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Form 8868 Filed as a Protective Extension for Form 990

Should you request an extension of time to file your organization’s Form 990 even if you are able to file by the due date?

People worry that requesting an extension of time to file reflects poorly on their organization, or that it might cause an IRS audit. Neither of these things is true.

Beginning in January 2018, the IRS has a new method of handling Form 990 series returns that it believes are incomplete. The IRS rejects electronically filed returns that are incomplete. An incomplete paper return is sent back to the organization with a demand for corrective action within 10 days.

Most smaller tax-exempt organizations do not have the resources to respond properly to such a demand from the IRS within 10 days. If the rejected return was filed close to the due date, the organization may incur a daily delinquency penalty until it responds in a way that satisfies the IRS.

Buy yourself some time by filing Form 8868 to request an extension even though you plan to file on time. As long as a valid extension is in place, no penalties will accrue while the organization is correcting its errors and responding to the IRS.

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How to Find a Copy of a Nonprofit Organization’s Form 990 Online

The best sites I’ve found to view or download a copy of a tax-exempt organization’s Form 990 are:

The requirement to make returns available for public inspection is found in IRC section 6104(d)

The IRS website has great information on the public inspection requirements and what to do if an organization refuses to provide a copy of its most recent three years Form 990 filings.

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Form 1023: IRS Releases New Revision December 2017


If you are applying for tax-exempt status for a 501(c)(3) organization in 2018, be sure to use the most recent release of Form 1023.

The IRS has just released the December 2017 revision of this lengthy form. The significant changes are:

  1. It dropped the questions pertaining to the advance ruling period, which has been out of use beginning in 2008. This should eliminate considerable confusion.
  2. It added agricultural research organizations to the list of reasons for not being a private foundation.

And be sure to use the updated instructions as well.

The previous revision was released in 2013.

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Guidance for Nonprofits Collecting Money and Relief Supplies for Hurricane Disaster Victims

Question: Our nonprofit organization (public charity or private foundation) is collecting relief aid to help people in Texas, Florida or Puerto Rico who were seriously affected by the hurricanes. Disaster relief is not our normal charitable activity. If we collect money and supplies, can we tell our donors that their donations are tax deductible?

Answer: In most cases, yes. Largely because of the terrorist attacks on 9-11 and the subsequent formation of many hundreds of charities across the U.S., the IRS has issued special guidance for charities providing disaster relief.

The IRS states on its web site that a charitable organization may engage in charitable activities that were not described in its Form 1023 Application for Tax-Exempt Status as long as those activities do qualify as charitable and as long as the activities are described on the tax return it files.
In Disaster Relief Publication 3833, page 3, the IRS specifically states that charities may engage in disaster relief activities even though it was not specifically organized to provide disaster relief, as long as the activities are disclosed on the tax return. The IRS also indicates that it may be a good idea to report the activities to Determinations.

Here are some of the IRS’s primary concerns regarding the provision of disaster relief by a charity:

1. Earmarking: A donation cannot be solicited which is earmarked for a particular individual or family if it is to be treated as tax-deductible. So, you could not say that you are asking for donations for the Rodriguez family whose house was destroyed. That would not be a deductible donation. You should simply say that you are collecting relief aid for Houston (or Florida, or Puerto Rico). You could specifically mention that it is for people in a certain city or district if you wish and you could mention the types of assistance you are providing to the people.
2. Impermissible Benefits: Expenditures would be problematic if they were made to benefit family members or employees of a person who is an officer/director/ of the foundation.
3. Documentation: A charity should document who receives the money and goods (and how much–FMV) and what they do with it. I recommend reading IRS publication 3833 regarding documentation, pages 8-13 for specific guidance on the documentation requirements for long-term vs short-term disaster relief aid.

