Posted on 10 September 2011.
Non Profit Help…
a. What is a 990? Do churches file a 990?
A “990” is an annual information return, and the Primary Tax Compliance Tool for IRS Tax Exempt Organizations, it is also a public document. Churches in general do not have to file form “990” except in special cases and even then it is not the complete form but the postcard version. See IRS 2009 “990” instructions http://www.irs.gov/pub/irs-pdf/i990.pdf
b. How is it determined that a nonprofit organization should incorporate? If it is so determined, what are the steps for incorporation?
If there is a need for liability protection and/or tax exempt status then the non- profit should incorporate. The steps for incorporation include; Statement of Purpose, Vision and Mission, Fictitious name registration, Obtaining your EIN, writing Articles of Incorporation, Officers designation, Incorporation Application with fees.
c. Who or what is the registered agent and what does the registered agent do?
A registered agent, in United States business law, is a business or individual designated to receive service of process (SOP) when a business entity is a party in a legal action such as a lawsuit or summons.The registered agent’s address may also be where the state will send the paperwork for the yearly renewal of the business entity’s charter. In some states the agent is also referred to as a resident agent or statutory agent, but most states have changed their statutes and now call this function “registered agent”. The registered agent for a business entity may be an individual member of the company, or (more often) a third party, such as the organization’s lawyer or a service company. Failure to properly maintain a registered agent can affect a company negatively.
d. What are IRS Forms 1023 and 1024? How does a nonprofit become a tax-exempt organization.
Form 1023 = 501( c )(3) Form 1024 = 501(a) many 501’s) source of funding is a factor for public charity or private foundation. see IRS pub 557 Types of Non profits or IRS pub 4220 Applying
Non-profits becomes tax exempt by: incorporation for charitable purposes, complete application as stated above with a current fees of $850 depending on the size of the organization, composition of IRS compliant bylaw inclusion of appropriate clauses in governing documents, board organization and set up and finally the receipt of the IRS determination letter. Contact Providence Consulting Group today for detailed information on setting up your non-profit organization correctly.
e. How do charities register for fundraising in different states? Must they register in all 50 states? How are you allowed to do business in different states?
Via a multi-state filer NASCO National Association of State Charities Officials www.nasconet.org
f. What are the advantages and the disadvantages of tax-exempt status?
Register with Providence Consulting Group for your free download today.
g. What is the difference between a nonprofit, not-for-profit and a for-profit organization?
A nonprofit organization (abbreviated NPO, also not-for-profit used interchangebly) is an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals. Whereas for-profit corporations exist to earn and distribute taxable business earnings to shareholders, the nonprofit corporation exists solely to provide programs and services that are of public benefit and no private inurement is allowed. P.I. is key difference
h. Discuss foundations. Explain. Give examples. Include a discussion on disqualified persons, self dealing, advantages and disadvantages of being classified as a private foundation, termination of private foundation status.
Federal law does not define clearly what a foundation is but it does enumerate those organizations that are not foundations. Foundations in general are however organizations that have 4 characteristics.
- 1. Charitable organization 2. funded primarily from one source 3. it makes grants to others for charitable purposes 4. The private aspect relates principally to the nature of its financial support
- 4 types of foundations – Private, Private Operating, Exempt Operating, Conduit
- no real advantages but at least 6 disadvantages
- Disqualified persons 10 types, insider see IRS website
i. What is gift substantiation; quid pro quo contributions, and disclosure of gifts of property.
Gift Substantiation – is the new IRS requirement for non-profits to provide proof of donations. Contact Providence Consulting for more details.
Quid Pro Quo is a Latin phrase meaning “this for that” or “tit for tat” Quid Pro Quo (from the Latin meaning “something for something”) indicates a more-or-less equal exchange or substitution of goods or services. A charitable organization must provide a written disclosure statement to donors of a Quid Pro Quo contribution in excess of $75.
j. Define educational as per the Federal Tax Laws.
This is defined as encompassing far more than just formal schooling relating to the instruction or training of the individual for the purpose of improving or developing capabilities or the instruction of the public on subjects useful to the individual and benefit of the community.
k. What is the “Commerciality” Doctrine? Unrelated Business Income? Passive Income?
Congress did not create this doctrine, it was created by the Supreme Court as an overlay to the IRS code rules that came out at that time. The “Commerciality” Doctrine is an operational test. Rules also became known as the destination of income test. In any case of earning money, passive and/or unrelated business income, this test can be utilized. In other words the IRS will, follow the money. Incorrect administration of these processes can impact the qualification for exemption.
l. What is a feeder organization? What landmark case brought the issue of feeder organizations to the attention of the IRS? Discuss the case.
- General rule – An organization operated for the primary purpose of carrying on a trade or business for profit shall not be exempt from taxation under section 501 on the ground that all of its profits are payable to one or more organizations exempt from taxation under section 501.
- Special rule – For purposes of this section, the term ”trade or business” shall not include: (1) the deriving of rents which would be excluded under section 512(b)(3), if section 512 applied to the organization, (2) any trade or business in which substantially all the work in carrying on such trade or business is performed for the organization without compensation, or (3) any trade or business which is the selling of merchandise, substantially all of which has been received by the organization as gifts or contributions.
See IRC Sec. 502. Feeder organizations
m. Why does a nonprofit form a subsidiary? What are the different kinds of subsidiaries a nonprofit can form?
n. What are Intermediate Sanctions? How is it determined if compensation is excessive?
Intermediate sanctions is a term used in regulations enacted by the United States Internal Revenue Service that is applied to non-profit organizations who engage in transactions that inure to the benefit of a disqualified person within the organization. These regulations allow the IRS to penalize the organization and the disqualified person receiving the benefit. Intermediate sanctions may be imposed either in addition to or instead of revocation of the exempt status of the organization.
- Tax penalty rules around excess benefit transactions / compensation. It overlaps the private inurement doctrine. Took effect 1995, enacted 1996, final rulings issued early 2002.
- Avoids revocation of tax exempt status but allows action by IRS.
- General rule – directly or indirectly to disqualified person, reasonable and non excessive, no insider economic benefit.
- Rebuttable presumption of reasonableness
For more information on any of these Tax Exempt Frequently Asked Questions be sure to contact Providence Consulting Group at 1-800-406-1655 or by emailing firstname.lastname@example.org.
Also take advantage of the free Compliance Audit offered by Providence