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              Publication 557
              (Rev. January 2024)                                              Contents
              Cat. No. 46573C                                                  What's New   . . . . . . . . . . . . . . . . . . 2
Department 
of the                                                                         Reminders . . . . . . . . . . . . . . . . . . . 2
Treasury
Internal      Tax-Exempt                                                       Introduction . . . . . . . . . . . . . . . . . . 3
Revenue 
Service                                                                        Chapter  1.  Application, Approval, 
              Status for Your                                                  and Appeal Procedures . . . . . . . . 4
                                                                               Application Procedures            . . . . . . . . . 4
                                                                                           Forms Required     . . . . . . . . . . 4
              Organization                                                                 Required Information and 
                                                                                           Documents        . . . . . . . . . . . 5
                                                                                           Miscellaneous Procedures        . . . . 6
                                                                               Determination Letters          . . . . . . . . . . 6
                                                                                           Effective Date of Exemption . . . . 6
                                                                                           Revocation of Exemption       . . . . . 6
                                                                               Appeal Procedures           . . . . . . . . . . . . 7
                                                                                           Independent Office of 
                                                                                           Appeals Consideration           . . . . 7
                                                                                           Administrative Remedies       . . . . . 7
                                                                                           Appeal to Courts . . . . . . . . . . 8
                                                                               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                  . . . . . 10
                                                                               Annual Information Returns . . . . . .              11
                                                                               Unrelated Business Income Tax 
                                                                                           Return . . . . . . . . . . . . . . . .  13
                                                                               Employment Tax Returns             . . . . . . .    13
                                                                               Political Organization Income 
                                                                                           Tax Return. . . . . . . . . . . . . .   14
                                                                               Reporting Requirements for a 
                                                                                           Political Organization. . . . . . . .   14
                                                                               Donee Information Return . . . . . . .              16
                                                                               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 . . . . . . .           21
                                                                                           Dues Used for Lobbying or 
                                                                                           Political Activities . . . . . . .      21
                                                                               Miscellaneous Rules . . . . . . . . . .             21
                                                                                           Organizational Changes 
                                                                                           and Exempt Status . . . . . .           21
                                                                                           Modify or Obtain an NTEE 
                                                                                           Code.      . . . . . . . . . . . . .    22
                                                                               Chapter  3.  Section 501(c)(3) 
                                                                               Organizations . . . . . . . . . . . . .             22
              Get forms and other information faster and easier at:            Contributions to 501(c)(3) 
              • IRS.gov (English)         • IRS.gov/Korean (한국어)                           Organizations . . . . . . . . . . . .   22
              • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)          Application for Recognition of 
              • IRS.gov/Chinese (中文)      • IRS.gov/Vietnamese (Tiếng Việt)                Exemption . . . . . . . . . . . . . .   23
                                                                               Articles of Organization          . . . . . . . .   25

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  Educational Organizations and                  Excise Tax on Executive                               Form  4720  are  encouraged,  but  not  re-
  Private Schools . . . . . . . . . . .     26       Compensation      . . . . . . . . . . .   65      quired, to file Form 4720 electronically.
  Organizations Providing                        Excise Tax on Net Investment                        • Forms 990, 990-EZ, and 990-PF e-filing. 
  Insurance  . . . . . . . . . . . . . .    28       Income of Certain Colleges                        Form 990, Return of Organization Exempt 
  Other Section 501(c)(3)                            and Universities    . . . . . . . . . .   65      From Income Tax, and Form 990-PF, Re-
  Organizations . . . . . . . . . . . .     28                                                         turn of Private Foundation or Section 
  Private Foundations and Public               How To Get Tax Help . . . . . . . . . . . .     66      4947(a)(1) Trust Treated as Private Foun-
  Charities . . . . . . . . . . . . . . .   30                                                         dation, for tax years ending July 31, 2020, 
  Lobbying Expenditures     . . . . . . . . 46 Organization Reference Chart . . . . . .        69      and later MUST be filed electronically.
                                                                                                       Form 990-EZ, Short Form Return of Or-
Chapter  4.  Other Section 501(c)              Appendix. Sample Articles of                            ganizations  Exempt  from  Income  Tax,  for 
  Organizations . . . . . . . . . . . . .   48   Organization . . . . . . . . . . . . . .      70      tax  years  ending  July  31,  2021,  and  later 
  501(c)(4) - Civic Leagues and                                                                        MUST  be  filed  electronically.  The  transi-
  Social Welfare Organizations . . .        48 Appendix. Sample Articles of                            tional relief applicable to the Form 990-EZ 
  501(c)(5) - Labor, Agricultural,               Organization, continued       . . . . . . .   72      under which the IRS accepted either paper 
  and Horticultural                                                                                    or electronic filing of Form 990-EZ applied 
  Organizations . . . . . . . . . . . .     49 Index . . . . . . . . . . . . . . . . . . . . . 75      only  for  tax  years  ending  before  July  31, 
  501(c)(6) - Business Leagues,                                                                        2021.
  etc. . . . . . . . . . . . . . . . . . .  49                                                         More information on software providers 
  501(c)(7) - Social and                                                                               is  available  on  the Exempt  Organizations 
  Recreation Clubs . . . . . . . . . .      50 What's New                                              Modernized e-File (MeF) Providers page.
  501(c)(8) and 501(c)(10) -                   Future developments.      The IRS has created a         For more information, go to IRS: Recent 
  Fraternal Beneficiary                        page on IRS.gov for information about Publica-          legislation     requires     tax exempt 
  Societies and Domestic                       tion 557, at IRS.gov/Pub557. Information about          organizations to e-file forms.
  Fraternal Societies . . . . . . . . .     51 any  future  developments  affecting  Publication     Section  501(c)(21)  trusts. Form  990-BL,  In-
  501(c)(4), 501(c)(9), and 501(c)             557  (such  as  legislation  enacted  after  we  re-  formation and Initial Excise Tax Return for Black 
  (17) - Employees'                            lease it) will be posted on that page.                Lung  Benefit  Trusts  and  Certain  Related  Per-
  Associations   . . . . . . . . . . . .    52
  501(c)(12) - Local Benevolent                                                                      sons, will be a historical form beginning with tax 
  Life Insurance Associations,                                                                       year 2021. Section 501(c)(21) trusts can no lon-
  Mutual Irrigation and                                                                              ger file Form 990-BL and will file Form 990 (or 
  Telephone Companies, and                     Reminders                                             submit Form 990-N, if eligible) to meet their an-
  Like Organizations . . . . . . . . .      53 Electronic Form 1024.     As of January 3, 2022,      nual filing obligations under section 6033. Some 
  501(c)(13) - Cemetery                        Form  1024,  Application  for  Recognition  of  Ex-   section 501(c)(21) trusts may also be required 
  Companies     . . . . . . . . . . . . .   55 emption Under Section 501(a) or Section 521,          to  file  Form  6069,  Return  of  Certain  Excise 
  501(c)(14) - Credit Unions and               must  be  submitted  for  electronic  filing  on      Taxes  on  Mine  Operators,  Black  Lung  Trusts, 
  Other Mutual Financial                       Pay.gov. As part of the revision, applications for    and Other Persons Under Sections 4951, 4952, 
  Organizations . . . . . . . . . . . .     56 recognition of exemption under Sections 501(c)        and 4953.
  501(c)(19) - Veterans'                       (11), (14), (16), (18), (21), (22), (23), (26), (27), Reporting of donor information (Form 990, 
  Organizations . . . . . . . . . . . .     56 (28), (29), and 501(d) can no longer be submit-       990-EZ,  and  990-PF).   Final  regulations  pro-
  501(c)(21) - Black Lung Benefit              ted  as  letter  applications.  Instead,  these  re-  vide  that  the  requirement  to  report  contributor 
  Trusts . . . . . . . . . . . . . . . .    57 quests  must  be  made  on  the  electronic  Form     names and addresses on annual returns gener-
  501(c)(2) - Title-Holding                    1024.                                                 ally  applies  only  to  returns  filed  by  Section 
  Corporations for Single                                                                            501(c)(3) organizations and Section  527  politi-
  Parent Corporations       . . . . . . . . 57 Also,  organizations  requesting  determina-
  501(c)(25) - Title-Holding                   tions under Section 521 are now able to use the       cal organizations.  All tax-exempt organizations 
  Corporations or Trusts for                   electronic Form 1024 instead of Form 1028, Ap-        must  continue  to  maintain  the  names  and  ad-
  Multiple Parent Corporations      . . .   58 plication  for  Recognition  of  Exemption  Under     dresses of their substantial contributors in their 
  501(c)(26) - State-Sponsored                 Section 521.                                          books and records.
  High-Risk Health Coverage                    Update on mandatory e-filing.       The Taxpayer      IRS  not  accepting  requests  for  group  ex-
  Organizations . . . . . . . . . . . .     58 First Act, enacted July 1, 2019, requires tax-ex-     emption  numbers.       The  IRS  will  not  accept 
  501(c)(27) - Qualified                       empt organizations to electronically file informa-    any  requests  for  group  exemption  letters  start-
  State-Sponsored Workers'                     tion returns and related forms. The new law af-       ing on June 17, 2020, until publication of the fi-
  Compensation Organizations . . .          59 fects  tax-exempt  organizations  in  tax  years      nal revenue procedure or other guidance in the 
  501(c)(29) - CO-OP Health                    beginning after July 1, 2019.                         Internal Revenue Bulletin. See Notice 2020-36.
  Insurance Issuers       . . . . . . . . . 59 • Forms 990-T and 4720 are available for              Automatic  revocation.   Regarding  automatic 
                                                 e-filing in 2022. In 2020, the IRS contin-          revocation for the failure to file a return or notice 
Chapter  5.  Excise Taxes . . . . . . . . . 60   ued to accept paper Form 990-T, Exempt              for 3 consecutive years, as required by section 
  Prohibited Tax Shelter                         Organization Business Income Tax Return,            6033,  the  Taxpayer  First  Act  of  2019,  P.L. 
  Transactions   . . . . . . . . . . . .    60   and Form 4720, Return of Certain Excise             116-25, added a requirement that the IRS notify 
  Excess Benefit Transactions   . . . . .   60   Taxes Under Chapters 41 and 42 of the In-           the organization after the organization has failed 
  Excess Business Holdings    . . . . . .   63   ternal Revenue Code, pending conversion             to  file  for  2  consecutive  years.  See  Automatic 
  Taxable Distributions of                       into electronic format. As described below,         Revocation,  later,  for  more  information,  includ-
  Sponsoring Organizations . . . . .        64   in 2021, the IRS announced e-filing is re-          ing applicability dates.
  Taxes on Prohibited Benefits                   quired for these forms.
  Resulting from Donor                               For Form 990-T, any 2020, and any fu-           Electronic  Form  1023.  Form  1023,  Applica-
  Advised Fund Distributions       . . . .  65   ture year Form 990-T with a due date on or          tion for Recognition of Exemption under Section 
  Excise Taxes on Private                        after April 15, 2021, must be filed electroni-      501(c)(3) of the Internal Revenue Code, is avail-
  Foundations   . . . . . . . . . . . . .   65   cally and not on paper.                             able only as an electronic form filed on Pay.gov. 
  Excise Taxes on Black Lung                         For Form 4720, any 2020, and any fu-            Form  1023-EZ,  Streamlined  Application,  is  al-
  Benefit Trusts . . . . . . . . . . . .    65   ture  year,  Form  4720  filed  by  a  private      ready on Pay.gov.
  Excise Tax on Failure To Meet                  foundation with a due date on or after July         Tax  on  investment  income  of  private  foun-
  the Community Health                           15,  2021,  must  be  filed  electronically  and    dations. The  Taxpayer  Certainty  and  Disaster 
  Needs Assessment                               not on paper. Organizations other than pri-         Tax Relief Act of 2019, reduced the 2% excise 
  Requirements     . . . . . . . . . . .    65   vate  foundations  that  are  required  to  file    tax on investment income of private foundations 
2                                                                                                                      Publication 557 (1-2024)

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to 1.39%. At the same time, the legislation re- Form 8976 may only be completed and submit- Corporations organized under Acts of
pealed the 1% special rate that applied if the ted electronically at: Electronically Submit Your Congress . . . . . . . . . . . . . . . . . . . . . . . 501(c)(1)
private foundation met certain distribution re- Form 8976, Notice of Intent to Operate Under Teachers' retirement fund associations . . . 501(c)(11)
quirements. The change is effective for taxable Section 501(c)(4). Mutual insurance companies . . . . . . . . . . 501(c)(15)
years beginning after December 20, 2019. Forms, instructions, and publications. All Corporations organized to finance crop
operations . . . . . . . . . . . . . . . . . . . . . . 501(c)(16)
Increase in UBTI for disallowed fringe re- IRS forms, instructions and publications men- Employee funded pension trusts (created
pealed. The Taxpayer Certainty and Disaster tioned in this publication can be accessed on before June 25, 1959) . . . . . . . . . . . . . . 501(c)(18)
Tax Relief Act of 2019 retroactively repealed In- IRS.gov from the Forms and Instructions page. Withdrawal liability payment fund . . . . . . . 501(c)(22)
ternal Revenue Code Section 512(a)(7), which Veterans' organizations (created before
increased unrelated business taxable income 1880) . . . . . . . . . . . . . . . . . . . . . . . . . . 501(c)(23)
by amounts paid or incurred for qualified trans- Introduction National Railroad Retirement Investment
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 501(c)(28)
portation fringes. Congress had previously This publication discusses the rules and proce- Religious and apostolic associations . . . . 501(d)
enacted this provision for amounts paid or in- dures for organizations that seek recognition of Cooperative hospital service
curred after December 31, 2017. exemption from federal income tax under sec- organizations . . . . . . . . . . . . . . . . . . . . 501(e)
Excise tax on executive compensation. tion 501(a) of the Internal Revenue Code (the Cooperative service organizations of
Section 4960, added by P.L. 115-97, effective Code). It explains the procedures you must fol- operating educational organizations . . . . . 501(f)
for tax years beginning after December 17, low to obtain an appropriate determination letter
2017, imposes an excise tax on an organization recognizing your organization's exemption, as Section 501(c)(24) organizations (section
that pays to any covered employee more than well as certain other information that applies 4049 ERISA trusts) are neither discussed in the
$1 million in remuneration or pays an excess generally to all exempt organizations. To qualify text nor listed in the Organization Reference
parachute payment during the year starting in for exemption under the Code, your organiza- Chart.
2018. See Excise Tax on Executive Compensa- tion must be organized for one or more of the Similarly, farmers' cooperative associations
tion, chapter 5. See also section 4960 and Form purposes specifically designated in the Code. that qualify for exemption under section 521,
4720, Return of Certain Excise Taxes Under Organizations that are exempt under section qualified state tuition programs described in
Chapters 41 and 42 of the Internal Revenue 501(a) include those organizations described in section 529, qualified ABLE programs descri-
Code, for more information. section 501(c). Section 501(c) organizations bed in section 529A, and pension, profit-shar-
Excise tax on net investment income of cer- are covered in this publication. ing, and stock bonus plans described in section
tain colleges and universities. Section 4968 Chapter 1, Application, Approval, and Ap- 401(a) aren't discussed in this publication. Visit
imposes an excise tax on the net investment in- peal Procedures, provides general information IRS.gov for more information on these types of
come of certain private colleges and universi- about the procedures for obtaining recognition organizations. For telephone assistance, call 1–
ties. See Excise Tax on Net Investment Income of tax-exempt status. 877–829–5500.
of Certain Colleges and Universities, chapter 5. Chapter 2, Filing Requirements and Re- Check the Table of Contents at the begin-
See also section 4968 and Form 4720, Return quired Disclosures, contains information about ning of this publication to determine whether
of Certain Excise Taxes Under Chapters 41 and annual filing requirements and other matters your organization is described in this publica-
42 of the Internal Revenue Code, for more infor- that may affect your organization's tax-exempt tion. If it is, read the chapter (or section) that ap-
mation. status. plies to your type of organization for the specific
Chapter 3, Section 501(c)(3) Organizations, information you must give when applying for
Separate UBTI calculation for each trade or contains detailed information on various matters recognition of exemption.
business. Organizations with more than one affecting section 501(c)(3) organizations, in-
unrelated trade or business must compute unre- cluding a section on the determination of private Organization Reference Chart. The Organi-
lated business taxable income (UBTI), including foundation status. zation Reference Chart enables you to locate at
for purposes of determining any net operating Chapter 4, Other Section 501(c) Organiza- a glance the section of the Code under which
loss deduction, separately with respect to each tions, includes separate sections for specific your organization might qualify for exemption. It
such trade or business. See Unrelated Busi- types of organizations described in section also shows the required application form and, if
ness Income Tax Return, chapter 2. See also 501(c). your organization meets the exemption require-
Schedule A (Form 990-T). The UBTI with re- Chapter 5, Excise Taxes, provides informa- ments, the annual return to be filed (if any), and
spect to any such trade or business shall not be tion on when excise taxes may be imposed. whether or not a contribution to your organiza-
less than zero when computing total UBTI. Chapter 6, How to Get Tax Help, provides tion will be deductible by a donor. It also de-
Exception from the excise tax on excess tips and resources on where to find answers to scribes each type of qualifying organization and
business holdings. Section 4943(g) created tax questions or other assistance. the general nature of its activities.
an exception from the excise tax on excess You may use the Organization Reference
business holdings for certain independently op- Organizations not discussed in this publi- Chart to identify the Code section that you think
erated enterprises whose voting stock is wholly cation. Certain organizations that may qualify applies to your organization. Any correspond-
owned by a private foundation. For more details, for exemption aren't discussed in detail in this ence with the IRS (in requesting forms or other-
see Excess Business Holdings, chapter 5. publication, although they are included in the wise) can be responded to faster if you indicate
Organizational changes. For tax years begin- Organization Reference Chart and the applica- in your correspondence the appropriate Code
ning on or after January 1, 2018, the IRS will no tion procedures discussed in Chapter 1. These section. Check the IRS website, IRS.gov, for the
longer require a new exemption application from organizations (and the Code sections that apply latest updates, Tax Information for Charities &
a domestic section 501(c) organization that un- to them) are as follows: Other Non-Profits.
dergoes certain changes of form or place of or-
ganization, as described in Rev. Proc. 2018-15, Comments and suggestions. We welcome
2018-9 I.R.B. 379. your comments about this publication and your
suggestions for future editions.
Group exemptions. Beginning January 2019, You can send us comments through
the IRS will no longer send the List of Parent IRS.gov/FormComments. Or, you can write to
and Subsidiary Accounts to the central organi- Internal Revenue Service, Tax Forms and Publi-
zations. See Group Exemption Letter, later. cations, 1111 Constitution Ave. NW, IR-6526,
Form 8976. Each new section 501(c)(4) organ- Washington, DC 20224.
ization must notify the IRS of its intent to oper- Although we can’t respond individually to
ate as a section 501(c)(4) organization regard- each comment received, we do appreciate your
less of whether it will seek recognition of its feedback and will consider your comments as
exempt status under section 501(c)(4). Use
Form 8976, Notice of Intent to Operate Under
Section 501(c)(4), to provide this notification.
Publication 557 (1-2024) 3

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we revise our tax forms, instructions, and publi-                                                           • 501(c)(8) Fraternal beneficiary societies, 
cations. Don’t send tax questions, tax returns,                                                               orders, or associations;
or payments to the above address.                     Application Procedures                                • 501(c)(9) Voluntary employees’ beneficiary 
                                                                                                              associations;
  Getting  answers  to  your  tax  questions.         Oral requests for recognition of exemption won't      • 501(c)(10) Domestic fraternal societies, or-
If you have a tax question not answered by this       be  considered  by  the  IRS.  Your  application  for   ders, etc.;
publication  or How  to  Get  Tax  Help  section  at  recognition of tax-exempt status must be in writ-     • 501(c)(11) Teachers’ Retirement Fund As-
the end of this publication, go to the IRS Inter-     ing  using  the  appropriate  forms,  as  discussed     sociations;
active  Tax  Assistant  page  at IRS.gov/Help/ITA     below.                                                • 501(c)(12) Benevolent life insurance asso-
where you can find topics using the search fea-                                                               ciations, mutual ditch or irrigation compa-
ture or by viewing the categories listed.                                                                     nies, mutual or cooperative telephone 
                                                      Forms Required
  Getting tax forms, instructions, and pub-                                                                   companies;
                                                                                                            • 501(c)(13) Cemetery companies;
lications. Visit IRS.gov/Forms  to  download          If your organization is seeking recognition of ex-    • 501(c)(14) State-Chartered Credit Unions, 
current  and  prior-year  forms,  instructions,  and  emption from federal income tax, it must use a          Mutual Reserve Funds;
publications.                                         specific  application  prescribed  by  the  IRS  in   • 501(c)(15) Mutual insurance companies or 
  Ordering  tax  forms,  instructions,  and           Rev. Proc. 2024-5, I.R.B 256. If your organiza-         associations;
publications.   Go to IRS.gov/OrderForms to or-       tion is a central organization with exempt status,    • 501(c)(16) Cooperative Organizations to 
der  current  forms,  instructions,  and  publica-    see  Group  Exemption  Letter,  later.  All  applica-   Finance Crop Operations;
tions;  call  800-829-3676  to  order  prior-year     tions must be signed by an authorized individ-        • 501(c)(17) Trusts providing for the payment 
forms  and  instructions.  The  IRS  will  process    ual.                                                    of supplemental unemployment compen-
your  order  for  forms  and  publications  as  soon                                                          sation benefits;
as possible. Don’t resubmit requests you’ve al-       Form  1023,  Application  for  Recognition  of        • 501(c)(18) Employee Funded Pension 
ready sent us. You can get forms and publica-         Exemption  Under  Section  501(c)(3)  of  the           Trust (created before June 25, 1959);
tions faster online.                                  Internal Revenue Code.     File Form 1023 if you      • 501(c)(19) A post, organization, auxiliary 
                                                      are  seeking  recognition  of  exemption  under         unit, etc. of past or present members of the 
                                                      section:                                                Armed Forces of the United States;
                                                      •    501(c)(3) Corporations, organized and op-        • 501(c)(21) Black Lung Benefit Trusts;
                                                           erated exclusively for religious, charitable,    • 501(c)(22) Withdrawal Liability Payment 
                                                           scientific, testing for public safety, literary,   Fund;
                                                           or educational purposes, or to foster na-        • 501(c)(23) Veterans’ Organization (created 
1.                                                         tional or international amateur sports, or         before 1880);
                                                           prevention of cruelty for children or ani-       • 501(c)(25) Title holding corporations or 
                                                           mals, including the following types of or-         trusts;
                                                           ganizations to which the specified subsec-       • 501(c)(26) State-Sponsored Organization 
Application,                                               tions are applicable;                              Providing Health Coverage for High-Risk 
                                                      •    501(e) Cooperative hospital service organ-         Individuals;
Approval, and                                              ization;                                         • 501(c)(27) State-Sponsored Workers’ 
                                                      •    501(f) Cooperative service organization of         Compensation Reinsurance Organization;
                                                           operating educational organizations;             • 501(c)(28) National Railroad Retirement 
Appeal                                                •    501(k) Certain organizations providing             Investment Trust;
                                                           child care;                                      • 501(c)(29) CO-OP health insurance issu-
Procedures                                            •    501(n) Charitable risk pools;                      ers, and
                                                      •    501(q) Credit counseling organizations,          • 501(d) Religious and Apostolic Associa-
                                                           and                                                tions.
                                                      •    501(r) Hospital organizations.                   Also,  organizations  requesting  determinations 
Introduction                                                                                                under Section 521 are now able to use the elec-
                                                      Applications  for  exempt  status  on  a  Form        tronic Form 1024 instead of Form 1028, Appli-
If your organization is one of the organizations      1023  must  be  electronically  submitted  through    cation for Recognition of Exemption Under Sec-
described in this publication and is seeking rec-     Pay.gov. See Rev. Proc. 2024-5.                       tion 521 of the Internal Revenue Code
ognition of tax-exempt status from the IRS, you                                                             As  of  January  3,  2022,  applications  for  ex-
should  follow  the  procedures  described  in  this  Form  1023-EZ,  Streamlined  Application  for         empt status on a Form 1024 must be electroni-
chapter  and  the  instructions  that  accompany      Recognition  of  Exemption  Under  Section            cally submitted through Pay.gov.
the appropriate application forms.                    501(c)(3) of the Internal Revenue Code.     You 
  For information on section 501(c)(3) organi-        may be eligible to file Form 1023-EZ if you are a     Form 1024-A, Application for Recognition of 
zations, go to  Section 501(c)(3) Organizations,      smaller organization (assets of $250,000 or less      Exemption  Under  Section  501(c)(4)  of  the 
chapter  3.  If  your  organization  is  seeking  ex- and  annual  gross  receipts  of  $50,000  or  less)  Internal  Revenue  Code. File  Form  1024-A  if 
emption  under  one  of  the  other  paragraphs  of   seeking recognition of exemption under section        you are seeking recognition of exemption under 
section 501(c), see chapter 4.                        501(c)(3). See Rev. Proc. 2024-5.                     section 501(c)(4).
                                                      Applications  for  exempt  status  on  a  Form        Submitting Form 1024-A does not satisfy an 
Topics                                                1023-EZ  must  be  electronically  submitted          organization’s  requirement  to  notify  the  Com-
This chapter discusses:                               through Pay.gov.                                      missioner  that  it  is  operating  under  section 
                                                                                                            501(c)(4),  as  required  by  section  506.  See 
• Application procedures that generally               Form  1024,  Application  for  Recognition  of        IRS.gov  for  information  on  satisfying  the  notifi-
  apply to all organizations discussed in this        Exemptions  Under  Section  501(a)  or  Sec-          cation requirement using Form 8976, Notice of 
  publication, including the application              tion 521 of the Internal Revenue Code.      File      Intent to Operate Under Section 501(c)(4).
  forms;                                              Form 1024 if you are seeking recognition of ex-       Form 1024-A, Application for Recognition of 
• Determination letters (approvals/                   emption under section:                                Exemption  Under  Section  501(c)(4),  must  be 
  disapprovals);                                      •    501(c)(2) Title holding corporations;            filed electronically on Pay.gov.
• Appeal procedures available if an adverse           •    501(c)(5) Labor, agricultural, or horticul-
  determination letter is proposed; and                    tural organizations;
• Group exemption letters.                            •    501(c)(6) Business leagues, chambers of 
                                                           commerce, etc.;
                                                      •    501(c)(7) Social clubs;
4                                         Chapter 1          Application, Approval, and Appeal Procedures                     Publication 557 (1-2024)

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Form 1028, Application for Recognition of basis of law, regulations, or a clearly applicable complete and was filed and approved by the
Exemption Under Section 521 of the Inter- revenue ruling or other published precedent. state, including the date filed.
nal Revenue Code. Use Form 1028, Applica- See section 3, Rev. Proc. 2024-5. If you are formed as a limited liability com-
tion for Recognition of Exemption Under Sec- pany and have adopted an operating agree-
tion 521 of the Internal Revenue Code, if your Reminder. The law requires payment of a user ment, submit the operating agreement along
organization is a farmers’ cooperative seeking fee for determination letter requests. Go to Rev. with your state-approved articles of organiza-
recognition of exemption under section 521. Proc. 2024-1, Appendix A, to find the required tion.
You must also submit Form 8718. payment. Payment must accompany each re- If your organization's name has been offi-
Alternatively, organizations requesting deter- quest. cially changed by an amendment to your organ-
minations under Section 521 are now able to izing instruments, you should also attach a con-
use the electronic Form 1024 instead of Form Non-exemption for terrorist organizations. formed copy of that amendment to your
1028. An organization that is identified or designated application.
as a terrorist organization within the meaning of
Form 8871, Political Organization Notice of section 501(p)(2) isn't eligible to apply for rec- Conformed copy. A conformed copy is a
Section 527 Status. Use Form 8871, Political ognition of exemption. copy that agrees with the original and all
Organization Notice of Section 527 Status, if amendments to it. If the original document re-
you are a political organization seeking to be User fee. The law requires the payment of a quired a signature, the copy should either be
treated as tax-exempt under section 527 unless user fee for determination letter requests such signed by a principal officer or, if not signed, be
an exception applies. See Political Organization as your application for recognition of tax-exempt accompanied by a written declaration signed by
Income Tax Return, later. status. User fees are listed in Rev. Proc. 2024-1, an authorized officer of the organization. With
Some organizations don’t have to use spe- Appendix A. If you are filing Form 1023, Form either option, the officer must certify that the
cific application forms. The application your or- 1023-EZ, Form 1024 or 1024-A, the user fee document is a complete and accurate copy of
ganization must use is specified in the chapter must be submitted through Pay.gov. the original. A certificate of incorporation should
be approved and dated by an appropriate state
in this publication dealing with your kind of or- For the current user fee amount and official.
ganization. It is also shown in the Organization TIP other information about applying for
Reference Chart, later. tax-exempt status, go to IRS.gov and Bylaws. Bylaws alone aren't organizing
Form 8871 must be filed at the IRS Political select “Charities and Non-Profits” from the but- documents. However, if your organization has
Organizations Filing and Disclosure site. tons near the top. Next, select “Applying for adopted bylaws, include a current copy. The by-
Tax-Exempt Status” for more information. You laws need not be signed if submitted as an at-
Power of attorney. If your organization ex- can also call 1-877-829-5500. tachment.
pects to be represented by an individual such
as an attorney, CPA, officer or other person au- Bylaws may be considered an organiz-
thorized to practice before the IRS, whether in Required Information and TIP ing document only if they are properly
structured (includes name, purpose,
person or by correspondence, you must file a Documents signatures, and intent to form an organization).
Form 2848, Power of Attorney and Declaration
of Representative, with your exemption applica- Employer identification number (EIN). Ev-
tion. The power of attorney must specifically au- ery exempt organization must have its own EIN, Attachments. When submitting attachments,
thorize an individual to represent your organiza- whether or not it has any employees. An EIN is every attachment should show your organiza-
tion. You can't name an organization, firm, etc. required before an exemption application is tion's name and EIN. It should also state that it
as your representative. Form 2848 can be used submitted. Information on how to apply for an is an attachment to your application form and
for this purpose. The categories of individuals EIN can be found online at Employer ID identify the part and line item number to which it
who can represent you before the IRS are listed Numbers (EIN). The EIN is issued immediately applies.
on the form. once the application information is validated. Original documents. Don't submit original
If you previously applied for an EIN and documents because they become part of the
Form 8940, Request for Miscellaneous De- haven't yet received it, or you are unsure IRS file and can't be returned.
termination. You can request miscellaneous whether you have an EIN, please call our
determinations under sections 507, 509(a), toll-free customer account services number, Description of activities. Your application
4940, 4942, 4945, and 6033 using Form 8940. 1-877-829-5500, for assistance. must include a full description of the proposed
Nonexempt charitable trusts also file Form 8940
activities of your organization, including each of
for an initial determination of section 509(a)(3) Organizing documents. If you are submitting the fundraising activities of a section 501(c)(3)
status or change to their type. See Form 8940 an application other than Form 1023-EZ, your organization and a narrative description of an-
and instructions for more information. application should include a copy of the organ- ticipated receipts and contemplated expendi-
Requests other than applications. izing or enabling document that is signed by a tures. When describing the activities in which
Requests other than applications for principal officer or is accompanied by a written your organization expects to engage, you must
recognition of exemption or Form 8940 declaration signed by an authorized individual include the standards, criteria, procedures, or
(for example, requests for letter rulings involving certifying that the document is a complete and other means that your organization adopted or
feeder organizations, application of excise taxes accurate copy of the original or meets the re- planned for carrying out those activities.
to activities of private foundations, taxation of quirements of a conformed copy in Rev. Proc. To determine the information you need to
unrelated business income, etc.) should be sent 2011-9, section 3.08(5). If you are submitting a provide, you should study the part of this publi-
to the appropriate address listed in Rev. Proc. Form 1023-EZ, you don’t need to include a cation that applies to your organization. The ap-
2024-1, 2024-1 I.R.B. 1. copy of your organizing documents with the ap- propriate chapter will describe the purposes
plication. However, you may be asked to pro- and activities that your organization must pur-
These requests, similar to applications for vide it during the application review process. sue, engage in, and include in your application
recognition of exemption previously discussed, If your organizing or enabling document are in order to achieve exempt status.
must be accompanied by the appropriate user articles of incorporation, include evidence that it Often, your organization's articles of organi-
fee. The schedule for user fees, including those was filed and approved by a state official. (For zation (or other organizing instruments) contain
for requests other than applications, can be example, a stamped “Filed” copy dated by the descriptions of your organization's purposes
found in Rev. Proc. 2024-1. Secretary of State is prima facie evidence that it and activities.
Exempt Organization (EO) Determinations was filed and approved by a state official.) A
can request technical advice from the Office of copy of the articles of incorporation can also be Your application should describe completely
Associate Chief Counsel (Employee Benefits, submitted with a written declaration signed by and in detail your past, present, and planned
Exempt Organizations, and Employment Taxes) an authorized individual indicating the copy is activities.
If you are filing Form 1023-EZ, also review
on any question that can't be resolved on the the Instructions for Form 1023-EZ for more
Publication 557 (1-2024) Chapter 1 Application, Approval, and Appeal Procedures 5

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information about what to include in your de- Withdrawal of application. An organization adopted or planned by the organization for car-
scription. may withdraw an application at any time before rying out its activities, expected sources of
the issuance of a determination letter upon the funds, and the nature of its contemplated ex-
Financial data. Unless you are filing Form written request of a principal officer or author- penses.
1023-EZ, you must include in your application a ized representative of your organization. How-
statement of revenues and expenses for the ever, the withdrawal won't prevent the informa- Adverse determination. A proposed adverse
number of years specified in the applicable form tion contained in the application from being determination letter will be issued to an organi-
instructions. For each accounting period, you used by the IRS in any subsequent examination zation that has not provided sufficiently detailed
must describe the sources of your receipts and of your organization's returns. The information information to establish that it qualifies for ex-
the nature of your expenditures. You must also forwarded with an application won't be returned emption or if the information provided estab-
include a balance sheet for your most recently to your organization and, generally, when an ap- lishes that it doesn't qualify for exemption. An
completed tax year or if you haven’t completed plication is withdrawn, the user fee paid won't organization can appeal a proposed adverse
a full tax year, the most current information be refunded. determination letter. See Appeal Procedures,
available. later.
If you haven't yet begun operations, or have Requests for withholding of information
operated for less than 1 year, a proposed from the public. The law requires many ex- Expedited handling. Exempt organization de-
budget for 2 full accounting periods and a cur- empt organizations and private foundations to termination letter requests may be eligible for
rent statement of assets and liabilities will be make their application forms and annual infor- expedited handling under section 4.09 of Rev.
acceptable. mation returns available for public inspection. Proc. 2024-5.
The law also requires the IRS to make available
Exempt status established in application. If for public inspection, in accordance with section
your application and its supporting documents 6104 and the related regulations, your approved Effective Date of Exemption
show that your organization meets the require- application for recognition of exemption (includ- A determination letter recognizing exemption is
ments for tax-exempt status under the Code ing any papers submitted in support of the ap- usually effective as of the date of formation
section you applied, the IRS will issue a favora- plication) and the determination letter (dis- of an organization if, the organization submit-
ble determination letter. cussed later, under Determination Letters). ted the application for recognition of exemption
Any information submitted in the application within 27 months from the end of the month in
or in support of it that relates to any trade se- which it was organized and during the period
Miscellaneous Procedures cret, patent, process, style of work, or appara- before the date of the determination letter, its
To help in processing your application, be sure tus, upon request, can be withheld from public purposes and activities are consistent with the
to attach all schedules, statements, and other inspection if the IRS determines that the disclo- requirements for exempt status under the appli-
documents required by the application form. If sure of such information would adversely affect cable section of 501(c). Upon obtaining recog-
you don’t attach them, you may have to resub- the organization. Your request must: nition of exemption, the organization can file a
mit your application or you may otherwise en- 1. Identify the material to be withheld (the claim for a refund of income taxes paid for the
counter a delay in processing your application. document, page, paragraph, and line) by period for which its exempt status is recognized.
clearly marking it “Not Subject to Public An organization that does not submit its ap-
Incomplete application. If an application isn't Inspection.” plication for exemption within that 27-month pe-
complete and doesn't contain all the required
attachments found under Required Inclusions, 2. Explain why the information is of the type riod but otherwise meets the requirements for
the IRS will return it to you for completion. The that can be withheld from public inspec- tax-exempt status will be recognized as exempt
IRS will no longer request the missing informa- tion. from the postmark date of application or the
submission date of its Form 1023, Form 1024,
tion if the application is incomplete. However, 3. Be filed with the office where your organi- Form 1023-EZ, or Form 1024-A, if applicable.
the IRS may, but is not required to, request ad- zation files the documents in which the See Rev. Proc. 2024-5.
ditional information to validate information pre- material to be withheld is contained.
sented or to clarify an inconsistency on a Form If an organization is required to alter its activ-
1023-EZ. See Rev. Proc. 2024-5, 2024–1 I.R.B. Where to file. Submit Form 1023, 1023-EZ, ities or substantially amend its charter to qualify,
256. 1024, or 1024-A through Pay.gov. the determination letter recognizing exemption
If the IRS returns the application or requests EO Determinations will consider your com- will be effective as of the date specified in
additional information from you, that application plete application and will issue you a favorable the letter. If a nonsubstantive amendment is
will be considered filed on the date the substan- determination letter, an adverse letter denying made, such as correction of a clerical error in
tially completed application is postmarked, or if the exempt status requested in your application the enabling instrument or the addition of a dis-
no postmark, received at the IRS. or, if you are asked to provide supplemental in- solution clause, exemption will ordinarily be rec-
For applications that are returned to the ap- formation and fail to respond, may close your ognized as of the date of formation if the activi-
plicant because they aren't complete, the user case without making a determination if you ties of the organization before the determination
fee will be returned or refunded. don't respond to a request for additional infor- are consistent with the exemption requirements.
Additional information may be requested if mation. EO Determinations will also close your
necessary to clarify the nature of your organiza- case without a determination if you withdraw A determination letter recognizing exemp-
tion. your request. tion can't be relied on if there is a material
change, inconsistent with exemption, in the
IRS responses. Organizations that success- character, the purpose, or the method of opera-
tion of the organization. Also, a determination
fully submit Form 1023, Form 1023-EZ, Form Determination Letters letter can't be relied on if it is based on any
1024, or Form 1024-A on Pay.gov will receive
omission or inaccurate material information
an email from Pay.gov confirming payment of Public charity status. A new section 501(c) submitted by the organization. See section 11
the user fee. Organizations that submit a com- (3) organization will be classified as a publicly of Rev. Proc. 2024-5.
plete Form 1024 application will receive an ac- supported organization and not a private foun-
knowledgment from the IRS. In addition, any dation if it can show when it applies for tax-ex- For more information about the effective
applicant may receive a letter requesting addi- empt status that it reasonably can be expected date of exemption, see Rev. Proc. 2024-5, sec-
tional information the IRS needs to make its de- to be publicly supported. tion 6.
termination. These letters will be sent out as
soon as possible after receipt of the organiza- An organization must describe fully the ac-
tion's application. tivities in which it expects to engage. This in- Revocation of Exemption
cludes standards, procedures, or other means
A determination letter recognizing exemption
may be revoked by:
6 Chapter 1 Application, Approval, and Appeal Procedures Publication 557 (1-2024)

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1. A notice to the organization to which the exemption, your organization will be advised of “Under penalties of perjury, I declare that I
determination letter originally was issued, its rights to protest the determination by re- have examined the statement of facts
2. Enactment of legislation or ratification of a questing Independent Office of Appeals consid- presented in this protest and in any
tax treaty, eration. Your organization must submit a state- accompanying schedules and statements and,
ment of its views fully explaining its reasoning. to the best of my knowledge and belief, it is
3. A decision of the United States Supreme The statement must be submitted within 30 true, correct, and complete.”
Court, days from the date of the proposed adverse de- Signature.
4. Issuance of temporary or final regulations, termination letter and must state whether your
or organization wishes Independent Office of Ap- If the organization's representative submits the
peals consideration. appeal, a substitute declaration must be inclu-
5. Issuance of a revenue ruling, a revenue ded, stating:
procedue, or other statement published in Representation. A principal officer or trustee
the Internal Revenue Bulletin or Cumula- can represent an organization at any level of ap- 1. That the representative prepared the ap-
tive Bulletin. peal within the IRS. Also, an attorney, CPA, or peal and accompanying documents, and
individual enrolled to practice before the IRS 2. Whether the representative knows person-
6. Section 6033(j), for failure to file a required can represent the organization. ally that the statements of fact contained in
annual return or notice, for 3 consecutive
years, automatically. If the organization's representative attends a the appeal and accompanying documents
conference without a principal officer or trustee, are true and correct.
When revocation takes effect. If the organi- the representative must file a proper power of
zation omitted or misstated material informa- attorney or a tax information authorization be- Be sure the appeal contains all of the infor-
tion, operated in a manner materially different fore receiving or inspecting confidential informa- mation requested. Incomplete appeals will be
from that originally represented, or, with regard tion. Form 2848 or Form 8821, Tax Information returned for completion.
to organizations to which section 503 applies, Authorization, as appropriate (or any other The Independent Office of Appeals, after
engaged in a prohibited transaction (such as di- properly written power of attorney or authoriza- any requested conference and upon considera-
verting corpus or income from its exempt pur- tion), can be used for this purpose. These forms tion of the organization's appeal, as well as in-
pose), or if there has been a change in the ap- are available on IRS.gov from the Forms and In- formation presented in any conference held, will
plicable law, the revocation or modification may structions page. For more information, see Pub- generally notify the organization of its decision
be retroactive. lication 947, Practice Before the IRS and Power and issue an appropriate determination letter.
of Attorney, which is also available on IRS.gov An adverse decision can be appealed to the
Material change in organization. If there is a from the Forms and Instructions page. courts (discussed later). If new information is
material change, inconsistent with exemption, in submitted during Independent Office of Appeals
the character, purpose, or method of operation Independent Office of consideration, the matter may be returned to
Rulings and Agreements for further considera-
of the organization, revocation or modification Appeals Consideration tion. See section 9 of Rev. Proc. 2024-5 for
will ordinarily take effect as of the date of that
more information.
material change. An organization may seek re- Before forwarding a case to the Independent
lief from retroactive revocation or modification of Office of Appeals, Rulings and Agreements will The Independent Office of Appeals must re-
a determination letter under section 7805(b). consider the applicant’s statement protesting quest technical advice on any exempt organiza-
For more information on requesting section and appealing (hereinafter appealing) the pro- tion issue concerning qualification for exemp-
7805(b) relief, see section 12 of Rev. Proc. posed adverse determination. If the organiza- tion or foundation status for which there is no
2024-5 tion does not submit the information that pro- published precedent or for which there is rea-
Relief from retroactivity. If a determina- vides a basis for Rulings and Agreements to son to believe that nonuniformity exists. If an or-
tion letter was issued in error or the IRS reconsider its adverse determination, it will for- ganization believes that its case involves such
changed its position after issuing a letter, and if ward the appeal and case file to the Independ- an issue, it should ask the Independent Office
section 7805(b) relief is granted, retroactivity of ent Office of Appeals. For more information of Appeals to request technical advice.
the revocation ordinarily will be limited to a date about the role of the Independent Office of Ap- Any determination letter issued on the basis
not earlier than that on which the original deter- peals, see Publication 892, How to Appeal an of technical advice can't be appealed to the In-
mination letter was revoked. IRS Decision on Tax-Exempt Status. The ap- dependent Office of Appeals for those issues
peal should include the following information. that were the subject of the technical advice.
Foundations. The determination of the ef-
fective date is the same for the revocation or 1. The organization's name, address, day-
modification of foundation status or operating time telephone number, and employer Administrative Remedies
foundation status unless the effective date is ex- identification number.
pressly covered by statute or regulations. 2. A statement that the organization wants to In the case of an application under section
protest the determination. 501(c) or 501(d) and exempt from tax under
Written notice. If the IRS concludes, as a re- 501(a), all of the following actions, called ad-
sult of examining an information return or con- 3. A copy of the letter showing the determi- ministrative remedies, must be completed by
sidering information from any other source, that nation you disagree with, or the date and your organization before an unfavorable deter-
a determination letter should be revoked or IRS office symbols on the determination mination letter from the IRS can be appealed to
modified, the organization will be advised in letter. the courts.
writing of the proposed action and the reasons 4. A statement of facts supporting the organi- 1. The filing of the correct completed applica-
for it. zation's position in any contested factual tion or group exemption request under
The organization will also be advised of its issue. section 501(c), or 501(d) and exempt from
right to protest the proposed action by request- tax under 501(a) (described earlier in this
ing Independent Office of Appeals considera- 5. A statement outlining the law or other au-
tion. The appeal procedures are discussed thority the organization is relying on. chapter) or the filing of a request for a de-
termination of foundation status (see Pri-
next. 6. A statement as to whether a conference at vate Foundations and Public Charities in
the Independent Office of Appeals is de- chapter 3).
sired.
2. In the case of a late-filed application, re-
Appeal Procedures The statement of facts in item 4 must be de- questing relief under Regulations section
clared true under penalties of perjury. This may 301.9100 regarding applications for exten-
If your organization applies for recognition of be done by adding to the protest the following sions of time for making an election or ap-
tax-exempt status and Rulings and Agreements signed declaration: plication for relief from tax (see Application
determines your organization doesn't qualify for for Recognition of Exemption in chapter 3).
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3. The timely submission of all additional in- qualification or classification as an exempt or- it has, you don’t have to file a separate applica-
formation requested to perfect an exemp- ganization. However, your exempt status claim tion unless your organization no longer wants to
tion application or request for determina- must be as: be included in the group exemption letter.
tion of private foundation status. • An organization qualifying under section
4. Exhaustion of all administrative appeals 501(c) or 501(d) and exempt from tax un- If the group exemption letter doesn't cover
available within the IRS. der 501(a), your organization, ask your central organization
• An organization to which a deduction for a about being included in the next annual group
The actions just described won't be consid- contribution is allowed under section ruling update that it submits to the IRS.
ered completed until the IRS has had a reason- 170(c)(2),
able time to act upon the appeal or protest, as • An organization that is a private foundation See Publication 4573, Group Exemptions,
the case may be. under section 509(a), for additional general information about group
• A private operating foundation under sec- exemption. Go to the Charities & Nonprofits
An organization won't be considered to have tion 4942(j)(3), or page on IRS.gov for Group Exemption Resour-
exhausted its administrative remedies before • A cooperative organization that is exempt ces for the most current information and up-
the earlier of: from tax under section 521. dates.
1. The completion of the steps just listed and
the sending by certified or registered mail Adverse notice of final determination. The
of a notice of final determination, or adverse notice of final determination referred to Central Organization
above is a determination letter sent by certified Application Procedure
2. The expiration of the 270-day period in or registered mail holding that your organiza-
which the IRS has not issued a notice of fi- tion: Note: The content about the Central Organ-
nal determination and the organization has • Isn't described in section 501(c) or 501(d) ization Application Procedure is included here
taken, in a timely manner, all reasonable and exempt from tax under 501(a), or sec- for informational purposes. However, as stated
steps to secure a ruling or determination. tion 170(c)(2); in Notice 2020-36, IRB 2020-21, 840 and Rev.
• Is a private foundation and not a public Proc. 2024-5, IRB 2024-1, 256, the IRS is not
270-day period. The 270-day period will be charity described in a part of section 509 or accepting any requests for group exemption let-
considered by the IRS to begin on the date a section 170(b)(1)(A); ters until publication of the final revenue proce-
completed application, or group exemption re- • Is not a private operating foundation, as dure described in the Notice or other guidance
quest is sent or submitted to the IRS. See Appli- defined in section 4942(j)(3); or in the Internal Revenue Bulletin.
cation Procedures, earlier, for information nee- • Is a public charity described in a part of
ded to complete the application form. section 509(a) or section 170(b)(1)(A) If your organization is a central organization
If the application doesn't contain all of the re- other than the part under which your or- with affiliated subordinates under its control, it
quired items, it won't be further processed and ganization requested classification. can apply for a group exemption letter for its
may be returned to the applicant for completion. subordinates, provided it has obtained recogni-
The 270-day period, in this event, won't be con- Favorable court rulings - IRS procedure. If a tion of its own exemption. A central organization
sidered as starting until the date the application suit results in a final determination that your or- obtains recognition of its own exemption by
is remailed to the IRS with the requested infor- ganization is exempt from tax, the IRS will issue submitting Form 1023 or 1023-EZ, 1024, or
mation, or, if a postmark isn't evident, on the a favorable determination letter, provided your 1024-A, as described in their instructions, with
date the IRS receives a completed application. organization has filed an application for exemp- the appropriate user fee. You request the group
tion and submitted a statement that the underly- exemption letter for the central organization’s
ing facts and applicable law are the same as in subordinates by letter rather than a specific ap-
Appeal to Courts the period considered by the court. plication form. The issuance of the group ex-
If the IRS issues an unfavorable determination emption letter relieves each of the covered sub-
letter to your organization and you have exhaus- ordinates from filing its own application.
ted all the administrative remedies just dis- Group Exemption Letter
cussed, your organization can seek judicial A central organization that has previously
remedies. A group exemption letter is a determination let- obtained recognition of its own exemption must
ter issued to a central organization recognizing indicate its employer identification number and
For example, if your organization has paid on a group basis the exemption under section the date of the letter recognizing its exemption,
the tax resulting from the adverse determination 501(c) of subordinate organizations on whose but need not forward documents already sub-
and met all other statutory prerequisites, it can behalf the central organization has applied for mitted. However, if it has not already done so,
file suit for a refund in a U.S. District Court or the recognition of exemption. the central organization must submit a copy of
U.S. Court of Federal Claims. Or, if your organi- any amendment to its governing instruments or
zation elected not to pay the tax deficiency re- A central organization is an organization that internal regulations as well as any information
sulting from the adverse determination and met has one or more subordinates under its general about changes in its character, purposes, or
all other statutory prerequisites, it can file suit supervision or control. A subordinate organiza- method of operation.
for a redetermination of the tax deficiencies in tion is a chapter, local, post, or unit of a central
the United States Tax Court. For more informa- organization. Employer identification number. Each sub-
tion on these types of suits, get Publication 556, ordinate must have its own EIN, even if it has no
Examination of Returns, Appeal Rights, and A subordinate organization may or may not employees. When submitting its group exemp-
Claims for Refund. be incorporated, but it must have an organizing tion application, the central organization must
document and it must have its own taxpayer provide an EIN for each subordinate organiza-
In certain situations, your organization can identification number (EIN). A subordinate that tion.
file suit for a declaratory judgment in the U.S. is organized and operated in a foreign country
District Court for the District of Columbia, the can't be included in a group exemption letter. A Information required for subordinate organ-
U.S. Court of Federal Claims, or the U.S. Tax subordinate described in section 501(c)(3) can't izations. The exempt central organization re-
Court. This remedy is available if your organiza- be included in a group exemption letter if it is a quests the group ruling letter. The central or-
tion received an adverse notice of final determi- private foundation described in section 509(a). ganization must submit information for
nation, or if the IRS failed to make a timely de- subordinates it will include in the group exemp-
termination on your initial or continuing If your organization is a subordinate control- tion letter. The information should be forwarded
led by a central organization (for example, a in a letter signed by a principal officer of the
church, a veterans' organization, or a fraternal central organization setting forth or including as
organization), you should check with the central attachments the following.
organization to see if it has been issued a group
exemption letter that covers your organization. If 1. Information verifying that the subordinates:
8 Chapter 1 Application, Approval, and Appeal Procedures Publication 557 (1-2024)

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a. Are affiliated with the central organiza- 9. For any school affiliated with a church, the of the subordinates included in the group
tion at the close of its annual account- information to show that the provisions of exemption letter.
ing period; Revenue Ruling 75-231, 1975-1 C.B. 158, 2. A separate list (that includes the names,
b. Are subject to its general supervision have been met. mailing addresses, actual addresses if dif-
or control; 10. A list of the names, mailing addresses, ac- ferent, and EINs of the affected subordi-
c. Are all eligible to qualify for exemption tual addresses if different, and EINs of nates) for each of the three following cate-
under the same paragraph of section subordinates to be included in the group gories.
501(c), though not necessarily the exemption letter. A current directory of a. Subordinates that have changed their
paragraph under which the central or- subordinates may be furnished instead of names or addresses during the year.
ganization itself is exempt; the list if it includes the required informa-
tion and if the subordinates not to be inclu- b. Subordinates no longer to be included
d. If described in section 501(c)(3), ded in the group exemption letter are iden- in the group exemption letter because
aren’t private foundations; tified. they no longer exist or have disaffili-
ated from or withdrawn their authori-
e. Are all on the same accounting period New 501(c)(3) organizations that want to be zation to the central organization.
as the central organization if they are included. A new organization, described in
to be included in group returns (de- section 501(c)(3), that wants to be included in a c. Subordinates to be added to the
scribed later); and group exemption letter must submit its authori- group exemption letter because they
f. If described in section 501(c)(3), are zation (as explained in item number 5, earlier, are newly organized or affiliated or be-
organizations that have been formed under Information required for subordinate or- cause they have recently authorized
within the 15-month period preceding ganizations) to the central organization before the central organization to include
the date of submission of the group the end of the 15th month after it was formed in them.
exemption application if they are sub- order to satisfy the requirement of section An annotated directory of subordinates
ject to the requirements of section 508(a). The central organization must also in- won't be accepted for this purpose. If there
508(a) and wish to be recognized as clude this subordinate in its next annual submis- were none of the above changes, the cen-
exempt from their dates of creation . If sion of information, as discussed later, under In- tral organization must submit a statement
one or more of the subordinates formation Required Annually. to that effect.
haven't been organized within the
15-month period, a group ruling may 3. The same information about new subordi-
be issued if all subordinates are will- Keeping the Group nates that was required in the initial appli-
ing to be recognized as exempt only Exemption Letter in Force cation for group exemption. (This informa-
from the date of application. tion is listed in items 1 through 10, under
Continued effectiveness of a group exemption Information required for subordinate or-
2. A detailed description of the purposes and letter is based on the following conditions. ganizations, earlier.) If a new subordinate
activities of the subordinates, including the doesn't differ in any material respects from
sources of receipts and the nature of ex- 1. The continued existence of the central or- the subordinates included in the applica-
penditures. ganization. tion for group exemption, however, a state-
3. A sample copy of a uniform governing in- 2. The continued qualification of the central ment to this effect may be submitted in lieu
strument (such as articles of incorpora- organization for exemption under section of detailed information.
tion or articles of association) adopted by 501(c). The organization should send this infor-
the subordinates, or, in its absence, copies 3. The submission by the central organiza- mation to:
of representative instruments. tion of the information regarding its subor-
4. An affirmation to the effect that, to the best dinate organizations that is required annu-
of the officer's knowledge, the purposes ally (described under Information Required Internal Revenue Service Center
and activities of the subordinates are as Annually). Ogden, UT 84201–0027
stated in (2) and (3), above. 4. The annual filing of an information return
5. A statement that each of the subordinates (Form 990, for example) by the central or- Submitting the required information an-
has provided a written authorization to the ganization, if required. ! nually doesn't relieve the central organ-
central organization, signed by an author- CAUTION ization or any of its subordinates of the
ized officer of the subordinate, agreeing to In addition, a group exemption letter will not be
be included in the group exemption (see effective as to a particular subordinate if the duty to submit any other information that may be
also New 501(c)(3) organizations that subordinate ceases to conform to the require- required by an EO area manager to determine
want to be included, later in this section). ments for inclusion in a group exemption letter whether the conditions for continued exemption
and authorization for inclusion (see items 1 and are being met.
6. A list of subordinates to be included in the 5 in Information required for subordinate organi-
group exemption letter, to which the IRS zations, earlier), and the annual filing of any re- As of 2019, the IRS will no longer send
has issued an outstanding determination quired information return for the subordinate. A TIP the List of Parent and Subsidiary Ac-
letter. central organization may file a group return for counts to the central organizations.
7. An affirmation to the effect that, to the best some or all of its subordinates. If it does so, the
of the officer's knowledge and belief, no group return must be filed on Form 990 under a
subordinate described in section 501(c)(3) separate EIN obtained exclusively for the pur- Events Causing
is a private foundation, as defined in sec- pose of filing the group return. Form 990-EZ Loss of Group Exemption
tion 509(a). cannot be used for a group return.
A group exemption letter no longer has effect,
8. For each subordinate that is a school Information Required Annually for either a particular subordinate or the group
claiming exemption under section 501(c) as a whole, when:
(3), the information required by Revenue 1. The central organization notifies the IRS
Ruling 75-50, 1975-2 C.B. 587 (as modi- To maintain a group exemption letter, the central
fied by Rev. Proc. 71-447, 1971-2 C.B. 230 organization must submit annually, at least 90 that it is going out of existence;
and Rev. Proc. 2019–22, 2019–2 I.R.B. days before the close of its annual accounting 2. The central organization notifies the IRS,
1260) these requirements are described in period, all of the following information. by its annual submission or otherwise, that
chapter 3, under Private Schools. 1. Information about all changes in the pur- any of its subordinates will no longer fulfill
poses, character, or method of operation
Publication 557 (1-2024) Chapter 1 Application, Approval, and Appeal Procedures 9

