With the new challenges facing our communities each day I wanted to provide a little clarity around some of the questions that we are getting from local exempt organizations that are working to address the changing environment on all fronts. We want you to know that we are here to support you as you work to make important decisions.
I first want to address the issue of filing of the annual exempt returns. These returns (990, 199 and RRF-1) are due four and half months after the organization’s year end. For most organizations that we work with the organization’s year end is either June or December so for our examples noted here we will use those variables. We understand that the IRS has granted a grace period for filing for returns due April 15, 2020. There has not yet been any issued filing relief for exempt organizations.
June 30 Year Ends – If your year end is June 30 and you have not yet filed your return for June 30, 2019, the deadline for filing is May 15, 2020. There are no additional extensions that you can request at this time. If you have not already provided the necessary information to your provider, we have included a basic list of what you need to gather to send to get started. Please work to send in this information as soon as possible in order to avoid late penalties which will be imposed by the IRS for each day the return is late.
December 31 Year Ends – If your year end is December 31, 2019 the first deadline for your return is May 15, 2020. If you have not already gathered the information for your annual exempt returns and submitted those you should consider requesting an extension. This will allow adequate time for you to gather information for the return as well as time to prepare and allow for your review before filing. If information necessary to complete your returns is not received by April 1, 2020 then we will be putting your return on extension.
990N Filers – These are for organization’s whose average gross receipts are less than $50,000. There is no extension that you need to file for late filing. A caution is that you cannot file your returns three years in a row late or your exempt status will be revoked. The California State Attorney General also instituted additional reporting requirements this year which may mean that your preparer will ask for additional information than they have in the past. You can visit the Attorney General’s website and search for Charities to find additional information.
Frequently Asked Questions:
Q. If I am unable to gather information to complete my return on time will I be able to request relief from penalties that may be incurred?
A. Possibly. We never know how the IRS will respond but we are hopeful that they will be understanding due to these circumstances and will allow for penalty abatement. If this is your situation, please reach out to your preparer now to discuss options. They may want to discuss filing a return and then amending or at least know ahead of time regarding timing so that they are not anxiously trying to reach out to you during the deadline. If your organization has filed late in previous years and had penalties abated you may not be eligible to take advantage of this again.
Q. What if I do not have all my information available. Can I file a return and then amend?
A. Yes. Organizations are eligible to file an amended return. There are costs to consider in amending a return as it takes additional time. Also, it cannot be assured that Guidestar will update their records with the amended return. .
Q. If I put my organization’s return on extension does it cause any “red flags” with reporting agencies?
A. No. There are no repercussions to placing your return on extension. It does not put your organization at higher risk for audit. It is actually a very common practice. If your board is used to having the Organization’s return filed by a certain time, then it is always a good idea to discuss with them ahead of time. Your tax preparer can request an extension automatically, so no signatures are required.
You may have additional questions regarding the preparation and filing of your annual exempt returns. Please feel free to each out to me at autumnr@hw-cpa.com with any additional questions that you may have.
Cancelled Galas or Events
I have seen or heard of numerous events that have been cancelled due to the coronavirus. Clients are reaching out asking what should be done regarding funds already received for a now cancelled or postponed event. Here are a few answers to the questions that we have received. Please feel free to reach out with additional questions that you may have.
Q. How do I handle the recording of ticket sales that have been received for an event that is postponed until next year?
A. Ticket sales are generally considered an exchange transaction ( if the value received is equal to the value paid). Most organizations that I see have either given the ticketholder an option for a refund or just held the tickets until next year’s event. The amount of tickets sales that you have already recorded should be moved to deferred revenue. If the ticket sale is part exchange and part contribution, then only the exchange portion can be deferred. If the ticket price includes both components. i.e. $100 ticket for a gala with a FMV for the meal of $30 would be $70 contribution which would be recognized when received.
Q. How do I handle contributions and or sponsorships that we have received?
A. If the donor or sponsor has determined that they do not want the funds returned then you would record these transactions as revenue in the current year and show them as net assets with donor restrictions (purpose/time restricted) at year end. This is using the assumption that sponsorships received are contributions rather than exchange transaction (that the sponsor is getting something of equal value in return).
Q. What do I do about the silent or live auction packages that we have received?
A. Most of the time these packages are tracked in the donor software and not necessarily recorded in the general ledger of the organization until the items are actually bid on and distributed. The sale price of the item is what would then be recorded as special event revenue. When performing your year end reconciliation between the donor software and your financial reporting general ledger these would show as reconciling items.
We know how much value is lost for organizations that are not able to hold their events as anticipated. Nonprofits are key to the fabric of our communities and we want you to know we are here to help and answer any additional questions you may have as you navigate this changing environment.