The main function of the financial officer for any organization is to track and safeguard the assets of the entity with which he or she is affiliated. For most AFS Units, financial management is largely the responsibility of the treasurer or secretary/treasurer, but financial decision-making and accountability also involve other Unit leaders, typically members of the Executive Committee. Below is a list of essential financial management duties and responsibilities for all Unit, typically handled by treasurers.
Maintain the financial records of the Unit
It is the responsibility of the Unit treasurer to maintain accurate financial records and issue timely reports for the Unit. All AFS Units, particularly those falling under in the AFS Unit Group Tax Exemption, are encouraged to use the calendar year (January through December) as the fiscal year.
Select a financial management system that supports transaction processing, reporting and record keeping
The Unit treasurer has the responsibility to develop and follow a system of financial management that supports the main function of the position. The cash method of accounting is acceptable as is the accrual method (which adheres to generally accepted accounting principles – GAAP), whereby income and expense items are recognized as they are earned or incurred, even though they may not yet have been received or actually paid in cash. There are many small accounting packages and online subscription-based systems which will track this information quite easily for the treasurer under either basis of accounting. Some Units use MS Excel effectively as well.
Maintain a separate Unit checking account
It is very important that Units have an independent checking account for all Unit funds. These funds cannot be commingled with those of any other organization or person. The checking account must be in the name of the Unit and use the Unit’s Employer Identification Number (EIN). Each Unit is a separate entity from the others, as well as from the AFS, and may not use any individual’s, other Unit’s, or organization’s EIN. If you do not know your Unit EIN, contact the AFS headquarters office for the information. The AFS headquarters office will assist new Units in obtaining EINs as needed.
Ideally, all Unit checking accounts should require two signatures on checks; however, this practice may not always be feasible. If a Unit is unable to utilize two signatures, for whatever reason, another officer should always review and authorize payment of bills, especially if the dollar amount is above a certain threshold, say $1,000. Some Units, due to the limited funds on hand, maintain just a savings account to avoid the monthly account fees. This approach is also acceptable, but the Unit should still follow the guidelines on signatures, account name, and EIN.
Financial control procedures
The treasurer should also ensure that strong procedures and controls exist and are functioning within the Unit. These controls are not considered effectively implemented unless the procedures are understood and adopted by other officers of the Unit. Along these lines, another officer of the Unit should always review the monthly bank statement and its account reconciliation to insure no abnormalities, unreconciled items, unusual payees or amounts paid exist. Additionally, all Units are encouraged to prepare an annual budget defining expected income and expenses for the coming year. Financial records should also be routinely audited as defined by the Unit’s bylaws or procedures; conducting audits on an annual basis is typical and recommended. As part of its fiduciary responsibilities, Unit officers should review monthly financial reports and question current year variances against budget and if applicable, variances from year-over-year.
File all required tax returns
The Unit treasurer is responsible for filing all financial paperwork for the Unit. These filings may include the Federal form 990 series (visit www.irs.gov and download Publication 557, “Tax Exempt Status for Your Organization,” for more information), state income tax returns (if required by the state), state sales and use tax returns (if the state has a sales and use tax and the Unit is registered with the state and has not received an exemption), personal property tax return (if applicable), and business licenses. Care should be taken to ensure that a copy of the return is retained in your Unit’s permanent files. Units are separate entities and may not use another Unit’s / organization’s business registrations or licenses.
Unit Tax Administration and Exempt Status Reinstatement
AFS held a webinar on unit tax administration covering tax filing and exempt status reinstatement. This webinar is now available to all unit leaders, particularly treasurers or those who handle unit finances. The content is focused on tax exempt status reinstatement (for those units that have had their tax exemption status revoked) and will also review background information on nonprofit taxes. This session is a good opportunity to learn more about this important unit administration responsibility.
Follow this link to watch the webinar: https://attendee.gotowebinar.com/recording/4854741166747866115
Other resources for tax filing:
- Chapter Tax Webinar April 2020 (3) (powerpoint slides from webinar)
- 1023_EZ_3 (1) (PDF doc)
- 1023_EZ_Supplemental_Information (3) (PDF doc)
How to file Form 990-N (e-Postcard)
Annual Form 990-N (e-Postcard) Filing: To ensure continued recognition of the Chapter’s tax-exempt status, all AFS Units with annual gross receipts of $50,000 or less are required to file Form 990-N each year by May 15th. Units with gross receipts above this threshold may file using Form 990 or Form 990-EZ. AFS recommends the Chapter treasurer file the Form 990-N. If it is not possible for the Chapter treasurer to file, then the Chapter president should file. Information on where and how to file is available at https://www.irs.gov/charities-non-profits/annual-electronic-filing-requirement-for-small-exempt-organizations-form-990-n-e-postcard.
The annual filing requires very basic information regarding the Unit and takes only a few minutes to complete. Important Note: Units that fail to file for three consecutive years will automatically lose their tax exempt status and must apply for reinstatement or a separate tax exemption at their own cost.
