Challenging the IRS’ (Non) Filing Requirements for Churches

April 2, 2013 - Category: News

It was recently reported by Giving USA that, in 2011, individuals and corporations donated almost $100 billion dollars to religious organizations. In a single year. Such amount is beyond  comprehension for most anyone. Even more amazing is the two tiers of tax benefits surrounding donations to religious organizations; donors are able to take a charitable contribution deduction when contributing to religious organizations, and secondly, religious organizations do not have to pay income tax on any contributions revenue they receive.

Churches, as being directly referenced in §501(c)(3) of the Internal Revenue Code, are exempt from payment of income taxes because they generally operate in a charitable manner. Additionally, on top of tax-exemption, churches unlike other exempt organizations, have been graced with several additional benefits.

For instance, churches are not required to:

  • file a Tax Exemption Application with the IRS upon formation,
  • prepare and file an annual information return with the IRS (Form 990), and
  • report the identities of their significant donors to the IRS.

Churches also have the benefit of:

  • not being as susceptible to IRS audits as compared to other exempt organizations as a result of Sec. 7611 of the Internal Revenue Code, and
  • the parsonage allowance which permits church ministers to essentially receive tax-free housing.

Since churches are not required to file a Tax Exemption Application or a Form 990, the government as well as the general public has limited visibility into a church’s finances. This is very concerning to many; Including Senator Chuck Grassley (R-Iowa), who has always been a vocal proponent of stringent transparency requirements for exempt organizations, with much of his focus on church reporting (or the lack thereof). In 2011, he issued a report on the financial practices of mega-churches, pressing for greater accountability for churches. However, there has not been much progress on the legislative front since the issuance of the Grassley report.

Times might be a changing. In recent months, three separate lawsuits have been filed against the IRS, challenging the IRS’ “preferential treatment” of churches and some religious organizations. Each lawsuit focuses on the significant advantages bestowed on churches which are not generally available to secular exempt organizations.

It was previously noted that churches are not required to complete a federal Tax Exemption Application to be recognized as tax-exempt by the IRS. As long as a church satisfies a preponderance of factors set forth by the IRS to qualify as a church, such church will be considered tax-exempt without the burden of having to file a Tax Exemption Application or Form 990. Preparation of a Tax Exemption Application is time consuming and costly. Additionally, the annual preparation and filing of a Form 990 is also a burdensome and costly process for most exempt organizations.  As such, being able to avoid the preparation and filing of a Tax Exemption Application and an annual Form 990 is a significant benefit for churches.

In such regard, two exempt organizations, the American Atheists Inc. and the Freedom from Religion Foundation filed lawsuits in December 2012 against the IRS directly related to the Tax Exemption Application and Form 990 filing exclusions available to churches. The lawsuits are each very similar; each argues that since churches are receiving the filing exclusions from the IRS, this violates both the Establishment Clause of the First Amendment of the Constitution as well as equal protection rights mandated by the Due Process Clause of the Fifth Amendment. Additionally, these suits argue that churches also receive additional benefits in addition to the aforementioned benefits, including the parsonage allowance and the reduced susceptibility to IRS audits.

Furthermore, while churches are subject to the same rules and requirements regarding “red flag” exempt organization issues like lobbying, political activities and unrelated business income, churches are less likely to fall below the radar screen because they are not required to file the Form 990. Another lawsuit recently filed relates directly to this “special” treatment. In November 2012, the Freedom from Religion Foundation filed a lawsuit against the IRS (Freedom from Religion Foundation vs. Shulman) over the IRS’s alleged failure to enforce electioneering restrictions against churches and other religious organizations.

The genesis of this lawsuit could have been sparked by numerous news outlets reporting that the IRS has not conducted any audits of churches for a good number of years, despite many reports of clergy and churches engaging in political activities and electioneering. Per the Freedom for Religion Foundation’s press release, the lawsuit that was filed requests that the court orders the IRS “to authorize a high-ranking official within the IRS to approve and initiate enforcement of the restrictions of §501(c)(3) against churches and religious organizations, including the electioneering restrictions, as required by law.”

