Tax Planning and Compliance for Tax-Exempt Organizations, Fifth Edition 2015 Cumulative Supplement
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More About This Title Tax Planning and Compliance for Tax-Exempt Organizations, Fifth Edition 2015 Cumulative Supplement

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The essential nonprofit tax guide, updated with the latest rules and requirements

The 2015 Cumulative Supplement to Tax Planning and Compliance for Tax-Exempt Organizations is the latest addition to the indispensable guide to navigating nonprofit tax issues stemming from evolving regulations and IRS procedures. This most recent supplement is packed with checklists and examples that ease the filing process. This new supplement is updated to align with the relevant changes in IRS forms, requirements, and procedures to help you ensure full compliance with the most up-to-date regulations. Clear, concise instructions guide you through important forms and documents, and expert discussion provides insight on specific issues such as unrelated business income, private inurement, affiliations, and employment taxes. Helpful checklists highlight critical concerns, sample documents provide clarification and example, and the nonprofit-specific guidance leads you through obtaining tax exemption, reporting, compliance testing, and lobbying expenditure management.

Nonprofit organizations contend with the possibility of losing their tax-exempt status on a daily basis. Qualification, application, maintenance, and management—every aspect of that vital status requires a solidly executed strategy for ensuring compliance with federal, state, and local regulations. The 2015 Cumulative Supplement helps you put your strategy into action, with a host of valuable tools and expert guidance on the practical aspect of nonprofit tax planning.

Follow line-by-line instructions for forms and applicationsAccess easy checklists for reporting, compliance, eligibility, and moreExamine sample bylaws, applications, and formsUtilize comparison charts and other visual aids for easy referenceReview bullet lists that compare what is and what is not acceptable

Tax rules and regulations change annually, and nonprofit organizations know that staying compliant means staying up to date. Wading through tax code is less than helpful in the field where clear, practically oriented instruction provides the quick reference accountants, lawyers, and executives need. The 2015 Cumulative Supplement to Tax Planning and Compliance for Tax-Exempt Organizations is the essential, time-saving guide to the latest in nonprofit tax rules, regulations, and procedures.

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About the Author xi

Preface xiii

PART I QUALIFICATIONS OF TAX-EXEMPT ORGANIZATIONS 1

CHAPTER 2 Qualifying Under IRC § 501(c)(3) 3

§ 2.1 Organizational Test 3

*(c) Inurement Clause 3

(e) Political Activities 3

§ 2.2 Operational Test 4

(b) Amount of Charitable Expenditures 4

*(j) The Internet and Tax-Exempt Organizations 4

*(k) Governance 5

(l) Economic Substance 6

CHAPTER 3 Religious Organizations 9

§ 3.2 Churches 9

*(a) Special Aspects of a Church 9

(b) Definition of Church 9

CHAPTER 4 Charitable Organizations 11

§ 4.2 Promotion of Social Welfare 11

(b) Credit Counseling and Mortgage Assistance Organizations 11

§ 4.3 Lessening Burdens of Government 11

§ 4.6 Promotion of Health 12

(j) § 501(r) Requirements for Hospitals 12

CHAPTER 5 Educational, Scientific, and Literary Purposes, and Prevention of Cruelty to Children and Animals 23

