Non Profit Report - Summer 2010
Small Tax-Exempt Organizations: Don't Lose Your Exempt Status
A One-Time Filing Relief Program for Small Tax-Exempt Organizations
by Stephen M. Schaefer
On July 26, 2010, the Internal Revenue Service implemented a one-time special filing relief program for "small" tax-exempt organizations at risk of losing their tax-exempt status because they didn't file required annual information returns with the IRS for 2007, 2008, and 2009. Eligible organizations can come into compliance and preserve their tax-exempt status by filing the required returns by October 15, 2010. A list of potentially affected organizations has been posted on the IRS website (www.irs.gov).
Prior to 2007, tax-exempt organizations whose gross receipts were normally $25,000 or less were not required to file an annual information return with the IRS. However, the Pension Protection Act of 2006 changed the annual filing requirements for "small" tax-exempt organizations to ensure that the IRS and potential donors would be able to obtain current information regarding the organization.
Most tax-exempt organizations whose gross receipts are normally $25,000 or less must now file IRS Form 990-N. This includes the subordinate organizations of a parent tax-exempt organization (such as chapters) that do not file as part of the parent's group information return as long as the subordinate's annual gross receipts are normally $25,000 or less.
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. The first filings of Form 990-N were due in 2008 for the tax years ending on or after December 31, 2007. Subsequent filings of the Form 990-N were due annually thereafter. The IRS has indicated that a reminder notice was sent to potentially affected organizations.
The IRS will not assess a penalty if a tax-exempt organization required to file Form 990-N files late or fails to file, but that organization will lose its tax-exempt status if it fails to file the delinquent Form 990-N by October 15, 2010.
The IRS has also implemented a voluntary compliance program for tax-exempt organizations eligible to file IRS Form 990-EZ and who failed to file required annual information returns with the IRS. Affected organizations must file their delinquent annual information returns by October 15, 2010 and pay a compliance fee.
If an organization loses its tax-exempt status for failure to file Form 990-N or Form 990-EZ, the organization will have to file a new application for tax-exemption with the IRS, unless the organization can show that it had reasonable cause for the failure to file. If reasonable cause is shown and a reinstatement of tax-exempt status is granted, the reinstatement may be granted retroactively. Any income received by the organization between the revocation date of its tax-exempt status and the date of the renewed exemption will likely be taxable.
The Form 990-N is due every year by the 15th day of the fifth month after the close of the affected tax-exempt organization's tax year. Completing the Form 990-N requires the following information from the organization: (1) Employer Identification Number (EIN)/Taxpayer Identification Number (TIN), (2) tax year, (3) legal name and mailing address, (4) other names and/or tradenames used by the organization, (5) name and address of a principal officer, (6) website address (if any), (7) confirmation that the organization's gross receipts are normally $25,000 or less, and (8) if applicable, a statement that the organization has terminated or is going out of business.
Tax-exempt organizations may still chose to voluntarily file IRS Form 990 or Form 990-EZ in lieu of filing Form 990-N. Certain tax-exempt organizations are exempt from the Form 990-N filing requirement. Subordinate organizations of a parent tax-exempt organization that are included in the parent organization's group tax-exemption and are included in the parent's group information return are not required to file Form 990-N, since the group information return satisfies the subordinate organization's reporting requirement. However, if the subordinate organization does not file as part of the parent's group information return and the subordinate's annual gross receipts are normally $25,000 or less, the subordinate organization must file its own Form 990-N. Churches, their integrated auxiliaries, and conventions or associations of churches are also not required to file Form 990-N. However, tax-exempt organizations whose annual gross receipts are normally not more than $5,000 that support certain religious organizations must file Form 990-N, unless they voluntarily file IRS Form 990 or Form 990-EZ.
Other tax-exempt organizations cannot file Form 990-N, but must file a different form. Private foundations must file IRS Form 990-PF. Some section 509(a)(3) supporting organizations are required to file Form 990 or Form 990-EZ. Section 527 political organizations that are required to file an annual information return are required to file Form 990 or Form 990-EZ.
Corral Your Contracts
by Eileen Morgan Johnson
Managing your association's contracts is like herding cats. Just when you think you have it all under control, one gets away from you. What can you do to round them up into a comprehensive contract management program?
