ANNUAL TAX UPDATE & FORM 990 CHANGES - … · ANNUAL TAX UPDATE & FORM 990 CHANGES Aaron Hershberger, CPA Director ... FedEx & UPS as filed on time if postmarked at least by the due

5/2/2017

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ANNUAL TAX UPDATE& FORM 990 CHANGES

Aaron Hershberger, [email protected]

May 2, 2017

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• Participate in entire webinar• Answer polls when they are provided• If you are viewing this webinar in a group Complete group attendance form with

• Title & date of live webinar• Your company name• Your printed name, signature & email address

All group attendance sheets must be submitted to [email protected] within 24 hours of live webinar

Answer polls when they are provided• If all eligibility requirements are met, each participant will be emailed their CPE

certificates within 15 business days of live webinar

TO RECEIVE CPE CREDIT

AGENDA

Form 990 Challenges

Form 990 Changes

Tax Update

Looking to the Future

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Form 990 Challenges

• Biggest challenge: understanding IRS terminology in forms & instructions

• Hours involved in gathering data from multiple parties• Lengthy process from end of fiscal year to actual filing return• Overall tax compliance burden is usually higher than comparable

for-profit entity

CHALLENGES IN FORM 990 COMPLIANCE

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• Challenges to 2016 Form 990 Trying to ensure that responses throughout the forms are consistent Good tax preparation software Knowing the connection points Industry norms Hospitals under scrutiny Benchmarking IRS e-file risk modeling

CHALLENGES IN FORM 990 COMPLIANCE

2016 Form 990 Changes

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• Changes to 2016 Form 990 For returns that cannot be electronically filed, IRS previously considered

returns that were delivered via USPS, FedEx & UPS as filed on time if postmarked at least by the due date of the return • IRS has added DHL Express to this listing• Whenever a return is mailed to IRS, it is best practice to obtain & retain receipt

for proof of mailing. If you are later assessed a penalty for late filing, you’ll have proof of timely filing

2016 FORM 990 CHANGES

• Changes to 2016 Form 990 For tax years beginning after December 31, 2015

• First extension for Form 990 & 990-EZ will cover a six-month period• Second extension is no longer available• Previously, two three-month extensions were available• The final filing due date with extensions remains unchanged


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• Changes to 2016 Form 990 The publicly supported charity definition has been updated to include

an agricultural research organization under §170(b)(1)(A)(ix) • Only pertains to §501(c)(3) organizations that are exempt as a public charity &

operate as agricultural research organizations. In other words, it doesn’t affect most organizations


• Changes to 2016 Form 990 Goods or services with insubstantial value have been indexed for

inflation. The value of items valued at $10.60 or less that bear the organization’s name or logo & are given to donors in exchange for a donation need not be disclosed to the donor


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• Changes to 2016 Form 990 For hospitals, a few minor changes have been made to Schedule H to

more closely align with the final regulations under §501(r) Form 990-T has been updated to include a specific line for tax on

hospitals that are not compliant with §501(r) regulations • The tax is not new , only the line for reporting the tax is new


Tax Update

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• Department of the Treasury 2016–2017 Priority Guidance Plan List of IRS & Treasury projects for 12-month period ending June 30,

2017 IRS is working on these projects, some of which carried over from last

year IRS intends to periodically update plan as priorities shift throughout the

year

IRS PRIORITY GUIDANCE PLAN

• Projects related to exempt organizations Revenue procedures updating grantor & contributor reliance criteria for

relying on type of public charity reported by organization Proposed regulations on political campaign intervention by exempt

organization (currently suspended under Department of the Treasury Appropriations Act, 2016) Guidance regarding methods of allocating expenses for unrelated

business income (UBI) relating to dual-use facilities

IRS PRIORITY GUIDANCE PLAN

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• Lays out initiatives TE/GE will specifically concentrate Continuous improvement Knowledge management Risk management Data-driven decision making Employee engagement

TE/GE PRIORITIES FOR FY2016

• Exempt Organizations (EO) division will focus resources on five strategic issue areas Exemption Protection of assets Tax gap International Emerging issues

TE/GE PRIORITIES FOR FY2016

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• Computer-driven compliance audits Clear ramp up of compliance enforcement activity Strained resources, still effective Looking for inconsistencies in responses or inaccuracies Indicative of simple misreporting, or a broader attempt to mislead Answers that conflict or contradict each other

IRS E-FILE RISK MODELING

• In FY2017, the EO division of IRS focused on five strategic areas Exemption Protection of assets Tax gap International Emerging issues

IRS FY2017 WORK PLAN

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• As of September 30, 2016, IRS completed 6,440 examinations –majority focused on two categories Filing, organization & operational subcategory was largest (2,774

examinations), which was part of exemption strategic area; this focused on verifying exempt activities & delinquent returns Employment tax issue was second largest subcategory (1,717

examinations); it focused on tax gap, including unreported compensation, worker reclassifications & noncompliance regarding withholdings


• IRS did 968 hospital reviews & referred 363 for field examination based on their 501(r) compliance—this will continue in FY2017

