How to set up a Club Foundation
and IRS Forms
Mid Winter Training Conference
Crown Plaza Hotel
Worcester, MA
March 6, 2010
William T. Jenkins, CPA
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Who am I?
• Kiwanis
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District Treasurer
2008 Outstanding Lieutenant Governor
Past Distinguished Lieutenant Governor
Past Club President
• Career
– Certified Public Accountant
– Retired CFO of both Public and Private Companies
– Immediate Past Chairman of Cape Cod SCORE
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501(c)(3) Status – Are You Sure?
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Purposes
• 501(c)(3) status is limited to groups formed
exclusively for one or more of the following purposes:
– charitable
– educational
– religious
– scientific
– literary
– fostering national or international amateur sports
competition
– preventing cruelty to children or animals
– testing for public safety
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Limitations
• A 501(c)(3) must serve public purposes,
rather than private purposes.
• A (c)(3) must not pay dividends or distribute
earnings in any other way to private
shareholders or individuals.
• While a (c)(3) can pay reasonable amounts for
goods and services, payments to insiders that
are unreasonably high can result in fines
imposed on both the insiders and the board
members who approved the payments.
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Limitations
• In extreme cases, the organization can lose
its tax exempt status.
• Although (c)(3) organizations are generally
exempt from federal income tax, they do
have to pay tax on net income from regular
trade or business activities that are
unrelated to their exempt purposes.
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Limitations
• Legislative activity (lobbying) must be limited.
Ordinarily, the limit is less than 5%, measured in a
variety of ways. Most organizations, however, can
elect higher limits with increased annual reporting
requirements. Political activity (support of, or
opposition to, candidates for public office) is
absolutely prohibited, and will lead to revocation of
exempt status as well as penalty taxes.
• No 501(c)(3) can exist for a purpose that is illegal or
contrary to well-defined Federal public policy.
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Actual Wording of Section 501(c)(3)
of the Internal Revenue Code:
• (c)(3) Corporations, and any community chest, fund, or
foundation, 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 (but only if no part of its activities
involve the provision of athletic facilities or equipment), or for
the prevention of cruelty to children or animals, no part of the
net earnings of which inures to the benefit of any private
shareholder or individual, no substantial part of the activities of
which is carrying on propaganda, or otherwise attempting, to
influence legislation (except as otherwise provided in subsection
(h)), and which does not participate in, or intervene in (including
the publishing or distributing of statements), any political
campaign on behalf of (or in opposition to) any candidate for
public office.
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Pros & Cons of 501(c)(3) Status
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501(c)(3) Organizations Enjoy the
Following Privileges:
• Exemption from Federal Income Tax
• Exemption from F.U.T.A. (federal
unemployment tax)
• Tax Deductibility for Donors
• Eligible for Government & Foundation Grants
• Eligible for Bulk Mailing Permit
• Eligible for State and Use Tax exemption
• Gambling Permits (in some jurisdictions)
• Credibility
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501(c)(3) Organizations Must Fulfill
the Following Responsibilities:
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Keep Adequate Records
File Required Returns
Provide Donor Substantiation
Obey Disclosure Laws
Generate Public Support
Avoid "Excess Benefits" for insiders
Shun Political Activity
Limit Legislative Activity
Limit Unrelated Business Activity
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Why does a Kiwanis Club Qualify
• The IRS term for those who deserve our charity is
"charitable class." IRS rulings have held that persons
who are aged, ill, handicapped, unemployed, or
otherwise distressed, are members of a charitable
class. The term also includes children and, of course,
the poor, indigent, and underprivileged. You cannot
set up a charity to benefit a specific person, even if
that person is in need. To have a true charitable
class, the specific individuals who will benefit cannot
be selected ahead of time.
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Why does a Kiwanis Club Qualify
• The term charitable has a meaning beyond just
helping the poor. It includes many activities that
serve the common good, such as establishing or
maintaining public buildings, monuments or works,
relieving the burdens of government, reducing
neighborhood tensions, eliminating prejudice and
discrimination, defending human and civil rights,
battling community deterioration, combating juvenile
delinquency, promoting the arts, and preserving and
protecting the natural environment for the benefit of
the public. Historically, "charitable" is an evolving
concept that can change with society's needs.
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Before You Fill Out Your Application
• Starting a 501(c)(3) organization involves
many tasks:
– Identify your organization's mission.
– Recruit people for the board of directors.
– Adopt governing documents – Kiwanis International Articles of
Incorporation/Bylaws.
– Draw up a business plan.
– Plan how to raise funds.
– Hire employees or enlist volunteers.
– Establish recordkeeping systems.
– Apply for state and local licenses, registrations and exemptions.
– Obtain a bulk mailing permit.
– Purchase insurance.
