Tips from the Alliance

If your application to be a qualifying organization in 2010 was denied by ADOR or if ADOR is asking for more information:

Next Steps to become a qualifying organization:

Determine if you truly qualify. Read carefully the Qualifying Criteria below and decide if your organization clearly meets the requirements of the law. In the past, nonprofit organizations who do not meet the criteria were placed on the ADOR list because there was no review. Now that ADOR is reviewing information from nonprofits, those organizations will not be approved. Be sure that you are not one of those organizations before proceeding.
Contact ADOR immediately about your intent to provide more information. See the information for nonprofits prepared by ADOR for details.
Decide who should revise your application. You might think that, because this information is being providing to the state tax agency, it is primarily a financial document. However, a demonstration of how your organization fits the state law’s definition of organizations serving the working poor is fundamentally a matter of clearly communicating your services and the population you serve. Therefore, it is advisable to have the person who writes grant applications or other communications for your organization prepare the information for ADOR.
Review your application. Look at the information you provided already to ADOR. Look at it from the standpoint of someone who does not know anything about your organization or even your service area. Is it clear how your services fit the definition of qualifying services? Is it clear that the population you serve matches one of the qualifying populations? And, of course, are you clearly demonstrating that more than 50 percent of your budget provides those services to that population? If anything is unclear to the non-expert, you should revise and supplement your application.
Prepare for your discussion or meeting with ADOR. Once you have contacted ADOR, you should have the opportunity to revise your application and provide additional information. Also, in your conversation with the ADOR representative, it should be clear what additional information they need to determine that your organization qualifies. Before submitting the final documents to ADOR, ask someone who is not familiar with your organization to review your application to see if it clearly articulates how you should qualify.

Qualifying Criteria:

State law (Arizona Revised Statutes 43-1088) includes four basic criteria that nonprofits must meet in order to be considered a qualifying organization. Read the law carefully and determine whether your organization fits. It is helpful to think of these four criteria in order:

You must be a 501(c)3 nonprofit. This is the easy one; you should be used to providing proof of your status with the IRS. If you are not a 501(c)3, there is no need to go to the next criteria: you do not qualify.
You must be providing one or more services defined in the law. There is some room for interpretation here, but your application must clearly articulate how your services fit the law’s description. For example, if you provide cash assistance, it is pretty straightforward. But if you provide basic needs services which are not specifically named in the law, you will need to clearly explain how they should be considered basic services. If you are not providing one or more of these services, you will not qualify. (This is the most common reason organizations are denied qualification.)
You must be providing the services you named in Criteria 2 for one of the three populations defined in the law. While the definition of the populations is pretty clear, be sure that your application articulates what data your use for the population you serve. If you do not have information on your population about the income or other qualifying criteria, it may be difficult to qualify.
Finally, you must demonstrate that 50 percent or more of your organization’s budget is dedicated to the qualifying services (Criteria 2) for the qualifying population (Criteria 3). And you must demonstrate that you will continue spending 50 percent or more for these services. This is the financial part of the application, but again, be sure that your financial data clearly support the narrative which explains your services and population served. If you clearly demonstrate this fourth criteria, you should be in a good position to be approved as a qualifying organization.

Three more things to remember:

If your organization does not qualify for the Arizona state working poor tax credit, that does not mean your donors cannot obtain a tax deduction, as long as you are a 501(c)3 nonprofit. This credit is separate from normal tax deductions, and is intended to be an additional incentive for you to attract donors, if you qualify. The qualification of your nonprofit for the working poor tax credit under Arizona state law has no bearing on normal tax deductibility of donations to your nonprofit under state and federal income tax laws.
You should communicate with your donors about your status. Remember: donations made in 2009 still qualify if you were on the 2009 list. It is only donations made in the 2010 calendar year which are affected by your current status with ADOR.
If your organization’s services and budget change in the future, such that you may qualify for the working poor tax credit, you may submit a new application to ADOR at any time.