Organizations exempt from income tax under Internal Revenue Code section 501(a), which includes sections 501(c), 501(e), 501(f), 501(k), 501(n), and 4947(a)(1) must generally file Form 990 or Form 990-EZ based on their gross receipts for the tax year. (See General Instruction B next for exceptions to the filing requirement.) For this purpose, gross receipts is the organization's total revenues from all sources during its annual accounting period, without subtracting any costs or expenses.

If the organization does not meet any of the exceptions listed in General Instruction B, and its annual gross receipts are normally more than $25,000, it must file Form 990 or Form 990-EZ. If the organization is a sponsoring organization, or a controlling organization within the meaning of section 512(b)(13), it must file Form 990. However, if the organization is a supporting organization described in section 509(a)(3), it generally must file Form 990 (Form 990-EZ if applicable) even if its gross receipts are normally $25,000, or less. Supporting organizations of religious organizations need not file Form 990 (or Form 990-EZ) if their gross receipts are normally $5,000, or less. See the gross receipts discussion in General Instruction B.

If the organization's gross receipts during the year are less than $100,000 and its total assets at the end of the year are less than $250,000, it may file Form 990-EZ instead of Form 990. Even if the organization meets this test, it can still file Form 990.

Organizations required to file Schedule A (Form 990 or 990-EZ), Organization Exempt Under Section 501(c)(3), that do not meet the support tests discussed in the instructions for Part IV of that schedule can contact the IRS at the following address to re-evaluate their determination-of-filing requirements.

Except for those types of organizations listed in General Instruction B, an annual return on Form 990, or Form 990-EZ, is required from every organization exempt from tax under section 501(a), including foreign organizations and cooperative service organizations described in sections 501(e) and (f); child care organizations described in section 501(k); and charitable risk pools described in section 501(n).

Section 501(c)(3), 501(e), (f), (k), and (n) organizations must also attach a completed Schedule A (Form 990 or 990-EZ) to their Form 990 or Form 990-EZ.

A section 501(c)(15) organization applies the same gross receipts test as other organizations to determine whether they must file the Form 990 or Form 990-EZ. However, section 501(c)(15) insurance companies are also subject to separate tests to determine whether they qualify as tax-exempt for the tax year. The following tests use a specific definition for gross receipts defined, below only for purposes of the following tests. Insurance companies that do not qualify as tax-exempt must file Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return, or Form 1120, U.S. Corporation Income Tax Return, as taxable entities. See Notice 2006-42, which is on page 878 of the Internal Revenue Bulletin 2006-19 at www.irs.gov/pub/irs-irbs/irb06-19.pdf.

Alternate test.   If any section 501(c)(15) insurance company (other than life insurance) is a mutual insurance company and it did not meet the above test, then the company must meet both parts of the following alternate test.

1. The company's gross receipts must be equal to or less than $150,000, and

2. The company's premiums must be more than 35% of its gross receipts.

  If the company does not meet either test, then it must file Form 1120-PC or Form 1120 (if the company is not entitled to insurance reserves) instead of Form 990 or Form 990-EZ.

  

The alternate test does not apply if any employee of the mutual insurance company or a member of the employee's family is an employee of another company that is exempt under section 501(c)(15)(or would be exempt if this provision did not apply).

Tax-exempt political organizations must file Form 990 or Form 990-EZ (if applicable) unless the organization is excepted from filing under Exemption 14 or 15 of General Instruction B. A qualified state or local political organization (defined below) must file Form 990 (not Form 990-EZ) only if it has gross receipts of $100,000 or more.

For additional information, including the prohibition of involvement in the organization of a federal candidate or office holder, see section 527(e)(5).

A disregarded entity, as described in Regulations sections 301.7701-1 through 301.7701-3, is treated as a branch or division of its parent organization for federal tax purposes. Therefore, financial and other information applicable to a disregarded entity must be reported as the parent organization's information.

Any nonexempt charitable trust (described in section 4947(a)(1)) not treated as a private foundation is also required to file Form 990, or Form 990-EZ, along with a completed Schedule A (Form 990 or 990-EZ). See the discussion in General Instruction D for exceptions to filing Form 1041, U.S. Income Tax Return for Estates and Trusts.

