1. © 2008 Gelman, Rosenberg & Freedman Basic Tax Considerations for Nonprofit Organizations Stephen Kelin Richard J. Locastro On Behalf of Maryland Nonprofits

2. © 2008 Gelman, Rosenberg & Freedman2 AGENDA  Introduction  General Filing Requirements  Form 990  Form 990 Schedule A  Form 990 Schedule B  Form 990-T and Unrelated Business Income  Public Disclosure Requirements  Charitable Contribution Substantiation Rules  New Form 990

3. © 2008 Gelman, Rosenberg & Freedman3 Filing Requirements  Form 990 - Who Must File?  Generally - organizations exempt under 501(c)  Does not include private foundations and black lung trusts  Exceptions include:  Churches and certain related entities  State and local PACs

4. © 2008 Gelman, Rosenberg & Freedman4 Filing Requirements  Exceptions include:  Organizations with gross receipts “normally” less than $25,000  “Normally” determined by previous 3 tax years  Special rules for organizations in existence less than 3 years  Exception does not apply to 509(a)(3) orgs unless receipts less than $5,000

5. © 2008 Gelman, Rosenberg & Freedman5 Filing Requirements  Form 990-EZ- For Organizations with:  Gross receipts of less than $100,000 AND  Assets of less than $250,000 at the end of the year  Form 990-EZ can’t be used by:  Sponsoring organizations (those with DAFs) or  Controlling organizations under 512(b)(13)

6. © 2008 Gelman, Rosenberg & Freedman6 Filing Requirements  New Form 990-N (e-Postcard) for small organizations with gross receipts “normally” less than $25,000  Filed annually  No paper form – must be filed electronically  Failure to file for three years results in loss of exemption

7. © 2008 Gelman, Rosenberg & Freedman7 Filing Requirements  Electronic Filing of Form 990 is required:  If over $10 million is assets at the end of the year AND  Files at least 250 returns during the year  Failure to file electronically is failure to file return  Others may file electronically but not required

8. © 2008 Gelman, Rosenberg & Freedman8 Due Dates  Form 990, 990-EZ and Form 990-T  Form due by the 15 th day of the 5 th month following the close of the year (May 15 th for calendar year filers  Two three month extensions may be obtained  First and second extensions – Form 8868

9. © 2008 Gelman, Rosenberg & Freedman Form 990 Review

10. © 2008 Gelman, Rosenberg & Freedman10 Form 990 Review - Part I/Part VII/Part VIII  Part I General Information  Line 1 – contributions  Contributions vs. fee for service  Donated goods and services  Line 9 – special events  Activities who sole or primary purpose is to raise funds that are other than contributions  Offering goods or services with more than a nominal value for a payment that is more than the direct cost  Contributions reported on line 1

11. © 2008 Gelman, Rosenberg & Freedman11 Form 990 Review - Part I/Part VII/Part VIII  Part VII Analysis of Income Producing Activities  Designate income as either related, excluded or unrelated  If excluded, provide exclusion code from the instructions  If related, provide an explanation on Part VIII  If unrelated, provide business code  Part VIII Relation to Exempt Activity

12. © 2008 Gelman, Rosenberg & Freedman12 Form 990 Review - Part II  Part II Statement of Functional Expenses  Importance of this section  Line 22 – Grant disclosure issues  Line 25 – Compensation of Officers

13. © 2008 Gelman, Rosenberg & Freedman13 Form 990 Review - Part III and IV  Part III Statement of Program Service Accomplishments  Importance of this section  Grants and allocations  Part IV Balance Sheet  Part IV-A Reconciliation of Revenue and Expense with Audited Financial Statements

14. © 2008 Gelman, Rosenberg & Freedman14 Form 990 Review - V  Part V-A Compensation of Current Officers, Directors, Trustees or Key Employees  Who is a key employee?  What is disclosed in columns (c), (d), and (e)  Question 75 a and b relationships  Part V-B Compensation of Former Officers, Directors, Trustees or Key Employees

