Obtaining Tax-Exempt Status

Churches and religious organizations, like many other charitable organizations, qualify for exemption from federal income tax under IRC section 501(c)(3) and are generally eligible to receive tax-deductible contributions . To qualify for tax-exempt status, such an organization must meet the following requirements (covered in greater detail throughout this publication):

■ the organization must be organized and operated exclusively for religious, educational, scientific, or other charitable purposes,

■ net earnings may not inure to the benefit of any private individual or shareholder,

■ no substantial part of its activity may be attempting to influence legislation,

■ the organization may not intervene in political campaigns, and

■ the organization’s purposes and activities may not be illegal or violate fundamental public policy .

Recognition of Tax-Exempt Status

Automatic Exemption for Churches

Churches that meet the requirements of IRC section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS .

Although there is no requirement to do so, many churches seek recognition of tax-exempt status from the IRS because such recognition assures church leaders, members, and contributors that the church is recog- nized as exempt and qualifies for related tax benefits . For example, contributors to a church that has been recognized as tax exempt would know that their contri- butions generally are tax-deductible .

Church Exemption Through a Central/Parent Organization

A church with a parent organization may wish to contact the parent to see if it has a group ruling . If the parent holds a group ruling, then the IRS may already recognize the church as tax exempt . Under the group exemption process, the parent organization becomes the holder of a group ruling that identifies other affiliated churches or other affiliated organizations . A church is recognized as tax exempt if it is included in a list provided by the parent organization . If the church or other affiliated organi- zation is included on such a list, it does not need to take further action to obtain recognition of tax-exempt status .

An organization that is not covered under a group ruling should contact its parent organization to see if it is eligible to be included in the parent’s application for the group ruling . For general information on the group exemption process, see Publication 4573, Group Exemptions, and Revenue Procedure 80-27, 1980-1 C .B . 677 .

Religious Organizations

Unlike churches, religious organizations that wish to be tax exempt generally must apply to the IRS for tax-exempt status unless their gross receipts do not normally exceed $5,000 annually .

Applying for Tax-Exempt Status

Employer Identification Number (EIN)

Every tax-exempt organization, including a church, should have an employer identification number (EIN), whether or not the organization has any employees . There are many instances in which an EIN is necessary . For example, a church needs an EIN when it opens a bank account, in order to be listed as a subordinate in a group ruling, or if it files returns with the IRS (e .g ., Forms W-2, 1099, 990-T) 

An organization may obtain an EIN by filing Form S-4, Application for Employer Identification Number, in accordance with the instructions . If the organization is submitting IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code 

Application Form

Organizations, including churches and religious organizations, applying for recognition as tax exempt under IRC section 501(c)(3) must use Form 1023 .

IRS Approval of Exemption Application

If the application for tax-exempt status is approved, the IRS will notify the organization of its status, any requirement to file an annual information return, and its eligibility to receive deductible contributions . The IRS does not assign a special number or other identification as evidence of an organization’s tax-exempt status .

Public Listing of

A religious organization must submit its application within 27 months from the end of the month in which the organization is formed in order to be considered tax exempt and qualified to receive deductible contribu- tions as of the date the organization was formed . On the other hand, a church may obtain recognition of exemption from the date of its formation as a church, even though that date may be prior to 27 months from the end of the month in which its application is submitted .

Cost for applying for exemption. The IRS is required to collect a non-refundable fee from any organization seeking a determination of tax-exempt status under IRC section 501(c)(3) . Although churches are not required by law to file an application for exemption, if they choose to do so voluntarily, they are required to pay the fee for determination. The fee must be submitted with Form 1023; otherwise, the application will be returned to the submitter . Fees change periodically . The most recent user fee can be found at the Exempt Organizations (EO) Web site under the IRS Tax Exempt and Government Entities division via www .irs .gov/eo (key word "user fee") or by calling EO Customer Account Services toll-free at (877) 829-5500 .

