Frequently Asked Questions
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Frequently Asked Questions about Applying for Tax Exempt Status
What is the difference between non-profit and tax-exempt status?
Non-profit status is a state law concept. Non-profit status may make an organization eligible for certain benefits, such as state sales, property, and income tax exemptions. Although most federal tax-exempt organizations are non-profit organizations, organizing as a non-profit organization at the state level does not automatically grant the organization exemption from federal income tax. To qualify as exempt from federal income taxes, an organization must meet requirements set forth in the Internal Revenue Code. See IRS Publication 557 for further guidance.
How does an organization become tax-exempt?
An organization becomes tax-exempt by applying for recognition of exemption from the Internal Revenue Service (IRS). The IRS will recognize an organization as tax-exempt if it meets the requirements of the Internal Revenue Code. See IRS Publication 557, Tax-Exempt Status for Your Organization, for more information.
Organizations applying for tax-exempt status must submit two applications: First, an application requesting an Employer Identification Number (EIN); and second, an application applying for recognition of exemption.
The IRS sometimes recognizes a group of organizations as tax-exempt if they are affiliated with a central organization. This avoids the need for each of the organizations to apply individually. See IRS Publication 4573, Group Exemptions, for more information.
Do I need a Federal tax-exempt number for my organization?
No. Unlike some states that issue numbers to organizations to indicate that these organizations are exempt from state sales taxes, the IRS does not issue numbers specifically for exempt organizations. While the Internal Revenue Service does issue Employer Identification Numbers (EINs), these are merely a unique identifier, similar to a Social Security number for an individual. Applying for and receiving an EIN says nothing about the organization's tax status; however, your organization needs an EIN to apply for tax exemption.
How do I get an Employer Identification Number (EIN) for my organization?
You can apply for an EIN through the Internet, over the telephone, via fax or through the mail.
To get an EIN on-line, click here.
Third parties can receive an EIN on a client's behalf by completing the new "Third Party Designee" section and obtaining the client's signature on Form SS-4. This avoids having to file a Form 2848 (Power of Attorney) or Form 8821 (Tax Information Authorization) to get an EIN for their client.
How do I obtain an application for tax-exempt status?
Most organizations applying for exemption must use specific application forms. Two forms currently prescribed by the IRS are Form 1023, Application for Recognition of Exemption (and instructions) (for charitable organizations); and Form 1024, Application for Recognition of Exemption (for other tax-exempt organizations). The application your organization is required to submit is specified in Publication 557. You may also request these forms by calling 1-800-TAX-FORM (1-800-829-3676).
How long does it take to process an application for exemption?
Applications are processed as soon as possible. The process can be delayed, however, for reasons ranging from simple errors on the application to issues concerning the qualification of the organization for exemption. See the Top Ten Reasons for Delay in Processing Applications.
The planning and formation of the nonprofit organization are excellent times to employ a professional. Completing the application for tax exemption is another time to consider employing a professional to help with the process.
If you would like my help with planning, formation, or completing the application for tax-exempt status contact me.
How can my application for tax-exempt status be expedited?
Expediting Application Processing
Applications are processed as soon as possible. The process can be delayed, however, for reasons ranging from simple errors on the application to issues concerning the qualification of the organization for exemption.
In general, applications are processed in the order received by the IRS. Sometimes, however, the IRS will work a case outside the regular order. For expedited processing to be granted, however, there must be a compelling reason to process the case ahead of others.
Is an exemption application subject to public disclosure?
An exemption application is subject to public disclosure once it has been finally approved or denied.
What if purposes or programs change after an application is submitted?
Change in Purposes or Activities While Application Pending
If the organization’s organizing documents, purposes, or programs change while the IRS is considering an application, you should report the change in writing to the office processing your application. If you do not know the office that is processing your exemption application, you may contact Exempt Organizations Customer Account Services.
Because material changes in a charity's structure or activities may affect its tax-exempt or public charity status, organizations should report such changes to the IRS Exempt Organizations Division. See procedures for reporting changes for a complete discussion.