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   the conditions for continued effectiveness,            Topics                                                                                                                                                                                             Schedule M (Form 990)                                                                                                          Schedule M (Form 990) Noncash 
   explained earlier, or                                  This chapter discusses:                                                                                                                                                                                Contributions
3. The IRS notifies the central organization or                                                                                                                                                                                                              Schedule N (Form 990)                                                              Schedule N (Form 990) Liquidation, 
   the affected subordinate that the group ex-            • Annual information returns                                                                                                                                                                           Termination, Dissolution, or 
   emption letter will no longer have effect for          • Unrelated business income tax return                                                                                                                                                                 Significant Disposition of Assets
   some or all of the group because the con-              • Employment tax returns
   ditions for continued effectiveness of a               • Political organization income tax return                                                                                                                                                         Schedule O (Form 990)                                                                                    Schedule O (Form 990) Supplemental 
   group exemption letter haven't been fulfil-            • Reporting requirements for a political                                                                                                                                                               Information to Form 990
   led.                                                     organization                                                                                                                                                                                     940 940 Employer's Annual Federal 
                                                          • Donee information return
When notice is given under any of these three             • Information provided to donors                                                                                                                                                                       Unemployment (FUTA) Tax Return
conditions, the IRS will no longer recognize the          • Report of cash received                                                                                                                                                                          Schedule R (Form 990)                                        Schedule R (Form 990) Related 
exempt status of the affected subordinates until          • Public inspection of exemption                                                                                                                                                                       Organizations and Unrelated 
they file separate applications on their own be-            applications, annual returns, and political                                                                                                                                                          Partnerships
half  or  the  central  organization  files  complete       organizations reporting forms
supporting information for their inclusion in the         • Required disclosures                                                                                                                                                                             990-PF                                990-PF Return of Private Foundation or 
group exemption at the time of its annual sub-            • Miscellaneous rules                                                                                                                                                                                  Section 4947(a)(1) Nonexempt 
mission. However, when the notice is given by                                                                                                                                                                                                                    Charitable Trust Treated as a Private 
the  IRS  and  the  withdrawal  of  recognition  is                                                                                                                                                                                                              Foundation
based on the failure of the organization to com-          Useful Items
ply  with  the  requirements  for  recognition  of        You may want to see:                                                                                                                                                                               990-N              990-N Electronic Notice (e-Postcard) for 
tax-exempt status under the particular subsec-                                                                                                                                                                                                                   Tax-Exempt Organizations Not 
tion of section 501(c), the revocation will ordina-       Publication                                                                                                                                                                                            Required to File Form 990 or Form 
                                                                                                                                                                                                                                                                 990-EZ
rily take effect as of the date of that failure. The          15  15 Circular E, Employer's Tax Guide
notice, however, will be given only after the ap-                                                                                                                                                                                                            990-T        990-T Exempt Organization Business 
peal procedures described earlier in this chap-               15-A    15-A Employer's Supplemental Tax Guide                                                                                                                                                     Income Tax Return
ter are completed.                                            15-B    15-B Employer's Tax Guide to Fringe                                                                                                                                                    Schedule A (Form 990-T)                                                                                                                              Schedule A (Form 990-T) Unrelated 
In addition, the IRS will cease to recognize                      Benefits                                                                                                                                                                                       Business Taxable Income from an 
the  subordinates  under  a  group  exemption  as             598 598 Tax on Unrelated Business Income of                                                                                                                                                        Unrelated Trade or Business
tax-exempt  if  the  central  organization  is  auto-
matically  revoked  for  failure  to  file  required  re-         Exempt Organizations                                                                                                                                                                       990-W                    990-W Estimated Tax on Unrelated 
                                                                                                                                                                                                                                                                 Business Taxable Income for 
turns  or  notices  for  3  consecutive  years.  See      Form (and Instructions)                                                                                                                                                                                Tax-Exempt Organizations
Automatic  Revocation,  later.  Subordinates  un-
der a group exemption are also subject to auto-               941 941 Employer's Quarterly Federal Tax                                                                                                                                                       1120-POL                                            1120-POL U.S. Income Tax Return for 
matic  revocation  for  failure  to  file  required  re-          Return                                                                                                                                                                                         Certain Political Organizations
subordinate does not file its own) or notices for 
turns  (or  appear  on  a  group  return  if  the             990 990 Return of Organization Exempt From                                                                                                                                                     4720    4720 Return of Certain Excise Taxes 
3 consecutive years. A subordinate organization                   Income Tax                                                                                                                                                                                     Under Chapters 41 and 42 of the 
that is automatically revoked must apply to the               990-EZ       990-EZ Short Form Return of                                                                                                                                                           Internal Revenue Code
IRS  for  reinstatement  of  its  exempt  status.                 Organization Exempt From Income                                                                                                                                                            5768    5768 Election/Revocation of Election by 
Thereafter,  it  may  retain  independent  exempt                 Tax                                                                                                                                                                                            an Eligible Section 501(c)(3) 
status or it may seek to resume its status as a 
subordinate  of  the  central  organization.  See             Schedule A (Form 990)                                                                                         Schedule A (Form 990) Public Charity                                                 Organization To Make Expenditures 
Group Exemption Resources .                                       Status and Public Support                                                                                                                                                                      To Influence Legislation
                                                              Schedule B (Form 990)                                                                                         Schedule B (Form 990) Schedule of                                                6069    6069 Return of Certain Excise Taxes on 
                                                                  Contributors                                                                                                                                                                                   Mine Operators, Black Lung Trusts, 
                                                                                                                                                                                                                                                                 and Other Persons Under Sections 
                                                              Schedule C (Form 990)                                                                                                               Schedule C (Form 990) Political                                4951, 4952, and 4953
                                                                  Campaign and Lobbying Activities
                                                                                                                                                                                                                                                             7004    7004 Application for Automatic Extension 
                                                              Schedule D (Form 990)                                                                                                               Schedule D (Form 990) Supplemental                             of Time to File Certain Business 
2.                                                                Financial Statements                                                                                                                                                                           Income Tax, Information, and Other 
                                                              Schedule E (Form 990)                                                                   Schedule E (Form 990) Schools                                                                              Returns
                                                                                                                                                                                                                                                                     8274 
Filing                                                        Schedule F (Form 990)                                             Schedule F (Form 990) Statement of                                                                                           8274         Certification by Churches and 
                                                                  Activities Outside the United States                                                                                                                                                           Qualified Church-Controlled 
                                                                                                                                                                                                                                                                 Organizations Electing Exemption 
Requirements                                                  Schedule G (Form 990)                                                                                                                                     Schedule G (Form 990) Supplemental       from Employer Social Security and 
                                                                  Information Regarding Fundraising or                                                                                                                                                           Medicare Taxes
                                                                  Gaming Activities                                                                                                                                                                          8282    8282 Donee Information Return
and Required                                                  Schedule H (Form 990)                                                                                                               Schedule H (Form 990) Hospitals                            8300    8300 Report of Cash Payments Over 
Disclosures                                                   Schedule I (Form 990) Schedule I (Form 990) Grants and Other                                                                                                                                       $10,000 Received in a Trade or 
                                                                  Assistance to Organizations,                                                                                                                                                                   Business
                                                                  Governments, and Individuals in the                                                                                                                                                        8453-X                         8453-X Political Organization Declaration 
                                                                  United States
                                                                                                                                                                                                                                                                 for Electronic Filing of Notice of 
Introduction                                                  Schedule J (Form 990)                       Schedule J (Form 990) Compensation                                                                                                                     Section 527 Status
Most  exempt  organizations  (including  private                  Information                                                                                                                                                                                8822-B                                       8822-B Change of Address or 
foundations)  must  file  various  returns  and  re-
ports at some time during (or following the close             Schedule K (Form 990)                                                                                         Schedule K (Form 990) Supplemental                                                   Responsible Party—Business
of) their accounting period.                                      Information on Tax-Exempt Bonds                                                                                                                                                            8868    8868 Application for Automatic Extension 
                                                              Schedule L (Form 990)                                             Schedule L (Form 990) Transactions                                                                                               of Time to File an Exempt 
                                                                  With Interested Persons                                                                                                                                                                        Organization Return
10                                          Chapter 2         Filing Requirements and Required Disclosures                                                                                                                                                                                                                Publication 557 (1-2024)

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  8870   8870 Information Return for Transfers            committee of a state or local candidate, a      •    Its Internet website address (if any);
    Associated with Certain Personal                      caucus or association of state or local offi-   •    Its taxpayer identification number;
    Benefits Contracts                                    cials, or required to report under the Fed-     •    The name and address of a principal offi-
  8871   8871 Political Organization Notice of            eral Election Campaign Act of 1971 as a              cer;
    Section 527 Status                                    political committee;                            •    Organization's annual tax period;
  8872   8872 Political Organization Report of       14.  An exempt organization (other than a pri-       •    Verification that the organization's annual 
    Contributions and Expenditures                        vate foundation or a supporting organiza-            gross receipts are normally $50,000 or 
                                                          tion described in Supporting Organization            less; and
  8886-T      8886-T Disclosure by Tax-Exempt Entity      Annual Information Return, later) that nor-     •    Notification if the organization has termina-
    Regarding Prohibited Tax Shelter                      mally has annual gross receipts of                   ted.
    Transaction                                           $50,000 or less (required to file Form           Form  990-N  is  due  by  the  15th  day  of  the 
  8899   8899 Notice of Income from Donated               990-N, Electronic Notice (e-Postcard) for       fifth month after the close of the tax year. For tax 
    Intellectual Property                                 Tax-Exempt Organizations Not Required           years beginning after December 31, 2006, any 
  8976   8976 Notice of Intent to Operate Under           to File Form 990 or Form 990-EZ); or            organization that fails to meet its annual report-
    Section 501(c)(4)                                15.  A foreign organization, or an organization      ing requirement for 3 consecutive years will au-
See  chapter  6  for  information  about  getting         located in a U.S. territory, that normally      tomatically lose its tax-exempt status. To regain 
these publications and forms.                             has annual gross receipts from sources          its exempt status an organization will have to re-
                                                          within the United States of $50,000 or          apply for recognition as a tax-exempt organiza-
                                                          less.                                           tion.
Annual Information                                                                                         Exceptions.      This filing requirement doesn't 
                                                     Supporting Organization                              apply to:
Returns                                                                                                   •    Churches, their integrated auxiliaries, and 
                                                     Annual Information Return
                                                                                                               conventions or associations of churches;
Every organization exempt from federal income                                                             •    Organizations that are included in a group 
tax  under  section  501(a)  must  file  an Annual   Each section 509(a)(3) supporting organization 
Exempt Organization Return except:                   is required to file Form 990 or 990-EZ with the           return;
                                                     IRS  regardless  of  the  organization's  gross  re- •    Private foundations required to file Form 
1. A church, an interchurch organization of          ceipts, unless it qualifies as one of the following:      990-PF; and
    local units of a church, a convention or as-                                                          •    Section 509(a)(3) supporting organizations 
    sociation of churches;                           1. An integrated auxiliary of a church;                   required to file Form 990 or Form 990-EZ.
2. An integrated auxiliary of a church;              2. The exclusively religious activities of a reli-
                                                          gious order; or                                 Forms 990 and 990-EZ
3. A church-affiliated organization that is ex-
    clusively engaged in managing funds or           3. An organization, the gross receipts of            Exempt  organizations,  other  than  private  foun-
    maintaining retirement programs;                      which are normally not more than $5,000,        dations,  must  file  their  annual  information  re-
                                                          that supports a section 509(a)(3) religious     turns on Form 990 or 990-EZ, unless excepted 
4. A school below college level affiliated with           order.                                          from filing or allowed to submit Form 990-N, de-
    a church or operated by a religious order;
5. Church-affiliated mission societies if more       If  the  organization  is  described  in  item  (3)  scribed earlier.
    than half of their activities are conducted      above, then it must submit Form 990-N (e-Post-
    in, or are directed at persons in, foreign       card)  unless  it  voluntarily  files  Form  990  or  Generally,  political  organizations  with  gross 
    countries;                                       990-EZ.                                              receipts  of  $25,000  ($100,000  for  a  qualified 
                                                                                                          state or local political organization (QSLPO)) or 
6. An exclusively religious activity of any reli-    On  its  annual  information  return,  in  Part  I,  more for the tax year are required to file Form 
    gious order;                                     Schedule A (Form 990) a supporting organiza-         990  or  990-EZ  unless  specifically  excepted 
                                                     tion must:                                           from filing the annual return. The following politi-
7. A state institution, the income of which is       •    List the organizations to which it provides     cal  organizations  aren't  required  to  file  Form 
    excluded from gross income under section              support;                                        990 or Form 990-EZ.
    115;                                             •    Indicate whether it is a Type I, Type II, or    •    A state or local committee of a political 
8. A corporation described in section 501(c)              Type III supporting organization; and                party.
    (1) that is organized under an Act of Con-       •    Certify that the organization isn't controlled  •    A political committee of a state or local 
    gress, an instrumentality of the United               directly or indirectly by disqualified persons       candidate.
    States, and is exempt from federal income             (other than by foundation managers and          •    A caucus or association of state or local of-
    taxes;                                                other than one or more publicly supported            ficials.
                                                          organizations).                                 •    A political organization that is required to 
9. A stock bonus, pension, or profit-sharing                                                                   report as a political committee under the 
    trust that qualifies under section 401 (re-                                                                Federal Election Campaign Act.
    quired to file Form 5500, Annual Return/         Annual Electronic Notice Filing                           A 501(c) organization that has expendi-
    Report of Employee Benefit Plan);                Requirement for Small Tax-Exempt                     •
                                                                                                               tures for influencing or attempting to influ-
                                                     Organizations
10. A religious or apostolic organization de-                                                                  ence the selection, nomination, election, or 
                                                                                                               appointment of any individual for a federal, 
    scribed in section 501(d) (required to file      Small  tax-exempt  organizations  with  annual            state, or local public office.
    Form 1065, U.S. Return of Partnership In-        gross receipts normally $50,000 or less that are 
    come);                                           not otherwise required to file an annual informa-    Form  990-EZ.   This  is  a  shortened  version  of 
11. A governmental unit or an affiliate of a gov-    tion return and are not otherwise exempted en-       Form 990. Form 990-EZ is designed for use by 
    ernmental unit that meets the require-           tirely  from  a  filing  requirement  must  submit   small  exempt  organizations  and  nonexempt 
    ments of Rev. Proc. 95-48, 1995-2 C.B.           Form 990-N, Electronic Notice (e-Postcard) for       charitable trusts.
    418, IRS.gov/pub/irs-tege/rp1995-48.pdf ;        Tax-Exempt Organizations Not Required to File         An organization can file either Form 990 or 
12. A private foundation described in section        Form 990 or 990-EZ, with the IRS each year, if       990-EZ if it satisfies both of the following:
    501(c)(3) and exempt under section               they choose not to file a Form 990 or 990-EZ. 
    501(a) (required to file Form 990-PF, Re-        Form 990-N requires the following information:       1. Its gross receipts during the year are less 
    turn of Private Foundation);                     •    The organization's legal name, and mailing           than $200,000.
                                                          address;
13. A political organization that is a state or lo-  •    Any name under which it operates and 
    cal committee of a political party, a political       does business;
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2. Its total assets (line 25, column (B) of             electronically,  including  Form  990,  990-EZ,           legal  holiday,  the  return  will  be  due  the  next 
   Form 990-EZ) at the end of the year are              990-PF,  8872,  and  990-T.  The  e-filing  require-      business day.
   less than $500,000.                                  ment is generally effective for tax years begin-
                                                        ning after July 1, 2019. The Taxpayer First Act           Extension  of  time  to  file. Use  Form  8868  to 
If your organization doesn't satisfy both of these      allows transitional relief for certain small organi-      request  an  automatic  six  month  extension  of 
conditions,  it  can't  file  Form  990-EZ.  Instead,   zations or other organizations for which the IRS          time to file Forms 990, 990-EZ, or 990-PF.
the organization must file Form 990.                    determines  that  application  of  the  e-filing  re-     When filing Form 8868 for an automatic ex-
   Group return.  A group return on Form 990            quirement  would  constitute  an  undue  hardship         tension, neither a signature, nor an explanation 
may be filed by a central, parent, or like organi-      in the absence of additional transitional time.           is required.
zation for two or more local organizations, none 
of which is a private foundation. This return is in     If an organization is required to file a return           Application  for  exemption  pending. An  or-
addition  to  the  central  organization's  separate    electronically  but  doesn't,  it  isn't  considered  to  ganization that claims to be exempt under sec-
annual return if it must file a return. The central     have  filed  its  return.  See  Regulations  section      tion  501(a)  but  has  not  established  its  exempt 
organization  can't  be  included in  the  group  re-   301.6033-4 for more information.                          status by the due date for filing an information 
turn.  See  the  Instructions  for  Form  990  for  the                                                           return  must  complete  and  file  Form  990, 
conditions under which this procedure may be            Form  990.      For  tax  years  beginning  on  or        990-EZ, 990-N, or 990-PF (if it considers itself a 
used.                                                   before July 1, 2019, an organization is required          private  foundation),  unless  the  organization  is 
                                                        to file Form 990 electronically if it files at least      exempt  from  Form  990-series  filing  require-
      In any year that an organization is prop-         250  returns  during  the  calendar  year  and  has       ments. If the organization's application is pend-
TIP   erly  included  as  a  subordinate  organi-       total assets of $10 million or more at the end of         ing  with  the  IRS,  it  must  so  indicate  on  Forms 
      zation on a group return, it shouldn't file       the tax year. For tax years beginning after July          990, 990-EZ, or 990-PF (whichever applies) by 
its own Form 990.                                       1, 2019, an organization is required to file Form         checking  the application  pending  block  at  the 
                                                        990  electronically  unless  exceptions  described        top of page 1 of the return. For more information 
Schedule A (Form 990). Organizations, other             in  the  form  instructions  apply.  As  of  the  2020    on the filing requirements, see the Instructions 
than  private  foundations,  that  are  described  in   Form  990,  the  instructions  no  longer  describe       for Forms 990, 990-EZ, and 990-PF.
section  501(c)(3)  and  that  are  otherwise  re-      any exceptions to the e-filing requirement.
                                                                                                                  State  reporting  requirements.   Copies  of 
quired  to  file  Form  990  or  990-EZ  must  also     Form  990-EZ.   For  small  exempt  organiza-             Forms 990, 990-EZ, or 990-PF may be used to 
complete Schedule A of that form.                       tions, the legislation specifically allowed a post-       satisfy state reporting requirements. See the in-
                                                        ponement  (“transitional  relief”).  For  tax  years      structions for those forms.
Schedule  B  (Form  990).     Organizations  that       ending before July 31, 2021, the IRS will accept 
file  Form  990,  990-EZ  or  990-PF  use  this         either paper or electronic filing of Form 990-EZ,         Form  8870.   Organizations  that  filed  a  Form 
schedule  to  provide  required  information  re-       Short Form Return of Organization Exempt from             990, 990-EZ, or 990-PF, and paid premiums or 
garding certain contributors.                           Income Tax. For tax years ending July 31, 2021,           received transfers on certain life insurance, an-
                                                        and later, Forms 990-EZ must be filed electroni-          nuity, and endowment contracts (personal ben-
Schedule  O  (Form  990).     Organizations  that       cally.  Generally,  Form  990-EZ  is  for  organiza-      efit contracts), must file Form 8870. For more in-
file Form 990 or 990-EZ, must use this schedule         tions  with  annual  gross  receipts  less  than          formation,  see  Form  8870  and  the  instructions 
to  provide  required  additional  information  or  if  $200,000 and total assets at tax year-end less            for that form.
additional space is needed.                             than $500,000.
   Other schedules may be required to be filed 
with Form 990 or 990-EZ. See the Instructions           Form 990-PF.    For tax years beginning on or             Form 8822-B.  If you moved during the year, fill 
for  Form  990  or  the  Instructions  for  Form        before July 1, 2019, an organization is required          out  Form  8822-B,  Change  of  Address  or  Re-
990-EZ for more information.                            to  file  Form  990-PF  electronically  if  it  files  at sponsible  Party-Business.  Also,  if  your  “Re-
                                                        least 250 returns during the calendar year. For           sponsible  Party”  changed  this  year,  you  must 
Report significant new or changed program               tax  years  beginning  after  July  1,  2019,  an  or-    also  fill  out  Form  8822-B.  The  “Responsible 
services  and  changes  to  organizational              ganization is required to file Form 990-PF elec-          Party”  is  the  tax-exempt  organization’s  “Princi-
documents.  An  organization  should  report            tronically  unless  exceptions  described  in  the        pal Officer,”as defined in the Form 990 instruc-
new  significant  program  services  or  significant    form  instructions  apply.  As  of  the  2020  Form       tions, in the Glossary section.
changes  in  how  it  conducts  program  services,      990-PF, the instructions no longer describe any 
and  significant  changes  to  its  organizational      exceptions to the e-filing requirement.                   Automatic Revocation
documents, on its Form 990 rather than in a let-
ter  to  EO  Determinations.  EO  Determinations        Form 990-N.     An organization that is eligible          If  the  organization  fails  to  file  a  Form  990, 
no  longer  issues  letters  confirming  the  tax-ex-   and elects to submit Form 990-N must submit it            990-EZ,  or  990-PF,  or  fails  to  submit  a  Form 
empt  status  of  organizations  that  report  new      electronically.                                           990-N,  as  required,  for  3  consecutive  years,  it 
services  or  significant  changes,  or  changes  to    Form  990-T.    The  IRS  continued  to  accept           will  automatically  lose  its  tax-exempt  status  by 
organizational  documents.  See Miscellaneous           paper forms Form 990-T into 2021 pending its              operation of law effective as of the due date for 
Rules, Organization Changes and Exempt Sta-             conversion  into  electronic  format.  In  March          the third missed return or notice. The list of or-
tus, later.                                             2020, the IRS announced the availability of the           ganizations whose tax-exempt status has been 
                                                        electronic  filing  of  Form  990-T.  Any  2020,  and     automatically  revoked  is  available  on  IRS.gov. 
Form 990-PF                                             any future year Form 990-T with a due date on             This list (Auto-Revocation List) may be viewed 
                                                        or after April 15, 2021, must be filed electroni-         and  searched  on     Tax-Exempt  Organization 
All  private  foundations  exempt  under  section       cally and not on paper.                                   Search.  The  Auto-Revocation  List  includes 
                                                                                                                  each  organization's  name,  employer  identifica-
501(c)(3) must file Form 990-PF. These organi-          Form 8872.      Form 8872 must be filed elec-             tion  number  (EIN),  and  last  known  address.  It 
zations are discussed in chapter 3.                     tronically if reporting on periods after 2019.            also includes the effective date of the automatic 
                                                                                                                  revocation and the date it was posted to the list. 
Electronic Filing                                       Due Date                                                  For auto-revoked organizations that applied for 
                                                                                                                  and  received  reinstatement,  the  list  gives  the 
                                                                                                                  date of reinstatement. The IRS updates the list 
For  tax  years  beginning  on  or  before  July  1,    Forms 990, 990-EZ, or 990-PF must be filed by             monthly to include additional organizations that 
2019, your organization may be required to file         the 15th day of the fifth month after the end of          lose their tax-exempt status.
Form 990, Form 990-EZ, or Form 990-PF, and              your organization's accounting period. Thus, for 
related  forms,  schedules,  and  attachments           a  calendar  year  taxpayer,  Forms  990,  990-EZ, 
electronically. For tax years beginning after July      or 990-PF are due May 15 of the following year. 
1, 2019, under the Taxpayer First Act, organiza-        If any due date falls on a Saturday, Sunday, or 
tions  are  required  to  file  certain  returns 
12                                          Chapter 2   Filing Requirements and Required Disclosures                                    Publication 557 (1-2024)

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Tax Effect of Loss of Tax-Exempt returns required to be filed after December 31, for more details. See also Small Business
Status 2014. Health Care Tax Credit.
Exception for reasonable cause. No pen- Trust fund recovery penalty. If any person re-
If your organization’s tax-exempt status is auto- alty will be imposed if reasonable cause for fail- quired to collect, truthfully account for, and pay
matically revoked, you may be required to file ure to file timely can be shown. over any of these taxes willfully fails to satisfy
one of the following federal income tax returns
and pay any applicable income taxes: any of these requirements or willfully tries in any
• Form 1120, U.S. Corporation Income Tax way to evade or defeat any of them, that person
Return, due by the 15th day of the 3rd Unrelated Business will be subject to a penalty. The penalty is equal
to the tax evaded, not collected, or not accoun-
month after the end of your organization’s Income Tax Return ted for and paid over. The term person includes:
tax year, or
• An officer or employee of a corporation, or
• Form 1041, U.S. Income Tax Return for Es- Even though your organization is recognized as • A member or employee of a partnership.
tates and Trusts, due by the 15th day of the tax exempt, it still may be liable for tax on its un-
4th month after the end of your organiza- related business income. Unrelated business Exception. The penalty isn't imposed on
tion’s tax year. income is income from a trade or business, reg- any unpaid volunteer director or member of a
ularly carried on, that isn't substantially related board of trustees of an exempt organization if
In addition, a section 501(c)(3) organization to the charitable, educational, or other purpose the unpaid volunteer serves solely in an hono-
that loses its tax-exempt status can't receive that is the basis for the organization's exemp- rary capacity, doesn't participate in the
tax-deductible contributions and won't be identi- tion. day-to-day or financial operations of the organi-
fied in the IRS Business Master File extract as zation, and doesn't have actual knowledge of
eligible to receive tax-deductible contributions, If your organization has gross income of the failure on which the penalty is imposed.
or be included in Tax-Exempt Organization $1,000 or more from a regularly conducted un- This exception doesn't apply if it results in no
Search (Pub. 78 database). related trade or business, you must file Form one being liable for the penalty.
990-T in addition to your required annual infor-
An organization whose exemption was auto- mation return or notice. The form instructions Certification Program for Professional Em-
matically revoked must apply for tax exemption and IRS.gov should be consulted for electronic ployer Organizations (CPEOs). The Tax In-
in order to regain its tax exemption (even if it filing guidance. For tax years beginning after crease Prevention Act of 2014, enacted Dec.
wasn't originally required to apply). In some sit- December 31, 2017, an organization with more 19, 2014, requires the IRS to establish a volun-
uations, an organization may be able to obtain than one unrelated trade or business must com- tary certification program for professional em-
exemption retroactive to its date of revocation. pute its UBTI (unrelated business taxable in- ployer organizations (PEOs). PEOs handle vari-
Similarly, if the central organization with a Group come), including for purposes of determining ous payroll administration and tax reporting
Exemption Number is automatically revoked, all any net operating loss deduction, separately responsibilities for their business clients and are
its covered subsidiaries may need to apply for with respect to each such trade or business. Or- typically paid a fee based on payroll costs. For
exemption as independent organizations. ganizations complete a separate Schedule A further information, go to: IRS.gov/for-tax-pros/
(Form 990-T) to calculate UBTI for each of its basic-tools/certified-professional-employer-
For more information about automatic revo- trades or businesses. organization.
cation, go to IRS.gov and select Charities & Estimated tax. An organization that ex- FICA and FUTA tax exceptions. Payments for
Non-Profits and then select Reinstated? Learn pects to owe $500 or more in tax (including tax services performed by a minister of a church in
more with Reinstate Tax-Exempt Status. on unrelated business income) is required to the exercise of the ministry, or a member of a re-
make quarterly estimated tax payments. Use
Penalties Form 990-W to figure your organization's esti- ligious order performing duties required by the
mated tax payments. Failure to make appropri- order, are generally not subject to FICA or FUTA
Penalties for failure to file. Generally, an ex- ate quarterly estimated tax payments may result taxes.
empt organization that fails to file a required re- in an underpayment penalty. FUTA tax exception. Payments for serv-
turn must pay a penalty of $20 a day for each ices performed by an employee of a religious,
day the failure continues. The same penalty will See Publication 598, Tax on Unrelated Busi- charitable, educational, or other organization
apply if the organization doesn't give all the in- ness Income of Exempt Organizations for more described in section 501(c)(3) that are generally
formation required on the return or doesn't give information on UBTI. subject to FICA taxes if the payments are $100
the correct information. or more for the year, aren't subject to FUTA
taxes. However, a section 501(c)(3) organiza-
Maximum penalty. The maximum penalty Employment tion is liable for FUTA tax when paying wages
for any one return is the smaller of $10,000 or
for employees on behalf of others, examples in-
5% of the organization's gross receipts for the Tax Returns clude but are not limited to related non-section
year.
501(c)(3) organizations, fiscal agents such as
Organization with gross receipts over $1 Every employer, including an organization ex- IRC 3504, common paymaster, etc.
million. For an organization that has gross re- empt from federal income tax that pays wages
ceipts of over $1 million for the year, the penalty to employees is responsible for withholding, de- FICA tax exemption election. Churches
is $100 a day up to a maximum of $50,000. positing, paying, and reporting federal income and qualified church-controlled organizations
tax, social security and Medicare (FICA) taxes, can elect exemption from employer FICA taxes
Managers. If the organization is subject to and federal unemployment tax (FUTA), unless by filing Form 8274.
this penalty, the IRS may specify a date by that employer is specifically excepted by law To elect the exemption, Form 8274 must be
which the return or correct information must be from those requirements, or if the taxes clearly filed before the first date on which a quarterly
supplied by the organization. Failure to comply don't apply. employment tax return would otherwise be due
with this demand will result in a penalty im- from the electing organization. The organization
posed upon the manager of the organization, or For more information, obtain a copy of Publi- can make the election only if it is opposed for
upon any other person responsible for filing a cation 15, which summarizes the responsibili- religious reasons to the payment of FICA taxes.
correct return. The penalty is $10 a day for each ties of an employer, Publication 15-A, Publica- The election applies to payments for serv-
day that a return isn't filed after the period given tion 15-B, and Form 941. ices of current and future employees other than
for filing. The maximum penalty imposed on all services performed in an unrelated trade or
persons with respect to any one return is Small Business Health Care Tax Credit. If business.
$5,000. your small tax-exempt organization provides
health care coverage for your workers you may Revoking the election. The election can
Penalties indexed for inflation. These qualify for the small business health care tax be revoked by the IRS if the organization fails to
penalty provisions are indexed for inflation for credit. Go to Affordable Care Act Tax Provisions file Form W-2, Wage and Tax Statement, for 2
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years and fails to furnish certain information Exempt function. An exempt function Extension of time to file. Use Form 7004 to
upon request by the IRS. Such revocation will means influencing or attempting to influence the request an automatic extension of time to file
apply retroactively to the beginning of the 2-year selection, nomination, election, or appointment Form 1120-POL. The extension will be granted
period. of any individual to any federal, state, local pub- if you complete Form 7004 properly, make a
lic office or office in a political organization, or proper estimate of the tax (if applicable), file
Definitions. For purposes of this election, the election of the Presidential or Vice Presi- Form 1120-POL by the due date, and pay any
the term church means a church, a convention dential electors, whether or not such individual tax due.
or association of churches, or an elementary or or electors are selected, nominated, elected, or
secondary school that is controlled, operated, appointed. It also includes certain office expen- Failure to file. A political organization that
or principally supported by a church or by a ses of a holder of public office or an office in a fails to file Form 1120-POL is subject to a pen-
convention or association of churches. political organization. alty equal to 5% of the tax due for each month
The term qualified church-controlled organi- (or partial month) the return is late up to a maxi-
zation means any church-controlled section Certain political organizations are re- mum of 25% of the tax due, unless the organi-
501(c)(3) tax-exempt organization, other than ! quired to notify the IRS that they are zation shows the failure was due to reasonable
an organization that both: CAUTION section 527 organizations. These or- cause.
ganizations must use Form 8871. Some of
1. Offers goods, services, or facilities for these section 527 organizations must use Form For more information about filing Form
sale, other than on an incidental basis, to 8872 to file periodic reports with the IRS dis- 1120-POL, refer to the instructions accompany-
the general public at other than a nominal closing their contributions and expenditures. For ing the form.
charge that is substantially less than the a discussion on these forms, see Reporting Re- Failure to pay on time. An organization
cost of providing such goods, services, or quirements for a Political Organization, later. that doesn't pay the tax when due generally
facilities; and
may have to pay a penalty of 1/2 of 1% of the
2. Normally receives more than 25% of its Political organization taxable income. unpaid tax for each month or part of a month
support from the sum of governmental Political organization taxable income is the ex- the tax isn't paid, up to a maximum of 25% of
sources and receipts from admissions, cess of: the unpaid tax. The penalty won't be imposed if
sales of merchandise, performance of 1. Gross income for the tax year (excluding the organization can show that the failure to pay
services, or furnishing of facilities, in activi- exempt function income) minus on time was due to reasonable cause.
ties that aren't unrelated trades or busi-
nesses. 2. Deductions directly connected with the
earning of gross income.
Effect on employees. If a church or quali- Reporting Requirements
fied church-controlled organization has made To figure taxable income, allow for a $100 spe-
an election, payment for services performed for cific deduction, but don't allow for the net oper- for a Political
that church or organization, other than in an un- ating loss deduction, the dividends-received de- Organization
related trade or business, won't be subject to duction, and other special deductions for
FICA taxes. However, the employee, unless oth- corporations. Certain political organizations are required to
erwise exempt, will be subject to self-employ- notify the IRS that the organization is to be trea-
ment tax on the income. The tax applies to in- Exempt organization not a political organi- ted as a section 527 political organization. The
come of $108.28 or more for the tax year from zation. An organization exempt under section organization is also required to periodically re-
that church or organization, and no deductions 501(c) that spends any amount for an exempt port certain contributions received and expendi-
for trade or business expenses are allowed function must file Form 1120-POL for any year tures made by the organization. To notify the
against this self-employment income. in which it has political taxable income. These IRS of section 527 treatment, an organization
Schedule SE (Form 1040), Self-Employment organizations must include in gross income the must file Form 8871. To report contributions and
Tax, should be attached to the employee's in- lesser of: expenditures, certain tax-exempt political or-
come tax return. 1. The total amount of its exempt function ex- ganizations must file Form 8872.
penditures, or
Political Organization 2. The organization's net investment income. Form 8871
Income Tax Return Separate fund. A section 501(c) organiza- A political organization must electronically file
tion can set up a separate segregated fund that Form 8871 to notify the IRS that it is to be trea-
Generally, a political organization is treated as will be treated as an independent political or- ted as a section 527 organization. However, an
an organization exempt from tax. Certain politi- ganization. The earnings and expenditures organization isn't required to file Form 8871 if:
cal organizations, however, must file an annual made by the separate fund won't be attributed • It reasonably expects its annual gross re-
income tax return, Form 1120-POL, U.S. In- to the section 501(c) organization. ceipts to always be less than $25,000.
come Tax Return for Certain Political Organiza- Section 501(c)(3) organizations are • It is a political committee required to report
under the Federal Election Campaign Act
tions, for any year they have political organiza- ! precluded from, and may suffer loss of of 1971 (FECA) (52 U.S.C. section 30101
tion taxable income in excess of the $100 CAUTION exemption for, engaging in any political
specific deduction allowed under section 527. campaign on behalf of, or in opposition to, any et seq.).
A political organization that has candidate for public office. • It is a state or local candidate committee.
• It is a state or local committee of a political
TIP $25,000 ($100,000 for a qualified state party.
or local political organization) or more Due date. Form 1120-POL is due by the 15th
in gross receipts for the tax year must file Form day of the 4th month after the end of the tax All other political organizations are required to
990 or Form 990-EZ (and Schedule B of the year. Thus, for a calendar year taxpayer, Form file Form 8871.
form), unless excepted. See Forms 990 and 1120-POL is due on April 15 of the following An organization must provide on Form 8871:
990-EZ, earlier. year. If any due date falls on a Saturday, Sun-
day, or legal holiday, the organization can file 1. Its name and address (including any busi-
Political organization. A political organization the return on the next business day. ness address, if different) and its elec-
tronic mailing address;
is a party, committee, association, fund, or other Form 1120-POL is not required of an
organization (whether or not incorporated) or- TIP exempt organization that makes expen- 2. Its purpose;
ganized and operated primarily for the purpose ditures for political purposes if its gross 3. The names and addresses of its officers,
of directly or indirectly accepting contributions income doesn't exceed its directly connected highly compensated employees, contact
or making expenditures, or both, for an exempt deductions by more than $100 for the tax year. person, custodian of records, and
function. members of its board of directors;
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4. The name and address of, and relation- $10,000 ($50,000 in the case of a corporation) Due dates. The due dates for filing Form 8872
ship to, any related entities (within the or imprisoned for not more than 1 year or both. vary depending on whether the form is due for a
meaning of section 168(h)(4)); and reporting period that occurs during a calendar
Waiver of penalties. The IRS may waive year in which a regularly scheduled election is
5. Whether it intends to claim an exemption any additional tax assessed on an organization held, or any other calendar year (a nonelection
from filing Form 8872, Form 990, or Form for failure to file Form 8871 if the failure was due year).
990-EZ. to reasonable cause and not willful neglect. If the due date falls on a Saturday, Sunday,
Employer identification number. If your Additional information. For more information or legal holiday, the organization can file on the
organization needs an EIN, you can apply for on Form 8871, see the form and its instructions. next business day.
one online. Click on the Employer ID Numbers For a discussion on the public inspection re- Election year filing. In election years, Form
(EINs) link at IRS.gov/businesses/small. quirements for the form, see Public Inspection 8872 must be filed on either a quarterly or a
If you previously applied for an EIN and of Exemption Applications, Annual Returns, and monthly basis. Both a pre-election report and a
haven't yet received it, or you are unsure Political Organization Reporting Forms, later. post-election report are also required to be filed
whether you have an EIN, please call our
toll-free customer account services number, in an election year. An election year is any year
1-877-829-5500, for assistance. Form 8872 in which a regularly scheduled general election
for federal office is held (an even-numbered
Due dates. The initial Form 8871 must be filed Every tax-exempt section 527 political organiza- year).
within 24 hours of the date on which the organi- tion that accepts a contribution or makes an ex-
zation was established. If there is a material penditure, for an exempt function during the cal- Nonelection year filing. In nonelection years,
change, an amended Form 8871 must be filed endar year, must file Form 8872 except: the form must be filed on a semiannual or
within 30 days of the material change. When the • A political organization that isn't required to monthly basis. A complete listing of these filing
organization terminates its existence, it must file file Form 8871 (discussed earlier). periods are in the Form 8872 instructions. A
a final Form 8871 within 30 days of termination. • A political organization that is subject to tax nonelection year is any odd-numbered year.
If the due date falls on a Saturday, Sunday, on its income because it didn't file or
or legal holiday, the organization can file on the amend Form 8871. How to file. An organization must file Form
next business day. • A qualified state or local political organiza- 8872 electronically if reporting on periods after
tion (QSLPO), discussed below. 2019. For reporting on periods before 2020,
How to file. An organization must file Form Form 8872 can be filed either electronically or
8871 electronically via the IRS Internet website All other tax-exempt section 527 organizations by mail, but organizations that have, or expect
at IRS.gov/polorgs. that accept contributions or make expenditures to have, contributions or expenditures of
for an exempt function are required to file Form $50,000 or more for the year are required to file
Form 8453-X, Political Organization Decla- 8872. electronically.
ration for Electronic Filing of Notice of Sec- Qualified state or local political organi- Electronic filing. File electronically via the
tion 527 Status. After electronically submitting zation. A state or local political organization IRS internet website at IRS.gov/polorgs. You will
the initial Form 8871, the political organization may be a QSLPO if: need a user ID and password to electronically
must print, sign, and mail Form 8453-X to the
IRS. Upon receipt of the Form 8453-X, the IRS 1. All of its political activities relate solely to file Form 8872. Organizations that have comple-
will send the organization a username and state or local public office (or office in a ted the electronic filing of Form 8871 and sub-
password that must be used to file an amended state or local political organization). mitted a completed and signed Form 8453-X
will receive a username and password in the
or final Form 8871 or to electronically file Form 2. It is subject to a state law that requires it to mail.
8872. report (and it does report) to a state Organizations that have completed the elec-
agency information about contributions tronic filing of Form 8871, but haven't received
Penalties and expenditures that is similar to the in- their user ID and password can request one by
formation that the organization would oth- writing to the following address:
Failure to file. An organization that is re- erwise be required to report to the IRS.
quired to file Form 8871, but fails to do so on a
timely basis, won't be treated as a tax-exempt 3. The state agency and the organization Internal Revenue Service
section 527 organization for any period before make the reports publicly available. Attn: Request for 8872 Password
Mail Stop 6273
the date Form 8871 is filed. Also, the taxable in- 4. No federal candidate or office holder: Ogden, UT 84201
come of the organization for that period will in-
clude its exempt function income (including a. Controls or materially participates in
contributions received, membership dues, and the direction of the organization, Lost username and password. If you
political fundraising receipts) minus any deduc- b. Solicits contributions for the organiza- have forgotten or misplaced the username and
tions directly connected with the production of tion, or password issued to your organization after you
that income. filed your initial Form 8871, send a letter re-
Failure to file an amended Form 8871 will c. Directs the disbursements of the or- questing a new username and password to the
cause the organization to not be treated as a ganization. address under Electronic filing. You can also fax
tax-exempt section 527 organization. If an or- your request to (801) 620-3249. It may take 3-6
ganization is treated as not being a tax-exempt Information required on Form 8872. If an or- weeks for your new username and password to
section 527 organization, the taxable income of ganization pays an individual $500 or more for arrive, as they will be mailed to the organization.
the organization will be determined by consider- the calendar year, the organization is required
ing any exempt function income and deductions to disclose the individual's name, address, oc-
during the period beginning on the date of the cupation, employer, amount of the expense, the Penalty
material change and ending on the date that the date the expense was paid, and the purpose of
amended Form 8871 is filed. the expense on Form 8872. A penalty will be imposed if the organization is
The tax is computed by multiplying the or- If an organization receives contributions of required to file Form 8872 and it:
ganization's taxable income by the highest cor- $200 or more from one contributor for the calen- • Fails to file the form by the due date, or
porate tax rate. dar year, the organization must disclose the do- • Files the form but fails to report all of the in-
nor's name, address, occupation, employer, formation required or reports incorrect in-
Fraudulent returns. Any individual or cor- and the date the contributions were made. formation.
poration that willfully delivers or discloses to the For additional information that is required,
IRS any list, return, account, statement or other see Form 8872. The penalty is 21% for tax years beginning
document known to be fraudulent or false as to after December 31, 2017 (35% for tax years be-
any material matter will be fined not more than ginning before December 31 2017), of the total
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amount of contributions and expenditures to property. For more information, get Publication payment isn't more than $75, a written state-
which a failure relates. 561, Determining the Value of Donated Prop- ment must be filed because the total payment is
erty. more than $75. If your organization fails to dis-
Fraudulent returns. Any individual or cor- close quid pro quo contributions, the organiza-
poration that willfully delivers or discloses any Form 8283. For noncash donations over tion may be subject to a penalty.
list, return, account, statement, or other docu- $5,000, the donor must attach Form 8283 to the
ment known to be fraudulent or false as to any tax return to support the charitable deduction. Disclosure statement. The required written
material matter will be fined not more than The donee must sign Part IV of Section B, Form disclosure statement must:
$10,000 ($50,000 in the case of a corporation), 8283 unless publicly traded securities are don-
or imprisoned for not more than 1 year, or both. ated. The person who signs for the donee must 1. Inform the donor that the amount of the
be an official authorized to sign the donee's tax contribution that is deductible for federal
Waiver of penalties. The IRS may waive or information returns, or a person specifically income tax purposes is limited to the ex-
any additional tax assessed on an organization authorized to sign by that official. The signature cess of any money (and the value of any
for failure to file Form 8872 if the failure was due doesn't represent concurrence in the appraised property other than money) contributed by
to reasonable cause and not willful neglect. value of the contributed property. A signed ac- the donor over the fair market value of
knowledgment represents receipt of the prop- goods or services provided by the charity,
erty described on Form 8283 on the date speci- and
Donee Information fied on the form. The signature also indicates 2. Provide the donor with a good faith esti-
knowledge of the information reporting require- mate of the fair market value of the goods
Return ments on dispositions, as previously discussed. or services that the donor received.
A copy of Form 8283 must be given to the do-
Dispositions of donated property. If an or- nee. The charity must furnish the statement in con-
ganization receives charitable deduction prop- nection with either the solicitation or the receipt
erty and within 3 years sells, exchanges, or oth- of the quid pro quo contribution. If the disclo-
erwise disposes of the property, the sure statement is furnished in connection with a
organization must file Form 8282, Donee Information Provided to
particular solicitation, it isn't necessary for the
Information Return. However, an organization Donors organization to provide another statement when
isn't required to file Form 8282 if: it actually receives the contribution.
• The property is valued at $500 or less, or In some situations, a donor must obtain certain No disclosure statement is required if any of
• The property is consumed or distributed for information from a donee organization to obtain the following are true.
charitable purposes. a deduction for a charitable contribution. In
Form 8282 must be filed with the IRS within other situations, the donee organization is re- 1. The goods or services given to a donor
125 days after the disposition. Additionally, a quired to provide information to the donor. have insubstantial value, as described in
copy of Form 8282 must be given to the donor. Rev. Proc. 90-12, 1990-1 C.B. 471, Rev.
If the organization fails to file the required infor- A charitable organization must give a donor Proc. 90-12, and Rev. Proc. 92-49, 1992-1
mation return, penalties may apply. 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.
Charitable deduction property. This is later) This is a payment a donor makes to a 2. There is no donative element involved in a
any property (other than money or publicly tra- charity partly as a contribution and partly for particular transaction with a charity (for ex-
ded securities) for which the donee organization goods or services. See Quid pro quo contribu- ample, there is generally no donative ele-
signed an appraisal summary or Form 8283, tion below for an example. ment involved in a visitor's purchase from
Noncash Charitable Contributions. a museum gift shop).
Failure to make the required disclosure may
Publicly traded securities. These are se- result in a penalty to the organization. A donor 3. There is only an intangible religious benefit
curities for which market quotations are readily can't deduct a charitable contribution of $250 or provided to the donor. The intangible reli-
available on an established securities market as more unless the donor has a written acknowl- gious benefit must be provided to the do-
of the date of the contribution. edgment from the charitable organization. nor by an organization organized exclu-
Appraisal summary. If the value of the don- In certain circumstances, an organization sively for religious purposes, and must be
ated property exceeds $5,000, the donor must may be able to meet both of these requirements of a type that generally isn't sold in a com-
get a qualified appraisal for contributions of with the same written document. mercial transaction outside the donative
context. For example, a donor who, for a
property, see Exceptions, below. payment, is granted admission to a reli-
Exceptions. A written appraisal isn't need- Disclosure of gious ceremony for which there is no ad-
ed if the property is: Quid Pro Quo Contributions mission charge is provided an intangible
• Nonpublicly traded stock of $10,000 or religious benefit. A donor isn't provided in-
less; A charitable organization must provide a written tangible religious benefits for payments
• A vehicle (including a car, boat, or air- disclosure statement to donors of a quid pro made for tuition for education leading to a
plane), if your deduction for the vehicle is quo contribution over $75. recognized degree, travel services, or con-
limited to the gross proceeds from its sale; sumer goods.
• Intellectual property; Quid pro quo contribution. A contribution 4. The donor makes a payment of $75 or less
• Certain securities considered to have mar- made by a donor in exchange for goods or serv- per year and receives only annual mem-
ket quotations readily available (see Regu- ices is known as a quid pro quo contribution. bership benefits that consist of:
lations section 1.170A-13(c)(7)(xi)(B)); Your charitable organization must provide the
• Inventory and other property donated by a donor a written statement informing the donor of a. Any rights or privileges (other than the
corporation that are qualified contributions the fair market value of the items or services it right to purchase tickets for college
for the care of the ill, the needy, or infants, provided in exchange for the contribution. Gen- athletic events) that the taxpayer can
within the meaning of section 170(e)(3)(A), erally, a written statement is required for each exercise often during the membership
or payment, whenever the contribution portion is period, such as free or discounted ad-
• Any donation of stock in trade, inventory, or over $75. missions or parking or preferred ac-
property held primarily for sale to custom- cess to goods or services; or
ers in the ordinary course of your trade or Example. If a donor gives your charity $100 b. Admission to events that are open
business. and receives a concert ticket valued at $40, the only to members and the cost per per-
The donee organization isn't a qualified ap- donor has made a quid pro quo contribution. In son of which is within the limits for
praiser for the purpose of valuing the donated this example, the charitable part of the payment low-cost articles described in Rev.
is $60. Even though the deductible part of the
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Proc. 90-12 (as adjusted for inflation), the organization (according to the donor's in- acknowledgment to the donor. The organization
Rev. Proc. 90-12. structions or otherwise) distributes the amount must file the report on Copy A of Form 1098-C.
received to one or more charities.
Good faith estimate of fair market value An organization that files Form 1098-C on
(FMV). An organization can use any reasona- Quid pro quo contribution. If the donee pro- paper should send it with Form 1096, Annual
ble method to estimate the FMV of goods or vides goods or services to the donor in ex- Summary and Transmittal of U.S. Information
services it provided to a donor, as long as it ap- change for the contribution (a quid pro quo con- Returns. See the Instructions for Form 1096 for
plies the method in good faith. tribution), the acknowledgment must include a the correct filing location.
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- services. See Disclosure of Quid Pro Quo Con- An organization that is required to file 250 or
cially available by using the FMV of similar or tributions, earlier. more Forms 1098-C during the calendar year
comparable goods or services. Goods or serv- must file the forms electronically or magneti-
ices may be similar or comparable even if they Form of acknowledgment. Although there is cally. Specifications for filing Form 1098-C elec-
don't have the unique qualities of the goods or no prescribed format for the written acknowl- tronically or magnetically can be found in Publi-
services being valued. edgment, it must provide enough information to cation 1220, Specifications for Filing Forms
substantiate the amount of the contribution. For 1097, 1098, 1099, 3921, 3922, 5498, 8935, and
Example 1. A charity provides a 1-hour ten- more information, see Publication 1771, Chari- W-2G Electronically at Pub. 1220.
nis lesson with a tennis professional for the first table Contributions – Substantiation and Disclo-
$500 payment it receives. The tennis professio- sure Requirements. Acknowledgment
nal provides 1-hour lessons on a commercial
basis for $100. A good faith estimate of the les- Cash contributions. To deduct a contribu- For a contribution of a qualified vehicle
son's FMV is $100. tion of cash, a check, or other monetary gift (re- ! with a claimed value of $500 or less,
gardless of the amount), a donor must maintain CAUTION don't file Form 1098-C. However, you
Example 2. For a payment of $50,000, a a bank record or a written communication from can use it as the contemporaneous written ac-
museum allows a donor to hold a private event the donee organization showing the donee's knowledgment under section 170(f)(8) by pro-
in a room of the museum. A good faith estimate name, date, and amount of the contribution. In viding the donor with Copy C only. See the In-
of the FMV of the right to hold the event in the the case of a lump-sum contribution (rather than structions for Form 1098-C.
museum can be made by using the cost of rent- a contribution by payroll deduction) made
ing a hotel ballroom with a capacity, amenities, through the Combined Federal Campaign or a
and atmosphere comparable to the museum similar program such as a United Way Cam- Generally, the organization should complete
room, even though the hotel ballroom lacks the paign, the written communication must include Form 1098-C as the written acknowledgment to
unique art displayed in the museum room. If the the name of the donee organization that is the the donor and the IRS. The contents of the ac-
hotel ballroom rents for $2,500, a good faith es- ultimate recipient of the charitable contribution. knowledgment depend upon whether the or-
timate of the FMV of the right to hold the event ganization:
in the museum is $2,500. Contributions by payroll deduction. An • Sells a qualified vehicle without any signifi-
organization may substantiate an employee's cant intervening use or material improve-
Example 3. For a payment of $1,000, a contribution by deduction from its payroll by: ment,
charity provides an evening tour of a museum • A pay stub, Form W-2, or other document • Intends to make a significant intervening
conducted by a well-known artist. The artist showing a contribution to a donee organi- use of or material improvement to a quali-
doesn't provide tours on a commercial basis. zation, together with fied vehicle prior to sale, or
Tours of the museum normally are free to the • A pledge card or other document from the • Sells a qualified vehicle to a needy individ-
public. A good faith estimate of the FMV of the donee organization that shows its name. ual at a price significantly below fair market
evening museum tour is $0 even though it is For contributions of $250 or more, the docu- value, or a gratuitous transfer to a needy
conducted by the artist. ment must state that the donee organization individual in direct furtherance of a charita-
provides no goods or services for any payroll ble purpose of the organization of relieving
Penalty for failure to disclose. A penalty is contributions. The amount withheld from each the poor and distressed or the underprivi-
imposed on a charity that doesn't make the re- payment of wages to a taxpayer is treated as a leged who are in need of a means of trans-
quired disclosure of a quid pro quo contribution separate contribution. portation.
of more than $75. The penalty is $10 per contri-
bution, not to exceed $5,000 per fundraising For more information on the acknowledg-
event or mailing. The charity can avoid the pen- Acknowledgment of Vehicle ment, see Notice 2005-44.
alty if it can show that the failure was due to rea- Contribution
sonable cause. Material improvements or significant inter-
If an exempt organization receives a contribu- vening use. To constitute significant interven-
Acknowledgment of tion of a qualified vehicle with a claimed value of ing use, the organization must actually use the
more than $500, the donee organization is re- vehicle to substantially further the organization's
Charitable Contributions of quired to provide a contemporaneous written regularly conducted activities, and the use must
$250 or More acknowledgment to the donor. The donee or- be significant, not incidental. Factors in deter-
ganization can use a completed Form 1098-C, mining whether a use is a significant intervening
A donor can deduct a charitable contribution of Contributions of Motor Vehicles, Boats, and Air- use depend on the nature, extent, frequency,
$250 or more only if the donor has a written ac- planes, for the contemporaneous written ac- and duration. For this purpose, use includes
knowledgment from the charitable organization. knowledgment. See section 3.03 of Notice providing transportation on a regular basis for a
The donor must get the acknowledgment by the 2005-44, 2005-25 I.R.B. 1287 for guidance on significant period of time or significant use di-
earlier of: the information that must be included in a con- rectly related to training in vehicle repair. Use
temporaneous written acknowledgment and the doesn't include the use of a vehicle to provide
1. The date the donor files the original return deadline for furnishing the acknowledgment to training in business skills, such as marketing or
for the year the contribution is made, or the donor. sales. Examples of significant use include:
2. The due date, including extensions, for fil- • Driving a vehicle every day for 1 year to de-
ing the return. Any donee organization that provides a con- liver meals to needy individuals, if deliver-
temporaneous written acknowledgment to a do- ing meals is an activity regularly conducted
The donor is responsible for requesting and ob- nor is required to report to the IRS the informa- by the organization.
taining the written acknowledgment from the tion contained in the acknowledgment. The • Driving a vehicle for 10,000 miles over a
donee. A charitable organization that receives a report is due by February 28 (March 31 if filing 1-year period to deliver meals to needy in-
payment made as a contribution is treated as electronically) of the year following the year in dividuals, if delivering meals is an activity
the donee organization for this purpose even if which the donee organization provides the regularly conducted by the organization.
Publication 557 (1-2024) Chapter 2 Filing Requirements and Required Disclosures 17

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Material improvements include major repairs               the  time  of  the  contribution  that  the  donor  in- Report  of  Cash  Payments  Over  $10,000  Re-
and additions that improve the condition of the           tends to treat the contribution as qualified intel-     ceived in a Trade or Business.
vehicle in a manner that significantly increases          lectual  property  contribution  for  purposes  of 
the value. To be a material improvement, the im-          sections 170(m) and 6050L.
provement can't be funded by an additional pay-                                                                   Public Inspection
ment to the organization from the donor of the            Every donee organization described in sec-
vehicle.  Material  improvements  don't  include          tion 170(c) (except a private foundation, as de-        of Exemption 
cleaning,  minor  repairs,  routine  maintenance,         fined  in  section  509(a),  that  isn't  described  in 
painting, removal of dents or scratches, clean-           section  170(b)(1)(F))  that  receives  or  accrues     Applications, Annual 
ing  or  repair  of  upholstery,  and  installation  of   net income from a charitable gift of qualified in-      Returns, and Political 
theft deterrent devices.                                  tellectual property must file Form 8899.
                                                                                                                  Organization Reporting 
Penalties. If  your  charitable  organization  re-        Form 8899. Form 8899, Notice of Income from 
ceives  contributions  of  used  motor  vehicles,         Donated Intellectual Property, is used by a do-         Forms
boats,  and  airplanes  valued  over  $500,  it  may      nee to report net income from qualified intellec-
be subject to a penalty if it knowingly:                  tual property to the donor of the property and to       The general rule under section 6103 is that re-
•  Fails to furnish an acknowledgement in a               the IRS and is due by the last day of the first full    turns and return information of all taxpayers are 
   timely manner, showing the required infor-             month  following  the  close  of  the  donee’s  tax     confidential  except  as  authorized  under  the 
   mation; or                                             year. This form must be filed for each tax year of      Code. Section 6104 provides exceptions to the 
•  Furnishes a false or fraudulent acknowl-               the donee in which the donated property produ-          general  rule  of  confidentiality  for  disclosure  of 
   edgement of the contribution.                          ces net income, but only if all or part of that tax     certain information about exempt organizations.
                                                          year occurs during the 10-year period beginning             In addition, included in this section is a dis-
        Other penalties may apply. See Part O             on the date of the contribution and that tax year       cussion  on  the  public  inspection  requirements 
CAUTION Certain Information Returns.
!       in  the  current  General  Instructions  for      doesn't begin after the expiration of the legal life    for political organizations filing Forms 8871 and 
                                                          of the donated property.                                8872.
An  acknowledgment  containing  a  certifica-
tion will be presumed to be false or fraudulent if        Qualified donee income.   Qualified donee in-
the  qualified  vehicle  is  sold  to  a  buyer  other    come is any net income received by or accrued           Annual Information Return
than a needy individual without a significant in-         to  the  donee  that  is  properly  allocable  to  the 
tervening use or material improvement within 6            qualified intellectual property for the tax year of     An exempt organization must make available for 
months of the date of the contribution.                   the donee which ends within or with the tax year        public  inspection,  upon  request  and  without 
If  a  charity  sells  a  donated  vehicle  at  auc-      of the donor. Income isn't treated as allocated to      charge, a copy of its original and amended an-
tion, the IRS won't accept as substantiation an           qualified intellectual property if it is received or    nual  information  returns.  Each  information  re-
acknowledgment  from  the  charity  stating  that         accrued after the earlier of the expiration of the      turn must be made available from the date it is 
the vehicle is to be transferred to a needy indi-         legal life of the qualified intellectual property, or   required to be filed (determined with regard to 
vidual  for  significantly  below  fair  market  value.   the  10-year  period  beginning  with  the  date  of    any extensions), or is actually filed, whichever is 
Vehicles sold at auction aren't sold at prices sig-       the contribution.                                       later. An original return doesn't have to be made 
nificantly  below  fair  market  value,  and  the  IRS                                                            available if more than 3 years have passed from 
won't treat vehicles sold at auction as qualifying        Qualified  intellectual  property. Qualified  in-       the date the return was required to be filed (in-
for this exception.                                       tellectual property is generally any patent, copy-      cluding any extensions) or was filed, whichever 
The  penalty  for  a  false  or  fraudulent  ac-          right,  trademark,  trade  name,  trade  secret,        is later. An amended return doesn't have to be 
knowledgment  where  the  donee  certifies  that          know-how, software or similar property, or appli-       made  available  if  more  than  3  years  have 
the vehicle won't be transferred for money, other         cations or registrations of such property (other        passed from the date it was filed.
property, or services before completion of mate-          than property contributed to or for the use of a 
rial improvements or significant intervening use          private foundation, as defined in section 509(a)            An annual information return includes an ex-
or  the  donee  certifies  that  the  vehicle  is  to  be that isn't described in section                         act  copy  of  the  return  (Forms  990,  990-EZ, 
transferred to a needy individual for significantly       170(b)(1)(F)). See Exceptions below.                    990-BL, 990-PF, 990-T, or 1065), and amended 
                                                                                                                  return,  if  any,  and  all  schedules,  attachments, 
below fair market value in furtherance of the do-         Exceptions.       The  following  property  isn't       and supporting documents filed with the IRS.
nee's charitable purpose is the larger of $5,000          considered  qualified  intellectual  property  for 
or the claimed value of the vehicle multiplied by         purposes of the additional charitable deduction:            An  annual  information  return  doesn't  in-
39.6%.                                                                                                            clude:
The penalty for an acknowledgment relating                1. Computer software that is readily available          •   Schedule A of Form 990-BL,
to  a  qualified  vehicle  being  sold  in  an  arm's       for purchase by the general public, is sub-           •   Schedule K-1 of Form 1065, or
length  transaction  to  an  unrelated  party  is  the      ject to a nonexclusive license, and has not           •   Form 1120-POL.
larger of the gross proceeds from the sale or the           been substantially modified.
                                                                                                                      In  the  case  of  a  tax-exempt  organization 
sales price stated in the acknowledgment multi-           2. A copyright held by a taxpayer:                      other than a private foundation, an annual infor-
plied by 39.6%.                                                                                                   mation  return  doesn't  include  the  names  and 
                                                          • Whose personal efforts created the prop-
                                                            erty, or                                              addresses of contributors to the organization. 
Qualified Intellectual                                    • In whose hands the basis of the property is                   Form  990-T. All  section  501(c)(3)  or-
Property                                                    determined, for purposes of determining                   !   ganizations  that  file  Form  990-T  must 
                                                            gain from a sale or exchange, in whole or             CAUTION make  the  return  public,  regardless  of 
A taxpayer who contributes qualified intellectual           in part by reference to the basis of the              whether the organization is otherwise subject to 
property to a charity may be entitled to a chari-           property in the hands of a taxpayer whose             the  disclosure  requirements  of  section  6104. 
table deduction, in addition to any initial deduc-          personal efforts created the property.                For example, although churches aren't required 
tion allowed in the year of contribution. The ad-                                                                 to file Form 1023 or Form 990 with the IRS, they 
ditional  deduction  is  based  on  a  specified                                                                  must file the Form 990-T with the IRS to report 
percentage of the qualified donee income with             Report of Cash Received                                 unrelated  business  taxable  income.  Thus, 
respect to the qualified intellectual property. To                                                                churches must disclose Form 990-T to the pub-
qualify  for  the  additional  charitable  deduction,     An  exempt  organization  that  receives,  in  the      lic.
the donor must provide notice to the donee at             course of its activities, more than $10,000 cash 
                                                          in one transaction (or two or more related trans-           State  colleges  and  universities  that  have 
                                                          actions) that isn't a charitable contribution must      been  recognized  by  the  IRS  as  exempt  under 
                                                          report the transaction to the IRS on Form 8300,         section  501(a)  as  organizations  described  in 
18                                          Chapter 2       Filing Requirements and Required Disclosures                  Publication 557 (1-2024)

