The Latest Developments Impacting Exempt Organizations in 2013

Tax Professionals' Resource
July 19, 2013 — 1,462 views  
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501(c)(3) organizations are American tax exempt nonprofit organizations that are exempted from certain federal income taxes under the United States Internal Revenue Code. The exemptions apply to those organizations which are being operated for religious development, charitable interests, scientific developments, literary or educational purposes, promotions of sports and arts, as well as prevention of cruelty to animals and human beings.

Changes and Issues

Various changes that have been suggested for 501(c)(3) organizations are:

  • The IRS Affordable Care Act (ACA) that was enacted in March of 2010, added new requirements for hospital organizations to be classified under 501(c)(3) organizations. New requirements ask these organizations to:
  • Discuss their policies and activities in a concise way.
  • Refresh the limits of charges for those seeking emergency care under hospital assistance policy.
  • Conduct background checks to see whether individuals are eligible for assistance.
  • Conduct Community Health Needs Assessment (CHNA) and structure an implementation strategy based on the same.
  • The IRS Tax-Exempt Divisions Workplan for 2013 has asked all 501(c)(3) organizations to:
  • Keep records of all their activities.
  • It also outlines which federal tax reports and returns must be filed.
  • Stresses on new set of disclosures that 501(c)(3) organizations are bound to make.

These have been clearly outlined in IRS’s publication No. 4221 “Compliance guide for 501(c)(3) exempt organizations. Issues that plague 501(c)(3) organizations are:

1. They have lost their credibility in the society after IRS reveals.
2. Many exemption organizations misuse exemption status for political corruption.
3. Many organizations by lobbyist interest groups.
4. IRS has increased scrutiny in recent times creating enormous pressure.

Latest Developments

The IRS Tax-Exempt Divisions Work-plan for 2013 is all about the Form 990. It clearly states that the IRS uses Form 990 responses for examination. So a complete and accurate return is in an organization’s best interests. For the financial year of 2013 the IRS has laid down a few points of focus which the nonprofits should note:

1. Follow ups will be conducted on organizations that file for a year and then fail to file on the next.

2. Organizations should keep paying employment taxes. This is being monitored in a three year ongoing study.

3. Organizations should be careful with foreign investments and grant expenditures as this can attract heavy penalties.

4. Fill the correct Form 990 and just one of the available four. It has been observed that organizations have filled the wrong form out. There is no need to file additional forms; only the suitable form needs to be filed.

5. Organizations need to report earnings correctly, otherwise it would lead to non-compliance.

What Should Nonprofits Do?

Given the rules by the IRS, the sensible things organizations can do are:

1. Compensation reporting on the Form 990 should be consistent with what is reported to other federal departments.

2. File Form 990 correctly, on time, and completely--Most importantly ensure that the correct form is filed.

3. Use the internet to E-file. The software saves you from making common mistakes and math errors. It also reminds you to attach schedules and sign the returns.

Tax Professionals' Resource