Deducting Contributions

In order for a donor to take a tax deduction for their donation, if the donation has a value of $250 or more, the foundation will need to provide a “contemporaneous acknowledgement” of the donation to the donor: A thank-you letter. Please see IRS Publication 1771, pages 2 and 3:  The thank you letter must say that “no goods or services were provided to you by the foundation in exchange for your donation” if that is the case, which it most likely should be.
Regarding a statement of deductibility: “We are a charitable private foundation (or a public charity, as appropriate) exempt under Section 501(c)(3) of the Internal Revenue Code. Donations are deductible to the extent allowed by law. Consult your tax adviser to determine the amount of any charitable deduction you may take.”
While donations would be tax deductible, they are subject to the 30% of AGI limitation for private foundations, and the 50% AGI limitation for donations to public charities. Other deductibility rules and limitations may apply to donations of non-cash items or inventory donated by businesses. A charity should generally not provide tax advice. Refer the donor to his or her tax adviser to determine if their donation will result in a benefit on their tax return. It is important to advise the donor whether the charity is a public charity or a private foundation, since that MAY impact the amount of the donation.

Registering to Solicit Charitable Donations

Another issue is the state charitable solicitation registration requirements. A charitable organization is usually required to register with the state to solicit contributions in that state. Most public charities have already registered, but some private foundations may not have been required to register previously since they often do not solicit contributions.
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IRS Makes Approved Form 1023-EZ Data Available Online

The IRS is making it easier to investigate charities and other tax-exempt organizations that applied for tax-exempt status using Form 1023-EZ.  Only data from approved applications will be available.  The Form 1023-EZ discloses limited information and currently does not contain copies of  Articles of Incorporation or detailed descriptions of purposes and activities.  Form 1023-EZ does not result in a determination by the IRS that the organization qualifies for tax-exempt status, rather, it is a “self-declaration” to be used by small organizations that qualify to file the 1023-EZ rather than the full Form 1023 Application for Tax-Exempt Status.

The following announcement was published by the IRS:

IR-2017-41, Feb. 22, 2017
WASHINGTON — The Internal Revenue Service announced today that publicly available information from approved applications for tax exemption using Form 1023-EZ, Streamlined Application for Recognition of Exemption, is now available electronically for the first time.

Here is the link to the page on the IRS website to access approved Form 1023-EZ data.

The data on is available in spreadsheet format and includes information for approved applications beginning in mid-2014, when the 1023-EZ form was introduced, through 2016. The information will be updated quarterly, starting with the first quarter of calendar year 2017. The IRS’s Tax Exempt and Government Entities division approved more than 105,000 applications for exemption submitted on the Form 1023-EZ from 2014 through 2016.

Previously, Form 1023-EZ data was only available through a lengthier process that included completing and submitting Form 4506-A to the IRS.
“The new online availability of Form 1023-EZ data is an important step forward and will allow taxpayers to more easily research information on tax-exempt organizations,” said IRS Commissioner John Koskinen. The IRS is committed to ongoing improvements in taxpayer service across the agency and we continue to look for innovative ways like this to provide taxpayers the information they need, when they need it.”

Information in the Form 1023-EZ includes basic identifying information such as the name of the organization, Employer Identification Number and the names of officers, directors and trustees. The Form also contains information regarding items such as the organizing documents, state of incorporation, purpose and activities of the organization.

Form 1023-EZ must be filed electronically. The IRS reminds filers that they should not include Social Security numbers on their submissions.
This is part of continuing effort to provide information about the tax-exempt community. In June 2016, the IRS announced that it was making publicly available data on electronically filed Forms 990 in machine-readable format through Amazon Web Services.

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New 501(c)(4) IRS Notice Requirements

Certain 501 (c)(4) organizations now have a requirement to notify the IRS that they are claiming tax-exempt status under IRC section 501c4. In the video above I explain the basics of the new rules and how to comply.

Understanding the New 501(c)(4) Rules

There are many types of tax-exempt nonprofit organizations. Two of the most common are the 501(c)(3) public charity, and the 501(c)(4) social welfare organization. There are three main differences between these organizations:

  1. A 501(c)(3) public charity is eligible to receive donations that are deductible as a charitable contribution on the donor’s tax return. A 501(c)(4) organization can receive donations tax-free, but they are not deductible as charitable contributions on the donor’s tax return.
  2. A 501(c)(3) public charity is subject to strict limits as to the amount of money it can expend on lobbying to influence legislation. A 501(c)(4) organization can engage in lobbying as its primary activity.
  3. A 501(c)(3) public charity is absolutely prohibited from engaging in any political speech undertaken to influence an election. A 501(c)(4) organization is not prohibited from attempting to influence elections by political speech, but influencing elections cannot be the primary purpose of a 501(c)(4). Note that all election-related activities are not limited. For instance, voter registration and non-partisan voter education activities are not considered activities that influence an election and can be engaged in by a 501(c)(4) organization in an unlimited amount.

