|
|
| |
Keeping the IRS Happy
|
Once you receive your 501(c)(3) status, there are many
things that you must do in order to keep the IRS happy.
Overview:
Required Activities
1. Do Good
2. File Required Returnsa. Exempt Organization Returns and Penalties*
b. Employment Taxes and Forms for Employers*
c. Gross Receipts Less Than $25,000* 3. Provide Substantiation for Your Donorsa. Donor Substantiation*
b. Sample Acknowledgment Letter* 4. Obey Disclosure Laws*
5. Generate Public Support*
Forbidden Activities
1. Inurement**
2. Excess Benefit**
3. Political Activity**
Activities Which Are Permitted, But Must be Limited
1. Legislative Activity**
2. Unrelated Business Activity**
* Scroll down for additional information on these topics.
** Additional information on these topics appears on
IRS Happy, cont.(the next page of this website)
|
Required Activities
1. Your organization must carry on the exempt activities that are the basis
of your 501(c)(3) status. Some periods of inactivity are permitted, but if,
for instance, your organization raises funds and then does not do anything
with them, your exempt status can be revoked.
Click on the links below to view or download the next two topics.
|
2c. Gross Receipts Less Than $25,000
It is a relief for many organizations to learn that IRS Form 990, the annual
"Return of Organization Exempt From Income Tax," is not required when
gross receipts are less than $25,000.
There are good reasons to file even though it is not required:
1) In some cases, the IRS deletes organizations that do not file from their
annual list of qualified charities (Publication 78).
2) The annual 990 is a very good way to notify the IRS of changes in your
organization's address, etc.
3) Filing Form 990 gives your organization a "paper trail." When a
new president or treasurer takes office, he or she will be able to tell at a
glance that IRS filings are all up-to-date.
4) Most important of all, the normal IRS three-year "statute of limitations"
is triggered by the filing of a return. If your group does not file a 990 or
990-EZ the three year period never starts, the statute never closes, and there
is no limit on how far back the IRS can go in an audit situation.
In the past, I have recommended filing a "blank" Form 990 by completing
the identifying information at the top of the return, checking the box indi-
cating that gross receipts are normally less than $25,000, and signing
and dating the return. THIS IS NO LONGER AN OPTION. The IRS has
changed its policies, and announced that "blank" returns filed in this way
will be subject to the late filing penalty imposed on incomplete returns.
Beginning in 2008, public charities with gross receipts normally less than
$25,000 will have a filing requirement, but it will not be as extensive as
Form 990 or 990-EZ. For details, please scroll down and click on
"E-Postcard/Form 990-N."
3a. Donor Substantiation
Three sets of IRS tax rules govern how a 501(c)(3) organization must
acknowledge payments from donors:
I. Section 170(f)(8) of the Internal Revenue Code disallows any contribu-
tion of $250 or more unless the taxpayer has contemporaneous written
substantiation of the donation from the charitable recipient. There is no
IRS penalty to the charity for failing to provide donors with this written
substantiation.
II. Section 6115 of the Internal Revenue Code requires charities to provide
donors with a good faith estimate of the value of goods or services pro-
vided, where a payment of more than $75* is received which is partly a
contribution, and partly consideration for goods or services. The penalty
for failure to provide the allocation required is $10 per contribution, with a
maximum penalty of $5,000 per fundraising event. (*indexed to inflation,
see c(i) below)
III. Revenue Procedure 90-12 provides that "insubstantial benefits" provided
to donors may be disregarded, for purposes of determining the deductible
amount, when
(i) the fair market value of all the benefits is not more than 2% of the total
payment, or $89, whichever is less, or
(ii) the contribution is $44.50 or more, and benefits are only name- or logo-
bearing "tokens" with a cost of $8.90 or less (2007 amounts; new ones,
indexed to inflation, issued annually)
Taken together, IRS rules require that an organization's written acknowl-
edgments to donors should contain at least:
- a statement of the amount of the donation, if cash
- a description of the property donated, if property
(no estimate of the value is required)
- a statement of whether the donee organization provided any goods or
services in return for the payment, and
- if goods or services were provided, a good faith estimate of value of the
goods/services supplied
The information outlined must be provided
- in writing,
- in connection with the solicitation, or in connection with receipt of the
payment, and
- in a manner reasonably likely to come to the attention of the donor
These rules do not apply when there is no gift or donation intended, such as
a purchase in a museum gift shop. No estimate of the value of services
provided is required where the recipient organization is exclusively reli-
gious, and the only benefits are "intangible religious benefits."
3b. Sample Acknowledgment Letter
CHARITABLE EDUCATIONAL ORGANIZATIONStreet Address
City, State, Zip
Phone Number
Date
Donor Name
Donor Address
Donor City, State, ZIP
Dear ____________________,
Thank you for your contribution of_________________.
(If contribution is property rather than cash, a detailed description
appears below.)
Please keep this written acknowledgment of your donation for your tax
records. The IRS will not accept your canceled check as proof of any
donation of $250 or more.
Tax law also requires us to estimate the value of goods or services, if any,
that have been rendered to you in return for your contribution, and to
remind you that your contribution is deductible only to the extent that it
exceeds what we have provided.
Thank you for your continuing support for our important work in this field!
Very truly yours,
Name of Letter Writer
Description of donated property:
___________________________________________ ___________________________________________
(It is the responsibility of the donor to determine the fair market value of
the donated items.)
Estimate of the value of goods or services provided in return:
____________________________________________ ____________________________________________
__ No goods or services were provided.
__ No estimate is provided because the payment was less than $75.
4. Disclosure Laws
All 501(c) organizations must make copies of their annual returns and
exemption applications available for public inspection, and must provide
copies upon request. Internal Revenue Code Section 6652 provides a
variety of penalties for failure to meet these requirements.
5. Public Support Requirements
Most 501(c)(3) public charities need to receive at least one third
of their support from the general public to maintain their public charity
classification. It pays to learn the public support rules and keep an eye
on your one third support test, or to hire a professional to look this
over from time to time.
Good recordkeeping can really help. In addition to basic information about
your group’s income, the IRS will want to know detailed information about
larger donations your organization receives. It may be helpful for your
accountant, bookkeeper, or treasurer, to review Form 8734 in order to be
aware of the information that will be needed, and to create a system for
retrieving these details.
Some organizations receive little or no cash support during their early
years. If you anticipate this will be true of your group, do your best to cap-
ture every scrap of information about the support your group receives. This
means that your organization’s books and records should reflect donation
income when folks pay expenses on your behalf (annual filing fees, long
distance phone, etc.) and when mundane items (used office furniture, cof-
fee supplies, stamps, etc.) are donated.
It may also be helpful to keep a record of volunteer hours and donated
facilities. These receipts are ignored for purposes of the public support
tests, but if your group falls short of one third public support, this infor-
mation may help your group meet the alternate "Facts & Circumstances"
public support test.
|
This page last updated February, 2007.
|
|
|
