Doing ministry overseas can generate several requirements to file reports with the IRS that you had no idea even existed.
CliftonLarsonAllen provide some background on IRS Foreign Reporting Requirements for Nonprofit Organizations.
Here is their technically worded description of the most common situations:
- Transfers of property to, or ownership interests in, foreign entities
- Financial interest in, or signature authority over, foreign bank, securities, and financial accounts
- Certain payments of U.S. source income to foreign persons
I will mention just a few of the situations they describe which could trigger a reporting requirement. Keep in mind there can be some serious penalties for missing these reports. Serious, as in $10,000 per filing year, assuming the IRS doesn’t allege the failure to file was willful. If they raise that allegation, penalties can get really ugly. Also keep in mind that if you missed one of these reports once, you probably missed it all the years for which the statute of limitations is open.
Control of overseas affiliate
If your organization has to set up a separate corporation in another country in order to carry out your program, you likely maintain either voting control or majority ownership in the entity.
In that case you need to file Form 5471. If you’ve never seen that form, trust me, it isn’t pretty. It requires a condensed income statement and condensed balance sheet comparable to what you see on a 990. It requires a variety of other information, such as ownership interests.
If you don’t need to form a separate corporation but are able to conduct activities in another country as a branch of the US organization, then you need to be attentive to the financial interest reporting.
Here is the very short version of a complex requirement: If a charity owns a bank account (or savings account or securities) overseas that has more than $10,000 in it at any point during the year, then a Report of Foreign Bank and Financial Accounts must be filed. That is also called on FBAR. If an individual has signature authority in a financial account with more than $10,000 at any point during the year, the individual has to file an FBAR.
It would not take a particularly large charity to have multiple accounts that have more than $10,000 at any one point and multiple authorized signers on each of those accounts. A medium-sized charity with multiple offices in each of several countries could easily wind up with a host of annual forms to file.
If you need more detail after reading the CLA paper, you could check out this FBAR page of the IRS website.
If you realize you have, um, sorta’ missed a few years worth of FBARs, or maybe, never filed nothin’, you might want to look at the bottom of that page, which says the IRS offers a one-time good deal to file all the past-due reports without penalty. Now might be a good time to use the IRS’ get-out-of-severe-trouble free card.
Payments to non-U.S. citizens
Making payments to people who are not US citizens for services provided inside the United States can generate a filing requirement under the Foreign Account Tax Compliance Act (FATCA).
Two things jump out at me from the CLA list of seven examples creating a FATCA filing requirement. How many charities do these things?
- Honorariums paid to speakers who are not US citizens while they speak in the US. Picture bringing your overseas affiliate’s executive director back to the US to speak at a few fundraising banquets. Or bringing in paid speakers at your annual conference.
- Nonqualified scholarships and fellowships to non-US citizens while they study in the U.S. Picture providing a scholarship to help a key staff person get a degree in the U.S.
If anything mentioned above applies to your organization and this is brand-new information to you, it might be a really good idea to check out the CLA report mentioned above.
If your organization carries out any program activities overseas, might be wise to read the article for general background.
Hat tip to my colleague Tim Murphy (twitter: @NonprofitCFO) for pointing out the CLA article.