Both types of organizations are prohibited–at least in theory–from disseminating propaganda.

Since Congress and the IRS create the rules under which tax-exempt organizations operate, those official bodies have an interest in monitoring the activities of organizations claiming to be tax-exempt under the laws and regulations. Section 508 requires most 501(c)(3) organizations to let the IRS know of their existence and that they are operating under section 501(c)(3). Churches are exempt from this notice requirement.

Until now, there has been no requirement that 501(c)(4) organizations notify the IRS of their existence beyond the filing of Form 990.

Why is filing Form 990 not enough to satisfy Congress and the IRS? It has to do with time. Because 501(c)(4) organizations have the ability to influence an election, and because electioneering cannot be the primary activity of a 501(c)(4), the IRS must somehow be able to monitor the extent of the electioneering activities of c4’s in a timely fashion, and must be able to do so without violating the rights of the organizations.

Since 501(c)(4) organizations have not had a requirement to notify the IRS up front, there is no way for the IRS and Congress to monitor the political activities of these organizations. The filing of Form 990 does serve as notice to the IRS, but a tax-exempt organization can delay the filing of a tax return for quite some time. As a typical example, assume that a 501(c)(4) organization is incorporated on January 1, 2016. The following is a typical timeline for filing a Form 990:

  • The organization operates for a full 12 months after formation. (Elapsed time: 12 months)
  • The organization’s first return is due  four and one-half months after its year end. (Elapsed time: 16 1/2 months)
  • The organization is allowed extensions of the Form 990 filing deadline of up to six months. (Elapsed time: 22 1/2 months).

As you can see, a new organization may not have to submit its first filing for 22 1/2 months, which is more than enough time to exert political influence.

As part of the Protecting Americans From Tax Hikes Act of 2015, Congress added section 506 to the Internal Revenue Code. This created the new notice requirement for 501(c)(4) organizations.

Essentially, the requirement is that all new organizations claiming to be tax-exempt under section 501(c)(4) are required to notify the IRS of their existence and their intent by electronically submitting the newly created Form 8976 within 60 days of formation. That’s not much time.

I won’t go into the entire history of the implementation of this new law. Suffice it to say that when Congress passed the law, the IRS was not ready to implement it. As a result there were some extensions of time to comply and some transition rules put into place. These can be confusing. All you really need to know to meet the filing deadlines (and avoid penalties) is this:

  • If the organization was formed after July 8, 2016, it has 60 days to notify the IRS by electronically submitting Form 8976.
  • If the organization was formed on or before July 8, 2016, it has until September 6, 2016 to notify the IRS by electronically submitting Form 8976.
  • If the organization was formed on or before July 8, 2016 and by that date has filed either Form 990 or Form 1024, it does not have to submit Form 8976.

Penalties for submitting the Form 8976 after the due date are $20 per day up to a maximum of $5,000. Penalties can be abated if the organization can show that it had reasonable cause for submitting Form 8976 after the due date.

Early reports are that the IRS website for submitting Form 8976 has some bugs that may prevent some organizations from properly completing the form. I expect that these bugs will eventually be worked out. However, if problems with the IRS website prevent an organization from filing Form 8976 by the due date, this should constitute reasonable cause for filing late.

That’s it.


File IRS Form 8976

PATH Act of 2015 (scroll to section 405)


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Kids Sports Organizations Easy Targets for Theft

7-21-2016 10-13-20 AM

Does your kid’s amateur sports organization have measures in place to prevent the theft of its assets? If not, there could be things going on that you don’t know about, being done by the people you trust the most.

A youth amateur sports organization (ASO) is usually managed by parents with little or no background in financial management. Board members who manage the ASO often only need volunteer to take on the responsibility because few are willing to take on the job. In other words, the only qualification is that the parent is willing to do it.

