501(c)(3) Tax Exempt
May 13, 1958, the IRS declared Rotary
International and its clubs and districts exempt from federal income taxes under
IRC Section 501(c)(4).
Civic leagues or organizations not organized for profit but
operated exclusively for the promotion of social welfare
, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively
Although very similar to a 501(c)(3), there is a big difference:
Social welfare organizations, cannot attract charitable donations that are deductible for income, gift, and estate tax purposes.
Donations to your club are
deductible as charitable donations by the donor.
Membership dues may be deductible for some Rotarians as a business expense.
Rotary meetings may be deductible for
Rotarians as a Meal & Entertainment
Deductibility is determined by Rotarians status; business vs. individual
Sponsorships may be deductible for
Rotarians as a business expenses.
Business expenses are generally preferred over charitable contributions for businesses
Ticket Sales do not have a charitable donation allocation.
IRC Section 6113 requires certain taxexempt organizations that are ineligible to receive tax deductible charitable contributions to disclose, in “an express statement (in a conspicuous and easily recognizable format), “ the nondeductibility of contributions during fundraising solicitations.
Organizations whose annual gross receipts do not normally exceed
$100,000 are excepted from this disclosure requirement
– UBIT or UBTI
IRS Publication 598
– Tax on Unrelated
Business Income of Exempt Organizations
Unrelated business income is the income from a trade or business regularly carried on by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity.
Certain trade or businesses are not treated as
Membership list sales
– not taxable
Selling Donated Merchandise
– not taxable
– not taxable
UBIT is a Gray area
– seek professional assistance to assist in determination
Due 15 th day of the 5 th month after your fiscal year end.
December 31 st yearend, due date is May
Up to 6 month extension
Unrelated business income tax returns for federal and state; same due date
Extension available, but payments are due on 15 th day of the 5 th month after your fiscal year end
Generally Accepted Accounting Principles
Accrual-based (not cash) accounting
Income is recorded when earned
Expenses are recorded when incurred
Prepare a budget
Reconciliations should be performed monthly
Person doing books should not have check signing authority
Copies of all deposits should be made
Invoices should be properly coded and canceled
International Service project
Community Service Projects
RYLA, Interact, other
Management and General
Statement of Financial Condition
– Balance Sheet
Statement of Activities aka
– Income Statement or Profit & Loss
Statement of Functional Expenses
Management & General
Statement of Cash Flows
For small tax exempt organizations where annual “… gross receipts are normally
$50,000 or less
You need basic information
– EIN, tax year, legal name and address, any other names used by the organization, name and address of the principal officer, web site (if applicable), confirmation of gross receipts normally $50,000 or less, confirmation that the organization has not terminated operations.
File the Form 990
Gross receipts are
less than $200,000
assets are less than $500,000 and total
File the Form 990 when:
equal or exceed $200,000 or
assets equal or exceed $500,000. total
Identify all income sources and classify them accordingly
Utilize professionals to assist in compliance
Utilize accounting software (
Ensure persons handling finances is
2 signatures on all Checks or approved memo signed by 2 members.
To check clubs status: