Tax Exempt Organization Update December 2015Presented by: Michelle Mann, CPA, Tax Senior ManagerNicole Hobbs, CPA, Tax ManagerJPMS Cox, PLLCLittle Rock, AR

Overview

•Types of Form 990 (N, EZ, long form, PF)•Form 990-T, Unrelated Business Income•State Reporting Requirements•Form 1023, 1023-EZ, & 1024•Keeping Your Exempt Status•Charitable Contribution Substantiation•Useful Links

Tax Exempt Entity Forms

•Form 990 (expanded for 2008 forward)•Form 990-EZ•Form 990-N (e-postcard)•Form 990-PF for Private Foundations•Form 990-T (Unrelated Business Income)

Thresholds for 2010 and beyond• Gross receipts normally ≤ $50,000

990-N• Gross receipts < $200,000 and

Total assets < $500,000 990-EZ

• Gross receipts ≥ $200,000, or Total assets ≥ $500,000

990If an organization is a 501(c)(3) Private

Foundation, it files form 990-PF regardless of the amount of revenue or assets

Form 990-N

•Electronic postcard filing•No financial data required•Eligible organizations:

▫Annual gross receipts normally $50,000 or less

•Ineligible organizations:▫Private foundations▫Support orgs

•https://epostcard.form990.org/

Form 990-EZ

•Gross receipts <$200,000 AND total assets <$500,000

•4 page form•Much easier to complete than full 990

Comparison of Public & Private Entities• Both exempt under 501(c)(3)• Both file form 1023 to request tax exemption• Both can receive tax deductible charitable

contributions, but AGI limit (cash) 50% vs. 30%• IRS assumes all are private foundations until

organization can prove otherwise• Public charities must meet public support test on

Schedule A (generally 33 1/3%, discussed later)• Private foundations often used for family or

corporate gift planning or scholarship funds• Private foundations have excise taxes & minimum

distribution requirements (5% of FMV of assets)

Core Form 990• I – Summary• II – Signature Block• III – Program Service Accomplishments• IV – Checklist of Required Schedules•V – Other IRS Filings and Tax Compliance•VI – Governance, Management, and Disclosure•VII – Compensation•VIII – Statement of Revenue• IX – Statement of Functional Expenses•X – Balance Sheet•XI – Reconciliation of Net Assets•XII – Financial Statements and Reporting

Form 990 – Key Parts

•Part I: Summary of activity and prior year / current year financial data

•Part III: Statement of program service accomplishments▫Provide description of 3 largest program

service accomplishments▫Revenue, expenses, and grants allocable to

each

Form 990 – Key Parts•Part VII: Compensation of officers, directors,

trustees, key employees, highest compensated employees, and independent contractors▫All officers/directors must disclose compensation

from the organization or related organizations regardless of amount

▫Top management and financial officials are considered officers

▫Those receiving >$150,000 total compensation are detailed on Schedule J

Form 990 – Key Parts

•Part VIII: Statement of Revenue▫Contributions reported separate from

program service revenue▫Unrelated business income of $1,000 or

more – must file 990-T•Part IX: Statement of Functional Expenses

▫Must allocate expenses into 3 categories: program service, management & general, fundraising

Schedule A – Public Support Test• Explains why 501(c)(3) is not a private

foundation – mark appropriate box on Schedule A, page 1

• Identity categories ▫ Churches▫ Schools▫ Hospitals and medical research organizations▫ Governmental units

• Revenue testing using a 5 year period (33 1/3%)▫ 509(a)(1) – use Schedule A page 2▫ 509(a)(2) – use Schedule A page 3

• Organized and operated to test for public safety• Supporting organizations (form expanded for

2014)

Schedules for 990 •A – Public Charity Status and Public

Support•B – Schedule of Contributors•C – Political Campaign and Lobbying

Activities•D – Supplemental Financial Statements•E – Schools•F – Statement of Activities Outside the US•G – Fundraising or Gaming Activities•H - Hospitals

