International Tax Series: Be Aware of the Form 5471 Filing Requirement if a U.S. Person Owns Stock in a Foreign Corporation

The Form 5471 may need to be filed if a U.S. person owns an interest in a foreign corporation.  A foreign entity is required to be classified as a foreign corporation for U.S. tax purposes if the foreign entity is on the U.S. list of per se foreign corporations.  The list of per se foreign corporations is provided in the IRS instructions to the Form 8832 check-the-box entity classification election and in Treas. Reg. Section 301.7701-2(b)(8).

There are four main categories of filers that are required to file the Form 5471: Continue reading »

International Tax Series: Know the Basics of Entity Classification and Check-the-Box when Forming or Acquiring a Foreign Company

A U.S. person who plans to form or acquire an ownership interest in a foreign company should be aware of the following U.S. tax requirements. The Form 8832 check-the-box entity classification election can be filed to treat a foreign eligible entity as a pass-through entity for U.S. tax purposes. A foreign entity which is not on the U.S. list of per se foreign corporations is eligible to elect its classification for U.S. tax purposes on the Form 8832. A foreign entity on the U.S. list of per se foreign corporations is not eligible to make the election, and such foreign entity is required to be treated as a foreign corporation for U.S. tax purposes. The list of per se foreign corporations is provided Continue reading »

Even Simplified Employee Pensions Aren’t Always So Simple

Retirement plan sponsors and vendors alike will all tell you that nothing in the world of retirement plans is truly simple. This was supported by the findings of the Employee Plans Compliance Unit’s recent SEP Plan Compliance Check project. The project revealed an abundance of errors by both SEP plan sponsors and financial institutions.

A SEP is designed to allow small employers to provide retirement benefits to its employees without getting bogged down in all of the rules associated with the more complex qualified plans like 401(k) plans and the like.  SEPs are not subject to the Employee Retirement Income Securities Act of 1974 (ERISA), do not have a 5500 filing requirement with the DOL and their assets are invested in individual retirement accounts (IRAs). While these differences make them far less complex and expensive to administer, contributions to the participants’ account still receive Continue reading »

Gaming and Exempt Organizations – IRS Announces Phone Forum

Sign up for a phone forum conducted by the specialists at the IRS on tax exempt organizations, to be held on July 18, 2012, at 2:00 p.m. EST, titled “Exempt Organizations and Gaming”.  Here is the link to register: http://www.irs.gov/charities/article/0,,id=258086,00.html

Topics to be covered:

• Impact of gaming on tax-exempt status
• Internal controls and record keeping
• Form 990 filing requirements
• Unrelated Business Income Tax
• Filing requirements for Payments made to individuals
• Wagering/excise taxes

Maximize Use of the 2012 Gift Tax Exemption: A “Defined Value” Formula Clause Approach

For 2012, the cumulative lifetime gift tax exemption is $5.12 million per person ($10.24M for married couples), with a 35% tax rate on gifts over that amount.  Unless Congress takes action, the exemption is scheduled to decline to $1 million next year, with a 55% tax rate on gifts in excess of the exemption.

Most advisors regard the 2012 exemption as a great gifting opportunity that Continue reading »

Employers Need to Act Soon to Get Expanded Credit for Hiring Vets

IRS Special Edition Tax Tip 2012-11, June 12, 2012

Employers that hired unemployed veterans during late 2011 and early 2012 had an expanded period to request the required certification for claiming the expanded Work Opportunity Tax Credit (WOTC). That expanded period ends on Tuesday, June 19.

The IRS is reminding employers that for eligible veterans hired on or after Nov. 22, 2011 and before May 22, 2012, they have until Continue reading »

File Under: Don’t Do This

The Disabled Veterans National Foundation (DVNF) is currently being investigated by the Senate Finance Committee based on allegations of improper spending and charges that not much of the funding raised actually went to veteran aid. The investigation began after reports by Charity Watch and CNN that the charity received almost $56mil in donations from 2008 through 2010 but “little if any direct cash” went to veteran support.

