Transparency In Ministry

Over the past several weeks we have described the requirements for deducting and recording charitable contributions.

In this post we will discuss calculating the deduction...

The amount of charitable contributions that may be deducted by a taxpayer is limited based on adjusted gross income, the type of property contributed or the nature of the charity.

Limitations:

Deductible contributions made to churches, educational organizations and most other charities are limited based on the donor's adjusted gross income. The type of property contributed (i.e. capital gain property) will determine how much can be deducted by the taxpayor. These limits range from 20% to 50% of the taxpayer's adjusted gross income (AGI).

Excess contributions may be carried over to subsequent filings up to five years, until the excess has been used.

For questions, contact us.

Posted by Kirk Vanderslice

In our two previous posts we have discussed several filing requirements for tax exempt organizations. Here are several filings due this Spring...

May 15, 2008: Tax-exempt organizations (ministries as opposed to churches) must file an annual information return. Original due date for 990 and 990-EZ for tax years ending on 12/31/07 is May 15th . (Form 990 and 990-EZ Return of Organization Exempt From Income Tax and Short Form Return of Organization Exempt From Income Tax, respectively) are due for a number of tax-exempt organizations, however do not apply to churches, their integrated auxiliaries, and conventions or associations of churches.

Gross receipts and total assets determine which report is filed.

Also, new for 2008, tax-exempt organizations (excluding churches) that have annual gross receipts less than $25,000 but may be required to file the annual electronic notice (e-Postcard) Form 990-N, see our recent blog posts addressing this new form. (PS - The IRS is still developing an electronic filing system for the 990-N “e-postcard”, and will publicize the filing procedures when the system is completed and ready for use. The Pension Protection Act requires the IRS to revoke the tax-exempt status of any organizations that fails to meet its filing requirement for three consecutive years).

This is also the payment deadline for any 990-T (taxes which are due for calendar year 2007). An automatic extension of three months is available for those who cannot gather their information in time to file by May 15th (automatic 6-month filing extension for 990-T). Please file your extension, or request that your CPA do so. Late filing penalties will begin to accrue if you snooze!

If you have any questions, contact us.

Posted by Laurie Gnad

In our series of ordinary and necessary expenses, churches and ministries should document lodging and certain incidental expenses (such as cab fares) by receipt and/or other contemporaneous records that include the business purpose of the trip.

If proper documentation is not received by the church/ministry for expenses paid by the church/ministry on the behalf of an individual, the IRS would deem those expenses paid by the ministry as income to the person that incurred the expense. If the ministry does not identify those expenditures without proper documentation and either demands repayment or classifies them as compensation to the individual, the transaction becomes an “excess benefit transaction” and would be subject to an excise tax of from 25% to 200% payable by the individual.

Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting marketing or recommending to another party any transaction or matter addressed herein.

For more information about excess benefit transactions, please contact us.

In an effort to boost the U.S. economy, Congress passed the 152 billion-dollar Economic Stimulus Act of 2008 on February 7, 2008. The legislation will provide tax rebate checks to about 130 million households, starting sometime in May.

* Single individuals may be entitled to receive a one-time tax rebate of up to $600; joint filers may qualify for up to $1,200.

* The rebate amount begins to phase out for higher-income taxpayers, beginning at $75,000 of adjusted gross income for single filers and $150,000 for joint filers (based on 2007 tax returns).

* The rebate is limited to the net income tax liability. People who don’t pay income taxes may qualify for $300 rebates if they had at least $3,000 of earned income or tax liability of at least $1 in 2007. Social security income and federal payments to disabled veterans and their widows count as earned income for rebate purposes.

* Those who qualify for the basic rebates are also eligible for an additional $300 for each dependent child under age 17.

* Rebates will be subject to offsets for items like past-due child support and debts owed to the federal government.

The check is literally "in the mail".

Intermediate Sanctions allow the Internal Revenue Service (IRS) to assess excise taxes on excess benefit transactions that occur between a disqualified person and a 501(c)(3) or 501(c)(4) tax-exempt organization.

What is an excess benefit transaction?

