- Publication 557 - Introductory Material
- Application, Approval, and Appeal Procedures
- Topics - This chapter discusses:
- Application Procedures
- Forms Required
- Form 1023, Application for Recognition of Exemption.
- Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
- Form 1024, Application for Recognition of Exemption Under Section 501(a).
- Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code.
- Letter application.
- Form 1028.
- Form 8871.
- Power of attorney.
- Non-exemption for terrorist organizations.
- User fee.
- Required Information and Documents
- Miscellaneous Procedures
- Forms Required
- Determination Letters
- Appeal Procedures
- Group Exemption Letter
- Filing Requirements and Required Disclosures
- Topics - This chapter discusses:
- Useful Items - You may want to see:
- Annual Information Returns
- Supporting Organization Annual Information Return
- Annual Electronic Filing Requirement for Small Tax-Exempt Organizations
- Forms 990 and 990-EZ
- Form 990-PF
- Electronic Filing
- Due Date
- Automatic Revocation
- Tax Effect of Loss of Tax-Exempt Status
- Supporting Organization Annual Information Return
- Unrelated Business Income Tax Return
- Employment Tax Returns
- Political Organization Income Tax Return
- Reporting Requirements for a Political Organization
- Form 8871
- Form 8872
- Donee Information Return
- Information Provided to Donors
- Disclosure of Quid Pro Quo Contributions
- Acknowledgment of Charitable Contributions of $250 or More
- Acknowledgment of Vehicle Contribution
- Qualified Intellectual Property
- Report of Cash Received
- Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting Forms
- Annual Information Return
- Public Inspection of Exemption Application
- Political Organization Reporting Forms
- Required Disclosures
- Solicitation of Nondeductible Contributions
- Sales of Information or Services Available Free from Government
- Dues Used for Lobbying or Political Activities
- Prohibited Tax Shelter Transactions
- Miscellaneous Rules
- Section 501(c)(3) Organizations
- Topics - This chapter discusses:
- Useful Items - You may want to see:
- Contributions to 501(c)(3) Organizations
- Application for Recognition of Exemption
- Form 1023 or Form 1023-EZ.
- Political activity.
- Effective date of exemption.
- Private delivery service.
- Amendments to organizing documents required.
- Discretionary extension of time for filing.
- How to show reasonable action and good faith.
- Not acting reasonably and in good faith.
- Prejudicing the interest of the Government.
- Procedure for requesting extension.
- More information.
- Notification from the IRS.
- Organizations Not Required to File Form 1023 or Form 1023-EZ
- Articles of Organization
- Educational Organizations and Private Schools
- Educational Organizations
- Private Schools
- Organizations Providing Insurance
- Other Section 501(c)(3) Organizations
- Charitable Organizations
- Religious Organizations
- Scientific Organizations
- Literary Organizations
- Amateur Athletic Organizations
- Prevention of Cruelty to Children or Animals
- Private Foundations and Public Charities
- Private Foundations
- Public Charities
- Section 509(a)(1) Organizations
- Educational organizations.
- Hospitals and medical research organizations.
- Hospitals participating in provider-sponsored organizations.
- Requirements for section 501(c)(3) hospitals under the Affordable Care Act.
- Final regulations under section 501(r).
- Correction and disclosure procedures under section 501(r).
- Medical research organization.
- Publicly supported.
- Endowment funds.
- Indirect contribution.
- Governmental units.
- Agricultural research organizations.
- Publicly supported organizations.
- Qualifying as Publicly Supported
- One-third support test.
- Definition of normally for one-third support test.
- Facts and circumstances test.
- Ten-percent-of-support requirement.
- Attraction of public support requirement.
- Definition of normally for facts and circumstances test.
- Additional requirements (the five public support factors).
- 1. Percentage of financial support factor.
- 2. Sources of support factor.
- 3. Representative governing body factor.
- 4. Availability of public facilities or services factor.
- 5. Additional factors pertinent to membership organizations.
- Special rule.
- Special computation period for new organizations (Computation period for public support).
- Reasonable expectation of public support.
- Determinations of public support status.
- Reliance by grantors or contributors.
- Amounts that aren't support.
- Organizations dependent primarily on gross receipts from related activities.
- Membership fees.
- Support from a governmental unit.
- Medicare and Medicaid payments.
- Support from the general public.
- Indirect contributions.
- Grants from public charities.
- Unusual grants.
- Characteristics of an unusual grant.
- Determination request.
- Comprehensive Examples
- Community Trusts
- Section 509(a)(2) Organizations
- One-third support test.
- Limit on gross receipts.
- Not-more-than-one-third support test.
- Gross investment income.
- Definition of normally.
- Computation period for public support.
- Reasonable expectation of public support.
- Unusual grants.
- Characteristics of an unusual grant.
- Determination request.
- Gifts, contributions, and grants distinguished from gross receipts.
- Determinations of public support status.
- Reliance by grantors or contributors.
- Gifts and contributions.
- Membership fees distinguished from gross receipts.
- Bureau defined.
- Grants from public charities.
- Method of accounting.
- Gross receipts from a related activity.
- Section 509(a)(3) Organizations
- Supported organizations.
- Organizations controlled by donors.
- Category one - Type I and Type II supporting organizations.
- Type I - Operated, supervised, or controlled by.
- Type II - Supervised or controlled in connection with.
- Organizational and operational tests.
- Organizational test.
- Specified organizations.
- Operational test — permissible beneficiaries.
- Operational test — permissible activities.
- Absence of control by disqualified persons.
- Disqualified persons.
- Proof of independent control.
- Category two - Type III supporting organizations.
- Organizational test.
- Responsiveness test.
- Notification requirement.
- Integral part test - functionally integrated.
- Supporting other than section 501(c)(3) organizations.
- Special rules of attribution.
- Relationships created for avoidance purposes.
- Effect on 509(a)(3) organizations.
- Request change in public charity classification.
- Classification under section 509(a).
- Reliance by grantors and contributors.
- Interim guidance for supporting organizations and grantors.
- Section 509(a)(4) Organizations
- Loss of Qualification as Public Charity
- Section 509(a)(1) Organizations
- Private Operating Foundations
- Lobbying Expenditures
- Making the election.
- Attempting to influence legislation.
- Lobbying expenditures limits.
- Lobbying expenditures.
- Grass roots expenditures.
- Lobbying nontaxable amount.
- Grass roots nontaxable amount.
- Years for which election is effective.
- Expenditures of affiliated organizations.
- Tax on excess expenditures to influence legislation.
- Organization that no longer qualifies.
- Tax on disqualifying lobbying expenditures.
- Tax on organization.
- Tax on managers.
- Excise taxes on political expenditures.
- Taxes on organizations.
- Taxes on managers.
- Political expenditures.
- Correction of expenditure.
- Status after loss of exemption for lobbying or political activities.
- Other Section 501(c) Organizations
- 501(c)(4) - Civic Leagues and Social Welfare Organizations
- Notice requirement.
- Optional application for recognition of exemption.
- Nonprofit operation.
- Social welfare.
- Political activity.
- Social or recreational activity.
- Retirement benefit program.
- Tax treatment of donations.
- Specific Organizations
- 501(c)(5) - Labor, Agricultural and Horticultural Organizations
- 501(c)(6) - Business Leagues, etc.
- Chamber of commerce.
- Board of trade.
- Real estate board.
- Professional football leagues.
- General purpose.
- Line of business.
- Common business interest.
- Improvement of business conditions.
- Stock or commodity exchange.
- Legislative activity.
- Deduction not allowed for dues used for political or legislative activities.
- De minimis exception.
- Grass roots lobbying.
- Tax treatment of donations.
- 501(c)(7) - Social and Recreation Clubs
- 501(c)(8) and 501(c)(10) - Fraternal Beneficiary Societies and Domestic Fraternal Societies
- 501(c)(4), 501(c)(9), and 501(c)(17) - Employees' Associations
- Tax treatment of donations.
- Local Employees' Associations (501(c)(4))
- Voluntary Employees' Beneficiary Associations (501(c)(9))
- Supplemental Unemployment Benefit Trusts (501(c)(17))
- 501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations
- General requirements.
- Mutual character.
- Losses and expenses.
- Distributions of proceeds.
- The 85% Requirement
- Local Life Insurance Associations
- Mutual or Cooperative Associations
- 501(c)(13) - Cemetery Companies
- 501(c)(14) - Credit Unions and Other Mutual Financial Organizations
- 501(c)(19) - Veterans' Organizations
- 501(c)(21) - Black Lung Benefit Trusts
- 501(c)(2) - Title-Holding Corporations for Single Parent Corporations
- 501(c)(25) - Title-Holding Corporations or Trusts for Multiple Parent Corporations
- 501(c)(26) - State-Sponsored High-Risk Health Coverage Organizations
- 501(c)(27) - Qualified State-Sponsored Workers' Compensation Organizations
- 501(c)(29) - CO-OP Health Insurance Issuers
- New Guidance for Section 501(c)(29) Qualified Nonprofit Health Insurance Issuers
- General Requirements for Exemption under 501(c)(29) and Annual Filing Requirement
- Additional Guidance for Prospective 501(c)(29) Organizations
- Excise Taxes
- Topics - This chapter discusses:
- Useful Items - You may want to see:
- Prohibited Tax Shelter Transactions
- Excess Benefit Transactions
- Excise tax on excess benefit transactions.
- Tax on Disqualified Persons
- Tax on Organization Managers
- Excess Benefit Transaction
- Donor advised fund transactions occurring after August 17, 2006.
- Supporting organization transactions occurring after July 25, 2006.
- Date of Occurrence
- Applicable Tax-Exempt Organization
- Disqualified Person
- For donor advised funds, sponsoring organizations, and certain supporting organizations occurring after August 17, 2006.
- For certain supporting organization transactions occurring after July 25, 2006.
- Investment advisor.
- Substantial contributor.
- Family members.
- 35% controlled entity.
- Persons having substantial influence.
- Persons not considered to have substantial influence.
- Facts and circumstances.
- Reasonable compensation.
- Rebuttable presumption that a transaction isn't an excess benefit transaction.
- Disregarded benefits.
- Special exception for initial contracts.
- More information.
- Excess Business Holdings
- Taxable Distributions of Sponsoring Organizations
- Taxes on Prohibited Benefits Resulting from Donor Advised Fund Distributions
- Excise Taxes on Private Foundations
- Excise Taxes on Black Lung Benefit Trusts
- Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements
- Excise Tax on Executive Compensation
- Excise Tax on Net Investment Income of Certain Colleges and Universities
- How to Get Tax Help
- Preparing and filing your tax return.
- Employers can register to use Business Services Online.
- Tax reform.
- IRS social media.
- Watching IRS videos.
- Getting tax information in other languages.
- Getting tax forms and publications.
- Access your online account (individual taxpayers only).
- Using direct deposit.
- Getting a transcript or copy of a return.
- Using online tools to help prepare your return.
- Resolving tax-related identity theft issues.
- Checking on the status of your refund.
- Making a tax payment.
- What if I can’t pay now?
- Checking the status of an amended return.
- Understanding an IRS notice or letter.
- Contacting your local IRS office.
- Publication 557 - Additional Material
Future developments. . The IRS has created a page on IRS.gov for information about Publication 557, at IRS.gov/pub557. Information about any future developments affecting Publication 557 (such as legislation enacted after we release it) will be posted on that page.
Required electronic filing. For tax years beginning after July 1, 2019, the Taxpayer First Act, Pub. L. No. 116-25 § 3101, requires electronic filing of exempt organization returns, including Forms 990 and 990-PF. For more information, go to Newsroom/irs-recent-legislation-requires-tax-exempt-organizations-to-e-file-forms.
Automatic revocation. Regarding automatic revocation for the failure to file a return or notice for three consecutive years, as required by section 6033, the Taxpayer First Act of 2019, P.L. 116-25, added a requirement that the IRS notify the organization after the organization has failed to file for two consecutive years. See Automatic Revocation, later, for more information, including applicability dates.
Electronic Form 1023. In 2020, Form 1023, Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, will be available only as an electronic form filed on Pay.gov. Form 1023-EZ, Streamlined Application, is already on Pay.gov.
Reporting of Donor Information. (Form 990, 990-EZ and 990-PF). Notice 2019-47, 2019-39 IRB 731 provides penalty relief for organizations not described in section 501(c)(3) or 527 that did not provide contributor information.
Tax on investment income of private foundations. Legislation passed on Dec. 20, 2019, the Taxpayer Certainty and Disaster Tax Relief Act, reduced the 2% excise tax on investment income of private foundations to 1.39%. At the same time, the legislation repealed the 1% special rate that applied if the private foundation met certain distribution requirements. The change is effective for taxable years beginning after December 20, 2019.
Increase in UBTI for disallowed fringe repealed. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 retroactively repealed Internal Revenue Code (IRC) Section 512(a)(7), which increased unrelated business taxable income by amounts paid or incurred for qualified transportation fringes. Congress had previously enacted this provision for amounts paid or incurred after December 31, 2017.
