2.   Filing Requirements and Required Disclosures

Introduction

Most exempt organizations (including private foundations) must file various returns and reports at some time during (or following the close of) their accounting period.

Topics - This chapter discusses:

  • Annual information returns

  • Unrelated business income tax return

  • Employment tax returns

  • Political organization income tax return

  • Reporting requirements for a political organization

  • Donee information return

  • Information provided to donors

  • Report of cash received

  • Public inspection of exemption applications, annual returns, and political organizations reporting forms

  • Required disclosures

  • Miscellaneous rules

Useful Items - You may want to see:

Publication

  • 15 Circular E, Employer's Tax Guide

  • 15-A Employer's Supplemental Tax Guide

  • 15-B Employer's Tax Guide to Fringe Benefits

  • 598 Tax on Unrelated Business Income of Exempt Organizations

Form (and Instructions)

  • 941 Employer's Quarterly Federal Tax Return

  • 990 Return of Organization Exempt From Income Tax

  • 990-EZ Short Form Return of Organization Exempt From Income Tax

  • Schedule A (Form 990 or 990-EZ) Public Charity Status and Public Support

  • Schedule B (Form 990, 990-EZ, or 990-PF) Schedule of Contributors

  • Schedule C (Form 990 or 990-EZ) Political Campaign and Lobbying Activities

  • Schedule D (Form 990) Supplemental Financial Statements

  • Schedule E (Form 990 or 990-EZ) Schools

  • Schedule F (Form 990) Statement of Activities Outside the United States

  • Schedule G (Form 990 or 990-EZ) Supplemental Information Regarding Fundraising or Gaming Activities

  • Schedule H (Form 990) Hospitals

  • Schedule I (Form 990) Grants and Other Assistance to Organizations, Governments, and Individuals in the United States

  • Schedule J (Form 990) Compensation Information

  • Schedule K (Form 990) Supplemental Information on Tax-Exempt Bonds

  • Schedule L (Form 990 or 990-EZ) Transactions With Interested Persons

  • Schedule M (Form 990) Noncash Contributions

  • Schedule N (Form 990 or 990-EZ) Liquidation, Termination, Dissolution, or Significant Disposition of Assets

  • Schedule O (Form 990 or 990-EZ) Supplemental Information to Form 990

  • Schedule R (Form 990) Related Organizations and Unrelated Partnerships

  • 990-PF Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation

  • 990-BL Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons

  • 990-T Exempt Organization Business Income Tax Return

  • 990-W Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations

  • 1120-POL U.S. Income Tax Return for Certain Political Organizations

  • 4720 Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code

  • 5768 Election/Revocation of Election by an Eligible Section 501(c)(3) Organization To Make Expenditures To Influence Legislation

  • 6069 Return of Excise Tax on Excess Contributions to Black Lung Benefit Trust Under Section 4953 and Computation of Section 192 Deduction

  • 7004 Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns

  • 8274 Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption from Employer Social Security and Medicare Taxes

  • 8282 Donee Information Return

  • 8300 Report of Cash Payments Over $10,000 Received in a Trade or Business

  • 8453-X Political Organization Declaration for Electronic Filing of Notice of Section 527 Status

  • 8822-B Change of Address-Business

  • 8868 Application for Extension of Time to File an Exempt Organization Return

  • 8870 Information Return for Transfers Associated with Certain Personal Benefits Contracts

  • 8871 Political Organization Notice of Section 527 Status

  • 8872 Political Organization Report of Contributions and Expenditures

  • 8886-T Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction

  • 8899 Notice of Income from Donated Intellectual Property

  • 8940 Request for Miscellaneous Determination

See chapter 6 for information about getting these publications and forms.

Annual Information Returns

Every organization exempt from federal income tax under section 501(a) must file an Annual Exempt Organization Return except:

  1. A church, an interchurch organization of local units of a church, a convention or association of churches,

  2. An integrated auxiliary of a church,

  3. A church-affiliated organization that is exclusively engaged in managing funds or maintaining retirement programs,

  4. A school below college level affiliated with a church or operated by a religious order,

  5. Church-affiliated mission societies if more than half of their activities are conducted in, or are directed at persons in, foreign countries,

  6. An exclusively religious activity of any religious order,

  7. A state institution, the income of which is excluded from gross income under section 115,

  8. A corporation described in section 501(c)(1) that is organized under an Act of Congress, an instrumentality of the United States, and is exempt from Federal income taxes,

  9. A stock bonus, pension, or profit-sharing trust that qualifies under section 401 (required to file Form 5500, Annual Return/Report of Employee Benefit Plan),

  10. A religious or apostolic organization described in section 501(d) (required to file Form 1065, U.S. Return of Partnership Income),

  11. A governmental unit or an affiliate of a governmental unit that meets the requirements of Revenue Procedure 95-48, 1995-2 C.B. 418, www.irs.gov/pub/irs-tege/rp1995-48.pdf,

  12. A private foundation described in section 501(c)(3) and exempt under section 501(a) (required to file Form 990-PF, Return of Private Foundation),

  13. A political organization that is a state or local committee of a political party, a political committee of a state or local candidate, a caucus or association of state or local officials, or required to report under the Federal Election Campaign Act of 1971 as a political committee,

  14. An exempt organization (other than a private foundation) that normally has annual gross receipts of $50,000 or less, or

  15. A foreign organization, or an organization located in a U.S. possession, that normally has annual gross receipts from sources within the United States of $50,000 or less.

Supporting Organization Annual Information Return

For tax years ending after August 17, 2006, all section 509(a)(3) supporting organizations are required to file Form 990 or 990-EZ with the IRS regardless of the organization's gross receipts, unless it qualifies as one of the following:

  1. An integrated auxiliary of a church;

  2. The exclusively religious activities of a religious order; or

  3. An organization, the gross receipts of which are normally not more than $5,000, that supports a section 509(a)(3) religious order.

If the organization is described in item (3) above, then it must submit Form 990-N (e-Postcard) unless it voluntarily files Form 990 or 990-EZ.

On its annual information return, at Part I, Schedule A (Form 990 or 990-EZ) a supporting organization must:

  • List the section 509(a)(3) organizations to which it provides support,

  • Indicate whether it is a Type I, Type II, or Type III supporting organization, and

  • Certify that the organization is not controlled directly or indirectly by disqualified persons (other than by foundation managers and other than one or more publicly supported organizations).

Annual Electronic Filing Requirement for Small Tax-Exempt Organizations

Small tax-exempt organizations with annual gross receipts normally $50,000 or less must submit Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or 990-EZ, with the IRS each year, if they choose not to file a Form 990 or 990-EZ. Form 990-N requires the following information:

  • The organization's legal name, and mailing address;

  • Any name under which it operates and does business;

  • Its Internet website address (if any);

  • Its taxpayer identification number;

  • The name and address of a principal officer;

  • Organization's annual tax period;

  • Verification that the organization's annual gross receipts are normally $50,000 or less; and

  • Notification if the organization has terminated.

Form 990-N is due by the 15th day of the fifth month after the close of the tax year. For tax years beginning after December 31, 2006, any organization that fails to meet its annual reporting requirement for 3 consecutive years will automatically lose its tax-exempt status. To regain its exempt status an organization will have to reapply for recognition as a tax-exempt organization.

Exceptions.   This filing requirement does not apply to:
  • Churches, their integrated auxiliaries, and conventions or associations of churches;

  • Organizations that are included in a group return;

  • Private foundations required to file Form 990-PF; and

  • Section 509(a)(3) supporting organizations required to file Form 990 or Form 990-EZ.

Forms 990 and 990-EZ

Exempt organizations, other than private foundations, must file their annual information returns on Form 990 or 990-EZ, unless excepted from filing or allowed to submit Form 990-N, described earlier.

Generally, political organizations with gross receipts of $25,000 ($100,000 for a qualified state or local political organization (QSLPO)) or more for the tax year are required to file Form 990 or 990-EZ unless specifically excepted from filing the annual return. The following political organizations are not required to file Form 990 or Form 990-EZ.

  • A state or local committee of a political party.

  • A political committee of a state or local candidate.

  • A caucus or association of state or local officials.

  • A political organization that is required to report as a political committee under the Federal Election Campaign Act.

  • A 501(c) organization that has expenditures for influencing or attempting to influence the selection, nomination, election, or appointment of any individual for a federal, state, or local public office.

Form 990-EZ.   This is a shortened version of Form 990. It is designed for use by small exempt organizations and nonexempt charitable trusts.

  Beginning in tax year 2010, an organization can file either Form 990 or 990-EZ if it meets the following:
  1. Its gross receipts during the year are less than $200,000.

