filing requirements for not-for-profit organizations in hawaii presentation for may 11, 2012 manoj...

Filing Requirements for Not-for-Profit Organizations in Hawaii

presentation for

www.pkfpacifichawaii.com

May 11, 2012

Manoj Samaranayake, CPA - Partner, Tax Services


• Tax Exempt vs. Nonprofit distinction

• Federal Tax Requirements in general (IRS)

• Hawaii Tax Requirements

– Administered by Hawaii Department of Taxation

– General Excise Tax New Requirements

– New Form GE-1

• Hawaii State Filing Requirements –

– Administered by Hawaii Attorney General

• Hawaii Nonprofit sector snapshot and facts

Overview


• Tax exempt organizations include those that are organized as not-for-profit, such as corporations organized under Hawaii nonprofit corporation laws.

• Merely organizing as a nonprofit entity does not necessarily mean that the IRS will recognize it as tax-exempt.

• Tax Exempt is a concept of federal tax

• Nonprofit is a concept of state law

Nonprofit vs. Tax Exempt Organizations


Tax-Exempt Status for Alumni Associations

Section 501(c)(3) – Charitable Organization

• Contributions are deductible as charitable contributions on the donor’s income tax return.

• Religious, charitable, scientific, literary & educational organizations.

Section 501(c)(7) – Social & Recreation Clubs

• A club should be supported solely by membership fees, dues, and assessments.

• May receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status.

• Up to 15% of gross receipts may be derived from the use club facilities by general public or from unrelated purposes.


General Federal Filing Requirements

2010 & 2011 Tax Years (Filed in 2011 or 2012)

Gross Receipts Form

Normally ≤ $50,000 Form 990-N

> $50,000 and < $200,000 and total assets < $500,000 Form 990-EZ or 990

≥ $200,000 and/or total assets ≥ $500,000 Form 990


Qualifying for Tax Exempt Treatment Under Hawaii Tax Laws

Hawaii Taxes

• Income taxes

– Organization will be exempt for Hawaii income tax if the organization qualifies for exemption for federal income tax purposes.

• General excise taxes (GET)

– GET law requires certain organizations to apply for exemption from the payment of GET by filing Form G-6.

– Receive a letter from Hawaii approving the GET exemption.


GET filing Requirements

Hawaii Taxes

• General excise taxes (GET) continued

– Amounts received as dues, donations, or gifts are not included in gross income subject to GET.

– Gross income received from the conduct of any fundraising activity is subject to GET.

– Interest income may be subject to GET.

– File forms G-45 & G-49.

– See TIR 2010-05 for explanation of denial of GET benefits.


GET filing Requirements

Tax Information Release 2010-05 (issued 07/29/10)

• Discusses Act 155 from 2010 (requiring GET filings).

• Effective June 1, 2010, any nonprofit organization who is required to obtain a general excise tax (GET) license and fails to do so or who has a license and fails to file Form G-49 within 12 months of the prescribed due date may be denied GET benefits, such as exemptions, deductions, or lower rates.

• Reasonable cause safe harbor.

• Must file annual G-49 even if no liability.


New Hawaii Form GE-1

Tax Information Release 2011-04 (issued 09/26/11)

• Discusses reporting requirements of Act 105 from 2011

– Gathering info about exclusions and exemptions

• Most for profit companies required to file Form GE-1

– For 12/31/10, 12/31/11, 12/31/12

• Most nonprofit companies not required to file

– Unless had unrelated trade or business income &

– Claimed business deductions and exemptions


Additional Tax Filings (if necessary)

Federal

• Form 990-T

– Report unrelated business income of > $1000

– Same filing due date (05/15)

– Additional 6 month extension available

Hawaii

• Form N-70NP

– Similar to Fed requirements

– Only needed if 990-T is filed

– Filing due date (04/20)

– Additional 6 month extension available


Summary – Tax Filings

Federal (IRS)

• Federal Form 990, 990-EZ or 990-N

• Federal Form 990-T (if necessary)

Hawaii (Department of Taxation)

• Hawaii Form G-45 and G-49 (general excise tax returns)

• Hawaii Form N-70NP (if necessary)

• Hawaii Form G-1 (if necessary)


Hawaii – State Filing Requirements

• New Requirements effective in 2009.

• Administered by Attorney General.

– http://hawaii.gov/ag/charities

– Act 174 requires charities that solicit contributions to register with the Attorney General unless exempted from the registration requirement.

– Amended Hawaii Revised Statutes 467B.



One-Time Charity Registration

-Link to the Hawaii registration site:

http://efile.form990.org/frmNPParticipatingStateSCOHI.asp

- There is no fee to register

- Registration statement requires two officers to electronically sign

- Request Login ID and password for two officers of the organization

- Create registration using the File Creation Wizard

- Online tutorial is available at this site and recommended before starting the registration process





What is a “Charitable Organization” for the purposes of the registration law?

