Louis E. Michelson, A Professional Corporation

Providing Legal and Tax Advisory Services to Nonprofit Organizations

New Form 1023: Federal Exemption Application and Its New Electronic Filing

August 4th, 2020 · Electronic filing, Form 1023, tax exemption

Charitable nonprofit organizations need to obtain recognition of their tax-exempt status from the Internal Revenue Service. The IRS recently revised Form 1023, the federal exemption application, and the IRS now requires that this form to be filed electronically through pay.gov. One needs to know what is required to complete Form 1023 and how to submit it electronically. Nonprofit directors, trustees and officers and their tax advisors need to successfully navigate this critical submission.

The webinar below addresses the following topics:

● An overview of the electronic filing and the new Form

● Practical suggestions for gathering information needed for completing this form.

● How to craft responses that address the questions posed on Form 1023.

● It introduces selected questions on the new Form 1023.

 ● How to locate guidance on substantive questions.

● Resources to resolve technical obstacles that might arise in preparing and filing Form 1023.

See the instructional video at the following link.

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Charity Governance During the COVID-19 Pandemic

May 12th, 2020 · Board Action without a Meeting, California Attorney General, COVID-19, Emergency Provisions, Governance, Modification of Endowment Funds, Nonprofit Mutual Benefit Corporations, Nonprofit Public Benefit Corporations, Nonprofit Religious Corporations, Social distancing, Virtual Meeting of Members

The Attorney General’s Charitable Trusts Section created a new publication:  “Charity Governance During the COVID-19 Pandemic.” This publication’s goal is to inform nonprofit corporations of the California laws that allow them to fulfill some of their governance obligations remotely to adhere to social distancing requirements.

This publication can be found on the Attorney General’s website at the following link.

The charitable governance topics in this publication include the following:

  • Emergency Provision for Nonprofit Public Benefit Corporations
    • Notice of director meetings
    • Quorum requirements
    • Relocation of principal office
    • Modification of lines of succession
    • Participation in board meetings via conference calls
  • Taking Board Action Without a Meeting
  • Virtual Meeting of Members of Nonprofit Public Benefit Corporations
  • Emergency Provision for Nonprofit Mutual Benefit Corporations
  • Emergency Provision for Nonprofit Religious Corporations
  • Modification of Endowment Funds to Tackle Emergencies

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Compensation and Related Party Transactions

May 7th, 2020 · Form 1023

Note: This post is taken from irs.gov.

Applications for exemption and miscellaneous determination requests are assigned to Exempt Organizations specialists for review. If additional information is necessary to make a determination, a specialist will contact the organization for the information. Here’s a list of questions that might be asked on this topic.

Non-Fixed Compensation

1. You provide (or will provide) compensation through non-fixed payments. Please provide the following information:

a. Describe the non-fixed payment compensation arrangements you use or intend to use.

b. Specify who is eligible for your non-fixed payment compensation arrangements. Explain how you determine the amount of non-fixed compensation and the process used to approve such arrangements.

c. Describe the limits you place on total compensation.

d. Provide other information regarding these compensation arrangements, including copies of any employment or compensation contracts or agreements.

Related Party Compensation Decisions

2. You provide (or will provide) compensation to related parties. Please provide the following information:

a. Describe the compensation arrangements that you have (or will have) with related parties. 

b. Specify the related parties that are eligible for compensation and their relationship to your organization.

c. Explain how you determine amounts of compensation and the approval process for direct and indirect compensation for board members or other related employees.

d. Describe the limits you place on total compensation for related parties.

e. Provide any other information regarding your related party compensation arrangements, including  copies of any employment or compensation contracts or agreements.  

Common Control

3. One or more members of your governing body receives (or will receive) compensation from an organization related to you through common control. Please provide the following information

a. Describe the compensation arrangements that members of your governing body have (or will have) with organizations that are related to your organization through common control.

b. Identify the individual(s) who are eligible to receive compensation from organizations that are related to your organization through common control and describe how you and each individual are related to those organizations.

c. Explain the process used to approve compensation arrangements with organizations that are related to your organization through common control.

d. Describe the limits you place on compensation arrangements between individuals related to your organization and organizations that are related to your organization through common control.

e. Provide other information regarding these common control compensation arrangements,  including copies of any employment or compensation contracts or agreements.  

Leases, Contracts, Loans, and other similar agreements with Officers and Directors  

4. You have (or will have) leases, contracts, loans or other agreements with your directors or officers. Additionally, you have (or will have) leases, contracts, loans and other agreements with organizations in which one or more of your directors or officers has a financial interest. Please provide the following information:

a. Describe all leases, contracts, loans, and other similar agreements you made (or intend to make) with your officers and directors.

b. Describe all leases, contracts, loans, and other similar agreements you made (or intend to make) with organizations in which one or more of your directors or officers has a financial interest.

c. Identify the parties with whom you have (or will have) such agreements.

d. Describe the process used to approve these leases, contracts, loans, or other similar agreements.

e. Explain how you ensure that you pay no more than fair market value or that you are paid at least fair market value with respect to agreements involving your officers and directors.

f. Provide copies of all signed leases, contracts, loans, or other written agreements with officers or directors. If you have leases, contracts, loans or other agreements with officers or directors that are not in writing, provide copies of the board of directors’ minutes that authorize any such agreements.  

Purchase or Sale of Goods, Services, and Assets to or from Officers or Directors

[Instruction: Use Option A or B (or both) as applicable with the rest of the question listed here.]

