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LPFMs must give on-air acknowledgement of all business donations, including non-cash gifts. Failure to do so is a violation of the Payola law.
Federal
Non-Profit Regulations In order for donations by individuals, partnerships, LLCs, corporations and other non-profits to be considered deductible for federal (and generally state) income tax purposes, your organization has to be a 501(c) something. Indeed there are about 30 different 501(c) classifications. However, most organizations fall under IRC 501(c)(3) which is defined as: Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals However, be careful about two (2) areas that can get your organization into real trouble. First, from the IRS itself: no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h) of IRC 503), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. Secondly, do not discriminate. Any restrictions on membership must not be based on race, creed, color, religious affiliation, etc. You can have all sorts of membership requirements (touching heads and spitting in a cup, etc.) but those requirements cannot be discriminatory. You must file the application (IRS Form 1023) to become a non-profit within fifteen (15) months after then end of the month you incorporated, organized, etc. in order for your non-profit to be considered a non-profit from the day it incorporated, organized, etc. Once you get a determination letter from the IRS, you can receive contributions which the donor can deduct for federal income tax purposes. If you do not file an application to become a non-profit within fifteen (15) months, until you file the application and receive a determination letter, contributions are not deductible and the organization may well have to file an income tax return, claim the contributions as income and pay income tax on the net of contributions in excess of operating expenses As a practical matter, if you don’t file the application for non-profit status within fifteen (15) months and you receive substantial amounts of contributions, you can have some really mad donors who end up not being able to deduct their contribution, not to mention the tax problems you and your organization can face. Well, getting there was just half the fun! Once you are classified as a 501(c)(3) entity, you have some reporting requirements to deal with. First, all non-profit organizations (except for churches and those entities to whom the IRS has told they do not have to) must file an annual information return (IRS Form 990). This return is similar to a tax return except you must disclose some information about where you money comes from, where it goes, your financial status, officers and directors and how much they receive as compensation and the purpose of your ongoing projects. As with Form 1023, IRS Form 990 is no model of clarity partially because it is designed to facilitate filing by all of those other 501(c) organizations that exist (Black Lung associations, Voluntary Employee Benefit Associations, etc.) If you do not receive over $25,000 in a year, you do not have to file Form 990! If you receive less the $100,000 a year and your assets are less than $250,000, your can file Form 990-EZ which is considerably easier (as the name indicates)! The bottom line on IRS Form 990 –
the IRS wants to know what you are up to. There has been
increased scrutiny by the Service over the last several years for
four (4) reasons. Filing the annual 990 return is important. The failure to file is $100 a day up to a maximum and $10,000. The IRS has become somewhat reluctant to forgive late filing penalties on 990s. Better have a good reason for filing late. Failure to file three (3) years in a row and the IRS can revoke your non-profit status. Filing a 990 is a pain and can be expensive. However, it is has been my experience that non-profits save more on software than the cost of filing a 990 return. (The non-profits I am familiar with pay $8 for XP, $20 for full versions of Microsoft Office Professional, $40 for Windows Server 2003 and $6 for each workstation, etc. Similar savings on Adobe, Intuit, Lotus and Norton products just to mention a few. www.techsoup. org (check it out). I am not going to go into the ins and outs of how non-profits have to account for their money. With LPFMs and NCEs here is the rub. You need to be very careful about the purpose clause of your non-profit (as stated in your Articles of Incorporation on file with the Secretary of State) so as to prevent the IRS from determining your operation of a radio station is beyond the scope of the purpose clause of your organization’ s articles on incorporation. Should the IRS determine the operation of your LPFM or NCE is outside the organization’ s basic purpose, the income (less expenses) generated by the LPFM or NCE is subject to UBIT (Unrelated Business Income Tax) which is tax on the net income at for profit corporate tax rates. If you can show the LPFM or NCE fulfills an educational aspect of your non-profit or is necessary (financially) to carry on the basic purpose of the non-profit, you should be fine. Be cognizant of this area, keep minutes of board meetings where these matters are discussed and decisions are made. To me, a non-profit who is five (5) years behind in keeping their corporate record book up to date is worse than a for profit corporation in the shape. People often begin to operate non-profits as their own and that can get you into real trouble should the IRS take an interest in your non-profit. I don’t mean to alarm anyone about these issues but the Service’s determination that your LPFM or NCE is an unrelated business entity for tax purposes can create quite a hassle. But if you document and plan accordingly, it is a hassle you can avoid. Businesses may give non-cash donations to non-profit
organizations, but cannot claim a deduction greater than the
"fair and normal" value of the donation. In most
cases, donation of time is non deductible. For example, a volunteer
DJ cannot claim a donation based on the value of his personal time. Some non-profits operate as unincorporated associations such as PTAs, etc. The primary purpose of incorporation is to shield officers and directors from personal liability. Remember, if you are not incorporated (or an LLC) your officers and directors can be held personally liable for most every action you, your employees and in some cases your volunteers perform. Something to think about! Given the fact that becoming a non-profit is relatively simple (at the state level) I always advise clients against becoming officers or board members of organizations that are not incorporated. In other words, if the organization is not incorporated, insist they do so before going on their board. There are numerous sites on the internet that will do it for you but generally it is very simple and the Secretary of State (generally responsible for corporations) often provides non-profits a simple form to file. Many states give non-profits a break or a full pass when it comes to property taxes, especially on tangible personal property (transmitters, towers, computers, etc.). In some states, like Texas where the property tax is astronomical (since they have no income tax), the savings can be substantial.
