FLYING UNDER THE IRS’S RADAR

Reporting Issues for Nonprofit Organizations

DeAnna R. Moss, CPA, CGMA

INTRODUCTION

BASIC REPORTING

APPLYING FOR TAX-EXEMPT STATUS1. Application

A. Form 1023B. Form 1023EZ (new as of August 2014)C. Form 1024

2. Private Benefit or Inurement3. Political Activities

ANNUAL RETURNS1. Federal

A. 990-N Postcard – Gross receipts < $50KB. 990-EZ – Gross receipts < $200K and Total Assets <

$500KC. 990 – Gross receipts > $200K or Total Assets > $500KD. Automatic Revocation

2. State – South CarolinaA. Annual Financial Report – no filing feeB. Annual Charitable Registration Statement - $50 filing

feeC. Professional Fundraisers and SolicitorsD. Raffles – Registration and Financial Report

PUBLIC DISCLOSURE1. Application for Exemption – Form 1023 or Form

10242. Tax Return – Form 990, 990-EZ, 990-N, 990-PF

A. Last three (3) years must be made availableB. Schedule B – Schedule of Contributors

3. Methods of providing InformationA. Organization websiteB. Other website – such as Guidestar.orgC. Hard copies – can charge for providing information

4. Penalties

UNRELATED BUSINESS INCOME (UBI)

UBI - DEFINED For an activity to be taxable, all three of the

following conditions must exist:1. Conduct of a trade or business2. Regularly carried on3. Unrelated to exempt purpose

EXCEPTIONS TO UBI1. Volunteer Labor – Activities in which substantially all of the

work is performed by volunteers. (per IRS 88% volunteer labor will qualify)

2. Donated Merchandise Sales – Received as contributions3. Conventions & Trade Shows – Conducted to educate and

promote products/services of members4. Sponsorship – Payment without an “arrangement or

expectation” that the sponsor will receive any “substantial return benefit”

5. Members’ Convenience – Activity carried on primarily for convenience of members, students, patients, or employees

RAFFLES IN SC

SC RAFFLES Nonprofit Raffles are legal as of April 4, 2015 Must be a tax-exempt organization under 501(c) (3), (4),

(6), (7), (8), (10), (19) or a class, department or organization of an educational institution.

Must be organized for one of the following purposes: Religious Charitable Scientific Literacy Educational Amateur sports Prevention of cruelty to children or animals

EXEMPT RAFFLES Two types of Exempt Raffles

A noncash prize has been donated to the organization and the total value of a single raffle event is not more than $500.00.

50/50 raffles – The proceeds are split evenly between the organization and the winner and the total value of proceeds collected is not more than $950 and the raffle tickets are sold only to members or their guests and not to the general public.

Exempt raffles do not require any annual registration form with the SC Secretary of the State

NON-EXEMPT RAFFLES Required to file an annual registration form each

year Form is due by the 15th day of the 5th month (4 ½

months)after the end of the fiscal or calendar year There is a $50 filing fee for the annual registration Required to file an annual raffle financial report –

due the same time as the annual registration form – no filing fee

RAFFLE STATUTORY RESTRICTIONS Limited to four (4) nonexempt raffles per year Purchase price per ticket cannot exceed $100 For each event, the total fair market value of prizes

cannot exceed $250,000 An individual prize per winner per raffle cannot exceed

$40,000 Cannot offer real property as a prize The drawing must be held no later than 9 months from

date the first ticket is sold No drawing may be held on Christmas Day

SUBSTANTIATION REQUIREMENTS

CASH CONTRIBUTIONS Donor is not allowed a charitable deduction without a

receipt or written acknowledgement from the organization

Contributions of more than $250 or more in one day MUST have a written acknowledgement from the organizationReceived by the filing of the tax return (including

extensions)Statement that no goods or services were provided in

exchange for contributionState amount and date of contribution

NONCASH CONTRIBUTIONS Donor MUST have receipt from organization The DONOR provides the fair market value of the donation –

not the organization. Goodwill has a valuation guide (http://

www.goodwill.org/wp-content/uploads/2010/12/Donation_Valuation_Guide.pdf)

Donor must have an appraisal if value donated exceeds $5,000

Volunteers can deduct out-of-pocket expenses incurred while volunteering (including mileage) Written acknowledgement from charity if value exceeds $250 Best practice to provide a yearend letter to volunteers

substantiating the type of services performed.

QUID PRO QUO CONTRIBUTIONS A payment made to a charity partly as a contribution

and partly for goods or services Disclosure statement required when amount exceeds

$75 Statement must include:

A good faith estimate of the fair market value of the goods or services that the donor received and a statement that any amount over the FMV is considered a contribution that is deductible for federal income tax purposes.

