I previously discussed that NPOs should disclose open tax years – TIS 5250.15.
TIS 5250.15 says that NPOs without any uncertain tax positions still have to disclose open tax years.
ASC 740-10-55-217 suggests this wording:
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-US income tax examinations by tax authorities for years prior to 20×1.
Does that apply to churches?
Previously I thought it did. Now I think it does not.
A while back I had an interesting conversation with a colleague at another firm. Confidentiality rules say I can’t mention what NPO we were discussing and I can’t credit my colleague with this idea because doing so could allow some people to guess at the identity of the organization.
Anyway, here’s the reason disclosing open tax years isn’t a good idea for churches –
Churches are exempt from filing 990s.
The concept with for-profit or parachurch organizations is that their filing of an 1120 or 990 starts a statute of limitations. When that time expires, the IRS cannot open that return for an audit. We can then determine what years are still open to a potential examination and disclose that exposure because earlier years are closed.
On the other hand, when a return has not been filed (which is the situation for a church that does not have to file a 990) the statutory limitations has not started to run. Let’s say you don’t file a 1040 from 15 years ago. That means the IRS can still audit that return.
Back to NPOs. So if the IRS were to assert a 990 should have been filed there is no statute of limitations protection.
So in a peculiar sort of way that means that all of those 990s that weren’t filed because the organization is a church could potentially have to be filed if the IRS challenges the organization because the statute of limitations hasn’t expired.
So perhaps churches should not make that comment about open tax years.