By: Richard Ruvelson
I am taking this opportunity to pass on information gleaned from the Nonprofit Law Prof blog dated July 13, 2015. It is reassuring to know that, even during contentious times at the beginning of a presidential-election campaign, bipartisanship still exists. This particular blog addressed the July report of the Senate Finance Committee’s Business Income Tax Bipartisan Tax Working Group Report (the Report). The blog addressed several issues in the report that directly affect tax-exempt organizations and currently have some level of bipartisan support. I wanted to pass on information about two of these issues:
- Setting one rate for the Internal Revenue Code Section 4940 private-foundation excise tax based on investment income
- Requiring electronic filing of all Form 990 series returns by tax-exempt organizations
Internal Revenue Code Section 4940
With respect to the IRC Section 4940 excise tax on private-foundation investment income, current law imposes a two-tier tax of 1-2 percent on the net investment income of a private foundation. The tax is 1 percent if in any year in which a foundation’s charitable distributions (grants and expenses related to making them) exceeds the average of the foundation’s prior five years’ grants and related expenses.
The America Gives More Act, H.R. 644 passed by the House in February 2015 creates a one-rate tax at 1 percent, and the President’s Budget for Fiscal Year 2016 proposes one rate of 1.35 percent. There is agreement that the tax be set at just one rate; the issue is the rate itself.
Currently, small tax-exempt organizations, public charities and other tax-exempt organizations – not including private foundations – with annual gross receipts of less than $50,000 are required to file Form 990-N (the e-Postcard) on or before the 15th day of the fifth month following their yearend.
Large tax-exempt organizations are required to file Form 990 or Form 990-PF electronically, if their total assets exceed $10 million and they file at least 250 returns annually. For this purpose returns includes income, excise, employment tax and information returns. Upon receipt of a manually filed Form 990, 990-PF or 990-EZ the IRS scans the return and provides them to the public by providing DVDs with many returns.
Last year’s Camp Proposal (the Tax Reform Act of 2014) and President Obama’s FY 2016 budget both provide that all tax-exempt organizations file the applicable Form 990, 990-EZ or form 990-PF electronically. In the words of Business Income Tax Bipartisan Working Group Report, “This manual conversion process is inefficient, expensive and delays access to information. In order to increase transparency and accuracy and reduce fraud, the committee should examine proposals that require all nonprofits to file their Form 990s electronically.”
More on the Report
Other issues discussed in the Report include:
- Expanding declaratory judgment relief from the IRS to all entities applying for tax exemption under IRC Section 501(c). Currently such relief is available only to organizations applying for tax exemption under IRC Section 501(c)(4).
- Making the enhanced deduction for food inventory donations permanent. In February 2015, the House of Representatives passed such legislation in The America Gives More Act of 2015 (H.R. 644). The Senate Finance Committee included an extension of this provision, retroactive to Jan. 1, 2015 and applicable through Dec. 31, 2016 in its bill to extend a number of expired tax provisions, which was approved by the committee on July 21. Legislation has also been introduced in the Senate that would make the provision permanent.
- Providing tax relief to businesses and individuals in disaster areas that would be triggered once a disaster is declared. These provisions are important and may affect the year in which contribution deductions for certain relief efforts may be taken, as well as private-foundation excise tax relief. Currently such relief is primarily the result of separate legislation, which can cause disparate relief for the victims of different disasters, as well as uncertainty and issues relating to timeliness.
Another area for bipartisan agreement, which for some reason was not addressed in the Report, is our GHJ Nonprofit Conference on Sept. 10, 2015. The conference’s theme is “the nonprofit leaders’ journey from ordinary to extraordinary: tell me something I don’t know.” We won’t be talking audits or taxes for a change, but our speakers and panelists will be talking about how to take your organizations to new heights, strengthen relationships with stakeholders and elevate your cause to the next level. All parties should agree on the great program we have put together. We hope to see you there!
About Richard Ruvelson (principal at GHJ)
Richard has 30 years of experience in providing nonprofit tax services. He has worked closely with clients on a wide range of nonprofit issues including tax exemption, unrelated business income tax, charitable giving and substantiation, independent contractor issues and Form 990 reporting. He has also taught for industry and trade groups both locally and nationally and currently teaches Form 990: Basics and Form 990-PF: Private Foundation Basics for the CalCPA Education Foundation. He has served as an adjunct professor at Wichita State University’s Barton School of Business and the University of Minnesota’s Carlson School of Management. Rich is also on the Board of Directors of Inner City Law Center.