IRC Sec. 501(c)(3) Tax Exemption and Tax Issues
National Association of Realtors
November 8, 2013
The Unique Alternative to the Big Four®
Overview
• Choosing the Right Charitable Vehicle
• Basics of Section 501(c)(3) st...
The Unique Alternative to the Big Four®
Overview – Fun Facts
• There are more than 1.5M nonprofit organizations exempt fr...
The Unique Alternative to the Big Four®
Choosing the Right Charitable Vehicle
Audit | Tax | Advisory | Risk | Performanc...
The Unique Alternative to the Big Four®
Organizational Considerations
Audit | Tax | Advisory | Risk | Performance
© 201...
The Unique Alternative to the Big Four®
IRC Sec. 501(c)(3) - General
501(c)(3) organizations
Public Charity
509(a)(1)
...
The Unique Alternative to the Big Four®
Basics of Section 501(c)(3) Status
• Advantages of tax exemption may include:
• I...
The Unique Alternative to the Big Four®
IRC Section 501(c)(3)
• Requirements to qualify for tax exemption:
• No Private I...
The Unique Alternative to the Big Four®
Basics of Section 501(c)(3) Status - Qualification
Organizational test
• Permissi...
The Unique Alternative to the Big Four®
Public Charity vs. Private Foundation Status
• Concept
• Disadvantages of private...
The Unique Alternative to the Big Four®
Public Charity Classifications
• Section 509(a)(1) / 170(b)(1)(A)(vi)
• Status ba...
The Unique Alternative to the Big Four®
2012 Filing Thresholds – Public Charity
• Form 990
• Form 990-EZ
• Gross receipts...
The Unique Alternative to the Big Four®
Types of Foundations
• Private Non-Operating Foundation:
• Most common type
• Sub...
The Unique Alternative to the Big Four®
Filing Requirements – Private Foundations
• Federal - Form 990-PF
• No minimum fi...
The Unique Alternative to the Big Four®
Other Potential Taxes on Private Foundations
Besides the excise tax based on Net ...
The Unique Alternative to the Big Four®
Interaction with the IRS
• Obtaining recognition of exemption
• Exemption applica...
The Unique Alternative to the Big Four®
Interaction with the IRS
• Enforcement
• Historically, limited enforcement resour...
The Unique Alternative to the Big Four®
Grants and Other Assistance
• Grants made to:
• Government
• Organizations
• Indi...
The Unique Alternative to the Big Four®
Mandatory Recordkeeping Requirements for Grantor Organization
• Proof grantee org...
The Unique Alternative to the Big Four®
Questions?
Audit | Tax | Advisory | Risk | Performance
© 2012 Crowe Horwath LLP...
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Nar charitable fund presentation (2)

Published on: Mar 3, 2016
Published in: Technology      Business      
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Transcripts - Nar charitable fund presentation (2)

