1. Obtaining and Maintaining Tax Exempt Status
Lisa Chaffee, CPA
Tonya Schlaht, CPA
EideBailly

2. Outline for Today History of the requirements of Exempt Organizations
Form 1023 Application for Tax Exempt Status
Annual Compliance Forms and Tax Filings
Resources and Additional Information

3. Exempt Organization Requirements
Must be organized and operated for exempt purposes
Organizing document requirements
Must define a charitable mission
Include limitations on activities
Assets must be permanently devoted to charitable purposes
Dissolution clause
Operating requirements
Must benefit broad segment of the general public
Must not provide private benefits to insiders
May not engage in political activities

4. Public Charity Status
Presumed to be a private foundation unless publicly supported
Private Foundation
Support typically comes from limited number of donors
Subject to restrictions on activities with insiders
Typically meet charitable purposes making grants to other nonprofit organizations
Public Charity
Support comes from general public
Board should not be controlled by insiders
Typically meet charitable purposes by conducting activities

5. Public Charity Options
Publicly supported
Organization normally receives at least 33 1/3 % of its support from direct or indirect contributions from the general public, other publicly supported organizations, and the government.
Limitations are applied on amount that can be included in calculation by each donor
Government and publicly supported organization contributions are not limited
Facts and circumstances test available

6. Public Charity Supporting Organization
Exempt purpose is primarily to support one or more other exempt organizations versus receiving contributions from the general public
Usually identified in the Articles and Bylaws
Supported organization typically controls the supporting organization
Board is appointed by the Supported Organization
Same individuals are on board of both
Can not be controlled by donor/donor family

7. Process Identify board of directors
Create organizing documents (Articles, Bylaws)
Acquire Employer Identification Number
Apply for tax exempt status
Submit Form 1023 Application for Exempt Status to obtain tax exempt status from IRS
Typically takes three to six months for approval
Establish separate banking accounts
Maintain separate books and records

8. Exempt Organization Reporting
Required Filings
Form 990 – Exempt Organization Information Returns
Unrelated Business Income Tax Filings
State Filings
Charitable solicitations reporting
Donation substantiation reporting
Subject to public disclosure requirements

9. Form 1023
Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue code
Purpose of form
When to file
Public inspection

10. Form 1023 Part I: Identification of Applicant
Organization name/mailing address
Employer Identification Number
Monthly annual reporting period ends
Primary Contact
Represented by an Authorized Representative
Incorporated Date

11. Form 1023 Part II: Organizational Structure Are you a:
Corporation
Limited liability company
Unincorporated association
Trust
Have you adopted bylaws?

12. Form 1023 Part III: Required Provisions in Your Organizing Document
Exempt purpose:
Charitable, religious, educational, and/or scientific
Example— “The organization is organized exclusively for charitable, religious, educational, and scientific purposes under section 501 (c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax code.

13. Form 1023 Part III: Required Provisions in Your Organizing Document
Dissolution Clause:
Must permanently dedicate your assets for a section 501(c)(3) purpose
Example: “Upon the dissolution of this organization, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax code, or shall be distributed to the federal government or to a state or local government, for a public purpose.”

14. Form 1023 Part IV: Narrative Description of Your Activities
Describe past, present, and planned activities in a narrative.
What is the activity?
Who conducts the activity?
When is the activity conducted?
Where is the activity conducted?
How does the activity further your exempt purposes?
What percentage of your total time is allocated to the activity?
How is the activity funded?

15. Form 1023
Part V: Compensation and other Arrangements With Your Officers, Directors, Trustees, Employees, and Independent Contracts
Names, titles, and mailing addresses of officers, directors, and trustees
Relationships
Board qualifications

16. Form 1023 Part V: Continued Establishing and approving compensation
Conflict of interest
Purchase of goods, services, or assets from highest compensated employees
Arm’s length
Fair market value

17. Form 1023
Part V: Continued
Leases, contracts, loans or other agreements with highest compensated employees
Written or Oral Arrangements
How Terms are Negotiated
Fair Market Value

18. Form 1023
Part VI: Your Members and Other Individuals and Organizations That Receive Benefits From You
Providing goods, services, or funds to individuals
Providing goods, services, or funds to organizations
Part VII: Your History
Successor to another organization

19. Form 1023 Part VIII: Your Specific Activities
Political Campaigns/Influence Legislation
Gaming Activities
Fundraising
Government Units
Economic Development
Develop/Manage Activities or Facilities
Joint Ventures/Limited Liability Companies
Childcare Organizations

20. Form 1023 Part VIII: Continued Intellectual Property/Contributions
Operations in a Foreign Country
Grants, Loans to Organizations
Grants, Loans to Foreign Organizations
Closer Connections with Organizations
Cooperative Service Organization of Operating Educational Organizations
Charitable Risk Pool
Operating in a School

