CES Tax Exempt Talking Points

2-15-2011

The following questions have been asked by Extension agents and/or Extension clientele.  These responses have been prepared by CES Administration and 4-H Administration, with input from the university’s legal department.  As local groups strive to make the best decisions for their situation, keep the following in mind.

Guiding Principles for Solution

Money handling practices of the group must provide:

  • Financial accountability
  • Budget transparency
  • Group oversight
  • Adherence to UK money handling and financial procedures
  • Electronic recordkeeping for any group with annual income greater than $250

 

Information to Agents

1.       When will additional information be available to agents?

As soon as possible

 

2.       Who do we need to contact regarding questions about ANR groups?

Contact the Director for County Operations.  The primary people fielding questions related to tax exemption are the Director for County Operations and the Assistant Director for 4-H/Youth Development.  Generally, each can handle questions from any program area.     

 

Registration and Groups that Need to Register

3.       Do soil test funds have to indicate a choice from Options A, B, C, or D and fill out the registration  form?  

An advisory group must have financial oversight over soil test funds and a choice must be sent in through the registration form.  

 

4.       Besides 4-H, what are examples of groups in a typical county that need to choose and report   the option they have chosen?

Examples include but are not limited to:  Master Gardener, Master Cattlemen, soil test fund, field day accounts, Extension Homemakers, and quilting clubs.

 

5.       Do building foundations have to be registered?

Yes

 

6.       I have several bank accounts set up that share the 4-H Council EIN.  Currently there are only 2   entities appearing on the spreadsheet that have separate EIN#s.  My other accounts for groups   like our Ham Project, our Backpack Program, etc. share the Council EIN#.  Am I safe in registering only those two appearing on spreadsheet? 

Submit registration forms for the two accounts on the spreadsheet.  Various portions of the program such as the ham project or backpack program most likely do not need a separate bank account; these could be sub-accounts within the council’s electronic bookkeeping system for their single bank account. 

 

7.       We are in the process of having the 4-H Council handle all funds for the county and clubs.  That will mean that the County 4-H Council is the only group handling money.  Do I need to report the EIN’s of the clubs or just the one for the council? 

Submit registration forms for all entities on the 4-H spreadsheet.  We must account for all entities on the spreadsheet at the federal level.

 

8.         How do I correct information that I entered incorrectly?

The on-line registration form has a place in Section I which asks the person filling in the information to “check the box if this application is to replace an earlier submission for this entity.”  All information related to that entity needs to be filled out and submitted.  The most recent submission will replace the previous submission in its entirety.               

 

Number of Bank Accounts

9.        We have four entities in our county that handle money now.  Can they all choose Option B but each keep their own bank account or do the funds have to be handled through the council’s one bank account?

If the entities each keep their own bank account, they must choose Option A.  If Option B is chosen, then all funds go through the council’s bank account.

 

10.     What is meant by “one checkbook” and “multiple checkbooks” in Option A and B? 

“One checkbook” means that all program related funds are handled through the program council’s single bank account. “Multiple checkbooks” means that each entity/group has their own bank account, checkbook, and treasurer.

 

11.    Can one entity have several bank accounts?

Answer:  A good accounting system can accomplish the same thing.  The guiding principle is to have better oversight and financial accountability of all funds raised in the name of Extension. 

 

Handling funds

12.   Does the program council treasurer need/have to be bonded? 

Program council treasurers must be bonded.

 

13.    The information we’ve received says all options must have electronic recordkeeping; does this mean that a computer at the Extension office will be used and data entered by Extension Staff?  Can the data be entered by the treasurer (a volunteer) and can they use their own computer?

Data can be entered by the treasurer (a volunteer) and they can use their own computer.  In addition, Extension staff/agents can maintain an electronic recordkeeping system.  Computerized reports with standardized categories will allow for aggregation of reports across the state. 

 

Gaming

14.    If we choose Options A, B, and C, is it okay to conduct raffles and other gaming activities, as long as we refer to the money collected as a “contribution”?

Funds given in hopes of winning a prize are considered gaming and are not contributions. 

 

15.   We have three entities in our county that currently handle money—the county council and two clubs.  All three want to raise funds through gaming.  If our council becomes a 501(c)(3), is it okay for each of the three groups to conduct gaming activities under the council’s tax exemption and gaming license?

