How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Loren Your Own Question
Loren, Attorney
Category: Business Law
Satisfied Customers: 34057
Experience:  30 years experience representing clients .
Type Your Business Law Question Here...
Loren is online now
A new question is answered every 9 seconds

Please allow LawGuy to respond - IL NFP Corporate Charter

This answer was rated:

<p>Please allow LawGuy to respond.  After your review of the below response from a tax expert my question is this: If a 501(c)(7) loses its tax-exempt status at the federal level and therefore all its net income is also taxed at the state level, that does not change its corporate charter with the State of Illinois, correct?</p><p>Please allow BK-CPA to respond for a tax expert opinion: If an Illinois Not For Profit/Federal 501(c)(7) social club loses its federal tax-exempt status, does it also lose its Illinois Not For Profit status as well? From LawGuy Saturday, December 04, 2010 4:30 PM EST No, losing the 501c3 status has no impact on your Illinois corporate charter. </p><p>My question is in regards XXXXX XXXXX 501(c)(7). State Not For Profit Social clubs pay state income tax on UBI as determined under IRC Section 512, in addition to the federal income tax they pay on the same UBI. That said, if a social club loses its tax-exempt status under 501(c)(7) and becomes a taxable club under IRC Section 277(a), how is its income recognized from a state income tax standpoint? </p><p><strong>REVENUE<br />(35 ILCS 5/) Illinois Income Tax Act.</strong></p><p><strong>Sec. 203. Base income defined.</strong></p><p><strong>(e) Gross income; adjusted gross income; taxable income.</strong></p><p>(1) In general. Subject to the provisions of paragraph (2) and subsection (b) (3), <strong>for purposes of this Section and Section 803(e), a taxpayer's gross income, adjusted gross income, or taxable income for the taxable year shall mean the amount of gross income, adjusted gross income or taxable income properly reportable for federal income tax purposes for the taxable year under the provisions of the Internal Revenue Code.</strong></p><p>In general, your taxable income as a corporation would then be determined based off of your federal taxable income with adjustments. Again from above:</p><p><strong>Sec. 203. Base income defined.</strong></p><p>(b) Corporations.</p><p>(1) In general. In the case of a corporation, base income means an amount equal to the taxpayer's taxable income for the taxable year as modified by paragraph (2)... </p><p>If you have exempt status with the internal revenue code under IRC 501, then you are considered as having exempt status for IL tax purposes and are taxed on the unrelated business income as you note:</p><p><strong>Sec. 205. Exempt organizations.</strong> <br />(a) Charitable, etc. organizations. <strong>The base income of an organization which is exempt from the federal income tax by reason of Section 501(a) of the Internal Revenue Code shall not be determined under section 203 of this Act, but shall be its unrelated business taxable income as determined under section 512 of the Internal Revenue Code, without any deduction for the tax imposed by this Act.</strong> The standard exemption provided by section 204 of this Act shall not be allowed in determining the net income of an organization to which this subsection applies.</p><p>So now, per the above, does being an IRC 501(c) organization exempt per IRC 501(a) make you an exempt organization under Illinois statutes?... No. Does it impact the determination of taxable income?... Yes. Does it impact the determination of being exempt from other taxes per above?... No.</p><p>I believe this answers your question. As always, I must remind you that I am not a lawyer, but a CPA, so this should be analyzed perhaps now by the lawyers to see if their legal opinions can add to / clarify my tax opinion.</p><p> </p><p> </p>
Its tax exempt status has no impact on its corporate charter.
Loren and other Business Law Specialists are ready to help you