A presentation made by Craig Morris to the Long Island Not-for-Profit Conference at SUNY Old Westbury with the following goals: To introduce the various tax threats and concerns Non-Profit Organizations face; To provide you with resources to: * research them further * avoid them * resolve them

1. Non-Profit Tax Issues and
Concerns
SUNY Old Westbury
Presented by Craig R. Morris, CPA

2. Non-Profit Tax Issues and Concerns
Goals of our session
To introduce you to various tax threats and
concerns Non-Profit Organizations face
To provide you with resources to:
research them further
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
2
research them further
avoid them
resolve them
Questions are welcomed during this
presentation

3. Non-Profit Tax Issues and Concerns
What we will cover:
Qualifications for tax exemption
Threats to NPO status
Form 990 as a report card
Public charity or private foundation
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
3
Public charity or private foundation
FIN 48 – reporting tax uncertainties
Responsibilities and oversight
Resources

4. Basic qualifications for treatment as
a non-profit organization
Tax exemption - a privilege, not a right
Federal - income tax exemptions.
States - governing law for exemption from many taxes
lies with states
Income taxes;
Sales taxes;
Property taxes.
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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Property taxes.
Organizations that seek exemption from federal
income tax generally do so under section 501(a) of
the Internal Revenue Code
Must meet one of the exemptions under IRC 501c
Federal filing and approvals are required
States generally (but not always) follow federal
guidelines.

5. Threats to NPO status
Change in character, purpose or method of
operations
Private inurement or benefit
Related party activities
Commercial operations
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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Commercial operations
Lobbying
Political campaign operations
Unrelated business income (UBI)

6. Form 990 as a "report card" -
Obstacles and Pitfalls
Form 990 + schedules - overview
More than a tax form
Basic form = 11 parts + 16 supplemental
schedules, as applicable
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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schedules, as applicable
Designed to delve into:
governance processes,
compensation arrangements,
operating policies

7. Form 990 as a "report card“ (cont)
Unrelated business income (UBI)
what is it?
Gross income from any trade or business
Form 990, Part VIII
what are the issues?
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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what are the issues?
Must be activities unrelated to exempt functions
Regularly carried on (not occasional)
what are the costs?
Subject to regular corporate income tax – up to 39%
Reported on form 990-T

8. Form 990 as a "report card“ (cont)
Lobbying (IRS Pub 557)
When is it ok?
< 5% of total expenditures, ok – no reporting
Form 5768, if more – requires special reporting
When is it not ok?
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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When is it not ok?
Substantial part of activities = propaganda, influencing
legislation, politics (substantial not defined)
Limitations based on kind of lobbying.
What happens if we reach "not ok"?
Excise tax of 25% + of excess lobbying expenses
Loss of tax exempt status
Public Charities vs. Private Foundations –
different rules apply

9. Form 990 as a "report card“ (cont)
Revenue issues
Substantiation - IRS Publication 1771
< $250 - canceled check or receipt ok
> $250 requires written substantiation from NPO
Property > $5,000 requires appraisal
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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2.Separating contributions from benefit to donors
- "quid pro quo".
3.SFAS 116/117 - Restrictions on Revenue (990
Part X)
Risk of not raising enough unrestricted income for
operations
Using restricted $ for unrestricted purposes?

10. Form 990 as a "report card“ (cont)
Functional allocation of expenditures (990 Part IX):
Program services vs.
M&G vs.
Fundraising
Charitable expenditures vs. administrative
expenses
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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expenses
What's ok?
More exempt org purpose expenditures is better
Less implies many things – none are good.
Who's watching?
990 is a public document – everyone is watching
Who's reporting?
Many public commentators and watchdog groups

11. Public Charity or Private Foundation?
Tests and Consequences
General concept – public vs. private benefit
Qualifications for each
Schedule A of Form 990 - 1/3 test
Most 501(c)(3)’s meet test on line 9
IRS can change a Section 501(c)(3) organization's
status from public charity to private foundation based
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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status from public charity to private foundation based
on information in Schedule A
what's included and what's not?
Part II – public support vs. other support
Exclude all donors who gave > 2%
5 year average must > 1/3
If > 10%, facts and circumstances
can be basis to remain public charity

12. Public Charity or Private Foundation?
(cont)
Benefits of a public charity
limit on deductions for contributions to public charities is
higher than to private foundations.
The greater tax benefit can make it relatively easier for
public charities to obtain contributions.
Many foundations will not make grants to a nonprofit
organization unless the organization has an IRS
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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organization unless the organization has an IRS
"determination letter" stating that it is not a private
foundation.
Public charities are not subject to
certain restrictions on activities,
financial requirements, and
excise taxes that apply to private foundations.
The reporting requirements are less onerous for public
charities than for private foundations.

13. Public Charity or Private Foundation?
(cont)
Consequences of being a private foundation
a private foundation is not explicitly defined
any 501(c)(3) organization that does not qualify as a public
charity.
Form 990-PF is longer and more complex than Form 990
increased complexity of Form 990-PF is a reflection of the greater
restrictions, requirements, and taxes on private foundations.
Donors may be less inclined to make contributions
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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Donors may be less inclined to make contributions
An excise tax is imposed on investment income.
At least a minimum amount of income (as defined) must be
distributed.
Excess business holdings must be disposed of.
Certain transactions are prohibited.
The IRS frequently publishes lists of public charities that have
been reclassified as private foundations for failure to meet the
criteria necessary to maintain public charity status.

