501(c)(3) – An organization that is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code is also exempt from the requirements of the Federal Unemployment Tax Act (FUTA). This exemption cannot be waived. Organizations should not file Form 940 to report wages or pay the tax. Nonprofits in the state of Michigan are not exempt from paying state unemployment taxes.
Other than 501(c)(3) – Nonprofits that are not section 501(c)(3) organizations are not exempt from paying FUTA tax. However, if an employee is paid less than $50 in a calendar quarter, his or her wages are not subject to FUTA tax for that quarter. Nonprofits in the state of Michigan are not exempt from paying state unemployment taxes.
For more information on unemployment and other employer taxes, see Employees of Exempt Organizations in Publication 15-A.
In order to maximize your social media presence, you need to determine what will best engage the audience you’re seeking. What do you find of interest on social media? We have found that we get the most “hits” on posts that include pictures of our staff engaging in activities together or posts containing staff promotion announcements. For your organization, maybe the most popular posts are those including testimonials from clients who have used your services or staff/board member spotlights.
The other key to maximizing your social media presence is making sure that your social media posts are being liked and shared. Encourage your staff, board members, and key volunteers to be active in helping you make this happen.
While numerous statutes may apply to entities with a charitable purpose, there are three major Michigan laws that affect most charities:
Charitable Organizations and Solicitations Act, MCL 440.271 et seq., which registers charitable organizations and licenses professional fundraisers who solicit in Michigan;
Supervision of Trustees for Charitable Purposes Act, MCL 14.251 et seq., which registers entities (e.g., charities, trusts, foundations) holding any charitable assets in Michigan;
Dissolution of Charitable Purpose Corporations Act (Dissolution Act), MCL 450.251 et seq., which ensures that charitable assets are transferred to an organization with a like purpose if a charity dissolves.
Charitable Organizations and Solicitations Act (COSA)
The COSA requires an organization to register if it solicits or receives contributions in Michigan.
The act requires an annual filing of the License to Solicit Donations form, and—depending on the amount of revenue from contributions and fundraising—a reviewed or audited financial statement prepared by an independent certified public accountant may also be required. The organization’s Federal Form 990 accompanies this filing.
For more information on the COSA and the Solicitation registration forms, see COSA.
The act does exempt some organizations from registration. For more information on exemption, see exemption.
Supervision of Trustees for Charitable Purposes Act (STCPA)
The STCPA requires a trust to register if it holds assets for a charitable purpose. Broadly defined, a Charitable Trust includes every person or legal entity which holds property for a charitable purpose.
This act requires an annual registration and inventory of an organization’s assets. This requirement is met by providing a copy of the organization’s Federal Form 990 annually.
The STCPA does exempt some organizations from registration. For more information on exemption see exemption.
This act requires that notice and accounting be provided to the attorney general in the event of a dissolution, a merger, or any amendments to or restatement of the articles of incorporation, and more.
For more information on the Dissolution Act, see Dissolution.
Employers with less than 50 full-time equivalent employees are not subject to the employer shared responsibility provisions under the Affordable Care Act.
All employers that are Applicable Large Employers are subject to the employer shared responsibility provisions, including not-for-profit organizations (whether a tax-exempt organization or not). To determine if you are an Applicable Large Employer, click here.
Attracting and retaining top talent is important for all organizations. It can be particularly difficult for not-for-profit organizations, where budget constraints impact amounts that can be paid for salaries. During the recruiting process, you will want to find someone who fully believes in the mission of your organization and is passionate about moving the mission forward.
Attract: Most people going to work in a not-for-profit organization are aware of budget constraints related to wages. Clear communication throughout the hiring and onboarding processing is essential. Instead of focusing on the wage itself, focus on the entire benefit package including organizational culture and mission. Part of that culture may be a flexible work schedule, the ability to work from home at times that are beneficial to both the organization and the employee, and PTO above and beyond the corporate norm.
Retain: Provide training opportunities for employees to help them advance within the organization and to grow their skill set. Be sure to provide opportunities for employees to take on additional responsibilities and leadership roles within the organization. These opportunities will not only benefit the employee, but the organization as well.
Organizations can claim a refund or credit of the Unrelated Business Income Tax paid in 2017 and 2018 related to qualified transportation fringes by filing an Amended Form 990-T for those tax years. Be sure to note “Amended Return – Section 512(a)(7) Repeal” at the top of the form.
Keep in mind that the time limits for filing refund claims found in IRC Section 6511 apply to these refund claims. Typically, these time limits are three years from the time the original Form 990-T was filed or two years from the time the tax was paid, whichever is later.
Contact us for questions or to assist your organization with amended return filing.
When funds are received with a donor restriction, those funds are legally limited to the use listed by the donor. Restrictions typically come in the form of time restrictions, or purpose restrictions, and depending on how specific the restriction language is, the organization may have some or no flexibility with respect to expending those funds.
Less specific restriction language means that a larger number of expenditures may meet the requirement. For example, a restriction for a new stove is more specific than a restriction for the kitchen, which could include equipment, dishes, silverware, kitchen salaries, food, etc.
