Fundraising from America:

Best Practice Operations for

the 501(c)(3)

Presented by Nancy BiksonChapel & York Limited

Today we will be covering…

Best Practice Operations for the 501(c)(3)

- The 501(c)(3) and fulfilling it’s responsibilities.- General Donations (from Individuals)- Specific Donations (from Individuals)- Donations from Foundations- Fiscal Sponsorships- Public Support Test- Financial Administration / Stationary & Receipts / Bookkeeping- Board Meetings- Tax Returns- State Registrations

501(c)(3) is a section of the US Internal Revenue Code. It means that an organization is exempt from taxation on its income and donations to it are tax-deductible to the individual or corporate donor. It also meets the legal needs of foundations as a grantee. The organization is incorporated in one of the states as a non-profit company and receives its 501(c)(3) status from the IRS.

The 501(c)(3) is an entity which must fulfil its responsibilities to the State of Incorporation, to the Internal Revenue Service, to donors and to program recipients. It essential to make sure they are legally fit for purpose at all times and adhere to all requirements necessary and not to do anything that could lead to penalties or, very worst, having the non-profit’s tax exempt status revoked.

What is a 501(c)(3)?

Best Practice Operations for the 501(c)(3)

Individuals receive a tax deduction for donations to the 501(c)(3). This reduces the tax they pay.

They cannot earmark funds for use abroad, however they may suggest, recommend but not specify. Your donation forms should reflect this.

General Donations (from Individuals)

Best Practice Operations for the 501(c)(3)

Many individuals will have specific interests - funding a chair, sponsoring an event, setting up a scholarship and so forth. It is vital that the American organisation not be present with a fait accompli

Specific Donations (from Individuals)

Best Practice Operations for the 501(c)(3)

Donations from Foundations

Best Practice Operations for the 501(c)(3)

The Foundation is itself a 501(c)(3) so no tax deduction for donations.

Foundations can give directly to non-US entities but must ensure the foreign organisation is equivalent to a 501(c)(3).

Foundations can make grants to the 501(c)(3) subject to specific rules.

Fiscal sponsorship is a formal arrangement in which a 501(c)(3) public charity sponsors a project that may lack exempt status ensuring they also benefit from the tax-exempt status and administrative support of a sponsoring organization.

Fiscal Sponsorships

Best Practice Operations for the 501(c)(3)

Public Charity Support Test

Best Practice Operations for the 501(c)(3)

When a US corporation is recognised by the IRS under Section 501(c)(3) of the Internal Revenue Code as a tax exempt entity, having declared in its application that it expects to be publicly supported, it is classified as a publicly supported charity.

The organisation retains its public charity status for its first five years regardless of the public support actually received during that time. Then, beginning with the organisation's sixth taxable year, it must establish that it meets a “public support test” based on the previous five years. Following the first five years, if it fails to meet the public support test for two consecutive years it will be reclassified as a private foundation.

- Banks & Banking - Credit Cards- Brokerage Account for gifts

of stock

Financial Administration

Best Practice Operations for the 501(c)(3)

Stationery & Receipts

- Name and address of the organisation.- American paper size unique

(its not decimalized).- Send a written receipt for any

donations of $250 or more.

Bookkeeping

- Separate from any other organization.- Fit for purpose for tax return

- Your non-profit governing documents (bylaws, articles of incorporation) likely set out how often the board of directors must hold meetings - on most occasions it is at least once a year (Annual General Meeting).

- Meetings are the times when the board conduct key business which may include:

- approving budgets, reviewing financial statements- electing new board members and/or officers- hearing updates of the organization’s work- conducting other business matters- review policies and procedures

- Grant making

Board Meetings

Best Practice Operations for the 501(c)(3)

IRS Form 990 is the tax document that tax-exempt nonprofit organizations file each year with the IRS. The type of Form 990 to be filed by an organization depends on the filing year and the gross receipts of the organization.

- Private foundations. They file a Form 990-PF.- Larger nonprofits that have gross receipts of more than $50,000 have to file Form 990 or 990-EZ.- Small nonprofits with gross receipts of $50,000 or less must file an electronic 990-N (e-Postcard) in order to maintain their exempt status.

Your organization’s Form 990 is due on the 15th day of the 5th month after the end of the organization’s taxable year. This means that if your organization follows the calendar year (January 1 – December 31), your Form 990 would be due on May 15th of each year.

Extensions are possible.

Tax Returns

Best Practice Operations for the 501(c)(3)

The following 40 states (see list below) require non-profits to register in order to solicit contributions.

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Dist. of Columbia, Florida, Georgia, Hawaii, Illinois, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, New Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, West Virginia, Wisconsin.

Registration involves filing an application with the appropriate state agency and, in most states, paying a registration fee. Registration usually consists of two parts: an initial registration application and an annual renewal.

State Registrations

Best Practice Operations for the 501(c)(3)

A summary of today’s webinar:

- The 501(c)(3) is an entity which must fulfil its responsibilities to the State of Incorporation, to the Internal Revenue Service, to donors and to program recipients.

- Individuals receive a tax deduction for donations to the 501(c)(3). This reduces the tax they pay. They cannot earmark funds for use abroad, however they may suggest, recommend but not specify.

- Specific Individual Donations: It is vital that the American organisation not be present with a fait accompli

- Public charity status is for the first five years regardless of the public support actually received during that time. Then, beginning with the organisation's sixth taxable year, it must establish that it meets a “public support test” based on the previous five years.

- The type of Form 990 to be filed by an organization depends on the filing year and the gross receipts of the organization.

- State Registration usually consists of two parts: an initial registration application and an annual renewal.

Review

Best Practice Operations for the 501(c)(3)

This information was not intended to be legal advice. It is advised that you consult your own legal expert in regard to your specific situation.

that’s it!

for listening.