Question

The knowledge of how the Internal Revenue Code treats business activities and how the different organizational forms are recognized as reporting entities are basic elements of taxation.

a.)What organizational forms are required to comply with filing and reporting to the IRS, and how they are different?

b.)How do GAAP and tax accounting differ?

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Answer 1

a.)

Most charitable nonprofits that are recognized as tax-exempt have an obligation to file an annual information return with the IRS. (There are very few exceptions: church-affiliated organizations and governmental organizations are among those not required to file.) The IRS Form 990 is a public document, so make sure that your nonprofit's board reviews it before it's filed, and that it is completed thoughtfully as well as accurately. If a nonprofit is incorporated in a state but has never been recognized by the IRS as “tax-exempt,” then it does not have an obligation to file an annual information return with the IRS.

Note: Conversely, even if your organization fits one of the few exceptions to mandatory annual filing with the IRS, it may still have to file forms annually in the state where it is incorporated, or where it engages in fundraising activities. See information on required state filings.

Most small tax-exempt organizations with gross receipts that are normally $50,000 or less must file the IRS form 990-N, known as the "e-postcard".

Exceptions to this filing requirement include:

·         Organizations that are included in a group return,

·         Churches, their integrated auxiliaries, and conventions or associations of churches, and

·         Organizations required to file a different return

b.) Difference in GAAP and Tax Accounting is stated below:

Particulars	GAAP	Tax Accounting
Purpose	The purpose of GAAP is to provide a standard set of guidelines and accounting principles in order to bring uniformity and relevance as it increases the reliability and comparability of financial statements.	The tax accounting framework is developed and maintained by the Internal Revenue Service or IRS, and the purpose of this framework is to impose tax against taxable income or net earnings of the business. Taxable income is not the same as revenue (as defined by GAAP). The tax is deducted and collected in the earlier of receipt of cash, or earning.
Basis of Accounting	In the GAAP accounting, accrual based accounting is the only acceptable method. The cost of developing, implementing and using the GAAP accounting system is sometimes too much for small scale businesses; therefore, the IRS allows such businesses to record their financial transactions using alternative methods.	In the Tax accounting uses accrual, cash and modified basis of accounting.
Depreciation Recognition	Under the GAAP accounting, different accounting methods are used, such as, reducing or declining balance method, straight line method, the sum of the year digit method, and activity-based depreciation method.	In the tax accounting, Modified Accelerated Cost Recovery System or MARCS is used, which calculates the depreciation by using IRS defined declining percentages. In addition to this, according to the section 179, the IRS allows individuals and taxpayers to expense depreciation on the fixed asset in the year of purchase.
Accounting for Accruals	Under the GAAP accounting system, the expenses, which are due but not yet paid, are considered as accruals in the balance sheet. It is represented as an accrual of the expense, which is a current liability that is due to be paid on the later date.	in a tax accounting, accrual based accounting is not required unless a company report its business tax returns as an accrual based tax payer. Moreover, the IRS enforces certain limitations for cash and modified basis accounting, which includes income and expense reporting limitation, and also includes the revenue limitations.