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Publication 557 (Rev. January 2019) Contents

Cat. No. 46573C What's New ...... 2 Department of the Reminders ...... 2 Treasury Internal Tax-Exempt Introduction ...... 2 Revenue Service Chapter 1. Application, Approval, Status for Your and Appeal Procedures ...... 3 Application Procedures ...... 3 Forms Required ...... 3 Required Information and Documents ...... 4 Miscellaneous Procedures .... 5 Determination Letters ...... 6 Effective Date of Exemption .... 6 Revocation of Exemption ..... 6 Appeal Procedures ...... 6 Appeals Office Consideration ...... 7 Administrative Remedies ..... 7 Appeal to Courts ...... 7 Group Exemption Letter ...... 8 Central Organization Application Procedure ..... 8 Keeping the Group Exemption Letter in Force ...... 9 Events Causing Loss of Group Exemption ...... 9

Chapter 2. Filing Requirements and Required Disclosures ...... 9 Annual Information Returns ...... 10 Unrelated Return ...... 12 Employment Tax Returns ...... 13 Political Organization Income Tax Return ...... 13 Reporting Requirements for a Political Organization ...... 14 Donee Information Return ...... 15 Information Provided to Donors .... 16 Report of Cash Received ...... 18 Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting Forms ...... 18 Required Disclosures ...... 20 Solicitation of Nondeductible Contributions ...... 20 Sales of Information or Services Available Free from Government ...... 20 Dues Used for Lobbying or Political Activities ...... 20 Miscellaneous Rules ...... 21

Chapter 3. Section 501(c)(3) ...... 21 Contributions to 501(c)(3) Organizations ...... 22 Application for Recognition of Exemption ...... 22 Get forms and other information faster and easier at: Articles of Organization ...... 24 • IRS.gov (English) • IRS.gov/Korean (한국어) Educational Organizations and • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) Private Schools ...... 25 • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (TiếngViệt) Organizations Providing ...... 28

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Other Section 501(c)(3) Appendix. Sample Articles of Exception from the excise tax on excess Organizations ...... 28 Organization ...... 70 business holdings. New section 4943(g) cre- Private Foundations and Public ated an exception from the excise tax on ex- Charities ...... 30 Appendix. Sample Articles of cess business holdings for certain independ- Lobbying Expenditures ...... 46 Organization, continued ...... 71 ently operated enterprises whose voting stock is wholly owned by a private foundation. For Chapter 4. Other Section 501(c) Index ...... 74 more details, see Excess Business Holdings, Organizations ...... 47 chapter 5 501(c)(4) - Civic Leagues and Change to Schedule B (Form 990, 990-EZ Social Welfare Organizations ... 47 and 990-PF) Reporting of Donor Informa- 501(c)(5) - Labor, Agricultural What's New tion. A tax-exempt organization, other than a and Horticultural section 501(c)(3) organization (including a sec- Organizations ...... 48 Future developments. The IRS has created a page on IRS.gov for information about Publica- tion 4947(a)(1) nonexempt charitable trust) or a 501(c)(6) - Business Leagues, section 527 political organization, is no longer etc...... 49 tion 557, at IRS.gov/pub557. Information about any future developments affecting Publication required to report the names and address of its 501(c)(7) - Social and contributors on the Schedule B (Schedule of Recreation Clubs ...... 50 557 (such as legislation enacted after we re- lease it) will be posted on that page. Contributors) attached to its Form 990 or Form 501(c)(8) and 501(c)(10) - 990-EZ for tax years ending on or after Decem- Fraternal Beneficiary Excise tax on executive compensation. ber 31, 2018. See Rev. Proc. 2018-38 for more and Domestic New section 4960 imposes an excise tax on an information about this revised filing require- Fraternal Societies ...... 51 organization that pays to any covered employee ment. 501(c)(4), 501(c)(9), and 501(c) more than $1 million in remuneration or pays an (17) - Employees' excess parachute payment during the year Organizational Changes. For tax years be- Associations ...... 51 starting in 2018. See Excise Tax on Executive ginning on or after January 1, 2018, the IRS will 501(c)(12) - Local Benevolent Compensation, chapter 5. See also section no longer require a new exemption application Associations, 4960 and Form 4720, Return of Certain Excise from a domestic section 501(c) organization Mutual Irrigation and Taxes Under Chapters 41 and 42 of the Internal that undergoes certain changes of form or place Telephone , and Revenue Code, for more information. of organization, as described in Rev. Proc. Like Organizations ...... 53 Excise tax on net investment income of cer- 2018-15, 2018-9 I.R.B. 379. 501(c)(13) - Cemetery tain colleges and universities. New section Group Exemptions. Beginning January 2019, Companies ...... 55 4968 imposes an excise tax on the net invest- the IRS will no longer send the List of Parent 501(c)(14) - Credit Unions and ment income of certain private colleges and uni- and Subsidiary Accounts to the central organi- Other Mutual Financial versities. See Excise tax on net investment in- zations . See Group Exemption Letter, later. Organizations ...... 55 come of certain colleges and universities, 501(c)(19) - Veterans' chapter 5. See also section 4968 and Form You can find additional detailed information Organizations ...... 56 4720, Return of Certain Excise Taxes Under about changes implemented by Public Law 501(c)(21) - Black Lung Benefit Chapters 41 and 42 of the Internal Revenue 115-97, which became law in late December Trusts ...... 57 Code, for more information. 2017, as well as recently released guidance on 501(c)(2) - Title-Holding IRS.gov on the “News” page under the “Tax Re- Corporations for Single Separate UBTI calculation for each trade or form” tab. Parent Corporations ...... 57 business. Organizations with more than 1 un- 501(c)(25) - Title-Holding related trade or business must compute unrela- Corporations or Trusts for ted business taxable income (UBTI), including Multiple Parent Corporations ... 58 for purposes of determining any net operating 501(c)(26) - State-Sponsored loss deduction, separately with respect to each Reminders High-Risk Health Coverage such trade or business. See Unrelated Busi- Forms, Instructions and Publications. All Organizations ...... 58 ness Income Tax Return, chapter 2. See also IRS forms, instructions and publications men- 501(c)(27) - Qualified new Schedule M (Form 990-T). The UBTI with tioned in this publication can be accessed on State-Sponsored Workers' respect to any such trade or business shall not IRS.gov from the Forms and Instructions page. Compensation Organizations ... 58 be less than zero when computing total UBTI. Form 1024-A. In 2018, the IRS created Form 501(c)(29) - CO-OP Health Increase in UBTI by disallowed fringe. For 1024-A, Application for Recognition of Exemp- Insurance Issuers ...... 59 organizations that have employees, unrelated tion Under Section 501(c)(4) of the Internal business taxable income (UBTI) reported on Revenue Code. It is used by organizations to Chapter 5. Excise Taxes ...... 59 Form 990-T, is increased by any amount for Prohibited Tax Shelter apply for recognition of exemption under sec- which a deduction is not allowable because of tion 501(c)(4). Transactions ...... 60 section 274 and which is paid or incurred by the Excess Benefit Transactions ..... 60 organization after 2017 for any qualified trans- Form 8976. Each new section 501(c)(4) or- Excess Business Holdings ...... 63 portation fringe (as defined in section 132(f)), or ganization must notify the IRS of its intent to op- Taxable Distributions of any parking facility used in connection with erate as a section 501(c)(4) organization re- Sponsoring Organizations ..... 64 qualified parking (as defined in section 132(f)(5) gardless of whether it will seek recognition of its Taxes on Prohibited Benefits (C), or any on-premises athletic facility (as de- exempt status under section 501(c)(4). Use Resulting from Donor fined in section 132(j)(4)(B)). This rule does not Form 8976, Notice of Intent to Operate Under Advised Fund Distributions .... 64 apply to the extent the amount paid or incurred Section 501(c)(4), to provide this notification. Excise Taxes on Private is directly connected with an unrelated trade or Form 8976 may only be completed and submit- Foundations ...... 65 business which is regularly carried on by the or- ted electronically at: Electronically Submit Your Excise Taxes on Black Lung ganization. Form 8976, Notice of Intent to Operate Under Benefit Trusts ...... 65 Section 501(c)(4). Excise Tax on Failure to Meet Note. A deduction for expenses paid or in- the Community Health curred for on-premises athletic facilities is disal- Introduction Needs Assessment lowed due to application of section 274 only if it Requirements ...... 65 discriminates in favor of highly compensated This publication discusses the rules and proce- employees. dures for organizations that seek recognition of Chapter 6. How to Get Tax Help .... 65 exemption from federal income tax under sec- See Unrelated Business Income Tax Return, tion 501(a) of the (the Organization Reference Chart ...... 68 chapter 2. Code). It explains the procedures you must

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follow to obtain an appropriate determination additional information you need. For telephone letter recognizing your organization's exemp- assistance, call 1-877-829-5500. tion, as well as certain other information that ap- Check the Table of Contents at the begin- plies generally to all exempt organizations. To ning of this publication to determine whether 1. qualify for exemption under the Code, your or- your organization is described in this publica- ganization must be organized for one or more of tion. If it is, read the chapter (or section) that ap- the purposes specifically designated in the plies to your type of organization for the specific Application, Code. Organizations that are exempt under information you must give when applying for section 501(a) include those organizations de- recognition of exemption. scribed in section 501(c). Section 501(c) organ- Approval, and izations are covered in this publication. Organization Reference Chart. The Organi- Chapter 1, Application, Approval, and Ap- zation Reference Chart enables you to locate at peal Procedures, provides general information a glance the section of the Code under which Appeal about the procedures for obtaining recognition your organization might qualify for exemption. It of tax-exempt status. also shows the required application form and, if Procedures Chapter 2, Filing Requirements and Re- your organization meets the exemption require- quired Disclosures, contains information about ments, the annual return to be filed (if any), and annual filing requirements and other matters whether or not a contribution to your organiza- that may affect your organization's tax-exempt tion will be by a donor. It also de- Introduction status. scribes each type of qualifying organization and Chapter 3, Section 501(c)(3) Organizations, the general nature of its activities. If your organization is one of the organizations described in this publication and is seeking rec- contains detailed information on various matters You may use the Organization Reference ognition of tax-exempt status from the IRS, you affecting section 501(c)(3) organizations, in- Chart to identify the Code section that you think should follow the procedures described in this cluding a section on the determination of private applies to your organization. Any correspond- chapter and the instructions that accompany foundation status. ence with the IRS (in requesting forms or other- the appropriate application forms. Chapter 4, Other Section 501(c) Organiza- wise) can be responded to faster if you indicate For information on section 501(c)(3) organi- tions, includes separate sections for specific in your correspondence the appropriate Code zations, go to Section 501(c)(3) Organizations, types of organizations described in section section. Check the IRS website, IRS.gov, for chapter 3. If your organization is seeking ex- 501(c). the latest updates, Tax Information for Charities emption under one of the other paragraphs of Chapter 5, Excise Taxes, provides informa- & Other Non-Profits, Tax Information for section 501(c), see chapter 4. tion on when excise taxes may be imposed. Charities & Other Non-Profits. Chapter 6, How to Get Tax Help, provides tips and resources on where to find answers to Comments and suggestions. We welcome Topics tax questions or other assistance. your comments about this publication and your This chapter discusses: suggestions for future editions. Organizations not discussed in this publi- You can send us comments through • Application procedures that generally cation. Certain organizations that may qualify IRS.gov/FormComments. Or you can write to: apply to all organizations discussed in this for exemption aren't discussed in detail in this publication, including the application publication, although they are included in the forms; Organization Reference Chart and the applica- Tax Forms and Publications • Determination letters (approvals/ tion procedures discussed in Chapter 1 . These 1111 Constitution Ave. NW, IR-6526 disapprovals); organizations (and the Code sections that apply Washington, DC 20224 • Appeal procedures available if an adverse to them) are as follows. determination letter is proposed; and Although we can’t respond individually to • Group exemption letters. Corporations organized under Acts of each comment received, we do appreciate your Congress ...... 501(c)(1) feedback and will consider your comments as Teachers' retirement fund associations ... 501(c)(11) we revise our tax forms, instructions, and publi- companies ...... 501(c)(15) Corporations organized to finance crop cations. Application Procedures operations ...... 501(c)(16) Ordering forms and publications. Visit Employee funded pension trusts (created Oral requests for recognition of exemption won't IRS.gov/FormsPubs to download forms and before June 25, 1959) ...... 501(c)(18) be considered by the IRS. Your application for publications. Otherwise, you can go to IRS.gov/ Withdrawal liability payment fund ...... 501(c)(22) recognition of tax-exempt status must be in writ- OrderForms to order current and prior-year Veterans' organizations (created before ing using the appropriate forms as discussed 1880) ...... 501(c)(23) forms and instructions. Your order should arrive below. National Railroad Retirement Investment within 10 business days. Trust ...... 501(c)(28) Religious and apostolic associations .... 501(d) Tax questions. If you have a tax question Forms Required hospital service not answered by this publication, check organizations ...... 501(e) IRS.gov and How to Get Tax Help at the end of Cooperative service organizations of this publication. If your organization is seeking recognition of ex- operating educational organizations ..... 501(f) emption from federal income tax, it must use a specific application prescribed by the IRS in Section 501(c)(24) organizations (section Rev. Proc. 2019-5, 2019-01 I.R.B. 230. If your 4049 ERISA trusts) are neither discussed in the organization is a central organization with ex- text nor listed in the Organization Reference empt status, see Group Exemption Letter, later. Chart. All applications must be signed by an author- Similarly, farmers' cooperative associations ized individual. that qualify for exemption under section 521, qualified state tuition programs described in Form 1023, Application for Recognition of section 529, qualified ABLE programs descri- Exemption. File Form 1023 if you are seeking bed in section 529A, and pension, profit-shar- recognition of exemption under section: ing, and stock bonus plans described in section 401(a) aren't discussed in this publication. If • 501(c)(3) Corporations, organized and op- you think your organization falls within one of erated exclusively for religious, charitable, these categories, contact the IRS for any scientific, testing for public safety, literary,

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or educational purposes, or to foster na- 501(c)(11), (14), (16), (18), (21), (22), (23), EIN can be found online at Employer ID tional or international amateur sports, or (26), (27), (28), or (29), submit a letter applica- Numbers (EIN). The EIN is issued immediately prevention of cruelty for children or ani- tion with Form 8718. See Required Inclusions once the application information is validated. mals, for the information to include with the letter ap- If you previously applied for an EIN and • 501(e) Cooperative hospital service organ- plication. haven't yet received it, or you are unsure ization, whether you have an EIN, please call our • 501(f) Cooperative service organization of Form 1028. Use Form 1028, Application for toll-free customer account services number, operating educational organizations, Recognition of Exemption Under Section 521 of 1-877-829-5500, for assistance. • 501(k) Certain organizations providing the Internal Revenue Code, if your organization child care, is a farmers’ cooperative seeking recognition of Organizing documents. If you are submitting • 501(n) Charitable risk pools, and exemption under section 521. You must also an application other than Form 1023-EZ, your • 501(q) Credit counseling organizations. submit Form 8718. application should include a copy of the organ- izing or enabling document that is signed by a Form 1023-EZ, Streamlined Application for Form 8871. Use Form 8871, Political Organi- principal officer or is accompanied by a written Recognition of Exemption Under Section zation Notice of Section 527 Status, if you are a declaration signed by an authorized individual 501(c)(3) of the Internal Revenue Code. political organization seeking to be treated as certifying that the document is a complete and You may be eligible to file Form 1023-EZ if you tax-exempt under section 527 unless an excep- accurate copy of the original or meets the re- are a smaller organization (assets of $250,000 tion applies. See Political Organization Income quirements of a conformed copy in Rev. Proc. or less and annual gross receipts of $50,000 or Tax Return, later. 2011-9, sec. 3.08(5). If you are submitting a less) seeking recognition of exemption under Some organizations don’t have to use spe- Form 1023-EZ, you don’t need to include a section 501(c)(3). See Rev. Proc. 2019-5, cific application forms. The application your or- copy of your organizing documents. 2019-01 I.R.B. 230. ganization must use is specified in the chapter If your organizing or enabling document are in this publication dealing with your kind of or- articles of incorporation, include evidence that it Form 1024, Application for Recognition of ganization. It is also shown in the Organization was filed and approved by a state official. (For Exemption Under Section 501(a). File Form Reference Chart, later. example, a stamped “Filed” copy dated by the 1024 if you are seeking recognition of exemp- Secretary of State is prima facie evidence that it tion under section: Power of attorney. If your organization ex- was filed and approved by a state official.) A • 501(c)(2) Title holding corporations, pects to be represented by an individual such copy of the articles of incorporation can also be • 501(c)(5) Labor, agricultural, or horticul- as an attorney, CPA, officer or other person au- submitted with a written declaration signed by tural organizations, thorized to practice before the IRS, whether in an authorized individual indicating the copy is • 501(c)(6) Business leagues, chambers of person or by correspondence, you must file a complete and was filed and approved by the commerce, etc., Form 2848, Power of Attorney and Declaration state, including the date filed. • 501(c)(7) Social clubs, of Representative, with your exemption applica- If you are formed as a limited liability com- • 501(c)(8) Fraternal beneficiary societies, tion. The power of attorney must specifically au- pany and have adopted an operating agree- orders, or associations, thorize an individual to represent your organiza- ment, submit the operating agreement along • 501(c)(9) Voluntary employees’ beneficiary tion. You can't name an organization, firm, etc. with your state-approved articles of organiza- associations, as your representative. Form 2848 can be used tion. 501(c)(10) Domestic fraternal societies, or- • for this purpose. The categories of individuals If your organization's name has been offi- ders, etc., who can represent you before the IRS are listed cially changed by an amendment to your organ- 501(c)(12) Benevolent life insurance asso- • on the form. izing instruments, you should also attach a con- ciations, mutual ditch or irrigation compa- formed copy of that amendment to your nies, mutual or cooperative telephone Non-exemption for terrorist organizations. application. companies, An organization that is identified or designated • 501(c)(13) Cemetery companies, as a terrorist organization within the meaning of Conformed copy. A conformed copy is a • 501(c)(15) Mutual insurance companies or section 501(p)(2) isn't eligible to apply for rec- copy that agrees with the original and all associations, ognition of exemption. amendments to it. If the original document re- • 501(c)(17) Trusts providing for the pay- quired a signature, the copy should either be ment of supplemental unemployment com- User fee. The law requires the payment of a signed by a principal officer or, if not signed, be pensation benefits, user fee for determination letter requests such accompanied by a written declaration signed by • 501(c)(19) A post, organization, auxiliary as your application for recognition of tax-ex- an authorized officer of the organization. With unit, etc. of past or present members of the empt status. User fees are listed in Rev. Proc. either option, the officer must certify that the Armed Forces of the United States, and 2019-5, Appendix A. If you are filing Form document is a complete and accurate copy of • 501(c)(25) Title holding corporations or 1023-EZ, the user fee must be submitted the original. A certificate of incorporation should trusts. through pay.gov. Your payment must accom- be approved and dated by an appropriate state pany your request. The IRS won't process a re- Form 8718, User Fee for Exempt Organization official. quest unless the fee has been paid. Determination Letter Request, must also be Bylaws. Bylaws alone aren't organizing sent along with Form 1024. For the current user fee amount and documents. However, if your organization has TIP other information about applying for adopted bylaws, include a current copy. The Form 1024-A, Application for Recognition tax-exempt status go to IRS.gov and bylaws need not be signed if submitted as an of Exemption Under Section 501(c)(4) of select “Charities and Non-Profits” from the but- attachment. the Internal Revenue Code. File Form tons near the top. Next, select “Applying for 1024-A if you are seeking recognition of exemp- Tax-Exempt Status” for more information. You Bylaws may be considered an organiz- tion under section 501(c)(4). You must also can also call 1-877-829-5500. ing document only if they are properly submit Form 8718 with your application. structured (includes name, purpose, Submitting Form 1024-A does not satisfy an signatures, and intent to form an organization). organization’s requirement to notify the Com- Required Information and missioner that it is operating under section Documents Attachments. When submitting attachments, 501(c)(4), as required by section 506. See every attachment should show your organiza- IRS.gov for information on satisfying the notifi- Employer identification number (EIN). Ev- tion's name and EIN. It should also state that it cation requirement using Form 8976, Notice of ery exempt organization must have its own EIN, is an attachment to your application form and Intent to Operate Under Section 501(c)(4). whether or not it has any employees. An EIN is identify the part and line item number to which it required before an exemption application is applies. Letter application. If your organization is submitted. Information on how to apply for an seeking recognition of exemption under section

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Original documents. Don't submit original If the IRS returns the application or requests empt organizations and private foundations to documents because they become part of the additional information from you, that application make their application forms and annual infor- IRS file and can't be returned. will be considered filed on the date the substan- mation returns available for public inspection. tially completed application is postmarked, or if The law also requires the IRS to make available Description of activities. Your application no postmark, received at the IRS. for public inspection, in accordance with section must include a full description of the proposed For applications that are returned to the ap- 6104 and the related regulations, your ap- activities of your organization, including each of plicant because they aren't complete, the user proved application for recognition of exemption the fundraising activities of a section 501(c)(3) fee will be returned or refunded. (including any papers submitted in support of organization and a narrative description of an- Additional information may be requested if the application) and the determination letter ticipated receipts and contemplated expendi- necessary to clarify the nature of your organiza- (discussed later, under Determination Letters). tures. When describing the activities in which tion. Any information submitted in the application your organization expects to engage, you must or in support of it that relates to any trade se- include the standards, criteria, procedures, or Application made under wrong paragraph cret, patent, process, style of work, or appara- other means that your organization adopted or of section 501(c). Occasionally, during the tus, upon request, can be withheld from public planned for carrying out those activities. application process, an organization may real- inspection if the IRS determines that the disclo- To determine the information you need to ize that it is better described under a paragraph sure of such information would adversely affect provide, you should study the part of this publi- of section 501(c) different from the one for the organization. Your request must: cation that applies to your organization. The ap- which it originally applied. If the application was 1. Identify the material to be withheld (the propriate chapter will describe the purposes made on Form 1024, which applies to more document, page, paragraph, and line) by and activities that your organization must pur- than one paragraph of section 501(c), the or- clearly marking it “Not Subject to Public sue, engage in, and include in your application ganization can be recognized as exempt under Inspection.” in order to achieve exempt status. any paragraph to which the form applies if the Often, your organization's articles of organi- organization requests to have its application 2. Include the reasons for your organization's zation (or other organizing instruments) contain considered under that paragraph. It must also position that the information is of the type descriptions of your organization's purposes supply any additional information required for that can be withheld from public inspec- and activities. the application under the new paragraph. tion. Your application should describe completely If a different application form is required, the 3. Be filed with the office where your organi- and in detail your past, present, and planned IRS will let you know the appropriate form to zation files the documents in which the activities. submit and will specify a due date for any nee- material to be withheld is contained. If you are filing Form 1023-EZ, also review ded documents or information. Although sup- the Instructions for Form 1023-EZ for more in- porting information previously furnished need Where to file. Send your application for recog- formation about what to include in your descrip- not be duplicated, you must provide any neces- nition of exempt status (other than a Form tion. sary additional information required for the ap- 1023-EZ) and Form 8718, (if required) to: plication. If your reply isn't received by the due Financial data. Unless you are filing Form date, your application will be processed only for Internal Revenue Service 1023-EZ, you must include in your application the paragraph under which you originally ap- PO Box 12192 financial statements showing your receipts and plied. Covington, KY 41012-0192 expenditures and a balance sheet for the cur- When a specific application form is needed rent year and the 3 preceding years (or for the for the paragraph under which your organiza- EO Determinations will consider your com- number of years your organization was in exis- tion qualifies, that form is required before a let- plete application and will issue you a favorable tence, if less than 4 years). For each accounting ter recognizing exemption can be issued. This determination letter or an adverse letter denying period, you must describe the sources of your includes cases in which a determination letter is the exempt status requested in your application receipts and the nature of your expenditures. modified to recognize an organization's exempt or may close your case without making a deter- If you haven't yet begun operations, or have status under a paragraph other than the para- mination if you don't respond to a request for operated for less than 1 year, a proposed graph under which it originally established ex- additional information or withdraw your request. budget for 2 full accounting periods and a cur- emption. Applications for exempt status on a Form rent statement of assets and liabilities will be 1023-EZ must be electronically submitted IRS responses. Organizations that submit a acceptable. through pay.gov. Paper submissions won't be complete Form 1023, Form 1024, or Form accepted. EO Determinations may also not ac- 1024-A application will receive an acknowledg- Exempt status established in application. If cept ("reject") incomplete Form 1023-EZ appli- ment from the IRS. In addition, any applicant your application and its supporting documents cations or EZ applications from organizations may receive a letter requesting additional infor- show that your organization meets the require- that do not meet the eligibility criteria. See Rev. mation the IRS needs to make its determination ments for tax-exempt status under the Code Proc. 2019-5, 2019-01 I.R.B. 230 for more infor- or the IRS may return an incomplete applica- section you applied, the IRS will issue a favora- mation. ble determination letter. tion. These letters will be sent out as soon as Form 8940, Request for Miscellaneous possible after receipt of the organization's appli- Determination. You can request miscellane- cation. Miscellaneous Procedures ous determinations under sections 507, 509(a), Withdrawal of application. An organization 4940, 4942, 4945, and 6033 using Form 8940. To help in processing your application, be sure may withdraw an application at any time before Nonexempt charitable trusts also file Form 8940 to attach all schedules, statements, and other the issuance of a determination letter upon the for an initial determination of section 509(a)(3) documents required by the application form. If written request of a principal officer or author- status or change to their type. See Form 8940 you don’t attach them, you may have to resub- ized representative of your organization. How- and instructions for more information. mit your application or you may otherwise en- ever, the withdrawal won't prevent the informa- Requests other than applications. counter a delay in processing your application. tion contained in the application from being Requests other than applications for used by the IRS in any subsequent examination Incomplete application. If an application isn't recognition of exemption or Form 8940 of your organization's returns. The information complete and doesn't contain all the required (for example, requests for letter rulings involv- forwarded with an application won't be returned attachments found under Required Inclusions, ing feeder organizations, application of excise to your organization and, generally, when an the IRS will return it to you for completion. The taxes to activities of private foundations, taxa- application is withdrawn, the user fee paid won't IRS will no longer request the missing informa- tion of unrelated business income, etc.) should be refunded. tion if the application is incomplete. See Rev. be sent to the appropriate address listed in Rev. Proc. 2019-1, 2019-1 I.R.B. 1. Proc. 2019-5, 2019-01 I.R.B. 230. Requests for withholding of information from the public. The law requires many ex-

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These requests, similar to applications for rec- period for which its exempt status is recog- tion of the organization, revocation or modifica- ognition of exemption previously discussed, nized. tion will ordinarily take effect as of the date of must be accompanied by the appropriate user that material change. An organization may seek fee. The schedule for user fees, including those An organization that does not submit its ap- relief from retroactive revocation or modification for requests other than applications, can be plication for exemption within that 27-month pe- of a determination letter under section 7805(b). found in Rev. Proc. 2019-1. riod but otherwise meets the requirements for For more information on requesting section tax-exempt status will be recognized as exempt 7805(b) relief, see section 12 of Rev. Proc. EO Determinations can request technical ad- from the postmark date of application or the 2019-5. vice from the Office of Chief Counsel (EEE) on submission date of its Form 1023-EZ, if applica- any question that can't be resolved on the basis ble. See Rev. Proc. 2019-5, 2019-01 I.R.B. 230. Relief from retroactivity. If a determina- of law, regulations, or a clearly applicable reve- tion letter was issued in error or the IRS nue ruling or other published precedent. See If an organization is required to alter its ac- changed its position after issuing a letter, and if section 3, Rev. Proc. 2019-5. tivities or substantially amend its charter to section 7805(b) relief is granted, retroactivity of qualify, the determination letter recognizing ex- the revocation ordinarily will be limited to a date Reminder. The law requires payment of a user emption will be effective as of the date speci- not earlier than that on which the original deter- fee for determination letter requests. Go to Rev. fied in the letter. If a nonsubstantive amend- mination letter was revoked. Proc. 2019-5, Appendix A, to find the required ment is made, such as correction of a clerical payment. Payment must accompany each re- error in the enabling instrument or the addition Foundations. The determination of the ef- quest. of a dissolution clause, exemption will ordinarily fective date is the same for the revocation or be recognized as of the date of formation if the modification of foundation status or operating activities of the organization before the determi- foundation status unless the effective date is Determination Letters nation are consistent with the exemption re- expressly covered by statute or regulations. quirements. Written notice. If an EO area manager con- Public charity status. A new section 501(c) A determination letter recognizing exemp- cludes, as a result of examining an information (3) organization will be classified as a publicly tion can't be relied on if there is a material return or considering information from any other supported organization and not a private foun- change, inconsistent with exemption, in the source, that a determination letter should be re- dation if it can show when it applies for tax-ex- character, the purpose, or the method of opera- voked or modified, the organization will be ad- empt status that it reasonably can be expected tion of the organization. Also, a determination vised in writing of the proposed action and the to be publicly supported. letter can't be relied on if it is based on any reasons for it. An organization must describe fully the ac- omission or inaccurate material information The organization will also be advised of its tivities in which it expects to engage. This in- submitted by the organization. See section 11 right to protest the proposed action by request- cludes standards, procedures, or other means of Rev. Proc. 2019-5. ing Appeals Office consideration. The appeal procedures are discussed next. adopted or planned by the organization for car- For more information about the effective rying out its activities, expected sources of date of exemption, see Rev. Proc 2019-5, sec- funds, and the nature of its contemplated ex- tion 6. penses. Appeal Procedures When an organization doesn't supply the in- Revocation of Exemption If your organization applies for recognition of formation previously mentioned under Applica- tax-exempt status and Rulings and Agreements tion Procedures, or fails to furnish a sufficiently A determination letter recognizing exemption determines your organization doesn't qualify for detailed description of its proposed activities to may be revoked by: exemption, your organization will be advised of permit a conclusion that it will clearly be ex- its rights to protest the determination by re- empt, a proposed adverse determination letter 1. A notice to the organization to which the questing Appeals Office consideration. Your or- may be issued. determination letter originally was issued, ganization must submit a statement of its views 2. Enactment of legislation or ratification of a Adverse determination. A proposed adverse fully explaining its reasoning. The statement tax treaty, determination letter will be issued to an organi- must be submitted within 30 days from the date of the proposed adverse determination letter zation that has not provided sufficiently detailed 3. A decision of the United States Supreme and must state whether it wishes Appeals Of- information to establish that it qualifies for ex- Court, emption or if the information provided estab- fice consideration. 4. Issuance of temporary or final regulations, lishes that it doesn't qualify for exemption. An or Representation. A principal officer or trustee organization can appeal a proposed adverse can represent an organization at any level of determination letter. See Appeal Procedures, 5. Issuance of a revenue ruling, a revenue appeal within the IRS. Also, an attorney, certi- later. procedue, or other statement published in fied public accountant, or individual enrolled to the Internal Revenue Bulletin or Cumula- practice before the IRS can represent the or- Expedited Handling. Exempt Organization tive Bulletin. ganization. determination letter requests may be eligible for expedited handling under section 4.09 of Rev. 6. Section 6033(j), for failure to file a required If the organization's representative attends a Proc. 2019-5. annual return or notice, for three consecu- conference without a principal officer or trustee, tive years, automatically. the representative must file a proper power of attorney or a tax information authorization be- Effective Date of Exemption When revocation takes effect. If the organi- fore receiving or inspecting confidential infor- zation omitted or misstated material informa- mation. Form 2848 or Form 8821, Tax Informa- A determination letter recognizing exemption is tion, operated in a manner materially different tion Authorization, as appropriate (or any other usually effective as of the date of formation from that originally represented, or, with regard properly written power of attorney or authoriza- of an organization if, the organization submit- to organizations to which section 503 applies, tion), can be used for this purpose. These forms ted the application for recognition of exemption engaged in a prohibited transaction (such as di- are available on IRS.gov from the Forms and In- within 27 months from the end of the month in verting corpus or income from its exempt pur- structions page. For more information, see Pub- which it was organized and during the period pose), or if there has been a change in the ap- lication 947, Practice Before the IRS and Power before the date of the determination letter, its plicable law, the revocation or modification may of Attorney,which is also available on IRS.gov purposes and activities are consistent with the be retroactive. from the Forms and Instructions page. requirements for exempt status under the appli- cable section of 501(c). Upon obtaining recog- Material change in organization. If there is a nition of exemption, the organization can file a material change, inconsistent with exemption, claim for a refund of income taxes paid for the in the character, purpose, or method of opera-

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Appeals Office The Appeals Office must request technical and may be returned to the applicant for com- advice on any exempt organization issue con- pletion. The 270-day period, in this event, won't Consideration cerning qualification for exemption or founda- be considered as starting until the date the ap- tion status for which there is no published prec- plication is remailed to the IRS with the reques- Before forwarding a case to the Appeals Office, edent or for which there is reason to believe that ted information, or, if a postmark isn't evident, Rulings and Agreements will consider the appli- nonuniformity exists. If an organization believes on the date the IRS receives a completed appli- cant’s statement protesting and appealing that its case involves such an issue, it should cation. (hereinafter appealing) the proposed adverse ask the Appeals Office to request technical ad- determination. If the information provided by the vice. organization doesn't provide a basis for Rulings Appeal to Courts and Agreements to reconsider its adverse de- Any determination letter issued on the basis termination, it will forward the appeal and case of technical advice can't be appealed to the Ap- If the IRS issues an unfavorable determination file to the Appeals Office. For more information peals Office for those issues that were the sub- letter to your organization and you have ex- about the role of the Appeals Office, see Publi- ject of the technical advice. hausted all the administrative remedies just dis- cation 892, How to Appeal an IRS Decision on cussed, your organization can seek judicial Tax-Exempt Status. The appeal should include remedies. the following information. Administrative Remedies 1. The organization's name, address, day- For example, if your organization has paid time telephone number, and employer In the case of an application under section the tax resulting from the adverse determination identification number. 501(c) or 501(d) and exempt from tax under and met all other statutory prerequisites, it can 501(a), all of the following actions, called ad- file suit for a refund in a U.S. District Court or 2. A statement that the organization wants to ministrative remedies, must be completed by the U.S. Court of Federal Claims. Or, if your or- protest the determination. your organization before an unfavorable deter- ganization elected not to pay the tax deficiency 3. A copy of the letter showing the determi- mination letter from the IRS can be appealed to resulting from the adverse determination and nation you disagree with, or the date and the courts. met all other statutory prerequisites, it can file symbols on the determination letter. suit for a redetermination of the tax deficiencies 1. The filing of the correct completed applica- in the . For more infor- 4. A statement of facts supporting the organi- tion or group exemption request under mation on these types of suits, get Publication zation's position in any contested factual section 501(c), or 501(d) and exempt from 556, Examination of Returns, Appeal Rights, issue. tax under 501(a) (described earlier in this and Claims for Refund. chapter) or the filing of a request for a de- 5. A statement outlining the law or other au- termination of foundation status (see Pri- thority the organization is relying on. In certain situations, your organization can vate Foundations and Public Charities in file suit for a declaratory judgment in the U.S. 6. A statement as to whether a conference at chapter 3). District Court for the District of Columbia, the the Appeals Office is desired. 2. In the case of a late-filed application, re- U.S. Court of Federal Claims, or the U.S. Tax Court. This remedy is available if your organiza- The statement of facts in item 4 must be de- questing relief under Regulations section tion received an adverse notice of final determi- clared true under penalties of perjury. This may 301.9100 regarding applications for exten- nation, or if the IRS failed to make a timely de- be done by adding to the protest the following sions of time for making an election or ap- termination on your initial or continuing signed declaration: plication for relief from tax (see Application for Recognition of Exemption in chap- qualification or classification as an exempt or- ter 3). ganization. However, your exempt status claim “Under penalties of perjury, I declare that I must be as: have examined the statement of facts 3. The timely submission of all additional in- • An organization qualifying under section presented in this protest and in any formation requested to perfect an exemp- 501(c) or 501(d) and exempt from tax un- accompanying schedules and statements and, tion application or request for determina- der 501(a). to the best of my knowledge and belief, it is tion of private foundation status. true, correct, and complete.” • An organization to which a deduction for a 4. Exhaustion of all administrative appeals contribution is allowed under section Signature. available within the IRS. 170(c)(2), • An organization that is a private foundation If the organization's representative submits the The actions just described won't be consid- under section 509(a), appeal, a substitute declaration must be inclu- ered completed until the IRS has had a reason- • A private operating foundation under sec- ded, stating: able time to act upon the appeal or protest, as tion 4942(j)(3), or 1. That the representative prepared the ap- the case may be. • A cooperative organization that is exempt peal and accompanying documents, and from tax under section 521. An organization won't be considered to have 2. Whether the representative knows person- exhausted its administrative remedies before Adverse notice of final determination. The ally that the statements of fact contained in the earlier of: adverse notice of final determination referred to the appeal and accompanying documents above is a determination letter sent by certified are true and correct. 1. The completion of the steps just listed and the sending by certified or registered mail or registered mail holding that your organiza- Be sure the appeal contains all of the infor- of a notice of final determination, or tion: mation requested. Incomplete appeals will be • Isn't described in section 501(c) or 501(d) 2. The expiration of the 270-day period in returned for completion. and exempt from tax under 501(a), or sec- which the IRS has not issued a notice of fi- tion 170(c)(2), The Appeals Office, after any requested nal determination and the organization has • Is a private foundation and not a public conference and upon consideration of the or- taken, in a timely manner, all reasonable charity described in a part of section 509 or ganization's appeal as well as information pre- steps to secure a ruling or determination. section 170(b)(1)(A) sented in any conference held, will generally • Is not a private foundation as defined in notify the organization of its decision and issue 270-day period. The 270-day period will be section 4942(j)(3), or an appropriate determination letter. An adverse considered by the IRS to begin on the date a • Is a public charity described in a part of decision can be appealed to the courts (dis- completed application, or group exemption re- section 509(a) or section 170(b)(1)(A) cussed later). If new information is submitted quest is sent to the IRS. See Application Proce- other than the part under which your or- during Appeals consideration, the matter may dures, earlier, for information needed to com- ganization requested classification. be returned to Rulings and Agreements for fur- plete the application form. ther consideration. See section 9 of Rev. Proc. If the application doesn't contain all of the Favorable court rulings - IRS procedure. If 2019-5 for more information. required items, it won't be further processed a suit results in a final determination that your

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organization is exempt from tax, the IRS will is- sending its application to the IRS address 3. A sample copy of a uniform governing in- sue a favorable determination letter, provided shown on Form 8718. strument (such as a charter or articles of your organization has filed an application for ex- association) adopted by the subordinates, emption and submitted a statement that the un- If the central organization has previously ob- or, in its absence, copies of representative derlying facts and applicable law are the same tained recognition of its own exemption, it must instruments. as in the period considered by the court. indicate its employer identification number and the date of the letter recognizing its exemption. 4. An affirmation to the effect that, to the best It need not forward documents already submit- of the officer's knowledge, the purposes ted. However, if it has not already done so, the and activities of the subordinates are as Group Exemption Letter central organization must submit a copy of any stated in (2) and (3), above. amendment to its governing instruments or in- 5. A statement that each of the subordinates A group exemption letter is a determination let- ternal regulations as well as any information ter issued to a central organization recognizing has provided a written authorization to the about changes in its character, purposes, or central organization, signed by an author- on a group basis the exemption under section method of operation. 501(c) of subordinate organizations on whose ized officer of the subordinate, agreeing to be included in the group exemption (see behalf the central organization has applied for Employer identification number. The central also New 501(c)(3) organizations that recognition of exemption. organization must have an EIN before it submits want to be included, later in this section). A central organization is an organization that a completed exemption or group exemption ap- 6. A list of subordinates to be included in the has one or more subordinates under its general plication. Each subordinate must have its own group exemption letter to which the IRS supervision or control. EIN, even if it has no employees. When submit- ting its group exemption application, the central has issued an outstanding determination A subordinate organization is a chapter, lo- organization must provide an EIN for each sub- letter relating to exemption. ordinate organization. cal, post, or unit of a central organization. A 7. If the application for a group exemption let- central organization may be a subordinate itself, ter involves section 501(c)(3) and is sub- Information required for subordinate organ- such as a state organization that has subordi- ject to the provisions of the Code requiring izations. In addition to the information required nate units and is itself affiliated with a national that it give timely notice that it isn't a pri- to obtain recognition of its own exemption, the (central) organization. vate foundation (see Private Foundations central organization must submit information for in chapter 3), an affirmation to the effect A subordinate organization may or may not those subordinates to be included in the group that, to the best of the officer's knowledge be incorporated, but it must have an organizing exemption letter. The information should be for- and belief, no subordinate to be included document and it must have its own taxpayer warded in a letter signed by a principal officer of in the group exemption letter is a private identification number (EIN). A subordinate that the central organization setting forth or includ- foundation as defined in section 509(a). is organized and operated in a foreign country ing as attachments the following. can't be included in a group exemption letter. A 8. For each subordinate that is a school 1. Information verifying that the subordinates: subordinate described in section 501(c)(3) can't claiming exemption under section 501(c) be included in a group exemption letter if it is a a. Are affiliated with the central organi- (3), the information required by Revenue private foundation described in section 509(a). zation at the close of its annual ac- Ruling 71-447, 1971-2 C.B. 230 and Rev. counting period; Proc. 75-50, 1975-2 C.B. 587 (these re- If your organization is a subordinate control- quirements are fully described in chap- b. Are subject to its general supervision led by a central organization (for example, a ter 3, under Private Schools; see also or control; church, a veterans' organization, or a fraternal Schedule B, Form 1023). organization), you should check with the central c. Are all eligible to qualify for exemption 9. For any school affiliated with a church, the organization to see if it has been issued a group under the same paragraph of section information to show that the provisions of exemption letter that covers your organization. 501(c), though not necessarily the Revenue Ruling 75-231, 1975-1 C.B. 158, If it has, you don’t have to file a separate appli- paragraph under which the central or- have been met. cation unless your organization no longer wants ganization itself is exempt; to be included in the group exemption letter. 10. A list of the names, mailing addresses, ac- d. Aren’t private foundations if the appli- tual addresses if different, and EINs of If the group exemption letter doesn't cover cation for a group exemption letter in- subordinates to be included in the group your organization, ask your central organization volves section 501(c)(3); about being included in the next annual group exemption letter. A current directory of ruling update that it submits to the IRS. e. Are all on the same accounting period subordinates may be furnished instead of as the central organization if they are the list if it includes the required informa- See Publication 4573, Group Exemptions, to be included in group returns; and tion and if the subordinates not to be inclu- for additional general information about group ded in the group exemption letter are iden- f. Are organizations that have been exemption. Go to the Charities & Nonprofits tified. formed within the 15-month period page on IRS.gov for Group Exemption Resour- preceding the date of submission of ces for the most current information and up- New 501(c)(3) organizations that want to be the group exemption application if dates. included. A new organization, described in they are claiming section 501(c)(3) section 501(c)(3), that wants to be included in a status and are subject to the require- group exemption letter must submit its authori- ments of section 508(a) and wish to Central Organization zation (as explained in item number 5, earlier, be recognized as exempt from their Application Procedure under Information required for subordinate or- dates of creation (a group exemption ganizations) to the central organization before letter may be issued covering subordi- If your organization is a central organization the end of the 15th month after it was formed in nates, one or more of which haven't with affiliated subordinates under its control, it order to satisfy the requirement of section been organized within the 15-month can apply for a group exemption letter for its 508(a). The central organization must also in- period preceding the date of submis- subordinates, provided it has obtained recogni- clude this subordinate in its next annual sub- sion, if all subordinates are willing to tion of its own exemption before or concurrently mission of information, as discussed later, un- be recognized as exempt only from with the group exemption. You should make the der Information Required Annually. application for such subordinates by letter in- the date of application). stead of submitting a specific application form. 2. A detailed description of the purposes and This procedure relieves each of the subordi- activities of the subordinates, including the nates covered by a group exemption letter from sources of receipts and the nature of ex- filing its own application. A central organization penditures. obtains its own recognition of exemption by

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Keeping the Group information is listed in items 1 through 10, returns or notices for three consecutive years. under Information required for subordinate See Automatic Revocation, later. Subordinates Exemption Letter in Force organizations, earlier.) If a new subordi- under a group exemption are also subject to au- nate doesn't differ in any material respects tomatic revocation for failure to file required re- Continued effectiveness of a group exemption from the subordinates included in the ap- turns (or appear on a group return if the subor- letter is based on the following conditions. plication for group exemption, however, a dinate does not file its own) or notices for three 1. The continued existence of the central or- statement to this effect may be submitted consecutive years. A subordinate organization ganization. in lieu of detailed information. that is automatically revoked must apply to the IRS for reinstatement of its exempt status. 2. The continued qualification of the central The organization should send this in- Thereafter, it may retain independent exempt organization for exemption under section formation to: status or it may seek to resume its status as a 501(c). subordinate of the central organization. See Group Exemption Resources . 3. The submission by the central organiza- Internal revenue Service tion of the information regarding its subor- 1973 Rulon White Blvd. dinate organizations that is required annu- Ogden, UT 84201 ally (described under Information Required Annually). 4. The annual filing of an information return Submitting the required information an- (Form 990, for example) by the central or- ! nually doesn't relieve the central organ- 2. ganization if required. CAUTION ization or any of its subordinates of the duty to submit any other information that may The continued effectiveness of a group exemp- be required by an EO area manager to deter- tion letter as to a particular subordinate is based mine whether the conditions for continued ex- Filing on these four conditions, as well as on the con- emption are being met. tinued conformity by the subordinate to the re- quirements for inclusion in a group exemption As of 2019, the IRS will no longer send Requirements letter, the authorization for inclusion, and the TIP the List of Parent and Subsidiary Ac- annual filing of any required information return counts to the central organizations. for the subordinate. If the central organization and Required files a group return for some or all of its subordi- nates, the group return must be filed on Form Events Causing 990. Form 990-EZ cannot be used for this pur- Disclosures pose. Loss of Group Exemption A group exemption letter no longer has effect, Information Required Annually for either a particular subordinate or the group Introduction as a whole, when: Most exempt organizations (including private To maintain a group exemption letter, the cen- foundations) must file various returns and re- tral organization must submit annually, at least 1. The central organization notifies the IRS ports at some time during (or following the close 90 days before the close of its annual account- that it is going out of existence, of) their accounting period. ing period, all of the following information. 2. The central organization notifies the IRS, 1. Information about all changes in the pur- by its annual submission or otherwise, that any of its subordinates will no longer fulfill Topics poses, character, or method of operation This chapter discusses: of the subordinates included in the group the conditions for continued effectiveness, exemption letter. explained earlier, or Annual information returns 3. The IRS notifies the central organization or • 2. A separate list (that includes the names, Unrelated business income tax return the affected subordinate that the group ex- • mailing addresses, actual addresses if dif- Employment tax returns emption letter will no longer have effect for • ferent, and EINs of the affected subordi- Political organization income tax return some or all of the group because the con- • nates) for each of the three following cate- Reporting requirements for a political ditions for continued effectiveness of a • gories. organization group exemption letter haven't been fulfil- Donee information return a. Subordinates that have changed their led. • names or addresses during the year. • Information provided to donors When notice is given under any of these three • Report of cash received b. Subordinates no longer to be included conditions, the IRS will no longer recognize the • Public inspection of exemption in the group exemption letter because exempt status of the affected subordinates until applications, annual returns, and political they no longer exist or have disaffili- they file separate applications on their own be- organizations reporting forms ated from or withdrawn their authori- half or the central organization files complete • Required disclosures zation to the central organization. supporting information for their inclusion in the • Miscellaneous rules c. Subordinates to be added to the group exemption at the time of its annual sub- group exemption letter because they mission. However, when the notice is given by Useful Items are newly organized or affiliated or the IRS and the withdrawal of recognition is You may want to see: because they have recently author- based on the failure of the organization to com- ply with the requirements for recognition of ized the central organization to in- Publication clude them. tax-exempt status under the particular subsec- tion of section 501(c), the revocation will ordina- 15 15 Circular E, Employer's Tax Guide An annotated directory of subordinates rily take effect as of the date of that failure. The won't be accepted for this purpose. If there notice, however, will be given only after the ap- 15-A 15-A Employer's Supplemental Tax Guide were none of the above changes, the cen- peal procedures described earlier in this chap-

tral organization must submit a statement ter are completed. 15-B 15-B Employer's Tax Guide to Fringe to that effect. Benefits In addition, the IRS will cease to recognize 3. The same information about new subordi- the subordinates under a group exemption as 598 598 Tax on Unrelated Business Income of nates that was required in the initial appli- tax-exempt if the central organization is Exempt Organizations cation for group exemption. (This automatically revoked for failure to file required

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Form (and Instructions) 990-T 990-T Exempt Organization Business 1. A church, an interchurch organization of Income Tax Return local units of a church, a convention or as- 941 941 Employer's Quarterly Federal Tax sociation of churches, Return 990-W 990-W Estimated Tax on Unrelated Business Taxable Income for 2. An integrated auxiliary of a church,

990 990 Return of Organization Exempt From Tax-Exempt Organizations Income Tax 3. A church-affiliated organization that is ex- 1120-POL 1120-POL U.S. Income Tax Return for clusively engaged in managing funds or

990-EZ 990-EZ Short Form Return of Certain Political Organizations maintaining retirement programs, Organization Exempt From Income 4720 4720 Return of Certain Excise Taxes Tax 4. A school below college level affiliated with Under Chapters 41 and 42 of the a church or operated by a religious order, Internal Revenue Code Schedule A (Form 990 or 990-EZ) Schedule A (Form 990 or 990-EZ) 5. Church-affiliated mission societies if more

Public Charity Status and Public 5768 5768 Election/Revocation of Election by than half of their activities are conducted Support an Eligible Section 501(c)(3) in, or are directed at persons in, foreign Organization To Make Expenditures Schedule B (Form 990, 990-EZ, or Schedule B (Form 990, 990-EZ, or 990-PF) countries, To Influence Legislation 990-PF) 6. An exclusively religious activity of any reli- Schedule of Contributors 6069 6069 Return of Excise Tax on Excess Contributions to Black Lung Benefit gious order,

Schedule C (Form 990 or 990-EZ) Schedule C (Form 990 or 990-EZ) Trust Under Section 4953 and 7. A state institution, the income of which is Political Campaign and Lobbying Computation of Section 192 excluded from gross income under section Activities Deduction 115,

Schedule D (Form 990)

Schedule D (Form 990) Supplemental 7004 7004 Application for Automatic Extension 8. A corporation described in section 501(c) Financial Statements of Time to File Certain Business (1) that is organized under an Act of Con- Income Tax, Information, and Other

Schedule E (Form 990 or 990-EZ) Schedule E (Form 990 or 990-EZ) gress, an instrumentality of the United Returns Schools States, and is exempt from Federal in-

8274 8274 Certification by Churches and come taxes, Schedule F (Form 990) Schedule F (Form 990) Statement of Qualified Church-Controlled 9. A stock bonus, pension, or profit-sharing Activities Outside the United States Organizations Electing Exemption trust that qualifies under section 401 (re- from Employer Social Security and Schedule G (Form 990 or 990-EZ) Schedule G (Form 990 or 990-EZ) quired to file Form 5500, Annual Return/ Medicare Taxes Supplemental Information Regarding Report of Employee Benefit Plan),

Fundraising or Gaming Activities 8282 8282 Donee Information Return 10. A religious or apostolic organization de-

8300 Schedule H (Form 990) Schedule H (Form 990) Hospitals 8300 Report of Cash Payments Over scribed in section 501(d) (required to file $10,000 Received in a Trade or Form 1065, U.S. Return of Partnership In-

Schedule I (Form 990) Schedule I (Form 990) Grants and Other Business come), Assistance to Organizations, Governments, and Individuals in the 8453-X 8453-X Political Organization Declaration 11. A governmental unit or an affiliate of a United States for Electronic Filing of Notice of governmental unit that meets the require- Section 527 Status ments of Rev. Proc. 95-48, 1995-2 C.B.