This can be done as long as the council agrees to accept all responsibility for these entities following gaming laws.

 

16.   If a club wants to choose Option A, B, or C but also do gaming, can we conduct gaming through the Extension Building Foundation? 

The purpose of the building foundation is different to that of a club so it would not be appropriate to do this.

 

17.   My 4-H Council has a Charitable Gaming Exemption number which allows us to do charitable gaming for 4-H Fund raisers as long as the total income is less than $25,000(raffles, Bingo, non-cash prize wheels, charity fund raising events, but not pull tabs or casino type games). Their regulations require us to keep those funds in a separate checking/bank account. Therefore our council has two checking accounts—our regular account and our charitable gaming account. The EIN number is the same for both accounts. Does this mean we could not choose Option B? Will we lose our Charitable Gaming Exemption if we choose not to apply for 501(c)3 status? 

If the 4-H entity chooses the Governmental Tax Exemption status and Options A, B, or C, the group will lose its Charitable Gaming License received under the National 4-H Tax Exemption which will discontinue in May 2011.  Entities which presently have a Kentucky gaming license under the National 4-H Tax Exemption will need to turn in their license to the Department of Charitable Gaming.   For details see http://www.lrc.ky.gov/krs/238-00/535.PDF .  However, any group can have a raffle three times a year which does not exceed gross receipts of $150 per event.  Any additional gaming above these amounts, will require the entity to hold 501(c)(3) status from the IRS.  For details, see http://www.lrc.ky.gov/krs/238-00/535.PDF, section 10.

 

18.   The 4-H council is trying to figure out an option other than Option D which will allow the council to be involved in gaming.  The agent talked to the school system who has a gaming license; they are willing for 4-H to raise money under their gaming license.  Is that an okay solution? 

If school administrators agree, then this is probably a viable option. They would choose Option A, B, or C but conduct gaming with the schools. 

 

Choices

19.   If a group doesn’t raise funds; they just accept registration fees and such.  Do they have to pursue some type of tax exempt status or can they just be the opposite of a non-profit and pay taxes?

All Extension groups must choose a tax exemption path and money handling option. 

 

20.   My county does not have an Extension District Board, what are the options for the extension groups in my county? 

Counties without an Extensions District Board can choose to have a governmental tax exemption through the fiscal court with Options A or B.  Entities can also choose Option D.

 

21.   If my county has no Extension District Board and chooses the government exemption, what EIN do the entities use? 

The entities must use the Fiscal Court’s EIN (FIN) Tax Exemption Number when a Tax Exemption EIN (FIN) number is required.  Extension groups can continue to use their own EIN for banking purposes. 

 

22.   When you choose an option, prior to March 15th, are we locked in to that forever or is this something that could be changed eventually?  My reasoning is that right now our 4-H Council is very inactive, but if in the future they became more active I could see the benefit of switching to a different option. 

 Entities can change their option after March 15, 2011, as the entities see the need to change.  Any change will need to be reported to the District Director, State 4-H Office, and the Director for County Operations.  

 

Choices: Options A, B, or C

23.   We have three clubs that handle money in our county besides the program council.  Can one club choose to continue handling its own money (Option A) and two choose Option B where the council handles the money for the other two?

Yes

 

24.   Would a group that chooses Option A, B or C governmental status, be required to file annually to the IRS?

An entity deriving exempt status from a governmental entity does not file tax forms to the IRS, unless it has unrelated business income. 

 

25.   Our Homemaker Club applied for and gained 501(c)(3) status last year.  What do we need to do to switch from 501(c)(3) status to coming under the Extension District’s governmental exemption?

If the Homemaker club has 501(c)(3) exempt status but prefers to come under the exempt status of the Extension district, the club will need to follow these steps.  A) The club will need to meet and dissolve as an entity with 501(c)(3) status. Additionally, the minutes will need to reflect this action and to specify that funds will be transferred to a newly formed group with a similar purpose operating under the Extension District.  B) The members will need to reconvene and re-start as a Homemaker Club deriving its tax exempt status from the Extension District. One meeting can accomplish both steps A and B.  C) Organizing documents of the newly formed club will need to reflect this change. D) The club needs to follow up with the IRS, by submitting the appropriate 990-series form.  The form will include a question asking the person completing the form to confirm that the entity still exists.  Indicate that it no longer exists.  This will end the club’s obligation to the IRS.  From this point on, the club will E) be financially responsible to the Extension District Board and Cooperative Extension (through the appropriate agent).  

