As 2015 begins and the IRS reporting season is upon us, it is important to review new IRS provisions and state acts and laws that affect nonprofit organizations. Taking these changes into account can help streamline your filing process, and could potentially save your charity a lot of time and energy. This Topic of the Month will review recent changes and updates in the following areas:
1. IRS Update.
2. Affordable Care Act.
3. NY Nonprofit Revitalization Act and Audit Threshold Update.
IRS Updates
New 1023-EZ
In July of 2014, the IRS released a new three-page form 1023 that allows new nonprofits to file for 501(c)(3) status. To be eligible to use the shortened form, an organization must complete a
26-question eligibility worksheet and must have a budget/planned revenue of $50,000 or less for three years.
Top 990 Errors
Many nonprofits are working with their CPAs to complete 990s for 2014. Be sure to avoid these common errors:
1. Ensure that your EIN is filled in and correct.
2. Review your fiscal year and filing dates to ensure that the tax year for which you are filing is the same as previous years and matches what the IRS has on their master record.
3. All filers must include a Schedule O (Supplemental Information).
4.
Do not check the “final return” box. This box is only checked when the organization has closed or otherwise ceased to exist.
5. Confirm if you need to file Schedule A, Public Charity Status and Public Support. Most organizations will need to complete this as part of their 990.
Unrelated Business Activities
The IRS is more closely regulating activities from which nonprofits generate revenue. In some cases, activities such as sponsorships or earned income can generate revenue that is taxable if it is not “substantially related” to the core activities of the organization. Specific items that may cause tax situations include:
1. Sponsorships that designate an entity as an exclusive provider.
2. Advertising sold in regularly produced journals, magazines, and other publications.
3. Revenue earned from renting out event or office space.
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4. Cell towers, such as those that may be installed on top of buildings or churches, is typically not unrelated business income, but in some instances it may be. If your organization receives revenue from a cell tower or similar provision, Cathedral recommends checking with your CPA or attorney to determine if this is classified as unrelated business income.
Charitable Receipts
As a reminder, every receipt for a donation of $250 or more must include the notice that “no goods or services were received in exchange for the contribution.
” If the nonprofit does not include this phrase on donor receipts, the donor cannot claim a charitable donation. More information and examples of donation receipts can be found in Cathedral’s Topic of the Month on Donations: A Nonprofit’s Roles and Responsibilities . In addition, the IRS has released a new
Publication 1771 that outlines the substantiation and disclosure requirements for charitable contributions.
Mileage Rates
The 2015 Business Mileage rate for which employees can be reimbursed is 57.5 cents/mile.
The 2015 Charitable Mileage Rate for which volunteers can claim a charitable deduction while driving on behalf of a nonprofit is 14 cents/mile.
Affordable Care Act
Despite what you’ve heard, the Affordable Care Act is not mandatory for nonprofit organizations.
However, there is a penalty that starts in 2015 if your nonprofit has 50 or more full-time employees and does not provide a minimum level of insurance coverage. Because many nonprofits have seasonal and part-time employees, Cathedral recommends auditing your staff if you have close to 50 employees to ensure that you have an accurate count of staff and will not incur any penalties.
If you have 25 or fewer employees, you may be eligible for a refund on premiums if you provide paid health insurance for your staff. Additional information about the Small Business Health
Care Tax Credit can be found here .
Small Business Health Options Program
Small Business Health Options Program (SHOP) is designed to provide affordable healthcare options to employees through state Marketplaces. As of 2014, only organization with 50 or fewer employees are eligible to offer their employees insurance through SHOP. Those organizations with 25 or fewer employees are eligible for up to a 50 percent tax credit if they contribute 50 percent or more to their employee’s self-only health insurance premiums.
Health Insurance Premium Reimbursement
Employers used to be able to either directly pay for or reimburse employees for the premiums of health insurance policies that were purchased by the employee. These “premium reimbursement plans” are no longer allowed, and any employer who is offering a premium reimbursement plan may now be subject to penalties of $100 per day per participating employee. Please refer to IRS Notice 2015-17 , issues on February 18, 2015, for additional information on premium reimbursement plans.
Notification Requirements
Nonprofits are required by law to provide notice to employees of all health insurance coverage options available through state marketplaces.
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The NY Nonprofit Revitalization Act
Instituted in 2013, the New York Nonprofit Revitalization Act applies to any nonprofit that is based in or has a presence in the state of NY. Review Cathedral’s paper on the topic for a full overview of the Act. While this legislation pertains to NY nonprofits, the information outlined below are best practices that should be adopted by all nonprofit organizations. The Act has since been revised by amendments that will take effect on January 1, 2016, instead of the originally projected July 1, 2014. The amendments, which are mostly technical, are as follows:

An option was added for corporations formed under special acts and the Membership
Corporations Law to file a Restated Certificate of Incorporation.