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section 501(c)(3) must disclose Form 990-T to         charge, at the organization's principal, regional,      provides a rate of $0.10 per page for black and 
the public. However, state colleges and univer-       and  district  offices  during  regular  business       white pages, and $0.20 per page for color pa-
sities  that  are  subject  to  tax  under  section   hours. The organization can have an employee            ges.  The  organization can also  charge  the  ac-
511(a)  solely  by  virtue  of  section  511(a)(2)(B) present during inspection, but must allow the in-       tual postage costs it pays to provide the copies.
and that haven't been recognized by the IRS as        dividual to take notes freely and to photocopy at 
exempt  under  section  501(a)  as  organizations     no  charge  if  the  individual  provides  the  photo-  Regional  and  district  offices. Generally,  the 
described in section 501(c)(3) aren't required to     copying equipment. Generally, regional and dis-         same rules regarding public inspection and pro-
make their Forms 990-T public.                        trict offices are those that have paid employees        viding  copies  of  applications  and  annual  infor-
                                                      who together are normally paid for at least 120         mation returns that apply to a principal office of 
                                                      hours a week.                                           an  exempt  organization  also  apply  to  its  re-
Public Inspection of                                  If the organization doesn't maintain a perma-           gional  and  district  offices.  However,  a  regional 
Exemption Application                                 nent office, it must make its application for tax       or district office isn't required to make its annual 
                                                      exemption  and  its  annual  information  returns       information return available for inspection or to 
An exempt organization must also make availa-         available for inspection at a reasonable location       provide copies until 30 days after the date the 
ble for public inspection, without charge, its ap-    of  its  choice.  It  must  permit  public  inspection  return is required to be filed (including any ex-
plication  for  tax-exempt  status.  An application   within a reasonable amount of time after receiv-        tensions) or is actually filed, whichever is later.
for tax exemption includes the application form       ing a request for inspection (normally not more 
(such  as  Forms  1023  or  1024),  all  documents    than 2 weeks) and at a reasonable time of day.          Local  and  subordinate  organizations. A  lo-
and  statements  the  IRS  requires  the  organiza-   At its option, it can mail, within 2 weeks of re-       cal or subordinate organization is an exempt or-
tion to file with the form, any statement or other    ceiving the request, a copy of its application for      ganization that didn't file its own application for 
supporting document submitted by an organiza-         tax exemption and annual information returns to         tax exemption because it is covered by a group 
tion in support of its application, and any letter    the  requester  in  lieu  of  allowing  an  inspection. exemption  letter.  Generally,  a  local  or  subordi-
or other document issued by the IRS concern-          The  organization  can  charge  the  requester  for     nate  organization  of  an  exempt  organization 
ing the application.                                  copying and actual postage costs only if the re-        must,  upon  request,  make  available  for  public 
The  application  for  exemption  doesn't  in-        quester consents to the charge.                         inspection, or provide copies of:
clude:                                                An organization that has a permanent office,            1. The application submitted to the IRS by 
• Any application from an organization that           but  has  no  office  hours  or  very  limited  hours         the central or parent organization to obtain 
  isn't yet recognized as exempt;                     during certain times of the year, must make its               the group exemption letter, and
• Any material that is required to be withheld        documents available during those periods when 
  from public inspection, see Material re-            office  hours  are  limited  or  not  available  as     2. Those documents which were submitted 
  quired to be withheld from public inspec-           though it were an organization without a perma-               by the central or parent organization to in-
  tion, next;                                         nent office.                                                  clude the local or subordinate organization 
• In the case of a tax-exempt organization                                                                          in the group exemption letter.
  other than a private foundation, the names          Furnishing  copies. An  exempt  organization            However,  if  the  central  or  parent  organization 
  and addresses of contributors to the or-            must also provide a copy of all, or any specific        submits to the IRS a list or directory of local or 
  ganization; or                                      part or schedule, of its three most recent annual       subordinate organizations covered by the group 
• Any applications filed before July 15, 1987,        information  returns  and/or  exemption  applica-       exemption letter, the local or subordinate organ-
  if the organization didn't have a copy of the       tion  to  anyone  who  requests  a  copy  either  in    ization  is  required  to  provide  only  the  applica-
  application on July 15, 1987.                       person or in writing at its principal, regional, or     tion for the group exemption ruling and the pa-
                                                      district  office  during  regular  business  hours.  If ges of the list or directory that specifically refer 
If  there  is  no  prescribed  application  form,     the  individual  made  the  request  in  person,  the   to it.
see Regulations section 301.6104(d)-1(b)(3)(ii)       copy  must  be  provided  on  the  same  business       The  local  or  subordinate  organization  must 
for a list of the documents that must be made         day  the  request  is  made  unless  there  are  un-    permit  public  inspection  or  comply  with  a  re-
available.                                            usual  circumstances.  Unusual  circumstances           quest for copies made in person, within a rea-
Material  required  to  be  withheld  from            are defined   in         Regulations         section    sonable amount of time (normally not more than 
public inspection.   Material that is required to     301.6104(d)-1(d)(1)(ii).                                2 weeks) after receiving a request made in per-
be withheld from public inspection includes:          The  organization  must  honor  a  written  re-         son for public inspection or copies and at a rea-
• Trade secrets, patents, processes, styles           quest for a copy of documents or specific parts         sonable  time  of  day.  In  lieu  of  allowing  an  in-
  of work, or apparatus for which withholding         or schedules of documents that are required to          spection,  the  local  or  subordinate  organization 
  was requested and granted;                          be disclosed. However, this rule only applies if        can mail a copy of the applicable documents to 
• National defense material;                          the request:                                            the  person  requesting  inspection  within  the 
• Unfavorable rulings or determination letters        •   Is addressed to the exempt organization's           same time period. In that case, the organization 
  issued in response to applications for tax              principal, regional, or district office;            can charge the requester for copying and actual 
  exemption;                                          •   Is sent to that address by mail, electronic         postage costs only if the requester consents to 
• Rulings or determination letters revoking or            mail (e-mail), facsimile (fax), or a private        the charge. If the local or subordinate organiza-
  modifying a favorable determination letter;             delivery service approved by the IRS; and           tion receives a written request for a copy of its 
• Technical advice memoranda relating to a            •   Gives the address to where the copy of the          application  for  exemption,  it  must  fulfill  the  re-
  disapproved application for tax exemption               document should be sent.                            quest in the time and manner specified earlier.
  or the revocation or modification of a favor-       The  organization  must  mail  the  copy  within        The  requester  has  the  option  of  requesting 
  able determination letter;                          30  days  from  the  date  it  receives  the  request.  from  the  central  or  parent  organization,  at  its 
• Any letter or document filed with or issued         The  organization  can  request  payment  in  ad-       principal office, inspection or copies of the ap-
  by the IRS relating to whether a proposed           vance and must then provide the copies within           plication  for  group  exemption  and  the  material 
  or accomplished transaction is a prohibited         30 days from the date it receives payment.              submitted by the central or parent organization 
  transaction under section 503; and                                                                          to include a local or subordinate organization in 
• Any other letter or document filed with or          Fees  for  copies.       The  organization  can         the group ruling. If the central or parent organi-
  issued by the IRS which, although it relates        charge a reasonable fee for providing copies. It        zation submits to the IRS a list or directory of lo-
  to an organization's tax-exempt status as           can charge no more for the copies than the per          cal or subordinate organizations covered by the 
  an organization described in section 501(c)         page rate the IRS charges for providing copies.         group exemption letter, it must make the list or 
  or 501(d), doesn't relate to that organiza-         The IRS can't charge more for copies than the           directory available for public inspection, but it is 
  tion's application for tax exemption.               fees  listed  in  the  Freedom  of  Information  Act    required to provide copies only of those pages 
                                                      (FOIA) fee schedule. Although the IRS charges           of the list or directory that refer to particular lo-
Time,  place,  and  manner  restrictions. The         no fee for the first 100 pages, the organization        cal  or  subordinate  organizations  specified  by 
annual returns and exemption application must         can charge a fee for all copies. For noncommer-         the   requester. The central         or parent 
be  made  available  for  inspection,  without        cial  requesters,  the  FOIA  schedule  currently 
Publication 557 (1-2024)                     Chapter 2    Filing Requirements and Required Disclosures                                                   19

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organization  must  fulfill  such  requests  in  the     Political Organization                                    • Prohibited tax shelter transactions.
time and manner specified earlier.
A  local  or  subordinate  organization  that            Reporting Forms
                                                                                                                   Solicitation of Nondeductible 
doesn't  file  its  own  annual  information  return     Forms 8871 and 8872 (discussed earlier under              Contributions
(because it is affiliated with a central or parent       Reporting  Requirements  for  a  Political  Organi-
organization that files a group return) must, on         zation) are open to public inspection.                    Solicitations for contributions or other payments 
request, make available for public inspection, or 
provide copies of, the group returns filed by the        Form 8871.  Form 8871 (including any sup-                 by certain exempt organizations (including lob-
central  or  parent  organization.  However,  if  the    porting  papers),  and  any  letter  or  other  docu-     bying  groups  and  political  action  committees) 
group  return  includes  separate  schedules  for        ment the IRS issues with regard to Form 8871,             must  include  a  statement  that  payments  to 
each local or subordinate organization included          are open to public inspection online at IRS.gov/          those organizations aren't deductible as charita-
in the group return, the local or subordinate or-        polorgs.                                                  ble  contributions  for  federal  income  tax  purpo-
ganization  receiving  the  request  can  omit  any                                                                ses.  The  statement  must  be  included  in  the 
schedules  relating  only  to  other  organizations      Form  8872. Form  8872  (including  Sched-                fundraising solicitation and be conspicuous and 
included in the group return. The local or subor-        ules A and B) are open to public inspection on-           easily recognizable.
dinate  organization  must  permit  public  inspec-      line at IRS.gov/polorgs.
                                                                                                                   Organizations  subject  to  requirements.    An 
tion, or comply with a request for copies made           Electronically filed Forms 8871 and 8872 are              organization  must  follow  these  disclosure  re-
in  person,  within  a  reasonable  amount  of  time     available  online  48  hours  after  the  form  has       quirements if it is exempt under section 501(c), 
(normally not more than 2 weeks) after receiv-           been filed. Forms 8872 that are filed by mail are         other  than  section  501(c)(1),  or  under  section 
ing a request made in person for public inspec-          available online after being imaged by the IRS.           501(d), unless the organization is eligible to re-
tion or copies and at a reasonable time of day.          These forms are considered widely available if            ceive tax deductible charitable contributions un-
In lieu of allowing an inspection, the local or          you provide the online address to the requester.          der  section  170(c).  These  requirements  must 
subordinate organization can mail a copy of the          In addition, your organization must make a copy           be followed by, among others:
applicable documents to the person requesting            of these materials available for public inspection 
inspection  within  the  same  time  period.  In  this   during  regular  business  hours  at  the  organiza-      1. Social welfare organizations (section 
case, the organization can charge the requester          tion’s principal office and at each of its regional         501(c)(4)); 
for copying and actual postage costs only if the         or district offices having at least three paid em-        2. Labor unions (section 501(c)(5));
requester consents to the charge. If the local or        ployees.
subordinate  organization  receives  a  written  re-                                                               3. Trade associations (section 501(c)(6));
quest for a copy of its annual information return,                                                                 4. Social clubs (section 501(c)(7));
it must fulfill the request by providing a copy of       Penalties
the group return in the time and manner speci-                                                                     5. Fraternal organizations (section 501(c)(8) 
fied earlier. The requester has the option of re-        The penalty for failure to allow public inspection          and 501(c)(10)) (however, fraternal organi-
questing from the central or parent organization,        of annual returns is $20 for each day the failure           zations described in section 170(c)(4) 
at  its  principal  office,  inspection  or  copies  of  continues. The maximum penalty on all persons               must follow these requirements only for 
group  returns  filed  by  the  central  or  parent  or- for failures involving any one return is $10,000.           solicitations for funds that are to be used 
ganization.  The  central  or  parent  organization                                                                  for noncharitable purposes not described 
must fulfill such requests in the time and man-          The penalty for failure to allow public inspec-             in section 170(c)(4));
ner specified earlier.                                   tion  of  exemption  applications  is  $20  for  each 
If an organization fails to comply, it may be li-        day the failure continues.                                6. Any political organization described in 
                                                                                                                     section 527(e), including political cam-
able for a penalty. See Penalties, later.                                                                            paign committees and political action 
                                                         The penalty for willful failure to allow public 
Making  applications  and  annual  informa-              inspection of a return or exemption application             committees; and
tion returns widely available.   An exempt or-           is  $5,000  for  each  return  or  application.  The      7. Any organization not eligible to receive 
ganization doesn't have to comply with requests          penalty also applies to a willful failure to provide        tax-deductible contributions if the organi-
for  copies  of  its  annual  information  returns  or   copies.                                                     zation or a predecessor organization was, 
exemption  application  if  it  makes  them  widely                                                                  at any time during the 5-year period end-
available.  However,  making  these  documents           The penalty for failure to allow public inspec-             ing on the date of the fundraising solicita-
widely available doesn't relieve the organization        tion of a political organization's section 527 no-          tion, an organization of the type to which 
from making its documents available for public           tice (Form 8871) is $20 for each day the failure            this disclosure requirement applies.
inspection.                                              continues.
The  organization  can  make  its  application                                                                     Fundraising  solicitation.    This  disclosure  re-
and annual information returns widely available          The penalty for failure to allow public inspec-           quirement applies to a fundraising solicitation if 
by posting the application and annual informa-           tion  of  a  section  527  organization's  contribu-      all of the following are true.
tion returns on the Internet. For the rules to fol-      tions  and  expenditures  report  (Form  8872)  is        1. The organization soliciting the funds nor-
low so that the Internet posting will be consid-         $20  for  each  day  the  failure  continues.  The          mally has gross receipts over $100,000 
ered  widely  available,  see  Regulations  section      maximum penalty on all persons for failures in-             per year.
301.6104(d)-2(b).                                        volving any one report is $10,000.
If the organization has made its application                                                                       2. The solicitation is part of a coordinated 
for tax exemption and/or annual information re-                                                                      fundraising campaign that is soliciting 
turns widely available, it must inform any individ-      Required Disclosures                                        more than 10 persons during the year.
ual requesting a copy where the documents are                                                                      3. The solicitation is made in written or prin-
available, including the website address on the          Certain  exempt  organizations  must  disclose  to          ted form, by television or radio, or by tele-
Internet, if applicable. If the request is made in       the IRS or the public certain information about             phone.
person,  the  notice  must  be  provided  immedi-        their  activities.  Generally,  an  organization  dis-
ately. If the request is made in writing, the notice     closes this information by entering it on the ap-         Penalties. Failure  by  an  organization  to  make 
must be provided within 7 days.                          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 
Harassment  campaign.   If  the  tax-exempt  or-         • Solicitation of nondeductible contributions,            maximum  penalty  of  $10,000  for  a  calendar 
ganization is the subject of a harassment cam-           • Sales of information or services that are               year. No penalty will be imposed if it is shown 
paign, the organization may not have to fulfill re-        available free from the government,                     that the failure was due to reasonable cause. If 
quests  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. 
20                                        Chapter 2              Filing Requirements and Required Disclosures                          Publication 557 (1-2024)

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Sales of Information or                                   shelter transaction is required to disclose to the 
                                                          IRS the following information:
Services Available Free from                              •   Whether such organization is a party to the          Miscellaneous Rules
Government                                                    prohibited tax shelter transaction (as de-
                                                              fined in section 4965(e)); and
Certain organizations that offer to sell to individ-      •   The identity of any other party to the trans-        Organizational Changes and 
uals (or solicit money for) information or routine            action that is known to the exempt organi-           Exempt Status
services that could be readily obtained free (or              zation.
for a nominal fee) from the federal government                                                                     If you’ve changed your form or place of organi-
must include a statement that the information or          Party  to  a  prohibited  tax  shelter  transac-         zation, review Rev. Proc. 2018-15, 2018-9 I.R.B. 
service  can  be  so  obtained.  The  statement           tion. An  exempt  organization  is  a  party  to  a      379, to determine whether you’re required to file 
must be made in a conspicuous and easily rec-             prohibited  tax  shelter  transaction  if  the  organi-  a  new  exemption  application.  If  your  organiza-
ognized format when the organization makes an             zation:                                                  tion  becomes  inactive  for  a  period  of  time  but 
offer  or  solicitation  to  sell  the  information  or   1. Facilitates a prohibited tax shelter transac-         doesn't cease being an entity under the laws of 
service.  Organizations  affected  are  those  ex-            tion by reason of its tax-exempt, tax-indif-         the state in which it was formed, you will have to 
empt under section 501(c) or 501(d) and politi-               ferent, or tax-favored status; or                    continue to file an annual information return dur-
cal organizations defined in section 527(e).                                                                       ing the period of inactivity, unless a filing excep-
                                                          2. Is identified in published guidance by type,          tion applies. If your organization has been liqui-
Penalty. A  penalty  is  provided  for  failure  to           class, or role as a party to a prohibited tax        dated,  dissolved,  terminated,  or  substantially 
comply with this requirement if the failure is due            shelter transaction.                                 contracted, you should file your annual return of 
to intentional disregard of the requirement. The                                                                   information by the 15th day of the 5th month af-
penalty is the greater of $1,000 for each day the         See     Prohibited  Tax  Shelter  Transactions,          ter the change and follow the applicable instruc-
failure occurred, or 50% of the total cost of all         later, for further information.                          tions for the form.
offers  and  solicitations  that  were  made  by  the 
organization  the  same  day  that  it  fails  to  meet   Disclosure. A single disclosure is made by the           If your organization amends its articles of or-
the requirement.                                          organization  for  each  prohibited  tax  shelter        ganization  or  its  internal  regulations  (bylaws), 
                                                          transaction.  The  disclosure  is  made  on  Form        then follow the instructions for Form 990, Form 
                                                          8886-T,  Disclosure  by  Tax-Exempt  Entity  Re-         990-EZ,  or  Form  990-PF  for  reporting  these 
Dues Used for Lobbying                                    garding Prohibited Tax Shelter Transaction.              changes. Regardless of whether your organiza-
or Political Activities                                   Due  date.  Generally,  for  exempt  organiza-           tion files an annual information return, you may 
                                                          tions described in 1 above, the disclosure is due        also report these changes to the EO Determina-
Certain  exempt  organizations  must  notify  any-        on or before May 15 of the calendar year follow-         tions office; however, such reporting doesn't re-
one  paying  dues  to  the  organization  whether         ing  the  close  of  the  calendar  year  that  the  ex- lieve  your  organization  from  reporting  the 
any part of the dues isn't deductible because it          empt  organization  entered  into  the  prohibited       changes on its annual information return. For in-
is related to lobbying or political activities.           tax shelter transaction. If any date falls on a Sat-     formation about informing the IRS of a termina-
                                                          urday,  Sunday,  or  legal  holiday,  substitute  the    tion  or  merger,  see  Publication  4779,  Facts 
An organization must provide the notice if it             next business day. However, the disclosure for           about Terminating or Merging Your Exempt Or-
is exempt from tax under section 501(a) and is            subsequently  listed  transactions  (as  defined  in     ganization.
one of the following.                                     section 4965(e)(2)) is due on or before May 15 
1. A social welfare organization described in             of  the  calendar  year  following  the  close  of  the  An  organization  should  report  new  signifi-
section 501(c)(4) that isn't a veterans' or-              calendar year that the transaction was identified        cant program services or significant changes in 
ganization.                                               by the Secretary as a listed transaction.                how  it  conducts  program  services,  and  signifi-
                                                          The disclosure for exempt organizations de-              cant  changes  to  its  organizational  documents, 
2. An agricultural or horticultural organization          scribed in 2 above is due on or before the date          on its Form 990 rather than in a letter to EO De-
described in section 501(c)(5).                           the first tax return (whether original or amended        terminations.  EO  Determinations  no  longer  is-
3. A business league, chamber of com-                     return) is filed that reflects a reduction or elimi-     sues letters confirming the tax-exempt status of 
merce, real estate board, or other organi-                nation  of  the  exempt  organization's  liability  for  organizations that report new services or signifi-
zation described in section 501(c)(6).                    applicable federal employment, excise, or unre-          cant  changes,  or  changes  to  organizational 
                                                          lated business income taxes that is derived di-          documents.
However, an organization described in (1), (2),           rectly or indirectly from tax consequences or tax 
or (3) doesn't have to provide the notice if it es-       strategy  described  in  the  published  guidance        Change in Accounting Period
tablishes that substantially all the dues paid to it      that lists the transaction.
aren't deductible anyway or if certain other con-                                                                  The procedures that an organization must follow 
ditions are met. For more information, see Rev.           Penalty. Exempt  organizations  that  fail  to  file     to change its accounting period differ for an in-
Proc. 98-19, 1998-1 C.B. 547 (or later update).           the required disclosure are subject to a nondi-          dependent organization and for a central organ-
                                                          sclosure penalty of $100 for each day the failure        ization that seeks a group change for its subor-
If  the  organization  doesn't  provide  the  re-         continues with a maximum penalty for any one             dinate organizations.
quired notice, it may have to pay a tax that is re-       disclosure of $50,000.
ported on Form 990-T. But the tax doesn't apply           Also, if the IRS makes a written demand on               Independent  organizations. If  an  organiza-
to any amount on which the section 527 tax has            any exempt organization subject to this penalty,         tion  isn't  required  to  file  an  annual  information 
been paid on Form 1120-POL. See             Political Or- giving  the  organization  a  reasonable  date  to       return, but files a Form 990-T, it can change its 
ganization Income Tax Return, earlier.                    make the disclosure, and the organization fails          annual  accounting  period  by  timely  filing  the 
                                                          to make the disclosure by that date, the organi-         Form 990-T. If neither an information return nor 
For  more  information  about  nondeductible              zation is subject to a penalty of $100 for each          a Form 990-T is required to be filed, an organi-
dues, see Deduction not allowed for dues used             day after the date specified by the IRS until dis-       zation  must  notify  the  IRS  by  letter  that  it  has 
for  political  or  legislative  activities.  under Sec-  closure  is  made  (with  a  maximum  penalty  for       changed its fiscal period.
tion 501(c)(6) organizations, later.                      any one disclosure of $10,000).                          If  an  organization  changed  its  annual  ac-
                                                                                                                   counting period at any time within the previous 
Prohibited Tax Shelter                                                                                             10 years and within that time it had a filing re-
Transactions                                                                                                       quirement,  the  organization  must  file  a  Form 
                                                                                                                   1128, Application to Adopt, Change, or Retain a 
                                                                                                                   Tax Year, with its timely filed annual information 
Every  exempt  organization  (as  defined  in  sec-                                                                return or Form 990-T, as appropriate, whether or 
tion 4965(c)) that is a party to a prohibited tax                                                                  not  the  filing  of  the  information  return  or  Form 
Publication 557 (1-2024)                            Chapter 2   Filing Requirements and Required Disclosures                                   21

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990-T would have otherwise been required for • Literary. Section 501(c)(3) of the Internal
that year. • Educational. Revenue Code
• Fostering national or international amateur
Central organizations. A central organization sports competition (but only if none of its Form 1023 and Form 1023-EZ must be filed
can obtain approval for a group change in an activities involve providing athletic facilities electronically on Pay.gov.
annual accounting period for its subordinate or- or equipment; however, see Amateur Ath- See chapter 6 for information about getting pub-
ganizations on a group basis only by filing Form letic Organizations, later in this chapter). lications and forms.
1128 with the IRS Service Center where it files • The prevention of cruelty to children or ani-
its annual information return. For more informa- mals.
tion, see Rev. Proc. 76-10, 1976-1 C.B. 548, as To qualify, the organization must be organ- Contributions to
modified by Rev. Proc. 79-3, 1979-1 C.B. 483, ized as a corporation (including a limited liability
or any later updates. company), unincorporated association, or trust. 501(c)(3) Organizations
Due date. Form 1128 must be filed by the 15th Sole proprietorships, partnerships, individuals,
day of the 5th month following the close of the or loosely associated groups of individuals Contributions to domestic organizations descri-
short period. won't qualify. bed in this chapter, except organizations testing
for public safety, are deductible as charitable
Examples. Qualifying organizations include: contributions on the donor's federal income tax
Modify or Obtain an NTEE • Nonprofit old-age homes, return.
Code. • Parent-teacher associations,
• Charitable hospitals or other charitable or- Fundraising events. If the donor receives
Organizations that wish to modify or obtain a ganizations, something of value in return for the contribution,
National Taxonomy of Exempt Entities (NTEE) • Alumni associations, a common occurrence with fundraising efforts,
Code should send a written request to the Cor- • Schools, part or all of the contribution may not be deduc-
respondence Unit with the relevant facts, includ- • Chapters of the Red Cross, tible. This may apply to fundraising activities
ing the Code currently assigned, if any, and the • Boys' or Girls' Clubs, and such as charity balls, bazaars, banquets, auc-
requested Code, as well as who selected the • Churches. tions, concerts, athletic events, and solicitations
for membership or contributions when merchan-
currently assigned Code initially, if known. The Child care organizations. The term edu- dise or benefits are given in return for payment
Correspondence Unit will refer to EO Determi- cational purposes includes providing for care of of a specified minimum contribution.
nations, if necessary, and will notify the organi- children away from their homes if substantially If the donor receives or expects to receive
zation if a form or user fee is required to make all the care provided is to enable individuals goods or services in return for a contribution to
the requested change. The written request must (the parents) to be gainfully employed and the your organization, the donor can't deduct any
be sent or faxed to: services are available to the general public. part of the contribution unless the donor intends
Internal Revenue Service Instrumentalities. A state or municipal instru- to, and does, make a payment greater than the
Attn: Correspondence Unit mentality may qualify under section 501(c)(3) if fair market value of the goods or services. If a
P.O. Box 2508, Room 6403 it is organized as a separate entity from the gov- deduction is allowed, the donor can deduct only
Cincinnati, OH 45201 ernmental unit that created it and if it otherwise the part of the contribution, if any, that is more
Fax: (855) 204-6184 meets the organizational and operational tests than the fair market value of the goods or serv-
of section 501(c)(3). Examples of a qualifying ices received. You should determine in advance
Express and Overnight Delivery: instrumentality may include state schools, uni- the fair market value of any goods or services to
versities, or hospitals. However, if an organiza- be given to contributors and tell them, when you
Internal Revenue Service tion is an integral part of the local government or publicize the fundraising event or solicit their
Attn: Correspondence Unit possesses governmental powers, it doesn't contributions, how much is deductible and how
500 Main Street, Room 6403 qualify for exemption. A state or municipality it- much is for the goods or services. See Disclo-
Cincinnati, OH 45202 self doesn't qualify for exemption under section sure of Quid Pro Quo Contributions in chap-
501(c)(3). ter 2.
Exemption application not filed. Generally,
Topics donors can't deduct any charitable contribution
This chapter discusses: to an organization that is required to apply for
recognition of exemption but has not done so.
• Contributions to 501(c)(3) organizations,
3. • Applications for recognition of exemption, Separate fund—contributions that are de-
• Articles of Organization, ductible. An organization that is exempt from
• Educational organizations and private federal income tax other than as an organiza-
Section schools, tion described in section 501(c)(3) can, if it de-
• Organizations providing insurance, sires, establish a fund, separate and apart from
• Other section 501(c)(3) organizations, its other funds, exclusively for religious, charita-
501(c)(3) • Private foundations and public charities, ble, scientific, literary, or educational purposes,
and fostering national or international amateur
• Lobbying expenditures. sports competition, or for the prevention of cru-
Organizations elty to children or animals.
Useful Items If the fund is organized and operated exclu-
You may want to see: sively for these purposes, it may qualify for ex-
Introduction emption as an organization described in section
501(c)(3), and contributions made to it will be
An organization may qualify for exemption from Forms (and Instructions) deductible, as provided by section 170. A fund
federal income tax under section 501(c)(3) if it 1023 1023 Application for Recognition of with these characteristics must be organized in
is organized and operated exclusively for one or such a manner as to prohibit the use of its funds
more of the following purposes. Exemption Under Section 501(c)(3) upon dissolution, or otherwise, for the general
• Religious. of the Internal Revenue Code purposes of the organization creating it.
• Charitable. 1023-EZ 1023-EZ Streamlined Application for
• Scientific. Recognition of Exemption Under Personal benefit contracts. Generally, chari-
• Testing for public safety. table deductions won't be allowed for a transfer
22 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

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to, or for the use of, a section 501(c)(3) or (c)(4) section 501(c)(3). Such participation or inter-
organization if in connection with the transfer: vention includes the publishing or distributing of
• The organization directly or indirectly pays, Application for statements. See the Form 1023 instructions.
or previously paid, a premium on a per- Whether your organization is participating or
sonal benefit contract for the transferor; or Recognition of intervening, directly or indirectly, in any political
• There is an understanding or expectation Exemption campaign on behalf of (or in opposition to) any
that anyone will directly or indirectly pay a candidate for public office depends upon all of
premium on a personal benefit contract for This discussion describes certain information to the facts and circumstances of each case. Cer-
the transferor. be provided upon application for recognition of tain voter education activities or public forums
A personal benefit contract with respect to exemption by all organizations created for any conducted in a nonpartisan manner may not be
the transferor is any life insurance, annuity, or of the purposes described earlier in this chap- prohibited political activity under section 501(c)
endowment contract, if any direct or indirect ter. See the organization headings that follow (3), while other so-called voter education activi-
beneficiary under the contract is the transferor, for specific information your organization may ties may be prohibited.
any member of the transferor's family, or any need to provide.
other person designated by the transferor. Effective date of exemption. Most organiza-
Form 1023 or Form 1023-EZ. Your organiza- tions described in this chapter that were organ-
Certain annuity contracts. If an organiza- tion must file its application for recognition of ex- ized after October 9, 1969, won't be treated as
tion incurs an obligation to pay a charitable gift emption on Form 1023 or Form 1023-EZ. See tax exempt unless they apply for recognition of
annuity, and the organization purchases an an- chapter 1 and the instructions accompanying exemption by filing Form 1023 or Form
nuity contract to fund the obligation, individuals Form 1023 or Form 1023-EZ for the procedures 1023-EZ. These organizations won't be treated
receiving payments under the charitable gift an- to follow in applying. Some organizations aren't as tax exempt for any period before they file
nuity won't be treated as indirect beneficiaries if required to file Form 1023 or Form 1023-EZ. Form 1023 or Form 1023-EZ, unless they file
the organization owns all of the incidents of See Organizations Not Required to File Form the form within 27 months from the end of the
ownership under the contract, is entitled to all 1023 or 1023-EZ, later. month in which they were organized. If the or-
payments under the contract, and the timing If you are a small organization, you may be ganization files the application within this
and amount of the payments are substantially eligible to apply for recognition of exemption by 27-month period, the organization's exemption
the same as the timing and amount of payments filing Form 1023-EZ instead of Form 1023. Spe- will generally be recognized retroactively to the
to each person under the obligation (as such cific eligibility requirements apply. You can find date it was organized. Otherwise, exemption will
obligation is in effect at the time of the transfer). more information about eligibility to use Form be recognized only from the date of receipt. The
Certain contracts held by a charitable 1023-EZ at Instructions for Form 1023-EZ. date of receipt is the date of the U.S. postmark
on the cover in which an exemption application
remainder trust. An individual won't be con- Additional information to help you com- is mailed or, if no postmark appears on the
sidered an indirect beneficiary under a life insur- TIP plete your application can be found on- cover, the date the application is stamped as re-
ance, annuity, or endowment contract held by a line. Go to Exemption Requirement – ceived by the IRS or, for an electronic submis-
charitable remainder annuity trust or a charita- Section 501(c)(3) Organizations and select the sion, the date submitted to the IRS. See section
ble remainder unitrust solely by reason of being link at the bottom of the web page for step by 6.08 of Rev. Proc. 2024-5.
entitled to the payment if the trust owns all of step help with the application process. See
the incidents of ownership under the contract, Exemption Requirements - Section 501(c)(3) Private delivery service. You can use cer-
and the trust is entitled to all payments under Organizations. tain private delivery services (PDS) designated
the contract. by the IRS to meet the “timely mailing as timely
Form 1023 and accompanying statements filing” rule for tax returns. Go to IRS.gov/PDS for
Excise tax. If the premiums are paid in con- must show that all of the following are true. the current list of designated services.
nection with a transfer for which a deduction 1. The organization is organized exclusively
isn't allowable under the deduction denial rule, for, and will be operated exclusively for, The PDS can tell you how to get written proof of
without regard to when the transfer to the chari- one or more of the purposes (religious, the mailing date.
table organization was made, an excise tax will charitable, etc.) specified in the introduc-
be applied that is equal to the amount of the tion to this chapter. For the IRS mailing address to use if you're us-
premiums paid by the organization on any life ing a PDS, go to IRS.gov/PDStreetAddresses.
insurance, annuity, or endowment contract. The 2. No part of the organization's net earnings
excise tax doesn't apply if all of the direct and will inure to the benefit of private share-
indirect beneficiaries under the contract are or- holders or individuals. You must establish Private delivery services can't deliver
ganizations. that your organization won't be organized ! items to P.O. boxes. You must use the
or operated for the benefit of private inter- CAUTION U.S. Postal Service to mail any item to
Excise taxes. A charitable organization lia- ests, such as the creator or the creator's an IRS P.O. box address.
ble for excise taxes must file Form 4720, Return family, shareholders of the organization,
of Certain Excise Taxes Under Chapters 41 and other designated individuals, or persons Amendments to organizing documents
42 of the Internal Revenue Code. Generally, the controlled directly or indirectly by such pri- required. If an organization is required to alter
due date for filing Form 4720 occurs on the 15th vate interests. its activities or to make substantive amend-
day of the 5th month following the close of the ments to its organizing document, the determi-
organization's tax year. 3. The organization won't, as a substantial nation letter recognizing its exempt status will
part of its activities, attempt to influence be effective as of the date the changes are
Indoor tanning services. If your organiza- legislation (unless it elects to come under made. If only a nonsubstantive amendment is
tion provides an indoor tanning bed service, the the provisions allowing certain lobbying made, exempt status will be effective as of the
ACA imposed a 10% excise tax on services pro- expenditures) or participate to any extent date it was organized, if the application was
vided after June 30, 2010. For more informa- in a political campaign for or against any filed within the 27-month period, or the date the
tion, go to IRS.gov and select Affordable Care candidate for public office. See Political application was filed.
Act Tax Provisions. activity, next, and Lobbying Expenditures,
near the end of this chapter. Discretionary extension of time for filing.
Political activity. If any of the activities An organization that fails to file a Form 1023
(whether or not substantial) of your organization within the 27-month period may be granted an
consist of participating in, or intervening in, any extension to file if it submits evidence (including
political campaign on behalf of (or in opposition affidavits) to establish that:
to) any candidate for public office, your organi- 1. It acted reasonably and in good faith, and
zation won't qualify for tax-exempt status under

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2. Granting a discretionary extension won't government results if granting an extension of These organizations are exempt automati-
prejudice the interests of the government. time to file to an organization results in a lower cally if they meet the requirements of section
total tax liability for the years to which the filing 501(c)(3). However, such organizations will not
applies than would have been the case if the or- appear on the Tax-Exempt Organization Search
The discretionary extension of the time for filing ganization had filed on time. Before granting an list of organizations eligible to receive tax-de-
Form 1023 does not apply if granting relief extension, the IRS can require the organization ductible contributions. These organizations also
would result in the organization’s exempt status requesting it to submit a statement from an in- cannot obtain a written affirmation of their ex-
being automatically revoked for failure to file a dependent auditor certifying that no prejudice empt status. To be included in the IRS database
required annual information return or notice for will result if the extension is granted. of exempt organizations and be eligible to re-
3 consecutive years, effective before the appli- ceive a written determination or affirmation of
cation date. See Rev. Proc. 2024-5. The interests of the government are ordina- exempt status, these organization must file
Additionally, organizations that are not re- rily prejudiced if the tax year in which the appli- Form 1023 or 1023-EZ.
quired to apply for recognition of exemption in cation should have been filed (or any tax year
order to be exempt are not eligible to request that would have been affected had the filing Filing Form 1023 or 1023-EZ to establish
the discretionary extension. See Rev. Proc. been timely) are closed by the statute of limita- exemption. If the organization wants to estab-
2024-5. However, these organizations may be tions before relief is granted. Therefore, the re- lish its exemption with the IRS and receive a de-
exempt prior to the effective date the IRS recog- quest for relief will not be granted if the period of termination letter recognizing its exempt status,
nizes exempt status because they may be limitations on assessment under section it should file Form 1023 or 1023-EZ (if eligible).
tax-exempt under Section 501(c)(3) without fil- 6501(a) for any taxable year for which the or- By establishing its exemption, potential contrib-
ing an application. See Organizations Not Re- ganization claims tax-exempt status has expired utors are assured by the IRS that contributions
quired to File Form 1023 or Form 1023-EZ. prior to the date of application. See Rev. Proc will be deductible. A subordinate organization
2024-5. The IRS can condition a grant of relief (other than a private foundation) covered by a
How to show reasonable action and on the organization providing the IRS with a group exemption letter doesn't have to submit a
good faith. The following factors are consid- statement from an independent auditor certify- Form 1023 or Form 1023-EZ for itself.
ered in determining whether an organization ac- ing that the interests of the Government aren't
ted reasonably and showed good faith. prejudiced. Private foundations. See Private Founda-
tions and Public Charities, later in this chapter,
1. The organization failed to file an applica- Procedure for requesting extension. To for more information about the additional notice
tion because of intervening events beyond request a discretionary extension, an organiza- required from an organization in order for it not
its control. tion must submit the relevant portions of Form to be presumed to be a private foundation and
2. The organization exercised reasonable dil- 1023, Schedule E, including describing in detail for the additional information required from a
igence (taking into account the complexity the events that led to the failure to apply and to private foundation claiming to be an operating
of the filing or issue and the organization's the discovery of that failure. If the organization foundation.
experience in these matters) but wasn't relied on a tax professional's advice, the sched-
aware of the application filing requirement. ule should describe the engagement and re- Gross receipts test. For purposes of the
sponsibilities of the professional and the extent gross receipts test, an organization normally
3. The organization reasonably relied upon to which the organization relied on the tax pro- doesn't have more than $5,000 annually in
the written advice of the IRS. fessional. An organization applying for section gross receipts if:
4. The organization reasonably relied upon 501(c)(3) status can no longer request the ex- 1. During its first tax year the organization re-
the advice of a qualified tax professional tension by filing Form 1023-EZ and then sub- ceived gross receipts of $7,500 or less,
who failed to file or advise the organization mitting correspondence to the IRS.
to file Form 1023 or Form 1023-EZ. An or- A request for this relief in connection with an 2. During its first 2 years the organization had
ganization can't rely on the advice of a tax application for exemption doesn't require pay- a total of $12,000 or less in gross receipts,
professional if it knows or should know that ment of an additional user fee. Also, a request and
they aren’t competent to render advice on for relief under the automatic 12-month exten- 3. In the case of an organization that has
filing exemption applications or isn't aware sion doesn't require payment of a user fee. been in existence for at least 3 years, the
of all the relevant facts. More information. For more information total gross receipts received by the organi-
5. The organization filed required Form about these procedures, see Regulations sec- zation during the immediately preceding 2
990-series returns or notices consistent tions 301.9100-1, 301.9100-2, and 301.9100-3, years, plus the current year, are $15,000
with its requested status. Rev. Proc. 2024-5. or less.
Not acting reasonably and in good faith. Notification from the IRS. Organizations filing An organization with gross receipts more
An organization has not acted reasonably and Form 1023 or Form 1023-EZ and satisfying all than the amounts in the gross receipts test, un-
in good faith under the following circumstances. requirements of section 501(c)(3) will be noti- less otherwise exempt from filing Form 1023 or
1. It seeks to change a return position for fied of their exempt status in writing. Form 1023-EZ, must apply for recognition of ex-
emption within 90 days after the end of the pe-
which an accuracy-related penalty has riod in which the amounts are exceeded. For ex-
been or could be imposed at the time the Organizations Not Required ample, an organization's gross receipts for its
relief is requested. first tax year were less than $7,500, but at the
to File Form 1023 or Form
end of its second tax year its gross receipts for
2. It was informed of the requirement to file 1023-EZ the 2-year period were more than $12,000. The
and related tax consequences, but chose
not to file. Some organizations aren't required to file Form organization must apply for recognition of ex-
3. It uses hindsight in requesting relief. The 1023 or 1023-EZ. These include: emption within 90 days after the end of its sec-
IRS won't ordinarily grant an extension if • Churches, interchurch organizations of lo- ond tax year.
specific facts have changed since the due cal units of a church, conventions or asso- If the organization had existed for at least 3
date that makes filing an application ad- ciations of churches, or integrated auxilia- tax years and had met the gross receipts test for
vantageous to an organization. ries of a church, such as a men's or all prior tax years but fails to meet the require-
women's organization, religious school, ment for the current tax year, its tax-exempt sta-
4. Granting the request for relief would result mission society, or youth group. tus for the prior years won't be lost even if it
in the organization’s tax-exempt status be- • Any organization (other than a private foun- does not apply for recognition of exemption
ing automatically revoked effective before dation) normally having annual gross re- within 90 days after the close of the current tax
the application date. ceipts of not more than $5,000 (see Gross year. However, the organization won't be treated
Prejudicing the interest of the govern- receipts test, later). as a section 501(c)(3) organization for the pe-
riod beginning with the current tax year and
ment. Prejudice to the interest of the

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ending with the filing of its application for recog- described in this chapter. Therefore, the organi- community, without any limitation or provision
nition of exemption . zational test may be met if the purposes stated restricting such purposes to accomplishment
in the articles of organization are limited in only in a charitable manner, the purposes won't
Example. An organization is organized and some way by reference to section 501(c)(3). be sufficiently limited. Such purposes are vague
operated exclusively for charitable purposes and may be accomplished other than in an ex-
and isn't a private foundation. It was incorpora- The requirement that your organization's empt manner.
ted on January 1, 2017, and files returns on a purposes and powers must be limited by the ar-
calendar-year basis. It didn't apply for recogni- ticles of organization isn't satisfied if the limit is Example 7. A stated purpose to operate a
tion of exemption. The organization's gross re- contained only in the bylaws or other rules or hospital doesn't meet the organizational test
ceipts during the years 2017 through 2020 were regulations. Moreover, the organizational test since it isn't necessarily charitable. A hospital
as follows: isn't satisfied by statements of your organiza- may or may not be exempt depending on the
tion's officers that you intend to operate only for manner in which it is operated.
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,600 exempt purposes. Also, the test isn't satisfied by
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,900 the fact that your actual operations are for ex- Example 8. An organization that is ex-
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 empt purposes. pressly empowered by its articles to carry on
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,600 social activities won't be sufficiently limited as to
In interpreting an organization's articles, the
The organization's total gross receipts for law of the state where the organization was cre- its power, even if its articles state that it is or-
2017, 2018, and 2019 were $6,900. Therefore, ated is controlling. If an organization contends ganized and will be operated exclusively for
it didn't have to apply for recognition of exemp- that the terms of its articles have a different charitable purposes.
tion and is exempt for those years. However, for meaning under state law than their generally ac-
2018, 2019, and 2020 the total gross receipts cepted meaning, such meaning must be estab- Dedication and
were $15,900. Therefore, the organization must lished by a clear and convincing reference to
apply for recognition of exemption within 90 relevant court decisions, opinions of the state Distribution of Assets
days after the end of its 2020 tax year. If it attorney general, or other appropriate state au- Assets of an organization must be permanently
doesn't apply within this time period, it won't be thorities. dedicated to an exempt purpose. This means
exempt under section 501(c)(3) for the period The following are examples illustrating the that should an organization dissolve, its assets
beginning with tax year 2020 ending when the organizational test. must be distributed for an exempt purpose de-
application for recognition of exemption is re- scribed in this chapter, or to the Federal Gov-
ceived by the IRS. The organization, however, Example 1. Articles of organization state ernment or to a state or local government for a
won't lose its exempt status for the tax years that an organization is formed exclusively for lit- public purpose. If the assets could be distrib-
ending before January 1, 2020. erary and scientific purposes within the mean- uted to members or private individuals or for
The IRS will consider applying the Commis- ing of section 501(c)(3). These articles appro- any other purpose, the organizational test isn't
sioner's discretionary authority to extend the priately limit the organization's purposes. The met.
time for filing an application for recognition of organization meets the organizational test.
exemption. See the procedures for this exten- Dedication. To establish that your organi-
sion discussed earlier. Example 2. An organization, by the terms zation's assets will be permanently dedicated to
of its articles, is formed to engage in research an exempt purpose, the articles of organization
without any further description or limitation. The should contain a provision ensuring their distri-
Articles of Organization organization won't be properly limited as to its bution for an exempt purpose in the event of dis-
purposes since all research isn't scientific. The solution. Although reliance can be placed upon
Your organization must be a legal entity (corpo- organization doesn't meet the organizational state law to establish permanent dedication of
ration, trust, or association) separate from its or- test. assets for exempt purposes, review of an appli-
ganizers and must have written articles of or- cation for exemption may be facilitated if the ar-
ganization. Depending upon the type of entity, Example 3. An organization's articles state ticles of organization include a provision ensur-
its articles of organization may be a corporate that its purpose is to receive contributions and ing permanent dedication of assets for exempt
charter (filed articles of incorporation), trust in- pay them over to organizations that are descri- purposes.
strument, articles of association, or any other bed in section 501(c)(3) and exempt from taxa- Distribution. Rev. Proc. 82-2, 1982-1 C.B.
written instrument by which the organization tion under section 501(a). The organization 367, identifies the states and circumstances in
was created. If applying for recognition of ex- meets the organizational test. which the IRS won't require an express provi-
emption using Form 1023, a conformed copy of sion for the distribution of assets upon dissolu-
the articles of organization must be uploaded Example 4. If a stated purpose in the arti- tion in the articles of organization. The proce-
with the application for recognition of exemp- cles is the conduct of a school of adult educa- dure also provides a sample of an acceptable
tion. See Form 1023, Part II. An organization tion and its manner of operation is described in dissolution provision for organizations required
applying for exemption using Form 1023-EZ detail, such a purpose will be satisfactorily limi- to have one.
does not submit a copy of the articles of organi- ted. If a named beneficiary is to be the distribu-
zation with its application; however, the organi- tee, it must be one that would qualify and would
zation could be asked to provide a copy at any Example 5. If the articles state the organi- be exempt within the meaning of section 501(c)
time as part of a compliance check or examina- zation is formed for charitable purposes, without (3) at the time the dissolution takes place. Since
tion. any further description, such language ordina- the named beneficiary at the time of dissolution
rily will be sufficient since the term charitable may not be qualified, may not be in existence,
has a generally accepted legal meaning. On the or may be unwilling or unable to accept the as-
Organizational Test other hand, if the purposes are stated to be sets of the dissolving organization, a provision
charitable, philanthropic, and benevolent, the should be made for distribution of the assets for
The articles of organization must limit the organ- organizational requirement won't be met since one or more of the purposes specified in this
ization's purposes to one or more of those de- the terms philanthropic and benevolent have no chapter in the event of any such contingency.
scribed at the beginning of this chapter and generally accepted legal meaning and, there-
mustn't expressly empower it to engage, other fore, the stated purposes may, under the laws of Sample articles of organization. See sample
than as an insubstantial part of its activities, in the state, permit activities that are broader than articles of organization in the Appendix in the
activities that don't further one or more of those those intended by the exemption law. back of this publication.
purposes. These conditions for exemption are
referred to as the organizational test. Example 6. If the articles state an organiza-
tion is formed to promote American ideals, or to
Section 501(c)(3) is the provision of law that foster the best interests of the people, or to fur-
grants exemption to the organizations ther the common welfare and well-being of the
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educational even if one or more of the factors so far as may be feasible, for the next aca-
listed above are present. demic year.)
Educational
Qualifying organizations. The following types 2. The amount of scholarship and loan funds,
Organizations of organizations may qualify as educational: if any, awarded to students enrolled and
the racial composition of students who
and Private Schools 1. An organization, such as a primary or sec- have received the awards.
ondary school, a college, or a professional
If your organization wants to obtain recognition or trade school, that has a regularly sched- 3. A list of the school's incorporators, found-
of exemption as an educational organization, uled curriculum, a regular faculty, and a ers, board members, and donors of land or
you must submit complete information as to regularly enrolled student body in attend- buildings, whether individuals or organiza-
how your organization carries on or plans to ance at a place where the educational ac- tions.
carry on its educational activities, such as by tivities are regularly carried on; 4. A statement indicating whether any of the
conducting a school, by panels, discussions, persons described in item (3) above have
lectures, forums, radio and television programs, 2. An organization whose activities consist of
or through various cultural media such as muse- conducting public discussion groups, fo- an objective of maintaining segregated
ums, symphony orchestras, or art exhibits. In rums, panels, lectures, or other similar pro- public or private school education at the
each instance, you must explain by whom and grams; time the application is filed and, if so,
whether any of the individuals described in
where these activities are or will be conducted 3. An organization that presents a course of item (3) are officers or active members of
and the amount of admission fees, if any. You instruction by correspondence or through those organizations at the time the appli-
must submit a copy of the pertinent contracts, the use of television or radio; cation is filed.
agreements, publications, programs, etc.
4. A museum, zoo, planetarium, symphony 5. The public school district and county in
If you are organized to conduct a school, orchestra, or other similar organization; which the school is located.
you must submit full information regarding your
tuition charges, number of faculty members, 5. A nonprofit children's day-care center; and How to determine racial composition. The
number of full-time and part-time students en- 6. A credit counseling organization. racial composition of the student body, faculty,
rolled, courses of study and degrees conferred, and administrative staff can be an estimate
together with a copy of your school catalog. See College book stores, cafeterias, restau- based on the best information readily available
Form 1023, Schedule B and Private Schools, rants, etc. These and other on-campus organi- to the school, without requiring student appli-
discussed later. zations should submit information to show that cants, students, faculty, or administrative staff to
they are controlled by and operated for the con- submit to the school information that the school
venience of the faculty and student body or by otherwise doesn't require. Nevertheless, a
Educational Organizations whom they are controlled and whom they serve. statement of the method by which the racial
The term educational relates to: Alumni association. An alumni associa- composition was determined must be supplied.
1. The instruction or training of individuals for tion should establish that it is organized to pro- The identity of individual students or members
the purpose of improving or developing mote the welfare of the university with which it is of the faculty and administrative staff shouldn't
their capabilities, or affiliated, is subject to the control of the univer- be included with this information.
sity as to its policies and destination of funds, A school that is a state or municipal instru-
2. The instruction of the public on subjects and is operated as an integral part of the univer- mentality (see Instrumentalities, near the begin-
useful to individuals and beneficial to the sity or is otherwise organized to promote the ning of this chapter), whether or not it qualifies
community. welfare of the college or university. If your asso- for exemption under section 501(c)(3), isn't con-
ciation doesn't have these characteristics, it sidered to be a private school for purposes of
Advocacy of a position. Advocacy of a partic- may still be exempt as a social club if it meets the following discussion.
ular position or viewpoint may be educational if the requirements described in chapter 4, under
there is a sufficiently full and fair exposition of 501(c)(7) - Social and Recreation Clubs. Racially Nondiscriminatory Policy
pertinent facts to permit an individual or the
public to form an independent opinion or con- Athletic organization. This type of organi-
clusion. The mere presentation of unsupported zation must submit evidence that it is engaged To qualify as an organization exempt from fed-
opinion isn't educational. in activities such as directing and controlling in- eral income tax, a private school must include a
terscholastic athletic competitions, conducting statement in its charter, bylaws, or other govern-
Method not educational. The method tournaments, and prescribing eligibility rules for ing instrument, or in a resolution of its governing
used by an organization to develop and present contestants. If it isn't so engaged, your organi- body, that it has a racially nondiscriminatory pol-
its views is a factor in determining if an organi- zation may be exempt as a social club descri- icy as to students and that it doesn't discrimi-
zation qualifies as educational within the mean- bed in chapter 4. Raising funds to be used for nate against applicants and students on the ba-
ing of section 501(c)(3). The following factors travel and other activities to interview and per- sis of race, color, or national or ethnic origin.
may indicate that the method isn't educational. suade prospective students with outstanding Also, the school must circulate information that
1. The presentation of viewpoints unsuppor- athletic ability to attend a particular university clearly states the school's admission policies. A
ted by facts is a significant part of the or- doesn't show an exempt purpose. If your organi- racially nondiscriminatory policy toward stu-
ganization's communications. zation isn't exempt as an educational organiza- dents means that the school admits the stu-
tion, see Amateur Athletic Organizations, later dents of any race to all the rights, privileges,
2. The facts that purport to support the view- in this chapter. programs, and activities generally accorded or
point are distorted. made available to students at that school and
that the school doesn't discriminate on the ba-
3. The organization's presentations make Private Schools sis of race in administering its educational poli-
substantial use of inflammatory and dis- cies, admission policies, scholarship and loan
paraging terms and express conclusions Every private school filing an application for rec- programs, and athletic and other school-admin-
more on the basis of emotion than of ob- ognition of tax-exempt status must supply the istered programs.
jective evaluations. IRS (on Schedule B, Form 1023) with the follow-
4. The approach used isn't aimed at develop- ing information. The IRS considers discrimination on the ba-
ing an understanding on the part of the au- 1. The racial composition of the student sis of race to include discrimination on the basis
dience because it doesn't consider their body, and of the faculty and administrative of color or national or ethnic origin.
background or training. staff, as of the current academic year.
(This information must also be projected, The existence of a racially discriminatory
Exceptional circumstances, however, may policy with respect to the employment of faculty
exist where an organization's advocacy may be and administrative staff is indicative of a racially
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discriminatory  policy  as  to  students.  Con-                        NOTICE OF                                   and circulars can be distributed by a partic-
versely,  the  absence  of  racial  discrimination  in     NONDISCRIMINATORY POLICY                                ular religious denomination or unit or by an 
the  employment  of  faculty  and  administrative                    AS TO STUDENTS                                association that represents a number of re-
staff is indicative of a racially nondiscriminatory        The M School admits students of any race,               ligious organizations of the same denomi-
policy as to students.                                     color, national and ethnic origin to all the            nation. If, however, the school advertises in 
                                                           rights, privileges, programs, and activities            newspapers of general circulation in the 
A policy of a school that favors racial minor-             generally  accorded  or  made  available  to            community or communities from which its 
ity groups with respect to admissions, facilities          students  at  the  school.  It  doesn't                 students are drawn and the second excep-
and programs, and financial assistance isn't dis-          discriminate  on  the  basis  of  race,  color,         tion (discussed next) doesn't apply to the 
crimination on the basis of race when the pur-             national and ethnic origin in administration            school, then it must comply with either of 
pose and effect of this policy is to promote es-           of  its  educational  policies,  admissions             the publicity requirements explained ear-
tablishing  and maintaining  the     school's              policies,  scholarship  and  loan  programs,            lier.
nondiscriminatory policy.                                  and athletic and other school-administered                  Second, if a school customarily draws a 
                                                           programs.                                               substantial percentage of its students na-
A school that selects students on the basis                                                                        tionwide, worldwide, from a large geo-
of  membership  in  a  religious  denomination  or                                                                 graphic section or sections of the United 
unit isn't discriminating if membership in the de-         Method  two. The  school  can  use  the                 States, or from local communities, and if 
nomination  or  unit  is  open  to  all  on  a  racially  broadcast media to publicize its racially nondis-        the school follows a racially nondiscrimina-
nondiscriminatory basis.                                  criminatory  policy  if  this  use  makes  the  policy   tory policy as to its students, the school 
                                                          known to all segments of the general commun-             may satisfy the publicity requirement by 
Policy  statement. The  school  must  include  a          ity  the  school  serves.  If  the  school  uses  this   complying with the instructions explained 
statement of its racially nondiscriminatory policy        method, it must provide documentation showing            earlier under Policy statement.
in  all  its  brochures  and  catalogs  dealing  with     that  the  means  by  which  this  policy  was  com-
student  admissions,  programs,  and  scholar-            municated to all segments of the general com-            The school can demonstrate that it follows a 
ships. Also, the school must include a reference          munity was reasonably expected to be effective.         racially nondiscriminatory policy either by show-
to  its  racially  nondiscriminatory  policy  in  other   In  this  case,  appropriate  documentation  would      ing that it currently enrolls students of racial mi-
written  advertising  that  it  uses  to  inform  pro-    include copies of the tapes or scripts used and         nority groups in meaningful numbers or, except 
spective students of its programs.                        records  showing  that  there  was  an  adequate        for local community schools, when minority stu-
                                                          number of announcements. The documentation              dents  aren't  enrolled  in  meaningful  numbers, 
Publicity requirement.   The school must make             also would include proof that these announce-           that  its  promotional  activities  and  recruiting  ef-
its racially nondiscriminatory policy known to all        ments were made during hours when they were             forts in each geographic area were reasonably 
segments of the general community served by               likely to be communicated to all segments of the        designed  to  inform  students  of  all  racial  seg-
the  school.  Selective  communication  of  a  ra-        general community, that they were long enough           ments  in  the  general  communities  within  the 
cially nondiscriminatory policy that a school pro-        to  convey  the  message  clearly,  and  that  they     area of the availability of the school. The ques-
vides solely to leaders of racial groups won't be         were  broadcast  on  radio  or  television  stations    tion as to whether a school demonstrates such 
considered  an  effective  means  of  communica-          likely to be listened to by substantial numbers of      a policy satisfactorily will be determined on the 
tion to make the policy known to all segments of          members  of  all  racial  segments  of  the  general    basis  of  the  facts  and  circumstances  of  each 
the community. To satisfy this requirement, the           community. Announcements must be made dur-              case.
school  must  use  one  of  the  following  three         ing the period of the school's solicitation for stu-     The  IRS  recognizes  that  the  failure  by  a 
methods.                                                  dents  or,  in  the  absence  of  a  solicitation  pro- school drawing its students from local commun-
                                                          gram, during the school's registration period.          ities to enroll racial minority group students may 
Method one.     The school can publish a no-                                                                      not  necessarily  indicate  the  absence  of  a  ra-
tice  of  its  racially  nondiscriminatory  policy  in  a  Method    three. Rev. Proc.             2019-22,       cially  nondiscriminatory  policy  when  there  are 
newspaper of general circulation that serves all          2019-22 I.R.B. 1260 modifies Rev. Proc. 75-50,          relatively few or no such students in these com-
racial segments of the community. Such publi-             1975-2 C.B. 587, to reflect technological advan-        munities.  Actual  enrollment  is,  however,  a 
cation must be repeated at least once annually            ces  since  its  publication  and  provides  a  third   meaningful  indication  of  a  racially  nondiscrimi-
during the period of the school's solicitation for        method  for  a  private  school  to  satisfy  the  re-  natory policy in a community in which a public 
students or, in the absence of a solicitation pro-        quirement contained in section 4.03 of the reve-        school or schools became subject to a desegre-
gram,  during  the  school's  registration  period.       nue  procedure  by  using  its  Internet  website  to   gation order of a federal court or are otherwise 
When more than one community is served by a               publicize the school’s racially nondiscriminatory       expressly obligated to implement a desegrega-
school,  the  school  can  publish  the  notice  in       policy as to students. To satisfy the requirement       tion plan under the terms of any written contract 
those newspapers that are reasonably likely to            using this method, the school may display a no-         or  other  commitment  to  which  any  federal 
be read by all racial segments in the communi-            tice  (consisting  of  the  same  language  as  in      agency was a party.
ties that the school serves.                              Method 1) of its racially nondiscriminatory pol-         The  IRS  encourages  schools  to  satisfy  the 
                                                          icy  on  its  primary  publicly  accessible  Internet   publicity  requirement  by  using  either  of  the 
If this method is used, the notice must meet              homepage  at  all  times  during  its  taxable  year    methods  described  earlier,  even  though  a 
the following printing requirements.                      (excluding  temporary  outages  due  to  website        school  considers  itself  to  be  within  one  of  the 
                                                          maintenance  or  technical  problems)  in  a  man-      Exceptions.  The  IRS  believes  that  these  publi-
1. It must appear in a section of the newspa-             ner reasonably expected to be noticed by visi-          city  requirements  are  the  most  effective  meth-
per likely to be read by prospective stu-                 tors to the homepage. See Rev. Proc. 2019-22            ods to make known a school's racially nondis-
dents and their families.                                 for more information about satisfying the publi-        criminatory  policy.  In  this  regard,  it  is  each 
2. It must occupy at least 3 column inches.               city requirement using this method.                     school's responsibility to determine whether ei-
                                                                                                                  ther of the exceptions applies. Such responsibil-
3. It must have its title printed in at least 12           Exceptions. The  publicity  requirements               ity will prepare the school, if it is audited by the 
point bold face type.                                     won't apply in the following situations.                IRS, to demonstrate that the failure to publish its 
4. It must have the remaining text printed in              First, if for the preceding 3 years the en-            racially nondiscriminatory policy in accordance 
at least 8 point type.                                     rollment of a parochial or other church-rela-          with  either  one  of  the  publicity  requirements 
                                                           ted school consists of students at least               was  justified  by  one  of  the  exceptions.  Also,  a 
The  following  is  an  acceptable  example  of            75% of whom are members of the sponsor-                school must be prepared to demonstrate that it 
the notice:                                                ing religious denomination or unit, the                has publicly disavowed or repudiated any state-
                                                           school can make known its racially nondis-             ments purported to have been made on its be-
                                                           criminatory policy in whatever newspapers              half (after November 6, 1975) that are contrary 
                                                           or circulars the religious denomination or             to  its  publicity  of  a  racially  nondiscriminatory 
                                                           unit uses in the communities from which                policy  as  to  students,  to  the  extent  that  the 
                                                           the students are drawn. These newspapers 

