Chapter Tax Compliance Requirements

Size: px

Start display at page:

Download "Chapter Tax Compliance Requirements"

Jerome Park
6 years ago
Views:

1 Chapter Tax Compliance Requirements Federal tax law provides income tax exemption to nonprofit organizations. The Pension Protection Act of 2006 created the requirement for small orgaizatrions, defined as those who normally have gross receipts of $50,000 or less, to file a Form 990-N Electronic Postcard. Previously, those organizations had no filing requirements whatsoever. Organizations that fail to file a Form 990, 990- EZ, or Form 990-N for three consecutive years will have their income tax exemption revoked. The automatic revocation applies to all organizations that have applied for and received a written income tax determinaton letter from the IRS granting income tax exemption under Section 501(c)(6). Self declaring organizations, or those who have been operating as a tax exempt organization under Section 501(c)(6) without having filed for official tax exemption might consider filing Form 1024 if a written determination of tax exemption from the IRS is desired. If you are responsible for your chapter s finances, please familiarize yourself with IRS requirements to protect your chapter s tax status. In most cases your chapter will fall into one of three catogories: 1.) Your chapter has complied with IRS regulations, has filed an annual return and your gross annual receipts are not more than $50,000. a. Complete and submit the 990-N Electronic Postcard and submit to the IRS. This process can be done electronically. (add link here) 2.) Your chapter has previously applied for and been granted tax exempt status with the IRS, but has not filed an annual return in the past three years. a. If your chapter has not filed in the last three years, your tax exempt status may have been revoked. In order to reinstate exempt status you will need to complete the IRS Forms 1024 and 8718 and submit them to the IRS along with the application fee. b. Before you take action: i. Find your EIN (Tax Identification Number). If it cannot be found in your files, contact DHI as we may have a record of it for your chapter. ii. After obtaining your EIN contact the IRS at to discuss your chapter s specific situation with a representative. Please note that DHI cannot make this call for your chapter. The IRS will only speak with a chapter board member or chapter agent. If your chapter needs to apply for reinstatement of tax exempt status, please continue through this document for a step-by-step Form 1024 and Form 8718 tutorial. DHI staff is available to help with the process of reinstating your tax exempt status and filing the 990-N Electronic Postcard. 3.) Your chapter has not previously applied for tax exempt status.. a. Organizations operating within the parameters of code 50(c) (6) who do not meet the gross receipts minimum of $50,000 can choose to declare themselves tax exempt without seeking a determination letter from the IRS by submitting a Form In this case, there is no filing requirement as long as the average gross receipts over a three year period are less than $50,000. It is the chapter s responsibility to file if gross receipts reach the $50,000 threshold. Operating in this fashion removes the burden of filing the annual tax return as well as the possibility of exempt status revocation.

2 Chapter Tax Compliance FAQs Why does my chapter have to comply with IRS tax laws? Federal tax law provides tax benefits to nonprofit organizations recognized as exempt from federal income tax under the Internal Revenue Code. As of 2006, small organizations with $50,000 or less in annual gross receipts are required to file an annual tax return to operate as a tax exempt organization. Not filing for three consecutive years will result in the revocation of the chapter s income tax exemption. When is the due date to file our 990-N Electronic Postcard? The 990-N Postcard must be filed no later than the 15 th day of the 5 th month after the end of the chapter s fiscal year. For example: If your chapter s year ends on December 31 st, you need to file no later than May 15 th. Does my chapter have an EIN (Employee Identification Number)? Yes, in most cases DHI has this number on file for your chapter. Please contact DHI Member Services at I thought that DHI National filed our chapter s annual tax return? In 2007, DHI obtained individual EIN numbers for each DHI chapter which made the chapters their own entity, therefore, DHI cannot file annual returns for the chapters. Each chapter should also be aware of and comply with state incorporation requirements and fulfill all financial responsibilities for the chapter. The Internal Revenue Service will only speak with chapter officers. What information is required to complete the 990-N Electronic Postcard? Employer Identification Number (EIN) Tax Year Your chapter s legal name and mailing address Any other names the organization uses Name and address of a principal officer Web site address if the organization has one Confirmation that the organization s annual gross receipts are normally $50,000 or less I do not know if my chapter has filed a return with the IRS? Contact the IRS to verify filing status by calling DHI cannot contact the IRS on your behalf; the call must be made by a chapter officer. What are the ramifications of not filing an annual return for our chapter? If your chapter has previously filed for tax exempt status, but has not filed in more than 3 years, your tax exempt status has most likely been revoked by the IRS. To restore your tax exempt status, you need to complete the IRS Form 1024 (only portions of the application that apply to 501(c)(6) organizations) and pay the required user fee to the IRS (see Form 8718). Once your tax exempt status has been restored, you may file your annual return using the 990-N Electronic Postcard. What IRS code section should my chapter file as? You chapter should be filing as a 501(c)(6) organization. What is Form 1024? Form 1024 is the application for recognition of income tax exemption for organizations described in Section 501a* of the Internal Revenue Code. By completing a Form 1024 for your chapter, you are requesting to be recognized as a tax exempt organization. The application includes detailed instructions to complete each section and a procedural checklist that will be helpful. As a 501 (c)(6) organization, your chapter only needs to complete pages 1-5. You will also need to enclose a Reasonable Cause Letter, Form 8718 and the IRS user fee.

