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Nonprofit Law/W-9 forms from associations

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QUESTION: I am treasurer for a small church in Texas.  We support several associations, a camp and a mission with monthly gifts.  Since the amounts given are over $600 annually, I requested W-9 forms from them to insure they were corporations and therefore, the church would not be required to send 1099's.  Many of them are refusing to complete the W-9 form.  Am I correct in requesting this form?
Thanks for your assistance.

ANSWER:  The W-9 form with instructions is at:
www.irs.gov/pub/irs-pdf/fw9.pdf
and, on the right column of page 1 you see that, for certain purposes, the taxpayer (your church) may require another organization's EIN (Employer Identification Number, also known as the taxpayer identification number).  Why would the association not provide you with their EIN, as requested?  They are getting support from you so I would expect that they would have no problem with giving you their EIN.

But, to answer your specific question, the answer is that you are not correct in your analysis.  First, you do not need to use Form W-9 to determine if an entity is a corporation or not, as all states have online pages to check on their corporations.  Second, you are not required to issue Form 1099-Misc to grantees.

--- Start of Excerpt ---

In a recent private letter ruling, the IRS concluded that a
charity need not issue a 1099 form to a beneficiary of its
charitable services. A nonprofit agency provides transportation to
developmentally disabled persons and other qualified persons, such
as family members, to enable treatment or rehabilitation of
disabled persons. It also provides respite care, which is temporary
or periodic care to relieve the persons normally responsible for
caring for disabled persons. The charity asked the IRS if it needed
to issue 1099 forms to those persons who received free
transportation or respite care. The IRS observed that section 6041
of the Internal Revenue Code specifies that an organization
generally must issue a 1099 form if it is engaged in a trade or
business and pays another person in the course of that trade or
business at least $600 of income during the calendar year. Section
1.6041-1(b) of the income tax regulations provides, in part, that
section 6041(a) of the Code applies to organizations whose
activities are not for the purpose of gain or profit (such as a
church or other charity). The IRS concluded that since "the value
of the transportation and respite care in issue is excludable from
the gross income of the recipients of these services, we conclude
that the nonprofit agency need not make information returns to
them." Of course, a private letter ruling is applicable only to the
taxpayer or organization that requests it, and accordingly cannot
be relied upon by any other organization. Still, this ruling
suggests that a church that makes a distribution from its
benevolence fund to a needy person need not issue a 1099 to that
person (reporting the amount of the distribution). This assumes
that the recipient is indeed needy, and performed no services for
the benevolence distribution. Private Letter Ruling 9314014.
---End of Excerpt--
www.churchlawtoday.com/private/library/cltr/c0393221.htm

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    



---------- FOLLOW-UP ----------

QUESTION: Thank you for your response.  Just to be clear, I am not referring to a benevolence distribution.  We send monthly checks to a camp and a local association.  They do not perform any services for us.  We simply help support their ministries.  Would we not need to substantiate the payments in any way?

ANSWER: The point is that, if there is no taxable income to the recipient, then there is no report that needs to be filed by the 501(c)(3) organization that gives the grants. As the IRS stated in that 1993 Private Letter Ruling, "Because we conclude that the value of the transportation and respite care in issue is excludable from the gross income of the recipients of these services, we conclude that the nonprofit agency need not make information returns to them."  
http://goo.gl/MXy8C (near the end).

Therefore, no 1099 is due if there is no taxable income to the recipients.  The Internal Revenue Code at section 102(a) provides that generally
gifts are not income.  "Gross income does not include the value of
property acquired by gift..."
http://codes.lp.findlaw.com/uscode/26/A/1/B/III/102

You did not inform me whether the recipient organizations were themselves tax-exempt. If they are, then note that payments to exempt organizations do not require a 1099 form.
Regs 1.6041-3(p)(2), which is available at
http://law.justia.com/cfr/title26/26-13.0.1.1.1.0.5.94.html
That is summarized in the second paragraph on page 2 of the IRS'
instructions for form 1099-Misc at
www.irs.gov/pub/irs-pdf/i1099msc.pdf :

--- Start of Excerpt ---
Payments for which a Form 1099-MISC is not
required include all of the following.

Payments to a tax-exempt organization including tax-exempt
trusts...
---End of Excerpt---

Even if the recipient organizations are not tax-exempt, there is no taxable income for a gift.
However, you need to maintain records as to the name of the grantee organization, address and what the funds were used for and, if you are claiming that those organizations are tax-exempt, then you would want to maintain evidence that they are exempt.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    





---------- FOLLOW-UP ----------

QUESTION: Thank you again for your time in answering my questions.  I understand what you are saying. The organizations claim tax exempt but I do not find them on the tax exempt list by the IRS.  I was attempting to use the W-9 as evidence that the organizations were exempt. If not the W-9, what documentation would you suggest that we maintain as evidence that they are exempt?

Answer
Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986, is a list of organizations eligible to receive tax-deductible charitable
contributions. This online version is offered to help you conduct a more efficient search of these organizations.
http://apps.irs.gov/app/eos/

After the organization's application for exemption is approved, then the organization is listed in IRS Publication 78.  You informed me now that the organization is not listed there and, therefore, obtaining their EIN by a W-9 request would not help you.  Normally, if they are not listed, you would then simply send an inquiry to the organization requesting a copy of their determination letter from the IRS that the organization is exempt under section 501(c)(3) or other evidence that they are exempt and inform them that you need that for your record keeping.
Public charities' record keeping requirements are discussed at
http://www.irs.gov/pub/irs-pdf/p4221pc.pdf from pdf page 24 to pdf
page  32  

From the IRS:
"Some entities eligible to receive tax-deductible charitable contributions may not be listed in Exempt Organizations Select Check (Pub. 78 data)."
http://goo.gl/DuRof
The list below on that page describes some
of the classes of organizations. If an organization is not one of those types of organizations, then it is not exempt and you would not be able to obtain evidence, therefore, that they are exempt.  If they present that they are within one of those classes, then let me know and I will then try to explain to you what voluminous evidence you would need to ascertain that they qualify for exemption.

The W-9 form with instructions is at:
www.irs.gov/pub/irs-pdf/fw9.pdf
and on page 1 we see "Purpose of Form -- A person who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) to report..."  You are not required to file an information return for grants made so the Form W-9 is not the appropriate method to obtain what you want.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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