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exempt purposes. Recognized accounting methods should be employed to
provide the required financial information. Each Post should put in operation a
methodology to determine whether the income is from members or non-members
and whether a particular activity generating the income is related or unrelated to
the organization’s exempt purposes. When no records are kept, the IRS
assumes the income is from non-members and will treat it as unrelated business
income.
The above summary cannot be relied on in every situation. Each Post must evaluate its
own situation and activities and make judgements based upon the facts of its particular
situation. The Department suggests that Posts consult with qualified tax professionals,
especially if notice of an IRS audit is received. This notice means an audit has
commenced. A consultation with a qualified tax professional should precede any
communication by a representative of the Post with an IRS agent.
The Post should maintain records that indicate monthly activities, individuals who
participate in said activities (members, auxiliary, SAL, youth groups, etc.), and the
number of people who participate in the activity. If the activity is a fundraiser, records
should show who conducted the activity and whether or not volunteers provided
services. Records of activities can include Post meeting minutes (minutes of all Legion
meetings – county, district, department(Mid-Winter Conference, Membership, Hill Day,
Department Convention), and National (Spring and Fall Conferences, Washington
Conference, and National Convention), historian’s records, activity books, commander’s
books, house committee reports, and reports to the parent organization. In addition to
recording participation time, travel time to and from the activity should be included. This
also applies to community activities (Memorial Day, Veterans’ Day, etc.).
The IRS requires that an organization maintain such books and records that are
sufficient to establish the amount of gross income, source of gross income, deductions,
credits, expenses, or other matter by activity. Activities would include restaurant and
bar sales, bingo, pull tabs, gaming devices, and fundraisers such as dinners, etc.
If a member of the general public occasionally uses the Post facilities, a separate record
of the gross receipts from members and non-members must be maintained in order to
determine what amount of income would be subject o unrelated business income. The
Post should maintain a record of activities and the number of non-member hours
involved in each activity. The Department suggests that the Post use the information
from their copy of the Consolidated Post Report which is submitted to National annually
to compile this information.
When an activity is conducted jointly with the auxiliary, a reasonable method must be
used to determine how to allocate income and expenses. An acceptable accounting
method should be used. If income and expenses are prorated, records should show
that the allocation method used is reasonable.
IRC 6001 requires the maintenance of adequate records. If adequate records are not
maintained, tax exempt status may be jeopardized. It is also necessary to maintain
records that clearly identify revenue from each source and expenses related to same in
order to determine what income is exempt function income and what income is
unrelated business.