FIN 48 Update for Nonprofit Organizations
By Laura Kalick
Nonprofit organizations are now beginning the process of documenting tax positions. Material uncertain tax positions will have to be disclosed in a footnote to the financial statements and that footnote is now required to appear on Schedule D of Form 990. Most organizations were not required to implement FIN 48 (now called ASC 740-10) until years ending on December 31, 2009 or later. Thus, all nonprofits that have not previously implemented this provision will have to do so soon.
What does the organization have to document? Since tax exemption itself is a tax position, an organization must document the certainty of exemption. Since the IRS granted exempt status based on representations made in the application for exemption, a good place to start might be to look at the original Form 1023 or 1024 and document that the organization is doing what it said it was going to do. An inventory of revenue streams can be found on the Form 990 in the section that describes income producing activities. An organization should document that the characterization of those items is appropriate and that it would be more likely than not to be sustained if the organization was audited by taxing authorities. FIN 48 is applicable to tax positions at the federal, state and local and international levels. Alternative investments should be reviewed not only for federal unrelated business income tax issues but should also be reviewed for state tax issues. Finally, an organization should look closely at the expenses that have been used to offset unrelated trade or business income, especially when those expenses come from activities that consistently generate losses.
See the full article on this issue at www.bdo.com/industries/nonprofit/FIN48UpdateforTaxExempt.pdf.
For more information contact Laura Kalick, Tax Director, Institute for Nonprofit Excellence at lkalick@bdo.com.
Information courtesy:
