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February 20, 2014

New Reporting Requirement for Businesses and Nonprofits -- Change in responsible party

Reports.jpgThe Internal Revenue Service's application for an employer identification number (or EIN) requires the applicant to submit the name and tax identification number (usually a social security number) of the applicant's "responsible party." That is true whether the application, Form SS-4, is submitted on paper or online, and it is true for any type of organization applying for an EIN, including corporations, limited liability companies, partnerships, trusts, and tax exempt organizations. That is the last time most organizations ever think about the "responsible party." Until now.

On May 6, 2013, the Internal Revenue Service published a final rule that requires any business, nonprofit organization, trust, or other entity with an EIN to report any change in the entity's responsible party. Here are the answers to some questions that essentially every business and tax exempt organization should know.

Who is a "responsible party"?

The answer differs a bit for various types of organizations. For companies with shares traded on a public exchange or securities registered with the U.S. Securities Exchange Commission, the responsible party is defined fairly unambiguously:

For corporations, the responsible party is the principal officer. For partnerships, the responsible party is a general partner. For trusts, the responsible part is the trustee, grantor, or owner. For disregarded entities, the responsible party is the owner.

For other entities, the definition is more ambiguous:

The responsible party is "the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets."

For business corporations, the responsible party may be the president or chairman of the board; for LLCs, a member; for partnerships (including limited partnerships, such as family limited partnerships), a general partner.

The issue of identifying a responsible party for a nonprofit organization may be particularly problematic because, in many organizations, no single person who has the authority to control, manage, or direct the organization and -- in particular -- to control the disposition of its funds and assets. In fact, we often tell the boards of directors of our nonprofit clients that, collectively, they have full authority to control the organization but, individually, they have no authority at all. Even so, the IRS requires the designation of a responsible party, and the organization must decide who best fits the definition. For some organizations, that may be the executive director or CEO; for others, it may be the president or chairman of the board.

Our LLC has three members, all with the same rights and authority. Who is the responsible party?

If more than one person qualifies as a responsible party, the entity must select one of them by whatever criteria the entity chooses.

When and how must changes be reported?

As of January 1, 2014, any change in an entity's responsible party must be reported on IRS Form 8822-B within 60 days after the change takes effect. Changes made prior to January 1, 2014 must be reported before March 1, 2014.

Our organization obtained an EIN years ago, and we have no idea who was listed as the responsible party. But Form 8822-B requires us to list not only the new responsible party, but also the old one. What do we do with that?

The best course is probably to submit Form 8822-B without the information about the old responsible party and attach a statement explaining what you have done to locate the information and why it is unavailable despite those efforts. [Revised February 21, 2014, to include the idea of attaching a statement -- a suggestion from James W. Foltz, Attorney at Law, of Indianapolis, Indiana.]

Our nonprofit has filed Form 990 (or 990-EZ or 990-N) every year, and we always have to list the organization's principal officer. Isn't that good enough?

From what we know at the moment, probably not. Even if the responsible party and the principal officer are the same person, Form 8822-B calls for the responsible party's social security number, but Form 990 does not. The same thing is true for the tax matters partner identified on Form 1065 filed by partnerships and by LLCs taxed as partnerships.

I called the IRS and tried to get some more specific information about the new reporting requirement, and the person I spoke with had never heard of this new requirement. Are you sure about it?

We had the same experience, but, yes, we're sure. We hope the IRS will issue guidance that clarifies some of the details, but we're sure the rule is in effect.

What happens if we do not file Form 8822-B or file it late?

That's the good news. As far as we can tell, there is no penalty for failing to file or for filing late. Even so, everyone with an EIN, including small businesses and tax exempt organizations, should comply with the rule using the best understanding of the requirement and the best information available.

