Tax Treatment of Nonprofit Organizations Chapter Four

1
Tax Treatment of Nonprofit Organizations Chapter
Four

• Nonprofits Governments
• PUB 495/595
• November 16, 2006

2
Agenda

• Admin Roll,
• Lecture Tax Treatment
• Next Week Thanksgiving
• Next Class Position Paper Due
• Grant Writing

3
Where is the Money?

• Where does government get its revenue?
• Why is this revenue collected?
• How is this revenue utilized?

4
Federal State Revenue Sources

• State - Property Sales Taxes
• Federal personal and corporate income and
  payroll taxes

5
Class Lecture/Discussion

• How does the govt act as a benefactor to NPOs?
• What is the economic importance of nontaxable
  status to NPOs?
• What strings are attached to the receipt of
  nonprofit tax exemption?
• How does tax provisions and regulations shape the
  behavior of donors and NPOs?
• Should NPOs advocate for additional tax
  incentives?

6
What is the Economic Value of Special Tax
Treatment to NPOs

• Charitable Deduction
• Income Taxes Exemption
• Property Tax Exemption
• Other Tax Preferences (dependent care, LIHTC etc

7
NPO Taxes

• Are NPO exempt from ALL taxes?

8
UBIT Unrelated Business Income Tax

• Unrelated business income is income from a trade
  or business, regularly carried on, that is not
  substantially related to the performance by the
  organization of its exempt purpose or function
  except that the organization needs the profits
  derived from this activity. An exempt
  organization that has 1,000 or more gross income
  from an unrelated business must file Form 990-T,
  Exempt Organization Business Income Tax Return

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Excluded from UBIT

• Volunteer Labor - Any trade or business is
  excluded in which substantially all the work is
  performed for the organization without
  compensation. Some fund-raising activities, such
  as volunteer operated bake sales, may meet this
  exception.
• Convenience of Members - Any trade or business is
  excluded that is carried on by an organization
  described in section 501(c)(3) or by a
  governmental college or university primarily for
  the convenience of its members, students,
  patients, officers, or employees. A typical
  example of this is a school cafeteria.
• Selling Donated Merchandise - Any trade or
  business is excluded that consists of selling
  merchandise, substantially all of which the
  organization received as gifts or contributions.
  Many thrift shop operations of exempt
  organizations would meet this exception.

10
Employment Taxes

• If the EO has employees, it is responsible for
  several federal, state, and local taxes. As an
  employer, the EO must withhold certain taxes from
  the employees pay checks. Employment taxes
  include the following
• Federal income tax withholding (FITW)
• Social Security and Medicare taxes (FICA)
• Federal unemployment taxes (FUTA)

11
Filing Requirements 990 form

• Generally, tax-exempt organizations must file an
  annual information return. Tax-exempt
  organizations that have annual gross receipts not
  normally in excess of 25,000 are not required to
  file the annual information return. (law may have
  slightly changed) In addition, churches and
  certain religious organizations, certain state
  and local instrumentalities, and other
  organizations are excepted from the annual return
  filing requirement.

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Form 990

• http//www.guidestar.org/pqShowGsReport.do?npoId5
  7944

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Conclusion

• Tax Law is Complicated

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Next Week

• Next Week Govt Financing
• Extra Credit Research RFP from a Public Funding
  Agency and a Private Funding Agency. Reaction on
  difference and or similarities. (attach RFP
  overview condense each RFP to one page, reaction
  1-paragraph)