Forms, Instructions and Publications. All IRS forms, instructions and publications mentioned in this publication can be accessed on IRS.gov from the Forms and Instructions page.
Excise tax on executive compensation. Section 4960 imposes an excise tax on an organization that pays to any covered employee more than $1 million in remuneration or pays an excess parachute payment during the year starting in 2018. See Excise Tax on Executive Compensation, chapter 5. See also section 4960 and Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, for more information.
Excise tax on net investment income of certain colleges and universities. Section 4968 imposes an excise tax on the net investment income of certain private colleges and universities. See Excise tax on net investment income of certain colleges and universities, chapter 5. See also section 4968 and Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, for more information.
Separate UBTI calculation for each trade or business. Organizations with more than 1 unrelated trade or business must compute unrelated business taxable income (UBTI), including for purposes of determining any net operating loss deduction, separately with respect to each such trade or business. See Unrelated Business Income Tax Return, chapter 2. See also Schedule M (Form 990-T). The UBTI with respect to any such trade or business shall not be less than zero when computing total UBTI.
Exception from the excise tax on excess business holdings. Section 4943(g) created an exception from the excise tax on excess business holdings for certain independently operated enterprises whose voting stock is wholly owned by a private foundation. For more details, see Excess Business Holdings, chapter 5
Organizational Changes. For tax years beginning on or after January 1, 2018, the IRS will no longer require a new exemption application from a domestic section 501(c) organization that undergoes certain changes of form or place of organization, as described in Rev. Proc. 2018-15, 2018-9 I.R.B. 379.
Group Exemptions. Beginning January 2019, the IRS will no longer send the List of Parent and Subsidiary Accounts to the central organizations . See Group Exemption Letter, later.
You can find additional detailed information about changes implemented by Public Law 115-97, which became law in late December 2017, as well as recently released guidance on IRS.gov on the “News” page under the “Tax Reform” tab.
Form 1024-A. In 2018, the IRS created Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code. It is used by organizations to apply for recognition of exemption under section 501(c)(4).
Form 8976. Each new section 501(c)(4) organization must notify the IRS of its intent to operate as a section 501(c)(4) organization regardless of whether it will seek recognition of its exempt status under section 501(c)(4). Use Form 8976, Notice of Intent to Operate Under Section 501(c)(4), to provide this notification. Form 8976 may only be completed and submitted electronically at: Electronically Submit Your Form 8976, Notice of Intent to Operate Under Section 501(c)(4).
This publication discusses the rules and procedures for organizations that seek recognition of exemption from federal income tax under section 501(a) of the Internal Revenue Code (the Code). It explains the procedures you must follow to obtain an appropriate determination letter recognizing your organization's exemption, as well as certain other information that applies generally to all exempt organizations. To qualify for exemption under the Code, your organization must be organized for one or more of the purposes specifically designated in the Code. Organizations that are exempt under section 501(a) include those organizations described in section 501(c). Section 501(c) organizations are covered in this publication.
Chapter 1, Application, Approval, and Appeal Procedures, provides general information about the procedures for obtaining recognition of tax-exempt status.
Chapter 2, Filing Requirements and Required Disclosures, contains information about annual filing requirements and other matters that may affect your organization's tax-exempt status.
Chapter 3, Section 501(c)(3) Organizations, contains detailed information on various matters affecting section 501(c)(3) organizations, including a section on the determination of private foundation status.
Chapter 4, Other Section 501(c) Organizations, includes separate sections for specific types of organizations described in section 501(c).
Chapter 5, Excise Taxes, provides information on when excise taxes may be imposed.
Chapter 6, How to Get Tax Help, provides tips and resources on where to find answers to tax questions or other assistance.
If your organization is one of the organizations described in this publication and is seeking recognition of tax-exempt status from the IRS, you should follow the procedures described in this chapter and the instructions that accompany the appropriate application forms.
For information on section 501(c)(3) organizations, go to Section 501(c)(3) Organizations, chapter 3. If your organization is seeking exemption under one of the other paragraphs of section 501(c), see chapter 4.
Application procedures that generally apply to all organizations discussed in this publication, including the application forms;
Determination letters (approvals/disapprovals);
Appeal procedures available if an adverse determination letter is proposed; and
Group exemption letters.
Oral requests for recognition of exemption won't be considered by the IRS. Your application for recognition of tax-exempt status must be in writing using the appropriate forms as discussed below.
If your organization is seeking recognition of exemption from federal income tax, it must use a specific application prescribed by the IRS in Rev. Proc. 2020-5, 2020-01 I.R.B. 241, as amended by Rev. Proc. 2020-8. If your organization is a central organization with exempt status, see Group Exemption Letter , later. All applications must be signed by an authorized individual.
501(c)(3) Corporations, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports, or prevention of cruelty for children or animals,
501(e) Cooperative hospital service organization,
501(f) Cooperative service organization of operating educational organizations,
501(k) Certain organizations providing child care,
501(n) Charitable risk pools, and
501(q) Credit counseling organizations.
As of January 31, 2020, applications for exempt status on a Form 1023 must be electronically submitted through Pay.gov. For a limited time period, paper submissions will still be accepted. See Rev. Proc. 2020-5, as amended by Rev. Proc. 2020-8.
To help in processing your application, be sure to attach all schedules, statements, and other documents required by the application form. If you don’t attach them, you may have to resubmit your application or you may otherwise encounter a delay in processing your application.
Requests other than applications. Requests other than applications for recognition of exemption or Form 8940 (for example, requests for letter rulings involving feeder organizations, application of excise taxes to activities of private foundations, taxation of unrelated business income, etc.) should be sent to the appropriate address listed in Rev. Proc. 2020-1, 2020-1 I.R.B. 1.
These requests, similar to applications for recognition of exemption previously discussed, must be accompanied by the appropriate user fee. The schedule for user fees, including those for requests other than applications, can be found in Rev. Proc. 2020-1.
EO Determinations can request technical advice from the Office of Chief Counsel (EEE) on any question that can't be resolved on the basis of law, regulations, or a clearly applicable revenue ruling or other published precedent. See section 3, Rev. Proc. 2020-5.
An organization must describe fully the activities in which it expects to engage. This includes standards, procedures, or other means adopted or planned by the organization for carrying out its activities, expected sources of funds, and the nature of its contemplated expenses.
When an organization doesn't supply the information previously mentioned under Application Procedures , or fails to furnish a sufficiently detailed description of its proposed activities to permit a conclusion that it will clearly be exempt, a proposed adverse determination letter may be issued.
A determination letter recognizing exemption is usually effective as of the date of formation of an organization if, the organization submitted the application for recognition of exemption within 27 months from the end of the month in which it was organized and during the period before the date of the determination letter, its purposes and activities are consistent with the requirements for exempt status under the applicable section of 501(c). Upon obtaining recognition of exemption, the organization can file a claim for a refund of income taxes paid for the period for which its exempt status is recognized.
An organization that does not submit its application for exemption within that 27-month period but otherwise meets the requirements for tax-exempt status will be recognized as exempt from the postmark date of application or the submission date of its Form 1023 or Form 1023-EZ, if applicable. See Rev. Proc. 2020-5, as amended by Rev. Proc. 2020-8.
If an organization is required to alter its activities or substantially amend its charter to qualify, the determination letter recognizing exemption will be effective as of the date specified in the letter. If a nonsubstantive amendment is made, such as correction of a clerical error in the enabling instrument or the addition of a dissolution clause, exemption will ordinarily be recognized as of the date of formation if the activities of the organization before the determination are consistent with the exemption requirements.
A determination letter recognizing exemption can't be relied on if there is a material change, inconsistent with exemption, in the character, the purpose, or the method of operation of the organization. Also, a determination letter can't be relied on if it is based on any omission or inaccurate material information submitted by the organization. See section 11 of Rev. Proc. 2020-5.
For more information about the effective date of exemption, see Rev. Proc. 2020-5, section 6.
A determination letter recognizing exemption may be revoked by:
A notice to the organization to which the determination letter originally was issued,
Enactment of legislation or ratification of a tax treaty,
A decision of the United States Supreme Court,
Issuance of temporary or final regulations, or
Issuance of a revenue ruling, a revenue procedue, or other statement published in the Internal Revenue Bulletin or Cumulative Bulletin.
Section 6033(j), for failure to file a required annual return or notice, for three consecutive years, automatically.
If your organization applies for recognition of tax-exempt status and Rulings and Agreements determines your organization doesn't qualify for exemption, your organization will be advised of its rights to protest the determination by requesting Independent Office of Appeals consideration. Your organization must submit a statement of its views fully explaining its reasoning. The statement must be submitted within 30 days from the date of the proposed adverse determination letter and must state whether it wishes Independent Office of Appeals consideration.
Before forwarding a case to the Independent Office of Appeals, Rulings and Agreements will consider the applicant’s statement protesting and appealing (hereinafter appealing) the proposed adverse determination. If the information provided by the organization doesn't provide a basis for Rulings and Agreements to reconsider its adverse determination, it will forward the appeal and case file to the Independent Office of Appeals. For more information about the role of the Independent Office of Appeals, see Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status. The appeal should include the following information.
The organization's name, address, daytime telephone number, and employer identification number.
A statement that the organization wants to protest the determination.
A copy of the letter showing the determination you disagree with, or the date and symbols on the determination letter.
A statement of facts supporting the organization's position in any contested factual issue.
A statement outlining the law or other authority the organization is relying on.
A statement as to whether a conference at the Independent Office of Appeals is desired.
The statement of facts in item 4 must be declared true under penalties of perjury. This may be done by adding to the protest the following signed declaration:
|"Under penalties of perjury, I declare that I have examined the statement of facts presented in this protest and in any accompanying schedules and statements and, to the best of my knowledge and belief, it is true, correct, and complete."|
If the organization's representative submits the appeal, a substitute declaration must be included, stating:
That the representative prepared the appeal and accompanying documents, and
Whether the representative knows personally that the statements of fact contained in the appeal and accompanying documents are true and correct.
Be sure the appeal contains all of the information requested. Incomplete appeals will be returned for completion.
The Independent Office of Appeals, after any requested conference and upon consideration of the organization's appeal as well as information presented in any conference held, will generally notify the organization of its decision and issue an appropriate determination letter. An adverse decision can be appealed to the courts (discussed later). If new information is submitted during Independent Office of Appeals consideration, the matter may be returned to Rulings and Agreements for further consideration. See section 9 of Rev. Proc. 2020-5 for more information.
The Independent Office of Appeals must request technical advice on any exempt organization issue concerning qualification for exemption or foundation status for which there is no published precedent or for which there is reason to believe that nonuniformity exists. If an organization believes that its case involves such an issue, it should ask the Independent Office of Appeals to request technical advice.
Any determination letter issued on the basis of technical advice can't be appealed to the Independent Office of Appeals Office for those issues that were the subject of the technical advice.
In the case of an application under section 501(c) or 501(d) and exempt from tax under 501(a), all of the following actions, called administrative remedies, must be completed by your organization before an unfavorable determination letter from the IRS can be appealed to the courts.
The filing of the correct completed application or group exemption request under section 501(c), or 501(d) and exempt from tax under 501(a) (described earlier in this chapter) or the filing of a request for a determination of foundation status (see Private Foundations and Public Charities in chapter 3).
In the case of a late-filed application, requesting relief under Regulations section 301.9100 regarding applications for extensions of time for making an election or application for relief from tax (see Application for Recognition of Exemption in chapter 3).
The timely submission of all additional information requested to perfect an exemption application or request for determination of private foundation status.
Exhaustion of all administrative appeals available within the IRS.
The actions just described won't be considered completed until the IRS has had a reasonable time to act upon the appeal or protest, as the case may be.
An organization won't be considered to have exhausted its administrative remedies before the earlier of:
The completion of the steps just listed and the sending by certified or registered mail of a notice of final determination, or
The expiration of the 270-day period in which the IRS has not issued a notice of final determination and the organization has taken, in a timely manner, all reasonable steps to secure a ruling or determination.
If the IRS issues an unfavorable determination letter to your organization and you have exhausted all the administrative remedies just discussed, your organization can seek judicial remedies.
For example, if your organization has paid the tax resulting from the adverse determination and met all other statutory prerequisites, it can file suit for a refund in a U.S. District Court or the U.S. Court of Federal Claims. Or, if your organization elected not to pay the tax deficiency resulting from the adverse determination and met all other statutory prerequisites, it can file suit for a redetermination of the tax deficiencies in the United States Tax Court. For more information on these types of suits, get Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.
In certain situations, your organization can file suit for a declaratory judgment in the U.S. District Court for the District of Columbia, the U.S. Court of Federal Claims, or the U.S. Tax Court. This remedy is available if your organization received an adverse notice of final determination, or if the IRS failed to make a timely determination on your initial or continuing qualification or classification as an exempt organization. However, your exempt status claim must be as:
An organization qualifying under section 501(c) or 501(d) and exempt from tax under 501(a).
