Charitable 501(c)(3) organizations must meet inspection and disclosure requirements

Charitable organizations enjoy significant benefits, such as receiving tax deductible contributions and not having to pay taxes on income.

In return, Congress allows the public to inspect documents (such as the Form
990 or 990-EZ) that these organizations file with the IRS. These forms – which
report gross receipts, expenses, etc. – are information returns and do not report
paying taxes.

In addition, the public can review an organization’s original application for
recognition of tax-exempt status, any documents filed with the application, and
any correspondence between the organization and the IRS regarding the
application.

The public can also inspect a charitable organization’s Form 990-T, the tax return
filed by organizations that receive unrelated business income of more than
$1,000 annually.

In addition to disclosing annual returns and applications for exemption, 501(c)(3)
organizations must make certain disclosures to donors to whom something has
been given in return for their contributions. This is called a quid pro quo
contribution, which in Latin means “something for something.”

For example, suppose a donor gives a charitable organization $100. As an
incentive or thank-you, the organization sends the person a concert ticket with a
fair market value of $40.

The donor’s tax deduction in this transaction may not exceed $60. In this case,
the donor’s payment exceeds $75, requiring the charitable organization to furnish
a disclosure statement to the donor, even though the deductible amount does not
exceed $75.

The disclosure must:
 Be in a written statement that is likely to come to the attention of the
donor
 Be provided at the time the contribution is solicited or when the
payment is received
 Inform the donor that the amount of the contribution deductible for
federal income tax purposes is limited to the excess of the amount
of money and the value of any property contributed by the donor
over the value of goods or services provided by the organization
 Provide the donor with an estimate of the fair market value of the
goods or services provided by the organization

If an organization fails to meet the written disclosure requirement, a penalty of
$10 per contribution, up to $5,000 per fundraising event or mailing, may be
assessed.

In addition to the public inspection and quid pro quo contribution disclosure
requirements, if a charity offers to sell goods or services that are available free
from the federal government, it must disclose that fact in a recognized format.

For more information on this or other IRS topics, go to IRS.gov.

Helpful topics:
Publication 1771, Charitable Contributions – Substantiation and
Disclosure Requirements
Tax Information for Charities & Other Non-Profits
Exempt Organization Public Disclosure and Availability Requirements
Subscribe to IRS free exempt organization newsletter, the EO Update
Review phone forum presentations on tax-exempt issues

Know Your Rights As A Taxpayer

  1. The Right to Be Informed Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the law and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.
  2. The Right to Quality Service Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to have a way to file complaints about inadequate service.
  3. The Right to Pay No More than the Correct Amount of Tax Taxpayers have the right to pay only the amount of tax legally due, and to have the IRS apply all tax payments properly.
  4. The Right to Challenge the IRS’s Position and Be Heard Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.
  5. The Right to Appeal an IRS Decision in an Independent Forum Taxpayers are entitled to a prompt and impartial administrative appeal of IRS actions and have the right to receive a written response explaining the Appeals Division’s decision. Taxpayers generally have the right to take their cases to court.
  6. The Right to Finality Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’ position, as well as the maximum amount of time the IRS has to audit a particular tax year. Taxpayers have the right to know when the IRS has finished an audit.
  7. The Right to Privacy Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and a collection due process hearing.
  8. The Right to Confidentiality Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.
  9. The Right to Retain Representation Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.
  10. The Right to a Fair and Just Tax System, Including Access to the Taxpayer Advocate Service Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. 

Steve Eubanks, EA

Strategic Tax Group

Enrolled Agents Week in Texas

On Friday, January 29, Governor Greg Abbott proclaimed the week of January 31 – February 6, 2016 to be Enrolled Agents Week in Texas. Governor Abbott joins eleven of his fellow governors in recognizing EAs for a week.

EA Week

Time to Issue 1099-MISC

The form 1099-Misc is filed by businesses and self-employed people, primarily for services provided by businesses or people who are not a corporation (except law firms). You’ll need to file a 1099-Misc for everyone last year that you:

Paid $600 or more for
• Services (including parts and materials)
• Rent
• Prizes and awards
• Other income payments

Paid any amount for
• Services paid to any law firm or attorney

If you paid by credit card or a third party service (i.e., paypal) then you do not include them.

To collect the legal name, address, and taxpayer identification (SSN or EIN), you will need to have the vendor or individual fill out a W-9. This stays with you and doesn’t get filed with the IRS.

If you need assistance with issuing the 1099-MISC to your vendors we can help you in preparing and sending to those individuals.

Steve Eubanks, EA
Strategic Tax Group

www.strategictaxgroup.com

IRS Identity Protection PIN Letters

We have been notified by the IRS that due to an error, taxpayers are receiving Identity Protection PIN letters with an incorrect year listed. Taxpayers and tax professionals should be advised the IP PIN listed on the CP 01A Notice dated January 4, 2016 is valid for use on all 2015 individual tax returns.

