80th anniversary fun facts (1962)

In the year, 1962 (thirty years after our founding)...

1. The following people are born – Jim Carrey, Demi Moore, Roger Clemens
2. Cuban Missile Crisis is averted
3. John Glenn is 1^st American to orbit the Earth – 3 times in 5 hours, 17,000 mph (wow!)
4. K-Mart and Wal-Mart open their first stores
5. First “pop-top” is test-marketed
6. Marilyn Monroe is found dead of suicide
7. 4 Brits record music for the first time, under the name “The Beatles”
8. Johnny Carson hosts the “Tonight Show” for the first time
9. Wilt Chamberlain scores 100 points in a basketball game
10. Richard Nixon loses the California governor’s race, proclaiming “You won’t have me to kick around anymore, because, gentleman, this is my last press conference”
11. The average cost of a new car is $2,924, a house is $12,550, annual income is $5,556
12. Hit songs are “Big Girls Don’t Cry” (4 Seasons) and “Good Luck Charm” (Elvis Presley)
13. Academy Award winner is “Lawrence of Arabia”

Meanwhile, back in Columbus… Otis LeMay and Sam Wellborn continue their separate accounting practices, with recent new partners Ross Robinson and Keith Grimes, respectively.

More to come – hope you enjoy!!

Jay Pease, Audit Partner (and Firm Historian)

Time running out on “Reduced User Fee” for applications for reinstatement of tax exempt status

DEADLINE APPROACHING:

Small tax-exempt organizations still have time to pay the reduced use fee with an application for reinstatement of tax-exempt status with the IRS, but the deadline is approaching.  According to IRS Revenue Procedure 2011-36, applications must be postmarked no later than December 31, 2012.

WHY DOES THE IRS AUTOMATICALLY REVOKE TAX-EXEMPT STATUS? 

The IRS automatically revokes the tax-exempt status of organizations required to file an annual return for failure to file the required annual return for three consecutive years.  

WHAT IS THE DEFINITION OF A SMALL TAX-EXEMPT ORGANIZATION?

The reduced user fee is only available to small organizations that normally have annual gross receipts of not more than $50,000 in their most recently completed taxable year.

WHAT IS THE USER FEE?

For an eligible organization, the amount of the user fee that must be submitted with an application for reinstatement of tax-exempt status postmarked by December 31, 2012 is $100.

WHAT HAPPENS IF TAX-EXEMPT STATUS IS NOT REINSTATED BY DECEMBER 31, 2012?

The IRS will no longer recognize the organization as tax exempt.  After the December 31, 2012 deadline, the organization must submit an application to the IRS and apply for tax-exempt status (Form 1023 or Form 1024) and pay the applicable user fee ($400) and wait for the IRS to issue a new Determination Letter on the exempt status of the organization.

This information was adapted from the Rev. Proc. 2011-36 on the Internal Revenue website at www.irs.gov.    

Rhonda Machalk, CPA

Non-profit organizations and political campaigns

I recently read an article in the September edition of the Journal of Accountancy called “Ban on political activities: An election-year warning for charities” by Claudia L. Kelly, CPA, PH.D., and F. Douglas Roberts, CPA, PH.D. (http://journalofaccountancy.com/Issues/2012/Sep/20125671).  The article addresses non-profit organizations and political campaign activities. 

Non-profit organizations continue to catch the attention and scrutiny of the IRS.  With it being an election year, the IRS is looking for political campaign activities of 501( c)(3) tax exempt organizations.  The article provides links to resources providing guidance and examples concerning political campaign activities.  The article states that a good place to start is Rev. Rul 2007-41 which provides examples of acceptable and unacceptable activities.   The article noted above discusses non-profit organizations and the effect of:

1. its leaders and other individuals activities, 
2. candidate speakers and forums, 
3. issue advocacy vs. political intervention, 
4. printed materials, websites and social media, 
5. business activity, 
6. consequences or political campaign activity, 
7. advising the organization and its members.  

