Tax Exempt Organization Update
December 2015
Presented by:
Michelle Mann, CPA, Tax Senior Manager
Nicole Hobbs, CPA, Tax Manager
JPMS Cox, PLLC
Little Rock, AR
Overview
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Types of Form 990 (N, EZ, long form, PF)
Form 990-T, Unrelated Business Income
State Reporting Requirements
Form 1023, 1023-EZ, & 1024
Keeping Your Exempt Status
Charitable Contribution Substantiation
Useful Links
Tax Exempt Entity Forms
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Form 990 (expanded for 2008 forward)
Form 990-EZ
Form 990-N (e-postcard)
Form 990-PF for Private Foundations
Form 990-T (Unrelated Business Income)
Thresholds for 2010 and beyond
• Gross receipts normally ≤ $50,000
990-N
• Gross receipts < $200,000 and
Total assets < $500,000
990-EZ
• Gross receipts ≥ $200,000, or
Total assets ≥ $500,000
990
If an organization is a 501(c)(3) Private Foundation,
it files form 990-PF regardless of the amount of
revenue or assets
Form 990-N
• Electronic postcard filing
• No financial data required
• Eligible organizations:
▫ Annual gross receipts normally $50,000 or less
• Ineligible organizations:
▫ Private foundations
▫ Support orgs
• https://epostcard.form990.org/
Form 990-EZ
• Gross receipts <$200,000 AND total assets
<$500,000
• 4 page form
• Much easier to complete than full 990
Comparison of Public & Private Entities
• Both exempt under 501(c)(3)
• Both file form 1023 to request tax exemption
• Both can receive tax deductible charitable
contributions, but AGI limit (cash) 50% vs. 30%
• IRS assumes all are private foundations until
organization can prove otherwise
• Public charities must meet public support test on
Schedule A (generally 33 1/3%, discussed later)
• Private foundations often used for family or
corporate gift planning or scholarship funds
• Private foundations have excise taxes & minimum
distribution requirements (5% of FMV of assets)
Core Form 990
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I – Summary
II – Signature Block
III – Program Service Accomplishments
IV – Checklist of Required Schedules
V – Other IRS Filings and Tax Compliance
VI – Governance, Management, and Disclosure
VII – Compensation
VIII – Statement of Revenue
IX – Statement of Functional Expenses
X – Balance Sheet
XI – Reconciliation of Net Assets
XII – Financial Statements and Reporting
Form 990 – Key Parts
• Part I: Summary of activity and prior year /
current year financial data
• Part III: Statement of program service
accomplishments
▫ Provide description of 3 largest program service
accomplishments
▫ Revenue, expenses, and grants allocable to each
Form 990 – Key Parts
• Part VII: Compensation of officers, directors,
trustees, key employees, highest compensated
employees, and independent contractors
▫ All officers/directors must disclose compensation
from the organization or related organizations
regardless of amount
▫ Top management and financial officials are
considered officers
▫ Those receiving >$150,000 total compensation are
detailed on Schedule J
Form 990 – Key Parts
• Part VIII: Statement of Revenue
▫ Contributions reported separate from program
service revenue
▫ Unrelated business income of $1,000 or more –
must file 990-T
• Part IX: Statement of Functional Expenses
▫ Must allocate expenses into 3 categories: program
service, management & general, fundraising
Schedule A – Public Support Test
• Explains why 501(c)(3) is not a private foundation –
mark appropriate box on Schedule A, page 1
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Churches
Schools
Hospitals and medical research organizations
Governmental units
• Revenue testing using a 5 year period (33 1/3%)
▫ 509(a)(1) – use Schedule A page 2
▫ 509(a)(2) – use Schedule A page 3
• Organized and operated to test for public safety
• Supporting organizations (form expanded for 2014)
Schedules for 990
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A – Public Charity Status and Public Support
B – Schedule of Contributors
C – Political Campaign and Lobbying Activities
