IRS Releases Exempt Organizations Update for Tax-Exempt Organizations

Thoughtware Alert Nov 06, 2020
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On October 26, 2020, the IRS released an Exempt Organizations (EO) Update that addresses the following items:

  • Auto-revocation issues
  • Technical advice memorandum (TAM) on royalty income
  • Notice of expected e-filing of Form 990-T online in 2021 for 2020 returns
  • Section 4945(g) individual grant issue “snapshot”

Premature Auto-Revocation Notices

The EO Update states that although the IRS extended the filing deadlines for Forms 990 otherwise due between April 1 and July 14 to July 15, 2020, it was unable to update this deadline in the program that automatically issues notices of revocation to organizations that fail to file a required Form 990 for three consecutive years. As a result, some revocation notices were issued prematurely. The IRS states that it prevented eligible organizations that attempted to file electronically by July 15 from being listed as automatically revoked on IRS.gov, where they’re still shown as tax-exempt. The IRS also states that it’s processing paper filings to allow the reversal of auto-revocation for those filers and reviewing the cases and corresponding with organizations that received the premature notice. 

The IRS also has set up a dedicated fax number, 855.247.6123, to receive correspondence from organizations wishing to appeal a premature auto-revocation and provide evidence of their Form 990 filings. While the IRS is working on correcting the problem, it may take 30 to 45 days for this to happen. In the meantime, the IRS website does have a list of organizations on the auto-revocation list. If your nonprofit is on the list, your organization can be reinstated by contacting the Exempt Organizations Account Unit.

TAM: Royalty or Service?

TAM 202039018 contemplates whether the §512(b)(2) royalty exclusion applies to an online job placement service and concludes (based on the facts and circumstances of that case) the income wasn’t excluded as royalty income under §512(b)(2). The operation of an online job placement service was conducted by the taxpayer and therefore constituted income from an unrelated trade or business subject to tax under IRC §511.

2020 Form 990-T

The IRS is revising Form 990-T for tax year 2020 to allow for e-filing in calendar-year 2021 (reporting on tax year 2020), as required by the Taxpayer First Act. Revisions also are being made to improve its utility for reporting unrelated business taxable income consistent with the “siloing” rules of §512(a)(6) as put in place by the 2017 tax law (Tax Cuts and Jobs Act). The 2020 Form 990-T separates the tax computation (which will be on Form 990-T) from reporting of separate unrelated trades or businesses, which will be on as many Schedules A (Form 990-T) as the organization needs.

Read the draft version of Form 990-T and the draft version of Schedule A (Form 990-T) for 2020.

Section 4945(g) Individual Grant Issue “Snapshot”

Visit the IRC Section 4945(g) Individual Grants webpage on the IRS website for further insight.

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