Archive for Non-Profit Tax

How To Lose Your Tax-Exempt Status

Many people, particularly those involved in 501(c)(3) tax-exempt charitable organizations, are familiar with the process of applying to the IRS in order to receive tax-exempt status. Organizations that have obtained this status can accept tax-deductible contributions from donors. Obviously, this is critical to such organizations.

Tax-exempt status should not be taken for granted. When obtained, it is for an indefinite period. However, an organization can lose its tax exempt status, either by voluntarily surrendering it or having it revoked by the IRS. If revoked by the IRS, it may be retroactive if the church or organization omitted or misstated material facts or operated in a manner significantly different than originally represented. More frequently, however, the revocation will be effective no earlier than the date on which the organization received written notice Read More

Written by | Posted in Non-Profit Tax

Group Exemptions For Tax Exempt Organizations

Until 1969, there was no legal requirement that an organization must file with the IRS to obtain tax-exempt status.  This status was automatic if the organization could demonstrate that it met the requirements set forth in Section 501(c)(3) of the tax code. In other words, an organization claiming tax exempt status was presumed to be qualified unless the IRS determined to the contrary. However, in 1969, Section 508 was added to the tax code, specifying that no organization would be treated as tax-exempt unless it applied to the IRS for tax-exempt status. Thus Form 1023 was born as the tax-exempt status application.

Some exceptions were carved out, however.  Three classes of organizations do not have to apply for tax exempt status: Read More

Written by | Posted in Clergy • IRS • Non-Profit Tax

Would A Supreme Court Ruling In Favor of Same Sex Marriage Threaten Religious Organizations’ Tax Exemptions?

The United States Supreme Court has heard arguments in the Obergefell v. Hodges case which basically seeks to legalize same-sex marriage in the United States.  While the court has not yet announced its verdict, there is concern that, if it is legalized, the action could threaten the tax-exempt status of churches and other religious organizations.  Albert Mohler, President of Southern Baptist Theological Seminary has stated that this issue “may well be the greatest threat to religious liberty of our lifetime.

During discussions before the Court, three religious liberty issues were raised.  First, Justice Scalia asked counsel arguing for same-sex marriage if clergy would be required to perform same-sex marriages. The response was that a constitutional right for such unions would not require clergy of any faith to perform these ceremonies. Read More

Written by | Posted in Non-Profit Tax • Religion • Same Sex Couples • Tax Controversy

What Is A Private Foundation?

Most people have heard the term “private foundation,” and know vaguely that it somehow relates to philanthropic organizations.  But beyond that, most people are lost when pressed for more details about these organizations. A 501(c)(3) tax-exempt organization is either a public charity or a private foundation. The default is that an organization will be classified as a private foundation unless it can demonstrate that it falls into one of the categories specifically excluded from the definition of a private foundation. These rules are found in section 509(a). Generally, it is to the advantage of the organization to be classified as a public charity as there are fewer restrictions on the operations of the organization under this category.

A private foundation is typically a legal entity set up by an individual, a family, or a group of Read More

Written by | Posted in IRS • Non-Profit Tax

Accounting For Donor-Restricted Funds

Frequently, a charitable organization will be offered a contribution with restrictions on the use of that contribution.  The gift can be cash or any other asset. The organization is under no obligation to accept the gift with restrictions, but if it does, the donor restrictions must be honored. A distinction should be made between a conditional donation and a restricted one. A conditional donation is predicated on the occurrence or non-occurrence of a specific event. For example, the donor may specify that a contribution will be made to the organization’s building fund if a certain amount of additional funds are raised within a specified period of time. A doctor-restricted contribution may only be used for the purpose specified by the donor. As an example, the donor may make a contribution to a university scholarship fund, specifying that the funds will be awarded only to junior accounting majors with a GPA of 3.0 Read More

Written by | Posted in IRS • Non-Profit Tax

International Grant Making – Watch Your Step

It is not uncommon for a United Stated-based organization to have activities in other countries.  Indeed, for many organizations international activity is their primary reason for existence and the thrust of their mission. Sometimes, these international activities may take the form of grant from the U S-based organization to an organization in another country. These grants may present some issues for the U S organization if they are not handled properly.

Federal law is not clear in regard to documentation requirements for grants made by a 501(c)(3) public charity to foreign organizations.  Specific laws do apply to 501(c)(3) private foundations.  The IRS has taken the position, however, that public charities should follow the expenditure responsibility rules that apply to private foundations in regard to foreign Read More

Written by | Posted in International • Non-Profit Tax

How To Get A Larger Deduction For Non-Cash Contributions

It seems that everyone has “stuff” around the house that they want to get rid of. One option is to back the truck up to your front door, dump it all in the truck and head for the landfill. And for some items, that is a good alternative, maybe the only one. But some of your things may have value. It’s still in good shape and someone could make good use of it.

