Tax Exempt Issues for UK Cooperative Extension

1. Tax Exempt Issues for UK Cooperative Extension

2. What Changed • Federal Laws Changed (2007) • All tax exempt organizations required to begin filing annual IRS tax forms • 4-H National HQ decided to cease providing group exemption for clubs and affiliates (councils) • Increased need for financial transparency and accountability for all Extension funds

3. Guiding Principles for Solution • Provide financial accountability and transparency • Be minimally disruptive, yet provide accountability • Establish a tax exempt basis for UK CES • Provide options rather than dictate actions

4. Possible Exemption Paths • Governmental Exemption • County Extension is tax exempt because Extension Districts are considered a governmental subdivision of the Commonwealth (KRS 164.620) • 501(c)3 status • Needed to accept certain grants or to conduct numerous gaming or raffle fund raisers (see KY regulations on Gaming)

5. Four Options for Handling Funds(All Organizations) • Option A: Governmental, multi-checkbook • Groups keep checkbooks • Option B: Governmental, single checkbook per program council • Option C: Governmental, District Board holds the checkbook • Option D: Seek 501(c)3 Status

6. All Options Must Provide: • Financial Accountability • Budget Transparency • Group Oversight • Adherence to UK money handling and financial procedures • Electronic Recordkeeping with the goal of standardizing categories to facilitate aggregation of records

7. Option A – Governmental Multiple Checkbooks • The county program councils and their related sub-groups will maintain control and have autonomy over their own funds and individual bank account with general oversight by the County Program Council • The appropriate agent will be responsible for adherence to procedures

8. Option B – GovernmentalSingle Checkbook (per Program Council) • Funds related to a program area in the county will be handled centrally by the appropriate county program council, with separate sub-accounts established in a Quicken, Quickbooks or similar electronic bookkeeping system for each related entity’s (club/group/etc.) funds. • The appropriate agent will be responsible for adherence to procedures

9. Option C – Governmental- District Board Checkbook • County Program Council funds will be handled centrally by the County Extension District Board with a separate sub-account established for each County Program Council in a Quicken, Quickbooks or similar electronic bookkeeping system.

10. Option D: 501(c)3 • Apply for own 501(c)3 exempt status • Needs Memorandum of Understanding between the Director of the Cooperative Extension Service and each 501(c)3 entity which will accomplish: • Financial Accountability to District Board • Programmatic Accountability to Program Council and County Extension Council

11. Note for 4-H only: • If 501(c)3 status is needed for grants, KY 4-H Foundation is willing to handle funds to meet requirements of being a 501(c)3 entity. • Subject to Service Fee (currently 5%) • Multi-county/District entities: • Link to the KY 4-H Foundation OR • Link to a county 4-H program for government exemption and follow their guidelines

12. 4-H Decision Needed • By March 15 EACH 4-H club/council or entity with an EIN/Checkbook must decide the option chosen. (Option A, B, C, or D) • State 4-H Office will be surveying each county to verify which plan is chosen which will then be reported to National 4-H HQ

13. Extension Homemakers • Can be included in the Governmental Exemption, but may have to decide before all of the details are known • Can form own 501(c)3 organization.

14. FAQs • To be developed.