|Frequently Asked Questions for Nonprofits|
Sasser, Sefton, Brown, Tipton & Davis, P.C.
This article provides answers to frequently asked questions about Alabama nonprofit organizations and compliance with both state and Internal Revenue Service ("IRS") requirements.
Q.: Does a nonprofit need to file a separate application for recognition of exemption with the State of Alabama?
A.: No. Alabama automatically recognizes organizations that have been recognized as exempt from federal income tax under section 501(c) without the need to file a separate state application for recognition of exemption.
Q.: Does an Alabama nonprofit need to file an annual "information return" with the Alabama Department of Revenue?
A.: Alabama does not have a state "information return" comparable to the IRS Form 990 and does not require that the Form 990 be filed with the state. However, if an organization has unrelated business taxable income, it must file an Alabama Form 20C together with a copy of the federal Form 990-T.
Q.: Is an Alabama nonprofit automatically exempt from property tax and sales tax?
A.: Alabama does not have a general property or sales tax exemption for nonprofit organizations. Certain specific organizations and types of organizations have been granted exemptions by legislative act. For example, property used for religious worship is exempt from property tax. Also, sales by elementary and secondary schools and school organizations are exempt from sales tax if sales proceeds are used solely to benefit the school. However, the exemptions from property tax and sales tax in Alabama are somewhat inconsistent and limited; most organizations will need to seek specific exemptions through an act of the Legislature.
Q.: What nonprofits are covered by Alabama’s state charitable solicitations law?
A.: Every charitable organization located in Alabama that intends to solicit contributions within the state must register with the Attorney General’s Office unless exempted. The following organizations are exempt:
Q.: What are the registration and reporting requirements for nonprofits under Alabama’s charitable solicitations law?
A.: Organizations must file a registration form with the Alabama Attorney General’s Office and pay a $25 registration fee. The application must include copies of the articles of incorporation, bylaws, and the IRS determination letter. Alabama accepts the unified registration statement filing. Registered organizations must submit an annual report with a financial statement within 90 days of the close of the organization's fiscal year and pay a $25 registration renewal fee. Organizations can submit IRS Form 990 instead of the financial statement, but there is no extension of the 90 day reporting deadline for organizations using Form 990 in place of the state reporting form. There is no requirement for an audit of the organization.
Q.: In general, what are the IRS requirements for documenting charitable contributions and what is the nonprofit’s role?
A.: To claim a charitable donation for a single donation valued at $250 or more, the donor must have a written record to support the donation. Normally, the charity provides a written acknowledgment to the donor, although there is no penalty for the charity if it does not provide the acknowledgment. For a cash donation, the acknowledgment should specify the amount of the donation. For a noncash donation, the acknowledgment should not contain a value. Instead, the acknowledgment should contain a description of the items donated. For example, if the donation were a collection of books, the acknowledgment might describe the donation as "50 used hardcover books." The burden is on the donor to establish the value of donated goods when claiming a charitable deduction. If the organization has not provided any goods or services to the donor in return for the donation, then the acknowledgment should state so.
Q.: What are the IRS requirements for documenting charitable contributions when the donor receives something of value in return?
A.: The rules are different if the donor receives something of value in exchange for a contribution. In general, if the donor makes a contribution of more than $75 and receives something of value in return, the charity must provide a written disclosure. The disclosure must inform the donor that the charitable donation is limited to the amount that the contribution exceeds the value of the item or services provided and must provide a good faith estimate of the fair market value. Normally, the fair market value is the amount the charity paid. If the item or services were donated, then the fair market value is the normal selling price of the item or the usual charge for the services. There is a penalty for failing to provide the disclosure; the penalty is $10 per donation with a maximum penalty of $5,000 per event or solicitation.
Q.: What are the IRS requirements for documenting charitable contributions in connection to charity auctions?
A.: Charity auctions present two additional issues. First, to claim a charitable donation, the winning bidder must be able to show that the amount bid was greater than the fair market value of the item. If the auction has a catalog, the bidder usually can rely on the value published in the auction catalog. The second issue concerns charitable deductions for people who donate items to be sold at the auction. Normally, donors of items for the auction cannot claim the fair market value of the items; they are limited to claiming their tax basis (which is usually what they paid for the items) unless the fair market value is lower, in which case the lower fair market value must be used.
Q.: What are the IRS requirements for reporting revenue from donations received by nonprofit organizations?
A.: In terms of reporting receipts or revenue from donations, the IRS does not prescribe any one valuation method for charities to use in completing the Form 990. Ordinarily, the value should be the fair market value. Basically, the only requirement is that the amounts reported match the organization's financial statements. Only if the amount of reported noncash contributions totals more than $25,000 does an organization need to complete the more detailed Schedule M.
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