Taxes for Rotary Clubs

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Aubrey Fleming
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1 Taxes for Rotary Clubs An effective guide for the implementation of strategies and policies to meet current regulations and tax policies that effect Rotary Clubs in Massachusetts.

2 EMPLOYER IDENTIFICATION NUMBER DO YOU NEED AN EMPLOYER IDENTIFICATION NUMBER? Are you involved with any of the following types of organizations? Trusts, except certain grantor-owned revocable trusts, IRAs, Exempt Organization Business Income Tax Returns Estates Real estate mortgage investment conduits Non-profit organizations Farmers cooperatives Plan administrators Since Rotary Clubs are organized under Rotary International s 501(c)3 non-profit designation, or have organized independently as a 501(c)3, the answer is clearly yes, we do need an employer identification number, This is also referred to as a Taxpayer Identification Number. Here is how you get one, or how you find out if you have one: Misplaced Your EIN? If you previously applied for and received an EIN for your business, but have since misplaced it, try any or all of the following actions to locate the number: Find the computer-generated notice that was issued by the IRS when you applied for your EIN. This notice is issued as a confirmation of your application for, and receipt of an EIN. If you used your EIN to open a bank account, or apply for any type of state or local license, you should contact the bank or agency to secure your EIN. Ask the IRS to search for your EIN by calling the Business & Specialty Tax Line at (800) The hours of operation are 7:00 a.m. - 10:00 p.m. local time, Monday through Friday. An assistor will ask you for identifying information and provide the number to you over the telephone, as long as you are a person who is authorized to receive it. Examples of an authorized person include, but are not limited to, a sole proprietor, a partner in a partnership, a corporate officer, a trustee of a trust, or an executor of an estate. APPLYING FOR AN EIN FOR THE FIRST TIME Apply Online The Internet EIN application is the preferred method for customers to apply for and obtain an EIN. Once the application is completed, the information is validated during the online session, and an EIN is issued immediately. The online application process is available for all entities whose principal business, office or agency, or legal residence (in the case of an individual), is located in the United States or U.S. Territories. The principal officer, general partner, grantor, owner, trustor etc. must have a valid Taxpayer Identification Number (Social Security Number, Employer Identification Number, or Individual Taxpayer Identification Number) in order to use the online application. Apply By EIN Toll-Free Telephone Service Taxpayers can obtain an EIN immediately by calling the Business & Specialty Tax Line at (800) The hours of operation are 7:00 a.m. 10:00 p.m. local time, Monday through Friday. An assistor takes the information, assigns the EIN, and provides the number to an authorized individual over the telephone. Note: International applicants must call (215) (Not a toll-free number). Apply By FAX Taxpayers can FAX the completed Form SS-4 (PDF) application to their state FAX number (see Where to File - Business Forms and Filing Addresses), after ensuring that the Form SS-4 contains all of the required information.

3 If it is determined that the entity needs a new EIN, one will be assigned using the appropriate procedures for the entity type. If the taxpayer s fax number is provided, a fax will be sent back with the EIN within four (4) business days. Apply By Mail The processing time frame for an EIN application received by mail is four weeks. Ensure that the Form SS-4 (PDF) contains all of the required information. If it is determined that the entity needs a new EIN, one will be assigned using the appropriate procedures for the entity type and mailed to the taxpayer. MAKING CHANGES TO YOUR EIN Do You Need a New EIN? Generally, businesses need a new EIN when their ownership or structure has changed. Although changing the name of your business does not require you to obtain a new EIN, you may wish to visit the Business Name Change page to find out what actions are required if you change the name of your business. The information below provides answers to frequently asked questions about changing your EIN. Corporations You will be required to obtain a new EIN if any of the following statements are true. A corporation receives a new charter from the secretary of state. You are a subsidiary of a corporation using the parent s EIN or you become a subsidiary of a corporation. You change to a partnership or a sole proprietorship. A new corporation is created after a statutory merger. You will not be required to obtain a new EIN if any of the following statements are true. You are a division of a corporation. The surviving corporation uses the existing EIN after a corporate merger. A corporation declares bankruptcy. The corporate name or location changes. A corporation chooses to be taxed as an S corporation. Reorganization of a corporation changes only the identity or place. Other Important Information Third Party Authorization The Third Party Designee section must be completed at the bottom of the Form SS-4. The Form SS-4 must also be signed by the taxpayer for the third party designee authorization to be valid. The Form SS-4 must be mailed or faxed to the appropriate service center. A third party designee may call for an EIN; however a faxed Form SS-4, with the taxpayer s signature, is still required. IRS assistors will take the information over the phone from the third party designee and ask the third party to fax the completed Form SS-4 to them (to the IRS assistor s attention) at an administrative fax number. After receiving the faxed Form SS-4, the EIN will be assigned and faxed back to the third party designee, or given over the phone. The third party designee s authority terminates at the time the EIN is assigned and released to the designee. How Long Will it Take to Get an EIN? You should apply for an EIN early enough to have your number when you need to file a return or make a deposit. You can get an EIN quickly by applying online, or by calling the Toll-Free phone number (800) International applicants must call (215) (Not a toll-free number). If you prefer, you can fax a completed Form SS-4 to the service center for your state, and they will respond with a return fax in about one week. If you do not include a return fax number, it will take about two weeks. If you apply by mail, send your completed Form

