Did your favorite non-profit just lose its tax exempt status?



Please giveNon-profits are formed all the time to advance a purpose to better the world or support a cause.  While the philanthropic goals are wonderful. the record-keeping behind them is often spotty or non-existent. The result of bad record keeping?  The IRS has just revoked the tax exempt status of 275,000 charities nationwide, 7800 of which are here in New Jersey. (Look at the list here to see if your favorite non-profit no longer is one)

By way of background, it used to be that small charities didn't have to file a federal income tax return.  That was changed starting in 2007, when all charities became required to file a Form 990-N.  The deadline for all those filings was October 15, 2010.  For any non-profit that didn't file, their tax exempt status was just pulled by the IRS.

What does this mean to the charity?  If they aren't tax exempt, then they need to start paying state sales tax on purchases, and file/pay income tax on earnings.  The IRS does have a reinstatement procedure in place for small charities with annual gross receipts of $50,000 or less in 2010. Per the IRS website “The relief allows eligible small organizations to regain their tax-exempt status retroactive to the date of revocation and pay a reduced application fee of $100 rather than the typical $400 or $850 fee. Full details are available in Notice 2011-43, Notice 2011-44 and Revenue Procedure 2011-36, issued today”

What does this mean to you, a supporter of the charity? Well, any contributions that you make are no longer deductible on your income taxes. If you report the deduction, and then the IRS says that your non-profit isn’t a charity, you could owe additional income taxes, with interest and penalties.




NJ Business Owners on the lookout for State Tax Credits

Trenton is offering expanded tax credits to New Jersey businesses who are hiring or expanding. NJ.com reports that N.J. firms snap up revamped tax break "Lured by more money and looser requirements, New Jersey businesses are lining up take advantage of a revamped tax incentive program aimed at keeping jobs in the state."

The numbers are impressive.  The article reports that:

So far this year, 16 companies have received a total of $44.1 million in tax breaks for retaining 6,000 jobs, and several others have won preliminary approval by the state's Economic Development Authority.
During the same period last year, five companies received $1.4 million in tax breaks for keeping about 1,400 jobs in the state.

Two key areas of change:

* Tax credits issued for retaining employees, not just hiring new ones

* Commercial tenants (as opposed to land owners) having a sales tax exemption on all equipment purchases and property improvements financed through a lease arrangement with the landlord.


Gifts of Real Estate really are Gifts - and the IRS is looking for them

House Gift TaxesTypical scenario – Client’s child comes in and advises “Oh – and I own (all or part of) my parents’ house.” For some reason the fact that they own another parcel of real estate is normally an afterthought. This leads to more questions, such as “How did you get the real estate?”, and “Why?”. Some reasons might include:

  • Mom was afraid of losing the house if she got sick
  • Dad was going through a divorce
  • Mom and Dad didn’t want me to pay taxes

All of these situations might be great reasons to consider transferring a house, but there are many implications to a transfer of real estate, one of them being gift taxes. The next question we ask might be “Did your parents file a gift tax return?”. And the common answer … a blank look.

A Gift Tax Return (Form 709) is required to be filed in any year where gratuitous transfers to any given person exceed the Annual Gift Tax Exclusion Amount (presently $13,000 per person). If Mom gives you a house, she is likely to have given you more than $13,000. The Gift Tax Return (Form 709) must be filed even if no actually tax (i.e.: writing a check to the IRS) is due. So, if Mom gave you a house worth $313,000, she needed to file a Gift Tax Return (Form 709) to reflect the $300,000 gift in excess of her Annual Gift Tax Exclusion Amount, even if the Lifetime Gift Tax Exclusion Amount is large enough to shelter the gift from taxes.

What is the Lifetime Gift Tax Exclusion Amount? That is the amount over and above the Annual Gift Tax Exclusion Amount (presently $13,000 per person) you can give away during your lifetime without writing a check to the IRS. The Lifetime Gift Tax Exclusion Amount was $1,000,000 from 2001 to 2010, is $5,000,000 for 2011-2012, and is scheduled to return to $1,000,000 (adjusted for inflation) in 2013.

“So what?” a person might say. “If I don’t have to write a check for taxes, who cares if I file a tax return?” Well, the IRS cares, and Robert W. Wood reports that the IRS is actively mining deed transfers to find property transfers where no gift tax return was filed.

Why does the IRS care, if no tax may be due? Well, it has to do with how the Federal Estate Tax is computed. When you die, the amount of prior gifts (in excess of the Annual Gift Tax Exclusion Amount (presently $13,000 per person)) is added back into your gross taxable estate to determine the value of your estate for tax purposes. Failure to report a taxable gift during your lifetime can allow your estate to understate the value of your taxable estate upon your death. As a result, the IRS collects less than it’s due – and the Executor may be personally responsible for the tax underpayment.

And why is the IRS looking at deeds now? Robert Wood reports that “After all, with the year-end estate tax compromise, estate and gift tax planning in 2011 and 2012 is going great guns. Many families are giving big.”

So file those gifts tax returns. It’s really not worth it not to. Penalties and interest and personal liability for your poor executor who knew nothing – not a good place to be.

Image: jscreationzs / FreeDigitalPhotos.net

Who stole my tax refund?

Identity theft is now hitting a new playing field - claiming and taking your tax refund.  Larry Margasak at the Associated Press reports today that:

The IRS is grappling with a nearly five-fold increase in taxpayer identity theft between 2008 and 2010, a Government Accountability Office [GAO} official plans to tell a House hearing Thursday. There were 248,357 incidents in 2010, compared to 51,702 in 2008.

Yikes - this is clearly not a minor problem. However, the GAO finds that most identity thieves get away with taking your refund.  The IRS Criminal Investigations Division only prosecutes around 4700 cases total a year for any criminal tax activity.  Note however that their success rate is in the high 90%, so if a revenue officer with a gun ever shows up to ask you questions, you are likely to be the guest of the state for some time.  

Think you might have been a victim of tax identity theft?  The article offers some advice:

Tax form 14039, the IRS Identity Theft Affidavit, allows the agency to mark an account to identify future questionable activity. A task force of the IRS and other agencies established a website, STOPFRAUD.gov, which tells taxpayers what to do if they suspect identity fraud.