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Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Please note: Our offices will be closed on July 16 and 17 for Employee Appreciation Days.
Stay on top of filing and reporting deadlines with our tax calendar! Our tax calendar includes dates categorized by employers, individuals, partnerships, corporations and more to keep you on track.
If you’re like many Americans, you may not start thinking about filing your tax return until close to this year’s April 18 deadline. You may even want to file for an extension so you don’t have to send your return to the IRS until October 16. However, it can be in your best interest to file early.
In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns. A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.
Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.
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Find the latest tax tips at IRS Security Awareness Tax Tips.
Source: IRS tips Issue Number: IRS Taxes. Security. Together. Tax Tip Number 12
The California Tax Code imposes two parallel taxes on corporations, a franchise tax and an income tax. The franchise
tax is imposed on corporations that are considered to be “doing business” in California. Such corporations are subject to the $800 annual franchise tax regardless of whether they had income or not.
In 2013 Swart Enterprises, Inc. (Swart) challenged the Franchise Tax Board (FTB) of California. The Iowa based company had invested $50,000 into a California LCC investment fund with a total ownership interest of 0.2%. The fund invested in capital equipment in California and other states, and was actively managed by a California corporate manager. Swart had no other connection to California other than this passive investment and did not file a California tax return since there was no California income. Swart received a notice from the California FTB requesting the $800 minimum tax plus interest and penalties. Swart paid the requested amount due, but filed for a refund. The trial court awarded judgement to Swart based on the fact that they were not “doing business” in California.
The California FTB decided to appeal the decision to the Court of Appeals (COA). On January 12, 2017, the COA rejected the FTB’s claim that Swart should be subject to the $800 minimum tax. The FTB can now file a petition with the California Supreme Court, but must do so within 40 days of the COA ruling. Although the COA judgement is a win a for taxpayers, it should be noted that the Swart ruling does not apply if the corporation has California source income and that the court’s decision was based on very specific and narrow set of facts.
The court’s decision was based upon the facts that Swart held a limited partnership interest in the California LLC because of these specific facts.
The most important factor noted in the case was that Swart could not make management decisions. The fund invested into contained its own manager of the fund that made decisions versus Swart having the ability to make decisions. An LLC that is managed by a manager instead of its members and the exclusive authority is given to the LLC’s manager were key factors in the court’s decision to side with the taxpayer.
The California FTB ultimately did not appeal the decision to the California Supreme Court; setting the precedent for other organizations.
The decision on whether to file a California return must still be done on a case by case basis. Many other states do not require the articles of organization to describe whether the LLC is managed by a manager or member managed.
If you are a corporation or an LLC and have an investment in a California based partnership, please discuss the facts with your tax preparer to decide if there is a California filing requirement.
Stay on top of filing and reporting deadlines with our tax calendar! Our tax calendar includes dates categorized by employers, individuals, partnerships, corporations and more to keep you on track.
Minutes of your board’s meetings may seem like a mere formality, but they’re much more than that. Board meeting minutes reflect on your board of directors and your organization’s actions. Savvy nonprofits don’t bunt their way through creating these documents — they try to hit them “out of the park.”
Here are some best practices for developing minutes that will document your meetings clearly and accurately.
Meeting minutes should cover such fundamentals as the date and time, whether it was a special or regular meeting, and the names of directors attending as well as names of directors who didn’t attend. The minutes should record any board actions (such as motions, votes for and against and resolutions). They also should note whether a quorum was reached, whether any board members left and re-entered the meeting — say, in the case of a possible conflict of interest — and whether there were any abstentions from voting or discussions.
Additionally, minutes should include summaries of key points from reports to the board and of alternatives considered for important decisions. For instance, describe how the board evaluated bids for outsourcing IT work or chose a particular venue for a fundraising event. Another important component: The minutes should record action items — that is, follow-up work that will be needed — and who’ll be responsible. Last, all information in the minutes should be presented clearly and succinctly.
There’s no particular requirement about how much detail should be recorded in your minutes. But attorneys often advise their clients to include enough information so that they can be offered as evidence that an action was properly taken and that directors fulfilled their fiduciary duties. When in doubt about the depth of detail to include in your minutes, consult your attorney.
At times, your board likely will meet “behind closed doors” to discuss particularly sensitive or confidential issues, such as a staff dismissal or key person salaries. Details of these sessions shouldn’t be included in the board meeting minutes, although a notation should be made that the board moved to an executive session; the notation should provide the general topic of the conversation. Also be aware of your state’s Sunshine Laws that may require open meetings and outline exactly what must be documented.
Details of an executive session can be communicated confidentially in some other form. Nonprofit attorneys sometimes advise their clients not to label this communication as “minutes.”
