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2014 NONPROFIT TAX & LEGAL UPDATE Presented by: Elaine Sommerville, CPA Frank Sommerville, CPA, 2014 NONPROFIT TAX & LEGAL UPDATE Presented by: Elaine Sommerville, CPA Frank Sommerville, CPA, JD

IRS Planned Activities Freedom From Religion v. Werfel – the court determines that the IRS Planned Activities Freedom From Religion v. Werfel – the court determines that the Foundation has standing to challenge the exemption granted to church’s from filing Form 990 Freedom From Religion v. Shulman – the court determines that the Foundation has standing to challenge the IRS on selective enforcement of political campaign activities between religious v nonreligious organizations

IRS Planned Activities (cont. ) Freedom from Religion – Court allows local church to IRS Planned Activities (cont. ) Freedom from Religion – Court allows local church to intervene in political activity case Freedom from Religion -- District Court ruled housing allowance unconstitutional – on appeal to 7 th Cir.

More IRS Issues Determinations - IRS attracts attention due to its irregular processing of More IRS Issues Determinations - IRS attracts attention due to its irregular processing of certain Form 1023 s and 1024 s related to Christian causes and conservative political points of view. New Form 1023 -EZ is now available to file for organizations with planned income of less than $50, 000 in annual income and assets less than $250, 000. See http: //www. irs. gov/pub/irspdf/f 1023 ez. pdf. It must be filed online. See Rev. Proc. 2014 -40. In the Fiscal Year 2015 Objectives Report to Congress, the National Taxpayer Advocate issues severe criticism of the new Form 1023 -EZ due to its lack of any review of an organization’s mission or organizational documents. Additionally, TAS reviews 16 suggestions that were previously made to EO to assist in areas that affect the processing of applications and the current controversies.

More IRS Issues Z Street v. Koskinen, 2014 U. S. Dist. LEXIS 71638 (D. More IRS Issues Z Street v. Koskinen, 2014 U. S. Dist. LEXIS 71638 (D. D. C. 2014). Dismissed by court because IRS granted tax exemption. Z Street claimed that its 1 st Amendment was violated when IRS challenged its support for Israel. New EO Director, Tamera Ripperda, announced at the AICPA conference that one of the new compliance initiatives will look at foreign activities and that the report on the group ruling compliance initiative is not yet ready and is still forthcoming.

Exemption Gone! PLR 201440023 – Contract with for profit company to use intellectual property Exemption Gone! PLR 201440023 – Contract with for profit company to use intellectual property does not jeopardize exemption. PLR 201441017 – Art organization not exempt because it sold member’s works. PLR 201438034 – Charter school landlord no tax exempt.

Exemption Gone! PLR 201433020 – Organization formed to publish study materials for Quran not Exemption Gone! PLR 201433020 – Organization formed to publish study materials for Quran not exempt because it did not own any of the intellectual property that it published. PLR 201433016 – Organization to publish medical school professors’ works was not exempt due to private benefit and inurement. PLR 201433019 – Organization to promote patents of founder not exempt. PLR 201432037 – Revocation of group sponsor revokes exemption for entire group.

Exemption Gone! PLR 201428019 – Organization formed as fundraiser for other organizations is not Exemption Gone! PLR 201428019 – Organization formed as fundraiser for other organizations is not exempt. Capital Gymnastics Booster Club - Exemption denied where club allowed parents to pay fees with cash or allocated fundraising dollars Multiple organizations lose exemptions due to lack of activities

Exemption Denied! PLR 201405024 – No exemption for connecting teachers with for-profit company PLR Exemption Denied! PLR 201405024 – No exemption for connecting teachers with for-profit company PLR 201403018 – Foreign rules apply to foreign stipends

Unrelated Business Income PLR 2014029 – Related merchandise sales are exempt from UBIT. Items Unrelated Business Income PLR 2014029 – Related merchandise sales are exempt from UBIT. Items must specifically relate to exempt purposes. PLR 201405029 – Whether the document is printed or posted on Web, the same tax rules apply.

Payroll Tax Issues Holland – Worker can sue company for misclassification and overtime Central Payroll Tax Issues Holland – Worker can sue company for misclassification and overtime Central Motorplex – Court uses 5 factor test in contract labor case. Jones – Court used 7 factor test in contract labor case.