3 Form 1024 is not a tax return. Once your application has been approved by the IRS, you will need to complete the 990-N Postcard to file your chapter s annual return. My chapter does not have a current budget or the financials needed to complete Form What do we do? If the chapter does not have a current budget or financials to complete Form 1024 then a Statement of Revenues and Expenses may be created by using deposits and withdrawals from bank statements for the appropriate period. The Balance Sheet will usually be comprised of cash and/or CD investments listed as assets. How long should the process of restoring my chapter s tax exempt status take? Under normal circumstances, restoration will take approximately 90 days. The IRS will send communication as your application (Form 1024) is processed. Who is listed as the contact for my chapter with the IRS? This is very important! It is the chapter s responsibility to ensure the IRS has up-to-date contact information for your chapter. If you are new to a chapter board position that is responsible for complying with federal and state requirements, be sure to contact the IRS to update your information. This step is crucial to the chapter s future compliance! How can DHI National help my chapter comply with tax obligations? DHI National staff cannot speak with the IRS on the chapter s behalf. However, we can help you determine your chapter s tax status and provide you with a Form 1024 template to use as a guide to complete the form for your chapter. Additionally, we have a tax professional available to provide guidance with specific questions. DHI strongly encourages chapters that have not complied with IRS requirements to contact DHI Member Services at BEFORE engaging a tax service for compliance assistance. For more information about filing your chapter s annual tax return, please visit The IRS provides additional FAQs that you may find helpful.

Be sure to include Form 8718 and the appropriate user fee. Your application will be returned to you without processing if all information is not included.

4 Be sure to include Form 8718 and the appropriate user fee. Your application will be returned to you without processing if all information is not included. Your chapter should be filing as a 501(c) (6) organization. Contact DHI for your EIN if you don t have it on file. Answer yes and include a letter of explanation. See example at the end of this tutorial. Check box a or c depending on your chapter s status state incorporation status.

5 The answers shown in Part II (pages 2 and 3) are EXAMPLES of how to respond. The answers should be used as a guideline only. Answers must be specific to your chapter s activities. The answers to Part II (page 4) should be answered as shown.

7 You will need to answer No to questions 9 through 16.

8 If this information was not kept from year to year, use the chapter account statement to complete Part III a through e. STOP! You do not need to complete the remainder of Form 1024.

9 Complete questions 1 through 3. Question three will determine your user fee based on the average of your annual gross receipts.

10 Below is a sample letter that must accompany your applications. Please note that it requires chapter specific information. <<Date>> Chapter Officer Name Address Block Internal Revenue Service P.O. Box Covington, KY To Whom It May Concern: Tax exempt status for the <<Chapter Name>> was applied for <<DATE>>. Our chapter has not filed in the last three (3) years and therefore our tax exempt status has been revoked. We have completed Forms 1024 and 8718 to apply for tax exempt status reinstatement. Our chapter last filed on <<DATE>> using the <<Form used>>. If you files to not provide this date, you will need to contact the IRS for the last filed date and the form used Sincerely, John Doe <<Chapter Name and Leadership Position>>

Instructions for Reinstatement of Tax-Exempt Status

Instructions for Reinstatement of Tax-Exempt Status Dear Local PTA: The IRS has issued letters revoking the tax-exempt status of numerous organizations, including many local PTAs, for failure to file information