Industry sign banking new york confidentiality agreement online
hello there it is Thursday September 12 2009 teen and we are here with our friend and colleague Michael layman law firm uh John Beck my partner is also here with us and we're going to talk about form 10:23 line by line first let me mention that next Thursday we have the amazing Colleen Flynn she's going to talk about the ten practical and legal strategies for hiring employees and then the following week once you've got them hired she's going to tell you how to terminate them on September the 26 so please sign up for that Colleen is a great presenter with a lot of good practical advice and then Barry Flagg is going to talk about the New York best interest rule for life insurance which is setting a national fiduciary standard that's going to apply to all life insurance agents at least in front of juries and you're going to learn a lot about life insurance and practicalities thereof from one of the best skeptics in the industry Barry Flagg we have other presentations coming up you can see on pages 5 & 6 but let me get to Michael layman Michael is one of the most talented and well qualified tax lawyers who specializes in practices only almost exclusively in the not-for-profit area this includes not-for-profit healthcare social service agencies alcohol and substance abuse centers scientific research organizations religious organizations museums he has a lot of knowledge in a very well hidden area and John Beck and I recently did a lot of work for a very charitable client and we were surprised number one at how hard it is to learn about this area how little there is in the books and outlines and treatises and secondly how knowledgeable Michael was so Michael has agreed to do a series of webinars with us and Michael welcome Thank You Allen thank you for that kind introduction so given the short time allotted to us I'm just going to dive into the content here we've called this form 1020 to read line by line now we can't literally in this this presentation stop and and dwell on each line what we're going to do is you'll see laid out on the slides to come every line but what we're going to do what I'm going to do is take the ones that are you'll see highlighted in bold as the the elements of this form that I've done somewhere around 2000 of these things I do at least one week over over the last 30 years or so so some issues questions that come up in the form 10 23 just repeatedly present the sort of problems we want to alert you to and give you some tips as to how you would address them incomplete whether these forms the form comes across as kind of daunting it uses a lot of unnatural uncommon terminology and has a few trick questions in it so um so my hope is over these next just a little short of three minutes to give you enough insight as to where the important things the difficult things are that if you in your own practices do some of these forms you'll be a little better prepared to tackle next slide it's not coming okay there we go so okay I'm on it now so so the parts of the form tentative 10:23 there are nine parts the pretty well highlighted as you go through the form well who is this applicant what is the applicant set up as does the applicant on par 3 have certain required provisions this is a more this has been added to the form 10 23 in the last five or six years or so the IRS realized one of the biggest deficiencies and applications was the failure to have some of these required provisions and now they really draw - and that's definitely improved applicant experience part for the narrative we tell the IRS what is this organization going to do what makes it charitable part five asks a lot of involve questions about compensation directors officers key employees and other financial arrangements in this part the IRS is always on the watch for arrangements that it considers potentially abusive part six asks for some information about the beneficiary's charitable the nonprofit organizations operate not to make money for their shareholders like business entities but they operate for some kind of public benefit with a served beneficiary class and here aris wants to know well what is that class who are they are you really reaching out in a charitable class manner part seven is a little history thing in the event that your organization isn't somehow someway a successor to another organization most of the time this part is not relevant part eight is a hodgepodge of questions about certain specific activities that over the years the IRS is considered the sort of thing that they should have more information about upfront and we'll touch on some of the key points there and then in part 9 this is often one of the most perplexing parts financial information is requested it's requested in ways that are not not the way that line up with common financial reporting practices budgeting practices a lot of specific questions tailored to issues that relate to a public charity status and such which is important to the IRS but often very opaque to people handling the form onto the next slide after the these base parts of the form we get into a schedule of that relate to specific types of organizations where again the IRS wants more information fleshed out churches schools hospitals supporting organizations a very thorny and difficult topic then schedule II this is not type of organization but if you file late and that will that's the procedural matter we probably will not be able to today but if you you basically have 27 months from the date of organization to get your application in and if you're beyond that you won't get it retroactive to date of formation unless you can show the IRS certain things that are in Schedule E F certain types of housing low income elderly housing G is again a procedural thing if if you answered in the history thing that you are a successor to another organization they want to know more and then H is if the organization provides scholarships today we won't get into any of the schedules perhaps in an another program we'll have time to go through some of the difficult questions that arise including schedules most organizations don't complete these schedules so for a general program like this we don't really ever need to get into that on to the next slide so this is in part one part one these are the lines in Part one and you see the ones that I've put up