Sun Prairie Area School District ��School Support Organization Workshop��May 16, 2022

ATTORNEY KELLY SCHWAB

KSCHWAB@LAW-RLL.COM

Agenda

• Review Draft of Bylaws

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• Tax Exemption Status with the IRS

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• Tax Exemption Status for the State of Wisconsin

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• Other Registrations

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Draft Bylaws Review

General Principles

• Bylaws may contain any provisions the organization wishes to adopt as long as the provision is not inconsistent with Wisconsin Statutes, the Internal Revenue Code, or the Articles of Incorporation.
• Effective bylaws should provide sufficient structure to efficiently manage the organization’s operations without being overly burdensome.
• Topics:
• Membership Matters;
• Board Matters;
• Officer Matters; and
• Miscellaneous Provisions.

Tax Exempt Status

• “Nonprofit” status is a matter of Wisconsin Corporate and trust laws.
• “Tax-Exempt” status is a matter of Federal and State tax law.
• Wisconsin does not require a State registration to qualify for tax-exempt status. Wisconsin simply piggy-backs on the IRS’s determination of tax-exempt Status.
• There are roughly thirty (30) tax-exempt categories under Federal law. School/Student Support Organizations most often seek exemption as either:
• 501(c)(3) – Charitable Organizations
• 501(c)(4) – Civic Leagues or Social Welfare Organizations

Tax Exempt Status

• Tax-exempt organizations are generally not required to pay State and federal tax on most receipts, including:
• income resulting from the receipt of donations,
• income derived from investment activities such as interest and dividends, and
• income resulting from activities related to their tax-exempt purposes.
• However, a tax-exempt entity may be required to pay taxes on income from business activities unrelated to its exempt purpose.

Tax Exempt Status

• Unrelated Business Taxable Income occurs when an otherwise tax-exempt organization
• Engages in a trade or business;
• The trade or business is regularly carried on by the organization; and
• The trade or business is not substantially related to the organization’s exempt purpose except the generation of revenue.

Tax Exempt Status

• IRC 501(c)(3) – Charities
• Religious
• Charitable
• Scientific
• Literary
• Educational purposes
• Provide testing for public safety
• To foster national or international amateur sports
• For the prevention of cruelty to children or animals.  

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• IRC 501(c)(4) – Social Welfare Organizations
• Civic leagues and other organizations concerned with social welfare and
• Local employee associations.

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IRC 501(c)(4) - Social Welfare Organization

Will be exempt if it is not organized or operated for profit, and if it is operated exclusively for the promotion of social welfare.  

Must engage primarily in activities to promote the common good and general welfare of the people in the community.  

• Promoting the social welfare does not include participating directly or indirectly in a candidate’s political campaign.  
• Promoting social welfare does not include operating a social club for the benefit, pleasure, or recreation of its members, or carrying on business with the general public in a manner similar to that of a for-profit organization.

IRC 501(c)(3) – Public Charity

• Entity is organized and operated exclusively for Religious, Charitable, Scientific, Educational or other limited purpose?
• Key qualifications:
• Organization
• Operation
• No earnings to the benefit of a private individual
• No substantial activities attempting to Influence legislation
• No participation in any political campaign

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IRC 501(c)(3) - Organization

• The organization’s Articles of Incorporation must include the following:
• Limit the organization’s purposes to one or more of the exempt purposes.
• Limits the organization’s power to engage in activities prohibited to tax public charities.
• Permanently dedicate assets to exempt purposes, including after dissolution.

IRC 501(c)(3) - Operation

• The organization must also be operated exclusively for one or more exempt purposes. This will be satisfied only if it engages primarily in activities that accomplish one or more of the exempt purposes specified in I.R.C. § 501(c)(3)
• Insubstantial participation in activities that are not in furtherance of an exempt purpose will not preclude exempt status.

IRC 501(c)(3) - Private Benefit

• A condition of recognition of tax-exempt status as a Section 501(c)(3) charitable organization is the absence of private inurement or benefit.
• This means that the organization cannot be operated for the benefit of private parties such as the organizer, the organizer’s family, specific participants or other individuals or related entities.

IRC 501(c)(3) – Lobbying Limitation

• I.R.C. § 501(c)(3) organizations are prohibited from engaging in substantial lobbying activities. Whether an organization’s attempts to influence legislation are a substantial part of its overall activities is determined on the basis of facts and circumstances analysis, including the time devoted to the activity by both compensated and volunteer workers, as well as the expenditures made in furtherance of the activity.
• Lobbying in general is defined as any communication with a legislative body, government official, or employee who may participate in formulating legislation when that communication refers to specific legislation and reflects a view on that legislation. This includes communications at the federal and state level. However, lobbying at the local level is disregarded for purposes of the I.R.C. limits on lobbying activity.

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IRC 501(c)(3) - Political Campaigning

• Prohibited conduct includes any of the following:
• Endorsing candidates for public office;
• Making donations to a candidate’s campaign;
• Engaging in fund-raising on behalf of a candidate;
• Distributing statements supporting or opposing a political candidate; and
• Becoming involved in activities intended to be beneficial or detrimental to a particular candidate.
• In general, political activities that are educational are permitted. Educational activities are those that fairly present pertinent facts, are not biased, and permit an individual or the public to form an independent opinion or conclusion.

