Tax Planning and Compliance for Tax-Exempt Organizations. Jody Blazek
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Division, Employee Plans Rulings and Agreements, and the procedures that apply to requests for determination letters and private letter rulings.
EXEMPT ORGANIZATIONS
Rev. Proc. 2021-5, page 250.
This revenue procedure sets forth procedures for issuing determination letters on issues under the jurisdiction of the Director, Exempt Organizations (EO) Rulings and Agreements. Specifically, it explains the procedures for issuing determination letters on tax-exempt status (in response to applications for recognition of exemption from Federal income tax under § 501 or § 521 other than those subject to Rev. Proc. 2021-4, this Bulletin (relating to pension, profit-sharing, stock bonus, annuity, and employee stock ownership plans)), private foundation status, and other determinations related to exempt organizations. These procedures also apply to revocation or modification of determination letters. This revenue procedure also provides guidance on the exhaustion of administrative remedies for purposes of declaratory judgment under § 7428. Finally, this revenue procedure provides guidance on applicable user fees for requesting determination letters.
p. 14. Replace first two sentences in second paragraph with the following: Organizations not organized for profit, but operated exclusively for the promotion of “social welfare,” qualify for exemption from income tax. 1 Effective January 5, 2021, a new entity seeking to obtain recognition as a tax-exempt §501(c)(4) organization may electronically file Form 1024-A and pay fees on www.pay.gov.2 It is important to note, however, that their application seeking recognition is not required for U.S. tax reporting; exempt status is permitted so long as qualifications exist. Form 1024, however, may be required and useful for certain state tax purposes. Procedures for filing the request for recognition are regularly updated by the IRS.
A request for expedited handling of the application can be submitted. The request must be indicated on the form and a supporting written statement describing the circumstances and need for fast recognition should be submitted with the completed application. The individual or representative the entity authorizes to sign Form 1024-A under a Power of Attorney must be an officer, a director, a trustee, or other official who is authorized to sign for the organization. A (c)(4) applicant was given 90 days beyond the announcement date to file the new Form 1024-A. Importantly, Form 8976, Notice of Intent to Operate Under Section 501(c)(4), continues to be required.
p. 25. Add new subsection:
§ 1.8 Developments Responding to COVID-19
Disruption of the normally smooth-running tax reporting and collection system in the United States due to events surrounding the COVID-19 pandemic beginning in March 2020 was extensive and in some ways disturbing in retrospect. In a humane way, we turned our attention to distancing and masking and other steps taken to curtail the viral spread.
We were filled with empathy and concern to stop the spread by protecting ourselves and citizens and establishing practices to do so.
(a) CARES and SECURE Acts
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27. The $2 trillion stimulus bill was intended to provide financial relief to individuals and businesses directly affected by the coronavirus pandemic. Cash payments went to individuals earning below the income level listed below, along with grants to businesses. Awards of $1,200 per individual or $2,400 per couple plus an additional $500 for each qualifying child were paid. Eligible awardees were those with income below an income phase-out based on adjusted gross income (AGI) beginning at $75,000 per individual and $150,000 per couple. Qualification was based on the individual's or couple's most recently filed income tax return. If the cash was not needed for immediate short-term expenses, it could be used to pay down debt, invest in the stock market, or donate to a charity, local business, or a family member who “may need it during this challenging time.”
Extension of Filing Due Dates. The deadline for individuals to file 2019 income tax returns and pay balances of income tax due on April 15 was separately delayed by executive order until July 15. The CARES Act extended the deadline to make an IRA contribution to July 15. This delay plus the CARES Act grants provided immediate cash flow relief for some to take advantage of the extended IRA due date.
The age at which required minimum distributions (RMDs) are required was raised.
The first required minimum distribution is now required for the year in which one turns age 72 (70½ if you reach 70½ before January 1, 2020). The first payment deadline was delayed until April 1 of 2020 for anyone who turned 70½ in 2019. If you reach 70½ in 2020, you have to take your first RMD by April 1 of the year after you reach the age of 72. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.
Mandatory withdrawals were suspended for 2020. Those who had already taken a 2020 RMD from a retirement account had 60+ days to return the money. The original withdrawal was treated as a rollover to an IRA and not to be treated as a taxable distribution.
SECURE Act. The age requirements were similarly amended by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) effective on December 20, 2019. For defined contribution plan participants or Individual Retirement Account (IRA) owners who die after December 31, 2019, the SECURE Act requires the entire balance of the participant's account be distributed within 10 years. There is an exception for a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person, or a person not more than 10 years younger than the employee or IRA account owner. The new 10-year rule applies regardless of whether the participant dies before, on, or after the required beginning date, now age 72. Roth IRAs do not require withdrawals until after the death of the owner.
While there is no provision that allows individuals to retroactively put a distribution back into their IRA account, an opportunity to do so was provided. Those who had already taken their 2020 RMD from an IRA had 60 days to return the money. The original withdrawal was treated as a rollover to an IRA and not to be treated as a taxable distribution.
Charitable Contributions. To incentivize additional charitable contributions to those organizations supporting and aiding those most affected by the virus, enhanced donation limitations were included:
Up to $300 of charitable cash contributions can be taken as a deduction against adjusted gross income (AGI), regardless of whether or not the individual itemizes.
For 2020, the 50 percent AGI limitation was eliminated, and individuals got a charitable contribution deduction for up to 100 percent of a person's AGI, for cash (not appreciated property) contributions.
Small Businesses. Small businesses have been some of the hardest hit as a result of the coronavirus pandemic. The CARES Act introduced many provisions to assist these small businesses, including:
Employers receive a credit for their portion of the payroll tax (7.65 percent) up to $10,000 of wages per employee if the business has been impacted by COVID-19 or if revenue is 50 percent lower than the same quarter in 2019.
Payment of the 2020 payroll tax can be delayed, with 50 percent of the payroll tax due paid in 2021 and 50 percent in 2022.
Economic Injury Disaster Loans (EIDLs) are business loans for up to $2 million at an annual interest rate of 3.75 percent, with the first payment not due for one full year. If you apply for an EIDL, you can also apply for a $10,000 grant toward working capital. These loans can be used to pay and retain employees, make lease payments, pay operating costs, and so forth.
Small business owners may qualify