Financial Management |
Article by Steve Hoffman
This article originally appeared in the July/August 2015 Net Assets.
With myriad changes every year in federal, state and sometimes even local tax laws, independent schools can find themselves in a precarious position without keeping careful oversight of tax reporting duties. Of notable concern is that the Exempt Organizations Division (EOD) of the IRS is increasing its enforcement efforts involving nonprofits, where noncompliance is believed to be significant. For that reason and others, I suggest that independent schools pay particular attention to several major areas of federal tax law for the school year beginning in August.
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In essence, nonprofits are more likely than for-profit organizations to be audited. Schools that do not act now to become compliant are playing a game of ‘audit roulette’ with the IRS — and the house always wins this game.
I also recommend that schools review how they decide whether to treat an individual as an independent contractor or employee, and then compare that to published guidance from the IRS. Another tip is to complete the questionnaire in the NBOA Tax Toolkit to determine whether someone should be considered an independent contractor. Finally, schools should have a clearly written policy covering payments to independent contractors.
Finally, be advised that states might change their rules on sales taxes at any time of the year. Check your state’s tax authority to be sure your school is in full compliance.
The complexity and changing nature of tax laws make it incumbent on independent schools to take advantage of educational opportunities to stay compliant. Many free webinars are archived on the IRS video portal. At the state and local level, CPA societies and other professional organizations offer training and continuing education. And I invite NBOA members to contact me directly and spend time with NBOA's Tax Toolkit.
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