Good Fiscal Governance and Avoiding ( or if that doesn ’ t work , preparing for ) an IRS Audit
In addition to maintaining appropriate records , operations of the district or local will also create certain filing requirements .
Certain items must be filed annually or even quarterly :
1 . 1099s should be filed for :
Attorney ’ s fees , independent contractor or employee payments ( including speaker fees ), director ’ s fees , rents , royalties , other reportable income ( such as payments of prizes and awards to non-employees ).
In addition to looking for abuse of the tax-exempt status , the IRS is auditing organizations to determine if they improperly classified employees as independent contractors so as to avoid paying payroll taxes . Generally , the determination that someone qualifies as an employee as opposed to an independent contractor requires an analysis of the amount of control the entity has over how and when the individual completes his or her tasks and how much discretion the individual retains . Assistance of a tax advisor should be sought if bookkeeping or other clerical tasks are paid for by the district or local to determine if the person performing those duties should be considered an employee . Any such advice should be in writing and retained .
2 . Tax Returns :
File a 990-N if annual gross receipts are normally $ 25,000 or less .
Due date is the 15th day of the 5th month after the close of the tax year .
File a 990EZ or 990 if your gross receipts are normally more than $ 25,000 .
Due date is the 15th day of the 5th month after close of the tax year .
File a 990T if you have more than $ 1,000 of unrelated business income such as advertising , and certain rent and royalty payments .
Federal and Pennsylvania Employer Tax Withholding Forms also need to be filed :
• Employer Deposit Statement of Withholding Tax PA-501
• Employer Quarterly Return of Withholding Tax PA-W3
• W-2 Transmittal and Employee W-2
REV-1667
• Tax Account Information Change / Correction Form REV-1705
• Employer ’ s Quarterly Federal Tax Return Form 941
• Employer ’ s Annual Federal Unemployment ( FUTA ) Tax Return Form 940
• Pennsylvania Unemployment Compensation ( PA UC ) Quarterly Tax Forms must also be filed . These include :
PA UC-2 , Employer ’ s Report for Unemployment Compensation PA UC-2A , Employer ’ s Quarterly Report for Wages Paid to Each Employee PA UC-2B , Employer ’ s Report of Employment and Business Changes
The IRS also will be looking to see if officers and directors are benefiting from the district or local through excessive benefit transactions ( also known as private inurement ), such as favoring insiders with leases of property to or from insiders and excessive compensation . The adoption and enforcement of a Conflicts of Interest Policy will help to avoid such problems . In addition , the IRS also may examine the value of “ perks ” received by officers and directors while carrying out their functions . These can include lavish meals , tickets to sporting events or other forms of entertainment or trips to extravagant destinations . It is prudent for components to require the submission of a receipt before reimbursing directors or officers for out of pocket expenses .
A more difficult issue the IRS may look at is whether there are particular services being provided to the district or local ’ s members that do not benefit the “ common business interest ” of the district or local as a whole , such as the sale of specific products that only benefit a portion of the membership . Other activities of concern are advertising and online job boards . Revenues from these activities should be reported as unrelated trade or business income ( UBIT ) on the district or local ’ s Form 990-T .
While the United States Supreme Court struck down prohibitions on trade associations spending money directly for political campaign advertising ( Citizens United v . Federal Election Commission ), it retained the requirements for disclaimers and disclosures ; so district and local societies should be sure to comply with the disclaimer and disclosure reporting requirements and should seek the advice of legal counsel before making such expenditures . The prohibition against an organization contributing directly to a candidate was not removed .
Good Governance — Best Practices There should be segregation of duties so that the persons signing checks are not also the bookkeepers or the ones reconciling the bank accounts . If the check or images are not supplied with the bank statements , arrangements should be made with the bank for the person reconciling the bank statement to obtain them . Alternatively , cancelled
November / December 2010 • Pennsylvania Dental Journal
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