  2. Its total assets (line 25, column (B) of Form 990-EZ) at the end of the year are less than $500,000.

If your organization does not meet either of these conditions, you cannot file Form 990-EZ. Instead you must file Form 990.

Group return.   A group return on Form 990 may be filed by a central, parent, or like organization for two or more local organizations, none of which is a private foundation. This return is in addition to the central organization's separate annual return if it must file a return. It cannot be included in the group return. See the instructions for Form 990 for the conditions under which this procedure may be used.

  
In any year that an organization is properly included as a subordinate organization on a group return, it should not file its own Form 990.

Schedule A (Form 990 or 990-EZ).   Organizations, other than private foundations, that are described in section 501(c)(3) and that are otherwise required to file Form 990 or 990-EZ must also complete Schedule A of that form.

Schedule B (Form 990, Form 990-EZ, or 990-PF).   Organizations that file Form 990 or 990-EZ use this schedule to provide required information regarding their contributors.

Schedule O (Form 990).   Organizations that file Form 990 must use this schedule to provide required additional information or if additional space is needed.

  Other schedules may be required to be filed with Form 990 or 990-EZ. See the instructions for Form 990 or the instructions for Form 990-EZ for more information.

Report significant new or changed program services and changes to organizational documents.    An organization should report new significant program services or significant changes in how it conducts program services, and significant changes to its organizational documents, on its Form 990 rather than in a letter to EO Determinations. EO Determinations no longer issues letters confirming the tax-exempt status of organizations that report new services or significant changes, or changes to organizational documents. See Miscellaneous Rules, Organization Changes and Exempt Status, later.

Form 990-PF

All private foundations exempt under section 501(c)(3) must file Form 990-PF. These organizations are discussed in chapter 3.

Electronic Filing

You may be required to file Form 990, Form 990-EZ, or Form 990-PF, and related forms, schedules, and attachments electronically.

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

The IRS may waive the requirement to file electronically in cases of undue hardship. For information on filing a waiver, see Notice 2010-13, 2010-4 I.R.B. 327, available at www.irs.gov/ir/2010-04_IRSB/ar14.html.

Form 990.   An organization is required to file Form 990 electronically if it 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.

Form 990-PF.   An organization is required to file Form 990-PF electronically if it files at least 250 returns during the calendar year.

Due Date

Forms 990, 990-EZ, or 990-PF must be filed by the 15th day of the fifth month after the end of your organization's accounting period. Thus, for a calendar year taxpayer, Forms 990, 990-EZ, or 990-PF is due May 15 of the following year.

Extension of time to file.   Use Form 8868 to request an automatic 3-month extension of time to file Forms 990, 990-EZ, or 990-PF and also to apply for an additional (not automatic) 3-month extension if needed.

  Do not apply for both the automatic 3-month extension and the additional 3-month extension at the same time. For more information, see Form 8868 and its instructions.

  When filing Form 8868 for an automatic 3-month extension, neither a signature, nor an explanation is required. However, when filing Form 8868 for an additional 3-month extension, both a signature and an explanation are required.

Application for exemption pending.   An organization that claims to be exempt under section 501(a) but has not established its exempt status by the due date for filing an information return must complete and file Form 990, 990-EZ, 990–N or 990-PF (if it considers itself a private foundation), unless the organization is exempt from Form 990-series filing requirements. If the organization's application is pending with the IRS, it must so indicate on Forms 990, 990-EZ, or 990-PF (whichever applies) by checking the application pending block at the top of page 1 of the return. For more information on the filing requirements, see the Instructions for Forms 990, 990-EZ, and 990-PF.

State reporting requirements.   Copies of Forms 990, 990-EZ, or 990-PF may be used to satisfy state reporting requirements. See the instructions for those forms.

Form 8870.   Organizations that filed a Form 990, 990-EZ, or 990-PF, and paid premiums or received transfers on certain life insurance, annuity, and endowment contracts (personal benefit contracts), must file Form 8870. For more information, see Form 8870 and the instructions for that form.

Automatic Revocation

If the organization fails to file a Form 990, 990-EZ, or 990-PF, or fails to submit a Form 990-N, as required, for 3 consecutive years, it will automatically lose its tax-exempt status by operation of law. The list of organizations whose tax-exempt status has been automatically revoked is available on IRS.gov. This list (Auto-Revocation List) may be viewed and searched on Exempt Organizations Select Check. The Auto-Revocation List includes each organization's name, Employer Identification Number (EIN) and last known address. It also includes the effective date of the automatic revocation and the date it was posted to the list. The IRS updates the list monthly to include additional organizations that lose their tax-exempt status.

Tax Effect of Loss of Tax-Exempt Status

If your organization’s tax-exempt status is automatically revoked, you may be required to file one of the following federal income tax returns and pay any applicable income taxes:

  • Form 1120, U.S. Corporation Income Tax Return, due by the 15th day of the 3rd month after the end of your organization’s tax year, or

  • Form 1041, U.S. Income Tax Return for Estates and Trusts, due by the 15th day of the 4th month after the end of your organization’s tax year.

In addition, a section 501(c)(3) organization that loses its tax-exempt status cannot receive tax-deductible contributions and will not be identified in the IRS Business Master File extract as eligible to received tax-deductible contributions, or be included in Exempt Organizations Select Check (Pub 78 database).

An organization whose exemption was automatically revoked must apply for tax exemption in order to regain its tax exemption (even if it was not originally required to apply). In some situations, an organization may be able to obtain exemption retroactive to its date of revocation.

For more information about automatic revocation, go to IRS.gov and select Charities & Non-Profits and then select Revoked? Reinstated? Learn More.

Penalties

Penalties for failure to file.   Generally, an exempt organization that fails to file a required return must pay a penalty of $20 a day for each day the failure continues. The same penalty will apply if the organization does not give all the information required on the return or does not give the correct information.

Maximum penalty.   The maximum penalty for any one return is the smaller of $10,000 or 5% of the organization's gross receipts for the year.

Organization with gross receipts over $1 million.   For an organization that has gross receipts of over $1 million for the year, the penalty is $100 a day up to a maximum of $50,000.

Managers.   If the organization is subject to this penalty, the IRS may specify a date by which the return or correct information must be supplied by the organization. Failure to comply with this demand will result in a penalty imposed upon the manager of the organization, or upon any other person responsible for filing a correct return. The penalty is $10 a day for each day that a return is not filed after the period given for filing. The maximum penalty imposed on all persons with respect to any one return is $5,000.

Exception for reasonable cause.   No penalty will be imposed if reasonable cause for failure to file timely can be shown.

Unrelated Business Income Tax Return

Even though your organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. Unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis for the organization's exemption. If your organization has $1,000 or more of unrelated business income, you must file Form 990-T in addition to your required annual information return.

Estimated tax.   Quarterly estimated tax payments are due if your organization expects to owe $500 or more in tax including unrelated business income. Use Form 990-W to figure your organization's estimated tax payments.

Travel tour programs.   Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose to which tax exemption was granted to the organization.

  Whether travel tour activities conducted by an organization are substantially related to the organization's tax exempt purpose is determined by looking at all the relevant facts and circumstances, including, but not limited to, how a travel tour is developed, promoted, and operated.

Example.

ABC, a university alumni association, is tax exempt as an educational organization under section 501(c)(3). As part of its activities, ABC operates a travel tour program. The program is open to all current members of ABC and their guests. ABC works with travel agents to schedule approximately ten tours annually to various destinations around the world. Members of ABC pay $1,000 to XYZ Travel Agency to participate in a tour. XYZ pays ABC a per person fee for each participant. Although the literature advertising the tours encourages ABC members to continue their lifelong learning by joining the tours, and a faculty member of ABC's related university frequently joins the tour as a guest of the alumni association, none of the tours include any scheduled instruction or curriculum related to the destinations being visited. The travel tours made available to ABC's members do not contribute importantly to the accomplishment of ABC's educational purpose. Rather, ABC's program is designed to generate revenues for ABC by regularly offering its members travel services. Therefore, ABC's tour program is an unrelated trade or business.

For additional information on unrelated business income, see Publication 598 and the Instructions for Form 990-T.

Employment Tax Returns

Every employer, including an organization exempt from federal income tax, who pays wages to employees is responsible for withholding, depositing, paying, and reporting federal income tax, social security and Medicare (FICA) taxes, and federal unemployment tax (FUTA), unless that employer is specifically excepted by law from those requirements, or if the taxes clearly do not apply.

For more information, obtain a copy of Publication 15, which summarizes the responsibilities of an employer, Publication 15-A, Publication 15-B, and Form 941.

