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8601 Robert Fulton Drive l Suite 210 l Columbia, MD 21046 l 410-423-4800 l Fax 410-381-5538 l www.uhy-us.com UHY LLP provides solutions to nonprofit firms in accounting, tax and consulting. Form 8940 Have You Heard of It? By Carol Shepherd, Manager I was recently reminded of the IRS Form 8940 “Request for Miscella- neous Determination.” This form serves as a catch all, of sorts, for various determination changes. Here is a snapshot of a few things you can accomplish by filing this form: Request an exception from Form 990 filing requirements. If your organization is affiliated with a church, a convention or an association of churches, filing this form may exempt your organiza- tion Form 990 filing requirements. Request an advance approval that a potential grant or contribution is “unusual.” If you foresee your organization receiving a large contribution in continued on page 2 the next level of service For more information, please contact Jennine Anderson at [email protected] Nonprofit Insider August 2014 • Vol. 5 • No. 4 purposes, such as a single member LLC of which the organization is the sole member.” Unless a single member LLC elects to be classified as a corporation, it defaults to being a disregarded entity of its sole member. Here is an example: a nonprofit sets up an LLC of which it is the sole mem- ber; let’s call it ABC LLC. ABC LLC holds real estate, which it rents; has one employee; and has not elected to be classified as a corporation. ABC LLC is a disregarded entity of the nonprofit. How are disregarded entities treated on the 990? Now that we know what a disre- garded entity is, let’s look at how they are treated on the 990. The ac- tivities of a disregarded entity are treated as a branch or division of the filing organization and its activities must be reported as part of the filing organization’s activities on the 990. Revenues, expenses, balance sheet items, and such, go on the appropri- ate 990 schedules. Going back to our example, ABC LLC would report its rental income on Part VIII, the book value of the building as part of the O rganizations with disre- garded entities have reporting re- quirements. How do you know if your organization has a disregarded entity, and what are the reporting re- quirements? To answer these ques- tions, let’s first define what a disregarded entity is, and then we’ll explore how a disregarded entity gets reported on the 990 and discuss any additional considerations. What is a disregarded entity? According to the dictionary, the word “disregarded” means to ignore or to leave out of consideration. So, does that mean that we simply “ignore” them? Wouldn’t that be easy! As you will soon learn, that is far from the truth. How do you know if you have a dis- regarded entity? The IRS says a disre- garded entity is an “entity wholly owned by the organization that is not treated as separate for Federal tax UHY LLP Mid-Atlantic continued on page 2 Disregarded Entities 990 Reporting Considerations By Carol Shepherd, Manager FORM 8940

UHY Nonprofit Insider - August 2014

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Page 1: UHY Nonprofit Insider - August 2014

8601 Robert Fulton Drive l Suite 210 l Columbia, MD 21046 l 410-423-4800 l Fax 410-381-5538 l www.uhy-us.com

UHY LLP provides solut ions to nonprof i t f i rmsin account ing, tax and consult ing.

Form 8940Have You Heard of It?By Carol Shepherd, Manager

Iwas recently reminded of the IRSForm 8940 “Request for Miscella-

neous Determination.” This formserves as a catch all, of sorts, forvarious determination changes.Here is a snapshot of a few thingsyou can accomplish by filing thisform:

Request an exception from Form990 filing requirements.

If your organization is affiliatedwith a church, a convention or anassociation of churches, filing thisform may exempt your organiza-tion Form 990 filing requirements.

Request an advance approval thata potential grant or contribution is“unusual.”

If you foresee your organizationreceiving a large contribution in

continued on page 2

the next level of serviceFor more information,

please contact Jennine Andersonat [email protected]

NonprofitInsiderAugust 2014 • Vol. 5 • No. 4

purposes, such as a single member LLCof which the organization is the solemember.” Unless a single member LLCelects to be classified as a corporation,it defaults to being a disregardedentity of its sole member.

Here is an example: a nonprofit setsup an LLC of which it is the sole mem-ber; let’s call it ABC LLC. ABC LLC holdsreal estate, which it rents; has oneemployee; and has not elected to beclassified as a corporation. ABC LLC isa disregarded entity of the nonprofit.

How are disregardedentities treated on the 990?Now that we know what a disre-garded entity is, let’s look at howthey are treated on the 990. The ac-tivities of a disregarded entity aretreated as a branch or division of thefiling organization and its activitiesmust be reported as part of the filingorganization’s activities on the 990.Revenues, expenses, balance sheetitems, and such, go on the appropri-ate 990 schedules. Going back to ourexample, ABC LLC would report itsrental income on Part VIII, the bookvalue of the building as part of the

Organizationswith disre-

garded entitieshave reporting re-quirements. Howdo you know ifyour organizationhas a disregarded

entity, and what are the reporting re-quirements? To answer these ques-tions, let’s first define what adisregarded entity is, and then we’llexplore how a disregarded entity getsreported on the 990 and discuss anyadditional considerations.

