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Nonprofit Unrelated Business Income

The question concerns nonprofits receiving income from business activities. How much income can they receive from related activities before they lose their status? Also, how much from unrelated activities before they lose their status? There are at least two scenarios, one when a nonprofit has an actual business it is running, and another where it is receiving income from the sales of related goods, and then unrelated goods. First, the IRS defines UBIT (Unrelated Business Income which is taxable to a non-profit) as income derived from: "(1) a trade or business, (2) regularly carried on, and (3) not substantially related to furthering...

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Avoiding the OFAC

AVOIDING THE OFAC The Office of Foreign Assets Control, and How it Affects Your Nonprofit   Many nonprofit organizations have heard rumors about the “OFAC” and how one slight infringement of its rules can bring jail time or millions in fines. While the OFAC, or Office of Foreign Assets Control, is certainly not to be taken lightly, however, with a little knowledge and forethought most nonprofits should not have difficulty avoiding OFAC violations. In fact, the vast majority of nonprofits will never have cause to worry about the OFAC, simply because they are not involved in the types of situations with which the...

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Deductibility of Mission Trips

Hi, Rocky, We have a lot of groups going on mission trips around the world. I have always felt that the airfare should be a tax-deductible expense. As a CPA, would you agree? David Marmon This depends on what side of the picture we are looking at. If we are having the volunteers pay for their own airfare in order to reach the mission destination, we have one situation. In another situation we have the organization paying for the expense to get the volunteers down there. In the first case, where the volunteer pays their own way, the volunteer can recognize itemized deductions for the...

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The Do’s & Don’ts of Benevolence Funds

Putting formal procedures in place is always a wise decision. A Benevolence Fund is no exception. Benevolence Funds are used by churches and other nonprofits to help those in need during a financial crisis. Here are some helpful hints for maintenance and oversight. Documenting is essential for protecting your ministry and putting in place checks and balances. Benevolence program Do’s: 1. Adopt and adhere to a written policy. 2. Make distributions from a general fund or benevolence fund. 3. Pay assistance directly to service providers (rent, mortgage, utilities, etc.). 4. Allow contributions only to the fund, not to any specific individual or family. 5. Develop adequate criteria...

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Nonprofit Record Keeping Part 1

What nonprofit records should be kept? Except in a few cases, the IRS does not require a special kind of record. A public charity can choose any nonprofit record keeping system, suited to its activities, that clearly shows the organization’s income and expenses. The types of activities a public charity conducts determines the type of records that should be kept for federal tax purposes. A public charity should set up a record keeping system using an accounting method that is appropriate for proper monitoring and reporting of its financial activities for the tax year. If a public charity has more than...

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Nonprofit Recordkeeping Part 2

Records Management Assets & Liabilities Assets are the property, such as investments, buildings and furniture an organization owns and uses in its activities. Liabilities reflect the pecuniary obligations of the organization. A public charity must keep records to verify certain information about its assets and liabilities. Records should show: -when and how the asset was acquired -whether any debt was used to acquire the asset -documents that support mortgages, notes, loans, or other forms of debt -purchase price -cost of any improvements -deductions taken for depreciation, if any -deductions taken for casualty losses, if any, such as losses resulting from fires or storms -how the asset was used -when and...

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Is IRS Speaking Latin When It says, “UBI”?

Ubi means where in Latin, but when the IRS speaks UBI, it means Unrelated Business Income. What is UBI, and why might a nonprofit need to know about UBI? UBI is income from a regularly-carried-on trade or business that is not substantially related to the organization’s exempt purpose. To generate UBI, the activity must be: 1.          A trade or business, 2.          Regularly carried on, and 3.          Not substantially related to the organization’s exempt purpose. These three requirements form the three facets of the UBI test. To be considered a source of unrelated business taxable income, an activity must conform to each of the three facets. Trade or business...

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The IRS Speaks More Latin: Non-Quid Pro Quo Donations

If you do not give a donor something in return for his or her contribution, this is a Non-Quid Pro Quo contribution. An example would be that John Ramirez gives your nonprofit organization a $100 contribution, and you give him nothing of value in return. This is a Non-Quid Pro Quo contribution. The Non-Quid Pro Quo contribution is the more typical contribution for most organizations. If you do give something of value in return, you will want to read our article here. It is important to note that a donor cannot claim a tax deduction for any contribution unless he or she...

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The IRS Speaks Latin: Quid Pro Quo Disclosures

Quid pro quo is Latin. It means “something for something.” A contribution made by a donor in exchange for goods or services is a quid pro quo contribution. If you get a donation greater than $75, and give the donor something in return, you must disclose the value of that something to the donor. If under $75, it can look something like this. Quid Pro Quo Example In your organization’s annual fundraiser, you ask a donor to give $100. In return, you give the donor a concert ticket that has a fair market value of $40. Donors can only claim a deduction for the amount...

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Must I Disclose Nonprofit Information to a Complete Stranger?

Should an organization disclose nonprofit information? "A complete stranger asked me for a copy of my organization’s annual return. She said if I don’t give her a copy right away, she’ll complain to the IRS and I’ll get a fine. Is she right? What do I do?" We get this kind of a call from time to time. Sometimes it comes from the other side. "Can I force them to show me what they are doing? I think they are not doing things right? Isn't there some way to find out what they are doing?" Sometimes it even comes from a director...

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