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            Publication 557
            (Rev. January 2023)                                                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       . . . . . 7
                                                                               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

Mar 22, 2023

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Educational Organizations and                        Excise Tax on Executive                               Form  4720  are  encouraged,  but  not  re-
       Private Schools . . . . . . . . . . .    26       Compensation      . . . . . . . . . . .   66      quired, to file Form 4720 electronically.
Organizations Providing                              Excise Tax on Net Investment                        • Forms 990, 990-EZ, & 990-PF e-filing. 
       Insurance  . . . . . . . . . . . . . .   28       Income of Certain Colleges                        Form 990, Return of Organization Exempt 
Other Section 501(c)(3)                                  and Universities    . . . . . . . . . .   66      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: 
       Fraternal Beneficiary                       page on IRS.gov for information about Publica-          Recent  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 
       (17) - Employees'                           lease it) will be posted on that page.                Black Lung Benefit Trusts and Certain Related 
       Associations   . . . . . . . . . . . .   52
501(c)(12) - Local Benevolent                                                                            Persons, will be a historical form beginning with 
       Life Insurance Associations,                                                                      tax year 2021. Section 501(c)(21) trusts can no 
       Mutual Irrigation and                                                                             longer file Form 990-BL and will file Form 990 
       Telephone Companies, and                    Reminders                                             (or submit Form 990-N, if eligible) to meet their 
       Like Organizations . . . . . . . . .     53 Electronic Form 1024.     As of January 3, 2022,      annual  filing  obligations  under  section  6033. 
501(c)(13) - Cemetery                              Form  1024,  Application  for  Recognition  of  Ex-   Some section 501(c)(21) trusts may also be re-
       Companies    . . . . . . . . . . . . .   55 emption Under Section 501(a) or Section 521,          quired to file Form 6069, Return of Certain Ex-
501(c)(14) - Credit Unions and                     must  be  submitted  for  electronic  filing  on      cise  Taxes  on  Mine  Operators,  Black  Lung 
       Other Mutual Financial                      Pay.gov. As part of the revision, applications for    Trusts,  and  Other  Persons  Under  Sections 
       Organizations . . . . . . . . . . . .    56 recognition of exemption under Sections 501(c)        4951, 4952, 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    . . . . . . . .   58 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 . . . . . . . . . . . .    59 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 & 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 
Excess Business Holdings          . . . . . .   64   ternal Revenue Code, pending conversion             failed to file for 2 consecutive years. See Auto-
Taxable Distributions of                             into electronic format. As described below,         matic  Revocation,  later,  for  more  information, 
       Sponsoring Organizations . . . . .       64   in 2021 the IRS announced e-filing is re-           including 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 
       Foundations  . . . . . . . . . . . . .   65   cally and not on paper.                             available  only  as  an  electronic  form  filed  on 
Excise Taxes on Black Lung                               For Form 4720, any 2020, and any fu-            Pay.gov.  Form  1023-EZ,  Streamlined  Applica-
       Benefit Trusts . . . . . . . . . . . .   65   ture  year,  Form  4720  filed  by  a  private      tion, is already 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 
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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 un- cluding a section on the determination of private Organization Reference Chart. The Organi-
related business taxable income (UBTI), includ- foundation status. zation Reference Chart enables you to locate at
ing for purposes of determining any net operat- Chapter 4, Other Section 501(c) Organiza- a glance the section of the Code under which
ing loss deduction, separately with respect to tions, includes separate sections for specific your organization might qualify for exemption. It
each such trade or business. See Unrelated types of organizations described in section also shows the required application form and, if
Business Income Tax Return, chapter 2. See 501(c). your organization meets the exemption require-
also Schedule A (Form 990-T). The UBTI with Chapter 5, Excise Taxes, provides informa- ments, the annual return to be filed (if any), and
respect to any such trade or business shall not tion on when excise taxes may be imposed. whether or not a contribution to your organiza-
be 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 de- for exemption aren't discussed in detail in this ence with the IRS (in requesting forms or other-
tails, 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 organizations (and the Code sections that apply latest updates, Tax Information for Charities &
from a domestic section 501(c) organization to them) are as follows: Other Non-Profits.
that undergoes certain changes of form or place
of organization, as described in Rev. Proc. Comments and suggestions. We welcome
2018-15, 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 Pub-
zations. See Group Exemption Letter, later. lications, 1111 Constitution Ave. NW, IR-6526,
Form 8976. Each new section 501(c)(4) or- Washington, DC 20224.
ganization must notify the IRS of its intent to op- Although we can’t respond individually to
erate as a section 501(c)(4) organization re- each comment received, we do appreciate your
gardless 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 (January 2023) Page 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.  2023-5,  I.R.B  256,  as  amended  by    associations;
publications.  Go  to IRS.gov/OrderForms  to          Rev. Proc. 2023-8. If your organization is a cen-   • 501(c)(16) Cooperative Organizations to 
order  current  forms,  instructions,  and  publica-  tral organization with exempt status, see Group       Finance Crop Operations;
tions;  call  800-829-3676  to  order  prior-year     Exemption Letter, later. All applications must be   • 501(c)(17) Trusts providing for the pay-
forms  and  instructions.  The  IRS  will  process    signed by an authorized individual.                   ment of supplemental unemployment com-
your  order  for  forms  and  publications  as  soon                                                        pensation 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. 2023-5.                     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. 
For information on section 501(c)(3) organi-          You may be eligible to file Form 1023-EZ if you     Form  1024-A,  Application  for  Recognition 
zations, go to Section 501(c)(3) Organizations,       are a smaller organization (assets of $250,000      of  Exemption  Under  Section  501(c)(4)  of 
chapter  3.  If  your  organization  is  seeking  ex- or less and annual gross receipts of $50,000 or     the  Internal  Revenue  Code.     File  Form 
emption  under  one  of  the  other  paragraphs  of   less)  seeking  recognition  of  exemption  under   1024-A if you are seeking recognition of exemp-
section 501(c), see chapter 4.                        section 501(c)(3). See Rev. Proc. 2023-5.           tion under 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;
Page 4    Chapter 1     Application, Approval, and Appeal Procedures

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Form 1028, Application for Recognition of on the basis of law, regulations, or a clearly ap- complete and was filed and approved by the
Exemption Under Section 521 of the Inter- plicable revenue ruling or other published prec- state, including the date filed.
nal Revenue Code. Use Form 1028, Applica- edent. See section 3, Rev. Proc. 2023-5. 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. 2023-1, 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 de- quest. cially changed by an amendment to your organ-
terminations 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-ex- accompanied by a written declaration signed by
Income Tax Return, later. empt status. User fees are listed in Rev. Proc. an authorized officer of the organization. With
Some organizations don’t have to use spe- 2023-1, Appendix A. If you are filing Form 1023, either option, the officer must certify that the
cific application forms. The application your or- Form 1023-EZ, Form 1024 or 1024-A, the user document is a complete and accurate copy of
ganization must use is specified in the chapter fee 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
Tax-Exempt Status” for more information. You bylaws need not be signed if submitted as an
Power of attorney. If your organization ex- can also call 1-877-829-5500. attachment.
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 involv- certifying that the document is a complete and other means that your organization adopted or
ing feeder organizations, application of excise accurate copy of the original or meets the re- planned for carrying out those activities.
taxes to activities of private foundations, taxa- quirements of a conformed copy in Rev. Proc. To determine the information you need to
tion of unrelated business income, etc.) should 2011-9, sec. 3.08(5). If you are submitting a provide, you should study the part of this publi-
be sent to the appropriate address listed in Rev. Form 1023-EZ, you don’t need to include a cation that applies to your organization. The ap-
Proc. 2023-1, 2023-1 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. 2023-1. 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 an authorized individual indicating the copy is activities.
If you are filing Form 1023-EZ, also review
Taxes) on any question that can't be resolved the Instructions for Form 1023-EZ for more
Chapter 1 Application, Approval, and Appeal Procedures Page 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 lishes that it doesn't qualify for exemption. An
completed tax year or if you haven’t completed application 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. 2023-5, as modified by section 3.02 of
The law also requires the IRS to make available Rev. Proc. 2023-8.
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 ap-
show that your organization meets the require- proved application for recognition of exemption Effective Date of Exemption
ments for tax-exempt status under the Code (including any papers submitted in support of
section you applied, the IRS will issue a favora- the application) and the determination letter A determination letter recognizing exemption is
ble determination letter. (discussed later, under Determination Letters). usually effective as of the date of formation
Any information submitted in the application of an organization if, the organization submit-
or in support of it that relates to any trade se- ted the application for recognition of exemption
Miscellaneous Procedures cret, patent, process, style of work, or appara- within 27 months from the end of the month in
To help in processing your application, be sure tus, upon request, can be withheld from public which it was organized and during the period
to attach all schedules, statements, and other inspection if the IRS determines that the disclo- before the date of the determination letter, its
documents required by the application form. If sure of such information would adversely affect purposes and activities are consistent with the
you don’t attach them, you may have to resub- the organization. Your request must: requirements for exempt status under the appli-
cable section of 501(c). Upon obtaining recog-
mit your application or you may otherwise en- 1. Identify the material to be withheld (the nition of exemption, the organization can file a
counter a delay in processing your application. document, page, paragraph, and line) by claim for a refund of income taxes paid for the
clearly marking it “Not Subject to Public period for which its exempt status is recog-
Incomplete application. If an application isn't Inspection.” nized.
complete and doesn't contain all the required
attachments found under Required Inclusions, 2. Explain why the information is of the type
the IRS will return it to you for completion. The that can be withheld from public inspec- An organization that does not submit its ap-
IRS will no longer request the missing informa- tion. plication for exemption within that 27-month pe-
riod but otherwise meets the requirements for
tion if the application is incomplete. However, 3. Be filed with the office where your organi- tax-exempt status will be recognized as exempt
the IRS may, but is not required to, request ad- zation files the documents in which the from the postmark date of application or the
ditional information to validate information pre- material to be withheld is contained. submission date of its Form 1023, Form 1024,
sented or to clarify an inconsistency on a Form Form 1023-EZ, or Form 1024-A, if applicable.
1023-EZ. See Rev. Proc. 2023-5, 2023–1 I.R.B. Where to file. Submit Form 1023, 1023-EZ, See Rev. Proc. 2023-5, as amended by Rev.
256. 1024, or 1024-A through Pay.gov. Proc. 2023-8.
If the IRS returns the application or requests EO Determinations will consider your com-
additional information from you, that application plete application and will issue you a favorable If an organization is required to alter its ac-
will be considered filed on the date the substan- determination letter, an adverse letter denying tivities or substantially amend its charter to
tially completed application is postmarked, or if the exempt status requested in your application qualify, the determination letter recognizing ex-
no postmark, received at the IRS. or, if you are asked to provide supplemental in- emption will be effective as of the date speci-
For applications that are returned to the ap- formation and fail to respond, may close your fied in the letter. If a nonsubstantive amend-
plicant because they aren't complete, the user case without making a determination if you ment is made, such as correction of a clerical
fee will be returned or refunded. don't respond to a request for additional infor- error in the enabling instrument or the addition
Additional information may be requested if mation. EO Determinations will also close your of a dissolution clause, exemption will ordinarily
necessary to clarify the nature of your organiza- case without a determination if you withdraw be recognized as of the date of formation if the
tion. your request. activities of the organization before the determi-
nation are consistent with the exemption re-
IRS responses. Organizations that success- quirements.
fully submit Form 1023, Form 1023-EZ, Form Determination Letters
1024, or Form 1024-A on Pay.gov will receive A determination letter recognizing exemp-
an email from Pay.gov confirming payment of Public charity status. A new section 501(c) tion can't be relied on if there is a material
the user fee. Organizations that submit a com- (3) organization will be classified as a publicly change, inconsistent with exemption, in the
plete Form 1024 application will receive an ac- supported organization and not a private foun- character, the purpose, or the method of opera-
knowledgment from the IRS. In addition, any dation if it can show when it applies for tax-ex- tion of the organization. Also, a determination
applicant may receive a letter requesting addi- empt status that it reasonably can be expected letter can't be relied on if it is based on any
tional information the IRS needs to make its de- to be publicly supported. omission or inaccurate material information
termination. These letters will be sent out as submitted by the organization. See section 11
soon as possible after receipt of the organiza- An organization must describe fully the ac- of Rev. Proc. 2023-5.
tion's application. tivities in which it expects to engage. This in-
cludes standards, procedures, or other means For more information about the effective
date of exemption, see Rev. Proc. 2023-5, sec-
tion 6.
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Revocation of Exemption 6. A statement as to whether a conference at
the Independent Office of Appeals is de-
A determination letter recognizing exemption Appeal Procedures sired.
may be revoked by: The statement of facts in item 4 must be de-
If your organization applies for recognition of
1. A notice to the organization to which the tax-exempt status and Rulings and Agreements clared true under penalties of perjury. This may
determination letter originally was issued, determines your organization doesn't qualify for be done by adding to the protest the following
2. Enactment of legislation or ratification of a exemption, your organization will be advised of signed declaration:
tax treaty, its rights to protest the determination by re-
questing Independent Office of Appeals consid- “Under penalties of perjury, I declare that I
3. A decision of the United States Supreme eration. Your organization must submit a state- have examined the statement of facts
Court, ment of its views fully explaining its reasoning. presented in this protest and in any
4. Issuance of temporary or final regulations, The statement must be submitted within 30 accompanying schedules and statements and,
or days from the date of the proposed adverse de- to the best of my knowledge and belief, it is
true, correct, and complete.”
termination letter and must state whether your
5. Issuance of a revenue ruling, a revenue organization wishes Independent Office of Ap- Signature.
procedue, or other statement published in peals consideration.
the Internal Revenue Bulletin or Cumula- If the organization's representative submits the
tive Bulletin. Representation. A principal officer or trustee appeal, a substitute declaration must be inclu-
6. Section 6033(j), for failure to file a required can represent an organization at any level of ded, stating:
annual return or notice, for 3 consecutive appeal within the IRS. Also, an attorney, certi-
years, automatically. fied public accountant, or individual enrolled to 1. That the representative prepared the ap-
practice before the IRS can represent the or- peal and accompanying documents, and
When revocation takes effect. If the organi- ganization. 2. Whether the representative knows person-
zation omitted or misstated material informa- If the organization's representative attends a ally that the statements of fact contained in
tion, operated in a manner materially different conference without a principal officer or trustee, the appeal and accompanying documents
from that originally represented, or, with regard the representative must file a proper power of are true and correct.
to organizations to which section 503 applies, attorney or a tax information authorization be-
engaged in a prohibited transaction (such as di- fore receiving or inspecting confidential infor- Be sure the appeal contains all of the infor-
verting corpus or income from its exempt pur- mation. Form 2848 or Form 8821, Tax Informa- mation requested. Incomplete appeals will be
pose), or if there has been a change in the ap- tion Authorization, as appropriate (or any other returned for completion.
plicable law, the revocation or modification may properly written power of attorney or authoriza- The Independent Office of Appeals, after
be retroactive. tion), can be used for this purpose. These forms any requested conference and upon considera-
are available on IRS.gov from the Forms and In- tion of the organization's appeal, as well as in-
Material change in organization. If there is a structions page. For more information, see Pub- formation presented in any conference held, will
material change, inconsistent with exemption, lication 947, Practice Before the IRS and Power generally notify the organization of its decision
in the character, purpose, or method of opera- of Attorney, which is also available on IRS.gov and issue an appropriate determination letter.
tion of the organization, revocation or modifica- from the Forms and Instructions page. An adverse decision can be appealed to the
tion will ordinarily take effect as of the date of courts (discussed later). If new information is
that material change. An organization may seek Independent Office of submitted during Independent Office of Appeals
relief from retroactive revocation or modification consideration, the matter may be returned to
of a determination letter under section 7805(b). Appeals Consideration Rulings and Agreements for further considera-
For more information on requesting section Before forwarding a case to the Independent tion. See section 9 of Rev. Proc. 2023-5 for
7805(b) relief, see section 12 of Rev. Proc. Office of Appeals, Rulings and Agreements will more information.
2023-5 consider the applicant’s statement protesting The Independent Office of Appeals must re-
Relief from retroactivity. If a determina- and appealing (hereinafter appealing) the pro- quest technical advice on any exempt organiza-
tion letter was issued in error or the IRS posed adverse determination. If the organiza- tion issue concerning qualification for exemp-
changed its position after issuing a letter, and if tion does not submit the information that pro- tion or foundation status for which there is no
section 7805(b) relief is granted, retroactivity of vides a basis for Rulings and Agreements to published precedent or for which there is rea-
the revocation ordinarily will be limited to a date reconsider its adverse determination, it will for- son to believe that nonuniformity exists. If an or-
not earlier than that on which the original deter- ward the appeal and case file to the Independ- ganization believes that its case involves such
mination letter was revoked. ent Office of Appeals. For more information an issue, it should ask the Independent Office
about the role of the Independent Office of Ap- of Appeals to request technical advice.
Foundations. The determination of the ef- peals, see Publication 892, How to Appeal an
fective date is the same for the revocation or IRS Decision on Tax-Exempt Status. The ap- Any determination letter issued on the basis
modification of foundation status or operating peal should include the following information. of technical advice can't be appealed to the In-
foundation status unless the effective date is dependent Office of Appeals for those issues
expressly covered by statute or regulations. 1. The organization's name, address, day- that were the subject of the technical advice.
time telephone number, and employer
Written notice. If the IRS concludes, as a re- identification number.
Administrative Remedies
sult of examining an information return or con- 2. A statement that the organization wants to
sidering information from any other source, that protest the determination. In the case of an application under section
a determination letter should be revoked or
modified, the organization will be advised in 3. A copy of the letter showing the determi- 501(c) or 501(d) and exempt from tax under
writing of the proposed action and the reasons nation you disagree with, or the date and 501(a), all of the following actions, called ad-
for it. IRS office symbols on the determination ministrative remedies, must be completed by
The organization will also be advised of its letter. your organization before an unfavorable deter-
mination letter from the IRS can be appealed to
right to protest the proposed action by request- 4. A statement of facts supporting the organi- the courts.
ing Independent Office of Appeals considera- zation's position in any contested factual
tion. The appeal procedures are discussed issue. 1. The filing of the correct completed applica-
next. tion or group exemption request under
5. A statement outlining the law or other au- section 501(c), or 501(d) and exempt from
thority the organization is relying on. tax under 501(a) (described earlier in this
chapter) or the filing of a request for a
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determination of foundation status (see                      District  Court  for  the  District  of  Columbia,  the   If your organization is a subordinate control-
Private Foundations and Public Charities                     U.S.  Court  of  Federal  Claims,  or  the  U.S.  Tax     led  by  a  central  organization  (for  example,  a 
in chapter 3).                                               Court. This remedy is available if your organiza-         church,  a  veterans'  organization,  or  a  fraternal 
2. In the case of a late-filed application, re-              tion received an adverse notice of final determi-         organization), you should check with the central 
questing relief under Regulations section                    nation, or if the IRS failed to make a timely de-         organization to see if it has been issued a group 
301.9100 regarding applications for exten-                   termination  on  your  initial  or  continuing            exemption letter that covers your organization. 
sions of time for making an election or ap-                  qualification  or  classification  as  an  exempt  or-    If it has, you don’t have to file a separate appli-
plication for relief from tax (see Application               ganization. However, your exempt status claim             cation unless your organization no longer wants 
for Recognition of Exemption in chap-                        must be as:                                               to be included in the group exemption letter.
ter 3).                                                      • An organization qualifying under section 
                                                               501(c) or 501(d) and exempt from tax un-                If  the  group  exemption  letter  doesn't  cover 
3. The timely submission of all additional in-                 der 501(a),                                             your organization, ask your central organization 
formation requested to perfect an exemp-                     • An organization to which a deduction for a              about being included in the next annual group 
tion application or request for determina-                     contribution is allowed under section                   ruling update that it submits to the IRS.
tion of private foundation status.                             170(c)(2),
4. Exhaustion of all administrative appeals                  • An organization that is a private foundation            See   Publication  4573,  Group  Exemptions, 
available within the IRS.                                      under section 509(a),                                   for  additional  general  information  about  group 
                                                             • A private operating foundation under sec-               exemption.  Go  to  the  Charities  &  Nonprofits 
The actions just described won't be consid-                    tion 4942(j)(3), or                                     page on IRS.gov for Group Exemption Resour-
ered completed until the IRS has had a reason-               • A cooperative organization that is exempt               ces  for  the  most  current  information  and  up-
able time to act upon the appeal or protest, as                from tax under section 521.                             dates.
the case may be.
An organization won't be considered to have                  Adverse  notice  of  final  determination. The            Central Organization
exhausted  its  administrative  remedies  before             adverse notice of final determination referred to 
the earlier of:                                              above is a determination letter sent by certified         Application Procedure
                                                             or  registered  mail  holding  that  your  organiza-
1. The completion of the steps just listed and               tion:                                                     Note:     The content about the Central Organ-
the sending by certified or registered mail                  • Isn't described in section 501(c) or 501(d)             ization  Application  Procedure  is  included  here 
of a notice of final determination, or                         and exempt from tax under 501(a), or sec-               for informational purposes. However, as stated 
2. The expiration of the 270-day period in                     tion 170(c)(2);                                         in Notice 2020-36, IRB 2020-21, 840 and Rev. 
which the IRS has not issued a notice of fi-                 • Is a private foundation and not a public                Proc.  2023-5,  IRB  2023-1,  256,  the  IRS  is  not 
nal determination and the organization has                     charity described in a part of section 509 or           accepting any requests for group exemption let-
taken, in a timely manner, all reasonable                      section 170(b)(1)(A);                                   ters until publication of the final revenue proce-
steps to secure a ruling or determination.                   • Is not a private operating foundation as de-            dure described in the Notice or other guidance 
                                                               fined in section 4942(j)(3), or                         in the Internal Revenue Bulletin.
270-day  period. The  270-day  period  will  be              • Is a public charity described in a part of 
considered  by  the  IRS  to  begin  on  the  date  a          section 509(a) or section 170(b)(1)(A)                  If your organization is a central organization 
completed  application,  or  group  exemption  re-             other than the part under which your or-                with  affiliated  subordinates  under  its  control,  it 
quest is sent or submitted to the IRS. See Appli-              ganization requested classification.                    can  apply  for  a  group  exemption  letter  for  its 
                                                                                                                       subordinates, provided it has obtained recogni-
cation Procedures, earlier, for information nee-                                                                       tion of its own exemption. A central organization 
ded to complete the application form.                        Favorable court rulings - IRS procedure.     If 
If  the  application  doesn't  contain  all  of  the         a  suit  results  in  a  final  determination  that  your obtains  recognition  of  its  own  exemption  by 
required  items,  it  won't  be  further  processed          organization is exempt from tax, the IRS will is-         submitting  Form  1023  or  1023-EZ,  1024,  or 
and may be returned to the applicant for com-                sue  a  favorable  determination  letter,  provided       1024-A  as  described  in  their  instructions  with 
pletion. The 270-day period, in this event, won't            your organization has filed an application for ex-        the appropriate user fee. You request the group 
be considered as starting until the date the ap-             emption and submitted a statement that the un-            exemption  letter  for  the  central  organization’s 
plication is remailed to the IRS with the reques-            derlying facts and applicable law are the same            subordinates by letter rather than a specific ap-
ted  information,  or,  if  a  postmark  isn't  evident,     as in the period considered by the court.                 plication  form.  The  issuance  of  the  group  ex-
                                                                                                                       emption letter relieves each of the covered sub-
on the date the IRS receives a completed appli-                                                                        ordinates from filing its own application.
cation.
                                                             Group Exemption Letter                                    A  central  organization  that  has  previously 
                                                                                                                       obtained recognition of its own exemption must 
Appeal to Courts                                             A group exemption letter is a determination let-          indicate its employer identification number and 
                                                             ter issued to a central organization recognizing          the date of the letter recognizing its exemption, 
If the IRS issues an unfavorable determination               on a group basis the exemption under section              but  need  not  forward  documents  already  sub-
letter  to  your  organization  and  you  have  ex-          501(c)  of  subordinate  organizations  on  whose         mitted. However, if it has not already done so, 
hausted all the administrative remedies just dis-            behalf  the  central  organization  has  applied  for     the central organization must submit a copy of 
cussed,  your  organization  can  seek  judicial             recognition of exemption.                                 any amendment to its governing instruments or 
remedies.
                                                                                                                       internal  regulations  as  well  as  any  information 
For  example,  if  your  organization  has  paid             A central organization is an organization that            about  changes  in  its  character,  purposes,  or 
the tax resulting from the adverse determination             has one or more subordinates under its general            method of operation.
and met all other statutory prerequisites, it can            supervision or control. A subordinate organiza-
file  suit  for  a  refund  in  a  U.S.  District  Court  or tion is a chapter, local, post, or unit of a central      Employer  identification  number. Each  sub-
the U.S. Court of Federal Claims. Or, if your or-            organization.                                             ordinate must have its own EIN, even if it has no 
ganization elected not to pay the tax deficiency                                                                       employees. When submitting its group exemp-
resulting  from  the  adverse  determination  and            A subordinate organization may or may not                 tion  application,  the  central  organization  must 
met  all  other  statutory  prerequisites,  it  can  file    be incorporated, but it must have an organizing           provide an EIN for each subordinate organiza-
suit for a redetermination of the tax deficiencies           document  and  it  must  have  its  own  taxpayer         tion.
in the United States Tax Court. For more infor-              identification number (EIN). A subordinate that 
mation on these types of suits, get Publication              is organized and operated in a foreign country            Information required for subordinate organ-
556,  Examination  of  Returns,  Appeal  Rights,             can't be included in a group exemption letter. A          izations. The  exempt  central  organization  re-
and Claims for Refund.                                       subordinate described in section 501(c)(3) can't          quests  the  group  ruling  letter.  The  central  or-
In  certain  situations,  your  organization  can            be included in a group exemption letter if it is a        ganization must     submit information       for 
file  suit  for  a  declaratory  judgment  in  the  U.S.     private foundation described in section 509(a).           subordinates  it  will  include  in  the  group 
Page 8    Chapter 1    Application, Approval, and Appeal Procedures

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

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

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  Income Tax, Information, and Other                             States, and is exempt from federal income          (other than by foundation managers and 
  Returns                                                        taxes;                                             other than one or more publicly supported 
  8274 8274 Certification by Churches and                    9. A stock bonus, pension, or profit-sharing           organizations).
  Qualified Church-Controlled                                    trust that qualifies under section 401 (re-
  Organizations Electing Exemption                               quired to file Form 5500, Annual Return/         Annual Electronic Notice Filing 
  from Employer Social Security and                              Report of Employee Benefit Plan);                Requirement for Small Tax-Exempt 
  Medicare Taxes                                                                                                  Organizations
                                                             10. A religious or apostolic organization de-
  8282 8282 Donee Information Return                             scribed in section 501(d) (required to file      Small  tax-exempt  organizations  with  annual 
  8300 8300 Report of Cash Payments Over                         Form 1065, U.S. Return of Partnership In-        gross receipts normally $50,000 or less that are 
  $10,000 Received in a Trade or                                 come);                                           not otherwise required to file an annual informa-
  Business                                                   11. A governmental unit or an affiliate of a         tion return and are not otherwise exempted en-
  8453-X           8453-X Political Organization Declaration     governmental unit that meets the require-        tirely  from  a  filing  requirement  must  submit 
  for Electronic Filing of Notice of                             ments of Rev. Proc. 95-48, 1995-2 C.B.           Form 990-N, Electronic Notice (e-Postcard) for 
  Section 527 Status                                             418, IRS.gov/pub/irs-tege/rp1995-48.pdf ;        Tax-Exempt Organizations Not Required to File 
                                                                                                                  Form 990 or 990-EZ, with the IRS each year, if 
  8822-B                  8822-B Change of Address or        12. A private foundation described in section        they choose not to file a Form 990 or 990-EZ. 
  Responsible Party-Business                                     501(c)(3) and exempt under section               Form 990-N requires the following information:
  8868 8868 Application for Automatic Extension                  501(a) (required to file Form 990-PF, Re-        • The organization's legal name, and mailing 
  of Time to File an Exempt                                      turn of Private Foundation);                       address;
  Organization Return                                        13. A political organization that is a state or lo-  • Any name under which it operates and 
  8870 8870 Information Return for Transfers                     cal committee of a political party, a politi-      does business;
  Associated with Certain Personal                               cal committee of a state or local candi-         • Its Internet website address (if any);
  Benefits Contracts                                             date, a caucus or association of state or        • Its taxpayer identification number;
                                                                 local officials, or required to report under     • The name and address of a principal offi-
  8871 8871 Political Organization Notice of                     the Federal Election Campaign Act of               cer;
  Section 527 Status                                             1971 as a 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 
                                                                                                                    gross receipts are normally $50,000 or 
  Contributions and Expenditures                                 vate foundation or a supporting organiza-          less; and
  8886-T    8886-T Disclosure by Tax-Exempt Entity               tion described in Supporting Organization        • Notification if the organization has termina-
  Regarding Prohibited Tax Shelter                               Annual Information Return, later) that nor-        ted.
  Transaction                                                    mally has annual gross receipts of 
                                                                 $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 
  Intellectual Property                                          Tax-Exempt Organizations Not Required            tax  years  beginning  after  December  31,  2006, 
  8976 8976 Notice of Intent to Operate Under                    to File Form 990 or Form 990-EZ), or             any organization that fails to meet its annual re-
  Section 501(c)(4)                                          15. A foreign organization, or an organization       porting requirement for 3 consecutive years will 
See  chapter  6  for  information  about  getting                located in a U.S. possession, that normally      automatically lose its tax-exempt status. To re-
these publications and forms.                                    has annual gross receipts from sources           gain its exempt status an organization will have 
                                                                 within the United States of $50,000 or           to  reapply  for  recognition  as  a  tax-exempt  or-
                                                                 less.                                            ganization.
Annual Information                                                                                                Exceptions.     This filing requirement doesn't 
Returns                                                      Supporting Organization                              apply to:
                                                             Annual Information Return                            • Churches, their integrated auxiliaries, and 
Every organization exempt from federal income                                                                       conventions or associations of churches;
tax  under  section  501(a)  must  file  an           Annual Each section 509(a)(3) supporting organization       • Organizations that are included in a group 
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-
3. A church-affiliated organization that is ex-                  gious order; or                                  Forms 990 and 990-EZ
  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-
4. A school below college level affiliated with                  that supports a section 509(a)(3) religious      turns on Form 990 or 990-EZ, unless excepted 
  a church or operated by a religious order;                     order.                                           from filing or allowed to submit Form 990-N, de-
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 
7. A state institution, the income of which is               tion must:                                           from filing the annual return. The following politi-
  excluded from gross income under section                   •   List the organizations to which it provides      cal  organizations  aren't  required  to  file  Form 
  115;                                                           support;                                         990 or Form 990-EZ.
                                                             •   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.
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• A caucus or association of state or local of-        organizational  documents.  See Miscellaneous          Form  990-T.  The  IRS  continued  to  accept 
  ficials.                                             Rules, Organization Changes and Exempt Sta-            paper forms Form 990-T into 2021 pending its 
• A political organization that is required to         tus, later.                                            conversion  into  electronic  format.  In  March 
  report as a political committee under the                                                                   2020, the IRS announced the availability of the 
  Federal Election Campaign Act.                       Form 990-PF                                            electronic filing of Form 990-T. Any 2020, and 
• A 501(c) organization that has expendi-                                                                     any future year Form 990-T with a due date on 
  tures for influencing or attempting to influ-        All  private  foundations  exempt  under  section      or after April 15, 2021, must be filed electroni-
  ence the selection, nomination, election, or         501(c)(3) must file Form 990-PF. These organi-         cally and not on paper.
  appointment of any individual for a federal,         zations are discussed in chapter 3.                    Form 8872.    Form 8872 must be filed elec-
  state, or local public office.
                                                                                                              tronically if reporting on periods after 2019.
Form  990-EZ. This  is  a  shortened  version  of      Electronic Filing
Form 990. Form 990-EZ is designed for use by                                                                  Due Date
small  exempt  organizations  and  nonexempt           For  tax  years  beginning  on  or  before  July  1, 
charitable trusts.                                     2019, your organization may be required to file 
                                                       Form 990, Form 990-EZ, or Form 990-PF, and             Forms 990, 990-EZ, or 990-PF must be filed by 
An organization can file either Form 990 or            related  forms,  schedules,  and  attachments          the 15th day of the fifth month after the end of 
990-EZ if it satisfies both of the following:          electronically. For tax years beginning after July     your organization's accounting period. Thus, for 
1. Its gross receipts during the year are less         1, 2019, under the Taxpayer First Act, organiza-       a calendar year taxpayer, Forms 990, 990-EZ, 
  than $200,000.                                       tions are required to file certain returns electron-   or 990-PF are due May 15 of the following year. 
                                                       ically,  including  Form  990,  990-EZ,  990-PF,       If any due date falls on a Saturday, Sunday, or 
2. Its total assets (line 25, column (B) of            8872,  and  990-T.  The  e-filing  requirement  is     legal  holiday,  the  return  will  be  due  the  next 
  Form 990-EZ) at the end of the year are              generally effective for tax years beginning after      business day.
  less than $500,000.                                  July  1,  2019.  The  Taxpayer  First  Act  allows 
If your organization doesn't satisfy both of these     transitional relief for certain small organizations    Extension of time to file. Use  Form 8868  to 
conditions,  it  can't  file  Form  990-EZ.  Instead,  or other organizations for which the IRS deter-        request  an  automatic  six  month  extension  of 
the organization must file Form 990.                   mines  that  application  of  the  e-filing  require-  time to file Forms 990, 990-EZ, or 990-PF.
                                                       ment would constitute an undue hardship in the         When filing Form 8868 for an automatic ex-
Group return.      A group return on Form 990          absence of additional transitional time.               tension, neither a signature, nor an explanation 
may be filed by a central, parent, or like organi-                                                            is required.
zation for two or more local organizations, none          If an organization is required to file a return 
of which is a private foundation. This return is in    electronically but doesn't, it isn't considered  to    Application  for  exemption  pending. An  or-
addition  to  the  central  organization's  separate   have  filed  its  return.  See  Regulations  section   ganization that claims to be exempt under sec-
annual return if it must file a return. The central    301.6033-4 for more information.                       tion  501(a)  but  has  not  established  its  exempt 
organization can't be included in the group re-                                                               status by the due date for filing an information 
turn. See the Instructions for Form 990 for the           Form  990.   For  tax  years  beginning  on  or     return  must  complete  and  file  Form  990, 
conditions under which this procedure may be           before July 1, 2019, an organization is required       990-EZ, 990-N, or 990-PF (if it considers itself a 
used.                                                  to file Form 990 electronically if it files at least   private  foundation),  unless  the  organization  is 
                                                       250  returns  during  the  calendar  year  and  has    exempt  from  Form  990-series  filing  require-
      In  any  year  that  an  organization  is        total assets of $10 million or more at the end of      ments. If the organization's application is pend-
TIP   properly included as a subordinate or-           the tax year. For tax years beginning after July       ing with the IRS, it must so indicate on Forms 
      ganization  on  a  group  return,  it            1, 2019, an organization is required to file Form      990, 990-EZ, or 990-PF (whichever applies) by 
shouldn't file its own Form 990.                       990 electronically unless exceptions described         checking  the application  pending  block  at  the 
                                                       in  the  form  instructions  apply.  As  of  the  2020 top of page 1 of the return. For more information 
Schedule A (Form 990). Organizations, other            Form  990,  the  instructions  no  longer  describe    on the filing requirements, see the Instructions 
than  private  foundations,  that  are  described  in  any exceptions to the e-filing requirement.            for Forms 990, 990-EZ, and 990-PF.
section  501(c)(3)  and  that  are  otherwise  re-        Form  990-EZ. For  small  exempt  organiza-         State  reporting  requirements.   Copies  of 
quired  to  file  Form  990  or  990-EZ  must  also    tions, the legislation specifically allowed a post-    Forms 990, 990-EZ, or 990-PF may be used to 
complete Schedule A of that form.                      ponement  (“transitional  relief”).  For  tax  years   satisfy state reporting requirements. See the in-
Schedule  B  (Form  990).   Organizations  that        ending before July 31, 2021, the IRS will accept       structions for those forms.
file  Form  990,  990-EZ  or  990-PF  use  this        either paper or electronic filing of Form 990-EZ, 
schedule  to  provide  required  information  re-      Short Form Return of Organization Exempt from          Form  8870.   Organizations  that  filed  a  Form 
garding certain contributors.                          Income  Tax.  For  tax  years  ending  July  31,       990, 990-EZ, or 990-PF, and paid premiums or 
                                                       2021,  and  later,  Forms  990-EZ  must  be  filed     received transfers on certain life insurance, an-
Schedule  O  (Form  990).   Organizations  that        electronically. Generally, Form 990-EZ is for or-      nuity, and endowment contracts (personal ben-
file Form 990 or 990-EZ, must use this schedule        ganizations with annual gross receipts less than       efit  contracts),  must  file  Form  8870.  For  more 
to  provide  required  additional  information  or  if $200,000 and total assets at tax year-end less         information, see Form 8870 and the instructions 
additional space is needed.                            than $500,000.                                         for that form.
Other schedules may be required to be filed               Form  990-PF. For  tax  years  beginning  on 
with Form 990 or 990-EZ. See the Instructions          or  before  July  1,  2019,  an  organization  is  re- Form 8822-B.  If you moved during the year, fill 
for  Form  990  or  the  Instructions  for  Form       quired to file Form 990-PF electronically if it files  out  Form  8822-B,  Change  of  Address  or  Re-
990-EZ for more information.                           at  least  250  returns  during  the  calendar  year.  sponsible  Party-Business.  Also,  if  your  “Re-
                                                       For  tax  years  beginning  after  July  1,  2019,  an sponsible  Party”  changed  this  year,  you  must 
Report significant new or changed program              organization  is  required  to  file  Form  990-PF     also  fill  out  Form  8822-B.  The  “Responsible 
services  and  changes  to  organizational             electronically  unless  exceptions  described  in      Party”  is  the  tax-exempt  organization’s  “Princi-
documents. An  organization  should  report            the form instructions apply. As of the 2020 Form       pal Officer”, as defined in the Form 990 instruc-
new  significant  program  services  or  significant   990-PF, the instructions no longer describe any        tions, in the Glossary section.
changes  in  how  it  conducts  program  services,     exceptions to the e-filing requirement.
and  significant  changes  to  its  organizational                                                            Automatic Revocation
documents, on its Form 990 rather than in a let-          Form 990-N.  An organization that is eligible 
ter  to  EO  Determinations.  EO  Determinations       and elects to submit Form 990-N must submit it         If  the  organization  fails  to  file  a  Form  990, 
no  longer  issues  letters  confirming  the  tax-ex-  electronically.                                        990-EZ,  or  990-PF,  or  fails  to  submit  a  Form 
empt  status  of  organizations  that  report  new                                                            990-N,  as  required,  for  3  consecutive  years,  it 
services  or  significant  changes,  or  changes  to                                                          will automatically lose its tax-exempt status by 
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operation of law effective as of the due date for Organization with gross receipts over $1
the third missed return or notice. The list of or- million. For an organization that has gross re-
ganizations whose tax-exempt status has been ceipts of over $1 million for the year, the penalty Employment
automatically revoked is available on IRS.gov. is $100 a day up to a maximum of $50,000.
This list (Auto-Revocation List) may be viewed Tax Returns
and searched on Tax-Exempt Organization Managers. If the organization is subject to
Search. The Auto-Revocation List includes this penalty, the IRS may specify a date by Every employer, including an organization ex-
each organization's name, employer identifica- which the return or correct information must be empt from federal income tax that pays wages
tion number (EIN) and last known address. It supplied by the organization. Failure to comply to employees is responsible for withholding, de-
also includes the effective date of the automatic with this demand will result in a penalty im- positing, paying, and reporting federal income
revocation and the date it was posted to the list. posed upon the manager of the organization, or tax, social security and Medicare (FICA) taxes,
For auto-revoked organizations that applied for upon any other person responsible for filing a and federal unemployment tax (FUTA), unless
and received reinstatement, the list gives the correct return. The penalty is $10 a day for each that employer is specifically excepted by law
date of reinstatement. The IRS updates the list day that a return isn't filed after the period given from those requirements, or if the taxes clearly
monthly to include additional organizations that for filing. The maximum penalty imposed on all don't apply.
lose their tax-exempt status. persons with respect to any one return is
$5,000. For more information, obtain a copy of Publi-
cation 15, which summarizes the responsibili-
Tax Effect of Loss of Tax-Exempt Penalties indexed for inflation. These ties of an employer, Publication 15-A, Publica-
Status penalty provisions are indexed for inflation for tion 15-B, and Form 941.
returns required to be filed after December 31,
If your organization’s tax-exempt status is auto- 2014. Small Business Health Care Tax Credit. If
your small tax-exempt organization provides
matically revoked, you may be required to file Exception for reasonable cause. No health care coverage for your workers you may
one of the following federal income tax returns penalty will be imposed if reasonable cause for qualify for the small business health care tax
and pay any applicable income taxes: failure to file timely can be shown. credit. Go to Affordable Care Act Tax
• Form 1120, U.S. Corporation Income Tax
Return, due by the 15th day of the 3rd Provisions for more details. See also Small
month after the end of your organization’s Business Health Care Tax Credit.
tax year, or Unrelated Business
Trust fund recovery penalty. If any person
• Form 1041, U.S. Income Tax Return for Income Tax Return required to collect, truthfully account for, and
Estates and Trusts, due by the 15th day of
pay over any of these taxes willfully fails to sat-
the 4th month after the end of your organi- Even though your organization is recognized as isfy any of these requirements or willfully tries in
zation’s tax year. tax exempt, it still may be liable for tax on its un- any way to evade or defeat any of them, that
related business income. Unrelated business person will be subject to a penalty. The penalty
In addition, a section 501(c)(3) organization income is income from a trade or business, reg- is equal to the tax evaded, not collected, or not
that loses its tax-exempt status can't receive ularly carried on, that isn't substantially related accounted for and paid over. The term person
tax-deductible contributions and won't be identi- to the charitable, educational, or other purpose includes:
fied in the IRS Business Master File extract as that is the basis for the organization's exemp- • An officer or employee of a corporation, or
eligible to receive tax-deductible contributions, tion. • A member or employee of a partnership.
or be included in Tax-Exempt Organization
Search (Pub. 78 database). If your organization has gross income of Exception. The penalty isn't imposed on
$1,000 or more from a regularly conducted un- any unpaid volunteer director or member of a
related trade or business, you must file Form board of trustees of an exempt organization if
An organization whose exemption was auto- 990-T in addition to your required annual infor- the unpaid volunteer serves solely in an hono-
matically revoked must apply for tax exemption mation return or notice. The form instructions rary capacity, doesn't participate in the
in order to regain its tax exemption (even if it and IRS.gov should be consulted for electronic day-to-day or financial operations of the organi-
wasn't originally required to apply). In some sit- filing guidance. For tax years beginning after zation, and doesn't have actual knowledge of
uations, an organization may be able to obtain December 31, 2017, an organization with more the failure on which the penalty is imposed.
exemption retroactive to its date of revocation. than one unrelated trade or business must com- This exception doesn't apply if it results in
Similarly, if the central organization with a pute its UBTI (unrelated business taxable in- no one being liable for the penalty.
Group Exemption Number is automatically re- come), including for purposes of determining
voked, all its covered subsidiaries may need to any net operating loss deduction, separately Certification Program for Professional Em-
apply for exemption as independent organiza- with respect to each such trade or business. Or- ployer Organizations (CPEOs). The Tax In-
tions. ganizations complete a separate Schedule A crease Prevention Act of 2014, enacted Dec.
(Form 990-T) to calculate UBTI for each of its 19, 2014, requires the IRS to establish a volun-
For more information about automatic revo- trades or businesses. tary certification program for professional em-
cation, go to IRS.gov and select Charities & ployer organizations (PEOs). PEOs handle vari-
Non-Profits and then select Reinstated? Learn Estimated tax. An organization that ex-
more with Reinstate Tax-Exempt Status. pects to owe $500 or more in tax (including tax ous payroll administration and tax reporting
on unrelated business income) is required to responsibilities for their business clients and are
make quarterly estimated tax payments. Use typically paid a fee based on payroll costs. For
Penalties Form 990-W to figure your organization's esti- further information, go to: IRS.gov/for-tax-pros/
mated tax payments. Failure to make appropri- basic-tools/certified-professional-employer-
Penalties for failure to file. Generally, an ex- ate quarterly estimated tax payments may result organization.
empt organization that fails to file a required re- in an underpayment penalty.
turn must pay a penalty of $20 a day for each FICA and FUTA tax exceptions. Payments
day the failure continues. The same penalty will See Publication 598, Tax on Unrelated Busi- for services performed by a minister of a church
apply if the organization doesn't give all the in- ness Income of Exempt Organizations for more in the exercise of the ministry, or a member of a
formation required on the return or doesn't give information on UBTI. religious order performing duties required by
the correct information. the order, are generally not subject to FICA or
FUTA taxes.
Maximum penalty. The maximum penalty
for any one return is the smaller of $10,000 or FUTA tax exception. Payments for serv-
5% of the organization's gross receipts for the ices performed by an employee of a religious,
year. charitable, educational, or other organization
described in section 501(c)(3) that are generally
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subject to FICA taxes if the payments are $100 1. The total amount of its exempt function ex-
or more for the year, aren't subject to FUTA penditures, or
taxes. However, a section 501(c)(3) organiza- Political Organization
tion is liable for FUTA tax when paying wages 2. The organization's net investment income.
for employees on behalf of others, examples in- Income Tax Return
Separate fund. A section 501(c) organiza-
clude but are not limited to related non-section tion can set up a separate segregated fund that
501(c)(3) organizations, fiscal agents such as Generally, a political organization is treated as
IRC 3504, common paymaster, etc. an organization exempt from tax. Certain politi- will be treated as an independent political or-
cal organizations, however, must file an annual ganization. The earnings and expenditures
FICA tax exemption election. Churches income tax return, Form 1120-POL, U.S. In- made by the separate fund won't be attributed
and qualified church-controlled organizations come Tax Return for Certain Political Organiza- to the section 501(c) organization.
can elect exemption from employer FICA taxes tions, for any year they have political organiza- Section 501(c)(3) organizations are
by filing Form 8274. tion taxable income in excess of the $100 ! precluded from, and may suffer loss of
To elect the exemption, Form 8274 must be specific deduction allowed under section 527. CAUTION exemption for, engaging in any political
filed before the first date on which a quarterly A political organization that has campaign on behalf of, or in opposition to, any
employment tax return would otherwise be due TIP $25,000 ($100,000 for a qualified state candidate for public office.
from the electing organization. The organization or local political organization) or more
can make the election only if it is opposed for in gross receipts for the tax year must file Form Due date. Form 1120-POL is due by the 15th
religious reasons to the payment of FICA taxes. 990 or Form 990-EZ (and Schedule B of the day of the 4th month after the end of the tax
The election applies to payments for serv- form), unless excepted. See Forms 990 and year. Thus, for a calendar year taxpayer, Form
ices of current and future employees other than 990-EZ, earlier. 1120-POL is due on April 15 of the following
services performed in an unrelated trade or year. If any due date falls on a Saturday, Sun-
business. day, or legal holiday, the organization can file
Political organization. A political organization
Revoking the election. The election can is a party, committee, association, fund, or the return on the next business day.
be revoked by the IRS if the organization fails to other organization (whether or not incorporated) Form 1120-POL is not required of an
file Form W-2, Wage and Tax Statement, for 2 organized and operated primarily for the pur- TIP exempt organization that makes ex-
years and fails to furnish certain information pose of directly or indirectly accepting contribu- penditures for political purposes if its
upon request by the IRS. Such revocation will tions or making expenditures, or both, for an ex- gross income doesn't exceed its directly con-
apply retroactively to the beginning of the empt function. nected deductions by more than $100 for the
2-year period. tax year.
Exempt function. An exempt function
Definitions. For purposes of this election, means influencing or attempting to influence the
the term church means a church, a convention selection, nomination, election, or appointment Extension of time to file. Use Form 7004 to
or association of churches, or an elementary or of any individual to any federal, state, local pub- request an automatic extension of time to file
secondary school that is controlled, operated, lic office or office in a political organization, or Form 1120-POL. The extension will be granted
or principally supported by a church or by a the election of the Presidential or Vice Presi- if you complete Form 7004 properly, make a
convention or association of churches. dential electors, whether or not such individual proper estimate of the tax (if applicable), file
The term qualified church-controlled organi- or electors are selected, nominated, elected, or Form 1120-POL by the due date, and pay any
zation means any church-controlled section appointed. It also includes certain office expen- tax due.
501(c)(3) tax-exempt organization, other than ses of a holder of public office or an office in a Failure to file. A political organization that
an organization that both: political organization. fails to file Form 1120-POL is subject to a pen-
1. Offers goods, services, or facilities for Certain political organizations are re- alty equal to 5% of the tax due for each month
sale, other than on an incidental basis, to ! quired to notify the IRS that they are (or partial month) the return is late up to a maxi-
the general public at other than a nominal CAUTION section 527 organizations. These or- mum of 25% of the tax due, unless the organi-
charge that is substantially less than the ganizations must use Form 8871. Some of zation shows the failure was due to reasonable
cost of providing such goods, services, or these section 527 organizations must use Form cause.
facilities, and 8872 to file periodic reports with the IRS dis-
2. Normally receives more than 25% of its closing their contributions and expenditures. For more information about filing Form
support from the sum of governmental For a discussion on these forms, see Reporting 1120-POL, refer to the instructions accompany-
sources and receipts from admissions, Requirements for a Political Organization, later. ing the form.
sales of merchandise, performance of Failure to pay on time. An organization
services, or furnishing of facilities, in activi- Political organization taxable income. that doesn't pay the tax when due generally
ties that aren't unrelated trades or busi- Political organization taxable income is the ex- may have to pay a penalty of 1/2 of 1% of the
nesses. cess of: unpaid tax for each month or part of a month
Effect on employees. If a church or quali- 1. Gross income for the tax year (excluding the tax isn't paid, up to a maximum of 25% of
fied church-controlled organization has made exempt function income) minus the unpaid tax. The penalty won't be imposed if
the organization can show that the failure to pay
an election, payment for services performed for 2. Deductions directly connected with the on time was due to reasonable cause.
that church or organization, other than in an un- earning of gross income.
related trade or business, won't be subject to
FICA taxes. However, the employee, unless To figure taxable income, allow for a $100 spe-
otherwise exempt, will be subject to self-em- cific deduction, but don't allow for the net oper- Reporting Requirements
ployment tax on the income. The tax applies to ating loss deduction, the dividends-received for a Political
income of $108.28 or more for the tax year from deduction, and other special deductions for cor-
that church or organization, and no deductions porations. Organization
for trade or business expenses are allowed
against this self-employment income. Exempt organization not a political organi- Certain political organizations are required to
Schedule SE (Form 1040), Self-Employ- zation. An organization exempt under section notify the IRS that the organization is to be trea-
ment Tax, should be attached to the employ- 501(c) that spends any amount for an exempt ted as a section 527 political organization. The
ee's income tax return. function must file Form 1120-POL for any year organization is also required to periodically re-
which it has political taxable income. These or- port certain contributions received and expendi-
ganizations must include in gross income the tures made by the organization. To notify the
lesser of: IRS of section 527 treatment, an organization
must file Form 8871. To report contributions
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and expenditures, certain tax-exempt political or final Form 8871 or to electronically file Form 2. It is subject to a state law that requires it to
organizations must file Form 8872. 8872. report (and it does report) to a state
agency information about contributions
Form 8871 Penalties and expenditures that is similar to the in-
formation that the organization would oth-
Failure to file. An organization that is re- erwise be required to report to the IRS.
A political organization must electronically file quired to file Form 8871, but fails to do so on a
Form 8871 to notify the IRS that it is to be trea- timely basis, won't be treated as a tax-exempt 3. The state agency and the organization
ted as a section 527 organization. However, an section 527 organization for any period before make the reports publicly available.
organization isn't required to file Form 8871 if: the date Form 8871 is filed. Also, the taxable in- 4. No federal candidate or office holder:
• It reasonably expects its annual gross re- come of the organization for that period will in-
ceipts to always be less than $25,000. clude its exempt function income (including a. Controls or materially participates in
• It is a political committee required to report contributions received, membership dues, and the direction of the organization,
under the Federal Election Campaign Act political fundraising receipts) minus any deduc- b. Solicits contributions for the organiza-
of 1971 (FECA) (52 U.S.C. section 30101 tions directly connected with the production of tion, or
et seq.). that income.
• It is a state or local candidate committee. Failure to file an amended Form 8871 will c. Directs the disbursements of the or-
• It is a state or local committee of a political cause the organization to not be treated as a ganization.
party. tax-exempt section 527 organization. If an or-
All other political organizations are required to ganization is treated as not being a tax-exempt Information required on Form 8872. If an or-
file Form 8871. section 527 organization, the taxable income of ganization pays an individual $500 or more for
the organization will be determined by consider- the calendar year, the organization is required
An organization must provide on Form 8871: 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
1. Its name and address (including any busi- material change and ending on the date that the date the expense was paid, and the purpose of
ness address, if different) and its elec- amended Form 8871 is filed. the expense on Form 8872.
tronic mailing address; The tax is computed by multiplying the or- If an organization receives contributions of
2. Its purpose; ganization's taxable income by the highest cor- $200 or more from one contributor for the calen-
porate tax rate. dar year, the organization must disclose the do-
3. The names and addresses of its officers, nor's name, address, occupation, employer,
highly compensated employees, contact Fraudulent returns. Any individual or cor- and the date the contributions were made.
person, custodian of records, and mem- poration that willfully delivers or discloses to the For additional information that is required,
bers of its board of directors; IRS any list, return, account, statement or other see Form 8872.
document known to be fraudulent or false as to
4. The name and address of, and relation- any material matter will be fined not more than Due dates. The due dates for filing Form 8872
ship to, any related entities (within the $10,000 ($50,000 in the case of a corporation) vary depending on whether the form is due for a
meaning of section 168(h)(4)); and or imprisoned for not more than 1 year or both. reporting period that occurs during a calendar
5. Whether it intends to claim an exemption year in which a regularly scheduled election is
from filing Form 8872, Form 990, or Form Waiver of penalties. The IRS may waive held, or any other calendar year (a nonelection
990-EZ. any additional tax assessed on an organization year).
for failure to file Form 8871 if the failure was due
Employer identification number. If your to reasonable cause and not willful neglect. If the due date falls on a Saturday, Sunday,
or legal holiday, the organization can file on the
organization needs an EIN, you can apply for next business day.
one online. Click on the Employer ID Numbers Additional information. For more information
(EINs) link at IRS.gov/businesses/small. on Form 8871, see the form and its instructions.
If you previously applied for an EIN and For a discussion on the public inspection re- Election year filing. In election years, Form
haven't yet received it, or you are unsure quirements for the form, see Public Inspection 8872 must be filed on either a quarterly or a
whether you have an EIN, please call our of Exemption Applications, Annual Returns, and monthly basis. Both a pre-election report and a
toll-free customer account services number, Political Organization Reporting Forms, later. post-election report are also required to be filed
in an election year. An election year is any year
1-877-829-5500, for assistance. in which a regularly scheduled general election
Due dates. The initial Form 8871 must be filed Form 8872 for federal office is held (an even-numbered
year).
within 24 hours of the date on which the organi-
zation was established. If there is a material Every tax-exempt section 527 political organi-
change, an amended Form 8871 must be filed zation that accepts a contribution or makes an Nonelection year filing. In nonelection years,
within 30 days of the material change. When expenditure, for an exempt function during the the form must be filed on a semiannual or
the organization terminates its existence, it calendar year, must file Form 8872 except: monthly basis. A complete listing of these filing
must file a final Form 8871 within 30 days of ter- • A political organization that isn't required to periods are in the Form 8872 instructions. A
mination. file Form 8871 (discussed earlier). nonelection year is any odd-numbered year.
If the due date falls on a Saturday, Sunday, • A political organization that is subject to tax
or legal holiday, the organization can file on the on its income because it didn't file or How to file. An organization must file Form
next business day. amend Form 8871. 8872 electronically if reporting on periods after
• A qualified state or local political organiza- 2019. For reporting on periods before 2020,
How to file. An organization must file Form tion (QSLPO), discussed below. Form 8872 can be filed either electronically or
by mail, but organizations that have, or expect
8871 electronically via the IRS Internet website All other tax-exempt section 527 organizations to have, contributions or expenditures of
at IRS.gov/polorgs. that accept contributions or make expenditures $50,000 or more for the year are required to file
for an exempt function are required to file Form electronically.
Form 8453-X, Political Organization Decla- 8872.
ration for Electronic Filing of Notice of Sec- Electronic filing. File electronically via the
tion 527 Status. After electronically submitting Qualified state or local political organi- IRS internet website at IRS.gov/polorgs. You
the initial Form 8871, the political organization zation. A state or local political organization will need a user ID and password to electroni-
must print, sign, and mail Form 8453-X to the may be a QSLPO if: cally file Form 8872. Organizations that have
IRS. Upon receipt of the Form 8453-X, the IRS 1. All of its political activities relate solely to completed the electronic filing of Form 8871
will send the organization a username and state or local public office (or office in a and submitted a completed and signed Form
password that must be used to file an amended state or local political organization).
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8453-X will receive a username and password traded securities) for which the donee organiza- goods or services. See Quid pro quo contribu-
in the mail. tion signed an appraisal summary or Form tion below for an example.
Organizations that have completed the elec- 8283, Noncash Charitable Contributions.
tronic filing of Form 8871, but haven't received Failure to make the required disclosure may
their user ID and password can request one by Publicly traded securities. These are se- result in a penalty to the organization. A donor
writing to the following address: curities for which market quotations are readily can't deduct a charitable contribution of $250 or
available on an established securities market as more unless the donor has a written acknowl-
Internal Revenue Service of the date of the contribution. edgment from the charitable organization.
Attn: Request for 8872 Password In certain circumstances, an organization
Mail Stop 6273 Appraisal summary. If the value of the don-
Ogden, UT 84201 ated property exceeds $5,000, the donor must may be able to meet both of these requirements
get a qualified appraisal for contributions of with the same written document.
property, see Exceptions, below.
Lost username and password. If you
have forgotten or misplaced the username and Exceptions. A written appraisal isn't need- Disclosure of
password issued to your organization after you ed if the property is: Quid Pro Quo Contributions
filed your initial Form 8871, send a letter re- • Nonpublicly traded stock of $10,000 or
questing a new username and password to the less; A charitable organization must provide a written
address under Electronic filing. You can also • A vehicle (including a car, boat, or air- disclosure statement to donors of a quid pro
fax your request to (801) 620-3249. It may take plane), if your deduction for the vehicle is quo contribution over $75.
3-6 weeks for your new username and pass- limited to the gross proceeds from its sale;
word to arrive, as they will be mailed to the or- • Intellectual property; Quid pro quo contribution. A contribution
ganization. • Certain securities considered to have mar- made by a donor in exchange for goods or serv-
ket quotations readily available (see Regu- ices is known as a quid pro quo contribution.
Penalty 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
corporation that are qualified contributions of the fair market value of the items or services
A penalty will be imposed if the organization is for the care of the ill, the needy, or infants, it provided in exchange for the contribution.
required to file Form 8872 and it: within the meaning of section 170(e)(3)(A), Generally, a written statement is required for
• Fails to file the form by the due date, or or each payment, whenever the contribution por-
• Files the form but fails to report all of the in- • Any donation of stock in trade, inventory, tion is over $75.
formation required or reports incorrect in- or property held primarily for sale to cus-
formation. tomers in the ordinary course of your trade Example. If a donor gives your charity $100
or business. and receives a concert ticket valued at $40, the
The penalty is 21% for tax years beginning donor has made a quid pro quo contribution. In
after December 31, 2017 (35% for tax years be- The donee organization isn't a qualified ap- this example, the charitable part of the payment
ginning before December 31 2017), of the total praiser for the purpose of valuing the donated is $60. Even though the deductible part of the
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
list, return, account, statement, or other docu- $5,000, the donor must attach Form 8283 to the tion may be subject to a penalty.
ment known to be fraudulent or false as to any tax return to support the charitable deduction.
material matter will be fined not more than The donee must sign Part IV of Section B, Form Disclosure statement. The required written
$10,000 ($50,000 in the case of a corporation), 8283 unless publicly traded securities are don- disclosure statement must:
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
knowledge of the information reporting require- 2. Provide the donor with a good faith esti-
Return ments on dispositions, as previously discussed. mate of the fair market value of the goods
A copy of Form 8283 must be given to the do- or services that the donor received.
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 Information Provided to sure statement is furnished in connection with a
organization must file Form 8282, Donee 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
Rev. Proc. 90-12, 1990-1 C.B. 471, Rev.
copy of Form 8282 must be given to the donor. A charitable organization must give a donor Proc. 90-12, and Rev. Proc. 92-49, 1992-1
If the organization fails to file the required infor- a disclosure statement for a quid pro quo contri- C.B. 507 (as adjusted for inflation), Rev.
mation return, penalties may apply. bution over $75. (See Disclosure statement., Proc. 92-49.
Charitable deduction property. This is later.) This is a payment a donor makes to a
any property (other than money or publicly charity partly as a contribution and partly for

