Tax Exempt Status and write offs

[ScoutMomSD]

I have a question about Tax Exempt status.

 

Our pack is "self organized" so is not under a tax exempt organization.

 

From reading the IRS publications as well as doing a google search on scouting and the exemption, the "theory" varies widely from area to area.

 

There are some councils who tell units to use theirs if they dont have one. There are others that say absolutely not.

 

With Girl Scouts its very simple. The council has the number, they give it to all the troops, end of story.

 

I was wondering if this is in any way associated with the religious nature of the group OR if its just something that folks just do and dont publicize.

 

It just seems that something very simple is very complex.

 

Input? On doing a search of non profits on the IRS.gov website there are many what appear to be self chartered units that have filed for tax exempt status - in fact a LOT.

 

thank you so much in advance. I have a finance/accounting background so I really want to understand the hows and whys of this.

 

 

[AlFansome]

 

Not a religious issue, just an organizational one.

 

GSUSA councils "own" the GS troops. That's why you have all that end-of-the-year accounting and everything.

 

In BSA, it's the Chartering Organization that "owns" the scout units. So, it's really the Chartering Organization that should provide the Tax ID to the unit. (Notice that you never need to give Council any info on your finances, bank accounts, etc...)

 

In your case, since you are self-chartered. You could and should get yourself a separate Tax ID for your checking account if you don't have one already.

 

Then, if this is an important issue, you'd need to get the IRS to declare you tax-exempt.

 

Even further would be allowing donations to your unit to be deductible....you'd need to be a 501©(3) for that (or perhaps other statuses). (Note that being tax-exempt and having donations be deductible are NOT the same thing).

 

It's very complicated and there are others here who know more of the gory details, but that's a quick overview.

 

 

[John-in-KC]

Much depends on the structure of charitable law and non-profit corporation law in your State.

 

We had a huge brouhaha in Missouri a few years back, when they yanked the tax-exemption rug out from under BSA National Scout Shops. By one Scouter corporation lawyer's estimate, it would have taken each Pack, Troop and Crew 300-500 manhours, 10K in attorney fees, and another 10K in CPA fees to make a unit a non-profit subsidiary of a base non-profit (such as a church).

 

Consult your local Council's General Counsel for additional advice. Your DE should be able to put you in touch with him.

[ScoutMomSD]

its really unusual to me that an organization that seems to have so many strict rules has a hands off approach to things of that nature.

 

It kind of reminds me of the independent contractor test for 1099 vs w-2 status.

 

If we are all "independent" units, what is the legal "hold" that the other portions of the regional area have over the individual packs and troops. Hold is probably the incorrect word.

 

Taxes are not my interest or strong suit. But I have worked in many organizations with a central corporate entity and many subsidiaries. And I have worked with internal and external auditors, state and federal auditors and my fear is that in the current economy, the tax collection entities are going to want to look under every rock, nook and cranny to get any dollars they can. I just dont want good people and volunteers to be penalized for unclean and undefined policies.

 

I guess you can take the chick out of the CFO's office but you cant take the CFO out of the chick (even 13 years later).

[ScoutNut]

Just to clarify - are you talking about INCOME tax or SALES tax?

 

BIG difference.

 

>>"With Girl Scouts its very simple. The council has the number, they give it to all the troops, end of story."

[ScoutMomSD]

thanks for all the input and keep it going.

 

I will post what I have found out from various places - I am surprised that this doesnt come up more often especially with tax season upon us.

 

1) One website described it as like a franchisee. This concept makes sense to me. To use the logo you have a set of rules to follow but the bottom line is it is YOUR organization.

 

2) Due to costs, etc our unit will probably never be a group which meets the test for non profit status per IRS guidelines.

 

3) the BSA tells (a threat?) units that if they (dare?) apply for tax exempt status their charter can be pulled. Obviously there are many groups (again who are separate entities) who have chosen to do so anyway. And I am talking about those who do not have a "ready made" non profit they are attached to (ie church, Elks, etc).

