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Monday, January 16th, 2012

275,000 Non-Profits Lost Their Tax-Exempt Status in 2011!

 There are close to 2 million tax-exempt organizations operating in theUnited States.  Until recently, once your organization received its determination from the IRS that it was exempt, it was permanent unless affirmatively revoked by the IRS.  Although a significant number of these tax-exempt organizations were required to file an annual return, many failed to do so; a majority were not required to because they did not meet the filing threshold.

 Filing Requirements

 Prior to 2007, most organizations whose gross receipts were less than $25,000 were not required to file an annual return.  Congress then passed the Pension Protection Act of 2006, requiring most tax-exempt organizations to file an annual information return or notice with the IRS.  For tax years beginning after 2006, the IRS introduced the new annual electronic filing requirement for small tax-exempt organizations, the Form 990-N Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ.  The new law states that an organization failing to file an annual return or notice as required for three consecutive years will automatically lose its tax-exempt status. 

 The First Revocations

 In June 2011, the IRS announced that 275,000 non-profits lost their tax-exempt status because they failed to file the required annual documents for three consecutive years.   Of that 275,000, over 17,100 were organizations inFloridaand 540 were organizations inBrevardCounty.  The IRS publishes a list of organizations that have had their tax-exempt status automatically revoked, updating it monthly.    

 Revocation of tax exempt status can have significant financial and social affects.  Once an organization’s tax exempt status is revoked and the revocation published, it is no longer eligible to receive tax deductible contributions.  The organization may still accept donations, but the donations would not be deductible.  Many organizations that provide grants will only do so upon proof of tax-exempt status. For private foundations and sponsors of donor-advised funds, payouts made to a charity that has received a revocation letter will no longer be qualified distributions, thus subjecting them to possible excise taxes.  An organization whose had had their exempt status revoked will be required to file a federal income tax return and pay federal income taxes, may incur penalties for failure to pay income taxes, and substantially risk losing donors and members. 

 Reinstatement

 Most of the organizations affected by the initial round of revocations are believed to be defunct.  However, groups that are still operating may apply to get their exempt status reinstated by filing Form 1023 or Form 1024.  Those who worked on filing the original Form 1023 or Form 1024 know that this may be a tedious and time-consuming task. 

 Organizations normally with annual revenues of $50,000 or less may apply for transitional relief by applying for reinstatement of exempt status by December 31, 2012. By doing so, they will be treated as having had reasonable cause for not filing and status will be retroactively reinstated to the date it was automatically revoked. 

 Organizations with annual revenues greater than $50,000 can apply for retroactive reinstatement.  The application must contain a statement of reasonable cause for failure to file, a statement describing the safeguards put in place to ensure it doesn’t happen again, evidence to substantiate these statements, annual information returns for all tax years during and after the consecutive three-year period that the organization was required, but failed, to file an annual return, and the applicable user fee.  The organization will also have to consider additional expenses should they require professional assistance with their reinstatement. Upon reinstatement, the IRS will issue the organization a new determination letter.  Unfortunately, the IRS will not expedite applications for reinstatement unless the organization can prove it has a compelling reason.

 Conclusion

 As with the revamp of the Form 990 in 2008, the IRS is hoping that this new revocation process will increase transparency and lead to a more accurate picture of the non-profit sector.  Donors, grantors, members, clients, and other stakeholders will have the confidence the organizations that receive their support have reported as required and deserve their trust.

 According to TaxExemptWorld.com there are currently 2,665 tax-exempt organizations inBrevardCounty.  If you are a calendar-year organization and filed for a second extension, your final filing deadline for the 2010 tax year is November 15, 2011.

 The process of qualifying for tax-exempt status with the IRS can be a long and tedious process and is far more stringent and difficult than in past years.  As of September 2011, the service was only working on applications received in March 2011; already a six month lag.  Don’t risk losing your tax exempt status by failing to file your annual return as the consequences are severe and costly.

 Juliana K.,  Tax Manager

 


Wednesday, January 11th, 2012

Employee Benefit Plans

 This is a special reminder to plan administrators for employee benefit plans that the new IRS Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, is due for most plans by January 17, 2012. This new form replaces the IRS Form SSA, which was a required attachment prior to 2009. As a result of the electronic filing system through the Department of Labor for Form 5500, this form was removed. Plans that file an annual Form 5500 are now required to submit this new form to the IRS for the 2009 and 2010 plan years. After the 2010 plan year, future filing due dates will generally coincide with the 5500 filing.