Tax-Exempt Organizations

The IRS lists organizations that are qualified to receive tax-deductible contributions in IRS Publication 78, Cumulative List of Organizations Described in Section 170(c) of the Internal Revenue Code of 1986 . This publication is sold to the public through the Superintendent of Documents, U .S . Government Printing Office, Washington, DC . Publication 78 can also be downloaded from the IRS Web site at www .irs .gov . Note that not every organization that is eligible to receive tax-deductible contributions is listed in Publication 78 . For example, churches that have not applied for recognition of tax- exempt status are not included in the publication . Only the parent organization in a group ruling is included by name in Publication 78 

Gustavo A. Viera, CPA

CPA in Miami since 1983

       

How Important is Small Business to the US Economy?

Small firms:

•    Represent 99.7 percent of all employer firms.
•    Employ just over half of all private sector employees.
•    Pay 44 percent of total U.S. private payroll.
•    Have generated 64 percent of net new jobs over the past 15 years.
•    Create more than half of the nonfarm private gross domestic product (GDP).
•    Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
•    Are 52 percent home-based and 2 percent franchises.
•    Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in       FY 2007.
•    Produce 13 times more patents per employee than large patenting firms; these patents are twice as            likely as large firm patents to be among the one percent most cited.

Gustavo A. Viera, CPA

CPA in Miami since 1983

       

IRS - Wants Business to Give Them Road Map on How to Audit Them

IRS Commissioner Doug Shulman says tax auditors waste more than 25 percent of their time combing through thousands of pages of corporate returns to spot errors and challenge deductions. Now he's sparked an uproar by asking companies to do a lot of that work for him.

Shulman wants those with $10 million or more in assets to provide the IRS with a road map of what to look for in their returns. A rule proposed on Apr. 19 would require companies to list all tax-saving transactions that might be challenged—along with the maximum they would owe if the IRS won on every issue. Comments from the public are due by June 1, after which the IRS could adopt the rule as final. The new form, Shulman told corporate tax executives in Washington last month, would be "a game-changer with respect to our relationships with and responsibility to our large corporate taxpayers."

Companies agree on the game-changer part. They fear the proposed rule will expose them to more audits, or worse, that the IRS will simply send them a bill for the maximum amount of potential tax they owe. "This is just a fundamental shift," says Diana Wollman, a tax lawyer with Sullivan & Cromwell who is counseling companies on the proposal. "Now, I not only have to tell them what I think I owe, I have to tell them all the things I think they may disagree with. There's a lot of concern that auditors will feel pressure to challenge everything on the schedule."

The IRS is looking to piggyback on an accounting rule that requires companies to disclose to shareholders details of "uncertain tax positions," or money-saving deductions, credits, and transactions that might raise a red flag. The agency wants even more information, including a rationale for each position. The form would require information on everything from exotic, cross-border transactions designed to minimize taxes to judgment calls over which expenses can be deducted entirely in a single year instead of amortized over time.

We need tax reform, but this is crazy!!I

The bottom line: A proposed IRS rule could shift the balance of power between corporations and the tax collector.

Gustavo A. Viera, CPA

CPA in Miami since 1983

        

Tips for Choosing a Tax Preparer From The IRS's Mouth

If you pay someone to prepare your tax return, choose that preparer wisely. Taxpayers are legally responsible for what’s on their own tax returns even if prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare personal returns. Most return preparers are professional, honest and provide excellent service to their clients. Here are a few points to keep in mind when someone else prepares your return:

• A Paid Preparer is required by law to sign the return and fill in the preparer areas of the form. The preparer should also include their appropriate identifying number on the return. Although the Preparer signs the return, you are responsible for the accuracy of every item on your return. In addition, the preparer must give you a copy of the return.
• Review the completed return to ensure all tax information, your name, address and Social Security number(s) are correct. Make sure that none of these spaces is left blank.
• Review and ensure you understand the entries and are comfortable with the accuracy of the return before you sign.
• Never sign a blank return, and never sign in pencil.
• If you have provided specific authorization in a power of attorney filed with the IRS, you may have copies of notices or refund checks mailed to your preparer or representative; but only you can sign and cash your refund check. For further information on Powers of Attorney, refer to Topic 311.
• A Third Party Authorization Check Box on Form 1040 allows you to designate your Paid Preparer to speak to the IRS concerning how your return was prepared, payment and refund issues and mathematical errors.