Continue reading "New Reporting Requirement for Businesses and Nonprofits -- Change in responsible party" »

February 11, 2014

The 2014 IRS Mileage Rates

Odometer.jpgIf you use a vehicle for business, medical, or moving purposes, or in providing volunteer services to a charitable organization, you may be able to deduct at least a portion of the cost on your income tax return. There are two alternatives for calculating the amount of the deduction, but the simplest is to keep track of the number of miles driven and multiply by the appropriate standard IRS mileage rate.

The standard mileage rates are based on an annual study of the costs of operating a motor vehicle, conducted by the IRS and an independent contractor. The information used in deriving the standard rate for business purposes include both fixed and variable automobile costs, such as insurance, fuel, maintenance, and repair costs. Only variable costs are considered in calculating the standard rate for medical and moving purposes. The charitable rate is fixed by statute.

What are the rates?

On December 6, 2013, the IRS announced the standard mileage rates for 2014. The rates as of January 1, 2014, are:

• 56 cents/mile for business miles driven for business purposes
• 23.5 cents/mile for miles driven for a medical purpose or a moving purpose
• 14 cents/mile for miles driven as a volunteer to a charitable organization.

These rates apply to the use of automobiles, including includes cars, vans, pickups, and panel trucks. With fuel prices generally decreasing, the standard rates miles driven in 2014 for business, medical, and moving expenses are one-half cent below the rates for miles driven in 2013. The charitable rate is the same in 2014 as it was in 2013.

What counts as "Business" miles?

While commuting to and from work does not count toward business mileage, there are many trips that may be characterized as business trips for purposes of calculating mileage, including driving to meet a client, driving to a bank to making a business transaction, driving to pick up mail from the post office, and driving to a supply store to make purchases for your business.

Of course it is easy to forget to keep track of your miles driven, but if you are disciplined about it, the savings can add up. For example, if you are in the 28% tax bracket, the deduction for 100 business miles may reduce your federal income tax by about $15.00.

Other considerations:

As mentioned above, the use of standard mileage rates is not the only alternative for calculating the deduction for the use of a vehicle. Taxpayers may instead calculate the actual costs of using their vehicle, including costs of gas, oil, registration fees, repairs, tires, and insurance. However, calculating the actual costs of using a vehicle for taxation purposes of often takes more time and effort. Broadly speaking, the more economical the vehicle is, the more likely that the standard mileage rate will give you a better deduction. Conversely, if the operating costs of a vehicle are high, the more likely the actual cost method will give you a better deduction.

If a taxpayer uses the depreciation method under the Modified Accelerated Cost Recovery System (MACRS), or claims a Section 179 deduction for a vehicle, she may not use the mileage rates. Additionally, the standard rate for business purposes cannot be used for more than four vehicles simultaneously.

September 26, 2013

Nonprofit Growth and Trends

Growth chart.jpgPeter Orszag at Bloomberg wrote an interesting article about the growth of nonprofit organizations from 2008 onwards. One study cited was done by Nonprofit HR Solutions, entitled "Nonprofit Employment Trends Survey."

The article and the survey both painted an optimistic picture about nonprofit organizations post-millennium. They were viewed as a source of jobs and growth (nearly 5% of GDP according to Mr. Orszag) in contrast to the for-profit sector which has contracted, according to a study performed by researchers at Johns Hopkins University.

One key finding of the Nonprofit HR Solutions study was that nonprofits are continuing to grow and expand with no signs of slowing down. A full 40+% of institutions plan to add positions in the upcoming year, an upwards trend from the 33% in 2011.

Another interesting observation is that nonprofits may be facing a leadership vacuum. As one generation heads for retirement, plans for succession are not clearly developed. Whether or not this affects organizational stability remains to be seen, as nonprofit growth may attract qualified individuals needed as the for-profit sector continues to contract.