If the organization's application for exemption is pending, check the Application pending box in the heading of the return and complete the return.

Organizations that previously filed Form 990 or Form 990-EZ and meet exemption 15 under General Instruction B do not have to file a return.

Exempt organizations that filed Form 990, or Form 990-EZ, but are no longer required to file because they meet a specific exemption (other than exemption 15 in General Instruction B) must advise their IRS area office so their filing status can be updated.

Exempt organizations that are not sure of their area office may call the IRS at 1-877-829-5500. Exempt organizations that stop filing Form 990, or Form 990-EZ, without notifying their area office may receive service center correspondence inquiring about their returns. When responding to these inquiries, these organizations must give the specific reason for not filing.

Organizations that are eligible to receive tax deductible contributions are listed in Publication 78, Cumulative List of Organizations described in Section 170(c) of the Internal Revenue Code of 1986. An organization may be removed from this listing if our records show that it is required to file Form 990, or Form 990-EZ, but it does not file a return or advises us that it is no longer required to file. However, contributions to such an organization may continue to be deductible by the general public until the IRS publishes a notice to the contrary in the Internal Revenue Bulletin.

Gross receipts are the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses.

Figure gross receipts for Form 990 and Form 990-EZ as follows.

To determine if an organization's gross receipts are normally $25,000 or less, apply the following test. An organization's gross receipts normally are considered to be $25,000 or less if the organization is:

To determine if an organization's gross receipts are normally $5,000 or less, apply the following test. An organization's gross receipts normally are considered to be $5,000 or less if the organization is:

The organization may consult the appropriate officials of all states and other jurisdictions in which it does business to determine their specific filing requirements. Doing business in a jurisdiction may include any of the following: (a) soliciting contributions or grants by mail or otherwise from individuals, businesses, or other charitable organizations; (b) conducting programs; (c) having employees within that jurisdiction; (d) maintaining a checking account; or (e) owning or renting property there.

Some or all of the dollar limitations applicable to Form 990, or Form 990-EZ, when filed with the IRS may not apply when using Form 990, or Form 990-EZ, in place of state or local report forms. Examples of the IRS dollar limitations that do not meet some state requirements are the $25,000 gross receipts minimum that creates an obligation to file with the IRS (see the gross receipts discussion in General Instruction B) and the $50,000 minimum for listing professional fees in Part II-A of Schedule A (Form 990 or 990-EZ).

State or local filing requirements may require the organization to attach to Form 990, or Form 990-EZ, one or more of the following: (a) additional financial statements, such as a complete analysis of functional expenses or a statement of changes in net assets; (b) notes to financial statements; (c) additional financial schedules; (d) a report on the financial statements by an independent accountant; and (e) answers to additional questions and other information. Each jurisdiction may require the additional material to be presented on forms they provide. The additional information does not have to be submitted with the Form 990, or Form 990-EZ, filed with the IRS.

Even if the Form 990, or Form 990-EZ, that the organization files with the IRS is accepted by the IRS as complete, a copy of the same return filed with a state will not fully satisfy that state's filing requirement if required information is not provided, including any of the additional information discussed above, or if the state determines that the form was not completed by following the applicable Form 990, or Form 990-EZ, instructions or supplemental state instructions. If so, the organization may be asked to provide the missing information or to submit an amended return.

To ensure that all organizations report similar transactions uniformly, many states require that contributions, gifts, grants, etc., and functional expenses be reported according to the AICPA industry audit and accounting guide, Not-for-Profit Organizations (New York, NY, AICPA, 2003), supplemented by Standards of Accounting and Financial Reporting for Voluntary Health and Welfare Organizations (Washington, DC, National Health Council, Inc., 1998, 4th edition).

Even though reporting donated services and facilities as items of revenue and expense is called for in certain circumstances by the two publications named above, many states and the IRS do not permit the inclusion of those amounts in Parts I and II of Form 990 or Part I of Form 990-EZ. The optional reporting of donated services and facilities is discussed in the instructions for Part III for both Form 990 and Form 990-EZ.

If the organization submits supplemental information or files an amended Form 990, or Form 990-EZ, with the IRS, it must also send a copy of the information or amended return to any state with which it filed a copy of Form 990, or Form 990-EZ, originally to meet that state's filing requirement.

