NOT FOR PROFIT PRIMER

Steve Cook is the managing member of Cook, Gola and Company PLLC, certified public accountants with offices in San Antonio and Austin. www.cookgola.com

Today I am giving a presentation to a group of Texas Chamber of Commerce executives hosted by the Texas Association of Business in Austin. Apparently, there is some confusion within that group regarding their not-for-profit options. I thought you might find some of the points of today’s address interesting.

The most common not-for-profit is the Internal Revenue Code (IRC) 501.C.3. The purpose of these organizations must be either charitable, religious, educational, scientific, literary, public safety, amateur sports, or the prevention of cruelty to children or animal.

The entity must be organized exclusively for one or more of these purposes. The creating document must clearly limit the purpose of the organization to one or more of these purposes. In addition, the document must clearly state that the organization is not empowered to perform any activities that are contrary to the entity’s stated purpose. Finally, the actual document must clearly state how the assets of the organization will be disbursed should the organization discontinue operations.

The rules are actually even more involved. If you are in an existing organization or are starting a tax exempt organization, we highly recommend engaging an attorney that has experience in these matters.

A 501.C.3 organization may be taxable!

Yes, a tax exempt organization can be taxed at the Federal level. The taxable income is computed and reported on federal form 990T. Any revenue generating events that are not for the explicit purpose of the not-for-profit are taxable. The Internal Revenue Service is getting increasingly more aggressive in auditing these activities. For example, bingo is generally considered a 990T activity. As such those revenues are subject to taxes.

Many directors of local not-for-profits are unaware of the many legal and taxation issues that confront them. They simply want to “do their part.” Please be aware that there are a number of rules and regulations. As a Board member, you assume liability for your organization.