© 2008 Gelman, Rosenberg & Freedman Basic Tax Considerations for Nonprofit Organizations Stephen Kelin Richard J. Locastro On Behalf of Maryland Nonprofits

© 2008 Gelman, Rosenberg & Freedman

Basic Tax Considerations for Basic Tax Considerations for Nonprofit OrganizationsNonprofit Organizations

Stephen Kelin

Richard J. Locastro

On Behalf of Maryland Nonprofits

© 2008 Gelman, Rosenberg & Freedman 2

AGENDAAGENDA

Introduction General Filing Requirements Form 990 Form 990 Schedule A Form 990 Schedule B Form 990-T and Unrelated Business Income Public Disclosure Requirements Charitable Contribution Substantiation Rules New Form 990


Filing RequirementsFiling Requirements

Form 990 - Who Must File? Generally - organizations exempt under 501(c) Does not include private foundations and black

lung trusts

Exceptions include: Churches and certain related entities State and local PACs



Exceptions include: Organizations with gross receipts “normally” less

than $25,000 “Normally” determined by previous 3 tax years Special rules for organizations in existence less

than 3 years Exception does not apply to 509(a)(3) orgs unless

receipts less than $5,000



Form 990-EZ- For Organizations with: Gross receipts of less than $100,000 AND Assets of less than $250,000 at the end of the year

Form 990-EZ can’t be used by: Sponsoring organizations (those with DAFs) or Controlling organizations under 512(b)(13)



New Form 990-N (e-Postcard) for small organizations with gross receipts “normally” less than $25,000

Filed annually No paper form – must be filed electronically Failure to file for three years results in loss of

exemption



Electronic Filing of Form 990 is required: If over $10 million is assets at the end of the year

AND Files at least 250 returns during the year Failure to file electronically is failure to file return Others may file electronically but not required


Due DatesDue Dates

Form 990, 990-EZ and Form 990-T Form due by the 15th day of the 5th month following

the close of the year (May 15th for calendar year filers

Two three month extensions may be obtained First and second extensions – Form 8868


Form 990 ReviewForm 990 Review


Form 990 Review - Part I/Part VII/Part VIIIForm 990 Review - Part I/Part VII/Part VIII

Part I General Information Line 1 – contributions

Contributions vs. fee for service Donated goods and services

Line 9 – special events Activities who sole or primary purpose is to raise funds that

are other than contributions Offering goods or services with more than a nominal value

for a payment that is more than the direct cost Contributions reported on line 1


Form 990 Review - Part I/Part VII/Part VIIIForm 990 Review - Part I/Part VII/Part VIII

Part VII Analysis of Income Producing Activities Designate income as either related, excluded or

unrelated If excluded, provide exclusion code from the

instructions If related, provide an explanation on Part VIII If unrelated, provide business code

Part VIII Relation to Exempt Activity


Form 990 Review - Part IIForm 990 Review - Part II

Part II Statement of Functional Expenses Importance of this section Line 22 – Grant disclosure issues Line 25 – Compensation of Officers


Form 990 Review - Part III and IVForm 990 Review - Part III and IV

Part III Statement of Program Service Accomplishments

Importance of this section Grants and allocations

Part IV Balance Sheet

Part IV-A Reconciliation of Revenue and Expense with Audited Financial Statements


Form 990 Review - VForm 990 Review - V

Part V-A Compensation of Current Officers, Directors, Trustees or Key Employees

Who is a key employee? What is disclosed in columns (c), (d), and (e) Question 75 a and b relationships

Part V-B Compensation of Former Officers, Directors, Trustees or Key Employees


Form 990 Review - VIForm 990 Review - VI

Part VI – Other Information 501(c)(3) questions Lobbying disclosure for 501(c)(4), (5) and(6) Foreign bank accounts and offices


Form 990 Review – IX and XForm 990 Review – IX and X

Part IX – Information Regarding Taxable Subsidiaries and Disregarded Entities

Info to be reported Definition of control

Part X – Personal Benefits Contracts


Form 990 Review - XIForm 990 Review - XI

Part XI - Information Regarding Transfers To and From Controlled Entities

Definition under 512(b)(13) Reason for disclosure


Form 990 Schedule AForm 990 Schedule A



Who must file? Organizations exempt under 501(c)(3) PFs do not file Schedule A If not required to file Form 990, don’t have to file

Schedule A



Schedule A, Part I Compensation of 5 highest paid employees

Schedule A, Part II A and B Compensation of 5 highest paid independent

contractors for professional services Compensation of 5 highest paid independent

contractors for other services



Schedule A, Part III Statement of Activities Transactions with officers, directors, trustees, etc. Scholarship, fellowship, student loan information Conservation easements

New questions regarding donor advised funds

Donor advised fund defined as fund or account Identified by reference to contributions of donor(s) Owned or controlled by sponsoring organization Where donor reasonable expects to have advisory

privileges



Schedule A, Part IV Public Support Test Reason for non-PF status Supporting organization disclosure


