Tax Issues

California Property Tax Exemption for Religious Organizations

The State Board of Equalization (SBE) has reissued its Publication 48, Property Tax Exemptions for Religious Organizations , that provides a guide for organizations that wish to file for and receive a property tax exemption on qualifying church property. California laws provide for three exemptions that may be claimed on church property: the Church Exemption; the Welfare Exemption; and the Religious Exemption. An advantage of the Church Exemption is that it is the sole exemption available to leased property. While the Welfare Exemption covers the greatest number of uses, the Religious Exemption is generally more desirable for church-owned property because of its one-time filing provision. ( California SBE Information Publication 48, 04/01/2011 .)

2012 Budget Proposal Limits Charitable Contribution Deduction

The President proposes to limit, starting in 2012, itemized deductions (including charitable contributions) for married taxpayers with income over $250,000 and single taxpayer with income over $200,000. President Obama explained that his 30% reduction in itemized deductions for high-income taxpayers is necessary in order to pay for a 3-year fix to the AMT (alternative minimum tax). The proposal limits the tax rate at which high-income taxpayers can take itemized deductions to a maximum of 28%. The language is found on page 212 of the Federal Receipts portion of the proposed budget (see at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/r...)

Can Ministers Exclude Housing Allowances for More than One Home?

The Tax Court, in a divided decision, said yes to a minister that received an allowance for a second home that he had on a lake. The court rejected the IRS argument that the tax free allowance is limited to a single residence. More on this as it unfolds.

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.

A Step in the Right Direction: Senate Votes to Repeal of the Expansion of Form 1099 Filing Requirements

The Senate, by a 81-17 vote, approved an amendment to repeal a health care reform provision that would have had a major paperwork burden on churches and ministries. The provision would have required churches, ministries, and businesses to report to the IRS any purchase of more than $600 of goods or services from any vendor. This requirement, scheduled to go into effect in 2012, greatly expanded the current 1099 requirement that applies only to payments to unincorporated providers, and only for services.

Let’s hope the House will follow the Senate’s lead, and do it quickly.

Year End Tax Reporting Reminders

By now, you should have provided your employees with their copy of Form W-2 (wage and tax statement), and your independent contractors with their copy of Form 1099-MISC (nonemployee income). These forms were due to the recipients by January 31, 2011. The filing deadlines for submitting the 1099’s to the IRS is March 1, 2011 (if submitting the forms by paper). If you are filing over 250 forms, you must submit them electronically by March 31, 2011. The W-2 forms must be filed with the Social Security Administration by February 28, 2011. If filing electronically, the due date is March 31, 2011. Late penalties apply if forms are not filed by the due date.

New 1099 Reporting Requirement Closer to Repeal

In yet another step forward in advancing a repeal of the onerous new 1099 reporting requirement, the US Senate voted overwhelmingly on February 2, 2011 to cancel the new requirement. President Obama has indicated that he would accept the change [after the House of Representatives approves it, which is likely to happen]. The vote came as part of a failed effort in Congress to repeal the entire Health Care Reform Act, even as the new law faces a constitutional challenge in the courts. The new 1099 rules scheduled to go in effect in 2012 would require reporting of all vendor payments, including those to incorporated suppliers and for purchases of products and materials. An exception for payments made by credit and debit card has been proposed. The new 1099 reporting requirement has drawn criticism from the business community due the immense cost and effort that would be required to comply.

IRS Solicits Comments on Exempt Application Process

At an average of 96 hours (according to IRS estimate), applying for tax exemption under Section 501(c)(3) is time-consuming and arduous. The Paperwork Reduction Act of 1980 (PRA) was established principally to ease the paperwork burden for individuals and entities when dealing with the federal government. While the PRA is not new, it is still effective in identifying processes that may be streamlined. There is now a new pilot program in place to reduce the burden when preparing and filing Form 1023. The Department of Treasury is asking for your help and has provided a website for you to have your say. Visit http://www.pracomment.gov/ and take the opportunity to communicate with them your ideas for making the 1023 process easier.

New Hire Tax Credits Available to Churches & Nonprofits

Do you own business or are a leader of a tax-exempt organization? If so you may want to check out two new tax benefits for employers who hire and retain new workers. If you hire unemployed workers in 2010, you may qualify for a 6.2% payroll tax exemption. It applies to workers hired after February 3, 2010, and before January 1, 2011. And for each worker retained for at least a year, you may be eligible to claim a new hire retention credit of up to $1,000 per worker. The retention credit applies only to business income tax, so a church or nonprofit could only use it against unrelated business income tax. There are some additional provisions, so check out the details at http://www.irs.gov/irs/article/0,,id=223909,00.html

Relief for Some on Foreign Bank Account Reporting

As you may know, the IRS now requires more persons who own or have signature authority over foreign bank accounts are required to file a Form TD F 90-22.1, foreign bank account report (FBAR) by June 30 of each year. This requirement impacts organizations and their officers who have overseas activities and accounts. Due to the complexity of the new reporting rules, the IRS has announced limited relief for some filers effective for the 2009 calendar year:

1. Signature authority only. Persons with signature authority only, but no financial interest in a foreign account, will now have an extra year to file the report. The report originally due on June 30, 2010, will now be due on June 30, 2011.
2. FBAR-related questions on tax forms. A taxpayer who qualifies for the additional one-year filing deadline, provided they have no other reportable foreign accounts, should check “NO” in response to the FBAR-related questions on their 2009 federal tax forms (those questions that ask about the existence of foreign financial accounts).

For more information see IRS Notice 2010-23 at http://www.irs.gov/newsroom/content/0,,id=104345,00.html