 

I think the remaining question is that if you are a unit without non profit/tax exempt status AND have funds that carry over what if any annual forms need to be filed?

 

I guess I have seen a lot of stuff in corporate finance that could curl your hair with regard to audits and I just have a nagging feeling that sometime somewhere the Fed or State is going to want a piece.

 

I am not sure how individual units get around the whole sales tax and income tax issue if we earn money. If we truly are not a non profit, arent we a for profit? How can popcorn sales NOT be taxable and subject to sales and income tax? Is BSA considering the money they give back a gift? There is something with this whole deal I am missing. If we WOULD have to file, what would we file and how?

 

Again I know this is a bit detailed but I appreciate the input. Again if I find more out will let you know

[ljnrsu]

On doing a search of non profits on the IRS.gov website there are many what appear to be self chartered units that have filed for tax exempt status - in fact a LOT.

 

The majority of what you saw are units that probably applied for EIN 20-40 years ago. Back then when a Pack,Troop or Post filled out SS-4 and checked the box as Tax Exempt the IRS would stamp TAX EXEMPT on the SS-4 and issue a Tax Exempt EIN. My dad filed SS-4's for the Pack my brother and Troop I belonged to when NJ instituted its Sales Tax in the 60's and thats how the SS-4's were returned to him. The reason he did that was to get NJ Sales Tax exempt status and the units CO's had not applied for NJ exempt status. In order to be NJ Sales Tax exempt you must have Fed Tax Exempt status.

 

As each State is different in how they treat Sales Tax exemption you need to check with your State about its policy and proceedures.

 

Applying for Fed Tax Exempt status is not easy nor does it come cheap. Some form of legal entity needs to be created and Form 1023 filled out. The $10k threshold for Form 1023 is very easy to reach. IRS considers Gross Revenue as any and all funds that were deposited in your bank accounts plus any property given at FMV.

 

 

 

[Buffalo Skipper]

Keep in mind that there are 2 levels which need to be considered. One is an IRS recognized donation as a income tax decuction; the other is a state sales tax exemption. A federal 501©(3) does not guarantee exemption from State Sales tax, nor does it necessarily guarantee donations to be exempt from state income tax. This will vary greatly from state to state.

 

As an example, in Florida, it takes 5 minutes to fill out and complete the state tax exemption forms. This does several things. One, it gives a unit "status" capeable of "owning" things, such as trailers, boats, etc (that is not to say I recomend this, only that it gives that status; the CO should own these types of things). It also gives your organization exemption from paying state sales tax on purchases, which may be what you are really seeking. But if you accept a donation, the state tax exemption form does not give the doner a viable write off for the purposes of Federal Income tax, as this is not a federally recognized 501©(3). (Florida, by the way, has no state income tax)

 

You should look into California's tax laws carefully before you assume anything on a "tax exempt status."

(This message has been edited by Buffalo Skipper)

[John-in-KC]

OMG. The Franchise Tax Board of California. The California State Board of Equalization.

 

Dad held CPA licensure in California and Nevada, and had friends on both States Boards of Accountancy. Let me make my advice short, sweet, and to the point: If you want to do this, consult a California/Federal corporation/tax law specialist, and pray he's a Scouter who'll do it pro bono or deep discount.

 

If you don't do this right, that popcorn Council wants you to sell? You'll be paying sales tax on it.

[ScoutMomSD]

thanks so much to the folks who contacted me on and off the board.

 

It was one of my experiences with the State board of equalization (which in the name gives you a clue) and a sales tax audit that was one of the things which started my question.

 

Years ago I worked for a for profit hospital chain. It was very common for the corporate office to buy in bulk large items be it furniture to remodel or x-ray equimpent. They would buy from a central location and it would be shipped to each facility.

 

The PROBLEM is that the vendors were not consistent on their treatment of the tax. Some collected no tax, some collected their states tax, and some were correct and collected California tax (usually only if they had operations in the state).