Generally, your minutes should be ready for inspection by the next board meeting or within 60 days of the date of the original meeting, whichever comes first. IRS Form 990 asks whether there is “contemporaneous,” or timely, documentation of the board and board committee meetings in minutes or written actions.
If your organization is ever audited by the IRS, your meeting minutes likely are among the first documents the agency will request to see. Keep in mind that any attachments, exhibits and reports can be considered part of the minutes.
Meeting minutes also can serve as evidence in court. For example, if someone alleges that the board made a hasty decision in cutting a program, board meeting minutes can be used to present the data that was considered when making that decision.
Many not-for-profits today strive for transparency. But your board isn’t being open about its transactions if its meeting minutes are so abbreviated that only the keenest insider can understand the full meaning.
The person assigned to take minutes at your organization’s board meetings should produce minutes that are a straightforward and complete report of all actions taken and the basis for any decisions. Simple and unambiguous wording works best.
With that goal in mind, it’s a good idea to have a second person review the meeting minutes. That person (as well as the original writer) should ask, “Would this report make sense if I hadn’t been at the meeting, and had been unfamiliar with the issues addressed? Would I be able to see at a glance the information provided and decisions made?”
Always keep in mind that the minutes of your board’s meetings can be viewed by many sets of eyes. Make sure that they show the real score.
According to published reports, more than two dozen Virginia organizations, as well as organizations around the country, received emails from an individual in England, unknown to the organizations, offering an approximately $30,000 donation.
Here’s how the check-kiting scheme works: After receiving the original email, the nonprofit gets a check for $40,000. Another email arrives concurrently, saying that the overpayment is the result of a clerical error and asking the nonprofit to return the excess payment. A victim nonprofit might deposit the check and not know for several days that it bounced, during which time it might send a $10,000 “refund,” money that will never be seen again.
Seventy-two percent of respondents in software provider Abila’s Donor Loyalty Survey say their decision to give is affected by an organization’s messaging. In February 2016, Abila surveyed 1,136 U.S. donors of all ages who had made at least one donation during the previous 12 months.
Seventy-five percent of respondents said they prefer a “short, self-contained email” with no links, while 73% prefer a short (two to three paragraphs) letter or online article. Sixty percent prefer short (under two minutes) YouTube videos.
About 71% of respondents feel more engaged when they receive personalized content. But personalization gone wrong — for example, with misspelled names or irrelevant information — can alienate donors.
GuideStar has launched a new tier of Nonprofit Profiles called GuideStar Platinum. The no-charge Platinum tier allows nonprofits to report their progress against their missions using metrics they select. GuideStar has collected about 700 suggested metrics, but nonprofits may opt to share the metric(s) they already track and that matter the most to them. For example, a homeless shelter could report the number of people no longer living in substandard housing as a result of its efforts.
According to GuideStar, more than 500 nonprofits signed up within 48 hours of the first announcement of Platinum in April 2016.
Has your organization outgrown its bylaws? Sometimes, as a nonprofit expands and matures, the guiding rules set when it was just a twinkle in its founders’ eyes need to be revisited and brought up to date.
Revising your bylaws involves more than just altering the language of rarely visited documents. The process provides you with an opportunity to look closely at how your nonprofit is evolving and whether such developments are consistent with your original mission.
Bylaws are the rules and principles that define your governing structure. They serve as your not-for-profit’s architectural framework. Although bylaws aren’t required to be public documents, making them available to the public can boost your accountability and transparency.
Your bylaws might cover such topics as the broad charitable purpose of the organization; the size and function of your board; and the election, terms and duties of your nonprofit’s directors and officers. They also usually cover your nonprofit’s basic rules for voting, holding meetings, electing directors and appointing officers. And without being too specific, your bylaws should provide procedures for resolving internal disputes, such as the removal and replacement of a board member.
Before you attempt to revise the bylaws, make sure you have the authority to do so. Most bylaws contain an amendment paragraph that defines the procedures for changing these rules.
Then consider creating a bylaw committee made up of a cross-section of your organization’s membership or constituency. This committee will be responsible for reviewing existing bylaws and recommending revisions to your board or members for a full vote.
It’s important that your bylaw committee focus on your not-for-profit’s mission, not organizational politics. A bylaw revision is appropriate only if you want to change your nonprofit’s governing structure — not to cater to one of your leader’s pet projects.
If your nonprofit is incorporated, you’ll need to ensure that any proposed bylaw changes conform with your articles of incorporation, which spell out your nonprofit’s purpose and outline its allowable activities. For example, the “purposes” clause in your bylaws must match that in your articles of incorporation. Any new provision or language changes in your bylaws, contrary to the objectives and ideals included in your incorporation documents, could invalidate the revisions.
