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					                                                                            Tax and Legal Hot Topics
                                                                            for Tax Exempt Organizations

                                                                                  Tax Matters - Chris
       2008 Annual Meeting & Exposition

 Tax and Legal Hot Topics for Tax Exempt Organizations                            G            Ona
                                                                                  Governance - O

                                 Ona Alston Dosunmu
                                 Christopher C. Scarpa                            Odds and Ends - Jim
                                 James A. Woehlke
                                       August 18, 2008   2:30 – 3:45 p.m.




            Connecting Great Ideas and Great People




 Hot Topics: Tax Matters                                                    Hot Topics: Tax Matters
I.     2008 Political Activities Compliance                                 V.  Final Regulations On Excess Benefit
       Project                                                                  Transactions; Recognition of Exempt
II.    Guidance on Forms 990-T – IRS Notices 2007-                              Status
       45 and 2008-49                                                       VI. New Section 403(b) Regulations
III.   Form 990-N – Electronic Notice (e-Postcard)
       for Tax-Exempt Organizations not Required                            VII. Section 409A Compliance Deadline
       to File Form 990- or 990-EZ
IV.    Voluntary Compliance Program for Form 990
       Nonfilers
                                                                            VIII. Form 990 Redesign




                                                                                                                      1
Hot Topics: Tax Matters                                 Hot Topics: Tax Matters
    2008 Political Activities Compliance Project            2008 Political Activities Compliance Project

A. Electioneering Prohibition–4 Requirements            B. Recent IRS Guidance
                                                            IRS Fact Sheet 2006-17
    “Organized and operated exclusively for” an
                                                            Revenue Ruling 2007-41
    exempt purpose.
                                                            2008 Political Activities Compliance Initiative
    Earnings must not “inure to the benefit of any
          g                                        y           Cases involving issue advocacy
    private shareholder or individual.”                        Internet cases
    No substantial part of activities for lobbying or          Political contributions
    attempts to influence legislation.                         § 501(c)(4) organizations engaging in electioneering
    Must not participate or intervene in a political    C. Honest Leadership and Open
    campaign in support of or in opposition to a           Government Act of 2007 (HLOGA)
    candidate for public office.




Hot Topics: Tax Matters                                 Hot Topics: Tax Matters
    Guidance on Forms 990-T                                 Guidance on Forms 990-T

IRC § 6104(d)                                           IRC § 6104(d)
  Public Inspection Requirement
  Extended to Form 990-T                                  Penalty For Non-Compliance –
  Regulations on The Public Inspection                    IRC § 6652(c)(1)(C)
  Requirement
    § 301.6104(d)-1 – When To Provide Returns             IRS Notices 2007-45 and 2008-49
    § 301.6104(d)-2 – Returns Widely Available
    § 301.6104(d)(3) – Harassment Campaign




                                                                                                                      2
Hot Topics: Tax Matters                                  Hot Topics: Tax Matters
     Form 990-N                                               Voluntary Compliance Program for Form 990 Nonfilers

  IRC § 6033(i)(1) – small orgs to file 990-N             Form 990 – Filing Requirement & exceptions
  IRC § 6033(i)(2) – notice of termination                Penalties
                                                            $20 a day up to $10,000 or 5% of gross receipts for
  IRC § 6033(j) – noncompliance for 3 yrs =                 the year
  termination of exempt status                                                     Million
                                                            If gross receipts > $1 Million, then $100 a day up to
  IRC § 6652(c)(1)(E)–No monetary penalty                   $50,000
                                                          IRC § 6033(j) – 3 yrs failure to file = loss of
  Form 990-N: availability, due date: 15th                exemption
  day of 5th month, open to public                        Possible compliance program under
  inspection                                              development




Hot Topics: Tax Matters                                  Hot Topics: Tax Matters
      Final Regulations On Excess Benefit Transactions         New Section 403(b) Regulations

 Regulations Summary                                      New Regulations issued July 26, 2007
                                                          Generally effective January 1, 2009
 Private Benefit and Other Restrictions
                                                          Plan document Required
 Private Benefit Examples in the Regulations –
                                                          Pl needs to specify if participants may
                                                          Plan      d        if        i i
    Economic & Non-Economic Benefits                      transfer funds between investments. If
                                                          yes an information sharing agreement,
 Intermediate Sanctions
                                                          ISA is required with each investment
                                                          vendor.