The article describes multiple tips for non-profits to prevent activities from being classified as political.  Organizations should have a written policy that prohibits political activities and describes what activities are unacceptable.  In addition, organizations should issue disclaimers in any printed material or in any public speeches by members of their organization so it is not misconstrued that the member is acting on behalf of the organization.  The organization should not use or allow the use of its facilities to sponsor political campaign activities.  Any activities involving political candidates should be presented as educational and should not promote the candidate. 

Auditors and tax preparers of non-profit organizations should be on the look-out for disallowed political campaign activities.  Certain types of activity could lead to fines and/or loss of the organization’s tax exempt status.  Political campaign activities are required disclosures on the Form 990 and if such activities could result in a loss of exempt status, auditors of an organization may need to consider disclosure in the financial statements.

Megan Schuler, CPA

Be who you are -- especially if you are a non-profit

I, nor anyone I have worked with in my career at Robinson, Grimes & Company, could ever really be considered a fan of the IRS.  I suppose that is the way it should be and the folks who matter to our practice the most – our clients – are okay with that.  However, not too long ago I was researching tax court cases for a client issue and came across a case where I literally became a fan -- at least for a few moments.

The case involved a large “religious” charity, dutifully filed as and approved to be a tax exempt organization.  Just the fact that there was a tax court case titled with a large religious tax exempt organization made me read on.  It seems the founder and his wife drew very meager salaries from the church, a total of $20,000 in 1970, as their desire to minister was reward enough.  However, it also seems that in their time away from the church office they lived on a yacht in the Mediterranean Sea.  They traveled to the most luxurious places on earth -- all on “church business.”  Even in 1970 it would have been difficult for a couple with four children to live their lifestyle on a $20,000 salary.  Well, the IRS and the Tax Court saw through that, as one of the church’s stated policies was to “Make money.”  In the court’s words, the church “fails to qualify for tax-exempt status because a portion of its net earnings inured to the benefit of private individuals. In order to qualify for tax-exempt status, not only must an organization establish that it is organized and operated exclusively for exempt purposes, but it must also prove that no part of its net earnings inures to the benefit of any private shareholder or individual.”  I cheered as I read the verdict – don’t cheat on your income taxes under the guise of religion. 

There have been several high profile court cases over the recent years where the IRS has challenged a non-profit’s earnings and won.  A good example is a nature/environmental organization owning and operating a sawmill and drilling for oil under a preserve.  Really?  They also sold premium land to certain affiliated individuals at significant losses, only to have the individual turn around and “donate” a large sum to the charity, thereby making the organization whole but also giving the buyer a huge tax deduction that was not deserved.  These activities did not line up with their approved tax exempt purpose, and that put everything at risk.  If you are an environmental organization, be an environmental organization.  Cases like these have made the IRS overcompensate and impose burdensome and costly reporting on good-intentioned, well-meaning charities that try to do things the right way.

If you have a charity or are thinking of starting one, here are some points to consider:

1. Let it pass the “Mom Test.”  If everything -- and I mean everything -- about your organization was posted on the front page of your local newspaper, would your mom approve?  When considering an action, expense, or board decision, think, “would all the details look good in the newspaper?’
2. Your reputation is your most valuable asset.  Protect it.
3. Have good “governance.”  Make sure decisions, expenses and activities are in line with the mission. 
4. Try really hard not to have conflicts of interest between the organization and officers or contributors.  Sometimes organizations are too small and need help from board members or officers.  However, if there HAS to be a transaction that has an appearance of a conflict of interest, have transparency. 
5. Have good record keeping.  Your best defense to any question is good documentation.  In addition, with the many non-profit failures as described above, the annual filing for tax exempt entities has gotten more and more in depth.  The best way to file complete and accurate returns in a way that is the least administratively burdensome is to maintain good accounting records.  It is also necessary to maintain good records of board and committee minutes. 
6. Make sure the organization is not involved in any substantial non-exempt activity.
7. Make sure all your tax filings are up to date and keep them that way.

If we can be of assistance to your tax exempt entity, please give us a call. 

