On Behalf of Maryland Nonprofits
Basic Tax Considerations for
Nonprofit Organizations
Stephen Kelin
Richard J. Locastro
© 2008 Gelman, Rosenberg & Freedman
AGENDA
 Introduction
 General Filing Requirements
 Form 990
 Form 990 Schedule A
 Form 990 Schedule B
 Form 990-T and Unrelated Business Income
 Public Disclosure Requirements
 Charitable Contribution Substantiation Rules
 New Form 990
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Filing Requirements
 Form 990 - Who Must File?
 Generally - organizations exempt under 501(c)
 Does not include private foundations and black
lung trusts
 Exceptions include:
 Churches and certain related entities
 State and local PACs
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Filing Requirements
 Exceptions include:
 Organizations with gross receipts “normally” less
than $25,000
 “Normally” determined by previous 3 tax years
 Special rules for organizations in existence less
than 3 years
 Exception does not apply to 509(a)(3) orgs unless
receipts less than $5,000
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Filing Requirements
 Form 990-EZ- For Organizations with:

Gross receipts of less than $100,000 AND
 Assets of less than $250,000 at the end of the year
 Form 990-EZ can’t be used by:
 Sponsoring organizations (those with DAFs) or
 Controlling organizations under 512(b)(13)
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Filing Requirements
 New Form 990-N (e-Postcard) for small organizations
with gross receipts “normally” less than $25,000
 Filed annually
 No paper form – must be filed electronically
 Failure to file for three years results in loss of
exemption
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Filing Requirements
 Electronic Filing of Form 990 is required:
 If over $10 million is assets at the end of the year
AND
 Files at least 250 returns during the year
 Failure to file electronically is failure to file return
 Others may file electronically but not required
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Due Dates
 Form 990, 990-EZ and Form 990-T
th day of the 5th month following
 Form due by the 15
the close of the year (May 15th for calendar year
filers
 Two three month extensions may be obtained
 First and second extensions – Form 8868
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Form 990 Review
© 2008 Gelman, Rosenberg & Freedman
Form 990 Review - Part I/Part VII/Part VIII
 Part I General Information
 Line 1 – contributions
 Contributions vs. fee for service
 Donated goods and services
 Line 9 – special events
 Activities who sole or primary purpose is to raise funds that
are other than contributions
 Offering goods or services with more than a nominal value for
a payment that is more than the direct cost
 Contributions reported on line 1
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Form 990 Review - Part I/Part VII/Part VIII
 Part VII Analysis of Income Producing Activities
 Designate income as either related, excluded or
unrelated
 If excluded, provide exclusion code from the
instructions
 If related, provide an explanation on Part VIII
 If unrelated, provide business code
 Part VIII Relation to Exempt Activity
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Form 990 Review - Part II
 Part II Statement of Functional Expenses
 Importance of this section
 Line 22 – Grant disclosure issues
 Line 25 – Compensation of Officers
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Form 990 Review - Part III and IV
 Part III Statement of Program Service
Accomplishments
 Importance of this section
 Grants and allocations
 Part IV Balance Sheet
 Part IV-A Reconciliation of Revenue and Expense
with Audited Financial Statements
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Form 990 Review - V
 Part V-A Compensation of Current Officers, Directors,
Trustees or Key Employees
 Who is a key employee?
 What is disclosed in columns (c), (d), and (e)
 Question 75 a and b relationships
 Part V-B Compensation of Former Officers, Directors,
Trustees or Key Employees
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Form 990 Review - VI
 Part VI – Other Information
 501(c)(3) questions
 Lobbying disclosure for 501(c)(4), (5) and(6)
 Foreign bank accounts and offices
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Form 990 Review – IX and X
 Part IX – Information Regarding Taxable Subsidiaries
and Disregarded Entities
 Info to be reported
 Definition of control
 Part X – Personal Benefits Contracts
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Form 990 Review - XI
 Part XI - Information Regarding Transfers To and
From Controlled Entities
 Definition under 512(b)(13)
 Reason for disclosure
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Form 990 Schedule A
© 2008 Gelman, Rosenberg & Freedman
Form 990 Schedule A
 Who must file?
 Organizations exempt under 501(c)(3)
 PFs do not file Schedule A
 If not required to file Form 990, don’t have to file
Schedule A
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Form 990 Schedule A
 Schedule A, Part I
 Compensation of 5 highest paid employees
 Schedule A, Part II A and B
 Compensation of 5 highest paid independent
contractors for professional services
 Compensation of 5 highest paid independent
contractors for other services
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Form 990 Schedule A
 Schedule A, Part III Statement of Activities
 Transactions with officers, directors, trustees, etc.
