December 2016

As 2016 comes to an end, the Edelstein nonprofit team would like to wish you and your family a warm holiday season and a happy 2017.

The injunction blocked changes to overtime regulations proposed by the Department of Labor that were set to go into effect on December 1. The rule changes were to, among other things, double the salary threshold for workers receiving overtime pay from $23,660 to $47,476 and establish a mechanism to update salary levels every few years. 

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In an effort to maximize the use of its resources, the Tax Exempt and Governmental Entities Division (TE/ GE) is now seeking to identify returns for examination based upon specific issues. The IRS has abandoned its previous approach of sub-sector investigation projects. The electronic filing of Form 990 has made it easier for the IRS to analyze data in such returns and identify areas of interest. The IRS analytical program uses between 160 and 200 questions or factors to test all Forms 990 for potential tax compliance issues. The majority of nonprofit organizations selected for examination are now selected based on searches of this data.  During the first 9 months in 2016 of reviews and examinations, the following issues have been investigated by the IRS:

• Discontinued operations
• Private inurement
• Political and legislative
• Unrelated business income
• Employment taxes
• International activities

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Sponsorship arrangements between business entities and exempt organizations (EOs) provide a major revenue source for EOs. If certain guidelines are observed in structuring the sponsorship contract, the resulting income will not be unrelated business income (UBI). The rules are complex, but inadvertently creating UBI can be avoided by following the guidelines.  We recommend that nonprofits that engage in sponsorship arrangements, document the process they use to determine whether these transactions are UBI or not.

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