The City of Los Angeles Department of Finance announced a new program for city business taxes. This program is available to financially troubled businesses that seek a reduction of their outstanding business taxes due to an economic hardship. See following link for more information.
City of Los Angeles – Offer in Compromise Program
November 29th, 2010 · State and Local Taxes
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Revised Publication 557, Tax-Exempt Status for Your Organization
November 11th, 2010 · Federal Income Taxes
An updated Publication 557 is now available on the IRS website. The last version was published in June, 2008. Four topics are listed in the “What’s New” section:
New penalty provisions for nonfiling. For annual tax periods beginning after 2006, the law requires most tax-exempt organizations, other than churches, to file an annual Form 990, 990-EZ, or 990-PF with the Internal Revenue Service (IRS), or to submit an annual electronic notice, Form 990-N (e-Postcard), to the IRS. If an organization fails to file an annual return or submit an annual notice as required for 3 consecutive years, it will automatically lose its tax-exempt status.
Redesigned Form 990 and Instructions. The Form 990 has been redesigned for 2008 and future years. The new form consists of an 11-page, 11-part core form that is required to be completed by all organizations that file Form 990. It also consists of 16 schedules to be completed by those organizations that satisfy the applicable requirements for each schedule.
Elimination of the advance public charity status. New regulations eliminate the advance ruling process for a section 501(c)(3) organization. Under the new regulations, a new section 501(c)(3) organization will be classified as a publicly supported organization and not a private foundation if it can show when it applies for tax-exempt status that it reasonably can be expected to be publicly supported. The new rules no longer require the organization to file Form 8734 after completing its first 5 tax years. The new rules apply to organizations with advance rulings expiring on or after June 9, 2008.
Report significant new or changed program services and changes to organizational documents. An organization should report new significant program services or significant changes in how it conducts program services, and significant changes to its organizational documents, on its Form 990 rather than in a letter to the IRS Exempt Organizations Determinations (EO Determinations). EO Determinations no longer issues letters confirming the tax-exempt status of organizations that report new services or significant changes, or changes to organizational documents.
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Comments on 2010 Core Form 990
November 10th, 2010 · Federal Income Taxes, Governance
On October 2, 2010 the IRS posted an advance draft of 2010 Core Form 990 on its website. The draft is subject to change and OMB approval before it is officially released. The IRS requested that comments on the draft form be submitted within 30 days from the date the draft was posted.
Comments were prepared with input and contributions from members of the American Bar Association Business Law Section, Nonprofit Organizations Committee. Principal responsibility for preparing these comments was exercised by Lisa A. Runquist of the Nonprofit Organizations Committee of the ABA Section of Business Law. Contributions were made by Karen J. Orlin, Willard L. Boyd III, Patrick B. Sternal, Henry Lesser, Robert Siemer, Louis E. Michelson, Gary Wolberg, Lanie Meanley Collins, Patrick B. Sternal, Henry Lesser, Cherie Evans, Barbara Rosen, and Nancy McGlamery. The Comments were reviewed by Willard L. Boyd III, Committee Chair, for the ABA Nonprofit Organizations Committee, and by Michael E. Malamut, Co-Chair of the ABA Business Law Section’s Corporate Governance Committee’s and Nonprofit Organization’s Joint Subcommittee on Nonprofit Governance.
Both the State Bar of California Business Law Section comment letter and the ABA comment letter were sent out. The following link is to the California Bar version of the comment letter. The ABA version can be found at http://www.abanet.org/dch/committee.cfm?com=CL580000 under materials.
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Filing of Schedule B of Form 990 with the Attorney General
October 7th, 2010 · California nonprofit law
The question is disclosure of donor names on Schedule B of Form 990. The Treasury Regulation instructs that the names and addresses of contributors shall not be made available for public inspection. Treas. Reg. § 301.6104(b)-1(b)(1) “The names and addresses of contributors to an organization other than a private foundation shall not be made available for public inspection under section 6104(b).”