Schedule J (Form 990) Schedule J (Form 990) Compensation

8822-B 8822-B Change of Address or 418, IRS.gov/pub/irs-tege/rp1995-48.pdf, Information Responsible Party-Business 12. A private foundation described in section

Schedule K (Form 990) Schedule K (Form 990) Supplemental 8868 8868 Application for Automatic Extension 501(c)(3) and exempt under section Information on Tax-Exempt Bonds of Time to File an Exempt 501(a) (required to file Form 990-PF, Re- Organization Return Schedule L (Form 990 or 990-EZ) Schedule L (Form 990 or 990-EZ) turn of Private Foundation),

Transactions With Interested Persons 8870 8870 Information Return for Transfers 13. A political organization that is a state or lo- Associated with Certain Personal cal committee of a political party, a politi- Schedule M (Form 990) Schedule M (Form 990) Noncash Benefits Contracts Contributions cal committee of a state or local candi-

8871 8871 Political Organization Notice of date, a caucus or association of state or

Schedule N (Form 990 or 990-EZ) Schedule N (Form 990 or 990-EZ) Section 527 Status local officials, or required to report under Liquidation, Termination, Dissolution, the Federal Election Campaign Act of

8872 8872 Political Organization Report of or Significant Disposition of Assets 1971 as a political committee, Contributions and Expenditures

Schedule O (Form 990 or 990-EZ) Schedule O (Form 990 or 990-EZ) 14. An exempt organization (other than a pri- 8886-T 8886-T Disclosure by Tax-Exempt Entity Supplemental Information to Form Regarding Prohibited Tax Shelter vate foundation or a supporting organiza- 990 Transaction tion described in Supporting Organization Annual Information Return, later) that nor-

940

940 Employer's Annual Federal 8899 8899 Notice of Income from Donated mally has annual gross receipts of Unemployment (FUTA) Tax Return Intellectual Property $50,000 or less (required to file Form

8940 Schedule R (Form 990) Schedule R (Form 990) Related 8940 Request for Miscellaneous 990-N, Electronic Notice (e-Postcard) for Organizations and Unrelated Determination Tax-Exempt Organizations Not Required Partnerships to File Form 990 or Form 990EZ), or 8976 8976 Notice of Intent to Operate Under Section 501(c)(4) 990-PF 990-PF Return of Private Foundation or 15. A foreign organization, or an organization Section 4947(a)(1) Nonexempt See chapter 6 for information about getting located in a U.S. possession, that normally Charitable Trust Treated as a Private these publications and forms. has annual gross receipts from sources Foundation within the United States of $50,000 or less.

990-BL 990-BL Information and Initial Excise Tax Return for Black Lung Benefit Trusts Annual Information and Certain Related Persons Supporting Organization Returns Annual Information Return

990-N 990-N Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Every organization exempt from federal income Required to File Form 990 or Form tax under section 501(a) must file an Annual Each section 509(a)(3) supporting organization 990-EZ Exempt Organization Return except: is required to file Form 990 or 990-EZ with the

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IRS regardless of the organization's gross re- • Private foundations required to file Form Schedule B (Form 990, 990-EZ, or 990-PF). ceipts, unless it qualifies as one of the following: 990-PF; and Organizations that file Form 990, 990-EZ or • Section 509(a)(3) supporting organizations 990-PF use this schedule to provide required 1. An integrated auxiliary of a church; required to file Form 990 or Form 990-EZ. information regarding certain contributors. 2. The exclusively religious activities of a reli- gious order; or Forms 990 and 990-EZ Schedule O (Form 990 or 990-EZ). Organi- zations that file Form 990 or 990-EZ must use 3. An organization, the gross receipts of this schedule to provide required additional in- which are normally not more than $5,000, Exempt organizations, other than private foun- formation or if additional space is needed. that supports a section 509(a)(3) religious dations, must file their annual information re- Other schedules may be required to be filed order. turns on Form 990 or 990-EZ, unless excepted from filing or allowed to submit Form 990-N, de- with Form 990 or 990-EZ. See the instructions If the organization is described in item (3) scribed earlier. for Form 990 or the instructions for Form above, then it must submit Form 990-N (e-Post- 990-EZ for more information. card) unless it voluntarily files Form 990 or Generally, political organizations with gross 990-EZ. receipts of $25,000 ($100,000 for a qualified Report significant new or changed program state or local political organization (QSLPO)) or services and changes to organizational On its annual information return, at Part I, more for the tax year are required to file Form documents. An organization should report Schedule A (Form 990 or 990-EZ) a supporting 990 or 990-EZ unless specifically excepted new significant program services or significant organization must: from filing the annual return. The following politi- changes in how it conducts program services, • List the organizations to which it provides cal organizations aren't required to file Form and significant changes to its organizational support, 990 or Form 990-EZ. documents, on its Form 990 rather than in a let- • Indicate whether it is a Type I, Type II, or • A state or local committee of a political ter to EO Determinations. EO Determinations Type III supporting organization, and party. no longer issues letters confirming the tax-ex- • Certify that the organization isn't controlled • A political committee of a state or local empt status of organizations that report new directly or indirectly by disqualified persons candidate. services or significant changes, or changes to (other than by foundation managers and • A caucus or association of state or local of- organizational documents. See Miscellaneous other than one or more publicly supported ficials. Rules, Organization Changes and Exempt Sta- organizations). • A political organization that is required to tus, later. report as a political committee under the Annual Electronic Filing Federal Election Campaign Act. Form 990-PF Requirement for Small Tax-Exempt • A 501(c) organization that has expendi- Organizations tures for influencing or attempting to influ- All private foundations exempt under section ence the selection, nomination, election, or 501(c)(3) must file Form 990-PF. These organi- Small tax-exempt organizations with annual appointment of any individual for a federal, zations are discussed in chapter 3. gross receipts normally $50,000 or less that are state, or local public office. not otherwise required to file an annual informa- Electronic Filing tion return and are not otherwise exempted en- Form 990-EZ. This is a shortened version of tirely from a filing requirement must submit Form 990. Form 990-EZ is designed for use by Your organization may be required to file Form Form 990-N, Electronic Notice (e-Postcard) for small exempt organizations and nonexempt 990, Form 990-EZ, or Form 990-PF, and related Tax-Exempt Organizations Not Required to File charitable trusts. forms, schedules, and attachments electroni- Form 990 or 990-EZ, with the IRS each year, if An organization can file either Form 990 or cally. they choose not to file a Form 990 or 990-EZ. 990-EZ if it satisfies both of the following: Form 990-N requires the following information: 1. Its gross receipts during the year are less If an organization is required to file a return • The organization's legal name, and mailing than $200,000. electronically but doesn't, it isn't considered to address; have filed its return. See Regulations section • Any name under which it operates and 2. Its total assets (line 25, column (B) of 301.6033-4 for more information. does business; Form 990-EZ) at the end of the year are • Its Internet website address (if any); less than $500,000. The IRS may waive the requirement to file Its taxpayer identification number; • If your organization doesn't satisfy both of these electronically in cases of undue hardship. For The name and address of a principal offi- • conditions, it can't file Form 990-EZ. Instead, information on filing a waiver, see Notice cer; the organization must file Form 990. 2010-13, 2010-4 I.R.B. 327, available at • Organization's annual tax period; IRS.gov/ir/2010-04_IRSB/ar14.html. • Verification that the organization's annual Group return. A group return on Form 990 gross receipts are normally $50,000 or may be filed by a central, parent, or like organi- Form 990. An organization is required to less; and zation for two or more local organizations, none file Form 990 electronically if it files at least 250 • Notification if the organization has termina- of which is a private foundation. This return is in returns during the calendar year and has total ted. addition to the central organization's separate assets of $10 million or more at the end of the annual return if it must file a return. The central tax year. Form 990-N is due by the 15th day of the organization can't be included in the group re- Form 990-PF. An organization is required fifth month after the close of the tax year. For turn. See the instructions for Form 990 for the to file Form 990-PF electronically if it files at tax years beginning after December 31, 2006, conditions under which this procedure may be least 250 returns during the calendar year. any organization that fails to meet its annual re- used. Form 990-N. An organization that is eligible porting requirement for 3 consecutive years will In any year that an organization is and elects to submit Form 990-N must submit it automatically lose its tax-exempt status. To re- TIP properly included as a subordinate or- electronically. gain its exempt status an organization will have ganization on a group return, it to reapply for recognition as a tax-exempt or- shouldn't file its own Form 990. Form 8976. An organization is required to ganization. notify the IRS electronically of its intent to oper- Exceptions. This filing requirement doesn't Schedule A (Form 990 or 990-EZ). Organi- ate as a section 501(c)(4) organization. apply to: zations, other than private foundations, that are • Churches, their integrated auxiliaries, and described in section 501(c)(3) and that are oth- Due Date conventions or associations of churches; erwise required to file Form 990 or 990-EZ must • Organizations that are included in a group also complete Schedule A of that form. Forms 990, 990-EZ, or 990-PF must be filed by return; the 15th day of the fifth month after the end of

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your organization's accounting period. Thus, for Tax Effect of Loss of Tax-Exempt Exception for reasonable cause. No a calendar year taxpayer, Forms 990, 990-EZ, Status penalty will be imposed if reasonable cause for or 990-PF are due May 15 of the following year. failure to file timely can be shown. If any due date falls on a Saturday, Sunday, or If your organization’s tax-exempt status is auto- legal holiday, the return will be due the next matically revoked, you may be required to file business day. one of the following federal income tax returns Unrelated Business and pay any applicable income taxes: Extension of time to file. Use Form 8868 to • Form 1120, U.S. Corporation Income Tax Income Tax Return request an automatic six-month extension of Return, due by the 15th day of the 3rd time to file Forms 990, 990-EZ, or 990-PF. month after the end of your organization’s Even though your organization is recognized as When filing Form 8868 for an automatic ex- tax year, or tax exempt, it still may be liable for tax on its un- tension, neither a signature, nor an explanation • Form 1041, U.S. Income Tax Return for related business income. Unrelated business is required. Estates and Trusts, due by the 15th day of income is income from a trade or business, reg- the 4th month after the end of your organi- ularly carried on, that isn't substantially related Application for exemption pending. An or- zation’s tax year. to the charitable, educational, or other purpose ganization that claims to be exempt under sec- that is the basis for the organization's exemp- tion 501(a) but has not established its exempt In addition, a section 501(c)(3) organization tion. In addition, Public Law 115-97 added sec- status by the due date for filing an information that loses its tax-exempt status can't receive tion 512(a)(7) to the Code, which requires return must complete and file Form 990, tax-deductible contributions and won't be identi- amounts paid or incurred for a qualified trans- 990-EZ, 990–N, or 990-PF (if it considers itself fied in the IRS Business Master File extract as portation fringe benefit (such as parking or a a private foundation), unless the organization is eligible to received tax-deductible contributions, transit pass) after December 31, 2017 to be exempt from Form 990-series filing require- or be included in Tax-Exempt Organization treated as increases in the organization’s unre- ments. If the organization's application is pend- Search (Pub. 78 database). lated business taxable income (UBTI). See No- ing with the IRS, it must so indicate on Forms tice 2018-99, 2018-52 I.R.B. 1067 for more in- 990, 990-EZ, or 990-PF (whichever applies) by An organization whose exemption was auto- formation about section 512(a)(7). See also checking the application pending block at the matically revoked must apply for tax exemption Notice 2018-100, which provides certain tax-ex- top of page 1 of the return. For more information in order to regain its tax exemption (even if it empt organizations a waiver of the addition to on the filing requirements, see the Instructions wasn't originally required to apply). In some sit- tax under section 6655 for underpayment of es- for Forms 990, 990-EZ, and 990-PF. uations, an organization may be able to obtain timated income tax required on or before De- exemption retroactive to its date of revocation. cember 17, 2018, where the underpayment re- State reporting requirements. Copies of Similarly, if the central organization with a sults from the increase in UBTI under section Forms 990, 990-EZ, or 990-PF may be used to Group Exemption Number is automatically re- 512(a)(7). satisfy state reporting requirements. See the in- voked, all its covered subsidiaries may need to structions for those forms. apply for exemption as independent organiza- If your organization has $1,000 or more of tions. unrelated business income, you must file Form Form 8870. Organizations that filed a Form 990-T in addition to your required annual infor- mation return or notice. For tax years beginning 990, 990-EZ, or 990-PF, and paid premiums or For more information about automatic revo- after December 31, 2017, an organization with received transfers on certain life insurance, an- cation, go to IRS.gov and select Charities & more than 1 unrelated trade or business must nuity, and endowment contracts (personal ben- Non-Profits and then select Revoked? Reinsta- compute its UBTI, including for purposes of de- efit contracts), must file Form 8870. For more ted? Learn More. information, see Form 8870 and the instructions termining any net operating loss deduction, for that form. separately with respect to each such trade or Penalties business. Organizations subject to the new rule Form 8822-B. If you moved during the year, fill use new Schedule M (Form 990-T) to calculate out Form 8822-B, Change of Address or Re- Penalties for failure to file. Generally, an ex- UBTI for each additional trade or business. The sponsible Party-Business. Also, if your “Re- empt organization that fails to file a required re- UBTI with respect to any such trade or business sponsible Party” changed this year, you must turn must pay a penalty of $20 a day for each shall not be less than zero when computing to- also fill out Form 8822-B. The “Responsible day the failure continues. The same penalty will tal UBTI. See Notice 2018-67, 2018-36 I.R.B. Party” is the tax-exempt organization’s “Princi- apply if the organization doesn't give all the in- 409, for more information about section 512(a) pal Officer” as defined in the Form 990 instruc- formation required on the return or doesn't give (6). tions, in the Glossary section. the correct information. This penalty is indexed for inflation for returns required to be filed after Estimated tax. An organization that ex- December 31, 2014. pects to owe $500 or more in tax (including tax Automatic Revocation on unrelated business income) is required to Maximum penalty. The maximum penalty make quarterly estimated tax payments. Use If the organization fails to file a Form 990, for any one return is the smaller of $10,000 or Form 990-W to figure your organization's esti- 990-EZ, or 990-PF, or fails to submit a Form 5% of the organization's gross receipts for the mated tax payments. Failure to make appropri- 990-N, as required, for 3 consecutive years, it year. ate quarterly estimated tax payments may result will automatically lose its tax-exempt status by in an underpayment penalty. operation of law effective as of the due date for Organization with gross receipts over $1 million. For an organization that has gross re- the third missed return or notice. The list of or- Travel tour programs. Travel tour activities ganizations whose tax-exempt status has been ceipts of over $1 million for the year, the penalty is $100 a day up to a maximum of $50,000. that are a trade or business are an unrelated automatically revoked is available on IRS.gov. trade or business if the activities aren't substan- This list (Auto-Revocation List) may be viewed Managers. If the organization is subject to tially related to the purpose to which tax exemp- and searched on Tax-Exempt Organization this penalty, the IRS may specify a date by tion was granted to the organization. Search. The Auto-Revocation List includes which the return or correct information must be Whether travel tour activities conducted by each organization's name, Employer Identifica- supplied by the organization. Failure to comply an organization are substantially related to the tion Number (EIN) and last known address. It with this demand will result in a penalty im- organization's tax exempt purpose is deter- also includes the effective date of the automatic posed upon the manager of the organization, or mined by looking at all the relevant facts and revocation and the date it was posted to the list. upon any other person responsible for filing a circumstances, including, but not limited to, how For auto-revoked organizations that applied for correct return. The penalty is $10 a day for each a travel tour is developed, promoted, and oper- and received reinstatement, the list gives the day that a return isn't filed after the period given ated. date of reinstatement. The IRS updates the list for filing. The maximum penalty imposed on all monthly to include additional organizations that persons with respect to any one return is Example. ABC, a university alumni associ- lose their tax-exempt status. $5,000. ation, is tax exempt as an educational

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organization under section 501(c)(3). As part of organization, and doesn't have actual knowl- sources and receipts from admissions, its activities, ABC operates a travel tour pro- edge of the failure on which the penalty is im- sales of merchandise, performance of gram. The program is open to all current mem- posed. services, or furnishing of facilities, in activi- bers of ABC and their guests. ABC works with This exception doesn't apply if it results in ties that aren't unrelated trades or busi- travel agents to schedule approximately ten no one being liable for the penalty. nesses. tours annually to various destinations around the world. Members of ABC pay $1,000 to XYZ Certification Program for Professional Em- Effect on employees. If a church or quali- Travel Agency to participate in a tour. XYZ pays ployer Organizations (CPEOs). The Tax In- fied church-controlled organization has made ABC a per person fee for each participant. Al- crease Prevention Act of 2014, enacted Dec. an election, payment for services performed for though the literature advertising the tours en- 19, 2014, requires the IRS to establish a volun- that church or organization, other than in an un- courages ABC members to continue their life- tary certification program for professional em- related trade or business, won't be subject to long learning by joining the tours, and a faculty ployer organizations (PEOs). PEOs handle vari- FICA taxes. However, the employee, unless member of ABC's related university frequently ous payroll administration and tax reporting otherwise exempt, will be subject to self-em- joins the tour as a guest of the alumni associa- responsibilities for their business clients and are ployment tax on the income. The tax applies to tion, none of the tours include any scheduled in- typically paid a fee based on payroll costs. For income of $108.28 or more for the tax year from struction or curriculum related to the destina- further information, go to: IRS.gov/for-tax-pros/ that church or organization, and no deductions tions being visited. The travel tours made basic-tools/certified-professional-employer- for trade or business expenses are allowed available to ABC's members don't contribute organization. against this self-employment income. importantly to the accomplishment of ABC's ed- Schedule SE (Form 1040), Self-Employ- ucational purpose. Rather, ABC's program is FICA and FUTA tax exceptions. Payments ment Tax, should be attached to the employ- designed to generate revenues for ABC by reg- for services performed by a minister of a church ee's income tax return. ularly offering its members travel services. in the exercise of the ministry, or a member of a Therefore, ABC's tour program is an unrelated religious order performing duties required by trade or business. the order, are generally not subject to FICA or Political Organization FUTA taxes. For additional information on unrelated busi- Income Tax Return ness income, see Publication 598 and the In- FUTA tax exception. Payments for serv- structions for Form 990-T. ices performed by an employee of a religious, Generally, a political organization is treated as charitable, educational, or other organization an organization exempt from tax. Certain politi- described in section 501(c)(3) that are generally cal organizations, however, must file an annual subject to FICA taxes if the payments are $100 income tax return, Form 1120-POL, U.S. In- Employment or more for the year, aren't subject to FUTA come Tax Return for Certain Political Organiza- Tax Returns taxes. tions, for any year they have political organiza- tion taxable income in excess of the $100 FICA tax exemption election. Churches specific deduction allowed under section 527. Every employer, including an organization ex- and qualified church-controlled organizations empt from federal income tax that pays wages can elect exemption from employer FICA taxes A political organization that has to employees is responsible for withholding, de- by filing Form 8274. TIP $25,000 ($100,000 for a qualified state positing, paying, and reporting federal income To elect the exemption, Form 8274 must be or local political organization) or more tax, social security and Medicare (FICA) taxes, filed before the first date on which a quarterly in gross receipts for the tax year must file Form and federal unemployment tax (FUTA), unless employment tax return would otherwise be due 990 or Form 990-EZ (and Schedule B of the that employer is specifically excepted by law from the electing organization. The organization form), unless excepted. See Forms 990 and from those requirements, or if the taxes clearly can make the election only if it is opposed for 990-EZ earlier. don't apply. religious reasons to the payment of FICA taxes. The election applies to payments for serv- Political organization. A political organization For more information, obtain a copy of Publi- ices of current and future employees other than cation 15, which summarizes the responsibili- is a party, committee, association, fund, or services performed in an unrelated trade or other organization (whether or not incorporated) ties of an employer, Publication 15-A, Publica- business. tion 15-B, and Form 941. organized and operated primarily for the pur- Revoking the election. The election can pose of directly or indirectly accepting contribu- Small Business Health Care Tax Credit. If be revoked by the IRS if the organization fails to tions or making expenditures, or both, for an ex- your small tax-exempt organization provides file Form W-2, Wage and Tax Statement, for 2 empt function. health care coverage for your workers you may years and fails to furnish certain information Exempt function. An exempt function qualify for the small business health care tax upon request by the IRS. Such revocation will means influencing or attempting to influence the credit. Go to Affordable Care Act Tax apply retroactively to the beginning of the selection, nomination, election, or appointment Provisions for more details. See also Small 2-year period. of any individual to any federal, state, local pub- Business Health Care Tax Credit. Definitions. For purposes of this election, lic office or office in a political organization, or the term church means a church, a convention the election of the Presidential or Vice Presi- Trust fund recovery penalty. If any person dential electors, whether or not such individual required to collect, truthfully account for, and or association of churches, or an elementary or secondary school that is controlled, operated, or electors are selected, nominated, elected, or pay over any of these taxes willfully fails to sat- appointed. It also includes certain office expen- isfy any of these requirements or willfully tries in or principally supported by a church or by a convention or association of churches. ses of a holder of public office or an office in a any way to evade or defeat any of them, that political organization. person will be subject to a penalty. The penalty The term qualified church-controlled organi- is equal to the tax evaded, not collected, or not zation means any church-controlled section Certain political organizations are re- accounted for and paid over. The term person 501(c)(3) tax-exempt organization, other than ! quired to notify the IRS that they are includes: an organization that both: CAUTION section 527 organizations. These or- • An officer or employee of a corporation, or 1. Offers goods, services, or facilities for ganizations must use Form 8871. Some of • A member or employee of a partnership. sale, other than on an incidental basis, to these section 527 organizations must use Form the general public at other than a nominal 8872 to file periodic reports with the IRS dis- Exception. The penalty isn't imposed on charge that is substantially less than the closing their contributions and expenditures. any unpaid volunteer director or member of a cost of providing such goods, services, or For a discussion on these forms, see Reporting board of trustees of an exempt organization if facilities, and Requirements for a Political Organization, later. the unpaid volunteer serves solely in an hono- rary capacity, doesn't participate in the 2. Normally receives more than 25% of its day-to-day or financial operations of the support from the sum of governmental

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Political organization taxable income. may have to pay a penalty of 1/2 of 1% of the change, an amended Form 8871 must be filed Political organization taxable income is the ex- unpaid tax for each month or part of a month within 30 days of the material change. When cess of: the tax isn't paid, up to a maximum of 25% of the organization terminates its existence, it the unpaid tax. The penalty won't be imposed if must file a final Form 8871 within 30 days of ter- 1. Gross income for the tax year (excluding the organization can show that the failure to pay mination. exempt function income) minus on time was due to reasonable cause. If the due date falls on a Saturday, Sunday, 2. Deductions directly connected with the or legal holiday, the organization can file on the earning of gross income. next business day. Reporting Requirements To figure taxable income, allow for a $100 spe- How to file. An organization must file Form cific deduction, but don't allow for the net oper- for a Political 8871 electronically via the IRS Internet website ating loss deduction, the -received at IRS.gov/polorgs. deduction, and other special deductions for cor- Organization porations. Form 8453-X, Political Organization Decla- Certain political organizations are required to ration for Electronic Filing of Notice of Sec- Exempt organization not a political organi- notify the IRS that the organization is to be trea- tion 527 Status. After electronically submitting zation. An organization exempt under section ted as a section 527 political organization. The the initial Form 8871, the political organization 501(c) that spends any amount for an exempt organization is also required to periodically re- must print, sign, and mail Form 8453-X to the function must file Form 1120-POL for any year port certain contributions received and expendi- IRS. Upon receipt of the Form 8453-X, the IRS which it has political taxable income. These or- tures made by the organization. To notify the will send the organization a username and ganizations must include in gross income the IRS of section 527 treatment, an organization password that must be used to file an amended lesser of: must file Form 8871. To report contributions or final Form 8871 or to electronically file Form 1. The total amount of its exempt function ex- and expenditures, certain tax-exempt political 8872. penditures, or organizations must file Form 8872. Penalties 2. The organization's net investment income. Form 8871 Separate fund. A section 501(c) organiza- Failure to file. An organization that is re- quired to file Form 8871, but fails to do so on a tion can set up a separate segregated fund that A political organization must electronically file timely basis, won't be treated as a tax-exempt will be treated as an independent political or- Form 8871 to notify the IRS that it is to be trea- section 527 organization for any period before ganization. The earnings and expenditures ted as a section 527 organization. However, an the date Form 8871 is filed. Also, the taxable in- made by the separate fund won't be attributed organization isn't required to file Form 8871 if: come of the organization for that period will in- to the section 501(c) organization. It reasonably expects its annual gross re- • clude its exempt function income (including ceipts to always be less than $25,000. Section 501(c)(3) organizations are contributions received, membership dues, and It is a political committee required to report precluded from, and may suffer loss of • political fundraising receipts) minus any deduc- ! under the Federal Election Campaign Act CAUTION exemption for, engaging in any political tions directly connected with the production of of 1971 (FECA) (52 U.S.C. section 30101 campaign on behalf of, or in opposition to, any that income. et seq.). candidate for public office. Failure to file an amended Form 8871 will It is a state or local candidate committee. • cause the organization not to be treated as a It is a state or local committee of a political • tax-exempt section 527 organization. If an or- Due date. Form 1120-POL is due by the 15th party. day of the 4th month after the end of the tax ganization is treated as not being a tax-exempt year. Thus, for a calendar year taxpayer, Form All other political organizations are required to section 527 organization, the taxable income of 1120-POL is due on April 15 of the following file Form 8871. the organization will be determined by consider- ing any exempt function income and deductions year. If any due date falls on a Saturday, Sun- An organization must provide on Form 8871: day, or legal holiday, the organization can file during the period beginning on the date of the the return on the next business day. 1. Its name and address (including any busi- material change and ending on the date that the ness address, if different) and its elec- amended Form 8871 is filed. Form 1120-POL is not required of an tronic mailing address; The tax is computed by multiplying the or- TIP exempt organization that makes ex- ganization's taxable income by the highest cor- penditures for political purposes if its 2. Its purpose; porate tax rate. gross income doesn't exceed its directly con- 3. The names and addresses of its officers, Fraudulent returns. Any individual or cor- nected deductions by more than $100 for the highly compensated employees, contact poration that willfully delivers or discloses to the tax year. person, custodian of records, and mem- IRS any list, return, account, statement or other bers of its board of directors; document known to be fraudulent or false as to Extension of time to file. Use Form 7004 to 4. The name and address of, and relation- any material matter will be fined not more than request an automatic extension of time to file ship to, any related entities (within the $10,000 ($50,000 in the case of a corporation) Form 1120-POL. The extension will be granted meaning of section 168(h)(4)); and or imprisoned for not more than 1 year or both. if you complete Form 7004 properly, make a proper estimate of the tax (if applicable), file 5. Whether it intends to claim an exemption Waiver of penalties. The IRS may waive Form 1120-POL by the due date, and pay any from filing Form 8872, Form 990, or Form any additional tax assessed on an organization tax due. 990-EZ. for failure to file Form 8871 if the failure was due to reasonable cause and not willful neglect. Failure to file. A political organization that Employer identification number. If your fails to file Form 1120-POL is subject to a pen- organization needs an EIN, you can apply for Additional information. For more information alty equal to 5% of the tax due for each month one online. Click on the Employer ID Numbers on Form 8871, see the form and its instructions. (or partial month) the return is late up to a maxi- (EINs) link at IRS.gov/businesses/small For a discussion on the public inspection re- mum of 25% of the tax due, unless the organi- If you previously applied for an EIN and quirements for the form, see Public Inspection zation shows the failure was due to reasonable haven't yet received it, or you are unsure of Exemption Applications, Annual Returns, and cause. whether you have an EIN, please call our Political Organization Reporting Forms, later. For more information about filing Form toll-free customer account services number, 1120-POL, refer to the instructions accompany- 1-877-829-5500, for assistance. ing the form. Form 8872 Due dates. The initial Form 8871 must be filed Failure to pay on time. An organization within 24 hours of the date on which the organi- Every tax-exempt section 527 political organi- that doesn't pay the tax when due generally zation was established. If there is a material zation that accepts a contribution or makes an

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expenditure, for an exempt function during the Nonelection year filing. In nonelection years, Waiver of penalties. The IRS may waive calendar year, must file Form 8872 except: the form must be filed on a semiannual or any additional tax assessed on an organization • A political organization that isn't required to monthly basis. A complete listing of these filing for failure to file Form 8872 if the failure was due file Form 8871 (discussed earlier). periods are in the Form 8872 Instructions. A to reasonable cause and not willful neglect. • A political organization that is subject to tax nonelection year is any odd-numbered year. on its income because it didn't file or amend Form 8871. How to file. Form 8872 can be filed either Donee Information • A qualified state or local political organiza- electronically or by mail. However, organiza- tion (QSLPO), discussed below. tions that have, or expect to have, contributions Return or expenditures of $50,000 or more for the year All other tax-exempt section 527 organizations must file electronically. Dispositions of donated property. If an or- that accept contributions or make expenditures ganization receives charitable deduction prop- for an exempt function are required to file Form To file by mail, send Form 8872 to the: erty and within three years sells, exchanges, or 8872. otherwise disposes of the property, the organi-

zation must file Form 8282, Donee Information Qualified state or local political organi- Return. However, an organization isn't required zation. A state or local political organization to file Form 8282 if: may be a QSLPO if: Department of the Treasury The property is valued at $500 or less, or Internal Revenue Service Center • 1. All of its political activities relate solely to The property is consumed or distributed for Ogden, UT 84201-0027 • state or local public office (or office in a charitable purposes. state or local political organization). Form 8282 must be filed with the IRS within 2. It is subject to a state law that requires it to Electronic filing. File electronically via the 125 days after the disposition. Additionally, a report (and it does report) to a state copy of Form 8282 must be given to the donor. agency information about contributions IRS internet website at IRS.gov/polorgs. You will need a user ID and password to electroni- If the organization fails to file the required infor- and expenditures that is similar to the in- mation return, penalties may apply. formation that the organization would oth- cally file Form 8872. Organizations that have erwise be required to report to the IRS. completed the electronic filing of Form 8871 Charitable deduction property. This is and submitted a completed and signed Form any property (other than money or publicly tra- 3. The state agency and the organization 8453-X will receive a username and password ded securities) for which the donee organiza- make the reports publicly available. in the mail. tion signed an appraisal summary or Form 4. No federal candidate or office holder: Organizations that have completed the elec- 8283, Noncash Charitable Contributions. tronic filing of Form 8871, but haven't received a. Controls or materially participates in their user ID and password can request one by Publicly traded securities. These are se- the direction of the organization, writing to the following address: curities for which market quotations are readily available on an established securities market as b. Solicits contributions for the organiza- of the date of the contribution. tion, or Internal Revenue Service Attn: Request for 8872 Password c. Directs the disbursements of the or- Mail Stop 6273 Appraisal summary. If the value of the dona- ganization. Ogden, UT 84201 ted property exceeds $5,000, the donor must get a qualified appraisal for contributions of Information required on Form 8872. If an or- Lost username and password. If you property, see the Exceptions., below. ganization pays an individual $500 or more for have forgotten or misplaced the username and the calendar year, the organization is required Exceptions. A written appraisal isn't nee- password issued to your organization after you ded if the property is: to disclose the individual's name, address, oc- filed your initial Form 8871, send a letter re- cupation, employer, amount of the expense, the • Nonpublicly traded stock of $10,000 or questing a new username and password to the less, date the expense was paid, and the purpose of address under Electronic filing. You can also the expense on Form 8872. • A vehicle (including a car, boat, or air- fax your request to (801) 620-3249. It may take plane), if your deduction for the vehicle is If an organization receives contributions of 3-6 weeks for your new username and pass- limited to the gross proceeds from its sale, $200 or more from one contributor for the calen- word to arrive, as they will be mailed to the or- Intellectual property, dar year, the organization must disclose the do- • ganization. Certain securities considered to have mar- nor's name, address, occupation, employer, • ket quotations readily available (see Regu- and the date the contributions were made. lations section 1.170A-13(c)(7)(xi)(B)), For additional information that is required, Penalty • Inventory and other property donated by a see Form 8872. A penalty will be imposed if the organization is corporation that are qualified contributions required to file Form 8872 and it: for the care of the ill, the needy, or infants, Due dates. The due dates for filing Form 8872 Fails to file the form by the due date, or within the meaning of section 170(e)(3)(A), vary depending on whether the form is due for a • Files the form but fails to report all of the in- or reporting period that occurs during a calendar • formation required or reports incorrect in- Any donation of stock in trade, inventory, year in which a regularly scheduled election is • formation. or property held primarily for sale to cus- held, or any other calendar year (a nonelection tomers in the ordinary course of your trade year). The penalty is 21% for tax years beginning or business. If the due date falls on a Saturday, Sunday, after December 31, 2017 (35% for tax years be- The donee organization isn't a qualified ap- or legal holiday, the organization can file on the ginning before December 31 2017) of the total praiser for the purpose of valuing the donated next business day. amount of contributions and expenditures to property. For more information, get Publication which a failure relates. Election year filing. In election years, Form 561, Determining the Value of Donated Prop- 8872 must be filed on either a quarterly or a Fraudulent returns. Any individual or cor- erty. monthly basis. Both a pre-election report and a poration that willfully delivers or discloses any Form 8283. For noncash donations over post-election report are also required to be filed list, return, account, statement, or other docu- $5,000, the donor must attach Form 8283 to the in an election year. An election year is any year ment known to be fraudulent or false as to any tax return to support the charitable deduction. in which a regularly scheduled general election material matter will be fined not more than The donee must sign Part IV of Section B, Form for federal office is held (an even-numbered $10,000 ($50,000 in the case of a corporation), 8283 unless publicly traded securities are dona- year). or imprisoned for not more than 1 year, or both. ted. The person who signs for the donee must be an official authorized to sign the donee's tax

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or information returns, or a person specifically income tax purposes is limited to the ex- comparable goods or services. Goods or serv- authorized to sign by that official. The signature cess of any money (and the value of any ices may be similar or comparable even if they doesn't represent concurrence in the appraised property other than money) contributed by don't have the unique qualities of the goods or value of the contributed property. A signed ac- the donor over the fair market value of services being valued. knowledgment represents receipt of the prop- goods or services provided by the charity, erty described on Form 8283 on the date speci- and Example 1. A charity provides a 1-hour fied on the form. The signature also indicates tennis lesson with a tennis professional for the 2. Provide the donor with a good faith esti- knowledge of the information reporting require- first $500 payment it receives. The tennis pro- mate of the fair market value of the goods ments on dispositions, as previously discussed. fessional provides 1-hour lessons on a com- or services that the donor received. A copy of Form 8283 must be given to the do- mercial basis for $100. A good faith estimate of nee. The charity must furnish the statement in con- the lesson's FMV is $100. nection with either the solicitation or the receipt of the quid pro quo contribution. If the disclo- Example 2. For a payment of $50,000, a Information Provided to sure statement is furnished in connection with a museum allows a donor to hold a private event particular solicitation, it isn't necessary for the in a room of the museum. A good faith estimate Donors organization to provide another statement when of the FMV of the right to hold the event in the it actually receives the contribution. museum can be made by using the cost of rent- In some situations, a donor must obtain certain No disclosure statement is required if any of ing a hotel ballroom with a capacity, amenities, information from a donee organization to obtain the following are true. and atmosphere comparable to the museum a deduction for a charitable contribution. In room, even though the hotel ballroom lacks the other situations, the donee organization is re- 1. The goods or services given to a donor unique art displayed in the museum room. If the quired to provide information to the donor. have insubstantial value as described in hotel ballroom rents for $2,500, a good faith es- Rev. Proc. 90-12, 1990-1 C.B. 471, Rev. timate of the FMV of the right to hold the event A charitable organization must give a donor Proc. 90-12, and Rev. Proc. 92-49, 1992-1 in the museum is $2,500. a disclosure statement for a quid pro quo contri- C.B. 507 (as adjusted for inflation), Rev. bution over $75. (See Disclosure statement. Proc. 92-49. Example 3. For a payment of $1,000, a later.) This is a payment a donor makes to a 2. There is no donative element involved in a charity provides an evening tour of a museum charity partly as a contribution and partly for particular transaction with a charity (for ex- conducted by a well-known artist. The artist goods or services. See Quid pro quo contribu- ample, there is generally no donative ele- doesn't provide tours on a commercial basis. tion below for an example. ment involved in a visitor's purchase from Tours of the museum normally are free to the a museum gift shop). public. A good faith estimate of the FMV of the Failure to make the required disclosure may evening museum tour is $0 even though it is result in a penalty to the organization. A donor 3. There is only an intangible religious benefit conducted by the artist. can't deduct a charitable contribution of $250 or provided to the donor. The intangible reli- more unless the donor has a written acknowl- gious benefit must be provided to the do- Penalty for failure to disclose. A penalty is edgment from the charitable organization. nor by an organization organized exclu- imposed on a charity that doesn't make the re- sively for religious purposes, and must be quired disclosure of a quid pro quo contribution In certain circumstances, an organization of a type that generally isn't sold in a com- of more than $75. The penalty is $10 per contri- may be able to meet both of these requirements mercial transaction outside the donative bution, not to exceed $5,000 per fundraising with the same written document. context. For example, a donor who, for a event or mailing. The charity can avoid the pen- payment, is granted admission to a reli- alty if it can show that the failure was due to rea- Disclosure of gious ceremony for which there is no ad- sonable cause. Quid Pro Quo Contributions mission charge is provided an intangible religious benefit. A donor isn't provided in- Acknowledgment of A charitable organization must provide a written tangible religious benefits for payments disclosure statement to donors of a quid pro made for tuition for education leading to a Charitable Contributions of quo contribution over $75. recognized degree, travel services, or $250 or More consumer goods. A donor can deduct a charitable contribution of Quid pro quo contribution. A contribution 4. The donor makes a payment of $75 or $250 or more only if the donor has a written ac- made by a donor in exchange for goods or serv- less per year and receives only annual knowledgment from the charitable organization. ices is known as a quid pro quo contribution. membership benefits that consist of: Your charitable organization must provide the The donor must get the acknowledgment by the donor a written statement informing the donor a. Any rights or privileges (other than the earlier of: right to purchase tickets for college of the fair market value of the items or services 1. The date the donor files the original return athletic events) that the taxpayer can it provided in exchange for the contribution. for the year the contribution is made, or Generally, a written statement is required for exercise often during the membership each payment, whenever the contribution por- period, such as free or discounted ad- 2. The due date, including extensions, for fil- tion is over $75. missions or parking or preferred ac- ing the return. cess to goods or services, or The donor is responsible for requesting and ob- Example. If a donor gives your charity $100 b. Admission to events that are open taining the written acknowledgment from the and receives a concert ticket valued at $40, the only to members and the cost per per- donee. A charitable organization that receives a donor has made a quid pro quo contribution. In son of which is within the limits for payment made as a contribution is treated as this example, the charitable part of the payment low-cost articles described in Rev. the donee organization for this purpose even if is $60. Even though the deductible part of the Proc. 90-12 (as adjusted for inflation), the organization (according to the donor's in- payment isn't more than $75, a written state- Rev. Proc. 90-12. structions or otherwise) distributes the amount ment must be filed because the total payment is received to one or more charities. more than $75. If your organization fails to dis- Good faith estimate of fair market value close quid pro quo contributions, the organiza- (FMV). An organization can use any reasona- Quid pro quo contribution. If the donee pro- tion may be subject to a penalty. ble method to estimate the FMV of goods or vides goods or services to the donor in ex- services it provided to a donor, as long as it ap- change for the contribution (a quid pro quo con- Disclosure statement. The required written plies the method in good faith. tribution), the acknowledgment must include a disclosure statement must: The organization can estimate the FMV of good faith estimate of the value of the goods or goods or services that generally aren't commer- 1. Inform the donor that the amount of the services. See Disclosure of Quid Pro Quo Con- cially available by using the FMV of similar or contribution that is deductible for federal tributions earlier.

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Form of acknowledgment. Although there is electronically or magnetically can be found in Penalties. If your charitable organization re- no prescribed format for the written acknowl- Publication 1220, Specifications for Filing ceives contributions of used motor vehicles, edgment, it must provide enough information to Forms 1097, 1098, 1099, 3921, 3922, 5498, boats, and airplanes valued over $500 it may be substantiate the amount of the contribution. For 8935, and W-2G Electronically at Pub. 1220. subject to a penalty if it knowingly: more information, see Publication 1771, Chari- • Fails to furnish an acknowledgement in a table Contributions – Substantiation and Disclo- Acknowledgment timely manner, showing the required infor- sure Requirements. mation, or For a contribution of a qualified vehicle • Furnishes a false or fraudulent acknowl- Cash contributions. To deduct a contribu- ! with a claimed value of $500 or less, edgement of the contribution. tion of cash, a check, or other monetary gift (re- CAUTION don't file Form 1098-C. However, you gardless of the amount), a donor must maintain can use it as the contemporaneous written ac- Other penalties may apply. See Part O a record or a written communication from knowledgment under section 170(f)(8) by pro- in the current General Instructions for the donee organization showing the donee's viding the donor with Copy C only. See the In- Certain Information Returns. name, date, and amount of the contribution. In structions for Form 1098-C. An acknowledgment containing a certifica- the case of a lump-sum contribution (rather than tion will be presumed to be false or fraudulent if a contribution by payroll deduction) made Generally, the organization should complete the qualified vehicle is sold to a buyer other through the Combined Federal Campaign or a than a needy individual without a significant in- similar program such as a United Way Cam- Form 1098-C as the written acknowledgment to the donor and the IRS. The contents of the ac- tervening use or material improvement within 6 paign, the written communication must include months of the date of the contribution. the name of the donee organization that is the knowledgment depend upon whether the or- If a charity sells a donated vehicle at auc- ultimate recipient of the charitable contribution. ganization: • Sells a qualified vehicle without any signifi- tion, the IRS won't accept as substantiation an Contributions by payroll deduction. An cant intervening use or material improve- acknowledgment from the charity stating that organization may substantiate an employee's ment, the vehicle is to be transferred to a needy indi- contribution by deduction from its payroll by: • Intends to make a significant intervening vidual for significantly below fair market value. • A pay stub, Form W-2, or other document use of or material improvement to a quali- Vehicles sold at auction aren't sold at prices showing a contribution to a donee organi- fied vehicle prior to sale, or significantly below fair market value, and the zation, together with • Sells a qualified vehicle to a needy individ- IRS won't treat vehicles sold at auction as quali- • A pledge card or other document from the ual at a price significantly below fair market fying for this exception. donee organization that shows its name. value, or a gratuitous transfer to a needy The penalty for a false or fraudulent ac- individual in direct furtherance of a charita- For contributions of $250 or more, the docu- knowledgment where the donee certifies that ble purpose of the organization of relieving ment must state that the donee organization the vehicle won't be transferred for money, the poor and distressed or the underprivi- provides no goods or services for any payroll other property, or services before completion of leged who are in need of a means of trans- contributions. The amount withheld from each material improvements or significant intervening portation. payment of wages to a taxpayer is treated as a use or the donee certifies that the vehicle is to separate contribution. be transferred to a needy individual for signifi- For more information on the acknowledg- cantly below fair market value in furtherance of ment, see Notice 2005-44. the donee's charitable purpose is the larger of Acknowledgment of Vehicle $5,000 or the claimed value of the vehicle multi- Contribution Material improvements or significant inter- plied by 39.6%. vening use. To constitute significant interven- The penalty for an acknowledgment relating If an exempt organization receives a contribu- ing use, the organization must actually use the to a qualified vehicle being sold in an arm's tion of a qualified vehicle with a claimed value vehicle to substantially further the organization's length transaction to an unrelated party is the of more than $500, the donee organization is regularly conducted activities, and the use must larger of the gross proceeds from the sale or required to provide a contemporaneous written be significant, not incidental. Factors in deter- the sales price stated in the acknowledgment acknowledgment to the donor. The donee or- mining whether a use is a significant intervening multiplied by 39.6%. ganization can use a completed Form 1098-C, use depend on the nature, extent, frequency, and duration. For this purpose, use includes Contributions of Motor Vehicles, Boats, and Air- Qualified Intellectual planes, for the contemporaneous written ac- providing transportation on a regular basis for a knowledgment. See section 3.03 of Notice significant period of time or significant use di- Property 2005-44, 2005-25 I.R.B. 1287 for guidance on rectly related to training in vehicle repair. Use the information that must be included in a con- doesn't include the use of a vehicle to provide A taxpayer who contributes qualified intellectual temporaneous written acknowledgment and the training in business skills, such as marketing or property to a charity may be entitled to a chari- deadline for furnishing the acknowledgment to sales. Examples of significant use include: table deduction, in addition to any initial deduc- the donor. • Driving a vehicle every day for 1 year to tion allowed in the year of contribution. The ad- deliver meals to needy individuals, if deliv- ditional deduction is based on a specified Any donee organization that provides a con- ering meals is an activity regularly conduc- percentage of the qualified donee income with temporaneous written acknowledgment to a do- ted by the organization. respect to the qualified intellectual property. To nor is required to report to the IRS the informa- • Driving a vehicle for 10,000 miles over a qualify for the additional charitable deduction, tion contained in the acknowledgment. The 1-year period to deliver meals to needy in- the donor must provide notice to the donee at report is due by February 28 (March 31 if filing dividuals, if delivering meals is an activity the time of the contribution that the donor in- electronically) of the year following the year in regularly conducted by the organization. tends to treat the contribution as qualified intel- lectual property contribution for purposes of which the donee organization provides the ac- Material improvements include major repairs sections 170(m) and 6050L. knowledgment to the donor. The organization and additions that improve the condition of the must file the report on Copy A of Form 1098-C. vehicle in a manner that significantly increases Every donee organization described in sec- An organization that files Form 1098-C on the value. To be a material improvement, the tion 170(c) (except a private foundation as de- paper should send it with Form 1096, Annual improvement can't be funded by an additional fined in section 509(a) that isn't described in Summary and Transmittal of U.S. Information payment to the organization from the donor of section 170(b)(1)(F)) that receives or accrues Returns. See the Instructions for Form 1096 for the vehicle. Material improvements don't in- net income from a charitable gift of qualified in- the correct filing location. clude cleaning, minor repairs, routine mainte- tellectual property must file Form 8899. nance, painting, removal of dents or scratches, An organization that is required to file 250 or cleaning or repair of upholstery, and installation Form 8899. Form 8899, Notice of Income from more Forms 1098-C during the calendar year of theft deterrent devices. Donated Intellectual Property, is used by a do- must file the forms electronically or magneti- nee to report net income from qualified cally. Specifications for filing Form 1098-C intellectual property to the donor of the property

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and to the IRS and is due by the last day of the and that haven't been recognized by the IRS as first full month following the close of the donee’s exempt under section 501(a) as organizations tax year. This form must be filed for each tax Public Inspection described in section 501(c)(3) aren't required to year of the donee in which the donated property of Exemption make their Forms 990-T public. produces net income, but only if all or part of that tax year occurs during the 10-year period Applications, Annual beginning on the date of the contribution and Public Inspection of that tax year doesn't begin after the expiration Returns, and Political Exemption Application of the legal life of the donated property. Organization Reporting An exempt organization must also make availa- Qualified donee income. Qualified donee in- Forms ble for public inspection without charge its ap- come is any net income received by or accrued plication for tax-exempt status. An application to the donee that is properly allocable to the The general rule under section 6103 is that re- for tax exemption includes the application form qualified intellectual property for the tax year of turns and return information of all taxpayers are (such as Forms 1023 or 1024), all documents the donee which ends within or with the tax year confidential except as authorized under the and statements the IRS requires the organiza- of the donor. Income isn't treated as allocated Code. Section 6104 provides exceptions to the tion to file with the form, any statement or other to qualified intellectual property if it is received general rule of confidentiality for disclosure of supporting document submitted by an organiza- or accrued after the earlier of the expiration of certain information about exempt organizations. tion in support of its application, and any letter the legal life of the qualified intellectual prop- or other document issued by the IRS concern- erty, or the 10-year period beginning with the Included in this section is a discussion on ing the application. date of the contribution. the public inspection requirements for political organizations filing Forms 8871 and 8872. The application for exemption doesn't in- Qualified intellectual property. Qualified in- clude: tellectual property is generally any patent, copy- Annual Information Return • Any application from an organization that right, trademark, trade name, trade secret, isn't yet recognized as exempt; know-how, software or similar property, or ap- An exempt organization must make available • Any material that is required to be withheld plications or registrations of such property for public inspection, upon request and without from public inspection, see Material re- (other than property contributed to or for the use charge, a copy of its original and amended an- quired to be withheld from public inspec- of a private foundation as defined in section nual information returns. Each information re- tion, next; 509(a) that isn't described in section turn must be made available from the date it is • In the case of a tax-exempt organization 170(b)(1)(F)). See Exceptions below. required to be filed (determined with regard to other than a private foundation, the names and addresses of contributors to the or- Exceptions. The following property isn't any extensions), or is actually filed, whichever is ganization; or considered qualified intellectual property for later. An original return doesn't have to be made • Any applications filed before July 15, 1987, purposes of the additional charitable deduction: available if more than 3 years have passed from the date the return was required to be filed (in- if the organization didn't have a copy of the 1. Computer software that is readily available cluding any extensions) or was filed, whichever application on July 15, 1987. for purchase by the general public, is sub- is later. An amended return doesn't have to be ject to a nonexclusive license, and has not made available if more than 3 years have If there is no prescribed application form, been substantially modified. passed from the date it was filed. see Regulations section 301.6104(d)-1(b)(3)(ii) for a list of the documents that must be made 2. A copyright held by a taxpayer: An annual information return includes an ex- available. • Whose personal efforts created the prop- act copy of the return (Forms 990, 990-EZ, 990-BL, 990-PF, 990-T, or 1065), and amended Material required to be withheld from erty, or public inspection. Material that is required to • In whose hands the basis of the property is return if any, and all schedules, attachments, and supporting documents filed with the IRS. be withheld from public inspection includes: determined, for purposes of determining • Trade secrets, patents, processes, styles gain from a sale or exchange, in whole or An annual information return doesn't in- of work, or apparatus for which withholding in part by reference to the basis of the clude: was requested and granted; property in the hands of a taxpayer whose • Schedule A of Form 990-BL, • National defense material; personal efforts created the property. • Schedule K-1 of Form 1065, or • Unfavorable rulings or determination let- • Form 1120-POL. ters issued in response to applications for Report of Cash Received In the case of a tax-exempt organization tax exemption; other than a private foundation, an annual infor- • Rulings or determination letters revoking or mation return doesn't include the names and modifying a favorable determination letter; An exempt organization that receives, in the addresses of contributors to the organization. • Technical advice memoranda relating to a course of its activities, more than $10,000 cash disapproved application for tax exemption in one transaction (or two or more related trans- Form 990-T. All section 501(c)(3) or- or the revocation or modification of a favor- actions) that isn't a charitable contribution must ! ganizations that file Form 990-T must able determination letter; report the transaction to the IRS on Form 8300, CAUTION make the return public, regardless of • Any letter or document filed with or issued Report of Cash Payments Over $10,000 Re- whether the organization is otherwise subject to by the IRS relating to whether a proposed ceived in a Trade or Business. the disclosure requirements of section 6104. or accomplished transaction is a prohibited For example, although churches aren't required transaction under section 503; to file Form 1023 or Form 990 with the IRS, they • Any letter or document filed with or issued must file the Form 990-T with the IRS to report by the IRS relating to an organization's sta- unrelated business taxable income. Thus, tus as an organization described in section churches must disclose Form 990-T to the pub- 509(a) or 4942(j)(3), unless the letter or lic. document relates to the organization's ap- plication for tax exemption; and State colleges and universities that have • Any other letter or document filed with or been recognized by the IRS as exempt under issued by the IRS which, although it relates section 501(a) as organizations described in to an organization's tax-exempt status as section 501(c)(3) must disclose Form 990-T to an organization described in section the public. However, state colleges and univer- 501(c) or 501(d), doesn't relate to that or- sities that are subject to tax under section ganization's application for tax exemption. 511(a) solely by virtue of section 511(a)(2)(B)

