donations and tax exempt status

[Lisabob]

I wonder if anybody else has run into this and if so, how they've addressed it?

 

A couple of the major industrial employers in our area offer donations to non-profit groups where an employee volunteers for x-number of hours in a given year. Scout units are frequent recipients of these donations. This year several pack leaders have fulfilled the requirements for these donations. However, the pack has run into a problem because the companies will only donate the money if the pack can provide a 501c3 ID #. Apparently, typical scout units piggy back off their CO's ID # (so the pack has been told by the companies who are offering the donation, anyway).

 

In this case, the pack is sponsored by a public school PTO, which does not have a 501c3 number. Both the school district's business office and BSA Council folks have indicated that although the PTO itself has tax exempt status, because it is affiliated with a public school, it is not and cannot be registered as a 501c3 organization (public schools are inherently not for profit and are not included under the law establishing 501c3 organizations).

 

Consequently, the companies offering the donations have declined to provide them directly to the pack, or to the pack's PTO CO partner.

 

They have offered to direct the donation to Council, with the understanding that the council office would forward the money directly to the pack. However, the Council says no, any money it receives belongs to the Council alone, and won't be forwarded to the pack in any way (even to pay for council programs like day camp).

 

At this point, I'm not sure what to suggest to the pack's leaders. The pack doesn't currently have any parents who are attorneys or accountants who might be able to clarify things. The companies have money they want to donate to the pack, but they'll only give it to a 501c3 organization. Council has been, shall we say, "inflexible" although I'm sure they have their reasons. Is there another way around this, or is the pack in a position where it has to turn down a fair chunk of money that they could really use, based on a technicality?

 

Lisa'bob

A good old bobwhite too!

[orennoah]

You, or rather a local attorney who is donating his time, can set up a 501©(3) organization to accept the funds and administer them to support your pack or troop's activities.

 

It's not expensive, but a bit time consuming. If the potential donors will wait, it CAN be done.

 

An added benefit, is that neither the Council nor the CO will have any claims to the funds in the hands of the support 501©(3).

[eisely]

Presumably the employers want to be able to deduct the charitable contribution and that is why they want a taxpayer ID for the right kind of organization. I suggest that the adults involved go back to their companies and ask if a tax ID for the school would suffice. Corporations give directly to schools all the time and I would think that would qualify for deductibility. Just because a school is not a 501c3 organization does not necessarily mean that it cannot accept donations that can be treated as deductions by donors.

[SemperParatus]

PTOs and PTAs are eligible for 501©(3) status. You need to talk to the right person in the PTO - the one that files the annual Form 990 required of the PTO. All you need is the PTO's federal employer identification number - there is no tax-exempt number.

 

See IRS Publication 557 at www.irs.gov

[BadenP]

Orennoah

 

I must correct you on two points, 1) A scout unit is not an legal entity unto themselves but is a subsidiary of the Charter Organization who is ultimately responsible for all its liabilities and assets,including contributions, especially when things fall apart. Your CO is the legal entity and voting rep to the council not the pack, troop or crew.

2) As a former IRS agent I can tell you most CO's will not let a pack use their Fed ID Number to solicit donations because of potential legal and tax ramifications to them. The pack can not get a 501c3, the CO can apply for that status, ex., Friends & Parents of Pack 123, but not the pack itself.

[FScouter]

Scouts earn their own way. Planning and running a spaghetti dinner helps build character in boys. A free handout teaches them nothing.

[orennoah]

BadenP:

 

Not to nitpick, but I wasn't wrong. Maybe I wasn't clear. I am suggesting that a long-term solution to this problem is to create a brand new entity, a separate non-profit corporation that is a recognized charitable organization by the Feds and State govt. and qualifies under sec 501©(3) of the Internal Revenue Code. This new entity's stated purpose would be to support the pack or troop.

 

As I stated in my original post, this entity would own the donated money, not the CO and not the Council. Thus, it could use it to purchase gear for the pack/troop, cover camping &/or training costs of the pack/troop, etc.

 

I never suggested that the pack/troop use the CO's or the Council's FEIN.

 

BTW, I'm an attorney who has set up such organizations in the past and an inactive CPA. I know it can be done.

[evmori]

A free handout teaches charity.