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school or its principal official was aware of these information, without advance approval of the 5. Has obtained at least $1,000,000 in
statements. IRS. startup capital from nonmember charitable
organizations,
Facilities and programs. A school must be The IRS doesn't require that a school release
able to show that all of its programs and facili- any personally identifiable records or personal 6. Is controlled by a board of directors elec-
ties are operated in a racially nondiscriminatory information except in accordance with the re- ted by its members, and
manner. quirements of the Family Educational Rights 7. Is organized under documents requiring
and Privacy Act of 1974. Similarly, the IRS that:
Scholarship and loan programs. As a gen- doesn't require a school to keep records pro-
eral rule, all scholarship or other comparable hibited under state or federal law. a. Each member be a section 501(c)(3)
benefits obtainable at the school must be of- organization exempt from tax under
fered on a racially nondiscriminatory basis. This Exceptions. The school doesn't have to in- section 501(a),
must be known throughout the general com- dependently maintain these records for IRS use b. Each member that receives a final de-
munity being served by the school and should if both of the following are true. termination that it no longer qualifies
be referred to in its publicity. Financial assis- 1. Substantially the same information has under section 501(c)(3) notify the pool
tance programs, as well as scholarships and been included in a report or reports filed immediately, and
loans made under financial assistance pro- with an agency or agencies of federal, c. Each insurance policy issued by the
grams, that favor members of one or more racial state, or local governments, and this infor- pool provide that it won't cover events
minority groups and that don't significantly de- mation is current within 1 year. occurring after a final determination
tract from or are designed to promote a school's
racially nondiscriminatory policy won't ad- 2. The school maintains copies of these re- described in (b).
versely affect the school's exempt status. ports from which this information is readily
obtainable.
Certification. An individual authorized to take If these reports don't include all of the informa- Other Section 501(c)(3)
official action on behalf of a school that claims tion required, as discussed earlier, records pro-
to be racially nondiscriminatory as to students viding such remaining information must be Organizations
must certify annually, under penalties of perjury, maintained by the school for IRS use. In addition to the information required for all or-
on Schedule E (Form 990) or Form 5578, An-
nual Certification of Racial Nondiscrimination Failure to maintain records. Failure to ganizations, as described earlier, you should in-
for a Private School Exempt From Federal In- maintain or to produce the required records and clude any other information described in this
come Tax, whichever applies, that to the best of information, upon proper request, will create a section.
their knowledge and belief the school has satis- presumption that the organization has failed to
fied all requirements that apply, as previously comply with these guidelines. Charitable Organizations
explained. See Rev. Proc. 2019–22 for more informa-
Failure to comply with the guidelines ordina- tion on private school's racially nondiscrimina-
rily will result in the proposed revocation of the tory policy requirements. If your organization is applying for recognition of
exemption as a charitable organization, it must
exempt status of a school. show that it is organized and operated for pur-
Recordkeeping requirements. With poses that are beneficial to the public interest.
certain exceptions, given later, each Organizations Providing Some examples of this type of organization are
RECORDS exempt private school must maintain Insurance those organized for:
the following records for a minimum period of 3 • Relief of the poor, the distressed, or the un-
years, beginning with the year after the year of An organization described in sections 501(c)(3) derprivileged;
compilation or acquisition. or 501(c)(4) may be exempt from tax only if no • Advancement of religion;
1. Records indicating the racial composition substantial part of its activities consists of pro- • Advancement of education or science;
of the student body, faculty, and adminis- viding commercial-type insurance. • Erection or maintenance of public build-
ings, monuments, or works;
trative staff for each academic year. • Lessening the burdens of government;
However, this rule doesn't apply to
2. Records sufficient to document that schol- state-sponsored organizations described in • Lessening of neighborhood tensions;
arship and other financial assistance is sections 501(c)(26) or 501(c)(27), which are • Elimination of prejudice and discrimination;
awarded on a racially nondiscriminatory discussed in chapter 4, or to charitable risk • Defense of human and civil rights secured
basis. pools, discussed next. by law; and
3. Copies of all materials used by or on be- • Combating community deterioration and
juvenile delinquency.
half of the school to solicit contributions. Charitable Risk Pools
The rest of this section contains a description of
4. Copies of all brochures, catalogs, and ad- the information to be provided by certain spe-
vertising dealing with student admissions, A charitable risk pool is treated as organized cific organizations. This information is in addi-
programs, and scholarships. (Schools ad- and operated exclusively for charitable purpo- tion to the required inclusions described in
vertising nationally or in a large geo- ses if it satisfies all of the following require- chapter 1, and other statements requested on
graphic segment or segments of the Uni- ments: Form 1023 or 1023-EZ. Each of the following
ted States need only maintain a record 1. Is organized and operated only to pool in- organizations must submit the information de-
sufficient to indicate when and in what surable risks of its members (not including scribed.
publications their advertisements were risks related to medical malpractice) and
placed.) to provide information to its members Charitable organization supporting educa-
about loss control and risk management, tion. Submit information showing how your or-
ganization supports education — for example,
The racial composition of the student body, fac- 2. Consists only of members that are section contributes to an existing educational institution,
ulty, and administrative staff can be determined 501(c)(3) organizations exempt from tax endows a professorial chair, contributes toward
in the same manner as that described at the be- under section 501(a), paying teachers' salaries, or contributes to an
ginning of this section. However, a school can't 3. Is organized under state law authorizing educational institution to enable it to carry on re-
discontinue maintaining a system of records this type of risk pooling, search.
that reflect the racial composition of its stu-
dents, faculty, and administrative staff used on 4. Is exempt from state income tax (or will be Scholarships. If the organization awards or
November 6, 1975, unless it substitutes a differ- after qualifying as a section 501(c)(3) or- plans to award scholarships, complete Sched-
ent system that compiles substantially the same ganization), ule H of Form 1023. Also, submit the following:
28 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

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1. Criteria used for selecting recipients, in- 1. An explanation of the circumstances under operations of the organization's legal functions,
cluding the rules of eligibility; which such loans are, or will be, made. calculated over a 5-year period.
2. How and by whom the recipients are or will 2. Criteria for selection, including the rules of If, to carry out its program, an organization
be selected; eligibility. violates applicable canons of ethics, disrupts
the judicial system, or engages in any illegal ac-
3. If awards are or will be made directly to in- 3. How and by whom the recipients are or will tion, the organization will jeopardize its exemp-
dividuals, whether information is required be selected. tion.
assuring that the student remains in 4. Manner of repayment of the loan.
school;
4. If awards are or will be made to recipients 5. Security required, if any. Religious Organizations
of a particular class, for example, children 6. Interest charged, if any, and when payable. To determine whether an organization meets
the religious purposes test of section 501(c)(3),
of employees of a particular employer— 7. Copies in duplicate of the loan application the IRS maintains two basic guidelines.
a. Whether any preference is or will be and any brochures or literature describing
accorded an applicant by reason of the loan program. 1. That the particular religious beliefs of the
the parent's position, length of em- organization are truly and sincerely held.
ployment, or salary; Public-interest law firms. If your organization 2. That the practices and rituals associated
was formed to litigate in the public interest (as
b. Whether as a condition of the award opposed to providing legal services to the with the organization's religious belief or
the recipient must upon graduation poor), such as in the area of protection of the creed aren't illegal or contrary to clearly
accept employment with the com- environment, you should submit the following in- defined public policy.
pany; and formation. Therefore, your group (or organization) may not
c. Whether the award will be continued 1. How the litigation can reasonably be said qualify for treatment as an exempt religious or-
even if the parent's employment ends. to be representative of a broad public in- ganization for tax purposes if its actions, as con-
5. A copy of the scholarship application form terest rather than a private one. trasted with its beliefs, are contrary to well es-
tablished and clearly defined public policy. If
and any brochures or literature describing 2. Whether the organization will accept fees there is a clear showing that the beliefs (or doc-
the scholarship program. for its services. trines) are sincerely held by those professing
Hospital. If you are organized to operate a 3. A description of the cases litigated or to be them, the IRS won't question the religious na-
charitable hospital, complete and attach Sec- litigated and how they benefit the public ture of those beliefs.
tion I of Schedule C, Form 1023. generally.
Churches. Although a church, its integrated
If your hospital was transferred to you from 4. Whether the policies and program of the auxiliaries, or a convention or association of
proprietary ownership, complete and attach organization are the responsibility of a churches isn't required to file Form 1023 to be
Schedule G of Form 1023. You must attach a board or committee representative of the exempt from federal income tax or to receive tax
list showing: public interest, which is neither controlled deductible contributions, the organization may
1. The names of the active and courtesy staff by employees or persons who litigate on find it advantageous to obtain recognition of ex-
members of the proprietary hospital, as behalf of the organization nor by any or- emption. See Form 1023, Schedule A. In this
well as the names of your medical staff ganization that isn't itself an organization event, you should submit information showing
members after the transfer to nonprofit described in this chapter. that your organization is a church, synagogue,
ownership; and 5. Whether the organization is operated, association or convention of churches, religious
2. The names of any doctors who continued through sharing of office space or other- order, or religious organization that is an integral
to lease office space in the hospital after wise, in a way to create identification or part of a church, and that it is engaged in carry-
its transfer to nonprofit ownership and the confusion with a particular private law firm. ing out the function of a church.
In determining whether an admittedly reli-
amount of rent paid. Submit also an ap- 6. Whether there is an arrangement to pro- gious organization is also a church, the IRS
praisal showing the fair rental value of the vide, directly or indirectly, a deduction for doesn't accept every assertion that the organi-
rented space. the cost of litigation that is for the private zation is a church. Because beliefs and practi-
benefit of the donor.
Clinic. Schedule C, Form 1023, is also de- ces vary widely, there is no single definition of
signed to encompass outpatient clinics. If you Acceptance of attorneys' fees. A non- the word church for tax purposes. The IRS con-
are organized to operate a clinic, provide infor- profit public-interest law firm can accept attor- siders the facts and circumstances of each or-
mation regarding: neys' fees in public-interest cases if the fees are ganization applying for church status.
1. A description of the facilities and services; paid directly by its clients and the fees aren't Convention or association of churches.
more than the actual costs incurred in the case. Any organization that is otherwise a convention
2. To whom the services are offered, such as Upon undertaking a representation, the organi- or association of churches won't fail to qualify
the public at large or a specific group; zation can't withdraw from the case because the as a church merely because the membership of
3. How charges are determined, such as on litigant is unable to pay the fee. the organization includes individuals as well as
a profit basis, to recover costs, or at less Firms can accept fees awarded or approved churches or because the individuals have voting
than cost; by a court or an administrative agency and paid rights in the organization.
by an opposing party if the firms don't use the
4. By whom administered and controlled; likelihood or probability of fee awards as a con- Integrated auxiliaries. An organization is
5. Whether any of the professional staff (that sideration in the selection of cases. All fee an integrated auxiliary of a church if all the fol-
is, those who perform or will perform the awards must be paid to the organization and not lowing are true.
clinical services) also serve or will serve in to its individual staff attorneys. Instead, a pub- 1. The organization is described both in sec-
an administrative capacity; and lic-interest law firm can reasonably compensate tions 501(c)(3) and 509(a)(1), 509(a)(2),
its staff attorneys, but only on a straight salary or 509(a)(3).
6. How compensation paid to the professio- basis. Private attorneys, whose services are re-
nal staff is or will be determined. tained by the firm to assist it in particular cases, 2. It is affiliated with a church or a convention
can be compensated by the firm, but only on a or association of churches.
Organization providing loans. If you make, fixed fee or salary basis. 3. It is internally supported. An organization
or will make, loans for charitable and educa- The total amount of all attorneys' fees (court is internally supported unless both of the
tional purposes, submit the following informa- awarded and those received from clients) following are true.
tion. mustn't be more than 50% of the total cost of

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   a. It offers admissions, goods, services,           3. How and by whom research projects are                Prevention of Cruelty
   or facilities for sale, other than on an            determined and selected.
                                                                                                               to Children or Animals
   incidental basis, to the general public             4. Whether you have contracted or spon-
   (except goods, services, or facilities              sored research, or contemplated doing so,               Examples of activities that may qualify this type 
   sold at a nominal charge or for a small             and, if so, names of past sponsors or gran-             of organization for exempt status are:
   part of the cost).                                  tors, terms of grants or contracts, together 
   b. It normally gets more than 50% of its            with copies of any executed contracts or                1. Preventing children from working in haz-
   support from a combination of govern-               grants.                                                     ardous trades or occupations,
   mental sources, public solicitation of              5. Disposition made or to be made of the re-            2. Promoting high standards of care for labo-
   contributions, and receipts from the                sults of your research, including whether                   ratory animals, and
   sale of admissions, goods, perform-                 preference has been or will be given to any             3. Providing funds to pet owners to have their 
   ance of services, or furnishing of fa-              organization or individual either as to re-                 pets spayed or neutered to prevent over-
   cilities in activities that aren't unrela-          sults or time of release.                                   breeding.
   ted trades or businesses.
                                                       6. Who will retain ownership or control of any 
Special rule. Men's and women's organiza-              patents, copyrights, processes, or formu-
tions, seminaries, mission societies, and youth        las resulting from your research.                       Private Foundations
groups that satisfy (1) and (2) shown earlier are 
integrated  auxiliaries  of  a  church  even  if  they 7. A copy of publications or other media                and Public Charities
aren't internally supported.                           showing reports of your research activities. 
In  order  for  an  organization  (including  a        Only reports of your research activities or             It is important that you determine if your organi-
church and religious organization) to qualify for      those conducted on your behalf, as distin-              zation  is  a  private  foundation.  Most  organiza-
tax exemption, no part of its net earnings can in-     guished from those of your creators or                  tions exempt from income tax (such as organi-
ure to any individual.                                 members conducted in their individual ca-               zations  described  in  section  501(c)(3))  are 
Although an individual is entitled to a chari-         pacities, should be submitted.                          presumed to be private foundations unless they 
table  deduction  for  contributions  to  a  church,                                                           notify the IRS within a specified period of time 
the assignment or similar transfer of compensa-        Literary Organizations                                  that  they  meet  the  requirements  of  section 
tion for personal services to a church generally                                                               509(a)  to  be  treated  as  other  than  a  private 
doesn't relieve a taxpayer of federal income tax       If your organization is established to operate a        foundation.  This  notice  requirement  applies  to 
liability on the compensation, regardless of the       book store or engage in publishing activities of        most section 501(c)(3) organizations regardless 
motivation behind the transfer.                        any nature (printing, publication, or distribution      of when they were formed. See Form 1023, Part 
                                                       of your own material or that printed or published       VII.
Scientific Organizations                               by  others  and  distributed  by  you),  explain  fully 
                                                       the nature of the operations, including whether         Private Foundations
You  must  show  that  your  organization's  re-       sales are or will be made to the general public, 
search will be carried on in the public interest.      the  type  of  literature  involved,  and  how  these   Every organization that qualifies for tax exemp-
Scientific  research  will  be  considered  to  be  in activities are related to your stated purposes.         tion  as  an  organization  described  in  section 
the public interest if the results of the research                                                             501(c)(3)  is  a  private  foundation  unless  it  falls 
(including  any  patents,  copyrights,  processes,     Amateur Athletic                                        into one of the categories specifically excluded 
or formulas) are made available to the public on                                                               from  the  definition  of  that  term  (referred  to  in 
a nondiscriminatory basis; if the research is per-     Organizations
                                                                                                               sections  509(a)(1),  509(a)(2),  509(a)(3),  or 
formed for the United States or a state, county,                                                               509(a)(4)). In effect, the definition divides these 
or  municipal  government;  or  if  the  research  is  There are two types of amateur athletic organi-
carried on for one of the following purposes.          zations  that  can  qualify  for  tax-exempt  status.   organizations  into  two  classes,  namely  private 
                                                       The first type is an organization that fosters na-      foundations  and  public  charities.  Public  chari-
1. Aiding in the scientific education of college       tional  or  international  amateur  sports  competi-    ties are discussed later.
   or university students.                             tion but only if none of its activities involve pro-
2. Obtaining scientific information that is pub-       viding  athletic  facilities  or  equipment.  The           Organizations that fall into the excluded cat-
   lished in a treatise, thesis, trade publica-        second  type  is  a Qualified  amateur  sports  or-     egories  are  generally  those  that  either  have 
   tion, or in any other form that is available to     ganization (discussed below). The difference is         broad  public  support  or  actively  function  in  a 
   the interested public.                              that a qualified amateur sports organization can        supporting  relationship  to  those  organizations. 
                                                       provide athletic facilities and equipment.              Organizations that test for public safety are also 
3. Discovering a cure for a disease.                                                                           excluded.
                                                       Donations to either type of amateur athletic 
4. Aiding a community or geographical area             organization are deductible as charitable contri-       Application  to  IRS. Even  if  an  organization 
   by attracting new industry to the commun-           butions  on  the  donor's  federal  income  tax  re-    falls within one of the categories excluded from 
   ity or area, or by encouraging the develop-         turn. However, no deduction is allowed if there         the definition of private foundation, it will be pre-
   ment or retention of an industry in the             is a direct personal benefit to the donor or any        sumed to be a private foundation, with some ex-
   community or area.                                  other person other than the organization.               ceptions,  unless  it  files  a  timely  Form  1023  or 
Scientific research, for exemption purposes,                                                                   Form 1023-EZ with the IRS showing it isn't a pri-
doesn't include activities of a type ordinarily in-    Qualified  amateur  sports  organization.     An        vate  foundation.  This  application  requirement 
cidental  to  commercial  or  industrial  operations   organization  will  be  a  qualified  amateur  sports   applies to an organization regardless of when it 
such as the ordinary inspection or testing of ma-      organization if it is organized and operated:           was organized. The only exceptions to this re-
                                                                                                               quirement  are  those  organizations  that  are  ex-
terials  or  products,  or  the  designing  or  con-   1. Exclusively to foster national or interna-           cepted from the requirement of filing Form 1023 
structing of equipment, buildings, etc.                tional amateur sports competition, and                  or 1023-EZ as discussed, earlier, under Organi-
If you engage or plan to engage in research,           2. Primarily to conduct national or interna-            zations Not Required To File Form 1023.
submit all of the following.                           tional competition in sports or to support 
                                                       and develop amateur athletes for that                       When  to  file  application. If  an  organiza-
1. An explanation of the nature of the re-             competition.                                            tion  has  to  file  the  application,  it  must  do  so 
   search.                                                                                                     within 27 months from the end of the month in 
2. A brief description of research projects            The organization's membership can be local or           which it was organized.
   completed or presently being engaged in.            regional in nature.                                         If your organization is newly applying for rec-
                                                                                                               ognition of exemption as an organization descri-
                                                                                                               bed  in  this  chapter  (a  section  501(c)(3) 
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organization)  and  you  wish  to  establish  that        Draft A                                                The  IRS  has  published  a  list  of  states  with 
your organization is a public charity rather than                                                                this  type  of  law.  The  list  is  in  Revenue  Ruling 
a private foundation, you must complete the ap-           General                                                75-38, 1975-1 C.B. 161 (or later update).
plicable lines of Part VII of Form 1023 or Part IV        1. The corporation will distribute its income 
of Form 1023-EZ. See Application for Recogni-             for each tax year at a time and in a manner            Public Charities
tion  of  Exemption,  earlier  in  this  chapter,  for    as not to become subject to the tax on un-
more information.                                         distributed income imposed by section                  A private foundation is any organization descri-
In determining the date on which a corpora-               4942 of the Internal Revenue Code, or the              bed in Section 501(c)(3), unless it falls into one 
tion  is  organized  for  purposes  of  applying  for     corresponding section of any future fed-               of the categories specifically excluded from the 
recognition of section 501(c)(3) status, the IRS          eral tax code.                                         definition  of  that  term  in  section  509(a),  which 
looks to the date the corporation came into exis-                                                                lists four basic categories of exclusions. These 
tence under the law of the state in which it is in-       2. The corporation won't engage in any act of          categories  are  discussed  under  the  Section 
corporated.  For  example,  where  state  law  pro-       self-dealing, as defined in section 4941(d)            509(a)(1),  509(a)(2),  509(a)(3),  and  509(a)(4) 
vides that existence of a corporation begins on           of the Internal Revenue Code, or the corre-            Organizations headings that follow this introduc-
the date its articles are filed by a certain state        sponding section of any future federal tax             tion. See Section 509(a)(1) Organizations, etc.
official in the appropriate state office, the corpo-      code.
ration  is  considered  organized  on  that  date.        3. The corporation won't retain any excess             If  your  organization  falls  into  one  of  these 
Later  nonsubstantive  amendments  to  the  ena-          business holdings, as defined in section               categories, it isn't a private foundation and you 
bling  instrument  won't  change  the  date  of  or-      4943(c) of the Internal Revenue Code, or               should state this in Part VII of Form 1023 or Part 
ganization,  for  purposes  of  the  filing  require-     the corresponding section of any future                IV of Form 1023-EZ.
ment.                                                     federal tax code.                                      If  your  organization  doesn't  fall  into  one  of 
Application filed late.     An organization that          4. The corporation won't make any invest-              these categories, it is a private foundation and 
states it is a private foundation when it files its       ments in a manner as to subject it to tax              is subject to the applicable rules and restrictions 
application  for  recognition  of  exemption  after       under section 4944 of the Internal Reve-               until  it  terminates  its  private  foundation  status. 
the 27-month period will be treated as a section          nue Code, or the corresponding section of              Some private foundations also qualify as private 
501(c)(3) organization and as a private founda-           any future federal tax code.                           operating  foundations;  these  are  discussed 
tion  only  from  the  date  it  files  its  application,                                                        near the end of this chapter.
rather than the date that it was created or first         5. The corporation won't make any taxable 
became described in section 501(c)(3). The or-            expenditures, as defined in section                    Generally speaking, a large class of organi-
ganization  may  obtain  retroactive  exemption,          4945(d) of the Internal Revenue Code, or               zations  excluded  under  section  509(a)(1)  and 
however, if it establishes that it qualifies for relief   the corresponding section of any future                all organizations excluded under section 509(a)
from the 27-month deadline.                               federal tax code.                                      (2)  depend  upon  a  support  test.  This  test  is 
An  organization  that  states  it  is  a  publicly                                                              used  to  assure  a  minimum  percentage  of 
supported charity when it files its application for       Draft B                                                broad-based  public  support  in  the  organiza-
recognition of exemption after the 27-month pe-                                                                  tion's total support pattern. Thus, in the follow-
riod can't be treated as a section 501(c)(3) or-          Any other provisions of this instrument notwith-       ing discussions, when the one-third support test 
ganization  before  the  date  it  files  the  applica-   standing, the trustees shall distribute its income     (see Qualifying as Publicly Supported, later) is 
tion,  except  as  discussed  above.  Financial           for each tax year at a time and in a manner as         referred to, it means the following fraction nor-
support received before that date can't be used           not  to  become  subject  to  the  tax  on  undistrib- mally must equal at least one-third.
for purposes of determining whether the organi-           uted income imposed by section 4942 of the In-
zation is publicly supported. However, an organ-          ternal  Revenue  Code,  or  the  corresponding                   Qualifying support
ization that can reasonably be expected to meet           section of any future federal tax code.                          Total support
the  support  requirements  (discussed  later  un-
der Public Charities) when it applies for tax-ex-         Any other provisions of this instrument not-                   Including items of support in qualifying 
empt status will be classified as a publicly sup-         withstanding, the trustees won't engage in any         !       support (the numerator of the fraction) 
ported charity and not a private foundation.              act of self-dealing as defined in section 4941(d)      CAUTION or excluding items of support from total 
                                                          of  the  Internal  Revenue  Code,  or  the  corre-     support  (the  denominator  of  the  fraction)  may 
Excise  taxes  on  private  foundations. There            sponding section of any future federal tax code;       decide  whether  an  organization  is  excluded 
is an excise tax on the net investment income of          nor retain any excess business holdings as de-         from the definition of a private foundation, and 
most domestic private foundations. In addition,           fined in section 4943(c) of the Internal Revenue       thus from the liability for certain excise taxes. It 
excise  taxes  may  be  imposed  on  the  private         Code,  or  the  corresponding  section  of  any  fu-   is  very  important  to  classify  items  of  support 
foundation or disqualified persons if the founda-         ture federal tax code; nor make any investments        correctly.
tion  or  disqualified  persons  have  engaged  in        in a manner as to incur tax liability under section 
certain transactions or activities. Managers may          4944 of the Internal Revenue Code, or the cor-
also be subject to excise tax for their role in ap-       responding  section  of  any  future  federal  tax     Section 509(a)(1) Organizations
proving the activity. See Chapter 5 for more in-          code; nor make any taxable expenditures as de-
formation on excise taxes.                                fined in section 4945 (d) of the Internal Revenue      Section 509(a)(1) organizations include:
                                                          Code,  or  the  corresponding  section  of  any  fu-   1. A church or a convention or association of 
Governing  instrument.      A  private  foundation        ture federal tax code.                                      churches (section 170(b)(1)(A)(i)),
can't be tax exempt nor will contributions to it be 
deductible as charitable contributions unless its         Effect of state law. A private foundation's gov-       2. An educational organization such as a 
governing  instrument  contains  special  provi-          erning  instrument  will  be  considered  to  meet          school or college (section 170(b)(1)(A)(ii)),
sions in addition to those that apply to all organ-       these charter requirements if valid provisions of      3. A hospital or medical research organiza-
izations described in section 501(c)(3).                  state law have been enacted that:                           tion operated in conjunction with a hospital 
Sample  governing  instruments.          The  fol-        1. Require it to act or refrain from acting so              (section 170(b)(1)(A)(iii)),
lowing  samples  of  governing  instrument  provi-        as not to subject the foundation to the                4. Endowment funds operated for the benefit 
sions illustrate the special charter requirements         taxes imposed on prohibited transactions,                   of certain state and municipal colleges 
that  apply  to  private  foundations.  Draft  A  is  a   or                                                          and universities (section 170(b)(1)(A)(iv)),
sample of provisions in articles of incorporation; 
Draft B, a trust indenture.                               2. Treat the required provisions as contained          5. A governmental unit (section 170(b)(1)(A)
                                                          in the foundation's governing instrument.                   (v)),
                                                                                                                 6. An agricultural research organization (sec-
                                                                                                                      tion 170(b)(1)(A)(xi)), and
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7. A publicly supported organization (section operates a hospital that participates in a pro- 1. An agency or instrumentality of a state or
170(b)(1)(A)(vi)). vider-sponsored organization, whether or not political subdivision; or
the provider-sponsored organization is tax ex-
Church. The characteristics of a church are empt. For section 501(c)(3) purposes, any per- 2. Owned or operated by:
discussed earlier in this chapter under Religious son with a material financial interest in the pro- a. A state or political subdivision; or
Organizations. vider-sponsored organization is treated as a b. An agency or instrumentality of one or
private shareholder or individual with respect to
Educational organizations. An educational the hospital. more states or political subdivisions.
organization that qualifies as a public charity un- The phrase “expenditures to or for the bene-
der section 170(b)(1)(A)(ii) is one whose pri- Requirements for section 501(c)(3) hos- fit of a college or university” includes expendi-
mary function is to present formal instruction pitals under the Affordable Care Act. The tures made for any one or more of the normal
that normally maintains a regular faculty and Affordable Care Act (ACA), enacted March 23, functions of a college or university. These ex-
curriculum and that normally has a regularly en- 2010, added requirements that hospital organi- penditures include those for:
rolled body of pupils or students in attendance zations must satisfy in order to be described in
at the place where it regularly carries on its edu- section 501(c)(3), as well as reporting and ex- 1. Acquiring and maintaining real property
cational activities. The term includes institutions cise taxes. comprising part of the campus area;
such as primary, secondary, preparatory, or Requirements for charitable hospitals.
high schools, and colleges and universities. It Section 501(r), added to the Code by the ACA, 2. Erecting (or participating in erecting) col-
includes federal, state, and other publicly sup- imposes requirements on section 501(c)(3) or- lege or university buildings;
ported schools that otherwise come within the ganizations that operate one or more hospital 3. Acquiring and maintaining equipment and
definition. It doesn't include organizations en- facilities (hospital organizations). Each section furnishings used for, or in conjunction with,
gaged in both educational and noneducational 501(c)(3) hospital organization is required to normal functions of colleges and universi-
activities, unless the latter are merely incidental meet four general requirements on a fa- ties;
to the educational activities. A recognized uni- cility-by-facility basis:
versity that incidentally operates a museum or • establish written financial assistance and 4. Libraries;
sponsors concerts is an educational organiza- emergency medical care policies, 5. Scholarships; and
tion. However, the operation of a school by a • limit amounts charged for emergency or
museum doesn't necessarily qualify the mu- other medically necessary care to individu- 6. Student loans.
seum as an educational organization. als eligible for assistance under the hospi- The organization must normally receive a
An exempt organization that operates a tu- tal's FAP, substantial part of its support from the United
toring service for students on a one-to-one ba- • make reasonable efforts to determine States or any state or political subdivision, or
sis in their homes, maintains a small center to whether an individual is eligible for assis- from direct or indirect contributions from the
test students to determine their need for tutor- tance under the hospital’s FAP before en- general public, or from a combination of these
ing, and employs tutors on a part-time basis gaging in extraordinary collection actions sources.
isn't an educational organization for these pur- against the individual, and
poses. Nor is an exempt organization that con- • conduct a community health needs as- Support. Support doesn't include income
ducts an internship program by placing college sessment (CHNA) at least once every 3 received in the exercise or performance by the
and university students with cooperating gov- years. (This CHNA requirement is effective organization of its charitable, educational, or
ernment agencies an educational organization. for tax years beginning after March 23, other purpose or function constituting the basis
2012). for exemption.
In determining the amount of support re-
Hospitals and medical research organiza- The ACA also added section 4959, which ceived by an organization for a contribution of
tions. A hospital described in section 170(b)(1) imposes an excise tax for failure to meet the property when the value of the contribution by
(A)(iii) is an organization whose principal pur- CHNA requirements, and added reporting re- the donor is subject to reduction for certain ordi-
pose or function is to provide hospital or medi- quirements under section 6033(b) related to nary income and capital gain property, the fair
cal care or either medical education or medical sections 501(r) and 4959. See Regulations sec- market value of the property is taken into ac-
research. A rehabilitation institution, outpatient tions 1.501(r)-1 through 1.501(r)-7. count.
clinic, or community mental health or drug treat-
ment center may qualify as a hospital if its prin- Correction and disclosure procedures Indirect contribution. An example of an
cipal purpose or function is providing hospital or under section 501(r). Revenue Procedure indirect contribution from the public is the re-
medical care. If the accommodations of an or- 2015–21 provides correction and disclosure ceipt by the organization of its share of the pro-
ganization qualify as being part of a skilled procedures under which certain failures to meet ceeds of an annual collection campaign of a
nursing facility, that organization may qualify as the requirements of section 501(r) will be ex- community chest, community fund, or united
a hospital if its principal purpose or function is cused for purposes of sections 501(r)(1) and fund.
providing hospital or medical care. 501(r)(2)(B). See Rev. Proc. 2015–21, 2015-13
I.R.B. 817, or later guidance. Governmental units. A governmental unit de-
Exceptions. The term hospital doesn't in- scribed in section 170(b)(1)(A)(v) includes a
clude convalescent homes, homes for children Medical research organization. A medi-
or the aged, or institutions whose principal pur- cal research organization must be directly en- state, a territory of the United States, or a politi-
pose or function is to train handicapped individ- gaged in the continuous active conduct of medi- cal subdivision of either of the foregoing, or the
uals to pursue a vocation. An organization that cal research in conjunction with a hospital, and United States or the District of Columbia.
mainly provides medical education or medical that activity must be the organization's principal
research won't be considered a hospital, unless purpose or function. Agricultural research organizations. Agri-
cultural research organizations described in
it is also actively engaged in providing medical section 170(b)(1)(A)(ix) operated in conjunction
or hospital care to patients on its premises or in Endowment funds. Organizations operated
its facilities, on an in-patient or out-patient ba- for the benefit of certain state and municipal col- with a land-grant college or university or a
sis, as an integral part of its medical education leges and universities may be endowment non-land-grant college of agriculture may now
or medical research functions. funds described in section 170(b)(1)(A)(iv). qualify for public charity status. See the Instruc-
A cooperative hospital service organization They are organized and operated exclusively to: tions for Form 1023 for more information.
that meets the requirements of section 501(e) 1. Receive, hold, invest, and administer prop- Publicly supported organizations. An organ-
will qualify as a hospital. erty for a college or university; and ization is a publicly supported organization if it
Hospitals participating in provider-spon- 2. Make expenditures to or for the benefit of a is one that normally receives a substantial part
sored organizations. An organization can be college or university; of its support from a governmental unit or from
treated as organized and operated exclusively the general public.
for a charitable purpose even if it owns and The college or university must be:

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Types of organizations that generally qualify                  support unless the total amount of governmen-              If the percentage of the organization's sup-
are:                                                           tal  and  public  support  normally  received  is  at      port  from  the  general  public  or  governmental 
•    Museums of history, art, or science;                      least 10% of the total support normally received           sources is low because it receives a high per-
•    Libraries;                                                by that organization.                                      centage of its total support from investment in-
•    Community centers to promote the arts;                                                                               come on its endowment funds, the organization 
•    Organizations providing facilities for the                Attraction  of  public  support  require-                  will  be  treated  as  complying  with  this  factor  if 
     support of an opera, symphony orchestra,                  ment. An organization must be organized and                the endowment fund was originally contributed 
     ballet, or repertory drama, or for some                   operated in a manner to attract new and addi-              by a governmental unit or by the general public. 
     other direct service to the general public;               tional public or governmental support on a con-            However,  if  the  endowment  funds  were  origi-
     and                                                       tinuous basis. An organization will meet this re-          nally  contributed  by  a  few  individuals  or  mem-
•    Organizations such as the American Red                    quirement if it maintains a continuous and bona            bers of their families, this fact will increase the 
     Cross or the United Way.                                  fide  program  for  solicitation  of  funds  from  the     burden on the organization to establish compli-
                                                               general  public,  community,  or  membership               ance with other factors. Facts pertinent to years 
                                                               group  involved,  or  if  it  carries  on  activities  de- before  the  4  tax  years  immediately  before  the 
Qualifying as Publicly Supported                               signed  to  attract  support  from  governmental           current tax year may also be considered.
                                                               units  or  other  charitable  organizations  descri-
An organization will qualify as publicly suppor-               bed  in  section  509(a)(1).  In  determining              2. Sources of support factor.    If an organi-
ted  under  section  170(b)(1)(A)(vi)  if  it  passes          whether an organization maintains a continuous             zation  normally  receives  at  least  10%  but  less 
the  one-third  support  test.  If  it  fails  that  test,  it and bona fide program for solicitation of funds            than one-third of its total support from public or 
may qualify under the facts and circumstances                  from the general public or community, consider-            governmental  sources,  the  fact  that  it  receives 
test.  An  organization  may  also  qualify  as  pub-          ation  will  be  given  to  whether  the  scope  of  its   the support from governmental units or directly 
licly  supported  under  section  509(a)(2).  See              fundraising activities is reasonable in light of its       or  indirectly  from  a  representative  number  of 
Section 509(a)(2) Organizations, later.                        charitable  activities.  Consideration  will  also  be     persons,  rather  than  receiving  almost  all  of  its 
                                                               given to the fact that an organization may, in its         support from the members of a single family, will 
One-third  support  test.   An  organization  will             early  years  of  existence,  limit  the  scope  of  its   be  considered  in  determining  whether  the  or-
qualify  as  publicly  supported  under  section               solicitation to persons who would be most likely           ganization is publicly supported. In determining 
170(b)(1)(A)(vi)  if  it  normally  receives  at  least        to provide seed money sufficient to enable it to           what  is  a  representative  number  of  persons, 
one-third of its total support from governmental               begin its charitable activities and expand its so-         consideration will be given to the type of organi-
units,  from  contributions  made  directly  or  indi-         licitation program.                                        zation involved, the length of time it has existed, 
rectly by the general public, or from a combina-                                                                          and whether it limits its activities to a particular 
tion  of  these  sources.  For  a  definition  of  sup-        Definition  of  normally  for  facts  and  cir-            community  or  region  or  to  a  special  field  that 
port, see Support, later.                                      cumstances  test.   An  organization  will  nor-           can be expected to appeal to a limited number 
                                                               mally  meet  the  requirements  of  the  facts  and        of persons. Facts pertinent to years before the 4 
Definition of normally for one-third sup-                      circumstances  test  for  its  current  tax  year  and     tax  years  immediately  before  the  current  tax 
port  test. An  organization  will  be  considered             the next tax year if, for the current tax year and         year may also be considered.
as  normally  meeting  the  one-third  support  test           the 4 tax years immediately before the current 
under section 170(b)(1)(A)(vi) for its current tax             tax  year,  the  organization  meets  the  ten-per-        3. Representative governing body factor. 
year and the next tax year if, for the current tax             cent-of-support and the attraction of public sup-          The  fact  that  an  organization  has  a  governing 
year and the 4 tax years immediately before the                port  requirements  on  an  aggregate  basis  and          body that represents the broad interests of the 
current  tax  year,  the  organization  meets  the             satisfies a sufficient combination of the factors          public rather than the personal or private inter-
one-third  support  test  on  an  aggregate  basis.            discussed later. The combination of factors that           est of a limited number of donors will be consid-
See also Computation period for public support                 an  organization  normally  must  meet  doesn't            ered in determining whether the organization is 
(Special  computation  period  for  new  organiza-             have to be the same for each 4-year period as              publicly supported.
tions) later, in this discussion.                              long as a sufficient combination of factors exists         An organization will meet this requirement if 
                                                               to show compliance.                                        it has a governing body composed of:
Facts and circumstances test.        The facts and 
circumstances test is for organizations failing to             Additional requirements (the five public                   1. Public officials acting in their public ca-
meet the one-third support test. If your organi-               support  factors).  In  addition  to  the  two  re-          pacities,
zation fails to meet the one-third support test, it            quirements of the facts and circumstances test,            2. Individuals selected by public officials act-
may still be treated as a publicly supported or-               the  following  five  public  support  factors  will  be     ing in their public capacities,
ganization described in section 170(b)(1)(A)(vi)               considered in determining whether an organiza-
if  it  normally  receives  a  substantial  part  of  its      tion is publicly supported. However, an organi-            3. Persons having special knowledge or ex-
support from governmental units, from direct or                zation generally doesn't have to satisfy all of the          pertise in the particular field or discipline in 
indirect contributions from the general public, or             factors.  The  factors  relevant  to  each  case  and        which the organization is operating, and
from a combination of these sources. To qualify,               the weight accorded to any one of them may dif-            4. Community leaders, such as elected or 
an  organization  must  meet  the  ten-per-                    fer depending upon the nature and purpose of                 appointed officials, members of the clergy, 
cent-of-support  requirement  and  the  attraction             the organization and the length of time it has ex-           educators, civic leaders, or other such per-
of  public  support  requirement.  These  require-             isted. The combination of factors that an organi-            sons representing a broad cross-section 
ments establish, under all the facts and circum-               zation  normally  must  meet  doesn't  have  to  be          of the views and interests of the commun-
stances, that an organization normally receives                the  same  for  each  4-year  period  as  long  as  a        ity.
a  substantial  part  of  its  support  from  govern-          sufficient combination of factors exists to show 
mental units or from direct or indirect contribu-              that the organization is publicly supported.               In  a  membership  organization,  the  governing 
tions from the general public. The organization                                                                           body should also include individuals elected by 
must also be in the nature of a publicly suppor-               1. Percentage of financial support factor.                 a  broadly  based  membership  according  to  the 
ted organization, taking into account five differ-             When an organization normally receives at least            organization's governing instrument or bylaws.
ent  factors.  See Additional  requirements  (the              10% but less than one-third of its total support 
five public support factors), later.                           from  public  or  governmental  sources,  the  per-        4. Availability of public facilities or serv-
                                                               centage of support received from those sources             ices factor. The fact that an organization gen-
Ten-percent-of-support               requirement.              will  be  considered  in  determining  whether  the        erally  provides  facilities  or  services  directly  for 
The percentage of support normally received by                 organization  is  publicly  supported.  As  the  per-      the benefit of the general public on a continuing 
an  organization  from  governmental  units,  from             centage of support from public or governmental             basis  is  evidence  that  the  organization  is  pub-
contributions  made  directly  or  indirectly  by  the         sources  increases,  the  burden  of  establishing         licly supported. Examples are:
general public, or from a combination of these                 the  publicly  supported  nature  of  the  organiza-       • A museum or library that is open to the 
sources  must  be  substantial.  An  organization              tion through other factors decreases, while the              public,
won't  be  treated  as  normally  receiving  a  sub-           lower the percentage, the greater the burden.              • A symphony orchestra that gives public 
stantial  amount  of  governmental  or  public                                                                              performances,
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•    A conservation organization that provides        support test for 2024, as the immediately suc-          can  reasonably  be  expected  to  meet  the 
     educational services to the public through       ceeding tax year.                                       one-third support test. Organization Y receives 
     the distribution of educational materials, or    In  tax  years  2019,  2020,  2021,  2022,  and         a  determination  letter  that  it  is  an  organization 
•    An old-age home that provides domiciliary        2023,  in  the  aggregate,  X  doesn't  receive  at     described  in  section  501(c)(3)  and  sections 
     or nursing services for members of the           least one-third of its support from governmental        170(b)(1)(A)(vi)  and  509(a)(1)  effective  as  of 
     general public.                                  units referred to in section 170(c)(1), from con-       the date of formation.
The fact that an educational or research institu-     tributions made directly or indirectly by the gen-      Organization  Y  is  described  in  sections 
tion regularly publishes scholarly studies widely     eral public, or from a combination of these sour-       170(b)(1)(A)(vi)  and  509(a)(1)  for  its  first  5  tax 
used  by  colleges  and  universities  or  by  mem-   ces. X still meets the one-third support test for       years  (tax  years  ending  December  31,  2017, 
bers of the general public is also evidence that      tax year 2023 based on the aggregate support            through  December  31,  2021).  Organization  Y 
the organization is publicly supported.               received for tax years 2019 through 2023.               can  qualify  as  a  public  charity  beginning  with 
Similarly,  the  following  factors  are  also  evi-  In  tax  years  2020,  2021,  2022,  2023,  and         the tax year ending December 31, 2021, if Or-
dence  that  an  organization  is  publicly  suppor-  2024,  in  the  aggregate,  X  doesn't  receive  at     ganization Y meets the one-third support test or 
ted.                                                  least one-third of its support from governmental        facts  and  circumstances  test  for  the  tax  years 
                                                      units referred to in section 170(c)(1), from con-       ending December 31, 2018, through December 
1. Participating in, or sponsoring, the pro-          tributions made directly or indirectly by the gen-      31, 2022, or for the tax years ending December 
     grams of the organization by members of          eral public, or from a combination of these sour-       31, 2017, through December 31, 2021.
     the public having special knowledge or ex-       ces.  X  doesn't  meet  the  one-third  support  test 
     pertise, public officials, or civic or com-      for tax year 2023.                                      Determinations of public support status. 
     munity leaders.                                  Based  on  the  aggregate  support  and  other          An  organization  may  request  a  determination 
2. Maintaining a definitive program by the or-        factors listed in Regulations section 1.170A-9(f)       letter that it is described in section 170(b)(1)(A)
     ganization to accomplish its charitable          (3)(iii)(A) through (E) for tax years 2019, 2020,       (vi).  This  request  is  made  on  Form  1023  or 
     work in the community, such as slum              2021,  2022,  and  2023,  X  meets  the  facts  and     Form 1023-EZ, or at such other time as the or-
     clearance or developing employment op-           circumstances test for tax year 2023 and for tax        ganization  believes  it  is  described  in  section 
     portunities.                                     year  2024  (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 
3. Receiving a significant part of its funds          scribed  in  section  170(b)(1)(A)(vi)  for  tax  year  examination,  the  organization  has  not  met  the 
     from a public charity or governmental            2023  even  though  X  didn't  meet  the  one-third     requirements. The IRS may also revoke the sec-
     agency to which it is in some way held ac-       support test for that year.                             tion  170(b)(1)(A)(vi)  determination  letter  if  the 
     countable as a condition of the grant, con-                                                              organization's  application  for  a  determination 
     tract, or contribution.                          Special computation period for new organi-              contained an omission or inaccurate material in-
                                                      zations (Computation period for public sup-             formation.
5.  Additional  factors  pertinent  to  mem-          port). If, at the time of applying for tax-exempt       Reliance by grantors or contributors.          As 
bership  organizations. The  following  are  ad-      status,  an  organization  can  reasonably  be  ex-     a general rule, grantors or contributors may rely 
ditional factors in determining whether a mem-        pected to meet the one-third support test or the        on  a  determination  that  an  organization  is  de-
bership organization is publicly supported.           facts and circumstances test during its first 5 tax     scribed in section 170(b)(1)(A)(vi) until notice of 
1. Whether the solicitation for dues-paying           years,  the  organization  will  qualify  as  publicly  change of status of the organization is made to 
     members is designed to enroll a substan-         supported for its first 5 years. The organization       the public. The IRS publishes such notices from 
     tial number of persons in the community or       will be classified as a public charity for its first 5  time  to  time  in  the  Internal  Revenue  Bulletin, 
     area, or in a particular profession or field of  years, regardless of the public support actually        IRS.gov/irb/. Grantors and contributors can also 
     special interest (taking into account the        received during this period. Beginning with the         find information about an organization’s exempt 
     size of the area and the nature of the or-       organization's  sixth  tax  year,  the  organization    status under section 501(c)(3) and its status as 
     ganization's activities).                        will qualify as publicly supported if it meets the      a public charity or private foundation from Tax-
                                                      one-third  support  test  or  the  facts  and  circum-  Exempt Organization Search. However, a gran-
2. Whether membership dues for individual             stances test for its sixth year (based on support       tor or contributor can’t rely on a detrermination 
     (rather than institutional) members have         received in its second through sixth tax years),        letter  or  information  on  Tax-Exempt  Organiza-
     been fixed at rates designed to make             or as a carryover for its fifth tax year (based on      tion Search if the grantor or contributor was re-
     membership available to a broad cross            support  received  in  its  first  through  fifth  tax  sponsible  for,  or  aware  of,  the  act  or  failure  to 
     section of the interested public, rather than    years).  If  the  organization  is  required  to  file  act  that  resulted  in  the  organization's  loss  of 
     to restrict membership to a limited number       Form  990  or  990-EZ,  it  must  establish  that  it   classification as a publicly supported organiza-
     of persons.                                      meets  the  public  support  test  each  year  on       tion.
3. Whether the activities of the organization         Schedule A (Form 990).
     will be likely to appeal to persons having       Reasonable  expectation  of  public  sup-               Support.  For  purposes  of  publicly  supported 
     some broad common interest or purpose,           port. An  organization  that  can  reasonably  be       organizations,  the  term  support  includes  (but 
     such as educational activities in the case       expected to meet the one-third support test or          isn't limited to):
     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 
     ciations.                                        and activities, and actual or intended method of        2. Net income from unrelated business activi-
Special rule.     The fact that an organization       operation can reasonably be expected to attract              ties, whether or not those activities are 
has normally met the one-third support test re-       the type of broadly based support from the gen-              carried on regularly as a trade or business;
quirements for a current tax year, but is unable      eral  public,  public  charities,  and  governmental    3. Gross investment income;
normally to meet the requirements for a later tax     units that is necessary to meet the public sup-
year, won't in itself prevent the organization from   port requirements discussed earlier under Qual-         4. Tax revenues levied for the benefit of an 
meeting  the  requirements  of  the  facts  and  cir- ifying As Publicly Supported.                                organization and either paid to or spent on 
                                                                                                                   behalf of the organization; and
cumstances test for the later tax year.               Example.  Organization  Y  was  formed  in              5. The value of services or facilities furnished 
Example.       X  is  recognized  as  an  organiza-   January  2017  and  uses  a  December  31  tax               by a governmental unit to an organization 
tion described in section 501(c)(3). On the ba-       year. After September 9, 2017, and before De-                without charge (except services or facili-
sis  of  support  received  during  tax  years  2019, cember  31,  2017,  Organization  Y  filed  a  Form          ties generally furnished to the public with-
2020,  2021,  2022,  and  2023,  it  meets  the       1023 requesting recognition of exemption as an               out charge).
one-third support test for tax year 2023 (the cur-    organization described in section 501(c)(3) and 
rent  tax  year).  X  also  meets  the  one-third     in sections 170(b)(1)(A)(vi) and 509(a)(1). In its      Amounts  that  aren't  support.     The  term 
                                                      application,  Organization  Y  established  that  it    support doesn't include:
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1. Any amount received from the exercise or received on a contract entered into with a gov- fraction used in the one-third support test or the
performance by an organization of the pur- ernmental unit for the performance of services, ten-percent-of-support requirement. However,
pose or function constituting the basis for or from a government research grant. However, the contribution will be included in the numera-
its exemption (in general, these amounts these amounts aren't support from a govern- tor only to the extent that it isn't more than 2% of
include amounts received from any activity mental unit for these purposes if they constitute the denominator. In applying the 2% limit, all
the conduct of which is substantially rela- amounts received from the exercise or perform- contributions made by a donor and by any per-
ted to the furtherance of the exempt pur- ance of the organization's exempt functions. son in a special relationship to the donor (cer-
pose or function, other than through the Any amount paid by a governmental unit to tain Disqualified persons discussed under Ab-
production of income); or an organization won't be treated as received sence of control by disqualified persons, later)
2. Contributions of services for which a de- from the exercise or performance of its exempt are considered made by one person. The 2%
duction isn't allowed. function if the purpose of the payment is primar- limit doesn't apply to support received from gov-
ily to enable the organization to provide a serv- ernmental units or to contributions from other
These amounts are excluded from both the nu- ice to, or maintain a facility for, the direct benefit publicly supported charities, except as provided
merator and the denominator of the fractions in of the public (regardless of whether part of the under Grants from public charities, later.
determining compliance with the one-third sup- expense of providing the service or facility is
port test and ten-percent-of-support require- paid for by the public), rather than to serve the Indirect contributions. The term indirect
ment. The following discusses an exception to direct and immediate needs of the payor. This contributions from the general public includes
this general rule. includes: contributions received by the organization from
organizations (such as publicly supported or-
Organizations dependent primarily on 1. Amounts paid to maintain library facilities ganizations) that normally receive a substantial
gross receipts from related activities. Or- that are open to the public, part of their support from direct contributions
ganizations won't satisfy the one-third support 2. Amounts paid under government pro- from the general public, except as provided un-
test or the ten-percent-of-support requirement if grams to nursing homes or homes for the der Grants from public charities, next.
they receive: aged to provide health care or domiciliary Grants from public charities. Contribu-
1. Almost all support from gross receipts services to residents of these facilities, tions received from a governmental unit or from
from related activities; and and a publicly supported organization (including a
2. An insignificant amount of support from 3. Amounts paid to child placement or child church that meets the requirements for being
governmental units (without regard to guidance organizations under government publicly supported) aren't subject to the 2% limit
amounts referred to in (3) in the list of programs for services rendered to children unless the contributions represent amounts ei-
items included in support) and contribu- in the community. ther expressly or impliedly earmarked by a do-
nor to the governmental unit or publicly suppor-
tions made directly or indirectly by the These payments are mainly to enable the recipi- ted organization as being for, or for the benefit
general public. ent organization to provide a service or maintain of, the particular organization claiming a publicly
Example. Z, an organization described in a facility for the direct benefit of the public, supported status.
section 501(c)(3), is controlled by Thomas Blue, rather than to serve the direct and immediate
its president. Z received $500,000 during the needs of the payor. Furthermore, any amount Example 1. M, a national foundation for the
current tax year and the 4 tax years immediately received from a governmental unit under cir- encouragement of the musical arts, is a publicly
before its current tax year under a contract with cumstances in which the amount would be trea- supported organization. George Spruce gives
the Department of Transportation, under which ted as a grant will generally constitute support M a donation of $5,000 without imposing any
Z engaged in research to improve a particular from a governmental unit. See the discussion of restrictions or conditions upon the gift. M later
vehicle used primarily by the federal govern- Grants, later, under Section 509(a)(2) Organiza- makes a $5,000 grant to X, an organization de-
ment. During the same period, the only other tions. voted to giving public performances of chamber
music. Since the grant to X is treated as being
support received by Z was $5,000 in small con- Medicare and Medicaid payments. Medi- received from M, it is fully includible in the nu-
tributions primarily from Z's employees and care and Medicaid payments are received from merator of X's support fraction for the tax year
business associates. The $500,000 is gross re- contracts entered into with state and federal of receipt.
ceipts from a related activity and not support governmental units. However, payments are
from a governmental unit, because the services made for services already provided to eligible Example 2. Assume M is the same organi-
are provided to serve the direct and immediate individuals, rather than to encourage or enable zation described in Example 1. Tom Grove
needs of the payor rather than primarily to con- an organization to provide services to the pub- gives M a donation of $10,000, but requires that
fer a direct benefit on the public. Because of this lic. The individual patient, not a governmental M spend the money to support organizations
fact, and because Z's contributions from the unit, actually controls the ultimate recipient of devoted to the advancement of contemporary
public are insignificant, Z doesn't meet the these payments by selecting the health care or- American music. M has complete discretion as
one-third support test or the ten-percent-of-sup- ganization. As a result, these payments aren't to the organizations of the type described to
port requirement. considered support from a governmental unit. which it will make a grant. M decides to make
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-
Support from a governmental unit. For pur- or corporation, during the current tax year and ported organization. Grants to N are permitted
poses of the one-third support test and the the 4-year period immediately before the cur- to be earmarked for particular purposes. O,
ten-percent-of-support requirement, the term rent tax year, aren't more than 2% of the organi- which is an art workshop devoted to training
support from a governmental unit includes any zation's total support for the same period. young artists and which is claiming status as a
amounts received from a governmental unit, in- Thus, a contribution by any one individual publicly supported organization, persuades C, a
cluding donations or contributions and amounts will be included in full in the denominator of the private foundation, to make a grant of $25,000