While these lawsuits have only simply been filed at this juncture, they bring up important questions regarding the perceived and real “preferential” treatment granted to churches by the Internal Revenue Service. Many believe that the IRS is wary to heavily monitor the activities of churches because doing so may be a perceived as a violation of religious civil liberties under the First Amendment. But these lawsuits have flipped this concept, alleging that because the IRS does not require an annual Form 990 to be filed by churches, that this violates the religious civil liberties of non-church exempt entities. “Having tax-exempt status is a great privilege, and in exchange for that privilege, all other groups must file a detailed report annually to the IRS and the public on how we spend donations,” said Annie Laurie Gaylor, FFRF Co-President, “Why should churches be exempt from basic financial reporting requirements? Equally important, why would churches not wish to be accountable?”

Please do not hesitate to contact Lauren Havelock at 310-982-2804 or at lhaverlock@yhadvisors.com if you have any questions regarding churches and religious organizations or the exempt organization services that YH Advisors provides.

The Winter Edition of the YH EO Advisor is Now Available!

April 2, 2013 - Category: Newsletter, YH EO Advisor

The winter issue of the YH Exempt Org Advisor has been released.  We are very proud to publish and distribute the fifth edition of our quarterly publication dedicated exclusively to providing timely and valuable technical articles addressing the tax, legal and accounting issues confronted by all different types of exempt organizations.

Click here to download.

In our Winter 2013 edition, you will find the following articles relating to exempt organization:

  • Ripped from the Headlines: The latest newsfrom the EO sector.
  • Focus on the IRS TE/GE Division:    News and updates from the Exempt Org Division of the Internal Revenue Service
  • Auto Revocation Scoreboard:  Latest regarding the IRS’s Auto Revocation List.
  • YH Case Study – Amending the Form 990:   When should an exempt organization amend a Form 990?
  • YH Quick Tips:   Quick tips and guidance on issues often faced by EO practitioners and exempt entities themselves
  • The EO Accounting Spotlight: Accounting for non-cash contributions
  • YH EO Blog Feature: Challenging the IRS’s (non)filing requirements for churches
  • YH Resources, News & Updates:  Find out more information about upcoming educational presentations, webinars, current news and resources from YH Advisors.

We sincerely hope that you find the YH Exempt Org Advisor to be useful in servicing your exempt organization clients and/or fulfilling your responsibilities working for an exempt organization.

To access our archived YH Exempt Org Advisors, please click here.

Please visit our website to find out more about YH Advisors and the value-added services and  education we provide or to get access to our vast array of complimentary resources. And, as always, do not hesitate to contact any of us here at YH Advisors (Brian – 310.982.2803 / Lauren– 310.982.2804 / Stacey – 310.982.2805) if you have any questions or if you need any additional information whatsoever from us.

Ask the Experts Webinar – Watch It Here

February 19, 2013 - Category: News, Resources

On February 12, 2013, YH Advisors conducted a complimentary live webinar which gave participants a chance to ask the exempt organization experts any question they might have regarding charities and nonprofit organizations. After receiving hundreds of questions, Brian Yacker and Lauren Haverlock, partners at YH Advisors, conducted the following webinar with over 300 participants nationwide. We responded to as many questions as we possibly could in the one hour time-frame, addressing topics that included:

  • Insider transactions and self dealing
  • Compensation
  • Unrelated business income
  • Public support
  • Fundraising,
  • Charitable contribution

Because this initial webinar was available on a complimentary basis to all registrants, we have posted a recording of the webinar below. All of our webinars focus on providing the exempt organization practitioner and exempt organization executive with guidance, as well as valuable resources and tools, that best ensure that they possess the requisite knowledge regarding nonprofit entities.

Please look out for our future EO webinars, including the next one which will be a Form 990 review and update. This will be presented in late April 2013, just in time for participants to refresh their knowledge and hear all the changes and updates to the 2012 Form 990 for the May 15th filing deadline.

