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Transitioning to the New Indiana 4-H Group Exemption Number

Wednesday, November 16, 7:30 – 9:00 p.m. Chuck Hibberd, Renee McKee, Steve McKinley, Deb Trice. Transitioning to the New Indiana 4-H Group Exemption Number. Overview. History of 4-H tax exempt status IRS/EIN updates beginning in 2007

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Transitioning to the New Indiana 4-H Group Exemption Number

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  1. Wednesday, November 16, 7:30 – 9:00 p.m. Chuck Hibberd, Renee McKee, Steve McKinley, Deb Trice Transitioning to the New Indiana 4-H Group Exemption Number

  2. Overview • History of 4-H tax exempt status • IRS/EIN updates beginning in 2007 • 4-H Headquarters and IRS decision to “sunset” 4-H Group Exemption Number 2704

  3. What we’ve done • Discussions among: • State 4-H Office • CES Administration • Purdue Legal Counsel • Purdue Business Office • Comptroller, Internal Audit

  4. What will remain the same… • Each 4-H Entity will: • File an annual IRS 990-series tax form • Maintain an active Employer Identification Number (EIN) • Submit an annual financial report to the Extension office • Have an audit/review of their finances conducted at least every 5 years (or when the primary volunteer handling finances changes)

  5. What’s new? • Purdue University will hold the GEN for… • all 4-H Clubs • those 4-H Affiliates which respond that they wish to be included by the application deadline and which are invited to join • Per IRS regulations, Purdue must be able to demonstrate evidence of general supervision and control over each 4-H entity that is included in the GEN.

  6. 4-H Clubs • Each of the 2,305 4-H Clubs in Indiana will adopt a constitution with standardized language (template provided). • Each 4-H Club will sign a standardized authorization letter indicating its desire to be included in the Purdue GEN (template provided).

  7. 4-H Affiliates • Have additional tax options beyond what is available to 4-H Clubs. • Will make decisions regarding their tax status.

  8. Examples of 4-H Affiliates • 4-H Councils • 4-H Fair Boards • Adult Leader Organizations • Parent Advisory Boards • Township Committees • Project Committees • Event Committees (e.g., Queen contest, Livestock Auction, etc.)

  9. Combining 4-H Affiliates • Many 4-H Affiliates have formed over the years as groups or committees of a county governing body. • The county governing body will now serve as a parent organization of these groups for IRS purposes. • The assets of these groups will be listed as line items within the parent entity’s budget.

  10. Combining 4-H Affiliates • Day-to-day operations of the group may continue. • A separate bank account using the parent organization’s EIN may be established. • These groups will not file a separate IRS 990-series return (they will report their finances through the parent organization’s 990 return).

  11. 4-H Affiliate Tax Options • Each 4-H Affiliate will choose one of these tax options: • Join the Purdue Group Exemption Number (PU GEN) • Seek independent status as a 501(c)(3) entity • Seek independent status as a 501(c)(5) entity • Become a taxable entity • A chart outlining the advantages and disadvantages of each option has been provided.

  12. 1. PU GEN Option • Provides non-profit status to entity as a subordinate organization under Purdue at no financial cost to the entity. • Maintains eligibility to apply for grants as a non-profit entity and to accept deductible charitable contributions.

  13. 1. PU GEN Option • The entity will need to adopt five (5) standardized provisions into its governing document(s) (e.g., articles of incorporation or constitution). • These provisions establish Purdue’s “general supervision and control” of the entity as required by the IRS. • Exact wording for these provisions has been provided.

  14. Provisions #1 Purpose of entity #2 Use of earnings #3 Activities consistent with Internal Revenue Code #4 Dissolution of entity #5 Generation of federal tax exempt status Wording for each of these 5 provisions must be included as provided in the entity’s governing document (Constitution or Articles of Incorporation).

  15. #1 Purpose of Entity • Educational, scientific, charitable purposes • Provide 4-H Youth Development experience • If entity has existing statement of purpose, it would be replaced by this wording.

  16. #2 Use of Earnings • Earnings may not be used to personally benefit individual members of entity. • Does NOT prohibit entity from deciding to give scholarships or awards to individuals. • Blank space in #2 allows you to fill in the actual Article # that describes the entity’s purpose in the governing document.

  17. #3 Activities consistent with Internal Revenue Code • Entity’s activities must comply with section 501(c)(3) of Internal Revenue Code for tax exempt organizations • Examples of prohibited activities include: • Supporting political parties/campaigns • Gambling/games of chance

  18. #4 Dissolution of Entity • Describes distribution of assets in the unlikely event that an entity should cease to exist • Assets may be used only for future 4-H educational programming/new 4-H entities • Transferred temporarily to County office of Purdue Extension and held in trust for a future 4-H entity

  19. #5 Generation of federal tax exempt status • In this option, federal tax exempt status would be obtained through a Group Exemption Number held by Purdue University • EIN required • Annual filing of IRS 990-series return required • Purdue will NOT file a 990 on behalf of the entities in the GEN

  20. 1. PU GEN Option • An Authorization Letter will be signed by the 4-H Council or 4-H Fair Board representative (template provided). • Amended governing document(s) will be submitted. • Information is due to the County Extension Office by February 1, 2012.

  21. 1. PU GEN Option • The ability of 4-H Affiliates to participate in the PU GEN is subject to the final approval of the Purdue administration. • It is expected that the majority of 4-H Affiliates will be invited to join. Criteria include: • Purpose of entity’s existence • Level of annual gross receipts

  22. 2. Separate 501(c)(3) Status • Exempt from paying taxes on income received. • Maintains eligibility to apply for grants as a non-profit entity and to accept charitable contributions.

  23. 2. Separate 501(c)(3) Status • Will sign an MOU with 4-H describing how work is accomplished together in respect to state and national 4-H policies (e.g., use of 4-H Name & Emblem, fund raising, etc.) • Requires substantial application process (50-100 pages), involving time (~100 hours) and application and professional fees (~$3,000-$5,000).

  24. 3. Separate 501(c)(5) Status • Exempt from paying taxes on income received. • Will sign an MOU with 4-H describing how work is accomplished together in respect to state and national 4-H policies (e.g., use of 4-H Name & Emblem, fund raising, etc.) • Cannot acknowledge charitable contributions. • May not be able to apply for grants as a non-profit entity.

  25. 4. Taxable Entity • Will sign an MOU with 4-H describing how work is accomplished together in respect to state and national 4-H policies (e.g., use of 4-H Name & Emblem, fund raising, etc.) • Pay taxes on income received and property owned. • Cannot acknowledge deductible charitable contributions. • Ineligible to apply for grants as a non-profit entity. • Will be the default choice for those entities who decide not to choose option 1, 2, or 3.

  26. 4-H Affiliates Tax Option Choice • Affiliates need to choose their tax option and submit a signed MOU to the County Extension Office by February 1, 2012 regardless of the tax option chosen. • A draft version of a sample MOU has been provided. • Some standard language is provided that must be included; additional entries may also be included to meet local needs/situations.

  27. Filing with Secretary of State • Each incorporated entity has annual filing requirements with the Indiana Secretary of State • Filing notice is e-mailed from Secretary of State to responsible party. • Visit: http://www.in.gov/ai/appfiles/sos-berf/ to file a report. • For a list of entities in your county, visit: http://www.in.gov/sos/business/index.htm; then click on Business Search (left column) • Conduct two searches: • One with your county name • One with 4-H

  28. Filing with Secretary of State • Click on the entity name to check its filing status. Some of the options you’ll see: • Current • Report due date • Entity is past due on report (with option to click to file report) • Inactive Date • Status: Admin Dissolved • Other (former) names for this entity • Option to view filing history, report information, registered agents, etc.

  29. Filing with Secretary of State • Entities that have past due reports can be reinstated: • Submit a Certificate of Clearance • Complete the Application for Reinstatement • Complete the Business Entity Report, submitting filing fees for each year ($10/year for non-profits) and reinstatement fees ($30). • For Reinstatement Directions, visit: http://www.in.gov/sos/business/files/domestic_packet.pdf • Please share this information with the volunteers responsible for filing these reports for the respective entities.

  30. NOTE: A recording of this program will be made available. Questions & Answers …for working with us through this process!

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