Internal:Audit/Key tax information

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Main issues

  • There are several types of 501(c)(3) nonprofits. WikiDC is a public charity, not a private foundations, nor a trust. To remain a public charity, which is desirable, WikiDC should generally get a third of its money or more from grants and contracts and small donations, not a single large donor. The percentage can actually be lower than a third; then we just need to explain. We have satisfied and will satisfy this "public charity" requirement every year.
  • Several web sites show information about public charities, e.g. CaseIQ where our entry is here. Open990.org is another one
  • For more on compliance for such organizations, see IRS publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities (2018)
  • Our taxes always include the same basic package every year, listed below. It appears that the same package will suffice is appropriate for later years when we receive less grant money and start to have business income/contracts. We have to switch to 990 proper probably if we get more than $200K in annual revenue.
    • 990-EZ (showing main activities)
    • Schedule A (establishing "public charity" status)
    • Schedule B (listing the largest sources of revenue, both contributors and grants; it's not made public)
    • Schedule C (lobbying; we don't have to fill out much of it)
    • Schedule O (supplemental/extended text and financial info, something of a mess).
    • It seems clear we don't have to file any other form with the 990-EZ
  • When reinstated as a 501c3, we want our Template:Tax deductibility to say something like "Tax Deductibility: Wikimedia District of Columbia is a public charity under Section 501(c)(3) of the Internal Revenue Code. Donations are tax deductible to the extent allowed by law. Our tax ID number is 45-2106571. You can report that to tax authorities when reporting your donation."

Issues on a 990-EZ affecting us

  • Lines 10-16 are for expenses; let's document and plan our categories for this so they match in Quickbooks, Podio, etc. Our PO box and election mailing expenses go with printing and postage on line 15.
  • The 990-EZ form asks whether we filed Form 5768. We DID, and we "made the election", meaning that our lobbying activities are judged strictly by expenses, which are zero per year. We have our 5768 form in our records. For details see w:501(h) election. (Fun fact: John S wrote that article, for us, by us!)
  • WikiDC is neither a "supporting organization" nor a "supported organization". One needs to know that to fill out the 990-EZ. These categories are discussed here. The key determining fact is that Wiki DC doesn't have loans from, loans to, or interlocking management or directorships with WMF or any other partner organization. Knowing and asserting that enables us to skip some of 990-EZ questions.
  • We qualify to file the 990-EZ not the full 990 because our annual revenues are under $200K. The 990-EZ is preferable.
  • Our program expenses listed on 990-EZ Part III must include activities for which we were the fiscal sponsor. It is not necessary to go into great detail about them.
  • Accounting periods and methods: Our fiscal year ends Sept 30 each year, and I think it always did back to our founding in 2011. The relevant tax form is the for the year with the Oct-Dec quarter; the 2021 form is for the Oct2021-Sep2022 year. We use the "accrual" method, not the "cash" method, and always have; this seems to be more compatible with state forms. To change these methods or periods we would need to file Forms to do it; see e.g. Pub 538 and Forms 1128 and 3115.
  • 990-T is for "unrelated business income"; not relevant to us, at least until the time we start to take on contracts; Schedule B is not public for us, but it would be for some orgs (political 527 orgs). There are a spectrum of 501c orgs, listed in appendix A. see p.2: 501(c)(3) de facto includes some of the 501e/f/etc orgs.
  • Instrux (2017) p5 notes on accounting periods and methods. We've always used "accrual method" and Oct-Sept fiscal year. See Pub 538 and forms 1128 and 3115 for more on this
  • Instrux p5 indicates late filing fees can get up to 5% of the org's revenues; unless "reasonable cause"; we might note that IRS mailings don't often seem to get to us; it may be that we've never convinced them to write to the PO Box. See this this article on late fees (Form 990: Late filing penalty abatement. BY VANI MURTHY, CPA

November 1, 2014)

  • round to nearest dollar on form, with exception if summing two numbers (include the cents then sum and round) (p6)
  • In 990-EZ part IV we are expected to put hours/week devoted to the position. The money numbers can be zero. We do not need to list any "key employee"; this category is for high-paid employees.
  • In EZ part III we can generally draw our "program service accomplishments" from our Annual Reports on this web site. Include estimates of expenses, including labor cost. "Grants" in this section refer to grants our chapter GAVE out.
  • The tax year, the year listed, e.g. 2017 990-EZ, is for the FIRST year in cases where the fiscal year bridges two years. I found this confusing, since the document generally could not be completed until the full fiscal year was over, and one usually refers to the fiscal year by the later calendar year. But analogously, an individual files the 2020 Form 1040 only in 2021.
  • We HAVE had "program service revenues". (990EZ line 2) In tax year 2015 we had a revenue-producing contract with the National Archives trust board, and received some kind of event fees. See [1] and [2]. In many years we do NOT have such revenue. T-shirt sales go here. Possibly it's in years where we issue receipts.