in bolt and we'll go through what makes each one of the bold points a little noteworthy the other points tend to be a little easier to answer let's go on to the next slide okay so here we see at the top where I've highlighted lines one four six and eight through twelve as parts that often provide problems so the first one is pretty straightforward what's your name well I often see organizations not put down the exact name here that's on their formation document the IRS wants to see it exact if you've got entity identifier zinc core Limited LLC put them in there and of course this is a good point at which you're checking to make sure that you're actually including the organizing document with the 10:23 it has to go in and the IRS is very picky about matching up the name on the document to the name of the applicant if you file a DBA doing business as dishes name a pseudonym don't use that that will get your application either bounced back to you or you get additional questions from the IRS all right moving on to the next slide Maya now here's a little sluggish okay line four this is another one that can cause a lot of trouble you have to have employer identification number sometimes call the taxpayer identification number and it's a number in the format you see there the 2x is followed by seven digits you have to have that on the form and in fact not only is this appear on page one the header on every page of the form up through the schedules has a little spot for you to enter the name and the ein which helps in case pages get detached and the processing back in the good old days when I was starting out you could actually put applied for in that box and the IRS would take it but long ago they abandon that but the good news is you can it's not so hard to get an EIN anymore there is an online application link there so you could paste into a browser there there are some parts of this that are a little opaque some of the questions will be a little tricky the answer but the instructions are pretty good and with this you can get the ein you can actually get a PDF you download onto your desktop include that with the application smooth things over considerably some people still get these by mail but that takes forever I've never recommend anyone get by mail if you've got a computer and who doesn't these days you can get this online you put that in on line four make sure it's accurate I've seen applications get into trouble where digits were transposed the be almost obscenely obsessive about having that one accurate next slide okay so yes you'll see there it asks you for the possibility of fax number now the IRF doesn't communicate by email sometimes they'll take something from you by email but many agents including in the branch that process the application won't even take email fax so your your options for communicating for the IRS are fax or through the regular mail for this reason I still have a fax machine because I do all day I'm communicating with the IRS or several state agencies who also communicate with fax why is this they say email is insufficiently secure for tax payers protective informations where's fax goes through phone lines that is secure whether that's true or not that's the way they work and if you've got one it does it tremendously facilitates communicating with the IRS and if you don't have one you just leave that blank and you're gonna do everything by mail alright next slide slides 9 through 12 ok website now it seems like an innocuous question put down your website address even newly formed organizations often have one but with the IRS agent who reads your 10:23 we'll go look at the website and we'll check what is on the website against what you told them in the forum 10:23 and when they spot things that do not align you'll get a follow up question your Holy Grail and submitting this applications into the mail and it comes back approved that might take nine months but you know having helped you that they discover questions and they need follow-ups because that in slow things down by months they'll go to the website so make sure what you say in your website matches the application if you have hyperlinks to other organizations they'll be curious about why you're hyper linking especially if you're hyper linking to political organizations to lobbying organizations because there are there are issues with c3s engaging in that and they will consider hyperlinks to organizations engaging those activities as potentially the applicants activities I pretty much tell organizations don't do that that solve that problem but more importantly make sure your website tells the same story right down to who's on the governing body where your offices are make it all line up next slide all right so line 10 asked if you're the organization thinks it's exempt from filing form 990 virtually every organization has to file a 990 you might file a 990 - and the electronic postcard if you're small but genuine exemptions from required to file 990 are very rare here I can't fail to note that the form 990 you can't miss three in a row because if you do IRF systems that are fully automated will revoke your 501c3 status you can get it back you may be able to get it back retroactively Lee you may end up with a gap that's a subject for another time it's not you I generally think it's not hard to avoid the three years in a row non non filing but see it I've probably done 150 or more efforts to get organizations replicas automatic revocations undone and it just happens so even if you're you're not exempt as for line 10 just let that always remain in your mind the 990 even though it's just a 990 and online critical make sure that gets fun next slide okay so this is this is a question about one with the organization created if your corporation or an LLC it's the date that the these are creatures of statutes they only come into existence by filing a formation document usually with the Secretary of State and you get to get a certification back that says when the organization's incorporated that even if dot you signed the document on an earlier date I mean Delaware turns things around same day but other word other states are slower have the dates match if you're dealing with trust and associate unincorporated associations basically there's no these don't get approved by a government so you'll look to the execution date of a constitution or trust instrument