Option A

[5A. You purchased (or will purchase) goods, services and assets from one or more of your officers or directors.]  

Option B

[5B. You sold (or will sell) goods, services and assets to one or more of your officers or directors.]

Please provide the following information:

a. Describe all purchases and sales you made (or intend to make) with officers and 
   directors of your organization.

b. Identify the parties with whom you made (or will make) such sales or purchases.

c. Explain the process you use for negotiating and approving purchases and sales of goods, services, and assets with your officers and directors.

d. Explain how you determine the price of the goods, services, or assets that you purchase  from or sell to your officers and directors, and how you determine that all transactions are made at fair market value.

e. Submit copies of all contracts and other written documents relating to purchases and sales of goods, services, and assets with officers and directors of your organization. If you made purchases or sales with officers or directors without executing a written document, provide copies of board of directors’ minutes that authorized any such transaction.

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Foundation Classification

May 7th, 2020 · Form 1023

Note: This post is taken from irs.gov.

Applications for exemption and miscellaneous determination requests are assigned to Exempt Organizations specialists for review. If additional information is necessary to make a determination, a specialist will contact the organization for the information. Here’s a list of questions that might be asked on this topic.

Requested 170(b)(1)(A)(vi) Appears to Meet 509(a)(2) 

1. It appears you should be classified as a public charity under a section of the Internal Revenue Code that is different than the section selected on your application. You requested recognition of exemption under Section 501(c)(3) with public charity classification under Sections 509(a)(1) and 170(b)(1)(A)(vi). This classification is available only to organizations that receive a substantial part of their financial support in the form of contributions from publicly supported organizations, governmental units, or the general public.  

Based on the financial information you submitted, you receive more than one-third of your support from contributions, membership fees, and gross receipts from activities related to your exempt purposes, which indicates that you should be classified as a public charity under Section 509(a)(2). You can find additional information about public charity classification on our website, /Charities-&-Non-Profits.

  • If you agree to be classified under Section 509(a)(2), please submit a written statement indicating your agreement.
  • If you do not agree to be classified under Section 509(a)(2), please submit a detailed description of how you meet the requirements for classification under Sections 509(a)(1) and 170(b)(1)(A)(vi). We will consider your submission before making a final determination about your classification.  

Requested 509(a)(3) Appears to Meet 170(b)(1)(A)(vi)

2. It appears you should be classified as a public charity under a section of the Internal Revenue Code that is different than the section selected on your application. You requested recognition of exemption under Section 501(c)(3) with public charity classification under Section 509(a)(3) as a supporting organization.  

Based on the financial information you submitted, you receive a substantial part of your financial support in the form of contributions from publicly supported organizations, governmental units, or the general public, which indicates that you should be classified as a public charity under Sections 509(a)(1) and 170(b)(1)(A)(vi). You can find additional information about public charity classification on our website, /Charities-&-Non-Profits.

  • If you agree to be classified under Sections 509(a)(1) and 170(b)(1)(A)(vi), please submit a written statement indicating your agreement.
  • If you do not agree to be classified under Sections 509(a)(1) and 170(b)(1)(A)(vi), please submit a detailed description of how you meet the requirements for classification under Section 509(a)(3). We will consider your submission before making a final determination about your classification.

Requested 509(a)(3) Appears to Meet 509(a)(2)

3. It appears you should be classified as a public charity under a section of the Internal Revenue Code that is different than the section selected on your application. You requested recognition of exemption under Section 501(c)(3) with public charity classification under Section 509(a)(3) as a supporting organization.  

Based on the financial information you submitted, you receive more than one-third of your support from contributions, membership fees, and gross receipts from activities related to your exempt purposes, which indicates that you should be classified as a public charity under Section 509(a)(2). Also, Section 509(a)(3) organizations are subject to additional taxes and restrictions under Chapter 42. You can find additional information about public charity classification on our website, /Charities-&-Non-Profits.

  • If you agree to be classified under Section 509(a)(2), please provide a written statement indicating your agreement.
  • If you do not agree to be classified under Section 509(a)(2), please submit a detailed description of how you meet the requirements for classification under Section 509(a)(3). We will consider your submission before making a final determination about your classification.  

Requested 170(b)(1)(A)(i) (Church) Appears to Meet 170(b)(1)(A)(vi) or 509(a)(2)

4. It appears you should be classified as a public charity under a section of the Internal Revenue Code that is different than the section selected on your application. You requested recognition of exemption under Section 501(c)(3) with public charity classification as a church under Sections 509(a)(1) and 170(b)(1)(A)(i).  

Based on the information you submitted, you may be more appropriately classified as a public charity under Sections 509(a)(1) and 170(b)(1)(A)(vi) or under Section 509(a)(2). You can find additional information about public charity classification on our website, /Charities-&-Non-Profits.

  • If you want the IRS to determine your classification based on the information you submitted, please provide a written statement requesting the IRS to determine your classification.
  • If you want to pursue classification as a church, please provide a detailed description of how you meet the requirements of a church under Sections 509(a)(1) and 170(b)(1)(A)(i). You must also complete and submit Schedule A to Form 1023, if you have not already done so. In the alternative, you can submit a statement requesting classification under Sections 509(a)(1) and 170(b)(1)(A)(vi) or Section 509(a)(2), including a detailed description of how you meet the requirements for classification under the relevant section(s). We will consider your request before making a final determination about your classification.

