Responsive Documents - CREW: IRS: Regarding Policy On Investigating 501 (C) (3) Organizations

CHARL W. HOUS I ANY, ,lH lOOISIANA DAVE CAMP.MICHIGAN.
CHAIRMAH
'!;uac..O!lAM1 r 'i:.l CHA,Ht.l;\t\j,
SANDloR M. LEViN. MICHIGAN. RAt-KINGMEMBfR
c(........
,)<AN, BcACI<. I EN"eSSU
JiM titRLACIi.
AIJ(;iolAHAN.'1 OR,IO!I
.iO\; iltAlI6.SrAfr DtRu;rOP
/IN,ON SCHOCK ILUN<!l6
.jF}INJF'EFI SAfAV1A!II. (;P;lf.P.A.l CUt)NSH
l. "I'''lN JLNIC..INS,
Q:ongrcss ofthe llnitcd
'llSIAff
K'n.. r-.'f' \44fl:(J'AI'tT, 'fT'XA.!\-
JAAW: EMit, MIN.Jjt\nYC"flE.f COONSEl.
'0'1(\ lF"..,tlt rirOROIA ]l{ous ofl{cprcstntatiucs
SueCOMM'nfF Mf,AJ.ft-. INOJIlTYSTAff
XNlllit ':':"l.lfOHNfA
"ON KIJ'-m, W1!..r:ON$rIN
COMMInEE ON WAYS AND MEANS
,H\\ WAflHlliOT(")N
WASHINGTON, DC 20515
SUBCOMMITTEE ON OVERSIGHT
March 1,2012
RECEIVED
Honorable Douglas H.Shulman MAR 07to;?
Commissioner
CONG.CORR
Internal Revenue Service
CL:LA . BR
II IIConstitutionAvenue,NW
Washington,DC20224
DearCommissionerShulman:
On October6,2011,Iwrote to you requestinginformationaboutthe statusofvarious
IRS complianceeffortsinvolvingthe tax-exemptsectorand issues related toauditsof
tax-exemptorganizations. While awaitingacomplete response tothat letter,Ihave since
heard the IRS has been questioning new tax-exemptapplicants,includinggrassroots
political entitiessuch asTea Party groups,about theiroperationsand donors. Inaddition
to the unanswered questionsfrom my October6,201 1,Ietter,Ihave additional questions
relating to the IRS' oversightofapplicationsfor tax exemptionfor new organizations.
In particular.Iam seekingadditional informationas it relatesto the IRS review ofnew
applicationsforsection501(c)(3)and (c)(4)tax-exemptstatus,includinganswerstothe
questionsdetailed below. Pleaseprovide yourresponsesno laterthan March 15,2012.
t. How many new tax-exemptorganiultionshasthe IRS recognized each year
since20087
2, How many new applicationsfor 501(c)(3}and (c)(4)tax-exemptstatushave
been received by the IRS since2008? Provide abreakdownby yearandtype
oforganization.
3. What is the IRS processforreviewingeach tax-exemptstatusapplication? Is
this processthe sameforentitiesapplyingfor section 501(c)(3)and (c)(4)tax-
exemptstatus? Pleasedescribethe processfor both section501(c)(3)and
(c)(4)applications in detail.
REL 00715
4. Yourpreliminary responseto my October6.201 I.letterstatedthat."ifthe
applicationissubstantiallycomplete,the IRS may retaintheapplicationand
requestadditional information as needed." How doesthe IRS determinethat
an applicationfor tax-exemptstatus is"substantiallycomplete?" Please
provideguidelinesorany other materials usedin this process.
S. Doesthe IRS have standard proceduresorforms it uses to"requestadditional
infonnationas needed"from applicantsseekingtalC-exemptstatus? Please
provide any forms and related materials used.
6. Does the IRS selectapplicationsfor"follow-up"on an automated basisoris
there an officeorindividual responsibleforselectingincompleteapplications'!
Pleaseexplainand providedetailsonany automatedsystem used for these
purposes. Ifdecisionsare made on an individual basis,please providethe
guidelinesandany related materials used.
7. How many tax-exemptapplicationssince2008have been selectedfor
"follow-up"? How manyentitiesselectedforfollow-up were granted tax-
exemptstatus?
Should you have any questionsregardingthis request,pleasecontact_or
at (202)225-5522.
Sincerely,
CharlesBoustany,Jr.
Chairman
2
REL 00716
InternalRevenueService DepartmentoftheTreasury
P.o. Box2508
Cincinnati, OH45201
Date:*
EmployerIdentificationNumber:
xx-xxxxxxx
* PersontoContact- Group#:
* SpecialistName- XXXX
* ID#XXXXXXX
*
ContactTelephoneNumbers:
XXX-XXX-XXXX Phone
XXX-XXX-XXXX Fax (859-669-3783forTEDS)
Cases)
ResponseDueDate:
*
DearSirorMadam:
Weneedmoreinformationbeforewecan completeourconsiderationofyourapplicationfor
exemption. Pleaseprovidetheinformationrequested ontheenclosedInformationRequestby
theresponseduedateshownabove. Yourresponsemustbesignedbyan authorizedpersonor
an officerwhosenameis listedonyourapplication. Also, theinformationyou submitshouldbe
accompaniedbythefollowing declaration:
Under penalties ofperjury, 1declare that 1have examined this information, including
accompanying documents, and, to the best ofmy knowledge and belief, the
information contains all the relevant facts relating to the request for the information,
and such facts are true, correct, and complete.
Ifweapproveyourapplicationforexemption, wewillberequired bylawtomaketheapplication
andtheinformationthatyou submitin responsetothis letteravailableforpublicinspection.
Pleaseensurethatyourresponsedoesn'tincludeunnecessarypersonalidentifyinginformation,
suchasbankaccountnumbersorSocial Securitynumbers,thatcouldresultin identitytheftor
otheradverseconsequencesifpubliclydisclosed. Ifyou haveanyquestionsaboutthepublic
inspection ofyourapplication orotherdocuments, pleasecallthepersonwhosenameand
telephone numberareshownabove.
Tofacilitateprocessingofyourapplication, pleaseattachacopyofthisletterandtheenclosed
Application IdentificationSheetto yourresponseandallcorrespondence relatedtoyour
application. Thiswillenableustoquicklyand accuratelyassociatetheadditionaldocuments
withyourcasefile. Also, pleasenotethefollowing importantresponsesubmission information:
Pleasedon'tfax and mail your response. Faxing and mailing your response will result in
unnecessary delays in processing your application. Each piece of correspondence
submitted (whether fax or mail) must be processed, assigned, and reviewed by an EO
Determinationsspecialist.
Please don'tfax your response multiple times. Faxing your response multiple times will
delaytheprocessingofyourapplicationforthereasonsnotedabove.
REL 00717
2
Name
EIN
Please don't call to verify receipt of your response without allowing for adequate
processing time. It takes a minimum ofthree workdays to process your faxed or mailed
responsefromthedayitis received.
Ifwedon'thearfrom you bytheresponseduedateshownabove,wewill assumeyou nolonger
wantustoconsideryourapplicationforexemptionandwill close yourcase. Asaresult, the
InternalRevenueServicewill treatyou as ataxableentity. Ifwe receivethe informationafter
theresponseduedate,wemayaskyoutosendusanewapplication.
*******************************DELETEIFNOTA 501(c)(3)APPLICATION**************************
In addition, ifyoudon'trespondtothe information requestbytheduedate, wewill concludethat
you havenottakenall reasonablestepstocompleteyourapplicationforexemption. Under
InternalRevenueCodesection7428(b)(2), you mustshowthatyou havetakenallthe
reasonablestepstoobtain yourexemption letterunderIRS proceduresin atimely mannerand
exhaustedyouradministrativeremediesbeforeyou can pursueadeclaratoryjudgment.
Accordingly, ifyoufailtotimelyprovidetheinformationweneedtoenableustoacton your
application, you mayloseyourrightstoadeclaratoryjUdgmentunderCodesection7428.
*****************************DELETEIF NO POWEROFATTORNEY*******************************
Wehavesentacopyofthis lettertoyourrepresentativeas indicatedin Form2848, Powerof
AttorneyandDeclarationofRepresentative.
*************************************************************************************************************
Ifyou haveanyquestions, pleasecontactthepersonwhosenameandtelephonenumberare
shown inthe headingofthis letter.
Sincerelyyours,
SpecialistName
ExemptOrganizations Specialist
Enclosure: InformationRequest
Application IdentificationSheet
Letter1312(Rev.05-2011)
Additional InformationRequested:
REL 00718
3
Name
EIN
*
PLEASE DIRECTALLCORRESPONDENCE REGARDINGYOUR CASETO:
Selective:
(EDS Cases)
USMail:
InternalRevenueService
ExemptOrganizations
P. O. Box2508
Cincinnati, OH45201
ATT: SpecialistName
Room XXXX
GroupXXXX
(TEDS Cases)
US Mail:
InternalRevenue Service
ExemptOrganizations
P. O. Box12192
Covington, KY41012-0192
StreetAddressforDeliveryService:
ExemptOrganizations
550 MainSt, FederalBldg.
Cincinnati, OH45202
ATT: SpecialistName
RoomXXXX
GroupXXXX
StreetAddressforDeliveryService:
InternalRevenue Service
ExemptOrganizations
201 RivercenterBlvd
ATTN: Extracting Stop312
Covington, KY41011
REL 00719
REL 00720
Internal Revenue

HIGHLIGHTS
OF THIS ISSUE
These synopses areintended onlyas aidstothereaderin
identifyingthe subjectmattercovered. They maynotbe
relied uponas authoritative interpretations.
SPECIAL ANNOUNCEMENT
T.D. 9559, page 252.
Final regulations amend the userfee regulations and establish
anew userfee for individualstotakethe registered tax return
preparer competency examination.
INCOME TAX
Rev. Rul. 2012-1,page255.
Recurring item exception to the all events test. Thisruling
clarifiesthe treatment of certain liabilities under the recurring
item exception to the economic performance requirement un
der section 46Hh)(3) ofthe Code. Italso addressesthe appli
cation ofthe "notmaterial" and "bettermatching" requirement
of the recurring item exception in the context of alease and
aservice contracteach having aterm ofone year. The ruling
distinguishes contracts for the provision of services from in-
surance and warrantycontracts and appliestherecurring item
exception differently. Rev. Proc. 2011-14modified and am-
plified.
T.D. 9559, page 252.
Final regulations amend the user fee regulations and establish
anew userfee for individualsto take the registeredtax return
REG-149625-10, page 279.
Proposed regulations under section 382 ofthe Code provide
exceptions to the segregation rules, under which certain
transactions may createone or more additional public groups
treated as 5-percent shareholders, for certain sales of loss
corporation stock to small shareholders and for certain re-
Bulletin No. 2012-2
January 9, 2012
demptionsofsmall shareholders. The regulations alsoprovide
that in certain circumstances certain entities owning the loss
corporation generally will be treated as having no more than
one public group.
EXEMPT ORGANIZATIONS
Rev. Proc. 2012-9,page 261.
This proceduresetsforthissuingdeterminationlettersand rul-
ingson the exemptstatusoforganizationsunder sections 501
and 521 ofthe Code. The procedures also applytothe revo-
cation and modificationofdeterminationlettersorrulings, and
provideguidanceon the exhaustion ofadministrativeremedies
for purposes of declaratoryjudgment under section 7428 of
the Code. Rev. Proc. 2011-9 superseded.
Rev. Proc. 2012-10,page 273.
This procedure sets forth updated procedureswith respectto
issuing rulings and determination letters on privatefoundation
status under 509(a) of the Code, operating foundation sta-
tusunder 4942(j)(31, andexemptoperatingfoundation status
under 4940(d)(2), of organizations exempt from Federal in-
come tax under 501(c)(3). This procedure also applies to
the issuance of determination letters on the foundation status
under 509(a)(3) ofnonexemptcharitable trustsdescribed in
4947(a)( 1). Rev. Proc. 2011-10 superseded.
(Continued on the next page)
Finding Lists begin on page Ii.
Departmentofthe Treasury
InternalRevenueService
REL 00721
ADMINISTRATIVE
T.D. 9559, page 252.
Final regulations amend the user fee regulations and establish
a new user fee for individuals to take the registered tax return
Notice 2012-1, page 260.
Optional standard mileage rates for 2012. This notice an-
nounces 55.5 cents as the optional standard mileage rate for
substantiating the amount of the deduction for the business
use of an automobile, 14 cents as the optional rate for use of
an automobile as a charitable contribution, and 23 cents as
the optional rate for use of an automobile as a medical or mov-
ing expense for 2012. The notice also provides the amount
a taxpayer must use in calculating reductions to basis for de-
preciation taken under the business standard mileage rate and
the maximum standard automobile cost for automobiles under
a FAVR allowance. Notice 2010-88, as modified by Announce-
ment 2011-40, is superseded.
Rev. Proc. 2012-12, page 275.
This procedure describes the procedures and standards that
organizations must follow to be identified by the Service as a
qualifying organization that may accredit continuing education
providers under section 10.9(a)(1 )(iii) of Circular 230 and the
procedures and standards that individuals and entities must
follow to be approved as continuing education providers under
section 10.9(a)(1) of Circular 230.
Announcement 2012-2, page 285.
This announcement contains an update to Publication 1220,
Specifications for Filing Forms 1097, 1098, 1099, 3921,
3922,5498,8935 and W-2G, Electronically, revised 9-2011,
concerning the filing of Form 1099-K.
January 9, 2012
2012-21.R.B.
REL 00722
26 CFR 601.201: Ridings and determination fellers.
Rev. Proc. 2012-9
TABLE OF CONTENTS
SECTION1. WHATISTHEPURPOSEOFTIllSREVENUEPROCEDURE? 262
.01 Descriptionofterms usedin this revenueprocedure " " , 262
.02 Updated annually 263
SECTION2. NATUREOFCHANGESANDRELATEDREVENUEPROCEDURES , 263
.01 Rev. Proc. 2011-9issuperseded , " 263
.02Relatedrevenueprocedures : 263
.03 Whatchangeshave been made to Rev. Pmc. 2011-9? 263
SECTION3. WHATARETHEPROCEDURESFORREQUESTINGRECOGNITIONOFEXEMPT
STATUS? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 264
.01 In general. " , " " , 264
.02 Userfee 264
.03 Form 1023 application , 264
.04Form 1024application , " " " ., , 264
.05 Letter application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 264
.06Form 1028 application , , " ,.." " 264
.07 Form8871 notice forpoliticalorganizations , " 264
.08 Requirementsfor asubstantiallycompletedapplication 264
.09Terroristorganizationsnoteligibleto applyfor recognition ofexemption 265
SECTION4. WHATARETHESTANDARDS FORISSUINGADETERMINATIONLETTERORRULING
ON EXEMPT STATUS? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 265
.01 Exemptstatus must be establishedin applicationandsupportingdocuments , " " " .. 265
.02Determinationletterorrulingbasedsolelyon administrative record 265
.03 Exemptstatus may berecognizedin advanceofactualoperations 265
.04Noletterifexemptstatus issue in litigationorunderconsiderationwithintheService 266
.05 Incompleteapplication " 266
.06Evenifapplication is complete,additional information may berequired " 266
.07 Expeditedhandling 266
.08 Maydecline to issuegroupexemption 266
SECTIONS. WHATOFFICESISSUEANEXEMPTSTATUSDETERMINATIONLETTERORRULING? 267
.01 EODeterminationsissuesadeterminationletterin mostcases 267
.02 Certainapplications referredto EOTechnical 267
.03Technicaladvice mayberequestedin certaincases 267
.04Technicaladvicemustbe requested in certaincases 267
SECTION6. WITHDRAWALOFANAPPLICATION 267
.0IApplicationmaybe withdrawn priorto issuanceofadetermination letterorruling 267
.02 7428 implicationsofwithdrawal ofapplication under501(c)(3) 267
SECTION7. WHATARETHEPROCEDURESWHENEXEMPTSTATUSISDENIED? 267
.01 Proposedadversedeterminationletterorruling 267
.02 Appealofaproposedadversedetermination letterissuedby EODeterminations 268
.03 Protest of a proposed adverse ruling issued by EO Technical. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 268
.04Finaladversedeterminationletterorruling where no appeal orprotestis submitted 268
.05 How EODeterminationshandlesanappealofaproposedadversedeterminationletter............................... 268
.06 Consideration by the Appeals Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 268
.07Ifaprotestofaproposedadverseruling is submittedto EOTechnical. 268
.08 An appealorprotestmay bewithdrawn , 268
.09Appealorprotestandconferencerights notapplicableincertainsituations 268
SECTION8. DISCLOSUREOFAPPLICATIONSAND DETERMINATIONLETTERSANDRULINGS 268
January 9, 2012 261 2012-2 tR.B.
REL 00723
.01 Disclosureofapplications, supportingdocuments,andfavorable determinationlettersorrulings 269
.02Disclosureofadversedeterminationlettersorrulings 269
.03 DisclosuretoStateofficialswhen the Servicerefuses to recognizeexemptionunder 501(c)(3) " 269
.04Disclosureto Stateofficialsofinformationabout501(c)(3) applicants " 269
SECTION 9. REVIEW OF DETERMINATION LETTERSBY EO TECHNICAL " . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 269
.01 Determinationlettersmaybereviewedby EOTechnicalto assureuniformity " 269
.02ProceduresforcaseswhereEOTechnicaltakesexceptionto adeterminationletter " 269
SECTION10. DECLARATORYJUDGMENTPROVISIONSOF7428 " 270
.01 Actualcontroversyinvolvingcertainissues " 270
.02 Exhaustionofadministrativeremedies " 270
.03 Notearlierthan 270daysafterseekingdetermination 270
.04 Service musthavereasonable time to acton an appeal orprotest " 270
.05 Final determinationto which 7428applies 270
SECTION11. EFFECTOFDETERMINATIONLETTERORRULINGRECOGNIZINGEXEMPTION 270
.01 Effectivedateofexemption " 270
.02Relianceondeterminationletterorruling 271
SECTION12. REVOCATION ORMODIFICATIONOFDETERMINATIONLETTERORRULING
RECOGNIZINGEXEMPTION " 271
.01 Revocationormodificationofadeterminationletterorrulingmay be retroactive 271
.02 Appealandconferenceproceduresinthe caseofrevocationormodificationofexemptstatus letter 271
SECTION13. EFFECTONOTHERREVENUEPROCEDURES 272
SECTION 14. EFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 272
SECTION15. PAPERWORKREDUCTIONACT " 272
DRAFTINGINFORMATION 272
SECTION1. WHAT IS THE This revenue procedure sets forth procedures for issuing determination lettersand rulings
PURPOSEOFTHISREVENUE ontheexemptstatusoforganizationsunder 501 and521 oftheInternalRevenueCodeother
PROCEDURE? thanthosesubjectto Rev. Proc. 2012-6,lastbulletin(relatingtopension.profit-sharing,stock
bonus, annuity, andemployeestockownershipplans). Generally, the Serviceissues thesede-
terminationlettersand rulings in response to applications for recognition ofexemption from
Federal income tax. These procedures also apply to revocation or modification ofdetermi-
nationlettersorrulings. This revenue procedurealsoprovidesguidanceon the exhaustionof
administrativeremediesfor purposesofdeclaratoryjudgmentunder7428oftheCode.
Descriptionoftermsusedin this .01 Forpurposesofthis revenue procedure-
revenueprocedure
(1)Theterm "Service" means the InternalRevenueService.
(2) The term "application" means the appropriate form orletter that an organization must
file or submitto the Servicefor recognitionofexemption from Federal income tax under the
applicable section ofthe Internal Revenue Code. See section 3 for information on specific
forms.
(3)Theterm"EODeterminations"means theofficeoftheServicethatis primarilyrespon-
siblefor processinginitialapplicationsfor tax-exemptstatus. It includes the mainEODeter-
minationsofficelocatedinCincinnati,Ohio,andotherfieldofficesthatareunderthedirection
andcontrolofthe Manager, EO Determinations. Applications are generally processed in the
centralizedEO Determinations office in Cincinnati, Ohio. However, some applications may
beprocessedin otherEO Determinationsofficesorreferred to EOTechnical.
(4)Theterm"EOTechnical"meanstheofficeoftheServicethatisprimarilyresponsiblefor
issuingletterrulingsto taxpayersonexemptorganization matters,andfor providingtechnical
2012-2 I.R.B. 262 January 9, 2012
REL 00724
Updated annually
SECTION 2. NATURE OF
CHANGES AND RELATED
REVENUE PROCEDURES
Rev. Proc. 2011-9 is superseded
Related revenue procedures
What changes have been made to
Rev. Proc. 2011-9?
advice or technical assistance to other offices of the Service on exempt organization matters.
The EO Technical office is located in Washington, DC.
(5) The term "Appeals Office" means any office under the direction and control of the Chief.
Appeals. The purpose of the Appeals Office is to resolve tax controversies, without litigation,
on a fair and impartial basis. The Appeals Office is independent of EO Determinations and EO
Technical.
(6) The term "determination letter" means a written statement issued by EO Determinations
or an Appeals Office in response to an application for recognition of exemption from Federal
income tax under 501 and 521. This includes a written statement issued by EO Determina-
tions or an Appeals Office on the basis of advice secured from EO Technical pursuant to the
procedures prescribed herein and in Rev. Proc. 2012-5.
(7) The term "ruling" means a written statement issued by EO Technical in response to an
application for recognition of exemption from Federal income tax under 501 and 521.
(8) The term "Code" means the Internal Revenue Code.
.02 This revenue procedure is updated annually, but may be modified or amplified during
the year.
.01 This revenue procedure is a general update of Rev. Proc. 2011-9,2011-2 I.R.B. 283,
which is hereby superseded.
.02 This revenue procedure supplements Rev. Proc. 201 2-10, this Bulletin, with respect
to the effects of 7428 of the Code on the classification of organizations under 509(a) and
49420)(3). Rev. Proc. 80-27, 1980-1 C.B. 677, sets forth procedures under which exemption
may be recognized on a group basis for subordinate organizations affiliated with and under the
general supervision and control of a central organization. Rev. Proc. 72-5, 1972-1 C.B. 709,
provides information for religious and apostolic organizations seeking recognition of exemp-
tion under SOI(d). General procedures for requests for a determination letter or ruling are
provided in Rev. Proc. 2012--4. User fees for requests for a determination letter or ruling are
set forth in Rev. Proc. 2012-8.
.03 Notable changes to Rev. Proc. 2011-9 that appear in this year's update include-
(I) Section 3.01 clarifies that Form 8718, User Fee for Exempt Organization Detennination
Letter Request, is not a determination letter application.
(2) A reference to 501 (r) is added to section 3.03 to cover hospitals seeking exemption
under SOl (c)(3l.
(3) Section 4.08 is added to describe existing practice that the Service may decline to issue
a group exemption letter when appropriate in the interest of sound tax administration. See Rev.
Proc. 2012--4, section 8.01.
(4) A new item (6) is added to section 12 to reflect revocation of exemption automatically
pursuant to 6033U) for failure to file a required annual return or notice for three consecutive
years.
January 9, 2012 263 2012-2 I.R.B.
REL 00725
SECTION 3. WHAT ARE
THE PROCEDURES FOR
REQUESTING RECOGNITION
OF EXEMPT STATUS?
In general
User fee
Form 1023 application
Letter application
Form 8871 notice for political
organizations
Requirements for a substantially
completed application
.01 An organization seeking recognition of exempt status under SOl or 521 is required
to submit the appropriate application. In the case of a numbered application form, the current
version of the form must be submitted. A central organization that has previously received
recognition of its own exemption can request a group exemption letter by submitting a letter
application along with Form 8718, User Fee for Exempt Organization Determination Letter
Request. See Rev. Proc. 80-27. Form 8718 is not a determination letter application. Attach
this form to the determination letter application.
.02 An application must be submitted with the correct user fee, as set forth in Rev. Proc.
2012-8.
.03 An organization seeking recognition of exemption under 50I(c)(3) and 50 I(e), (f),
(k), (n), (q), or (r) must submit a completed Form 1023, Applicationfor Recognition ofExemp-
tion Under Section 501(c)(3) of the 1nternal Revenue Code. In the case of an organization that
provides credit counseling services, see 501(q) of the Code. In the case of an organization
that is a hospital and is seeking exemption under SOl (c)(3), see SOl (r) of the Code.
.04 An organization seeking recognition of exemption under SOl (c)(2), (4), (5), (6), (7),
(8), (9), (10), (12), (13), (IS), (17), (19), or (25) must submit a completed Form 1024, Appli-
cationfor Recognition ofExemption Under Section 501(a), along with Form 8718. In the case
of an organization that provides credit counseling services and seeks recognition of exemption
under 501 (c)(4), see 501(q) of the Code.
.05 An organization seeking recognition of exemption under 501 (c)(l1), (14), (16), (18),
(21), (22), (23), (26), (27), (28), or (29), or under 501 (d), must submit a letter application
along with Form 8718.
.06 An organization seeking recognition of exemption under 521 must submit a completed
Form 1028, Application for Recognition of Exemption Under Section 521 of the 1nternal Rev-
enue Code, along with Form 8718.
.07 A political party, a campaign committee for a candidate for federal, state or local office,
and a political action committee are all political organizations subject to tax under 527. To be
tax-exempt, a political organization may be required to notify the Service that it is to be treated
as a 527 organization by electronically filing Form 8871, Political Organization Notice of
Section 527 Status. For details, go to the IRS website at www.irs.gov/polorgs.
.08 A substantially completed application, including a letter application, is one that:
(I) is signed by an authorized individual;
(2) includes an Employer Identification Number (EIN);
(3) for organizations other than those described in 501 (c)(3), includes a statement of re-
ceipts and expenditures and a balance sheet for the current year and the three preceding years
(or the years the organization was in existence, if less than four years), and if the organization
has not yet commenced operations or has not completed one accounting period, a proposed
budget for two full accounting periods and a current statement of assets and liabilities; for or-
ganizations described in 501 (c)(3), see Form 1023 and Notice 1382;
(4) includes a detailed narrative statement of proposed activities, including each of the
fundraising activities of a SOl (c)(3) organization, and a narrative description of anticipated
receipts and contemplated expenditures;
2012-2 I.R.B. 264 January 9, 2012 REL 00726
Terrorist organizations not
eligible to apply for recognition of
exemption
SECTION 4. WHAT ARE THE
STANDARDS FOR ISSUING A
DETERMINATION LETTER OR
RULING ON EXEMPT STATUS?
Exempt status must be established
in application and supporting
documents
Determination letter or ruling
based solely on administrative
record
Exempt status may be recognized
in advance of actual operations
January 9, 2012
(5) includes a copy ofthe organizing or enabling document that is signedby a principal
officeror is accompaniedby awritten declaration signedbyan authorized individualcertify-
ing thatthedocumentis acompleteandaccuratecopyofthe original orotherwise meets the
requirementsofa"conformedcopy"as outlinedinRev. Proc. 68-14, 1968-1 C.B. 768;
(6)iftheorganizingorenablingdocumentisintheformofarticlesofincorporation,includes
evidence that it was filed with and approved by an appropriate state official (e.g., stamped
"Filed"anddatedbytheSecretaryofState);alternatively,acopyofthearticlesofincorporation
may besubmittedifaccompaniedbyawritten declaration signedbyan authorizedindividual
that the copy is a complete and accurate copy ofthe original copy that was filed with and
approvedby thestate;ifacopyis submitted,the writtendeclaration mustincludethedate the
articles werefiled with thestate;
(7)iftheorganizationhasadoptedby-laws,includesacurrentcopy; theby-lawsneednotbe
signedifsubmittedasanattachmenttotheapplicationforrecognitionofexemption;otherwise,
theby-laws mustbe verifiedas currentbyan authorizedindividual; and
(8) is accompaniedby thecorrectuserfee andForm8718,whenapplicable.
.09 An organization that is identified ordesignated as a terrorist organization within the
meaningof501(p)(2) oftheCodeis noteligibleto applyfor recognitionofexemption.
.01 A favorable determination letteror ruling will be issued to an organization only ifits
applicationandsupportingdocumentsestablishthatitmeetstheparticularrequirementsofthe
sectionunderwhichexcmptionfrom Federal incometax is claimed.
.02 Adetermination letterorruling on cxemptstatusis issuedbasedsolely upon the facts
andrepresentationscontainedin the administrativerecord.
(1)Theapplicantisresponsiblefortheaccuracyofany factual representationscontainedin
the application.
(2) Any oral representation ofadditional facts ormodification offacts as represented or
allegedin theapplicationmustbereducedtowritingoverthesignatureofanofficerordirector
ofthe taxpayerunderapenaltiesofperjury statement.
(3) Thefailure todiscloseamaterial factormisrepresentationofamaterialfactonthc ap-
plicationmay adversely affectthe reliance thatwouldotherwisebeobtainedthrough issuance
by the Serviceofa favorable determinationletterorruling.
.03Exemptstatusmayberecognizedinadvanceoftheorganization'soperationsifthe pro-
posedactivities are describedin sufficientdetail to permitaconclusion thatthe organization
willclearlymeettheparticularreqUirementsforexemptionpursuantto thesectionoftheCode
underwhich exemption is claimed.
(\)A mererestatementofexemptpurposes orastatement that proposedactivities will be
in furtherance ofsuch purposes will notsatisfythisrequirement.
(2)The organization mustfulIy describeall oftheactivities in which it expectstoengage.
includingthestandards,criteria,procedures,orothermeansadoptedorplannedforcarryingout
theactivities, theanticipatedsourcesofreceipts,andthe natureofcontemplatedexpenditures.
(3)WheretheorganizationcannotdemonstratetothesatisfactionoftheServicethatitqual-
ifiesfor exemptionpursuanttothesectionoftheCodeunderwhichexemptionis claimed, the
265 2012-2 I.R.B.
REL 00727
No letter if exempt status issue in
litigation or under consideration
within the Service
Incomplete application
Even if application is complete,
additional information may be
required
Expedited handling
May decline to issue group
exemption
Service will generally issue a proposed adverse determination letter or ruling. See also section
7 of this revenue procedure.
.04 A determination letter or ruling on exempt status ordinarily will not be issued if an issue
involving the organization's exempt status under 50 I or 521 is pending in litigation, is under
consideration within the Service, or if issuance of a determination letter or ruling is not in the
interest of sound tax administration. If the Service declines to issue a determination or ruling
to an organization seeking exempt status under 50 I(c)(3), the organization may be able to
pursue a declaratory judgment under 7428, provided that it has exhausted its administrative
remedies.
.05 If an application does not contain all of the items set out in section 3.08 of this revenue
procedure, the Service may return it to the applicant for completion.
(I) In lieu of returning an incomplete application, the Service may retain the application and
request additional information needed for a substantially completed application.
(2) In the case of an application under 501 (c)(3) that is returned incomplete, the 270-day
period referred to in 7428(b)(2) will not be considered as starting until the date a substantially
completed Form 1023 is refiled with or remailed to the Service. If the application is mailed
to the Service and a postmark is not evident, the 270-day period will start to run on the date
the Service actually receives the substantially completed Form 1023. The same rules apply for
purposes of the notice requirement of 508.
(3) Generally, the user fee will not be refunded if an incomplete application is filed. See
Rev. Proc. 2012-8, section 10.
.06 Even though an application is substantially complete, the Service may request additional
information before issuing a determination letter or ruling.
(I) If the application involves an issue where contrary authorities exist, an applicant's failure
to disclose and distinguish contrary authorities may result in requests for additional informa-
tion, which could delay final action on the application.
(2) In the case of an application under 501 (c)(3), the period of time beginning on the date
the Service requests additional information until the date the information is submitted to the
Service will not be counted for purposes of the 270-day period referred to in 7428(b)(2).
.07 Applications are normally processed in the order of receipt by the Service. However,
expedited handling of an application may be approved where a request is made in writing and
contains a compelling reason for processing the application ahead of others. Upon approval
of a request for expedited handling, an application will be considered out of its normal order.
This does not mean the application will be immediately approved or denied. Circumstances
generally warranting expedited processing include:
(I) a grant to the applicant is pending and the failure to secure the grant may have an adverse
impact on the organization's ability to continue to operate;
(2) the purpose of the newly created organization is to provide disaster relief to victims of
emergencies such as flood and hurricane; and
(3) there have been undue delays in issuing a determination letter or ruling caused by a
Service error.
.08 The Service may decline to issue a group exemption letter when appropriate in the in-
terest of sound tax administration.
2012-2 I.R.B. 266 January 9, 2012 REL 00728
SECTION 5. WHAT OFFICES
ISSUE AN EXEMPT STATUS
DETERMINATION LETTER
OR RULING?
EO Determinations issues a
determination letter in most cases
Certain applications referred to
EO Technical
Technical advice may be requested
in certain cases
Technical advice must be
requested in certain cases
SECTION 6. WITHDRAWAL OF
AN APPLICATION
Application may be withdrawn
prior to issuance of a
determination letter or ruling
7428 implications of withdrawal
of application under 501(c)(3)
SECTION 7. WHAT ARE
THE PROCEDURES WHEN
EXEMPT STATUS IS DENIED?
Proposed adverse determination
letter or ruling
.01 Under the general procedures outlined in Rev. Proc. 2012-4, EO Determinations is
authorized to issue determination letters on applications for exempt status under 501 and
521.
.02 EO Determinations will refer to EO Technical those applications that present issues
which are not specifically covered by statute or regulations, or by a ruling, opinion, or court
decision published in the Internal Revenue Bulletin. In addition, EO Determinations will refer
those applications that have been specifically reserved by revenue procedure or by other official
Service instructions for handling by EO Technical for purposes of establishing uniformity or
centralized control of dcsignated categories of cases. EO Technical will notify the applicant
organization upon receipt of a referred application, and will consider each such application and
issue a ruling directly to the organization.
.03 If at any time during the course of consideration of an exemption application by EO
Determinations the organization believes that its case involves an issue on which there is no
published precedent, or there has been non-uniformity in the Servicc's handling of similar
cases, the organization may request that EO Determinations either refer the application to EO
Technical or seek technical advice from EO Technical. See Rev. Proc. 2012-5, sections 4.04
and 4.05.
.04 If EO Determinations proposes to rccognize the exemption of an organization to which
EO Technical had issued a previous contrary ruling or technical advice, EO Determinations
must seek technical advice from EO Technical before issuing a determination letter. This does
not apply where EO Technical issued an adverse ruling and the organization subsequently made
changes to its purposes, activities, or operations to remove the basis for which excmpt status
was denied.
.01 An application may be withdrawn upon the written request of an authorized individual
at any time prior to the issuance of a determination letter or ruling. Therefore, an application
may not be withdrawn after the issuance of a proposed adverse determination letter or ruling.
(1) When an application is withdrawn, the Servicc will retain the application and all sup-
porting documents. The Service may consider the information submitted in connection with
the withdrawn request in a subscquent examination of the organization.
(2) Generally, the user fee will not be refunded if an application is withdrawn. See Rev.
Proc. 20 12-8, section 10.
.02 The Service will not consider the withdrawal of an application under 501 (c)(3) as
either a failurc to make a determination within the meaning of 7428(a)(2) or as an exhaustion
of administrative remedies within the meaning of 7428(b)(2).
.Ollf EO Determinations or EO Technical reaches the conclusion that the organization does
not satisfy the requirements for exempt status pursuant to the section of the Code under which
exemption is claimed, the Service generally will issue a proposed adverse determination letter
or ruling, which will:
(I) include a detailed discussion of the Service's rationale for the denial of tax-exempt sta-
tus; and
January 9, 2012 267 2012-2 I.R.B.
REL 00729
Appeal of a proposed adverse
determination letter issued by EO
Determinations
Protest of a proposed adverse
ruling issued by EO Technical
Final adverse determination letter
or ruling where no appeal or
protest is submitted
How EO Determinations handles
an appeal of a proposed adverse
determination letter
Consideration by the Appeals
Office
If a protest of a proposed
adverse ruling is submitted to EO
Technical
An appeal or protest may be
withdrawn
Appeal or protest and conference
rights not applicable in certain
situations
SECTION 8. DISCLOSURE
OF APPLICATIONS AND
DETERMINATION LETTERS
AND RULINGS
(2) advise the organization of its opportunity to appeal or protest the decision and request a
conference.
.02 A proposed adverse determination letter issued by EO Determinations will advise the
organization of its opportunity to appeal the determination by requesting Appeals Office con-
sideration. To do this, the organization must submit a statement of the facts, law and arguments
in support of its position within 30 days from the date of the adverse determination letter. The
organization must also state whether it wishes an Appeals Office conference. Any determina-
tion letter issued on the basis of technical advice from EO Technical may not be appealed to
the Appeals Office on issues that were the subject of the technical advice.
.03 A proposed adverse ruling issued by EO Technical will advise the organization of its
opportunity to file a protest statement within 30 days and to request a conference. If a confer-
ence is requested, the conference procedures outlined in Rev. Proc. 2012-4, section 12, are
applicable.
.04 If an organization does not submit a timely appeal of a proposed adverse determination
letter issued by EO Determinations, or a timely protest of a proposed adverse ruling issued by
EO Technical, a final adverse determination letter or ruling will be issued to the organization.
The final adverse letter or ruling will provide information about the filing of tax returns and
the disclosure of the proposed and final adverse letters or rulings.
.05 If an organization submits an appeal of the proposed adverse determination letter, EO
Determinations will first review the appeal, and, if it determines that the organization qualifies
for tax-exempt status, issue a favorable exempt status determination letter. If EO Determina-
tions maintains its adverse position after reviewing the appeal, it will forward the appeal and
the exemption application case file to the Appeals Office.
.06 The Appeals Office will consider the organization's appeal. If the Appeals Office agrees
with the proposed adverse determination, it will either issue a final adverse determination or,
if a conference was requested, contact the organization to schedule a conference. At the end
of the conference process, which may involve the submission of additional information, the
Appeals Office will either issue a final adverse determination letter or a favorable determina-
tion letter. If the Appeals Office believes that an exemption or private foundation status issue
is not covered by published precedent or that there is non-uniformity, the Appeals Office must
request technical advice from EO Technical in accordance with Rev. Proc. 2012-5, sections
4.04 and 4.05 .
.07 If an organization submits a protest of a proposed adverse exempt status ruling, EO
Technical will review the protest statement. If the protest convinces EO Technical that the
organization qualifies for tax-exempt status, a favorable ruling will be issued. If EO Technical
maintains its adverse position after reviewing the protest, it will either issue a final adverse
ruling or, if a conference was requested, contact the organization to schedule a conference. At
the end of the conference process, which may involve the submission of additional information,
EO Technical will either issue a final adverse ruling or a favorable exempt status ruling .
.08 An organization may withdraw its appeal or protest before the Service issues a final
adverse determination letter or ruling. Upon receipt of the withdrawal request, the Service will
complete the processing of the case in the same manner as if no appeal or protest was received.
.09 The opportunity to appeal or protest a proposed adverse determination letter or ruling
and the conference rights described above are not applicable to matters where delay would be
prejudicial to the interests of the Service (such as in cases involving fraud, jeopardy, the immi-
nence of the expiration of the statute of limitations, or where immediate action is necessary to
protect the interests of the Government).
Sections 6104 and 6110 of the Code provide rules for the disclosure of applications, includ-
ing supporting documents, and determination letters and rulings.
2012-2 i.R.B. 268 January 9, 2012
REL 00730
Disclosure of applications,
supporting documents, and
favorable determination letters or
rulings
Disclosure of adverse
determination letters or rulings
Disclosure to State officials when
the Service refuses to recognize
exemption under 501(c)(3)
Disclosure to State officials of
information about 501(c)(3)
applicants
SECTION 9. REVIEW OF
DETERMINATION LETTERS
BY EO TECHNICAL
Determination letters may be
reviewed by EO Technical to
assure uniformity
Procedures for cases where EO
Technical takes exception to a
determination letter
.01 The applications, any supporting documents, and the favorable determination letter or
ruling issued, are available for public inspection under 6104(a)(l) of the Code. However,
there are certain limited disclosure exceptions for a trade secret, patent, process, style of work,
or apparatus, if the Service determines that the disclosure of the information would adversely
affect the organization.
(1) The Service is required to make the applications, supporting documents, and favorable
determination letters or rulings available upon request. The public can request this information
by submitting Form 4506-A, Request for Public Inspection or Copy of Exempt or Political Or-
ganization IRS Fonn. Organizations should ensure that applications and supporting documents
do not include unnecessary personal identifying information (such as bank account numbers
or social security numbers) that could result in identity theft or other adverse consequences if
publicly disclosed.
(2) The exempt organization is required to make its exemption application, supporting doc-
uments, and determination letter or ruling available for public inspection without charge. For
more information about the exempt organization's disclosure obligations, see Publication 557,
Tax- Exempt Status for Your Organization.
.02 The Service is required to make adverse determination letters and rulings available for
public inspection under 61 IO of the Code, Upon issuance of the final adverse determination
letter or ruling to an organization, both the proposed adverse determination letter or ruling and
the final adverse determination letter or ruling will be released pursuant to 6110.
(1) These documents are made available to the public ~ t r the deletion of names, addresses,
and any other information that might identify the taxpayer. See 61 IO(c) for other specific
disclosure exemptions.
(2) The final adverse determination letter or ruling will enclose Notice 437, Notice of Inten-
tion to Disclose, and redacted copies of the final and proposed adverse determination letters
or rulings. Notice 437 provides instructions if the organization disagrees with the deletions
proposed by the Service.
.03 The Service may notify the appropriate State officials of a refusal to recognize an or-
ganization as tax-exempt under 50I(c)(3). See 6104(c) of the Code. The notice to the State
officials may include a copy of a proposed or final adverse determination letter or ruling the
Service issued to the organization. In addition, upon request by the appropriate State official,
the Service may make available for inspection and copying the exemption application and other
information relating to the Service's determination on exempt status.
.04 The Service may disclose to State officials the name, address, and identification number
of any organization that has applied for recognition of exemption under 50 I(c)(3).
.01 Determination letters issued by EO Determinations may be reviewed by EO Technical.
or the Office of the Associate Chief Counsel (Passthroughs and Special Industries) (for cases
under 521), to assure uniform application of the statutes or regulations, or rulings, court
opinions, or decisions published in the Internal Revenue Bulletin.
,02 If EO Technical takes exception to a determination letter issued by EO Determinations,
the manager of EO Determinations will be advised. If EO Determinations notifies the organ-
ization of the exception taken, and the organization disagrees with the exception, the file will
be returned to EO Technical. The referral to EO Technical will be treated as a request for tech-
nical advice, and the procedures in Rev. Proc. 2012-5 will be followed.
January 9, 2012 269 2012-2 I.R.B. REL 00731
SECTION 10. DECLARATORY
JUDGMENT PROVISIONS OF
7428
Actual controversy involving
certain issues
Exhaustion of administrative
remedies
Not earlier than 270 days after
seeking determination
Service must have reasonable time
to act on an appeal or protest
Final determination to which
7428 applies
SECTION 11. EFFECT OF
OR RULING RECOGNIZING
EXEMPTION
Effective date of exemption
.01 Generally, a declaratory judgment proceeding under 7428 of the Code can be filed in
the United States Tax Court, the United States Court of Federal Claims, or the district court of
the United States for the District of Columbia with respect to an actual controversy involving
a determination by the Service or a failure of the Service to make a determination with respect
to the initial or continuing qualification or classification of an organization under 501 (c)(3)
(charitable, educational, etc.); 170(c)(2) (deductibility of contributions); 509(a) (private
foundation status); 49420)(3) (operating foundation status); or 521 (farmers cooperatives).
.02 Before filing a declaratory judgment action, an organization must exhaust its adminis-
trative remedies by taking, in a timely manner, all reasonable steps to secure a determination
from the Service. These include:
(I) the filing of a substantially completed application Form 1023 under 501 (c)(3) pursuant
to section 3.08 ofthis revenue procedure, or the request for a determination of foundation status
pursuant to Rev. Proc. 2012-10, this Bulletin, or its successor;
(2) in appropriate cases, requesting relief pursuant to Treas. Reg. 301.9100-1 of the Pro-
cedure and Administration Regulations regarding the extension of time for making an election
or application for relief from tax;
(3) the timely submission of all additional infonnation requested by the Service to perfect
an exemption application or request for determination of private foundation status; and
(4) exhaustion of all administrative appeals available within the Service pursuant to section
7 of this revenue procedure.
.03 An organization will in no event be deemed to have exhausted its administrative reme-
dies prior to the earlier of:
(I) the completion of the steps in section 10.02, and the sending by the Service by certified
or registered mail of a final determination letter or ruling; or
(2) the expiration of the 270-day period described in 7428(b)(2) in a case where the Service
has not issued a final determination letter or ruling, and the organization has taken, in a timely
manner, all reasonable steps to secure a determination letter or ruling.
.04 The steps described in section 10.02 will not be considered completed until the Service
has had a reasonable time to act upon an appeal or protest, as the case may be.
.05 A final determination to which 7428 of the Code applies is a determination letter or
ruling, sent by certified or registered mail, which holds that the organization is not described in
50J(c)(3) or 170(c)(2), is a public charity described in a part of 509 or 170(b)( I)(A) other
than the part under which the organization requested classification, is not a private foundation
as defined in 4942U)(3), or is a private foundation and not a public charity described in a part
of 509 or J70(b)(l)(A).
.0 I A determination letter or ruling recognizing exemption is usually effective as of the date
of formation of an organization if its purposes and activities prior to the date of the determi-
nation letter or ruling were consistent with the requirements for exemption. However, special
rules under 508(a) of the Code may apply to an organization applying for exemption under
501(c)(3), and special rules under 505(c) may apply to an organization applying for ex-
emption under 501 (c)(9), (17), or (20).
2012-2 tR.B. 270 January 9, 2012 REL 00732
Reliance on determination letter
or ruling
SECTION 12. REVOCATION
OR MODIFICATION OF
OR RULING RECOGNIZING
EXEMPTION
Revocation or modification of a
determination letter or ruling may
be retroactive
Appeal and conference procedures
in the case of revocation or
modification of exempt status
letter
January 9, 2012
(I) If the Service requires the organization to alter its activities or make substantive amend-
ments to its enabling instrument, the exemption will be effective as of the date specified in a
determination letter or ruling.
(2) If the Service requires the organization to make a nonsubstantive amendment, exemp-
tion will ordinarily be recognized as of the date of formation. Examples of nonsubstantive
amendments include correction of a clerical error in the enabling instrument or the addition of
a dissolution clause where the activities of the organization prior to the determination letter or
ruling are consistent with the requirements for exemption.
.02 A determination letter or ruling recognizing exemption may not be relied upon if there is
a material change, inconsistent with exemption, in the character, the purpose, or the method of
operation of the organization, or a change in the applicable law. Also, a determination letter or
ruling may not be relied upon if it was based on any inaccurate material factual representations.
See section 12.01.
A determination letter or ruling recognizing exemption may be revoked or modified: (1) by
a notice to the taxpayer to whom the determination letter or ruling was issued; (2) by enactment
of legislation or ratification of a tax treaty; (3) by a decision of the Supreme Court of the United
States; (4) by the issuance of temporary or final regulations; (5) by the issuance of a revenue
ruling, revenue procedure, or other statement published in the Internal Revenue Bulletin; or
(6) automatically, pursuant to 6033(j), for failure to file a required annual return or notice for
three consecutive years.
.01 The revocation or modification of a determination letter or ruling recognizing exemption
may be retroactive if there has been a change in the applicable law, the organization omitted
or misstated a material fact, operated in a manner materially different from that originally rep-
resented, or, in the case of organizations to which 503 of the Code applies, engaged in a
prohibited transaction with the purpose of diverting corpus or income of the organization from
its exempt purpose and such transaction involved a substantial part of the corpus or income of
such organization. In certain cases an organization may seek relief from retroactive revocation
or modification of a determination letter or ruling under 7805(b). Requests for 780S(b)
relief are subject to the procedures set forth in Rev. Proc. 2012--4.
(I) Where there is a material change, inconsistent with exemption, in the character, the pur-
pose, or the method of operation of an organization, revocation or modification will ordinarily
take effect as of the date of such material change.
(2) In the case where a determination letter or ruling is issued in error or is no longer in
accord with the Service's position and 7805(b) relief is granted (see sections 13 and 14 of
Rev. Proc. 2012--4), ordinarily, the revocation or modification will be effective not earlier than
the date when the Service modifies or revokes the original determination letter or ruling.
.02 In the case of a revocation or modification of a determination letter or ruling, the appeal
and conference procedures are generally the same as set out in section 7 of this revenue proce-
dure, including the right of the organization to request that EO Determinations or the Appeals
Office seek technical advice from EO Technical. However, appeal and conference rights are
not applicable to matters where delay would be prejudicial to the interests of the Service (such
as in cases involving fraud, jeopardy, the imminence of the expiration of the statute of limita-
tions, or where immediate action is necessary to protect the interests of the Government).
( I) If the case involves an exempt status issue on which EO Technical had issued a previous
contrary ruling or technical advice, EO Determinations generally must seek technical advice
from EO Technical.
(2) EO Determinations does not have to seek technical advice if the prior ruling or technical
advice has been revoked by subsequent contrary published precedent or if the proposed revo-
cation involves a subordinate unit of an organization that holds a group exemption letter issued
by EO Technical, the EO Technical ruling or technical advice was issued under the Internal
271 2012-2 tR.D. REL 00733
SECTION 13. EFFECT
ON OTHER REVENUE
PROCEDURES
SECTION 14. EFECTIVE DATE
SECTION 15. PAPERWORK
REDUCTION ACT
DRAFTING INFORMATION
Revenue Code of 1939 or prior revenue acts, or if the ruling was issued in response to Form
4653, Notification Concerning Foundation Status.
Rev. Proc. 2011-9 is superseded.
This revenue procedure is effective January 9, 2012.
The collection of information for a letter application under section 3.05 of this revenue pro-
cedure has been reviewed and approved by the Office of Management and Budget (OMB)
in accordance with the Paperwork Reduction Act (44 U.S.c. 3507) under control number
1545-2080. All other collections of information under this revenue procedure have been ap-
proved under separate OMB control numbers.
An agency may not conduct or sponsor, and a person is not required to respond to, a collec-
tion of information unless the collection of information displays a valid OMB control number.
The collection of this information is required if an organization wants to be recognized as
tax-exempt by the Service. We need the information to determine whether the organization
meets the legal requirements for tax-exempt status. In addition, this information will be used
to help the Service delete certain information from the text of an adverse determination letter
or ruling before it is made available for public inspection, as required by 6110.
The time needed to complete and file a letter application will vary depending on individual
circumstances. The estimated average time is 10 hours.
Books and records relating to the collection of information must be retained as long as their
contents may become material in the administration of any internal revenue law. The rules
governing the confidentiality of letter applications are covered in 6104.
The principal authors of this revenue procedure are Mr. Dave Rifkin and Mr. Matt Perdoni
of the Exempt Organizations, Tax Exempt and Government Entities Division. For further
information regarding this revenue procedure, please contact the TE/GE Customer Service
office at (877) 829-5500 (a toll-free call), or send an e-mail to tege.eo@irs.gov and include
"Question about Rev. Proc. 2012-9" in the subject line.
2012-2 I.R.B. 272 January 9, 2012
REL 00734
DEPARTMENTOFTHETREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
COMMISSIONER
TAX EXEMPTAND
GOVERNMENTENTITIES
DIVISION
April 26, 2012
TheHonorableCharlesBoustany, Jr., M.D.
Chairman
Subcommitteeon Oversight
CommitteeonWaysand Means
U.S. HouseofRepresentatives
Washington, D.C. 20515
DearMr. Chairman:
ThisinformationsupplementsmyMarch23, 2012, responsetoyourMarch 1, 2012, letterto
CommissionerSchulman.
Yourletteraskedhowmanynewtax-exemptorganizationstheIRShasrecognized eachyear
since 2008. ThechartbelowaddspreliminaryinformationonapprovedcasesforFY2012,
from October1,2011 throughApril 11,2012.
FY Number of Determination Approvals'
2008 69,957
2009 62,459
2010 53,693
2011 54,713
2012" 29,958
I FY 2008 -2011 data - SOl data from IRS Data Book, Table 24, Closures of Applications for Tax-Exempt Status, by
Organization Type and Internal Revenue Code Section, Fiscal Year 2008 (and subsequent fiscal years 2009-2011) at
http;,/wW\li.lrs.gov/taxstalsiindex.lJtml. This data reflects all case closures for the Exempt Organizations
Determinations function. These include not only initial applications for tax-exempt status, but also other
determinations, such as public and private foundation status determinations, advance approval of scholarship grant
and group d.eterminations of tax-exempt status. ... . .
" The data for FY 2012 inthe supplemental charts reflects the prelmunary mformatlOn available. SOl Data Book
information is updated annually, with the complete FY 2012 information expected inMarch 2013.
REL 00735
2
The second question in your letter asked how many new applications for 501 (c)(3) and (c)(4)
tax-exempt status the IRS has received since 2008. The below chart adds preliminary
information on cases received for FY 2012, from October 1, 2011 through April 1, 2012.
FY 501(c)(3) 501(c)(4)
2008 51,073 1,410
2009 52,303 1,571
2010 50,266 1,591
2011
2012
55,962
33,307
2,242
1,715
I
I hope this information is helpful. If you have questions, please contact me or have your staff
contact Cathy Barre at (202) 622-3720.
Sincerely,
REL 00736
Action Routing Sheet
RequestforSignatureof e-trakControlNumber Duedate U
/
,/()! d . 300.2 I Joseph H. Grant 04/25/2012
Subject
Supplemental response to The Honorable Charles Boustany. Jr.. M.D.
Reviewing Office
NaLee Park
Dawn Marx
Lois Lerner
Joseph Grant
Summary
Reviewer Support Staff
Comment
InitialI Date InitialI Date
'iPS/;.,
"\ ,v" ,LLi,v'
, Lll" I
-