An excess benefit transaction occurs when the value of the benefit to the disqualified person exceeds the fair market value of the services rendered. Examples of potential excess benefit transactions include, but are not limited to:
o Unreasonable compensation,
o Personal use of church property,
o Expense reimbursements that are not part of an accountable plan,
o Sale of an organization’s assets for less than fair market value, and
o Payment of personal expenses.

Do you need help in identifying taxable fringe benefits or excess benefit transactions? Contact us.

In light of the current spotlight on televangelists let's review appropriate expenses and required documentation/substantiation.

For an expense to be an appropriate expense for a ministry, the expense must be ordinary and necessary, which in general requires a showing that the expense was incurred principally for and has a reasonably close relationship to the tax-exempt purpose of the church or ministry.

Additionally, proper documentation must be made for the expenditure. For meals, the following should be recorded:

> the amount and a description of each separate expenditure;
> the time and place the meal was provided;
> the business purpose of the activity, including a description of any business benefit derived or expected, and the nature of any business discussion with the person entertained; and
> the business relationship to the person or persons entertained, which may be indicated by reference to name, title, occupation, or other designation sufficient to establish the relationship.

The above documentation should be contemporaneous.

See post #2 for substantiation requirements for lodging and incidental expenses.

Charities and other tax-exempt organizations are required to file certain informational returns with the IRS. Earlier in 2007, the IRS released a proposed draft of modifications to the Form 990 and asked for public comments relating to the draft. In late December the IRS issued an updated version of Form 990, and provided transition relief so that small exempt organizations will have time to adjust to the new form.

These organizations will be allowed to file the Form 990-EZ instead of the Form 990. For the 2008 tax year (returns filed in 2009), organizations with gross receipts over $1.0 million or total assets over $2.5 million will be required to file the Form 990. For the 2009 tax year (returns filed in 2010), organizations with gross receipts over $500,000 or total assets over $1.25 million will be required to file the Form 990. The filing thresholds will be set permanently at $200,000 gross receipts and $500,000 total assets beginning with the 2010 tax year. Also, starting with the 2010 tax year, the IRS will increase the filing threshold for organizations required to file Form 990-N (the e-postcard) from $25,000 to $50,000.

The final Form 990 and background material explaining the changes from the current form and the June draft are available on the Exempt Organizations portion of the IRS Web site, IRS.gov/eo.

For an overview of the significant changes, see overview.

It's that time of year and churches and ministries are preparing and filing the end of year payroll reports. If you are having trouble reconciling the W-2s with Form 941, start and perform a reconciliation quarter by quarter. Then a determination of when/where the discrepancy. A form is attached for your use, Download Form Here.

If you have any questions, contact us.

Straight from the IRS hotline:

The IRS has seen several variations of a refund-related bogus e-mail which falsely claims to come from the IRS, tells the recipient that he or she is eligible for a tax refund for a specific amount, and instructs the recipient to click on a link in the e-mail to access a refund claim form. The form asks the recipient to enter personal information that the scamsters can then use to access the e-mail recipient’s bank or credit card account.

In a new wrinkle, the current version of the refund scam includes two paragraphs that appear to be directed toward tax-exempt organizations that distribute funds to other organizations or individuals. The e-mail contains the name and supposed signature of the Director of the IRS’s Exempt Organizations business division.

This e-mail is a phony. The IRS does not send unsolicited e-mail about tax account matters to individual, business, tax-exempt or other taxpayers.

Filing a tax return is the only way to apply for a tax refund; there is no separate application form. Taxpayers who wish to find out if they are due a refund from their last annual tax return filing may use the “Where’s My Refund?” interactive application on this web site. This is the official IRS Web site and it's not phony!

Another shadow for the groundhog!

Intermediate Sanctions allow the Internal Revenue Service (IRS) to assess excise taxes on excess benefit transactions that occur between a disqualified person and a 501(c)(3) or 501(c)(4) tax-exempt organization, as well as the managers who approve these transactions. A disqualified person is someone who “exercises substantial influence” over the organization, as well as their family members. These excise taxes are not paid by the organization and must be paid by the disqualified person and managers involved in the excess benefit transaction.

How does this apply to a church or ministry? These organizations are classified as a 501(c)(3) entity and therefore must comply with the requirements that affect the tax reporting related to the disqualified persons.

What is an excess benefit transaction? See post #2.

