Small not-for-profit organizations at risk of losing their tax-exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by October 15, 2010, under a one-time relief program, the IRS announced.

On its Web site, the IRS posted state-by-state lists of the names and last-known addresses of these at-risk organizations, along with guidance about how to come back into compliance. Click here to see the list. The organizations on the list have return due dates between May 17 and October 15, 2010, but the IRS has no record that they filed the required returns for any of the past three years.

"We are doing everything we can to help organizations comply with the law and keep their valuable tax exemption," IRS Commissioner Doug Shulman said. "So if you do not have your filings up to date, now's the time to take action and get back on track."

Two types of relief are available for small exempt organizations - a filing extension for the smallest organizations required to file Form 990-N, Electronic Notice (e-Postcard), and a voluntary compliance program for small organizations eligible to file Form 990-EZ, Short Form Return of Organization Exempt From Income Tax.

Small organizations required to file Form 990-N need to go to the IRS Web site, supply the eight information items called for on the form, and electronically file it by October 15. That will bring them back into compliance. Contact your tax adviser if you have any concerns about your organization's tax situation.

1. Elimination of the need for repeated certification submission to contracting officers.
   
2. Regulation of the income standards for economically disadvantaged women.
   
3. Expansion of the WOSB Program industries from three to 83.
   
4. Broadening of the joint-venture requirements to allow a wider variety of partnerships.
   

The District of Columbia is providing a tax amnesty program between August 2, 2010 and September 30, 2010 for all taxes administered by the Office of Tax and Revenue (OTR) with the exception of real property related taxes and the ballpark fee. All tax periods prior to December 31, 2009 are covered by the amnesty program, which includes an abatement of taxpayer penalties and fees due and no imposition of criminal penalties.

Administration. During the 2-month amnesty period, penalties and fees will be waived upon the payment of the following overdue taxes: individual income, corporate and unincorporated franchise, withholding, sales and use, personal property, fiduciary income, motor fuel, special event taxes, gross receipts, estate, tobacco, and toll communication taxes. Real property taxes and the ball park fee are ineligible for the amnesty program. An amnesty application or payment of an amnesty bill must be filed or postmarked by September 30, 2010 to be eligible for the program.

Taxpayers who did not file returns that should have been filed prior to December 31, 2009 should complete those returns along with an amnesty application, together with full payment of the tax and interest due. If a taxpayer files less than all unfiled returns, the taxpayer will receive amnesty only on those returns actually filed with the tax and interest due paid in full.

The OTR has established a special website (http://www.dctaxamnesty.com/) to help tax delinquents expedite payment and resolve their tax liabilities, including the amount owed. The website provides an interest calculator to determine the tax and interest due. Application forms can be downloaded from the website. Taxpayers can also contact the Department for additional information.

If there is an error in the amnesty bill, the taxpayer should contact the OTR promptly. The OTR will provide the taxpayer with a revised amnesty. If the issue is not resolved before the end of the amnesty period, the affected taxpayer should pay the bill provided and seek a refund after the amnesty.

Payments. Payment may be made by attaching a check or money order to the amnesty application and return or with the amnesty bill stub or by e-Check or credit card through the official payments website (http://www.officialpayments.com). A convenience fee is imposed on credit card transactions through the official payments website. Amnesty returns and payments may be mailed to the OTR at Office of Tax and Revenue, P.O. Box 470, Washington, DC 20044. Payments may also be made in person at the Office of Tax and Revenue, 1101 4th Street, S.W., Suite W270, Washington, DC 20024. However, no payment arrangements are available; taxpayers must pay the full amount of taxes and interest due on amnesty bills filed with the amnesty application.

Deferred payment plan taxpayers. Taxpayers who are currently on a deferred payment plan may still apply for tax amnesty and such taxpayers should have received a notice of amnesty eligibility. Taxpayers under such plans (whether with the OTR or a private collection agency) may simply subtract any deferred payments made since the bill was produced and return the amnesty bill stub, together with the remaining payment due.

Is the cost of travelling to and attending that convention an allowable claim? Can your business include the expense of sponsoring a conference in its claimed indirect expense pool? It all depends on the nature and purpose of the event.
 

• Antique car conventions.
• Arts and crafts fairs.
• Boat shows.
• Home and garden shows.
• Large-scale live events conventions.
• Literacy conventions.
• Pet owners' conventions.
• Science fiction conventions.

1. Is the primary purpose of the event to disseminate trade, business, technical or professional information?
2. Is the intent to stimulate production?
3. Is the primary reason to improve productivity?

