AAFCS Leadership Conference October 12, 2014 Leadership Orientation – Legal Issues

Legal Overview – AAFCS Tax-Exempt Status  AAFCS is tax-exempt under Section 501(c)(3) of the Internal Revenue Code as a nonprofit association organized and operated exclusively for charitable, scientific, and educational purposes.  Contributions to AAFCS are deductible by donor (in most cases it is a charitable contribution – a few cases it will be a business expense deduction).  Contributions to Section 501(c)(6) organizations are not deductible as charitable contributions. 2

Legal Overview – Group Tax Exemptions  IRS sometimes recognizes a group of organizations as tax-exempt if they are affiliated with a central organization.  This avoids the need for each of the organizations to apply for exemption individually.  A group exemption has the same effect as an individual exemption except that it applies to more than one organization. 3

Legal Overview – Group Tax Exemptions  Group exemptions are an administrative convenience for both the IRS and organizations with many affiliated organizations.  Subordinates in a group exemption do not have to file tax exemption application, and the IRS does not have to process, separate applications for exemption.  Consequently, subordinates do not receive individual exemption letters from the IRS but uses the central organization’s group tax exemption number. 4

Legal Overview – Group Tax Exemptions  Groups of organizations with group exemption letters have a “head” or main organization, referred to as a central organization.  The central organization generally supervises or controls many chapters, called subordinate organizations.  To qualify for a group exemption, the central organization and its subordinates must have a defined relationship.  Subordinates must be: (1) affiliated with the central organization; (2) subject to the central organization’s general supervision or control; and (3) exempt under the same paragraph of IRC 501(c) as the central organization. 5

Legal Overview – Group Tax Exemptions  AAFCS filed for a group exemption with the IRS in  The initial group exemption covered AAFCS and 60 state and local affiliates.  In the late 1980s, the covered affiliates rose to around 100. Currently the group exemption covers 42 affiliates.  Covered affiliates do not have a separate exemption number but use the group number –

Legal Overview – Group Tax Exemptions  In order to maintain a group exemption letter, the central organization is required to submit the following information to the IRS at least 90 days before the close of its annual accounting period: any changes in the purposes, character, or method of operation of the subordinate organizations; a separate list of the names, addresses, and employee identification numbers of the subordinate organizations: (i) that have changed their names or addresses during the year, (ii) that for any reason are no longer to be covered by the group exemption letter, and (iii) that for any reason are to be added to the group exemption. 7

Legal Overview – Group Tax Exemptions  For those subordinates being added to the group exemption the following needs to be submitted: a detailed description of the subordinate’s principal purposes and activities; a copy of a uniform governing instrument adopted by the subordinate organization (such as model bylaws); an affirmation that the subordinate organization is operating in accordance with the stated purposes; a written authorization statement to the central organization that the subordinate organization wants to be included in the group exemption. 8

Legal Overview – Annual Tax Filings  The group exemption process does not mandate that subordinate organizations and their central organization file the Form 990 annual information return together.  In fact, the majority of national professional and trade associations that use group exemptions require their affiliates to file their own Form 990 returns.  The central organization and the subordinates must file Form 990, 990-EZ, or 990-N (e-Postcard), unless they meet a filing exception. 9

Legal Overview – Annual Tax Filings  AAFCS currently files a Form 990 annually, but does not file a group return on behalf of AAFCS affiliates.  Each AAFCS affiliate must file its own annual return using Form 990, 990-EZ, or 990-N (e- Postcard) as appropriate.  If an AAFCS affiliate fails to file an annual return for three consecutive years, it will lose its tax- exempt status. 10

Legal Overview – Annual Tax Filings  Under the Pension Protection Act of 2006, most small tax- exempt organizations whose gross receipts are normally $50,000 or less must file Form 990-N (e-Postcard).  Before this law was enacted, small organizations were not required to file annually with the IRS.  The first filings were due in 2008 for tax years ending on or after December 31,  Many small organizations lost their tax exemption because of the failure to file the required form with the IRS.  If an organization’s gross receipts are greater than $50,000, the organization must file Form 990 or Form 990-EZ). 11

Legal Overview – Annual Tax Filings  The e-Postcard is due every year by the 15th day of the 5th month after the close of the organization’s tax year. For example, if the organization’s tax year ended on December 31, the e-Postcard is due May 15 of the following year.  Completing the Form 990-N (e-Postcard) requires the seven items listed below and is done electronically: (1) Employer identification number (EIN), also known as a Taxpayer Identification Number (TIN). (2) Tax year. (3) Legal name and mailing address. (4) Any other names the organization uses. (5) Name and address of a principal officer. (6) Web site address if the organization has one. (7) Confirmation that the organization’s annual gross receipts are $50,000 or less for tax years ending on or after December 31,

Legal Overview – Government Filings  IRS IRS Form 990, Form 990-EZ, or Form 990-N – annually  State Corporate – File a periodic report with the state secretary of state, attorney general, department of corporations, or like governmental entity. The filing is typically an annual filing, but can be semi-annual. The filing typically requires that your affiliate provide the names of the current officers and directors and a statement of current activities. If your affiliate has not been filing periodic reports, your affiliate’s corporate status has likely been revoked. Corporate – File a periodic report with the state secretary of state, attorney general, department of corporations, or like governmental entity in order to be qualified to do business in the state. 13

Legal Overview – Government Filings  State Tax – Some states will recognize an organization’s federal tax status and automatically grant state income tax exemption. Some states require tax-exempt organizations to apply for tax- exempt status in the state. Tax – Some states require tax-exempt organizations to provide a copy of the filed IRS Form 990 annually to the state department of revenue, assessments, or like governmental entity. Other states have their own tax form that must be filed annually. 14

Legal Overview – Government Filings  State Charitable Solicitation - If your affiliate is actively fundraising beyond just the membership base, you may be required to register with the state to conduct charitable solicitations. This registration requirement is typically separate and apart from the corporate registration and filing requirements. This registration/filing is typically with the state attorney general. 15

Legal Overview – Government Filings  State Raffle - If your affiliate engages in raffles or like events, you may be required to register with the state to conduct such activities. This registration requirement is typically separate and apart from the above referenced corporate registration and filing requirements. This registration/filing is typically with the state attorney general. 16

Legal Overview - Questions 17