Money Matters: Revoked tax exempt status? There is relief

By James W. Rahmlow The Daily Record Newswire After numerous warnings in 2010, the IRS has followed through and revoked the tax exempt status of organizations who had not filed the required informational returns for a period of three consecutive years. Such organizations should have been notified of the revocation of tax exempt status; however, a listing of such organizations is available on the IRS website www.irs.gov. Additionally, posted is a listing of frequently asked questions. For most organizations who have had the tax exempt status revoked (simplified rules exist for small exempts), an application for reinstatement must be made. The conditions for application for reinstatement include filing Form 1023 or Form 1024, paying a user fee and making the application for reinstatement within 15 months of the revocation of the tax exempt status. Generally, the reinstatement date will be the date that the organization filed its application for that reinstatement. The IRS also has the right to make the reinstatement effective from the date of revocation. To qualify for the retroactive reinstatement, the entity must submit an application for reinstatement; explain why they did not file the required three years tax returns and what processes and procedures they have put in place to ensure compliance in the future. Of course, all prior unfiled tax returns must be filed. For small organizations (those with not more than $50,000 of gross receipts), the process is simpler. If the organization applies for reinstatement prior to 2013 and is reinstated, the reinstatement date will be retroactive to the date of revocation. Additionally, these organizations will have to pay a reduced user fee of $100. Listing of qualifying tax exempt organizations Continuing in the line of the information in the previous section, the IRS has updated its list of organizations on which donors can rely when making contributions to tax exempt organizations. The IRS referred taxpayers to Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986. If a donor has a question as to whether an organization is qualifying, the IRS recommends checking their website for updated listings of organizations that have had their tax exempt status revoked. One billion e-filed returns and still going While the IRS didn't get the milestone as fast as they had hoped, on June 10, an announcement was made that the e-File program had passed the one-billion mark for individual tax returns processed since 1986. Originally started as a pilot program, the e-File program became available nationally in 1990. To date, the system has been safe and secure. To my knowledge, there have been no breaches of security since the system has been implemented. In the same general time frame, June 2, the IRS told a House of Representatives subcommittee that it has and continues to strengthen its security system to prevent breaches to the system and identity theft. Filed tax return preparer rules issued The IRS has recently issued its final Circular 230 regulations confirming the IRS' expanded oversight of tax professionals including the newly created category of registered tax return preparers. While the regulations do contain many of the provisions of the proposed regulations, there are some important clarifications and modifications. The final version of Circular 230 makes it clear that ALL tax return preparers are covered by the expanded rules, not just CPAs, EAs, attorneys and other specific tax professionals covered in the previous Circular 230s. In addition to the creation of the new registered tax return preparer designation, the IRS set eligibility requirements for becoming a registered tax return preparer as well as maintaining that designation. Preparers who desire to obtain the registered tax return preparer designation will be required to obtain a Preparer Tax Identification Number and pass a test measuring competency. Additionally these tax return preparers will have to satisfy continuing education requirements. It should be noted that certain supervised individuals will be exempt from the PTIN and competency testing requirements if they are supervised by a CPA, EA, attorney, retirement plan agent or actuary and are employed at the firm of the supervising employee. The continuing education requirement for registered tax return preparers is 15 hours during each registration period (generally 12 months) and must include two hours of tax related ethics. June interest rates In a recent revenue ruling the IRS announced the short term, mid term and long term interest rates for June 2011. Here is a summary of those rates. Applicable Federal Rates (AFR) Short-term Mid-term Long-term 0.46 % 2.25 % 3.98 % Adjusted AFRs Short-term Mid-term Long-term 0.70 % 1.81% 4.09 % Revenue rates for July will be issued in a subsequent revenue ruling. Expiration of FICA surtax Absent congressional action, the 0.2 percent federal employment tax (FUTA) surtax is due to expire on June 30. That means that the current effective rate of 6.2 percent will reduce to a permanent 6.0 percent. The current temporary surtax was extended through 2010 and the first six months of 2011 by the Worker, Homeownership and Business Assistance Act of 2009. The current federal employment tax is currently paid on Form 940, Employer's Annual Federal Unemployment Tax Return. While the form does not provide for the computation using two rates in a split year, the IRS has indicated in the instructions for the Form 940 that updated information on how to report the potentially two different rates will be published and made available on its website www.irs.gov. Quiet disclosure does not cut it for offshore foreign accounts Acknowledging that there were a number of previously unreported foreign accounts by U.S. taxpayers, the IRS announced back in 2009 an Offshore Voluntary Disclosure Program (OVDP), where taxpayers could come clean, pay any required tax and pay minimal or reasonable penalties and interest. However, the IRS made it clear that the OVDP must be filed. In May, the Department of Justice charged a venture capitalist with failing to report his account and the income. The taxpayer attempted their own method of compliance, which was to amend tax returns following the announcement of the OVDP. While the amending process might be construed as attempting to comply, it lacked certain of the key features of the OVDP and likely understated the balance due to the IRS for the compliance period. The clear method from the Department of Justice is that quiet disclosure, at least in this case, did not comply with OVDP and thus was not an acceptable alternative. ---------- James W. Rahmlow, a certified public accountant, is a partner with Mengel, Metzger, Barr & Co. He can be contacted at jrahmlow@mmb-co.com. Published: Tue, Jun 28, 2011