Are You Ready for Tax Time?

Are You Ready for Tax Time?
By Jimmy Warden
NAPS Secretary/Treasurer

Tax season is fast approaching. It is almost time for branches to file their yearly tax returns. While attending many conventions and training seminars, I’m always asked questions on the side about branches filing tax returns. Many of you probably have seen the information in one of my prior columns, but I thought it best to republish.

The IRS requirement for nonprofit organizations is to file by the 15th day of the 5th month at the end of the branch’s fiscal year. For example, most branches’ fiscal year ends on Dec. 31. If so, the requirement is to file between Jan. 1 and May 15, with the deadline of May 15. The gross income for the branch’s fiscal year will determine which tax form needs to be filed:

• Form 990—Gross receipts over $200,000
• Form 990-EZ—Gross receipts over $50,000 up to $200,000

Gross receipts are determined by all income the branch received for that specific fiscal year (monthly DCO, interest on investments, etc.) These three forms now can be filed electronically. NAPS branches fall under tax-exempt law 501(C)(5).

Prior to 2007, tax filings were not mandated for nonprofits. The law changed in 2007; every nonprofit now must 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. 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.

Every NAPS branch should have a federal employer identification number (EIN). If your branch does not have a federal EIN, you need to apply using IRS Form SS-4 before filing for nonprofit status. When filing for nonprofit status, complete IRS forms 1024 and 8718; this is performed electronically only. Supporting documentation also must be submitted. The IRS charges a filing fee for nonprofit status 501(C)(5); the latest information I have is the fee is $600.

Forms SS-4, 1024 and 8718 are on the NAPS website under the “Members” tab section under “Forms & Documents.” Then scroll down to “Training.” The forms also can be found on the IRS website at IRS.gov.

I recommend filing for tax-exempt status using the IRS website as it must be submitted electronically. A branch would file a 990 (990-EZ, 990-N) after it has been approved for nonprofit status by the IRS.

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 and audit 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.

Therefore, records should be kept for at least seven years from the date of filing the applicable return. The IRS requires that an organization’s past three filed Form 990s be maintained at its principal office.

Key issues of which most branches are unaware:

• A Form 1099 must be issued to any branch officer or member who is compensated over $600 per calendar year; this includes stipends, gratuities, reimbursement of dues and more.
• 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 substantiating the amount of the reimbursement. Reimbursement for expenses such as attending a NAPS convention or training seminar should be specifically stated regarding who may be reimbursed (branch executive board position) and for what expenses in the branch’s Constitution & Bylaws or voted on at a membership branch meeting.

Some branches hire a tax consultant/preparer to prepare and file their taxes yearly. This is something your branch may want to consider to at least get you started if your branch has not filed for tax-exempt status or does not have an EIN. At the recent Capitol- Atlantic Area Training Seminar, Past NAPS President Brian Wagner held a couple sidebars to advise branches that had questions about the process.

Brian has offered his services to many branches in obtaining an EIN and nonprofit status. He charges a fee; it is time-consuming. Contact Brian at brian4naps(@)aol.com. Filing a yearly tax return is every branch’s responsibility.

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