h

JI-o,-J/.
/"'''' f
'4:12i:) <2,0\ 'l.
PreparedBy Phonenumber OfficeLocationI Building Returnto
Dawn Marx 202-283-8861
Form 14074 (Rev. 9-2010) Catalog Number 53167M publish.no.irs.gov Department of the Treasury - Internal Revenue Service
REL 00737
COMMISSIONER
TAXEXEMPTAND
GOVERNMENTENTITIES
DIVISION
March23,2012
The HonorableCharles Boustany,Jr., M.D.
Chairman
DearMr. Chairman:
Iam respondingtoyourletterto CommissionerShulmandated March 1,2012,requesting
additionalinformationaboutthetax-exemptsector. Thisresponsesupplementsmyprevious
responsesdatedNovember18,2011,and March 12,2012,and addressestheadditional
questionsraised inyourrecentletter.
Question1. Howmanynewtax-exemptorganizationshastheIRSrecognizedeachyear
since20081
Thefollowingtableprovidesthetotalnumberofdeterminationapprovals
1
for
FY2008- 2011:
FY NumberofDeterminationApprovals
2008 69,957
2009 62,459
2010 53,693
2011 54,713
1 SOldatafrom IRSDataBook,Table24, ClosuresofApplicationsforTax-ExemptStatus, byOrganization
Typeand Internal RevenueCodeSection, FiscalYear2008(and subsequentfiscalyears2009-2011)at
http://www.irs.gov/taxstats/index.htmI.Thisdatareflectsallcaseclosuresforthe ExemptOrganizations
Determinationsfunction. Theseincludenotonlyinitialapplicationsfortax-exemptstatus, butalsoother
determinations, such aspubliccharityandprivatefoundationstatusdeterminations,advanceapprovalof
scholarshipgrantprocedures, and groupdeterminationsoftax-exemptstatus.
REL 00738
2
Question2. Howmanynewapplicationsfor501(c)(3)and(c)(4)tax-exemptstatushave
been receivedbytheIRSsince2008? Provideabreakdownbyyearandtypeof
organization. .
Thefollowingtableprovidesthenumberofnewapplicationsfortax-exemptstatusunder
sections501(c)(3)and (c)(4)oftheCodethatwerereceivedforFY2008- 2011:
FY 501(c)(3) 501(c)(4)
2008 51,073 1,410
2009 52,303 1,571
2010 50,266 1,591
2011 55,962 2,242
Question3.WhatistheIRS processforreviewingeachtax-exemptstatusapplication?
Isthisprocessthesameforentitiesapplyingforsection501(c)(3)and(c)(4)tax-exempt
status? Pleasedescribetheprocessforbothsection501(c)(3)and(c)(4)applicationsin
detail.
TheEOSubmissionProcessingCenterinCincinnati, Ohioreceivesallapplicationsfortax-
exemptstatus. TheSubmissionProcessingCenterinputstheapplicationsintotheEP/EO
DeterminationSystemandprocessestheattacheduserfees. Theapplicationisthensentfor
initialtechnicalscreening.
Thistechnicalscreeningis conducted byEO Determinations'mostexperiencedrevenue
agentswhoreviewtheapplicationsand, basedonthatreview, separatetheapplicationsinto
thefollowingfourcategories:
Applicationsthatcanbeapprovedimmediatelybasedonthecompletenessofthe
applicationand theinformationsubmitted;
Applicationsthatneedonlyminoradditionalrequired informationinthefilein orderto
approvetheapplication;
Applicationsthatdonotcontaintheinformationneededtobeconsidered substantially
complete; and
Applicationsthatrequirefurtherdevelopmentbyan agentin ordertodeterminewhether
theapplicationmeetsthereqUirementsfortax-exemptstatus.
REL 00739
3
Organizations whose applications fall into the fourth category are sent letters informing them
that more development of their application is needed, and that they will be contacted once their
application has been assigned to a revenue agent. The applications are sent to unassigned
inventory. They are held in unassigned inventory until a revenue agent with the appropriate
level of experience for the issues involved has an opening in his or her caseload, which
permits the assignment of a new case.
2
Once the case is assignedI the revenue agent notifies the organization and reviews the
application. Based upon established precedent and the facts and circumstances of the
application, the agent requests additional relevant information and documentation to complete
the application record and make a determination. Where an application for exemption
presents issues that require further development to complete the application record, the IRS
engages in a back and forth dialogue with the organization in order to obtain the needed
information. This back and forth dialogue helps applicants better understand the requirements
for exemption and what is needed to meet them. and it helps the IRS obtain all the information
relevant to the determination.
Tools are available to promote consistent handling offull development cases. For example, in
situations where there are a number of cases involving similar issues (such as credit
counseling organizations, down payment assistance organizations, organizations that were
automatically revoked and are seeking retroactive reinstatement, and most recently, advocacy
organizations), the IRS will assign cases to designated employees to promote consistency.
Additionally, EO Technical works with Chief Counsel to develop educational materials to assist
the employees in issue spotting and crafting questions to develop cases consistently.
A complete application record is important. If the application is approved, not only is the
application record made publicly available, but organizations that act as described in the
application record have reliance on the IRS determination. If the application is denied, the
organization may seek review from the Appeals Office, which reviews the complete application
record and makes its own independent determination of whether the organization meets the
requirements for tax-exempt status. If the Appeals Office decides the organization meets the
reqUirements for tax-exempt status, the application will be approved. If the Appeals Office
agrees that the application should be denied, there are two avenues that the applicant may
take for seeking relief. All denied applicants may pay the tax owed as a taxable entity and
seek a refund in federal court. Additionally, applicants requesting recognition under section
501 (c)(3) may seek immediate declaratory judgment relief pursuant to section 7428 of the
Code.
In those cases where the application raises issues for which there is no established published
precedent or for which non-uniformity may exist, EO Determinations refers the application to
EO Technical. In EO Technical, the applications are reviewed by tax law specialists whose job
is to interpret and provide guidance on the law and who work closely with IRS Chief Counsel
attorneys on the issues.
2 Enclosure A describes the criteria used to determine the appropriate level of experience.
REL 00740
4
Similar to the process in EO Determinations, EO Technical tax law specialists develop cases
based on the facts and circumstances of the issues in the specific application. If upon review
of all of the information submitted, it appears that an organization does not meet the
requirements for tax-exempt status, a proposed denial explaining the reasons the organization
does not meet the requirements is issued. The organization is then entitled to a conference of
right where it may provide additional information. Following the conference of right, a final
determination is issued. If the application is approved, the application record is made publicly
available, and if the organization acts as described in the application record, it has reliance on
the IRS determination. If the application is denied, there are two avenues that the applicant
may take for seeking relief. All denied applicants may pay the tax owed as a taxable entity and
seek a refund in federal court. Additionally, applicants requesting recognition under section
501 (c)(3) may seek immediate declaratory judgment relief pursuant to section 7428 of the
Code.
The above described process for EO Determinations and EO Technical is identical for
organizations applying for tax-exempt status under both section 501 (c)(3) and under section
501 (c)(4), with a few minor differences. First, organizations seeking 501 (c)(3) tax-exempt
status use Form 1023, Application for Recognition of Exemption Under Section 501 (c)(3) of the
Internal Revenue Code. Organizations seeking 501 (c)(4) tax-exempt status use Form 1024,
Application for Recognition Under Section 501 (a). Second, organizations recognized under
section 501 (c)(3) must also be classified as a public charity or a private foundation, a
classification that does not apply for 501 (c)(4) organizations. Third, noted above, a
501 (c)(3) applicant may seek immediate declaratory judgment relief under section 7428 of the
Code if the application for tax-exempt status is denied.
Question 4. Your preliminary response to my October 6, 2011 letter stated that "if the
application is substantially complete, the IRS may retain the application and request
additional information as needed." How does the IRS determine that an application for
tax-exempt status is "substantially complete?" Please provide guidelines or any other
materials used in this process.
Preliminarily, when EO Determinations revenue agents initiate the technical screening
process, they look to see whether the application is substantially complete. If it is, the agent
then reviews the information in the application to determine whether the application can be
approved immediately based on the information contained in the application or whether more
development is needed. If the application is not substantially complete, the application is sent
back to the organization with a letter explaining why it is being returned.
Revenue Procedure 2012-9,2012-2 I.R.B 261 (updated annually) provides minimal
requirements of what constitutes a substantially complete application. Enclosure B is a copy of
this revenue procedure for your review. Revenue Procedure 2012-9 provides that an
application is substantially complete when it contains the following information:
It is signed by an authorized individual;
It includes an Employee Identification Number (EIN);
REL 00741
5
Itincludes,fororganizationsotherthanthosedescribedin section501(c)(3), a
statementofreceipts and expendituresand abalancesheetforthecurrentyearand the
threeprecedingyears(ortheyearstheorganizationwasinexistence, iflessthanfour
years). andiftheorganization hasnotyetcommencedoperationsorhasnotcompleted
oneaccountingperiod, aproposedbudgetfortwofull accounting periodsand acurrent
statementofassetsandliabilities(fororganizationsdescribedin section501(c)(3), see
Form 1023and Notice1382)
Itincludesadetailednarrativestatementofproposedactivities, includingeachofthe
fundraising activitiesofasection 501(c)(3) organization, and anarrativedescriptionof
anticipatedreceiptsandcontemplatedexpenditures;
Itincludesacopyoftheorganizing orenablingdocumentthatissignedbyaprincipal
officeroris accompaniedbyawrittendeclarationsigned byan authorizedindividual
certifyingthatthedocumentisacompleteand accuratecopyoftheoriginalorotherwise
meetstherequirementsofa"conformedcopy"asoutlinedin Rev. Proc.68-14.
IftheorganiZing orenablingdocumentisintheform ofarticlesofincorporation. it
includesevidencethatthearticleswerefiledwithandapproved byan appropriatestate
official (e.g., stamped"Filed"anddatedbytheSecretaryofState); alternatively,acopy
ofthearticlesofincorporationmaybesubmitted ifaccompaniedbyawritten declaration
signed byan authorized individualthatthecopyisacompleteand accuratecopyofthe
originalcopythatwasfiled andapprovedbythestate; ifacopyissubmitted,thewritten
declarationmustincludethedatethearticleswerefiledwiththestate;
Iftheorganization hasadoptedby-laws, itincludesacurrentcopy; theby-lawsneed not
besigned ifsubmittedasanattachmenttotheapplicationforrecognitionofexemption;
otherwisetheby-lawsmustbeverifiedascurrentbyanauthorizedindividual;and
Itis accompaniedbythecorrectuserfeeand Form8718,whenapplicable.
Question5. DoestheIRS havestandardproceduresorformsitusesto"request
additionalinformationasneeded"fromapplicantsseekingtax-exemptstatus? Please
provideanyformsandrelatedmaterialsused.
Yes, thegeneralproceduresforrequesting additionalinformationtodevelopanapplicationare
includedin section7.20.2oftheInternalRevenueManual.
3
Althoughthereisatemplateletter
thatdescribesthegeneralinformationon thecasedevelopmentprocess,the letterdoesnot
specifythe informationtoberequestedfromanyparticularorganization. EnclosureCis a
copyofthetemplateletter.
Theamountandtypeofdevelopmentnecessarytoprocessanapplicationtoensurethatthe
legalrequirementsoftax-exemptionaresatisfieddependsonseveralfactors, which include
theparticularsubsectionunderwhichtheapplicantseekstax-exemptstatus,the
comprehensivenessoftheinformationprovided intheapplication, andthe issuesraised bythe
application. Consequently, revenueagentsprepareindividualizedquestionsand requestsfor
3 IRM 7.20.2 is availableathttp://www.irs.gov/irm/part7/irm 07-020-002html.
REL 00742
6
documents relevant to the application, which are attached to the above described general
template letter. As noted in the response to question 3, with certain types of applications
where the issues are similar or more complex, EO Technical, in coordination with Chief
Counsel, develops educational materials to assist the revenue agents in issue spotting and
crafting questions to develop those cases consistently.
Question 6. Does the IRS select applicants for "follow-up" on an automated basis or is
there an office or individual responsible for selecting incomplete applications? Please
explain and provide details on any automated system used for these purposes. If
decisions are made on an individual basis, please provide the guidelines and any
related materials used.
With regard to whether the decision to send an application for further development is an
automated process, the answer is no. The range of organizations eligible for tax-exempt
status under section 501 (c), the requirements they must meet under the various subsections,
and the diversity of the facts and circumstances presented by the applications, require
individualized consideration. To ensure quality and consistency, only the most experienced
EO Determinations revenue agents are assigned to technically screen applications. These
agents use sound reasoning based on training and experience to determine whether the
information in the application is sufficient to meet the organizational, operational, and other
technical requirements of the Code and regulations for tax-exempt status, or whether the
application needs further development.
Question 7. How many tax-exempt applications since 2008 have been selected for
"follow-up"? How many entities selected for follow-up were granted tax-exempt status?
Preliminarily, please note that, with the exception of the number of applications received per
year, all IRS statistics relating to applications for exempt status are based only on the
application cases closed in any particular year. Additionally, applications are not always
closed in the same year that they are received for a variety of reasons, inclUding when during
the year the applications were filed, whether a case can close through technical screening or
requires full development, the back and forth dialogue between the revenue agent and the
applicant to fully develop the application, and whether a case is transferred to EO Technical.
Consequently, there often is no match between the year an application was filed and the year
the application case is closed.
REL 00743
7
The below chart provides the total number of applications closed for FY 2008-2011,
along with the percentage of applications closed each year through the technical screening
process (Le., cases in which further development was not required).
Fiscal Year
2008 2009 2010 2011
Total number of applications closed
4
84,220 77,305 65,590 61,004
Percentage of applications closed through
technical screening 59% 57% 56% 60%
The below chart provides complete information regarding the nature of closures for all fUlly
developed determination applications closed during FY 2008 - 2011.
EDS Closed Case Status Codes Fiscal Year
2008 2009 2010 2011
Status 01 - A roved
Status 02 - Disa roved
20,252
1,242
18,778
480
17237
517
17,850
217
Status 03 - Returned Incom lete 68 2,307 1,763 1,132
Status 04 - Withdrawn b Tax a er 1,051 1,451 1,315 1,499
Status 08 - Refusal to Rule * 0 0 5
Status 11 - Failure to Establish 7,877 6,402 2,554
Status 12 - Other 1,948 1,369 610
Status 30 - Correction Dis osal 782 545 275
* 3or fewer
Lastly, during the December 16, 2011 meeting with your staff, they requested
examination results information on the listed transaction disclosures discussed in my
November 18,2011 response (under Question 5(b)(iv. We are providing the results in
this supplemental response.
Pursuant to Treasury Regulations section 1.6011-4, a party that has participated in a listed or
other reportable transaction must file a Form 8886 to meet its disclosure requirements. Failure
to make such disclosure is subject to the penalty for failure to include reportable transaction
information under section 6707A. Also, pursuant to Treas. Reg. section 1.6033-5, certain tax-
exempt entities that are subject to section 4965 taxes are required to file Form 8886-T,
Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction, to disclose
information with respect to each prohibited tax shelter transaction to which the entity is a party.
4 sal data from IRS Data Book, Table 24, Closures of Applications for TaX-Exempt Status, by
Organization Type and Internal Revenue Code Section, Fiscal Year 2008 (and SUbsequent fiscal years
2009-2011) at http://www.irs.gov/taxstats/index.htmI.This data reflects all case closures for the Exempt
Organizations Determinations function. These include not only initial applications for tax-exempt status,
but also other determinations, such as public charity and private foundation status determinations,
advance approval of scholarship grant procedures, and group determinations of tax-exempt status
REL 00744
8
Wepreviouslyprovided you with thenumberoffiled Forms8886and Forms8886-Trelatedto
TEGE. Yourstaffrequestedexaminationresultsinformationonthelistedtransaction
disclosures. Thechartbelowprovidescollectiveexaminationresultsforthe 110Forms8886
and Forms8886-TDisclosuresonlistedtransactionsfrom2006- 2010.
When reviewingthechart, pleasenotethefollowing. First, taxpayersfilingthedisclosure
forms oftenareuncertainwhethertheyaresubjecttothedisclosurefiling requirementsand, as
aresult, sometimesfileprotectivedisclosurestoavoid potential penaltiesortoprotectpotential
refundclaimsinthefuture. Therefore, someofthesedisclosedtransactionsmaynotwarrant
examination, asreflectedbythe32filedformsthatresulted innoaudit!examinationpotential.
Second, Form8886and Form8886-Tdisclosuresarecoded intheIRSdatasystembased on
theIRSCounselofficethathasjurisdictiontoaddresslegalissuesofthespecificsheltertype,
notbywhich IRSofficehascomplianceorexaminationjurisdictionoverthetaxpayerinvolved
intheshelter. Inotherwords,theIRSsystemcodesthedisclosuresbasedonwhohas
ownershipoverthelegalissues, ratherthanwhohasjurisdictionoverthetaxpayer. So, evenif
thedisclosurerelatestoatypeoftaxsheltertransactionthatfallsunderthelegaloversightof
TE/GECounsel,thetaxpayerwhofiledthedisclosuremaynotbetax-exempt,butratherafor-
profit, andthereforedoesnotfall underTE/GEcompliancejurisdiction, asshown bythe45
filedformsinthechart.
Third, inthe8casesexaminedandclosedasreflected in thechart,approximately$234,000in
6707A penaltieswereassessedforfailuretotimelydisclosereportable, includinglisted,
transactions. DuringexaminationsofTE/GEtaxpayersengagedin certain listedtransactions,
theIRSdiscoveredthatnon-TE/GEtaxpayershadnottimelyfiledForms8886todisclosetheir
participationinthesametransactions. Althoughthetaxpayerseventuallyfiled the Forms8886
thatwereshownintheIRSdatabase,thelatenessofthosefilingsresulted intheassessment
ofthe $234,000in section6707A enalties.
Currentl forexamination otential 25
Noaudit!examination otentialfound 32
45
Examinedandclosedwith Closin A reement* 8
Total 110
When an examination concludeswithaclosingagreement,theagreement
generallysetsforth all adjustments. includingpenalties, towhich
thetaxpayerhasagreed.
REL 00745
, .
9
I hope this information is helpful. If you have questions, please contact me or have your staff
contact Floyd L. Williams at (202) 622-4725.
Sincerely,
Enclosures
REL 00746
I
EXEMPTORGANIZATIONDETERMINATIONSCASEASSIGNMENTGUIDE
CASEGRADINGCRITERIA
CASECOMPLEXITY
GRADELEVELDISTINCTIONS
FACTORS
GS-11 GS-12 GS-13
Analysisof Application is basic; facts Application is complex and facts Application is extremely complex (e.g.,
Application regarding nature and purpose must be determined through involves inurement, private benefit, related
are easily discernible. Private analysis and questioning of entities) and significant additional
benefit/inurement issues unlikely applicant. Private benefit/inurement documentation is required of applicant.
but possible issues possible.
FactualComplexity Issues are of average complexity Issues may be sensitive or involve Case development methods and procedures
ofIssues and sensitivity. Established controversy. Case development must be adapted to unique situations. Issues
case development methods and methods and procedures must be are novel and unusual and involve the largest
procedures are usually and most complex EO's.
adequate.
adapted to case.
Application ofTax Tax laws are in most cases Tax laws are not always directly Tax laws or other legal issues involve points
Law applicable but occasionally of law without precedent or with conflicting
involve unusual interpretation
applicable. Research and analysis
precedents. Research and analysis are
and application.
are required to establish proper
necessary to establish significant similarities
precedents.
interpretation and use of
with related issues.
InterpersonalSkills Contacts are with Contacts are with officials of very large or
representatives of applicants, I representatives and officers of
Contacts are with a variety of EO
prominent organizations and persons with
organization members and national reputations in business, legal and
contributors. Tact and
considerable prominence in the
community including accountants I accounting circles and others of outstanding
diplomacy are required to and legal representatives. political, social or economic influence.
resolve and elicit information and Considerable tact and skillful Considerable tact and discretion are required
resolve questions and problems. negotiations are necessary since for resolution of issues.
issues discussed are sometimes
controversial and sensitive.
ImpactofWork Determination decision may Determination decision may affect Determination decision may impact other
impact other organizations; larger organizations of regional or organizations nationwide; applicant has
applicant's sole source of national stature; applicant's income significant resources and determination
income may be from donations; is from a variety of sources; and decision may have significant social and
and, the likelihood of media media attention is likely. economic implications with recurring effects in
attention is limited. prior or subsequent tax years; and,
widespread media attention is probable.
Revised November 25, 2002
REL 00747
COMMISSIONER
TAX EXEMPTAND
GOVERNMENTENTITIES
DIVISION
March 12,2012
The HonorableCharlesBoustany, Jr., M.D.
Chairman
SubcommitteeonOversight
Washington,D.C. 20515
DearMr. Chairman:
ThisresponserelatestoyourlettertoCommissionerShulmandatedOctober6, 2011
requesting informationaboutthetax-exemptsector. Thisresponsesupplementsmy
November18,2011 responseand addressestheadditional issuesraised byyourstaff
indiscussionswithmystaffon December16, 2011. Webelievethein-personmeeting
withyourstaffwasahelpfulexchangethatenabled ustoprovideadditionalpertinent
information.Thislettercontainsresponsestoquestionsraised byyourstaff.
OverviewoftheExemptOrganizationsOffice
Yourstaffrequested additionalinformationonthegeneralactivitiesoftheExempt
OrganizationsofficewithintheTax-Exemptand GovernmentEntitiesDivisionandon
the Form990redesign. TheExemptOrganizationsofficeoftheIRSis responsiblefor
thecomplianceofapproximately1.8milliongroupswithdiversegoalsand purposes. In
ordertoencouragethehighestdegreeofcompliancewithtaxlaw, EOconductsbothan
activedialogueandanambitiouscommunicationsand outreachprogramwithexempt
organizationsand professionalpractitionersinthesector.Theresultisthatwhenwe
initiatemajorundertakings- suchaslegislativelymandatedautomaticrevocation orthe
comprehensiveredesignofForm990- weseekand receiveextensiveinputon
developmentand implementationfromthesectorandthepublic. TheredesignofForm
990isacaseinpoint.
REL 00748
Because the Form 990 is a publicly disclosable document, the information reported is
not used by the IRS alone. Many states require nonprofit corporations operating within
their borders to file Form 990 to satisfy state reporting requirements. Many foundations
and other donors use Form 990 to identify and choose responsible charities to which to
send their charitable contributions. The press, researchers, and watchdog groups also
review and analyze information from Form 990.
The IRS began redesigning Form 990 in 2004. The basic format and content of the
form had remained essentially the same since 1979, while the community of tax-exempt
organizations had grown dramatically in size, variety, and complexity. Tax-exempt
organizations had come under increasing scrutiny by Congress and in the news media
over practices such as participating in prohibited tax shelter transactions, paying
excessive compensation, accommodating donors claiming inflated or other
inappropriate deductions, and operating business franchises or engaging in business
ventures with for-profit enterprises.
The prior Form 990, with its emphasis only on revenues and expenses, assets and
liabilities, had become outdated. It was primarily a series of yes/no checkboxes and
numbers, but did not provide an accurate portrait of what an exempt organization was
actually doing or reflect the full scope, activities, and dynamics of the modem,
sometimes multi-leveled tax-exempt organization. The form needed to be updated to
meet the needs of the IRS and the public to understand the activities of tax-exempt
organizations, and to confirm that these organizations were continuing to operate
consistently with their tax-exempt purposes.
In redesigning the Form, the IRS followed three guiding principles:
Promote compliance with the tax law
Promote transparency and
Minimize burden (where consistent with the first two principles)
2
REL 00749
The redesign was a collaborative effort in which the IRS sought and received extensive
input from the pUblic sector. We met with nonprofit associations, state charity
regulators, public interest groups, policymakers, and various representatives of the tax-
exempt community. We redesigned the Form 990 based on input from both our own
internal stakeholders (e.g., our Examinations and Submission Processing functions) and
these external groups.
Once we developed a draft redesigned form, we released it for public comment and
encouraged the public and exempt sector to provide us feedback. For a year and a
half, we held seminars and provided speakers for interested parties such as trade
association-type groups, particular sub-sectors that had an interest in the questions,
and the sector in general. We explained the new format (core form and schedules),
what we were asking for and why, and we solicited comments. We wanted to know
from affected organizations and practitioners whether the draft form's questions were
relevant, reasonable, and feasible to complete.
We received more than 5,000 pages of comments, which we are proViding to your staff
in disk form at their request (the format of the disk is discussed later in this response).
We met with various stakeholders, who had provided comments to make sure we
understood them, and we had conversations about what we - and they - were trying to
accomplish. Where recommended revisions furthered our goals of transparency,
compliance, and/or minimizing taxpayer burden, we revised the form. We then released
the revised version for public comment. We also released the Form 990 instructions for
similar comment. We considered all comments and made many further changes based
on those comments. The final Form 990 took effect in 2008. The feedback we have
received from the sector is that most agree that the process was fair and that the form
as a whole is a good one. The redesign is evolving and we continue to receive
comments from the sector and refine the form.
We recognized that the transition from the old to the new redesigned Form 990 would
change the way some organizations capture and track data needed to complete the
3
REL 00750
form. To give small and mid-sized organizations with fewer legal, accounting, and
administrative resources more time to adapt to the redesigned form, we provided
transition relief. We implemented a three-year phase-in period, raising the asset and
gross receipts thresholds for Form 990 filing by ten-fold (from $100,000 in gross
receipts and $250,000 in assets to $1 million and $2.5 million, respectively) for tax year
2008, by five-fold for tax year 2009 ($500,000 and $1.25 million), and ending at
$200,000 and $500,000 for tax years 2010 and later. The transition allowed hundreds
of thousands of smaller and mid-sized organizations that would have been required to
file the Form 990 for tax years 2008 and 2009 to file the shorter Form 990-EZ for one or
both of those years. This transition period also gave organizations time to progressively
enable their internal systems to respond to the new requirements.
Form 990 was redesigned to make it more user-friendly, streamlined, and better
organized. We eliminated unstructured attachments, replacing them with structured
schedules to promote uniformity and reduce ambiguity over how to report supplemental
information. We also added many tools to the instructions, including a glossary,
appendices, examples and illustrations, and a sequencing list, to help filers complete
the form more easily.
The Form's significant changes in how to report compensation and activities involving
related organizations now give the IRS the information needed to identify complicated
compensation and financial arrangements that may be indications of private inurement,
excess benefit, and/or private benefit. The "checklist of required schedules" shows at a
glance whether the organization has engaged in activities that may involve
noncompliant or potentially noncompliant activity, such as excessive lobbying or political
campaigning, excess benefit transactions, transactions with an interested person, or a
major disposition of assets. New schedules for reporting on foreign activities, hospitals,
and tax-exempt bonds shed greater light on, and show whether such activities are being
conducted consistently with tax-exempt purposes. By calling attention to practices and
activities that could provide occasion for waste or abuse, the form is designed to
encourage organizations to examine and exercise care in their operations.
4
REL 00751
The redesigned 990 provides us with a wealth of information about exempt
organizations and has become an important tool in EO's strategic planning.
To best focus our resources, a Strategic Planning Working Group (the SPWG), which
includes representatives from all EO functions - Rulings and Agreements, Guidance,
Determinations, Examinations, as well as related Communications and Outreach,
Research, and Counsel- reviews information from numerous sources, including
trending data from the Form 990, applications for exemption, PIC codes, the news
media and external and internal referrals. The process highlights areas of concern and
areas where we know we need to learn more to strengthen compliance and improve tax
administration. We then develop projects to focus on those areas.
One frequently used compliance tool is the compliance check questionnaire. These do
not require the same level of resources by the government or the taxpayer as an
examination, but they do provide us with a wealth of information about issues that affect
the sector as a whole or about segments of the sector. For example, we recently
looked closely at tax exempt hospitals. Hospitals are one of the largest parts of the
exempt sector by revenues, but exams of hospitals are resource-intensive, so we
cannot do more than a few of them a year. We developed a compliance check
questionnaire that asked about demographic information, about the hospitals' basis for
exemption, whether they were providing enough community benefit, and about their
executive compensation-setting practices. We sent the questionnaire to 500 hospitals,
small, medium, and large; ones that were in the cities, in the country, and across
different demographics. In advance of sending out the questionnaire we posted it on
our website and explained publicly what we intended to do in the project. We have
found that this transparency encourages organizations to respond to this and other
questionnaires. We generally have a greater than 90 percent response rate. After
analyzing the questionnaire responses, we issued a public report providing the results
of our analysis (not organization-specific). We have found such reports to be useful
tools and helpful to the exempt organizations' sector as most organizations are looking
to be compliant, and the information we proVide helps them do so.
5
REL 00752
We also conduct a limited number of follow-up examinations based on questionnaire
responses and Form 990 information. In the case of hospitals, for example, we focused
on very highly compensated executives to determine whether that compensation was
reasonable. At the end of the exam portion of the project we issued a final report to the
public regarding compensation issues and the use of the rebuttable presumption of
reasonableness.
To the extent possible, we also use a project's results to issue formal or informal
guidance to exempt organizations. In the case of hospitals, we learned that there was
inconsistency in how the hospitals were thinking about their community benefit
activities, the basis for a hospital's tax exemption, and how they were reporting them.
The interim report recommended development of a standardized Schedule H as part of
the redesign of the Form 990 so that all hospitals would be reporting the same kind of
information on community benefit, which would allow for better comparison and
transparency. We released a draft Schedule H for public comment, met with and
received input from representatives of the hospital community, made some adjustments,
and issued the new Schedule H for tax year 2008.
As part of our compliance efforts, we also have a Review of Operations (ROO) office. It
has three main functions. First, if we have examined an organization and found that the
organization is off track, but not so far off track that it should lose its exemption, we
require in a closing agreement that it make changes to come into full compliance. We
then can refer the organization to ROO, which will take a look at the organization in the
future to make sure it is maintaining compliance. The ROO review is not an
examination. Rather, the ROO looks at Forms 990 and other publicly-available
information; it looks on the web to see how the organizations are conducting their
business and whether they are still compliant. If not, the ROO will refer the organization
for examination.
The ROO also reviews a random sample of approved applications for recognition of
exemption and looks at them a year or two after approval. Many organizations that
6
REL 00753
apply are not fully operational at the time of application, so their exemption
determinations are made based more on their aspirations than their actual activities to
date. The ROO reviews public information to ensure that the organizations continue to
be organized and operated for tax-exempt purposes. If not, they are referred for
examination. Finally, the ROO also conducts the statutorily mandated community
benefit reviews of tax-exempt hospitals.
Information gained from the projects, the application process, and the examination
process is fed back into our strategic planning, and the planning cycle begins again. All
of this becomes transparent to the public through our Implementing Guidelines. The
Guidelines are comprised of the annual report and an outline of the planned work for the
year ahead. This is another way for us to communicate with the sector, let the sector
know where our compliance concerns lie, provide guidance, and be transparent about
our office and our processes.
Question 1(b). Your staff asked for additional information on Exempt Organizations'
appropriations data.
In Exhibit 1(b)-1 of our November 18, 2011 response, we provided a breakdown of Tax
Exempt/Government Entities (TE/GE) appropriations data for FY 2008 - FY 2011.
Per your staff's request, below is a description of the categories that reflect the Exempt
Organizations' funding streams for the staffing, training, and direct support for the
management of various operational programs. The categories have been sorted
according to the functional areas in the previously provided exhibit.
Exempt Organizations financial structure contains two primary appropriations: Taxpayer
Services and Enforcement. The labor and support funding is distributed to the following
functional areas: 1C Taxpayer Communication and Education, 7A Compliance Services
Management, 7G Tax Reporting Compliance - Field Exam, 8C Tax Law Interpretation &
Published Guidance and 8E Rulings and Agreements. Functional Area 1 falls under
Taxpayer Services, Functional Areas 7 and 8 fall under Enforcement.
7
REL 00754
TaxpayerComm&EducationorTaxpayerCommunicationand Education
(FunctionalArea 1C):
EncompassesCustomerEducationand Outreach(CE&O)staffing,which
offersspecializededucationandoutreachprogramstohelpexempt
organizationsunderstandtheirtaxresponsibilities. CE&Ooverseesthe
Charitiesand NonprofitspagesofIRS.gov, developspublicationsand
web-basedmaterials,managestheAcademicInstitutionInitiative,and
offersface-to-faceworkshopsandseminarson EOtax laws. In additionto
CE&Ocorestaff, subject-areaexpertsfrom ExaminationsandRulingsand
Agreements(R&A)supportEOoutreacheffortsandaugmentCE&O's
mission.
ComplianceServicesMgmtorComplianceServicesManagement(Functional
Area 7A):
EncompassesEODirector'sdirectsupportstaff, aswellastheprogram
staff.
TaxReportCompliance- Fld orTaxReporting Compliance- Field Exam
(FunctionalArea7G):
Includesresourcestosupportservicesprovidedtotaxpayerafterareturn
isfiled (post-filingstage), particularlyforenforcementactivities, including
bothcompliancechecksand auditsofexemptorganizations.
EOExaminationsismadeupoffield examgroups;theExempt
OrganizationComplianceUnit(EOCU), which conductscompliance
checks; ReviewofOperations(ROO),whichdoesfollow-up reviewsof
organizations; and ComplianceStrategiesCritical Initiative(CSCI),which
coordinates EO'sstrategicplanning, monitorsprogressofcritical
initiatives,and analyzestheresultsoftheseprojects.
InternationalExams(FunctionalArea7Q):
SeparatefundingstreamtrackedduetoIRS-wideinitiativewithother
divisions, includingLB&1.
Supportstheinternationalexamprogramsinvolving U.S. citizensresiding
abroad, non-residentaliens,expatriates, aswellasexaminationsinvolving
8
REL 00755
otherinternationalissues, includinglegalsupport(e.g., ForeignTax
Credit, ForeignEarned IncomeExclusion, Corporations, Non-Profits,
Pension Plans, etc.).
TaxLawInterpretationand/orTaxLawInterpretationand PublishedGuidance
(FunctionalArea8C):
IncludesGuidancestaffinWashingtonD.C.,whoprovidesdirectsupport
forinterpretationsofthetaxlawthroughpublishedguidance,technical
adviceand othertechnical legalservices.
Rulings&Agreements(FunctionalArea8E):
IncludesDeterminationsstaffin Cincinnatiand Technicalstaffin
WashingtonD.C.,whoareresponsibleforreviewingapplicationsfor
exemption, issuingprivateletterrulings, providingtechnicaladvice,and
collaboratingwith ChiefCounsel'sofficeandtheDepartmentofthe
Treasurytodeliverformal guidance.
Question 1(c). Yourstaffrequestedadditionalinformationregardingtheaverage
lengthofatax-exemptauditsince2008.
Theaveragelengthoftimeforcompletingexaminationreturnsthatwereclosed in FY
2011 is210days. Thefollowingaretheaveragenumberofdaysforcompleting
examinationreturnsthatwereclosedduringFY2008- FY2010:
FY2010: 225days
FY2009:267days
FY2008:264days
Yourstaffalsorequested additional informationregardingtheuseofPrincipalIssue
Codes(PICcodes)in identifyingissuesforaudit.
PICcodesareoneoftheindicatorsorwaystoidentifyissuesandtrends. Thesecodes
areselectedtocapturetheissuesonwhichan agentspenttimeduringtheexamination
orthatresulted inachange. ThedeterminationofwhichPICcodesareapplicabletoa
particularcaseisajudgmentmadebytheagent. ThelistofPICcodesweprovidedyou
9
REL 00756
with my November 18, 2011 response is the same list our agents use. (The list is re-
enclosed under Enclosure A for your convenience.) As part of their training, our agents
are prepared to recognize legal issues that may arise during their examination of a tax
return, and understand the relationship of the PIC codes to the issues.
We are providing IRM section 4.75.16.9 as Enclosure B. As discussed in my November
18,2011 response, IRM section 4.75.16.9 provides gUidance on the use of PIC codes,
including which codes should be used in closing EO Examination cases. The IRM
provides several specific examples on the correct use of these PIC codes, as well as
addresses the use of PIC code 34 - "Other". We review the PIC codes as the sector
changes and new areas develop to ensure our agents have the tools to accurately and
consistently capture these new issues or trends.
Question 2(a). Your staff asked for more concrete examples regarding usage of data
from Form 990 on the effect of enforcement and compliance.
As noted above, the Form 990 is a significant tool in our strategic planning as well as in
examining tax-exempt organizations and in identifying tax-exempt organizations for
exam. As discussed, the redesigned Form 990 includes information that was not
included in the prior Form 990, including two key areas that we review frequently in
examinations: governance and executive compensation. The IRS uses Form 990
information in all compliance projects, including the following:
College and university project. The IRS sent 400 questionnaires to public and
private four-year colleges and universities asking about their executive compensation
practices, endowments, and unrelated business income, including how they allocate
gains and losses among their taxable and non-taxable activities. As part of this project,
the IRS is conducting examinations of approximately 34 colleges and universities,
focusing on their organizational structures, exempt and unrelated business activities,
endowments, executive compensation, and governance practices based, in part, on
data from the questionnaires and Forms 990.
10
REL 00757
Form 990-N mis-filer project. The Pension Protection Act of 2006 (PPA) added the
Form 990-N (e-Postcard) filing requirement to ensure that the IRS and potential donors
have current information about smaller tax-exempt organizations. Organizations with
average annual gross receipts of $50,000 or less may elect to file the e-Postcard rather
than the Form 990 or Form 990-EZ. A tax-exempt organization's filing obligations may
change annually, depending on its levels of gross receipts and total assets. Based on
information provided in Form 990-series retums regarding an organization's gross
receipts, the IRS has identified organizations that filed the Form 990-N (a-Postcard)
when they apparently should have filed Form 990 or 990-EZ for a particular year. The
IRS is contacting these organizations to learn more about their current filing obligations
before taking appropriate action.
Community benefit reviews. The IRS is statutorily required to review the community
benefit activities of hospital organizations at least once every three years. The IRS is
reViewing Forms 990 in conducting these reviews. The IRS will continue to use the
information gathered from the reviews for research, reporting, and compliance
purposes, as well as to identify areas where additional guidance, education, and Form
990 changes may be needed.
Section 501 (c)(4), (5) and (6) organizations. Unlike section 501 (c)(3) public charities
that generally must apply to the IRS for recognition of tax exemption under section 508,
section 501 (c)(4), (5), and (6) organizations (social welfare organizations; labor,
agricultural and horticultural groups; and business leagues such as a chamber of
commerce) are not covered by Section 508, and may self-declare as tax-exempt
organizations. The Form 990 has prOVided the IRS with additional information on all
categories of tax-exempt organizations, including section 501 (c)(4), (5) and (6)
organizations. With the increased information available on the redesigned Form 990, we
are looking at issues including political activity, inurement and the extent of compliance
with the reqUirements for tax exemption by organizations that self-identified themselves
as a section 501 (c)(4), (5) or(6) organization.
11
REL 00758
Charitable spending initiative. This project is designed to learn more about how
charities raise and spend their funds. The IRS has selected certain organizations for
examination under the first phase of the project using data from Form 990, including
high levels of fundraising expenses coupled with relatively low levels of program service
expenditures, high ratios of officer compensation in comparison to the organization's
program service expenditures, and low levels of program service expenditures in
comparison to the organization's total revenue.
'Mutual" Organizations- The IRC 501(c)(12) Project. Organizations exempt under
section 501(c)(12) include benevolent life insurance associations, mutual ditch or
irrigation companies, and cooperative telephone companies. These organizations must
collect at least 85 percent of their income from members for the sole purpose of meeting
losses and expenses. The results of the member-income "test" determine the
organization's yearly filing reqUirement. An organization should file Form 990 for the
years in which it meets the 85 percent member-income test, and it should file Form
1120 for the years in which it fails to meet the test. The Forms 990 filed by some section
501 (c)(12) organizations indicate that these organizations are not meeting the 85
percent member-income test every year. To address this issue, the IRS mailed
questionnaires to affected organizations in early FY 2010, and 40 percent of the
questionnaire respondents were selected for examination. We began conducting these
examinations in FY 2011, and the examinations are still in process.
Question 2(c). Your staff requested additional information regarding IRS actions in
response to taxpayer concerns on redesigned Form 990.
As discussed above, the Form 990 redesign was a collaborative effort in which the IRS
sought and received extensive input from the public sector. The IRS met with nonprofit
associations, state charity regulators, public interest groups, policymakers, and various
representatives of the tax-exempt community. We redesigned the Form 990 based on
input from both our own internal stakeholders (e.g., our Examinations and Submission
Processing functions) and these external groups. Changes were made throughout the
redesign process to address comments from stakeholders.
12
REL 00759
As discussed, we requested public comment on the draft redesigned Form in 2007, and
on the draft instructions in 2008. In response, we received over 800 formal public
comments. We have provided these comments in the two enclosed CD-ROMs: one
contains pdf files of 2007 comments on the redesigned Form 990 (Enclosure C) and the
second contains .pst files on draft instructions comments from 2008 as well as
comments to the recent Announcement 2011-36 (Enclosure D). Based on feedback
from these public comments, we made extensive revisions to the Form 990, schedules,
and instructions to increase clarity and minimize burden. We are including copies of the
background papers that detail some of these revisions as Enclosure E.
To help all filers become familiar with the Form and complete it more accurately, we
developed multiple on-line educational resources (at IRS.gov/eo) describing how the
Form had changed and tips for completing it. We have since added audio and video
programs to further assist filers in understanding and completing the Form.
Although the major redesign of the Form 990 is complete, the IRS has continued to
receive informal public comments on the form, schedules, and instructions, and to refine
the Form, schedules, and instructions based on those comments. We have made
clarifications, corrected errors, and added examples to make the Form easier to
understand and complete. For instance, since the Form 990 was redesigned we have
made further significant changes to the Form, schedules, and instructions in response
to public comment that include:
Eliminating supplemental Form 990 schedules that confused taxpayers (e.g.,
Schedule J-2) and instead asking taxpayers to provide supplemental information in new
narrative sections to schedules and/or duplicate copies of schedules;
Allowing a filer to answer "Yes" to Form 990, Part VI (Governance) questions on
whether its governing boards adopted certain governance policies if such policies were
13
REL 00760
adopted by either the board or a committee of the board with authority to adopt the
policies;
Stating that the compensation columns in Form 990, Part VII (Compensation) should
be left blank for short year returns in which there is no calendar year that ends within
the short year, to reduce the compensation reporting burden for short year filers;
Adding a new appendix containing activity codes for Form 990, Part VIII (Statement
of Revenue) so that filers do not have to review Form 990-T instructions for these
codes;
Revising Form 990, Part XII (Financial Statements and Reporting) to allow Form 990
filers to report that they were included in consolidated financial statements that were
compiled, reviewed, or audited by an independent accountant;
Changing the definition of "interested person" for Form 990, Schedule L, Part IV
business transaction reporting to exclude section 501 (c)(3) organizations, which
reduces the reporting burden of exempt organizations that have overlapping boards;
Revising the definition of 'significant disposition of net assets' to exclude grants or
assistance made in the ordinary course of the organization's exempt activities, thereby
reducing the reporting reqUired in Form 990, Schedule N (Dissolution or Significant
Disposition of Assets); and
Revising the definition of "related organization" so that a trust typically does not need
to report on Form 990, Schedule R (Related Organizations) its trustee, if that trustee is
a financial institution that is trustee of more than one trust.
Some taxpayers expressed concern that disclosure of certain types of information (e.g.
compensation, related organizations, foreign activities) on Form 990 would violate
expectations of privacy. In response to public comments, the IRS does not require
14
REL 00761
disclosure of any personal addresses, email addresses, phone numbers, or Social
Security numbers on the redesigned Form 990. Also in response to public comment,
Schedule F (Statement of Activities Outside the United States) does not require
reporting of the names of the 990 filers' foreign grant recipients or the countries in which
the filers conduct activities. In addition, based on responses to Announcement 2011-
36, effective tax year 2011 we no longer require reporting of the names, employer
identification numbers, or addresses of related charitable remainder trusts and other
split-interest trusts in Schedule R (Related Organizations). We are currently
considering other exceptions based on comments issued in response to Announcement
2011-36 (see below).
As described in our previous response, the IRS added a new Part V, Section B to the
2010 Form 990, Schedule H (Hospitals) to gather infonnation related to new
requirements for tax-exempt hospital facilities, and to related policies and practices. In
response to comments from the public that more time was needed for the hospital
community to familiarize itself with the new questions and gather the information
needed to report, the IRS made the entire Schedule H, Part V, Section B optional for the
2010 tax year.
On June 2,2011, the IRS requested public comment on 11 transitional issues and
frequently asked questions involving the redesigned Form 990 in Announcement 2011-
36. We have received just over 100 comments in response to Announcement 2011-36,
and are now in the process of analyzing these comments. We have included these
comments in the enclosed CD-ROM. Any changes in response to the comments will be
made as appropriate on an ongoing basis to minimize potential burden while promoting
compliance and transparency. We will continue to receive and review input on the Form
990, schedules, and instructions at Fonn990Revision@irs.gov.
15
REL 00762
Questions2(g)(ii)and(iii). Yourstaffrequested additionalinformationrelatingtothe
auto-revocationlist.
No auto-revokedtaxpayerseekingreinstatementoftax-exemptstatushasbeendenied
exemptionto date. Ofthelargerorganizationsthatrequested retroactive reinstatement,
asofMarch 1,2012,approximately21 hadbeen retroactivelyreinstated. The
remaininglargerorganizationswerereinstated asofthepostmarkdateoftheir
reinstatementapplication.
Question5(b)(iv). Yourstaffrequested examinationresultsinformationonthelisted
transactiondisclosuresdiscussedinmyNovember18,2011 response. Weexpectto
havethisinformationshortlyand willprovideitin asupplemental response.
Question5(c)(ii). Yourstaffrequested additional informationonhowIRS is preparing
forthereportrequired undersection9007(e).
TheIRSandtheDepartmentofHealthand HumanServices(HHS)havebeen
collectingdatatoproducethe reportsto Congressrequired underAffordableCareAct
section9007(e). AffordableCareActsection9007(e)requirestheSecretaryofthe
Treasury, inconsultationwiththeSecretaryofHealthand HumanServices,tosubmitto
theCongressanannualreporton levelsofcharitycareprovided byhospitals. TheIRS
and HHSareworkingtogetherto prepareareportthatincludesinformationwith respect
to privatetax-exempt, taxable, andgovernment-owned hospitalsregardingthelevelsof
charitycare, baddebtexpenses,andun-reimbursed MedicareandMedicaidservices.
ThestaffsofIRSand HHShavediscussedthesourcesofgovernmentdatathatmaybe
availableand presentlyplantopresentdata inthereportfromacombinationofIRSand
CentersforMedicareand Medicaid Services(CMS)data. Whenthisdataisavailable,
wewill begintheprocessofpreparingthereport.
Asdiscussedabove, effectivefortaxyearsstartingin 2009,hospitalorganizations
exemptfromtaxand describedunderInternalRevenueCode(lRC)section 501(c)(3)
wererequired tofileForm990ScheduleHunlesstheywereexemptfromfiling asa
governmentunit. Suchhospitalsreportcostsofprovidingfinancialassistanceandother
16
REL 00763
community benefits on Form 990 Schedule H. Depending on the start of a hospital
organization's fiscal year and grants of extensions of time to file, due dates for timely
filing 2009 Forms 990 could be as early as May 15, 2010, or in the case of an
organization with a fiscal year that starts in December and has been granted two three-
month extensions of time to file, as late as October 15, 2011.
Data from the Form 990 Schedule H is being prepared for statistical analysis by the IRS
Statistics of Income division. It is expected that IRS data presented in the report will be
extracted from the Tax Year 2009 Statistics of Income Exempt Organizations sample.
We expect the data will be available in July 2012, at which time the IRS will begin to
assemble the data for purposes of meeting the objectives of the report to transmit to
Congress.
Critical access hospitals and short-term acute care hospitals are required to report to
eMS charge and cost data associated with providing inpatient and outpatient hospital
services for which the hospitals are not compensated by filing with CMS. We expect
such data also to become available in 2012.
If you have any questions, please contact me or have your staff contact Floyd L.
Williams at (202) 622-4725.
Sincerely,