• A “charitable organization” is any organization that solicits funds in Hawaii that is exempt under section 501(c)(3) of the Internal Revenue Code. Charitable organizations also include any person who is or holds itself out to be established for any benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary purpose, or any person who in any manner employs a charitable appeal as the basis of any solicitation or an appeal that has a tendency to suggest there is a charitable purpose to the solicitation.



The term solicit or solicitation is already defined in the current law as:

• “Solicit” and “Solicitation” mean a request directly or indirectly for money, credit, property, financial assistance, or thing of value on the plea or representation that the money, credit, property, financial assistance, or thing of value, or any portion thereof, will be used for a charitable purpose or to benefit a charitable organization.

• A grant received from the government, or another 501(c)(3) organization is not a contribution. Nor are membership dues and assessments.



• The following charitable organizations are exempt from the registration requirements:

– Any duly organized religious corporation, institution, or society;– Any parent-teacher association; – An educational institution that is licensed or accredited by an

accrediting body;– A 501(c)(3) organization that primarily solicit contributions from

parents, alumni, students and faculty of the foregoing accredited educational institutions;

– Any nonprofit hospital licensed by the State or any similar provision of the laws of any other state;

– Any governmental unit or instrumentality of any state or the United States; and

– Any charitable organization that normally receives less than $25,000 in contributions annually, if the organization does not compensate any professional solicitor or professional fundraising counsel.



• Requires the submission of an annual financial report

– Provides that the report shall be the charity's IRS Form 990 or 990-EZ.

– Must be filed with the Attorney General on or before the date that the charity files the Form 990 or 990-EZ with the IRS.

– Requires submission of an audited financial statement if the charity has over $500,000 in gross income, or where the charity prepares an audited financial statement required by a governmental authority or third party. Gross income does not include grants from governmental authorities. Thus, only those charities with public contributions that exceed $500,000 as shown on line 1a of the Form 990 or 990-EZ need obtain an audited financial statement.



The law requires each registered charity to pay an annual fee based on the charity’s annual gross income:

Annual Gross Income Annual Fee

< $25,000 $10

$25,000 < $50,000 $25

$50,000 < $100,000 $50

$100,000 < $250,000 $100

$250,000 < $500,000 $150

$500,000 < $1,000,000 $200

$1,000,000 < $2,000,000 $250

$2,000,000 < $5,000,000 $350

≥ $5,000,000 $600



• Annual Business Filing with the Department of Commerce and Consumer Affairs

• State of Hawaii – DCCA Business Registration website for form – “domestic non profit” section

– Update new officers and directors

– Validate address

– Online filing fee is a nominal $5.00

– Renew at www.ehawaii.gov/annuals

Hawaii Alliance of Nonprofit Organizations

(HANO)2011 Hawaii Nonprofit Sector Report

released 02/07/12



How the sector breaks down in Hawaii

There were 7,777 total nonprofits in Hawaii in 2008

(Data per HANO 2011 Hawaii Nonprofit Sector Report)

577874%

3304%

166921%

Charitable Nonprofits under the 501(c)(3) designationPrivate FoundationsNonprofits under other 501c subsections


How the sector breaks down in Hawaii


Tax-Exempt OrganizationsFiling Annual IRS Report**

(over $25k in gross receipts)

Registered with IRS

(over $5k in gross receipts)

Under 501(c)(3)* 2,801 5,778

Charitable Nonprofits 2,525 5,448

Private Foundations(orgs. that grant funding to nonprofits) 276 330

Under Other 501(c) 886 1,669

501(c)(4) Social Welfare 224 509

501(c)(5) Labor/Agriculture 122 208

501(c)(6) Business Leagues 275 427

501(c)(other) 265 525

* Does not include religious congregations. Data from 12/2008 Business Master File data may not match other figures in this report. SOURCES: NCCS Data Web, National Center for Charitable Statistics, http://nccsdataweb.urban.org/ © 2010

** Includes 990, 990-PF, 990-EZ, and 990-N

http://nccsdataweb.urban.org/


Number of reporting Hawaii Nonprofits by field, 2008


Types of Charities Number Total %

Arts, Culture, Humanities 276 15.03%

Education 330 17.97%

Environment or Animal Related 111 6.05%

Community Improvement, Public/Societal Benefit 186 10.13%

Health Care or Mental Health 222 12.09%

Human Services 561 30.56%

Religion Related, Spiritual Development 76 4.14%

Research: Science, Technology, Social Science 19 1.03%

All Others 55 3.00%

Total 1,836 100.00%


Number of reporting Hawaii Nonprofits by field, 2008


Arts, Culture, Humanities; 276

Education; 330

Environment or An-imal Related; 111

Community Improvement, Public/Societal

Benefit; 186

Health Care or Mental Health; 222

Human Services; 561

Religion Related, Spiritual Devel-

opment; 76

Research: Sci-ence, Technology, Social Science; 19

All Others; 55


Key Observations

• Health Care, Mental Health, and Human Services together comprise 40% of Hawaii’s nonprofits, followed by Education at 17%, and Arts, Culture & Humanities at 15%.

