TAX EXEMPT ISSUES FOR UK COOPERATIVE

EXTENSION

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

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

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

Possible Exemption Paths

Governmental ExemptionCounty Extension is tax exempt

because Extension Districts are considered a governmental subdivision of the Commonwealth (KRS 164.620)

501(c)3 statusNeeded to accept certain grants or to

conduct numerous gaming or raffle fund raisers (see KY regulations on Gaming)

Four Options for Handling Funds(All Organizations)

Option A: Governmental, multi-checkbookGroups 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

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 general oversight of all 4-H entities in county.

Appropriate agent will be responsible for adherence to procedures

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.

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.

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

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 ORLink to a county 4-H program for

government exemption and follow their guidelines

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.

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.

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.