ting Commissioner
Enclosures
17 REL 00764
CJanitrd ~ t t r ~ r n t r
WASHINGTON, DC 20510
March 9, 2012
..
If.
H9ceived by the
Hon. Douglas H. Shulman
commissioner'S C()lT8spondence
Office
Commissioner
RECEIVED
MAR ~ 11.0\L
Room 3000 IR
MAR 21 2011.
1111 Constitution Avenue, N.W.
CONG.CORR.BR
Dear Commissioner Shulman: CL:LA
We write to ask the Internal Revenue Service ("IRS") to immediately change the administrative
framework for enforcement of the tax code as it applies to groups designated as "social welfare"
organizations. These groups receive tax and other advantages under section 501 (c)(4) of the
Internal Revenue Code (hereinafter, "IRC" or the "Code"), but some of them also are engaged in
a substantial amount of political campaign activity. As you know, we sent a letter last month
expressing concerns about the 501 (c)(4) issue; an investigation this week by the New York Times
has uncovered 'new, specific problems on how 501 (c)(4)s conduct business. We wanted to
address those new concerns in this letter.
IRS regulations have long maintained that political campaign activity by a 50 1(c)(4) eritity must
not be the "primary purpose" of the organization. These regulations are intended to implement
the statute, which requires that such organizations be operated exclusively for the public
welfare. aut we think the existing IRS regulations run afoul ofthe law since they only require
social welfare activities to be the "primary purpose" of a nonprofit when the Code says this must
be its "exclusive" purpose. In recent years, this daylight between the law and the IRS regulations
has been exploited by groups devoted chiefly to political election activities that operate behind a
facade of charity work.
A related concern, raised in a March 7
th
New York Times article, concerns whether certain
nonprofits may be soliciting corporate contributions that are then treated by the company as a
business expense eligible for a tax deduction. The Times wrote: "Under current law, there is little
to no way to tell whether contributions are being deducted, especially because many of the most
political companies are privately held." This potential abuse distorts the objectives of vital
revenue mechanisms and undermines the faith that we ask citizens to place in their electoral
system.
We propose that the IRS make three administrative changes to curtail these questionable'
practices and bring IRS tax regulations 'back into alignment with the letter and spirit intended by
those who crafted the Code: ' . '
First, we urge the IRS to adopt a bright line test in 'applying its "primary purpose"
regulation that is consistent with the Code's 501 (c)(4) exclusivity language. The IRS
currently only requires that the purpose of these non-profits be "primarily" related to
social welfare activities, without defining what "primarily" means. This standard should
REL 00765
be spelled out more fully by the IRS. Some have suggested 51 percent as an appropriate
threshold for establishing that a nonprofit is adhering to its mission, but even this number
would seem to allow for more political election activity than should be permitted under
the law. In the absence of clarity in the administration of section 501 (c)(4), organizations
are tempted to abuse its vagueness, or worse, to organize under section 501 (c)(4) so that
they may avail themselves of its advantages even though they are not legitimate social
welfare organizations. If the IRS does not adopt a bright line test, or if it adopts one that
is inconsistent with the Code's exclusivity language, then we plan to pursue legislation
codifying such a test.
Second, such organizations should be further obligated to document in their 990
IRS form the exact percentage of their undertakings dedicated to "social welfare."
Organizations should be required to "show their math" to demonstrate that political
election activities and other statutorily limited or prohibited activities do not violate the
"primary purpose" regulation.
Third, 501 (c)(4) organizations should be required to state forthrightly to potential
donors what percentage of a donation, if any, may be taken as a business expense
deduction. As the New York Times reported in its March 7
th
article, some of these
organizations do not currently inform donors whether a contribution is tax deductible as a
business expense at all.
The IRS should already possess the authority to issue immediate guidance on this matter. We
urge the IRS to take these steps immediately to prevent abuse of the tax code by political groups
focused on federal election activities. But if the IRS is unable to issue administrative guidance in
this area then we plan to introduce legislation to accomplish these important changes.

Sincerely,

Charles E. Schumer Michael Bennet
United States Senator United States Senator

Tom Udall
United States Senator United States Senator

I." itt
United States Senator
REL 00766
DEPARTMENT OF THE TREASURY
CHIEF COUNSEL
APR 252012
TheHonorableMichaelBennet
United StatesSenate
Washington, DC 20510
DearSenatorBennet:
Iam respondingtotheletterdatedMarch9, 2012,fromyouandyourcolleaguesto
CommissionerDouglasShulman. YouproposedthattheIRSmakethreechangesto
thetaxrulesgoverningsection501(c)(4)"socialwelfare"organizations.
First. you requestedthatthe IRSadoptabrightlinetestwhenanalyzingwhetheran
organizationsatisfiesthestatutorylanguageofIRC501(c)(4)providingexemptionfor
organizationsthatare"operatedexclusivelyforsocialwelfare." Second,you requested
thattheIRSrequiresection501(c)(4)organizationstodiscloseontheirannualForm
990thepercentageoftheirundertakingsdedicatedto"socialwelfare." Third, you
requestedthatsection501(c)(4)organizationsberequiredto notifypotentialdonors
whatpercentageofadonation, ifany, maybetaken as abusinessexpensededuction.
TheIRSisawareofthecurrentpublicinterestinthisissue. Theseregulationshave
been in placesince 1959. Wewillconsiderproposedchangesin this areaaswework
withTax-ExemptandGovernmentEntitiesandtheTreasuryDepartment'sOfficeofTax
Policytoidentifytaxissuesthatshouldbeaddressedthrough regulationsandother
pUblished guidance.
Ihopethis informationis helpful. Iamsendingasimilarresponsetoyourcolleagues. If
youhavequestions, pleasecontactmeorhaveyourstaffcontactCathyBarreat
(202)622-3720.
Sincerely,

William J. Wilkins
ChiefCounsel
REL 00767
CHIEF COUNSEL
APR 252012
TheHonorableSheldonWhitehouse
United StatesSenate
DearSenatorWhitehouse:
Iam respondingtotheletterdatedMarch9, 2012,fromyou andyourcolleaguesto
CommissionerDouglasShulman. YouproposedthattheIRS makethreechangesto
First, you requestedthatthe IRSadoptabrightlinetestwhenanalyzingwhetheran
organizationsthatare"operatedexclusivelyforsocialwelfare." Second, you requested
thattheIRSrequiresection501(c)(4)organizationstodiscloseon theirannualForm
requested thatsection501(c)(4)organizationsberequiredto notifypotentialdonors
whatpercentageofadonation, ifany, maybetakenasabusinessexpensededuction.
TheIRSisawareofthecurrentpublicinterestin thisissue. Theseregulationshave
been in placesince 1959. Wewillconsiderproposedchangesinthisareaaswework
withTax-ExemptandGovernmentEntitiesand theTreasuryDepartment'sOfficeofTax
Policytoidentifytaxissuesthatshould beaddressedthroughregulationsandother
published guidance.
Ihopethisinformationis helpful. Iamsendingasimilarresponsetoyourcolleagues. If
youhavequestions,pleasecontactmeorhaveyourstaffcontactCathyBarreat
(202)622-3720.
Sincerely,
{it/(Itt,,--',
William J. Wilkins
ChiefCounsel
REL 00768
CHIEF COUNSEL
APR 25 2012
TheHonorableTomUdall
UnitedStatesSenate
DearSenatorUdall:
IamrespondingtotheletterdatedMarch9, 2012,from you and yourcolleaguesto
First, yourequestedthattheIRSadoptabrightlinetestwhenanalyzingwhetheran
organizationsatisfiesthestatutorylanguageofIRC 501(c)(4) providingexemptionfor
thattheIRSrequiresection501(c)(4)organizationstodiscloseon theirannual Form
990thepercentageoftheirundertakingsdedicatedto"socialwelfare." ThirdI you
requestedthatsection501(c)(4)organizationsbe requiredtonotifypotentialdonors
TheIRSisawareofthecurrentpublicinterestinthisissue. Theseregulationshave
beenin placesince1959. Wewillconsiderproposedchangesin thisareaaswework
withTax-ExemptandGovernmentEntitiesand theTreasuryDepartment'sOfficeofTax
Policytoidentifytaxissuesthatshould beaddressedthroughregulationsand other
publishedguidance.
Ihopethisinformationishelpful. Iamsendingasimilarresponsetoyourcolleagues. If
you havequestions, pleasecontactmeorhaveyourstaffcontactCathyBarreat
(202)622-3720.
Sincerely,
/ .-f..!.--
"1t'-! (' / i /1 / j , / (, / l /
L,/' v" Z/ {;
of /
,v
William J. Wilkins
ChiefCounsel
REL 00769
CHIEF COUNSEL
APR 257.012
TheHonorableJeanneShaheen
UnitedStatesSenate
Washington, DC20510
DearSenatorShaheen:
Iam respondingtotheletterdated March9, 2012,'fromyou and yourcolleaguesto
First, yourequestedthattheIRSadoptabrightlinetestwhenanalyzingwhetheran
organizationsatisfiesthestatutorylanguageofIRC501(c)(4) providingexemptionfor
thattheIRSrequiresection 501(c)(4)organizationstodiscloseontheirannualForm
requestedthatsection501(c)(4)organizationsbe requiredtonotifypotentialdonors
whatpercentageofadonation,ifany, maybetakenasabusinessexpensededuction.
TheIRS isawareofthecurrentpublicinterestin thisissue. Theseregulationshave
beeninplacesince 1959. Wewillconsiderproposedchangesinthisareaaswework
withTax-ExemptandGovernmentEntitiesandtheTreasuryDepartment'sOfficeofTax
Policytoidentifytaxissuesthatshould beaddressedthrough regulationsand other
publishedguidance.
Ihopethisinformationis helpful. Iam sendingasimilarresponsetoyourcolleagues. If
(202)622-3720.
Sincerely,
/ I>i.! 1 1 /(1
1
"",-'
(/ j! L/ Cv
WilliamJ.Wilkins
ChiefCounsel
REL 00770
CHIEF' COUNSEL
APR '2 5 in17
The Honorable Jeff Merkley
United States Senate
Dear Senator Merkley:
I am responding to the letter dated March 9, 2012, from you and your colleagues to
Commissioner Douglas Shulman. You proposed that the IRS make three changes to
the tax rules governing section 501 (c)(4) "social welfare" organizations.
First, you requested that the IRS adopt a bright line test when analyzing whether an
organization satisfies the statutory language of IRC 501 (c)(4) providing exemption for
organizations that are "operated exclusively for social welfare." Second, you requested
that the IRS require section 501 (c)(4) organizations to disclose on their annual Form
990 the percentage of their undertakings dedicated to "social welfare." Third, you
requested that section 501 (c)(4) organizations be required to notify potential donors
what percentage of a donation, if any, may be taken as a business expense deduction.
The IRS is aware of the current public interest in this issue. These regulations have
been in place since 1959. We will consider proposed changes in this area as we work
with Tax-Exempt and Government Entities and the Treasury Department's Office of Tax
Policy to identify tax issues that should be addressed through regulations and other
published guidance.
I hope this information is helpful. I am sending a similar response to your colleagues. If
you have questions, please contact me or have your staff contact Cathy Barre at
(202) 622-3720.
Sincerely,

William J. Wilkins
Chief Counsel
REL 00771
APR 252012
TheHonorableAI Franken
UnitedStatesSenate
DearSenatorFranken:
IamrespondingtotheletterdatedMarch 9, 2012,from youand yourcolleaguesto
thetaxrulesgoverning section501(c)(4) "socialwelfare"organizations.
First,yourequestedthatthe IRSadoptabrightlinetestwhenanalyzingwhetheran
thattheIRS requiresection 501(c)(4) organizationstodiscloseontheirannualForm
requestedthatsection501(c)(4) organizationsbe requiredtonotifypotentialdonors
TheIRS isawareofthecurrentpublicinterestinthisissue. Theseregulationshave
beeninplacesince 1959. Wewillconsiderproposedchangesinthisareaaswework
withTax-Exemptand GovernmentEntitiesandtheTreasuryDepartment'sOfficeofTax
Policytoidentifytaxissuesthatshould beaddressedthroughregulationsand other
publishedguidance.
Ihopethisinformationis helpful. Iam sendingasimilarresponsetoyourcolleagues. If
youhavequestions,pleasecontactmeorhaveyourstaffcontactCathyBarreat
(202)622-3720.
Sincerely.
' ~ .
ill . u .
(
t ~ . (ilt.. ~
William J.Wilkins
ChiefCounsel
REL 00772
CHIEF COUNSEL
APR 257012
TheHonorableCharlesE. Schumer
UnitedStatesSenate
DearSenatorSchumer:
Iam respondingtotheletterdatedMarch9, 2012,from youand yourcolleaguesto
CommissionerDouglasShulman. You proposedthattheIRSmakethreechangesto
First, you requestedthattheIRSadoptabrightlinetestwhenanalyzingwhetheran
thattheIRSrequiresection 501(c)(4)organizationstodiscloseontheirannualForm
requestedthatsection501(c)(4)organizationsberequiredtonotifypotentialdonors
TheIRSis awareofthecurrentpublicinterestinthisissue. Theseregulationshave
beenin placesince1959. Wewillconsiderproposedchangesinthisareaaswework
withTax-ExemptandGovernmentEntitiesand 'the TreasuryDepartment'sOfficeofTax
Policytoidentifytaxissuesthatshould be addressedthrough regulationsandother
publishedguidance.
Ihopethisinformationishelpful. Iamsendingasimilarresponsetoyourcolleagues. If
(202)622-3720.
Sincerely,
urk!!Ilt,,-- ,
William J. Wilkins
ChiefCounsel
REL 00773
WASHINGTON OFFICE:
KENNYMARCHANT
1110LONGWORTH HOUSE OFFICE BUILDING
24TH QISTRICT,TEXAS
WASHINGTON, DC20515
(202) 225-605
DISTRICTOFFICE:
COMMITIEEON
9901 EASTVALLEY RANCH PARKWAY
WAYSAND MEANS (tCongrt55 of tbt Wntttb
SUITE 3035
IRVING,TX75063
(972) 556-{)162
SUBCOMMITTEE ON
of
SELECTREVENUE MEASURES
t!)QC 20515-4324
SUBCOMMITTEEON OVERSIGHT
March28,2012
e\'lEld'0'1,\'\0o.8nC0
SUBCOMMITTEE ON
y.eC Co
l18
s{)
SOCIAL SECURITY
(\9(5
COI1\I1\\sS\O (%Ice
TheHonorableDouglasShulman
RECEIVED
o
CommissionerofInternalRevenue