An organization to which a deduction for a contribution is allowed under section 170(c)(2),
An organization that is a private foundation under section 509(a),
A private operating foundation under section 4942(j)(3), or
A cooperative organization that is exempt from tax under section 521.
A group exemption letter is a determination letter issued to a central organization recognizing on a group basis the exemption under section 501(c) of subordinate organizations on whose behalf the central organization has applied for recognition of exemption.
A central organization is an organization that has one or more subordinates under its general supervision or control.
A subordinate organization is a chapter, local, post, or unit of a central organization. A central organization may be a subordinate itself, such as a state organization that has subordinate units and is itself affiliated with a national (central) organization.
A subordinate organization may or may not be incorporated, but it must have an organizing document and it must have its own taxpayer identification number (EIN). A subordinate that is organized and operated in a foreign country can't be included in a group exemption letter. A subordinate described in section 501(c)(3) can't be included in a group exemption letter if it is a private foundation described in section 509(a).
If your organization is a subordinate controlled by a central organization (for example, a church, a veterans' organization, or a fraternal organization), you should check with the central organization to see if it has been issued a group exemption letter that covers your organization. If it has, you don’t have to file a separate application unless your organization no longer wants to be included in the group exemption letter.
If the group exemption letter doesn't cover your organization, ask your central organization about being included in the next annual group ruling update that it submits to the IRS.
See Publication 4573, Group Exemptions, for additional general information about group exemption. Go to the Charities & Nonprofits page on IRS.gov for Group Exemption Resources for the most current information and updates.
If your organization is a central organization with affiliated subordinates under its control, it can apply for a group exemption letter for its subordinates, provided it has obtained recognition of its own exemption. A central organization obtains recognition of its own exemption by submitting Form 1023 or 1023-EZ, 1024 or 1024-A as described in their instructions with the appropriate user fee. You request the group exemption letter for the central organization’s subordinates by letter rather than a specific application form. The issuance of the group exemption letter relieves each of the covered subordinates from filing its own application.
A central organization that has previously obtained recognition of its own exemption must indicate its employer identification number and the date of the letter recognizing its exemption, but need not forward documents already submitted. However, if it has not already done so, the central organization must submit a copy of any amendment to its governing instruments or internal regulations as well as any information about changes in its character, purposes, or method of operation.
Continued effectiveness of a group exemption letter is based on the following conditions.
The continued existence of the central organization.
The continued qualification of the central organization for exemption under section 501(c).
The submission by the central organization of the information regarding its subordinate organizations that is required annually (described under Information Required Annually ).
The annual filing of an information return (Form 990, for example) by the central organization if required.
In addition, a group exemption letter will not be effective as to a particular subordinate if the subordinate ceases to conform to the require- ments for inclusion in a group exemption letter and authorization for inclusion (see items 1 and 5 in Information required for subordinate organizations, earlier), and the annual filing of any required information return for the subordinate. A central organization may file a group return for some or all of its subordinates. If it does so, the group return must be filed on Form 990 under a separate EIN obtained exclusively for the purpose of filing the group return. Form 990-EZ cannot be used for a group return.
To maintain a group exemption letter, the central organization must submit annually, at least 90 days before the close of its annual accounting period, all of the following information.
Information about all changes in the purposes, character, or method of operation of the subordinates included in the group exemption letter.
A separate list (that includes the names, mailing addresses, actual addresses if different, and EINs of the affected subordinates) for each of the three following categories.
Subordinates that have changed their names or addresses during the year.
Subordinates no longer to be included in the group exemption letter because they no longer exist or have disaffiliated from or withdrawn their authorization to the central organization.
Subordinates to be added to the group exemption letter because they are newly organized or affiliated or because they have recently authorized the central organization to include them.
An annotated directory of subordinates won't be accepted for this purpose. If there were none of the above changes, the central organization must submit a statement to that effect.
The same information about new subordinates that was required in the initial application for group exemption. (This information is listed in items 1 through 10, under Information required for subordinate organizations , earlier.) If a new subordinate doesn't differ in any material respects from the subordinates included in the application for group exemption, however, a statement to this effect may be submitted in lieu of detailed information.
The organization should send this information to:
Internal Revenue Service Center
Ogden, UT 8420–0027
Submitting the required information annually doesn't relieve the central organization or any of its subordinates of the duty to submit any other information that may be required by an EO area manager to determine whether the conditions for continued exemption are being met.
As of 2019, the IRS will no longer send the List of Parent and Subsidiary Accounts to the central organizations.
A group exemption letter no longer has effect, for either a particular subordinate or the group as a whole, when:
The central organization notifies the IRS that it is going out of existence,
The central organization notifies the IRS, by its annual submission or otherwise, that any of its subordinates will no longer fulfill the conditions for continued effectiveness, explained earlier, or
The IRS notifies the central organization or the affected subordinate that the group exemption letter will no longer have effect for some or all of the group because the conditions for continued effectiveness of a group exemption letter haven't been fulfilled.
When notice is given under any of these three conditions, the IRS will no longer recognize the exempt status of the affected subordinates until they file separate applications on their own behalf or the central organization files complete supporting information for their inclusion in the group exemption at the time of its annual submission. However, when the notice is given by the IRS and the withdrawal of recognition is based on the failure of the organization to comply with the requirements for recognition of tax-exempt status under the particular subsection of section 501(c), the revocation will ordinarily take effect as of the date of that failure. The notice, however, will be given only after the appeal procedures described earlier in this chapter are completed.
In addition, the IRS will cease to recognize the subordinates under a group exemption as tax-exempt if the central organization is automatically revoked for failure to file required returns or notices for three consecutive years. See Automatic Revocation, later. Subordinates under a group exemption are also subject to automatic revocation for failure to file required returns (or appear on a group return if the subordinate does not file its own) or notices for three consecutive years. A subordinate organization that is automatically revoked must apply to the IRS for reinstatement of its exempt status. Thereafter, it may retain independent exempt status or it may seek to resume its status as a subordinate of the central organization. See Group Exemption Resources .
Most exempt organizations (including private foundations) must file various returns and reports at some time during (or following the close of) their accounting period.
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
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
940 Employer's Annual Federal Unemployment (FUTA) Tax Return
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-N Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ
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 or Responsible Party-Business
8868 Application for Automatic 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
8976 Notice of Intent to Operate Under Section 501(c)(4)
See chapter 6 for information about getting these publications and forms.
Every organization exempt from federal income tax under section 501(a) must file an Annual Exempt Organization Return except:
A church, an interchurch organization of local units of a church, a convention or association of churches,
An integrated auxiliary of a church,
A church-affiliated organization that is exclusively engaged in managing funds or maintaining retirement programs,
A school below college level affiliated with a church or operated by a religious order,
Church-affiliated mission societies if more than half of their activities are conducted in, or are directed at persons in, foreign countries,
An exclusively religious activity of any religious order,
A state institution, the income of which is excluded from gross income under section 115,
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,
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),
A religious or apostolic organization described in section 501(d) (required to file Form 1065, U.S. Return of Partnership Income),
A governmental unit or an affiliate of a governmental unit that meets the requirements of Rev. Proc. 95-48, 1995-2 C.B. 418, IRS.gov/pub/irs-tege/rp1995-48.pdf,
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),
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,
An exempt organization (other than a private foundation or a supporting organization described in Supporting Organization Annual Information Return, later) that normally has annual gross receipts of $50,000 or less (required to file Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990EZ), or
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.
Each section 509(a)(3) supporting organization is 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:
An integrated auxiliary of a church;
The exclusively religious activities of a religious order; or
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 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 isn't controlled directly or indirectly by disqualified persons (other than by foundation managers and other than one or more publicly supported organizations).
Small tax-exempt organizations with annual gross receipts normally $50,000 or less that are not otherwise required to file an annual information return and are not otherwise exempted entirely from a filing requirement 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.
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 aren't 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.
All private foundations exempt under section 501(c)(3) must file Form 990-PF. These organizations are discussed in chapter 3.
For tax years beginning on or before July 1, 2019, your organization may be required to file Form 990, Form 990-EZ, or Form 990-PF, and related forms, schedules, and attachments electronically. For tax years beginning after July 1, 2019, under the Taxpayer First Act, organizations are required to file certain returns electronically, including Form 990, 990-EZ, 990-PF, 8872, and 990-T. The e-filing requirement is generally effective for tax years beginning after July 1, 2019. The Taxpayer First Act allows transitional relief for certain small organizations or other organizations for which the IRS determines that application of the e-filing requirement would constitute an undue hardship in the absence of additional transitional time.
If an organization is required to file a return electronically but doesn't, it isn't considered to have filed its return. See Regulations section 301.6033-4 for more information.
For small exempt organizations, the legislation specifically allowed a postponement (“transitional relief”). For tax years ending before July 31, 2021, the IRS will accept either paper or electronic filing of Form 990-EZ, Short Form Return of Organization Exempt from Income Tax. For tax years ending July 31, 2021, and later, Forms 990-EZ must be filed electronically. Generally, Form 990-EZ is for organizations with annual gross receipts less than $200,000 and total assets at tax year-end less than $500,000.
The IRS will continue to accept paper forms that are pending conversion into electronic format, including Form 990-T, through 2020. The IRS plans to have these returns ready for e-filing in 2021 (reporting on tax year 2020).
.Form 8872 must be filed electronically if reporting on periods after 2019.
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 are due May 15 of the following year. If any due date falls on a Saturday, Sunday, or legal holiday, the return will be due the next business day.
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 effective as of the due date for the third missed return or notice. 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 Tax-Exempt Organization Search. 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. For auto-revoked organizations that applied for and received reinstatement, the list gives the date of reinstatement. The IRS updates the list monthly to include additional organizations that lose their 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 can't receive tax-deductible contributions and won't be identified in the IRS Business Master File extract as eligible to received tax-deductible contributions, or be included in Tax-Exempt Organization Search (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 wasn't originally required to apply). In some situations, an organization may be able to obtain exemption retroactive to its date of revocation. Similarly, if the central organization with a Group Exemption Number is automatically revoked, all its covered subsidiaries may need to apply for exemption as independent organizations.
For more information about automatic revocation, go to IRS.gov and select Charities & Non-Profits and then select Revoked? Reinstated? Learn More.
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 isn't 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 or notice. The form instructions and irs.gov should be consulted for electronic filing guidance. For tax years beginning after December 31, 2017, an organization with more than 1 unrelated trade or business must compute its UBTI, including for purposes of determining any net operating loss deduction, separately with respect to each such trade or business. Organizations subject to the new rule use new Schedule M (Form 990-T) to calculate UBTI for each additional trade or business. The UBTI with respect to any such trade or business shall not be less than zero when computing total UBTI. See Notice 2018-67, 2018-36 I.R.B. 409, for more information about section 512(a)(6).
For additional information on unrelated business income, see Publication 598 and the Instructions for Form 990-T.
Every employer, including an organization exempt from federal income tax that 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 don't 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.
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.
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.
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.
For more information about filing Form 1120-POL, refer to the instructions accompanying the form.
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.
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 isn't 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) (52 U.S.C. section 30101 et seq.).
It is a state or local candidate committee.
It is a state or local committee of a political party.
All other political organizations are required to file Form 8871.
An organization must provide on Form 8871:
Its name and address (including any business address, if different) and its electronic mailing address;
The names and addresses of its officers, highly compensated employees, contact person, custodian of records, and members of its board of directors;
The name and address of, and relationship to, any related entities (within the meaning of section 168(h)(4)); and
Whether it intends to claim an exemption from filing Form 8872, Form 990, or Form 990-EZ.
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 isn't required to file Form 8871 (discussed earlier).
A political organization that is subject to tax on its income because it didn't 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.
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 21% for tax years beginning after December 31, 2017 (35% for tax years beginning before December 31 2017) of the total amount of contributions and expenditures to which a failure relates.
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 can't 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.
A charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution over $75.
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:
The date the donor files the original return for the year the contribution is made, or
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.
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, 2005-25 I.R.B. 1287 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 Pub. 1220.
For a contribution of a qualified vehicle with a claimed value of $500 or less, don't 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.
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 isn't 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.
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 isn't 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 general rule under section 6103 is that returns and return information of all taxpayers are confidential except as authorized under the Code. Section 6104 provides exceptions to the general rule of confidentiality for disclosure of certain information about exempt organizations.
In addition, included in this section is a discussion on the public inspection requirements for political organizations filing Forms 8871 and 8872.
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 doesn't 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 doesn't 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 doesn't include:
Schedule A of Form 990-BL,
Schedule K-1 of Form 1065, or
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 aren't 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 that 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 haven't been recognized by the IRS as exempt under section 501(a) as organizations described in section 501(c)(3) aren't required to make their Forms 990-T public.
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 doesn't include:
Any application from an organization that isn't 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 didn't 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.
Forms 8871 and 8872 (discussed earlier under Reporting Requirements for a Political Organization) are open to public inspection.