The Attorney General/Registry of Charitable Trusts requires the annual filing of the Registration and Renewal Report, commonly known as the RRF-1. The Instructions to Form RRF-1 require the filing of the Form 990 “and attachments.”
When this topic was discussed at the Nonprofit and Unincorporated Organizations Committee at the 2010 Annual Meeting, the widely held understanding was that Schedule B must be attached, but the names and addressed should be omitted, so that the donation amount shows.
Some professionals have been deleting the names and addresses from the Schedule B attached to the RRF-1 for the public charities. Some charities have received notices from the AG’s office that the Schedule B must be attached to the 990s that accompany the RTF-1s. The following question was posed to Belinda J. Johns, Senior Assistant Attorney General: Does your office make the 990s public, and if so, does your office sanitize the Schedule B before it is made public, or do you want the charity to sanitize the Schedule B before you receive it?”
Belinda Johns replied as follows: “Schedule B is a public document for private foundations but not for public charities. We tag Schedule Bs for public charities as confidential documents so they do not get scanned into our automated database. But they do have to be filed with us.” In fact the AG’s office is sending out notices if the Schedule B is sanitized before it is filed with the AG.
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Update Regarding Revocations of Exempt Status: Federal and California
July 26th, 2010 · California Exempt Status, Federal Income Taxes, Loss of Tax-Exempt Staus
There is good news (Federal) and not-so-good news (California). First the good news. The Internal Revenue Service today announced a one-time offer to small nonprofit organizations at risk of losing their tax-exempt status because they failed to file required returns for 2007, 2008, and 2009. The organizations can preserve their exempt status by filing returns by October 15, 2010. The IRS has frequently asked questions on this program.
Two types of relief are available for small exempt organizations. One type of relief is a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice (e-Postcard). The second type of relief is a voluntary compliance program (VCP) for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.
The not-so-good news is that starting on January 1, 2011, California is conforming with federal law and will require smaller tax-exempt organizations with normal gross receipts of $25,000 or less annually, other than churches and church-related organizations, to electronically file an annual informational notice, using Form 199-N. For additional information, see the following link to the FTB announcement.
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Pro Bono Training In the News!
June 15th, 2010 · Uncategorized
Pro Bono Training
Public Interest Article in Daily Journal quotes Louis E. Michelson, “The goal is to train some of the new lawyers to not be afraid of jumping into the deep water and [start] swimming.”
See “Pro Bono Not Limited to Litigation” by Susan McRae, June 15, 2010. Reprinted and/or posted with the permission of Daily Journal Corp. (2010)
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Missed the May 17th Filing Deadline? File Return Anyway
May 18th, 2010 · Charity, Federal Income Taxes, Loss of Tax-Exempt Staus
The May 17, 2010 deadline has passed for filing the required information returns. See the post below “Don’t Throw Away Your Tax Exempt Status”
IRS Commissioner Doug Shulman issued a statement to reassure small organizations that the IRS will do what it can to help them avoid lose their tax-exempt status. See the following link
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Don’t Throw Away Your Tax Exempt Status
April 29th, 2010 · Charity, Federal Income Taxes
IRS has posted new FAQs and an audio interview discussing the automatic revocation of tax-exempt status for failure to file information tax returns. The IRS has an audio “Don’t Throw Away Your Tax Exempt Status.” or a script of the podcast.
Also check out the audio “Haven’t Filed a Tax Return in Years” (or a script of the podcast) and find out how to claim refunds and minimize penalties.
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IRS Employment Tax Initiative
April 3rd, 2010 · Charity, employment taxes, expense reimbursement, Federal Income Taxes, intermediate sanctions
Beginning in February, 2010, the IRS is conducting its first Employment Tax National Research Project since 1984. For the first time, this project will include audits of exempt organizations. Of the 6,000 companies to be audited, some 500 audits of exempt organizations should be expected.