According to the survey, many nonprofits are ill prepared to deal with turnover, particularly in leadership positions. They have not developed succession plans or implemented measures to prevent key employees with needed knowledge, skills, or qualifications from leaving - either laterally to another nonprofit or to the for-profit sector or to government employment. A lack of a retention strategy could, in theory, lead to a brain drain or a boom-bust phenomenon where growth sectors lack the knowledge needed most as the lucrative lure of the private sector exacerbates the problem at precisely the wrong time.

Nonprofits, according to the survey, continue to explore social networking sites as a recruitment tool. Although non-traditional, such sites like Facebook and LinkedIn offer inexpensive, almost ubiquitous tools. There is also potential for growth in this sector, as it relates to another survey finding: the difficulty of attracting and retaining employees in the under-30 demographic.

As job markets in the for-profit sector contract, candidates who might have otherwise never considered a job in the non-profit sector take positions at these institutions. This creates a benefit for these non-profits in that they have a larger applicant pool to choose from. Due to corporate cost-cutting and austerity measures, the phenomenon is not limited to entry-level jobs but encompasses all levels of seniority.

Ironically, the success of nonprofit organizations may ultimately lead to a darker spot on the horizon. As Mr. Orszag points out, some politicians question whether tax-exempt status gives nonprofit organizations an unfair advantage over for-profit businesses that offer similar services. Although some nonprofits provide the same or similar services that are also provided by for-profit businesses (hospitals are an example that often comes to mind), many tax exempt organizations satisfy needs that would go entirely unmet if left to the private sector. Regardless of one's political views, it is an area to watch in future discussions of tax reform.

Despite some uncertainties, if nonprofits can continue to expand, retain, and plan for leadership transitions, the future is bright indeed.

Continue reading "Nonprofit Growth and Trends" »

March 17, 2013

Indiana Smoking Ban

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The "Indiana Smoke Free Air Law," which was passed last year by the Indiana General Assembly and took effect on July 1, 2012, bans smoking in most Indiana businesses and nonprofit organizations. We thought the General Assembly might reconsider some of the details this year, but that hasn't happened. Based on our non-scientific observations, it seems that Indiana businesses and nonprofits have not been very diligent about implementing the law, particularly those regarding signs. So we think it's a good time to review the requirements, or at least some of them.

"Does the smoking ban affect my business?"

Smoking is now prohibited by law in "public places" and "places of employment," as well as the area within 8 feet of public entrances to either of them. "Public places" and "places of employment" sound as if they encompass a lot, and they do. A public place includes any enclosed area of a structure in which the public is permitted or invited, and a place of employment includes any enclosed area of a structure (excluding a private vehicle) that is a place of employment. Lest we forget, there's one other category -- smoking is also banned in government vehicles being used for governmental purposes.

There are some exceptions, but the bottom line is that the smoking ban affects most businesses and nonprofit organizations in Indiana.

"Okay, my office is covered. What do I have to do?"

  • Not surprisingly, you must inform your employees and prospective employees that smoking is prohibited.
  • You must post conspicuous signs that read "Smoking is Prohibited by State Law," or something to that effect. The law has a specific requirement that restaurants must have a conspicuous sign at each entrance informing the public that smoking is prohibited in the restaurant.
  • You must also post signs at each entrance (logically, the sign should be outside or at least visible from the outside) stating "State Law Prohibits Smoking Within 8 Feet of this Entrance" or something similar.
  • If someone smokes on the premises anyway, you must ask him or her to refrain, and if he or she refuses to stop, you must have him or her removed from the premises. (Note: Don't try to do it yourself! In the unlikely event it becomes necessary, call the police.)

"I own a bar. Does the smoking ban REALLY apply to my business?"

It depends. There are some exceptions to the smoking ban, and one of them is for bars and taverns, but you have to meet certain requirements. For example, you may not have any employees under 18, and you must exclude anyone else under 21. There are more exceptions for several other types of places of employment and public places, each subject to particular qualifications or additional requirements.

"Does the law apply to our nonprofit organization?"

