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Protecting Nonprofit Status 2011
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Protecting Nonprofit Status 2011

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Basic information that small-medium nonprofits need to preserve tax exempt status.

Basic information that small-medium nonprofits need to preserve tax exempt status.

Published in: Business, News & Politics

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  • 1. SafeguardingYour Organization’sNonprofit status
    Avoid
    common mistakes
    Prevent loss of §501(c)(3) status
    Sponsored by :
    Indiana Nonprofit Resource Network
    LaGrange Community Foundation
    Presenter:
    Miriam Robeson,
    Attorney
  • 2. Why Are We Here?
    Information Level – Beginning to Intermediate
  • 3. Why Are We Here – Part 2The Horror Stories and Bad Press
    • “Three Cups of Tea” scandal and lawsuit – fraudulent solicitation of donations based upon inaccurate book
    • 4. Investigation of Fiesta, Sugar, and Orange Bowl games for abuse of nonprofit status and “extravagant compensation”
    • 5. Investigation of Humane Society of the United States for excessive executive compensation
    • 6. Medical Association of Atlanta ED pleads guilty to embezzling more than $300,000
    • 7. Nonprofit Status of 30 credit counseling organizations revoked for failure to achieve a nonprofit purpose and for excessive executive compensation
  • Why We are Here – Part 3The IRS
    • IRS increases nonprofit oversight
    • 8. Employment Taxes
    • 9. Executive Compensation
    • 10. Activist Agenda
    • 11. Compliance (Tax forms)
    • 12. Since 2008, the IRS has added more than 100 employees to the Exempt Organizations Section
    • 13. As of June, 2011, the IRS has “automatically revoked the nonprofit status of more than 275,000 nonprofits
  • Keys to Safeguarding Nonprofit Status
  • Compliance
    • Government and other technical requirements
  • Compliance – State Requirements
  • 17. Compliance – Secretary of State
    • Check out IN SOS Office to verify “in good standing”
    • 18. https://secure.in.gov/sos/online_corps/name_search.aspx
    • 19. OR – in.gov/sos and select “business search” from the navigation menu
  • Compliance – State Requirements
  • 20. Compliance - Federal
  • 21. Compliance - Employment
  • 22. Compliance - UBIT
  • 23. Compliance – Is your nonprofit “on the list?”
    • IRS Publication 78 – Cumulative List of Nonprofit Organizations approved by the IRS
    • 24. http://www.irs.gov/charities/article/0,,id=96136,00.html
    • 25. Go to IRS website and search “Publication 78”
    • 26. Incorporation as a State (Indiana) nonprofit does not equal IRS nonprofit - 501(c)(3) - Status
  • Accountability
  • 27. Accountability - Financial
    • Financial Policies
    • 28. Financial Controls
    • 29. Monitor appropriate use of nonprofit funds
    • 30. Audit - review
  • Accountability - Financial Governance Policies
    • Policies for –
    • 31. Handling Money
    • 32. Recording Money
    • 33. Reporting Money
  • Accountability - Governance
    • Conflict of Interest
    • 34. Ethical Standards
  • Accountability - Conflicts of Interest
    WatchAppearance of Impropriety!
  • 35. Accountability - Personal Benefit
  • 36. Accountability – EthicsExecutive Compensation
    • Exempt Organizations with budgets of $100,000 or more are expected to have paid staff
    • 37. EO’s can pay market rates to staff
    • 38. EO’s can look to “for-profit” compensation when determining “market rates”
    • 39. IRS has no standard formula, but looks at compensation as percent of budget, success of nonprofit mission
    • 40. If IRS finds abuse
    • 41. IRS can fine the Board and Executive
    • 42. IRS can revoke nonprofit status
    • 43. For “higher” compensated ED’s, document salary decision with supporting research and recorded (written) board discussion
