A recent question was sent to our firm’s faithful steward blog: Is it ok for private schools to post a nondiscrimination statement on a Web site instead of using a local newspaper or broadcast media?

The answer, according to the Form 990 instructions, is ‘no.’ Here are the three rules that you must abide by to be compliant on the Form 990:

1. You must have a racially nondiscriminatory policy toward students in your charter, bylaws, other governing instrument, or in a resolution of your governing body.
2. You must include a statement regarding nondiscrimination for race on all brochures, catalogues and other written communications with the public dealing with student admissions, programs and scholarships.
3. You must publicize your racially nondiscriminatory policy through newspaper or broadcast media during the period of solicitation for students, or during registration if there is no solicitation period.

The Form 990 is specific regarding the rules for publicizing the policy:

-         The announcement must occur at least once annually, and in all the communities that are served by the school.

-         If newspaper is used, the announcement must occupy at least three column inches. It must be captioned in at least 12 point boldface type as a notice of nondiscriminatory policy as to students. The text must be at least 8 point type.

-         If broadcast media is used, the announcement must reach all segments of the general community. The school must provide documentation that the means by which the policy was communicated was expected to be effective. Documentation may include tapes or scripts, and records that show the adequate number of announcements and time segments used to reach the general community.

An example of a nondiscriminatory policy statement is:

Notice of Nondiscriminatory Policy as to Students

The (name) school admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs.

Your school will need to fulfill these policies and demonstrate compliance on the Schedule E of the Form 990 or 990-EZ.

If you think, “We’re not big enough to need to incorporate,” think again. Incorporation offers benefits for non-profit organizations, and if your association or organization has any dealings with the public regarding youth activities or sports, accepting donations or charging fees for events, then we recommend taking this step.

Here are four reasons to incorporate:

1. Protect officers and directors from personal liability.  In the case of a lawsuit against an organization, officers and directors can be held personally responsible in the absence of incorporation. When dealing with children, the organization also needs to have appropriate insurance in the event employees or volunteers are accused of misconduct with a child.
2. Achieve tax exempt status with the IRS. When you’re incorporated, it’s easier to get federal tax-exempt status. Tax exemption provides a benefit to donors who want to take a tax deduction for financial or in-kind gifts to your organization.
3. Ensure tax-exemption for local chapters. The tax exempt status of national or international organizations doesn’t always apply to local groups. Local chapters need to meet the reporting requirements of the IRS.
4. Apply for grants. Grant money and corporate donations are often available for small groups, but the group must have tax-exempt status to qualify.

In Texas, you just need to fill out an application and submit it to the Texas Secretary of State. Our firm specializes in accounting and consulting for nonprofit organizations. You can read this blog to stay on top of financially-related issues facing nonprofits. To read more about our experience with nonprofit organizations, visit www.sstcpa.com.

Bill Sims posted an article last week about state unemployment tax and how it affects nonprofit organizations and churches. I want to be sure that my readers see this important information, so am re-printing it for you:

We recently received a question about state unemployment tax, and I want to pass on Senior Tax Associate Carla Medrano’s answer in the interest of all readers. Here is the question:

“Are religious non-profits in the state of Texas exempt from state unemployment tax?  My experience is that non-profits [501(c)(3)s] are not exempt from state unemployment tax even if they are religious organizations.  An example might be a school that is a 501(c)(3), based on a particular denomination, but legally not part of a particular church or owned by a denomination.  (Churches are exempt from state unemployment in the state of Texas, correct?)”

Nonprofit organizations with a 501(c)(3) tax exemption are subject to state unemployment tax, unless they are a church or religious organization. In the example above, the school would be subject to paying state unemployment tax, but the church would not. From the Texas Workforce Commission:

Read the rest of this entry »

One of the readers on our 401kcpa blog asked a question about the small employer health insurance credit. I answered the question, and think that it’s relevant for readers of this blog:

The question:

Our church has three pastors.  One pastor has a family plan that we pay.  The other pastor is retired and we reimburse him for him and his wife’s Medicare and Medicare supplement insurance.  The third pastor’s wife works and has insurance through her employer.  We reimburse him the amount withheld from her check for insurance.  Are any of these eligible for the 8941 tax credit?

Response:

The credit for small employer health insurance premiums is only available for premiums paid directly by the employer.  This means that any reimbursements paid to employees are considered fringe benefits to the employees, but the employer may not claim credit on Form 8941 for reimbursements for payments employees make to other plans.

Whether or not a credit may be claimed for the pastor on the family plan depends on several criteria.

1) The church must pay premiums for employee health insurance under a plan offered by the church.  This credit (25% for non-profit entities) is claimed by filing Form 990-T along with Form 8941.

2) The church must have fewer than 25 fulltime equivalent employees (FTE’s) for the year.  Ministers do count as employees for the purposes of calculating this credit, even though they are treated as self-employed for social security and Medicare purposes.

3) The church must have paid average annual wages for the tax year of less than $50,000 per FTE.

If you think you have met the three criteria listed above, you should then refer to the Form 8941 instructions.  This credit involves many complex calculations that must be considered on a case-by-case basis to determine whether the credit is available and worth filing the necessary paperwork to claim it.

For additional assistance, please contact one of our tax advisors and set up a consultation to discuss the details of your particular situation.