1. The primary purpose of the convention appears social.
2. The main attraction is fun rather than business.
3. The convention is about a business unrelated to your organization's government contracting work.

The Center for Nonprofit Advancement recently reported that foundation-based giving in the Washington area dropped by 9.6% in 2009.  The recent recession plays a major role in the reported drop, and the full impact may not be realized until 2010.

Click here to access the full report from the Washington Regional Association of Grantmakers.

Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year's tax return.

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.

1. The cost of day camp may count as an expense towards the child and dependent care credit.
2. Expenses for overnight camps do not qualify.
3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available here on the IRS Web site or by calling 800-TAX-FORM (800-829-3676).

E.Cohen and Company, CPAs is proud to announce that Gail Fisher has penned an informative and well-received article in the summer 2010 issue of Women Business Owners of Montgomery County's Networker.  WBO provides support and networking for women who own and operate their own businesses, giving them tools to help manage and grow their business.

Gail's article is entitled "Small Business Incentives Under New Tax Laws". Click the "Download" icon below to access a PDF of Gail's article.  Congratulations Gail on a job well done!

 You've likely heard about the new tax credit for small organizations that provide healthcare coverage. Does your business or not-for-profit qualify? Is the credit worthwhile enough that companies that do not offer coverage will now start?

The recently enacted healthcare legislation includes a new tax credit for qualifying small employers. The credit can cover up to 35 percent of employee health insurance costs. It is available for tax years beginning in 2010, and can be claimed for eligible costs incurred before the healthcare legislation became law.

Does your company qualify for the credit? As with most tax topics, there's no simple answer. Here are the qualification rules.

Basics About the Credit

A qualifying small employer is one that:

• Has no more than 25 full-time-equivalent (FTE) workers;
• Pays an average FTE wage of no more than $50,000; and
• Has a qualifying healthcare arrangement in place.

A qualifying healthcare arrangement is one that requires the employer to:

• Pay at least 50 percent of the cost of each enrolled employee's coverage; and
• Pay the same cost percentage for all enrolled employees. However, for tax years beginning in 2010, this uniform cost percentage requirement does not apply. Instead, a favorable transition rule allows you to pay an amount equal to at least 50 percent of the cost of single coverage for all enrolled employees (including those with more-expensive family or self-plus-one coverage). To be eligible for the credit in later years, however, you must pay the same cost percentage for all enrolled employees, including those with more expensive coverage.

In the typical situation in which the employer pays less than 100 percent of the cost of coverage (with employees picking up the balance), the credit can only be claimed for the percentage of the cost that is paid by the employer.

Healthcare premiums paid under a Section 125 cafeteria benefit plan salary-reduction arrangement do not count as an employer-paid cost.  

The credit is allowed for all types of qualifying small employers, including C and S corporations, partnerships, LLCs, and sole proprietorships. However, certain workers who are also owners are classified as excluded workers, and costs to cover them are ineligible for the credit. Specifically, sole proprietors, partners, more-than-2 percent S corporation shareholder-employees, and more-than-5 percent C corporation shareholder-employees are excluded workers. Most employees who are members of these type of owners' families, including in-laws, are also classified as excluded workers, and costs to cover them are also ineligible for the credit.

Key Point. An employee who is married to a more-than-2 percent S corporation shareholder or a more-than-5 percent C corporation shareholder is an excluded worker. However, it is unclear if an employee who is married to a sole proprietor or a partner is an excluded worker. We are awaiting IRS guidance on that issue.  

Calculating FTE Employees and Wages

As you will see, a complicated phase-out rule quickly reduces the credit if your business has over 10 FTE employees or an average full-time wage above $25,000. The credit is completely phased out once the number of FTE employees reaches 25 or the average wage reaches 50,000. Therefore, the FTE employee and wage calculations are really important in many cases. Here is the drill.

The number of FTE employees is calculated by dividing total paid employee hours for the year by 2,080. However, if a worker is paid for more than 2,080 hours, the excess hours are excluded from the calculation. Seasonal employees who work 120 days or less during the year (counting all days that any hours are worked) are also excluded from the calculation. The calculated number of FTE employees is then rounded down to the next whole number.  

The average FTE wage for the year is calculated by dividing total employee wages by the number of FTE employees. Wages paid to seasonal employees who work 120 days or less (counting all days that any hours are worked) are excluded from the calculation. The calculated FTE wage amount is then rounded down to the next multiple of $1,000.  

Because the credit cannot be claimed for costs to cover excluded workers (certain owners and their relatives, as explained earlier), their hours and wages aren't counted in determining the number of FTE employees or the average wage.  