It’s important for taxpayers to find qualified tax professionals if they need help preparing and filing their tax returns. Unqualified tax preparers may overlook legitimate deductions or credits that could cause clients to pay more tax than they should. Unqualified preparers may also make costly mistakes causing their clients to incur assessed deficiencies, penalties, and interest. Here are some suggestions to consider when hiring a tax professional:

• A paid preparer must sign the return as required by law.
• Avoid preparers who claim they can obtain larger refunds than other preparers. If your returns are prepared correctly, every preparer should derive substantially similar numbers.
• Beware of a preparer who guarantees results or who bases fees on a percentage of the amount of the refund. A practitioner may not charge a contingent fee (percentage of your refund) for preparing an original tax return.
• Understand that the most reputable preparers will request to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so they have your best interest in mind and are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.
• Choose a preparer you will be able to contact and one who will be responsive to your needs. Ask who will actually prepare the return before engaging services. Avoid firms where your work may be delegated down to someone with less training or some unknown worker. You should know exactly who works with your tax matters at all times and how to contact him or her; after all, you are paying for it. Determine if the preparer is exporting your return to a foreign country for preparation. Foreign countries do not have the same security and privacy laws as the United States nor is there any recourse should your information be compromised as a result of lax or nonexistent privacy procedures.
• Investigate whether the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs, the state’s bar association for attorneys or the IRS Office of Professional Responsibility (OPR) for enrolled agents or the oversight agency in states that license or register tax preparers.
• Determine if the preparer’s credentials meet your needs or if your state mandates licensing or registration requirements for paid preparers. As of 2008, California and Oregon are the only two states that regulate paid tax preparers. Is he or she an Enrolled Agent, Certified Public Accountant (CPA) or Tax Attorney? Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals. Other return preparers may represent taxpayers only in audits regarding a return that they signed as a preparer.
• Find out if the preparer is affiliated with a professional organization that provides or requires its members to pursue continuing education and holds them accountable to a code of ethics.
• Check IRS.gov for information regarding abusive shelters and other tax schemes and scams. Remember, if it sounds too good to be true, chances are it is.
• The IRS can help many taxpayers prepare their own returns without the assistance of a paid preparer. Before seeking a paid preparer, taxpayers might consider how much information is available directly from the IRS through the IRS Web site. Check out these helpful links:
  • e-file for Individual Taxpayers
  • Free File
  • Free Tax Return Preparation For You by Volunteers

Unfortunately, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. Examples of improper actions by unscrupulous preparers include the preparation and filing of false paper or electronic income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions.

Tax evasion is both risky and a crime, punishable by up to five years imprisonment and a $250,000 fine. Remember, no matter who prepares a tax return, the taxpayer is legally responsible for all of the information on that tax return.

Report suspected tax fraud and abusive return preparers by completing Form 3949-A and mailing it or a letter with similar information to:

Internal Revenue Service
Fresno, CA 93888

Gustavo A. Viera, CPA

CPA in Miami since 1983

        

Filing Late and/or Paying Late

Whether paying with a timely filed tax return, or filing late and paying late after receiving a bill from the IRS (and the bill is correct), taxpayers are encouraged to pay the taxes they owe in full.

If taxes are not paid, and no effort is made to pay them, the IRS can ask a taxpayer to take action to pay the taxes, such as selling or mortgaging any assets owned or getting a loan. If effort is still not made to pay the bill, or make other payment arrangements, the IRS could also take more serious enforced collection action, such as levying bank accounts, wages, or other income, or taking other assets. A Notice of Federal Tax Lien could be filed that may have a detrimental effect on a taxpayer’s credit standing. See information about Liens andLevies.

Haven't Filed a Tax Return? Here's What to Do
Taxpayers should file all required returns that are past due now to avoid additional penalties and interest. This section gives information on getting help and documents needed to prepare a return. It is never too late to file.

How Full Payment of Taxes Saves You Money
Paying your taxes in full ultimately saves you more money. Take action now or you may face additional interest and penalties.

Payment Options - Ways To Make a Payment
There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.

Other Ways to Resolve Tax Debt That Could Save You Money
Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an Installment Agreement, temporary delay, or Offer in Compromise.