Requested 170(b)(1)(A)(ii) (School) Appears to Meet 170(b)(1)(A)(vi) or 509(a)(2) 

5. It appears you should be classified as a public charity under a provision of the Internal Revenue Code that is different than the section selected on your application. You requested recognition of exemption under Section 501(c)(3) with public charity classification as a school under Sections 509(a)(1) and 170(b)(1)(A)(ii).  

Based on the information you submitted, you may be more appropriately classified as a public charity under Sections 509(a)(1) and 170(b)(1)(A)(vi) or under Section 509(a)(2). You can find additional information about public charity classification on our website, /Charities-&-Non-Profits.

  • If you want the IRS to determine your classification based on the information you submitted, please provide a written statement requesting the IRS to determine your classification.
  • If you want to pursue classification as a school, please provide a detailed description of how you meet the requirements of a school under Sections 509(a)(1) and 170(b)(1)(A)(ii). You must also complete and submit Schedule B to Form 1023, if you have not already done so. In the alternative, you can submit a statement requesting classification under Sections 509(a)(1) and 170(b)(1)(A)(vi) or Section 509(a)(2), including a detailed description of how you meet the requirements of the relevant section(s). We will consider your request before making a final determination about your public charity classification.

Requested 170(b)(1)(A)(iii) (Hospital) Appears to Meet 170(b)(1)(A)(vi) or 509(a)(2)

6. It appears you should be classified as a public charity under a section of the Internal Revenue Code that is different than the section selected on your application. You requested recognition of exemption under Section 501(c)(3) with public charity classification as a hospital under Sections 509(a)(1) and 170(b)(1)(A)(iii).  

Based on the information you submitted, you may be more appropriately classified as a public charity under Sections 509(a)(1) and 170(b)(1)(A)(vi) or under Section 509(a)(2). You can find additional information about public charity classification on our website, /Charities-&-Non-Profits.

  • If you want the IRS to determine your classification based on the information you submitted, please provide a written statement requesting the IRS to determine your classification.
  • If you wish to pursue classification as a hospital, please provide a detailed description of how you meet or will meet the requirements of a hospital under Sections 509(a)(1) and 170(b)(1)(A)(iii). You must also complete and submit Schedule C to Form 1023, if you have not already done so. In the alternative, you can submit a statement requesting classification under Sections 509(a)(1) and 170(b)(1)(A)(vi) or Section 509(a)(2), including a detailed description of how you meet the requirements of the relevant section(s). We will consider your request before making a final determination about your public charity classification.

Requested One Public Charity Status, Appears to Meet Another (Fill in Options)

7. It appears you should be classified as a public charity under a section of the Internal Revenue Code that is different than the section selected on your application. You requested recognition of exemption under Section 501(c)(3) with public charity classification under Section [ ].  

Based on the information you submitted, you may be more appropriately classified as a public charity under Section [ ]. You can find additional information about public charity classification on our website, /Charities-&-Non-Profits.

  • If you want the IRS to determine your classification based on the information you submitted, please provide a written statement requesting the IRS to determine your classification.
  • If you wish to pursue classification as a public charity under the section you originally requested, please provide a detailed description of how you meet or will meet the requirements of that section. [You must also complete and submit Schedule [X] to Form 1023, if you have not already done so.] In the alternative, you can submit a statement requesting classification under Section [ ], including a detailed description of how you meet the requirements of the relevant section(s). We will consider your request before making a final determination about your public charity classification.

Requested Public Charity Appears to be Private Foundation or Private Operating Foundation

8. It appears you should be classified as a private [operating] foundation. You requested recognition of exemption under Internal Revenue Code Section 501(c)(3) with classification as a public charity under [Instruction: Insert Option A, B, or C from below.].  

Based on the information you submitted, you may not meet the requirements of your requested public charity classification and may be more appropriately described as a private [operating] foundation [under Section 4942(j)(3)]. You can find additional information about public charity classification on our website, /Charities-&-Non-Profits.

  • If you agree to be classified as a private [operating] foundation, please submit a written statement indicating your agreement.
  • If you do not agree to be classified as a private [operating] foundation, please submit a detailed description of your anticipated sources of receipts, such as any fundraising, grants, membership fees, or other activities, and how you meet the requirements for the public charity classification you requested in your application.  

Option A  

[Sections 509(a)(1) and 170(b)(1)(A)(vi), which applies to organizations that receive a substantial part of their financial support in the form of contributions from publicly supported organizations, governmental units, or the general public.]

Option B  

[Section 509(a)(2), which applies to organizations that receive more than one-third of their support from contributions, membership fees, and gross receipts from activities related to their exempt functions.]

Option C

[Section 509(a)(3), which applies to supporting organizations.]  

Requested Private Operating Foundation Appears to be Private Non-operating Foundation

9. It appears you should be classified as a private foundation. You requested recognition of exemption under internal Revenue Code Section 501(c)(3) with classification as a private operating foundation. Under Section 4942(j)(3), a private operating foundation must make qualifying distributions directly in furtherance of its exempt purposes. In practice, this generally means that private operating foundations engage directly in the active conduct of activities accomplishing their exempt purposes rather than passively distributing funds to individuals or organizations that accomplish those purposes.  

Based on the information you submitted, you may be more appropriately described as a private (non-operating) foundation. You can find additional information about foundation classification on our website, /Charities-&-Non-Profits.

