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Tax Exemption for NFP Corporation: Laws and Compliance

This article provides detailed information on tax exemption and related issues for not-for-profit (NFP) corporations. It covers setting up an NFP, registration with the NYS Attorney General, annual filing requirements, organization and governance, prohibited activities, record-keeping, disclosure, fundraising, and dissolution.

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Tax Exemption for NFP Corporation: Laws and Compliance

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  1. TAX EXEMPTION AND RELATED ISSUES FOR THE NOT FOR PROFIT (NFP) CORPORATION REUBEN S. SEGURITAN 7 Penn Plaza, Suite 222 New York, NY 10001 Tel. No. (212) 695-5281; Fax No. (212) 563-2664 Email: seguritanlaw@yahoo.com Website: www.seguritan.com

  2. SETTING UP THE NFP • Incorporation • certificate of authority if NFP is foreign corporation doing business in NYS • 501(c)(3) tax exempt status (Form 1023) • 5 year advance ruling period to maintain public charity status • NYS income tax exemption (CT-247) • NYS sales tax exemption (ST-119.2) • Registration with NYS Attorney General (CHAR 410)

  3. REGISTRATION WITH NYS ATTORNEY GENERAL • Types of Registration • Article 7A to solicit contribution • EPTL for incorporated or doing business • Dual for combined Article 7A and EPTL • When to Register • Article 7 A – 30 days prior to solicitation • EPTL – within 6 months of activity • Dual – whichever is earlier

  4. Attachments • Certificate of Incorporation, By-laws, IRS Form 1023 and IRS tax exemption letter • Penalties for failure to register • Article 7A - $1,000 per violation and up to $100 per day for willful non-compliance • EPTL - $10 per day up to $1,000 for each failure • Dual – combined penalties

  5. Unified registration statement (multi-state) • in lieu of Art. 7A only • used by 39 states • Exemption • See CHAR 410 instructions • File CHAR 410 with Schedule E to confirm exemption

  6. ANNUAL FILING REQUIREMENTS • Internal Revenue Service • Form 990 – if gross receipts is $100,000 or more • Form 990EZ – if gross receipts more than $25,000 but less than $100,000 and total assets less than $250,000

  7. Form 990N – if gross receipts less than $25,000 • Form 990T – if unrelated business income is $1,000 or more • Employment tax return • Enforcement tool to find out income and expenses, assets, programs, excess benefit transactions, self-dealing and lobbying activities

  8. Penalties • revocation of tax exempt status if Form 990, 990EZ or 990N not filed for 3 consecutive years • $20 per day until filed up to $10,000; $100 penalty up to $50,000 if gross receipts over $1 million • no penalty for late filing of 990N • When to file • 15th day of the 5th month

  9. NYS Attorney General (CHAR 500) • Form CHAR 500 for all registrants with a copy of Form 990, 990 EZ and 990T • Additional attachments • Article 7A and dual – accountant’s audit and financial statement if revenue over $250,000; accountant’s review and financial statements if revenue over $100,000 to $250,000

  10. When to file • Article 7A and dual – 4 ½ months after end of fiscal year • EPTL – 6 months after end of fiscal year • Exemption • Article 7A and dual – contribution not exceeding $25,000 and did not use professional fundraiser • EPTL – gross receipts did not exceed $25,000 and assets did not exceed $25,000 • Penalty – same as in CHAR 410

  11. ORGANIZATION AND GOVERNANCE • Bylaws • Board of directors • Legal duties of directors • Duty of care • Duty of loyalty • Duty of obedience

  12. Enforcement of director’s duties • by Attorney General • by another director • by 5% of members • Personal liability of directors • accidents and employment • volunteers not liable unless with gross negligence or intent to harm

  13. Corporate protection • liability insurance • indemnification of officers, directors and employees • placing risks on contractors

  14. OTHER COMPLIANCE ISSUES • Prohibited activities • political campaigns • substantial lobbying • private benefit or inurement • Record Keeping • documentation of income and expenses • organizational documents • retention period

  15. Disclosure • annual returns • tax exempt documents • Fundraising • written acknowledgement for contribution of $250 or more • quid pro quo contribution of $75 or more • use of professional fundraisers

  16. raffles • license required if net proceeds is $30,000 or more • verified statement if net proceeds is $5,000 or more • restrictions • who, where, when to sell • separate bank accounts • final accounting or verified statement

  17. Dissolution • board resolution • membership approval • asset distribution

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