ISA Section Treasurer
1. Summary of Section Treasurer's Duties
The Section Treasurer shall have general supervision of the funds and financial records of the Section. As Treasurer he/she shall:
In the absence of a successor, such records shall be delivered to the Section President.
2. Position Parameters
The following list is the basic parameters for the position of treasurer:
3. Banking Practices
4. Financial Statements
Statements should be prepared by the Treasurer once a month (or as frequently as the governing board considers necessary) and approved by the governing board. Statements should include receipts and expenditures taken from the Summary Ledger.
A copy of the Section's annual financial report is to be forwarded to the Director of Finance & Administration at ISA Headquarters.
A budget should be adopted as soon as possible at the beginning of the Section's fiscal year when new officers take office. It should be prepared by the responsible group named in the Section Bylaws, or by the Treasurer before any expenses are incurred. The Section's governing board should review and approve the proposed budget.
Budgets should be reviewed quarterly or sooner, and revised for any new projects that might arise, or if it is obvious that the budget is too far out of line with actual.
A copy of the budget should be sent to your Staff Representative in Section and Division Services at ISA Headquarters.
6. Reserve Funds
Sections have the right to use their funds for all purposes necessary in carrying out their objectives. Section reserves should be adequate, but not excessive. As a general guideline, a reserve fund approximating the Section's annual budget should be adequate and meet IRS approval. The existence of a large reserve may cause the IRS to challenge the Section's tax exempt status. If a large reserve fund is created, it would be advisable to document reasons for the creation of such a reserve.
Since Section reserves generally are small, a savings account or bank certificate of deposit is recommended. All investments should be authorized by the Section's governing board. Each investment account should have at least two signatories or persons authorized to access the account.
7. Security Concerns
Sections can employ a few relatively simple measures that will reduce the risk of embezzlement of its funds, these include:
Sections, especially those with substantial revenue or reserves, are strongly encouraged to purchase fidelity bonds and/or crime insurance covering those who have access to the funds.
If a Section suspects or knows of a problem, it should follow these steps:
8. Applying for Emergency Financial Aid
A financially distressed Section may apply for aid by submitting a request to the appropriate District Vice President by the Section Treasurer. If the DVP approves the request, it will then be submitted to the Executive Board, or in an emergency, to the Executive Committee for approval.
The Section request should take the form of a letter, and contain the following information:
It is important that a request for financial aid not be complicated so that the District Vice President and Executive Board or the Executive Committee can appropriately review and act upon its request.
9. Record Keeping and Retention
It is essential that good record keeping practices be established.
While manual bookkeeping is acceptable, it is highly recommended that all financial record keeping for the Section be done using one of the many PC-based software packages on the market today. Even if using a computer record keeping system, supporting records must be kept. Files containing supporting records for various accounts can be set up in file folders labeled as follows:
State requirements: Certain states require that particular records be made and kept permanently. Check with your individual State Department to determine which records are to be retained indefinitely.
Federal requirements: The Internal Revenue Service specifically requires organizations to maintain financial and tax records, and to make them available for inspection by IRS agents, at the time of an audit. They include a record of receipts and disbursements and financial statements for the fiscal year. Normally, the IRS can audit a tax return within three years from the date it was filed. However, the period for challenge is six years if a major error in stating gross income is made, and it is unlimited if IRS claims that a tax return is false or fraudulent or if no return was filed. Organizations that fail to maintain adequate records to substantiate annual informational returns (IRS Form 990 and 990T) can lose their taxexempt status.
Legal reasons: Section contracts, insurance policies, deeds, leases, trademark or patent registration certificates and similar documents should be maintained while they are in effect and for a period of time after they expire in order to protect the rights of the Section.
If the Section is sued or notified that it is under investigation for any reason, including IRS audits, the custodian of the Section records, normally the Treasurer, should use a high degree of care to preserve all existing records and should not purge or destroy records until the conclusion of the suit or investigation.
Guidelines for retention of records can be categorized as follows:
Sample of Records to Be Retained Permanently:
10. Obtaining Blanket Federal Tax Exemption for US Sections
Non profit organizations like the Society usually qualify for tax-exemption under federal and state income (and often other) tax laws. Tax-exempt status is highly desirable; otherwise all income, regardless of source, is taxable.
However, tax-exempt status is not automatic; the IRS must confer the status on the organization after application for it. Nonprofit corporate status is not the same as tax-exemption. Nonprofit refers to an organizational structure where there is no distribution of profit to its "owners" (members). Tax-exempt status is a determination by the IRS that the nonprofit organization qualifies under the tax code for exemption from federal income taxes. Only nonprofit organizations may be tax-exempt, but not all nonprofit organizations qualify for tax-exemption.
The two exemption categories Sections can fall under are educational organizations defined by Section 501(c)(3) of the tax code and trade associations defined under 501(c)(6) of the code.
Normally, exemption under section 501(c)(3) is more desirable for organizations like the Society and its Sections. Among other advantages, exemption under this section qualifies an organization to receive gifts that are tax-deductible by the donor and for special reduced postal rate permits.
Because of its educational purposes, the Society has been granted tax-exempt status under section 501(c)(3) of the tax code.
