Not-for-Profit Insights


	Wednesday, January 18 Not for Profit Roundtable 11:30 a.m. -1:00 p.m., Downstairs Conference Room Wednesday, January 25 Architect and Engineer Roundtable 11:30 a.m. -1:00 p.m., Downstairs Conference Room Thursday, February 2 Economic Update for Clients and Friends of the Firm 11:30 a.m.-1:00 p.m. Ashford Club
	If you’re interested in any of the above events, please contact Teri Cloud at 770-261-5472 or tcloud@bnkj.com

With the changes in the industry and the recent scandals involving both for profit and not for profit entities, it is no wonder that the IRS is focusing heavily on executive compensation and other areas where excess benefits can occur. With its Compensation Initiative, the IRS sent letters to more than 2,000 charities during 2004 and 2005. These charities were selected based upon certain triggers on the Form 990, including unanswered or inadequately answered questions or large amounts of compensation.

Approximately 1,225 of the organizations were contacted just as compliance checks; the rest were examinations.

Questions for the compliance checks included

Does your company have a program for determining compensation that meets the Rebuttable Presumption of Reasonableness guidelines?
How was compensation established?
Does the organization have a conflicts of interest policy?
Does the organization make loans to insiders?

Organizations that gave inadequate explanations on the compliance checks were forwarded to IRS examinations.

Most of the examinations were related to a single issue – generally compensation paid to directors or officers. Many of the exams have begun already. The IRS is using these as an educational tool and will use these exams to make revisions to the Form 990 and instructions. Some revisions to the Form 990 compensation section have already been made for the Draft Form 990 for 2005 (details are provided in “IRS Briefs” later in this newsletter).

Congress has also been following the issue of executive compensation, and the Senate has included some provisions in the current tax bill related to self-dealing and excessive benefit transactions (discussed further in Legislative Updates).

To learn more about the disclosure requirements for executive compensation as well as how your organization can make sure they are following the guidelines, you are invited to attend the seminar, “ Executive Compensation for Not For Profits” which will take place on January 18 at BNKJ’s office in Atlanta. Please call Teri Cloud at 770-261-5447 for more information.

Remember that beginning with tax year 2005 returns (tax years ending on or after December 31, 2005), organizations with total assets of $100 million or more that also file 250 or more returns with the IRS (income tax, excise tax, employment tax, and information returns) will be required to file the Form 990 electronically. For purposes of determining if 250 or more returns are filed, each Form W-2 and quarterly Form 941 and Form 1099 is considered a separate return.

The electronic filing requirement expands for taxable years ending on or after December 31, 2006 to include exempt organizations with assets of $10 million or more and all Private Foundations. The 250 return threshold also applies when determining the electronic filing requirement for the year.

If an organization is required to file electronicallybut fails to do so, it will be penalized as if the organization failed to file a return. The penalty for organizations with gross receipts exceeding $1 million is $100 per day for each day the failure continues up to a maximum of $50,000 per return.

The IRS has issued Notice 2005-88 which establishes bases under which taxpayers can request a waiver from the electronic filing requirements due to technology constraints or undue financial burden. The Notice outlines specific steps to take if requesting a waiver. www.irs.gov/charities/index.html

Most tax professionals are now equipped to file returns electronically, so if an organization uses an outside accountant for return preparation, there should not be a technology issue. Organizations that prepare and file their own returns will want to check and make sure that the software they use supports electronic filing. Also, such organizations will have to register with the IRS as an e-file provider. Applications and information can be found on the IRS website. www.irs.gov

Even if an organization is not required to file electronically, it may do so. The IRS began accepting electronically filed Form 990, Form 990EZ, and Form 990-PF in the 2004 tax year.