|
In
This Issue:
Electronic
Filing Program Update
Congress Examining Possible Changes to Requirements
for Tax-Exempt Organizations
Electronic
Filing Program Update
Last year, the Internal Revenue Service
introduced "Modernized e-File", a new electronic filing system
for tax-exempt organizations that are required to file an annual
information return, a Form 990. Electronically filed returns are processed
upon receipt and, shortly thereafter, the IRS issues an acknowledgment
message to inform the organization that the return has been accepted or
rejected. Error messages for rejected returns identify the reasons the
return was rejected, making it easier to correct such errors. Modernized
e-File eliminates the need for filing paper documents by mail and allows
organizations to attach forms and schedules to the return in PDF format.
The IRS believes the electronic filing of returns improves user
satisfaction and confidence in the filing process, may be more cost
effective for filers and will enable the IRS to review submissions in an
expeditious manner.
This year, proposed and temporary
regulations have been issued by the IRS to implement the Modernized e-File
program. Under the regulations, tax-exempt organizations with assets of at
least $100 million that are required to file annual information returns
(Form 990) must file the returns electronically for all taxable years
ending on or after December 31, 2005. Those tax-exempt organizations with
assets of at least $10 million, that are required to file annual
information returns, must file the returns electronically for all taxable
years ending on or after December 31, 2006. All private
foundations and split-interest charitable trusts that are required to file
annual information returns (Form 990PF) must also file them electronically
for all taxable years ending on or after December 31, 2006. The IRS
may waive the requirements to file electronically in cases of undue
hardship.
[top]
Congress
Examining Possible Changes to Requirements for Tax-Exempt Organizations
The Staff of the Congressional Joint
Committee on Taxation has prepared a detailed report presenting a number
of possible changes to the taxation and operation of tax-exempt
organizations. The following is a description of a few of the proposals:
-
One
recommendation would require that a charitable organization file every
five years information with the IRS sufficient for the IRS to
determine whether the organization continues to be organized and
operated for exempt purposes and whether its original determination
letter recognizing its exempt status should remain in effect, be
modified or be revoked. Information to be included in such a filing
would include a copy of the organization’s governing instruments, a
description of any related-party transactions, a description of prior
current and contemplated operations, a description of how these
operations may differ from those described in the application or prior
five-year report, a summary of compensation practices of top
management, financial statements, and a description of any material
changes in operations.
-
Another
recommendation would make many types of tax-exempt organizations
subject to penalties for participation in a prohibited tax-shelter
transaction as accommodation parties.
-
The
intermediate sanctions provisions would also be revised. Under these
provisions, transactions between tax-exempt charitable organizations
(other than private foundations) and insiders (otherwise known as
"disqualified persons") may be subject to an excise tax if
they are at other than fair market value. Currently, the law allows
organizations to establish a "rebuttable presumption of
reasonableness" if they follow certain steps in considering a
transaction with an insider. Under the proposal, the rebuttable
presumption of reasonableness would be eliminated. Instead,
achievement of the elements of this presumption would establish that
an organization has performed the minimum standards of due diligence
with respect to that transaction. Thus, organizations would still have
the burden of proof. These rules would be extended to transactions
between private foundations and disqualified persons as well.
- Unrelated business income tax returns
(Form 990T) would, under the proposals, be subject to public
inspection and disclosure requirements.
Congress is currently considering these and
other proposals for reform. We will keep you informed as the process moves
forward.
Pearl
Doherty is an associate in our trust and estates section and practices
in the areas federal and state income taxation, nonprofit organizations,
estate planning, partnerships and limited liability companies. For more
information regarding this article or other Nonprofit Legal issues, please
contact Pearl at 919.783.2958 or by email at pbdoherty@poynerspruill.com.
[top]
This
electronic publication is published
by Poyner & Spruill LLP to provide general information about significant
legal developments. Because the facts in each situation vary, the legal
precedents noted herein may not be applicable to individual circumstances.
Copyright 2004.
|