D – Supplemental Financial Statements
E – Schools
F – Statement of Activities Outside the US
G – Fundraising or Gaming Activities
H - Hospitals
Schedules for 990
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I - Grants to Organizations, etc. in the US
J - Compensation Information
K - Tax-Exempt Bonds
L - Transactions with Interested Persons
M - NonCash Contributions
N – Liquidation, Termination, Dissolution, or
Significant Disposition of Assets
• O – Supplemental Information
• R – Related Organizations and Unrelated
Partnerships
Form 990 – Disclosure
• Must be made available for public inspection by
the organization for 3 years
▫ Exception: Schedule B (donor information)
• Forms 990 are sent to GuideStar from the IRS
and are available for public viewing
• Due date: 5 months after tax year end
▫ May 15 for calendar year end
▫ First extension for 3 months (August 15)
▫ Second extension for 3 months (November 15)
Other Federal Tax Returns
• Form 990- T Unrelated Business Income
• Form 990-W estimated payments if income or
excise tax is expected to be $500 or more
• Employment Taxes – federal and state
• Information Reporting – Forms 1098, 1099
• Report of Foreign Bank and Financial Accounts
(FBAR - FinCEN 114, formerly TD F 90-22.1)
Unrelated Business Income (UBI)
• File 990-T if $1,000 or more UBI
• Activities Subject to UBIT:
▫ Trade or Business
▫ Regularly Carried On
▫ Not Substantially Related to Exempt Purpose
• Must meet all three of above requirements; any
one exception can prevent UBI
• Can allocate expenses to the income activity
• Can carry over net operating losses
• Tax is calculated at regular corporate tax rates
Unrelated Business Income
• Exceptions:
▫ Activity Run by Volunteers.
▫ Convenience of Patients, Students, Employees, Guests
▫ Donated Merchandise
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Interest
Dividends
Some Rents (not excluded if debt financed)
Gains / Losses
*Recommend IRS Pub. 598
Arkansas Reporting Requirements
• Secretary of State – nonprofit corporation annual report
▫ Due August 1
▫ Officers and contact information only
• Attorney General – if registered with AG, must submit
annual filing
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Register with AG if soliciting contributions >$25,000 annually
Exemptions, such as religious and educational entities
Copy of Form 990
Annual Financial Reporting Form (CR-03) – must be
notarized
▫ If audited, must also include audit report
▫ Email all documents by due date of 990
Nonprofit vs. Tax-Exempt
• Nonprofit = state law concept
• Tax-exempt = federal tax concept
▫ Must apply for tax-exempt status with IRS
▫ Form 1023: application for exemption under
section 501(c)3
▫ Form 1024: application for exemption under
501(a)
Types of Tax-Exempt Organizations
• 501(c)(3): Public charity
• Must be organized and operated exclusively for
“religious, charitable, scientific, testing for public
safety, literary, or educational purposes, or to
foster national or international amateur sports
competition, or for the prevention of cruelty to
children or animals.”
Types of Tax-Exempt Organizations
• 501(c)(4): Civic leagues, social welfare organizations,
local associations of employees
• 501(c)(5): Labor, agricultural, horticultural
• 501(c)(6): Business leagues, trade associations,
chambers of commerce
• 501(c)(7): Social or recreational clubs; supported by
membership fees/dues
• 501(c)(8) or (10): Fraternal beneficiary
societies/associations
• 501(c)(9) or (17): Employee benefit association or VEBA
• 501(c)(19): Veterans organizations
Benefits of Tax Exemption
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Exempt from federal income tax
Exempt from certain other taxes
Reduced postal rates
Tax-deductible contributions (for 501(c)(3))
501(c)(3) Status
• Organization should be a nonprofit corporation,
trust, or unincorporated association
• Organizing document must contain two clauses:
▫ Purpose clause: establishes charitable purpose
(Charitable, educational, religious, scientific, etc.)