Frequently Asked Questions About the Annual Federal Reporting Requirements for Exempt Organizations
What are my filing responsibilities once I receive/apply for my tax-exempt status?
An organization that has $50,000 or less in gross income will file on-line form 990-N. An organizationmore that has more than $50,000 but less than $200,000 in gross receipts and less than $500,000 in assets may file an exempt organization information return Form 990-EZ. An organization that has $200,000 or more in gross receipts or $500,000 or more in assets must file Form 990. Any of these required returns is due on the 15th day of the 5th month after the end of the fiscal year. The due date may be extended for three months, without showing cause, by filing Form 8868 before the due date; an additional three-month extension may be requested on Form 8868 if the organization shows reasonable cause why the return cannot be filed by the extended due date.
Are there any exceptions to the requirement to file Form 990?
Churches, certain governmental and church-affiliated organizations are not required to file returns.
The following organizations file another return in lieu of the Form 990:
Private foundations (Form 990-PF)
Employee benefit trusts (Form 5500)
Black lung benefit trusts (Form 990-BL)
Religious and apostolic organizations described in Code section 501(d)
Do individual members of a group ruling have to file separate Form 990 returns?
The parent and local organizations of each group must agree on their filing responsibilities. If the parent chooses to file a group return for its local organizations, and the local organizations agree to be included, then the local organizations should not file its own separate returns. However, if the local organizations are not included in a group return, they must file their own returns unless they meet one of the other exceptions to the filing requirements. See Filing Requirements for more details.
Additional information: Publication 4573, Group Exemptions
What happens if my Form 990 is filed late?
If Form 990 is filed after the due date (including any extensions), and the organization doesn't have reasonable cause for filing late, the Internal Revenue Service will impose a penalty of $20 per day for each day the return is late. The maximum penalty is $10,000 or 5% of the organization's gross receipts, whichever is less. The penalty increases to $100 per day up to a maximum of $50,000 for organization whose gross receipts exceed $1,000,000.
What happens if my Form 990 is incomplete?
The IRS treats an incomplete return the same as a return filed late - the penalties are the same. For example, if an organization fails to attach Schedule A or Schedule B to its annual return - one of the most common errors in filing Forms 990, 990-EZ, and 990-PF - its return is considered incomplete and filing penalties may apply.
Can penalties for filing Form 990 late be abated?
Failure to timely file the information return, absent reasonable cause, can give rise to a penalty under section 6652 of the Code. Generally, the reasonable cause exception to the penalty will be determined on a case-by-case basis taking into account all relevant facts and circumstances.
The regulations provide that a request for abatement of penalties based on reasonable cause must be made in the form of a written statement, containing a declaration by the appropriate person that the statement is made under the penalties of perjury, setting forth all the facts alleged as reasonable cause. When requesting reasonable cause, your letter should include supporting documentation and address the following items:
The reason the penalty was charged. The daily delinquency penalty may be charged for either a late filed return, an incomplete return or both.
Explain what prevented the organization from complying with the law, including:
what prevented the organization from requesting an extension of time to file its return;
how the organization was not neglectful or careless, but exercised ordinary business care and prudence; and what steps have been taken to prevent the same situation from occurring in the future.
Where do I file my annual return?
Send your return to the Internal Revenue Service Center, Ogden, UT 84201-0027.
Frequently Asked Questions about Operating as an Exempt Organization
Are there limitations on the activities in which a tax-exempt organization may engage?
Depending upon the nature of its exemption, a tax-exempt organization may jeopardize its tax-exempt status if it engages in certain activities. For example, section 501(c)(3) charitable organizations may not intervene in political campaigns or conduct substantial lobbying activities. See Types of Tax-Exempt Organizations or Publication 557 for more information.
You may also request a ruling regarding the effect of a proposed transaction on an organization's tax-exempt status. See the current Revenue Procedure for making such a request. (use link)
Can a tax-exempt organization endorse candidates for public office?