What is adisregarded entity?According to the dictionary, theword “disregarded” means to ignoreor to leave out of consideration.So, does that mean that we simply“ignore” them? Wouldn’t that beeasy! As you will soon learn, that isfar from the truth.

How do you know if you have a dis-regarded entity? The IRS says a disre-garded entity is an “entity whollyowned by the organization that is nottreated as separate for Federal tax

UHY LLPMid-Atlantic

continued on page 2

Disregarded Entities990 Reporting ConsiderationsBy Carol Shepherd, Manager

FORM 8940

Page 2: UHY Nonprofit Insider - August 2014

Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a so-licitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein shouldnot be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been providedwith all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposedon the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to war-ranties of performance, merchantability, and fitness for a particular purpose.

UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms.UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. and UHY LLP are U.S. members of Urbach HackerYoung International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services de-scribed herein are provided by UHY Advisors and/or UHY LLP (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

book value of the assets of the filingorganization on Part X, and salaryexpense on Part IX.

Activities that require special disclo-sures, such as lobbying or political ac-tivities carried out by the disregardedentity, would be reported on the ap-propriate schedules.

The first time a disregarded entity ismentioned on the 990 is in Part IV,question 33 which asks, “Did the or-ganization own 100% of an entity dis-regarded as separate from the organ-ization.” A “yes” answer promptsSchedule R, Part I to be filled out.

Schedule R is wherecertain activities ofthe disregarded en-tity are reported in-dependently of the fil-ing organization. Total incomeincluded on Part VIII, line 12(A) attrib-uted to the disregarded entity and allassets attributed to the disregardedentity included on Part X, line 16(B)are reported here as well. The organi-zation that directly controls the entity,which could be the filing organizationor an intermediate disregarded entity,needs to be disclosed here also.

Other considerationsA disregarded entity may choose to betreated as separate from the filing or-ganization by filing form 8832, or itmay elect to be treated as its own tax-exempt organization by filing eitherthe 1023 or 1024 form, as appropriate.

A disregarded entity reports its activ-ities for Federal tax purposes underthe filing organization’s EIN number,

but for employment and certain excisetax reporting purposes, it is consid-ered a separate entity and files theappropriate employment or excise taxforms under its own EIN number.

While considered separate for em-ployment tax reporting, the numberof employees the disregarded entityreports on a W-9 is included in thenumber the filing organization re-ports on Part I, line 5 and Part V, line2 of the 990. In our example, if ABCLLC has one employee and the filingorganization has five; six employeesare reported on the 990, even thoughABC LLC and the filing organizationreport separate employment tax re-turns under separate EIN numbers.

An officer of adisregarded en-tity is not nec-essarily consid-ered an officer

of the filing organ-ization, but may qualify as a key em-ployee of the filing organization de-pending on that person’s salary andresponsibilities. If that person is re-sponsible for activities of the disre-garded entity that represent at least10 percent of the activities as a whole,then that person could qualify as akey employee and be included on PartVII and Schedule J.

Questions on 990 Part VI should beanswered based on the filing organi-zations policies and should note onSchedule O any policy questions an-swered “yes” if they apply to the dis-regarded entity.

The key takeaway here is to keep inmind the activities of your disregardedentity while filling out the 990. Ofcourse, we are always here to help!

the near future that may qualifyas “unusual,” consider applyingfor an advanced ruling using thisform. This foresight may helpavoid potential public supporttest “tipping” when the contri-bution is received.

Request reclassification of a 107(b)or 509(a) organization.

Here is an example: a 170(b)organization fails the support teston Part II, but will pass the sup-port test for 509(a) organizationsin Part III. Although not required,this organization could requestreclassification as a 509(a) organ-ization so its selection on Part I ofSchedule A agrees with the IRSrecords. This may not be some-thing to consider for temporary“blips” in contributions, ratherfor when the organization isbetter categorized under a dif-ferent charity status than origi-nally intended.

Request a change in Type ofSupporting Organization.

This form can be used if yourorganization is a Type I, II or IIISupporting Organization andwants to request a change in typeor initial determination of type.

It is important to note that thereis a filing fee of $400. Although itis unlikely that your organizationwill need to use the Form 8940, itis something to keep in the backof your mind. You never knowwhen it might come in handy!

Form 8940 -Have You Heard of It?continued from page 1

the next level of serviceDisregarded Entitiescontinued from page 1