For the record, the DVNF’s official defense is that $16.1mil of cash and donated goods went to veterans and that having only started in 2007, they need to focus on building their donor base. That’s defending that only 28% of contributions are actually going to their intended purposes. Some veteran groups reported receiving cough drops and 11,000 bags of coconut M&Ms. Others reported receiving chef’s coats, hats and aprons that the DVNF claimed as donated goods worth $800K.

Form 990s are publicly available as a way of forcing transparency in organizations that solicit funds from individuals. Individuals are encouraged to look but not that many may be able to interpret quickly what they are seeing. Taking a look at DVNFs 990 filing for 2010 shows over $24.7mil in contributions received and over $10.7mil spent on fundraising. That’s 43.5% of every dollar raised going to raise the next dollar.

Generally people want to give their money to charities they know will actually put that money towards the program mission. This is why groups like United Way and Combined Federal Campaign require that organizations registered and receiving funds through them met certain ratios of program to fundraising.

This is also why your auditor will look at your functional expense ratios and look for any signs of fundraising expenses that have been inappropriately allocated to program in an effort to make the organization look more effective. I have had clients that struggled with ways to efficiently fundraise and asked me how to keep their ratios better. Ways of reaching your target audience fall outside of the scope of my expertise, but I can tell you that the ratio won’t get better without spending less on fundraising and more on programs. If you are spending too much on fundraising – you need to assess how effective your organization really is.

Donors need to learn to look at ratios to decipher where their funding stands the best chance of being used for programs. It’s important, however, to recognize that all organizations require funding to operate and overhead is inevitable and necessary so make a distinction between management vs. fundraising when making this assessment.

All organizations that get involved with direct-mail campaigns should educated themselves about joint costs as making mistakes with those can put your fundraising ratios at risk.

Read more from CNN’s report on DVNF and check out Charity Watch’s Hot Topic on DVNF. Read DVNF’s response here.

Look at Guidestar for public access to Form 990s.

Lack of Proper Appraisal Results in $18.5mil Charitable Deduction Denied

The Tax Court recently denied a taxpayer’s large charitable contribution deduction for donated real estate valued at $18.5 Million.  The Court denied the deduction because the taxpayer did not have the proper substantiation of the value under the tax code rules. The Court acknowledged the taxpayer did make the donation and also stated that the property’s value was probably greater than the amount the taxpayer was claiming.  (TC Memo 2012-152)

In order to take charitable deductions of more than $5,000 worth of noncash property, there are very strict substantiation rules that must be followed.  Among the rules is the requirement for the taxpayer to obtain a qualified appraisal for any noncash single item or grouping of items donated and valued by the taxpayer at over $5,000.

If you are a nonprofit 501(c)(3) receiving noncash donations, or a taxpayer who wishes to donate such items and take the charitable deduction applicable, we strongly advise you talk to your nonprofit tax specialist early in the process to make sure the taxpayer meets all the substantiation requirements so the desired tax deduction can be taken.

IRS Webinar on Churches and Religious Organizations

The IRS Office of Exempt Organizations is offering a free webinar for people associated with churches or religious organizations.

July 25, 2012

2pm EST, 1pm CST, 12 MST, 11am PST

Sign up using the following link:

http://www.visualwebcaster.com/IRS/87466/reg.asp?id=87466

Topics to be covered in the webinar are:

• What is the IRS definition of a “church” and a “religious organization”
• How to apply for tax exempt status
• How to stay tax exempt
• Special rules for compensation of ministers
• Recordkeeping and filing
• Rules limiting an IRS audit of a church

Be Aware: FBAR Filing Date Moved Up!

The Form TD F 90-22.1 is commonly referred to as the foreign bank account report or “FBAR.” The FBAR is usually due on June 30th following the calendar year end. This year June 30th is on a Saturday so the FBAR for the calendar year 2011 is required to be received by the U.S. Treasury Department on or before June 29, 2012. The mailbox rule does not apply to the filing of the FBAR and an extension of the due date is not allowed. The mailbox rule means that U.S. federal income tax returns are considered to be filed based on the date Continue reading »