The type of tax exemption determines whether an organization may endorse candidates for public office. For example, a section 501(c)(3) organization may not publish or distribute printed statements or make oral statements on behalf of, or in opposition to, a candidate for public office. Consequently, a written or oral endorsement of a candidate is strictly forbidden. The rating of candidates, even on a nonpartisan basis, is also prohibited. On the other hand, a section 501(c)(4), (5), or (6) organization may engage in political campaigns, provided that such activities are not the organization's primary activity.
In addition, section 501(c) organizations that make expenditures for political activity may be subject to tax under section 527(f).
What is the difference between a private foundation and a public charity?
Every section 501(c)(3) organization is classified as either a private foundation or a public charity. Private foundations and public charities are distinguished primarily by the level of public involvement in their activities.
Public charities generally receive a greater portion of their financial support from the general public or governmental units, and have greater interaction with the public. A private foundation, on the other hand, is typically controlled by members of a family or by a small group of individuals, and derives much of its support from a small number of sources and from investment income. Because they are less open to public scrutiny, private foundations are subject to various operating restrictions and to excise taxes for failure to comply with those restrictions.
Under the tax law, a section 501(c)(3) organization is presumed to be a private foundation unless it requests, and qualifies for, a ruling or determination as a public charity. Organizations that qualify for public charity status include churches, schools, hospitals, medical research organizations, "publicly-supported" organizations (i.e., organizations that receive a specified portion of their total support from public sources), and certain supporting organizations.
What is an advance ruling period and what are the requirements?
A section 501(c)(3) organization may be classified as a public charity (rather than as a private foundation) on the basis that it is publicly supported. An organization is considered publicly supported if:
It normally receives a substantial part of its support from a governmental unit or from contributions from the general public; or,
It normally receives more than one-third of its support from gifts, grants, contributions, or gross receipts from activities related to its exempt purposes, and not more than one-third of its support from gross investment income.
In addition, the organization must meet the requirements of detailed support tests.
Generally, an organization computes its support over a five-year period. A new organization, however, will be considered to meet the support test if it so states on its application for tax exemption. Each year that the organization files a 990-EZ or 990 return (does not apply to 990-N filers), the level of public support is computed on the return.
Must an exempt organization notify the IRS if it changes its purposes or activities?
Once the IRS recognizes an organization’s tax-exempt status, the organization must notify the IRS if it amends its organizing documents or by-laws, or materially changes its activities from those described in its exemption application. To do this, the organization must send a copy of the amended document or a letter describing new activities to:
Internal Revenue Service
Exempt Organizations Determinations
P.O. Box 2508
Cincinnati, OH 45201
or the organization may describe such changes as part of its annual 990 or 990EZ return.
Frequently Asked Questions about Donations to an Exempt Organization
Can I take a deduction for a charitable contribution I make to any tax-exempt organization?
Only certain categories of exempt organizations are eligible to receive tax-deductible charitable contributions. These include most charities described in section 501(c)(3) of the Internal Revenue Code, and, in some circumstances, fraternal organizations described in section 501(c)(8) or section 501(c)(10), cemetery companies described in section 501(c)(13), volunteer fire departments described in section 501(c)(4), and veterans organizations described in section 501(c)(4) or 501(c)(19). In addition, contributions for exclusively public purposes to a State or its political subdivision (including an Indian tribal government treated as a state and certain political subdivisions of Indian tribal governments) may be deducted.
Are contributions to an organization that has not received an exemption determination letter deductible (for example, while an application is pending)?
If an organization is exempt under section 501(c)(3) of the Internal Revenue Code, charitable contributions to it are generally deductible. To be exempt under section 501(c)(3), most organizations must file Form 1023 by the end of the 27th month after they were created. If an organization does so, charitable contributions to it will be deductible back to the date of formation. The extent to which donors may be assured that their contributions will be deductible in advance, however, will depend on whether the organization has—
Timely filed Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, but not yet received a letter recognizing its exempt status, Filed Form 1023 later than the prescribed time, or Not filed Form 1023.