  • 1. IRC Sec. 501(c)(3) Tax Exemption and Tax Issues National Association of Realtors November 8, 2013
  • 2. The Unique Alternative to the Big Four® Overview • Choosing the Right Charitable Vehicle • Basics of Section 501(c)(3) status • Public Charity vs. Private Foundation Status • Interaction with the IRS • Grants and Other Assistance Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 2
  • 3. The Unique Alternative to the Big Four® Overview – Fun Facts • There are more than 1.5M nonprofit organizations exempt from federal income tax under Section 501(a) of the IRC. • 970,401 public charities • 98,837 private foundations • 496,259 other types of nonprofit organizations, including chambers of commerce, fraternal organizations and civic leagues. Source: NCCS Business Master File 10/2012 • • Approximately 80,000 new organizations apply for recognition of exemption each year. Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 3
  • 4. The Unique Alternative to the Big Four® Choosing the Right Charitable Vehicle Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 4
  • 5. The Unique Alternative to the Big Four® Organizational Considerations Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 5
  • 6. The Unique Alternative to the Big Four® IRC Sec. 501(c)(3) - General 501(c)(3) organizations Public Charity 509(a)(1) 509(a)(2) Audit | Tax | Advisory | Risk | Performance Private Foundations 509(a)(3) Operating Nonoperating © 2012 Crowe Horwath LLP 6
  • 7. The Unique Alternative to the Big Four® Basics of Section 501(c)(3) Status • Advantages of tax exemption may include: • Income Taxes • Deductibility of contributions • Qualifications for grants • Tax-exempt financing • Employee benefit programs • Federal unemployment taxes • Postal rate savings • Property tax exemption • Sales / use tax exemption Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 7
  • 8. The Unique Alternative to the Big Four® IRC Section 501(c)(3) • Requirements to qualify for tax exemption: • No Private Inurement • No part of its net earnings may inure to the benefit of any private shareholder or individual (director, officer, other person in a position to influence decision). • PRIMARY AREA OF CONCERN FOR SCHOLARSHIPS • No Substantial Lobbying • Prohibit qualifying organizations from participating in lobbying as a substantial portion of their activities; • Lobbying, or attempting to influence legislation in any way, is allowed to some degree, but it cannot be a primary focus of the nonprofit. • No Political Campaigning • Directly or indirectly participates in a political campaign on behalf of or in opposition to any candidate for public office. Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 8
  • 9. The Unique Alternative to the Big Four® Basics of Section 501(c)(3) Status - Qualification Organizational test • Permissible purposes Operational Test (and no more) • “Exclusively” versus “Primarily” • Private benefit and inurement • Form of entity • Political activities • Purposes set forth in organizational • Lobbying activities document • Dissolution clause 9
  • 10. The Unique Alternative to the Big Four® Public Charity vs. Private Foundation Status • Concept • Disadvantages of private foundation status • Default Rule • Need a “route” to public charity status – four possibilities: • Nature of organization • Receipt of substantial contributions • Receipt of substantial exempt function income • Supporting relationship with other charitable organization(s) Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 10
  • 11. The Unique Alternative to the Big Four® Public Charity Classifications • Section 509(a)(1) / 170(b)(1)(A)(vi) • Status based on receipt of substantial support in the form of contributions from governmental units or the general public • Section 509(a)(2) • Status based on receipt of substantial support in the form of revenue from conduct of activities in furtherance of exempt purposes (“exempt function income”) • Section 509(a)(3) • Status based on relationship in support of one or more other “publicly supported” organizations, i.e. those described in 509(a)(1) or (2) • Types I, II, and III (functional integrated or not) Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 11
  • 12. The Unique Alternative to the Big Four® 2012 Filing Thresholds – Public Charity • Form 990 • Form 990-EZ • Gross receipts < $200,000 and total assets < $500,000 for tax years ending on or after December 31, 2012. • Form 990-N • Gross receipts < $50,000 for tax years ending on or after December 31, 2012. • Note that some states have their own versions of the Form 990-N that may also be required. • Form 990-N filing is not allowed for private foundations or certain supporting organizations. Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 12
  • 13. The Unique Alternative to the Big Four® Types of Foundations • Private Non-Operating Foundation: • Most common type • Subject to excise tax on net investment income • Required to pay out annually qualifying distributions at a minimum of 5% of the fair market value of their assets • Contributions are deductible at FMV for cash/appreciated securities • 30% AGI limitation for cash • 20% AGI limitation for appreciated securities • Private Operating Foundation: • Uses the majority of its income to actively run its own charitable programs or services. • Ex. include museums, libraries, research facilities and historic property • Not subject to 1-2% excise tax • Community Foundations/Donor Advised Funds Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 13
  • 14. The Unique Alternative to the Big Four® Filing Requirements – Private Foundations • Federal - Form 990-PF • No minimum filing thresh hold • Federal - Form 4720 (excise tax return) • Private Foundations are not eligible to file Form 990-N • Failure to file for three consecutive years will result in revocation of exempt status. Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 14
  • 15. The Unique Alternative to the Big Four® Other Potential Taxes on Private Foundations Besides the excise tax based on Net Investment Income, PF’s may have to pay other excise taxes: • • • • • • Section 4941 - Tax on Self-Dealing Section 4942 - Tax on Failure to Distribute Income Section 4943 - Tax on Excess Business Holdings Section 4944 - Tax on Investments that Jeopardize Charitable Purposes Section 4945 - Tax on Taxable Expenditures Section 4965 - Tax on Being Party to Prohibited Tax Shelter Transactions • These taxes restrict the permitted activities of private foundations. Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 15
  • 16. The Unique Alternative to the Big Four® Interaction with the IRS • Obtaining recognition of exemption • Exemption application (IRS Form 1023) • Effective date of exemption • IRS determination letter • Group exemption rulings • Special projects and automatic referrals to National Office Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 16
  • 17. The Unique Alternative to the Big Four® Interaction with the IRS • Enforcement • Historically, limited enforcement resources for TE / GE • Uptick in recent years • IRS alternative approaches: • Examinations (audits) • Correspondence • Field • TEP • General • Compliance Checks Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 17
  • 18. The Unique Alternative to the Big Four® Grants and Other Assistance • Grants made to: • Government • Organizations • Individual • Grants and other assistance include • Awards, prizes, allocations, stipends, scholarships, research grants, and similar payments and distributions • Grants and other assistance do not include • Grants to affiliates that are not organized as legal entities separate from the filing organization • Grants made to branch offices, accounts, or employees located in the United States Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 18
  • 19. The Unique Alternative to the Big Four® Mandatory Recordkeeping Requirements for Grantor Organization • Proof grantee organizations are exempt public charities-IRS Pub 78 listing • Recipients’ names and addresses • Amounts and purposes of the grants and how it meets the exempt purpose • Proof of payment (check, wire transfer, etc.) • How the recipients are selected • Relationships between recipients and any members, contributors or officials • Policy and procedures for monitoring the use of grant funds Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 19
  • 20. The Unique Alternative to the Big Four® Questions? Audit | Tax | Advisory | Risk | Performance © 2012 Crowe Horwath LLP 20

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