Form 990 Schedule A Part IV-AForm 990 Schedule A Part IV-A

A public charity is defined under IRC § 509(a)(1) as an organization described in § 170(b)(1)(A) (other than in clauses (vii) and (viii));

§ 170(b)(1)(A)(i)-(v) includes churches, schools, hospitals, and governmental units – no support test required



§ 170(b)(1)(A)(vi) applies to an organization that:

Normally receives a substantial part of its support from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public

Support for § 509(a)(1) does not include income in exercise of its exempt purpose

A substantial part is generally 33 1/3% or 10% or more under the “facts and circumstances” test

“Normally” is a four year rolling average



A public charity is defined under IRC § 509(a)(2) as an organization :

normally receives more than one-third of its support in each taxable year from any combination of: gifts, grants, contributions, or membership fees gross receipts from admissions, sales of

merchandise, performance of services, or furnishing of facilities, in an activity which is not an unrelated trade or business (within the meaning of section 513)



A public charity is defined under IRC § 509(a)(2) as an organization :

receives not more than one-third of its support in each taxable year from the sum of: gross investment income and unrelated business taxable income (over the

amount of the tax imposed by section 511). No “10% facts and circumstances” test



Not all support is good support! § 509(a)(1) – the following are not included in the

numerator as good support: Amounts from a person that exceeds 2% of the

revenue (excluding amounts from the exercise of the organization’s exempt purpose) over the four year period

Amounts from governments and other § 509(a)(1) publicly supported organizations are not limited



Not all support is good support! § 509(a)(2) – the following are not included in the

numerator as good support: Any contributions, membership fees, or gross

receipts from a disqualified person AND Amounts from gross receipts in carrying out the

organization’s exempt purpose received from a person (other than a disqualified person) that exceed 1% of the support for the year



Example: § 509(a)(1) organization had total support for 2001-

2004 (excluding gross receipts for activities in furtherance of its exempt purpose) of $60,780,094.

Any amount from a donor who gave over 2% ($1,215,602) is not “good support”.

During 2001-2004 Corporation A gave $10,000,000 Individual X gave $1,961,456

Public Charity gave $3,000,000



Example: Excess contributions:

Corporation A: $8,784,398 ($10,000,000 - $1,215,602) Individual X: $745,854 ($1,961,456 - $1,215,602) Public Charity - 0- (publicly supported)

Total Excess $9,530,252


Form 990 Schedule A Part VI and VIIForm 990 Schedule A Part VI and VII

Lobbying Disclosure Part VI-A - Electing organizations under 501(h) Part VI-B - Non-electing organizations

Part VII – Transactions with non-exempt organizations


Form 990 Schedule BForm 990 Schedule B


Schedule BSchedule B

What donors must be disclosed: General rule: those that gave $5,000 or more

during the year If 509(a)(1) organization – if organization meets the

1/3 public support test, only need to disclose those who gave more than the greater of 2% of contributions for the year or $5,000


Form 990-TForm 990-T



Who must file Organizations exempt under 501(a) if gross

income from an unrelated trade or business is greater than $1,000

Organization subject to UBI include: Section 501(c) organizations State colleges and universities Pension plans



UBI is Income Derived from: A “trade or business” That is “regularly carried on” Not “substantially related” to the organization’s

exempt purpose



Statutory Modifications under section 512 from UBI Include:

Interest, dividends, real property rents and royalties (if not debt-financed)

Statutory Exclusions under section 513 Include: Volunteer Exception Donated Goods Exception Qualified Sponsorship Payments Qualified Trade Show and Convention Exception



Common Sources of UBI: Advertising

Periodicals Web

Debt-financed income Alternative investments



Where to Report: Advertising

Periodicals – Schedule J Web – Schedule I

Debt-financed income – Schedule E Alternative investments (line 5)


Public Disclosure RequirementsPublic Disclosure Requirements


Form 990 and 990-T Disclosure Form 990 and 990-T Disclosure

Public Disclosure Requirements What documents must be disclosed Making Forms “widely available” Public inspection versus providing copies Timing for compliance with requests


Charitable Contribution Charitable Contribution Substantiation RulesSubstantiation Rules


Charitable Contribution SubstantiationCharitable Contribution Substantiation

Charitable Contribution Substantiation Cash of $250 or greater Quid pro quo - $75 or more New requirements for donors to take deduction Form 8282 filing requirements Form 8283 filing requirements


New Form 990New Form 990


New Form 990New Form 990

New Form 990 Expected to be effective for tax years beginning in

2008 (filed in 2009) Uses a core form with schedules to be completed

depending on the organization’s situation New form will be phased in over a three year

period depending on the size of the organization.

Documents

© 2008 Gelman, Rosenberg & Freedman Basic Tax Considerations for Nonprofit Organizations Stephen Kelin Richard J. Locastro On Behalf of Maryland Nonprofits