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Nature of Organization: The American Legion National Headquarters (the Legion) is a national veterans organization declared a corporate body by an act of the U.S. Congress on Sept. 16, 1919.

According to the original act and subsequent amendments, the purpose of the Legion is “to uphold and defend the Constitution of the United States of America; to promote peace and goodwill among the peoples of the United States and all the nations of the earth; to preserve the memories and incidents of the two World Wars and the other great hostilities fought to uphold democracy; to cement the ties and comradeship born of service; and to consecrate the eff orts of its members to mutual helpfulness and service to their country.”

Approximately 50 percent of the Legion’s income is derived from membership dues (including amounts allocated for magazine subscriptions). An additional 13-14 percent is generated through advertising for The American Legion Magazine. Another signifi cant source of income is Emblem Sales, which includes the sale of apparel, jewelry and other items bearing The American Legion’s emblem. Income is expended by the Legion on several diff erent programs, including the magazine, Emblem Sales, veterans assistance and rehabilitation, youth programs and others. The Legion’s youth programs include American Legion Baseball, the National Oratorical Contest and Boys Nation.

Principles of Consolidation: The consolidated fi nancial statements include the accounts of The American Legion National Headquarters, The American Legion Charities (ALC), The American Legion Endowment Fund Corporation (ALEF) and the National Emergency Fund (NEF) (collectively, the Legion). All material interorganizational accounts and transactions have been eliminated in consolidation.

The American Legion Charities is a tax-exempt trust established to solicit funds from individuals, organizations and corporations, and to disburse said funds as may be directed to various Legion programs and charities. The American Legion Endowment Fund Corporation, a tax-exempt Indiana corporation, was created to provide permanent funding for the rehabilitation of American veterans and assistance to orphans of veterans. The National Emergency Fund is a tax-exempt trust established to provide gifts and grants to relieve suff ering and ameliorate fi nancial hardship incurred by Legion members, families and posts.

Basis of Accounting: The fi nancial statements have been prepared on the accrual basis of accounting, in accordance with accounting standards generally accepted in the United States of America.

Use of Estimates in Preparation of Financial Statements: The preparation of fi nancial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that aff ect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the fi nancial statements, and the reported amounts of revenues, expenses, gains, losses and other changes in net assets during the reported period. Actual results could diff er from those estimates.

Financial Statement Presentation: The fi nancial statements have been prepared in accordance with generally-accepted accounting principles (GAAP) for fi nancial statements of not-for-profi t organizations. GAAP require, among other things, that fi nancial statements report the changes in and total of each of the net asset classes, based upon donor restrictions, as applicable. Net assets are to be classifi ed as unrestricted, temporarily restricted or permanently restricted.

The following classes of net assets are maintained:

Unrestricted Net Assets – The “unrestricted net asset” class includes general assets and liabilities of the Legion, as well as assets and liabilities designated by the National Executive Committee, the governing body of the Legion. The unrestricted net assets of the Legion may be used at the discretion of management to support the Legion’s purposes and operations.

Temporarily Restricted Net Assets – The “temporarily restricted net asset” class includes assets of the Legion related to gifts with explicit donor-imposed restrictions that have not been met as to specifi ed purpose, or to later periods of time or after specifi ed dates. Unconditional promises to give that are due in future periods and are not permanently restricted are classifi ed as temporarily restricted net assets. As the restrictions are met, the net assets are released from restrictions and included in unrestricted net assets. Contributions for which the restrictions are met in the same period in which the contribution is received are also recorded as temporarily restricted net assets.

Permanently Restricted Net Assets – The “permanently restricted net asset” class includes assets of the Legion for which the donor has stipulated that the contribution be maintained in perpetuity. Donor-imposed restrictions limiting the use of the assets or their economic benefi t neither expire with the passage of time nor can be removed by satisfying a specifi c purpose.

Cash and Cash Equivalents: Cash and cash equivalents consist of bank deposits in accounts that are federally insured for up to $250,000 per fi nancial institution. Additionally, the Legion holds funds at fi nancial institutions that participate in the FDIC’s transaction account guarantee program. Under this program, non-interest-bearing and certain low-interest accounts are FDIC insured in full through 2012 in addition to and separate from the coverage available under FDIC’s general deposit insurance rules.

For purposes of the consolidated statement of cash fl ows, the Legion considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Inventory: Inventory consists of Emblem items held for sale, magazine paper and publication rights, and is stated at the lower of cost or market using the fi rst-in, fi rst-out (FIFO) method. Supplies not intended for sale are expensed when purchased.

Investments: Investments are carried at fair value. The fair values of investments are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Realized and unrealized gains and losses are refl ected in the consolidated statements of activities. Premiums or discounts on investments are generally recognized at the time of disposal or maturity.

Property and Equipment: Expenditures for property and equipment, and items which substantially increase the useful lives of existing assets and are greater than $1,500, are capitalized at cost. The Legion records depreciation on the straight-line method at rates designated to depreciate the costs of assets over their estimated useful lives. Buildings are depreciated on the straight-line method using a 30-year life. All other capital assets are depreciated over lives ranging from three to seven years.

Impairment of Long-Lived Assets: In accordance with GAAP, the Legion reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the fair value is less than the carrying amount of the asset, an impairment loss is recognized for the diff erence. No impairment loss has been recognized during the years ended Dec. 31, 2011 and 2010.

Collections: The Legion owns many collectible military-related items and historical documents that were not recorded as they were acquired. It is often impracticable to determine a value for collections accordingly, and the Legion has concluded that they need not be capitalized. Some items have been appraised for insurance purposes.

Support and Revenue: The Legion reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires – that is, when a stipulated time restriction ends or a purpose restriction is accomplished – temporarily restricted net assets are reclassifi ed to unrestricted net assets and reported in the statement of activities as net assets released from restrictions.

Dues Income and Expense: Dues are recognized as income over the applicable membership period, which is on a calendar-year basis. In addition to other methods of obtaining new members, the Legion uses direct mail and other direct marketing approaches. The income generated from direct membership solicitation is recognized over the applicable membership period (calendar year). The direct-response expenses incurred in obtaining new members are deferred and recognized in the subsequent membership year.

Income Taxes: The Legion is exempt from federal income taxes under section 501(c)(19) of the U.S. Internal Revenue Code. ALC, ALEF and NEF are exempt from federal income taxes under Section 501(c)(3) of the U.S. Internal Revenue Code. None of these entities is considered to be a private foundation. The Legion is subject to income tax on unrelated business income. In 2011 and 2010, the Legion incurred no tax expense. In 2011 and 2010, the Legion received $6,000 and $274,046 of refunds (net of payments), respectively.

2012 | T e American Legion Annual Report 47

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