Electronically filed Forms 8871 and 8872 are available online 48 hours after the form has been filed. Forms 8872 that are filed by mail are available online after being imaged by the IRS. These forms are considered widely 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.
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.
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 aren't deductible because they are used for lobbying or political activities, and
Prohibited tax shelter transactions.
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 aren't deductible as charitable contributions for federal income tax purposes. The statement must be included in the fundraising solicitation and be conspicuous and easily recognizable.
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).
Certain exempt organizations must notify anyone paying dues to the organization whether any part of the dues isn't 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.
A social welfare organization described in section 501(c)(4) that isn't a veterans' organization.
An agricultural or horticultural organization described in section 501(c)(5).
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) doesn't have to provide the notice if it establishes that substantially all the dues paid to it aren't deductible anyway or if certain other conditions are met. For more information, see Rev. Proc. 98-19, 1998-1 C.B. 547 (or later update).
If the organization doesn't provide the required notice, it may have to pay a tax that is reported on Form 990-T. But the tax doesn't 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.
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.
If you’ve changed your form or place of organization, review Rev. Proc. 2018-15, 2018-9 I.R.B. 379, to determine whether you’re required to file a new exemption application. If your organization becomes inactive for a period of time but doesn't cease being an entity under the laws of the state in which it was formed, its exemption won't 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 doesn't 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.
Organizations that wish to modify or obtain a National Taxonomy of Exempt Entities (NTEE) Code should send a written request to the Correspondence Unit with the relevant facts, including the Code currently assigned, if any, and the requested Code, as well as who selected the currently assigned Code initially, if known. The Correspondence Unit will refer to EO Determinations, if necessary, and will notify the organization if a form or user fee is required to make the requested change. The written request must be sent to:Internal Revenue Service
Attn: Correspondence Unit
P.O. Box 2508, Room 6403
Cincinnati, Ohio 45201
Internal Revenue Service
Express and Overnight Delivery:
Attn: Correspondence Unit
500 Main Street, Room 6403
Cincinnati, Ohio 45202
An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes.
Testing for public safety.
Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter).
The prevention of cruelty to children or animals.
To qualify, the organization must be organized as a corporation (including a limited liability company), unincorporated association, or trust. Sole proprietorships, partnerships, individuals, or loosely associated groups of individuals won't qualify.
Contributions to 501(c)(3) organizations,
Applications for recognition of exemption,
Articles of Organization,
Educational organizations and private schools,
Organizations providing insurance,
Other section 501(c)(3) organizations,
Private foundations and public charities, and
Forms (and Instructions)
1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code
1023-EZ Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code
Form 1023-EZ must be filed electronically. as of January 31, 2020, Form 1023 also must be filed electronically.
See chapter 6 for information about getting publications and forms.
Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return.
This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. See the organization headings that follow for specific information your organization may need to provide.
The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government aren't prejudiced.
Some organizations aren't required to file Form 1023 or 1023-EZ. These include:
Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group.
Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later).
These organizations are exempt automatically if they meet the requirements of section 501(c)(3). However, such organizations will not appear on the Tax-Exempt Organization Search list of organizations eligible to receive tax-deductible contributions. These organizations also cannot obtain a written affirmation of their exempt status. To be included in the IRS database of exempt organizations and be eligible to receive a written determination or affirmation of exempt status, these organization must file Form 1023 or 1023-EZ.
Your organization must be a legal entity (corporation, trust or association) separate from its organizers and must have written articles of organization. Depending upon the type of entity, its articles organization may be a corporate charter (filed articles of incorporation), trust instrument, articles of association, or any other written instrument by which the organization was created. If applying for recognition of exemption using Form 1023, a conformed copy of the articles of organization must be uploaded with the application for recognition of exemption. See Form 1023 Part II. An organization applying for exemption using Form 1023-EZ does not submit a copy of the articles of organization with its application; however, the organization could be asked to provide a copy at any time as part of a compliance check or examination.
The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and mustn't expressly empower it to engage, other than as an insubstantial part of its activities, in activities that don't further one or more of those purposes. These conditions for exemption are referred to as the organizational test.
Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3).
The requirement that your organization's purposes and powers must be limited by the articles of organization isn't satisfied if the limit is contained only in the bylaws or other rules or regulations. Moreover, the organizational test isn't satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. Also, the test isn't satisfied by the fact that your actual operations are for exempt purposes.
In interpreting an organization's articles, the law of the state where the organization was created is controlling. If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities.
The following are examples illustrating the organizational test.
Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). These articles appropriately limit the organization's purposes. The organization meets the organizational test.
An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. The organization won't be properly limited as to its purposes since all research isn't scientific. The organization doesn't meet the organizational test.
An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). The organization meets the organizational test.
If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited.
If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement won't be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law.
If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes won't be sufficiently limited. Such purposes are vague and may be accomplished other than in an exempt manner.
A stated purpose to operate a hospital doesn't meet the organizational test since it isn't necessarily charitable. A hospital may or may not be exempt depending on the manner in which it is operated.
An organization that is expressly empowered by its articles to carry on social activities won't be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes.
Assets of an organization must be permanently dedicated to an exempt purpose. This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. If the assets could be distributed to members or private individuals or for any other purpose, the organizational test isn't met.
If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. You must submit a copy of the pertinent contracts, agreements, publications, programs, etc.
If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. See Form 1023 Schedule B and Private Schools , discussed later.
The term educational relates to:
The instruction or training of individuals for the purpose of improving or developing their capabilities, or
The instruction of the public on subjects useful to individuals and beneficial to the community.
Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information.
The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. (This information also must be projected, so far as may be feasible, for the next academic year.)
The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards.
A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations.
A statement indicating whether any of the persons described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed.
The public school district and county in which the school is located.
To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it doesn't discriminate against applicants and students on the basis of race, color, or national or ethnic origin. Also, the school must circulate information that clearly states the school's admission policies. A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school doesn't discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs.
The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin.
The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students.
A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance isn't discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy.
A school that selects students on the basis of membership in a religious denomination or unit isn't discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis.
If this method is used, the notice must meet the following printing requirements.
It must appear in a section of the newspaper likely to be read by prospective students and their families.
It must occupy at least 3 column inches.
It must have its title printed in at least 12 point bold face type.
It must have the remaining text printed in at least 8 point type.
The following is an acceptable example of the notice:
AS TO STUDENTS
|The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. It doesn't discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs.|
Rev. Proc. 2019-22, 2019-22 I.R.B. 1260 modifies Revenue Procedure 75-50, 1975-2 C.B. 587, to reflect technological advances since its publication and provides a third method for a private school to satisfy the requirement contained in section 4.03 of the revenue procedure by using its Internet website to publicize the school’s racially nondiscriminatory policy as to students. To satisfy the requirement using this method, the school may display a notice (consisting of the same language as in Method 1) of its racially nondiscriminatory policy on its primary publicly accessible Internet homepage at all times during its taxable year (excluding temporary outages due to website maintenance or technical problems) in a manner reasonably expected to be noticed by visitors to the homepage. See Rev. Proc. 2019-22 for more information about satisfying the publicity requirement using this method.
Recordkeeping requirements. With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition.
Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year.
Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis.
Copies of all materials used by or on behalf of the school to solicit contributions.
Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed.)
The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. However, a school can't discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS.
The IRS doesn't require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. Similarly, the IRS doesn't require a school to keep records prohibited under state or federal law.
An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance.
However, this rule doesn't apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next.
A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it satisfies all of the following requirements:
Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management,
Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a),
Is organized under state law authorizing this type of risk pooling,
Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization),
Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations,
Is controlled by a board of directors elected by its members, and
Is organized under documents requiring that:
Each member be a section 501(c)(3) organization exempt from tax under section 501(a),
Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and
Each insurance policy issued by the pool provide that it won't cover events occurring after a final determination described in (b).
In addition to the information required for all organizations, as described earlier, you should include any other information described in this section.
If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. Some examples of this type of organization are those organized for:
Relief of the poor, the distressed, or the underprivileged,
Advancement of religion,
Advancement of education or science,
Erection or maintenance of public buildings, monuments, or works,
Lessening the burdens of government,
Lessening of neighborhood tensions,
Elimination of prejudice and discrimination,
Defense of human and civil rights secured by law, and
Combating community deterioration and juvenile delinquency.
The rest of this section contains a description of the information to be provided by certain specific organizations. This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023 or 1023-EZ. Each of the following organizations must submit the information described.
To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines.
That the particular religious beliefs of the organization are truly and sincerely held.
That the practices and rituals associated with the organization's religious belief or creed aren't illegal or contrary to clearly defined public policy.
Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS won't question the religious nature of those beliefs.
You must show that your organization's research will be carried on in the public interest. Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes.
Aiding in the scientific education of college or university students.
Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form that is available to the interested public.
Discovering a cure for a disease.
Aiding a community or geographical area by attracting new industry to the community or area, or by encouraging the development or retention of an industry in the community or area.
Scientific research, for exemption purposes, doesn't include activities of a type ordinarily incidental to commercial or industrial operations such as the ordinary inspection or testing of materials or products, or the designing or constructing of equipment, buildings, etc.
If you engage or plan to engage in research, submit all of the following.
An explanation of the nature of the research.
A brief description of research projects completed or presently being engaged in.
How and by whom research projects are determined and selected.
Whether you have contracted or sponsored research, or contemplated doing so, and, if so, names of past sponsors or grantors, terms of grants or contracts, together with copies of any executed contracts or grants.
Disposition made or to be made of the results of your research, including whether preference has been or will be given to any organization or individual either as to results or time of release.
Who will retain ownership or control of any patents, copyrights, processes, or formulas resulting from your research.
A copy of publications or other media showing reports of your research activities. Only reports of your research activities or those conducted on your behalf, as distinguished from those of your creators or members conducted in their individual capacities, should be submitted.
If your organization is established to operate a book store or engage in publishing activities of any nature (printing, publication, or distribution of your own material or that printed or published by others and distributed by you), explain fully the nature of the operations, including whether sales are or will be made to the general public, the type of literature involved, and how these activities are related to your stated purposes.
There are two types of amateur athletic organizations that can qualify for tax-exempt status. The first type is an organization that fosters national or international amateur sports competition but only if none of its activities involve providing athletic facilities or equipment. The second type is a Qualified amateur sports organization (discussed below). The difference is that a qualified amateur sports organization can provide athletic facilities and equipment.
Donations to either type of amateur athletic organization are deductible as charitable contributions on the donor's federal income tax return. However, no deduction is allowed if there is a direct personal benefit to the donor or any other person other than the organization.
Examples of activities that may qualify this type of organization for exempt status are:
Preventing children from working in hazardous trades or occupations,
Promoting high standards of care for laboratory animals, and
Providing funds to pet owners to have their pets spayed or neutered to prevent overbreeding.
It is important that you determine if your organization is a private foundation. Most organizations exempt from income tax (as organizations described in section 501(c)(3)) are presumed to be private foundations unless they notify the IRS within a specified period of time that they meet the requirements of section 509(a) to be treated as other than a private foundation. This notice requirement applies to most section 501(c)(3) organizations regardless of when they were formed. See Form 1023, Part VII.
Every organization that qualifies for tax exemption as an organization described in section 501(c)(3) is a private foundation unless it falls into one of the categories specifically excluded from the definition of that term (referred to in sections 509(a)(1), 509(a)(2), 509(a)(3), or 509(a)(4)). In effect, the definition divides these organizations into two classes, namely private foundations and public charities. Public charities are discussed later.
Organizations that fall into the excluded categories are generally those that either have broad public support or actively function in a supporting relationship to those organizations. Organizations that test for public safety also are excluded.
Any other provisions of this instrument notwithstanding, the trustees shall distribute its income for each tax year at a time and in a manner as not to become subject to the tax on undistributed income imposed by section 4942 of the Internal Revenue Code, or the corresponding section of any future federal tax code.
Any other provisions of this instrument notwithstanding, the trustees won't engage in any act of self-dealing as defined in section 4941(d) of the Internal Revenue Code, or the corresponding section of any future federal tax code; nor retain any excess business holdings as defined in section 4943(c) of the Internal Revenue Code, or the corresponding section of any future federal tax code; nor make any investments in a manner as to incur tax liability under section 4944 of the Internal Revenue Code, or the corresponding section of any future federal tax code; nor make any taxable expenditures as defined in section 4945 (d) of the Internal Revenue Code, or the corresponding section of any future federal tax code.
A private foundation is any organization described in Section 501(c)(3), unless it falls into one of the categories specifically excluded from the definition of that term in section 509(a), which lists four basic categories of exclusions. These categories are discussed under the Section 509(a)(1), 509(a)(2), 509(a)(3), and 509(a)(4) Organizations headings that follow this introduction. See Section 509(a)(1) Organizations, etc.
If your organization falls into one of these categories, it isn't a private foundation and you should state this in Part VII of Form 1023 or Part IV of Form 1023-EZ.