APR 05 2012
10
th
StreetandPennsylvaniaAvenue
Washington,DC20004
CONG.CORR.BR
CL:LA
DearCommissionerShulman:
IamwritingtovoicemyconcernsoverrecentinquiriesbytheIRS intothetax-exemptstatusof
conservativeorganizations,includingseveralTeaPartygroupsacrossthenation.
Sincethebeginningof theyear,groupssuchastheTeaPartyhavereceivednumerouslengthy
questionnairesandintrusiveinformationdemandsfromtheIRS. Thequestionscontainedin
theseIRS letters,suchas askingtheseorganizationsfortheirmembershiplistsandtheir
relationshipswithcandidatesforpublicoffice,appeartoviolatetheFirstAmendmentrightsof
thegroups.Demandingthatthesegroupsrevealtheirinternalworkings,theidentityof their
members,donorsandvolunteers,andevenwhattheydiscussattheirprivatemeetings, is well
beyondthescopeofanylegitimateIRS inquiry.
According toJay Sekulow, a formerlawyer at theOfficeofthe Chief Counselof the IRS,to
complywithoneof theseIRS letterscouldtakeupto 7,000piecesof paper. Thiskindof overly-
burdensomeinformationrequestdivertsresourcesawayfromtheimportantworkof TeaParty
groupsandothergrassrootsorganizations,anditissimplyunacceptable.
IjoinmycolleaguesintheHouseandconcernedcitizensthroughoutthe24thCongressional
DistrictofTexasincallingforanansweronthismatter.Theactionsandintentionsof theIRS in
sendingtheseletterstoprivate,non-profitgroupsmustbeexplained.Ilookforwardtoyour
response.
1/
,-"",'
./ )
KennyMarchant
MemberofCongress
PRINTED ON RECYCLED PAPER REL 00774
REL 00775
REL 00776
REL 00777
REL 00778
C!tongrellll of 1ltnitti\
lIaslJingtolt. BOt 20515
April 23) 2012
RECEIVED
The Honorable Douglas H. Shulman
APR 232012
Room 3000 IR
CONG.CORR.BR
1111 Constitution Avenue, NW CL:LA
DC 20224
Dear Commissioner Shulman:
It has come to our attention that numerous nonprofit civic organizations across the country have
experienced extensive delays and received excessively burdensome infonnation requests in
connection with their applications for tax-exempt status under 26 U.S.C. 501(c). These
requests have included demands for complete records of every oral statement ever provided by
any member of the organization, vague probes into tangential associations with private citizens
and excessively long questionnaires all to be returned within unreasonably short time periods.
These demands go well beyond good-faith due diligence and appear designed to be logistically
and financially impossible to comply with.
Tax-exempt status exists to ensure that taxation does not hinder citizens' engagement in social
welfare and civic activities. To wit, 26 U.S.C. 501(c)(4)(A) exempts "[c]ivic leagues or
organizations not organized for profit but operated exclusively for the promotion of social
welfare...the net earnings of which are devoted exclusively to charitable, educational, or
recreational purposes." the I.R.S. has affinned that these organizations "may carry on
lawful political activities and remain exempt as long as it is primarily engaged in activities that
promote social welfare." (Rev. Rule 1981-1 C.B. 332)
These recent inquiries appear to constitute disparate treatment for no apparent reason other than
the political persuasion of applicants. Such practices chill these groups' Constitutionally-
guaranteed rights to civic participation, freedom of association and free speech and are better left
to despotic regimes than a revenue-collection agency in a free country.
It does not appear that the misSions and activities of these organizations require infonnation
beyond the scope of Form 1024 and Schedule B) which we understand to have been traditionally
required. We request that you provide a response demonstrating how these recent requests by
the I.R.S are consistent with precedent and supported by law. We further request that the I.R.S.
refrain from any additional unwarranted and excessive information demands and other dilatory
tactics.
Thank you for your attention to this matter. We look forward to your timely response.
Sincerely,
m McClintock Bill Flores
Member ofCongress Member ofCongress
PRINTED ON RECVCLED PAPER
REL 00779
REL 00780
REL 00781
REL 00782
REL 00783
REL 00784
DEPARTMENTOFTHE TREASURY
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableBill Flores
DearMr. Flores:
Iamrespondingtothe letterfromyou and yourcolleaguestoCommissionerShulman
datedApril 23, 2012, requesting informationaboutthetax-exemptsector. In particular,
yourletterraises concernsregardingthe requestsbythe IRSforadditionalinformationfrom
applicantsfortaxexemption. Toassistin respondingtoyourconcerns, we arealso
providing background informationaboutourlong-standingsystemforprocessing
applicationsfortax-exemptstatus.
Application Process
Thelawallowssection 501(c)(4)organizationsto holdthemselvesoutastax-exempt.
Organizationsalsocan applyforIRSrecognition astax-exempt. Whetheran organization
is self-declared undersection 501(c)(4) orhasbeendetermined bythe IRSto meetthe
requirementsofsection 501(c)(4), theorganization mustfile Form 990annualinformation
returns.
All applicationsfortax-exemptstatus, includingapplicationsforstatus undersection
501(c)(4), arefiled with acentralized IRSSubmission Processing Center. Theapplication
is thensenttothe ExemptOrganizations ("EO
n
) Determinationsoffice in Cincinnati, Ohio
forinitialtechnical screening.
Thistechnicalscreening is conducted byexperienced revenueagentswhoreviewthe
applicationsand, based on thatreview, separatetheapplications intothefollowingfour
categories:
Applicationsthatcan be approved immediatelybased on the completenessofthe
applicationandthe informationsubmitted;
Applicationsthatneedonlyminoradditional required information in thefile in order
toapprovethe application;
Applicationsthatdonotcontaintheinformation neededto be considered
substantiallycomplete; and
REL 00785
WASHINGTON, D.C 20224
DEPUTYCOMMISSIONER
June 15, 2012
The HonorableJamesLankford
DearMr. Lankford:
Iamrespondingtothe letterfrom you andyourcolleaguestoCommissionerShulman
datedApril 23,2012, requesting informationaboutthetax-exemptsector. In particular,
yourletterraises concerns regarding the requests bythe IRSforadditional informationfrom
applicantsfortaxexemption. To assistin responding toyourconcerns, we arealso
providing background information aboutourlong-standingsystemforprocessing
Application Process
Thelawallowssection 501(c)(4) organizationsto holdthemselvesoutastax-exempt.
isself-declared undersection 501(c)(4)orhasbeen determined bytheIRStomeetthe
requirementsofsection 501(c)(4), theorganization mustfileForm 990 annualinformation
returns.
All applicationsfortax-exemptstatus, includingapplicationsforstatusundersection
501(c)(4), arefiled with acentralized IRS Submission ProcessingCenter. Theapplication
is then senttothe ExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
- forinitialtechnicalscreening.
Thistechnicalscreening is conducted byexperiencedrevenueagentswho reviewthe
applicationsand, based onthatreview, separatetheapplications intothefollowingfour
categories:
Applicationsthatcan be approved immediatelybased on thecompletenessofthe
toapprovetheapplication;
Applicationsthatdonotcontainthe information neededto be considered
REL 00786
WASHINGTON, DC. 20224
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableDennisRoss
DearMr. Ross:
Iamresponding to the letterfrom you and yourcolleaguesto CommissionerShulman
datedApril23, 2012, requesting informationaboutthetax-exemptsector. In particular,
yourletterraises concerns regardingthe requestsbythe IRSforadditional informationfrom
applicantsfortaxexemption. To assistin respondingtoyourconcerns, we arealso
Application Process
is self-declared undersection 501(c)(4)orhasbeendeterminedbythe IRSto meetthe
returns.
All applicationsfortax-exemptstatus, including applicationsforstatusundersection
501(c)(4), arefiled with acentralized IRS SubmissionProcessing Center. Theapplication
isthensenttothe ExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
Thistechnicalscreening isconducted byexperienced revenue agentswhoreviewthe
applicationsand, based on thatreview, separatetheapplicationsintothefollowing four
categories:
Applicationsthatcan beapproved immediatelybased on the completenessofthe
applicationand the informationsubmitted;
Applicationsthatneed onlyminoradditionalrequired information in thefile in order
Applicationsthatdonotcontainthe informationneededto beconsidered
REL 00787
DEPUTY COMMISSIONER
June15, 2012
TheHonorableGusBilirakis
DearMr. Bilirakis:
Iam respondingto the letterfrom you and yourcolleaguesto CommissionerShulman
datedApril23,2012, requesting informationaboutthetax-exemptsector. In particular,
yourletterraisesconcernsregardingtherequestsbythe IRSforadditional informationfrom
applicantsfortaxexemption. Toassistin responding toyourconcerns, wearealso
providing backgroundinformationaboutourlong-standing systemforprocessing
Application Process
is self-declared undersection 501(c)(4) orhasbeendeterminedbytheIRSto meetthe
requirementsofsection 501(c)(4), theorganizationmustfile Form 990annual information
returns.
501(c)(4), arefiled with acentralized IRSSubmission ProcessingCenter. Theapplication
forinitialtechnicalscreening.
Thistechnical screening is conducted byexperienced revenueagentswho reviewthe
categories:
application and theinformationsubmitted;
REL 00788
DEPARTMENTOF THETREASURY
DEPUTYCOMMISSIONER
June 15,2012
TheHonorableFrancisco"Quico"Canseco
DearMr. Canseco:
Iam respondingtothe letterfromyou andyourcolleaguesto CommissionerShulman
datedApril 23,2012,requesting informationaboutthetax-exemptsector. In particular,
yourletterraisesconcerns regardingtherequestsbythe IRSforadditional informationfrom
applicantsfortaxexemption. Toassistin respondingtoyourconcerns, we are also
Application Process
Thelawallowssection 501(c)(4)organizationsto hold themselvesoutastax-exempt.
is self-declared undersection501(c)(4)orhasbeendetermined bytheIRStomeetthe
requirementsofsection 501(c)(4), the organizationmustfile Form 990annual information
returns.
501(c)(4), arefiled with acentralized IRS Submission Processing Center. Theapplication
is thensenttothe ExemptOrganizations("EO") Determinationsoffice in Cincinnati, Ohio
Thistechnical screening is conducted byexperienced revenue agentswhoreviewthe
applicationsand, based on thatreview, separatethe applicationsintothefollowingfour
categories:
Applicationsthatcanbe approved immediatelybased on thecompletenessofthe
Applicationsthatneed onlyminoradditional required information in thefile in order
Applicationsthatdonotcontain the information neededto be considered
REL 00789
DEPARTMENTOF THE TREASURY
INTERNAL REVENUESERVICE
DEPUTY COMMISSIONER
June 15,2012
TheHonorableLynnWestmoreland
DearMr. Westmoreland:
Iamrespondingtotheletterfrom you and yourcolleaguesto CommissionerShulman
yourletterraisesconcerns regarding the requests bythe IRSforadditionalinformationfrom
applicantsfortaxexemption. Toassistin responding toyourconcerns, we arealso
providingbackground informationaboutourlong-standingsystemforprocessing
Application Process
Organizationsalso can applyforIRS recognition astax-exempt. Whetheran organization
is self-declared undersection 501(c)(4)orhasbeen determinedbythe IRSto meetthe
requirementsofsection 501(c)(4), theorganizationmustfile Form 990 annual information
returns.
Thistechnicalscreening isconducted byexperienced revenueagentswho reviewthe
applicationsand, based on thatreview, separatetheapplicationsintothefollowingfour
categories:
application andtheinformationsubmitted;
Applicationsthatdonotcontain the information neededto beconsidered
REL 00790
INTERNAL REVENUE SERViCE
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableTrentFranks
DearMr. Franks:
Iamrespondingtotheletterfromyou and yourcolleaguesto CommissionerShulman
yourletterraises concerns regardingthe requestsbythe IRSforadditionalinformationfrom
applicantsfortaxexemption. Toassistin responding to yourconcerns, we arealso
providing backgroundinformationaboutourlong-standingsystemforprocessing
Application Process
Thelawallowssection 501(c)(4)organizationstoholdthemselvesoutastax-exempt.
OrganizationsalsocanapplyforIRSrecognition astax-exempt. Whetheran organization
is self-declared undersection 501(c)(4)orhas beendeterminedbytheIRStomeetthe
returns.
is thensenttothe ExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
forinitialtechriicalscreening.
Thistechnical screeningis conducted byexperienced revenue agentswho reviewthe
applicationsand, based on thatreview, separatetheapplications intothefollowing four
categories:
applicationandtheinformationsubmitted;
Applicationsthatdonotcontaintheinformation needed to be considered
REL 00791
...---- -_..-- - -- ----
_._-----
WASHINGTON, DC. 20224
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableMikePompeo
DearMr. Pompeo:
Iam respondingtotheletterfromyou andyourcolleaguestoCommissionerShulman
yourletterraises concerns regarding therequestsbytheIRSforadditional informationfrom
Application Process
Thelawallowssection501(c)(4)organizationsto holdthemselvesoutastax-exempt.
is self-declaredundersection 501(c)(4)orhasbeen determined bytheIRSto meetthe
returns.
501 (c)(4) , are filed with a centralized IRS Submission Processing Center. The application
is thensenttotheExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
Thistechnicalscreeningis conducted byexperienced revenueagentswhoreviewthe
applicationsand, basedon thatreview, separatetheapplicationsintothefollowing four
categories:
Applicationsthatneed onlyminoradditional required information in thefilein order
to approvetheapplication;
Applicationsthatdo notcontain theinformation neededto beconsidered
REL 00792
DEPARTMENTOFTHETREASU Y
DEPUTY COMMISSIONER
June 15, 2012
TheHonorableRaulLabrador
DearMr. Labrador:
Iam respondingtotheletterfrom you and yourcolleaguesto CommissionerShulman
yourletterraisesconcernsregardingtherequestsbythe IRSforadditionalinformationfrom
Application Process
Organizationsalsocan applyforIRSrecognition as tax-exempt. Whetheran organization
is self-declared undersection 501(c)(4)orhasbeendeterminedbytheIRStomeetthe
requirementsofsection 501(c)(4), theorganization mustfile Form 990annual information
returns.
isthen senttothe ExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
Thistechnicalscreening isconductedbyexperienced revenueagentswho reviewthe
categories:
Applicationsthatcan beapproved immediatelybased on thecompletenessofthe
Applicationsthatdonotcontaintheinformation neededtobe considered
REL 00793
DE:PARTMENTOF THE TREASURY
DEPUTY COMMISSIONER
June15, 2012
TheHonorableW. ToddAkin
DearMr. Akin:
Iamresponding tothe letterfrom you and yourcolleaguesto CommissionerShulman
'. yourletterraises concernsregardingtherequestsbythe IRSforadditional informationfrom
Application Process
The lawallowssection 501(c)(4)organizationsto holdthemselvesoutastax-exempt.
Organizationsalsocan applyforIRS recognition astax-exempt. Whetheranorganization
isself-declaredundersection 501(c)(4)orhasbeendeterminedbythe IRSto meetthe
requirements of section 501 (c)(4) , the organization must file Form 990 annual information
returns.
501(c)(4), arefiled with acentralized IRSSubmissionProcessingCenter. Theapplication
is then senttothe ExemptOrganizations("EO") Determinationsoffice in Cincinnati, Ohio
Thistechnicalscreening isconducted byexperienced revenueagentswhoreviewthe
categories:
application and the informationsubmitted;
Applicationsthatneedonlyminoradditionalrequired information in thefilein order
REL 00794
DEPUTY COMMISSIONER
June 15, 2012
TheHonorableAlan Nunnelee
DearMr. Nunnelee:
Iamresponding to theletterfrom you and yourcolleaguesto CommissionerShulman
yourletterraises concerns regarding the requestsbythe IRSforadditionalinformationfrom
providingbackground information aboutourlong-standingsystemforprocessing
Application Process
is self-declared undersection 501(c)(4) orhas beendetermined bythe IRStomeetthe
requirementsofsection 501(c)(4) ,theorganizationmustfile Form 990 annual information
returns.
All applicationsfortax-exemptstatus, including applicationsforstatus undersection
501(c)(4) ,arefiled with acentralized IRSSubmissionProcessingCenter. Theapplication
Thistechnicalscreening is conducted byexperienced revenue agentswho reviewthe
categories:
to approvethe application;
REL 00795
DEPUTYcoMMISSIONER
June15, 2012
TheHonorableSteve King
DearMr. King:
Iamresponding tothe letterfrom you and yourcolleaguestoCommissionerShulman
yourletterraisesconcernsregardingtherequestsbytheIRSforadditional informationfrom
applicantsfortaxexemption. Toassistin respondingto yourconcerns, we arealso
Application Process
is self-declared undersection 501(c)(4) orhasbeendeterminedbythe IRS to meetthe
returns.
501(c)(4), arefiled with acentralized IRS SubmissionProcessingCenter. Theapplication
for initialtechnical screening.
Thistechnicalscreeningisconducted byexperienced revenueagentswho reviewthe
categories:
Applicationsthatdonotcontaintheinformation needed to beconsidered
REL 00796
VI

DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableJoeWilson
DearMr. Wilson:
Iamresponding totheletterfromyou and yourcolleaguesto CommissionerShulman
datedApril23,2012,requesting informationaboutthetax-exemptsector. In particular,
yourletterraises concerns regarding the requestsbythe IRSforadditional informationfrom
applicantsfortaxexemption. To assistin respondingtoyourconcerns, wearealso
Application Process
is self-declaredundersection 501(c)(4)orhasbeendetermined bythe IRStomeetthe
requirementsofsection 501(c)(4) ,theorganizationmustfile Form 990annual information
returns.
isthensenttotheExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
Thistechnicalscreeningis conducted byexperienced revenue agentswho reviewthe
applicationsand, based onthatreview, separatetheapplicationsintothefollowingfour
categories:
REL 00797
DEPUTY COMMISSIONER
June15, 2012
The HonorableLynnJenkins
DearMs. Jenkins:
Iam responding tothe letterfromyou and yourcolleaguesto CommissionerShulman
yourletterraisesconcerns regardingtherequestsbythe IRSforadditionalinformationfrom
applicantsfortaxexemption. To assistin responding to yourconcerns, we arealso
Application Process
Organizationsalso can applyforIRSrecognition astax-exempt. Whetheran organization
is self-declaredundersection 501(c)(4) orhasbeen determined bythe IRSto meetthe
requirementsofsection 501(c)(4). theorganization mustfile Form 990annualinformation
returns.
Thistechnical screening is conducted byexperienced revenue agentswho reviewthe
applicationsand, based on thatreview, separatethe applicationsintothefollowing four
categories:
REL 00798
WASHINGTON, 0 C 20224
OEPUTV r;OMMISSIONER
June 15, 2012
The HonorableJohn Kline
U.S. House ofRepresentatives
DearMr. Kline:
Iam responding to the letterfromyou and yourcolleaguesto CommissionerShulman
yourletterraisesconcerns regarding the requestsbythe IRSforadditionalinformationfrom
Application Process
The lawallowssection 501(c)(4) organizationsto hold themselvesoutastax-exempt.
Organizationsalsocan applyforIRS recognitionastax-exempt. Whetheran organization
is self-declared undersection501(c)(4)orhas beendetermined bythe IRSto meetthe
requirementsofsection 501(c) (4), theorganizationmustfile Form 990 annual information
returns.
Allapplicationsfortax-exemptstatus, includingapplicationsforstatus undersection
is then senttotheExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
Thistechnical screeningisconducted byexperienced revenueagentswho reviewthe
categories:
REL 00799
-----------_.- .
----- -- - _._- -
DEPUTY COMMISSIONER
June 15,2012
The HonorableDianeBlack
DearMs. Black:
Iamresponding totheletterfrom you andyourcollea"guesto CommissionerShulman
datedApril 23,2012, requesting informationaboutthe tax-exemptsector. In particular,
yourletterraises concerns regarding therequests bytheIRSforadditional informationfrom
applicantsfortaxexemption. To assistin responding to yourconcerns, wearealso
Application Process
The lawallowssection501(c)(4)organizationsto hold themselvesoutastax-exempt.
Organizationsalsocan applyforIRS recognition astax-exempt. Whetheran organization
is self-declaredundersection 501(c)(4)orhasbeen determined bythe IRSto meetthe
requirementsofsection 501(c)(4), theorganization mustfile Form 990 annualinformation
returns.
501(c)(4) ,arefiledwith acentralized IRSSubmission Processing Center. Theapplication
isthensenttotheExemptOrganizations("Eon) Determinationsoffice in Cincinnati, Ohio
categories:
Applicationsthatcan be approved immediatelybasedon thecompletenessofthe
REL 00800
INTERN L REVENUE SERVICE
WASHINGTON, D.C 20224
DEPUTY COMMISSIONER
June15, 2012
The HonorableTed Poe
DearMr. Poe:
Iam respondingtotheletterfromyou and yourcolleaguesto CommissionerShulman
providingbackgroundinformationaboutourlong-standingsystemforprocessing
Application Process
The lawallowssection 501(c)(4) organizationsto holdthemselves outastax-exempt.
OrganizationsalsocanapplyforIRSrecognition as tax-exempt. Whetheran organization
isself-declared undersection 501(c)(4)orhasbeendeterminedbythe IRStomeetthe
requirementsofsection 501(c)(4), theorganization mustfile Form 990 annual information
returns.
501(c)(4), arefiled with acentralized IRS SubmissionProcessingCenter. Theapplication
Thistechnicalscreening isconducted byexperienced revenue agentswho reviewthe
applicationsand, based on thatreview, separatethe applications intothefollowingfour
categories:
Applicationsthatdonotcontainthe information needed to be considered
REL 00801
INTERNALREVENUE SERVICE
WASHINGTON, D,C, 20224
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableTom Graves
DearMr. Graves:
Iam responding totheletterfromyou and yourcolleaguesto CommissionerShulman
yourletterraisesconcernsregardingtherequestsbythe IRSforadditionalinformationfrom
Application Process
Organizationsalso can applyforIRSrecognition as tax-exempt. Whetheran organization
is self-declared undersection501(c)(4) orhasbeendeterminedbythe IRStomeetthe
requirementsofsection501(c)(4), theorganization mustfile Form 990annual information
returns.
applicationsand, based onthatreview, separatetheapplicationsintothefollowing four
categories:
Applicationsthatcan beapproved immediatelybasedonthecompletenessofthe
Applicationsthatneedonlyminoradditional required informationinthefile in order
Applicationsthatdonotcontainthe information neededtobeconsidered
SESIGN
&nAT'
REL 00802
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableMickMulvaney
DearMr. Mulvaney:
Iam responding to theletterfrom you and yourcolleaguesto CommissionerShulman
yourletterraises concerns regarding the requestsbythe IRSforadditionalinformationfrom
Application Process
The lawallowssection 501(c)(4)organizationstohold themselvesoutastax-exempt.
isself-declaredundersection 501(c)(4)orhasbeen determined bytheIRSto meetthe
requirementsofsection 501(c)(4) ,theorganizationmustfile Form 990annualinformation
returns.
Thistechnicalscreening is conductedbyexperienced revenue agentswho reviewthe
categories:
Applicationsthatdonotcontain theinformation needed to be considered
REL 00803
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableRandyHultgren
DearMr. Hultgren:
Iam responding totheletterfrom you and yourcolleaguesto CommissionerShulman
datedApril 23,2012, requesting informationaboutthetax-exemptsector. Inparticular,
yourletterraisesconcerns regarding the requestsbythe IRSforadditional informationfrom
applicantsfortaxexemption. Toassistin respondingtoyourconcerns, wearealso
Application Process
Thelawallowssection 501(c)(4) organizationsto hold themselvesoutastax-exempt.
is self-declared undersection 501(c)(4) orhasbeendetermined bythe IRStomeetthe
returns.
501(c)(4) ,arefiledwith acentralized IRSSubmission Processing Center. Theapplication
Thistechnical screening isconducted byexperienced revenue agentswhoreviewthe
applicationsand, based on thatreview, separatetheapplicationsintothefollOWing four
categories:
applicationand theinformationsubmitted; .
REL 00804
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableAnn MarieBuerkle
DearMs. Buerkle:
Iam respondingtothe letterfrom you and yourcolleaguesto CommissionerShulman
datedApril23,2012,requesting informationaboutthetax-exemptsector. In particular,
applicantsfortaxexemption. To assistin respondingto yourconcerns, wearealso
providing background informationaboutourlong-standing systemforprocessing
Application Process
is self-declared undersection 501(c)(4) orhas been determined bythe IRStomeet the
requirementsofsection 501(c)(4), theorganizationmustfile Form 990annualinformation
returns.
Thistechnicalscreening is conducted byexperienced revenue agentswhoreviewthe
applicationsand, based onthatreview, separatetheapplicationsintothefollowingfour
categories:
applicationandtheinformation submitted;
Applicationsthatdonotcontain theinformation needed to beconsidered
REL 00805
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableSamJohnson
DearMr. Johnson:
yourletterraises concerns regardingthe requests bytheIRSforadditional informationfrom
applicantsfortaxexemption. To assistin responding toyourconcerns, wearealso
Application Process
is self-declared undersection 501(c)(4)orhasbeendetermined bytheIRStomeetthe
requirementsofsection 501(c)(4), the organization mustfile Form 990annual information
returns.
categories:
Applicationsthatneed onlyminoradditionalrequired information in thefilein order
Applicationsthatdonotcontain the information needed to be considered
REL 00806
WASHINGTON. D.C. 20224
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableScottTipton
DearMr. Tipton:
Iamrespondingtotheletterfrom you andyourcolleaguestoCommissionerShulman
yourletterraisesconcerns regardingtherequestsbytheIRSforadditionalinformationfrom
Application Process
Thelawallowssection501(c)(4) organizationsto holdthemselves outastax-exempt.
is self-declared undersection 501(c)(4)orhasbeendetermined bythe IRStomeetthe
requirements ofsection 501(c)(4), the organizationmustfile Form 990annualinformation
returns.
is thensenttothe ExemptOrganizations("Eon) Determinationsofficein Cincinnati, Ohio
Thistechnicalscreening is conducted byexperienced revenueagentswho reviewthe
categories:
Applicationsthatcan be approved immediatelybased on the completeness ofthe
Applicationsthatneedonlyminoradditionalrequired information inthefile in order
Applicationsthatdo notcontain the information neededto be considered
SUbstantiallycomplete; and
REL 00807
WASHINGTON, D.C. 2.022.4
DEPUTYCOMMISSIONER
June 15, 2012
The HonorableRandyForbes
U.S. Houseo'fRepresentatives
DearMr. Forbes:
yourletterraisesconcerns regardingtherequestsbytheIRSforadditional informationfrom
Application Process
Thelawallowssection501(c)(4)organizationsto hold themselvesoutastax-exempt.
is self-declared undersection 501(c)(4) orhasbeen determined bythe IRStomeetthe
returns.
isthen senttotheExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
categories:
Applicationsthatdo notcontain the information needed to be considered
REL 00808
DEPUTYCOMMISSIONER
June 15, 2012
The HonorableMarsha Blackburn
DearMs. Blackburn:
Iam respondingto the letterfrom you and yourcolleaguesto CommissionerShulman
Application Process
Thelawallowssection.501(c)(4)organizationstohold themselvesoutastax-exempt.
is self-declared undersection 501(c)(4) orhasbeen determined bytheIRStomeetthe
returns.
501(c)(4) ,arefiled with acentralized IRSSubmission ProcessingCenter. Theapplication
is then senttotheExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
categories:
applicationandthe information submitted;
REL 00809
DEPUTYCOMMISSIONER
June 15,2012
TheHonorableCliffStearns
DearMr. Stearns:
Iam responding tothe letterfrom you and yourcolleaguesto CommissionerShulman
yourletterraisesconcernsregardingtherequests bythe IRSforadditionalinformationfrom
providing background information aboutourlong-standing systemforprocessing
Application Process
Thelawallowssection 501(c)(4) organizationstohold themselvesoutastax-exempt.
is self-declared undersection 501(c)(4)orhas been determined bythe IRStomeetthe
requirementsofsection 501(c)(4),theorganization mustfile Form 990annualinformation
returns.
isthen senttotheExemptOrganizations("EO") Determinationsoffice in Cincinnati, Ohio
categories:
Applicationsthatneed onlyminoradditionalrequired information inthefile in order
REL 00810
DEPARTMENT OFTHE TREASURY
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorablePaul Gosar
DearMr. Gosar:
Iamresponding tothe letterfromyouand yourcolleaguesto CommissionerShulman
Application Process
Thelawallowssection 501(c)(4) organizationsto hold themselves outastax-exempt.
returns.
is thensenttothe ExemptOrganizations ("EO") Determinationsoffice in Cincinnati, Ohio
Thistechnical screening isconducted byexperienced revenueagentswho reviewthe
categories:
REL 00811
DEPUTYCOMMISSIONER
June15, 2012
TheHonorablePaul Gosar
DearMr. Gosar:
Iam responding totheletterfromyou and yourcolleaguesto CommissionerShulman
yourletterraises concerns regardingtherequestsbythe IRSforadditional informationfrom
Application Process
isself-declared undersection 501(c)(4) orhasbeen determined bythe IRSto meetthe
returns.
categories:
Applicationsthatneedonlyminoradditional required information in thefilein order
REL 00812
WASHINGTON, D.C. 202.24
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableBobbySchilling
DearMr. Schilling:
Iamrespondingto the letterfrom you and yourcolleaguesto CommissionerShulman
Application Process
is self-declared undersection 501(c)(4) orhas been determined bythe IRSto meetthe
requirementsofsection 501(c)(4) ,theorganization mustfile Form 990annual information
returns.
isthen senttothe ExemptOrganizations("EO") Determinationsoffice in Cincinnati, Ohio
categories:
Applicationsthatdonotcontain theinformation needed to beconsidered
REL 00813
DEPUTY COMMISSIONER
June15, 2012
TheHonorableRob Woodall
DearMr. Woodall:
Iam responding totheletterfrom you and yourcolleaguesto CommissionerShulman
yourletterraises concerns regarding therequests bythe IRSforadditional informationfrom
Application Process
The lawallowssection 501(c)(4)organizationstoholdthemselvesoutastax-exempt.
returns.
categories:
Applicationsthatneed orilyminoradditional required information in thefilein order
Applicationsthatdonotcontain theinformation neededto beconsidered
REL 00814
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableAaron Schock
DearMr. Schock:
yourletterraises concerns regarding the requestsbythe IRSforadditional informationfrom
Application Process
returns.
Allapplicationsfortax-exemptstatus, including applicationsforstatusundersection
is then senttothe ExemptOrganizations("EO") Determinationsoffice in Cincinnati, Ohio
categories:
applicationand theinformation submitted;
Applicationsthatdonotcontaintheinformationneededtobeconsidered
REL 00815
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableSandyAdams
DearMs. Adams:
yourletterraisesconcerns regarding the requests bythe IRSforadditional information from
Application Process
The lawallowssection 501(c)(4) organizationstoholdthemselvesoutastax-exempt.
Organizationsalsocan applyforIRSrecognition as tax-exempt. Whetheran organization
returns.
for initialtechnicalscreening.
Thistechnicalscreening isconducted byexperienced revenue agentswho reviewthe
categories:
Applicationsthatneed onlyminoradditional required informationinthefile in order
REL 00816
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableJeffMiller
DearMr. Miller:
datedApril 23,2012,requesting informationaboutthetax-exemptsector. In particular,
yourletterraises concernsregardingtherequestsbythe IRSforadditional information from
Application Process
is self-declared undersection 501(c)(4) orhasbeen determined bytheIRSto meetthe
returns.
501(c)(4) ,arefiled with acentralized IRSSubmission Processing Center. Theapplication
Thistechnical screeningisconducted byexperienced revenueagentswho reviewthe
categories:
Applicationsthatneedonlyminoradditionalrequired information in thefile in order
Applicationsthatdonotcontain theinformation neededtobeconsidered
REL 00817
NTERNALREVENUE SERVICE
DEPUTYCOMMISSIONER
June 15,2012
TheHonorableConnieMack
DearMr. Mack:
yourletterraises concerns regardingthe requests bythe IRSforadditional informationfrom
Application Process
Organizationsalso can applyforIRSrecognitionastax-exempt. Whetheranorganization
isself-declared undersection501(c)(4) orhasbeendetermined bythe IRSto meetthe
returns.
501(c)(4) ,arefiled with acentralized IRS Submission Processing Center. Theapplication
isthensenttothe ExemptOrganizations("EO") Determinationsoffice in Cincinnati, Ohio
categories:
REL 00818
----------- - -- ---
-------------

