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Matt is one of several Clark Nuber professionals who are musically inclined. But he’s not just a musician, he’s a music fanatic. When he’s not making music, he’s making spreadsheets that rank his favorite albums and songs. Spreadsheets – it must be an accountant thing.

In December 2019, the unrelated business income tax on transportation benefits organizations provide to employees was retroactively repealed. Since then, not-for-profits have eagerly awaited IRS guidance on how to obtain refunds for amounts already paid toward this tax. This week, the IRS indicated organizations should file an amended Form 990-T for each year the tax applied. The IRS also provided instructions on how to complete those amended returns. If the not-for-profit has yet to file its most recent Form 990-T, it will need to file the return to request a refund of any previously applied tax or estimated tax payments.

The IRS published a list of steps organizations should follow when completing the amended returns, including:

  • Write “Amended Return – Section 512(a)(7) Repeal” across the top of page 1 of the return.
  • Remove the transportation benefit amount from the return (for 2017 returns, found on Part I, line 12; for 2018 returns, found on Part III, line 34)
  • Report the tax liability from the originally filed Form 990-T on the “other” sub-line in the payment section (for 2017 returns, Part IV, line 45g; for 2018 returns, Part V, line 50g)

You can find more information posted on the IRS website.

© Clark Nuber PS and Developing News, 2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.

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Articles and Publications

How to Identify an IRS Scam

Every year, Clark Nuber receives numerous e-mails and calls from clients who report that someone from the IRS is demanding money right away for past due amounts. These demands are generally followed by a threat of arrest, lawsuit, deportation, or other acts of intimidation. These communications are IRS scams.

What are IRS Scams?

IRS scams are usually made via phone call, voicemail, e-mails, or even text messages. These scam perpetrators impersonate IRS agents and will have information on your personal details, including your name, address, and telephone numbers. The scammers will also provide you with a fake IRS badge number to convince you of their legitimacy. These calls are happening more frequently and you, as a taxpayer, should be aware of these scams and how to spot them. According to the Treasury Inspector General for Tax Administration (TIGTA), more than 1.8 million people have reported IRS impersonation calls. As of September 2019, more than 15,000 scam victims have lost upwards of $79.7 million to scams. The top five states with losses are California, New York, Texas, Illinois, and Florida.

Characteristics of IRS Scams

Here are some tips to look for in case a scammer contacts you. The IRS will never:
  • Call you without first contacting you via regular mail.
    • The IRS also does not leave pre-recorded, urgent, or threatening messages.
    • Scammers may also fake or “spoof” caller ID numbers that appear to be from the IRS office, sheriff offices, or even other federal agency offices in an attempt to prove the call is legitimate.
  • Demand immediate payment of the taxes due without giving you the opportunity to question and/or appeal the amount due. They will also never ask you to make a payment to a person or organization other than the U.S. Treasury.
  • Require you to use a specific payment method, which can include prepaid debit cards, iTunes cards, Amazon gift cards, or wire transfers. The IRS will also never ask for a credit or debit card number over the phone.
  • Threaten you with a lawsuit, arrest, and/or deportation.
  • Use unsolicited e-mail, text messages, or any social media to discuss personal tax issues.
If you receive an e-mail that is supposedly from the IRS, do not click on links in the e-mail or open any attachments. You can verify if you have an outstanding notice by calling the IRS at 1-800-829-1040. If you need to pay the IRS via a bank account, credit card, or debit card, go directly to their website to make a payment. If you believe that you are on the phone with an IRS impersonator, hang up immediately. If you’re unsure whether you have any outstanding notices or payments due to the IRS, you should either call your CPA or call the IRS at 1-800-829-1040. You can report scams/impersonations to the TIGTA via their website or their email: phishing@irs.gov. The IRS’ website also has a dedicated page regarding tax scams. Tax season is now upon us, and these scams will only increase in frequency. Be vigilant, and if you have any questions please reach out to your Clark Nuber advisor. Paul Ung, Tax Manager at Clark Nuber PS Paul Ung is a manager in the Tax Services Group, serving high net worth individuals.
© Clark Nuber PS, 2020. All Rights Reserved

New Flat Excise Tax Rate on Net Investment Income for Private Foundations

On December 20, 2019, President Trump signed the Further Consolidated Appropriations Act, 2020. The bill will, in effect, create a flat net investment income (NII) excise tax rate of 1.39% for private foundations.

Context

Most private foundations are subject to an excise tax on NII, which includes interest, dividends, rents, royalties, payments pertaining to certain security loans, similar investment income items, and capital gains. Previously, the NII excise tax rate depended on whether the private foundation could meet specific distribution requirements. If the foundation failed to meet the distribution amount, it would then be subject to a 2% excise tax rate. Note that the distribution requirement used to determine the reduced excise tax rate was a separate calculation from the annual distribution requirement for private foundations. If the NII is subject to unrelated business taxable income (UBTI), usually due to debt-financing, the portion subject to UBTI will be taxed using income tax rates and excluded from NII . The original purpose of the dual-rate approach was to incentivize private foundations to pay-out more in grants or direct charitable expenditures. In addition, the excise taxes collected were to be used to ensure the private foundation sector was compliant. However, as the years passed, it became evident that the funds were not being used primarily for the private foundation sector, and the dual NII rate created additional complexity for private foundations. As far back as 2001, there have been various congressional bills proposing a flat NII excise tax rate for private foundations. Often, the rate proposed was indexed to be revenue-neutral to the government.

