Does Tennessee’s new school support organization statute require that an organization become a corporate entity?
This question arose in our consulting with members of an unincorporated non-profit entity that had previously filed with and obtained 501(c)(3) status with the IRS. Their issue being that IRS would require them to re-file for exempt status if their organizational structure changed to incorporated.
We discussed this issue with a staff member of the Tennessee Secretary of State’s office who indicated the following:
§ The act requires that these school support organizations be non-profit entities
§ The Secretary of State for Tennessee only recognizes corporations and limited liability companies (LLC) as non-profit entities
§ Legislative intent of the statute was for those support organizations subject to its domain to be corporations
While this advice is non-binding it does suggest that for this organization to be in compliance with the SSOFAA statute it will need to file and become a corporate entity as recognized by the Secretary of State and to re-file for exempt status with the IRS.
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Workshop August 13th On Incorporating School Support Organizations
Hands on Workshop for Incorporating Your School Support Organizations with the State Of Tennessee August 13th at 1:00 – 2:30 Eastern Time by WebEx
Chuck Cagle, Lewis King’s Education Practice Leader and Joe Ballard, Associate attorney in our Knoxville Office will conduct a 90 minute workshop that will review in depth the steps and information for filing a school support organization charter with the state of Tennessee. This workshop should be of interest to school district representatives and school support organization individuals who are responsible for aiding their organizations compliance with Tennessee’s newly enacted financial accountability statute.
Workshop material including a model charter, bylaws and state filing forms will be provided and downloadable for participants from our education blog site at lkbulletin.squarespace.com. The amended law does not require a school support organization to become a 501(c)(3) entity pursuant to IRS requirements and that filing process will not be part of this workshop. For certain organizations we believe the benefits of being a 501(c)(3) entity are important and in discussing the model charter and by-laws we will comment on provisions that should be included should that filing status be your organization’s goal. Specific items to be reviewed include:
1. Application for EIN with IRS necessary for opening organization’s bank account
2. Charter and by-laws for non-profit organization
3. Exemption of non-profit charter filing fee
4. School Support Organization Manual published by State Comptroller’s Office
5. Tennessee State Sales Tax Exemption
To receive an invitation with directions for this WebEx session, please respond with the registrant's name, e-mail address and the approximate number of participants to schoolsupport@lewisking.com by Friday August 8th. Invitations will be e-mailed Monday August 11th.
Lewis King Education Practice
Bill Kunkel Coordinator
Exemption From TN Sales Tax
Q. Pursuant to the newly enacted SSOFAA a school support organization such as a band or booster club may become a state chartered charitable entity. The amended act does not require them to seek 501(c)(3) status from IRS. If the booster club becomes a state chartered charitable organization and does not become a 501(c)(3) entity can it apply for and receive an exemption from Tennessee state and local sales tax? (Go to Item 7 Under Tools: IRS And TN State for a copy of the TN Sales Tax Exemption Form)
A. Response From John Harvey, State of Tennessee Taxpayer And Vehicle Services Division
No. The sales tax law requirements for exemption from sales tax have not changed. There are many organizations that are state chartered charitable entities that do not qualify for sales and use tax exemption. Simply being a nonprofit or charitable organization does not grant tax exempt status. An organization must still be named in the sales tax law as eligible for exemption in order to receive the tax exempt status.
John Harvey, Taxpayer and Vehicle Services Division
Any opinion from tax law or regulations given herein is believed to be a correct interpretation. However, the opinions cannot constitute a revenue or letter ruling pursuant to the provisions of Tenn. Code Ann. Sect. 67-1-109.
Upcoming Presentation On SSOFAA As Ammended June 2008
Chuck Cagle, Lewis King's Education Practice Leader announced to School Directors across Tennessee an upcoming presentation on Tennessee's new School Support Organization Financial Accountability Act including recent Amendments passed by the Governor in June 2008.
This 30 minute event which will include a 20 minute slide presentation with 10 minutes for questions will be conducted over the internet using WebEx.
Key points that will be discussed will include, among others, the following:
§ Amendments including clarification that School Support Organizations do not need to be organized as an IRS 501(c)(3) entity
§ Will need to file annual state fund raising activity reports
§ Enhanced internal record keeping
§ Effective date for full compliance July 1, 2008
This presentation will be offered at 11:00 CST (12:00 EST) on MWF July 14th,16th and 18th.
At Lewis King we are committed to our local communities and are pleased to offer what we believe will be an informative and helpful sharing of information relevant to this new act.
Governor Signs Amendments To School Support Act
School Directors hoping for significant relief or delays in implementing the provisions of the SSOFAA will view the recent enactment of three amendments as a cup half full. Most notably the amendments do clarify that a school support organization does not need to become a 501(c)(3) organization pursuant to IRS regulations but can be a state chartered not-for-profit entity.
LK Observation: The appeal of not becoming a 501(c)(3) organization is it avoids the initial cost and effort in filing and receiving this designation by the IRS and avoids the recurring annual reporting. However, the burden of not becoming a 501(c)(3) needs to be evaluated both in terms of its impact on those who the funds are raised from and the future impact on the organization. By not becoming a 501(c)(3) entity the individual making the contribution cannot receive a Federal Tax deduction. This may become a limiting factor in receiving donor contributions in the future.
Amendments reiterate that the Act takes full effect July 1, 2008.
Cooperative agreements including the use of school facilities for fundraising purposes by an SSO must be approved by the local board of education.
The SSO Act retained the section that required the director of schools or his/her designee to approve a fundraising activity prior to the activity taking place. However, a new sentence was added that made clear that this approval does not make the fundraising activity a “school-sponsored activity.”
The SSO must file a statement of total revenues and disbursements before the end of the school year.
The statements and records that must be retained by the SSO for four years, must be available upon request by any member of the organization, principal, director of schools, or the director’s designee, or the office of the comptroller of the treasury.
LK Observation: A SSO needs to retain, at a minimum, the following items for four years: detailed statements of receipts and disbursements, minutes of any meetings, a copy of the charter, bylaws and documentation of its recognition as a nonprofit organization.