FIN48 is not a new regulation, but it’s one that can sneak up on nonprofit organizations. The name FIN48 comes from the FASB (Federal Accounting Standards Board) Interpretation Number 48. It was originally enacted in 2006 for public companies and extended to private companies, including nonprofit organizations, in 2008. The ruling looks at specific activities of organizations for tax determination. Here are some of the most obvious uncertain tax positions that are red flags for tax-exempt organizations:
– Excessive officer compensation
– Below-market loans to key company executives, employees or board members
– Lobbying or political activity beyond the scope of the organization’s charter
– Excessive unrelated business income
– Unfiled state tax returns
– Net operating losses from taxable activities
– Participation in partnerships, joint ventures or other relationships with entities that may pass taxable income through to the nonprofit.
Taking a hard look at your organization’s activities and expenditures will serve you well to have a solid understanding of your organization for completion of Form 990. Such findings may take considerable time to uncover, and may lead you to make changes in your organization to maintain tax-exempt status. If you have activities that generate tax, the tax must be accrued at the time of the event or activity. A copy of a FIN48 accrual footnote is required with your audited financial statement to be attached to Form 990. This is information that your tax-preparer will need when filing your annual return.