Training Module 7: Nonprofit Association Tax Compliance

1
Training Module 7 Nonprofit Association Tax
Compliance

• Presented by the
• Southern Early Childhood Association

2
Topics to be Presented

• 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

3
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

4
Reasons for Organizations to Seek Tax-Exempt
Status

• Receive dues without taxation
• 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

5
DISCUSSION

• If your organization is currently tax-exempt,
  what were the reasons for which it sought that
  status?
• If your organization is not currently tax-exempt,
  would it be beneficial for you to seek that
  status now?

6
Why are nonprofit organizations tax-exempt?

• Nonprofits organizations relieve the governments
  burden for supplying services to citizens.
• Nonprofit organizations benefit society.
• Taxing nonprofit organizations would be difficult
  and counter-productive for the government.

7
DISCUSSION

• What aspects of your associations mission or
  purpose qualify it for tax-exempt status?
• In what ways does your association relieve the
  governments burden and benefit society?

8
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.

9
Criteria for 501(c)(3) Tax Exemption

• 5) The organizations activities must not provide
  specific services for individual members.
• 6) No substantial part of the organizations
  activities may attempt to influence legislation.
• 7) The organization must not participate in any
  political campaign on behalf of any candidate.

10
DISCUSSION

• How well does your organization conform to the
  seven criteria for 501(c)(3) tax-exempt status
  listed in this presentation?
• What could be done to ensure that your
  association does not violate these criteria in
  the future?

11
Tax-Exempt Associations and the IRS A Timeline

• Phase One Starting Out
• Phase Two Applying to the IRS
• Phase Three Annual Filings
• Phase Four Ongoing Compliance
• Phase Five Significant Organizational Changes

12
Phase I Starting Out

1. Articles of Incorporation or charter
2. Bylaws
3. Employer Identification Number (EIN)
4. Registration for Charitable Solicitation

13
DISCUSSION

• Do your organizations 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?

14
Phase II Applying to the IRS

1. Application criteria
2. IRS Form 1023
3. IRS Form 8718
4. IRS Processing
5. IRS Determination Letter

15
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?

16
Phase III Annual Filings

1. IRS Form 990
2. Unrelated Business Income Tax (UBIT)
3. Employment Taxes
4. Independent Contractors

17
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?

18
Phase IV Ongoing Compliance

• A.Important Employment Tax Forms
• IRS Form W-4, Employees 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

19
Phase IV Ongoing Compliance

• B. Reporting Charitable Contributions
• C. Public Disclosure

20
DISCUSSION

• Who manages your associations 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?

21
Phase V Organizational Changes

• Significant organizational changes that could
  jeopardize compliance
• B. Material changes

22
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.

23
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?

24
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

25
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.

26
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
  associations compliance with the standards by
  which meeting expenses may be deducted?

27
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.

28
Any final thoughts or questions?