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2. There is no donative element involved in a conducted by a well-known artist. The artist Contributions by payroll deduction. An
particular transaction with a charity (for ex- doesn't provide tours on a commercial basis. organization may substantiate an employee's
ample, there is generally no donative ele- Tours of the museum normally are free to the contribution by deduction from its payroll by:
ment involved in a visitor's purchase from public. A good faith estimate of the FMV of the • A pay stub, Form W-2, or other document
a museum gift shop). evening museum tour is $0 even though it is showing a contribution to a donee organi-
3. There is only an intangible religious benefit conducted by the artist. zation, together with
• A pledge card or other document from the
provided to the donor. The intangible reli- Penalty for failure to disclose. A penalty is donee organization that shows its name.
gious benefit must be provided to the do- imposed on a charity that doesn't make the re- For contributions of $250 or more, the docu-
nor by an organization organized exclu- quired disclosure of a quid pro quo contribution ment must state that the donee organization
sively for religious purposes, and must be of more than $75. The penalty is $10 per contri- provides no goods or services for any payroll
of a type that generally isn't sold in a com- bution, not to exceed $5,000 per fundraising contributions. The amount withheld from each
mercial transaction outside the donative event or mailing. The charity can avoid the pen- payment of wages to a taxpayer is treated as a
context. For example, a donor who, for a alty if it can show that the failure was due to rea- separate contribution.
payment, is granted admission to a reli- sonable cause.
gious ceremony for which there is no ad-
mission charge is provided an intangible
Acknowledgment of Vehicle
religious benefit. A donor isn't provided in- Acknowledgment of
Contribution
tangible religious benefits for payments Charitable Contributions of
made for tuition for education leading to a
recognized degree, travel services, or $250 or More If an exempt organization receives a contribu-
tion of a qualified vehicle with a claimed value
consumer goods. A donor can deduct a charitable contribution of of more than $500, the donee organization is
4. The donor makes a payment of $75 or $250 or more only if the donor has a written ac- required to provide a contemporaneous written
less per year and receives only annual knowledgment from the charitable organization. acknowledgment to the donor. The donee or-
membership benefits that consist of: The donor must get the acknowledgment by the ganization can use a completed Form 1098-C,
a. Any rights or privileges (other than the earlier of: Contributions of Motor Vehicles, Boats, and Air-
right to purchase tickets for college 1. The date the donor files the original return planes, for the contemporaneous written ac-
athletic events) that the taxpayer can for the year the contribution is made, or knowledgment. See section 3.03 of Notice
2005-44, 2005-25 I.R.B. 1287 for guidance on
exercise often during the membership 2. The due date, including extensions, for fil- the information that must be included in a con-
period, such as free or discounted ad- ing the return. temporaneous written acknowledgment and the
missions or parking or preferred ac-
cess to goods or services; or The donor is responsible for requesting and ob- deadline for furnishing the acknowledgment to
b. Admission to events that are open taining the written acknowledgment from the the donor.
only to members and the cost per per- donee. A charitable organization that receives a Any donee organization that provides a con-
son of which is within the limits for payment made as a contribution is treated as temporaneous written acknowledgment to a do-
low-cost articles described in Rev. the donee organization for this purpose even if nor is required to report to the IRS the informa-
Proc. 90-12 (as adjusted for inflation), the organization (according to the donor's in- tion contained in the acknowledgment. The
Rev. Proc. 90-12. structions or otherwise) distributes the amount report is due by February 28 (March 31 if filing
received to one or more charities. electronically) of the year following the year in
Good faith estimate of fair market value which the donee organization provides the ac-
(FMV). An organization can use any reasona- Quid pro quo contribution. If the donee pro- knowledgment to the donor. The organization
ble method to estimate the FMV of goods or vides goods or services to the donor in ex- must file the report on Copy A of Form 1098-C.
services it provided to a donor, as long as it ap- change for the contribution (a quid pro quo con-
plies the method in good faith. tribution), the acknowledgment must include a An organization that files Form 1098-C on
The organization can estimate the FMV of good faith estimate of the value of the goods or paper should send it with Form 1096, Annual
goods or services that generally aren't commer- services. See Disclosure of Quid Pro Quo Con- Summary and Transmittal of U.S. Information
cially available by using the FMV of similar or tributions, earlier. Returns. See the Instructions for Form 1096 for
comparable goods or services. Goods or serv- the correct filing location.
ices may be similar or comparable even if they Form of acknowledgment. Although there is
don't have the unique qualities of the goods or no prescribed format for the written acknowl- An organization that is required to file 250 or
services being valued. edgment, it must provide enough information to more Forms 1098-C during the calendar year
substantiate the amount of the contribution. For must file the forms electronically or magneti-
Example 1. A charity provides a 1-hour more information, see Publication 1771, Chari- cally. Specifications for filing Form 1098-C elec-
tennis lesson with a tennis professional for the table Contributions – Substantiation and Disclo- tronically or magnetically can be found in Publi-
first $500 payment it receives. The tennis pro- sure Requirements. cation 1220, Specifications for Filing Forms
fessional provides 1-hour lessons on a com- 1097, 1098, 1099, 3921, 3922, 5498, 8935, and
mercial basis for $100. A good faith estimate of Cash contributions. To deduct a contribu- W-2G Electronically at Pub. 1220.
the lesson's FMV is $100. tion of cash, a check, or other monetary gift (re-
gardless of the amount), a donor must maintain Acknowledgment
Example 2. For a payment of $50,000, a a bank record or a written communication from
museum allows a donor to hold a private event the donee organization showing the donee's For a contribution of a qualified vehicle
in a room of the museum. A good faith estimate name, date, and amount of the contribution. In ! with a claimed value of $500 or less,
of the FMV of the right to hold the event in the the case of a lump-sum contribution (rather than CAUTION don't file Form 1098-C. However, you
museum can be made by using the cost of rent- a contribution by payroll deduction) made can use it as the contemporaneous written ac-
ing a hotel ballroom with a capacity, amenities, through the Combined Federal Campaign or a knowledgment under section 170(f)(8) by pro-
and atmosphere comparable to the museum similar program such as a United Way Cam- viding the donor with Copy C only. See the In-
room, even though the hotel ballroom lacks the paign, the written communication must include structions for Form 1098-C.
unique art displayed in the museum room. If the the name of the donee organization that is the
hotel ballroom rents for $2,500, a good faith es- ultimate recipient of the charitable contribution. Generally, the organization should complete
timate of the FMV of the right to hold the event Form 1098-C as the written acknowledgment to
in the museum is $2,500.
Example 3. For a payment of $1,000, a
charity provides an evening tour of a museum
Chapter 2 Filing Requirements and Required Disclosures Page 17

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the donor and the IRS. The contents of the ac-           than a needy individual without a significant in-       to qualified intellectual property if it is received 
knowledgment  depend  upon  whether  the  or-            tervening use or material improvement within 6          or accrued after the earlier of the expiration of 
ganization:                                              months of the date of the contribution.                 the  legal  life  of  the  qualified  intellectual  prop-
• Sells a qualified vehicle without any signifi-         If  a  charity  sells  a  donated  vehicle  at  auc-    erty,  or  the  10-year  period  beginning  with  the 
  cant intervening use or material improve-              tion, the IRS won't accept as substantiation an         date of the contribution.
  ment,                                                  acknowledgment  from  the  charity  stating  that 
• Intends to make a significant intervening              the vehicle is to be transferred to a needy indi-       Qualified  intellectual  property. Qualified  in-
  use of or material improvement to a quali-             vidual  for  significantly  below  fair  market  value. tellectual property is generally any patent, copy-
  fied vehicle prior to sale, or                         Vehicles  sold  at  auction  aren't  sold  at  prices   right,  trademark,  trade  name,  trade  secret, 
• Sells a qualified vehicle to a needy individ-          significantly  below  fair  market  value,  and  the    know-how,  software  or  similar  property,  or  ap-
  ual at a price significantly below fair market         IRS won't treat vehicles sold at auction as quali-      plications  or  registrations  of  such  property 
  value, or a gratuitous transfer to a needy             fying for this exception.                               (other than property contributed to or for the use 
  individual in direct furtherance of a charita-         The  penalty  for  a  false  or  fraudulent  ac-        of  a  private  foundation,  as  defined  in  section 
  ble purpose of the organization of relieving           knowledgment  where  the  donee  certifies  that        509(a) that isn't described in section
  the poor and distressed or the underprivi-             the  vehicle  won't  be  transferred  for  money,       170(b)(1)(F)). See Exceptions below.
  leged who are in need of a means of trans-             other property, or services before completion of        Exceptions. The  following  property  isn't 
  portation.                                             material improvements or significant intervening        considered  qualified  intellectual  property  for 
                                                         use or the donee certifies that the vehicle is to       purposes of the additional charitable deduction:
For  more  information  on  the  acknowledg-             be transferred to a needy individual for signifi-
ment, see Notice 2005-44.                                cantly below fair market value in furtherance of        1. Computer software that is readily available 
                                                         the donee's charitable purpose is the larger of           for purchase by the general public, is sub-
Material  improvements  or  significant  inter-          $5,000 or the claimed value of the vehicle multi-         ject to a nonexclusive license, and has not 
vening use. To constitute significant interven-          plied by 39.6%.                                           been substantially modified.
ing use, the organization must actually use the          The penalty for an acknowledgment relating              2. A copyright held by a taxpayer:
vehicle to substantially further the organization's      to  a  qualified  vehicle  being  sold  in  an  arm's 
regularly conducted activities, and the use must         length  transaction  to  an  unrelated  party  is  the  • Whose personal efforts created the prop-
be  significant,  not  incidental.  Factors  in  deter-  larger  of  the  gross  proceeds  from  the  sale  or     erty, or
mining whether a use is a significant intervening        the  sales  price  stated  in  the  acknowledgment      • In whose hands the basis of the property is 
use  depend  on  the  nature,  extent,  frequency,       multiplied by 39.6%.                                      determined, for purposes of determining 
and  duration.  For  this  purpose,  use  includes                                                                 gain from a sale or exchange, in whole or 
providing transportation on a regular basis for a                                                                  in part by reference to the basis of the 
significant  period  of  time  or  significant  use  di- Qualified Intellectual                                    property in the hands of a taxpayer whose 
rectly  related  to  training  in  vehicle  repair.  Use Property                                                  personal efforts created the property.
doesn't include the use of a vehicle to provide 
training in business skills, such as marketing or        A taxpayer who contributes qualified intellectual 
sales. Examples of significant use include:              property to a charity may be entitled to a chari-       Report of Cash Received
• Driving a vehicle every day for 1 year to              table deduction, in addition to any initial deduc-
  deliver meals to needy individuals, if deliv-          tion allowed in the year of contribution. The ad-       An  exempt  organization  that  receives,  in  the 
  ering meals is an activity regularly conduc-           ditional  deduction  is  based  on  a  specified        course of its activities, more than $10,000 cash 
  ted by the organization.                               percentage of the qualified donee income with           in one transaction (or two or more related trans-
• Driving a vehicle for 10,000 miles over a              respect to the qualified intellectual property. To      actions) that isn't a charitable contribution must 
  1-year period to deliver meals to needy in-            qualify  for  the  additional  charitable  deduction,   report the transaction to the IRS on Form 8300, 
  dividuals, if delivering meals is an activity          the donor must provide notice to the donee at           Report  of  Cash  Payments  Over  $10,000  Re-
  regularly conducted by the organization.               the  time  of  the  contribution  that  the  donor  in- ceived in a Trade or Business.
Material improvements include major repairs              tends to treat the contribution as qualified intel-
and additions that improve the condition of the          lectual  property  contribution  for  purposes  of 
vehicle in a manner that significantly increases         sections 170(m) and 6050L.
                                                                                                                 Public Inspection
the  value.  To  be  a  material  improvement,  the      Every donee organization described in sec-
improvement  can't  be  funded  by  an  additional       tion 170(c) (except a private foundation as de-         of Exemption 
payment  to  the  organization  from  the  donor  of     fined  in  section  509(a)  that  isn't  described  in 
the  vehicle.  Material  improvements  don't  in-        section  170(b)(1)(F))  that  receives  or  accrues     Applications, Annual 
clude  cleaning,  minor  repairs,  routine  mainte-      net income from a charitable gift of qualified in-      Returns, and Political 
nance, painting, removal of dents or scratches,          tellectual property must file Form 8899.
cleaning or repair of upholstery, and installation                                                               Organization Reporting 
of theft deterrent devices.                              Form 8899. Form 8899, Notice of Income from 
                                                         Donated Intellectual Property, is used by a do-         Forms
Penalties.  If  your  charitable  organization  re-      nee to report net income from qualified intellec-
ceives  contributions  of  used  motor  vehicles,        tual property to the donor of the property and to       The general rule under section 6103 is that re-
boats,  and  airplanes  valued  over  $500,  it  may     the IRS and is due by the last day of the first full    turns and return information of all taxpayers are 
be subject to a penalty if it knowingly:                 month  following  the  close  of  the  donee’s  tax     confidential  except  as  authorized  under  the 
• Fails to furnish an acknowledgement in a               year. This form must be filed for each tax year         Code. Section 6104 provides exceptions to the 
  timely manner, showing the required infor-             of the donee in which the donated property pro-         general  rule  of  confidentiality  for  disclosure  of 
  mation; or                                             duces net income, but only if all or part of that       certain information about exempt organizations.
• Furnishes a false or fraudulent acknowl-               tax  year  occurs  during  the  10-year  period  be-    In addition, included in this section is a dis-
  edgement of the contribution.                          ginning on the date of the contribution and that        cussion  on  the  public  inspection  requirements 
        Other penalties may apply. See Part O            tax year doesn't begin after the expiration of the      for political organizations filing Forms 8871 and 
                                                         legal life of the donated property.
!       in  the  current  General  Instructions  for                                                             8872.
CAUTION Certain Information Returns.
                                                         Qualified donee income.   Qualified donee in-
An  acknowledgment  containing  a  certifica-            come is any net income received by or accrued           Annual Information Return
tion will be presumed to be false or fraudulent if       to  the  donee  that  is  properly  allocable  to  the 
the  qualified  vehicle  is  sold  to  a  buyer  other   qualified intellectual property for the tax year of     An  exempt  organization  must  make  available 
                                                         the donee which ends within or with the tax year        for public inspection, upon request and without 
                                                         of  the  donor.  Income  isn't  treated  as  allocated  charge,  a  copy  of  its  original  and  amended 
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annual information returns. Each information re-      • In the case of a tax-exempt organization              Furnishing  copies. An  exempt  organization 
turn must be made available from the date it is         other than a private foundation, the names            must also provide a copy of all, or any specific 
required to be filed (determined with regard to         and addresses of contributors to the or-              part or schedule, of its three most recent annual 
any extensions), or is actually filed, whichever is     ganization; or                                        information  returns  and/or  exemption  applica-
later. An original return doesn't have to be made     • Any applications filed before July 15, 1987,          tion  to  anyone  who  requests  a  copy  either  in 
available if more than 3 years have passed from         if the organization didn't have a copy of the         person or in writing at its principal, regional, or 
the date the return was required to be filed (in-       application on July 15, 1987.                         district  office  during  regular  business  hours.  If 
cluding any extensions) or was filed, whichever                                                               the individual made the request in person, the 
is later. An amended return doesn't have to be        If  there  is  no  prescribed  application  form,       copy  must  be  provided  on  the  same  business 
made  available  if  more  than  3  years  have       see Regulations section 301.6104(d)-1(b)(3)(ii)         day  the  request  is  made  unless  there  are  un-
passed from the date it was filed.                    for a list of the documents that must be made           usual  circumstances.  Unusual  circumstances 
                                                      available.                                              are defined in          Regulations         section 
An annual information return includes an ex-                                                                  301.6104(d)-1(d)(1)(ii).
act  copy  of  the  return  (Forms  990,  990-EZ,     Material  required  to  be  withheld  from 
990-BL, 990-PF, 990-T, or 1065), and amended          public inspection. Material that is required to         The  organization  must  honor  a  written  re-
return,  if  any,  and  all  schedules,  attachments, be withheld from public inspection includes:            quest for a copy of documents or specific parts 
and supporting documents filed with the IRS.          • Trade secrets, patents, processes, styles             or schedules of documents that are required to 
                                                        of work, or apparatus for which withholding           be disclosed. However, this rule only applies if 
An  annual  information  return  doesn't  in-           was requested and granted;                            the request:
clude:                                                • National defense material;                            •   Is addressed to the exempt organization's 
•    Schedule A of Form 990-BL,                       • Unfavorable rulings or determination let-                 principal, regional, or district office;
•    Schedule K-1 of Form 1065, or                      ters issued in response to applications for           •   Is sent to that address by mail, electronic 
•    Form 1120-POL.                                     tax exemption;                                            mail (e-mail), facsimile (fax), or a private 
In  the  case  of  a  tax-exempt  organization        • Rulings or determination letters revoking or              delivery service approved by the IRS; and
other than a private foundation, an annual infor-       modifying a favorable determination letter;           •   Gives the address to where the copy of the 
mation  return  doesn't  include  the  names  and     • Technical advice memoranda relating to a                  document should be sent.
addresses of contributors to the organization.          disapproved application for tax exemption             The organization must mail the copy within 
                                                        or the revocation or modification of a favor-         30  days  from  the  date  it  receives  the  request. 
        Form  990-T.   All  section  501(c)(3)  or-     able determination letter;                            The  organization  can  request  payment  in  ad-
!       ganizations  that  file  Form  990-T  must    • Any letter or document filed with or issued           vance and must then provide the copies within 
CAUTION make  the  return  public,  regardless  of      by the IRS relating to whether a proposed             30 days from the date it receives payment.
whether the organization is otherwise subject to        or accomplished transaction is a prohibited 
the  disclosure  requirements  of  section  6104.       transaction under section 503; and                    Fees  for  copies.      The  organization  can 
For example, although churches aren't required        • Any other letter or document filed with or            charge a reasonable fee for providing copies. It 
to file Form 1023 or Form 990 with the IRS, they        issued by the IRS which, although it relates          can charge no more for the copies than the per 
must file the Form 990-T with the IRS to report         to an organization's tax-exempt status as             page rate the IRS charges for providing copies. 
unrelated  business  taxable  income.  Thus,            an organization described in section                  The IRS can't charge more for copies than the 
churches must disclose Form 990-T to the pub-           501(c) or 501(d), doesn't relate to that or-          fees  listed  in  the  Freedom  of  Information  Act 
lic.                                                    ganization's application for tax exemption.           (FOIA) fee schedule. Although the IRS charges 
                                                                                                              no fee for the first 100 pages, the organization 
State  colleges  and  universities  that  have        Time,  place,  and  manner  restrictions. The           can charge a fee for all copies. For noncommer-
been  recognized  by  the  IRS  as  exempt  under     annual returns and exemption application must           cial  requesters,  the  FOIA  schedule  currently 
section  501(a)  as  organizations  described  in     be  made  available  for  inspection,  without          provides a rate of $0.10 per page for black and 
section 501(c)(3) must disclose Form 990-T to         charge, at the organization's principal, regional,      white pages, and $0.20 per page for color pa-
the public. However, state colleges and univer-       and  district  offices  during  regular  business       ges. The organization can also charge the ac-
sities  that  are  subject  to  tax  under  section   hours. The organization can have an employee            tual postage costs it pays to provide the copies.
511(a)  solely  by  virtue  of  section  511(a)(2)(B) present during inspection, but must allow the in-
and that haven't been recognized by the IRS as        dividual to take notes freely and to photocopy at       Regional  and  district  offices. Generally,  the 
exempt  under  section  501(a)  as  organizations     no  charge  if  the  individual  provides  the  photo-  same rules regarding public inspection and pro-
described in section 501(c)(3) aren't required to     copying equipment. Generally, regional and dis-         viding  copies  of  applications  and  annual  infor-
make their Forms 990-T public.                        trict offices are those that have paid employees        mation returns that apply to a principal office of 
                                                      who together are normally paid for at least 120         an  exempt  organization  also  apply  to  its  re-
                                                      hours a week.                                           gional and district offices. However, a regional 
Public Inspection of                                                                                          or district office isn't required to make its annual 
                                                      If the organization doesn't maintain a perma-
Exemption Application                                 nent office, it must make its application for tax       information return available for inspection or to 
                                                      exemption  and  its  annual  information  returns       provide copies until 30 days after the date the 
An exempt organization must also make availa-         available for inspection at a reasonable location       return is required to be filed (including any ex-
ble for public inspection without charge its ap-      of  its  choice.  It  must  permit  public  inspection  tensions) or is actually filed, whichever is later.
plication  for  tax-exempt  status.  An application   within a reasonable amount of time after receiv-
for tax exemption includes the application form       ing a request for inspection (normally not more         Local  and  subordinate  organizations.     A  lo-
(such  as  Forms  1023  or  1024),  all  documents    than 2 weeks) and at a reasonable time of day.          cal or subordinate organization is an exempt or-
and statements the IRS requires the organiza-         At its option, it can mail, within 2 weeks of re-       ganization that didn't file its own application for 
tion to file with the form, any statement or other    ceiving the request, a copy of its application for      tax exemption because it is covered by a group 
supporting document submitted by an organiza-         tax exemption and annual information returns to         exemption letter. Generally, a local or subordi-
tion in support of its application, and any letter    the  requester  in  lieu  of  allowing  an  inspection. nate  organization  of  an  exempt  organization 
or other document issued by the IRS concern-          The  organization  can  charge  the  requester  for     must,  upon  request,  make  available  for  public 
ing the application.                                  copying and actual postage costs only if the re-        inspection, or provide copies of:
The  application  for  exemption  doesn't  in-        quester consents to the charge.                         1. The application submitted to the IRS by 
clude:                                                An organization that has a permanent office,                the central or parent organization to obtain 
•    Any application from an organization that        but  has  no  office  hours  or  very  limited  hours       the group exemption letter, and
     isn't yet recognized as exempt;                  during certain times of the year, must make its 
•    Any material that is required to be withheld     documents available during those periods when           2. Those documents which were submitted 
     from public inspection, see Material re-         office  hours  are  limited  or  not  available  as         by the central or parent organization to in-
     quired to be withheld from public                though it were an organization without a perma-             clude the local or subordinate organization 
     inspection, next;                                nent office.                                                in the group exemption letter.

                                                                         Chapter 2    Filing Requirements and Required Disclosures    Page 19

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However,  if  the  central  or  parent  organization      organization, at its principal office, inspection or    continues. The maximum penalty on all persons 
submits to the IRS a list or directory of local or        copies  of  group  returns  filed  by  the  central  or for failures involving any one return is $10,000.
subordinate organizations covered by the group            parent  organization.  The  central  or  parent  or-
exemption letter, the local or subordinate organ-         ganization must fulfill such requests in the time       The penalty for failure to allow public inspec-
ization  is  required  to  provide  only  the  applica-   and manner specified earlier.                           tion  of  exemption  applications  is  $20  for  each 
tion for the group exemption ruling and the pa-           If an organization fails to comply, it may be           day the failure continues.
ges of the list or directory that specifically refer      liable for a penalty. See Penalties, later.
to it.                                                                                                            The penalty for willful failure to allow public 
The  local  or  subordinate  organization  must           Making  applications  and  annual  informa-             inspection of a return or exemption application 
permit  public  inspection  or  comply  with  a  re-      tion returns widely available. An exempt or-            is  $5,000  for  each  return  or  application.  The 
quest for copies made in person, within a rea-            ganization doesn't have to comply with requests         penalty also applies to a willful failure to provide 
sonable amount of time (normally not more than            for  copies  of  its  annual  information  returns  or  copies.
2 weeks) after receiving a request made in per-           exemption  application  if  it  makes  them  widely 
son for public inspection or copies and at a rea-         available.  However,  making  these  documents          The penalty for failure to allow public inspec-
sonable  time  of  day.  In  lieu  of  allowing  an  in-  widely available doesn't relieve the organization       tion of a political organization's section 527 no-
spection,  the  local  or  subordinate  organization      from making its documents available for public          tice (Form 8871) is $20 for each day the failure 
can mail a copy of the applicable documents to            inspection.                                             continues.
the  person  requesting  inspection  within  the          The  organization  can  make  its  application 
same time period. In that case, the organization          and annual information returns widely available         The penalty for failure to allow public inspec-
can charge the requester for copying and actual           by posting the application and annual informa-          tion  of  a  section  527  organization's  contribu-
postage costs only if the requester consents to           tion returns on the Internet. For the rules to fol-     tions  and  expenditures  report  (Form  8872)  is 
the charge. If the local or subordinate organiza-         low so that the Internet posting will be consid-        $20  for  each  day  the  failure  continues.  The 
tion receives a written request for a copy of its         ered  widely  available,  see  Regulations  section     maximum penalty on all persons for failures in-
application  for  exemption,  it  must  fulfill  the  re- 301.6104(d)-2(b).                                       volving any one report is $10,000.
quest in the time and manner specified earlier.           If the organization has made its application 
The  requester  has  the  option  of  requesting          for tax exemption and/or annual information re-
from  the  central  or  parent  organization,  at  its    turns  widely  available,  it  must  inform  any  indi- Required Disclosures
principal office, inspection or copies of the ap-         vidual requesting a copy where the documents 
plication  for  group  exemption  and  the  material      are available, including the website address on         Certain  exempt  organizations  must  disclose  to 
submitted by the central or parent organization           the Internet, if applicable. If the request is made     the IRS or the public certain information about 
to include a local or subordinate organization in         in person, the notice must be provided immedi-          their  activities.  Generally,  an  organization  dis-
the group ruling. If the central or parent organi-        ately. If the request is made in writing, the no-       closes this information by entering it on the ap-
zation submits to the IRS a list or directory of lo-      tice must be provided within 7 days.                    propriate lines of its annual return. In addition, 
cal or subordinate organizations covered by the                                                                   there are disclosure requirements for:
group exemption letter, it must make the list or          Harassment  campaign.     If  the  tax-exempt  or-      • Solicitation of nondeductible contributions,
directory available for public inspection, but it is      ganization is the subject of a harassment cam-          • Sales of information or services that are 
required to provide copies only of those pages            paign, the organization may not have to fulfill re-       available free from the government,
of the list or directory that refer to particular lo-     quests  for  information.  For  more  information,      • Dues paid to the organization that aren't 
cal  or  subordinate  organizations  specified  by        see Regulations section 301.6104(d)-3.                    deductible because they are used for lob-
the  requester.  The  central  or  parent  organiza-                                                                bying or political activities, and
tion  must  fulfill  such  requests  in  the  time  and                                                           • Prohibited tax shelter transactions.
manner specified earlier.                                 Political Organization 
A  local  or  subordinate  organization  that             Reporting Forms
                                                                                                                  Solicitation of Nondeductible 
doesn't  file  its  own  annual  information  return 
(because it is affiliated with a central or parent        Forms 8871 and 8872 (discussed earlier under            Contributions
organization that files a group return) must, on          Reporting  Requirements  for  a  Political  Organi-
request, make available for public inspection, or         zation) are open to public inspection.                  Solicitations for contributions or other payments 
                                                                                                                  by certain exempt organizations (including lob-
provide copies of, the group returns filed by the         Form 8871.  Form 8871 (including any sup-               bying  groups  and  political  action  committees) 
central  or  parent  organization.  However,  if  the     porting  papers),  and  any  letter  or  other  docu-   must  include  a  statement  that  payments  to 
group  return  includes  separate  schedules  for         ment the IRS issues with regard to Form 8871,           those organizations aren't deductible as charita-
each local or subordinate organization included           are open to public inspection online at IRS.gov/        ble contributions for federal income tax purpo-
in the group return, the local or subordinate or-         polorgs.                                                ses.  The  statement  must  be  included  in  the 
ganization  receiving  the  request  can  omit  any 
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.
tion, or comply with a request for copies made                                                                    Organizations  subject  to  requirements.   An 
in  person,  within  a  reasonable  amount  of  time      Electronically  filed  Forms  8871  and  8872           organization  must  follow  these  disclosure  re-
(normally not more than 2 weeks) after receiv-            are available online 48 hours after the form has        quirements if it is exempt under section 501(c), 
ing a request made in person for public inspec-           been filed. Forms 8872 that are filed by mail are       other  than  section  501(c)(1),  or  under  section 
tion or copies and at a reasonable time of day.           available online after being imaged by the IRS.         501(d), unless the organization is eligible to re-
In lieu of allowing an inspection, the local or           These forms are considered widely available if          ceive tax deductible charitable contributions un-
subordinate organization can mail a copy of the           you provide the online address to the requester.        der  section  170(c).  These  requirements  must 
applicable documents to the person requesting             In addition, your organization must make a copy         be followed by, among others:
inspection  within  the  same  time  period.  In  this    of these materials available for public inspection      1. Social welfare organizations (section 
case, the organization can charge the requester           during  regular  business  hours  at  the  organiza-      501(c)(4)); 
for copying and actual postage costs only if the          tion’s principal office and at each of its regional 
requester consents to the charge. If the local or         or district offices having at least three paid em-      2. Labor unions (section 501(c)(5));
subordinate organization receives a written re-           ployees.                                                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 organ-
questing from the         central or parent               of annual returns is $20 for each day the failure         izations described in section 170(c)(4) 
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must follow these requirements only for any part of the dues isn't deductible because it tax shelter transaction. If any date falls on a Sat-
solicitations for funds that are to be used is related to lobbying or political activities. urday, Sunday, or legal holiday, substitute the
for noncharitable purposes not described next business day. However, the disclosure for
in section 170(c)(4)); An organization must provide the notice if it subsequently listed transactions (as defined in
is exempt from tax under section 501(a) and is section 4965(e)(2)) is due on or before May 15
6. Any political organization described in one of the following. of the calendar year following the close of the
section 527(e), including political cam- calendar year that the transaction was identified
paign committees and political action 1. A social welfare organization described in
committees; and section 501(c)(4) that isn't a veterans' or- by the Secretary as a listed transaction.
ganization. The disclosure for exempt organizations de-
7. Any organization not eligible to receive scribed in 2 above is due on or before the date
tax-deductible contributions if the organi- 2. An agricultural or horticultural organization the first tax return (whether original or amended
zation or a predecessor organization was, described in section 501(c)(5). return) is filed that reflects a reduction or elimi-
at any time during the 5-year period end- 3. A business league, chamber of com- nation of the exempt organization's liability for
ing on the date of the fundraising solicita- merce, real estate board, or other organi- applicable federal employment, excise, or unre-
tion, an organization of the type to which zation described in section 501(c)(6). lated business income taxes that is derived di-
this disclosure requirement applies. rectly or indirectly from tax consequences or tax
However, an organization described in (1), (2), strategy described in the published guidance
Fundraising solicitation. This disclosure re- or (3) doesn't have to provide the notice if it es- that lists the transaction.
quirement applies to a fundraising solicitation if tablishes that substantially all the dues paid to it
all of the following are true. aren't deductible anyway or if certain other con- Penalty. Exempt organizations that fail to file
ditions are met. For more information, see Rev. the required disclosure are subject to a nondi-
1. The organization soliciting the funds nor- Proc. 98-19, 1998-1 C.B. 547 (or later update). sclosure penalty of $100 for each day the failure
mally has gross receipts over $100,000 continues with a maximum penalty for any one
per year. If the organization doesn't provide the re- disclosure of $50,000.
2. The solicitation is part of a coordinated quired notice, it may have to pay a tax that is re- Also, if the IRS makes a written demand on
fundraising campaign that is soliciting ported on Form 990-T. But the tax doesn't apply any exempt organization subject to this penalty,
more than 10 persons during the year. to any amount on which the section 527 tax has giving the organization a reasonable date to
been paid on Form 1120-POL. See Political Or- make the disclosure, and the organization fails
3. The solicitation is made in written or prin- ganization Income Tax Return, earlier. to make the disclosure by that date, the organi-
ted form, by television or radio, or by tele-
phone. For more information about nondeductible zation is subject to a penalty of $100 for each
dues, see Deduction not allowed for dues used day after the date specified by the IRS until dis-
Penalties. Failure by an organization to make for political or legislative activities. under Sec- closure is made (with a maximum penalty for
the required statement will result in a penalty of tion 501(c)(6) organizations, later. any one disclosure of $10,000).
$1,000 for each day the failure occurred, up to a
maximum penalty of $10,000 for a calendar
year. No penalty will be imposed if it is shown Prohibited Tax Shelter Miscellaneous Rules
that the failure was due to reasonable cause. If Transactions
the failure was due to intentional disregard of
the requirements, the penalty may be higher Every exempt organization (as defined in sec- Organizational Changes and
and isn't subject to a maximum amount. tion 4965(c)) that is a party to a prohibited tax Exempt Status
shelter transaction is required to disclose to the
IRS the following information: If you’ve changed your form or place of organi-
Sales of Information or • Whether such organization is a party to the zation, review Rev. Proc. 2018-15, 2018-9
Services Available Free from prohibited tax shelter transaction (as de- I.R.B. 379, to determine whether you’re re-
Government fined in section 4965(e)); and quired to file a new exemption application. If
• The identity of any other party to the trans- your organization becomes inactive for a period
Certain organizations that offer to sell to individ- action that is known to the exempt organi- of time but doesn't cease being an entity under
uals (or solicit money for) information or routine zation. the laws of the state in which it was formed, you
services that could be readily obtained free (or will have to continue to file an annual informa-
for a nominal fee) from the federal government Party to a prohibited tax shelter transac- tion return during the period of inactivity, unless
must include a statement that the information or tion. An exempt organization is a party to a a filing exception applies. If your organization
service can be so obtained. The statement prohibited tax shelter transaction if the organi- has been liquidated, dissolved, terminated, or
must be made in a conspicuous and easily rec- zation: substantially contracted, you should file your
annual return of information by the 15th day of
ognized format when the organization makes 1. Facilitates a prohibited tax shelter transac- the 5th month after the change and follow the
an offer or solicitation to sell the information or tion by reason of its tax-exempt, tax-indif- applicable instructions for the form.
service. Organizations affected are those ex- ferent, or tax-favored status; or
empt under section 501(c) or 501(d) and politi- If your organization amends its articles of or-
cal organizations defined in section 527(e). 2. Is identified in published guidance by type,
class, or role as a party to a prohibited tax ganization or its internal regulations (bylaws),
Penalty. A penalty is provided for failure to shelter transaction. then follow the instructions for Form 990, Form
990-EZ, or Form 990-PF for reporting these
comply with this requirement if the failure is due See Prohibited Tax Shelter Transac- changes. Regardless of whether your organiza-
to intentional disregard of the requirement. The tions,later, for further information. tion files an annual information return, you may
penalty is the greater of $1,000 for each day the also report these changes to the EO Determina-
failure occurred, or 50% of the total cost of all Disclosure. A single disclosure is made by the tions office; however, such reporting doesn't re-
offers and solicitations that were made by the organization for each prohibited tax shelter lieve your organization from reporting the
organization the same day that it fails to meet transaction. The disclosure is made on Form changes on its annual information return. For in-
the requirement. 8886-T, Disclosure by Tax-Exempt Entity Re- formation about informing the IRS of a termina-
garding Prohibited Tax Shelter Transaction. tion or merger, see Publication 4779, Facts
about Terminating or Merging Your Exempt Or-
Dues Used for Lobbying Due date. Generally, for exempt organiza- ganization.
or Political Activities tions described in 1 above, the disclosure is
due on or before May 15 of the calendar year An organization should report new signifi-
Certain exempt organizations must notify any- following the close of the calendar year that the cant program services or significant changes in
one paying dues to the organization whether exempt organization entered into the prohibited how it conducts program services, and
Chapter 2 Filing Requirements and Required Disclosures Page 21

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significant changes to its organizational docu- Internal Revenue Service versities, or hospitals. However, if an organiza-
ments, on its Form 990 rather than in a letter to Attn: Correspondence Unit tion is an integral part of the local government
EO Determinations. EO Determinations no lon- 500 Main Street, Room 6403 or possesses governmental powers, it doesn't
ger issues letters confirming the tax-exempt Cincinnati, Ohio 45202 qualify for exemption. A state or municipality it-
status of organizations that report new services self doesn't qualify for exemption under section
or significant changes, or changes to organiza- 501(c)(3).
tional documents.
Topics
Change in Accounting Period This chapter discusses:

