Not-for-profit organizations are different from for-profit businesses in many vital ways. One of the most crucial differences is that under Section 501(c)(3), Sec. 501(c)(7) and other provisions, not-for-profits are tax-exempt. But your tax-exempt status is fragile. If you don’t follow the rules laid out in IRS Publication 557, Tax-Exempt Status for Your Organization, the IRS could revoke it.

package wrapped in black bubble wrap with red label "Handle with Care. FRAGILE. Thank you."; image used for blog post about not-for-profit protecting tax-exempt status

Be particularly alert to the following common stumbling blocks.


Continue Reading Protecting Your NFP’s Tax-Exempt Status

Jen: This is The PKF Texas – Entrepreneur’s Playbook®. I’m Jen Lemanski, and I’m back once again with Emily Smikal, a tax director and one of the faces of our PKF Texas not-for-profit team. Emily, welcome back to the Playbook.

Emily: Thanks for having me again.

Jen: So, I know for profit organizations can be audited by the IRS. I’m assuming not-for-profit organizations can also be audited for the IRS. Are there any steps that they can take to maybe avoid an audit?

Emily: Yes, not-for-profit entities can be audited, and so, it’s important to just understand how the IRS selects which organizations they’re going to audit so you can be somewhat prepared for that. So, first of all, you can’t fully know; they will randomly select organizations to audit, but there are some common triggers to just be aware of.

Jen: What are those triggers?


Continue Reading How Your NFP Can Avoid Pitfalls of an IRS Audit

There’s a new IRS form for business taxpayers that pay or receive certain types of nonemployee compensation and it must be furnished to most recipients by February 1, 2021. After sending the forms to recipients, taxpayers must file the forms with the IRS by March 1 (March 31 if filing electronically).

a mini calendar reading "February 01" with 1099-NEC and 1099-MISC

The requirement begins with forms for tax year 2020. Payers must complete Form 1099-NEC, “Nonemployee Compensation,” to report any payment of $600 or more to a recipient. February 1 is also the deadline for furnishing Form 1099-MISC, “Miscellaneous Income,” to report certain other payments to recipients.

If your business is using Form 1099-MISC to report amounts in box 8, “substitute payments in lieu of dividends or interest,” or box 10, “gross proceeds paid to an attorney,” there’s an exception to the regular due date. Those forms are due to recipients by February 16, 2021.


Continue Reading Due Soon: New Form 1099-NEC and Revised 1099-MISC

Holiday-inspired generosity and the desire to reduce tax liability makes the end of the year a busy time for charitable giving. According to Network for Good and other sources, approximately 30% of charitable gifts are made in December alone. For not-for-profits, an important part of processing these donations is sending thank-you letters that acknowledge donor gifts.

a note card with the word "thanks" sits on a wooden table with a black marker; image used for blog post about not-for-profits acknowledging donor gifts

To ensure your letters contain everything they should, here’s a refresher course.


Continue Reading The Importance of Acknowledging Donor Gifts

thumbnail image of a PKF Texas white paper about the November 18 PPP Loan ruling impacting tax planningThe IRS released new ruling and guidance on November 18, 2020 for businesses who received a Paycheck Protection Program (PPP) Loan, Revenue Ruling 2020-27 and Revenue Procedure 2020-51, which clarifies the tax deductibility of expenses related to loans that have not been forgiven.

The PKF Texas team wants to share with you a special

If you’re finally done filing last year’s return, you might wonder: Which tax records can you toss once you’re done?

files and books of paper stacked across a shelf; image used for blog post about keeping tax records or throwing them away

October 15 is the deadline for individual taxpayers who extended their 2019 tax returns. (The original April 15 filing deadline was extended this year to July 15 due to the COVID-19 pandemic.) Now is a good time to go through old tax records and see what you can discard.


Continue Reading Keep Tax Records or Throw Them Away?

IRS audit rates are historically low, according to the latest data, but that’s little consolation if your return is among those selected to be examined. But with proper preparation and planning, you should fare well.

In fiscal year 2019, the IRS audited approximately 0.4% of individuals. Businesses, large corporations and high-income individuals are more likely to be audited but, overall, all types of audits are being conducted less frequently than they were a decade ago.

two men look at stats and documents; image used for blog post about getting ready for an IRS audit

There’s no 100% guarantee that you won’t be picked for an audit, because some tax returns are chosen randomly. However, the best way to survive an IRS audit is to prepare for one in advance. On an ongoing basis you should systematically maintain documentation — invoices, bills, cancelled checks, receipts, or other proof — for all items to be reported on your tax returns. Keep all your records in one place. And it helps to know what might catch the attention of the IRS.


Continue Reading Getting Ready for an IRS Audit in Advance

Does your private foundation have a detailed conflict-of-interest policy? If it doesn’t — and if it doesn’t follow the policy closely — you could face IRS attention that results in penalties and even the revocation of your tax-exempt status.

Image of a paper document shaped as a question mark with the words "conflict-of-interest policy;" used for blog post about private foundations needing a conflict-of-interest policyHere’s how to prevent accusations of self-dealing.
Continue Reading Why Foundations Need Strong Conflict-of-Interest Policies

Employees or independent contractors? It’s not only for-profit companies that struggle with the question of how to classify workers for federal tax purposes. Not-for-profit organizations must withhold and pay Social Security, Medicare and unemployment taxes for employees, but not for contractors. (There may also be state tax responsibilities.)

a Black woman and American woman pose together, wearing blazers, in front of a white board; image used for blog post about not-for-profits classifying workers for tax purposes

But be careful before you decide that most of your staffers must be contractors. The IRS may not agree.


Continue Reading How to Classify Your NFP’s Workers for Tax Purposes

While you probably don’t have any problems paying your tax bills, you may wonder: What happens in the event you (or someone you know) can’t pay taxes on time?

woman holding hundred dollar bills fanned out; image used for blog post about options if individuals can't pay taxes on time

Most importantly, don’t let the inability to pay your tax liability in full keep you from filing a tax return properly and on time. In addition, taking certain steps can keep the IRS from instituting punitive collection processes.

Here’s a look at the options.


Continue Reading Can’t Pay Individual Taxes? Here’s What to Know