Probably. There is an exception that covers some social clubs and fraternal organizations or lodges that are tax exempt under Internal Revenue Code Sections 501(c)(7), (c)(8), or (c)(10), and it's possible that some other types of nonprofits fit into an exception, but most nonprofits are subject to the smoking ban.

"I have a home office. Is smoking banned there, too?"

Again, it depends. The ban does not apply to a business located in the business owner's residence, but only if all the people who work there live in the residence. Let's assume that only you (the owner) and your spouse work in your office. In that case, you're allowed to smoke, but if you have any employees who don't live in your home, smoking is prohibited.

"Are there other exceptions?"

Yes. For a complete list see Ind. Code 7.1-5-1-5.

"My facility falls within an exception to the smoking ban, so I'm home free. Right?"

Well, not entirely. There are some other requirements that apply to public places and places of employment in which smoking is permitted. Here's an interesting one -- you have to post signs that state "WARNING: Smoking is allowed in this establishment." You must also certify to the Indiana Alcohol and Tobacco Commission that your bar qualifies for the exception.

Moreover, even if most of your facility or building is exempted from the ban, smoking is prohibited in halls, elevators, and common areas where people under 18 are permitted or in rooms intended for use by people under 18.

And don't forget that even if the state law does not ban smoking in your business, it may be prohibited by local no-smoking laws -- such as the Indianapolis Ordinance -- which are allowed to be more restrictive than the state law.

Other resources

NOTE: This is not a comprehensive analysis of the Indiana Smoke Free Air Law. There are other exceptions and other requirements that may apply to your business or nonprofit (even if it is exempt from the ban itself) that we have not discussed. Here are some other resources:


  • The full text of the statute can be found at Ind. Code 7.1-5-1.

  • The Indiana State Excise Police have published a list of frequently asked questions.

  • And signs that comply with the state law are readily available from a number of suppliers.

Continue reading "Indiana Smoking Ban" »

January 28, 2013

Letter About Annual Minutes is a Scam -- but Notice About Business Entity Reports is Not!

iStock_000011065644XSmall.jpgThe Indiana Secretary of State has issued a warning about a deceptive letter being received by some Indiana businesses. The letter asks for a fee -- typically $125 or $150 -- to cover the processing of the minutes of a corporation's annual meeting. It is designed to appear as if it is from a state agency, the "Indiana Corporate Compliance Business Division," and it includes a citation to a fictitious law. In fact, it is not from a state agency, and there is no requirement to pay any such fees to the state.

If you receive a letter like the one described above, ignore it. If you have already responded to a letter like this, you may contact the Business Services Division of the Indiana Secretary of State's office at (317) 232-6576.

However, if you receive a letter from the Indiana Secretary of State's office informing you that a business entity report is due by the end of the following month, DO NOT IGNORE IT!

Indiana business corporations and limited liability companies are required to submit a business entity report every two years during the month of the anniversary of the filing of the articles of incorporation or articles of organization. For example, if your articles of incorporation or articles of organization were filed in April of an even-numbered year, a business entity report is due in April of every even-numbered year.

Indiana nonprofit corporations are required to file business entity reports (even though a nonprofit corporation is not usually considered to be a "business") every year in the month of the anniversary of the filing of the articles of incorporation. If the articles of incorporation of your nonprofit were filed in August, a business entity report is due every August.

Business entity reports may be filed on paper or online. The filing fee for business corporations and limited liability companies is $30, and the fee for nonprofits is $10. In both instances, modest discounts are given for filing online.

The Secretary of State's office sends out reminder notices near the end of the month before your business entity report is due, but do not rely on those letters as your only reminder. Because the reports are due even if you do not receive the letter, you should make sure the report is placed on your compliance calendar.

If your organization does not file its business entity reports on time, it is subject to administrative dissolution by the Secretary of State. If that happens, it is possible to have your corporation or LLC reinstated, but the process can be time consuming. It's far better to stay in compliance to begin with.