If a church or ministry receives an auto or other vehicle and the claimed value is greater than $500, there are different filing requirements than discussed in the previous post. You still need all the donor and vehicle information listed previously, however the additional documentation is more complicated.

You must certify if any goods or services were provided in exchange for the vehicle and the related value if any. On Form 1098-C, there is a checkbox 6c to certify that the goods and services consisted solely of intangible religious benefits. All form copies (A, B, and C) must be completed.

If you sell, rather than use the vehicle, you must report the date of sale, gross proceeds, and certify the sale was an “arms length transaction to an unrelated party.” The donor’s deductible amount may not exceed the gross proceeds of the sale. Do not check box 7 or your donor will be limited to a $500 donation. Copies B and C must be supplied to the donor within 30 days of the sale.

If there is an intervening use by the church or ministry, or a material improvement to the vehicle prior to the sale, there are additional requirements. If you need help with these forms, please contact us.

In late December the IRS issued an updated version of Form 990, the return that charities and other tax-exempt organizations are required to file annually, and provided transition relief so that small exempt organizations will have time to adjust to the new form.

“When we released the redesigned draft form this past June, we said we needed a Form 990 that reflects the way this growing sector operates in the 21st century,” said Steven T. Miller, Commissioner of the IRS’ Tax Exempt and Government Entities division. “The public comments we received in response to our draft form helped us develop a final form consistent with our guiding principles of transparency, compliance and burden minimization.”

The final form released December 20th, retains the redesigned draft’s format of a core form and a series of schedules. In response to public comments, the new core form allows an organization to describe its exempt accomplishments and mission up-front and provides more opportunities throughout the form for the organization to explain its activities.

Other major changes were made to the form’s summary page, governance section, and various schedules, including those relating to executive compensation, related organizations, foreign activities, hospitals, non-cash contributions and tax exempt bonds. A checklist of schedules was also added.

The new form will be used for the 2008 tax year (returns filed in 2009). The IRS plans to release the related instructions in early 2008.

See post #2 for the transition periods for small organizations.

Churches or ministries that receive a motor vehicle, boat or airplane contribution in excess of $500, should prepare Copy A of Form 1098-C. The form should be retained and filed with the IRS by February 28, 2008 along with a 1096 transmittal form. The Form 1096 must show the total number and dollar amount of all such 1098C (copy A forms) for the year. Remember, do not combine any of the under $500 donations in the 1098C-copy A totals.

Penalties for failure to provide appropriate documentation to either the donors or the IRS have increased, as have penalties for providing false or fraudulent acknowledgements. All related records must be maintained for at least three years. Be sure your staff is fully aware of these new requirements before accepting any significant non-cash contributions.

You can print copies B, C, and D of Form 1098-C from the IRS Internet website and use these for your recordkeeping, or you may prepare your own acknowledgement forms provided they have all the identical required information. Prior to February 2008, you will need to order the official IRS forms because copy A is a red form and copies of it cannot be scanned into the IRS system. Call us for forms or advice, or call 1-800-829-3676 to request your forms. There are also software and forms providers in the private market.

The current instructions require mailing completed forms 1096 and 1098C (copy A) to Ogden, UT prior to December 31, 2007. Beginning in 2008 you will mail the forms to Kansas City, MO or Austin, TX, depending upon your resident state. Please refer to the Form 1096 Instructions prior to mailing your forms.

Need help...contact us.

If a church or ministry receives a vehicle valued greater than $500 and it is not sold, you must certify that it is used substantially in the church’s regularly conducted activities. Or, you must certify that the vehicle is to be transferred to a needy individual, at below value, to further the church’s charitable purpose. On Form 1098-C, a detailed description of the vehicle’s use must be supplied. Do not check box 7 or your donor will be limited to a $500 donation. The church/ministry must supply Copies B & C to the donor within 30 days of the contribution if no sale will take place.

Donations of vehicles valued at over $5,000 that will not be sold should have a written appraisal from a qualified appraiser. This is not the responsibility of the church or ministry; it is the responsibility of the donor. The same requirement applies to a non-cash contribution exceeding $5,000.

If the vehicle is sold or disposed within three years additional reporting requirements will apply.