The procedures that an organization must fol- 3. • Contributions to 501(c)(3) organizations,
low to change its accounting period differ for an • Applications for recognition of exemption,
independent organization and for a central or- • Articles of Organization,
ganization that seeks a group change for its • Educational organizations and private
subordinate organizations. Section schools,
• Organizations providing insurance,
Independent organizations. If an organiza- 501(c)(3) • Other section 501(c)(3) organizations,
tion isn't required to file an annual information • Private foundations and public charities,
return, but files a Form 990-T, it can change its and
annual accounting period by timely filing the Organizations • Lobbying expenditures.
Form 990-T. If neither an information return nor
a Form 990-T is required to be filed, an organi- Useful Items
zation must notify the IRS by letter that it has You may want to see:
changed its fiscal period. Introduction
If an organization changed its annual ac- An organization may qualify for exemption from
counting period at any time within the previous federal income tax under section 501(c)(3) if it Forms (and Instructions)
10 years and within that time it had a filing re- is organized and operated exclusively for one or 1023 1023 Application for Recognition of
quirement, the organization must file a Form more of the following purposes. Exemption Under Section 501(c)(3)
1128, Application to Adopt, Change, or Retain a • Religious. of the Internal Revenue Code
Tax Year, with its timely filed annual information • Charitable. 1023-EZ 1023-EZ Streamlined Application for
return or Form 990-T, as appropriate, whether • Scientific.
or not the filing of the information return or Form • Testing for public safety. Recognition of Exemption Under
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 Form 1023 and Form 1023-EZ must be filed
Central organizations. A central organization sports competition (but only if none of its electronically on Pay.gov.
can obtain approval for a group change in an activities involve providing athletic facilities
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 501(c)(3) Organizations
or any later updates. company), unincorporated association, or trust.
Due date. Form 1128 must be filed by the 15th Sole proprietorships, partnerships, individuals, Contributions to domestic organizations descri-
day of the 5th month following the close of the or loosely associated groups of individuals bed in this chapter, except organizations testing
short period. won't qualify. for public safety, are deductible as charitable
contributions on the donor's federal income tax
Examples. Qualifying organizations include: return.
Modify or Obtain an NTEE • Nonprofit old-age homes,
Code. • Parent-teacher associations, Fundraising events. If the donor receives
• Charitable hospitals or other charitable or- something of value in return for the contribution,
ganizations, a common occurrence with fundraising efforts,
Organizations that wish to modify or obtain a • Alumni associations, part or all of the contribution may not be deduc-
National Taxonomy of Exempt Entities (NTEE) • Schools, tible. This may apply to fundraising activities
Code should send a written request to the Cor- • Chapters of the Red Cross, such as charity balls, bazaars, banquets, auc-
respondence Unit with the relevant facts, in- • Boys' or Girls' Clubs, and tions, concerts, athletic events, and solicitations
cluding the Code currently assigned, if any, and • Churches. for membership or contributions when mer-
the requested Code, as well as who selected
the currently assigned Code initially, if known. Child care organizations. The term edu- chandise or benefits are given in return for pay-
The Correspondence Unit will refer to EO De- cational purposes includes providing for care of ment of a specified minimum contribution.
terminations, if necessary, and will notify the or- children away from their homes if substantially If the donor receives or expects to receive
ganization if a form or user fee is required to all the care provided is to enable individuals goods or services in return for a contribution to
make the requested change. The written re- (the parents) to be gainfully employed and the your organization, the donor can't deduct any
quest must be sent or faxed to: services are available to the general public. part of the contribution unless the donor intends
to, and does, make a payment greater than the
Internal Revenue Service Instrumentalities. A state or municipal instru- fair market value of the goods or services. If a
Attn: Correspondence Unit mentality may qualify under section 501(c)(3) if deduction is allowed, the donor can deduct only
P.O. Box 2508, Room 6403 it is organized as a separate entity from the gov- the part of the contribution, if any, that is more
Cincinnati, Ohio 45201 ernmental unit that created it and if it otherwise than the fair market value of the goods or serv-
Fax: (855) 204-6184 meets the organizational and operational tests ices received. You should determine in ad-
of section 501(c)(3). Examples of a qualifying vance the fair market value of any goods or
Express and Overnight Delivery: instrumentality may include state schools, uni- services to be given to contributors and tell
them, when you publicize the fundraising event
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or solicit their contributions, how much is de- Excise tax. If the premiums are paid in con- 2. No part of the organization's net earnings
ductible and how much is for the goods or serv- nection with a transfer for which a deduction will inure to the benefit of private share-
ices. See Disclosure of Quid Pro Quo Contribu- isn't allowable under the deduction denial rule, holders or individuals. You must establish
tions in chapter 2. without regard to when the transfer to the chari- that your organization won't be organized
table organization was made, an excise tax will or operated for the benefit of private inter-
Exemption application not filed. Generally, be applied that is equal to the amount of the ests, such as the creator or the creator's
donors can't deduct any charitable contribution premiums paid by the organization on any life family, shareholders of the organization,
to an organization that is required to apply for insurance, annuity, or endowment contract. The other designated individuals, or persons
recognition of exemption but has not done so. excise tax doesn't apply if all of the direct and controlled directly or indirectly by such pri-
indirect beneficiaries under the contract are or- vate interests.
Separate fund—contributions that are de- ganizations. 3. The organization won't, as a substantial
ductible. An organization that is exempt from
federal income tax other than as an organiza- Excise taxes. A charitable organization lia- part of its activities, attempt to influence
tion described in section 501(c)(3) can, if it de- ble for excise taxes must file Form 4720, Return legislation (unless it elects to come under
sires, establish a fund, separate and apart from of Certain Excise Taxes Under Chapters 41 and the provisions allowing certain lobbying
its other funds, exclusively for religious, charita- 42 of the Internal Revenue Code. Generally, the expenditures) or participate to any extent
ble, scientific, literary, or educational purposes, due date for filing Form 4720 occurs on the 15th in a political campaign for or against any
fostering national or international amateur day of the 5th month following the close of the candidate for public office. See Political
sports competition, or for the prevention of cru- organization's tax year. activity, next, and Lobbying Expenditures,
near the end of this chapter.
elty to children or animals. Indoor tanning services. If your organiza-
If the fund is organized and operated exclu- tion provides an indoor tanning bed service, the Political activity. If any of the activities
sively for these purposes, it may qualify for ex- ACA imposed a 10% excise tax on services (whether or not substantial) of your organization
emption as an organization described in section provided after June 30, 2010. For more infor- consist of participating in, or intervening in, any
501(c)(3), and contributions made to it will be mation, go to IRS.gov and select Affordable political campaign on behalf of (or in opposition
deductible, as provided by section 170. A fund Care Act Tax Provisions. to) any candidate for public office, your organi-
with these characteristics must be organized in zation won't qualify for tax-exempt status under
such a manner as to prohibit the use of its funds section 501(c)(3). Such participation or inter-
upon dissolution, or otherwise, for the general vention includes the publishing or distributing of
purposes of the organization creating it. Application for
statements. See the Form 1023 instructions.
Recognition of Whether your organization is participating or
Personal benefit contracts. Generally, chari- intervening, directly or indirectly, in any political
table deductions won't be allowed for a transfer Exemption campaign on behalf of (or in opposition to) any
to, or for the use of, a section 501(c)(3) or (c)(4) candidate for public office depends upon all of
organization if in connection with the transfer: This discussion describes certain information to the facts and circumstances of each case. Cer-
• The organization directly or indirectly pays, be provided upon application for recognition of tain voter education activities or public forums
or previously paid, a premium on a per- exemption by all organizations created for any conducted in a nonpartisan manner may not be
sonal benefit contract for the transferor; or of the purposes described earlier in this chap- prohibited political activity under section 501(c)
• There is an understanding or expectation ter. See the organization headings that follow (3), while other so-called voter education activi-
that anyone will directly or indirectly pay a for specific information your organization may ties may be prohibited.
premium on a personal benefit contract for need to provide.
the transferor. Effective date of exemption. Most organiza-
Form 1023 or Form 1023-EZ. Your organiza- tions described in this chapter that were organ-
A personal benefit contract with respect to tion must file its application for recognition of ized after October 9, 1969, won't be treated as
the transferor is any life insurance, annuity, or exemption on Form 1023 or Form 1023-EZ. tax exempt unless they apply for recognition of
endowment contract, if any direct or indirect See chapter 1 and the instructions accompany- exemption by filing Form 1023 or Form
beneficiary under the contract is the transferor, ing Form 1023 or Form 1023-EZ for the proce- 1023-EZ. These organizations won't be treated
any member of the transferor's family, or any dures to follow in applying. Some organizations as tax exempt for any period before they file
other person designated by the transferor. aren't required to file Form 1023 or Form Form 1023 or Form 1023-EZ, unless they file
Certain annuity contracts. If an organiza- 1023-EZ. See Organizations Not Required to the form within 27 months from the end of the
tion incurs an obligation to pay a charitable gift File Form 1023 or 1023-EZ, later. month in which they were organized. If the or-
annuity, and the organization purchases an an- If you are a small organization, you may be ganization files the application within this
nuity contract to fund the obligation, individuals eligible to apply for recognition of exemption by 27-month period, the organization's exemption
receiving payments under the charitable gift an- filing Form 1023-EZ instead of Form 1023. Spe- will generally be recognized retroactively to the
nuity won't be treated as indirect beneficiaries if cific eligibility requirements apply. You can find date it was organized. Otherwise, exemption
the organization owns all of the incidents of more information about eligibility to use Form will be recognized only from the date of receipt.
ownership under the contract, is entitled to all 1023-EZ at Instructions for Form 1023-EZ. The date of receipt is the date of the U.S. post-
payments under the contract, and the timing Additional information to help you com- mark on the cover in which an exemption appli-
and amount of the payments are substantially TIP plete your application can be found on- cation is mailed or, if no postmark appears on
the same as the timing and amount of pay- line. Go to Exemption Requirement – the cover, the date the application is stamped
ments to each person under the obligation (as Section 501(c)(3) Organizations and select the as received by the IRS or, for an electronic sub-
such obligation is in effect at the time of the link at the bottom of the web page for step by mission, the date submitted to the IRS. See
transfer). step help with the application process. See section 6.08 of Rev. Proc. 2023-5.
Certain contracts held by a charitable Exemption Requirements - Section 501(c)(3) Private delivery service. You can use cer-
remainder trust. An individual won't be con- Organizations. tain private delivery services (PDS) designated
sidered an indirect beneficiary under a life in- Form 1023 and accompanying statements by the IRS to meet the “timely mailing as timely
surance, annuity, or endowment contract held must show that all of the following are true. filing” rule for tax returns. Go to IRS.gov/PDS for
by a charitable remainder annuity trust or a the current list of designated services.
charitable remainder unitrust solely by reason 1. The organization is organized exclusively
of being entitled to the payment if the trust owns for, and will be operated exclusively for, The PDS can tell you how to get written proof of
all of the incidents of ownership under the con- one or more of the purposes (religious, the mailing date.
tract, and the trust is entitled to all payments un- charitable, etc.) specified in the introduc-
der the contract. tion to this chapter. For the IRS mailing address to use if you're us-
ing a PDS, go to IRS.gov/PDStreetAddresses.

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5. The organization filed required Form More information. For more information
990-series returns or notices consistent about these procedures, see Regulations sec-
Private delivery services can't deliver with its requested status. tions 301.9100-1, 301.9100-2, and 301.9100-3,
! items to P.O. boxes. You must use the Rev. Proc. 2023-5.
CAUTION U.S. Postal Service to mail any item to Not acting reasonably and in good faith.
an IRS P.O. box address. An organization has not acted reasonably and Notification from the IRS. Organizations filing
in good faith under the following circumstances. Form 1023 or Form 1023-EZ and satisfying all
Amendments to organizing documents requirements of section 501(c)(3) will be noti-
required. If an organization is required to alter 1. It seeks to change a return position for
its activities or to make substantive amend- which an accuracy-related penalty has fied of their exempt status in writing.
ments to its organizing document, the determi- been or could be imposed at the time the
nation letter recognizing its exempt status will relief is requested. Organizations Not Required
be effective as of the date the changes are 2. It was informed of the requirement to file to File Form 1023 or Form
made. If only a nonsubstantive amendment is and related tax consequences, but chose 1023-EZ
made, exempt status will be effective as of the not to file.
date it was organized, if the application was Some organizations aren't required to file Form
filed within the 27-month period, or the date the 3. It uses hindsight in requesting relief. The
application was filed. IRS won't ordinarily grant an extension if 1023 or 1023-EZ. These include:
specific facts have changed since the due • Churches, interchurch organizations of lo-
Discretionary extension of time for filing. date that makes filing an application ad- cal units of a church, conventions or asso-
An organization that fails to file a Form 1023 vantageous to an organization. ciations of churches, or integrated auxilia-
ries of a church, such as a men's or
within the 27-month period may be granted an 4. Granting the request for relief would result women's organization, religious school,
extension to file if it submits evidence (including in the organization’s tax-exempt status be- mission society, or youth group.
affidavits) to establish that: ing automatically revoked effective before • Any organization (other than a private
1. It acted reasonably and in good faith, and the application date. foundation) normally having annual gross
2. Granting a discretionary extension won't Prejudicing the interest of the govern- receipts of not more than $5,000 (see
prejudice the interests of the government. ment. Prejudice to the interest of the govern- Gross receipts test, later).
ment results if granting an extension of time to These organizations are exempt automati-
file to an organization results in a lower total tax cally if they meet the requirements of section
The discretionary extension of the time for filing liability for the years to which the filing applies 501(c)(3). However, such organizations will not
Form 1023 does not apply if granting relief than would have been the case if the organiza- appear on the Tax-Exempt Organization Search
would result in the organization’s exempt status tion had filed on time. Before granting an exten- list of organizations eligible to receive tax-de-
being automatically revoked for failure to file a sion, the IRS can require the organization re- ductible contributions. These organizations also
required annual information return or notice for questing it to submit a statement from an cannot obtain a written affirmation of their ex-
3 consecutive years, effective before the appli- independent auditor certifying that no prejudice empt status. To be included in the IRS data-
cation date. See Rev. Proc. 2023-5. will result if the extension is granted. base of exempt organizations and be eligible to
Additionally, organizations that are not re- receive a written determination or affirmation of
quired to apply for recognition of exemption in The interests of the Government are ordina-
order to be exempt are not eligible to request rily prejudiced if the tax year in which the appli- exempt status, these organization must file
the discretionary extension. See Rev. Proc. cation should have been filed (or any tax year Form 1023 or 1023-EZ.
2023-5. However, these organizations may be that would have been affected had the filing
exempt prior to the effective date the IRS recog- been timely) are closed by the statute of limita- Filing Form 1023 or 1023-EZ to establish
nizes exempt status because they may be tions before relief is granted. Therefore, the re- exemption. If the organization wants to estab-
tax-exempt under Section 501(c)(3) without fil- quest for relief will not be granted if the period of lish its exemption with the IRS and receive a de-
ing an application. See Organizations Not Re- limitations on assessment under section termination letter recognizing its exempt status,
quired to File Form 1023 or Form 1023-EZ. 6501(a) for any taxable year for which the or- it should file Form 1023 or 1023-EZ (if eligible).
ganization claims tax-exempt status has ex- By establishing its exemption, potential contrib-
How to show reasonable action and pired prior to the date of application. See Rev. utors are assured by the IRS that contributions
good faith. The following factors are consid- Proc 2023-5. The IRS can condition a grant of will be deductible. A subordinate organization
ered in determining whether an organization ac- relief on the organization providing the IRS with (other than a private foundation) covered by a
ted reasonably and showed good faith. a statement from an independent auditor certi- group exemption letter doesn't have to submit a
1. The organization failed to file an applica- fying that the interests of the Government aren't Form 1023 or Form 1023-EZ for itself.
tion because of intervening events beyond prejudiced. Private foundations. See Private Founda-
its control. Procedure for requesting extension. To tions and Public Charities, later in this chapter,
2. The organization exercised reasonable dil- request a discretionary extension, an organiza- for more information about the additional notice
igence (taking into account the complexity tion must submit the relevant portions of Form required from an organization in order for it not
of the filing or issue and the organization's 1023, Schedule E, including describing in detail to be presumed to be a private foundation and
experience in these matters) but wasn't the events that led to the failure to apply and to for the additional information required from a
aware of the application filing requirement. the discovery of that failure. If the organization private foundation claiming to be an operating
relied on a tax professional's advice, the sched- foundation.
3. The organization reasonably relied upon ule should describe the engagement and re- Gross receipts test. For purposes of the
the written advice of the IRS. sponsibilities of the professional and the extent gross receipts test, an organization normally
4. The organization reasonably relied upon to which the organization relied on the tax pro- doesn't have more than $5,000 annually in
the advice of a qualified tax professional fessional. An organization applying for Section gross receipts if:
who failed to file or advise the organization 501(c)(3) status can no longer request the ex-
to file Form 1023 or Form 1023-EZ. An or- tension by filing Form 1023-EZ and then sub- 1. During its first tax year the organization re-
ganization can't rely on the advice of a tax mitting correspondence to the IRS. ceived gross receipts of $7,500 or less,
professional if it knows or should know A request for this relief in connection with an 2. During its first 2 years the organization had
that he or she isn't competent to render application for exemption doesn't require pay- a total of $12,000 or less in gross receipts,
advice on filing exemption applications or ment of an additional user fee. Also, a request and
isn't aware of all the relevant facts. for relief under the automatic 12-month exten-
sion doesn't require payment of a user fee. 3. In the case of an organization that has
been in existence for at least 3 years, the
total gross receipts received by the
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organization during the immediately pre- written instrument by which the organization Example 4. If a stated purpose in the arti-
ceding 2 years, plus the current year, are was created. If applying for recognition of ex- cles is the conduct of a school of adult educa-
$15,000 or less. emption using Form 1023, a conformed copy of tion and its manner of operation is described in
the articles of organization must be uploaded detail, such a purpose will be satisfactorily limi-
An organization with gross receipts more with the application for recognition of exemp- ted.
than the amounts in the gross receipts test, un- tion. See Form 1023 Part II. An organization ap-
less otherwise exempt from filing Form 1023 or plying for exemption using Form 1023-EZ does Example 5. If the articles state the organi-
Form 1023-EZ, must apply for recognition of ex- not submit a copy of the articles of organization zation is formed for charitable purposes, without
emption within 90 days after the end of the pe- with its application; however, the organization any further description, such language ordina-
riod in which the amounts are exceeded. For could be asked to provide a copy at any time as rily will be sufficient since the term charitable
example, an organization's gross receipts for its part of a compliance check or examination. has a generally accepted legal meaning. On the
first tax year were less than $7,500, but at the other hand, if the purposes are stated to be
end of its second tax year its gross receipts for charitable, philanthropic, and benevolent, the
the 2-year period were more than $12,000. The Organizational Test organizational requirement won't be met since
organization must apply for recognition of ex- the terms philanthropic and benevolent have no
emption within 90 days after the end of its sec- The articles of organization must limit the or- generally accepted legal meaning and, there-
ond tax year. ganization's purposes to one or more of those fore, the stated purposes may, under the laws
If the organization had existed for at least 3 described at the beginning of this chapter and of the state, permit activities that are broader
tax years and had met the gross receipts test mustn't expressly empower it to engage, other than those intended by the exemption law.
for all prior tax years but fails to meet the re- than as an insubstantial part of its activities, in
quirement for the current tax year, its tax-ex- activities that don't further one or more of those Example 6. If the articles state an organiza-
empt status for the prior years won't be lost purposes. These conditions for exemption are tion is formed to promote American ideals, or to
even if it does not apply for recognition of ex- referred to as the organizational test. foster the best interests of the people, or to fur-
emption within 90 days after the close of the Section 501(c)(3) is the provision of law that ther the common welfare and well-being of the
current tax year. However, the organization grants exemption to the organizations descri- community, without any limitation or provision
won't be treated as a section 501(c)(3) organi- bed in this chapter. Therefore, the organiza- restricting such purposes to accomplishment
zation for the period beginning with the current tional test may be met if the purposes stated in only in a charitable manner, the purposes won't
tax year and ending with the filing of its applica- the articles of organization are limited in some be sufficiently limited. Such purposes are vague
tion for recognition of exemption . way by reference to section 501(c)(3). and may be accomplished other than in an ex-
empt manner.
Example. An organization is organized and The requirement that your organization's
operated exclusively for charitable purposes purposes and powers must be limited by the ar- Example 7. A stated purpose to operate a
and isn't a private foundation. It was incorpora- ticles of organization isn't satisfied if the limit is hospital doesn't meet the organizational test
ted on January 1, 2017, and files returns on a contained only in the bylaws or other rules or since it isn't necessarily charitable. A hospital
calendar-year basis. It didn't apply for recogni- regulations. Moreover, the organizational test may or may not be exempt depending on the
tion of exemption. The organization's gross re- isn't satisfied by statements of your organiza- manner in which it is operated.
ceipts during the years 2017 through 2020 were tion's officers that you intend to operate only for
as follows: exempt purposes. Also, the test isn't satisfied Example 8. An organization that is ex-
by the fact that your actual operations are for pressly empowered by its articles to carry on
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,600 exempt purposes. social activities won't be sufficiently limited as to
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,900 its power, even if its articles state that it is or-
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 In interpreting an organization's articles, the
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,600 law of the state where the organization was cre- ganized and will be operated exclusively for
ated is controlling. If an organization contends charitable purposes.
The organization's total gross receipts for that the terms of its articles have a different
2017, 2018, and 2019 were $6,900. Therefore, meaning under state law than their generally Dedication and
it didn't have to apply for recognition of exemp- accepted meaning, such meaning must be es-
tion and is exempt for those years. However, for tablished by a clear and convincing reference to Distribution of Assets
2018, 2019, and 2020 the total gross receipts relevant court decisions, opinions of the state
were $15,900. Therefore, the organization must attorney general, or other appropriate state au- Assets of an organization must be permanently
apply for recognition of exemption within 90 thorities. dedicated to an exempt purpose. This means
days after the end of its 2020 tax year. If it that should an organization dissolve, its assets
doesn't apply within this time period, it won't be The following are examples illustrating the must be distributed for an exempt purpose de-
exempt under section 501(c)(3) for the period organizational test. scribed in this chapter, or to the Federal Gov-
beginning with tax year 2020 ending when the ernment or to a state or local government for a
application for recognition of exemption is re- Example 1. Articles of organization state public purpose. If the assets could be distrib-
ceived by the IRS. The organization, however, that an organization is formed exclusively for lit- uted to members or private individuals or for
won't lose its exempt status for the tax years erary and scientific purposes within the mean- any other purpose, the organizational test isn't
ending before January 1, 2020. ing of section 501(c)(3). These articles appro- met.
The IRS will consider applying the Commis- priately limit the organization's purposes. The
sioner's discretionary authority to extend the organization meets the organizational test. Dedication. To establish that your organi-
zation's assets will be permanently dedicated to
time for filing an application for recognition of Example 2. An organization, by the terms an exempt purpose, the articles of organization
exemption. See the procedures for this exten- of its articles, is formed to engage in research should contain a provision ensuring their distri-
sion discussed earlier. without any further description or limitation. The bution for an exempt purpose in the event of
organization won't be properly limited as to its dissolution. Although reliance can be placed
purposes since all research isn't scientific. The upon state law to establish permanent dedica-
Articles of Organization organization doesn't meet the organizational tion of assets for exempt purposes, review of an
test. application for exemption may be facilitated if
Your organization must be a legal entity (corpo- the articles of organization include a provision
ration, trust or association) separate from its or- Example 3. An organization's articles state ensuring permanent dedication of assets for ex-
ganizers and must have written articles of or- that its purpose is to receive contributions and empt purposes.
ganization. Depending upon the type of entity, pay them over to organizations that are descri-
its articles organization may be a corporate bed in section 501(c)(3) and exempt from taxa- Distribution. Rev. Proc. 82-2, 1982-1 C.B.
charter (filed articles of incorporation), trust in- tion under section 501(a). The organization 367, identifies the states and circumstances in
strument, articles of association, or any other meets the organizational test. which the IRS won't require an express

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provision for the distribution of assets upon dis- meaning of section 501(c)(3). The following fac- contestants. If it isn't so engaged, your organi-
solution in the articles of organization. The pro- tors may indicate that the method isn't educa- zation may be exempt as a social club descri-
cedure also provides a sample of an acceptable tional. bed in chapter 4. Raising funds to be used for
dissolution provision for organizations required 1. The presentation of viewpoints unsuppor- travel and other activities to interview and per-
to have one. ted by facts is a significant part of the or- suade prospective students with outstanding
If a named beneficiary is to be the distribu- ganization's communications. athletic ability to attend a particular university
tee, it must be one that would qualify and would doesn't show an exempt purpose. If your organ-
be exempt within the meaning of section 501(c) 2. The facts that purport to support the view- ization isn't exempt as an educational organiza-
(3) at the time the dissolution takes place. Since point are distorted. tion, see Amateur Athletic Organizations, later
the named beneficiary at the time of dissolution 3. The organization's presentations make in this chapter.
may not be qualified, may not be in existence, substantial use of inflammatory and dis-
or may be unwilling or unable to accept the as- paraging terms and express conclusions Private Schools
sets of the dissolving organization, a provision more on the basis of emotion than of ob-
should be made for distribution of the assets for jective evaluations. Every private school filing an application for rec-
one or more of the purposes specified in this
chapter in the event of any such contingency. 4. The approach used isn't aimed at develop- ognition of tax-exempt status must supply the
ing an understanding on the part of the au- IRS (on Schedule B, Form 1023) with the fol-
Sample articles of organization. See sample dience because it doesn't consider their lowing information.
articles of organization in the Appendix in the background or training. 1. The racial composition of the student
back of this publication. body, and of the faculty and administrative
Exceptional circumstances, however, may staff, as of the current academic year.
exist where an organization's advocacy may be (This information must also be projected,
educational even if one or more of the factors so far as may be feasible, for the next aca-
Educational listed above are present. demic year.)
Organizations
Qualifying organizations. The following types 2. The amount of scholarship and loan funds,
and Private Schools of organizations may qualify as educational: if any, awarded to students enrolled and
the racial composition of students who
If your organization wants to obtain recognition 1. An organization, such as a primary or sec- have received the awards.
of exemption as an educational organization, ondary school, a college, or a professional
you must submit complete information as to or trade school, that has a regularly sched- 3. A list of the school's incorporators, found-
how your organization carries on or plans to uled curriculum, a regular faculty, and a ers, board members, and donors of land
carry on its educational activities, such as by regularly enrolled student body in attend- or buildings, whether individuals or organi-
conducting a school, by panels, discussions, ance at a place where the educational ac- zations.
lectures, forums, radio and television programs, tivities are regularly carried on; 4. A statement indicating whether any of the
or through various cultural media such as mu- 2. An organization whose activities consist of persons described in item (3) above have
seums, symphony orchestras, or art exhibits. In conducting public discussion groups, fo- an objective of maintaining segregated
each instance, you must explain by whom and rums, panels, lectures, or other similar public or private school education at the
where these activities are or will be conducted programs; time the application is filed and, if so,
and the amount of admission fees, if any. You whether any of the individuals described in
must submit a copy of the pertinent contracts, 3. An organization that presents a course of item (3) are officers or active members of
agreements, publications, programs, etc. instruction by correspondence or through those organizations at the time the appli-
the use of television or radio; cation is filed.
If you are organized to conduct a school, 4. A museum, zoo, planetarium, symphony 5. The public school district and county in
you must submit full information regarding your orchestra, or other similar organization; which the school is located.
tuition charges, number of faculty members,
number of full-time and part-time students en- 5. A nonprofit children's day-care center; and
How to determine racial composition. The
rolled, courses of study and degrees conferred, 6. A credit counseling organization. racial composition of the student body, faculty,
together with a copy of your school catalog.
See Form 1023 Schedule B and Private College book stores, cafeterias, restau- and administrative staff can be an estimate
Schools, discussed later. rants, etc. These and other on-campus organi- based on the best information readily available
zations should submit information to show that to the school, without requiring student appli-
they are controlled by and operated for the con- cants, students, faculty, or administrative staff
Educational Organizations venience of the faculty and student body or by to submit to the school information that the
whom they are controlled and whom they serve. school otherwise doesn't require. Nevertheless,
The term educational relates to: a statement of the method by which the racial
1. The instruction or training of individuals for Alumni association. An alumni associa- composition was determined must be supplied.
the purpose of improving or developing tion should establish that it is organized to pro- The identity of individual students or members
their capabilities, or mote the welfare of the university with which it is of the faculty and administrative staff shouldn't
affiliated, is subject to the control of the univer- be included with this information.
2. The instruction of the public on subjects sity as to its policies and destination of funds, A school that is a state or municipal instru-
useful to individuals and beneficial to the and is operated as an integral part of the univer- mentality (see Instrumentalities, near the begin-
community. sity or is otherwise organized to promote the ning of this chapter), whether or not it qualifies
welfare of the college or university. If your asso- for exemption under section 501(c)(3), isn't
Advocacy of a position. Advocacy of a par- ciation doesn't have these characteristics, it considered to be a private school for purposes
ticular position or viewpoint may be educational may still be exempt as a social club if it meets of the following discussion.
if there is a sufficiently full and fair exposition of the requirements described in chapter 4, under
pertinent facts to permit an individual or the 501(c)(7) - Social and Recreation Clubs.
public to form an independent opinion or con- Racially Nondiscriminatory Policy
clusion. The mere presentation of unsupported Athletic organization. This type of organi-
opinion isn't educational. zation must submit evidence that it is engaged To qualify as an organization exempt from fed-
in activities such as directing and controlling in- eral income tax, a private school must include a
Method not educational. The method terscholastic athletic competitions, conducting statement in its charter, bylaws, or other gov-
used by an organization to develop and present tournaments, and prescribing eligibility rules for erning instrument, or in a resolution of its gov-
its views is a factor in determining if an organi- erning body, that it has a racially nondiscrimina-
zation qualifies as educational within the tory policy as to students and that it doesn't
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discriminate against applicants and students on           be read by all racial segments in the communi-         homepage  at  all  times  during  its  taxable  year 
the basis of race, color, or national or ethnic ori-      ties that the school serves.                           (excluding  temporary  outages  due  to  website 
gin. Also, the school must circulate information                                                                 maintenance  or  technical  problems)  in  a  man-
that  clearly  states  the  school's  admission  poli-    If this method is used, the notice must meet           ner reasonably expected to be noticed by visi-
cies. A racially nondiscriminatory policy toward          the following printing requirements.                   tors to the homepage. See Rev. Proc. 2019-22 
students means that the school admits the stu-                                                                   for more information about satisfying the publi-
dents  of  any  race  to  all  the  rights,  privileges,  1. It must appear in a section of the newspa-          city requirement using this method.
programs, and activities generally accorded or            per likely to be read by prospective stu-
made  available  to  students  at  that  school  and      dents and their families.                               Exceptions. The  publicity  requirements 
that the school doesn't discriminate on the ba-           2. It must occupy at least 3 column inches.            won't apply in the following situations.
sis of race in administering its educational poli-                                                                    First, if for the preceding 3 years the en-
cies,  admission  policies,  scholarship  and  loan       3. It must have its title printed in at least 12        rollment of a parochial or other church-rela-
programs, and athletic and other school-admin-            point bold face type.                                   ted school consists of students at least 
istered programs.                                         4. It must have the remaining text printed in           75% of whom are members of the sponsor-
                                                          at least 8 point type.                                  ing religious denomination or unit, the 
The IRS considers discrimination on the ba-                                                                       school can make known its racially nondis-
sis of race to include discrimination on the basis        The  following  is  an  acceptable  example  of         criminatory policy in whatever newspapers 
of color or national or ethnic origin.                    the notice:                                             or circulars the religious denomination or 
                                                                                                                  unit uses in the communities from which 
                                                                                                                  the students are drawn. These newspapers 
The  existence  of  a  racially  discriminatory                           NOTICE OF                               and circulars can be distributed by a partic-
policy with respect to the employment of faculty          NONDISCRIMINATORY POLICY                                ular religious denomination or unit or by an 
and administrative staff is indicative of a racially                      AS TO STUDENTS
discriminatory  policy  as  to  students.  Con-           The M School admits students of any race,               association that represents a number of re-
versely, the absence of racial discrimination in          color, national and ethnic origin to all the            ligious organizations of the same denomi-
the  employment  of  faculty  and  administrative         rights, privileges, programs, and activities            nation. If, however, the school advertises in 
staff is indicative of a racially nondiscriminatory       generally  accorded  or  made  available  to            newspapers of general circulation in the 
policy as to students.                                    students  at  the  school.  It  doesn't                 community or communities from which its 
                                                          discriminate  on  the  basis  of  race,  color,         students are drawn and the second excep-
                                                          national and ethnic origin in administration            tion (discussed next) doesn't apply to the 
A policy of a school that favors racial minor-            of  its  educational  policies,  admissions             school, then it must comply with either of 
ity groups with respect to admissions, facilities         policies,  scholarship  and  loan  programs,            the publicity requirements explained ear-
and  programs,  and  financial  assistance  isn't         and athletic and other school-administered              lier.
discrimination  on  the  basis  of  race  when  the       programs.                                                   Second, if a school customarily draws a 
purpose and effect of this policy is to promote                                                                   substantial percentage of its students na-
establishing  and  maintaining  the  school's  non-                                                               tionwide, worldwide, from a large geo-
discriminatory policy.                                    Method  two.    The  school  can  use  the              graphic section or sections of the United 
                                                          broadcast media to publicize its racially nondis-       States, or from local communities, and if 
A school that selects students on the basis               criminatory  policy  if  this  use  makes  the  policy  the school follows a racially nondiscrimina-
of  membership  in  a  religious  denomination  or        known to all segments of the general commun-            tory policy as to its students, the school 
unit isn't discriminating if membership in the de-        ity  the  school  serves.  If  the  school  uses  this  may satisfy the publicity requirement by 
nomination  or  unit  is  open  to  all  on  a  racially  method,  it  must  provide  documentation  show-        complying with the instructions explained 
nondiscriminatory basis.                                  ing  that  the  means  by  which  this  policy  was     earlier under Policy statement.
                                                          communicated  to  all  segments  of  the  general       The school can demonstrate that it follows a 
Policy  statement. The  school  must  include a           community was reasonably expected to be ef-            racially nondiscriminatory policy either by show-
statement of its racially nondiscriminatory policy        fective. In this case, appropriate documentation       ing that it currently enrolls students of racial mi-
in  all  its  brochures  and  catalogs  dealing  with     would  include  copies  of  the  tapes  or  scripts    nority groups in meaningful numbers or, except 
student  admissions,  programs,  and  scholar-            used  and  records  showing  that  there  was  an      for local community schools, when minority stu-
ships. Also, the school must include a reference          adequate number of announcements. The doc-             dents  aren't  enrolled  in  meaningful  numbers, 
to  its  racially  nondiscriminatory  policy  in  other   umentation also would include proof that these         that  its  promotional  activities  and  recruiting  ef-
written  advertising  that  it  uses  to  inform  pro-    announcements were made during hours when              forts in each geographic area were reasonably 
spective students of its programs.                        they were likely to be communicated to all seg-        designed  to  inform  students  of  all  racial  seg-
                                                          ments of the general community, that they were         ments  in  the  general  communities  within  the 
Publicity  requirement.  The  school  must                long  enough  to  convey  the  message  clearly,       area of the availability of the school. The ques-
make  its  racially  nondiscriminatory  policy            and that they were broadcast on radio or televi-       tion as to whether a school demonstrates such 
known to all segments of the general commun-              sion stations likely to be listened to by substan-     a policy satisfactorily will be determined on the 
ity served by the school. Selective communica-            tial numbers of members of all racial segments         basis  of  the  facts  and  circumstances  of  each 
tion of a racially nondiscriminatory policy that a        of  the  general  community.  Announcements            case.
school  provides  solely  to  leaders  of  racial         must be made during the period of the school's          The  IRS  recognizes  that  the  failure  by  a 
groups won't be considered an effective means             solicitation for students or, in the absence of a      school drawing its students from local commun-
of communication to make the policy known to              solicitation  program,  during  the  school's  regis-  ities to enroll racial minority group students may 
all  segments  of  the  community.  To  satisfy  this     tration period.                                        not  necessarily  indicate  the  absence  of  a  ra-
requirement, the school must use one of the fol-                                                                 cially  nondiscriminatory  policy  when  there  are 
lowing three methods.                                     Method          three. Rev.  Proc.   2019-22, 
                                                          2019-22 I.R.B. 1260 modifies Rev. Proc. 75-50,         relatively few or no such students in these com-
Method one. The school can publish a no-                  1975-2 C.B. 587, to reflect technological advan-       munities.  Actual  enrollment  is,  however,  a 
tice  of  its  racially  nondiscriminatory  policy  in  a ces  since  its  publication  and  provides  a  third  meaningful  indication  of  a  racially  nondiscrimi-
newspaper of general circulation that serves all          method  for  a  private  school  to  satisfy  the  re- natory policy in a community in which a public 
racial segments of the community. Such publi-             quirement contained in section 4.03 of the reve-       school or schools became subject to a desegre-
cation must be repeated at least once annually            nue  procedure  by  using  its  Internet  website  to  gation order of a federal court or are otherwise 
during the period of the school's solicitation for        publicize the school’s racially nondiscriminatory      expressly obligated to implement a desegrega-
students or, in the absence of a solicitation pro-        policy as to students. To satisfy the requirement      tion plan under the terms of any written contract 
gram,  during  the  school's  registration  period.       using this method, the school may display a no-        or  other  commitment  to  which  any  federal 
When more than one community is served by a               tice  (consisting  of  the  same  language  as  in     agency was a party.
school,  the  school  can  publish  the  notice  in       Method 1) of its racially nondiscriminatory pol-        The  IRS  encourages  schools  to  satisfy  the 
those newspapers that are reasonably likely to            icy  on  its  primary  publicly  accessible  Internet  publicity  requirement  by  using  either  of  the 
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methods described earlier, even though a 4. Copies of all brochures, catalogs, and ad- Charitable Risk Pools
school considers itself to be within one of the vertising dealing with student admissions,
Exceptions. The IRS believes that these publi- programs, and scholarships. (Schools ad- A charitable risk pool is treated as organized
city requirements are the most effective meth- vertising nationally or in a large geo- and operated exclusively for charitable purpo-
ods to make known a school's racially nondis- graphic segment or segments of the Uni- ses if it satisfies all of the following require-
criminatory policy. In this regard, it is each ted States need only maintain a record ments:
school's responsibility to determine whether ei- sufficient to indicate when and in what
ther of the exceptions applies. Such responsi- publications their advertisements were 1. Is organized and operated only to pool in-
bility will prepare the school, if it is audited by placed.) surable risks of its members (not including
the IRS, to demonstrate that the failure to pub- risks related to medical malpractice) and
lish its racially nondiscriminatory policy in ac- to provide information to its members
cordance with either one of the publicity re- The racial composition of the student body, fac- about loss control and risk management,
quirements was justified by one of the ulty, and administrative staff can be determined 2. Consists only of members that are section
exceptions. Also, a school must be prepared to in the same manner as that described at the be- 501(c)(3) organizations exempt from tax
demonstrate that it has publicly disavowed or ginning of this section. However, a school can't under section 501(a),
repudiated any statements purported to have discontinue maintaining a system of records
been made on its behalf (after November 6, that reflect the racial composition of its stu- 3. Is organized under state law authorizing
1975) that are contrary to its publicity of a ra- dents, faculty, and administrative staff used on this type of risk pooling,
cially nondiscriminatory policy as to students, to November 6, 1975, unless it substitutes a differ- 4. Is exempt from state income tax (or will be
the extent that the school or its principal official ent system that compiles substantially the same after qualifying as a section 501(c)(3) or-
was aware of these statements. information, without advance approval of the ganization),
IRS.
5. Has obtained at least $1,000,000 in
Facilities and programs. A school must be The IRS doesn't require that a school release startup capital from nonmember charitable
able to show that all of its programs and facili- any personally identifiable records or personal organizations,
ties are operated in a racially nondiscriminatory information except in accordance with the re-
manner. quirements of the Family Educational Rights 6. Is controlled by a board of directors elec-
and Privacy Act of 1974. Similarly, the IRS ted by its members, and
Scholarship and loan programs. As a gen- doesn't require a school to keep records pro- 7. Is organized under documents requiring
eral rule, all scholarship or other comparable hibited under state or federal law. that:
benefits obtainable at the school must be of-
fered on a racially nondiscriminatory basis. This Exceptions. The school doesn't have to in- a. Each member be a section 501(c)(3)
must be known throughout the general com- dependently maintain these records for IRS use organization exempt from tax under
munity being served by the school and should if both of the following are true. section 501(a),
be referred to in its publicity. Financial assis- b. Each member that receives a final de-
tance programs, as well as scholarships and 1. Substantially the same information has
loans made under financial assistance pro- been included in a report or reports filed termination that it no longer qualifies
grams, that favor members of one or more ra- with an agency or agencies of federal, under section 501(c)(3) notify the pool
cial minority groups and that don't significantly state, or local governments, and this infor- immediately, and
detract from or are designed to promote a mation is current within 1 year. c. Each insurance policy issued by the
school's racially nondiscriminatory policy won't 2. The school maintains copies of these re- pool provide that it won't cover events
adversely affect the school's exempt status. ports from which this information is readily occurring after a final determination
obtainable. described in (b).
Certification. An individual authorized to take
official action on behalf of a school that claims If these reports don't include all of the informa-
to be racially nondiscriminatory as to students tion required, as discussed earlier, records pro-
must certify annually, under penalties of perjury, viding such remaining information must be Other Section 501(c)(3)
on Schedule E (Form 990) or Form 5578, An- maintained by the school for IRS use. Organizations
nual Certification of Racial Nondiscrimination Failure to maintain records. Failure to
for a Private School Exempt From Federal In- maintain or to produce the required records and In addition to the information required for all or-
come Tax, whichever applies, that to the best of information, upon proper request, will create a ganizations, as described earlier, you should in-
their knowledge and belief the school has satis- presumption that the organization has failed to clude any other information described in this
fied all requirements that apply, as previously comply with these guidelines. section.
explained. See Rev. Proc. 2019–22 for more informa-
Failure to comply with the guidelines ordina- tion on private school's racially nondiscrimina- Charitable Organizations
rily will result in the proposed revocation of the tory policy requirements.
exempt status of a school. If your organization is applying for recognition of
Recordkeeping requirements. With exemption as a charitable organization, it must
certain exceptions, given later, each Organizations Providing show that it is organized and operated for pur-
RECORDS exempt private school must maintain poses that are beneficial to the public interest.
the following records for a minimum period of 3 Insurance Some examples of this type of organization are
years, beginning with the year after the year of those organized for:
compilation or acquisition. An organization described in sections 501(c)(3) • Relief of the poor, the distressed, or the
or 501(c)(4) may be exempt from tax only if no underprivileged;
1. Records indicating the racial composition substantial part of its activities consists of pro- • Advancement of religion;
of the student body, faculty, and adminis- viding commercial-type insurance. • Advancement of education or science;
trative staff for each academic year. • Erection or maintenance of public build-
However, this rule doesn't apply to
2. Records sufficient to document that schol- state-sponsored organizations described in ings, monuments, or works;
arship and other financial assistance is sections 501(c)(26) or 501(c)(27), which are • Lessening the burdens of government;
awarded on a racially nondiscriminatory discussed in chapter 4, or to charitable risk • Lessening of neighborhood tensions;
basis. pools, discussed next. • Elimination of prejudice and discrimination;
3. Copies of all materials used by or on be- • Defense of human and civil rights secured
by law; and
half of the school to solicit contributions. • Combating community deterioration and
juvenile delinquency.
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The rest of this section contains a description of 1. A description of the facilities and services; paid directly by its clients and the fees aren't
the information to be provided by certain spe- 2. To whom the services are offered, such as more than the actual costs incurred in the case.
cific organizations. This information is in addi- the public at large or a specific group; Upon undertaking a representation, the organi-
tion to the required inclusions described in zation can't withdraw from the case because
chapter 1, and other statements requested on 3. How charges are determined, such as on the litigant is unable to pay the fee.
Form 1023 or 1023-EZ. Each of the following a profit basis, to recover costs, or at less Firms can accept fees awarded or approved
organizations must submit the information de- than cost; by a court or an administrative agency and paid
scribed. 4. By whom administered and controlled; by an opposing party if the firms don't use the
likelihood or probability of fee awards as a con-
Charitable organization supporting educa- 5. Whether any of the professional staff (that sideration in the selection of cases. All fee
tion. Submit information showing how your or- is, those who perform or will perform the awards must be paid to the organization and
ganization supports education — for example, clinical services) also serve or will serve in not to its individual staff attorneys. Instead, a
contributes to an existing educational institu- an administrative capacity; and public-interest law firm can reasonably compen-
tion, endows a professorial chair, contributes 6. How compensation paid the professional sate its staff attorneys, but only on a straight
toward paying teachers' salaries, or contributes staff is or will be determined. salary basis. Private attorneys, whose services
to an educational institution to enable it to carry are retained by the firm to assist it in particular
on research. Organization providing loans. If you make, cases, can be compensated by the firm, but
Scholarships. If the organization awards or will make, loans for charitable and educa- only on a fixed fee or salary basis.
or plans to award scholarships, complete tional purposes, submit the following informa- The total amount of all attorneys' fees (court
Schedule H of Form 1023. Also, submit the fol- tion. awarded and those received from clients)
mustn't be more than 50% of the total cost of
lowing: 1. An explanation of the circumstances un- operations of the organization's legal functions,
1. Criteria used for selecting recipients, in- der which such loans are, or will be, made. calculated over a 5-year period.
cluding the rules of eligibility; 2. Criteria for selection, including the rules of If, to carry out its program, an organization
2. How and by whom the recipients are or eligibility. violates applicable canons of ethics, disrupts
the judicial system, or engages in any illegal ac-
will be selected; 3. How and by whom the recipients are or tion, the organization will jeopardize its exemp-
3. If awards are or will be made directly to in- will be selected. tion.
dividuals, whether information is required 4. Manner of repayment of the loan.
assuring that the student remains in
school; 5. Security required, if any. Religious Organizations
4. If awards are or will be made to recipients 6. Interest charged, if any, and when paya- To determine whether an organization meets
of a particular class, for example, children ble. 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 1. That the particular religious beliefs of the
accorded an applicant by reason of the loan program. organization are truly and sincerely held.
the parent's position, length of em- 2. That the practices and rituals associated
ployment, or salary; Public-interest law firms. If your organization
was formed to litigate in the public interest (as with the organization's religious belief or
b. Whether as a condition of the award opposed to providing legal services to the creed aren't illegal or contrary to clearly
the recipient must upon graduation poor), such as in the area of protection of the defined public policy.
accept employment with the com- environment, you should submit the following Therefore, your group (or organization) may not
pany; and information. qualify for treatment as an exempt religious or-
c. Whether the award will be continued 1. How the litigation can reasonably be said ganization for tax purposes if its actions, as
even if the parent's employment ends. to be representative of a broad public in- contrasted with its beliefs, are contrary to well
5. A copy of the scholarship application form terest rather than a private one. established and clearly defined public policy. If
there is a clear showing that the beliefs (or doc-
and any brochures or literature describing 2. Whether the organization will accept fees trines) are sincerely held by those professing
the scholarship program. for its services. them, the IRS won't question the religious na-
Hospital. If you are organized to operate a 3. A description of the cases litigated or to be ture of those beliefs.
charitable hospital, complete and attach Sec- litigated and how they benefit the public
tion I of Schedule C, Form 1023. generally. Churches. Although a church, its integrated
auxiliaries, or a convention or association of
If your hospital was transferred to you from 4. Whether the policies and program of the churches isn't required to file Form 1023 to be
proprietary ownership, complete and attach organization are the responsibility of a exempt from federal income tax or to receive
Schedule G of Form 1023. You must attach a board or committee representative of the tax deductible contributions, the organization
list showing: public interest, which is neither controlled may find it advantageous to obtain recognition
1. The names of the active and courtesy staff by employees or persons who litigate on of exemption. See Form 1023, Schedule A. In
members of the proprietary hospital, as behalf of the organization nor by any or- this event, you should submit information show-
well as the names of your medical staff ganization that isn't itself an organization ing that your organization is a church, synago-
members after the transfer to nonprofit described in this chapter. gue, association or convention of churches, reli-
ownership; and 5. Whether the organization is operated, gious order, or religious organization that is an
2. The names of any doctors who continued through sharing of office space or other- integral part of a church, and that it is engaged
to lease office space in the hospital after wise, in a way to create identification or in carrying out the function of a church.
its transfer to nonprofit ownership and the confusion with a particular private law firm. In determining whether an admittedly reli-
gious organization is also a church, the IRS
amount of rent paid. Submit also an ap- 6. Whether there is an arrangement to pro- doesn't accept every assertion that the organi-
praisal showing the fair rental value of the vide, directly or indirectly, a deduction for zation is a church. Because beliefs and practi-
rented space. the cost of litigation that is for the private ces vary widely, there is no single definition of
benefit of the donor.
Clinic. Schedule C, Form 1023, is also de- the word church for tax purposes. The IRS con-
signed to encompass outpatient clinics. If you Acceptance of attorneys' fees. A non- siders the facts and circumstances of each or-
are organized to operate a clinic, provide infor- profit public-interest law firm can accept attor- ganization applying for church status.
mation regarding: neys' fees in public-interest cases if the fees are
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Convention  or  association  of  churches.              4. Aiding a community or geographical area            Donations to either type of amateur athletic 
Any organization that is otherwise a convention         by attracting new industry to the commun-             organization are deductible as charitable contri-
or  association  of  churches  won't  fail  to  qualify ity or area, or by encouraging the develop-           butions  on  the  donor's  federal  income  tax  re-
as a church merely because the membership of            ment or retention of an industry in the               turn. However, no deduction is allowed if there 
the organization includes individuals as well as        community or area.                                    is a direct personal benefit to the donor or any 
churches  or  because  the  individuals  have  vot-                                                           other person other than the organization.
ing rights in the organization.                         Scientific research, for exemption purposes, 
                                                        doesn't include activities of a type ordinarily in-   Qualified  amateur  sports  organization.    An 
Integrated  auxiliaries. An  organization  is           cidental  to  commercial  or  industrial  operations  organization  will  be  a  qualified  amateur  sports 
an integrated auxiliary of a church if all the fol-     such as the ordinary inspection or testing of ma-     organization if it is organized and operated:
lowing are true.                                        terials  or  products,  or  the  designing  or  con-
1. The organization is described both in sec-           structing of equipment, buildings, etc.               1. Exclusively to foster national or interna-
                                                                                                              tional amateur sports competition, and
tions 501(c)(3) and 509(a)(1), 509(a)(2),               If you engage or plan to engage in research,          2. Primarily to conduct national or interna-
or 509(a)(3).                                           submit all of the following.                          tional competition in sports or to support 
2. It is affiliated with a church or a convention       1. An explanation of the nature of the re-            and develop amateur athletes for that 
or association of churches.                             search.                                               competition.
3. It is internally supported. An organization          2. A brief description of research projects           The organization's membership can be local or 
is internally supported unless both of the              completed or presently being engaged in.              regional in nature.
following are true.
                                                        3. How and by whom research projects are 
a. It offers admissions, goods, services,               determined and selected.                              Prevention of Cruelty
or facilities for sale, other than on an 
incidental basis, to the general public                 4. Whether you have contracted or spon-               to Children or Animals
(except goods, services, or facilities                  sored research, or contemplated doing so, 
sold at a nominal charge or for a small                 and, if so, names of past sponsors or                 Examples of activities that may qualify this type 
part of the cost).                                      grantors, terms of grants or contracts, to-           of organization for exempt status are:
                                                        gether with copies of any executed con-
b. It normally gets more than 50% of its                tracts or grants.                                     1. Preventing children from working in haz-
support from a combination of govern-                                                                         ardous trades or occupations,
mental sources, public solicitation of                  5. Disposition made or to be made of the re-
contributions, and receipts from the                    sults of your research, including whether             2. Promoting high standards of care for labo-
sale of admissions, goods, perform-                     preference has been or will be given to               ratory animals, and
ance of services, or furnishing of fa-                  any organization or individual either as to           3. Providing funds to pet owners to have their 
cilities in activities that aren't unrela-              results or time of release.                           pets spayed or neutered to prevent over-
ted trades or businesses.                               6. Who will retain ownership or control of any        breeding.
Special  rule.   Men's  and  women's  organi-           patents, copyrights, processes, or formu-
zations,  seminaries,  mission  societies,  and         las resulting from your research.
youth groups that satisfy (1) and (2) shown ear-        7. A copy of publications or other media              Private Foundations
lier are integrated auxiliaries of a church even if     showing reports of your research activi-              and Public Charities
they aren't internally supported.                       ties. Only reports of your research activi-
In  order  for  an  organization  (including  a         ties or those conducted on your behalf, as            It is important that you determine if your organi-
church and religious organization) to qualify for       distinguished from those of your creators             zation  is  a  private  foundation.  Most  organiza-
tax exemption, no part of its net earnings can in-      or members conducted in their individual              tions exempt from income tax (as organizations 
ure to any individual.                                  capacities, should be submitted.                      described in section 501(c)(3)) are presumed to 
Although an individual is entitled to a chari-
table  deduction  for  contributions  to  a  church,                                                          be  private  foundations  unless  they  notify  the 
the assignment or similar transfer of compensa-         Literary Organizations                                IRS  within  a  specified  period  of  time  that  they 
tion for personal services to a church generally                                                              meet the requirements of section 509(a) to be 
                                                                                                              treated as other than a private foundation. This 
doesn't relieve a taxpayer of federal income tax        If your organization is established to operate a      notice  requirement  applies  to  most  section 
liability on the compensation, regardless of the        book store or engage in publishing activities of      501(c)(3) organizations regardless of when they 
motivation behind the transfer.                         any nature (printing, publication, or distribution    were formed. See Form 1023, Part VII.
                                                        of your own material or that printed or published 
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 
                                                                                                              from  the  definition  of  that  term  (referred  to  in 
or formulas) are made available to the public on        Organizations                                         sections  509(a)(1),  509(a)(2),  509(a)(3),  or 
a nondiscriminatory basis; if the research is per-
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-       organizations  into  two  classes,  namely  private 
carried on for one of the following purposes.           zations  that  can  qualify  for  tax-exempt  status. foundations  and  public  charities.  Public  chari-
                                                        The first type is an organization that fosters na-    ties are discussed later.
1. Aiding in the scientific education of college        tional  or  international  amateur  sports  competi-
or university students.                                 tion but only if none of its activities involve pro-  Organizations that fall into the excluded cat-
2. Obtaining scientific information that is pub-        viding  athletic  facilities  or  equipment.  The     egories  are  generally  those  that  either  have 
lished in a treatise, thesis, trade publica-            second  type  is  a Qualified  amateur  sports  or-   broad  public  support  or  actively  function  in  a 
tion, or in any other form that is available            ganization (discussed below). The difference is       supporting  relationship  to  those  organizations. 
to the interested public.                               that a qualified amateur sports organization can      Organizations that test for public safety are also 
                                                        provide athletic facilities and equipment.            excluded.
3. Discovering a cure for a disease.