  • If you agree to be classified as a private foundation, please submit a written statement indicating your agreement.
  • If you do not agree to be classified as a private foundation, please submit a more detailed description of how you will meet the requirements of Section 4942(j)(3), including a description of your day-to-day activities.

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Attempting to Influence Legislation or Political Campaign Intervention Activities

May 7th, 2020 · Form 1023

Note: This post is taken from irs.gov.

Applications for exemption and miscellaneous determination requests are assigned to Exempt Organizations specialists for review. If additional information is necessary to make a determination, a specialist will contact the organization for the information. Here’s a list of questions that might be asked on this topic.

Specific Questions for Form 1023, 501(c)(3) Organizations (1 through 6)

1: General question for Form 1023
2-4: Attempting to influence legislation for Form 1023
5-6: Potential political campaign intervention indicated on Form 1023 or facts and circumstances indicate such activity

1) You submitted Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, requesting recognition of exemption under IRC Section 501(a) as an organization described in Section 501(c)(3). From the information you provided, it is not clear whether you qualify under this section of the IRC. We need additional information before we can process your application and make a determination.

To be recognized under Section 501(c)(3), an organization must operate exclusively for the purposes described in Section 501(c)(3). The purposes described are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to animals. Note that the term “charitable” is interpreted very broadly.

You can find additional information in Publication 557, Tax-Exempt Status for Your Organization and in the Charities and Non-Profits area of the site.

  • If you want to pursue recognition as an exempt organization described in Section 501(c)(3), please submit additional information showing how you are organized and operated exclusively for the purposes described in Section 501(c)(3).
  • If you decide that you qualify for recognition as an exempt organization described in a paragraph of Section 501(c) other than paragraph (c)(3), you may want to complete and return Form 1024, Application for Recognition of Exemption Under Section 501(a) or Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4). A new user fee is not required. Although supporting information previously furnished need not be duplicated, you must provide any necessary additional information required for the application, including the applicable schedule to Form 1024.

If you decide not to pursue recognition as an exempt organization at this time, please submit a written statement indicating your intention. We will then close your case, and we won’t refund any user fee you paid.

[Instruction: 2 is applicable if a Section 501(c)(3) applicant indicated on Part VIII, line 2a of the Form 1023 that it will attempt to influence legislation, checked “No” to line 2b (indicating it was not making an election by filing Form 5768) and did not submit additional information as requested by the Form 1023.]

2) On Part VIII, line 2a of your Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, you stated you would attempt to influence legislation. You checked “No” to Part VIII, line 2b of the Form 1023 but did not describe whether your attempts to influence legislation are a substantial part of your activities, including the time and money spent on your attempts to influence legislation as compared to your total activities. Please describe your attempts to influence legislation in detail and state the percentage of your total expenditures and total time spent on these activities during each of your past taxable years and an estimate of your total expenditures and total time you intend to spend on these activities in the future. 

For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, and other general expenditures to these activities using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

For purposes of this question, you are attempting to influence legislation if you contact, or urge the public to contact, members of a legislative body for the purpose of proposing, supporting, or opposing legislation. For these purposes, the term “legislation” includes action by Congress, a state legislature, a local council, or a similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive offices) or by the public in referendums, ballot initiatives, constitutional amendments, or similar procedure.

[Instruction: 3 is applicable if the facts and circumstances indicate that the applicant attempts to influence legislation but it checked “No” to Part VIII, line 2a.]

3) It appears you [insert description of activities set forth in the application indicating attempts to influence legislation and enclose any supporting materials that have not been submitted by applicant.]. By engaging in this activity, it appears that you are attempting to influence legislation; however, you checked “No” to Part VIII, line 2a on your Form 1023. Provide the following information:

a. Describe these activities in greater detail, including the percentage of your total expenditures and total time spent on these activities during each of your past taxable years and an estimate of your total expenditures and total time you intend to spend on these activities in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, and other general expenditures to these activities using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

b. Submit representative samples of the materials you prepare or distribute in furtherance of these activities.

[Instruction: 4 is applicable if the facts and circumstances indicate that the applicant may be an “action” organization whose purposes can only be attained by legislation (as defined in Treas. Reg. Section 1.501(c)(3)-1(c)(3)(iv)).]

4) Your main or primary objectives appear to be [insert main or primary objectives based on the description of activities in the application]. It appears these objectives can only be attained by legislation or the defeat of proposed legislation. Explain whether there are other means for accomplishing your primary objectives and if so, describe your activities in doing so.

[Instruction: Ask 5 only if a Section 501(c)(3) applicant stated on its Form 1023 that it engages in political campaign intervention activities but did not describe those activities as required by the Form.]

5) You stated on Part VIII, line 1 of your Form 1023 that you support or oppose candidates in political campaigns, but you did not submit an explanation as required by the form. Submit a detailed explanation of your activities that support or oppose candidates in political campaigns.

[Instruction: Ask 6 only if a Section 501(c)(3) applicant stated on Part VII, line 1 of its Form 1023 that it does not engage in political campaign intervention activities, but the facts and circumstances indicate that there may be an activity that does constitute political campaign intervention and there is not a category listed in this template that the activity would otherwise fall into.]

6) You engage in [insert description of potential political activities and enclose any supporting materials that have not been submitted by applicant]. By engaging in these activities, it appears you may be engaging in political campaign intervention. Please describe these activities in greater detail and submit representative samples of materials you prepared or distributed with regard to these activities (including materials you posted on your website or social media sites).

