Charitable organizations
enjoy significant benefits, such as receiving tax-deductible contributions and
not having to pay taxes on income.
In return, Congress
allows the public to inspect documents (such as the Form 990 or 990-EZ) that
these organizations file with the IRS.
These forms - which require gross receipts, expenses, etc. - are
information returns and do not report paying taxes.
In addition, the public
can review an organization's original application for recognition of tax-exempt
status, any documents filed with the application, and any correspondence
between the organization and the IRS regarding the application.
The public can also
inspect a charitable organization's Form 990-T, the tax return filed by
organizations that receive unrelated business income of more than $1,000
annually.
In addition to disclosing
annual returns and applications for exemption, 501(c)(3) organizations must
make certain disclosures to donors to whom something has been given in return
for their contributions. This is called
a quid pro quo contribution, which in
Latin means "something for something." For example, suppose a donor gives a
charitable organization $100. As an
incentive or thank you, the organization sends the person a concert ticket with
a fair market value of $40. The donor's
tax deduction in this transaction may not exceed $60. In this case, the donor's payment exceeds
$75, requiring the charitable organization to furnish a disclosure statement to
the donor, even though the deductible amount does not exceed $75. The disclosure must:
·
Be
in a written statement that is likely to come to the attention of the donor.
·
Be
provided at the time the contribution is solicited or when the payment is
received.
·
Inform
the donor that the amount of the contribution deductible for federal income tax
purposes is limited to the excess of the amount of money and the value of any
property contributed by the donor over the value of goods or services provided
by the organization.
·
Provide
the donor with an estimate of the fair market value of the goods or services
provided by the organization.
If the organization fails to meet the written
disclosure requirement, a penalty of $10 per contribution, up to $5,000 per
fundraising event or mailing, may be assessed.
In addition to the public inspection
and quid pro quo contribution disclosure requirements, if a charity offers to
sell goods or services that are available free from the federal government, it
must disclose that fact in a recognized format.
For
more information, call us at (219) 769-3616 with your questions, or email them
to tlynch@swartz-retson.com.
Information taken from www.irs.gov.