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Application  to  IRS. Even  if  an  organization          certain transactions or activities. Managers may        tax code; nor make any taxable expenditures as 
falls within one of the categories excluded from          also be subject to excise tax for their role in ap-     defined in section 4945 (d) of the Internal Reve-
the definition of private foundation, it will be pre-     proving the activity. See Chapter 5 for more in-        nue Code, or the corresponding section of any 
sumed to be a private foundation, with some ex-           formation on excise taxes.                              future federal tax code.
ceptions,  unless  it  files  a  timely  Form  1023  or 
Form  1023-EZ  with  the  IRS  showing  it  isn't  a      Governing  instrument.      A  private  foundation      Effect  of  state  law. A  private  foundation's 
private foundation. This application requirement          can't be tax exempt nor will contributions to it be     governing instrument will be considered to meet 
applies to an organization regardless of when it          deductible as charitable contributions unless its       these charter requirements if valid provisions of 
was organized. The only exceptions to this re-            governing  instrument  contains  special  provi-        state law have been enacted that:
quirement are those organizations that are ex-            sions in addition to those that apply to all organ-     1. Require it to act or refrain from acting so 
cepted from the requirement of filing Form 1023           izations described in section 501(c)(3).                     as not to subject the foundation to the 
or 1023-EZ as discussed, earlier, under Organi-                                                                        taxes imposed on prohibited transactions, 
zations Not Required To File Form 1023.                   Sample  governing  instruments.          The  fol-
                                                          lowing  samples  of  governing  instrument  provi-           or
When  to  file  application. If  an  organiza-            sions illustrate the special charter requirements       2. Treat the required provisions as contained 
tion  has  to  file  the  application,  it  must  do  so  that  apply  to  private  foundations.  Draft  A  is  a      in the foundation's governing instrument.
within 27 months from the end of the month in             sample of provisions in articles of incorporation; 
which it was organized.                                   Draft B, a trust indenture.                             The  IRS  has  published  a  list  of  states  with 
If your organization is newly applying for rec-                                                                   this  type  of  law.  The  list  is  in  Revenue  Ruling 
ognition of exemption as an organization descri-          Draft A                                                 75-38, 1975-1 C.B. 161 (or later update).
bed in this chapter (a section 501(c)(3) organi-
zation)  and  you  wish  to  establish  that  your        General                                                 Public Charities
organization is a public charity rather than a pri-
vate  foundation,  you  must  complete  the  appli-       1. The corporation will distribute its income 
cable lines of Part VII of Form 1023 or Part IV of        for each tax year at a time and in a manner             A private foundation is any organization descri-
Form 1023-EZ. See Application for Recognition             as not to become subject to the tax on un-              bed in Section 501(c)(3), unless it falls into one 
of Exemption, earlier in this chapter, for more in-       distributed income imposed by section                   of the categories specifically excluded from the 
formation.                                                4942 of the Internal Revenue Code, or the               definition  of  that  term  in  section  509(a),  which 
In determining the date on which a corpora-               corresponding section of any future fed-                lists four basic categories of exclusions. These 
tion  is  organized  for  purposes  of  applying  for     eral tax code.                                          categories  are  discussed  under  the  Section 
                                                                                                                  509(a)(1),  509(a)(2),  509(a)(3),  and  509(a)(4) 
recognition of section 501(c)(3) status, the IRS          2. The corporation won't engage in any act of           Organizations  headings  that  follow  this  intro-
looks to the date the corporation came into ex-           self-dealing, as defined in section 4941(d)             duction.  See Section  509(a)(1)  Organizations, 
istence under the law of the state in which it is         of the Internal Revenue Code, or the cor-               etc.
incorporated. For example, where state law pro-           responding section of any future federal 
vides that existence of a corporation begins on           tax code.                                               If  your  organization  falls  into  one  of  these 
the date its articles are filed by a certain state                                                                categories, it isn't a private foundation and you 
official in the appropriate state office, the corpo-      3. The corporation won't retain any excess              should state this in Part VII of Form 1023 or Part 
ration  is  considered  organized  on  that  date.        business holdings, as defined in section                IV of Form 1023-EZ.
Later  nonsubstantive  amendments  to  the  ena-          4943(c) of the Internal Revenue Code, or 
bling  instrument  won't  change  the  date  of  or-      the corresponding section of any future                 If  your  organization  doesn't  fall  into  one  of 
ganization,  for  purposes  of  the  filing  require-     federal tax code.                                       these categories, it is a private foundation and 
                                                                                                                  is subject to the applicable rules and restrictions 
ment.                                                     4. The corporation won't make any invest-               until  it  terminates  its  private  foundation  status. 
                                                          ments in a manner as to subject it to tax               Some private foundations also qualify as private 
Application filed late. An organization that              under section 4944 of the Internal Reve-                operating  foundations;  these  are  discussed 
states it is a private foundation when it files its       nue Code, or the corresponding section of               near the end of this chapter.
application  for  recognition  of  exemption  after       any future federal tax code.
the 27-month period will be treated as a section                                                                  Generally speaking, a large class of organi-
501(c)(3) organization and as a private founda-           5. The corporation won't make any taxable               zations  excluded  under  section  509(a)(1)  and 
tion  only  from  the  date  it  files  its  application, expenditures, as defined in section                     all organizations excluded under section 509(a)
rather than the date that it was created or first         4945(d) of the Internal Revenue Code, or                (2)  depend  upon  a  support  test.  This  test  is 
became described in section 501(c)(3). The or-            the corresponding section of any future                 used  to  assure  a  minimum  percentage  of 
ganization  may  obtain  retroactive  exemption,          federal tax code.                                       broad-based  public  support  in  the  organiza-
however, if it establishes that it qualifies for re-                                                              tion's total support pattern. Thus, in the follow-
lief from the 27-month deadline.                          Draft B                                                 ing discussions, when the one-third support test 
An  organization  that  states  it  is  a  publicly                                                               (see Qualifying as Publicly Supported, later) is 
supported charity when it files its application for       Any other provisions of this instrument notwith-        referred to, it means the following fraction nor-
recognition of exemption after the 27-month pe-           standing, the trustees shall distribute its income      mally must equal at least one-third.
riod can't be treated as a section 501(c)(3) or-          for each tax year at a time and in a manner as 
ganization  before  the  date  it  files  the  applica-   not  to  become  subject  to  the  tax  on  undistrib-                Qualifying support
tion,  except  as  discussed  above.  Financial           uted income imposed by section 4942 of the In-                        Total support
support received before that date can't be used           ternal  Revenue  Code,  or  the  corresponding 
for purposes of determining whether the organi-           section of any future federal tax code.                         Including items of support in qualifying 
zation  is  publicly  supported.  However,  an  or-                                                               !       support (the numerator of the fraction) 
ganization that can reasonably be expected to             Any other provisions of this instrument not-            CAUTION or excluding items of support from total 
meet the support requirements (discussed later            withstanding, the trustees won't engage in any          support  (the  denominator  of  the  fraction)  may 
under Public  Charities)  when  it  applies  for          act of self-dealing as defined in section 4941(d)       decide  whether  an  organization  is  excluded 
tax-exempt status will be classified as a publicly        of  the  Internal  Revenue  Code,  or  the  corre-      from the definition of a private foundation, and 
supported charity and not a private foundation.           sponding section of any future federal tax code;        thus from the liability for certain excise taxes. It 
                                                          nor retain any excess business holdings as de-          is  very  important  to  classify  items  of  support 
Excise taxes on private foundations.    There             fined in section 4943(c) of the Internal Revenue        correctly.
is an excise tax on the net investment income of          Code,  or  the  corresponding  section  of  any  fu-
most domestic private foundations. In addition,           ture  federal  tax  code;  nor  make  any  invest-
excise  taxes  may  be  imposed  on  the  private         ments in a manner as to incur tax liability under       Section 509(a)(1) Organizations
foundation or disqualified persons if the founda-         section 4944 of the Internal Revenue Code, or 
tion  or  disqualified  persons  have  engaged  in        the corresponding section of any future federal         Section 509(a)(1) organizations include:
                                                                                             Chapter 3            Section 501(c)(3) Organizations    Page 31

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1. A church or a convention or association of or the aged, or institutions whose principal pur- Medical research organization. A medi-
churches (section 170(b)(1)(A)(i)), pose or function is to train handicapped individ- cal research organization must be directly en-
2. An educational organization such as a uals to pursue a vocation. An organization that gaged in the continuous active conduct of medi-
school or college (section 170(b)(1)(A)(ii)), mainly provides medical education or medical cal research in conjunction with a hospital, and
research won't be considered a hospital, unless that activity must be the organization's principal
3. A hospital or medical research organiza- it is also actively engaged in providing medical purpose or function.
tion operated in conjunction with a hospital or hospital care to patients on its premises or in
(section 170(b)(1)(A)(iii)), its facilities, on an in-patient or out-patient ba- Endowment funds. Organizations operated
4. Endowment funds operated for the benefit sis, as an integral part of its medical education for the benefit of certain state and municipal col-
of certain state and municipal colleges and or medical research functions. leges and universities may be endowment
universities (section 170(b)(1)(A)(iv)), A cooperative hospital service organization funds described in section 170(b)(1)(A)(iv).
that meets the requirements of section 501(e) They are organized and operated exclusively
5. A governmental unit (section 170(b)(1)(A) will qualify as a hospital. to:
(v)), 1. Receive, hold, invest, and administer
Hospitals participating in provider-spon-
6. An agricultural research organization (sec- sored organizations. An organization can be property for a college or university; and
tion 170(b)(1)(A)(xi)), and treated as organized and operated exclusively 2. Make expenditures to or for the benefit of
7. A publicly supported organization (section for a charitable purpose even if it owns and op- a college or university;
170(b)(1)(A)(vi)). erates a hospital that participates in a pro-
vider-sponsored organization, whether or not The college or university must be:
Church. The characteristics of a church are the provider-sponsored organization is tax ex- 1. An agency or instrumentality of a state or
discussed earlier in this chapter under Religious empt. For section 501(c)(3) purposes, any per- political subdivision; or
Organizations. son with a material financial interest in the pro-
vider-sponsored organization is treated as a 2. Owned or operated by:
Educational organizations. An educational private shareholder or individual with respect to a. A state or political subdivision; or
organization that qualifies as a public charity the hospital.
b. An agency or instrumentality of one or
under section 170(b)(1)(A)(ii) is one whose pri- Requirements for section 501(c)(3) hos- more states or political subdivisions.
mary function is to present formal instruction pitals under the Affordable Care Act. The
that normally maintains a regular faculty and Affordable Care Act (ACA), enacted March 23, The phrase “expenditures to or for the bene-
curriculum and that normally has a regularly en- 2010, added requirements that hospital organi- fit of a college or university” includes expendi-
rolled body of pupils or students in attendance zations must satisfy in order to be described in tures made for any one or more of the normal
at the place where it regularly carries on its edu- section 501(c)(3), as well as reporting and ex- functions of a college or university. These ex-
cational activities. The term includes institutions cise taxes. penditures include those for:
such as primary, secondary, preparatory, or Requirements for Charitable Hospitals. 1. Acquiring and maintaining real property
high schools, and colleges and universities. It Section 501(r), added to the Code by the ACA, comprising part of the campus area;
includes federal, state, and other publicly sup- imposes requirements on section 501(c)(3) or-
ported schools that otherwise come within the ganizations that operate one or more hospital 2. Erecting (or participating in erecting) col-
definition. It doesn't include organizations en- facilities (hospital organizations). Each section lege or university buildings;
gaged in both educational and noneducational 501(c)(3) hospital organization is required to 3. Acquiring and maintaining equipment and
activities, unless the latter are merely incidental meet four general requirements on a fa- furnishings used for, or in conjunction with,
to the educational activities. A recognized uni- cility-by-facility basis: normal functions of colleges and universi-
versity that incidentally operates a museum or • establish written financial assistance and ties;
sponsors concerts is an educational organiza- emergency medical care policies,
tion. However, the operation of a school by a • limit amounts charged for emergency or 4. Libraries;
museum doesn't necessarily qualify the mu- other medically necessary care to individu- 5. Scholarships; and
seum as an educational organization. als eligible for assistance under the hospi-
An exempt organization that operates a tu- tal's FAP, 6. Student loans.
toring service for students on a one-to-one ba- • make reasonable efforts to determine
sis in their homes, maintains a small center to whether an individual is eligible for assis- The organization must normally receive a
test students to determine their need for tutor- tance under the hospital’s FAP before en- substantial part of its support from the United
ing, and employs tutors on a part-time basis gaging in extraordinary collection actions States or any state or political subdivision, or
isn't an educational organization for these pur- against the individual, and from direct or indirect contributions from the
poses. Nor is an exempt organization that con- • conduct a community health needs as- general public, or from a combination of these
ducts an internship program by placing college sessment (CHNA) at least once every 3 sources.
and university students with cooperating gov- years. (This CHNA requirement is effective Support. Support doesn't include income
ernment agencies an educational organization. for tax years beginning after March 23, received in the exercise or performance by the
2012).
Hospitals and medical research organiza- organization of its charitable, educational, or
tions. A hospital described in section 170(b)(1) The ACA also added section 4959, which other purpose or function constituting the basis
(A)(iii) is an organization whose principal pur- imposes an excise tax for failure to meet the for exemption.
pose or function is to provide hospital or medi- CHNA requirements, and added reporting re- In determining the amount of support re-
cal care or either medical education or medical quirements under section 6033(b) related to ceived by an organization for a contribution of
research. A rehabilitation institution, outpatient sections 501(r) and 4959. See Regulations sec- property when the value of the contribution by
clinic, or community mental health or drug treat- tions 1.501(r)-1 through 1.501(r)-7. the donor is subject to reduction for certain ordi-
nary income and capital gain property, the fair
ment center may qualify as a hospital if its prin- Correction and disclosure procedures market value of the property is taken into ac-
cipal purpose or function is providing hospital or under section 501(r). Revenue Procedure count.
medical care. If the accommodations of an or- 2015–21 provides correction and disclosure
ganization qualify as being part of a skilled procedures under which certain failures to meet Indirect contribution. An example of an
nursing facility, that organization may qualify as the requirements of section 501(r) will be ex- indirect contribution from the public is the re-
a hospital if its principal purpose or function is cused for purposes of sections 501(r)(1) and ceipt by the organization of its share of the pro-
providing hospital or medical care. 501(r)(2)(B). See Rev. Proc. 2015–21, 2015-13 ceeds of an annual collection campaign of a
Exceptions. The term hospital doesn't in- I.R.B. 817, or later guidance. community chest, community fund, or united
clude convalescent homes, homes for children fund.

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Governmental units. A governmental unit de-                    cent-of-support  requirement  and  the  attraction         differ  depending  upon  the  nature  and  purpose 
scribed  in  section  170(b)(1)(A)(v)  includes  a             of  public  support  requirement.  These  require-         of the organization and the length of time it has 
state,  a  possession  of  the  United  States,  or  a         ments establish, under all the facts and circum-           existed. The combination of factors that an or-
political subdivision of either of the foregoing, or           stances, that an organization normally receives            ganization normally must meet doesn't have to 
the United States or the District of Columbia.                 a  substantial  part  of  its  support  from  govern-      be the same for each 4-year period as long as a 
                                                               mental units or from direct or indirect contribu-          sufficient combination of factors exists to show 
Agricultural  research  organizations.    Agri-                tions from the general public. The organization            that the organization is publicly supported.
cultural  research  organizations  described  in               must also be in the nature of a publicly suppor-
section 170(b)(1)(A)(ix) operated in conjunction               ted organization, taking into account five differ-         1.  Percentage  of  financial  support  fac-
with  a  land-grant  college  or  university  or  a            ent  factors.  See Additional  requirements  (the          tor. When an organization normally receives at 
non-land-grant  college  of  agriculture  may  now             five public support factors), later.                       least 10% but less than one-third of its total sup-
qualify for public charity status. See the Instruc-                                                                       port  from  public  or  governmental  sources,  the 
tions for Form 1023 for more information.                      Ten-percent-of-support               requirement.          percentage  of  support  received  from  those 
                                                               The percentage of support normally received by             sources  will  be  considered  in  determining 
Publicly  supported  organizations.     An  or-                an  organization  from  governmental  units,  from         whether the organization is publicly supported. 
ganization is a publicly supported organization if             contributions  made  directly  or  indirectly  by  the     As  the  percentage  of  support  from  public  or 
it is one that normally receives a substantial part            general public, or from a combination of these             governmental sources increases, the burden of 
of its support from a governmental unit or from                sources  must  be  substantial.  An  organization          establishing the publicly supported nature of the 
the general public.                                            won't  be  treated  as  normally  receiving  a  sub-       organization  through  other  factors  decreases, 
Types of organizations that generally qualify                  stantial amount of governmental or public sup-             while the lower the percentage, the greater the 
are:                                                           port  unless  the  total  amount  of  governmental         burden.
•    Museums of history, art, or science;                      and public support normally received is at least           If the percentage of the organization's sup-
•    Libraries;                                                10%  of  the  total  support  normally  received  by       port  from  the  general  public  or  governmental 
•    Community centers to promote the arts;                    that organization.                                         sources is low because it receives a high per-
                                                                                                                          centage of its total support from investment in-
•    Organizations providing facilities for the                Attraction  of  public  support  require-                  come on its endowment funds, the organization 
     support of an opera, symphony orchestra,                  ment. An organization must be organized and                will  be  treated  as  complying  with  this  factor  if 
     ballet, or repertory drama, or for some                   operated in a manner to attract new and addi-              the endowment fund was originally contributed 
     other direct service to the general public;               tional public or governmental support on a con-            by a governmental unit or by the general public. 
     and                                                       tinuous basis. An organization will meet this re-          However,  if  the  endowment  funds  were  origi-
•    Organizations such as the American Red                    quirement if it maintains a continuous and bona            nally contributed by a few individuals or mem-
     Cross or the United Way.                                  fide  program  for  solicitation  of  funds  from  the     bers of their families, this fact will increase the 
                                                               general  public,  community,  or  membership               burden on the organization to establish compli-
Qualifying as Publicly Supported                               group  involved,  or  if  it  carries  on  activities  de- ance with other factors. Facts pertinent to years 
                                                               signed  to  attract  support  from  governmental           before  the  4  tax  years  immediately  before  the 
An organization will qualify as publicly suppor-               units  or  other  charitable  organizations  descri-       current tax year may also be considered.
ted  under  section  170(b)(1)(A)(vi)  if  it  passes          bed  in  section  509(a)(1).  In  determining 
the  one-third  support  test.  If  it  fails  that  test,  it whether an organization maintains a continuous             2. Sources of support factor.       If an organi-
may qualify under the facts and circumstances                  and bona fide program for solicitation of funds            zation  normally  receives  at  least  10%  but  less 
test.  An  organization  may  also  qualify  as  pub-          from the general public or community, consider-            than one-third of its total support from public or 
licly  supported  under  section  509(a)(2).  See              ation  will  be  given  to  whether  the  scope  of  its   governmental sources, the fact that it receives 
Section 509(a)(2) Organizations, later.                        fundraising activities is reasonable in light of its       the support from governmental units or directly 
                                                               charitable  activities.  Consideration  will  also  be     or  indirectly  from  a  representative  number  of 
One-third  support  test. An  organization  will               given to the fact that an organization may, in its         persons,  rather  than  receiving  almost  all  of  its 
qualify  as  publicly  supported  under  section               early  years  of  existence,  limit  the  scope  of  its   support  from  the  members  of  a  single  family, 
170(b)(1)(A)(vi)  if  it  normally  receives  at  least        solicitation to persons who would be most likely           will  be  considered  in  determining  whether  the 
one-third of its total support from governmental               to provide seed money sufficient to enable it to           organization is publicly supported. In determin-
units,  from  contributions  made  directly  or  indi-         begin its charitable activities and expand its so-         ing what is a representative number of persons, 
rectly by the general public, or from a combina-               licitation program.                                        consideration will be given to the type of organi-
                                                                                                                          zation involved, the length of time it has existed, 
tion  of  these  sources.  For  a  definition  of  sup-        Definition  of  normally  for  facts  and  cir-            and whether it limits its activities to a particular 
port, see Support, later.                                      cumstances  test.   An  organization  will  nor-           community  or  region  or  to  a  special  field  that 
Definition of normally for one-third sup-                      mally  meet  the  requirements  of  the  facts  and        can be expected to appeal to a limited number 
port  test. An  organization  will  be  considered             circumstances  test  for  its  current  tax  year  and     of persons. Facts pertinent to years before the 4 
as  normally  meeting  the  one-third  support  test           the next tax year if, for the current tax year and         tax  years  immediately  before  the  current  tax 
under section 170(b)(1)(A)(vi) for its current tax             the 4 tax years immediately before the current             year may also be considered.
year and the next tax year if, for the current tax             tax  year,  the  organization  meets  the  ten-per-
year and the 4 tax years immediately before the                cent-of-support and the attraction of public sup-          3.  Representative  governing  body  fac-
current  tax  year,  the  organization  meets  the             port  requirements  on  an  aggregate  basis  and          tor. The fact that an organization has a govern-
one-third  support  test  on  an  aggregate  basis.            satisfies a sufficient combination of the factors          ing body that represents the broad interests of 
See also Computation period for public support                 discussed later. The combination of factors that           the public rather than the personal or private in-
(Special  computation  period  for  new  organiza-             an  organization  normally  must  meet  doesn't            terest of a limited number of donors will be con-
tions) later, in this discussion.                              have to be the same for each 4-year period as              sidered in determining whether the organization 
                                                               long as a sufficient combination of factors exists         is publicly supported.
Facts and circumstances test.     The facts and                to show compliance.                                        An organization will meet this requirement if 
                                                                                                                          it has a governing body composed of:
circumstances test is for organizations failing to             Additional requirements (the five public 
meet the one-third support test. If your organi-               support  factors).  In  addition  to  the  two  re-        1. Public officials acting in their public ca-
zation fails to meet the one-third support test, it            quirements of the facts and circumstances test,                 pacities,
may still be treated as a publicly supported or-               the following five public support factors will be          2. Individuals selected by public officials act-
ganization described in section 170(b)(1)(A)(vi)               considered in determining whether an organiza-                  ing in their public capacities,
if  it  normally  receives  a  substantial  part  of  its      tion is publicly supported. However, an organi-
support from governmental units, from direct or                zation generally doesn't have to satisfy all of the        3. Persons having special knowledge or ex-
indirect contributions from the general public, or             factors. The factors relevant to each case and                  pertise in the particular field or discipline in 
from a combination of these sources. To qual-                  the  weight  accorded  to  any  one  of  them  may              which the organization is operating, and
ify,  an  organization  must  meet  the  ten-per-

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4. Community leaders, such as elected or                  some broad common interest or purpose,                  Reasonable  expectation  of  public  sup-
     appointed officials, members of the clergy,          such as educational activities in the case              port. An  organization  that  can  reasonably  be 
     educators, civic leaders, or other such              of alumni associations, musical activities              expected to meet the one-third support test or 
     persons representing a broad cross-sec-              in the case of symphony societies, or civic             the facts and circumstances test during its first 
     tion of the views and interests of the com-          affairs in the case of parent-teacher asso-             5 years is one that can show that its organiza-
     munity.                                              ciations.                                               tional  structure,  current  or  proposed  programs 
                                                                                                                  and activities, and actual or intended method of 
In  a  membership  organization,  the  governing          Special rule.     The fact that an organization         operation can reasonably be expected to attract 
body should also include individuals elected by           has normally met the one-third support test re-         the type of broadly based support from the gen-
a broadly based membership according to the               quirements for a current tax year, but is unable        eral  public,  public  charities,  and  governmental 
organization's governing instrument or bylaws.            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    port requirements discussed earlier under Qual-
4. Availability of public facilities or serv-             from meeting the requirements of the facts and          ifying As Publicly Supported.
ices factor. The fact that an organization gen-           circumstances test for the later tax year.
erally  provides  facilities  or  services  directly  for                                                         Example.    Organization  Y  was  formed  in 
the benefit of the general public on a continuing         Example.      X  is  recognized  as  an  organiza-      January  2017  and  uses  a  December  31  tax 
basis is evidence that the organization is pub-           tion described in section 501(c)(3). On the ba-         year. After September 9, 2017, and before De-
licly supported. Examples are:                            sis  of  support  received  during  tax  years  2017,   cember  31,  2017,  Organization  Y  filed  a  Form 
•    A museum or library that is open to the              2018,  2019,  2020,  and  2021,  it  meets  the         1023 requesting recognition of exemption as an 
     public,                                              one-third support test for tax year 2021 (the cur-      organization described in section 501(c)(3) and 
•    A symphony orchestra that gives public               rent tax year). X also meets the one-third sup-         in sections 170(b)(1)(A)(vi) and 509(a)(1). In its 
     performances,                                        port test for 2022, as the immediately succeed-         application,  Organization  Y  established  that  it 
•    A conservation organization that provides            ing tax year.                                           can  reasonably  be  expected  to  meet  the 
     educational services to the public through           In  tax  years  2018,  2019,  2020,  2021,  and         one-third support test. Organization Y receives 
     the distribution of educational materials, or        2022,  in  the  aggregate,  X  doesn't  receive  at     a  determination  letter  that  it  is  an  organization 
•    An old-age home that provides domiciliary            least one-third of its support from governmental        described  in  section  501(c)(3)  and  sections 
     or nursing services for members of the               units referred to in section 170(c)(1), from con-       170(b)(1)(A)(vi)  and  509(a)(1)  effective  as  of 
     general public.                                      tributions made directly or indirectly by the gen-      the date of formation.
The fact that an educational or research institu-         eral public, or from a combination of these sour-       Organization  Y  is  described  in  sections 
tion regularly publishes scholarly studies widely         ces. X still meets the one-third support test for       170(b)(1)(A)(vi) and 509(a)(1) for its first 5 tax 
used  by  colleges  and  universities  or  by  mem-       tax year 2022 based on the aggregate support            years  (tax  years  ending  December  31,  2017, 
bers of the general public is also evidence that          received for tax years 2017 through 2021.               through  December  31,  2021).  Organization  Y 
the organization is publicly supported.                   In  tax  years  2019,  2020,  2021,  2022,  and         can  qualify  as  a  public  charity  beginning  with 
Similarly, the following factors are also evi-            2023,  in  the  aggregate,  X  doesn't  receive  at     the tax year ending December 31, 2021, if Or-
dence  that  an  organization  is  publicly  suppor-      least one-third of its support from governmental        ganization Y meets the one-third support test or 
ted.                                                      units referred to in section 170(c)(1), from con-       facts  and  circumstances  test  for  the  tax  years 
                                                          tributions made directly or indirectly by the gen-      ending December 31, 2018, through December 
1. Participating in, or sponsoring, the pro-              eral public, or from a combination of these sour-       31, 2022, or for the tax years ending December 
     grams of the organization by members of              ces.  X  doesn't  meet  the  one-third  support  test   31, 2017, through December 31, 2021.
     the public having special knowledge or ex-           for tax year 2023.
     pertise, public officials, or civic or com-          Based  on  the  aggregate  support  and  other          Determinations of public support status. 
     munity leaders.                                      factors listed in Regulations section 1.170A-9(f)       An  organization  may  request  a  determination 
2. Maintaining a definitive program by the or-            (3)(iii)(A) through (E) for tax years 2018, 2019,       letter that it is described in section 170(b)(1)(A)
     ganization to accomplish its charitable              2020,  2021,  and  2022,  X  meets  the  facts  and     (vi).  This  request  is  made  on  Form  1023  or 
     work in the community, such as slum                  circumstances test for tax year 2021 and for tax        Form 1023-EZ, or at such other time as the or-
     clearance or developing employment op-               year 2023 (as the immediately succeeding tax            ganization  believes  it  is  described  in  section 
     portunities.                                         year).  Therefore,  X  is  still  an  organization  de- 170(b)(1)(A)(vi).  The  IRS  may  revoke  the  sec-
                                                          scribed  in  section  170(b)(1)(A)(vi)  for  tax  year  tion  170(b)(1)(A)(vi)  determination  letter  if,  on 
3. Receiving a significant part of its funds              2023  even  though  X  didn't  meet  the  one-third     examination,  the  organization  has  not  met  the 
     from a public charity or governmental                support test for that year.                             requirements.  The  IRS  may  also  revoke  the 
     agency to which it is in some way held ac-                                                                   section  170(b)(1)(A)(vi)  determination  letter  if 
     countable as a condition of the grant, con-          Special computation period for new organi-              the  organization's  application  for  a  determina-
     tract, or contribution.                              zations (Computation period for public sup-             tion contained an omission or inaccurate mate-
5.  Additional  factors  pertinent  to  mem-              port). If, at the time of applying for tax-exempt       rial information.
bership organizations. The following are ad-              status,  an  organization  can  reasonably  be  ex-     Reliance by grantors or contributors.       As 
ditional factors in determining whether a mem-            pected to meet the one-third support test or the        a general rule, grantors or contributors may rely 
bership organization is publicly supported.               facts and circumstances test during its first 5 tax     on  a  determination  that  an  organization  is  de-
                                                          years,  the  organization  will  qualify  as  publicly  scribed in section 170(b)(1)(A)(vi) until notice of 
1. Whether the solicitation for dues-paying               supported for its first 5 years. The organization       change of status of the organization is made to 
     members is designed to enroll a substan-             will be classified as a public charity for its first 5  the public. The IRS publishes such notices from 
     tial number of persons in the community or           years, regardless of the public support actually        time  to  time  in  the  Internal  Revenue  Bulletin, 
     area, or in a particular profession or field of      received during this period. Beginning with the         IRS.gov/irb/. Grantors and contributors can also 
     special interest (taking into account the            organization's  sixth  tax  year,  the  organization    find information about an organization’s exempt 
     size of the area and the nature of the or-           will qualify as publicly supported if it meets the      status under section 501(c)(3) and its status as 
     ganization's activities).                            one-third  support  test  or  the  facts  and  circum-  a public charity or private foundation from Tax-
2. Whether membership dues for individual                 stances test for its sixth year (based on support       Exempt Organization Search. However, a gran-
     (rather than institutional) members have             received in its second through sixth tax years),        tor or contributor can’t rely on a detrermination 
     been fixed at rates designed to make                 or as a carryover for its fifth tax year (based on      letter  or  information  on  Tax-Exempt  Organiza-
     membership available to a broad cross                support  received  in  its  first  through  fifth  tax  tion Search if the grantor or contributor was re-
     section of the interested public, rather than        years).  If  the  organization  is  required  to  file  sponsible for, or aware of, the act or failure to 
     to restrict membership to a limited number           Form  990  or  990-EZ,  it  must  establish  that  it   act  that  resulted  in  the  organization's  loss  of 
     of persons.                                          meets  the  public  support  test  each  year  on       classification as a publicly supported organiza-
                                                          Schedule A (Form 990).
3. Whether the activities of the organization                                                                     tion.
     will be likely to appeal to persons having 
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Support. For purposes of publicly supported public are insignificant, Z doesn't meet the these payments by selecting the health care or-
organizations, the term support includes (but one-third support test or the ten-percent-of-sup- ganization. As a result, these payments aren't
isn't limited to): port requirement. considered support from a governmental unit.
1. Gifts, grants, contributions, or membership For the rules that apply to organizations that Medicare and Medicaid payments are gross re-
fees; fail to qualify as section 509(a)(1) publicly sup- ceipts derived from the exercise or performance
ported organizations because of these provi- of exempt activities and, therefore, aren't inclu-
2. Net income from unrelated business activ- sions, see Section 509(a)(2) Organizations, ded in the term support.
ities, whether or not those activities are later. See also Gross receipts from a related ac-
carried on regularly as a trade or business; tivity in the discussion on section 509(a)(2) or- Support from the general public. In deter-
3. Gross investment income; ganizations. mining whether the one-third support test or the
ten-percent-of-support requirement is met, in-
4. Tax revenues levied for the benefit of an Membership fees. Membership fees are clude in your computation support from direct or
organization and either paid to or spent on included in the term support if they are paid to indirect contributions from the general public.
behalf of the organization; and 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
5. The value of services or facilities furnished the use of facilities. the total contributions from the individual, trust,
by a governmental unit to an organization or corporation, during the current tax year and
without charge (except services or facili- Support from a governmental unit. For pur- the 4-year period immediately before the cur-
ties generally furnished to the public with- poses of the one-third support test and the rent tax year, aren't more than 2% of the organi-
out charge). ten-percent-of-support requirement, the term zation's total support for the same period.
support from a governmental unit includes any Thus, a contribution by any one individual
Amounts that aren't support. The term amounts received from a governmental unit, in- will be included in full in the denominator of the
support doesn't include: cluding donations or contributions and amounts fraction used in the one-third support test or the
1. Any amount received from the exercise or received on a contract entered into with a gov- ten-percent-of-support requirement. However,
performance by an organization of the pur- ernmental unit for the performance of services, the contribution will be included in the numera-
pose or function constituting the basis for or from a government research grant. However, tor only to the extent that it isn't more than 2% of
its exemption (in general, these amounts these amounts aren't support from a govern- the denominator. In applying the 2% limit, all
include amounts received from any activity mental unit for these purposes if they constitute contributions made by a donor and by any per-
the conduct of which is substantially rela- amounts received from the exercise or perform- son in a special relationship to the donor (cer-
ted to the furtherance of the exempt pur- ance of the organization's exempt functions. tain Disqualified persons discussed under Ab-
pose or function, other than through the Any amount paid by a governmental unit to sence of control by disqualified persons, later)
production of income); or an organization won't be treated as received are considered made by one person. The 2%
2. Contributions of services for which a de- from the exercise or performance of its exempt limit doesn't apply to support received from gov-
duction isn't allowed. function if the purpose of the payment is primar- ernmental units or to contributions from other
ily to enable the organization to provide a serv- publicly supported charities, except as provided
These amounts are excluded from both the nu- ice to, or maintain a facility for, the direct benefit under Grants from public charities, later.
merator and the denominator of the fractions in of the public (regardless of whether part of the
determining compliance with the one-third sup- expense of providing the service or facility is Indirect contributions. The term indirect
port test and ten-percent-of-support require- paid for by the public), rather than to serve the contributions from the general public includes
ment. The following discusses an exception to direct and immediate needs of the payor. This contributions received by the organization from
this general rule. includes: 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
from the general public, except as provided un-
ganizations won't satisfy the one-third support 2. Amounts paid under government pro- der Grants from public charities, next.
test or the ten-percent-of-support requirement if grams to nursing homes or homes for the
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
church that meets the requirements for being
2. An insignificant amount of support from 3. Amounts paid to child placement or child publicly supported) aren't subject to the 2% limit
governmental units (without regard to guidance organizations under government unless the contributions represent amounts ei-
amounts referred to in (3) in the list of programs for services rendered to children ther expressly or impliedly earmarked by a do-
items included in support) and contribu- in the community. nor to the governmental unit or publicly suppor-
tions made directly or indirectly by the These payments are mainly to enable the recip- ted organization as being for, or for the benefit
general public. ient organization to provide a service or main- of, the particular organization claiming a pub-
tain a facility for the direct benefit of the public, licly supported status.
Example. Z, an organization described in rather than to serve the direct and immediate Example 1. M, a national foundation for the
section 501(c)(3), is controlled by Thomas Blue, needs of the payor. Furthermore, any amount encouragement of the musical arts, is a publicly
its president. Z received $500,000 during the received from a governmental unit under cir- supported organization. George Spruce gives
current tax year and the 4 tax years immediately cumstances in which the amount would be trea- M a donation of $5,000 without imposing any
before its current tax year under a contract with ted as a grant will generally constitute support restrictions or conditions upon the gift. M later
the Department of Transportation, under which from a governmental unit. See the discussion of makes a $5,000 grant to X, an organization de-
Z engaged in research to improve a particular Grants, later, under Section 509(a)(2) Organi- voted to giving public performances of chamber
vehicle used primarily by the federal govern- zations. music. Since the grant to X is treated as being
ment. During the same period, the only other
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 lic. The individual patient, not a governmental M spend the money to support organizations
this fact, and because Z's contributions from the unit, actually controls the ultimate recipient of devoted to the advancement of contemporary

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American music. M has complete discretion as they won't be considered responsible for sub- given more favorable consideration than a
to the organizations of the type described to stantial and material changes in the organiza- transfer while living.
which it will make a grant. M decides to make tion's sources of support status. See section 2. Whether, before the receipt of the contri-
grants of $5,000 each to Y and Z, both being or- 7.08 of Rev. Proc. 2018-32, 2018-23 I.R.B. 739. bution, the organization has carried on an
ganizations described in section 501(c)(3) and 1. The grant or contribution isn't made by a active program of public solicitation and
devoted to furthering contemporary American person (or related person) who created exempt activities and has been able to at-
music. Since the grants to Y and Z are treated the organization or was a substantial con- tract a significant amount of public sup-
as having been received from M, Y and Z each tributor to the organization before the grant port.
may include one of the $5,000 grants in the nu- or contribution. 3. Whether, before the year of contribution,
merator of its support fraction. Although the
donation to M was conditioned upon the use of 2. The grant or contribution isn't made by a the organization met the one-third support
the funds for a particular purpose, M was free to person (or related person) who is in a po- test without benefit of any exclusions of
select the ultimate recipient. sition of authority, such as a foundation unusual grants.
manager, or who otherwise has the ability 4. Whether the organization may reasonably
Example 3. N is a national foundation for to exercise control over the organization. be expected to attract a significant amount
the encouragement of art and is a publicly sup- Similarly, the grant or contribution isn't of public support after the contribution.
ported organization. Grants to N are permitted made by a person (or related person) who, Continued reliance on unusual grants to
to be earmarked for particular purposes. O, because of the grant or contribution, ob- fund an organization's current operating
which is an art workshop devoted to training tains a position of authority or the ability to expenses (as opposed to providing new
young artists and which is claiming status as a otherwise exercise control over the organi- endowment funds) may be evidence that
publicly supported organization, persuades C, a zation. the organization can't reasonably be ex-
private foundation, to make a grant of $25,000 pected to attract future support from the
to N. C is a disqualified person with respect to 3. The grant or contribution is in the form of
O. C makes the grant to N with the understand- cash, readily marketable securities, or as- general public.
ing that N would be bound to make a grant to O sets that directly further the organization's 5. Whether the organization has a represen-
in the sum of $25,000, in addition to a matching exempt purposes, such as a gift of a paint- tative governing body.
grant of N's funds to O in the sum of $25,000. ing to a museum.
Only the $25,000 received directly from N is 4. The donee organization has received a fi- Comprehensive Examples
considered a grant from N. The other $25,000 is nal determination letter classifying it as a
an indirect contribution from C to O and is to be publicly supported organization and the Example 1. M is recognized as an organi-
excluded from the numerator of O's support organization is actively engaged in a pro- zation described in section 501(c)(3). For the
fraction to the extent it exceeds the 2% limit. gram of activities in furtherance of its ex- years 2017 through 2021 (the applicable period
empt purpose. for the tax year 2021 under Regulations section
Unusual grants. In applying the 2% limit to de- 1.170A-9(f)(3)), M received support (as defined
termine whether the one-third support test or 5. No material restrictions or conditions have
the ten-percent-of-support requirement is met, been imposed by the grantor or contributor in paragraphs Regulations section 1.170A-9(f)
exclude contributions that are considered un- upon the organization in connection with (6) through (8)) of $600,000 from the following
usual grants from both the numerator and de- the grant or contribution. sources:

