There have been numerous recent changes and reporting requirements added for tax-exempt organizations. The information below is a quick summary of some of the highlights of those changes.
Tax Reporting Changes
Nonprofits that have Unrelated Business Income (UBI) file federal form 990-T. This form is designated for calculating the tax liability, if any, for the organization. Over recent years, this form has gained much attention from the IRS in terms of the effects of the Tax Cuts and Jobs Act (TCJA) and requirements for segregating UBI calculations from different lines of business on a separate basis, also referred to as “silos”. More recently, the 990-T has been in focus for being mandated to file electronically.
Additionally, in July 2019 the Taxpayer First Act began the conversion process to electronic format and the IRS took a bold step ahead by requiring form 990 filings to be done electronically. The effective dates include any filings with due dates on or after April 15, 2021, meaning your 2020 returns are required to be filed electronically. This brings a change to the industry in several ways; initially there is an administrative change in how the final document gets submitted to the IRS. Moving from paper filings and mailings to electronic filings will require an initial “getting familiar” phase and perhaps some additional assistance from CPAs and consultants in getting to the finish line with the submission. Additionally, the electronic world will likely bring on increased transparency and availability of data for the public seeking out this information. Although the 990 and 990-T have already been available for public inspection, there will likely be bulk data for research, benchmarking, and public oversight. Certain instances may still be filed in paper, such as for amended returns.
Confidentiality of Donor Information and a New NYS Filing Requirement
Nonprofit organizations in New York State are generally required to be registered with the NYS Office of the Attorney General and to file a CHAR500 together with its form 990. This annual filing becomes public record and has therefore gained the attention of the industry about the details being provided to the public. In light of the sensitivity relating to public disclosure, there has been discussion surrounding the requirement of the nonprofits to report to the state the Form 990 schedule B list of contributors, together with their names and contributed amounts. Assembly bill A1141 recently added that the information must be kept confidential by the state, including the names, addresses, telephone numbers of contributors and amounts of contributions, and used just for law enforcement and not for the public at large. The Bill also addresses the new requirement of filing the same information with the New York State Department of State and provides the same limitation as to the confidentiality of the information. Therefore, the Department of State may only use this information for law enforcement, as well, and not to make the donor information publicly available for the general public.
Executive Law Section 172-b now requires charitable organizations to file an annual financial report with the New York Department of State if they (1) solicit charitable contributions in New York and are registered with the New York Office of Attorney General, (2) file Form CHAR500 with the Charities Bureau of the Attorney General's Office, and (3) have total revenue and support of $250,000 or more. This double filing obligation has also been a contentious issue as New York State is currently mandating a duplicate filing process, with the New York State Office of the Attorney General Charities Bureau and the New York State Department of State (DOS). The report is due by the 15th day of the fifth month after the close of the organization's fiscal year. However, neither the new law nor the proposed regulations grant an automatic six-month extension for the DOS filing. Advocates and liaisons are working fervently to address this issue as well as the various unknowns with this new filing, such as an extension process. All required forms and attachments must be included, along with a $25 filing fee. Although the forms and attachments must be filed online, the filing fee cannot be paid electronically. The state notes that online filing is now available for all financial reports through the DOS's website. Each filer needs a NY.gov account, which may be created here. For more information, taxpayers may review the state's frequently asked questions (FAQs) and applicable proposed regulations (19 NYCRR, Chapter IV, Part 146.1 — 146.10), issued in February 2021. This filing with the DOS would include private foundations as well as any organization registered under 7A and EPTL, which includes most organizations reading this article. See Division of Corporations, State Records and Uniform Commercial Code, NYS Dept. of State for additional details.
Audit Threshold Final Phase-In
Effective July 1, 2021, the NYS Attorney General’s office increases the threshold requiring an annual audit from $750,000 to $1,000,000 in annual revenues. When this law was written, as part of the Nonprofit Revitalization Act (NPRA), it applied to extended due dates as well. Therefore, technically, any organization with a year-end after August 31, 2020, would have an extended due date after July 1, 2021, since their extended due date would be July 15, 2021. Therefore, those organizations follow the new audit threshold of $1,000,000 annual revenue. There is a possibility of the AG’s office issuing modified guidance indicating a change to this process. The new process may only allow 2021 forms to take advantage of the NPRA audit thresholds, this means only years beginning January 1, 2021, and on will be allowed to take advantage of the new audit thresholds. This is not yet formalized, and we will keep an eye out to see whether this modification takes place.
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This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.