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Copyright 2009 Patricia J. Arthur

Copyright 2009 Patricia J. Arthur. Definitions and Differences.

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Copyright 2009 Patricia J. Arthur

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    1. Copyright 2009 Patricia J. Arthur EAA AirVenture 2009 Tax-Exempt Status for Chapters Getting It and Keeping It Patti Arthur, J.D., LL.M. (Tax) The Law Offices of Patricia J. Arthur

    2. Copyright 2009 Patricia J. Arthur Definitions and Differences “Non-profit” vs “Not-for-profit” vs “Tax-Exempt” “Non-Profit” or “Not-for-Profit” are generally state law classifications of a type of organization. “Tax-exempt” is principally a federal term used by the IRS, but is also used by some states.

    3. Copyright 2009 Patricia J. Arthur Definitions and Differences Internal Revenue Code Section 501(c)(3) organizations are: “Public charities” who receive more than one-third of their support from the general public; Organized for religious, charitable, scientific, literary, or educational purposes; Exempt from federal income tax, and Donations to the organization are tax deductible by the donor.

    4. Copyright 2009 Patricia J. Arthur Definitions and Differences IRC Section 501(c)(4), (c)(6) or (c)(7)'s: (c)(4)'s: civic leagues operated for the promotion of social welfare. (c)(6)'s: business leagues. (c)(7)'s: social clubs.

    5. Copyright 2009 Patricia J. Arthur Definitions and Differences The BIG difference between 501(c)(3) and other “501(c)” organizations is.... Donations to (c)(3)'s are TAX DEDUCTIBLE by the donor! Donations to other 501(c) organizations are not. However...all 501(c)'s are exempt from paying federal income tax.

    6. Copyright 2009 Patricia J. Arthur Acquiring Federal Tax-Exempt Status General Steps Incorporate, organize or form an “unincorporated association” with your state. Get a Federal Tax ID using IRS Form SS-4. Want 501(c)(3) status? Complete IRS application Form 1023. Want a different type of 501(c) status? Complete IRS application 1024.

    7. Copyright 2009 Patricia J. Arthur Acquiring Tax-Exempt Status 501(c)(3) status is most desirable, however... You must be organized for a certain purpose. Educational or charitable purposes work best for Chapters. Must demonstrate in application 1023 that your purpose is solely to benefit the general public and not your members. Young Eagles, school programs, airport programs for kids, programs for the community, etc. demonstrate this.

    8. Copyright 2009 Patricia J. Arthur Acquiring Tax-Exempt Status 501(c)(4) or (c)(7) status is much easier to obtain. Application Form 1024 is short and simple. However, that aircraft or kit donation will not be tax deductible by the donor.

    9. Copyright 2009 Patricia J. Arthur Acquiring Tax-Exempt Status Why choose one or the other? Possibly the Chapter can't demonstrate a “public charitable” purpose for (c)(3). The Chapter is very small and can not conduct YE flights. Is actually more of a social group than a “charity”. However, all “(c)'s” avoid federal income tax.

    10. Copyright 2009 Patricia J. Arthur The Application Process First: State incorporation or organization (Corporation or LLC or unincorporated association). Acquire IRS Publication 557 and make sure your Bylaws or Articles of Organization contain the proper language. (www.irs.gov) File IRS Form SS-4. Paper version or On-Line at www.irs.gov

    11. Copyright 2009 Patricia J. Arthur Troubleshooting the SS-4 Problem and Solutions: Must give SS# of Officer – Not to worry...the IRS knows your SS#, it won't trigger an audit. Had an old FEIN but lost it – New SS-4 application may be necessary. irs.gov/businesses Line 9a.Type of Entity- DO NOT CHECK OTHER!

    12. Copyright 2009 Patricia J. Arthur IRS Form 1023 Application for Section 501(c)(3) status. Part IV Narrative is the heart of the form. Must demonstrate charitable purpose with concrete examples. YE flights, school visits, educational seminars. Dates, numbers of attendees. News clippings, magazine articles, posted notices also help.

    13. Copyright 2009 Patricia J. Arthur IRS Form 1023 Not required to file if: Annual gross receipts are under $5000/year.

    14. Copyright 2009 Patricia J. Arthur IRS Form 1023 Application Fee is $300 for organizations with average annual gross receipts under $10,000/year. Application Fee is $750 for organizations with average annual gross receipts over $10,000/year.