Continue reading "Letter About Annual Minutes is a Scam -- but Notice About Business Entity Reports is Not!" »

November 23, 2012

Hiring soon? Consider an Unemployed Veteran!

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Businesses and nonprofit organizations that have recently hired unemployed veterans and those that do so before 2013 may be eligible for a tax credit of as much as $9,600 for each unemployed veteran hired by a business or as much as $6,240 for each unemployed veteran hired by a qualified tax exempt organization. Qualifying businesses will receive a credit against income tax, and qualifying tax exempt organizations will receive a credit against the employer's share of Social Security tax.

The tax credit is a result of the bipartisan VOW to Hire Heroes Act of 2011, unanimously passed by both houses of Congress and signed by the President on November 21, 2011, which expanded the Work Opportunity Tax Credit (or "WOTC") to include certain classes of unemployed veterans. The amount of credit available depends on the length of time the veteran was unemployed before being hired, the number of hours the veteran works, the amount the veteran is paid in the first year of employment, and whether the veteran has a service-related disability.

Critical Deadlines

Businesses and tax exempt organizations that wish to take advantage of the tax credit need to be aware of two critical deadlines. You will not get the tax credit if you fail to meet either one:


  • First, the expanded tax credit expires at the end of the year. The veteran must start work on or before December 31, 2012.

  • Second, the employer must file certain forms within 28 days after the veteran starts work. (Other rules were in place for veterans hired before May 22, 2012.) Different forms are required for businesses and for tax exempt organizations. The process of for claiming the credit, including a list of the required forms, is summarized here.

The IRS has provided several other sources of information on the WOTC for veterans, including a list of frequently asked questions and a detailed description of the WOTC. You should also consult your tax advisor.

Continue reading "Hiring soon? Consider an Unemployed Veteran!" »

November 21, 2012

IRS Standard Mileage Rates Will Increase in 2013

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The Internal Revenue Service has announced the following standard mileage rates used to calculate income tax deductions for business travel expenses and for travel expenses incurred while serving charitable organizations.

  • Business, $0.565 per mile
  • Charitable service, $0.14 per mile

These rates, which are one cent per mile higher than the standard rates for 2012, take effect on January 1, 2013.

Continue reading "IRS Standard Mileage Rates Will Increase in 2013" »

March 17, 2011

Is it legal for a nonprofit organization to use unpaid interns?

iStock_000000723468XSmall.jpgAs our last post explained, for-profit businesses are very limited in their ability to use unpaid interns legally. Unless the internship program meets six different criteria to qualify the intern as a trainee, the intern is an employee subject to the Fair Labor Standards Act (or FLSA), and the business must comply with the requirements to pay minimum wage and overtime compensation. Nonprofit organizations may also have trainees, and the analysis that applies to businesses also applies to nonprofits.

For nonprofits, however, there is a third possibility. The intern may qualify as a volunteer, in which case the intern is not an employee under FLSA and not subject to the minimum wage and overtime compensation requirements. The footnote to Fact Sheet #71 issued last year by the Department of Labor explained that the Department's Wage and Hour Division recognizes an exception to FSLA for individuals who volunteer their time to nonprofit organizations for religious, charitable, civic, or humanitarian purposes, provided they do so freely and without expecting any compensation. In those situations, unpaid internships are generally allowable.

There are some limits, however. Perhaps most importantly, individuals who work in a commercial operation (such as a clothing store or a farm) operated by a nonprofit organization are likely to be deemed employees and therefore subject to the FLSA. That's essentially what happened in the 1985 U.S. Supreme Court decision, Tony and Susan Alamo Foundation vs. Secretary of Labor. Although that case had the additional factor that the individuals who worked for the nonprofit also received benefits such as clothing and room and board, in my opinion it is likely the Court would have reached the same decision even if the individuals had received nothing.

