Governance Issues

IRS Announces Delay in e-File Operations for 990 Filers

Because of updates to the Modernized e-file (MeF) system being made between 1/1/2012 and 2/29/2012, the IRS is granting an extension of time to file to March 30, 2012 to organizations whose due date or first extended due date falls within the update period. Organizations required to file electronically may file electronically between March 1, 2012 and March 30, 2012, or may opt to file a paper return during the suspension period instead. Of course, affected organizations may request an additional 3-month extension if they have not already done so. Organizations that have already been granted two extensions for a total of six months may not request a further extension.

Supreme Court Won’t Hear World Vision Religious Discrimination Case

On October 3, 2011 the U.S. Supreme Court elected not to hear a case involving World Vision, a non-profit Christian organization. World Vision asserted in Sylvia Spencer et al v. World Vision that it has the right to hire or dismiss employees based on their religious beliefs, and a August 2010 decision by the 9th Circuit Court of Appeals in San Francisco agreed. The denial of hearing means that decision will stand.

In a press release, World Vision U.S. president Richard Sterns said: “Today's action by the U.S. Supreme Court represents a major victory for the freedom of all religious organizations to hire employees who share the same faith--whether Muslim, Buddhist, Jewish, Christian, or any other religion. I am pleased, relieved and gratified with the court's action. After four years of litigation, we at World Vision U.S. may now put this matter behind us, and continue our policy of hiring Christians."

State Registration for Charities & Religious Organizations

Currently, 39 states and the District of Columbia require charities that solicit funds within their borders to register with the secretary of state. Churches and religious organizations are generally exempt from the registration requirements in most states; however, some states require churches to register if the church is required to file Form 990, and some states require non-church religious organizations to register. Arizona requires to churches to register, but does not require financial information. Charitable solicitation rules vary from state to state and can be complex. Registration is also normally required for any professional fundraising company hired by the charity. In addition to the cost and time required to prepare the registration forms, most states also require a fee for registration. The states that don’t require registration? Delaware, Idaho, Indiana, Iowa, Montana, Nebraska, Nevada, South Dakota, Texas (except for public safety charities), Vermont & Wyoming.

Impact of Healthcare Reform on Church and Nonprofit Plans

As organizations renew their healthcare coverage, many are learning about the new nondiscrimination rules. For plan years beginning on or after September 23, 2010, a group health plan (other than a self-insured plan) shall satisfy the requirements of section 105(h)(2) on the Internal Revenue Code of 1986 (relating to prohibition on discrimination in favor of highly compensated individuals). Previously, most health care plans were allowed to provide benefits only to select groups of employees. Group health plans that existed as of March 23, 2010 may be “grandfathered” and continue to escape the nondiscrimination rules. Grandfathered status can be lost if the plan is modified. Two useful articles covering the subject are available by clicking the links below.
http://www.healthcare.gov/news/factsheets/keeping_the_health_plan_you_ha...
http://churchexecutive.com/archives/health-care-reform-impacts-churches-...

Exempt Status Revoked? Here’s How to Get it Back

Tax exemption provides relief to the organization from property and income taxation and extends the charitable deduction to donors of the organization. Minimum filing requirements, such as an annual information return, are required of organizations other than churches and certain church-related entities. As difficult as it is to obtain tax exemption, the IRS has revoked tax exemption of approximately 275,000 entities nationally because they failed to follow the minimum filing requirements. Active organizations in this situation may be subject to additional income tax filings, withholding, taxes and/or penalties. The IRS has posted a list in spreadsheet form, searchable by state, that includes the name, employer identification number (EIN), organization (subsection) code, and last known address for these revoked organizations, and is available here http://www.irs.gov/charities/article/0,,id=239696,00.html.
While many on the list have closed or dissolved, for those who desire to continue operating, there is a process to reinstate tax exemption. Details can be found here http://www.irs.gov/charities/article/0,,id=221600,00.html. We can assist with these steps, which include resubmitting the application with applicable fee (reduced fee available for smaller organizations), written statements, completed information returns, and a signed declaration.

Update on Health Insurance Tax Credit for Churches and Nonprofits

On May 5, 2011 the IRS updated information on its website related to the health insurance tax credit. For purposes of determining eligibility for the credit, ministers who are treated as employees are included in the calculation of full-time employees. The health insurance premiums paid for employee ministers are also included when calculating the credit. However, for purposes of determining average annual wages, the compensation paid to ministers is not included. Minister’s wages are not subject to FICA, and are thus excluded from the definition of “wages” for purposes of the credit. Generally, tax exempt organizations with fewer than 25 full-time equivalent employees and average wages less than $50,000 are eligible for the tax credit or a portion of the credit. The credit is refundable and is limited to the amount of required federal income tax withholdings from payroll and the employer share of Medicare tax.

Visit the IRS website to read more at http://www.irs.gov/newsroom/article/0,,id=220839,00.html.

Update on Health Care Credit for Nonprofits

As you may already know, the small business health care tax credit is available starting in 2010 for churches and nonprofits that meet the eligibility requirements (fewer than 25 full-time equivalent employees and average wages less than $50,000). All employees of the church are considered, including ministers who receive a W-2. The IRS has now clarified the procedures for nonprofit organizations to claim the credit. The IRS will issue a refund to qualifying churches and nonprofit organizations for up to 25% of the cost of providing health insurance to employees. The 25% credit will increase to 35% in 2014. To claim the credit, nonprofit organizations must file Form 990-T and attach Form 8941.

Sample Policies are Available for your Church or Nonprofit

The redesigned 990 has brought into focus the need for policies and procedures which instill confidence in the exempt organization from its donors, clients, employees and the public at large. Many organizations are engrossed in their mission and need assistance in developing governance policies which reflect the current best-practices advice. We are often asked to supply sample policies to non-profit organizations who desire to improve their procedures and governance, and to partner with them in developing a comprehensive design for excellence and transparency. Contact us for more information. Also, here are links to resources from ECFA which may be of assistance.

Various 990-related Policies and Procedures: http://www.ecfa.org/TopicDisplay.aspx?PageName=TopicNewForm990RelatedPol...
Record Retention and Destruction Policy: http://www.ecfa.org/Documents/RecordsRetention.doc
Sample Travel and Expense Reimbursement Policy: http://www.ecfa.org/Documents/TravelandExpenseReimbursementPolicy.doc
Sample Credit Card Policies: http://www.ecfa.org/Documents/SampleCreditCardPoliciesandProcedures.doc

President’s Advisory Council on Faith-Based Partnerships Issues Recommendations

In its report released this month (March 2010), the Council gave recommendations to the President on areas of need targeted by the White House and also on reform of the Office of Faith-Based and Neighborhood Partnerships. Noting the disagreement among Council members on the issues of federally-funded programs provided by churches and religious organizations, and the oversight of those funds by government agencies, the following recommendations (among many others) were given:

Minister’s Housing Allowance Challenged

In yet another California challenge to the constitutionality of the minister’s housing allowance (or parsonage allowance), the Freedom From Religion Foundation filed a lawsuit in Sacramento federal court arguing that ministers should not be granted a special tax exemption not available to others, as this represents a violation of the separation of church and state. The lead counsel for the Foundation is Michael Newdow, who gained notoriety as the attorney who led an assault on the pledge of allegiance in public schools. The lawsuit was filed in October 2009, and in December 2009, a federal judge ruled that certain ministers – in favor of the housing allowance – could not join the case as they had requested.