability as an Exempt Organization

p.4. Add after third paragraph:

The Christ Ambassadors Church was not recognized at tax‐exempt (c)(3) organization by the IRS or the Tax Court. The available descriptions of its activities and modest amount of money involved make one wonder whether there is more to this case than reported. The activities reported on Form 990 included:

“Assisting individuals with therapy, food pantry, group therapy assistance, individual with therapy, food pantry, group therapy, and after school tutoring to help the less privileged.” (Part II, line 1)

“Assistance to the public by providing food and medical assistance to the less fortunate and mentally retarded patients in Las Vegas Nevada.” (Schedule O)

The organization claims public charity status as a church. Schedule A, Part I, box 1. Petitioner operated the 501(c)(3) exempt organization as a church to assist the community with spiritual and other needs.

Christ Ambassadors Church operated a behavioral health clinic. Donations and monies from the behavioral health clinic were used to, among other things, operate the church, bring congregants to and from church events, and purchase food and necessities for the homeless and hungry of the greater Las Vegas, Nevada area.

The IRS's revocation letter said, “Our adverse determination as to your exempt status was made for the following reasons: You have not established that you are both organized and operated exclusively for charitable, educational, or other exempt purposes within the meaning of IRC § 501(c)(3). Additionally, your primary activity is the provision of behavioral health services to those that can pay. You are operated in a commercial manner with substantial income‐producing activities of a kind normally conducted by nonexempt commercial entities. You have not established that you continue to qualify for tax‐exempt status as a church or that your church activities were not secondary and incidental to your overall operations. Furthermore, part of your earnings inured to the benefit of your officers and their family members, which constitutes inurement prohibited under IRC § 501(c)(3). For all these reasons, you fail to meet the requirements for tax exemption.”

p. 4. Sources to identify qualifying Exempt Organization

The amazing list of organizations that qualify as tax‐exempt organizations according to the IRS should be carefully reviewed on Exhibit 1.1 Organization Reference Chart. Note the chart takes four pages in the original book. Additionally lists can be found in the following publications on the Internet.

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