nominator of the appropriate percent-of-support 6. If the grant or contribution is intended for Investment Income . . . . . . . . . . . . . . . $300,000
fraction. Generally, unusual grants are substan- operating expenses, rather than capital City Y (a governmental unit described in 40,000
tial contributions or bequests from disinterested items, the terms and amount of the grant section 170(c)(1)) . . . . . . . . . . . . . . . .
parties if the contributions: or contribution are expressly limited to 1 United Way (an organization described in 40,000
1. Are attracted by the publicly supported na- year's operating expenses. section 170(b)(1)(A)(vi)) . . . . . . . . . . . .
Contributions . . . . . . . . . . . . . . . . . . . 220,000
ture of the organization;, Determination request. Before any grant Total support . . . . . . . . . . . . . . . . . . . . $600,000
2. Are unusual or unexpected in amount; and or contribution is made, a potential grantee or-
ganization can request a determination as to
3. Would adversely affect, because of the whether the grant or contribution may be exclu- For tax year 2021, M's public support is compu-
size, the status of the organization as nor- ded as an unusual grant. This request can be ted as follows:
mally being publicly supported. (The or- filed by the grantee organization by submitting
ganization must otherwise meet the sup- Form 8940, Request for Miscellaneous Deter- One-third of total support . . . . . . . . . . . $200,000
port test in that year without benefit of the mination, supporting documents described in Support from a governmental unit
grant or contribution.) the Instructions for Form 8940, and the appro- described in section 170(c)(1) . . . . . . . . $40,000
For a grant (see Grants, later) that meets the re- priate user fee. The organization must submit Indirect contributions from the general
quirements for exclusion, if the terms of the all information necessary to support a determi- public (United Way) . . . . . . . . . . . . . . . 40,000
granting instrument require that the funds be nation, including information relating to the fac- Contributions by various donors (no one
paid to the recipient organization over a period tors and characteristics listed in the preceding having made contributions that total more
of years, the amount received by the organiza- paragraphs. If a favorable determination is is- than $12,000—2% of total support) . . . . 50,000
tion each year under the terms of the grant may sued, the determination can be relied upon by Six contributions (each in excess of
be excluded for that year. However, no item of the grantor or contributor of the particular contri- $12,000—2% of total support) 6 ×
$12,000 . . . . . . . . . . . . . . . . . . . . . . . 72,000
gross investment income (defined under Sec- bution in question. The issuance of the determi- $202,000
tion 509(a)(2) Organizations, later) may be ex- nation will be at the sole discretion of the IRS.
cluded under this rule. Grants and contributions that fail to qualify
for exclusion will affect the way the support M's support from governmental units and from
Characteristics of an unusual grant. A tests are applied. See Additional requirements direct and indirect contributions from the gen-
grant or contribution will be considered an un- (the five public support factors), earlier. eral public for the 2019 tax year normally ex-
usual grant if the previous three factors apply If a determination is requested, in addition to ceeds one-third of M's total support
and if it has all of the following characteristics. If the characteristics listed earlier under Charac- ($202,000/$600,000 = 33.67%) for the applica-
these factors and characteristics apply, then teristics of an unusual grant, the following fac- ble period (2016 through 2020). M meets the
even without the benefit of an advance ruling, tors may be considered by the IRS in determin- one-third support test for 2020 and is therefore
grantors or contributors have assurance that ing if the grant or contribution is an unusual publicly supported for the tax years 2021 and
grant. 2022.
1. Whether the contribution was a bequest or Example 2. N is recognized as an organi-
a transfer while living. A bequest will be zation described in section 501(c)(3). It was
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created  to  maintain  public  gardens  containing        the  museum  in  the  current  tax  year  and  the  4             test  ($140,800/$520,000  =  27%  of  total  sup-
botanical  specimens  and  displaying  statuary           years  immediately  preceding  the  current  tax                  port). However, because P receives 27% of its 
and other art objects. The facilities, works of art,      year.                                                             total  support  from  the  general  public,  it  meets 
and a large endowment were all contributed by             Under these circumstances, O doesn't meet                         the  10%  support  limitation  under  Regulations 
a  single  contributor.  The  members  of  the  gov-      the one-third support test for its current year be-               section  1.170A-9(f)(3)(i).  P  also  meets  the  re-
erning body of the organization are unrelated to          cause it has received only 25% of its total sup-                  quirements  of  Regulations  section  1.170A-9(f)
its creator. The gardens are open to the public           port  for  the  applicable  5-year  period  from  the             (3)(ii).  As  a  result  of  satisfying  these  require-
without  charge  and  attract  many  visitors  each       general  public.  However,  under  the  facts  set                ments and factors, P is considered to meet the 
year.  For  the  current  tax  year  and  the  4  tax     forth, O has met the 10% support limitation un-                   facts  and  circumstances  test  and  therefore 
years  preceding  the  current  tax  year,  95%  of       der  Regulations  section  1.170A-9(f)(3)(i),  as                 qualifies  as  a  publicly  supported  organization 
the  organization's  total  support  was  received        well as the requirements of Regulations section                   for its current tax year and the immediately suc-
from investment income from its original endow-           1.170A-9(f)(3)(ii). Under all of the facts set forth,             ceeding tax year.
ment.  N  also  maintains  a  membership  society         O is considered as meeting the requirements of 
that  is  supported  by  members  of  the  general        the facts and circumstances test on the basis of                  Example 5.          Q is recognized as an organi-
public who wish to contribute to the upkeep of            satisfying Regulations section 1.170A-9(f)(3)(iii)                zation described in section 501(c)(3) and it is a 
the gardens by paying a small annual member-              (A) through (D). O is therefore publicly suppor-                  philanthropic  organization.  Q  was  founded  in 
ship  fee.  Over  the  5-year  period  in  question,      ted for its current tax year and the immediately                  1965  by  C  for  the  purpose  of  making  annual 
these  fees  from  the  general  public  constituted      succeeding tax year.                                              contributions  to  worthy  charities.  C  created  Q 
the  remaining  5%  of  the  organization's  total                                                                          as  a  charitable  trust  by  transferring  $500,000 
support. Under these circumstances, N doesn't             Example  4.           In  1960,  the  P  Philharmonic             worth of appreciated securities to Q.
meet  the  one-third  support  test  for  its  current    Orchestra  was  organized  in  T  City  by  a  local              Under the trust agreement, C and two other 
tax  year.  Furthermore,  since  only  5%  was  re-       music  society  and  a  local  women's  club  to                  family members are the sole trustees of Q and 
ceived from the general public, N doesn't satisfy         present to the public a wide variety of musical                   are  vested  with  the  right  to  appoint  successor 
the  10%  support  limitation  under  Regulations         programs intended to foster music appreciation                    trustees. In each of the current tax year and the 
section  1.170A-9(f)(3)(i),  and  therefore  doesn't      in the community. P is recognized as an organi-                   4  tax  years  immediately  preceding  the  current 
qualify  as  publicly  supported  under  the  facts       zation  described  in  section  501(c)(3).  The  or-              tax year, Q received $12,000 in investment in-
and  circumstances  test.  Because  N  has  failed        chestra is composed of professional musicians                     come from its original endowment. Each year Q 
to satisfy the 10% support limitation, none of the        who  are  paid  by  the  association.  Twelve  per-               solicits funds by operating a charity ball at C's 
other  requirements  or  factors  in  Regulations         formances,  open  to  the  public,  are  scheduled                residence.  Guests  are  invited  and  asked  to 
section 1.170A-9(f)(3)(iii)(A) through (E) can be         each  year.  A  small  admission  charge  is  made                make contributions of $100 per couple. During 
considered  in  determining  whether  N  qualifies        for  each  of  these  performances.  In  addition,                the  5-year  period  involved,  $15,000  was  re-
as  a  publicly  supported  organization.  For  its       several performances are staged annually with-                    ceived  from  the  proceeds  of  these  events.  C 
current tax year, N isn't an organization descri-         out charge.                                                       and his family have also made contributions to 
bed in section 170(b)(1)(A)(vi).                          During  the  current  tax  year  and  the  4  tax                 Q of $25,000 over the 5-year period at issue. Q 
                                                          years  immediately  preceding  the  current  tax                  makes  disbursements  each  year  of  substan-
Example  3. O,  an  art  museum,  is  recog-              year,  P  received  separate  contributions  of                   tially all of its net income to the public charities 
nized  as  an  organization  described  in  section       $200,000 each from A and B (not members of a                      chosen by the trustees.
501(c)(3). In 1930, O was founded in S City by            single family) and support of $120,000 from the                   Q's  sources  of  support  for  the  current  tax 
members of a single family to collect, preserve,          T  Community  Chest,  a  public  federated  fund-                 year and the 4 tax years immediately preceding 
interpret,  and  display  to  the  public  important      raising  organization  operating  in  T  City.  P  de-            the current tax year are as follows:
works of art. O is governed by a Board of Trust-          pends on these funds to carry out its activities 
ees  that  originally  consisted  almost  entirely  of    and will continue to depend on contributions of                   Investment income . . . . . . . . . . . . . . . . .     $60,000 
members  of  the  founding  family.  However,             this  type  to  be  made  in  the  future.  P  has  also          Contributions . . . . . . . . . . . . . . . . . . . . . $40,000
since 1945, members of the founding family or             begun a fundraising campaign in an attempt to                     Total support . . . . . . . . . . . . . . . . . . .     $100,000 
persons  standing  in  relationship  to  the  mem-        expand its activities for the coming years.                       Contributions from the general public . . . .           $15,000
bers of that family described in section 4946(a)          P is governed by a Board of Directors com-
(1)(C)  through  (G)  have  annually  constituted         posed of five individuals. A faculty member of a                  One contribution (over $2,000—2% of total 
less than one-fifth of the Board of Trustees. The         local college, the president of a local music so-                 support) 1 × $2,000 . . . . . . . . . . . . . . . .     2,000
remaining board members are citizens of S City            ciety, the head of a local banking institution, a                 Total support from general public . . . . . . .         $17,000
from  a  variety  of  professions  and  occupations       prominent doctor, and a member of the govern-
who  represent  the  interests  and  views  of  the       ing  body  of  the  local  Chamber  of  Commerce                  Q's  support  from  the  general  public  doesn't 
people  of  S  City  in  the  activities  carried  on  by currently serve on the Board and represent the                    meet the              one-third               support   test 
the organization rather than the personal or pri-         interests and views of the community in the ac-                   ($17,000/$100,000  =  17%  of  total  support). 
vate interests of the founding family. O solicits         tivities carried on by P.                                         Even  though  it  does  meet  the  ten-per-
contributions  from  the  general  public,  and  for      For P's current tax year, its sources of sup-                     cent-of-support  requirement,  its  method  of  so-
the current tax year and each of the 4 tax years          port  are  computed  on  the  basis  of  the  current             licitation makes it questionable whether Q satis-
immediately  preceding  the  current  tax  year,  O       tax  year  and  the  4  immediately  preceding  tax               fies  Regulations  section  1.170A-9(f)(3)(ii). 
has received total contributions (in small sums           years, as follows.                                                Because of its method of operating, Q also has 
of less than $100, none of which exceeds 2% of                                                                              a greater burden of establishing its publicly sup-
O's  total  support  for  such  period)  in  excess  of   Contributions . . . . . . . . . . . . . . . . . . . . . $520,000  ported nature. Based on these facts and on Q's 
$10,000.  These  contributions  from  the  general        Receipts from performances . . . . . . . . . .          100,000   failure to receive favorable consideration under 
public represent 25% of the organization's total                                                                  $620,000  the  remaining  factors  of  Regulations  section 
support for that 5-year period. For the same pe-          Less:                                                             1.170A-9(f)(3)(iii),  Q  doesn't  satisfy  the  facts 
riod, investment income from several large en-            Receipts from performances (excluded,                             and  circumstances  test  and  therefore  doesn't 
dowment funds has constituted 75% of O's total            see Support) . . . . . . . . . . . . . . . . . . . . .  100,000   qualify as a publicly supported organization.
support.  O  expends  substantially  all  of  its  an-    Total support . . . . . . . . . . . . . . . . . . .     $520,000
nual  income  for  its  exempt  purposes  and  thus       T Community Chest (indirect support from                          Community Trusts
depends  on  the  funds  it  annually  solicits  from     the general public) . . . . . . . . . . . . . . . . .   $120,000
the  public  as  well  as  its  investment  income  in    Two contributions (each over $10,400—2%                           Community  trusts  are  often  established  to  at-
order to carry out its activities on a normal and         of total support) 2 × $10,400 . . . . . . . . . . .     20,800
continuing  basis  and  to  acquire  new  works  of       Total support from general public . . . . . . .         $140,800  tract large contributions of a capital or endow-
                                                                                                                            ment nature for the benefit of a particular com-
art. O has, for the entire period of its existence,                                                                         munity or area. Often these contributions come 
been open to the public and more than 300,000             P's support from the general public, directly and                 initially  from  a  small  number  of  donors.  While 
people (from S City and elsewhere) have visited           indirectly,  doesn't  meet  the  one-third  support               the community trust generally has a governing 
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body composed of representatives of the partic-         judgment of the governing body (with-                    test for a publicly supported organization 
ular community or area, its contributions are of-       out the necessity of the approval of                     under section 509(a)(1).
ten received and maintained in the form of sep-         any participating trustee, custodian, or               2. Section 509(a)(2) places a limit on the to-
arate trusts or funds that are subject to varying       agent), the restriction or condition be-                 tal gross investment income and unrelated 
degrees of control by the governing body.               comes, in effect, unnecessary, inca-                     business taxable income (in excess of the 
                                                        pable of fulfillment, or inconsistent 
To qualify as a publicly supported organiza-            with the charitable needs of the com-                    unrelated business tax) an organization 
tion, a community trust must meet the one-third         munity or area served;                                   may have, while section 509(a)(1) doesn't.
support test, explained earlier under Qualifying                                                               To  be  excluded  from  private  foundation 
as Publicly Supported. If it can't meet that test, it   b. To replace any participating trustee, 
must be organized and operated so as to attract         custodian, or agent for breach of fidu-                treatment under section 509(a)(2), an organiza-
new and additional public or governmental sup-          ciary duty under state law; and                        tion must meet two support tests.
port on a continuous basis sufficient to meet the       c. To replace any participating trustee,               1. The one-third support test.
facts  and  circumstances  test,  also  explained       etc., for failure to produce a reasona-                2. The not-more-than-one-third support test.
earlier. Community trusts are generally able to         ble return of net income over a rea-
satisfy  the  attraction  of  public  support  require- sonable period of time. (The govern-                   Both these tests are designed to ensure that 
ment (as contained in the facts and circumstan-         ing body will determine what is                        an  organization  excluded  from  private  founda-
ces test) if they seek gifts and bequests from a        reasonable.)                                           tion treatment is responsive to the general pub-
wide range of potential donors in the community                                                                lic, rather than to the private interests of a limi-
or area served, through banks or trust compa-           4. The organization must prepare periodic fi-
nies,  through  attorneys  or  other  professional      nancial reports treating all of the funds that         ted number of donors or other persons.
persons,  or  in  other  appropriate ways that call     are held by the community trust, either di-
attention  to  the  community  trust  as  a  potential  rectly or in component parts, as funds of              One-third support test. The one-third support 
recipient  of  gifts  and  bequests  made  for  the     the organization.                                      test  will  be  met  if  an  organization  normally  re-
                                                                                                               ceives  more  than  one-third  of  its  support  in 
benefit  of  the  community  or  area  served.  A       A community trust can meet the requirement             each tax year from any combination of:
community trust, however, doesn't have to en-           in (3) above even if its exercise of the powers in 
gage  in  periodic,  community-wide,  fundraising       (3)(a), (b), or (c) is reviewable by an appropriate    1. Gifts, grants, contributions, or membership 
campaigns  directed  toward  attracting  a  large       state authority.                                         fees; and
number of small contributions in a manner simi-                                                                2. Gross receipts from admissions, sales of 
lar  to  campaigns  conducted  by  a  community         Component part.   To be treated as a com-
chest or a united fund.                                 ponent part of a community trust (rather than as         merchandise, performance of services, or 
                                                        a  separate  trust  or  a  not-for-profit  corporation   furnishing facilities in an activity that isn't 
Separate  trusts  or  funds. Any  community             for public support purposes), a trust or fund:           an unrelated trade or business, subject to 
                                                                                                                 certain limits, discussed under Limit on 
trust may be treated as a single entity for public      1. Must be created by gift, bequest, legacy,             gross receipts, later.
support  purposes,  rather  than  as  an  aggrega-      devise, or other transfer to a community 
tion of separate funds, in which case all qualify-      trust that is treated as a single entity (de-          For this purpose, the support must be from 
ing  funds  associated  with  that  organization        scribed above), and                                    permitted sources, which include:
(whether a trust, not-for-profit corporation, unin-                                                            • Section 509(a)(1) organizations, described 
corporated  association,  or  a  combination            2. May not be directly or indirectly subjected           earlier;
thereof)  will  be  treated  as  component  parts  of   by the transferor to any material restriction          • Governmental units, described under Sec-
the organization for public support purposes.           or condition with respect to the transferred             tion 509(a)(1) Organizations, earlier; and
                                                        assets.
Single entity. To be treated as a single en-                                                                   • Persons other than Disqualified persons 
                                                                                                                 (defined under Section 509(a)(3) Organi-
tity  for  public  support  purposes,  a  community     Grantors  and  contributors. Grantors,  con-             zations), later.
trust  must  meet  all  of  the  following  require-    tributors,  or  distributors  to  a  community  trust 
ments.                                                  may rely on the public charity status, which the       Limit on gross receipts.        In computing the 
1. The organization must be commonly                    organization has claimed in a timely filed notice,     amount of support received from gross receipts 
known as a community trust, fund, founda-               on or before the date the IRS informs the public       under (2) above, gross receipts from related ac-
tion, or other similar name conveying the               (through such means as publication in the Inter-       tivities  received  from  any  person  or  from  any 
concept of a capital or endowment fund to               nal Revenue Bulletin) that such reliance has ex-       bureau or similar agency of a governmental unit 
support charitable activities in the com-               pired.  However,  if  the  grantor,  contributor,  or  are includible in any tax year only to the extent 
munity or area it serves.                               distributor acquires knowledge that the IRS has        the gross receipts aren't more than the greater 
                                                        notified the community trust that it has failed to     of $5,000 or 1% of the organization's total sup-
2. All funds of the organization must be sub-           establish that it is a public charity, then reliance   port in that year.
ject to a common governing instrument (or               on the claimed status expires at the time such 
a master trust or agency agreement) that                knowledge is acquired.                                 Not-more-than-one-third  support  test. This 
may be embodied in a single (or several)                                                                       test  will  be  met  if  an  organization  normally  re-
document(s) containing common lan-                                                                             ceives no more than one-third of its support in 
guage.                                                  Section 509(a)(2) Organizations                        each tax year from the total of:
3. The organization must have a common                  Section  509(a)(2)  excludes  certain  types  of       1. Gross investment income, and
governing body (or distribution committee)              broadly  based,  publicly  supported  organiza-
that either directs or, in the case of a fund           tions from private foundation status. Generally,       2. The excess (if any) of unrelated business 
designated for specified beneficiaries,                 an  organization  described  in  section  509(a)(2)      taxable income from unrelated trades or 
monitors the distribution of all funds exclu-           may also fit the description of a publicly suppor-       businesses acquired after June 30, 1975, 
sively for charitable purposes. The govern-             ted organization under section 509(a)(1). There          over the tax imposed on that income.
ing body must have the power in the gov-                are, however, two basic differences.                   Gross  investment  income.       Gross  invest-
erning instrument, the instrument of                                                                           ment  income  means  the  gross  amount  of  in-
transfer, the resolutions or bylaws of the              1. For section 509(a)(2) organizations, the 
governing body, a written agreement, or                 term support includes items of support dis-            come  from  interest,  dividends,  payments  with 
otherwise—                                              cussed earlier (under Support, in the dis-             respect to securities loans, rents, and royalties, 
                                                        cussion of Section 509(a)(1) Organiza-                 but it doesn't include any income that would be 
a. To modify any restriction or condition               tions) and income from activities directly             included  in  computing  tax  on  unrelated  busi-
       on the distribution of funds for any             related to their exempt function. This in-             ness income from trades or businesses.
       specified charitable purposes or to              come isn't included in meeting the support 
       specified organizations if in the sole 
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Definition of normally. Both support tests 2. Whether a substantial part of the organiza- the organization or was a substantial con-
are computed on the basis of the nature of the tion’s initial funding is to be provided by tributor to the organization before the grant
organization's normal sources of support. An or- the general public, by public charities, or or contribution.
ganization will be considered to have normally by government grants rather than by a 2. The grant or contribution isn't made by a
met both tests for its current tax year and the limited number of grantors or contributors person (or related person) who is in a po-
tax year immediately following, if it meets those who are disqualified persons with respect sition of authority, such as a foundation
tests on the basis of the total support received to the organization, manager, or who otherwise has the ability
for the current tax year and the 4 tax years im- 3. Whether a substantial proportion of the or- to exercise control over the organization.
mediately before the current tax year. ganization’s initial funds are placed, or will Similarly, the grant or contribution isn't
Computation period for public support. If at remain, in an endowment and whether the made by a person (or related person) who,
the time of applying for tax-exempt status, an investment of those funds is unlikely to re- because of the grant or contribution, ob-
organization can reasonably be expected to sult in more than one-third of its total sup- tains a position of authority or the ability to
meet the one-third support test and the port being received from gross investment otherwise exercise control over the organi-
not-more-than-one-third support test during its income and from unrelated business taxa- zation.
first 5 tax years, the organization will qualify for ble income in excess of the tax imposed 3. The grant or contribution is in the form of
classification as a public charity under section on that income, cash, readily marketable securities, or as-
509(a)(2) for its first 5 years. Beginning with the 4. Whether an organization that carries on sets that directly further the organization's
organization's sixth tax year, the organization fundraising activities has developed a spe- exempt purposes, such as a gift of a paint-
will be described in section 509(a)(2) if it meets cific plan for solicitation of funds on a com- ing to a museum.
the one-third support test and munity or area-wide basis, 4. The donee organization has received ei-
not-more-than-one-third support test for its sixth
year (based on support received in its second 5. Whether an organization that carries on ther an advance ruling or final determina-
through sixth tax years) or as a carryover for its community service activities has a specific tion letter classifying it as a publicly sup-
fifth tax year (based on support received in its program to carry out its work in the com- ported organization and, except for an
first through fifth tax years). If the organization is munity, organization operating under an advance
required to file Form 990 or 990-EZ, it must es- 6. Whether membership dues for individual ruling or determination letter, the organiza-
tablish that it meets the one-third support test (rather than institutional) members of an tion is actively engaged in a program of
and not-more-than-one-third support test each organization that carries on education or activities in furtherance of its exempt pur-
year on Schedule A (Form 990). other exempt activities for or on behalf of pose.
members have been fixed at rates de- 5. No material restrictions or conditions have
Reasonable expectation of public sup- signed to make membership available to a been imposed by the grantor or contributor
port. An organization that can reasonably be broad cross section of the public rather upon the organization in connection with
expected to meet the one-third support test and than to restrict membership to a limited the grant or contribution.
not-more-than-one-third support test under sec- number of persons, and 6. If the grant or contribution is intended for
tion 509(a)(2) during its first 5 tax years is one
that can show that its organizational structure, 7. Whether an organization that provides operating expenses, rather than capital
current or proposed programs and activities, goods, services, or facilities is or will be re- items, the terms and amount of the grant
and actual or intended method of operation can quired to make its services, facilities, per- or contribution are expressly limited to one
reasonably be expected to attract the type of formances, or products available (regard- year's operating expenses.
broadly based support from the general public, less of whether a fee is charged) to the
public charities, and governmental units that is general public, public charities, or govern- Determination request. If there is any
necessary to meet these tests. The facts that mental units rather than to a limited num- doubt that a grant or contribution can be exclu-
are relevant to this determination and the ber of persons or organizations. ded as an unusual grant, the grantee organiza-
weight accorded each fact may differ from case tion can request a determination by submitting
to case. An organization can't reasonably be Unusual grants. An unusual grant can be ex- Form 8940, Request for Miscellaneous Deter-
expected to meet the one-third support test and cluded from the support test computation if it: mination, supporting documents described in
the Instructions for Form 8940 and the appropri-
the not-more-than-one-third support test when 1. Was attracted by the publicly supported ate user fee. The IRS has the sole discretion of
the facts indicate that an organization is likely nature of the organization, issuing a determination, but if a favorable deter-
during its first 5 tax years to receive less than
one-third of its support from permitted sources 2. Was unusual or unexpected in amount, mination is issued, it can be relied on by the
or to receive more than one-third of its support and grantor or contributor for purposes of a charita-
ble contributions deduction and by the organi-
from gross investment income and unrelated 3. Would, because of its size, adversely af- zation for purposes of the exclusion for unusual
business taxable income. fect the status of the organization as nor- grants.
All pertinent facts and circumstances are mally meeting the one-third support test. In addition to the characteristics listed
taken into account in determining whether the (The organization must otherwise meet above, the following factors may be considered
organizational structure, programs, or activities, the test in that year without benefit of the by the IRS in determining if the grant or contri-
and method of operation of an organization will grant or contribution.) bution is an unusual grant.
give that organization a reasonable expectation
that it will meet the support tests. Some perti- Characteristics of an unusual grant. A 1. Whether the contribution was a bequest or
nent factors considered are: grant or contribution will be considered an un- a transfer while living. A bequest will ordi-
1. Whether the organization has or will have usual grant if the above three factors apply and narily be given more favorable considera-
a governing body that is composed of per- it has all of the following characteristics. If these tion than a transfer while living.
sons having special knowledge in the par- factors and characteristics apply, then even
ticular field in which the organization is op- without the benefit of an advance ruling, gran- 2. Whether, before the contribution, the or-
erating or of community leaders, such as tors or contributors have assurance that they ganization carried on an actual program of
elected officials, members of the clergy, won't be considered responsible for an act that public solicitation and exempt activities
and educators, or, in the case of a mem- results in an organization's change of support and was able to attract a significant
bership organization, of individuals elec- status. See Rev. Proc. 2018-32, 2018-23 I.R.B. amount of public support.
ted under the organization’s governing in- 739. 3. Whether the organization may reasonably
strument or bylaws by a broadly based 1. The grant or contribution isn't made by a be expected to attract a significant amount
membership, person (or related person) who created of public support after the contribution.
Continued reliance on unusual grants to
fund an organization's current operating

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expenses can be evidence that the organi- Although the support received in 2013 won't the payment or transfer under section 170(c)
zation can't attract future support from the impact M's status as a public charity for its first determines whether and to what extent the pay-
general public. 5 tax years, it will be relevant to the determina- ment or transfer is a gift or contribution as dis-
4. Whether the organization met the tion of whether M meets the one-third support tinguished from gross receipts from related ac-
one-third support test in the past without test under section 509(a)(2) for the 2017 tax tivities.
the benefit of any exclusions of unusual year, using the computation period 2013 The amount includible in computing support
grants. through 2017. Within the appropriate time- from gifts, grants, or contributions of property or
frame, M may submit a request for a determina- use of property is the fair market or rental value
5. Whether the organization has a represen- tion letter that the $500,000 contribution from Z of the property at the date of the gift or contribu-
tative governing body. qualifies as an unusual grant. tion.
Under the above circumstances, even
Example 1. Y, an organization described in though Albert was a founder and member of the Example. P is a local agricultural club and
section 501(c)(3), was created by Marshall governing body of M, M may exclude Z's contri- is an organization described in section 501(c)
Pine, the holder of all the common stock in M bution of $500,000 in 2013 as an unusual grant (3). It makes awards at its annual fair for out-
corporation, Lisa, Marshall's wife, and Edward under Regulations section 1.509(a)-3T(c)(3) for standing specimens of produce and livestock to
Forest, Marshall's business associate. The pur- purposes of determining whether M meets the encourage interest and proficiency by young
pose of Y was to sponsor and equip athletic one-third support test under section 509(a)(2) people in farming and raising livestock. Most of
teams composed of underprivileged children in for 2017. these awards are cash or other property dona-
the community. Each of the three creators ted by local businessmen. When the awards
makes small cash contributions to Y. Marshall, Gifts, contributions, and grants distin- are made, the donors are given recognition for
Lisa, and Edward have been active participants guished from gross receipts. In determining their donations by being identified as the donor
in the affairs of Y since its creation. Y regularly whether an organization normally receives of the award. The recognition given to donors is
raises small amounts of contributions through more than one-third of its support from permit- merely incidental to the making of the award to
fundraising drives and selling admission to ted sources, include all gifts, contributions, and worthy youngsters. For these reasons, the don-
some of the sponsored sporting events. The op- grants received from permitted sources in the ations are contributions. The amount includible
erations of Y are carried out on a small scale, numerator of the support fraction in each tax in computing support is equal to the cash con-
usually being restricted to the sponsorship of year. However, gross receipts from admissions, tributed or the fair market value of other prop-
two to four baseball teams of underprivileged sales of merchandise, performance of services, erty on the dates contributed.
children. or furnishing facilities, in an activity that isn't an
In 2012, M Corporation recapitalizes and unrelated trade or business, are includible in Grants. Grants often contain certain terms
creates a first and second class of 6% nonvot- the numerator of the support fraction in any tax and conditions imposed by the grantor. Be-
ing preferred stock, most of which is held by year only to the extent that the amounts re- cause of the imposition of terms and conditions,
Marshall and Lisa. In 2013, Marshall contributes ceived from any person or from any bureau or the frequent similarity of public purposes of
49% of his common stock in M to Y. Marshall's similar agency of a governmental unit aren't grantor and grantee, and the possibility of bene-
contribution of M's common stock was substan- more than the greater of $5,000 or 1% of sup- fit to the grantor, amounts received as grants for
tial and constitutes 90% of Y's total support for port. carrying on exempt activities are sometimes dif-
2013. A combination of the facts and circum- ficult to distinguish from amounts received as
stances of the determining factors preclude Determinations of public support status. gross receipts from carrying on exempt activi-
Marshall's contribution of M's common stock in An organization may request a determination ties.
2013 from being excluded as an unusual grant letter that it is described in section 509(a)(2). In distinguishing the term gross receipts
under Temporary Regulations section This request is made on Form 1023 or Form from the term grants, the term gross receipts
1.509(a)-3T(c)(3) for purposes of determining 1023-EZ, or at such other time as the organiza- means amounts received from an activity that
whether Y meets the one-third support test un- tion believes it is described in section 509(a)(2). isn't an unrelated trade or business, if a specific
der section 509(a)(2). The IRS may revoke the section 509(a)(2) de- service, facility, or product is provided to serve
termination letter if, upon examination, the or- the direct and immediate needs of the payor
Example 2. M was organized in 2012 to ganization has not met the requirements. The rather than primarily to confer a direct benefit on
promote the appreciation of ballet in a particular IRS may also revoke the section 509(a)(2) de- the general public. In general, payments made
region of the United States. Its principal activi- termination letter if the organization’s applica- primarily to enable the payor to realize or re-
ties consist of erecting a theater for the perform- tion for determination contained an omission or ceive some economic or physical benefit as a
ance of ballet and the organization and opera- inaccurate material information. result of the service, facility, or product obtained
will be treated as gross receipts by the payee.
tion of a ballet company. M receives a Reliance by grantors or contributors. For example, a profit-making organization,
determination letter that it is an organization de- Grantors or contributors may rely on a determi- primarily for its own betterment, contracts with a
scribed in section 501(c)(3) and that it is a pub- nation that an organization is described in sec- nonprofit organization for a service from that or-
lic charity described in section 509(a)(2). The tion 509(a)(2) until notice of change of status of ganization. Any payments received by the non-
governing body of M consists of nine prominent the organization is made to the public (such as profit organization (whether from the profit-mak-
unrelated citizens residing in the region who by publication in the Internal Revenue Bulletin, ing organization or from another nonprofit) for
have either an expertise in ballet or a strong in- or Tax-Exempt Organization Search, either of similar services are primarily for the benefit of
terest in encouraging appreciation of the art which can be searched at IRS.gov). See Rev. the payor and are therefore gross receipts,
form. Proc. 2018-32, 2018-23 I.R.B. 739. Tax-Exempt rather than grants.
In 2013, Z, a private foundation, proposes to Organization Search is only available online at Research leading to the development of tan-
make a grant of $500,000 in cash to M to pro- Tax-Exempt Organization Search. However, gible products for the use or benefit of a payor
vide sufficient capital for M to commence its ac- this won't apply if the grantor or contributor was generally will be treated as a service provided
tivities. Although Albert Cedar, the creator of Z, responsible for, or aware of, the act or failure to to serve the direct and immediate needs of the
is one of the nine members of M's governing act that resulted in the organization's loss of payor, while basic research or studies carried
body, was one of M's original founders, and classification as a publicly supported organiza- on in the physical or social sciences generally
continues to lend his prestige to M's activities tion. will be treated as primarily to confer a direct
and fundraising efforts, Albert doesn't, directly
or indirectly, exercise any control over M. By Gifts and contributions. Any payment of benefit upon the general public.
the close of its first tax year, M also has re- money or transfer of property without adequate Medicare and Medicaid payments are gross
ceived a significant amount of support from a consideration is considered a gift or contribu- receipts from the exercise or performance of an
number of smaller contributions and pledges tion. When payment is made or property is exempt function. The individual patient, not a
from members of the general public. M charges transferred as consideration for admissions, governmental unit, actually controls the ultimate
admission to the ballet performances to the sales of merchandise, performance of services, recipient of these payments. Therefore, Medi-
general public. or furnishing facilities to the donor, the status of care and Medicaid receipts for services

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

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organization(s).  However,  a  supporting  organi-       An organization is considered controlled for            (as described earlier), and may not receive con-
zation's  activities  may  not  further  its  purpose    this purpose if the disqualified persons, by com-       tributions  from  certain  controlling  donors  (see 
other  than  supporting  or  benefiting  its  suppor-    bining their votes or positions of authority, can       Contributions from controlling donors, later). In 
ted organization(s).                                     require the organization to perform any act that        addition, a Type III supporting organization may 
                                                         significantly  affects  its  operations  or  can  pre-  not  support  any  organization  not  organized  in 
Operational  test  —  permissible  activi-               vent  the  organization  from  performing  the  act.    the United States.
ties. A supporting organization may make pay-            This includes, but isn't limited to, the right of any   Functional integration. A Type III support-
ments to its supported organization(s) or to per-        substantial  contributor  or  spouse  to  designate     ing  organization  may  be  “functionally-integra-
missible  beneficiaries,  or  may  carry  on             annually the recipients from among the suppor-          ted”  or  “non-functionally  integrated”  depending 
independent activities or programs that support          ted organizations of the income from the contri-        on the manner in which it meets the integral part 
or benefit its supported organization(s). All such       bution. Except as explained under   Proof of in-        test (see Integral part test - functionally-integra-
support, however, must be limited to permissi-           dependent control, next, a          supporting          ted, and Integral part test - non-functionally inte-
ble beneficiaries described earlier. The support-        organization will be considered to be controlled        grated,  later).  Type  III  functionally-integrated 
ing organization may also engage in fundraising          directly or indirectly by one or more disqualified      supporting  organizations  are  subject  to  fewer 
activities, such as solicitations, fundraising din-      persons if the voting power of those persons is         restrictions  and  requirements  than  Type  III 
ners, and unrelated trade or business, to raise          50% or more of the total voting power of the or-        non-functionally integrated supporting organiza-
funds for its supported organization(s) or for the       ganization's governing body, or if one or more          tions.  In  particular,  distributions  from  private 
permissible beneficiaries.                               of those persons has the right to exercise veto         foundations to Type III non-functionally integra-
                                                         power over the actions of the organization.             ted  supporting  organizations  aren't  qualifying 
Absence of control by disqualified persons.              Thus, if the governing body of a foundation             distributions for purposes of satisfying a private 
The  third  requirement  an  organization  must          is composed of five trustees, none of whom has          foundation's required annual distributions under 
meet to qualify as a supporting organization re-         a veto power over the actions of the foundation,        section 4942, and may be taxable expenditures 
quires that the organization not be controlled di-       and no more than two trustees are at any time           under section 4945.
rectly  or  indirectly  by  one  or  more  disqualified  disqualified  persons,  the  foundation  isn't  con-
persons  (other  than  foundation  managers  or          sidered controlled directly or indirectly by one or     Organizational  test. The  organizational 
one or more publicly supported organizations).           more disqualified persons by reason of this fact        test  for  a  Type  III  supporting  organization  is 
Disqualified persons.         For the purposes of        alone. However, all pertinent facts and circum-         generally  the  same  as  for  a  Type  I  or  Type  II 
the  rules  discussed  in  this  publication,  the  fol- stances (including the nature, diversity, and in-       supporting  organization  (described  earlier). 
lowing persons are considered disqualified per-          come  yield  of  an  organization's  holdings,  the     However, Type III supporting organizations are 
sons:                                                    length  of  time  particular  stocks,  securities,  or  more limited regarding how their supported or-
                                                         other assets are retained, and its manner of ex-        ganizations must be “specified” in their articles. 
1. All substantial contributors to the founda-           ercising its voting rights with respect to stocks       A  Type  III  supporting  organization's  articles 
      tion.                                              in  which  members  of  its  governing  body  also      must  specify  its  supported  organization(s)  by 
2. All foundation managers of the foundation.            have some interest) are considered in determin-         name,  or  the  organization  must  demonstrate 
                                                         ing  whether  a  disqualified  person  does  in  fact   that the supporting organization and its suppor-
3. An owner of more than 20% of:                         indirectly control an organization.                     ted organization(s) have a historic and continu-
                                                                                                                 ing relationship, because of which a substantial 
      a. The total combined voting power of a            Proof of independent control.       An organi-          identity of interests has developed between or 
      corporation that is (during such own-              zation is permitted to establish to the satisfac-       among  the  organizations.  “Class  or  purpose” 
      ership) a substantial contributor to the           tion of the IRS that disqualified persons don't di-     designations don't satisfy the organizational test 
      foundation,                                        rectly or indirectly control it. For example, in the    for Type III supporting organizations. However, 
      b. The profits interest of a partnership           case  of  a  religious  organization  operated  in      a  Type  III  supporting  organization's  articles 
      that is (during such ownership) a sub-             connection with a church, the fact that the ma-         may:
      stantial contributor to the foundation,            jority  of  the  organization's  governing  body  is 
      or                                                 composed  of  lay  persons  who  are  substantial       1. Permit a publicly supported organization 
                                                         contributors to the organization won't disqualify           that is designated by class or purpose 
      c. The beneficial interest of a trust or un-       the  organization  under  section  509(a)(3)  if  a         rather than by name to be substituted for 
      incorporated enterprise that is (during            representative of the church, such as a bishop              the publicly supported organization or or-
      such ownership) a substantial contrib-             or  other  official,  has  control  over  the  policies     ganizations designated by name in the ar-
      utor to the foundation.                            and decisions of the organization.                          ticles, but only if the substitution is condi-
4. A member of the family of any of the indi-                                                                        tioned upon the occurrence of an event 
      viduals just listed.                               Category  two  -  Type  III  supporting  organi-            that is beyond the control of the supporting 
                                                         zations. This  category  includes  organizations            organization, such as loss of exemption, 
5. A corporation of which more than 35% of               operated in connection with one or more organi-             substantial failure or abandonment of op-
      the total combined voting power is owned           zations described in section 509(a)(1) or 509(a)            erations, or dissolution of the organization 
      by persons just listed.                            (2).                                                        or organizations designated in the articles,
6. A partnership of which more than 35% of               All  supporting  organizations  must  be  re-           2. Permit the supporting organization to op-
      the profits interest is owned by persons           sponsive  to  the  needs  and  demands  of,  and            erate for the benefit of an organization that 
      described in (1), (2), (3), or (4).                must  constitute  an  integral  part  of  or  maintain      isn't a publicly supported organization, but 
                                                         significant  involvement  in,  their  supported  or-        only if the supporting organization is cur-
7. A trust, or estate, of which more than 35%            ganizations.  Type  I  and  Type  II  supporting  or-       rently operating for the benefit of a publicly 
      of the beneficial interest is owned by per-        ganizations  are  deemed  to  accomplish  these             supported organization and the possibility 
      sons described in (1), (2), (3), or (4).           responsiveness  and  integral  part  requirements           of its operating for the benefit of other than 
Remember,  however,  that  foundation  man-              by virtue of the control relationships discussed            a publicly supported organization is re-
agers  and  publicly  supported  organizations           earlier.  However,  a  Type  III  supporting  organi-       mote, or
aren't disqualified persons for purposes of this         zation isn't subject to the same level of control 
control requirement.                                     by  its  supported  organization(s).  Therefore,        3. Permit the supporting organization to vary 
If a person who is a disqualified person with            Type  III  supporting  organizations  must  pass            the amount of its support between differ-
respect to a supporting organization, such as a          separate  responsiveness  and  integral  part               ent designated organizations, as long as it 
substantial contributor, is appointed or designa-        tests,  in  addition  to  the  organizational  and  op-     meets the requirements of the integral-part 
ted as a foundation manager of the supporting            erational  tests  applicable  to  all  supporting  or-      test (discussed later) with respect to at 
organization  by  a  supported  organization  to         ganizations.  Type  III  supporting  organizations          least one beneficiary organization.
serve as its representative, that person is still a      mustn't  be  controlled  by  disqualified  persons      If  the  remote  possibility  referred  to  in  (2) 
disqualified person.                                                                                             comes to pass and the supporting organization 

