Pilot International The Journey to Charitable Status 501(c)(3) Where we have been!

STEPS ACCOMPLISHED IN THE PROCESS Choosing between Merger and Reclassification for PI (Pre 2011) The Decision to Reclassify through approval of the convention body. (2011) PI transitions from a 501 (c)(4) to 501(c)(3). (2011) PI attains 501(c)(3) status with the IRS and receives a determination letter. (January 2012) The process to dissolve PIF begins with moving charitable funds to PI. (2012) PIF funds are moved with the exception of two scholarships & the heritage center to PI. (2012) PI debt is paid back to PIF. (2012) Clubs begin submitting paperwork for inclusion in the Group Determination. (2012) Application for group determination is submitted. (2012) PI 501(c)(3) (Parent) received IRS approval for PI group status. (Sept 2013)

COMPLIANCE AUDIT BY IRS IRS sends letter requesting compliance/audit information from a sampling of clubs. (November 26, 2013 due to IRS December 17, 2013) Items requested from the 29 IRS chosen representative clubs: A Copy of their Articles of Incorporation or By-Laws if not incorporated. A copy of the meeting minutes for ALL board meetings, committee meetings, and organization meetings for 2011 & 2012. The Website address for the individual club if applicable. ALL newsletters disseminated in 2011 and 2012 A timeline of events and activities with a detailed description of each event from July 1, 2011 to present. A list of how the activities are exclusively charitable and educational in nature as required for 501(c)(3) status. A financial statement including a breakdown of total revenue and expenditures from July 1, 2011 to the present as per IRS Form 1023. Whether or not the club administers a scholarship program. Copies of solicitation materials for new members with an explanation of how prospective members learn about your club. An explanation of the requirements for membership, benefits, rights and obligations of members. Most all clubs chosen made a heroic effort and got the requested paperwork turned in by the deadline.

Where we are now!!

IRS Notification Letter Received by PI June 4, 2014 PI clubs do not pass the group determination 501(c)(3) compliance audit.

Reasons for Denial of 501(c)(3) group determination IT was not a fault by the clubs submitting the information. A majority of the clubs tested listed networking and social relationships as primary activities. Activities of a 501(c)(3) must be charitable or educational etc. in nature. Several (close to 40) clubs in the group had failed to file the required 990’s for 3 years and had been revoked from non-profit status. The IRS had uncertainty as to the continuing compliance of the clubs to meet the charitable or educational etc. requirements for their activities. The complexities involved in assuring compliance with so many differing clubs involved could not give the IRS a comfort zone to issue a ruling for the group.

What this means for PI Clubs All clubs included in the group have now been reverted back to 501(c)(4) status. (What they were under the group before.) PI is still a 501(c)(3) individually and can handle pass through grants and donations. Clubs with foundations still have the 501(c)(3) status for the foundation entity. Clubs that have had their non-profit status revoked because of non-filing must reapply for non profit status individually.

EC Actions in Response to Group Denial PI President/President Elect met with Ken Neil (CPA) and Ron Busby (IRS Tax Specialist). Original application paperwork was obtained from the submitting Attorney, Rob Sumner. PI CPA, Ken Neil, began researching the option of re-applying for the group status. In-house research by Sharon Brooks, CPA was begun on checking the status of every individual club through the IRS Exempt Organization Master Business List. Meetings and discussions were held with the EC, BOT leadership teams and Past International Presidents to make them aware of the sampling not passing. Preparations were started for the clubs to be notified during the COL/PI Convention by Letter, Presentation and Q&A sessions.

Where we go from here!

Options being investigated: Re-Applying for the 501 (c)(3) group status with the help of an IRS specialist and other professional team members. Looking into the possibility of clubs applying individually for 501(c)(3) status. (The IRS has proposed a new 2 page 1023 EZ application form that will make this an easier task. Approval of the form is pending.) A combination of the above.

What clubs can do now: Confirm the non-profit status of their club and be sure they are properly filing the appropriate 990. For the 2013-2014 year they must file as a 501(c)(4). If they have lost their non-profit status they must re-apply to the IRS as soon as possible. Without their exemption they are subject to income tax on their revenues. They must apply individually before they can be included again in the group application. Look at the items requested in the sampling by the IRS and be sure their clubs have these items readily available if requested. Think about whether they would want to be part of the resubmitted group or possibly file for 501(c)(3) status independently. The IRS user fees charged range from$400 to $850 depending on the club’s revenues.

What the EC will continue to do: Research all options available and the steps required to move forward with the 501(c)(3) group status. Update the clubs with information as to what the next steps will be. Waive the fee to clubs for pass through grants and donations for a period of one year. Provide professional help with clubs that want to apply individually for the 501(c)(3) status. Continue to research answers to club questions and provide as much help as possible!!