proc annual member retreat don’t dream it, drive it may 12, 2012

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PROC Annual Member Retreat

Don’t Dream It, Drive ItMay 12, 2012

“The Ultimate Driving Machine”

501 (c) Nonprofit Organizations(Do you know what you’re driving?)

Cheryl N. Ivey, Presenter

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501 (c)(3) Non ProfitsPre–Test

What is______________?

• A non-profit organization?

• A not-for-profit organization?

• A charitable organization?

• A 501(c)(3) ? Give an Example.

• A 501(c)(7)? Give an Example.

• Unrelated business income.

• Form 990/990EZ/990T

• A Tax-exempt Entity?

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Definitions

Not-for-profit/nonprofit – Organization that does not exist for the purpose of making a profit for shareholders or individual owners.

Tax-exempt Entity – Organization which the IRS has declared exempt from federal income taxes.

Charitable Organizations – Sometimes refers to nonprofits reflecting the requirement that most tax-exempt organizations have a charitable mission. (term “charity” is limiting as it is associated with social service; some nonprofits focused on other arenas of society.

501(c)(3) – Refers to the section of the IRS code which houses guidelines for tax exempt organizations.

Source: Building Blocks for non-Profit Board Members

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26 USC 501 – Exemptions from tax on corporations, certain trusts, etc. (a) An organization described in subsection (c) or (d) or section 401 (a) shall

be exempt from taxation under this subtitle unless such exemption is denied under section 502 or 503.

(b) An organization exempt from taxation under subsection (a) shall be subject to tax to the extent provided in parts II, III, and VI of this subchapter, but (notwithstanding parts II, III, and VI of this subchapter) shall be considered an organization exempt from income taxes for the purpose of any law which refers to organizations exempt from income taxes.

(c) List of exempt organizationsThe following organizations are referred to in subsection (a):

(1) Any corporation organized under Act of Congress which is an instrumentality of the United States but only if such corporation— (A) is exempt from Federal income taxes—

(i) under such Act as amended and supplemented before July 18, 1984, or

(ii) under this title without regard to any provision of law which is not contained in this title and which is not contained in a revenue Act, or

(B) is described in subsection (l).

(2) Corporations organized for the exclusive purpose of holding title to property, collecting income there from, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt under this section. Rules similar to the rules of subparagraph (G) of paragraph (25) shall apply for purposes of this paragraph.

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26 USC 501 – Exemptions from tax on corporations, certain trusts, etc. (c) List of exempt organizations (continued)

The following organizations are referred to in subsection (a): (3) Corporations, and any community chest, fund, or

foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

(Social Service Providers, Foundations, Churches)

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Other 26 USC Section 501(c) Organizations

501(c)(4) - Civic Leagues (HOAs) and Social Welfare Organizations

501(c)(5) - Labor, Agricultural, and Horticultural Organizations 501(c)(6) - Business Leagues, etc. 501(c)(7) - Social and Recreation Clubs 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and

Domestic Fraternal Societies 501(c)(4), 501(c)(9), and 501(c)(17) - Employees’ Associations 501(c)(11) – Teachers’ Retirement Funds 501(c)(12) - Local Benevolent Life Insurance Associations,

Mutual Irrigation and Like Organizations 501(c)(13) - Cemetery Companies 501(c)(14) - Credit Unions and Other Mutual Financial

Organizations 501(c)(19) - Veterans’ Organizations 501(c)(20) - Group Legal Services Plan Organizations 501(c)(21) - Black Lung Benefit Trusts 501(c)(22) through (29) – other similar organizations

(Mutual Benefit)

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Two Types of Nonprofits

NonprofitsAll exempt from income tax

Public-Serving501(c)(3) tax status

Eligible to receive tax-deductible gifts

Service ProvidersFoundations (Private & Public)

Churches

Mutual Benefit501(c)(4) – (29) tax status

Social & Fraternal OrganizationsBusiness and Professional Assoc.

Labor UnionsPolitical Organizations

Source: Building Blocks for non-Profit Board Members

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26 USC 501 (c)(7) Organizations

Organizations that may be exempt under Internal Revenue Code section 501(c)(7), if they meet the requirements for exemption include:

College social/academic fraternities and sororities

Country clubs

Amateur hunting, fishing, tennis, swimming and other sport club Dinner clubs that provide a meeting place library, and dining

room for members Variety clubs

Hobby clubs

Homeowners or community associations whose primary function is to own and maintain recreational areas and facilities.

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26 USC 501 (c)(7) Organizations Organized for exempt purposes:

A social club must be organized for pleasure, recreation, and other similar purposes.

A club will not be recognized as tax exempt if its charter, by laws, or other governing instrument, or any written policy statement provides for discrimination against any person based on race, color, or religion.

A club may, however, in good faith limit its membership to members of a particular religion in order to further the teachings or principles of that religion and not to exclude individuals of a particular race or color.

