6
Approve a Conflict of Interest Policy.
The Board should also adopt a Conflict of Interest policy, as this is requested as part of the tax exempt application. A form Conflict of Interest Policy is available on the IRS web site as well. The adopted Policy must be copied and attached to the application with proof that the Board approved it. The purpose of this requirement is to limit use of the organization's funds to hire insiders in the organization at above market pay rates, essentially funneling tax exempt money to the individuals as a windfall or as profits. As you could imagine, this is consistent with the tax laws and will cause you to be rejected for or lose tax exempt status. See Part V(5)(a) of form 1023.
7
Elect Officers.
The same board meeting can be used to elect the Corporate officers per the terms of the Bylaws. The corporate officers typically include President, Vice President(s), Secretary and Treasurer, and are members of the board who are nominated and elected by the Board. A resolution approving the elections should be prepared and signed by the Secretary or Acting Secretary. The names, titles, mailing addresses and compensation of each Director and Officer must be included on the tax exempt application along with the anticipated duties and number of hours being contributed by each. See Part V of Form 1023 and the instructions there to.
8
Apply for a Tax ID number
You need to proceed to obtain an EID number (also known as a tax ID number) next. This number can be obtained by applying online at the IRS web site. Once you complete the fairly simple questionnaire online, you will be assigned a number immediately. Don't forget to print out a copy of the application summary and the IRS letter issued to assign the number to the organization. The number must be filled in on the Form 1023 tax exempt application. Be sure to be consistent with your draft tax exempt application when completing the questionnaire. This advice applies to all documents and websites relative to the organization. Be consistent, so that you leave no room for argument that you are not entitled to tax exempt status.
9
Prepare Budgets
Form 1023 requires that you submit budgets to show the organizations income and expenses. This is important. The Board should prepare a draft budget, and have your attorney review it for preparation to include it on the tax exempt application. If the gross income level is above $10,000 per year you some income reporting requirements, and your filing fee for the tax exempt application will be $700.00. If you are under $10,000 you do not have to file, and your filing fee is $300.00. Please keep in mind that for a youth sports organization, the uniform fees and tournament fees are usually passed through to the players. You can avoid including these numbers in the budgets to keep your gross income numbers down. In order to do this, you will need a separate EID number for a banking escrow account you will use to hold tournament fees collected or uniform costs collected. Another way to do it is to have uniforms paid for by parents directly to the uniform supplier.
10
Review the budgets closely
The budgets need to meet the IRS requirements, to avoid being considered a private foundation. Income must be limited to less than one-third from investment income, and you will need to show more than one-third of income from contributions, membership fees, and gross receipts from activities related to its exempt purpose. As such, most youth sports organizations will need to charge a membership fee, will need to seek contributions or sponsorships. Part X (h) will usually apply to most sports organizations seeking approval and that box should be checked if the budgets will support doing so.
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