The accounts at Causey Demgen & Moore Inc. are teaming up with the attorneys at Mintz Levin Cohn Ferris Glovsky and Popeo PC to help charitable organizations meet their post-issuance compliance obligations.
The firms are rolling out the service this week, as 501(c)(3) organizations must tackle a new Form 990 with an expanded Schedule K on tax-exempt bonds, which nonprofits need to begin filing to the Internal Revenue Service this year.
Under the new form and schedule, charitable and other nonprofit tax-exempt organizations with more than $100,000 of bonds outstanding are required to list any bonds issued after 2002 that are still outstanding for the 2008 tax year in forms to be filed for the 2009 tax year.
This year marks the first time charitable organization borrowers must fill out detailed questions about their bond issues. The information must be included in Part II through IV of Schedule K. The section containing questions about bond issues must be answered for the 2009 tax year in forms to be filed over the next few months.
The firms will help nonprofits fill out their Form 990s, adopt practices and procedures to ensure post-issuance compliance, ensure compliance with arbitrage rebates, as well as determine private or unrelated business activities.
“As a [certified public accountant] firm highly experienced in our industry, Causey has a very efficient and cost-effective business model. Preparation of the Form K requires an experienced public finance oriented firm like Causey to make sure it is prepared properly at a reasonable cost,” said Jeremy Spector, a partner at Mintz Levin. “Mintz’s role will be to independently handle any legal issues that may arise and to help establish practical compliance monitoring systems going forward.”
The new form is part of an IRS focus on post-compliance issues for municipal bonds. In September 2008, the IRS announced that after surveying nearly 200 nonprofits, it found less than half could prove they were complying with post-issuance requirements.
The report found “significant pockets of industry inattention to post-issuance compliance, particularly with respect to maintenance of records throughout the life of the bonds” among tax-exempt 501(c)(3) charitable organizations.
Though 95% of the 192 organizations that responded to the survey stated they had established procedures to ensure proper post-issuance tax compliance, only 16% “demonstrated conclusively” with written documents that they had compliance processes in place, the IRS said in a report of its findings.
“The responses to the questionnaire indicated that there is a high recognition of the importance of post-issuance compliance and record keeping, however, the overall effectiveness of the implementation of such programs is questionable,” the report stated.
A similar survey of governmental organizations was launched in January 2009, the results of which have not been released yet. IRS officials recently announced that every single issuer of Build America Bonds also will receive questionnaires examining post-issuance compliance of their bonds.