4 SS-4 (PDF) at least four to five weeks before you need your EIN to file a return or make a deposit. If you don t have your EIN by the time a return is due, write Applied for and the date you applied in the space shown for the number. Do not use your social security number. If you don t have your EIN by the time a deposit is due, send your payment to the service center address for your state. Make your check or money order payable to Internal Revenue Service and show your name (as shown on the SS-4), address, kind of tax, period covered, and the date you applied for your EIN. 990 TAX FORM Most small tax-exempt organizations with gross receipts that are normally $25,000 or less may be required to electronically submit Form 990-N, also known as the e-postcard. Exceptions to this requirement include: Organizations that are included in a group return, and Churches, their integrated auxiliaries, and conventions or associations of churches. The following organizations cannot file the e-postcard but must file different forms instead: Tax-exempt organizations with annual gross receipts that are normally greater than $25,000 must file Form 990 or Form 990-EZ; Private foundations must file Form 990-PF; Section 509(a)(3) supporting organizations that are required to file Form 990 or Form 990-EZ. IRC section 527 (political) organizations required to file an annual exempt organization return must file Form 990 or Form 990-EZ; Preparing TO FILE: Before you file Form 990-EZ, Short Form Return for an Organization Exempt from Income Tax, you should: Calculate your annual income. Your Annual Income will determine whether this is the correct form to file. Make sure you gather and calculate all your sources of income including dues, meals income, program income, advertgising, interest, grants, liabilities, and net assets. Important: There are penalties for late filing or failure to file a Form 990 or 990-EZ. As an officer, the maximum penalty is $10 per day for every day that the report is late, to a maximum of $5,000. The organization can additionally be fined, $20 per day not to exceed the smaller of $10,000 or 5% of gross receipts for the year, unless delay is shown to be due to reasonable causes. You must file the IRS Form 990 and 990-EZ within four month and fifteen days of the closing of the fiscal year. Should you find it necessary to obtain an extension, you will need to submit IRS Form 8868 (PDF format - 107K), which must be mailed on or before the due date of the Form 990. This form must be signed by an officer of your local, a CPA or a person enrolled to practice before the IRS. This extension is ONLY granted in cases of undue hardship and will give you 90 additional days to file. Each extension must be filed before the close of the last. A maximum of six (6) months is all that will be granted. Never use a personal social security number in place of the EIN. Filing the 990: The 2008 Form 990-EZ now consists of a four-page core form that must be completed by every organization that files the Form 990-EZ. A new Part VI, to be completed only by section 501(c)(3) organizations, was added to accompany the revised Schedule A,

5 Public Charity Status and Public Support. The 2008 Form 990-EZ instructions providet he filing organization two options to report compensation for its officers, directors, trustees, key employees and, in the case of section 501(c)(3) organizations, its five highest compensated employees. See Significant Changes to the Instructions below. Beginning with 2008, Form 990-EZ contains up to seven schedules to be completed by certain types of organizations or those that conduct certain activities. The 2008 Form 990-EZ schedules include the following: Schedule A, Public Charity Status and Public Support (to be completed by section 501(c)(3) organizations); Schedule B, Schedule of Contributors (largely unchanged from 2007); Schedule C, Political Campaign and Lobbying Activities (see lines 46 and 47); Schedule E, Schools (see line 48); Schedule G, Supplemental Information Regarding Fundraising or Gaming Activities (see line 6a); Schedule L, Transactions With Interested Persons (see lines 38b and 40b regarding Parts I and II); and Schedule N, Liquidation, Termination, Dissolution or Significant Disposition of Assets (see line 36). New Schedules A, C, and E require information previously required by the 2007 Form 990-EZ, Schedule A. For Form 990-EZ filers, Schedules G, L and N request information previously required to be provided in the form of unstructured attachments. Filing Amounts and Transition Relief. The gross receipts and total assets amounts for Form 990-EZ filers have been increased for 2008 and later years. Beginning with the 2008 tax year, an organization may file a Form 990- EZ (rather than a Form 990) if it satisfies both the gross receipts and total assets tests set forth in this table. These filing amount rules are described more fully in the 2008 Form 990-EZ and Form 990 instructions. May file 990-EZ for: If gross receipts are: If total assets are: 2008 tax year (filed in 2009) < $1 million < $2.5 million 2009 tax year (filed in 2010) < $500,000 < $1.25 million 2010 and later tax years < $200,000 < $500,000 The increase in Form 990-EZ filing amounts will significantly increase the number of organizations eligible to file Form 990-EZ in 2008 and later years. The IRS estimates that the percentage of organizations eligible to file the Form 990-EZ will increase from 41% in 2007 to 76% in This increases the number of organizations eligible to file the Form 990-EZ from approximately 205,000 in 2007 to 390,000 in 2008, thereby allowing an estimated 185,000 additional organizations who were not eligible to file the Form 990-EZ in 2007 to file the Form 990-EZ for the 2008 tax year. After the filing amounts are adjusted downward in 2009 and 2010, 68% of the organizations will remain eligible to file the Form 990-EZ in 2009, and 51% will be eligible to file the Form 990-EZ in New Part VI. Section 501(c)(3) organizations are required to complete Part VI of the Form 990-EZ. This information was previously required by the 2007 Form and is now requested on the following lines. Line 46 to determine which section 501(c)(3) organizations are required to complete Schedule C, Political Campaign and Lobbying Activities, Part I regarding political activities (see 2007 Form 990-EZ lines 37a and 40a). Line 47 to determine which 501(c)(3) organizations are required to complete Schedule C, Part II regarding lobbying activities (see 2007 Schedule A, Part VI-A and VI-B). Line 48 to determine which 501(c)(3) schools are required to complete Schedule E regarding private schools (see 2007 Schedule A, Part V). Lines 49a and 49b added to identify transactions between 501(c)(3) organizations and tax-exempt organizations other than 501(c)(3) organizations

