What is an IRS compliance audit sampling? A compliance audit
sampling in a group case is where the IRS requests information from
a random selection of subordinates (clubs) to help determine if the
clubs are truly representative of the parent organization (PI) and
if they are in compliance with the 501(c)(3) requirements set by
the tax code. The list of items requested from the selected clubs
was to help them determine both of those answers for our group. The
IRS may also do this on an ongoing basis to confirm that an
organization continues to be in compliance with the 501(c)(3)
requirements both individually and as a group.
Slide 3
How many clubs were sampled in the compliance audit? There were
29 clubs sampled in the audit. A few of the clubs were no longer
active and so the number of actual responses was around 25. The
clubs were randomly picked so the IRS could get a reading on the
make up of the clubs within the group. They then used that
information to formulate their opinion on the group as a
whole.
Slide 4
**What was requested from the chosen clubs by the IRS in the
compliance audit? Items requested from the 29 IRS chosen
representative clubs: A Copy of their Articles of Incorporation or
By-Laws if not incorporated. A copy of the meeting minutes for ALL
board meetings, committee meetings, and organization meetings for
2011 & 2012. The Website address for the individual club if
applicable. ALL newsletters disseminated in 2011 and 2012 A
timeline of events and activities with a detailed description of
each event from July 1, 2011 to present. A list of how the
activities are exclusively charitable and educational in nature as
required for 501(c)(3) status. A financial statement including a
breakdown of total revenue and expenditures from July 1, 2011 to
the present as per IRS Form 1023. Whether or not the club
administers a scholarship program. Copies of solicitation materials
for new members with an explanation of how prospective members
learn about your club. An explanation of the requirements for
membership, benefits, rights and obligations of members.
Slide 5
If my Pilot Club was a 501(c)(3) before the group application
is its status different now? The answer depends on whether your
club was a part of the group submitted. If your club had a
foundation, the foundation would not have been submitted in the
group and would still have its 501(c)(3) status. If it was your
actual club it could be that its status is now a 501 (c)(4) since
that is what they have approved for the group. The best thing to do
is to look at the IRS Exempt Organizations Business Master File.
http://www.irs.gov/Charities-&-Non-Profits/Exempt-
Organizations-Business-Master-File-Extract-EO-BMF
http://www.irs.gov/Charities-&-Non-Profits/Exempt-
Organizations-Business-Master-File-Extract-EO-BMF Check for your
EIN and see how they have it listed. We have researched this file
and have a list of all the clubs by state that you can check. If
you do not find your club there, we will help you research
further.
Slide 6
What is the difference between a 501(c)(4) and a 501(c)(3)
status? The main difference is that a 501(c)(3) is formed
exclusively for charitable, educational, religious and other
specific purposes and can accept contributions which are then tax
deductible by the donor as a charitable donation. A 501(c)(4) is
also a non-profit and does not pay tax on its revenue. Donations to
it, however, are not deductible as charitable contributions by the
donor. There are also philosophical differences in that a (c)(4) is
organized to promote social welfare and its earnings may also be
devoted to recreational purposes in addition to charitable or
educational etc. They are in essence civic organizations devoted to
furthering the good of the people of their communities. While this
is close to what the (c)(3) does, the (c)(4) includes activities
that do not qualify as exclusively charitable in nature.
Slide 7
How does my club now accept community or corporate funds that
are specified only for 501(c)(3) non profits? Pilot International
remains a 501(c)(3) and can accept the donations for you and then
transfer them to your individual club. Due to the unforeseen
circumstances Pilot will waive the usual transfer fee for a period
of one year. Grants would be handled the same way as a pass-through
grant again with no fee for one year.
Slide 8
What information should we share with our communities about our
clubs 501(c) status? When asked about your 501 (c)status you can
state that your parent organization is a 501(c)(3) and can accept
donations which can then be counted as charitable contributions.
Any donations can be made out to Pilot International and then will
be transferred to the local club for use in its specified purpose.
When the decision is made as to how to re-apply you may then state
that your individual 501(c)(3) status is in the application stage
waiting on a ruling by the IRS.
Slide 9
What date did our clubs revert to the 501 (c)(4) status? The
letter from the IRS stating that the clubs must be a 501(c)(4)
group was dated May 30, 2014. It was not actually received by PI
until June 4 th. The technical date of the ruling would be the May
30 th date but there was no notice until June 4 th.
Slide 10
Will PI apply again for the 501(c)(3) status for the club
group? Research is being done on that now with the help of an IRS
specialist. PIs CPA, Ken Neil, is investigating what it would take
to give the IRS enough of a comfort zone to rule the group as
501(c)(3). It is possible it will take some rewording of the club
Articles of Incorporation and possibly some changes in procedures
at the club level. We will let the clubs know as soon as possible
when we know a definitive answer to this question.