Our next blog will discuss the required forms.

Avoid the last minute crunch of trying to organize your personal records for tax time. Maintaining your information, (receipts and payments) will make it much easier to estimate the taxes and prepare the information for the tax professional.

Keep track of Cash Donations – Tithes, offerings, and contributions. The IRS requires proof so be sure and write a check or get a written receipt from the organization you contribute to.

Keep track of Non-Cash Donations – Make a list of the items donated and get a receipt from the organization you donate to. Usually the organization will provide you with a blank receipt if household goods and/or clothing are donated and it is a good idea to attach a list of items and their fair market value when the donation is made so you don’t forget what was donated at tax time. If any one item is valued at $500 or more you need to get an appraisal to be able to claim the donation on your taxes.

Keep track of items purchased entirely for church use. If new items are personally purchased and given directly to the church, be sure and keep the receipt for your records.

Have questions, call us.

It’s been a while since we discussed contributions of autos and other vehicles to nonprofit organizations. In 2005 and 2006 significant changes were adopted requiring better substantiation of value and detailed recordkeeping. See our prior post on valuing donated vehicles posted by Sandy Siegfried on September 27, 2006.

Here is a summary of the current requirements in case you are considering accepting gifts such as cars, boats or aircraft.

If the claimed value of the vehicle is less than $500 a church may use its own form or the copy C of of Form 1098-C to make your contemporaneous written acknowledgement to the donor. If you use 1098-C, you must check box 7. You will need the name, address, donor social security number, date, make/model and VIN#. Give copy C only to the Donor within 30 days of the contribution and keep a copy. Do not give copy B to the donor and do not file copy A with the IRS. If the donor refuses to supply his Social Security number you must check box 7, regardless of the value of the vehicle.

If the value is over $500, see post #2.

The IRS has published a list of frequently asked questions relating to the new electronic filing requirement for small tax-exempt organizations. We have discussed this form and the requirements in previous blogs, but the IRS Q&A will be helpful if your ministry needs to file a 990-N and you still have questions.

The last item on the IRS list provides a link to sign up for the IRS’s Exempt Organizations Update, an e-mail newsletter that highlights new information posted on the Charities pages of irs.gov. To subscribe, go to www.irs.gov/eo and click on EO Newsletter.

If your address has changed and the IRS has not been notified, you should file Form 8822, Change of Address with the IRS. This will ensure that you receive the notification letter on the new form.

If an organization fails to file the 990-N for three years it may have its tax-exempt status revoked. Hopefully, it will never come to this. However, if it does, the IRS will require filing of Form 1023, Application for Recognition of Exemption, or Form 1024, Application for Exemption Under Section 501(a), to be reinstated. They are serious about getting this new form filed!

If you have any questions that our blog and the IRS site did not clear up, please contact me.

Good record keeping enables individuals to easily take advantage of all the tax credits available under the IRS code. Properly maintaining receipt and payment information provides reliable information that should be used in substantiating the costs to maintain a minister's residence.

Housing allowance is another part of a minister’s compensation that is not subject to federal or state income tax. The church board usually determines the housing allowance, and it is generally set based on the minister’s estimate of his housing expenses. For tax purposes, the amount actually allowed is the lesser of the amount set by the board, the actual expenses incurred or the fair rental value of the minister’s house (furnished plus utilities).

In order to quickly and accurately determine the amount of the housing allowance available at year end, it is a good idea to keep track of mortgage payments (principal, interest, taxes & insurance), rental payments, furnishings, utilities, repairs, maintenance, appliances, household cleaning items, yard maintenance and tools.

At year end if the housing allowance paid exceeds the amount of expenses incurred or the fair rental value of the property (fully furnished), this excess amount will become taxable, so it is a good idea to keep track of ALL expenses by saving receipts, statements and cancelled checks (or the bank record of such checks).

See our third post as we discuss additional items representing income.

In our previous post discussing record retention, we noted that it is important for churches/ministries and other organizations to discuss and adopt a record retention policy.

What should be maintained and how long?

The legal department for the General Council on Finance and Accounting has provided certain information for retaining documents. For instance, articles of incorporation, amendments and bylaws should be maintained permanently. Tax returns should be maintained permanently and the worksheets and supporting documents for the tax return should be maintained by 7 years. Additional guidance on record retention can be found using the following link.

