An Overview of Current NonProfit Status as it Relates to the Amateur Radio Community. Lynn T Baxter, CPA WØLTB NEAR-Fest 2016

Transcription

1 An Overview of Current NonProfit Status as it Relates to the Amateur Radio Community Lynn T Baxter, CPA WØLTB NEAR-Fest 2016

2 This presentation was made at the NEARfest Oct 15,2016 forums, and this presentation and accompanying handouts made available for NEAR-fest attendees. The information contained in this presentation may or may not be applicable to your club/situation. Seek legal advice or advice of a tax professional to determine if it makes sense for your club to apply for 501(c)(3) status

3 History of NonProfits NonProfits were initially social benefit organizations that were outreaches largely of religious organizations. Tax implications arose once there was the 16 th Amendment to the US Constitution to allow federal income tax. Congress provided for deduction of charitable contributions starting in 1917, although it was a rather minor thing. After WWII, the importance of nonprofits grew and had large growth from the 1960s until current time.

4

5

6 Like any tax benefit, there is a potential for abuse. One must be careful to not run afoul of rules and regulations of the Internal Revenue Service as it relates to nonprofit status. I hope to give you some points to ponder, but in no way, is this information adequate to address all issues of the Amateur Radio community and tax matters. This will only address Federal tax issues. I am not an attorney and I don t offer any legal advice.

7 What are the Advantages of 501(c)(3) Status? Additional benefits may come to those organizations so recognized. State and local governments may allow exemption from sales tax and in some cases, property tax. Also, the USPS offers reduced postal rates for certain nonprofit organizations. An entity granted 501(c)(3) status is exempt from Federal income tax and is permitted to receive taxdeductible charitable contributions. In order to be recognized as a 501(c)(3) organization, the entity must meet certain criteria, and must file an application with the IRS, which is reviewed and approved or denied.

8 What are the requirements? There are three criteria for being granted exemption under 501(c)(3): A 501(c)(3) must be organized as a corporation, trust or unincorporated association. The entity s organizing documents must limit the purpose of the organization to exempt activities, cannot expressly permit prohibited activities and permanently dedicate the assets of the entity to exempt purposes.

9 Operation of the entity must promote its exempt purpose. It must refrain from participation in political campaigns and refrain from any substantial lobbying activity. Individuals must not be gaining personal benefit from the operation of the entity. It cannot conduct illegal activities. The entity must have one or more exempt purposes. 501(c)(3) stipulates those purposes to be charitable, educational, religious, scientific, literary, sports competition, preventing cruelty to children or animals and testing for public safety. Most commonly, 501(c)(3) entities are charitable, educational and religious.

10 IRS Publication 4220 (Applying for 501(c)(3) Tax-Exempt Status) lists under charitable advancement of education or science. Also, they list lessening the burdens of government. Under educational purpose, there is mention of conducting instruction/teaching. Certainly, radio clubs are often involved in such endeavors.

11 Application process SS-4 An existing club most likely already has an EIN Employer Identification Number. This is an entity s equivalent of a social security number. It can be obtained on-line via the IRS website.

12 What you must do in advance of applying for exemption Make sure that the underlying governing document of the club makes it clear that the club is appropriate to be a 501(c)(3) organization. Certainly, many ham clubs can look at these two aspects of the 501(c)(3) criteria. Look closely at percentage of effort related to scientific and educational aspects. Depending on the focus of the club, either could apply. If a club doesn t have that kind of a focus, perhaps the 501(c)(3) status isn t appropriate; if that is the determination of your governing board, then you may want to continue with your current tax status.

13 Once you determine that your club is appropriate for the 501(c)(3) status, you will need to be certain that your governing documents are up to date and file any needed amendments to your corporate bylaws with the state s secretary of state (or other state official as appropriate). The Secretary of State in most jurisdictions is the governmental official in charge of maintaining corporate records.

14 Financial records Make sure that the financial records (income statement and balance sheet) are in order. Perhaps that pile of bank statements in a shoe box doesn t fit that requirement! The financial records not only need to be up to speed for the application process, but need to continue to be kept once the exemption is approved. One popular accounting software product is QuickBooks. Or, you can design your own using a spreadsheet product such as Excel. If you are computerchallenged, adequate records can be maintained with pencil and paper!

15 When to file: If you file within 27 months of the formation of the organization is formed, the exemption will be retroactive to the formation date. If you have missed that date, don t dismay. Once approved, your exemption will be in force as of the date the exemption was filed. In some cases, retroactive approval can be granted.

16 Now we proceed 1023-EZ This is the focus of this discussion. The 1023-EZ must be completed on-line. See handout of eligibility questionnaire and form. Review of Questionnaire 7 pages. Included in IRS instructions to the 1023EZ form. Next slide shows page one of this form.

17 Page 1 of 7 of the 1023-EZ Eligibility Worksheet

18 Provided you answer all questions no, you are eligible to start on the 1023EZ form Page 1 of 3 of the 1023EZ form

19 Page 1: Name, mailing address, EIN, contact person, officers, directors, website, Organizational structure, state of incorporation. Page 2: NTEE code (on next slide), designation of exempt purpose, designation of public charity vs private foundation.

20

21 Page 3: Request for retroactive exemption or reinstatement. Signatures. Submit form and requisite $275 fee (fee was reduced as of July 1, 2016 from $400). You may receive a request for additional information from the IRS. You will hopefully receive a determination letter, stating that your organization has been recognized as a 501(c)(3) entity. This process can take as little as a month or as much as 6 months

22 Annual filing of information returns 501(c)(3) organizations that have income less than $50,000 per year can satisfy their annual filing requirement by submitting the e-postcard, know as the 990-N. Other filings may include 1099s for contractors that do work for the club and for prize winners of drawings at hamfests. See the 1099-MISC instructions for this requirement.

23 Once you are approved, you will need to provide receipts to anyone who donates an amount of $250 or more to the organization. The letter should state that the donor has received no goods or services for their donation. Please note that if a person donated goods to the club, you need to leave it to the donor to value that donation. Many of us have donated to Goodwill and know that they hand you a receipt, stating that you donated 4 boxes of items and that it is up to the donor to value those items. Large in-kind donations may have to have an appraisal. Special care needs to be taken before accepting a donation of a motor vehicle.

24 Nothing in this presentation is a substitute for competent professional help. Professional help may come from an attorney learned in this area of law and/or a CPA or other tax accountant who had knowledge of the process of applying for and maintaining tax exempt status. Not every attorney, CPA or tax accountant has knowledge of this process.

25 Useful IRS Publications: Publication 4220 Applying for 501(c)(3) Tax Exempt Status Publication 4221-C Compliance Guide for 501(c)(3) Public Charities Publication 557 Tax Exempt Status for Your Organization Publication 526 Charitable Contributions Instructions for form 1023EZ IRS website irs.gov/charities-&-non-profits Web-based training