Revisions to Form 990 for Filing in FY 2005

There have been a few additions made to the IRS Form 990. For some, it may be more difficult than in the past. According to the IRS, the form has been updated to reflect increasing governmental concerns with nonprofit governance and transparency issues. Part of the additions include a requirement requesting that nonprofits list former, as well as current officers, trustees, directors and other key employees. Some of the specific information now required includes:

•        Number of current directors, officers, and trustees allowed to vote on organizational business at board meetings.

•        Family or business relationships among current officers, directors, key employees, five highest paid employees, highly compensated professionals, and independent contractors. This must also include explanations for any relationships that exist.

•        Compensatory arrangements between any of the individuals listed above and related organizations.

In addition to these requirements, organizations will be obligated to answer whether they have a conflict of interest policy or not. At the moment it is not a requirement to have a policy; however nonprofits should take warning that a conflict of interest policy could become a requirement in the future. 

Regardless of whether it is required or not, a well-managed nonprofit organization should have a policy that addresses the conflict of interest of its directors, officers, and key staff. Conflict of interest policies help to ensure that no person benefits inappropriately from any transactions in which the organization is involved. Employees are to maintain independence and objectivity with clients, the community, and the organization in which they work. They are called to maintain a sense of fairness, civility, ethics, and personal integrity even though law or regulation does not require them to at this point in time.

Regardless of whether you are drafting a new conflict of interest policy or simply revising an old one, it is important to make sure that it applies to any transaction or arrangement with an “interested person.” As previously stated, this includes directors, officers, trustees, or Board members on a committee who may have direct or indirect financial interest in the organization. Financial interest is considered as anyone who has current or potential stake, either directly or indirectly, in any entity in which the organization has a transaction or business arrangement. It might be beneficial to evaluate the composition of the Board to assess whether it is truly an independent presence or if the majority is family members related to management.  There may not be anything wrong with having a large number of family members involved in the organization, but it is important to anticipate future conflicts of interest.

New User Fee Schedule for 2006

The Internal Revenue Service (IRS) recently announced increases in selected user fees.  In addition to user fees, this also includes fees for letter rulings and determination letters for Employee Plans (EP) and Exempt Organizations (EO) for 2006.  The increases to the user fees will be in two phases.  The first phase of increases became effective February 1, 2006 and the second phase will go into effect on July 1, 2006. The following is a summary of the increases:

The two increases that became effective on February 1, 2006 are:

•        EP letter ruling fees increased to a range between $200 and $14,500.

•        EO letter ruling fees increased to a range between $275 and $8,700.

The increases that will be effective beginning July 1, 2006 are:

•        Under the revised and centralized EP determination letter program, fees for opinion and advisory letters and determination letters involving Forms 5300, 5307, and 5310 will increase to a range between $200 and $15,000 from the current range between $125 and $6,500.

•        EO fees for determination letters and requests for group exemption letters, which currently range from $150 to $500, will increase to between $300 and $900.

The IRS further notes that EP compliance correction fees under the Employee Plans Compliance Resolution Systems (EPCRS) are not included in this procedure and will remain at their current levels.  Neither will Exempt Organizations be issuing rulings on:

•        EO joint ventures with a for-profit organization

•        Qualifications of state run programs under Code section 529

Federal agencies have been directed by the Office of Management and Budget (OMB) to charge user fees reflecting the full cost of providing goods or services when the benefits to the recipient otherwise exceed those received by the general public. The new fee structure more accurately reflects the resources expended, as many IRS user fees have remained unchanged for years.  The IRS continues to be sensitive to the financial resources of smaller organizations despite the increased fees.  

For more information, please visit www.IRS.gov

Planned Revisions to Government Auditing Standards

By late Spring 2006, the GAO plans to issue an exposure draft that would revise the Yellow Book. Some of the anticipated revisions include reporting modifications due to proposed changes to SAS No. 60, Communication of Internal Control Related Matters Noted in an Audit, for periods ending on or after December 15, 2006. Once the draft is released, the GAO then plans to finalize changes to the Yellow Book in Fall 2006. The changes to SAS No. 60 will also affect OMB Circular A-133 requirements, although OMB has not yet released information about any planned changes or their timing. Once the revisions to SAS No. 60 are issued and revisions to the Yellow Book and OMB Circular A-133 are released, the AICPA plans to issue revised reporting examples. Auditors should be alert for the issuance of the final SAS, Yellow Book, and OMB Circular A-133 changes, and revised report examples. For future developments, please check for postings on the AICPA’s website at www.aicpa.org, the GAO’s website  at www.gao.gov/govaud/ybk01.htm and OMB’s website at www.whitehouse.gov/omb/grants/index.html.

Understanding the New Tax Law

On May 17, 2006 President Bush signed into law several key tax provisions. The Tax Increase Prevention and Reconciliation Act (TIPRA) will extend the reduced tax rates on capital gains and provide alternative minimum tax (AMT) relief to millions. In addition, the new bill includes a controversial provision that will make Roth IRAs available to all taxpayers regardless of income levels.  The following is a summary of the key provisions and how they will affect you.

The new provisions will provide greater AMT relief by increasing the AMT income exemption levels for tax year 2006. Under the new law, taxpayers may now use their nonrefundable personal tax credits to offset AMT liability. The new exemption increases are as follows: $42,500 for single or head of household filers (up from $40,250), $62,550 for joint filers (up from $58,000), and $31,275 for those who are married and file separately (up from $29,000).

The fifteen percent rate on long-term capital gains and qualified dividends that was set to expire in 2008 has now been extended an additional two years and will now run through 2010. The rate will drop from 5% to 0% from 2008 to 2010 for low-income taxpayers in the ten percent to fifteen percent tax bracket. 

Small business owners will be happy to hear that Section 179 deduction rules have been extended another two years. Section 179 allows small business owners to immediately deduct the full cost of most equipment and software additions in Year One.  Currently under Section 179, the maximum write-off is $108,000; however the deduction was scheduled to drop to $25,000 after 2007. TIPRA will now extend the current Section 179 rules through 2009.

The most controversial provision to TIPRA is allowing all taxpayers to convert their traditional IRAs to Roth IRAs beginning in 2010. Currently, only those with modified adjusted gross income (MAGI) of $100,000 or less were able to do so. The new provisions eliminate MAGI restrictions in an attempt to raise revenue since IRA holders are required to pay taxes on their accounts when making the conversion.

Increase in Deposit Insurance Coverage

On March 14, 2006 the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved final rules that will raise the deposit insurance coverage on certain retirement accounts at a bank or savings institution from $100,000 to $250,000. This additional coverage became effective on April 1, 2006 and is the result of a new law which increases federal deposit insurance coverage for the first time in over 25 years. Basic insurance coverage for other deposit accounts will remain at $100,000. Under the FDIC’s new rules, up to $250,000 in deposit insurance will be provided for the money a customer has in a variety of retirement accounts, primarily traditional and Roth IRAs (Individual Retirement Accounts), at one insured institution. The increased coverage also applies to self-directed Keogh accounts, “457 Plan” accounts for state government employees, and employer-sponsored self-directed defined contribution plan accounts- primarily 401(k) accounts. In general, “self-directed” means that the consumer chooses how and where the money is deposited.  For more information, see http://www.fdic.gov/news/news/press/2006/pr06029.html