The IRS will be focusing on four employment tax compliance initiatives in 2010: (1) classification of workers as employees or independent contractors, (2) reasonableness of executive compensation, (3) tax treatment of employee reimbursements, and (4) tax treatment of fringe benefits.
These employment audits present additional risks for charitable organizations because IRS agents may consider other employment-related tax issues unique to charities. It would not be unusual for IRS agents auditing compensation at exempt organizations to inquire about the reasonableness of compensation. This might trigger scrutiny of the economic benefits being paid to executives, which includes payment of wages, as well as use of property, foregone interest on loans, deferred compensation, etc., all of which are intended to be treated as compensation. If unreasonable in the aggregate, the compensation can give rise to excess benefit transactions.
The automatic excess benefit transaction rules might also be at issue for employee expense reimbursements. If an employee’s expenses are reimbursed, but does not do so accordance with an accountable plan and there is no contemporaneous documentation that the parties intended to treat the benefits as compensation, the benefits may give rise to automatic excess benefits (whether or not the benefits were reasonable).
Workers can correct excess benefit transactions by repaying any excess benefits, but could be liable for penalties and interest on the excess benefits received. The IRS may also assess the charitable organization’s managers with penalties. Benefits that were incorrectly treated for tax purposes might result in additional income taxes to the worker and give rise to related payroll tax obligations for the exempt organization.
Charitable organizations should consider conducting an internal review of their compensation practices. It is also prudent to review expense reimbursement policies and procedures to ensure that the organization’s reimbursement arrangements qualify as accountable plans.
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Six Important Facts about Tax-Exempt Organizations
March 25th, 2010 · Charity, employment taxes, Federal Income Taxes, Governance, intermediate sanctions
The IRS just published six important facts about tax-exempt organizations: reproduced in full below:
Every year, millions of taxpayers donate money to charitable organizations. The IRS has put together the following list of six things you should know about the tax treatment of tax-exempt organizations.
1. Annual returns are made available to the public. Exempt organizations generally must make their annual returns available for public inspection. This also includes the organization’s application for exemption. In addition, an organization exempt under 501(c)(3) must make available any Form 990-T, Exempt Organization Business Income Tax Return. These documents must be made available to any individual who requests them, and must be made available immediately when the request is made in person. If the request is made in writing, an organization has 30 days to provide a copy of the information, unless it makes the information widely available.
2. Donor lists generally are not public information. The list of donors filed with Form 990, Return of Organization Exempt From Income Tax, is specifically excluded from the information required to be made available for public inspection by the exempt organization. There is an exception, private foundations and political organizations must make their donor list available to the public.
3. How to find tax-exempt organizations. The easiest way to find out whether an organization is qualified to receive deductible contributions is to ask them. You can ask to see an organization’s exemption letter, which states the Code section that describes the organization and whether contributions made to the organization are deductible. You can also search for organizations qualified to accept deductible contributions in IRS Publication 78, Cumulative List of Organizations and its Addendum, available at IRS.gov. Taxpayers can also confirm an organization’s status by calling the IRS at 877-829-5000.
4. Which organizations may accept charitable contributions. Not all exempt organizations are eligible to receive tax-deductible charitable contributions. Organizations that are eligible to receive deductible contributions include most charities described in section 501(c)(3) of the Internal Revenue Code and, in some circumstances, fraternal organizations described in section 501(c)(8) or section 501(c)(10), cemetery companies described in section 501(c)(13), volunteer fire departments described in section 501(c)(4), and veterans organizations described in section 501(c)(4) or 501(c)(19).
5. Requirement for organizations not able to accept deductible contributions. If an exempt organization is ineligible to receive tax-deductible contributions, it must disclose that fact when soliciting contributions.
6. How to report inappropriate activities by an exempt organization. If you believe that the activities or operations of a tax-exempt organization are inconsistent with its tax-exempt status, you may file a complaint with the Exempt Organizations Examination Division by completing Form 13909, Tax-Exempt Organization Complaint (Referral) Form. The complaint should contain all relevant facts concerning the alleged violation of tax law. Form 13909 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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