The Presbyterian Historical Society also provide information for record retention. Congregation records retention requirements can be found using this link.

For more information or clarification on record retention, contact us.

Good record keeping enables ministers to easily take advantage of all the tax credits available under the IRS code. To avoid the last minute crunch of getting all your records together at tax time, organizing and maintaining certain records are very important skills to develop. To get started I have listed a few important things that Ministers would want to keep track of during the year to make tax time easier.

Ministers can receive income from various sources. In addition to minister’s regular salary it is important to keep track of any other income from speaking engagements, love offerings, honorariums, etc. If travel, lodging and meal expenses are incurred while ministering, it is beneficial to keep track of these. Don’t forget to keep track of the mileage, too.

See the next post, as we discuss the housing allowance.

Finally, below is a summary of the final four schedules that may need to be attached to the new Form 990.

New Schedule K was added for organizations with an outstanding tax-exempt bond issue greater than $100,000. The schedule covers information previously required on the balance sheet. In addition, the use and investment of proceeds and relationships with outside advisors will be reported.

New Schedule L will by required by organizations that lend money to or borrow from officers, directors, and certain disqualified persons. This will replace the attachments currently required on the Balance Sheet of Form 990.

New Schedule M will be used to report non-cash contributions over $5,000. The type of contribution and information regarding the donee’s valuation methods for financial reporting will be required.

New Schedule N, Termination or Significant Disposition of Assets, will replace the Part VI, Other Information question and attachment on the current Form 990. Part I is for expanded reporting on a current termination of an organization. Part II is for reporting dispositions of more than 25% of the organization’s net assets if at fair market value.

Remember, these schedules are still in draft form and the IRS is taking comments from the public until mid September. Draft schedules can be viewed at the IRS website .

The new Schedules J and R will cover compensation and related organizations in more detail than did the old Form 990.

New Schedule J will report compensation details. The current Part V-A and B schedules of compensation, benefit plans, and expense accounts for current and former officers, directors, trustees, and key employees will be on the new Schedule J. Also, it will include information from the current Schedule A, Part I on compensation of the five highest paid employees. There is also additional reporting regarding compensation practices and additional detail for various types of compensation. Only organizations paying certain amounts of compensation will be required to complete this form.

New Schedule R consolidates information on related organizations currently reported in several different places on the Form 990 and Schedule A. The schedule will be completed by organizations that own a controlling interest in a partnership, LLC, corporation, trust, or other exempt entity and also by organizations that are under common control of one of these entities.

Difficulties understanding related organizations. Contact us.

During the NACBA conference I briefly attended a session facilitated by Glenn Woods and Bill Gruenewald that discussed issues relating to Mega-Churches. One of the key issues for churches of all sizes is record retention.

Part of developing a strong internal control structure is defining what and how long certain information will be retained and maintained. Best practices for boards and management includes discussing and adopting a record retention policy. It is important to determine where the information will be filed, (electronically, on-site or off-site) security of the information and condition for maintenance (heat and dampness may be destructive to certain files).

Information such as tax returns and governmental reports affecting a ministry's taxes should be maintained permanently. However, most backup records, such as receipts documenting income deductions should only be kept for seven years. The IRS calls for a six-year statue of limiations for tax receipts. The IRS has 3 years from the date the return is filed to question or audit the return.If the IRS can prove an omission of at least 25% of income, the time period doubles to six years. Therefore, the seven-year period gives a one-year cushion beyond the IRS limit. While most churches are not required to file tax returns, ministries and ministers are required to file selected forms. These rules apply to any entity or individual that must file. So be prepared and retain certain information.

What kind of information should be retained and for how long? See our next post.

IRS Revenue Ruling 2007-41 issued June 1, 2007 examines prohibitions for political campaign intervention by churches, ministries and other charities. The ruling provides scenarios to illustrate considerations that should be made in determining whether a 501(c)3 organization has participated in a political campaign for a candidate running for public office.

Additional information for churches and other exempt organizations is included plus a copy of IRS Publication 1828. If you have any questions, please don't hesitate to contact us.

