TAX RESPONSIBILITES for Rotary Clubs

TAX RESPONSIBILITES for Rotary Clubs Presented by Tim Lundell District Trainer 2013 Assemblies

Topics to be covered • IRS Classification • Tax Deductible Status • Fundraising • Disclosures Required • Unrelated Business Income Tax • Filing Requirements • Accounting • Financial Statements • Recommendations • 501(c)(3) Tax Exempt Organization 2013 Assemblies

STEP #1 GET A TAX GUY (OR GIRL)! 2013 Assemblies

Not all 501(c)’s are created equal • The IRS has 29 types of 501(c) designations which grant exemption from taxes So what designation does our Rotary Clubs fall under? 2013 Assemblies

IRS Classification • May 13, 1958, the IRS declared Rotary International and its clubs and districts exempt from federal income taxes under IRC Section 501(c)(4). • IRC 501(c)(4) • Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively 2013 Assemblies

Isn’t that like a 501(c)(3)? • Although very similar to a 501(c)(3), there is a big difference: • Social welfare organizations, cannot attract charitable donations that are deductible for income, gift, and estate tax purposes. 2013 Assemblies

Tax Deductible Status • Donations to your club are not deductible as charitable donations by the donor. • Membership dues may be deductible for some Rotarians as a business expense. • Rotary meetings may be deductible for Rotarians as a Meal & Entertainment Expense. • Deductibility is determined by Rotarians status; business vs. individual 2013 Assemblies

Fundraising • Sponsorships may be deductible for Rotarians as a business expenses. • Business expenses are generally preferred over charitable contributions for businesses • Ticket Sales do not have a charitable donation allocation. 2013 Assemblies

Disclosures Required • IRC Section 6113 requires certain tax-exempt organizations that are ineligible to receive tax deductible charitable contributions to disclose, in “an express statement (in a conspicuous and easily recognizable format), “ the nondeductibility of contributions during fundraising solicitations. • Organizations whose annual gross receipts do not normally exceed $100,000 are excepted from this disclosure requirement 2013 Assemblies

Unrelated Business Income Tax • Aka – UBIT or UBTI • IRS Publication 598 – Tax on Unrelated Business Income of Exempt Organizations • Unrelated business income is the income from a trade or business regularly carried on by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity. • Certain trade or businesses are not treated as an unrelated trade or business. 2013 Assemblies

UBIT – Cont. • Membership list sales – taxable • Advertising – taxable • Sponsorship – not taxable • Selling Donated Merchandise – not taxable • Volunteer Workforce – not taxable UBIT is a Gray area – seek professional assistance to assist in determination 2013 Assemblies

Filing Requirements • Form 990 • Due 15th day of the 5th month after your fiscal year end. • December 31st yearend, due date is May 15th • Up to 6 month extension • Form 990-T • Unrelated business income tax returns for federal and state; same due date • Extension available, but payments are due on 15th day of the 5th month after your fiscal year end 2013 Assemblies

Accounting • Generally Accepted Accounting Principles • GAAP • Accrual-based (not cash) accounting • Income is recorded when earned • Expenses are recorded when incurred • Prepare a budget • Reconciliations should be performed monthly • Person doing books should not have check signing authority • Copies of all deposits should be made • Invoices should be properly coded and canceled

Functional Expenses • Program Services • International Service project • Community Service Projects • RYLA, Interact, other • Management and General • Fundraising • Event 1 • Event 2 • Membership 2013 Assemblies

Financial Statements • Statement of Financial Condition • aka – Balance Sheet • Statement of Activities • aka – Income Statement or Profit & Loss • Statement of Functional Expenses • Program • Management & General • Fundraising • Membership • Statement of Cash Flows 2013 Assemblies

Tax-Exempt 501(c)(3)Charitable Foundation Form 990-N (e-postcard) For small tax exempt organizations where annual “… gross receipts are normally $50,000 or less.” You need basic information – EIN, tax year, legal name and address, any other names used by the organization, name and address of the principal officer, web site (if applicable), confirmation of gross receipts normally $50,000 or less, confirmation that the organization has not terminated operations.

Tax-Exempt 501(c)(3)Charitable Foundation Form 990-EZ and Form 990 File the Form 990–EZwhen: Gross receipts are less than $200,000 andtotal assets are less than $500,000 File the Form 990 when: Gross receipts equal or exceed $200,000or total assets equal or exceed $500,000.

Recommendations • Identify all income sources and classify them accordingly • Utilize professionals to assist in compliance • Utilize accounting software (Like Quick Books) • Ensure persons handling finances is knowledgeable • 2 signatures on all Checks or approved memo signed by 2 members. 2013 Assemblies

IRS Website • To check clubs status: • http://www.irs.gov/Charities-&-Non-Profits/Automatic-Revocation-of-Exemption-List 2013 Assemblies

TAX RESPONSIBILITES for Rotary Clubs