DEPARTMENTOF THETREASUR

WASHINGTON D.C. 202.24
DEPUTY COMMISSIONER
June 15,2012
TheHonorableMicheleBachmann
DearMs. Bachmann:
Iamresponding totheletterfrom you and yourcolleaguesto CommissionerShulman
yourletterraises concernsregardingthe requestsbytheIRSforadditionalinformationfrom
Application Process
is self-declared undersection 501(c)(4)orhas been determined bythe IRSto meetthe
requirementsofsection501(c)(4), theorganizationmustfile Form 990 annualinformation
returns.
is thensentto the ExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
applicationsand, basedon thatreview, separatetheapplications intothefollowing four
categories:
REL 00819
WASHINGTON, DC20224
D -PUTY COMMISSIONER
June 15, 2012
TheHonorableRichard Nugent
DearMr. Nugent:
yourletterraises concerns regardingthe requestsbytheIRSforadditionalinformationfrom
Application Process
isself-declared undersection 501(c)(4) orhasbeendetermined bytheIRSto meetthe
requirementsofsection 501(c)(4),theorganizationmustfile Form 990 annual information
returns.
isthensenttothe ExemptOrganizations(" EO") Determinationsoffice in Cincinnati, Ohio
categories:
REL 00820
INTERNALREVENUESERVICE
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableScottDesjarlais
DearMr. Desjarlais:
yourletterraises concernsregarding therequestsbythe IRSforadditional information from
Application Process
requirementsofsection 501(c)(4), the organization mustfile Form 990annual information
returns.
Thistechnical screening isconducted byexperienced revenueagentswhoreviewthe
categories:
REL 00821
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableBobGoodlatte
DearMr. Goodlatte:
datedApril 23, 2012, requesting information aboutthetax-exemptsector. In particular,
yourletterraises concerns regardingthe requests bythe IRSforadditional information from
Application Process
isself-declared undersection 501(c)(4) orhasbeendetermined bythe IRSto meetthe
requirementsofsection 501(c)(4) ,theorganization mustfileForm 990 annual information'
returns.
Allapplicationsfortax-exemptstatus, including applicationsforstatusundersection
501(c)(4) ,arefiled with acentralized IRSSubmission ProcessingCenter. Theapplication
categories:
Applicationsthatneed onlyminoradditional required information inthefile in order
REL 00822
DEPUTYCOMMISSIONER
June15, 2012
TheHonorable K. MichaelConaway
DearMr. Conaway:
Iamrespondingto the letterfrom you and yourcolleaguesto CommissionerShulman
datedApril 23, 2012, requesting informationaboutthetax-exemptsector. In palticular,
yourletterraises concerns regardingthe requestsbythe IRSforadditional information from
Application Process
Thelawallowssection 501(c)(4) organizationsto holdthemselvesoutas tax-exempt.
is self-declared undersection 501(c)(4)orhasbeen determined bythe IRStomeetthe
returns.
501(c)(4) ,arefiled with acentralized IRS SubmissionProcessingCenter. Theapplication
isthensentto the ExemptOrganizations("EO") Determinationsoffice in Cincinnati, Ohio
applicationsand, based onthatreview, separatetheapplications intothefollowing four
categories:
Applicationsthatneedonlyminoradditionalrequired information in thefilein order
Applicationsthatdonotcontain the information needed to beconsidered
REL 00823
DEPUTYCOMMISSIONER
June15, 2012
The HonorableJackKingston
DearMr. Kingston:
yourletterraisesconcerns regardingthe requests bythe IRSforadditional informationfrom
Application Process
is self-declared undersection501(c)(4)orhas beendeterminedbythe IRStomeetthe
requirementsofsection 501(c)(4) ,theorganization mustfile Form 990 annual information
returns.
categories:
Applicationsthatdonotcontainthe information needed to beconsidered
REL 00824
WASHINGTON, D,C. 20224
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableTomMcClintock
DearMr. McClintock:
yourletterraises concernsregarding therequestsbythe IRS foradditionalinformationfrom
Application Process
is self-declaredundersection 501(c)(4)orhas beendeterminedbythe IRStomeetthe
requirementsofsection 501(c)(4) ,theorganization mustfile Form 990annualinformation
returns.
501(c)(4), arefiled with acentralized IRS SubmissionProcessing Center. Theapplication
isthen senttothe ExemptOrganizations(liED") Determinationsoffice in Cincinnati, Ohio
categories:
REL 00825
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableJim Renacci
DearMr. Renacci:
Iam respondingtothe letterfrom you and yourcolleaguestoCommissionerShulman
yourletterraises concernsregardingthe requests bytheIRSforadditionalinformationfrom
applicantsfortaxexemption. Toassistin respondingtoyourconcerns, weare also
Application Process
is self-declared undersection 501(c)(4)orhasbeen determined bythe IRSto meetthe
returns.
Thistechnical screening is conducted byexperienced revenueagentswhoreviewthe
categories:
. Applicationsthatdonotcontain theinformation neededtobe considered
REL 00826
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableTim Huelskamp
DearMr. Huelskamp:
Iam responding to the letterfrom you and yourcolleaguesto CommissionerShulman
.yourletterraises concerns regardingtherequestsbythe IRSforadditionalinformationfrom
Application Process
is self-declared undersection 501(c)(4) orhasbeen determined bythe IRSto meetthe
requirementsofsection 501(c)(4) ,theorganization mustfile Form 990annual information
returns.
isthen senttothe ExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
applicationsand, based onthatreview, separatetheapplications intothefollowing four
categories:
application andtheinformation submitted;
Applicationsthatneedonlyminoradditionalrequired information inthefilein order
Applicationsthatdonotcontainthe informationneededto be considered
REL 00827
DEPUTY COMMISSIONER
June 15,2012
TheHonorableJeffDuncan
DearMr. Duncan:
Iam respondingtothe letterfrom you and yourcolleaguestoCommissionerShulman
Application Process
returns.
categories:
Applicationsthatcan be approved immediatelybased onthe completenessofthe
REL 00828
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableDonald Manzullo
DearMr. Manzullo:
Iamrespondingtothe letterfromyou and yourcolleaguesto CommissionerShulman
yourletterraisesconcernsregardingtherequestsbytheIRSforadditionalinformationfrom
Application Process
Organizationsalsocan applyforIRS recognition as tax-exempt. Whetheran organization
is self-declaredundersection501(c)(4)orhas beendeterminedbythe IRStomeetthe
returns.
501(c)(4),arefiled with acentralized IRSSubmission Processing Center. Theapplication
categories:
Applicationsthatcan be approved immediatelybased onthecompletenessofthe
REL 00829
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableDoug Lamborn
DearMr. Lamborn:
yourletterraisesconcernsregardingtherequestsbythe IRSforadditional informationfrom
Application Process
The lawallowssection 501(c)(4) organizationsto hold themselves outastax-exempt.
is self-declared undersection 501(c)(4) orhas beendetermined bythe IRStomeetthe
requirementsofsection 501(c)(4) ,theorganization mustfile Form 990 annual information
returns.
501(c)(4),arefiled with acentralized IRS Submission Processing Center. Theapplication
categories:
applicationand theinformation submitted; .
REL 00830
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableJoe Barton
DearMr. Barton:
Iam responding tothe letter'from you and yourcolleaguesto CommissionerShulman
yourletterraises concerns regarding the requestsbytheIRSforadditionalinformationfrom
Application Process
Thelawallowssection 501(c)(4) organizationstoholdthemselvesoutastax-exempt.
Organizationsalsocan applyfor IRSrecognition astax-exempt. Whetheran organization
is self-declared undersection 501(c)(4)orhasbeendeterminedbythe IRStomeetthe
returns.
isthen senttotheExemptOrganizations("EO") Determinationsofficein Cincinnati, Ohio
categories:
Applicationsthatcan be approvedimmediatelybased onthecompletenessofthe
Applicationsthatdonotcontain theinformation needed tobeconsidered
REL 00831
INTERNAL REVENUE SERViCE
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableLouieGohmert
DearMr. Gohmert:
datedApril23, 2012, requesting information aboutthetax-exemptsector. In particular,
yourletterraises concerns regardingtherequests bythe IRSforadditional informationfrom
applicantsfortaxexemption. To assistin respondingtoyourconcerns, wearealso
Application Process
Organizationsalsocan applyfor IRSrecognition astax-exempt. Whetheran organization
is self-declared undersection 501(c)(4) orhasbeen determined bythe IRSto meetthe
returns.
.applicationsand, based on thatreview, separatetheapplications intothefollowingfour
categories:
application and theinformation submitted;
Applicationsthatdo notcontainthe information needed to be considered
REL 00832
DEPUTY COMMISSIONER
June 15, 2012
The HonorableJoeWalsh
DearMr. Walsh:
Iam respondingtotheletterfrom you and yourcolleaguestoCommissionerShulman
.yourletterraises concernsregarding therequests bythe IRSforadditional informationfrom
Application Process
isself-declaredundersection501(c)(4) orhasbeen determined bythe IRStomeetthe
requirementsofsection 501(c)(4), theorganization mustfileForm 990annual information
returns.
isthen senttothe ExemptOrganizations("Eon) Determinationsofficein Cincinnati, Ohio
Thistechnical screening isconducted byexperienced revenue agentswho reviewthe
categories:
REL 00833
WASHINGTON, D,C, 20224
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableAndyHarris
DearMr. Harris:
Iam responding tothe letterfrom you and yourcolleaguestoCommissionerShulman
datedApril 23,2012, requesting informationaboutthe tax-exemptsector. In particular,
yourletterraises concerns regardingthe requests bythe IRSforadditional informationfrom
Application Process
isself-declaredundersection 501(c)(4) orhasbeendetermined bytheIRStomeetthe
returns.
Thistechnical screening is conducted by experienced revenue agentswho reviewthe
categories:
Applicationsthatneed only minoradditional required information in thefile in order
Applicationsthatdonotcontain theinformation needed tobeconsidered
REL 00834
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableBill Posey
DearMr. Posey:
Iamrespondingtothe letterfromyou and yourcolleaguestoCommissionerShulman
yourletterraises concerns regardingtherequestsbythe IRSforadditionalinformationfrom
Application Process
Thelawallowssection501(c)(4)organizationstoholdthemselvesoutastax-exempt.
is self-declaredundersection 501(c)(4)orhasbeen determined bythe IRSto meetthe
returns.
Allapplicationsfortax-exemptstatus, includingapplicationsforstatusundersection
Thistechnical screeningis conductedbyexperienced revenueagentswho reviewthe
applicationsand, basedon thatreview, separatetheapplicationsintothefollowing four
categories:
REL 00835
DEPUTYCOMMISSIONER
June 15,2012
TheHonorableTimWalberg
DearMr. Walberg:
yourletterraisesconcerns regardingthe requestsbythe IRSforadditional informationfrom
Application Process
is self-declared undersection 501(c)(4)orhasbeen determined bythe IRSto meetthe
returns.
Thistechnicalscreening is conducted byexperienced revenue agentswhoreviewthe
applicationsand, based on that review, separatethe applicationsintothefollowing four
categories:
REL 00836
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableWalterJones
DearMr. Jones:
Iam responding to the letterfrom you and yourcolleaguesto CommissionerShulman
yourletterraises concerns regarding therequestsbythe IRSforadditional informationfrom
applicantsfortaxexemption. To assistin respondingtoyourconcerns, we are also
Application Process
is self-declared undersection 501(c)(4) orhasbeen determined bythe IRS to meetthe
returns.
Thistechnicalscreening isconducted byexperienced revenueagentswho reviewthe
applicationsand, based onthatreview, separatethe applicationsintothefollowing four
categories:
REL 00837
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableRoscoe Bartlett
DearMr. Bartlett:
yourletterraisesconcerns regardingthe requestsbythe IRSforadditional information from
Application Process
is self-declared undersection 501(c)(4)orhasbeendetermined bythe IRStomeetthe
returns.
categories:
Applicationsthatdonotcontainthe information needed to beconsidered
REL 00838
WASHINGTON, D.C. ZOZZ4
DEPUTY COMMISSIONER
June 15, 2012
TheHonorableBill Johnson
DearMr. Johnson:
Iamresponding to the letterfromyou and yourcolleaguestoCommissionerShulman
yourletterraisesconcerns regardingtherequestsbythe IRSforadditionalinformationfrom
applicantsfortaxexemption. To assistin responding to yourconcerns, we arealso
Application Process
Thelawallowssection 501(c)(4) organizationsto holdthemselvesoutas tax-exempt.
isself-declaredundersection 501(c)(4) orhasbeendetermined bythe IRSto meetthe
requirementsofsection501(c)(4), theorganizationmustfileForm 990 annualinformation
returns.
is then senttotheExemptOrganizations(liED") Determinationsofficein Cincinnati, Ohio
Thistechnicalscreeningisconducted byexperienced revenue agentswhoreviewthe
categories:
Applicationsthatcanbe approved immediatelybased on thecompletenessofthe
Applicationsthatdonotcontain theinformation neededto beconsidered
REL 00839
DEPUTY COMMISSIONER
June 15, 2012
TheHonorableCharlesBoustany
DearMr. Boustany:
yourletterraises concerns regarding therequestsbythe IRSforadditional informationfrom
providingbackground information aboutourlong-standing systemforprocessing
Application Process
Thelawallowssection 501(c)(4) organizationsto hold themselvesoutas tax-exempt.
is self-declared undersection 501(c)(4)orhas beendetermined bythe IRStomeetthe
requirementsofsection 501(c)(4), theorganization mustfileForm 990annual information
returns.
501(c)(4), arefiled with acentralized IRS Submission ProcessingCenter. The application
categories:
application andthe informationsubmitted;
REL 00840
DEPUTYCOMMISSIONER
June15, 2012
TheHonorableSteveScalise
DearMr. Scalise:
Iamrespondingtothe letterfrom you and yourcolleaguesto CommissionerShulman
yourletterraisesconcerns regarding the requestsbythe IRSforadditional informationfrom
providingbackground information aboutourlong-standingsystemforprocessing
Application Process
isself-declaredundersection 501(c)(4)orhasbeendetermined bythe IRSto meetthe
returns.
categories:
REL 00841
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorablePhil Roe
DearMr. Roe:
Iam respondingtotheletterfromyou and yourcolleaguestoCommissionerShulman
yourletterraises concernsregardingthe requestsbythe IRSforadditionalinformationfrom
Application Process
Organizationsalsocan applyfor IRS recognition astax-exempt. Whetheran organization
is self-declared undersection501(c)(4)orhasbeen determined bytheIRStomeetthe
returns.
categories:
Applicationsthatneedonlyminoradditionalrequired information in thefile in order
REL 00842
DEPUTYCOMMI SIONER
June 15, 2012
TheHonorableJustinAmash
DearMr. Amash:
Iamrespondingtotheletterfromyou and yourcolleaguestoCommissionerShulman
yourletterraises concerns regardingtherequests bytheIRSforadditional informationfrom
applicantsfortaxexemption. To assistin respondingtoyourconcerns, weare also
Application Process
isself-declaredundersection 501(c)(4) orhasbeendetermined bytheIRStomeetthe
returns.
501(c)(4), arefiled with acentralized IRSSubmissionProcessing Center. Theapplication
is thensenttothe ExemptOrganizations ("EO") Determinationsoffice in Cincinnati, Ohio
categories:
REL 00843
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableThaddeusMcCotter
DearMr. McCotter:
Iamrespondingtotheletterfrom you and yourcolleaguesto CommissionerShulman
yourletterraisesconcerns regardingthe requestsbythe IRSforadditional informationfrom
Application Process
is self-declared undersection501(c)(4) orhasbeendetermined bythe IRSto meetthe
requirementsofsection 501(c)(4), theorganizationmustfile Form 990 annualinformation
returns.
Allapplicationsfortax-exemptstatus, including applicationsforstatus undersection
501(c)(4) ,arefiled with acentralized IRS Submission Processing Center. Theapplication
categories:
application andtheinformation submitted;
Applicationsthat need onlyminoradditional required information in thefile in order
Applicationsthatdo notcontainthe information neededto be considered
REL 00844
DEPUTYCOMMISSIONER
June 15, 2012
The HonorableKennyMarchant
DearMr. Marchant:
Iam respondingtotheletterfrom you and yourcolleaguesto CommissionerShulman
yourletterraises concerns regarding therequests bytheIRSforadditional informationfrom
Application Process
Thelawallowssection501(c)(4)organizationstoholdthemselvesoutastax-exempt.
requirementsofsection 501(c)(4), theorganization mustfile Form 990 annualinformation
returns.
Thistechnical screening isconducted byexperienced revenue agentswho reviewthe
categories:
REL 00845
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableRobertLatta
DearMr. Latta:
Iamresponding to the letterfromyou and yourcolleaguesto CommissionerShulman
yourletterraises concerns regardingtherequestsbytheIRSforadditionalinformationfrom
Application Process
returns.
categories:
application and the information submitted;
REL 00846
(I
DEPUTYCOMMISSIONER
June 15, 2012
TheHonorableTim Gowdy
DearMr. Gowdy:
Iam responding to theletterfrom you and yourcolleaguesto CommissionerShulman
Application Process
is self-declared undersection 501(c)(4)orhas been determined bythe IRSto meetthe
requirementsofsection 501(c)(4), theorganization mustfileForm 990 annualinformation
returns.
501(c)(4) ,arefiled with acentralized IRSSubmissionProcessingCenter. Theapplication
Thistechnical screening isconductedbyexperienced revenueagentswhoreviewthe
applicationsand, based on that review, separatetheapplications intothefollowing four
categories:
Applicationsthatneed onlyminoradditional required information inthefile in order
Applicationsthatdonotcontaintheinformation neededto beconsidered
REL 00847
2
Applicationsthatrequirefurtherdevelopmentbyan agentin orderto determine
whethertheapplication meetsthe requirementsfortax-exemptstatus.
Organizationswhose applicationsfall intothefourth categoryaresentletters informing
themthatmoredevelopmentoftheirapplication is needed, and thattheywill be contacted
oncetheirapplicationhasbeenassignedtoarevenueagent. Theapplicationsaresentto
unassigned inventory, wheretheyare held untilarevenue agentwith theappropriate level
ofexperienceforthe issuesinvolved in thematteris availabletofurtherdevelopthecase.
Oncethecaseisassigned, therevenueagentnotifiesthe organization and reviewsthe
application. Based upon established precedentand thefacts and circumstancessetforth
in theapplication, the revenueagentrequestsadditionalinformationand documentationto
completethefile pertaining to theexemptstatusapplication materials
1
(theso-called
"administrativerecord") and makesadetermination. Wherean applicationforexemption
presentsissuesthatrequirefurtherdevelopmentto completetheapplication record, the
revenueagentengagesin abackandforth dialoguewith theorganizationin ordertoobtain
theneeded information.
Thegeneralproceduresforrequesting additional informationto developan applicationare
includedin section7.20.2ofthe Internal Revenue Manual. Althoughthere is atemplate
letterthatdescribesthegeneral informationon the casedevelopmentprocess, the letter
doesnot, and could not, specifythe informationto be requestedfrom anyparticular
organization becauseofthe broad rangeofpossiblefacts. Theamountand natureof
developmentnecessarytoprocessan applicationtoensurethatthe legal requirementsof
tax-exemption are satisfied dependson severalfactors, which includethe
comprehensivenessoftheinformation provided intheapplicationand theissuesraised by
the application. Consequently, revenue agentsprepareindividualizedquestionsand
requestsfordocumentsrelevanttotheapplication,which areattachedtotheabove
describedgeneraltemplateletter.
This backand forth dialoguehelpsapplicantsbetterunderstandthe requirementsfor
exemption and whatis neededtomeet them, and allowstheIRStoobtain allthe
information relevanttothedetermination. Ifan organization believesthatthe legal
requirementscan besatisfiedwithouttherequested documentationortheorganization
needsadditionaltimeto respond, theorganization can discussan alternativeapproach or
timingwiththeiragent. TheIRSwill considerwhethercompliancewiththelegal
requirementscan besatisfied in the alternativemannerproposed and whetheran
extensionoftimeiswarranted. Onceresponsesarereceived, theentireapplicationfile is
evaluated based uponthe requirements in theCodeand regulations.
Toolsareavailableto promoteconsistenthandling offull developmentcases. For
example, in situationswherethereareanumberofcasesinvolving similarissues(such as
creditcounseling organizations, down paymentassistanceorganizations, organizationsthat
1 Theapplication for recognition oftaxexemptstatus, any paperssubmitted in supportofthe application,
and anyletterorotherdocumentissued bythe IRSwith respecttothe application. SeeIRe 6104(a),
(d)(5).
REL 00848
3
were automatically revoked and are seeking retroactive reinstatement, and most recently,
advocacy organizations), the IRS will assign cases to designated employees to promote
consistency. Additionally, in these cases, EO Technical (an office of higher graded
specialists in Exempt Organizations), in consultation with the IRS Office of Chief Counsel,
may develop educational materials to assist the revenue agents in issue spotting and
crafting questions to develop cases consistently.
It is important to develop a complete administrative record for the application. Because the
administrative record must either support exemption or denial, it is important for the record
to be complete. If the application is approved, not only is the administrative record made
publicly available (with certain limited exceptions outlined below), but organizations that act
as described in the administrative record have reliance on the IRS determination. If the
application is denied, the organization may seek review from the IRS Office of Appeals.
The Appeals Office, which is independent of Exempt Organizations, reviews the complete
administrative record and makes its own independent determination of whether the
organization meets the requirements for tax-exempt status. It is to the organization's
benefit to have all of its materials in the file in the event EO Determinations denies
exemption and the organization seeks Appeals review. If, based on the information in the
administrative record, the Appeals Office decides the organization meets the requirements
for tax-exempt status, the application will be approved. If the Appeals Office agrees that
the application should be denied, the organization may challenge its non-exempt status by
paying any tax owed as a taxable entity, and seeking a refund in federal court.
In those cases where the application raises issues for which there is no established
published precedent or for which non-uniformity may exist, EO Determinations may refer
the application to EO Technical. In EO Technical, the applications are reviewed by tax law
specialists whose job is to interpret and provide guidance on the law and who work closely
with IRS Chief Counsel attorneys on the issues.
Similar to the process in EO Determinations, EO Technical tax law specialists develop
cases based on the facts and circumstances of the issues in the specific application. EO
Technical staff engages in a back and forth dialogue with the organization in order to obtain
the information needed to complete the administrative record. If, upon review of all of the
information submitted, it appears that an organization does not meet the requirements for
tax-exempt status, a proposed denial explaining the reasons the organization does not
meet the requirements is issued. The organization is then entitled to a "conference of right"
where it may provide additional information. Following the conference of right, a final
determination is issued. If the application is approved, the administrative record is made
publicly available, and if the organization acts as described in the application record, it has
reliance on the IRS determination. If the application is denied, the applicant may challenge
its non-exempt status by paying any tax owed as a taxable entity, and seeking a refund in
federal court.
Processing Section 501 (c)(4) Applications
To qualify for exemption as a social welfare organization described in section 501 (c)(4), the
organization must be primarily engaged in the promotion of social welfare, not organized or
REL 00849
4
operated for profit, and the net earnings of which do not inure to the benefit of any private
shareholder or individual.
2
The promotion of social welfare does not include direct or
indirect participation or intervention in political campaigns on behalf of or in opposition to
any candidate for public office.
3
A section 501 (c)(4) social welfare organization can engage
in political activities as long as it is primarily engaged in activities that promote social
welfare.
4
In working a determination application case, the revenue agent must determine whether
activities undertaken by the organization primarily further an exempt purpose. If the
organization is engaged in some activities that do not promote social welfare, then the
agent must review the scope of the activities to determine whether, based on all the facts
and circumstances, the organization's exempt activities are the primary activities. If the
application is unclear or not su'fficiently detailed as to whether the primary activity
conducted by the organization is exempt social welfare activity, the revenue agent will need
to follow-up on this issue in a development letter.
The activity that has recently attracted attention relates to processing of determination letter
requests of organizations who sought recognition of tax-exempt status by the IRS. As
previously discussed, the law does not require section 501 (c)(4) organizations to apply to
the IRS for recognition of tax-exempt status, but organizations may do so. Organizations
seeking tax-exempt status under section 501 (c)(3) are legally required to apply with the
IRS.
As mentioned above, when EO notices an increase in similar cases or activities, steps are
taken to coordinate processing of cases to promote consistent treatment of taxpayers. In
late 2010, EO noticed an increase in determination application requests from organizations
seeking tax exemption under section 501 (c)(3) and section 501 (c)(4) that appeared to be
potentially engaged in political advocacy activities. Section 501 (c)(3) organizations are
legally prohibited from participating or intervening in a political campaign on behalf of or in
opposition to any candidate for public office. Although such activity does not promote
social welfare, section 501 (c)(4) organizations are not prohibited from engaging in political
campaign activity as long as the organization's primary activities promote social welfare. In
working section 501 (c)(4) determination application requests, the IRS must determine what
are the primary activities of the organization and whether those activities promote social
welfare.
Upon observing an increase in the number of section 501 (c)(3) and section 501 (c)(4)
determination applications from organizations that appeared to be potentially engaged in
political advocacy activities, EO took steps to coordinate the handling of the cases to
ensure consistency. EO determination agents also began working with EO technical tax
law experts to develop approaches and materials that could be helpful to the agents
working the cases. As sometimes happens, however, coordination efforts resulted in some
cases being in inventory for a longer time than expected.
2 1RC 501(c)(4); Treas. Reg. 1.501(c)(4)-1.
3 Treas. Reg. 1.501(c)(4)-1(a)(2)(ii).
4 Rev. Rul. 81-95,1981-1 C.B. 332.
REL 00850
5
In early 2012, after development letters were sent to some applicant organizations, issues
with respect to these cases were brought to the attention of EO management, who
requested a status of the inventory and ensured more timely and consistent handling of the
cases. We have made significant progress on these cases to date. Within the last month,
a number of approvals have been granted. In many cases, updated information requests
have been sent to focus on the specific legal issues in question. Per normal procedures for
full development cases, EO staff is in the process of an active back and forth with
organizations where there are questions as to whether the legal requirements for tax
exemption have been satisfied. We are committed to working these cases in an
expeditious manner. However, given the difficult fact intensive work that the law requires
for complex cases, additional time may be needed in some instances to make a
determination.
I hope this information is helpful. I am sending a similar response to your colleagues. If
you have questions, please contact me or have your staff contact Catherine Barre at
(202) 622-3720.
Sincerely,

Steven T. Miller
REL 00851
REL 00852
REL 00853
Page 1of 1
Ortez Cumbuka I
Sent:
From:
Monday, June 18, 2012 11: 11 AM
Williams Catherine M
RECEIVED
To: Ortez Cumbuka I; Rodriguez Christinne
JUN 18 2012
Cc:
Subject:
Grodnitzky Steven; Norton William G Jr; Barre Catherine M
FW: Letter
CONG.CORR.BR
CL:LA
Attachments: SecureZIP Attachments.zip
Hi Cumbuka and Christinne,
Can one of you enter this correspondence signed by various members as soon as possible? It also came
in by way of fax. I will bring you that document if you need it for your file but this is cleaner. Bill is aware
that it's here and he will forward a copy to Nikole Flax.
Thank you
CatherineM.Williams
Legislative Affairs Division
202 622-4728 phone
202622-4733 fax
From: Baker, Jesse (Finance) [mailto:Jesse_Baker@finance.senate.gov]
Sent: IVionday, June 18, 2012 11:01 AM
To: Williams Catherine M
Subject:Letter
Cathy -
Per our conversation, please see the attached documents.
Thank you for your assistance,
Jesse
6/18/2012
REL 00854
ni cd tc
June 18,2012
RECEIVED
Hon. D ublas IT. hulm 11
Commis 'joner
JUN 18
internal R venue "'ervlce
1L1 Constitution Av nue. CONG.CORR
. BR
Washington, D 20230
C
L:LA
Dear ('ommi sioner hull11an:
n March J4.2012. e rote to you with a number rque lion r gar ling t11
pro' mes th internGl Re nue S rvicc C"rR' u e. 'vvhen evaluati116 rganiZtlli 11<; that al ply
for tax-exem t status W;;: appre iate the th _roughnc four respon e to Oll!' inquiries.
I-It \'V 'er. remain c. nccrned that the II is reque tina th nam\,;. rd .. 1 rand contribLlIN
t rganizations tha ap\ly for tax "x rnpt talUS. In cl ing ,the lapp m tt e
circumventing the. tatutory pri ae i protecti IlS thal C1ngl'ess has long I rovided d nor:
Prior Congress' have pa's d Lgi lation with bipartisan suppon to ensure the privacy ot
donors who give to charitable organizations. Whil.e the annuCllta:. return or cenain charitable
oroanizations have long be n requLred t be made available for public revie . the C) I I COlllIres.
denied the Se r tar at" the reasury the duthority to disclose the names and addrsse:' of
financial contributors from these r turns. I In addition. the 100th C ngrcss created a specifi.
statutory xception for disci sure or names and addresses r finCln ial contributors, \ hen they
expanded public insp li 11 ofc-rtain al1nual r turns. reports. and applicati ns tor exemptIOn If
c rtain tax e,'empt orgallizations.
2
fn lIsing nearly idenlicallegisl;;Ili el, nguugc to creat these
exceptions ii'om dis losurr:. both ongresses made strong legislative pr I Olillcem that their
goal wa to protect th pri '(ley o[ Jonor informati lI1. In addili n. th 'arne c mmitm nt 0
priv8c is evid nt in the rquir ment that taxpayers e gi en the opportunity to obtain rccla !lon
of identifying information before r lated IRS privat letter ruling,). technical advice rn 'nlonnda.
and Chief C unsel Aclvict: memoranda ar madc public. J Through the e various "xpres IOns.
ongress has made privacy the rule, and n t the exception.
It is important to note the value that is placed on protecting tl e priva . I or i ndi .i luals an I
organizations that choose l donat funds to charitable oru-anizations. ' he privac. int rests of
donors is wieldy recogniz and valued. Various public policy initj( tive hav rightl
'
encNlraged d nations to social w lfare organizations, and th se efforts ar threatened hen
private information about donors is not adequately J rotected. A list of d nor who have gi Yen
I See HR, [3_70, h Tax Refol'!11 Act of 1969, which became Public Law 1Ilnb<:r 91-17_
C ee !-l.R. 354", Omnibus Budg'l Reconciliation Actor 1987, whicll became Public Law umbel
3 1(
REL 00855
REL 00856
REL 00857
REL 00858
DEPUTYCOMMISSIONER
September11,2012
TheHonorableOrrin G. Hatch
United StatesSenate
Washington. D.C. 20510
DearSenatorHatch:
ThisletterrespondstoyourJune18. 2012, lettertoCommissionerShulman, requesting
additionalinformationaboutthedisclosurerequirementsofapplicationsfortax-exempt
status, andthereleaseofdonorinformation. Asyou aremaybeaware, therules
relating todisclosureoftaxpayerinformationareprovidedbystatutein the Internal
RevenueCode.
Question1. WhatisthespecificstatutoryauthoritygivingtheIRSauthorityto
requestactualdonornamesduringreviewsofapplicationsforrecognitionof
exemptionunderSection501(c)(4)?
Theapplicableregulationsareauthorized bySection7805oftheInternalRevenue
Code, which providesgeneralauthoritytoprescribeall needed regulationsforthe
enforcementoftaxrules. Section 1.501(a)-1(a)(3)oftheregulationsprovidesthat
organizationsrequesting recognitionoftax-exemptstatusmustfiletheform prescribed
bythe IRSandincludetheinformation required. In addition, section 1.501(a)-1(b)(2)
providesthattheIRSmayrequireadditionalinformationdeemednecessaryforaproper
determinationofwhetheraparticularorganization istax-exempt.
Question2. IsitcustomaryforIRSrevenueagentstorequestdonorand
contributoridentifyinginformationduringreviewofapplicationsfortax-exempt
statusunderSection501(c)(4)? Pleaseprovidethenumberofrequestsbythe
IRSforsuchinformationforeachyearfrom2002to2011 describe.
Notall section501(c)(4)organizationsapplyingforexemptionarerequestedtoprovide
donorand qontributoridentifying information. Eachdevelopmentlettersenttoan
applicantisbasedonthefactsand circumstancesofthespecificapplication.
REL 00859
------------
2
To qualify for exemption as a social welfare organization described in section 501 (c)(4),
the organization must be primarily engaged in the promotion of social welfare, not
organized or operated for profit, and the net earnings of which do not inure to the benefit
of any private shareholder or individual.
1
As discussed in more detail in my April 26, 2012 letter to you, in order for the IRS to
make a proper determination of an organization's exempt status, the Form 1024 asks
applicants to provide detailed information regarding all of its activities-- past, present,
and planned, including the purpose of each activity and how it furthers the
organization's exempt purpose, when the activity is initiated, and where and by whom
the activity will be conducted. If the Form 1024 questions are answered with sufficient
detail to make a determination, the applicant will not be asked further questions. If,
however, the detail provided is insufficient to make a determination or issues are raised
by the application, then the IRS contacts the organization and solicits information to
evaluate whether the applicant meets the requirements for tax exemption in the Code
and regulations. There may be cases in which donor information would be relevant to
determining if the legal requirements for exemption are satisfied.
The IRS automated systems capture the number of applications approved during a
given year that were sent development letters seeking additional information, but they
do not track the specific questions asked in the requests. Consequently, in order to
determine the specific questions asked in those development letters, manual review of
each file would be required. IRS staff is available to work with your staff to identify the
information that we are able to legally provide that would be relevant to your request.
Question 3. Is the Exempt Organizations technical office involved in all such
information requests of exemption applications?
As noted in my April 26, 2012 letter, generally applications for tax-exemption that
need further development are assigned to revenue agents in the Exempt
Organizations (EO) Determinations office in Cincinnati, Ohio, rather than staff in the
EO Technical office. Based on established precedent and the facts and
circumstances of the case, an EO Determinations revenue agent will request the
information and documentation he/she believes is needed to complete the
administrative record and make a determination in the case. As needed, a revenue
agent might seek advice from EO Technical staff regarding a particular matter or a
case may be referred to EO Technical staff, but the EO Technical office is not
involved in all information requests sent to applicants seeking tax-exemption Note
that in situations where there are a number of cases involving similar issues, the IRS
may assign cases to designated employees to promote quality and consistency. In
such cases, agents, either with or without EO Technical, may work together in
drafting information requests for similar cases.

1 IRe 501 (c)(4); Treas. Reg. 1.501(c)(4)-1.
-
REL 00860
3
Question4. Section7.21.5oftheInternalRevenueManualstatesthatLetter1313
shouldbeusedasafirstrequestforadditionalinformationforcasesreceivedon
Form1024,andthatLetter2382shouldbeusedforsecondandsubsequent
requestsforinformation. We haveattachedredactedcopiesofanIRS1313Letter
and2382Letterwhichwerereportedlysenttoapplicantorganizationsearlierthis
year. Eachofthoseletterscontainspassageswhichspecificallyrequestnames
ofdonors.
a) WhichIRSemployeesandofficialswereinvolvedinthedraftingofthe
questionsrequestingdonornames?
By law,the IRScannotcommentwith respectto letterssenttospecifictaxpayers.
However,wecan discussourgeneralprocess. PursuanttoSection7.20.2.4ofthe
InternalRevenueManual(IRM), revenue agentsintheEO Determinationsoffice
assignedtoacaseare responsibleforcontactingtheorganizationtoobtainany
additionalinformationoramendmentsnecessaryto processthe application. Pursuant
to the IRM, questionsaskedtoorganizationsseekingtax-exemptionundersection
501(c)(4), would be drafted bytherevenueagentworking thecase. Asnoted above, in
situationswherethereareanumberofcasesinvolving similarissues, theIRSmay
assign casestodesignatedemployeesto promoteconsistency. In such cases, agents
mayworktogetherin draftingquestionsforsimilarcases.
b) WhichIRSofficialsprovidedauthorityandapprovalforthequestions
requestingdonornames?
Seeresponseto a), above.
c)DidanyIRSpersonneldefinitivelyreviewanddeterminewhetherthere
wouldbeanyprivacyimpactbytherequestsfornamesofdonorswhichcould
ultimatelybemadepartofapublicallyavailableadministrativerecord? Wasthe
IRSOfficeofPrivacyconsulted,anddiditplayaroleinanysuchdetermination?
TheIRStakesprivacyveryseriously, and makesan efforttoworkwith organizationsto
obtainthe needed informationsothattheconfidentialityofanypotentialsensitiveor
privileged informationis takenintoaccount. The IRSOfficeofPrivacywasnot
consulted regardingthespecificquestionsasked ofapplicantorganizations. However,
theIRSadvised applicantorganizationsthatiftheybelievedthatrequested information
required todemonstrateeligibilityforsection501(c)(4) statuscould be providedthrough
alternativeinformation, theycould contacttherevenue agentassignedto their
applicationand theIRSwould considerwhetherthelegal requirementscould be
satisfied in an alternativemanner.
REL 00861
------------------------- --- -----
4
Question 5. What is the total number of IRS 1313 and 2382 letters sent in 2011
and 2012 (to date) which specifically request names of donors?
The IRS automated systems capture the number of applications approved during a
given year that were sent development letters seeking additional information, but they
do not specifically track whether a 1313 or 2382 letter was sent or the specific questions
asked in the letters. To determine the specific questions asked in each development
letter sent, manual review of each file would be required. IRS staff is available to work
with your staff to identify the information that we are able to legally provide that would
be relevant to your request.
Question 6. Does the IRS intend to utilize IRS 1313 and 2382 letters in the future
to specifically request names of donors?
Letters 1313 and 2382 are template letters used in all cases seeking additional
information that provide general information on the case development process.
Individualized questions and requests for documents based on the facts and
circumstances set forth in the particular application are prepared by the revenue agent
assigned to the case and are attached to the template letter.
There are instances where donor information may be needed for the IRS to make a
proper determination of an organization's exempt status, such as when the application
presents possible issues of inurement or private benefit. Accordingly there may be
future situations where a revenue agent needs to clarify the sources of financial support
to an organization by requesting the names of donors.
Nevertheless, the IRS takes privacy very seriously, and makes efforts to work with
organizations to obtain the needed information so that the confidentiality of any potential
sensitive or privileged information is taken into account. As previously mentioned, we
advised applicant organizations that if they believed that requested information required
to demonstrate eligibility for section 501 (c)(4) status could be provided through
alternative information, they can contact the revenue agent assigned to their application
and the IRS would consider whether the legal requirements could be satisfied in the
alternative manner.
Question 7. Does the IRS view donor identifying information as being necessary
information when reviewing applications for tax-exempt status under Section
501 (c)(4)? If so, how was this finding made and what written standards are
utilized by the IRS in evaluating this information? Have any IRS personnel ever
recommended that IRS Form 1024 be amended to specifically require that this
information be furnished?
The IRS does not believe it is necessary to review donor identifying information in all
determination cases involving applications for tax-exempt status under section
501 (c)(4). I am not aware of any recommendation from IRS personnel that the Form
1024 be revised to require such information be furnished in all cases.
REL 00862
5
Question 8. Section 7.20.2.7 of the Internal Revenue Manual (relating to
evaluation of organizations applying for tax-exempt status) states that requests
for additional information in processing a determination should be thorough and
relevant. Would a request (to an organization applying for tax-exempt status
under Section 501 (c)(4 for a list of donor names, some who may have given as
little as $1, meet the relevancy standard?
The level of development necessary to process an application to ensure the legal
requirements of tax-exemption are satisfied varies depending on the facts and
circumstances of each application. Revenue agents use sound reasoning based on tax
law training and their experience to review applications and identify the additional
information needed to make a proper determination of an organization's exempt status.
As noted above in question 6, under certain facts and circumstances, such as when the
application presents possible issues of inurement or private benefit, donor information
may be needed for the IRS to make a proper determination of an organization's exempt
status. An applicant who is concerned with burden or relevancy in the process can work
with the agent assigned to the case and the agent's manager.
I hope this information is helpful. I am also writing to your colleagues. If you have
questions, please contact me or have your staff contact Cathy Barre, Director,
Legislative Affairs, at (202) 622-3720.
Sincerel_,
e v e n T ~
Deputy Commissioner for
Services and Enforcement
REL 00863
DEPUTY COMMISSIONER
September11, 2012
The HonorableBob Corker
UnitedStatesSenate
DearSenatorCorker:
Thisletterrespondsto yourJune 18,2012,lettertoCommissionerShulman, requesting
status, and thereleaseofdonorinformation. Asyou aremaybeaware, the rules
relating todisclosureoftaxpayerinformationareprovidedbystatutein theInternal
RevenueCode.
TheapplicableregulationsareauthorizedbySection7805oftheInternalRevenue
Code, which providesgeneralauthorityto prescribeall needed regUlationsforthe
enforcementoftaxrules. Section 1.501(a)-1(a)(3) ofthe regulationsprovidesthat
organizationsrequesting recognitionoftax-exemptstatusrnustfiletheformprescribed
bytheIRSand includetheinformation required. In addition, section 1.501(a)-1(b)(2)
providesthattheIRSmayrequire additionalinformationdeemednecessaryforaproper
Notall section 501(c)(4)organizationsapplyingforexemption are requestedtoprovide
donorand contributoridentifyinginformation. Eachdevelopmentlettersenttoan
applicantis based on thefacts and circumstancesofthespecificapplication.
REL 00864

- 4l.A..4l ..
:< U
INTERNAL REVENUE SERVICE 1
!:
! WASHINGTON, D.C. 20224

DEPUTY COMMISSIONER
September 11, 2012
The Honorable John Cornyn
Dear Senator Cornyn:
This letter responds to your June 18, 2012, letter to Commissioner Shulman, requesting
additional information about the disclosure requirements of applications for tax-exempt
status, and the release of donor information. As you are may be aware, the rules
relating to disclosure of taxpayer information are provided by statute in the Internal
Revenue Code.
Question 1. What is the specific statutory authority giving the IRS authority to
request actual donor names during reviews of applications for recognition of
exemption under Section 501(c)(4)?
The applicable regulations are authorized by Section 7805 of the Internal Revenue
Code, which provides general authority to prescribe all needed regulations for the
enforcement of tax rules. Section 1.501(a)-1 (a)(3) of the regulations provides that
organizations requesting recognition of tax-exempt status must file the form prescribed
by the IRS and include the information required. In addition, section 1.501 (a)-1 (b)(2)
provides that the IRS may require additional information deemed necessary for a proper
determination of whether a particular organization is tax-exempt.
Question 2. Is it customary for IRS revenue agents to request donor and
contributor identifying information during review of applications for tax-exempt
status under Section 501 (c)(4)? Please provide the number of requests by the
IRS for such information for each year from 2002 to 2011 describe.
Not all section 501 (c)(4) organizations applying for exemption are requested to provide
donor and contributor identifying information. Each development letter sent to an
applicant is based on the facts and circumstances of the specific application.
REL 00865
DEPUTY COMMISSIONER
September11, 2012
TheHonorableJohnThune
UnitedStatesSenate
DearSenatorThune:
ThisletterrespondstoyourJune 18,2012,lettertoCommissionerShulman, requesting
additional informationaboutthedisclosurerequirementsofapplicationsfortax-exempt
status, andthe release ofdonorinformation. Asyouaremaybeaware, the rules
relatingtodisclosureoftaxpayerinformationareprovided bystatutein the Internal
Revenue Code.
Theapplicable regulationsareauthorized bySection7805 oftheInternalRevenue
Code,which providesgeneralauthoritytoprescribeall needed regulationsforthe
enforcementoftaxrules. Section 1.501(a)-1(a)(3) oftheregulationsprovidesthat
organizationsrequesting recognition oftax-exemptstatusmustfiletheform prescribed
bythe IRSand includethe information required. In addition, section 1.501(a)-1(b)(2)
providesthatthe IRSmayrequireadditionalinformationdeemednecessaryforaproper
determination ofwhetheraparticularorganization istax-exempt.
Question2. IsitcustomaryforIRS revenueagentstorequestdonorand
Notall section 501(c)(4) organizationsapplyingforexemptionare requestedto provide
donorand contributoridentifying information. Each developmentlettersentto an
applicantis based on thefactsand circumstancesofthespecificapplication.
REL 00866
DEPUTYCOMMISSIONER
September11,2012
TheHonorableJonKyl
United StatesSenate
DearSenatorKyl:
ThisletterrespondstoyourJune 18,2012,letterto CommissionerShulman, requesting
status, and thereleaseofdonorinformation. Asyou aremaybe aware, the rules
relating todisclosureoftaxpayerinformationareprovided bystatutein the Internal
RevenueCode.
Theapplicableregulationsareauthorized bySection7805ofthe Internal Revenue
Code, which providesgeneralauthorityto prescribeall needed regulationsforthe
enforcementoftaxrules. Section 1.501(a)-1(a)(3) ofthe regulationsprovidesthat
bythe IRSand includetheinformationrequired. In addition, section 1.501(a)-1(b)(2)
providesthattheIRSmayrequireadditionalinformationdeemed necessaryforaproper
Notall section 501(c)(4)organizationsapplyingforexemptionarerequestedto provide
donorand contributoridentifying information. Eachdevelopmentlettersenttoan
applicantis based onthefactsand circumstancesofthespecificapplication.
REL 00867
DEPUTY COMMISSIONER
September11, 2012
The HonorableKay BaileyHutchison
United StatesSenate
DearSenatorHutchison:
ThisletterrespondstoyourJune 18, 2012, lettertoCommissionerShulman, requesting
status, and the releaseofdonorinformation. Asyou are maybe aware, the rules
relating todisclosureoftaxpayerinformationareprovided bystatutein the Internal
RevenueCode.
Code,which providesgeneralauthoritytoprescribeall needed regulationsforthe
enforcementoftaxrules. Section 1.501(a)-1(a)(3)ofthe regulationsprovidesthat
organizations requesting recognition oftax-exemptstatusmustfiletheformprescribed
bytheIRSand includethe information required. In addition, section 1.501(a)-1(b)(2)
providesthatthe IRSmayrequire additionalinformationdeemednecessaryforaproper
determinationofwhetheraparticularorganization is tax-exempt.
Notall section501(c)(4) organizationsapplyingforexemptionarerequested to provide
applicantis basedonthefactsand circumstancesofthe specificapplication.
REL 00868
DEPUTY COMMISSIONER
September11, 2012
The HonorableMichael Enzi
UnitedStatesSenate
DearSenatorEnzi:
This letterrespondstoyourJune18, 2012, lettertoCommissionerShulman, requesting
additional informationaboutthedisclosure requirementsofapplicationsfortax-exempt
status, and the releaseofdonorinformation. Asyou aremaybeaware, the rules
relatingtodisclosureoftaxpayerinformationareprovided bystatutein the Internal
Revenue Code.
Theapplicable regulationsareauthorized bySection7805ofthe InternalRevenue
Code, which providesgeneralauthoritytoprescribeall needed regulationsforthe
providesthatthe IRSmayrequireadditionalinformationdeemed necessaryforaproper
Notall section501(c)(4)organizationsapplyingforexemptionare requestedtoprovide
applicantisbased onthefacts and circumstancesofthespecificapplication.
REL 00869
DEPUTY COMMISSIONER
September11, 2012
TheHonorableLamarAlexander
United StatesSenate
DearSenatorAlexander:
ThisletterrespondstoyourJune 18,2012,lettertoCommissionerShulman, requesting
status, and the releaseofdonorinformation. Asyou aremaybe aware, therules
relating to disclosureoftaxpayerinformationareprovided bystatutein the Internal
RevenueCode.
organizationsrequesting recognitionoftax-exemptstatusmustfiletheform prescribed
providesthatthe IRSmayrequire additional informationdeemed necessaryforaproper
determinationofwhetheraparticularorganization is tax-exempt.
Notall section 501(c)(4)organizationsapplyingforexemptionarerequested to provide
applicantis basedonthefactsand circumstancesofthespecificapplication.
REL 00870