Small Business Health Care Tax Credit.   If your small tax-exempt organization provides health care coverage for your workers you may qualify for the small business health care tax credit. Go to IRS.gov and select Affordable Care Act Tax Provisions for more details. See Small Business Health Care Tax Credit at www.irs.gov/newsroom/article/0,,id=223666,00.html.

Expanded Work Opportunity Tax Credit Available for Hiring Qualified Veterans.   The VOW to Hire Heroes Act of 2011 made changes to the Work Opportunity Tax Credit (WOTC). The Act added two new categories to the existing qualified veteran targeted group and made the WOTC available to certain tax-exempt employers as a credit against the employer's share of social security tax. The Act allows employers to claim the WOTC for veterans certified as qualified veterans and who begin work before January 1, 2013. This tax credit was extended through December 31, 2013, under the American Taxpayer Relief Act, passed on January 1, 2013.

  The credit can be as high as $6,240 for qualified tax-exempt organizations. The amount of the credit depends on a number of factors, including the length of the veteran’s unemployment before hire, the number of hours the veteran works, and the veteran’s first-year wages. The amount of the credit for qualified tax-exempt organizations may not exceed the organization's employer social security tax for the period for which the credit is claimed.

  All employers must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. The process for certifying veterans for this credit is the same for all employers. For more information, see Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit and the instructions to Form 8850. Notice 2012-13, 2012-9 I.R.B. 421, also provides additional guidance on submission Form 8850.

  Organizations described in section 501(c) and exempt from taxation under section 501(a) may claim the credit for qualified veterans who begin work on or after Nov. 22, 2011, and before January 1, 2013. After the required certification is secured, tax-exempt employers claim the credit against the employer social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, Form 5884-C. File Form 5884-C after filing the related employment tax return for the employment tax period for which the credit is claimed. It is recommended that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit as the forms are processed separately. In addition to Form 5884-C and its instructions, tax-exempt employers should see Notice 2012-13 and the Frequently Asked Questions & Answers for more details for claiming the credit.

Trust fund recovery penalty.   If any person required to collect, truthfully account for, and pay over any of these taxes willfully fails to satisfy any of these requirements or willfully tries in any way to evade or defeat any of them, that person will be subject to a penalty. The penalty is equal to the tax evaded, not collected, or not accounted for and paid over. The term person includes:
  • An officer or employee of a corporation, or

  • A member or employee of a partnership.

Exception.   The penalty is not imposed on any unpaid volunteer director or member of a board of trustees of an exempt organization if the unpaid volunteer serves solely in an honorary capacity, does not participate in the day-to-day or financial operations of the organization, and does not have actual knowledge of the failure on which the penalty is imposed.

  This exception does not apply if it results in no one being liable for the penalty.

FICA and FUTA tax exceptions.   Payments for services performed by a minister of a church in the exercise of the ministry, or a member of a religious order performing duties required by the order, are generally not subject to FICA or FUTA taxes.

FUTA tax exception.   Payments for services performed by an employee of a religious, charitable, educational, or other organization described in section 501(c)(3) that are generally subject to FICA taxes if the payments are $100 or more for the year, are not subject to FUTA taxes.

FICA tax exemption election.   Churches and qualified church-controlled organizations can elect exemption from employer FICA taxes by filing Form 8274.

  To elect the exemption, Form 8274 must be filed before the first date on which a quarterly employment tax return would otherwise be due from the electing organization. The organization can make the election only if it is opposed for religious reasons to the payment of FICA taxes.

  The election applies to payments for services of current and future employees other than services performed in an unrelated trade or business.

Revoking the election.   The election can be revoked by the IRS if the organization fails to file Form W-2, Wage and Tax Statement, for 2 years and fails to furnish certain information upon request by the IRS. Such revocation will apply retroactively to the beginning of the 2-year period.

Definitions.   For purposes of this election, the term church means a church, a convention or association of churches, or an elementary or secondary school that is controlled, operated, or principally supported by a church or by a convention or association of churches.

  The term qualified church-controlled organization means any church-controlled section 501(c)(3) tax-exempt organization, other than an organization that both:
  1. Offers goods, services, or facilities for sale, other than on an incidental basis, to the general public at other than a nominal charge that is substantially less than the cost of providing such goods, services, or facilities, and

  2. Normally receives more than 25% of its support from the sum of governmental sources and receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activities that are not unrelated trades or businesses.

Effect on employees.   If a church or qualified church-controlled organization has made an election, payment for services performed for that church or organization, other than in an unrelated trade or business, will not be subject to FICA taxes. However, the employee, unless otherwise exempt, will be subject to self-employment tax on the income. The tax applies to income of $108.28 or more for the tax year from that church or organization, and no deductions for trade or business expenses are allowed against this self-employment income.

  Schedule SE (Form 1040), Self-Employment Tax, should be attached to the employee's income tax return.

Political Organization Income Tax Return

Generally, a political organization is treated as an organization exempt from tax. Certain political organizations, however, must file an annual income tax return, Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, for any year they have political organization taxable income in excess of the $100 specific deduction allowed under section 527.

A political organization that has $25,000 ($100,000 for a qualified state or local political organization) or more in gross receipts for the tax year must file Form 990 or Form 990-EZ (and Schedule B of the form), unless excepted. See Forms 990 and 990-EZ , earlier.

Political organization.   A political organization is a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function.

Exempt function.   An exempt function means influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state, local public office or office in a political organization, or the election of the Presidential or Vice Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed. It also includes certain office expenses of a holder of public office or an office in a political organization.

Certain political organizations are required to notify the IRS that they are section 527 organizations. These organizations must use Form 8871. Some of these section 527 organizations must use Form 8872 to file periodic reports with the IRS disclosing their contributions and expenditures. For a discussion on these forms, see Reporting Requirements for a Political Organization, later.

Political organization taxable income.   Political organization taxable income is the excess of:
  1. Gross income for the tax year (excluding exempt function income) minus

  2. Deductions directly connected with the earning of gross income.

To figure taxable income, allow for a $100 specific deduction, but do not allow for the net operating loss deduction, the dividends-received deduction, and other special deductions for corporations.

Exempt organization not a political organization.   An organization exempt under section 501(c) that spends any amount for an exempt function must file Form 1120-POL for any year which it has political taxable income. These organizations must include in gross income the lesser of:
  1. The total amount of its exempt function expenditures, or

  2. The organization's net investment income.

Separate fund.   A section 501(c) organization can set up a separate segregated fund that will be treated as an independent political organization. The earnings and expenditures made by the separate fund will not be attributed to the section 501(c) organization.

Section 501(c)(3) organizations are precluded from, and may suffer loss of exemption for, engaging in any political campaign on behalf of, or in opposition to, any candidate for public office.

Due date.   Form 1120-POL is due by the 15th day of the 3rd month after the end of the tax year. Thus, for a calendar year taxpayer, Form 1120-POL is due on March 15 of the following year. If any due date falls on a Saturday, Sunday, or legal holiday, the organization can file the return on the next business day.

  
Form 1120-POL is not required of an exempt organization that makes expenditures for political purposes if its gross income does not exceed its directly connected deductions by more than $100 for the tax year.

Extension of time to file.    Use Form 7004 to request an automatic 6-month extension of time to file Form 1120-POL. The extension will be granted if you complete Form 7004 properly, make a proper estimate of the tax (if applicable), file Form 1120-POL by the due date, and pay any tax due.

Failure to file.   A political organization that fails to file Form 1120-POL is subject to a penalty equal to 5% of the tax due for each month (or partial month) the return is late up to a maximum of 25% of the tax due, unless the organization shows the failure was due to reasonable cause.

For more information about filing Form 1120-POL, refer to the instructions accompanying the form.

Failure to pay on time.   An organization that does not pay the tax when due generally may have to pay a penalty of 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the organization can show that the failure to pay on time was due to reasonable cause.

Reporting Requirements for a Political Organization

Certain political organizations are required to notify the IRS that the organization is to be treated as a section 527 political organization. The organization is also required to periodically report certain contributions received and expenditures made by the organization. To notify the IRS of section 527 treatment, an organization must file Form 8871. To report contributions and expenditures, certain tax-exempt political organizations must file Form 8872.

Form 8871

A political organization must electronically file Form 8871 to notify the IRS that it is to be treated as a section 527 organization. However, an organization is not required to file Form 8871 if:

  • It reasonably expects its annual gross receipts to always be less than $25,000.

  • It is a political committee required to report under the Federal Election Campaign Act of 1971 (FECA) (2 U.S.C. 431(4)).