Key Point. As you can see, a business can have more than 25 workers and still be eligible for the credit if some of the workers are part-time employees, seasonal employees, or excluded workers. 

Calculating the Tentative Credit

The maximum possible credit, which we will call the tentative credit, equals 35 percent of the lesser of:

• The employer's real-world cost of providing employee health coverage under its qualifying arrangement; or
• The imaginary cost to obtain "benchmark" coverage in the small-group market as determined on a state-by-state basis by the U.S. Department of Health and Human Services.

In the typical situation in which the employer pays less than 100 percent of the coverage cost, the tentative credit is calculated by multiplying the real-world cost or the imaginary benchmark cost (whichever is less) by the cost percentage paid by the employer.

The benchmark costs for tax years beginning in 2010 were published in IRS Revenue Ruling 2010-13. For higher-cost areas in some states, there may be additional 2010 benchmark costs later on.

 Calculating the Allowable Credit after the Phase-Out Rule

An employer's allowable credit (the amount that can actually be claimed on the employer's federal income tax return) equals the tentative credit (based on 35 percent of the applicable healthcare cost figure) only when the employer has:

• 10 or fewer FTE employees; and
• An average FTE wage of $25,000 or less.

If the employer has more employees and/or a higher average wage, the allowable credit is quickly reduced under a complicated two-tiered phase-out rule that your tax adviser will calculate.

Special Rules for Tax-Exempt Employers

For qualified small employers that are tax-exempt not-for-profit entities, the maximum credit percentage is 25 percent, and the phase-out rule explained above applies to them, too. In addition, the allowable credit amount for the year cannot exceed the sum of:

1. Federal income tax and 1.45 percent Medicare tax withheld from employee wages for that year; plus

 2. The employer's 1.45 percent Medicare tax on wages for that year. Since there is no federal income tax liability to offset, the allowable credit amount for a tax-exempt employer is refunded to the employer in cash.

Other Considerations and Conclusion

• The credit can be claimed for eligible healthcare costs incurred in tax years beginning in 2010 -- before the healthcare legislation was enacted.
• An employer's federal tax deduction for employee health costs is reduced by the amount of the credit.
• The credit is classified as a specified general business credit. As such, it can be used to offset both regular federal income tax and any alternative minimum tax. It cannot be used to offset federal employment tax liabilities. Unused credit amounts can be carried back for one year (but not to any pre-2010 year) and ahead for 20 years. Therefore, unused credits for tax years beginning in 2010 can only be carried forward.

Presumably, a fair number of small businesses that already provide health coverage will qualify for the credit. In this economy, it may not prompt many small businesses to suddenly start providing insurance. The fact that the credit rules are so complicated does not help matters. Consult with your ECC tax adviser about questions in your situation. 

 Business Wisdom for Today's Economy:

Rules Issued for "Grandfathered" Health Plans

Three agencies of the federal government have issued interim rules for health plans that were in existence when the Patient Protection and Affordable Care Act was enacted on March 23, 2010.

Under the healthcare legislation, "grandfathered" health plans are only subject to certain provisions. The interim rules were issued by the Departments of the Treasury, Labor and Health and Human Services. Your company's employee benefits professional can provide more information.

On June 30, Congress passed H.R. 5623, the Homebuyer Assistance Improvement Act of 2010. The Act, which is now cleared for the President's signature, provides first-time homebuyer credit relief to taxpayers who couldn't meet a key June 30, 2010, closing date.

Under prior law, both the regular Code 36 first-time homebuyer credit of $8,000 and the reduced credit of $6,500 for long-term residents generally expired for homes purchased after Apr. 30, 2010. However, if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit could be claimed if the purchase closed before July 1, 2010.

The Act amends Code Sec. 36(h)(2) to provide that if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit may be claimed if the purchase is closed before Oct. 1, 2010. Thus, this extension allows homebuyers who signed a contract no later than the April 30th deadline to complete their closing by the end of September.

The three-month extension of the closing date provides tax relief for those who couldn't close on time because of backlogs at lenders and federal programs involved in homebuyer loans. In the words of the Act's supporters, the three-month extension "will give time for all the new mortgages to be processed and not punish those homeowners who have been delayed through no fault of their own."

The cost of the three-month closing reprieve is fully offset with revenue raisers, including these tax changes: expanding the bad check penalty under Code Sec. 6657 to cover electronic payments, effective for instruments tendered after the enactment date; and providing for disclosure of prisoner return information under Code Sec. 6103(k)(10) to state prisons, effective for disclosures after the enactment date.