14. FASB Interpretation (FIN) 48 –
Now for NPO's!
What is it?
Accounting for Uncertainty in Income Taxes;
Requires disclosure of tax positions that may not
be upheld;
Assumes all tax positions will be examined by
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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Assumes all tax positions will be examined by
knowledgeable authorities;
If a tax position taken is questionable, "more likely
than not" standard applies;
When does it become effective for NPO’s?
Brand new for 2009 – guidance now emerging
FYI's beginning after December 15, 2008

15. FIN 48 (CONT)
Why does it matter to NPO's?
FIN 48-3 makes it applicable to NPO's;
Requires NPO's to support decisions to classify
any activity as "tax exempt";
NPO's must think about events or circumstances
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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NPO's must think about events or circumstances
that could endanger tax exempt status.
How can it help or hurt an organization?
Clarity and transparency are more likely,
Questionable positions can no longer be hidden.

16. FIN 48 (CONT)
Tax positions defined - why must they be reported?
any matters that could cause jeopardy to tax-exempt status,
See “Threats” on slide 5
Failure to meet 1/3 test
failure to report violates GAAP.
Examples of tax-related uncertainties or contingencies.
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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failure to provide required disclosures regarding quid pro quo
contributions over $75,
pay taxes on prohibited transactions,
report income as related, unrelated, or excluded,
report potential disallowances of amounts reported on
Form 990-T for unrelated business expenses
Form 990-PF for expenses related to net investment income.
proxy tax on membership dues of non-501(c)(3) membership
organizations that lobby,

17. Responsibilities and Oversight
Management and Board have Fiduciary Responsibility for
Culture;
Ethics
Financial matters
Board responsibilities for tax matters
Checklist for Accountability - AICPA
Strengthen Your Organization's Transparency and
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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Strengthen Your Organization's Transparency and
Governance;
AICPA checklist can be found at
http://tax.aicpa.org/Resources/Exempt+Organizations/Chec
klist+for+Accountability.htm
State oversight
New York Attorney General's role;
Federal proposals for Sarbanes-Oxley type governance
over NPO’s

18. Resources for Donors and NPO's
Guidestar (www.guidestar.org)
Forms and data for analysis of individual NPO's
American Institute of Philanthropy
(www.charitywatch.org)
a charity watchdog service whose purpose is to help
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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a charity watchdog service whose purpose is to help
donors make informed giving decisions.
Over 500 charities are rated in AIP's Charity Rating
Guide & Watchdog Report.
Panel on the Nonprofit Sector (nonprofitpanel.org)
an independent effort by charities and foundations to
ensure that the nonprofit community remains a vibrant
and healthy part of American society.

19. Resources for Donors and NPO's
(cont)
IRS (www.irs.gov)
Tax exempt organizations tax kit;
Life cycle of an organization, with many resources;
Publications:
Publication 4220, "Applying for 501 (c)(3) Tax-Exempt
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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Publication 4220, "Applying for 501 (c)(3) Tax-Exempt
Status."
Publication 4221, "Compliance Guide for 501 (c)(3) Tax-
Exempt Organizations."
Publication 571, "Tax-Sheltered Annuity Plans for
Employees of Public Schools and Certain Tax-Exempt
Organizations"
Publication 598, "Tax on Unrelated Business Income of
Exempt Organizations"

20. Resources for Donors and NPO's
(cont)
IRS (www.irs.gov)
Publications:
Publication 4453, "Form 990 e-file for Charities and Non-
Profits"
Publication 1771, "Charitable Contributions Substantiation
and Disclosure Requirements"
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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and Disclosure Requirements"
Publication 561, "Determining the Value of Donated
Property"
Publication 526, "Charitable Contributions"
Publication 557, "Tax-Exempt Status for Your
Organization"
Publication 4303, "A Donor's Guide to Vehicle Donations"
Publication 4302, "A Charity's Guide to Vehicle Donations"

21. Questions?
Q&A
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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Thank you!

22. Craig R. Morris, CPA
Craig R. Morris, CPA is the Principal and owner of Craig Morris & Company, Certified Public
Accountants. He graduated cum laude from Bernard M. Baruch College of the City
University of New York in 1974 with a Bachelor of Business Administration degree and was
selected for membership in Beta Gamma Sigma, the honor society for collegiate schools of
business. He then spent seven years with the Big Four, international accounting firm now
known as Deloitte. He left there to begin Craig Morris & Company in 1981.
Craig has extensive experience in all levels of client service, from individuals to large
publicly held corporations. In addition to servicing the needs of ongoing tax and accounting
clientele, Craig has handled various levels of specialized tax planning associated with
selling or buying businesses, formation of entities and the preparation and filings of initial
NPO Tax Issues and Concerns Presented by Craig R. Morris, CPA,
Craig Morris & Company
www.morriscpas.com
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clientele, Craig has handled various levels of specialized tax planning associated with
selling or buying businesses, formation of entities and the preparation and filings of initial
public offerings. Craig also specializes in the firm's audit and tax services to non-profit
organizations.
Craig has been an adjunct professor of accounting in the graduate and undergraduate
divisions of Adelphi University. He has been active in the Nassau Chapter of the New York
State Society of Certified Public Accountants, serving as Committee Chairman, lecturer,
Executive Board Member and Officer since 1983. He currently serves as Chapter Vice
President and Chairman of the Continuity of Practice Committee. Craig completed a six-year
term as Treasurer of the Nassau Chapter of the American Red Cross and has served the
Long Island Association Small Business Council Programs and Services Committee. He is
licensed to practice as a CPA in New York and Florida, and previously held Series 6, 63 and
65 securities licenses, as well as the Personal Financial Specialist credential. Craig is a
member of the American Institute of Certified Public Accountants and the New York State
Society of Certified Public Accountants.