Tax Exempt Issues for UK Cooperative Extension

1. Tax Exempt Issues for UK Cooperative Extension

2. What Changed • Federal laws changed. All tax exempt organizations were required to begin filing annual IRS tax forms in 2007 • 4-H National HQ decided to cease providing group exemption for clubs and affiliates (councils) in July 2010 • 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. 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

5. 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)

6. 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

7. Option A – Governmental Multiple Checkbooks County 4-H councils and 4-H entities: • will maintain control/have autonomy over own funds and own bank account • May use own EIN on bank account. • County 4-H Council will have generaloversight of all 4-H entities in county. • Appropriate agent will be responsible for adherence to procedures

8. Option B – GovernmentalSingle Checkbook (per Program Council) • All 4-H funds in the county will be handled centrally by the County 4-H Council. • Separate sub-accounts will be established in a Quicken, Quickbooks or similar electronic bookkeeping system for each entity’s funds. • Appropriate agent will be responsible for adherence to procedures.

9. Option C – Governmental- District Board Checkbook • County 4-H Council funds will be handled centrally by the County Extension District Board. • Separate sub-account will be established for County 4-H Council in a Quicken, Quickbooks or similar electronic bookkeeping system. • The appropriate agent will be responsible for adherence to procedures.

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 County 4-H 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 have 2 choices: • Link to the KY 4-H Foundation OR • Link to a county 4-H program for government exemption and follow their guidelines

12. Results of Options A, B, C 4-H entities: • Will no longer submit a 990-N, 990-EZ or 990. • Will be tax exempt as a “government” org. • May work with KY 4-H Foundation if 501(c)(3) status is needed for grants.

13. Results of Option D • 4-H entity will complete application process to become 501(c)(3). • 4-H entity will file the appropriate form of 990 annually to IRS. • Entity will be tax exempt as a 501(c)(3) org.

14. 4-H Decision Needed • By March 15, EACH 4-H club/council or entity handling funds must decide the option chosen. (Option A, B, C, or D) • Agent will report the choice of each group to the State 4-H Office via a Google document. • State will send information to 4-H National Headquarters. • 4-H National HQ will send info to IRS.