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Time, place, and manner restrictions. The no fee for the first 100 pages, the organization of the list or directory that refer to particular lo- annual returns and exemption application must can charge a fee for all copies. For noncommer- cal or subordinate organizations specified by be made available for inspection, without cial requesters, the FOIA schedule currently the requester. The central or parent organiza- charge, at the organization's principal, regional, provides a rate of $0.10 per page for black and tion must fulfill such requests in the time and and district offices during regular business white pages, and $0.20 per page for color pa- manner specified earlier. hours. The organization can have an employee ges. The organization can also charge the ac- A local or subordinate organization that present during inspection, but must allow the in- tual postage costs it pays to provide the copies. doesn't file its own annual information return dividual to take notes freely and to photocopy at (because it is affiliated with a central or parent no charge if the individual provides the photo- Regional and district offices. Generally, the organization that files a group return) must, on copying equipment. Generally, regional and dis- same rules regarding public inspection and pro- request, make available for public inspection, or trict offices are those that have paid employees viding copies of applications and annual infor- provide copies of, the group returns filed by the who together are normally paid for at least 120 mation returns that apply to a principal office of central or parent organization. However, if the hours a week. an exempt organization also apply to its re- group return includes separate schedules for If the organization doesn't maintain a perma- gional and district offices. However, a regional each local or subordinate organization included nent office, it must make its application for tax or district office isn't required to make its annual in the group return, the local or subordinate or- exemption and its annual information returns information return available for inspection or to ganization receiving the request can omit any available for inspection at a reasonable location provide copies until 30 days after the date the schedules relating only to other organizations of its choice. It must permit public inspection return is required to be filed (including any ex- included in the group return. The local or subor- within a reasonable amount of time after receiv- tensions) or is actually filed, whichever is later. dinate organization must permit public inspec- ing a request for inspection (normally not more tion, or comply with a request for copies made than 2 weeks) and at a reasonable time of day. Local and subordinate organizations. A lo- in person, within a reasonable amount of time At its option, it can mail, within 2 weeks of re- cal or subordinate organization is an exempt or- (normally not more than 2 weeks) after receiv- ceiving the request, a copy of its application for ganization that didn't file its own application for ing a request made in person for public inspec- tax exemption and annual information returns to tax exemption because it is covered by a group tion or copies and at a reasonable time of day. the requester in lieu of allowing an inspection. exemption letter. Generally, a local or subordi- In lieu of allowing an inspection, the local or The organization can charge the requester for nate organization of an exempt organization subordinate organization can mail a copy of the copying and actual postage costs only if the re- must, upon request, make available for public applicable documents to the person requesting quester consents to the charge. inspection, or provide copies of: inspection within the same time period. In this An organization that has a permanent office, 1. The application submitted to the IRS by case, the organization can charge the requester but has no office hours or very limited hours the central or parent organization to obtain for copying and actual postage costs only if the during certain times of the year, must make its the group exemption letter, and requester consents to the charge. If the local or documents available during those periods when subordinate organization receives a written re- office hours are limited or not available as 2. Those documents which were submitted quest for a copy of its annual information return, though it were an organization without a perma- by the central or parent organization to in- it must fulfill the request by providing a copy of nent office. clude the local or subordinate organization the group return in the time and manner speci- in the group exemption letter. fied earlier. The requester has the option of re- Furnishing copies. An exempt organization However, if the central or parent organization questing from the central or parent organiza- also must provide a copy of all, or any specific submits to the IRS a list or directory of local or tion, at its principal office, inspection or copies part or schedule, of its three most recent annual subordinate organizations covered by the group of group returns filed by the central or parent or- information returns and/or exemption applica- exemption letter, the local or subordinate organ- ganization. The central or parent organization tion to anyone who requests a copy either in ization is required to provide only the applica- must fulfill such requests in the time and man- person or in writing at its principal, regional, or tion for the group exemption ruling and the pa- ner specified earlier. district office during regular business hours. If ges of the list or directory that specifically refer If an organization fails to comply, it may be the individual made the request in person, the to it. liable for a penalty. See Penalties, later. copy must be provided on the same business The local or subordinate organization must day the request is made unless there are un- permit public inspection or comply with a re- Making applications and annual informa- usual circumstances. Unusual circumstances quest for copies made in person, within a rea- tion returns widely available. An exempt or- are defined in Regulations section sonable amount of time (normally not more than ganization doesn't have to comply with requests 301.6104(d)-1(d)(1)(ii). 2 weeks) after receiving a request made in per- for copies of its annual information returns or The organization must honor a written re- son for public inspection or copies and at a rea- exemption application if it makes them widely quest for a copy of documents or specific parts sonable time of day. In lieu of allowing an in- available. However, making these documents or schedules of documents that are required to spection, the local or subordinate organization widely available doesn't relieve the organization be disclosed. However, this rule only applies if can mail a copy of the applicable documents to from making its documents available for public the request: the person requesting inspection within the inspection. • Is addressed to the exempt organization's same time period. In that case, the organization The organization can make its application principal, regional, or district office; can charge the requester for copying and actual and annual information returns widely available • Is sent to that address by mail, electronic postage costs only if the requester consents to by posting the application and annual informa- mail (e-mail), facsimile (fax), or a private the charge. If the local or subordinate organiza- tion returns on the Internet. For the rules to fol- delivery service approved by the IRS; and tion receives a written request for a copy of its low so that the Internet posting will be consid- • Gives the address to where the copy of the application for exemption, it must fulfill the re- ered widely available, see Regulations section document should be sent. quest in the time and manner specified earlier. 301.6104(d)-2(b). The organization must mail the copy within The requester has the option of requesting If the organization has made its application 30 days from the date it receives the request. from the central or parent organization, at its for tax exemption and/or annual information re- The organization can request payment in ad- principal office, inspection or copies of the ap- turns widely available, it must inform any indi- vance and must then provide the copies within plication for group exemption and the material vidual requesting a copy where the documents 30 days from the date it receives payment. submitted by the central or parent organization are available, including the website address on to include a local or subordinate organization in the Internet, if applicable. If the request is made Fees for copies. The organization can the group ruling. If the central or parent organi- in person, the notice must be provided immedi- charge a reasonable fee for providing copies. It zation submits to the IRS a list or directory of lo- ately. If the request is made in writing, the no- can charge no more for the copies than the per cal or subordinate organizations covered by the tice must be provided within 7 days. page rate the IRS charges for providing copies. group exemption letter, it must make the list or The IRS can't charge more for copies than the directory available for public inspection, but it is Harassment campaign. If the tax-exempt or- fees listed in the Freedom of Information Act required to provide copies only of those pages ganization is the subject of a harassment cam- (FOIA) fee schedule. Although the IRS charges paign, the organization may not have to fulfill

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requests for information. For more information, • Dues paid to the organization that aren't the failure was due to intentional disregard of see Regulations section 301.6104(d)-3. deductible because they are used for lob- the requirements, the penalty may be higher bying or political activities, and and isn't subject to a maximum amount. Political Organization • Prohibited tax shelter transactions. Reporting Forms Sales of Information or Solicitation of Nondeductible Services Available Free from Forms 8871 and 8872 (discussed earlier under Contributions Government Reporting Requirements for a Political Organi- zation) are open to public inspection. Solicitations for contributions or other payments Certain organizations that offer to sell to individ- by certain exempt organizations (including lob- uals (or solicit money for) information or routine Form 8871. Form 8871 (including any sup- bying groups and political action committees) services that could be readily obtained free (or porting papers), and any letter or other docu- must include a statement that payments to for a nominal fee) from the Federal Government ment the IRS issues with regard to Form 8871, those organizations aren't deductible as charita- must include a statement that the information or are open to public inspection online at IRS.gov/ ble contributions for federal income tax purpo- service can be so obtained. The statement polorgs. ses. The statement must be included in the must be made in a conspicuous and easily rec- Form 8872. Form 8872 (including Sched- fundraising solicitation and be conspicuous and ognized format when the organization makes ules A and B) are open to public inspection on- easily recognizable. an offer or solicitation to sell the information or line at IRS.gov/polorgs. service. Organizations affected are those ex- Organizations subject to requirements. An empt under section 501(c) or 501(d) and politi- Electronically filed Forms 8871 and 8872 organization must follow these disclosure re- cal organizations defined in section 527(e). are available online 48 hours after the form has quirements if it is exempt under section 501(c), been filed. Forms 8872 that are filed by mail are other than section 501(c)(1), or under section Penalty. A penalty is provided for failure to available online after being imaged by the IRS. 501(d), unless the organization is eligible to re- comply with this requirement if the failure is due These forms are considered widely available if ceive tax deductible charitable contributions un- to intentional disregard of the requirement. The you provide the online address to the requester. der section 170(c). These requirements must penalty is the greater of $1,000 for each day the In addition, your organization must make a copy be followed by, among others: failure occurred, or 50% of the total cost of all of these materials available for public inspection 1. Social welfare organizations (section offers and solicitations that were made by the during regular business hours at the organiza- 501(c)(4)), organization the same day that it fails to meet tion’s principal office and at each of its regional the requirement. or district offices having at least three paid em- 2. Labor unions (section 501(c)(5)), ployees. 3. Trade associations (section 501(c)(6)), Dues Used for Lobbying Penalties 4. Social clubs (section 501(c)(7)), or Political Activities 5. Fraternal organizations (section 501(c)(8) Certain exempt organizations must notify any- The penalty for failure to allow public inspection and 501(c)(10)) (however, fraternal organ- one paying dues to the organization whether of annual returns is $20 for each day the failure izations described in section 170(c)(4) any part of the dues isn't deductible because it continues. The maximum penalty on all persons must follow these requirements only for is related to lobbying or political activities. for failures involving any one return is $10,000. solicitations for funds that are to be used for noncharitable purposes not described An organization must provide the notice if it The penalty for failure to allow public inspec- in section 170(c)(4)), is exempt from tax under section 501(a) and is tion of exemption applications is $20 for each 6. Any political organization described in one of the following. day the failure continues. section 527(e), including political cam- 1. A social welfare organization described in paign committees and political action The penalty for willful failure to allow public section 501(c)(4) that isn't a veterans' or- committees, and inspection of a return or exemption application ganization. is $5,000 for each return or application. The 7. Any organization not eligible to receive 2. An agricultural or horticultural organization penalty also applies to a willful failure to provide tax-deductible contributions if the organi- described in section 501(c)(5). copies. zation or a predecessor organization was, at any time during the 5-year period end- 3. A business league, chamber of com- The penalty for failure to allow public inspec- ing on the date of the fundraising solicita- merce, real estate board, or other organi- tion of a political organization's section 527 no- tion, an organization of the type to which zation described in section 501(c)(6). tice (Form 8871) is $20 for each day the failure this disclosure requirement applies. However, an organization described in (1), (2), continues. or (3) doesn't have to provide the notice if it es- Fundraising solicitation. This disclosure re- tablishes that substantially all the dues paid to it quirement applies to a fundraising solicitation if The penalty for failure to allow public inspec- aren't deductible anyway or if certain other con- all of the following are true. tion of a section 527 organization's contribu- ditions are met. For more information, see Rev. tions and expenditures report (Form 8872) is 1. The organization soliciting the funds nor- Proc. 98-19, 1998-1 C.B. 547 (or later update). $20 for each day the failure continues. The mally has gross receipts over $100,000 maximum penalty on all persons for failures in- per year. If the organization doesn't provide the re- volving any one report is $10,000. quired notice, it may have to pay a tax that is re- 2. The solicitation is part of a coordinated ported on Form 990-T. But the tax doesn't apply fundraising campaign that is soliciting to any amount on which the section 527 tax has Required Disclosures more than 10 persons during the year. been paid on Form 1120-POL. See Political Or- 3. The solicitation is made in written or prin- ganization Income Tax Return, earlier. Certain exempt organizations must disclose to ted form, by television or radio, or by tele- For more information about nondeductible the IRS or the public certain information about phone. dues, see Deduction not allowed for dues used their activities. Generally, an organization dis- for political or legislative activities. under Sec- closes this information by entering it on the ap- Penalties. Failure by an organization to make tion 501(c)(6) organizations, later. propriate lines of its annual return. In addition, the required statement will result in a penalty of there are disclosure requirements for: $1,000 for each day the failure occurred, up to a • Solicitation of nondeductible contributions, maximum penalty of $10,000 for a calendar • Sales of information or services that are year. No penalty will be imposed if it is shown available free from the government, that the failure was due to reasonable cause. If

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Prohibited Tax Shelter or not the filing of the information return or Form 990-T would have otherwise been required for Transactions Miscellaneous Rules that year. Every exempt organization (as defined in sec- Central organizations. A central organization tion 4965(c)) that is a party to a prohibited tax Organizational Changes and can obtain approval for a group change in an shelter transaction is required to disclose to the Exempt Status annual accounting period for its subordinate or- IRS the following information: ganizations on a group basis only by filing Form Whether such organization is a party to the • If you’ve changed your form or place of organi- 1128 with the Service Center where it files its prohibited tax shelter transaction (as de- zation, review Rev. Proc. 2018-15, 2018-9 annual information return. For more information, fined in section 4965(e)); and I.R.B. 379, to determine whether you’re re- see Rev. Proc. 76-10, 1976-1 C.B. 548, as The identity of any other party to the trans- • quired to file a new exemption application. If modified by Rev. Proc. 79-3, 1979-1 C.B. 483, action that is known to the exempt organi- your organization becomes inactive for a period or any later updates. zation. of time but doesn't cease being an entity under the laws of the state in which it was formed, its Due date. Form 1128 must be filed by the 15th Party to a prohibited tax shelter transac- exemption won't be terminated. However, un- day of the 5th month following the close of the tion. An exempt organization is a party to a less you are covered by one of the filing excep- short period. prohibited tax shelter transaction if the organi- tions, you will have to continue to file an annual zation: information return during the period of inactivity. 1. Facilitates a prohibited tax shelter transac- If your organization has been liquidated, dis- tion by reason of its tax-exempt, tax-indif- solved, terminated, or substantially contracted, ferent, or tax-favored status; or you should file your annual return of information by the 15th day of the 5th month after the 2. Is identified in published guidance by type, change and follow the applicable instructions to class, or role as a party to a prohibited tax the form. 3. shelter transaction. If your organization amends its articles of or- See Prohibited Tax Shelter Transactions ganization or its internal regulations (bylaws), later for further information. then follow the instructions to Form 990, Form Section 501(c) 990-EZ, or Form 990-PF for reporting these Disclosure. A single disclosure is made by the changes. Regardless of whether your organiza- (3) organization for each prohibited tax shelter tion files an annual information return, you may transaction. The disclosure is made on Form also report these changes to the EO Determina- 8886-T, Disclosure by Tax-Exempt Entity Re- tions office; however, such reporting doesn't re- Organizations garding Prohibited Tax Shelter Transaction. lieve your organization from reporting the Due date. Generally, for exempt organiza- changes on its annual information return. For in- tions described in 1 above, the disclosure is formation about informing the IRS of a termina- Introduction due on or before May 15 of the calendar year tion or merger, see Publication 4779, Facts following the close of the calendar year that the about Terminating or Merging Your Exempt Or- An organization may qualify for exemption from exempt organization entered into the prohibited ganization. federal income tax if it is organized and oper- tax shelter transaction. If any date falls on a Sat- ated exclusively for one or more of the following An organization should report new signifi- urday, Sunday, or legal holiday, substitute the purposes. cant program services or significant changes in next business day. However, the disclosure for • Religious. how it conducts program services, and signifi- subsequently listed transactions (as defined in • Charitable. cant changes to its organizational documents, section 4965(e)(2)) is due on or before May 15 • Scientific. on its Form 990 rather than in a letter to EO De- of the calendar year following the close of the • Testing for public safety. terminations. EO Determinations no longer is- calendar year that the transaction was identified • Literary. sues letters confirming the tax-exempt status of by the Secretary as a listed transaction. • Educational. organizations that report new services or signifi- The disclosure for exempt organizations de- • Fostering national or international amateur cant changes, or changes to organizational scribed in 2 above is due on or before the date sports competition (but only if none of its documents. the first tax return (whether original or amended activities involve providing athletic facilities return) is filed that reflects a reduction or elimi- or equipment; however, see Amateur Ath- nation of the exempt organization's liability for Change in Accounting Period letic Organizations, later in this chapter). applicable federal employment, excise, or unre- • The prevention of cruelty to children or ani- lated business income taxes that is derived di- The procedures that an organization must fol- mals. rectly or indirectly from tax consequences or tax low to change its accounting period differ for an independent organization and for a central or- To qualify, the organization must be organ- strategy described in the published guidance ized as a corporation (including a limited liability that lists the transaction. ganization that seeks a group change for its subordinate organizations. ), unincorporated association, or trust. Sole proprietorships, partnerships, individuals, Penalty. Exempt organizations that fail to file Independent organizations. If an organiza- or loosely associated groups of individuals the required disclosure are subject to a nondi- won't qualify. sclosure penalty of $100 for each day the failure tion isn't required to file an annual information continues with a maximum penalty for any one return, but files a Form 990-T, it can change its annual accounting period by timely filing the Examples. Qualifying organizations include: disclosure of $50,000. • Nonprofit old-age homes, Also, if the IRS makes a written demand on Form 990-T. If neither an information return nor a Form 990-T is required to be filed, an organi- • Parent-teacher associations, any exempt organization subject to this penalty, • Charitable hospitals or other charitable or- giving the organization a reasonable date to zation must notify the IRS by letter that it has changed its fiscal period. ganizations, make the disclosure, and the organization fails • Alumni associations, If an organization changed its annual ac- to make the disclosure by that date, the organi- • Schools, counting period at any time within the previous zation is subject to a penalty of $100 for each • Chapters of the Red Cross, 10 years and within that time it had a filing re- day after the date specified by the IRS until dis- • Boys' or Girls' Clubs, and quirement, the organization must file a Form closure is made (with a maximum penalty for • Churches. any one disclosure of $10,000). 1128, Application to Adopt, Change, or Retain a Tax Year, with its timely filed annual information return or Form 990-T, as appropriate, whether

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Child care organizations. The term edu- part of the contribution unless the donor intends Certain contracts held by a charitable cational purposes includes providing for care of to, and does, make a payment greater than the remainder trust. An individual won't be con- children away from their homes if substantially fair market value of the goods or services. If a sidered an indirect beneficiary under a life in- all the care provided is to enable individuals deduction is allowed, the donor can deduct only surance, annuity, or endowment contract held (the parents) to be gainfully employed and the the part of the contribution, if any, that is more by a charitable remainder annuity trust or a services are available to the general public. than the fair market value of the goods or serv- charitable remainder unitrust solely by reason ices received. You should determine in ad- of being entitled to the payment if the trust owns Instrumentalities. A state or municipal instru- vance the fair market value of any goods or all of the incidents of ownership under the con- mentality may qualify under section 501(c)(3) if services to be given to contributors and tell tract, and the trust is entitled to all payments un- it is organized as a separate entity from the gov- them, when you publicize the fundraising event der the contract. ernmental unit that created it and if it otherwise or solicit their contributions, how much is de- meets the organizational and operational tests ductible and how much is for the goods or serv- Excise tax. If the premiums are paid in con- of section 501(c)(3). Examples of a qualifying ices. See Disclosure of Quid Pro Quo Contribu- nection with a transfer for which a deduction instrumentality might include state schools, uni- tions in chapter 2. isn't allowable under the deduction denial rule, versities, or hospitals. However, if an organiza- without regard to when the transfer to the chari- tion is an integral part of the local government Exemption application not filed. Generally, table organization was made, an excise tax will or possesses governmental powers, it doesn't donors can't deduct any charitable contribution be applied that is equal to the amount of the qualify for exemption. A state or municipality it- to an organization that is required to apply for premiums paid by the organization on any life self doesn't qualify for exemption. recognition of exemption but has not done so. insurance, annuity, or endowment contract. The excise tax doesn't apply if all of the direct and Topics Separate fund—contributions that are de- indirect beneficiaries under the contract are or- This chapter discusses: ductible. An organization that is exempt from ganizations. federal income tax other than as an organiza- tion described in section 501(c)(3) can, if it de- Excise Taxes. A charitable organization li- • Contributions to 501(c)(3) organizations, sires, establish a fund, separate and apart from able for excise taxes must file Form 4720, Re- • Applications for recognition of exemption, its other funds, exclusively for religious, charita- turn of Certain Excise Taxes Under Chapters 41 • Articles of Organization, ble, scientific, literary, or educational purposes, and 42 of the Internal Revenue Code. Gener- • Educational organizations and private fostering national or international amateur ally, the due date for filing Form 4720 occurs on schools, sports competition, or for the prevention of cru- the fifteenth day of the fifth month following the • Organizations providing insurance, elty to children or animals. close of the organization's tax year. Other section 501(c)(3) organizations, • If the fund is organized and operated exclu- Private foundations and public charities, Indoor tanning services. If your organiza- • sively for these purposes, it may qualify for ex- and tion provides an indoor tanning bed service, the emption as an organization described in section • Lobbying expenditures. ACA imposed a 10% excise tax on services 501(c)(3), and contributions made to it will be provided after June 30, 2010. For more infor- deductible as provided by section 170. A fund mation, go to IRS.gov and select Affordable Useful Items with these characteristics must be organized in Care Act Tax Provisions. You may want to see: such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general Forms (and Instructions) purposes of the organization creating it. Application for

1023 1023 Application for Recognition of Personal benefit contracts. Generally, chari- Exemption Under Section 501(c)(3) Recognition of table deductions won't be allowed for a transfer of the Internal Revenue Code to, or for the use of, a section 501(c)(3) or (c)(4) Exemption

1023-EZ 1023-EZ Streamlined Application for organization if in connection with the transfer: Recognition of Exemption Under • The organization directly or indirectly pays, This discussion describes certain information to Section 501(c)(3) of the Internal or previously paid, a premium on a per- be provided upon application for recognition of Revenue Code sonal benefit contract for the transferor, or exemption by all organizations created for any There is an understanding or expectation of the purposes described earlier in this chap- See chapter 6 for information about getting pub- • that anyone will directly or indirectly pay a ter. For example, the application must include a lications and forms. premium on a personal benefit contract for conformed copy of the organization's articles of the transferor. incorporation, as discussed under Articles of Organization, later in this chapter. See the or- A personal benefit contract with respect to Contributions to 501(c) ganization headings that follow for specific in- the transferor is any life insurance, annuity, or formation your organization may need to pro- (3) Organizations endowment contract, if any direct or indirect vide. beneficiary under the contract is the transferor, Contributions to domestic organizations descri- any member of the transferor's family, or any Form 1023 or Form 1023-EZ. Your organiza- bed in this chapter, except organizations testing other person designated by the transferor. tion must file its application for recognition of for public safety, are deductible as charitable exemption on Form 1023 or Form 1023-EZ. contributions on the donor's federal income tax Certain annuity contracts. If an organiza- See chapter 1 and the instructions accompany- return. tion incurs an obligation to pay a charitable gift annuity, and the organization purchases an an- ing Form 1023 or Form 1023-EZ for the proce- dures to follow in applying. Some organizations Fundraising events. If the donor receives nuity contract to fund the obligation, individuals aren't required to file Form 1023 or Form something of value in return for the contribution, receiving payments under the charitable gift an- 1023-EZ. See Organizations Not Required to a common occurrence with fundraising efforts, nuity won't be treated as indirect beneficiaries if File Form 1023 or 1023-EZ, later. part or all of the contribution may not be deduc- the organization owns all of the incidents of tible. This may apply to fundraising activities ownership under the contract, is entitled to all If you are a small organization, you may be such as charity balls, bazaars, banquets, auc- payments under the contract, and the timing eligible to apply for recognition of exemption by tions, concerts, athletic events, and solicitations and amount of the payments are substantially filing Form 1023-EZ instead of Form 1023. Spe- for membership or contributions when mer- the same as the timing and amount of pay- cific eligibility requirements apply. You can find chandise or benefits are given in return for pay- ments to each person under the obligation (as more information about eligibility to use Form ment of a specified minimum contribution. such obligation is in effect at the time of the 1023-EZ at Instructions for Form 1023-EZ. If the donor receives or expects to receive transfer). goods or services in return for a contribution to your organization, the donor can't deduct any

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Additional information to help you com- is mailed or, if no postmark appears on the professional if it knows or should know TIP plete your application can be found on- cover, the date the application is stamped as that he or she isn't competent to render line. Go to Exemption Requirement – received by the IRS. See section 6.08 of Rev. advice on filing exemption applications or Section 501(c)(3) Organizations and select the Proc. 2019-5. isn't aware of all the relevant facts. link at the bottom of the Web page for step by step help with the application process. See Private delivery service. You can use cer- Not acting reasonably and in good faith. Exemption Requirements - Section 501(c)(3) tain private delivery services (PDS) designated An organization has not acted reasonably and Organizations. by the IRS to meet the “timely mailing as timely in good faith under the following circumstances. filing” rule for tax returns. Go to IRS.gov/PDS for 1. It seeks to change a return position for Form 1023 and accompanying statements the current list of designated services. which an accuracy-related penalty has must show that all of the following are true. been or could be imposed at the time the The PDS can tell you how to get written proof of 1. The organization is organized exclusively relief is requested. for, and will be operated exclusively for, the mailing date. one or more of the purposes (religious, 2. It was informed of the requirement to file charitable, etc.) specified in the introduc- For the IRS mailing address to use if you're us- and related tax consequences, but chose tion to this chapter. ing PDS, go to IRS.gov/PDStreetAddresses. not to file.

2. No part of the organization's net earnings 3. It uses hindsight in requesting relief. The will inure to the benefit of private share- Private delivery services can't deliver IRS won't ordinarily grant an extension if holders or individuals. You must establish ! items to P.O. boxes. You must use the specific facts have changed since the due that your organization won't be organized CAUTION U.S. Postal Service to mail any item to date that makes filing an application ad- or operated for the benefit of private inter- an IRS P.O. box address. vantageous to an organization. ests, such as the creator or the creator's Prejudicing the interest of the Govern- Amendments to organizing documents family, shareholders of the organization, ment. Prejudice to the interest of the Govern- required. If an organization is required to alter other designated individuals, or persons ment results if granting an extension of time to its activities or to make substantive amend- controlled directly or indirectly by such pri- file to an organization results in a lower total tax ments to its organizing document, the determi- vate interests. liability for the years to which the filing applies nation letter recognizing its exempt status will than would have been the case if the organiza- 3. The organization won't, as a substantial be effective as of the date the changes are tion had filed on time. Before granting an exten- part of its activities, attempt to influence made. If only a nonsubstantive amendment is sion, the IRS can require the organization re- legislation (unless it elects to come under made, exempt status will be effective as of the questing it to submit a statement from an the provisions allowing certain lobbying date it was organized, if the application was independent auditor certifying that no prejudice expenditures) or participate to any extent filed within the 27-month period, or the date the will result if the extension is granted. in a political campaign for or against any application was filed. candidate for public office. See Political The interests of the Government are ordina- activity, next, and Lobbying Expenditures, Discretionary extension of time for filing. rily prejudiced if the tax year in which the appli- near the end of this chapter. An organization that fails to file a Form 1023 cation should have been filed (or any tax year within the 27-month period may be granted an Political activity. If any of the activities that would have been affected had the filing extension to file if it submits evidence (including (whether or not substantial) of your organization been timely) are closed by the statute of limita- affidavits) to establish that. consist of participating in, or intervening in, any tions before relief is granted. The IRS can con- political campaign on behalf of (or in opposition 1. It acted reasonably and in good faith, and dition a grant of relief on the organization pro- to) any candidate for public office, your organi- viding the IRS with a statement from an 2. Granting a discretionary extension won't zation won't qualify for tax-exempt status under independent auditor certifying that the interests prejudice the interests of the government. section 501(c)(3). Such participation or inter- of the Government aren't prejudiced. vention includes the publishing or distributing of Procedure for requesting extension. To statements. The discretionary extension of the time for filing request a discretionary extension, an organiza- Whether your organization is participating or Form 1023 or Form 1023-EZ does not apply if tion must submit (to the IRS address shown on intervening, directly or indirectly, in any political the organization is automatically revoked for Form 1023) the following. campaign on behalf of (or in opposition to) any failure to file a required annual information re- A statement showing the date Form 1023 candidate for public office depends upon all of turn or notice for three consecutive years. See • was required to have been filed and the the facts and circumstances of each case. Cer- Automatic Revocation, earlier. tain voter education activities or public forums date it was actually filed. conducted in a nonpartisan manner may not be How to show reasonable action and • Any documents relevant to the application. prohibited political activity under section 501(c) good faith. An organization acted reasonably • An affidavit describing in detail the events (3), while other so-called voter education activi- and showed good faith if at least one of the fol- that led to the failure to apply and to the ties may be prohibited. lowing is true. discovery of that failure. If the organization relied on a tax professional's advice, the 1. The organization requests relief before its affidavit must describe the engagement Effective date of exemption. Most organiza- failure to file is discovered by the IRS. tions described in this chapter that were organ- and responsibilities of the professional and ized after October 9, 1969, won't be treated as 2. The organization failed to file because of the extent to which the organization relied tax exempt unless they apply for recognition of intervening events beyond its control. on him or her. • This affidavit must be accompanied by a exemption by filing Form 1023 or Form 3. The organization exercised reasonable dil- 1023-EZ. These organizations won't be treated dated declaration, signed by an individual igence (taking into account the complexity who has personal knowledge of the facts as tax exempt for any period before they file of the return or issue and the organiza- Form 1023 or Form 1023-EZ, unless they file and circumstances, who is authorized to tion's experience in these matters) but act for the organization, which states, “Un- the form within 27 months from the end of the wasn't aware of the filing requirement. month in which they were organized. If the or- der penalties of perjury, I declare that I ganization files the application within this 4. The organization reasonably relied upon have examined this request, including ac- 27-month period, the organization's exemption the written advice of the IRS. companying documents, and, to the best will be recognized retroactively to the date it of my knowledge and belief, the request 5. The organization reasonably relied upon contains all the relevant facts relating to was organized. Otherwise, exemption will be the advice of a qualified tax professional recognized only from the date of receipt. The the request, and such facts are true, cor- who failed to file or advise the organization rect, and complete.” date of receipt is the date of the U.S. postmark to file Form 1023 or Form 1023-EZ. An or- on the cover in which an exemption application • Detailed affidavits from individuals having ganization can't rely on the advice of a tax knowledge or information about the events

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that led to the failure to make the applica- tax-deductible contributions. These organiza- and isn't a private foundation. It was incorpora- tion and to the discovery of that failure. tions also cannot obtain a written affirmation of ted on January 1, 2014, and files returns on a This includes the organization's return pre- their exempt status. To be included in the IRS calendar-year basis. It didn't apply for recogni- parer, and any accountant or attorney, database of exempt organizations and be eligi- tion of exemption. The organization's gross re- knowledgeable in tax matters, who ad- ble to receive a written determination or affirma- ceipts during the years 2014 through 2017 were vised the taxpayer on the application. The tion of exempt status, these organization must as follows: affidavits must describe the engagement file Form 1023 or 1023-EZ.

and responsibilities of the individual and 2014 ...... $3,600 the advice that he or she provided. Filing Form 1023 or 1023-EZ to establish 2015 ...... 2,900 • These affidavits must include the name, exemption. If the organization wants to estab- 2016 ...... 400 current address, and taxpayer identifica- lish its exemption with the IRS and receive a de- 2017 ...... 12,600 tion number of the individual, and be ac- termination letter recognizing its exempt status, companied by a dated declaration, signed it should file Form 1023 or 1023-EZ (if eligible). The organization's total gross receipts for by the individual, which states: “Under By establishing its exemption, potential contrib- 2014, 2015, and 2016 were $6,900. Therefore, penalties of perjury, I declare that I have utors are assured by the IRS that contributions it didn't have to apply for recognition of exemp- examined this request, including accompa- will be deductible. A subordinate organization tion and is exempt for those years. However, for nying documents, and, to the best of my (other than a private foundation) covered by a 2015, 2016, and 2017 the total gross receipts knowledge and belief, the request contains group exemption letter doesn't have to submit a were $15,900. Therefore, the organization must all the relevant facts relating to the request, Form 1023 or Form 1023-EZ for itself. apply for recognition of exemption within 90 and such facts are true, correct, and com- days after the end of its 2017 tax year. If it plete.” Private foundations. See Private Founda- doesn't apply within this time period, it won't be • The organization must state whether the tions and Public Charities, later in this chapter, exempt under section 501(c)(3) for the period returns for the tax year in which the appli- for more information about the additional notice beginning with tax year 2017 ending when the cation should have been filed or any tax required from an organization in order for it not application for recognition of exemption is re- years that would have been affected by the to be presumed to be a private foundation and ceived by the IRS. The organization, however, application had it been timely made are be- for the additional information required from a won't lose its exempt status for the tax years ing examined by the IRS, an appeals of- private foundation claiming to be an operating ending before January 1, 2017. fice, or a federal court. The organization foundation. The IRS will consider applying the Commis- sioner's discretionary authority to extend the must notify the IRS office considering the Gross receipts test. For purposes of the time for filing an application for recognition of request for relief if the IRS starts an exami- gross receipts test, an organization normally exemption. See the procedures for this exten- nation of any such return while the organi- doesn't have more than $5,000 annually in sion discussed earlier. zation's request for relief is pending. gross receipts if: • The organization, if requested, has to sub- mit copies of its tax returns, and copies of 1. During its first tax year the organization re- the returns of other affected taxpayers. ceived gross receipts of $7,500 or less, Articles of Organization A request for this relief in connection with an 2. During its first 2 years the organization had Your organization must be a legal entity (corpo- application for exemption doesn't require pay- a total of $12,000 or less in gross receipts, ration, trust or association) separate from its or- ment of an additional user fee. Also, a request and ganizers and must have written articles of or- for relief under the automatic 12-month exten- 3. In the case of an organization that has ganization. Depending upon the type of entity, sion doesn't require payment of a user fee. been in existence for at least 3 years, the its articles organization may be a corporate More information. For more information total gross receipts received by the organi- charter (filed articles of incorporation), trust in- about these procedures, see Regulations sec- zation during the immediately preceding 2 strument, articles of association, or any other tions 301.9100-1, 301.9100-2, 301.9100-3, years, plus the current year, are $15,000 written instrument by which the organization Rev. Proc 2019-5. or less. was created. If applying for recognition of ex- An organization with gross receipts more emption using Form 1023, a conformed copy of Notification from the IRS. Organizations filing than the amounts in the gross receipts test, un- the articles of organization must be submitted Form 1023 and satisfying all requirements of less otherwise exempt from filing Form 1023 or with the application for recognition of exemp- section 501(c)(3) will be notified of their exempt Form 1023-EZ, must apply for recognition of ex- tion. An organization applying for exemption us- status in writing. emption within 90 days after the end of the pe- ing Form 1023-EZ does not submit a copy of riod in which the amounts are exceeded. For the articles of organization with its application; example, an organization's gross receipts for its however, the organization could be asked to Organizations Not Required provide a copy at any time as part of a compli- to File Form 1023 or Form first tax year were less than $7,500, but at the end of its second tax year its gross receipts for ance check or examination. 1023-EZ the 2-year period were more than $12,000. The organization must apply for recognition of ex- Organizational Test Some organizations aren't required to file Form emption within 90 days after the end of its sec- 1023 or 1023-EZ. These include: ond tax year. The articles of organization must limit the or- • Churches, interchurch organizations of lo- If the organization had existed for at least 3 ganization's purposes to one or more of those cal units of a church, conventions or asso- tax years and had met the gross receipts test described at the beginning of this chapter and ciations of churches, or integrated auxilia- for all prior tax years but fails to meet the re- mustn't expressly empower it to engage, other ries of a church, such as a men's or quirement for the current tax year, its tax-ex- than as an insubstantial part of its activities, in women's organization, religious school, empt status for the prior years won't be lost activities that don't further one or more of those mission , or youth group. even if it does not apply for recognition of ex- purposes. These conditions for exemption are • Any organization (other than a private emption within 90 days after the close of the referred to as the organizational test. foundation) normally having annual gross current tax year. However, the organization receipts of not more than $5,000 (see won't be treated as a section 501(c)(3) organi- Section 501(c)(3) is the provision of law that Gross receipts test, later). zation for the period beginning with the current grants exemption to the organizations descri- tax year and ending with the filing of its applica- bed in this chapter. Therefore, the organiza- These organizations are exempt automati- tion for recognition of exemption . tional test may be met if the purposes stated in cally if they meet the requirements of section the articles of organization are limited in some 501(c)(3). However, such organizations will not Example. An organization is organized and way by reference to section 501(c)(3). appear on the Tax-Exempt Organization Search operated exclusively for charitable purposes list of organizations eligible to receive

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The requirement that your organization's and may be accomplished other than in an ex- purposes and powers must be limited by the ar- empt manner. ticles of organization isn't satisfied if the limit is Educational contained only in the bylaws or other rules or Example 7. A stated purpose to operate a Organizations regulations. Moreover, the organizational test hospital doesn't meet the organizational test isn't satisfied by statements of your organiza- since it isn't necessarily charitable. A hospital and Private Schools tion's officers that you intend to operate only for may or may not be exempt depending on the exempt purposes. Also, the test isn't satisfied manner in which it is operated. If your organization wants to obtain recognition by the fact that your actual operations are for of exemption as an educational organization, exempt purposes. Example 8. An organization that is ex- you must submit complete information as to pressly empowered by its articles to carry on how your organization carries on or plans to In interpreting an organization's articles, the social activities won't be sufficiently limited as to carry on its educational activities, such as by law of the state where the organization was cre- its power, even if its articles state that it is or- conducting a school, by panels, discussions, ated is controlling. If an organization contends ganized and will be operated exclusively for lectures, forums, radio and television programs, that the terms of its articles have a different charitable purposes. or through various cultural media such as mu- meaning under state law than their generally seums, symphony orchestras, or art exhibits. In accepted meaning, such meaning must be es- each instance, you must explain by whom and tablished by a clear and convincing reference to Dedication and Distribution of Assets where these activities are or will be conducted relevant court decisions, opinions of the state and the amount of admission fees, if any. You attorney general, or other appropriate state au- must submit a copy of the pertinent contracts, thorities. Assets of an organization must be permanently dedicated to an exempt purpose. This means agreements, publications, programs, etc. that should an organization dissolve, its assets The following are examples illustrating the If you are organized to conduct a school, must be distributed for an exempt purpose de- organizational test. you must submit full information regarding your scribed in this chapter, or to the Federal Gov- tuition charges, number of faculty members, Example 1. Articles of organization state ernment or to a state or local government for a number of full-time and part-time students en- that an organization is formed exclusively for lit- public purpose. If the assets could be distrib- rolled, courses of study and degrees conferred, erary and scientific purposes within the mean- uted to members or private individuals or for together with a copy of your school catalog. ing of section 501(c)(3). These articles appro- any other purpose, the organizational test isn't See also Private Schools, discussed later. priately limit the organization's purposes. The met. organization meets the organizational test. Dedication. To establish that your organi- Educational Organizations Example 2. An organization, by the terms zation's assets will be permanently dedicated to an exempt purpose, the articles of organization of its articles, is formed to engage in research The term educational relates to: without any further description or limitation. The should contain a provision ensuring their distri- organization won't be properly limited as to its bution for an exempt purpose in the event of 1. The instruction or training of individuals for purposes since all research isn't scientific. The dissolution. Although reliance can be placed the purpose of improving or developing organization doesn't meet the organizational upon state law to establish permanent dedica- their capabilities, or test. tion of assets for exempt purposes, your organi- zation's application probably can be processed 2. The instruction of the public on subjects much more rapidly if its articles of organization useful to individuals and beneficial to the Example 3. An organization's articles state community. that its purpose is to receive contributions and include a provision ensuring permanent dedica- tion of assets for exempt purposes. pay them over to organizations that are descri- Advocacy of a position. Advocacy of a par- bed in section 501(c)(3) and exempt from taxa- Distribution. Rev. Proc. 82-2, 1982-1 C.B. ticular position or viewpoint may be educational tion under section 501(a). The organization 367, identifies the states and circumstances in if there is a sufficiently full and fair exposition of meets the organizational test. which the IRS won't require an express provi- pertinent facts to permit an individual or the sion for the distribution of assets upon dissolu- public to form an independent opinion or con- Example 4. If a stated purpose in the arti- tion in the articles of organization. The proce- clusion. The mere presentation of unsupported cles is the conduct of a school of adult educa- dure also provides a sample of an acceptable opinion isn't educational. tion and its manner of operation is described in dissolution provision for organizations required detail, such a purpose will be satisfactorily limi- to have one. Method not educational. The method ted. If a named beneficiary is to be the distribu- used by an organization to develop and present tee, it must be one that would qualify and would its views is a factor in determining if an organi- Example 5. If the articles state the organi- be exempt within the meaning of section 501(c) zation qualifies as educational within the mean- zation is formed for charitable purposes, without (3) at the time the dissolution takes place. Since ing of section 501(c)(3). The following factors any further description, such language ordina- the named beneficiary at the time of dissolution may indicate that the method isn't educational. rily will be sufficient since the term charitable may not be qualified, may not be in existence, 1. The presentation of viewpoints unsuppor- has a generally accepted legal meaning. On the or may be unwilling or unable to accept the as- ted by facts is a significant part of the or- other hand, if the purposes are stated to be sets of the dissolving organization, a provision ganization's communications. charitable, philanthropic, and benevolent, the should be made for distribution of the assets for organizational requirement won't be met since one or more of the purposes specified in this 2. The facts that purport to support the view- the terms philanthropic and benevolent have no chapter in the event of any such contingency. point are distorted. generally accepted legal meaning and, there- 3. The organization's presentations make fore, the stated purposes may, under the laws Sample articles of organization. See sample substantial use of inflammatory and dis- of the state, permit activities that are broader articles of organization in the Appendix in the paraging terms and express conclusions than those intended by the exemption law. back of this publication. more on the basis of emotion than of ob- Example 6. If the articles state an organiza- jective evaluations. tion is formed to promote American ideals, or to 4. The approach used isn't aimed at develop- foster the best interests of the people, or to fur- ing an understanding on the part of the au- ther the common welfare and well-being of the dience because it doesn't consider their community, without any limitation or provision background or training. restricting such purposes to accomplishment only in a charitable manner, the purposes won't Exceptional circumstances, however, may be sufficiently limited. Such purposes are vague exist where an organization's advocacy may be

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educational even if one or more of the factors so far as may be feasible, for the next aca- discriminatory policy as to students. Con- listed above are present. demic year.) versely, the absence of racial discrimination in the employment of faculty and administrative 2. The amount of scholarship and funds, Qualifying organizations. The following types staff is indicative of a racially nondiscriminatory if any, awarded to students enrolled and of organizations may qualify as educational: policy as to students. the racial composition of students who 1. An organization, such as a primary or sec- have received the awards. A policy of a school that favors racial minor- ondary school, a college, or a professional 3. A list of the school's incorporators, found- ity groups with respect to admissions, facilities or trade school, that has a regularly sched- ers, board members, and donors of land and programs, and financial assistance isn't uled curriculum, a regular faculty, and a or buildings, whether individuals or organi- discrimination on the basis of race when the regularly enrolled student body in attend- zations. purpose and effect of this policy is to promote ance at a place where the educational ac- establishing and maintaining the school's non- tivities are regularly carried on, 4. A statement indicating whether any of the discriminatory policy. persons described in item (3) above have 2. An organization whose activities consist of an objective of maintaining segregated conducting public discussion groups, fo- A school that selects students on the basis public or private school education at the rums, panels, lectures, or other similar of membership in a religious denomination or time the application is filed and, if so, programs, unit isn't discriminating if membership in the de- whether any of the individuals described in nomination or unit is open to all on a racially 3. An organization that presents a course of item (3) are officers or active members of nondiscriminatory basis. instruction by correspondence or through those organizations at the time the appli- the use of television or radio, cation is filed. Policy statement. The school must include a 4. A museum, zoo, planetarium, symphony 5. The public school district and county in statement of its racially nondiscriminatory policy orchestra, or other similar organization, which the school is located. in all its brochures and catalogs dealing with student admissions, programs, and scholar- 5. A nonprofit children's day-care center, and How to determine racial composition. The ships. Also, the school must include a reference 6. A credit counseling organization. racial composition of the student body, faculty, to its racially nondiscriminatory policy in other and administrative staff can be an estimate written advertising that it uses to inform pro- College book stores, cafeterias, restau- based on the best information readily available spective students of its programs. rants, etc. These and other on-campus organi- to the school, without requiring student appli- zations should submit information to show that cants, students, faculty, or administrative staff Publicity requirement. The school must they are controlled by and operated for the con- to submit to the school information that the make its racially nondiscriminatory policy venience of the faculty and student body or by school otherwise doesn't require. Nevertheless, known to all segments of the general commun- whom they are controlled and whom they serve. a statement of the method by which the racial ity served by the school. Selective communica- tion of a racially nondiscriminatory policy that a Alumni association. An alumni associa- composition was determined must be supplied. school provides solely to leaders of racial tion should establish that it is organized to pro- The identity of individual students or members groups won't be considered an effective means mote the welfare of the university with which it is of the faculty and administrative staff shouldn't of communication to make the policy known to affiliated, is subject to the control of the univer- be included with this information. all segments of the community. To satisfy this sity as to its policies and destination of funds, A school that is a state or municipal instru- requirement, the school must use one of the fol- and is operated as an integral part of the univer- mentality (see Instrumentalities, near the begin- lowing two methods. sity or is otherwise organized to promote the ning of this chapter), whether or not it qualifies welfare of the college or university. If your asso- for exemption under section 501(c)(3), isn't Method one. The school can publish a no- ciation doesn't have these characteristics, it considered to be a private school for purposes tice of its racially nondiscriminatory policy in a may still be exempt as a social club if it meets of the following discussion. newspaper of general circulation that serves all the requirements described in chapter 4, under racial segments of the community. Such publi- 501(c)(7) - Social and Recreation Clubs. Racially Nondiscriminatory Policy cation must be repeated at least once annually during the period of the school's solicitation for Athletic organization. This type of organi- To qualify as an organization exempt from fed- students or, in the absence of a solicitation pro- zation must submit evidence that it is engaged eral income tax, a private school must include a gram, during the school's registration period. in activities such as directing and controlling in- statement in its charter, bylaws, or other gov- When more than one community is served by a terscholastic athletic competitions, conducting erning instrument, or in a resolution of its gov- school, the school can publish the notice in tournaments, and prescribing eligibility rules for erning body, that it has a racially nondiscrimina- those newspapers that are reasonably likely to contestants. If it isn't so engaged, your organi- tory policy as to students and that it doesn't be read by all racial segments in the communi- zation may be exempt as a social club descri- discriminate against applicants and students on ties that the school serves. bed in chapter 4. Raising funds to be used for the basis of race, color, or national or ethnic ori- travel and other activities to interview and per- gin. Also, the school must circulate information If this method is used, the notice must meet suade prospective students with outstanding that clearly states the school's admission poli- the following printing requirements. athletic ability to attend a particular university cies. A racially nondiscriminatory policy toward doesn't show an exempt purpose. If your organ- 1. It must appear in a section of the newspa- students means that the school admits the stu- ization isn't exempt as an educational organiza- per likely to be read by prospective stu- dents of any race to all the rights, privileges, tion, see Amateur Athletic Organizations, later dents and their families. programs, and activities generally accorded or in this chapter. made available to students at that school and 2. It must occupy at least 3 column inches. that the school doesn't discriminate on the ba- 3. It must have its title printed in at least 12 sis of race in administering its educational poli- Private Schools point bold face type. cies, admission policies, scholarship and loan Every private school filing an application for rec- programs, and athletic and other school-admin- 4. It must have the remaining text printed in ognition of tax-exempt status must supply the istered programs. at least 8 point type. IRS (on Schedule B, Form 1023) with the fol- lowing information. The IRS considers discrimination on the ba- The following is an acceptable example of sis of race to include discrimination on the basis the notice: 1. The racial composition of the student of color or national or ethnic origin. body, and of the faculty and administrative staff, as of the current academic year. The existence of a racially discriminatory (This information also must be projected, policy with respect to the employment of faculty and administrative staff is indicative of a racially

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NOTICE OF may satisfy the publicity requirement by school's racially nondiscriminatory policy won't NONDISCRIMINATORY POLICY complying with the instructions explained adversely affect the school's exempt status. AS TO STUDENTS earlier under Policy statement. The M School admits students of any race, The school can demonstrate that it follows a Certification. An individual authorized to take color, national and ethnic origin to all the racially nondiscriminatory policy either by show- official action on behalf of a school that claims rights, privileges, programs, and activities ing that it currently enrolls students of racial mi- to be racially nondiscriminatory as to students generally accorded or made available to nority groups in meaningful numbers or, except must certify annually, under penalties of perjury, students at the school. It doesn't for local community schools, when minority stu- on Schedule E (Form 990 or 990-EZ) or Form discriminate on the basis of race, color, dents aren't enrolled in meaningful numbers, 5578, Annual Certification of Racial Nondiscri- national and ethnic origin in administration that its promotional activities and recruiting ef- mination for a Private School Exempt From of its educational policies, admissions forts in each geographic area were reasonably Federal Income Tax, whichever applies, that to policies, scholarship and loan programs, designed to inform students of all racial seg- the best of his or her knowledge and belief the and athletic and other school-administered school has satisfied all requirements that apply, programs. ments in the general communities within the area of the availability of the school. The ques- as previously explained. tion as to whether a school demonstrates such Failure to comply with the guidelines ordina- rily will result in the proposed revocation of the Method two. The school can use the a policy satisfactorily will be determined on the exempt status of a school. broadcast media to publicize its racially nondis- basis of the facts and circumstances of each criminatory policy if this use makes the policy case. Recordkeeping requirements. With known to all segments of the general commun- The IRS recognizes that the failure by a certain exceptions, given later, each ity the school serves. If the school uses this school drawing its students from local commun- RECORDS exempt private school must maintain method, it must provide documentation show- ities to enroll racial minority group students may the following records for a minimum period of 3 ing that the means by which this policy was not necessarily indicate the absence of a ra- years, beginning with the year after the year of communicated to all segments of the general cially nondiscriminatory policy when there are compilation or acquisition. community was reasonably expected to be ef- relatively few or no such students in these com- 1. Records indicating the racial composition fective. In this case, appropriate documentation munities. Actual enrollment is, however, a of the student body, faculty, and adminis- would include copies of the tapes or scripts meaningful indication of a racially nondiscrimi- trative staff for each academic year. used and records showing that there was an natory policy in a community in which a public adequate number of announcements. The doc- school or schools became subject to a desegre- 2. Records sufficient to document that schol- umentation also would include proof that these gation order of a federal court or are otherwise arship and other financial assistance is announcements were made during hours when expressly obligated to implement a desegrega- awarded on a racially nondiscriminatory they were likely to be communicated to all seg- tion plan under the terms of any written contract basis. ments of the general community, that they were or other commitment to which any federal 3. Copies of all materials used by or on be- long enough to convey the message clearly, agency was a party. half of the school to solicit contributions. and that they were broadcast on radio or televi- The IRS encourages schools to satisfy the sion stations likely to be listened to by substan- publicity requirement by using either of the 4. Copies of all brochures, catalogs, and ad- tial numbers of members of all racial segments methods described earlier, even though a vertising dealing with student admissions, of the general community. Announcements school considers itself to be within one of the programs, and scholarships. (Schools ad- must be made during the period of the school's Exceptions. The IRS believes that these publi- vertising nationally or in a large geo- solicitation for students or, in the absence of a city requirements are the most effective meth- graphic segment or segments of the Uni- solicitation program, during the school's regis- ods to make known a school's racially nondis- ted States need only maintain a record tration period. criminatory policy. In this regard, it is each sufficient to indicate when and in what school's responsibility to determine whether ei- publications their advertisements were Exceptions. The publicity requirements ther of the exceptions applies. Such responsi- placed.) won't apply in the following situations. bility will prepare the school, if it is audited by First, if for the preceding 3 years the en- the IRS, to demonstrate that the failure to pub- rollment of a parochial or other church-rela- lish its racially nondiscriminatory policy in ac- The racial composition of the student body, fac- ted school consists of students at least cordance with either one of the publicity re- ulty, and administrative staff can be determined 75% of whom are members of the sponsor- quirements was justified by one of the in the same manner as that described at the be- ing religious denomination or unit, the exceptions. Also, a school must be prepared to ginning of this section. However, a school can't school can make known its racially nondis- demonstrate that it has publicly disavowed or discontinue maintaining a system of records criminatory policy in whatever newspapers repudiated any statements purported to have that reflect the racial composition of its stu- or circulars the religious denomination or been made on its behalf (after November 6, dents, faculty, and administrative staff used on unit uses in the communities from which 1975) that are contrary to its publicity of a ra- November 6, 1975, unless it substitutes a differ- the students are drawn. These newspapers cially nondiscriminatory policy as to students, to ent system that compiles substantially the same and circulars can be distributed by a partic- the extent that the school or its principal official information, without advance approval of the ular religious denomination or unit or by an was aware of these statements. IRS. association that represents a number of re- ligious organizations of the same denomi- Facilities and programs. A school must be The IRS doesn't require that a school release nation. If, however, the school advertises in able to show that all of its programs and facili- any personally identifiable records or personal newspapers of general circulation in the ties are operated in a racially nondiscriminatory information except in accordance with the re- community or communities from which its manner. quirements of the Family Educational Rights students are drawn and the second excep- and Privacy Act of 1974. Similarly, the IRS tion (discussed next) doesn't apply to the Scholarship and loan programs. As a gen- doesn't require a school to keep records pro- school, then it must comply with either of eral rule, all scholarship or other comparable hibited under state or federal law. the publicity requirements explained ear- benefits obtainable at the school must be of- lier. fered on a racially nondiscriminatory basis. This Exceptions. The school doesn't have to in- Second, if a school customarily draws a must be known throughout the general com- dependently maintain these records for IRS use substantial percentage of its students na- munity being served by the school and should if both of the following are true. be referred to in its publicity. Financial assis- tionwide, worldwide, from a large geo- 1. Substantially the same information has tance programs, as well as scholarships and graphic section or sections of the United been included in a report or reports filed made under financial assistance pro- States, or from local communities, and if with an agency or agencies of federal, grams, that favor members of one or more ra- the school follows a racially nondiscrimina- state, or local governments, and this infor- cial minority groups and that don't significantly tory policy as to its students, the school mation is current within 1 year. detract from or are designed to promote a