Application process

• IRC 501(c)(3) – Charities
• Form 1023 – Application fee $600

or

• Form 1023EZ – Application fee $275
• Gross receipts of $50,000 or less for the past 3 years or expected in the next 3 years.

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• IRC 501(c)(4) – Social Welfare Organizations
• Form 1024-A
• Application Fee $600

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• All applications must be filed electronically.
• Fees paid through pay.gov

How to Obtain Exempt Status

• 1. Identify your organizations organizational and operational purpose.
• 2. Gather the forms needed
• Application for 501(c)3 charitable status – Form 1023 or Form 1023EZ
• Application for 501(c)4 social welfare organization status – Form 1024
• Form 2848 Power of Attorney (if utilizing a representative)
• 3. Register an account with Pay.gov site
• 4. Complete the online application
• 5. Pay the filing fees.

IRC 501(c)(3) – Filing Timeline

• Tax-exempt status is retro-active to the date the organization is formed if the organization files Form 1023 or 1023EZ within 15 months of legally forming the organization.
• The retro-active implementation applies even if the IRS requests more information after the organization submits the application.
• While waiting for approval, organizations must be clear with potential donors that its status as a charitable organization is pending approval.
• Tax-exempt status is effecting on the application date if the application is submitted

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• An organization that files Form 1023 within 15 months after the end of the month in which it was legally formed is eligible for tax exemption from the date of incorporation or formation. If any organization that is required to file Form 1023 fails to do so within 27 months of formation, exempt status will only be effective from the postmark date of the application.

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Other Registrations

• State Charitable Fundraising Registration
• Wisconsin Sales and Use Tax Exemption
• Raffle License

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State Charitable Fundraising Registration

• Wisconsin Statutes Chapter 202 regulates the solicitation of funds for charitable purposes.
• “Charitable Organization” is defined broadly to include any organization described in IRC § 501(c)(3) or any person “who is or purports to be established for a charitable purpose.”
• “Solicitation” is a direct or indirect request for a contribution, coupled with a representation or implication that the contribution will be used for some charitable purpose or will benefit a charitable organization.
• “Charitable Purpose” is any purpose described in IRC § 501(c)(3) or a “benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary objective.”

Registration Requirement

• Registration may be required even if the organization itself is not a charitable organization.
• Registration is not required for:
• Charitable Organizations that do not solicit donations
• Religious entities
• Political parties
• Organizations with contributions that will be less than $25,000
• Veterans organization
• Organization where contributions solicited only from membership

Application, Fees and Reporting

• Application to Register is DFI Form 296
• Initial application requires a $15 non-refundable application fee
• Registered organizations must renew registration annually on or before July 31^st and pay the $54 renewal fee.
• Every registered organization must also file an annual report to DFI within 12 months after its fiscal year-end. .
• There is NO report filing fee.

Wisconsin Sales and Use Tax Exemption

• Sales - There is no blanket sales and use tax exemption for sales by a tax-exempt nonprofit organization. Thus, tax-exempt organizations are required to collect sales tax and pay over the tax to the Department of revenue unless the sales are occasional sales or are otherwise exempt.

Wisconsin Sales and Use Tax Exemption

• The occasional sale exemption applies if the following conditions are met:
• The nonprofit organization or governmental unit does not hold and is not required to hold a seller's permit..
• The nonprofit organization is not engaged in a trade or business. A nonprofit organization or governmental unit is not engaged in a trade or business if either of the following is met:
• Its taxable sales are $50,000 or less during the calendar year, or
• Its sales of otherwise taxable sales occur on 75 days or less during the calendar year. (For sales of admissions or tickets, only the actual days of the events are counted, not the days of ticket or admission sales).
• The nonprofit organization or governmental unit does not conduct an admission event involving entertainment.

Wisconsin Sales and Use Tax Exemption

• Purchases - A Certificate of Exempt Status (CES) number helps retailers identify organizations that qualify to make purchases exempt from Wisconsin sales and use tax. The Department of Revenue issues CES numbers to qualifying organizations.
• Must complete Department of Revenue Form S-103 available online at: https://www.revenue.wi.gov/DORForms/s-103.pdf
• Mail the application to the Department of Revenue with a copy of the organization’s 501(c)(3) determination letter.

Wisconsin Raffle License

• Organizations interested in raising funds through a bingo game or raffle must apply for a license from the Department of Administration (DOA). Bingo or raffle licenses are generally issued only to bona fide religious, charitable, service, fraternal, or veterans’ organizations, and other organizations to which contributions are deductible for federal or state tax purposes.
• A “Raffle" is a game of chance for which tickets or calendars are sold and one or more drawings for prizes are held.
• A raffle license can only be granted to “local” religious, charitable, service, fraternal, veterans, or 501(c)(3) organization in Wisconsin, which have been in existence for at least one (1) year or that is chartered by a state or national organization which has been in existence for at least three (3) years.
• All profits from a raffle must be used for the organization’s charitable purpose.

Raffle License – Application and Renewal

• There are two classes of raffle license:
• Class A Licenses are for raffles where tickets are sold in advance and the day of the raffle.
• Class B Licenses are for raffles where tickets are only sold the day of the raffle and winners are generally required to be present. Class B raffles may use generic ticket such as bucket raffles or 50/50 raffles.
• One license covers all raffles of the relevant class for the entire year.
• Organizations may apply for a license from the Department of Administration’s website at: https://charitable.wi.gov/
• The application fee is $25.

Thank you.