IRS Approves Form 990 6-month automatic extension

Effective for organizations with a December 31, 2016 year end and later, the IRS will now grant an automatic 6-month extension for Form 990 filings.  For these calendar year ends, their returns will automatically be extended to November 15, 2017.  This will replace the current system of an automatic 3-month extension and then requesting an additional 3-month extension. 

Why small nonprofits should sell donated stock immediately

Small organizations should consider selling donated stock immediately upon receipt. Receiving donated stock and selling it months later within the same year has the potential to place a tax filing burden on a small organization. 

This is why.  GAAP (ASU 2012-05) allows donated stock that is converted to cash “nearly immediately” to be reported as operating cash flows.  In other words, this type of stock donation is considered a cash donation.  However, when the nonprofit holds donated securities for an extended period before selling the stock, the transaction is reported as either an investing or financing activity. 

This means that when donated stock is reported as operating cash, the proceeds of the sale are not reported on Form 990, only the contribution is reported.  But when donated stock is held beyond the “immediate” time frame and sold, the following occurs: 1) the receipt of the noncash item is reported in income, and 2) the sales proceeds from the stock is also reported in the income producing activities section of Form 990.  Since proceeds from stock sales are used to determine gross receipts for tax filing purposes, holding on to donated stock beyond an “immediate” period can result in a greater gross receipts number than if the nonprofit sold the stock immediately. 

Since the stock gift revenue is essentially “recognized” twice in the latter scenario -- when the contribution is made and then when gross proceeds are reported at the time the stock is sold-- a small organization that usually files Form 990EZ (under $200,000 in revenue) could have its gross receipts number pushed beyond the 990EZ filing threshold and be required to file Form 990.  The more complicated filing could place a financial burden on a small organization in terms of preparer cost and staff time needed to gather the information needed to file the full 990.

Requirement to Notify the IRS of Intent to Operate Under Section 501(c)(4)

Social welfare organizations that wished to operate under 501(c)(4) could self-declare their intention without filing Form 1024, the application for recognition of tax exemption, or otherwise notifying the IRS.  Not so any longer. 

The IRS is requiring all new 501(c)(4) organizations to notify them of their intent to operate as a section 501(c)(4) organization within 60 days of their formation.   The notification is done by electronically submitting Form 8976 – Notice of Intent to Operate Under Section 501(c)(4).  Filing Form 1024 does not relieve a 501(c)(4) organization from filing the Form 8976; however, in addition to Form 8976, an organization may also file a Form 1024 for formal recognition of 501(c)(4) status. 

This new requirement does not apply to organizations that, on or before July 8, 2016, have done at least one of the following: 1) applied for recognition of 501(c)(4) status by filing Form 1024; or 2) filed at least one annual information return (990, 990EZ or 990N). 

Please contact us if you have any questions.