21. Form 1023 Part VIII: Continued Provide Hospital or Medical Care
Providing Low-Income Housing for Elderly or Handicapped
Providing Scholarships, Fellowships, or Educational Loans

22. Form 1023 Part IX: Financial Data—Change to Part IX
Advanced ruling period eliminated
If in existence:
<5 years: financial data for each year in existence and provide projections for future years for a total of:
3 years if you have not completed 1 tax year
4 years if you have completed 1 tax year
> = 5 years: complete the schedule for the most recent 5 years
Separate statement needed for 5th year (as only 4 columns on the form)

23. Form 1023 Part IX: Financial Data – Method of Accounting
Cash basis – include income when it received, and claim deductions when expenses are paid
Accrual basis – include items when they are earned and claim deductions when they are incurred
Government Accounting Standards Board (GASB) has new rules that require disclosure in the governments statements if certain criteria are met

24. Form 1023 Part IX: Financial Data – Statement of Revenue & Expenses
Gifts, grants, and contributions
Gross investment income
Expenses
Grants and assistance to governments, organizations, and individuals
Compensation
Fees for services
Office expenses
Insurance expense

25. Form 1023 Part IX: Financial Data – Balance Sheet Assets
Cash
Investments
Liabilities & Fund Balances/Net Assets
Accounts Payable
Fund Balance
Net Assets

26. Form 1023 Part X: Public Charity Status Part XI: User Fee Information
Private Foundation
Public Charity
Private Operating Foundation
Part XI: User Fee Information
Gross receipts $10,000 and under = $400
Gross receipts over $10,000 = $850

27. Form 1023 Other Information Assembled Package
User fee
Form 1023 Checklist
Form 2848
Form 1023
Articles
Bylaws
Attachments
After the Form 1023 is Submitted
Initial recognition letter
Determination letter

28. Annual Compliance What is the Form 990? It is not a “tax form”
It is an “information return”
It is also
Public document through which nonprofits are held accountable
An opportunity for nonprofits to communicate with users

29. Annual Compliance
Contains detailed information that is NOT included in the audited financial statements
Executive compensation
Transactions with Board members
Sources of revenue
Accomplishments
Expense allocations
Detail of Investment
Organization Structure

30. Annual Compliance Readers of the Form 990 Widespread availability
Community members
Board members
Employees or other stakeholders
Internal Revenue Service (IRS)
Watchdog organizations
Widespread availability
Internet sites
Public inspection requirements

31. Annual Compliance Public Inspection Requirements for 501(c)(3)
Form 990 and 990-T for past three years
All attached schedules and statements
Names and addresses of contributors on Schedule B is not open to public inspection
Application for Exempt Status – Form 1023

32. Annual Compliance IRS may assess incomplete return penalties
On organization and on “responsible individual”
$20/day capped at $10,000
$100/day capped at $50,000 for organizations with revenue > $1 million
Automatic revocation – failure to file for 3 years

33. Annual Compliance Form 990 Gross receipts > $200,000 - or –
Total assets > $500,000
Core form & additional schedules
Due date – 4 and ½ months after year end
Three month extension available (automatic)
Second three month extension if needed (if approved)

34. Annual Compliance 990 Overview
Snapshot of key financial, compensation, and governance and operational information
Requires two-year financial comparison
Includes the number of volunteers (FT or PT)
Reports UBI (unrelated business income) if any
Requires description of mission

35. Annual Compliance Form 990-EZ Filed by organizations with:
Gross receipts between $50,000 and $200,000 and
Assets less than $50,000
Core form – financial, program service, TDOKEs and other info
Additional schedules – Form A, B, C, E, G, L, N, O may be required

36. Annual Compliance Form 990-N E-postcard
Required to be filed by small organizations
Less than $50,000 average gross receipts
Three years of non-filing will result in revocation of exempt status
Items needed
Organization name/DBA/address
< $50K Gross receipts and not terminated
Name/address of principal officer

37. Annual Compliance Other Annual Reports ND Secretary of State IRS
Nonprofit Annual Report form
Charitable Organization Registration Statement
Charitable Organization Annual Report
IRS
Form 1099 – payment for services
Forms W2 – payments considered as wages

38. Annual Compliance Other Grant writing
Publication 526 – Charitable Contributions
Contribution substantiation
Quid Pro Quo
Publication 557 – Tax-exempt Status for Your Organization
Grant writing
Awareness of what funds are available
Develop process of applying for grants

39. Resources Websites www.irs.gov/charities www.guidestar.org
How to apply
Life Cycle

40. Questions and Concerns

41. Thank You! Lisa Chaffee, CPA Tax Senior Manager Eide Bailly LLP
1730 Burnt Boat Loop, Ste. 100
PO Box 1914
Bismarck, ND T F
Tonya Schlaht, CPA
Tax Manager
Eide Bailly LLP
1730 Burnt Boat Loop, Ste. 100
PO Box 1914
Bismarck, ND T F