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thereafter operates for the benefit of an organi-      Integral part test - non-functionally inte-                  their support and otherwise operate in the 
zation  that  isn't  a  publicly  supported  organiza- grated. A Type III supporting organization that              manner specified by section 509(a)(2).
tion,  it  will  no  longer  qualify  under  section   doesn't satisfy the integral part test as function-
509(a)(3).                                             ally-integrated  will  still  qualify  as  a  Type  III Special  rules  of  attribution. To  determine 
                                                       non-functionally integrated supporting organiza-        whether    an organization       meets     the 
Operational test. The operational rules de-            tion if it satisfies a distribution requirement and     not-more-than-one-third support  test in  section 
scribed earlier for Type I and Type II supporting      an attentiveness requirement. Alternatively, cer-       509(a)(2),  amounts  received  by  the  organiza-
organizations apply as well to Type III support-       tain  trusts  established  before  November  20,        tion from an organization that seeks to be a sec-
ing  organizations  (see Operational  test  -  per-    1970 may qualify if they meet the requirements          tion 509(a)(3) organization because of its sup-
missible  beneficiaries,  and Operational  test  -     of Regulations section 1.509(a)-4(i)(5)(i)(9).          port  of  the  organization  are  deemed  gross 
permissible  activities,  earlier).  In  addition,  a  Distribution  requirement.  A  Type  III                investment income (rather than gifts or contribu-
Type III supporting organization must operate in       non-functionally integrated supporting organiza-        tions) to the extent they are gross investment in-
a  manner  consistent  with  the  requirements  of     tion must distribute a certain amount annually to       come of the distributing organization. (This rule 
the  responsiveness  test  and  the  integral  part    or  for  the  benefit  of  its  supported  organiza-    also applies to amounts received from a chari-
test, discussed later.                                 tion(s).  That  amount  is  equal  to  the  greater  of table  trust,  corporation,  fund,  association,  or 
                                                       85% of the organization's adjusted net income           similar organization that is required by its gov-
Responsiveness  test.    A  Type  III  supporting      and 3.5% of the fair market value of the organi-        erning  instrument  or  otherwise  to  distribute,  or 
organization  must  be  responsive  to  the  needs     zation's  non-exempt-use  assets  (with  certain        that normally does distribute, at least 25% of its 
or demands of its supported organization(s). To        adjustments).  See Regulations      section             adjusted  net  income  to  the  organization,  and 
meet  this  test,  the  supported  organizations       1.509(a)-4(i)(5) and (8) for more information re-       whose  distribution  normally  comprises  at  least 
must (1) elect one or more officers, directors, or     garding the distribution requirement and valua-         5% of its adjusted net income.) All income that 
trustees;  (2)  have  one  or  more  officers,  direc- tion  of  non-exempt-use  assets.  See  Regula-         is  gross  investment  income  of  the  distributing 
tors,  or  trustees  of  the  supported  organiza-     tions  section 1.509(a)-4(i)(6) for more                organization will be considered distributed first 
tion(s) serving simultaneously as officers, direc-     information  regarding  what  distributions  or  ex-    by that organization. If the supporting organiza-
tors, or trustees of the supporting organization;      penditures  count  towards  the  distribution  re-      tion  makes  distributions  to  more  than  one  or-
or (3) maintain a close and continuous working         quirement.                                              ganization, the amount of gross investment in-
relationship with the officers, directors, or trust-   Attentiveness  requirement.  Each  year,  a             come  considered  distributed  will  be  prorated 
ees of the supporting organization. In addition,       Type  III  non-functionally  integrated  supporting     among the distributees.
as a result of this representation or close work-      organization  must  distribute  one-third  or  more     Also, treat amounts paid by an organization 
ing  relationship,  the  supported  organization(s)    of the amount that it must distribute that year to      to  provide  goods,  services,  or  facilities  for  the 
must have a significant voice in the investment        one  or  more  supported  organizations  that  are      direct benefit of an organization seeking section 
policies of the supporting organization, the tim-      attentive to the operations of the supporting or-       509(a)(2) status (rather than for the direct bene-
ing of grants and the manner of making them,           ganization and to which the supporting organi-          fit of the general public) in the same manner as 
the  selection  of  recipients,  and  generally  the   zation  is  responsive.  A  supported  organization     amounts  received  by  the  latter  organization. 
use  of  the  income  or  assets  of  the  supporting  is  “attentive”  for  these  purposes  if  the  amount  These amounts will be treated as gross invest-
organization.                                          received by the supported organization from the         ment  income  to  the  extent  they  are  gross  in-
                                                       supporting organization:                                vestment  income  of  the  organization  spending 
Notification  requirement.     In  each  tax                                                                   the  amounts.  An  organization  seeking  section 
year, the Type III supporting organization must        1. Equals at least 10% of the supported or-
notify  each  supported  organization  of  its  sup-   ganization's total support for the year in              509(a)(2) status must file a separate statement 
port  and  provide  a  copy  of  the  supporting  or-  question;                                               with its annual information return, Form 990 or 
                                                                                                               990-EZ,  listing  all  amounts  received  from  sup-
ganization's  most  recently  filed  Form  990  or     2. was necessary to avoid interruption of a             porting organizations.
990-EZ  and  copies  of  any  amendments  to  its      particular function or activity of the suppor-
articles, bylaws, or other governing documents.        ted organization; or                                    Relationships created for avoidance purpo-
Integral  part  test  -  functionally  integra-        3. was, based on all facts and circumstances            ses. If  a  relationship  between  an  organization 
ted. A  Type  III  supporting  organization  may       (including evidence of actual attentive-                seeking section 509(a)(3) status and an organi-
satisfy the integral part test as functionally-inte-   ness), a sufficient part of the supported or-           zation seeking section 509(a)(2) status is estab-
grated in one of three ways:                           ganization's total support to ensure atten-             lished  or  used  to  avoid  classification  as  a  pri-
1. Engaging in activities substantially all of         tiveness.                                               vate  foundation  with  respect  to  either 
                                                                                                               organization, then the character and amount of 
     which directly further the exempt purposes                                                                support  received  by  the  section  509(a)(3)  or-
     of its supported organization(s) and which,       Supporting other than section 501(c)(3) or-
     but for the supporting organization's in-         ganizations.  An organization operated in con-          ganization  will  be  attributed  to  the  section 
     volvement, the supported organization             junction with a social welfare organization, labor      509(a)(2)  organization  for  purposes  of  deter-
     would normally engage in;                         or  agricultural  organization,  business  league,      mining  whether  the  latter  meets  the  support 
                                                       chamber  of  commerce,  or  other  organization         tests under section 509(a)(2). If this type of rela-
2. Being the parent of, appointing a majority          described  in  section  501(c)(4),  501(c)(5),  or      tionship is established or used between an or-
     of the directors or trustees of, and exercis-     501(c)(6) may qualify as a supporting organiza-         ganization seeking 509(a)(3) status and two or 
     ing a substantial degree of direction over        tion  under  section  509(a)(3)  and  therefore  not    more  organizations  seeking  509(a)(2)  status, 
     the policies, programs, and activities of its     be classified as a private foundation if both the       the  amount  and  character  of  support  received 
     supported organizations; or                       following conditions are met.                           by  the  former  organization  will  be  prorated 
                                                                                                               among the latter organizations.
3. Supporting a governmental entity.                   1. The supporting organization meets all the            In determining whether a relationship exists 
Direct  furtherance  activities.  For  purpo-          requirements previously specified (the or-              between an organization seeking 509(a)(3) sta-
ses of the test in item (1), activities “directly fur- ganizational tests, the operational test,               tus  (supporting  organization)  and  one  or  more 
ther” a supported organization's exempt purpo-         and one of the relationship tests and not               organizations seeking 509(a)(2) status (benefi-
ses  only  if  conducted  by  the  supporting          be controlled by disqualified persons).                 ciary organizations) for the purpose of avoiding 
organization  itself.  Direct  furtherance  activities 2. The section 501(c)(4), 501(c)(5), or 501(c)          private foundation status, all pertinent facts and 
include  holding  title  to  and  managing  ex-        (6) organization would be described in                  circumstances  will  be  taken  into  account.  The 
empt-use assets, but not fundraising or invest-        section 509(a)(2) if it was a charitable or-            following  facts  may  be  used  as  evidence  that 
ing  and  managing  non-exempt-use  assets.            ganization described in section 501(c)(3).              such  a  relationship  wasn't  established  or 
Grantmaking  may  qualify  as  direct  furtherance     This provision allows separate charitable               availed  of  to  avoid  classification  as  a  private 
activities if the requirements of Regulations sec-     funds of certain noncharitable organiza-                foundation.
tion 1.509(a)-4(i)(4)(ii)(D) are met.                  tions to be described in section 509(a)(3) 
                                                       if the noncharitable organizations receive 
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1. The supporting organization is operated to         should file Form 8940, Request for Miscellane-          and  operated  for  the  purpose  of  testing  prod-
   support or benefit several specified benefi-       ous Determination, if it wishes to receive a letter     ucts  for  public  safety.  Generally,  these  organi-
   ciary organizations.                               showing a change in classification.                     zations  test  consumer  products  to  determine 
                                                                                                              their acceptability for use by the general public.
2. The beneficiary organization has a sub-            Reliance  by  grantors  and  contributors. 
   stantial number of dues-paying members             Once  an  organization  has  received  a  ruling  or    Loss of Qualification as Public 
   who have an effective voice in the man-            determination  letter  classifying  it  as  an  organi- Charity
   agement of both the supporting and the             zation  described  in Section  509(a)(1) Section , 
   beneficiary organizations.                         509(a)(2), or Section 509(a)(3), the treatment of       If your organization ceases to qualify as a public 
3. The beneficiary organization is composed           grants and contributions and the status of gran-        charity under section 509(a)(1)-(4), it becomes 
   of several membership organizations,               tors  and  contributors  to  the  organization  will    a private foundation. The organization must file 
   each of which has a substantial number of          generally  not  be  affected  by  reason  of  a  later  Form  990-PF, Return  of  Private  Foundation  or 
   members, and the membership organiza-              revocation by the IRS of the organization's clas-       Section  4947(a)(1)  Trust  Treated  as  a  Private 
   tions have an effective voice in the man-          sification  until  the  date  on  which  notice  of     Foundation to satisfy its filing obligation. The or-
   agement of the supporting and beneficiary          change of status is made to the public (gener-          ganization can no longer file Form 990, 990-EZ, 
   organizations.                                     ally by publication in the Internal Revenue Bul-        or 990-N. A private foundation retains that sta-
                                                      letin)  or  another  applicable  date,  if  any,  speci-
4. The beneficiary organization receives a            fied  in  the  public  notice.  In  appropriate  cases, tus unless or until it terminates its private foun-
   substantial amount of support from the             however, the treatment of grants and contribu-          dation status under section 507.
   general public, public charities, or govern-       tions and the status of grantors and contributors 
   mental grants.                                     to an organization described in  Section 509(a)         Private Operating 
5. The supporting organization uses its funds         (1) Section 509(a)(2), , or Section 509(a)(3) may       Foundations
   to carry on a meaningful program of activi-        be  affected  pending  verification  of  the  contin-
   ties to support or benefit the beneficiary         ued classification of the organization. Notice to       Private foundations are divided into two catego-
   organization and, if the supporting organi-        this  effect  will  be  made  in  a  public  announce-  ries - nonoperating private foundations and pri-
   zation were a private foundation, this use         ment  by  the  IRS.  In  these  cases,  the  effect  of vate operating foundations. Nonoperating foun-
   would be sufficient to avoid the imposition        grants and contributions made after the date of         dations  generally  accomplish  their  charitable 
   of the tax on failure to distribute income.        the announcement will depend on the statutory           purpose  by  making  grants  to  other  charities. 
                                                      qualification of the organization as an organiza-       Operating foundations make qualifying distribu-
6. The operations of the beneficiary and sup-         tion  described  in Section  509(a)(1) Section ,        tions directly for the active conduct of their edu-
   porting organizations are managed by dif-          509(a)(2), or Section 509(a)(3).                        cational, charitable, and religious purposes.
   ferent persons, and each organization per-
   forms a different function.                                 The preceding paragraph shall not ap-
                                                               ply if the grantor or contributor:             Most  of  the  restrictions  and  requirements 
7. The supporting organization isn't able to          CAUTION!                                                that  apply  to  private  foundations  also  apply  to 
   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 
   port or holds assets that are disproportion-           the organization as an organization descri-         operating 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 
   organization.                                      2. Was in part responsible for, or was aware            the funds received currently within 1 year, and 
                                                          of, the act, the failure to act, or the sub-        the funds nevertheless may be treated as quali-
Effect on section 509(a)(3) organizations.     If         stantial and material change on the part of         fying distributions by the donating private foun-
a beneficiary organization fails to meet either of        the organization that gave rise to the revo-        dation; charitable contributions to a private op-
the  support  tests  of  section  509(a)(2)  due  to      cation.                                             erating foundation qualify for a higher charitable 
these provisions, and the beneficiary organiza-                                                               deduction  limit  on  the  donor's  tax  return;  and 
tion  is  one  for  whose  support  the  organization                                                         the excise tax on net investment income doesn't 
seeking  section  509(a)(3)  status  is  operated,    Interim  guidance  for  supporting  organiza-           apply to an exempt operating foundation (a pri-
then the supporting organization won't be con-        tions  and  grantors.  Notice  2014-4  provides         vate operating foundation that meets certain ad-
sidered to be operated exclusively to support or      further  interim  guidance  for  section  509(a)(3)     ditional  requirements  -  see Exempt  operating 
benefit one or more section 509(a)(1) or 509(a)       supporting  organizations  and  their  grantors         foundations, later).
(2) organizations and therefore wouldn't qualify      about  the  application  of  certain  requirements 
for section 509(a)(3) status.                         enacted as part of the Pension Protection Act of        A private operating foundation is any private 
                                                      2006. The notice provides transitional rules for        foundation that meets the assets test, the sup-
Request change in public charity classifica-          Type  III  supporting  organizations  that  want  to    port  test,  or  the  endowment  test,  and  makes 
tion. A section 501(c)(3) tax-exempt organiza-        qualify as “functionally integrated” because they       qualifying  distributions  directly,  for  the  active 
tion seeking to change its public charity classifi-   support  governmental  entities.  The  notice  also     conduct of its activities for which it was organ-
cation  from  a  section  509(a)(3)  supporting       provides additional interim guidance for private        ized,  of  substantially  all  (85%  or  more)  of  the 
organization to a section 509(a)(1) or 509(a)(2)      foundations  and  sponsoring  organizations  that       lesser of its:
organization  must  file  Form  8940, Request  for    maintain  donor-advised  funds  on  the  proce-         1. Adjusted net income, or
Miscellaneous  Determination.  See  the  Instruc-     dures  to  be  followed  in  determining  whether  a 
tions  for  Form  8940  for  more  information  re-   potential grantee is a Type I, Type II or function-     2. Minimum investment return.
garding supporting material and applicable user       ally integrated Type III supporting organization.       Assets test.  A private foundation will meet 
fees.                                                 See Notice  2014–4,  2014-2  I.R.B.  274  (exten-       the  assets  test  if  substantially  more  than  half 
                                                      ded as described in the preamble to the 2015 fi-        (65% or more) of its assets are:
   For more information about applying for sec-       nal  regulations  regarding  the  distribution  re-
tion 501(c)(3) status see Life Cycle of a Private     quirement  for  non-functionally  integrated  Type      1. Devoted directly to the active conduct of 
Foundation at IRS.gov.                                III supporting organizations (T.D. 9746)).              its exempt activity, to a functionally related 
                                                                                                              business, or to a combination of the two;
Classification under section 509(a).  If an or-       Section 509(a)(4) Organizations                         2. Stock of a corporation that is controlled by 
ganization  is  described  in  section  509(a)(1),                                                            the foundation (by ownership of at least 
and is also described in either Section 509(a)(2)     Section  509(a)(4)  excludes  from  classification      80% of the total voting power of all classes 
or Section 509(a)(3), it will be treated as a sec-    as private foundations those organizations that         of stock entitled to vote and at least 80% 
tion  509(a)(1)  organization.  The  organization     qualify  under  section  501(c)(3)  as  organized       of the total shares of all other classes of 
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stock) and substantially all (at least 85%) The foundation must obtain a determination let- 3. Providing technical advice or assistance
the assets of which are devoted as provi- ter from the IRS recognizing this special status (where the advice would otherwise consti-
ded above; or (see Existing organization, later). tute the influencing of legislation) to a gov-
ernmental body or to a committee or other
3. Any combination of (1) and (2). New organization. If you are applying for subdivision thereof in response to a writ-
This test is intended to apply to organizations recognition of exemption as an organization de- ten request by that body or subdivision.
such as museums and libraries. scribed in section 501(c)(3) and you wish to es-
tablish that your organization is a private oper- 4. Appearing before, or communicating with,
Support test. A private foundation will ating foundation, you should complete Part VII any legislative body about a possible deci-
meet the support test if: of your exemption application (Form 1023). sion of that body that might affect the exis-
tence of the organization, its powers and
1. Substantially all (at least 85%) of its sup- Existing organization. If you are an exist- duties, its tax-exempt status, or the deduc-
port (other than gross investment income) ing organization seeking reclassification as a tion of contributions to the organization.
is normally received from the general pub- private operating foundation or as an exempt
lic and five or more unrelated exempt or- operating foundation, you must file Form 8940, 5. Communicating with a government official
ganizations, Request for Miscellaneous Determination. or employee, other than:
2. Not more than 25% of its support (other a. A communication with a member or
than gross investment income) is normally employee of a legislative body (when
received from any one exempt organiza- Lobbying Expenditures the communication would otherwise
tion, and constitute the influencing of legisla-
In general, if a substantial part of the activities tion), or
3. Not more than 50% of its support is nor- of your organization consists of carrying on
mally received from gross investment in- propaganda or otherwise attempting to influ- b. A communication with the principal
come. ence legislation, your organization will not qual- purpose of influencing legislation.
ify for exemption under section 501(c)(3). How- Also excluded are communications between an
This test is intended to apply to special-purpose ever, a public charity (other than a church, an organization and its bona fide members about
foundations, such as learned societies and as- integrated auxiliary of a church or of a conven- legislation or proposed legislation of direct inter-
sociations of libraries. tion or association of churches, or a member of est to the organization and the members, un-
Endowment test. A foundation will meet an affiliated group of organizations that includes less these communications directly encourage
the endowment test if it normally makes qualify- a church, etc.) may elect instead an expendi- the members to attempt to influence legislation
ing distributions directly for the active conduct ture test under section 501(h) as an alternative or directly encourage the members to urge non-
of its exempt function of at least two-thirds of its to measure its lobbying activity. Under the Sec- members to attempt to influence legislation, as
minimum investment return. tion 501(h) test, the lobbying limit is defined in explained earlier.
The minimum investment return for any pri- terms of expenditures for influencing legislation
vate foundation for any tax year is 5% of the ex- instead of whether lobbying is a substantial part Lobbying expenditures limits. If a public
cess of the total fair market value of all assets of of the organization's activities. Private founda- charity makes the election under section 501(h)
the foundation (other than those used directly in tions can't make this election. to be subject to the lobbying expenditures limits
the active conduct of its exempt purpose) over rules (instead of the substantial part of activities
the amount of indebtedness incurred to acquire Making the election. Use Form 5768, Elec- test), it won't lose its tax-exempt status under
those assets. tion/Revocation of Election by an Eligible Sec- section 501(c)(3), unless it normally makes:
In determining whether the amount of quali- tion 501(c)(3) Organization To Make Expendi- • Lobbying expenditures that are more than
fying distributions is at least two-thirds of the or- tures To Influence Legislation, to make the 150% of the lobbying nontaxable amount
ganization's minimum investment return, the or- election. The form must be signed and post- for the organization for each tax year, or
ganization isn't required to trace the source of marked within the first tax year to which it ap- • Grass roots expenditures that are more
the expenditures to determine whether they plies. If the form is used to revoke the election, than 150% of the grass roots nontaxable
were derived from investment income or from it must be signed and postmarked before the amount for the organization for each tax
contributions. first day of the tax year to which it applies. year.
This test is intended to apply to organiza- Eligible section 501(c)(3) organizations that
tions such as research organizations that ac- have made the election to be subject to the lim- See Tax on excess expenditures to influence
tively conduct charitable activities but whose its on lobbying expenditures must use Part II-A legislation, later, in this section.
personal services are so great in relationship to of Schedule C (Form 990) to figure these limits. Lobbying expenditures. These are any
charitable assets that the cost of those services expenditures that are made for the purpose of
can't be met out of small endowments. Attempting to influence legislation. At- attempting to influence legislation, as discussed
tempting to influence legislation, for this pur- earlier under Attempting to influence legislation.
Exempt operating foundations. The ex- pose, means:
cise tax on net investment income doesn't apply Grass roots expenditures. This term re-
to an exempt operating foundation. An exempt 1. Any attempt to influence any legislation fers only to those lobbying expenditures that
operating foundation for the tax year is any pri- through an effort to affect the opinions of are made to influence legislation by attempting
vate foundation that: the general public or any segment thereof to affect the opinions of the general public or
(grass roots lobbying), and
1. Is an operating foundation, as described any segment thereof.
previously; 2. Any attempt to influence any legislation
through communication with any member Lobbying nontaxable amount. The lob-
2. Has been publicly supported for at least or employee of a legislative body or with bying nontaxable amount for any organization
10 tax years or was an operating founda- any government official or employee who for any tax year is the lesser of $1,000,000 or:
tion on January 1, 1983, or for its last tax may participate in the formulation of legis- 1. 20% of the exempt purpose expenditures
year ending before January 1, 1983; lation (direct lobbying). if the exempt purpose expenditures aren't
over $500,000,
3. Has a governing body that, at all times However, the term attempting to influence legis-
during the tax year, is broadly representa- lation doesn't include the following activities. 2. $100,000 plus 15% of the excess of the
tive of the general public and consists of exempt purpose expenditures over
individuals no more than 25% of whom are 1. Making available the results of nonparti- $500,000 if the exempt purpose expendi-
disqualified individuals; and san analysis, study, or research. tures are over $500,000 but not over
4. Doesn't have any officer, at any time dur- 2. Examining and discussing broad social, $1,000,000,
ing the tax year, who is a disqualified indi- economic, and similar problems. 3. $175,000 plus 10% of the excess of the
vidual. exempt purpose expenditures over
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$1,000,000 if the exempt purpose expen- exceeded by more than 150%, each organiza- due to lobbying activities generally will be sub-
ditures are over $1,000,000 but not over tion for which the election is effective for that ject to an excise tax of 5% of the lobbying ex-
$1,500,000, or year will lose its tax-exempt status under sec- penditures. The tax doesn't apply to private
4. $225,000 plus 5% of the excess of the ex- tion 501(c)(3). foundations. Also, the tax doesn't apply to or-
empt purpose expenditures over Two organizations will be considered mem- ganizations that have elected the lobbying limits
$1,500,000 if the exempt purpose expen- bers of an affiliated group of organizations if: of section 501(h) or to churches or church-rela-
ted organizations that can't elect these limits.
ditures are over $1,500,000. 1. The governing instrument of one of the or- This tax must be paid by the organization.
ganizations requires it to be bound by de-
The term exempt purpose expenditures cisions of the other organization on legis- Tax on managers. Managers may also be
means the total of the amounts paid or incurred lative issues or liable for a 5% tax on the lobbying expenditures
(including depreciation and amortization, but that result in the disqualification of the organiza-
not capital expenditures) by an organization for 2. The governing board of one of the organi- tion. For the tax to apply, a manager would
the tax year to accomplish its exempt purposes. zations includes persons who: have to agree to the expenditures knowing that
In addition, it includes: a. Are specifically designated represen- the expenditures were likely to result in the or-
1. Administrative expenses paid or incurred tatives of the other organization or are ganization's not being described in section
for the organization's exempt purposes, members of the governing board, offi- 501(c)(3). No tax will be imposed if the manag-
and cers, or paid executive staff members er's agreement isn't willful and is due to reason-
of the other organization; and
2. Amounts paid or incurred for the purpose able cause.
of influencing legislation, whether or not b. Have enough voting power to cause Excise taxes on political expenditures. The
the legislation promotes the organization's or prevent action on legislative issues law imposes an excise tax on the political ex-
exempt purposes. by the controlled organization by com- penditures of section 501(c)(3) organizations. A
bining their votes.
Exempt purpose expenditures don't include two-tier tax is imposed on both the organiza-
amounts paid or incurred to or for: Tax on excess expenditures to influence tions and the managers of those organizations.
1. A separate fundraising unit of the organi- legislation. If an election for a tax year is in ef- Taxes on organizations. An initial tax of
zation, or fect for an organization and that organization 10% of certain political expenditures is imposed
exceeds the lobbying expenditures limits, an on a charitable organization. A second tax of
2. One or more other organizations, if the excise tax of 25% of the excess lobbying ex- 100% of the expenditure is imposed if the politi-
amounts are paid or incurred primarily for penditures for the tax year will be imposed. Ex- cal expenditure that resulted in the imposition of
fundraising. cess lobbying expenditures for a tax year, in the initial (first-tier) tax isn't corrected within a
Grass roots nontaxable amount. The this case, means the greater of: specified period. These taxes must be paid by
grass roots nontaxable amount for any organi- 1. The amount by which the lobbying expen- the organization.
zation for any tax year is 25% of the lobbying ditures made by the organization during Taxes on managers. An initial tax of 2 / % 1 2
nontaxable amount for the organization for that the tax year are more than the lobbying of the amount of certain political expenditures
tax year. nontaxable amount for the organization for (up to $5,000 for each expenditure) is imposed
that tax year, or on a manager of an organization who agrees to
Years for which election is effective. Once such expenditures knowing that they are politi-
an organization elects to come under these pro- 2. The amount by which the grass roots ex-
visions, the election will be in effect for all tax penditures made by the organization dur- cal expenditures. No tax will be imposed if the
years that end after the date of the election and ing the tax year are more than the grass manager's agreement wasn't willful and was
begin before the organization revokes this elec- roots nontaxable amount for the organiza- due to reasonable cause. A second tax of 50%
tion. tion for that tax year. of the expenditures (up to $10,000 for each ex-
penditure) is imposed on a manager if they re-
Eligible organizations that have made the elec- fuse to agree to a correction of the expenditures
Note. These elective provisions for lobby- tion to be subject to the limits on lobbying ex- that resulted in the imposition of the initial
ing activities by public charities don't apply to a penditures and that owe the tax on excess lob- (first-tier) tax. For purposes of these taxes, an
church, an integrated auxiliary of a church or of bying expenditures (as computed in Part II-A of organization manager is generally an officer, di-
a convention or association of churches, or a Schedule C (Form 990)) must file Form 4720, rector, trustee, or any employee having author-
member of an affiliated group of organizations Return of Certain Excise Taxes Under Chapters ity or responsibility concerning the organiza-
that includes a church, etc., or a private founda- 41 and 42 of the Internal Revenue Code, to re- tion's political expenditures. These taxes must
tion. Moreover, these provisions won't apply to port and pay the tax. be paid by the manager of the organization.
any organization for which an election isn't in ef-
fect. Organization that no longer qualifies. An Political expenditures. Generally, political
organization that no longer qualifies for exemp- expenditures that will trigger these taxes are
Expenditures of affiliated organizations. If tion under section 501(c)(3) because of sub- amounts paid or incurred by a section 501(c)(3)
two or more section 501(c)(3) organizations are stantial lobbying activities won't at any time organization in any participation or intervention
members of an affiliated group of organizations thereafter be treated as an organization descri- in any political campaign for or against any can-
and at least one of these organizations has bed in section 501(c)(4). This provision, how- didate for public office. Political expenditures in-
made the election regarding the treatment of ever, doesn't apply to certain organizations clude publication or distribution of statements
certain lobbying expenditures, then the determi- (churches, etc.) that can't make the election dis- for these purposes. Political expenditures also
nation as to whether excess lobbying expendi- cussed earlier. include certain expenditures by organizations
tures has been made and the determination as that are formed primarily to promote the candi-
to whether the expenditure limits, described Tax on disqualifying lobbying expendi- dacy (or prospective candidacy) of an individual
earlier, has been exceeded by more than 150% tures. The law imposes a tax on certain organi- for public office and by organizations that are
will be made as though the affiliated group is zations if they no longer qualify under section effectively controlled by a candidate and are
one organization. 501(c)(3) by reason of having made disqualify- used primarily to promote that candidate.
If the group has excess lobbying expendi- ing lobbying expenditures. An additional tax
tures, each organization for which the election may be imposed on the managers of those or- Correction of expenditure. A correction of
is effective for the year will be treated as an or- ganizations. a political expenditure is the recovery, if possi-
ganization that has excess lobbying expendi- ble, of all or part of the expenditure and the es-
tures in an amount that equals the organiza- Tax on organization. Organizations that tablishment of safeguards to prevent future po-
tion's proportionate share of the group's excess lose their exemption under section 501(c)(3) litical expenditures.
lobbying expenditures. Further, if the expendi-
ture limits described in this section are
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Status after loss of exemption for lobbying To qualify for exemption under section government to provide the only retirement ben-
or political activities. As explained earlier, an 501(c)(4), no part of the organization's net earn- efits to a class of employees may qualify as a
organization can lose its tax-exempt status un- ings can inure to the benefit of any private social welfare organization under section 501(c)
der section 501(c)(3) because of lobbying activ- shareholder or individual. If the organization (4).
ities or participation or intervention in a political provides an excess benefit to certain persons,
campaign on behalf of or in opposition to a can- an excise tax may be imposed. See Excise tax Tax treatment of donations. Donations to
didate for public office. If this happens to an or- on excess benefit transactions, under Excess volunteer fire companies are deductible on the
ganization, it can't later qualify for exemption Benefit Transactions in chapter 5 for more infor- donor's federal income tax return, but only if
under section 501(c)(4). mation about this tax. made for exclusively public purposes. However,
contributions to civic leagues or other section
Examples. Types of organizations that are 501(c)(4) organizations generally aren't deduc-
considered to be social welfare organizations tible as charitable contributions for federal in-
are civic associations and volunteer fire compa- come tax purposes. They may be deductible as
nies. trade or business expenses, if ordinary and
necessary in the conduct of the taxpayer's busi-
Nonprofit operation. You must submit evi- ness. However, see Deduction not allowed for
4. dence that your organization is organized and dues used for political or legislative activities,
will be operated on a nonprofit basis. However, under 501(c)(6) - Business Leagues, etc. for
such evidence, including the fact that your or- more information.
Other Section 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
501(c) Organization.
Social welfare. To establish that your organi-
zation is operated primarily to promote social Specific Organizations
Organizations welfare, you should submit evidence with your
application showing that your organization will The following information should be contained
operate primarily to further (in some way) the in the application form and accompanying
Introduction common good and general welfare of the peo- statements of certain types of civic leagues or
ple of the community (such as by bringing about social welfare organizations.
This chapter contains specific information for civic betterment and social improvements).
certain organizations described in section An organization that restricts the use of its Volunteer fire companies. If your organiza-
501(c), other than those organizations that are facilities to employees of selected corporations tion wishes to obtain exemption as a volunteer
described in section 501(c)(3). Section 501(c) and their guests is primarily benefiting a private fire company or similar organization, you should
(3) organizations are covered in chapter 3 of group rather than the community. It therefore submit evidence that its members are actively
this publication. doesn't qualify as a section 501(c)(4) organiza- engaged in firefighting and similar disaster as-
The Table of Contents at the beginning of tion. Similarly, an organization formed to repre- sistance, whether it actually owns the firefight-
this publication, as well as the Organization sent member-tenants of an apartment complex ing equipment, and whether it provides any as-
Reference Chart, may help you locate at a doesn't qualify, since its activities benefit the sistance for its members, such as death and
glance the type of organization discussed in this member-tenants and not all tenants in the com- medical benefits in case of injury to them.
chapter. munity. However, an organization formed to If your organization doesn't have an inde-
promote the legal rights of all tenants in a partic- pendent social purpose, such as providing rec-
ular community may qualify under section reational facilities for members, it may be ex-
501(c)(4) as a social welfare organization.
501(c)(4) - Civic Leagues empt under section 501(c)(3). In this event,
your organization should file Form 1023.
and Social Welfare Political activity. Promoting social welfare
doesn't include direct or indirect participation or Homeowners' associations. A membership
Organizations 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,
If your organization isn't organized for profit and fice. However, if you submit proof that your or- streets, and sidewalks and to enforce cove-
will be operated primarily to promote social wel- ganization is organized primarily to promote so- nants to preserve the appearance of the devel-
fare to benefit the community, it may qualify for cial welfare, it can obtain exemption even if it opment should show that it is operated for the
exemption under section 501(c)(4). participates legally in some political activity on benefit of all the residents of the community.
behalf of or in opposition to candidates for pub- The term community generally refers to a geo-
Notice requirement. Every new section lic office. See the discussion in chapter 2 under graphical unit recognizable as a governmental
501(c)(4) organization must use Form 8976, Political Organization Income Tax Return. subdivision, unit, or district thereof. Whether a
Notice of Intent to Operate Under Section particular association meets the requirement of
501(c)(4), to provide notice to the Internal Rev- Social or recreational activity. If social activi- benefiting a community depends on the facts
enue Service. The organization must file Form ties will be the primary purpose of your organi- and circumstances of each case. Even if an
8976 within 60 days of establishment. Providing zation, you shouldn't file an application for ex- area represented by an association isn't a com-
notice on Form 8976 is not a determination that emption as a social welfare organization but munity, the association can still qualify for ex-
the IRS recognizes your organization as exempt you may qualify for exemption as a social club emption if its activities benefit a community.
under section 501(c)(4). described in section 501(c)(7). The association should submit evidence that
Optional application for recognition of ex- Retirement benefit program. An organization areas such as roadways and park land that it
emption. Your organization may (but is not re- established by its members that has as its pri- owns and maintains are open to the general
quired to) file Form 1024-A, Application for Rec- mary activity providing supplemental retirement public and not just its own members. It also
ognition of Exemption under Section 501(c)(4), benefits to its members or death benefits to must show that it doesn't engage in exterior
to apply for recognition of exemption from fed- their beneficiaries doesn't qualify as an exempt maintenance of private homes.
eral income tax under section 501(c)(4). The social welfare organization. It may qualify under A homeowners' association that isn't exempt
discussion that follows describes the informa- another paragraph of section 501(c) depending under section 501(c)(4) and that is a condomin-
tion you must provide when applying. For appli- on all the facts. ium management association, a residential real
cation procedures, see chapter 1. However, a nonprofit association that is es- estate management association, or a timeshare
tablished, maintained, and funded by a local association generally can elect under the provi-
sions of section 528 to receive certain tax
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benefits  that,  in  effect,  permit  it  to  exclude  its the interests of the members by bargaining col-        discussed  next  in  the  section  on  501(c)(6)  or-
exempt function income from its gross income.              lectively  with  their  employers  to  secure  better  ganizations.
                                                           working conditions, wages, and similar benefits.
Other  organizations. Other  nonprofit  organi-                                                                   The primary purpose of exempt agricultural 
zations that  qualify  as  social welfare  organiza-       To show that your organization has the pur-            and horticultural organizations must be to better 
tions include:                                             pose of a labor organization, you should include       the  conditions  of  those  engaged  in  agriculture 
• An organization operating an airport that is             in your organizing document or accompanying            or horticulture, develop more efficiency in agri-
  on land owned by a local government,                     statements (submitted with your exemption ap-          culture or horticulture, or improve the products.
  which supervises the airport's operation,                plication)  information  establishing  that  the  or-
  and that serves the general public in an                 ganization is organized to better the conditions       The  following  list  contains  some  examples 
  area with no other airport;                              of workers, improve the grade of their products,       of activities that show an agricultural or horticul-
• A community association that works to im-                and  develop  a  higher  degree  of  efficiency  in    tural purpose.
  prove public services, housing, and resi-                their respective occupations. In addition, no net 
  dential parking; publishes a free commun-                earnings  of  the  organization  can  inure  to  the   1. Promoting various cooperative agricul-
  ity newspaper; sponsors a community                      benefit of any member.                                 tural, horticultural, and civic activities 
                                                                                                                  among rural residents by a state, farm, or 
  sports league, holiday programs, and                                                                            home bureau.
  meetings; and contracts with a private se-               Composition  of  membership. While  a  labor 
  curity service to patrol the community;                  organization is generally composed of employ-          2. Exhibiting livestock, farm products, and 
• A community association devoted to pre-                  ees or representatives of the employees (in the        other characteristic features of agriculture 
  serving the community's traditions, archi-               form of collective bargaining agents) and similar      and horticulture.
  tecture, and appearance by representing it               employee  groups,  evidence  that  an  organiza-
  before the local legislature and administra-             tion's  membership  consists  mainly  of  workers      3. Testing soil for members and nonmem-
  tive agencies in zoning, traffic, and parking            doesn't  in  itself  indicate  an  exempt  purpose.    bers of the farm bureau on a cost basis, 
  matters;                                                 You must show in your application that your or-        the results of the tests and other recom-
• An organization that tries to encourage in-              ganization  has  the  purposes  described  in  the     mendations being furnished to the com-
  dustrial development and relieve unem-                   preceding  paragraph.  These  purposes  can  be        munity members to educate them in soil 
  ployment in an area by making loans to                   accomplished  by  a  single  labor  organization       treatment.
  businesses so they will relocate to the                  acting alone or by several organizations acting        4. Guarding the purity of a specific breed of 
  area; and                                                together through a separate organization.              livestock.
• An organization that holds an annual festi-                                                                     5. Encouraging improvements in the produc-
  val of regional customs and traditions.                  Benefits  to  members. The  payment  by  a  la-
                                                           bor  organization  of  death,  sick,  accident,  and   tion of fish on privately owned fish farms.
                                                           similar  benefits  to  its  individual  members  with  6. Negotiating with processors for the price 
501(c)(5) - Labor,                                         funds contributed by its members, if made un-          to be paid to members for their crops.
                                                           der a plan to better the conditions of the mem-
Agricultural, and                                          bers, doesn't preclude exemption as a labor or-        For more information on agricultural or horti-
                                                           ganization.  However,  an  organization  doesn't       cultural  organizations,  see Life  Cycle  of  an 
Horticultural                                              qualify for exemption as a labor organization if       Agricultural or Horticultural Organization.
                                                           its primary activity is to provide a strike fund that 
Organizations                                              is controlled by private individuals who control-
                                                           led the organization that paid benefits to work-       501(c)(6) -
If  you  are  a  member  of  an  organization  that        ers.
wants  to  obtain  recognition  of  exemption  from                                                               Business Leagues, etc.
federal  income  tax  as  a  labor,  agricultural,  or     For more information on labor organizations, 
horticultural organization, you should submit an           see Life Cycle of a Labor Organization.
                                                                                                                  If your organization wants to apply for recogni-
application on Form 1024. You must indicate in                                                                    tion of exemption from federal income tax as a 
your application for exemption and accompany-              Agricultural and                                       nonprofit  business  league,  chamber  of  com-
ing statements that no part of the organization's          Horticultural Organizations                            merce,  real  estate  board,  or  board  of  trade,  it 
net  earnings  will  inure  to  the  benefit  of  any                                                             should file Form 1024. For a discussion of the 
member. In addition, you should follow the pro-            Agricultural  and  horticultural  organizations  are   procedure to follow, see chapter 1.
cedure for obtaining recognition of exempt sta-            connected  with  raising  livestock,  cultivating 
tus  described  in  chapter  1.  Submit  any  addi-        land, raising and harvesting crops or aquatic re-      Your organization must indicate in its appli-
tional  information  that  may  be  required,  as          sources, cultivating useful or ornamental plants,      cation  form  and  attached  statements  that  no 
described in this section.                                 and similar pursuits.                                  part of its net earnings will inure to the benefit of 
                                                                                                                  any private shareholder or individual and that it 
Tax treatment of donations.   Contributions to             For the purpose of these provisions, aquatic           isn't organized for profit or organized to engage 
labor,  agricultural,  and  horticultural  organiza-       resources include only animal or vegetable life,       in an activity ordinarily carried on for profit (even 
tions  aren't  deductible  as  charitable  contribu-       but not mineral resources. The term harvesting,        if the business is operated on a cooperative ba-
tions on the donor's federal income tax return.            in  this  case,  includes  fishing  and  related  pur- sis  or  produces  only  sufficient  income  to  be 
However, such payments may be deductible as                suits.                                                 self-sustaining).
business expenses if they are ordinary and nec-
essary in the conduct of the taxpayer's trade or           Agricultural  organizations  are  often  de-           In  addition,  your  organization  must  be  pri-
business.  For  more  information  about  certain          signed to encourage the development of better          marily engaged in activities or functions that are 
limits  affecting  the  deductibility  of  these  busi-    agricultural and horticultural products through a      the basis for its exemption. It must be primarily 
ness expenses, see Deduction not allowed for               system  of  awards,  using  income  from  entry        supported  by  membership  dues  and  other  in-
dues  used  for  political  or  legislative  activities,   fees, gate receipts, and donations to meet the         come  from  activities  substantially  related  to  its 
under 501(c)(6) - Business Leagues, etc.                   necessary expenses of upkeep and operation.            exempt purpose.
                                                           When the activities are directed toward the im-
Labor Organizations                                        provement of marketing or other business con-          A business league, in general, is an associa-
                                                           ditions in one or more lines of business, rather       tion of persons having some common business 
A labor organization is an association of work-            than the improvement of production techniques          interest, the purpose of which is to promote that 
ers who have combined to protect and promote               or  the  betterment  of  the  conditions  of  persons  common interest and not to engage in a regular 
                                                           engaged  in  agriculture,  the  organization  must     business of a kind ordinarily carried on for profit. 
                                                           qualify  for  exemption  as  a  business  league,      Trade  associations  and  professional  associa-
                                                           board  of  trade,  or  other  organization,  as        tions are considered business leagues.
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Chamber of commerce. A chamber of com- 6. Encouragement of the use of goods and who aren't members of the organization, are a
merce is usually composed of the merchants services of an entire industry (such as a segment of the general public.
and traders of a city. lawyer referral service whose main pur-
pose is to introduce individuals to the use Tax treatment of donations. Contributions to
Board of trade. A board of trade often con- of the legal profession in the hope that organizations described in this section aren't
sists of persons engaged in similar lines of busi- they will enter into lawyer-client relation- deductible as charitable contributions on the
ness. For example, a nonprofit organization ships on a paying basis as a result). donor's federal income tax return. They may be
formed to regulate the sale of a specified agri- deductible as trade or business expenses if or-
cultural commodity to assure equal treatment of Improvement of business conditions. dinary and necessary in the conduct of the tax-
producers, warehouse workers, and buyers is a Generally, this must be shown to be the pur- payer's business.
board of trade. pose of the organization. This isn't established For more information on business leagues,
Chambers of commerce and boards of trade by evidence of particular services that provide a see Life Cycle of a Business League (Trade
usually promote the common economic inter- convenience or economy to individual members Association) on IRS.gov.
ests of all the commercial enterprises in a given in their businesses, such as advertising that
trade community. carries the name of members, interest-free
loans, assigning exclusive franchise areas, op-
Real estate board. A real estate board con- eration of a real estate multiple listing system, 501(c)(7) - Social and
sists of members interested in improving the or operation of a credit reporting agency. Recreation Clubs
business conditions in the real estate field. It
isn't organized for profit and no part of the net Stock or commodity exchange. A stock or If your club is organized for pleasure, recrea-
earnings inures to the benefit of any private commodity exchange isn't a business league, tion, and other similar nonprofitable purposes
shareholder or individual. chamber of commerce, real estate board, or and substantially all of its activities are for these
board of trade and isn't exempt under section purposes, it should file Form 1024 to apply for
Professional football leagues. The Internal 501(c)(6). recognition of exemption from federal income
Revenue Code specifically defines professional tax.
football leagues as exempt organizations under Legislative activity. An organization that is
section 501(c)(6). They are exempt whether or exempt under section 501(c)(6) can work for In applying for recognition of exemption, you
not they administer a pension fund for football the enactment of laws to advance the common should submit the information described in this
players. business interests of the organization's mem- section. Also see chapter 1 for the procedures
bers. to follow.
General purpose. You must indicate in the Typical organizations that should file for rec-
material submitted with your application that Deduction not allowed for dues used for
your organization will be devoted to the im- political or legislative activities. A taxpayer ognition of exemption as social clubs include:
provement of business conditions of one or can't deduct the part of dues or other payments • College alumni associations that aren't de-
more lines of business as distinguished from to a business league, trade association, labor scribed in chapter 3 under Alumni associa-
the performance of particular services for indi- union, or similar organization that is reported to tion;
vidual persons. It must be shown that the condi- the taxpayer by the organization as having been • College fraternities or sororities operating
tions of a particular trade or the interests of the used for any of the following activities. chapter houses for students;
community will be advanced. Merely indicating 1. Influencing legislation. • Country clubs;
the name of the organization or the object of the • Amateur hunting, fishing, tennis, swim-
local statute under which it is created isn't 2. Participating or intervening in a political ming, and other sport clubs;
enough to demonstrate the required general campaign for, or against, any candidate • Dinner clubs that provide a meeting place,
purpose. for public office. library, and dining room for members;
3. Trying to influence the general public, or • Hobby clubs;
Line of business. This term generally re- part of the general public, with respect to • Garden clubs; and
fers either to an entire industry or to all compo- elections, legislative matters, or referen- • Variety clubs.
nents of an industry within a geographic area. It dums (also known as grass roots lobby- Discrimination prohibited. Your organization
doesn't include a group composed of busi- ing). won't be recognized as tax exempt if its charter,
nesses that market a particular brand within an
industry. 4. Communicating directly with certain exec- bylaws, or other governing instrument, or any
utive branch officials to try to influence written policy statement provides for discrimina-
Common business interest. A common busi- their official actions or positions. tion against any person on the basis of race,
ness interest of all members of the organization color, or religion.
must be established by the application docu- See Dues Used for Lobbying or Political Activi- However, a club that in good faith limits its
ments. ties under Required Disclosures in chapter 2 for membership to the members of a particular reli-
more information. gion to further the teachings or principles of that
Examples. Activities that would tend to il- religion and not to exclude individuals of a par-
lustrate a common business interest are: De minimis exception. In-house expendi-
tures of $2,000 or less for the year for activities ticular race or color won't be considered as dis-
1. Promotion of higher business standards (1) – (4) listed earlier won't prevent a deduction criminating on the basis of religion. Also, the re-
and better business methods and encour- for dues if the dues meet all other tests to be striction on religious discrimination doesn't
agement of uniformity and cooperation by deductible as a business expense. apply to a club that is an auxiliary of a fraternal
a retail merchants association, beneficiary society (discussed later) if that soci-
Grass roots lobbying. A tax-exempt trade ety is described in section 501(c)(8) and ex-
2. Education of the public in the use of credit, association, labor union, or similar organization empt from tax under section 501(a) and limits
3. Establishment of uniform casualty rates is considered to be engaging in grass roots lob- its membership to the members of a particular
and compilation of statistical information bying if it contacts prospective members or religion.
by an insurance rating bureau operated by calls upon its own members to contact their em-
casualty insurance companies, ployees and customers for the purpose of urg- Private benefit prohibited. No part of the or-
ing such persons to communicate with their ganization's net earnings can inure to the bene-
4. Establishment and maintenance of the in- elected state or Congressional representatives fit of any person having a personal and private
tegrity of a local commercial market, to support the promotion, defeat, or repeal of interest in the activities of the organization. For
5. Operation of a trade publication primarily legislation that is of direct interest to the organi- purposes of this requirement, it isn't necessary
intended to benefit an entire industry, and zation. Any dues or assessments directly rela- that net earnings be actually distributed. Even
ted to such activities aren't deductible by the undistributed earnings can benefit members.
taxpayer, since the individuals being contacted, Examples of this include a decrease in
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membership dues or an increase in the services denied exemption. However, evidence submit-
the club provides to its members without a cor- ted with your application form that your organi-
responding increase in dues or other fees paid zation will provide meals, refreshments, or ser- 501(c)(8) and
for club support. However, fixed-fee payments vices related to its exempt purposes only to its
to members who bring new members into the own members or their dependents or guests 501(c)(10) - Fraternal
club aren't an inurement of the club's net earn- won't cause denial of exemption. Beneficiary Societies
ings, if the payments are reasonable compen-
sation for performance of a necessary adminis- Facilities open to public. Evidence that and Domestic Fraternal
trative service. your club's facilities will be open to the general
public (persons other than members or their de- Societies
Purposes. To show that your organization pendents or guests) may cause denial of ex-
possesses the characteristics of a club within emption. This doesn't mean, however, that any This section describes the information to be
the meaning of the exemption law, you should dealing with outsiders will automatically deprive provided upon application for recognition of ex-
submit evidence with your application that per- a club of exemption. emption by two types of fraternal societies: ben-
eficiary and domestic. The major distinction is
sonal contact, commingling, and fellowship ex- Gross receipts from nonmembership that fraternal beneficiary societies provide for
ist among members. You must show that mem- sources. A section 501(c)(7) organization can the payment of life, sick, accident, or other ben-
bers are bound together by a common objective receive up to 35% of its gross receipts, includ- efits to their members or their dependents,
of pleasure, recreation, and other nonprofitable ing investment income, from sources outside of while domestic fraternal societies don't provide
purposes. its membership without losing its tax-exempt these benefits but rather devote their earnings
Fellowship need not be present between status. Income from nontraditional business ac- to fraternal, religious, charitable, etc., purposes.
each member and every other member of a tivity with members isn't exempt function in- The procedures to follow in applying for recog-
club if it is a material part in the life of the organ- come, and thus is included as income from nition of exemption are described in chapter 1.
ization. A statewide or nationwide organization sources outside of the membership. Of the 35%
that is made up of individual members, but is gross receipts listed above, up to 15% of the If your organization is controlled by a central
divided into local groups, satisfies this require- gross receipts can be derived from the use of organization, you should check with your con-
ment if fellowship is a material part of the life of the club's facilities or services by the general trolling organization to determine whether your
each local group. public. If an organization has outside income unit has been included in a group exemption let-
The term other nonprofitable purposes that is more than these limits, all the facts and ter or can be added. If so, your organization
means other purposes similar to pleasure and circumstances will be taken into account in de- need not apply for individual recognition of ex-
recreation. For example, a club that, in addition termining whether the organization qualifies for emption. For more information, see Group Ex-
to its social activities, has a plan for the pay- exempt status. emption Letter in chapter 1 of this publication.
ment of sick and death benefits isn't operating
exclusively for pleasure, recreation, and other Gross receipts. Gross receipts, for this
nonprofitable purposes. purpose, are receipts from the normal and usual Tax treatment of donations. Donations by an
(traditionally conducted) activities of the club. individual to a domestic fraternal beneficiary so-
Limited membership. The membership in These receipts include charges, admissions, ciety or a domestic fraternal society operating
a social club must be limited. To show that your membership fees, dues, assessments, invest- under the lodge system are deductible as chari-
organization has a purpose that would charac- ment income, and normal recurring capital table contributions only if used exclusively for
terize it as a club, you should submit evidence gains on investments. Receipts don't include in- religious, charitable, scientific, literary, or edu-
with your application that there are limits on ad- itiation fees and capital contributions. Unusual cational purposes or for the prevention of cru-
mission to membership consistent with the amounts of income, such as from the sale of a elty to children or animals.
character of the club. clubhouse or similar facility, aren't included in
A social club that issues corporate member- gross receipts or in figuring the percentage Fraternal Beneficiary
ship is dealing with the general public in the limits. Societies (501(c)(8))
form of the corporation's employees. Corporate
members of a club aren't the kind of members Nontraditional activities. Traditional busi-
contemplated by the law. Gross receipts from ness activities are those that further a social A fraternal beneficiary society, order, or associ-
these members would be a factor in determin- club's exempt purposes. Nontraditional busi- ation must file an application for recognition of
ing whether the club qualifies as a social club. ness activities don't further the exempt purpo- exemption from federal income tax on Form
See Gross receipts from nonmembership ses of a social club even if conducted solely on 1024. The application and accompanying state-
sources., later. Bona fide individual member- a membership basis. Nontraditional business ments should establish that the organization:
ships paid for by a corporation wouldn't have an activities are prohibited (subject to an insub- 1. Is a fraternal organization;
effect on the gross receipts source. stantial, trivial, and nonrecurrent test) for busi-
The fact that a social club may have an as- nesses conducted with both members and non- 2. Operates under the lodge system or for
sociate (nonvoting) class of membership won't members. Examples of nontraditional business the exclusive benefit of the members of a
be, in and of itself, a cause for nonrecognition of activities include sale of package liquor, fraternal organization itself operating un-
exemption. However, if one membership class take-out food, and long-term room rental. der the lodge system; and
pays substantially lower dues and fees than an- 3. Provides for the payment of life, sick, acci-
other membership class, although both classes Fraternity foundations. If your organization is
enjoy the same rights and privileges in using a foundation formed for the exclusive purpose dent, or other benefits to the members of
the club facilities, there may be an inurement of of acquiring and leasing a chapter house to a the society, order, or association or their
income to the benefited class, resulting in a de- local fraternity chapter or sorority chapter main- dependents.
nial of the club's exemption. tained at an educational institution and doesn't Lodge system. Operating under the lodge
engage in any social or recreational activities, it
Support. In general, your club should be may be a title holding corporation (discussed system means carrying on activities under a
supported solely by membership fees, dues, later under section 501(c)(2) organizations and form of organization that comprises local
and assessments. However, if otherwise enti- under section 501(c)(25) organizations) rather branches, chartered by a parent organization
tled to exemption, your club won't be disquali- than a social club. and largely self-governing, called lodges, chap-
fied because it raises revenue from members ters, or the like.
through the use of club facilities or in connec- Tax treatment of donations. Donations to ex- Payment of benefits. It isn't essential that
tion with club activities. empt social and recreation clubs aren't deducti- every member be covered by the society's pro-
ble as charitable contributions on the donor's
Business activities. If your club will engage in federal income tax return. gram of sick, accident, or death benefits. An or-
business, such as selling real estate, timber, or ganization can qualify for exemption if most of
other products or services, it generally will be its members are eligible for benefits, and the

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benefits  are  paid  from  contributions  or  dues      the section that describes your employee asso-          Note. Under section 4976, the reversion of 
paid by those members.                                  ciation. Chapter 1 describes the procedures to          funds  from  a  section  501(c)(9)  organization  to 
The  benefits  must  be  limited  to  members           follow in applying for exemption.                       the employer who created the beneficiary asso-
and their dependents. If members will have the                                                                  ciation  may  subject  the  employer  to  a  100% 
ability  to  confer  benefits  to  other  than  them-   Tax  treatment  of  donations.    Donations  to         penalty excise tax on the amount of the rever-
selves  and  their  dependents,  exemption  won't       these organizations aren't deductible as charita-       sion.
be recognized.                                          ble contributions on the donor's federal income 
                                                        tax return.                                             Notice requirement. An organization won't be 
Whole-life  insurance.  Whole-life  insur-                                                                      considered  tax  exempt  under  this  section  un-
ance  constitutes  a  life  benefit  under  section                                                             less  the  organization  gives  notice  to  the  IRS 
501(c)(8)  even  though  the  policy  may  contain      Local Employees'                                        that it is applying for recognition of exempt sta-
investment  features  such  as  a  cash  surrender      Associations (501(c)(4))                                tus. The organization gives notice by filing Form 
value or a policy loan.                                                                                         1024. If the notice isn't given by 15 months after 
Reinsurance  pool.      Payments  by  a  frater-        A local association of employees whose mem-             the end of the month in which the organization 
nal  beneficiary  society  into  a  state-sponsored     bership is limited to employees of a designated         was created, the organization won't be exempt 
reinsurance  pool  that  protects  participating  in-   person  or  persons  in  a  particular  municipality,   for any period before notice is given. An exten-
surers against excessive losses on major medi-          and whose income will be devoted exclusively            sion of time for filing the notice can be granted 
cal  health  and  accident  insurance  won't  pre-      to  charitable,  educational,  or  recreational  pur-   under the same procedures as those described 
clude  exemption  as  a  fraternal  beneficiary         poses. A local employees' association must ap-          for section 501(c)(3) organizations in chapter 3 
society.                                                ply  for  recognition  of  exemption  by  filing  Form  under Application for Recognition of Exemption.
                                                        1024-A. The organization must submit evidence 
                                                        that:                                                   Membership.       Membership of a section 501(c)
Domestic Fraternal Societies                            1. It is of a purely local character;                   (9) organization must consist of individuals who 
(501(c)(10))                                                                                                    are  employees  and  have  an  employment-rela-
                                                        2. Its membership is limited to employees of            ted common bond. This common bond can be a 
A domestic fraternal society, order, or associa-              a designated person or persons in a par-          common  employer  (or  affiliated  employers), 
tion  must  file  an  application  for  recognition  of       ticular locality; and                             coverage under one or more collective bargain-
                                                                                                                ing  agreements,  membership  in  a  labor  union, 
exemption  from  federal  income  tax  on  Form         3. Its net earnings will be devoted exclusively         or  membership  in  one  or  more  locals  of  a  na-
1024. The application and accompanying state-                 to charitable, educational, or recreational       tional or international labor union.
ments should establish that the organization:                 purposes.
                                                                                                                The  membership  of  an  association  can  in-
1. Is a domestic fraternal organization organ-          A  local  association  of  employees  that  has         clude  some  individuals  who  aren't  employees, 
     ized in the United States;,                        established  a  system  of  paying  retirement  or      provided  they  have  an  employment-related 
2. Operates under the lodge system;                     death  benefits,  or  both,  to  its  members  won't    bond  with  the  employee-members.  For  exam-
3. Devotes its net earnings exclusively to reli-        qualify  for  exemption  since  the  payment  of        ple, the owner of a business whose employees 
     gious, charitable, scientific, literary, educa-    these  benefits  isn't  considered  as  being  for      are members of the association can be a mem-
     tional, and fraternal purposes; and                charitable,  educational,  or  recreational  purpo-     ber.  An  association  will  be  considered  com-
                                                        ses. Similarly, a local association of employees        posed of employees if 90% of its total member-
4. Doesn’t provide for the payment of life,             that is operated primarily as a cooperative buy-        ship  on  1  day  of  each  quarter  of  its  tax  year 
     sick, accident, or other benefits to its           ing  service  for  its  members  in  order  to  obtain  consists of employees.
     members.                                           discount prices on merchandise, services, and 
The organization can arrange with insurance             activities doesn't qualify for exemption.               Employees.        Employees include individuals 
                                                                                                                who  became  entitled  to  membership  because 
companies  to  provide  optional  insurance  to  its                                                            they  are  or  were  employees.  For  example,  an 
members  without  jeopardizing  its  exempt  sta-       Voluntary Employees'                                    individual  will  qualify  as  an  employee  even 
tus.                                                    Beneficiary Associations                                though the individual is on a leave of absence 
                                                                                                                or has been terminated due to retirement, disa-
                                                        (501(c)(9))                                             bility, or layoff.
                                                                                                                Generally, membership is voluntary if an af-
501(c)(4), 501(c)(9), and                               An application for recognition of exemption as a        firmative  act  is  required  on  the  part  of  an  em-
501(c)(17) -                                            voluntary  employees'  beneficiary  association         ployee  to  become  a  member.  Conversely, 
                                                        must be filed on Form 1024. The material sub-           membership is involuntary if the designation as 
Employees'                                              mitted with the application must show that your         a member is due to employee status. However, 
                                                        organization:
Associations                                                                                                    an  association  will  be  considered  voluntary  if 
                                                        1. Is a voluntary association of employees;             employees are required to be members of the 
                                                                                                                organization as a condition of their employment 
This  section  describes  the  information  to  be      2. Will provide for payment of life, sick, acci-        and they don't incur a detriment (such as a pay-
provided upon application for recognition of ex-              dent, or other benefits to members or their       roll deduction) as a result of their membership. 
emption  by  the  following  types  of  employees'            dependents or designated beneficiaries            An employer has not imposed involuntary mem-
associations:                                                 and substantially all of its operations are       bership  on  the  employee  if  membership  is  re-
1. A voluntary employees' beneficiary asso-                   for this purpose; and                             quired  as  the  result  of  a  collective  bargaining 
     ciation (including federal employees' asso-        3. Won't allow any of its net earnings to inure         agreement or as an incident of membership in a 
     ciations) organized to pay life, sick, acci-             to the benefit of any private individual or       labor organization.
     dent, and similar benefits to members or                 shareholder except in the form of sched-
     their dependents, or designated beneficia-               uled benefit payments.                            Payment of benefits.  The information submit-
     ries, if no part of the net earnings of the as-                                                            ted  with  your  application  must  show  that  your 
     sociation inures to the benefit of any pri-        To be complete, an application must include a           organization will pay life, sick, accident, supple-
     vate shareholder or individual; and                copy of the document (such as the trust instru-         mental unemployment, or other similar benefits. 
2. A supplemental unemployment benefit                  ment) by which the organization was created; a          The  benefits  can  be  provided  directly  by  your 
     trust whose primary purpose is providing           full description of the benefits available to par-      association  or  indirectly  by  your  association 
     for payment of supplemental unemploy-              ticipants and the terms and conditions of eligi-        through the payments of premiums to an insur-
     ment benefits.                                     bility  for  benefits  (usually  contained  in  a  plan ance  company  (or  fees  to  a  medical  clinic). 
                                                        document);  and,  if  providing  benefits  pursuant     Benefits can be in the form of medical, clinical, 
Both the application form to file and the in-           to a collective bargaining agreement, a copy of 
formation to provide are discussed later under          that agreement.
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or hospital services, transportation furnished for 2. Received more than $125,000 in compen- Types of payments. You must show that the
medical care, or money payments. sation from the employer for the preceding supplemental unemployment compensation
year (the amount is annualized for infla- benefits will be benefits paid to an employee
Nondiscrimination requirements. An organi- tion. Go to IRS.gov, and search “Pension because of the employee's involuntary separa-
zation that is part of a plan won't be exempt un- Plan Limitation” for the year), and tion from employment (whether or not the sepa-
less the plan meets certain nondiscrimination ration is temporary) resulting directly from a re-
requirements. However, if the organization is 3. Was among the top 20% of employees by duction-in-force, discontinuance of a plant or
part of a plan that is a collective bargaining compensation for the preceding year. operation, or other similar conditions. In addi-
agreement that was the subject of good faith However, the employer can choose not to have tion, sickness and accident benefits (but not va-
bargaining between employee organizations (3) apply. cation, retirement, or death benefits) may be in-
and employers, the plan need not meet these cluded in the plan if these are subordinate to
requirements for the organization to qualify as Aggregation rules. The employer can the unemployment compensation benefits.
tax exempt. choose to treat two or more plans as one plan
A plan meets the nondiscrimination require- for purposes of meeting the nondiscrimination Diversion of funds. It must be impossible un-
ments only if both of the following statements requirements. Employees of controlled groups der the plan (at any time before the satisfaction
are true. of corporations, trades, or businesses under of all liabilities with respect to employees under
common control, or members of an affiliated the plan) to use or to divert any of the corpus or
1. Each class of benefits under the plan is service group, are treated as employees of a income of the trust to any purpose other than
provided under a classification of employ- single employer. Leased employees are treated the payment of supplemental unemployment
ees that is set forth in the plan and doesn't as employees of the recipient. compensation benefits (or sickness or accident
discriminate in favor of employees who benefits to the extent just explained).
are highly compensated individuals. One employee. A trust created to provide ben-
2. The benefits provided under each class of efits to one employee won't qualify as a volun- Discrimination in benefits. Neither the terms
benefits don't discriminate in favor of tary employees' beneficiary association under of the plan nor the actual payment of benefits
highly compensated individuals. section 501(c)(9). can be discriminatory in favor of the company's
officers, stockholders, supervisors, or highly
A life insurance, disability, severance pay, or paid employees. However, a plan isn't discrimi-
supplemental unemployment compensation Supplemental
natory merely because benefits bear a uniform
benefit doesn't discriminate in favor of highly Unemployment Benefit relationship to compensation or the rate of com-
compensated individuals merely because the Trusts (501(c)(17)) pensation.
benefits available bear a uniform relationship to
the total compensation, or the basic or regular A trust or trusts forming part of a written plan Prohibited transactions and exemption. If
rate of compensation, of employees covered by (established and maintained by an employer, your organization is a supplemental unemploy-
the plan. the employees, or both) providing solely for the ment benefit trust and has received a denial of
If a plan provides a benefit for which there is payment of supplemental unemployment com- exemption because it engaged in a prohibited
a nondiscrimination provision provided under pensation benefits must file the application for transaction, as defined by section 503(b), it can
Chapter 1 of the Internal Revenue Code as a recognition of exemption on Form 1024. The file a claim for exemption in any tax year follow-
condition of that benefit being excluded from trust must be a valid, existing trust under local ing the tax year in which the notice of denial
gross income, these nondiscrimination require- law and must be evidenced by an executed was issued. It must file the claim on Form 1024.
ments don't apply. The benefit will be consid- document. A conformed copy of the plan of The organization must include a written decla-
ered nondiscriminatory only if it meets the non- which the trust is a part should be attached to ration that it won't knowingly again engage in a
discrimination provision of the applicable Code the application. prohibited transaction. An authorized principal
section. For example, benefits provided under a officer of your organization must make this dec-
medical reimbursement plan would meet the To be complete, an application must include laration under the penalties of perjury.
nondiscrimination requirements for an associa- a copy of the document (such as the trust in-
tion, if the benefits meet the nondiscrimination strument) by which the organization was cre- If your organization has satisfied all require-
requirements of section 105(h)(3) and 105(h) ated; a full description of the benefits available ments as a supplemental unemployment bene-
(4). to participants and the terms and conditions of fit trust described in section 501(c)(17), it will be
eligibility for benefits (usually contained in a notified in writing that it has been recognized as
Excluded employees. Certain employees plan document); and, if providing benefits pur- exempt. However, the organization will be ex-
who aren't covered by a plan can be excluded suant to a collective bargaining agreement, a empt only for those tax years after the tax year
from consideration in applying these require- copy of that agreement. in which the claim for exemption (Form 1024) is
ments. These include employees: filed. Tax year in this case means the estab-
Note. Under section 4976, the reversion of lished annual accounting period of the organi-
1. Who haven't completed 3 years of service, funds from a section 501(c)(17) organization to zation or, if the organization has not established
2. Who haven't attained age 21, the employer who created the supplemental un- an annual accounting period, the calendar year.
employment benefit trust may subject the em- For more information about the requirements for
3. Who are seasonal or less than half-time ployer to a 100% penalty excise tax on the re-establishing an exemption previously denied,
employees, amount of the reversion. contact the IRS.
4. Who aren't in the plan and who are inclu-
ded in a unit of employees covered by a Notice requirement. An organization won't be
collective bargaining agreement if the considered tax exempt under this section un- 501(c)(12) - Local
class of benefits involved was the subject less the organization gives notice to the IRS
of good faith bargaining, or that it is applying for recognition of exempt sta- Benevolent Life
tus. The organization gives notice by filing Form Insurance Associations,
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 em- the end of the month in which the organization Mutual Irrigation and
ployer that has United States sourced in- was created, the organization won't be exempt
come. for any period before such notice is given. An Telephone Companies,
Highly compensated individual. A highly extension of time for filing the notice is granted and Like Organizations
compensated individual is one who: under the same procedures as those described
for section 501(c)(3) organizations in chapter 3 Each of the following organizations apply for
1. Owned 5% or more of the employer at any under Application for Recognition of Exemption. recognition of exemption from federal income
time during the current year or the preced-
ing year, tax by filing Form 1024.