What Will Happen If You Don't File Your Past Due Return or Contact the IRS
The IRS will file a substitute return for you, which will not include any additional exemptions or expenses you may be entitled to and may overstate your real tax liability. Once the tax is assessed the IRS will start the collection process, which can include placing a levy on wages or bank accounts or filing a federal tax lien against your property.

Gustavo A. Viera, CPA

CPA in Miami since 1983

        

Understanding Your IRS Notice or Letter

Understanding Your IRS Notice or Letter

About Your Notice If you receive a letter or notice from the IRS, it will explain the reason for the correspondence and provide instructions. Many of these letters and notices can be dealt with simply, without having to call or visit an IRS office. The notice you receive covers a very specific issue about your account or tax return. Generally, the IRS will send a notice if it believes you owe additional tax, are due a larger refund, if there is a question about your tax return or a need for additional information. .

IRS Notice Redesign Currently, the IRS is in the process of redesigning and revising its correspondence with taxpayers for clarity, effectiveness and efficiency. To start, the redesign affects nine notices. The new format includes a plain language explanation of the nature of the correspondence, clearly states what action the taxpayer must take and presents a clear, clean design.

Redesigned Notices Notice Number Description Topic CP02H You owe a balance due as a result of amending your tax return to show receipt of a grant received as a result of Hurricane Katrina, Rita or Wilma. Balance Due CP08 You may qualify for the Additional Child Tax Credit and be entitled to some additional money. Additional Child Tax Credit CP31 Your refund check was returned to us, so you need to update your address. Refund CP45 We were unable to apply your overpayment to your estimated tax as you requested. Overpayment CP53 We can’t provide your refund through direct deposit, so we’re sending you a refund check by mail. Direct Deposits CP120 You need to send us documentation of your tax-exempt status. Tax Exemptions CP130 Your tax return filing requirements may have changed: You may no longer need to pay the Alternative Minimum Tax. Filing Requirements CP139 Your tax return filing requirements may have changed: You may no longer need to file Form 941 and Form 940. Filing Requirements CP166 We were unable to process your monthly payment because there were insufficient funds in your bank account. Payment Process CP178 Your tax return filing requirements may have changed: You may no longer owe excise tax. Filing Requirements Other Notices and Letters Notice or Letter Number Title CP 11 Changes to Tax Return, Balance Due CP 11A Changes to Tax Return and Earned Income Credit, Balance Due CP 12 Changes to Tax Return, Overpayment CP 14 Balance Due CP 21B Data Processing Adjustment Notice, Overpayment of $1 or more CP 22A Data Processing Adjustment Notice, Bal Due of $5 or more, Balance Due CP 22E Examination Adjustment Notice, Balance Due CP 23 Estimated Tax Discrepancy, Balance Due CP 49 Overpaid Tax Applied to Other Taxes You Owe CP 57 Notice of Insufficient Funds CP 88 Delinquent Return Refund Hold CP 90/CP 297 Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing CP 297A Notice of Levy and Notice of Your Right to a Hearing CP 91/CP 298 Final Notice Before Levy on Social Security Benefits CP 161 Request for Payment or Notice of Unpaid Balance, Balance Due CP 501 Reminder Notice - Balance Due CP 503 Second Request Notice - Balance Due CP 504 Final Notice - Balance Due CP 521 Installment Agreement Reminder Notice CP 523 Notice of Default on Installment Agreement CP 2000 Notice of Proposed Adjustment for Underpayment/Overpayment Letter 0484C Collection Information Statement Requested (Form 433F/433D); Inability to Pay/Transfer Letter 0549C Balance Due on Account is Paid Letter 668D(LP 68) We released the taxpayer's levy. Letter 0681C Proposal to Pay Accepted Letter 0757C Installment Privilege Terminated Letter 1058 (LT 11) Final Notice prior to levy; your right to a hearing Letter 1615 (LT 18) Mail us your overdue tax returns. Letter 1731 (LP 64) Please help us locate a taxpayer. Letter 1737 (LT 27) Please complete and site Form 433F, Collection Information Statement. Letter 1961C Installment Agreement for Direct Debit 433-G Letter 1962C Installment Agreement Reply to Taxpayer Letter 2050 (LT 16) Please call us about your overdue taxes or tax return. Letter 2257C Balance Due Total to Taxpayer Letter 2271C Installment Agreement for Direct Debit Revisions Letter 2272C Installment Agreement Cannot be Considered Letter 2273C Installment Agreement Accepted: Terms Explained Letter 2318C Installment Agreement: Payroll Deduction (F2159) Incomplete Letter 2357C Abatement of Penalties and Interest Letter 2603C Installment Agreement Accepted - Notice of Federal Tax Lien Will be Filed Letter 2604C Pre-assessed Installment Agreement Letter 2761C Request for Combat Zone Service Dates Letter 2789C Taxpayer Response to Reminder of Balance Due Letter 2822C VRU Acceptance of Proposal to Pay (30,60,90, 120 days) Letter 2823C VRU Monthly Payment Plan Confirmation Letter 2840C CC IAPND Installment Agreement Confirmation Letter 3030C Balance Due Explained:Tax/Interest Not Paid Letter 3127C Revision to Installment Agreement Letter 3217C Installment Agreement Accepted: Terms Explained Letter 3228 (LT 39) Reminder notice. Letter 4903 (LT 26) We have no record of receiving your tax returns. Letter LP 47 Address Information Request Letter LP 59 Please contact us about the taxpayer levy. Eight Things to Know If You Receive an IRS Notice or Letter Read about eight things every taxpayer should know about IRS notices. How To Identify Your Notice The notice number prints on the top of the first page of all our notices and on the lower left-hand side of the tear-off stub included with most of them. That number identifies the message we deliver in every notice. While the contents may vary somewhat, every notice with the same number has the same basic purpose. What If My Notice Isn't Listed You'll find useful information here about many of the notices we send, including the purpose of the notice, the reason we send it, and a list of enclosures we might include with it. There's also sample content for each. Since parts of our notices vary depending on account conditions, the samples may not exactly match the notices we mail. The basic message, though, will be the same. Individual Filer Notices Notices we send about Form 1040, 1040A, or 1040EZ, or any schedules, forms, or attachments included with it are Individual Filer Notice. Business Filer Notices Notices we send about business-related tax forms such as Forms 941, 1065, and 1120, are Business Filer Notices. Gustavo A. Viera, CPA CPA in Miami since 1983