6 (see 2007 Schedule A, Part VII). However, 990-EZ filers are no longer required to provide the details of such transactions. Line 50 added to report compensation of the five highest compensated employees other than officers, directors, trustees, and key employees (see 2007 Schedule A, Part I); the reporting threshold was raised from $50,000 to $100,000. Line 51 added to report compensation of five highest compensated independent contractors (see 2007 Schedule A, Parts II-A and II-B); the reporting threshold was raised from $50,000 to $100,000. New Schedule A. Schedule A was significantly revised to focus exclusively on public support and the public charity status of a section 501(c)(3) organization. Other parts of the 2007 Schedule A were moved to Schedules C and E. The new Schedule A also reflects the elimination of the advance ruling process for organizations that are publicly supported. See Elimination of Advance Ruling Process for a description of these revisions. Replacement of Certain Attachments with New Schedules. The following unstructured attachments required in the 2007 Form 990-EZ were eliminated or replaced with schedules: Part I Revenue, Expenses, and Changes in Net Assets or Fund Balances o Line 5c eliminated the attached schedule for sales of non-inventory assets. o Line 6a replaced required attached schedule with Schedule G, Parts II and III, if gross revenue from special events and gaming activities exceeds $15,000. Part V Other Information o Line 36 replaced required attached schedule with Schedule N. o Line 38b replaced required attached schedule with Schedule L, Part II. o Line 40b replaced required attached schedule with Schedule L, Part I. Other Changes to the Form. Lines 44 and 45 were added to remind sponsoring organizations of donor advised funds, and certain section 512(b)(13) controlling organizations, that they must file Form 990 instead of Form 990- EZ (see instructions to lines 44 and 45). Significant Changes to the Instructions. The Form 990-EZ instructions are no longer combined with the Form 990 instructions, although the General Instructions and Appendix of Special Instructions are nearly the same for both forms. Several of the General Instructions were moved to the Appendix or eliminated. General Instruction A clarifies that organizations that claim tax-exempt status but have not yet applied for or been recognized as exempt must file Form 990-EZ or Form 990. General Instruction F explains that amended Form 990-EZ returns now require an attachment describing the amendments. Schedule I for grants now has a $5,000 threshold per grantee, and no longer requires the names of grantee individuals (see the line 10 instruction). Compensation: An organization may choose one of the following methods (Option 1 or Option 2) when reporting compensation of their officers, directors, trustees, key employees, and five highest compensated employees. This choice allows the organization to continue to use the compensation reporting method it used in prior years,or adopt a simplified version of the compensation reporting implemented by Part VII of the new Form 990. An organization filing Form 990-EZ will not need to complete Schedule J, which may be required for an organization that completes Form 990, regardless of whether it chooses Option 1 or Option 2. Whichever method the organization selects for 2008, it must apply it consistently for all officers, directors, trustees, key employees, and five highest compensated employees, and it must continue to use the same method for all future tax years. Option 1, a simplified version of the new 2008 Form 990 method of compensation reporting, requires calendar-year compensation reporting and is based on Form W-2 and Form 1099-MISC reporting. Option 2 is essentially the 2007 Form 990-EZ method of compensation reporting.

Section references are to the Internal Revenue Code unless otherwise noted.

Section references are to the Internal Revenue Code unless otherwise noted. 2008 Instructions for Form 990-EZ Short Form Return of Organization Exempt From Income Tax Under Section 501(c), 527, or 4947(a)(1) of the Internal Revenue Code (except black lung benefit trust or private