New on the 2010 Form 1040

This post summarizes important tax changes that took effect in 2010. The changes are discussed in greater detail here.

Changes are also discussed at IRS.gov. Click on Forms and Publications and then on Highlights of Recent Tax Changes.

Due date of return. File Form 1040 by April 18, 2011. The due date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia — even if you do not live in the District of Columbia.

Limits on personal exemptions and overall itemized deductions ended. For 2010, you will no longer lose part of your deduction for personal exemptions and itemized deductions, regardless of the amount of your adjusted gross income (AGI).

Self-employed health insurance deduction. Effective March 30, 2010, if you were self-employed and paid for health insurance.

Standard deduction increased. The standard deduction for some taxpayers who do not itemize their deductions on Schedule A of Form 1040 is higher in 2010 than it was in 2009. The amount depends on your filing status. In addition to the annual increase for some taxpayers due to inflation adjustments, your 2010 standard deduction is also increased by:

• Any state or local sales or excise taxes you paid in 2010 on the purchase of a new motor vehicle after February 16, 2009, and before January 1, 2010, and
• Any net disaster loss you had in 2010 because of a disaster that was declared a federal disaster after 2007 and that occurred before 2010.

You can use the 2010 Standard Deduction Worksheet in chapter 20 of publication 17 to figure your standard deduction. But to increase your standard deduction by taxes paid on the purchase of a new motor vehicle or a net disaster loss, you must use Schedule L (Form 1040A or 1040) and attach it to your return.
Congress was considering legislation that would provide an increased standard deduction for real estate taxes or for a net disaster loss from a disaster occurring in 2010. To find out if this legislation was enacted, and for more details, see Schedule L (Form 1040A or 1040) or check www.irs.gov/formspubs.

Roth IRAs. Beginning in 2010, you can make a qualified rollover contribution to a Roth IRA regardless of the amount of your modified AGI.Also, half of any income that results from a rollover or conversion to a Roth IRA from another retirement plan in 2010 is included in income in 2011, and the other half in 2012, unless you elect to include all of it in 2010. See Publication 17 chapters 10 and 17.

Standard mileage rates. For 2010, the standard mileage rate for the cost of operating your car for business use is 50 cents a mile. See chapter 26. For 2010, the standard mileage rate for the cost of operating your car for medical reasons is 16½ cents a mile. See chapter 21. For 2010, the standard mileage rate for the cost of operating your car for determining moving expenses is 16½ cents a mile. See Publication 521, Moving Expenses.

Personal casualty and theft loss limit. Each personal casualty or theft loss is limited to the excess of the loss over $100 (instead of the $500 limit that applied for 2009). In addition, the 10%-of-AGI limit generally continues to apply to the net loss. See Publication 17 chapter 25. To find out if legislation was enacted to increase limits, see the 2010 Instructions for Form 4684.

Expired tax benefits. The following tax benefits have expired and are not available for 2010:

• Deduction for educator expenses in figuring AGI.
• Tuition and fees deduction in figuring AGI.
• Deduction for state and local general sales taxes.
• The exclusion from income of up to $2,400 in unemployment compensation. All unemployment compensation you received in 2010 generally is taxable.
• The exclusion from income of qualified charitable distributions made from IRA accounts.
• Government retiree credit.
• Extra $3,000 IRA deduction for employees of bankrupt companies.
• Certain tax benefits for Midwestern disaster areas, including increased Hope and lifetime learning credits and the additional exemption amount if you provide housing for a person displaced by the Midwestern storms, tornadoes, or flooding.
• Credit to holders of clean renewable energy bonds issued after 2009.
• The allowance of certain credits against the AMT, credit for nonbusiness energy property, credit for the elderly or the disabled, lifetime learning credit. For most people, these credits are now limited to your regular tax minus any tentative minimum tax.

 For more information....

IRS Releases Draft W-2 Form for 2011; Announces Relief for Employers

The Service issued draft Form W-2 for 2011, the information return employers use to report wages and withholding. It announced that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011. The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan.  The Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement. The IRS will be publishing guidance on the new requirement later this year. Although reporting the cost of coverage will be optional with respect to 2011, the IRS continues to stress that the amounts reportable are not taxable. Included in the Affordable Care Act passed by Congress in March, the new reporting requirement is intended to be informational only, and to provide employees with greater transparency into overall health care costs.

1099 Misc Changes

A section of the new healthcare reform legislation impacts the administrative burdens of all business, including religious and nonprofit organizations, though IRS regulations may soften the blow. As of now, beginning with payments made on January 1, 2012, if you pay any person or corporation more than $600 in a year for goods or services, you must report that to both the IRS and the entity or person whom you paid. For example, if you bought office supplies for $1,000, you would have to report that on your income tax returns and issue a 1099 to the company from which you made the purchase. Fortunately, there is now an exemption for credit card transactions, but that doesn’t apply if you paid by cash or check. (Section 9006 of the Healthcare Bill expands Section 6041 of the Internal Revenue Code.)

Note also, for those receiving credit card payments, the new Form 1099-K will be filed with the IRS by payment settlement entities, with a copy sent to the payee. The form is aimed at preventing underreporting of credit card sales by businesses. The forms will be required for credit card payments made after December 31, 2010.

