Monday, February 24, 2014

Fiscally Speaking - When does your year end? Part II

Last week I suddenly realized that the 990 was due for the local charity I serve as Treasurer.

The good news is I finished the return and had it e-filed by the end of the day. Luckily in our state of New Jersey, they give us more time to file our report with the Division of Consumer Affairs.  So I can say now with a smile they were timely filed!

In last week's blog I reviewed the reasons why you might want to choose a fiscal year end date in a month other than December.  In the case of the baseball league in which I volunteer, an October fiscal year-end makes the most sense since the season ends by early September and we begin taking registrations for the new season in November and December.  This gives our Treasurer plenty of time during the slow months of November through January to get the records in order for filing the returns.  It also allows our board ample time to recruit volunteers for the next season.  A task that has now been made much easier because of Treasurer's Briefcase.

Last week I promised I would provide instructions on how you can change your fiscal year end if it is less than ideal.

The IRS requires most entities to change their fiscal year end by filing form 1128 “Application to Adopt, Change, or Retain a Tax Year”.  However, most organizations exempt under Internal Revenue Code 501(a) do not have to file form 1128.

Internal Revenue Procedure 85-88 simplified the procedure to be followed by certain organizations exempt under section 501(a) who wish to change their accounting periods.

Organizations desiring to change their annual accounting periods may effect the change by timely filing the applicable information return, Form 990 (Return of Organization Exempt from Income Tax) with the appropriate Internal Revenue Service Center for the short period for which a return is required. The Form should indicate that a change of accounting period is being made.  Meaning if your organization is a calendar year end and you wish to change to a June year end you would file form 990 by November 15th and report the results for January through June of that year.

As a reminder Form 990 must be filed by the fifteenth day of the fifth month following the close of the short period.

Organizations filing 990-N, (tax-exempt organizations with gross receipts of $50,000 or less must file this form), will have to take an extra step or two.  If you are filing a 990-N,  IRS system will not allow you to file if you choose a year end other than the one on file with the IRS.  Effectively meaning you can’t file a short year 990-N.

Your two options are explained below.

Option 1

Immediately upon completion of your normal year, file your 990-N, and then send correspondence to the IRS requesting they change your year end to the new desired date.  For example if you currently have a calendar year end and wish to change to a June year end, file your 990-N in early January and simultaneously send the change request to the IRS.  This should give them ample time to update their system for the coming short year 990-N.  Be prepared to follow up with the IRS to ensure the change has been made!

Here we have provided the preferred language for a letter or fax to the IRS to request the change.

Click here for the letter.

Click here for the fax.

Option 2

Keep in mind you are not forced to file 990-N, you actually can file form 990-EZ if you wish. You could file your 990-N for the traditional full year that has just passed and then file form 990-EZ for the short year.  It is important to note you must file a full and complete 990-EZ.  Of course, as noted above, this form should indicate that a change of accounting period is being made.

Don’t Fear Change

You shouldn't be afraid to change your fiscal year end date as long as it makes sense and your board approves.  Consult your accountant if you have questions, then review your reasons with the board, request a vote on the decision and comply with the IRS rules.  Making this change may allow your organization to run just a little bit smoother so it can focus on your mission instead of being interrupted with fiscal year end responsibilities in the middle of your program season.

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