The District of Columbia requires business taxpayers to make tax payments over a certain threshold by electronic funds transfer (“EFT”). The most recent guidance issued by the D.C. Office of Tax and Revenue regarding EFT payments says that business taxpayers must pay EFT for all tax payments exceeding $10,000. However, over the last couple of months the Office of Tax and Revenue have been issuing notices to business taxpayers informing them that the EFT requirement has been decreased to payments exceeding $5,000. Although the Office of Tax and Revenue is authorized by statute to require EFT payments at this threshold, it has yet to issue a general notification to taxpayers or practitioners informing them of this new requirement.
According to conversations we have had with the Office of Tax and Revenue, their system will generate the 10% non-compliance penalty when a payment is submitted by check over $5,000. Although there is a reasonable cause waiver to the penalty that we think would obviously apply in these circumstances (i.e., no notice to taxpayers), the waiver requires a written request that could take some time in getting approved.
Taxpayers that suspect that they will have upcoming payments over $5,000 should register for making EFT payments on the Office of Tax and Revenue’s Electronic Taxpayer Service Center (eTSC) well advance of the payment due date. It can take 7-10 business days to receive the ID and password for the website, which are sent separately to taxpayers via regular mail. Taxpayers can call the Office of Tax and Revenue to receive their ID earlier, but the ID still may not be available for up to 7 business days after the registration is submitted.
Therefore, we would recommend completing the eTSC registration early if there is any chance that it will have an upcoming payment over $5,000. Please contact Aronson’s tax department if you have any questions.
The documentation requirements taxpayers must maintain in order to take a charitable contribution deduction on their tax return have been in place for almost 20 years. They are worth repeating however, as two recent tax court cases have upheld the necessity of following these rules and denied contribution deductions to taxpayers who did not have the necessary documentation.
As a review a donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous written acknowledgement of the contribution from the recipient organization. Although it is a donors responsibility to obtain a written acknowledgement, charities should be very mindful of these rules because certainly donor relations are at stake if something goes wrong. IRS publication 1771 outlines these requirements.
In a 2012 case, David and Veronda Durden were denied a tax deduction for contributions made to their church because the original acknowledgement letter received from the Church did not clearly stipulate that no goods or services were provided to the donors in exchange for their donation ( TC Memo 2012-140). To correct this problem, the Church issued a second acknowledgement letter with the required statement but it was rejected by the Court because it was not considered to be contemporaneous.
To be considered contemporaneous, the documentation must be obtained on or before the earlier of:
- The date the taxpayer files the original return for the taxable year, or
- The due date ( including extensions ) for filing the original return for the year.
There are rules outlining necessary steps if a non-cash donation of over $5000 is claimed for what is required to take a deduction for non-cash property (real estate, furniture, computer equipment, clothing etc.). The donor is required to file a Form 8283 with their standard return and it must include the signature of a “qualified appraiser” as to the value assigned to the donated property.
The tax court case of Joseph and Shirley Mohamed (TC memo 2012-152) also ruled against the taxpayers (who had taken a deduction of millions of dollars for donated real estate) because they did not properly comply with the rules regarding Form 8283 and did not obtain a qualified appraisal. This case resulted in a really draconian result for the taxpayer who had clearly donated substantially valuable property to their presumably valid charitable remainder trust, yet were denied the deduction due to improper reporting of the gift as far as completing the requirements of IRS Form 8283.
In both of these cases, the Tax Court has sent a strong message that the substantiation rules DO MATTER and failure to follow them closely will result in the loss of a contribution deduction.
How important are a few words? Ask the taxpayer whose charitable contribution deduction was denied by the IRS. The IRS requires organization to contemporaneously document whether any goods or services were provided in consideration for a contribution. Now is a good time to read through your organization’s gift acknowledgement to see that required wording is included. Aronson LLC is available to assist as needed. For more details of the IRS court case see ECFA.
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
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.
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.
July 25, 2012
2pm EST, 1pm CST, 12 MST, 11am PST
Sign up using the following link:
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
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 »
Recent changes to the Work Opportunity Tax Credit (WOTC) have made incentives for hiring eligible veterans available to tax-exempt nonprofit organizations. Under the VOW To Hire Heroes Act of 2011, the WOTC was expanded to include credits for nonprofit organizations that can be claimed against the employer portion of social security tax on wages paid to all employees during the first year beginning the day a qualified veteran begins work.
The tax credit for nonprofits is up to $6,420 per veteran, not to exceed the total social security tax for the period for which the credit is claimed. If an organization hired an eligible veteran between November 22, 2011 and May 22, 2012, it can still apply for the tax credit but the deadline is June 19, 2012. After that time and for hires beginning work before January 1, 2013, employers must file the necessary Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state within 28 days of hire in order to receive the credit.
In addition, nonprofit organizations must file a Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. The IRS recommends employers do not reduce required deposits in anticipation of any credit.
#taxexempt #nonprofit #taxcredit #veteran #wotc
Representative Charles Boustany Jr. (R – LA) has called a hearing of the House Ways and Means Committee scheduled for next week to discuss tax-exempt organizations and concern that the IRS has not been aggressive enough in monitoring charity abuses.
Up for discussion are items outlined in Boustany’s letter to the IRS sent October 6, 2011 as follows:
- How many tax-exempt organizations have been audited since 2008 and what issues were identified?
- How has the redesigned Form 990 increased transparency and accountability?
- Analysis of unrelated business income, revenues and the value of assets held by nonprofits for the years 2008 – 2010.
- What is the process for following up on allegations of excessive political campaign activity?
- Discussion of the level of charity care provided by all hospitals.
Per the Ways and Means Committee website, nonprofits are invited to submit their opinions on the topics by written statement. In order to submit your thoughts, go to the Committee homepage, http://waysandmeans.house.gov, select “Hearings.” Select the hearing for which you would like to submit, and click on the link entitled, “Click here to provide a submission for the record.” Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance with the formatting requirements listed below, by the close of business on Wednesday, May 30, 2012.The hearing will take place on Wednesday, May 16, 2012, in Room 1100 of the Longworth House Office Building, beginning at 10:00 A.M.
See specific formatting requirements for submissions and more details on the hearings here.
Additional Source: Chronicle of Philanthropy
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