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2019 Form 990 Changes & Other IRS Updates

3/9/20 – Bryan Pautsch

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While most Americans are focused on submitting their personal taxes, there are some changes for nonprofits that have occurred since the last filing. Here are some highlights for nonprofit organizations that will affect their organizations’ filings.

Form 990 changes for 2019 filings

In 2019, Form 990 incurred a few changes to be aware of when filing this season:

1. Electronic filings are required for tax-exempt organizations for Forms 990/990-EZ/990-T and 990-PF for the tax years beginning on or after July 2, 2019. This means calendar-year organizations need to electronically file their 990s for the 2020 tax year.  However, if your fiscal year began on Aug. 1, 2019 or later, you will be required to file electronically in 2019. 

There are a few exceptions that allows an organization to paper file:

a. The year in which the organization has a name change;

b. The form 990 represents a short period because of the organization’s accounting period changes;

c. The year in which the organization’s application for tax-exempt status is pending;

d. The Form 990 filing is before the end of the year; or

e. The organization attempted to file Form 990 electronically but the return was rejected by the IRS.

The instructions of the Form 990 provide specific instructions on how to utilize these exceptions.

Below are a few changes on the 2019 Form 990:

2. Part IV - Checklist of required schedules, questions 26, 27 and 28 regarding related-party transactions and the corresponding requirement to file Schedule L, was changed to include "creator or founder" or "substantial contributor".   This change is a clarification of what the Form 990 is asking from taxpayers. 

3. Part X, Balance sheet, lines 5 and 6 regarding loans and other receivables from related parties and line 22 regarding loans and other payables to related parties, were changed to include "creator or founder, substantial contributor, or 35% controlled entity or family member of any of these persons".

4. Part X, Balance sheet, Lines 27 and 28 have been updated to include a line for net assets without donor restrictions and a line for net assets with donor restrictions for organizations that follow FASB Accounting Standards Codification 958 (ASC 958).  Previously there were three separate lines in this section - unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. 

Our next newsletter will address the 2018 changes to the form 990 schedules; form 990-PF and form 990-T.

TE/GE 2020 compliance program

In the fall of 2019, IRS Tax-Exempt and Government Entities (“TE/GE”) division released its fiscal year 2020 Program Letter outlining its compliance strategy and priorities for exempt organizations; federal, state and local governments; and employment tax.  Here are a few areas of concern, the IRS has prioritized for the 2020 fiscal year:  

Exempt organizations

  • Hospital organizations – focus is on unrelated business taxable income (UBTI) reported on Form 990-T, Exempt Organization Business Income Tax Return, where material expenses exceed gross income;
  • IRC 501(c)(7) organizations - focus is on the underreporting of investment and non-member income;
  • IRC Section 4947(a)(1) non-exempt charitable trusts – focus is on the underreporting income or over-reporting of charitable contributions;
  • Previously for-profit: organizations that formerly operated as for-profit entities prior to their conversion to IRC Section 501(c)(3) organizations;
  • Private benefit and inurement: organizations that show indicators of potential private benefit or inurement to individuals or private entities by way of private foundation loans to disqualified persons.

Federal, state and local governments/employment tax

The following are the standard notices or areas that are a priority for the IRS in the employment tax area:

  • CP2100 Backup Withholding Notice: determine if mismatched and/or missing taxpayer identification numbers on Form 1099-MISC, Miscellaneous Income, indicate failure to comply with backup withholding requirements. Addresses compliance with exempt organizations and federal/state/local governments; I am not sure I understand what this refers to.
  • Forms W-2/1099 matches: compare wages reported on Form W-2, Wage and Tax Statement, with payments reported on Form 1099-MISC to determine if income should have been subject to Federal Insurance Contribution Act (FICA) tax and income tax withholding. Addresses compliance with exempt organizations and federal/state/local governments;
  • Small employer employment tax: determine if fringe benefits are properly taxed for FICA and income tax withholding. Addresses compliance with exempt organizations and federal/state/local governments.

Other IRS updates

The IRS is in the process of expanding its resources, hiring additional personnel to conduct examinations of tax-exempt organizations.  The IRS has hired approximately 40 additional revenue agents for Exempt Organization examinations with more hires expected throughout this calendar year.

Goodbye parking tax – This year in January, the IRS posted instructions on its website on how organizations can claim a refund of previously paid UBIT on its qualified transportation benefits (“Parking Tax”).  Taxpayers may claim a refund or credit of UBIT paid for tax years beginning in 2017 and 2018 by filing an amended Form 990-T as described in the 2017 or 2018 form’s instructions and writing “Amended Return” at the top of Form 990-T or, if the amended return is being filed only to claim a refund, credit, or adjust information due to the repeal of section 512(a)(7), writing “Amended Return – Section 512(a)(7) Repeal.”  

Taxpayers must also attach a statement indicating the line numbers on the original return that were changed and the reason for each change (for example, stating “repeal of section 512(a)(7)”).

The release contains instructions for preparing an amended Form 990-T.

In addition, organizations will also need to consider whether a refund of state UBIT paid as a result of section 512(a)(7) is available. The process and requirements for any such refund claims will vary by state.