07.11.13

Not-For-Profit Group Newsletter – Summer 2013
Charles J. Burke, Barbara Miller

Online Resources For Exempt Organization Information
Charles J. Burke, CPA

A vast array of exempt organization information is widely available on the internet, however as we all know, not all information is created equal, especially on the World Wide Web. Finding accurate and relevant information from reputable sources is integral for potential donors, grantmakers, stakeholders and others. Instead of “Googling” an organization, here are a few excellent websites to visit:

Guidestar

One of the most widely known and utilized websites for exempt organization information is GuideStar (http://guidestar.org). GuideStar provides a number of valuable products and services, most importantly, a searchable database with financial and organizational data and Form 990 filings. According to GuideStar, their database contains information on approximately 1.8 million IRS-recognized tax-exempt organizations.

IRS Exempt Organizations Select Check

The IRS has developed a new searchable database that lets users check certain information about not-for-profits’ federal tax status and filings. The search tool, called “Exempt Organizations Select Check” (http://apps.irs.gov/app/eos), consolidates three former search sites into one, providing expanded search capability.

Users can select an organization and check whether it 1) is eligible to receive tax-deductible charitable contributions, 2) has filed a Form 990-N annual electronic notice, and 3) has had its tax-exempt status automatically revoked because it hasn’t filed the required Form 990-series return for three consecutive years. The search results are sortable by name, employer ID number, city, state, country and other categories.

The site will be updated monthly, and, while organizations that have lost their tax-exempt status for failing to file tax returns can get reinstated, their names will remain on the list of those that have lost their tax exemptions.

Illinois Attorney General — Building Better Charities

Many states, including Illinois, require certain exempt organizations to register with the attorney general and maintain their registration on an annual basis. The Illinois Attorney General’s website (http://illinoisattorneygeneral.gov/charities/index.html) is a particularly strong, proactive website with excellent information for the general public and exempt organizations. Such information includes tips and tools for prudent charitable giving, how to form a charitable organization, rules and regulations, and board member responsibilities. In addition, the website contains a searchable database of Illinois registered charities with information such as financial and organizational information, Form AG990-IL filings, Federal Form 990 filings, and audited financial statements (if applicable).


Not-For-Profits and Disclosure of Uncertain Tax Provisions: Could This Apply To You?
Barb Miller, CPA

On the surface, it might seem like FIN 48, a GAAP requirement that organizations must disclose uncertain tax positions (UTPs), only applies to for-profit organizations.  After all, not-for-profits don’t usually pay federal or state income tax, so how could there be an uncertain tax position?  However, some of the basics of your operations, including your tax-exempt status, could create uncertain tax positions that trigger reporting obligations.

The Financial Accounting Standards Board (FASB) requires taxpayers that prepare their financial statements according to Generally Accepted Accounting Principles (GAAP) to adhere to Accounting Standards Codification Topic 740, Income Taxes, Subtopic 740-10 — more commonly known as FIN 48. Under FIN 48, taxpayers must disclose in their financial statements information on uncertain tax positions (UTPs).

While FIN 48 applies only to positions related to income taxes, the practices of some nonprofits could trigger the disclosure requirement. To determine whether your organization has UTPs under FIN 48, you must engage in a two-step process: recognition and measurement.

Recognition
First, identify the tax positions and determine whether, based on their technical merits, it’s more likely than not (more than 50% likely) that the positions will be sustained upon examination by taxing authorities. Assume that your organization will be audited by authorities who have all relevant information on the position.

Measurement
For each position that fails to meet the more likely-than-not threshold, measure the amount of potential tax liability, including taxes, interest and penalties. If the aggregate amount of all UTPs is material (that is, the omission or misstatement of the amount could influence the economic decision of users taken on the basis of the financial statements), it must be disclosed in the financial statement footnotes (and, in turn, on Schedule D of IRS Form 990). Where financial statements are consolidated, FIN 48 applies to each of the consolidated entities, and the UTPs are aggregated for the consolidated group to see if the disclosure is required.

Tax-Exempt Status

Your organization could have an uncertain tax position is if your nonprofit generates substantial net income from unrelated business operations, rather than only from operations related to its exempt purpose.  This could cause the organization to be considered a taxable entity. Your organization’s exempt status also could be threatened, and thus uncertain, if:

  • Insiders receive excessively high compensation or buy undervalued assets from the organization,
  • Management focuses substantial attention on generating unrelated business income,
  • The nonprofit engages in substantial lobbying activities, or
  • The organization’s current activities are unrelated to the activities originally disclosed to tax authorities as the basis of the exemption.

Unrelated Business Income

Unrelated business income also can create uncertain tax positions. Nonprofits may take numerous tax positions on its taxable income — including what is and is not taxable income. Uncertain tax positions regarding unrelated business income also could include:

  • Allocation of expenses against unrelated business income;
  • Not filing income tax returns in a state, local or foreign jurisdiction for unrelated business activities conducted in that jurisdiction;
  • Apportionment of income earned in other jurisdictions; or
  • Deeming an activity that repeatedly generates net operating losses (NOLs) a business activity, and using the NOLs to offset unrelated business income.

The critical question is whether the organization is recognizing too much tax benefit as a result of the tax positions it takes on tax returns for unrelated business income.

Fin 48 and the IRS

With the IRS requiring the reporting of your FIN 48 footnotes on Schedule D of Form 990, you can expect that any UTPs will be targeted in an audit. Your financial advisor can help ensure you have the appropriate documentation to withstand scrutiny of these positions.

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