 

26.   How do we tie our accounts with EIN numbers to the Extension District Board?  Or, do we use the Extension District Board EIN for all our councils and clubs?

An EIN is a numerical identifier for an organization similar to what a social security number is for an individual.  An EIN is required to open a bank account, thus many existing entities will already have their own EIN.  Although a local decision, it is suggested that entities that are handling their own checkbook should keep their own EIN number for banking purposes.  However, when an entity using the Extension District’s Board’s governmental exemption path (under Options A, B or C) is required to provide an EIN tax exemption number to a donor or organization providing a grant, the Extension district’s EIN (FIN) is to be used.  Verification of tax exemption will need to lead back to the Extension district, the original holder of the exemption.   By March 15, 2011, each 4-H entity will provide information that will be sent to 4-H National Headquarters and then to the IRS informing them of the new tax exempt status of each 4-H entity. 

 

27.   What EIN number will agents need as proof that the club or council under Options A, B or C is really tax exempt? 

Until May 14, 2011 4-H entities can continue to use the confirmation letters issued to the entity by 4-H National Headquarters.  For more information about this letter, contact Martha Welch, 4-H Extension Specialist.  After May 14, all Extension entities that chose Options A, B, or C will use a letter provided by the District Board to those who donate to the specific Extension entity.  A sample county letter is available in “Financial Guidelines for KCES County Volunteer Groups.”

 

28.   Locally, who do we ask for the district board’s number?  

The Fiscal Matters Contact will need to provide a letter from the Extension District Board confirming the tax exempt status to each Extension entity.  The letter will have the EIN (FIN) tax exempt number for use with donors and contributors.  A sample letter, approved by UK legal office will be available in early 2011.

 

29.   About Options A, B, or C – Where does the Area HM Council fit? You mentioned District 4-H but not Area Homemakers.

They may choose to link with an appropriate County Homemaker Council or District Board for the governmental exemption and follow their guidelines.

 

30.   Options A, B, but especially C are way too much responsibility for the Fiscal Contact agent to be sure that all is correct for the auditor when that person really has no control over the wishes of the various clubs and councils.  How should this be handled?

It is critical for each club, council or entity develops a budget, conduct an annual committee audit and complete an annual financial statement to be filed at the County Extension Office. Each agent is responsible for making sure that his/her County Program Council and clubs complete this process.  Only under Option C when the District Board handles all program funds as of part of the Extension District Board funds and accounts, are audits required according to Extension District Board Guidelines.

 

31.   Will more information be forthcoming about running grants through the foundation so we can explain how this would work to the council? 

Keith Rogers offered to have the Kentucky 4-H Foundation serve as the 501(c)(3) organization for grants for county 4-H programs.  He  indicated that for this next year if the Ky. 4-H Foundation serves as the tax exempt organization for counties securing grants  and the grant money comes to the foundation, there are two options that will be utilized by the county and foundation: 

1.       If the grant check comes to the Foundation as a flow through account and one check is written to the county group, there will be no administrative fee charged this first year.   If payments are received as quarterly payments and “in and out” payments only are written to the county, Keith indicated that the Foundation would handle these as an “in-out” account without charging an administrative fee.  
After the first year, the foundation will reassess this arrangement, looking at how much is involved, the number of counties, etc.

2.       If the grant check comes to the Foundation and the Foundation receives the bills and writes the checks for administering the grant, a nominal administrative fee will apply.  The current fee is 5%.   Since some grants will cover overhead costs, these fees should be included in the proposal’s budget.

Contact Keith Rogers, Executive Director, Ky. 4-H Foundation for additional information and assistance.

32.   Which county group has the responsibility for the 4-H FFA Livestock sale?  Can this entity choose Option A?  Is it okay that it is a joint entity?

The county group handling the livestock sale must be a part of the 4-H program and attached to the 4-H Council with an existing partnership between 4-H and FFA.  The group could choose Options A, B, or C which requires financial accountability and program accountability to the 4-H Council.

