Protecting Nonprofit Status 2011

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

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Protecting Nonprofit Status 2011

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

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