Schedule A

  • We can check box 7 and leave the rest of the page blank. Most of our peer orgs seem to do that. We are to check only one box, showing that we are a "public charity" not a "private foundation" in the tax law context. They're not looking for detailed information. WMNY checks box 10. A tax prof advises us that the difference between checking box 7 or box 10 is often determined by whether the org gets a large proportion of its revenues from "program services." We could follow up but it is unlikely to matter and box 7 has been fine so far.
  • In some years we have contracts (not grants) to do mission-related work. That’s called “program service revenue” not “unrelated business income”. We never have really “unrelated” income ; it’s all mission-aligned, in the public interest, not for-profit. I haven’t studied the 990-T form requirements. I need to ask about “change in activities” and “change in organization/governing documents” when we get to those tax years also. Confirmed from an expert: Unrelated Business Income is income from activities unrelated to your tax-exempt purpose.​ As long as your contracts are for activities that support your purpose (and not just financially), you do not have any unrelated business income.
  • A.II (Part II): It appears we just put total revenues in column (e), and 100% in rows 14 and 15.
  • Parts III and IV can be left blank, oddly. That's what our kinds of organizations do. We "qualify under Part II", meaning we have shown or stated that we are a "public charity" not a "private foundation," so Part III is irrelevant. Part IV is for "supporting organizations," meaning those more tightly integrated than we are into another parent organization. We aren't a "supporting organization"; there's no need to check that again. We don't share management or directors or officers with the WMF or any other organization. (It is strange to leave several pages basically blank, but that's what we are to do. Many organizations do, so by design it seems this should be on some other schedule not the main EZ form.)
  • Leave section A.V blank. The grammar is tricky but I think this section is for supporting organizations. (ask)
  • JS has figured out exactly how you do the table of numbers on Schedule A. We'll write the algorithm here at some point.
  • To explain or supplement answers, add to Schedule O (p6)
  • page numbers here refer to the 2017 instructions for 990-EZ
  • Heading of 990-EZ item B (p7): note we could check the "address change" box to get them to update their address for us
  • On items B and J, we decided to continue to declare ourselves a 501c3 here, not Application pending, although we await reinstatement
  • do not check item H; we are required to include a Schedule B
  • The official rhetoric around the "public support test" or "33 1/3% support test" is difficult but substantively: We can show we receive more than 34% of our revenues from the "public" in any long period, therefore we are a public charity. We do meet the public support test, aka the "33 1/3% support test", any year; JS is the expert on how to calculate this.
  • Item K: We are a "corporation", not a "trust" or "unincorporated association"
  • Line 1, revenues: There is some issue about how to report a grant which will be paid in future years; basically one reports the amount of money here. Almost all our revenue goes here: membership donations and grants
  • Line 2: "Program service revenue": We have nonzero levels of this; it seems to include grants/hire. It would be good to see this term defined. It may mean "contracts" and it would also include anything we sold, but basically we don't sell anything. The is line shows the total of income from contracts or grants that are "payments for services."
  • Line 3: Our "Membership dues and assessments" is, oddly, ZERO. Line 1 is where our membership revenues go. Line 3 would be nonzero if the amounts were matched by "membership benefits." Our membership benefits are de jure zero. If they had a "fair market value" (FMV in these documents) the membership dues to pay for them would go here.
  • Line 4: "Investment income" -- zero, until we have an endowment. Possibly if our bank account paid interest, that amount would go here.
  • Line 10: The amount OUR organization paid out in grants. Often that will be zero. Includes things called scholarships or fellowships or research grants to individuals. Do not include administrative expenses of making such grants. For grants we give larger than $5K, the recipient should be listed on schedule O. Not sure we've ever given such a grant.
  • Line 12: Gross pay to employees during the relevant tax year ; a later section looks for calendar year info but only for "highly compensated" employees and we don't need to answer that
  • Line 14: Occupancy, rent, utilities, and maintenance. Should be zero? but not in tax year 2015 it seems. Let's think about why that is. check with john'
  • Line 15: Printing, publications, postage, and shipping: probably PO box expenses + mailing expenses for the election
  • Part III: This takes effort: A concise yet complete/clear description of our program service accomplishments for the "services" which cost the most in dollars. Describe each activity, give estimates, give objectives for the activity. (discussed on p17 of instrux). Editathons should lead. Fiscal sponsorships should be mentioned, but don't list expenses, just the accomplishments
  • "Key employee" (Part IV, p17) We don't have any. This category is for high paid people or those with the authority of officers/directors.
  • Compensation statement in part IV is by CALENDAR year, different from the earlier use of tax year. I think we don't need to show any compensation info here in Part IV..
  • Line 33, p19: "Change in activities" -- at some point, not tax year 2017, we should mention that we start to take on contract work; aside from that I don't see any "significant change in activities". We didn't "discontinue" much, except maybe boot camps and fiscal sponsorships; we could mention that.
  • Line 34, p19: Changes in organizing and governing docs: it is implied here that even a change in membership ("composition") of the audit cmte might count as a change. Let's see what other orgs do. In general we have not had "significant" changes in these documents, and I don't see why the IRS would be interested in the ones we have changed.
  • Line 35, p19: We do have "unrelated business income", not from selling anything exactly, but from business contracts. Not in tax year 2017 but this will be relevant.
  • Line 41 (p23) and appendix G (p40-41): Nonprofits in DC are not required to file 990s with the city since 2008. D.C. Tax Office Repeals Its Form 990 Filing Requirement, 2009. There are other kinds of tax filing required each year -- one of two types, alternately, but not the 990EZ. (Let's mention them as time permits.)
  • Line 47 (p24): YES we "elected"; we "took the 501(h) election"; this is documented. It means only money matters here, and 0 is a good estimate of our lobbying expenses
  • Signature block on 990-EZ (p36): De facto the president signs. Someday let's hand this off to the treasurer
  • List of tax categories of [tax-] Exempt orgs, 501c3 etc. Worth rechecking someday and making clear in enwp perhaps; our own category is clear
  • Appendix B (p28) is a bit garbled but we can ignore it; it's addressing whether an org can file 990-N instead of 990EZ or 990. We can't. Gross receipts has a different meaning here from in appendix C; the difference is not clear, but we don't need to use this one. Our revenues are always above 50k$/year; we must file 990-EZ
  • Definitions, p30 and p43-44: A tax-exempt org is one in the categories of 501(a) and (501(c) or 501(d)), or a "trust" described in other sections. Let's clarify and record the relevant definitions on this page.
  • Appendix H of 990EZ instrux: We have an obligation to record/report large donations, above $250, or maybe $250/year. see p42. Let's deal with this when the crisis is past.
  • Schedule A: The key bit is that we have >33% on line 14 and we check the box on line 16a. This will always be true. The rest seems to be just overworked polite gymnastics.