Please contact us at info@yhadvisors.com with any questions or to be added to our email database to receive information regarding upcoming webinars and a copy of our quarterly newsletter, “The YH Exempt Org Advisor”.

YH Advisors – Ask the EO Experts Webinar (2013-02-12) from YH Advisors on Vimeo.

Political Activities – Walking a Fine Line

December 19, 2012 - Category: News

Political activities are defined by the Internal Revenue Service as “directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.” While that definition seems straightforward enough, so much more goes into determining what a “political activity” truly is.

The term “political activity” is narrowly defined in the exempt organization context. By simply participating in the political arena, an exempt organization is not necessarily undertaking a political activity. Organizations are permitted to “be political”, as long as they concentrate on broad issues and remain non-partisan. Organizations are permitted to educate people on political issues. Subject to certain IRS restrictions, exempt organizations are permitted to lobby (i.e. influence current legislation and acts of Congress). They are permitted to encourage people to vote, even helping people register. They are also permitted to educate voters about candidates, provided that the education is non-partisan and inclusive of all viable candidates.

From an Internal Revenue Service perspective, support of a particular candidate or groups of candidates for elective office is the core of the political activities definition. Support can come in a variety of manners. The most obvious and quantifiable is monetary support—whether direct contributions to a politician or indirectly through a Political Action Committee (PAC). Another type of support we often see are verbal or written statements supporting or opposing a particular candidate for public office. Political activities can also manifest in more indirect forms, including, but not limited to, voter education or registration activities that favor one candidate or party over another.

From an Internal Revenue Service perspective, the second prong of the definition of political activities focuses on “elective public office.” When is a candidate considered to be a candidate for elective public office? In such regard, the IRS has stated that endorsing a candidate who is appointed to office (e.g., a judge or cabinet member) would not be considered a political activity. So when does an individual become a “candidate?” The IRS has taken a very conservative stance on this, stating that the moment a person ‘throws their hat in the ring’ for an elected public position, they are a candidate. Per this definition, any individual in a party primary would be considered to be a candidate for public office.

However, the courts have taken a different stance regarding  when a person becomes a candidate for public office in respect to primary elections, stating that primaries are simply an internal mechanism for solving intra-party differences, and candidates for a primary election are not considered to be candidates for elective public office. Once an individual enters candidacy in the general election, they are considered to be a candidate for elective public office.

So which organizations can undertake political activities? Some types of exempt organizations are permitted to undertake political activities (with certain limitations), namely organizations exempted from taxation under IRC §501 (c)(4), 501(c)(5) and §501(c)(6). Conversely, public charities and private foundations (both exempt under §501(c)(3)) are strictly prohibited from any type of political activity. Violating this prohibition may result in the imposition of certain excise taxes or, even worse, the revocation of tax-exempt status.

Please do not hesitate to contact Lauren Havelock  at 310-982-2804 or at lhaverlock@yhadvisors.com if you have any questions regarding political activities or if you need any additional information whatsoever regarding the exempt organization services that YH Advisors provides in the lobbying and political area

The Fall Edition of the YH EO Advisor is Now Available!

December 5, 2012 - Category: News, Newsletter, YH EO Advisor

The fall issue of the YH Exempt Org Advisor has been released.  We are very proud to publish and distribute the fourthedition of our quarterly publication dedicated exclusively to providing timely and valuable technical articles addressing the tax, legal and accounting issues confronted by all different types of exempt organizations.

Click here to download.

In our Fall 2012 edition, you will find the following articles relating to exempt organization:

  • Ripped from the Headlines: The latest newsfrom the EO sector .
  • Focus on the IRS TE/GE Division:    News and updates from the Exempt Org Division of the Internal Revenue Service
  • Auto Revocation Scoreboard:  The latest regarding the IRS’ Auto Revocation List.
  • YH Case Study – Reasonable Cause Letters:   Drafting of reasonable cause penalty abatement letters for late filed Form 990’s
  • YH Quick Tips:   Quick tips and guidance on issues often faced by EO practitioners and exempt entities themselves
  • YH “Plain English” EO Dictionary:    What are political activities?
  • The EO Accounting Spotlight: A discussion of financial statement audits
  • YH Resources, News & Updates:  Find out more information about upcoming educational presentations, webinars, current news and resources from YH Advisors.

