Gentoo Archives: gentoo-nfp

From: "William L. Thomson Jr." <wlt@××××××××××××××××.com>
To: gentoo-nfp@l.g.o
Subject: Re: [gentoo-nfp] Tax return and accounting discrepancies
Date: Sat, 26 Mar 2011 02:15:11
Message-Id: 1301105692.31303.22.camel@wlt
In Reply to: Re: [gentoo-nfp] Tax return and accounting discrepancies by Rich Freeman
1 On Fri, 2011-03-25 at 21:56 -0400, Rich Freeman wrote:
2 >
3 > So, I would definitely consult with professionals before doing
4 > anything,
5
6 It can't hurt, other than any costs. Also it helps to pass on liability
7 if they are the ones signing their name to the financial statements,
8 doing the filings. They become responsible for the accuracy and
9 correctness of the filing. Doesn't mean you won't get audited by the
10 IRS. Just means someone else has signed off on it, and they are liable
11 for inaccuracies, fraud, etc.
12
13 Its why there are few CPAs who operate in gray areas, usually stick to
14 just black and white.
15
16 > but from the little reading I've been able to do so far it
17 > seems like organizations can go ahead and start filing taxes like they
18 > are exempt before they get official recognition as such.
19
20 Sort of, in a sense there is a probationary period, which seems to be
21 5yrs. After which they the IRS does an audit, and if you fail. You get
22 classified as a non-charitable tax exempt organization. Just not a
23 charitable one. Gentoo would still be tax-exempt. But no one can write
24 off donations as charitable contributions. Which is how its basically
25 always been. Though anyone contributing can write off the contributions
26 in other ways, just not as a charitable donation.
27
28 Now the failure to file in 3yrs in a row can still cause you to lose
29 non-exempt status either way. But that is likely much harder once passed
30 the initial 5yrs. That would be like the 8th year... :)
31
32 > Now, I'm sure that makes you subject to penalties/etc if it turns out
33 > you aren't exempt. However, I doubt it costs a dime more than what
34 > you'd be subject to for not filing taxes at all once they catch up
35 > with us (and unless we're raking in a lot of cash after expenses that
36 > may not actually be much - it looks to me that unless criminal charges
37 > are filed the liability is whatever we'd pay in taxes anyway, interest
38 > at a rate that isn't that bad, and a penalty of up to 25% more - so
39 > you basically pay what you should have paid all along plus enough of a
40 > fine to make it not worth your while to delay).
41
42 Correct
43
44 > As others have said I
45 > doubt criminal charges are likely unless somebody is pocketing funds
46 > or using the organization to launder money or something - if you pay
47 > your penalties the IRS is probably happy to cash the check and wait
48 > for your next return.
49
50 No criminal charges, as this is not a breach in any law. You do not have
51 to be a non-profit/tax exempt. Worse case you just get classified and
52 treated as for profit.
53
54 > The terminology used in the IRS publications/etc is "recognition of
55 > tax-exempt status." The logic is that tax-exempt organizations are
56 > tax-exempt by virtue of law, and not because they are certified as
57 > such (tax deductions for contributors are probably a different story).
58 > So, basically you're just asking the IRS to acknowledge what is
59 > already true.
60
61 In a nutshell, and also on the other end allowing the IRS to count
62 others contributions to Gentoo as charitable. If someone claims an
63 expense is charitable, to an entity that is not classified as a charity.
64 The IRS could take minor action against the entity/person claiming the
65 expense as a charitable contribution. Really does not effect Gentoo,
66 just anyone who donated money.
67
68 There are several forms of tax-exempt entities. The different statuses
69 really just apply to the donors.
70
71 > That said, I have no doubts that issues from the past will make
72 > getting this recognition more difficult.
73
74 To an extent, but I believe worse case can just dissolve the current
75 entity and form a new one. Which is really only a change as far as the
76 State and IRS is concerned. Doesn't have any effect on anything else
77 really. But I could be wrong there. I am more familiar with for profit
78 companies there.
79
80 > Even so, the sooner we get
81 > squeaky-clean with the paperwork the sooner we can move back in that
82 > direction. I'm sure the IRS looks differently at an application by an
83 > organization that has had the forms in on time for 5 years in a row
84 > than one that is struggling to show compliance, regardless of the
85 > history of either.
86
87 Yes, and if things are not in order for 5yrs, you cannot be classified
88 as 501c3. That does not mean you lose tax exempt status. You just do not
89 get charity status, donations cannot be deducted from the donors taxes
90 as a charitable expense.
91
92 > I've been slowly working my way through the IRS website as their
93 > publications aren't actually all that bad and of course they are
94 > official.
95
96 Excellent, and its basically no different than reading technical
97 documentation. Its just on tax laws vs code, etc.
98
99 Difference between like a CPA and us, is they are familiar with the
100 stuff. Kinda like a Gentoo dev making an ebuild, vs someone new to
101 Gentoo. It can be done, but a bit harder, more time, than someone
102 experience and in the know.
103
104 > If somebody is aware of a good place to find trustworthy
105 > tips/etc for NFPs/etc let me know.
106
107 There quite many resources if you google. Most information should be
108 accurate. I came across many more other sites providing more straight
109 forward information than the IRS. I am sure the IRS provides the same
110 information, but much more detailed and in more locations.
111
112 I did not provide links to that stuff, since the potential does exist
113 for it to be inaccurate. Thus stuck to just IRS links, short of the one
114 regarding the 5yr audit. I can not find that on the IRS site for some
115 odd reason, though recall coming across it before. I am unable to find
116 it in past emails sent as well :(
117
118 --
119 William L. Thomson Jr.
120 Obsidian-Studios, Inc.
121 http://www.obsidian-studios.com