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Form 990, once a relatively simple form, has been completely rewritten and become more complex. Not only are CPAs required to perform numerical computations, but they must now answer probing IRS questions.
Objectives:
Prerequisite: None
In this video, moderator Julie L. Floch, CPA, closely reviews Form 990 with Diane Cornwell, CPA, founder of Starfish Consulting Group in Crestwood, KY; and Robert R. Lyons, CPA, managing director of Tax Services, Nonprofit Group, of Marks Paneth & Shron LLP in New York, NY and author of this course.
(179-min. video) The DVD disk contains the video presentation and a viewable copy of the Manual.
The Additional Manual is for group study training only. Unlike other formats, it has no exam answer sheet and cannot be used to earn self-study credit.
Accepted for YB and EA credit.
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Organizations Not Required to File Form 990
The entire issue of who has to file becomes particularly confusing when combined with a narrow set of rules on who does not have to file. The exception to the exception is a supporting organization described in Code section 509(a)(3). These organizations are required to file under any and all circumstances, without regard to a minimum. The filing requirements become more complicated due to a group of exempt organizations that have to file a Form 990-N unless they voluntarily file another form. These organizations include
• A church-affiliated organization that is exclusively engaged in managing funds or maintaining retirement programs and is described in Rev. Proc. 96-10, 1996-1 C.B. 577.
• A foreign organization, including organizations located in U.S. Possessions, whose gross receipts from sources within the U.S. are normally $25,000 or less.
• A black lung benefit trust described in Code section 501(c)(21). Instead, this type of organization is required to file Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons.
In addition to the types discussed above, there is a broad range of other organizations not required to file Form 990, Form 990-EZ, or Form 990-N. These include
• A church, an interchurch organization of local units of a church, a convention or association of churches, or an integrated auxiliary of a church. (Example. Women's or men's organizations, religious schools, mission societies, or youth groups.)
• A church-affiliated organization that is exclusively engaged in managing funds or maintaining retirement programs and is described in Rev. Proc. 96-10, 1996-1 C.B. 577.
• A school below college level affiliated with a church or operated by a religious order.
• A mission society sponsored by, or affiliated with, one or more churches or church denominations, if more than half of the society's activities are conducted in, or directed at, persons in foreign countries.
• An exclusively religious activity of any religious order.
Note. If you are working with or plan to work with religious organizations, the AICPA offers an excellent course on working with faith-based organizations. While the course is designed as an accounting course rather than a tax course, it offers excellent insight and provides information relating to the tax aspects of religious organizations.
The entire issue of "church" and "church-related" can be quite perplexing. In the section Glossary of Terms, a rather basic definition of "church" is given. However, determination is not that simple. There is a significant difference between religious and faith-based organizations. While all religious organizations are faith based, not all faith-based organizations are religious.
This can make the difference between having to file a Form 990 and not having to file a Form 990. Faith-based organizations are required to file if they otherwise meet the requirements, and religious organizations are not required to file unless they choose to do so voluntarily. For example, Catholic Social Services or Lutheran Social Services, upon examination, appear clearly to be faith-based organizations. However, first and foremost they are part of either the Catholic Church or the Lutheran Church, respectively.
One of the most significant cases in this area is Lutheran Social Services of Minn. v. U.S., 54 AFTR 2d 84-5199. LSSM provided services including child care, adoption services, family and individual counseling services, residential treatment services for the emotionally disturbed, residential treatment services for mentally challenged adolescents and mentally challenged adults, residential treatment services involving a community-based correctional program for young male felons, a nutrition program for the aging, a camp for mentally and physically impaired individuals, community counseling programs, resettlement programs, and a chaplaincy program. The case provides excellent insight as to what constitutes church, church-related, and church auxiliary. The IRS initially contended that these programs were, for the most part, secular, while LSSM insisted the services were not religious but were "religiously motivated, manifestations of religious beliefs, forms of worship, and means of propagation of the Christian faith according to the tenets and practices of the Lutheran Churches by which the plaintiff is owned and controlled." LSSM fully agreed that many of the services they performed would be considered secular if performed by a non-religious organization. While the Court determined that LSSM was not part of the church in the sense of performing ecclesiastical duties, they decided in favor of Lutheran Social Services, on appeal, on the grounds that LSSM was a "church auxiliary" and, as such, they were not required to file a Form 990.
Once the issue was settled that LSSM was not a church, the second issue dealt with whether they were an "integrated auxiliary" of a church. Code section 6033(a)(3) also provides exemption from the filing requirements to "integrated auxiliaries" of a church. In the final Regulations implementing 6033, the Treasury Department defined "integrated auxiliary" as follows [Regulation 1.6033-2(g)(5)(i)]:
• An organization which is exempt from taxation as described in Code section 501(c)(3);
• Which is affiliated (within the meaning of paragraph (g)(5)(iii) of this section) with a church; and,
• Whose principal activity is exclusively religious.
In LSSM's case there was no question regarding qualification under the first two criteria. The problem was the meaning of the third criterion. The Regulations define "exclusively religious" from a negative point of view by outlining what it is not. According to Regulation 1.6033-2(g)(5)(ii), an organization's principal activity will not be considered exclusively religious if that activity is educational, literary, charitable, or an other nature (other than religious) that would serve as a basis for exemption under Code section 501(c)(3).
An issue often arises with church-related activities when there is no clear dividing line between church and secular activities, it being implied that churches are not required to file Form 990 and separate, unrelated activities are required to do so. The potential solution to the question of nexus is addressed in Regulation 1.6033-2, which discusses the various situations in which a return is not required. For the most part, the question of nexus rests on whether the affiliated organization is an integrated auxiliary of a church. The entire issue rests on a series of definitions.
For the purpose of determining nexus, the term "integrated auxiliary" of a church means an organization that is
• Described both in Code section 501(c)(3) and further defined in Code sections 509(a)(1), (2) or (3);
• Affiliated with a church, or a convention or association of churches; and
• Internally supported.
Affiliation
An organization is affiliated with a church, or a convention or association of churches, if the organization is either covered by a group exemption letter including both the church and the organization, or the organization is operated, supervised, or controlled by or in connection with a church or a convention of churches. This is primarily a facts and circumstances test. Under "normal" circumstances, relevant facts and circumstances that indicate an organization is affiliated with a church, or a convention or association of churches, include the following factors:
• The organization's corporate charter, trust documents, articles of association, etc., affirm that the organization shares common religious doctrines, principles, disciplines, or practices with a church or a convention of churches;
• A church, or a convention or association of churches has the authority to appoint or remove, or to control the appointment of, at least one of the organization's officers or directors;
• The corporate name of the organization indicates an institutional relationship with the church or convention of churches (i.e., Lutheran Social Services, Catholic Social Services, St. Agnes School, etc.);
• The organization reports at least annually on its financial and general operations to a church or a convention or association of churches;
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