The Small Business Tax Help Blog

Archive for August, 2011

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Question: A 501 (c)(3) non-profit org compliance question?

Under IRS 501 (c)(3), an organization is tax-exempt as long as it meets the requirements set forth in IRC 509(a)(2).

The “One-Third Limit On Gross Investment Income and Unrelated Business Income” test set out in IRC 509(a)(2) states that “An organization will meet this test only if it normally receives not more than one-third of its total support in each taxable year from gross investment income”

If a non-profit received $29 million dollars in donations last year, and earned another $26 million on investments from an endowment fund, has it violated the terms of the “One Third Limit”?
Tro, I’m afraid I’m not very good with the definitions. I do know that the principal began with money from donations and that more money is added from current donations and interest on the fund each year.

The non-profit claims that the fund was created to accumulate funds against the day when fund raising postage costs become prohibitive.

Answer: The answer to your question partially depends on whether or not the organization is a public charity or a private foundation. A 501(c)(3) that is a private foundation is not restricted to the limits under 509(a)(2).

If, however, the organization is a public charity, a violation has not necessarily happened just because the limit is exceeded in one year. Typically, the IRS looks at things in 5 year windows. As long as the organization on average stays within limits, it is OK.

One more wrinkle: not every public charity qualifies as a 501(c)(3) under 509(a)(2). Many are 509(a)(1) and 509(a)(3) organizations and are subject to different criteria altogether.

Confusing? I do this for a living and its confusing. Hope this helps!

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House Session 2011-03-03 (10:02:27-11:03:18)

Question: Do right-winger know that redistribution of wealth was taking place in this country long before Obama came?

on the scene?

The Earned Income Tax Credit a Republican creation. It was enacted in 1975 under President Ford and expanded numerous times over the last 35 years. President Reagan expanded it in 1984 and 1986. President Bush expanded it against in 1990 and added supplemental credit for families with more than one child. President Clinton expanded it for childless claimants in 1993. President Bush expanded it again in 2001.

“About 45 percent of households will owe no federal income tax in 2010, according to our estimates. Half of them earn too little, while the other half — mostly middle- and lower-income households — will take advantage of tax credits such as the earned income credit, the child and child-care credits, the American Opportunity and Lifetime Learning credits, which help pay for college, and the saver’s credit, which subsidizes retirement saving.” ~The Tax Policy Center

Answer: I’m completely against our tax system. I think EVERYONE should pay with zero exemptions or deductions. The catch would be that we would have to completely do away with social programs. With the exception of education.

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