Compliance February 3, 2017

IRS Adds Help to Form 990-EZ for Tax-Exempts

The form is important for tax-exempt organizations to file, not only to remain exempt, but to qualify to sponsor 403(b) plans.
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The Internal Revenue Service (IRS) has released an updated Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, that will help tax-exempt organizations avoid common mistakes when filing their annual return.

Tax-exempt organizations that do not fill out the form could lose qualified status to sponsor 403(b) plans.

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The updated Form 990-EZ includes 29 “help” icons describing key information needed to complete many of the fields within the form. The icons also provide links to additional helpful information available on IRS.gov. These “pop-up” boxes share information to help small and mid-size exempt organizations avoid common mistakes when filling out the form and filing their return.

“We’ve been reviewing the areas of the form where exempt organizations encounter the most trouble,” says IRS Commissioner John Koskinen. “One out of three paper filers has an error on their form. After reviewing these trouble spots, we developed this new option to help groups navigate the form. This common-sense approach is designed to make it easier for exempt organizations to avoid problems up front—and avoid getting a follow-up contact from the IRS.”

On the new form, the help icons are marked in boxes with a blue question mark. The icons and underlying links work on any device with Adobe Acrobat Reader and Internet access. Once completed, filers can print Form 990-EZ and mail it to the IRS.

Although many large exempt organizations are required to file Form 990-series information returns electronically, the IRS encourages all exempt organizations to consider filing electronically. In 2016, the error rate for electronically-filed 990-EZ returns was only 1%, compared to the 33% error rate in paper-filed returns.

A list of providers assisting with electronic filing is available on IRS.gov.

Exempt organizations should keep in mind that the new help icons do not replace the Form 990-EZ instructions. Filers should review the Form’s instructions when completing a return and use the help icons as an additional tool.

The IRS also reminds exempt organizations that Form 990-series returns are due on the 15th day of the fifth month after an organization’s tax year ends. Many organizations use the calendar year as their tax year, making May 15, 2017, the deadline to file for tax year 2016.

Compliance February 3, 2017

Lawsuit Claims Domestic Partners Not Informed of Pension Benefit Rights

A federal court judge has denied a motion to dismiss, allowing the case to move forward.
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A federal district court has moved forward a case alleging a pension plan participant was not fully informed of his rights to a joint and survivor annuity upon retirement, in violation of the Employee Retirement Income Security Act (ERISA).

David R. Reed filed the lawsuit, claiming that as a domestic partner of the pension plan participant, the pension benefits should have been paid as a joint and survivor annuity. Reed and the participant were registered as domestic partners in California in 2004 and were married in 2014.

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Donald Lee Gardner retired from KRON-TV in 2009, and he and Reed met with human resources to discuss benefit options. According to the opinion written by U.S. District Judge Jeffrey S. White of the U.S. District Court for the Northern District of California, the plan allowed that a participant who is married at retirement or benefit commencement must be paid his monthly pension benefit in the form of a 50% joint-and-survivor annuity unless he elects otherwise after written notice of his right to the joint-and-survivor annuity and with the witness or notarized written consent of his spouse. Reed claims that during the talk with HR, the availability of a joint and survivor annuity was never mentioned, and Gardner selected a single-life annuity.

Reed argues that California law at the time granted domestic partners the same rights as spouses and since he did not consent to Gardner’s election, it was invalid. Gardner died in June 2014 and all benefit payments stopped.

Reed asks for declarations that the defendants are estopped from denying him a survivor benefit under the plan and that they are estopped from reducing his survivor benefit by “any overpayment occasioned by the payment of a single-life annuity during Mr. Gardner’s life.”  In addition, he asks the court to reform the plan “to provide that the provisions applicable to married participants apply to participants in registered domestic partnerships,” and to assess a surcharge “in the amount necessary to place him in the position he would have occupied but for the defendants’ breach of fiduciary duty, including in the amount of the survivor benefit and any claimed overpayment.

KRON-TV moves to dismiss the third claim for relief on the ground that the relief Reed seeks is duplicative of his first claim for benefits. White noted that in CIGNA Corp. v. Amara, the Supreme Court held that Section 1132(a)(3) of ERISA permits equitable relief, in a variety of forms, even where a plaintiff seeks relief under Section 1132(a)(1)(B). The 9th U.S. Circuit Court of Appeals has confirmed that a plaintiff may pursue claims under both Sections 1132(a)(1) and 1132(a)(3), “so long as there is no double recovery.”

White concluded that at this early stage in the litigation, the court cannot determine if the third claim simply “repackages” Reed’s first claim for relief. He denied the motion to dismiss.

 

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