What’s Next

The new NII law goes into effect for private foundations with tax years beginning after December 20, 2019. For virtually all foundations, the new 1.39% excise tax rate will be used on the 2020 Form 990-PF. This new rate simplifies the reporting for foundations, as it eliminates Part V and Lines 5 and 6 of Part XII of the Form 990-PF. The change first affects the 2020 estimated tax payment calculations. For calendar year-end foundations, the first estimated tax payment is due on May 15, 2020. Foundations should use the flat 1.39% rate rather than trying to project a 1% or 2% rate for their first estimated tax payment. If you have any questions on the new excise tax rate, please contact a Clark Nuber professional. © Clark Nuber PS, 2020. All Rights Reserved

New Year Planning for Not-for-Profits

Strategy and planning play a critical role in ensuring your not-for-profit’s financial goals align with the organization’s mission statement. As your not-for-profit prepares for 2020, here are essential financial planning items to consider:

Annual Reporting Requirements:

  • Verify that your state registrations are up-to-date and current. Review annual filing deadlines for each state you must file in and check the status of your organization in each state.
  • Meet with your state and local tax accountant to ensure you are up-to-date on new state tax laws that may affect your organization.
  • Request that your revenues be reviewed for state tax implications, such as Washington state’s Business and Occupation tax. For example, not-for-profit organizations have no blanket exemption for B&O taxes in Washington state, and your sources of revenue should be analyzed to determine taxability.
  • Form 1099-MISC, Miscellaneous Income is required for not-for-profit organizations that meet the dollar thresholds set forth by the IRS (see IRS instructions). There is no exemption for not-for-profit organizations to file Form 1099s. Remember to analyze your expenses for potential 1099 filings that meet the thresholds and request Form W-9s from vendors early. A Form 1099-MISC with an amount in Box 7, Non-employee Compensation is due to the IRS and vendor by January 31, 2020. Forms with amounts in any other box are due February 28, 2020 (if filed by paper), and March 30, 2020 (if filed electronically).
  • Check in early with your auditor and tax accountants to set timelines and gather documents requested. You can look to your prior list of requested documents to understand what your accountants will need.

Year-End Payroll:

  • Form W-2s are due to employees and the IRS by January 31, 2020. Remind your employees to verify their legal name and address in your payroll system to ensure accurate 2019 Form W-2s are filed.
  • If you must file the Affordable Care Act forms 1094/1095-B and C, review the forms before their due date of February 28, 2020, for accuracy.
  • Distributions from retirement plans may require filing Form 1099-R. Check with your retirement plan provider and your payroll team to ensure timely and accurate filings. Form 1099-R is due February 28, 2020 (if filed by paper) and March 30, 2020 (if filed electronically).
  • Check that your payroll system is up to date with 2020 tax rates before processing your first payroll with a pay date in 2020.
  • New employees starting in a pay period where the pay date is in 2020 must file the new Form W-4. Employers may request new W-4s from all employees; however, an employer may not make this a requirement if the employee started before the pay period and already has a Form W-4 on file. Remind your Human Resources team that new hires may need extra time to prepare their Form W-4.

Budget Planning:

  • Review your current budgeting tool and whether it is working for your organization. There may be other budgeting tools that prove more useful.
  • Review your budget to actuals for year-end and note variances that exceed thresholds. Consider how this will affect your 2020 budget. Consider any new programs during the new year and any programs that are no longer in existence.
  • Review your historical cash cycle to determine patterns for planning in 2020.
  • Review federal and state tax changes that may affect your expenses, such as payroll taxes.
  • Establish and fund your reserves for the year.

Financial Statement Reporting:

  • Review your year-end financial statements. Does the structure of the financial statements make sense for your organization? Does your statement of activities and statement of financial position paint the story your organization wants to tell?
  • Review your statement of functional expenses to determine if any changes need to be made to expense allocations between management and general, fundraising, and program.
  • Consider your financial statements in relation to the ease of preparation of your Form 990 or Form 990-PF.
  • Consider additional reports that your board of directors may want during the new year, such as an executive summary explaining variances throughout the year or a snapshot of your current financial position.
Following through on these steps will place your organization in a strong position as you enter 2020. If you have any questions regarding your new year planning, contact a Clark Nuber professional. Shareen Corlett, Accounting and Consulting Services Manager at Clark Nuber PS Shareen Corlett is a manager in Clark Nuber’s accounting and consulting services team. © Clark Nuber PS, 2020. All Rights Reserved

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