If a state requires the organization to file an amended Form 990, or Form 990-EZ, to correct conflicts with Form 990, or Form 990-EZ, instructions, it must also file an amended return with the IRS.

Most states require that all amounts be reported based on the accrual method of accounting. See also General Instruction G.

The deadline for filing Form 990, or Form 990-EZ, with the IRS differs from the time for filing reports with some states.

The Form 990, or Form 990-EZ, information made available for public inspection by the IRS may differ from that made available by the states. See the discussion of Schedule B (Form 990, 990-EZ, or 990-PF) in General Instruction L.

A labor organization that files Form LM-2, Labor Organization Annual Report, or the shorter Form LM-3, Labor Organization Annual Report, with the U.S. Department of Labor (DOL) can attach a copy of the completed DOL form to Form 990, or Form 990-EZ, to provide some of the information required by Form 990 or Form 990-EZ. This substitution is not permitted if the organization files a DOL report that consolidates its financial statements with those of one or more separate subsidiary organizations.

An employee benefit plan may be able to substitute Form 5500 for part of Form 990 or Form 990-EZ. The substitution can be made if the organization filing Form 990, or Form 990-EZ, and the plan filing Form 5500, meet all the following tests:

Whether an organization files Form 990, or Form 990-EZ, for a labor organization or for an employee benefit plan, the areas of Form 990, or Form 990-EZ, for which other forms can be substituted are the same. These areas are:

Unless instructed otherwise, the organization should generally use the same accounting method on the return to figure revenue and expenses as it regularly uses to keep its books and records. To be acceptable for Form 990, or Form 990-EZ, reporting purposes, however, the method of accounting used must clearly reflect income.

Generally, the organization must file Form 3115 to change its accounting method. Notice 96-30, 1996-1 C.B. 378, provides relief from filing Form 3115 to section 501(c) organizations that change their method of accounting to comply with the provisions of SFAS 116, Accounting for Contributions Received and Contributions Made. In SFAS 116, the Financial Accounting Standards Board revised certain generally accepted accounting principles relating to contributions received and contributions awarded by not-for-profit organizations.

A not-for-profit organization that changes its method of accounting for federal income tax purposes to conform to the method provided in SFAS 116 must report any adjustment required by section 481(a) on line 20 of Form 990, or Form 990-EZ, as a net asset adjustment made during the year the change is made. The adjustment must be identified as the effect of changing to the method provided in SFAS 116. The beginning of year statement of financial position (balance sheet) should not be restated to reflect any prior period adjustments.

The organization can file Form 990, or Form 990-EZ, and related forms, schedules, and attachments electronically. However, if an organization files at least 250 returns during the calendar year and has total assets of $10 million or more at the end of the tax year, it must file Form 990 electronically.

To determine if the organization meets the $10 million asset test, use the amount that will be entered on line 59 (total assets), column (B).

If an organization is required to file a return electronically but does not, the organization is considered to have not filed its return. See Temporary Regulations section 301.6033-4T for more information.

For additional information on the electronic filing requirement, visit www.irs.gov/efile.

Under section 6652(c)(1)(A), a penalty of $20 a day, not to exceed the smaller of $10,000 or 5% of the gross receipts of the organization for the year, may be charged when a return is filed late, unless the organization can show that the late filing was due to reasonable cause. Organizations with annual gross receipts exceeding $1 million are subject to a penalty of $100 for each day the failure continues (with a maximum penalty with respect to any one return of $50,000). The penalty begins on the due date for filing the Form 990 or Form 990-EZ.

Use of a paid preparer does not relieve the organization of its responsibility to file a complete and accurate return.

If the organization does not file a complete return or does not furnish correct information, the IRS will send the organization a letter that includes a fixed time to fulfill these requirements. After that period expires, the person failing to comply will be charged a penalty of $10 a day. The maximum penalty on all persons for failures with respect to any one return shall not exceed $5,000 (section 6652(c)(1)(B)(ii)).

Any person who does not comply with the public inspection requirements, as discussed in General Instruction M, will be assessed a penalty of $20 for each day that inspection was not permitted, up to a maximum of $10,000 for each return. The penalties for failure to comply with the public inspection requirements for applications is the same as those for annual returns, except that the $10,000 limitation does not apply (sections 6652(c)(1)(C) and (D)). Any person who willfully fails to comply with the public inspection requirements for annual returns or exemption applications will be subject to an additional penalty of $5,000 (section 6685).