 

Everything teaches something.

 

Ed Mori

Troop 1

1 Peter 4:10

[Hunt]

Recall that this particular case isn't about a troop trying to solicit donations. Rather, it's about a company that makes donations to organizations for which its employees volunteer. I would say the existence of a program like that teaches something good about corporate responsibility and volunteerism. While I agree that a scout pays his own way, I think he should also accept unsolicited gifts with gratitude.

[Mike F]

Orennoah,

I'm not an attorney - nor do I play one on TV - but I'm intrigued by the unique perspective you bring to this discussion. Most of us know less about this than we probably should. And many of us (my son's troop included) are working through a change in CO due to forces outside of our control, so established relationships affecting donations, etc., have to be reworked. Problem is, most of them were established before we got here, so we don't know how to get started.

I would consider it a great service if you could spell out the process, regulations, and paperwork required to establish a formal "Friends & Parents" organization. I understand we'll need to seek local legal help, but a blueprint would help us embark on that daunting task with more confidence.

This would need more access than a simple reply on this forum to be really useful. Maybe there's a place on Scouter.com or maybe BSA legal site (http://www.bsalegal.org).

 

Just a thought.

 

Thanks!

 

-mike

[Eamonn]

I never really got very involved with this kind of stuff until a few weeks back.

Someone was willing to donate a boat (In the end they donated it to another Ship.)The boat had been appraised at something like $12,500. The donor wanted to move very fast. I'm guessing to get everything done before the end of the year. He needed completed IRS Form 1096 and 1098-C.

Even though I have owned several businesses and still own a couple of corporations, I have been very happy to leave all of this in the hands of my accountants.

My first stop was the Council. They said that they didn't want to get involved. My next stop was our CO. They are just too nice, they would do whatever I told them to, but I thought what the heck, just for the fun of it I'd keep going. I took my accountant out to lunch. He started quoting IRS form numbers. I was gnawing on a lamb chop and I can't do two things at once. Over coffee and a really good Carmel Apple pie,I asked him the important question "How much will this cost?" He said setting up a 501c would cost $500.00!! I was a little shocked. He must have seen that I was so he said that it could be done for $150.00.

I told him to get things moving and that he was paying for the next lunch. He looked hurt and informed me that at $150.00 he wasn't making a cent. I said that I didn't care, he was still paying next time.

I'm not sure but is having very deep pockets a requirement to to be a CPA?

Eamonn.

[orennoah]

Mike:

 

My best advise on this is to purchase the Nolo Press book on forming your own non-profit, charitable organization. The Nolo Press is very good (if you can get past the lawyer bashing in the early editions) and provides website updates.

 

Each state is bit different, so I can only over the basics. The Nolo Press lists the state by state differences.

 

In general, you create and file Articles of Incorporation with the state Secretary of State. This forms the entity. Then, you file applications to the IRS and the state Attorney General for recognition of your tax-exempt, charitable status. (Note: Tax-exempt and charitable are two different things.)

 

Some annual paperwork is required, but the operation of the non-profit is pretty straight forward.

 

I hope that this helps.

 

- Oren

[Lisabob]

Thanks all, for your advise and perspectives.

 

Orennoah, I have been told before that a separate organization can be created such as you suggest. I wonder whether this would replace/compete with the existing CO? (I suspect many COs would take a dim view of this, but maybe not, I don't know.)

 

This may be something the pack should look into for the future. At the moment though there's a time problem, as in both cases the paperwork for the donations must be completed by Dec. 31st to qualify.

 

Baden, your explanation that a pack itself cannot file for 501c3 status because the pack is already owned by the CO is in keeping with what I've been told and read while trying to research this.

 

While the pack in question has relied on the CO's FEIN in the past to secure small donations of supplies from local stores, in this particular case, both the CO and the companies offering to donate the money are unwilling to use the CO FEIN for this purpose.

 

I'm not quite sure I understand why the CO FEIN has been considered ok for donations of craft supplies, etc. from the local store, but not for cash donations from the companies involved here, but that does seem to be the situation.

 

Semper and others - after digging around a bit I also found examples of lots of PTOs that seem to have 501c3 status so you're right, apparently it can be done. In this case, the PTO tells the pack that they do not have this status though and don't want to apply for it either (I don't know why). Thus the pack's hands appear to be tied here since the PTO is the CO.

