Our clients keep us on our toes! Because we encourage them to call us when they have a problem and we generally don’t charge for phone calls, we get a steady stream of questions posed to us by our clients and friends.
Most of the questions are quite routine, dealing with things common to all churches: whether or not a particular employee qualifies for a housing allowance or if a designated gift should be treated as a deductible contribution. But occasionally something new comes along.
PSK hosts a monthly breakfast for church business administrators where in addition to a delicious meal the attendees are treated to a discussion of a topic relevant to church business administration. In May our breakfast was billed, “Know Before You Go” and we discussed things that must be considered when planning a short term mission trip. For example what do you do if a member asks for contribution credit for paying for a specific individual to go on the trip? We also covered trip organization (passports, visas, shots etc.), paymaster responsibility and record keeping and insurance.
But, something I was asked recently made me aware we had left something out. “We are sending money to a mission group in Africa. Can we get in trouble with Homeland Security?” Turns out they and other churches funding ministries like schools, hospitals and orphanages, should be concerned.
Now, I don’t want you to get overly concerned. The reality is that it is unlikely that a church will have its assets frozen or exempt status threatened by funding an orphanage. Provided, of course, it takes minimum precautions. Here’s just a few:
The recently signed $700 billion economic bailout bill (H.R. 1424, The Financial Rescue Package), includes a two-year extension of the IRA Rollover provision.
The provision will be made retroactive to January 1, 2008, and will apply to gifts made from that date through December 31, 2009.
The special legislation allows you to make charitable gifts directly ("rolled over") from a traditional or Roth Individual Retirement Account (IRA) without incurring federal income taxes. The following limitations apply:
- The donor must be age 70 1/2 or older.
- The cap on annual IRA rollovers is $100,000.
- The contribution must be a direct gift to a charity (no planned gifts.)
The exclusion from income applies only to a distribution that is otherwise includible in income. The account the owner is not allowed a deduction for the contribution.
The IRA Rollover was originally included in the Pension Protection Act of 2006.
Typically an employee of the church would not perform contract services. Therefore all income should be reported on the employee's W2 as opposed to a 1099. However, there is an exception if the employee is in a "transition" year. This occurs when an employee retires from the church and subsequently performs contract services in the same calendar year.
For example, an executive pastor retires from the church in June of 2008. During July through December of 2008 the retired pastor performs several speaking engagements for the church for a fee. In this situation the retired pastor would receive a W2 for their compensation from January to June and also a 1099-misc for the fees received for their speaking engagements performed from July to December. Box 7 of the 1099-misc would be checked for speaking engagements.
In this situation it is still imperative that the church apply the employee vs. contractor tests in order to make sure that the retired pastor is in fact acting as a contractor and not an employee.
It is getting to be that time of year to prepare for your year-end payroll processing. Have you ever been a lucky recipient of a letter from the Social Security Administration stating that you have reported incorrect names or social security numbers on your W-2's? Do you have a process in place to ensure you don't receive this letter?
Do you know where your original IRS application for exempt status is located? Do you need a copy for your records? Do not fear the IRS can help. You can file a Form 4506A Request for Public Inspection or Copy of Exempt or Political Organization IRS Form. You can find this form at the IRS's website http://www.irs.gov/pub/irs-pdf/f4506a.pdf.
The form is fairly straightforward (at least from my accountant's point of view). When completing the form just add the following to the Line 5 Reason for Request:
"We need a copy of the original determination letter and Form 1023 for the organization's permanent file."
Make sure to check the boxes in Line 6 "Form 1023" and "Copy".
We recommend that you have a copy of your Form 1023 and IRS Determination Letter in your permanent file. The IRS granted your organization exemption based on the information you provided in your application. It is your responsibility to notify the IRS of any changes that you make as your organization develops. You can report minor changes on your annual Form 990. Significant changes need to be addressed with the IRS before they occur. Make sure to contact your CPA if you need to report significant changes to the IRS.
The IRS issued the revised Form 990 and Form 990-EZ during the past year. It is effective for 2008 tax years which are filing in 2009. To say that the IRS made a few changes would be an understatement. The IRS completely changed the look of the form and now requires information not previously required. The new Form 990 is 11 pages and has additional schedules that you may be required to complete.
Check it out at http://www.irs.gov/charities/article/0,,id=185561,00.html.
The Form 990EZ is a condensed version of the new Form 990 which is available to taxpayers that fall under a certain threshold. It is 4 pages and has additional schedules that you may be required to complete.
The IRS is allowing organizations time to adjust to the new forms by changing the filing requirements for three years. You will want to see what you are required to file in 2009 and the years following. We are finding some our Form 990 clients have an opportunity to file the Form 990-EZ which reduces the reporting significantly.
You can find the IRS phase in of filing requirements at http://www.irs.gov/charities/article/0,,id=184445,00.html.
What are we recommending?