Below is a summary of the fifth through ninth Schedules that may need to be attached to the new Form 990.

New Schedule F is added to report foreign activities. If a non-profit has a foreign bank account or a foreign office or has employees or activities outside of the U.S., they will disclose the activities on this new form.

New Schedule G gathers information on fundraising and gaming. All organization with more than $10,000 from fundraising events or outside fundraising costs will be required to complete this form. There will be expanded reporting on certain professional fundraising activities.

New Schedule H will be prepared by organizations that operate a hospital facility that provides medical care, even if it is just a part of a hospital or university. Information must be provided on policies, community benefits, billings, collections, joint ventures, facilities, and services provided.

New Schedule I will be prepared by organizations that make more then $5,000 of grants. The required information will be similar to the attachments currently required with the Form 990, Part II on lines 22b and 23.

Have questions? Contact me.

My next four blogs will be a summary of the Schedules that may need to be attached to the new Form 990. Remember, these are still in draft form and the IRS is taking comments from the public until mid September. Draft schedules can be viewed at the IRS website .

New Schedule A will replace the current Schedule A, Part IV. All 501(c)(3) organizations that file a 990 must file a Schedule A. The redesigned schedule focuses on public charity status. This schedule will replace the 5-year advance ruling process currently required on Form 8734.

There are no proposed changes to Schedule B.

New Schedule C, Political and Lobbying Activity, will provide detail on the current questions on Schedule A, Part VI. Organizations that conduct lobbying or political activities will report political activity and inter-corporate fund transfers.

New Schedule D will be used to report the financial statement details. New items include reporting of any uncertain tax positions under FIN 48 and a 5-year endowment table.

New Schedule E will be used by private schools and replaces the current Schedule A, Part V.

Our next post relates to schedules F - I.

The New Form 990, scheduled to be used for years ending on or after December 31, 2008, is available for viewing at the IRS web site. This form is still in draft form and subject to change.

The old Form 990 was nine pages long and had eleven separate parts to the form. In addition, Schedule A and Schedule B were available if required by the filing organization. The new Form 990 is ten pages long and has nine separate parts. In addition, fifteen new schedules (A through N and R) may be required for filing.

The number of questions required to be answered and the level of detail has significantly increased on the new form and schedules. This is especially true of political activity, foreign activity, fundraising activity, compensation, governance, and related entities.

My next several blogs will briefly explain what the new schedules are about. Contact me if you have any questions about the website or revisions that are anticipated.

An update to the "2007 Brings Another Form to File" blog I posted in June.

The IRS has announced that it began mailing educational letters to more than 650,000 small tax-exempt organizations that may be required to submit a new annual notice. Non-profit organizations that normally have no more than $25,000 of annual gross receipts (but not churches) will be filing the new Form 990-N, "Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ.

The IRS expects to mail the letters over a period of several months, finishing in December. See the attached sample letter available at the IRS website. If the IRS does not have a current mailing address, your non-profit may not receive a letter. However, the filing requirements must still be met to avoid losing your tax-exempt status.

The new form will be for tax periods beginning on or after January 1, 2007 and will be due by the 15th day of the 5th month after the close of each tax period, (ie., May 15 for a calendar year).

This annual form will must be filed electronically, there will be no paper form.

For more information, please go to www.irs.gov/eo, or email me directly.

Straight from the IRS Press…June 14, 2007

The IRS has released another proposed revision for Form 990, (the informational return required for non-profits, churches are exempt). The draft proposes significant changes to the ways in which public charities report information on finances, fundraising activities, governance, executive/board compensation, and program services.

Individuals, including practitioners and industry professionals are encouraged to review the proposed changes and provide written comment for a three-month period. Questions concerning the redesigned form and instructions should be e-mailed to the IRS at Form990Revision@irs.gov; or mailed to:
Form 990 Redesign,
ATTN: SE:T:EO,
1111 Constitution Ave., N.W.,
Washington, DC 20224.

The public comment period closes September 14, 2007.

These revisions, if finalized, will be effective for the 2008 Form which is due in 2009, four and half months after the entity's year-end.

Salute…another change coming from the IRS.

For additional information, see www.irs.gov or www.independentsector.org.