Potential Political Campaign Intervention Activities (Form 1023, Form 1024 or Form 1024-A) (7 through 21)

[Instruction: If an organization has submitted Form 1024 or Form 1024-A, only ask questions in 7 through 19 if the activity at issue in the question (either alone or together with other activities) could potentially result in the organization failing to qualify for the exemption sought and it is not possible to discern from the descriptions, percentage, and dollar amounts provided in the application whether the activity constitutes political campaign intervention and/or what proportion of the organization’s total activities the activity in question constitutes.]

7-8: Political campaign intervention activities indicated on Form 1024 or Form 1024-A or facts and circumstances indicate such activity
9-10: Communications
11: Research and surveys
12: Candidate forums
13: Candidate appearances
14: Voter registration, get-out-the-vote drives
15: Voter guides
16-17: Private benefit to a particular political party or candidate
18: Affiliated organizations
19: Grant making to other organizations
20-21: Time and expenditure allocation responses compared to submitted information on Form 1024 or Form 1024-A

[Instruction: Ask 7 only if an applicant stated on its Form 1024 or Form 1024-A that it spent or plans to spend money attempting to influence the selection, nomination, election, or appointment of any person to any federal, state, or local public office or to an office in a political organization, but did not explain those expenditures in detail as required by the Form.]

7) You stated on Part II, line 15 of your Form 1024 or on Part V, line 1 of your Form 1024-A that you spent or will spend money attempting to influence the selection, nomination, election, or appointment of any person to any federal, state, or local public office or to an office in a political organization. However, you did not submit a detailed explanation of this activity and/or a list of the amounts to be spent as required on the form. Please describe these activities in detail and state the percentage of your total expenditures and total time spent on these activities during each of your past taxable years and an estimate of your total expenditures and total time you intend to spend on these activities in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, fundraising, and other general expenditures to these activities using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

[Instruction: Ask 8 only if an applicant stated on its Form 1024 or Form 1024-A that it does not spend or plan to spend money attempting to influence the selection, nomination, election, or appointment of any person to any federal, state, or local public office or to an office in a political organization, but the facts and circumstances indicate that the applicant may be engaging in such activities and there is not a category listed in this template that the activity would otherwise fall into.]

8) You engage in [insert description of potential political activities and enclose any supporting materials that have not been submitted by applicant]. By engaging in these activities, it appears you may be attempting to influence the selection, nomination, election, or appointment of one or more persons to a federal, state, or local public office or to an office in a political organization. With respect to these activities, provide the following information:

a. Describe the activities in greater detail.

b. State the percentage of your total expenditures and total time spent on these activities in each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on these activities in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, fundraising, and other general expenditures to these activities using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours. c.  Submit representative samples of materials you prepared or distributed with regard to these activities (including materials you posted on your website or social media sites).

[Instruction: Ask 9 if there are facts and circumstances that indicate that there are communications by the organization that appear to constitute political campaign intervention and copies were either provided or located through other means.]

9) Enclosed are communications/materials that appear to constitute political campaign intervention. Did you produce or distribute this/these communications or materials? If so, provide the following information:

a. State the period during which the communication or material was distributed and the area in which the communication or material was distributed.

b. Submit a copy of any other communications or materials you have produced or distributed (including materials you posted on your website or social media sites) that (i) identify one or more candidates for public office and express approval or disapproval for their positions or actions; or (ii) reference voting in an upcoming election, along with the period during which the communication or material was distributed, and the area in which the communication or material was distributed.

c. Submit a copy of any publicly disclosable reports regarding such communications or materials that were submitted to the Federal Election Commission or other election authorities. d.  State the percentage of your total expenditures and total time spent on each of these communications/materials during each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on these kinds of communications in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, fundraising, and other general expenditures to these activities using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

[Instruction: Ask 10 if there are facts and circumstances that indicate that the organization is issuing communications that may constitute political campaign intervention, but copies are not available (i.e. the organization did not provide them, and they cannot be found through other means). If you asked question 8 above, use “(other than those described in question #),” presented in brackets below, filling in the actual question number.]

10) It appears you may have produced, distributed, or issued communications or materials [(other than those described in question #)] that constitute political campaign intervention. With respect to these, provide the following information:

a. Submit a copy of any communications or materials you have produced or distributed (including materials you posted on your website or social media sites) that (i) identify one or more candidates for public office and express approval or disapproval for their positions or actions; or (ii) reference voting in an upcoming election, along with the period during which the communication or material was distributed, and the area in which the communication or material was distributed.

b. Submit a copy of any publicly disclosable reports regarding such communications or materials that were submitted to the Federal Election Commission or other election authorities.

c. State the percentage of your total expenditures and total time spent on each communication or material during each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on these kinds of communications in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, fundraising, and other general expenditures to these communications using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

[Instruction: Ask 11 only if the facts and circumstances indicate that the applicant may engage in research and survey activities related to political campaigns that could constitute political campaign intervention or private benefit to a political party or candidate for public office.]

11) It appears you engage in research and survey activities related to political campaigns. With respect to these activities, provide the following information:

a. Describe how you conduct your research and survey activities related to political campaigns, including a description of how you determine survey populations and how you develop your survey questions.

b. Describe how you distribute your research and survey results, including whether they are made available to the public.

c.  Submit representative samples of your survey questions and distributed research results.

d. [Use for Form 1024 or Form 1024-A filers only] State the percentage of your total expenditures and total time spent on this activity during each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on this activity in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, fundraising, overhead, and other general expenditures to this activity using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

[Instruction: Ask 12 only if the facts and circumstances indicate the applicant may hold candidate forums.]