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2. The school maintains copies of these re- occurring after a final determination b. Whether as a condition of the award ports from which this information is readily described in (b). the recipient must upon graduation obtainable. accept employment with the com- pany, and If these reports don't include all of the informa- tion required, as discussed earlier, records pro- Other Section 501(c)(3) c. Whether the award will be continued viding such remaining information must be Organizations even if the parent's employment ends. maintained by the school for IRS use. 5. A copy of the scholarship application form Failure to maintain records. Failure to In addition to the information required for all or- and any brochures or literature describing maintain or to produce the required records and ganizations, as described earlier, you should in- the scholarship program. information, upon proper request, will create a clude any other information described in this presumption that the organization has failed to section. Hospital. If you are organized to operate a comply with these guidelines. charitable hospital, complete and attach Sec- See Rev. Proc. 75-50 for more information Charitable Organizations tion I of Schedule C, Form 1023. on private school's racially nondiscriminatory If your hospital was transferred to you from policy requirements. proprietary ownership, complete and attach If your organization is applying for recognition of Schedule G of Form 1023. You must attach a exemption as a charitable organization, it must list showing: show that it is organized and operated for pur- Organizations Providing poses that are beneficial to the public interest. 1. The names of the active and courtesy staff Insurance Some examples of this type of organization are members of the proprietary hospital, as those organized for: well as the names of your medical staff • Relief of the poor, the distressed, or the members after the transfer to nonprofit An organization described in sections 501(c)(3) ownership, and or 501(c)(4) may be exempt from tax only if no underprivileged, substantial part of its activities consists of pro- • Advancement of religion, 2. The names of any doctors who continued viding commercial-type insurance. • Advancement of education or science, to lease office space in the hospital after • Erection or maintenance of public build- its transfer to nonprofit ownership and the However, this rule doesn't apply to ings, monuments, or works, amount of rent paid. Submit also an ap- state-sponsored organizations described in • Lessening the burdens of government, praisal showing the fair rental value of the sections 501(c)(26) or 501(c)(27), which are • Lessening of neighborhood tensions, rented space. discussed in chapter 4, or to charitable risk • Elimination of prejudice and discrimination, pools, discussed next. • Defense of human and civil rights secured Clinic. If you are organized to operate a clinic, by law, and attach a statement including: • Combating community deterioration and Charitable Risk Pools juvenile delinquency. 1. A description of the facilities and services, The rest of this section contains a description of 2. To whom the services are offered, such as A charitable risk pool is treated as organized the information to be provided by certain spe- the public at large or a specific group, and operated exclusively for charitable purpo- cific organizations. This information is in addi- 3. How charges are determined, such as on ses if it satisfies all of the following require- tion to the required inclusions described in ments: a profit basis, to recover costs, or at less chapter 1, and other statements requested on than cost, 1. Is organized and operated only to pool in- Form 1023 or 1023-EZ. Each of the following surable risks of its members (not including organizations must submit the information de- 4. By whom administered and controlled, risks related to medical malpractice) and scribed. 5. Whether any of the professional staff (that to provide information to its members is, those who perform or will perform the about loss control and risk management, Charitable organization supporting educa- clinical services) also serve or will serve in tion. Submit information showing how your or- an administrative capacity, and 2. Consists only of members that are section ganization supports education — for example, 501(c)(3) organizations exempt from tax contributes to an existing educational institu- 6. How compensation paid the professional under section 501(a), tion, endows a professorial chair, contributes staff is or will be determined. 3. Is organized under state law authorizing toward paying teachers' salaries, or contributes Home for the aged. If you are organized to this type of risk pooling, to an educational institution to enable it to carry on research. operate a home for the aged, complete and at- 4. Is exempt from (or will be tach Schedule F of Form 1023 and required at- after qualifying as a section 501(c)(3) or- Scholarships. If the organization awards tachments. ganization), or plans to award scholarships, complete Schedule H of Form 1023. Also, submit the fol- Community nursing bureau. If you provide a 5. Has obtained at least $1,000,000 in lowing: nursing register or community nursing bureau, startup capital from nonmember charitable provide information showing that your organiza- organizations, 1. Criteria used for selecting recipients, in- tion will be operated as a community project cluding the rules of eligibility. 6. Is controlled by a board of directors elec- and will receive its primary support from public ted by its members, and 2. How and by whom the recipients are or contributions to maintain a nonprofit register of will be selected. qualified nursing personnel, including graduate 7. Is organized under documents requiring nurses, unregistered nursing school graduates, that: 3. If awards are or will be made directly to in- licensed attendants and practical nurses for the dividuals, whether information is required a. Each member be a section 501(c)(3) benefit of hospitals, health agencies, doctors, assuring that the student remains in organization exempt from tax under and individuals. school. section 501(a), 4. If awards are or will be made to recipients Organization providing loans. If you make, b. Each member that receives a final de- of a particular class, for example, children or will make, loans for charitable and educa- termination that it no longer qualifies of employees of a particular employer— tional purposes, submit the following informa- under section 501(c)(3) notify the pool tion. immediately, and a. Whether any preference is or will be accorded an applicant by reason of 1. An explanation of the circumstances un- c. Each issued by the the parent's position, length of em- der which such loans are, or will be, made. pool provide that it won't cover events ployment, or salary,

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2. Criteria for selection, including the rules of If, to carry out its program, an organization (except goods, services, or facilities eligibility. violates applicable canons of ethics, disrupts sold at a nominal charge or for a small the judicial system, or engages in any illegal ac- part of the cost). 3. How and by whom the recipients are or tion, the organization will jeopardize its exemp- will be selected. b. It normally gets more than 50% of its tion. support from a combination of govern- 4. Manner of repayment of the loan. mental sources, public solicitation of 5. Security required, if any. Religious Organizations contributions, and receipts from the sale of admissions, goods, perform- 6. Interest charged, if any, and when paya- To determine whether an organization meets ance of services, or furnishing of fa- ble. the religious purposes test of section 501(c)(3), cilities in activities that aren't unrela- 7. Copies in duplicate of the loan application the IRS maintains two basic guidelines. ted trades or . and any brochures or literature describing 1. That the particular religious beliefs of the Special rule. Men's and women's organi- the loan program. organization are truly and sincerely held. zations, seminaries, mission societies, and Public-interest law firms. If your organization 2. That the practices and rituals associated youth groups that satisfy (1) and (2) shown ear- was formed to litigate in the public interest (as with the organization's religious belief or lier are integrated auxiliaries of a church even if opposed to providing legal services to the creed aren't illegal or contrary to clearly they aren't internally supported. poor), such as in the area of protection of the defined public policy. In order for an organization (including a environment, you should submit the following church and religious organization) to qualify for information. Therefore, your group (or organization) may not tax exemption, no part of its net earnings can in- qualify for treatment as an exempt religious or- ure to any individual. 1. How the litigation can reasonably be said ganization for tax purposes if its actions, as Although an individual is entitled to a chari- to be representative of a broad public in- contrasted with its beliefs, are contrary to well table deduction for contributions to a church, terest rather than a private one. established and clearly defined public policy. If the assignment or similar transfer of compensa- 2. Whether the organization will accept fees there is a clear showing that the beliefs (or doc- tion for personal services to a church generally for its services. trines) are sincerely held by those professing doesn't relieve a taxpayer of federal income tax them, the IRS won't question the religious na- liability on the compensation, regardless of the 3. A description of the cases litigated or to be ture of those beliefs. motivation behind the transfer. litigated and how they benefit the public generally. Churches. Although a church, its integrated auxiliaries, or a convention or association of Scientific Organizations 4. Whether the policies and program of the churches isn't required to file Form 1023 to be organization are the responsibility of a You must show that your organization's re- exempt from federal income tax or to receive board or committee representative of the search will be carried on in the public interest. tax deductible contributions, the organization public interest, which is neither controlled Scientific research will be considered to be in may find it advantageous to obtain recognition by employees or persons who litigate on the public interest if the results of the research of exemption. In this event, you should submit behalf of the organization nor by any or- (including any patents, copyrights, processes, information showing that your organization is a ganization that isn't itself an organization or formulas) are made available to the public on church, synagogue, association or convention described in this chapter. a nondiscriminatory basis; if the research is per- of churches, religious order, or religious organi- formed for the United States or a state, county, 5. Whether the organization is operated, zation that is an integral part of a church, and or municipal government; or if the research is through sharing of office space or other- that it is engaged in carrying out the function of carried on for one of the following purposes. wise, in a way to create identification or a church. confusion with a particular private law firm. In determining whether an admittedly reli- 1. Aiding in the scientific education of college or university students. 6. Whether there is an arrangement to pro- gious organization is also a church, the IRS vide, directly or indirectly, a deduction for doesn't accept every assertion that the organi- 2. Obtaining scientific information that is pub- the cost of litigation that is for the private zation is a church. Because beliefs and practi- lished in a treatise, thesis, trade publica- benefit of the donor. ces vary widely, there is no single definition of tion, or in any other form that is available the word church for tax purposes. The IRS con- to the interested public. Acceptance of attorneys' fees. A non- siders the facts and circumstances of each or- profit public-interest law firm can accept attor- ganization applying for church status. 3. Discovering a cure for a disease. neys' fees in public-interest cases if the fees are 4. Aiding a community or geographical area paid directly by its clients and the fees aren't Convention or association of churches. Any organization that is otherwise a convention by attracting new industry to the commun- more than the actual costs incurred in the case. ity or area, or by encouraging the develop- Upon undertaking a representation, the organi- or association of churches won't fail to qualify as a church merely because the membership of ment or retention of an industry in the zation can't withdraw from the case because community or area. the litigant is unable to pay the fee. the organization includes individuals as well as Firms can accept fees awarded or approved churches or because the individuals have vot- Scientific research, for exemption purposes, by a court or an administrative agency and paid ing rights in the organization. doesn't include activities of a type ordinarily in- by an opposing party if the firms don't use the Integrated auxiliaries. An organization is cidental to commercial or industrial operations likelihood or probability of fee awards as a con- an integrated auxiliary of a church if all the fol- such as the ordinary inspection or testing of ma- sideration in the selection of cases. All fee lowing are true. terials or products, or the designing or con- awards must be paid to the organization and structing of equipment, buildings, etc. not to its individual staff attorneys. Instead, a 1. The organization is described both in sec- tions 501(c)(3) and 509(a)(1), 509(a)(2), If you engage or plan to engage in research, public-interest law firm can reasonably compen- submit all of the following. sate its staff attorneys, but only on a straight or 509(a)(3). salary basis. Private attorneys, whose services 2. It is affiliated with a church or a convention 1. An explanation of the nature of the re- are retained by the firm to assist it in particular or association of churches. search. cases, can be compensated by the firm, but 2. A brief description of research projects 3. It is internally supported. An organization only on a fixed fee or salary basis. completed or presently being engaged in. The total amount of all attorneys' fees (court is internally supported unless both of the awarded and those received from clients) following are true. 3. How and by whom research projects are determined and selected. mustn't be more than 50% of the total cost of a. It offers admissions, goods, services, operations of the organization's legal functions, or facilities for sale, other than on an 4. Whether you have contracted or spon- calculated over a 5-year period. incidental basis, to the general public sored research, or contemplated doing so,

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and, if so, names of past sponsors or 1. Preventing children from working in haz- In determining the date on which a corpora- grantors, terms of grants or contracts, to- ardous trades or occupations, tion is organized for purposes of applying for gether with copies of any executed con- recognition of section 501(c)(3) status, the IRS 2. Promoting high standards of care for labo- tracts or grants. looks to the date the corporation came into ex- ratory animals, and istence under the law of the state in which it is 5. Disposition made or to be made of the re- 3. Providing funds to pet owners to have their incorporated. For example, where state law pro- sults of your research, including whether pets spayed or neutered to prevent over- vides that existence of a corporation begins on preference has been or will be given to breeding. the date its articles are filed by a certain state any organization or individual either as to official in the appropriate state office, the corpo- results or time of release. ration is considered organized on that date. 6. Who will retain ownership or control of any Private Foundations Later nonsubstantive amendments to the ena- patents, copyrights, processes, or formu- bling instrument won't change the date of or- las resulting from your research. and Public Charities ganization, for purposes of the filing require- ment. 7. A copy of publications or other media It is important that you determine if your organi- showing reports of your research activi- Application filed late. An organization that zation is a private foundation. Most organiza- ties. Only reports of your research activi- states it is a private foundation when it files its tions exempt from income tax (as organizations ties or those conducted on your behalf, as application for recognition of exemption after described in section 501(c)(3)) are presumed to distinguished from those of your creators the 27-month period will be treated as a section be private foundations unless they notify the or members conducted in their individual 501(c)(3) organization and as a private founda- IRS within a specified period of time that they capacities, should be submitted. tion only from the date it files its application, meet the requirements of section 509(a) to be rather than the date that it was created or first treated as other than a private foundation. This became described in section 501(c)(3). The or- Literary Organizations notice requirement applies to most section ganization may obtain retroactive exemption, 501(c)(3) organizations regardless of when they however, if it establishes that it qualifies for re- If your organization is established to operate a were formed. book store or engage in publishing activities of lief from the 27-month deadline. any nature (printing, publication, or distribution An organization that states it is a publicly of your own material or that printed or published Private Foundations supported charity when it files its application for by others and distributed by you), explain fully recognition of exemption after the 27-month pe- the nature of the operations, including whether Every organization that qualifies for tax exemp- riod can't be treated as a section 501(c)(3) or- sales are or will be made to the general public, tion as an organization described in section ganization before the date it files the applica- the type of literature involved, and how these 501(c)(3) is a private foundation unless it falls tion, except as discussed above. Financial activities are related to your stated purposes. into one of the categories specifically excluded support received before that date can't be used from the definition of that term (referred to in for purposes of determining whether the organi- sections 509(a)(1), 509(a)(2), 509(a)(3), or zation is publicly supported. However, an or- Amateur Athletic 509(a)(4)). In effect, the definition divides these ganization that can reasonably be expected to Organizations organizations into two classes, namely private meet the support requirements (discussed later foundations and public charities. Public chari- under Public Charities) when it applies for There are two types of amateur athletic organi- ties are discussed later. tax-exempt status will be classified as a publicly zations that can qualify for tax-exempt status. supported charity and not a private foundation. The first type is an organization that fosters na- Organizations that fall into the excluded cat- tional or international amateur sports competi- egories are generally those that either have Excise taxes on private foundations. There tion but only if none of its activities involve pro- broad public support or actively function in a is an excise tax on the net investment income of viding athletic facilities or equipment. The supporting relationship to those organizations. most domestic private foundations. See Chap- second type is a Qualified amateur sports or- Organizations that test for public safety also are ter 5 for more information on excise taxes. ganization (discussed below). The difference is excluded. that a qualified amateur sports organization can Governing instrument. A private foundation provide athletic facilities and equipment. Application to IRS. Even if an organization can't be tax exempt nor will contributions to it be falls within one of the categories excluded from deductible as charitable contributions unless its Donations to either type of amateur athletic governing instrument contains special provi- organization are deductible as charitable contri- the definition of private foundation, it will be pre- sumed to be a private foundation, with some ex- sions in addition to those that apply to all organ- butions on the donor's federal income tax re- izations described in section 501(c)(3). turn. However, no deduction is allowed if there ceptions, unless it files a timely Form 1023 or is a direct personal benefit to the donor or any Form 1023-EZ with the IRS showing it isn't a Sample governing instruments. The fol- other person other than the organization. private foundation. This application requirement lowing samples of governing instrument provi- applies to an organization regardless of when it sions illustrate the special charter requirements Qualified amateur sports organization. An was organized. The only exceptions to this re- that apply to private foundations. Draft A is a organization will be a qualified amateur sports quirement are those organizations that are ex- sample of provisions in articles of incorporation; organization if it is organized and operated: cepted from the requirement of filing Form 1023 Draft B, a trust indenture. or 1023-EZ as discussed, earlier, under Organi- 1. Exclusively to foster national or interna- zations Not Required To File Form 1023. tional amateur sports competition, and Draft A When to file application. If an organiza- 2. Primarily to conduct national or interna- tion has to file the application, it must do so General tional competition in sports or to support within 27 months from the end of the month in 1. The corporation will distribute its income and develop amateur athletes for that which it was organized. for each tax year at a time and in a manner competition. If your organization is newly applying for rec- as not to become subject to the tax on un- ognition of exemption as an organization descri- The organization's membership can be local or distributed income imposed by section bed in this chapter (a section 501(c)(3) organi- regional in nature. 4942 of the Internal Revenue Code, or the zation) and you wish to establish that your corresponding section of any future fed- organization is a public charity rather than a pri- eral tax code. Prevention of Cruelty vate foundation, you must complete the appli- to Children or Animals cable lines of Part X of Form 1023 or Part IV of 2. The corporation won't engage in any act of Form 1023-EZ. See Application for Recognition self-dealing as defined in section 4941(d) Examples of activities that may qualify this type of Exemption, earlier in this chapter, for more in- of the Internal Revenue Code, or the of organization for exempt status are: formation.

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corresponding section of any future fed- Organizations headings that follow this intro- secondary, preparatory, or high schools, and eral tax code. duction. See Section 509(a)(1) Organizations, colleges and universities. It includes federal, etc. state, and other publicly supported schools that 3. The corporation won't retain any excess otherwise come within the definition. It doesn't business holdings as defined in section If your organization falls into one of these include organizations engaged in both educa- 4943(c) of the Internal Revenue Code, or categories, it isn't a private foundation and you tional and noneducational activities, unless the the corresponding section of any future should state this in Part X of Form 1023 or Part latter are merely incidental to the educational federal tax code. IV of Form 1023-EZ. activities. A recognized university that inciden- 4. The corporation won't make any invest- If your organization doesn't fall into one of tally operates a museum or sponsors concerts ments in a manner as to subject it to tax these categories, it is a private foundation and is an educational organization. However, the under section 4944 of the Internal Reve- is subject to the applicable rules and restrictions operation of a school by a museum doesn't nec- nue Code, or the corresponding section of until it terminates its private foundation status. essarily qualify the museum as an educational any future federal tax code. Some private foundations also qualify as private organization. 5. The corporation won't make any taxable operating foundations; these are discussed An exempt organization that operates a tu- expenditures as defined in section near the end of this chapter. toring service for students on a one-to-one ba- 4945(d) of the Internal Revenue Code, or sis in their homes, maintains a small center to Generally speaking, a large class of organi- the corresponding section of any future test students to determine their need for tutor- zations excluded under section 509(a)(1) and federal tax code. ing, and employs tutors on a part-time basis all organizations excluded under section 509(a) isn't an educational organization for these pur- (2) depend upon a support test. This test is poses. Nor is an exempt organization that con- Draft B used to assure a minimum percentage of ducts an internship program by placing college broad-based public support in the organiza- and university students with cooperating gov- Any other provisions of this instrument notwith- tion's total support pattern. Thus, in the follow- ernment agencies an educational organization. , the trustees shall distribute its income ing discussions, when the one-third support test for each tax year at a time and in a manner as (see Qualifying as Publicly Supported, later) is Hospitals and medical research organiza- not to become subject to the tax on undistrib- referred to, it means the following fraction nor- tions. A hospital is an organization whose prin- uted income imposed by section 4942 of the In- mally must equal at least one-third. cipal purpose or function is to provide hospital ternal Revenue Code, or the corresponding or medical care or either medical education or section of any future federal tax code. Qualifying support medical research. A rehabilitation institution, Total support outpatient clinic, or community mental health or Any other provisions of this instrument not- drug treatment center may qualify as a hospital withstanding, the trustees won't engage in any Including items of support in qualifying if its principal purpose or function is providing act of self-dealing as defined in section 4941(d) hospital or medical care. If the accommodations of the Internal Revenue Code, or the corre- ! support (the numerator of the fraction) CAUTION of an organization qualify as being part of a skil- sponding section of any future federal tax code; or excluding items of support from total support (the denominator of the fraction) may led nursing facility, that organization may qualify nor retain any excess business holdings as de- as a hospital if its principal purpose or function fined in section 4943(c) of the Internal Revenue decide whether an organization is excluded from the definition of a private foundation, and is providing hospital or medical care. A cooper- Code, or the corresponding section of any fu- ative hospital service organization that meets ture federal tax code; nor make any invest- thus from the liability for certain excise taxes. It is very important to classify items of support the requirements of section 501(e) will qualify ments in a manner as to incur tax liability under as a hospital. section 4944 of the Internal Revenue Code, or correctly. the corresponding section of any future federal Exceptions. The term hospital doesn't in- tax code; nor make any taxable expenditures as Section 509(a)(1) Organizations clude convalescent homes, homes for children defined in section 4945 (d) of the Internal Reve- or the aged, or institutions whose principal pur- nue Code, or the corresponding section of any Section 509(a)(1) organizations include: pose or function is to train handicapped individ- future federal tax code. uals to pursue a vocation. An organization that 1. A church or a convention or association of mainly provides medical education or medical Effect of state law. A private foundation's churches, research won't be considered a hospital, unless governing instrument will be considered to meet 2. An educational organization such as a it is also actively engaged in providing medical these charter requirements if valid provisions of school or college, or hospital care to patients on its premises or in state law have been enacted that: its facilities, on an in-patient or out-patient ba- 3. A hospital or medical research organiza- sis, as an integral part of its medical education 1. Require it to act or refrain from acting so tion operated in conjunction with a hospi- or medical research functions. as not to subject the foundation to the tal, taxes imposed on prohibited transactions, Hospitals participating in provider-spon- or 4. Endowment funds operated for the benefit sored organizations. An organization can be of certain state and municipal colleges and treated as organized and operated exclusively 2. Treat the required provisions as contained universities, in the foundation's governing instrument. for a charitable purpose even if it owns and op- 5. A governmental unit, erates a hospital that participates in a pro- The IRS has published a list of states with vider-sponsored organization, whether or not this type of law. The list is in Revenue Ruling 6. An agricultural research organization, and the provider-sponsored organization is tax ex- 75-38, 1975-1 C.B. 161 (or later update). 7. A publicly supported organization. empt. For section 501(c)(3) purposes, any per- son with a material financial interest in the pro- Public Charities Church. The characteristics of a church are vider-sponsored organization is treated as a discussed earlier in this chapter under Religious private shareholder or individual with respect to the hospital. A private foundation is any organization descri- Organizations. bed in Section 501(c)(3), unless it falls into one Requirements for section 501(c)(3) hos- Educational organizations. An educational of the categories specifically excluded from the pitals under the Affordable Care Act. The organization is one whose primary function is to definition of that term in section 509(a), which Affordable Care Act (ACA), enacted March 23, present formal instruction that normally main- lists four basic categories of exclusions. These 2010, added requirements that hospital organi- tains a regular faculty and curriculum and that categories are discussed under the Section zations must satisfy in order to be described in normally has a regularly enrolled body of pupils 509(a)(1), 509(a)(2), 509(a)(3), and 509(a)(4) section 501(c)(3), as well as reporting and ex- or students in attendance at the place where it cise taxes. regularly carries on its educational activities. The term includes institutions such as primary,

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Requirements for Charitable Hospitals. that activity must be the organization's principal community chest, community fund, or united Section 501(r), added to the Code by the ACA, purpose or function. fund. imposes requirements on section 501(c)(3) or- ganizations that operate one or more hospital Publicly supported. A hospital or medical Governmental units. A governmental unit in- facilities (hospital organizations). Each section research organization that wants the additional cludes a state, a possession of the United 501(c)(3) hospital organization is required to classification of a publicly supported organiza- States, or a political subdivision of either of the meet four general requirements on a fa- tion (described later in this chapter under Quali- foregoing, or the United States or the District of cility-by-facility basis: fying As Publicly Supported) can specifically re- Columbia. • establish written financial assistance and quest that classification. The organization must emergency medical care policies, establish that it meets the public support re- Agricultural research organizations. Agri- • limit amounts charged for emergency or quirements of section 170(b)(1)(A)(vi). cultural research organizations described in other medically necessary care to individu- section 170(b)(1)(A)(ix) operated in conjunction als eligible for assistance under the hospi- Endowment funds. Organizations operated with a land-grant college or university or a tal's FAP, for the benefit of certain state and municipal col- non-land-grant college of agriculture may now • make reasonable efforts to determine leges and universities are endowment funds. qualify for public charity status. See Instructions whether an individual is eligible for assis- They are organized and operated exclusively for Form 1023 for more information. tance under the hospital’s FAP before en- to: gaging in extraordinary collection actions 1. Receive, hold, invest, and administer Publicly supported organizations. An or- against the individual, and property for a college or university, and ganization is a publicly supported organization if • conduct a community health needs as- it is one that normally receives a substantial part 2. Make expenditures to or for the benefit of sessment (CHNA) at least once every of its support from a governmental unit or from a college or university. three years. (This CHNA requirement is ef- the general public. fective for tax years beginning after March The college or university must be: Types of organizations that generally qualify 23, 2012). are: 1. An agency or instrumentality of a state or Museums of history, art, or science, The ACA also added section 4959, which • political subdivision, or Libraries, imposes an excise tax for failure to meet the • Community centers to promote the arts, CHNA requirements, and added reporting re- 2. Owned or operated by: • Organizations providing facilities for the quirements under section 6033(b) related to • a. A state or political subdivision, or support of an opera, symphony orchestra, sections 501(r) and 4959. b. An agency or instrumentality of one or ballet, or repertory drama, or for some Final regulations under section 501(r). more states or political subdivisions. other direct service to the general public, The IRS issued final regulations that provide and comprehensive substantive guidance regarding The phrase “expenditures to or for the bene- • Organizations such as the American Red the requirements for charitable hospital organi- fit of a college or university” includes expendi- Cross or the United Way. zations added by the Patient Protection and Af- tures made for any one or more of the normal functions of a college or university. These ex- fordable Care Act, Public Law 111-148 (124 Qualifying as Publicly Supported Stat. 119 (2010)) (the “Affordable Care Act”). penditures include those for: The Affordable Care Act enacted section 1. Acquiring and maintaining real property An organization will qualify as publicly suppor- 501(r), which imposes additional requirements comprising part of the campus area, ted if it passes the one-third support test. If it on hospital organizations that are (or seek to 2. Erecting (or participating in erecting) col- fails that test, it may qualify under the facts and be) recognized as described in section 501(c) circumstances test. (3). The final regulations provide guidance on lege or university buildings, all of the requirements imposed by section 3. Acquiring and maintaining equipment and One-third support test. An organization will 501(r), including the requirement to conduct a furnishings used for, or in conjunction with, qualify as publicly supported if it normally re- community health needs assessment (CHNA); normal functions of colleges and universi- ceives at least one-third of its total support from establish a written financial assistance policy ties, governmental units, from contributions made di- (FAP) and policy relating to emergency medical 4. Libraries, rectly or indirectly by the general public, or from care; limit certain charges; and forgo extraordi- a combination of these sources. For a definition nary collection actions until reasonable efforts 5. Scholarships, and of support, see Support, later. have been made to determine whether an indi- 6. Student loans. vidual is eligible for assistance under the hospi- Definition of normally for one-third sup- tal’s FAP. The regulations also provide guid- The organization must normally receive a port test. An organization will be considered ance on the consequences for failing to meet substantial part of its support from the United as normally meeting the one-third support test the section 501(r) requirements, including the States or any state or political subdivision, or for its current tax year and the next tax year if, $50,000 excise tax under section 4959 for fail- from direct or indirect contributions from the for the current tax year and the 4 tax years im- ing to meet the CHNA requirements, and on as- general public, or from a combination of these mediately before the current tax year, the or- sociated reporting requirements. See Regula- sources. ganization meets the one-third support test on tions section 1.501(r)-0 – 7 and the proposed an aggregate basis. See also Computation pe- regulations preceding those regulations for de- Support. Support doesn't include income riod for public support (Special computation pe- tails. received in the exercise or performance by the riod for new organizations) later, in this discus- organization of its charitable, educational, or sion. Correction and disclosure procedures other purpose or function constituting the basis under section 501(r). Revenue Procedure for exemption. Facts and circumstances test. The facts and 2015–21 provides correction and disclosure In determining the amount of support re- circumstances test is for organizations failing to procedures under which certain failures to meet ceived by an organization for a contribution of meet the one-third support test. If your organi- the requirements of section 501(r) will be ex- property when the value of the contribution by zation fails to meet the one-third support test, it cused for purposes of sections 501(r)(1) and the donor is subject to reduction for certain ordi- may still be treated as a publicly supported or- 501(r)(2)(B). See Rev. Proc. 2015–21, 2015-13 nary income and property, the fair ganization if it normally receives a substantial I.R.B. 817, or later guidance. market value of the property is taken into ac- part of its support from governmental units, from count. direct or indirect contributions from the general Medical research organization. A medi- public, or from a combination of these sources. cal research organization must be directly en- Indirect contribution. An example of an To qualify, an organization must meet the gaged in the continuous active conduct of medi- indirect contribution from the public is the re- ten-percent-of-support requirement and the at- cal research in conjunction with a hospital, and ceipt by the organization of its share of the traction of public support requirement. These proceeds of an annual collection campaign of a

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requirements establish, under all the facts and existed. The combination of factors that an or- educators, civic leaders, or other such circumstances, that an organization normally ganization normally must meet doesn't have to persons representing a broad cross-sec- receives a substantial part of its support from be the same for each 4-year period as long as a tion of the views and interests of the com- governmental units or from direct or indirect sufficient combination of factors exists to show munity. contributions from the general public. The or- that the organization is publicly supported. ganization also must be in the nature of a pub- In a membership organization, the governing licly supported organization, taking into account 1. Percentage of financial support fac- body also should include individuals elected by five different factors. See Additional require- tor. When an organization normally receives at a broadly based membership according to the ments (the five public support factors), later. least 10% but less than one-third of its total sup- organization's governing instrument or bylaws. port from public or governmental sources, the Ten-percent-of-support requirement. percentage of support received from those 4. Availability of public facilities or serv- The percentage of support normally received by sources will be considered in determining ices factor. The fact that an organization gen- an organization from governmental units, from whether the organization is publicly supported. erally provides facilities or services directly for contributions made directly or indirectly by the As the percentage of support from public or the benefit of the general public on a continuing general public, or from a combination of these governmental sources increases, the burden of basis is evidence that the organization is pub- sources must be substantial. An organization establishing the publicly supported nature of the licly supported. Examples are: won't be treated as normally receiving a sub- organization through other factors decreases, • A museum or library that is open to the stantial amount of governmental or public sup- while the lower the percentage, the greater the public, port unless the total amount of governmental burden. • A symphony orchestra that gives public and public support normally received is at least If the percentage of the organization's sup- performances, 10% of the total support normally received by port from the general public or governmental • A conservation organization that provides that organization. sources is low because it receives a high per- educational services to the public through centage of its total support from investment in- the distribution of educational materials, or Attraction of public support require- come on its endowment funds, the organization • An old-age home that provides domiciliary ment. An organization must be organized and will be treated as complying with this factor if or nursing services for members of the operated in a manner to attract new and addi- the endowment fund was originally contributed general public. tional public or governmental support on a con- by a governmental unit or by the general public. The fact that an educational or research institu- tinuous basis. An organization will meet this re- However, if the endowment funds were origi- tion regularly publishes scholarly studies widely quirement if it maintains a continuous and bona nally contributed by a few individuals or mem- used by colleges and universities or by mem- fide program for solicitation of funds from the bers of their families, this fact will increase the bers of the general public is also evidence that general public, community, or membership burden on the organization of establishing com- the organization is publicly supported. group involved, or if it carries on activities de- pliance with other factors. Facts pertinent to Similarly, the following factors are also evi- signed to attract support from governmental years before the 4 tax years immediately before dence that an organization is publicly suppor- units or other charitable organizations descri- the current tax year also may be considered. ted. bed in section 509(a)(1). In determining whether an organization maintains a continuous 2. Sources of support factor. If an organi- 1. Participating in, or sponsoring, the pro- and bona fide program for solicitation of funds zation normally receives at least 10% but less grams of the organization by members of from the general public or community, consider- than one-third of its total support from public or the public having special knowledge or ex- ation will be given to whether the scope of its governmental sources, the fact that it receives pertise, public officials, or civic or com- fundraising activities is reasonable in light of its the support from governmental units or directly munity leaders. charitable activities. Consideration also will be or indirectly from a representative number of 2. Maintaining a definitive program by the or- given to the fact that an organization may, in its persons, rather than receiving almost all of its ganization to accomplish its charitable early years of existence, limit the scope of its support from the members of a single family, work in the community, such as slum solicitation to persons who would be most likely will be considered in determining whether the clearance or developing employment op- to provide seed money sufficient to enable it to organization is publicly supported. In determin- portunities. begin its charitable activities and expand its so- ing what is a representative number of persons, licitation program. consideration will be given to the type of organi- 3. Receiving a significant part of its funds zation involved, the length of time it has existed, from a public charity or governmental Definition of normally for facts and cir- and whether it limits its activities to a particular agency to which it is in some way held ac- cumstances test. An organization will nor- community or region or to a special field that countable as a condition of the grant, con- mally meet the requirements of the facts and can be expected to appeal to a limited number tract, or contribution. circumstances test for its current tax year and of persons. Facts pertinent to years before the 4 5. Additional factors pertinent to mem- the next tax year if, for the current tax year and tax years immediately before the current tax bership organizations. The following are ad- the 4 tax years immediately before the current year also may be considered. tax year, the organization meets the ten-per- ditional factors in determining whether a mem- cent-of-support and the attraction of public sup- 3. Representative governing body fac- bership organization is publicly supported. port requirements on an aggregate basis and tor. The fact that an organization has a govern- 1. Whether the solicitation for dues-paying satisfies a sufficient combination of the factors ing body that represents the broad interests of members is designed to enroll a substan- discussed later. The combination of factors that the public rather than the personal or private in- tial number of persons in the community or an organization normally must meet doesn't terest of a limited number of donors will be con- area, or in a particular profession or field of have to be the same for each 4-year period as sidered in determining whether the organization special interest (taking into account the long as a sufficient combination of factors exists is publicly supported. size of the area and the nature of the or- to show compliance. An organization will meet this requirement if ganization's activities). it has a governing body composed of: Additional requirements (the five public 2. Whether membership dues for individual 1. Public officials acting in their public ca- support factors). In addition to the two re- (rather than institutional) members have pacities, quirements of the facts and circumstances test, been fixed at rates designed to make the following five public support factors will be 2. Individuals selected by public officials act- membership available to a broad cross considered in determining whether an organiza- ing in their public capacities, section of the interested public, rather than tion is publicly supported. However, an organi- to restrict membership to a limited number 3. Persons having special knowledge or ex- zation generally doesn't have to satisfy all of the of persons. factors. The factors relevant to each case and pertise in the particular field or discipline in the weight accorded to any one of them may which the organization is operating, and 3. Whether the activities of the organization will be likely to appeal to persons having differ depending upon the nature and purpose 4. Community leaders, such as elected or some broad common interest or purpose, of the organization and the length of time it has appointed officials, members of the clergy, such as educational activities in the case

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of alumni associations, musical activities the facts and circumstances test during its first 1. Gifts, grants, contributions, or membership in the case of symphony societies, or civic 5 years is one that can show that its organiza- fees, affairs in the case of parent-teacher asso- tional structure, current or proposed programs 2. Net income from unrelated business activ- ciations. and activities, and actual or intended method of ities, whether or not those activities are operation can reasonably be expected to attract carried on regularly as a trade or business, Special rule. The fact that an organization the type of broadly based support from the gen- has normally met the one-third support test re- eral public, public charities, and governmental 3. Gross investment income, quirements for a current tax year, but is unable units that is necessary to meet the public sup- 4. Tax revenues levied for the benefit of an normally to meet the requirements for a later tax port requirements discussed earlier under Qual- organization and either paid to or spent on year, won't in itself prevent the organization ifying As Publicly Supported. from meeting the requirements of the facts and behalf of the organization, and circumstances test for the later tax year. Example. Organization Y was formed in 5. The value of services or facilities furnished January 2014 and uses a December 31 tax by a governmental unit to an organization Example. X is recognized as an organiza- year. After September 9, 2014, and before De- without charge (except services or facili- tion described in section 501(c)(3). On the ba- cember 31, 2014, Organization Y filed a Form ties generally furnished to the public with- sis of support received during tax years 2014, 1023 requesting recognition of exemption as an out charge). 2015, 2016, 2017, and 2018, it meets the organization described in section 501(c)(3) and one-third support test for tax year 2018 (the cur- in sections 170(b)(1)(A)(vi) and 509(a)(1). In its Amounts that aren't support. The term rent tax year). X also meets the one-third sup- application, Organization Y established that it support doesn't include: port test for 2019, as the immediately succeed- can reasonably be expected to meet the 1. Any amount received from the exercise or ing tax year. one-third support test. Organization Y receives performance by an organization of the pur- In tax years 2015, 2016, 2017, 2018, and a determination letter that it is an organization pose or function constituting the basis for 2019, in the aggregate, X doesn't receive at described in section 501(c)(3) and sections its exemption (in general, these amounts least one-third of its support from governmental 170(b)(1)(A)(vi) and 509(a)(1) effective as of include amounts received from any activity units referred to in section 170(c)(1), from con- the date of formation. the conduct of which is substantially rela- tributions made directly or indirectly by the gen- Organization Y is described in sections ted to the furtherance of the exempt pur- eral public, or from a combination of these sour- 170(b)(1)(A)(vi) and 509(a)(1) for its first 5 tax pose or function, other than through the ces. X still meets the one-third support test for years (tax years ending December 31, 2014, production of income), or tax year 2019 based on the aggregate support through December 31, 2018). Organization Y received for tax years 2014 through 2018. can qualify as a public charity beginning with 2. Contributions of services for which a de- In tax years 2016, 2017, 2018, 2019, and the tax year ending December 31, 2018, if Or- duction isn't allowed. 2020, in the aggregate, X doesn't receive at ganization Y meets the one-third support test or least one-third of its support from governmental facts and circumstances test for the tax years These amounts are excluded from both the nu- units referred to in section 170(c)(1), from con- ending December 31, 2015, through December merator and the denominator of the fractions in tributions made directly or indirectly by the gen- 31, 2019, or for the tax years ending December determining compliance with the one-third sup- eral public, or from a combination of these sour- 31, 2014, through December 31, 2018. port test and ten-percent-of-support require- ces. X doesn't meet the one-third support test ment. The following discusses an exception to for tax year 2020. Determinations of public support status. this general rule. An organization may request a determination Based on the aggregate support and other Organizations dependent primarily on factors listed in Regulations section 1.170A-9(f) letter that it is described in section 170(b)(1)(A) (vi). This request is made on Form 1023 or gross receipts from related activities. Or- (3)(iii)(A) through (E) for tax years 2015, 2016, ganizations won't satisfy the one-third support 2017, 2018, and 2019, X meets the facts and Form 1023-EZ, or at such other time as the or- ganization believes it is described in section test or the ten-percent-of-support requirement if circumstances test for tax year 2018 and for tax they receive: year 2020 (as the immediately succeeding tax 170(b)(1)(A)(vi). The IRS may revoke the sec- year). Therefore, X is still an organization de- tion 170(b)(1)(A)(vi) determination letter if, on 1. Almost all support from gross receipts scribed in section 170(b)(1)(A)(vi) for tax year examination, the organization has not met the from related activities, and requirements. The IRS may also revoke the 2020 even though X didn't meet the one-third 2. An insignificant amount of support from support test for that year. section 170(b)(1)(A)(vi) determination letter if the organization's application for a determina- governmental units (without regard to amounts referred to in (3) in the list of Special computation period for new organi- tion contained an omission or inaccurate mate- rial information. items included in support) and contribu- zations (Computation period for public sup- tions made directly or indirectly by the port). If, at the time of applying for tax-exempt Reliance by grantors or contributors. As general public. status, an organization can reasonably be ex- a general rule, grantors or contributors may rely pected to meet the one-third support test or the on a determination that an organization is de- Example. Z, an organization described in facts and circumstances test during its first 5 tax scribed in section 170(b)(1)(A)(vi) until notice of section 501(c)(3), is controlled by Thomas Blue, years, the organization will qualify as publicly change of status of the organization is made to its president. Z received $500,000 during the supported for its first 5 years. The organization the public. The IRS publishes such notices from current tax year and the 4 tax years immediately will be classified as a public charity for its first 5 time to time in the Internal Revenue Bulletin, before its current tax year under a contract with years, regardless of the public support actually IRS.gov/irb/. Grantor and contributors can also the Department of Transportation, under which received during this period. Beginning with the find information about an organization’s exempt Z engaged in research to improve a particular organization's sixth tax year, the organization status under section 501(c)(3) and its status as vehicle used primarily by the Federal Govern- will qualify as publicly supported if it meets the a public charity or private foundation from Tax- ment. During the same period, the only other one-third support test or the facts and circum- Exempt Organization Search. However, a gran- support received by Z was $5,000 in small con- stances test for its sixth year (based on support tor or contributor can’t rely on a detrermination tributions primarily from Z's employees and received in its second through sixth tax years), letter or information on Tax-Exempt Organiza- business associates. The $500,000 is gross re- or as a carryover for its fifth tax year (based on tion Search if the grantor or contributor was re- ceipts from a related activity and not support support received in its first through fifth tax sponsible for, or aware of, the act or failure to from a governmental unit, because the services years). If the organization is required to file act that resulted in the organization's loss of are provided to serve the direct and immediate Form 990 or 990-EZ, it must establish that it classification as a publicly supported organiza- needs of the payor rather than primarily to con- meets the public support test each year on tion. fer a direct benefit on the public. Because of Schedule A (Form 990 or 990-EZ). this fact, and because Z's contributions from the Reasonable expectation of public sup- Support. For purposes of publicly supported public are insignificant, Z doesn't meet the port. An organization that can reasonably be organizations, the term support includes (but one-third support test or the ten-percent-of-sup- expected to meet the one-third support test or isn't limited to): port requirement.

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For the rules that apply to organizations that Medicare and Medicaid payments are gross re- grants of $5,000 each to Y and Z, both being or- fail to qualify as section 509(a)(1) publicly sup- ceipts derived from the exercise or performance ganizations described in section 501(c)(3) and ported organizations because of these provi- of exempt activities and, therefore, aren't inclu- devoted to furthering contemporary American sions, see Section 509(a)(2) Organizations, ded in the term support. music. Since the grants to Y and Z are treated later. See also Gross receipts from a related ac- as having been received from M, Y and Z each tivity in the discussion on section 509(a)(2) or- Support from the general public. In deter- may include one of the $5,000 grants in the nu- ganizations. mining whether the one-third support test or the merator of its support fraction. Although the ten-percent-of-support requirement is met, in- donation to M was conditioned upon the use of Membership fees. Membership fees are clude in your computation support from direct or the funds for a particular purpose, M was free to included in the term support if they are paid to indirect contributions from the general public. select the ultimate recipient. provide support for the organization rather than This includes contributions from an individual, to buy admissions, merchandise, services, or trust, or corporation but only to the extent that Example 3. N is a national foundation for the use of facilities. the total contributions from the individual, trust, the encouragement of art and is a publicly sup- or corporation, during the current tax year and ported organization. Grants to N are permitted Support from a governmental unit. For pur- the 4-year period immediately before the cur- to be earmarked for particular purposes. O, poses of the one-third support test and the rent tax year, aren't more than 2% of the organi- which is an art workshop devoted to training ten-percent-of-support requirement, the term zation's total support for the same period. young artists and which is claiming status as a support from a governmental unit includes any Thus, a contribution by any one individual publicly supported organization, persuades C, a amounts received from a governmental unit, in- will be included in full in the denominator of the private foundation, to make a grant of $25,000 cluding donations or contributions and amounts fraction used in the one-third support test or the to N. C is a disqualified person with respect to received on a contract entered into with a gov- ten-percent-of-support requirement. However, O. C makes the grant to N with the understand- ernmental unit for the performance of services, the contribution will be included in the numera- ing that N would be bound to make a grant to O or from a government research grant. However, tor only to the extent that it isn't more than 2% of in the sum of $25,000, in addition to a matching these amounts aren't support from a govern- the denominator. In applying the 2% limit, all grant of N's funds to O in the sum of $25,000. mental unit for these purposes if they constitute contributions made by a donor and by any per- Only the $25,000 received directly from N is amounts received from the exercise or perform- son in a special relationship to the donor (cer- considered a grant from N. The other $25,000 is ance of the organization's exempt functions. tain Disqualified persons discussed under Ab- an indirect contribution from C to O and is to be Any amount paid by a governmental unit to sence of control by disqualified persons, later) excluded from the numerator of O's support an organization won't be treated as received are considered made by one person. The 2% fraction to the extent it exceeds the 2% limit. from the exercise or performance of its exempt limit doesn't apply to support received from gov- function if the purpose of the payment is primar- ernmental units or to contributions from other Unusual grants. In applying the 2% limit to de- ily to enable the organization to provide a serv- publicly supported charities, except as provided termine whether the one-third support test or ice to, or maintain a facility for, the direct benefit under Grants from public charities, later. the ten-percent-of-support requirement is met, of the public (regardless of whether part of the exclude contributions that are considered un- expense of providing the service or facility is Indirect contributions. The term indirect usual grants from both the numerator and de- paid for by the public), rather than to serve the contributions from the general public includes nominator of the appropriate percent-of-support direct and immediate needs of the payor. This contributions received by the organization from fraction. Generally, unusual grants are substan- includes: organizations (such as publicly supported or- tial contributions or bequests from disinterested ganizations) that normally receive a substantial 1. Amounts paid to maintain library facilities parties if the contributions: part of their support from direct contributions that are open to the public, from the general public, except as provided un- 1. Are attracted by the publicly supported na- 2. Amounts paid under government pro- der Grants from public charities, next. ture of the organization, grams to nursing homes or homes for the 2. Are unusual or unexpected in amount, and aged to provide health care or domiciliary Grants from public charities. Contribu- services to residents of these facilities, tions received from a governmental unit or from 3. Would adversely affect, because of the and a publicly supported organization (including a size, the status of the organization as nor- church that meets the requirements for being mally being publicly supported. (The or- 3. Amounts paid to child placement or child publicly supported) aren't subject to the 2% limit ganization must otherwise meet the sup- guidance organizations under government unless the contributions represent amounts ei- port test in that year without benefit of the programs for services rendered to children ther expressly or impliedly earmarked by a do- grant or contribution.) in the community. nor to the governmental unit or publicly suppor- ted organization as being for, or for the benefit For a grant (see Grants, later) that meets the re- These payments are mainly to enable the recip- of, the particular organization claiming a pub- quirements for exclusion, if the terms of the ient organization to provide a service or main- licly supported status. granting instrument require that the funds be tain a facility for the direct benefit of the public, paid to the recipient organization over a period rather than to serve the direct and immediate Example 1. M, a national foundation for the of years, the amount received by the organiza- needs of the payor. Furthermore, any amount encouragement of the musical arts, is a publicly tion each year under the terms of the grant may received from a governmental unit under cir- supported organization. George Spruce gives be excluded for that year. However, no item of cumstances in which the amount would be trea- M a donation of $5,000 without imposing any gross investment income (defined under Sec- ted as a grant will generally constitute support restrictions or conditions upon the gift. M later tion 509(a)(2) Organizations, later) may be ex- from a governmental unit. See the discussion of makes a $5,000 grant to X, an organization de- cluded under this rule. Grants, later, under Section 509(a)(2) Organi- voted to giving public performances of chamber zations. Characteristics of an unusual grant. A music. Since the grant to X is treated as being grant or contribution will be considered an un- Medicare and Medicaid payments. Medi- received from M, it is fully includible in the nu- usual grant if the previous three factors apply care and Medicaid payments are received from merator of X's support fraction for the tax year and if it has all of the following characteristics. If contracts entered into with state and federal of receipt. these factors and characteristics apply, then governmental units. However, payments are even without the benefit of an advance ruling, Example 2. Assume M is the same organi- made for services already provided to eligible grantors or contributors have assurance that zation described in Example 1. Tom Grove individuals, rather than to encourage or enable they won't be considered responsible for sub- gives M a donation of $10,000, but requires that an organization to provide services to the pub- stantial and material changes in the organiza- M spend the money to support organizations lic. The individual patient, not a governmental tion's sources of support status. See section devoted to the advancement of contemporary unit, actually controls the ultimate recipient of 7.08 of Rev. Proc. 2018-32, 2018-23 I.R.B. 739. these payments by selecting the health care or- American music. M has complete discretion as ganization. As a result, these payments aren't to the organizations of the type described to 1. The grant or contribution isn't made by a considered support from a governmental unit. which it will make a grant. M decides to make person (or related person) who created

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the organization or was a substantial con- exempt activities and has been able to at- governing body of the organization are unrela- tributor to the organization before the grant tract a significant amount of public sup- ted to its creator. The gardens are open to the or contribution. port. public without charge and attract many visitors each year. For the current tax year and the 4 tax 2. The grant or contribution isn't made by a 3. Whether, before the year of contribution, years preceding the current tax year, 95% of person (or related person) who is in a po- the organization met the one-third support the organization's total support was received sition of authority, such as a foundation test without benefit of any exclusions of from investment income from its original endow- manager, or who otherwise has the ability unusual grants. ment. N also maintains a membership society to exercise control over the organization. 4. Whether the organization may reasonably that is supported by members of the general Similarly, the grant or contribution isn't be expected to attract a significant amount public who wish to contribute to the upkeep of made by a person (or related person) who, of public support after the contribution. the gardens by paying a small annual member- because of the grant or contribution, ob- Continued reliance on unusual grants to ship fee. Over the 5-year period in question, tains a position of authority or the ability to fund an organization's current operating these fees from the general public constituted otherwise exercise control over the organi- expenses (as opposed to providing new the remaining 5% of the organization's total zation. endowment funds) may be evidence that support. Under these circumstances, N doesn't 3. The grant or contribution is in the form of the organization can't reasonably be ex- meet the one-third support test for its current cash, readily marketable securities, or as- pected to attract future support from the tax year. Furthermore, since only 5% was re- sets that directly further the organization's general public. ceived from the general public, N doesn't satisfy exempt purposes, such as a gift of a paint- the 10 percent support limitation under Regula- 5. Whether the organization has a represen- ing to a museum. tions section 1.170A-9(f)(3)(i), and therefore tative governing body. doesn't qualify as publicly supported under the 4. The donee organization has received a fi- facts and circumstances test. Because N has nal determination letter classifying it as a Comprehensive Examples failed to satisfy the 10 percent support limita- publicly supported organization and the tion, none of the other requirements or factors organization is actively engaged in a pro- Example 1. M is recognized as an organi- in Regulations section 1.170A-9(f)(3)(iii)(A) gram of activities in furtherance of its ex- zation described in section 501(c)(3). For the through (E) can be considered in determining empt purpose. years 2014 through 2018 (the applicable period whether N qualifies as a publicly supported or- 5. No material restrictions or conditions have for the tax year 2018 under Regulations section ganization. For its current tax year, N isn't an or- been imposed by the grantor or contributor 1.170A-9(f)(3)), M received support (as defined ganization described in section 170(b)(1)(A)(vi). upon the organization in connection with in paragraphs Regulations section 1.170A-9(f) the grant or contribution. (6) through (8)) of $600,000 from the following Example 3. O, an art museum, is recog- sources: nized as an organization described in section 6. If the grant or contribution is intended for 501(c)(3). In 1930, O was founded in S City by operating expenses, rather than capital Investment Income ...... $300,000 members of a single family to collect, preserve, items, the terms and amount of the grant City Y (a governmental unit described in 40,000 interpret, and display to the public important or contribution are expressly limited to 1 section 170(c)(1)) ...... works of art. O is governed by a Board of Trust- year's operating expenses. United Way (an organization described in 40,000 ees that originally consisted almost entirely of section 170(b)(1)(A)(vi)) ...... members of the founding family. However, Determination request. Before any grant Contributions ...... 220,000 or contribution is made, a potential grantee or- since 1945, members of the founding family or Total support ...... $600,000 ganization can request a determination as to persons standing in relationship to the mem- whether the grant or contribution may be exclu- bers of that family described in section 4946(a) ded as an unusual grant. This request can be For tax year 2018, M's public support is compu- (1)(C) through (G) have annually constituted filed by the grantee organization by submitting ted as follows: less than one-fifth of the Board of Trustees. The Form 8940, supporting documents described in remaining board members are citizens of S City the Instructions to Form 8940, and the appropri- One-third of total support ...... $200,000 from a variety of professions and occupations ate user fee. The organization must submit all who represent the interests and views of the information necessary to support a determina- Support from a governmental unit people of S City in the activities carried on by described in section 170(c)(1) ...... $40,000 tion, including information relating to the factors the organization rather than the personal or pri- Indirect contributions from the general vate interests of the founding family. O solicits and characteristics listed in the preceding para- public (United Way) ...... 40,000 graphs. If a favorable determination is issued, Contributions by various donors (no one contributions from the general public, and for the determination can be relied upon by the having made contributions that total more the current tax year and each of the 4 tax years grantor or contributor of the particular contribu- than $12,000—2% of total support) .... 50,000 immediately preceding the current tax year, O tion in question. The issuance of the determina- Six contributions (each in excess of has received total contributions (in small sums $12,000—2% of total support) 6 × of less than $100, none of which exceeds 2 per- tion will be at the sole discretion of the IRS. 72,000 Grants and contributions that fail to qualify $12,000 ...... cent of O's total support for such period) in ex- $202,000 for exclusion will affect the way the support cess of $10,000. These contributions from the tests are applied. See Additional requirements general public represent 25 percent of the or- (the five public support factors), earlier. M's support from governmental units and from ganization's total support for that 5-year period. If a determination is requested, in addition to direct and indirect contributions from the gen- For the same period, investment income from the characteristics listed earlier under Charac- eral public for the 2018 tax year normally ex- several large endowment funds has constituted teristics of an unusual grant, the following fac- ceeds one-third of M's total support 75 percent of O's total support. O expends sub- tors may be considered by the IRS in determin- ($202,000/$600,000 = 33.67 percent) for the stantially all of its annual income for its exempt ing if the grant or contribution is an unusual applicable period (2013 through 2017). M purposes and thus depends on the funds it an- grant. meets the one-third support test for 2018 and is nually solicits from the public as well as its in- therefore publicly supported for the tax years vestment income in order to carry out its activi- 1. Whether the contribution was a bequest or 2018 and 2019. ties on a normal and continuing basis and to a transfer while living. A bequest will be acquire new works of art. O has, for the entire given more favorable consideration than a Example 2. N is recognized as an organi- period of its existence, been open to the public transfer while living. zation described in section 501(c)(3). It was and more than 300,000 people (from S City and 2. Whether, before the receipt of the contri- created to maintain public gardens containing elsewhere) have visited the museum in the cur- bution, the organization has carried on an botanical specimens and displaying statuary rent tax year and the 4 years immediately pre- active program of public solicitation and and other art objects. The facilities, works of art, ceding the current tax year. and a large endowment were all contributed by a single contributor. The members of the

