Filing Deadlines Extended for Nonprofit Organizations

By the third week of March 2020, governments at all levels had begun to respond to the many questions and issues raised by the COVID-19 emergency, including – most notably – the curtailment or suspension of operations and activities by individuals and entities on account of new stay-at-home orders  and recommendations.

The necessary federal emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Act was made in mid-March. The Internal Revenue Service then acted further by explicitly extending “Tax Day” from April 15, 2020 to July 15, 2020. But this rule was drafted in a way that did not apply to tax-exempt organizations, meaning that “‘without another fix,’ nonprofits were left out.”

In addition to that semantic confusion, the tax deadlines for exempt organizations are different than for businesses and individuals. The key annual information returns – the Form 990 series – are generally due on the fifteenth day of the fifth month after the close of the fiscal year. For instance, for the many groups with calendar-year-based fiscal periods, that due date is May 15th. For those with January 31 year ending dates, the due date is June 15th.

Clarification – At Last!

Over the next few weeks, there were a series of attempted fixes: official Notices including 2020-17, 2020-18, 2020-20, and then 2020-23 on April 9th with an accompanying press release that same day that appeared to do some necessary “gymnastics” to connect it all back to a two-year-old document, Notice 2018-58.

But even Notice 2020-23 was ambiguous and incomplete, so the IRS issued a further clarification on April 14th: IRS extends more tax deadlines, including Form 990-series returns and notices. Incredibly, this April 14th document required a bit more (informal) clarification the next morning between a leading tax expert and the IRS.

Now, the dust has apparently settled. The deadline imposed on tax exempt organizations for filing the Form 990-series annual information returns (Forms 990, 990-EZ, 990-PF, 990-BL, 990-T, and 990-N e-postcard) that are due between April 1 and July 15 has been extended to July 15.

This relief also applies to other filings including:

  • Form 4720: private foundation excise taxes
  • Form 8976: notice of intent to operate under 501(c)(4)
  • Form 5227: split-interest trusts
  • Forms 8871, 8872, and 1120-POL: related to Section 527 political organizations

No Extension Application Required

These new rules include an automatic extension of time to file the documents. There is no need to take any action to request more time unless an organization wants more time beyond July 15, 2020. In that case, a group should submit a Form 8868, Extension of Time to File an Exempt Organization Return, on or before July 15th. The extension date may not extend beyond the original statutory or regulatory extension date; that is, generally six months from the original due date.

Conclusion

This additional filing time is welcome news for the nation’s exempt organizations, many of which are operating remotely (if, indeed, they have not had to severely curtail or stop operations altogether), and need extra time to gather information and confer with professional advisors to prepare and file forms.

COVID-19 Federal Legislation

Now, more than at any time in many decades, the government – at all levels – will play a key role in our lives. There are, and will continue to be, different laws and rules as well as conflicting messages. The system of federalism – which allocates authority and power between the federal government and the states – will be tested as never before.

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COVID-19 Nonprofit Crisis Funding

The crisis facing our entire society has thrust the nonprofit sector into a dual role all too familiar from emergencies past: We are fighting for our survival while at the same time stepping up to provide needed benefits and services to our communities.

In these uncharted waters, nonprofit organizations are looking to sources of financial assistance both established (government contracts, foundation grants, and individual donors) as well as new (rapid-response funds and special government loans and benefits).

We’ve assembled, and will continue to add to, a list of various resources on available crisis funding.

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Small Business Administration Disaster Loan Guidance and Resources

The U.S. Small Business Administration (SBA) has an existing program, the Economic Injury Disaster Loan program, that extends disaster relief loans to small businesses, including nonprofits, to help alleviate economic injury caused by disasters. 

On Thursday, March 12, 2020, the SBA announced that the program will be available to claims arising from COVID-19. 

The SBA will work with state officials to offer loans of up to $2 million. “These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.”

California has already qualified as a locale eligible for this program. 

For details and information, see here. See also, Disaster Assistance Loans Available to San Diego County Small Businesses.

Apply online through SBA’s secure Disaster Loan Assistance website. For application information, please call 1-800-659-2955 or email DisasterCustomerService@sba.gov.  

FPLG COVID-19 RESPONSE TEAM

FPLG COVID-19 RESPONSE TEAM

The COVID-19 crisis marks a new and frightening era for our nation and the world. Everything has been turned upside down; we are all facing massive economic and social disruption. 

Nonprofit organizations in the United States are a vital part of our communities, and critical participants in the overall economy. In ordinary times, they provide benefits and enrichment to us all as well as specific services to disadvantaged individuals and groups – all while employing a significant portion of the overall U.S. workforce.