12) It appears you hold candidate forums at which candidates for public office participate. With respect to these forums, provide the following information:

a. Do you invite all of the legally qualified candidates for the particular elected office to the events? If not, describe how you determine which candidates to invite.

b. For the legally qualified candidates who did participate at your candidate forum, were each provided an equal opportunity to speak at your event?

c. Describe how you determined what questions to ask of the candidates, including the scope of the subject matter of the questions.

d. Describe how you determined who would present the questions to the candidates.

e. Do you state your support or opposition to any of the candidates at the event?

f. Are candidates asked to agree or disagree with positions of the organization?

g. Does any political fundraising take place at the event?

h. Submit representative samples of materials you prepared or distributed with regard to these activities, including materials promoting the events and prepared candidate questions.

i. [Use for Form 1024 or Form 1024-A filers only] State the percentage of your total expenditures and total time spent on this activity during each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on this activity in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, fundraising, overhead, and other general expenditures to this activity using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

[Instruction: Ask 13 only if the facts and circumstances indicate that the applicant may have candidates for public office appear at its events.]

13) It appears you have candidates for public office present at your events. Provide the following information about these appearances:

a. Explain whether they are appearing in their capacity as a candidate for public office. If not, explain why they were chosen to appear.

b. Explain whether during the course of the appearance, any references are made to the individual’s candidacy or to the election.

c. Does any political fundraising take place at the event?

d. Submit representative samples of materials you prepared or distributed with regard to these activities, including materials promoting the events.

e. [Use for Form 1024 or Form 1024-A filers only] State the percentage of your total expenditures and total time spent on this activity during each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on this activity in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, fundraising, and other general expenditures to this activity using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

[Instruction: Ask 14 only if the facts and circumstances indicate the applicant may engage in voter registration drives and/or get-out-the-vote drives.]

14) It appears you conduct voter registration drives and/or get-out-the-vote drives. Provide the following information about these activities:

a. Describe where you conduct these activities and the criteria you use to choose the locations and/or the populations that are registered or encouraged to vote.

b.  State whether you ask questions to determine potential voters’ views on issues and candidates for public office prior to registering them to vote. If you do, please explain.

c. Submit representative samples of materials you prepared or distributed with regard to these activities, including scripts, flyers, and brochures.

d. [Use for Form 1024 or Form 1024-A filers only] State the percentage of your total expenditures and total time spent on this activity during each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on this activity in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, fundraising, and other general expenditures to this activity using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

[Instruction: Ask 15 only if the facts and circumstances indicate that the applicant may prepare and/or distribute voter guides.]

15) It appears you distribute or publish voter guides. Provide the following information about this activity:

a. Describe how you prepare your voter guides, including how you determine which issues are addressed in the guides.

b. Do your guides include all legally qualified candidates for each particular public office in your guides? If you do not, explain why and describe how you determine which candidates to include.

c. If you use a questionnaire to determine candidate positions, explain whether the questions contained in the questionnaire are identical to those provided in the voter guide, whether the candidates have a reasonable amount of time to respond to the questionnaire, whether candidates are given a reasonable opportunity to explain their positions in their own words, and whether the responses in the voter guide are unedited and appear in the guides close to the question to which they respond. Additionally, describe how you treat candidates who do not respond.

d. Describe when/how often your voter guide(s) is/are produced and when, to whom, how, and where it is they are made available.

e. Submit representative samples of the voter guides you have prepared or distributed.

f. [Use for Form 1024 or Form 1024-A filers only] State the percentage of your total expenditures and total time spent on this activity during each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on this activity in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, fundraising, and other general expenditures to this activity using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

[Instruction: Ask 16 if based on the facts and circumstances there is information to indicate that the organization might be providing a private benefit to a particular political party. Note: Do not specify by name the political parties.]

16) It appears you engage in [describe activity]. It appears this activity may be conducted primarily for the benefit of one particular political party. Provide the following information about this activity:

a. Describe these activities in greater detail.

b. State the percentage of your total expenditures and total time spent on this activity during each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on this activity in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, fundraising, and other general expenditures to this activity using a reasonable method. The percentage of total time should include employee and volunteer hours.

[Instruction: Ask 17 if based on the facts and circumstances there is information to indicate that the organization may be affiliated with or providing financial or other benefits to a candidate for public office and the applicant has not fully described its affiliation with or benefits provided to the candidates.]

17) It appears you may be affiliated with or provide financial or other support to one or more candidates for public office. With regard to this activity, provide the following information:

a. State the names of the candidates.

b. Describe the candidates’ relationship to you in detail, including whether you work with the candidates regularly and the nature and dollar value of the benefits you provide to the candidates.

c. State whether you share employees, volunteers, funds, office space, websites or other resources with the candidates and, if you do, provide a copy of any agreements that you entered into with the candidates regarding the sharing of such resources.

d. List the compensation, if any, you received from the candidates in exchange for your support and whether and how you determined that the compensation was reasonable.

e. If the value of the support you provided to the candidates exceeded the compensation you received from the candidates in exchange for your support, state the percentage of your total expenditures that this excess constituted in each of your past taxable years and an estimate of what such percentage will be in the future.

[Instruction: Ask 18 if the facts and circumstances indicate that the applicant may be affiliated with another exempt organization that may engage in political activities (other than an exempt organization described in Section 501(c)(3)) and the applicant has not fully described its affiliation.]

