As the fourth quarter begins and the end of the year is in sight, management's year-end to-do list is probably getting longer by the day.  Now is the time to get a head start on that list by compiling much of the information required for your accountant to prepare the Federal Form 990.  The best place to start is by reviewing last year's return and considering some of the items listed below.

• Read through the organization's mission statement.  Has it changed in any way? 

• Have there been any changes to the Articles of Incorporation or By Laws? If so, put a copy aside to give to your tax preparer.

• Consider significant events from the past year. Has the organization started a new program? Did the organization open new locations or expand its existing locations this year? 

• Review the three largest program accomplishments. Are they the same as last year or have they changed? Gather any quantifying information needed to describe accomplishments, such as the number of people served, number of volunteers, etc. This area is an excellent way to inform others about the impact the Organization has on the community.

• Review the Board of Directors listing.  Make sure it has the most current members and all officers are noted.  How many of the members are voting members?  Are there any related party transactions with officers, directors, or key employees?

• How many volunteers provided assistance to the organization throughout the year?

• Review donations received this year. Are there any over $5,000? If so, gather the donor's name and address for reporting.  Have donations over $250 been properly acknowledged?

• Review and update the functional expense categories and cost allocations.

• Did the organization host any special events during the year that received $15,000 or more in contributions or gross income?  You will need to prepare a schedule detailing receipts and contributions as well as expenses for each event.

• Did the organization provide grants or other assistance of $5,000 or more to any government or organizations?  You will have to compile a schedule showing the amount given, the entity name, address, employer identification number and the purpose of the grant.

• Did the organization provide grants or other assistance of $5,000 or more to any individuals? You will need a schedule that shows the amount of cash given, the number of recipients, and the amount and description of any non-cash assistance provided.

• When preparing year-end tax forms, keep in mind the following information will need to be reported on the Federal form 990.
• The number of 1099's filed (from Box 3 on Form 1096)
• The number of form W-2G's filed
• The number of employees reported on Form W-3

• Did the organization have unrelated business income of $1,000 or more?  If so, a 990-T is required to be filed.  Check with your tax preparer if you have questions on items that may be considered unrelated business activities.

• Does the organization have the following written policies:
  • Conflict of interest - is it reviewed annually with officers, directors and key employees?
  •  Whistleblower policy
  •  Document retention and destruction policy

Although the list may seem long and time consuming, starting early and compiling this information during the year will save you time when it comes to preparing for year-end and the 990.

Ribbon cutting ceremony at the new Workforce Development Center.

Prior to moving, WDI was located near downtown Rochester, MN, in an old, renovated bakery and another office suite blocks away. The new location brings the Workforce Center's 50 employees under one roof and is strategically connected to Rochester Community and Technical College.

"It makes sense for us to be an extension of a place where people go to better themselves to get a well-paying career," said Randy Johnson, Executive Director of Workforce Development. "When people walk through our doors seeking employment, it's likely they will need some sort of training, whether it's on the job or at a higher educational institution."

WDI is now conveniently located near the Olmstead County Building, where citizens applying for financial assistance from the county are referred to WDI for employment services.

While WDI is critical to those in programs throughout the county, it offers the public a bank of resources to help them achieve employment. "We have computers, job listings, and professionals here to help anyone," said Johnson.

Being connected to the college, the organization can easily hold larger meetings on campus without having to regularly maintain the space.

The 22,800-square-foot building was financed by $8.7 million of state funding.

Workforce Development, Inc. is an independent, non-profit agency with a long history of serving the needs of job seekers and employers in southeast Minnesota. WDI is dedicated to developing and advancing the workforce to meet the current and future needs of the communities it serves. To learn more about WDI, visit its website: http://www.workforcedevelopmentinc.org

Exempt organizations are not taxed on income from activities substantially related to their tax-exempt purpose, even if the income is from a trade or business activity.  However, an organization may be subject to tax on unrelated business income.  This article will explain the criteria used to identify activities that may result in unrelated business income and site-specific examples of unrelated business activities and activities excluded from the unrelated business activity definition.

In order for income to be considered unrelated business income, the following criteria must be met:

• Derived from a trade or business: This generally includes any activity conducted or the production of income from selling goods or performing services.  An activity does not lose its identity as a trade or business activity merely because it is conducted within a larger group of similar activities that may or may not be related to the exempt purpose of the organization.  For example, soliciting, selling and publishing commercial advertising is a trade or business even though the advertising appears in an organization's periodical related to the exempt purpose.

• Regularly conducted: Business activities of exempt organizations are considered regularly conducted if they have a frequency and continuity, which is comparable to commercial activities of nonexempt organizations.  An example of a regularly conducted trade or business would be an exempt organization operating a commercial parking lot every Saturday, year round.

• Not substantially related to the exempt purpose: A business activity is not substantially related to the organization's exempt purpose if it does not contribute importantly to accomplishing that purpose.  Although the production of funds is vital to an organization that, by itself, is not considered to contribute importantly to the organization's exempt purpose.  There is not a standard definition of "contributes importantly"; therefore, each case is based on the facts involved with a particular activity.  One factor in determining whether an activity contributes importantly to the exempt purpose is the size and extent of the activity in relation to the nature and extent of the exempt function it is intended to serve.  If the activity is more than needed to carry on the exempt purpose, it does not importantly contribute to the accomplishment of the exempt purpose.

As is apparent from the criteria above, what constitutes unrelated business income is not always easy to determine.  Although it may be easy to determine if an activity is a trade or business activity, the regularly conducted and not substantially related criteria are sometimes more difficult to determine.  The examples below, although not all-inclusive, can be helpful in making a determination of related and unrelated business activities.

The activities below are specifically excluded from the definition of unrelated trade or business.

• A trade or business which is substantially operated by a volunteer workforce
• A trade or business operated for the convenience of its members (e.g. a student laundry on a college campus).
• Selling donated merchandise (e.g. Goodwill)
• Distribution of low cost items incidental to soliciting donations
• Exchange or rental of member lists

The following activities were determined to be unrelated trade or business activities using the criteria discussed above.

• During the summer, an exempt college, for a fee, operates programs open to the general public.
• For a fee, an exempt youth welfare organization operates a mini-golf course open to the public.
• An exempt educational organization regularly sells membership lists to business firms.

As is evident from the examples above, each situation is unique and requires careful consideration of all relevant aspects of the activity.  We are always available to answer any specific questions you may have on activities that could be construed as unrelated business activities.  In a future article we will address additional aspects of unrelated business income, including filing requirements and risks of generating too much unrelated business income.  

Written By: Chuck Krueger, CPA

Contact: 920.684.4547 or ckrueger@hawkinsashcpas.com