To avoid liability for income taxes, every Section must apply for and be granted tax-exempt status. There are two ways to do this:
Joining the group tax-exemption is the easiest, least costly method of gaining and maintaining tax-exempt status. In addition, Sections under the group exemption are classified as 501(c)(3) organizations and avoid potential disputes and inconsistent treatment by the IRS with regard to classification.
The Society is required to update its list of qualified sections (3963 Bytes) annually in September. If a Section becomes inactive, it must be removed from the list. This requires a section to send copies of their tax returns or financial statements to the Director of Finance & Administration annually by July 31.
Even if a Section joins the group tax-exemption, the Section is required to file the appropriate tax returns in its geographic district independently of the Society.
The IRS does not issue individual exemption letters or identification numbers for Sections joining the group exemption. Instead, Sections under the group exemption use the group identification number.
Obtaining tax-exempt status is crucial for Sections. If a Section is not tax-exempt, every dollar it receives, regardless of source (including member rebates from the Society), must be reported to the IRS and is subject to tax at rates approaching 40%.
After receiving a federal tax-exemption status, the Section should apply to the state where it is organized for a state level exemption. In some states, tax-exemption applies not only to income taxes, but also on other taxes such as property, franchise and sales and use taxes. For guidance, contact the state department in charge of tax policy of the section's tax advisor.
11. Filing Federal Tax Returns( US Sections Only)
Tax exemption does not mean the Section is relieved of all obligation to file tax returns. Instead, it changes the form to report income from a standard business form (such as an 1120) to Form 990.
Penalty For Failure To File
Sections should note that failure to file the required annual information forms (990 and 990T as described later), or the filing of incomplete returns carries a penalty of $10 a day up to a maximum of $5,000 for each return that is not filed or filed improperly. All Districts of the IRS have been told by the national IRS office to strictly enforce the penalty.
Return of Organizations Exempt From Income Tax or Short
Once exempt status has been established, Sections are required to file an annual information return on Form 990. However, if a Section's Gross Receipts are under $25,000, a return is not required, but recommended, except when instructed not to file by the IRS.
Form 990, Schedule A
Sections having gross receipts of $25,000 and over may have to file Schedule A in addition to Form 990.
Sections having gross receipts (receipts, not surplus or profit) from unrelated business activities (primarily advertising and mailing list sales) in excess of $1,000 in any one year are required to file Form 990T.
State And Local Returns
Each state, or municipality may impose special tax reporting requirements on nonprofit organizations. The Section Treasurer should consult with local authorities or counsel about reporting requirements.
Tax ID Number
Each Section must have a Tax ID Number, commonly referred to as an "Employer Identification Number." To obtain a Tax ID number, file Form SS4 with the IRS. Form SS4 can be obtained by phoning your local IRS office.
Form 990 or Form 990EZ must be filed on or before the fifteenth day of the fifth month following the close of the Section's fiscal year. Following is an example of due dates:
Fiscal Year Ended - Form 990 Due Date
Schedule A and Form 990-T are to be filed simultaneously with Form 990.
Where To File
Federal returns are to be filed with the local District Director of the IRS. Returns may also be filed with the Internal Revenue Service Center, 11601 Roosevelt Boulevard, Philadelphia, Pennsylvania 19155.
Many sections offer scholarships to students. Because ISA and its sections are classified by the IRS as tax-exempt charitable and educational organization, these scholarships must meet certain rules to avoid violating the federal tax laws. Failure to meet the rules can result in disqualification of the scholarship program and/or loss of tax-exempt status.
12.Tax Exemptions for Sections Outside the US
Sections outside the United States should acquaint themselves with their national and local tax filing requirements. Tax exempt status normally can be obtained by demonstrating that the Section's objectives are educational and scientific. The letter serves only as an introductory document to a governing agency. Copies of the Section's permanent documents that generally must accompany the letter are as follows:
Sections generally are required to file periodic information reports with the governing tax authority after tax exempt status has been obtained. Failure to file these reports can result in severe penalties to the Section and/or its officers. Sections are encouraged to obtain local professional counsel regarding tax exemption and reporting requirements.
13. Postal Matters - Preferential Postal Rates- (US Sections Only)
Certain qualified nonprofit organizations are eligible for a reduction in third and second class postage rates. The Post Office usually will consider organizations exempt from federal taxes under Section 501 (c)(3) of the Internal Revenue Code as qualified and entitled to the lower rates. Sections must apply to the local postmaster who will approve or deny the application. In writing the postmaster, emphasis should be placed on the Section's educational activities. Sections should obtain and file Form 3624, Application To Mail At Special Bulk Third Class Rates.
14. Inactive Section
Headquarters will hold in escrow dues rebates for a Section declared inactive by the Executive Board. The accumulated rebates will be returned to the Section once it is restored to active status. An inactive Section will be removed from the blanket tax exemption as well.
15. Revocation of a Section Charter
Should the Executive Board approve a recommendation of the District Vice President for revocation of a Section charter, the following procedures shall apply to disposition of funds:
Following is a sample dissolution clause for sections to incorporate into their Bylaws:
The Section shall use its funds only to accomplish the objectives and purposes specified in its Bylaws and no part of its funds shall inure to or be distributed to the Members of the Section. On dissolution of the Section, the net assets remaining after payment of all debts shall revert to the Instrument Society of America within ninety days of dissolution, to be used for charitable and educational purposes under Section 501 (c)(3) of the U.S. Internal Revenue Code as it now exists or as may be amended.