If your organization doesn't fall into one of these categories, it is a private foundation and is subject to the applicable rules and restrictions until it terminates its private foundation status. Some private foundations also qualify as private operating foundations; these are discussed near the end of this chapter.
Generally speaking, a large class of organizations excluded under section 509(a)(1) and all organizations excluded under section 509(a)(2) depend upon a support test. This test is used to assure a minimum percentage of broad-based public support in the organization's total support pattern. Thus, in the following discussions, when the one-third support test (see Qualifying as Publicly Supported , later) is referred to, it means the following fraction normally must equal at least one-third.
Including items of support in qualifying support (the numerator of the fraction) or excluding items of support from total support (the denominator of the fraction) may decide whether an organization is excluded from the definition of a private foundation, and thus from the liability for certain excise taxes. It is very important to classify items of support correctly.
Section 509(a)(1) organizations include:
A church or a convention or association of churches,
An educational organization such as a school or college,
A hospital or medical research organization operated in conjunction with a hospital,
Endowment funds operated for the benefit of certain state and municipal colleges and universities,
A governmental unit,
An agricultural research organization, and
A publicly supported organization.
An organization will qualify as publicly supported if it passes the one-third support test. If it fails that test, it may qualify under the facts and circumstances test.
M is recognized as an organization described in section 501(c)(3). For the years 2015 through 2019 (the applicable period for the tax year 2019 under Regulations section 1.170A-9(f)(3)), M received support (as defined in paragraphs Regulations section 1.170A-9(f)(6) through (8)) of $600,000 from the following sources:
|City Y (a governmental unit described in section 170(c)(1))||
|United Way (an organization described in section 170(b)(1)(A)(vi))||
For tax year 2019, M's public support is computed as follows:
|One-third of total support||$200,000|
|Support from a governmental unit described in section 170(c)(1)||$40,000|
|Indirect contributions from the general public (United Way)||40,000|
|Contributions by various donors (no one having made contributions that total more than $12,000—2% of total support)||50,000|
|Six contributions (each in excess of $12,000—2% of total support) 6 × $12,000||72,000|
M's support from governmental units and from direct and indirect contributions from the general public for the 2018 tax year normally exceeds one-third of M's total support ($202,000/$600,000 = 33.67 percent) for the applicable period (2014 through 2018). M meets the one-third support test for 2019 and is therefore publicly supported for the tax years 2019 and 2020.
N is recognized as an organization described in section 501(c)(3). It was created to maintain public gardens containing botanical specimens and displaying statuary and other art objects. The facilities, works of art, and a large endowment were all contributed by a single contributor. The members of the governing body of the organization are unrelated to its creator. The gardens are open to the public without charge and attract many visitors each year. For the current tax year and the 4 tax years preceding the current tax year, 95% of the organization's total support was received from investment income from its original endowment. N also maintains a membership society that is supported by members of the general public who wish to contribute to the upkeep of the gardens by paying a small annual membership fee. Over the 5-year period in question, these fees from the general public constituted the remaining 5% of the organization's total support. Under these circumstances, N doesn't meet the one-third support test for its current tax year. Furthermore, since only 5% was received from the general public, N doesn't satisfy the 10 percent support limitation under Regulations section 1.170A-9(f)(3)(i), and therefore doesn't qualify as publicly supported under the facts and circumstances test. Because N has failed to satisfy the 10 percent support limitation, none of the other requirements or factors in Regulations section 1.170A-9(f)(3)(iii)(A) through (E) can be considered in determining whether N qualifies as a publicly supported organization. For its current tax year, N isn't an organization described in section 170(b)(1)(A)(vi).
O, an art museum, is recognized as an organization described in section 501(c)(3). In 1930, O was founded in S City by members of a single family to collect, preserve, interpret, and display to the public important works of art. O is governed by a Board of Trustees that originally consisted almost entirely of members of the founding family. However, since 1945, members of the founding family or persons standing in relationship to the members of that family described in section 4946(a)(1)(C) through (G) have annually constituted less than one-fifth of the Board of Trustees. The remaining board members are citizens of S City from a variety of professions and occupations who represent the interests and views of the people of S City in the activities carried on by the organization rather than the personal or private interests of the founding family. O solicits contributions from the general public, and for the current tax year and each of the 4 tax years immediately preceding the current tax year, O has received total contributions (in small sums of less than $100, none of which exceeds 2 percent of O's total support for such period) in excess of $10,000. These contributions from the general public represent 25 percent of the organization's total support for that 5-year period. For the same period, investment income from several large endowment funds has constituted 75 percent of O's total support. O expends substantially all of its annual income for its exempt purposes and thus depends on the funds it annually solicits from the public as well as its investment income in order to carry out its activities on a normal and continuing basis and to acquire new works of art. O has, for the entire period of its existence, been open to the public and more than 300,000 people (from S City and elsewhere) have visited the museum in the current tax year and the 4 years immediately preceding the current tax year.
Under these circumstances, O doesn't meet the one-third support test for its current year because it has received only 25 percent of its total support for the applicable 5-year period from the general public. However, under the facts set forth, O has met the 10 percent support limitation under Regulations section 1.170A-9(f)(3)(i), as well as the requirements of Regulations section 1.170A-9(f)(3)(ii). Under all of the facts set forth, O is considered as meeting the requirements of the facts and circumstances test on the basis of satisfying Regulations section 1.170A-9(f)(3)(iii)(A) through (D). O is therefore publicly supported for its current tax year and the immediately succeeding tax year.
In 1960, the P Philharmonic Orchestra was organized in T City by a local music society and a local women's club to present to the public a wide variety of musical programs intended to foster music appreciation in the community. P is recognized as an organization described in section 501(c)(3). The orchestra is composed of professional musicians who are paid by the association. Twelve performances, open to the public, are scheduled each year. A small admission charge is made for each of these performances. In addition, several performances are staged annually without charge.
During the current tax year and the 4 tax years immediately preceding the current tax year, P received separate contributions of $200,000 each from A and B (not members of a single family) and support of $120,000 from the T Community Chest, a public federated fundraising organization operating in T City. P depends on these funds to carry out its activities and will continue to depend on contributions of this type to be made in the future. P has also begun a fundraising campaign in an attempt to expand its activities for the coming years.
P is governed by a Board of Directors composed of five individuals. A faculty member of a local college, the president of a local music society, the head of a local banking institution, a prominent doctor, and a member of the governing body of the local Chamber of Commerce currently serve on the Board and represent the interests and views of the community in the activities carried on by P.
For P's current tax year, its sources of support are computed on the basis of the current tax year and the 4 immediately preceding tax years, as follows.
|Receipts from performances||100,000|
|Receipts from performances (excluded, see Support)||100,000|
|T Community Chest (indirect support from the general public)||$120,000|
|Two contributions (each over $10,400—2% of total support) 2 × $10,400||20,800|
|Total support from general public||$140,800|
P's support from the general public, directly and indirectly, doesn't meet the one-third support test ($140,800/$520,000 = 27% of total support). However, because P receives 27 percent of its total support from the general public, it meets the 10 percent support limitation under Regulations section 1.170A-9(f)(3)(i). P also meets the requirements of Regulations section 1.170A-9(f)(3)(ii). As a result of satisfying these requirements and factors, P is considered to meet the facts and circumstances test and therefore qualifies as a publicly supported organization for its current tax year and the immediately succeeding tax year.
Q is recognized as an organization described in section 501(c)(3) and it is a philanthropic organization. Q was founded in 1965 by C for the purpose of making annual contributions to worthy charities. C created Q as a charitable trust by transferring $500,000 worth of appreciated securities to Q.
Under the trust agreement, C and two other family members are the sole trustees of Q and are vested with the right to appoint successor trustees. In each of the current tax year and the 4 tax years immediately preceding the current tax year, Q received $12,000 in investment income from its original endowment. Each year Q solicits funds by operating a charity ball at C's residence. Guests are invited and asked to make contributions of $100 per couple. During the 5-year period involved, $15,000 was received from the proceeds of these events. C and his family have also made contributions to Q of $25,000 over the 5-year period at issue. Q makes disbursements each year of substantially all of its net income to the public charities chosen by the trustees.
Q's sources of support for the current tax year and the 4 tax years immediately preceding the current tax year are as follows:
|Contributions from the general public||$15,000|
|One contribution (over $2,000—2% of total support) 1 × $2,000||2,000|
|Total support from general public||$17,000|
Q's support from the general public doesn't meet the one-third support test ($17,000/$100,000 = 17% of total support). Even though it does meet the ten-percent-of-support requirement, its method of solicitation makes it questionable whether Q satisfies Regulations section 1.170A-9(f)(3)(ii). Because of its method of operating, Q also has a greater burden of establishing its publicly supported nature. Based on these facts and on Q's failure to receive favorable consideration under the remaining factors of Regulations section 1.170A-9(f)(3)(iii), Q doesn't satisfy the facts and circumstances test and therefore doesn't qualify as a publicly supported organization.
Community trusts are often established to attract large contributions of a capital or endowment nature for the benefit of a particular community or area. Often these contributions come initially from a small number of donors. While the community trust generally has a governing body composed of representatives of the particular community or area, its contributions are often received and maintained in the form of separate trusts or funds that are subject to varying degrees of control by the governing body.
To qualify as a publicly supported organization, a community trust must meet the one-third support test, explained earlier under Qualifying as Publicly Supported. If it can't meet that test, it must be organized and operated so as to attract new and additional public or governmental support on a continuous basis sufficient to meet the facts and circumstances test, also explained earlier. Community trusts are generally able to satisfy the attraction of public support requirement (as contained in the facts and circumstances test) if they seek gifts and bequests from a wide range of potential donors in the community or area served, through banks or trust companies, through attorneys or other professional persons, or in other appropriate ways that call attention to the community trust as a potential recipient of gifts and bequests made for the benefit of the community or area served. A community trust, however, doesn't have to engage in periodic, community-wide, fundraising campaigns directed toward attracting a large number of small contributions in a manner similar to campaigns conducted by a community chest or a united fund.
Section 509(a)(2) excludes certain types of broadly based, publicly supported organizations from private foundation status. Generally, an organization described in section 509(a)(2) may also fit the description of a publicly supported organization under section 509(a)(1). There are, however, two basic differences.
For section 509(a)(2) organizations, the term support includes items of support discussed earlier (under Support , in the discussion of Section 509(a)(1) Organizations) and income from activities directly related to their exempt function. This income isn't included in meeting the support test for a publicly supported organization under section 509(a)(1).
Section 509(a)(2) places a limit on the total gross investment income and unrelated business taxable income (in excess of the unrelated business tax) an organization may have, while section 509(a)(1) doesn't.
To be excluded from private foundation treatment under section 509(a)(2), an organization must meet two support tests.
The one-third support test.
The not-more-than-one-third support test.
Both these tests are designed to ensure that an organization excluded from private foundation treatment is responsive to the general public, rather than to the private interests of a limited number of donors or other persons.
Section 509(a)(3) excludes from the definition of private foundation those organizations that meet all of the three following requirements.
The organization must be organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified organizations as described in sections 509(a)(1) or 509(a)(2). These section 509(a)(1) and 509(a)(2) organizations are commonly called publicly supported organizations.
The organization has one of three types of relationships with one or more organizations described in sections 509(a)(1) or 509(a)(2). It must be:
Operated, supervised, or controlled by one or more section 509(a)(1) or 509(a)(2) organizations (Type I supporting organization),
Supervised or controlled in connection with one or more section 509(a)(1) or 509(a)(2) organizations (Type II supporting organization), or
Operated in connection with one or more section 509(a)(1) or 509(a)(2) organizations (Type III supporting organization).
The organization mustn't be controlled directly or indirectly by disqualified persons (defined later) other than foundation managers and other than one or more organizations described in section 509(a)(1) or 509(a)(2).
Section 509(a)(3) differs from the other provisions of section 509 that describe a publicly supported organization. Instead of describing an organization that conducts a particular kind of activity or that receives financial support from the general public, section 509(a)(3) describes organizations that have established certain relationships in support of section 509(a)(1) or 509(a)(2) organizations. Thus, an organization can qualify as other than a private foundation even though it may be funded by a single donor, family, or corporation (with certain exceptions described in Organizations controlled by donors , later). This kind of funding ordinarily would indicate private foundation status, but a section 509(a)(3) organization has limited purposes and activities and gives up a significant degree of independence.
More than one type of relationship may exist between a supporting organization and a publicly supported organization. Any relationship, however, must ensure that the supporting organization will be responsive to the needs or demands of, and will be an integral part of or maintain a significant involvement in, the operations of one or more publicly supported organizations.
The Type I and Type II relationships rely on majority control of the governing body of the supporting organization by the publicly supported organization. They have the same rules for meeting the tests under requirement (1) and are discussed in Category one , below. The operated in connection with relationship requires that the supporting organization be responsive to and have operational relationships with publicly supported organizations. This third relationship has different rules for meeting the requirement (1) tests and is discussed separately in Category two , later.