In addition, the Wage and Hour Division has hinted that relevant factors might also include whether the intern works full-time and whether the intern displaces any employees. For example, in a 2006 opinion letter, in describing the exemption for volunteers, the Division stated,

"Typically, such volunteers serve on a part-time basis and do not displace paid workers or perform work that would otherwise be performed by employees."
However, I'm not aware of any guidance to indicate that the Department of Labor will take the position that working full time, in and of itself, precludes an individual from being considered a volunteer.


Although the volunteer must work without any expectation of being paid, it is nonetheless permissible for the nonprofit to pay the expenses of the volunteer, to provide some reasonable benefits, and even to pay a nominal fee. In order for the fee to be "nominal," the amount may not depend on the volunteer's productivity or the number of hours worked. In addition, the fee or stipend should not exceed 20% of the amount it would cost the nonprofit organization to pay an employee to perform the same tasks. For more explanation, you might want to read Opinion Letter FLSA2005-51.

A final note of caution: As I mentioned in the entry dealing with business interns, determining whether an intern is either a trainee or a volunteer, and therefore not an employee, is relevant only for the Fair Labor Standards Act. There are many other legal requirements, including state law requirements, that apply to "employees," and each of those requirements has its own definition which may be different from the FLSA definition.

Continue reading "Is it legal for a nonprofit organization to use unpaid interns?" »

February 2, 2011

Indiana General Assembly Report: L3C Bill Introduced

In the next few days, I'll get back toThumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for 100_3697.JPG the discussion of the basics of limited liability companies, but first I want to mention a bill that has been introduced in the Indiana General Assembly that takes on an advanced, cutting-edge topic: the low-profit, limited liability company or "L3C." The bill is Senate Bill 501, authored by Sen. Brandt Hershman (R-Lafayette).

The L3C is a new variation on a limited liability company. The primary purpose of the L3C is to pursue a charitable mission, with the generation of a profit being a secondary purpose. The L3C is not, itself, a tax exempt organization. Instead, it is intended to be a vehicle that can attract both private capital and philanthropic investments to address issues such as low income housing.

Why? Primarily because the L3C is designed to be eligible for program related investments from private foundations. A program related investment is an alternative to a traditional philanthropic grant. An example of the use of program related investments in Indiana is the support of charter schools by the Annie E. Casey Foundation.

You can read more about L3C's from Americans for Community Development.

Continue reading "Indiana General Assembly Report: L3C Bill Introduced" »

January 27, 2011

Nonprofit Organization Settles Trademark Lawsuit: Little House on the Prairie

iStock_000005049341XSmall.jpgEarlier this week, Friendly Family Productions, LLC, the company that produced the television series Little House on the Prairie settled its lawsuit against a nonprofit corporation that operates a small museum outside Independence, Kansas. The museum is located at the site of the original house that Laura Ingalls Wilder wrote about in her book of the same title. Friendly Family Productions alleged that the museum infringed the trademark LITTLE HOUSE ON THE PRAIRIE. According to complaint filed in U.S. District Court in Los Angeles, the predecessor to Friendly Family Productions acquired rights to that trademark from the author's descendants in 1974.

What got Friendly Family Productions all riled up (to use a term that Ms. Wilder would have been comfortable with) was the use of the trademark on merchandise that the museum sold, including the merchandise that it sold through a website with the domain name www.littlehouseontheprairie.com. Friendly Family Productions acknowledged that it had no quarrel with the museum using the words "little house on the prairie" to describe the homesite or the museum, because a purely descriptive use like that does not infringe a trademark. On the other hand, Friendly Family Productions had considerable quarrel with the museum putting those words on merchandise (caps, T-shirts, magnets, note cards, key chains, and other items typical of promotional merchandise) and selling them over the internet. Friendly Family Productions claimed that the use of those words implied that the merchandise came from the owner of the trademark, when it did not. That is, in a nutshell, the reason trademarks exist -- to identify the source of the goods that bear the mark.