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Under these circumstances, O doesn't meet meets the 10 percent support limitation under body composed of representatives of the partic- the one-third support test for its current year be- Regulations section 1.170A-9(f)(3)(i). P also ular community or area, its contributions are of- cause it has received only 25 percent of its total meets the requirements of Regulations section ten received and maintained in the form of sep- support for the applicable 5-year period from 1.170A-9(f)(3)(ii). As a result of satisfying these arate trusts or funds that are subject to varying the general public. However, under the facts set requirements and factors, P is considered to degrees of control by the governing body. forth, O has met the 10 percent support limita- meet the facts and circumstances test and tion under Regulations section 1.170A-9(f)(3)(i), therefore qualifies as a publicly supported or- To qualify as a publicly supported organiza- as well as the requirements of Regulations sec- ganization for its current tax year and the imme- tion, a community trust must meet the one-third tion 1.170A-9(f)(3)(ii). Under all of the facts set diately succeeding tax year. support test, explained earlier under Qualifying forth, O is considered as meeting the require- as Publicly Supported. If it can't meet that test, it ments of the facts and circumstances test on Example 5. Q is recognized as an organi- must be organized and operated so as to attract the basis of satisfying Regulations section zation described in section 501(c)(3) and it is a new and additional public or governmental sup- 1.170A-9(f)(3)(iii)(A) through (D). O is therefore philanthropic organization. Q was founded in port on a continuous basis sufficient to meet the publicly supported for its current tax year and 1965 by C for the purpose of making annual facts and circumstances test, also explained the immediately succeeding tax year. contributions to worthy charities. C created Q earlier. Community trusts are generally able to as a charitable trust by transferring $500,000 satisfy the attraction of public support require- Example 4. In 1960, the P Philharmonic worth of appreciated securities to Q. ment (as contained in the facts and circumstan- Orchestra was organized in T City by a local Under the trust agreement, C and two other ces test) if they seek gifts and bequests from a music society and a local women's club to family members are the sole trustees of Q and wide range of potential donors in the community present to the public a wide variety of musical are vested with the right to appoint successor or area served, through or trust compa- programs intended to foster music appreciation trustees. In each of the current tax year and the nies, through attorneys or other professional in the community. P is recognized as an organi- 4 tax years immediately preceding the current persons, or in other appropriate ways that call zation described in section 501(c)(3). The or- tax year, Q received $12,000 in investment in- attention to the community trust as a potential chestra is composed of professional musicians come from its original endowment. Each year Q recipient of gifts and bequests made for the who are paid by the association. Twelve per- solicits funds by operating a charity ball at C's benefit of the community or area served. A formances, open to the public, are scheduled residence. Guests are invited and asked to community trust, however, doesn't have to en- each year. A small admission charge is made make contributions of $100 per couple. During gage in periodic, community-wide, fundraising for each of these performances. In addition, the 5-year period involved, $15,000 was re- campaigns directed toward attracting a large several performances are staged annually with- ceived from the proceeds of these events. C number of small contributions in a manner simi- out charge. and his family have also made contributions to lar to campaigns conducted by a community During the current tax year and the 4 tax Q of $25,000 over the 5-year period at issue. Q chest or a united fund. years immediately preceding the current tax makes disbursements each year of substan- year, P received separate contributions of tially all of its net income to the public charities Separate trusts or funds. Any community $200,000 each from A and B (not members of a chosen by the trustees. trust may be treated as a single entity for public single family) and support of $120,000 from the Q's sources of support for the current tax support purposes, rather than as an aggrega- T Community Chest, a public federated fund- year and the 4 tax years immediately preceding tion of separate funds, in which case all qualify- raising organization operating in T City. P de- the current tax year are as follows: ing funds associated with that organization pends on these funds to carry out its activities (whether a trust, not-for-profit corporation, unin- and will continue to depend on contributions of Investment income ...... $60,000 corporated association, or a combination this type to be made in the future. P has also Contributions ...... $40,000 thereof) will be treated as component parts of begun a fundraising campaign in an attempt to Total support ...... $100,000 the organization for public support purposes. expand its activities for the coming years. P is governed by a Board of Directors com- Contributions from the general public .... $15,000 Single entity. To be treated as a single en- tity for public support purposes, a community posed of five individuals. A faculty member of a One contribution (over $2,000—2% of total 2,000 trust must meet all of the following require- local college, the president of a local music so- support) 1 × $2,000 ...... ciety, the head of a local banking institution, a Total support from general public ...... $17,000 ments. prominent doctor, and a member of the govern- 1. The organization must be commonly ing body of the local Chamber of Commerce Q's support from the general public doesn't known as a community trust, fund, founda- currently serve on the Board and represent the meet the one-third support test tion, or other similar name conveying the interests and views of the community in the ac- ($17,000/$100,000 = 17% of total support). concept of a capital or endowment fund to tivities carried on by P. Even though it does meet the ten-per- support charitable activities in the com- For P's current tax year, its sources of sup- cent-of-support requirement, its method of so- munity or area it serves. port are computed on the basis of the current licitation makes it questionable whether Q satis- tax year and the 4 immediately preceding tax fies Regulations section 1.170A-9(f)(3)(ii). 2. All funds of the organization must be sub- years, as follows. Because of its method of operating, Q also has ject to a common governing instrument (or a greater burden of establishing its publicly sup- a master trust or agency agreement) that ported nature. Based on these facts and on Q's may be embodied in a single (or several) Contributions ...... $520,000 failure to receive favorable consideration under document(s) containing common lan- Receipts from performances ...... 100,000 the remaining factors of Regulations section guage. $620,000 Less: 1.170A-9(f)(3)(iii), Q doesn't satisfy the facts 3. The organization must have a common Receipts from performances (excluded, and circumstances test and therefore doesn't governing body (or distribution committee) 100,000 see Support) ...... qualify as a publicly supported organization. that either directs or, in the case of a fund Total support ...... $520,000 designated for specified beneficiaries, T Community Chest (indirect support from Community Trusts monitors the distribution of all funds exclu- the general public) ...... $120,000 sively for charitable purposes. The govern- Two contributions (each over $10,400—2% Community trusts are often established to at- ing body must have the power in the gov- of total support) 2 × $10,400 ...... 20,800 tract large contributions of a capital or endow- erning instrument, the instrument of Total support from general public ...... $140,800 ment nature for the benefit of a particular com- transfer, the resolutions or bylaws of the munity or area. Often these contributions come governing body, a written agreement, or P's support from the general public, directly and initially from a small number of donors. While otherwise— the community trust generally has a governing indirectly, doesn't meet the one-third support a. To modify any restriction or condition test ($140,800/$520,000 = 27% of total sup- on the distribution of funds for any port). However, because P receives 27 percent specified charitable purposes or to of its total support from the general public, it

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specified organizations if in the sole income isn't included in meeting the sup- Definition of normally. Both support tests judgment of the governing body (with- port test for a publicly supported organiza- are computed on the basis of the nature of the out the necessity of the approval of tion under section 509(a)(1). organization's normal sources of support. An or- any participating trustee, custodian, or ganization will be considered to have normally 2. Section 509(a)(2) places a limit on the to- agent), the restriction or condition be- met both tests for its current tax year and the tal gross investment income and unrelated comes, in effect, unnecessary, inca- tax year immediately following, if it meets those business taxable income (in excess of the pable of fulfillment, or inconsistent tests on the basis of the total support received unrelated business tax) an organization with the charitable needs of the com- for the current tax year and the 4 tax years im- may have, while section 509(a)(1) doesn't. munity or area served, mediately before the current tax year. b. To replace any participating trustee, To be excluded from private foundation Computation period for public support. If at custodian, or agent for breach of fidu- treatment under section 509(a)(2), an organiza- the time of applying for tax-exempt status, an ciary duty under state law, and tion must meet two support tests. organization can reasonably be expected to c. To replace any participating trustee, 1. The one-third support test. meet the one-third support test and the etc., for failure to produce a reasona- not-more-than-one-third support test during its ble return of net income over a rea- 2. The not-more-than-one-third support test. first 5 tax years, the organization will qualify for sonable period of time. (The govern- classification as a public charity under section ing body will determine what is Both these tests are designed to ensure that 509(a)(2) for its first 5 years. Beginning with the reasonable.) an organization excluded from private founda- organization's sixth tax year, the organization tion treatment is responsive to the general pub- will be described in section 509(a)(2) if it meets 4. The organization must prepare periodic fi- lic, rather than to the private interests of a limi- the one-third support test and nancial reports treating all of the funds that ted number of donors or other persons. not-more-than-one-third support test for its sixth are held by the community trust, either di- year (based on support received in its second rectly or in component parts, as funds of One-third support test. The one-third support through sixth tax years) or as a carryover for its the organization. test will be met if an organization normally re- fifth tax year (based on support received in its A community trust can meet the requirement ceives more than one-third of its support in first through fifth tax years). If the organization is in (3) above even if its exercise of the powers in each tax year from any combination of: required to file Form 990 or 990-EZ, it must es- tablish that it meets the one-third support test (3)(a), (b), or (c) is reviewable by an appropriate 1. Gifts, grants, contributions, or membership and not-more-than-one-third support test each state authority. fees, and year on Schedule A (Form 990 or 990-EZ). Component part. To be treated as a com- 2. Gross receipts from admissions, sales of ponent part of a community trust (rather than as merchandise, performance of services, or Reasonable expectation of public sup- a separate trust or a not-for-profit corporation furnishing facilities in an activity that isn't port. An organization that can reasonably be for public support purposes), a trust or fund: an unrelated trade or business, subject to expected to meet the one-third support test and not-more-than-one-third support test under sec- 1. Must be created by gift, bequest, legacy, certain limits, discussed below under Limit on gross receipts, later. tion 509(a)(2) during its first 5 tax years is one devise, or other transfer to a community that can show that its organizational structure, trust that is treated as a single entity (de- For this purpose, the support must be from current or proposed programs and activities, scribed above), and permitted sources, which include: and actual or intended method of operation can 2. May not be directly or indirectly subjected • Section 509(a)(1) organizations, described reasonably be expected to attract the type of by the transferor to any material restriction earlier, broadly based support from the general public, or condition with respect to the transferred • Governmental units, described under Sec- public charities, and governmental units that is assets. tion 509(a)(1) Organizations, earlier, and necessary to meet these tests. The facts that • Persons other than Disqualified persons are relevant to this determination and the Grantors and contributors. Grantors, con- (defined under Section 509(a)(3) Organi- weight accorded each fact may differ from case tributors, or distributors to a community trust zations), later. to case. An organization can't reasonably be may rely on the public charity status, which the expected to meet the one-third support test and Limit on gross receipts. In computing the organization has claimed in a timely filed notice, the not-more-than-one-third support test when amount of support received from gross receipts on or before the date the IRS informs the public the facts indicate that an organization is likely under (2) above, gross receipts from related ac- (through such means as publication in the Inter- during its first 5 tax years to receive less than tivities received from any person or from any nal Revenue Bulletin) that such reliance has ex- one-third of its support from permitted sources bureau or similar agency of a governmental unit pired. However, if the grantor, contributor, or or to receive more than one-third of its support are includible in any tax year only to the extent distributor acquires knowledge that the IRS has from gross investment income and unrelated the gross receipts aren't more than the greater notified the community trust that it has failed to business taxable income. of $5,000 or 1% of the organization's total sup- establish that it is a public charity, then reliance All pertinent facts and circumstances are port in that year. on the claimed status expires at the time such taken into account in determining whether the knowledge is acquired. organizational structure, programs, or activities, Not-more-than-one-third support test. This and method of operation of an organization will test will be met if an organization normally re- Section 509(a)(2) Organizations give that organization a reasonable expectation ceives no more than one-third of its support in that it will meet the support tests. Some perti- each tax year from the total of: Section 509(a)(2) excludes certain types of nent factors considered are: broadly based, publicly supported organiza- 1. Gross investment income, and 1. Whether the organization has or will have tions from private foundation status. Generally, 2. The excess (if any) of unrelated business a governing body that is composed of per- an organization described in section 509(a)(2) taxable income from unrelated trades or sons having special knowledge in the par- may also fit the description of a publicly suppor- businesses acquired after June 30, 1975, ticular field in which the organization is op- ted organization under section 509(a)(1). There over the tax imposed on that income. erating or of community leaders, such as are, however, two basic differences. elected officials, members of the clergy, Gross investment income. Gross invest- and educators, or, in the case of a mem- 1. For section 509(a)(2) organizations, the ment income means the gross amount of in- term support includes items of support dis- bership organization, of individuals elec- come from interest, dividends, payments with ted under the organization’s governing in- cussed earlier (under Support, in the dis- respect to securities loans, rents, and royalties, cussion of Section 509(a)(1) Organiza- strument or bylaws by a broadly based but it doesn't include any income that would be membership, tions) and income from activities directly included in computing tax on unrelated busi- related to their exempt function. This ness income from trades or businesses.

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2. Whether a substantial part of the organiza- the organization or was a substantial con- organization can't attract future support tion’s initial funding is to be provided by tributor to the organization before the grant from the general public. the general public, by public charities, or or contribution. 4. Whether the organization met the by government grants rather than by a 2. The grant or contribution isn't made by a one-third support test in the past without limited number of grantors or contributors person (or related person) who is in a po- the benefit of any exclusions of unusual who are disqualified persons with respect sition of authority, such as a foundation grants. to the organization, manager, or who otherwise has the ability 5. Whether the organization has a represen- 3. Whether a substantial proportion of the or- to exercise control over the organization. tative governing body. ganization’s initial funds are placed, or will Similarly, the grant or contribution isn't remain, in an endowment and whether the made by a person (or related person) who, Example 1. Y, an organization described in investment of those funds is unlikely to re- because of the grant or contribution, ob- section 501(c)(3), was created by Marshall sult in more than one-third of its total sup- tains a position of authority or the ability to Pine, the holder of all the common stock in M port being received from gross investment otherwise exercise control over the organi- corporation, Lisa, Marshall's wife, and Edward income and from unrelated business taxa- zation. Forest, Marshall's business associate. The pur- ble income in excess of the tax imposed 3. The grant or contribution is in the form of pose of Y was to sponsor and equip athletic on that income, cash, readily marketable securities, or as- teams composed of underprivileged children in 4. Whether an organization that carries on sets that directly further the organization's the community. Each of the three creators fundraising activities has developed a spe- exempt purposes, such as a gift of a paint- makes small cash contributions to Y. Marshall, cific plan for solicitation of funds on a com- ing to a museum. Lisa, and Edward have been active participants munity or area-wide basis, in the affairs of Y since its creation. Y regularly 4. The donee organization has received ei- raises small amounts of contributions through 5. Whether an organization that carries on ther an advance ruling or final determina- fundraising drives and selling admission to community service activities has a specific tion letter classifying it as a publicly sup- some of the sponsored sporting events. The op- program to carry out its work in the com- ported organization and, except for an erations of Y are carried out on a small scale, munity, organization operating under an advance usually being restricted to the sponsorship of ruling or determination letter, the organiza- 6. Whether membership dues for individual two to four baseball teams of underprivileged tion is actively engaged in a program of (rather than institutional) members of an children. activities in furtherance of its exempt pur- organization that carries on education or In 2011, M Corporation recapitalizes and pose. other exempt activities for or on behalf of creates a first and second class of 6 percent members have been fixed at rates de- 5. No material restrictions or conditions have nonvoting preferred stock, most of which is held signed to make membership available to a been imposed by the grantor or contributor by Marshall and Lisa. In 2012, Marshall contrib- broad cross section of the public rather upon the organization in connection with utes 49 percent of his common stock in M to Y. than to restrict membership to a limited the grant or contribution. Marshall's contribution of M's common stock number of persons, and was substantial and constitutes 90 percent of 6. If the grant or contribution is intended for Y's total support for 2012. A combination of the 7. Whether an organization that provides operating expenses, rather than capital facts and circumstances of the determining fac- goods, services, or facilities is or will be re- items, the terms and amount of the grant tors preclude Marshall's contribution of M's quired to make its services, facilities, per- or contribution are expressly limited to one common stock in 2012 from being excluded as formances, or products available (regard- year's operating expenses. an unusual grant under Temporary Regulations less of whether a fee is charged) to the section 1.509(a)-3T(c)(3) for purposes of deter- general public, public charities, or govern- Determination request. If there is any mining whether Y meets the one-third support mental units rather than to a limited num- doubt that a grant or contribution can be exclu- test under section 509(a)(2). ber of persons or organizations. ded as an unusual grant, the grantee organiza- tion can request a determination by submitting Example 2. M was organized in 2011 to Unusual grants. An unusual grant can be ex- Form 8940, supporting documents described in promote the appreciation of ballet in a particular cluded from the support test computation if it: the Instructions to Form 8940 and the appropri- ate user fee. The IRS has the sole discretion of region of the United States. Its principal activi- 1. Was attracted by the publicly supported issuing a determination, but if a favorable deter- ties consist of erecting a theater for the perform- nature of the organization, mination is issued, it can be relied on by the ance of ballet and the organization and opera- tion of a ballet company. M receives a 2. Was unusual or unexpected in amount, grantor or contributor for purposes of a charita- determination letter that it is an organization de- and ble contributions deduction and by the organi- zation for purposes of the exclusion for unusual scribed in section 501(c)(3) and that it is a pub- 3. Would, because of its size, adversely af- grants. lic charity described in section 509(a)(2). The fect the status of the organization as nor- In addition to the characteristics listed governing body of M consists of nine prominent mally meeting the one-third support test. above, the following factors may be considered unrelated citizens residing in the region who (The organization must otherwise meet by the IRS in determining if the grant or contri- have either an expertise in ballet or a strong in- the test in that year without benefit of the bution is an unusual grant. terest in encouraging appreciation of the art grant or contribution.) form. 1. Whether the contribution was a bequest or In 2012, Z, a private foundation, proposes to Characteristics of an unusual grant. A a transfer while living. A bequest will ordi- make a grant of $500,000 in cash to M to pro- grant or contribution will be considered an un- narily be given more favorable considera- vide sufficient capital for M to commence its ac- usual grant if the above three factors apply and tion than a transfer while living. tivities. Although Albert Cedar, the creator of Z, it has all of the following characteristics. If these 2. Whether, before the contribution, the or- is one of the nine members of M's governing factors and characteristics apply, then even ganization carried on an actual program of body, was one of M's original founders, and without the benefit of an advance ruling, gran- public solicitation and exempt activities continues to lend his prestige to M's activities tors or contributors have assurance that they and was able to attract a significant and fundraising efforts, Albert doesn't, directly won't be considered responsible for an act that amount of public support. or indirectly, exercise any control over M. By results in an organization's change of support the close of its first tax year, M also has re- status. See Rev. Proc. 2018-32, 2018-23 I.R.B. 3. Whether the organization may reasonably ceived a significant amount of support from a 739. be expected to attract a significant amount number of smaller contributions and pledges of public support after the contribution. 1. The grant or contribution isn't made by a from members of the general public. M charges Continued reliance on unusual grants to person (or related person) who created admission to the ballet performances to the fund an organization's current operating general public. expenses can be evidence that the

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Although the support received in 2012 won't the payment or transfer under section 170(c) recipient of these payments. Therefore, Medi- impact M's status as a public charity for its first determines whether and to what extent the pay- care and Medicaid receipts for services provi- 5 tax years, it will be relevant to the determina- ment or transfer is a gift or contribution as dis- ded to each patient are included as gross re- tion of whether M meets the one-third support tinguished from gross receipts from related ac- ceipts to the extent they aren't more than the test under section 509(a)(2) for the 2016 tax tivities. greater of $5,000 or 1% of the organization's to- year, using the computation period 2012 The amount includible in computing support tal support for the tax year. through 2016. Within the appropriate time- from gifts, grants, or contributions of property or frame, M may submit a request for a determina- use of property is the fair market or rental value Membership fees distinguished from gross tion letter that the $500,000 contribution from Z of the property at the date of the gift or contribu- receipts. The fact that a membership organi- qualifies as an unusual grant. tion. zation provides services, admissions, facilities, Under the above circumstances, even or merchandise to its members as part of its though Albert was a founder and member of the Example. P is a local agricultural club and overall activities won't, in itself, result in the governing body of M, M may exclude Z's contri- is an organization described in section 501(c) classification of fees received from members as bution of $500,000 in 2012 as an unusual grant (3). It makes awards at its annual fair for out- gross receipts subject to the $5,000 or 1% limit under Regulations section 1.509(a)-3T(c)(3) for standing specimens of produce and livestock to rather than membership fees. However, if an or- purposes of determining whether M meets the encourage interest and proficiency by young ganization uses membership fees as a means one-third support test under section 509(a)(2) people in farming and raising livestock. Most of of selling admissions, merchandise, services, or for 2016. these awards are cash or other property dona- the use of facilities to members of the general ted by local businessmen. When the awards public who have no common goal or interest Gifts, contributions, and grants distin- are made, the donors are given recognition for (other than the desire to buy the admissions, guished from gross receipts. In determining their donations by being identified as the donor merchandise, services, or use of facilities), the whether an organization normally receives of the award. The recognition given to donors is fees aren't membership fees but are gross re- more than one-third of its support from permit- merely incidental to the making of the award to ceipts. ted sources, include all gifts, contributions, and worthy youngsters. For these reasons, the don- On the other hand, to the extent the basic grants received from permitted sources in the ations are contributions. The amount includible purpose of the payment is to provide support for numerator of the support fraction in each tax in computing support is equal to the cash con- the organization rather than to buy admissions, year. However, gross receipts from admissions, tributed or the fair market value of other prop- merchandise, services, or the use of facilities, sales of merchandise, performance of services, erty on the dates contributed. the payment is a membership fee. or furnishing facilities, in an activity that isn't an unrelated trade or business, are includible in Grants. Grants often contain certain terms Bureau defined. The term bureau or similar the numerator of the support fraction in any tax and conditions imposed by the grantor. Be- agency of a governmental unit for determining year only to the extent that the amounts re- cause of the imposition of terms and conditions, amounts subject to the $5,000 or 1% limit ceived from any person or from any bureau or the frequent similarity of public purposes of means a specialized operating unit of the exec- similar agency of a governmental unit aren't grantor and grantee, and the possibility of bene- utive, judicial, or legislative branch of govern- more than the greater of $5,000 or 1% of sup- fit to the grantor, amounts received as grants for ment in which business is conducted under cer- port. carrying on exempt activities are sometimes dif- tain rules and regulations. Since the term ficult to distinguish from amounts received as bureau refers to a unit functioning at the operat- Determinations of public support status. gross receipts from carrying on exempt activi- ing, as distinct from the policy-making, level of An organization may request a determination ties. government, it normally means a subdivision of letter that it is described in section 509(a)(2). In distinguishing the term gross receipts a department of government. The term wouldn't This request is made on Form 1023 or Form from the term grants, the term gross receipts usually include those levels of government that 1023-EZ, or at such other time as the organiza- means amounts received from an activity that are basically policy-making or administrative, tion believes it is described in section 509(a)(2). isn't an unrelated trade or business, if a specific such as the office of the Secretary or Assistant The IRS may revoke the section 509(a)(2) de- service, facility, or product is provided to serve Secretary of a department, but would consist of termination letter if, upon examination, the or- the direct and immediate needs of the payor the highest operational level under the pol- ganization has not met the requirements. The rather than primarily to confer a direct benefit on icy-making or administrative levels. IRS may also revoke the section 509(a)(2) de- the general public. In general, payments made Amounts received from a unit functioning at termination letter if the organization’s applica- primarily to enable the payor to realize or re- the policy-making or administrative level of gov- tion for determination contained an omission or ceive some economic or physical benefit as a ernment are treated as received from one bu- inaccurate material information. result of the service, facility, or product obtained reau or similar agency of the unit. Units of a will be treated as gross receipts by the payee. governmental agency above the operating level Reliance by grantors or contributors. For example, a profit-making organization, are combined and considered a separate bu- Grantors or contributors may rely on a determi- primarily for its own betterment, contracts with a reau for this purpose. Thus, an organization that nation that an organization is described in sec- nonprofit organization for a service from that or- has gross receipts from both a policy-making or tion 509(a)(2) until notice of change of status of ganization. Any payments received by the non- administrative unit and an operational unit of a the organization is made to the public (such as profit organization (whether from the profit-mak- department will be treated as having gross re- by publication in the Internal Revenue Bulletin, ing organization or from another nonprofit) for ceipts from two bureaus. For this purpose, the or Tax-Exempt Organization Search, either of similar services are primarily for the benefit of Departments of Air Force, Army, and Navy are which can be searched at IRS.gov.). See Rev. the payor and are therefore gross receipts, separate departments and each has its own Proc. 2018-32, 2018-23 I.R.B. 739. Tax-Exempt rather than grants. policy-making, administrative, and operating Organization Search is only available online at Research leading to the development of tan- units. Tax-Exempt Organization Search. However, gible products for the use or benefit of a payor this won't apply if the grantor or contributor was generally will be treated as a service provided Example 1. The Bureau for Africa and the responsible for, or aware of, the act or failure to to serve the direct and immediate needs of the Bureau for Latin America are considered sepa- act that resulted in the organization's loss of payor, while basic research or studies carried rate bureaus. Each is an operating unit under classification as a publicly supported organiza- on in the physical or social sciences generally the Administrator of the Agency for International tion. will be treated as primarily to confer a direct Development, a policy-making official. If an or- benefit upon the general public. Gifts and contributions. Any payment of ganization had gross receipts from both of Medicare and Medicaid payments are gross money or transfer of property without adequate these bureaus, the amount of gross receipts receipts from the exercise or performance of an consideration is considered a gift or contribu- from each would be subject to the greater of exempt function. The individual patient, not a tion. When payment is made or property is $5,000 or the 1% limit. transferred as consideration for admissions, governmental unit, actually controls the ultimate sales of merchandise, performance of services, Example 2. A bureau is an operating unit or furnishing facilities to the donor, the status of under the administrative office of the Executive

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Director. The subdivisions of the bureau are considered gross investment income or unrela- supporting organization by the publicly suppor- Geographic Areas and Project Development ted business taxable income. ted organization. They have the same rules for Staff. If an organization had gross receipts from meeting the tests under requirement (1) and are these subdivisions, the total gross receipts from Section 509(a)(3) Organizations discussed in Category one, below. The oper- these subdivisions would be considered gross ated in connection with relationship requires receipts from the same bureau and would be Section 509(a)(3) excludes from the definition that the supporting organization be responsive subject to the greater of $5,000 or the 1% limit. of private foundation those organizations that to and have operational relationships with pub- meet all of the three following requirements. licly supported organizations. This third relation- Grants from public charities. For purposes ship has different rules for meeting the require- of the one-third support test, grants received 1. The organization must be organized and ment (1) tests and is discussed separately in from a section 509(a)(1) organization (public operated exclusively for the benefit of, to Category two, later. charity) are generally includible in full in com- perform the functions of, or to carry out the puting the numerator of the support fraction for purposes of one or more specified organi- Supported organizations. Supported organi- that tax year. zations as described in sections 509(a)(1) zations are organizations described in section However, if the amount received is consid- or 509(a)(2). These section 509(a)(1) and 509(a)(1) or 509(a)(2) for whose benefit the ered an indirect contribution from one of the 509(a)(2) organizations are commonly supporting organization is organized and oper- public charity's donors, it will retain its character called publicly supported organizations. ated. A section 501(c)(4), (c)(5), or (c)(6) organ- as a contribution from the donor, and if, for ex- 2. The organization has one of three types of ization that would be described in section ample, the donor is a substantial contributor to relationships with one or more organiza- 509(a)(2) if it were a 501(c)(3) organization may the ultimate recipient, the amount is excluded tions described in sections 509(a)(1) or be treated as a 509(a)(2) organization for pur- from the numerator of the support fraction. If a 509(a)(2). It must be: poses of these rules, and therefore may be a public charity makes both an indirect contribu- supported organization as well, subject to cer- tion from its donor and an additional grant to the a. Operated, supervised, or controlled tain restrictions. See Supporting other than sec- ultimate recipient, the indirect contribution is by one or more section 509(a)(1) or tion 501(c)(3) organizations, later. treated as made first. 509(a)(2) organizations (Type I sup- An indirect contribution is one that is ex- porting organization), Organizations controlled by donors. Gener- pressly or impliedly earmarked by the donor as b. Supervised or controlled in connec- ally, if a Type I or Type III supporting organiza- being for, or for the benefit of, a particular recip- tion with one or more section 509(a) tion supports an organization that is controlled ient rather than for a particular purpose. (1) or 509(a)(2) organizations (Type II by a donor, the supporting organization is trea- supporting organization), or ted as a private foundation (rather than as a Method of accounting. An organization's sup- public charity). Type I and Type III organizations port is determined under the same accounting c. Operated in connection with one or may not accept any gifts or contributions from: more section 509(a)(1) or 509(a)(2) method that it uses in keeping its books and 1. Any person (other than an organization that it otherwise uses to report on its Form 990 organizations (Type III supporting or- ganization). described in section 509(a)(1), (2), or (4)) or 990-EZ, if it is required to file Form 990 or who controls, directly or indirectly, either 990-EZ. For example, if a grantor makes a grant 3. The organization mustn't be controlled di- alone or together with persons listed in (2) to an organization payable over a term of years, rectly or indirectly by disqualified persons or (3) below, the governing body of a sup- the grant will be includible in the support frac- (defined later) other than foundation man- ported organization; tion of the grantee organization under the ac- agers and other than one or more organi- counting method it regularly uses in keeping its zations described in section 509(a)(1) or 2. A family member of a person described in books. 509(a)(2). (1), above; or 3. A 35-percent controlled entity. Gross receipts from a related activity. Section 509(a)(3) differs from the other pro- When the charitable purpose of an organization visions of section 509 that describe a publicly Category one - Type I and Type II support- described in section 501(c)(3) is accomplished supported organization. Instead of describing ing organizations. This category includes or- through furnishing facilities for a rental fee or an organization that conducts a particular kind ganizations either operated, supervised, or con- loans to a particular class of persons, such as of activity or that receives financial support from trolled by (Type I) or supervised or controlled in aged, sick, or needy persons, the support re- the general public, section 509(a)(3) describes connection with (Type II) organizations descri- ceived from those persons will be considered organizations that have established certain rela- bed in section 509(a)(1) or 509(a)(2) (which can gross receipts from a related exempt activity tionships in support of section 509(a)(1) or be either domestic or foreign). rather than gross investment income or unrela- 509(a)(2) organizations. Thus, an organization These kinds of organizations have a govern- ted business taxable income. can qualify as other than a private foundation ing body that either includes a majority of mem- However, if the organization also furnishes even though it may be funded by a single do- bers elected or appointed by one or more pub- facilities or loans to persons who aren't mem- nor, family, or corporation (with certain excep- licly supported organizations (Type I) or that bers of a particular class and furnishing the fa- tions described in Organizations controlled by consists of the same persons that control or cilities or funds doesn't contribute importantly to donors, later). This kind of funding ordinarily manage the publicly supported organizations accomplishing the organization's exempt purpo- would indicate private foundation status, but a (Type II). If an organization is to qualify under ses, the support received from furnishing the fa- section 509(a)(3) organization has limited pur- this category, it also must meet an organiza- cilities or funds will be considered rents or inter- poses and activities and gives up a significant tional test and an operational test, and mustn't est and will be treated as gross investment degree of independence. be controlled by disqualified persons. These re- income or unrelated business taxable income. quirements are covered later in this discussion. Example. X, an organization described in More than one type of relationship may exist Type I - Operated, supervised, or con- section 501(c)(3), is organized and operated to between a supporting organization and a pub- trolled by. The Type I relationship presuppo- provide living facilities for needy widows of de- licly supported organization. Any relationship, ses a substantial degree of direction over the ceased servicemen. X charges the widows a however, must ensure that the supporting or- policies, programs, and activities of a support- small rental fee for the use of the facilities. ganization will be responsive to the needs or ing organization by its supported organizations. Since X is accomplishing its exempt purpose demands of, and will be an integral part of or The relationship required is comparable to that through the rental of the facilities, the support maintain a significant involvement in, the opera- of a parent and subsidiary, in which the subsid- received from the widows is considered gross tions of one or more publicly supported organi- iary is under the direction of, and is accountable receipts from a related exempt activity. How- zations. or responsible to, the parent organization. This ever, if X rents part of its facilities to persons relationship is typically established when the having no relationship to X's exempt purpose, The Type I and Type II relationships rely on supported organization(s) may regularly appoint the support received from these rentals will be majority control of the governing body of the

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or elect a majority of the directors or trustees of 501(c)(6) organization (see Supporting other organization. Similarly, a supporting organiza- the supporting organization. than section 501(c)(3) organizations, later) tion may support or benefit a section 501(c)(3) meets these requirements if its articles require it organization, other than a private foundation, Type II - Supervised or controlled in to carry on charitable, etc., activities within the that is operated, supervised, or controlled di- connection with. An organization that is su- meaning of section 170(c)(2). rectly by or in connection with its supported or- pervised or controlled in connection with one or ganization(s). However, a supporting organiza- more section 509(a)(1) or 509(a)(2) organiza- Limits. An organization isn't organized ex- tion's activities may not further its purpose other tions is a Type II supporting organization. The clusively for the purposes specified in require- than supporting or benefiting its supported or- control or management of the supporting organ- ment (1) if its articles expressly permit it to oper- ganization(s). ization must be vested in the same persons that ate to support or to benefit any organization control or manage the publicly supported or- other than the specified publicly supported or- Operational test — permissible activi- ganization. In order for an organization to be su- ganizations. It won't meet the organizational test ties. A supporting organization may make pay- pervised or controlled in connection with a sup- even though the actual operations of the organi- ments to its supported organization(s) or to per- ported organization, common supervision or zation have been exclusively for the benefit of missible beneficiaries, or may carry on control by the persons supervising or controlling the specified publicly supported organizations. independent activities or programs that support both organizations must exist to ensure that the or benefit its supported organization(s). All such supporting organization will be responsive to Specified organizations. All supporting support, however, must be limited to permissi- the needs and requirements of the supported organizations must ensure that their supported ble beneficiaries described earlier. The support- organization. This relationship is typically estab- organizations are specified in their articles. ing organization also may engage in fundraising lished when a majority of the directors or trust- However, Type I and Type II supporting organi- activities, such as solicitations, fundraising din- ees of the supporting organization also serve as zations have greater flexibility regarding how ners, and unrelated trade or business, to raise directors or trustees of one or more supported their supported organizations may be “speci- funds for its supported organization(s) or for the organizations. fied”. permissible beneficiaries. Type I and Type II supporting organizations Organizational and operational tests. Like may specify their supported organizations: Absence of control by disqualified persons. all supporting organizations, Type I and II sup- 1. By name, The third requirement an organization must porting organizations must be both organized meet to qualify as a supporting organization re- and operated exclusively for the purposes set 2. By class or purpose designated in a man- quires that the organization not be controlled di- out in requirement (1) at the beginning of this ner sufficient to identify the supported or- rectly or indirectly by one or more disqualified section. If an organization fails to meet either ganizations, or persons (other than foundation managers or the organizational or the operational test, it can't 3. By demonstrating that the supporting or- one or more publicly supported organizations). qualify as a supporting organization. ganization and its supported organiza- Disqualified persons. For the purposes of tion(s) have a historic and continuing rela- Organizational test. An organization is or- the rules discussed in this publication, the fol- tionship, because of which a substantial ganized exclusively for one or more of the pur- lowing persons are considered disqualified per- identity of interests has developed be- poses specified in requirement (1) only if its arti- sons: tween or among the organizations. cles of organization: 1. All substantial contributors to the founda- 1. Limit the purposes of the organization to The articles of a Type I or Type II supporting or- tion. one or more of those purposes, ganization may also: 2. All foundation managers of the foundation. 2. Don’t expressly empower the organization 1. Permit the substitution of one publicly sup- 3. An owner of more than 20% of: to engage in activities that aren't in further- ported organization within a designated ance of those purposes, class for another publicly supported or- a. The total combined voting power of a ganization either in the same or a different corporation that is (during such own- 3. Specify (as explained later under Speci- class designated in the articles, ership) a substantial contributor to the fied organizations) the publicly supported foundation, organizations on whose behalf the organi- 2. Permit the supporting organization to op- zation is operated, and erate for the benefit of new or additional b. The profits interest of a partnership publicly supported organizations of the that is (during such ownership) a sub- 4. Don’t expressly empower the organization same or a different class designated in the stantial contributor to the foundation, to operate to support or benefit any organi- articles, or or zation other than the ones specified in item (3). 3. Permit the supporting organization to vary c. The beneficial interest of a trust or un- the amount of its support among different incorporated enterprise that is (during In meeting the organizational test, the or- publicly supported organizations within the such ownership) a substantial contrib- ganization's purposes as stated in its articles class or classes of organizations designa- utor to the foundation. can be as broad as, or more specific than, the ted by the articles. purposes set forth in requirement (1) at the be- 4. A member of the family of any of the indi- ginning of the discussion of Section 509(a)(3) See also the rules considered under the Organ- viduals just listed. izational test, in the later discussion for organi- Organizations. Therefore, an organization that 5. A corporation of which more than 35% of by the terms of its articles is formed for the ben- zations in Category two - Type III supporting or- ganizations.. the total combined voting power is owned efit of one or more specified publicly supported by persons just listed. organizations will, if it otherwise meets the other Operational test — permissible benefi- 6. A partnership of which more than 35% of requirements, be considered to have met the ciaries. A supporting organization must en- the profits interest is owned by persons organizational test. gage solely in activities that support or benefit described in (1), (2), (3), or (4). For example, articles stating that an organi- its specified supported organizations. These zation is formed to perform the publishing func- activities may include making payments to or 7. A trust, or estate, of which more than 35% tions of a specified university are enough to for the use of, or providing services or facilities of the beneficial interest is owned by per- comply with the organizational test. A Type I or for, individual members of the charitable class sons described in (1), (2), (3), or (4). Type II supporting organization meets these re- benefited by its supported organization(s). quirements if the purposes set forth in its arti- For example, a supporting organization may Remember, however, that foundation man- cles are similar to but no broader than the pur- make a payment indirectly through another un- agers and publicly supported organizations poses set forth in the articles of its controlling related organization to a member of a charitable aren't disqualified persons for purposes of this organizations. However, a Type I or Type II sup- class benefited by a specified publicly suppor- control requirement. porting organization that supports a publicly ted organization, but only if the payment is a If a person who is a disqualified person with supported section 501(c)(4), 501(c)(5), or grant to an individual rather than a grant to an respect to a supporting organization, such as a

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substantial contributor, is appointed or designa- tests, in addition to the organizational and op- test (discussed later) with respect to at ted as a foundation manager of the supporting erational tests applicable to all supporting or- least one beneficiary organization. organization by a supported organization to ganizations. Type III supporting organizations serve as its representative, that person is still a mustn't be controlled by disqualified persons If the remote possibility referred to in (2) disqualified person. (as described earlier), and may not receive con- comes to pass and the supporting organization An organization is considered controlled for tributions from certain controlling donors (see thereafter operates for the benefit of an organi- this purpose if the disqualified persons, by com- Contributions from controlling donors, later). In zation that isn't a publicly supported organiza- bining their votes or positions of authority, can addition, a Type III supporting organization may tion, it will no longer qualify under section require the organization to perform any act that not support any organization not organized in 509(a)(3). significantly affects its operations or can pre- the United States. Operational test. The operational rules de- vent the organization from performing the act. Functional Integration. A Type III support- scribed earlier for Type I and Type II supporting This includes, but isn't limited to, the right of any ing organization may be “functionally-integra- organizations apply as well to Type III support- substantial contributor or spouse to designate ted” or “non-functionally integrated” depending ing organizations (see Operational test - per- annually the recipients from among the suppor- on the manner in which it meets the integral part missible beneficiaries, and Operational test - ted organizations of the income from his or her test (see Integral part test - functionally-integra- permissible activities, earlier). In addition, a contribution. Except as explained under Proof ted, and Integral part test - non-functionally inte- Type III supporting organization must operate in of independent control, next, a supporting or- grated, later). Type III functionally-integrated a manner consistent with the requirements of ganization will be considered to be controlled supporting organizations are subject to fewer the responsiveness test and the integral part directly or indirectly by one or more disqualified restrictions and requirements than Type III test, discussed later. persons if the voting power of those persons is non-functionally integrated supporting organiza- 50% or more of the total voting power of the or- tions. In particular, distributions from private Responsiveness test. A Type III supporting ganization's governing body, or if one or more foundations to Type III non-functionally integra- organization must be responsive to the needs of those persons has the right to exercise veto ted supporting organizations aren't qualifying or demands of its supported organization(s). To power over the actions of the organization. distributions for purposes of satisfying a private meet this test, the supported organizations Thus, if the governing body of a foundation foundation's required annual distributions under must (1) elect one or more officers, directors, or is composed of five trustees, none of whom has section 4942, and may be taxable expenditures trustees; (2) have one or more officers, direc- a veto power over the actions of the foundation, under section 4945. and no more than two trustees are at any time tors, or trustees of the supported organiza- disqualified persons, the foundation isn't con- Organizational test. The organizational tion(s) serving simultaneously as officers, direc- sidered controlled directly or indirectly by one or test for a Type III supporting organization is tors, or trustees of the supporting organization; more disqualified persons by reason of this fact generally the same as for a Type I or Type II or (3) maintain a close and continuous working alone. However, all pertinent facts and circum- supporting organization (described earlier). relationship with the officers, directors, or trust- stances (including the nature, diversity, and in- However, Type III supporting organizations are ees of the supporting organization. In addition, come yield of an organization's holdings, the more limited regarding how their supported or- as a result of this representation or close work- length of time particular stocks, securities, or ganizations must be “specified” in their articles. ing relationship, the supported organization(s) other assets are retained, and its manner of ex- A Type III supporting organization's articles must have a significant voice in the investment ercising its voting rights with respect to stocks must specify its supported organization(s) by policies of the supporting organization, the tim- in which members of its governing body also name, or the organization must demonstrate ing of grants and the manner of making them, have some interest) are considered in determin- that the supporting organization and its suppor- the selection of recipients, and generally the ing whether a disqualified person does in fact ted organization(s) have a historic and continu- use of the income or assets of the supporting indirectly control an organization. ing relationship, because of which a substantial organization. identity of interests has developed between or Notification requirement. In each tax Proof of independent control. An organi- among the organizations. “Class or purpose” year, the Type III supporting organization zation is permitted to establish to the satisfac- designations don't satisfy the organizational test mustn'tify each supported organization of its tion of the IRS that disqualified persons don't di- for Type III supporting organizations. However, support and provide a copy of the supporting rectly or indirectly control it. For example, in the a Type III supporting organization's articles organization's most recently filed Form 990 or case of a religious organization operated in may: connection with a church, the fact that the ma- 990-EZ and copies of any amendments to its jority of the organization's governing body is 1. Permit a publicly supported organization articles, bylaws, or other governing documents. composed of lay persons who are substantial that is designated by class or purpose rather than by name to be substituted for Integral part test - functionally integra- contributors to the organization won't disqualify ted. A Type III supporting organization may the organization under section 509(a)(3) if a the publicly supported organization or or- ganizations designated by name in the ar- satisfy the integral part test as functionally-inte- representative of the church, such as a bishop grated in one of three ways: or other official, has control over the policies ticles, but only if the substitution is condi- and decisions of the organization. tioned upon the occurrence of an event 1. Engaging in activities substantially all of that is beyond the control of the supporting which directly further the exempt purposes Category two - Type III supporting organi- organization, such as loss of exemption, of its supported organization(s) and which, zations. This category includes organizations substantial failure or abandonment of op- but for the supporting organization's in- operated in connection with one or more organi- erations, or dissolution of the organization volvement, the supported organization zations described in section 509(a)(1) or 509(a) or organizations designated in the articles, would normally engage in; (2). 2. Permit the supporting organization to op- 2. Being the parent of, appointing a majority All supporting organizations must be re- erate for the benefit of an organization that of the directors or trustees of, and exercis- sponsive to the needs and demands of, and isn't a publicly supported organization, but ing a substantial degree of direction over must constitute an integral part of or maintain only if the supporting organization is cur- the policies, programs, and activities of its significant involvement in, their supported or- rently operating for the benefit of a publicly supported organizations; or ganizations. Type I and Type II supporting or- supported organization and the possibility ganizations are deemed to accomplish these of its operating for the benefit of other than 3. Supporting a governmental entity. responsiveness and integral part requirements a publicly supported organization is re- Direct furtherance activities. For purpo- by virtue of the control relationships discussed mote, or ses of the test in item (1), activities “directly fur- earlier. However, a Type III supporting organi- 3. Permit the supporting organization to vary ther” a supported organization's exempt purpo- zation isn't subject to the same level of control the amount of its support between differ- ses only if conducted by the supporting by its supported organization(s). Therefore, ent designated organizations, as long as it organization itself. Direct furtherance activities Type III supporting organizations must pass meets the requirements of the integral-part include holding title to and managing ex- separate responsiveness and integral part empt-use assets, but not fundraising or

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investing and managing non-exempt-use as- This provision allows separate charitable availed of to avoid classification as a private sets. Grantmaking may qualify as direct further- funds of certain noncharitable organiza- foundation. ance activities if the requirements of Regula- tions to be described in section 509(a)(3) 1. The supporting organization is operated to tions section 1.509(a)-4(i)(4)(ii)(D) are met. if the noncharitable organizations receive support or benefit several specified benefi- Integral part test - non-functionally inte- their support and otherwise operate in the ciary organizations. grated. A Type III supporting organization that manner specified by section 509(a)(2). doesn't satisfy the integral part test as function- 2. The beneficiary organization has a sub- ally-integrated will still qualify as a Type III Special rules of attribution. To determine stantial number of dues-paying members non-functionally integrated supporting organiza- whether an organization meets the who have an effective voice in the man- tion if it satisfies a distribution requirement and not-more-than-one-third support test in section agement of both the supporting and the an attentiveness requirement. Alternatively, cer- 509(a)(2), amounts received by the organiza- beneficiary organizations. tain trusts established before November 20, tion from an organization that seeks to be a sec- 3. The beneficiary organization is composed 1970 may qualify if they meet the requirements tion 509(a)(3) organization because of its sup- of several membership organizations, of Regulations section 1.509(a)-4(i)(5)(i)(9). port of the organization are deemed gross each of which has a substantial number of Distribution Requirement. A Type III investment income (rather than gifts or contribu- members, and the membership organiza- non-functionally integrated supporting organiza- tions) to the extent they are gross investment in- tions have an effective voice in the man- tion must distribute a certain amount annually to come of the distributing organization. (This rule agement of the supporting and beneficiary or for the benefit of its supported organiza- also applies to amounts received from a chari- organizations. tion(s). That amount is equal to the greater of table trust, corporation, fund, association, or 85% of the organization's adjusted net income similar organization that is required by its gov- 4. The beneficiary organization receives a and 3.5 percent of the fair market value of the erning instrument or otherwise to distribute, or substantial amount of support from the organization's non-exempt-use assets (with that normally does distribute, at least 25% of its general public, public charities, or govern- certain adjustments). See Regulations section adjusted net income to the organization, and mental grants. 1.509(a)-4(i)(5) and (8) for more information re- whose distribution normally comprises at least 5. The supporting organization uses its funds garding the distribution requirement and valua- 5% of its adjusted net income.) All income that to carry on a meaningful program of activi- tion of non-exempt-use assets. See Regula- is gross investment income of the distributing ties to support or benefit the beneficiary tions section 1.509(a)-4(i)(6) for more organization will be considered distributed first organization and, if the supporting organi- information regarding what distributions or ex- by that organization. If the supporting organiza- zation were a private foundation, this use penditures count towards the distribution re- tion makes distributions to more than one or- would be sufficient to avoid the imposition quirement. ganization, the amount of gross investment in- of the tax on failure to distribute income. Attentiveness Requirement. Each year, a come considered distributed will be prorated Type III non-functionally integrated supporting among the distributees. 6. The operations of the beneficiary and sup- organization must distribute one-third or more Also, treat amounts paid by an organization porting organizations are managed by dif- of the amount that it must distribute that year to to provide goods, services, or facilities for the ferent persons, and each organization per- one or more supported organizations that are direct benefit of an organization seeking section forms a different function. attentive to the operations of the supporting or- 509(a)(2) status (rather than for the direct bene- 7. The supporting organization isn't able to ganization and to which the supporting organi- fit of the general public) in the same manner as exercise substantial control or influence zation is responsive. A supported organization amounts received by the latter organization. over the beneficiary organization because is “attentive” for these purposes if the amount These amounts will be treated as gross invest- the beneficiary organization receives sup- received by the supported organization from the ment income to the extent they are gross in- port or holds assets that are disproportion- supporting organization: vestment income of the organization spending ately large in comparison with the support the amounts. An organization seeking section 1. Equals at least 10 percent of the suppor- received or assets held by the supporting 509(a)(2) status must file a separate statement ted organization's total support for the year organization. with its annual information return, Form 990 or in question; 990-EZ, listing all amounts received from sup- Effect on 509(a)(3) organizations. If a bene- 2. was necessary to avoid interruption of a porting organizations. ficiary organization fails to meet either of the particular function or activity of the suppor- support tests of section 509(a)(2) due to these ted organization; or Relationships created for avoidance purpo- provisions, and the beneficiary organization is ses. If a relationship between an organization 3. was, based on all facts and circumstances one for whose support the organization seeking seeking section 509(a)(3) status and an organi- (including evidence of actual attentive- section 509(a)(3) status is operated, then the zation seeking section 509(a)(2) status is estab- ness), a sufficient part of the supported or- supporting organization won't be considered to lished or used to avoid classification as a pri- ganization's total support to ensure atten- be operated exclusively to support or benefit vate foundation with respect to either tiveness. one or more section 509(a)(1) or 509(a)(2) or- organization, then the character and amount of ganizations and therefore wouldn't qualify for support received by the section 509(a)(3) or- Supporting other than section 501(c)(3) or- section 509(a)(3) status. ganization will be attributed to the section ganizations. An organization operated in con- 509(a)(2) organization for purposes of deter- junction with a social welfare organization, labor Request change in public charity classifica- mining whether the latter meets the support or agricultural organization, business league, tion. A section 501(c)(3) tax-exempt organiza- tests under section 509(a)(2). If this type of rela- chamber of commerce, or other organization tion seeking to change its public charity classifi- tionship is established or used between an or- described in section 501(c)(4), 501(c)(5), or cation from a section 509(a)(3) supporting ganization seeking 509(a)(3) status and two or 501(c)(6) may qualify as a supporting organiza- organization to a section 509(a)(1) or 509(a)(2) more organizations seeking 509(a)(2) status, tion under section 509(a)(3) and therefore not organization must file Form 8940, Request for the amount and character of support received be classified as a private foundation if both the Miscellaneous Determination. See the Instruc- by the former organization will be prorated following conditions are met. tions to Form 8940 for more information regard- among the latter organizations. ing supporting material and applicable user 1. The supporting organization must meet all In determining whether a relationship exists fees. the requirements previously specified (the between an organization seeking 509(a)(3) sta- organizational tests, the operational test, tus (supporting organization) and one or more For more information about applying for sec- and one of the relationship tests and not organizations seeking 509(a)(2) status (benefi- tion 501(c)(3) status see Life Cycle of a Private be controlled by disqualified persons). ciary organizations) for the purpose of avoiding Foundation at IRS.gov. 2. The section 501(c)(4), 501(c)(5), or 501(c) private foundation status, all pertinent facts and (6) organization would be described in circumstances will be taken into account. The Classification under section 509(a). If an or- section 509(a)(2) if it was a charitable or- following facts may be used as evidence that ganization is described in section 509(a)(1), ganization described in section 501(c)(3). such a relationship wasn't established or and is also described in either Section 509(a)(2)