33.  If we go with Option A or B:

a.       Would we use the same tax exempt number as the county district board?

b.      How would we mesh council and district board reports (offset voucher, uniform financial report, & legal notice for newspaper) – would we keep them separate or would we have to have the same categories?

c.     Could we keep separate quicken accounts or would they need to be combined?

33 a. Entities that are handling their own checkbook should keep their own EIN number for banking purposes.  However, when an entity using the Extension District’s Board’s governmental exemption path (under Options A, B or C) is required to provide an EIN tax exemption number to a donor or organization providing a grant, the Extension district’s EIN (FIN) is to be used.  Verification of tax exemption will need to lead back to the Extension district, the original holder of the exemption. 

33 b.  There is no need to mesh the council and Extension District Board reports.  The Extension District Board is accountable for the funds it handles according to their guidelines.  Under Options A and B,   each entity is responsible for a budget, financial report and audit.  Copies of these financial reports should be filed with County Extension Council and the Extension District Board. 

33 c.  Under Option A, each entity is responsible for keeping its own financial records.  Under Option B, the funds for all entities within a program will be handled by the program council and sub-accounts for each entity should be kept in an electronic bookkeeping system.  Under both options, the budget, financial reports and audit will need to be filed with the County Extension Office, County Extension Council and Extension District Board.

33.   If you choose Option A, do the checkbooks have to be housed at the Extension Office?

No, checkbooks will be handled by each entity.  There is no requirement that the checkbooks have to be located in the Extension Office.   However, financial reports of the entity must be located in the office.

 

34.   With this tax exempt status switch coming on,  if the 4-H Council chooses to fall under the district board and let the district board handle all the money (option C), would the 4-H Council, and all the subsidiaries have to be inserted as a line item in the District Board’s budget?  Will this alter or affect the district board’s budget based on taxes coming in and our total income?  Or do we keep a totally separate budget, but just in name that we are under the Extension District Board. 

If the 4-H Council chooses Option C, it will prepare a budget with sub-accounts reflecting the 4-H entities (subsidiaries).  The 4-H Council will have an account within the Extension District Board reflecting their budget.  This option will add to the total income handled by the Extension District Board in the amount of the 4-H Council.  All funds will be handled by the Extension District Board, however, decisions about the 4-H Council account will remain with the 4-H Council. 

 

35.   Then if we choose Option C, would the 4-H Council even have to elect a Treasurer?  Or would they still need one to work with the 4-H agent and the District Board’s treasurer?   

Under Option C, the 4-H Council will need to have a treasurer to provide leadership to financial process including fundraising and budget.  The treasure will need to provide information related to funds being handled by the Extension District Board to the 4-H Council such as deposits, disbursements, financial reports, etc.     

 

36.   If we choose Option B, It says, “Separate sub-accounts will be established in a Quicken, QuickBooks or similar electronic bookkeeping system for each entity’s funds.  Does that mean that we must put any and all funds from other bank accounts into the one 4-H Council account, and just keep separate sub-accounts on the quicken electronic bookkeeping program?  Or could the money stay in their current bank account, and the 4-H Council Treasurer and the club treasurer work together to keep records of this account individually?  The second question more simply asks, “Can the 4-H Council treasurer simply take over the check books and account of each individual club?

Under Option B, any and all funds from other bank accounts related to 4-H need to be in one 4-H Council bank account.  An electronic bookkeeping system will reflect all 4-H Council funds including separate individual club/group subaccounts.   The 4-H Council Treasurer will handle all funds for the 4-H program and through the electronic bookkeeping system provide regular financial updates to the 4-H Council and 4-H club/groups. Each 4-H club/group will develop a budget for their subaccount.   

 

37.   In our county the ANR Council does not handle money but groups under them do handle money.  Does that mean that the groups would have to choose Option A or C since Option B doesn’t seem to be a possibility?

Whether the council handles money or not, the groups must be accountable back to a county-wide council—either an ANR council or county Extension council. 

 

Choices: Option D

38.   The Lincoln Trail Master Gardeners Association has its own 509 (a)(3) status.  Would this be option D?

This most closely aligns with Option D.  This group must follow the financial guidelines and accountability as described for all 501(c)(3) groups.   

