Bonding and Tax Issues for Local Unions

(This article first appeared in the July/August 2022 issue of the American Postal Worker magazine)

Effective July 1, 2022, local affiliates have a new three (3) year term of bond coverage, which will expire June 30, 2025. National APWU provides local affiliates with $5,000 of coverage for each local at no cost to the local. The Department of Labor requires local affiliates to have bond coverage for a minimum of 10 percent of the union liquid assets. However, National APWU strongly recommends affiliates obtain bond coverage at 100 percent of all liquid assets.

When determining how much bond coverage is recommended, treasurers should include the local’s total cash on hand, deposits in any type of financial institution, certificate of deposit, U.S. Treasury securities, corporate stocks and bonds, and accounts and loans receivable.These are all examples of liquid assets.

The Labor Organization Bond covers the loss of money, securities and other property resulting directly from one or more fraudulent or dishonest acts committed by an employee acting alone or in collusion with others. It also offers protection for failure to faithfully discharge duties. The total coverage is for no more than the amount stated in the bond. The amount of bond coverage can be increased or decreased by requesting a bond change form from the Secretary-Treasurer’s department.

Reinstating Tax-Exempt Status

To qualify as exempt from federal income taxes, an organization must meet requirements set forth in the Internal Revenue Code. Under IRC 501(c)(5) tax exempt code, local and state unions qualify. Retiree chapters also qualify for exemption where they act to secure and maintain retirement benefits for its members.

It is important to remember that, while IRC 501(c)(5) provides exemption from federal income tax and we do not have to pay taxes on interest earned on our investments, we are required to pay sales tax for purchases and payroll taxes for our employees.

When a local or state union is notified that their taxexempt status has been revoked that is usually as a result of failing to file the required annual electronic notice Bonding and Tax Issues for Local Unions (990, 990-N or 990 -EZ) for three consecutive tax years or if a local or state union makes over $1,000 in unrelated business income also known as UBI. To apply for reinstatement of tax-exempt status, local and state treasurer will need to electronically file Form 1024.

As of January 3, 2022, the IRS requires that Form 1024 applications for recognition of exemption be submitted electronically online at Pay.gov. To submit Form 1024, you must:

1. Register, or have previously registered, for an account on Pay.gov.
2. Enter “Form 1024” or “1024” in the search box and select Form 1024.
3. Complete the form

A copy of the local or state constitution must be submitted with the form 1024 Application for Reinstatement. Local and state presidents or treasurers can use the following link: www.irs.gov/app/eos/allSearch to check tax exempt status. Pay.gov can accommodate only one uploaded file. Therefore, it is recommended the you consolidate any attachments into a single PDF file.