15. © 2008 Gelman, Rosenberg & Freedman15 Form 990 Review - VI  Part VI – Other Information  501(c)(3) questions  Lobbying disclosure for 501(c)(4), (5) and(6)  Foreign bank accounts and offices

16. © 2008 Gelman, Rosenberg & Freedman16 Form 990 Review – IX and X  Part IX – Information Regarding Taxable Subsidiaries and Disregarded Entities  Info to be reported  Definition of control  Part X – Personal Benefits Contracts

17. © 2008 Gelman, Rosenberg & Freedman17 Form 990 Review - XI  Part XI - Information Regarding Transfers To and From Controlled Entities  Definition under 512(b)(13)  Reason for disclosure

18. © 2008 Gelman, Rosenberg & Freedman Form 990 Schedule A

19. © 2008 Gelman, Rosenberg & Freedman19 Form 990 Schedule A  Who must file?  Organizations exempt under 501(c)(3)  PFs do not file Schedule A  If not required to file Form 990, don’t have to file Schedule A

20. © 2008 Gelman, Rosenberg & Freedman20 Form 990 Schedule A  Schedule A, Part I  Compensation of 5 highest paid employees  Schedule A, Part II A and B  Compensation of 5 highest paid independent contractors for professional services  Compensation of 5 highest paid independent contractors for other services

21. © 2008 Gelman, Rosenberg & Freedman21 Form 990 Schedule A  Schedule A, Part III Statement of Activities  Transactions with officers, directors, trustees, etc.  Scholarship, fellowship, student loan information  Conservation easements  New questions regarding donor advised funds  Donor advised fund defined as fund or account  Identified by reference to contributions of donor(s)  Owned or controlled by sponsoring organization  Where donor reasonable expects to have advisory privileges

22. © 2008 Gelman, Rosenberg & Freedman22 Form 990 Schedule A  Schedule A, Part IV Public Support Test  Reason for non-PF status  Supporting organization disclosure

23. © 2008 Gelman, Rosenberg & Freedman23 Form 990 Schedule A Part IV-A  A public charity is defined under IRC § 509(a)(1) as an organization described in § 170(b)(1)(A) (other than in clauses (vii) and (viii));  § 170(b)(1)(A)(i)-(v) includes churches, schools, hospitals, and governmental units – no support test required

24. © 2008 Gelman, Rosenberg & Freedman24 Form 990 Schedule A Part IV-A § 170(b)(1)(A)(vi) applies to an organization that:  Normally receives a substantial part of its support from a governmental unit referred to in subsection (c)(1) or from direct or indirect contributions from the general public  Support for § 509(a)(1) does not include income in exercise of its exempt purpose  A substantial part is generally 33 1/3% or 10% or more under the “facts and circumstances” test  “Normally” is a four year rolling average

25. © 2008 Gelman, Rosenberg & Freedman25 Form 990 Schedule A Part IV-A  A public charity is defined under IRC § 509(a)(2) as an organization :  normally receives more than one-third of its support in each taxable year from any combination of:  gifts, grants, contributions, or membership fees  gross receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in an activity which is not an unrelated trade or business (within the meaning of section 513)

26. © 2008 Gelman, Rosenberg & Freedman26 Form 990 Schedule A Part IV-A  A public charity is defined under IRC § 509(a)(2) as an organization :  receives not more than one-third of its support in each taxable year from the sum of:  gross investment income and  unrelated business taxable income (over the amount of the tax imposed by section 511).  No “10% facts and circumstances” test

27. © 2008 Gelman, Rosenberg & Freedman27 Form 990 Schedule A Part IV-A Not all support is good support!  § 509(a)(1) – the following are not included in the numerator as good support:  Amounts from a person that exceeds 2% of the revenue (excluding amounts from the exercise of the organization’s exempt purpose) over the four year period  Amounts from governments and other § 509(a)(1) publicly supported organizations are not limited

28. © 2008 Gelman, Rosenberg & Freedman28 Form 990 Schedule A Part IV-A Not all support is good support!  § 509(a)(2) – the following are not included in the numerator as good support:  Any contributions, membership fees, or gross receipts from a disqualified person AND  Amounts from gross receipts in carrying out the organization’s exempt purpose received from a person (other than a disqualified person) that exceed 1% of the support for the year