Schedules for 990•I - Grants to Organizations, etc. in the US•J - Compensation Information•K - Tax-Exempt Bonds•L - Transactions with Interested Persons•M - NonCash Contributions•N – Liquidation, Termination, Dissolution,

or Significant Disposition of Assets•O – Supplemental Information•R – Related Organizations and Unrelated

Partnerships

Form 990 – Disclosure

•Must be made available for public inspection by the organization for 3 years▫Exception: Schedule B (donor information)

•Forms 990 are sent to GuideStar from the IRS and are available for public viewing

•Due date: 5 months after tax year end▫May 15 for calendar year end▫First extension for 3 months (August 15)▫Second extension for 3 months (November 15)

Other Federal Tax Returns

•Form 990- T Unrelated Business Income•Form 990-W estimated payments if

income or excise tax is expected to be $500 or more

•Employment Taxes – federal and state•Information Reporting – Forms 1098,

1099•Report of Foreign Bank and Financial

Accounts (FBAR - FinCEN 114, formerly TD F 90-22.1)

Unrelated Business Income (UBI)•File 990-T if $1,000 or more UBI•Activities Subject to UBIT:

▫Trade or Business▫Regularly Carried On▫Not Substantially Related to Exempt Purpose

•Must meet all three of above requirements; any one exception can prevent UBI

•Can allocate expenses to the income activity•Can carry over net operating losses•Tax is calculated at regular corporate tax rates

Unrelated Business Income•Exceptions:

▫Activity Run by Volunteers.▫Convenience of Patients, Students, Employees,

Guests▫Donated Merchandise

•Excluded Income:▫Interest ▫Dividends ▫Some Rents (not excluded if debt financed)▫Gains / Losses

*Recommend IRS Pub. 598

Arkansas Reporting Requirements

• Secretary of State – nonprofit corporation annual report▫ Due August 1 ▫ Officers and contact information only

• Attorney General – if registered with AG, must submit annual filing▫ Register with AG if soliciting contributions >$25,000 annually▫ Exemptions, such as religious and educational entities▫ Copy of Form 990▫ Annual Financial Reporting Form (CR-03) – must be notarized▫ If audited, must also include audit report▫ Email all documents by due date of 990

Nonprofit vs. Tax-Exempt

•Nonprofit = state law concept•Tax-exempt = federal tax concept

▫Must apply for tax-exempt status with IRS▫Form 1023: application for exemption

under section 501(c)3▫Form 1024: application for exemption

under 501(a)

Types of Tax-Exempt Organizations• 501(c)(3): Public charity• Must be 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, or for the prevention of cruelty to children or animals.”

Types of Tax-Exempt Organizations• 501(c)(4): Civic leagues, social welfare

organizations, local associations of employees• 501(c)(5): Labor, agricultural, horticultural• 501(c)(6): Business leagues, trade associations,

chambers of commerce• 501(c)(7): Social or recreational clubs; supported by

membership fees/dues• 501(c)(8) or (10): Fraternal beneficiary

societies/associations• 501(c)(9) or (17): Employee benefit association or

VEBA• 501(c)(19): Veterans organizations

Benefits of Tax Exemption

•Exempt from federal income tax•Exempt from certain other taxes•Reduced postal rates•Tax-deductible contributions (for 501(c)

(3))

501(c)(3) Status

•Organization should be a nonprofit corporation, trust, or unincorporated association

•Organizing document must contain two clauses:▫Purpose clause: establishes charitable

purpose(Charitable, educational, religious, scientific, etc.)

▫Dissolution clause: assets will be used for charitable purposes upon dissolution of the organization

501(c)(3) Status• Private foundation

▫501(c)(3)s are automatically a PF unless public support test is met

▫Privately funded, usually from a single source• Public charity

▫Publicly funded, from multiple sources or activities

▫Also includes churches, schools, hospitals▫Must meet public support test (33%)

509(a)(1) and 509(a)(2)

501(c)(3) Status

•Must apply to IRS for exemption except:▫Churches▫Organizations with gross receipts of $5,000

or less•Use IRS Form 1023 or 1023-EZ

Form 1023-EZ

•New form – released June 2014•Must complete worksheet to determine

eligibility to use EZ form (see instructions)▫Gross receipts expected to be <$50,000 for

