Each year, the Internal Revenue Service (IRS) makes inflation adjustments to a variety of amounts that not-for-profit organizations use for various reasons. These inflation adjustments are designed to ensure tax attributes keep pace with cost-of-living adjustments. Below is a summary of the relevant inflation adjustments for not-for-profit organizations effective for tax years beginning in 2023.
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Not-for-profit organizations often distribute items in conjunction with the solicitation of charitable contributions. If the recipient of such solicitation decides to make a contribution to the organization, the value of the item received may reduce the charitable contribution deduction available to the donor. Tax rules allow for a “de minimis” threshold in these situations. The donor does not have to reduce the charitable contribution deduction by the value of the item received if the cost of the item is $12.50 or less for tax years beginning in 2023.
Fundraising Campaigns and Insubstantial Benefits
Not-for-profit organizations engaged in fundraising campaigns often distribute items of value to donors and potential donors in the course of operating the campaign. Organizations must inform donors of the value of items received in exchange for a contribution unless an exception applies. The “insubstantial benefit” rule allows organizations to inform donors that 100% of their donation qualifies as a charitable contribution if certain thresholds are met with respect to the item(s) provided to donors.
For tax years beginning in 2023, an insubstantial return benefit is provided in connection with a fundraising campaign if:
- The fair market value of the benefits provided to the donor in connection with the payment is not more than 2% of the payment or $125, whichever is less, or
- The payment received from the donor is $62.50 or more and the only benefits provided to the donor are token items that cost the organization $12.50 or less. Token items must bear the organization’s name or logo. Examples include magnets, key chains, mugs, etc.
There are additional rules related to return benefits provided to donors. Please contact a Clark Nuber team member if you have further questions.
Dues Paid to Agricultural or Horticultural Organizations
An agricultural or horticultural organization exempt under Code Section 501(c)(5) may assess annual dues from members. If the dues remain below a certain dollar amount each year, no part of the dues is treated as unrelated business income regardless of the benefits or privileges provided to members. For tax years beginning in 2023, the dues amount for this purpose is $191.
Nondeductible Dues Reporting Exception
Organizations normally must inform members that a portion of dues are nondeductible, as they relate to political and/or lobbying expenditures of the organization. This rule applies to social welfare organizations, agricultural and horticultural organizations, and membership organizations (exceptions under Code Secs. 501(c)(4), 501(c)(5), and 501(c)(6), respectively).
For the first two types of organizations listed, an exception exists if the organization establishes that substantially all dues are nondeductible to members (ignoring the prohibition of deducting expenses associated with political and lobbying activities). The annual per person, family, or entity dues limitation for this purpose, for tax years beginning in 2023, is $132 or less.
In certain circumstances, not-for-profit organizations may be assessed penalties from the IRS. Those circumstances include non-filing of Form 990, late filing of Form 990, and failing to make an annual return open for public inspection. These penalties, and the types of returns to which they apply, are adjusted for inflation each year. For returns required to be filed in calendar year 2023, the following thresholds and penalty amounts apply:
Failure to file and accuracy penalties (Gross receipts greater than $1,129,000):
$110 per day until the return is filed or corrected, with a maximum penalty of $56,000.
Failure to file and accuracy penalties (Gross receipts equal to or less than $1,129,000):
$20 per day until the return is filed or corrected, with a maximum penalty of the lessor of $11,000 or 5% of gross receipts for the tax year.
Failure by organization manager to respond to IRS demand for return:
$10 per day, with a maximum penalty of $5,500.
Failure to comply with public inspection rules for annual returns:
$20 per day, with a maximum penalty of $11,000.
Failure to comply with public inspection rules for applications for exemption and notice of status:
$20 per day, with no maximum limit.
Please contact a Clark Nuber tax professional if you have questions on annual inflation adjustments.
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