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or Section 509(a)(3), it will be treated as a sec- Section 509(a)(4) Organizations 2. Stock of a corporation that is controlled by tion 509(a)(1) organization. The organization the foundation (by ownership of at least should file Form 8940, Request for Miscellane- Section 509(a)(4) excludes from classification 80% of the total voting power of all classes ous Determination, if it wishes to receive a letter as private foundations those organizations that of stock entitled to vote and at least 80% showing a change in classification. qualify under section 501(c)(3) as organized of the total shares of all other classes of and operated for the purpose of testing prod- stock) and substantially all (at least 85%) Reliance by grantors and contributors. ucts for public safety. Generally, these organi- the assets of which are devoted as provi- Once an organization has received a ruling or zations test consumer products to determine ded above, or determination letter classifying it as an organi- their acceptability for use by the general public. 3. Any combination of (1) and (2). zation described in Section 509(a)(1), Section 509(a)(2), or Section 509(a)(3), the treatment of Loss of Qualification as Public This test is intended to apply to organizations grants and contributions and the status of gran- Charity such as museums and libraries. tors and contributors to the organization will Support test. A private foundation will generally not be affected by reason of a later If your organization ceases to qualify as a public meet the support test if: revocation by the IRS of the organization's clas- charity under section 509(a)(1) – (4), it be- sification until the date on which notice of comes a private foundation. The organization 1. Substantially all (at least 85%) of its sup- change of status is made to the public (gener- must file Form 990-PF, Return of Private Foun- port (other than gross investment income) ally by publication in the Internal Revenue Bul- dation or Section 4947(a)(1) Trust Treated as a is normally received from the general pub- letin) or another applicable date, if any, speci- Private Foundation to satisfy its filing obligation. lic and five or more unrelated exempt or- fied in the public notice. In appropriate cases, The organization can no longer file Form 990, ganizations, however, the treatment of grants and contribu- 990-EZ or 990-N. A private foundation retains 2. Not more than 25% of its support (other tions and the status of grantors and contributors that status unless or until it terminates its private than gross investment income) is normally to an organization described in Section 509(a) foundation status under section 507. (1), Section 509(a)(2), or Section 509(a)(3) may received from any one exempt organiza- be affected pending verification of the contin- tion, and ued classification of the organization. Notice to Private Operating 3. Not more than 50% of its support is nor- this effect will be made in a public announce- Foundations mally received from gross investment in- ment by the IRS. In these cases, the effect of come. grants and contributions made after the date of Private foundations are divided into 2 catego- the announcement will depend on the statutory This test is intended to apply to special-purpose ries -- nonoperating private foundations and pri- qualification of the organization as an organiza- foundations, such as learned societies and as- vate operating foundations. Nonoperating foun- tion described in sociations of libraries. Section 509(a)(1), Section dations generally accomplish their charitable 509(a)(2), or Section 509(a)(3). purpose by making grants to other charities. Endowment test. A foundation will meet The preceding paragraph shall not ap- Operating foundations make qualifying distribu- the endowment test if it normally makes qualify- ! ply if the grantor or contributor: tions directly for the active conduct of their edu- ing distributions directly for the active conduct CAUTION cational, charitable, and religious purposes. of its exempt function of at least two-thirds of its 1. Had knowledge of the revocation of the minimum investment return. ruling or determination letter classifying Most of the restrictions and requirements The minimum investment return for any pri- the organization as an organization descri- that apply to private foundations also apply to vate foundation for any tax year is 5% of the ex- bed in section 509(a)(1), 509(a)(2), or private operating foundations. However, there cess of the total fair market value of all assets of 509(a)(3), or are advantages to being classified as a private the foundation (other than those used directly in operating foundation. For example, a private the active conduct of its exempt purpose) over 2. Was in part responsible for, or was aware operating foundation (as compared to a private the amount of indebtedness incurred to acquire of, the act, the failure to act, or the sub- foundation) can be the recipient of grants from a those assets. stantial and material change on the part of private foundation without having to distribute In determining whether the amount of quali- the organization that gave rise to the revo- the funds received currently within 1 year, and fying distributions is at least two-thirds of the or- cation. the funds nevertheless may be treated as quali- ganization's minimum investment return, the or- fying distributions by the donating private foun- ganization isn't required to trace the source of dation; charitable contributions to a private op- the expenditures to determine whether they Interim guidance for supporting organiza- erating foundation qualify for a higher charitable were derived from investment income or from tions and grantors. Notice 2014-4 provides deduction limit on the donor's tax return; and contributions. further interim guidance for section 509(a)(3) the excise tax on net investment income doesn't This test is intended to apply to organiza- supporting organizations and their grantors apply to an exempt operating foundation (a pri- tions such as research organizations that ac- about the application of certain requirements vate operating foundation that meets certain ad- tively conduct charitable activities but whose enacted as part of the Pension Protection Act of ditional requirements - see Exempt operating personal services are so great in relationship to 2006. The notice provides transitional rules for foundations, later). charitable assets that the cost of those services Type III supporting organizations that want to can't be met out of small endowments. qualify as “functionally integrated” because they A private operating foundation is any private support governmental entities. The notice also foundation that meets the assets test, the sup- Exempt operating foundations. The ex- provides additional interim guidance for private port test, or the endowment test, and makes cise tax on net investment income doesn't apply foundations and sponsoring organizations that qualifying distributions directly, for the active to an exempt operating foundation. An exempt maintain donor-advised funds on the proce- conduct of its activities for which it was organ- operating foundation for the tax year is any pri- dures to be followed in determining whether a ized, of substantially all (85% or more) of the vate foundation that: potential grantee is a Type I, Type II or function- lesser of its: 1. Is an operating foundation, as described ally integrated Type III supporting organization. previously, See Notice 2014–4, 2014-2 I.R.B. 274 (exten- 1. Adjusted net income, or ded as described in the preamble to the 2015 fi- 2. Minimum investment return. 2. Has been publicly supported for at least nal regulations regarding the distribution re- 10 tax years or was an operating founda- quirement for non-functionally integrated Type Assets test. A private foundation will meet tion on January 1, 1983, or for its last tax III supporting organizations (T.D. 9746)). the assets test if substantially more than half year ending before January 1, 1983, (65% or more) of its assets are: 3. Has a governing body that, at all times 1. Devoted directly to the active conduct of during the tax year, is broadly representa- its exempt activity, to a functionally related tive of the general public and consists of business, or to a combination of the two,

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individuals no more than 25% of whom are 2. Examining and discussing broad social, 3. $175,000 plus 10% of the excess of the disqualified individuals, and economic, and similar problems. exempt purpose expenditures over $1,000,000 if the exempt purpose expen- 4. Doesn't have any officer, at any time dur- 3. Providing technical advice or assistance ditures are over $1,000,000 but not over ing the tax year, who is a disqualified indi- (where the advice would otherwise consti- $1,500,000, or vidual. tute the influencing of legislation) to a gov- ernmental body or to a committee or other 4. $225,000 plus 5% of the excess of the ex- The foundation must obtain a determination let- subdivision thereof in response to a writ- empt purpose expenditures over ter from the IRS recognizing this special status ten request by that body or subdivision. $1,500,000 if the exempt purpose expen- (see Existing organization, later). ditures are over $1,500,000. 4. Appearing before, or communicating with, New organization. If you are applying for rec- any legislative body about a possible deci- The term exempt purpose expenditures ognition of exemption as an organization descri- sion of that body that might affect the exis- means the total of the amounts paid or incurred bed in section 501(c)(3) and you wish to estab- tence of the organization, its powers and (including depreciation and amortization, but lish that your organization is a private operating duties, its tax-exempt status, or the deduc- not capital expenditures) by an organization for foundation, you should complete Part X of your tion of contributions to the organization. the tax year to accomplish its exempt purposes. exemption application (Form 1023). 5. Communicating with a government official In addition, it includes: Existing organization. If you are an exist- or employee, other than: 1. Administrative expenses paid or incurred ing organization seeking reclassification as a for the organization's exempt purposes, private operating foundation or as an exempt a. A communication with a member or and operating foundation, you must file Form 8940, employee of a legislative body (when Request for Miscellaneous Determination. the communication would otherwise 2. Amounts paid or incurred for the purpose constitute the influencing of legisla- of influencing legislation, whether or not tion), or the legislation promotes the organization's Lobbying Expenditures b. A communication with the principal exempt purposes. purpose of influencing legislation. Exempt purpose expenditures don't include In general, if a substantial part of the activities amounts paid or incurred to or for: of your organization consists of carrying on Also excluded are communications between an propaganda or otherwise attempting to influ- organization and its bona fide members about 1. A separate fundraising unit of the organi- ence legislation, your organization's exemption legislation or proposed legislation of direct inter- zation, or est to the organization and the members, un- from federal income tax will be denied. How- 2. One or more other organizations, if the ever, a public charity (other than a church, an less these communications directly encourage the members to attempt to influence legislation amounts are paid or incurred primarily for integrated auxiliary of a church or of a conven- fundraising. tion or association of churches, or a member of or directly encourage the members to urge non- an affiliated group of organizations that includes members to attempt to influence legislation, as Grass roots nontaxable amount. The a church, etc.) may avoid this result. Such a explained earlier. grass roots nontaxable amount for any organi- charity can elect to replace the substantial part zation for any tax year is 25% of the lobbying of activities test with a limit defined in terms of Lobbying expenditures limits. If a public nontaxable amount for the organization for that expenditures for influencing legislation. Private charitable organization makes the election to be tax year. foundations can't make this election. subject to the lobbying expenditures limits rules (instead of the substantial part of activities test), Years for which election is effective. Once Making the election. Use Form 5768, Elec- it won't lose its tax-exempt status under section an organization elects to come under these pro- tion/Revocation of Election by an Eligible Sec- 501(c)(3), unless it normally makes: visions, the election will be in effect for all tax tion 501(c)(3) Organization To Make Expendi- • Lobbying expenditures that are more than years that end after the date of the election and tures To Influence Legislation, to make the 150% of the lobbying nontaxable amount begin before the organization revokes this elec- election. The form must be signed and post- for the organization for each tax year, or tion. marked within the first tax year to which it ap- • Grass roots expenditures that are more plies. If the form is used to revoke the election, than 150% of the grass roots nontaxable Note. These elective provisions for lobby- it must be signed and postmarked before the amount for the organization for each tax ing activities by public charities don't apply to a first day of the tax year to which it applies. year. church, an integrated auxiliary of a church or of Eligible section 501(c)(3) organizations that See Tax on excess expenditures to influence a convention or association of churches, or a have made the election to be subject to the lim- legislation, later, in this section. member of an affiliated group of organizations its on lobbying expenditures must use Part II-A that includes a church, etc., or a private founda- of Schedule C (Form 990 or 990-EZ) to figure Lobbying expenditures. These are any tion. Moreover, these provisions won't apply to these limits. expenditures that are made for the purpose of any organization for which an election isn't in ef- attempting to influence legislation, as discussed fect. Attempting to influence legislation. At- earlier under Attempting to influence legislation. Expenditures of affiliated organizations. If tempting to influence legislation, for this pur- Grass roots expenditures. This term re- two or more section 501(c)(3) organizations are pose, means: fers only to those lobbying expenditures that members of an affiliated group of organizations are made to influence legislation by attempting 1. Any attempt to influence any legislation and at least one of these organizations has to affect the opinions of the general public or through an effort to affect the opinions of made the election regarding the treatment of any segment thereof. the general public or any segment thereof certain lobbying expenditures, then the determi- (grass roots lobbying), and Lobbying nontaxable amount. The lob- nation as to whether excess lobbying expendi- 2. Any attempt to influence any legislation bying nontaxable amount for any organization tures has been made and the determination as through communication with any member for any tax year is the lesser of $1,000,000 or: to whether the expenditure limits, described or employee of a legislative body or with earlier, has been exceeded by more than 150% any government official or employee who 1. 20% of the exempt purpose expenditures will be made as though the affiliated group is may participate in the formulation of legis- if the exempt purpose expenditures aren't one organization. over $500,000, lation (direct lobbying). If the group has excess lobbying expendi- 2. $100,000 plus 15% of the excess of the tures, each organization for which the election However, the term attempting to influence legis- exempt purpose expenditures over is effective for the year will be treated as an or- lation doesn't include the following activities. $500,000 if the exempt purpose expendi- ganization that has excess lobbying expendi- 1. Making available the results of nonparti- tures are over $500,000 but not over tures in an amount that equals the organiza- san analysis, study, or research. $1,000,000, tion's proportionate share of the group's excess

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lobbying expenditures. Further, if the expendi- expenditures. The tax doesn't apply to private der section 501(c)(3) because of lobbying activ- ture limits described in this section are excee- foundations. Also, the tax doesn't apply to or- ities or participation or intervention in a political ded by more than 150%, each organization for ganizations that have elected the lobbying limits campaign on behalf of or in opposition to a can- which the election is effective for that year will of section 501(h) or to churches or church-rela- didate for public office. If this happens to an or- lose its tax-exempt status under section 501(c) ted organizations that can't elect these limits. ganization, it can't later qualify for exemption (3). This tax must be paid by the organization. under section 501(c)(4). Two organizations will be considered mem- Tax on managers. Managers may also be bers of an affiliated group of organizations if: liable for a 5% tax on the lobbying expenditures 1. The governing instrument of one of the or- that result in the disqualification of the organiza- ganizations requires it to be bound by de- tion. For the tax to apply, a manager would cisions of the other organization on legis- have to agree to the expenditures knowing that lative issues, or the expenditures were likely to result in the or- ganization's not being described in section 4. 2. The governing board of one of the organi- 501(c)(3). No tax will be imposed if the manag- zations includes persons who: er's agreement isn't willful and is due to reason- a. Are specifically designated represen- able cause. tatives of the other organization or are Other Section members of the governing board, offi- Excise taxes on political expenditures. The cers, or paid executive staff members law imposes an excise tax on the political ex- 501(c) of the other organization, and penditures of section 501(c)(3) organizations. A two-tier tax is imposed on both the organiza- b. Have enough voting power to cause tions and the managers of those organizations. Organizations or prevent action on legislative issues by the controlled organization by com- Taxes on organizations. An initial tax of bining their votes. 10% of certain political expenditures is imposed on a charitable organization. A second tax of Introduction Tax on excess expenditures to influence 100% of the expenditure is imposed if the politi- This chapter contains specific information for legislation. If an election for a tax year is in ef- cal expenditure that resulted in the imposition of certain organizations described in section fect for an organization and that organization the initial (first-tier) tax isn't corrected within a 501(c), other than those organizations that are exceeds the lobbying expenditures limits, an specified period. These taxes must be paid by described in section 501(c)(3). Section 501(c) excise tax of 25% of the excess lobbying ex- the organization. (3) organizations are covered in chapter 3 of penditures for the tax year will be imposed. Ex- 1 this publication. cess lobbying expenditures for a tax year, in Taxes on managers. An initial tax of 2 /2% The Table of Contents at the beginning of this case, means the greater of: of the amount of certain political expenditures (up to $5,000 for each expenditure) is imposed this publication, as well as the Organization 1. The amount by which the lobbying expen- on a manager of an organization who agrees to Reference Chart, may help you locate at a ditures made by the organization during such expenditures knowing that they are politi- glance the type of organization discussed in this the tax year are more than the lobbying cal expenditures. No tax will be imposed if the chapter. nontaxable amount for the organization for manager's agreement wasn't willful and was that tax year, or due to reasonable cause. A second tax of 50% 2. The amount by which the grass roots ex- of the expenditures (up to $10,000 for each ex- 501(c)(4) - Civic Leagues penditures made by the organization dur- penditure) is imposed on a manager if he or she ing the tax year are more than the grass refuses to agree to a correction of the expendi- and Social Welfare roots nontaxable amount for the organiza- tures that resulted in the imposition of the initial tion for that tax year. (first-tier) tax. For purposes of these taxes, an Organizations organization manager is generally an officer, di- Eligible organizations that have made the elec- rector, trustee, or any employee having author- If your organization isn't organized for profit and tion to be subject to the limits on lobbying ex- ity or responsibility concerning the organiza- will be operated primarily to promote social wel- penditures and that owe the tax on excess lob- tion's political expenditures. These taxes must fare to benefit the community, it may qualify for bying expenditures (as computed in Part II-A of be paid by the manager of the organization. exemption under section 501(c)(4). Schedule C (Form 990)) must file Form 4720 to report and pay the tax. Political expenditures. Generally, political Notice requirement. Every new section expenditures that will trigger these taxes are 501(c)(4) organization must use Form 8976, Organization that no longer qualifies. An amounts paid or incurred by a section 501(c)(3) Notice of Intent to Operate Under Section organization that no longer qualifies for exemp- organization in any participation or intervention 501(c)(4), to provide notice to the Internal Rev- tion under section 501(c)(3) because of sub- in any political campaign for or against any can- enue Service. The organization must file Form stantial lobbying activities won't at any time didate for public office. Political expenditures in- 8976 within 60 days of establishment. Providing thereafter be treated as an organization descri- clude publication or distribution of statements notice on Form 8976 is not a determination that bed in section 501(c)(4). This provision, how- for these purposes. Political expenditures also the IRS recognizes your organization as exempt ever, doesn't apply to certain organizations include certain expenditures by organizations under section 501(c)(4). (churches, etc.) that can't make the election dis- that are formed primarily to promote the candi- cussed earlier. dacy (or prospective candidacy) of an individual Optional application for recognition of ex- for public office and by organizations that are emption. Your organization may (but is not re- Tax on disqualifying lobbying expendi- effectively controlled by a candidate and are quired to) file Form 1024-A, Application for Rec- tures. The law imposes a tax on certain organi- used primarily to promote that candidate. ognition of Exemption under Section 501(c)(4), zations if they no longer qualify under section to apply for recognition of exemption from fed- 501(c)(3) by reason of having made disqualify- Correction of expenditure. A correction of eral income tax under section 501(c)(4). The ing lobbying expenditures. An additional tax a political expenditure is the recovery, if possi- discussion that follows describes the informa- may be imposed on the managers of those or- ble, of all or part of the expenditure and the es- tion you must provide when applying. For appli- ganizations. tablishment of safeguards to prevent future po- litical expenditures. cation procedures, see chapter 1. Tax on organization. Organizations that To qualify for exemption under section lose their exemption under section 501(c)(3) Status after loss of exemption for lobbying 501(c)(4), no part of the organization's net earn- due to lobbying activities generally will be sub- or political activities. As explained earlier, an ings can inure to the benefit of any private ject to an excise tax of 5% of the lobbying organization can lose its tax-exempt status un- shareholder or individual. If the organization

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provides an excess benefit to certain persons, Tax treatment of donations. Donations to Other organizations. Other nonprofit organi- an excise tax may be imposed. See Excise tax volunteer fire companies are deductible on the zations that qualify as social welfare organiza- on excess benefit transactions, under Excess donor's federal income tax return, but only if tions include: Benefit Transactions in chapter 5 for more infor- made for exclusively public purposes. However, • An organization operating an airport that is mation about this tax. contributions to civic leagues or other section on land owned by a local government, 501(c)(4) organizations generally aren't deduc- which supervises the airport's operation, Examples. Types of organizations that are tible as charitable contributions for federal in- and that serves the general public in an considered to be social welfare organizations come tax purposes. They may be deductible as area with no other airport, are civic associations and volunteer fire compa- trade or business expenses, if ordinary and • A community association that works to im- nies. necessary in the conduct of the taxpayer's busi- prove public services, housing, and resi- ness. However, see Deduction not allowed for dential parking; publishes a free commun- Nonprofit operation. You must submit evi- dues used for political or legislative activities, ity newspaper; sponsors a community dence that your organization is organized and under 501(c)(6) - Business Leagues, etc. for sports league, holiday programs, and will be operated on a nonprofit basis. However, more information. meetings; and contracts with a private se- such evidence, including the fact that your or- curity service to patrol the community, ganization is organized under a state law relat- For more information on social welfare or- • A community association devoted to pre- ing to nonprofit corporations, won't in itself es- ganizations, see Life Cycle of a Social Welfare serving the community's traditions, archi- tablish a social welfare purpose. Organization. tecture, and appearance by representing it before the local legislature and administra- Social welfare. To establish that your organi- Specific Organizations tive agencies in zoning, traffic, and parking zation is operated primarily to promote social matters, welfare, you should submit evidence with your The following information should be contained • An organization that tries to encourage in- application showing that your organization will in the application form and accompanying dustrial development and relieve unem- operate primarily to further (in some way) the statements of certain types of civic leagues or ployment in an area by making loans to common good and general welfare of the peo- social welfare organizations. businesses so they will relocate to the ple of the community (such as by bringing about area, and civic betterment and social improvements). Volunteer fire companies. If your organiza- • An organization that holds an annual festi- An organization that restricts the use of its tion wishes to obtain exemption as a volunteer val of regional customs and traditions. facilities to employees of selected corporations fire company or similar organization, you should and their guests is primarily benefiting a private submit evidence that its members are actively group rather than the community. It therefore engaged in firefighting and similar disaster as- 501(c)(5) - Labor, doesn't qualify as a section 501(c)(4) organiza- sistance, whether it actually owns the firefight- tion. Similarly, an organization formed to repre- ing equipment, and whether it provides any as- Agricultural and sent member-tenants of an apartment complex sistance for its members, such as death and doesn't qualify, since its activities benefit the medical benefits in case of injury to them. Horticultural member-tenants and not all tenants in the com- If your organization doesn't have an inde- Organizations munity. However, an organization formed to pendent social purpose, such as providing rec- promote the legal rights of all tenants in a partic- reational facilities for members, it may be ex- If you are a member of an organization that ular community may qualify under section empt under section 501(c)(3). In this event, wants to obtain recognition of exemption from 501(c)(4) as a social welfare organization. your organization should file Form 1023. federal income tax as a labor, agricultural, or horticultural organization, you should submit an Political activity. Promoting social welfare Homeowners' associations. A membership application on Form 1024. You must indicate in doesn't include direct or indirect participation or organization formed by a real estate developer your application for exemption and accompany- intervention in political campaigns on behalf of to own and maintain common green areas, ing statements that no part of the organization's or in opposition to any candidate for public of- streets, and sidewalks and to enforce cove- net earnings will inure to the benefit of any fice. However, if you submit proof that your or- nants to preserve the appearance of the devel- member. In addition, you should follow the pro- ganization is organized primarily to promote so- opment should show that it is operated for the cedure for obtaining recognition of exempt sta- cial welfare, it can obtain exemption even if it benefit of all the residents of the community. tus described in chapter 1. Submit any addi- participates legally in some political activity on The term community generally refers to a geo- tional information that may be required, as behalf of or in opposition to candidates for pub- graphical unit recognizable as a governmental described in this section. lic office. See the discussion in chapter 2 under subdivision, unit, or district thereof. Whether a Political Organization Income Tax Return. particular association meets the requirement of Tax treatment of donations. Contributions to benefiting a community depends on the facts labor, agricultural, and horticultural organiza- Social or recreational activity. If social activi- and circumstances of each case. Even if an tions aren't deductible as charitable contribu- ties will be the primary purpose of your organi- area represented by an association isn't a com- tions on the donor's federal income tax return. zation, you shouldn't file an application for ex- munity, the association can still qualify for ex- However, such payments may be deductible as emption as a social welfare organization but emption if its activities benefit a community. business expenses if they are ordinary and nec- you may qualify for exemption as a social club The association should submit evidence that essary in the conduct of the taxpayer's trade or described in section 501(c)(7). areas such as roadways and park land that it business. For more information about certain owns and maintains are open to the general limits affecting the deductibility of these busi- Retirement benefit program. An organization public and not just its own members. It also ness expenses, see Deduction not allowed for established by its members that has as its pri- must show that it doesn't engage in exterior dues used for political or legislative activities, mary activity providing supplemental retirement maintenance of private homes. under 501(c)(6) - Business Leagues, etc. benefits to its members or death benefits to A homeowners' association that isn't exempt their beneficiaries doesn't qualify as an exempt under section 501(c)(4) and that is a condomin- social welfare organization. It may qualify under Labor Organizations ium management association, a residential real another paragraph of section 501(c) depending estate management association, or a timeshare on all the facts. A labor organization is an association of work- association generally can elect under the provi- ers who have combined to protect and promote However, a nonprofit association that is es- sions of section 528 to receive certain tax bene- the interests of the members by bargaining col- tablished, maintained, and funded by a local fits that, in effect, permit it to exclude its exempt lectively with their employers to secure better government to provide the only retirement ben- function income from its gross income. efits to a class of employees may qualify as a working conditions, wages, and similar benefits. social welfare organization under section 501(c) To show that your organization has the pur- (4). pose of a labor organization, you should include

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in your organizing document or accompanying or horticulture, develop more efficiency in agri- ness. For example, a nonprofit organization statements (submitted with your exemption ap- culture or horticulture, or improve the products. formed to regulate the sale of a specified agri- plication) information establishing that the or- cultural commodity to assure equal treatment of ganization is organized to better the conditions The following list contains some examples producers, warehouse workers, and buyers is a of workers, improve the grade of their products, of activities that show an agricultural or horticul- board of trade. and develop a higher degree of efficiency in tural purpose. Chambers of commerce and boards of trade their respective occupations. In addition, no net 1. Promoting various cooperative agricul- usually promote the common economic inter- earnings of the organization can inure to the tural, horticultural, and civic activities ests of all the commercial enterprises in a given benefit of any member. among rural residents by a state, farm, or trade community. home bureau. Composition of membership. While a labor Real estate board. A real estate board con- organization generally is composed of employ- 2. Exhibiting livestock, farm products, and sists of members interested in improving the ees or representatives of the employees (in the other characteristic features of agriculture business conditions in the real estate field. It form of collective bargaining agents) and similar and horticulture. isn't organized for profit and no part of the net employee groups, evidence that an organiza- 3. Testing soil for members and nonmem- earnings inures to the benefit of any private tion's membership consists mainly of workers bers of the farm bureau on a , shareholder or individual. doesn't in itself indicate an exempt purpose. the results of the tests and other recom- You must show in your application that your or- mendations being furnished to the com- Professional football leagues. The Internal ganization has the purposes described in the munity members to educate them in soil Revenue Code specifically defines professional preceding paragraph. These purposes can be treatment. football leagues as exempt organizations under accomplished by a single labor organization section 501(c)(6). They are exempt whether or acting alone or by several organizations acting 4. Guarding the purity of a specific breed of not they administer a pension fund for football together through a separate organization. livestock. players. 5. Encouraging improvements in the produc- Benefits to members. The payment by a la- tion of fish on privately owned fish farms. General purpose. You must indicate in the bor organization of death, sick, accident, and material submitted with your application that similar benefits to its individual members with 6. Negotiating with processors for the price your organization will be devoted to the im- funds contributed by its members, if made un- to be paid to members for their crops. provement of business conditions of one or der a plan to better the conditions of the mem- more lines of business as distinguished from For more information on agricultural or horti- bers, doesn't preclude exemption as a labor or- the performance of particular services for indi- cultural organizations, see Life Cycle of an ganization. However, an organization doesn't vidual persons. It must be shown that the condi- Agricultural or Horticultural Organization. qualify for exemption as a labor organization if tions of a particular trade or the interests of the its primary activity is to provide a strike fund that community will be advanced. Merely indicating is controlled by private individuals who control- the name of the organization or the object of the led the organization that paid benefits to work- 501(c)(6) - local statute under which it is created isn't ers. Business Leagues, etc. enough to demonstrate the required general For more information on labor organizations, purpose. see Life Cycle of a Labor Organization. If your organization wants to apply for recogni- Line of business. This term generally re- tion of exemption from federal income tax as a fers either to an entire industry or to all compo- Agricultural and nonprofit business league, chamber of com- nents of an industry within a geographic area. It Horticultural Organizations merce, real estate board, or board of trade, it doesn't include a group composed of busi- should file Form 1024. For a discussion of the nesses that market a particular brand within an procedure to follow, see chapter 1. Agricultural and horticultural organizations are industry. connected with raising livestock, cultivating Your organization must indicate in its appli- Common business interest. A common busi- land, raising and harvesting crops or aquatic re- cation form and attached statements that no ness interest of all members of the organization sources, cultivating useful or ornamental plants, part of its net earnings will inure to the benefit of must be established by the application docu- and similar pursuits. any private shareholder or individual and that it ments. isn't organized for profit or organized to engage For the purpose of these provisions, aquatic in an activity ordinarily carried on for profit (even Examples. Activities that would tend to il- resources include only animal or vegetable life, if the business is operated on a cooperative ba- lustrate a common business interest are: but not mineral resources. The term harvesting, sis or produces only sufficient income to be in this case, includes fishing and related pur- self-sustaining). 1. Promotion of higher business standards suits. and better business methods and encour- In addition, your organization must be pri- agement of uniformity and cooperation by Agricultural organizations are often de- marily engaged in activities or functions that are a retail merchants association, signed to encourage the development of better the basis for its exemption. It must be primarily 2. Education of the public in the use of credit, agricultural and horticultural products through a supported by membership dues and other in- system of awards, using income from entry come from activities substantially related to its 3. Establishment of uniform casualty rates fees, gate receipts, and donations to meet the exempt purpose. and compilation of statistical information necessary expenses of upkeep and operation. by an insurance rating bureau operated by When the activities are directed toward the im- A business league, in general, is an associa- companies, provement of marketing or other business con- tion of persons having some common business ditions in one or more lines of business, rather interest, the purpose of which is to promote that 4. Establishment and maintenance of the in- than the improvement of production techniques common interest and not to engage in a regular tegrity of a local commercial market, or the betterment of the conditions of persons business of a kind ordinarily carried on for profit. 5. Operation of a trade publication primarily engaged in agriculture, the organization must Trade associations and professional associa- intended to benefit an entire industry, and qualify for exemption as a business league, tions are considered business leagues. board of trade, or other organization, as dis- 6. Encouragement of the use of goods and cussed next in the section on 501(c)(6) organi- Chamber of commerce. A chamber of com- services of an entire industry (such as a zations. merce usually is composed of the merchants lawyer referral service whose main pur- and traders of a city. pose is to introduce individuals to the use The primary purpose of exempt agricultural of the legal profession in the hope that and horticultural organizations must be to better Board of trade. A board of trade often con- they will enter into lawyer-client relation- the conditions of those engaged in agriculture sists of persons engaged in similar lines of busi- ships on a paying basis as a result).

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Improvement of business conditions. deductible as trade or business expenses if or- performance of a necessary administrative Generally, this must be shown to be the pur- dinary and necessary in the conduct of the tax- service. pose of the organization. This isn't established payer's business. by evidence of particular services that provide a For more information on business leagues, Purposes. To show that your organization convenience or economy to individual members see Life Cycle of a Business League (Trade possesses the characteristics of a club within in their businesses, such as advertising that Association) on IRS.gov. the meaning of the exemption law, you should carries the name of members, interest-free submit evidence with your application that per- loans, assigning exclusive franchise areas, op- sonal contact, commingling, and fellowship ex- eration of a real estate multiple listing system, 501(c)(7) - Social and ist among members. You must show that mem- or operation of a credit reporting agency. bers are bound together by a common objective Recreation Clubs of pleasure, recreation, and other nonprofitable Stock or commodity exchange. A stock or purposes. commodity exchange isn't a business league, If your club is organized for pleasure, recrea- Fellowship need not be present between chamber of commerce, real estate board, or tion, and other similar nonprofitable purposes each member and every other member of a board of trade and isn't exempt under section and substantially all of its activities are for these club if it is a material part in the life of the organ- 501(c)(6). purposes, it should file Form 1024 to apply for ization. A statewide or nationwide organization recognition of exemption from federal income that is made up of individual members, but is Legislative activity. An organization that is tax. divided into local groups, satisfies this require- exempt under section 501(c)(6) can work for ment if fellowship is a material part of the life of the enactment of laws to advance the common In applying for recognition of exemption, you each local group. should submit the information described in this business interests of the organization's mem- The term other nonprofitable purposes section. Also see chapter 1 for the procedures bers. means other purposes similar to pleasure and to follow. recreation. For example, a club that, in addition Deduction not allowed for dues used for Typical organizations that should file for rec- to its social activities, has a plan for the pay- political or legislative activities. A taxpayer ognition of exemption as social clubs include: ment of sick and death benefits isn't operating can't deduct the part of dues or other payments College alumni associations that aren't de- exclusively for pleasure, recreation, and other to a business league, trade association, labor • scribed in chapter 3 under Alumni associa- nonprofitable purposes. union, or similar organization that is reported to tion, the taxpayer by the organization as having been Limited membership. The membership in College fraternities or sororities operating used for any of the following activities. • a social club must be limited. To show that your chapter houses for students, organization has a purpose that would charac- 1. Influencing legislation. • Country clubs, terize it as a club, you should submit evidence Amateur hunting, fishing, tennis, swim- 2. Participating or intervening in a political • with your application that there are limits on ad- ming, and other sport clubs, campaign for, or against, any candidate mission to membership consistent with the Dinner clubs that provide a meeting place, for public office. • character of the club. library, and dining room for members, A social club that issues corporate member- 3. Trying to influence the general public, or • Hobby clubs, ship is dealing with the general public in the part of the general public, with respect to • Garden clubs, and form of the corporation's employees. Corporate elections, legislative matters, or referen- • Variety clubs. members of a club aren't the kind of members dums (also known as grass roots lobby- contemplated by the law. Gross receipts from ing). Discrimination prohibited. Your organization these members would be a factor in determin- won't be recognized as tax exempt if its charter, 4. Communicating directly with certain exec- ing whether the club qualifies as a social club. bylaws, or other governing instrument, or any utive branch officials to try to influence See Gross receipts from nonmembership sour- written policy statement provides for discrimina- their official actions or positions. ces, later. Bona fide individual memberships tion against any person on the basis of race, paid for by a corporation wouldn't have an effect See Dues Used for Lobbying or Political Activi- color, or religion. on the gross receipts source. ties under Required Disclosures in chapter 2 for However, a club that in good faith limits its The fact that a social club may have an as- more information. membership to the members of a particular reli- sociate (nonvoting) class of membership won't gion to further the teachings or principles of that De minimis exception. In-house expendi- be, in and of itself, a cause for nonrecognition of religion and not to exclude individuals of a par- exemption. However, if one membership class tures of $2,000 or less for the year for activities ticular race or color won't be considered as dis- (1) – (4) listed earlier won't prevent a deduction pays substantially lower dues and fees than an- criminating on the basis of religion. Also, the re- other membership class, although both classes for dues if the dues meet all other tests to be striction on religious discrimination doesn't deductible as a business expense. enjoy the same rights and privileges in using apply to a club that is an auxiliary of a fraternal the club facilities, there may be an inurement of Grass roots lobbying. A tax-exempt trade beneficiary society (discussed later) if that soci- income to the benefited class, resulting in a de- association, labor union, or similar organization ety is described in section 501(c)(8) and ex- nial of the club's exemption. is considered to be engaging in grass roots lob- empt from tax under section 501(a) and limits bying if it contacts prospective members or its membership to the members of a particular Support. In general, your club should be calls upon its own members to contact their em- religion. supported solely by membership fees, dues, ployees and customers for the purpose of urg- and assessments. However, if otherwise enti- ing such persons to communicate with their Private benefit prohibited. No part of the or- tled to exemption, your club won't be disquali- elected state or Congressional representatives ganization's net earnings can inure to the bene- fied because it raises revenue from members to support the promotion, defeat, or repeal of fit of any person having a personal and private through the use of club facilities or in connec- legislation that is of direct interest to the organi- interest in the activities of the organization. For tion with club activities. zation. Any dues or assessments directly rela- purposes of this requirement, it isn't necessary ted to such activities aren't deductible by the that net earnings be actually distributed. Even Business activities. If your club will engage in taxpayer, since the individuals being contacted, undistributed earnings can benefit members. business, such as selling real estate, timber, or who aren't members of the organization, are a Examples of this include a decrease in mem- other products or services, it generally will be segment of the general public. bership dues or an increase in the services the denied exemption. However, evidence submit- club provides to its members without a corre- ted with your application form that your organi- Tax treatment of donations. Contributions to sponding increase in dues or other fees paid for zation will provide meals, refreshments, or serv- organizations described in this section aren't club support. However, fixed-fee payments to ices related to its exempt purposes only to its deductible as charitable contributions on the members who bring new members into the club own members or their dependents or guests donor's federal income tax return. They may be aren't an inurement of the club's net earnings, if won't cause denial of exemption. the payments are reasonable compensation for

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Facilities open to public. Evidence that benefits are paid from contributions or dues your club's facilities will be open to the general paid by those members. public (persons other than members or their de- 501(c)(8) and 501(c) The benefits must be limited to members pendents or guests) may cause denial of ex- (10) - Fraternal and their dependents. If members will have the emption. This doesn't mean, however, that any ability to confer benefits to other than them- dealing with outsiders will automatically deprive Beneficiary Societies selves and their dependents, exemption won't a club of exemption. and Domestic Fraternal be recognized. Gross receipts from nonmembership Whole-life insurance. Whole-life insur- sources. A section 501(c)(7) organization can Societies ance constitutes a life benefit under section receive up to 35% of its gross receipts, includ- 501(c)(8) even though the policy may contain ing investment income, from sources outside of This section describes the information to be investment features such as a cash surrender its membership without losing its tax-exempt provided upon application for recognition of ex- value or a policy loan. status. Income from nontraditional business ac- emption by two types of fraternal societies: ben- tivity with members isn't exempt function in- eficiary and domestic. The major distinction is pool. Payments by a frater- come, and thus is included as income from that fraternal beneficiary societies provide for nal beneficiary society into a state-sponsored sources outside of the membership. Of the 35% the payment of life, sick, accident, or other ben- reinsurance pool that protects participating in- gross receipts listed above, up to 15% of the efits to their members or their dependents, surers against excessive losses on major medi- gross receipts can be derived from the use of while domestic fraternal societies don't provide cal health and accident insurance won't pre- the club's facilities or services by the general these benefits but rather devote their earnings clude exemption as a fraternal beneficiary public. If an organization has outside income to fraternal, religious, charitable, etc., purposes. society. that is more than these limits, all the facts and The procedures to follow in applying for recog- circumstances will be taken into account in de- nition of exemption are described in chapter 1. Domestic Fraternal Societies termining whether the organization qualifies for exempt status. If your organization is controlled by a central (501(c)(10)) organization, you should check with your con- Gross receipts. Gross receipts, for this trolling organization to determine whether your A domestic fraternal society, order, or associa- purpose, are receipts from the normal and usual unit has been included in a group exemption let- tion must file an application for recognition of (traditionally conducted) activities of the club. ter or can be added. If so, your organization exemption from federal income tax on Form These receipts include charges, admissions, need not apply for individual recognition of ex- 1024. The application and accompanying state- membership fees, dues, assessments, invest- emption. For more information, see Group Ex- ments should establish that the organization: ment income, and normal recurring capital emption Letter in chapter 1 of this publication. 1. Is a domestic fraternal organization organ- gains on investments. Receipts don't include in- ized in the U.S., itiation fees and capital contributions. Unusual Tax treatment of donations. Donations by an 2. Operates under the lodge system, amounts of income, such as from the sale of a individual to a domestic fraternal beneficiary so- clubhouse or similar facility, aren't included in ciety or a domestic fraternal society operating 3. Devotes its net earnings exclusively to reli- gross receipts or in figuring the percentage lim- under the lodge system are deductible as chari- gious, charitable, scientific, literary, educa- its. table contributions only if used exclusively for tional, and fraternal purposes, and religious, charitable, scientific, literary, or edu- Nontraditional activities. Activities con- 4. Doesn’t provide for the payment of life, cational purposes or for the prevention of cru- ducted by a social club need to further its ex- sick, accident, or other benefits to its elty to children or animals. empt purposes. Traditional business activities members. are those that further a social club's exempt purposes. Nontraditional business activities Fraternal Beneficiary The organization can arrange with insurance don't further the exempt purposes of a social Societies (501(c)(8)) companies to provide optional insurance to its club even if conducted solely on a membership members without jeopardizing its exempt sta- basis. Nontraditional business activities are pro- tus. hibited (subject to an insubstantial, trivial, and A fraternal beneficiary society, order, or associ- nonrecurrent test) for businesses conducted ation must file an application for recognition of with both members and nonmembers. Exam- exemption from federal income tax on Form 501(c)(4), 501(c)(9), and ples of nontraditional business activities include 1024. The application and accompanying state- sale of package liquor, take-out food, and ments should establish that the organization: 501(c)(17) - long-term room rental. 1. Is a fraternal organization, Employees' Fraternity foundations. If your organization is 2. Operates under the lodge system or for Associations a foundation formed for the exclusive purpose the exclusive benefit of the members of a of acquiring and leasing a chapter house to a fraternal organization itself operating un- This section describes the information to be local fraternity chapter or sorority chapter main- der the lodge system, and provided upon application for recognition of ex- tained at an educational institution and doesn't 3. Provides for the payment of life, sick, acci- emption by the following types of employees' engage in any social or recreational activities, it dent, or other benefits to the members of associations: may be a title holding corporation (discussed the society, order, or association or their 1. A voluntary employees' beneficiary asso- later under section 501(c)(2) organizations and dependents. ciation (including federal employees' asso- under section 501(c)(25) organizations) rather ciations) organized to pay life, sick, acci- than a social club. Lodge system. Operating under the lodge dent, and similar benefits to members or system means carrying on activities under a their dependents, or designated beneficia- Tax treatment of donations. Donations to ex- form of organization that comprises local ries, if no part of the net earnings of the as- empt social and recreation clubs aren't deducti- branches, chartered by a parent organization sociation inures to the benefit of any pri- ble as charitable contributions on the donor's and largely self-governing, called lodges, chap- vate shareholder or individual, and federal income tax return. ters, or the like. 2. A supplemental unemployment benefit Payment of benefits. It isn't essential that ev- trust whose primary purpose is providing ery member be covered by the society's pro- for payment of supplemental unemploy- gram of sick, accident, or death benefits. An or- ment benefits. ganization can qualify for exemption if most of Both the application form to file and the in- its members are eligible for benefits, and the formation to provide are discussed later under

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the section that describes your employee asso- Note. Under section 4976, the reversion of or hospital services, transportation furnished for ciation. Chapter 1 describes the procedures to funds from a section 501(c)(9) organization to medical care, or money payments. follow in applying for exemption. the employer who created the beneficiary asso- ciation may subject the employer to a 100% Nondiscrimination requirements. An organi- Tax treatment of donations. Donations to penalty excise tax on the amount of the rever- zation that is part of a plan won't be exempt un- these organizations aren't deductible as charita- sion. less the plan meets certain nondiscrimination ble contributions on the donor's federal income requirements. However, if the organization is tax return. Notice requirement. An organization won't be part of a plan that is a collective bargaining considered tax exempt under this section un- agreement that was the subject of good faith less the organization gives notice to the IRS bargaining between employee organizations Local Employees' that it is applying for recognition of exempt sta- and employers, the plan need not meet these Associations (501(c)(4)) tus. The organization gives notice by filing Form requirements for the organization to qualify as 1024. If the notice isn't given by 15 months after tax exempt. A local association of employees whose mem- the end of the month in which the organization A plan meets the nondiscrimination require- bership is limited to employees of a designated was created, the organization won't be exempt ments only if both of the following statements person or persons in a particular municipality, for any period before notice is given. An exten- are true. and whose income will be devoted exclusively sion of time for filing the notice can be granted to charitable, educational, or recreational pur- under the same procedures as those described 1. Each class of benefits under the plan is poses. A local employees' association must ap- for section 501(c)(3) organizations in chapter 3 provided under a classification of employ- ply for recognition of exemption by filing Form under Application for Recognition of Exemption. ees that is set forth in the plan and doesn't 1024-A. The organization must submit evidence discriminate in favor of employees who that: Membership. Membership of a section 501(c) are highly compensated individuals. (9) organization must consist of individuals who 1. It is of a purely local character, 2. The benefits provided under each class of are employees and have an employment-rela- benefits don't discriminate in favor of 2. Its membership is limited to employees of ted common bond. This common bond can be a highly compensated individuals. a designated person or persons in a par- common employer (or affiliated employers), ticular locality, and coverage under one or more collective bargain- A life insurance, disability, severance pay, or ing agreements, membership in a labor union, supplemental unemployment compensation 3. Its net earnings will be devoted exclusively or membership in one or more locals of a na- benefit doesn't discriminate in favor of highly to charitable, educational, or recreational tional or international labor union. compensated individuals merely because the purposes. The membership of an association can in- benefits available bear a uniform relationship to A local association of employees that has clude some individuals who aren't employees, the total compensation, or the basic or regular established a system of paying retirement or provided they have an employment-related rate of compensation, of employees covered by death benefits, or both, to its members won't bond with the employee-members. For exam- the plan. qualify for exemption since the payment of ple, the owner of a business whose employees If a plan provides a benefit for which there is these benefits isn't considered as being for are members of the association can be a mem- a nondiscrimination provision provided under charitable, educational, or recreational purpo- ber. An association will be considered com- Chapter 1 of the Internal Revenue Code as a ses. Similarly, a local association of employees posed of employees if 90% of its total member- condition of that benefit being excluded from that is operated primarily as a cooperative buy- ship on one day of each quarter of its tax year gross income, these nondiscrimination require- ing service for its members in order to obtain consists of employees. ments don't apply. The benefit will be consid- discount prices on merchandise, services, and ered nondiscriminatory only if it meets the non- activities doesn't qualify for exemption. Employees. Employees include individuals discrimination provision of the applicable Code who became entitled to membership because section. For example, benefits provided under a they are or were employees. For example, an medical reimbursement plan would meet the Voluntary Employees' individual will qualify as an employee even nondiscrimination requirements for an associa- Beneficiary Associations though the individual is on a leave of absence tion, if the benefits meet the nondiscrimination (501(c)(9)) or has been terminated due to retirement, disa- requirements of section 105(h)(3) and 105(h) bility, or layoff. (4). Generally, membership is voluntary if an af- An application for recognition of exemption as a firmative act is required on the part of an em- Excluded employees. Certain employees voluntary employees' beneficiary association ployee to become a member. Conversely, who aren't covered by a plan can be excluded must be filed on Form 1024. The material sub- membership is involuntary if the designation as from consideration in applying these require- mitted with the application must show that your a member is due to employee status. However, ments. These include employees: organization: an association will be considered voluntary if 1. Who haven't completed 3 years of service, 1. Is a voluntary association of employees, employees are required to be members of the organization as a condition of their employment 2. Who haven't attained age 21, 2. Will provide for payment of life, sick, acci- and they don't incur a detriment (such as a pay- dent, or other benefits to members or their 3. Who are seasonal or less than half-time roll deduction) as a result of their membership. employees, dependents or designated beneficiaries An employer has not imposed involuntary mem- and substantially all of its operations are bership on the employee if membership is re- 4. Who aren't in the plan and who are inclu- for this purpose, and quired as the result of a collective bargaining ded in a unit of employees covered by a 3. won't allow any of its net earnings to inure agreement or as an incident of membership in a collective bargaining agreement if the to the benefit of any private individual or labor organization. class of benefits involved was the subject shareholder except in the form of sched- of good faith bargaining, or uled benefit payments. Payment of benefits. The information submit- 5. Who are nonresident aliens and who re- ted with your application must show that your ceive no earned income from the em- To be complete, an application must include a organization will pay life, sick, accident, supple- ployer that has United States source in- copy of the document (such as the trust instru- mental unemployment, or other similar benefits. come. ment) by which the organization was created; a The benefits can be provided directly by your full description of the benefits available to par- association or indirectly by your association Highly compensated individual. A highly ticipants and the terms and conditions of eligi- through the payments of premiums to an insur- compensated individual is one who: bility for benefits (usually contained in a plan ance company (or fees to a medical clinic). 1. Owned 5 percent or more of the employer document); and, if providing benefits pursuant Benefits can be in the form of medical, clinical, to a collective bargaining agreement, a copy of at any time during the current year or the that agreement. preceding year,

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2. Received more than $120,000 in compen- Types of payments. You must show that the 1. Benevolent life insurance associations of a sation from the employer for the preceding supplemental unemployment compensation purely local character and like organiza- year (the amount is annualized for infla- benefits will be benefits paid to an employee tions. tion. Go to IRS.gov, and search “Pension because of the employee's involuntary separa- 2. Mutual ditch or irrigation companies and Plan Limitation” for the year), and tion from employment (whether or not the sepa- like organizations. ration is temporary) resulting directly from a re- 3. Was among the top 20% of employees by duction-in-force, discontinuance of a plant or 3. Mutual or cooperative telephone compa- compensation for the preceding year. operation, or other similar conditions. In addi- nies and like organizations. However, the employer can choose not to have tion, sickness and accident benefits (but not va- A like organization is an organization that per- (3) apply. cation, retirement, or death benefits) may be in- cluded in the plan if these are subordinate to forms a service comparable to that performed Aggregation rules. The employer can the unemployment compensation benefits. by any one of the above organizations. choose to treat two or more plans as one plan The information to be provided upon appli- for purposes of meeting the nondiscrimination Diversion of funds. It must be impossible un- cation by each of these organizations is descri- requirements. Employees of controlled groups der the plan (at any time before the satisfaction bed in this section. For information as to the of corporations, trades, or businesses under of all liabilities with respect to employees under procedures to follow in applying for exemption, common control, or members of an affiliated the plan) to use or to divert any of the corpus or see chapter 1. service group, are treated as employees of a income of the trust to any purpose other than single employer. Leased employees are treated the payment of supplemental unemployment General requirements. These organizations as employees of the recipient. compensation benefits (or sickness or accident must use their income solely to cover losses benefits to the extent just explained). and expenses, with any excess being returned One employee. A trust created to provide ben- to members or retained to cover future losses efits to one employee won't qualify as a volun- Discrimination in benefits. Neither the terms and expenses. They must collect at least 85% tary employees' beneficiary association under of the plan nor the actual payment of benefits of their income from members for the sole pur- section 501(c)(9). can be discriminatory in favor of the company's pose of meeting losses and expenses. officers, stockholders, supervisors, or highly Supplemental paid employees. However, a plan isn't discrimi- Mutual character. These organizations, other Unemployment Benefit natory merely because benefits bear a uniform than benevolent life insurance associations, relationship to compensation or the rate of com- must be organized and operated on a mutual or Trusts (501(c)(17)) pensation. cooperative basis. They are associations of persons or organizations, or both, banded to- A trust or trusts forming part of a written plan Prohibited transactions and exemption. If gether to provide themselves a mutually desira- (established and maintained by an employer, your organization is a supplemental unemploy- ble service approximately at cost and on a mu- his or her employees, or both) providing solely ment benefit trust and has received a denial of tual basis. To maintain the mutual characteristic for the payment of supplemental unemployment exemption because it engaged in a prohibited of democratic ownership and control, they must compensation benefits must file the application transaction, as defined by section 503(b), it can be so organized and operated that their mem- for recognition of exemption on Form 1024. The file a claim for exemption in any tax year follow- bers have the right to choose the management, trust must be a valid, existing trust under local ing the tax year in which the notice of denial to receive services at cost, to receive a return of law and must be evidenced by an executed was issued. It must file the claim on Form 1024. any excess of payments over losses and ex- document. A conformed copy of the plan of The organization must include a written decla- penses, and to share in any assets upon disso- which the trust is a part should be attached to ration that it won't knowingly again engage in a lution. the application. prohibited transaction. An authorized principal The rights and interests of members in the officer of your organization must make this dec- To be complete, an application must include annual savings of the organization must be de- laration under the penalties of perjury. a copy of the document (such as the trust in- termined in proportion to their business with the strument) by which the organization was cre- If your organization has satisfied all require- organization. Upon dissolution, gains from the ated; a full description of the benefits available ments as a supplemental unemployment bene- sale of appreciated assets must be distributed to participants and the terms and conditions of fit trust described in section 501(c)(17), it will be to all persons who were members during the eligibility for benefits (usually contained in a notified in writing that it has been recognized as period the assets were owned by the organiza- plan document); and, if providing benefits pur- exempt. However, the organization will be ex- tion in proportion to the amount of business suant to a collective bargaining agreement, a empt only for those tax years after the tax year done during that period. The bylaws mustn't copy of that agreement. in which the claim for exemption (Form 1024) is provide for forfeiture of a member's rights and filed. Tax year in this case means the estab- interest upon withdrawal or termination. Note. Under section 4976, the reversion of lished annual accounting period of the organi- Membership. Membership of a mutual or- funds from a section 501(c)(17) organization to zation or, if the organization has not established ganization consists of those who join the organ- the employer who created the supplemental un- an annual accounting period, the calendar year. ization to obtain its services, and have a voice employment benefit trust may subject the em- For more information about the requirements for in its management. In a stock company, the ployer to a 100% penalty excise tax on the reestablishing an exemption previously denied, stockholders are members. However, a mutual amount of the reversion. contact the IRS. life insurance organization can't have policy- holders other than its members. Notice requirement. An organization won't be considered tax exempt under this section un- 501(c)(12) - Local Losses and expenses. In furnishing serv- less the organization gives notice to the IRS Benevolent Life ices substantially at cost, an organization must that it is applying for recognition of exempt sta- use its income solely for paying losses and ex- tus. The organization gives notice by filing Form Insurance Associations, penses. Any excess income not retained in rea- 1024. If the notice isn't given by 15 months after sonable reserves for future losses and expen- the end of the month in which the organization Mutual Irrigation and ses belongs to members in proportion to their was created, the organization won't be exempt Telephone Companies, patronage or business done with the organiza- for any period before such notice is given. An tion. If such patronage refunds are retained in extension of time for filing the notice is granted and Like Organizations reasonable amounts for purposes of expanding under the same procedures as those described and improving facilities, retiring capital indebt- for section 501(c)(3) organizations in chapter 3 Each of the following organizations apply for edness, acquiring other assets, and unexpec- under Application for Recognition of Exemption. recognition of exemption from federal income ted expenses, the organization must maintain tax by filing Form 1024. records sufficient to reflect the equity of each member in the assets acquired with the funds.

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Distributions of proceeds. The coopera- any of its members and which is di- Tax treatment of donations. Donations to an tive may distribute the unexpended balance of rectly connected to distribution facili- organization described in this section aren't de- collections or assessments remaining on hand ties owned by the company or any of ductible as charitable contributions on the do- at the end of the year to members or patrons its members (other than income re- nor's federal income tax return. prorated on the basis of their patronage or busi- ceived or accrued directly or indirectly ness done with the cooperative. Such distribu- from a member), tion represents a refund in the costs of services Local Life Insurance 4. Any nuclear decommissioning transaction, rendered to the member. Associations or 5. Any asset exchange or conversion trans- A benevolent life insurance association or an The 85% Requirement action. organization seeking recognition of exemption on grounds of similarity to a benevolent life in- All of the organizations listed above must sub- An electric cooperative's sale of excess fuel surance association must submit evidence mit evidence with their application that they re- at cost in the year of purchase isn't income for upon applying for recognition of exemption that ceive 85% or more of their gross income from purposes of determining compliance with the it will be of a purely local character, that its ex- their members for the sole purpose of meeting 85% requirement. cess funds will be refunded to members or re- losses and expenses. Nevertheless, certain Qualified pole rental. The term qualified tained in reasonable reserves to meet future items of income are excluded from the compu- pole rental means any rental of a pole (or other losses and expenses, and that it meets the 85% tation of the 85% requirement if the organization structure used to support wires) if the pole (or income requirement. If an organization issues is a mutual or cooperative telephone or electric other structure) is used: policies for stipulated cash premiums, or if it re- company. quires advance deposits to cover the cost of the 1. By the telephone or electric company to insurance and maintains investments from Mutual or cooperative telephone company. support one or more wires that are used which more than 15% of its income is derived, it A mutual or cooperative telephone company will by the company in providing telephone or won't be entitled to exemption. exclude from the computation of the 85% re- electric services to its members, and quirement any income received or accrued 2. Pursuant to the rental to support one or To establish that your organization is of a from: more wires (in addition to wires described purely local character, it should show that its ac- 1. A nonmember telephone company for the in (1)) for use in connection with the trans- tivities will be confined to a particular commun- performance of communication services mission by wire of electricity or of tele- ity, place, or district irrespective of political sub- involving the completion of long distance phone or other communications. divisions. If the activities of an organization are calls to, from, or between members of the limited only by the borders of a state, it can't be mutual or cooperative telephone com- The term rental, for this purpose, includes purely local in character. A benevolent life insur- pany, any sale of the right to use the pole (or other ance association that doesn't terminate mem- structure). bership when a member moves from the local 2. Qualified pole rentals, area in which the association operates will qual- The 85% requirement is applied on the ba- 3. The sale of display listings in a directory ify for exemption if it meets the other require- sis of an annual accounting period. Failure of an furnished to its members, or ments. organization to meet the requirement in a partic- 4. The prepayment of a loan created in 1987, ular year precludes exemption for that year, but A copy of each type of policy issued by your 1988, or 1989, under section 306A, 306B, has no effect upon exemption for years in which organization should be included with the appli- or 311 of the Rural Electrification Act of the 85% requirement is met. cation for recognition of exemption. 1936. Gain from the sale or conversion of the or- Organizations similar to local benevolent Mutual or cooperative electric company. A ganization's property isn't considered an life insurance companies. These organiza- mutual or cooperative electric company will ex- amount received from members in determining tions include those that in addition to paying clude from the computation of the 85% require- whether the organization's income consists of death benefits also provide for the payment of ment any income received or accrued from: amounts collected from members. sick, accident, or health benefits. However, an organization that pays only sick, accident, or 1. Qualified pole rentals, Because the 85% income test is based on health benefits, but not life insurance benefits, gross income, capital losses can't be used to 2. Any provision or sale of electric energy isn't an organization similar to a benevolent life reduce capital gains for purposes of this test. transmission services or ancillary service if insurance association and shouldn't apply for the services are provided on a nondiscri- Example. The books of an organization re- recognition of exemption as described in this minatory open access basis under an flect the following for the calendar year. section. open access transmission tariff approved or accepted by the Federal Energy Regu- Burial and funeral benefit insurance or- Collections from members ...... $2,400 latory Commission (FERC) or under an in- ganization. This type of organization can ap- Short-term capital gains ...... 600 ply for recognition of exemption as an organiza- dependent transmission provider agree- Short-term capital losses ...... 400 tion similar to a benevolent life insurance ment approved or accepted by FERC Other income ...... None (other than income received or accrued di- Gross income ($2,400 + $600 =$3000) ..... 100% company if it establishes that the benefits are rectly or indirectly from a member), Collected from members ($2,400) ...... 80% paid in cash and if it isn't engaged directly in the manufacture of funeral supplies or the perform- 3. The provision or sale of electric energy Since amounts collected from members ance of funeral services. An organization that distribution services or ancillary services if don't constitute at least 85% of gross income, provides its benefits in the form of supplies and the services are provided on a nondiscri- the organization isn't entitled to exemption from service isn't a life insurance company. Such an minatory open-access basis to distribute federal income tax for the year. organization can seek recognition of exemption electric energy not owned by the mutual or Voluntary contributions in the nature of gifts from federal income tax, however, as a mutual electric cooperative company: aren't taken into account for purposes of the insurance company other than life. a. To end-users who are served by dis- 85% computation. tribution facilities not owned by the Other tax-exempt income besides gifts is considered as income received from other than Mutual or Cooperative company or any of its members (other Associations than income received or accrued di- members in applying the 85% test. rectly or indirectly from a member), or If the 85% test isn't met, your organization, if classifiable under this section, won't qualify for Mutual ditch or irrigation companies, mutual or b. Generated by a generation facility not exemption as any other type of organization de- cooperative telephone companies, and like or- owned or leased by the company or scribed in this publication. ganizations need not establish that they are of a

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purely local character. They can serve noncon- are permitted, as are reasonable fees for the adopted before that date. The adoption of the tiguous areas. services of a manager. plan must be shown by the acts of the responsi- ble officers and appear on the official records of Like organization. A like organization is a Buying cemetery property. Payments the organization. cooperative or mutual organization that per- can be made to amortize debt incurred to buy The preferred stock issued either before No- forms a service similar to mutual ditch, irriga- land, but can't be in the nature of profit distribu- vember 28, 1978, or under a plan adopted be- tion, telephone, or electric companies. Exam- tions. You must show the method used to fi- fore that date, must meet all the following re- ples include the following: that nance the purchase of the cemetery property quirements. provide protection of river banks to prevent ero- and that the purchase price of the land at the sion, water and sewer services, cable televi- time of its sale to the cemetery wasn't unrea- 1. The preferred stock entitles the holders to sion, satellite, television, cellular phone serv- sonable. dividends at a fixed rate that isn't more ices, two-way radio service, or natural gas Except for holders of preferred stock (dis- than the greater of the legal rate of interest services. cussed later), no person can have any interest in the state of incorporation or 8% a year in the net earnings of a tax-exempt cemetery on the value of the consideration for which company or crematorium. Therefore, if property the stock was issued. 501(c)(13) - Cemetery is transferred to the organization in exchange 2. The organization's articles of incorporation for an interest in the organization's net earnings, require: Companies the organization won't be exempt so long as that interest remains outstanding. a. That the preferred stock be retired at If your organization wishes to obtain recognition An equity interest in the organization is an par as rapidly as funds become avail- of exemption from federal income tax as a cem- interest in the net earnings of the organization. able from operations, and etery company or a corporation chartered solely However, an interest in the organization that b. That all funds not required for the pay- for the purpose of the disposal of human bodies isn't an equity interest may still be an interest in ment of dividends on or for the retire- by burial or cremation, it must file an application the organization's net earnings. For example, a ment of preferred stock be used by on Form 1024. For the procedure to follow to bond issued by a cemetery company that pro- the company for the care and im- file an application, see Application, Approval, vides for a fixed rate of interest and also pro- provement of the cemetery property. and Appeal Procedures in chapter 1. vides for additional interest payments based on the income of the organization is considered an A nonprofit mutual cemetery company that Tax treatment of donations. Donations to ex- interest in the net earnings of the organization. seeks recognition of exemption should submit empt cemetery companies, corporations char- Similarly, a convertible debt obligation issued evidence with its application that it is owned tered solely for human burial purposes, and after July 7, 1975, is considered an interest in and operated exclusively for the benefit of its lot perpetual care funds (operated in connection the net earnings of the organization. owners who hold lots for bona fide burial purpo- with such exempt organizations) are deductible ses and not for purposes of resale. A mutual Perpetual care organization. A perpetual as charitable contributions on the donor's fed- cemetery company that also engages in chari- care organization, including, for example, a eral income tax return. However, a donor can't table activities, such as the burial of paupers, trust organized to receive, maintain, and admin- deduct a contribution made for the perpetual will be regarded as operating within this stand- ister funds that it receives from a nonprofit care of a particular lot or crypt. Payments made ard. The fact that a mutual cemetery company tax-exempt cemetery under state law and con- to a cemetery company or corporation as part of limits its membership to a particular class of in- tracts, can apply for recognition of exemption the purchase price of a burial lot or crypt, dividuals, such as members of a family, won't on Form 1024, even though it doesn't own the whether irrevocably dedicated to the perpetual affect its status as mutual so long as all the land used for burial. However, the income from care of the cemetery as a whole or earmarked other requirements of section 501(c)(13) are these funds must be devoted exclusively to the for the care of a particular lot, are also not de- met. perpetual care and maintenance of the non- ductible. profit cemetery as a whole. Also, no part of the If your organization is a nonprofit corpora- net earnings can inure to the benefit of any pri- tion chartered solely for the purpose of the dis- vate shareholder or individual. 501(c)(14) - Credit posal of human bodies by burial or cremation, In addition, a perpetual care organization you should show that it isn't permitted by its not operated for profit, but established as a civic Unions and Other Mutual charter to engage in any business not necessa- enterprise to maintain and administer funds, the rily incident to that purpose. Operating a mortu- Financial Organizations income of which is devoted exclusively to the ary isn't permitted. However, selling monu- perpetual care and maintenance of an aban- ments, markers, vaults, and flowers solely for If your organization wants to obtain recognition doned cemetery as a whole, may qualify for ex- use in the cemetery is permitted if the profits of exemption as a without capital emption. from these sales are used to maintain the cem- stock, organized and operated under state law etery as a whole. Care of individual plots. When funds are for mutual purposes and without profit, it must received by a cemetery company for the perpet- file an application that includes the facts, infor- How income can be used. You should show ual care of an individual lot or crypt, a trust is mation, and attachments described in this sec- that your organization's earnings are or will be created that is subject to federal income tax. tion. In addition, it should follow the procedures used only in one or more of the following ways. Any trust income that is used or permanently for filing an application described in Application Procedures in chapter 1. 1. To pay the ordinary and necessary expen- set aside for the care, maintenance, or beautifi- ses of operating, maintaining, and improv- cation of a particular family burial lot or mauso- Federal credit unions organized and oper- ing the cemetery or crematorium. leum crypt isn't deductible in computing the ated in accordance with the Federal Credit Un- trust's taxable income. ion Act, as amended, are instrumentalities of 2. To buy cemetery property. the United States and, therefore, are exempt 3. To create a fund that will provide a source Common and preferred stock. A cemetery under section 501(c)(1). They are included in a of income for the perpetual care of the company that issues common stock can qualify group exemption letter issued to the National cemetery or a reasonable reserve for any for exemption only if no dividends may be paid. Credit Union Administration. They aren't dis- ordinary or necessary purpose. The payment of dividends must be legally pro- cussed in this publication. hibited either by the corporation's charter or by State-chartered credit unions and other mu- No part of the net earnings of your organiza- applicable state law. tual financial organizations file applications for tion can inure to the benefit of any private Generally, a cemetery company or cremato- recognition of exemption from federal income shareholder or individual. rium isn't exempt if it issues preferred stock. tax under section 501(c)(14). The other mutual However, it can still be exempt if the preferred Ordinary and necessary expenses in con- financial organizations must be corporations or stock was issued before November 28, 1978, or nection with the operation, management, associations without capital stock organized was issued after that date under a written plan maintenance, and improvement of the cemetery before September 1, 1957, and operated for

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mutual purposes and without profit to provide 3. In making loans, the state credit union law 1. That the post or organization is organized reserve funds for, and insurance of, shares or requirements, including their purposes, in the United States or any of its posses- deposits in: security, and rate of interest charged sions, thereon, are complied with. 1. Domestic building and loan associations, 2. That at least 75% of the members are past 4. Its investments are limited to securities or present members of the U.S. Armed 2. Cooperative banks (without capital stock) which are legal investments for credit un- Forces and that at least 97.5% of all mem- organized and operated for mutual purpo- ions under the state credit union law. bers of the organization are past or ses and without profit, present members of the U.S. Armed 5. Its dividends on shares, if any, are distrib- 3. Mutual savings banks (not having capital Forces, cadets (including only students in uted as prescribed by the state credit un- stock represented by shares), or college or university ROTC programs or at ion law. armed services academies) or spouses, 4. Mutual savings banks described in section widows, widowers, ancestors, or lineal de- 591(b). I, the undersigned, a duly authorized officer of the Credit Union, Inc., de- scendants of any of those listed here, and Similar organizations, formed before Septem- clare that the above information is a true state- 3. That no part of net earnings inure to the ber 1, 1957, that provide reserve funds for (but ment of facts concerning the credit union. benefit of any private shareholder or indi- not insurance of shares or deposits in) one of vidual. the types of savings institutions described in Signature of Officer Title (1), (2), or (3) above may be exempt from tax if In addition to these requirements, a veter- 85% or more of the organization's income is ans' organization also must be operated exclu- from providing reserve funds and from invest- Other Mutual sively for one or more of the following purposes. ments. There is no specific restriction against 1. To promote the social welfare of the com- the issuance of capital stock for these organiza- Financial Organizations munity (that is, to promote in some way tions. the common good and general welfare of Every other organization included in this section Building and loan associations, savings and the people of the community). must show in its application the state in which loan associations, mutual savings banks, and the organization is incorporated and the date of 2. To assist disabled and needy war veter- cooperative banks, other than those described incorporation; the character of the organization; ans and members of the U.S. Armed in this section, aren't exempt from tax. How- the purpose for which it was organized; its ac- Forces and their dependents and the wid- ever, certain corporations organized and oper- tual activities; the sources of its receipts and the ows and orphans of deceased veterans. ated in conjunction with farmers' cooperatives disposition thereof; whether any of its income can be exempt under section 521. 3. To provide entertainment, care, and assis- may be credited to surplus or may benefit any tance to hospitalized veterans or members private shareholder or individual; whether the Application form. The IRS doesn't provide a of the U.S. Armed Forces. law relating to loans, investments, and divi- printed application form for the use of organiza- dends is being complied with; and, in general, 4. To carry on programs to perpetuate the tions described in this section. Any form of writ- all facts relating to its operations that affect its memory of deceased veterans and mem- ten application is acceptable as long as it right to exemption. bers of the Armed Forces and to comfort shows the information indicated in this section their survivors. and includes a declaration that it is made under The application must include detailed infor- the penalties of perjury. The application must mation showing either that the organization pro- 5. To conduct programs for religious, charita- be submitted in duplicate. vides both reserve funds for and insurance of ble, scientific, literary, or educational pur- shares and deposits of its member financial or- poses. State-Chartered ganizations or that the organization provides re- 6. To sponsor or participate in activities of a Credit Unions serve funds for shares or deposits of its mem- patriotic nature. bers and 85% or more of the organization's 7. To provide insurance benefits for its mem- Your organization must show on its application income is from providing reserve funds and from investments. There should be attached a bers or dependents of its members or that it is formed under a state credit union law, both. the state and date of incorporation, and that the conformed copy of the articles of incorporation state credit union law with respect to loans, in- or other document setting forth the permitted 8. To provide social and recreational activi- vestments, and dividends, if any, is being com- powers or activities of the organization; the by- ties for its members. plied with. laws or other similar code of regulations; and the latest annual financial statement showing Auxiliary unit. An auxiliary unit or society of a A form of statement furnished to applicants the receipts, disbursements, assets, and liabili- veterans' organization can apply for recognition by the Credit Union National Association is ac- ties of the organization. of exemption provided that the veterans' organi- ceptable in meeting the application require- zation (parent organization) meets the require- ments for credit unions, and may be used in- ments explained earlier in this section. The aux- stead of the statement form of application just 501(c)(19) - Veterans' iliary unit or society must also meet all the described. The following is a reproduction of following additional requirements. that form. Organizations 1. It is affiliated with, and organized in ac- Claim for Exemption from Federal Income A post or organization of past or present mem- cordance with, the bylaws and regulations Tax (Date) The undersigned bers of the Armed Forces of the United States formulated by the parent organization. (Complete name) Credit Union, must file Form 1024 to apply for recognition of 2. At least 75% of its members are either Inc., (Complete address, includ- exemption from federal income tax. You should past or present members of the U.S. ing street and number), a credit union operating follow the general procedures outlined in chap- Armed Forces, spouses of those mem- under the credit union law of the State of ter 1. The organization must also meet the qual- bers, or related to those members within , claims exemption from federal ifications described in this section. two degrees of kinship (grandparent, income tax and supplies the following informa- brother, sister, and grandchild represent tion relative to its operation. Examples of groups that qualify for exemp- the most distant allowable relationship). tion are posts or auxiliaries of the American Le- 1. Date of incorporation . gion, Veterans of Foreign Wars, and similar or- 3. All of its members either are members of 2. It was incorporated under the credit union ganizations. the parent organization, spouses of a law of the State of , and is member of the parent organization, or re- being operated under uniform bylaws To qualify for recognition of exemption, your lated to a member of such organization adopted by said state. application should show: within two degrees of kinship.

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4. No part of its net earnings inure to the ben- except that the creator may recover excess 6069, Return of Excise Tax on Excess Contri- efit of any private shareholder or individ- contributions. butions to Black Lung Benefit Trust Under Sec- ual. tion 4953 and Computation of Section 192 De- 1. Its only purpose is: duction, is used to compute the allowable Trusts or foundations. Trusts or foundations a. To satisfy in whole or in part the liabil- deduction and any excise tax liability. The form for a veterans' organization also can apply for ity of that person (generally, the coal doesn't have to be filed if there is no excise tax recognition of exemption provided that the pa- mine operator contributing to the trust) liability. For more information about these con- rent organization meets the requirements ex- for, or with respect to, claims for com- tributions, see Form 6069 and its instructions. plained earlier. The trust or foundation must pensation arising under federal or also meet all the following qualifications. state statutes for disability or death due to pneumoconiosis, 1. The trust or foundation is in existence un- 501(c)(2) - Title-Holding der local law and, if it is organized for char- b. To pay the premiums for insurance Corporations for Single itable purposes, has a dissolution provi- that covers only that liability, sion similar to charitable organizations. c. To pay the administrative and other Parent Corporations (See Articles of Organization in chapter 3 incidental expenses of that trust (in- of this publication.) cluding legal, accounting, actuarial, If your organization wants to obtain recognition 2. The corpus or income can't be diverted or and trustee expenses) in connection of exemption from federal income tax as a cor- used other than for: with the operation of the trust and pro- poration organized to hold title to property, col- cessing of black lung claims against lect income from that property, and turn over a. The funding of a veterans' organiza- such person arising under federal or the entire amount less expenses to a single pa- tion, described in this section, state statutes, and rent organization that is exempt from income b. Religious, charitable, scientific, liter- tax, it must file its application on Form 1024. d. To pay accident and health benefits or ary, or educational purposes or for the The information to submit upon application is insurance premiums and other admin- prevention of cruelty to children or an- described in this section. For a discussion of istrative expenses for retired coal min- imals, or the procedures for obtaining recognition of ex- ers and their spouses. The amount of emption, see chapter 1, Application Proce- c. An insurance set aside. assets available for such use is gener- dures. ally limited to 110% of the present 3. The trust income isn't unreasonably accu- value of the liability for black lung ben- You must show that your organization is a mulated and, if the trust or foundation isn't efits. corporation. If you are in doubt as to whether an insurance set aside, a substantial por- your organization qualifies as a corporation for tion of the income is in fact distributed to 2. No part of its assets can be used for, or di- this purpose, contact your IRS office. the parent organization or for the purposes verted to, any purposes other than: described in item 2(b). A title-holding corporation will qualify for ex- a. The purposes described in 1, emption only if there is effective ownership and 4. It is organized exclusively for one or more b. Payments into the Black Lung Disabil- control over it by the distributee exempt organi- of the purposes listed earlier in this section ity Trust Fund or into the general fund zation. For example, the distributee organiza- that are specifically applicable to the pa- of the U.S. Treasury (other than in sat- tion may control the title-holding corporation by rent organization. isfaction of any tax or other civil or owning its voting stock or possessing the power to select nominees to hold its voting stock. Tax treatment of donations. Donations to criminal liability of the person who es- tablished or contributed to the trust), war veterans' organizations are deductible as Corporate charter. The corporate charter charitable contributions on the donor's federal c. Investment in public debt securities of must confine the purposes and powers of your income tax return. At least 90% of the organiza- the U.S., obligations of a state or local organization to holding title to property, collect- tion's membership must consist of war veter- government that aren't in default as to ing income from the property, and turning the ans. The term war veterans means persons, principal or interest, or time or de- income over to an exempt organization. If the whether or not present members of the U.S. mand deposits in a bank or an insured charter authorizes your organization to engage Armed Forces, who have served in the U.S. credit union located in the United in activities that go beyond these limits, its ex- Armed Forces during a period of war (including States. (These investments are re- emption may not be recognized even if its ac- the Korean and Vietnam conflicts, the Persian stricted to the extent that the trustee tual operations are so limited. If your organiza- Gulf war, and later declared wars). determines that a portion of the as- tion's original charter doesn't limit its powers, sets isn't currently needed for the pur- you can amend the charter to conform to the re- poses described in 1.) quired limits and submit evidence with your ap- 501(c)(21) - Black Lung plication that the charter has been amended. An annual information return is required of ex- Benefit Trusts empt trusts described in section 501(c)(21). Payment of income. You must show that your Form 990-BL, Information and Initial Excise Tax corporation is required to turn over the entire in- If your organization wishes to obtain recognition Return for Black Lung Benefit Trusts and Cer- come from the property, less expenses, to one of exemption as a black lung benefit trust, it tain Related Persons, must be used for this pur- or more exempt organizations. must file its application by letter and include a pose. A trust that normally has gross receipts in Actual payment of the income is required. A copy of its trust instrument. The general proce- each tax year of no more than $50,000 is ex- mere obligation to use the income for the ex- dures to follow for obtaining recognition are dis- cepted from this filing requirement. However, it empt organization's benefit, or the fact that such cussed in chapter 1 of this publication. This must submit an annual electronic notice, Form organization has control over the income section describes the additional (or specific) in- 990-N (e-Postcard). doesn't satisfy this requirement. formation to be provided upon application. Excise taxes. See Chapter 5 for informa- Expenses. Expenses may reduce the Requirements. A black lung benefit trust that tion on the excise tax that may be imposed on amount of income required to be turned over to is established in writing, created or organized in the organization. the tax-exempt organization for which your or- the United States, and contributed to by any ganization holds property. The term expenses person (except an insurance company) will Tax treatment of donations. Contributions by (for this purpose) includes not only ordinary and qualify for tax-exempt status if it meets both of a taxpayer (generally, the coal mine operator) to necessary expenses paid or incurred, but also the following requirements. The trust must be ir- a black lung benefit trust are deductible for fed- reasonable additions to depreciation reserves revocable and there can be no right or possibil- eral income tax purposes under section 192. and other reserves that would be proper for a ity or reversion of the corpus or income of the The deduction is limited, and any excess contri- business corporation holding title to and trust to the coal mine operator or other creator, butions are subject to an excise tax of 5%. Form maintaining property.

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In addition, the title-holding corporation can trust. Only one class of stock is permitted in the debt-financed income tax under section 514 on retain part of its income each year to apply to case of a corporation. In the case of a trust, only their investments through the organization. debt on property to which it holds title. This one class of beneficial interest is allowed. These shareholders are generally schools, col- transaction is treated as if the income had been Organizations eligible to acquire or hold in- leges, universities, or supporting organizations turned over to the exempt organization and the terests in this type of title-holding organization of such educational institutions. Organizations latter had used the income to make a contribu- are qualified pension, profit-sharing, or stock other than these will take into account as gross tion to the capital of the title-holding corporation bonus plans, governmental plans, governments income from an unrelated trade or business that in turn applied the contribution to the debt. and their agencies and instrumentalities, and their share of income that is treated as charitable organizations. unrelated debt-financed income because sec- Waiver of payment of income. Generally, The articles of incorporation or trust instru- tion 514(c)(9) doesn't apply. These organiza- there is no payment of rent when the occupant tions will also take their pro rata share of the al- of property held by your title-holding corporation ment must include provisions showing that the corporation or trust is organized to meet the re- lowable deductions from unrelated taxable is the exempt organization for which your cor- income. poration holds the title. In this situation, the stat- quirements of the statute, including compliance with the limitations on membership and classes utory requirement that income be paid over to Real property. Real property can include per- the exempt organization is satisfied if your cor- of stock or beneficial interest, and compliance with the income distribution requirements. The sonal property leased in connection with real poration turns over whatever income is availa- property, but only if the rent from the personal ble. organizing document must permit the organiza- tion's shareholders or beneficiaries to dismiss property isn't more than 15% of the total rent for the organization's investment advisor, if any, both the real property and the personal prop- Application for recognition of exemption. In erty. addition to the information required by Form upon a vote of the shareholders or beneficiaries Real property acquired after June 10, 1987, 1024, the title-holding corporation must furnish holding a majority interest in the organization. can't include any interest as a tenant in com- evidence that the organization for which title is The organizing document must permit the mon (or similar interest) or any indirect interest. held has obtained recognition of exempt status. shareholders or beneficiaries to terminate their If that organization has not been specifically no- interests by at least one of the following meth- tified in writing by the IRS that it is exempt, the ods. 501(c)(26) - title-holding corporation must submit the neces- 1. By selling or exchanging their stock or sary application and supporting documents to beneficial interest to any organization de- State-Sponsored enable the IRS to determine whether the organ- scribed in section 501(c)(25)(C), provided ization for which title is held qualifies for exemp- that the sale or exchange doesn't cause High-Risk Health tion. A copy of a ruling or determination letter is- the number of shareholders or beneficia- Coverage Organizations sued to the organization for which title is held ries to exceed 35. will be proof that it qualifies for exemption. How- ever, until the organization for which title is held 2. By having their stock or beneficial interest A state-sponsored organization established to obtains recognition of exempt status or proof is redeemed by the section 501(c)(25) or- provide medical care to high-risk individuals submitted to show that it qualifies, the title-hold- ganization upon 90 days notice. should apply by letter for recognition of exemp- ing corporation can't obtain recognition of ex- tion from federal income tax under section If state law prevents a corporation from includ- 501(c)(26). emption. ing in its articles of incorporation the above pro- visions, such provisions must instead be inclu- Tax treatment of donations. Donations to an To qualify for exemption, the organization ded in the bylaws of the corporation. exempt title-holding corporation generally aren't must be a membership organization estab- A 501(c)(25) organization can be organized deductible as charitable contributions on the lished by a state exclusively to provide cover- as a nonstock corporation if its articles of incor- donor's federal income tax return. age for medical care on a nonprofit basis to poration or bylaws provide members with the high-risk individuals who are state residents. It same rights as described above. can provide coverage either by issuing insur- ance itself or by entering into an arrangement 501(c)(25) - Title-Holding Subsidiaries. A wholly owned subsidiary won't with a health maintenance organization (HMO). Corporations or Trusts be treated as a separate corporation, and all as- sets, liabilities, and items of income, deduction, The state must determine the composition of for Multiple Parent and credit will be treated as belonging to the membership in the organization. No part of the section 501(c)(25) organization. Subsidiaries net earnings of the organization can inure to the Corporations shouldn't apply separately for recognition of ex- benefit of any private shareholder or individual. emption. If your organization wants to obtain recognition High-risk individuals. These are individuals, of exemption from federal income tax as an or- Tax treatment of donations. Donations to an their spouses and qualifying children, who, be- ganization organized for the exclusive purpose exempt title-holding corporation generally aren't cause of a pre-existing medical condition: of acquiring, holding title to, and collecting in- deductible as charitable contributions on the 1. Can't get medical care coverage for that come from real property, and turning over the donor's federal income tax return. condition through insurance or an HMO, or entire amount less expenses to member organi- zations exempt from income tax, it should file its 2. Can get coverage for that condition only at application on Form 1024. For a discussion of Unrelated Business Income a rate that is substantially higher than the the procedures for obtaining recognition of ex- rate for the same coverage from the emption, see chapter 1, Application Proce- In general, the receipt of unrelated business in- state-sponsored organization. dures. come by a section 501(c)(25) organization will subject the organization to loss of exempt sta- Who can control the organization. Organi- tus since the organization can't be exempt from zations recognized as exempt under this sec- taxation if it engages in any business other than 501(c)(27) - Qualified tion can have up to 35 shareholders or benefi- that of holding title to real property and collect- State-Sponsored ciaries, in contrast to title-holding organizations ing the income from the property. However, ex- recognized as exempt under section 501(c)(2), empt status generally won't be affected by the Workers' Compensation which can have only one controlling parent or- receipt of debt-financed income that is treated ganization. as unrelated business taxable income solely Organizations because of section 514. Organizational requirements. A 501(c)(25) 501(c)(27)(A) -- Pre-June 1, 1996, Organiza- organization must be either a corporation or a Under section 514(c)(9), certain sharehold- tions. A state-sponsored workers' compensa- ers or beneficiaries aren't subject to unrelated tion reinsurance organization should apply by

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letter for recognition of exemption from federal income tax under section 501(c)(27). To qualify for exemption, any membership New Guidance for Additional Guidance for organization must meet all the following require- Section 501(c)(29) Prospective 501(c)(29) ments. 1. It was established by a state before June Qualified Nonprofit Organizations 1, 1996, exclusively to reimburse its mem- Issuers bers for losses under workers' compensa- An organization claiming exempt status under tion acts. section 501(c)(29) that intends to file an appli- Section 501(c)(29), added to the Code by sec- cation for recognition of exemption should be- 2. The state requires that the membership tion 1322(h)(1) of the Affordable Care Act, pro- gin filing Form 990, Return of Organization Ex- consist of all persons who issue insurance vides for the exemption of qualified nonprofit empt from Income Tax, and indicate on its covering workers' compensation losses in health insurance issuers (QNHIIs) that have re- return that it has not yet received a determina- the state and all persons and government ceived a loan or grant under the Centers for tion letter. In addition to the general information entities who self-insure against those los- Medicare and Medicaid Services (CMS) required on Form 990, these organizations ses. CO-OP program for periods that they meet both must report certain information regarding re- the requirements of section 1322 of the Afforda- quired reserves. 3. It operates as a nonprofit organization by ble Care Act and of any loan agreement with returning surplus income to its members CMS. The CO-OP program provides loans and or workers' compensation policyholders repayable grants to foster the creation of mem- on a periodic basis and by reducing initial ber governed QNHIIs that will operate with a premiums in anticipation of investment in- strong consumer focus and offer qualified come. health insurance plans. Notice 2011-23, 2011-13 I.R.B. 588, discussed requirements for 501(c)(27)(B) -- Organizations formed after tax exemption for QNHIIs described in Internal 5. December 31, 1997. Any organization (includ- Revenue Code section 501(c)(29). The Notice ing a mutual insurance company) can qualify for provides guidance on the annual filing require- exemption if it meets all of the following require- ment for organizations that intend to apply for Excise Taxes ments. recognition of section 501(c)(29) status. Rev. 1. It is created by state law and is organized Proc. 2015-17, 2015-7 I.R.B. 599, sets out the and operated under state law exclusively procedures for issuing determination letters on to: the exempt status of QNHIIs and provides guid- Introduction ance on the effective date of exempt status. a. Provide workmen's compensation in- Rev. Proc. 2015-17, supplemented by Rev. An excise tax may be imposed on certain surance which is required by state law Proc. 2019-5. tax-exempt organizations. or state law must provide significant disincentives if employers fail to pur- Topics chase such insurance, and General Requirements This chapter discusses: b. Provide related coverage which is in- cidental to workmen's compensation for Exemption under • Prohibited tax shelter transactions insurance. 501(c)(29) and Annual • Excess benefit transactions Excess business holdings 2. It provides workmen's compensation in- • Taxable distributions of sponsoring surance to any employer in the state (for Filing Requirement • organizations employees in the state or temporarily as- Taxes on prohibited benefits distributed signed out-of-state) which seeks such in- In general, section 501(c)(29) applies to certain • from donor advised funds surance and meets other reasonable re- organizations receiving loans or repayable Excise taxes on private foundations quirements relating to the insurance. grants under the CO-OP program. An organiza- • tion will qualify for exemption under section • Excise taxes on 501(c)(21) black lung 3. The state makes a financial commitment 501(c)(29) only if: benefit trusts to such organization either by extending • The organization has received a loan or a • Excise Tax on Failure to Meet the its full faith and credit to the initial debt of repayable grant under the CO-OP program Community Health Needs Assessment the organization or by providing the initial and is in compliance with all requirements Requirements of Hospitals operating capital of the organization. of the CO-OP program and any agreement • Excise tax on excess tax-exempt organization executive compensation 4. The assets of the organization revert to the with CMS; Excise tax on net investment income of state upon dissolution or the organization • The organization has applied for recogni- • private colleges and universities isn't permitted to dissolve under state law. tion of exemption; • No part of the organization’s net earnings 5. The majority of the board of directors or inures to the benefit of any private share- Useful Items oversight body of such organization are holder or individual, except that the organi- You may want to see: appointed by the chief executive officer or zation is required by section 1322(c)(4) of other executive branch official of the state, the Affordable Care Act to use its profits to Forms (and Instructions) by the state legislature, or by both. lower premiums, improve benefits or im-

prove the quality of health care delivered to 4720 4720 Return of Certain Excise Taxes its members; Under Chapters 41 and 42 of the 501(c)(29) - CO-OP • No substantial part of the organization’s Internal Revenue Code activities involves attempts to influence Health Insurance Issuers legislation; and See chapter 6 for more information about get- • The organization doesn't participate or in- ting Form 4720. This includes a qualified nonprofit health insur- tervene in political campaigns. See Rev. ance issuer which has received a loan or grant Proc. 2015-17 for complete instructions for under the CO-OP Program under this section of filing exemption applications. the Code.

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Prohibited tax shelter transaction. A pro- benefit to a disqualified person and that benefit hibited tax shelter transaction is any listed exceeds the value of the benefit received in ex- Prohibited Tax Shelter transaction, within the meaning of section change. Transactions 6707A(c)(2), and any prohibited reportable There are three taxes under section 4958. transactions. A prohibited reportable transac- Disqualified persons are liable for the first two tion is a confidential transaction within the Section 4965 imposes an excise tax on: taxes and certain organization managers are li- meaning of Regulations section 1.6011-4(b)(3), Certain tax-exempt entities that are party able for the third tax. • and a transaction with contractual protection to prohibited tax shelter transactions, and Taxes imposed on excess benefit transac- within the meaning of Regulations section Any entity manager who approves or oth- tions don't apply to a transaction under a written • 1.6011-4(b)(4). See the Instructions for Form erwise causes the entity to be a party to a contract that was binding on September 13, 8886-T for more information on listed transac- prohibited tax shelter transaction and 1995, and at all times thereafter before the tions and prohibited reportable transactions. knows or has reason to know that the transaction occurred. transaction is a prohibited tax shelter trans- Subsequently listed transaction. Any trans- action. action to which the tax-exempt entity is a party Tax on Disqualified Persons Additionally, section 6033 provides new disclo- and is later determined to be a listed transaction sure requirements on a tax-exempt entity that is after the entity has become a party to it, is a An excise tax equal to 25% of the excess bene- a party to a prohibited tax shelter transaction. subsequently listed transaction. fit is imposed on each excess benefit transac- tion between an applicable tax-exempt organi- Tax-exempt entities. Tax-exempt entities that zation and a disqualified person. The are subject to section 4965 include: Entity Level Tax disqualified person who benefited from the transaction is liable for the tax. See definition of 1. Entities described in section 501(c), in- Section 4965(a)(1) imposes an entity level ex- Disqualified person, later at Disqualified person. cluding but not limited to the following cise tax on any tax-exempt entity described in common types of entities: 1, 2, 3, or 4 above that becomes a party to a Additional tax on the disqualified person. If a. Instrumentalities of the United prohibited tax shelter transaction or is a party to the 25% tax is imposed and the excess benefit States described in section 501(c)(1); a subsequently listed transaction (defined ear- transaction isn't corrected within the taxable pe- lier). The excise tax imposed on a tax-exempt riod, an additional excise tax equal to 200% of b. Churches, hospitals, museums, entity applies to tax years in which the entity be- the excess benefit is imposed on any disquali- schools, scientific research organiza- comes a party to the prohibited tax shelter fied person involved. tions, and other charities described in transaction and any subsequent tax years. The If a disqualified person makes a payment of section 501(c)(3); amount of the excise tax depends on whether less than the full correction amount, the 200% c. Civic leagues, social welfare organi- the tax-exempt entity knew or had reason to tax is imposed only on the unpaid portion of the zations, and local associations of em- know that the transaction was a prohibited tax correction amount. If more than one disqualified ployees described in section 501(c) shelter transaction at the time it became a party person received an excess benefit from an ex- (4); to the transaction. cess benefit transaction, all such disqualified persons are jointly and severally liable for the d. Labor, agricultural, or horticultural To figure and report the excise tax imposed taxes. organizations described in section on a tax-exempt entity for being a party to a pro- To avoid the 200% tax, a disqualified person 501(c)(5); hibited tax shelter transaction, file Form 4720. must correct the excess benefit transaction dur- e. Business leagues, chambers of For more information about this excise tax, ing the taxable period. The 200% tax is abated commerce, trade associations, and including information about how it is figured, (refunded if collected) if the excess benefit other organizations described in sec- see the Instructions for Form 4720. transaction is corrected within a 90-day correc- tion 501(c)(6); tion period beginning on the date a statutory no- tice of deficiency is issued. f. Voluntary employees' beneficiary Manager Level Tax associations (VEBAs) described in Taxable period. The taxable period means section 501(c)(9); Section 4965(a)(2) imposes an excise tax on the period beginning with the date on which the any tax-exempt entity manager who approves g. Credit unions described in section excess benefit transaction occurs and ending or otherwise causes the entity to be a party to a 501(c)(14); on the earlier of: prohibited tax shelter transaction and knows (or • The date a notice of deficiency was mailed h. Insurance companies described in has reason to know) that the transaction is a to the disqualified person for the initial tax section 501(c)(15); and prohibited tax shelter transaction. The excise on the excess benefit transaction, or tax, in the amount of $20,000, is assessed for i. Veterans' organizations described • The date on which the initial tax on the ex- each approval or other act causing the organi- in section 501(c)(19). cess benefit transaction for the disqualified zation to be a party to the prohibited tax shelter person is assessed. 2. Religious or apostolic associations or cor- transaction. To report this tax, file Form 4720. porations described in section 501(d). Tax on Organization 3. Entities described in section 170(c), in- Managers cluding states, possessions of the United Excess Benefit States, the District of Columbia, political Transactions If tax is imposed on a disqualified person for subdivisions of states and political subdivi- any excess benefit transaction, an excise tax sions of possessions of the United States Excise tax on excess benefit transactions. equal to 10% of the excess benefit is imposed (but not including the United States). A disqualified person who benefits from an ex- on an organization manager who knowingly 4. Indian tribal governments within the mean- cess benefit transaction, such as compensa- participated in an excess benefit transaction, ing of section 7701(a)(40). tion, fringe benefits, or contract payments from unless such participation wasn't willful and was certain section 501(c)(3), 501(c)(4), or 501(c) due to reasonable cause. This tax can't exceed Entity manager. An entity manager is any per- (29) organizations, must correct the transaction $20,000 ($10,000 for transactions entered in a son with authority or responsibility similar to that and may have to pay an excise tax under sec- tax year beginning before August 18, 2006), for exercised by an officer, director, or trustee, and, tion 4958. A manager of the organization may each transaction. There is also joint and several for any act, the person that has authority or re- also have to pay an excise tax under section liability for this tax. A person can be liable for sponsibility with respect to the prohibited trans- 4958. These taxes are reported on Form 4720. both the tax paid by the disqualified person and action. The excise taxes are imposed if an applica- the organization manager tax for a particular ex- ble tax-exempt organization provides an excess cess benefit transaction.

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Organization Manager. An organization man- change hands between a willing buyer and a date the property, or the rights to future com- ager is any officer, director, or trustee of an ap- willing seller, neither being under any compul- pensation or property, isn't subject to a substan- plicable tax-exempt organization, or any individ- sion to buy, sell, or transfer property or the right tial risk of forfeiture. Where the disqualified per- ual having powers or responsibilities similar to to use property, and both having reasonable son elects to include an amount in gross officers, directors, or trustees of the organiza- knowledge of relevant facts. income in the tax year of transfer under section tion, regardless of title. An organization man- 83(b), the excess benefit transaction occurs on ager isn't considered to have participated in an Donor advised fund transactions occurring the date the disqualified person receives the excess benefit transaction where the manager after August 17, 2006. For a donor advised economic benefit for federal income tax purpo- has opposed the transaction in a manner con- fund, an excess benefit transaction includes a ses. sistent with the fulfillment of the manager's re- grant, loan, compensation, or other similar pay- sponsibilities to the organization. For example, ment from the fund to a: Correcting the excess benefit. An excess a director who votes against giving an excess • Donor or donor advisor, benefit transaction is corrected by undoing the benefit would ordinarily not be subject to the • Family member of a donor, or donor advi- excess benefit to the extent possible, and by 10% tax. sor, taking any additional measures necessary to • 35% controlled entity of a donor, or donor place the organization in a financial position not A person participates in a transaction know- advisor, or worse than what it would have been if the dis- ingly if the person: • 35% controlled entity of a family member qualified person were dealing under the highest • Has actual knowledge of sufficient facts so of a donor, or donor advisor. fiduciary standards. that, based solely upon those facts, such A disqualified person corrects an excess transaction would be an excess benefit The excess benefit in this transaction is the amount of the grant, loan, compensation, or benefit by making a payment in cash or cash transaction; equivalents, excluding payment by a promis- • Is aware that such a transaction under other similar payment. For additional informa- tion, see the Instructions for Form 4720. sory note, equal to the correction amount to the these circumstances may violate the provi- applicable tax-exempt organization. The correc- sions of federal tax law governing excess tion amount equals the excess benefit plus the benefit transactions; and Supporting organization transactions oc- curring after July 25, 2006. For any support- interest on the excess benefit. The • Negligently fails to make reasonable at- can be no lower than the applicable federal tempts to ascertain whether the transac- ing organization, defined in section 509(a)(3), an excess benefit transaction includes grants, rate, compounded annually, for the month the tion is an excess benefit transaction, or the transaction occurred. manager is in fact aware that it is such a loans, compensation, or other similar payment A disqualified person can, with the agree- transaction. provided by the supporting organization to a: • Substantial contributor, ment of the applicable tax-exempt organization, Knowing doesn't mean having reason to know. • Family member of a substantial contribu- make a payment by returning the specific prop- The organization manager ordinarily won't be tor, erty previously transferred in the excess trans- considered knowing if, after full disclosure of • 35% controlled entity of a substantial con- action. In this case, the disqualified person is the factual situation to an appropriate professio- tributor, or treated as making a payment equal to the nal, the organization manager relied on the pro- • 35% controlled entity of a family member lesser of: fessional's reasoned written opinion on matters of a substantial contributor. • The fair market value of the property on the within the professional's expertise or if the man- date the property is returned to the organi- ager relied on the fact that the requirements for Additionally, an excess benefit transaction zation, or the rebuttable presumption of reasonableness includes any loans provided by the supporting • The fair market value of the property on the have been satisfied. Participation by an organi- organization to a disqualified person (other than date the excess benefit transaction occur- zation manager is willful if it is voluntary, con- an organization described in section 509(a)(1), red. scious, and intentional. An organization manag- (2), or (4)). If the payment resulting from the return of er's participation is due to reasonable cause if The excess benefit for substantial contribu- property is less than the correction amount, the the manager has exercised responsibility on be- tors and parties related to those contributors in- disqualified person must make an additional half of the organization with ordinary business cludes the amount of the grant, loan, compen- cash payment to the organization equal to the care and prudence. sation, or other similar payment. For additional information, see the Instructions for Form 4720. difference. Excess benefit transaction rules generally If the payment resulting from the return of Excess Benefit Transaction don't apply to transactions between a support- the property exceeds the correction amount de- ing organization and its supported organization scribed above, the organization can make a An excess benefit transaction is a transaction in described in section 501(c)(4), (5), or (6) in fur- cash payment to the disqualified person equal which an economic benefit is provided by an therance of charitable purposes. to the difference. applicable tax-exempt organization, directly or indirectly, to or for the use of any disqualified Exception. For a correction of an excess person, and the value of the economic benefit Date of Occurrence benefit transaction (discussed earlier), no provided by the organization exceeds the value amount repaid in a manner prescribed by the An excess benefit transaction occurs on the of the consideration (including the performance Secretary can be held in a donor advised fund. date the disqualified person receives the eco- of services) received for providing such benefit. nomic benefit from the organization for federal The excess benefit transaction rules apply to all Applicable Tax-Exempt income tax purposes. However, when a single transactions with disqualified persons, regard- Organization contractual arrangement provides for a series of less of whether the amount of the benefit provi- compensation or other payments to or for the ded is determined in whole or in part by the rev- An applicable tax-exempt organization is a sec- use of a disqualified person during the disquali- enues of one or more activities of the tion 501(c)(3), 501(c)(4), or 501(c)(29) organi- fied person's tax year, any excess benefit trans- organization. zation that is tax-exempt under section 501(a), action with respect to these payments occurs or was such an organization at any time during To determine whether an excess benefit on the last day of the taxpayer's tax year. a 5-year period ending on the day of the excess transaction has occurred, all consideration and benefit transaction. benefits exchanged between a disqualified per- In the case of benefits provided to a quali- son and the applicable tax-exempt organiza- fied pension, profit-sharing, or stock bonus An applicable tax-exempt organization tion, and all entities it controls, are taken into plan, the transaction occurs on the date the doesn't include: account. For purposes of determining the value benefit is vested. In the case of the transfer of of economic benefits, the value of property, in- property subject to a substantial risk of forfei- 1. A private foundation as defined in section cluding the right to use property, is the fair mar- ture, or in the case of rights to future compensa- 509(a), tion or property, the transaction occurs on the ket value. Fair market value is the price at which 2. A governmental entity that is: property, or the right to use property, would

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a. Exempt from (or not subject to) taxa- (whether by whole or half-blood), ancestors, the organization's capital expenditures, op- tion without regard to section 501(a), children (including a legally adopted child), erating budget, or compensation for em- or grandchildren, great grandchildren, and spou- ployees. ses of children, grandchildren, and great grand- • The person manages a discrete segment b. Not required to file an annual return, children (whether by whole or half-blood). or activity of the organization that repre- or sents a substantial portion of the activities, 3. A foreign organization, recognized by the 35% controlled entity. A 35% controlled en- assets, income, or expenses of the organi- IRS or by treaty, that receives substantially tity is: zation, as compared to the organization as all of its support (other than gross invest- a whole. 1. A corporation in which disqualified per- ment income) from sources outside the The person owns a controlling interest sons own more than 35% of the total com- • United States. (measured by either vote or value) in a cor- bined voting power, poration, partnership, or trust that is a dis- An organization isn't treated as a section 2. A partnership in which such persons own qualified person. 501(c)(3), 501(c)(4), or 501(c)(29) organization more than 35% of the profits interest, or • The person is a nonstock organization controlled directly or indirectly by one or for any period covered by a final determination 3. A trust or estate in which such persons more disqualified persons. that the organization wasn't tax-exempt under own more than 35% of the beneficial inter- section 501(a), but only if the determination est. Facts and circumstances tending to show wasn't based on private inurement or one or that a person doesn't have substantial influence more excess benefit transactions. In determining the holdings of a business over the affairs of an organization include, but enterprise, any stock or other interest owned di- aren't limited to, the following. Disqualified Person rectly or indirectly shall apply. • The person has taken a bona fide vow of poverty as an employee or agent of a reli- Persons having substantial influence. A disqualified person is: gious organization or on its behalf. Among those who are in a position to exercise • Any person (at any time during the 5-year • The person is an independent contractor substantial influence over the affairs of the or- period ending on the date of the transac- whose sole relationship to the organization ganization are, for example, voting members of tion) in a position to exercise substantial in- is providing professional advice (without the governing body, and persons holding the fluence over the affairs of the organization, having decision-making authority) with re- power of: • A family member of an individual described spect to transactions from which the inde- Presidents, chief executives, or chief oper- in (1), and • pendent contractor won't economically ating officers. • A 35% controlled entity. benefit either directly or indirectly aside • Treasurers and chief financial officers. from customary fees received for the pro- Persons with a material financial interest in For donor advised funds, sponsoring or- • fessional advice rendered. a provider-sponsored organization. ganizations, and certain supporting organi- • Any preferential treatment the person re- zations occurring after August 17, 2006. Persons not considered to have sub- ceives based on the size of the person's The following persons will be considered dis- stantial influence. Persons who aren't consid- donation is also offered to others making qualified persons along with certain family ered to be in a position to exercise substantial comparable widely solicited donations. members and 35% controlled entities associ- influence over the affairs of an organization in- • The direct supervisor of the person isn't a ated with them. clude: disqualified person. • Donors of donor advised funds, • An employee who receives benefits that • The person doesn't participate in any man- • Investment advisors of sponsoring organi- total less than the highly compensated agement decisions affecting the organiza- zations, and amount in section 414(q)(1)(B)(i) and who tion as a whole or a discrete segment of • Disqualified persons of a section 509(a)(3) doesn't hold the executive or voting pow- the organization that represents a substan- supporting organization that supports the ers mentioned earlier in the discussion on tial portion of the activities, assets, income, applicable tax-exempt organization. Disqualified Person, isn't a family member or expenses of the organization, as com- of a disqualified person, and isn't a sub- pared to the organization as a whole. For certain supporting organization stantial contributor, transactions occurring after July 25, 2006. In the case of multiple organizations affili- Tax-exempt organizations described in Substantial contributors to supporting organiza- • ated by common control or governing docu- section 501(c)(3), and tions will also be considered disqualified per- ments, the determination of whether a person Section 501(c)(4) organizations with re- sons with respect to the supporting organiza- • does or doesn't have substantial influence is spect to transactions engaged in with other tions, along with their family members and 35% made separately for each applicable tax-ex- section 501(c)(4) organizations. controlled entities. empt organization. A person may be a disquali- fied person with respect to transactions with Facts and circumstances. The determi- Investment advisor. Investment advisor more than one organization. nation of whether a person has substantial influ- means for any sponsoring organization, any ence over the affairs of an organization is based person compensated by such organization (but Reasonable compensation. Reasonable on all the facts and circumstances. Facts and not an employee of such organization) for man- compensation is the value that would ordinarily circumstances that tend to show a person has aging the investment of, or providing investment be paid for like services by like enterprises un- substantial influence over the affairs of an or- advice for, assets maintained in donor advised der like circumstances. The section 162 stand- ganization include, but aren't limited to, the fol- funds owned by such sponsoring organization. ard will apply in determining the reasonable- lowing. ness of compensation. The fact that a bonus or Substantial contributor. In general, a sub- • The person founded the organization. revenue-sharing arrangement is subject to a stantial contributor means any person who con- • The person is a substantial contributor to cap is a relevant factor in determining reasona- tributed or bequeathed an aggregate of more the organization under the section 507(d) bleness of compensation. than $5,000 to the organization, if that amount (2)(A) definition, only taking into account To determine the reasonableness of com- is more than 2% of the total contributions and contributions to the organization for the pensation, all items of compensation provided bequests received by the end of the organiza- past 5 years. by an applicable tax-exempt organization in ex- tion's tax year in which the contribution or be- • The person's compensation is primarily change for performance of services are taken quest is received. A substantial contributor in- based on revenues derived from activities into account in determining the value of com- cludes the grantor of a trust. of the organization that the person con- pensation (except for economic benefits that trols. Family members. Family members of a dis- • The person has or shares authority to con- qualified person include a disqualified person's trol or determine a substantial portion of spouse, brothers or sisters (whether by whole or half-blood), spouses of brothers or sisters