4>A4> "
z u
r:
\n-ol WASHINGTON, D.C. 20224
"evE,,\li>7
EPUTY COMMISSIONER
September 11, 2012
The Honorable Mitch McConnell
Dear Senator McConnell:
This letter responds to your June 18, 2012, letter to Commissioner Shulman, requesting
Revenue Code.
exemption under Section 501 (c)(4)?
enforcement of tax rules. Section 1.501(a)-1 (a)(3) of the regulations provides that
by the IRS and include the information required. In addition, section 1.501(a)-1(b)(2)
status under Section 501 (c)(4)? Please provide the number of requests by the
REL 00871
DEPUTY COMMISSIONER
September11, 2012
The HonorablePatRoberts
United StatesSenate
DearSenatorRoberts:
Thisletterrespondsto yourJune 18, 2012, letterto CommissionerShulman, requesting
status, and the releaseofdonorinformation. Asyou aremaybe aware, the rules
relating to disclosureoftaxpayerinformationareprovided bystatutein theInternal
RevenueCode.
Theapplicableregulationsareauthorized bySection7805oftheInternalRevenue
organizationsrequesting recognitionoftax-exemptstatusmustfile theform prescribed
bythe IRSand includethe information required. In addition, section 1.501(a)-1(b)(2)
providesthattheIRSmayrequireadditionalinformationdeemednecessaryforaproper
determinationofwhetheraparticularorganizationis tax-exempt.
Notall section 501(c)(4) organizationsapplyingforexemptionare requested to provide
donorandcontributoridentifying information. Eachdevelopmentlettersenttoan
applicantis based onthefactsand circumstancesofthespecificapplication.
REL 00872
DEPUTY COMMISSIONER
September 11, 2012
The Honorable Rand Paul
Dear Senator Paul:
This letter responds to your June 18,2012, letter to Commissioner Shulman, requesting
Revenue Code.
exemption under Section 501 (c)(4)?
enforcement of tax rules. Section 1.501 (a)-1 (a)(3) of the regulations provides that
by the IRS and include the information required. In addition, section 1.501 (a)-1 (b)(2)
status under Section 501(c)(4)? Please provide the number of requests by the
REL 00873
INTERNAL REVENUE SERVICE DATA BOOK, 2010
Table 25. Tax-Exempt Organizations and Nonexempt Charitable Trusts, Fiscal Years 2007-2010
TWe' 01 organizailon,
Infernal Revenue Code o;,pctlon
Tax-exempt organizations and nonexempt charitable trusts, tolal
Section 501 lc) by subsection. total
(1) CorporatlDns undl'r act of Cong"""
(2) lltlf'llDldlll(] corporMlons
(3) Rcliglou". .1nd "Imolm organll,ltlon, [1\
(4) Socialwc!fmc
(5) t<1bor and agriculture
(6) [Ju"me",; 'e"gue,;
(7) Social and recreation c:Iul1s
(8) Fraternal beneficIary societies
(9) Voluntary employees' beneficiary associations
(10) Domestic fraternal beneficiary socielies
(12) Benevolent Insurance
113) Cemetery companies
(14) Staw-chartered credit unions
(15) Mutual insurance compames
(17) Supplemental unemployment Irusls
(19) War veterans' rJTganilations
(25) Holding companies lor pension, and other entities
Olher 501 ,ubscctions 12J
(d) Reli!Jious and.a"ostolic associations
Section 501 . . . . .
Section 501 (f) Cooperative service organizations 01 operating educational organizations
liection 501 (k) Child ,:"re.()r.ganizations
Section SOl (n)Charitabl
ll
risk pools
Nonexempt charitable trusts
2007 2008 2009 2010
(1) (2) (3) (4)
1,789.554 1,855.067 1.912,&95 1.960,203
1.&48.30& 1,710.567 1,772,229 1,821,824
134 142 152 168
7.136 7.131 7.170 7.239
1.178.367 1.186.915 1.238.201 1280.739
134.843 135.494 137.276 139.129
60.634 60.291 62.462 63.012
88,071 69.409 90.908 92.331
71.092 73.173 76.243 79.718
64.216 63,194 63.097 63.391
12.128 11.996 11.867 11,749
20.390 20.964 21.279 18.310
6,793 6.836 6,878 6,996
11.098 11,401 11.720 12.266
3.860 3.532 3,443 3,570
2.073 2,005 1.915 1,812
434 434 424 423
35.702 36,306 37.878 39.709
1,234 1.239 1.171 1,125
101 105 135 137
1&2 164 205 218
37 J& J5 34
1 1 1 1
15 14 14 14
1 1 1 1
141,032 144,284 140,210 138,111
(1) Includes private foundal'olls. Nol allillterilal Revenue Code s"clion 501 (e) (3) organi7alions nrC reqUired to apply for rcc09mtion of lax exemption. includillg
churc hes, integraled aUXiliaries. subordinate Units. and GOllvent,oflS or of churches.
(2) Includes teachers' retirement funds (section 501 (c)(11; corporalions to finance crop operations (seellon 501 (<;)(16; employee-funded pension Iruals (seclion
501 (c) (18; black lung IruSls (scclion 501 (cl (21; multicmployer pcflsion plans (SPCtIOIl 501 (c) (22); veterans' associations foufldcd p"or to 1880 (scction 501 (c) (23;
. Iru5ts described ill section 4049 of the Employee Retircmel11 Income Security Ad 01197.1 (ERISA) (scctlon 501 (c) (24; State-sponsored higll-risk health insuraflce
organizations (scclioll 501 (c) (26)); State-sponsored workers' compenSation reinsurance orqaniZ3t10llS (section 501 (c) (27; and the Naliunal Railroad RelilCment
Investment frust (seclion 501 (c) (28. Ta<-exernpt status lor I('gal service" organizations (,ection 501 (c) (20n r('voked effectIVe June 20. 1992.
SOURCE: Ta< Exempt and Government Elltlties.
56
REL 00874
TE/GE
Budget
2008 2011
.
.'<...... . .. ... " . -
....o!. -'" .... :-- \. ...... -.. ,.' \.- ";:<-,, .. ......- . - ..... _
Funds Center .Functional. &tea . .-
N - _F.Y_
FY2011
T001 DIVISION HEADQUARTER Taxpayer Comm & EducatiOn
- _. __. -_.-
1C $12,400
--
2A Filing&Acct Svcs Mgmt $1,117,899'
. .
- -
28 SubmissiOn Processing '. $11,567,003 $12,250,0001 $6,137,500 $5,229,8101
2C AcdMgmt&.Asslst.,.EVCOr $116,913
4M I Shared Sup. Non-....M .."'.1' ide $69,542 $70,5561 $90,539 $84,808
--
..
4R Research $1,131,888 $1,086,216 $1,294,522 $1,182,742
7A Comoflal1CeServiees Mgmt $14,338,076 $20,121,798 $18,898,484 $16,343,839
7G .' Tax Report Compliance-Ad $708,920 $974,739: $677,632 $300,063
8C Tax Law Interpretation an i $1,082! $2,355
. 8E RUlings & $1,258,101 $1,179,6261 $1,047,469 $598,657
9R' . Business Systems DeVelop $574,6081
I
,
-------- - -{-- ----_.. -----------_._-
9S .
$174,050
,
i
f----.
Result $31,066,635 $35,705,970 $28,150,137 $23,754,674
. T1trr- -OrR 8W' 1Yt:t:PLANS 1C.
'-.; "j.-
. Comifl'&"Education' $3,281,408 $3,598,697: $3,810,094 $3,453,642
! 7A COmpliance Ser'llcesMgmt $2,166,707 $1,772.903: $1,679,574 $1,670,440
7G Tax Report Camptiance-Fld' $63,924,296, $66,571,901 $67,506,551 $65,991,790
7Q International Exams,_ $01 $806,586 $6,603
8C Tax Law I tatioi'lan $2,845,862
'. .'
$1,894.786 $2,199,478 $2,684,053
BE .RUlings &Agreemet1ts $29,237,027 $30,830,570 $32,594,601 $33,979,130
_____________._.______.____-L9R
$10,000 i
-_.. -
Result $100,514,224 $104,973,548 $109,081,460 $107,947,467
"T201 DlR ORGANIZAT' 1C ' - '''U1rilm &l:d
CO-
$1,487,421 $1,910,757 $1,769,802 $2,106,922
7A Compliance SEnIcesMamt $1,881,163 $1,723,909 $1,780,913 $2,140,161
7G Tax Report COmpiiance-Fld, . $51,395,370 $54.755,6861 $60,340,062 $61,454,343
7Q .' Internatiolial Exams $641,048 $120,854
8C .
Tax Law ,- $1,990,805 $2,299,671
1
$2,676,915 $3,040,695
8E RUlinqs_& $31,726,064 $33,586,875 $34,037.785 $33,300,069
Result $88,480,823 $94,276,898 $101,246,525 $102,163,044
1301 "OIRG I t:Nln
.:, I
. 'COmm....
-
$2,107,539 $2,316,812 $3,802,701 $3,709,357 - .
: "
7A , .. -. Compliance setviC:es. Mgmt $1,305,017 $1.728,907 $2,928,083 $1,991,163
7G TaxRej:)OrtComptiance-Ad 26,949,183 35,512,442 $32.554,904 36,965,197
...._---+ --- -_._----_._-------_.. - ....
7Q' '.
, International Exams $174,763 $11,513
----
$30,361,739
1
$39,558,1 __ $42,677,230
I I Result
REL 00875
EO's September 30th On-Roll Employees
Note: These totals are revised since last year's work plan.
REL 00876
6
Table 13. Returns of Tax-Exempt Organizations, Employee Plans, Government Entities,
and Tax-Exempt Bonds Examined, by Type of Return, Fiscal Year 2010
Type of return Number of retums
Tax-exempt organization. employee plan. government entity.
a
l1
d taJ(-exe'!'lJtbond retllmsex!mlned In Fiscal Year 2010, total
Tax-exempt organizations:
Tax-exempt organization returns processed In Calendar Year 2009 [i) 776.300
Tax-exempt organizations and related taxable returns examined in Fiscal Year 2010, total 11,449
Tax-exempt organization returns. total 3,925
Forms 990 and 99O-EZ 3,596
Forms 990--PF, 1041-A, 1120, and 522712J 323
Form 1120--POl
Related taxable returns, total 7,524
Employment tax returns 13) 5,276
Form 990--T (4) 971
Form 4720 [5) 334
Forms 1040, 1065, and 1120 adjusted [61 285
Forms 11-e and730 (7J 658
Employee plans:
Employee plan returns processed In Calendar Year 2009 [8) 820.407
Employee plan and related taxable returns examined In Fiscal Year 2010, total (9) 11,159
Employee plan returns, total 8,748
Form 5500 7.607
Defined benefit 800
Defined contribution 6,807
Form 550o-EZ 1.135
Defined benefit 387
Defined contribution 748
Form 5500-SF 6
Defined benefit d
Defined contribution d
Related taxable returns, total 1,528
Form 5330 [10] 1,233
Form 990--T [4J 11
FC)..nn.
s
.1 al1.d. . .._. .
284
,
Government entity and tax-exempt bonds:
GoYernment entity and tax-exempt bond returns examined In Fiscal Year 2010. total 4,202
Tax-exempt bond returns, total [11] 1,560
GoYernment entity returns, total [12] 2.642
Employment tax returns [3) 2,469
Forms 1040, 1065, and 1120 adjusted [6) 80
Forms 11-e and 730 (7) 93
d-Not shown to avoid disclosure of information about specific taxpayers. However, the data are included in the appropriate totals.
[1J Includes Forms 990 (tax-exempt organization except private foundation retum); 99O-EZ (tax-exempt organization except private foundation retum,
short form); 99O-PF (private foundation return); 1041-A (retum of charitable contribution deductions by certain trusts); Form 1120--POl (income tax
return for certain political or9anlzations); and 5227 (spill-interest trust Information return). Excludes related tax returns and 254,864 Forms 99Q-N
(electronic notice (e-postcard)).
[2J Includes Form 1120 (corporation Income tax return) of revoked private foundations.
[3J Includes Forms 940 (employer's Federal unemployment tax return); 941 (employer's tax return for income and Social Security taxes withheld for
other than household and agricultural employees); 943 (employer's tax return for agricultural employees): 944 (employer's tax return): 945 (tax return of
withheld income tax from nonpayroll distributions); and 1042 (tax return of withheld income tax on U.S.-source Income of foreign persons).
[4J Form 990--T is the tax-exempt organization unrelated business income tax return.
[5J Form 4720 is used to report excise taxes on exempt organizations and related individuals.
[6] Related individual (Form 1040 series), partnership (Form 1065). or corporation (Form 1120 series) returns adjusted as a result of examination of a
tax-exempt organization, employee plan, or government entity.
(7J Form 11-e reports the occupational tax for wagering, and Form 730 reports the excise tax on wagering.
[8] Includes Forms 5500 (employee benefit plan retum); 55Oo-EZ (one-participant retirement plan return); and 550O-SF (short form return of small
employee benefit plan). A fUnding reduction for EFAST (an electronic filing system for Forms 5500 and 5500-SF) and a programming error in 2009
resulted in a processing delay (until 201 O) of approximately 100,000 returns that will be reported in the 2011 IRS Data Book, Excludes related taxable
returns and welfare benefit and fringe benefit plans. which are not subject to examination by the IRS.
REL 00877
Table 13. Returns of Tax-Exempt Organizations, Employee Plans, Government Entities, and Tax-
Exempt Bonds Examined, by Type of Return, Fiscal Year 2009
Type of retum Number of retums
Tax-exempt organization. employee plan, government entity,
and tax-exempt bond returns examined In Fiscal Year 2009, total 22.729
Tax-exempt-ol'ganlzatlons: ...
Tax-exempt organization returns processed In Calendar Year 2008 (1) 823.087
Tax-exempt organizations and related taxable returns examined In Fiscal Year 2009, total 10,187
Tax-exempt organization returns. total 3,767
Forms 990 and 990-EZ 3,445
Forms 990-PF, 5227, 1041-A, and 1120 [2] 314
Form 1120-POL 8
Related taxable returns, total 6."20
Employment tax retums [3] 4.582
Form 990-T [4] 962
Form 4720 (5] 370
Forms 1040, 1065, and 1120 adjusted [6] 159
Forms and.nO [71. 347
Employee plans:
Employee plan returns processed In Calendar Year 2008 (8) 977"'52
Employee plan and related taxable returns examined In Fiscal Year 2009, total (9) 8.3"3
Employee plan returns, total 5.647
Form 5500 4,344
Defined benefit 582
Defined contributon 3,762
Form 55OO-EZ 1,303
Defined benefit 321
Defl ned contribution 982
Related taxabla returns. total 1.289
Form 5330 [10] 1,010
Form 990-T [4] 22
_ .FElrn:'lS
257
Government entity and tax-exempt bonds:
Government entity and tax-exempt bond returns examined In Fiscal Yaar 2009. total ".199
Tax-exempt bond returns, total (11) 581
Government entity returns. total (12): 3,618
Employment tax retums [3] 3,162
Forms 1040. 1065, and 1120 adjusted [6] 16
Forms 11-C and 730 (7] 440
(1] Includes Forms 990 (tax-exempt organ/zaton except private foundation retum); 990-EZ (tax-exempt organizaton except private foundation retum-
short form); 990-PF (private foundaton retum); 5227 (split-interest trust information retum); 1041-A (retum of charitable contribution deductions by
certain trusts); and Form 1120-POL (Income tax retum for certain political organizations). Excludes related tax raturns.
[2] Includes Form 1120 (corporation income lax retum) of revoked private foundations.
[3J Includes Forms 940 (employer's Federal unemployment tax return); 941 (employers tax retum for income and Social Security taxes withheld for
other than household and agricultural employees); 943 (employers tax return for agriCUltural employees); 944 (employers tax return); 945 (tax return of
withheld income tax from nonpayroll distributions); and 1042 (tax return of withheld income taxon U.S.-source income offoreign persons).
(4) Form 990-T is the tax-exempt organization "unrelated business income" tax retum.
[5] Form 4720 is used to report the excise tax on exempt organizations and related individuals.
[6] Related individual (Form 1040 series), partnership (Form 1065). or corporation (Fonn 1120 series) retums adjusted as a result of examination of a
organization, employee plan, or government entity.
[7] Form ll-C reports the occupational tax for wagering, and Fonn 730 reports the excise tax on wagering,
[8] Includes Forms 5500 (employee benefit plan retum) and 5500-EZ (one-parucipant retirement plan return). ExclUdes related taxable returns and
welfare benefit and fringe benefit plans, which are not subject to ex:aminauon by the IRS.
[9] Includes 1,407 examinations of plans that were not reQuired to file a retum and are, therefore, not categorized by fonn type.
[1 OJ Form 5330 is used to report InWal excise taxes related to employee plans.
REL 00878
Table 13. Returns of Tax-Exempt Organizations, Employee Plans, and Government Entities Examined, by
Type of Return, Fiscal Year 2008
Type of return Number of retums
Tax-exempt organization, employee plan. govemment entity.
and tax-exempt bond retums examined In FIICBI Year 2008. tota' 19,383
Tax-exempt organization In Calendar Year 2007 [1) 888,412
Tax-exempt organizations and related taxable retums examined In Fiscal Year 2008, total 7,861
-. --,,-
Tax-exempt organization t0ta' 2,946
Forms 990 and 990-EZ 2,669
and 1120 [2)
263
Form 1120-POL 14
Rela!l!Ci total 4,915
Ef!lplo)l1Tle!Jt (3)
2,552
Form 990-T (4) 1,430
437
FOrm _ .. __ . _
(6)
134
_ 1 0. _ 362
plan C.a'lI."'d
ll
r Vear.200? [8J 1.048.952
Employee plans and related taxable returns examined In Fiscal
Year 2008. total [9J 8.233
__. _ 6.298
Form 5500 5.353
-,- _. .. " __ "",_,__ ... A_ ,, _
Deflned benefit 334
. . ,",-- , .. --
,., -
Defined contribution 5,019
, '-",-'-,,< _.' _.. ...
Form 5500-EZ 945
..
Defined benefit 201
e, , __ ---.- -,. ,-, -
Deflned contribution 744
1,068

...._- ..---.--.-....,_..---- ..goa'
Form 5330.1'0)
Form 990-T (4) t 1
149
Government entity and tax-exempt bond returns examined In
Flacal Year 2008. total
3.289
bond returns [11] 529

2,760
taxretums [3J 2.538
___ . ... __
38
Forms "-C and 730 [7J 184
(1) Includes Forms 990 (tax-exempt organization except private foundation return); 990-EZ (tax-exempt organization except private foundation return-short form);
990-PF (private foundation return); 5227 (split-interest trust Information return): 1041-A (Information return of trust accumulations of certain charitable amounts); and
Form 1120-POL (return flied by political organlzalions and certain tax-exempt organizations to report political organization taxable income and tax). Excludes
related taxable returns.
(2) Includes Form 1120 (corporation Income tax return) of revoked private foundations.
(3) Includes Forms 940 (employer's Federal unemployment tax return); 941 tax return for Income and Social Security taxes withheld for other than
household and agricultural employees); 943 (employer's tax return for agricultural employees); 944 tax return); 945 (tax return of withheld income tax
trom nonpayroll distributions): and 1042 (tax return of withheld income tax on U.S.-source Income of foreign persons).
(4) Form 990-T is the tax-exempt organization unrelated business Income tax retum.
(5) Form 4720 reports the excise tax on exempt organizations and related individuals.
[6J Related individual (Form 1040 series). partnership (Form 1065), or corporation (Form 1120 series) retums adjusted as a result of examination of a tax-exempt
organization. employee plan. or governrnent entity,
(7) Form 1'-C reports the occupational tax for wagering, and Form 730 reports \he excise tax on wagering,
(8) Includes Forms 5500 (employee benefit plan return) and 55OO-EZ (one-participant retirement plan retum). Excludes related taxable returns and welfare benefit
and fringe benefit plans. which are not subject to examination by IRS.
[9] Includes 867 examinations of plans that were not required to file a return and are, therefore, not categorized by form type.
(10) Form 5330 reports initial excise taxes related to employee plans.
(11) Includes Forms 8038 (information return of tax-exempt private activity bond issues); 8038-G (Information return of government-purpose tax-exempt bond
issues): 8038-GC (information return for consolidated small tax-exempt government bond issues); 8038-T (arbitrage rebates); and 8328 (carryforward election of
unused private activity bond volume cap).
(12) Includes returns of Federal. State, local, and Indian Tribal governments. Although these entities do not have an income tax return filing requirement. they are
SUbject to excise and employment taxes. .
NOTE; In general, examination activity for afiscal year may be associated with relums filed in the previous calendar year.
SOURCES: Tax Exempt and Government Entitles. Exempt Organiutions SE:T:EO; Employee Plans SE:T:EP; and Govemment Entities SE:T:GE
REL 00879
REL 00880

-----_._--_.-. . --- --'--"- --_.
-_._---_.
- '. ---------:- ..... __ ----=-.
.
NOTE: Totals do not include incidents that have been redacted for disclosure reasons. t
REL 00881
Table 24. Closures of Applications for Tax-Exempt Status, by Organization Type and Internal Revenue Code
Section, Fiscal Year 2010
Applicalions for lDx-exempt ,>tJtus III
Type of orgar1l7auon
Revenue CocJc
lowl /\pproved f)1'>vpproved Other [21
ill (2) (3)
Taxexempt organizations and other entities, total [31 65,590 53,693 517 11,380
-,-_.
Section 501 (c) by subsection, total 53,668 517 11,363
(1) CorporRilon'> org<lnlzcd ullocr an aCI uf Cungr!],>s 6 d a d
(2) 'f ille-iloldll1g corporation'; 155 117 a 30
(3j cllariwble, <lnd similar orgunWJlil1l1' 141 59.9115 10.511
(4) Soc,"1 wl'lfare organllations 1,741 1,447 3 291
(5) Labor <Ino iJgrrcullurc organiz,1Iron, 310 273 a 37
(6) BLlsinr'S'> leagues 1.695 1,509 G 180
(7) Social ,lnd recreiltion clubs 884 710 d d
(8) Fraternal beneficiary SOCieties 16 11 a
(9) Voluntary employees' beneficiary associations 162 133 0 0
(10) Domeslic fralernal beneficiary socrelies 37 18 d d
(121 Bcnr.volenllife insurance assoclDtlons n 66 0 11
(13) Cemetery cornpilnie5 155 H8 0 7
(14) Stillc-chartcred credil un'Oll, d d 0 0
(1 5) 16 8 4
(17) Supplemental unemployment benefit trusts S 0 0 d
(19) Wdr veterAns' organizations 164 135 0 29
(25) Holdlllg for pcn,;ion, and otiler enliliw; 177 151 a 26
(26) SWlc:,ponsored higt'. risk Insurante 0 a a d
Section 501 (d) Religious and apostolic associations 14 d 0 d
Section 521..Farmers' co"peratives 23 d 0 d
Nonexempt charitable trusts 5 0 0 5
d-Not shown to avoid disclosure of speclfrc taxpayer data. However, dala are Included ,n Ihe approprrate lolals, when possible.
[1} Reflects all case closures for the Exempt Organizations Determmallons function. These include not only Initial applications for tax-exempt status, but also other
such public C.hDrity nnd private founuation rldviJnce aprroval of grant cHld group determinatIons of
ti::lx-(')(pmpt stotus.
12] Includcs applications wi1l1drawn by Ihe orgilniziltion: iJppliCillions th,ll drr] nOI provlOc tile reqUired iniormililon: incomplelp. appliCiJIions; IRS refusills to rule on ap-
plications; applicalions forwarded to olher than the Washington. DC office, IRS correcllon disposals, and others.
13] No applications were filed for teachers' reillement funds (section 501 (c)(11)); corporations to lmance crop operations (section 501 (c)(16)): employee-funded pension
(st'Uion 501 (c)(18)); black lung IruSl, (seclloll 501 (c)(21)); pi,),,, (section 501 (c)(22)): veterans' foullded pllor 10 1880 bec-
lion 501 (c)(23)); trusts dcswbed In section 4049 ollhe Empioyee I<Clirerncmlncomc Secrmty /\CI of 1974 (I: RISA) (secllon 501 (c)(24)): State-sponsored workers'
(section 501 (c)(2 7)): and the RilllrOild [<ctiremol1t Inve5lmenl rrust (scCllon 501 (c)(28)). Tax-exempt stntus for
legal svrviccs (secllon 501 (c)(20)) was revoked dfeclive Jurle 20, 1992.
14J Includes private foul1dntiol1s. Not allll1lernill R8venuc Code section 501 (c)(3) orqnnlzntlons required 10 apply for recognition of tax exemption, inr.ludillg churches,
intcgriJWd units, and convcnlions or ils5aciHIians of churches.
SOUI<C l' 1ax bcmpl and Govcrnmcnl Entitle:s, Organiz""ons.
55
REL 00882
Table 24. Closures of Applications for Tax-Exempt Status, by Organization Type and Internal Revenue Code
Section, Fiscal Year 2009 (Revised March 2011)
Applicalions for status 11)
Type of orgClnililtlon,
IrHernal Revenue Code ,;ecllon
10tal Approved Other [21
(1) (2) 13) (1)
Tax-exemJ:'t organizations other entities, t'?tal [3) 77,305 62,459 480 14,366
Seclion 501 (c) by SUbsection, total 77,221 62,392 480 14.349
(1) Corporations organized under an act of Congre's (; o o 6
(2) Title,holding corpomllon" 13'/ 112 o 2S
(3) 1,,,119'OUS, chMitalJle, and 'ilrnilar organizations [41 70,624 56,943 4n 13.209
('\1 Social we!lf;Jre organizations 1,922 1,50'/ 3 412
(5) Labor "nd agriCUlture orgJrllzations 601 543 o 58
(G) BUSiness Ip<lgues 1,960 1,742 d d
(7) Social ',md rr,cre,ltlon clubs 1,115 818 tf d
(8) Fraternal beneficiary societies 1G o 11
(9) Voluntary employees' beneficiary associations 257 210 d d
(10) Domestic fraternal beneficiary societies 25 o 20
(12) (lenevolentlife insurance ilSSOcI8tions 7G 56 o 20
(13) Cemetery companies 209 191 o 15
(14) State,chartered credit unions
cI d o o
(15) Mutual insurance! compilnics
6 3 d d
(17) Supplemental unemployment benefit trusts 6 d o d
(19) War veterans' organizations 175 142 o 33
(25) Holding companies for pensions end other 62 57 o 5
(
27
1 cI o o d

