If the due date for your Form 990, 990-EZ, 990-PF or 1120-POL is January 17, 2012 or February 15, 2012, then you have an automatic extension until March 30, 2012. The IRS is making programming and system changes to the Modernized e-file (MeF) system and the changes will take until February 29, 2012. The 990-N e-postcard filing is not affected, and thus is not subject to the extension.

Even if your organization is not required to file electronically, you are able to take advantage of the deadline extension to file between March 1 and March 30,2012. If your organization has not requested an extension and wants to extend the filing date further than March 30^th, you can file Form 8868 and receive a three-month extension.  However, you will not be granted more than two extensions (a total of six months).

If your organization’s second extension falls within the time frame of January 1 and February 29, 2012, then you have two options: 1) attach a Reasonable Cause Statement to the return referencing Notice 2012-4 and file by March 30, 2012 or 2) send in your return on paper and not e-file.

Remember that extensions in time to file do not give you an extension of time to pay tax liabilities. So, to avoid penalties and interest, be sure to pay your estimated amount due by the original due dates.

Year-end is a busy time for many reasons, and many administrative tasks must be done for compliance. Below is a list of action items, sorted by category that you can use as a check list. Hopefully, some items are already complete. Bill Sims, the Salmon Sims Thomas partner who has a blog for churches and ministries, www.thefaithfulsteward.com, has the same list on his blog, with a few additions that are exclusive to churches. Here you go:

 Donations/gifts received

-         Prepare receipts for contributions of $250 or more.

-         File Form 8282 for receipt of donated non-cash items valued at $5,000 or more and disposed of by you within three years.

-         Request Form 1098-C from the IRS if you received a donation of a car, boat or plane. (Call 800-829-3676 and ask for five copies.)

Employee-related

-         Make sure that you have a file for each employee with pertinent personnel records and forms.

-         Ask employees to review W-4 forms for accuracy of name, address, SSN and to check withholding status.

-         Prepare W-2 information

-         Prepare the 4^th quarter 941 report, due January 31^st. (This is the quarterly federal tax form that reports employment taxes.)

-         Review reimbursements for substantiation. (This should be an ongoing practice.)

-         Prepare a 1099-misc form for all independent contractors and service providers who you have paid $600 or more in 2011. This includes all of the companies you hire to consult or do maintenance work.

-         Review payments of health insurance for employees. You may qualify for a 25% refund of the cost if you have less than 25 employees, the average annual salary is less
than $50,000 and if your organization pays at least 50% of the group insurance premium. Then, you’ll need to file form 990T and Form 8941.

-         Be aware of excess benefit transactions by reviewing IRS section 4958.

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FIN48 is not a new regulation, but it’s one that can sneak up on nonprofit organizations. The name FIN48 comes from the FASB (Federal Accounting Standards Board) Interpretation Number 48. It was originally enacted in 2006 for public companies and extended to private companies, including nonprofit organizations, in 2008. The ruling looks at specific activities of organizations for tax determination. Here are some of the most obvious uncertain tax positions that are red flags for tax-exempt organizations:

-         Excessive officer compensation

-         Below-market loans to key company executives, employees or board members

-         Lobbying or political activity beyond the scope of the organization’s charter

-         Excessive unrelated business income

-         Unfiled state tax returns

-         Net operating losses from taxable activities

-         Participation in partnerships, joint ventures or other relationships with entities that may pass taxable income through to the nonprofit.

Taking a hard look at your organization’s activities and expenditures will serve you well to have a solid understanding of your organization for completion of Form 990. Such findings may take considerable time to uncover, and may lead you to make changes in your organization to maintain tax-exempt status. If you have activities that generate tax, the tax must be accrued at the time of the event or activity. A copy of a FIN48 accrual footnote is required with your audited financial statement to be attached to Form 990. This is information that your tax-preparer will need when filing your annual return.

Tax exempt organizations still face the prospect of paying taxes on unrelated business income. Income that qualifies for tax meets the criteria of 1) a trade or business for profit, 2) not substantially related to the tax exempt purpose and is 3) regularly carried on with frequency and continuity. Real estate holdings may appear to be a grey area, so I will highlight the rules regarding rental property and capital gains on sales.

Rental property is excluded from UBIT, yet there are levels of exceptions:

-         If the property is debt-financed, it won’t be tax-exempt.

-         If personal services are connected to the rental and amount to more than 50% of total rent, then none of the rent is tax exempt. Examples of personal service are those (beyond normal landlord maintenance and repairs) such as additional cleaning, laundry, catering or other personal services.

-         If personal services connected to the rental are 10-50% of the rent, then the amount of rent attributed to the property only qualifies for tax exemption.

-         If the property is a parking lot and fees are paid by the general public to park there, then the income is taxable.

Capital gains on sales of real estate property are usually tax exempt for nonprofit organizations. Because sales can be complex with regard to financing, be sure to fully explore the ramifications of a sale with your accountant.

Even if no tax is owed, organizations with more than $1,000 of gross UBI must file a Form 990-T.

The Internal Revenue Service Website, www.irs.gov, is a very helpful resource. However, it can be unwieldy and provide more information than you need. From time to time, as I find concise, helpful articles for your organization, I’ll share the information with you.

Here is a recent article regarding Unrelated Business Income Tax Exceptions and Exclusions:

The Internal Revenue Code contains a number of modifications, exclusions, and exceptions to unrelated business income. For example, dividends, interest, certain other investment income, royalties, certain rental income, certain income from research activities, and gains or losses from the disposition of property are excluded when computing unrelated business income. In addition, the following activities are specifically excluded from the definition of unrelated trade or business:

• Volunteer Labor: Any trade or business is excluded in which substantially all the work isperformed for the organization without  compensation. Some fundraising activities, such as volunteer operated bake sales, may meet this exception.
• Convenience of Members: Any trade or business is excluded that is carried on by an organization described in section 501(c)(3) or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees. A typical example of this is a school cafeteria.
• Selling Donated Merchandise: Any trade or business is excluded that consists of selling merchandise, substantially all of which the organization received as gifts or contributions. Many thrift shop operations of exempt organizations would meet this exception.
• Bingo: Certain bingo games are not unrelated trade or business.