Revocation of Exempt Status

The IRS has revoked the tax-exempt status of an organization based on its finding it was not operated exclusively for exempt purposes because it engaged in the illegal diversion of prizes and proceeds from raffle ticket sales for the personal use of its officers, employees, and/or other private individuals. Letter Ruling 201032048

Relief for Non-Filing Small Tax Exempt Organizations

Tax-exempt organizations that fail to satisfy annual filing requirements for three consecutive years automatically lose their tax-exempt status. The IRS is providing one-time relief that will allow small exempt organizations to come back into compliance and retain their tax-exempt status even though they failed to file for three consecutive years. If an organization loses its exemption, it will have to reapply to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

This one-time relief benefits Form 990-N (e-Postcard) and Form 990-EZ filers only. Organizations required to file Form 990 or Form 990-PF are not eligible and are automatically revoked if they fail to file for three consecutive years. Click here.

Charitable Giving Case: Wilkes v Commissioner

Petitioners' donations to needy individuals are private gifts and are not deductible as charitable contributions. Also, petitioners' contributions to an individual for missionary work in South Africa are not deductible as charitable contributions because petitioners directed the contributions to an organization formed outside the United States. However, petitioners' contributions to authorized agents of a charitable organization and meeting the requirements of section 170 are deductible as charitable contributions. See Wilkes v. Commissioner of Internal Revenue, (USTC, April 22, 2010).

Automatic Revocation for Not Filing Annual Return or Notice

Most tax-exempt organizations, other than churches, must file a yearly return or notice with the IRS. If an organization does not file as required for three consecutive years, the law provides that it automatically loses its tax-exempt status. Loss of exempt status means an organization must file income tax returns and pay income tax, and its contributors will not be able to deduct their donations. For more information....

Article on Charitable Trust Management / Liability

The following is taken from the article: Charities In Distress: Governance and Standards In Troubled Times A charity also has obligations to its creditors, but not in abrogation of its duty to its donors. Whether a charity is in bankruptcy or state insolvency proceedings, or is simply trying to determine how to pay the bills, state law will determine the rights of creditors to assets held for charitable purposes. However, not all of a charity’s assets may be made available to pay the claims of creditors. The analysis under the law of the applicable state turns on whether the assets are held in a separate trust, or quasi-trust, whether the assets are held for specific purposes or, if the charity goes out of business, whether the court should apply principals of equity and determine the further use of assets held for specific purposes. A trust for the benefit of a charity will not ordinarily be subject to the claims of creditors, unless it can be revoked by the charity or was created by the charity for its own benefit. A trust created by a third party is generally not available to the claims of creditors. If the charity has ceased to exist, the trust will not fail; rather a state court will determine its further and best uses. Relying on these rules, some charities create separate fundraising entities to insulate those assets from the claims of creditors. Typically, however, an endowment is not legally a charitable trust. Nonetheless, an endowment created by a charity which solicited donors by representing the fund as a permanent fund for specific purposes may be deemed equivalent to a charitable trust and not subject to creditors’ claims. Donor intent, in short, trumps creditors’ claims where the fund is restricted for a particular purpose. Board-restricted assets ordinarily will be subject to creditors’ claims on the theory that they are revocable and self-settled. Also, to the extent that a debt is within the scope of the purposes of the endowment, some part of the endowment may be available to the creditor.

More on the Form 990

The IRS has finalized the 2009 Forms 990, 990-EZ, schedules and instructions, for filing in 2010-11. Learn about changes made to clarify and modify reporting requirements and find links to the new forms, schedules and instructions on IRS.gov. Click here.

Form 990 Information from the IRS

Form 990 series returns are required to be filed by most tax-exempt organizations, except for church and government-affiliated organizations. Form 990 is the IRS primary tool for gathering information about tax-exempt organizations, for educating organizations about tax law requirements and ensuring their compliance. Organizations use it to inform the public about their programs. In addition, most states rely on Form 990 to perform charitable and other regulatory oversight, and to satisfy state income tax filing requirements for organizations claiming exemption from state income tax. More Information.

New on Exempt Organizations

1. Rev. Proc 2010-8: New User Fees Apply to Exempt Organization Matters

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New user fees apply to Exempt Organizations exemption applications, ruling requests and other matters for 2010. Consult section 6 of Revenue Procedure 2010-8 to ensure that you include the appropriate fee with your application for exemption or other ruling or determination request.

Applicants for exemption from Federal income tax, other than those filing Form 1023, should be sure to include the revised Form 8718, User Fee for Exempt Organization Determination Letter Request, with their submissions.

2. Revenue Procedure 2010-4: Updated Procedures for Issuance of Ruling and Information Letters

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The IRS has revised procedures for for the issuance of ruling letters, information letters, etc., on matters related to Code sections under the jurisdiction of the Commissioner, Tax Exempt and Government Entities.

3. Revenue Procedure 2010-5: Updated Guidance for Issuance of Technical Advice

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Revenue Procedure 2010-5 explains when and how Exempt Organizations Technical provides technical advice to area managers and appeals offices regarding exempt organization matters and provides a general update of Revenue 2009-5.

4. Statistical Information of Interest to Tax-Exempt Organizations

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Review statistical studies of exempt organizations and individual noncash charitable contributions compiled by the IRS Statistics of Income Division and learn how to download and use EO Master File Data on IRS.gov.