The a bility for New York Secretary of State’s office to fix minor errors (e.g. typographical errors) prior to filing a document.

The removal of the requirement to include specific purposes in the Certificate of
Incorporation of a not-for-profit corporation.
A Restated Certificate of Incorporation allows a nonprofit that is already authorized by the board to make any amendment changes without the vote of shareholders. It also allows the nonprofit to change its organizational name. Furthermore, it allows for organizations not yet incorporated due to being denied on the basis of an incomplete or vague specific purposes section a chance to incorporate without being required to include their specific purpose.
The Act also stipulates that every nonprofit operating in the state of NY have a conflict-ofinterest policy. As a best practice, Cathedral recommends that every nonprofit utilize a policy as outlined below.
Conflict-Of-Interest Policy
A conflict-of-interest policy is vital to your nonprofit organization as it outlines a process, roles and responsibilities in the event that a conflict occurs. A healthy, all-encompassing policy includes the following:
1. A definition of what constitutes a conflict of interest.
2. A requirement to expose all conflicts to the board and audit committee.
3.
A ban on “conflicted” parties attending meetings or otherwise influencing deliberations or votes.
4. A documentation of all dealings and meetings pertaining to the conflict-of-interest at hand.
5. That all directors, trustees, and board members disclose potential conflicts-of-interest prior to voting on the conflict-of-interest in question.
To comply with the NY Nonprofit Revitalization Act, a nonprofit must have a Conflict-of-Interest
Policy referenced in their by-laws.
Whistleblower Policy
In addition to a conflict-of-interest policy, the NY Nonprofit Revitalization Act stipulates that any nonprofit with 20 or more employees and an annual revenue in the prior fiscal year in excess of
$1 million must also have a Whistleblower policy. As with the conflict-of-interest policy,
Cathedral recommends that every nonprofit adopt a Whistleblower policy. A strong whistleblower policy includes the following:
1. Provisions for reporting action or suspected action that is illegal, fraudulent, or in violation of any policy.
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2. The requirement that an official, director, or employee report the incident to the audit committee
3. A requirement that the policy in question be distributed to all directors, officers, and employees.
As with the conflict-of-interest policy, the Whistleblower policy also needs to be referenced in the nonprofit’s by-laws in order to be in compliance with the NY Nonprofit Revitalization Act.
Adopt Audit Oversight and Financial Procedures
To be in compliance with the NY Nonprofit Revitalization Act, nonprofits operating in or with a presence in the state of NY with over $1 million in annual gross revenues must have the board or Audit committee hold pre- and post-audit meetings with their auditors. While this is not required for organizations with less than $1 million in annual gross revenues, Cathedral recommends that this become standard practice for any nonprofit that has their financial statements audited.
Laws and regulations are constantly changing, and it is important that nonprofits update themselves at least on a quarterly basis to ensure that they are in compliance with local, state and federal regulations and legislation.
1. Additional information on the Affordable Care Act as it pertains to nonprofits can be found at: http://www.nonprofitpathways.org/news/how-will-the-affordable-care-actimpact-nonprofit-employers and https://nonprofitquarterly.org/policysocial-context/23951six-changes-for-nonprofits-as-results-of-the-affordable-care-act.html
.
2. The IRS provides updates on rulings and legislation at: http://www.irs.gov/Charities-&-
Non-Profits
Kimberly Reeve is a
Managing
Director, Sterling Clay is an Associate, and Helen van Dalen is an Intern
Associate in the
Cathedral Consulting Group
New York Office.
For more information, please visit Cathedral Consulting Group LLC online at www.cathedralconsulting.com
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