TAX EXEMPT ISSUES FOR UK COOPERATIVE

EXTENSION

What Changed

Federal Laws Changed (2007)All tax exempt organizations required

to begin filing annual IRS tax forms4-H National HQ decided to cease

providing group exemption for clubs and affiliates (councils)

Increased need for financial transparency and accountability for all Extension funds

Guiding Principles for Solution

Provide financial accountability and transparency

Be minimally disruptive, yet provide accountability

Establish a tax exempt basis for UK CES

Provide options rather than dictate actions

Possible Exemption Paths

Governmental ExemptionCounty Extension is tax exempt

because Extension Districts are considered a governmental subdivision of the Commonwealth (KRS 164.620)

501(c)3 statusNeeded to accept certain grants or to

conduct numerous gaming or raffle fund raisers (see KY regulations on Gaming)

Four Options for Handling Funds(All Organizations)

Option A: Governmental, multi-checkbookGroups keep checkbooks

Option B: Governmental, single checkbook per program council

Option C: Governmental, District Board holds the checkbook

Option D: Seek 501(c)3 Status

All Options Must Provide:

Financial Accountability Budget Transparency Group Oversight Adherence to UK money handling

and financial procedures Electronic Recordkeeping with the

goal of standardizing categories to facilitate aggregation of records

Option A – Governmental Multiple Checkbooks

The county program councils and their related sub-groups will maintain control and have autonomy over their own funds and individual bank account with general oversight by the County Program Council

The appropriate agent will be responsible for adherence to procedures

Option B – GovernmentalSingle Checkbook (per Program

Council) Funds related to a program area in the county

will be handled centrally by the appropriate county program council, with separate sub-accounts established in a Quicken, Quickbooks or similar electronic bookkeeping system for each related entity’s (club/group/etc.) funds.

The appropriate agent will be responsible for adherence to procedures

Option C – Governmental- District Board Checkbook

County Program Council funds will be handled centrally by the County Extension District Board with a separate sub-account established for each County Program Council in a Quicken, Quickbooks or similar electronic bookkeeping system.

Option D: 501(c)3

Apply for own 501(c)3 exempt status Needs Memorandum of Understanding

between the Director of the Cooperative Extension Service and each 501(c)3 entity which will accomplish: Financial Accountability to District Board Programmatic Accountability to Program

Council and County Extension Council

Note for 4-H only:

If 501(c)3 status is needed for grants, KY 4-H Foundation is willing to handle funds to meet requirements of being a 501(c)3 entity. Subject to Service Fee (currently 5%)

Multi-county/District entities:Link to the KY 4-H Foundation ORLink to a county 4-H program for

government exemption and follow their guidelines

4-H Decision Needed

By March 15 EACH 4-H club/council or entity with an EIN/Checkbook must decide the option chosen. (Option A, B, C, or D)

State 4-H Office will be surveying each county to verify which plan is chosen which will then be reported to National 4-H HQ

Extension Homemakers

Can be included in the Governmental Exemption, but may have to decide before all of the details are known

Can form own 501(c)3 organization.

FAQs

To be developed.