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to N. C is a disqualified person with respect to exempt purposes, such as a gift of a paint- 5. Whether the organization has a represen-
O. C makes the grant to N with the understand- ing to a museum. tative governing body.
ing that N would be bound to make a grant to O 4. The donee organization has received a fi-
in the sum of $25,000, in addition to a matching nal determination letter classifying it as a Comprehensive Examples
grant of N's funds to O in the sum of $25,000. publicly supported organization and the
Only the $25,000 received directly from N is organization is actively engaged in a pro- Example 1. M is recognized as an organi-
considered a grant from N. The other $25,000 is gram of activities in furtherance of its ex- zation described in section 501(c)(3). For the
an indirect contribution from C to O and is to be empt purpose. years 2017 through 2021 (the applicable period
excluded from the numerator of O's support for the tax year 2021 under Regulations section
fraction to the extent it exceeds the 2% limit. 5. No material restrictions or conditions have 1.170A-9(f)(3)), M received support (as defined
been imposed by the grantor or contributor in paragraphs Regulations section 1.170A-9(f)
Unusual grants. In applying the 2% limit to de- upon the organization in connection with (6) through (8)) of $600,000 from the following
termine whether the one-third support test or the grant or contribution. sources:
the ten-percent-of-support requirement is met,
exclude contributions that are considered un- 6. If the grant or contribution is intended for
usual grants from both the numerator and de- operating expenses, rather than capital Investment Income . . . . . . . . . . . . . . . $300,000
nominator of the appropriate percent-of-support items, the terms and amount of the grant City Y (a governmental unit described in 40,000
fraction. Generally, unusual grants are substan- or contribution are expressly limited to 1 section 170(c)(1)) . . . . . . . . . . . . . . . .
tial contributions or bequests from disinterested year's operating expenses. United Way (an organization described in 40,000
section 170(b)(1)(A)(vi)) . . . . . . . . . . . .
parties if the contributions: Determination request. Before any grant Contributions . . . . . . . . . . . . . . . . . . . 220,000
1. Are attracted by the publicly supported na- or contribution is made, a potential grantee or- Total support . . . . . . . . . . . . . . . . . . . . $600,000
ture of the organization; ganization can request a determination as to
whether the grant or contribution may be exclu- For tax year 2021, M's public support is compu-
2. Are unusual or unexpected in amount; and ded as an unusual grant. This request can be ted as follows:
3. Would adversely affect, because of the filed by the grantee organization by submitting
size, the status of the organization as nor- Form 8940, Request for Miscellaneous Determi- One-third of total support . . . . . . . . . . . $200,000
mally being publicly supported. (The or- nation, supporting documents described in the
ganization must otherwise meet the sup- Instructions for Form 8940, and the appropriate Support from a governmental unit
port test in that year without benefit of the user fee. The organization must submit all infor- described in section 170(c)(1) . . . . . . . . $40,000
grant or contribution.) mation necessary to support a determination, Indirect contributions from the general
including information relating to the factors and public (United Way) . . . . . . . . . . . . . . . 40,000
For a grant (see Grants, later) that meets the re- characteristics listed in the preceding para- Contributions by various donors (no one
having made contributions that total more
quirements for exclusion, if the terms of the graphs. If a favorable determination is issued, than $12,000—2% of total support) . . . . 50,000
granting instrument require that the funds be the determination can be relied upon by the Six contributions (each in excess of
paid to the recipient organization over a period grantor or contributor of the particular contribu- $12,000—2% of total support) 6 ×
of years, the amount received by the organiza- tion in question. The issuance of the determina- $12,000 . . . . . . . . . . . . . . . . . . . . . . . 72,000
tion each year under the terms of the grant may tion will be at the sole discretion of the IRS. $202,000
be excluded for that year. However, no item of Grants and contributions that fail to qualify
gross investment income (defined under Sec- for exclusion will affect the way the support tests M's support from governmental units and from
tion 509(a)(2) Organizations, later) may be ex- are applied. See Additional requirements (the direct and indirect contributions from the gen-
cluded under this rule. five public support factors), earlier. eral public for the 2019 tax year normally ex-
If a determination is requested, in addition to ceeds one-third of M's total support
Characteristics of an unusual grant. A the characteristics listed earlier under Charac- ($202,000/$600,000 = 33.67%) for the applica-
grant or contribution will be considered an un- teristics of an unusual grant, the following fac- ble period (2016 through 2020). M meets the
usual grant if the previous three factors apply tors may be considered by the IRS in determin- one-third support test for 2020 and is therefore
and if it has all of the following characteristics. If ing if the grant or contribution is an unusual publicly supported for the tax years 2021 and
these factors and characteristics apply, then grant. 2022.
even without the benefit of an advance ruling,
grantors or contributors have assurance that 1. Whether the contribution was a bequest or
they won't be considered responsible for sub- a transfer while living. A bequest will be Example 2. N is recognized as an organi-
stantial and material changes in the organiza- given more favorable consideration than a zation described in section 501(c)(3). It was
tion's sources of support status. See section transfer while living. created to maintain public gardens containing
botanical specimens and displaying statuary
7.08 of Rev. Proc. 2018-32, 2018-23 I.R.B. 739. 2. Whether, before the receipt of the contri- and other art objects. The facilities, works of art,
1. The grant or contribution isn't made by a bution, the organization has carried on an and a large endowment were all contributed by
person (or related person) who created active program of public solicitation and a single contributor. The members of the gov-
the organization or was a substantial con- exempt activities and has been able to at- erning body of the organization are unrelated to
tributor to the organization before the grant tract a significant amount of public sup- its creator. The gardens are open to the public
or contribution. port. without charge and attract many visitors each
2. The grant or contribution isn't made by a 3. Whether, before the year of contribution, year. For the current tax year and the 4 tax
person (or related person) who is in a po- the organization met the one-third support years preceding the current tax year, 95% of the
sition of authority, such as a foundation test without benefit of any exclusions of organization's total support was received from
manager, or who otherwise has the ability unusual grants. investment income from its original endowment.
N also maintains a membership society that is
to exercise control over the organization. 4. Whether the organization may reasonably supported by members of the general public
Similarly, the grant or contribution isn't be expected to attract a significant amount who wish to contribute to the upkeep of the gar-
made by a person (or related person) who, of public support after the contribution. dens by paying a small annual membership fee.
because of the grant or contribution, ob- Continued reliance on unusual grants to Over the 5-year period in question, these fees
tains a position of authority or the ability to fund an organization's current operating from the general public constituted the remain-
otherwise exercise control over the organi- expenses (as opposed to providing new ing 5% of the organization's total support. Un-
zation. endowment funds) may be evidence that der these circumstances, N doesn't meet the
3. The grant or contribution is in the form of the organization can't reasonably be ex- one-third support test for its current tax year.
cash, readily marketable securities, or as- pected to attract future support from the Furthermore, since only 5% was received from
sets that directly further the organization's general public. the general public, N doesn't satisfy the 10%

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support  limitation  under  Regulations  section       community. P is recognized as an organization                    tax year, Q received $12,000 in investment in-
1.170A-9(f)(3)(i),  and  therefore  doesn't  qualify   described in section 501(c)(3). The orchestra is                 come from its original endowment. Each year Q 
as  publicly  supported  under  the  facts  and  cir-  composed  of  professional  musicians  who  are                  solicits funds by operating a charity ball at C's 
cumstances test. Because N has failed to sat-          paid  by  the  association.  Twelve  performances,               residence.  Guests  are  invited  and  asked  to 
isfy  the  10%  support  limitation,  none  of  the    open to the public, are scheduled each year. A                   make contributions of $100 per couple. During 
other  requirements  or  factors  in  Regulations      small  admission  charge  is  made  for  each  of                the  5-year  period  involved,  $15,000  was  re-
section 1.170A-9(f)(3)(iii)(A) through (E) can be      these  performances.  In  addition,  several  per-               ceived  from  the  proceeds  of  these  events.  C 
considered  in  determining  whether  N  qualifies     formances are staged annually without charge.                    and his family have also made contributions to 
as a publicly supported organization. For its cur-     During  the  current  tax  year  and  the  4  tax                Q of $25,000 over the 5-year period at issue. Q 
rent tax year, N isn't an organization described       years  immediately  preceding  the  current  tax                 makes  disbursements  each  year  of  substan-
in section 170(b)(1)(A)(vi).                           year,  P  received  separate  contributions  of                  tially all of its net income to the public charities 
                                                       $200,000 each from A and B (not members of a                     chosen by the trustees.
Example  3. O,  an  art  museum,  is  recog-           single family) and support of $120,000 from the                  Q's  sources  of  support  for  the  current  tax 
nized  as  an  organization  described  in  section    T  Community  Chest,  a  public  federated  fund-                year and the 4 tax years immediately preceding 
501(c)(3). In 1930, O was founded in S City by         raising  organization  operating  in  T  City.  P  de-           the current tax year are as follows:
members of a single family to collect, preserve,       pends on these funds to carry out its activities 
interpret,  and  display  to  the  public  important   and will continue to depend on contributions of                  Investment income . . . . . . . . . . . . . . . . .     $60,000 
works of art. O is governed by a Board of Trust-       this  type  to  be  made  in  the  future.  P  has  also         Contributions . . . . . . . . . . . . . . . . . . . . . $40,000
ees  that  originally  consisted  almost  entirely  of begun a fundraising campaign in an attempt to                    Total support . . . . . . . . . . . . . . . . . . .     $100,000 
members of the founding family. However, since         expand its activities for the coming years.                      Contributions from the general public . . . .           $15,000
1945,  members  of  the  founding  family  or  per-    P is governed by a Board of Directors com-
sons standing in relationship to the members of        posed of five individuals. A faculty member of a                 One contribution (over $2,000—2% of total 
that  family  described  in  section  4946(a)(1)(C)    local college, the president of a local music so-                support) 1 × $2,000 . . . . . . . . . . . . . . . .     2,000
through (G) have annually constituted less than        ciety,  the  head  of  a  local  banking  institution,  a        Total support from general public . . . . . . .         $17,000
one-fifth of the Board of Trustees. The remain-        prominent doctor, and a member of the govern-
ing board members are citizens of S City from a        ing  body  of  the  local  Chamber  of  Commerce                 Q's  support  from  the  general  public  doesn't 
variety of professions and occupations who rep-        currently serve on the Board and represent the                   meet the              one-third               support   test 
resent the interests and views of the people of S      interests and views of the community in the ac-                  ($17,000/$100,000  =  17%  of  total  support). 
City in the activities carried on by the organiza-     tivities carried on by P.                                        Even  though  it  does  meet  the  ten-per-
tion rather than the personal or private interests     For P's current tax year, its sources of sup-                    cent-of-support  requirement,  its  method  of  so-
of  the  founding  family.  O  solicits  contributions port  are  computed  on  the  basis  of  the  current            licitation makes it questionable whether Q satis-
from the general public, and for the current tax       tax  year  and  the  4  immediately  preceding  tax              fies  Regulations  section  1.170A-9(f)(3)(ii). 
year  and  each  of  the  4  tax  years  immediately   years, as follows.                                               Because of its method of operating, Q also has 
preceding the current tax year, O has received                                                                          a greater burden of establishing its publicly sup-
total  contributions  (in  small  sums  of  less  than Contributions . . . . . . . . . . . . . . . . . . . . . $520,000 ported nature. Based on these facts and on Q's 
$100,  none  of  which  exceeds  2%  of  O's  total    Receipts from performances . . . . . . . . . .          100,000  failure to receive favorable consideration under 
support for such period) in excess of $10,000.                                                                 $620,000 the  remaining  factors  of  Regulations  section 
These contributions from the general public rep-       Less:                                                            1.170A-9(f)(3)(iii),  Q  doesn't  satisfy  the  facts 
resent  25%  of  the  organization's  total  support   Receipts from performances (excluded,                            and  circumstances  test  and  therefore  doesn't 
for that 5-year period. For the same period, in-       see Support) . . . . . . . . . . . . . . . . . . . . .  100,000  qualify as a publicly supported organization.
vestment income from several large endowment           Total support . . . . . . . . . . . . . . . . . . .     $520,000
funds has constituted 75% of O's total support.        T Community Chest (indirect support from                         Community Trusts
O expends substantially all of its annual income       the general public) . . . . . . . . . . . . . . . . .   $120,000
for  its  exempt  purposes  and  thus  depends  on     Two contributions (each over $10,400—2%                          Community  trusts  are  often  established  to  at-
the funds it annually solicits from the public as      of total support) 2 × $10,400 . . . . . . . . . . .     20,800
                                                                                                                        tract large contributions of a capital or endow-
well as its investment income in order to carry        Total support from general public . . . . . . .         $140,800 ment nature for the benefit of a particular com-
out its activities on a normal and continuing ba-                                                                       munity or area. Often these contributions come 
sis and to acquire new works of art. O has, for        P's support from the general public, directly and                initially  from  a  small  number  of  donors.  While 
the entire period of its existence, been open to       indirectly,  doesn't  meet  the  one-third  support              the community trust generally has a governing 
the public and more than 300,000 people (from          test  ($140,800/$520,000  =  27%  of  total  sup-                body composed of representatives of the partic-
S City and elsewhere) have visited the museum          port). However, because P receives 27% of its                    ular community or area, its contributions are of-
in the current tax year and the 4 years immedi-        total  support  from  the  general  public,  it  meets           ten received and maintained in the form of sep-
ately preceding the current tax year.                  the  10%  support  limitation  under  Regulations                arate trusts or funds that are subject to varying 
Under these circumstances, O doesn't meet              section  1.170A-9(f)(3)(i).  P  also  meets  the  re-            degrees of control by the governing body.
the one-third support test for its current year be-    quirements  of  Regulations  section  1.170A-9(f)
cause it has received only 25% of its total sup-       (3)(ii).  As  a  result  of  satisfying  these  require-         To qualify as a publicly supported organiza-
port  for  the  applicable  5-year  period  from  the  ments and factors, P is considered to meet the                   tion, a community trust must meet the one-third 
general  public.  However,  under  the  facts  set     facts  and  circumstances  test  and  therefore                  support test, explained earlier under                   Qualifying 
forth, O has met the 10% support limitation un-        qualifies  as  a  publicly  supported  organization              as Publicly Supported. If it can't meet that test, it 
der  Regulations  section  1.170A-9(f)(3)(i),  as      for its current tax year and the immediately suc-                must be organized and operated so as to attract 
well as the requirements of Regulations section        ceeding tax year.                                                new and additional public or governmental sup-
1.170A-9(f)(3)(ii). Under all of the facts set forth,                                                                   port on a continuous basis sufficient to meet the 
O is considered as meeting the requirements of         Example  5.         Q  is  recognized  as  an  organi-           facts  and  circumstances  test,  also  explained 
the facts and circumstances test on the basis of       zation described in section 501(c)(3) and it is a                earlier.  Community  trusts  are  generally  able  to 
satisfying Regulations section 1.170A-9(f)(3)(iii)     philanthropic  organization.  Q  was  founded  in                satisfy  the  attraction  of  public  support  require-
(A) through (D). O is therefore publicly suppor-       1965  by  C  for  the  purpose  of  making  annual               ment (as contained in the facts and circumstan-
ted for its current tax year and the immediately       contributions to worthy charities. C created Q as                ces test) if they seek gifts and bequests from a 
succeeding tax year.                                   a charitable trust by transferring $500,000 worth                wide range of potential donors in the community 
                                                       of appreciated securities to Q.                                  or area served, through banks or trust compa-
Example 4. In 1960, the P Philharmonic Or-             Under the trust agreement, C and two other                       nies,  through  attorneys  or  other  professional 
chestra was organized in T City by a local music       family members are the sole trustees of Q and                    persons,  or  in  other  appropriate  ways  that  call 
society and a local women's club to present to         are  vested  with  the  right  to  appoint  successor            attention  to  the  community  trust  as  a  potential 
the public a wide variety of musical programs in-      trustees. In each of the current tax year and the                recipient  of  gifts  and  bequests  made  for  the 
tended  to  foster  music  appreciation  in  the       4  tax  years  immediately  preceding  the  current              benefit  of  the  community  or  area  served.  A 
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community  trust,  however,  doesn't  have  to  en-   A community trust can meet the requirement               1. Gifts, grants, contributions, or membership 
gage  in  periodic,  community-wide,  fundraising     in (3) above even if its exercise of the powers in           fees; and
campaigns  directed  toward  attracting  a  large     (3)(a), (b), or (c) is reviewable by an appropriate      2. Gross receipts from admissions, sales of 
number of small contributions in a manner simi-       state authority.                                             merchandise, performance of services, or 
lar  to  campaigns  conducted  by  a  community                                                                    furnishing facilities in an activity that isn't 
chest or a united fund.                               Component part.  To be treated as a com-
                                                      ponent part of a community trust (rather than as             an unrelated trade or business, subject to 
Separate  trusts  or  funds. Any  community           a  separate  trust  or  a  not-for-profit  corporation       certain limits, discussed under Limit on 
trust may be treated as a single entity for public    for public support purposes), a trust or fund:               gross receipts, later.
support  purposes,  rather  than  as  an  aggrega-    1. Must be created by gift, bequest, legacy,             For this purpose, the support must be from 
tion of separate funds, in which case all qualify-    devise, or other transfer to a community                 permitted sources, which include:
ing  funds  associated  with  that  organization      trust that is treated as a single entity (de-            •   Section 509(a)(1) organizations, described 
(whether a trust, not-for-profit corporation, unin-   scribed above), and                                          earlier;
corporated  association,  or  a  combination                                                                   •   Governmental units, described under Sec-
thereof)  will  be  treated  as  component  parts  of 2. May not be directly or indirectly subjected 
the organization for public support purposes.         by the transferor to any material restriction                tion 509(a)(1) Organizations, earlier; and
                                                      or condition with respect to the transferred             •   Persons other than Disqualified persons 
Single entity. To be treated as a single en-          assets.                                                      (defined under Section 509(a)(3) Organi-
tity  for  public  support  purposes,  a  community                                                                zations), later.
trust  must  meet  all  of  the  following  require-  Grantors and contributors.   Grantors, contrib-          Limit on gross receipts.        In computing the 
ments.                                                utors,  or  distributors  to  a  community  trust  may   amount of support received from gross receipts 
                                                      rely  on  the  public  charity  status,  which  the  or- under (2) above, gross receipts from related ac-
1. The organization must be commonly                  ganization has claimed in a timely filed notice,         tivities received from any person or from any bu-
   known as a community trust, fund, founda-          on or before the date the IRS informs the public         reau  or  similar  agency  of  a  governmental  unit 
   tion, or other similar name conveying the          (through such means as publication in the Inter-         are includible in any tax year only to the extent 
   concept of a capital or endowment fund to          nal Revenue Bulletin) that such reliance has ex-         the gross receipts aren't more than the greater 
   support charitable activities in the com-          pired.  However,  if  the  grantor,  contributor,  or    of $5,000 or 1% of the organization's total sup-
   munity or area it serves.                          distributor acquires knowledge that the IRS has          port in that year.
2. All funds of the organization must be sub-         notified the community trust that it has failed to 
   ject to a common governing instrument (or          establish that it is a public charity, then reliance     Not-more-than-one-third  support  test. This 
   a master trust or agency agreement) that           on the claimed status expires at the time such           test  will  be  met  if  an  organization  normally  re-
   may be embodied in a single (or several)           knowledge is acquired.                                   ceives no more than one-third of its support in 
   document(s) containing common lan-                                                                          each tax year from the total of:
   guage.                                             Section 509(a)(2) Organizations                          1. Gross investment income, and
3. The organization must have a common 
   governing body (or distribution committee)         Section  509(a)(2)  excludes  certain  types  of         2. The excess (if any) of unrelated business 
   that either directs or, in the case of a fund      broadly based, publicly supported organizations              taxable income from unrelated trades or 
   designated for specified beneficiaries,            from private foundation status. Generally, an or-            businesses acquired after June 30, 1975, 
   monitors the distribution of all funds exclu-      ganization  described  in  section  509(a)(2)  may           over the tax imposed on that income.
   sively for charitable purposes. The govern-        also  fit  the  description  of  a  publicly  supported 
   ing body must have the power in the gov-           organization under section 509(a)(1). There are,         Gross  investment  income.       Gross  invest-
   erning instrument, the instrument of               however, two basic differences.                          ment  income  means  the  gross  amount  of  in-
                                                                                                               come  from  interest,  dividends,  payments  with 
   transfer, the resolutions or bylaws of the         1. For section 509(a)(2) organizations, the              respect to securities loans, rents, and royalties, 
   governing body, a written agreement, or            term support includes items of support dis-              but it doesn't include any income that would be 
   otherwise—                                         cussed earlier (under Support, in the dis-               included  in  computing  tax  on  unrelated  busi-
   a. To modify any restriction or condition          cussion of Section 509(a)(1) Organiza-                   ness income from trades or businesses.
       on the distribution of funds for any           tions) and income from activities directly 
       specified charitable purposes or to            related to their exempt function. This in-               Definition of normally.   Both support tests 
       specified organizations if in the sole         come isn't included in meeting the support               are computed on the basis of the nature of the 
       judgment of the governing body (with-          test for a publicly supported organization               organization's normal sources of support. An or-
       out the necessity of the approval of           under section 509(a)(1).                                 ganization  will  be  considered  to  have  normally 
                                                                                                               met both tests for its current tax year and the tax 
       any participating trustee, custodian, or       2. Section 509(a)(2) places a limit on the to-           year  immediately  following,  if  it  meets  those 
       agent), the restriction or condition be-       tal gross investment income and unrelated                tests on the basis of the total support received 
       comes, in effect, unnecessary, inca-           business taxable income (in excess of the                for the current tax year and the 4 tax years im-
       pable of fulfillment, or inconsistent          unrelated business tax) an organization                  mediately before the current tax year.
       with the charitable needs of the com-          may have, while section 509(a)(1) doesn't.
       munity or area served;                                                                                  Computation period for public support.  If at 
   b. To replace any participating trustee,           To be excluded from private foundation treat-            the  time  of  applying  for  tax-exempt  status,  an 
       custodian, or agent for breach of fidu-        ment  under  section  509(a)(2),  an  organization       organization  can  reasonably  be  expected  to 
       ciary duty under state law; and                must meet two support tests.                             meet  the  one-third  support  test  and  the 
                                                      1. The one-third support test.                           not-more-than-one-third  support  test  during  its 
   c. To replace any participating trustee,                                                                    first 5 tax years, the organization will qualify for 
       etc., for failure to produce a reasona-        2. The not-more-than-one-third support test.             classification  as  a  public  charity  under  section 
       ble return of net income over a rea-                                                                    509(a)(2) for its first 5 years. Beginning with the 
       sonable period of time. (The govern-           Both these tests are designed to ensure that             organization's  sixth  tax  year,  the  organization 
       ing body will determine what is                an  organization  excluded  from  private  founda-       will be described in section 509(a)(2) if it meets 
       reasonable.)                                   tion treatment is responsive to the general pub-         the one-third       support      test   and 
                                                      lic, rather than to the private interests of a limi-     not-more-than-one-third support test for its sixth 
4. The organization must prepare periodic fi-         ted number of donors or other persons.                   year  (based  on  support  received  in  its  second 
   nancial reports treating all of the funds that 
   are held by the community trust, either di-        One-third support test. The one-third support            through sixth tax years) or as a carryover for its 
   rectly or in component parts, as funds of          test  will  be  met  if  an  organization  normally  re- fifth tax year (based on support received in its 
   the organization.                                  ceives  more  than  one-third  of  its  support  in      first through fifth tax years). If the organization is 
                                                      each tax year from any combination of:                   required  to  file  Form  990  or  990-EZ,  it  must 

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establish that it meets the one-third support test other exempt activities for or on behalf of 5. No material restrictions or conditions have
and not-more-than-one-third support test each members have been fixed at rates de- been imposed by the grantor or contributor
year on Schedule A (Form 990). signed to make membership available to a upon the organization in connection with
broad cross section of the public rather the grant or contribution.
Reasonable expectation of public sup- than to restrict membership to a limited 6. If the grant or contribution is intended for
port. An organization that can reasonably be number of persons, and operating expenses, rather than capital
expected to meet the one-third support test and
not-more-than-one-third support test under sec- 7. Whether an organization that provides items, the terms and amount of the grant
tion 509(a)(2) during its first 5 tax years is one goods, services, or facilities is or will be re- or contribution are expressly limited to one
that can show that its organizational structure, quired to make its services, facilities, per- year's operating expenses.
current or proposed programs and activities, formances, or products available (regard-
and actual or intended method of operation can less of whether a fee is charged) to the Determination request. If there is any
reasonably be expected to attract the type of general public, public charities, or govern- doubt that a grant or contribution can be exclu-
broadly based support from the general public, mental units rather than to a limited num- ded as an unusual grant, the grantee organiza-
public charities, and governmental units that is ber of persons or organizations. tion can request a determination by submitting
necessary to meet these tests. The facts that Form 8940, Request for Miscellaneous Determi-
are relevant to this determination and the weight Unusual grants. An unusual grant can be ex- nation, supporting documents described in the
accorded each fact may differ from case to cluded from the support test computation if it: Instructions for Form 8940 and the appropriate
user fee. The IRS has the sole discretion of is-
case. An organization can't reasonably be ex- 1. Was attracted by the publicly supported suing a determination, but if a favorable deter-
pected to meet the one-third support test and nature of the organization, mination is issued, it can be relied on by the
the not-more-than-one-third support test when grantor or contributor for purposes of a charita-
the facts indicate that an organization is likely, 2. Was unusual or unexpected in amount,
during its first 5 tax years, to receive less than and ble contributions deduction and by the organi-
zation for purposes of the exclusion for unusual
one-third of its support from permitted sources 3. Would, because of its size, adversely af- grants.
or to receive more than one-third of its support fect the status of the organization as nor- In addition to the characteristics listed
from gross investment income and unrelated mally meeting the one-third support test. above, the following factors may be considered
business taxable income. (The organization must otherwise meet by the IRS in determining if the grant or contri-
All pertinent facts and circumstances are the test in that year without benefit of the bution is an unusual grant.
taken into account in determining whether the grant or contribution.)
organizational structure, programs, or activities, 1. Whether the contribution was a bequest or
and method of operation of an organization will Characteristics of an unusual grant. A a transfer while living. A bequest will ordi-
give that organization a reasonable expectation grant or contribution will be considered an un- narily be given more favorable considera-
that it will meet the support tests. Some perti- usual grant if the above three factors apply and tion than a transfer while living.
nent factors considered are: it has all of the following characteristics. If these
1. Whether the organization has or will have factors and characteristics apply, then even 2. Whether, before the contribution, the or-
a governing body that is composed of per- without the benefit of an advance ruling, gran- ganization carried on an actual program of
sons having special knowledge in the par- tors or contributors have assurance that they public solicitation and exempt activities
ticular field in which the organization is op- won't be considered responsible for an act that and was able to attract a significant
erating or of community leaders, such as results in an organization's change of support amount of public support.
elected officials, members of the clergy, status. See Rev. Proc. 2018-32, 2018-23 I.R.B. 3. Whether the organization may reasonably
and educators, or, in the case of a mem- 739. be expected to attract a significant amount
bership organization, of individuals elected 1. The grant or contribution isn't made by a of public support after the contribution.
under the organization’s governing instru- person (or related person) who created Continued reliance on unusual grants to
ment or bylaws by a broadly based mem- the organization or was a substantial con- fund an organization's current operating
bership, tributor to the organization before the grant expenses can be evidence that the organi-
2. Whether a substantial part of the organiza- or contribution. zation can't attract future support from the
general public.
tion’s initial funding is to be provided by 2. The grant or contribution isn't made by a
the general public, by public charities, or person (or related person) who is in a po- 4. Whether the organization met the
by government grants rather than by a limi- sition of authority, such as a foundation one-third support test in the past without
ted number of grantors or contributors who manager, or who otherwise has the ability the benefit of any exclusions of unusual
are disqualified persons with respect to to exercise control over the organization. grants.
the organization, Similarly, the grant or contribution isn't 5. Whether the organization has a represen-
3. Whether a substantial proportion of the or- made by a person (or related person) who, tative governing body.
ganization’s initial funds are placed, or will because of the grant or contribution, ob-
remain, in an endowment and whether the tains a position of authority or the ability to Example 1. Y, an organization described in
investment of those funds is unlikely to re- otherwise exercise control over the organi- section 501(c)(3), was created by Marshall
sult in more than one-third of its total sup- zation. Pine, the holder of all the common stock in M
port being received from gross investment 3. The grant or contribution is in the form of corporation, Lisa, Marshall's wife, and Edward
income and from unrelated business taxa- cash, readily marketable securities, or as- Forest, Marshall's business associate. The pur-
ble income in excess of the tax imposed sets that directly further the organization's pose of Y was to sponsor and equip athletic
on that income, exempt purposes, such as a gift of a paint- teams composed of underprivileged children in
4. Whether an organization that carries on ing to a museum. the community. Each of the three creators
makes small cash contributions to Y. Marshall,
fundraising activities has developed a spe- 4. The donee organization has received ei- Lisa, and Edward have been active participants
cific plan for solicitation of funds on a com- ther an advance ruling or final determina- in the affairs of Y since its creation. Y regularly
munity or area-wide basis, tion letter classifying it as a publicly sup- raises small amounts of contributions through
5. Whether an organization that carries on ported organization and, except for an fundraising drives and selling admission to
community service activities has a specific organization operating under an advance some of the sponsored sporting events. The op-
program to carry out its work in the com- ruling or determination letter, the organiza- erations of Y are carried out on a small scale,
munity, tion is actively engaged in a program of usually being restricted to the sponsorship of
activities in furtherance of its exempt pur- two to four baseball teams of underprivileged
6. Whether membership dues for individual pose. children.
(rather than institutional) members of an
organization that carries on education or
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In  2012,  M  Corporation  recapitalizes  and           numerator of the support fraction in any tax year          Grants.   Grants  often  contain  certain  terms 
creates a first and second class of 6% nonvot-          only  to  the  extent  that  the  amounts  received        and  conditions  imposed  by  the  grantor.  Be-
ing  preferred  stock,  most  of  which  is  held  by   from any person or from any bureau or similar              cause of the imposition of terms and conditions, 
Marshall and Lisa. In 2013, Marshall contributes        agency of a governmental unit aren't more than             the  frequent  similarity  of  public  purposes  of 
49% of his common stock in M to Y. Marshall's           the greater of $5,000 or 1% of support.                    grantor and grantee, and the possibility of bene-
contribution of M's common stock was substan-                                                                      fit to the grantor, amounts received as grants for 
tial and constitutes 90% of Y's total support for       Determinations of public support status.                   carrying on exempt activities are sometimes dif-
2013.  A  combination  of  the  facts  and  circum-     An  organization  may  request  a  determination           ficult  to  distinguish  from  amounts  received  as 
stances  of  the  determining  factors  preclude        letter  that  it  is  described  in  section  509(a)(2).   gross  receipts  from  carrying  on  exempt  activi-
Marshall's contribution of M's common stock in          This  request  is  made  on  Form  1023  or  Form          ties.
2013 from being excluded as an unusual grant            1023-EZ, or at such other time as the organiza-            In  distinguishing  the  term  gross  receipts 
under     Temporary    Regulations section              tion believes it is described in section 509(a)(2).        from  the  term  grants,  the  term  gross  receipts 
1.509(a)-3T(c)(3)  for  purposes  of  determining       The  IRS  may  revoke  the  section  509(a)(2)  de-        means  amounts  received  from  an  activity  that 
whether Y meets the one-third support test un-          termination  letter  if,  upon  examination,  the  or-     isn't an unrelated trade or business, if a specific 
der section 509(a)(2).                                  ganization  has  not  met  the  requirements.  The         service, facility, or product is provided to serve 
                                                        IRS may also revoke the section 509(a)(2) de-              the  direct  and  immediate  needs  of  the  payor 
Example  2. M  was  organized  in  2012  to             termination  letter  if  the  organization’s  applica-     rather than primarily to confer a direct benefit on 
promote the appreciation of ballet in a particular      tion for determination contained an omission or            the general public. In general, payments made 
region of the United States. Its principal activi-      inaccurate material information.                           primarily  to  enable  the  payor  to  realize  or  re-
ties consist of erecting a theater for the perform-     Reliance  by  grantors  or  contributors.                  ceive  some  economic  or  physical  benefit  as  a 
ance of ballet and the organization and opera-          Grantors or contributors may rely on a determi-            result of the service, facility, or product obtained 
tion  of  a  ballet  company.  M  receives  a           nation that an organization is described in sec-           will be treated as gross receipts by the payee.
determination letter that it is an organization de-     tion 509(a)(2) until notice of change of status of         For  example,  a  profit-making  organization, 
scribed in section 501(c)(3) and that it is a pub-      the organization is made to the public (such as            primarily for its own betterment, contracts with a 
lic  charity  described  in  section  509(a)(2).  The   by publication in the Internal Revenue Bulletin,           nonprofit organization for a service from that or-
governing body of M consists of nine prominent          or  Tax-Exempt  Organization  Search,  either  of          ganization. Any payments received by the non-
unrelated  citizens  residing  in  the  region  who     which  can  be  searched  at  IRS.gov).  See Rev.          profit organization (whether from the profit-mak-
have either an expertise in ballet or a strong in-      Proc. 2018-32, 2018-23 I.R.B. 739. Tax-Exempt              ing  organization  or  from  another  nonprofit)  for 
terest  in  encouraging  appreciation  of  the  art     Organization Search is only available online at            similar  services  are  primarily  for  the  benefit  of 
form.                                                   Tax-Exempt Organization Search. However, this              the  payor  and  are  therefore  gross  receipts, 
In 2013, Z, a private foundation, proposes to           won't apply if the grantor or contributor was re-          rather than grants.
make a grant of $500,000 in cash to M to pro-           sponsible  for,  or  aware  of,  the  act  or  failure  to Research leading to the development of tan-
vide sufficient capital for M to commence its ac-       act  that  resulted  in  the  organization's  loss  of     gible products for the use or benefit of a payor 
tivities. Although Albert Cedar, the creator of Z,      classification as a publicly supported organiza-           generally will be treated as  a service provided 
is  one  of  the  nine  members  of  M's  governing     tion.                                                      to serve the direct and immediate needs of the 
body,  was  one  of  M's  original  founders,  and                                                                 payor,  while  basic  research  or  studies  carried 
continues  to  lend  his  prestige  to  M's  activities Gifts  and  contributions.    Any  payment  of             on  in  the  physical  or  social  sciences  generally 
and  fundraising  efforts,  Albert  doesn't,  directly  money or transfer of property without adequate             will  be  treated  as  primarily  to  confer  a  direct 
or indirectly, exercise any control over M. By the      consideration  is  considered  a  gift  or  contribu-      benefit upon the general public.
close of its first tax year, M also has received a      tion.  When  payment  is  made  or  property  is           Medicare and Medicaid payments are gross 
significant amount of support from a number of          transferred  as  consideration  for  admissions,           receipts from the exercise or performance of an 
smaller  contributions  and  pledges  from  mem-        sales of merchandise, performance of services,             exempt  function.  The  individual  patient,  not  a 
bers of the general public. M charges admission         or furnishing facilities to the donor, the status of       governmental unit, actually controls the ultimate 
to the ballet performances to the general public.       the  payment  or  transfer  under  section  170(c)         recipient  of  these  payments.  Therefore,  Medi-
Although the support received in 2013 won't             determines whether and to what extent the pay-             care  and  Medicaid  receipts  for  services  provi-
impact M's status as a public charity for its first     ment or transfer is a gift or contribution as dis-         ded  to  each  patient  are  included  as  gross  re-
5 tax years, it will be relevant to the determina-      tinguished from gross receipts from related ac-            ceipts  to  the  extent  they  aren't  more  than  the 
tion  of  whether  M  meets  the  one-third  support    tivities.                                                  greater of $5,000 or 1% of the organization's to-
test  under  section  509(a)(2)  for  the  2017  tax    The amount includible in computing support                 tal support for the tax year.
year,  using  the  computation  period  2013            from gifts, grants, or contributions of property or 
through 2017. Within the appropriate timeframe,         use of property is the fair market or rental value         Membership fees distinguished from gross 
M may submit a request for a determination let-         of the property at the date of the gift or contribu-       receipts. The fact that a membership organiza-
ter that the $500,000 contribution from Z quali-        tion.                                                      tion provides services, admissions, facilities, or 
fies as an unusual grant.                                                                                          merchandise to its members as part of its over-
Under  the  above  circumstances,  even                 Example.  P is a local agricultural club and               all activities won't, in itself, result in the classifi-
though Albert was a founder and member of the           is  an  organization  described  in  section  501(c)       cation of fees received from members as gross 
governing body of M, M may exclude Z's contri-          (3).  It  makes  awards  at  its  annual  fair  for  out-  receipts subject to the $5,000 or 1% limit rather 
bution of $500,000 in 2013 as an unusual grant          standing specimens of produce and livestock to             than membership fees. However, if an organiza-
under Regulations section 1.509(a)-3T(c)(3) for         encourage  interest  and  proficiency  by  young           tion uses membership fees as a means of sell-
purposes of determining whether M meets the             people in farming and raising livestock. Most of           ing  admissions,  merchandise,  services,  or  the 
one-third  support  test  under  section  509(a)(2)     these awards are cash or other property dona-              use of facilities to members of the general pub-
for 2017.                                               ted by local businessmen. When the awards are              lic who have no common goal or interest (other 
                                                        made, the donors are given recognition for their           than  the  desire  to  buy  the  admissions,  mer-
Gifts,  contributions,  and  grants  distin-            donations  by  being  identified  as  the  donor  of       chandise, services, or use of facilities), the fees 
guished from gross receipts. In determining             the  award.  The  recognition  given  to  donors  is       aren't membership fees but are gross receipts.
whether an organization normally receives more          merely incidental to the making of the award to            On  the  other  hand,  to  the  extent  the  basic 
than  one-third  of  its  support  from  permitted      worthy youngsters. For these reasons, the don-             purpose of the payment is to provide support for 
sources,  include  all  gifts,  contributions,  and     ations are contributions. The amount includible            the organization rather than to buy admissions, 
grants  received  from  permitted  sources  in  the     in computing support is equal to the cash con-             merchandise,  services,  or  the  use  of  facilities, 
numerator  of  the  support  fraction  in  each  tax    tributed  or  the  fair  market  value  of  other  prop-   the payment is a membership fee.
year. However, gross receipts from admissions,          erty on the dates contributed.
sales of merchandise, performance of services,                                                                     Bureau  defined.   The  term  bureau  or  similar 
or furnishing facilities, in an activity that isn't an                                                             agency  of  a  governmental  unit  for  determining 
unrelated trade or business, are includible in the                                                                 amounts  subject  to  the  $5,000  or  1%  limit 

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means a specialized operating unit of the exec-          method  that  it  uses  in  keeping  its  books  and           c. Operated in connection with one or 
utive,  judicial,  or  legislative  branch  of  govern-  that it otherwise uses to report on its Form 990                      more section 509(a)(1) or 509(a)(2) 
ment in which business is conducted under cer-           or  990-EZ,  if  it  is  required  to  file  Form  990  or            organizations (Type III supporting or-
tain  rules  and  regulations.  Since  the  term         990-EZ. For example, if a grantor makes a grant                       ganization).
bureau refers to a unit functioning at the operat-       to an organization payable over a term of years,           3. The organization mustn't be controlled di-
ing, as distinct from the policy-making, level of        the  grant  will  be  includible  in  the  support  frac-      rectly or indirectly by disqualified persons 
government, it normally means a subdivision of           tion  of  the  grantee  organization  under  the  ac-          (defined later) other than foundation man-
a department of government. The term wouldn't            counting method it regularly uses in keeping its               agers and other than one or more organi-
usually include those levels of government that          books.                                                         zations described in section 509(a)(1) or 
are  basically  policy-making  or  administrative,                                                                      509(a)(2).
such as the office of the Secretary or Assistant         Gross receipts from a related activity. When 
Secretary of a department, but would consist of          the  charitable  purpose  of  an  organization  de-
the  highest  operational  level  under  the  pol-       scribed  in  section  501(c)(3)  is  accomplished          Section 509(a)(3) differs from the other pro-
icy-making or administrative levels.                     through  furnishing  facilities  for  a  rental  fee  or   visions  of  section  509  that  describe  a  publicly 
Amounts received from a unit functioning at              loans to a particular class of persons, such as            supported  organization.  Instead  of  describing 
the policy-making or administrative level of gov-        aged,  sick,  or  needy  persons,  the  support  re-       an organization that conducts a particular kind 
ernment  are  treated  as  received  from  one  bu-      ceived  from  those  persons  will  be  considered         of activity or that receives financial support from 
reau  or  similar  agency  of  the  unit.  Units  of  a  gross  receipts  from  a  related  exempt  activity        the general public, section 509(a)(3) describes 
governmental agency above the operating level            rather than gross investment income or unrela-             organizations that have established certain rela-
are  combined  and  considered  a  separate  bu-         ted business taxable income.                               tionships  in  support  of  section  509(a)(1)  or 
                                                                                                                    509(a)(2)  organizations.  Thus,  an  organization 
reau for this purpose. Thus, an organization that        However,  if  the  organization  also  furnishes           can  qualify  as  other  than  a  private  foundation 
has gross receipts from both a policy-making or          facilities  or  loans  to  persons  who  aren't  mem-      even though it may be funded by a single donor, 
administrative unit and an operational unit of a         bers of a particular class and furnishing the fa-          family,  or  corporation  (with  certain  exceptions 
department will be treated as having gross re-           cilities or funds doesn't contribute importantly to        described  in Organizations  controlled  by  do-
ceipts from two bureaus. For this purpose, the           accomplishing the organization's exempt purpo-             nors, later). This kind of funding ordinarily would 
Departments of Air Force, Army, and Navy are             ses, the support received from furnishing the fa-          indicate private foundation status, but a section 
separate  departments  and  each  has  its  own          cilities or funds will be considered rents or inter-       509(a)(3) organization has limited purposes and 
policy-making,  administrative,  and  operating          est  and  will  be  treated  as  gross  investment         activities and gives up a significant degree of in-
units.                                                   income or unrelated business taxable income.               dependence.
Example 1.     The Bureau for Africa and the             Example.  X,  an  organization  described  in              More than one type of relationship may exist 
Bureau for Latin America are considered sepa-            section 501(c)(3), is organized and operated to            between  a  supporting  organization  and  a  pub-
rate  bureaus.  Each  is  an  operating  unit  under     provide living facilities for needy widows of de-          licly  supported  organization.  Any  relationship, 
the Administrator of the Agency for International        ceased  servicemen.  X  charges  the  widows  a            however,  must  ensure  that  the  supporting  or-
Development, a policy-making official. If an or-         small rental fee for the use of the facilities. Since      ganization  will  be  responsive  to  the  needs  or 
ganization  had  gross  receipts  from  both  of         X is accomplishing its exempt purpose through              demands  of,  and  will  be  an  integral  part  of  or 
these  bureaus,  the  amount  of  gross  receipts        the rental of the facilities, the support received         maintain a significant involvement in, the opera-
from  each  would  be  subject  to  the  greater  of     from  the  widows  is  considered  gross  receipts         tions of one or more publicly supported organi-
$5,000 or the 1% limit.                                  from  a  related  exempt  activity.  However,  if  X       zations.
                                                         rents  part  of  its  facilities  to  persons  having  no 
Example  2.    A  bureau  is  an  operating  unit        relationship to X's exempt purpose, the support 
under the administrative office of the Executive         received  from  these  rentals  will  be  considered       The Type I and Type II relationships rely on 
Director.  The  subdivisions  of  the  bureau  are       gross investment income or unrelated business              majority  control  of  the  governing  body  of  the 
Geographic  Areas  and  Project  Development             taxable income.                                            supporting organization by the publicly suppor-
Staff. If an organization had gross receipts from                                                                   ted organization. They have the same rules for 
                                                                                                                    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 operated 
these  subdivisions  would  be  considered  gross 
                                                                                                                    in connection with relationship requires that the 
receipts  from  the  same  bureau  and  would  be        Section  509(a)(3)  excludes  from  the  definition        supporting  organization  be  responsive  to  and 
subject to the greater of $5,000 or the 1% limit.        of  private  foundation  those  organizations  that        have operational relationships with publicly sup-
                                                         meet all of the three following requirements.
Grants  from  public  charities. For  purposes                                                                      ported organizations. This third relationship has 
of  the  one-third  support  test,  grants  received     1. The organization must be organized and                  different  rules  for  meeting  the  requirement  (1) 
from  a  section  509(a)(1)  organization  (public       operated exclusively for the benefit of, to                tests  and  is  discussed  separately  in  Category 
charity)  are  generally  includible  in  full  in  com- perform the functions of, or to carry out the              two, later.
puting the numerator of the support fraction for         purposes of one or more specified organi-
that tax year.                                           zations, as described in sections 509(a)(1)                Supported  organizations.   Supported  organi-
However,  if  the  amount  received  is  consid-         or 509(a)(2). These section 509(a)(1) and                  zations  are  organizations  described  in  section 
ered  an  indirect  contribution  from  one  of  the     509(a)(2) organizations are commonly                       509(a)(1)  or  509(a)(2)  for  whose  benefit  the 
public charity's donors, it will retain its character    called publicly supported organizations.                   supporting organization is organized and oper-
                                                                                                                    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 
ultimate  recipient,  the  indirect  contribution  is           by one or more section 509(a)(1) or                 tain restrictions. See Supporting other than sec-
treated as made first.                                          509(a)(2) organizations (Type I sup-                tion 501(c)(3) organizations, later.
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 recipi-          tion with one or more section 509(a)                tion supports an organization that is controlled 
ent 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                                                                        may not accept any gifts or contributions from:
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1. Any person (other than an organization                 Organizational test.      An organization is or-           3. By demonstrating that the supporting or-
   described in section 509(a)(1), (2), or (4))           ganized exclusively for one or more of the pur-                  ganization and its supported organiza-
   who controls, directly or indirectly, either           poses specified in requirement (1) only if its arti-             tion(s) have a historic and continuing rela-
   alone or together with persons listed in (2)           cles of organization:                                            tionship, because of which a substantial 
   or (3) below, the governing body of a sup-             1. Limit the purposes of the organization to                     identity of interests has developed be-
   ported organization;                                   one or more of those purposes,                                   tween or among the organizations.
2. A family member of a person described in               2. Don’t expressly empower the organization                The articles of a Type I or Type II supporting or-
   (1), above; or                                         to engage in activities that aren't in further-            ganization may also:
3. A 35% controlled entity.                               ance of those purposes,                                    1. Permit the substitution of one publicly sup-
Category one - Type I and Type II support-                3. Specify (as explained later under Speci-                      ported organization within a designated 
ing organizations. This category includes or-             fied organizations) the publicly supported                       class for another publicly supported or-
ganizations either operated, supervised, or con-          organizations on whose behalf the organi-                        ganization either in the same or a different 
trolled by (Type I) or supervised or controlled in        zation is operated, and                                          class designated in the articles,
connection  with  (Type  II)  organizations  descri-      4. Don’t expressly empower the organization                2. Permit the supporting organization to oper-
bed in section 509(a)(1) or 509(a)(2) (which can          to operate to support or benefit any organi-                     ate for the benefit of new or additional pub-
be either domestic or foreign).                           zation other than the ones specified in                          licly supported organizations of the same 
These kinds of organizations have a govern-               item (3).                                                        or a different class designated in the arti-
ing body that either includes a majority of mem-                                                                           cles, or
bers elected or appointed by one or more pub-             In meeting the organizational test, the organ-             3. Permit the supporting organization to vary 
licly  supported  organizations  (Type  I)  or  that      ization's  purposes  as  stated  in  its  articles  can          the amount of its support among different 
consists  of  the  same  persons  that  control  or       be as broad as, or more specific than, the pur-                  publicly supported organizations within the 
manage  the  publicly  supported  organizations           poses set forth in requirement (1) at the begin-                 class or classes of organizations designa-
(Type  II).  If  an  organization  is  to  qualify  under ning of the discussion of Section 509(a)(3) Or-                  ted by the articles.
this  category,  it  must  also  meet  an  organiza-      ganizations.  Therefore,  an  organization  that  by 
tional test and an operational test, and mustn't          the terms of its articles is formed for the benefit        See also the rules considered under the Organi-
be controlled by disqualified persons. These re-          of one or more specified publicly supported or-            zational test, in the later discussion for organi-
quirements are covered later in this discussion.          ganizations will, if it otherwise meets the other          zations in Category two - Type III supporting or-
                                                          requirements, be considered to have met the or-            ganizations..
Type  I  -  Operated,  supervised,  or  con-              ganizational test.
trolled  by. The  Type  I  relationship  presuppo-        For example, articles stating that an organi-              Operational  test  —  permissible  benefi-
ses  a  substantial  degree  of  direction  over  the     zation is formed to perform the publishing func-           ciaries. A  supporting  organization  must  en-
policies, programs, and activities of a support-          tions  of  a  specified  university  are  enough  to       gage solely in activities that support or benefit 
ing organization by its supported organizations.          comply with the organizational test. A Type I or           its specified supported organizations. These ac-
The relationship required is comparable to that           Type II supporting organization meets these re-            tivities  may  include  making  payments  to  or  for 
of a parent and subsidiary, in which the subsid-          quirements  if  the  purposes  set  forth  in  its  arti-  the use of, or providing services or facilities for, 
iary is under the direction of, and is accountable        cles are similar to but no broader than the pur-           individual  members  of  the  charitable  class 
or responsible to, the parent organization. This          poses  set  forth  in  the  articles  of  its  controlling benefited by its supported organization(s).
relationship  is  typically  established  when  the       organizations. However, a Type I or Type II sup-           For example, a supporting organization may 
supported organization(s) may regularly appoint           porting  organization  that  supports  a  publicly         make a payment indirectly through another un-
or elect a majority of the directors or trustees of       supported  section  501(c)(4),  501(c)(5),  or             related organization to a member of a charitable 
the supporting organization.                              501(c)(6)  organization  (see Supporting  other            class benefited by a specified publicly suppor-
                                                          than  section  501(c)(3)  organizations,  later)           ted  organization,  but  only  if  the  payment  is  a 
Type II - Supervised or controlled in con-                meets these requirements if its articles require it        grant to an individual rather than a grant to an 
nection  with. An  organization  that  is  super-         to carry on charitable, etc., activities within the        organization.  Similarly,  a  supporting  organiza-
vised  or  controlled  in  connection  with  one  or      meaning of section 170(c)(2).                              tion may support or benefit a section 501(c)(3) 
more  section  509(a)(1)  or  509(a)(2)  organiza-                                                                   organization,  other  than  a  private  foundation, 
tions  is  a  Type  II  supporting  organization.  The    Limits.    An  organization  isn't  organized  ex-         that  is  operated,  supervised,  or  controlled  di-
control or management of the supporting organ-            clusively  for  the  purposes  specified  in  require-     rectly by or in connection with its supported or-
ization must be vested in the same persons that           ment (1) if its articles expressly permit it to oper-      ganization(s).  However,  a  supporting  organiza-
control  or  manage  the  publicly  supported  or-        ate  to  support  or  to  benefit  any  organization       tion's activities may not further its purpose other 
ganization. In order for an organization to be su-        other  than  the  specified  publicly  supported  or-      than  supporting  or  benefiting  its  supported  or-
pervised or controlled in connection with a sup-          ganizations. It won't meet the organizational test         ganization(s).
ported  organization,  common  supervision  or            even though the actual operations of the organi-
control by the persons supervising or controlling         zation  have  been  exclusively  for  the  benefit  of     Operational  test  —  permissible  activi-
both organizations must exist to ensure that the          the specified publicly supported organizations.            ties. A supporting organization may make pay-
supporting  organization  will  be  responsive  to                                                                   ments to its supported organization(s) or to per-
the  needs  and  requirements  of  the  supported         Specified  organizations.     All  supporting              missible  beneficiaries,  or  may  carry  on 
organization. This relationship is typically estab-       organizations must ensure that their supported             independent activities or programs that support 
lished when a majority of the directors or trust-         organizations  are  specified  in  their  articles.        or benefit its supported organization(s). All such 
ees of the supporting organization also serve as          However, Type I and Type II supporting organi-             support,  however,  must  be  limited  to  permissi-
directors or trustees of one or more supported            zations  have  greater  flexibility  regarding  how        ble beneficiaries described earlier. The support-
organizations.                                            their  supported  organizations  may  be  “speci-          ing organization may also engage in fundraising 
                                                          fied.”                                                     activities, such as solicitations, fundraising din-
Organizational  and  operational  tests. Like             Type I and Type II supporting organizations                ners, and unrelated trade or business, to raise 
all supporting organizations, Type I and II sup-          may specify their supported organizations:                 funds for its supported organization(s) or for the 
porting  organizations  must  be  both  organized         1. By name,                                                permissible beneficiaries.
and  operated  exclusively  for  the  purposes  set 
out  in  requirement  (1)  at  the  beginning  of  this   2. By class or purpose designated in a man-                Absence of control by disqualified persons. 
section.  If  an  organization  fails  to  meet  either   ner sufficient to identify the supported or-               The  third  requirement  an  organization  must 
the organizational or the operational test, it can't      ganizations, or                                            meet to qualify as a supporting organization re-
qualify as a supporting organization.                                                                                quires that the organization not be controlled di-
                                                                                                                     rectly  or  indirectly  by  one  or  more  disqualified 