The short answer is that there is really no way of knowing whether the donation will be deductible until the organization has received its exemption determination letter. Churches and organizations not receiving more than $5,000 per year do not have to file Form 1023 and therefore will not have a determination letter or appear in Publication 78 and yet they may be exempt and donations to them may be deductible.
How can I determine if a particular organization is tax-exempt and eligible to receive tax-deductible contributions?
Publication 78 provides a partial listing of organizations that have been recognized by the IRS as eligible to receive tax-deductible contributions. For information on other organizations that have been recognized by the IRS as tax-exempt organizations, you may call IRS Customer Service at 877-829-5500.
A contributor can also check an organization's exemption letter, which states the Code section that describes the organization and whether contributions made to the organization are deductible.
The IRS sometimes recognizes a group of organizations as tax-exempt if they are affiliated with a central organization. This avoids the need for each of the organizations to apply for exemption individually. For more information, see Publication 4573, Group Exemptions. Subordinate organizations exempt under group rulings are not separately listed in Publication 78.
Frequently Asked Questions about
How to Obtain Information About Specific Tax-Exempt Organizations
How can I obtain a copy of an organization's annual return or exemption application?
You have the right to inspect, and obtain a copy of, a tax-exempt organization's:
annual information returns (e.g., Form 990 and 990-EZ); exempt status application materials; and notice of status under section 527(i) in person at the organization's principal office, or its regional or district offices, during regular business hours. You may also request copies of such materials in writing. The organization may charge a reasonable fee to cover copying and mailing costs. Note: An organization that filed its application before July 15, 1987, is required to make the application available only if it had a copy of the application on July 15, 1987. See Notice 88-120 for details.
You are entitled to inspect, or receive a copy of, any annual return for three years from the date the return was required to be filed (or, for an amended return, from the date it was filed).
For exemption application materials, you are entitled to inspect, or receive a copy of, the organization's exemption application (Form 1023, 1024, or other document required to be filed), any papers filed in support of the application, and any determination letter issued by the IRS with respect to the application.
You may also obtain copies of annual returns, exempt applications, or determination letters from the IRS by filing Form 4506-A, Request for Public Inspection or Copy of Exempt or Political Organization IRS Form. A fee may be charged for copies. You may also view copies of annual returns on the website GuideStar.
Can I get a list of donors to an organization?
The list of donors filed with Form 990 is specifically excluded from the information available for public inspection, except for donors to private foundations and political organizations.
What should I do if a section 501(c) organization will not let me see its Form 990 returns or exemption application materials?
Write to IRS EO Classification, Mail Code 4910, 1100 Commerce Street. Dallas, TX 75242. Your letter should provide the name and address of the organization that refuses to allow public inspection or provide copies of its documents, and request that the documents be made available for public inspection.
The Tax Exempt/Government Entities Division of the IRS will contact the organization and arrange a time during which the documents may be inspected. If the organization fails to provide the documents at the agreed upon time, statutory penalties will be assessed.
Where do I send complaints about the activities/operations of tax-exempt organizations?
If you believe that the activities or operations of a tax-exempt organization are inconsistent with its tax-exempt status, you may file a complaint with the Exempt Organizations Examination Division, at the following address:
IRS EO Classification
Mail Code 4910
1100 Commerce Street
Dallas, TX 75242
The complaint should contain all relevant facts concerning the alleged violation of tax law.
The IRS cannot advise you of any action it has taken or may take in response to a complaint. The confidentiality and disclosure provisions of the Internal Revenue Code preclude the Service from discussing matters relating to any activity it might undertake regarding the tax-exempt status of an entity with anyone other than the principal officers or authorized representatives of that entity. These provisions were enacted by Congress to protect the privacy of all taxpayers.
The IRS maintains an active examination program to ensure that tax-exempt organizations, as well as taxpayers, meet the requirements imposed on them by the Internal Revenue Code.
What information can I receive about an exempt organization from the IRS?
In general, someone contacting the IRS may obtain only general information about an exempt organization, unless an organization has submitted Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization. Only the following individuals may receive account specific information: an attorney of record, a director of the organization, or an officer or employee legally authorized to act on the organization's behalf.
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