                                                                                                                    3
Hot Topics: Tax Matters                                   Hot Topics: Tax Matters
    Section 409A Compliance Deadline                          Section 409A Compliance Deadline
IRC § 409A was passed in 2004                             § 409A does NOT apply to
dramatically changing nonqualified                          401(k) plans         SEPs
deferred compensation. Effective 2005,                      SIMPLE Plans         § 457(b) arrangements
but . . .                                                 Otherwise quite broad. In addition to
Final regulations not issued until April 17,              Traditional deferred comp arrangements
2007, effective January 1, 2009                             employment agreements, severance arrangements,
                                                            bonus programs
All deferred comp plans must be
                                                            split-dollar life insurance arrangement
amended by December 31, 2008 to bring
into compliance.                                          But § 457(f) may limit impact on tax exempts




Hot Topics: Tax Matters                                   Hot Topics: Tax Matters
    Section 409A Compliance Deadline                          Form 990 Redesign
Should take the following steps                           Effective Date: 3-year phase in
  identify all plans, arrangements, agreements and          2008 tax year – Organizations over $1 million
  policies that may contain elements of nonqualified
  deferred compensation
                                                            of gross receipts or $2.5 million in assets
  review all of the above to determine what changes
  need to be made                                           2009 tax year – Organizations over $500,000
  to the extent necessary, and in many cases it will be     of gross receipts or $1.25 million in assets
  necessary, secure the consent of employees covered
  by those plans, arrangements, agreements and
  policies to the changes necessary to achieve              2010 tax year – Organizations with $200,000
  compliance with the regulations.                          in gross receipts or $500,000 in assets




                                                                                                             4
Hot Topics: Tax Matters                                              Hot Topics: Tax Matters
      Form 990 Redesign                                                  Form 990 Redesign

Compensation                                                         Governance
   Compensation Procedures                                             Size and composition of governing body
      Conflicts policy                                                 How many are independent
      How compensation determined
                p                                                      Governance Policies
                                                                         Conflicts, Whistle-blower, Document retention
   Expense Reimbursements
                                                                       Family or business relationships of governing body
      Schedule J and expense reimbursement policies                    and key employees
   Reporting                                                           Has the governing body reviewed the Form 990
      Threshold for reporting highly compensated                       Disclosure of transactions w/“interested persons”
      raised to $100,000 from $50,000




Hot Topics: Tax Matters                                              Hot Topics: Tax Matters
      Form 990 Redesign                                                  Form 990 Redesign
Governance (continued)                                               Financial Information
   Policy on participation in joint ventures                           Income must be allocated between
   Discussion draft of 501(c)(3) good governance                         Related / exempt income
   practices                                                             Unrelated business income
“While adopting a particular practice is not a requirement for
                                                                         Income exempt f
                                                                         I             t from UBIT
exemption, an organization that adopts some or all of these            501(c)(3) and (c)(4) Organizations must also
practices is more likely to be successful in pursuing its exempt
purposes and earning public support. Moreover, any decision by the     allocate expenses as among
Service to conduct a review of operations subsequent to                  program services, management, and fundraising
exemption…will be influenced by whether an organization has
voluntarily adopted good governance practices.”                        Additional Information on balance sheet
                                                                       items




                                                                                                                            5
 Hot Topics: Tax Matters                             Hot Topics: Tax Matters
         Form 990 Redesign                               Form 990 Redesign

     Public Support Test                             Related Orgs & Unrelated Partnerships
       Two tables instead of current single table      New Schedule R seeks information on
       Measured over 5 years rather than 4                any disregarded entities
       Currently cash basis is used for test              related tax-exempt organizations
                                                                           p    g
       regardless of the organization’s accounting        related organizations taxed as partnerships
       method. The new 990 will use the accounting        related organizations taxed as corporations or
                                                          trusts
       method used elsewhere on the form.
                                                          unrelated organizations taxable as partnerships
     Foreign Activities                                   (excluding investment partnerships)




