Difference between revisions of "How to obtain tax-exempt status"
From NGO Handbook
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Section 501(c)(3) organizations must keep books and records on their sources of financial and non-financial support.<ref>For more information, see Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, p. 7</ref> | Section 501(c)(3) organizations must keep books and records on their sources of financial and non-financial support.<ref>For more information, see Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, p. 7</ref> | ||
| − | ===Filing | + | ===Filing Requirements=== |
Generally, section 501(c)(3) organizations must file annual information returns.<ref>For exceptions to this filing requirement see Internal Revenue Service, Tax-Exempt Status for Your Organization, at 8. Group returns may be filed by the central NGO on behalf of its subordinate NGOs along with the central NGO’s annual return. Ibid., at 9. There may also be state reporting requirements for NGOs.</ref> Public charities must file annual information returns on Form 990 Return of Organization Exempt from Income Tax or Form 990-EZ.<ref>The IRS is in the process of redesigning Form 990. See http://www.irs.gov/charities/article/0,,id=171216,00.html for more information.</ref> An NGO may file an EZ form if its gross receipts were less than $100,000 and its total assets were less than $25,000.<ref>Internal Revenue Service, ''Tax-Exempt Status for Your Organization'', p. 9. If an NGO’s gross receipts are less than $25,000, Form 990/990-EZ does not have to be filed. However, it may be better to file a blank return than no return. Rural Community Empowerment Program, “501(c)(3) Fact Sheet.” To do so an NGO should fill out the “identifying information on the form and check the box indicating that gross receipts are less than $25,000,” sign, date, and send it to the appropriate IRS office. Ibid.</ref> Public charities that file Form 990/990-EZ must also complete and file Schedule A and Schedule B.<Ibid, p. 9.</ref> Private foundations must file Form 990-PF and Schedule B.<ref>Ibid.</ref> | Generally, section 501(c)(3) organizations must file annual information returns.<ref>For exceptions to this filing requirement see Internal Revenue Service, Tax-Exempt Status for Your Organization, at 8. Group returns may be filed by the central NGO on behalf of its subordinate NGOs along with the central NGO’s annual return. Ibid., at 9. There may also be state reporting requirements for NGOs.</ref> Public charities must file annual information returns on Form 990 Return of Organization Exempt from Income Tax or Form 990-EZ.<ref>The IRS is in the process of redesigning Form 990. See http://www.irs.gov/charities/article/0,,id=171216,00.html for more information.</ref> An NGO may file an EZ form if its gross receipts were less than $100,000 and its total assets were less than $25,000.<ref>Internal Revenue Service, ''Tax-Exempt Status for Your Organization'', p. 9. If an NGO’s gross receipts are less than $25,000, Form 990/990-EZ does not have to be filed. However, it may be better to file a blank return than no return. Rural Community Empowerment Program, “501(c)(3) Fact Sheet.” To do so an NGO should fill out the “identifying information on the form and check the box indicating that gross receipts are less than $25,000,” sign, date, and send it to the appropriate IRS office. Ibid.</ref> Public charities that file Form 990/990-EZ must also complete and file Schedule A and Schedule B.<Ibid, p. 9.</ref> Private foundations must file Form 990-PF and Schedule B.<ref>Ibid.</ref> | ||
| − | The annual returns are due “the fifteenth day of the fifth month after the end of the [NGO’s] accounting period.”<ref> Ibid. Exempt NGOs that are not political organizations, but that have political taxable income must also file Form 1120-POL for the year. Ibid., at 10. Exempt NGOs may set up a separate and segregated fund that is treated as an independent political organization, so that the income is not attributed to the exempt NGO. Ibid. Section 501(c)(3) organizations may lose their tax exemption for campaigning for or against any political candidate. Ibid., at 10-11.</ref> If an NGO’s application is pending, the NGO should complete and file the appropriate Form 990 and indicate its application is pending.<ref>Ibid.</ref> There are penalties for failing to file an annual return. | + | The annual returns are due “the fifteenth day of the fifth month after the end of the [NGO’s] accounting period.”<ref> Ibid. Exempt NGOs that are not political organizations, but that have political taxable income must also file Form 1120-POL for the year. Ibid., at 10. Exempt NGOs may set up a separate and segregated fund that is treated as an independent political organization, so that the income is not attributed to the exempt NGO. Ibid. Section 501(c)(3) organizations may lose their tax exemption for campaigning for or against any political candidate.<ref>Ibid., at 10-11.</ref> If an NGO’s application is pending, the NGO should complete and file the appropriate Form 990 and indicate its application is pending.<ref>Ibid.</ref> There are penalties for failing to file an annual return. |
===Donor information=== | ===Donor information=== | ||
Revision as of 11:37, 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).
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