PS - I am currently attending the AICPA Not-for-Profit Industry Conference in Wash DC. I am gathering alot of technical updates that we will be discussing in the coming weeks. Issues addressing board governance, UBIT, Intermediate Sanctions and other reporting requirements.

Selected churches continue to be the target of IRS inquiries. It is important for management to continue to be vigilant in complying with the IRS requirements and provide controls for monitoring the entity's resources (tangible and intangible).

Ministries that normally have no more than $25,000 of annual gross receipts are not required to file Form 990. This leaves the IRS with no records on these organizations. Therefore, for fiscal years beginning on or after January 1, 2007, these non-profit organizations must file a new annual report.

The report will be filed in electronic form and will contain information such as the organization's name, address, web site, identification number, principal officer name and address, and evidence of the continuing basis for the organization's exemption. The IRS will mail notification of the filing requirement to an organization if their name and address are on record. If an organization terminates its existence, it also must electronically notify the IRS.

What if you fail to file? There is no monetary penalty. However, if an organization fails to file for three consecutive years they may be subject to a revocation of their exempt status.

Churches that are not required to file a 990 are also not required to file this annual notice. The new rule is only for organizations not filing Form 990 due to the income limitation exceptions.

See Code Section 6033 and the 2006 Pension Act, or contact our office or e-mail us for further information.

Now that you have filed your 2006 tax returns, it is time to start making plans for 2007. Getting an early start on your 2007 tax planning will help you take maximum advantage of the latest tax breaks, inflation adjustments, and retirement options. Consider the following planning tips:

Staying abreast of new tax laws is always a good idea, and this year is no exception. For instance, taxpayers age 70½ and older can now make charitable donations directly from their IRA without paying tax on the distribution. In addition, the payments satisfy the required minimum distribution obligation. So if you are charitably inclined and don’t need your IRA distributions to live on, this might be a winning strategy.

The most common tax-related resolution — and the hardest to keep — is a vow to maintain better tax records. The deductions for higher education expenses and teacher’s out-of-pocket expenses have been reinstated for 2007. These and other deductions and credits could be lost if you don’t have a satisfactory recordkeeping system.

Now that you have filed your 2006 tax returns, it is time to start making plans for 2007. Getting an early start on your 2007 tax planning will help you take maximum advantage of the latest tax breaks, inflation adjustments, and retirement options. Consider the following planning tips:

A law enacted last year extends the age threshold for taxing children’s unearned income at the parent’s higher tax rate. Now the "kiddie tax" applies until the child reaches age 18. This might be a good year to consider a 529 college savings plan as an alternative to transferring funds directly to a child’s account.

And don’t forget to take advantage of available energy tax credits this year. Qualified home improvements can trim your utility bills and lower taxes at the same time.

According to the April 2007 issue of the Church Treasurer Alert!

The U.S. Department of Labor's Bureau of Labor Statistics, has released a study for the private employer costs for employee compensation. Employee compensation averaged $25.52 per hour worked in 2006. Wages and salaries, which averaged $18.04, accounted for 70 percent of these costs, while benefits, which averaged $7.48, accounted for the remaining percent.

The following represented other average compensation/benefit issues:

Employer costs for insurance benefits - $1.89/hour
Legally required benefits (Social security, medicare, unemployment, etc) - $2.18/hour
Paid leave benefits (vacation, holiday, sick leave) - $1.73/hour
Retirement and savings benefits - $.93/hour

Where does your ministry or church fit in the above study?

Need help with compensation/benefit issues? Contact us.

As discussed in post #1 of this series on e-mail fraud...

The IRS is warning taxpayers about Internet scams and fraudulent e-mails that appear to be from the IRS. The e-mails direct the taxpayer to a Web link that looks like the genuine IRS site and requests information about the taxpayer.

The schemes have several variations, including notification that the taxpayer is eligible for a refund, a claim that the taxpayer’s credit card has been used to pay another person’s taxes, and instructions to send money to claim a large lottery winning. None of these schemes has anything to do with the IRS; they are all scams to snare the unwary taxpayer.

If you receive an e-mail claiming to be from the IRS, you should not open any attachments or click on any links in the e-mail. Instead, forward the e-mail to the IRS at phishing@irs.gov so that it can be investigated.