4-H Clubs, Affiliates, Banking and Taxes

New York State 4-H March 15, 2011

Agenda

• History of tax exemption• What are the tax exemption changes• What is a tax exemption• What isn’t a tax exemption• What has changed for the Association• What has changed for the Club• EIN’s, clubs, and banking• Affiliates vs. Clubs• MOU’s• A note about contracts

History of tax exemption

• Group Exemption 2704, Issued by the IRS in 1946 made 4-H Clubs and Groups exempt from taxes

• Clubs could accept donations of money, animals or items, and donors could claim this as a tax deductible donation

• Clubs are subordinates of the association• Clubs did not have to file any tax documents

Tax Exemption Changes

• Pension Reform Act 2006 made all tax exempt organizations file tax returns

• USDA/4-H Headquarters dictated that clubs should file 990 series returns

• 2008 IRS began to look at Clubs more closely, 4-H Headquarters attempted to keep a list of all the clubs in the country

• Tracking of all the clubs at the federal level was deemed to be unworkable

• Group Exemption 2704, will not be recognized by the IRS after April 15th 2011

What is a tax exemption for 4-H Clubs and Affiliates?

• 4-H Clubs as activities (vs. subordinate organizations) of the association, don’t pay taxes on gifts of money, animals or items

• 4-H Affiliates don’t pay income taxes as they are covered by the MOU with the Association

• In most cases 4-H Clubs don’t collect sales taxes on fundraisers

• 4-H Clubs and affiliates with current MOU’s (unless separately organized 501c3’s) don’t file taxes

What isn’t a tax exemption?

• 4-H Clubs do not qualify for sales sales tax exemption certificate

• 4-H affiliates may qualify if separately organized 501(c)3s

• This means club volunteer leaders shopping for supplies must pay sales tax

• Exception: associations, at the discretion of the ED may make purchases on behalf of the club, this would be appropriate for large purchases ie: fundraising materials

Changes affecting the Association

• Club’s activities are activities of the association• Affiliate’s activities are activities of the affiliate• Associations must approve new club bank accounts

and monitor club banking activity• Clubs with a large bank balance (average greater

than $2,500) or doing a large amount of transactions (greater than $7,500) should be doing financials through the association going forward (see FORM Code 1601)

Changes affecting the Club

• Clubs with large amounts of cash or large dollar transactions need to handle their finances through the Association

• NY Clubs do not file any tax returns for ‘10 – ’11 program year

• Clubs opening new bank accounts will need an EIN and someone from the Association should be a co-signer

• With permission of the Extension Executive Director clubs may carry up to $750. over to the next program year (this was $500.)

Reminders

• Reports and financial procedures need to be followed closely

• Audits must be completed• Financial reports must be turned into the association on

a timely basis• A club that does not follow procedures risks an

unfavorable outside audit outcome for the association

What about taxes?(Clubs)

• For the 2010 year, clubs that filed the e-postcard in the past will need to do so again.

• This process ceases with the 2010-11 program year• Clubs that do not have an EIN do not file• Clubs that received a new EIN during the last program

year need to fill out a form 8821 and send it to the state office (this affects very few clubs, please contact Adam for details)

Affiliates vs. Clubs

• Affiliates: stand alone organizations, able to use the 4-H Name and emblem only by having an MOU with the association

• Examples include: County foundations, leader’s associations, county fair boards

• Activities: Deliver and plan programming, ie clubs, program committees

MOU’s

• The USDA holds the 4-H name and clover in trust for the educational and character building purposes of 4-H

• An unchartered group using the 4-H Name and emblem must have authorization for such use

• This authorization is spelled out in an MOU between the affiliate and the association

• The MOU template has been reviewed by PW Wood and Extension Administration and is available for Associations to personalize

A note about contracts

• On occasion clubs will be asked to sign contracts, these must be submitted to the Association for ED approval and PW Wood for review

• Contracts are to be signed by board president or ED• Clubs are activities of the association, therefore the

association is responsible for anything arising from a club signing a contract

Conclusion

NY is particularly prepared for these changes with the procedures already in place. These procedures simply become more critical.

Slideshow prepared by Adam Davis, NYS 4-H Program

With input from: Susan Kozykowski, Finance Manager, CCE Orange County

Robin Travis, Interim 4-H Program Leader and Executive Director CCE Schuyler

Ed Dwyer, Compliance Manager, CCE Administration

Questions?