  • It is a state or local candidate committee.

  • It is a state or local committee of a political party.

  • It is a section 501(c) organization that has made an “exempt function expenditure.

All other political organizations are required to file Form 8871.

An organization must provide on Form 8871:

  1. Its name and address (including any business address, if different) and its electronic mailing address;

  2. Its purpose;

  3. The names and addresses of its officers, highly compensated employees, contact person, custodian of records, and members of its board of directors;

  4. The name and address of, and relationship to, any related entities (within the meaning of section 168(h)(4)); and

  5. Whether it intends to claim an exemption from filing Form 8872, Form 990, or Form 990-EZ.

Employer identification number.   If your organization needs an EIN, you can apply for one:
  • Online—Click on the Employer ID Numbers (EINs) link at www.IRS.gov/businesses/small.

  • By telephone at 1-800-829-4933 from 7:00 a.m. to 10:00 p.m. in the organization's local time zone.

  • By mailing or faxing Form SS-4.

  If you previously applied for an EIN and have not yet received it, or you are unsure whether you have an EIN, please call our toll-free customer account services number, 1-877-829-5500, for assistance.

Due dates.   The initial Form 8871 must be filed within 24 hours of the date on which the organization was established. If there is a material change, an amended Form 8871 must be filed within 30 days of the material change. When the organization terminates its existence, it must file a final Form 8871 within 30 days of termination.

  If the due date falls on a Saturday, Sunday, or legal holiday, the organization can file on the next business day.

How to file.   An organization must file Form 8871 electronically via the IRS Internet website at www.IRS.gov/polorgs (Keyword: political orgs).

Form 8453-X, Political Organization Declaration for Electronic Filing of Notice of Section 527 Status.   After electronically submitting Form 8871, the political organization must print, sign, and mail Form 8453-X to the IRS. Upon receipt of the Form 8453-X, the IRS will send the organization a username and password that must be used to file an amended or final Form 8871 or to electronically file Form 8872.

Penalties

Failure to file.   An organization that is required to file Form 8871, but fails to do so on a timely basis, will not be treated as a tax-exempt section 527 organization for any period before the date Form 8871 is filed. Also, the taxable income of the organization for that period will include its exempt function income (including contributions received, membership dues, and political fundraising receipts) minus any deductions directly connected with the production of that income.

  Failure to file an amended Form 8871 will cause the organization not to be treated as a tax-exempt section 527 organization. If an organization is treated as not being a tax-exempt section 527 organization, the taxable income of the organization will be determined by considering any exempt function income and deductions during the period beginning on the date of the material change and ending on the date that the amended Form 8871 is filed.

   The tax is computed by multiplying the organization's taxable income by the highest corporate tax rate.

Fraudulent returns.   Any individual or corporation that willfully delivers or discloses to the IRS any list, return, account, statement or other document known to be fraudulent or false as to any material matter will be fined not more than $10,000 ($50,000 in the case of a corporation) or imprisoned for not more than 1 year or both.

Waiver of penalties.   The IRS may waive any additional tax assessed on an organization for failure to file Form 8871 if the failure was due to reasonable cause and not willful neglect.

Additional information.   For more information on Form 8871, see the form and its instructions. For a discussion on the public inspection requirements for the form, see Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting Forms , later.

Form 8872

Every tax-exempt section 527 political organization that accepts a contribution or makes an expenditure, for an exempt function during the calendar year, must file Form 8872 except:

  • A political organization that is not required to file Form 8871 (discussed earlier).

  • A political organization that is subject to tax on its income because it did not file or amend Form 8871.

  • A qualified state or local political organization (QSLPO), discussed below.

All other tax-exempt section 527 organizations that accept contributions or make expenditures for an exempt function are required to file Form 8872.

Qualified state or local political organization.   A state or local political organization may be a QSLPO if:
  1. All of its political activities relate solely to state or local public office (or office in a state or local political organization).

  2. It is subject to a state law that requires it to report (and it does report) to a state agency information about contributions and expenditures that is similar to the information that the organization would otherwise be required to report to the IRS.

  3. The state agency and the organization make the reports publicly available.

  4. No federal candidate or office holder:

    1. Controls or materially participates in the direction of the organization,

    2. Solicits contributions for the organization, or

    3. Directs the disbursements of the organization.

Information required on Form 8872.   If an organization pays an individual $500 or more for the calendar year, the organization is required to disclose the individual's name, address, occupation, employer, amount of the expense, the date the expense was paid, and the purpose of the expense on Form 8872.

  If an organization receives contributions of $200 or more from one contributor for the calendar year, the organization must disclose the donor's name, address, occupation, employer, and the date the contributions were made.

  For additional information that is required, see Form 8872.

Due dates.   The due dates for filing Form 8872 vary depending on whether the form is due for a reporting period that occurs during a calendar year in which a regularly scheduled election is held, or any other calendar year (a nonelection year).

  If the due date falls on a Saturday, Sunday, or legal holiday, the organization can file on the next business day.

Election year filing.    In election years, Form 8872 must be filed on either a quarterly or a monthly basis. Both a pre-election report and a post-election report are also required to be filed in an election year. An election year is any year in which a regularly scheduled general election for federal office is held (an even-numbered year).

Nonelection year filing.    In nonelection years, the form must be filed on a semiannual or monthly basis. A complete listing of these filing periods are in the Form 8872 Instructions. A nonelection year is any odd-numbered year.

How to file.   Form 8872 can be filed either electronically or by mail. However, organizations that have, or expect to have, contributions or expenditures of $50,000 or more for the year must file electronically.

  
To file by mail, send Form 8872 to the:

 
 
Department of the Treasury 
Internal Revenue Service Center 
Ogden, UT 84201-0027

Electronic filing.   File electronically via the IRS internet website at www.IRS.gov/polorgs. You will need a user ID and password to electronically file Form 8872. Organizations that have completed the electronic filing of Form 8871 and submitted a completed and signed Form 8453-X will receive a username and password in the mail.

  Organizations that have completed the electronic filing of Form 8871, but have not received their user ID and password can request one by writing to the following address:

Internal Revenue Service 
Attn: Request for 8872 Password 
Mail Stop 6273 
Ogden, UT 84201

Lost username and password.   If you have forgotten or misplaced the username and password issued to your organization after you filed your initial Form 8871, send a letter requesting a new username and password to the address under Electronic filing. You can also fax your request to (801) 620-3249. It may take 3-6 weeks for your new username and password to arrive, as they will be mailed to the organization.

Penalty

A penalty will be imposed if the organization is required to file Form 8872 and it:

  • Fails to file the form by the due date, or

  • Files the form but fails to report all of the information required or reports incorrect information.

The penalty is 35% of the total amount of contributions and expenditures to which a failure relates.

Fraudulent returns.   Any individual or corporation that willfully delivers or discloses any list, return, account, statement, or other document known to be fraudulent or false as to any material matter will be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned for not more than 1 year, or both.

Waiver of penalties.   The IRS may waive any additional tax assessed on an organization for failure to file Form 8872 if the failure was due to reasonable cause and not willful neglect.

Donee Information Return

Dispositions of donated property.   If an organization receives charitable deduction property and within three years sells, exchanges, or otherwise disposes of the property, the organization must file Form 8282, Donee Information Return. However, an organization is not required to file Form 8282 if:
  • The property is valued at $500 or less, or

  • The property is consumed or distributed for charitable purposes.

  Form 8282 must be filed with the IRS within 125 days after the disposition. Additionally, a copy of Form 8282 must be given to the donor. If the organization fails to file the required information return, penalties may apply.

Charitable deduction property.   This is any property (other than money or publicly traded securities) for which the donee organization signed an appraisal summary or Form 8283, Noncash Charitable Contributions.

Publicly traded securities.   These are securities for which market quotations are readily available on an established securities market as of the date of the contribution.

Appraisal summary.   If the value of the donated property exceeds $5,000, the donor must get a qualified appraisal for contributions of property, see the Exceptions. below.

Exceptions.   A written appraisal is not needed if the property is:
  • Nonpublicly traded stock of $10,000 or less,

  • A vehicle (including a car, boat, or airplane), if your deduction for the vehicle is limited to the gross proceeds from its sale,

  • Intellectual property,

  • Certain securities considered to have market quotations readily available (see Regulations section 1.170A-13(c)(7)(xi)(B)),

  • Inventory and other property donated by a corporation that are qualified contributions for the care of the ill, the needy, or infants, within the meaning of section 170(e)(3)(A), or

  • Any donation of stock in trade, inventory, or property held primarily for sale to customers in the ordinary course of your trade or business.