whatever created your thing again the IRS wants to see that the dates match and something as silly as a mismatch on the dates will draw questions you also want to make sure that you actually filed if it's a corporation or LLC you did file it I've had a few cases where someone at finest division corporation and never filed it it's why they asked for the certified copy and the application you'll get that back and if you don't have a certified copy that means you actually never got incorporated sound silly happens more often than you'd think next flop okay so are you a foreign organization well what is this all about foreign organizations can get C 3 status I've done maybe 20 over the years getting us 501 C 3 status does not mean that now you get tax deductible contributions there are other reasons for a non-us organization to get it sometimes for tax treaty purposes the organization's making investments there are estate tax deductions for us purposes to foreign organizations and some will do will get that 501 C 3 to facilitate ease of getting requests that you're most people will never encounter this in their career but if you do have a foreign organization you can get C 3 status you still have to file fill out the form and fill it out as though everything was going along US rules that can get complicated again don't want to bog down in that that's a separate topic but it sometimes is something that can be done next slide that I think takes us through but the things I can present tricky issues in Part 1 R 2 says what type of entity are you well you'll see the list here corporation association trust some LLC's not partnerships partnerships are ineligible for 501c3 status a partnership a state law partnership that checks the box to be a corporation if you don't know what that is that's only you can look into but it has to be these are court these are classifications or US tax purposes disregarding anthony's can be eligible if they're disregarded underneath an otherwise eligible entity line five where if you're you say your corporation you need to have bylaws and I've had organizations seek to apply without them and the answer why do we need them well the answer is you need them because you're giving information about a board and officers later in the application those people only come into existence through bylaws so you can't really be answering those questions you have the bylaws that set up that structure and decide who gets hold those positions intentionally that's too bad LLC's which is usually all these things are done in operating area form doesn't ask about it you'll have to include it anyway because it's part of what creates the entity but this is really strictly about bylaws so make sure you have bylaws make sure that the bylaws were actually adopted you may be asked to prove that with a usually an incorporated resolution or something like that next slide required provisions so there are regulations which I haven't cited here but the hard to find them the 501 C 3 regs that address to organizational provisions in particular a purposes clause of the lines of 501 C 3 and a dissolution clause and if they are not in your formation documents you're not going to get texts in status the IRS will bounce your application back and make you fix that they are especially obsessed with the dissolution clause there are a few states and there's a there's a Revenue Ruling that lays them out I saw that there there's there's a few states where by operation of law the IRS says upon diss
lution the right things happen I tend not to even rely on that when I create entities in the states that have it put in the document makes it easy for the IRS agent to basically check it off on the list they do like to see a few other things that are not required I've had agent asked about the lobbying a private in ermine prohibition a few other things they don't have to be there these have to be there and they have to be there in the way the I likes them and the instructions will give you pretty good guidance on how to do that next slide so part 4 this is really the heart of the application it's just a big empty box it says tell us about your activities present past present and future and this is where you make your case give the IRF my perspective the users gives them a fair amount of detail it they are open to public inspection you have to provide them if you're asked to provide them so what you say there the world at large can see but also you're making this is advocacy to an IRS agent who is going to give away some money by letting you be tax exempt and they will ask questions I've seen I've been asked to bail out applicants where the this was answered in a very summery and you know bullet point II type fashion it's really didn't give much detail so there isn't a lot more to say other than think about this as your advocacy case you're almost your business plan if you're going to a funder what what makes you tax exempt then you you lay that out here next slide all right now part 5 there's a lot of stuff in here this would be the subject of a whole separate webinar just so that I didn't highlight things like 6 7 8 9 isn't because they aren't complicated they are just that they're actually more complicated than we can get into today but one of the more common questions that comes up is line 5 and a conflict of interest policy and them question says do you have one well you don't have to have one by IRS requirements unless you're a healthcare provider they do require it for that that rule is tucked away not easy to find if you're not unless your state law requires that like New York state law says you have to have one anyway but if you if you you're not healthcare provider you're not in the state that requires one you don't have to have one on the other hand if you deal with almost any third party that wants to give you money of any amount that is something you're going to they're going to ask to see and if you don't have one they'll frown it's a good thing to have in general as a matter of good corporate practice and policy will keep you out of some trouble so with the rarest of cases maybe a handful of times I've not submitted application without it and the IRS has asked why don't you have one and we've come up with an answer and usually gotten through it but it's better just to have it and they're not hard to design and many benefits flow from having