Zondervan 2006 Church and Nonprofit Tax and Financial Guide

by Dan Busby, CPA

• ISBN13: 9780310261834
• ISBN10: 031026183X
• Format: Paperback
• Copyright: 2005-12-30
• Publisher: Harpercollins Christian Pub

Summary

This annual reference guide continues to be one of the few resources offering tax and financial advice to churches and nonprofit organizations. Issues of financial accountability, receiving and maintaining tax-exempt status, accounting for charitable gifts, and other crucial topics receive careful and full discussion.

Table of Contents

Special Index for Church Treasurers	p. v
Introduction	p. viii
Recent Developments	p. 1
Financial Accountability	p. 11
Accountability to an independent board	p. 12
Accountability to donors	p. 19
Tax Exemption	p. 25
Advantages and limitations of tax exemption	p. 25
Tax exemption for churches	p. 27
Starting a nonprofit organization	p. 28
Unrelated business income	p. 32
Private benefit and private inurement	p. 39
Filing federal returns	p. 42
Postal regulations	p. 50
State taxes and fees	p. 50
Political activity	p. 53
Compensating Employees	p. 55
Reasonable compensation	p. 55
Housing and the housing allowance	p. 56
Deferred compensation	p. 61
Maximizing fringe benefits	p. 63
Nondiscrimination rules	p. 84
Paying employee expenses	p. 85
Employer Reporting	p. 95
The classification of workers	p. 95
Reporting compensation	p. 99
Payroll tax withholding	p. 100
Depositing withheld payroll taxes	p. 103
Filing the quarterly payroll tax forms	p. 104
Filing the annual payroll tax forms	p. 107
Refunds and abatements	p. 116
Information Reporting	p. 117
General filing requirements	p. 117
Reporting on the receipt of funds	p. 119
Reporting on the payment of funds	p. 119
Summary of payment reporting requirements	p. 127
Financial Records	p. 129
The money comes in	p. 129
The money goes out	p. 134
Accounting records	p. 137
Financial reports	p. 143
Budgeting	p. 154
Audit guidelines	p. 154
Charitable Gifts	p. 161
Charitable gift options	p. 162
Percentage limitations	p. 166
Gifts that may not qualify as contributions	p. 166
Charitable gift timing	p. 169
Acknowledging and reporting charitable gifts	p. 170
Acknowledging and reporting gifts of autos, boats, and airplanes	p. 179
Quid pro quo disclosure requirements	p. 182
Special charitable contribution issues	p. 187
Citations	p. 207
Index	p. 210
10 Biggest Tax and Financial Mistakes Made by Churches and Nonprofits	p. 213
10 Tax and Finance Questions Most Frequently Asked by Churches and Nonprofits	p. 214
Table of Contents provided by Ingram. All Rights Reserved.