Slide 11
If my club wants to apply for a 501(c)(3) status independently
will PI be able to offer help with the application process? We are
hoping that the new 2 page 1023 application becomes approved soon.
When it does we will work up a sample after having a club
successfully submit it. It will then be a guide for filling out the
application for any clubs that wish to do so independently of the
group application. You cannot apply individually and be a part of
the group too. The results will be the same either way if approved.
There is a fee for filing individually, however, and it may be
prohibitive for some clubs. In the group application PI pays the
filing fee.
Slide 12
**New information on the 1023 application!! The 1023EZ
application form has been released by the IRS and is currently
available for clubs to use. It is an online application only so you
must go to the IRS website to access the application. We have
confirmed with the PI Accountant that is will not affect PIs
ability to file for a group determination if some of the clubs file
individually for their own 501(c)(3) status. There are restrictions
as to who can use this application and there will be a checklist
you must go through to be sure you can file this way. It is
restricted to those organizations that have gross revenue of
$50,000 or less and have assets of $250,000 or less. There are
other restrictions on the checklist also so be sure you go through
the whole list before applying. There is also a $400.00 user fee
that will have to be paid at the time of application. Several clubs
are going to do this and we will have more information after some
of them have gone through the process.
Slide 13
Can a PI District become a 501(c)(3) organization? The
Districts will have the same requirements that the clubs have in
that they will have to use their revenues exclusively for
charitable or educational etc. purposes. Since the majority of the
District funds go toward club related activities and conventions it
may be hard for them to qualify. However, there is one District
that has a 501(c)(3) status so it is obviously not impossible. It
might be hard to justify that the majority of the activities were
charitable in nature though. We will continue to research this more
and get back to the districts with what we find out. It would be
better for them to apply individually, however, rather than go
through the group to better keep the group organizations more
uniformly alike.
Slide 14
How do we know if our club has been revoked because of not
filing the 990? There is a place on the IRS website called Exempt
Organizations Select Check: http://apps.irs.gov/app/eos/ Here you
can look up your EIN to see if it has been revoked for not filing a
990 for three consecutive years. You can also look up your EIN to
see if you have filed a 990N (the postcard 990) which is what most
clubs file. It will show you the dates the 990Ns were filed and you
can see if you are missing years and are close to having your non
profit status revoked.
Slide 15
What do we do if our clubs non-profit status has been revoked
because of not filing our 990? Your club must submit a 1023
application for non profit status individually. You cannot be
included in the group until you have an individual status. In this
case you are better off to apply for the 501(c)(3) and not become a
part of the group. You are going to have to pay the filing fee
anyway. This should be done as soon as possible in that you are now
not exempt from paying taxes on your revenues. You may want to get
the help of a CPA to help you get reinstated and to help you to
know what tax return to file for this year.
Slide 16
**New information on applying for non-profit status if you have
been revoked. In talking with some of the Governors we have found
that if your non-profit status has been revoked because of
non-filing you may have another way of getting reinstated. The best
thing for you to do is contact a CPA that you have a connection
with in your area and get them to contact the IRS for you asking
for you to be reinstated. This will be a negotiation process and
you may still have to pay a fine but you might not have to actually
go through the re-filing process. If, however, your club is
thinking about filing the 1023 EZ form to be come a 501(c)(3) you
may want to just become reinstated that way.
Slide 17
How does my club file its 990 for this tax year? You must file
your 990 return as a 501(c)(4) organization since that will be what
you are at the end of the fiscal year. On the 990 N postcard it
does not ask for your classification ((c)(4)). The other returns,
990 and 990EZ do require you to verify your classification. On
these returns you would enter 501(c)(4) for this tax year.
Slide 18
**What if we have issued receipts to donors saying we are a
501(c)(3)? At the time you issued the receipt it was your
understanding that you were a 501(c)(3). For it to be a problem the
donor would have to be audited and that particular receipt would
have to be chosen to be verified. If that happens we will simply
explain that at the time we understood that the club was a
501(c)(3) and that the parent is currently a 501(c)(3). In all
likelihood this will not happen and will not be a problem. At this
point it does not warrant going back to notify donors.
Slide 19
**IF my club changed its Articles of Incorporation with the
Secretary of State do we need to go back and change them back to
the way they were before? No. You do not need to change anything
with the Secretary of State. Your Articles of Incorporation will
still be valid and appropriate for your status now.
Slide 20
**What if we have changed our status with our State Tax
Authority? Every state is so different it would be impossible to
give an answer on this. The best thing you can do is consult a
knowledgeable person in your state that is familiar with the state
tax rules. Probably if it is related to sales tax you will not need
to do anything but if it is related to state income tax there may
be something you will need to correct. Again the best thing to do
in either case is talk to someone who knows the rules within your
own state.