EMPLOYEE & INDEPENDENT CONTRACTOR

REPORTING

EMPLOYEE OR CONTRACT LABOR1. High Interest Area for Internal Revenue Service

(Misclassification of Workers)2. Information that provides evidence of control &

independence:A. Behavioral – Does organization control what the worker does

and how it is done?B. Financial – Business aspects controlled by organization (i.e.

expenses are reimbursed, how worker is paid, who provides tools to work)

C. Type of Relationship – Written contracts or employee type benefits (i.e. pension plan, insurance, paid time off)

FEDERAL – PAYROLL RETURNS1. Form 940 – Federal Unemployment – Section

501(c)(3) organizations are excludedA. Filed Annually – Due Jan 31st of following yearB. Paid quarterly if more than $500 per year, otherwise annually

2. Form 941 – Income Tax WithholdingA. Filed Quarterly (Jan 31/Apr 30/Jul 31/Oct 31)B. Paid either monthly or semi-weekly based on amount remittedC. Paid quarterly if amount due is less than $2,500

3. Form W-2 & W-3 – Annual Wage StatementsA. Filed Annually – due Jan 31st to the employees – due Feb 28th to

Social Security Administration

FEDERAL – OTHER FILINGS1. Form 1099-MISC – used to report payments to

independent contractors (unincorporated entities) who provide trade or business services if amounts paid exceed $600.

A. Filed Annually – due Jan 31st to contractors – due Feb 28th to IRS

2. Small Business Health Care Tax Credit (Form 8491) – in the Health care Act enacted in March 2010. To encourage small businesses to purchase health insurance for employees

A. Up to 25% of the lesser of amount contributed or small business benchmark premium

B. Must file 990-T to claim tax credit and get refund

STATE – PAYROLL RETURNS1. Form WH-1605 and WH-1606 – Withholding

A. Filed quarterlyB. Paid the same as your federal deposits requirement

2. Form UCE-120 – UnemploymentA. Organizations exempt under 501(c)(3) that employs

four or more individuals for any 20 weeks within the current or preceding calendar

B. Can chose to become liable by filing the election form (UCE-154)

C. Can chose to become a Reimbursable Employer by filing Form UCE-155

D. Filed and paid quarterly

OTHER FILING REQUIREMENTS

CONTRIBUTIONS1. Form 1098-C – Required by organizations

receiving donations of vehicles, boats, and airplanes valued > $500

A. Must be given to donor within 30 days of the sale or with 30 days of receipt if an exception applies

2. Form 8282 – Donee Information Return: Used to report information to the IRS and donors about the dispositions of donated property > $500 made within three years after the donor contributed the property.

A. Filed within 125 days of dispositionB. Copy must be given to the original donor (IRC §6050L)

CONTRIBUTIONS (CON’T)3. Form 8283 – Noncash Charitable Contributions –

organizations is required to sign page 2 if appraised value > $5,000. Donor must attach form to their individual tax return to claim deduction.

4. Form 8899 – Notice of Income from Donated Intellectual Property – required by organizations receiving gifts of intellectual property (patents, copyrights, software or similar property)

FOREIGN ACCOUNTSReport of Foreign Bank and Financial Accounts

(FBAR)

An organization with foreign interest in or signature authority over a foreign financial account exceeding $10,000 anytime during the year maybe required to report the account yearly to the Department of the Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114 report.

OTHER MISCELLANEOUS FORMS1. Racial Nondiscrimination for Exempt Private

School – Any religious organization or church that operates, supervised or controls a school must file an annual certification. If filed with Form 990 – Schedule E is used. If no 990 if filed Form 5578 is filed.

A. Must be filed by the 15th day of the fifth month after the end of the year.

OTHER MISCELLANEOUS FORMS (CON’T)2. Prohibited Tax Shelter – Form 8886-T

A. Used to specifically report its participation in a prohibited tax shelter transaction.

B. Due on or before May 15th following the close of the calendar year

A prohibited transaction is a transaction that is a listed transaction, a confidential transaction, or a transaction with contractual protection. Listed transactions have been determined by the IRS to be tax avoidance transactions and are identified by notice, regulation or other form of published guidance.

OTHER MISCELLANEOUS FORMS (CON’T)3. Personal Benefit Contract – Form 8870 –

Organization must report detailed information concerning paid premiums.

A. Personal Benefit Contract is generally any life insurance, annuity or endowment contract that benefits, directly or indirectly, a transferor, a transferor’s family member, or any other person designated by the transferor.

QUESTIONS?

DeAnna R. Moss, CPA, CGMA

Moss & Yantis CPA PA

843-606-2349

dmoss@mycpafirm.org