A garage sale may be in order. This can put some cash in your pocket, but it can be a lot of work. You’ve got to display and price your wares which takes a good bit of time and thought.  Then you have to sit out all day, answering questions, negotiating prices, and hopefully making sales. The good news is that this is probably not taxable income unless you sold an item for more than it cost. Not likely. You do need to be aware of any local restrictions or licensing of this type of activity. Read More

Written by | Posted in Individual • Non-Profit Tax

Acknowledging Charitable Contributions

When someone gives you a gift, social protocol states that you should acknowledge the gift, expressing thanks to the donor for his or her thoughtfulness and generosity. It’s the right thing to do. That same protocol holds when the recipient is a charitable organization. However, in this case, legal requirements are added to social expectations. An IRS tax-exempt organization must fulfill certain legal obligations in acknowledging contributions from donors. So, in this case it’s not just the right thing to do, it’s the legal thing to do.

Let’s start simple with the most common type of contribution, one of cash. Cash contributions include payment in cash, by check, or through use of a credit card. Regardless of the form of the contribution, the organization is in essence receiving Read More

Written by | Posted in Individual • IRS • Non-Profit Tax

Non-Profit Is Not The Same As Tax-Exempt

If an organization receives non-profit status from the state upon its organization, it must take another step if it wishes to have the ability to accept tax-deductible contributions from potential donors. It must apply to the Internal Revenue Service for tax-exempt status. Many are unaware that non-profit and tax-exempt are not interchangeable terms.

When an organization that will operate as a non-profit corporation is initially formed, it applies to the state for a corporate charter as a non-profit corporation. This assures that any excess revenues received over expenses incurred will not be taxable income to the organization or its owners. This status does not confer on the organization the right or ability to accept tax-deductible contributions from outsiders. Read More

Written by | Posted in IRS • Non-Profit Tax

The IRS Has Special Rules For Vehicle Donations

From time-to-time, nonprofit organizations may be donated a vehicle, boat, or airplane as a charitable contribution.  The IRS realized that this was an area in which taxpayers were abusing the law, often taking a deduction far in excess of the actual value of the vehicle being donated.  For example, in one instance a vehicle was ready for the junk pile but the donor gave it to a charitable organization. Based on the Kelley Blue Book Value it had a fair market value of $1,200, which the donor used as a charitable contribution deduction on his Form 1040.  So several years ago, more restrictive rules were put in place in regard to the amount that may be deducted as a charitable contribution.

The long-standing rule for non-cash charitable contributions states that any such contribution valued in excess of $500 must be reported on Form 8283 and included Read More

Written by | Posted in Individual • IRS • Non-Profit Tax

Church And Non-Profit Political Activity – An Update

An unusual alliance of religious and secular groups has recently called for the IRS to clarify its rules regarding non-profit organizations and their political activity. Leaders from the Evangelical Council for Financial Accountability (ECFA), Alliance Defending Freedom (ADF), the Public Citizen, and the Center for American Progress (CAP) met in Washington to discuss what the IRS could do to lend some clarity to this issue. ECFA seeks to make Christian non-profit organizations accountable through adherence to its Seven Standards of Responsible Stewardship; ADF has long advocated more freedom for ministers in addressing political issues from the pulpit. The Public Citizen is a non-profit, consumer rights advocacy group and think tank while the Center for American Progress is a progressive public policy research and advocacy organization. According to CAP, the Read More

Written by | Posted in IRS • Non-Profit Tax • Tax Controversy

Political Campaign Activity by Non Profit Organizations – Part 3

Despite the IRS ban on church political activity, there is a large and growing group of pastors and churches who are actively supporting the repeal of the Johnson Amendment banning church and non-profit political activity.

Each year in October, the Alliance Defending Freedom (ADF) sponsors Pulpit Freedom Sunday, in which pastors take to the pulpit and engage in banned political activity.  In 2014, over 1,800 pastors participated with the large majority of them preaching sermons presenting their view of the biblical perspectives on the positions of elected candidates and signed a statement agreeing that the IRS should not control the content of a pastor’s sermon.  Additional pastors signed the statement, but did not preach to that effect. Read More

Written by | Posted in IRS • Non-Profit Tax • Tax Controversy
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