Tax Issues

At an average of 96 hours (according to IRS estimate), applying for tax exemption under Section 501(c)(3) is time-consuming and arduous. The Paperwork Reduction Act of 1980 (PRA) was established principally to ease the paperwork burden for individuals and entities when dealing with the federal government. While the PRA is not new, it is still effective in identifying processes that may be streamlined. There is now a new pilot program in place to reduce the burden when preparing and filing Form 1023. The Department of Treasury is asking for your help and has provided a website for you to have your say. Visit http://www.pracomment.gov/ and take the opportunity to communicate with them your ideas for making the 1023 process easier.

As you may know, the IRS now requires more persons who own or have signature authority over foreign bank accounts are required to file a Form TD F 90-22.1, foreign bank account report (FBAR) by June 30 of each year. This requirement impacts organizations and their officers who have overseas activities and accounts. Due to the complexity of the new reporting rules, the IRS has announced limited relief for some filers effective for the 2009 calendar year:

1. Signature authority only. Persons with signature authority only, but no financial interest in a foreign account, will now have an extra year to file the report. The report originally due on June 30, 2010, will now be due on June 30, 2011.
2. FBAR-related questions on tax forms. A taxpayer who qualifies for the additional one-year filing deadline, provided they have no other reportable foreign accounts, should check “NO” in response to the FBAR-related questions on their 2009 federal tax forms (those questions that ask about the existence of foreign financial accounts).

For more information see IRS Notice 2010-23 at http://www.irs.gov/newsroom/content/0,,id=104345,00.html

In yet another California challenge to the constitutionality of the minister’s housing allowance (or parsonage allowance), the Freedom From Religion Foundation filed a lawsuit in Sacramento federal court arguing that ministers should not be granted a special tax exemption not available to others, as this represents a violation of the separation of church and state. The lead counsel for the Foundation is Michael Newdow, who gained notoriety as the attorney who led an assault on the pledge of allegiance in public schools. The lawsuit was filed in October 2009, and in December 2009, a federal judge ruled that certain ministers – in favor of the housing allowance – could not join the case as they had requested.

New user fees apply to Exempt Organizations exemption applications, ruling requests and other matters for 2010. The fee for 501(c)(3) tax exempt application (Form 1023) will be reduced to $200 when the application is submitted electronically. If a paper application is filed, the fee will be $850. Consult section 6 of Rev. Proc. 2010-8 (http://www.irs.gov/irb/2010-01_IRB/ar13.html) to ensure that you include the appropriate fee with your application for exemption or other ruling or determination request.

The IRS has announced that it will increase the application fee for tax exempt status from $750 to $850 starting in January 2010. This would apply to a 501(c)(3) organization that expects annual revenue of $10,000 or more. The application form used by charitable organizations is Form 1023.
The IRS also plans to launch “Cyber Assistant”, an Internet-based Form 1023 application, during 2010. Once the new web-based application is available, the fee will only be $200 for those who use it. Those who choose to file the existing paper form will be charged the $850 fee. The new web-based is not available yet - the IRS will announce its availability at a later date. For more information, visit the IRS website at http://www.irs.gov/charities/article/0,,id=212562,00.html.