The notice incorrectly indicates the IP PIN issued is to be used for filing the 2014 tax return when the number is actually to be used for the 2015 tax return. The IRS emphasizes the IP PIN listed on the CP 01A notice is valid for the 2015 returns. Taxpayers and their tax professionals should use this PIN number for 2015 tax returns, which the IRS will begin accepting from taxpayers starting January 19, 2016.

The IRS apologizes for the confusion and any inconvenience.

Steve Eubanks, EA, NTPI Fellow

www.strategictaxgroup.com

 

2015 PATH Act (new tax law)

Congress has once again extended the “extenders,” a varied assortment of more than 50 individual and business tax deductions, tax credits, and other tax-saving laws which have been on the books for years but which technically are temporary because they have a specific end date. This package of tax breaks has repeatedly been temporarily extended for short periods of time (e.g., one or two years), which is why they are referred to as “extenders.” Most of the tax breaks expired at the end of 2014, but now, in the recently enacted Protecting Americans from Tax Hikes Act of 2015 (i.e., the 2015 PATH Act), the extenders have been revived and extended once again, but this time Congress has taken a new tack. Instead of just rolling the package of provisions over for a year or two, it actually made some of the provisions permanent and extended the remaining provisions for either five or two years, while making significant modifications to several of the provisions.

I’m writing to give you an overview of the key tax breaks for individuals that were extended by the new law. Please call our office for details of how the new changes may affect you.

The extended provisions include:

  1. tax credits for low to middle wage earners that were originally enacted as part of the 2009 stimulus package and were slated to expire at the end of 2017; made permanent; these tax credits are: (1) the American Opportunity Tax Credit, which provides up to $2,500 in partially refundable tax credits for post-secondary education, (2) eased rules for qualifying for the refundable child credit, and (3) various earned income tax credit (EITC) changes;
  2. the $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary material used by the educator in the classroom; made permanent; also modified, beginning in 2016, to index the $250 cap to inflation and include professional development expenses;
  3. the exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income; extended through 2016; the new law also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged in 2017, if the discharge is pursuant to a binding written agreement entered into in 2016;
  4. parity for the exclusions for employer-provided mass transit and parking benefits; made permanent;
  5. the deduction for mortgage insurance premiums deductible as qualified residence interest; extended through 2016;
  6. the option to take an itemized deduction for State and local general sales taxes instead of the itemized deduction permitted for State and local income taxes; made permanent;
  7. the increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes is made permanent; the new law also extends the enhanced deduction for certain farmers and ranchers;
  8. the above-the-line deduction for qualified tuition and related expenses; extended through 2016; and
  9. the provision that permits tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70 1/2 or older; made permanent.

I hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please do not hesitate to call.

Know the law: Avoid political campaign intervention

Tax-exempt section 501(c)(3) organizations like churches, universities, and hospitals must follow the law regarding political campaigns. Unfortunately, some don’t know the law.

Under the Internal Revenue Code, all section 501(c)(3) organizations are prohibited from participating in any political campaign on behalf of (or in opposition to) any candidate for elective public office. The prohibition applies to campaigns at the federal, state and local level.

Violation of this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes. Section 501(c)(3) private foundations are subject to additional restrictions.

Political Campaign Intervention

Political campaign intervention includes any activities that favor or oppose one or more candidates for public office. The prohibition extends beyond candidate endorsements.

Contributions to political campaign funds, public statements of support or opposition (verbal or written) made by or on behalf of an organization, and the distribution of materials prepared by others that support or oppose any candidate for public office all violate the prohibition on political campaign intervention.

Factors in determining whether a communication results in political campaign intervention include the following:

  • Whether the statement identifies one or more candidates for a given public office
  • Whether the statement expresses approval or disapproval of one or more candidates’ positions and/or actions
  • Whether the statement is delivered close in time to the election
  • Whether the statement makes reference to voting or an election
  • Whether the issue addressed distinguishes candidates for a given office

Example of Political Campaign Intervention

State University President Benjamin, the leader of a section 501(c)(3) organization, writes a “My View” monthly column for the alumni newsletter that is distributed to thousands of school graduates. In the month before an election, he writes, “It is my personal opinion that candidate Thornton should be reelected.”

For that one issue, President Benjamin pays from his personal funds the portion of the cost of the newsletter attributable to the column. Despite his payment, the publication is an official university publication, and the president’s endorsement constitutes campaign intervention.

Over the years, some of the specific instances of political intervention alleged and examined have included:

  • Charities, including churches, distributing diverse printed materials that encouraged their members to vote for particular candidates
  • Candidates speaking at official charity functions in their capacities as candidates
  • Charities endorsing or opposing a candidate on their websites or through links to other websites

Stephen A. Eubanks, EA
www.strategictaxgroup.com