Whether an organization's purposes are consistent with exemption under section 501(c)(7) is generally determined based on its organizing documents. Each application for exemption must be accompanied by an exact copy of

the organization’s organizing document: Articles of incorporation for a corporation, articles of organization for a limited liability company, articles of association or constitution for an association, or trust agreement or declaration of trust for a trust.

If the organization does not have an organizing document, it will not qualify for exempt status.

State law determines if organization is properly created and establishes acceptable organizing documents.

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26 USC 501 (c)(7) Organizations To be exempt, a social club must meet the following

requirements: The club must be organized for exempt purposes. Substantially all of its activities must further exempt

purposes: If the club exceeds safe harbor guidelines for nonmember and

investment income, the facts and circumstances must show that it is organized substantially for exempt purposes.

The club has de minimis income from nontraditional sources (i.e., from investments or from activities that, if conducted with members, would further the club's tax-exempt purposes).

The club must provide an opportunity for personal contact among members, and membership must be limited.

The club must be supported by membership fees, dues, and assessments.

The organization’s net earnings may not inure to the benefit of any person having a personal and private interest in its activities.

The club's governing instrument may not contain a provision that provides for discrimination against any person on the basis of race, color, or religion.

The club may not hold itself out as providing goods and services to the general public.

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Social clubs are generally required to file annual returns of their income and expenses with the Internal Revenue Service (Form 990/990EZ). Social clubs may be required to file other returns and pay employment taxes.

If a club has unrelated business income, it must file an unrelated business income tax return(990T).

Unrelated Business income - includes all gross income, less deductions directly connected with producing that income, but not including exempt function income.

Examples: Selling income from club land Advertising in club newsletters or other

publications.

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Know what you’re driving!501(c)(7) or 501(c)(3)

Camry501 (c)(7)

Lexus501 (c)(3)

vs.

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o To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes:

o The organization must be a corporation (or unincorporated association), community chest, fund, or foundation (individuals do not qualify).

The organizing documents trust instrument, corporate charter, articles of incorporation, articles of association or other written instrument by

which the organization is created under state law

must limit the organization’s purposes to exempt purposes set forth in section 501 (c)(3).

o Must not engage in activities that are not in furtherance of one or more of those purposes other than as an insubstantial part of its activities.

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The organization's assets must be permanently dedicated to an exempt purpose.

If the organization dissolves, its assets must be distributed for an exempt purpose or to the federal or state government for a public purpose.

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests.

A private shareholder or individual is a person having a personal and private interest in the activities of the organization.

None of the earnings may inure to any private shareholder or individual.

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No organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation.

A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of

tax-exempt status.

The Organization is prohibited from directly or indirectly participating, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.

Voter education in non-partisan manner is ok.

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A ruling or determination letter will be issued to your organization if its application and supporting documents establish that it meets the particular requirements of the section under which it is claiming exemption.

An exemption determination letter is subject to public disclosure.

Exempt organization must make available for public

inspection and copying its annual return – 990/990EZ, 990T.

The IRS also makes these documents available for public inspection and copying.

Also can be obtained from www.guidestar.org.

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26 USC 501 (c)(3) OrganizationsUNRELATED BUSINESS INCOME

Unrelated Business Income is income from a regularly-carried-on trade or business that is not substantially related to the organization’s exempt purpose.

Unrelated Business income - includes all gross income, less deductions directly connected with producing that income, but not including exempt function income.

If an organization has unrelated business income, it must file an unrelated business income tax return(990T).

Examples: Advertising sales in yearbook, souvenir journal or other

publication. Travel tours that do not promote the organizations exempt

purpose.

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A donor can deduct a charitable contribution of $250 or more only if the donor has a written acknowledgement from the exempt organization.

An exempt organization must provide a written

disclosure statement to donors of a quid pro quo contribution over $75.

Quid Pro Quo Contribution – contribution made by a donor in exchange for goods or services.

Example – A donor gives you $100 for a concert ticket with a $40 value. The charitable part of the payment is $60.00. Written acknowledgement should include value of concert ticket.

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Miscellaneous Rules

1. If your exempt organization changes your legal structure, you must file a new exemption application to establish the new entity still qualifies for exemption.

2. If the exempt organization amends its articles of organization or its internal regulations (bylaws), they must be reported as instructed on the Form 990 or 990EZ.

3. If the exempt organization changes its accounting period it must inform the IRS by letter and as instructed on Form 990T.

4. Exempt organizations failing to file a Form 990 or 990EZ for 3 consecutive years, will automatically lose its tax-exempt status.

5. Form 990 or 990EZ is due by the 15th day of the 5th month after the end of the organization’s accounting period.

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Know what you’re driving!501(c)(7) or 501(c)(3)

Camry501 (c)(7)

Lexus501 (c)(3)

vs.

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Resources

www.irs.gov

www.stayexempt.irs.gov

www.guidestar.org

Partnership for Nonprofit ExcellenceBuilding Blocks for Non-Profit Board Members

proc annual member retreat don’t dream it, drive it may 12, 2012

Documents