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Where to Start
• Kiwanis International website
– http://community.kiwanisone.org/media/p/2153.aspx
• IRS internet website to begin the process
– http://www.irs.ustreas.gov/pub/irs-pdf/f1023.pdf
– http://www.irs.gov/instructions/i1023/index.html
• Other documentation required
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Kiwanis International Bylaws
Club Bylaws
Articles of Organization
Employer Identification Number (EIN)
(Annual Reports)
(Tax Returns)
Form 1023
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Establishing a Kiwanis Club
Foundation
• When prepared, you must submit to Kiwanis
International the following:
– A copy of the Proposed Articles of Incorporation
for approval before they are filed with the office
of the Secretary of State.
– 2. Two copies of the Foundation Bylaws containing
the date of adoption and the signatures of the
president and secretary of the foundation.
Note: When the Proposed Articles of Incorporation and the Foundation Bylaws are
approved by Kiwanis International, consent will be given for the Articles of
Incorporation to be filed with the State.
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Legal Filings
• Article VIII Section 4. (add)
– Upon the dissolution of the organization, assets shall be distributed
for one or more exempt purposes within the meaning of section 501
(c) (3) of the Internal Revenue Code, or corresponding section of
any future federal tax code, or shall be distributed to the federal
government, or to a state or local government, for the public
purpose. Any such assets not disposed of shall be disposed of by
the Court of Common Pleas of the county in which the principle
office of the organization is located, exclusively for such purposes
or to such organizations or organizations, as said Court shall
determine, which are organized and operate exclusively for such
purposes.
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Legal Filings
• Incorporate Foundation with Secretary of
State
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Connecticut –www.ct.gov/sots
Maine - www.maine.gov/sos
Massachusetts - www.sec.state.ma.us
New Hampshire – www.sos/nh.gov
Rhode Island - www.sec.state.ri.us
Vermont - www.sec.state.vt.us/corps
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501 (c)(3) Documents
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Obtain copy of Kiwanis International Bylaws
Obtain copy of New England District Bylaws
Obtain copy of Foundation Bylaws
Articles of Incorporation
Apply for an Federal Identification Number
– www.irs.gov/
• Download a copy of IRS Form 1023 and
instructions
– www.irs.gov/charities/article/0,,id=96109,00.html
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News affecting 501(c)(3) Applications
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User Fees Set to Increase
• The User Fees that must be paid with an
exemption application changed January 3,
2010.
• Organizations whose gross receipts average
less than $10,000 per year will pay $400.
• Others pay $850.
• When the Cyber Assistant becomes available
later in 2010, applicants who use it will be
eligible for a reduced User Fee of $200.
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Cyber Assistant
• The IRS hopes to unveil its Cyber Assistant some
time during 2010.
• This tool will guide applicants through the Form 1023,
providing continuation sheets for lengthy responses,
cover sheets for attachments, and relevant taxpayer
education.
• When a Cyber Assistant-aided application is finished,
it must be printed out and submitted in the usual way
• Special bar-coding on the printed form will alert the
IRS that the applicant is eligible for the reduced
User Fee of $200.
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New Mailing Address but expect
Delays
• Internal Revenue Service
P. O. Box 12192
Covington, KY 41012-0192
• Last fall the IRS Director of Exempt Organizations
acknowledged there have been delays: "Over the past several
years, the number of applications for tax-exempt status has
continued to rise. The increase in applications, coupled with the
need to scrutinize applications more closely to ensure that the
organization qualifies for tax-exempt status, has resulted in a
backlog of cases awaiting assignment... While we are
working to reduce the backlog, we recognize that applicants may
be frustrated by the wait time."
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Maintenance of 501(c)(3)
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Tax Returns
Annual Reports
Annual Meetings
Meeting Minutes
Solicitation documentation (>$350)
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Tax Return Requirement
• Gross receipts less than $25,000
– If gross receipts are less than $25,000 and the
club did not receive a Form 990 package from the
IRS use 990N
• Gross receipts more than $25,000, but less
than $1,000,000
– Form 990-EZ is required annually
• Gross receipts greater than $1,000,000
– Form 990 must be completed
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Where to find the filing information
• Form 990-N
• Form 990-EZ -http://www.irs.gov/pub/irspdf/f990.pdf
• Form 990 - http://www.irs.gov/pub/irspdf/f990.pdf
• Instructions for Forms 990 and 990-EZ http://www.irs.gov/instructions/i990ez/index.html
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Annual Report Filings URL’s
• Connecticut - http://ct.gov/sots/lib/sots/commercial
recording/allforms/corp-organization.pdf
• Maine - http://www.maine.gov/sos/cec/corp/nonprofit.html
• Massachusetts http://www.sec.state.ma.us/COR/corpweb/cornp/npfrm.htm
• New Hampshire - http://www.sos/nh.gov/
• Vermont Biennial Report http://www.sec.state.vt.us/corps/dobiz/npo/npbirep.htm
• Rhode Island http://www.sec.state.ri.us/corps/corpforms1205/domesticnonpr
ofit.html
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Other Compliance Filings
• Some states require the club to file a copy of
their IRS filing on an annual basis
• Annual returns are generally require by the
Secretary of State on an annual basis
– Listing of Officers and pertinent data
(addresses, term of office, etc.)
