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Stay Exempt! A Guide for Charitable Organizations with Changing Leadership

Presenter, Exempt Organizations

Stay Exempt! | Exempt Organizations, TEGE

You are not alone

• Approximately 1.5 million tax-exempt organizations

•  In 2012; 1,081,891 - 501(c)(3) organizations filed with the IRS

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Topics for Today

How to stay exempt

• The cardinal rule – a exempt purpose is essential

• Filing requirements

• Fundraising

• Recordkeeping

•  IRS Resources 3


What is an “exempt purpose?”

•  Religious •  Charitable •  Scientific •  Testing for public safety •  Literary •  Educational •  Fostering national or

international amateur sports competition

•  Prevention of cruelty to children or animals

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All 501(c)(3) organizations are organized and operated exclusively for one or more of these purposes:


Passing the Operational Test

•  If your organization…

•  operates exclusively for an exempt purpose, and

•  conducts activities furthering its exempt purpose (non-exempt activities are insubstantial)

•  You pass the operational test

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Be Careful About the “Big Five”

•  Private benefit

•  Lobbying / legislative activity •  Political activity

•  Failure to file

•  Too much unrelated business income

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Private Benefit

A charity’s activities must serve a public interest

Activities must not • Further private interests

• Permit excess benefit to any individual or organization

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Inurement & Private Benefit

Private benefit to insiders (i.e., board members, officers, key employees) is inurement – ABSOLUTELY PROHIBITED

Private benefit must be more than incidental; not limited to insiders

All inurement is private benefit, but not all private benefit is inurement

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Lobbying / Legislative Activity

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Lobbying – attempting to influence legislation

Measurement methods • “Substantial Part” test • “Expenditure” test


Political Activity

Direct and indirect candidate support

• Contributions

• Public statements for/against a particular candidate

• Participation in campaigns

ABSOLUTELY PROHIBITED

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Filing Requirement

Pension Protection Act of 2006 • Failure to file required return (Form

990, 990-EZ, 990-PF or 990-N) for three consecutive years results in loss of exemption • Organization must re-apply and pay

appropriate user fees

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12 FORM 990 | EXEMPT ORGANIZATIONS

Form 990-series Filing Requirements Who is Required to File?

•  Exceptions Which Form?

Private Foundations file Form 990-PF

Tax Year 2012 Form All organization may file 990 Gross receipts below $200K; and Total assets below $500K 990-EZ

Gross receipts at or below $50K 990-N


Information Needed:

•  Legal name and address •  Employer identification number (EIN) • Web address •  Principal officer name/address • Confirmation of gross receipts

990-N (e-Postcard)


Unrelated Business Income (UBI)

• Regularly carried on

•  Trade or business activity

• Not substantially related to organization’s exempt purpose

Substantial UBI activities causes operational test failure More – see Publication 598, Tax on Unrelated Business Income of Exempt Organizations 14

Unrelated Business Income (UBI)

Common Activities •  Selling advertising

•  Gaming

•  Selling merchandise or publications

•  Providing services

Exceptions •  Activities conducted by

volunteers • Convenience of

organizations members, students, employees

•  Selling donated articles • Distribution of low cost

articles •  Sponsorship •  Traditional bingo games

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UBI Exclusions

•  Interest and dividends • Royalty income • Rental income from real property • Gains and losses from the sale of

property

16 Stay Exempt! | Exempt Organizations, TEGE


Fundraising

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Start with these questions: •  Is the activity related to the

organization’s exempt purpose? • Does the activity fall within one of

the exceptions to UBI?


Is Gaming “Charitable?”

Gaming is a recreational activity & a business • Gaming itself does not further exempt

purposes •  The sole purpose of a charity cannot be to

conduct gaming

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More – see Publication 3079, Tax-Exempt Organizations and Gaming


Why Should I Keep Records?

•  Monitor progress •  Prepare financial statements •  Identify income sources •  Track expenses •  Track volunteers’ work •  Verify items on IRS and state returns •  Assist organization’s future leaders

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Recordkeeping Basics •  Use a system that clearly shows income and

expenses •  Keep determination letter forever •  Keep Employer Identification number (EIN)

notification forever

•  Keep IRS returns until the statute of limitations has expired

•  Keep state or local forms and returns as long required by agency

20 More – see Publication 583, Starting a Business and Keeping Records


Employer Identification Number (EIN)

•  Have only one (X0-X0XXXXX) •  Use for all accounts – bank and IRS Lost or misplaced EIN •  IRS computer generated notice •  Bank account number •  Call 800-829-4933 (7:00-7:00, Mon.-Fri.)

•  Authorized person, or •  Mailed to address of record

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Resources to Assist

HELP!

Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities

23 EXEMPT ORGANIZATIONS

To reach our Charities and Nonprofits page, go to IRS.gov and click “Information for…” then select Charities & Nonprofits.


Find the latest developments affecting EOs by selecting EO Current Topics & News.


The A-Z Site Index is one of our most helpful pages.


Check out EO’s new on-line exempt org search tool. It’s updated monthly!


Educational activities are

specially designed for

the EO community.


You can also find the EO Audit page at IRS.gov by searching “Charity and Nonprofit Audits”

EO-Update: Free e-Newsletter


Register for the EO UPDATE!

It’s FREE and it keeps you up to date with what’s happening in EO.


StayExempt.irs.gov

This is one of the best ways to learn what’s important to

exempt organizations


IRS Video Portal www.irsvideos.gov

Available to fit your busy schedule, online 24/7


For More Information

Charities and Nonprofits page For forms, publications, general information: www.irs.gov/charities

Web-Based Training Program For 501(c)(3) organizations: StayExempt.irs.gov

General Questions Account issues only: 1-877-829-5500 (toll free)

stay exempt! - north carolina ptancpta.org/wp-content/uploads/2013/06/2013-stay-exempt.pdf ·...

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