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persons  (other  than  foundation  managers  or          considered  controlled  directly  or  indirectly  by     Organizational  test.  The  organizational 
one or more publicly supported organizations).           one or more disqualified persons by reason of            test for a Type III supporting organization is gen-
                                                         this fact alone. However, all pertinent facts and        erally the same as for a Type I or Type II sup-
Disqualified persons.    For the purposes of             circumstances  (including  the  nature,  diversity,      porting  organization  (described  earlier).  How-
the  rules  discussed  in  this  publication,  the  fol- and income yield of an organization's holdings,          ever, Type III supporting organizations are more 
lowing persons are considered disqualified per-          the  length  of  time  particular  stocks,  securities,  limited regarding how their supported organiza-
sons:                                                    or other assets are retained, and its manner of          tions must be “specified” in their articles. A Type 
1. All substantial contributors to the founda-           exercising its voting rights with respect to stocks      III supporting organization's articles must spec-
tion.                                                    in  which  members  of  its  governing  body  also       ify its supported organization(s) by name, or the 
                                                         have some interest) are considered in determin-          organization  must  demonstrate  that  the  sup-
2. All foundation managers of the foundation.            ing  whether  a  disqualified  person  does  in  fact    porting organization and its supported organiza-
3. An owner of more than 20% of:                         indirectly control an organization.                      tion(s)  have  a  historic  and  continuing  relation-
                                                                                                                  ship, because of which a substantial identity of 
      a. The total combined voting power of a            Proof of independent control.       An organi-           interests has developed between or among the 
      corporation that is (during such own-              zation  is  permitted  to  establish  to  the  satisfac- organizations. “Class or purpose” designations 
      ership) a substantial contributor to the           tion of the IRS that disqualified persons don't di-      don't  satisfy  the  organizational  test  for  Type  III 
      foundation,                                        rectly or indirectly control it. For example, in the     supporting  organizations.  However,  a  Type  III 
                                                         case of a religious organization operated in con-        supporting organization's articles may:
      b. The profits interest of a partnership           nection with a church, the fact that the majority 
      that is (during such ownership) a sub-             of  the  organization's  governing  body  is  com-       1. Permit a publicly supported organization 
      stantial contributor to the foundation,            posed of lay persons who are substantial con-            that is designated by class or purpose 
      or                                                 tributors to the organization won't disqualify the       rather than by name to be substituted for 
      c. The beneficial interest of a trust or un-       organization under section 509(a)(3) if a repre-         the publicly supported organization or or-
      incorporated enterprise that is (during            sentative  of  the  church,  such  as  a  bishop  or     ganizations designated by name in the ar-
      such ownership) a substantial contrib-             other official, has control over the policies and        ticles, but only if the substitution is condi-
      utor to the foundation.                            decisions of the organization.                           tioned upon the occurrence of an event 
                                                                                                                  that is beyond the control of the supporting 
4. A member of the family of any of the indi-            Category two - Type III supporting organiza-             organization, such as loss of exemption, 
viduals just listed.                                     tions. This category includes organizations op-          substantial failure or abandonment of op-
5. A corporation of which more than 35% of               erated in connection with one or more organiza-          erations, or dissolution of the organization 
the total combined voting power is owned                 tions  described  in  section  509(a)(1)  or  509(a)     or organizations designated in the articles,
by persons just listed.                                  (2).                                                     2. Permit the supporting organization to oper-
6. A partnership of which more than 35% of               All  supporting  organizations  must  be  re-            ate for the benefit of an organization that 
the profits interest is owned by persons                 sponsive  to  the  needs  and  demands  of,  and         isn't a publicly supported organization, but 
described in (1), (2), (3), or (4).                      must  constitute  an  integral  part  of  or  maintain   only if the supporting organization is cur-
                                                         significant  involvement  in,  their  supported  or-     rently operating for the benefit of a publicly 
7. A trust, or estate, of which more than 35%            ganizations.  Type  I  and  Type  II  supporting  or-    supported organization and the possibility 
of the beneficial interest is owned by per-              ganizations  are  deemed  to  accomplish  these          of its operating for the benefit of other than 
sons described in (1), (2), (3), or (4).                 responsiveness  and  integral  part  requirements        a publicly supported organization is re-
                                                         by virtue of the control relationships discussed         mote, or
Remember,  however,  that  foundation  man-              earlier. However, a Type III supporting organiza-
agers  and  publicly  supported  organizations           tion isn't subject to the same level of control by       3. Permit the supporting organization to vary 
aren't disqualified persons for purposes of this         its supported organization(s). Therefore, Type III       the amount of its support between differ-
control requirement.                                     supporting  organizations  must  pass  separate          ent designated organizations, as long as it 
If a person who is a disqualified person with            responsiveness and integral part tests, in addi-         meets the requirements of the integral-part 
respect to a supporting organization, such as a          tion to the organizational and operational tests         test (discussed later) with respect to at 
substantial contributor, is appointed or designa-        applicable to all supporting organizations. Type         least one beneficiary organization.
ted as a foundation manager of the supporting            III  supporting  organizations  mustn't  be  control-    If  the  remote  possibility  referred  to  in  (2) 
organization  by  a  supported  organization  to         led  by  disqualified  persons  (as  described  ear-     comes to pass and the supporting organization 
serve as its representative, that person is still a      lier),  and  may  not  receive  contributions  from      thereafter operates for the benefit of an organi-
disqualified person.                                     certain  controlling  donors  (see  Contributions        zation  that  isn't  a  publicly  supported  organiza-
An organization is considered controlled for             from  controlling  donors,  later).  In  addition,  a    tion,  it  will  no  longer  qualify  under  section 
this purpose if the disqualified persons, by com-        Type  III  supporting  organization  may  not  sup-      509(a)(3).
bining  their  votes  or  positions  of  authority,  can port any organization not organized in the Uni-
require the organization to perform any act that         ted States.                                              Operational test. The operational rules descri-
significantly affects its operations or can prevent      Functional integration. A Type III support-              bed earlier for Type I and Type II supporting or-
the  organization  from  performing  the  act.  This     ing  organization  may  be  “functionally-integra-       ganizations apply as well to Type III supporting 
includes, but isn't limited to, the right of any sub-    ted”  or  “non-functionally  integrated”  depending      organizations  (see Operational  test  -  permissi-
stantial  contributor  or  spouse  to  designate  an-    on the manner in which it meets the integral part        ble beneficiaries, and Operational test - permis-
nually the recipients from among the supported           test (see Integral part test - functionally-integra-     sible  activities,  earlier).  In  addition,  a  Type  III 
organizations  of  the  income  from  the  contribu-     ted, and Integral part test - non-functionally inte-     supporting organization must operate in a man-
tion.  Except  as  explained  under Proof  of  inde-     grated,  later).  Type  III  functionally-integrated     ner consistent with the requirements of the re-
pendent control, next, a supporting organization         supporting  organizations  are  subject  to  fewer       sponsiveness test and the integral-part test, dis-
will be considered to be controlled directly or in-      restrictions  and  requirements  than  Type  III         cussed later
directly  by  one  or  more  disqualified  persons  if   non-functionally integrated supporting organiza-
the  voting  power  of  those  persons  is  50%  or      tions.  In  particular,  distributions  from  private    Responsiveness  test.  A  Type  III  supporting 
more of the total voting power of the organiza-          foundations to Type III non-functionally integra-        organization  must  be  responsive  to  the  needs 
tion's governing body, or if one or more of those        ted  supporting  organizations  aren't  qualifying       or demands of its supported organization(s). To 
persons  has  the  right  to  exercise  veto  power      distributions for purposes of satisfying a private       meet  this  test,  the  supported  organizations 
over the actions of the organization.                    foundation's required annual distributions under         must (1) elect one or more officers, directors, or 
Thus, if the governing body of a foundation              section 4942, and may be taxable expenditures            trustees;  (2)  have  one  or  more  officers,  direc-
is composed of five trustees, none of whom has           under section 4945.                                      tors,  or  trustees  of  the  supported  organiza-
a veto power over the actions of the foundation, 
and no more than two trustees are at any time                                                                     tion(s) serving simultaneously as officers, direc-
disqualified  persons,  the  foundation  isn't                                                                    tors, or trustees of the supporting organization; 

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or (3) maintain a close and continuous working          Attentiveness  requirement.  Each  year,  a              considered  distributed  will  be  prorated  among 
relationship with the officers, directors, or trust-    Type  III  non-functionally  integrated  supporting      the distributees.
ees of the supporting organization. In addition,        organization must distribute one-third or more of        Also, treat amounts paid by an organization 
as a result of this representation or close work-       the  amount  that  it  must  distribute  that  year  to  to  provide  goods,  services,  or  facilities  for  the 
ing  relationship,  the  supported  organization(s)     one  or  more  supported  organizations  that  are       direct benefit of an organization seeking section 
must have a significant voice in the investment         attentive to the operations of the supporting or-        509(a)(2) status (rather than for the direct bene-
policies of the supporting organization, the tim-       ganization and to which the supporting organi-           fit of the general public) in the same manner as 
ing of grants and the manner of making them,            zation  is  responsive.  A  supported  organization      amounts  received  by  the  latter  organization. 
the  selection  of  recipients,  and  generally  the    is  “attentive”  for  these  purposes  if  the  amount   These amounts will be treated as gross invest-
use  of  the  income  or  assets  of  the  supporting   received by the supported organization from the          ment income to the extent they are gross invest-
organization.                                           supporting organization:                                 ment  income  of  the  organization  spending  the 
Notification  requirement.     In  each  tax            1. Equals at least 10% of the supported or-              amounts.  An  organization  seeking  section 
year,  the  Type  III  supporting  organization  must   ganization's total support for the year in               509(a)(2) status must file a separate statement 
notify  each  supported  organization  of  its  sup-    question;                                                with its annual information return, Form 990 or 
                                                                                                                 990-EZ,  listing  all  amounts  received  from  sup-
port  and  provide  a  copy  of  the  supporting  or-   2. was necessary to avoid interruption of a              porting organizations.
ganization's  most  recently  filed  Form  990  or      particular function or activity of the suppor-
990-EZ  and  copies  of  any  amendments  to  its       ted organization; or                                     Relationships created for avoidance purpo-
articles, bylaws, or other governing documents.                                                                  ses. If  a  relationship  between  an  organization 
                                                        3. was, based on all facts and circumstances 
Integral  part  test  -  functionally  integra-         (including evidence of actual attentive-                 seeking section 509(a)(3) status and an organi-
ted. A Type III supporting organization may sat-        ness), a sufficient part of the supported or-            zation seeking section 509(a)(2) status is estab-
isfy the integral part test as functionally-integra-    ganization's total support to ensure atten-              lished  or  used  to  avoid  classification  as  a  pri-
ted in one of three ways:                               tiveness.                                                vate  foundation  with  respect  to  either 
                                                                                                                 organization, then the character and amount of 
1. Engaging in activities substantially all of                                                                   support  received  by  the  section  509(a)(3)  or-
     which directly further the exempt purposes         Supporting other than section 501(c)(3) or-
     of its supported organization(s) and which,        ganizations. An organization operated in con-            ganization  will  be  attributed  to  the  section 
     but for the supporting organization's in-          junction with a social welfare organization, labor       509(a)(2)  organization  for  purposes  of  deter-
     volvement, the supported organization              or  agricultural  organization,  business  league,       mining  whether  the  latter  meets  the  support 
     would normally engage in;                          chamber  of  commerce,  or  other  organization          tests under section 509(a)(2). If this type of rela-
                                                        described  in  section  501(c)(4),  501(c)(5),  or       tionship is established or used between an or-
2. Being the parent of, appointing a majority           501(c)(6) may qualify as a supporting organiza-          ganization seeking 509(a)(3) status and two or 
     of the directors or trustees of, and exercis-      tion  under  section  509(a)(3)  and  therefore  not     more  organizations  seeking  509(a)(2)  status, 
     ing a substantial degree of direction over         be classified as a private foundation if both the        the  amount  and  character  of  support  received 
     the policies, programs, and activities of its      following conditions are met.                            by  the  former  organization  will  be  prorated 
     supported organizations; or                                                                                 among the latter organizations.
                                                        1. The supporting organization meets all the             In determining whether a relationship exists 
3. Supporting a governmental entity.                    requirements previously specified (the or-               between an organization seeking 509(a)(3) sta-
Direct  furtherance  activities.  For  purpo-           ganizational tests, the operational test,                tus  (supporting  organization)  and  one  or  more 
ses of the test in item (1), activities “directly fur-  and one of the relationship tests and not                organizations seeking 509(a)(2) status (benefi-
ther” a supported organization's exempt purpo-          be controlled by disqualified persons).                  ciary organizations) for the purpose of avoiding 
ses  only  if  conducted  by  the  supporting           2. The section 501(c)(4), 501(c)(5), or 501(c)           private foundation status, all pertinent facts and 
organization  itself.  Direct  furtherance  activities  (6) organization would be described in                   circumstances  will  be  taken  into  account.  The 
include  holding  title  to  and  managing  ex-         section 509(a)(2) if it was a charitable or-             following  facts  may  be  used  as  evidence  that 
empt-use assets, but not fundraising or invest-         ganization described in section 501(c)(3).               such  a  relationship  wasn't  established  or 
ing  and  managing  non-exempt-use  assets.             This provision allows separate charitable                availed  of  to  avoid  classification  as  a  private 
Grantmaking  may  qualify  as  direct  furtherance      funds of certain noncharitable organiza-                 foundation.
activities if the requirements of Regulations sec-      tions to be described in section 509(a)(3)               1. The supporting organization is operated to 
tion 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 organization               beneficiary organizations.
tain  trusts  established  before  November  20,        from an organization that seeks to be a section          3. The beneficiary organization is composed 
1970 may qualify if they meet the requirements          509(a)(3) organization because of its support of              of several membership organizations, 
of Regulations section 1.509(a)-4(i)(5)(i)(9).          the  organization  are  deemed  gross  investment             each of which has a substantial number of 
Distribution  requirement.  A  Type  III                income (rather than gifts or contributions) to the            members, and the membership organiza-
non-functionally integrated supporting organiza-        extent they are gross investment income of the                tions have an effective voice in the man-
tion must distribute a certain amount annually to       distributing organization. (This rule also applies            agement of the supporting and beneficiary 
or  for  the  benefit  of  its  supported  organiza-    to amounts received from a charitable trust, cor-             organizations.
tion(s).  That  amount  is  equal  to  the  greater  of poration, fund, association, or similar organiza-
85% of the organization's adjusted net income           tion that is required by its governing instrument        4. The beneficiary organization receives a 
and 3.5% of the fair market value of the organi-        or otherwise to distribute, or that normally does             substantial amount of support from the 
zation's  non-exempt-use  assets  (with  certain        distribute,  at  least  25%  of  its  adjusted  net  in-      general public, public charities, or govern-
adjustments). See Regulations         section           come  to  the  organization,  and  whose  distribu-           mental grants.
1.509(a)-4(i)(5) and (8) for more information re-       tion normally comprises at least 5% of its adjus-        5. The supporting organization uses its funds 
garding the distribution requirement and valua-         ted  net  income.)  All  income  that  is  gross              to carry on a meaningful program of activi-
tion of non-exempt-use assets. See Regulations          investment income of the distributing organiza-               ties to support or benefit the beneficiary 
section 1.509(a)-4(i)(6) for more information re-       tion  will  be  considered  distributed  first  by  that      organization and, if the supporting organi-
garding what distributions or expenditures count        organization.  If  the  supporting  organization              zation were a private foundation, this use 
towards the distribution requirement.                   makes distributions to more than one organiza-
                                                        tion,  the  amount  of  gross  investment  income 
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   would be sufficient to avoid the imposition          contributions  made  after  the  date  of  the  an-  foundations generally accomplish their charita-
   of the tax on failure to distribute income.          nouncement will depend on the statutory qualifi-     ble purpose by making grants to other charities. 
6. The operations of the beneficiary and sup-           cation of the organization as an organization de-    Operating foundations make qualifying distribu-
   porting organizations are managed by dif-            scribed in Section 509(a)(1) Section 509(a)(2),   ,  tions directly for the active conduct of their edu-
   ferent persons, and each organization per-           or Section 509(a)(3).                                cational, charitable, and religious purposes.
   forms a different function.                                 The preceding paragraph shall not ap-         Most  of  the  restrictions  and  requirements 
7. The supporting organization isn't able to               !   ply if the grantor or contributor:            that  apply  to  private  foundations  also  apply  to 
                                                        CAUTION
   exercise substantial control or influence                                                                 private  operating  foundations.  However,  there 
   over the beneficiary organization because            1. Had knowledge of the revocation of the            are advantages to being classified as a private 
   the beneficiary organization receives sup-                ruling or determination letter classifying      operating foundation. For example, a private op-
   port or holds assets that are disproportion-              the organization as an organization descri-     erating  foundation  (as  compared  to  a  private 
   ately large in comparison with the support                bed in section 509(a)(1), 509(a)(2), or         foundation) can be the recipient of grants from a 
   received or assets held by the supporting                 509(a)(3); or                                   private  foundation  without  having  to  distribute 
                                                                                                             the funds received currently within 1 year, and 
   organization.                                        2. Was in part responsible for, or was aware         the funds nevertheless may be treated as quali-
                                                             of, the act, the failure to act, or the sub-    fying distributions by the donating private foun-
Effect on section 509(a)(3) organizations.     If            stantial and material change on the part of     dation; charitable contributions to a private op-
a beneficiary organization fails to meet either of           the organization that gave rise to the revo-    erating foundation qualify for a higher charitable 
the  support  tests  of  section  509(a)(2)  due  to         cation.                                         deduction  limit  on  the  donor's  tax  return;  and 
these provisions, and the beneficiary organiza-
tion  is  one  for  whose  support  the  organization                                                        the excise tax on net investment income doesn't 
                                                                                                             apply to an exempt operating foundation (a pri-
seeking  section  509(a)(3)  status  is  operated,      Interim  guidance  for  supporting  organiza-        vate operating foundation that meets certain ad-
then the supporting organization won't be con-          tions  and  grantors. Notice  2014-4  provides       ditional  requirements  -  see Exempt  operating 
sidered to be operated exclusively to support or        further  interim  guidance  for  section  509(a)(3)  foundations, later).
benefit one or more section 509(a)(1) or 509(a)         supporting  organizations  and  their  grantors 
(2) organizations and therefore wouldn't qualify        about  the  application  of  certain  requirements   A private operating foundation is any private 
for section 509(a)(3) status.                           enacted as part of the Pension Protection Act of     foundation that meets the assets test, the sup-
                                                        2006. The notice provides transitional rules for     port  test,  or  the  endowment  test,  and  makes 
Request change in public charity classifica-            Type  III  supporting  organizations  that  want  to qualifying  distributions  directly,  for  the  active 
tion. A section 501(c)(3) tax-exempt organiza-          qualify as “functionally integrated” because they    conduct of its activities for which it was organ-
tion seeking to change its public charity classifi-     support  governmental  entities.  The  notice  also  ized,  of  substantially  all  (85%  or  more)  of  the 
cation  from  a  section  509(a)(3)  supporting         provides additional interim guidance for private     lesser of its:
organization to a section 509(a)(1) or 509(a)(2)        foundations  and  sponsoring  organizations  that    1. Adjusted net income, or
organization  must  file  Form  8940, Request  for      maintain  donor-advised  funds  on  the  proce-
Miscellaneous  Determination.  See  the  Instruc-       dures  to  be  followed  in  determining  whether  a 2. Minimum investment return.
tions for Form 8940 for more information regard-        potential grantee is a Type I, Type II or function-  Assets test.  A private foundation will meet 
ing  supporting  material  and  applicable  user        ally integrated Type III supporting organization.    the  assets  test  if  substantially  more  than  half 
fees.                                                   See Notice  2014–4,  2014-2  I.R.B.  274  (exten-    (65% or more) of its assets are:
                                                        ded as described in the preamble to the 2015 fi-
   For more information about applying for sec-         nal  regulations  regarding  the  distribution  re-  1. Devoted directly to the active conduct of 
tion 501(c)(3) status see Life Cycle of a Private       quirement  for  non-functionally  integrated  Type   its exempt activity, to a functionally related 
Foundation at IRS.gov.                                  III supporting organizations (T.D. 9746)).           business, or to a combination of the two;
Classification under section 509(a).   If an or-                                                             2. Stock of a corporation that is controlled by 
ganization  is  described  in  section  509(a)(1),      Section 509(a)(4) Organizations                      the foundation (by ownership of at least 
and is also described in either Section 509(a)(2)                                                            80% of the total voting power of all classes 
or Section 509(a)(3), it will be treated as a sec-      Section  509(a)(4)  excludes  from  classification   of stock entitled to vote and at least 80% 
tion  509(a)(1)  organization.  The  organization       as private foundations those organizations that      of the total shares of all other classes of 
should file Form 8940, Request for Miscellane-          qualify  under  section  501(c)(3)  as  organized    stock) and substantially all (at least 85%) 
ous Determination, if it wishes to receive a letter     and  operated  for  the  purpose  of  testing  prod- the assets of which are devoted as provi-
showing a change in classification.                     ucts for public safety. Generally, these organiza-   ded above; or
                                                        tions test consumer products to determine their 
Reliance  by  grantors  and  contributors.              acceptability for use by the general public.         3. Any combination of (1) and (2).
Once  an  organization  has  received  a  ruling  or                                                         This  test  is  intended  to  apply  to  organizations 
determination  letter  classifying  it  as  an  organi- Loss of Qualification as Public                      such as museums and libraries.
zation  described  in Section  509(a)(1) Section ,      Charity                                              Support  test.      A  private  foundation  will 
509(a)(2), or Section 509(a)(3), the treatment of 
grants and contributions and the status of gran-        If your organization ceases to qualify as a public   meet the support test if:
tors  and  contributors  to  the  organization  will    charity under section 509(a)(1)-(4), it becomes      1. Substantially all (at least 85%) of its sup-
generally  not  be  affected  by  reason  of  a  later  a private foundation. The organization must file     port (other than gross investment income) 
revocation by the IRS of the organization's clas-       Form  990-PF, Return  of  Private  Foundation  or    is normally received from the general pub-
sification  until  the  date  on  which  notice  of     Section  4947(a)(1)  Trust  Treated  as  a  Private  lic and five or more unrelated exempt or-
change of status is made to the public (gener-          Foundation to satisfy its filing obligation. The or- ganizations,
ally by publication in the Internal Revenue Bulle-      ganization can no longer file Form 990, 990-EZ, 
tin) or another applicable date, if any, specified      or 990-N. A private foundation retains that sta-     2. Not more than 25% of its support (other 
in the public notice. In appropriate cases, how-        tus unless or until it terminates its private foun-  than gross investment income) is normally 
ever,  the  treatment  of  grants  and  contributions   dation status under section 507.                     received from any one exempt organiza-
and the status of grantors and contributors to an                                                            tion, and
organization  described  in   Section  509(a)(1),                                                            3. Not more than 50% of its support is nor-
Section 509(a)(2), or Section 509(a)(3) may be          Private Operating                                    mally received from gross investment in-
affected  pending  verification  of  the  continued     Foundations                                          come.
classification of the organization. Notice to this 
effect will be made in a public announcement by         Private foundations are divided into two catego-     This test is intended to apply to special-purpose 
the IRS. In these cases, the effect of grants and       ries  -  nonoperating  private  foundations  and     foundations, such as learned societies and as-
                                                        private  operating  foundations.  Nonoperating       sociations of libraries.
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Endowment test. A foundation will meet integrated auxiliary of a church or of a conven- est to the organization and the members, unless
the endowment test if it normally makes qualify- tion or association of churches, or a member of these communications directly encourage the
ing distributions directly for the active conduct an affiliated group of organizations that includes members to attempt to influence legislation or
of its exempt function of at least two-thirds of its a church, etc.) may elect instead an expenditure directly encourage the members to urge non-
minimum investment return. test under section 501(h) as an alternative to members to attempt to influence legislation, as
The minimum investment return for any pri- measure its lobbying activity. Under the Section explained earlier.
vate foundation for any tax year is 5% of the ex- 501(h) test, the lobbying limit is defined in terms
cess of the total fair market value of all assets of of expenditures for influencing legislation in- Lobbying expenditures limits. If a public
the foundation (other than those used directly in stead of whether lobbying is a substantial part charity makes the election under section 501(h)
the active conduct of its exempt purpose) over of the organization's activities. Private founda- to be subject to the lobbying expenditures limits
the amount of indebtedness incurred to acquire tions can't make this election. rules (instead of the substantial part of activities
those assets. test), it won't lose its tax-exempt status under
In determining whether the amount of quali- Making the election. Use Form 5768, Elec- section 501(c)(3), unless it normally makes:
fying distributions is at least two-thirds of the or- tion/Revocation of Election by an Eligible Sec- • Lobbying expenditures that are more than
ganization's minimum investment return, the or- tion 501(c)(3) Organization To Make Expendi- 150% of the lobbying nontaxable amount
ganization isn't required to trace the source of tures To Influence Legislation, to make the for the organization for each tax year, or
the expenditures to determine whether they election. The form must be signed and post- • Grass roots expenditures that are more
were derived from investment income or from marked within the first tax year to which it ap- than 150% of the grass roots nontaxable
contributions. plies. If the form is used to revoke the election, it amount for the organization for each tax
This test is intended to apply to organiza- must be signed and postmarked before the first year.
tions such as research organizations that ac- day of the tax year to which it applies. See Tax on excess expenditures to influence
tively conduct charitable activities but whose Eligible section 501(c)(3) organizations that legislation, later, in this section.
personal services are so great in relationship to have made the election to be subject to the lim-
charitable assets that the cost of those services its on lobbying expenditures must use Part II-A Lobbying expenditures. These are any
can't be met out of small endowments. of Schedule C (Form 990) to figure these limits. expenditures that are made for the purpose of
attempting to influence legislation, as discussed
Exempt operating foundations. The ex- Attempting to influence legislation. Attempt- earlier under Attempting to influence legislation.
cise tax on net investment income doesn't apply ing to influence legislation, for this purpose,
to an exempt operating foundation. An exempt means: Grass roots expenditures. This term re-
operating foundation for the tax year is any pri- fers only to those lobbying expenditures that are
vate foundation that: 1. Any attempt to influence any legislation made to influence legislation by attempting to
through an effort to affect the opinions of affect the opinions of the general public or any
1. Is an operating foundation, as described the general public or any segment thereof segment thereof.
previously; (grass roots lobbying), and
Lobbying nontaxable amount. The lobby-
2. Has been publicly supported for at least 2. Any attempt to influence any legislation ing nontaxable amount for any organization for
10 tax years or was an operating founda- through communication with any member any tax year is the lesser of $1,000,000 or:
tion on January 1, 1983, or for its last tax or employee of a legislative body or with
year ending before January 1, 1983; any government official or employee who 1. 20% of the exempt purpose expenditures
3. Has a governing body that, at all times may participate in the formulation of legis- if the exempt purpose expenditures aren't
during the tax year, is broadly representa- lation (direct lobbying). over $500,000,
tive of the general public and consists of However, the term attempting to influence legis- 2. $100,000 plus 15% of the excess of the
individuals no more than 25% of whom are lation doesn't include the following activities. exempt purpose expenditures over
disqualified individuals; and $500,000 if the exempt purpose expendi-
1. Making available the results of nonpartisan tures are over $500,000 but not over
4. Doesn't have any officer, at any time dur- analysis, study, or research. $1,000,000,
ing the tax year, who is a disqualified indi-
vidual. 2. Examining and discussing broad social, 3. $175,000 plus 10% of the excess of the
economic, and similar problems.
The foundation must obtain a determination let- exempt purpose expenditures over
ter from the IRS recognizing this special status 3. Providing technical advice or assistance $1,000,000 if the exempt purpose expen-
(see Existing organization, later). (where the advice would otherwise consti- ditures are over $1,000,000 but not over
tute the influencing of legislation) to a gov- $1,500,000, or
New organization. If you are applying for ernmental body or to a committee or other 4. $225,000 plus 5% of the excess of the ex-
recognition of exemption as an organization de- subdivision thereof in response to a writ- empt purpose expenditures over
scribed in section 501(c)(3) and you wish to es- ten request by that body or subdivision. $1,500,000 if the exempt purpose expen-
tablish that your organization is a private operat- 4. Appearing before, or communicating with, ditures are over $1,500,000.
ing foundation, you should complete Part VII of any legislative body about a possible deci- The term exempt purpose expenditures
your exemption application (Form 1023). sion of that body that might affect the exis- means the total of the amounts paid or incurred
tence of the organization, its powers and
Existing organization. If you are an existing duties, its tax-exempt status, or the deduc- (including depreciation and amortization, but
organization seeking reclassification as a pri- tion of contributions to the organization. not capital expenditures) by an organization for
vate operating foundation or as an exempt oper- the tax year to accomplish its exempt purposes.
ating foundation, you must file Form 8940, Re- 5. Communicating with a government official In addition, it includes:
quest for Miscellaneous Determination. or employee, other than:
1. Administrative expenses paid or incurred
a. A communication with a member or for the organization's exempt purposes,
employee of a legislative body (when and
Lobbying Expenditures the communication would otherwise
constitute the influencing of legisla- 2. Amounts paid or incurred for the purpose
In general, if a substantial part of the activities tion), or of influencing legislation, whether or not
the legislation promotes the organization's
of your organization consists of carrying on b. A communication with the principal exempt purposes.
propaganda or otherwise attempting to influ- purpose of influencing legislation.
ence legislation, your organization will not qual- Exempt purpose expenditures don't include
ify for exemption under section 501(c)(3). How- Also excluded are communications between an amounts paid or incurred to or for:
ever, a public charity (other than a church, an organization and its bona fide members about
legislation or proposed legislation of direct inter-
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1. A separate fundraising unit of the organi- fect for an organization and that organization 100% of the expenditure is imposed if the politi-
zation, or exceeds the lobbying expenditures limits, an ex- cal expenditure that resulted in the imposition of
2. One or more other organizations, if the cise tax of 25% of the excess lobbying expendi- the initial (first-tier) tax isn't corrected within a
amounts are paid or incurred primarily for tures for the tax year will be imposed. Excess specified period. These taxes must be paid by
fundraising. lobbying expenditures for a tax year, in this the organization.
case, means the greater of: 1 2
Taxes on managers. An initial tax of 2 / %
Grass roots nontaxable amount. The 1. The amount by which the lobbying expen- of the amount of certain political expenditures
grass roots nontaxable amount for any organi- ditures made by the organization during (up to $5,000 for each expenditure) is imposed
zation for any tax year is 25% of the lobbying the tax year are more than the lobbying on a manager of an organization who agrees to
nontaxable amount for the organization for that nontaxable amount for the organization for such expenditures knowing that they are politi-
tax year. that tax year, or cal expenditures. No tax will be imposed if the
Years for which election is effective. Once 2. The amount by which the grass roots ex- manager's agreement wasn't willful and was
an organization elects to come under these pro- penditures made by the organization dur- due to reasonable cause. A second tax of 50%
visions, the election will be in effect for all tax ing the tax year are more than the grass of the expenditures (up to $10,000 for each ex-
years that end after the date of the election and roots nontaxable amount for the organiza- penditure) is imposed on a manager if they re-
begin before the organization revokes this elec- tion for that tax year. fuse to agree to a correction of the expenditures
tion. that resulted in the imposition of the initial
Eligible organizations that have made the elec- (first-tier) tax. For purposes of these taxes, an
Note. These elective provisions for lobbying tion to be subject to the limits on lobbying ex- organization manager is generally an officer, di-
activities by public charities don't apply to a penditures and that owe the tax on excess lob- rector, trustee, or any employee having author-
church, an integrated auxiliary of a church or of bying expenditures (as computed in Part II-A of ity or responsibility concerning the organiza-
a convention or association of churches, or a Schedule C (Form 990)) must file Form 4720, tion's political expenditures. These taxes must
member of an affiliated group of organizations Return of Certain Excise Taxes Under Chapters be paid by the manager of the organization.
that includes a church, etc., or a private founda- 41 and 42 of the Internal Revenue Code, to re-
tion. Moreover, these provisions won't apply to port and pay the tax. Political expenditures. Generally, political
expenditures that will trigger these taxes are
any organization for which an election isn't in ef- Organization that no longer qualifies. An amounts paid or incurred by a section 501(c)(3)
fect. organization that no longer qualifies for exemp- organization in any participation or intervention
tion under section 501(c)(3) because of sub- in any political campaign for or against any can-
Expenditures of affiliated organizations. If stantial lobbying activities won't at any time didate for public office. Political expenditures in-
two or more section 501(c)(3) organizations are thereafter be treated as an organization descri- clude publication or distribution of statements
members of an affiliated group of organizations bed in section 501(c)(4). This provision, how- for these purposes. Political expenditures also
and at least one of these organizations has ever, doesn't apply to certain organizations include certain expenditures by organizations
made the election regarding the treatment of (churches, etc.) that can't make the election dis- that are formed primarily to promote the candi-
certain lobbying expenditures, then the determi- cussed earlier. dacy (or prospective candidacy) of an individual
nation as to whether excess lobbying expendi- for public office and by organizations that are ef-
tures has been made and the determination as Tax on disqualifying lobbying expenditures. fectively controlled by a candidate and are used
to whether the expenditure limits, described The law imposes a tax on certain organizations primarily to promote that candidate.
earlier, has been exceeded by more than 150% if they no longer qualify under section 501(c)(3)
will be made as though the affiliated group is by reason of having made disqualifying lobbying Correction of expenditure. A correction of
one organization. expenditures. An additional tax may be im- a political expenditure is the recovery, if possi-
If the group has excess lobbying expendi- posed on the managers of those organizations. ble, of all or part of the expenditure and the es-
tures, each organization for which the election is tablishment of safeguards to prevent future po-
effective for the year will be treated as an organ- Tax on organization. Organizations that litical expenditures.
ization that has excess lobbying expenditures in lose their exemption under section 501(c)(3)
an amount that equals the organization's pro- due to lobbying activities generally will be sub- Status after loss of exemption for lobbying
portionate share of the group's excess lobbying ject to an excise tax of 5% of the lobbying ex- or political activities. As explained earlier, an
expenditures. Further, if the expenditure limits penditures. The tax doesn't apply to private organization can lose its tax-exempt status un-
described in this section are exceeded by more foundations. Also, the tax doesn't apply to or- der section 501(c)(3) because of lobbying activ-
than 150%, each organization for which the ganizations that have elected the lobbying limits ities or participation or intervention in a political
election is effective for that year will lose its of section 501(h) or to churches or church-rela- campaign on behalf of or in opposition to a can-
tax-exempt status under section 501(c)(3). ted organizations that can't elect these limits. didate for public office. If this happens to an or-
Two organizations will be considered mem- This tax must be paid by the organization. ganization, it can't later qualify for exemption
under section 501(c)(4).
bers of an affiliated group of organizations if: Tax on managers. Managers may also be
1. The governing instrument of one of the or- liable for a 5% tax on the lobbying expenditures
ganizations requires it to be bound by de- that result in the disqualification of the organiza-
cisions of the other organization on legisla- tion. For the tax to apply, a manager would have
tive issues, or to agree to the expenditures knowing that the
expenditures were likely to result in the organi-
2. The governing board of one of the organi- zation's not being described in section 501(c)
zations includes persons who: (3). No tax will be imposed if the manager's
a. Are specifically designated represen- agreement isn't willful and is due to reasonable
tatives of the other organization or are cause.
members of the governing board, offi-
cers, or paid executive staff members Excise taxes on political expenditures. The
of the other organization; and law imposes an excise tax on the political ex-
penditures of section 501(c)(3) organizations. A
b. Have enough voting power to cause two-tier tax is imposed on both the organiza-
or prevent action on legislative issues tions and the managers of those organizations.
by the controlled organization by com-
bining their votes. Taxes on organizations. An initial tax of
10% of certain political expenditures is imposed
Tax on excess expenditures to influence on a charitable organization. A second tax of
legislation. If an election for a tax year is in ef-

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Nonprofit operation. You must submit evi- ever, see Deduction not allowed for dues used
dence that your organization is organized and for political or legislative activities, under 501(c)
will be operated on a nonprofit basis. However, (6) - Business Leagues, etc. for more informa-
4. such evidence, including the fact that your or- tion.
ganization is organized under a state law relat-
ing to nonprofit corporations, won't in itself es- For more information on social welfare or-
tablish a social welfare purpose. ganizations, see Life Cycle of a Social Welfare
Other Section Organization.
Social welfare. To establish that your organi-
501(c) zation is operated primarily to promote social Specific Organizations
welfare, you should submit evidence with your
application showing that your organization will The following information should be contained
Organizations operate primarily to further (in some way) the in the application form and accompanying state-
common good and general welfare of the peo- ments of certain types of civic leagues or social
ple of the community (such as by bringing about welfare organizations.
civic betterment and social improvements).
Introduction An organization that restricts the use of its Volunteer fire companies. If your organiza-
This chapter contains specific information for facilities to employees of selected corporations tion wishes to obtain exemption as a volunteer
certain organizations described in section and their guests is primarily benefiting a private fire company or similar organization, you should
501(c), other than those organizations that are group rather than the community. It therefore submit evidence that its members are actively
described in section 501(c)(3). Section 501(c) doesn't qualify as a section 501(c)(4) organiza- engaged in firefighting and similar disaster as-
(3) organizations are covered in chapter 3 of tion. Similarly, an organization formed to repre- sistance, whether it actually owns the firefight-
this publication. sent member-tenants of an apartment complex ing equipment, and whether it provides any as-
The Table of Contents at the beginning of doesn't qualify, since its activities benefit the sistance for its members, such as death and
this publication, as well as the Organization Ref- member-tenants and not all tenants in the com- medical benefits in case of injury to them.
erence Chart, may help you locate at a glance munity. However, an organization formed to pro- If your organization doesn't have an inde-
the type of organization discussed in this chap- mote the legal rights of all tenants in a particular pendent social purpose, such as providing rec-
ter. community may qualify under section 501(c)(4) reational facilities for members, it may be ex-
as a social welfare organization. empt under section 501(c)(3). In this event, your
organization should file Form 1023.
Political activity. Promoting social welfare
501(c)(4) - Civic Leagues doesn't include direct or indirect participation or Homeowners' associations. A membership
and Social Welfare intervention in political campaigns on behalf of organization formed by a real estate developer
or in opposition to any candidate for public of- to own and maintain common green areas,
Organizations fice. However, if you submit proof that your or- streets, and sidewalks and to enforce covenants
ganization is organized primarily to promote so- to preserve the appearance of the development
If your organization isn't organized for profit and cial welfare, it can obtain exemption even if it should show that it is operated for the benefit of
will be operated primarily to promote social wel- participates legally in some political activity on all the residents of the community. The term
fare to benefit the community, it may qualify for behalf of or in opposition to candidates for pub- community generally refers to a geographical
exemption under section 501(c)(4). lic office. See the discussion in chapter 2 under unit recognizable as a governmental subdivi-
Political Organization Income Tax Return. sion, unit, or district thereof. Whether a particu-
Notice requirement. Every new section lar association meets the requirement of bene-
501(c)(4) organization must use Form 8976, Social or recreational activity. If social activi- fiting a community depends on the facts and
Notice of Intent to Operate Under Section ties will be the primary purpose of your organi- circumstances of each case. Even if an area
501(c)(4), to provide notice to the Internal Reve- zation, you shouldn't file an application for ex- represented by an association isn't a commun-
nue Service. The organization must file Form emption as a social welfare organization but you ity, the association can still qualify for exemption
8976 within 60 days of establishment. Providing may qualify for exemption as a social club de- if its activities benefit a community.
notice on Form 8976 is not a determination that scribed in section 501(c)(7). The association should submit evidence that
the IRS recognizes your organization as exempt areas such as roadways and park land that it
under section 501(c)(4). Retirement benefit program. An organization owns and maintains are open to the general
established by its members that has as its pri- public and not just its own members. It also
Optional application for recognition of ex- mary activity providing supplemental retirement must show that it doesn't engage in exterior
emption. Your organization may (but is not re- benefits to its members or death benefits to maintenance of private homes.
quired to) file Form 1024-A, Application for Rec- their beneficiaries doesn't qualify as an exempt
ognition of Exemption under Section 501(c)(4), social welfare organization. It may qualify under A homeowners' association that isn't exempt
to apply for recognition of exemption from fed- another paragraph of section 501(c) depending under section 501(c)(4) and that is a condomin-
eral income tax under section 501(c)(4). The on all the facts. ium management association, a residential real
estate management association, or a timeshare
discussion that follows describes the informa- However, a nonprofit association that is es- association generally can elect, under the provi-
tion you must provide when applying. For appli- tablished, maintained, and funded by a local sions of section 528, to receive certain tax ben-
cation procedures, see chapter 1. government to provide the only retirement ben- efits that, in effect, permit it to exclude its ex-
To qualify for exemption under section efits to a class of employees may qualify as a empt function income from its gross income.
501(c)(4), no part of the organization's net earn- social welfare organization under section 501(c)
ings can inure to the benefit of any private (4). Other organizations. Other nonprofit organi-
zations that qualify as social welfare organiza-
shareholder or individual. If the organization Tax treatment of donations. Donations to vol- tions include:
provides an excess benefit to certain persons, unteer fire companies are deductible on the do- An organization operating an airport that is
an excise tax may be imposed. See Excise tax nor's federal income tax return, but only if made •
on land owned by a local government,
on excess benefit transactions, under Excess for exclusively public purposes. However, contri- which supervises the airport's operation,
Benefit Transactions in chapter 5 for more infor- butions to civic leagues or other section 501(c) and that serves the general public in an
mation about this tax. (4) organizations generally aren't deductible as area with no other airport;
Examples. Types of organizations that are charitable contributions for federal income tax A community association that works to im-
considered to be social welfare organizations purposes. They may be deductible as trade or •
are civic associations and volunteer fire compa- business expenses, if ordinary and necessary prove public services, housing, and resi-
dential parking; publishes a free commun-
nies. in the conduct of the taxpayer's business. How- ity newspaper; sponsors a community
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sports league, holiday programs, and ees or representatives of the employees (in the 3. Testing soil for members and nonmembers
meetings; and contracts with a private se- form of collective bargaining agents) and similar of the farm bureau on a cost basis, the re-
curity service to patrol the community; employee groups, evidence that an organiza- sults of the tests and other recommenda-
• A community association devoted to pre- tion's membership consists mainly of workers tions being furnished to the community
serving the community's traditions, archi- doesn't in itself indicate an exempt purpose. members to educate them in soil treat-
tecture, and appearance by representing it You must show in your application that your or- ment.
before the local legislature and administra- ganization has the purposes described in the 4. Guarding the purity of a specific breed of
tive agencies in zoning, traffic, and parking preceding paragraph. These purposes can be livestock.
matters; accomplished by a single labor organization
• An organization that tries to encourage in- acting alone or by several organizations acting 5. Encouraging improvements in the produc-
dustrial development and relieve unem- together through a separate organization. tion of fish on privately owned fish farms.
ployment in an area by making loans to 6. Negotiating with processors for the price
businesses so they will relocate to the Benefits to members. The payment by a la-
area; and bor organization of death, sick, accident, and to be paid to members for their crops.
• An organization that holds an annual festi- similar benefits to its individual members with For more information on agricultural or horti-
val of regional customs and traditions. funds contributed by its members, if made un- cultural organizations, see Life Cycle of an
der a plan to better the conditions of the mem- Agricultural or Horticultural Organization.
bers, doesn't preclude exemption as a labor or-
501(c)(5) - Labor, ganization. However, an organization doesn't
qualify for exemption as a labor organization if
Agricultural, and its primary activity is to provide a strike fund that 501(c)(6) -
is controlled by private individuals who control- Business Leagues, etc.
Horticultural led the organization that paid benefits to work-
Organizations ers. If your organization wants to apply for recogni-
For more information on labor organizations, tion of exemption from federal income tax as a
If you are a member of an organization that see Life Cycle of a Labor Organization. nonprofit business league, chamber of com-
wants to obtain recognition of exemption from merce, real estate board, or board of trade, it
should file Form 1024. For a discussion of the
federal income tax as a labor, agricultural, or Agricultural and procedure to follow, see chapter 1.
horticultural organization, you should submit an
application on Form 1024. You must indicate in Horticultural Organizations
Your organization must indicate in its appli-
your application for exemption and accompany- Agricultural and horticultural organizations are cation form and attached statements that no
ing statements that no part of the organization's connected with raising livestock, cultivating part of its net earnings will inure to the benefit of
net earnings will inure to the benefit of any land, raising and harvesting crops or aquatic re- any private shareholder or individual and that it
member. In addition, you should follow the pro- sources, cultivating useful or ornamental plants, isn't organized for profit or organized to engage
cedure for obtaining recognition of exempt sta- and similar pursuits. in an activity ordinarily carried on for profit (even
tus described in chapter 1. Submit any addi-
tional information that may be required, as For the purpose of these provisions, aquatic if the business is operated on a cooperative ba-
described in this section. resources include only animal or vegetable life, sis or produces only sufficient income to be
but not mineral resources. The term harvesting, self-sustaining).
Tax treatment of donations. Contributions to in this case, includes fishing and related pur- In addition, your organization must be pri-
labor, agricultural, and horticultural organiza- suits. marily engaged in activities or functions that are
tions aren't deductible as charitable contribu- Agricultural organizations are often de- the basis for its exemption. It must be primarily
tions on the donor's federal income tax return. signed to encourage the development of better supported by membership dues and other in-
However, such payments may be deductible as agricultural and horticultural products through a come from activities substantially related to its
business expenses if they are ordinary and nec- system of awards, using income from entry exempt purpose.
essary in the conduct of the taxpayer's trade or fees, gate receipts, and donations to meet the
business. For more information about certain necessary expenses of upkeep and operation. A business league, in general, is an associa-
limits affecting the deductibility of these busi- When the activities are directed toward the im- tion of persons having some common business
ness expenses, see Deduction not allowed for provement of marketing or other business con- interest, the purpose of which is to promote that
dues used for political or legislative activities, ditions in one or more lines of business, rather common interest and not to engage in a regular
under 501(c)(6) - Business Leagues, etc. than the improvement of production techniques business of a kind ordinarily carried on for profit.
or the betterment of the conditions of persons Trade associations and professional associa-
Labor Organizations engaged in agriculture, the organization must tions are considered business leagues.
qualify for exemption as a business league,
A labor organization is an association of work- board of trade, or other organization, as dis- Chamber of commerce. A chamber of com-
ers who have combined to protect and promote cussed next in the section on 501(c)(6) organi- merce is usually composed of the merchants
the interests of the members by bargaining col- zations. and traders of a city.
lectively with their employers to secure better The primary purpose of exempt agricultural Board of trade. A board of trade often con-
working conditions, wages, and similar benefits. and horticultural organizations must be to better sists of persons engaged in similar lines of busi-
To show that your organization has the pur- the conditions of those engaged in agriculture ness. For example, a nonprofit organization
pose of a labor organization, you should include or horticulture, develop more efficiency in agri- formed to regulate the sale of a specified agri-
in your organizing document or accompanying culture or horticulture, or improve the products. cultural commodity to assure equal treatment of
statements (submitted with your exemption ap- The following list contains some examples of producers, warehouse workers, and buyers is a
plication) information establishing that the or- activities that show an agricultural or horticul- board of trade.
ganization is organized to better the conditions tural purpose. Chambers of commerce and boards of trade
of workers, improve the grade of their products, 1. Promoting various cooperative agricul- usually promote the common economic inter-
and develop a higher degree of efficiency in tural, horticultural, and civic activities ests of all the commercial enterprises in a given
their respective occupations. In addition, no net among rural residents by a state, farm, or trade community.
earnings of the organization can inure to the home bureau. Real estate board. A real estate board con-
benefit of any member.
2. Exhibiting livestock, farm products, and sists of members interested in improving the
Composition of membership. While a labor other characteristic features of agriculture business conditions in the real estate field. It
organization is generally composed of employ- and horticulture. isn't organized for profit and no part of the net
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earnings inures to the benefit of any private board of trade and isn't exempt under section substantially all of its activities are for these pur-
shareholder or individual. 501(c)(6). poses, it should file Form 1024 to apply for rec-
ognition of exemption from federal income tax.
Professional football leagues. The Internal Legislative activity. An organization that is ex-
Revenue Code specifically defines professional empt under section 501(c)(6) can work for the In applying for recognition of exemption, you
football leagues as exempt organizations under enactment of laws to advance the common should submit the information described in this
section 501(c)(6). They are exempt whether or business interests of the organization's mem- section. Also see chapter 1 for the procedures
not they administer a pension fund for football bers. to follow.
players. Typical organizations that should file for rec-
Deduction not allowed for dues used for po- ognition of exemption as social clubs include:
General purpose. You must indicate in the litical or legislative activities. A taxpayer College alumni associations that aren't de-
material submitted with your application that can't deduct the part of dues or other payments •
scribed in chapter 3 under Alumni associa-
your organization will be devoted to the im- to a business league, trade association, labor tion;
provement of business conditions of one or union, or similar organization that is reported to College fraternities or sororities operating
more lines of business as distinguished from the taxpayer by the organization as having been •
chapter houses for students;
the performance of particular services for indi- used for any of the following activities. Country clubs;
•
vidual persons. It must be shown that the condi- 1. Influencing legislation. • Amateur hunting, fishing, tennis, swim-
tions of a particular trade or the interests of the ming, and other sport clubs;
community will be advanced. Merely indicating 2. Participating or intervening in a political Dinner clubs that provide a meeting place,
the name of the organization or the object of the campaign for, or against, any candidate for •
library, and dining room for members;
local statute under which it is created isn't public office. Hobby clubs;
•
enough to demonstrate the required general 3. Trying to influence the general public, or • Garden clubs; and
purpose. part of the general public, with respect to • Variety clubs.
Line of business. This term generally re- elections, legislative matters, or referen-
fers either to an entire industry or to all compo- dums (also known as grass roots lobby- Discrimination prohibited. Your organization
nents of an industry within a geographic area. It ing). won't be recognized as tax exempt if its charter,
bylaws, or other governing instrument, or any
doesn't include a group composed of busi- 4. Communicating directly with certain exec- written policy statement provides for discrimina-
nesses that market a particular brand within an utive branch officials to try to influence tion against any person on the basis of race,
industry. their official actions or positions. color, or religion.
Common business interest. A common busi- See Dues Used for Lobbying or Political Activi- However, a club that in good faith limits its
ness interest of all members of the organization ties under Required Disclosures in chapter 2 for membership to the members of a particular reli-
must be established by the application docu- more information. gion to further the teachings or principles of that
ments. religion and not to exclude individuals of a par-
De minimis exception. In-house expendi- ticular race or color won't be considered as dis-
Examples. Activities that would tend to il- tures of $2,000 or less for the year for activities criminating on the basis of religion. Also, the re-
lustrate a common business interest are: (1) – (4) listed earlier won't prevent a deduction striction on religious discrimination doesn't
1. Promotion of higher business standards for dues if the dues meet all other tests to be apply to a club that is an auxiliary of a fraternal
and better business methods and encour- deductible as a business expense. beneficiary society (discussed later) if that soci-
agement of uniformity and cooperation by Grass roots lobbying. A tax-exempt trade ety is described in section 501(c)(8) and ex-
a retail merchants association, association, labor union, or similar organization empt from tax under section 501(a) and limits
2. Education of the public in the use of credit, is considered to be engaging in grass roots lob- its membership to the members of a particular
bying if it contacts prospective members or calls religion.
3. Establishment of uniform casualty rates upon its own members to contact their employ-
and compilation of statistical information ees and customers for the purpose of urging Private benefit prohibited. No part of the or-
by an insurance rating bureau operated by such persons to communicate with their elected ganization's net earnings can inure to the bene-
casualty insurance companies, state or Congressional representatives to sup- fit of any person having a personal and private
4. Establishment and maintenance of the in- port the promotion, defeat, or repeal of legisla- interest in the activities of the organization. For
tegrity of a local commercial market, tion that is of direct interest to the organization. purposes of this requirement, it isn't necessary
Any dues or assessments directly related to that net earnings be actually distributed. Even
5. Operation of a trade publication primarily such activities aren't deductible by the taxpayer, undistributed earnings can benefit members.
intended to benefit an entire industry, and since the individuals being contacted, who Examples of this include a decrease in mem-
6. Encouragement of the use of goods and aren't members of the organization, are a seg- bership dues or an increase in the services the
services of an entire industry (such as a ment of the general public. club provides to its members without a corre-
lawyer referral service whose main pur- sponding increase in dues or other fees paid for
pose is to introduce individuals to the use Tax treatment of donations. Contributions to club support. However, fixed-fee payments to
of the legal profession in the hope that organizations described in this section aren't members who bring new members into the club
they will enter into lawyer-client relation- deductible as charitable contributions on the aren't an inurement of the club's net earnings, if
ships on a paying basis as a result). donor's federal income tax return. They may be the payments are reasonable compensation for
deductible as trade or business expenses if or- performance of a necessary administrative
Improvement of business conditions. dinary and necessary in the conduct of the tax- service.
Generally, this must be shown to be the pur- payer's business.
Purposes. To show that your organization pos-
pose of the organization. This isn't established For more information on business leagues, sesses the characteristics of a club within the
by evidence of particular services that provide a see Life Cycle of a Business League (Trade meaning of the exemption law, you should sub-
convenience or economy to individual members Association) on IRS.gov. mit evidence with your application that personal
in their businesses, such as advertising that
carries the name of members, interest-free contact, commingling, and fellowship exist
loans, assigning exclusive franchise areas, op- among members. You must show that members
eration of a real estate multiple listing system, or 501(c)(7) - Social and are bound together by a common objective of
operation of a credit reporting agency. Recreation Clubs pleasure, recreation, and other nonprofitable
purposes.
Stock or commodity exchange. A stock or If your club is organized for pleasure, recreation, Fellowship need not be present between
commodity exchange isn't a business league, and other similar nonprofitable purposes and each member and every other member of a
chamber of commerce, real estate board, or club if it is a material part in the life of the
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organization. A statewide or nationwide organi- income, and thus is included as income from If your organization is controlled by a central
zation that is made up of individual members, sources outside of the membership. Of the 35% organization, you should check with your con-
but is divided into local groups, satisfies this re- gross receipts listed above, up to 15% of the trolling organization to determine whether your
quirement if fellowship is a material part of the gross receipts can be derived from the use of unit has been included in a group exemption let-
life of each local group. the club's facilities or services by the general ter or can be added. If so, your organization
The term other nonprofitable purposes public. If an organization has outside income need not apply for individual recognition of ex-
means other purposes similar to pleasure and that is more than these limits, all the facts and emption. For more information, see Group Ex-
recreation. For example, a club that, in addition circumstances will be taken into account in de- emption Letter in chapter 1 of this publication.
to its social activities, has a plan for the pay- termining whether the organization qualifies for
ment of sick and death benefits isn't operating exempt status. Tax treatment of donations. Donations by an
exclusively for pleasure, recreation, and other individual to a domestic fraternal beneficiary so-
nonprofitable purposes. Gross receipts. Gross receipts, for this ciety or a domestic fraternal society operating
purpose, are receipts from the normal and usual under the lodge system are deductible as chari-
Limited membership. The membership in (traditionally conducted) activities of the club. table contributions only if used exclusively for
a social club must be limited. To show that your These receipts include charges, admissions, religious, charitable, scientific, literary, or educa-
organization has a purpose that would charac- membership fees, dues, assessments, invest- tional purposes or for the prevention of cruelty
terize it as a club, you should submit evidence ment income, and normal recurring capital to children or animals.
with your application that there are limits on ad- gains on investments. Receipts don't include in-
mission to membership consistent with the itiation fees and capital contributions. Unusual
character of the club. amounts of income, such as from the sale of a Fraternal Beneficiary
A social club that issues corporate member- clubhouse or similar facility, aren't included in Societies (501(c)(8))
ship is dealing with the general public in the gross receipts or in figuring the percentage
form of the corporation's employees. Corporate limits. A fraternal beneficiary society, order, or associ-
members of a club aren't the kind of members ation must file an application for recognition of
contemplated by the law. Gross receipts from Nontraditional activities. Traditional busi- exemption from federal income tax on Form
these members would be a factor in determin- ness activities are those that further a social 1024. The application and accompanying state-
ing whether the club qualifies as a social club. club's exempt purposes. Nontraditional busi- ments should establish that the organization:
See Gross receipts from nonmembership ness activities don't further the exempt purpo-
sources., later. Bona fide individual member- ses of a social club even if conducted solely on 1. Is a fraternal organization;
ships paid for by a corporation wouldn't have an a membership basis. Nontraditional business 2. Operates under the lodge system or for
effect on the gross receipts source. activities are prohibited (subject to an insub- the exclusive benefit of the members of a
The fact that a social club may have an as- stantial, trivial, and nonrecurrent test) for busi- fraternal organization itself operating un-
sociate (nonvoting) class of membership won't nesses conducted with both members and non- der the lodge system; and
be, in and of itself, a cause for nonrecognition of members. Examples of nontraditional business
exemption. However, if one membership class activities include sale of package liquor, 3. Provides for the payment of life, sick, acci-
pays substantially lower dues and fees than an- take-out food, and long-term room rental. dent, or other benefits to the members of
the society, order, or association or their
other membership class, although both classes Fraternity foundations. If your organization is dependents.
enjoy the same rights and privileges in using the a foundation formed for the exclusive purpose
club facilities, there may be an inurement of in- of acquiring and leasing a chapter house to a Lodge system. Operating under the lodge
come to the benefited class, resulting in a de- local fraternity chapter or sorority chapter main- system means carrying on activities under a
nial of the club's exemption. tained at an educational institution and doesn't form of organization that comprises local
Support. In general, your club should be engage in any social or recreational activities, it branches, chartered by a parent organization
supported solely by membership fees, dues, may be a title holding corporation (discussed and largely self-governing, called lodges, chap-
and assessments. However, if otherwise enti- later under section 501(c)(2) organizations and ters, or the like.
tled to exemption, your club won't be disquali- under section 501(c)(25) organizations) rather
fied because it raises revenue from members than a social club. Payment of benefits. It isn't essential that
through the use of club facilities or in connec- every member be covered by the society's pro-
tion with club activities. Tax treatment of donations. Donations to ex- gram of sick, accident, or death benefits. An or-
empt social and recreation clubs aren't deducti- ganization can qualify for exemption if most of
Business activities. If your club will engage in ble as charitable contributions on the donor's its members are eligible for benefits, and the
business, such as selling real estate, timber, or federal income tax return. benefits are paid from contributions or dues
other products or services, it generally will be paid by those members.
denied exemption. However, evidence submit- The benefits must be limited to members
ted with your application form that your organi- 501(c)(8) and and their dependents. If members will have the
zation will provide meals, refreshments, or ser- ability to confer benefits to other than them-
vices related to its exempt purposes only to its 501(c)(10) - Fraternal selves and their dependents, exemption won't
be recognized.
own members or their dependents or guests Beneficiary Societies
won't cause denial of exemption. Whole-life insurance. Whole-life insur-
Facilities open to public. Evidence that and Domestic Fraternal ance constitutes a life benefit under section
your club's facilities will be open to the general Societies 501(c)(8) even though the policy may contain
public (persons other than members or their de- investment features such as a cash surrender
pendents or guests) may cause denial of ex- This section describes the information to be value or a policy loan.
emption. This doesn't mean, however, that any provided upon application for recognition of ex- Reinsurance pool. Payments by a fraternal
dealing with outsiders will automatically deprive emption by two types of fraternal societies: ben- beneficiary society into a state-sponsored rein-
a club of exemption. eficiary and domestic. The major distinction is surance pool that protects participating insurers
Gross receipts from nonmembership that fraternal beneficiary societies provide for against excessive losses on major medical
sources. A section 501(c)(7) organization can the payment of life, sick, accident, or other ben- health and accident insurance won't preclude
receive up to 35% of its gross receipts, includ- efits to their members or their dependents, exemption as a fraternal beneficiary society.
ing investment income, from sources outside of while domestic fraternal societies don't provide
its membership without losing its tax-exempt these benefits but rather devote their earnings
status. Income from nontraditional business ac- to fraternal, religious, charitable, etc., purposes.
tivity with members isn't exempt function The procedures to follow in applying for recog-
nition of exemption are described in chapter 1.