 The IRS Form 8955-SSA is used to report participants who have separated from a plan and have deferred vested plan benefits remaining in the plan. These participants will be reported to the Social Security Administration, who can notify these participants that they may be entitled to these benefits.

 For additional information on the form, including instructions for filling out and filing, please visit the IRS website dedicated to this form:

 http://www.irs.gov/retirement/article/0,,id=240820,00.html

 Mike Durante, Audit Partner


Tuesday, November 8th, 2011

5 Steps to Business Succession Planning

Business Succession – 5 Key Steps

1) Visualize how you want your life to look after you are gone from the business.

2) Run the business like you will have it forever.

3) Groom your managemnet and transition team

4) Document systems and processes buyers pay premiums for.  Document systems that consistently generate profits.

5) Focus on your best buyers and clean up your financial statements, as this will be the basis for their diligence.

By Jim LaHam,Partner and Certified Succession Planner


Friday, September 2nd, 2011

The Last Remaining Export Incentive Just Got Some Staying Power

International tax planning can often be a challenge.  The rules are complex and the ability to reduce your tax exposure is sometimes not clear.  However, U.S. exporters, both domestic and foreign owned, have can take advantage of a structure that can provide significant tax savings. An old and in most cases forgotten export regime known as the Interest Charge-Domestic International Sales Corporation (IC-DISC), which dates back to the ’70s, has reared its head again as an extremely beneficial tax savings strategy. It has staying power now, with support existing in both Houses of Congress and the White House.

In its most recent form, the IC-DISC can provide a permanent 20% tax savings (or even more) for qualifying U.S. exporters. In certain cases, it eliminates U.S. tax entirely on the majority of export income. It also has a number of sophisticated features that can be tailored to help export businesses meet their objectives and goals.

Prior to 2003, the major tax benefit of the IC-DISC to U.S. exporters was deferral of U.S. tax on the commission income for up to $10 million in annual export sales (qualified export receipts). The deferral can be indefinite and is only minimally taxed as an interest charge to the U.S. shareholder on the deferred tax liability.  In addition, distributions to individual shareholders are currently taxed at a maximum rate of 15%—providing a way to convert 35% ordinary income to 15% qualified dividend income.  Of course, this assumes that the U.S. exporter generates operating profits and is creating taxable income in the U.S. However, sophisticated transactional studies can be performed to ensure the IC-DISC benefit is obtained, even if the U.S. exporter generates a “tax loss.”

Written By: Peter Hilera, Tax Partner


Tuesday, August 30th, 2011

Proposal on Changes to Revenue Recognition for Long Term Contracts to be Reworked

Both US and International Standards Boards are going back to the drawing board to rework their proposal to change the way many companies recognize revenue. As with other controversial proposals, the standard setters did not think clearly about the ramifications of complying with the standard on those required to comply and users of financial statements. Out cry from industry as well as the public sectors were significant and diverse based upon the sheer volume of comments received.

The proposal would have primarily required Companies involved in long term contracts to only recognize revenue when the contract was complete ( or C.O. obtained for commercial contractors) instead of as earned over the term of the contract ( i.e. percentage of completion based on actual costs incurred to date to total contract costs). The intention was to streamline revenue recognition across industries and avoid inconsistencies. Companies defined contract terms, determined cost estimates and other factors differently, which could cause disparity between similar companies’ revenues and possibly confuse users of the financial statements.

Comments suggested the proposed method was neither practical nor operational. Also sited by commentators was the cost to employ. The AICPA’s Financial Reporting Committee agreed with many of the comments. The Boards agreed to rework the standards, taking into consideration the many comments and suggestions received and introduce a “new and improved” proposed standard and take all possible steps to avoid unintended consequences. Expect the “new and improved” version to be released toward the end of 2011.


Tuesday, August 30th, 2011

Berman Hopkins Wright & Laham

We are very glad to be starting our blog and be able to reach people not only around Florida but, around the world.  We will be here to share our knowledge and expertise with you every day.


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