I. Overview

This document explains what periodic filing requirements apply to the MetroWest Chess Club, Inc. There are four governmental entities that we need to keep in mind:

· Internal Revenue Service (U.S.)

· Department of Revenue (Massachusetts)

· Secretary of the Commonwealth (Massachusetts)

· Town of Natick

II. Background

Before explaining the applicable requirements, it would be helpful to define our status. We are a non-profit corporation, registered in the Commonwealth of Massachusetts.

We organized as a corporation in November of 2002 and registered in Massachusetts shortly after executing our Articles of Organization. Note that the Articles of Organization and our Bylaws appear on our website. The Articles of Organization can also be viewed on the Secretary of State’s website.

We intend to operate as a tax exempt organization under section 501(c) (7) of the Internal Revenue Code. Note that being tax exempt under section 501(c) (7) does NOT mean that we can receive tax-deductible donations. For donations to us to be deductible, we would need to qualify under section 501(c) (3), which we do not. 501(c) (3) organizations include hospitals, educational institutions, certain organizations concerned with prevention of cruelty to animals and children, etc.

III. Internal Revenue Service

There are three distinct compliance areas with regard to the Internal Revenue Service (IRS):

· Confirmation of our status as an exempt organization;

· Annual information return requirement; and

· Annual reporting of certain payments to individuals or organizations.

A. Are we an exempt organization?

Based on our Articles of Organization and how we operate, we have every reason to believe we are an exempt organization. As far as the IRS is concerned, we do not have to apply before exempt status is granted. However, organizations may wish to receive assurance from the IRS that they are indeed exempt and apply for a determination letter. Such a letter carries significant weight with state and local authorities that also have taxing authority.

To receive a determination letter from the IRS, the Club needs to file a form 1024, along with copies of the Articles of Incorporation, the Bylaws and some historical financial information. The IRS charges a “user fee” of $500 to process the application.

Once a favorable letter is obtained, it is necessary to reapply only if the Club makes significant changes in its operations. Such a change is unlikely in the foreseeable future.

B. Annual information return

In general, tax exempt organizations must file an annual information return. Large organizations file the form 990 on an annual basis. Organizations that generally have gross annual receipts of between $25,000 and $100,000 file the 990-EZ, and organizations that generally have gross annual receipts of under $25,000 do not need to submit any annual filing. Presently, the Club has gross annual receipts of under $25,000, so no annual report is required.

Once our gross annual receipts exceed $25,000, we may have one or two years before the filing requirement applies. The filing requirement is triggered once our average gross receipts over a two or three year period exceeds $25,000. The details of this calculation are found in the filing instructions of the form 990.

Note that the calculation of gross annual receipts should exclude amounts we take in and then remit to the USCF for new or renewed membership. This exclusion is provided for in the form 990 filing instructions.

Note: the Treasurer should monitor gross annual receipts frequently in order to get as much advance notice as possible concerning the applicability of the filing requirement. The Treasurer should be sure that his own reports will contain the information needed to complete the filing. One item that we do not presently capture is how much of our revenue is derived from non-members. If we become subject to the filing requirement for the Club’s 2005 fiscal year (calendar year), then our internal reporting capabilities must be improved by the end of 2004.

C. Annual reporting of certain payments

We are required by law to provide a taxpayer with an IRS form 1099-MISC if, over the course of a calendar year, we make payments to that taxpayer equal to or in excess of $600. Copies of all 1099-MISCs must also be filed with the IRS and the Massachusetts Department of Revenue (DOR).

In most cases, the requirement will be triggered on account of prizes that we pay. However, the requirement also applies for payments we make to law firms, accountants and independent contractors if the cumulative payments to any taxpayer over the course of a year equal or exceed $600.

Note: the Treasurer will need to develop a system whereby the Club keeps track of cumulative prize payments over the course of a year.

IV. Massachusetts Department of Revenue

The state requirements parallel, but differ from, the IRS requirements. These requirements can be discussed in the same order as above.

A. Confirmation of exempt status

Unlike the IRS, the Massachusetts Department of Revenue will not simply take our word that we are exempt. Because we are a corporation, the DOR will expect a corporate excise tax return until we apply for and obtain an exemption certificate. Before we can obtain such a certificate from Massachusetts, we must obtain a favorable letter from the Internal Revenue Service (see above). Once we obtain the IRS letter, we submit a copy of that letter, along with our Articles of Incorporation, a form TA-1 and other supporting information to the Department of Revenue. Unlike the IRS, the Commonwealth does not charge a user fee for the determination at the state level. Like the IRS, the exemption does not have to be renewed; it remains valid as long as we remain exempt for federal tax purposes.

Note: sales tax exemption is only available to 501(c) (3) organizations (see page 13 of http://www.dor.state.ma.us/publ/pdfs/sls_use.pdf). We qualify as an exempt organization under 501(c)(7), not 501(c)(3).

B. Annual information return

Once we receive the exemption from the State, we are not subject to any corporate tax filing requirement. Unlike the IRS, the DOR will not require anything that parallels the federal form 990, even if/when our gross annual receipts goes above a certain threshold.

C. Annual reporting of certain payments

The Massachusetts requirements parallel the federal requirements. Copies of the 1099-MISCs that we provide to taxpayers and to the IRS must also be filed with the Massachusetts Department of Revenue.

V. Secretary of the Commonwealth

The Club must file an annual return with the Secretary’s office. The filing deadline is November 1, and the filing must be accompanied by payment of $15. There really isn’t much to the filing: names and addresses of the directors, when their terms expire, and the date of the last annual meeting.

Other requirements are triggered should the Club merge, dissolve or amend its Articles of Organization.

VI. Town of Natick

Technically, we should hold a business license from the Town of Natick. A license may be obtained by completing a simple form at the Town Hall. The application fee is $20 or $25, and the license is good for four years.

VII. Important Publications, Forms, Documents and Addresses

Internal Revenue Service forms and publications may be obtained online at http://www.irs.gov/formspubs/index.html

Relevant forms include:

· Form 1024 (applying for determination of exempt status). See also form 8718 (IRS user fee information);

· Publication 557, which discusses tax-exempt organizations in general;

· Form 990, 990-EZ and related schedules to the form 990 (annual information return); and

· Form 1099-MISC and instructions (miscellaneous payments).

The Massachusetts Department of Revenue also maintains a website. The form TA-1 may be obtained at http://www.dor.state.ma.us/forms/rgstrn/pdfs/ta_1.pdf.

The instructions for filing for exempt status for the Massachusetts corporate excise tax may be found at http://www.dor.state.ma.us/rul_reg/adminprocedure/ap301.htm.

The Secretary of State, Corporations Division has forms and instructions at http://www.state.ma.us/sec/cor/Functionality/DownloadForm.htm. The “Nonprofit Corporations” links are the ones applicable to the Club.

VIII. Filing Calendar

January	31	Provide 1099-MISC documents to prize winners, other payees
February	28 or 29	File 1099-MISC documents with IRS and Massachusetts DOR
March	15, every 4^th year	Renew business license with Town of Natick
October	31	File annual report with Massachusetts Secretary of State

Note: if gross annual receipts exceed $25,000, the Club will be required to file a form 990 or 990-EZ with the IRS. Filing instructions can be found at the website noted above.