We sincerely hope that you find the YH Exempt Org Advisor to be useful in servicing your exempt organization clients and/or fulfilling your responsibilities working for an exempt organization.

To access our archived YH Exempt Org Advisors, please click here.

Please visit our website to find out more about YH Advisors and the value-added services and  education we provide or to get access to our vast array of complimentary resources. And, as always, do not hesitate to contact any of us here at YH Advisors (Brian – 310.982.2803 / Lauren– 310.982.2804 / Stacey – 310.982.2805) if you have any questions or if you need any additional information whatsoever from us

How Charitable is the NFL Pink Campaign?

October 19, 2012 - Category: News

For the past number of years, the NFL has done their best in October to support Breast Cancer Awareness month. This past October was no different as all the NFL teams sported pink aspects to their uniforms throughout the entire month. Notwithstanding the fact that the NFL’s efforts provide great awareness to the American Cancer Society, according to the Business Insider, the unfortunate reality of this situation is that it has been alleged that the NFL actually does not turn over substantial profits to the American Cancer Society. This is because of all the NFL pink products which are sold, only 5% of the gross sales are donated to the American Cancer Society, with the remainder of the profits remaining with the NFL.

Please do not hesitate to contact Brian Yacker at 310-982-2803 or at byacker@yhadvisors.com if you have any questions regarding the foregoing or if you need any additional information whatsoever regarding the exempt organization tax, legal and accounting services which YH Advisors provides.

Welcome, Stacey Bergman!

August 7, 2012 - Category: News

YH Advisors is excited to announce the newest member of our team, Stacey Bergman. Stacey joins us as a Manager, bringing an extensive background in exempt organization accounting and auditing, both in the public and private sectors. Her knowledge and experience will help us to continue providing stellar service to our exempt organization clients. Stacey skill set will help expand our expertise and service offerings in the nonprofit sector by best serving our exempt organization clients throughout their entire annual financial cycle.

Stacey’s experience and expertise includes, but is not limited to, the following:

  • Providing accounting services, including outsourced CFO and Controller functions
  • Preparing of internal periodic (monthly, quarterly or annual) financial statements
  • Helping exempt organizations prepare for their financial statement audits and reviews
  • Preparing of information tax returns and required registrations

While in public accounting, the majority of Stacey’s time was focused on working with exempt organizations. Stacey has worked with exempt organizations in preparing their internal financials, helping get exempt organizations ready for financial audits and reviews, conducting audits, reviews and compilations for exempt organizations of varying size and preparing the information tax returns for exempt organizations.

With extensive practical experience and expertise as a financial auditor, Stacey possesses the requisite skills and knowledge to assist any size or type of exempt organization in the preparation of their audit documentation and the pulling together of their audit PBC information. Stacey also has significant accounting and bookkeeping experience; she currently serves as an outsourced Controller for multiple exempt organizations, assisting with the creation, documentation and implementation of internal controls and accounting procedures as well as special projects based on the specific needs of the organization. Finally, Stacey directly supervises personnel in the undertaking of various bookkeeping functions for exempt organizations.

Stacey remains connected to her community by participating in a multitude of philanthropic events and fundraisers. She currently sits as Treasurer for a local religious organization and has served as the Vice President of Individual Development for the Long Beach Junior Chamber of Commerce. Stacey earned a bachelor’s degree in Accounting from California State University Long Beach. Personal interests include hiking, biking, baking and spending time with her family.

Stacey can be  contacted via phone at 310.982.2805. or via email at sbergman@yhadvisors.com.