There are also penalties (fines and imprisonment) for willfully not filing returns and for filing fraudulent returns and statements with the IRS (sections 7203, 7206, and 7207). States may impose additional penalties for failure to meet their separate filing requirements. See also the discussion of the Trust Fund Recovery Penalty, under General Instruction D.

Schedule B (Form 990, 990-EZ, or 990-PF), generally, is a required attachment for the Form 990, 990-EZ, or 990-PF, and is used to report on tax-deductible and non-tax-deductible contributions. See the Instructions for Schedule B for the public inspection rules applicable to that form. See also the Specific Instructions for both Form 990 and Form 990-EZ, under Completing the Heading . . . where the instructions are keyed to items in the heading of Form 990 or Form 990-EZ.

Any fundraising solicitation by or on behalf of any section 501(c) or 527 organization that is not eligible to receive contributions deductible as charitable contributions for federal income tax purposes must include an explicit statement that contributions or gifts to it are not deductible as charitable contributions. The statement must be in an easily recognizable format whether the solicitation is made in written or printed form, by television or radio, or by telephone. This provision applies only to those organizations whose annual gross receipts are normally more than $100,000 (section 6113 and Notice 88-120, 1988-2 C.B. 454).

Failure to disclose that contributions are not deductible could result in a penalty of $1,000 for each day on which a failure occurs. The maximum penalty for failures by any organization, during any calendar year, shall not exceed $10,000. In cases where the failure to make the disclosure is due to intentional disregard of the law, more severe penalties apply. No penalty will be imposed if the failure is due to reasonable cause (section 6710).

Section 501(c) organizations that are eligible to receive tax-deductible contributions under section 170(c) of the Code must keep sample copies of their fundraising materials, such as:

For each fundraising event, organizations must keep records to show the portion of any payment received from patrons that is not deductible; that is, the retail value of the goods or services received by the patrons. See Disclosure statement for quid pro quo contributions, later.

See the Instructions for Schedule B (Form 990, 990-EZ, or 990-PF).

If the organization received a partially completed Form 8283 from a donor, complete it and return it so the donor can get a charitable contribution deduction. The organization should keep a copy for its records. See also the reference to Form 8282 in General Instruction D.

Use Form 4506-A to request:

The IRS can provide copies of exempt organization returns on a compact disc (CD). Requesters can order the complete set (all Forms 990 and 990-EZ or all Forms 990-PF filed for a year) or a partial set by state or by month. For more information on the cost and how to order CDs, call the TEGE Customer Account Services toll-free number (1-877-829-5500) or write to the IRS in Cincinnati, OH, at the address in General Instruction A.

The IRS may not disclose portions of an exemption application relating to any trade secrets, etc. Additionally, the IRS may not disclose the names and addresses of contributors. See the Instructions for Schedule B (Form 990, 990-EZ, or 990-PF) for more information about the disclosure of that schedule.

Forms 990 or 990-EZ can only be requested for section 527 organizations for tax years beginning after June 30, 2000.

A return, report, notice, or exemption application may be inspected at an IRS office free of charge. Copies of these items may also be obtained through the organization as discussed in the following section.

These rules only apply to certain applicable section 501(c)(3) and 501(c)(4) organizations. An applicable tax-exempt organization is a section 501(c)(3) or a section 501(c)(4) organization that is tax-exempt under section 501(a), or was such an organization at any time during a 5-year period ending on the day of the excess benefit transaction.

An applicable tax-exempt organization does not include:

An organization is not treated as a section 501(c)(3) or 501(c)(4) organization for any period covered by a final determination that the organization was not tax-exempt under section 501(a), so long as the determination was not based on private inurement or one or more excess benefit transactions.

The vast majority of section 501(c)(3) or 501(c)(4) organization employees and contractors will not be affected by these rules. Only the few influential persons within these organizations are covered by these rules when they receive benefits, such as compensation, fringe benefits, or contract payments. The IRS calls this class of covered individuals disqualified persons.

