It’s the beginning of another new year. And along with everything else that comes with a flip of the calendar, the IRS has several things up its sleeve for nonprofits in 2011. Let’s take a look two of the most crucial.
Audits of nonprofits to increase. As if the IRS didn’t have enough to do already, 2011 brings the news that the IRS plans to continue its expansion of audits of 501(c)(3) and other tax-exempt nonprofits. 2010 saw a 12% increase in the number of audits initiated and that trend is expected to continue throughout 2011. More than 100 new auditors have been hired by the IRS since the end of 2008 in order to provide the manpower necessary. The primary source material used to trigger audits remains the Form 990 filed by organizations each year (see below), though collaboration with other agencies, such as the Social Security Administration, is increasingly providing leads worthy of the IRS taking a closer look.
The issues of greatest concern have not changed that much. They typically involve compensation, record-keeping, conflict of interest and, not surprisingly, organizational activities and purpose.
Major changes to IRS Form 990. If it seems like we have been saying this for the last several years in a row, you are right. We have. To recap, the biggest changes to Form 990 came with the 2008 tax year. As we have detailed previously, the 2008 Form 990 was overhauled from front to back and expanded by as much as 5-fold. That year also brought changes to the revenue thresholds that dictate which Form 990 is filed by an organization. 2009 brought more changes, including another revision to the revenue thresholds, the capture of even more operational details and other various tweaks and “improvements”.
The 2010 return is following the same pattern. This is the third of three scheduled changes to the revenue thresholds. The most significant is the threshold for filing of Form 990EZ. Prior to 2010, organizations with under $25,000 in gross revenue did not have to file a Form 990EZ, but rather the 990N electronic postcard. Now, that threshold has increased to $50,000. For those organizations that average between $25,000 and $50,000 in gross revenue, this is big news. No longer will they be required to complete a Form 990EZ return, just the 990N. That being said, nonprofits in that range may find it beneficial to file Form 990EZ anyway, particularly if they currently or ever plan to seek grant funding. In addition, the threshold for filing the long version of Form 990 is now $200,000, down from last year’s $500,000. The IRS is not expected to adjust these thresholds any further in the next few years.
Other Form 990 changes for 2010 include the capture of even more detail including…are you ready for this?…information on the sale of tanning bed sessions with accompanying schedule and tax collection! Many of the changes are not yet known , as the IRS has not released the final version of several Schedules or their instructions. We anticipate major changes to the collection of fundraising information, as well as much closer scrutiny of related nonprofits, hospitals and clinics, membership organizations and nonprofits providing insurance benefits. Yet more changes are expected that will mostly impact return preparers like Foundation Group. All the more reason to rely on a preparer that understands these things.
The filing deadline for most 501(c) nonprofits is May 16, 2011. Don’t put off getting your records in order. That due date will be here before you know it!