 

39.   The Mammoth Cave Area 4-H Foundation is getting their own 501(c)(3), can we house the South Central 4-H Horse Program and District 6 4-H Horse under them as well?

Our recommendation is that all multi-county entities become an account within the Kentucky 4-H Foundation in order to have continuity over time.

 

40.   Can all the program councils in a county go together and pursue one 501(c)(3) for all of Extension in the whole county?

Each program council has a different set of goals/objections, thus one 501(c)(3) is not feasible.

 

41.   My County Homemaker treasurer and I are thinking that option D—form 501(c)(3) is the way for them to go. Their bank account averages $4500-$6000. Since they do go over $5,000 frequently, we thought this would be the best choice. It seems like a headache to put them under our Extension district board account, even though it would be a headache for the initial 501(c)3 process. They do annual fundraising efforts bringing in well over $1,000. They use this to pay expenses for their leaders to attend area and state functions. They also use it for many charitable causes.

Bank balance is not the determining factor related to the tax implication because the bank balance may include income from previous years.  An entity’s annual tax responsibility is based on revenue generated (income to the club) during the course of one year.  It includes funds such as donations, registration fees collected, funds raised, interest earned on the checking account or CD’s, etc.  Options A, B, and C are all viable options for an entity with the amount of income mentioned here.  All options will require accountability to Extension District Board.  For Options A, B, and C, it is a simple process of an annual budget, annual committee audit, and an annual financial statement. These same procedures will be involved under Option D but with the additional step will require submission of a 990 form annually to the IRS. 

 

42.   Is there any way the University and/or 4-H on a state level could apply for the 501(c)(3) status?  There are so many donors and donations to our programs that are not going to fit under this governmental status. People expect to be able to give a gift and get a Tax Exemption Letter for their taxes.

The college, UK legal office, and Extension Administration did not approve forming a state level 501 (c) 3 organization.  Under Options A, B, or C, the District Board will provide a letter for donors which verifies the deductibility of the gift. A sample letter will be available in early 2011, for county use.  For Option D, the 501(c) 3 organization will send the letter.

 

43.   If my county 4-H program is a recipient of a grant such as United Way, will we have to form a 501(c)(3)?

The entity needs to discuss the options with the grantor.  Explaining the tax exempt status to the grantor will clarify the options.  (Using the example, United Way guidelines vary from place to place so check before assuming that only 501(c)(3) organizations may apply.)  Extension entities can form their own 501 (c) 3 entity.  However, the Kentucky 4-H Foundation has agreed to work with 4-H entities and serve as the 501(c) 3 recipient to handle grant funds.  The foundation is willing to manage the account (receive and expend funds) at a nominal administrative fee (currently 5%) or serve as an “in and out” recipient where funds are managed locally with no administrative fee.  The Ky. 4-H Foundation’s confirmation of exempt status will be used during the grant application process.  The foundation will provide a letter to donors verifying the deductibility of gifts.

 

44.   If our entity shows up in GuideStar does it mean that we already are a 501(c)(3)?

4-H affiliates that are currently included in the federal group exemption which will discontinue in May, 2011 are listed in GuideStar so one cannot assume that all entities in GuideStar are 501(c)(3).  Among CES office files, there should be a copy of an application sent to IRS requesting 501(c)(3) status and certification from the IRS that the entity has received 501(c)(3) status.  If these documents cannot be found, the IRS can be contacted for verification.  The IRS customer service telephone number in the tax exempt organizations division is 877-829-5500. 

 

45.   If we went 501(c)(3), how would an audit be handled?  Would the county need to pay someone to handle the audit or is there a central person (though UK?) that would handle all 501(c)(3) audits?

The 501 (c) 3 will be responsible for its own audit depending on the guidelines established by the entity.  There is no legal requirement to have an audit by a CPA for a 501 (c) 3 organization.   

 

District/Multi-County Groups

46.   How do we fill out the registration form for a district or multi-county 4-H group that plans to have the Kentucky 4-H Foundation manage the funds? 

As you fill out the information on the registration screen, you’ll include this information inside the box labeled “Options for Handling Funds Locally.”  The multi-county group will choose Option D.  The form goes on to ask that you provide the name and EIN of the entity that will ensure the tax exemption of this entity.  Since the KY 4-H Foundation will serve in that role, type in Kentucky 4-H Foundation Inc.  The foundation’s EIN is 23-7437297.  