▫ Dissolution clause: assets will be used for
charitable purposes upon dissolution of the
organization
501(c)(3) Status
• Private foundation
▫ 501(c)(3)s are automatically a PF unless public
support test is met
▫ Privately funded, usually from a single source
• Public charity
▫ Publicly funded, from multiple sources or activities
▫ Also includes churches, schools, hospitals
▫ Must meet public support test (33%)
 509(a)(1) and 509(a)(2)
501(c)(3) Status
• Must apply to IRS for exemption except:
▫ Churches
▫ Organizations with gross receipts of $5,000 or less
• Use IRS Form 1023 or 1023-EZ
Form 1023-EZ
• New form – released June 2014
• Must complete worksheet to determine
eligibility to use EZ form (see instructions)
▫ Gross receipts expected to be <$50,000 for 3
years
▫ Gross receipts have not been >$50,000 in any of
the past 3 years
▫ Assets <$250,000
Form 1023-EZ
• The following types of organizations are NOT
eligible to file EZ form:
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Churches, schools, hospitals
Successors to for-profit entity
LLCs
Foreign organizations
Support organizations
Organizations that have had exempt status
revoked
Form 1023-EZ
• Must file electronically
• Information needed to complete 1023-EZ
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Employer identification number (EIN)
Organizational structure: corporation, trust, association
Date of incorporation
Name, address, and title of 5 officers, directors, or
trustees
▫ Organizing document with purpose and dissolution
clauses (bylaws, articles of incorporation)
▫ Must attest that you have not and will not conduct
prohibited activities
Form 1023-EZ
• User fee of $400 due upon submission
▫ Must register on pay.gov for online payment
• EZ Form has quicker turnaround from IRS
• 3% rate of IRS audit
▫ Be prepared!
• www.irs.gov/form1023ez
Form 1023
• Narrative description of past, present, and planned
activities
• Complete list of officers and compensation; answers
to questions about compensation
• Financial data: revenue, expenses, balance sheet
▫ 3-5 years of revenue/expenses required depending on
age of organization
▫ New organizations: each year of existence, plus
projections for total of 3 years of data if you have not
completed 1 tax year; otherwise 4 years
Form 1023
• Must attach bylaws and articles of incorporation
with proof of purpose clause and dissolution clause
• Questions regarding financial arrangements with
officers/directors
• Must disclose family or business relationships
among officers/directors
• Questions related to goods, services, and funds
provided to individuals or organizations
• Types of activities: political, legislation, gaming
Form 1023
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Description of fundraising programs
Relationships with foreign organizations
Description of any grant or loan programs
User fee:
▫ $400 if average gross receipts of <$10,000
expected
▫ Otherwise $850
Form 1023 – Additional Schedules
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Schedule A: Churches
Schedule B: Schools, colleges, universities
Schedule C: Hospitals and medical research
Schedule D: Supporting organizations (509(a)(3))
Schedule E: Organizations not filing within 27 months
of formation
• Schedule F: Homes for elderly or handicapped and
low-income housing
• Schedule G: Successors to other organizations
• Schedule H: Scholarships, fellowships, loans, grants
Form 1024
• Used to obtain exemption under sections other
than 501(c)(3)
• Most eligible to file are not required to file
▫ Still have to meet annual filing requirements (990)
• May want to file in order to receive determination
letter from IRS for public recognition of exempt
status
• Will appear on IRS EO Select Check
Form 1024
• Less detailed than Form 1023
• Still must provide narrative description of past,
present, and planned activities
• 3-4 years of financial data required, and current
year balance sheet
• General questions about activities and operations
• Specific questions for certain types ((c)(5), (6),
(7), etc.)
Keeping Your Exempt Status
• Must file Form 990 annually
▫ Exempt status will be revoked after 3 years of not
filing
• Still must file if waiting on determination letter
after submitting 1023 or 1024
Donation Solicitation Rules
• Written acknowledgment of contributions of
$250; “no goods or services provided” language
important
• Due by January 31
• If organization provides anything of value in
exchange for the contribution and the
contribution is over $75, organization provides a
good faith estimate of the value of the goods and
services provided
• See blogs on jpmscox.com
Charitable Contribution Substantiation Forms
• Form 8282, Donee Information Return
• Form 8283, Noncash Contributions
• Form 8899, Notice of Income from Donated
Intellectual Property
• Form 1098-C, Contributions of Motor Vehicles,
Boats, and Airplanes
Useful Links
• IRS Charities & Non-Profits Section:
▫ http://www.irs.gov/Charities-&-Non-Profits
• IRS EO Select Check: http://apps.irs.gov/app/eos/
• GuideStar: http://www.GuideStar.org
• Arkansas AG Annual Financial Reporting Form:
▫ https://static.ark.org/eeuploads/ag/FormCR03_AnnualFinancialReportForm.pdf
• Arkansas Secretary of State Nonprofit Annual Report:
▫ https://www.ark.org/sos/corpfilings/index.php