Most parents and coaches are totally honest and are looking out for the kids. But you know how life is. Stuff happens. For various reasons, theft of cash or use of the ASO assets for personal purposes is more common than you might think. This story caught my attention recently

The parent volunteer president fell on hard times in her personal affairs and “borrowed” some cash from her child’s Little League team with the intention of paying it back. Unfortunately her situation did not improve, so rather than paying it back, she took more money.

How can this be avoided? Simple. Trust, but verify. Here are some basic financial accountability procedures/tips that should be strictly applied in order to limit opportunities for theft:

  • Keep track of the organization’s checks and bank deposits in accounting software like Quicken or Quickbooks Online. If cash is the organization’s only asset, Quicken is all you probably need. It’s just an electronic check register. If the ASO owns sports equipment, it should be kept track of and an inventory taken each year.
  • At a minimum, the treasurer should reconcile the check register to the bank account every month. The reconciliation should be carefully reviewed and approved by another director who has no check signing authority.
  • All expense items should have a paper trail. All checks should have a check request form with an explanation of the purpose of the payment. A copy of any invoice should be stapled to the check request form, which should be signed by the person who approved the expense. Expenses over a certain dollar amount should require two signatures, one by a person with no check signing authority.
  • For each bank deposit, there should be a deposit ticket and bank receipt. If payments for multiple activities are included in one deposit, there should be documentation as to what each deposit relates to. For instance, if a $1,000 deposit consists of $300 banner advertising, $100 t-shirt sales, and $600 registration fees, attached paperwork should show this information. This is important for properly recording the transaction.
  • There should be two authorized check signers. Any checks written over $500 should require two signatures. It is not OK to have a stack of checks pre-signed simply because it can be inconvenient to get two signatures.
  • All bank statements should be kept. None should be missing. Missing bank statements are a bad sign.
  • The ASO should have a written reimbursement policy to prevent duplicate reimbursements to volunteers, coaches, and board members who incur expenses on behalf of the ASO and submit receipts for reimbursement. Any reimbursement request that is more than 30 days old should be carefully scrutinized to be sure it has not been previously reimbursed.
  • Any items that are purchased with the ASO’s sales tax exemption certificate must be purchased with a check from the ASO’s account. The sales tax exemption certificate should never be used when personal funds are used to purchase an item. Example: The ASO President goes to Walmart to purchase water, snacks and paper goods for an upcoming event and presents the Sales Tax Exemption Certificate so as not to pay sales tax on the purchase. The President should pay with a check drawn on the ASO bank account. The President should not put the expense on his/her credit card and present the receipt for reimbursement later.
  • Cash withdrawn from the bank to make change at events should be tracked carefully. At the end of the event the cash must be re-deposited into the bank and documented. The withdrawal is not an expense, and the deposit is not income. Withdrawals of “change bank” cash must equal re-deposits.
  • All cash receipts should be deposited in the bank the same day or the next day after receipt.

The list above is not comprehensive, but strictly applying those guidelines will go a long way in preventing theft of cash or other assets.


7-27-2016 6-52-47 PM

Just a week after I wrote the above post, a high school sports booster is in the news. The booster president stole $10,000 and spent it on himself. Regrettably, the booster has been shut down and funds transferred to a school account. This definitely takes a toll on booster operation.

Deputies found that [the president] spent club funds on movie tickets, gas, rental cars, personal bills, travel and hotel stays in Orlando and Tampa. Deputies say he overdrew the account which resulted in more than $2,000 in overdraft fees.

[The president] faces fraud and grand theft charges and is now in custody in the Polk County Jail.

A statement released by Kathleen High School said the Kathleen High School Athletic Booster Club is no longer operational. “Coaches from all sports at Kathleen High (with the exception of the football program) used the booster club. However, the school no longer has an outside organization for these sports.”

Instead, they will use an internal account run by the athletic director and finance secretary, the school said.


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$4,280 IRS Penalty Abated for Late-Filed Form 990

It’s always nice to get testimonials from happy clients. In this case, I was able to have a $4,280 late-filing penalty completely abated. The nonprofit organization had been assessed a late-filing penalty for two consecutive years. In both cases it was the CPA firm that dropped the ball and forgot to transmit the return as well as failed to file a timely extension request. In my 8-page letter, I was able to successfully argue that the organization and the CPA acted responsibly and would be able to avoid future late filings.

