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| Resource pages: |
| Regulatory Crackdown: The Current Environment--Welcome to Our World |
| Pension Protection Act of 2006 |
| Pension Bill passes Senate with substantial NPO elements Aug 06 Iowa Republican Senator and Finance Committee Chair Charles Grassley got his way on a number of things. August 17, 2006, the Pension Protection Act was signed into law, and had a substantial number of changes for the nonprofit sector and charitable giving. The attached long technical writeup (by Joint Committee on Taxation) explanation has a good table of contents and the nonprofit section starts on Page 263 of the document. In addition, Alice Anderson, one of the attorneys on my Resources: Law page, prepared the attached summary for her clients and friends. The IRS has published its own summary now as well. Some of the highlights that affect my world and the world of my clients: 1) All charities must file something now. See Q&A page for the "990-No" (just love that!) 2) Excess Benefit Transaction penalties ("excise taxes") are doubled; this is even true for "automatic excess benefit transactions" which is the one that touches spousal travel, laptops, cell phones and blackberries, even when the key employee is underpaid counting all perks. 3) Major crackdown on Donor Advised Funds and Supporting Organizations that are not very tightly controlled by public charities. In a number of ways, these law changes have made private foundations relatively more attractive. 4) Improvements in deductibility for donating certain types of monies such as IRAs that I'm too impecunious to fully grasp. 5) All financial contributions now require substantiation to be deductible; no change to which ones need receipts, but the others need at least cancelled checks (what do they do about collection plates in churches?) |
| Resource Links: Regulatory Crackdown: The Current Environment |
| IRS Political Activities Compliance Initiative Report |
| 75% of Selected Charities not in compliance Aug 06 Charities (501(c)(3)) are prohibited from intervening in the election of candidates. Results from 2006 audits have not yet been released, but the IRS did a rather thorough report on its examinations in the 2004 cycle. They received 166 complaint and other "rapid response" referrals, and selected 68 of those for exam (complaints are relatively new intake method for IRS), which added to the 64 exams ("audits" to you and me) underway, equaled 132 charities examined, of which fewer than half were churches. IRS determined that about 3/4 of them had violated the prohibition but many in just one case and promised to cut it out. By the time of the report, 82 were done, with 3 revocations (no more (c)(3)) and 55 with some activity. For now, this is the link to the IRS' reports. |
| IRS Executive Compensation Report |
| IRS Executive Compensation Initiative Mar 07 The IRS completed a program of compliance checks and audits around compensation, and released a report, in which it found no major pattern of excessive compensation, but massive mis-reporting (30% of 2000 compliance check" targets "chose to amend their returns" :) and while not very many abuses were found, some were large: 25 audits resulted in $21,000,000 of excess benefit transaction collections stemming from compensation of 40 insiders. The IRS report is interesting, and only 10 pages, and below is the summary they published. Note how they are under pressure to both defend our sector as well as police it. Congress' role is pretty contemptuous and politicized. The Executive Compensation Compliance Initiative involved examinations and compliance checks of approximately 2,000 organizations. The project identified the following reporting errors and/or omissions in the Forms 990 (Return of Organization Exempt From Income Tax) and Forms 990-PF (Return of Private Foundation) reviewed. 1. Failure to file Part V, which details compensation paid to officers, directors, trustees, and key employees, when filing Form 990. 2. Incorrect reporting on lines 50 and 51, Part IV (Balance Sheet). Loans to current and former officers, directors, and key employees should be reported on Line 50, but those to non-key employees should be reported on Line 51. Organizations involved in the project were found to have combined amounts from non-key employees along with those relating to officers, directors, trustees, and key employees on one line. 3. Missing required schedules supporting Part IV, Line 51a. Returns reporting loans receivable did not include the required schedule detailing borrowers' identities and loan terms. 4. Errors and omissions involving Line 89b, Part VI. Line 89b asks whether the filing organization engaged in, or became aware that it had engaged in, an excess benefit transaction. The IRS questioned organizations that left line 89b blank or answered yes. 5. Errors or omissions involving Schedule A, Part III (Statements About Activities). Yes responses require an attached supporting schedule. The IRS questioned organizations that answered yes or left questions blank.. 6. Errors or omissions in reporting officer compensation on Line 13, Part I, Form 990-PF. Yes responses require an attached supporting schedule. The IRS questioned organizations that did not report any compensation or check a box indicating that officers were not compensated. Finally, IRS follows up these reports with free phone forums where they do a powerpoint and explain what they've learned and plan to do. They really are to be commended for this transparency. You can find this pretty easily on the IRS page. For now this is the link to the compensation study results. |
| FYI |
| Hopefully we all keep learning. This is a little box of factoids that have caught me off guard lately. * Insider Compensation on Form 990 (current form). Form 990 Line 25 compensation to officers directors and key employees includes benefits (so in most cases this line will tie to all types of compensation in Part V-A, not just the first compensation column), and for the purposes of deciding who gets listed on Schedule A Line 1 (employees over $50K), benefits counts as well. * More Forms 990 on Guidestar. 501(c)(4,5,6) organizations' Forms 990 as well as private foundation Forms 990-PF are now on Guidestar, not just (c)(3) public charities' Forms 990. * Tandems and "indirect public support" In a (c)(3)/(c)(4,5,6) tandem, income from one to the other is "indirect public support" not "direct public support" on the Form 990. * Medicaid/Medicare as payments from many individuals for public support purposes. For 509(a)(2) organizations' public support tests, payments from Medicaid or Medicare for care count as multiple payments from the people helped, not as a single fee-for-service from a single payer. (In many cases IRS will view other government awards to care for a charitable class as payments from multiple payers). This relieves some of the GAAP v TAX issue on government awards. The idea is that while one payer pays, the client chooses which provider so it's to be treated as coming from the individuals. * Treatment of Qualified Sponsorship Payments. The (current) Form 990 exclusion codes for when earned income is not counted as unrelated business income has a new item for sponsorships; however, qualified sponsorship income is treated as donated income on Line 1, so it's not clear why it is listed with the exclusion codes. [News Flash: on the public support schedule on the New 990, Qualified Sponsorship Payments are not treated as gift income.] |
| The New 990 |
| "Coming at us like a freight train on meth" quipped one respected CPA colleague. The biggest regulatory change in decades, the New 990 has its own page on this site which will no doubt be under construction to one degree or another for months. |