Exam 3

Question 1

Cost of Tax compliance

Answer 1

501c3 orgs annually spend 1.37 billion on federal tax compliance

Federal government gives up 31 billion by not taxing nonprofits

.4 percent of revenue

1. 6 percent of contributions
2. 4 percent of tax expenditure
   (2. 4)

Question 2

Content and filing requirements of the IRS Form 1023

Answer 2

• required for obtaining tax exemption
• must be filed within 27 months of formation to be retroactively applied
• requires narrative explanation of activities, extensive attachments, and financial projections
• public! Hold onto your copy of this and have it ready in case people request it. (2.4)

Question 3

Content and filing requirements of 1023-EZ

Answer 3

• filed electronically
• limited to organizations with less than 50k/year and less than 250k in assests
• not available for churches, hospitals, schools, supporting organizations, or nonprofits engaged in joint ventures
• cheaper and shorter
  (2. 4)

Question 4

Content and filing requirements of the IRS Form 990

Answer 4

• filed annually, unless you are a church or make less than 50k/year (Those have to file 990N ePostcard filing.)
• becuase of the statute of limitations,if you don’t file, the IRS can always come after you. If you do file, the IRS has three years to contest your filing.
• Public! (For three years) If you want to avoid making something public, and don’t have to put it in your 990, then don’t put it in. (2.4)

Question 5

Explain property tax and charitable exemption

Answer 5

• All 50 states hove a property tax exemption for charitable uses.
• Most state constitutions at least permit it if the legislature chooses.
• Most states have statutes clarifying and establishing the exemption.
• Article XIII, Section 3(1)(f)
• “Charitable”, doesn’t always mean “Charitable”. (Utah County v. Inter-mountain Health care)

Satisfying the law

• Identity of ownership and use. (The charitable organization typically must both own the property and use it.)
• Actual use. (The property must be in the “actual” charitable use, not just held for other purposes)
  (2. 5)

Question 6

Political challenges to the tax exemption status

Answer 6

1. Local governments are forced to forgo revenue or raise rates.
2. Charities enjoy free public services.
3. Unpopular or commercially-inclined charities strain the public approval.
   (2. 5)

Question 7

How localities get their money anyway

Answer 7

PILOT - Payment In Lieu of Taxes
SILOT - Services In Lieu of Taxes

Think of these as “protection money”
User fees and special assessments are becoming popular alternatives.
(2.5)

Question 8

Tax on charity seller

Answer 8

1