IRS Gives Tax-Exempt Organizations Some Relief and Clarity Regarding Reporting Requirements

June 10, 2020 by

To avoid penalties, negative tax consequences, or loss of tax-exempt status, tax-exempt organizations must comply with a myriad of procedure and disclosure rules. The IRS issued final regulations in Tax Directive 9898 (effective May 28, 2020) disposing of and clarifying certain informational reporting requirements under § 6033 for tax-exempt organizations. These new rules help tax-exempt organizations avoid filing incomplete returns that might subject them to penalties—$20 a day up to the lesser of $10,000 or 5% of the organization’s gross receipts for the year.

Section 6033 requires several information returns from tax-exempt organizations, including reporting the names and addresses of substantial donors. Tax Directive 9898 formalized changes relieving organizations of certain § 6033 filing requirements that had accumulated in past revenue procedures and annual information-return instructions. The IRS chose to remove certain requirements because it deemed annual collection of that information unnecessary for efficient administration of tax laws.

Here is a list of the top things to know about the revisions:

  • Additional items required.  The IRS expanded the list of items generally required to be reported and added other statutory reporting requirements for controlling organizations, sponsoring organizations, and supporting organizations. Specifically:
    • Section 6033(b)(10), which relates to taxes imposed on certain lobbying and political expenditures by organizations described in § 501(c)(3).
    • Section 6033(b)(11), which relates to taxes imposed with respect to an organization, an organization manager, or any disqualified person on any excess benefit transaction under § 4958.
  • Gross receipts filing threshold raised to $50,000.  With few exceptions, § 6033 filing requirements are now triggered if a § 501(a) tax-exempt organization’s gross receipts exceed $50,000. This is an increase from the previously low $5,000 threshold amount. Organizations formed in the U.S. with gross receipts below the annual threshold must still file a Form 990 N e-Postcard every year electronically. However, some organizations (e.g., private foundations and supporting organizations) are not subject to the $50,000 gross receipts threshold and may be required to file information returns annually.
  • Clarification on reporting requirements for § 527 tax-exempt organizations.  Section 527 organizations with gross receipts greater than $25,000 generally are subject to the reporting requirements under § 6033(a)(1) as if they were exempt from taxes under § 501(a).
  • Limits for certain organizations on reporting names & addresses of donors.  Generally, only organizations described in § 501(c)(3) and § 527 organizations must continue to provide names and addresses of contributors on their Form 990, Form 990 EZ, and Form 990 PF. Removing the general requirement to report names and addresses of substantial contributors protects the privacy of contributors and risk of harassment or other reprisals occurring from public disclosure. All tax-exempt organizations, however, must maintain records of the names and addresses of substantial donors to be submitted to the IRS upon request. State regulators, however, may still require some form of disclosure that replaces asking for the Schedule B from their filed returns.

Tax-exempt organizations should analyze their own specific facts and circumstances when considering reporting and disclosure requirements. If you have questions regarding your specific situation, we recommend that you speak with a skilled tax attorney.

Joshua D. Smeltzer
joshua@brownfoxlaw.com

Joshua D. Smeltzer is a tax attorney with over sixteen years of experience representing individuals, corporations, receiverships and formerly the U.S. Government in a variety of tax matters. Mr. Smeltzer uses the first-hand knowledge gained inside the government to both advise and represent clients before and during IRS examinations and when defending tax positions at IRS Appeals or in federal court. He has experience handling individual, corporate and partnership tax disputes involving various tax credits and deductions, reporting and disclosure of foreign bank accounts, individual and corporate tax audits and collection, partnership audits and collection, estate and gift tax audits and collection, cryptocurrency tax issues, summons enforcement and many other tax topics.

 

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Christina Gigliotti
christina@brownfoxlaw.com

Christina Gigliotti is an associate equipped with an appellate and in-house perspective. She clerked for Brown Fox in law school, and upon graduating, served as in-house counsel at a national healthcare corporation. She then moved  to LawProse Inc. working for…Read More

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