• In 2016, IRS also used modeling techniques, including data-driven decisions, to select returns for audit—closing 203 returns with a change rate of 85 percent. IRS plans to continue using data-driven decisions in FY2017 & further develop them to include modes for Forms 5227, Split-Interest Trust Information Return & 990-T, Exempt Organization Business Income Tax Return


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• EO division plans to continue moving forward many initiatives started in last two years. EO research is working on ways to identify organizations at risk for private benefit & inurement issues 400 returns were identified & included in FY2017 work plan for these

issues • EO division also seeks to identify anomalies on returns filed by

private foundations 100 returns were detected for this issue


• Employee Plans (EP) office intends to use compliance indicators to build project modes & statistical issue-based sampling to select cases for examination

• It will focus on noncompliance issues with greatest effect on retirement community as a whole

• EP division will continue to pursue same issues of noncompliance as FY2016• EP also will use data-driven approach to identity issues that may represent aggressive

or abusive behavior detrimental to plan participants • Compliance checks will focus on Savings Incentive Match Plans for Employees of Small

Employers, Form 5310-A, Notice of Plan Merger or Consolidation, Spinoff, or Transfer of Plan Assets or Liabilities; Notice of Qualified Separate Lines of Business, filings, issues surrounding terminated plans, inflated &/or unusual assets, Simplified Employee Pension plan issues & IRC §403(b) plan document requirements


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• Federal, State & Local Governments (FSLG) division will focus on these areas in FY2017 Data to identify cases Large entity examinations Increasing use of limited scope examinations Projects based on refund claims, compliance checks & small, focused

examinations Focused outreach education Enhancing technical knowledge


• Tax-Exempt Bonds (TEB) group will focus on identifying new issues & fact patterns with higher risk of noncompliance. Its priority is shifting to returns with past information indicating noncompliance. Data analytics will be used to identify returns as well as market segments

• Government Entities Compliance Services (GECS) division closely works with FSLG & TEB to identify focus areas & cases for compliance checks. For FY2017, GECS will focus on refund claim examinations & data-driven projects. GECS & TEB will focus on returns that show noncompliance for bonds on face of the return


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• IRS has effort to increase EO Knowledge Management (KM) employees’ technical understanding – IRS plans to present three to four educational sessions each quarter. IRS also plans to update virtual presentations by removing old ones & adding new presentations. All divisions plan to focus on KM in FY2017

• In addition, IRS plans new fillable Short Form 990-EZ, Return of Organization Exempt From Income Tax, with helpful instructions. Currently, there’s a 50 percent correction rate on paper-filed 990-Ezs; IRS hopes to reduce this percentage.

• IRS is doing an overhaul to combine Revenue Procedures; this is planned to be released January 2017


• Proper substantiation of charitable donations has become focus area for IRS

• Donor’s responsibility to obtain proper documentation from charity, charities that receive donations should understand rules to ensure they provide proper documentation to donors

• Archived “Charitable Gifts – Improving Financial & Tax Reporting” webinar available here

IRS ACTIVITY ON THE RISE

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• IRS holds LLC does not qualify under §501(c)(3) Available here

• IRS rules activities not UBI & will not attribute activities of wholly-owned subsidiary to exempt parent

• In PLR 201644019, the IRS issued several rulings related to proposed activities of a section 501(c)(3) educational organization, specifically, that a one-time sale of assets to partnership will not be treated as “regularly carried on” for UBI

purposes; payments by partnership to organization will be treated as exempt royalties under section 512(b)(2); lease payments made by partnership to organization will be excludable rent payments under section

512(b)(3); and activities of organization’s wholly-owned, for-profit corporate subsidiary will not be attributed to

organization. Copy of ruling found here

UBI UPDATES

• IRS rules income derived from real estate properties not UBI PLR 201630009 involves foundation that received portfolio of real

estate properties, primarily consisting of office rental properties. No part of rent paid by office tenants depends in whole or in part on income or profits derived by any person from property leases. IRS ruled income received from commercial real estate properties, & any income derived from sale of these properties, will be excluded from foundation’s unrelated business taxable income Copy of ruling found here

UBI UPDATES

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• IRS holds catalog & online retail sales are taxable In heavily redacted technical advice memorandum (TAM 201633032),

the IRS concludes income from various merchandise sales made through a §501(c)(3) organization’s printed catalog, online store & various retail outlets were taxable as UBI because sales did not contribute significantly to organization’s exempt purpose. Interestingly, the IRS seems to have abandoned its normal product-by-product UBI analysis in this ruling & instead made a blanket conclusion all sales are taxable Copy of technical advice memorandum found here

UBI UPDATES

• Advertising or qualified sponsorship payments? IRS Tax-Exempt & Government Entities Divisions issued detailed analysis

of difference between taxable advertising income & qualified sponsorship payments that are not subject to UBIT See more information here

UBI UPDATES

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• Tax impact of student newspaper endorsing political candidate Rev. Rul. 72-513 deals with student newspaper that is part of a §501(c)(3),

university & endorses a political candidate. IRS ruled endorsement will be treated as educational, not political, activity conducted by university because (i) students were supervised by faculty, (ii) paper was narrowly distributed primarily to student body & (iii) endorsing candidates is something newspapers do in ordinary course of activities