 Scholarship, fellowship, student loan information
 Conservation easements
 New questions regarding donor advised funds
 Donor advised fund defined as fund or account
 Identified by reference to contributions of donor(s)
 Owned or controlled by sponsoring organization
 Where donor reasonable expects to have advisory
privileges
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Form 990 Schedule A
 Schedule A, Part IV Public Support Test
 Reason for non-PF status
 Supporting organization disclosure
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Form 990 Schedule A Part IV-A
 A public charity is defined under IRC § 509(a)(1) as
an organization described in § 170(b)(1)(A) (other
than in clauses (vii) and (viii));
 § 170(b)(1)(A)(i)-(v) includes churches, schools,
hospitals, and governmental units – no support test
required
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Form 990 Schedule A Part IV-A
§ 170(b)(1)(A)(vi) applies to an organization that:
 Normally receives a substantial part of its support
from a governmental unit referred to in subsection
(c)(1) or from direct or indirect contributions from the
general public
 Support for § 509(a)(1) does not include income in
exercise of its exempt purpose
 A substantial part is generally 33 1/3% or 10% or
more under the “facts and circumstances” test
 “Normally” is a four year rolling average
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Form 990 Schedule A Part IV-A
 A public charity is defined under IRC § 509(a)(2) as
an organization :
 normally receives more than one-third of its
support in each taxable year from any combination
of:
 gifts, grants, contributions, or membership fees
 gross receipts from admissions, sales of
merchandise, performance of services, or
furnishing of facilities, in an activity which is not
an unrelated trade or business (within the
meaning of section 513)
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Form 990 Schedule A Part IV-A
 A public charity is defined under IRC § 509(a)(2) as
an organization :
 receives not more than one-third of its support in
each taxable year from the sum of:
 gross investment income and
 unrelated business taxable income (over the
amount of the tax imposed by section 511).
 No “10% facts and circumstances” test
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Form 990 Schedule A Part IV-A
Not all support is good support!
 § 509(a)(1) – the following are not included in the
numerator as good support:
 Amounts from a person that exceeds 2% of the
revenue (excluding amounts from the exercise of
the organization’s exempt purpose) over the four
year period
 Amounts from governments and other § 509(a)(1)
publicly supported organizations are not limited
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Form 990 Schedule A Part IV-A
Not all support is good support!
 § 509(a)(2) – the following are not included in the
numerator as good support:
 Any contributions, membership fees, or gross
receipts from a disqualified person AND
 Amounts from gross receipts in carrying out the
organization’s exempt purpose received from a
person (other than a disqualified person) that
exceed 1% of the support for the year
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Form 990 Schedule A Part IV-A
Example:
 § 509(a)(1) organization had total support for 20012004 (excluding gross receipts for activities in
furtherance of its exempt purpose) of $60,780,094.
 Any amount from a donor who gave over 2%
($1,215,602) is not “good support”.
 During 2001-2004
 Corporation A gave $10,000,000
 Individual X gave $1,961,456
 Public Charity gave $3,000,000
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Form 990 Schedule A Part IV-A
Example:
 Excess contributions:
 Corporation A:
$8,784,398 ($10,000,000 - $1,215,602)
 Individual X:
$745,854 ($1,961,456 - $1,215,602)
 Public Charity
- 0(publicly supported)
Total Excess
$9,530,252
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Form 990 Schedule A Part VI and VII
 Lobbying Disclosure
 Part VI-A - Electing organizations under 501(h)
 Part VI-B - Non-electing organizations
 Part VII – Transactions with non-exempt organizations
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Form 990 Schedule B
© 2008 Gelman, Rosenberg & Freedman
Schedule B
 What donors must be disclosed:
 General rule: those that gave $5,000 or more
during the year
 If 509(a)(1) organization – if organization meets the
1/3 public support test, only need to disclose those
who gave more than the greater of 2% of
contributions for the year or $5,000
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Form 990-T
© 2008 Gelman, Rosenberg & Freedman
Form 990-T
 Who must file
 Organizations exempt under 501(a) if gross
income from an unrelated trade or business is
greater than $1,000
 Organization subject to UBI include:
 Section 501(c) organizations
 State colleges and universities
 Pension plans
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Form 990-T
 UBI is Income Derived from:
 A “trade or business”
 That is “regularly carried on”
 Not “substantially related” to the organization’s
exempt purpose
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Form 990-T
 Statutory Modifications under section 512 from UBI
Include:
 Interest, dividends, real property rents and
royalties (if not debt-financed)
 Statutory Exclusions under section 513 Include:
 Volunteer Exception
 Donated Goods Exception
 Qualified Sponsorship Payments
 Qualified Trade Show and Convention Exception
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Form 990-T
 Common Sources of UBI:
 Advertising
 Periodicals
 Web
 Debt-financed income
 Alternative investments
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Form 990-T
 Where to Report:
 Advertising
 Periodicals – Schedule J
 Web – Schedule I
 Debt-financed income – Schedule E
 Alternative investments (line 5)
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Public Disclosure Requirements
© 2008 Gelman, Rosenberg & Freedman
Form 990 and 990-T Disclosure
 Public Disclosure Requirements
 What documents must be disclosed
 Making Forms “widely available”
 Public inspection versus providing copies
 Timing for compliance with requests
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Charitable Contribution
Substantiation Rules
© 2008 Gelman, Rosenberg & Freedman
Charitable Contribution Substantiation
 Charitable Contribution Substantiation
 Cash of $250 or greater
 Quid pro quo - $75 or more
 New requirements for donors to take deduction
 Form 8282 filing requirements
 Form 8283 filing requirements
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New Form 990
© 2008 Gelman, Rosenberg & Freedman
New Form 990
 New Form 990
 Expected to be effective for tax years beginning in
2008 (filed in 2009)
 Uses a core form with schedules to be completed
depending on the organization’s situation
 New form will be phased in over a three year
period depending on the size of the organization.
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