    15. Copyright 2009 Patricia J. Arthur IRS Form 1024 For other 501(c) organizations. This form is simple. Application Fees are $300 and $750 respectively depending on the $10,000 average annual gross receipts test.

    16. Copyright 2009 Patricia J. Arthur Annual Filing Requirements Form 990 Series 990N = gross receipts under $25,000/year; 990EZ = gross receipts $25,000-499,999/year; 990 = gross receipts $500,000 and over. For 2011 and beyond: 990EZ = gross receipts $50,000/yr; 990 = gross receipts $200,000/yr.

    17. Copyright 2009 Patricia J. Arthur The Confusing Part... 1. Under $5000/yr gross receipts, do not need to file application 1023 or 1024. You are automatically assumed to be tax-exempt. 2. Under $25,000/year gross receipts MUST file 990N even if you were not required to file 1023 or 1024. (990's are the 1040s for tax-exempts.) 3. So....not everybody needs to file 1023 or 1024, BUT all chapters must file at least 990N. Larger Chapters file 990EZ or 990.

    18. Copyright 2009 Patricia J. Arthur Annual Filing Requirements In 2011 for tax year 2010: 990N for Chapters with gross receipts under $50,000. That represents 99% of all the Chapters! So...all Chapters should be filing the 990N e-Postcard by 2011. Non-filers risk losing tax-exempt status.

    19. Copyright 2009 Patricia J. Arthur What is the 990N e-Postcard? An electronic postcard filed with IRS online. Takes about 2 minutes. Due May 15 (15th day of 5th month after end of tax year). www.irs.gov And search “990N” for the link. Prompted to set up a simple account.

    20. Copyright 2009 Patricia J. Arthur Troubleshooting the 990N If your Chapter HAS NEVER filed application 1023 or 1024, the system WILL NOT recognize your FEIN. An Officer must call the IRS at 1-877-829-5500. And, explain the following....

    21. Copyright 2009 Patricia J. Arthur Troubleshooting the 990N 1. You are an officer of EAA Chapter ________; 2. You would like to file form 990N; 3. You are a small Chapter of a larger organization; 4. EAA Main HQ does not have a group exemption letter and has no intention of filing for one; 5. Your FEIN is:______________. 6. Your annual gross receipts are under $5000/yr; 7. You consider yourself a (c)(3) [or 4 or 7]

    22. Copyright 2009 Patricia J. Arthur Troubleshooting the 990N The Agent will tell you they need to “re-set” the system. It takes up to 8 weeks to re-set. Try to file again within 8 weeks. No penalty for late filing.

    23. Copyright 2009 Patricia J. Arthur 990EZ or 990 Please see a CPA or Tax Attorney for filing.

    24. Copyright 2009 Patricia J. Arthur Keeping your Tax-Exempt Status Keep excellent Records. Get your books in order now. Review IRS publications and websites. Ask questions!!!! Do lots of programs with kids. Visit schools. Allow your hangar to be open to the public when supervised. File your annual 990N!!!!!!!!!

    25. Copyright 2009 Patricia J. Arthur Donations to the Chapter If you are or consider yourself (c)(4) or (c)(7)... The donation is not tax-deductible!

    26. Copyright 2009 Patricia J. Arthur Donations to the Chapter If you are or consider yourself (c)(3)... The donation is tax deductible, but make sure you get a statement of value. Should there be an audit and you are a small Chapter (less than $5000/yr), be prepared to demonstrate that you serve a public charitable purpose. Chapters must provide a confirmation letter to donors for gifts of $250 or more. Form 1098-C.

    27. Copyright 2009 Patricia J. Arthur State Tax Issues Traps for the unwary... Raffling without a license. Can be a misdemeanor!!! Not registering your non-profit with the state Secretary of State. Can be a misdemeanor!!! Public Group Functions without a license; Merchandise sales without a state license; Hangar possessory interest taxes—usually county or local, but VERY hard to defend against.

    28. Copyright 2009 Patricia J. Arthur State Tax Issues The GOOD news..... State Sales Tax Exemptions are AVAILABLE for 501(c)(3)s. Allows the Chapter to purchase items without paying state sales tax!!

    29. Copyright 2009 Patricia J. Arthur INFO, INFO, INFO irs.gov stayexempt.org Chapter's State Department of Revenue website Chapter's State Secretary of State website

    30. Copyright 2009 Patricia J. Arthur INFO, INFO, INFO

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