• Educational nonprofits hold the most assets of all the categories, at 60%.

• Of all the categories, Hospitals are the nonprofits with the highest expenditures, at almost 42%.


Percent of Charities by Expenditure Level


45%

28%

9%

12%

3%

3%

Expenditure Level

< $100,000

$100,000 < $500,000

$500,000 < $1,000,000

$1,000,000 < $5,000,000

$5,000,000 < $10,000,000

> $10,000,000


Percent of Charities by Expenditure Level


Expenditure Level # of Charities Assets Expenditures

% of Total

Charities

% of Total

Assets

% of Total Expend-

itures

< $100K 816 $268,684,395 $36,454,955 44.44% 1.67% 0.84%

$100K < $500K 516 $397,161,935 $118,833,501 28.10% 2.47% 2.72%

$500K < $1M 164 $363,048,660 $116,280,889 8.93% 2.26% 2.67%

$1M < $5M 226 $1,354,939,438 $480,905,292 12.31% 8.44% 11.02%

$5M < $10M 50 $666,563,511 $348,144,421 2.72% 4.15% 7.89%

> $10M 64 $12,999,807,833 $3,262,551,440 3.49% 80.99% 74.77%

Total 1,836 $16,050,205,773 $4,363,170,498 100% 100% 100%


Number of Hawaii Nonprofits by County, 2008


Kauai112 nonprofits

1%

Honolulu1,206 nonprofits

91%

Maui, Molokai, Lanai254 nonprofits

3%

Hawaii Island264 nonprofits

5%


Hawaii Foundations, 2008


Foundation Type # of Foundations Assets Total Giving

Independent Foundations 275 $977,958,460 $61,608,773

Corporate Foundations 19 $174,144,601 $8,440,805

Community Foundations 2 $386,168,222 $23,357,205

Operating Foundations 28 $362,196,814 $3,067,450

Total in Hawaii 324 $1,900,468,097 $96,474,233

Total in United States 75,595 $564,950,926,000 $46,781,305,000

Hawaii as a % of US 0.43% 0.34% 0.21%


Top 10 Hawaii Foundations by Assets, 2008


Foundation Name Assets Foundation Type

1 Hawaii Community Foundation $385,186,618 Community

2 Harold K. L. Castle Foundation $178,943,822 Independent

3 The Hau’oli Mau Loa Foundation $147,387,323 Operating

4 The Clarence T. C. Ching Foundation $124,894,370 Corporate

5 Consuelo Zobel Alger Foundation $118,214,718 Operating

6 Atherton Family Foundation $80,397,394 Independent

7 McInerny Foundation $63,260,233 Independent

8 New Moon Foundation $44,081,318 Operating

9 The Shaw “U.S.” Foundation $41,509,297 Independent

10 Na ‘Aina Kai Botanical Gardens $35,450,906 Operating

Total $1,219,325,999


Top 10 Hawaii Foundations by Total Giving, 2008


Foundation Name Total Giving Foundation Type

1 Hawaii Community Foundation $23,282,204 Community

2 Harold K. L. Castle Foundation $6,922,581 Independent

3 The Shaw “U.S.” Foundation $6,211,304 Independent

4 Atherton Family Foundation $4,567,670 Independent

5 McInerny Foundation $2,898,187 Independent

6 Victoria S. and Bradley L. Geist Foundation $2,137,801 Independent

7 Alexander & Baldwin Foundation $2,123,675 Corporate

8 Samuel N. and Mary Castle Foundation $2,069,075 Independent

9 HMSA Foundation $1,790,695 Independent

10 First Hawaiian Bank Foundation $1,777,731 Corporate

Total $53,780,923


Resources

BoardSource (www.boardsource.org)

• Dedicated to advancing the public good by building exceptional nonprofit boards and inspiring board service.

• Strives to support and promote excellence in board service.• Premier source of cutting-edge thinking and resources related to nonprofit

boards.• Engages and develops the next generation.

GuideStar (www.guidestar.org)

• Mission: to revolutionize philanthropy and nonprofit practice by providing information that advances transparency, enables users to make better decisions, and encourages charitable giving.

• On their site, you can view the IRS Form 990 for any nonprofit organization registered with the IRS.


Resources

Hawaii Alliance of Nonprofit Organizations (www.hano-hawaii.org)

• Unites and strengthens the nonprofit sector as a collective to improve the quality of life in Hawaii.

National Council of Nonprofits (www.councilofnonprofits.org)

• Nation’s largest nonprofit network.• Works through member State Associations to amplify the voices of America’s

local community-based nonprofit organizations, help them engage in critical policy issues affecting the sector, manage and lead more effectively, collaborate and exchange solutions, and achieve greater impact in their communities.


Any final questions or comments?


THANK YOU!

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