To clarify for Amy's sake, when mum24kids uses the word "exemption", she's referring to the IRS's 501(c)(3)non-profit, tax exempt status which is granted based on info in an application called Form 1023. There is a low-end GROSS receipts threshhold below which the IRS ignores you, but filing for 501(c)(3) is usually a good idea for larger, independent parent groups.

Just for future planning, you might want to request the application (Form 1023) and its instructions from the IRS's website. They're free and reading through the info will help prepare and educate you as your group grows.

There are other IRS documents called "publications" that explain things like how to report a tax-deductible donation for your donor. I'm sorry I don't know the actual publication numbers that I have found interesting, but if you have the time to scroll through the list,you might find a few that can help answer your questions today, and in the future. Check our www.irs.gov and look up the forms & pubs section.

Good luck as you continue in your new job as treasurer. Come back here if you bump into other questions.

[ 02-28-2005, 10:24 PM: Message edited by: Critter ]

Actually, there's a possibility that she's right. If you're a corporation, and you never filed for tax-exemption and have no intention of ever doing so, then your net operating income would be taxed. Although merely earmarking the funds for future use most likely would not correct that situation, so what she said about that doesn't really make sense.

Have you filed for exemption? If not, what are your annual gross receipts? Since you're a start up, they may not have been large enough for anyone to want to put the effort in. I believe some people on here have checked with the IRS and found that they generally recommend that you file for exemption if you think your gross receipts will be greater than $5k/year.

As Tim said, she's absolutely wrong. However, she's probably very sincerely trying to protect the organization and do what she thinks is the right thing. And at least she cares enough to TRY to furnish information to new officers.

So you might try to find a way to explain it to her in a way that saves face.

One way might be an explanation like this:

We double-checked that and found there's no IRS requirement. However, you might be thinking of a common best practice among parent groups to try to spend all their earnings each year to benefit those students/families who raised the funds. (Barring start up funds for the next year or savings for long-term plans/big projects.) That certainly makes sense, so we'll definitely keep that in mind in our budgeting.

Thank you so much for your help. Everyone was just going on what she said assuming that she knew best rather than questioning it. I guess those are the hazards of being a new organization.

You could tell her that she is completely, 100% incorrect. But that might be too harsh.

It's simply not true.

If you're a nonprofit, there is no rule at all about spending all your funds every year. In fact, good financial advice would involve always having *some* cushion for a rainy day.

Huge, national groups like the United Way and the NSPCA are nonprofits. They often have tens of millions carried over year-to-year. Nothing wrong with it, and it doesn't mean those funds are taxed.

If she doesn't believe you/us, have her call the IRS helpline. They're very helpful.

Tim

I have heard this story so many times but I am in the same boat. I was recently appointed treasurer mid-year and was handed a box of STUFF. I have followed Critter's advice and set everything up in Quicken (the girls are really impressed - thanks!) and color coded our forms.

My problem is that as the year-end approaches the former treasurer is insisting that we have to "spend" all of the money in our account or it will be taxed by the IRS. Does anyone know what she means by this? She can't explain it any further. Last year she just simply made a budget (this is our second year) and since the funds were "earmarked" she didn't pay taxes.

Any help would be greatly appreciated!!