A disqualified person, regarding any transaction, is any person who was in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization at any time during a 5-year period ending on the date of the transaction. Persons who hold certain powers, responsibilities, or interests are among those who are in a position to exercise substantial influence over the affairs of the organization. This would include, for example, voting members of the governing body, and persons holding the power of:

A disqualified person also includes certain family members of a disqualified person, and 35% controlled entities of a disqualified person.

The following persons are considered disqualified persons along with certain family members and 35% controlled entities associated with them:

Substantial contributors to supporting organizations are also considered disqualified persons along with their family members and 35% controlled entities.

See the Instructions for Form 4720, Schedule I for more information regarding these disqualified persons.

An excess benefit transaction is a transaction in which an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of any disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration (including the performance of services) received for providing such benefit. An excess benefit transaction also can occur when a disqualified person embezzles from the exempt organization.

To determine whether an excess benefit transaction has occurred, all consideration and benefits exchanged between a disqualified person and the applicable tax-exempt organization, and all entities it controls, are taken into account.

For purposes of determining the value of economic benefits, the value of property, including the right to use property, is the fair market value. Fair market value is the price at which property, or the right to use property, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell, or transfer property or the right to use property, and both having reasonable knowledge of relevant facts.

Payments under a compensation arrangement are presumed to be reasonable and the transfer of property (or right to use property) is presumed to be at fair market value, if the following three conditions are met.

A disqualified person corrects an excess benefit transaction by undoing the excess benefit to the extent possible, and by taking any additional measures necessary to place the organization in a financial position not worse than that in which it would be if the disqualified person were dealing under the highest fiduciary standards. The organization is not required to rescind the underlying agreement; however, the parties may need to modify an ongoing contract with respect to future payments.

A disqualified person corrects an excess benefit by making a payment in cash or cash equivalents equal to the correction amount to the applicable tax-exempt organization. The correction amount equals the excess benefit plus the interest on the excess benefit; the interest rate may be no lower than the applicable Federal rate. There is an anti-abuse rule to prevent the disqualified person from effectively transferring property other than cash or cash equivalents.

The regulations make it clear that the IRS will apply the procedures of section 7611 when initiating and conducting any inquiry or examination into whether an excess benefit transaction has occurred between a church and a disqualified person.

Proposed intermediate sanction regulations were issued in 1998. The proposed regulations had special provisions covering “any transaction in which the amount of any economic benefit provided to or for the use of a disqualified person is determined in whole or in part by the revenues of one or more activities of the organization. . .”— so-called revenue-sharing transactions. Rather than setting forth additional rules on revenue-sharing transactions, the final regulations reserve this section. Consequently, until the Service issues new regulations for this reserved section on revenue-sharing transactions, these transactions will be evaluated under the general rules (for example, the fair market value standards) that apply to all contractual arrangements between applicable tax-exempt organizations and their disqualified persons.

Section 4958 does not affect the substantive standards for tax exemption under section 501(c)(3) or section 501(c)(4), including the requirements that the organization be organized and operated exclusively for exempt purposes, and that no part of its net earnings inure to the benefit of any private shareholder or individual. The legislative history indicates that in most instances, the imposition of this intermediate sanction will be in lieu of revocation. The IRS has indicated that the following four factors will be considered in determining whether to revoke an applicable tax-exempt organization's exemption status where an excess benefit transaction has occurred:

For Form 990 and 990-EZ filers, section 4965(a)(1) imposes an entity level excise tax for each taxable year that the tax-exempt entity is a party to a prohibited tax shelter transaction and has net income or proceeds attributable to the transaction which are properly allocable to that taxable year. The amount of the excise tax depends on whether the tax-exempt entity knew or had reason to know that the transaction was a prohibited tax shelter transaction at the time it became a party to the transaction.

To figure and report the excise tax imposed on a tax-exempt entity for being a party to a prohibited tax shelter transaction, file Form 4720.

For more information about this excise tax including information about how it is figured, see the Instructions for Form 4720.

Certain tax-exempt entities are required to file disclosure information of:

Use Form 8886-T to report the disclosure. Entities that fail to file the required disclosure are subject to a nondisclosure penalty of $100 for each day the failure continues with a maximum penalty for any one disclosure of $50,000.