– Date of Annual Meeting
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Kiwanis Club of Sandwich
Grant Program
Request for Proposals
The Kiwanis Club of Sandwich has as its essential mission “Young Children: Priority One”. The
club has a long history of providing a variety of programs and community service projects that
benefit the youth of Sandwich as well as the Town of Sandwich.
The Kiwanis Club of Sandwich, through the auspices of the Gerald and Claire Levreault Trust
Fund, is pleased to offer limited funding for programs that are developed to provide academic
and/or cultural enrichment for students in the Sandwich School system and for projects outside
the Sandwich School System that similarly benefit the townspeople. The purpose of the Levreault
Grant Program is to assist Sandwich School teachers and local non-profit organizations in their
efforts to create projects and present events that directly benefit the youth and/or townspeople of
Sandwich. The maximum grant award shall not exceed $10,000. The Kiwanis Club of Sandwich
may place restrictions or conditions on grant awards, and may award funds in lesser amounts than
those applied for. Examples of some recent funded projects include the establishment of a Little
League Challenger Division for handicapped children, the creation of a children’s reading
workshop with an author of children’s books and the sponsorship of pediatric trauma course for
Sandwich firefighters.
Request for Proposal Guidelines
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Individuals or organizations will submit a three-page (maximum) proposal and a copy of
the IRS 501(c)(3) non-profit determination (organizations only).
The greatest consideration/weight will be given to those proposals that benefit the largest
number of children.
Additional weight will be assigned to those requests that are original in nature (i.e. a
dream or something the writer/submitter has always wanted to do but was restricted due
to financial constraints) vs. those that are for supplies or basic materials.
With respect to those RFP’s submitted by Sandwich teachers, the committee will place a
greater weight on proposals that benefit an entire grade in the town school system vs.
others that would benefit one classroom or one grade at one school.
Extra weight will be also be assigned to those projects/programs where matching funds
would be used to leverage the grant that would be received.
Once all proposals have been reviewed, ranked and rated by the Kiwanis Levreault Trust
Committee, individuals/organizations may be requested to submit additional information
and/or other such materials deemed necessary by the committee to give the proposal full
and complete consideration.
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Grant Program
Proposal Cover Sheet
Teacher(s)/School(s)
or
Organization Name
______________________________________
Organization Contact
______________________________________
Address
______________________________________
______________________________________
______________________________________
Telephone:
Work
______________________________________
Home
______________________________________
Amount Requested
______________________________________
Total Amount of Project
______________________________________
Amount in savings for project
______________________________________
Date Submitted
______________________________________
Signature(s)
______________________________________
Please mail 5 copies of the cover sheet and proposal to:
Kiwanis Club of Sandwich
PO Box 265
Sandwich, MA 02563
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Section A
Please describe the event/project/program by providing the information requested below. All
applications must be typewritten and limited to a maximum of three (3) pages. Please attach your
description to the Proposal Cover Sheet.
1.
Please briefly describe your organization and its mission.
2.
Please state the goal of the event/project.
3.
Please describe the event/project and the type of activities that will be included. Please be as
comprehensive as possible.
4.
Please list the schedule of the event/project (i.e. month/day(s), time of day, location).
5.
Please provide an estimate of the number of individuals who will directly benefit from this
event/project. Please provide a brief explanation as to how you determined this number.
6.
Please indicate if you would be using the Levreault funds as matching funds to resources
presently in place to bring your event/program to completion.
7.
Please provide any additional information you feel will be useful in our evaluation of your
application, including any previous experience with overseeing or conducting a similar type
of activity.
8.
If applicable, please provide a budget/promotion/marketing plan for your event/project, and
indicate how this project was made possible through the Levreault Trust Grant Program.
Section B
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Applications must be received by no later than April 15, 2010. All information requested in
Section A above must be provided for the application to be considered.
2.
No single organization is eligible to receive more than one Levreault Grant award per year.
3.
Events/projects/programs sponsored by churches or other religious groups are ineligible.
4.
Grants will be announced on or about May 31, 2010 and the check awarded at gathering in
September. Events/projects should be completed by December 31, 2010. A minimum of eight
(8) 4”x 6” non-returnable color photos capturing the event/project in various phases must be
submitted to the Kiwanis Club of Sandwich.
5.
Please feel free to contact Bill Jenkins at 508-833-9596 with any questions regarding your
grant application.
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