For more information about applying for section 501(c)(3) status see Life Cycle of a Private Foundation at IRS.gov.
Section 509(a)(4) excludes from classification as private foundations those organizations that qualify under section 501(c)(3) as organized and operated for the purpose of testing products for public safety. Generally, these organizations test consumer products to determine their acceptability for use by the general public.
If your organization ceases to qualify as a public charity under section 509(a)(1) – (4), it becomes a private foundation. The organization must file Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as a Private Foundation to satisfy its filing obligation. The organization can no longer file Form 990, 990-EZ or 990-N. A private foundation retains that status unless or until it terminates its private foundation status under section 507.
Private foundations are divided into 2 categories -- nonoperating private foundations and private operating foundations. Nonoperating foundations generally accomplish their charitable purpose by making grants to other charities. Operating foundations make qualifying distributions directly for the active conduct of their educational, charitable, and religious purposes.
Most of the restrictions and requirements that apply to private foundations also apply to private operating foundations. However, there are advantages to being classified as a private operating foundation. For example, a private operating foundation (as compared to a private foundation) can be the recipient of grants from a private foundation without having to distribute the funds received currently within 1 year, and the funds nevertheless may be treated as qualifying distributions by the donating private foundation; charitable contributions to a private operating foundation qualify for a higher charitable deduction limit on the donor's tax return; and the excise tax on net investment income doesn't apply to an exempt operating foundation (a private operating foundation that meets certain additional requirements - see Exempt operating foundations, later).
A private operating foundation is any private foundation that meets the assets test, the support test, or the endowment test, and makes qualifying distributions directly, for the active conduct of its activities for which it was organized, of substantially all (85% or more) of the lesser of its:
Adjusted net income, or
Minimum investment return.
In general, if a substantial part of the activities of your organization consists of carrying on propaganda or otherwise attempting to influence legislation, your organization's exemption from federal income tax will be denied. However, a public charity (other than a church, an integrated auxiliary of a church or of a convention or association of churches, or a member of an affiliated group of organizations that includes a church, etc.) may avoid this result. Such a charity can elect to replace the substantial part of activities test with a limit defined in terms of expenditures for influencing legislation. Private foundations can't make this election.
This chapter contains specific information for certain organizations described in section 501(c), other than those organizations that are described in section 501(c)(3). Section 501(c)(3) organizations are covered in chapter 3 of this publication.
The Table of Contents at the beginning of this publication, as well as the Organization Reference Chart, may help you locate at a glance the type of organization discussed in this chapter.
If your organization isn't organized for profit and will be operated primarily to promote social welfare to benefit the community, it may qualify for exemption under section 501(c)(4).
To qualify for exemption under section 501(c)(4), no part of the organization's net earnings can inure to the benefit of any private shareholder or individual. If the organization provides an excess benefit to certain persons, an excise tax may be imposed. See Excise tax on excess benefit transactions , under Excess Benefit Transactions in chapter 5 for more information about this tax.
For more information on social welfare organizations, see Life Cycle of a Social Welfare Organization.
If you are a member of an organization that wants to obtain recognition of exemption from federal income tax as a labor, agricultural, or horticultural organization, you should submit an application on Form 1024. You must indicate in your application for exemption and accompanying statements that no part of the organization's net earnings will inure to the benefit of any member. In addition, you should follow the procedure for obtaining recognition of exempt status described in chapter 1. Submit any additional information that may be required, as described in this section.
A labor organization is an association of workers who have combined to protect and promote the interests of the members by bargaining collectively with their employers to secure better working conditions, wages, and similar benefits.
To show that your organization has the purpose of a labor organization, you should include in your organizing document or accompanying statements (submitted with your exemption application) information establishing that the organization is organized to better the conditions of workers, improve the grade of their products, and develop a higher degree of efficiency in their respective occupations. In addition, no net earnings of the organization can inure to the benefit of any member.
Agricultural and horticultural organizations are connected with raising livestock, cultivating land, raising and harvesting crops or aquatic resources, cultivating useful or ornamental plants, and similar pursuits.
For the purpose of these provisions, aquatic resources include only animal or vegetable life, but not mineral resources. The term harvesting, in this case, includes fishing and related pursuits.
Agricultural organizations are often designed to encourage the development of better agricultural and horticultural products through a system of awards, using income from entry fees, gate receipts, and donations to meet the necessary expenses of upkeep and operation. When the activities are directed toward the improvement of marketing or other business conditions in one or more lines of business, rather than the improvement of production techniques or the betterment of the conditions of persons engaged in agriculture, the organization must qualify for exemption as a business league, board of trade, or other organization, as discussed next in the section on 501(c)(6) organizations.
The primary purpose of exempt agricultural and horticultural organizations must be to better the conditions of those engaged in agriculture or horticulture, develop more efficiency in agriculture or horticulture, or improve the products.
The following list contains some examples of activities that show an agricultural or horticultural purpose.
Promoting various cooperative agricultural, horticultural, and civic activities among rural residents by a state, farm, or home bureau.
Exhibiting livestock, farm products, and other characteristic features of agriculture and horticulture.
Testing soil for members and nonmembers of the farm bureau on a cost basis, the results of the tests and other recommendations being furnished to the community members to educate them in soil treatment.
Guarding the purity of a specific breed of livestock.
Encouraging improvements in the production of fish on privately owned fish farms.
Negotiating with processors for the price to be paid to members for their crops.
For more information on agricultural or horticultural organizations, see Life Cycle of an Agricultural or Horticultural Organization.
If your organization wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. For a discussion of the procedure to follow, see chapter 1.
Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it isn't organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining).
In addition, your organization must be primarily engaged in activities or functions that are the basis for its exemption. It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose.
A business league, in general, is an association of persons having some common business interest, the purpose of which is to promote that common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Trade associations and professional associations are considered business leagues.
If your club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes, it should file Form 1024 to apply for recognition of exemption from federal income tax.
In applying for recognition of exemption, you should submit the information described in this section. Also see chapter 1 for the procedures to follow.
Typical organizations that should file for recognition of exemption as social clubs include:
College alumni associations that aren't described in chapter 3 under Alumni association ,
College fraternities or sororities operating chapter houses for students,
Amateur hunting, fishing, tennis, swimming, and other sport clubs,
Dinner clubs that provide a meeting place, library, and dining room for members,
Garden clubs, and
This section describes the information to be provided upon application for recognition of exemption by two types of fraternal societies: beneficiary and domestic. The major distinction is that fraternal beneficiary societies provide for the payment of life, sick, accident, or other benefits to their members or their dependents, while domestic fraternal societies don't provide these benefits but rather devote their earnings to fraternal, religious, charitable, etc., purposes. The procedures to follow in applying for recognition of exemption are described in chapter 1.
If your organization is controlled by a central organization, you should check with your controlling organization to determine whether your unit has been included in a group exemption letter or can be added. If so, your organization need not apply for individual recognition of exemption. For more information, see Group Exemption Letter in chapter 1 of this publication.
A fraternal beneficiary society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. The application and accompanying statements should establish that the organization:
Is a fraternal organization,
Operates under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system, and
Provides for the payment of life, sick, accident, or other benefits to the members of the society, order, or association or their dependents.
A domestic fraternal society, order, or association must file an application for recognition of exemption from federal income tax on Form 1024. The application and accompanying statements should establish that the organization:
Is a domestic fraternal organization organized in the U.S.,
Operates under the lodge system,
Devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes, and
Doesn’t provide for the payment of life, sick, accident, or other benefits to its members.
The organization can arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status.
This section describes the information to be provided upon application for recognition of exemption by the following types of employees' associations:
A voluntary employees' beneficiary association (including federal employees' associations) organized to pay life, sick, accident, and similar benefits to members or their dependents, or designated beneficiaries, if no part of the net earnings of the association inures to the benefit of any private shareholder or individual, and
A supplemental unemployment benefit trust whose primary purpose is providing for payment of supplemental unemployment benefits.
Both the application form to file and the information to provide are discussed later under the section that describes your employee association. Chapter 1 describes the procedures to follow in applying for exemption.
A local association of employees whose membership is limited to employees of a designated person or persons in a particular municipality, and whose income will be devoted exclusively to charitable, educational, or recreational purposes. A local employees' association must apply for recognition of exemption by filing Form 1024-A. The organization must submit evidence that:
It is of a purely local character,
Its membership is limited to employees of a designated person or persons in a particular locality, and
Its net earnings will be devoted exclusively to charitable, educational, or recreational purposes.
A local association of employees that has established a system of paying retirement or death benefits, or both, to its members won't qualify for exemption since the payment of these benefits isn't considered as being for charitable, educational, or recreational purposes. Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services, and activities doesn't qualify for exemption.
An application for recognition of exemption as a voluntary employees' beneficiary association must be filed on Form 1024. The material submitted with the application must show that your organization:
Is a voluntary association of employees,
Will provide for payment of life, sick, accident, or other benefits to members or their dependents or designated beneficiaries and substantially all of its operations are for this purpose, and
won't allow any of its net earnings to inure to the benefit of any private individual or shareholder except in the form of scheduled benefit payments.
To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement.
A trust or trusts forming part of a written plan (established and maintained by an employer, his or her employees, or both) providing solely for the payment of supplemental unemployment compensation benefits must file the application for recognition of exemption on Form 1024. The trust must be a valid, existing trust under local law and must be evidenced by an executed document. A conformed copy of the plan of which the trust is a part should be attached to the application.
To be complete, an application must include a copy of the document (such as the trust instrument) by which the organization was created; a full description of the benefits available to participants and the terms and conditions of eligibility for benefits (usually contained in a plan document); and, if providing benefits pursuant to a collective bargaining agreement, a copy of that agreement.
501(c)(12) - Local Benevolent Life Insurance Associations, Mutual Irrigation and Telephone Companies, and Like Organizations
Each of the following organizations apply for recognition of exemption from federal income tax by filing Form 1024.
Benevolent life insurance associations of a purely local character and like organizations.
Mutual ditch or irrigation companies and like organizations.
Mutual or cooperative telephone companies and like organizations.
A like organization is an organization that performs a service comparable to that performed by any one of the above organizations.
The information to be provided upon application by each of these organizations is described in this section. For information as to the procedures to follow in applying for exemption, see chapter 1.
All of the organizations listed above must submit evidence with their application that they receive 85% or more of their gross income from their members for the sole purpose of meeting losses and expenses. Nevertheless, certain items of income are excluded from the computation of the 85% requirement if the organization is a mutual or cooperative telephone or electric company.
The 85% requirement is applied on the basis of an annual accounting period. Failure of an organization to meet the requirement in a particular year precludes exemption for that year, but has no effect upon exemption for years in which the 85% requirement is met.
Gain from the sale or conversion of the organization's property isn't considered an amount received from members in determining whether the organization's income consists of amounts collected from members.
Because the 85% income test is based on gross income, capital losses can't be used to reduce capital gains for purposes of this test.
In the past, government grants were not treated as income but as contributions to capital. Under the Tax Cuts & Jobs Act, Pub. L. No. 115-97 § 13312, section 118 was amended so that government grants may no longer be treated as capital contributions. In 2019, Pub. L. No. 116-94 amended section 501(c)(12) to exclude from the 85% requirement certain government grants for assistance to mutual and cooperative telephone and electric companies.
A benevolent life insurance association or an organization seeking recognition of exemption on grounds of similarity to a benevolent life insurance association must submit evidence upon applying for recognition of exemption that it will be of a purely local character, that its excess funds will be refunded to members or retained in reasonable reserves to meet future losses and expenses, and that it meets the 85% income requirement. If an organization issues policies for stipulated cash premiums, or if it requires advance deposits to cover the cost of the insurance and maintains investments from which more than 15% of its income is derived, it won't be entitled to exemption.
To establish that your organization is of a purely local character, it should show that its activities will be confined to a particular community, place, or district irrespective of political subdivisions. If the activities of an organization are limited only by the borders of a state, it can't be purely local in character. A benevolent life insurance association that doesn't terminate membership when a member moves from the local area in which the association operates will qualify for exemption if it meets the other requirements.
A copy of each type of policy issued by your organization should be included with the application for recognition of exemption.
If your organization wishes to obtain recognition of exemption from federal income tax as a cemetery company or a corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, it must file an application on Form 1024. For the procedure to follow to file an application, see Application, Approval, and Appeal Procedures in chapter 1.
A nonprofit mutual cemetery company that seeks recognition of exemption should submit evidence with its application that it is owned and operated exclusively for the benefit of its lot owners who hold lots for bona fide burial purposes and not for purposes of resale. A mutual cemetery company that also engages in charitable activities, such as the burial of paupers, will be regarded as operating within this standard. The fact that a mutual cemetery company limits its membership to a particular class of individuals, such as members of a family, won't affect its status as mutual so long as all the other requirements of section 501(c)(13) are met.