one including making the IRS happy next slide okay all right I basically covered this so next slide all right the beneficiaries so 501c3 organization has to operate to benefit a charitable class of some sort so line one is looking for information that might not have been included in your heart for your narrative answer to get a little more focused on that line - I think it was a trick question because the IRS gets a lot of these and I get questions all the time can i form an organization to raise funds for bob who broke his leg the answer is no and the individual is not a charitable class go line to the weed that out asks is that what you're after since if you are go benefit Bob and have a bake sale for Bob but you aren't going to get a charity out of it still surprises me how often we get that question line three is also a little bit of a trick it's looking to see huh are there any special favors or arrangements or special edges and eligibility sometimes they're okay but rarely will those be okay but if there are there are ways to make them work so just the fact that you say yes here is an instantly problematic unlike to where you just need to always answer no if you don't you're in trouble yes here is not guaranteed to be a problem but you'll need to have a story for next slide all right this is the history question a successor or not and there's a specific definition the successor which basically looks to what portion of the assets of another organization for-profit or not-for-profit they're more concerned when a for-profit tries to convert into a not-for-profit there have been abusive cases there but they still are interested why is one nonprofit essentially converting to another are you trying to you're trying to get away with something there you know the IRS is and from my where I fit deal with all-time fell a little bit suspicious and here you know they're looking to confer a tax exemption so you better have good stories for things I've submitted maybe thirty or forty success or applications never had a problem for-profit or not-for-profit but you give them the information here as I mentioned earlier line to this is a twenty seven months and that actually the statutory thing comes out of code section 508 you can work your way through that the first sub bullet there states you know the main rule on mailing if you're late you'll typically get a c4 which is also tax income tax exemption not going to help you with getting tax deductible contributions so you don't want to be late if at all possible but if you are you can try to give a story for good cause I will say I've tried this maybe fifteen twenty times only gotten retroactivity two or three times so it's hard next slide so eight some specific activities we're going to point out to them lots of these other things I could took you know give separate programs than those but let's go on to the next slide for these two in particular political activity oops what we're not probably not going to get to this one so let's go to the next slide the political activities question it asks you are you involved in political activities well with very limited exceptions p3s can't the realm of political activities in which they can involve themselves is very very small so if you answer yes even if it's even if you worked out if you've thought it through and you know you're in a color within the lines and do things that are acceptable politically when you draw if you answer this yes which you should of course if that's that's the truth you're going to get back questions on this and they're going to want to be very very sure you're not really doing prohibited political activity line two goes to lobbying without lobbying for purposes their state and federal lobbying regimes lobbyists rules and all that which overlap but are not nearly completely coextensive so you hear you gotta be thinking about the tax law concept of lobbying what the statute says and the regulations say that a public charity can't have a substantial part of its activities be lobbying a private foundation can't lobby at all so we may not get into well is the applicant what makes them a public charity or private foundation all c3s will be one or the other by default private foundations but if your public charity which is but unless you're in a practice firm like mine where we have a high net worth individual client services group where private foundations are common most charitable organizations public charities and that case they can do some lobbying it's a misconception that lobbying is not possible they can do some the only question is well how much is too much and an organization can either make so-called 501 h election which actually lets you calculate formulaic lis what's permitted and what's not or you can lose facts and circumstances I push everyone I I urge everyone do the final on each election it's it's easy its straightforward its secure and yet I don't know why almost nobody ever takes my advice on that wants to go with the facts and circumstances test I'd had lobbying expenditures raised in audits I do a lot of audit work as well I've never had anyone get in trouble on that I have had or I've had three organizations suffer proposed revocations under political activities gotten them all out of it but one way or another but that's that's a serious thing next slide we might have time for one more so twelve I have twelve fifty eight joint ventures they're not I've won a Michael if you want to go over two or three or three to five minutes that's fine okay all right then I may I may go over a few minutes to get through a couple more things that I think are important joint ventures were really really really big in the 90s for almost an entire decade I must have had joint venture agreements crossed my desk weekly they aren't so big anymore I mean they were really really big in health care and in certain other areas particularly affordable housing that's probably where I see most joint ventures nowadays but they're out there in other respects the IRS is just suspicious of these things and their suspicion goes way back you see your site some of the key the key case which if you do joint ventures you should look read that case and everything that follows it but there isn't a lot RS published a little bit of guidance and it's in my view it's semi helpful what they do like to see and what I try if I am if I have anybody