Taxes and Tax Exemption

The Internal Revenue Service website (https://www.irs.gov/) is always the best location to find the most accurate and up to date information regarding federal taxes and tax status.

Does my RSO need to file taxes annually?

• Has your organization taken in any funding (dues, donations, proceeds from fundraisers, etc.) during the past fiscal/calendar year?
• Does your organization have an open account at a financial institution/bank?

If the answer to either of these questions is yes, then you should file the appropriate form with the IRS detailed in the next section. If the answer to BOTH questions is no, there is likely not a need to file taxes.

Organizations should file the appropriate 990 series form annually by the 15th day of the fifth month after the close of your organization’s tax period/fiscal year (usually May 15th).

Appropriate 990 series Forms based on organizational annual revenue:

• Less than $50,000 | 990-N (e-postcard)
• $50,000-$200,000 | 990-EZ
• More than $200,000 | 990

All federal 990 series forms and associated documents can be found at: https://www.irs.gov/charities-non-profits/required-filing-form-990-series

Basic information needed to complete  a 990 series form:

1. Employer identification number (EIN), also known as a Taxpayer Identification Number (TIN).
2. Tax year
3. Legal name and mailing address
4. Any other names the organization uses
5. Name and address of a principal officer
6. Website address if the organization has one
7. If applicable, confirmation that the organization’s annual gross receipts are $50,000 or less
8. If applicable, a statement that the organization has terminated or is terminating (going out of business)

Three main benefits of non-profit status are:

1. Exemption from federal and state income tax
2. Ability of certain non-profits to make purchases without paying state sales tax
3. Ability for certain non-profits to receive tax-deductible contributions

In most cases we DO NOT encourage student organizations to apply for federal non-profit status because:

1. The process involves follow up paperwork annually and most organizations will not find themselves in situations of needing formal federal or state non-profit status
2. Since many RSOs are ineligible for 501(c)(3) status, filing for non-profit status will not enable the RSO to receive tax-deductible contributions or make purchases free of sales tax (see below)
3. Securing federal non-profit status for tax purposes is a complicated process, which requires an understanding of the technical definitions and requirements of non-profit organizations for tax purposes

If your organization, as its own entity, wishes to apply for federal non-profit status, contact the federal IRS and the Wisconsin Department of Revenue, or consult your private tax advisor

Additional information about tax exempt status:

Is your organization:

• Primarily social, recreational, or sport based in nature? If so, you are likely a 501(c)(7) organization and can not accept tax deductible donations or be exempt from sales tax. – This is a majority of student organizations.
• Focused on social welfare, lobbying or a special interest group? If so, you are likely a 501(c)(4) organization and can not accept tax deductible donations or be exempt from sales tax.
• A charitable, religious, scientific, or educational mission driven? If so, you are likely eligible for 501(c)(3) status.
  • If your organization’s yearly gross receipts are less than $5,000, there is not a need to file for tax exempt status.
  • If your organization’s yearly gross receipts are greater than $5,000 you must file for tax exempt recognition with the IRS: https://www.irs.gov/charities-non-profits/application-for-recognition-of-exemption. Completion and acceptance of tax exempt status will result in a “letter of determination” validating the status of the organization. It is also recommended that you retain the services of a non-profit tax services professional.

In all cases, your organization should still file a 990 series form annually (see above).

RSOs that are exempt from federal income tax under any of the above categories are also normally exempt from state income tax.

For additional details on potential exemption from state sales or use tax in Wisconsin, see the Wisconsin Department of Revenue site: https://www.revenue.wi.gov/Pages/FAQS/pcs-s-exempt.aspx

There are special rules for “unrelated business income” that sometimes require non-profits to pay federal and state income taxes on their income that is generated by activities unrelated to their exempt purpose.

Student organizations are exempt from collecting state and county sales tax on “occasional sales” of items sold if the RSO:

1. Is considered a nonprofit organization, per the Department of Revenue’s definition. For this purpose, the definition of “non-profit” includes most 501(c)(3), 501(c)(4) and 501(c)(7) organizations.
2. Does not have or is not required to have a seller’s permit
3. Entertainment is not involved, or, if entertainment is involved, either no admission is charged, or all payments for entertainment at the event add up to less than $10,000.
4. Has had 75 days or less of sales in the calendar year OR has had earned less than $50,000 in sales in the calendar year.

If a particular sale does not meet the above criteria, the RSO is responsible for collecting and remitting state sales tax to the Wisconsin State Department of Revenue.  For additional information about sales tax, visit Wisconsin DOR’s website.  Consult Publication 206, Sales Tax Exemptions for Nonprofit Organizations, and Publication 204, Sales and Use Tax Information for Colleges, Universities, and Technical Colleges.

RSOs are not automatically eligible to receive tax-deductible contributions and instead must qualify for federal 501(c)(3) status.  RSOs that do not qualify for 501(c)(3) status are obligated to inform potential donors of the non-deductibility of any donations.  In unusual circumstances and subject to appropriate university authorization and approval, a university department may be willing to accept a donation on behalf of an RSO (likely via the UW Foundation), or with respect to an event sponsored by an RSO.

• In that case, the donation would be deductible to the donor since it is made to the university, and not the RSO.
• RSOs must be very careful to make sure the department is authorized and has formally agreed to accept the donation in these circumstances, since there are university forms that need to be completed by the department and receipts that must be provided by the university to the donor in order for the gift to be completed.

When transitioning financial responsibilities to a new individual for your RSO, if you have an EIN and bank account, part of transition should involve updating the organizations Responsible Party. To do this, complete and submit IRS Form 8822-B.

Additionally, signers on the bank account for your organization need to be updated. Most financial institutions require an in-person meeting and require that all old signers and all new signers be present at the meeting. Contact the bank where your organization accounts are held for details about process for this transition in signers.

Law & Entrepreneurship Clinic, University of Wisconsin Law School

The LEC offers free legal services to help entrepreneurs and small business owners realize their potential. Potential clients will be interviewed to evaluate their legal needs. Should the LEC decide to provide legal services, a letter of engagement will be entered into between the client and clinic defining the scope of services.  You can contact the LEC at entrepreneurhelp@law.wisc.edu.

Marquette Volunteer Legal Clinics

The MVLC can assist organizations with their legal questions. Advice ranges from corporate, tax, employment and intellectual property questions to the application for nonprofit status. MVLC is a free legal service for small and mid-sized Wisconsin 501(c)(3) organizations.