Title: Training Module 7: Nonprofit Association Tax Compliance
1Training Module 7 Nonprofit Association Tax
Compliance
- Presented by the
- Southern Early Childhood Association
2Topics 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
3Even tax-exempt organizations must pay taxes
under certain conditions
- Unrelated Business Income Tax (UBIT)
- Local taxes, sales taxes, and other miscellaneous
taxes - Employment taxes
4Reasons 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?
6Why 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?
8Criteria for 501(c)(3) Tax Exemption
- Organization must be organized and operated for
purposes beneficial to the public interest. - Organization must not be organized for profit.
- Organization must have a written plan for its own
dissolution. - Organization must protect itself against private
benefit from its operations.
9Criteria 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?
11Tax-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
12Phase I Starting Out
- Articles of Incorporation or charter
- Bylaws
- Employer Identification Number (EIN)
- 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?
14Phase II Applying to the IRS
- Application criteria
- IRS Form 1023
- IRS Form 8718
- IRS Processing
- 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?
16Phase III Annual Filings
- IRS Form 990
- Unrelated Business Income Tax (UBIT)
- Employment Taxes
- 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?
18Phase 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
19Phase 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?
21Phase V Organizational Changes
- Significant organizational changes that could
jeopardize compliance - B. Material changes
22Independent 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?
24Deductibility 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
25Guidelines 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?
27Resources 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.
28Any final thoughts or questions?