501(c)(3) Frequently Asked Questions
If I set up a local organization, will it automatically be considered a tax exempt entity and be allowed to accept charitable contributions?
No. Public charities also known as 501(c)(3) organizations generally must be approved by the IRS through a lengthy application process which includes a user fee. One of the only ways around this process is to be included in a group exemption. The MTNA has a group exemption for affiliates. However, inclusion in the group exemption is not automatic. If you want to be part of the group exemption, you must provide MTNA with the following:
- Copy of your bylaws and articles of incorporation or other organizing document
- Written authorization requesting that your local organization be included in the group exemption
- A statement that your local organization has not been determined to be a private foundation by the IRS
- Your employer identification number from the Internal Revenue Service
Does my local or state organization have any filing requirements with the Internal Revenue Service?
Yes. There is an annual filing requirement for each separate local or state organization. The type of form to be filed varies based on the size of your organization. Small organizations, those with average gross receipts of less than $50,000, must file the Form 990N postcard. This is a simple process that can be done by going to www.irs.gov and clicking on the charities and non-profits tab. Within this tab, click on "efile" on the left-hand side of the page. On the next page click the "Charities and Non-profits" selection from the table that says "IRS e-file Options For" across the top. Next, you will see "e-postcard Form 990 N in blue, please click on this. On the next screen click on the word "here" under How to File. The next page will ask if you want to leave the IRS site, please click on this option. Follow the instructions on the next screen to complete the postcard. This postcard should be completed annually by the 15th day of the 5th month following your year-end. This will be May 15 for those organizations with a calendar year-end. For organizations that are too large to use the 990N postcard, you will be required to file either a Form 990EZ or 990 every year. Late filing of either of these returns could result in large penalties to your organization. If you believe you do not qualify for the 990N postcard, please consult a CPA knowledgeable about non-profit organizations to assist you. Failure to file any of the above tax returns can not only result in penalties, but could also result in loss of exempt status.
Are small organizations required to prepare 1099 forms?
Yes. Any business whether for profit or non-profit must provide non-corporate service providers with a Form 1099 by the following January 31 if payments to that service provider are $600 or more. Any attorney, even if incorporated, must be given a 1099 if paid at least $600. In addition to preparing 1099s, it is important to request a Form W-9 from any service provider. This form is a request for a taxpayer identification number. Failure to obtain a tax identification number could result in significant tax penalties. Both the W-9 and the Form 1099 can be obtained from the IRS website. For 2011, there are possible changes to 1099 filing requirements. The new rules will require that 1099s also be provided to corporations that sell either services or goods to your organization in an amount of $600 or more during the year. There are currently several proposals in Congress to either eliminate or change this requirement in some way.
In addition to federal filings are there any state filing requirements?
Yes. Most states have laws that protect potential donors from fraudulent charities. Each state has its own set of rules regarding filing requirements in its state. We are familiar with the Ohio filing requirements, but we recommend you contact a local CPA with experience with non-profit organizations to determine the state filing requirements in your locality.
If my local organization qualifies as a 501(c)(3) organization through either the group exemption or by obtaining its own separate determination letter from the Internal Revenue Service, are there special requirements for acknowledging charitable donations to the organization?
There are several requirements for acknowledging charitable contributions from donors. These rules are well summarized in IRS Publication 1771. If you receive donations or participate in any fundraising activities, you will want to become familiar with this publication. It can be located at: www.irs.gov/pub/irs-pdf/p1771.pdf.
As an exempt organization, are there any activities which may cause loss of exempt status?
There are several activities that can cause a loss in exempt status. If your organization is a 501(c)(3), you are prohibited from engaging in any activity which involves the financial or other support of a candidate running for office. Although there are some very limited political activities that 501(c)(3)s can engage in, it is best to stay clear of this area as it really does not fall within the mission of MTNA or its affiliates. Although a limited amount of lobbying is allowed, this is another area which can cause loss of exempt status if it is excessive. Other areas that can cause problems with maintaining exempt status are using an exempt organization to generate trade or business income, or violating the private inurement doctrine. Trade or business income, also known as unrelated business income, is generated from activities normally carried on by commercial establishments. A small amount of trade or business income by an exempt organization will be allowed, but it cannot become the major focus of the organization. It is also not exempt from taxation. Federal income tax and possibly state and local income tax will need to be paid on any net income generated from trade or business activities. If you think you may be engaging in trade or business activities, please consult a tax advisor. Private inurement can cause revocation of exempt status for your organization. Organizations are provided with tax-exempt status because they are supposed to benefit the general public in some way. If the activities of the organization and the earnings from those activities benefit one or more individuals that are related to the organization, rather than the general public, exempt status can be lost. In order to avoid the possibility of private inurement, it is highly recommended that your organization adopt and comply with a conflict of interest policy.
My organization does not have an employer identification number. Do we need one?
Yes, if you want to open a bank account, it will be necessary to have an employer identification number. Without a number, you will need to use a social security number and list the account in an individual's name. An employer identification number is a unique number for businesses. If you want your entity to be treated as a business, it should have a federal identification number.