Remember, we also have a blog specific to churches, www.thefaithfulsteward.com.

When it comes to tax prep, easier is always welcome. On March 22^nd, the IRS retracted the requirement for nonprofit organizations filing Form 990 and 990-EZ to use a Schedule K-1 for reporting interests in joint ventures and other partnerships. The initial draft instructions released January 21, 2012 had required the significant change to the use of Schedule K-1.

It is not yet clear whether the Schedule K-1 will be required in future tax years. Such a change may create reporting inconsistencies between the Form 990 and 990-EZ financial data and an organization’s books and records. For organizations that have numerous joint ventures and partnerships, the administrative burden may also increase significantly.

There are some changes to the Form 990 and 990-EZ that I’ll highlight for you in future posts.

When planning for new hires in 2012, consider the benefits of hiring a veteran. Not only are you supporting someone who made personal sacrifice for the country, your tax-exempt organization may also be able to claim a Work Opportunity Tax Credit against the employer share of social security tax. Here are a few parameters for the credit:

-         The employee must be a qualified veteran and must begin work after November 22, 2011 and prior to January 1, 2013.

-         The maximum credit available to tax-exempt organizations per qualified employee is $6,240.

-         Amount of credit depends on length of veteran’s unemployment prior to your employment, number of hours worked, and amount of first year wages.

For employees hired between November 22, 2011 and May 22, 2012, you have until June 19, 2012 to file the Pre-screening Notice and Certification Request (Form 8850). After May 22^nd, you have 28 days from the employee’s first day of work to file Form 8850 and assure qualification.

After certification is received, you claim the credit by filing Form 5884-C, the Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. Just to be safe, file the normal amount of employment tax for the period you are requesting credit because the forms are processed separately.

For more information, see the VOW to Hire Heroes Act FAQs on the IRS Web site.

Many organizations recently lost tax exempt status – making them ineligible to receive tax-deductible donations. If that’s not enough, without tax exemption, organizations pay corporate income tax on annual revenue and jeopardize their ability to receive grants.

Our nonprofit tax department is working with several organizations to make them fully compliant again. We help them correctly complete Form 1023, the application for reinstatement of tax exempt status. And, we handle all related correspondence and discussions with the IRS. If the problem is past due forms, such as the 990, we manage that process too, to get an organization back on track.

Accounting and consulting for nonprofit organizations is an area of specialty for Salmon Sims Thomas. Don’t worry – we’ll quickly and affordably help you reinstate tax exempt status.

You can call me at 972-341-9549, or call Carla Medrano at 972-739-1266.

Entities that pay foreign workers for contract labor that would normally be reported on a 1099 if they were US citizens, must report these amounts on Form 1042 series.  Form 1042-S reports each individual’s payments and withholding (like the 1099); Form 1042-T is the “cover page” (like the 1096 is for 1099’s). This form is needed whether or not the payment is taxable. It can be used to
report:

-         Exempt wages under a tax treaty

-         Wages earned as an independent contractor

-         Other income such as royalties, scholarships or fellowship grants

The benefit of the Form is that it notifies foreign workers of income received and taxes withheld (if any). The worker uses the information to file an income tax return. Some workers will receive both a Form W-2 and a 1042-S. The deadline for issuing Form 1042 is March 15^th. However, the
1042 forms can be extended automatically for 30 days using Form 8809. If you need another extension, you can file Form 8809 again, but it’s not automatic.

Here are the links:

Form 1042-S

Form 8809

An audit is more than a necessary ingredient of compliance for nonprofits. A good auditor can add value to your organization by providing helpful information that preserves wealth for your mission. The following are important considerations when selecting a firm for an audit:

1. Does the firm have experience in the nonprofit sector?
2. Does the firm have experience with other nonprofits with agencies similar to yours?
3. Does the firm offer other services such as tax preparation and consultation?
4. Is the firm willing to make presentations and recommendations at your board meetings?
5. Are the firm’s partners and staff involved in the community? Do they personally volunteer?
6. Does the staff stay current with new financial reporting requirements for NPO’s and talk with you about them?
7. Does the staff understand the issues you’re facing regularly?
8. Does the firm understand the issues your NPO faces regularly and make relevant recommendations to improve
   operations and processes – or – do they just perform the audit and move on?
9. Does the firm comply with applicable requirements for peer review and continuing education?
10. Did the firm receive a “clean” opinion on its last AICPA peer review?

When you ask the above questions, you’ll be able to determine the accounting firm’s capabilities and ability to handle your audit with minimal interruption to staff. You should also be able to get a sense of the type of priority that the firm will place on having your business.

Beginning this month, the IRS combines three search engines into one to create the Exempt Organizations Select Check (EOSC). You are likely familiar with Publication 78, which is now folded into the EOSC with some expanded capability. Current and potential donors can go to one location online and determine the following:

-         Your federal tax status

-         If your organization is on the Auto-Revocation List for having tax-exempt status revoked due to not filing a Form 990 for three consecutive years (updates monthly)

-         If your organization filed a Form 990-N (e-postcard information updated weekly)

I recommend periodically searching for your organization on this database just to make sure that the information reported on the database is correct. For example, the EOSC now includes the ability to search and sort organizations by Employer Identification Number (EIN), and you want to be sure that the links are correct.