  The donee organization is not a qualified appraiser for the purpose of valuing the donated property. For more information, get Publication 561, Determining the Value of Donated Property.

Form 8283.   For noncash donations over $5,000, the donor must attach Form 8283 to the tax return to support the charitable deduction. The donee must sign Part IV of Section B, Form 8283 unless publicly traded securities are donated. The person who signs for the donee must be an official authorized to sign the donee's tax or information returns, or a person specifically authorized to sign by that official. The signature does not represent concurrence in the appraised value of the contributed property. A signed acknowledgment represents receipt of the property described on Form 8283 on the date specified on the form. The signature also indicates knowledge of the information reporting requirements on dispositions, as previously discussed. A copy of Form 8283 must be given to the donee.

Information Provided to Donors

In some situations, a donor must obtain certain information from a donee organization to obtain a deduction for a charitable contribution. In other situations, the donee organization is required to provide information to the donor.

A charitable organization must give a donor a disclosure statement for a quid pro quo contribution over $75. (See Disclosure statement. later.) This is a payment a donor makes to a charity partly as a contribution and partly for goods or services. See Quid pro quo contribution below for an example.

Failure to make the required disclosure may result in a penalty to the organization. A donor cannot deduct a charitable contribution of $250 or more unless the donor has a written acknowledgment from the charitable organization.

In certain circumstances, an organization may be able to meet both of these requirements with the same written document.

Disclosure of Quid Pro Quo Contributions

A charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution over $75.

Quid pro quo contribution.   A contribution made by a donor in exchange for goods or services is known as a quid pro quo contribution. Your charitable organization must provide the donor a written statement informing the donor of the fair market value of the items or services it provided in exchange for the contribution. Generally, a written statement is required for each payment, whenever the contribution portion is over $75.

Example.

If a donor gives your charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable part of the payment is $60. Even though the deductible part of the payment is not more than $75, a written statement must be filed because the total payment is more than $75. If your organization fails to disclose quid pro quo contributions, the organization may be subject to a penalty.

Disclosure statement.   The required written disclosure statement must:
  1. Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the fair market value of goods or services provided by the charity, and

  2. Provide the donor with a good faith estimate of the fair market value of the goods or services that the donor received.

The charity must furnish the statement in connection with either the solicitation or the receipt of the quid pro quo contribution. If the disclosure statement is furnished in connection with a particular solicitation, it is not necessary for the organization to provide another statement when it actually receives the contribution.

  No disclosure statement is required if any of the following are true.
  1. The goods or services given to a donor have insubstantial value as described in Revenue Procedure 90-12, 1990-1 C.B. 471, Revenue Procedure 90-12, and Revenue Procedure 92-49, 1992-1 C.B. 507 (as adjusted for inflation), Revenue Procedure 92-49.

  2. There is no donative element involved in a particular transaction with a charity (for example, there is generally no donative element involved in a visitor's purchase from a museum gift shop).

  3. There is only an intangible religious benefit provided to the donor. The intangible religious benefit must be provided to the donor by an organization organized exclusively for religious purposes, and must be of a type that generally is not sold in a commercial transaction outside the donative context. For example, a donor who, for a payment, is granted admission to a religious ceremony for which there is no admission charge is provided an intangible religious benefit. A donor is not provided intangible religious benefits for payments made for tuition for education leading to a recognized degree, travel services, or consumer goods.

  4. The donor makes a payment of $75 or less per year and receives only annual membership benefits that consist of:

    1. Any rights or privileges (other than the right to purchase tickets for college athletic events) that the taxpayer can exercise often during the membership period, such as free or discounted admissions or parking or preferred access to goods or services, or

    2. Admission to events that are open only to members and the cost per person of which is within the limits for low-cost articles described in Revenue Procedure 90-12 (as adjusted for inflation), Revenue Procedure 90-12.

Good faith estimate of fair market value (FMV).   An organization can use any reasonable method to estimate the FMV of goods or services it provided to a donor, as long as it applies the method in good faith.

  The organization can estimate the FMV of goods or services that generally are not commercially available by using the FMV of similar or comparable goods or services. Goods or services may be similar or comparable even if they do not have the unique qualities of the goods or services being valued.

Example 1.

A charity provides a 1-hour tennis lesson with a tennis professional for the first $500 payment it receives. The tennis professional provides 1-hour lessons on a commercial basis for $100. A good faith estimate of the lesson's FMV is $100.

Example 2.

For a payment of $50,000, a museum allows a donor to hold a private event in a room of the museum. A good faith estimate of the FMV of the right to hold the event in the museum can be made by using the cost of renting a hotel ballroom with a capacity, amenities, and atmosphere comparable to the museum room, even though the hotel ballroom lacks the unique art displayed in the museum room. If the hotel ballroom rents for $2,500, a good faith estimate of the FMV of the right to hold the event in the museum is $2,500.

Example 3.

For a payment of $1,000, a charity provides an evening tour of a museum conducted by a well-known artist. The artist does not provide tours on a commercial basis. Tours of the museum normally are free to the public. A good faith estimate of the FMV of the evening museum tour is $0 even though it is conducted by the artist.

Penalty for failure to disclose.   A penalty is imposed on a charity that does not make the required disclosure of a quid pro quo contribution of more than $75. The penalty is $10 per contribution, not to exceed $5,000 per fundraising event or mailing. The charity can avoid the penalty if it can show that the failure was due to reasonable cause.

Acknowledgment of Charitable Contributions of $250 or More

A donor can deduct a charitable contribution of $250 or more only if the donor has a written acknowledgment from the charitable organization. The donor must get the acknowledgment by the earlier of:

  1. The date the donor files the original return for the year the contribution is made, or

  2. The due date, including extensions, for filing the return.

The donor is responsible for requesting and obtaining the written acknowledgment from the donee. A charitable organization that receives a payment made as a contribution is treated as the donee organization for this purpose even if the organization (according to the donor's instructions or otherwise) distributes the amount received to one or more charities.

Quid pro quo contribution.   If the donee provides goods or services to the donor in exchange for the contribution (a quid pro quo contribution), the acknowledgment must include a good faith estimate of the value of the goods or services. See Disclosure of Quid Pro Quo Contributions earlier.

Form of acknowledgment.   Although there is no prescribed format for the written acknowledgment, it must provide enough information to substantiate the amount of the contribution. For more information, see IRS Publication 1771, Charitable Contributions – Substantiation and Disclosure Requirements.

Cash contributions.   To deduct a contribution of cash, a check, or other monetary gift (regardless of the amount), a donor must maintain a bank record or a written communication from the donee organization showing the donee's name, date, and amount of the contribution. In the case of a lump-sum contribution (rather than a contribution by payroll deduction) made through the Combined Federal Campaign or a similar program such as a United Way Campaign, the written communication must include the name of the donee organization that is the ultimate recipient of the charitable contribution.

Contributions by payroll deduction.   An organization may substantiate an employee's contribution by deduction from its payroll by:
  • A pay stub, Form W-2, or other document showing a contribution to a donee organization, together with

  • A pledge card or other document from the donee organization that shows its name.

  For contributions of $250 or more, the document must state that the donee organization provides no goods or services for any payroll contributions. The amount withheld from each payment of wages to a taxpayer is treated as a separate contribution.

Acknowledgment of Vehicle Contribution

If an exempt organization receives a contribution of a qualified vehicle with a claimed value of more than $500, the donee organization is required to provide a contemporaneous written acknowledgment to the donor. The donee organization can use a completed Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, for the contemporaneous written acknowledgment. See section 3.03 of Notice 2005-44 for guidance on the information that must be included in a contemporaneous written acknowledgment and the deadline for furnishing the acknowledgment to the donor.

Any donee organization that provides a contemporaneous written acknowledgment to a donor is required to report to the IRS the information contained in the acknowledgment. The report is due by February 28 (March 31 if filing electronically) of the year following the year in which the donee organization provides the acknowledgment to the donor. The organization must file the report on Copy A of Form 1098-C.

An organization that files Form 1098-C on paper should send it with Form 1096, Annual Summary and Transmittal of U.S. Information Returns. See the Instructions for Form 1096 for the correct filing location.

An organization that is required to file 250 or more Forms 1098-C during the calendar year must file the forms electronically or magnetically. Specifications for filing Form 1098-C electronically or magnetically can be found in Publication 1220, Specifications for Filing Forms 1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G Electronically at www.IRS.gov/pub/irs-pdf/p1220.pdf.

Acknowledgment

For a contribution of a qualified vehicle with a claimed value of $500 or less, do not file Form 1098-C. However, you can use it as the contemporaneous written acknowledgment under section 170(f)(8) by providing the donor with Copy C only. See the Instructions for Form 1098-C.

Generally, the organization should complete Form 1098-C as the written acknowledgment to the donor and the IRS. The contents of the acknowledgment depend upon whether the organization:

  • Sells a qualified vehicle without any significant intervening use or material improvement,

  • Intends to make a significant intervening use of or material improvement to a qualified vehicle prior to sale, or

  • Sells a qualified vehicle to a needy individual at a price significantly below fair market value, or a gratuitous transfer to a needy individual in direct furtherance of a charitable purpose of the organization of relieving the poor and distressed or the underprivileged who are in need of a means of transportation.

For more information on the acknowledgment, see Notice 2005-44, 2005-25 I.R.B. 1287, at www.irs.gov/irb/2005-25_IRB/2005-25_IRB/ar09.html.

Material improvements or significant intervening use.   To constitute significant intervening use, the organization must actually use the vehicle to substantially further the organization's regularly conducted activities, and the use must be significant, not incidental. Factors in determining whether a use is a significant intervening use depend on the nature, extent, frequency, and duration. For this purpose, use includes providing transportation on a regular basis for a significant period of time or significant use directly related to training in vehicle repair. Use does not include the use of a vehicle to provide training in business skills, such as marketing or sales. Examples of significant use include:
  • Driving a vehicle every day for 1 year to deliver meals to needy individuals, if delivering meals is an activity regularly conducted by the organization.

  • Driving a vehicle for 10,000 miles over a 1-year period to deliver meals to needy individuals, if delivering meals is an activity regularly conducted by the organization.

  Material improvements include major repairs and additions that improve the condition of the vehicle in a manner that significantly increases the value. To be a material improvement, the improvement cannot be funded by an additional payment to the organization from the donor of the vehicle. Material improvements do not include cleaning, minor repairs, routine maintenance, painting, removal of dents or scratches, cleaning or repair of upholstery, and installation of theft deterrent devices.

Penalties.   If your charitable organization receives contributions of used motor vehicles, boats, and airplanes valued over $500 it may be subject to a penalty if it knowingly:
  • Fails to furnish an acknowledgement in a timely manner, showing the required information, or

  • Furnishes a false or fraudulent acknowledgement of the contribution.

  
Other penalties may apply. See Part O in the 2012 General Instructions for Certain Information Returns.

  An acknowledgment containing a certification will be presumed to be false or fraudulent if the qualified vehicle is sold to a buyer other than a needy individual without a significant intervening use or material improvement within 6 months of the date of the contribution.

  If a charity sells a donated vehicle at auction, the IRS will not accept as substantiation an acknowledgment from the charity stating that the vehicle is to be transferred to a needy individual for significantly below fair market value. Vehicles sold at auction are not sold at prices significantly below fair market value, and the IRS will not treat vehicles sold at auction as qualifying for this exception.

  The penalty for a false or fraudulent acknowledgment where the donee certifies that the vehicle will not be transferred for money, other property, or services before completion of material improvements or significant intervening use or the donee certifies that the vehicle is to be transferred to a needy individual for significantly below fair market value in furtherance of the donee's charitable purpose is the larger of $5,000 or the claimed value of the vehicle multiplied by 39.6%.

  The penalty for an acknowledgment relating to a qualified vehicle being sold in an arm's length transaction to an unrelated party is the larger of the gross proceeds from the sale or the sales price stated in the acknowledgment multiplied by 39.6%.

Qualified Intellectual Property

A taxpayer who contributes qualified intellectual property to a charity may be entitled to a charitable deduction, in addition to any initial deduction allowed in the year of contribution. The additional deduction is based on a specified percentage of the qualified donee income with respect to the qualified intellectual property. To qualify for the additional charitable deduction, the donor must provide notice to the donee at the time of the contribution that the donor intends to treat the contribution as qualified intellectual property contribution for purposes of sections 170(m) and 6050L.

Every donee organization described in section 170(c) (except a private foundation as defined in section 509(a) that is not described in section 170(b)(1)(F)) that receives or accrues net income from a charitable gift of qualified intellectual property must file Form 8899.

Form 8899.   Form 8899, Notice of Income From Donated Intellectual Property, is used by a donee to report net income from qualified intellectual property to the donor of the property and to the IRS and is due by the last day of the first full month following the close of the donee’s tax year. This form must be filed for each tax year of the donee in which the donated property produces net income, but only if all or part of that tax year occurs during the 10-year period beginning on the date of the contribution and that tax year does not begin after the expiration of the legal life of the donated property.

Qualified donee income.   Qualified donee income is any net income received by or accrued to the donee that is properly allocable to the qualified intellectual property for the tax year of the donee which ends within or with the tax year of the donor. Income is not treated as allocated to qualified intellectual property if it is received or accrued after the earlier of the expiration of the legal life of the qualified intellectual property, or the 10-year period beginning with the date of the contribution.

Qualified intellectual property.   Qualified intellectual property is generally any patent, copyright, trademark, trade name, trade secret, know-how, software or similar property, or applications or registrations of such property (other than property contributed to or for the use of a private foundation as defined in section 509(a) that is not described in section  
170(b)(1)(F)). See Exceptions below.

Exceptions.   The following property is not considered qualified intellectual property for purposes of the additional charitable deduction:
  1. Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified.

  2. A copyright held by a taxpayer:

  • Whose personal efforts created the property, or

  • In whose hands the basis of the property is determined, for purposes of determining gain from a sale or exchange, in whole or in part by reference to the basis of the property in the hands of a taxpayer whose personal efforts created the property.

Report of Cash Received

An exempt organization that receives, in the course of its activities, more than $10,000 cash in one transaction (or two or more related transactions) that is not a charitable contribution must report the transaction to the IRS on Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting Forms

The following rules apply to private foundations as well as other tax-exempt organizations. Private foundations filing annual returns are subject to the public disclosure requirements under section 6104(d).

Included in this section is a discussion on the public inspection requirements for political organizations filing Forms 8871 and 8872.

Annual Information Return

An exempt organization must make available for public inspection, upon request and without charge, a copy of its original and amended annual information returns. Each information return must be made available from the date it is required to be filed (determined with regard to any extensions), or is actually filed, whichever is later. An original return does not have to be made available if more than 3 years have passed from the date the return was required to be filed (including any extensions) or was filed, whichever is later. An amended return does not have to be made available if more than 3 years have passed from the date it was filed.

An annual information return includes an exact copy of the return (Forms 990, 990-EZ, 990-BL, 990-PF, 990-T, or 1065), and amended return if any, and all schedules, attachments, and supporting documents filed with the IRS.

An annual information return does not include:

  • Schedule A of Form 990-BL,

  • Schedule K-1 of Form 1065, or

  • Form 1120-POL.

In the case of a tax-exempt organization other than a private foundation, an annual information return does not include the names and addresses of contributors to the organization.

Form 990-T. All section 501(c)(3) organizations that file Form 990-T must make the return public, regardless of whether the organization is otherwise subject to the disclosure requirements of section 6104. For example, although churches are not required to file Form 1023 or Form 990 with the IRS, they must file the Form 990-T with the IRS to report unrelated business taxable income. Thus, churches must disclose Form 990-T to the public.

State colleges and universities have been recognized by the IRS as exempt under section 501(a) as organizations described in section 501(c)(3) must disclose Form 990-T to the public. However, state colleges and universities that are subject to tax under section 511(a) solely by virtue of section 511(a)(2)(B) and that have not been recognized by the IRS as exempt under section 501(a) as organizations described in section 501(c)(3) are not required to make their Forms 990-T public.

Public Inspection of Exemption Application

An exempt organization must also make available for public inspection without charge its application for tax-exempt status. An application for tax exemption includes the application form (such as Forms 1023 or 1024), all documents and statements the IRS requires the organization to file with the form, any statement or other supporting document submitted by an organization in support of its application, and any letter or other document issued by the IRS concerning the application.

The application for exemption does not include:

  • Any application from an organization that is not yet recognized as exempt;

  • Any material that is required to be withheld from public inspection, see Material required to be withheld from public inspection , next;

  • In the case of a tax-exempt organization other than a private foundation, the names and addresses of contributors to the organization; or

  • Any applications filed before July 15, 1987, if the organization did not have a copy of the application on July 15, 1987.

If there is no prescribed application form, see Regulations section 301.6104(d)-1(b)(3)(ii) for a list of the documents that must be made available.

Material required to be withheld from public inspection.   Material that is required to be withheld from public inspection includes:
  • Trade secrets, patents, processes, styles of work, or apparatus for which withholding was requested and granted;

  • National defense material;

  • Unfavorable rulings or determination letters issued in response to applications for tax exemption;

  • Rulings or determination letters revoking or modifying a favorable determination letter;

  • Technical advice memoranda relating to a disapproved application for tax exemption or the revocation or modification of a favorable determination letter;

  • Any letter or document filed with or issued by the IRS relating to whether a proposed or accomplished transaction is a prohibited transaction under section 503;

  • Any letter or document filed with or issued by the IRS relating to an organization's status as an organization described in section 509(a) or 4942(j)(3), unless the letter or document relates to the organization's application for tax exemption; and

  • Any other letter or document filed with or issued by the IRS which, although it relates to an organization's tax-exempt status as an organization described in section 501(c) or 501(d), does not relate to that organization's application for tax exemption.

Time, place, and manner restrictions.   The annual returns and exemption application must be made available for inspection, without charge, at the organization's principal, regional, and district offices during regular business hours. The organization can have an employee present during inspection, but must allow the individual to take notes freely and to photocopy at no charge if the individual provides the photocopying equipment. Generally, regional and district offices are those that have paid employees who together are normally paid for at least 120 hours a week.

  If the organization does not maintain a permanent office, it must make its application for tax exemption and its annual information returns available for inspection at a reasonable location of its choice. It must permit public inspection within a reasonable amount of time after receiving a request for inspection (normally not more than 2 weeks) and at a reasonable time of day. At its option, it can mail, within 2 weeks of receiving the request, a copy of its application for tax exemption and annual information returns to the requester in lieu of allowing an inspection. The organization can charge the requester for copying and actual postage costs only if the requester consents to the charge.

  An organization that has a permanent office, but has no office hours or very limited hours during certain times of the year, must make its documents available during those periods when office hours are limited or not available as though it were an organization without a permanent office.

Furnishing copies.   An exempt organization also must provide a copy of all, or any specific part or schedule, of its three most recent annual information returns and/or exemption application to anyone who requests a copy either in person or in writing at its principal, regional, or district office during regular business hours. If the individual made the request in person, the copy must be provided on the same business day the request is made unless there are unusual circumstances. Unusual circumstances are defined in Regulations section 301.6104(d)-1(d)(1)(ii).

  The organization must honor a written request for a copy of documents or specific parts or schedules of documents that are required to be disclosed. However, this rule only applies if the request:
  • Is addressed to the exempt organization's principal, regional, or district office;

  • Is sent to that address by mail, electronic mail (e-mail), facsimile (fax), or a private delivery service approved by the IRS; and

  • Gives the address to where the copy of the document should be sent.

  The organization must mail the copy within 30 days from the date it receives the request. The organization can request payment in advance and must then provide the copies within 30 days from the date it receives payment.

Fees for copies.   The organization can charge a reasonable fee for providing copies. It can charge no more for the copies than the per page rate the IRS charges for providing copies. The IRS cannot charge more for copies than the fees listed in the Freedom of Information Act (FOIA) fee schedule. Although the IRS charges no fee for the first 100 pages, the organization can charge a fee for all copies. For noncommercial requesters, the FOIA schedule currently provides a rate of $.10 per page for black and white pages, and $.20 per page for color pages. The organization can also charge the actual postage costs it pays to provide the copies.

Regional and district offices.   Generally, the same rules regarding public inspection and providing copies of applications and annual information returns that apply to a principal office of an exempt organization also apply to its regional and district offices. However, a regional or district office is not required to make its annual information return available for inspection or to provide copies until 30 days after the date the return is required to be filed (including any extensions) or is actually filed, whichever is later.

Local and subordinate organizations.   A local or subordinate organization is an exempt organization that did not file its own application for tax exemption because it is covered by a group exemption letter. Generally, a local or subordinate organization of an exempt organization must, upon request, make available for public inspection, or provide copies of:
  1. The application submitted to the IRS by the central or parent organization to obtain the group exemption letter, and

  2. Those documents which were submitted by the central or parent organization to include the local or subordinate organization in the group exemption letter.

However, if the central or parent organization submits to the IRS a list or directory of local or subordinate organizations covered by the group exemption letter, the local or subordinate organization is required to provide only the application for the group exemption ruling and the pages of the list or directory that specifically refer to it.

  The local or subordinate organization must permit public inspection or comply with a request for copies made in person, within a reasonable amount of time (normally not more than 2 weeks) after receiving a request made in person for public inspection or copies and at a reasonable time of day. In lieu of allowing an inspection, the local or subordinate organization can mail a copy of the applicable documents to the person requesting inspection within the same time period. In that case, the organization can charge the requester for copying and actual postage costs only if the requester consents to the charge. If the local or subordinate organization receives a written request for a copy of its application for exemption, it must fulfill the request in the time and manner specified earlier.

  The requester has the option of requesting from the central or parent organization, at its principal office, inspection or copies of the application for group exemption and the material submitted by the central or parent organization to include a local or subordinate organization in the group ruling. If the central or parent organization submits to the IRS a list or directory of local or subordinate organizations covered by the group exemption letter, it must make the list or directory available for public inspection, but it is required to provide copies only of those pages of the list or directory that refer to particular local or subordinate organizations specified by the requester. The central or parent organization must fulfill such requests in the time and manner specified earlier.

  A local or subordinate organization that does not file its own annual information return (because it is affiliated with a central or parent organization that files a group return) must, on request, make available for public inspection, or provide copies of, the group returns filed by the central or parent organization. However, if the group return includes separate schedules for each local or subordinate organization included in the group return, the local or subordinate organization receiving the request can omit any schedules relating only to other organizations included in the group return. The local or subordinate organization must permit public inspection, or comply with a request for copies made in person, within a reasonable amount of time (normally not more than 2 weeks) after receiving a request made in person for public inspection or copies and at a reasonable time of day.

  In lieu of allowing an inspection, the local or subordinate organization can mail a copy of the applicable documents to the person requesting inspection within the same time period. In this case, the organization can charge the requester for copying and actual postage costs only if the requester consents to the charge. If the local or subordinate organization receives a written request for a copy of its annual information return, it must fulfill the request by providing a copy of the group return in the time and manner specified earlier. The requester has the option of requesting from the central or parent organization, at its principal office, inspection or copies of group returns filed by the central or parent organization. The central or parent organization must fulfill such requests in the time and manner specified earlier.

  If an organization fails to comply, it may be liable for a penalty. See Penalties , later.

Making applications and annual information returns widely available.   An exempt organization does not have to comply with requests for copies of its annual information returns or exemption application if it makes them widely available. However, making these documents widely available does not relieve the organization from making its documents available for public inspection.

  The organization can make its application and annual information returns widely available by posting the application and annual information returns on the Internet. For the rules to follow so that the Internet posting will be considered widely available, see Regulations section 301.6104(d)-2(b).

  If the organization has made its application for tax exemption and/or annual information returns widely available, it must inform any individual requesting a copy where the documents are available, including the website address on the Internet, if applicable. If the request is made in person, the notice must be provided immediately. If the request is made in writing, the notice must be provided within 7 days.

Harassment campaign.   If the tax-exempt organization is the subject of a harassment campaign, the organization may not have to fulfill requests for information. For more information, see Regulations section 301.6104(d)-3.

Political Organization Reporting Forms

Forms 8871 and 8872 (discussed earlier under Reporting Requirements for a Political Organization) are open to public inspection.

Form 8871.    Form 8871 (including any supporting papers), and any letter or other document the IRS issues with regard to Form 8871, are open to public inspection at the IRS in Washington, DC, and online at www.irs.gov/polorgs, (IRS keyword: political orgs).

  

Form 8872.   Form 8872 (including Schedules A and B) are open to public inspection online at www.irs.gov/polorgs, (IRS keyword: political orgs).

Both Forms 8871 and 8872 are available online 48 hours after the form has been filed and is considered available if you provide the online address to the requester. In addition, your organization must make a copy of these materials available for public inspection during regular business hours at the organization’s principal office and at each of its regional or district offices having at least three paid employees.

Penalties

The penalty for failure to allow public inspection of annual returns is $20 for each day the failure continues. The maximum penalty on all persons for failures involving any one return is $10,000.

The penalty for failure to allow public inspection of exemption applications is $20 for each day the failure continues.

The penalty for willful failure to allow public inspection of a return or exemption application is $5,000 for each return or application. The penalty also applies to a willful failure to provide copies.

The penalty for failure to allow public inspection of a political organization's section 527 notice (Form 8871) is $20 for each day the failure continues.