In times of disaster, they step up immediately as critical links in relief and social services. At the same time, they must address their own needs (including staff) arising from the devastating events beyond their control.

This is not business as usual, but – together with others in the nonprofit and business communities – we can figure it out. Our goal is to help you navigate these unique times and all of the new issues you face.

OUR LIST OF RESOURCES (Updated Daily)
FREQUENTLY ASKED QUESTIONS

Are your questions not addressed on these pages? Please reach out to our COVID-19 response team (info@forpurposelaw.com) with your questions, and we will research the answers, and update you (and everyone else!)

This (and all our pages) are for general information and guidance only. We will update them regularly and add more topics. These are intended for educational purposes only, and the links and information do not constitute legal services or advice.

Corporate Governance: No Longer Just About Business

With the goal of closing the gender gap in corporate governance, in 2018 former Governor Jerry Brown signed into law requirements that all publicly traded corporations in California include at least one woman on their board of directors by the end of 2019.

By the end of 2021, those companies that have five member boards must have at least two directors who are female. For boards with six or more directors the number of required female directors bumps up to three. Companies that fail this quota will face six-figure financial penalties.

According to the Women on Boards survey released last month by Board Governance Research, of the 642 publicly traded companies headquartered in California, 184 companies will need to find a women director in 2019.

Annalisa Barrett, a lecturer at the University of San Diego on corporate governance, recently reflected that “almost 200 [companies] this year are going to have to add women to their boards, and certainly by the 2021 deadline, there is going to be significant change in the board rooms of California companies.”

The state of California is not alone in seeking to change traditionally male-dominated corporate governance; so are institutional investors.

Recent attention on social issues such as the #MeToo movement have shown a spotlight on companies perceived as sending messages of gender inequity. This perception can affect a company’s stock performance, and has thus grabbed the attention of investors.

A June 2018 survey of 233 institutional investors indicates that 68% of those investors have concerns over board gender diversity in their proxy voting. According to Sapna Nagaraj, director of machine learning and data science at Blackline, a provider of financial automation solutions, “Companies are being judged not just by their business profitability, but by their operating principles. Brands will be labeled as being socially conscious or not, creating long-lasting implications for the organization’s profitability, recruitment and retention of skill sets, and survival.”

As the recognition of a business’ social responsibility increases, a new “social corporate governance” structure is emerging, led by social entrepreneurs.

According to Pulitzer-nominated financial journalist Russ Banham, “There is ample evidence to indicate that more companies than ever before are being held accountable for their actions and workforce composition, as well as leaders’ social media statements.”

“In this age of flourishing social consciousness, corporate governance is no longer just about business.”

The Refrigerator Estate Plan

You’re ahead of most of your generation; you know that an estate plan is vitally important, especially if you own property or have children. You have been proactive, and your current and comprehensive estate plan has helped you to lower your taxes, avoid the necessity of probate, and provide peace of mind and security for your family if the worst were to occur.

But if you have young children, your plan might be missing one small item; small enough to fit on your refrigerator.

Let’s say that you and your spouse are finally enjoying a night out on the town, leaving your young children at home in the care of a well-trained and enthusiastic babysitter.

On your way home, you and your spouse are involved in an accident leaving you both incapacitated or deceased. Unless your babysitter is a grandparent or other family member well-versed in your wishes, what does the babysitter do when you don’t arrive?

For many modern families, close family members or the guardian you have chosen may not be in the same town – or even the same state.

The time between receiving that horrible message, and the time when the provisions of a typical estate plan including guardianship will kick in often lasts many hours, or even days. This “gap” time can simply be one of the most challenging and stressful times for both children and their temporary caregivers.

But there is a simple way to take a great deal of chaos and uncertainty out of the equation… simply putting a piece of your estate plan on your refrigerator, in addition to adding it to your estate planning binder.

If you don’t arrive when your babysitter expects you to, who should they call?

If the police arrive, who should they call?

Who is authorized to care for your children for the short-term?

If it’s not clear to local authorities and the police who has legal authority to care for your children, the police are required to call in Child Protective Services (CPS) and your children will go into short term custody, exacerbating the trauma of losing their parents.

But this painful scenario can be easily avoided.

We encourage you to work with your estate planning attorney to craft a comprehensive, one-page legal document with explicit instructions about who should be called and who should be entrusted with your children during that short-term “gap” period.

Business Fundamentals: What is a “Sole Proprietorship”?

We get this question all the time.

Derived from the word “proprietor” – and first used in 1537 – a sole proprietorship offers the most flexibility and greatest freedom of all the business forms. However, it is not a separate entity and has no separate existence from that of it’s owner. Often times, businesses begin as sole proprietorships and graduate to more complex business forms as the business develops.

