Statement for Recipients of Miscellaneous Income—irs form 1099-misc

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Statement for Recipients of Miscellaneous Income—IRS Form 1099-MISC

Statement for Recipients of Miscellaneous Income—IRS Form 1099-MISC

(PW Protected)

PTAs may be required to file Form 1099-MISC with the IRS if they pay $600 or more during the calendar year to any unincorporated business or person for services rendered or in payment for a grant, award, or scholarship.

Form 1099-MISC is not required to be issued to corporations or to those paid less than $600.

For information regarding specifically when and how to file, you can obtain a copy of the instructions for Form 1099-MISC from the IRS.

Form 1099-MISC must be sent to the recipients on or before January 31 of each year and filed with summary form 1096 to the IRS on or before February 28 of each year.

Application for Changing Accounting Period—IRS Form 1128

An organization that is recognized as exempt from federal income tax and wishes to change its accounting period or fiscal year must inform the IRS. In some cases, IRS Form 1128, Application for Changing Accounting Period, must be filed. The IRS can impose penalties and interest when a PTA changes its accounting period without filing Form 1128, when required to do so.

However, if a PTA has not changed its accounting period at any time within the last 10 years, it should prepare an interim short period financial report covering the months that fall between the end of the current and start of the new fiscal years and submit a Form 990 and Schedule A to the IRS covering those interim months.

Unrelated Business Income—IRS Form 990-T

Most PTAs are exempt from federal income tax under Section 501(c)(3) of the IRC and further defined as a public charity (not a private foundation).

Tax-exempt status means that the PTA does not pay federal income tax on income from activities that are substantially related to the purpose for which the PTA was given exempt status.

However, the PTA may be required to pay tax on other types of income, referred to as unrelated business income (UBI).

The law requires nonprofits to

  • Report unrelated business activities when gross receipts are at least $1,000 by filing IRS Form 990-T

  • Pay taxes on net (after expenses) receipts

Nonprofits risk losing their tax-exempt status only if such activities become the primary focus and make the tax-exempt mission secondary.

What is unrelated business income

For an activity to be classified as yielding unrelated business income, three factors must be present: The income or activity must be (1) from a trade or business, (2) regularly carried on, and (3) unrelated to the organization's exempt purpose.

1. From a trade or business

  • To be considered a business, the nonprofit must take an active role in the generation of the income from an activity.

  • The activity must provide income, but does not have to produce a profit.

2. Regularly carried on

  • IRS regulations state that activities that are carried on only "discontinuously or periodically" will not be considered to be regularly carried on.

  • If activities are of short duration, but follow-up or preparation is carried on over a long period, it could be UBI.

  • An activity occurring only once per year may be considered UBI if a commercial company performing the same activity would also be active only once a year.

3. Unrelated to the organization's tax-exempt purpose

  • If an activity is not substantially related to the PTA's mission, then it could be considered unrelated to fulfilling the exempt purpose of the PTA.

  • It is important to remember that the substantial relation to the PTA's exempt purpose cannot come solely from the PTA's need for money.

The destination or use of the income has no bearing on determining if it is unrelated business income. This determination is made by how the income is earned.

Exceptions or Exemptions

Most PTA fund-raising activities are exempt from federal income taxes because of the following:

They are conducted only once per year, or

  • Eighty-five percent (85%) of the work of the activity is conducted by volunteers, or

  • They consist of selling donated merchandise (e.g., a silent or live auction of donated merchandise). Judgment is made on a case-by-case basis whether an activity is related or unrelated.

  • The federal, state, and local government may have different standards for pursuing the charge of UBI although most state and local governments follow the federal rules.

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