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1. Benevolent life insurance associations of a Distributions of proceeds. The coopera- minatory open-access basis to distribute
purely local character and like organiza- tive may distribute the unexpended balance of electric energy not owned by the mutual or
tions. collections or assessments remaining on hand electric cooperative company:
2. Mutual ditch or irrigation companies and at the end of the year to members or patrons a. To end-users who are served by dis-
like organizations. prorated on the basis of their patronage or busi- tribution facilities not owned by the
ness done with the cooperative. Such distribu-
3. Mutual or cooperative telephone compa- tion represents a refund in the costs of services company or any of its members (other
nies and like organizations. rendered to the member. than income received or accrued di-
rectly or indirectly from a member), or
A like organization is an organization that per- b. Generated by a generation facility not
forms a service comparable to that performed The 85% Requirement owned or leased by the company or
by any one of the above organizations. any of its members and which is di-
All of the organizations listed above must sub-
The information to be provided upon appli- mit evidence with their application that they re- rectly connected to distribution facili-
cation by each of these organizations is descri- ceive 85% or more of their gross income from ties owned by the company or any of
bed in this section. For information as to the their members for the sole purpose of meeting its members (other than income re-
procedures to follow in applying for exemption, losses and expenses. Nevertheless, certain ceived or accrued directly or indirectly
see chapter 1. items of income are excluded from the compu- from a member),
tation of the 85% requirement if the organization 4. Any nuclear decommissioning transaction,
General requirements. These organizations is a mutual or cooperative telephone or electric
must use their income solely to cover losses company. 5. Any asset exchange or conversion trans-
and expenses, with any excess being returned action; or
to members or retained to cover future losses Mutual or cooperative telephone company. 6. Grants, contributions, and assistance pro-
and expenses. They must collect at least 85% A mutual or cooperative telephone company will vided under the Robert T. Stafford Disas-
of their income from members for the sole pur- exclude from the computation of the 85% re- ter Relief and Emergency Assistance Act
pose of meeting losses and expenses. quirement any income received or accrued or by local, state, or regional governmental
from: entities for disasters or emergencies; and
Mutual character. These organizations, other certain grants or contributions provided by
than benevolent life insurance associations, 1. A nonmember telephone company for the
must be organized and operated on a mutual or performance of communication services a government entity for electric, communi-
cooperative basis. They are associations of involving the completion of long distance cations, broadband, Internet, or other util-
persons or organizations, or both, banded to- calls to, from, or between members of the ity facilities or services. This is effective for
gether to provide themselves a mutually desira- mutual or cooperative telephone com- taxable years beginning after December
ble service approximately at cost and on a mu- pany; 31, 2017.
tual basis. To maintain the mutual characteristic 2. Qualified pole rentals; An electric cooperative's sale of excess fuel
of democratic ownership and control, they must at cost in the year of purchase isn't income for
be so organized and operated that their mem- 3. The sale of display listings in a directory purposes of determining compliance with the
bers have the right to choose the management, furnished to its members; or 85% requirement.
to receive services at cost, to receive a return of 4. The prepayment of a loan created in 1987, Qualified pole rental. The term qualified
any excess of payments over losses and ex- 1988, or 1989, under section 306A, 306B, pole rental means any rental of a pole (or other
penses, and to share in any assets upon disso- or 311 of the Rural Electrification Act of structure used to support wires) if the pole (or
lution. 1936; other structure) is used:
The rights and interests of members in the
annual savings of the organization must be de- 5. Grants, contributions, and assistance pro- 1. By the telephone or electric company to
termined in proportion to their business with the vided under the Robert T. Stafford Disas- support one or more wires that are used
organization. Upon dissolution, gains from the ter Relief and Emergency Assistance Act by the company in providing telephone or
sale of appreciated assets must be distributed or by local, state, or regional governmental electric services to its members, and
to all persons who were members during the entities for disasters or emergencies; and
period the assets were owned by the organiza- certain grants or contributions provided by 2. Pursuant to the rental to support one or
tion in proportion to the amount of business a government entity for electric, communi- more wires (in addition to wires described
done during that period. The bylaws mustn't cations, broadband, Internet, or other util- in (1)) for use in connection with the trans-
provide for forfeiture of a member's rights and ity facilities or services. This is effective for mission by wire of electricity or of tele-
interest upon withdrawal or termination. taxable years beginning after December phone or other communications.
31, 2017.
Membership. Membership of a mutual or- The term rental, for this purpose, includes
ganization consists of those who join the organ- Mutual or cooperative electric company. A any sale of the right to use the pole (or other
ization to obtain its services, and have a voice mutual or cooperative electric company will ex- structure).
in its management. In a stock company, the clude from the computation of the 85% require- The 85% requirement is applied on the ba-
stockholders are members. However, a mutual ment any income received or accrued from: sis of an annual accounting period. Failure of an
life insurance organization can't have policy- organization to meet the requirement in a partic-
holders other than its members. 1. Qualified pole rentals;
ular year precludes exemption for that year, but
Losses and expenses. In furnishing serv- 2. Any provision or sale of electric energy has no effect upon exemption for years in which
ices substantially at cost, an organization must transmission services or ancillary service if the 85% requirement is met.
use its income solely for paying losses and ex- the services are provided on a nondiscri-
penses. Any excess income not retained in rea- minatory open access basis under an Gain from the sale or conversion of the or-
sonable reserves for future losses and expen- open access transmission tariff approved ganization's property isn't considered an
ses belongs to members in proportion to their or accepted by the Federal Energy Regu- amount received from members in determining
patronage or business done with the organiza- latory Commission (FERC) or under an in- whether the organization's income consists of
tion. If such patronage refunds are retained in dependent transmission provider agree- amounts collected from members.
reasonable amounts for purposes of expanding ment approved or accepted by FERC
and improving facilities, retiring capital indebt- (other than income received or accrued di- Because the 85% income test is based on
edness, acquiring other assets, and unexpec- rectly or indirectly from a member); gross income, capital losses can't be used to
reduce capital gains for purposes of this test.
ted expenses, the organization must maintain 3. The provision or sale of electric energy
records sufficient to reflect the equity of each distribution services or ancillary services if Example. The books of an organization re-
member in the assets acquired with the funds. the services are provided on a nondiscri- flect the following for the calendar year.
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Collections from members . . . . . . . . . . . . . $2,400 Organizations similar to local benevolent If your organization is a nonprofit corpora-
Short-term capital gains . . . . . . . . . . . . . . . 600 life insurance companies. These organiza- tion chartered solely for the purpose of the dis-
Short-term capital losses . . . . . . . . . . . . . . 400 tions include those that in addition to paying posal of human bodies by burial or cremation,
Other income . . . . . . . . . . . . . . . . . . . . . . None death benefits also provide for the payment of you should show that it isn't permitted by its
Gross income ($2,400 + $600 =$3000) . . . . . 100% sick, accident, or health benefits. However, an charter to engage in any business not necessa-
Collected from members ($2,400) . . . . . . . . 80% organization that pays only sick, accident, or rily incident to that purpose. Operating a mortu-
health benefits, but not life insurance benefits, ary isn't permitted. However, selling monu-
Since amounts collected from members isn't an organization similar to a benevolent life ments, markers, vaults, and flowers solely for
don't constitute at least 85% of gross income, insurance association and shouldn't apply for use in the cemetery is permitted if the profits
the organization isn't entitled to exemption from recognition of exemption, as described in this from these sales are used to maintain the cem-
federal income tax for the year. section. etery as a whole.
Voluntary contributions in the nature of gifts
aren't taken into account for purposes of the Burial and funeral benefit insurance or- How income can be used. You should show
85% computation. ganization. This type of organization can ap- that your organization's earnings are or will be
Other tax-exempt income besides gifts is ply for recognition of exemption as an organiza- used only in one or more of the following ways.
considered as income received from other than tion similar to a benevolent life insurance
members in applying the 85% test. company if it establishes that the benefits are 1. To pay the ordinary and necessary expen-
If the 85% test isn't met, your organization, if paid in cash and if it isn't engaged directly in the ses of operating, maintaining, and improv-
classifiable under this section, won't qualify for manufacture of funeral supplies or the perform- ing the cemetery or crematorium.
exemption as any other type of organization de- ance of funeral services. An organization that 2. To buy cemetery property.
scribed in this publication. provides its benefits in the form of supplies and
service isn't a life insurance company. Such an 3. To create a fund that will provide a source
Tax treatment of donations. Donations to an organization can seek recognition of exemption of income for the perpetual care of the
organization described in this section aren't de- from federal income tax, however, as a mutual cemetery or a reasonable reserve for any
ductible as charitable contributions on the do- insurance company other than life. ordinary or necessary purpose.
nor's federal income tax return.
No part of the net earnings of your organiza-
Government grants. In the past, government Mutual or Cooperative tion can inure to the benefit of any private
grants were not treated as income but as contri- Associations shareholder or individual.
butions to capital. Under the Tax Cuts & Jobs
Act, P.L. No. 115-97 section 13312, section 118 Mutual ditch or irrigation companies, mutual or Ordinary and necessary expenses in con-
was amended so that government grants may cooperative telephone companies, and like or- nection with the operation, management, main-
no longer be treated as capital contributions. In ganizations need not establish that they are of a tenance, and improvement of the cemetery are
2019, P.L. No. 116-94 amended section 501(c) purely local character. They can serve noncon- permitted, as are reasonable fees for the serv-
(12) to exclude from the 85% requirement cer- tiguous areas. ices of a manager.
tain government grants for assistance to mutual Like organization. A like organization is a Buying cemetery property. Payments
and cooperative telephone and electric compa- cooperative or mutual organization that per- can be made to amortize debt incurred to buy
nies. forms a service similar to mutual ditch, irriga- land, but can't be in the nature of profit distribu-
tion, telephone, or electric companies. Exam- tions. You must show the method used to fi-
Local Life Insurance ples include the following: cooperatives that nance the purchase of the cemetery property
Associations provide protection of river banks to prevent ero- and that the purchase price of the land at the
sion, water and sewer services, cable televi- time of its sale to the cemetery wasn't unrea-
sion, satellite, television, cellular phone serv- sonable.
A benevolent life insurance association or an ices, two-way radio service, or natural gas Except for holders of preferred stock (dis-
organization seeking recognition of exemption services. cussed later), no person can have any interest
on grounds of similarity to a benevolent life in- in the net earnings of a tax-exempt cemetery
surance association must submit evidence company or crematorium. Therefore, if property
upon applying for recognition of exemption that is transferred to the organization in exchange
it will be of a purely local character, that its ex- 501(c)(13) - Cemetery for an interest in the organization's net earnings,
cess funds will be refunded to members or re- Companies the organization won't be exempt so long as
tained in reasonable reserves to meet future that interest remains outstanding.
losses and expenses, and that it meets the 85% If your organization wishes to obtain recognition An equity interest in the organization is an
income requirement. If an organization issues of exemption from federal income tax as a cem- interest in the net earnings of the organization.
policies for stipulated cash premiums, or if it re- etery company or a corporation chartered solely However, an interest in the organization that
quires advance deposits to cover the cost of the for the purpose of the disposal of human bodies isn't an equity interest may still be an interest in
insurance and maintains investments from by burial or cremation, it must file an application the organization's net earnings. For example, a
which more than 15% of its income is derived, it on Form 1024. For the procedure to follow to bond issued by a cemetery company that pro-
won't be entitled to exemption. file an application, see Application, Approval, vides for a fixed rate of interest and also pro-
and Appeal Procedures in chapter 1. vides for additional interest payments based on
To establish that your organization is of a the income of the organization is considered an
purely local character, it should show that its ac- A nonprofit mutual cemetery company that interest in the net earnings of the organization.
tivities will be confined to a particular commun- seeks recognition of exemption should submit Similarly, a convertible debt obligation issued
ity, place, or district irrespective of political sub- evidence with its application that it is owned after July 7, 1975, is considered an interest in
divisions. If the activities of an organization are and operated exclusively for the benefit of its lot the net earnings of the organization.
limited only by the borders of a state, it can't be owners who hold lots for bona fide burial purpo-
purely local in character. A benevolent life insur- ses and not for purposes of resale. A mutual Perpetual care organization. A perpetual
ance association that doesn't terminate mem- cemetery company that also engages in chari- care organization, including, for example, a
bership when a member moves from the local table activities, such as the burial of paupers, trust organized to receive, maintain, and admin-
area in which the association operates will qual- will be regarded as operating within this stan- ister funds that it receives from a nonprofit
ify for exemption if it meets the other require- dard. The fact that a mutual cemetery company tax-exempt cemetery under state law and con-
ments. limits its membership to a particular class of in- tracts, can apply for recognition of exemption
dividuals, such as members of a family, won't on Form 1024, even though it doesn't own the
A copy of each type of policy issued by your affect its status as mutual so long as all the land used for burial. However, the income from
organization should be included with the appli- other requirements of section 501(c)(13) are these funds must be devoted exclusively to the
cation for recognition of exemption. met. perpetual care and maintenance of the
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nonprofit cemetery as a whole. Also, no part of                                                                      Other Mutual
the net earnings can inure to the benefit of any 
private shareholder or individual.                           501(c)(14) - Credit                                     Financial Organizations
In  addition,  a  perpetual  care  organization                                                                      Every other organization included in this section 
not operated for profit, but established as a civic          Unions and Other Mutual 
                                                                                                                     must show in its application the state in which 
enterprise to maintain and administer funds, the             Financial Organizations                                 the organization is incorporated and the date of 
income  of  which  is  devoted  exclusively  to  the                                                                 incorporation; the character of the organization; 
perpetual  care  and  maintenance  of  an  aban-             If your organization wants to obtain recognition        the purpose for which it was organized; its ac-
doned cemetery as a whole, may qualify for ex-               of  exemption  as  a  credit  union  without  capital   tual activities; the sources of its receipts and the 
emption.                                                     stock, organized and operated under state law           disposition  thereof;  whether  any  of  its  income 
Care of individual plots.   When funds are                   for  mutual  purposes  and  without  profit,  it  must  may be credited to surplus or may benefit any 
received by a cemetery company for the perpet-               file the application for recognition of exemption       private  shareholder  or  individual;  whether  the 
ual  care  of  an  individual  lot  or  crypt,  a  trust  is on Form 1024.                                           law  relating  to  loans,  investments,  and  divi-
created  that  is  subject  to  federal  income  tax.        Federal  credit  unions  organized  and  oper-          dends is being complied with; and, in general, 
Any  trust  income  that  is  used  or  permanently          ated in accordance with the Federal Credit Un-          all facts relating to its operations that affect its 
set aside for the care, maintenance, or beautifi-            ion  Act,  as  amended,  are  instrumentalities  of     right to exemption.
cation of a particular family burial lot or mauso-           the  United  States  and,  therefore,  are  exempt      The application must include detailed infor-
leum  crypt  isn't  deductible  in  computing  the           under section 501(c)(1). They are included in a         mation showing either that the organization pro-
trust's taxable income.                                      group  exemption  letter  issued  to  the  National     vides  both  reserve  funds  for  and  insurance  of 
                                                             Credit  Union  Administration.  They  aren't  dis-      shares and deposits of its member financial or-
Common  and  preferred  stock.     A  cemetery               cussed in this publication.                             ganizations or that the organization provides re-
company that issues common stock can qualify                                                                         serve funds for shares or deposits of its mem-
for exemption only if no dividends may be paid.              State-chartered credit unions and other mu-
The payment of dividends must be legally pro-                tual  financial  organizations  file  applications  for bers  and  85%  or  more  of  the  organization's 
hibited either by the corporation's charter or by            recognition  of  exemption  from  federal  income       income  is  from  providing  reserve  funds  and 
applicable state law.                                        tax under section 501(c)(14). The other mutual          from  investments. There should  be attached  a 
Generally, a cemetery company or cremato-                    financial organizations must be corporations or         conformed copy of the articles of incorporation 
rium  isn't  exempt  if  it  issues  preferred  stock.       associations without capital stock organized be-        or  other  document  setting  forth  the  permitted 
However, it can still be exempt if the preferred             fore September 1, 1957, and operated for mu-            powers or activities of the organization; the by-
stock was issued before November 28, 1978, or                tual  purposes  and  without  profit  to  provide  re-  laws  or  other  similar  code  of  regulations;  and 
was issued after that date under a written plan              serve  funds  for,  and  insurance  of,  shares  or     the  latest  annual  financial  statement  showing 
adopted  before  that  date.  The  adoption  of  the         deposits in:                                            the receipts, disbursements, assets, and liabili-
                                                                                                                     ties of the organization.
plan must be shown by the acts of the responsi-              1. Domestic building and loan associations,
ble officers and appear on the official records of 
the organization.                                            2. Cooperative banks (without capital stock) 
The preferred stock issued either before No-                 organized and operated for mutual purpo-                501(c)(19) - Veterans' 
vember 28, 1978, or under a plan adopted be-                 ses and without profit,
                                                                                                                     Organizations
fore  that  date,  must  meet  all  the  following  re-      3. Mutual savings banks (not having capital 
quirements.                                                  stock represented by shares), or                        A post or organization of past or present mem-
1. The preferred stock entitles the holders to               4. Mutual savings banks described in section            bers of the Armed Forces of the United States 
dividends at a fixed rate that isn't more                    591(b).                                                 must file Form 1024 to apply for recognition of 
than the greater of the legal rate of interest                                                                       exemption from federal income tax. You should 
in the state of incorporation or 8% a year                   Similar  organizations,  formed  before  Septem-        follow the general procedures outlined in chap-
on the value of the consideration for which                  ber 1, 1957, that provide reserve funds for (but        ter 1. The organization must also meet the qual-
the stock was issued.                                        not  insurance  of  shares  or  deposits  in)  one  of  ifications described in this section.
                                                             the  types  of  savings  institutions  described  in 
2. The organization's articles of incorporation              (1), (2), or (3) above may be exempt from tax if        Examples of groups that qualify for exemp-
require:                                                     85%  or  more  of  the  organization's  income  is      tion are posts or auxiliaries of the American Le-
a. That the preferred stock be retired at                    from  providing  reserve  funds  and  from  invest-     gion, Veterans of Foreign Wars, and similar or-
          par as rapidly as funds become avail-              ments.  There  is  no  specific  restriction  against   ganizations.
          able from operations, and                          the issuance of capital stock for these                 To qualify for recognition of exemption, your 
                                                             organizations.                                          application should show:
b. That all funds not required for the pay-
          ment of dividends on or for the retire-            Building and loan associations, savings and             1. That the post or organization is organized 
          ment of preferred stock be used by                 loan  associations,  mutual  savings  banks,  and       in the United States or any of its posses-
          the company for the care and im-                   cooperative banks, other than those described           sions,
          provement of the cemetery property.                in  this  section,  aren't  exempt  from  tax.  How-
                                                             ever, certain corporations organized and oper-          2. That at least 75% of the members are past 
Tax treatment of donations. Donations to ex-                 ated  in  conjunction  with  farmers'  cooperatives     or present members of the U.S. Armed 
empt  cemetery  companies,  corporations  char-              can be exempt under section 521.                        Forces and that at least 97.5% of all mem-
tered  solely  for  human  burial  purposes,  and                                                                    bers of the organization are past or 
perpetual  care  funds  (operated  in  connection                                                                    present members of the U.S. Armed 
with such exempt organizations) are deductible               State-Chartered                                         Forces, cadets (including only students in 
as  charitable  contributions  on  the  donor's  fed-        Credit Unions                                           college or university ROTC programs or at 
eral income tax return. However, a donor can't                                                                       armed services academies) or spouses, 
deduct  a  contribution  made  for  the  perpetual           Your organization must show on its application          widows, widowers, ancestors, or lineal de-
care of a particular lot or crypt. Payments made             that it is formed under a state credit union law,       scendants of any of those listed here, and
to a cemetery company or corporation as part of              the state and date of incorporation, and that the       3. That no part of net earnings inure to the 
the  purchase  price  of  a  burial  lot  or  crypt,         state credit union law with respect to loans, in-       benefit of any private shareholder or
whether irrevocably dedicated to the perpetual               vestments, and dividends, if any, your organiza-        individual.
care of the cemetery as a whole or earmarked                 tion is operated in compliance with.
for the care of a particular lot, are also not de-                                                                   In  addition  to  these  requirements,  a  veter-
ductible.                                                                                                            ans' organization must also be operated exclu-
                                                                                                                     sively for one or more of the following purposes.
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1. To promote the social welfare of the com- b. Religious, charitable, scientific, liter- such person arising under federal or
munity (that is, to promote in some way ary, or educational purposes or for the state statutes, and
the common good and general welfare of prevention of cruelty to children or an- d. To pay accident and health benefits or
the people of the community). imals; or insurance premiums and other admin-
2. To assist disabled and needy war veter- c. An insurance set aside. istrative expenses for retired coal min-
ans and members of the U.S. Armed ers and their spouses. The amount of
Forces and their dependents and the wid- 3. The trust income isn't unreasonably accu- assets available for such use is gener-
ows and orphans of deceased veterans. mulated and, if the trust or foundation isn't ally limited to 110% of the present
an insurance set aside, a substantial por-
3. To provide entertainment, care, and assis- tion of the income is in fact distributed to value of the liability for black lung
tance to hospitalized veterans or members the parent organization or for the purposes benefits.
of the U.S. Armed Forces. described in item 2(b). 2. No part of its assets can be used for, or di-
4. To carry on programs to perpetuate the 4. It is organized exclusively for one or more verted to, any purposes other than:
memory of deceased veterans and mem- of the purposes listed earlier in this section a. The purposes described in 1,
bers of the Armed Forces and to comfort that are specifically applicable to the pa- b. Payments into the Black Lung Disabil-
their survivors. rent organization. ity Trust Fund or into the general fund
5. To conduct programs for religious, charita- of the U.S. Treasury (other than in sat-
ble, scientific, literary, or educational pur- Tax treatment of donations. Donations to
poses. war veterans' organizations are deductible as isfaction of any tax or other civil or
charitable contributions on the donor's federal criminal liability of the person who es-
6. To sponsor or participate in activities of a income tax return. At least 90% of the organiza- tablished or contributed to the trust),
patriotic nature. tion's membership must consist of war veter- c. Investment in public debt securities of
7. To provide insurance benefits for its mem- ans. The term war veterans means persons, the U.S., obligations of a state or local
bers or dependents of its members or whether or not present members of the U.S. government that aren't in default as to
both. Armed Forces, who have served in the U.S. principal or interest, or time or de-
Armed Forces during a period of war (including mand deposits in a bank or an insured
8. To provide social and recreational activi- the Korean and Vietnam conflicts, the Persian credit union located in the United
ties for its members. Gulf war, and later declared wars). States. (These investments are re-
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- Benefit Trusts
ments explained earlier in this section. The aux- An annual information return is required of ex-
iliary unit or society must also meet all the If your organization wishes to obtain recognition empt trusts described in section 501(c)(21).
following additional requirements. of exemption as a black lung benefit trust, it Formerly, Form 990-BL, Information and Initial
1. It is affiliated with, and organized in ac- must file the application for recognition of ex- Excise Tax Return for Black Lung Benefit Trusts
cordance with, the bylaws and regulations emption on Form 1024 and include a copy of its and Certain Related Persons, was used for this
formulated by the parent organization. trust instrument. The general procedures to fol- purpose However, Form 990-BL is a historical
low for obtaining recognition are discussed in form beginning with tax year 2021. Section
2. At least 75% of its members are either chapter 1 of this publication. This section de- 501(c)(21) trust can no longer file Form 990-BL
past or present members of the U.S. scribes the additional (or specific) information to and will file Form 990 to meet their annual filing
Armed Forces, spouses of those mem- be provided upon application. obligation. A trust that normally has gross re-
bers, or related to those members within ceipts in each tax year of no more than $50,000
two degrees of kinship (grandparent, Requirements. A black lung benefit trust that is excepted from this filing requirement. How-
brother, sister, and grandchild represent is established in writing, created or organized in ever, it must submit an annual electronic notice,
the most distant allowable relationship). the United States, and contributed to by any Form 990-N (e-Postcard).
3. All of its members either are members of person (except an insurance company) will
the parent organization, spouses of a qualify for tax-exempt status if it meets both of Excise taxes. See Chapter 5 for informa-
member of the parent organization, or re- the following requirements. The trust must be ir- tion on the excise tax that may be imposed on
lated to a member of such organization revocable and there can be no right or possibil- the organization.
within two degrees of kinship. ity or reversion of the corpus or income of the
trust to the coal mine operator or other creator, Tax treatment of donations. Contributions by
4. No part of its net earnings inure to the ben- except that the creator may recover excess a taxpayer (generally, the coal mine operator) to
efit of any private shareholder or contributions. a black lung benefit trust are deductible for fed-
individual. eral income tax purposes under section 192.
1. Its only purpose is: The deduction is limited, and any excess contri-
Trusts or foundations. Trusts or foundations a. To satisfy in whole or in part the liabil- butions are subject to an excise tax of 5%. Form
for a veterans' organization can also apply for ity of that person (generally, the coal 6069, Return of Certain Excise Taxes on Mine
recognition of exemption provided that the pa- mine operator contributing to the trust) Operators, Black Lung Trusts, and Other Per-
rent organization meets the requirements ex- for, or with respect to, claims for com- sons Under Sections 4951, 4952, and 4953, is
plained earlier. The trust or foundation must pensation arising under federal or used to compute the allowable deduction and
also meet all the following qualifications. state statutes for disability or death any excise tax liability. The form doesn't have to
1. The trust or foundation is in existence un- due to pneumoconiosis, be filed if there is no excise tax liability. For
more information about these contributions, see
der local law and, if it is organized for char- b. To pay the premiums for insurance Form 6069 and its instructions.
itable purposes, has a dissolution provi- that covers only that liability,
sion similar to charitable organizations.
(See Articles of Organization in chapter 3 c. To pay the administrative and other
of this publication.) incidental expenses of that trust (in-
cluding legal, accounting, actuarial,
2. The corpus or income can't be diverted or and trustee expenses) in connection
used other than for: with the operation of the trust and pro-
a. The funding of a veterans' organiza- cessing of black lung claims against
tion, described in this section;
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Waiver of payment of income. Generally, and their agencies and instrumentalities, and
there is no payment of rent when the occupant charitable organizations.
501(c)(2) - Title-Holding of property held by your title-holding corporation The articles of incorporation or trust instru-
is the exempt organization for which your cor- ment must include provisions showing that the
Corporations for Single poration holds the title. In this situation, the stat- corporation or trust is organized to meet the re-
Parent Corporations utory requirement that income be paid over to quirements of the statute, including compliance
the exempt organization is satisfied if your cor- with the limitations on membership and classes
If your organization wants to obtain recognition poration turns over whatever income is availa- of stock or beneficial interest, and compliance
of exemption from federal income tax as a cor- ble. with the income distribution requirements. The
poration organized to hold title to property, col- organizing document must permit the organiza-
lect income from that property, and turn over Application for recognition of exemption. In tion's shareholders or beneficiaries to dismiss
the entire amount less expenses to a single pa- addition to the information required by Form the organization's investment advisor, if any,
rent organization that is exempt from income 1024, the title-holding corporation must furnish upon a vote of the shareholders or beneficiaries
tax, it must file its application on Form 1024. evidence that the organization for which title is holding a majority interest in the organization.
The information to submit upon application is held has obtained recognition of exempt status. The organizing document must permit the
described in this section. For a discussion of If that organization has not been specifically no- shareholders or beneficiaries to terminate their
the procedures for obtaining recognition of ex- tified in writing by the IRS that it is exempt, the interests by at least one of the following meth-
emption, see chapter 1, Application Proce- title-holding corporation must submit the neces- ods.
dures. sary application and supporting documents to
enable the IRS to determine whether the organ- 1. By selling or exchanging their stock or
You must show that your organization is a ization for which title is held qualifies for exemp- beneficial interest to any organization de-
corporation. If you are in doubt as to whether tion. A copy of a ruling or determination letter is- scribed in section 501(c)(25)(C), provided
your organization qualifies as a corporation for sued to the organization for which title is held that the sale or exchange doesn't cause
this purpose, contact your IRS office. 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.
A title-holding corporation will qualify for ex- obtains recognition of exempt status or proof is 2. By having their stock or beneficial interest
emption only if there is effective ownership and submitted to show that it qualifies, the title-hold- redeemed by the section 501(c)(25) or-
control over it by the distributee exempt organi- ing corporation can't obtain recognition of ex- ganization upon 90 days notice.
zation. For example, the distributee organiza- emption.
tion may control the title-holding corporation by If state law prevents a corporation from includ-
owning its voting stock or possessing the power Tax treatment of donations. Donations to an ing in its articles of incorporation the above pro-
to select nominees to hold its voting stock. exempt title-holding corporation generally aren't visions, such provisions must instead be inclu-
deductible as charitable contributions on the ded in the bylaws of the corporation.
Corporate charter. The corporate charter donor's federal income tax return. A 501(c)(25) organization can be organized
must confine the purposes and powers of your 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 501(c)(25) - Title-Holding same rights as described above.
income over to an exempt organization. If the
charter authorizes your organization to engage Corporations or Trusts Subsidiaries. A wholly owned subsidiary won't
in activities that go beyond these limits, its ex- be treated as a separate corporation, and all as-
emption may not be recognized even if its ac- for Multiple Parent sets, liabilities, and items of income, deduction,
tual operations are so limited. If your organiza- Corporations and credit will be treated as belonging to the
tion's original charter doesn't limit its powers, section 501(c)(25) organization. Subsidiaries
you can amend the charter to conform to the re- If your organization wants to obtain recognition shouldn't apply separately for recognition of ex-
quired limits and submit evidence with your ap- of exemption from federal income tax as an or- emption.
plication that the charter has been amended. ganization organized for the exclusive purpose
Payment of income. You must show that your of acquiring, holding title to, and collecting in- Tax treatment of donations. Donations to an
corporation is required to turn over the entire in- come from real property, and turning over the exempt title-holding corporation generally aren't
come from the property, less expenses, to one entire amount less expenses to member organi- deductible as charitable contributions on the
or more exempt organizations. zations exempt from income tax, it should file its donor's federal income tax return.
application on Form 1024. For a discussion of
Actual payment of the income is required. A the procedures for obtaining recognition of ex- Unrelated Business Income
mere obligation to use the income for the ex- emption, see chapter 1, Application Proce-
empt organization's benefit, or the fact that such dures. In general, the receipt of unrelated business in-
organization has control over the income,
come by a section 501(c)(25) organization will
doesn't satisfy this requirement. Who can control the organization. Organi- subject the organization to loss of exempt sta-
Expenses. Expenses may reduce the zations recognized as exempt under this sec- tus since the organization can't be exempt from
amount of income required to be turned over to tion can have up to 35 shareholders or benefi- taxation if it engages in any business other than
the tax-exempt organization for which your or- ciaries, in contrast to title-holding organizations that of holding title to real property and collect-
ganization holds property. The term expenses recognized as exempt under section 501(c)(2), ing the income from the property. However, ex-
(for this purpose) includes not only ordinary and which can have only one controlling parent or- empt status generally won't be affected by the
necessary expenses paid or incurred, but also ganization. receipt of debt-financed income that is treated
reasonable additions to depreciation reserves as unrelated business taxable income solely
and other reserves that would be proper for a Organizational requirements. A section because of section 514.
business corporation holding title to and main- 501(c)(25) organization must be either a corpo-
taining property. ration or a trust. Only one class of stock is per- Under section 514(c)(9), certain sharehold-
In addition, the title-holding corporation can mitted in the case of a corporation. In the case ers or beneficiaries aren't subject to unrelated
retain part of its income each year to apply to of a trust, only one class of beneficial interest is debt-financed income tax under section 514 on
debt on property to which it holds title. This allowed. their investments through the organization.
transaction is treated as if the income had been Organizations eligible to acquire or hold in- These shareholders are generally schools, col-
turned over to the exempt organization and the terests in this type of title-holding organization leges, universities, or supporting organizations
latter had used the income to make a contribu- are qualified pension, profit-sharing, or stock of such educational institutions. Organizations
tion to the capital of the title-holding corporation bonus plans, governmental plans, governments other than these will take into account as gross
that in turn applied the contribution to the debt. income from an unrelated trade or business
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their pro rata share of income that is treated as 1. It was established by a state before June
unrelated debt-financed income because sec- 1, 1996, exclusively to reimburse its mem-
tion 514(c)(9) doesn't apply. These organiza- bers for losses under workers' compensa- Guidance for Section
tions will also take their pro rata share of the al- tion acts.
501(c)(29) Qualified
lowable deductions from unrelated taxable 2. The state requires that the membership
income. consist of all persons who issue insurance Nonprofit Health
Real property. Real property can include per- covering workers' compensation losses in Insurance Issuers
sonal property leased in connection with real the state and all persons and government
property, but only if the rent from the personal entities who self-insure against those los- Section 501(c)(29), added to the Code by sec-
property isn't more than 15% of the total rent for ses. tion 1322(h)(1) of the Affordable Care Act, pro-
both the real property and the personal prop- 3. It operates as a nonprofit organization by vides for the exemption of qualified nonprofit
erty. returning surplus income to its members health insurance issuers (QNHIIs) that have re-
Real property acquired after June 10, 1987, or workers' compensation policyholders ceived a loan or grant under the Centers for
can't include any interest as a tenant in com- on a periodic basis and by reducing initial Medicare and Medicaid Services (CMS)
mon (or similar interest) or any indirect interest. premiums in anticipation of investment in- CO-OP program for periods that they meet both
come. the requirements of section 1322 of the Afforda-
ble Care Act and of any loan agreement with
501(c)(26) - 501(c)(27)(B) -- Organizations formed after CMS. The CO-OP program provides loans and
December 31, 1997. Any organization (includ- repayable grants to foster the creation of mem-
State-Sponsored ing a mutual insurance company) can qualify for ber governed QNHIIs that will operate with a
exemption if it meets all of the following require- strong consumer focus and offer qualified
High-Risk Health ments. health insurance plans. Notice 2011-23,
2011-13 I.R.B. 588, discussed requirements for
Coverage Organizations 1. It is created by state law and is organized tax exemption for QNHIIs described in Internal
and operated under state law exclusively Revenue Code section 501(c)(29). The Notice
A state-sponsored organization established to to: provides guidance on the annual filing require-
provide medical care to high-risk individuals ap-
plies on Form 1024 for recognition of exemption a. Provide workmen's compensation in- ment for organizations that intend to apply for
from federal income tax under section 501(c) surance which is required by state law recognition of section 501(c)(29) status and
(26). or state law must provide significant modified and superseded by Rev. Proc. 2023-8.
disincentives if employers fail to pur- Under Rev. Proc. 2023-8, an organization ap-
To qualify for exemption, the organization chase such insurance, and plying for recognition of exemption from federal
income tax under section 501(c)(29) applies on
must be a membership organization estab- b. Provide related coverage which is in- Form 1024. Rev. Proc. 2015-17, 2015-7 I.R.B.
lished by a state exclusively to provide cover- cidental to workmen's compensation 599, sets out the procedures for issuing deter-
age for medical care on a nonprofit basis to insurance. mination letters on the exempt status of QNHIIs
high-risk individuals who are state residents. It
can provide coverage either by issuing insur- 2. It provides workmen's compensation in- and provides guidance on the effective date of
ance itself or by entering into an arrangement surance to any employer in the state (for exempt status. Rev. Proc. 2015-17, supplemen-
with a health maintenance organization (HMO). employees in the state or temporarily as- ted by Rev. Proc. 2023-5 exemption from fed-
signed out-of-state) which seeks such in- eral income tax under section 501(c)(29) ap-
The state must determine the composition of surance and meets other reasonable re- plies on Form 1024.
membership in the organization. No part of the quirements relating to the insurance.
net earnings of the organization can inure to the 3. The state makes a financial commitment
benefit of any private shareholder or individual. to such organization either by extending General Requirements
its full faith and credit to the initial debt of for Exemption under
High-risk individuals. These are individuals, the organization or by providing the initial
their spouses, and qualifying children, who, be- operating capital of the organization. 501(c)(29) and Annual
cause of a pre-existing medical condition:
4. The assets of the organization revert to the Filing Requirement
1. Can't get medical care coverage for that state upon dissolution or the organization
condition through insurance or an HMO, or isn't permitted to dissolve under state law. In general, section 501(c)(29) applies to certain
2. Can get coverage for that condition only at 5. The majority of the board of directors or organizations receiving loans or repayable
a rate that is substantially higher than the oversight body of such organization are grants under the CO-OP program. An organiza-
rate for the same coverage from the appointed by the chief executive officer or tion will qualify for exemption under section
state-sponsored organization. other executive branch official of the state, 501(c)(29) only if:
by the state legislature, or by both. • The organization has received a loan or a
repayable grant under the CO-OP program
501(c)(27) - Qualified and is in compliance with all requirements
of the CO-OP program and any agreement
State-Sponsored 501(c)(29) - CO-OP with CMS;
Workers' Compensation Health Insurance Issuers • The organization has applied for recogni-
tion of exemption;
Organizations This includes a qualified nonprofit health insur- • No part of the organization’s net earnings
ance issuer which has received a loan or grant inures to the benefit of any private share-
501(c)(27)(A) -- Pre-June 1, 1996, Organiza- under the CO-OP Program under this section of holder or individual, except that the organi-
tions. A state-sponsored workers' compensa- the Code. zation is required by section 1322(c)(4) of
the Affordable Care Act to use its profits to
tion reinsurance organization applies on Form lower premiums, improve benefits or im-
1024 for recognition of exemption from federal prove the quality of health care delivered to
income tax under section 501(c)(27). its members;
To qualify for exemption, any membership • No substantial part of the organization’s
organization must meet all the following require- activities involves attempts to influence
ments. legislation; and