Identify the Contracts
To adopt a contract management program for your association, you first have to identify what constitutes a contract. They come with many different labels. Whatever it is called - contract, agreement, LOA, MOU, MOA, invoice, purchase order, mortgage, lease, license, assignment, or grant - any agreement, written or verbal, that obligates your association to do something is a contract.
First, conduct an inventory of current contracts by identifying all vendors, suppliers, and independent contractors with which the association is currently working. Do this on a departmental or even more granular basis so that a clear picture emerges of the variety and extent of your contracts.
Define the Problem, Design the Solution
Mismanagement of contracts can lead to several problems, and the elements of your association's contract management solution will depend on the problems you aim to solve. You should also consider adding some best practices to avoid problems that you have not yet experienced.
If automatic renewals are giving you headaches, include a policy that prohibits or regulates these. Implement a system to track which contracts have automatic renewal provisions and the deadlines to give notice of termination.
If payment due dates or other milestones are being missed, develop a way to track the due dates with enough lead time to enable your finance staff to generate a payment.
If anyone can sign a contract and no one is looking out for the association's rights, build procedures for review and approval of contracts, including required standard contract terms and review by your association's legal counsel when appropriate.
Contract Management Programs and Policies
A contract management program will
- Identify the types of contracts covered;
- Specify staff authorized to enter into contracts for the association;
- Correlate contracts with budgets;
- Provide for a review "up the ladder" when certain dollar amounts or other factors are involved;
- Specify when a contract must be reviewed by the association's attorney;
- Identify contract templates or forms that can be used without further approval;
- Set fort certain standard contract terms such as insurance requirements or renewal notices;
- Indicate where originals of contracts are to be filed and maintained.
A contract management policy supports the contract management program by spelling out the various rules and practices to be followed, such as those above.
The contract management policy also goes hand in hand with your association's records management policy (aka document retention and destruction policy). Copies of contracts should be maintained for at least one year after the statute of limitation for contract claims has passed. While this may be one year in some states (for a holding period of two years) it could be longer in states such as New York, which has a six-year statute of limitations. Federal law might also require that certain contracts, such as those relating to employee benefits or government grants, be kept for a longer period. Consult your association's legal counsel for the document retention periods applicable to your association's contracts.
Contract Management Software
It used to be that associations designed their own contract management systems, often using a spreadsheet to track contracts and important due dates. Now so many contract management software programs are available that you should be able to find one that fits your budget.
Off-the-shelf programs often provide greater functionality than user-developed programs and have the added benefit of customer support and available enhancements. Pricing varies depending on the features selected and the number of users. Programs are designed to run on small local area networks, client servers, or via the web. With some systems, you can store electronic versions of your contracts, further integrating your contract and records management programs.
Managing your contracts might seem to be an overwhelming task when you begin, but once the backlog is accounted for and all contracts are in the system, you will reap the benefits of being more organized and knowing what contractual obligations your association has incurred. The result is a greater ability to control costs and monitor the quality of products and services provided to your association.
Small Business Health Care Tax Credit Available to Tax-Exempt Organizations
by Stephen M. Schaefer
If you are a small tax-exempt organization that provides health insurance coverage to your employees, you may qualify for the Small Business Health Care Tax Credit. This new tax credit is designed to help small employers, including tax-exempt organizations, afford the cost of health insurance coverage for their employees. The credit is primarily directed to employers with employees of low to moderate income.
In order to be eligible for the tax credit, the employer must pay at least fifty percent of the health care coverage cost for its employees based on the single individual rate. The employer must also have fewer than the equivalent of twenty-five full-time employees. Finally, the employer must pay average annual wages below $50,000.
The maximum tax credit available for tax-exempt employers in 2010 is twenty-five percent of the employer's health insurance premium cost. For tax-exempt employers, the amount of the credit cannot exceed the total amount of income taxes and Medicare taxes that the employer is required to withhold from its employees' wages for the year, plus the employer's share of Medicare taxes on its employees' wages for the year. The credit gradually phases out for all employers with average wages between $25,000 and $50,000 and for employers with the equivalent of between ten and twenty-five full-time employees.