aruba
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response 18 of 51:
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Nov 24 19:47 UTC 1998 |
Jan and I went to the Accounting Aid Society yesterday and met with a woman
named R. Sue Dodea, whose title at the Society is "Director of Nonprofit
Services", for about an hour and 45 minutes. Here's our report on the
questions we asked and the answers we got.
Q1: Are Grex membership dues deductible from the donor's taxable income?
A: The amount that is deductible is the amount someone pays minus the value
of the service they receive. She said a good way to estimate service would be
to take the total budget for Grex for a year and divide that by the number of
users. When she heard that that came out to only $.32 per user per year,
however, she thought we should declare the actual amount of service to be
higher, just to keep the IRS from thinking that we are trying to pull
something. In fact the amount of service members receive is slightly higher
than what regular users receive, but according to Ms. Dodea, since that
increment in service is not commercially available it does not have value
in the eyes of the IRS.
If we do declare that the amount of service received is only $.32, that is a
"de minimus" value, and donors can ignore it and deduct the entirety of
their dues payments.
Q2: When does our 501(c)3 status backdate to?
A: The filing date of Cyberspace Communications as a Michigan corporation,
which was June 21st, 1991.
Q3: What kind of receipts does the treasurer need to give people who donate
money?
We had a long and rather heated discussion on this point. I explained the
current system: whenever I receive money, I record it in my database of Grex
finances and send out an e-mail acknowledging receipt of the money. I
understand that paper receipts are necessary for people who want to claim a
deduction on their tax returns.
Ms. Dodea insisted that we need to send out paper receipts to everyone who
sends in money. She said that the IRS, if they ever audit us, will
demand to see our paper copies of receipts that we send to people, and may
call random donors to check to make sure they really exist and can confirm
that they sent money to Grex. I countered that I can easily print out my
credits table, which amounts to a list of receipts, and so the only thing
missing from our system is that donors don't currently have paper receipts.
But even if we mailed them out, they can't all be expected to keep them, so
it's not like the IRS would conclude that we were fraudulent if the donors
they called didn't have receipts.
So the bottom line is that I would like to send out paper receipts only to the
people who request them, and Ms. Dodea thinks we should send them out to all
donors. During the last year 128 people sent money to Grex, in 371 separate
credits. If I sent out a separate receipt for each credit, that would cost
Grex $118.72 in postage. If we just sent one to every contributor at the end
of the year, that would cost $40.96. The main barrier is just the hassle of
doing it.
I'm under the impression that the vast majority of our contributors are happy
with the current system, but would like to hear about it if that is not the
case. That doesn't mean the IRS would be happy with it, of course, and I
would appreciate a second opinion on whether they would really disapprove of
our current system. I asked if maybe there was some way we could get a "fake
audit" done, to see how our system holds up, and she said no, but suggested
that maybe we could talk to someone at the UM Business School who was
interested in such things to help us out. Perhaps, she said, someone who was
training to be an auditor might be willing to practice on us. I think that's
an idea worth pursuing.
Q4: What licenses do we need that we don't already have?
A: We need a Michigan Charitable Solicitation License. Ms. Dodea gave me the
number of the state Attorney General's office in Lansing, and I called and
ordered us an application for the license. We do not need a special license
for the auction.
Q5: May any portion of a payment for an auction item be deducted? If so, what
are the criteria and limits?
A: Yes. Here's an example similar to one we discussed: Suppose Jane donates
an object which she estimates (to herself, not out loud) to be worth about
$10. Because of Jane's great personal charm and sentimental aspects of the
object, the bidding gets heated and Bob ends up winning it for $30.
In this case Jane is entitled to deduct what she estimates is the value of
the object, i.e. $10. John, if he comes to his senses, is entitled to deduct
the difference between what he paid and what he estimates the object is worth.
Assuming he also estimates the value at $10, he can deduct $30-$10 = $20.
Thus if they both make the same estimate on value, the total amount deducted
will be $30, the amount Grex actually received.
However, Grex has no obligation to provide estimates of the values of items in
the auction, or to make sure that the donor and the buyer use the same
estimate. That is the responsibility of the people claiming the exemption.
If the item in question is valued at over $250, however, things might get a
bit sticky. In that case it's not quite clear what we need to do; probably we
need to estimate the value of the item when we make out a receipt for the
payment. One way around the stickiness would be not to accept any items which
the donor estimates to be worth more than $250. So if Bill wants to donate a
brand-new laser printer which he just bought for $1200, he could agree with
the auctioneer that the value was only $249, and not claim more than that on
his taxes, and we'd be all set.
Ms. Dodea recommended IRS puplication 526 as a good guideline for these
questions.
Q6: Are we exempt from federal phone taxes?
A: Shortly after we got our 501(c)3 status I wrote to Ameritech to ask if we
could get out of paying taxes on our phone bill. They sent me back two forms,
one to apply for exemption from state taxes and the other for federal taxes.
The state form was easy, and asked only for things we already had. The
federal form, however, gave a list of categories of exempt organizations, and
we didn't seem to fit into any of them.
Ms. Dodea thought we ought to be exempt from federal taxes, but when shown the
form and its categories wasn't sure what we should do. She doesn't think
Ameritech has the purview to distinguish between different types of 501(c)3
organizations in deciding who is exempt, but it's unclear whether the form was
written by Ameritech or by the feds. (It says "Ameritech" at the top, but the
writing sounds like it comes from IRS regs.) Her best advice was to recruit
a lawyer from among our ranks to research the question. Any volunteers?
Q7: What's the best way to keep up-to-date on any new
privileges/responsibilities facing us as a 501(c)3 organization?
A: She advised us to buy the AAS's handbook for non-profits, which costs (I
believe) $50 for members. But they are currently revising it and expect a new
edition to be out in about May, so she advised us to wait until then.
Q8: What about personal property taxes? Is there any help applying for an
exemption?
Ms. Dodea said that the City of Ann Arbor does indeed have the right to
distinguish among 501(c)3 organizations when deciding whether or not they are
exempt from personal property taxes. She cited the example of a city in
Pennsylvania that passed a law to tax a university that was wihin the city
limits. The IRS ruled that while that particular law was not valid, cities
did have the right to pass such rules.
However, she showed us some pages from AAS's manual for nonprofits which say:
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2.13 Personal Property Tax Exemption for Furnishings, Equipment, etc.
2.13.1 Exempt Personal Property
The following personal property is exempt from taxation:
The personal property of charitable, educational, and scientific institutions
incorporated in Michigan, (except for secret and fraternal societies) and
charitable homes of the societies and nonprofit corporations which own and
operate facilities for the aged and chronically ill.
The property of all library associations, reading rooms, etc., which are owned
or supported by the public and not used for gain.
The personal property of patriotic(!), religious, and young people's
associations.
2.13.2 Reporting Requirements
Personal property subject to the tax is reported to the assessor by the
taxpayer. Exempt personal property does not have to be reported.
Consequently, an exempt organization maintains its exempt status by simply
not reporting the exempt property. If the assessor wants to change the
status, the burden will then shift to the assessor to place some value onto
the assessment roll. The assessor is permitted to require the filing of a
sworn statement showing that the exempt entity owns only exempt property.
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(!) mine.
So this all has me thoroughly confused. I think we are a charitable and
educational institution, but I don't know who gets to decide that. Ms.
Dodea's best advice, again, was to find a lawyer in our midst who would be
willing to pursue the matter.
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