Non Profit

[quicksam]

A Band Booster's Club has contacted me about questions concerning a non profit organization. The school board has called a meeting alleging illegal transactions.

They are setup as a Corporation, but have never filed for 501c status. So technically, they are not tax exempt. (There gross reciepts are about 35 to 40 thousand a year).

They have events and sale ads to raise money for the high school band. They have been paying the students a percentage of ad sales as reimbursements for expenses of being in the band. A person has raised concerns saying it is illegal to pay the students a percentage of the money.

From the research I have done, if the organization was setup as a non profit 501c3, then the person would be correct. Unless the monies collected would benefit all the members of the band, then it is prohibited. It would be considered converting to private use of funds.

However, after looking up their id number, the organization has never filed for tax exempt status. They are really just running a business whose goal is to fund all band activities. This would mean that they have not violated any rules concerning paying the students.

On the flip side, I have asked if they have been filing a annual return. They have never filed any tax returns or 990's.

Does everyone agree with me that as long as they are just acting as a Non Profit (not tax exempt), that they can pay the students? Of course they would have to 1099misc anyone over $599.

Any suggestions on their best course of action for straightening all the tax returns out? Should they file for tax exempt or stay as is?

Thanks

[Uncle Sam]

Tax Exempt

You have a number of problems.

Not only is the organization not presently tax exempt because of not applying for 501(c)(3) exemption via Form 1023, but the net profits should have been reported as taxable income as a taxable entity, the donations contributed are NOT tax deductible to the payers, and the payments to the members for
soliciting should have been reported on 1099-MISC regardless of amounts and any unincorporated vendor who received over $ 600 should have been provided a 1099-MISC. Also - any sales of merchandise and/or services (depending upon state law)
should have been taxable for state sales tax purposes. So at least for 2013, I suggest that memos be sent out to the contributors that are identified, and
notify them that their contributions are NOT tax deductible so they don't risk scrutiny by IRS. When the organization obtains the IRS exemption acceptance, THEN it should provide all of its suppliers sales tax exemption certificates (that are applied for through the state tax department)

The best approach that SHOULD have been taken is to see if the organization was a branch of a tax exempt school - then it would have automatically been
exempt.
Since this wasn't done - to rectify this for the future - it should IMMEDIATELY make an application on Form 1023. On the application is a page to report
prior year financial activities. Also inquire as to the applicable state requirement of the State Attorney General - Charities Bureau.

Once the exemption is in effect, so long as the gross revenues are under $ 50,000 an annual 990-EZ is required to be filed. If it exceeds $ 50,000, then
it must file a 990-EZ.

[JON]

1099

I had a friend who had an umpiring association and they paid the umpires. 1099-Misc was not what the IRS wanted to see and it became expensive when they were forced to W-2s.

The above sounds like a lot of problems. Let us know I think give us mercy is your best bet...