Not-for-Profit Tax Update

Posted in Accounting, Audit and Tax | Tax | Not-for-Profit on April 12, 2017

Tax Penalties for Business OwnersIn this NFP Tax Update, we’d like to remind clients of three notable updates for organizations filing for tax year 2016, and beyond.

  • Summary of the Form 990 Changes and Extensions for 2016
  • Upcoming Deadline for Supported Organization Notifications
  • Changes to Form 1023-EZ

Noteworthy Changes for Form 990 and Schedules
This is a reminder notification of the changes that have taken place for Not-for-Profit organizations filing the IRS Form 990 for the 2016 tax year.   Overall, there were a minimal amount of changes made, but all organizations should review the list below in case they apply.

Organizations need to be aware of a few significant changes to forms and instructions since last year, with the most notable updates as follows:

  • Filing Extension Available: Organizations may file a Form 8868 to request an automatic six-month filing extension for tax years beginning after December 31, 2015 (this replaces the automatic three-month extension and the additional discretionary three-month extension).
  • Independent Contractors Outside of the United States:  It is necessary to answer line 14a “Yes” and file Schedule F on Form 990 Part IV if you had independent contractors outside the U.S. during the tax year.
  • Reporting Compensation for Employees of a Professional Employer Organization (PEO):  Filing organizations should report employees of a PEO who provide services to the filing organization as its own employees if such persons are common law employees of the filing organization under state law (for the purposes of reporting compensation on Part VII).  Otherwise, the filing organization should report the compensation as paid to the PEO, rather than as paid to the PEO’s employees who provide services to the filing organization.
  • Schedule A Updates: Part I now includes a line for an agricultural research organization described in section 170(b)(1)(A)(ix) operated in conjunction with a land-grant college or university or a non-land grant college of agriculture. This has affected reference numbers throughout.  Examples have been provided to help supporting organizations determine the type of supported organizations they must list in Schedule A, Part I, Line 12g, Column (iii).
  • Schedule C Political Campaign Activities Definition Added:  For the purposes of completing Schedule C, a definition has been added to the instructions for “political campaign activities.”
  • Schedule H Changes Affecting Part V - Hospital Facility Information:
    • Lines 3a-h. The 2016 Schedule H instructions include specific instructions for lines 3a, 3c, 3d, 3g, and 3h. The 2016 instructions also revise the instruction for line 3i, directing the hospital facility to check box 3i if its CHNA report describes the impact of any actions taken to address significant health needs identified in its prior CHNA.
    • Line 5 was revised to ask over what period the input was provided. They ask for a description of the medically underserved, low income or minority populations represented by organizations or individuals that provided input.
    • Line 16 was revised to now ask whether the FAP was widely publicized within the community rather than whether the FAP included measures to publicize the FAP within the community.  Instructions are also added for the new line 16g checkbox, which lists specific actions taken to notify individuals about the FAP, and line 16i, which reflects the requirement in the final 501(r) regulations that an exempt hospital facility must translate its FAP, FAP application form, and plain language summary of the FAP into any language spoken by each LEP (limited English proficiency) language group that constitutes the lesser of (a) 1,000 individuals or (b) 5% of the community served by the hospital facility or the population likely to be affected or encountered by the hospital facility.
    • Lines 18c and 19c are new lines on the form describing an extraordinary collection action (ECA) that was added by the final 501(r) regulations: deferring, denying, or requiring a payment before providing medically necessary care due to nonpayment of a previous bill for care covered under the hospital facility’s FAP.
    • Lines 20a-d have been updated to more closely reflect the reasonable efforts described in the final 501(r) regulations that exempt hospital facilities must take before engaging in ECAs.
  • Schedule L Changes Affecting Contributor Clarifications:  The Schedule L instructions are revised to clarify that to the extent a substantial contributor, family member of a substantial contributor, or 35% controlled entity of a substantial contributor must be reported as an interested person on Schedule L, that substantial contributor or related person should be reported by category (e.g., “substantial contributor,” “family member of substantial contributor,” “35% controlled entity of substantial contributor”) rather than by name, to preserve confidentiality. This rule, which previously only applied to Part III, Grants or Assistance Benefitting Interested Persons, has been extended to all four parts of Schedule L.

Should you need assistance or clarifications with these instruction changes or the filing extension, please contact your Sikich tax representative.

Deadline Approaching for Supported Organization Notifications
The notification requirement deadline for IRC Section 509(a)(3), Type III functionally and non-functionally integrated supporting organizations with a December 31, 2016 year-end is May 30, 2017. For additional information, please contact your Sikich tax advisor.

Changes to Form 1023-EZ Coming Soon…
The Form 1023-EZ will soon require filers to provide more information on their activities.  They will be asked to include a brief narrative description of actual or planned activities.  No exact timing of this change has been announced.  Sikich will update you with the latest information when it becomes available.


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Disclaimer: This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.