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
2
Stay Exempt! | Exempt Organizations, TEGE
Topics for Today
How to stay exempt
• The cardinal rule – a exempt purpose is essential
• Filing requirements
• Fundraising
• Recordkeeping
• IRS Resources 3
Stay Exempt! | Exempt Organizations, TEGE
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
4
All 501(c)(3) organizations are organized and operated exclusively for one or more of these purposes:
Stay Exempt! | Exempt Organizations, TEGE
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
5
Stay Exempt! | Exempt Organizations, TEGE
Be Careful About the “Big Five”
• Private benefit
• Lobbying / legislative activity • Political activity
• Failure to file
• Too much unrelated business income
6
Stay Exempt! | Exempt Organizations, TEGE
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
7
Stay Exempt! | Exempt Organizations, TEGE
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
8
Stay Exempt! | Exempt Organizations, TEGE
Lobbying / Legislative Activity
9
Lobbying – attempting to influence legislation
Measurement methods • “Substantial Part” test • “Expenditure” test
Stay Exempt! | Exempt Organizations, TEGE
Political Activity
Direct and indirect candidate support
• Contributions
• Public statements for/against a particular candidate
• Participation in campaigns
ABSOLUTELY PROHIBITED
10
Stay Exempt! | Exempt Organizations, TEGE
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
11
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
13 FORM 990 | EXEMPT ORGANIZATIONS
Information Needed:
• Legal name and address • Employer identification number (EIN) • Web address • Principal officer name/address • Confirmation of gross receipts
990-N (e-Postcard)
Stay Exempt! | Exempt Organizations, TEGE
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
15
Stay Exempt! | Exempt Organizations, TEGE
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
Stay Exempt! | Exempt Organizations, TEGE
Fundraising
17
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?
Stay Exempt! | Exempt Organizations, TEGE
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
18
More – see Publication 3079, Tax-Exempt Organizations and Gaming
Stay Exempt! | Exempt Organizations, TEGE
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
19
Stay Exempt! | Exempt Organizations, TEGE
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
Stay Exempt! | Exempt Organizations, TEGE
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
21
22 FORM 990 | EXEMPT ORGANIZATIONS
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.
24 EXEMPT ORGANIZATIONS
Find the latest developments affecting EOs by selecting EO Current Topics & News.
25 EXEMPT ORGANIZATIONS
The A-Z Site Index is one of our most helpful pages.
26 EXEMPT ORGANIZATIONS
Check out EO’s new on-line exempt org search tool. It’s updated monthly!
27 EXEMPT ORGANIZATIONS
Educational activities are
specially designed for
the EO community.
28 EXEMPT ORGANIZATIONS
You can also find the EO Audit page at IRS.gov by searching “Charity and Nonprofit Audits”
EO-Update: Free e-Newsletter
29 FORM 990 | EXEMPT ORGANIZATIONS
Register for the EO UPDATE!
It’s FREE and it keeps you up to date with what’s happening in EO.
30 EXEMPT ORGANIZATIONS
StayExempt.irs.gov
This is one of the best ways to learn what’s important to
exempt organizations
31 EXEMPT ORGANIZATIONS
IRS Video Portal www.irsvideos.gov
Available to fit your busy schedule, online 24/7
32 FORM 990 | EXEMPT ORGANIZATIONS
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)