Payroll Tax Issues Treasury notes that 3. 8% of all nonprofits owe delinquent payroll Payroll Tax Issues Treasury notes that 3. 8% of all nonprofits owe delinquent payroll taxes that total $875 million. Small Business Health Insurance Credit still available if insurance purchased through a state business exchange. Voluntary Worker Classification Program allows employers to change contractors into employees without penalties or back taxes by filing Form 8952

Minister Tax Issues Cortes – Dissolving church causes tax issues for pastor. Corso - Minister Tax Issues Cortes – Dissolving church causes tax issues for pastor. Corso - Minister allowed SE exemption though Form 4361 lost in flood. Freedom from Religion – Section 107(2) is unconstitutional. On appeal. Gardner – Corporate sole justified taxes on church income and SE tax assessment.

Minister Tax Issues Bernstine – Home office deduction allowed for pastor where housing expenses Minister Tax Issues Bernstine – Home office deduction allowed for pastor where housing expenses exceeded housing allowance Rogers – Pastor required to include amounts paid for housing expenses where no housing allowance was designated Gunkle – Corporation sole does not work to avoid taxes, same adviser as Rogers

Charitable Contributions Smith – Without detailed description of items donated, the receipt fails the Charitable Contributions Smith – Without detailed description of items donated, the receipt fails the IRS requirements. Crimi – Deduction allowed though the receipt not signed. Also, though acknowledgment did not contain the exact word “no goods or services were provided in exchange for this gift” court still allowed deduction since it stated the same information

Charitable Contributions Golit – No deduction for contributions to a church in Nigeria since Charitable Contributions Golit – No deduction for contributions to a church in Nigeria since it is not created or organized in the U. S. Korikos v. Commissioner – Court took pity on taxpayer without receipts and allows $500 in charitable contributions out of $5, 000.

Scholarships PLR 201432037 – State beauty pageant was exempt under Section 501(c)(4) but scholarships Scholarships PLR 201432037 – State beauty pageant was exempt under Section 501(c)(4) but scholarships award were not exempt under Section 117.

Health Care Provisions IRS & DOL launch websites dedicated to health care reform DOL Health Care Provisions IRS & DOL launch websites dedicated to health care reform DOL Technical Release 2013 -03 – guidance on HRAs and the 2014 annual dollar limit prohibitions IRS Notice 2013 -57 – Plan won’t fail “high deductible” requirement for HAS simply because it provides for preventative service without a deductible.

Health Care Provisions Religious Exemptions – Hobby Lobby win. But no abortion limitations in Health Care Provisions Religious Exemptions – Hobby Lobby win. But no abortion limitations in California. http: //www. dmhc. ca. gov/Portals/0/082214 letters/aetna 082214. pdf Employer issues 50 or more FTE Access to group health insurance W-2 Reporting for 2015 tax years

Health Care Provisions Health spending accounts will be capped in 2013 at $2500 Stand Health Care Provisions Health spending accounts will be capped in 2013 at $2500 Stand alone HRA or medical expense reimbursement plans must be coupled with qualifying group health insurance in 2014 or they are taxable. Nondiscrimination issues are being raised.

Church Property Issues Episcopal Diocese of Fort Worth withdrew from Episcopal Church in America. Church Property Issues Episcopal Diocese of Fort Worth withdrew from Episcopal Church in America. Texas Nonprofit Corporation Act prevails over canon law. Episcopal diocese of South Carolina. National church owns copyrights and intellectual property.

Employment Cases Herz – Firing teacher for violating church beliefs is actionable under Title Employment Cases Herz – Firing teacher for violating church beliefs is actionable under Title VII gender discrimination. Vaughan – Firing employee for excessive absences violated ADA and Family Medical Leave Act Dunford v. American Databank, LLC – (CA case) Fair Credit Reporting Act may apply to volunteers just like employees. The issue is whether they meet the definition of “employee” as applied by FRCA.

Houston 5 Pastors In May 2014, Houston passes ordinance addressing discrimination on basis of Houston 5 Pastors In May 2014, Houston passes ordinance addressing discrimination on basis of sexual preference, sexual perception and transgendered individuals 400 pastors secure 55, 000 signatures to have ordinance placed before the voters (17, 000 required) City attorney rejected 38, 000 signatures because they were printed or were illegible cursive writing

Houston 5 Pastors Several individuals sued the City to accept the petition 5 non-party Houston 5 Pastors Several individuals sued the City to accept the petition 5 non-party pastors issued subpoenas by City Subpoenas are seeking any documents referencing the issue of homosexuality or gay marriage at anytime Later narrowed to request documents related to petition to submit issues to voters Still being challenged to see if the pastors used fraud or misrepresented the petition to signers

THANK YOU!!!!! Frank Sommerville fsommerville@nonprofitattorney. com Elaine Sommerville, CPA elaine@nonprofit-tax. com THANK YOU!!!!! Frank Sommerville [email protected] com Elaine Sommerville, CPA [email protected] com