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are disregarded under the discussion Disregar- appropriate comparability data includes An initial contract is a binding written con- ded benefits, later). Items of compensation in- data on compensation paid by three com- tract between an applicable tax-exempt organi- clude: parable organizations in the same or simi- zation and a person who wasn't a disqualified • All forms of cash and noncash compensa- lar communities for similar services.) person immediately before entering into the tion, including salary, fees, bonuses, sev- contract. 3. The authorized body adequately docu- erance payments, and deferred noncash A binding written contract, providing it can ments the basis for its determination con- compensation, be terminated or canceled by the applicable currently with making that determination. • The payment of premi- tax-exempt organization without the other par- The documentation should include: ums for, or the payment or reimbursement ty's consent (except as a result of substantial by the organization of penalties, taxes, or a. The terms of the approved transaction nonperformance) and without substantial pen- certain expenses under section 4958, un- and the date approved, alty, is treated as a new contract, as of the earli- less excludable from income as a de mini- est date any termination or would b. The members of the authorized body mis fringe benefit under section 132(a)(4), be effective. Also, if the parties make a material who were present during debate on • All other compensatory benefits, whether change to a contract, which includes an exten- the transaction that was approved or not included in gross income for income sion or renewal of the contract (except for an and those who voted on it, tax purposes, extension or renewal resulting from the exercise • Taxable and nontaxable fringe benefits, c. The comparability data obtained and of an option by the disqualified person), or a except fringe benefits described in section relied upon by the authorized body more than incidental change to the amount pay- 132, and and how the data was obtained, able under the contract, it is treated as a new • Foregone interest on loans. contract as of the effective date of the material d. Any actions by a member of the au- change. Intent to treat benefits as compensation. thorized body having conflict of inter- An economic benefit isn't treated as considera- est, and More information. For more information, tion for the performance of services unless the see the Instructions to Forms 990 and 4720. organization providing the benefit clearly indi- e. Documentation of the basis of the de- cates its intent to treat the benefit as compensa- termination before the later of the next tion when the benefit is paid. meeting of the authorized body or 60 Excess Business An applicable tax-exempt organization (or days after the final actions of the au- entity that it controls) is treated as clearly indi- thorized body are taken, and approval Holdings cating its intent to provide an economic benefit of records as reasonable, accurate, and complete within a reasonable as compensation for services only if the organi- General rule. Private foundations are gener- time thereafter. zation provides written substantiation that is ally not permitted to hold more than a 20% inter- contemporaneous with the transfer of the eco- Disregarded benefits. The following eco- est in an unrelated business enterprise. They nomic benefits under consideration. Ways to nomic benefits are disregarded for section 4958 may be subject to an excise tax on the amount provide contemporaneous written substantia- purposes. of any excess business holdings. For purposes tion of its intent to provide an economic benefit • Nontaxable fringe benefits that are exclu- of section 4943, for tax years beginning after as compensation include: ded from income under section 132. August 17, 2006, donor advised funds and cer- • The organization produces a signed writ- • Benefits provided to a volunteer for the or- tain supporting organizations are considered ten employment contract, ganization if the benefit is provided to the private foundations. • The organization reports the benefit as general public in exchange for a member- compensation on an original Form W-2, ship fee or contribution of $75 or less. Exception under section 4943(g). Section Form 1099, or Form 990, or on an amen- • Benefits provided to a member of an or- 4943(g) added by the Bipartisan Budget Act of ded form filed before starting an IRS ex- ganization due to the payment of a mem- 2018, Pub. L. No. 115-123, 132 Stat. 64 (2018), amination, or bership fee or to a donor as a result of a provides an exception for certain limited hold- • The disqualified person reports the benefit deductible contribution, if a significant ings to independently operated businesses. In as income on the person's original Form number of disqualified persons make simi- general, the excess business holdings provi- 1040, or on an amended form filed before lar payments or contributions and are of- sions of section 4943(a) shall not apply with re- starting an IRS examination. fered a similar economic benefit. spect to the holdings of a private foundation in any business enterprise which meets all the re- Exception. If the economic benefit is exclu- • Benefits provided to a person solely as a quirements of section 4943(g)(2), (3), and (4). ded from the disqualified person's gross income member of a charitable class that the appli- for income tax purposes, the applicable tax-ex- cable tax-exempt organization intends to The requirements of section 4943(g)(2) are met empt organization isn't required to indicate its benefit as part of the accomplishment of its if: intent to provide an economic benefit as com- exempt purpose. pensation for services. • A transfer of an economic benefit to or for 1. 100% of the voting stock in the business the use of a governmental unit, as defined enterprise is held by the private foundation Rebuttable presumption that a transac- in section 170(c)(1), if exclusively for public at all times during the tax year, and tion isn't an excess benefit transaction. purposes. Payments under a compensation arrangement 2. All of the private foundation’s ownership are presumed to be reasonable and the transfer Special exception for initial contracts. interests were acquired by means other of property (or right to use property) is pre- Section 4958 doesn't apply to any fixed pay- than purchase, such as a gift or bequest. sumed to be at fair market value, if the following ment made to a person under an initial contract. three conditions are met. A fixed payment is an amount of cash or other property specified in the contract, or de- The requirements of section 4943(g)(3) are met 1. The transaction is approved in advance by termined by a fixed formula that is specified in if the business enterprise, no later than 120 an authorized body of the organization (or the contract, which is to be paid or transferred days after the close of the tax year, distributes an entity it controls) which is composed of in exchange for the provision of specified serv- an amount equal to its net operating income for individuals who don't have a conflict of in- ices or property. such tax year to the private foundation. For pur- terest concerning the transaction. A fixed formula can, generally, incorporate poses of section 4943(g) , the net operating in- come of any business enterprise for any tax 2. Before making its determination, the au- an amount that depends upon future specified year is an amount equal to the gross income of thorized body obtained and relied upon events or contingencies, as long as no one has the business enterprise for the tax year, re- appropriate data as to comparability. discretion when calculating the amount of a duced by the sum of: (There is a special safe harbor for small payment or deciding whether to make a pay- organizations. If the organization has ment (such as a bonus). 1. The deductions allowed by chapter 1 of gross receipts of less than $1 million, the Code for the tax year that are directly

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connected with the production of such in- A foundation that fails to correct the excess 1. A fund or account that makes distributions come, business holdings becomes liable for an addi- only to a single identified organization or tional tax of 200% of the remaining excess busi- governmental entity, or 2. The tax imposed by chapter 1 of the Code ness holdings as of the earlier of tax assess- on the business enterprise for the tax year, 2. Any fund or account for a person descri- ment or mailing of a notice of deficiency. and bed in 3 above that gives advice about For more information on the tax on excess which individuals receive grants for travel, 3. An amount for a reasonable reserve for business holdings, see the Instructions for Form study, or similar purposes, if the following working capital and other business needs 4720. three requirements are met: of the business enterprise. a. The person's advisory privileges are Taxable Distributions of performed exclusively by such person The requirements of section 4943(g)(4) are met in their capacity as a committee mem- if, at all times during the tax year: Sponsoring ber of which all the committee mem- 1. No substantial contributor (as defined in bers are appointed by the sponsoring section 4958(c)(3)(C)) to the private foun- Organizations organization, dation or family member (as determined b. No combination of persons with advi- under section 4958(f)(4)) of such a con- An excise tax is imposed on a sponsoring or- ganization for each taxable distribution it makes sory privileges, described in 3 above, tributor is a director, officer, trustee, man- or persons related to those in 3 above ager, employee, or contractor of the busi- from a donor advised fund. An excise tax is also imposed on any fund manager of the sponsor- directly or indirectly control the com- ness enterprise (or an individual having mittee, and powers or responsibilities similar to any of ing organization who agreed to the making of a the foregoing); distribution, knowing that it is a taxable distribu- c. All grants from the fund or account are tion. awarded on an objective and nondis- 2. At least a majority of the board of directors criminatory basis according to a pro- of the private foundation are persons who Taxable distribution. A taxable distribution is cedure approved in advance by the are not (i) directors or officers of the busi- any distribution from a donor advised fund to board of directors of the sponsoring ness enterprise, or (ii) family members of a any natural person or to any other person if: organization. The procedure must be substantial contributor to the private foun- 1. The distribution is for any purpose other designed to ensure that all grants dation; and than one specified in section 170(c)(2)(B), meet the requirements of section 3. There is no loan outstanding from the or 4945(g)(1), (2), or (3). business enterprise to a substantial con- 2. The sponsoring organization maintaining tributor to the private foundation or to any Disqualified supporting organization. A dis- the donor advised fund doesn't exercise family member of such a contributor. qualified supporting organization includes (1) a expenditure responsibility with respect to Type III supporting organization that isn't func- the distribution in accordance with section tionally integrated and (2) any supporting or- This provision does not apply to any donor ad- 4945(h). ganization where the donor or donor advisor vised fund treated as a private foundation by However, a taxable distribution doesn't in- (and any related parties) directly or indirectly section 4943(e), a supporting organization trea- clude a distribution from a donor advised fund controls a supported organization of the sup- ted as a private foundation by section 4943(f), a to: porting organization. trust described in section 4947(a)(1), or a trust • Any organization described in section described in section 4947(a)(2). 170(b)(1)(A) (other than a disqualified sup- Tax on sponsoring organization. A tax of

porting organization), 20% of the amount of each taxable distribution Section 4943(g) shall apply to tax years begin- • The sponsoring organization of the donor is imposed on the sponsoring organization. ning after December 31, 2017. advised fund, or • Any other donor advised fund. Tax on fund manager. If a tax is imposed on Donor advised fund. In general, a donor ad- a taxable distribution of the sponsoring organi- vised fund is a fund or account separately iden- The tax on taxable distributions applies to zation, a tax of 5% of the distribution will be im- tified by reference to contributions of a donor or distributions occurring in tax years beginning af- posed on any fund manager who agreed to the donors that is owned and controlled by a spon- ter August 17, 2006. distribution knowing that it was a taxable distri- soring organization and for which the donor has bution. Any fund manager who took part in the or expects to have advisory privileges concern- Sponsoring organization. A sponsoring or- distribution and is liable for the tax must pay the ing the distribution or investment of the funds. ganization is a section 170(c) organization that tax. The maximum amount of tax on all fund is neither a government organization (as refer- managers for any one taxable distribution is Supporting organizations. Only certain sup- red to in section 170(c)(1) and (2)(A)) nor a pri- $10,000. If more than one fund manager is lia- porting organizations are subject to the excess vate foundation. ble for tax on a taxable distribution, all such business holdings tax under section 4943. managers are jointly and severally liable for the These include (1) Type III supporting organiza- Donor advised fund. A donor advised fund is tax. a fund or account: tions that aren't functionally integrated and (2) For more information on the tax on taxable Type II supporting organizations that accept 1. Which is separately identified by reference distributions of sponsoring organizations, see any gift or contribution from a person who by to contributions of a donor or donors, the Instructions for Form 4720. himself or in connection with a related party controls the supported organization that the 2. Which is owned and controlled by a spon- Type II supporting organization supports. soring organization, and Taxes on Prohibited 3. For which the donor (or any person ap- Taxes. A private foundation that has excess pointed or designated by the donor) has or Benefits Resulting from holdings in a business enterprise may become expects to have advisory privileges con- liable for an excise tax based on the amount of cerning the distribution or investment of Donor Advised Fund holdings. The initial tax is 10% (5% for tax years the funds held in the donor advised funds Distributions beginning before August 18, 2006) of the value or accounts because of the donor's status of the excess holdings and is imposed on the as a donor. last day of each tax year that ends during the Prohibited benefit. If any donor, donor advi- taxable period. The excess holdings are deter- sor, or related party advises the sponsoring or- mined on the day during the tax year when they ganization about making a distribution which re- were the largest. Exception. A donor advised fund doesn't sults in a donor, donor advisor, or related party include: receiving (either directly or indirectly) a more

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than incidental benefit, then such benefit is a contributors and other disqualified per- more than $1 million in remuneration or pays an prohibited benefit. The tax on prohibited bene- sons, excess parachute payment during the year fits applies to distributions occurring in tax years starting in 2018. See section 4960 and Form 2. Requirements that the foundation annually beginning after August 17, 2006. 4720, Return of Certain Excise Taxes Under distribute income for charitable purposes, Chapters 41 and 42 of the Internal Revenue Donor advisor. A donor advisor is any person 3. Limits on their holdings in any business Code, and Notice 2019-09, 2019-04 I.R.B. 403, appointed or designated by a donor to advise a enterprise (see Excess Business Hold- for more information. sponsoring organization on the distribution or ings, earlier), investment of amounts held in the donor's fund 4. Provisions that investments mustn't jeop- or account. ardize the carrying out of exempt purpo- Excise Tax on Net Related party. A related party includes any ses, and Investment Income of family member or 35% controlled entity. See 5. Provisions to assure that expenditures fur- the definition of those terms under Disqualified ther the organization's exempt purposes. Certain Colleges and Person, earlier. Violations of these provisions give rise to Universities Tax on donor, donor advisor, or related per- taxes and penalties against the private founda- New section 4968 imposes an excise tax on the son. A tax of 125% of the benefit resulting from tion and, in some cases, its managers, its sub- net investment income of certain private col- the distribution is imposed on both the party stantial contributors, and certain related per- leges and universities. A private college or uni- who advised as to the distribution (which might sons. versity will be subject to the excise tax on net in- be a donor, donor advisor, or related party) and vestment income under section 4968 if four the party who received such benefit (which For more information on the excise taxes im- tests are met. might be a donor, donor advisor, or related posed on private foundations, see the Instruc- party). The advisor and the party who received tions for Form 4720 and the Instructions for 1. The organization must be an eligible edu- the benefit are jointly and severally liable for the Form 990-PF. cational institution as defined in section tax. 25A(f)(2). Section 25A(f)(2) defines “eligi- ble educational institution” as an institution Tax on fund managers. If a tax is imposed on Excise Taxes on Black that is described in section 481 of the a prohibited benefit received by a donor, donor Higher Education Act of 1965 (20 U.S.C. advisor, or related person, a tax of 10% of the Lung Benefit Trusts section 1088), as in effect on August 5, amount of the prohibited benefit is imposed on 1997, and is eligible to participate in a pro- any fund manager who agreed to the distribu- A black lung benefit trust that makes any ex- gram under Title IV of such Act (20 U.S.C. tion knowing that it would confer a prohibited penditures, payments, or investments other sections 1070 et seq.). benefit. Any fund manager who took part in the than those described in chapter 4 under 501(c) 2. The organization must have had at least distribution and is liable for the tax must pay the (21) - Black Lung Benefit Trusts must pay a tax 500 tuition-paying students, based upon a tax. The maximum amount of tax on all fund equal to 10% of the amount of such expendi- daily average student count, during the managers for any one taxable distribution is tures. If there are any acts of self-dealing be- preceding tax year. $10,000. If more than one fund manager is lia- tween the trust and a disqualified person, a tax ble for tax on a taxable distribution, all such equal to 10% of the amount involved is imposed 3. More than 50% of those students must managers are jointly and severally liable for the on the disqualified person. Both of these excise have been located in the United States. tax. taxes are reported on Schedule A (Form 990-BL). See the Form 990-BL instructions for 4. The aggregate fair market value, at the Exception. If a person engaged in an excess more information on these taxes and what has end of the preceding tax year, of the as- benefit transaction and received a prohibited to be filed, even if the trust is excepted from fil- sets not used directly in carrying out the benefit for the same transaction, the person is ing. organization’s exempt purpose, held by taxed under section 4958, and no tax is im- the organization and related organizations, posed under section 4967 for a prohibited ben- must be at least $500,000 per student. efit. Excise Tax on Failure to See the Instructions for Form 990, Part V, For more information on taxes on prohibited Meet the Community Line 16 for more information about organiza- benefits distributed from donor advised funds, tions subject to the excise tax. See Instructions see the Instructions for Form 4720. Health Needs for Form 4720, Schedule O, and Notice 2018-55, 2018-26 I.R.B. 773, for more informa- Assessment tion about calculating the excise tax. Excise Taxes on Private Requirements Foundations For tax years beginning after March 23, 2012, There is an excise tax on the net investment in- new section 4959 imposes an excise tax on come of most domestic private foundations. hospital organizations which fail to meet certain Capital gains from appreciation are included in section 501(r) requirements for each of their the tax base on private foundation net invest- hospital facilities. These entities must meet sec- 6. ment income. This tax must be reported on tion 501(r)(3) requirements at all times during Form 990-PF and must be paid annually at the their tax year. Section 501(r)(3) requirements time for filing that return or in quarterly estima- pertain to a hospital organization preparing a How to Get Tax ted tax payments if the total tax for the year community health needs assessment (CHNA). (section 4940 tax minus credits) is $500 or See Schedule H, Hospitals (Form 990), for de- more. Form 990-W is used to calculate the esti- tails. Help mated tax. If you have questions about a tax issue, need In addition, there are several other rules that Excise Tax on Executive help preparing your tax return, or want to down- apply to excise taxes on private foundations. load free publications, forms, or instructions, go These include: Compensation to IRS.gov and find resources that can help you right away. 1. Restrictions on self-dealing between pri- New section 4960 imposes an excise tax on an vate foundations and their substantial organization that pays to any covered employee

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Tax reform. Major legislation im- curely access information about your federal tax tity theft, visit IRS.gov/IdentityTheft to learn pacting individuals, businesses, and tax-ex- account. what steps you should take. empt entities was enacted in the Tax Cuts and • View the amount you owe, pay online or Jobs Act on December 22, 2017. Go to set up an online payment agreement. Checking on the status of your refund. IRS.gov/TaxReform for information and up- • Access your tax records online. • Go to IRS.gov/Refunds. dates on how this legislation affects your taxes. • Review the past 18 months of your pay- • Due to changes in the law, the IRS can’t is- ment history. sue refunds before mid-February 2018, for Preparing and filing your tax return. Find • Go to IRS.gov/SecureAccess to review the returns that properly claimed the EIC or the free options to prepare and file your return on required identity authentication process. ACTC. This applies to the entire refund, IRS.gov or in your local community if you qual- not just the portion associated with these ify. Using direct deposit. The fastest way to re- credits. The Volunteer Income Tax Assistance ceive a tax refund is to combine direct deposit • Download the official IRS2Go app to your (VITA) program offers free tax help to people and IRS e-file. Direct deposit securely and elec- mobile device to check your refund status. who generally make $55,000 or less, persons tronically transfers your refund directly into your • Call the automated refund hotline at with disabilities, and limited-English-speaking financial account. Eight in 10 taxpayers use di- 1-800-829-1954. taxpayers who need help preparing their own rect deposit to receive their refund. IRS issues tax returns. The Tax Counseling for the Elderly more than 90% of refunds in less than 21 days. Making a tax payment. The IRS uses the lat- (TCE) program offers free tax help for all tax- est encryption technology to ensure your elec- payers, particularly those who are 60 years of Delayed refund for returns claiming certain tronic payments are safe and secure. You can age and older. TCE volunteers specialize in an- credits. Due to changes in the law, the IRS make electronic payments online, by phone, swering questions about pensions and retire- can’t issue refunds before mid-February 2018, and from a mobile device using the IRS2Go ment-related issues unique to seniors. for returns that properly claimed the earned in- app. Paying electronically is quick, easy, and You can go to IRS.gov to see your options come credit (EIC) or the additional child tax faster than mailing in a check or money order. for preparing and filing your return which in- credit (ACTC). This applies to the entire refund, Go to IRS.gov/Payments to make a payment clude the following. not just the portion associated with these cred- using any of the following options. • Free File. Go to IRS.gov/FreeFile. See if its. • IRS Direct Pay: Pay your individual tax bill you qualify to use brand-name software to or estimated tax payment directly from prepare and e-file your federal tax return Getting a transcript or copy of a return. The your checking or at no for free. quickest way to get a copy of your tax transcript cost to you. • VITA. Go to IRS.gov/VITA, download the is to go to IRS.gov/Transcripts. Click on either • Debit or credit card: Choose an ap- free IRS2Go app, or call 1-800-906-9887 "Get Transcript Online" or "Get Transcript by proved payment processor to pay online, to find the nearest VITA location for free Mail" to order a copy of your transcript. If you by phone, and by mobile device. tax preparation. prefer, you can: • Electronic Funds Withdrawal: Offered • TCE. Go to IRS.gov/TCE, download the • Order your transcript by calling only when filing your federal taxes using free IRS2Go app, or call 1-888-227-7669 1-800-908-9946. tax preparation software or through a tax to find the nearest TCE location for free tax • Mail Form 4506-T or Form 4506T-EZ (both professional. preparation. available on IRS.gov). • Electronic Federal Tax Payment Sys- tem: Best option for businesses. Enroll- Getting answers to your tax ques- Using online tools to help prepare your re- ment is required. tions. On IRS.gov get answers to your turn. Go to IRS.gov/Tools for the following. • Check or money order: Mail your pay- tax questions anytime, anywhere. • The Earned Income Tax Credit Assistant ment to the address listed on the notice or (IRS.gov/EIC) determines if you’re eligible Go to IRS.gov/Help pages for a variety of instructions. • for the EIC. tools that will help you get answers to • Cash: You may be able to pay your taxes • The Online EIN Application (IRS.gov/EIN) some of the most common tax questions. with cash at a participating retail store. helps you get an employer identification • Go to IRS.gov/ITA for the Interactive Tax number. What if I can’t pay now? Go to IRS.gov/ Assistant, a tool that will ask you questions • The IRS Withholding Calculator (IRS.gov/ Payments for more information about your op- on a number of tax law topics and provide W4App) estimates the amount you should tions. answers. You can print the entire interview have withheld from your paycheck for fed- Apply for an online payment agreement and the final response for your records. • eral income tax purposes and can help you (IRS.gov/OPA) to meet your tax obligation • Go to IRS.gov/Pub17 to get Pub. 17, Your perform a “paycheck checkup.” in monthly installments if you can’t pay Federal Income Tax for Individuals, which • The First Time Homebuyer Credit Account your taxes in full today. Once you complete features details on tax-saving opportuni- Look-up (IRS.gov/HomeBuyer) tool pro- the online process, you will receive imme- ties, recent tax changes, and thousands of vides information on your repayments and diate notification of whether your agree- interactive links to help you find answers to account balance. ment has been approved. your questions. View it online in HTML, as • The Sales Tax Deduction Calculator Use the ( Offer in Compomise Pre- a PDF, or download it to your mobile de- • (IRS.gov/SalesTax) figures the amount you QualifierIRS.gov/OIC) to see if you can set- vice as an eBook. can claim if you itemize deductions on tle your tax debt for less than the full • You may also be able to access tax law in- Schedule A (Form 1040), choose not to amount you owe. formation in your electronic filing software. claim state and local income taxes, and you didn’t save your receipts showing the Checking the status of an amended return. Getting tax forms and publications. Go to sales tax you paid. Go to IRS.gov/WMAR to track the status of IRS.gov/Forms to view, download, or print all of Form 1040X amended returns. Please note that the forms and publications you may need. You Resolving tax-related identity theft issues. it can take up to 3 weeks from the date you can also download and view popular tax publi- • The IRS doesn’t initiate contact with tax- mailed your amended return for it to show up in cations and instructions (including the 1040 in- payers by email or telephone to request our system and processing it can take up to 16 structions) on mobile devices as an eBook at no personal or financial information. This in- weeks. charge. Or, you can go to IRS.gov/OrderForms cludes any type of electronic communica- to place an order and have forms mailed to you tion, such as text messages and social me- Understanding an IRS notice or letter. Go to within 10 business days. dia channels. IRS.gov/Notices to find additional information • Go to IRS.gov/IDProtection for information. about responding to an IRS notice or letter. Access your online account (Individual tax- • If your SSN has been lost or stolen or you payers only). Go to IRS.gov/Account to se- suspect you’re a victim of tax-related iden- Contacting your local IRS office. Keep in mind, many questions can be answered on

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IRS.gov without visiting an IRS Tax Assistance rights. Their job is to ensure that every taxpayer How Else Does TAS Help Center (TAC). Go to IRS.gov/LetUsHelp for the is treated fairly and that you know and under- Taxpayers? topics people ask about most. If you still need stand your rights under the Taxpayer Bill of help, IRS TACs provide tax help when a tax is- Rights. TAS works to resolve large-scale problems that sue can’t be handled online or by phone. All affect many taxpayers. If you know of one of TACs now provide service by appointment so How Can You Learn About Your these broad issues, please report it to them at you’ll know in advance that you can get the Taxpayer Rights? IRS.gov/SAMS. service you need without long wait times. Be- fore you visit, go to IRS.gov/TACLocator to find The describes 10 basic TAS also has a website, Tax Reform the nearest TAC, check hours, available serv- rights that all taxpayers have when dealing with Changes, which shows you how the new tax ices, and appointment options. Or, on the the IRS. Go to TaxpayerAdvocate.IRS.gov to law may change your future tax filings and helps IRS2Go app, under the Stay Connected tab, help you understand what these rights mean to you plan for these changes. The information is choose the Contact Us option and click on “Lo- you and how they apply. These are your rights. categorized by tax topic in the order of the IRS cal Offices.” Know them. Use them. Form 1040. Go to TaxChanges.us for more in- formation. Watching IRS videos. The IRS Video portal (IRSvideos.gov) contains video and audio pre- What Can TAS Do for You? sentations for individuals, small businesses, Low Income Taxpayer and tax professionals. TAS can help you resolve problems that you Clinics can’t resolve with the IRS. And their service is Getting tax information in other languages. free. If you qualify for their assistance, you will Low Income Taxpayer Clinics (LITCs) are inde- For taxpayers whose native language isn’t Eng- be assigned to one advocate who will work with pendent from the IRS. LITCs represent individu- lish, we have the following resources available. you throughout the process and will do every- als whose income is below a certain level and Taxpayers can find information on IRS.gov in thing possible to resolve your issue. TAS can need to resolve tax problems with the IRS, such the following languages. help you if: as audits, appeals, and tax collection disputes. • Spanish (IRS.gov/Spanish). • Your problem is causing financial difficulty In addition, clinics can provide information • Chinese (IRS.gov/Chinese). for you, your family, or your business; about taxpayer rights and responsibilities in dif- • Vietnamese (IRS.gov/Vietnamese). • You face (or your business is facing) an ferent languages for individuals who speak • Korean (IRS.gov/Korean). immediate threat of adverse action; or English as a second language. Services are of- • Russian ( IRS.gov/Russian). • You’ve tried repeatedly to contact the IRS fered for free or a small fee. To find a clinic near but no one has responded, or the IRS you, visit TaxpayerAdvocate.IRS.gov/LITCmap The IRS TACs provide over-the-phone inter- hasn’t responded by the date promised. or see IRS Publication 4134, Low Income preter service in over 170 languages, and the Taxpayer Clinic List. service is available free to taxpayers. How Can You Reach TAS?

TAS has offices in every state, the District of Columbia, and Puerto Rico. Your local advo- The Taxpayer Advocate cate’s number is in your local directory and at Service Is Here to Help You TaxpayerAdvocate.IRS.gov/Contact-Us. You What is TAS? can also call them at 877-777-4778.

TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer

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Organization Reference Chart

Section of Application Annual return Contributions 1986 Code Description of organization General nature of activities Form1 required to be allowable filed

501(c)(1) Corporations Organized under Act Instrumentalities of the No Form None Yes, if made for of Congress (including Federal Credit United States exclusively public Unions) purposes 501(c)(2) Title Holding Corporation For Holding title to property of an 1024 9902 or 990-EZ9 No3 Exempt Organization exempt organization and distributing net income to it 501(c)(3) Religious, Educational, Charitable, Activities of nature implied by description 1023, 1023-EZ 9902 or 990-EZ9, Yes, generally Scientific, Literary, Testing for Public of class of organization or 990-PF Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations 501(c)(4) Civic Leagues, Social Welfare Promotion of community welfare; Must provide 9902 or 990-EZ9 No, generally 3, 4 Organizations; and Local charitable, educational, or recreational notice on Form Associations of Employees 8976; may also submit Form1024-A 501(c)(5) Labor, Agricultural, and Horticultural Educational or instructive, the 1024 9902 or 990-EZ1 No3 Organizations purpose being to improve conditions of work, and to improve products and/or efficiency 501(c)(6) Business Leagues, Chambers of Improvement of business 1024 9902 or 990-EZ9 No3 Commerce, Real Estate Boards, conditions of one or more lines of business etc. 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, 1024 9902 or 990-EZ9 Yes, if for certain and Associations accident or other benefits Sec. 501(c)(3) to members within a lodge system purposes 501(c)(9) Voluntary Employees Beneficiary Employee association providing for 1024 9902 or 990-EZ9 No3 Associations payment of life, sickness, accident, or other benefits to members 501(c)(10) Domestic Fraternal Societies Earnings devoted to charitable, fraternal, 1024 9902 or 990-EZ9 Yes, if for certain and Associations and Sec. 501(c)(3) other specified purposes within a domestic purposes lodge system. No benefits to members 501(c)(11) Teachers' Retirement Fund Associations Teachers' association for payment of Letter7 9902 or 990-EZ9 No3 retirement benefits 501(c)(12) Benevolent Life Insurance Associations, Activities of a mutual or cooperative 1024 9902 or 990-EZ9 No3 Mutual Ditch or nature Irrigation Companies, Mutual or Cooperative Telephone Companies, and Like Organizations 501(c)(13) Cemetery Companies Burials and incidental activities 1024 9902 or 990-EZ9 Yes, generally 501(c)(14) State-Chartered Credit Unions, Loans to members Letter7 9902 or 990-EZ9 No3 Mutual Reserve Funds 501(c)(15) Mutual Insurance Companies or Providing insurance to members 1024 9902 or 990-EZ9 No3 Associations substantially at cost 501(c)(16) Cooperative Organizations to Financing crop operations in Form 1120-C, 9902 or 990-EZ9 No3 Finance Crop Operations conjunction with activities of a marketing Letter7 or purchasing association 501(c)(17) Supplemental Unemployment Provides for payment of 1024 9902 or 990-EZ9 No3 Benefit Trusts supplemental unemployment compensation benefits 501(c)(18) Employee Funded Pension Trust Payment of benefits under a Letter7 9902 or 990-EZ9 No3 (created before June 25, 1959) pension plan funded by employees 501(c)(19) Post or Organization of Past or Activities implied by nature of organization 1024 9902 or 990-EZ9 No, generally8 Present Members of the Armed Forces 501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to satisfy Letter7 990-BL No5 their liability for disability or death due to black lung diseases Page 68 Publication 557 (January 2019) Page 69 of 75 Fileid: … ons/P557/201901/A/XML/Cycle05/source 15:00 - 20-Feb-2019

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Section of Application Annual return Contributions 1986 Code Description of organization General nature of activities Form1 required to be allowable filed 501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the Letter7 9902 or 990-EZ9 No6 liability of employers withdrawing from a multi-employer pension fund 501(c)(23) Veterans' Organization (created To provide insurance and other Letter7 9902 or 990-EZ9 No, generally8 before 1880) benefits to veterans 501(c)(25) Title Holding Corporations or Trusts with Holding title and paying over 1024 9902 or 990-EZ9 No Multiple Parent Corporations income from real property to 35 or fewer parents or beneficiaries 501(c)(26) State-Sponsored Organization Providing Provides health care coverage to high-risk Letter7 9902 or 990-EZ9 No Health Coverage for High-Risk individuals Individuals 501(c)(27) State-Sponsored Workers' Reimburses members for losses Letter7 9902 or 990-EZ9 No Compensation Reinsurance Organization under workers' compensation acts 501(c)(28) National Railroad Retirement Investment Manages and invests the assets of the No Form 99012 No12 Trust Railroad Retirement Account 501(c)(29) CO-OP health insurance issuers A qualified health insurance issuer which Letter and 9902 No14 has received a loan or grant under the Form 871815 CO-OP program 501(d) Religious and Apostolic Associations Regular business activities; No Form 106510 No3 Communal religious community 501(e) Cooperative Hospital Service Performs cooperative services for hospitals 1023 9902 or 990-EZ9 Yes Organizations 501(f) Cooperative Service Organizations Performs collective investment 1023 9902 or 990-EZ9 Yes of Operating Educational Organizations services for educational organizations 501(k) Child Care Organizations Provides care for children 1023 9902 or 990-EZ9 Yes 501(n) Charitable Risk Pools Pools certain insurance risks of sec. 501(c) 1023 9902 or 990-EZ9 Yes (3) organizations 501(q) Credit Counseling Organization Credit counseling services 1023 99013 No 521(a) Farmers' Cooperative Associations Cooperative marketing and 1028 1120-C No purchasing for agricultural procedures 527 Political organizations A party, committee, fund, 8871 1120-POL11 No association, etc., that directly or indirectly 9902 or 990-EZ8 accepts contributions or makes expenditures for political campaigns 1 Most 501(c) organizations, other than those described in sections 501(c)(3) (exceptions apply), (9), and (17), may, but are not required to, submit an application for recognition of tax exempt status from the IRS. These organizations may self-declare their tax exempt status by operating within the requirements of the applicable code section and filing the required annual returns or notices. 2 For exceptions to the filing requirement, see chapter 2 and the form instructions. Note: For annual tax periods beginning after 2006, most tax-exempt organizations, other than churches, are required to file an annual Form 990, 990-EZ, or 990-PF with the IRS or to submit an annual electronic notice, Form 990-N (e-Postcard), to the IRS. Tax-exempt organizations failing to file an annual return or submit an annual notice as required for 3 consecutive years will automatically lose their tax-exempt status. 3 An organization exempt under a subsection of section 501 other than 501(c)(3) can establish a charitable fund, contributions to which are deductible. Such a fund must itself meet the requirements of section 501(c)(3) and the related notice requirements of section 508(a). 4 Contributions to volunteer fire companies and similar organizations are deductible, but only if made for exclusively public purposes. 5 Deductible as a business expense to the extent allowed by section 192. 6 Deductible as a business expense to the extent allowed by section 194A. 7 Application is by letter to the address shown on Form 8718. A copy of the organizing document should be attached and the letter should be signed by an officer. 8 Contributions to these organizations are deductible only if 90% or more of the organization's members are war veterans. 9 For limits on the use of Form 990-EZ, see chapter 2 and the general instructions for Form 990-EZ (or Form 990). 10 Although the organization files a partnership return, all distributions are deemed dividends. The members aren't entitled to pass through treatment of the organization's income or expenses. 11 Form 1120-POL is required only if the organization has taxable income as defined in section 527(c). 12 Only required to annually file so much of the Form 990 that relates to the names and addresses of the officers, directors, trustees, and key employees, and their titles, compensation, and hours devoted to their positions (Part VII of Form 990), and to complete Item I in the Heading of Form 990 to confirm its tax-exempt status under section 501(c)(28). 13 See section 501(q) if the organization provides credit counseling services and seeks recognition of exemption under section 501(c)(4). Use Form 1024 if applying for recognition under section 501(c)(4). 14 See section 501(c)(29) for details. 15 See Rev. Proc. 2015-17, sec. 4.01, 2015-7 I.R.B. 599, for details.

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Appendix. Sample Articles of Organization

The following are examples of Articles of Incorporation (Draft A) and a declaration of trust (Draft B) that contain the required information as to purposes and powers of an organization and disposition of its assets upon dissolution. You should bear in mind that requirements for these instruments may vary under applicable state law.

See Private Foundations and Public Charities, earlier for the special provisions required in a private foundation's governing instrument in order for it to qualify for exemption.

DRAFT A

Articles of Incorporation of the undersigned, a majority of whom are citizens of the United States, desiring to form a Non-Profit Corporation under the Non-Profit Corporation Law of , do hereby certify:

First: The name of the Corporation shall be .

Second: The place in this state where the principal office of the Corporation is to be located is the City of , County.

Third: Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.

Fourth: The names and addresses of the persons who are the initial trustees of the corporation are as follows: Name , Address

Fifth: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code.

If reference to federal law in articles of incorporation imposes a limitation that is invalid in your state, you may wish to substitute the following for the last sentence of the preceding paragraph: “Notwithstanding any other provision of these articles, this corporation shall not, except to an insubstantial degree, engage in any activities or exercise any powers that aren't in furtherance of the purposes of this corporation.”

Sixth: Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Any such assets not so disposed of shall be disposed of by a Court of Competent of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes.

In witness whereof, we have hereunto subscribed our names this day of , 20 .

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Appendix. Sample Articles of Organization, continued

Draft B The Charitable Trust. Declaration of Trust made as of the day of , 20 , by , of , and , of , who hereby declare and agree that they have received this day from , as Donor, the sum of Ten Dollars ($10) and that they will hold and manage the same, and any additions to it, in trust, as follows:

First: This trust shall be called “The Charitable Trust.”

Second: The trustees may receive and accept property, whether real, personal, or mixed, by way of gift, bequest, or devise, from any person, firm, trust, or corporation, to be held, administered, and disposed of in accordance with and pursuant to the provisions of this Declaration of Trust; but no gift, bequest, or devise of any such property shall be received and accepted if it is conditioned or limited in such manner as to require the disposition of the income or its principal to any person or organization other than a “charitable organization” or for other than “charitable purposes” within the meaning of such terms as defined in Article Third of this Declaration of Trust, or as shall, in the opinion of the trustees, jeopardize the federal income tax exemption of this trust pursuant to section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.

Third: a) The principal and income of all property received and accepted by the trustees to be administered under this Declaration of Trust shall be held in trust by them, and the trustees may make payments or distributions from income or principal, or both, to or for the use of such charitable organizations, within the meaning of that term as defined in paragraph C, in such amounts and for such charitable purposes of the trust as the trustees shall from time to time select and determine; and the trustees may make payments or distributions from income or principal, or both, directly for such charitable purposes, within the meaning of that term as defined in paragraph D, in such amounts as the trustees shall from time to time select and determine without making use of any other charitable organization. The trustees may also make payments or distributions of all or any part of the income or principal to states, territories, or possessions of the United States, any political subdivision of any of the foregoing, or to the United States or the District of Columbia but only for charitable purposes within the meaning of that term as defined in paragraph D. Income or principal derived from contributions by corporations shall be distributed by the trustees for use solely within the United States or its possessions. No part of the net earnings of this trust shall inure or be payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of this trust shall be the carrying on of propaganda, or otherwise attempting to influence legislation. No part of the activities of this trust shall be the participation in, or intervention in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office.

b) The trust shall continue forever unless the trustees terminate it and distribute all of the principal and income, which action may be taken by the trustees in their discretion at any time. On such termination, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. The donor authorizes and empowers the trustees to form and organize a nonprofit corporation limited to the uses and purposes provided for in this Declaration of Trust, such corporation to be organized under the laws of any state or under the laws of the United States as may be determined by the trustees; such corporation when organized to have power to administer and control the affairs and property and to carry out the uses, objects, and purposes of this trust. Upon the creation and organization of such corporation, the trustees are authorized and empowered to convey, transfer, and deliver to such corporation all the property and assets to which this trust may be or become entitled. The charter, bylaws, and other provisions for the organization and management of such corporation and its affairs and property shall be such as the trustees shall determine, consistent with the provisions of this paragraph.

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c) In this Declaration of Trust and in any amendments to it, references to “charitable organizations” or “charitable organization” mean corporations, trusts, funds, foundations, or community chests created or organized in the United States or in any of its possessions, whether under the laws of the United States, any state or territory, the District of Columbia, or any possession of the United States, organized and operated exclusively for charitable purposes, no part of the net earnings of which inures or is payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, and which don't participate in or intervene in (including the publishing or distributing of statements) any political campaign on behalf of or in opposition to any candidate for public office. It is intended that the organization described in this paragraph C shall be entitled to exemption from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. d) In this Declaration of Trust and in any amendments to it, the term “charitable purposes” shall be limited to and shall include only religious, charitable, scientific, literary, or educational purposes within the meaning of those terms as used in section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, but only such purposes as also constitute public charitable purposes under the law of trusts of the State of .

Fourth: This Declaration of Trust may be amended at any time or times by written instrument or instruments signed and sealed by the trustees, and acknowledged by any of the trustees, provided that no amendment shall authorize the trustees to conduct the affairs of this trust in any manner or for any purpose contrary to the provisions of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. An amendment of the provisions of this Article Fourth (or any amendment to it) shall be valid only if and to the extent that such amendment further restricts the trustees' amending power. All instruments amending this Declaration of Trust shall be noted upon or kept attached to the executed original of this Declaration of Trust held by the trustees.

Fifth: Any trustee under this Declaration of Trust may, by written instrument, signed and acknowledged, resign his office. The number of trustees shall be at all times not less than two, and whenever for any reason the number is reduced to one, there shall be, and at any other time there may be, appointed one or more additional trustees. Appointments shall be made by the trustee or trustees for the time in office by written instruments signed and acknowledged. Any succeeding or additional trustee shall, upon his or her acceptance of the office by written instrument signed and acknowledged, have the same powers, rights, and duties, and the same title to the trust estate jointly with the surviving or remaining trustee or trustees as if originally appointed. None of the trustees shall be required to furnish any bond or surety. None of them shall be responsible or liable for the acts or omissions of any other of the trustees or of any predecessor or of a custodian, agent, depositary, or counsel selected with reasonable care. The one or more trustees, whether original or successor, for the time being in office, shall have full authority to act even though one or more vacancies may exist. A trustee may, by appropriate written instrument, delegate all or any part of his or her powers to another or others of the trustees for such periods and subject to such conditions as such delegating trustee may determine. The trustees serving under this Declaration of Trust are authorized to pay to themselves amounts for reasonable expenses incurred and reasonable compensation for services rendered in the administration of this trust, but in no event shall any trustee who has made a contribution to this trust ever receive any compensation thereafter.

Sixth: In extension and not in limitation of the common law and statutory powers of trustees and other powers granted in this Declaration of Trust, the trustees shall have the following discretionary powers.

a) To invest and reinvest the principal and income of the trust in such property, real, personal, or mixed, and in such manner as they shall deem proper, and from time to time to change investments as they shall deem advisable; to invest in or retain any stocks, shares, bonds, notes, obligations, or personal or real property (including without limitation any interests in or obligations of any corporation, association, business trust, investment trust, common trust fund, or investment company) although some or all of the property so acquired or retained is of a kind or size which but for this express authority wouldn't be considered proper and although all of the trust funds are invested in the securities of one company. No principal or income, however, shall be loaned, directly or indirectly, to any trustee or to anyone else, corporate or otherwise, who has at any time made a contribution to this trust, nor to anyone except on the basis of an adequate interest charge and with adequate security.

b) To sell, lease, or exchange any personal, mixed, or real property, at public auction or by private contract, for such consideration and on such terms as to credit or otherwise, and to make such contracts and enter into such undertakings relating to the trust property, as they consider advisable, whether or not such leases or contracts may extend beyond the duration of the trust.

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c) To borrow money for such periods, at such rates of interest, and upon such terms as the trustees consider advisable, and as security for such loans to mortgage or pledge any real or personal property with or without power of sale; to acquire or hold any real or personal property, subject to any mortgage or pledge on or of property acquired or held by this trust.

d) To execute and deliver deeds, assignments, transfers, mortgages, pledges, leases, covenants, contracts, promissory notes, releases, and other instruments, sealed or unsealed, incident to any transaction in which they engage.

e) To vote, to give proxies, to participate in the reorganization, merger, or consolidation of any concern, or in the sale, lease, disposition, or distribution of its assets; to join with other security holders in acting through a committee, depositary, voting trustees, or otherwise, and in this connection to delegate authority to such committee, depositary, or trustees and to deposit securities with them or transfer securities to them; to pay assessments levied on securities or to exercise subscription rights in respect of securities.

f) To employ a bank or trust company as custodian of any funds or securities and to delegate to it such powers as they deem appropriate; to hold trust property without indication of fiduciary capacity but only in the name of a registered nominee, provided the trust property is at all times identified as such on the books of the trust; to keep any or all of the trust property or funds in any place or places in the United States of America; to employ clerks, accountants, investment counsel, investment agents, and any special services, and to pay the reasonable compensation and expenses of all such services in addition to the compensation of the trustees.

Seventh: The trustees' powers are exercisable solely in the fiduciary capacity consistent with and in furtherance of the charitable purposes of this trust as specified in Article Third and not otherwise.

Eighth: In this Declaration of Trust and in any amendment to it, references to “trustees” mean the one or more trustees, whether original or successor, for the time being in office.

Ninth: Any person may rely on a copy, certified by a notary public, of the executed original of this Declaration of Trust held by the trustees, and of any of the notations on it and writings attached to it, as fully as he might rely on the original documents themselves. Any such person may rely fully on any statements of fact certified by anyone who appears from such original documents or from such certified copy to be a trustee under this Declaration of Trust. No one dealing with the trustees need inquire concerning the validity of anything the trustees purport to do. No one dealing with the trustees need see to the application of anything paid or transferred to or upon the order of the trustees of the trust.

Tenth: This Declaration of Trust is to be governed in all respects by the laws of the State of . • Trustee • Trustee

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1024 3, 5, 18, 47, 49–53, Law, public interest 29 A D 55–58 Legislative activity 46, 50 Acknowledgment of Determination letter 6 1040 13 Listed transaction 60 contributions 16 Disclosures, required 16 1065 10 Literary organizations 30 Adverse determination 6 Dues used for lobbying 20 1120–POL 13 Loans, organizations Affordable Care Act: Nondeductible 1128 21 providing 28 Hospitals 31 contributions 20 2848 4, 6 Lobbying expenditures 46 Aged, home for 28 Quid pro quo contributions 16 4720 47 Local benevolent life insurance Agricultural organization 49 Services available from 5578 27 associations 54 Airport 48 government 20 5768 46 Local employees' Alumni association 26 Dispositions of donated 6069 57 association 52 Amateur athletic property 15 8274 13 Lodge system 51 organizations 30 Disqualified persons 42 8282 15 Animals, prevention of cruelty Domestic fraternal society 51 8283 15 to 30 Donor advised funds: 8300 18 M Appeal procedures 6 Excess benefit transaction 61 8718 3, 4 Medical research Application procedures 3, 4 Dues used for political or 8821 6 organization 32 Bylaws 4 legislative activities 20, 50 8871 14, 18 Medicare and Medicaid Conformed copy 4 8872 14, 18 payments 35 Description of activities 5 990 9, 11, 18, 46 Membership fee 35, 40 Employer identification E 990-BL 10, 57 Modification of exemption 6 number 4 Educational organizations 25, 990-EZ 11 Mutual financial Financial Unless you are filing 31 990-PF 11, 30, 65 organization 55 Form 1023-EZ, y 5 Employees' association 51 990-T 12 Mutual or cooperative Organizing If you are submitting Employment taxes 13 SS-4 4, 8 association 54 a Form 1023 or Form 1024, Endowment fund 32 W–2 13 y 4 Estimated tax 12 Fraternal beneficiary society 51 Aquatic resources 49 Excess benefit transaction 61 Fraternal societies 20, 51 N Articles of organization 24 Disqualified person 60, 62 Funeral benefit insurance 54 Notice: Athletic organization 26, 30 Controlled entity, 35% 62 Notice 2014–4 45 Attorney's fees 29 Family members 62 Nursing bureau 28 Attribution, special rules 44 Substantial influence 62 G Disregarded benefits 63 Gifts and contributions, public Donor advised funds 61 charity 40 O B Excise tax 60 Governmental unit 32 One-third support test 32 Black lung benefit trust 57 Initial contracts 63 Grant: Organizational changes 21 Board of trade 49 Reasonable compensation 62 Distinguished from gross Organization assets 25 Bureau defined 40 Rebuttable presumption 63 receipts 40 Dedication 25 Burial benefit insurance 54 Excise tax: Exclusion for unusual Distribution 25 Business income, unrelated 12 Black lung benefit trust 57 grant 35, 39 Organization Reference Business league 49 Lobbying expenditures 47 From public charity 35, 41 Chart 68 Political expenditures 47 Grantor and contributor, Private foundations 30, 65 reliance on ruling 45 C Exempt function 13 Gross receipts from P Cemetery company 55 Exemption for terrorist nonmembership sources 51 Penalties 12 Chamber of commerce 49 organization 4 Group exemption letter 8 Failure to allow public Change in legal structure 21 Exempt purposes 21 inspection 20 Charitable contributions 16, 22 Extensions of time 23 Failure to disclose 16, 20 Charitable organization 21, 28 H Failure to file 12 Charitable risk pools 28 Health coverage Perpetual care organization 55 Child care organization 22 F organization 58 Political activity 20, 23, 48 Children, prevention of cruelty Facts and circumstances High-risk health coverage Political organization: to 30 test 32 organization 58 Income tax return 13 Church 29 Fair market value, estimate Home for the aged 28 Taxable income 13 Integrated auxiliaries 29 of 16 Homeowners' association 48 Power of attorney 4 Civic leagues 47 Filing requirements 10 Horticultural organization 49 Preferred stock 55 Clinic 28 Annual information returns 10 Hospital 28, 31 Prevention of cruelty to children College bookstore, Donee information return 15 or animals 30 restaurant 26 Due date 13 Private delivery service 23 Community association 48 Employment tax 13 I Private foundations 30 Community nursing bureau 28 Excise tax 30, 65 Identity theft 66 Private operating foundation 45 Community trust 37 Political organization 13 Inactive organization 21 Private school 26 Contributions, charitable 16, 22 Private foundations 11 Industrial development 48 Prohibited tax shelter CO-OP Health Insurance Unrelated business income 12 Instrumentalities 22 transactions: Issuers 59 Form 990-N 11 Insurance, organizations Entity managers 60 Court appeals 7 Forms 3 providing 28 Entity managers excise tax 60 Credit union 55 1023 3, 7, 8, 18, 22, 24, 26, Listed transaction 60 30, 46, 48 Prohibited reportable 1023-EZ 4, 22 L transactions 60 Labor organization 20, 48

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Prohibited tax shelter transactions (Cont.) Subsequently listed Religious organizations 29 Social welfare organization 20, transaction 60 Requests other than 47 U Tax-exempt entities 60 applications 5 Specified organizations 42 Unemployment benefit trust 53 Public charity: Responsiveness test 43 Sports organization, Unrelated business income 12 Gifts and contributions 40 Revocation of exemption 6 amateur 30 Unusual grants 35, 39 Grant from 41 Ruling letter 6 State-sponsored 58 User fee 4 Section 509(a)(1) 31 High-risk health coverage Section 509(a)(2) 38 organization 58 Section 509(a)(3) 41 S Workers' compensation V Section 509(a)(4) 45 Scholarship: reinsurance Veterans' organization 56 Support test 32, 38 Private school 27 organization 58 Voluntary employees' Public inspection: Scholarships 28 Stock or commodity beneficiary association 52 Annual return 18 School, private 26 exchange 50 Volunteer fire company 48 Exemption applications 18 Scientific organizations 29 Supplemental unemployment Forms 8871 and 8872 18 Section 501(c)(3) organizations: benefit trust 53 Public-interest law firm 29 Section 501(c)(3) Support 34, 35 W Publicly supported Organizations: Supporting organization 61 War veterans' organization 56 organization 32 Amateur athletic 30 Support test 32 Withdrawal of application 5 Attraction of public support 33 Charitable 28 Facts and circumstances 32 Withholding information from Ten-percent-of-support 33 Educational 25 One-third 32 public 5 Literary 30 Public charity 38 Workers' compensation Prevention of cruelty 30 reinsurance organization 58 R Private foundations 30 Racial composition 26 Public charities 31 T Racially nondiscriminatory Qualifications 21 Technical advice 7 policy 26 Religious 29 Testing for public safety 45 Real estate board 49 Scientific 29 Title-holding corporation 57 Recognition of exemption, Single entity 37 application 22 Social clubs 20, 50

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