Non-Profit Seminar for Rotary Clubs

1. Non-Profit Seminar for Rotary Clubs Presented by DG Chet Dal Santo 2013 Assemblies

2. Topics to be covered • IRS Classification • Tax Deductible Status • Fundraising • Disclosures Required • Unrelated Business Income Tax • General Excise Tax • Filing Requirement • Charities Registration • Accounting • Net Assets • Functional Expenses • Financial Statements • Recommendations 2013 Assemblies

3. Not all 501(c)’s are created equal • The IRS has 29 types of 501(c) designations which grant exemption from taxes So what designation does our Rotary Clubs fall under? 2013 Assemblies

4. IRS Classification • May 13, 1958, the IRS declared Rotary International and its clubs and districts exempt from federal income taxes under IRC Section 501(c)(4). • IRC 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 2013 Assemblies

5. Social Welfare • General Concept: Organizations that promote social welfare should primarily promote the common good and general welfare of the people of the community as a whole. 2013 Assemblies

6. Huh? • Although very similar to a 501(c)(3), there are differences • 501(c)(3) organizations are prohibited from “carrying on propaganda, or otherwise attempting to influence legislation” as a “substantial part” of its activities. • Social welfare organizations, cannot attract charitable donations that are deductible for income, gift, and estate tax purposes. 2013 Assemblies

7. Tax Deductible Status • Donations to your club are not 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 Expense. • Deductibility is determined by Rotarians status; business vs. individual 2013 Assemblies

8. Fundraising • All fundraising income is subject to State of Hawaii General Excise Taxes • 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. 2013 Assemblies

9. Disclosures Required • IRC Section 6113 requires certain tax-exempt 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 2013 Assemblies

10. Disclosures Required – Cont. • Disclosure must be: • Medium in Print • At least same size type as the primary message • Included on the message side of any card or tear off section that the contributor returns with the contribution • First sentence in a paragraph or a paragraph itself • See IRS Notice 88-120: included in your handouts for more information August 16, 2011

11. Sample Disclosure Statement • “Contributions or gifts to [name of organization] are not deductible as charitable contributions for Federal income tax purposes” • “Contributions or gifts to [name of organization] are not tax deductible” • “Contributions or gifts to [name of organization] are not tax deductible as charitable contributions 2013 Assemblies

12. Unrelated Business Income Tax • Aka – 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 an unrelated trade or business. 2013 Assemblies

13. UBIT – Cont. • Membership list sales – taxable • Advertising – taxable • Sponsorship – not taxable • Selling Donated Merchandise – not taxable • Volunteer Workforce – not taxable UBIT is a Gray area – seek professional assistance to assist in determination 2013 Assemblies

14. General Excise Tax • State of Hawaii • Membership and donations are generally exempt • Must pay on fundraising and unrelated business income • Effective July 1, 2010 – State placed a trust fund liability unto unpaid taxes. 2013 Assemblies

15. Filing Requirements • Form 990 • Due 15th day of the 5th month after your fiscal year end. • December 31st yearend, due date is May 15th • Up to 6 month extension • Form 990-T and N-70NP • Unrelated business income tax returns for federal and state; same due date • Extension available, but payments are due on 15th day of the 5th month after your fiscal year end 2013 Assemblies

16. Filing Requirements – Cont. • Form G-45 • General Excise Tax Return • Monthly, quarterly or semi-annually • Due on 20th day after period close • Month – following month • Quarterly – April 20th, July 20th, October 20th, January 20th • Semi-annually – July 20th and January 20th • Form G-49 • Annual Reconciliation • Due April 20th • No Extensions available for G-45 or G-49 2013 Assemblies

17. Charities Registration • State of Hawaii Attorney General Charities registration law requires charitable organizations that solicit contributions to register [see handout] • Filing due dates are linked to Form 990 • Tiered annual fees based upon gross revenues • Generally, less than $25,000 in gross revenues, exempts organization from registration requirements 2013 Assemblies

18. Accounting • Generally Accepted Accounting Principles • GAAP • Accural based accounting • Income is recorded when earned • Contributions are recorded when there is a detrimental reliance on the income • 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 2013 Assemblies

19. Net Assets • Unrestricted Net Assets • BOD Designated • Temporarily Restricted Net Assets • Donor Restricted • Time Restricted • Transfer to Unrestricted • No separate expense matching • Permanently Restricted Net Assets • Endowment 2013 Assemblies

20. Functional Expenses • Program Services • International Service project • Community Service Projects • RYLA, Interact, other • Management and General • Fundraising • Event 1 • Event 2 • Membership 2013 Assemblies

21. Financial Statements • Statement of Financial Condition • aka – Balance Sheet • Statement of Activities • aka – Income Statement or Profit & Loss • Statement of Functional Expenses • Program • Management & General • Fundraising • Membership • Statement of Cash Flows 2013 Assemblies

22. Statement of Financial Position 2013 Assemblies

23. Statement of Activities 2013 Assemblies

24. Statement of Functional Expenses 2013 Assemblies

25. Recommendations • Identify all income sources and classify them accordingly • Utilize professionals to assist in compliance • Utilize accounting software (Like Quick Books) • Ensure persons handling finances is knowledgeable • 2 signatures on all Checks or approved memo signed by 2 members. 2013 Assemblies

26. IRS Website • To check clubs status: • http://www.irs.gov/Charities-&-Non-Profits/Automatic-Revocation-of-Exemption-List • Future Vision account name: The Rotary Club of ___________ TRF District Grants Account 2013 Assemblies