18) It appears you are affiliated with other entities described in Internal Revenue Code Sections [Insert applicable Code Sections]. With regard to these affiliations, provide the following information:

a. State the name and address of the organizations.

b. Describe your relationship with the organizations in detail, including whether you work with the organizations regularly.

c. State whether you share employees, volunteers, funds, office space, websites or other resources with the organizations and, if you do, provide a copy of any agreements that you entered into with the organizations regarding the sharing of such resources.

d. List the compensation, if any, you received from the organizations in exchange for your support and whether and how you determined that the compensation was reasonable.

e. If the value of the support you provided to the organizations exceeded the compensation you received from the organizations in exchange for your support, state the percentage of your total expenditures that this excess constituted in each of your past taxable years and an estimate of what such percentage will be in the future.

[Instruction: Ask 19 only if the facts and circumstances indicate that the applicant may engage in grant making to organizations other than those described in Section 501(c)(3) and that the grant funds may be used by the recipient to engage in political campaign intervention or, in the case of a grant from a Section 501(c)(3) organization, attempts to influence legislation.]

19) It appears you make grants to organizations other than those described under IRC Section 501(c)(3). Describe your grant making program. Your response should include the following:

a. What is the purpose of the grants?

b. What is your criteria for making a grant, and how do you determine that the grants will further your exempt purposes?

c. Describe any procedures you have for ensuring that the grantee uses the grant to further your exempt purposes.

d. Provide representative samples of grant agreements and grant proposals.

e. List each grant you made during each of your past taxable years, along with the amount and the name of the recipient and Code section, if any, in which the recipient is described (for example Sections 501(c)(4), (5), or (6) or 527).

f. State the percentage of your total expenditures and total time spent on this activity during each of your past taxable years. Additionally, estimate the percentage of your total expenditures and total time you plan to spend on this activity in the future. For purposes of calculating the percentage of expenditures, allocate salaries, administrative, overhead, fundraising, and other general expenditures to this activity using a reasonable method. For purposes of calculating the percentage of time, include volunteer as well as employee hours.

[Instruction: Ask 20 only if you think you may not be able to tell whether and how the percentages of time provided in response to one or more question from K8 to K19, above, are reflected in the percentages of time the applicant provided in Part II, line 1 of the Form 1024 or Part III of Form 1024-A.]

20) State whether and how the percentages of time you provided in response to question[s] [#s], above, are reflected in the percentages of time included in the narrative description you provided in your application.

[Instruction: Ask 21 only if you think you may not be able to tell whether and how one or more of the percentages of expenditures provided in response to one or more question from 8 to 19, above, are reflected in the “amounts spent” the applicant provided in Part II, line 15 of the Form 1024 or on Part V, line 1 of your Form 1024-A.] 21) State whether and how the amounts used to calculate the percentages of expenditures you provided in response to question[s] [#s], above, were included the “amounts spent” on political activity that you provided in your application.

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Submitted Form 1023 – Organization Appears to be Described in Subsection Requiring Form 1024

May 7th, 2020 · Form 1023

Note: This post is copied from irs.gov.

Applications for exemption and miscellaneous determination requests are assigned to Exempt Organizations specialists for review. If additional information is necessary to make a determination, a specialist will contact the organization for the information. Here’s a list of questions that might be asked on this topic.

1. You submitted Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, requesting recognition of exemption under IRC Section 501(a) as an organization described in Section 501(c)(3). From the information you provided, it is not clear whether you qualify under this section of the IRC. We need additional information before we can process your application and make a determination.

To be recognized under Section 501(c)(3), an organization must operate exclusively for the purposes described in Section 501(c)(3). The purposes described are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to animals. Note that the term “charitable” is interpreted very broadly.

You can find additional information about all exempt organizations on the IRS website at www.irs.gov/charities and in IRS Publication 557, Tax-Exempt Status for Your Organization.

  • If you want to pursue recognition as an exempt organization described in Section 501(c)(3), please submit additional information showing how you are organized and operated exclusively for the purposes described in Section 501(c)(3).
  • If you decide that you qualify for recognition as an exempt organization described in a paragraph of Section 501(c) other than paragraph (c)(3), you may want to complete and return Form 1024, Application for Recognition of Exemption Under Section 501(a), which is available on the IRS website at www.irs.gov/formspubs. A new user fee is not required. Although supporting information previously furnished need not be duplicated, you must provide any necessary additional information required for the application, including the applicable schedule to Form 1024.
  • If you decide not to pursue recognition as an exempt organization at this time, please submit a written statement indicating your intention. We will then close your case, and we won’t refund any user fee you paid.

Submitted Form 1024 – Organization Appears to be Described in Other Subsection

2.You submitted Form 1024, Application for Recognition of Exemption Under Section 501(a), requesting recognition of exemption under IRC Section 501(a) as an organization described in Section 501(c) ([Enter requested subsection number (X1)]) as a [Enter description of organization under requested subsection, as listed on page 1 of Form 1024, e.g., social club].  From the information you provided, it is not clear whether you qualify under this section of the IRC. We need additional information before we can process your application and make a determination.

You can find additional information about all exempt organizations on the IRS website at www.irs.gov/charities and in IRS Publication 557, Tax-Exempt Status for Your Organization.