Sometimes not-for-profit organizations unknowingly restrict donations themselves. For example, announcing at an event that funds will be used for the purchase of food to be given to the needy. This immediately restricts all donations from that event to food, when the organization may have intended to provide much more than just food to the needy. Another example would be listing a specific use of funds in an annual donation request letter. The organization should be mindful to stay away from specifics unless needed, as to not restrict funds unintentionally.
During the year 2020 many organizations have faced unforeseen challenges and uncertainties. During this time, having funds that are restricted for long term purposes when short term needs are not be being met can be difficult. An organization may consider reaching out to the original donor of any remaining restricted funds to obtain permission, in writing, to release those funds for general use.
It is very important to maintain detailed records of donations, particularly donations with restrictions. Tracking the receipt of, and subsequent expenditure of, restricted donations is integral to the records of the organization. If your organization needs assistance in developing a method to ensure complete and accurate records in this area, we are here to help.
US Taxpayers who don’t itemize deductions for their 2020 individual tax returns may still be eligible for a $300 tax deduction for charitable donations. A provision in the CARES Act, intended to provide some relief for Charitable Organizations, permits eligible individuals who do not itemize deductions to deduct $300 of qualified charitable contributions as an adjustment in determining AGI (adjusted gross income) for tax years beginning in 2020. Educating donors about the existence of this provision may help Charitable Organizations in their efforts to draw in contributions as we approach year end.
If you forgot to file Form 990 for just one tax year, file the return as soon as possible. Be aware that penalties for late filing will be imposed if the organization doesn’t provide reasonable cause for the late filing. For an organization with gross receipts less than $1,000,000 for its tax year, the IRS will impose a penalty of $20 per day for each day the return is late. The maximum penalty is $10,000 or 5% of the organizations gross receipts, whichever is less. The penalty increases to $100 per day, up to a maximum of $50,000 for an organization with gross receipts over $1,000,000.
If an organization is required to file a return or electronic notice and fails to do so for three consecutive years, the organization will lose its tax-exempt status as of the filing due date of the third year. For the organization to have its tax-exempt status reinstated, it must apply (reapply) for tax exempt status.
State law governs not-for-profit status, which is determined by an organization’s articles or incorporation or trust documents. Federal law governs tax-exempt status.
The steps needed to obtain for tax-exempt status are:
Gather your organization documents: Articles of incorporation for a corporation, articles of association for an association, or trust agreement for a trust.
Determine State registration requirements. Michigan requires registration under either the Charitable Organization Solicitations Act (COSA) or the Supervision of Trustees for Charitable Purposes Act (STCPA), unless the organization is exempt from registration. For more information regarding exemption from registration, see exemption.
Obtain an EIN (employer identification number) for the organization.
Determine what type of tax-exempt status you want.
All Michigan not-for-profit organizations must obtain the Attorney General’s approval, or a letter from the Attorney General stating that approval is not necessary, before submitting a Certificate of Dissolution to the Corporation Division of the Bureau of Commercial Services, Department of Licensing and Regulatory Affairs.
To obtain approval, the organization should submit the Dissolution Questionnaire and required attachments to the Attorney General’s Charitable Trust Section.
If the organization is a non-charitable not-for-profit or religious organization, it should submit a letter to the Attorney General’s office explaining that the organization is dissolving and provide a copy of the organization’s articles of incorporation.
Mergers are considered similar to dissolutions because at least one entity will cease to exist. However, the Dissolution Questionnaire is not necessary for these transactions. Charitable organizations wishing to merge or convert should send the Charitable Trust Section a complete explanation regarding the proposed transaction with supporting documentation such as articles of incorporation, plans of merger, and IRS returns and financial statements.
For more information, visit the Attorney General website page here.
For Federal tax purposes, the not-for-profit will indicate on Form 990 if it has liquidated, terminated, dissolved, and ceased operations, and will complete Schedule N to Form 990. Schedule N and instructions can be found here.
As long as the organization submitted a complete and accurate registration statement, the registration is effective on the date the registration statement is received by the Department of Attorney General. While you may not receive written confirmation of your registration for several weeks, you can check your filing status online.
Within a few days of receipt of your registration statement, your registration status online should be listed as “pending.” It will remain as “pending” until your registration (or license in the case of a professional fundraiser) confirmation is sent to you. Unless you have received a letter from the Department of Attorney General asking for missing information, you may solicit while in pending status.
Registration is typically required for all 501(c)(3) organizations that solicit or receive contributions in excess of $25,000 from Michigan per year. However, if an organization pays anyone for fundraising services, it will need to be registered even if it solicits or receives less than $25,000.
There are exemptions for some types of organizations. For example, churches, approved Michigan schools, and veterans’ organizations chartered by the federal government. To determine if the organization needs to register, refer to the Request for Exemption Form.
Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. For most organizations, unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990-T.
Unrelated Business Income defined:
For most organizations, an activity is an unrelated business (and subject to unrelated business income tax) if it meets three requirements: