How to set up a Club Foundation and IRS Forms

Mid Winter Training ConferenceCrown Plaza Hotel

Worcester, MAMarch 6, 2010

William T. Jenkins, CPA

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Who am I?

• Kiwanis– District Treasurer– 2008 Outstanding Lieutenant Governor– Past Distinguished Lieutenant Governor– Past Club President

• Career– Certified Public Accountant– Retired CFO of both Public and Private

Companies– Immediate Past Chairman of Cape Cod SCORE

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501(c)(3) Status – Are You Sure?

Purposes

• 501(c)(3) status is limited to groups formed exclusively for one or more of the following purposes:– charitable – educational– religious– scientific– literary– fostering national or international amateur

sports competition– preventing cruelty to children or animals– testing for public safety

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Limitations

• A 501(c)(3) must serve public purposes, rather than private purposes.

• A (c)(3) must not pay dividends or distribute earnings in any other way to private shareholders or individuals.

• While a (c)(3) can pay reasonable amounts for goods and services, payments to insiders that are unreasonably high can result in fines imposed on both the insiders and the board members who approved the payments.

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Limitations

• In extreme cases, the organization can lose its tax exempt status.

• Although (c)(3) organizations are generally exempt from federal income tax, they do have to pay tax on net income from regular trade or business activities that are unrelated to their exempt purposes.

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Limitations

• Legislative activity (lobbying) must be limited. Ordinarily, the limit is less than 5%, measured in a variety of ways. Most organizations, however, can elect higher limits with increased annual reporting requirements. Political activity (support of, or opposition to, candidates for public office) is absolutely prohibited, and will lead to revocation of exempt status as well as penalty taxes.

• No 501(c)(3) can exist for a purpose that is illegal or contrary to well-defined Federal public policy.

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Actual Wording of Section 501(c)(3) of the Internal Revenue Code:

• (c)(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

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Pros & Cons of 501(c)(3) Status

501(c)(3) Organizations Enjoy the Following Privileges:

• Exemption from Federal Income Tax • Exemption from F.U.T.A. (federal

unemployment tax)• Tax Deductibility for Donors• Eligible for Government & Foundation Grants• Eligible for Bulk Mailing Permit• Eligible for State and Use Tax exemption• Gambling Permits (in some jurisdictions)• Credibility

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501(c)(3) Organizations Must Fulfill the Following

Responsibilities:• Keep Adequate Records• File Required Returns• Provide Donor Substantiation• Obey Disclosure Laws• Generate Public Support• Avoid "Excess Benefits" for insiders• Shun Political Activity• Limit Legislative Activity• Limit Unrelated Business Activity 04/19/23 11

Why does a Kiwanis Club Qualify

• The IRS term for those who deserve our charity is "charitable class." IRS rulings have held that persons who are aged, ill, handicapped, unemployed, or otherwise distressed, are members of a charitable class. The term also includes children and, of course, the poor, indigent, and underprivileged. You cannot set up a charity to benefit a specific person, even if that person is in need. To have a true charitable class, the specific individuals who will benefit cannot be selected ahead of time.

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Why does a Kiwanis Club Qualify

• The term charitable has a meaning beyond just helping the poor. It includes many activities that serve the common good, such as establishing or maintaining public buildings, monuments or works, relieving the burdens of government, reducing neighborhood tensions, eliminating prejudice and discrimination, defending human and civil rights, battling community deterioration, combating juvenile delinquency, promoting the arts, and preserving and protecting the natural environment for the benefit of the public. Historically, "charitable" is an evolving concept that can change with society's needs.

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Before You Fill Out Your Application

• Starting a 501(c)(3) organization involves many tasks:– Identify your organization's mission.– Recruit people for the board of directors.– Adopt governing documents – Kiwanis International Articles of

Incorporation/Bylaws.– Draw up a business plan.– Plan how to raise funds.– Hire employees or enlist volunteers.– Establish recordkeeping systems.– Apply for state and local licenses, registrations and exemptions.– Obtain a bulk mailing permit.– Purchase insurance.

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Where to Start

• Kiwanis International website– http://community.kiwanisone.org/media/p/2153.aspx

• IRS internet website to begin the process– http://www.irs.ustreas.gov/pub/irs-pdf/f1023.pdf– http://www.irs.gov/instructions/i1023/index.html

• Other documentation required– Kiwanis International Bylaws– Club Bylaws– Articles of Organization– Employer Identification Number (EIN)– (Annual Reports)– (Tax Returns)– Form 1023

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Establishing a Kiwanis Club Foundation

• When prepared, you must submit to Kiwanis International the following:– A copy of the Proposed Articles of Incorporation

for approval before they are filed with the office of the Secretary of State.

– 2. Two copies of the Foundation Bylaws containing the date of adoption and the signatures of the president and secretary of the foundation.

Note: When the Proposed Articles of Incorporation and the Foundation Bylaws are approved by Kiwanis International, consent will be given for the Articles of Incorporation to be filed with the State.

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Legal Filings• Article VIII Section 4. (add) 

– Upon the dissolution of the organization, assets shall be distributed for one or more exempt purposes within the meaning of section 501 (c) (3) of the Internal Revenue Code, or corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for the public purpose. Any such assets not disposed of shall be disposed of by the Court of Common Pleas of the county in which the principle office of the organization is located, exclusively for such purposes or to such organizations or organizations, as said Court shall determine, which are organized and operate exclusively for such purposes.

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Legal Filings

• Incorporate Foundation with Secretary of State– Connecticut –www.ct.gov/sots– Maine - www.maine.gov/sos– Massachusetts - www.sec.state.ma.us– New Hampshire – www.sos/nh.gov– Rhode Island - www.sec.state.ri.us– Vermont - www.sec.state.vt.us/corps

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501 (c)(3) Documents

• Obtain copy of Kiwanis International Bylaws• Obtain copy of New England District Bylaws• Obtain copy of Foundation Bylaws• Articles of Incorporation• Apply for an Federal Identification Number

– www.irs.gov/

• Download a copy of IRS Form 1023 and instructions– www.irs.gov/charities/article/0,,id=96109,00.html

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News affecting 501(c)(3) Applications

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User Fees Set to Increase

• The User Fees that must be paid with an exemption application changed January 3, 2010.

• Organizations whose gross receipts average less than $10,000 per year will pay $400.

• Others pay $850.• When the Cyber Assistant becomes available

later in 2010, applicants who use it will be eligible for a reduced User Fee of $200.

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Cyber Assistant

• The IRS hopes to unveil its Cyber Assistant some time during 2010.

• This tool will guide applicants through the Form 1023, providing continuation sheets for lengthy responses, cover sheets for attachments, and relevant taxpayer education.

• When a Cyber Assistant-aided application is finished, it must be printed out and submitted in the usual way

• Special bar-coding on the printed form will alert the IRS that the applicant is eligible for the reduced User Fee of $200.

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New Mailing Address but expect Delays

• Internal Revenue ServiceP. O. Box 12192Covington, KY 41012-0192

• Last fall the IRS Director of Exempt Organizations acknowledged there have been delays: "Over the past several years, the number of applications for tax-exempt status has continued to rise. The increase in applications, coupled with the need to scrutinize applications more closely to ensure that the organization qualifies for tax-exempt status, has resulted in a backlog of cases awaiting assignment... While we are working to reduce the backlog, we recognize that applicants may be frustrated by the wait time."

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Maintenance of 501(c)(3)

• Tax Returns• Annual Reports• Annual Meetings• Meeting Minutes• Solicitation documentation (>$350)

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Tax Return Requirement

• Gross receipts less than $25,000– If gross receipts are less than $25,000 and the

club did not receive a Form 990 package from the IRS use 990N

• Gross receipts more than $25,000, but less than $1,000,000– Form 990-EZ is required annually

• Gross receipts greater than $1,000,000– Form 990 must be completed

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Where to find the filing information

• Form 990-N • Form 990-EZ -http://www.irs.gov/pub/irs-

pdf/f990.pdf• Form 990 -

http://www.irs.gov/pub/irs-pdf/f990.pdf• Instructions for Forms 990 and 990-EZ -

http://www.irs.gov/instructions/i990-ez/index.html

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Annual Report Filings URL’s

• Connecticut - http://ct.gov/sots/lib/sots/commercial recording/allforms/corp-organization.pdf

• Maine - http://www.maine.gov/sos/cec/corp/nonprofit.html• Massachusetts -

http://www.sec.state.ma.us/COR/corpweb/cornp/npfrm.htm• New Hampshire - http://www.sos/nh.gov/• Vermont Biennial Report -

http://www.sec.state.vt.us/corps/dobiz/npo/npbirep.htm• Rhode Island -

http://www.sec.state.ri.us/corps/corpforms1205/domesticnonprofit.html

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Other Compliance Filings

• Some states require the club to file a copy of their IRS filing on an annual basis