                                                     Hot Topics: Governance
 Hot Topics: Governance                                   Introduction
I.     Introduction                                  “Hard” Governance
                                                       Common law duties of
                                                          care
II.    Hard governance                                    loyalty
                                                          good faith
                                                          possibly obedience
III. “Soft” governance                                 Governing documents
                                                       Generally accepted best practices
                                                     “Soft” Governance
                                                       Managing Human Relationships




                                                                                                            6
Hot Topics: Governance                      Hot Topics: Governance
     Hard Governance                             Hard Governance
Revised Form 990                            10 SOX Principles
                                              Principle 1—Role of the Board
Policies implied by revised 990               Principle 2—Importance of Independent
                                              Directors
                                              Principle 3—Audit Committee
SOX Requirements                              Principle 4—Governance and Nominating
  Whistleblower policy                        Committees
  Document retention/destruction policy       Principle 5—Compensation Committee




Hot Topics: Governance                      Hot Topics: Governance
     Hard Governance                             Soft Governance
10 SOX Principles                             Universal Considerations
  Principle 6—Disclosure & Integrity of           Maybe the difficult board member has a point
  Institutional Info
  Principle 7—Ethics and Business Conduct
  Codes                                           Consider mechanisms other than board
                                                  membership to reward people who make major
  Principle 8—Executive and Director
  Compensation                                    contributions to the organization
  Principle 9—Monitoring Compliance and
  Investigating Complaints                        Careful vetting of prospective board members
  Principle 10—Document Destruction and           and thorough orientation of new board members
  Retention                                       solves many problems




                                                                                                  7
Hot Topics: Governance                                    Hot Topics: Governance
     Soft Governance                                           Soft Governance
  Universal Considerations                                  Problems
                                                              Inappropriate interference, over-
      There’s often no substitute for direct, frank but       engagement, meddling
      compassionate communication
                                                              Disengagement and related sins
      Enforce term limits if you have them                    “Agenda wrestling”
                                                              Other inappropriate, distracting, disruptive
      Consider probationary or 1-year initial terms           behaviors
                                                              Major crises




Hot Topics: Odds and Ends                                 Hot Topics: Odds and Ends
     Intellectual Property                                     Anti-trust
  Copyright Violation by Competing                          Illegal Boycotts by two chiropractic
  Association Found; Alleged Trademark                      associations of health-cost saving plan
  Violation Found to be Fair Use
                                                             ssoc at o s lawyer joined consent
                                                            Associations’ lawye jo ed in co se t
                                                            agreement
  Association Member Sets Up Blog to
  Discuss Association Issues and Uses
  Association’s Name                                        Remember anti-trust is an important
                                                            element of association law




                                                                                                             8
Hot Topics: Odds and Ends                       Hot Topics: Odds and Ends
     Human Resources                                 Accounting and Auditing Matters
   Remember Jury Duty is a Protected Activity      SAS’s 104 to111, Risk Assessment Stds
                                                   SAS 112, Communicating Internal
   Overtime Ruminations
                                                   Control Related Matters Identified in
       Blackberries, etc.
                                                   an Audit
       NYC fire inspectors case
                                                   Practice Alert 2007-1
   Overly active volunteer Board chair found       Revised GAO Yellow Book
   liable as a responsible person for the
   payment of unpaid employment taxes              TPA 6140.20 re fundraising expenses




Hot Topics: Odds and Ends                       Hot Topics: Odds and Ends
     Accounting and Auditing Matters                 Governance
   Fair value accounting – FASB 157 & 159          Remember: Good due process
                                                   provisions are necessary when
   FASB 158, Accounting for Defined                disciplining members
                   Post-Retirement
   Benefit & Other Post Retirement Plans

   UPMIFA




                                                                                           9
Contact Information:

Christopher C. Scarpa, Esq.           Ona Alston Dosunmu, Esq.
Partner                               General Counsel
Stradley Ronon Stevens & Young, LLP   The Brookings Institution
Phone: 215.564.8106                   Phone:(202) 797-6428
E-mail: cscarpa@stradley.com
             p          y                                       g
                                      E-mail:ODOSUNMU@brookings.edu
Websites:www.stradley.com             Websites www.brookings.edu

Moderator
James A. Woehlke, Esq.
General Counsel, NYSSCPA
Phone: 212-719-8347
E-mail: jwoehlke@nysscpa.org
Website: www.nysscpa.org




             Connecting Great Ideas and Great People




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