According to an article in the Wichita Eagle and other sources, Friendly Family Productions originally offered to pay the museum $40,000 if it would stop using the trademark. The museum refused the offer, choosing instead to fight the lawsuit. The terms of the settlement agreement are confidential, but we know that the nonprofit corporation has changed its name from Little House on the Prairie, Inc. to the more descriptive Little House on the Prairie Museum, Inc., and www.littlehouseontheprairie.com is no longer active.

There's no way to know how much the two-year litigation cost the parties.

Continue reading "Nonprofit Organization Settles Trademark Lawsuit: Little House on the Prairie" »

January 17, 2011

Indiana Non-Profit Organizations should be aware of Non-Profit Registration Requirements in Other States

Thumbnail image for Thumbnail image for iStock_000004297923Small.jpgUnlike Indiana, most states require that non-profit organizations register with an agency such as the Attorney General's office before soliciting any charitable donations within the boundaries of that state. In addition to initial registration, those states typically have annual reporting requirements as well. Although Indiana is not one of the 40 states requiring registration, non-profits located in Indiana that solicit contributions outside the state cannot ignore the requirements.

The primary purpose of registration is to protect citizens from potential scams put on by fraudulent charities. To that end, some states, such as Illinois, provide an online index of registered non-profit organizations and encourage their residents to "investigate" before they make any donations. If a non-profit is not listed there, it is likely that a potential donor will decide not to make a contribution.

Because Indiana does not currently require non-profit registration, some non-profit organizations located in Indiana may be unaware of the registration requirements in other states. However, all four states that surround Indiana -- Illinois, Kentucky, Michigan, and Ohio -- require this type of registration for non-profits engaging in fundraising within their borders.

States that require registration insist non-profits register BEFORE conducting any fundraising efforts in their jurisdiction. If your nonprofit organization is not currently registered but has been soliciting charitable donations within a state that requires registration, you should take immediate steps to get in compliance.

Continue reading "Indiana Non-Profit Organizations should be aware of Non-Profit Registration Requirements in Other States" »

January 14, 2011

Form 1023 User Fees Remain the Same for 2011

Internal Revenue Service Form 1023 is entitled "Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code," which is why most people call it simply "Form 1023." Most types of nonprofit organizations that fall within Section 501(c)(3) must submit Form 1023 within 27 months of their formation, along with a user fee that depends on the amount of revenue that the organization anticipates.

Last year the user fees for Form 1023's increased significantly. For 2011, they remain the same as in they were in 2010. The fees are:

  • $400 for organizations with annual gross revenues less than $10,000
  • $850 for organizations with annual gross revenues equal to or greater than $10,000

Continue reading "Form 1023 User Fees Remain the Same for 2011" »

January 7, 2011

Important Update on 1099 Form Reporting Changes...Could they be Repealed?

918333_u_s__capitol_building.jpgAs discussed in my post of November 24, businesses and nonprofit organizations face a significant increase in the requirements to issue 1099 forms beginning with payments made after December 31, 2011. However, a lot could change between now and then. Several legislators introduced bills during the previous session of Congress that would have dramatically reduced the new reporting requirements or even repealed them altogether. Although none of them passed, similar bills are being introduced again in the new session.

Representative Dan Lungren (R. California) originally introduced a repeal measure last April, just one month after the original legislation was passed, but was unable to obtain the signatures necessary for a vote on the matter. Rep. Lungren re-introduced his bill to repeal the 1099 tax provision earlier this week and plans to continue fighting against the new tax provisions. The bill, referred to as "The Small Business Paperwork Mandate Elimination Act," has 180 co-sponsors and was one of the first bills to be introduced during the 112th Congressional Session.

Other members of Congress have sought to lighten the impact of the reporting changes without repealing them altogether. Senator Mary Landrieu (D. Louisiana) introduced a bill last September that would increase the reporting threshold from $600 to $5,000. Senator Landrieu has yet to re-introduce the bill, but it is likely that similar efforts will begin to surface in the new Congress.