Also, if the IRS makes a written demand on any entity subject to this penalty, giving the entity a reasonable date to make the disclosure and the entity fails to make disclosure by that date, the entity is subject to a penalty of $100 for each day after the date specified by the IRS until disclosure is made (with a maximum penalty for any one disclosure of $10,000). See Instructions for Form 8886-T for more information.

Section 4965(a)(2) imposes an excise tax on any tax-exempt entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows (or has reason to know) that the transaction is a prohibited tax shelter transaction. The excise tax, in the amount of $20,000, is assessed for each approval or other act causing the organization to be a party to the prohibited tax shelter transaction. To report this tax, file Form 4720.

File the 2007 return for calendar year 2007 and fiscal years that begin in 2007 and end in 2008. For a fiscal year return, fill in the tax year space at the top of page 1. See General Instruction G for additional information on accounting periods and methods.

If the organization operates under a name different from its legal name, give the legal name of the organization but identify its alternate name, after the legal name, by writing “aka” (also known as) and the alternate name of the organization. However, if the organization has changed its name, follow the instructions for Name change in Item B — Checkboxes.

If the organization receives its mail in care of a third party (such as an accountant or an attorney), enter on the street address line “C/O” followed by the third party's name and street address or P.O. box.

Include the suite, room, or other unit number after the street address. If the Post Office does not deliver mail to the street address and the organization has a P.O. box, show the box number instead of the street address.

For foreign addresses, enter information in the following order: city, province or state, and the name of the country. Follow the foreign country's practice in placing the postal code in the address. Please do not abbreviate the country name.

If a change in address occurs after the return is filed, use Form 8822 to notify the IRS of the new address.

The organization should have only one federal employer identification number (EIN). If it has more than one and has not been advised which to use, notify the:

State what numbers the organization has, the name and address to which each number was assigned, and the address of its principal office. The IRS will advise the organization which number to use.

Enter a telephone number of the organization that members of the public and government regulators may use during normal business hours to obtain information about the organization's finances and activities. If the organization does not have a telephone number, enter the telephone number of an organization official who can provide such information.

An organization must indicate the method of accounting used in preparing this return. See General Instruction G.

Show the organization's website address if a website is available. Otherwise, write “N/A” (not applicable). Consider adding the organization's email address to its website.

See General Instruction R. Attach the required list, if applicable, or the organization will be contacted later for the missing information.

The group exemption number (GEN) is a number assigned by the IRS to the central/parent organization of a group that has a group ruling.

Enter the four-digit group exemption number if “Yes” was checked in item H(a) and H(d). Contact the central/parent organization if the organization is unsure of the GEN assigned.

If the organization is exempt under section 501(c), check the applicable box and insert, within the parentheses, the number that identifies the type of section 501(c) organization the filer is. See the chart in General Instruction C. The term section 501(c)(3) includes organizations exempt under sections 501(e), (f), (k), and (n). Check the applicable box if the organization is a section 527 political organization. See General Instruction U.

If the organization is a section 4947(a)(1) nonexempt charitable trust, check the applicable box. Note also the discussion regarding Schedule A (Form 990 or 990-EZ) and Form 1041 in General Instruction D and the instructions to line 92 of Form 990.

Check this box if the organization is not a section 509(a)(3) supporting organization and its gross receipts are normally not more than $25,000, but the organization chooses to file Form 990. If the organization chooses to file Form 990, be sure to file a complete return. For a discussion on gross receipts for this purpose, see General Instruction B. Also, see General Instruction X for a discussion on a complete return.

The organization's gross receipts are the total amount it received from all sources during its annual accounting period, without subtracting any costs or expenses. See the gross receipts discussion in General Instruction B.

Whether or not the organization enters any amount on line 1e of Form 990, the organization must either check the box in item M or attach Schedule B (Form 990, 990-EZ, or 990-PF). The organization return will be incomplete if it does not either check the box in item M or file Schedule B (Form 990, 990-EZ, or 990-PF). See the Instructions for Schedule B (Form 990, 990-EZ, or 990-PF), for more information.

Reporting for line 1, in accordance with SFAS 116, is acceptable for Form 990 purposes, but not required by IRS. However, see General Instruction E.

