An article about Charity Walks on the Charity Review Council’s website (www.smartgivers.org) caught my eye recently.  We’ve all received e-mails from friends and family asking for support of their walk (or run, or bike ride) for a specific charity.  Perhaps you have made those solicitations yourself for a cause that is near and dear to your heart.  The article answers some great questions to help both prospective donors and people soliciting donations.  It will help you decide whether or not to donate to your friend’s walk, and give you ideas for your solicitation letter. Read More »

**Originally published in the February 2012 issue of the Midwest Society of Association Executives’  (MSAE) newsletter**

Associations have had to find ways in recent years to cut their budgets by reducing expenses and/or creating new sources of revenue.  New sources of revenue can often be generated from unrelated business activities, requiring the organization to comply with unrelated business income tax (UBIT) laws.  These laws can be complex, and often contradictory, so it is important to complete a UBIT analysis when your association has a new revenue source.  Filing Form 990-T, the Business Income Tax Return filed by exempt organizations, is required when gross receipts from unrelated business reach $1,000, so it doesn’t take much activity to reach the filing requirement. Read More »

In the start up of a new business that is operationally like the current business (a restaurant opening another restaurant), all pre-opening expenses can be deducted in the year it is incurred if done as a division of the current business.  If the new business is set up as a separate LLC or S-Corp by either the current business’ shareholders or by the current business as a disregarded entity or Q-Sub, the pre-opening costs should be capitalized, and they may be amortized if an election under Section 195 is made on the original return.  However, if the costs were deducted in the year opened and no Section195 election was made, case law shows that the pre-opening costs will be capitalized and, if a Section 195 election was not made in the original return, no amortization allowed either.  Courts say that if the new business is set up as a new entity, it was set up for valid business reasons, and therefore, the entity could not be disregarded for tax purposes.  Hence, the new business was not just a part of the current business as a division but was separate for pre-opening cost capitalization purposes.  There will be no current deduction for the pre-opening cost, as well as no amortization of the capitalization of the pre-opening cost, if no election was made under Section 195.

The planning opportunity is to keep the new business as a division until everything has been set up and is operationally running.  Deduct the pre-opening costs as expenses because, for liability purposes, case law has upheld the transferring of the division into a new entity at a later date.  If the new business needs to be set up under a new entity, don’t forget to make the election under Section195 to amortize the pre-opening costs.  By utilizing this method, all need not be lost.

The Uniformed Services Employment and Reemployment Rights Act (USERRA) protects the reemployment rights of service members… and describes the relationship between employers and service members just prior to, during and after their return from uniformed military service.

Both employers and the service member are given responsibilities to carry out in this partnership between service and employment. Read More »

In an attempt to reduce the volume of paper involved in audits, the IRS has been seeking electronic records as a more efficient auditing procedure.  This is also in line with what practitioners wanted: less paperwork involved in the audit process.  However, the concern remains as to how in depth an audit of electronic data will go before the efficiency of it is outweighed by the invasiveness of the records.  It is clear the IRS has legal authority to use electronic records in their audit.  Upon request, a taxpayer must provide electronic records and, if an attempt is made to withhold them, the IRS can disallow all the unsubstantiated items in the audit.  Read More »

The Work Opportunity Credit (WOTC) has been expanded to provide employers with new incentives to hire certain unemployed veterans. The tax credit allows employers to reduce their federal tax liability by up to $9,000 per new hire.   The tax credit is dependent upon the target group.

On November 21, 2011, the President signed into law the VOW to Hire Heroes Act of 2011.  This new law provides an expanded work opportunity tax credit to businesses that hire eligible unemployed veterans and for the first time also makes part of the credit available to tax-exempt organizations.  Businesses claim the credit as part of the general business credit and tax-exempt organizations claim it against their payroll tax liability.  The credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2013. Read More »

When drawing up a buyout clause it is critical to specify, in no uncertain terms, the value to be applied to an owner’s share. The case of the Estate of Cohen v. Booth Computers, July 13, 2011, is a good illustration of what can happen when the terms of a buy-sell agreement are not updated to reflect the current value of a company. 

Claudia Cohen and her brother James were partners of Booth Computers, a family partnership set up by their father. A buyout provision was included in the partnership agreement, stating that upon the death of one of the partners the remaining partners could buy back the share at book value plus $50,000.  One of the assets owned by the partnership was an oceanfront estate in Palm Beach Florida that had increased in value from its original cost of $760,000 in 1976 to $45 million in 2007.  The partnership paid Claudia’s estate just over $177,800 based on the “net book value” of the 50% interest as shown on the most recent balance sheet.  Read More »

President Obama signed the Temporary Payroll Tax Cut Continuation Act of 2011 on December 23, 2011.  To give Congress more time to negotiate, the 2% reduction in employee paid Social Security tax from 6.2% to 4.2% is temporarily extended through February of 2012. The employer portion remains at 6.2%.

The IRS has offered some guidance since this extension gives little time for employers and payroll companies to adjust their processes.  The IRS says they should implement the continued lower tax rate as soon as possible in 2012, no later than January 31, 2012, and if they overwithhold during January that they should offset it in worker’s pay as soon as possible, no later than March 31, 2012. Read More »

The IRS has announced that the IRS electronic filing system for Forms 990, 990-EZ,  990-PF and  1120-POL will not be available from January 1 to February 29, 2012 due to systems and programming changes.  Because of this, the IRS is granting an extension of time to file the affected returns to March 30, 2012.   This extension is automatic, so affected organizations do not need to file an Application for Extension (Form 8868).  Affected organizations are any organizations whose return is due between January 1 and March 1, 2012, specifically:

• August 31, 2011 year-ends whose original due date is January 15, 2012
• September 30, 2011 year-ends whose original due date is February 15, 2012
• February 28, 2011 and May 31, 2011 year-ends  with extended due date of January 15, 2012 
• March 31, 2011 and June 30, 2011 year-ends  with extended due date of February 15, 2012 Read More »

Beginning January 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rates for business and charitable miles are unchanged from the mid-year adjustment that became effective on July 1, 2011.

The medical and moving rates have been reduced by 0.5 cents per mile.