Many organizations representing small business owners have also shown great concern about these changes, which increases the possibility of amendments or a total repeal before next year. Continue checking back here for updates on the 1099 reporting requirements and how they will affect your small business or non-profit organization.

Continue reading "Important Update on 1099 Form Reporting Changes...Could they be Repealed?" »

December 4, 2010

The credit card exception to the 1099 filing requirement changes may ease the burden for many small businesses and non-profit organizations

206549_credit_card__gold_and_platinum.jpgThe recent changes to the filing requirements for 1099 forms may turn out to be quite a hassle for many business owners beginning with payments made in 2012. Having to file a 1099 for each entity a small business or non-profit organization pays more than $600 in a calendar year has the potential to be time-consuming and confusing. Thankfully, the Internal Revenue Service (IRS) has decided to allow an exception for all payments made with credit cards. Any time a small business or non-profit organization uses a credit card to make a purchase, that transaction will NOT require a 1099 form. This exception stems from the fact that credit card companies are required to report transactions to the IRS, so there is no need for double-reporting.

For those businesses that do not already use a credit card for their purchases, now would be a great time to consider applying for one. Not only will all transactions made with a credit card be exempt from 1099 reporting, credit cards are also great tools for organization. It is much easier to keep accurate business records when you have an itemized credit card bill that shows exactly what you spent and where you spent it. Obviously, there are some purchases that cannot be made using a credit card. For those transactions, businesses will need to be sure and obtain the Tax Identification Number (TIN) for the person or company they are paying.

In addition, if you're a business owner and you don't already accept credit cards, now might be a good time to start. Your customers may thank you at tax time!

While these changes do not take effect until January 2012, it is still crucial that small businesses and non-profit organizations begin thinking about these new changes. Hopefully, the exception for credit cards will lighten the load for many businesses and make compliance easier and less time-consuming.

**Please note this entry has been amended to reflect that the changes to the 1099 form filing requirements take effect in 2012 for 1099 forms issued in 2013.**

Continue reading "The credit card exception to the 1099 filing requirement changes may ease the burden for many small businesses and non-profit organizations" »

November 24, 2010

How will the upcoming changes to the filing requirements for 1099 forms affect your small business or non-profit organization?

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Congress recently passed legislation that will dramatically change the filing requirements for 1099 forms beginning in early 2013 for payments made in 2012. Under the new rule, small businesses and non-profit organizations will be required to file 1099 forms with the Internal Revenue Service (IRS) for goods as well as services. The new legislation also requires that 1099 forms be filed for transactions with corporations, while currently reporting is only required for expenditures made to non-corporate entities. It is clear at this point that these changes will greatly affect the way many businesses operate on a day-to-day basis.

The new rule will require all small businesses and non-profit organizations to file a 1099 form with the IRS for every entity they pay $600 or more for goods in a calendar year. That means that even the smallest of businesses will likely be filing many more 1099 forms than they have in the past. It is not difficult to imagine how even minor purchases with a single vendor can add up to over $600 in a year. For example, even spending only $50 a month on lunch for employees or for flowers to decorate the office would add up to $600+ over a year. In order to properly and completely fill out their 1099 forms, businesses will also need to provide the Taxpayer Identification Number of each company or individual they report.

To minimize extra burden in the future, small businesses and non-profit organizations should begin tracking their spending more efficiently now. Obtaining the correct Taxpayer Identification Numbers for each of their payees and recording ALL payments, large and small, made to both corporate and non-corporate entities will reduce headaches in 2012. A future article will explain the exception for payments made with credit cards.

**Please note that this entry has been amended to reflect that the 1099 filing changes take effect for payments that are made beginning in 2012 for 1099 forms issued in 2013, NOT for payments made in 2011.**

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