Wanting to change the rules about how you operate suggests that you may have drifted from your original purpose. Bylaw revisions that indicate you’ve strayed from your initial mission can jeopardize your federal tax-exempt status. By all means, make sure your bylaw amendments remain consistent with your tax-exempt purpose. And notify the IRS if they represent a “structural or operational” change by reporting the amendments on your Form 990.
In addition, review your state’s statute that governs nonprofits, because it may contain mandatory provisions that affect your bylaws. In the absence of bylaws, when faced with issues about your governance, your state may dictate a proper course of action. If you don’t coordinate your bylaws with such a statute, you may unwittingly hinder your governing board’s ability to operate.
Through the years, your nonprofit is likely to experience a number of changes: Its constituency and support may grow and its goals and priorities may shift. Your professional advisors can work with you to amend your bylaws and make sure they accurately reflect your organization as it exists today.
Dividends, interest, rents, annuities and other investment income are generally excluded when calculating unrelated business income tax (UBIT). But tax law provides two exceptions where such income will indeed be deemed taxable. And with IRS scrutiny of unrelated business income intensifying these days, nonprofits need to know about these potential pitfalls.
When a nonprofit incurs debt to acquire an income-producing asset, the portion of the income or gain that’s debt-financed is generally taxable unrelated business income (UBI). Such assets are usually real estate — for example, an apartment building with income from rents not related to the nonprofit’s mission. But the assets also could be stocks, tangible personal property or other investments purchased with borrowed funds.
Income-producing property is debt-financed if, at any time during the tax year, it had outstanding “acquisition indebtedness” — debt incurred before, during or shortly after the acquisition (or improvement) of property if the indebtedness wouldn’t have been incurred but for the acquisition.
Certain property is exempt from this treatment:
Related to exempt purposes. If 85% or more of the use of the property is substantially related to a not-for-profit’s exempt purposes, it’s not excluded as debt-financed property. Related use can’t be solely to support the organization’s need for income or its use of the profits.
Used in an unrelated trade or business. To the extent that income from a property is treated as income from an unrelated trade or business, the property isn’t considered debt-financed, as the income is already UBI.
Used in certain excluded activities. Debt-financed property doesn’t include property used in a trade or business that’s excluded from the definition of “unrelated trade or business” either because it’s used in research activities or because the activity has a volunteer workforce, is conducted for the convenience of members, or consists of selling donated merchandise.
Covered by the neighborhood land rule. If a not-for-profit acquires real property intending to use it for exempt purposes within 10 years, the property won’t be treated as debt-financed property as long as it’s in the neighborhood of other property the organization uses for exempt purposes. The latter exception applies only if the intent to demolish any existing structures and use the land for exempt purposes within 10 years isn’t abandoned.
Interest, rents, annuities and other investment income aren’t excluded from UBI if they are received from a for-profit subsidiary or controlled nonprofit. The payment is included in the parent organization’s taxable UBI to the extent it reduces the subsidiary organization’s net taxable income or UBI.
The IRS generally considers a corporation to be “controlled” if the other organization owns more than 50% of the “beneficial interest” — either stock in a for-profit or voting board positions in a nonprofit. For example, if a for-profit leases space from an organization that owns more than 50% of its stock, the lease payments are valid deductions from taxable income. But when these lease payments are received by the controlling nonprofit, they aren’t excluded from UBI.
Failing to pay UBIT on debt-financed property or income from controlled organizations could have negative consequences, ranging from taxes, penalties and interest to, in extreme cases, the loss of tax-exempt status. Your CPA can help you stay on the right side of the UBIT law.
WASHINGTON – The Internal Revenue Service, state tax agencies and the tax industry today renewed their warning about an email scam that uses a corporate officer’s name to request employee Forms W-2 from company payroll or human resources departments.
This week, the IRS already has received new notifications that the email scam is making its way across the nation for a second time. The IRS urges company payroll officials to double check any executive-level or unusual requests for lists of Forms W-2 or Social Security number.
The W-2 scam first appeared last year. Cybercriminals tricked payroll and human resource officials into disclosing employee names, SSNs and income information. The thieves then attempted to file fraudulent tax returns for tax refunds.
This phishing variation is known as a “spoofing” e-mail. It will contain, for example, the actual name of the company chief executive officer. In this variation, the “CEO” sends an email to a company payroll office or human resource employee and requests a list of employees and information including SSNs.
The following are some of the details that may be contained in the emails:
Working together in the Security Summit, the IRS, states and tax industry have made progress in their fight against tax-related identity theft, but cybercriminals are using more sophisticated tactics to try to steal even more data that will allow them to impersonate taxpayers.The Security Summit supports a national taxpayer awareness campaign called “Taxes. Security. Together.” This campaign offers simple tips that can help make data more secure.