(d) ,Religious and 59 55 o 4
Section 521 Farmers' cooperatives 13 7 o 6
Nonexempt charitable trusts 12 5 o 7
d-Not shown to avoid disclosure of specific taxpayer data, However, data are incluoed in the appropriale lotals when poSSible,
[1] Renects all case closures for the Exempt Organizalions Determinations (uncllon, These Include not only inilial applications for tax-exempt status, but also other
such (IS puhllc Ch<Hity tlnd private foundation Slfllu<.; f.ldv(Hlce approval of sr.llolarship grant procedures. (Ind group determinations of tax-
exempt status.
[2\ Includes apphcatrons wni'ldrawn IJy the organization; applications lI,at 010 nol provloe Ihrc reqUircel information, incolTIpl,'te applications; IRS refusals to rule 011
apphcations; applications forwarded to other than the Washington, DC office, IRS correction disposals; and others.
13] No apphcatlons were filed lor teachers' retirement funds (section 501(c)(11), corporations 10 finance crop operations (section 501(c)(16)); employee-funded pension
(section 501 (e)( 18)); blacy. lung trllslS ('"clion 501 (c)(21 )); nnlllti8mploycr pension plans (SGCIIOI' 501 (c)(22)); VGtefilns' associalJon" founded prior 10 1880 (section
501(c)(23), trusts described in section 4049 of lhe Employee Secunty Act of 1974 (ERISf\) (section 501(c)(24)); and State-sponsored high-risk health Insurance
organizations (section 501(c)(26), Tax-exempt status for legal service organizations (section501(c)(20)) was revoked effective June 20,1992
(4] Includes private foundations, Not all Internal Revenue Code section 50Hc)(3) organizations are reqUlfed fo apply for recognition of tax exemption, inclUding churches,
Integrated auxiliaries, subordinate units, and conventions or assocjations of churches,
NOTE; Revised March 2011 to correct errors attributed to a Iransltlon In reporMg systems,
SOURCE' Tax Exempt and Government Entitles, Exempt Organizations,
55
REL 00883
Internal Revenue Service Data Book, 2008
Table 24. Closures of Applications for Tax-Exempt Status, by Organization Type and Internal Revenue
Code Section, Fiscal Year 2008 (Revised March 2011)
Type of organizallon.
Internal Revenue Code section
Tax-exerl1pt. organizations and other entities.tota![3j
Section 501 (c) by subsection, total
(2) Tllle-holdlll9 corpora !Ions
(3 chantable. ami orgal1llallOns [41
(4) So<;,al welfare organization,
(5) Labor ami agriculture organlzatiQI1\i
(O) BusIness leaqu8s
t 7) Social and receahol1 clubs
(8) Fraternal beneficiary societIes
(9) Voluntary employees' benefiaary associations
(10) Domestic fraternal benefiCJary sOCJetles
(12) Benevolenilife Insurance associations
(13) Cemetery companies
(14) State-cha ered credit unlOIlS
(15) Mutual insurance companies
(17) Supplemental unemployment benefit Irusts
(19) War veterans' organIzatIons
.. .':'.0ld1ng companies for pensions and other entities
Section 521 Farmers' cooperatives
_ __'m' _ _ _.
Nonexempt charitable trusts
Applications for tax-exempt status [1J
Total Approved Disapproved Oliler 12J
(1) (2)
84,220 69,957
84,180 69,943
1H 93
7'J.1IJ7 65.761
1,492 1.202
269 235
'1,477 1.2%
.. I i
8"4
20 11
197
JO 18
g1 60
155 148
8 5
26 15
4 4
128 101
106 100
... _- _.. ..-
26 d
-
14 d
(3) (4)
1,242 13,021
1,240 12.,997
0 21
1,221 12125
d d
0 34
6 175
0 d
d d
4 48
d d
0 25
d d
0 3
d d
0 0
0 27
0 6
.-
d d
_.
'--"
0 d
d-Not shown to avoid disclosure of specific taxpayer data. However, data are Included in the appropriate totals.
[1J Reflects all case closures for the Exempl Organizations DeterminatIons function. These include nol only Initial applicattons tor tax-exempt status but also other
oeterminilliolls, such as puhl,c chanty and private foundation slatus determl/latlons. advance approval ot scl,olarship grant procedures, and group determinations of
tax-exempt status.
[21 Includes applications Withdrawn by the organization; applications that did not provide the required ",Iormaliol1; incomplete applications: IRS refusals to rule on ap-
plications; applications forwarded to other than Ihe Washington. DC office. IRS correction disposals, and others.
[3) No applications were filed for corporations organized under an act of Congress (section 501(c)(1. teachers' retirement funds (section' 501(cJ(11)1: corporatIOns to
finance crop operations (section 501(C)(16): employee-funded pension trusts (section 501(c)(18: black lung trusls (section 501(c)(21); muilleinployer pension plans
(section 501 (c)(22): veterans' aSSOCiations founded prior to 1880 (section 501(C)(23)), trusts described In section 4049 of the Employee Security Act of 1974 (ERISA)
(section 501 (c)(24); State-sponsored high-risk health insurance organizations (section 501(c)(26)1: State-sponsored workers' compensation reinsurance organiza-
tions (section 501(c)(27), and religious and apostolic associations (section 501(d)). Tax-exempt status for legal services organizations (section 501(c)(20)) was
revoked effective June 20, 1992.
[4] Includes private foundations. Not all Internal Revenue Code section 501tc)(3) organizations are reqUired to apply for recognition of tax exempllon. including
churches. Integrated auxillanes, subordinate uMs, and conventions or associations of churches.
NOTE: ReVised March 2011 to correct errors allributed to a tranSition In reporting systems.
SOURCE Tex Exempt and Government Entities, Exempt Organlzalions.
55
REL 00884
Userid: SD_G74GB DTD tipx Leadpct: 0% Pt. size: 8 J Draft J Ok to Print
PAGER/SGML Fileid: D:\Users\g74gb\EPICfiles\P557 ok-to-print 11.05.2010 corrected.xml (Init. & date)
Page 1 of 72 of Publication 557 16:17 - 29-NOV-2010
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Publication 557
Contents
(Rev. October 2010)
Reminders . . . . . . . . . . . . . . . . . . . . . . 2
Department
Cat. No. 46573C
of the
Introduction . . . . . . . . . . . . . . . . . . . . . 2
Treasury
Chapter 1. Application, Approval,
Internal
and Appeal Procedures . . . . . . . . . . 3 Tax-Exempt
Revenue
Application Procedures . . . . . . . . . . . . 3
Service
Forms Required . . . . . . . . . . . . . . 3
Required Inclusions . . . . . . . . . . . 4 Status for Your
Miscellaneous Procedures . . . . . . . 4
Rulings and Determination
Letters . . . . . . . . . . . . . . . . . . . 5
Organization
Effective Date of Exemption . . . . . . 5
Revocation or Modification of
Exemption . . . . . . . . . . . . . . 5
Appeal Procedures . . . . . . . . . . . . . . . 6
Appeals Office Consideration . . . . . 6
EO Technical Consideration . . . . . . 6
Administrative Remedies . . . . . . . . 6
Appeal to Courts . . . . . . . . . . . . . 6
Group Exemption Letter . . . . . . . . . . . 7
Central Organization
Application Procedure . . . . . . 7
Keeping the Group
Exemption Letter in
Force . . . . . . . . . . . . . . . . . 8
Events Causing Loss of
Group Exemption . . . . . . . . . 8
Chapter 2. Filing Requirements
and Required Disclosures . . . . . . . . 8
Annual Information Returns . . . . . . . . . 9
Unrelated Business Income Tax
Return . . . . . . . . . . . . . . . . . . . 11
Employment Tax Returns . . . . . . . . . 11
Political Organization Income Tax
Return . . . . . . . . . . . . . . . . . . . 12
Reporting Requirements for a
Political Organization . . . . . . . . . 12
Donee Information Return . . . . . . . . . 14
Information Provided to Donors . . . . . 14
Report of Cash Received . . . . . . . . . . 16
Public Inspection of Exemption
Applications, Annual Returns,
and Political Organization
Reporting Forms . . . . . . . . . . . . 16
Required Disclosures . . . . . . . . . . . . 18
Solicitation of Nondeductible
Contributions . . . . . . . . . . . . 18
Sales of Information or
Services Available Free
From Government . . . . . . . . 19
Dues Used for Lobbying or
Political Activities . . . . . . . . . 19
Miscellaneous Rules . . . . . . . . . . . . . 19
Chapter 3. Section 501(c)(3)
Organizations . . . . . . . . . . . . . . . . 20
Contributions to 501(c)(3)
Organizations . . . . . . . . . . . . . . 20
Application for Recognition of
Exemption . . . . . . . . . . . . . . . . . 21
Articles of Organization . . . . . . . . . . . 23
Educational Organizations and
Private Schools . . . . . . . . . . . . . 24
Organizations Providing
Insurance . . . . . . . . . . . . . . . . . 26
Get forms and other information
Other Section 501(c)(3)
faster and easier by:
Organizations . . . . . . . . . . . . . . 26
Private Foundations and Public
Internet IRS.gov
Charities . . . . . . . . . . . . . . . . . . 28
Lobbying Expenditures . . . . . . . . . . . 44
Nov 29, 2010
REL 00885
Chapter 4. Other Section 501(c) determining whether small insurance com-
Organizations . . . . . . . . . . . . . . . . 45 panies qualify as tax-exempt under sec-
tion 501(c)(15) has changed. See Notice
501(c)(4) - Civic Leagues and
2006-42, 2006-19 I.R.B. 878.
Whats New Social Welfare Organizations . . . . 45
501(c)(5) - Labor, Agricultural, Prohibited tax shelter transactions.
and Horticultural New excise taxes are imposed under sec- New penalty provisions for nonfiling.
Organizations . . . . . . . . . . . . . . 46 tion 4965 on certain tax-exempt organiza- For annual tax periods beginning after
tions entering into prohibited tax shelter 2006, the law requires most tax-exempt 501(c)(6) - Business Leagues,
transactions. organizations, other than churches, to file etc. . . . . . . . . . . . . . . . . . . . . . 47
an annual Form 990, 990-EZ, or 990-PF
501(c)(7) - Social and Recreation Pension Protection Act of 2006 tax
with the Internal Revenue Service (IRS),
Clubs . . . . . . . . . . . . . . . . . . . . 48 changes. The Pension Protection Act of
or to submit an annual electronic notice,
2006 made numerous changes to the tax
501(c)(8) and 501(c)(10) -
Form 990-N (e-Postcard), to the IRS. If an
law provisions affecting tax-exempt orga-
Fraternal Beneficiary
organization fails to file an annual return or
nizations. Unless otherwise noted, most of Societies and Domestic
submit an annual notice as required for 3
the changes became effective on August Fraternal Societies . . . . . . . . . . . 49
consecutive years, it will automatically
17, 2006.
501(c)(4), 501(c)(9), and
lose its tax-exempt status.
501(c)(17) - Employees
Section 501(c)(3) organizations must
Redesigned Form 990 and Instructions.
Associations . . . . . . . . . . . . . . . 49
make their Form 990-T open for public in-
The Form 990 has been redesigned for
spection for a period of 3 years from the 501(c)(12) - Local Benevolent
2008 and future years. The new form con-
date the Form 990-T is required to be filed Life Insurance Associations,
sists of an 11-page, 11-part core form that
(determined with regard to any extension Mutual Irrigation and
is required to be completed by all organi-
of time for filing) or is actually filed, which- Telephone Companies, and
zations that file Form 990. It also consists
ever is later. Like Organizations . . . . . . . . . . . 51
of 16 schedules to be completed by those
501(c)(13) - Cemetery
organizations that satisfy the applicable Increase in excise taxes relating to public
Companies . . . . . . . . . . . . . . . . 52
requirements for each schedule. charities, social welfare organizations, and
501(c)(14) - Credit Unions and private foundations.
Elimination of the advance public char-
Other Mutual Financial
ity status. New regulations eliminate the Additional standards for credit counseling
Organizations . . . . . . . . . . . . . . 53
advance ruling process for a section organizations.
501(c)(19) - Veterans
501(c)(3) organization. Under the new reg-
Definition of convention or association of
Organizations . . . . . . . . . . . . . . 54
ulations, a new section 501(c)(3) organiza-
churches has been modified.
tion will be classified as a publicly 501(c)(20) - Group Legal
supported organization and not a private Services Plan Organizations . . . . . 55 Entities not required to file Form 990 or
foundation if it can show when it applies 990-EZ must file new Form 990-N, Elec-
501(c)(21) - Black Lung Benefit
for tax-exempt status that it reasonably
tronic Notice (e-Postcard) for Tax-Exempt
Trusts . . . . . . . . . . . . . . . . . . . . 55
can be expected to be publicly supported.
Organizations Not Required to File Form
501(c)(2) - Title-Holding
The new rules no longer require the or-
990 or 990-EZ.
Corporations for Single
ganization to file Form 8734 after complet-
Parents . . . . . . . . . . . . . . . . . . 55 Requirements of disclosure to state offi-
ing its first 5 tax years. The new rules
cials relating to exempt organizations has
501(c)(25) - Title-Holding
apply to organizations with advance rul-
been modified.
Corporations or Trusts for
ings expiring on or after June 9, 2008.
Multiple Parents . . . . . . . . . . . . . 56
Excise taxes imposed on excess benefit
Report significant new or changed pro-
501(c)(26) - State-Sponsored
transactions involving donor advised funds
gram services and changes to organi-
High-Risk Health Coverage
and sponsoring organizations.
zational documents. An organization
Organizations . . . . . . . . . . . . . . 56
should report new significant program
New excise taxes on Prohibited Tax Shel-
501(c)(27) - State-Sponsored
services or significant changes in how it
ter Transactions.
Workers Compensation
conducts program services, and significant
Reinsurance Organizations . . . . . 56
changes to its organizational documents,
on its Form 990 rather than in a letter to Chapter 5. Excise Taxes . . . . . . . . . 57
the IRS Exempt Organizations Determina-
Prohibited Tax Shelter
Introduction tions (EO Determinations). EO Determina-
Transactions . . . . . . . . . . . . . . . 57
tions no longer issues letters confirming
This publication discusses the rules and proce- Excess Benefit Transactions . . . . . . . 58
the tax-exempt status of organizations that
dures for organizations that seek recognition of
Excess Business Holdings . . . . . . . . . 61
report new services or significant changes,
exemption from federal income tax under sec-
Taxable Distributions of or changes to organizational documents.
tion 501(a) of the Internal Revenue Code (the
Sponsoring Organizations . . . . . . 61
Code). It explains the procedures you must fol-
Taxes on Prohibited Benefits
low to obtain an appropriate ruling or determina-
Distributed From Donor
tion letter recognizing your organizations
Advised Funds . . . . . . . . . . . . . . 62
exemption, as well as certain other information
Reminders
Excise Taxes On Private that applies generally to all exempt organiza-
Foundations . . . . . . . . . . . . . . . 62 tions. To qualify for exemption under the Code,
Electronic filing requirement for large
your organization must be organized for one or
Excise Taxes on Black Lung
organizations. For tax years ending on or
more of the purposes specifically designated in
Benefit Trusts . . . . . . . . . . . . . . 62
after December 31, 2006, only organiza-
the Code. Organizations that are exempt under
Chapter 6. How To Get Tax
tions that file 250 returns during the calen-
section 501(a) include those organizations de-
Help . . . . . . . . . . . . . . . . . . . . 63
dar year and that have total assets of $10
scribed in section 501(c). Section 501(c) organi-
million or more are required to file Form Organization Reference Chart . . . . . 65
zations are covered in this publication.
990 electronically.
Index . . . . . . . . . . . . . . . . . . . . . . . 67
Chapter 1 provides general information
about the procedures for obtaining recognition Appendix. Sample Articles of Section 501(c)(15) gross receipts. The
of tax-exempt status. Organization . . . . . . . . . . . . . . 69 definition of gross receipts for purposes of
Page 2 Publication 557 (October 2010)
REL 00886
Chapter 2 contains information about annual if you indicate in your correspondence the ap-
filing requirements and other matters that may propriate Code section. Check the IRS website,
Application
affect your organizations tax-exempt status. IRS.gov, for the latest updates.
Chapter 3 contains detailed information on
Procedures
Comments and suggestions. We welcome various matters affecting section 501(c)(3) orga-
your comments about this publication and your nizations, including a section on the determina-
Oral requests for recognition of exemption will
suggestions for future editions. tion of private foundation status.
not be considered by the IRS. Your application
Chapter 4 includes separate sections for You can e-mail us while visiting our website
for tax-exempt status must be in writing using
specific types of organizations described in sec- at IRS.gov.
the appropriate forms as discussed below.
tion 501(c).
You can write to us at the following address:
Chapter 5 provides information on when ex-
Forms Required Internal Revenue Service
cise taxes may be imposed.
TEGE and Specialty Forms and
Most organizations seeking recognition of ex-
Publications Branch Organizations not discussed in this publica-
emption from federal income tax must use spe-
SE:W:CAR:MP:T:T tion. Certain organizations that may qualify for
cific application forms prescribed by the IRS.
1111 Constitution Ave. NW, IR-6526 exemption are not discussed in this publication,
Two forms currently required by the IRS are
Washington, DC 20224 although they are included in the Organization
Form 1023, Application for Recognition of Ex-
Reference Chart. These organizations (and the
emption Under Section 501(c)(3) of the Internal
Code sections that apply to them) are as follows.
We respond to many letters by telephone.
Revenue Code, including Notice 1382, Changes
Therefore, it would be helpful if you would in-
for Form 1023, and Form 1024, Application for
Corporations organized under Acts
clude your daytime phone number, including the
Recognition of Exemption Under Section of Congress . . . . . . . . . . . . . . . . 501(c)(1)
area code, in your correspondence.
501(a). For information about how to obtain the Teachers retirement fund
If you wish telephone assistance, please call
associations . . . . . . . . . . . . . . . . 501(c)(11) latest revision, see chapter 6.
1-877-829-5500. This toll-free telephone service
Mutual insurance companies . . . . . 501(c)(15)
Forms 1023 and 1024 contain instructions
is available Monday through Friday.
Corporations organized to finance
and checklists to help you provide the informa-
crop operations . . . . . . . . . . . . . . 501(c)(16)
tion required to process your application. Incom-
Employee funded pension trusts
plete applications may not be processed. See
(created before June 25, 1959) . . . 501(c)(18)
Incomplete application later, under Miscellane-
Withdrawal liability payment fund . . 501(c)(22)
ous Procedures.
Veterans organizations (created
Some organizations do not have to use spe-
before 1880) . . . . . . . . . . . . . . . . 501(c)(23)
cific application forms. The application your or-
National Railroad Retirement
1.
ganization must use is specified in the chapter in
Investment Trust . . . . . . . . . . . . . 501(c)(28)
this publication dealing with your kind of organi- Religious and apostolic associations 501(d)
zation. It is also shown in the Organization Ref- Cooperative hospital service
organizations . . . . . . . . . . . . . . . 501(e) erence Chart..
Application,
Cooperative service organizations of
When no specific application form is pre-
operating educational organizations 501(f)
scribed for your organization, application for ex-
Approval, and
emption is by letter to the IRS. Send the
Section 501(c)(24) organizations (section
application to the appropriate address shown on
4049 ERISA trusts) are neither discussed in the
Form 8718, User Fee for Exempt Organization
text nor listed in the Organization Reference
Appeal
Determination Letter Request. The letter must
Chart.
be signed by an authorized individual such as an
Likewise, farmers cooperative associations
Procedures officer of the organization or a person authorized
that qualify for exemption under section 521,
by a power of attorney. (See Power of attorney qualified state tuition programs described in sec-
under Miscellaneous Procedures, later.) Send tion 529, and pension, profit-sharing, and stock
the power of attorney with the application letter bonus plans described in section 401(a) are not
Introduction
when you file it. The letter should also contain discussed in this publication. If you think your
If your organization is one of the organizations the name and telephone number of the person organization falls within one of these categories,
described in this publication and is seeking rec- to contact. The information described below contact the IRS for any additional information
ognition of tax-exempt status from the IRS, you under Required Inclusions must be sent with the you need. For telephone assistance, call
should follow the procedures described in this letter. 1-877-829-5500.
chapter and the instructions that accompany the Check the Table of Contents at the begin-
appropriate application forms. ning of this publication to determine whether Exemption for terrorist organizations. An
your organization is described in this publica- For information on section 501(c)(3) organi- organization that is identified or designated as a
tion. If it is, read the chapter (or section) that zations, see Section 501(c)(3) Organization- terrorist organization within the meaning of sec-
applies to your type of organization for the spe- schapter 3. If your organization is seeking tion 501(p)(2) is not eligible to apply for recogni-
cific information you must give when applying for exemption under one of the other paragraphs of tion of exemption.
recognition of exemption. section 501(c), see chapter 4.
User fee. The law requires the payment of a
Organization Reference Chart. This chart
Topics user fee for determination letter requests such
enables you to locate at a glance the section of
as your application for recognition of tax-exempt This chapter discusses:
the Code under which your organization might
status. If you are not required to use Form 1023,
qualify for exemption. It also shows the required
you should use Form 8718 to figure the amount Application procedures that generally ap-
application form and, if your organization meets
of your fee and to pay it. If you are using Form ply to all organizations discussed in this
the exemption requirements, the annual return
1023, user fee information is included in Part XI. publication, including the application
to be filed (if any), and whether or not a contribu-
Your payment must accompany your request. forms;
tion to your organization will be deductible by a
The IRS will not process a request unless the
donor. It also describes each type of qualifying Rulings and determination letters (approv-
fee has been paid.
organization and the general nature of its activi- als/disapprovals);
To find the correct amounts for user ties.
Appeal procedures available if an adverse
fees and the length of time to process a You may use this chart to determine the
determination letter is proposed; and
request, call 1-877-829-5500 or check Code section that you think applies to your or-
TIP
the IRS website, IRS.gov, key word User fee for ganization. Any correspondence with the IRS (in Group exemption letters.
assistance. requesting forms or otherwise) will be expedited
Chapter 1 Application, Approval, and Appeal Procedures Page 3
REL 00887
Description of activities. Your application date. In that case, if the original submission was
Required Inclusions
must include a full description of the proposed timely, the application will be considered timely
activities of your organization, including each of filed as discussed in chapter 3, under Applica-
Employer identification number (EIN).
the fundraising activities of a section 501(c)(3) tion for Recognition of Exemption.
Every exempt organization must have an EIN,
organization and a narrative description of antic-
whether or not it has any employees. An EIN is
ipated receipts and contemplated expenditures. Application made under wrong paragraph of
required before an exemption application is sub-
When describing the activities in which your section 501(c). Occasionally, an organization
mitted. An EIN can be applied for:
organization expects to engage, you must in- appears to qualify for exemption under a para-
clude the standards, criteria, procedures, or OnlineClick on the Employer ID Num- graph of section 501(c) that is different from the
other means that your organization adopted or bers (EINs) link at www.IRS.gov/busi- one for which the organization applied. If the
planned for carrying out those activities. nesses/small. The EIN is issued application was made on Form 1024, which ap-
To determine the information you need to immediately once the application informa- plies to more than one paragraph of section
provide, you should study the part of this publi- tion is validated. 501(c), the organization can be recognized as
cation that applies to your organization. The exempt under any paragraph to which the form
By telephone at 1-800-829-4933 from 7:00
appropriate chapter will describe the purposes applies if the organization has agreed to have its
a.m. to 10:00 p.m. in the organizations
and activities that your organization must pur- application considered under that paragraph. It
local time zone.
sue, engage in, and include in your application in must also supply any additional information re-
order to achieve exempt status. By mailing or faxing Form SS-4, Applica- quired for the application under the new para-
Often your organizations articles of organi- tion for Employer Identification Number. graph.
zation (or other organizing instruments) contain
Different application form needed. If a dif-
descriptions of your organizations purposes Use only one method for each entity so you do
ferent application form is required for your or-
and activities. not receive more than one EIN for an entity.
ganization, the IRS will so advise your
Your application should describe completely
If you previously applied for an EIN and have
organization and will provide the appropriate
and in detail your past, present, and planned
not yet received it, or you are unsure whether
application form for your convenience in reapp-
activities.
you have an EIN, please call our toll-free cus-
lying under that paragraph, if you wish to do so.
t omer ac c ount s er v i c es number ,
Financial data. You must include in your ap- Although supporting information previously fur-
1-877-829-5500, for assistance.
plication financial statements showing your re- nished need not be duplicated, you must provide
ceipts and expenditures and a balance sheet for any necessary additional information required
Organizing documents. Each application for
the current year and the 3 preceding years (or for the application. If your reply is not received
exemption must be accompanied by a con-
for the number of years your organization was in within a limited time, your application will be
formed copy of your organizations Articles of existence, if less than 4 years). For each ac- processed only for the paragraph under which
Incorporation (and the Certificate of Incorpora- counting period, you must describe the sources you originally applied.
tion, if available), Articles of Association, Trust of your receipts and the nature of your expendi-
When a specific application form is needed
Indenture, Constitution, or other enabling docu- tures.
for the paragraph under which your organization
ment. If the organization does not have an or- If you have not yet begun operations, or have
qualifies, that form is required before a letter
ganizing document, it will not qualify for operated for less than 1 year, a proposed budget
recognizing exemption can be issued. This in-
exemption. for 2 full accounting periods and a current state-
cludes cases in which a determination letter is
ment of assets and liabilities will be acceptable.
modified to recognize an organizations exempt
Bylaws. Bylaws alone are not organizing
status under a paragraph other than the para-
documents. However, if your organization has Other information. The IRS may require you
graph under which it originally established ex-
adopted bylaws, include a current copy. The to provide additional information necessary to
emption.
bylaws need not be signed if submitted as an clarify the nature of your organization. Some
attachment. examples are:
IRS responses. Organizations that submit a
If your organizations name has been offi-
Representative copies of advertising
complete application will receive an acknowl-
cially changed by an amendment to your or-
placed;
edgment from the IRS. Others will receive a
ganizing instruments, you should also attach a
letter requesting more information or returning
Copies of publications, such as
conformed copy of that amendment to your ap-
an incomplete application. Applicants also will
magazines;
plication.
be notified if the application is forwarded to EO
Distributed written material used for ex-
Bylaws may be considered an organiz-
Technical Office for consideration. These letters
pressing views on proposed legislation;
ing document only if they are properly
will be sent out as soon as possible after receipt
and
structured (includes name, purpose,
of the organizations application.
TIP
signatures, and intent to form an organization).
Copies of leases, contracts, or agree-
Withdrawal of application. An application ments into which your organization has
Conformed copy. A conformed copy is a
may be withdrawn at any time before the issu- entered.
copy that agrees with the original and all amend-
ance of a ruling or determination letter upon the
ments to it. If the original document required a
written request of a principal officer or author-
signature, the copy should either be signed by a
Miscellaneous Procedures
ized representative of your organization. How-
principal officer or, if not signed, be accompa-
ever, the withdrawal will not prevent the
nied by a written declaration signed by an au-
To help in processing your application, be sure
information contained in the application from
thorized officer of the organization. With either
to attach all schedules, statements, and other
being used by the IRS in any subsequent exami-
option, the officer must certify that the document
documents required by the application form. If
nation of your organizations returns. The infor-
is a complete and accurate copy of the original.
you do not attach them, you may have to resub-
mation forwarded with an application will not be
A certificate of incorporation should be approved
mit your application or you may otherwise en-
returned to your organization and, generally,
and dated by an appropriate state official.
counter a delay in processing your application.
when an application is withdrawn, the user fee
paid will not be refunded. Incomplete application. If the application
Attachments. When submitting attachments,
does not contain the required information, it may
every attachment should show your organiza-
Requests for withholding of information be returned with a letter of explanation without
tions name and EIN. It should also state that it is
from the public. The law requires many ex- being considered on its merits. Alternatively, if
an attachment to your application form and iden-
empt organizations and private foundations to the application is substantially complete, the IRS
tify the part and line item number to which it
make their application forms and annual infor- may retain the application and request addi-
applies.
mation returns available for public inspection. tional information as needed. If the completed
Original documents. Do not submit origi- The law also requires the IRS to make available application is resubmitted within the time period
nal documents because they become part of the for public inspection, in accordance with section indicated in the letter from the IRS, it will be
IRS file and cannot be returned. 6104 and the related regulations, your approved considered received on the original submission
Page 4 Chapter 1 Application, Approval, and Appeal Procedures
REL 00888
application for recognition of exemption (includ- Power of attorney. If your organization ex- exemption under section 501(c)(3).) Upon ob-
pects to be represented by an agent or attorney, taining recognition of exemption, the organiza- ing any papers submitted in support of the appli-
whether in person or by correspondence, you tion can file a claim for a refund of income taxes cation) and the ruling or determination letter
must file a power of attorney with your exemp- paid for the period for which its exempt status is (discussed later, under Rulings and Determina-
tion application specifically authorizing the recognized. tion Letters).
agent or attorney to represent your organization. If an organization is required to alter its activi-
Any information submitted in the application
Form 2848, Power of Attorney and Declaration ties or substantially amend its charter to qualify,
or in support of it that relates to any trade secret,
of Representative, can be used for this purpose. the ruling or determination letter recognizing ex-
patent, process, style of work, or apparatus,
emption will be effective as of the date speci-
upon request, can be withheld from public in-
Reminder. The law requires payment of a fied in the letter. If a nonsubstantive
spection if the IRS determines that the disclo-
user fee for determination letter requests. Use amendment is made, such as correction of a
sure of such information would adversely affect
Form 8718 or Form 1023 to figure the amount clerical error in the enabling instrument or the
the organization. Your request must:
and pay the fee. Payment must accompany addition of a dissolution clause, exemption will
1. Identify the material to be withheld (the each request. ordinarily be recognized as of the date of forma-
document, page, paragraph, and line) by tion if the activities of the organization before the
clearly marking it, Not Subject To Public ruling or determination are consistent with the
Inspection. exemption requirements.
A ruling or determination letter recognizing
Rulings and
2. Include the reasons for your organizations
exemption cannot be relied on if there is a mate-
position that the information is of the type
rial change, inconsistent with exemption, in the
Determination Letters
that can be withheld from public inspec-
character, the purpose, or the method of opera-
tion.
tion of the organization. Also, a ruling or determi- A ruling or determination letter will be issued to
3. Be filed with the office where your organi- nation letter cannot be relied on if it is based on your organization if its application and support-
any inaccurate material factual representations. zation files the documents in which the ing documents establish that it meets the partic-
material to be withheld is contained. ular requirements of the section under which it is
claiming exemption. However, the IRS will not
Revocation or Modification
ordinarily issue rulings or determination letters
Where to file. Your application for recognition
of Exemption
recognizing exemption if an issue involving the
of tax-exempt status must be filed with the IRS
organizations exempt status is pending in litiga-
A ruling or determination letter recognizing ex- at the address shown on Form 8718 or Form
tion or is under consideration within the IRS.
emption may be revoked or modified by: 1023.
Your application will be considered by EO
Advance ruling. A ruling or determination let- 1. A notice to the organization to which the
Determinations, who will either issue a favorable
ter may be issued in advance of operations if ruling or determination letter originally was
determination letter to your organization, issue
your organization can describe its proposed op- issued,
an adverse determination letter denying the ex-
erations in enough detail to permit a conclusion
2. Enactment of legislation or ratification of a empt status claimed in the application, or refer
that it will clearly meet the particular require-
tax treaty, the case to the Exempt Organizations Technical
ments of the section under which it is claiming
Office (EO Technical).
exemption. A restatement of the organizations 3. A decision of the United States Supreme
purpose or a statement that it will be operated in Court, Requests other than applications.
furtherance of that purpose will not satisfy this
Requests other than applications for
4. Issuance of temporary or final regulations,
requirement. The organization must describe
recognition of exemption (for example,
or
fully the activities in which it expects to engage.
requests for rulings involving feeder organiza-
This includes standards, procedures, or other 5. Issuance of a revenue ruling, a revenue tions, application of excise taxes to activities of
means adopted or planned by the organization procedure, or other statement published in private foundations, taxation of unrelated busi-
for carrying out its activities, expected sources the Internal Revenue Bulletin or Cumula- ness income, etc.) should be sent to:
of funds, and the nature of its contemplated tive Bulletin.
Internal Revenue Service, Attention: EO
expenses.
Technical, P.O. Box 27720, McPherson
When an organization does not supply the
Station, Washington, DC 20038 When revocation takes effect. If the organi-
information previously mentioned under Appli-
zation omitted or misstated a material fact, oper-
cation Procedures, or fails to furnish a suffi-
ated in a manner materially different from that
These requests, like applications for
ciently detailed description of its proposed
originally represented, or, with regard to organi-
recognition of exemption, must be
activities to permit a conclusion that it will clearly
zations to which section 503 applies, engaged in
accompanied by the appropriate user fee.
be exempt, a proposed adverse determination
a prohibited transaction (such as diverting
letter or ruling may be issued.
corpus or income from its exempt purpose), the
Referral to EO Technical. EO Determina-
revocation or modification may be retroactive.
tions will refer to EO Technical any exempt or-
Adverse determination. A proposed adverse
ganization issue concerning qualification for
ruling or determination letter will be issued to an Material change in organization. If there is a
exemption or foundation status for which there is organization that has not provided sufficiently material change, inconsistent with exemption, in
no published precedent or for which there is detailed information to establish that it qualifies the character, purpose, or method of operation
reason to believe that nonuniformity exists. EO for exemption or if the information provided es- of the organization, revocation or modification
Determinations can request technical advice on tablishes that it does not qualify for exemption. will ordinarily take effect as of the date of that
any technical or procedural question that cannot An organization can appeal a proposed adverse material change.
be resolved on the basis of law, regulations, or a ruling or determination letter. See Appeals Pro-
Relief from retroactivity. If a ruling or de-
clearly applicable revenue ruling or other pub- cedures, later.
termination letter was issued in error or is no
lished precedent. An organization can request
longer in accord with the holding of the IRS, and
that an issue be referred to EO Technical for
Effective Date of Exemption
if section 7805(b) relief is granted, retroactivity
technical advice if it feels that a lack of uniformity
of the revocation or modification ordinarily will
exists as to the disposition of the issue or if an A ruling or determination letter recognizing ex-
be limited to a date not earlier than that on which
issue is so unusual or complex as to warrant emption is usually effective as of the date of
the original ruling or determination letter was
consideration by EO Technical. If a determina- formation of an organization if, during the pe-
modified or revoked. For more information on
tion letter is issued based on technical advice riod before the date of the ruling or determina-
requesting section 7805(b) relief, see Revenue
from EO Technical regarding qualification for tion letter, its purposes and activities were those
Procedure 2010-4, sec. 13 (or later update).
exemption or foundation status, no further ad- required by the law. (See Application for Recog-
ministrative appeal is available on the issue that nition of Exemption in chapter 3 for the special Foundations. The determination of the ef-
was the subject of technical advice. rule for organizations applying for recognition of fective date is the same for the revocation or
REL 00889
modification of foundation status or operating 3. A copy of the letter showing the determina-
Administrative Remedies
foundation status unless the effective date is tion you disagree with, or the date and
expressly covered by statute or regulations. symbols on the determination letter. In the case of an application under section
501(c)(3), all of the following actions, called ad-
4. A statement of facts supporting the organi-
ministrative remedies, must be completed by Written notice. If an EO area manager con-
zations position in any contested factual
your organization before an unfavorable ruling
cludes, as a result of examining an information
issue.
or determination letter from the IRS can be ap-
return or considering information from any other
pealed to the courts. 5. A statement outlining the law or other au-
source, that a ruling or determination letter
thority the organization is relying on.
should be revoked or modified, the organization
1. The filing of a substantially completed ap-
will be advised in writing of the proposed action
6. A statement as to whether a conference at
plication Form 1023 or group exemption
and the reasons for it.
the Appeals Office is desired.
request under section 501(c)(3) (described
The organization will also be advised of its
earlier in this chapter) or the filing of a
The statement of facts (item 4) must be de-
right to protest the proposed action by request-
request for a determination of foundation
clared true under penalties of perjury. This may
ing Appeals Office consideration. The appeal
status (see Private Foundations and Public
be done by adding to the protest the following
procedures are discussed next.
Charities in chapter 3).
signed declaration:
2. In the case of a late-filed application, re-
Under penalties of perjury, I declare
questing relief under section 301.9100 of
that I have examined the statement of
the Income Tax Regulations regarding ap-
Appeal Procedures
facts presented in this protest and in
plications for extensions of time for making
any accompanying schedules and
an election or application for relief from tax
If an organization applies for tax-exempt status statements and, to the best of my
(see Application for Recognition of Exemp-
knowledge and belief, it is true, correct, and receives adverse rulings issued by EO
tion in chapter 3).
and complete.
Technical, the organization will be advised of its
3. The timely submission of all additional in-
right to protest the determination by requesting
Signature. formation requested to perfect an exemp-
Appeals Office consideration (this process does
tion application or request for
not apply to adverse determinations issued by
If the organizations representative submits the
determination of private foundation status.
EO Technical). The organization must submit a
appeal, a substitute declaration must be in-
statement of its views fully explaining its reason-
4. Exhaustion of all administrative appeals
cluded, stating:
ing. The statement must be submitted within 30
available within the IRS, including protest
days from the date of the adverse determination of an adverse ruling issued by EO Techni- 1. That the representative prepared the ap-
letter and must state whether it wishes Appeals cal in an exemption application.
peal and accompanying documents, and
Office consideration.
The actions just described will not be consid-
2. Whether the representative knows person-
ered completed until the IRS has had a reasona-
ally that the statements of fact contained in
Representation. A principal officer or trustee
ble time to act upon the appeal or protest, as the
the appeal and accompanying documents
can represent an organization at any level of
case may be.
are true and correct.
appeal within the IRS. Or an attorney, certified
An organization will not be considered to
public accountant, or individual enrolled to prac- Be sure the appeal contains all of the infor-
have exhausted its administrative remedies
tice before the IRS can represent the organiza- mation requested. Incomplete appeals will be
before the earlier of:
tion. returned for completion.
If the organizations representative attends a If a conference is requested, it will be held at 1. The completion of the steps just listed and
conference without a principal officer or trustee, the Appeals Office, unless the organization re- the sending by certified or registered mail
the representative must file a proper power of of a notice of final determination, or quests that the meeting be held at a field office
attorney or a tax information authorization convenient to both parties.
2. The expiration of the 270-day period in
before receiving or inspecting confidential infor-
The Appeals Office, after considering the
which the IRS has not issued a notice of
mation. Form 2848, or Form 8821, Tax Informa-
organizations appeal as well as information
final determination and the organization
tion Authorization, as appropriate (or any other
presented in any conference held, will notify the
has taken, in a timely manner, all reasona-
properly written power of attorney or authoriza-
organization of its decision and issue an appro-
ble steps to secure a ruling or determina-
tion), can be used for this purpose. These forms
priate determination letter. An adverse decision
tion.
can be obtained from the IRS. For more informa-
can be appealed to the courts (discussed later).
tion, see Publication 947, Practice Before the
The Appeals Office must request technical
270-day period. The 270-day period will be
IRS and Power of Attorney.
advice from EO Technical on any exempt organ-
considered by the IRS to begin on the date a
ization issue concerning qualification for exemp-
substantially completed Form 1023 or group ex-
Appeals Office tion or foundation status for which there is no
emption request is sent to the IRS. See Applica-
published precedent or for which there is reason
Consideration
tion Procedures, earlier, for information needed
to believe that nonuniformity exists. If an organi-
to complete Form 1023.
EO Determinations will consider the statement zation believes that its case involves such an
If the application does not contain all of the
protesting and appealing (hereinafter appealing) issue, it should ask the Appeals Office to request
required items, it will not be further processed
the adverse determination and decide if the in- technical advice from EO Technical.
and may be returned to the applicant for comple-
formation affects its determination. If the appeal
Any determination letter issued on the basis
tion. The 270-day period, in this event, will not
does not provide a basis to reconsider its ad-
of technical advice from EO Technical cannot be
be considered as starting until the date the appli-
verse determination, it will forward the appeal
appealed to the Appeals Office for those issues
cation is remailed to the IRS with the requested
and case file to the Appeals Office. For more
that were the subject of the technical advice
information, or, if a postmark is not evident, on
information about the role of the Appeals Office,
from EO Technical.
the date the IRS receives a substantially com-
see Publication 892, Exempt Organization Ap-
pleted application.
peal Procedures for Unagreed Issues. The ap-
EO Technical Consideration
peal should include the following information.
Appeal to Courts
If an application is referred to EO Technical for
1. The organizations name, address, day-
issuance of a ruling and an adverse ruling is
If the IRS issues an unfavorable determination
time telephone number, and employer
issued, the organization will be informed of the letter or ruling to your organization and you have
identification number.
basis for the conclusion, its right to file a protest exhausted all the administrative remedies just
2. A statement that the organization wants to within 30 days, and its right to have a conference discussed, your organization can seek judicial
protest the determination. at Headquarters. remedies.
Page 6 Chapter 1 Application, Approval, and Appeal Procedures
REL 00890
For example, if your organization has paid under section 501(c) of subordinate organiza- central organization must submit information for
tions on whose behalf the central organization the tax resulting from the adverse determination those subordinates to be included in the group
has applied for recognition of exemption. and met all other statutory prerequisites, it can exemption letter. The information should be for-
A central organization is an organization that file suit for a refund in a U.S. District Court or the warded in a letter signed by a principal officer of
has one or more subordinates under its general U.S. Court of Federal Claims. Or, if your organi- the central organization setting forth or including
supervision or control. zation elected not to pay the tax deficiency re- as attachments the following.
A subordinate organization is a chapter, lo-
sulting from the adverse determination and met
1. Information verifying that the subordinates: cal, post, or unit of a central organization. A
all other statutory prerequisites, it can file suit for
central organization may be a subordinate itself,
a redetermination of the tax deficiencies in the
a. Are affiliated with the central organiza-
such as a state organization that has
United States Tax Court. For more information
tion;
subordinate units and is itself affiliated with a
on these types of suits, get Publication 556,
national (central) organization.
b. Are subject to its general supervision or Examination of Returns, Appeal Rights, and
A subordinate organization may or may not
control; Claims for Refund.
be incorporated, but it must have an organizing
In certain situations, your organization can
c. Are all eligible to qualify for exemption
document. A subordinate that is organized and
file suit for a declaratory judgment in the U.S.
under the same paragraph of section
operated in a foreign country cannot be included
District Court for the District of Columbia, the
501(c), though not necessarily the para-
in a group exemption letter. A subordinate de-
U.S. Court of Federal Claims, or the U.S. Tax
graph under which the central organiza-
scribed in section 501(c)(3) cannot be included
Court. This remedy is available if your organiza-
tion is exempt;
in a group exemption letter if it is a private
tion received an adverse notice of final determi-
foundation described in section 509(a).
d. Are not private foundations if the appli-
nation, or if the IRS failed to make a timely
If your organization is a subordinate one con-
cation for a group exemption letter in-
determination on your initial or continuing qualifi-
trolled by a central organization (for example, a
volves section 501(c)(3);
cation or classification as an exempt organiza-
church, the Boy Scouts, or a fraternal organiza-
tion. However, your exempt status claim must
e. Are all on the same accounting period
tion), you should check with the central organi-
be as:
as the central organization if they are to zation to see if it has been issued a group
be included in group returns; and exemption letter that covers your organization. If
An organization qualifying under section
it has, you do not have to file a separate applica-
501(c)(3),
f. Are organizations that have been
tion unless your organization no longer wants to
formed within the 15-month period pre-
An organization to which a deduction for a
be included in the group exemption letter.
ceding the date of submission of the
contribution is allowed under section
If the group exemption letter does not cover
group exemption application if they are
170(c)(2),
your organization, ask your central organization
claiming section 501(c)(3) status and
about being included in the next annual group
An organization that is a private founda-
are subject to the requirements of sec-
ruling update that it submits to the IRS.
tion under section 509(a),
tion 508(a) and wish to be recognized
as exempt from their dates of creation A private operating foundation under sec-
Central Organization
(a group exemption letter may be is- tion 4942(j)(3), or
Application Procedure
sued covering subordinates, one or
A cooperative organization that is exempt
more of which have not been organized
from tax under section 521.
If your organization is a central organization with
within the 15-month period preceding
affiliated subordinates under its control, it can
the date of submission, if all subordi-
apply for a group exemption letter for its subordi-
Adverse notice of final determination. The
nates are willing to be recognized as
nates, provided it has obtained recognition of its
adverse notice of final determination referred to
exempt only from the date of applica-
own exemption before or concurrently with the
above is a ruling or determination letter sent by
tion).
group exemption. You should make the applica-
certified or registered mail holding that your or-
tion for such subordinates by letter instead of
ganization:
2. A detailed description of the purposes and
submitting either Form 1023 or 1024. This pro-
activities of the subordinates, including the
Is not described in section 501(c)(3) or cedure relieves each of the subordinates cov-
sources of receipts and the nature of ex-
section 170(c)(2), ered by a group exemption letter from filing its
penditures.
own application. A central organization obtains
Is a private foundation as defined in sec-
its own recognition of exemption by sending its