Jason Blair, Partner and very limited IRS fan

80th anniversary fun facts (1952)

In the year, 1952 (twenty years after our founding):

• The following people were born –Dan Aykroyd, Bob Costas, Jimmy Connors; also, two young future partners, Jay Pease & Charlie Johnson
• Jackie Robinson becomes the highest paid player in Brooklyn Dodger history
• Harry Truman announces he won’t seek a 3rd term s president
• The first airing of “American Bandstand” in Philadelphia
• Nobel Peace Prize winner is Albert Schweitzer
• The average cost of a new car was $1,754, a house was $9,075
• The annual income was $3,850 a year
• Gas cost $.20 a gallon
• Hit song: “A Guy is a Guy” by Doris Day
• Academy Award winner: “The Greatest Show on Earth”

Meanwhile, back in Columbus…

S.M. Wellborn celebrates 20 years of being in the CPA business, while Otis LeMay debates giving up the IRS job he has and considers starting his own accounting practice.

More to come – hope you enjoy!!

Jay Pease, Audit Partner (and Firm Historian)

Georgia vehicle ad valorem tax to end

It may have slipped under your radar this year, but the vehicle ad valorem tax is coming to an end in Georgia.  A bill was passed earlier in 2012 that, once effective in 2013, will combine vehicle sales tax with the ad valorem tax resulting in a new “title tax.”  You only pay this once, at the time of purchase.  And then there will be no yearly birthday tax (ad valorem tax) due.  The title tax will be due on all new and used cars purchased after March 1, 2013.  Purchasers of vehicles in 2012 will have the option to continue to pay the ad valorem tax as everyone has up until this point, or they may opt for the new title tax. 

The title tax will be based off of a percentage of the fair market value of the purchased vehicle, less any trade-in value of another vehicle, which may differ from the purchase price of the vehicle.  For 2013 the tax will be 6.50% of the fair market value less any trade-in value, 6.75% in 2014, and 7.00% from 2015 forward – with a provision to be raised to 9% if deemed necessary to meet revenue projections.  People who move to Georgia will also be required to pay this tax when registering their vehicle in Georgia.  50% of the tax will be due when registering, and the remaining 50% will be due within 12 months.

The longer that an individual maintains ownership and title of a vehicle, the more beneficial this legislative change will likely be to them.  If you purchase a vehicle every few years, this change may be less beneficial to you or it may actually be detrimental.  The greatest savings will likely come to those purchasing new vehicles.  Prior to March 1, 2013, new car purchasers would pay sales tax and yearly ad valorem taxes.  Purchasers after March 1, 2013, will only pay a one-time title tax (similar in percentage to the prior sales tax), and no sales tax or yearly ad valorem taxes.

John Robert Voynich, CPA

Real estate professional election - an IRS hotspot

One of the top areas for IRS exams related to individual returns is Schedule E page 1.  The agents’ eyes glimmer when they see rental losses.   The rules are complicated involving the deductibility of real estate losses, so let me recap the basics:

1. Typically rental real estate losses are considered passive.  Passive losses can only be deducted to the extent there is passive income; otherwise, they are carried forward to the next year.
2. If you actively participate in your real estate activities (making significant management decisions, arranging for others to provide repairs services, etc), you can deduct up to $25,000 of passive losses regardless of passive income.
3. If you qualify as a real estate professional, the losses will not be considered passive and will not be subject to the limitation rules.
4. To qualify as a real estate professional:
1. More than half of the time you spend providing services during the year for trade or business activities must be related to your real estate activities
2. You must materially participate in the real property activities for more than 750 hours during the year (this is determined separately for husband and wife, not aggregated)

Material participation has its own separate tests (7 to be exact), which I will not go into now.  The general idea is that material participation means you are regularly, continuously and substantially involved in the operations of the activity.  

The 750-hour test is tricky, so the most important thing to remember when dealing with rental real estate is to document your time.   Keep a calendar or a daily log.  Document the hours you spend performing services related to your real property trade or business vs. other trade or business time.  Also, make sure you separately document the time you spend on each property. 

While this documentation can be done simply with a spiral bound notebook, today’s technology offers tons of applications for efficient time tracking.    Just from a Google search I found several applications including HoursTracker- Time & Time Tracker (compatible with iPhones and iPads) and Toggl (compatible with Mac, PC, iPhone, IPad, Ipod or Android).  

As always, please discuss any questions you have with your trusted tax professional.  

Jessica Miles, CPA; Supervisor