Schedule C on lobbying

  • Instructions for Sched C, and choose the year in the URL
  • Schedule C seems unnecessary for us in principle but we should fill it out. It's not difficult. Expenses are normally 0. The reasons numbers appear on the form is that there's a cap, computed as 20% of our expenses. (That confused me for a while; the figure seems like it came from some real expense, but it's just an imagined ceiling.)
  • JS has figured out exactly how to do the table of numbers on Schedule C.

Reinstatement issues

  • Key IRS statements on reinstatement: [3]
  • We finished filing our 990s up to tax year 2020. Now we have to file a new Form 1023; see below a section on that
  • It is not clear why we haven't heard back from the IRS. They may simply not have gotten to our filings yet.
  • We have filed for extensions. We have never amended any return.
  • According to the 990-Z instructions (2017, p5-6), failure to file and filing late are reasons for the IRS to charge a financial penalty, unless a "reasonable cause" is given for filing late. We explained that the oficers are new, we didn't know for a while that we were behind, and it took a good while to figure out how to file correctly. Also that we seem not to get mail from the IRS, for many years now, even since we filed the Form 8822-B. Something seems to be wrong.
  • The accumulated surplus is a bit different on our annual financial reports of 2018 and 2019. We're not sure why; in the 990s it has to be the same so we scooted about $831 around into or out of that category.
  • There is a confusing aspect of our accounts payable / liabilities vs payments to professionals vs dates of program accomplishments for the Art Depiction Explorer grant. The expenditures and accomplishments are clear, but we may have to amend to get the accounting right.
  • In the 2017 form if we had to live it again we'd correct the 100% on Schedule A.

Form 1023, requesting tax-deductible status

  • A Form 1023 filing is necessary to be a recognized 501c3. We filed one in 2014 and apparently not since then.
  • Here's the confirmation the first one was approved:See File:Wikimedia DC Determination Letter.pdf for documentation. It was filed Dec 22 2014, and the chapter became a 501(c)(3) retroactively to that date, approved in Feb 2015. From 2011-2014 it looks like we filed Form 990-N's, not 990-EZ's, e.g. [4]
  • A NEW such Form 1023 is required for reinstatement for 501c3 after revocation of nonprofit status. There will be fees for it. $275 for the EZ and $6000 for the main one. We must use the Form 1023, not the near-alternatives: Form 1023-EZ is for orgs with less than 50K$ of annual revenue, and Form 1024 would be for another category, not 501c3)
  • Form 1023 must be filed online at pay.gov. We'll need an account and will create one soon. Form990.org, where we do have an account, doesn't do it.
to distill