        

Lawmakers consider Internet gambling bills

Internet gambling should be legalized and taxed in the United States to raise $42 billion in revenue over a decade and legitimize gamers who bet online, backers argued before a congressional panel on Wednesday.

POLITICS

"We are talking about a decision by adults to do what they want to do with their own money," said Democrat Representative Barney Frank, who sponsors a bill to legalize online gaming, citing John Stuart Mill's essay "On Liberty" to make his point.

Frank spoke at a Ways and Means Committee hearing in the House of Representatives.

The House is considering two Internet gambling bills. One would legalize it. The other would require people to declare winnings from online gambling to U.S. tax authorities and set a 0.25 percent tax on wagers of all federally licensed bets.

While the multibillion-dollar Internet gambling industry is not illegal per se, it soon will be illegal for financial institutions to knowingly accept payment in online gaming transactions, under a law that is set to take effect in June.

That law makes an exception for fantasy football and horse racing.

If all states took part, taxing online gambling could raise about $42 billion over a decade, according to the joint congressional tax committee.

Frank first introduced his proposal several years ago, but it could gain momentum this time as lawmakers hunt for money to balance the $1.4 trillion budget deficit.

Washington Democrat Jim McDermott sponsors the tax bill, but not all Democrats back it. Some Republicans favor it, but others cited moral concerns.

"People sometimes resort to drastic things when they are strapped for cash," Representative Bob Goodlatte, a Virginia Republican, said. Still, he said states should be able to make the decision on their own.

States can opt out of the law if it passes. Utah and Hawaii ban gambling.

Privately held Harrah's Entertainment, the biggest casino company, backs legalizing online gambling, but not the House bill on taxation.

Rival MGM Mirage said it has no position on the tax bill, but supports legalization and taxation in some form.

The Obama Administration has not taken a position.

Gustavo A. Viera, CPA