If your organization is a nonprofit corporation chartered solely for the purpose of the disposal of human bodies by burial or cremation, you should show that it isn't permitted by its charter to engage in any business not necessarily incident to that purpose. Operating a mortuary isn't permitted. However, selling monuments, markers, vaults, and flowers solely for use in the cemetery is permitted if the profits from these sales are used to maintain the cemetery as a whole.
No part of the net earnings of your organization can inure to the benefit of any private shareholder or individual.
Ordinary and necessary expenses in connection with the operation, management, maintenance, and improvement of the cemetery are permitted, as are reasonable fees for the services of a manager.
If your organization wants to obtain recognition of exemption as a credit union without capital stock, organized and operated under state law for mutual purposes and without profit, it must file an application that includes the facts, information, and attachments described in this section. In addition, it should follow the procedures for filing an application described in Application Procedures in chapter 1.
Federal credit unions organized and operated in accordance with the Federal Credit Union Act, as amended, are instrumentalities of the United States and, therefore, are exempt under section 501(c)(1). They are included in a group exemption letter issued to the National Credit Union Administration. They aren't discussed in this publication.
State-chartered credit unions and other mutual financial organizations file applications for recognition of exemption from federal income tax under section 501(c)(14). The other mutual financial organizations must be corporations or associations without capital stock organized before September 1, 1957, and operated for mutual purposes and without profit to provide reserve funds for, and insurance of, shares or deposits in:
Domestic building and loan associations,
Cooperative banks (without capital stock) organized and operated for mutual purposes and without profit,
Mutual savings banks (not having capital stock represented by shares), or
Mutual savings banks described in section 591(b).
Similar organizations, formed before September 1, 1957, that provide reserve funds for (but not insurance of shares or deposits in) one of the types of savings institutions described in (1), (2), or (3) above may be exempt from tax if 85% or more of the organization's income is from providing reserve funds and from investments. There is no specific restriction against the issuance of capital stock for these organizations.
Building and loan associations, savings and loan associations, mutual savings banks, and cooperative banks, other than those described in this section, aren't exempt from tax. However, certain corporations organized and operated in conjunction with farmers' cooperatives can be exempt under section 521.
Your organization must show on its application that it is formed under a state credit union law, the state and date of incorporation, and that the state credit union law with respect to loans, investments, and dividends, if any, is being complied with.
A form of statement furnished to applicants by the Credit Union National Association is acceptable in meeting the application requirements for credit unions, and may be used instead of the statement form of application just described. The following is a reproduction of that form.
Signature of OfficerTitle
Every other organization included in this section must show in its application the state in which the organization is incorporated and the date of incorporation; the character of the organization; the purpose for which it was organized; its actual activities; the sources of its receipts and the disposition thereof; whether any of its income may be credited to surplus or may benefit any private shareholder or individual; whether the law relating to loans, investments, and dividends is being complied with; and, in general, all facts relating to its operations that affect its right to exemption.
The application must include detailed information showing either that the organization provides both reserve funds for and insurance of shares and deposits of its member financial organizations or that the organization provides reserve funds for shares or deposits of its members and 85% or more of the organization's income is from providing reserve funds and from investments. There should be attached a conformed copy of the articles of incorporation or other document setting forth the permitted powers or activities of the organization; the bylaws or other similar code of regulations; and the latest annual financial statement showing the receipts, disbursements, assets, and liabilities of the organization.
A post or organization of past or present members of the Armed Forces of the United States must file Form 1024 to apply for recognition of exemption from federal income tax. You should follow the general procedures outlined in chapter 1. The organization must also meet the qualifications described in this section.
Examples of groups that qualify for exemption are posts or auxiliaries of the American Legion, Veterans of Foreign Wars, and similar organizations.
To qualify for recognition of exemption, your application should show:
That the post or organization is organized in the United States or any of its possessions,
That at least 75% of the members are past or present members of the U.S. Armed Forces and that at least 97.5% of all members of the organization are past or present members of the U.S. Armed Forces, cadets (including only students in college or university ROTC programs or at armed services academies) or spouses, widows, widowers, ancestors, or lineal descendants of any of those listed here, and
That no part of net earnings inure to the benefit of any private shareholder or individual.
In addition to these requirements, a veterans' organization also must be operated exclusively for one or more of the following purposes.
To promote the social welfare of the community (that is, to promote in some way the common good and general welfare of the people of the community).
To assist disabled and needy war veterans and members of the U.S. Armed Forces and their dependents and the widows and orphans of deceased veterans.
To provide entertainment, care, and assistance to hospitalized veterans or members of the U.S. Armed Forces.
To carry on programs to perpetuate the memory of deceased veterans and members of the Armed Forces and to comfort their survivors.
To conduct programs for religious, charitable, scientific, literary, or educational purposes.
To sponsor or participate in activities of a patriotic nature.
To provide insurance benefits for its members or dependents of its members or both.
To provide social and recreational activities for its members.
If your organization wishes to obtain recognition of exemption as a black lung benefit trust, it must file its application by letter and include a copy of its trust instrument. The general procedures to follow for obtaining recognition are discussed in chapter 1 of this publication. This section describes the additional (or specific) information to be provided upon application.
If your organization wants to obtain recognition of exemption from federal income tax as a corporation organized to hold title to property, collect income from that property, and turn over the entire amount less expenses to a single parent organization that is exempt from income tax, it must file its application on Form 1024. The information to submit upon application is described in this section. For a discussion of the procedures for obtaining recognition of exemption, see chapter 1, Application Procedures.
You must show that your organization is a corporation. If you are in doubt as to whether your organization qualifies as a corporation for this purpose, contact your IRS office.
A title-holding corporation will qualify for exemption only if there is effective ownership and control over it by the distributee exempt organization. For example, the distributee organization may control the title-holding corporation by owning its voting stock or possessing the power to select nominees to hold its voting stock.
If your organization wants to obtain recognition of exemption from federal income tax as an organization organized for the exclusive purpose of acquiring, holding title to, and collecting income from real property, and turning over the entire amount less expenses to member organizations exempt from income tax, it should file its application on Form 1024. For a discussion of the procedures for obtaining recognition of exemption, see chapter 1, Application Procedures.
In general, the receipt of unrelated business income by a section 501(c)(25) organization will subject the organization to loss of exempt status since the organization can't be exempt from taxation if it engages in any business other than that of holding title to real property and collecting the income from the property. However, exempt status generally won't be affected by the receipt of debt-financed income that is treated as unrelated business taxable income solely because of section 514.
Under section 514(c)(9), certain shareholders or beneficiaries aren't subject to unrelated debt-financed income tax under section 514 on their investments through the organization. These shareholders are generally schools, colleges, universities, or supporting organizations of such educational institutions. Organizations other than these will take into account as gross income from an unrelated trade or business their pro rata share of income that is treated as unrelated debt-financed income because section 514(c)(9) doesn't apply. These organizations will also take their pro rata share of the allowable deductions from unrelated taxable income.
A state-sponsored organization established to provide medical care to high-risk individuals should apply by letter for recognition of exemption from federal income tax under section 501(c)(26).
To qualify for exemption, the organization must be a membership organization established by a state exclusively to provide coverage for medical care on a nonprofit basis to high-risk individuals who are state residents. It can provide coverage either by issuing insurance itself or by entering into an arrangement with a health maintenance organization (HMO).
The state must determine the composition of membership in the organization. No part of the net earnings of the organization can inure to the benefit of any private shareholder or individual.
This includes a qualified nonprofit health insurance issuer which has received a loan or grant under the CO-OP Program under this section of the Code.
Section 501(c)(29), added to the Code by section 1322(h)(1) of the Affordable Care Act, provides for the exemption of qualified nonprofit health insurance issuers (QNHIIs) that have received a loan or grant under the Centers for Medicare and Medicaid Services (CMS) CO-OP program for periods that they meet both the requirements of section 1322 of the Affordable Care Act and of any loan agreement with CMS. The CO-OP program provides loans and repayable grants to foster the creation of member governed QNHIIs that will operate with a strong consumer focus and offer qualified health insurance plans. Notice 2011-23, 2011-13 I.R.B. 588, discussed requirements for tax exemption for QNHIIs described in Internal Revenue Code section 501(c)(29). The Notice provides guidance on the annual filing requirement for organizations that intend to apply for recognition of section 501(c)(29) status. Rev. Proc. 2015-17, 2015-7 I.R.B. 599, sets out the procedures for issuing determination letters on the exempt status of QNHIIs and provides guidance on the effective date of exempt status. Rev. Proc. 2015-17, supplemented by Rev. Proc. 2020-5.
In general, section 501(c)(29) applies to certain organizations receiving loans or repayable grants under the CO-OP program. An organization will qualify for exemption under section 501(c)(29) only if:
The organization has received a loan or a repayable grant under the CO-OP program and is in compliance with all requirements of the CO-OP program and any agreement with CMS;
The organization has applied for recognition of exemption;
No part of the organization’s net earnings inures to the benefit of any private shareholder or individual, except that the organization is required by section 1322(c)(4) of the Affordable Care Act to use its profits to lower premiums, improve benefits or improve the quality of health care delivered to its members;
No substantial part of the organization’s activities involves attempts to influence legislation; and
The organization doesn't participate or intervene in political campaigns. See Rev. Proc. 2015-17 for complete instructions for filing exemption applications.
An organization claiming exempt status under section 501(c)(29) that intends to file an application for recognition of exemption should begin filing Form 990, Return of Organization Exempt from Income Tax, and indicate on its return that it has not yet received a determination letter. In addition to the general information required on Form 990, these organizations must report certain information regarding required reserves.
Prohibited tax shelter transactions
Excess benefit transactions
Excess business holdings
Taxable distributions of sponsoring organizations
Taxes on prohibited benefits distributed from donor advised funds
Excise taxes on private foundations
Excise taxes on 501(c)(21) black lung benefit trusts
Excise Tax on Failure to Meet the Community Health Needs Assessment Requirements of Hospitals
Excise tax on excess tax-exempt organization executive compensation
Excise tax on net investment income of private colleges and universities
Forms (and Instructions)
4720 Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code
See chapter 6 for more information about getting Form 4720.
Section 4965 imposes an excise tax on:
Certain tax-exempt entities that are party to prohibited tax shelter transactions, and
Any entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows or has reason to know that the transaction is a prohibited tax shelter transaction.
Additionally, section 6033 provides new disclosure requirements on a tax-exempt entity that is a party to a prohibited tax shelter transaction.
Section 4965(a)(1) imposes an entity level excise tax on any tax-exempt entity described in 1, 2, 3, or 4 above that becomes a party to a prohibited tax shelter transaction or is a party to a subsequently listed transaction (defined earlier). The excise tax imposed on a tax-exempt entity applies to tax years in which the entity becomes a party to the prohibited tax shelter transaction and any subsequent tax years. The amount of the excise tax depends on whether the tax-exempt entity knew or had reason to know that the transaction was a prohibited tax shelter transaction at the time it became a party to the transaction.
To figure and report the excise tax imposed on a tax-exempt entity for being a party to a prohibited tax shelter transaction, file Form 4720.
For more information about this excise tax, including information about how it is figured, see the Instructions for Form 4720.
Section 4965(a)(2) imposes an excise tax on any tax-exempt entity manager who approves or otherwise causes the entity to be a party to a prohibited tax shelter transaction and knows (or has reason to know) that the transaction is a prohibited tax shelter transaction. The excise tax, in the amount of $20,000, is assessed for each approval or other act causing the organization to be a party to the prohibited tax shelter transaction. To report this tax, file Form 4720.
An excise tax equal to 25% of the excess benefit is imposed on each excess benefit transaction between an applicable tax-exempt organization and a disqualified person. The disqualified person who benefited from the transaction is liable for the tax. See definition of Disqualified person, later at Disqualified person.
If tax is imposed on a disqualified person for any excess benefit transaction, an excise tax equal to 10% of the excess benefit is imposed on an organization manager who knowingly participated in an excess benefit transaction, unless such participation wasn't willful and was due to reasonable cause. This tax can't exceed $20,000 ($10,000 for transactions entered in a tax year beginning before August 18, 2006), for each transaction. There is also joint and several liability for this tax. A person can be liable for both the tax paid by the disqualified person and the organization manager tax for a particular excess benefit transaction.
A person participates in a transaction knowingly if the person:
Has actual knowledge of sufficient facts so that, based solely upon those facts, such transaction would be an excess benefit transaction;
Is aware that such a transaction under these circumstances may violate the provisions of federal tax law governing excess benefit transactions; and
Negligently fails to make reasonable attempts to ascertain whether the transaction is an excess benefit transaction, or the manager is in fact aware that it is such a transaction.
Knowing doesn't mean having reason to know. The organization manager ordinarily won't be considered knowing if, after full disclosure of the factual situation to an appropriate professional, the organization manager relied on the professional's reasoned written opinion on matters within the professional's expertise or if the manager relied on the fact that the requirements for the rebuttable presumption of reasonableness have been satisfied. Participation by an organization manager is willful if it is voluntary, conscious, and intentional. An organization manager's participation is due to reasonable cause if the manager has exercised responsibility on behalf of the organization with ordinary business care and prudence.