Gifts to
Non-Profits
A landlord cannot take a deduction for furnishing space at no charge to non-profit. Remember, no one ever said U.S. Tax laws were designed to be fair.
Here is a summary of the IRS's explanation of the law:
1. A taxpayer owns a 10 story building. He allows a
charitable organization to use one floor and pay no rent. HE
DOES NOT GET A TAX DEDUCTION FOR THE VALUE OF THE RENT.
2. A taxpayers owns a 10 story building. He gives a
charitable organization a undivided 10% interest in the property.
He will be allowed a charitable contribution of the value of the
gift.
There are some very complex charitable remainder trusts that can
be utilized to make gifts of future interests that I am not going
to attempt to elaborate on here. They are considerably
complex and not like the scenario under discussion here.
Second, the BIG WARNING!
Charitable organizations ARE NOT to value non-cash gifts. In
very limited circumstances a charitable organization may
value a gift if the organization is professionally involved in
dealing with the specific type of article. For example, lets
say the organization routinely sells art works and has on staff or
members who are qualified to value the gift. Then, and only
then, can the organization offer an opinion as to the value of a
gift. In other cases, if an independent third party values
the gift, then the liability for making an erroneous valuation
falls to the third party.
Our local humane society, of which I am treasurer, operates a
thrift store. It is open Monday through Saturday and is one
of the largest, if not the largest, thrift store in the community. We
receive all sorts of gifts - clothing, dishes, furniture,
appliances, computers, book and even some artwork. Obviously
the staff is not competent to value all of these gifts. We
do provide acknowledgement receipts detailing what items were
received. There is a book available regarding the average
value of used clothing prepared by a couple of CPAs from Kansas
City (I think) and their values, which the IRS seems to readily
accept, are quite liberal. If memory serves me correct
these two guys do some sort of annual survey of gift stores around
the country to determine approximate values. We but there
book each year and generally attach copies of their values to
used clothing to the receipts.
With appliances and furniture, we sometimes will indicate the
price we intend to ask for the items. Of course that is in
no way controlling as to value but does give the taxpayer
some reference point to assist them in arriving at their
own values. Basically, you are on your own in
valuing these types of gifts. Recently, the IRS has now
tried to simplify the issue (to some extent). After April
17, 2006 a taxpayer MUST attach to their tax return a qualified
appraisal of any single item of clothing or any household item
this is not in good used condition or better for which they intend
to deduct more than $500. (Of course we will now argue about
what is the measure of "good used condition.")
If the deduction is a non-cash deduction of more than $5,000, you
must have a qualified appraisal, with a very limited number of
exceptions. (One exception - stock and bonds. In such
cases all we do is attach a copy of Yahoo's Morningstar closing
quote as of the date of the gift.)
From IRS Publication 1771 - Charitable Contributions -
Substantiation and Disclosure Requirements:
Written
Acknowledgment
Requirement A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgment of the contribution from the recipient organization. An organization that does not acknowledge a contribution incurs no penalty; but, without a written acknowledgment, the donor cannot claim the tax deduction. Although it is a donor’s responsibility to obtain a written acknowledgment, an organization can assist a donor by providing a timely, written statement containing the following information:1. name of organization 5. description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution 6. statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits (described later in this publication) , if that was the case It is not necessary to include either the donor’s social security number or tax identification number on the acknowledgment.
---------- NOTES Commercial "For Profit" vs. Non-Profit NCE Additional Notes. NCEs must be non-profit; not necessarily 501(c)3 Why LPFM should not be Commercial Translators should have more than 100 watts .... More power may not fit for many .... Most NCEs are not PBS and do not receive government funding / grants You can be a state recognized non-profit without
being a 501(c)(3). In addition, there are other classifications of
non-profits recognized at the federal level by the IRS. This
is incorrect. The FCC recognizes non-profit organizations that are
merely state recognized. 501(c)3 status with the IRS is an
option but the FCC doesn't require it. Every state is different, but there is a
difference between being a
state recognized non-profit organization, and an IRS tax-exempt
501(c)(3) How are you reporting your Income 990 Form with the IRS. If you make more than $5000 you have to do a 990 Form. Congress by law requires any licenses for commercial frequencies to be awarded to the highest bidder. Thus if the FCC decided they would permit commercial LPFM stations, those applying for a commercial LPFM would be subject to competitive bidding. The 'auction' requirement for LPFMs if commercial
operation was
allowed, is not certain if the entity was still required to be a
non-profit licensee. The argument I have is it is legal for a non- I was told that we had to be a 501(c) 3 for the individual supporters to be able to deduct their support to our station. Business underwriters can deduct it because it is considered a legitimate business expense. Also, being a 501(c)3 entity gives us tax exempt for not having to pay sales tax on our purchases. If our purchases are small, I usually don't go through all the paperwork to discount the sales tax. It's just not work it! I
was told that we had to be a 501(c) 3 for the individual supporters
to be able to deduct their support to our station. To
my knowledge, that is true. That
is also correct, even if you are not a 501(c)(3). They can
write it off as advertising or promotion.
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