Transcript Training Module 7: Nonprofit Association Tax Compliance

Training Module 7:
Nonprofit Association
Tax Compliance
Presented by the
Southern Early Childhood Association
Topics to be Presented…
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Reasons associations seek tax-exempt status
Reasons to grant tax-exempt status
The 501(c)(3) IRS classification
Applying for tax-exempt status
Annual filings and tax compliance
Independent contractors
Deductibility of meeting expenses
Even tax-exempt organizations must
pay taxes under certain conditions…
1) Unrelated Business Income Tax (UBIT)
2) Local taxes, sales taxes, and other
miscellaneous taxes
3) Employment taxes
Reasons for Organizations to Seek
Tax-Exempt Status
• Receive dues without taxation
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Accumulate income tax-free
Meet state or local requirements for exemption
Receive threshold deduction re: UBIT
Encourage public officials to work with the
organization
• Receive tax-deductible charitable contributions
• Qualify for nonprofit postal permits
* DISCUSSION *
• If your organization is currently tax-exempt,
what were the reasons for which it sought
that status?
• If your organization is not currently taxexempt, would it be beneficial for you to
seek that status now?
Why are nonprofit organizations
tax-exempt?
• Nonprofits organizations relieve the
government’s burden for supplying services
to citizens.
• Nonprofit organizations benefit society.
• Taxing nonprofit organizations would be
difficult and counter-productive for the
government.
* DISCUSSION *
• What aspects of your association’s mission
or purpose qualify it for tax-exempt status?
• In what ways does your association relieve
the government’s burden and benefit
society?
Criteria for 501(c)(3) Tax Exemption
1) Organization must be organized and
operated for purposes beneficial to the
public interest.
2) Organization must not be organized for
profit.
3) Organization must have a written plan for
its own dissolution.
4) Organization must protect itself against
private benefit from its operations.
Criteria for 501(c)(3) Tax Exemption
5) The organization’s activities must not
provide specific services for individual
members.
6) No substantial part of the organization’s
activities may attempt to influence
legislation.
7) The organization must not participate in
any political campaign on behalf of any
candidate.
* DISCUSSION *
• How well does your organization conform
to the seven criteria for 501(c)(3) taxexempt status listed in this presentation?
• What could be done to ensure that your
association does not violate these criteria in
the future?
Tax-Exempt Associations and the IRS:
A Timeline
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Phase One: Starting Out
Phase Two: Applying to the IRS
Phase Three: Annual Filings
Phase Four: Ongoing Compliance
Phase Five: Significant Organizational
Changes
Phase I: Starting Out
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B.
C.
D.
Articles of Incorporation or charter
Bylaws
Employer Identification Number (EIN)
Registration for Charitable Solicitation
* DISCUSSION *
• Do your organization’s Articles of
Incorporation and bylaws conform to the
501(c)(3) standards for stating
organizational purpose?
• Does your association have an Employer
Identification Number?
• Does your state require your association to
file paperwork in order to solicit charitable
contributions within its borders?
Phase II: Applying to the IRS
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B.
C.
D.
E.
Application criteria
IRS Form 1023
IRS Form 8718
IRS Processing
IRS Determination Letter
* DISCUSSION *
• Based on the process described in “Phase
II,” is there anything that your association
should have done differently in its
application for tax-exempt status?
• Do you have proper documentation for each
and every step?
Phase III: Annual Filings
A.
B.
C.
D.
IRS Form 990
Unrelated Business Income Tax (UBIT)
Employment Taxes
Independent Contractors
* DISCUSSION *
• Does your association maintain a schedule
and checklist for its annual filings with the
IRS?
• Who is in charge of managing the filing
process, and what type of oversight is
employed by your association to ensure
compliance with IRS regulations?
Phase IV: Ongoing Compliance
A.Important Employment Tax Forms
• IRS Form W-4, Employee’s Withholding
Allowance Certificate, and I-9, Employment
Eligibility Verification
• IRS Form W-2, Wage and Tax Statement
• IRS Form W-3, Transmittal of Wage and Tax
Statements
• IRS Form 945, Annual Return of Withheld Federal
Income Tax
Phase IV: Ongoing Compliance
B. Reporting Charitable Contributions
C. Public Disclosure
* DISCUSSION *
• Who manages your association’s tax
process as it relates to employees?
• Are all required forms filed in a timely
manner with the IRS and clearly
documented in association files?
• Do any improvements in this process need
to be made?
Phase V: Organizational Changes
A. Significant organizational changes that
could jeopardize compliance
B. Material changes
Independent Contractors
• Organization must specify if an employee is
an “independent contractor.”
• Organizations usually do not pay
employment taxes on independent
contractors.
• Separate IRS forms must be filed for
independent contractors.
* DISCUSSION *
• Does your organization employ independent
contractors?
• Who is responsible for managing these
contractors?
• Is all required IRS documentation for
independent contractors kept current and on
file with the association?
Deductibility of Meeting Expenses
for Attendees
• Meeting expenses for attendees may be deducted
as “ordinary and necessary business expenses” if
attendance is for professional reasons.
• Items typically deductible include: registration
fees, travel, transportation, lodging, incidental
expenses
• Compliance: Expenses are not deductible if
combined with travel for pleasure, or if spouses
accompany you
Guidelines to Ensure Meetings Will be
Tax-deductible for Attendees
• Conference program should be planned to reflect
the professional interests of attendees.
• Brochures and other promotional materials should
emphasize its professional aspects.
• The major portion of the conference program
should be business-related.
• Organizations should not, however, publicly
promote their meeting as tax-deductible.
* DISCUSSION *
• What measures are taken by your
organization to meet IRS requirements so
that meeting attendees have the potential to
deduct their expenses?
• What changes could be made to ensure your
association’s compliance with the standards
by which meeting expenses may be
deducted?
Resources consulted for this presentation:
• www.BoardSource.org
• www.irs.gov/charities
• Jerald Jacobs. Association Law Handbook. 3rd
Edition, Washington, DC: American Society of
Association Executives, 1996.
• Jeffrey Tenenbaum. Association Tax Compliance
Guide. Washington, DC: American Society of
Association Executives, 2000.
Any final thoughts or questions?