Non Profit Report - January 2011

Date: January 31, 2011

IRS Work Plan for 2011
by Eileen Morgan Johnson

Every year the IRS publishes its work plan for the following year. The work plans contain continuing and new projects and provide insight into the issues that are top of mind for the Service.

501(c)(4), (5) and (6)
When the Exempt Organizations unit released its 2011 work plan on December 15, it included a new project that will look at the activities of organizations that are exempt under Section 501(c)(4), (5) and (6) of the Internal Revenue Code. The IRS will be looking at political activity, inurement, and the extent to which those organizations that self-identify comply with the requirements for tax exemption. While 501(c)(3) organizations must receive a determination from the IRS that they are exempt under 501(c)(3), organizations that are exempt under 501(c)(4), (5) or (6) may claim the exemption without an IRS determination. Sometimes these organizations misclassify themselves and the Service will be looking to correct those classifications. The IRS will use the expanded questions on the Form 990 to review these organizations and their activities. Organizations that have self-identified as being exempt under 501(c)(4), (5) or (6) should not be surprised to hear from the IRS in 2011.

The IRS also plans greater scrutiny of 501(c)(3) activities including loans made to top officials and employment tax payments. Audits of charities increased 32% from 2008 to 2010 with 11,449 charitable organizations being audited in 2009. This increase is attributed to increased staffing for the IRS unit that handles audits of charities. Increased cooperation with the Social Security Administration and staff regulators has provided electronic data that the IRS has used to identify organizations that are not paying appropriate employment taxes. The IRS assessed more than $5 million in penalties last year to charitable organizations that did not correctly report loans to officers and senior staff. The IRS will continue to look at loans to insiders and employment tax reporting in 2011.

IRS Filing Thresholds Change
by Stephen M. Schaefer, Esq.

The IRS filing thresholds for tax-exempt organizations required to file the Form 990-series information returns have changed. A tax-exempt organization's annual gross receipts or total assets are used to determine which of the three versions of the Form 990 the organization is required to file.

Commencing with the tax-year 2010, organizations with gross receipts normally less than $50,000 may file Form 990-N. Previously, only organizations with gross receipts less than or equal to $25,000 could file Form 990-N. Form 990-N is commonly referred to as the "e-Postcard" by the IRS, since it is an internet-based form and must be filed electronically. Organizations eligible to file Form 990-N may, in the alternative, still chose file a complete Form 990 or Form 990-EZ. Organizations with gross receipts greater than $50,000 and less than $200,000 and total assets less than $500,000 must file Form 990-EZ or a complete Form 990. Organizations with gross receipts greater than or equal to $200,000 or total assets greater than or equal to $500,000 must file Form 990. Private foundations are required to file Form 990-PF.

Per Diem Rate Changes for Business Travel
by Eileen Morgan Johnson, Esq.

The IRS has issued Revenue Procedure 2010-39 which is effective for all business travel using per diems paid or incurred after October 1, 2010. Some organizations pay a per diem instead of reimbursing the actual expenses of employees for lodging, meals and incidental travel expenses. Those organizations that pay a per diem will want to become familiar with the new requirements. The greatest change was to the list of high cost localities. Some new destinations on the list are only considered to be "high cost" during certain high travel seasons. Transition rules are provided for the last quarter of 2010. More detail is available in IRS Publication 1542.