We are suggesting clients get up to speed on the new information that is now being requested from the IRS. To help our client with this, we are hosting an informational session on January 13th from 8 – 10 am. We encourage you to contact us if you would like to attend. You do not have to be a client. We also suggest that you take a few minutes to watch the IRS’s web-based mini-course on preparing to file the new Form 990.
It’s not unusual for church groups to have raffles as fund-raising events. And sometimes the prizes can be quite large!
Some things to remember:
1. Generally, if the prize is more than $600, the group awarding the prize MUST report it to the IRS. Use IRS Form W-2G.
2. If the prize is more than $5,000, the group awarding the prize must also withhold federal income tax, and forward the amount to the IRS.
a. If it’s a cash prize, you reduce the prize by 25% and remit that amount to the IRS.
b. If it’s a non-cash prize, you should obtain 25% of the value of the prize from the winner before giving him/her the prize.
3. In some states, Texas for example, it is illegal to offer cash prizes for raffles.
FYI, a friend of mine won $15,000 in a church raffle last month!!! From what I understand, the church gave him five $3,000 checks, thinking this would skirt around the IRS requirements. No withholding; and the church didn’t even get his Social Security number for reporting purposes. So, if the IRS doesn’t know, I wonder if my friend will report the winnings all by himself! I’ll let you know what I find out.
The information on this blog is of a general nature and should not be construed as professional advice. It is provided solely for the convenience of our clients and the public. The opinions of the authors are not necessarily those of the firm.
Communications sent to the firm via this blog or via the Internet may not be secure and may be intercepted by other parties. Imparting this information does not constitute a client-accountant relationship nor does the transmission or receipt of any e-mail sent through this blog constitute or create, in any way, a client-accountant relationship or a job application.
Further, unless specifically engaged to perform a service (in writing, in a formal, signed engagement letter between the client and the firm) it should not be construed that the service will be performed by the firm. The firm offers multiple levels of services to clients. Client engagements will vary with regard to depth and level of each and every service as agreed prior to performing the services. A client should always refer to the signed engagement letter to understand the specific services the firm agrees to provide and the scope of those services. Past results afford no guarantee of future results.
Certain links on this blog lead to servers maintained by individuals or organizations over which we have no control. This firm makes no representations or warranties regarding the accuracy or any other aspect of the information located on such servers.
Unless otherwise noted, all information on this blog is the property of this firm. Unauthorized use will be subject to legal action. IRS Circular 230 Notice
To the extent this blog or files available within it concern tax matters, the information is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law or in promoting, marketing, or recommending to another party any transaction or matter addressed. Indemnification
As a visitor to this blog, you agree to indemnify the firm, and its officers, directors, employees, agents, distributors, and affiliates from and against any and all third party claims, demands, liabilities, costs, or expenses, including reasonable attorney’s fees that arise from your use or misuse of this site.
Comment Policy
The firm appreciates its readers and thanks them for adding to the discussion. It realizes though that everyone may not agree with a particular post and welcomes free and spirited debate. The firm is not responsible for commenter opinions.
The firm encourages comments including those that challenge us or offer constructive criticism, and we reserve the right to edit or remove any post, for any reason. The firm will delete any comments with content that:
is abusive
is off-topic
contains ad-hominem attacks
promotes hate of any kind
uses foul language (we are a G-rated blog)
is blatantly spam
Comments, once contributed, may be used by the firm at any time in any way, with attribution to the contributor.
Nonpublic Personal Information We Collect
The firm may collect nonpublic personal information about visitors to the site that is either provided to us by you or obtained from standard website traffic statistic gathering software.
After viewing our website or reading one of our brochures we are often asked this question. Evidently, it is a little perplexing to some why a CPA firm would choose a frog as its mascot. So, as we inaugurate this blog the first thing I want to do is “explain the frog.”
First, the frog is not a mascot.
We don’t have a firm mascot; never have and probably never will. But, if we did, it certainly wouldn’t be a frog! Who would choose a frog as a mascot? Oh, I know Texas Christian University’s football team is called the Frogs, but they’re not frogs at all–just a fierce looking lizard.
So, let me tell you what the frog is all about.
While searching images on Yahoo one day, in an attempt to find ideas for a new firm brochure, I came upon a picture that not only caught my eye but also reminded me of something. The picture was of a little green tree frog desperately hanging from a tree branch for dear life. This picture reminded me of the plight some church business administrators find themselves in.
I will never forget the first time I sat in on one of Dr. Judy Stamey and Dr. Bill Caldwell’s NACBA certification seminars. To say I was moved as I heard one administrator after another share their struggles is an understatement. Many of them were just like the frog in the picture, hanging on for dear life.
That’s why we chose the frog. It represents the plight many administrators tell us they find themselves in. And, it reminds us of the role we serve here at PSK–helping churches and administrators move safely off the limb they are clinging to and back to safety.
