Difference between revisions of "How to obtain tax-exempt status"
From NGO Handbook
(→Section 509 (a)(1) organizations) |
(→Section 509 (a)(1) Organizations) |
||
| Line 283: | Line 283: | ||
In addition, the IRS considers five public support factors to determine if an NGO is publicly supported. The NGO does not have to satisfy all five requirements; it just must show “a sufficient combination of the factors.”<ref>Ibid., at 31-32.</ref> The weight the IRS gives to each factor depends on the nature, purpose, and age of the NGO.<ref>Ibid., at 32.</ref> The five factors include:<ref>See Ibid. In considering these additional factors the IRS may consider facts outside the “normal” time period (i.e., outside the current and four preceding tax years). Ibid.</ref> | In addition, the IRS considers five public support factors to determine if an NGO is publicly supported. The NGO does not have to satisfy all five requirements; it just must show “a sufficient combination of the factors.”<ref>Ibid., at 31-32.</ref> The weight the IRS gives to each factor depends on the nature, purpose, and age of the NGO.<ref>Ibid., at 32.</ref> The five factors include:<ref>See Ibid. In considering these additional factors the IRS may consider facts outside the “normal” time period (i.e., outside the current and four preceding tax years). Ibid.</ref> | ||
| − | # '''Percentage of | + | # '''Percentage of Financial Support Factor'''. If an NGO receives at least 10% but less than one-third of its support from public and government sources, the percentage of financial support will be considered. The higher the percent, the lower the burden the NGO has to meet. If the percentage is low, the sources of the NGO’s financial support will also be considered in determining compliance with this factor. |
| − | # '''Sources of | + | # '''Sources of Support Factor'''. If an NGO receives at least 10% but less than one-third of its support from public and government sources, the IRS will consider whether it receives support from the government or from a “representative number of persons” rather than receiving most support from an individual or family. The representative number of persons needed to comply with this factor will be determined by the type of organization, its age, and whether its activities are limited to a particular geographic area. |
| − | # '''Representative | + | # '''Representative Governing Body Factor'''. Whether an NGO’s governing body represents “the broad interests of the public” rather than of “a limited number of donors” is considered. An NGO is in compliance with this factor if the governing body is composed of: |
| − | # '''Availability of | + | *Public officials |
| − | :* | + | *Individuals selected by those public officials |
| − | :* | + | *Persons with specialized knowledge |
| − | :* | + | *Community leaders |
| − | :* | + | *Individuals elected by a broad base of the NGO’s [[The Primary Responsibilities of a Member of a Board|members]]. |
| − | :* | + | # '''Availability of Public Facilities or Services Factor'''. Evidence of public support under this factor include: |
| + | :*Whether an NGO regularly provides facilities or services to benefit the public | ||
| + | :*Whether an educational or research institution “regularly publishes scholarly studies” that are widely used | ||
| + | :*Participating or sponsoring programs by public officials or individuals with special expertise | ||
| + | :*Maintaining programs to accomplish charitable work in the community | ||
| + | :*Receiving grants from a charity or government agency. | ||
<ol start="5"> | <ol start="5"> | ||
Revision as of 11:03, 11 August 2008
This article is intended to provide a general description of the process for obtaining 501(c)(3) status under the U.S. Internal Revenue Code and is not intended to substitute for the advice of private counsel on specific issues related to the IRC or the 501(c)(3) application process. Original draft by Bobby C. Neal.
In the United States, a non-governmental organization (NGO) is generally subject to federal, state, and local taxes unless and until the organization qualifies for tax-exempt status. This article focuses on the process for obtaining a federal income tax exemption for NGOs.[1] NGOs that meet the criteria set forth in 26 U.S.C. § 501 of the Internal Revenue Code (section 501) are eligible for a federal tax exemption.[2] The benefits to obtaining tax exempt recognition by the Internal Revenue Service (IRS) include: income tax exemption, eligibility to receive tax-deductible contributions, possible exemption from certain employment taxes, and reduced postal rates. Section 501 describes the organizations that are eligible for tax-exempt status. The most significant category of tax-exempt organizations is section 501(c)(3).
To read the rest of the article, please log in using your WANGO membership username and password (using the log in at the top, right-hand corner of the page). Not a WANGO member, but would like full access to the articles in the NGO Handbook? Join WANGO (http://www.wango.org/join.aspx) as an organization or individual member or purchase a year subscription for $30.