answered this yes then I try to make them do a policy because that will at least show the IRS that the applicant understands that there are concerns in joint ventures and their policy will be crafted to make sure that a board in entering to the joint venture for the nonprofit has given due attention to them you don't have to have a board policy any more than you have to have a conflict of interest policy but having it I encourage eat the drum loudly on that because and then of course you follow it but but having it shows the IRS that okay we'll do joint ventures but we're going to do them right next slide property contributions here's another area where historically the IRS has come across all kinds of abuses I mean you if you get any of the daily tax sort of broad sheets to go around probably recently saw the one on a big facade easement donation millions of dollars I mean the IRS is always worried about property donations in and there's lots and lots of nuance to property donations and there's you people probably remember the the car donation schemes as some years ago and a boat donation so that there's absolutely no reason you can't take property as a matter of most state laws and federal law it's fine but the devil is in the details and again I urge gift acceptance policies which if they're done I put them in the application as a another way of showing the IRS a we're savvy to the area we understand the issues and we're going to color in the line so these sorts of policies I mean sometimes clients say oh my goodness I have a policy I believe I may have a whistleblower policy conflicts policy joint venture policy this policy answers well yes those things keep you out of trouble they appease the IRS and if you they show the IRS you know what you're doing and if you follow them you're you ever get it audited you're going to be lightyears ahead of most taxpayers who get audited if you have followed these things next slide okay foreign this is these days I get comment letters and additional question letters far more on foreign operations and foreign or giving money to foreign organizations than anything else virtually every application that mentions this even so I even though I know what the questions that the IRS is concerned about our I anticipate them I answer them it's it's almost essentially a form letter that comes back to tell us more and sometimes all I do is tell them what I already told them like yeah as as discussed on page such-and-such a through to application blah blah blah the IRS is to sort of insanely concerned about funding foreign organizations again which is totally fine under federal law or actually conducting real operations boots on the ground operations in outside the US the Treasury Department's voluntary anti-terrorist finance and guidelines are your Bible here tell the IRS you're going to follow them actually so it's they're long but and make sure you you know you do follow them I always tell the IRS organizations will follow them understand still get questions still get questions in certain countries draw even further questions if you're in areas where they're you know real hotspots around the world yeah you say you're doing relief you're say you're doing educate all sorts of things these are good things they need to be done plenty of clients who do them and yet the iris is always worried too somehow you're funneling money to bad guys this this part I if I'm representing somebody who's got is going to be answering yes to these I give probably half the attention in the application to crafting responses to this and or ad plus educating clients about really how to do it it's just a whole level beyond your ordinary domestic charity that's just funding other domestic charities conducting domestic programs we're at 105 Alan should I am this this is like 99% of where I want to get anyway so maybe we should um yeah is there anything you want to say if we have another minute or so and would you like to do a part two later um I like them um yeah I think a part two is some of the financial questions and some of the questions and the schedules I'd certainly be game for that you know I've this presentation is like a pathologist report focusing on the bad stuff the problem things you know the tissue samples got this issue that issue another issue most organizations that fill these out it goes it's a free benign process with some attention to the hot spots that I mentioned in the cell line applications are likely due if you're really doing something terrible likely go through don't be afraid the IRS personnel that handle these things I generally find our very cooperative and easy to work with and if they have problems the answer is not going to be your rejected and you know the guys with the handcuffs are coming and get ready to read your rights if they find deficiencies in your application you are given abundant opportunities to correct them I mean it's not infinite if you go through ten rounds of responses and you still haven't satisfied them there's probably some deeper issue but just because you get a response letter back doesn't mean you know the sky is falling virtually everything can be worked out like I said I've probably done a close to 2,000 of them I've only had two that didn't make it through at the end of the day and they were you know aggressive types of applications begin with I've had plenty of organizations who've had to make some changes to accommodate concerns of the IRS but if you're willing to work with the IRS the IRS willing to work with you super I said that was my exact question the one question I had how are the people on the other end people on the other end or great that suit they are they are pretty great yes I am I've had I would say overwhelmingly positive interactions with the Cincinnati IRS people that do these fantastic okay well we have a lot of people on this call please note Michaels email address Michael layman at Becker comm if you have any questions that would help him improve his presentation or know what your hot buttons are please feel free to copy me if you like or all forward to him will do more webinars just like this please don't forget to sign up for Colleen Flynn and Colleen Flynn Barry Flagg etc etc and may the rest of your day be billable thanks again Michael I really appreciate that was a great presentation you're welcome Thank You Allen take care about bye