§ 5.1 Educational Purposes 23

*(a) Schools 23

*(f) Fraternity/Sorority Educational Foundations 24

*§ 5.4 Testing for Public Safety 24

CHAPTER 6 Civic Leagues and Local Associations of Employees: § 501(c)(4) 25

*§ 6.1 Comparison of (c)(3) and (c)(4) Organizations 25

§ 6.2 Qualifying and Nonqualifying Civic Organizations 26

*(a) Limitation on Involvement with Political Candidates 26

§ 6.5 Disclosures of Nondeductibility 27

*(f) Excepted Organizations 27

CHAPTER 7 Labor, Agricultural, and Horticultural Organizations: § 501(c)(5) 29

§ 7.2 Agricultural Groups 29

*(b) Services to Members 29

*(c) Special Exception 30

CHAPTER 8 Business Leagues: § 501(c)(6) 31

§ 8.2 Meaning of “Common Business Interest” 31

§ 8.3 Line of Business 31

*(a) User Groups 32

§ 8.4 Rendering Services for Members 32

(b) Disqualifying Services to Individual Members 32

CHAPTER 9 Social Clubs: § 501(c)(7) 33

§ 9.4 Revenue Tests 33

(a) 35/15 Test 33

(c) Gift Tax for Club Gifts 34

CHAPTER 10 Instrumentalities of Government and Title-Holding Organizations 35

§ 10.3 Qualifying for § 501(c)(3) Status 35

*(a) Disadvantages of § 501(c)(3) Status 35

(d) Political Subdivisions 35

*(e) Integral Parts 36

CHAPTER 11 Public Charities 37

*§ 11.1 Distinction between Public and Private Charities 37

§ 11.2 “Inherently Public Activity” and Broad Public Support § 509(a)(1) 37

*(h) Unusual Grants 38

§ 11.6 Supporting Organizations § 509(a)(3) 39

*(i) Form 990 Schedule A Significantly Revised for 2014 47

PART II STANDARDS FOR PRIVATE FOUNDATIONS 51

CHAPTER 12 Private Foundations—General Concepts 53

§ 12.2 Special Rules Pertaining to Private Foundations 53

(a) Types of Private Foundations 53

(c) Definition of Special Terms 53

*§ 12.4 Termination of Private Foundation Status 54

*(e) Mergers, Split-Ups, and Transfers between Foundations 56

*(g) Notifying the IRS 56

CHAPTER 13 Excise Tax Based on Investment Income: IRC § 4940 57

§ 13.2 Capital Gains 57

CHAPTER 14 Self-Dealing: IRC § 4941 59

§ 14.1 Definition of Self-Dealing 59

(b) Statutory Exceptions 59

§ 14.2 Sale, Exchange, or Lease of Property 60

*(c) Furnishing or Use of Property 60

*(d) Co-Owned Property 61

(e) Partnerships 62

§ 14.3 Loans 62

(a) Donation of Indebted Property 62

*§ 14.4 Compensation 63

*§ 14.5 Transactions that Benefit Disqualified Persons 63

*(d) Charitable Pledges 64

§ 14.7 Sharing Space, People, and Expenses 64

(a) Can the Foundation Pay for Its Share? 64

*§ 14.9 Property Held by Fiduciaries 64

*§ 14.10 Issues Once Self-Dealing Occurs 65

*(a) Undoing the Transaction 65

(c) Who Pays What Tax? 65

CHAPTER 15 Minimum Distribution Requirements: IRC § 4942 67

§ 15.1 Assets Used to Calculate Minimum Investment Return 67

(c) Exempt Function Assets 67

§ 15.2 Measuring Fair Market Value 68

(e) Cash and Other Assets 68

§ 15.4 Qualifying Distributions 68

*(c) Community Foundation Grants 68

*(g) Set-Asides 69

*§ 15.6 Satisfying the Distribution Test 75

*(a) Timing of Distributions 75

(a)(1) Changing the Order of Application of Distributions 76

(b) Planning for Excess Distributions 77

(c) Cushion against Decline in Income 78

*(e) Abatement of Penalty 78

CHAPTER 16 Excess Business Holdings and Jeopardizing Investments: IRC §§ 4943 and 4944 79

§ 16.1 Excess Business Holdings 79

(a) Definition of Business Enterprise 79

*(b) Corporate Holdings 80

*(c) Partnerships, Trusts, and Proprietorships 80

*(e) Disposition Periods 81

§ 16.2 Jeopardizing Investments 81

*(c) Donated Assets 81

*§ 16.3 Program-Related Investments 81

§ 16.4 Penalty Taxes 82

(a) When the Manager Knows 82

*(c) Abatement of Penalty 83

CHAPTER 17 Taxable Expenditures: IRC § 4945 85

§ 17.3 Grants to Individuals 85

*(a) Meaning of “Travel, Study or Other Purposes” 85

(c) Food, Shelter, and Aid for the Poor and Distressed 85

*(e) Company Scholarship Plans 87

(f) Seeking Approval 88

§ 17.4 Grants to Public Charities 88

*(d) The Reliance Issue 90

§ 17.5 Grants to Foreign Organizations 91

*(b) Equivalency Procedure 91

PART III OBTAINING AND MAINTAINING TAX-EXEMPT STATUS 117

CHAPTER 18 IRS Filings, Procedures, and Policies 119

*§ 18.1 Determination Process 119

*(a) Successfully Requesting Tax-Exempt Status 122

(b) Timely Filing Critical for (c)(3) 125

*(c) Organizations That Need Not File 125

*(d) Group Exemptions 126

(g) Exemption for State Purposes 128

§ 18.2 Annual Filing of Forms 990 128

(b) Design of Forms 990 128

(c) Who Files What 132

§ 18.3 Reporting Organizational Changes to the IRS 134

*(a) Fees for Reports of Changes 134

(e) Change in IRS § 509(a) Class 134

§ 18.4 Weathering an IRS Examination 134

(a) Examination Methods 134

(e) The Desired Result: “No Change” 135

CHAPTER 19 Maintaining Exempt Status 155

§ 19.1 Checklists 155

CHAPTER 20 Private Inurement and Intermediate Sanctions 161

§ 20.1 Defining Inurement 162

(a) Persons Involved 162

(d) Economic Substance 162

§ 20.2 Salaries and Other Compensation 163

§ 20.8 Services Rendered for Individuals 163

(b) When Private Benefit is Found 163

§ 20.10 Intermediate Sanctions 163

*(h) Paying the § 4958 Excise Tax 163

CHAPTER 21 Unrelated Business Income 165

§ 21.1 IRS Scrutiny of Unrelated Business Income 165

§ 21.5 What Is Unrelated Business Income? 166

(b) Commerciality Test 166

*§ 21.7 “Substantially Related” 166

§ 21.8 Unrelated Activities 166

*(b) Services 166

*(e) Sponsorships 169

§ 21.10 Income Modifications 169

*(a) Dividends and Interest 169

*(c) Rentals 169

*§ 21.11 Calculating and Minimizing Taxable Income 170

§ 21.12 Debt-Financed Property 171

*(a) Properties Not Subject to Debt-Financed Rules 171

*(b) Other Types of Debt 172

§ 21.13 Museums 172

*(a) Identifying Related and Unrelated Objects 172

§ 21.15 Publishing 172

(c) Circulation Income 172

CHAPTER 23 Electioneering and Lobbying 173

§ 23.1 Election Campaign Involvement 173

(a) Permissible Campaign Involvement 173

§ 23.2 Voter Education versus Candidate Promotion 173

*(a) Voter Education 173

CHAPTER 24 Deductibility and Disclosures 175

*§ 24.1 Overview of Deductibility 175

(a) Contribution Defined 176

§ 24.2 Substantiation and Quid Pro Quo Rules 177

(b) Substantiation Rules 177

CHAPTER 25 Employment Taxes 179

§ 25.2 Ministers 179

(b) How Ministers Are Special 179

Index 183

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