 

All of you attorneys and accountants, could you verify for me:

the FEIN that the PTO has is not the same as 501c3 status, right? (sorry if this is a dumb question but I want to make sure I explain things correctly to the pack leaders)

 

Ed - you bring up an interesting perspective in terms of the larger issues surrounding donations and funding, but it is one I'd like to ask that we debate elsewhere as it is not central to the pack's quetsion at the moment.

 

One last question, aside from the fact that the council probably doesn't want to become a clearing house for unit-level donations (and the various record keeping that would require), does anybody see another good legal reason for council to refuse to help in this particular situation? The pack leadership is frustrated by council's chilly response here and is beginning to question why the pack should support council's efforts (like FOS) if the council won't support the pack's. I think this is a step or two too far on the pack leadership's part (yes I've explained what FOS is used for and how it benefits the pack), but I'd like to be able to give them a "good legal reason" why council doesn't want to help them with this matter.

 

Thanks - I appreciate the wealth of experience you all have!

 

Lisa'bob

A good old bobwhite too!

[SemperParatus]

Re: FEIN and 501©(3) -

 

501©(3) is the internal revenue code section that provides for tax-exemption for certain entities organized under state laws as non-profit organizations. There are other sections as well, depending on the type of entity - e.g., 501©(4) - social welfare entities.

 

Secion 170 of the IRC dictates the status of the organization for purposes of receiving charitable contributions (public charity vs. private foundation).

 

The Federal Employer Identification number is simply the ID number assigned to any entity by the IRS for purposes of identifying it for filing purposes.

 

When a non-profit entity files for its tax-exempt (501©(3)) and charity (170) status with the IRS, it receives a simple 1-2 page determination letter that states that the entity is exempt from income tax and the status for which charitable contributions may be accepted and deducted by donors. Many donors will ask for a copy of the determination letter to ensure that its contribution is tax deductible. Some will simply want the FEIN. Some may request neither.

 

Anyone can create a non-profit entity. You can usually do this in a matter of minutes. For example, in Maryland you can get the organizing document directly from the state on-line. Print it out, name your board and purpose, and file it along with a $100 fee. To be above board, you could then draft some by-laws and you would want to get a FEIN from the IRS by filing Form SS-4. You would then have a legitimately formed non-profit entity. The next issue is tax exempt status. If the organization expects less than $5,000 a year in receipts, then the IRS says you need not file the application for tax-exempt status (Form 1023/1024 - along with the exorbitant user fee). Of course, you would not have a determination letter from the IRS to show potential donors - which may or may not be a problem. A donor could, however, easily check the on-line state records to determine that the entity is indeed formed in the state as a non-profit organization.

 

If on the otherhand, you want to get an IRS determination letter, then you would probably want to get a professional involved since the application asks for a lot of information, the answers of which could have an impact on the status' you receive. Understand, there is a filing fee for this (something like $200 for smaller organizations based on receipts and $500 for others).

 

An annual Form 990 may not be required to be filed by the non-profit organization provided that receipts average less than $25K a year.

 

Our unit has received the exact form of donations you are referring to. Our problem was that our CO was a church, and the donor could not give money to a chruch. It took an explanation by me to the donor company, of the crazy organization of boy scout troops and COs, to get us the money.

 

I still think your CO-PTO is probably an exempt organization. Try searching the IRS Pub 78 at...

 

http://apps.irs.gov/app/pub78

 

(This message has been edited by SemperParatus)(This message has been edited by SemperParatus)

[BadenP]

Semper,

 

Getting a state form for non profit status and filing an SS-4 does not make you a 501c3, a Fed Id Number simply is for the IRS to identify an entity. 501c3 status is much more involved and should be done by professionals, not a do it yourself kit. I can't tell how many groups we IRs agents deal with a year who did not follow proper procedures and as a result all the donations received were taxable with interest and penalties.

 

To all you scout leaders thinking about doing this, pay a professional, get the proper advice, and set it up right, it will be a lot cheaper than using a do it yourself kit and getting an audit or bill from the IRS three years later with penalties and interest.