An organization that receives a grant to be paid in future years should, according to SFAS 116, report the grant's present value on line 1. Accruals of present value increments to the unpaid grant should also be reported on line 1 in future years.

Fundraising activities relate to soliciting and receiving contributions. However, special fundraising activities such as dinners, door-to-door sales of merchandise, carnivals, and bingo games can produce both contributions and revenue.

If a buyer at such a special event pays more for goods or services than their retail value, report, as a contribution, both on line 1b and on line 9a (within the parentheses), any amount paid in excess of the retail value. This situation usually occurs when organizations seek public support through solicitation programs that are in part special events or activities and are in part solicitations for contributions. The primary purpose of such solicitations is to receive contributions and not to sell the merchandise at its retail value even though this might produce a profit.

If a contributor gives more than $40, that person would be making a larger contribution, the difference between the book's retail value of $16 and the amount actually given. Rev. Rul. 67-246, 1967-2 C.B. 104, explains this principle in detail. See also the Lines 9a through 9c instructions and Pub. 526.

Report the expenses that relate directly to the sale of the book on line 9b. Report the expenses of raising contributions (shown within the parentheses on line 9a and again on line 1b) in Fundraising, column (D), Part II, and on line 15 of Part I.

If an organization offers goods or services of only nominal value through a special event or distributes free, unordered, low-cost items to patrons, report the entire amount received for such benefits as a contribution on line 1b (direct public support). Report all related expenses in Fundraising, column (D), Part II. See General Instruction L for a definition of benefits that have a nominal or insubstantial value.

Correctly dividing gross receipts from special events into revenue and contributions is especially important for a section 501(c)(3) organization that claims public support as described in section 509(a)(1)/170(b)(1)(A)(vi) or section 509(a)(2). In the public support computations of these Code sections, the revenue portion of gross receipts may be (a) excluded entirely, (b) treated as public support, or (c) if the revenue represents unrelated trade or business income, treated as nonpublic support.

Section 501(c)(3) organizations must separate gross receipts from special events into revenue and contributions when preparing the Support Schedule in Part IV-A of Schedule A (Form 990 or 990-EZ).

These organizations provide participants with life, sickness, accident, welfare, and unemployment insurance, pensions, or similar benefits, or a combination of these benefits. When such an organization receives payments from participants or their employers to provide these benefits, report the payments on line 2 as program service revenue, rather than on line 1 as contributions.

In Part I, do not include as contributions on line 1 the value of services donated to the organization, or items such as the free use of materials, equipment, or facilities. See the instructions for Part III and for Part VI, line 82, for the optional reporting of such amounts in Parts III and VI.

Any unreimbursed expenses of officers, employees, or volunteers do not belong on the Form 990 or Form 990-EZ. See the discussions for charitable contributions and employee business expenses in Pub. 526 and Pub. 463, respectively.

Grants that encourage an organization receiving the grant to carry on programs or activities that further its exempt purposes are grants that are equivalent to contributions. Report them on line 1. The grantor may require that the programs of the grant recipient (grantee) conform to the grantor's own policies and may specify the use of the grant, such as use for the restoration of a historic building or a voter registration drive.

A grant is still equivalent to a contribution if the grant recipient provides a service or makes a product that benefits the grantor incidentally. See Examples in the line 1d instructions. However, a grant is a payment for services, and not a contribution, if the grant requires the grant recipient to provide that grantor with a specific service, facility, or product rather than to give a direct benefit primarily to the general public or to that part of the public served by the organization. In general, do not report as contributions any payments for a service, facility, or product that primarily give some economic or physical benefit to the payer (grantor).

Treat research to develop products for the payer's use or benefit as directly serving the payer. However, generally, basic research or studies in the physical or social sciences should not be treated as serving the payer's needs.

See Regulations section 1.509(a)-3(g) to determine if a grant is a contribution reportable on line 1b or a revenue item reportable elsewhere on Form 990.

Complete line 1a only if the organization is a sponsoring organization that maintains one or more donor advised funds. Enter the gross amounts of contributions, gifts, grants, and bequests received for all donor advised funds the organization maintains.

