IRS Tax Guidance Form for Not-for-Profits

Posted on 07.16.13

AutBusinessman Facing Sign Posthor: Jayme Mika, CPA, Not-for-Profit Tax Manager

 

The IRS has a form specifically geared for giving not-for-profits some additional guidance for questionable tax positions.  Form 8940 can supply some certainty in an uncertain tax world.

The Form 8940 – Request for Miscellaneous Determination can be used for tax-exempt organizations to request any of the following nine specific types of determination:

  1. Advance approval of certain set-asides for private foundations (A private foundation that wishes to set aside funds for a specific project, may treat the set• aside amount as a qualifying distribution in the year of the set-aside, rather than in the year it is actually paid)
  2. Advance approval of voter registration activities (Generally, private foundations are taxed on taxable expenditures including any direct or indirect voter registration drive. The exception to this rule is a grant to an exempt organization that has obtained advance approval that its voter registration activities meet the definition of nonpartisan activities under Section 4945(f))
  3. Advance approval of scholarship procedures for private foundations (Private foundations are taxed on any grant to an individual for travel, study, or similar purposes, unless the grant has been awarded on an objective and nondiscriminatory basis pursuant to a procedure that has been approved in advance by the IRS)
  4. Ruling on whether an organization is exempt from the Form 990 filing requirements
  5. Advance approval that a potential grant or contribution is an unusual grant (Exclusion of certain grants from the public support test (33 1/3%) on Schedule A)
  6. Change or initial determination of type of Section 509(a)(3) supporting organization (Determination of what type of supporting organization (Type I, II or Ill) or to reclassify from one type to another)
  7. Reclassification of foundation status
  8. Advance ruling request for termination of private foundation status
  9. Termination of private foundation status at the conclusion of the 60-month period

Form 8940 generally requires a user fee to be included before the IRS will consider the request. The fee schedule is updated annually but for 2012 the first three listed above require a fee of $1000, while the remaining requests are $400. These determination requests cannot be made on the basis of Form 8940 alone, other material is required by the IRS before the determination can be obtained. See the instructions to Form 8940 for a list of materials required when submitting the form.

If an organization is applying for tax-exempt status as a public charity under Section 50l(c) and believes that it will qualify for an exception from the Form 990 filing requirement or a private foundation is applying for tax-exempt status and will be providing scholarships, they should request a ruling on these point directly on the application for tax-exemption on Form 1023, instead of Form 8940.

With the request for determination form, an exempt organization may obtain clear guidance from the IRS in advance to clear up some of the grey areas that are ever present in the tax-exempt world.