IRS FORM 990 Removing the Smoke and Mirrors

Kristy L. Spires, CPA, CAE, CGMA, IOM

Demystifying the 990

COMPETENCY: BUSINESS

• Competency Level:

– Level 3: Agenda Driving

• Themes presentation is designed to address:

– Promotes stewardship and financial integrity of the organization

– Manages Risk

– Utilizes data and analyzes trends to inform decision making

Agenda

• Welcome and introductions

• Defining the business

• Establishing the association as a business – State

– Federal

• Applying for tax exemption

• Annual filing requirements – 990 Components

– Consequences of failure to file

• Resources available

We Are a Business

• At all levels of the Education Association, business is being transacted

• There is liability to Officers at every level to manage the business aspects of the association activity in a legal and ethical manner

• There is a potential of personal financial liability for failure to comply with regulations and laws

Structure of the Business

• How did it start?

• Did we Incorporate?

• What is a Determination Letter?

• What is the difference between 501(c) 3, 4, 5 & 6?

• What is a Group Exemption?

How did we start?

• Organized

• Determined Mission

• Established Constitution and Bylaws

• Incorporated in State

• Requested EIN and Tax Exempt Status from IRS

• Preserved all original establishment documents in safe place for future reference

State Incorporation

• Not every Association incorporates

– Shifts liability from personal to corporate

• Research Secretary of State website

– Shows all filings, status and incorporation documents

• To incorporate:

– Submit Articles of Incorporation

– Name Statutory Agent

– File annually or every (x) years to maintain active status

IRS Registration

• EIN Application – The EIN is the tax identity assigned to the Association by

the IRS. It is the business equivalent of a Social Security number. This is a simple online submission.

• Form 1024 – The Association must apply to the IRS for exemption from

federal taxes. The term “tax exempt” is used interchangeable with “non-profit”

– Once this application is reviewed and approved by the IRS, a Determination Letter is issued stating the Association is exempt under 501(c)___ status.

What 501(c) are we?

• 501(c)(3) - Charitable, Religious, Educational and Scientific Organizations

• 501(c)(4) - Civic Leagues and Social Welfare Organizations

• 501(c)(5) - Labor, Agricultural and Horticultural Organizations

• 501(c)(6) - Business Leagues

• 501(c)(7) - Social and Recreation Clubs

• 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies

Local Associations • 501(c)(5) - Labor, Agricultural and Horticultural

Organizations – A labor organization is an association of workers who have

combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions.

– To show that your organization has the purpose of a labor organization, you should include in the articles of organization or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. In addition, no net earnings of the organization can inure to the benefit of any member.

State Associations

• 501(c)(6) - Business Leagues

– A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Trade associations and professional associations are considered business leagues.

Group Exemption • In some states, local associations are included under the state

umbrella by virtue of a Group Exemption • The state has registered with the IRS and has declared that all

affiliated associations within the state will be included as part of the state’s exemption from taxes

• Under a group exemption, the state may either do a group return including all local association financial information or establish individual association returns. If individual, the local uses the group exemption number on their 990 return to indicate affiliation through the state

• The benefits of a group return are that each local does not have to file a separate 1024 and pay the fees for filing and the state can better track the local status

• The challenges are the time consuming administration at the state level

Registration and Filing Requirements

• IRS Form 1024 – Initial establishment of tax exempt entity – Organizations that do not file for three consecutive years

automatically lose their tax-exempt status. An automatic revocation is effective on the original filing due date of the third annual return or notice. (Section 6033(j) of the Internal Revenue Code)

– If an organization’s tax-exempt status is automatically revoked, it is no longer exempt from federal income tax

– The law prohibits the IRS from undoing a proper automatic revocation and does not provide for an appeal process. An automatically revoked organization must apply to have its status reinstated through one of 4 ways, even if the organization was not originally required to file an application for exemption.

• IRS Form 990 – annual reporting to IRS of business activity

990 Filing

• Table work – refer to handouts

– 990N – Postcard – Online filing

– 990EZ

– 990

– 990T – UBIT

Responsibility

• The Treasurer is responsible for ensuring the 990 is filed annually and on time.

• The officers are responsible for verifying that the Treasurer has filed the 990

– Ask to review financial statements that were used to prepare the 990 (a must if the filing is a 990N Postcard)

– Ask to review a copy of the 990 prior to filing and have the Treasurer provide verification of filing through EO Select Check.

What resources are available? • https://www.irs.gov/Charities-&-Non-Profits

– Tax Information for Charities & Other Non-Profits – Applying for Tax Exempt Status

Information about how to apply for IRS recognition of tax-exempt status – Annual Reporting & Filing

990-series forms, requirements and filing tips – Revoked? Reinstated? Learn More

Information about the automatic revocation process and how to be reinstated – EO Select Check

Search for a tax-exempt's status. – How to Stay Exempt

Resources for tax-exempt nonprofit organizations – StayExempt.IRS.gov

Tax basics for exempt organizations – Educational Resources and Guidance

Publications, forms, official guidance and other materials – About Us

General information and how to contact us

• Tax-Exempt Status- online training available at the IRS microsite StayExempt.irs.gov.

Session Outcomes

• The content from this session can be used in the following ways in your current position/role:

– Understand certain business requirements of the organization

– Ensure compliance with IRS regulations

– Maintain accountability for members

– Provide data to State/National regarding financial health of the Local/State organization

Please complete the evaluation for this breakout session!