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Domestic Fraternal Societies                            1024-A. The organization must submit evidence           for section 501(c)(3) organizations in chapter 3 
                                                        that:                                                   under Application for Recognition of Exemption.
(501(c)(10))
                                                        1. It is of a purely local character;                   Membership. Membership of a section 501(c)
A domestic fraternal society, order, or associa-                                                                (9) organization must consist of individuals who 
tion  must  file  an  application  for  recognition  of 2. Its membership is limited to employees of 
exemption  from  federal  income  tax  on  Form               a designated person or persons in a par-          are  employees  and  have  an  employment-rela-
1024. The application and accompanying state-                 ticular locality; and                             ted common bond. This common bond can be a 
                                                                                                                common  employer  (or  affiliated  employers), 
ments should establish that the organization:           3. Its net earnings will be devoted exclusively         coverage under one or more collective bargain-
1. Is a domestic fraternal organization organ-                to charitable, educational, or recreational       ing  agreements,  membership  in  a  labor  union, 
     ized in the United States;                               purposes.                                         or  membership  in  one  or  more  locals  of  a  na-
2. Operates under the lodge system;                     A  local  association  of  employees  that  has         tional or international labor union.
                                                        established  a  system  of  paying  retirement  or      The  membership  of  an  association  can  in-
3. Devotes its net earnings exclusively to reli-        death  benefits,  or  both,  to  its  members  won't    clude  some  individuals  who  aren't  employees, 
     gious, charitable, scientific, literary, educa-    qualify  for  exemption  since  the  payment  of        provided  they  have  an  employment-related 
     tional, and fraternal purposes; and                these  benefits  isn't  considered  as  being  for      bond  with  the  employee-members.  For  exam-
4. Doesn’t provide for the payment of life,             charitable,  educational,  or  recreational  purpo-     ple, the owner of a business whose employees 
     sick, accident, or other benefits to its           ses. Similarly, a local association of employees        are members of the association can be a mem-
     members.                                           that is operated primarily as a cooperative buy-        ber.  An  association  will  be  considered  com-
                                                        ing  service  for  its  members  in  order  to  obtain  posed of employees if 90% of its total member-
The organization can arrange with insurance             discount prices on merchandise, services, and           ship  on  1  day  of  each  quarter  of  its  tax  year 
companies  to  provide  optional  insurance  to  its    activities doesn't qualify for exemption.               consists of employees.
members  without  jeopardizing  its  exempt  sta-
tus.                                                                                                            Employees.  Employees include individuals 
                                                        Voluntary Employees'                                    who  became  entitled  to  membership  because 
                                                        Beneficiary Associations                                they are or were employees. For example, an in-
                                                                                                                dividual will qualify as an employee even though 
501(c)(4), 501(c)(9), and                               (501(c)(9))                                             the  individual  is  on  a  leave  of  absence  or  has 
501(c)(17) -                                            An application for recognition of exemption as a        been terminated due to retirement, disability, or 
                                                        voluntary  employees'  beneficiary  association         layoff.
Employees'                                              must be filed on Form 1024. The material sub-           Generally, membership is voluntary if an af-
Associations                                            mitted with the application must show that your         firmative  act  is  required  on  the  part  of  an  em-
                                                        organization:                                           ployee to become a member. Conversely, mem-
                                                                                                                bership  is  involuntary  if  the  designation  as  a 
This  section  describes  the  information  to  be      1. Is a voluntary association of employees;             member  is  due  to  employee  status.  However, 
provided upon application for recognition of ex-                                                                an  association  will  be  considered  voluntary  if 
emption  by  the  following  types  of  employees'      2. Will provide for payment of life, sick, acci-
associations:                                                 dent, or other benefits to members or their       employees  are  required  to  be  members  of  the 
                                                              dependents or designated beneficiaries            organization as a condition of their employment 
1. A voluntary employees' beneficiary associ-                 and substantially all of its operations are       and they don't incur a detriment (such as a pay-
     ation (including federal employees' associ-              for this purpose; and                             roll deduction) as a result of their membership. 
     ations) organized to pay life, sick, acci-                                                                 An employer has not imposed involuntary mem-
     dent, and similar benefits to members or           3. Won't allow any of its net earnings to inure         bership  on  the  employee  if  membership  is  re-
     their dependents, or designated beneficia-               to the benefit of any private individual or       quired  as  the  result  of  a  collective  bargaining 
     ries, if no part of the net earnings of the as-          shareholder except in the form of sched-          agreement or as an incident of membership in a 
     sociation inures to the benefit of any pri-              uled benefit payments.                            labor organization.
     vate shareholder or individual; and                To be complete, an application must include a           Payment of benefits.  The information submit-
2. A supplemental unemployment benefit                  copy of the document (such as the trust instru-         ted  with  your  application  must  show  that  your 
     trust whose primary purpose is providing           ment) by which the organization was created; a          organization will pay life, sick, accident, supple-
     for payment of supplemental unemploy-              full description of the benefits available to par-      mental unemployment, or other similar benefits. 
     ment benefits.                                     ticipants and the terms and conditions of eligi-        The  benefits  can  be  provided  directly  by  your 
                                                        bility  for  benefits  (usually  contained  in  a  plan association  or  indirectly  by  your  association 
Both the application form to file and the in-           document);  and,  if  providing  benefits  pursuant     through the payments of premiums to an insur-
formation  to  provide  are  discussed  later  under    to a collective bargaining agreement, a copy of         ance  company  (or  fees  to  a  medical  clinic). 
the section that describes your employee asso-          that agreement.                                         Benefits can be in the form of medical, clinical, 
ciation. Chapter 1 describes the procedures to 
                                                                                                                or hospital services, transportation furnished for 
follow in applying for exemption.                       Note. Under section 4976, the reversion of              medical care, or money payments.
                                                        funds  from  a  section  501(c)(9)  organization  to 
Tax  treatment  of  donations.    Donations  to         the employer who created the beneficiary asso-          Nondiscrimination requirements.     An organi-
these organizations aren't deductible as charita-       ciation  may  subject  the  employer  to  a  100%       zation that is part of a plan won't be exempt un-
ble contributions on the donor's federal income         penalty excise tax on the amount of the rever-          less  the  plan  meets  certain  nondiscrimination 
tax return.                                             sion.                                                   requirements.  However,  if  the  organization  is 
                                                                                                                part  of  a  plan  that  is  a  collective  bargaining 
Local Employees'                                        Notice requirement. An organization won't be            agreement  that  was  the  subject  of  good  faith 
                                                        considered  tax  exempt  under  this  section  un-      bargaining  between  employee  organizations 
Associations (501(c)(4))                                less the organization gives notice to the IRS that      and  employers,  the  plan  need  not  meet  these 
                                                        it  is  applying  for  recognition  of  exempt  status. requirements  for  the  organization  to  qualify  as 
A local association of employees whose mem-             The  organization  gives  notice  by  filing  Form      tax exempt.
bership is limited to employees of a designated         1024. If the notice isn't given by 15 months after      A plan meets the nondiscrimination require-
person  or  persons  in  a  particular  municipality,   the end of the month in which the organization          ments  only  if  both  of  the  following  statements 
and  whose  income  will  be  devoted  exclusively      was created, the organization won't be exempt           are true.
to charitable, educational, or recreational purpo-      for any period before notice is given. An exten-
ses. A local employees' association must apply          sion of time for filing the notice can be granted       1. Each class of benefits under the plan is 
for  recognition  of  exemption  by  filing  Form       under the same procedures as those described            provided under a classification of employ-
                                                                                                                ees that is set forth in the plan and doesn't 

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discriminate in favor of employees who are One employee. A trust created to provide ben- Discrimination in benefits. Neither the terms
highly compensated individuals. efits to one employee won't qualify as a volun- of the plan nor the actual payment of benefits
2. The benefits provided under each class of tary employees' beneficiary association under can be discriminatory in favor of the company's
benefits don't discriminate in favor of section 501(c)(9). officers, stockholders, supervisors, or highly
highly compensated individuals. paid employees. However, a plan isn't discrimi-
natory merely because benefits bear a uniform
Supplemental
A life insurance, disability, severance pay, or relationship to compensation or the rate of com-
supplemental unemployment compensation Unemployment Benefit pensation.
benefit doesn't discriminate in favor of highly Trusts (501(c)(17))
compensated individuals merely because the Prohibited transactions and exemption. If
benefits available bear a uniform relationship to A trust or trusts forming part of a written plan your organization is a supplemental unemploy-
the total compensation, or the basic or regular (established and maintained by an employer, ment benefit trust and has received a denial of
rate of compensation, of employees covered by the employees, or both) providing solely for the exemption because it engaged in a prohibited
the plan. payment of supplemental unemployment com- transaction, as defined by section 503(b), it can
If a plan provides a benefit for which there is pensation benefits must file the application for file a claim for exemption in any tax year follow-
a nondiscrimination provision provided under recognition of exemption on Form 1024. The ing the tax year in which the notice of denial
Chapter 1 of the Internal Revenue Code as a trust must be a valid, existing trust under local was issued. It must file the claim on Form 1024.
condition of that benefit being excluded from law and must be evidenced by an executed The organization must include a written declara-
gross income, these nondiscrimination require- document. A conformed copy of the plan of tion that it won't knowingly again engage in a
ments don't apply. The benefit will be consid- which the trust is a part should be attached to prohibited transaction. An authorized principal
ered nondiscriminatory only if it meets the non- the application. officer of your organization must make this dec-
discrimination provision of the applicable Code laration under the penalties of perjury.
section. For example, benefits provided under a To be complete, an application must include If your organization has satisfied all require-
medical reimbursement plan would meet the a copy of the document (such as the trust in- ments as a supplemental unemployment benefit
nondiscrimination requirements for an associa- strument) by which the organization was cre- trust described in section 501(c)(17), it will be
tion, if the benefits meet the nondiscrimination ated; a full description of the benefits available notified in writing that it has been recognized as
requirements of section 105(h)(3) and 105(h) to participants and the terms and conditions of exempt. However, the organization will be ex-
(4). eligibility for benefits (usually contained in a empt only for those tax years after the tax year
plan document); and, if providing benefits pur- in which the claim for exemption (Form 1024) is
Excluded employees. Certain employees suant to a collective bargaining agreement, a filed. Tax year in this case means the estab-
who aren't covered by a plan can be excluded copy of that agreement. lished annual accounting period of the organi-
from consideration in applying these require- zation or, if the organization has not established
ments. These include employees: Note. Under section 4976, the reversion of an annual accounting period, the calendar year.
1. Who haven't completed 3 years of service, funds from a section 501(c)(17) organization to For more information about the requirements for
the employer who created the supplemental un- re-establishing an exemption previously denied,
2. Who haven't attained age 21, employment benefit trust may subject the em- contact the IRS.
3. Who are seasonal or less than half-time ployer to a 100% penalty excise tax on the
employees, amount of the reversion.
501(c)(12) - Local
4. Who aren't in the plan and who are inclu- Notice requirement. An organization won't be
ded in a unit of employees covered by a considered tax exempt under this section un- Benevolent Life
collective bargaining agreement if the less the organization gives notice to the IRS that
class of benefits involved was the subject it is applying for recognition of exempt status. Insurance Associations,
of good faith bargaining, or The organization gives notice by filing Form Mutual Irrigation and
5. Who are nonresident aliens and who re- 1024. If the notice isn't given by 15 months after
ceive no earned income from the employer the end of the month in which the organization Telephone Companies,
that has United States sourced income. was created, the organization won't be exempt
for any period before such notice is given. An and Like Organizations
Highly compensated individual. A highly extension of time for filing the notice is granted
compensated individual is one who: under the same procedures as those described Each of the following organizations apply for
1. Owned 5% or more of the employer at any for section 501(c)(3) organizations in chapter 3 recognition of exemption from federal income
time during the current year or the preced- under Application for Recognition of Exemption. tax by filing Form 1024.
ing year, 1. Benevolent life insurance associations of a
Types of payments. You must show that the purely local character and like organiza-
2. Received more than $125,000 in compen- supplemental unemployment compensation tions.
sation from the employer for the preceding benefits will be benefits paid to an employee
year (the amount is annualized for infla- because of the employee's involuntary separa- 2. Mutual ditch or irrigation companies and
tion. Go to IRS.gov, and search “Pension tion from employment (whether or not the sepa- like organizations.
Plan Limitation” for the year), and ration is temporary) resulting directly from a re- 3. Mutual or cooperative telephone compa-
3. Was among the top 20% of employees by duction-in-force, discontinuance of a plant or nies and like organizations.
compensation for the preceding year. operation, or other similar conditions. In addi-
tion, sickness and accident benefits (but not va- A like organization is an organization that per-
However, the employer can choose not to have cation, retirement, or death benefits) may be in- forms a service comparable to that performed
(3) apply. cluded in the plan if these are subordinate to the by any one of the above organizations.
unemployment compensation benefits.
Aggregation rules. The employer can The information to be provided upon appli-
cation by each of these organizations is descri-
choose to treat two or more plans as one plan Diversion of funds. It must be impossible un- bed in this section. For information as to the
for purposes of meeting the nondiscrimination der the plan (at any time before the satisfaction procedures to follow in applying for exemption,
requirements. Employees of controlled groups of all liabilities with respect to employees under see chapter 1.
of corporations, trades, or businesses under the plan) to use or to divert any of the corpus or
common control, or members of an affiliated income of the trust to any purpose other than General requirements. These organizations
service group, are treated as employees of a the payment of supplemental unemployment must use their income solely to cover losses
single employer. Leased employees are treated compensation benefits (or sickness or accident and expenses, with any excess being returned
as employees of the recipient. benefits to the extent just explained). to members or retained to cover future losses
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and expenses. They must collect at least 85% Mutual or cooperative telephone company. 6. Grants, contributions, and assistance pro-
of their income from members for the sole pur- A mutual or cooperative telephone company will vided under the Robert T. Stafford Disaster
pose of meeting losses and expenses. exclude from the computation of the 85% re- Relief and Emergency Assistance Act or
quirement any income received or accrued by local, state, or regional governmental
Mutual character. These organizations, other from: entities for disasters or emergencies; and
than benevolent life insurance associations, certain grants or contributions provided by
must be organized and operated on a mutual or 1. A nonmember telephone company for the a government entity for electric, communi-
cooperative basis. They are associations of per- performance of communication services cations, broadband, Internet, or other util-
sons or organizations, or both, banded together involving the completion of long distance ity facilities or services. This is effective for
to provide themselves a mutually desirable calls to, from, or between members of the taxable years beginning after December
service approximately at cost and on a mutual mutual or cooperative telephone company; 31, 2017.
basis. To maintain the mutual characteristic of 2. Qualified pole rentals;
democratic ownership and control, they must be An electric cooperative's sale of excess fuel
so organized and operated that their members 3. The sale of display listings in a directory at cost in the year of purchase isn't income for
have the right to choose the management, to re- furnished to its members; or purposes of determining compliance with the
ceive services at cost, to receive a return of any 4. The prepayment of a loan created in 1987, 85% requirement.
excess of payments over losses and expenses, 1988, or 1989, under section 306A, 306B, Qualified pole rental. The term qualified
and to share in any assets upon dissolution. or 311 of the Rural Electrification Act of pole rental means any rental of a pole (or other
The rights and interests of members in the 1936; structure used to support wires) if the pole (or
annual savings of the organization must be de- 5. Grants, contributions, and assistance pro- other structure) is used:
termined in proportion to their business with the vided under the Robert T. Stafford Disaster 1. By the telephone or electric company to
organization. Upon dissolution, gains from the Relief and Emergency Assistance Act or support one or more wires that are used
sale of appreciated assets must be distributed by local, state, or regional governmental by the company in providing telephone or
to all persons who were members during the entities for disasters or emergencies; and electric services to its members, and
period the assets were owned by the organiza- certain grants or contributions provided by
tion in proportion to the amount of business a government entity for electric, communi- 2. Pursuant to the rental to support one or
done during that period. The bylaws mustn't cations, broadband, Internet, or other util- more wires (in addition to wires described
provide for forfeiture of a member's rights and ity facilities or services. This is effective for in (1)) for use in connection with the trans-
interest upon withdrawal or termination. taxable years beginning after December mission by wire of electricity or of tele-
Membership. Membership of a mutual or- 31, 2017. phone or other communications.
ganization consists of those who join the organi- The term rental, for this purpose, includes
zation to obtain its services, and have a voice in Mutual or cooperative electric company. A any sale of the right to use the pole (or other
its management. In a stock company, the stock- mutual or cooperative electric company will ex- structure).
holders are members. However, a mutual life in- clude from the computation of the 85% require-
surance organization can't have policyholders ment any income received or accrued from: The 85% requirement is applied on the ba-
other than its members. 1. Qualified pole rentals; sis of an annual accounting period. Failure of an
organization to meet the requirement in a partic-
Losses and expenses. In furnishing serv- 2. Any provision or sale of electric energy ular year precludes exemption for that year, but
ices substantially at cost, an organization must transmission services or ancillary service has no effect upon exemption for years in which
use its income solely for paying losses and ex- if the services are provided on a nondiscri- the 85% requirement is met.
penses. Any excess income not retained in rea- minatory open access basis under an
sonable reserves for future losses and expen- open-access transmission tariff approved Gain from the sale or conversion of the or-
ses belongs to members in proportion to their or accepted by the Federal Energy Regu- ganization's property isn't considered an
patronage or business done with the organiza- latory Commission (FERC) or under an in- amount received from members in determining
tion. If such patronage refunds are retained in dependent transmission provider agree- whether the organization's income consists of
reasonable amounts for purposes of expanding ment approved or accepted by FERC amounts collected from members.
and improving facilities, retiring capital indebt- (other than income received or accrued di-
edness, acquiring other assets, and unexpec- rectly or indirectly from a member); Because the 85% income test is based on
ted expenses, the organization must maintain gross income, capital losses can't be used to
records sufficient to reflect the equity of each 3. The provision or sale of electric energy reduce capital gains for purposes of this test.
member in the assets acquired with the funds. distribution services or ancillary services if
the services are provided on a nondiscri- Example. The books of an organization re-
Distributions of proceeds. The coopera- minatory open-access basis to distribute flect the following for the calendar year.
tive may distribute the unexpended balance of electric energy not owned by the mutual or
collections or assessments remaining on hand electric cooperative company: Collections from members . . . . . . . . . . . . . $2,400
at the end of the year to members or patrons Short-term capital gains . . . . . . . . . . . . . . . 600
prorated on the basis of their patronage or busi- a. To end-users who are served by distri- Short-term capital losses . . . . . . . . . . . . . . 400
ness done with the cooperative. Such distribu- bution facilities not owned by the com- Other income . . . . . . . . . . . . . . . . . . . . . . None
tion represents a refund in the costs of services pany or any of its members (other Gross income ($2,400 + $600 = $3000) . . . . 100%
rendered to the member. than income received or accrued di- Collected from members ($2,400) . . . . . . . . 80%
rectly or indirectly from a member), or
Since amounts collected from members
b. Generated by a generation facility not don't constitute at least 85% of gross income,
The 85% Requirement owned or leased by the company or the organization isn't entitled to exemption from
All of the organizations listed above must sub- any of its members and which is di- federal income tax for the year.
mit evidence with their application that they re- rectly connected to distribution facili- Voluntary contributions in the nature of gifts
ceive 85% or more of their gross income from ties owned by the company or any of aren't taken into account for purposes of the
their members for the sole purpose of meeting its members (other than income re- 85% computation.
losses and expenses. Nevertheless, certain ceived or accrued directly or indirectly Other tax-exempt income besides gifts is
items of income are excluded from the compu- from a member), considered as income received from other than
tation of the 85% requirement if the organization 4. Any nuclear decommissioning transaction, members in applying the 85% test.
is a mutual or cooperative telephone or electric If the 85% test isn't met, your organization, if
company. 5. Any asset exchange or conversion trans- classifiable under this section, won't qualify for
action; or exemption as any other type of organization de-
scribed in this publication.
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Tax treatment of donations. Donations to an isn't a life insurance company. Such an organi- 3. To create a fund that will provide a source
organization described in this section aren't de- zation can seek recognition of exemption from of income for the perpetual care of the
ductible as charitable contributions on the do- federal income tax, however, as a mutual insur- cemetery or a reasonable reserve for any
nor's federal income tax return. ance company other than life. ordinary or necessary purpose.
Government grants. In the past, government No part of the net earnings of your organiza-
grants were not treated as income but as contri- Mutual or Cooperative tion can inure to the benefit of any private share-
butions to capital. Under the Tax Cuts & Jobs Associations holder or individual.
Act, P.L. No. 115-97, section 13312, section Ordinary and necessary expenses in con-
118 was amended so that government grants Mutual ditch or irrigation companies, mutual or
may no longer be treated as capital contribu- cooperative telephone companies, and like or- nection with the operation, management, main-
tions. In 2019, P.L. No. 116-94 amended section ganizations need not establish that they are of a tenance, and improvement of the cemetery are
501(c)(12) to exclude from the 85% requirement purely local character. They can serve noncon- permitted, as are reasonable fees for the serv-
certain government grants for assistance to mu- tiguous areas. ices of a manager.
tual and cooperative telephone and electric Like organization. A like organization is a Buying cemetery property. Payments can
companies. cooperative or mutual organization that per- be made to amortize debt incurred to buy land,
forms a service similar to mutual ditch, irriga- but can't be in the nature of profit distributions.
Local Life Insurance tion, telephone, or electric companies. Exam- You must show the method used to finance the
Associations ples include the following: cooperatives that purchase of the cemetery property and that the
provide protection of river banks to prevent ero- purchase price of the land at the time of its sale
sion, water and sewer services, cable televi- to the cemetery wasn't unreasonable.
A benevolent life insurance association or an or- sion, satellite, television, cellular phone serv- Except for holders of preferred stock (dis-
ganization seeking recognition of exemption on ices, two-way radio service, or natural gas cussed later), no person can have any interest
grounds of similarity to a benevolent life insur- services. in the net earnings of a tax-exempt cemetery
ance association must submit evidence upon company or crematorium. Therefore, if property
applying for recognition of exemption that it will is transferred to the organization in exchange for
be of a purely local character, that its excess an interest in the organization's net earnings,
funds will be refunded to members or retained 501(c)(13) - Cemetery the organization won't be exempt so long as
in reasonable reserves to meet future losses Companies that interest remains outstanding.
and expenses, and that it meets the 85% in- An equity interest in the organization is an
come requirement. If an organization issues If your organization wishes to obtain recognition interest in the net earnings of the organization.
policies for stipulated cash premiums, or if it re- of exemption from federal income tax as a cem- However, an interest in the organization that
quires advance deposits to cover the cost of the etery company or a corporation chartered solely isn't an equity interest may still be an interest in
insurance and maintains investments from for the purpose of the disposal of human bodies the organization's net earnings. For example, a
which more than 15% of its income is derived, it by burial or cremation, it must file an application bond issued by a cemetery company that pro-
won't be entitled to exemption. on Form 1024. For the procedure to follow to file vides for a fixed rate of interest and also pro-
an application, see Application, Approval, and vides for additional interest payments based on
To establish that your organization is of a Appeal Procedures in chapter 1. the income of the organization is considered an
purely local character, it should show that its ac- interest in the net earnings of the organization.
tivities will be confined to a particular commun- A nonprofit mutual cemetery company that Similarly, a convertible debt obligation issued
ity, place, or district irrespective of political sub- seeks recognition of exemption should submit after July 7, 1975, is considered an interest in
divisions. If the activities of an organization are evidence with its application that it is owned and the net earnings of the organization.
limited only by the borders of a state, it can't be operated exclusively for the benefit of its lot
purely local in character. A benevolent life insur- owners who hold lots for bona fide burial purpo- Perpetual care organization. A perpetual
ance association that doesn't terminate mem- ses and not for purposes of resale. A mutual care organization, including, for example, a trust
bership when a member moves from the local cemetery company that also engages in chari- organized to receive, maintain, and administer
area in which the association operates will qual- table activities, such as the burial of paupers, funds that it receives from a nonprofit tax-ex-
ify for exemption if it meets the other require- will be regarded as operating within this stan- empt cemetery under state law and contracts,
ments. dard. The fact that a mutual cemetery company can apply for recognition of exemption on Form
limits its membership to a particular class of in- 1024, even though it doesn't own the land used
A copy of each type of policy issued by your dividuals, such as members of a family, won't for burial. However, the income from these
organization should be included with the appli- affect its status as mutual so long as all the funds must be devoted exclusively to the per-
cation for recognition of exemption. other requirements of section 501(c)(13) are petual care and maintenance of the nonprofit
met. cemetery as a whole. Also, no part of the net
Organizations similar to local benevolent earnings can inure to the benefit of any private
life insurance companies. These organiza- If your organization is a nonprofit corporation shareholder or individual.
tions include those that, in addition to paying chartered solely for the purpose of the disposal In addition, a perpetual care organization not
death benefits, also provide for the payment of of human bodies by burial or cremation, you operated for profit, but established as a civic en-
sick, accident, or health benefits. However, an should show that it isn't permitted by its charter terprise to maintain and administer funds, the
organization that pays only sick, accident, or to engage in any business not necessarily inci- income of which is devoted exclusively to the
health benefits, but not life insurance benefits, dent to that purpose. Operating a mortuary isn't perpetual care and maintenance of an aban-
isn't an organization similar to a benevolent life permitted. However, selling monuments, mark- doned cemetery as a whole, may qualify for ex-
insurance association and shouldn't apply for ers, vaults, and flowers solely for use in the emption.
recognition of exemption, as described in this cemetery is permitted if the profits from these
section. sales are used to maintain the cemetery as a Care of individual plots. When funds are
whole. received by a cemetery company for the perpet-
Burial and funeral benefit insurance or- ual care of an individual lot or crypt, a trust is
ganization. This type of organization can apply How income can be used. You should show created that is subject to federal income tax.
for recognition of exemption as an organization that your organization's earnings are or will be Any trust income that is used or permanently
similar to a benevolent life insurance company if used only in one or more of the following ways. set aside for the care, maintenance, or beautifi-
cation of a particular family burial lot or mauso-
it establishes that the benefits are paid in cash 1. To pay the ordinary and necessary expen- leum crypt isn't deductible in computing the
and if it isn't engaged directly in the manufac- ses of operating, maintaining, and improv- trust's taxable income.
ture of funeral supplies or the performance of ing the cemetery or crematorium.
funeral services. An organization that provides
its benefits in the form of supplies and service 2. To buy cemetery property.
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Common and preferred stock. A cemetery State-chartered credit unions and other mu- income is from providing reserve funds and
company that issues common stock can qualify tual financial organizations file applications for from investments. There should be attached a
for exemption only if no dividends may be paid. recognition of exemption from federal income conformed copy of the articles of incorporation
The payment of dividends must be legally pro- tax under section 501(c)(14). The other mutual or other document setting forth the permitted
hibited either by the corporation's charter or by financial organizations must be corporations or powers or activities of the organization; the by-
applicable state law. associations without capital stock organized be- laws or other similar code of regulations; and
Generally, a cemetery company or cremato- fore September 1, 1957, and operated for mu- the latest annual financial statement showing
rium isn't exempt if it issues preferred stock. tual purposes and without profit to provide re- the receipts, disbursements, assets, and liabili-
However, it can still be exempt if the preferred serve funds for, and insurance of, shares or ties of the organization.
stock was issued before November 28, 1978, or deposits in:
was issued after that date under a written plan 1. Domestic building and loan associations,
adopted before that date. The adoption of the 501(c)(19) - Veterans'
plan must be shown by the acts of the responsi- 2. Cooperative banks (without capital stock)
ble officers and appear on the official records of organized and operated for mutual purpo- Organizations
the organization. ses and without profit,
A post or organization of past or present mem-
The preferred stock issued either before No- 3. Mutual savings banks (not having capital bers of the Armed Forces of the United States
vember 28, 1978, or under a plan adopted be- stock represented by shares), or must file Form 1024 to apply for recognition of
fore that date, must meet all the following re-
quirements. 4. Mutual savings banks described in section exemption from federal income tax. You should
591(b). follow the general procedures outlined in chap-
1. The preferred stock entitles the holders to ter 1. The organization must also meet the qual-
dividends at a fixed rate that isn't more Similar organizations, formed before September ifications described in this section.
than the greater of the legal rate of interest 1, 1957, that provide reserve funds for (but not
in the state of incorporation or 8% a year insurance of shares or deposits in) one of the Examples of groups that qualify for exemp-
on the value of the consideration for which types of savings institutions described in (1), tion are posts or auxiliaries of the American Le-
the stock was issued. (2), or (3) above may be exempt from tax if 85% gion, Veterans of Foreign Wars, and similar or-
or more of the organization's income is from ganizations.
2. The organization's articles of incorporation providing reserve funds and from investments.
require: There is no specific restriction against the issu- To qualify for recognition of exemption, your
a. That the preferred stock be retired at ance of capital stock for these application should show:
par as rapidly as funds become avail- organizations.
able from operations, and 1. That the post or organization is organized
Building and loan associations, savings and in the United States or any of its posses-
b. That all funds not required for the pay- loan associations, mutual savings banks, and sions;
ment of dividends on or for the retire- cooperative banks, other than those described
ment of preferred stock be used by in this section, aren't exempt from tax. However, 2. That at least 75% of the members are past
the company for the care and im- certain corporations organized and operated in or present members of the U.S. Armed
provement of the cemetery property. conjunction with farmers' cooperatives can be Forces and that at least 97.5% of all mem-
exempt under section 521. bers of the organization are past or
Tax treatment of donations. Donations to ex- present members of the U.S. Armed
empt cemetery companies, corporations char- Forces, cadets (including only students in
tered solely for human burial purposes, and per- State-Chartered college or university ROTC programs or at
petual care funds (operated in connection with Credit Unions armed services academies) or spouses,
such exempt organizations) are deductible as widows, widowers, ancestors, or lineal de-
charitable contributions on the donor's federal Your organization must show on its application scendants of any of those listed here; and
income tax return. However, a donor can't de- that it is formed under a state credit union law, 3. That no part of net earnings inure to the
duct a contribution made for the perpetual care the state and date of incorporation, and that the benefit of any private shareholder or
of a particular lot or crypt. Payments made to a state credit union law with respect to loans, in- individual.
cemetery company or corporation as part of the vestments, and dividends, if any, your organiza-
purchase price of a burial lot or crypt, whether tion is operated in compliance with. In addition to these requirements, a veter-
irrevocably dedicated to the perpetual care of ans' organization must also be operated exclu-
sively for one or more of the following purposes.
the cemetery as a whole or earmarked for the Other Mutual
care of a particular lot, are also not deductible. 1. To promote the social welfare of the com-
Financial Organizations
munity (that is, to promote in some way the
Every other organization included in this section common good and general welfare of the
501(c)(14) - Credit must show in its application the state in which people of the community).
Unions and Other Mutual the organization is incorporated and the date of 2. To assist disabled and needy war veterans
incorporation; the character of the organization; and members of the U.S. Armed Forces
Financial Organizations the purpose for which it was organized; its ac- and their dependents and the widows and
tual activities; the sources of its receipts and the orphans of deceased veterans.
If your organization wants to obtain recognition disposition thereof; whether any of its income
of exemption as a credit union without capital may be credited to surplus or may benefit any 3. To provide entertainment, care, and assis-
stock, organized and operated under state law private shareholder or individual; whether the tance to hospitalized veterans or members
for mutual purposes and without profit, it must law relating to loans, investments, and divi- of the U.S. Armed Forces.
file the application for recognition of exemption dends is being complied with; and, in general, 4. To carry on programs to perpetuate the
on Form 1024. all facts relating to its operations that affect its memory of deceased veterans and mem-
right to exemption.
Federal credit unions organized and oper- bers of the U.S. Armed Forces and to
ated in accordance with the Federal Credit Un- The application must include detailed infor- comfort their survivors.
ion Act, as amended, are instrumentalities of mation showing either that the organization pro- 5. To conduct programs for religious, charita-
the United States and, therefore, are exempt vides both reserve funds for and insurance of ble, scientific, literary, or educational pur-
under section 501(c)(1). They are included in a shares and deposits of its member financial or- poses.
group exemption letter issued to the National ganizations or that the organization provides re-
Credit Union Administration. They aren't serve funds for shares or deposits of its mem- 6. To sponsor or participate in activities of a
discussed in this publication. bers and 85% or more of the organization's patriotic nature.

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7. To provide insurance benefits for its mem- The term war veterans means persons, whether government that aren't in default as to
bers or dependents of its members or or not present members of the U.S. Armed principal or interest, or time or de-
both. Forces, who have served in the U.S. Armed mand deposits in a bank or an insured
8. To provide social and recreational activi- Forces during a period of war (including the Ko- credit union located in the United
ties for its members. rean and Vietnam conflicts, the Persian Gulf States. (These investments are re-
war, and later declared wars). stricted to the extent that the trustee
Auxiliary unit. An auxiliary unit or society of a determines that a portion of the as-
veterans' organization can apply for recognition sets isn't currently needed for the pur-
of exemption provided that the veterans' organi- 501(c)(21) - Black Lung poses described in 1.)
zation (parent organization) meets the require-
ments explained earlier in this section. The aux- Benefit Trusts An annual information return is required of ex-
iliary unit or society must also meet all the empt trusts described in section 501(c)(21).
following additional requirements. If your organization wishes to obtain recognition Formerly, Form 990-BL, Information and Initial
of exemption as a black lung benefit trust, it Excise Tax Return for Black Lung Benefit Trusts
1. It is affiliated with, and organized in ac- must file the application for recognition of ex- and Certain Related Persons, was used for this
cordance with, the bylaws and regulations emption on Form 1024 and include a copy of its purpose However, Form 990-BL is a historical
formulated by the parent organization. trust instrument. The general procedures to fol- form beginning with tax year 2021. Section
2. At least 75% of its members are either low for obtaining recognition are discussed in 501(c)(21) trusts can no longer file Form
past or present members of the U.S. chapter 1 of this publication. This section de- 990-BL and will file Form 990 to meet their an-
Armed Forces, spouses of those mem- scribes the additional (or specific) information to nual filing obligation. A trust that normally has
bers, or related to those members within be provided upon application. gross receipts in each tax year of no more than
two degrees of kinship (grandparent, $50,000 is excepted from this filing requirement.
brother, sister, and grandchild represent Requirements. A black lung benefit trust that However, it must submit an annual electronic
the most distant allowable relationship). is established in writing, created or organized in notice, Form 990-N (e-Postcard).
the United States, and contributed to by any
3. All of its members either are members of person (except an insurance company) will Excise taxes. See Chapter 5 for informa-
the parent organization, spouses of a qualify for tax-exempt status if it meets both of tion on the excise tax that may be imposed on
member of the parent organization, or rela- the following requirements. The trust must be ir- the organization.
ted to a member of such organization revocable and there can be no right or possibil-
within two degrees of kinship. ity or reversion of the corpus or income of the Tax treatment of donations. Contributions by
4. No part of its net earnings inure to the ben- trust to the coal mine operator or other creator, a taxpayer (generally, the coal mine operator) to
efit of any private shareholder or except that the creator may recover excess con- a black lung benefit trust are deductible for fed-
individual. tributions. eral income tax purposes under section 192.
The deduction is limited, and any excess contri-
1. Its only purpose is: butions are subject to an excise tax of 5%. Form
Trusts or foundations. Trusts or foundations 6069, Return of Certain Excise Taxes on Mine
for a veterans' organization can also apply for a. To satisfy in whole or in part the liabil-
recognition of exemption provided that the pa- ity of that person (generally, the coal Operators, Black Lung Trusts, and Other Per-
rent organization meets the requirements ex- mine operator contributing to the trust) sons Under Sections 4951, 4952, and 4953, is
plained earlier. The trust or foundation must for, or with respect to, claims for com- used to compute the allowable deduction and
also meet all the following qualifications. pensation arising under federal or any excise tax liability. The form doesn't have to
state statutes for disability or death be filed if there is no excise tax liability. For more
1. The trust or foundation is in existence un- due to pneumoconiosis, information about these contributions, see Form
der local law and, if it is organized for char- 6069 and its instructions.
itable purposes, has a dissolution provi- b. To pay the premiums for insurance
sion similar to charitable organizations. that covers only that liability,
(See Articles of Organization in chapter 3 c. To pay the administrative and other in- 501(c)(2) - Title-Holding
of this publication.) cidental expenses of that trust (includ-
2. The corpus or income can't be diverted or ing legal, accounting, actuarial, and Corporations for Single
used other than for: trustee expenses) in connection with Parent Corporations
the operation of the trust and process-
a. The funding of a veterans' organiza- ing of black lung claims against such If your organization wants to obtain recognition
tion, described in this section; person arising under federal or state of exemption from federal income tax as a cor-
b. Religious, charitable, scientific, liter- statutes, and poration organized to hold title to property, col-
ary, or educational purposes or for the d. To pay accident and health benefits or lect income from that property, and turn over the
prevention of cruelty to children or ani- insurance premiums and other admin- entire amount less expenses to a single parent
mals; or istrative expenses for retired coal min- organization that is exempt from income tax, it
c. An insurance set aside. ers and their spouses. The amount of must file its application on Form 1024. The in-
assets available for such use is gener- formation to submit upon application is descri-
3. The trust income isn't unreasonably accu- ally limited to 110% of the present bed in this section. For a discussion of the pro-
mulated and, if the trust or foundation isn't value of the liability for black lung cedures for obtaining recognition of exemption,
an insurance set aside, a substantial por- benefits. see chapter 1, Application Procedures.
tion of the income is in fact distributed to
the parent organization or for the purposes 2. No part of its assets can be used for, or di- You must show that your organization is a
described in item 2(b). verted to, any purposes other than: corporation. If you are in doubt as to whether
4. It is organized exclusively for one or more a. The purposes described in 1, your organization qualifies as a corporation for
this purpose, contact your IRS office.
of the purposes listed earlier in this section b. Payments into the Black Lung Disabil-
that are specifically applicable to the pa- ity Trust Fund or into the general fund A title-holding corporation will qualify for ex-
rent organization. of the U.S. Treasury (other than in sat- emption only if there is effective ownership and
Tax treatment of donations. Donations to war isfaction of any tax or other civil or control over it by the distributee exempt organi-
veterans' organizations are deductible as chari- criminal liability of the person who es- zation. For example, the distributee organization
table contributions on the donor's federal in- tablished or contributed to the trust), may control the title-holding corporation by own-
come tax return. At least 90% of the organiza- c. Investment in public debt securities of ing its voting stock or possessing the power to
tion's membership must consist of war veterans. the U.S., obligations of a state or local select nominees to hold its voting stock.

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Corporate charter. The corporate charter deductible as charitable contributions on the A 501(c)(25) organization can be organized
must confine the purposes and powers of your donor's federal income tax return. as a nonstock corporation if its articles of incor-
organization to holding title to property, collect- poration or bylaws provide members with the
ing income from the property, and turning the in- same rights as described above.
come over to an exempt organization. If the 501(c)(25) - Title-Holding
charter authorizes your organization to engage Subsidiaries. A wholly owned subsidiary won't
in activities that go beyond these limits, its ex- Corporations or Trusts be treated as a separate corporation, and all as-
emption may not be recognized even if its ac- sets, liabilities, and items of income, deduction,
tual operations are so limited. If your organiza- for Multiple Parent and credit will be treated as belonging to the
tion's original charter doesn't limit its powers, Corporations section 501(c)(25) organization. Subsidiaries
you can amend the charter to conform to the re- shouldn't apply separately for recognition of ex-
quired limits and submit evidence with your ap- If your organization wants to obtain recognition emption.
plication that the charter has been amended. of exemption from federal income tax as an or-
ganization organized for the exclusive purpose Tax treatment of donations. Donations to an
Payment of income. You must show that your of acquiring, holding title to, and collecting in- exempt title-holding corporation generally aren't
corporation is required to turn over the entire in- come from real property, and turning over the deductible as charitable contributions on the
come from the property, less expenses, to one entire amount less expenses to member organi- donor's federal income tax return.
or more exempt organizations. zations exempt from income tax, it should file its
Actual payment of the income is required. A application on Form 1024. For a discussion of Unrelated Business Income
mere obligation to use the income for the ex- the procedures for obtaining recognition of ex-
empt organization's benefit, or the fact that such emption, see chapter 1, Application Proce- In general, the receipt of unrelated business in-
organization has control over the income, dures. come by a section 501(c)(25) organization will
doesn't satisfy this requirement. subject the organization to loss of exempt status
Expenses. Expenses may reduce the Who can control the organization. Organiza- since the organization can't be exempt from tax-
amount of income required to be turned over to tions recognized as exempt under this section ation if it engages in any business other than
the tax-exempt organization for which your or- can have up to 35 shareholders or beneficiaries, that of holding title to real property and collect-
ganization holds property. The term expenses in contrast to title-holding organizations recog- ing the income from the property. However, ex-
(for this purpose) includes not only ordinary and nized as exempt under section 501(c)(2), which empt status generally won't be affected by the
necessary expenses paid or incurred, but also can have only one controlling parent organiza- receipt of debt-financed income that is treated
reasonable additions to depreciation reserves tion. as unrelated business taxable income solely
and other reserves that would be proper for a because of section 514.
business corporation holding title to and main- Organizational requirements. A section
taining property. 501(c)(25) organization must be either a corpo- Under section 514(c)(9), certain sharehold-
In addition, the title-holding corporation can ration or a trust. Only one class of stock is per- ers or beneficiaries aren't subject to unrelated
retain part of its income each year to apply to mitted in the case of a corporation. In the case debt-financed income tax under section 514 on
debt on property to which it holds title. This of a trust, only one class of beneficial interest is their investments through the organization.
transaction is treated as if the income had been allowed. These shareholders are generally schools, col-
turned over to the exempt organization and the Organizations eligible to acquire or hold in- leges, universities, or supporting organizations
latter had used the income to make a contribu- terests in this type of title-holding organization of such educational institutions. Organizations
tion to the capital of the title-holding corporation are qualified pension, profit-sharing, or stock other than these will take into account as gross
that in turn applied the contribution to the debt. bonus plans, governmental plans, governments income from an unrelated trade or business
and their agencies and instrumentalities, and their pro rata share of income that is treated as
Waiver of payment of income. Generally, charitable organizations. unrelated debt-financed income because sec-
there is no payment of rent when the occupant The articles of incorporation or trust instru- tion 514(c)(9) doesn't apply. These organiza-
of property held by your title-holding corporation ment must include provisions showing that the tions will also take their pro rata share of the al-
is the exempt organization for which your corpo- corporation or trust is organized to meet the re- lowable deductions from unrelated taxable
ration holds the title. In this situation, the statu- quirements of the statute, including compliance income.
tory requirement that income be paid over to the with the limitations on membership and classes
exempt organization is satisfied if your corpora- of stock or beneficial interest, and compliance Real property. Real property can include per-
tion turns over whatever income is available. with the income distribution requirements. The sonal property leased in connection with real
organizing document must permit the organiza- property, but only if the rent from the personal
Application for recognition of exemption. In tion's shareholders or beneficiaries to dismiss property isn't more than 15% of the total rent for
addition to the information required by Form the organization's investment advisor, if any, both the real property and the personal prop-
1024, the title-holding corporation must furnish upon a vote of the shareholders or beneficiaries erty.
evidence that the organization for which title is holding a majority interest in the organization. Real property acquired after June 10, 1987,
held has obtained recognition of exempt status. The organizing document must permit the can't include any interest as a tenant in com-
If that organization has not been specifically no- shareholders or beneficiaries to terminate their mon (or similar interest) or any indirect interest.
tified in writing by the IRS that it is exempt, the interests by at least one of the following meth-
title-holding corporation must submit the neces- ods.
sary application and supporting documents to 501(c)(26) -
enable the IRS to determine whether the organi- 1. By selling or exchanging their stock or
zation for which title is held qualifies for exemp- beneficial interest to any organization de- State-Sponsored
tion. A copy of a ruling or determination letter is- scribed in section 501(c)(25)(C), provided
sued to the organization for which title is held that the sale or exchange doesn't cause High-Risk Health
will be proof that it qualifies for exemption. How- the number of shareholders or beneficia-
ever, until the organization for which title is held ries to exceed 35. Coverage Organizations
obtains recognition of exempt status or proof is 2. By having their stock or beneficial interest A state-sponsored organization established to
submitted to show that it qualifies, the title-hold- redeemed by the section 501(c)(25) or- provide medical care to high-risk individuals ap-
ing corporation can't obtain recognition of ex- ganization upon 90 days notice. plies on Form 1024 for recognition of exemption
emption. from federal income tax under section 501(c)
If state law prevents a corporation from includ-
Tax treatment of donations. Donations to an ing in its articles of incorporation the above pro- (26).
exempt title-holding corporation generally aren't visions, such provisions must instead be inclu- To qualify for exemption, the organization
ded in the bylaws of the corporation. must be a membership organization established
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by a state exclusively to provide coverage for b. Provide related coverage which is in- exempt status. Rev. Proc. 2015-17, supplemen-
medical care on a nonprofit basis to high-risk in- cidental to workmen's compensation ted by Rev. Proc. 2024-5 exemption from fed-
dividuals who are state residents. It can provide insurance. eral income tax under section 501(c)(29) ap-
coverage either by issuing insurance itself or by 2. It provides workmen's compensation in- plies on Form 1024.
entering into an arrangement with a health surance to any employer in the state (for
maintenance organization (HMO). employees in the state or temporarily as-
The state must determine the composition of signed out-of-state) which seeks such in- General Requirements
membership in the organization. No part of the surance and meets other reasonable re- for Exemption under
net earnings of the organization can inure to the quirements relating to the insurance.
benefit of any private shareholder or individual. 3. The state makes a financial commitment 501(c)(29) and Annual
to such organization either by extending its Filing Requirement
High-risk individuals. These are individuals, full faith and credit to the initial debt of the
their spouses, and qualifying children, who, be- organization or by providing the initial op- In general, section 501(c)(29) applies to certain
cause of a pre-existing medical condition: erating capital of the organization. organizations receiving loans or repayable
1. Can't get medical care coverage for that 4. The assets of the organization revert to the grants under the CO-OP program. An organiza-
condition through insurance or an HMO, or state upon dissolution or the organization tion will qualify for exemption under section
2. Can get coverage for that condition only at isn't permitted to dissolve under state law. 501(c)(29) only if:
• The organization has received a loan or a
a rate that is substantially higher than the 5. The majority of the board of directors or repayable grant under the CO-OP program
rate for the same coverage from the oversight body of such organization are and is in compliance with all requirements
state-sponsored organization. appointed by the chief executive officer or of the CO-OP program and any agreement
other executive branch official of the state, with CMS;
by the state legislature, or by both. • The organization has applied for recogni-
501(c)(27) - Qualified tion of exemption;
State-Sponsored • No part of the organization’s net earnings
501(c)(29) - CO-OP inures to the benefit of any private share-
Workers' Compensation holder or individual, except that the organi-
Health Insurance Issuers zation is required by section 1322(c)(4) of
Organizations the Affordable Care Act to use its profits to
This includes a qualified nonprofit health insur- lower premiums, improve benefits or im-
501(c)(27)(A) -- Pre-June 1, 1996, Organiza- ance issuer which has received a loan or grant prove the quality of health care delivered to
tions. A state-sponsored workers' compensa- under the CO-OP Program under this section of its members;
tion reinsurance organization applies on Form the Code. • No substantial part of the organization’s
1024 for recognition of exemption from federal activities involves attempts to influence
income tax under section 501(c)(27). legislation; and
To qualify for exemption, any membership Guidance for Section • The organization doesn't participate or in-
organization must meet all the following require- tervene in political campaigns. See Rev.
ments. 501(c)(29) Qualified Proc. 2015-17 for complete instructions for
1. It was established by a state before June Nonprofit Health filing exemption applications.
1, 1996, exclusively to reimburse its mem-
bers for losses under workers' compensa- Insurance Issuers
tion acts. Additional Guidance for
Section 501(c)(29), added to the Code by sec-
2. The state requires that the membership tion 1322(h)(1) of the Affordable Care Act, pro- Prospective 501(c)(29)
consist of all persons who issue insurance vides for the exemption of qualified nonprofit Organizations
covering workers' compensation losses in health insurance issuers (QNHIIs) that have re-
the state and all persons and government ceived a loan or grant under the Centers for An organization claiming exempt status under
entities who self-insure against those los- Medicare and Medicaid Services (CMS) section 501(c)(29) that intends to file an appli-
ses. CO-OP program for periods that they meet both cation for recognition of exemption should begin
3. It operates as a nonprofit organization by the requirements of section 1322 of the Afforda- by filing Form 990, Return of Organization Ex-
returning surplus income to its members or ble Care Act and of any loan agreement with empt from Income Tax, and indicate on its re-
workers' compensation policyholders on a CMS. The CO-OP program provides loans and turn that it has not yet received a determination
periodic basis and by reducing initial pre- repayable grants to foster the creation of mem- letter. In addition to the general information re-
miums in anticipation of investment in- ber governed QNHIIs that will operate with a quired on Form 990, these organizations must
come. strong consumer focus and offer qualified report certain information regarding required re-
health insurance plans. Notice 2011-23, serves.
501(c)(27)(B) -- Organizations formed after 2011-13 I.R.B. 588, discussed requirements for
December 31, 1997. Any organization (includ- tax exemption for QNHIIs described in Internal
ing a mutual insurance company) can qualify for Revenue Code section 501(c)(29). The Notice
exemption if it meets all of the following require- provides guidance on the annual filing require-
ments. ment for organizations that intend to apply for
recognition of section 501(c)(29) status and
1. It is created by state law and is organized modified and superseded by Rev. Proc. 2022-8.
and operated under state law exclusively Under Rev. Proc. 2022-8, an organization ap-
to: plying for recognition of exemption from federal
a. Provide workmen's compensation in- income tax under section 501(c)(29) applies on
surance which is required by state law Form 1024. Rev. Proc. 2015-17, 2015-7 I.R.B.
or state law must provide significant 599, sets out the procedures for issuing deter-
disincentives if employers fail to pur- mination letters on the exempt status of QNHIIs
chase such insurance, and and provides guidance on the effective date of

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                                                     b.      Churches, hospitals, museums,                     entity applies to tax years in which the entity be-
                                                             schools, scientific research organiza-            comes  a  party  to  the  prohibited  tax  shelter 
                                                             tions, and other charities described in           transaction and any subsequent tax years. The 
5.                                                           section 501(c)(3);                                amount  of  the  excise  tax  depends  on  whether 
                                                     c.      Civic leagues, social welfare organi-             the  tax-exempt  entity  knew  or  had  reason  to 
                                                             zations, and local associations of em-            know that the transaction was  a  prohibited  tax 
Excise Taxes                                                 ployees described in section 501(c)               shelter transaction at the time it became a party 
                                                             (4);                                              to the transaction.
                                                     d.      Labor, agricultural, or horticultural             To figure and report the excise tax imposed 
Introduction                                                 organizations described in section                on a tax-exempt entity for being a party to a pro-
                                                             501(c)(5);                                        hibited tax shelter transaction, file Form 4720.
An  excise  tax  may  be  imposed  on  certain 
tax-exempt organizations.                            e.      Business leagues, chambers of                     For  more  information  about  this  excise  tax, 
                                                             commerce, trade associations, and                 including  information  about  how  it  is  figured, 
                                                             other organizations described in sec-             see the Instructions for Form 4720.
Topics                                                       tion 501(c)(6);
This chapter discusses:
                                                     f.      Voluntary employees' beneficiary                  Manager Level Tax
•  Prohibited tax shelter transactions                       associations (VEBAs) described in 
•  Excess benefit transactions                               section 501(c)(9);                                Section  4965(a)(2)  imposes  an  excise  tax  on 
                                                                                                               any  tax-exempt  entity  manager  who  approves 
•  Excess business holdings                          g.      Credit unions described in section                or otherwise causes the entity to be a party to a 
•  Taxable distributions of sponsoring                       501(c)(14);                                       prohibited tax shelter transaction and knows (or 
   organizations                                                                                               has  reason  to  know)  that  the  transaction  is  a 
•  Taxes on prohibited benefits distributed          h.      Insurance companies described in 
   from donor advised funds                                  section 501(c)(15); and                           prohibited  tax  shelter  transaction.  The  excise 
                                                                                                               tax, in the amount of $20,000, is assessed for 
•  Excise taxes on private foundations               i.       Veterans' organizations described                each approval or other act causing the organi-
•  Excise taxes on section 501(c)(21) black                  in section 501(c)(19).                            zation to be a party to the prohibited tax shelter 
   lung benefit trusts                                                                                         transaction. To report this tax, file Form 4720.
•  Excise Tax on Failure To Meet the                 2. Religious or apostolic associations or cor-
   Community Health Needs Assessment                 porations described in section 501(d).
   Requirements of Hospitals                         3. Entities described in section 170(c), in-              Excess Benefit 
•  Excise tax on excess tax-exempt                   cluding states, possessions of the United 
   organization executive compensation               States, the District of Columbia, political               Transactions
•  Excise tax on net investment income of            subdivisions of states and political subdivi-
   private colleges and universities                 sions of possessions of the United States                 Excise  tax  on  excess  benefit  transactions. 
                                                     (but not including the United States).                    A disqualified person who benefits from an ex-
Useful Items                                         4. Indian tribal governments within the mean-             cess  benefit  transaction,  such  as  compensa-
You may want to see:                                 ing of section 7701(a)(40).                               tion, fringe benefits, or contract payments from 
                                                                                                               certain  section  501(c)(3),  501(c)(4),  or  501(c)
Forms (and Instructions)                             Entity manager. An entity manager is any per-             (29) organizations, must correct the transaction 
     4720 4720 Return of Certain Excise Taxes        son with authority or responsibility similar to that      and may have to pay an excise tax under sec-
        Under Chapters 41 and 42 of the              exercised by an officer, director, or trustee, and,       tion  4958.  A  manager  of  the  organization  may 
        Internal Revenue Code                        for any act, the person that has authority or re-         also  have  to  pay  an  excise  tax  under  section 
                                                     sponsibility with respect to the prohibited trans-        4958. These taxes are reported on Form 4720.
See  chapter  6  for  more  information  about  get- action.                                                   The excise taxes are imposed if an applica-
ting Form 4720.                                                                                                ble tax-exempt organization provides an excess 
                                                     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.
                                                     6707A(c)(2),  and  any  prohibited  reportable            There  are  three  taxes  under  section  4958. 
Transactions                                         transactions.  A  prohibited  reportable  transac-        Disqualified  persons  are  liable  for  the  first  two 
                                                     tion  is  a  confidential  transaction  within  the       taxes and certain organization managers are li-
Section 4965 imposes an excise tax on:               meaning of Regulations section 1.6011-4(b)(3),            able for the third tax.
•  Certain tax-exempt entities that are party to     and  a  transaction  with  contractual  protection        Taxes  imposed  on  excess  benefit  transac-
   prohibited tax shelter transactions, and          within  the  meaning  of  Regulations  section            tions don't apply to a transaction under a written 
•  Any entity manager who approves or other-         1.6011-4(b)(4).  See  the  Instructions  for  Form        contract  that  was  binding  on  September  13, 
   wise causes the entity to be a party to a         8886-T  for  more  information  on  listed  transac-      1995,  and  at  all  times  thereafter  before  the 
   prohibited tax shelter transaction and            tions and prohibited reportable transactions.             transaction occurred.
   knows or has reason to know that the 
   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
                                                     and is later determined to be a listed transaction 
Additionally, section 6033 provides new disclo-      after  the  entity  has  become  a  party  to  it,  is  a An excise tax equal to 25% of the excess bene-
sure requirements on a tax-exempt entity that is     subsequently listed transaction.                          fit  is  imposed  on  each  excess  benefit  transac-
a party to a prohibited tax shelter transaction.                                                               tion  between  an  applicable  tax-exempt  organi-
                                                                                                               zation  and  a  disqualified  person.  The 
Tax-exempt  entities. Tax-exempt  entities  that     Entity Level Tax                                          disqualified  person  who  benefited  from  the 
are subject to section 4965 include:                                                                           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 1, 
     common types of entities:                       2, 3, or 4 above that becomes a party to a pro-           Additional tax on the disqualified person.      If 
                                                     hibited tax shelter transaction or is a party to a        the 25% tax is imposed and the excess benefit 
     a.   Instrumentalities of the United            subsequently  listed  transaction  (defined  ear-         transaction isn't corrected within the taxable pe-
        States described in section 501(c)(1);       lier).  The  excise  tax  imposed  on  a  tax-exempt      riod, an additional excise tax equal to 200% of 
60                                                           Chapter 5      Excise Taxes                                              Publication 557 (1-2024)