The penalty for failure to allow public inspection of a section 527 organization's contributions and expenditures report (Form 8872) is $20 for each day the failure continues. The maximum penalty on all persons for failures involving any one report is $10,000.

Required Disclosures

Certain exempt organizations must disclose to the IRS or the public certain information about their activities. Generally, an organization discloses this information by entering it on the appropriate lines of its annual return. In addition, there are disclosure requirements for:

  • Solicitation of nondeductible contributions,

  • Sales of information or services that are available free from the government,

  • Dues paid to the organization that are not deductible because they are used for lobbying or political activities, and

  • Prohibited tax shelter transactions.

Solicitation of Nondeductible Contributions

Solicitations for contributions or other payments by certain exempt organizations (including lobbying groups and political action committees) must include a statement that payments to those organizations are not deductible as charitable contributions for federal income tax purposes. The statement must be included in the fundraising solicitation and be conspicuous and easily recognizable.

Organizations subject to requirements.   An organization must follow these disclosure requirements if it is exempt under section 501(c), other than section 501(c)(1), or under section 501(d), unless the organization is eligible to receive tax deductible charitable contributions under section 170(c). These requirements must be followed by, among others:
  1. Social welfare organizations (section 501(c)(4)),

  2. Labor unions (section 501(c)(5)),

  3. Trade associations (section 501(c)(6)),

  4. Social clubs (section 501(c)(7)),

  5. Fraternal organizations (section 501(c)(8) and 501(c)(10)) (however, fraternal organizations described in section 170(c)(4) must follow these requirements only for solicitations for funds that are to be used for noncharitable purposes not described in section 170(c)(4)),

  6. Any political organization described in section 527(e), including political campaign committees and political action committees, and

  7. Any organization not eligible to receive tax-deductible contributions if the organization or a predecessor organization was, at any time during the 5-year period ending on the date of the fundraising solicitation, an organization of the type to which this disclosure requirement applies.

Fundraising solicitation.   This disclosure requirement applies to a fundraising solicitation if all of the following are true.
  1. The organization soliciting the funds normally has gross receipts over $100,000 per year.

  2. The solicitation is part of a coordinated fundraising campaign that is soliciting more than 10 persons during the year.

  3. The solicitation is made in written or printed form, by television or radio, or by telephone.

Penalties.   Failure by an organization to make the required statement will result in a penalty of $1,000 for each day the failure occurred, up to a maximum penalty of $10,000 for a calendar year. No penalty will be imposed if it is shown that the failure was due to reasonable cause. If the failure was due to intentional disregard of the requirements, the penalty may be higher and is not subject to a maximum amount.

Sales of Information or Services Available Free From Government

Certain organizations that offer to sell to individuals (or solicit money for) information or routine services that could be readily obtained free (or for a nominal fee) from the Federal Government must include a statement that the information or service can be so obtained. The statement must be made in a conspicuous and easily recognized format when the organization makes an offer or solicitation to sell the information or service. Organizations affected are those exempt under section 501(c) or 501(d) and political organizations defined in section 527(e).

Penalty.   A penalty is provided for failure to comply with this requirement if the failure is due to intentional disregard of the requirement. The penalty is the greater of $1,000 for each day the failure occurred, or 50% of the total cost of all offers and solicitations that were made by the organization the same day that it fails to meet the requirement.

Dues Used for Lobbying or Political Activities

Certain exempt organizations must notify anyone paying dues to the organization whether any part of the dues is not deductible because it is related to lobbying or political activities.

An organization must provide the notice if it is exempt from tax under section 501(a) and is one of the following.

  1. A social welfare organization described in section 501(c)(4) that is not a veterans' organization.

  2. An agricultural or horticultural organization described in section 501(c)(5).

  3. A business league, chamber of commerce, real estate board, or other organization described in section 501(c)(6).

However, an organization described in (1), (2), or (3) does not have to provide the notice if it establishes that substantially all the dues paid to it are not deductible anyway or if certain other conditions are met. For more information, see Revenue Procedure 98-19, 1998-1 C.B. 547 (or later update).

If the organization does not provide the required notice, it may have to pay a tax that is reported on Form 990-T. But the tax does not apply to any amount on which the section 527 tax has been paid on Form 1120-POL. See Political Organization Income Tax Return , earlier.

For more information about nondeductible dues, see Deduction not allowed for dues used for political or legislative activities. ??? under Section 501(c)(6) organizations, later.

Prohibited Tax Shelter Transactions

Every exempt organization (as defined in section 4965(c)) that is a party to a prohibited tax shelter transaction is required to disclose to the IRS the following information:

  • Whether such organization is a party to the prohibited tax shelter transaction (as defined in section 4965(e)); and

  • The identity of any other party to the transaction that is known to the exempt organization.

Party to a prohibited tax shelter transaction.   An exempt organization is a party to a prohibited tax shelter transaction if the organization:
  1. Facilitates a prohibited tax shelter transaction by reason of its tax-exempt, tax-indifferent, or tax-favored status; or

  2. Is identified in published guidance by type, class, or role as a party to a prohibited tax shelter transaction.

  See Prohibited Tax Shelter Transactions later for further information.

Disclosure.   A single disclosure is made by the organization for each prohibited tax shelter transaction. The disclosure is made on Form 8886-T, Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction.

Due date.   Generally, for exempt organizations described in 1 above, the disclosure is due on or before May 15 of the calendar year following the close of the calendar year that the exempt organization entered into the prohibited tax shelter transaction. However, the disclosure for subsequently listed transactions (as defined in section 4965(e)(2)) is due on or before May 15 of the calendar year following the close of the calendar year that the transaction was identified by the Secretary as a listed transaction.

  The disclosure for exempt organizations described in 2 above is due on or before the date the first tax return (whether original or amended return) is filed that reflects a reduction or elimination of the exempt organization's liability for applicable federal employment, excise, or unrelated business income taxes that is derived directly or indirectly from tax consequences or tax strategy described in the published guidance that lists the transaction.

Penalty.   Exempt organizations 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 exempt organization subject to this penalty, giving the organization a reasonable date to make the disclosure, and the organization fails to make the disclosure by that date, the organization 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).

Miscellaneous Rules

Organizational Changes and Exempt Status

If your exempt organization changes its legal structure, such as from a trust to a corporation, you must file a new exemption application to establish that the new legal entity qualifies for exemption. If your organization becomes inactive for a period of time but does not cease being an entity under the laws of the state in which it was formed, its exemption will not be terminated. However, unless you are covered by one of the filing exceptions, you will have to continue to file an annual information return during the period of inactivity. If your organization has been liquidated, dissolved, terminated, or substantially contracted, you should file your annual return of information by the 15th day of the 5th month after the change and follow the applicable instructions to the form.

If your organization amends its articles of organization or its internal regulations (bylaws), then follow the instructions to Form 990, Form 990-EZ, or Form 990-PF for reporting these changes. Regardless of whether your organization files an annual information return, you may also report these changes to the EO Determinations office; however, such reporting does not relieve your organization from reporting the changes on its annual information return. For information about informing the IRS of a termination or merger, see Publication 4779, Facts about Terminating or Merging Your Exempt Organization.

An organization should report new significant program services or significant changes in how it conducts program services, and significant changes to its organizational documents, on its Form 990 rather than in a letter to EO Determinations. EO Determinations no longer issues letters confirming the tax-exempt status of organizations that report new services or significant changes, or changes to organizational documents.

Change in Accounting Period

The procedures that an organization must follow to change its accounting period differ for an individual organization and for a central organization that seeks a group change for its subordinate organizations.

Individual organizations.   If an organization is not required to file an annual information return, but files a Form 990-T, it can change its annual accounting period by timely filing the Form 990-T. If neither an information return nor a Form 990-T is required to be filed, an organization must notify the IRS by letter that it has changed its fiscal period.

  If an organization changed its annual accounting period at any time within the previous 10 years and within that time it had a filing requirement, the organization must file a Form 1128, Application to Adopt, Change, or Retain a Tax Year, with its timely filed annual information return or Form 990-T, as appropriate, whether or not the filing of the information return or Form 990-T would have otherwise been required for that year.

Central organizations.   A central organization can obtain approval for a group change in an annual accounting period for its subordinate organizations on a group basis only by filing Form 1128 with the Service Center where it files its annual information return. For more information, see Revenue Procedure 76-10, 1976-1 C.B. 548, as modified by Revenue Procedure 79-3, 1979-1 C.B. 483, or any later updates.

Due date.   Form 1128 must be filed by the 15th day of the 5th month following the close of the short period.


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