 

It is not just SALES tax it is a USE tax. So if the item is purchased in Georgia but used in California, even if you paid sales tax in GA, you STILL owe Use tax in CA. What you have to do is to file for a refund from the State of Georgia and then pay CA (not in that order).

 

I am also an ebay seller and a member of an eBay sponsored group that assists with development of new ideas and other issues and one issue they are dealing with is the current desire to make sellers not only collect sales tax on all items but remit it to the correct state. This is a nightmare but again it shows that the government is at a point where they are going to look under EVERY rock to find dollars.

 

Thanks again - As you said John, CA is different - plus we have the Governator who will come and beat us up if we dont do it right!!! I always tell folks who balk at paying sales tax and live here "Arnold wants him money".

 

 

[John-in-KC]

This is one of the reasons BSA wants units to be organized under established Chartered Partners in the community, rather than self-organization.

 

Churches, American Legion, VFW, ...

[Beavah]

Yah, ScoutMomSD, from what you describe, your chartering organization would likely be considered an unincorporated voluntary nonprofit association. Most states now I believe have adopted some form of the uniform statute to govern these entities. In California, yeh can find it in the Corporations Code sections 18000 and following. If California offers exemptions from sales tax, income tax or other privileges for nonprofits, they would, I presume, apply to your group on that basis.

 

The IRS would presumably recognize your statement of purpose as bein' compatible with section 501©(3). You are not required to file a 1023 for such an entity provided the three year rolling average of gross receipts is under $5,000 (don't yeh wish they'd adjust these silly numbers for inflation?). That may or may not be the case with your cub pack. If you need an EIN for some reason (bank accounts are most likely), yeh can file an SS-4 and check the NFP box, just as ljnrsu describes. If your gross receipts are above the limit, then if you wanted to act as a tax-exempt charitable organization you'd have to go the 1023 route, which is, as others have described, a bit of a pain and expense and probably not worth it.

 

Honestly, though, you're misapplyin' your CFO skills to somethin' that's just silly. Unless your cub pack is rakin' in the dough, you're livin' in that magical land where nobody cares. Like payin' the kid next door to shovel your sidewalk without verifyin' his citizenship or withholding FICA. Nobody messes with these small little unincorporated associations because it would be a nightmare. There's a bizillion of 'em. The cost of tracking would vastly exceed any possible revenues generated.

 

But, as someone else mentioned, this is one good illustration (among many) of why da BSA generally discourages units chartered to these groups. If tryin' to sort through all this stuff and stay squeaky clean is important to yeh, then go find your pack a "real" chartering partner.

 

Beavah

 

The text in this post is discussing loose principles as a theoretical educational exercise only, based on published documents. Nothing herein should be construed as a legal opinion or tax advice in any way. It's just the musings of some anonymous internet character named "Beavah" who is only licensed to practice his golf game in the state of California.

 

[ljnrsu]

What I stated what my dad did took place 40+ years ago. Back then you could just check the NFP box and it was accepted. The IRS back then considered Packs,Troop and Posts a subset of BSA's 501©(3) status, similar to PTO/PTA's,American Legion and Womens Clubs being a chapter/subset of a national organization. That is no longer the case with BSA units, they are now stand alone entities.

 

Using Beavah's $5k threashold it doesn't take much to exceed it. Using 10 cubs in Pack, dues/registration of $75 is $750.00, each sell $400 in popcorn is $4000.00 Total Gross Receipts then is $4750.00 if the Pack collects more than $251.00 for Pack a overnighter/trip they now have exceeded the $5,000.00. The IRS limits are low and easy to exceed.

 

 

[ScoutMomSD]

thanks Beavah - I know. Its just the BSA has a severe case of OCD in most areas and for this is like "whazza big deal, go ahead, take it, hope for the best". See "atheist in pack" to prove my point. Or discussions about forms, or legal issues, etc.

 

We are WAY over the threshold for this year and probably for the 3 years again based on Gross Receipts. The large popcorn sale volume was what started me wondering.