With the end of calendar year 2017 looming, each 501(c)(3) Organizations must do two things to maintain their tax-exempt status. First – file all required federal and state documents. Second – review their activities to ensure compliance with applicable federal requirements.
I. Required Document Filings:
A. IRS FILINGS
- FORM 990 – Other than certain religious organizations and their affiliates, each 501(c)(3) organization is required to file an annual information report with the Internal Revenue Service. Organizations with gross receipts over $200,000 or total assets of more than $500,000 are required to file IRS Form 990. Organizations with gross receipts less than $200,000 (but over $50,000 during the last three years) and total assets of less than $500,000 can choose to file either IRS Form 990 or IRS Form 990-EZ. Finally, organizations with gross receipts of $50,000 or less must file the post-card size Form 990-N. Each of these must be filed by May 15th if the organization’s fiscal year ends on December 31st and by November 15th for organizations whose fiscal year ends on June 30th.
- AMENDMENTS TO ORGANIZATIONAL DOCUMENTS: If an organization has changed its Articles of Incorporation or Bylaws those documents also must be filed with the Internal Revenue Service.
B. ARIZONA CORPORATION COMMISSION FILINGS
- ANNUAL REPORT – Each nonprofit corporation in Arizona must file an annual report with the Arizona Corporation Commission which lists its current statutory agent, directors, officers and other required information. The forms are available and can be filed online. The deadline for filing varies for each organization since it is tied to the date of the organization’s creation.
- AMENDMENTS TO ARTICLES OF INCORPORATION, CHANGE OF STATUTORY AGENT, PLACE OF BUISNESS, ETC. – Any organization that has amended Articles of Incorporation, changed it statutory agent, relocated its business address or other similar changes must file the applicable form with the Arizona Corporation Commission.
II. Review of Activities:
Each organization should review its activities conducted during the prior year and the activities it has planned in the coming year to see if they conform to applicable Internal Revenue Service requirements. Activities that the organization should scrutinize carefully include activities involving possible private inurement or private benefit; lobbying activities; political activities; activities that generate unrelated business income; and, any activities that are outside the organization’s stated exempt purpose or purposes.
Activities that benefit private individuals or companies are not allowed and could lead to loss of the organization’s exempt status. Organizations must ensure that any payment to its officers, directors, board members, employees or other individuals are reasonable and any transfer of property is done at fair market value.
Limited lobbying activities are permissible, but each organization that engages in such activities must limit those activities in order to meet either the explicit “expenditure test” set forth in IRS 501(h) or the more subjective “substantial part” test. Please note that if an organization choses the “expenditure test,” Form 5768 must be filed with the IRS prior to the election.
Directly or indirectly participating in any political campaign on behalf of a candidate is strictly prohibited. Organizations should review their activities and policies to make sure all persons involved with the organization are aware of and follow this rule. While the rules allow an organization to assist with voter education and voter participation activities it must not cross the line into “political activity.”
Organizations must also review their financial activities to make sure that they do not generate substantial “unrelated business income.” Unrelated business income is generally any income that is not substantially related to the organization’s exempt purpose. An example of unrelated business income is revenue generated from selling advertising in bulletins or on websites. While the IRS has not set a specific limit, a general rule of thumb is to keep the percentage of unrelated trade or business income to no more than 10% of the organization’s gross revenues. Additionally, the organization must file Form 990-T and pay corporate tax rates for any unrelated business income it generates.
Finally, all 501(c)(3) organization should review their past and future activities for compliance with the exempt purpose or purposes stated in their exemption. If for any reason the organization wishes to change those activities, the organization must receive approval from the IRS prior to any such change.
If your organization needs assistance with any of these requirements, please give us a call. We will be happy to help you maintain your status as a 501(c)(3) exempt organization.