3 years▫Gross receipts have not been >$50,000 in

any of the past 3 years▫Assets <$250,000

Form 1023-EZ

•The following types of organizations are NOT eligible to file EZ form:▫Churches, schools, hospitals▫Successors to for-profit entity▫LLCs▫Foreign organizations▫Support organizations▫Organizations that have had exempt status

revoked

Form 1023-EZ• Must file electronically• Information needed to complete 1023-EZ

▫Employer identification number (EIN)▫Organizational structure: corporation, trust, association▫Date of incorporation▫Name, address, and title of 5 officers, directors, or

trustees▫Organizing document with purpose and dissolution

clauses (bylaws, articles of incorporation)▫Must attest that you have not and will not conduct

prohibited activities

Form 1023-EZ

•User fee of $400 due upon submission▫Must register on pay.gov for online

payment•EZ Form has quicker turnaround from IRS•3% rate of IRS audit

▫Be prepared!•www.irs.gov/form1023ez

Form 1023• Narrative description of past, present, and

planned activities• Complete list of officers and compensation;

answers to questions about compensation• Financial data: revenue, expenses, balance sheet

▫3-5 years of revenue/expenses required depending on age of organization

▫New organizations: each year of existence, plus projections for total of 3 years of data if you have not completed 1 tax year; otherwise 4 years

Form 1023• Must attach bylaws and articles of incorporation

with proof of purpose clause and dissolution clause

• Questions regarding financial arrangements with officers/directors

• Must disclose family or business relationships among officers/directors

• Questions related to goods, services, and funds provided to individuals or organizations

• Types of activities: political, legislation, gaming

Form 1023

•Description of fundraising programs•Relationships with foreign organizations•Description of any grant or loan programs•User fee:

▫$400 if average gross receipts of <$10,000 expected

▫Otherwise $850

Form 1023 – Additional Schedules• Schedule A: Churches• Schedule B: Schools, colleges, universities• Schedule C: Hospitals and medical research• Schedule D: Supporting organizations (509(a)(3))• Schedule E: Organizations not filing within 27

months of formation• Schedule F: Homes for elderly or handicapped and

low-income housing• Schedule G: Successors to other organizations• Schedule H: Scholarships, fellowships, loans, grants

Form 1024

•Used to obtain exemption under sections other than 501(c)(3)

•Most eligible to file are not required to file▫Still have to meet annual filing requirements

(990)•May want to file in order to receive

determination letter from IRS for public recognition of exempt status

•Will appear on IRS EO Select Check

Form 1024

•Less detailed than Form 1023•Still must provide narrative description of

past, present, and planned activities•3-4 years of financial data required, and

current year balance sheet•General questions about activities and

operations•Specific questions for certain types ((c)(5),

(6), (7), etc.)

Keeping Your Exempt Status

•Must file Form 990 annually▫Exempt status will be revoked after 3 years

of not filing•Still must file if waiting on determination

letter after submitting 1023 or 1024

Donation Solicitation Rules•Written acknowledgment of contributions

of $250; “no goods or services provided” language important

•Due by January 31•If organization provides anything of value

in exchange for the contribution and the contribution is over $75, organization provides a good faith estimate of the value of the goods and services provided

•See blogs on jpmscox.com

Charitable Contribution Substantiation Forms•Form 8282, Donee Information Return•Form 8283, Noncash Contributions•Form 8899, Notice of Income from

Donated Intellectual Property•Form 1098-C, Contributions of Motor

Vehicles, Boats, and Airplanes

Useful Links• IRS Charities & Non-Profits Section:

▫http://www.irs.gov/Charities-&-Non-Profits• IRS EO Select Check: http://apps.irs.gov/app/eos/• GuideStar: http://www.GuideStar.org• Arkansas AG Annual Financial Reporting Form:

▫https://static.ark.org/eeuploads/ag/FormCR-03_AnnualFinancialReportForm.pdf

• Arkansas Secretary of State Nonprofit Annual Report:▫https://www.ark.org/sos/corpfilings/index.php