A sole proprietorship can operate under the name of its owner or it can register and do business under a fictitious business name, or “DBA.” The fictitious name is simply a trade name–it does not create a legal entity separate from the sole proprietor owner.

The sole proprietorship is popular among new business owners, as it’s easy to set up very inexpensively. A sole proprietor only needs to register his or her trade name and secure local licenses to be ready to transact business (something we can help you with).

Perhaps the primary disadvantage of this business form is that the owner of a sole proprietorship will remain personally liable for all the business’s debts and liabilities. So, if the business runs into financial trouble, creditors can (and will) bring lawsuits against the business owner in his or her individual capacity. If such suits are successful, the owner will be obligated to pay the business debts with personal assets.

A sole proprietor owner can, and often does, commingle personal and business property and funds, something that partnerships, Limited Liability Companies and corporations cannot do – and they often establish bank accounts in the name of the owner. Sole proprietors need not observe the requisite business formalities such as voting and annual meetings associated with corporations, social enterprises and LLCs.

Because a sole proprietorship is indistinguishable from its owner from the IRS’s perspective, sole proprietorship taxation is quite simple. The income earned by a sole proprietorship is income earned by its owner. A sole proprietor reports the sole proprietorship income and/or losses and expenses by filling out and filing the Schedule C, along with their normal Form 1040.

Further, as a sole proprietor you must also file a Schedule SE with your Form 1040. This form is used to calculate how much self-employment tax you owe. You must pay unemployment tax on any employees of the business, other than yourself – if the business fails, you aren’t eligible to receive unemployment compensation.

Selection of this business form should be carefully considered, as the owner is personally liable for all potential liability of the business, including any accidents that may happen, and any debts the business incurs. Accidents do happen, and businesses go out of business every day.

The advantages of a sole proprietorship:

    • Commingling of assets, both business and personal;
    • Set-up is quick, easily and inexpensive;
  • No need to follow “corporate” formalities.

The disadvantages of a sole proprietorship:

    • Sole proprietors are open to unlimited personal liability for the debts, losses and liabilities of the business;
    • Sole proprietorships are linked to their owners, and can be wiped out by the death or disability of the owner, and thus do not retain their value;
  • No access to capital investment.

California Probate Explained

After a person passes away, their assets must go through a legal process called probate. This can be time-consuming and costly, depending on the size of the person’s estate and the types of estate planning documents they prepared during their life. To simplify things, let’s go through some common questions about the California probate process.

What is probate?

The probate process involves dividing up a deceased person’s money and property, and then distributing it to the appropriate heirs.

What are the basic steps?

The basic steps of probate are as follows:

  1. Someone comes forward to initiate the process by filing a petition. This could be an executor named in a Will or a court-appointed administrator.
  2. Notices are published in the local newspaper and sent to everyone named in the Will.
  3. The courts verify the Will’s validity.
  4. The executor takes possession of any of the decedent’s assets that are subject to probate, then takes inventory and appraises property if necessary.
  5. The executor pays off debts, estate taxes, and funeral expenses using the probate assets.
  6. Once the executor’s actions are approved by the courts, the estate is closed.

How long does it take?

If you’re acting as an executor, your job could last six months to a year. Remember that you’ll have to file forms, take inventory of assets, manage accounts, pay bills, and more while waiting for the California courts to approve your actions.

What assets go through probate?

Not all assets go through the probate process. The property could include money, real estate, cars, furniture, or any number of items — what matters is who owns that property. Typically, any property the deceased person owned solely in their own name will go through probate. That includes separate property (acquired outside of marriage or inherited during marriage).

Assets owned in joint tenancy with others do not go through probate, nor does survivorship community property owned with a person’s spouse.

Is probate always necessary?

No. Some types of documents, like trusts and insurance policies where a beneficiary is named, are technically not owned in the person’s name. A trust holds property on the person’s behalf, for example. If your estate is small enough, you may not need probate at all. To avoid probate, the total value of the estate at the time of death must not exceed $150,000 (not including certain assets).

For larger estates, many people strategically use trusts and similar documents to save on probate fees. In other words, you can avoid the probate process by using legal estate planning strategies.

Do you need a lawyer?

An attorney can greatly simplify the probate process by helping you file forms, gather necessary documents, handle conflicts with family and creditors, and much more. A capable attorney can also help you create an estate plan that minimizes the time and expense of probate.

If you’re still uncertain about probate and what it means for your family, don’t hesitate to call For Purpose Law Group. Our friendly attorneys will use their extensive legal knowledge to guide you through every step of the process.