  • Accountability - Ethics
  • 44. Nonprofit Ethical Issues - Examples
    • Improper donor acknowledgements
    • 45. Donations of time are not tax-deductible
    • 46. Improper arrangements with donors
    • 47. Failing to include both spouses in joint gift paperwork
    • 48. Staff/ED/Board/Volunteer accepting gifts from donors
    • 49. Lunch versus bequest in a Will?
    • 50. “Professional Fund Raiser?”
    • 51. Failing to take responsibility (“Not My Fault”)
    Only 10% of the public
    believes that charities are ethical
  • 52. More Examples - Ethics
    • Failure to properly account and restrict use of donor-specified donations (illegal and unethical!)
    • 53. Capital contributions used for operational expenses
    • 54. “Borrowing” from restricted funds
    • 55. Purchases from Board-member business without proper disclosure (the copy shop example)
    • 56. Failure to consult professionals for assistance, when needed (lawyer – accountant)
    • 57. Improper oversight of spending (financial control policies)
    • 58. Indianapolis Humane Society
  • Transparency – Credibility to Public
    Regularly provide information to the Public
  • 59. Other Danger Zones
  • 60. Danger Zone - Lobbying
  • 61. Danger Zone – Charity Gaming
  • 62. What is “Charity Gaming?”
  • 63. Charity Gaming – Rule 1Gambling is Illegal
    • Unlicensed gaming is illegal and subject to fines
    • 64. $1,000 for the first violation
    • 65. $2,500 for the second violation
    • 66. $5,000 for additional violations
    • 67. Same fines apply to improper gaming, failing to file reports, failing to pay tax
    • 68. Criminal charges may also apply – Class B Misdemeanor
  • Charity Gaming Rule 2 – Charity Gaming is Regulated
    • Must be charitable organization
    • 69. Must be in existence (§501(c)(3) status) for > 5 years
    • 70. Must apply for and receive license
    • 71. Must conduct gaming activities properly
    • 72. NOTE – if properly licensed, conducted and reported, there are NO income taxes from charity gaming
  • Danger Zone – Abuse of Nonprofit Status
    • Improper Conduct
    • 73. Executive Compensation
    • 74. “Private Inurement”
    • 75. Excessive compensation
    • 76. Unreasonable Rental Agreements
    • 77. Unreasonable lending agreements
    • 78. Unreasonable sales transaction
  • Consequences of Abuse of Status
    • IRS Consequences – $$
    • 79. Fines to Nonprofit
    • 80. Fines to Board of Directors
    • 81. Fines to Staff
    • 82. PERSONAL LIABILITY FOR ALL!
    • 83. IRS Consequences – Revocation of Nonprofit Status
  • Has Your Status Been Revoked?
    Google: “recent IRS revocations”
    http://www.irs.gov/charities/charitable/article/0,,id=141466,00.html
    Comprehensive List of
    “Automatic Revocations”
    (organized by state)http://www.irs.gov/charities/article/0,,id=240099,00.html
  • 84. What if you LOSE nonprofit status?
  • 85. How can you get back NP Status?
    • Loss of Status cannot be reversed or appealed
    • 86. Must go through re-application for tax exempt status
    • 87. May include request for retroactive reinstatement to avoid taxes for “interim period”
    • 88. Requires payment of user fee ($400 or $850)
    • 89. Small nonprofits might be allowed to pay $100 user fee
    • 90. Must write “Automatically Revoked” on application
    • 91. If exemptions do not apply, must provide complete packet of information for re-application
  • Keys to Safeguarding Nonprofit Status
  • For More Information
    • IRS.gov – Exempt Organizations
    • 95. Publication 557 – Tax Exempt Status Info
    • 96. Publication 78 – Approved nonprofit list
    • 97. Indiana Charity Gaming Commission
    • 98. Indiana Secretary of State
    • 99. Indiana Department of Revenue
    • 100. Guidestar.org
    • 101. Charity Navigator
  • Thank you for your attention!
    Any Questions?