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the excess benefit is imposed on any disquali-                transaction is an excess benefit transac-                an  excess  benefit  transaction  includes  grants, 
fied person involved.                                         tion, or the manager is in fact aware that it            loans,  compensation,  or  other  similar  payment 
If a disqualified person makes a payment of                   is such a transaction.                                   provided by the supporting organization to a:
less than the full correction amount, the 200%              Knowing doesn't mean having reason to know.                •   Substantial contributor,
tax is imposed only on the unpaid portion of the            The  organization  manager  ordinarily  won't  be          •   Family member of a substantial contributor,
correction amount. If more than one disqualified            considered knowing if, after full disclosure of the        •   35% controlled entity of a substantial con-
person received an excess benefit from an ex-               factual situation to an appropriate professional,              tributor, or
cess  benefit  transaction,  all  such  disqualified        the organization manager relied on the profes-             •   35% controlled entity of a family member 
persons  are  jointly  and  severally  liable  for  the     sional's  reasoned  written  opinion  on  matters              of a substantial contributor.
taxes.                                                      within the professional's expertise or if the man-         Additionally,  an  excess  benefit  transaction 
To avoid the 200% tax, a disqualified person                ager relied on the fact that the requirements for          includes  any  loans  provided  by  the  supporting 
must correct the excess benefit transaction dur-            the  rebuttable  presumption  of  reasonableness           organization to a disqualified person (other than 
ing the taxable period. The 200% tax is abated              have been satisfied. Participation by an organi-           an organization described in section 509(a)(1), 
(refunded  if  collected)  if  the  excess  benefit         zation  manager  is  willful  if  it  is  voluntary,  con- (2), or (4)).
transaction is corrected within a 90-day correc-            scious, and intentional. An organization manag-            The excess benefit for substantial contribu-
tion period beginning on the date a statutory no-           er's participation is due to reasonable cause if           tors and parties related to those contributors in-
tice of deficiency is issued.                               the manager has exercised responsibility on be-            cludes the amount of the grant, loan, compen-
Taxable period.      The taxable period means               half  of  the  organization  with  ordinary  business      sation, or other similar payment. For additional 
the period beginning with the date on which the             care and prudence.                                         information, see the Instructions for Form 4720.
excess  benefit  transaction  occurs  and  ending                                                                      Excess  benefit  transaction  rules  generally 
on the earlier of:                                          Excess Benefit Transaction                                 don't apply to transactions between a support-
• The date a notice of deficiency was mailed                                                                           ing organization and its supported organization 
                                                                                                                       described in section 501(c)(4), (5), or (6) in fur-
  to the disqualified person for the initial tax            An excess benefit transaction is a transaction in          therance of charitable purposes.
  on the excess benefit transaction, or                     which  an  economic  benefit  is  provided  by  an 
• The date on which the initial tax on the ex-              applicable  tax-exempt  organization,  directly  or 
  cess benefit transaction for the disqualified             indirectly,  to  or  for  the  use  of  any  disqualified  Date of Occurrence
  person is assessed.                                       person,  and  the value of  the  economic benefit 
                                                            provided by the organization exceeds the value             An  excess  benefit  transaction  occurs  on  the 
Tax on Organization                                         of the consideration (including the performance            date  the  disqualified  person  receives  the  eco-
Managers                                                    of services) received for providing such benefit.          nomic  benefit  from  the  organization  for  federal 
                                                            The excess benefit transaction rules apply to all          income  tax  purposes.  However,  when  a  single 
                                                            transactions  with  disqualified  persons,  regard-        contractual arrangement provides for a series of 
If  tax  is  imposed  on  a  disqualified  person  for      less of whether the amount of the benefit provi-           compensation  or  other  payments  to  or  for  the 
any  excess  benefit  transaction,  an  excise  tax         ded is determined in whole or in part by the rev-          use of a disqualified person during the disquali-
equal to 10% of the excess benefit is imposed               enues  of  one  or  more  activities  of  the              fied person's tax year, any excess benefit trans-
on an organization manager who knowingly par-               organization.                                              action  with  respect  to  these  payments  occurs 
ticipated  in  an  excess  benefit  transaction,  un-                                                                  on the last day of the taxpayer's tax year.
less  such  participation  wasn't  willful  and  was        To  determine  whether  an  excess  benefit 
due to reasonable cause. This tax can't exceed              transaction has occurred, all consideration and            In  the  case  of  benefits  provided  to  a  quali-
$20,000 ($10,000 for transactions entered in a              benefits exchanged between a disqualified per-             fied  pension,  profit-sharing,  or  stock  bonus 
tax year beginning before August 18, 2006), for             son and the applicable tax-exempt organization,            plan,  the  transaction  occurs  on  the  date  the 
each transaction. There is also joint and several           and  all  entities  it  controls,  are  taken  into  ac-   benefit is vested. In the case of the transfer of 
liability  for  this  tax.  A  person  can  be  liable  for count. For purposes of determining the value of            property  subject  to  a  substantial  risk  of  forfei-
both the tax paid by the disqualified person and            economic benefits, the value of property, includ-          ture, or in the case of rights to future compensa-
the organization manager tax for a particular ex-           ing  the  right  to  use  property,  is  the  fair  market tion  or  property,  the  transaction  occurs  on  the 
cess benefit transaction.                                   value.  Fair  market  value  is  the  price  at  which     date  the  property,  or  the  rights  to  future  com-
                                                            property,  or  the  right  to  use  property,  would       pensation or property, isn't subject to a substan-
Organization manager.     An organization man-              change  hands  between  a  willing  buyer  and  a          tial risk of forfeiture. Where the disqualified per-
ager is any officer, director, or trustee of an ap-         willing  seller,  neither  being  under  any  compul-      son  elects  to  include  an  amount  in  gross 
plicable tax-exempt organization, or any individ-           sion to buy, sell, or transfer property or the right       income in the tax year of transfer under section 
ual  having  powers  or  responsibilities  similar  to      to  use  property,  and  both  having  reasonable          83(b), the excess benefit transaction occurs on 
officers,  directors,  or  trustees  of  the  organiza-     knowledge of relevant facts.                               the  date  the  disqualified  person  receives  the 
tion,  regardless  of  title.  An  organization  man-
                                                                                                                       economic benefit for federal income tax purpo-
ager isn't considered to have participated in an            Donor advised fund transactions occurring                  ses.
excess  benefit  transaction  where  the  manager           after  August  17,  2006. For  a  donor  advised 
has opposed the transaction in a manner con-                fund,  an  excess  benefit  transaction  includes  a       Correcting  the  excess  benefit. An  excess 
sistent with the fulfillment of the manager's re-           grant, loan, compensation, or other similar pay-           benefit transaction is corrected by undoing the 
sponsibilities  to  the  organization.  For  example,       ment from the fund to a:                                   excess  benefit  to  the  extent  possible,  and  by 
a  director  who  votes  against  giving  an  excess        • Donor or donor advisor;                                  taking  any  additional  measures  necessary  to 
benefit  would  ordinarily  not  be  subject  to  the       • Family member of a donor, or donor advi-                 place the organization in a financial position not 
10% tax.                                                      sor;                                                     worse than what it would have been if the dis-
A person participates in a transaction know-                • 35% controlled entity of a donor, or donor               qualified person were dealing under the highest 
ingly if the person:                                          advisor; or                                              fiduciary standards.
• Has actual knowledge of sufficient facts so               • 35% controlled entity of a family member                 A  disqualified  person  corrects  an  excess 
  that, based solely upon those facts, such                   of a donor, or donor advisor.                            benefit  by  making  a  payment  in  cash  or  cash 
  transaction would be an excess benefit                    The excess benefit in this transaction is the              equivalents, excluding payment by a promissory 
  transaction;                                              amount  of  the  grant,  loan,  compensation,  or          note, equal to the correction amount to the ap-
• Is aware that such a transaction under                    other  similar  payment.  For  additional  informa-        plicable  tax-exempt  organization.  The  correc-
  these circumstances may violate the provi-                tion, see the Instructions for Form 4720.                  tion amount equals the excess benefit plus the 
  sions of federal tax law governing excess                                                                            interest on the excess benefit. The interest rate 
  benefit transactions; and                                 Supporting  organization  transactions  oc-                can be no lower than the applicable federal rate, 
• Negligently fails to make reasonable at-                  curring after July 25, 2006. For any support-              compounded annually, for the month the trans-
  tempts to ascertain whether the                           ing  organization,  defined  in  section  509(a)(3),       action occurred.
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    A  disqualified  person  can,  with  the  agree-    •   A family member of an individual described           the  governing  body,  and  persons  holding  the 
ment of the applicable tax-exempt organization,             in (1), and                                          power of:
make a payment by returning the specific prop-          •   A 35% controlled entity.                             • Presidents, chief executives, or chief oper-
erty previously transferred in the excess trans-                                                                   ating officers;
action.  In  this  case,  the  disqualified  person  is For  donor  advised  funds,  sponsoring  or-             • Treasurers and chief financial officers; or
treated as making a payment equal to the lesser         ganizations, and certain supporting organi-              • Persons with a material financial interest in 
of:                                                     zations  occurring  after  August  17,  2006.              a provider-sponsored organization.
•   The fair market value of the property on the        The  following  persons  will  be  considered  dis-
    date the property is returned to the organi-        qualified  persons  along  with  certain  family          Persons  not  considered  to  have  sub-
    zation, or                                          members  and  35%  controlled  entities  associ-         stantial influence. Persons who aren't consid-
•   The fair market value of the property on the        ated with them.                                          ered to be in a position to exercise substantial 
    date the excess benefit transaction occur-          •   Donors of donor advised funds,                       influence over the affairs of an organization in-
    red.                                                •   Investment advisors of sponsoring organi-            clude:
    If  the  payment  resulting  from  the  return  of      zations, and                                         • An employee who receives benefits that to-
property is less than the correction amount, the        •   Disqualified persons of a section 509(a)(3)            tal less than the highly compensated 
disqualified  person  must  make  an  additional            supporting organization that supports the              amount in section 414(q)(1)(B)(i) and who 
cash  payment  to  the  organization  equal  to  the        applicable tax-exempt organization.                    doesn't hold the executive or voting powers 
                                                                                                                   mentioned earlier in the discussion on Dis-
difference.                                                 For  certain  supporting  organization                 qualified Person, isn't a family member of a 
    If  the  payment  resulting  from  the  return  of  transactions  occurring  after  July  25,  2006.           disqualified person, and isn't a substantial 
the property exceeds the correction amount de-          Substantial contributors to supporting organiza-           contributor;
scribed  above,  the  organization  can  make  a        tions  will  also  be  considered  disqualified  per-    • Tax-exempt organizations described in 
cash  payment  to  the  disqualified  person  equal     sons  with  respect  to  the  supporting  organiza-        section 501(c)(3); and
to the difference.                                      tions, along with their family members and 35%           • Section 501(c)(4) organizations with re-
                                                        controlled entities.                                       spect to transactions engaged in with other 
    Exception. For  a  correction  of  an  excess                                                                  section 501(c)(4) organizations.
benefit  transaction  (discussed  earlier),  no             Investment  advisor. Investment  advisor 
amount  repaid  in  a  manner  prescribed  by  the      means  for  any  sponsoring  organization,  any           Facts and circumstances.        The determina-
Secretary can be held in a donor advised fund.          person compensated by such organization (but             tion  of  whether  a  person  has  substantial  influ-
                                                        not an employee of such organization) for man-           ence over the affairs of an organization is based 
Applicable Tax-Exempt                                   aging the investment of, or providing investment         on  all  the  facts  and  circumstances.  Facts  and 
Organization                                            advice for, assets maintained in donor advised           circumstances that tend to show a person has 
                                                        funds owned by such sponsoring organization.             substantial  influence  over  the  affairs  of  an  or-
                                                                                                                 ganization include, but aren't limited to, the fol-
An applicable tax-exempt organization is a sec-             Substantial contributor.      In general, a sub-     lowing.
tion  501(c)(3),  501(c)(4),  or  501(c)(29)  organi-   stantial contributor means any person who con-           • The person founded the organization.
zation that is tax-exempt under section 501(a),         tributed  or  bequeathed  an  aggregate  of  more        • The person is a substantial contributor to 
or was such an organization at any time during          than $5,000 to the organization, if that amount            the organization under the section 507(d)
a 5-year period ending on the day of the excess         is  more  than  2%  of  the  total  contributions  and     (2)(A) definition, only taking into account 
benefit transaction.                                    bequests received by the end of the organiza-              contributions to the organization for the 
                                                        tion's  tax  year  in  which  the  contribution  or  be-   past 5 years.
    An  applicable  tax-exempt  organization            quest  is  received.  A  substantial  contributor  in-   • The person's compensation is primarily 
doesn't include:                                        cludes the grantor of a trust.                             based on revenues derived from activities 
                                                                                                                   of the organization that the person con-
1. A private foundation as defined in section           Family  members.     Family  members  of  a  dis-          trols.
    509(a),                                             qualified person include a disqualified person's           The person has or shares authority to con-
2. A governmental entity that is:                       spouse,  brothers  or  sisters  (whether  by  whole      •
                                                                                                                   trol or determine a substantial portion of 
                                                        or  half-blood),  spouses  of  brothers  or  sisters       the organization's capital expenditures, op-
    a. Exempt from (or not subject to) taxa-            (whether  by  whole  or  half-blood),  ancestors,          erating budget, or compensation for em-
         tion without regard to section 501(a),         children  (including  a  legally  adopted  child),         ployees.
         or                                             grandchildren,  great  grandchildren,  and  spou-          The person manages a discrete segment 
    b. Not required to file an annual return,           ses of children, grandchildren, and great grand-         •
                                                                                                                   or activity of the organization that repre-
         or                                             children (whether by whole or half-blood).                 sents a substantial portion of the activities, 
3. A foreign organization, recognized by the            35% controlled entity. A 35% controlled entity             assets, income, or expenses of the organi-
    IRS or by treaty, that receives substantially       is:                                                        zation, as compared to the organization as 
    all of its support (other than gross invest-                                                                   a whole.
    ment income) from sources outside the               1. A corporation in which disqualified per-              • The person owns a controlling interest 
    United States.                                          sons own more than 35% of the total com-               (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 con-
                                                                                                                   trolled directly or indirectly by one or more 
for any period covered by a final determination         3. A trust or estate in which such persons                 disqualified persons.
that  the  organization  wasn't  tax-exempt  under          own more than 35% of the beneficial inter-            Facts  and  circumstances  tending  to  show 
section  501(a),  but  only  if  the  determination         est.                                                 that a person doesn't have substantial influence 
wasn't  based  on  private  inurement  or  one  or 
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.              gious organization or on its behalf.
A disqualified person is:                               Among those who are in a position to exercise            • The person is an independent contractor 
•   Any person (at any time during the 5-year           substantial  influence  over  the  affairs  of  the  or-   whose sole relationship to the organization 
    period ending on the date of the transac-           ganization are, for example, voting members of             is providing professional advice (without 
    tion) in a position to exercise substantial in-                                                                having decision-making authority) with 
    fluence over the affairs of the organization,
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  respect to transactions from which the in-          contemporaneous with the transfer of the eco-          Disregarded  benefits. The  following  eco-
  dependent contractor won't economically             nomic  benefits  under  consideration.  Ways  to       nomic benefits are disregarded for section 4958 
  benefit either directly or indirectly aside         provide  contemporaneous  written  substantia-         purposes.
  from customary fees received for the pro-           tion of its intent to provide an economic benefit      • Nontaxable fringe benefits that are exclu-
  fessional advice rendered.                          as compensation include:                                 ded from income under section 132.
• Any preferential treatment the person re-           • The organization produces a signed writ-             • Benefits provided to a volunteer for the or-
  ceives based on the size of the person's              ten employment contract;                               ganization if the benefit is provided to the 
  donation is also offered to others making           • The organization reports the benefit as                general public in exchange for a member-
  comparable widely solicited donations.                compensation on an original Form W-2,                  ship fee or contribution of $75 or less.
• The direct supervisor of the person isn't a           Form 1099, or Form 990, or on an amen-               • Benefits provided to a member of an or-
  disqualified person.                                  ded form filed before starting an IRS ex-              ganization due to the payment of a mem-
• The person doesn't participate in any man-            amination; or                                          bership fee or to a donor as a result of a 
  agement decisions affecting the organiza-           • The disqualified person reports the benefit            deductible contribution, if a significant 
  tion as a whole or a discrete segment of              as income on the person's original Form                number of disqualified persons make simi-
  the organization that represents a substan-           1040 or 1040-SR, or on an amended form                 lar payments or contributions and are of-
  tial portion of the activities, assets, income,       filed before starting an IRS examination.              fered a similar economic benefit.
  or expenses of the organization, as com-                                                                   • Benefits provided to a person solely as a 
  pared to the organization as a whole.               Exception. If the economic benefit is exclu-             member of a charitable class that the appli-
                                                      ded from the disqualified person's gross income          cable tax-exempt organization intends to 
In  the  case  of  multiple  organizations  affili-   for income tax purposes, the applicable tax-ex-          benefit as part of the accomplishment of its 
ated  by  common  control  or  governing  docu-       empt  organization  isn't  required  to  indicate  its   exempt purpose.
ments,  the  determination  of  whether  a  person    intent  to  provide  an  economic  benefit  as  com-   • A transfer of an economic benefit to or for 
does  or  doesn't  have  substantial  influence  is   pensation for services.                                  the use of a governmental unit, as defined 
made  separately  for  each  applicable  tax-ex-
empt organization. A person may be a disquali-        Rebuttable  presumption  that  a  transac-               in section 170(c)(1), if exclusively for public 
fied  person  with  respect  to  transactions  with   tion  isn't  an  excess  benefit  transaction.           purposes.
more than one organization.                           Payments  under  a  compensation  arrangement          Special exception for initial contracts. 
                                                      are presumed to be reasonable and the transfer         Section  4958  doesn't  apply  to  any  fixed  pay-
Reasonable  compensation.      Reasonable             of  property  (or  right  to  use  property)  is  pre- ment made to a person under an initial contract.
compensation is the value that would ordinarily       sumed to be at fair market value, if the following     A  fixed  payment  is  an  amount  of  cash  or 
be paid for like services by like enterprises un-     three conditions are met.                              other property specified in the  contract,  or de-
der like circumstances. The section 162 stand-
ard  will  apply  in  determining  the  reasonable-   1. The transaction is approved in advance by           termined by a fixed formula that is specified in 
ness of compensation. The fact that a bonus or          an authorized body of the organization (or           the contract, which is to be paid or transferred in 
revenue-sharing  arrangement  is  subject  to  a        an entity it controls) which is composed of          exchange for the provision of specified services 
cap is a relevant factor in determining reasona-        individuals who don't have a conflict of in-         or property.
bleness of compensation.                                terest concerning the transaction.                   A  fixed  formula  can,  generally,  incorporate 
                                                                                                             an amount that depends upon future specified 
To  determine  the  reasonableness  of  com-          2. Before making its determination, the au-            events or contingencies, as long as no one has 
pensation,  all  items  of  compensation  provided      thorized body obtained and relied upon               discretion  when  calculating  the  amount  of  a 
by an applicable tax-exempt organization in ex-         appropriate data as to comparability.                payment  or  deciding  whether  to  make  a  pay-
change  for  performance  of  services  are  taken      (There is a special safe harbor for small or-        ment (such as a bonus).
into  account  in  determining  the  value  of  com-    ganizations. If the organization has gross           An  initial  contract  is  a  binding  written  con-
pensation  (except  for  economic  benefits  that       receipts of less than $1 million, appropri-          tract between an applicable tax-exempt organi-
are disregarded under the discussion Disregar-          ate comparability data includes data on              zation  and  a  person  who  wasn't  a  disqualified 
ded  benefits,  later).  Items  of  compensation  in-   compensation paid by three comparable                person  immediately  before  entering  into  the 
clude:                                                  organizations in the same or similar com-            contract.
• All forms of cash and noncash compensa-               munities for similar services.)                      A  binding  written  contract,  providing  it  can 
  tion, including salary, fees, bonuses, sever-
  ance payments, and deferred noncash                 3. The authorized body adequately docu-                be  terminated  or  canceled  by  the  applicable 
  compensation;                                         ments the basis for its determination con-           tax-exempt  organization  without  the  other  par-
• The payment of liability insurance premi-             currently with making that determination.            ty's  consent  (except  as  a  result  of  substantial 
  ums for, or the payment or reimbursement              The documentation should include:                    nonperformance)  and  without  substantial  pen-
                                                                                                             alty, is treated as a new contract, as of the earli-
  by the organization of penalties, taxes, or           a. The terms of the approved transaction             est  date  any  termination  or  cancellation  would 
  certain expenses under section 4958, un-              and the date approved,                               be effective. Also, if the parties make a material 
  less excludable from income as a de mini-
  mis fringe benefit under section 132(a)(4);           b. The members of the authorized body                change to a contract, which includes an exten-
• All other compensatory benefits, whether              who were present during debate on                    sion or renewal of the contract (except for an ex-
  or not included in gross income for income            the transaction that was approved and                tension or renewal resulting from the exercise of 
  tax purposes;                                         those who voted on it,                               an option by the disqualified person), or a more 
                                                                                                             than  incidental  change  to  the  amount  payable 
• Taxable and nontaxable fringe benefits, ex-           c. The comparability data obtained and               under  the  contract,  it is treated  as  a  new  con-
  cept fringe benefits described in section             relied upon by the authorized body                   tract  as  of  the  effective  date  of  the  material 
  132; and                                              and how the data was obtained,                       change.
• Foregone interest on loans.
                                                        d. Any actions by a member of the au-                More  information.     For  more  information, 
Intent to treat benefits as compensation.               thorized body having conflict of inter-              see the Instructions for Forms 990 and 4720.
An economic benefit isn't treated as considera-         est, and
tion for the performance of services unless the 
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             Excess Business 
tion when the benefit is paid.                          meeting of the authorized body or 60 
An  applicable  tax-exempt  organization  (or           days after the final actions of the au-              Holdings
entity that it controls) is treated as clearly indi-    thorized body are taken, and approval 
cating its intent to provide an economic benefit        of records as reasonable, accurate,                  General  rule. Private  foundations  are  gener-
as compensation for services only if the organi-        and complete within a reasonable                     ally not permitted to hold more than a 20% inter-
zation  provides  written  substantiation  that  is     time thereafter.                                     est  in  an  unrelated  business  enterprise.  They 
                                                                                                             may be subject to an excise tax on the amount 

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of any excess business holdings. For purposes                                                                     the distribution in accordance with section 
of  section  4943,  for  tax  years  beginning  after This provision does not apply to any donor ad-              4945(h).
August 17, 2006, donor advised funds and cer-         vised  fund  treated  as  a  private  foundation  by 
tain  supporting  organizations  are  considered      section 4943(e), a supporting organization trea-           However,  a  taxable  distribution  doesn't  in-
private foundations.                                  ted as a private foundation by section 4943(f), a       clude a distribution from a donor advised fund 
                                                      trust described in section 4947(a)(1), or a trust       to:
Exception  under  section  4943(g).   Section         described in section 4947(a)(2).                        •   Any organization described in section 
4943(g) added by the Bipartisan Budget Act of                                                                     170(b)(1)(A) (other than a disqualified sup-
2018,  P.L.  No.  115-123,  132  Stat.  64  (2018),   Section 4943(g) shall apply to tax years begin-             porting organization),
provides  an  exception  for  certain  limited  hold- ning after December 31, 2017.                           •   The sponsoring organization of the donor 
ings  to  independently  operated  businesses.  In                                                                advised fund, or
general,  the  excess  business  holdings  provi-     Donor advised fund.    In general, a donor ad-          •   Any other donor advised fund.
sions of section 4943(a) shall not apply with re-     vised fund is a fund or account separately iden-           The  tax  on  taxable  distributions  applies  to 
spect to the holdings of a private foundation in      tified by reference to contributions of a donor or      distributions occurring in tax years beginning af-
any business enterprise which meets all the re-       donors that is owned and controlled by a spon-          ter August 17, 2006.
quirements of section 4943(g)(2), (3), and (4).       soring organization and for which the donor has 
                                                      or expects to have advisory privileges concern-         Sponsoring  organization.   A  sponsoring  or-
The requirements of section 4943(g)(2) are met        ing the distribution or investment of the funds.        ganization is a section 170(c) organization that 
if:                                                                                                           is  neither  a  government  organization  (as  refer-
                                                      Supporting  organizations. Only  certain  sup-          red to in section 170(c)(1) and (2)(A)) nor a pri-
 1. 100% of the voting stock in the business          porting organizations are subject to the excess         vate foundation.
    enterprise is held by the private foundation      business  holdings  tax  under  section  4943. 
    at all times during the tax year, and             These include (1) Type III supporting organiza-         Donor advised fund.   A donor advised fund is 
 2. All of the private foundation’s ownership         tions  that  aren't  functionally  integrated  and  (2) a fund or account:
    interests were acquired by means other            Type II supporting organizations that accept any 
    than purchase, such as a gift or bequest.         gift or contribution from a person who alone or         1. Which is separately identified by reference 
                                                      in  connection  with  a  related  party  controls  the      to contributions of a donor or donors,
                                                      supported organization that the Type II support-        2. Which is owned and controlled by a spon-
The requirements of section 4943(g)(3) are met        ing organization supports.                                  soring organization, and
if  the  business  enterprise,  no  later  than  120 
days after the close of the tax year, distributes     Taxes. A  private  foundation  that  has  excess        3. For which the donor (or any person ap-
an amount equal to its net operating income for       holdings in a business enterprise may become                pointed or designated by the donor) has or 
such tax year to the private foundation. For pur-     liable for an excise tax based on the amount of             expects to have advisory privileges con-
poses of section 4943(g), the net operating in-       holdings. The initial tax is 10% (5% for tax years          cerning the distribution or investment of 
come  of  any  business  enterprise  for  any  tax    beginning before August 18, 2006) of the value              the funds held in the donor advised funds 
year is an amount equal to the gross income of        of  the  excess  holdings  and  is  imposed  on  the        or accounts because of the donor's status 
the  business  enterprise  for  the  tax  year,  re-  last  day  of  each  tax  year  that  ends  during  the     as a donor.
duced by the sum of:                                  taxable period. The excess holdings are deter-              
 1. The deductions allowed by chapter 1 of            mined on the day during the tax year when they              
    the Code for the tax year that are directly       were the largest.                                           
    connected with the production of such in-          A foundation that fails to correct the excess              
    come,                                             business  holdings  becomes  liable  for  an  addi-         
                                                      tional tax of 200% of the remaining excess busi-           Exception. A donor advised fund doesn't 
 2. The tax imposed by chapter 1 of the Code          ness  holdings  as  of  the  earlier  of  tax  assess-  include: 
    on the business enterprise for the tax year,      ment or mailing of a notice of deficiency.
    and                                                For  more  information  on  the  tax  on  excess       1. A fund or account that makes distributions 
 3. An amount for a reasonable reserve for            business holdings, see the Instructions for Form            only to a single identified organization or 
    working capital and other business needs          4720.                                                       governmental entity; or
    of the business enterprise.                                                                               2. Any fund or account for a person descri-
                                                                                                                  bed in 3 above that gives advice about 
                                                                                                                  which individuals receive grants for travel, 
The requirements of section 4943(g)(4) are met        Taxable Distributions of 
                                                                                                                  study, or similar purposes, if the following 
if, at all times during the tax year:                 Sponsoring                                                  three requirements are met:
 1. No substantial contributor (as defined in         Organizations                                               a. The person's advisory privileges are 
    section 4958(c)(3)(C)) to the private foun-                                                                        performed exclusively by such person 
    dation or family member (as determined            An excise tax under section 4966 is imposed on                   in their capacity as a committee mem-
    under section 4958(f)(4)) of such a con-          a sponsoring organization for each taxable dis-                  ber of which all the committee mem-
    tributor is a director, officer, trustee, man-    tribution it makes from a donor advised fund. An                 bers are appointed by the sponsoring 
    ager, employee, or contractor of the busi-        excise tax is also imposed on any fund manager                   organization,
    ness enterprise (or an individual having          of  the  sponsoring  organization  who  agreed  to          b. No combination of persons with advi-
    powers or responsibilities similar to any of      the making of a distribution, knowing that it is a               sory privileges, described in 3 above, 
    the foregoing);                                   taxable distribution.                                            or persons related to those in 3 above 
 2. At least a majority of the board of directors                                                                      directly or indirectly control the com-
    of the private foundation are persons who         Taxable  distribution. A  taxable  distribution  is              mittee, and
    are not (i) directors or officers of the busi-    any  distribution  from  a  donor  advised  fund  to 
    ness enterprise, or (ii) family members of a      any natural person or to any other person if:               c. All grants from the fund or account are 
                                                                                                                       awarded on an objective and nondis-
    substantial contributor to the private foun-       1. The distribution is for any purpose other                    criminatory basis according to a pro-
    dation; and                                        than one specified in section 170(c)(2)(B),                     cedure approved in advance by the 
 3. There is no loan outstanding from the              or                                                              board of directors of the sponsoring 
    business enterprise to a substantial con-          2. The sponsoring organization maintaining                      organization. The procedure must be 
    tributor to the private foundation or to any       the donor advised fund doesn't exercise                         designed to ensure that all grants 
    family member of such a contributor.               expenditure responsibility with respect to 

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meet the requirements of section Tax on fund managers. If a tax is imposed on
4945(g)(1), (2), or (3). a prohibited benefit received by a donor, donor
advisor, or related person, a tax of 10% of the Excise Taxes on Black
Disqualified supporting organization. A dis- amount of the prohibited benefit is imposed on
qualified supporting organization includes (1) a any fund manager who agreed to the distribu- Lung Benefit Trusts
Type III supporting organization that isn't func- tion knowing that it would confer a prohibited
tionally integrated, and (2) any supporting or- benefit. Any fund manager who took part in the A black lung benefit trust that makes any expen-
ganization where the donor or donor advisor distribution and is liable for the tax must pay the ditures, payments, or investments other than
(and any related parties) directly or indirectly tax. The maximum amount of tax on all fund those described in chapter 4 under 501(c)(21) -
controls a supported organization of the sup- managers for any one taxable distribution is Black Lung Benefit Trusts must pay a tax equal
porting organization. $10,000. If more than one fund manager is lia- to 10% of the amount of such expenditures. If
ble for tax on a taxable distribution, all such there are any acts of self-dealing between the
Tax on sponsoring organization. A tax of managers are jointly and severally liable for the trust and a disqualified person, a tax equal to
20% of the amount of each taxable distribution tax. 10% of the amount involved is imposed on the
is imposed on the sponsoring organization. disqualified person. Both of these excise taxes
Exception. If a person engaged in an excess are reported on Form 6069. See the Instructions
Tax on fund manager. If a tax is imposed on a benefit transaction and received a prohibited for Form 6069 and Form 990 for more informa-
taxable distribution of the sponsoring organiza- benefit for the same transaction, the person is tion on these taxes and what has to be filed,
tion, a tax of 5% of the distribution will be im- taxed under section 4958, and no tax is im- even if the trust is excepted from filing.
posed on any fund manager who agreed to the posed under section 4967 for a prohibited ben-
distribution knowing that it was a taxable distri- efit.
bution. Any fund manager who took part in the For more information on taxes on prohibited Excise Tax on Failure To
distribution and is liable for the tax must pay the benefits distributed from donor advised funds, Meet the Community
tax. The maximum amount of tax on all fund see the Instructions for Form 4720.
managers for any one taxable distribution is Health Needs
$10,000. If more than one fund manager is lia-
ble for tax on a taxable distribution, all such Excise Taxes on Private Assessment
managers are jointly and severally liable for the
tax. Foundations Requirements
For more information on the tax on taxable
distributions of sponsoring organizations, see There is an excise tax on the net investment in- For tax years beginning after March 23, 2012,
the Instructions for Form 4720. come of most domestic private foundations. new section 4959 imposes an excise tax on
Capital gains from appreciation are included in hospital organizations which fail to meet certain
the tax base on private foundation net invest- section 501(r) requirements for each of their
Taxes on Prohibited ment income. This tax must be reported on hospital facilities. These entities must meet sec-
Form 990-PF and must be paid annually at the tion 501(r)(3) requirements at all times during
Benefits Resulting from time for filing that return or in quarterly estima- their tax year. Section 501(r)(3) requirements
ted tax payments if the total tax for the year pertain to a hospital organization preparing a
Donor Advised Fund (section 4940 tax minus credits) is $500 or community health needs assessment (CHNA).
Distributions more. Form 990-W is used to calculate the esti- See Schedule H, Hospitals (Form 990), for de-
mated tax. tails.
Prohibited benefit. If any donor, donor advi- In addition, there are several other rules that
sor, or related party advises the sponsoring or- apply to excise taxes on private foundations. Excise Tax on Executive
ganization about making a distribution which re- These include:
sults in a donor, donor advisor, or related party Compensation
receiving (either directly or indirectly) a more 1. Restrictions on self-dealing between pri-
than incidental benefit, then such benefit is a vate foundations and their substantial con- New section 4960 imposes an excise tax on an
prohibited benefit. The tax on prohibited bene- tributors and other disqualified persons, organization that pays to any covered employee
fits applies to distributions occurring in tax years 2. Requirements that the foundation annually more than $1 million in remuneration or pays an
beginning after August 17, 2006. distribute income for charitable purposes, excess parachute payment during the year
starting in 2018. See section 4960 and Form
Donor advisor. A donor advisor is any person 3. Limits on their holdings in any business 4720, Return of Certain Excise Taxes Under
appointed or designated by a donor to advise a enterprise (see Excess Business Hold- Chapters 41 and 42 of the Internal Revenue
sponsoring organization on the distribution or ings, earlier), Code, final regulations TD 9938 (Regulations
investment of amounts held in the donor's fund 4. Provisions that investments mustn't jeop- sections 53.4960-0 through 53.4960-6), and
or account. ardize the carrying out of exempt purpo- Notice 2019-09, 2019-04 I.R.B. 403, for more
Related party. A related party includes any ses, and information.
family member or 35% controlled entity. See the 5. Provisions to assure that expenditures fur-
definition of those terms under Disqualified Per- ther the organization's exempt purposes.
son, earlier. Excise Tax on Net
Violations of these provisions give rise to
Tax on donor, donor advisor, or related per- taxes and penalties against the private founda- Investment Income of
son. A tax of 125% of the benefit resulting from tion and, in some cases, its managers, its sub- Certain Colleges and
the distribution is imposed on both the party stantial contributors, and certain related per-
who advised as to the distribution (which might sons. Universities
be a donor, donor advisor, or related party) and For more information on the excise taxes im- New section 4968 imposes an excise tax on the
the party who received such benefit (which posed on private foundations, see the Instruc- net investment income of certain private col-
might be a donor, donor advisor, or related tions for Form 4720 and the Instructions for leges and universities. A private college or uni-
party). The advisor and the party who received Form 990-PF. versity will be subject to the excise tax on net in-
the benefit are jointly and severally liable for the
tax. vestment income under section 4968 if four
tests are met.

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1. The organization must be an eligible edu- IRS.gov/VITA, download the free IRS2Go you choose to have someone prepare your tax
cational institution as defined in section app, or call 800-906-9887 for information return, choose that preparer wisely. A paid tax
25A(f)(2). Section 25A(f)(2) defines “eligi- on free tax return preparation. preparer is:
ble educational institution” as an institution • TCE. The Tax Counseling for the Elderly • Primarily responsible for the overall sub-
that is described in section 481 of the (TCE) program offers free tax help for all stantive accuracy of your return,
Higher Education Act of 1965 (20 U.S.C. taxpayers, particularly those who are 60 • Required to sign the return, and
section 1088), as in effect on August 5, years of age and older. TCE volunteers • Required to include their preparer tax iden-
1997, and is eligible to participate in a pro- specialize in answering questions about tification number (PTIN).
gram under Title IV of such Act (20 U.S.C. pensions and retirement-related issues
sections 1070 et seq.). unique to seniors. Go to IRS.gov/TCE, Although the tax preparer always signs the
2. The organization must have had at least download the free IRS2Go app, or call return, you're ultimately responsible for provid-
500 tuition-paying students, based upon a 888-227-7669 for information on free tax ing all the information required for the preparer
daily average student count, during the return preparation. to accurately prepare your return. Anyone paid
preceding tax year. • MilTax. Members of the U.S. Armed to prepare tax returns for others should have a
Forces and qualified veterans may use Mil- thorough understanding of tax matters. For
3. More than 50% of those students must Tax, a free tax service offered by the De- more information on how to choose a tax pre-
have been located in the United States. partment of Defense through Military One- parer, go to Tips for Choosing a Tax Preparer on
4. The aggregate fair market value, at the Source. For more information, go to IRS.gov.
end of the preceding tax year, of the as- MilitaryOneSource MilitaryOneSource.mil/ (
sets not used directly in carrying out the MilTax). Coronavirus. Go to IRS.gov/Coronavirus for
organization’s exempt purpose, held by Also, the IRS offers Free Fillable Forms, links to information on the impact of the corona-
the organization and related organizations, which can be completed online and then virus, as well as tax relief available for individu-
must be at least $500,000 per student. filed electronically regardless of income. als and families, small and large businesses,
and tax-exempt organizations.
See the Instructions for Form 990, Part V, Using online tools to help prepare your re-
Line 16 for more information about organiza- turn. Go to IRS.gov/Tools for the following. Employers can register to use Business
tions subject to the excise tax. See Instructions • The Earned Income Tax Credit Assistant Services Online. The Social Security Adminis-
for Form 4720, Schedule O, and final regula- (IRS.gov/EITCAssistant) determines if tration (SSA) offers online service at SSA.gov/
tions TD 9917 (Regulations sections 53.4968-1 you’re eligible for the earned income credit employer for fast, free, and secure online W-2
through 53.4968-4) for more information about (EIC). filing options to CPAs, accountants, enrolled
calculating the excise tax. • The Online EIN Application IRS.gov/EIN ( ) agents, and individuals who process Form W-2,
helps you get an employer identification Wage and Tax Statement, and Form W-2c, Cor-
number (EIN) at no cost. rected Wage and Tax Statement.
How To Get Tax Help • The Tax Withholding Estimator IRS.gov/ (
W4app) makes it easier for you to estimate IRS social media. Go to IRS.gov/SocialMedia
If you have questions about a tax issue; need the federal income tax you want your em- to see the various social media tools the IRS
help preparing your tax return; or want to down- ployer to withhold from your paycheck. uses to share the latest information on tax
load free publications, forms, or instructions, go This is tax withholding. See how your with- changes, scam alerts, initiatives, products, and
to IRS.gov to find resources that can help you holding affects your refund, take-home pay, services. At the IRS, privacy and security are
right away. or tax due. our highest priority. We use these tools to share
public information with you. Don’t post your so-
• The First-Time Homebuyer Credit Account cial security number (SSN) or other confidential
Preparing and filing your tax return. After Look-up IRS.gov/HomeBuyer ( ) tool pro- information on social media sites. Always pro-
receiving all your wage and earnings state- vides information on your repayments and tect your identity when using any social net-
ments (Forms W-2, W-2G, 1099-R, 1099-MISC, account balance. working site.
1099-NEC, etc.); unemployment compensation • The Sales Tax Deduction Calculator The following IRS YouTube channels provide
statements (by mail or in a digital format) or (IRS.gov/SalesTax) figures the amount you short, informative videos on various tax-related
other government payment statements (Form can claim if you itemize deductions on topics in English, Spanish, and ASL.
1099-G); and interest, dividend, and retirement Schedule A (Form 1040). • Youtube.com/irsvideos.
statements from banks and investment firms • Youtube.com/irsvideosmultilingua.
(Forms 1099), you have several options to Getting answers to your tax ques-
choose from to prepare and file your tax return. tions. On IRS.gov, you can get • Youtube.com/irsvideosASL.
You can prepare the tax return yourself, see if up-to-date information on current
you qualify for free tax preparation, or hire a tax events and changes in tax law. Watching IRS videos. The IRS Video portal
(IRSVideos.gov) contains video and audio pre-
professional to prepare your return. • IRS.gov/Help: A variety of tools to help you sentations for individuals, small businesses,
get answers to some of the most common and tax professionals.
Free options for tax preparation. Go to tax questions.
IRS.gov to see your options for preparing and • IRS.gov/ITA: The Interactive Tax Assistant, Online tax information in other languages.
filing your return online or in your local commun- a tool that will ask you questions and, You can find information on IRS.gov/
ity, if you qualify, which include the following. based on your input, provide answers on a MyLanguage if English isn’t your native lan-
• Free File. This program lets you prepare number of tax law topics. guage.
and file your federal individual income tax • IRS.gov/Forms: Find forms, instructions,
return for free using brand-name tax-prep- and publications. You will find details on Free Over-the-Phone Interpreter (OPI) Serv-
aration-and-filing software or Free File filla- the most recent tax changes and interac- ice. The IRS is committed to serving our multi-
ble forms. However, state tax preparation tive links to help you find answers to your lingual customers by offering OPI services. The
may not be available through Free File. Go questions. OPI Service is a federally funded program and
to IRS.gov/FreeFile to see if you qualify for • You may also be able to access tax law in- is available at Taxpayer Assistance Centers
free online federal tax preparation, e-filing, formation in your electronic filing software. (TACs), other IRS offices, and every VITA/TCE
and direct deposit or payment options. return site. The OPI Service is accessible in
• VITA. The Volunteer Income Tax Assis- more than 350 languages.
tance (VITA) program offers free tax help to Need someone to prepare your tax return?
people with low-to-moderate incomes, per- There are various types of tax return preparers, Accessibility Helpline available for taxpay-
sons with disabilities, and limited-Eng- including enrolled agents, certified public ac- ers with disabilities. Taxpayers who need in-
lish-speaking taxpayers who need help countants (CPAs), accountants, and many oth- formation about accessibility services can call
preparing their own tax returns. Go to ers who don’t have professional credentials. If 833-690-0598. The Accessibility Helpline can
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answer questions related to current and future tronically transfers your refund directly into your • Electronic Funds Withdrawal: Schedule a
accessibility products and services available in financial account. Direct deposit also avoids the payment when filing your federal taxes us-
alternative media formats (for example, braille, possibility that your check could be lost, stolen, ing tax return preparation software or
large print, audio, etc.). The Accessibility Help- destroyed, or returned undeliverable to the IRS. through a tax professional.
line does not have access to your IRS account. Eight in 10 taxpayers use direct deposit to re- • Electronic Federal Tax Payment System:
For help with tax law, refunds, or account-rela- ceive their refunds. If you don’t have a bank ac- Best option for businesses. Enrollment is
ted issues, go to IRS.gov/LetUsHelp. count, go to IRS.gov/DirectDeposit for more in- required.
formation on where to find a bank or credit • Check or Money Order: Mail your payment
Note. Form 9000, Alternative Media Prefer- union that can open an account online. to the address listed on the notice or in-
ence, or Form 9000(SP) allows you to elect to structions.
receive certain types of written correspondence Getting a transcript of your return. The • Cash: You may be able to pay your taxes
in the following formats. quickest way to get a copy of your tax transcript with cash at a participating retail store.
• Standard Print. is to go to IRS.gov/Transcripts. Click on either • Same-Day Wire: You may be able to do
• Large Print. “Get Transcript Online” or “Get Transcript by same-day wire from your financial institu-
Mail” to order a free copy of your transcript. If tion. Contact your financial institution for
• Braille. you prefer, you can order your transcript by call- availability, cost, and time frames.
• Audio (MP3). ing 800-908-9946.
Note. The IRS uses the latest encryption
• Plain Text File (TXT). Reporting and resolving your tax-related technology to ensure that the electronic pay-
• Braille Ready File (BRF). identity theft issues. ments you make online, by phone, or from a
• Tax-related identity theft happens when mobile device using the IRS2Go app are safe
Disasters. Go to Disaster Assistance and someone steals your personal information and secure. Paying electronically is quick, easy,
Emergency Relief for Individuals and to commit tax fraud. Your taxes can be af- and faster than mailing in a check or money or-
Businesses to review the available disaster tax fected if your SSN is used to file a fraudu- der.
relief. lent return or to claim a refund or credit.
• The IRS doesn’t initiate contact with tax- What if I can’t pay now? Go to IRS.gov/
Getting tax forms and publications. Go to payers by email, text messages (including Payments for more information about your op-
IRS.gov/Forms to view, download, or print all shortened links), telephone calls, or social tions.
the forms, instructions, and publications you media channels to request or verify per- • Apply for an online payment agreement
may need. Or, you can go to IRS.gov/ sonal or financial information. This includes (IRS.gov/OPA) to meet your tax obligation
OrderForms to place an order. requests for personal identification num- in monthly installments if you can’t pay
bers (PINs), passwords, or similar informa- your taxes in full today. Once you complete
Getting tax publications and instructions in tion for credit cards, banks, or other finan- the online process, you will receive imme-
eBook format. You can also download and cial accounts. diate notification of whether your agree-
view popular tax publications and instructions • Go to IRS.gov/IdentityTheft, the IRS Iden- ment has been approved.
(including the Instructions for Form 1040) on tity Theft Central webpage, for information • Use the Offer in Compromise Pre-Qualifier
mobile devices as eBooks at IRS.gov/eBooks. on identity theft and data security protec- to see if you can settle your tax debt for
tion for taxpayers, tax professionals, and less than the full amount you owe. For
Note. IRS eBooks have been tested using businesses. If your SSN has been lost or more information on the Offer in Compro-
Apple's iBooks for iPad. Our eBooks haven’t stolen or you suspect you’re a victim of mise program, go to IRS.gov/OIC.
been tested on other dedicated eBook readers, tax-related identity theft, you can learn
and eBook functionality may not operate as in- what steps you should take. Filing an amended return. Go to IRS.gov/
tended. Get an Identity Protection PIN (IP PIN). IP Form1040X for information and updates.
•
Access your online account (individual tax- PINs are six-digit numbers assigned to tax- Checking the status of your amended re-
payers only). Go to IRS.gov/Account to se- payers to help prevent the misuse of their turn. Go to IRS.gov/WMAR to track the status
curely access information about your federal tax SSNs on fraudulent federal income tax re- of Form 1040-X amended returns.
account. turns. When you have an IP PIN, it pre-
• View the amount you owe and a break- vents someone else from filing a tax return Note. It can take up to 3 weeks from the
down by tax year. with your SSN. To learn more, go to date you filed your amended return for it to
• See payment plan details or apply for a IRS.gov/IPPIN. show up in our system, and processing it can
take up to 16 weeks.
new payment plan. Ways to check on the status of your refund.
ment history and any pending or sched- •
• Make a payment or view 5 years of pay- Go to IRS.gov/Refunds. Understanding an IRS notice or letter
uled payments. • Download the official IRS2Go app to your you’ve received. Go to IRS.gov/Notices to find
mobile device to check your refund status. additional information about responding to an
data from your most recent tax return, and •
• Access your tax records, including key Call the automated refund hotline at IRS notice or letter.
800-829-1954.
transcripts.
Note. You can use Schedule LEP (Form
• View digital copies of select notices from Note. The IRS can’t issue refunds before 1040), Request for Change in Language Prefer-
the IRS. mid-February for returns that claimed the EIC or ence, to state a preference to receive notices,
• Approve or reject authorization requests the additional child tax credit (ACTC). This ap- letters, or other written communications from
from tax professionals. plies to the entire refund, not just the portion as- the IRS in an alternative language. You may not
• View your address on file or manage your sociated with these credits. immediately receive written communications in
communication preferences.
the requested language. The IRS’s commitment
Making a tax payment. Go to IRS.gov/ to LEP taxpayers is part of a multi-year timeline
Tax Pro Account. This tool lets your tax pro- Payments for information on how to make a pay- that is scheduled to begin providing translations
fessional submit an authorization request to ac- ment using any of the following options. in 2024. You will continue to receive communi-
cess your individual taxpayer IRS online • IRS Direct Pay: Pay your individual tax bill cations, including notices and letters in English
account. For more information, go to IRS.gov/ or estimated tax payment directly from your until they are translated to your preferred lan-
TaxProAccount. checking or savings account at no cost to guage.
you.
ceive a tax refund is to file electronically and •
Using direct deposit. The fastest way to re- Debit or Credit Card: Choose an approved Contacting your local IRS office. Keep in
payment processor to pay online or by mind, many questions can be answered on
choose direct deposit, which securely and elec- phone.

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IRS.gov without visiting an IRS TAC. Go to the IRS. Go to TaxpayerAdvocate.IRS.gov to these broad issues, report it to them at IRS.gov/
IRS.gov/LetUsHelp for the topics people ask help you understand what these rights mean to SAMS.
about most. If you still need help, IRS TACs pro- you and how they apply. These are your rights.
vide tax help when a tax issue can’t be handled Know them. Use them. TAS for Tax Professionals
online or by phone. All TACs now provide serv-
ice by appointment, so you’ll know in advance What Can TAS Do for You? TAS can provide a variety of information for tax
that you can get the service you need without professionals, including tax law updates and
long wait times. Before you visit, go to IRS.gov/ TAS can help you resolve problems that you guidance, TAS programs, and ways to let TAS
TACLocator to find the nearest TAC and to can’t resolve with the IRS. And their service is know about systemic problems you’ve seen in
check hours, available services, and appoint- free. If you qualify for their assistance, you will your practice.
ment options. Or, on the IRS2Go app, under the be assigned to one advocate who will work with
Stay Connected tab, choose the Contact Us op- you throughout the process and will do every-
tion and click on “Local Offices.” thing possible to resolve your issue. TAS can Low Income Taxpayer Clinics
help you if: (LITCs)
The Taxpayer Advocate • Your problem is causing financial difficulty
for you, your family, or your business; LITCs are independent from the IRS. LITCs rep-
Service (TAS) Is Here To • You face (or your business is facing) an im- resent individuals whose income is below a cer-
Help You mediate threat of adverse action; or tain level and need to resolve tax problems with
What Is TAS? • You’ve tried repeatedly to contact the IRS the IRS, such as audits, appeals, and tax collec-
but no one has responded, or the IRS tion disputes. In addition, LITCs can provide in-
TAS is an independent organization within the hasn’t responded by the date promised. formation about taxpayer rights and responsibil-
IRS that helps taxpayers and protects taxpayer ities in different languages for individuals who
speak English as a second language. Services
rights. Their job is to ensure that every taxpayer How Can You Reach TAS? are offered for free or a small fee for eligible tax-
is treated fairly and that you know and under-
payers. To find an LITC near you, go to
stand your rights under the Taxpayer Bill of TAS has offices in every state, the District of TaxpayerAdvocate.IRS.gov/about-us/Low-
Rights. Columbia, and Puerto Rico. Your local advo- Income-Taxpayer-Clinics-LITC or see IRS Pub.
cate’s number is in your local directory and at 4134, Low Income Taxpayer Clinic List.
How Can You Learn About Your TaxpayerAdvocate.IRS.gov/Contact-Us. You
Taxpayer Rights? can also call them at 877-777-4778.

The Taxpayer Bill of Rights describes 10 basic How Else Does TAS Help
rights that all taxpayers have when dealing with Taxpayers?
TAS works to resolve large-scale problems that
affect many taxpayers. If you know of one of

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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           990  or 990-EZ2 9   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 990  or 990-EZ , 2 9 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   990  or 990-EZ2 9   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           990  or 990-EZ2 1   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           990  or 990-EZ2 9   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           990  or 990-EZ2 9   No3
501(c)(8)  Fraternal Beneficiary Societies             Providing for payment of life, sickness,    1024           990  or 990-EZ2 9   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           990  or 990-EZ2 9   No3
           Associations                                payment
                                                        of life, sickness, accident, or other
                                                        benefits to members
501(c)(10) Domestic Fraternal Societies                Earnings devoted to charitable, fraternal,  1024           990  or 990-EZ2 9   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        10247          990  or 990-EZ2 9   No3
                                                       retirement benefits
501(c)(12) Benevolent Life Insurance Associations,  Activities of a mutual or cooperative          1024           990  or 990-EZ2 9   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           990  or 990-EZ2 9   Yes, generally
501(c)(14) State-Chartered Credit Unions,              Loans to members                            10247          990  or 990-EZ2 9   No3
           Mutual Reserve Funds
501(c)(15) Mutual Insurance Companies or               Providing insurance to members              1024           990  or 990-EZ2 9   No3
           Associations                                substantially at cost
501(c)(16) Cooperative Organizations to                Financing crop operations in                Form 1120-C,   990  or 990-EZ2 9   No3
           Finance Crop Operations                     conjunction with activities of a marketing  10247
                                                       or purchasing association
501(c)(17) Supplemental Unemployment                   Provides for payment of                     1024           990  or 990-EZ2 9   No3
           Benefit Trusts                              supplemental unemployment 
                                                       compensation benefits
501(c)(18) Employee Funded Pension Trust               Payment of benefits under a                 10247          990  or 990-EZ2 9   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         990  or 990-EZ2 9   No, generally8
           Present Members of the Armed Forces
501(c)(21) Black Lung Benefit Trusts                   Funded by coal mine operators to satisfy    10247          990                 No5
                                                       their liability for disability or 
                                                       death due to black lung diseases
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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                                        10247           990  or 990-EZ2 9 No6
                                                   liability of employers withdrawing from 
                                                   a multi-employer pension fund
501(c)(23)  Veterans' Organization (created        To provide insurance and other                                      10247           990  or 990-EZ2 9 No, generally8
            before 1880)                           benefits to veterans
501(c)(25)  Title Holding Corporations or Trusts with  Holding title and paying over                                   1024            990  or 990-EZ2 9 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  10247                                  990  or 990-EZ2 9 No
            Health Coverage for High-Risk          individuals
            Individuals
501(c)(27)  State-Sponsored Workers'               Reimburses members for losses                                       10247           990  or 990-EZ2 9 No
            Compensation Reinsurance Organization under workers' compensation acts
501(c)(28)  National Railroad Retirement Investment  Manages and invests the assets of the                             1024            99012             No12
            Trust                                  Railroad Retirement Account
501(c)(29)  CO-OP health insurance issuers         A qualified health insurance issuer which                           1024 and Form  9902               No14
                                                   has received a loan or grant under the                              871815
                                                   CO-OP program 
501(d)      Religious and Apostolic Associations   Regular business activities;                                        1024            106510            No3
                                                   Communal religious community
501(e)      Cooperative Hospital Service           Performs cooperative services for hospitals 1023                                    990  or 990-EZ2 9 Yes
            Organizations
501(f)      Cooperative Service Organizations      Performs collective investment                                      1023            990  or 990-EZ2 9 Yes
            of Operating Educational Organizations services for educational organizations
501(k)      Child Care Organizations               Provides care for children                                          1023            990  or 990-EZ2 9 Yes
501(n)      Charitable Risk Pools                  Pools certain insurance risks of sec. 501(c) 1023                                   990  or 990-EZ2 9 Yes
                                                   (3) organizations
501(q)      Credit Counseling Organization         Credit counseling services                                          1023            99013             No
521(a)      Farmers' Cooperative Associations      Cooperative marketing and                                           1028 or 1024    1120-C            No
                                                   purchasing for agricultural procedures
527         Political organizations                A party, committee, fund,                                           8871            1120-POL11        No
                                                   association, etc., that directly or indirectly                                      990  or 990-EZ2 8
                                                   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. See form instructions 
as to which 990 series, and other series, forms, after the Taxpayer First Act, are required to be filed electronically.
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 Reserved
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-A 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, as modified and superseded by Rev. Proc. 2022-8, 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 Jurisdiction 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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                      To help us develop a more useful index, please let us know if you have ideas for index entries.
Index                 See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                     Nondeductible                                5768 46
A                                       contributions  20                         6069 57                         M
                                     Quid pro quo contributions     16            8274 13                         Medical research 
Acknowledgment of                    Services available from                      8282 16                          organization      32
  contributions  17                     government     20                         8283 16                         Medicare and Medicaid 
Adverse determination    6         Dispositions of donated                        8300 18                          payments     35
Affordable Care Act:                 property  16                                 8718 4 5,                       Membership fee     35 40, 
  Hospitals 32                     Disqualified persons    43                     8821 7                          Modification of exemption      6
Agricultural organization   49     Domestic fraternal society       52            8871 14 18,                     Mutual financial 
Airport 48                         Donor advised funds:                           8872 14 18,                      organization      56
Alumni association 26                Excess benefit transaction     61            990 9 11 18 46, , ,             Mutual or cooperative 
Amateur athletic                   Dues used for political or                     990-BL  11 57,                   association     55
  organizations  30                  legislative activities  21 50, 
Animals, prevention of cruelty                                                    990-EZ  11
  to 30                            E                                              990-PF  12 31 65, ,             N
Appeal procedures  7                                                              990-T  13                       Notice:
Application procedures    4 5,     Educational organizations        26,           SS-4 5 8,                        Notice 2014–4     45
  Bylaws  5                          32                                           W–2  13
  Conformed copy   5               Employees' association      52               Fraternal beneficiary society 51  O
  Description of activities 5      Employment taxes      13                     Fraternal societies   20 51, 
  Employer identification          Endowment fund      32                       Funeral benefit insurance    55   One-third support test    33
     number   5                    Estimated tax  13                                                              Organization assets     25
  Financial Unless you are filing  Excess benefit transaction       61          G                                  Dedication   25
     Form 1023-EZ, y  6              Disqualified person   60 62,                                                  Distribution  25
  Organizing If you are submitting      Controlled entity, 35%      62          Gifts and contributions, public   Organization Reference 
     a Form 1023 or Form 1024,          Family members     62                     charity 40                       Chart 69
     y  5                               Substantial influence    62             Governmental unit     32          Organizational changes    21
Aquatic resources  49                Disregarded benefits    63                 Grant:
Articles of organization  25         Donor advised funds     61 62,               Distinguished from gross        P
                                                                                     receipts 40
Assistance (See Tax help)            Excise tax 60                                Exclusion for unusual grant 36, Penalties 13
Athletic organization 26 30,         Initial contracts 63                            39                            Failure to allow public 
Attorney's fees 29                   Reasonable compensation        63            From public charity 35 41,       inspection        20
Attribution, special rules  44       Rebuttable presumption      63             Grantor and contributor,           Failure to disclose 17 20 21, , 
                                   Excise tax:                                    reliance on ruling  45           Failure to file 13
B                                    Black lung benefit trust  57               Gross receipts from               Perpetual care organization      55
Black lung benefit trust  57         Lobbying expenditures     47                 nonmembership sources       51  Political activity 21 23 48, , 
Board of trade 49                    Political expenditures  47                 Group exemption letter   8        Political organization:
Bureau defined  40                   Private foundations   31 65,                                                  Income tax return   14
Burial benefit insurance    55     Exempt function     14                       H                                  Taxable income    14
Business income, unrelated     13  Exempt purposes     22                       Health coverage                   Power of attorney  5
Business league  49                Exemption for terrorist                        organization  58                Preferred stock    56
                                     organization  5                            High-risk health coverage         Prevention of cruelty to children 
C                                  Extensions of time    23                       organization  58                 or animals    30
                                                                                Homeowners' association      48   Private delivery service  23
Cemetery company     55            F                                            Horticultural organization   49   Private foundations  30
Chamber of commerce      49                                                     Hospital 29 32,                   Private operating foundation     45
Change in legal structure   21     Facts and circumstances 
Charitable contributions    17 22,   test 33                                                                      Private school   26
Charitable organization   22 28,   Fair market value, estimate                  I                                 Prohibited tax shelter 
                                     of 17                                                                         transactions:
Charitable risk pools 28           Filing requirements    11                    Inactive organization 21           Entity managers     60
Child care organization   22         Annual information returns     11          Industrial development   48        Entity managers excise tax      60
Children, prevention of cruelty      Donee information return       16          Instrumentalities  22              Listed transaction  60
  to 30                              Due date  14                               Insurance, organizations           Prohibited reportable 
Church  29                           Employment tax    13                         providing   28                   transactions      60
  Integrated auxiliaries 29          Excise tax 31 65,                                                             Subsequently listed 
Civic leagues 48                     Political organization  14                 L                                  transaction       60
Clinic 29                            Private foundations   12                   Labor organization    20 49,       Tax-exempt entities    60
CO-OP Health Insurance               Unrelated business income      13          Law, public interest  29          Public charity:
  Issuers  59                                                                                                      Gifts and contributions  40
College bookstore,                 Form 990-N  11                               Legislative activity  46 50, 
  restaurant  26                   Forms  4                                     Listed transaction    60           Grant from   41
Community association       48       1023 4 7 8 18 23 24 26 30,  ,  , , , , , , Literary organizations   30        Section 509(a)(1)   31
Community trust  37                     46 48,                                  Loans, organizations               Section 509(a)(2)   38
Contributions, charitable   17 22,   1023-EZ   4 23,                              providing   29                   Section 509(a)(3)   41
Court appeals  8                     1024 4 18 48 53 55 58, , - , -             Lobbying expenditures    46        Section 509(a)(4)   45
Credit union 56                      1040 14                                    Local benevolent life insurance    Support test    33 38, 
                                     1065 11                                      associations    55              Public inspection:
D                                    1120–POL   14                              Local employees'                   Annual return     18
                                     1128 22                                      association   52                 Exemption applications   18
Determination letter 6               2848 5 7,                                  Lodge system  51                   Forms 8871 and 8872      18
Disclosures, required 16             4720 47                                                                      Public-interest law firm  29
  Dues used for lobbying    21       5578 28                                                                      Publications (See Tax help)

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Publicly supported                Scholarships  28                 Sports organization,            Title-holding corporation 57
  organization   32 33,           School, private 26                 amateur   30
  Attraction of public support 33 Scientific organizations 30      State-sponsored  58             U
  Ten-percent-of-support 33       Section 501(c)(3) organizations:   High-risk health coverage 
                                  Amateur athletic  30               organization   58             Unemployment benefit trust  53
R                                 Literary 30                        Workers' compensation         Unrelated business income   13
Racial composition 26             Prevention of cruelty 30           reinsurance organization   59 Unusual grants 36 39, 
Racially nondiscriminatory        Private foundations  30          Stock or commodity              User fee 5
                                                                     exchange   50
  policy 26                       Public charities  31             Supplemental unemployment       V
Real estate board 49              Qualifications  22                 benefit trust  53
Recognition of exemption,         Religious  29                    Support  34 35,                 Veterans' organization 56
  application 23                  Scientific 30                    Support test 33                 Voluntary employees' 
Religious organizations  29       Section 501(c)(3)                  Facts and circumstances   33   beneficiary association   52
Requests other than               Organizations:                     One-third 33                  Volunteer fire company 48
  applications  5                 Charitable    28                   Public charity 38
Responsiveness test  43           Educational   26                 Supporting organization   61    W
Revocation of exemption  6        Single entity 38                                                 War veterans' organization 56
Ruling letter 6                   Social clubs  20 50,             T                               Withdrawal of application 6
                                  Social welfare organization 20, 
S                                 48                               Tax help 66                     Withholding information from 
                                                                                                    public  6
                                  Specified organizations  42      Technical advice 7              Workers' compensation 
Scholarship:                                                       Testing for public safety 45     reinsurance organization   59
  Private school 28

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