Excerpts

The Zondervan Church and Nonprofit Tax and Financial Guide: 2006 EditionCopyright © 2006 by Dan BusbyFor information write to:Zondervan, Grand Rapids, Michigan 49530Publisher’s note: This guide is published in recognition of the need for clarification of tax and otherlaws for churches and nonprofit organizations. Every effort has been made to publish a timely, accurate,and authoritative guide. The publisher, author, and reviewers do not assume any legal responsibility forthe accuracy of the text or any other contents.Readers are cautioned that this book is sold with the understanding that the publisher is not renderinglegal, accounting, or other professional service. Organizations with specific tax problems should seek theprofessional advice of a tax accountant or lawyer.References to IRS forms and tax rates are derived from preliminary proofs of 2005 forms or 2004 forms.Some adaptation for changes may be necessary. These materials should be used solely as a guide in fillingout 2005 tax and information returns. To obtain the final forms, schedules, and tables for filingreturns and forms, contact the IRS or a public library.ISBN-10: 0-310-26183-XISBN-13: 978-0-310-26183-4All rights reserved. With the exception of the sample board resolutions, checklists, charts, and procedures,no part of this publication may be reproduced, stored in a retrieval system, or transmitted in anyform or by any means—electronic, mechanical, photocopy, recording, or any other—except for briefquotations in printed reviews, without the prior permission of the publisher.Printed in the United States of America05 06 07 08 09 10 • 10 9 8 7 6 5 4 3 2 1We want to hear from you. Please send your comments about thisbook to us in care of [e-mail]. Thank you.Recent DevelopmentsProposed nonprofit legislationIn June and July 2004, the Senate Committee on Finance held hearings on possiblefuture legislation affecting nonprofit organizations. In preparation for the hearings, theFinance Committee published a discussion draft paper of possible reforms for the nonprofitsector. Recent reports of charity abuse and poor oversight by the IRS and state charityoffices apparently were key factors in this initiative.At the hearings, the Finance Committee received testimony from law enforcement officersincluding the commissioner of the IRS, an investigative reporter and others documentingcharity abuses (none from the Christian community), and nonprofit experts speaking onbehalf of the charity sector.Highlights of the Committee proposals include the following:• Five year review of tax-exempt status by the IRS. Tax-exempt organizationswould be required to submit paperwork to the IRS every five years to confirm continuedcompliance with tax-exempt requirements. A sliding-scale processing feewould be charged of all filers to cover the costs of the five-year review. The IRSwould be permitted to revoke tax-exempt status if their review concluded that theorganization no longer was entitled to exemption.• Donor-advised fund reforms. Donor-advised funds (DAF) would be defined andmade subject to several rules designed to ensure that they are not misused bydonors to pay for personal expenses._ Contributions to a DAF—other than publicly traded securities—would haveto be sold within one year of the contribution, and a plan for sale would have toexist at the time of the gift;_ A DAF wouldn’t be permitted to make grants to nonoperative private foundationsor to individuals;_ A DAF would be required to secure from the grantee an acknowledgment that thegrant will not convey a private benefit to the advising donor;_ A DAF would be required to meet an aggregate annual payout consisting solely ofgrants paid of 5% of the DAF’s assets;_ Individual accounts in a DAF would have to meet a minimum-activity threshold;_ A DAF would be required to disclose its existence on its Form 990 and showsatisfaction of the payout and all other requirements;_ Grants by a DAF to nondomestic organizations would be permitted only if thenondomestic organization appears on an IRS-published list of approved foreignorganizations; and_ A DAF generally would not be permitted to expend amounts for granteeselection, such as site visits, extending beyond basic due diligence of grant approval.• Monitoring of related-party transactions. Charities would be subject to new rulesrelating to transactions between the charity and its board members and other insiders.• Board governance. The Senate discussion draft proposed limiting boards to 15members, with no more than one member being directly or indirectly compensatedby the charity. Compensated board members could not serve as the board’s chair ortreasurer.The IRS would have the authority to require the removal of any board member,officer, or employee of a charity found to have violated self-dealing rules, conflictsof interest, excess benefit transaction rules, private inurement rules, or charitablesolicitation laws.• Valuation resolution. To determine the value of property contributed to a charity(other than publicly traded securities), the IRS would be bound by baseball arbitrationprinciples specifically adapted to the tax administration process. This procedure involveseach party in a proceeding submitting a number to the arbitrator, and providing thatnumber to the other party, on the understanding that following a hearing, the arbitratorwill select one of the parties’ numbers to resolve the dispute.• Limits on amounts paid for travel, meals, and accommodations. For purposes ofpaying expenses for travel, meals, and accommodation, charities would be subject tothe applicable U.S. government rate or an alternative established/published nonprofitcorporate rate. A penalty for failure to comply would be 10% of the excess payment,payable by that organization.• Improvement of the quality and scope of Form 990. The Form 990 would bealtered to ensure accurate, complete, timely, consistent, and informative reporting byexempt organizations.• Disclosure of investments. Large public charities would be required to make publiclyavailable, upon request, a summary of their investments.The Finance Committee requested the formation of a panel of nonprofit leaders to make recommendations on possible new legislation. The Panel on the Nonprofit Sector released itsinitial findings at the end of January 2005 and its final report in June 2005. Senator CharlesGrassley (R-IA), Chairman of the Senate Finance Committee, hasindicated he will introduce related legislation in 2005.Standard mileage ratesThe IRS increased the business and moving/medicalmileage rates effective January 1, 2005, and thenanother significant increase became effective onSeptember 1, 2005.The optional standard mileage rates for employeesto use in computing the deductible costs in connectionwith the operation of a passenger automobilefor business, charitable, medical, or movingexpense purposes are as follows:2005 Rate 2005 Rate1/1/05 to 8/31/05 9/1/05 to 12/31/05 2004 RateType of Expense (per mile) (per mile) (per mile)Business 40.5 cents 48.5 cents 37.5 centsCharitable 14 cents 14 cents (1) 14 centsMoving/Medical 15 cents 22 cents 14 cents(1) The rate is 29 cents a mile for Hurricane Katrina-related volunteer work from August 25 toAugust 31, 2005, and 34 cents a mile from September 1 to December 31, 2005.Contribution deadlines extended for tsunami giftsCongress extended deadlines for charitable contributions made for tsunami relief.Contributions made by January 31, 2005, for the relief of victims in areas affected bythe 12/26/04 Indian Ocean tsunami qualify for 2004 charitable deductions.

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Excerpted from Zondervan Church and Nonprofit Tax and Financial Guide: For 2005 Returns by Daniel D. Busby
All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.