Background, comparisons, side issues

  • To know, but not relevant to our 2017-2021 tax filings.
  • When the individual "responsible" for WikiDC changes, we must file a Form 8822-B. That individual was KL, now it's PBM, who filed this form early in March 2022. We don't see whether the IRS has recognized and recorded it yet, but we can share the form with banks etc. It has private info and can't be in public online.
  • How EINs are assigned
  • Internal:Public_Policy/Taking positions on public policy and nonprofit-charity status
  • A 990-T form is for "business income", and required if we had more than $1000/yr of it; we don't have any such income although the revenue from H/H may fit in this bin
  • We must file Form 1120 if we have to pay taxes. That's not likely to happen.
  • After filing, we can expect our Schedule B (the list of major grantors and donors) to be private. For some other orgs it would be made public, or partly public, notably for a 527 (political) org. I didn't see where the line and nuances were drawn for other 501(c)s.
  • There are a spectrum of categories of 501(c) organizations, which de facto includes some in IRS regs sections 501(d,e,f,j,k, and n). The list of categories is so extensive and detailed that it seems too long to even show here. We are a 501(c)(3) public charity with under $200K in revenue and no business income and near-zero lobbying expenses; if we get outside those limits we would have to learn more.
  • We are a public charity, which means we aren't a 4947(a)(1) nonexempt charitable trust and we aren't a private foundation.
  • An org may be required to file the completed Form 990-EZ with state governments; don't know if we are required to or if we ever did (ASK)
  • A Form 990-N is filed if an org does not have to file a 990-EZ or other return. That never applies to us.
  • WMNY has this EIN: 27-0520584 and has filed Form 990-Ns (per [5])
  • Our chapter is NOT a controlling org, a controlled or, a supporting org, or a supported org. (section 509(a)(3)) Basically we aren't closely enough aligned or managed with other orgs for this to be even a close call. I am looking for an example to clarify what those categories are, but anyway we aren't in those categories.
  • Dollar amounts should be rounded on the 990 forms. Round $.50 up to $1.00. Do sums with the pennies then round the totals. Don't report negative numbers; look for a way to say 0 instead unless instructions seem to allow a negative amount.
  • Do answer with 0$ rather than leaving items blank unless the question was conditional and doesn't apply.
  • It is okay and normal to explain answers on Schedule O if the filers think it's necessary.
  • We don't have "joint ventures", legal "partnerships", "disregarded entities", "investments", or "passive investments" so far as I can tell.
  • Charity Navigator doesn't list us but does list the WMF
  • ProPublica and Guidestar and EIN Tax Id have basic info from IRS filings about us.
  • "The National Taxonomy of Exempt Entities (NTEE) system is used by the IRS and NCCS to classify nonprofit organizations" mainly by their activities, or services produced (that is, their "industry").[1][2][3] The NTEE maps into the standard North American industry classification, NAICS. Propublica shows WikiDC's industry/classification as "Educational Services and Schools - Other (Educational Institutions and Related Activities)" That suggests we are classified in NAICS 6116 or 6117. Open990.org shows us as being in this category: NTEE: B90 - Educational Services and Schools - Other
  • Info on WMNY is online: [6]; EIN is 27-0520584. Unlike WikiDC they are in NTEE category, W19 - Non-monetary support - Public benefit, and they are listed as using Cash Accounting not Accrual Accounting. [4]
  • A small org CAN start an endowment. That's not relevant in the short run but it may in the long run allow us to invest our money to get a higher return.[5]
  • "Excess benefit transactions (Appendix E, p33-37) For certain we do not have any "excess benefit transactions", that is, transactions benefiting insiders to the degree that reporting them on tax forms might be required. (We don't have them by policy, and it is verifiable by routine inspection of our bank account and financial records.) We DO have "disqualified persons" (the phrasing needs clarification: it means disqualified regarding a particular transaction) but this doesn't matter. These are large donors, officers, and board members.
  • Tax forms and publications relevant to public charities listed on pp 38-40; maybe worth review someday
  • "Donor advised funds" (pp 23-24) -- presumably irrelevant, but let's find a definition if we can.
  • 990EZ lines 43-46 -- we don't do these things, so far as one can tell
  • 990EZ Line 49 (p24): Transfers to exempt noncharitable orgs?? Best guess at this moment is that we don't do this, although let's look at fiscal sponsorships in this light and determine it

References

  1. ↑ NTEE Core Codes (NTEE-CC) Overview at the Urban Institute's National Center for Charitable Statistics
  2. ↑ http://archive.icann.org/en/tlds/org/applications/dotorgfoundation/docs/ntee.html
  3. ↑ w:National Taxonomy of Exempt Entities
  4. ↑ WMNY as shown on Open990.org
  5. ↑ Scott E. Stewart. Five steps to starting an endowment: even smaller nonprofits can. Candid blog. March 2, 2020
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