The CPA enclosed the following communication along with his payment for my services:

Testimonial for nonprofit penalty abatement services

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Should You Attach A Reasonable Cause Statement to a Late-Filed Form 990?

Executive Summary: No. Attach the briefest possible truthful reason why the return was filed late. Don’t ask that penalties not be assessed and don’t try to establish reasonable cause.

The rest of the story:

This is one of the most frequent questions I hear during my consultations with tax return preparers and exempt organization officers who are faced with having to file a Form 990 after the due date: They want to know if they should attach to the return a reasonable cause statement as to why the return was late and ask that penalties not be assessed.

I’m going to explain why attaching a reasonable cause statement is a waste of time and may not be a great idea.

This question arises, I think, largely because the instructions to Form 990 provide the following instructions:

“If the return is not filed by the due date (including any extension granted), explain in a separate attachment, giving the reasons for not filing on time.”

Instructions from Form 990.

Instructions from Form 990.

This certainly sounds like the IRS is giving the organization an opportunity to provide reasonable cause and request that penalties not be assessed.

Further, the IRS website has at some point in the last few years, revised their guidance regarding filing a return after the due date. Previously, there was no mention of attaching a reasonable cause letter to Form 990. Now the following language appears on the IRS web site:

From the IRS website, June 2016.

From the IRS website, June 2016. The highlighted statement was added in a revision of unknown date.

The above guidance seems to reinforce and even clarify the content of the statement that is supposed to be attached to the late-filed Form 990.

However, even clearer, and entirely contradictory guidance more in line with my personal experiences and with the conversations I’ve had with IRS personnel is found, not in the Form 990 instructions or on the IRS web site, but in the instructions to Form 8868, Extension of Time to File an Exempt Organization Return:

“Do not attach an explanation when you file your return. Explanations attached to the return at the time of filing will not be considered.”

Instructions from Form 8868.

Instructions from Form 8868.

The instructions to Form 990 and on the IRS web site seem to be in conflict with the instructions to Form 8868:

“…explain in a separate attachment…” and “…statement should be made as an attachment to the Form 990” vs. “…do not attach an explanation…”

The purpose of attaching an explanation for the late filing seems to be that of public disclosure. Information on the 990 is largely intended to provide accountability to donors. The donors have a right to know why the return was not filed on time. On many occasions over the years I have seen organizations attach to a late-filed return a reasonable cause statement and a request that penalties not be assessed. Never have these attachments resulted in the non-assessment of penalties.

I have spoken to IRS representatives in Exempt Organizations Account Services who have told me that any reasonable cause statements with requests for abatement or non-assessment of penalties that might be attached to the return are not read or processed by the IRS. That’s just not the way it works.

While it may be honorable to disclose to donors the reason a return was filed late, the detail required to make a successful reasonable cause argument may result in the disclosure of information that is unnecessary to be made public. Remember that anything attached to an exempt organization return (except donor names on Schedule B) is made available to the public. My recommendation is that the briefest possible explanation be attached to the return to comply with the IRS requirement that an explanation be attached. Once the organization has been assessed a penalty, it is then time to write a proper and thorough request for abatement of late-filing penalties under the reasonable cause provisions of IRC section 6652. (Note that section 6652 has recently been revised.)

It is helpful to understand that a request for abatement under the reasonable cause provisions must contain the following elements to be considered:

  • It must be in writing.
  • It must explain the reason that the return was late and explain why “reasonable cause” exists and provide credible information or documentation.
  • It must be signed under penalty of perjury, with a statement such as the following: “Under penalty of perjury, I declare that the facts presented here are, to the best of my knowledge and belief, true, correct and complete.”

From the Treasury Regulations under section 301.6652-1(f):

“An affirmative showing of reasonable cause must be made in the form of a written statement, containing a declaration that it is made under the penalties of perjury, setting forth all the facts alleged as a reasonable cause.”

Of course there are many more things that go into a successful letter, which is more art than science. If you need help with a reasonable cause letter, I provide a very helpful “blueprint” in the form of a book and sample letters, all of which were actually used and were successful in having penalties abated. And I’m always available to review your letter, or write it for you if you don’t have the time, or don’t consider yourself a writer.

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