Chapter 4 Other Section 501(c) Organizations Page 59

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• The organization doesn't participate or in-                                                             Prohibited  tax  shelter  transaction. A  pro-
  tervene in political campaigns. See Rev.                                                                hibited  tax  shelter  transaction  is  any  listed 
  Proc. 2015-17 for complete instructions for        Prohibited Tax Shelter                               transaction,  within  the  meaning  of  section 
  filing exemption applications.                                                                          6707A(c)(2),  and  any  prohibited  reportable 
                                                     Transactions                                         transactions.  A  prohibited  reportable  transac-
                                                                                                          tion  is  a  confidential  transaction  within  the 
                                                     Section 4965 imposes an excise tax on:               meaning of Regulations section 1.6011-4(b)(3), 
Additional Guidance for                              • Certain tax-exempt entities that are party         and  a  transaction  with  contractual  protection 
Prospective 501(c)(29)                                 to prohibited tax shelter transactions, and        within  the  meaning  of  Regulations  section 
                                                     • Any entity manager who approves or oth-            1.6011-4(b)(4).  See  the  Instructions  for  Form 
Organizations                                          erwise causes the entity to be a party to a        8886-T  for  more  information  on  listed  transac-
                                                       prohibited tax shelter transaction and             tions and prohibited reportable transactions.
An  organization  claiming  exempt  status  under      knows or has reason to know that the 
section 501(c)(29) that intends to file an appli-      transaction is a prohibited tax shelter trans-     Subsequently  listed  transaction. Any  trans-
cation  for  recognition  of  exemption  should  be-   action.                                            action to which the tax-exempt entity is a party 
gin filing Form 990, Return of Organization Ex-      Additionally, section 6033 provides new disclo-      and is later determined to be a listed transaction 
empt  from  Income  Tax,  and  indicate  on  its     sure requirements on a tax-exempt entity that is     after  the  entity  has  become  a  party  to  it,  is  a 
return that it has not yet received a determina-     a party to a prohibited tax shelter transaction.     subsequently listed transaction.
tion letter. In addition to the general information 
required  on  Form  990,  these  organizations       Tax-exempt entities. Tax-exempt entities that 
must  report  certain  information  regarding  re-   are subject to section 4965 include:                 Entity Level Tax
quired reserves.
                                                     1. Entities described in section 501(c), in-         Section 4965(a)(1) imposes an  entity  level  ex-
                                                       cluding but not limited to the following           cise tax on any tax-exempt entity described in 
                                                       common types of entities:                          1,  2,  3,  or  4  above  that  becomes  a  party  to  a 
                                                       a.    Instrumentalities of the United              prohibited tax shelter transaction or is a party to 
                                                             States described in section 501(c)(1);       a subsequently listed transaction (defined ear-
                                                                                                          lier).  The  excise  tax  imposed  on  a  tax-exempt 
                                                       b.    Churches, hospitals, museums,                entity applies to tax years in which the entity be-
5.                                                           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 
                                                             section 501(c)(3);                           amount  of  the  excise  tax  depends  on  whether 
Excise Taxes                                           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 
                                                             ployees described in section 501(c)          shelter transaction at the time it became a party 
                                                             (4);                                         to the transaction.
Introduction
                                                       d.    Labor, agricultural, or horticultural        To figure and report the excise tax imposed 
An  excise  tax  may  be  imposed  on  certain               organizations described in section           on a tax-exempt entity for being a party to a pro-
tax-exempt organizations.                                    501(c)(5);                                   hibited tax shelter transaction, file Form 4720.
Topics                                                 e.    Business leagues, chambers of                For more information about this excise tax, 
This chapter discusses:                                      commerce, trade associations, and            including  information  about  how  it  is  figured, 
                                                             other organizations described in sec-        see the Instructions for Form 4720.
                                                             tion 501(c)(6);
• Prohibited tax shelter transactions
• Excess benefit transactions                          f.    Voluntary employees' beneficiary             Manager Level Tax
• Excess business holdings                                   associations (VEBAs) described in 
• Taxable distributions of sponsoring                        section 501(c)(9);                           Section  4965(a)(2)  imposes  an  excise  tax  on 
                                                                                                          any  tax-exempt  entity  manager  who  approves 
  organizations                                        g.    Credit unions described in section           or otherwise causes the entity to be a party to a 
• Taxes on prohibited benefits distributed                   501(c)(14);                                  prohibited tax shelter transaction and knows (or 
  from donor advised funds
• Excise taxes on private foundations                  h.    Insurance companies described in             has  reason  to  know)  that  the  transaction  is  a 
• Excise taxes on section 501(c)(21) black                   section 501(c)(15); and                      prohibited  tax  shelter  transaction.  The  excise 
                                                                                                          tax, in the amount of $20,000, is assessed for 
  lung benefit trusts                                  i.     Veterans' organizations described           each approval or other act causing the organi-
• Excise Tax on Failure to Meet the                          in section 501(c)(19).                       zation to be a party to the prohibited tax shelter 
  Community Health Needs Assessment 
  Requirements of Hospitals                          2. Religious or apostolic associations or cor-       transaction. To report this tax, file Form 4720.
• Excise tax on excess tax-exempt                      porations described in section 501(d).
  organization executive compensation                3. Entities described in section 170(c), in-
• Excise tax on net investment income of               cluding states, possessions of the United          Excess Benefit 
  private colleges and universities                    States, the District of Columbia, political        Transactions
                                                       subdivisions of states and political subdivi-
Useful Items                                           sions of possessions of the United States          Excise  tax  on  excess  benefit  transactions. 
You may want to see:                                   (but not including the United States).             A disqualified person who benefits from an ex-
                                                     4. Indian tribal governments within the mean-        cess  benefit  transaction,  such  as  compensa-
Forms (and Instructions)                               ing of section 7701(a)(40).                        tion, fringe benefits, or contract payments from 
    4720 4720 Return of Certain Excise Taxes                                                              certain  section  501(c)(3),  501(c)(4),  or  501(c)
       Under Chapters 41 and 42 of the               Entity manager. An entity manager is any per-        (29) organizations, must correct the transaction 
       Internal Revenue Code                         son with authority or responsibility similar to that and may have to pay an excise tax under sec-
                                                     exercised by an officer, director, or trustee, and,  tion  4958.  A  manager  of  the  organization  may 
See  chapter  6  for  more  information  about  get- for any act, the person that has authority or re-    also  have  to  pay  an  excise  tax  under  section 
ting Form 4720.                                      sponsibility with respect to the prohibited trans-   4958. These taxes are reported on Form 4720.
                                                     action.                                              The excise taxes are imposed if an applica-
                                                                                                          ble tax-exempt organization provides an excess 
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benefit to a disqualified person and that benefit           Organization manager. An organization man-                 change  hands  between  a  willing  buyer  and  a 
exceeds the value of the benefit received in ex-            ager is any officer, director, or trustee of an ap-        willing  seller,  neither  being  under  any  compul-
change.                                                     plicable tax-exempt organization, or any individ-          sion to buy, sell, or transfer property or the right 
There  are  three  taxes  under  section  4958.             ual  having  powers  or  responsibilities  similar  to     to  use  property,  and  both  having  reasonable 
Disqualified  persons  are  liable  for  the  first  two    officers,  directors,  or  trustees  of  the  organiza-    knowledge of relevant facts.
taxes and certain organization managers are li-             tion,  regardless  of  title.  An  organization  man-
able for the third tax.                                     ager isn't considered to have participated in an           Donor advised fund transactions occurring 
Taxes  imposed  on  excess  benefit  transac-               excess  benefit  transaction  where  the  manager          after  August  17,  2006. For  a  donor  advised 
tions don't apply to a transaction under a written          has opposed the transaction in a manner con-               fund,  an  excess  benefit  transaction  includes  a 
contract  that  was  binding  on  September  13,            sistent with the fulfillment of the manager's re-          grant, loan, compensation, or other similar pay-
1995,  and  at  all  times  thereafter  before  the         sponsibilities to the organization. For example,           ment from the fund to a:
transaction occurred.                                       a  director  who  votes  against  giving  an  excess       • Donor or donor advisor;
                                                            benefit  would  ordinarily  not  be  subject  to  the      • Family member of a donor, or donor advi-
                                                            10% tax.                                                     sor;
Tax on Disqualified Persons                                                                                            • 35% controlled entity of a donor, or donor 
                                                            A person participates in a transaction know-                 advisor; or
An excise tax equal to 25% of the excess bene-              ingly if the person:                                       • 35% controlled entity of a family member 
fit is imposed on each excess benefit transac-              • Has actual knowledge of sufficient facts so                of a donor, or donor advisor.
tion between an applicable tax-exempt organi-                 that, based solely upon those facts, such 
zation  and  a  disqualified  person.  The                    transaction would be an excess benefit                   The excess benefit in this transaction is the 
disqualified  person  who  benefited  from  the               transaction;                                             amount  of  the  grant,  loan,  compensation,  or 
transaction is liable for the tax. See definition of        • Is aware that such a transaction under                   other  similar  payment.  For  additional  informa-
disqualified person, later at Disqualified person.            these circumstances may violate the provi-               tion, see the Instructions for Form 4720.
                                                              sions of federal tax law governing excess 
Additional tax on the disqualified person. If                 benefit transactions; and                                Supporting  organization  transactions  oc-
the 25% tax is imposed and the excess benefit               • Negligently fails to make reasonable at-                 curring after July 25, 2006. For any support-
transaction isn't corrected within the taxable pe-            tempts to ascertain whether the transac-                 ing  organization,  defined  in  section  509(a)(3), 
riod, an additional excise tax equal to 200% of               tion is an excess benefit transaction, or the            an  excess  benefit  transaction  includes  grants, 
the excess benefit is imposed on any disquali-                manager is in fact aware that it is such a               loans,  compensation,  or  other  similar  payment 
fied person involved.                                         transaction.                                             provided by the supporting organization to a:
                                                                                                                       • Substantial contributor,
If a disqualified person makes a payment of                 Knowing doesn't mean having reason to know.                • Family member of a substantial contribu-
less than the full correction amount, the 200%              The  organization  manager  ordinarily  won't  be            tor,
tax is imposed only on the unpaid portion of the            considered  knowing  if,  after  full  disclosure  of      • 35% controlled entity of a substantial con-
correction amount. If more than one disqualified            the factual situation to an appropriate professio-           tributor, or
person received an excess benefit from an ex-               nal, the organization manager relied on the pro-           • 35% controlled entity of a family member 
cess  benefit  transaction,  all  such  disqualified        fessional's reasoned written opinion on matters              of a substantial contributor.
persons  are  jointly  and  severally  liable  for  the     within the professional's expertise or if the man-
taxes.                                                      ager relied on the fact that the requirements for          Additionally,  an  excess  benefit  transaction 
To avoid the 200% tax, a disqualified person                the  rebuttable  presumption  of  reasonableness           includes  any  loans  provided  by  the  supporting 
must correct the excess benefit transaction dur-            have been satisfied. Participation by an organi-           organization to a disqualified person (other than 
ing the taxable period. The 200% tax is abated              zation  manager  is  willful  if  it  is  voluntary,  con- an organization described in section 509(a)(1), 
(refunded  if  collected)  if  the  excess  benefit         scious, and intentional. An organization manag-            (2), or (4)).
transaction is corrected within a 90-day correc-            er's participation is due to reasonable cause if           The excess benefit for substantial contribu-
tion period beginning on the date a statutory no-           the manager has exercised responsibility on be-            tors and parties related to those contributors in-
tice of deficiency is issued.                               half  of  the  organization  with  ordinary  business      cludes the amount of the grant, loan, compen-
Taxable period.         The taxable period means            care and prudence.                                         sation, or other similar payment. For additional 
                                                                                                                       information, see the Instructions for Form 4720.
the period beginning with the date on which the                                                                        Excess  benefit  transaction  rules  generally 
excess  benefit  transaction  occurs  and  ending           Excess Benefit Transaction                                 don't apply to transactions between a support-
on the earlier of:                                                                                                     ing organization and its supported organization 
• The date a notice of deficiency was mailed                An excess benefit transaction is a transaction in          described in section 501(c)(4), (5), or (6) in fur-
  to the disqualified person for the initial tax            which  an  economic  benefit  is  provided  by  an         therance of charitable purposes.
  on the excess benefit transaction, or                     applicable  tax-exempt  organization,  directly  or 
• The date on which the initial tax on the ex-              indirectly,  to  or  for  the  use  of  any  disqualified 
  cess benefit transaction for the disqualified             person, and the value of the economic benefit              Date of Occurrence
  person is assessed.                                       provided by the organization exceeds the value 
                                                            of the consideration (including the performance            An  excess  benefit  transaction  occurs  on  the 
Tax on Organization                                         of services) received for providing such benefit.          date  the  disqualified  person  receives  the  eco-
                                                            The excess benefit transaction rules apply to all          nomic benefit from the organization for federal 
Managers                                                    transactions  with  disqualified  persons,  regard-        income tax purposes. However, when a single 
                                                            less of whether the amount of the benefit provi-           contractual arrangement provides for a series of 
If  tax  is  imposed  on  a  disqualified  person  for      ded is determined in whole or in part by the rev-          compensation  or  other  payments  to  or  for  the 
any  excess  benefit  transaction,  an  excise  tax         enues  of  one  or  more  activities  of  the              use of a disqualified person during the disquali-
equal to 10% of the excess benefit is imposed               organization.                                              fied person's tax year, any excess benefit trans-
on  an  organization  manager  who  knowingly                                                                          action  with  respect  to  these  payments  occurs 
participated  in  an  excess  benefit  transaction,         To  determine  whether  an  excess  benefit                on the last day of the taxpayer's tax year.
unless such participation wasn't willful and was            transaction has occurred, all consideration and 
due to reasonable cause. This tax can't exceed              benefits exchanged between a disqualified per-             In  the  case  of  benefits  provided  to  a  quali-
$20,000 ($10,000 for transactions entered in a              son  and  the  applicable  tax-exempt  organiza-           fied  pension,  profit-sharing,  or  stock  bonus 
tax year beginning before August 18, 2006), for             tion,  and  all  entities  it  controls,  are  taken  into plan,  the  transaction  occurs  on  the  date  the 
each transaction. There is also joint and several           account. For purposes of determining the value             benefit is vested. In the case of the transfer of 
liability  for  this  tax.  A  person  can  be  liable  for of economic benefits, the value of property, in-           property  subject  to  a  substantial  risk  of  forfei-
both the tax paid by the disqualified person and            cluding the right to use property, is the fair mar-        ture, or in the case of rights to future compensa-
the organization manager tax for a particular ex-           ket value. Fair market value is the price at which         tion  or  property,  the  transaction  occurs  on  the 
cess benefit transaction.                                   property,  or  the  right  to  use  property,  would       date  the  property,  or  the  rights  to  future 
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compensation  or  property,  isn't  subject  to  a        a. Exempt from (or not subject to) taxa-               (whether  by  whole  or  half-blood),  ancestors, 
substantial risk of forfeiture. Where the disquali-       tion without regard to section 501(a),                 children  (including  a  legally  adopted  child), 
fied person elects to include an amount in gross          or                                                     grandchildren,  great  grandchildren,  and  spou-
income in the tax year of transfer under section          b. Not required to file an annual return,              ses of children, grandchildren, and great grand-
83(b), the excess benefit transaction occurs on           or                                                     children (whether by whole or half-blood).
the  date  the  disqualified  person  receives  the 
economic benefit for federal income tax purpo-          3. A foreign organization, recognized by the             35%  controlled  entity. A  35%  controlled  en-
ses.                                                      IRS or by treaty, that receives substantially          tity is:
                                                          all of its support (other than gross invest-           1. A corporation in which disqualified per-
Correcting  the  excess  benefit. An  excess              ment income) from sources outside the                    sons own more than 35% of the total com-
benefit transaction is corrected by undoing the           United States.                                           bined voting power,
excess  benefit  to  the  extent  possible,  and  by 
taking  any  additional  measures  necessary  to         An  organization  isn't  treated  as  a  section        2. A partnership in which such persons own 
place the organization in a financial position not      501(c)(3), 501(c)(4), or 501(c)(29) organization           more than 35% of the profits interest, or
worse than what it would have been if the dis-          for any period covered by a final determination          3. A trust or estate in which such persons 
qualified person were dealing under the highest         that  the  organization  wasn't  tax-exempt  under         own more than 35% of the beneficial inter-
fiduciary standards.                                    section  501(a),  but  only  if  the  determination        est.
A  disqualified  person  corrects  an  excess           wasn't  based  on  private  inurement  or  one  or 
benefit  by  making  a  payment  in  cash  or  cash     more excess benefit transactions.                         In  determining  the  holdings  of  a  business 
equivalents,  excluding  payment  by  a  promis-                                                                 enterprise, any stock or other interest owned di-
sory note, equal to the correction amount to the        Disqualified Person                                      rectly or indirectly shall apply.
applicable tax-exempt organization. The correc-
tion amount equals the excess benefit plus the                                                                   Persons  having  substantial  influence. 
interest on the excess benefit. The interest rate       A disqualified person is:                                Among those who are in a position to exercise 
can  be  no  lower  than  the  applicable  federal      • Any person (at any time during the 5-year              substantial  influence  over  the  affairs  of  the  or-
rate,  compounded  annually,  for  the  month  the        period ending on the date of the transac-              ganization are, for example, voting members of 
transaction occurred.                                     tion) in a position to exercise substantial in-        the  governing  body,  and  persons  holding  the 
                                                          fluence over the affairs of the organization,          power of:
ment of the applicable tax-exempt organization,         •
A  disqualified  person  can,  with  the  agree-          A family member of an individual described             • Presidents, chief executives, or chief oper-
                                                          in (1), and                                              ating officers;
erty previously transferred in the excess trans-        •
make a payment by returning the specific prop-            A 35% controlled entity.                               • Treasurers and chief financial officers; or
action.  In  this  case,  the  disqualified  person  is For  donor  advised  funds,  sponsoring  or-             • Persons with a material financial interest in 
                                                                                                                   a provider-sponsored organization.
treated  as  making  a  payment  equal  to  the         ganizations, and certain supporting organi-
lesser of:                                              zations  occurring  after  August  17,  2006.             Persons  not  considered  to  have  sub-
• The fair market value of the property on the          The  following  persons  will  be  considered  dis-      stantial influence. Persons who aren't consid-
  date the property is returned to the organi-          qualified  persons  along  with  certain  family         ered to be in a position to exercise substantial 
  zation, or                                            members  and  35%  controlled  entities  associ-         influence over the affairs of an organization in-
• The fair market value of the property on the          ated with them.                                          clude:
  date the excess benefit transaction occur-            • Donors of donor advised funds,                         • An employee who receives benefits that 
  red.                                                  • Investment advisors of sponsoring organi-                total less than the highly compensated 
If  the  payment  resulting  from  the  return  of        zations, and                                             amount in section 414(q)(1)(B)(i) and who 
property is less than the correction amount, the        • Disqualified persons of a section 509(a)(3)              doesn't hold the executive or voting pow-
disqualified  person  must  make  an  additional          supporting organization that supports the                ers mentioned earlier in the discussion on 
cash  payment  to  the  organization  equal  to  the      applicable tax-exempt organization.                      Disqualified Person, isn't a family member 
difference.                                                                                                        of a disqualified person, and isn't a sub-
If  the  payment  resulting  from  the  return  of       For  certain  supporting  organization                    stantial contributor,
the property exceeds the correction amount de-          transactions  occurring  after  July  25,  2006.           Tax-exempt organizations described in 
scribed  above,  the  organization  can  make  a        Substantial contributors to supporting organiza-         •
                                                                                                                   section 501(c)(3), and
cash payment to the disqualified person equal           tions  will  also  be  considered  disqualified  per-      Section 501(c)(4) organizations with re-
to the difference.                                      sons  with  respect  to  the  supporting  organiza-      •
                                                                                                                   spect to transactions engaged in with other 
                                                        tions, along with their family members and 35%             section 501(c)(4) organizations.
Exception.   For  a  correction  of  an  excess         controlled entities.
benefit  transaction  (discussed  earlier),  no                                                                   Facts  and  circumstances.      The  determi-
amount  repaid  in  a  manner  prescribed  by  the       Investment  advisor.     Investment  advisor            nation of whether a person has substantial influ-
Secretary can be held in a donor advised fund.          means  for  any  sponsoring  organization,  any          ence over the affairs of an organization is based 
                                                        person compensated by such organization (but             on  all  the  facts  and  circumstances.  Facts  and 
                                                        not an employee of such organization) for man-           circumstances that tend to show a person has 
Applicable Tax-Exempt                                   aging the investment of, or providing investment         substantial  influence  over  the  affairs  of  an  or-
Organization                                            advice for, assets maintained in donor advised           ganization include, but aren't limited to, the fol-
                                                        funds owned by such sponsoring organization.
An applicable tax-exempt organization is a sec-                                                                  lowing.
tion  501(c)(3),  501(c)(4),  or  501(c)(29)  organi-    Substantial contributor.      In general, a sub-        • The person founded the organization.
zation that is tax-exempt under section 501(a),         stantial contributor means any person who con-           • The person is a substantial contributor to 
or was such an organization at any time during          tributed  or  bequeathed  an  aggregate  of  more          the organization under the section 507(d)
a 5-year period ending on the day of the excess         than $5,000 to the organization, if that amount            (2)(A) definition, only taking into account 
benefit transaction.                                    is  more  than  2%  of  the  total  contributions  and     contributions to the organization for the 
                                                        bequests received by the end of the organiza-              past 5 years.
An  applicable  tax-exempt  organization                tion's  tax  year  in  which  the  contribution  or  be- • The person's compensation is primarily 
doesn't include:                                        quest  is  received.  A  substantial  contributor  in-     based on revenues derived from activities 
                                                        cludes the grantor of a trust.                             of the organization that the person con-
1. A private foundation as defined in section                                                                      trols.
     509(a),                                            Family  members.    Family  members  of  a  dis-         • The person has or shares authority to con-
2. A governmental entity that is:                       qualified person include a disqualified person's           trol or determine a substantial portion of 
                                                        spouse,  brothers  or  sisters  (whether  by  whole 
                                                        or  half-blood),  spouses  of  brothers  or  sisters 
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  the organization's capital expenditures, op-          are disregarded under the discussion Disregar-           gross receipts of less than $1 million, ap-
  erating budget, or compensation for em-               ded  benefits,  later).  Items  of  compensation  in-    propriate comparability data includes data 
  ployees.                                              clude:                                                   on compensation paid by three compara-
• The person manages a discrete segment                 • All forms of cash and noncash compensa-                ble organizations in the same or similar 
  or activity of the organization that repre-             tion, including salary, fees, bonuses, sev-            communities for similar services.)
  sents a substantial portion of the activities,          erance payments, and deferred noncash                3. The authorized body adequately docu-
  assets, income, or expenses of the organi-              compensation;                                          ments the basis for its determination con-
  zation, as compared to the organization as            • The payment of liability insurance premi-              currently with making that determination. 
  a whole.                                                ums for, or the payment or reimbursement               The documentation should include:
• The person owns a controlling interest                  by the organization of penalties, taxes, or 
  (measured by either vote or value) in a cor-            certain expenses under section 4958, un-               a. The terms of the approved transaction 
  poration, partnership, or trust that is a dis-          less excludable from income as a de mini-              and the date approved,
  qualified person.                                       mis fringe benefit under section 132(a)(4);            b. The members of the authorized body 
• The person is a nonstock organization                 • All other compensatory benefits, whether               who were present during debate on 
  controlled directly or indirectly by one or             or not included in gross income for income             the transaction that was approved 
  more disqualified persons.                              tax purposes;                                          and those who voted on it,
Facts  and  circumstances  tending  to  show            • Taxable and nontaxable fringe benefits, 
that a person doesn't have substantial influence          except fringe benefits described in section            c. The comparability data obtained and 
over  the  affairs  of  an  organization  include,  but   132; and                                               relied upon by the authorized body 
aren't limited to, the following.                       • Foregone interest on loans.                            and how the data was obtained,
• The person has taken a bona fide vow of               Intent to treat benefits as compensation.                d. Any actions by a member of the au-
  poverty as an employee or agent of a reli-            An economic benefit isn't treated as considera-          thorized body having conflict of inter-
  gious organization or on its behalf.                  tion for the performance of services unless the          est, and
• The person is an independent contractor               organization  providing  the  benefit  clearly  indi-
  whose sole relationship to the organization           cates its intent to treat the benefit as compensa-       e. Documentation of the basis of the de-
  is providing professional advice (without             tion when the benefit is paid.                           termination before the later of the next 
  having decision-making authority) with re-            An  applicable  tax-exempt  organization  (or            meeting of the authorized body or 60 
  spect to transactions from which the inde-            entity that it controls) is treated as clearly indi-     days after the final actions of the au-
  pendent contractor won't economically                 cating its intent to provide an economic benefit         thorized body are taken, and approval 
  benefit either directly or indirectly aside           as compensation for services only if the organi-         of records as reasonable, accurate, 
  from customary fees received for the pro-             zation  provides  written  substantiation  that  is      and complete within a reasonable 
  fessional advice rendered.                            contemporaneous with the transfer of the eco-            time thereafter.
• Any preferential treatment the person re-             nomic  benefits  under  consideration.  Ways  to       Disregarded  benefits. The  following  eco-
  ceives based on the size of the person's              provide  contemporaneous  written  substantia-         nomic benefits are disregarded for section 4958 
  donation is also offered to others making             tion of its intent to provide an economic benefit      purposes.
  comparable widely solicited donations.                as compensation include:                               • Nontaxable fringe benefits that are exclu-
• The direct supervisor of the person isn't a           • The organization produces a signed writ-               ded from income under section 132.
  disqualified person.                                    ten employment contract;                             • Benefits provided to a volunteer for the or-
• The person doesn't participate in any man-            • The organization reports the benefit as                ganization if the benefit is provided to the 
  agement decisions affecting the organiza-               compensation on an original Form W-2,                  general public in exchange for a member-
  tion as a whole or a discrete segment of                Form 1099, or Form 990, or on an amen-                 ship fee or contribution of $75 or less.
  the organization that represents a substan-             ded form filed before starting an IRS ex-            • Benefits provided to a member of an or-
  tial portion of the activities, assets, income,         amination; or                                          ganization due to the payment of a mem-
  or expenses of the organization, as com-              • The disqualified person reports the benefit            bership fee or to a donor as a result of a 
  pared to the organization as a whole.                   as income on the person's original Form                deductible contribution, if a significant 
In  the  case  of  multiple  organizations  affili-       1040 or 1040-SR, or on an amended form                 number of disqualified persons make simi-
ated  by  common  control  or  governing  docu-           filed before starting an IRS examination.              lar payments or contributions and are of-
ments,  the  determination  of  whether  a  person      Exception.   If the economic benefit is exclu-           fered a similar economic benefit.
does  or  doesn't  have  substantial  influence  is     ded from the disqualified person's gross income        • Benefits provided to a person solely as a 
made  separately  for  each  applicable  tax-ex-        for income tax purposes, the applicable tax-ex-          member of a charitable class that the appli-
empt organization. A person may be a disquali-          empt  organization  isn't  required  to  indicate  its   cable tax-exempt organization intends to 
fied  person  with  respect  to  transactions  with     intent  to  provide an economic benefit  as com-         benefit as part of the accomplishment of its 
more than one organization.                             pensation for services.                                  exempt purpose.
                                                                                                               • A transfer of an economic benefit to or for 
Reasonable  compensation.         Reasonable            Rebuttable  presumption  that  a  transac-               the use of a governmental unit, as defined 
compensation is the value that would ordinarily         tion  isn't  an  excess  benefit  transaction.           in section 170(c)(1), if exclusively for public 
be paid for like services by like enterprises un-       Payments  under  a  compensation  arrangement            purposes.
der like circumstances. The section 162 stand-          are presumed to be reasonable and the transfer 
ard  will  apply  in  determining  the  reasonable-     of  property  (or  right  to  use  property)  is  pre- Special exception for initial contracts. 
ness of compensation. The fact that a bonus or          sumed to be at fair market value, if the following     Section  4958  doesn't  apply  to  any  fixed  pay-
revenue-sharing  arrangement  is  subject  to  a        three conditions are met.                              ment made to a person under an initial contract.
cap is a relevant factor in determining reasona-                                                               A  fixed  payment  is  an  amount  of  cash  or 
bleness of compensation.                                1. The transaction is approved in advance by           other property specified in the contract, or de-
To  determine  the  reasonableness  of  com-              an authorized body of the organization (or           termined by a fixed formula that is specified in 
pensation,  all  items  of  compensation  provided        an entity it controls) which is composed of          the contract, which is to be paid or transferred 
by an applicable tax-exempt organization in ex-           individuals who don't have a conflict of in-         in exchange for the provision of specified serv-
change  for  performance  of  services  are  taken        terest concerning the transaction.                   ices or property.
into  account  in  determining  the  value  of  com-    2. Before making its determination, the au-            A  fixed  formula  can,  generally,  incorporate 
pensation  (except  for  economic  benefits  that         thorized body obtained and relied upon               an amount that depends upon future specified 
                                                          appropriate data as to comparability.                events or contingencies, as long as no one has 
                                                          (There is a special safe harbor for small            discretion  when  calculating  the  amount  of  a 
                                                          organizations. If the organization has               payment  or  deciding  whether  to  make  a  pay-
                                                                                                               ment (such as a bonus).

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    An  initial  contract  is  a  binding  written  con-  connected with the production of such in-                 A foundation that fails to correct the excess 
tract between an applicable tax-exempt organi-            come,                                                  business  holdings  becomes  liable  for  an  addi-
zation  and  a  person  who  wasn't  a  disqualified      2. The tax imposed by chapter 1 of the Code            tional tax of 200% of the remaining excess busi-
person  immediately  before  entering  into  the          on the business enterprise for the tax year,           ness  holdings  as  of  the  earlier  of  tax  assess-
contract.                                                 and                                                    ment or mailing of a notice of deficiency.
    A  binding  written  contract,  providing  it  can                                                              For  more  information  on  the  tax  on  excess 
be  terminated  or  canceled  by  the  applicable         3. An amount for a reasonable reserve for              business holdings, see the Instructions for Form 
tax-exempt  organization  without  the  other  par-       working capital and other business needs               4720.
ty's  consent  (except  as  a  result  of  substantial    of the business enterprise.
nonperformance)  and  without  substantial  pen-
alty, is treated as a new contract, as of the earli-      
est  date  any  termination  or  cancellation  would     The requirements of section 4943(g)(4) are met          Taxable Distributions of 
be effective. Also, if the parties make a material       if, at all times during the tax year:                   Sponsoring 
change to a contract, which includes an exten-            1. No substantial contributor (as defined in 
sion  or  renewal  of  the  contract  (except  for  an    section 4958(c)(3)(C)) to the private foun-            Organizations
extension or renewal resulting from the exercise          dation or family member (as determined 
of  an  option  by  the  disqualified  person),  or  a    under section 4958(f)(4)) of such a con-               An excise tax under section 4966 is imposed on 
more than incidental change to the amount pay-            tributor is a director, officer, trustee, man-         a sponsoring organization for each taxable dis-
able  under  the  contract,  it  is  treated  as  a  new  ager, employee, or contractor of the busi-             tribution it makes from a donor advised fund. An 
contract as of the effective date of the material         ness enterprise (or an individual having               excise  tax  is  also  imposed  on  any  fund  man-
change.                                                   powers or responsibilities similar to any of           ager of the sponsoring organization who agreed 
    More  information. For  more  information,            the foregoing);                                        to the making of a distribution, knowing that it is 
                                                                                                                 a taxable distribution.
see the Instructions for Forms 990 and 4720.              2. At least a majority of the board of directors 
                                                          of the private foundation are persons who              Taxable distribution.  A taxable distribution is 
                                                          are not (i) directors or officers of the busi-         any  distribution  from  a  donor  advised  fund  to 
Excess Business                                           ness enterprise, or (ii) family members of a           any natural person or to any other person if:
                                                          substantial contributor to the private foun-
Holdings                                                  dation; and                                            1. The distribution is for any purpose other 
                                                                                                                     than one specified in section 170(c)(2)(B), 
General  rule. Private  foundations  are  gener-          3. There is no loan outstanding from the                   or
ally not permitted to hold more than a 20% inter-         business enterprise to a substantial con-              2. The sponsoring organization maintaining 
est  in  an  unrelated  business  enterprise.  They       tributor to the private foundation or to any               the donor advised fund doesn't exercise 
may be subject to an excise tax on the amount             family member of such a contributor.                       expenditure responsibility with respect to 
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       However,  a  taxable  distribution  doesn't  in-
tain  supporting  organizations  are  considered         section 4943(e), a supporting organization trea-        clude a distribution from a donor advised fund 
private foundations.                                     ted as a private foundation by section 4943(f), a       to:
                                                         trust described in section 4947(a)(1), or a trust 
Exception  under  section  4943(g). Section              described in section 4947(a)(2).                        •   Any organization described in section 
                                                                                                                     170(b)(1)(A) (other than a disqualified sup-
4943(g) added by the Bipartisan Budget Act of                                                                        porting organization),
2018,  P.L.  No.  115-123,  132  Stat.  64  (2018),      Section 4943(g) shall apply to tax years begin-             The sponsoring organization of the donor 
provides  an  exception  for  certain  limited  hold-    ning after December 31, 2017.                           •
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-
 1. 100% of the voting stock in the business             Supporting  organizations. Only  certain  sup-          red to in section 170(c)(1) and (2)(A)) nor a pri-
    enterprise is held by the private foundation         porting organizations are subject to the excess         vate foundation.
    at all times during the tax year, and                business  holdings  tax  under  section  4943. 
                                                         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       1. Which is separately identified by reference 
    than purchase, such as a gift or bequest.            any gift or contribution from a person who alone            to contributions of a donor or donors,
                                                         or in connection with a related party controls the 
The requirements of section 4943(g)(3) are met           supported organization that the Type II support-        2. Which is owned and controlled by a spon-
if  the  business  enterprise,  no  later  than  120     ing organization supports.                                  soring organization, and
                                                                                                                 3. For which the donor (or any person ap-
days after the close of the tax year, distributes        Taxes. A  private  foundation  that  has  excess            pointed or designated by the donor) has or 
an amount equal to its net operating income for          holdings in a business enterprise may become                expects to have advisory privileges con-
such tax year to the private foundation. For pur-        liable for an excise tax based on the amount of             cerning the distribution or investment of 
poses of section 4943(g), the net operating in-          holdings. The initial tax is 10% (5% for tax years          the funds held in the donor advised funds 
come  of  any  business  enterprise  for  any  tax       beginning before August 18, 2006) of the value              or accounts because of the donor's status 
year is an amount equal to the gross income of           of  the  excess  holdings  and  is  imposed  on  the        as a donor.
the  business  enterprise  for  the  tax  year,  re-     last  day  of  each  tax  year  that  ends  during  the 
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.                                           
                                                                                                                     
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the tax base on private foundation net invest-
Exception. A donor advised fund doesn't ment income. This tax must be reported on
include: Taxes on Prohibited Form 990-PF and must be paid annually at the
time for filing that return or in quarterly estima-
1. A fund or account that makes distributions Benefits Resulting from ted tax payments if the total tax for the year
only to a single identified organization or
governmental entity; or Donor Advised Fund (section 4940 tax minus credits) is $500 or
more. Form 990-W is used to calculate the esti-
2. Any fund or account for a person descri- Distributions mated tax.
bed in 3 above that gives advice about
which individuals receive grants for travel, Prohibited benefit. If any donor, donor advi- In addition, there are several other rules that
study, or similar purposes, if the following sor, or related party advises the sponsoring or- apply to excise taxes on private foundations.
three requirements are met: ganization about making a distribution which re- These include:
sults in a donor, donor advisor, or related party 1. Restrictions on self-dealing between pri-
a. The person's advisory privileges are receiving (either directly or indirectly) a more vate foundations and their substantial con-
performed exclusively by such person than incidental benefit, then such benefit is a tributors and other disqualified persons,
in their capacity as a committee mem- prohibited benefit. The tax on prohibited bene-
ber of which all the committee mem- fits applies to distributions occurring in tax years 2. Requirements that the foundation annually
bers are appointed by the sponsoring beginning after August 17, 2006. distribute income for charitable purposes,
organization,
3. Limits on their holdings in any business
b. No combination of persons with advi- Donor advisor. A donor advisor is any person enterprise (see Excess Business Hold-
sory privileges, described in 3 above, appointed or designated by a donor to advise a ings, earlier),
or persons related to those in 3 above sponsoring organization on the distribution or
directly or indirectly control the com- investment of amounts held in the donor's fund 4. Provisions that investments mustn't jeop-
mittee, and or account. ardize the carrying out of exempt purpo-
ses, and
c. All grants from the fund or account are Related party. A related party includes any 5. Provisions to assure that expenditures fur-
awarded on an objective and nondis- family member or 35% controlled entity. See ther the organization's exempt purposes.
criminatory basis according to a pro- the definition of those terms under Disqualified
cedure approved in advance by the Person, earlier. Violations of these provisions give rise to
board of directors of the sponsoring taxes and penalties against the private founda-
organization. The procedure must be Tax on donor, donor advisor, or related per- tion and, in some cases, its managers, its sub-
designed to ensure that all grants son. A tax of 125% of the benefit resulting from stantial contributors, and certain related per-
meet the requirements of section the distribution is imposed on both the party sons.
4945(g)(1), (2), or (3). who advised as to the distribution (which might
be a donor, donor advisor, or related party) and For more information on the excise taxes im-
Disqualified supporting organization. A dis- the party who received such benefit (which posed on private foundations, see the Instruc-
qualified supporting organization includes (1) a might be a donor, donor advisor, or related tions for Form 4720 and the Instructions for
Type III supporting organization that isn't func- party). The advisor and the party who received Form 990-PF.
tionally integrated, and (2) any supporting or- the benefit are jointly and severally liable for the
ganization where the donor or donor advisor tax.
(and any related parties) directly or indirectly Excise Taxes on Black
controls a supported organization of the sup- Tax on fund managers. If a tax is imposed on
porting organization. a prohibited benefit received by a donor, donor Lung Benefit Trusts
advisor, or related person, a tax of 10% of the
Tax on sponsoring organization. A tax of amount of the prohibited benefit is imposed on A black lung benefit trust that makes any ex-
20% of the amount of each taxable distribution any fund manager who agreed to the distribu- penditures, payments, or investments other
is imposed on the sponsoring organization. tion knowing that it would confer a prohibited than those described in chapter 4 under 501(c)
benefit. Any fund manager who took part in the (21) - Black Lung Benefit Trusts must pay a tax
Tax on fund manager. If a tax is imposed on distribution and is liable for the tax must pay the equal to 10% of the amount of such expendi-
a taxable distribution of the sponsoring organi- tax. The maximum amount of tax on all fund tures. If there are any acts of self-dealing be-
zation, a tax of 5% of the distribution will be im- managers for any one taxable distribution is tween the trust and a disqualified person, a tax
posed on any fund manager who agreed to the $10,000. If more than one fund manager is lia- equal to 10% of the amount involved is imposed
distribution knowing that it was a taxable distri- ble for tax on a taxable distribution, all such on the disqualified person. Both of these excise
bution. Any fund manager who took part in the managers are jointly and severally liable for the taxes are reported on Form 6069. See the In-
distribution and is liable for the tax must pay the tax. structions for Form 6069 and Form 990 for
tax. The maximum amount of tax on all fund more information on these taxes and what has
managers for any one taxable distribution is Exception. If a person engaged in an excess to be filed, even if the trust is excepted from fil-
$10,000. If more than one fund manager is lia- benefit transaction and received a prohibited ing.
ble for tax on a taxable distribution, all such benefit for the same transaction, the person is
managers are jointly and severally liable for the taxed under section 4958, and no tax is im-
tax. posed under section 4967 for a prohibited ben- Excise Tax on Failure To
For more information on the tax on taxable efit.
distributions of sponsoring organizations, see For more information on taxes on prohibited Meet the Community
the Instructions for Form 4720. benefits distributed from donor advised funds, Health Needs
see the Instructions for Form 4720.
Assessment
Requirements
Excise Taxes on Private
Foundations For tax years beginning after March 23, 2012,
new section 4959 imposes an excise tax on
There is an excise tax on the net investment in- hospital organizations which fail to meet certain
come of most domestic private foundations. section 501(r) requirements for each of their
Capital gains from appreciation are included in hospital facilities. These entities must meet sec-
tion 501(r)(3) requirements at all times during
Chapter 5 Excise Taxes Page 65

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their tax year. Section 501(r)(3) requirements • The Online EIN Application IRS.gov/EIN ( )
pertain to a hospital organization preparing a helps you get an employer identification
community health needs assessment (CHNA). How To Get Tax Help number (EIN) at no cost.
See Schedule H, Hospitals (Form 990), for de- • The Tax Withholding Estimator IRS.gov/ (
tails. If you have questions about a tax issue; need W4app) makes it easier for you to estimate
help preparing your tax return; or want to down- the federal income tax you want your em-
load free publications, forms, or instructions, go ployer to withhold from your paycheck.
Excise Tax on Executive to IRS.gov to find resources that can help you This is tax withholding. See how your with-
right away. holding affects your refund, take-home
Compensation pay, or tax due.
Preparing and filing your tax return. After
New section 4960 imposes an excise tax on an receiving all your wage and earnings state- • The First-Time Homebuyer Credit Account
organization that pays to any covered employee ments (Forms W-2, W-2G, 1099-R, 1099-MISC, Look-up IRS.gov/HomeBuyer ( ) tool pro-
more than $1 million in remuneration or pays an 1099-NEC, etc.); unemployment compensation vides information on your repayments and
excess parachute payment during the year statements (by mail or in a digital format) or account balance.
starting in 2018. See section 4960 and Form other government payment statements (Form • The Sales Tax Deduction Calculator
4720, Return of Certain Excise Taxes Under 1099-G); and interest, dividend, and retirement (IRS.gov/SalesTax) figures the amount you
Chapters 41 and 42 of the Internal Revenue statements from banks and investment firms can claim if you itemize deductions on
Code, final regulations TD 9938 (Regulations (Forms 1099), you have several options to Schedule A (Form 1040).
sections 53.4960-0 through 53.4960-6), and choose from to prepare and file your tax return. Getting answers to your tax ques-
Notice 2019-09, 2019-04 I.R.B. 403, for more You can prepare the tax return yourself, see if tions. On IRS.gov, you can get
information. you qualify for free tax preparation, or hire a tax up-to-date information on current
professional to prepare your return. events and changes in tax law.
Excise Tax on Net Free options for tax preparation. Go to • IRS.gov/Help: A variety of tools to help you
IRS.gov to see your options for preparing and get answers to some of the most common
Investment Income of filing your return online or in your local commun- tax questions.
ity, if you qualify, which include the following. • IRS.gov/ITA: The Interactive Tax Assistant,
Certain Colleges and • Free File. This program lets you prepare a tool that will ask you questions and,
Universities and file your federal individual income tax based on your input, provide answers on a
return for free using brand-name tax-prep- number of tax law topics.
New section 4968 imposes an excise tax on the aration-and-filing software or Free File filla- • IRS.gov/Forms: Find forms, instructions,
net investment income of certain private col- ble forms. However, state tax preparation and publications. You will find details on
leges and universities. A private college or uni- may not be available through Free File. Go the most recent tax changes and interac-
versity will be subject to the excise tax on net in- to IRS.gov/FreeFile to see if you qualify for tive links to help you find answers to your
vestment income under section 4968 if four free online federal tax preparation, e-filing, questions.
tests are met. and direct deposit or payment options. • You may also be able to access tax law in-
• VITA. The Volunteer Income Tax Assis- formation in your electronic filing software.
1. The organization must be an eligible edu- tance (VITA) program offers free tax help
cational institution as defined in section to people with low-to-moderate incomes, Need someone to prepare your tax return?
25A(f)(2). Section 25A(f)(2) defines “eligi- persons with disabilities, and limited-Eng- There are various types of tax return preparers,
ble educational institution” as an institution lish-speaking taxpayers who need help including enrolled agents, certified public ac-
that is described in section 481 of the preparing their own tax returns. Go to countants (CPAs), accountants, and many oth-
Higher Education Act of 1965 (20 U.S.C. IRS.gov/VITA, download the free IRS2Go ers who don’t have professional credentials. If
section 1088), as in effect on August 5, app, or call 800-906-9887 for information you choose to have someone prepare your tax
1997, and is eligible to participate in a pro- on free tax return preparation. return, choose that preparer wisely. A paid tax
gram under Title IV of such Act (20 U.S.C. • TCE. The Tax Counseling for the Elderly preparer is:
sections 1070 et seq.). (TCE) program offers free tax help for all • Primarily responsible for the overall sub-
2. The organization must have had at least taxpayers, particularly those who are 60 stantive accuracy of your return,
500 tuition-paying students, based upon a years of age and older. TCE volunteers • Required to sign the return, and
daily average student count, during the specialize in answering questions about • Required to include their preparer tax iden-
preceding tax year. pensions and retirement-related issues tification number (PTIN).
unique to seniors. Go to IRS.gov/TCE,
3. More than 50% of those students must download the free IRS2Go app, or call Although the tax preparer always signs the
have been located in the United States. 888-227-7669 for information on free tax return, you're ultimately responsible for provid-
4. The aggregate fair market value, at the return preparation. ing all the information required for the preparer
end of the preceding tax year, of the as- • MilTax. Members of the U.S. Armed to accurately prepare your return. Anyone paid
sets not used directly in carrying out the Forces and qualified veterans may use Mil- to prepare tax returns for others should have a
organization’s exempt purpose, held by Tax, a free tax service offered by the De- thorough understanding of tax matters. For
the organization and related organizations, partment of Defense through Military One- more information on how to choose a tax pre-
must be at least $500,000 per student. Source. For more information, go to parer, go to Tips for Choosing a Tax Preparer
MilitaryOneSource MilitaryOneSource.mil/ ( on IRS.gov.
See the Instructions for Form 990, Part V, MilTax).
Line 16 for more information about organiza- Also, the IRS offers Free Fillable Coronavirus. Go to IRS.gov/Coronavirus for
tions subject to the excise tax. See Instructions Forms, which can be completed online and links to information on the impact of the corona-
for Form 4720, Schedule O, and final regula- then filed electronically regardless of in- virus, as well as tax relief available for individu-
tions TD 9917 (Regulations sections 53.4968-1 come. als and families, small and large businesses,
through 53.4968-4) for more information about and tax-exempt organizations.
calculating the excise tax. Using online tools to help prepare your re-
turn. Go to IRS.gov/Tools for the following. Employers can register to use Business
• The Earned Income Tax Credit Assistant Services Online. The Social Security Adminis-
(IRS.gov/EITCAssistant) determines if tration (SSA) offers online service at SSA.gov/
you’re eligible for the earned income credit employer for fast, free, and secure online W-2
(EIC). filing options to CPAs, accountants, enrolled

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agents, and individuals who process Form W-2, may need. Or, you can go to IRS.gov/ sonal or financial information. This in-
Wage and Tax Statement, and Form W-2c, OrderForms to place an order. cludes requests for personal identification
Corrected Wage and Tax Statement. numbers (PINs), passwords, or similar in-
Getting tax publications and instructions in formation for credit cards, banks, or other
IRS social media. Go to IRS.gov/SocialMedia eBook format. You can also download and financial accounts.
to see the various social media tools the IRS view popular tax publications and instructions • Go to IRS.gov/IdentityTheft, the IRS Iden-
uses to share the latest information on tax (including the Instructions for Form 1040) on tity Theft Central webpage, for information
changes, scam alerts, initiatives, products, and mobile devices as eBooks at IRS.gov/eBooks. on identity theft and data security protec-
services. At the IRS, privacy and security are tion for taxpayers, tax professionals, and
our highest priority. We use these tools to share Note. IRS eBooks have been tested using businesses. If your SSN has been lost or
public information with you. Don’t post your so- Apple's iBooks for iPad. Our eBooks haven’t stolen or you suspect you’re a victim of
cial security number (SSN) or other confidential been tested on other dedicated eBook readers, tax-related identity theft, you can learn
information on social media sites. Always pro- and eBook functionality may not operate as in- what steps you should take.
tect your identity when using any social net- tended. • Get an Identity Protection PIN (IP PIN). IP
working site. PINs are six-digit numbers assigned to tax-
The following IRS YouTube channels pro- Access your online account (individual tax- payers to help prevent the misuse of their
vide short, informative videos on various tax-re- payers only). Go to IRS.gov/Account to se- SSNs on fraudulent federal income tax re-
lated topics in English, Spanish, and ASL. curely access information about your federal tax turns. When you have an IP PIN, it pre-
• Youtube.com/irsvideos. account. vents someone else from filing a tax return
• Youtube.com/irsvideosmultilingua. • View the amount you owe and a break- with your SSN. To learn more, go to
• Youtube.com/irsvideosASL. down by tax year. IRS.gov/IPPIN.
• See payment plan details or apply for a
Watching IRS videos. The IRS Video portal new payment plan. Ways to check on the status of your refund.
(IRSVideos.gov) contains video and audio pre- • Make a payment or view 5 years of pay- • Go to IRS.gov/Refunds.
sentations for individuals, small businesses, ment history and any pending or sched- • Download the official IRS2Go app to your
and tax professionals. uled payments. mobile device to check your refund status.
• Access your tax records, including key • Call the automated refund hotline at
Online tax information in other languages. data from your most recent tax return, and 800-829-1954.
You can find information on IRS.gov/ transcripts.
MyLanguage if English isn’t your native lan- • View digital copies of select notices from Note. The IRS can’t issue refunds before
guage. the IRS. mid-February for returns that claimed the EIC or
• Approve or reject authorization requests the additional child tax credit (ACTC). This ap-
Free Over-the-Phone Interpreter (OPI) Serv- from tax professionals. plies to the entire refund, not just the portion as-
ice. The IRS is committed to serving our multi- • View your address on file or manage your sociated with these credits.
lingual customers by offering OPI services. The communication preferences.
OPI Service is a federally funded program and Making a tax payment. Go to IRS.gov/
is available at Taxpayer Assistance Centers Tax Pro Account. This tool lets your tax pro- Payments for information on how to make a
(TACs), other IRS offices, and every VITA/TCE fessional submit an authorization request to ac- payment using any of the following options.
return site. The OPI Service is accessible in cess your individual taxpayer IRS online • IRS Direct Pay: Pay your individual tax bill
more than 350 languages. account. For more information, go to IRS.gov/ or estimated tax payment directly from
TaxProAccount. your checking or savings account at no
Accessibility Helpline available for taxpay- cost to you.
ers with disabilities. Taxpayers who need in- Using direct deposit. The fastest way to re- • Debit or Credit Card: Choose an approved
formation about accessibility services can call ceive a tax refund is to file electronically and payment processor to pay online or by
833-690-0598. The Accessibility Helpline can choose direct deposit, which securely and elec- phone.
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
“Get Transcript Online” or “Get Transcript by same-day wire from your financial institu-
• Large Print. 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-
Getting tax forms and publications. Go to payers by email, text messages (including
IRS.gov/Forms to view, download, or print all shortened links), telephone calls, or social
the forms, instructions, and publications you media channels to request or verify per-

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What if I can’t pay now? Go to IRS.gov/ IRS.gov without visiting an IRS TAC. Go to • You face (or your business is facing) an
Payments for more information about your op- IRS.gov/LetUsHelp for the topics people ask immediate threat of adverse action; or
tions. about most. If you still need help, IRS TACs • You’ve tried repeatedly to contact the IRS
• Apply for an online payment agreement provide tax help when a tax issue can’t be han- but no one has responded, or the IRS
(IRS.gov/OPA) to meet your tax obligation dled online or by phone. All TACs now provide hasn’t responded by the date promised.
in monthly installments if you can’t pay service by appointment, so you’ll know in ad-
your taxes in full today. Once you complete vance that you can get the service you need How Can You Reach TAS?
the online process, you will receive imme- without long wait times. Before you visit, go to
diate notification of whether your agree- IRS.gov/TACLocator to find the nearest TAC
ment has been approved. and to check hours, available services, and ap- TAS has offices in every state, the District of
• Use the Offer in Compromise Pre-Qualifier pointment options. Or, on the IRS2Go app, un- Columbia, and Puerto Rico. Your local advo-
to see if you can settle your tax debt for der the Stay Connected tab, choose the Con- cate’s number is in your local directory and at
less than the full amount you owe. For tact Us option and click on “Local Offices.” TaxpayerAdvocate.IRS.gov/Contact-Us. You
more information on the Offer in Compro- can also call them at 877-777-4778.
mise program, go to IRS.gov/OIC.
The Taxpayer Advocate How Else Does TAS Help
Filing an amended return. Go to IRS.gov/ Service (TAS) Is Here To Taxpayers?
Form1040X for information and updates. Help You
Checking the status of your amended re- What Is TAS? TAS works to resolve large-scale problems that
affect many taxpayers. If you know of one of
turn. Go to IRS.gov/WMAR to track the status these broad issues, report it to them at IRS.gov/
of Form 1040-X amended returns. TAS is an independent organization within the
IRS that helps taxpayers and protects taxpayer SAMS.
Note. It can take up to 3 weeks from the rights. Their job is to ensure that every taxpayer
date you filed your amended return for it to is treated fairly and that you know and under- TAS for Tax Professionals
show up in our system, and processing it can stand your rights under the Taxpayer Bill of
take up to 16 weeks. Rights. TAS can provide a variety of information for tax
professionals, including tax law updates and
Understanding an IRS notice or letter How Can You Learn About Your guidance, TAS programs, and ways to let TAS
you’ve received. Go to IRS.gov/Notices to Taxpayer Rights? know about systemic problems you’ve seen in
find additional information about responding to your practice.
an IRS notice or letter. The Taxpayer Bill of Rights describes 10 basic
rights that all taxpayers have when dealing with
Note. You can use Schedule LEP (Form the IRS. Go to TaxpayerAdvocate.IRS.gov to Low Income Taxpayer
1040), Request for Change in Language Prefer- help you understand what these rights mean to Clinics (LITCs)
ence, to state a preference to receive notices, you and how they apply. These are your rights.
letters, or other written communications from Know them. Use them. LITCs are independent from the IRS. LITCs
the IRS in an alternative language. You may not represent individuals whose income is below a
immediately receive written communications in What Can TAS Do for You? certain level and need to resolve tax problems
the requested language. The IRS’s commitment with the IRS, such as audits, appeals, and tax
to LEP taxpayers is part of a multi-year timeline TAS can help you resolve problems that you collection disputes. In addition, LITCs can pro-
that is scheduled to begin providing translations can’t resolve with the IRS. And their service is vide information about taxpayer rights and re-
in 2023. You will continue to receive communi- free. If you qualify for their assistance, you will sponsibilities in different languages for individu-
cations, including notices and letters in English be assigned to one advocate who will work with als who speak English as a second language.
until they are translated to your preferred lan- you throughout the process and will do every- Services are offered for free or a small fee for
guage. thing possible to resolve your issue. TAS can eligible taxpayers. To find an LITC near you, go
help you if: to TaxpayerAdvocate.IRS.gov/about-us/Low-
Contacting your local IRS office. Keep in • Your problem is causing financial difficulty Income-Taxpayer-Clinics-LITC or see IRS Pub.
mind, many questions can be answered on for you, your family, or your business; 4134, Low Income Taxpayer Clinic List.

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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. 2023-8, 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 14                         Medical research 
Acknowledgment of                    Services available from                      8282 16                          organization      32
  contributions  17                     government     21                         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 41, 
  Hospitals 32                     Disqualified persons    43                     8821 7                          Modification of exemption      7
Agricultural organization   49     Domestic fraternal society    52               8871 14 19,                     Mutual financial 
Airport 49                         Donor advised funds:                           8872 14 19,                      organization      56
Alumni association 26                Excess benefit transaction    61             990 9 11 19 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 12, 
  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  14
  Conformed copy   5               Employees' association      52               Fraternal beneficiary society 51  O
  Description of activities 5      Employment taxes      13                     Fraternal societies   21 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   61 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     33          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 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 50                    Political expenditures  47                 Group exemption letter   8        Political organization:
Bureau defined  41                   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   59               Preferred stock    56
                                     organization  5                            High-risk health coverage         Prevention of cruelty to children 
C                                  Extensions of time    24                       organization   59                or animals    30
                                                                                Homeowners' association      48   Private delivery service  23
Cemetery company     55            F                                            Horticultural organization   49   Private foundations   30
Chamber of commerce      50                                                     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   49        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 30          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       49       1023 4 7 8 19 23 24 26 31,  ,  , , , , , , 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 19 48 53 55 56 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   19
                                     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  29                 Sports organization,            Title-holding corporation 58
  organization   33               School, private 26                 amateur   30
  Attraction of public support 33 Scientific organizations 30      State-sponsored  59             U
  Ten-percent-of-support 33       Section 501(c)(3) organizations:   High-risk health coverage 
                                  Amateur athletic  30               organization   59             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 50              Qualifications  22                 benefit trust  53
Recognition of exemption,         Religious  29                    Support  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  44           Educational   26                 Supporting organization   61    W
Revocation of exemption  7        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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