• Annual returns are generally require by the Secretary of State on an annual basis– Listing of Officers and pertinent data

(addresses, term of office, etc.)– Date of Annual Meeting

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Kiwanis Club of Sandwich Grant Program

Request for Proposals

The Kiwanis Club of Sandwich has as its essential mission “Young Children: Priority One”. The club has a long history of providing a variety of programs and community service projects that benefit the youth of Sandwich as well as the Town of Sandwich. The Kiwanis Club of Sandwich, through the auspices of the Gerald and Claire Levreault Trust Fund, is pleased to offer limited funding for programs that are developed to provide academic and/or cultural enrichment for students in the Sandwich School system and for projects outside the Sandwich School System that similarly benefit the townspeople. The purpose of the Levreault Grant Program is to assist Sandwich School teachers and local non-profit organizations in their efforts to create projects and present events that directly benefit the youth and/or townspeople of Sandwich. The maximum grant award shall not exceed $10,000. The Kiwanis Club of Sandwich may place restrictions or conditions on grant awards, and may award funds in lesser amounts than those applied for. Examples of some recent funded projects include the establishment of a Little League Challenger Division for handicapped children, the creation of a children’s reading workshop with an author of children’s books and the sponsorship of pediatric trauma course for Sandwich firefighters. Request for Proposal Guidelines

1. Individuals or organizations will submit a three-page (maximum) proposal and a copy of the IRS 501(c)(3) non-profit determination (organizations only).

2. The greatest consideration/weight will be given to those proposals that benefit the largest number of children.

3. Additional weight will be assigned to those requests that are original in nature (i.e. a dream or something the writer/submitter has always wanted to do but was restricted due to financial constraints) vs. those that are for supplies or basic materials.

4. With respect to those RFP’s submitted by Sandwich teachers, the committee will place a greater weight on proposals that benefit an entire grade in the town school system vs. others that would benefit one classroom or one grade at one school.

5. Extra weight will be also be assigned to those projects/programs where matching funds would be used to leverage the grant that would be received.

6. Once all proposals have been reviewed, ranked and rated by the Kiwanis Levreault Trust Committee, individuals/organizations may be requested to submit additional information and/or other such materials deemed necessary by the committee to give the proposal full and complete consideration.

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Grant Program

Proposal Cover Sheet

Teacher(s)/School(s) ______________________________________ or

Organization Name ______________________________________ Organization Contact ______________________________________ Address ______________________________________ ______________________________________ Telephone: Work ______________________________________

Home ______________________________________ Amount Requested ______________________________________ Total Amount of Project ______________________________________ Amount in savings for project ______________________________________ Date Submitted ______________________________________ Signature(s) ______________________________________

Please mail 5 copies of the cover sheet and proposal to:

Kiwanis Club of Sandwich PO Box 265

Sandwich, MA 02563

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Section A Please describe the event/project/program by providing the information requested below. All applications must be typewritten and limited to a maximum of three (3) pages. Please attach your description to the Proposal Cover Sheet. 1. Please briefly describe your organization and its mission. 2. Please state the goal of the event/project. 3. Please describe the event/project and the type of activities that will be included. Please be as

comprehensive as possible. 4. Please list the schedule of the event/project (i.e. month/day(s), time of day, location). 5. Please provide an estimate of the number of individuals who will directly benefit from this

event/project. Please provide a brief explanation as to how you determined this number. 6. Please indicate if you would be using the Levreault funds as matching funds to resources

presently in place to bring your event/program to completion. 7. Please provide any additional information you feel will be useful in our evaluation of your

application, including any previous experience with overseeing or conducting a similar type of activity.

8. If applicable, please provide a budget/promotion/marketing plan for your event/project, and

indicate how this project was made possible through the Levreault Trust Grant Program. Section B 1. Applications must be received by no later than April 15, 2010. All information requested in

Section A above must be provided for the application to be considered. 2. No single organization is eligible to receive more than one Levreault Grant award per year. 3. Events/projects/programs sponsored by churches or other religious groups are ineligible. 4. Grants will be announced on or about May 31, 2010 and the check awarded at gathering in

September. Events/projects should be completed by December 31, 2010. A minimum of eight (8) 4”x 6” non-returnable color photos capturing the event/project in various phases must be submitted to the Kiwanis Club of Sandwich.

5. Please feel free to contact Bill Jenkins at 508-833-9596 with any questions regarding your

grant application.