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UHY LLP pr ovi des sol ut i ons t o nonpr of i t f i r ms
i n account i ng, t ax and consul t i ng.
Form 8940
Have You Heard of It?
By Carol Shepherd, Manager
I
was recently reminded of the IRS
Form 8940 Request for Miscella-
neous Determination. This form
serves as a catch all, of sorts, for
various determination changes.
Here is a snapshot of a few things
you can accomplish by filing this
form:
Request an exception from Form
990 filing requirements.
If your organization is affiliated
with a church, a convention or an
association of churches, filing this
form may exempt your organiza-
tion Form 990 filing requirements.
Request an advance approval that
a potential grant or contribution is
unusual.
If you foresee your organization
receiving a large contribution in
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For more information,
please contact Jennine Anderson
at janderson@uhy-us.com
Nonprofit
Insider
August 2014 Vol. 5 No. 4
purposes, such as a single member LLC
of which the organization is the sole
member. Unless a single member LLC
elects to be classified as a corporation,
it defaults to being a disregarded
entity of its sole member.
Here is an example: a nonprofit sets
up an LLC of which it is the sole mem-
ber; lets call it ABC LLC. ABC LLC holds
real estate, which it rents; has one
employee; and has not elected to be
classified as a corporation. ABC LLC is
a disregarded entity of the nonprofit.
How are disregarded
entities treated on the 990?
Now that we know what a disre-
garded entity is, lets look at how
they are treated on the 990. The ac-
tivities of a disregarded entity are
treated as a branch or division of the
filing organization and its activities
must be reported as part of the filing
organizations activities on the 990.
Revenues, expenses, balance sheet
items, and such, go on the appropri-
ate 990 schedules. Going back to our
example, ABC LLC would report its
rental income on Part VIII, the book
value of the building as part of the
O
rganizations
with disre-
garded entities
have reporting re-
quirements. How
do you know if
your organization
has a disregarded
entity, and what are the reporting re-
quirements? To answer these ques-
tions, lets first define what a
disregarded entity is, and then well
explore howa disregarded entity gets
reported on the 990 and discuss any
additional considerations.
What is a
disregarded entity?
According to the dictionary, the
word disregarded means to ignore
or to leave out of consideration.
So, does that mean that we simply
ignore them? Wouldnt that be
easy! As you will soon learn, that is
far from the truth.
How do you know if you have a dis-
regarded entity? The IRS says a disre-
garded entity is an entity wholly
owned by the organization that is not
treated as separate for Federal tax
UHY LLP
Mid-Atlantic
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Disregarded Entities
990 Reporting Considerations
By Carol Shepherd, Manager
FO
R
M
8940
Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a so-
licitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should
not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided
with all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed
on the taxpayer. The information is provided as is, with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to war-
ranties of performance, merchantability, and fitness for a particular purpose.
UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of UHY Advisors. UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms.
UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. and UHY LLP are U.S. members of Urbach Hacker
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book value of the assets of the filing
organization on Part X, and salary
expense on Part IX.
Activities that require special disclo-
sures, such as lobbying or political ac-
tivities carried out by the disregarded
entity, would be reported on the ap-
propriate schedules.
The first time a disregarded entity is
mentioned on the 990 is in Part IV,
question 33 which asks, Did the or-
ganization own 100%of an entity dis-
regarded as separate fromthe organ-
ization. A yes answer prompts
Schedule R, Part I to be filled out.
Schedule R is where
certain activities of
the disregarded en-
tity are reported in-
dependently of the fil-
ing organization. Total income
included on Part VIII, line 12(A) attrib-
uted to the disregarded entity and all
assets attributed to the disregarded
entity included on Part X, line 16(B)
are reported here as well. The organi-
zation that directly controls the entity,
which could be the filing organization
or an intermediate disregarded entity,
needs to be disclosed here also.
Other considerations
Adisregarded entity may choose to be
treated as separate fromthe filing or-
ganization by filing form 8832, or it
may elect to be treated as its own tax-
exempt organization by filing either
the 1023 or 1024 form, as appropriate.
A disregarded entity reports its activ-
ities for Federal tax purposes under
the filing organizations EIN number,
but for employment and certain excise
tax reporting purposes, it is consid-
ered a separate entity and files the
appropriate employment or excise tax
forms under its own EIN number.
While considered separate for em-
ployment tax reporting, the number
of employees the disregarded entity
reports on a W-9 is included in the
number the filing organization re-
ports on Part I, line 5 and Part V, line
2 of the 990. In our example, if ABC
LLC has one employee and the filing
organization has five; six employees
are reported on the 990, even though
ABC LLC and the filing organization
report separate employment tax re-
turns under separate EIN numbers.
An officer of a
disregarded en-
tity is not nec-
essarily consid-
ered an officer
of the filing organ-
ization, but may qualify as a key em-
ployee of the filing organization de-
pending on that persons salary and
responsibilities. If that person is re-
sponsible for activities of the disre-
garded entity that represent at least
10 percent of the activities as a whole,
then that person could qualify as a
key employee and be included on Part
VII and Schedule J.
Questions on 990 Part VI should be
answered based on the filing organi-
zations policies and should note on
Schedule O any policy questions an-
swered yes if they apply to the dis-
regarded entity.
The key takeaway here is to keep in
mind the activities of your disregarded
entity while filling out the 990. Of
course, we are always here to help!
the near future that may qualify
as unusual, consider applying
for an advanced ruling using this
form. This foresight may help
avoid potential public support
test tipping when the contri-
bution is received.
Request reclassification of a 107(b)
or 509(a) organization.
Here is an example: a 170(b)
organization fails the support test
on Part II, but will pass the sup-
port test for 509(a) organizations
in Part III. Although not required,
this organization could request
reclassification as a 509(a) organ-
ization so its selection on Part I of
Schedule A agrees with the IRS
records. This may not be some-
thing to consider for temporary
blips in contributions, rather
for when the organization is
better categorized under a dif-
ferent charity status than origi-
nally intended.
Request a change in Type of
Supporting Organization.
This form can be used if your
organization is a Type I, II or III
Supporting Organization and
wants to request a change in type
or initial determination of type.
It is important to note that there
is a filing fee of $400. Although it
is unlikely that your organization
will need to use the Form 8940, it
is something to keep in the back
of your mind. You never know
when it might come in handy!
Form 8940 -
Have You Heard of It?
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Disregarded Entities
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