Does answer change if student newspaper is standalone §501(c)(3) organization? In Yale Daily News, a §501(c)(3) organization, this case presented various arguments on the issue here

POLITICAL ACTIVITIES

• The Congressional Research Service issued report describing federal student loan & repayment programs & explaining tax treatment of benefits provided by these programs

• This “Federal Student Loan Forgiveness & Loan Repayment Programs” report, with reference number R43571, can be found here

STUDENT LOAN FORGIVENESS

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• Nonresident aliens required to file federal income tax return in 2017 & want to avoid long wait for refund, should have ideally renewed their Individual Taxpayer Identification Number (ITIN) before January 1

• ITIN is used by anyone who has tax-filing or payment obligations under U.S. law, but is not eligible for Social Security number. Under recent statute, any ITIN not used on a tax return at least once in past three years expired on January 1, 2017. In addition, any ITIN with middle digits of either 78 or 79 (9NN-78-NNNN or 9NN-79-NNNN) expired on same date

• In IR-2016-173, IRS said ITIN renewal application filed prior to January 1 will be processed before one submitted in January or February &, while current processing time is as little as seven weeks, it will likely lengthen as tax season progresses

NONRESIDENT ALIENS-ITIN RENEWAL

• IRS noted several errors currently slowing down & holding up some ITIN renewal applications, most commonly missing information &/or insufficient supporting documentation. Also, IRS said to avoid processing delays, ITIN renewal applicants should use latest version of Form W-7, revised September 2016, which can be found here

• Instructions are available here


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• To ensure prompt processing, ITIN renewal applicants should At top of form, check box “Renew an existing ITIN” Under “Reason you’re submitting Form W-7,” check one of eight boxes. If more

than one applies, check option best describes tax purpose for filing application. Do not write “ITIN renewal” in this section of the form, that is not a valid reason

For applicants living outside U.S., enter their foreign address, if different from mailing address on Line 2. If now living in U.S., enter foreign country of last residence

Include original supporting & required identification documentation, or certified copies from the issuing agency to prove foreign status & identity

• Additional ITIN renewal information contained in IR-2016-173, found here


• Many organizations are both trustees & charitable beneficiaries of charitable remainder trusts (CRTs)

• CRTs typically invest assets to maximize investment return on such assets. Many donors & organizations invest CRT assets in the organization’s endowment. Many endowments though earn UBI, & if CRT earns any UBI, it must pay penalty excise tax equal to 100 percent of the amount of UBI

INVESTMENTS BY CRT IN ORGANIZATION ENDOWMENTS

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• Organizations have worked to structure a transaction so that a CRT, in return for funds invested in endowment, receives “endowment units” that represent independent investment so the UBI does not pass through to CRT. IRS has approved such structures in private letter rulings issues since early 2000s

• Many rulings also addressed tax treatment of redemptions of these endowment units & held that such redemptions would be treated as long-term or short-term capital gains depending on how long endowment units were held


• IRS has now issued a ruling (PLR 201636043) that indicates IRS is rethinking this position. While granting normal non-UBI rulings, the IRS says“In particular, no opinion is expressed or implied concerning whether income or loss from a surrender or redemption of units is treated as ordinary income or loss or as gain or loss from the sale or exchange of a capital asset”

• A copy of this ruling is found here


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Due date changes for years beginning after December 31, 2015

2017 FILING SEASON – DUE DATES

Tax Type (Form) Form No.Current Due

DateNew Due

DateCurrent Extended

Due DateNew Extended

Due Date

Partnership 1065 4/15 3/15 9/15 9/15

S Corp 1120S 3/15 3/15 9/15 9/15

C Corp 1120 3/15 4/15 9/159/15 (Until 2025)

10/15 (After 2025)

Trust 1041 4/15 4/15 9/15 9/30

Employee Benefit Plans 5500 7/31 7/31 10/15 11/15

Tax-Exempt Organizations 990/990-T 5/15 5/158/15 (First)

11/15 (Second)11/15

FinCEN 114 6/30 4/15 None 10/15

Note: due dates listed

above are for entities with

calendar year-ends

Looking to the Future

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• Numerous individual & business “extenders” expired on December 31, 2016

• Impossible to predict possibility of tax reform in 2017 Likely to require bipartisan support Unclear if any tax legislation would be

retroactive to January 1, 2017 • Fate of recent controversial

treasury regulations also uncertain following election

TAX OUTLOOK IS UNCERTAIN

QUESTIONS?

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The information contained in these slides is presented by professionals for your information only and is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.

BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

• CPE credit may be awarded upon verification of participant attendance

• For questions, concerns or comments regarding CPE credit, please email the BKD Learning & Development Department at [email protected]

CPE CREDIT

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THANK YOU!FOR MORE INFORMATION

Aaron Hershberger, CPA | [email protected] | 513.621.8300

Documents

ANNUAL TAX UPDATE & FORM 990 CHANGES - … · ANNUAL TAX UPDATE & FORM 990 CHANGES Aaron Hershberger, CPA Director ... FedEx & UPS as filed on time if postmarked at least by the due