Form 990 Revocation and Procedure for Reinstatement

The IRS has released Revenue Procedure 2014-11 which "provides procedures for reinstating the tax-exempt status of organizations that have had their tax-exempt status automatically revoked under section 6033(j) of the Internal Revenue Code for failure to file required annual returns or notices for three consecutive years."

In recent years we have received from religious institutes and affiliated ministries a number of requests for assistance with unraveling the notices they have received from the IRS with regard to their requirement to file Form 990. A number of organizations have been notified that their tax-exempt status has been revoked, and they find themselves listed on the IRS' list of revoked organizations. This can be devastating for the organization itself as it affects not only the organization's ability to receive tax-exempt donations but also their donors' ability to claim a charitable deduction for their donations. Once their name appears on the list, donors are deemed to have notice of the revocation and can be penalized for claiming a charitable deduction for their donations.

Most of the organizations that contact us in these situations were not required to file a Form 990. This means that they should not have been penalized for non-filing. However, the IRS may not know the reason for the non-filing exemption with respect to your religious institute. If your organization has received notices asking for your Form 990 in the three years leading up to the revocation, your response (or lack thereof) can be important to how the IRS will respond to the attempt to clarify the situation.

Generally, when we are contacted, we help the Treasurer of other business office personnel construct a letter explaining to the IRS that a Form 990 was not required to be filed based on the exemption for the "exclusively religious activities of any religious order" in IRC section 6033(a)(3)(A)(iii). Sometimes the exemption that applies is for an "integrated auxiliary" under IRC section 6033(a)(3)(A)(i). The test for an integrated auxiliary must be satisfied in this latter case and may require additional explanation.

The reason for bringing up this Revenue Procedure is that it contains some specific language that would be wise to adapt and include in your letters when corresponding with the IRS on matters related to Form 990. This is true whether you are responding to a notice asking why you did not file a Form 990 for a given year or if you receive the dreaded notice that your tax-exempt status has been revoked. The pertinent part is in Section 8.06 (pages 7-8) of the Revenue Procedure. Below is the paragraph that the IRS recommends should precede the signature of a request for retroactive reinstatement.

Although you technically will not be asking for reinstatement if you were not required to file a Form 990 in the first place, it is important to indicate that you are aware of the requirements of the regulations that govern the (non-)filing of Form 990.

 

This is an extremely critical area of law, and the success or failure in resolving these IRS notices will affect, among other things, your institute or ministry's ability to not pay taxes on any and all income and your donors' ability to claim a deduction for donations made to your charitable organization(s).

W-2 Reporting of Health Insurance Costs

We have again been asked about whether religious institutes should or must report the cost of health insurance provided to their members on their W-2s. The requirement to report applies only to employers with regard to their employees. For 2013 the requirement remains optional for employers with fewer than 250 employees. So, the answer to "Must we report for 2013?" is a definite "No" if you file fewer than 250 Forms W-2 for employees. An employer filing fewer than 250 W-2s can, but is not required to, report the insurance costs on their W-2s.

Since members are not employees of their religious institutes, we continue to oppose the reporting of member health care costs on the W-2s that you file reporting the FMV of the care you provide to them (for purposes of being included in the Social Security and Medicare systems). If you do report these costs, you will be using a box on the form that is designed for employers to report information on their employees, in contradiction to the historical stance that members are not employees of their religious institutes. For those institutes which have 50 or more members, you could be binding yourselves to the requirement that you must provide government mandated and approved health coverage to your members.

The IRS explains the reason for including the cost for health insurance on the W-2s of employees at http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage, stating: "The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage." A second IRS web page (http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage) restates this reasoning: "This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their health care coverage."

The reasons cited by the IRS for including the information on employee Form W-2s--so that employees know how much their health care coverage costs--do not pertain to religious institutes since their members are not employees. Covering the costs of health care is not a perk or benefit of employment for members. Neither civil law nor canon law require religious institutes to provide health insurance to their members. Some members receive coverage through their actual employment outside the institute while others qualify for government-sponsored programs.

Of critical note is the fact that inclusion of health care costs on members' Forms W-2 could indicate your agreement with the assertion that your members are employees. This is contrary to the historical stance that most religious institutes have taken when it comes to the application of federal laws. If you hold your members out as your employees, you could be subject to penalties for failing to provide them with coverage that meets the standards set by the Affordable Care Act. You also could subject yourself to other federal laws that could impose limits on your operations and practices within your sponsored ministries and your religious institute itself.

Lastly, bundling members' Forms W-2 separately from employees' Forms W-2 when submitting them to the IRS can help prevent a misunderstanding. Consider including a note with the members' forms stating that these Forms W-2 are submitted on behalf of members of a religious order who are not its employees, in accord with the election for coverage made under Section 3121 of the Internal Revenue Code.

SCOTUS Issues Eleventh Hour Stay Against Enforcement of Contraceptive Mandate

Supreme Court Justice Sonia Sotomayor signed an order last night that temporarily prevents the U.S. government from enforcing the contraceptive mandate against the Catholic organizations that filed a lawsuit earlier this year.



This is the same case in which the Christian Brothers Employee Benefit Trust is a plaintiff. The Order gives the Obama Administration until 10:00 Friday morning (Jan. 3) to file a response with the Court. At that time the Court will likely issue either a retraining order that could remain in place until the case makes its way through the courts, or it could lift the injunction and allow penalties to start accruing against the plaintiffs if they do not comply with the mandate while the case moves through the courts.

The Becket Fund for Religious Liberty, which represents the Little Sisters of the Poor in the law suit, has an announcement on its website reporting on the last minute stay by the Supreme Court.

Stay tuned.