 

47.   Our Area/District Horse Council has had a checking account for years.  Their records are kept in Quicken.  Our books are open to anyone.  I do not want to move the account to the KY 4-H Foundation or my county’s district board.  Is that going to be a problem?

To remain as it is now, leaves the district horse council without a means of being tax exempt.  A multi-county entity has two sources from which to derive its exempt status—the district board’s governmental status or the KY 4-H Foundation’s 501(c)(3) status.  To leave it as a stand–alone entity as it has been in the past is not an option.  There are two options for a multi-county entity—1) attach it to a county entity which derives its exempt status from the Extension district or 2) to send it through the foundation.   You’ll probably want to talk with other agents and the horse council to determine which of these two options is best.   

 

Applying for 501(c)(3) Status

48.   Can the university provide clearer guidelines on what is involved in applying for 501(c)3 status?

The guidelines prepared by the KEHA Executive Committee in consultation with an accounting firm are very good and almost everything applies to all of our organizations. Go to: http://www.keha.org/.  It is a good idea to seek assistance in applying for 501(c)(3) status from a local tax professional or attorney.

 

49.   How can we pay the necessary professionals to get the Tax Exempt Status in place?  Is there a way that tax dollars can be used to obtain this status for our councils?

A CPA or attorney can be hired by county programs to assist with the 501(c)3 application if the entity has money to do so. University legal counsel has been consulted all along the way to help determine the tax status options for counties.  Using tax dollars for professional services is a local decision by the Extension District Board.

 

50.   Will Extension offer training on how to fill out the application form for stand-alone 501(c)(3) tax status?

The guidelines prepared by the KEHA Executive Committee in consultation with an accounting firm are very good and almost everything applies to all of our organizations.  Contact a CPA or attorney for guidance in this process. 

 

IRS

51.   I have been submitting Form 990-N to the IRS annually under 4-H Clubs and Affiliated Organizations for my 4-H Council and each 4-H Club that has a checking account and therefore has an EIN number. We had been instructed to do this by the State 4-H Office. If we choose Option A or B, the government path, we will not be required to file a form with the IRS because we will be considered a government entity not a nonprofit organization. Will the IRS question why we are no longer filing a 990-N with them as we have done in the past? If so, how is this situation to be handled? 

By March 15, 2011, each 4-H entity will be asked to respond to a survey sent out by Martha Welch.  Information gathered will be submitted to 4-H National Headquarters.  4-H National Headquarters will in turn forward that information on to the IRS.  If this system functions as has been described to us by 4-H National HQ, then the IRS will not expect any type of 990 filing by the individual 4-H entity if they chose Options A, B, or C.  If the entity chose to apply for 501(c)(3) exempt status (Option D), then the IRS will expect annual filings of one of the 990 series forms annually.   

If a 4-H entity receives a notice from the IRS which asks why the entity has not filed, contact Martha Welch.

52.   Options A, B, or C- If a unit has already filed for 501(c)(3) status (most HM clubs and HM Councils ) and then decides to go under the county umbrella (governmental exemption) will the IRS be tracking them already as a non-profit? How do we let the IRS know that entity has changed status?

If a HM club or HM Council has a 501 (c) 3 status and it changes or wants to come under the governmental exemption instead, the group must notify the IRS of status change, especially if the status no longer requires filing a 990 form.  Call the IRS at 877-829-5500.  This is the IRS Customer Services Dept for tax exempt organizations.   

53.   A Homemaker leader contacted the IRS to verify the tax exempt status for her Homemaker club.  She was told that they had no record of her Homemaker Club being covered under the county Extension district board. The IRS told her that the county district board should send verification that they are in fact covering the Homemaker club.  What do we do next?

The IRS will not be able to confirm the tax status of the Homemaker Club as that of the Extension District, a governmental entity.  Here’s why.  State law declares the Extension District a governmental entity. While the IRS recognizes governmental entities as exempt, the IRS does not maintain a list of all governmental entities in states.  That’s why a letter from the Extension District Board should be given to the Homemaker group which confirms their governmental tax exempt status.