A sponsoring organization is any organization which:

In general, a donor advised fund is a fund or account:

Enter the total contributions received indirectly from the public through solicitation campaigns conducted by federated fundraising agencies and similar fundraising organizations (such as a United Way organization and certain sectarian federations). These organizations normally conduct fundraising campaigns within a single metropolitan area or some part of a particular state and allocate part of the net proceeds to each participating organization on the basis of the donors' individual designations and other factors.

Include on line 1c amounts contributed by other organizations closely associated with the reporting organization. This includes contributions received from a parent organization, subordinate, or another organization with the same parent. National organizations that share in fundraising campaigns conducted by their local affiliates should report the amount they receive on line 1c.

Do not include any amounts previously reported on line 1a on this line.

The general line 1 instructions, under the heading, Grants That Are Equivalent to Contributions, earlier, apply to this item in particular. A grant or other payment from a governmental unit is treated as a contribution if its primary purpose is to enable the donee to provide a service to, or maintain a facility for, the direct benefit of the public rather than to serve the direct and immediate needs of the grantor even if the public pays part of the expense of providing the service or facility.

The following are examples of governmental grants and other payments that are treated as contributions.

Enter the total of amounts reported on lines 1a through 1d. In the entry spaces in the description column for line 1e, enter the separate totals for cash and noncash contributions, gifts, grants, and similar amounts received. The total of the two amounts must equal the total on line 1e.

Report as cash contributions, only contributions received in the form of cash, checks, money orders, credit card charges, wire transfers, and other transfers and deposits to a cash account of the organization. If the organization records pledges as contributions, at the time the pledges are made (rather than when the pledges are collected), include as cash contributions, only those pledges actually collected in cash during the year and pledges uncollected at the end of the year that are reasonably expected to be paid in cash in a later year.

Report all other contributions, as noncash contributions in the space provided. Be sure to include as a noncash contribution donated items like cars and clothing valued as of the time of their receipt even if these items were made available for sale immediately after they were received. See General Instruction L and Schedule B (Form 990, 990-EZ, or 990-PF), and the instructions for lines 1 and 1b for a discussion of noncash contributions. Noncash contributions do not include donated services, which may be reported on line 82 and in the narrative section of Part III.

Enter the total of program service revenue (exempt function income) as reported in Part VII, lines 93(a) through (g), columns (B), (D), and (E). Program services are primarily those that form the basis of an organization's exemption from tax. For a more detailed description of program services, refer to the instructions for Part II, column (B), Program services.

Enter members' and affiliates' dues and assessments that are not contributions.

Enter the amount of interest income from savings and temporary cash investments reportable on line 46. So-called dividends or earnings received from mutual savings banks, money market funds, etc., are actually interest and should be entered on line 4.

Enter the amount of dividend and interest income from equity and debt securities (stocks and bonds) of the type reportable on line 54. Include amounts received from payments on securities loans, as defined in section 512(a)(5). Do not include any capital gains dividends that are reportable on line 8. See the instructions for line 2 for reporting income from program-related investments.

Enter on line 6a the rental income received for the year from investment property reportable on line 55. Do not include on line 6a rental income related to the reporting organization's exempt function (program service). Report such income on line 2. For example, an exempt organization whose exempt purpose is to provide low-rental housing to persons with low income would report that rental income as program service revenue on line 2. Rental income received from an unaffiliated exempt organization is generally considered as unrelated to the reporting organization's exempt purpose and reportable on line 6a. However, note an exception given in the instructions for line 2 when the reporting organization aids an unaffiliated organization with its exempt function.

Only for purposes of completing this return, the reporting organization must report any rental income received from an affiliated exempt organization as program service revenue on line 2.

Enter the expenses paid or incurred for the income reported on line 6a. Include interest related to rental property and depreciation if it is recorded in the organization's books and records. Report in column (B) of Part II Program services any rental expenses allocable to rental income reportable as program service revenue on line 2.

Subtract line 6b from line 6a. Show any loss in parentheses.

Enter the amount of investment income not reportable on lines 4 through 6 and describe the type of income in the space provided or in an attachment. The income should be the gross amount derived from investments reportable on line 56. Include, for example, royalty income from mineral interests owned by the organization. However, do not include income from program-related investments. See the instructions for line 2. Also, do not include unrealized gains and losses on investments carried at market value. See the instructions for line 20.