Tax Issues

Contribution Receipts – The Letter of the Law

David & Veronda Durden learned the hard way that the exact wording of the receipt from their church was of utmost importance when claiming a tax deduction. Because the church failed to include the words “No goods or services were provided in exchange” for their contributions, the IRS denied the deduction. The church provided a revised receipt, but it was too late. The receipt from the church must be provided prior to filing the tax return. The Durdens took the case to Tax Court, but on May 17, 2012, the court agreed with the IRS. The receipt was faulty and did not comply with IRC Section 170(f)(8) as contemporaneous substantiation of the contribution.
See the court ruling at http://www.ustaxcourt.gov/InOpHistoric/DurdenMemo.TCM.WPD.pdf

New Information Required on Form W-3

The Internal Revenue Service has revised the 2011 Form W-3, Transmittal of Wage and Tax Statements, to require additional employer information. All Employers must check one of five new boxes on Form W-3 indicating the “Kind of Employer”. Four of the selections focus on nonprofit organizations and government entities; all other types of employers (e.g. for-profit business) will select “None apply”. Most nonprofit and charitable organizations, including churches, will check the box “501c non-govt”. The three other choices are for state & local government non-501c entities, state & local 501c entities, and Federal government entities. For paper filers, Form W-3 must be filed by February 29, 2012. For electronic filers the due date is April 2, 2012. To review the 2011 General Instructions for Forms W-2 and W-3, click on the following link : http://www.irs.gov/pub/irs-pdf/iw2w3.pdf

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.

Tax Exempt Organizations can Claim Tax Credit for Hiring Veterans

On November 21, 2011 President Obama signed the “3% Withholding Repeal and Job Creation Act” which extended the work opportunity tax credit (WOTC) for hiring veterans through December 31, 2012 and also allowed nonprofits to qualify for the credit via a reduction of payroll taxes. Qualifying veterans are those who are disabled, on government assistance, or who have been unemployed for more than 4 weeks in the year prior to being hired. For nonprofit organizations, the credit could be as much as $6,240 for hiring a disabled and unemployed vet, or as little as $1,560 for hiring an able-bodied vet who has been unemployed for at least 4 weeks in the year prior to being hired. Please contact your tax advisor or payroll specialist to determine your eligibility.

Good news from the IRS regarding cell phones

IRS Notice 2011-72 tells us that when an employer provides employees with cell phones for business reasons, neither the business nor personal use of the phone results in income to the employee. And here’s the best news of all: No recordkeeping of the usage is required. And, if instead of providing the cell phone the employer reimburses the employee for providing a cell phone for business use, that reimbursement will not be taxable. The guidance applies for all tax years after Dec. 31,2009.

The employee must maintain the type of cell phone coverage that is reasonably related to the needs of the employer's business, and the reimbursement must be reasonably calculated so as not to exceed expenses the employee actually incurs. Additionally, the reimbursement for business use of the employee's personal cell phone cannot be a substitute for a portion of the employee's regular wages.

MINISTRY TAX, ACCOUNTING, LEGAL & COMPENSATION SEMINAR

Stanfield & O’Dell, along with two nationally recognized law firms, is pleased to offer a Tax, Accounting, Legal & Compensation Seminar specifically targeted at current issues impacting Christian ministries and their leadership teams. Senior pastors, administrators and other nonprofit executives will benefit from the seminar topics. The one-day seminar will be held in Dallas, TX on September 30, 2011. For additional information and online registration, please visit: www.stanfieldodell.com/ministrytax.php

POSSIBLE CHANGES COMING TO THE PER DIEM

Rather than keeping records of the actual expenses paid by employees for meals, lodging, and incidentals during their travel away from home, a per diem method may be used by employers to reimburse under an accountable plan. A per diem (per-day) is an allowance used along with the number of days, location, and type of expenses incurred, to calculate the reimbursement. The IRS per diem follows the rates set by the U.S. General Services Administration (GSA) in use for their federal employees. Whether actual expenses or per diem are used, employees must still substantiate the time, place, and business purpose for such travel.

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.