1 BUILDING PROFESSIONAL BRIDGES SPANNING THE FUTURE Legal and Tax Issues for NIGP Chapters November 17, 2009 Charles M. Watkins, Esq.

2 Get To Know Our Audience How many years of experience do you have as a Chapter Officer or Board member?

3 Get To Know Our Audience What role do you play within the Chapter?

4 Introduction Purpose - Survey Legal and Tax Rules Getting help - NIGP - Lawyers - Accountants

5 Chapter Legal Structure Incorporation - State Law - File Articles of Incorporation - File Annual Corporate Report

6 Unincorporated Chapters Articles of Association Constitution Officers, directors and members may be liable for chapter debt

7 Bylaws Operating agreement among members Avoid repeating matter in articles of incorporation or constitution Avoid Board policy matters Amendments approved by members Election of Directors and officers Committees Sample on NIGP website

8 Chapter Policies Address issues to be decided by Board without formal member decision

9 Board of Directors Board Committees Board/Member Committees Clear mission definition

10 Directors’ Legal Duties Duty of Care Duty of Loyalty (Conflicts of Interest) Duty of Obedience Directors’ Duties

11 Duty of Care Prepare for and attend Board and Committee meetings Use general good judgment and common sense Use special knowledge, e.g., re contracts or finance Duty of Loyalty Act in best interest of the Chapter Disclose conflicts of interest Avoid pre-empting Chapter opportunities Duty of Obedience Carry out Chapter purpose Act in accordance with governing documents Act in accordance with applicable law regulations

12 To ask a question, press *1 on your touchtone phone. This places your call into an electronic queue. If you wish to remove your phone question from the queue, press the pound or hash key on your phone. To submit a question over the web, type your question in the upper part of your Q&A window and click on “Ask.” Thank you for your questions! Questions

13 Tax-Exempt Status Section 501(c)(3) - Exempt purpose ►Religious, charitable, scientific, testing for public safety, literary, or educational purpose; to foster national or international athletic competition; or to prevent cruelty to children or animals. - Insubstantial lobbying - No political activity - No inurement (undue private benefit)

14 Tax-Exempt Status Section 501(c)(3) – continued - No “excess benefit transactions” ►Repay excess benefit and pay 25% excise tax - Tax-deductible contributions - Special bulk mail rates (PS Form 3624)

15 NIGP Chapters – 501(c)(3) Charitable - Lessens the burdens of government Educational - Educate public purchasing personnel

16 NIGP Chapters - 501(c)(3) Lobbying General rule: “No substantial part” Elect 4911 test by filing Form Sliding scale – 20%of the first $500,000 in expenditures

17 NIGP Chapters 501(c)(3) Report dollars spent on Form 990, Schedule C, Part II-A (4911 test) or Part II-B (general rule) Comply with federal or state lobbying registration and reporting laws

18 NIGP Chapters – 501(c)(3) No political activity - No contributions or endorsements - Voter, guides, debates, or forums – OK if unbiased and all candidates are invited or included

19 NIGP Chapters – 501(c)(3) Inurement and excess benefit transactions - Unduly favorable arrangements with “insiders” Officers and Directors - “Excess benefit transaction” ►Benefit to insider exceeds fair market value of benefit to 501(c)(3) organization ►Repayment of excess benefit required ►25% excise tax on amount of excess benefit, payable by “beneficiary”

20 Public Charities and Private Foundations Public charities Private foundations NIGP Chapters

21 Section 501(c)(6) Exempt purpose: To promote the common business interests of participants in a profession of line of business - Educational meetings and conferences - Publications - Trade Shows - Networking opportunities

22 Section 501(c)(6) Unlimited lobbying - May need to register with the state - Report and pay 35% “proxy tax” on Form 990-T, or report nondeductible percentage of members, unless at least 90% of dues are paid by government agencies. Some political activity - Federal and state election/campaign finance law - 35% tax on lesser of investment income or amount spent

23 Section 501(c)(6) No special bulk rate postal permit No charitable contribution deductions

24 Recognition of Exemption Chapter determination letter Small chapters (<$5,000 annual gross receipts) Other Chapters Group Exemption

25 Group Exemption Existing Chapters Must have own IRS determination letter Section 501(c)(3) or Section 501(c)(6) OR Must join NIGP Group Exemption Section 501(c)(3) New Chapters Must join NIGP Group Exemption

26 Employer Identification Number “To each his own” Never use NIGP’s EIN Apply for EIN using Form SS-4

27 Fundraising Issues Deductions allowed for gifts to 501(c)(3) chapters Limited to amount paid in excess of value of benefit received Substantiation Pay by check Chapter issues receipt showing date, amount/value, and value and description of any benefit provided in exchange

28 Non-cash gifts - $ Form Form 8282 State charitable solicitation registration Fundraising Issues

29 FORM For taxable years beginning in 2009: Average annual gross receipts < $25,000 ► File FORM 990-N electronically - First year - $37,500 - Second year - $30,000 average Average annual gross receipts > $25,000: ► Gross receipts < $500,000 File FORM 990-EZ ► Gross receipts > $500,000 File FORM 990

30 FORM For taxable years beginning in 2010: Average annual gross receipts < $50,000 ► File FORM 990-N electronically - First Year - $75,000 - Second Year - $60,000 average Average annual gross receipts > $50,000: ► Gross receipts < $200,000 File FORM 990-EZ ► Gross receipts > $200,000 File FORM 990

31 FORM 990 – Additional Information DUE DATE: 4 ½ months after the end of the fiscal year EXTENSIONS: Timely file Form 8868 PENALTIES: $20 per day, up to lesser of $10,000 or 10% of gross receipts LOSS OF EXEMPTION: Failure to file for three consecutive years REVIEW BY LEGAL COUNSEL DISCLOSURE REQUIREMENTS

32 Unrelated Business Income Tax Trade or business Unrelated Regularly carried on Exceptions - Sale of donated goods or services - Activities substantially run by volunteers - Income from annual fundraising events - Investment income - dividends, interest, rent, and royalties

33 Sponsorship vs. Advertising Sponsorship - Acknowledge – not promotion - Identify ►Name, address, telephone, fax, website ►Products or services - Product display Advertising - Qualitative or competitive descriptions - Price information - Endorsements - “Call to action”

34 Unrelated Business Income Tax Form 990-T Estimated income taxes Disclosure of Form 990-T State Income Tax

35 Employment, Excise, and State Taxes Employment Taxes - Employees - Wages Federal Taxes - Income tax withholding - Social Security (FICA) taxes - Medicare taxes - Unemployed taxes - Depositing employment taxes - Employment tax returns State Employment Taxes

36 Employment, Excise, and State taxes Information returns - Form W-2 - Form 1099-MISC Other State Taxes - Income taxes - Sales taxes ► Payment of tax on purchases ► Collection of tax on sales - Property taxes

37 General Legal Issues Contracts Insurance - Directors and Officers – “Association Professional Liability” - General Liability ►Informed consent / assumption of risk Americans with Disabilities Act - Facilities - Events

38 Resources Internal Revenue Service Accountants Attorneys

39 To ask a question, press *1 on your touchtone phone. This places your call into an electronic queue. If you wish to remove your phone question from the queue, press the pound or hash key on your phone. To submit a question over the web, type your question in the upper part of your Q&A window and click on “Ask.” Thank you for your questions! Questions

40 Thank You