An excess benefit transaction is a transaction in which an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of any disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration (including the performance of services) received for providing such benefit. The excess benefit transaction rules apply to all transactions with disqualified persons, regardless of whether the amount of the benefit provided is determined in whole or in part by the revenues of one or more activities of the organization.
To determine whether an excess benefit transaction has occurred, all consideration and benefits exchanged between a disqualified person and the applicable tax-exempt organization, and all entities it controls, are taken into account. For purposes of determining the value of economic benefits, the value of property, including the right to use property, is the fair market value. Fair market value is the price at which property, or the right to use property, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy, sell, or transfer property or the right to use property, and both having reasonable knowledge of relevant facts.
An excess benefit transaction occurs on the date the disqualified person receives the economic benefit from the organization for federal income tax purposes. However, when a single contractual arrangement provides for a series of compensation or other payments to or for the use of a disqualified person during the disqualified person's tax year, any excess benefit transaction with respect to these payments occurs on the last day of the taxpayer's tax year.
In the case of benefits provided to a qualified pension, profit-sharing, or stock bonus plan, the transaction occurs on the date the benefit is vested. In the case of the transfer of property subject to a substantial risk of forfeiture, or in the case of rights to future compensation or property, the transaction occurs on the date the property, or the rights to future compensation or property, isn't subject to a substantial risk of forfeiture. Where the disqualified person elects to include an amount in gross income in the tax year of transfer under section 83(b), the excess benefit transaction occurs on the date the disqualified person receives the economic benefit for federal income tax purposes.
An applicable tax-exempt organization is a section 501(c)(3), 501(c)(4), or 501(c)(29) organization that is tax-exempt under section 501(a), or was such an organization at any time during a 5-year period ending on the day of the excess benefit transaction.
An applicable tax-exempt organization doesn't include:
A private foundation as defined in section 509(a),
A governmental entity that is:
Exempt from (or not subject to) taxation without regard to section 501(a), or
Not required to file an annual return, or
A foreign organization, recognized by the IRS or by treaty, that receives substantially all of its support (other than gross investment income) from sources outside the United States.
An organization isn't treated as a section 501(c)(3), 501(c)(4), or 501(c)(29) organization for any period covered by a final determination that the organization wasn't tax-exempt under section 501(a), but only if the determination wasn't based on private inurement or one or more excess benefit transactions.
An excise tax is imposed on a sponsoring organization for each taxable distribution it makes from a donor advised fund. An excise tax is also imposed on any fund manager of the sponsoring organization who agreed to the making of a distribution, knowing that it is a taxable distribution.
The tax on taxable distributions applies to distributions occurring in tax years beginning after August 17, 2006.
There is an excise tax on the net investment income of most domestic private foundations. Capital gains from appreciation are included in the tax base on private foundation net investment income. This tax must be reported on Form 990-PF and must be paid annually at the time for filing that return or in quarterly estimated tax payments if the total tax for the year (section 4940 tax minus credits) is $500 or more. Form 990-W is used to calculate the estimated tax.
In addition, there are several other rules that apply to excise taxes on private foundations. These include:
Restrictions on self-dealing between private foundations and their substantial contributors and other disqualified persons,
Requirements that the foundation annually distribute income for charitable purposes,
Limits on their holdings in any business enterprise (see Excess Business Holdings, earlier),
Provisions that investments mustn't jeopardize the carrying out of exempt purposes, and
Provisions to assure that expenditures further the organization's exempt purposes.
Violations of these provisions give rise to taxes and penalties against the private foundation and, in some cases, its managers, its substantial contributors, and certain related persons.
For more information on the excise taxes imposed on private foundations, see the Instructions for Form 4720 and the Instructions for Form 990-PF.
A black lung benefit trust that makes any expenditures, payments, or investments other than those described in chapter 4 under 501(c)(21) - Black Lung Benefit Trusts must pay a tax equal to 10% of the amount of such expenditures. If there are any acts of self-dealing between the trust and a disqualified person, a tax equal to 10% of the amount involved is imposed on the disqualified person. Both of these excise taxes are reported on Schedule A (Form 990-BL). See the Form 990-BL instructions for more information on these taxes and what has to be filed, even if the trust is excepted from filing.
For tax years beginning after March 23, 2012, new section 4959 imposes an excise tax on hospital organizations which fail to meet certain section 501(r) requirements for each of their hospital facilities. These entities must meet section 501(r)(3) requirements at all times during their tax year. Section 501(r)(3) requirements pertain to a hospital organization preparing a community health needs assessment (CHNA). See Schedule H, Hospitals (Form 990), for details.
New section 4960 imposes an excise tax on an organization that pays to any covered employee more than $1 million in remuneration or pays an excess parachute payment during the year starting in 2018. See section 4960 and Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, and Notice 2019-09, 2019-04 I.R.B. 403, for more information.
New section 4968 imposes an excise tax on the net investment income of certain private colleges and universities. A private college or university will be subject to the excise tax on net investment income under section 4968 if four tests are met.
The organization must be an eligible educational institution as defined in section 25A(f)(2). Section 25A(f)(2) defines “eligible educational institution” as an institution that is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. section 1088), as in effect on August 5, 1997, and is eligible to participate in a program under Title IV of such Act (20 U.S.C. sections 1070 et seq.).
The organization must have had at least 500 tuition-paying students, based upon a daily average student count, during the preceding tax year.
More than 50% of those students must have been located in the United States.
The aggregate fair market value, at the end of the preceding tax year, of the assets not used directly in carrying out the organization’s exempt purpose, held by the organization and related organizations, must be at least $500,000 per student.
See the Instructions for Form 990, Part V, Line 16 for more information about organizations subject to the excise tax. See Instructions for Form 4720, Schedule O, and Notice 2018-55, 2018-26 I.R.B. 773, for more information about calculating the excise tax.
If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.
Getting answers to your tax questions. On IRS.gov, get answers to your tax questions anytime, anywhere.
Go to IRS.gov/Help for a variety of tools that will help you get answers to some of the most common tax questions.
Go to IRS.gov/ITA for the Interactive Tax Assistant, a tool that will ask you questions on a number of tax law topics and provide answers. You can print the entire interview and the final response for your records.
Go to IRS.gov/Forms to search for our forms, instructions, and publications. You will find details on 2019 tax changes and hundreds of interactive links to help you find answers to your questions.
You may also be able to access tax law information in your electronic filing software.
The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, Spanish, and ASL.
Getting tax information in other languages.
For taxpayers whose native language isn’t English, we have the following resources available. Taxpayers can find information on IRS.gov in the following languages.
The IRS Taxpayer Assistance Centers (TACs) provide over-the-phone interpreter service in over 170 languages, and the service is available free to taxpayers.
TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Their job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.
The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Go to TaxpayerAdvocate.IRS.gov to help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.
TAS can help you resolve problems that you can’t resolve with the IRS. And their service is free. If you qualify for their assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:
Your problem is causing financial difficulty for you, your family, or your business;
You face (or your business is facing) an immediate threat of adverse action; or
You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.
TAS has offices in every state, the District of Columbia, and Puerto Rico. Your local advocate’s number is in your local directory and at TaxpayerAdvocate.IRS.gov/Contact-Us. You can also call them at 877-777-4778.
TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to them at IRS.gov/SAMS.
TAS also has a website, Tax Reform Changes, which shows you how the new tax law may change your future tax filings and helps you plan for these changes. The information is categorized by tax topic in the order of the IRS Form 1040 or 1040-SR. Go to TaxChanges.us for more information.
LITCs are independent from the IRS. LITCs represent individuals whose income is below a certain level and need to resolve tax problems with the IRS, such as audits, appeals, and tax collection disputes. In addition, clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. To find a clinic near you, visit IRS.gov/LITC or see IRS Pub. 4134, Low Income Taxpayer Clinic List.
Organization Reference Chart
|Section of 1986 Code||Description of organization||General nature of activities||Application
required to be
|501(c)(1)||Corporations Organized under Act
of Congress (including Federal Credit Unions)
|Instrumentalities of the
|No Form||None||Yes, if made for exclusively public purposes|
|501(c)(2)||Title Holding Corporation For
|Holding title to property of an
exempt organization and distributing
net income to it
|1024||9902 or 990-EZ9||No3|
|501(c)(3)||Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations||Activities of nature implied by description of class of organization||102316, 1023-EZ||9902 or 990-EZ9, or 990-PF||Yes, generally|
|501(c)(4)||Civic Leagues, Social Welfare Organizations; and Local
Associations of Employees
|Promotion of community welfare; charitable, educational, or recreational||Must provide notice on Form 8976; may also submit Form1024-A||9902 or 990-EZ9||No, generally 3, 4|
|501(c)(5)||Labor, Agricultural, and Horticultural Organizations||Educational or instructive, the
purpose being to improve conditions of work, and to improve products and/or efficiency
|1024||9902 or 990-EZ1||No3|
|501(c)(6)||Business Leagues, Chambers of Commerce, Real Estate Boards,
|Improvement of business
conditions of one or more lines of business
|1024||9902 or 990-EZ9||No3|
|501(c)(7)||Social and Recreational Clubs||Pleasure, recreation, social activities||1024||9902 or 990-EZ9||No3|
|501(c)(8)||Fraternal Beneficiary Societies
|Providing for payment of life, sickness, accident or other benefits
to members within a lodge system
|1024||9902 or 990-EZ9||Yes, if for certain Sec. 501(c)(3) purposes|
|501(c)(9)||Voluntary Employees Beneficiary Associations||Employee association providing for payment
of life, sickness, accident, or other
benefits to members
|1024||9902 or 990-EZ9||No3|
|501(c)(10)||Domestic Fraternal Societies
|Earnings devoted to charitable, fraternal, and
other specified purposes within a domestic
lodge system. No benefits to members
|1024||9902 or 990-EZ9||Yes, if for certain Sec. 501(c)(3) purposes|
|501(c)(11)||Teachers' Retirement Fund Associations||Teachers' association for payment of retirement benefits||Letter7||9902 or 990-EZ9||No3|
|501(c)(12)||Benevolent Life Insurance Associations, Mutual Ditch or
Irrigation Companies, Mutual or Cooperative Telephone Companies, and
|Activities of a mutual or cooperative
|1024||9902 or 990-EZ9||No3|
|501(c)(13)||Cemetery Companies||Burials and incidental activities||1024||9902 or 990-EZ9||Yes, generally|
|501(c)(14)||State-Chartered Credit Unions,
Mutual Reserve Funds
|Loans to members||Letter7||9902 or 990-EZ9||No3|
|501(c)(15)||Mutual Insurance Companies or Associations||Providing insurance to members substantially at cost||1024||9902 or 990-EZ9||No3|
|501(c)(16)||Cooperative Organizations to
Finance Crop Operations
|Financing crop operations in
conjunction with activities of a marketing
or purchasing association
|Form 1120-C, Letter7||9902 or 990-EZ9||No3|
|Provides for payment of
supplemental unemployment compensation benefits
|1024||9902 or 990-EZ9||No3|
|501(c)(18)||Employee Funded Pension Trust (created before June 25, 1959)||Payment of benefits under a
pension plan funded by employees
|Letter7||9902 or 990-EZ9||No3|
|501(c)(19)||Post or Organization of Past or
Present Members of the Armed Forces
|Activities implied by nature of organization||1024||9902 or 990-EZ9||No, generally8|
|501(c)(21)||Black Lung Benefit Trusts||Funded by coal mine operators to satisfy their liability for disability or
death due to black lung diseases
|501(c)(22)||Withdrawal Liability Payment Fund||To provide funds to meet the
liability of employers withdrawing from
a multi-employer pension fund
|Letter7||9902 or 990-EZ9||No6|
|501(c)(23)||Veterans' Organization (created
|To provide insurance and other
benefits to veterans
|Letter7||9902 or 990-EZ9||No, generally8|
|501(c)(25)||Title Holding Corporations or Trusts with Multiple Parent Corporations||Holding title and paying over
income from real property to 35 or fewer parents or beneficiaries
|1024||9902 or 990-EZ9||No|
|501(c)(26)||State-Sponsored Organization Providing Health Coverage for High-Risk Individuals||Provides health care coverage to high-risk individuals||Letter7||9902 or 990-EZ9||No|
|501(c)(27)||State-Sponsored Workers' Compensation Reinsurance Organization||Reimburses members for losses
under workers' compensation acts
|Letter7||9902 or 990-EZ9||No|
|501(c)(28)||National Railroad Retirement Investment Trust||Manages and invests the assets of the Railroad Retirement Account||No Form||99012||No12|
|501(c)(29)||CO-OP health insurance issuers||A qualified health insurance issuer which has received a loan or grant under the CO-OP program||Letter and Form 871815||9902||No14|