54.   If we need to get a letter of affirmation for the district board from the IRS, who needs to request it?  Can an agent call the IRS or does it have to be the chairman or treasurer of the board?

According to an IRS representative, anyone may ask for the affirmation letter and a letter will be sent to the address on file at the IRS.  However, unless the person requesting the letter is an officer, they will not confirm the address to which the letter is being sent.  Thus, it would be better for an officer to make the call.  Read the IRS page related to Affirmation Letters for more details on how to request a letter.  The Extension district’s EIN will be needed. This IRS certification is sometimes required by grantors as IRS documentation or proof that the group is tax exempt.

 

MOU

55.   If we form a 501(c)(3), do we have to have an MOU with the university?

Yes, each Extension entity will have to have a Memorandum of Understanding with the UK Cooperative Extension Service and the appropriate program group.

 

56.   Will MOU’s be prepared by someone at the state level that we can use with our county groups or do we write those ourselves?

MOUs for several types of groups will be available soon online.

 

Misc

57.   What is the timeline that all these efforts must be completed?

By March 15, all CES entities must choose Option A, B, C, or D.  4-H entities will provide information to the State 4-H Department which will then forwarded to 4-H National Headquarters, District Directors, and the  Director for County Operations.  Other CES entities will be required to report their options to the District Director and the Director for County Operations.

 

58.   Will the change in the 4-H federal group exemption affect the exempt status of 4-H in regard to state income taxes?

Option A, B, or C has no requirement by the IRS to pay state and federal income tax.  This exemption means the entity is tax exempt.  Option D requires the entity to follow IRS guidelines for non-profit entities.

 

59.   Does the change in 4-H exempt status affect our sales tax exemption in any way? 

No.  Each Extension can apply for its own sales tax exemption for purchases.  The guidelines are in the County Operations Manual.  A Kentucky sales tax exemption allows an entity to be exempt from paying sales tax on purchases.

 

60.   Some have suggested that 501(c)4 status would be better for Extension entities than 501(c)(3) status.  Is this accurate? 

501(c) 4 exempt status is appropriate for politically active social welfare organizations.  It will not be appropriate for Extension groups.  This is not one of the four options approved by UK legal office and Extension administration.  

 

61.   We haven’t found anything in the files to indicate that an entity has ever filed for 501(c)(3) status but before we go through the application process is there a way to find out for sure if an entity has ever applied for 501(c)(3) status? 

First, check Exempt Organizations Select Check. If the entity is not found call the IRS to talk to a representative—877-829-5500 (tax exempt organizations).  Explain that you would like to see if the entity has ever had its own 501(c)(3) status.  The contact or an officer for the entity should be the one to make the call.

 

62.   In keeping separate checking accounts etc. electronically and having them audited such as we have been doing, we have not used the District Board/Ext tax Exempt # for purchases etc. (our admin secretary will not allow).  Therefore I will assume that we keep the same policy with these clubs in that they are not allowed to use our Tax Exempt # for purchases etc.

If the entity chooses options A, B, of C, the entity can apply for its own sales tax purchase exemption number for purchases made by the entity.

 

63.   I’m confused.  What’s an Extension District? 

In relationship to tax exempt status, this is related to Kentucky Revised Status that establishes an Extension District which coincides with the county lines.  An Extension District Board can be created by the county fiscal court and is tax exempt because it is a unit of county government.

 

64.   My market animal program has changed from an auction system to a “sponsorship” in which different businesses, etc. will donate X# of dollars to different kids and/or toward the expense of the program for awards, etc.  In the past they have used this as a tax donation to such a 4-H non-profit group.  In some cases we have given them 4-H council letterhead stating such.  Will that type of thing change for us in general?  Is there some other way we will need to document that for them, especially in cases of local businesses giving toward this program.

The 4-H Market Animal Program must be a part-of the educational efforts of the 4-H  Program and financial and program accountability are required by and to the 4-H Council. This program must promote the educational marketing aspects of the market animal program including check-off obligations and marketing costs.  Donation checks must be written to the 4-H entity and in support of the 4-H Program.  The funds must be used toward the expense of the program including awards to the youth.  Tax donations letters will come from the Extension District Board recognizing donations to the 4-H Council is tax exempt if Options A, B, or C is selected by the 4-H Council and entity.