It's Tax Time

It’s Tax Time
By Jimmy Warden
NAPS Secretary/Treasurer

One thing we always can count on every year besides peak delivery season and peak vacation season is tax season! Yes, it’s almost time for all branches to file their tax returns with the IRS. This is a yearly requirement for all nonprofit organizations, including NAPS.

Each branch is required to file income taxes by the 15th day of the 5th month at the end of the branch’s fiscal year. Most branch’s fiscal year likely ends on Dec. 31, so you are required to file your tax form between Jan. 1 and May 15. The gross income for the fiscal year of your branch will determine which tax form needs to be filed:

  • Form 990—Gross receipts over $200,000
  • Form 990-EZ—Gross receipts over $50,000 and up to $200.000
  • Electronic Form 990-N—Gross receipts less than $50,000

Gross receipts are determined by all income the branch received for that specific fiscal year (monthly DCO, interest on investments, etc.).

NAPS branches fall under the tax-exempt law 501(c)(5). Prior to 2007, tax filings were not mandated for most nonprofits. The law changed in 2007; every non-profit has to file a tax return for three consecutive years. A nonprofit organization that fails to file a required 990-N (or forms 990 or 990-EZ) for three consecutive years will lose its tax-exempt status. The revocation of an organization’s tax-exempt status will not take place until the filing due date of the third year. If you do not file on time, the IRS may assess your branch a late fee.

Each state has different tax laws. Most states do not allow 501(c)(5) tax-exempt organizations to avoid paying state sales tax. I recommend you contact your state Department of Revenue to determine income tax filing requirements.

If your branch does not have a federal employer identification number (EIN), you need to apply using IRS Form SS-4 before filing for nonprofit status. When filing for nonprofit status, complete and mail IRS forms 1024 and 871, with supporting documentation, to the IRS.

These three forms can be found on the NAPS website under the “Members” section under “Forms & Documents.” Scroll down to the section on “Training.”

When mailing the forms, you also must include current copies of your branch’s:

  • Constitution & Bylaws
  • Articles of Incorporation (if applicable)
  • revenue and expense statements (current fiscal year and past three years)
  • minutes from two recent branch meetings
  • newsletter (if applicable)

There is a $600 filing fee payable to the United States Treasury. You may want to verify the fee as it may have changed.

In preparation for nonprofit status, a branch needs to:

  • establish a branch accounting method
  • manage branch records
  • perform financial audits and reports
  • establish/update branch Constitution & Bylaws
  • retain branch records

When managing records, the branch needs to maintain the following on a manual general ledger or a computer accounting program such as QuickBooks:

  • gross receipts (DCO deposits)
  • items purchased for resale
  • expenses
  • employment tax records
  • assets
  • liabilities

Records that need to permanently be kept are:

  • applications for tax-exempt status and federal identification number
  • determination letter recognizing the branch’s exemption status from the IRS and state agencies
  • branch’s Constitution & Bylaws, including amendments and updates

All tax returns, general ledgers and financial reports should be kept for three years, plus the current year. I strongly recommend you keep all these records for seven years should the IRS request an audit of the branch’s tax return from three years prior. The IRS can, should deficiencies be found, request another three years prior to the year they are auditing.

Key issues most branches are unaware of include:

  • A Form 1099 must be issued to any branch officer or member who is compensated $600 or more per year, which includes stipends, gratuities and reimbursement of dues.
  • A W-2 must be issued to any branch officer or member who is compensated as an employee of the tax-exempt branch where taxes are withheld and transmitted to the IRS.
  • Reimbursement for expenses is exempt from this requirement, but documentation must be kept to substantiate the amount of the reimbursement.

Should any branch have a concern regarding filing taxes, you can refer to the NAPS website. Under the “Member” section, click on “Forms & Documents” and scroll down to the “Training” section. There is a 46-page slide presentation that explains the process.

Some branches hire a tax consultant/preparer to prepare and file their taxes yearly. This is something your branch may wish to consider to at least get you started if your branch has not filed or does not have an EIN. Filing yearly tax returns is every branch’s responsibility.

Stay safe!