Make available a copy of the organization’s application for federal income tax exemption
All tax-exempt organizations must make available for public inspection a copy of the organization’s application for federal tax exemption, along with copies of any relevant documents sent to, or received from, the IRS. (IRS Notice 88-120). Inspection must be permitted during regular business hours at the organization’s principal office, as well as any regional offices having at least three paid full-time employees. The organization is under no obligation to distribute a copy of the materials to a requester, but must either allow the requester to take notes freely or permit him or her to make copies. The organization may require a written request in order to provide copies, or it may choose to mail the information in lieu of an inspection. Some nonprofits publish Form 990 on the organization’s website to address the administrative challenges for public inspection. Organizations like Guidestar privately collect and publish this information on their website.
Special tax considerations
In order for a Unit treasurer to be able to carry out these duties and responsibilities, he or she must be aware of the special characteristics of 501(c)(3) federal tax status organizations and how federal, state, and local laws relate to the operations and activities of AFS Units. It should be emphasized that all AFS Units are separate entities from AFS itself, as well as from each other, although most Units have been granted 501(c)(3) status through an IRS Unit Group Exemption under the parent organization of AFS.
501(c) (3) status
AFS and its Units enjoy a special status as a 501(c)(3) nonprofit charitable association. Not only are these organizations exempt from paying federal income tax on related business income (RBI), but there is a distinct advantage to donors and contributors to AFS and its Units in that both individuals and corporations can deduct their contributions as charitable donations, as long as certain guidelines are followed. As a 501(c)(3), AFS and its Units must also adhere to certain restrictions on its activities. The most important restriction prohibits 501(c)(3) organizations from engaging in direct or grassroots lobbying activities (local, state, or Federal). Any lobbying activity that makes a call to action or refers to specific legislation is generally considered lobbying, whether done by AFS headquarters or Units, and may result in the revocation of the organization’s 501(c)(3) status. Note that AFS or its members may be involved in congressional briefings, but these are to be educational/information only. The other restriction placed on all nonprofits is that its programs and services must align and support its exempt purpose—which in case of AFS and its Units is to promote the conservation, management, education and scientific advancement of the fisheries profession.
Federal, state, local, and income taxes:
As a 501(c)(3), AFS is exempt from federal income tax on activities related to its exempt purpose (with several exemptions for unrelated income). However, nonprofits are not automatically exempt from state income or other types of taxes. Once a federal income tax exemption is received by a nonprofit, it may also apply for an income tax exemption in the state(s) in which it does business. AFS has applied for and received an income tax exemption from the state of Maryland and it is up to each Unit to apply for a state income tax exemption and any other exemptions it may be afforded. Furthermore, a majority of states require organizations that fundraise to register in order to conduct charitable solicitation activities.
States sales and use tax
Being exempt from federal and state income tax does not automatically exempt the nonprofit from state sales and use tax.
Personal property and real estate tax
Being exempt from federal and state income tax also does not automatically exempt the nonprofit from state or local personal property or real estate taxes.
Although a nonprofit, AFS, as a corporation and legal entity, must register to do business in the state and local jurisdictions in which it is located. AFS is registered with the state of Maryland. It is up to each Unit to apply for a business license in the state in which the Unit is domiciled.
AFS offers for purchase a general liability insurance policy covering Units at a very reasonable cost. Units should carefully consider whether adding other business insurances such as director’s liability, property, event cancellation and professional liability makes financial sense. For more information about the general liability plan, contact the AFS headquarters office.
Forward financial information to the AFS headquarters office if included in the AFS Unit Group Exemption
As part of the Group Exemption, AFS is required to report any changes affecting such exemption to the IRS each year.
Make available a copy of the Unit’s most recent 990 tax return (if one is filed for the Unit)
Many tax-exempt organizations must make available for public inspection a copy of their three most recent 990 forms (if a Unit is required to file one). All schedules to attachments filed with the Form 990 must be made available, except for the list of contributors to the organization.
Charitable donations/contributions versus business expenses
Under IRS regulations, payments to AFS and its Units may be classified as either business expenses or charitable contributions by the individuals or companies making them. This distinction is very important for the payee. Generally, payment of dues, publication subscriptions, meeting and conference fees, continuing education fees, advertising charges, etc., are considered to be business expenses—meaning individuals or companies may deduct them, as appropriate, on their tax returns as such. As mentioned previously, AFS and its Units are 501(c)(3) organizations and can receive tax-deductible, charitable contributions from individuals and companies.
Include disclosures on dues statements and solicitation letters
Dues notices should contain the following language: “Contributions or gifts to this organization are tax deductible as charitable contributions for federal income tax purposes. However, payment of membership dues and subscriptions are not tax-deductible as charitable contributions.”
Legal authority to sign contracts
Only elected and appointed officers of AFS Units are legally authorized to sign contracts committing the Unit to fiscal expenditures or other binding agreements, unless the authority has been delegated by one of those officials to another party (delegation must be in writing to be legal). In other words, no Unit member may authorize expenditures or commit the Unit to a course of action without proper written authorization and approval. This includes requests for grants, purchases of goods and services, hotels for meetings, etc.
Postal permits and rates
AFS, as a nonprofit, enjoys reduced postal rates for various types of mailings. Units may also apply for the special rates under its own exemption; however, Units cannot use AFS’s federal ID number.
Some states require a solicitation license to solicit funds and donations from the general public (nonmembers) in that state. Please contact the AFS headquarters office for a copy of the AFS Development Policy, which provides guidelines on soliciting donations.