29. © 2008 Gelman, Rosenberg & Freedman29 Form 990 Schedule A Part IV-A Example:  § 509(a)(1) organization had total support for 2001- 2004 (excluding gross receipts for activities in furtherance of its exempt purpose) of $60,780,094.  Any amount from a donor who gave over 2% ($1,215,602) is not “good support”.  During 2001-2004  Corporation A gave $10,000,000  Individual X gave $1,961,456  Public Charity gave $3,000,000

30. © 2008 Gelman, Rosenberg & Freedman30 Form 990 Schedule A Part IV-A Example:  Excess contributions:  Corporation A: $8,784,398 ($10,000,000 - $1,215,602)  Individual X: $745,854 ($1,961,456 - $1,215,602)  Public Charity - 0- (publicly supported) Total Excess$9,530,252

31. © 2008 Gelman, Rosenberg & Freedman31 Form 990 Schedule A Part VI and VII  Lobbying Disclosure  Part VI-A - Electing organizations under 501(h)  Part VI-B - Non-electing organizations  Part VII – Transactions with non-exempt organizations

32. © 2008 Gelman, Rosenberg & Freedman Form 990 Schedule B

33. © 2008 Gelman, Rosenberg & Freedman33 Schedule B  What donors must be disclosed:  General rule: those that gave $5,000 or more during the year  If 509(a)(1) organization – if organization meets the 1/3 public support test, only need to disclose those who gave more than the greater of 2% of contributions for the year or $5,000

34. © 2008 Gelman, Rosenberg & Freedman Form 990-T

35. © 2008 Gelman, Rosenberg & Freedman35 Form 990-T  Who must file  Organizations exempt under 501(a) if gross income from an unrelated trade or business is greater than $1,000  Organization subject to UBI include:  Section 501(c) organizations  State colleges and universities  Pension plans

36. © 2008 Gelman, Rosenberg & Freedman36 Form 990-T  UBI is Income Derived from:  A “trade or business”  That is “regularly carried on”  Not “substantially related” to the organization’s exempt purpose

37. © 2008 Gelman, Rosenberg & Freedman37 Form 990-T  Statutory Modifications under section 512 from UBI Include:  Interest, dividends, real property rents and royalties (if not debt-financed)  Statutory Exclusions under section 513 Include:  Volunteer Exception  Donated Goods Exception  Qualified Sponsorship Payments  Qualified Trade Show and Convention Exception

38. © 2008 Gelman, Rosenberg & Freedman38 Form 990-T  Common Sources of UBI:  Advertising  Periodicals  Web  Debt-financed income  Alternative investments

39. © 2008 Gelman, Rosenberg & Freedman39 Form 990-T  Where to Report:  Advertising  Periodicals – Schedule J  Web – Schedule I  Debt-financed income – Schedule E  Alternative investments (line 5)

40. © 2008 Gelman, Rosenberg & Freedman Public Disclosure Requirements

41. © 2008 Gelman, Rosenberg & Freedman41 Form 990 and 990-T Disclosure  Public Disclosure Requirements  What documents must be disclosed  Making Forms “widely available”  Public inspection versus providing copies  Timing for compliance with requests

42. © 2008 Gelman, Rosenberg & Freedman Charitable Contribution Substantiation Rules

43. © 2008 Gelman, Rosenberg & Freedman43 Charitable Contribution Substantiation  Charitable Contribution Substantiation  Cash of $250 or greater  Quid pro quo - $75 or more  New requirements for donors to take deduction  Form 8282 filing requirements  Form 8283 filing requirements

44. © 2008 Gelman, Rosenberg & Freedman New Form 990

45. © 2008 Gelman, Rosenberg & Freedman45 New Form 990  New Form 990  Expected to be effective for tax years beginning in 2008 (filed in 2009)  Uses a core form with schedules to be completed depending on the organization’s situation  New form will be phased in over a three year period depending on the size of the organization.