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.