With the 2019 hurricane season right around the corner, the IRS is partnering with the National Weather Service to encourage taxpayers to create or update their emergency plans as part of Hurricane Preparedness week.
The IRS noted that in the past 18 months, it has responded to presidentially-declared disasters in 15 states and U.S. territories. Its efforts included providing tax relief and assistance to victims of hurricanes, fires, earthquakes, volcanoes, typhoons, tornadoes, severe storms, high winds and floods.
In IR-2019-87, the IRS reminded taxpayers to prepare for the unexpected and provided helpful tips and information for taxpayers to consider before a natural disaster strikes.
- Annually Update Emergency Plans: The IRS reminds citizens that a natural disaster can occur at any time and, as such, it is important that taxpayers maintain current emergency plans for both their families and their businesses. These plans should be reviewed with family members and employees at least annually and updated whenever a significant change occurs, such as a change in marital status, the size of a family or relocation.
- Back Up Important Documents: Key documents, such as bank statements, tax returns, identification documents and insurance policies, should be stored in a secure location, such as a waterproof container or fireproof safe. The IRS also recommends making copies of these important documents and storing them in secure location, away from the originals. It is also prudent to obtain digital copies of these documents or to scan and download digital copies so that they can be kept on a storage device, like an external hard drive, CD or flash drive.
- Document Home and Valuables: Because natural disasters have the potential to destroy homes and property, the IRS encourages taxpayers to take photographs of their homes and valuable property items. These photos can help substantiate the fair market value of property if filing for insurance or casualty loss claims. Copies of these photographs should be safely stored and backed up in case the originals are destroyed. See IRS Publication 584, Casualty, Disaster and Theft Loss Workbook and Publication 584-B, Business Casualty, Disaster and Theft Loss Workbook for help compiling lists and obtaining photos of personal belongings and business equipment.
- IRS Assistance: In the event of a federally-declared disaster, taxpayers can call 866-562-5227 to speak with an IRS specialist who is trained to handle disaster-related tax issues. If key tax documents have been lost or destroyed, taxpayers can obtain replacements by submitting Form 4506, Request for Copy of Tax Return.
Preserve Charities and Houses of Worship Act Introduced
On May 2, Senators Ted Cruz (R-TX) and Jeanne Shaheen (D-NH) introduced S. 1282, the Preserve Charities and Houses of Worship Act. The bill would repeal portions of Sec. 512(a) that require charities, churches and traditionally tax-exempt organizations to pay unrelated business income tax (UBIT) on qualified fringe benefits.
The bill would repeal Sec. 512(a)(7), which imposes a 21% UBIT on "certain expenses paid by an exempt organization employer for certain employee fringe benefits, including qualified transportation benefits and on-site athletic facilities." This includes things like parking and transit passes.
The bill would also repeal Sec. 512(a)(6), which requires exempt organizations with more than one unrelated trade or business to compute unrelated business income and losses for each unrelated trade or business separately. Before passage of the Tax Cuts and Jobs Act (TCJA), income and losses of multiple unrelated trades or businesses could be calculated together. Now, the loss in one separate business may not be used to offset gains in other businesses.
Senator Cruz explained that, while many Americans benefitted from other aspects of the TCJA, Sec. 512(a) has forced charities, churches and other tax-exempt organizations across the country to pay federal taxes on employee fringe benefits.
Cruz stated, "These organizations help people in need, serve our families and make our communities stronger. This bipartisan bill would repeal this requirement and enable charitable organizations to distribute funds and donations for their intended purpose rather than for paying taxes to the federal government."
Representative Shaheen echoed Cruz's sentiments. She noted, "Places of worship and charities shouldn't bear the burden of a mistake in the 2017 tax bill, which is precisely why this common-sense legislation to right that wrong is urgently needed. This bipartisan bill would help non-profit organizations and faith groups dedicate more of their limited resources to their missions of service for our communities, rather than calculating and paying new taxes that should never have been imposed in the first place."
Tax Exempt Organization Filing Deadline Approaches
In IR-2019-90, the IRS reminds nonprofits and their advisors that the deadline to file Form 990-series information returns is fast approaching. For organizations operating on a calendar year, these information returns must be filed by May 15.
The type of return filed by a nonprofit will depend upon gross receipts, total assets and the type of organization. Nonprofits must file either IRS Form 990, Form 990-EZ, Form 990-PF or Form 990-N (Postcard Return).
If a nonprofit has less than $50,000 in gross receipts, it may electronically file Form 990-N (e-Postcard). Tax-exempt organizations with more than $200,000 in gross receipts or $500,000 in assets must file Form 990, while organizations with less than $200,000 in receipts or $500,000 in assets may file Form 990-EZ. Private foundations must file Form 990-PF.
The IRS encourages nonprofits to file their forms electronically. Not only is the error rate for electronically-filed returns only 1%, filling electronically reduces normal processing time and provides the organization with an acknowledgement that the IRS has received the return.
In addition, the IRS reminds organizations filing Forms 990 that Social Security numbers should not be included on these forms. As the law requires most portions of Form 990 fillings to be publicly disclosed, the inclusion of Social Security numbers and other personally identifiable information about donors, clients or benefactors could give rise to identity theft.
Churches and many church-affiliated organizations are not required to file Form 990. If an organization is required to file and cannot do so before May 15, it may request a six-month extension by filing Form 8868, Application for Extension of Time to File an Exempt Organization Return.
Organizations that fail to file the necessary annual reports for three consecutive years will lose their tax-exempt status. If an organization's tax-exempt status has been revoked, it can apply for reinstatement of its tax-exempt status. For information regarding the federal tax status and filings of certain organizations, taxpayers and organizations can use the Tax Exempt Organization Search (TEOS) tool on the IRS's website, IRS.gov
Applicable Federal Rate of 2.8% for May -- Rev. Rul. 2019-12; 2019-19 IRB 1 (16 Apr 2018)
The IRS has announced the Applicable Federal Rate (AFR) for May of 2019. The AFR under Section 7520 for the month of May is 2.8%. The rates for April of 3.0% or March of 3.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2019, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.