Tag Archives: Form 990

New IRS Form 990 Audit Selection Methodology

The IRS has recently improved its audit selection process shifting from a subjective selection to a data-driven selection. Previously, subjective audit selection indicated that audits were driven by issue-specific determination. For example, following an IRS study on hospitals, more hospitals were selected to be audited compared to previous years. Similarly, following an IRS study on colleges and universities more audits of colleges and universities were performed.

The IRS has developed a data-driven approach that incorporates nearly 150 analytics based on nonprofit organizations’ Form 990 data in an effort to eliminate subjectivity. In doing so, the IRS intends to expand the number of organizations that could potentially be audited. If an organization “fails” too many analytical evaluations, it is more likely to be audited by the IRS. While no specific analytics have been published, industry experts anticipate the IRS to focus on the following sections of Form 990:

  • Inconsistent information
  • Reporting amounts in column (C) of Part VIII, but not reporting that a Form 990-T was filed on Part V, Line 3.
  • Preparing Schedule L to report an insider transaction, but reporting on Part VI, Line 12 that the organization did not implement a conflict of interest policy.
  • Responding affirmatively to a Part IV inquiry, but not completing the applicable Form 990 schedule.

Although the IRS’s method of audit selection was updated, its budget has not increased for nonprofit organizations. Despite the budget stagnation, the new data-driven audit selection method has increased return change rates to over 90%, which represents a substantial increase in change rates compared to the 70% seen with subjective audit selection. Furthermore, there has been a 20 -day reduction in average audit completion since the implementation of data-driven audit selections – from 233 days in 2015,when subjective audit selections occurred to 213 days in 2016.

For more information on this new approach, click here.

IRS Expands Automatic Extension for Form 990

calendarFor as long as I can remember, nonprofits have been able to obtain a 3-month automatic extension for Form 990 filings simply by filing IRS Form 8868 before the initial due date.  The Form 990 filing due date is four months and fifteen days after the organization’s fiscal year-end (e.g., May 15 for calendar fiscal years, and November 15 for fiscal years ending June 30).  For an additional three-month extension, nonprofits have had to make a second filing – this time to ask permission for such additional extension and to demonstrate “reasonable cause”.  Further, since the penalties for late Form 990 filings can be quite onerous (measured on a per-day late basis), it was generally best to get the Form 990 filed by the initial due date or no later than the available automatic 3-month extension.

Under new rules to take effect starting with tax years that begin after December 31, 2015, the original extension will now be for 6 months automatically. Calendar year filers for 2016 who file a timely extension will automatically have until November 15 , 2016 to complete their 990.

This will be a welcome relief to many groups – and probably to the IRS as well.

How to Get Your ACA Tax Credit When You’re a Tax-exempt Organization

Zemanta Related Posts ThumbnailUnder the Affordable Care Act (ACA), a small employer can claim a portion of insurance premiums paid as a tax credit. But what do you do if you are a tax-exempt organization? Don’t worry! You can still claim the credit if your organization is eligible. Eligible tax-exempt organizations can claim up to 35% of premiums paid. The credit is available for eligible employers for two consecutive tax years.

An eligible tax-exempt organization would file a Form 990-T and fill in line 44F, Credit for Small Employer Health Insurance Premiums, and attach a Form 8941, Credit for Small Employer Health Insurance Premiums.

The tax-exempt organization can file a Form 990-T in order to request the credit even if there is no unrelated business income to report. Just follow the instructions located here and look for details for Line 44F.

According to the IRS, “to be eligible for the credit, an eligible small employer generally must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) Marketplace.”

To be eligible, you must meet three requirements:

  1. You paid premiums for employee health insurance coverage under a qualifying arrangement. This would generally be one that requires you to pay a uniform percentage of not less than 50% (with some exceptions for different tiers of coverage or list billing arrangements).
  2. You had fewer than 25 full-time employees for the year.
  3. You paid *average* annual wages per employee of less than $51,000.

The IRS has worksheets to help calculate this in the instructions for Form 8941.

For more information on business matters affecting nonprofit organizations, contact Aronson’s Nonprofit & Association Industry Services Group or Carol Barnard at 301.231.6200.

Federal District Court Judge Declares Clergy Housing Exclusion Unconstitutional

ECFA-SealECFA, an accreditation organization dedicated to Christian ministry stewardship, has been closely following the court case brought by the Freedom From Religion Foundation (FFRF) opposing the clergy housing exclusion for clergy providing their own residences. The court ruled that the exclusion was unconstitutional as it lacked a secular purpose and effect.

Clergy residing in congregational-provided housing are not impacted by the ruling as it applies only to ministers who receive a cash housing allowance from their employers. According to ECFA, “Even ministers who receive a cash housing allowance will not be immediately impacted by the ruling. The district court’s decision on the clergy housing exlusion may be appealed by the government’s attorneys to the Seventh Circuit where it could be overturned.”

However, ECFA cautions that if it is not overturned, the ruling could lead to thousands of dollars in additional taxes each year for clergy with retired clergy being hit particularly hard due to limited income.

Two additional cases are awaiting final rulings in the same court. From the ECFA website: “One suit would lift the current church exemption from annually filing Form 990, alleging that the exemption constitutes preferential treatment of churches and other religious organizations, while discriminating against other nonprofit organizations. In the other case, FFRF has sued the Internal Revenue Service over enforcement of the tax code’s campaign prohibition against churches.”

Read more here.

IRS Issues Draft Form 990 and Instructions for 2013

IRS sealA draft form and instructions for the 2013 Federal Form 990 have been issued by the IRS.  There are very minimal changes from the previous year’s form and instructions.   There is some clarification in the instructions for reporting short period returns and accounting method changes that are very helpful.   A link to the draft form and instructions is here:


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