 

IRS Announces That Contributions to Certain Single-Member LLCs Now Deductible

August 7, 2012 - Category: News

IRS Notice 2012-52 has been issued addressing the deductibility of contributions to domestic single-member limited liability companies that are wholly owned and controlled by charitable organizations and are disregarded as entities separate from their owners for federal tax purposes. IRS Notice 2012-52 provides that if all other requirements of contribution deductibility are satisfied, then the Internal Revenue Service will treat a contribution to a disregarded U.S. single-member LLC that is wholly owned and controlled by a domestic charitable organization as a charitable contribution to a branch or division of such charitable organization. IRS Notice 2012-52 further sets forth that the domestic charitable organization would be the donee organization for purposes of the charitable contribution acknowledgement and substantiation rules under §170(f) of the Internal Revenue Code. Finally, the guidance promulgated by IRS Notice 2012-52 is first effective for charitable contributions made after July 30, 2012.

The YH Exempt Org Advisor is Now Available

July 5, 2012 - Category: Resources, YH EO Advisor

The spring issue of the YH Exempt Org Advisor has been released.  We are very proud to publish and distribute the second edition of our quarterly publication dedicated exclusively to providing timely and valuable technical articles addressing the tax, legal and accounting issues confronted by all different types of exempt organizations.

Click here to download.

In our Winter 2012 edition, you will find the following articles relating to exempt organization:

  • Ripped from the Headlines: The latest on recent congressional hearingsand the IRS’ most current guidance affecting EOs
  • Focus on the IRS TE/GE Division:    News and updates from the Exempt Org Division of the Internal Revenue Service
  • YH Case Study – UBIT:   How do annual fundraisiers not directly related to an entity’s charitable mission escape UBIT?
  • YH Practice Tip:    Tips on navagating the complex and varying rules of state charitable solicitation registrations
  • YH “Plain English” EO Dictionary:    What is an IRS “compliance check”?
  • Focus on the Form 990: Reporting of anonymous donors on Schedule B
  • The YH EO Brain Teaser: Give us your thoughts on the issue posed and you could win a $50 gift card
  • YH Advisors in the News:  Find out more information about upcoming educational presentations, webinars, and current news from YH Advisors.

We sincerely hope that you find the YH Exempt Org Advisor to be useful in servicing your exempt organization clients and/or fulfilling your responsibilities working for an exempt organization.

To access our archived YH Exempt Org Advisors, please click here.

Please visit our website to find out more about YH Advisors and the value-added services and  education we provide or to get access to our vast array of complimentary resources. And, as always, do not hesitate to contact any of us here at YH Advisors (Brian – 310.982.2803 / Lauren– 310.982.2804 / Janet– 310.982.2805) if you have any questions or if you need any additional information whatsoever from us

Yacker Moderating ABA Pro Bono Committee Panel

May 8, 2012 - Category: News

On May 12, in Washington DC, YH Advisors Partner Brian Yacker will be moderating the following panel discussion at the American Bar Association Tax Conference:

Pro Bono Matters: The Exploding Need for Pro Bono Services for Exempt Organizations. Tax-exempt organizations suffering routine budget cuts and funding shortages are in desperate need of pro bono legal assistance. Indeed, last year 385,000 nonprofits lost their tax-exempt status because they failed to file tax returns for three consecutive years. In her annual report to Congress, Nina Olson, highlighted the lack of notice as well as the onerous and slow reinstatement process making practical suggestions to mitigate these challenges. The New York Attorney General’s Office, through its Charities Bureau, has partnered with the New York Bar Association to form Charity Corps, an attempt to fill this gap so that these nonprofits can continue their excellent good work for our underserved communities. Moderator: Brian Yacker, YH Advisors, Huntington Beach, CA. Panelists: Nina E. Olson, National Taxpayer Advocate, Washington D.C.; Jill McNabb, Attorney Advisor, National Taxpayer Advocate Office, Washington D.C.; Elizabeth J. Kingsley, Harmon, Curran, Spielberg & Eisenberg, Washington D.C., Irina Tarsis, Legal Fellow, Charity Corps, Lincoln Center, Brooklyn, NY.