  • If you want to pursue recognition as an exempt organization described in Section 501(c) ([Enter requested subsection number (X1)]), please submit additional information showing how you meet the requirements of this subsection.
  • If you decide that you qualify for recognition as an exempt organization described in a different paragraph of Section 501(c) other than paragraph (c)(3), you may want to correct and return page 1 of Form 1024, Application for Recognition of Exemption Under Section 501(a), which is available on the IRS website at www.irs.gov/formspubs. A new user fee is not required. Although supporting information previously furnished need not be duplicated, you must provide any necessary additional information required for the application, including the applicable schedule to Form 1024.
  • If you decide that you qualify for recognition as an exempt organization described in Section 501(c)(3), you may want to complete and return Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, which is available on the IRS website at www.irs.gov/formspubs. A new user fee is not required. Although supporting information previously furnished need not be duplicated, you must provide any necessary additional information required for the application.  Pay special attention to the provisions required to be in your organizational documents by reviewing Part III of the Instructions for Form 1023.

If you decide not to pursue recognition as an exempt organization at this time, please submit a written statement indicating your intention. We will then close your case, and we won’t refund any user fee you paid.

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Form 990 and Unrelated Business Income

March 26th, 2019 · Form 990, unrelated business income

On Wednesday, May 15, 2019, I will be presenting a national teleconference, “Form 990 and Unrelated Business Income” for Lorman Education Services: 1:00 PM – 2:30 PM EST.  This teleconference will cover the following topics:

Form 990 Procedural Matters

●Determining Which Form to File
●Due Dates and Automatic Extension

Parts of Form 990
●Overview of Parts of Form 990
●Types of Income, Exempt Function Versus Grants and Special Events
●Schedule of Contributors (Sched. B);Non-Cash Contributions (Schedule M)
●Reporting of Compensation
●Governance and Management Policies

Selected Schedules to Form 990
●Public Charity Status and Public Support – Schedule A
●Transactions With Interested Persons – Schedule L
●Related Organizations – Schedule R
●Unrelated Business Income
●Criterial for Taxation and Fragmentation Rule
●Exceptions, Modifications and Exceptions to Exceptions
●Advertising and Sponsorship
●Form 990T
●Planning Considerations

For a copy of the flyer for this teleconference, please see the following link. For registration, please see the following link

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How to Rescue a Troubled Nonprofit: California Considerations

February 8th, 2017 · California Attorney General enforcement, California Exempt Status, reinstating California exempt status, restoring good standing with CA Secretary of State

Did your nonprofit organization lose its California tax-exempt status? It the organization suspended with California Secretary of State? Has the organization been suspended by the California Attorney General?

What needs to be done to reinstating the exemption for California income tax purposes? How does one restore “good standing” status with the California Secretary of State? What issues should one be aware of relating to enforcement by the California Attorney General?

The webinar below addresses the following topics:

● How loss of exemption (“The Troubles”) occurs

● Reinstating California tax-exemption

● Restoring “good standing” with the California Secretary of State

● California Attorney General enforcement

For a free webinar on this topic please see below.

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How to Rescue a Troubled Nonprofit – Federal Income Tax Considerations

February 8th, 2017 · Federal Income Taxes, Form 1023, Form 1023-EZ, Loss of Tax-Exempt Staus, Rev. Proc. 2014-11

Did your nonprofit organization lose its tax-exempt status? Are you considering reinstating the exemption for federal income tax purposes? What issues should you be thinking about?

The webinar below addresses the following topics:

● How loss of exemption occurs

● How to reinstate exemption

● Federal Reinstatement: critical dates

● 4 possible routes to reinstate exempt status

● Reasonable cause statements

For a free webinar on this topic please see below.

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FTB Guidance Regarding Automatic Extension for Filing Form 199 and Form 109

November 13th, 2016 · Automatic Extension, Form 109, Form 199

The following summarizes recent guidance issued by the California Franchise Tax Board regarding the automatic extension for filing the Form 199, Exempt Organization Annual Information Return and for the Form 109, Exempt Organization Business Income Tax Return.  The guidance, which is found in FTB Notice 2016-04, is for taxable years beginning on or after January 1, 2016, a copy of which can be accessed at the following link.

 

Original Due Date.  Exempt organizations should file Form 199 by the 15th day of the fifth month after the close of the tax year.  If an organization has income in excess of $1,000 from a trade or business that is unrelated to its exempt purposes – even if the profits are used for exempt purposes – it is required to file Form 109.  The same due date applies for Form 109 as for Form 199.  For example, a calendar year exempt organization, the two forms are due on May 15th.

 

Automatic Extension if in Good Standing.  For taxable years beginning on or after January 1, 2016, if Form 199 (or 109) cannot be filed by the 15th day of the fifth month, the organization has an additional six months to file without filing a written request for extension.  This automatic extension is extended to organizations that are in good standing with the Franchise Tax Board on the original due date.  The granting of the extension is also conditioned on the filing of a return within the automatic extension period.  The extended due date will be the 15th day of the 11th month after the close of the tax year.  For example, a calendar year exempt organization, the extended due date would be November 15th.

 

No Automatic Extension if Not in Good Standing.  If an organization is not in good standing with the FTB, neither the 199 return nor the 109 return will be given an extension of time to file.  With respect to Form 109 to avoid late payment penalties, the organization must pay 100% of the tax liability by the original due date of the return.

 

Caution:  The above discussion is limited to the Form 199 and 109 returns filed by exempt organizations.   Please also note that this information is for taxable years beginning on or after January 1, 2016 and not for earlier tax years (for example:  the instructions for the 2015 forms refer to seven additional months for the automatic extension).

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