Nonprofit organizations are often looking for ways to diversify their investment portfolios. One way to achieve diversification is to invest in alternative investments, which can include domestic and foreign limited partnerships and hedge funds. Before investing in these types of investments, it is important to understand the impact such investments might have on unrelated business income, record keeping and tax filing requirements.
Forms that may be required to be filed with the IRS related to these investments are listed below. This list is not all-inclusive, but it includes some of the more common forms.
Form 926 – Return by a U.S. Transferor of Property to a Foreign Corporation
This form is required to report any direct or indirect exchanges or transfers of cash or property to a foreign corporation if certain thresholds are met. Click here to access this form or learn more.
Form 5471 – Information Return of U.S. Persons With Respect to Certain Foreign Corporations
This form is required to report an organization’s ownership interest in a foreign corporation. There are four filer categories, each with different criteria and filing requirements. Click here to access this form or learn more.
Form 8865 – Return of U.S. Persons With Respect to Certain Foreign Partnerships
Form 8865 is required to report an organization’s transfers of cash or property to a foreign partnership. This form is also required to report an organization’s ownership interest in a foreign partnership. This form also has four filer categories, each with different criteria and filing requirements. Click here to access this form or learn more.
If your organization has alternative investments, it is important to review and understand the potential filing requirements as the penalties for failing to make required filings with the IRS are significant. There are several steps you can take to minimize your compliance risk. Please contact Kandy Wischmeier or your local Blue & Co. advisor to discuss how we can help evaluate your investments and create an action plan to make sure your organization is fully compliant with all reporting requirements.