3. A sample copy of a uniform governing in-
tion 4942(j)(3), or
application to the IRS address shown on Form
strument (such as a charter or articles of
Is a public charity described in a part of 8718 or Form 1023.
association) adopted by the subordinates,
section 509(a) or section 170(b)(1)(A) If the central organization has previously ob-
or, in its absence, copies of representative
other than the part under which your or- tained recognition of its own exemption, it must
instruments.
ganization requested classification. indicate its employer identification number and
4. An affirmation to the effect that, to the best
the date of the letter recognizing its exemption. It
of the officers knowledge, the purposes
need not forward documents already submitted.
Favorable court rulings - IRS procedure. If
and activities of the subordinates are as
However, if it has not already done so, the cen-
a suit results in a final determination that your
stated in (2) and (3), above.
tral organization must submit a copy of any
organization is exempt from tax, the IRS will
amendment to its governing instruments or in-
5. A statement that each subordinate to be issue a favorable ruling or determination letter,
ternal regulations as well as any information
included in the group exemption letter has provided your organization has filed an applica-
about changes in its character, purposes, or
given written authorization to that effect, tion for exemption and submitted a statement
method of operation.
signed by an authorized officer of the that the underlying facts and applicable law are
the same as in the period considered by the subordinate, to the central organization
Employer identification number. The cen-
court. (see also New 501(c)(3) organizations that
tral organization must have an employer identifi-
want to be included, later in this section).
cation number (EIN) before it submits a
completed exemption application. Each
6. A list of subordinates to be included in the
subordinate must have its own EIN, even if it has
group exemption letter to which the IRS
Group Exemption no employees. The central organization must
has issued an outstanding ruling or deter-
send with the group exemption application an
mination letter relating to exemption.
Letter
EIN for each subordinate organization.
7. If the application for a group exemption
letter involves section 501(c)(3) and is sub- A group exemption letter is a ruling or determi- Information required for subordinate organi-
ject to the provisions of the Code requiring nation letter issued to a central organization zations. In addition to the information required
recognizing on a group basis the exemption to obtain recognition of its own exemption, the that it give timely notice that it is not a
REL 00891
private foundation (see Private Founda- 2. The central organization notifies the IRS, Information Required Annually
by its annual submission or otherwise, that tions in chapter 3), an affirmation to the
To maintain a group exemption letter, the central
any of its subordinates will no longer fulfill effect that, to the best of the officers
organization must submit annually, at least 90
the conditions for continued effectiveness, knowledge and belief, no subordinate to be
days before the close of its annual accounting
explained earlier, or included in the group exemption letter is a
period, all of the following information.
private foundation as defined in section
3. The IRS notifies the central organization or
509(a).
1. Information about all changes in the pur- the affected subordinate that the group ex-
poses, character, or method of operation emption letter will no longer have effect for 8. For each subordinate that is a school
of the subordinates included in the group
some or all of the group because the con- claiming exemption under section
exemption letter.
ditions for continued effectiveness of a 501(c)(3), the information required by Rev-
group exemption letter have not been ful- enue Ruling 71-447, 1971-2 C.B. 230 and
2. A separate list (that includes the names,
filled. Revenue Procedure 75-50, 1975-2 C.B.
mailing addresses, actual addresses if dif-
587 (these requirements are fully de-
ferent, and EINs of the affected subordi-
When notice is given under any of these three
scribed in chapter 3, under Private
nates) for each of the three following
conditions, the IRS will no longer recognize the
Schools; see also Schedule B, Form categories.
exempt status of the affected subordinates until
1023).
they file separate applications on their own be-
a. Subordinates that have changed their
half or the central organization files complete
9. For any school affiliated with a church, the
names or addresses during the year.
supporting information for their reinclusion in the
information to show that the provisions of
b. Subordinates no longer to be included group exemption at the time of its annual sub-
Revenue Ruling 75-231 have been met.
in the group exemption letter because mission. However, when the notice is given by
10. A list of the names, mailing addresses, ac-
they no longer exist or have disaffiliated
the IRS and the withdrawal of recognition is
tual addresses if different, and EINs of
from or withdrawn their authorization to
based on the failure of the organization to com-
subordinates to be included in the group
the central organization.
ply with the requirements for recognition of
exemption letter. A current directory of
tax-exempt status under the particular subsec-
c. Subordinates to be added to the group
subordinates may be furnished instead of
tion of section 501(c), the revocation will ordinar-
exemption letter because they are
the list if it includes the required informa-
ily take effect as of the date of that failure. The
newly organized or affiliated or because
tion and if the subordinates not to be in-
notice, however, will be given only after the
they have recently authorized the cen-
cluded in the group exemption letter are
appeal procedures described earlier in this
tral organization to include them.
identified.
chapter are completed.
An annotated directory of subordinates will
not be accepted for this purpose. If there
New 501(c)(3) organizations that want to be
were none of the above changes, the central
included. A new organization, described in
organization must submit a statement to that
section 501(c)(3), that wants to be included in a
effect.
group exemption letter must submit its authori-
3. The information required to be submitted
zation (as explained in item number 5, earlier,
by a central organization on behalf of sub- 2.
under Information required for subordinate orga-
ordinates to be included in the group ex-
nizations) to the central organization before the
emption letter is required for subordinates
end of the 15th month after it was formed in
to be added to the letter. (This information
order to satisfy the requirement of section
is listed in items 1 through 9, under Infor- Filing
508(a). The central organization must also in-
mation required for subordinate organiza-
clude this subordinate in its next annual submis-
tions, earlier. However, if the information
sion of information, as discussed later, under
Requirements
upon which the group exemption letter was
Information Required Annually.
based applies in all material respects to
these subordinates, a statement to this ef-
and Required
Keeping the Group
fect may be submitted instead of the infor-
Exemption Letter in Force mation required by items 1 through 4 of
that list.) Disclosures
Continued effectiveness of a group exemption
letter is based on the following conditions.
The organization should send this in-
formation to:
1. The continued existence of the central or-
Introduction
ganization.
Ogden Service Center
Most exempt organizations (including private
Mail Stop 6271
2. The continued qualification of the central
foundations) must file various returns and re-
Ogden, UT 84404-4749
organization for exemption under section
ports at some time during (or following the close
501(c).
of) their accounting period.
Submitting the required information an-
3. The submission by the central organization nually does not relieve the central or-
Topics
of the information required annually (de- ganization or any of its subordinates of
CAUTION
!
This chapter discusses:
scribed below under Information Required the duty to submit any other information that
may be required by an EO area manager to Annually).
Annual information returns
determine whether the conditions for continued
4. The annual filing of an information return
exemption are being met.
Unrelated business income tax return
(Form 990, for example) by the central or-
ganization if required.
Employment tax returns
Events Causing
The continued effectiveness of a group exemp-
Political organization income tax return
Loss of Group Exemption
tion letter as to a particular subordinate is based
Reporting requirements for a political or-
on these four conditions, as well as on the con-
A group exemption letter no longer has effect,
ganization
tinued conformity by the subordinate to the re-
for either a particular subordinate or the group
quirements for inclusion in a group exemption
Donee information return
as a whole, when:
letter, the authorization for inclusion, and the
Information provided to donors
annual filing of any required information return 1. The central organization notifies the IRS
for the subordinate. that it is going out of existence, Report of cash received
Page 8 Chapter 2 Filing Requirements and Required Disclosures
REL 00892
Public inspection of exemption applica- J Schedule O (Form 990) Supplemental See chapter 6 for information about getting
these publications and forms. tions, annual returns, and political organi- Information to Form 990
zations reporting forms
J Schedule R (Form 990) Related
Required disclosures Organizations and Unrelated
Partnerships
Miscellaneous rules
Annual Information
J 990-PF Return of Private Foundation or
Section 4947(a)(1) Nonexempt Returns
Useful Items
Charitable Trust Treated as a
You may want to see:
Every organization exempt from federal income Private Foundation
tax under section 501(a) must file an annual
J 990-BL Information and Initial Excise Tax Publication
information return except:
Return for Black Lung Benefit
J 15 Circular E, Employers Tax Guide
Trusts and Certain Related Persons 1. A church, an interchurch organization of
local units of a church, a convention or
J 15-A Employers Supplemental Tax
J 990-T Exempt Organization Business
association of churches, or an integrated
Guide
Income Tax Return
auxiliary of a church (as defined later
J 15-B Employers Tax Guide to Fringe
J 990-W Estimated Tax on Unrelated under Religious Organizations in chapter
Benefits
3); Business Taxable Income for
Tax-Exempt Organizations
J 598 Tax on Unrelated Business Income
2. A church-affiliated organization that is ex-
of Exempt Organizations
clusively engaged in managing funds or J 1120-POL U.S. Income Tax Return for
maintaining retirement programs; Certain Political Organizations
Form (and Instructions)
3. A school below college level affiliated with J 4720 Return of Certain Excise Taxes
J 941 Employers Quarterly Federal Tax a church or operated by a religious order,
Under Chapters 41 and 42 of the
Return even though it is not an integrated auxiliary
Internal Revenue Code
of a church;
J 990 Return of Organization Exempt
J 5768 Election/Revocation of Election by
From Income Tax 4. A mission society sponsored by or affili-
an Eligible Section 501(c)(3)
ated with one or more churches or church
Organization To Make Expenditures
J 990-EZ Short Form Return of
denominations, more than half of the soci-
To Influence Legislation
Organization Exempt From Income
etys activities are conducted in, or di-
Tax
J 6069 Return of Excise Tax on Excess
rected at, persons in foreign countries;
Contributions to Black Lung Benefit
J Schedule A (Form 990 or 990-EZ)
5. An exclusively religious activity of any re-
Trust Under Section 4953 and
Public Charity Status and Public
ligious order;
Computation of Section 192 Support
Deduction 6. A state institution, the income of which is
J Schedule B (Form 990, 990-EZ, or
excluded from gross income under section
J 7004 Application for Automatic Extension 990-PF) Schedule of Contributors
115;
of Time to File Certain Business
J Schedule C (Form 990 or 990-EZ)
7. A corporation described in section Income Tax, Information, and Other
Political Campaign and Lobbying
501(c)(1) (a corporation that is organized Returns
Activities
under an Act of Congress and is:
J 8274 Certification by Churches and
J Schedule D (Form 990) Supplemental
Qualified Church-Controlled a. an instrumentality of the United States,
Financial Statements
Organizations Electing Exemption and
J Schedule E (Form 990 or 990-EZ)
from Employer Social Security and
b. exempt from federal income taxes);
Schools
Medicare Taxes
J Schedule F (Form 990) Statement of
8. A black lung benefit trust described in sec- J 8282 Donee Information Return
Activities Outside the United States
tion 501(c)(21) (required to file Form
J 8300 Report of Cash Payments Over
990-BL, Information and Initial Excise Tax
J Schedule G (Form 990 or 990-EZ)
$10,000 Received in a Trade or
Return for Black Lung Benefit Trusts and
Supplemental Information
Business
Certain Related Persons. See chapter 4
Regarding Fundraising or Gaming
for more information);
J 8453-X Political Organization Declaration
Activities
for Electronic Filing of Notice of
9. A stock bonus, pension, or profit-sharing
J Schedule H (Form 990) Hospitals
Section 527 Status
trust that qualifies under section 401 (re-
J Schedule I (Form 990) Grants and Other
quired to file Form 5500, Annual Return/
J 8868 Application for Extension of Time to
Assistance to Organizations, Report of Employee Benefit Plan);
File an Exempt Organization Return
Governments, and Individuals in the
10. A religious or apostolic organization de-
J 8870 Information Return for Transfers
United States
scribed in section 501(d) (required to file
Associated with Certain Personal
J Schedule J (Form 990) Compensation Form 1065, U.S. Return of Partnership In-
Benefits Contracts
Information come);
J 8871 Political Organization Notice of
J Schedule K (Form 990) Supplemental 11. A foreign organization described in section
Section 527 Status
Information on Tax-Exempt Bonds 501(a) (other than a private foundation)
J 8872 Political Organization Report of
that normally does not have more than
J Schedule L (Form 990 or 990-EZ)
Contributions and Expenditures
$25,000 in annual gross receipts from
Transactions With Interested
sources within the United States and has
J 8886-T Disclosure by Tax-Exempt Entity Persons
no significant activity in the United States.
Regarding Prohibited Tax Shelter
J Schedule M (Form 990) Noncash For further information, see Revenue Pro-
Transaction
Contributions cedure 94-17, 1994-1 C.B. 579;
J 8899 Notice of Income from Donated
J Schedule N (Form 990 or 990-EZ) 12. A governmental unit or an affiliate of a gov-
Intellectual Property
Liquidation, Termination, ernmental unit that meets the requirements
J 8921 Applicable Insurance Contracts Dissolution, or Significant of Revenue Procedure 95-48, 1995-2 C.B.
Disposition of Assets Information Return 418;
Chapter 2 Filing Requirements and Required Disclosures Page 9
REL 00893
13. An exempt organization (other than a pri- Any name under which it operates and An organization can file Form 990-EZ in-
stead of Form 990 if its gross receipts and total vate foundation, discussed in chapter 3) does business;
assets are below certain amounts. For tax years having gross receipts in each tax year that
Its Internet website address (if any);
beginning in 2009, an organization with annual normally are not more than $25,000. (See
Its taxpayer identification number; gross receipts less than $500,000 and total as- the instructions for Form 990 for more
sets less than $1,250,000 at the end of the tax information about what constitutes annual
The name and address of a principal of-
year can choose to file Form 990 or 990-EZ. (For gross receipts that are normally not more
ficer;
2008, these amounts were less than $1,000,000 than $25,000.);
Organizations annual tax period; in gross receipts and $2,500,000 in total assets.)
14. A private foundation exempt under section
Beginning in tax year 2010, an organization
Verification that the organizations annual 501(c)(3) and described in section 509(a).
can file either Form 990 or 990-EZ if it meets the
gross receipts are normally $25,000 or (Required to file Form 990-PF); or
following:
less; and
15. A U.S. possession organization described
1. Its gross receipts during the year are less
Notification if the organization has termi- in section 501(a) (other than a private
than $200,000.
nated. foundation) that normally does not have
more than $25,000 in annual gross re-
2. Its total assets (line 25, column (B) of Form
Form 990-N is due by the 15th day of the fifth
ceipts from sources within the United 990-EZ) at the end of the year are less
month after the close of the tax year. For tax
States and has no significant activity in the than $500,000.
years beginning after December 31, 2006, any
United States. For further information, see
If your organization does not meet either of
organization that fails to meet its annual report-
Rev. Proc. 2003-21, 2003-6 I.R.B. 448.
these conditions, you cannot file Form 990-EZ.
ing requirement for 3 consecutive years will au-
Instead you must file Form 990.
tomatically lose its tax-exempt status. To regain
its exempt status an organization will have to
Group return. A group return on Form 990
reapply for recognition as a tax-exempt organi-
may be filed by a central, parent, or like organi-
zation.
zation for two or more local organizations, none Supporting Organization Annual
of which is a private foundation. This return is in
Information Return
Exceptions. This filing requirement does
addition to the central organizations separate
not apply to:
For tax years ending after August 17, 2006, all
annual return if it must file a return. It cannot be
Churches, their integrated auxiliaries, and section 509(a)(3) supporting organizations are included in the group return. See the instructions
conventions or associations of churches, required to file Form 990 or 990-EZ with the IRS for Form 990 for the conditions under which this
regardless of the organizations gross receipts, procedure may be used.
Organizations that are included in a group
unless it qualifies as one of the following:
return; In any year that an organization is
properly included as a subordinate or-
1. An integrated auxiliary of a church;
Private foundations required to file Form
ganization on a group return, it should
TIP
990-PF; and
2. The exclusively religious activities of a re-
not file its own Form 990.
ligious order; or
Section 509(a)(3) supporting organizations
Schedule A (Form 990 or 990-EZ). Organiza- required to file Form 990 or Form 990-EZ.
3. An organization, the gross receipts of
tions, other than private foundations, that are
which are normally not more than $5,000,
described in section 501(c)(3) and that are oth-
that supports a section 509(a)(3) religious
Forms 990 and 990-EZ
erwise required to file Form 990 or 990-EZ must
order.
also complete Schedule A of that form.
Exempt organizations, other than private foun-
If the organization is described in item (3)
dations, must file their annual information re-
Schedule B (Form 990, Form 990-EZ, or
above, then it must submit Form 990-N
turns on Form 990 or 990-EZ, unless excepted
990-PF). Organizations that file Form 990 or
(e-Postcard) unless it voluntarily files Form 990
from filing or allowed to submit Form 990-N, 990-EZ use this schedule to provide required
or 990-EZ.
described earlier. information regarding their contributors.
On its annual information return, at Part I,
Generally, political organizations with gross
Schedule A (Form 990 or 990-EZ) a supporting Schedule O (Form 990). Organizations that
receipts of $25,000 ($100,000 for a qualified
organization must: file Form 990 must use this schedule to provide
state or local political organization (QSLPO)) or
required additional information or if additional
List the section 509(f)(3) organizations more for the tax year are required to file Form
space is needed.
with respect to which it provides support, 990 or 990-EZ unless specifically excepted from
Other schedules may be required to be filed
filing the annual return. The following political
Indicate whether it is a Type I, Type II, or with Form 990 or 990-EZ. See the instructions
organizations are not required to file Form 990
Type III supporting organization, and for Form 990 or the instructions for Form 990-EZ
or Form 990-EZ.
for more information.
Certify that the organization is not con-
A state or local committee of a political
trolled directly or indirectly by disqualified
party.
persons (other than by foundation manag-
Form 990-PF
ers and other than one or more publicly A political committee of a state or local
supported organizations). candidate.
All private foundations exempt under section
501(c)(3) must file Form 990-PF. These organi-
A caucus or association of state or local
zations are discussed in chapter 3.
officials. Annual Electronic Filing
Requirement for Small Tax-Exempt
A political organization that is required to
Organizations
report as a political committee under the
Electronic Filing
Federal Election Campaign Act.
Most small tax-exempt organizations with an-
You may be required to file Form 990, Form
nual gross receipts normally $25,000 or less A 501(c) organization that has expendi-
990-EZ, or Form 990-PF, and related forms,
now must submit Form 990-N, Electronic Notice tures for influencing or attempting to influ-
schedules, and attachments electronically.
(e-Postcard) for Tax-Exempt Organizations Not ence the selection, nomination, election,
If an organization is required to file a return
Required to File Form 990 or 990-EZ, with the or appointment of any individual for a fed-
electronically but does not, the organization is
IRS annually, if they choose not to file a Form eral, state, or local public office.
considered to have not filed its return. See Reg-
990 or 990-EZ. Form 990-N requires the follow-
ulations section 301.6033-4 for more informa-
ing information:
Form 990-EZ. This is a shortened version of tion.
The organizations legal name, and mail- Form 990. It is designed for use by small exempt The IRS may waive the requirement to file
ing address; organizations and nonexempt charitable trusts. electronically in cases of undue hardship. For
REL 00894
information on filing a waiver, see Notice Maximum penalty. The maximum penalty a travel tour is developed, promoted, and oper-
2010-13, 2010-4 I.R.B. 327, available at www. for any one return is the smaller of $10,000 or ated.
IRS.gov/irb/2010-4_IRB/ar14.html. 5% of the organizations gross receipts for the
Example. ABC, a university alumni associa- year.
Form 990. An organization is required to file
tion, is tax exempt as an educational organiza-
Organization with gross receipts over $1 Form 990 electronically if it files at least 250
tion under section 501(c)(3). As part of its
million. For an organization that has gross returns during the calendar year and has total
activities, ABC operates a travel tour program.
receipts of over $1 million for the year, the pen- assets of $10 million or more at the end of the
The program is open to all current members of
alty is $100 a day up to a maximum of $50,000. tax year.
ABC and their guests. ABC works with travel
Managers. If the organization is subject to agents to schedule approximately ten tours an- Form 990-PF. An organization is required to
this penalty, the IRS may specify a date by nually to various destinations around the world. file Form 990-PF electronically if it files at least
which the return or correct information must be Members of ABC pay $1,000 to XYZ Travel 250 returns during the calendar year.
supplied by the organization. Failure to comply Agency to participate in a tour. XYZ pays ABC a
with this demand will result in a penalty imposed per person fee for each participant. Although the
Due Date upon the manager of the organization, or upon literature advertising the tours encourages ABC
any other person responsible for filing a correct members to continue their lifelong learning by
Forms 990, 990-EZ, or 990-PF must be filed by
return. The penalty is $10 a day for each day joining the tours, and a faculty member of ABCs
the 15th day of the fifth month after the end of
that a return is not filed after the period given for related university frequently joins the tour as a
your organizations accounting period. Thus, for
filing. The maximum penalty imposed on all per- guest of the alumni association, none of the
a calendar year taxpayer, Forms 990, 990-EZ,
sons with respect to any one return is $5,000. tours include any scheduled instruction or curric-
or 990-PF is due May 15 of the following year.
ulum related to the destinations being visited.
Exception for reasonable cause. No pen-
The travel tours made available to ABCs mem-
alty will be imposed if reasonable cause for Extension of time to file. Use Form 8868 to
bers do not contribute importantly to the accom-
failure to file timely can be shown. request an automatic 3-month extension of time
plishment of ABCs educational purpose.
to file Forms 990, 990-EZ, or 990-PF and also to
Rather, ABCs program is designed to generate
Automatic revocation penalty. If the organi-
apply for an additional (not automatic) 3-month
revenues for ABC by regularly offering its mem-
zation fails to file a Form 990, 990-EZ, or
extension if needed.
bers travel services. Therefore, ABCs tour pro-
990-PF, or fails to submit a Form 990-N, as
Do not apply for both the automatic 3-month
gram is an unrelated trade or business.
required for 3 consecutive years, it will automati-
extension and the additional 3-month extension
For additional information on unrelated busi-
cally lose its tax-exempt status. Beginning in
at the same time. For more information, see
ness income, see Publication 598 and the In-
2010, automatic revocations will start for organi-
Form 8868 and its instructions.
structions for Form 990-T.
zations not filing for the third consecutive year.
When filing Form 8868 for an automatic
Organizations that lose their tax-exempt status
3-month extension, neither a signature, nor an
must file income tax returns and pay income
explanation is required. However, when filing
taxes. Check the IRS website, www.IRS.gov/eo,
Form 8868 for an additional 3-month extension,
Employment
for updates.
both a signature and an explanation are re-
quired.
Tax Returns
Application for exemption pending. An or-
Every employer, including an organization ex-
ganization that claims to be exempt under sec-
Unrelated Business
empt from federal income tax, who pays wages
tion 501(a) but has not established its exempt
to employees is responsible for withholding, de-
status by the due date for filing an information
Income Tax Return
positing, paying, and reporting federal income
return should complete and file Form 990 or
tax, social security and Medicare (FICA) taxes,
990-EZ (or Form 990-PF if it considers itself a
Even though an organization is recognized as
and federal unemployment tax (FUTA), unless
private foundation). If the organizations applica-
tax exempt, it still may be liable for tax on its
that employer is specifically excepted by law
tion is pending with the IRS, it must so indicate
unrelated business income. Unrelated business
from those requirements or if the taxes clearly
on Forms 990, 990-EZ, or 990-PF (whichever
income is income from a trade or business,
do not apply.
applies) by checking the application pending
regularly carried on, that is not substantially re-
For more information, obtain a copy of Publi-
block at the top of page 1 of the return. For more
lated to the charitable, educational, or other pur-
cation 15, which summarizes the responsibilities
information on the filing requirements, see the
pose that is the basis for the organizations
of an employer, Publication 15-A, Publication
Instructions for Forms 990, 990-EZ, and
exemption. An exempt organization that has
15-B, and Form 941.
990-PF.
$1,000 or more of gross income from an unre-
lated business must file Form 990-T.
Trust fund recovery penalty. If any person State reporting requirements. Copies of
The obligation to file Form 990-T is in addi-
required to collect, truthfully account for, and Forms 990, 990-EZ, or 990-PF may be used to
tion to the obligation to file an annual information
pay over any of these taxes willfully fails to satisfy state reporting requirements. See the
return such as the Form 990, 990-EZ, or
satisfy any of these requirements or willfully tries instructions for those forms.
990-PF.
in any way to evade or defeat any of them, that
Form 8870. Organizations that filed a Form
person will be subject to a penalty. The penalty Estimated tax. Exempt organizations must
990, 990-EZ, or 990-PF, and paid premiums or
is equal to the tax evaded, not collected, or not make quarterly payments of estimated tax on
received transfers on certain life insurance, an-
accounted for and paid over. The term person unrelated business income. An organization
nuity, and endowment contracts (personal ben-
includes: must make estimated tax payments if it expects
efit contracts), must file Form 8870. For more
its tax for the year to be $500 or more. Use Form
An officer or employee of a corporation, or
information, see Form 8870 and the instructions
990-W to figure the organizations estimated tax
for that form.
A member or employee of a partnership. payments.
Travel tour programs. Travel tour activities Exception. The penalty is not imposed on
Penalties that are a trade or business are an unrelated any unpaid volunteer director or member of a
trade or business if the activities are not sub- board of trustees of an exempt organization if
stantially related to the purpose to which tax the unpaid volunteer serves solely in an honor- Penalties for failure to file. Generally, an ex-
exemption was granted to the organization. ary capacity, does not participate in the empt organization that fails to file a required
day-to-day or financial operations of the organi- return must pay a penalty of $20 a day for each Whether travel tour activities conducted by
zation, and does not have actual knowledge of day the failure continues. The same penalty will an organization are substantially related to the
the failure on which the penalty is imposed. apply if the organization does not give all the organizations tax exempt purpose is deter-
information required on the return or does not mined by looking at all the relevant facts and This exception does not apply if it results in
give the correct information. circumstances, including, but not limited to, how no one being liable for the penalty.
REL 00895
FICA and FUTA tax exceptions. Payments Schedule SE (Form 1040), Self-Employment 1. The total amount of its exempt function
Tax, should be attached to the employees in- expenditures, or for services performed by a minister of a church
come tax return. in the exercise of the ministry, or a member of a
2. The organizations net investment income.
religious order performing duties required by the
order, are generally not subject to FICA or FUTA
Separate fund. A section 501(c) organiza-
taxes.
tion can set up a separate segregated fund that
Political Organization
will be treated as an independent political organ-
FUTA tax exception. Payments for serv-
ization. The earnings and expenditures made by
ices performed by an employee of a religious,
Income Tax Return
the separate fund will not be attributed to the
charitable, educational, or other organization
section 501(c) organization.
described in section 501(c)(3) that are generally
Generally, a political organization is treated as
subject to FICA taxes if the payments are $100
Section 501(c)(3) organizations are an organization exempt from tax. Certain politi-
or more for the year, are not subject to FUTA
precluded from, and may suffer loss of cal organizations, however, must file an annual
taxes.
exemption for, engaging in any political income tax return, Form 1120-POL, for any year
CAUTION
!
campaign on behalf of, or in opposition to, any they have political organization taxable income
FICA tax exemption election. Churches
candidate for public office. in excess of the $100 specific deduction allowed
and qualified church-controlled organizations
under section 527.
can elect exemption from employer FICA taxes
Due date. Form 1120-POL is due by the 15th
by filing Form 8274. A political organization that has
day of the 3rd month after the end of the tax
$25,000 ($100,000 for a qualified state To elect the exemption, Form 8274 must be
year. Thus, for a calendar year taxpayer, Form
or local political organization) or more filed before the first date on which a quarterly
TIP
1120-POL is due on March 15 of the following
in gross receipts for the tax year must file Form employment tax return would otherwise be due
year. If any due date falls on a Saturday, Sun-
990 or Form 990-EZ (and Schedule B of the
from the electing organization. The organization
day, or legal holiday, the organization can file
form), unless excepted. See Forms 990 and
can make the election only if it is opposed for
the return on the next business day.
990-EZ, earlier.
religious reasons to the payment of FICA taxes.
Form 1120-POL is not required of an
The election applies to payments for serv-
Political organization. A political organiza-
exempt organization that makes ex-
ices of current and future employees other than
tion is a party, committee, association, fund, or
penditures for political purposes if its
TIP
services performed in an unrelated trade or
other organization (whether or not incorporated)
gross income does not exceed its directly con-
business.
organized and operated primarily for the pur-
nected deductions by more than $100 for the tax
pose of directly or indirectly accepting contribu-
Revoking the election. The election can be
year.
tions or making expenditures, or both, for an
revoked by the IRS if the organization fails to file
exempt function.
Form W-2, Wage and Tax Statement, for 2 years
Extension of time to file. Use Form 7004 to
and fails to furnish certain information upon re-
Exempt function. An exempt function request an automatic 6-month extension of time
quest by the IRS. Such revocation will apply
means influencing or attempting to influence the to file Form 1120-POL. The extension will be
retroactively to the beginning of the 2-year pe-
selection, nomination, election, or appointment granted if you complete Form 7004 properly,
riod.
of any individual to any federal, state, local pub- make a proper estimate of the tax (if applicable),
lic office or office in a political organization, or file Form 1120-POL by the due date of and pay
Definitions. For purposes of this election,
the election of the Presidential or Vice Presiden- any tax that is due.
the term church means a church, a convention
tial electors, whether or not such individual or
or association of churches, or an elementary or
Failure to file. A political organization that
electors are selected, nominated, elected, or
secondary school that is controlled, operated, or
fails to file Form 1120-POL is subject to a pen-
appointed. It also includes certain office ex-
principally supported by a church or by a con-
alty equal to 5% of the tax due for each month
penses of a holder of public office or an office in
vention or association of churches. (or partial month) the return is late up to a maxi-
a political organization.
mum of 25% of the tax due, unless the organiza- The term qualified church-controlled organi-
Certain political organizations are re- tion shows the failure was due to reasonable zation means any church-controlled section
quired to notify the IRS that they are cause. 501(c)(3) tax-exempt organization, other than
section 527 organizations. These orga-
an organization that both: For more information about filing Form
CAUTION
!
nizations must use Form 8871. Some of these
1120-POL, refer to the instructions accompany-
1. Offers goods, services, or facilities for sale,
section 527 organizations must use Form 8872
ing the form.
other than on an incidental basis, to the to file periodic reports with the IRS disclosing
Failure to pay on time. An organization
general public at other than a nominal their contributions and expenditures. For a dis-
that does not pay the tax when due generally
charge that is substantially less than the cussion on these forms, see Reporting Require-
may have to pay a penalty of 1/2 of 1% of the
cost of providing such goods, services, or ments for a Political Organization, later.
unpaid tax for each month or part of a month the
facilities, and
Political organization taxable income. tax is not paid, up to a maximum of 25% of the
2. Normally receives more than 25% of its
Political organization taxable income is the ex- unpaid tax. The penalty will not be imposed if the
support from the sum of governmental
cess of: organization can show that the failure to pay on
sources and receipts from admissions,
time was due to reasonable cause.
1. Gross income for the tax year (excluding
sales of merchandise, performance of
exempt function income) minus
services, or furnishing of facilities, in activi-
ties that are not unrelated trades or busi-
2. Deductions directly connected with the
nesses.
earning of gross income.
Reporting
To figure taxable income, allow for a $100 spe-
Effect on employees. If a church or quali-
Requirements for a
cific deduction, but do not allow for the net oper-
fied church-controlled organization has made an
ating loss deduction, the dividends-received
election, payment for services performed for that
deduction, and other special deductions for cor-
church or organization, other than in an unre-
porations.
lated trade or business, will not be subject to
Certain political organizations are required to
FICA taxes. However, the employee, unless oth-
Exempt organization not a political organiza- notify the IRS that the organization is to be
er wi se exempt , wi l l be subj ect t o tion. An organization exempt under section treated as a section 527 political organization.
self-employment tax on the income. The tax 501(c) that spends any amount for an exempt The organization is also required to periodically
applies to income of $108.28 or more for the tax function must file Form 1120-POL for any year report certain contributions received and expen-
year from that church or organization, and no which it has political taxable income. These or- ditures made by the organization. To notify the
deductions for trade or business expenses are ganizations must include in gross income the IRS of section 527 treatment, an organization
allowed against this self-employment income. lesser of: must file Form 8871. To report contributions and
REL 00896
expenditures, certain tax-exempt political orga- How to file. An organization must file Form All other tax-exempt section 527 organizations
nizations must file Form 8872. 8871 electronically via the IRS Internet website that accept contributions or make expenditures
at www.IRS.gov/polorgs (Keyword: political for an exempt function are required to file Form
orgs). 8872.
Form 8871
Qualified state or local political organiza- Form 8453-X. After electronically submitting
A political organization must electronically file
tion. A state or local political organization may Form 8871, the political organization must print,
Form 8871 to notify the IRS that it is to be treated
be a QSLPO if: sign, and mail Form 8453-X to the IRS. Upon
as a section 527 organization. However, an or-
receipt of the Form 8453-X, the IRS will send the
ganization is not required to file Form 8871 if: 1. All of its political activities relate solely to
organization a username and password that
state or local public office (or office in a
must be used to file an amended or final Form It reasonably expects its annual gross re-
state or local political organization).
8871 or to electronically file Form 8872. ceipts to always be less than $25,000.
2. It is subject to a state law that requires it to
It is a political committee required to report
report (and it does report) to a state
under the Federal Election Campaign Act
Penalties
agency information about contributions
of 1971 (FECA) (2 U.S.C. 431(4)).
and expenditures that is similar to the in-
Failure to file. An organization that is re-
It is a state or local candidate committee.
formation that the organization would oth-
quired to file Form 8871, but fails to do so on a
erwise be required to report to the IRS.
It is a state or local committee of a political
timely basis, will not be treated as a tax-exempt
party.
3. The state agency and the organization section 527 organization for any period before
make the reports publicly available. the date Form 8871 is filed. Also, the taxable
It is a section 501(c) organization that has
income of the organization for that period will
made an exempt function expenditure.
4. No federal candidate or office holder:
include its exempt function income (including
All other political organizations are required to
contributions received, membership dues, and
a. Controls or materially participates in the
file Form 8871.
political fundraising receipts) minus any deduc-
direction of the organization,
tions directly connected with the production of
An organization must provide on Form 8871:
b. Solicits contributions for the organiza-
that income.
tion, or
Failure to file an amended Form 8871 will 1. Its name and address (including any busi-
cause the organization not to be treated as a ness address, if different) and its electronic
c. Directs the disbursements of the organi-
tax-exempt section 527 organization. If an or- mailing address;
zation.
ganization is treated as not being a tax-exempt
2. Its purpose;
section 527 organization, the taxable income of
Information required on Form 8872. If an the organization will be determined by consider- 3. The names and addresses of its officers,
organization pays an individual $500 or more for ing any exempt function income and deductions highly compensated employees, contact
the calendar year, the organization is required to during the period beginning on the date of the person, custodian of records, and mem-
disclose the individuals name, address, occu- material change and ending on the date that the bers of its Board of Directors;
pation, employer, amount of the expense, the amended Form 8871 is filed.
4. The name and address of, and relationship
date the expense was paid, and the purpose of The tax is computed by multiplying the or-
to, any related entities (within the meaning
the expense on Form 8872. ganizations taxable income by the highest cor-
of section 168(h)(4)); and
If an organization receives contributions of porate tax rate.
$200 or more from one contributor for the calen- 5. Whether it intends to claim an exemption
Fraudulent returns. Any individual or cor-
dar year, the organization must disclose the from filing Form 8872, Form 990, or Form
poration that willfully delivers or discloses to the
donors name, address, occupation, employer, 990-EZ.
IRS any list, return, account, statement or other
and the date the contributions were made.
document known to be fraudulent or false as to
For additional information that is required, Employer identification number. Before
any material matter will be fined not more than
see Form 8872. filing Form 8871, the political organization must
$10,000 ($50,000 in the case of a corporation)
have its own EIN even if it has no employees. If
or imprisoned for not more than 1 year or both.
Due dates. The due dates for filing Form 8872
your organization needs an EIN, you can apply
vary depending on whether the form is due for a
Waiver of penalties. The IRS may waive for one:
reporting period that occurs during a calendar
any additional tax assessed on an organization
OnlineClick on the Employer ID Num-
year in which a regularly scheduled election is
for failure to file Form 8871 if the failure was due
bers (EINs) link at www.IRS.gov/busi-
held, or any other calendar year (a nonelection
to reasonable cause and not willful neglect.
nesses/small.
year).
Additional information. For more information
If the due date falls on a Saturday, Sunday,
By telephone at 1-800-829-4933 from 7:00
on Form 8871, see the form and its instructions.
or legal holiday, the organization can file on the
am to 10:00 pm in the organizations local
For a discussion on the public inspection re-
next business day.
time zone.
quirements for the form, see Public Inspection of
Exemption Applications, Annual Returns, and Election year filing. In election years, Form By mailing or faxing Form SS-4.
Political Organ, later. 8872 must be filed on either a quarterly or a
monthly basis. Both a pre-election report and a If you previously applied for an EIN and have
post-election report are also required to be filed not yet received it, or you are unsure whether
Form 8872
in an election year. An election year is any year you have an EIN, please call our toll-free cus-
in which a regularly scheduled general election t omer ac c ount s er v i c es number , Every tax-exempt section 527 political organiza-
for federal office is held (an even-numbered 1-877-829-5500, for assistance. tion that accepts a contribution or makes an
year). expenditure, for an exempt function during the
Due dates. The initial Form 8871 must be filed
calendar year, must file Form 8872 except:
within 24 hours of the date on which the organi-
Nonelection year filing. In nonelection
zation was established. If there is a material A political organization that is not required
years, the form must be filed on a semiannual or
change an amended Form 8871 must be filed to file Form 8871 (discussed earlier).
monthly basis. A complete listing of these filing
within 30 days of the material change. When the
periods are in the Form 8872 Instructions. A
A political organization that is subject to
organization terminates its existence, it must file
nonelection year is any odd-numbered year.
tax on its income because it did not file or
a final Form 8871 within 30 days of termination.
amend Form 8871.
If the due date falls on a Saturday, Sunday, How to file. Form 8872 can be filed either
or legal holiday, the organization can file on the A qualified state or local political organiza- electronically or by mail; however, organizations
next business day. tion (QSLPO), discussed below. that have, or expect to have, contributions or
REL 00897
expenditures of $50,000 or more for the year otherwise disposes of the property, the organi- also indicates knowledge of the information re-
porting requirements on dispositions, as previ- zation must file Form 8282, Donee Information must file electronically.
ously discussed. A copy of Form 8283 must be Return. However, an organization is not re-
To file by mail, send Form 8872 to the:
given to the donee. quired to file Form 8282 if:
The property is valued at $500 or less, or
Department of the Treasury
The property is consumed or distributed
Internal Revenue Service Center
for charitable purposes.
Information Provided
Ogden, UT 84201-0027
Form 8282 must be filed with the IRS within to Donors
Electronic filing. File electronically via the
125 days after the disposition. Additionally, a
IRS internet website at www.IRS.gov/polorgs.
In some situations, a donor must obtain certain copy of Form 8282 must be given to the previous
You will need a user ID and password to elec-
information from a donee organization to obtain donor. If the organization fails to file the required
tronically file Form 8872. Organizations that
a deduction for a charitable contribution. In other information return, penalties may apply.
have completed the electronic filing of Form
situations, the donee organization is required to
8871 and submitted a completed and signed Charitable deduction property. This is
provide information to the donor. For example, a
Form 8453-X will receive a username and pass- any property (other than money or publicly
charitable organization must give a donor a dis-
traded securities) for which the donee organiza- word in the mail.
closure statement for a quid pro quo contribution
tion signed an appraisal summary or Form 8283,
Organizations that have completed the elec-
over $75. A donor cannot deduct a charitable
Noncash Charitable Contributions.
tronic filing of Form 8871, but have not received
contribution of $250 or more unless the donor
their user ID and password can request one by
has a written acknowledgment from the charita- Publicly traded securities. These are se-
writing to the following address:
ble organization. curities for which market quotations are readily
In certain circumstances, an organization available on an established securities market as
may be able to meet both of these requirements of the date of the contribution.
Attn: Request for 8872 Password
with the same written document.
Mail Stop 6273
Appraisal summary. If the value of the
Ogden, UT 84201
donated property exceeds $5,000, the donor
Disclosure of
must get a qualified appraisal for contributions of
Quid Pro Quo Contributions
Lost username and password. If you have property, see the Exceptions. below.
forgotten or misplaced the username and pass-
A charitable organization must provide a written
Exceptions. A written appraisal is not
word issued to your organization after you filed
disclosure statement to donors of a quid pro quo
needed if the property is:
your initial Form 8871, send a letter requesting a
contribution over $75.
Nonpublicly traded stock of $10,000 or new username and password to the address
Quid pro quo contribution. This is a pay- less, under Electronic filing. You can also fax your
ment a donor makes to a charity partly as a
request to (801) 620-3249. It may take 3-6
A vehicle (including a car, boat, or air-
contribution and partly for goods or services. For
weeks for your new username and password to
plane) donated after 2004 if your deduc-
example, if a donor gives a charity $100 and
arrive, as they will be mailed to the organization.
tion for the vehicle is limited to the gross
receives a concert ticket valued at $40, the do-
proceeds from its sale,
nor has made a quid pro quo contribution. In this
example, the charitable contribution part of the Intellectual property donated after June 3, Penalty
payment is $60. Even though the deductible part 2004,
A penalty will be imposed if the organization is of the payment is not more than $75, a disclo-
Certain securities considered to have mar-
required to file Form 8872 and it: sure statement must be filed because the do-
ket quotations readily available (see Regu-
nors payment (quid pro quo contribution) is
Fails to file the form by the due date, or
lations section 1.170A-13(c)(7)(xi)(B)),
more than $75.
Files the form but fails to report all of the
Inventory and other property donated by a
Disclosure statement. The required written
information required or reports incorrect corporation that are qualified contributions
disclosure statement must:
information. for the care of the ill, the needy, or infants,
within the meaning of section 170(e)(3)(A),
1. Inform the donor that the amount of the
The penalty is 35% of the total amount of or
contribution that is deductible for federal
contributions and expenditures to which a failure
income tax purposes is limited to the ex-
Any donation of stock in trade, inventory,
relates.
cess of any money (and the value of any
or property held primarily for sale to cus-
property other than money) contributed by
Fraudulent returns. Any individual or cor- tomers in the ordinary course of your trade
the donor over the fair market value of
or business. poration that willfully delivers or discloses any
goods or services provided by the charity,
list, return, account, statement, or other docu-
and
The donee organization is not a qualified ap- ment known to be fraudulent or false as to any
praiser for the purpose of valuing the donated
material matter will be fined not more than
2. Provide the donor with a good faith esti-
property. For more information, get Publication
$10,000 ($50,000 in the case of a corporation),
mate of the fair market value of the goods
561, Determining the Value of Donated Prop-
or imprisoned for not more than 1 year, or both. or services that the donor received.
erty.
Waiver of penalties. The IRS may waive The charity must furnish the statement in con-
Form 8283. For noncash donations over
any additional tax assessed on an organization nection with either the solicitation or the receipt
$5,000, the donor must attach Form 8283 to the
for failure to file Form 8872 if the failure was due of the quid pro quo contribution. If the disclosure
tax return to support the charitable deduction.
to reasonable cause and not willful neglect. statement is furnished in connection with a par-
The donee must sign Part IV of Section B, Form
ticular solicitation, it is not necessary for the
8283 unless publicly traded securities are
organization to provide another statement when
donated. The person who signs for the donee
it actually receives the contribution.
must be an official authorized to sign the do-
No disclosure statement is required if any of
Donee Information
nees tax or information returns, or a person
the following are true.
specifically authorized to sign by that official.
Return
The signature does not represent concurrence 1. The goods or services given to a donor
in the appraised value of the contributed prop- have insubstantial value as described in
Dispositions of donated property. If an or- erty. A signed acknowledgment represents re- Revenue Procedure 90-12, 1990-1 C.B.
ganization receives charitable deduction prop- ceipt of the property described on Form 8283 on 471, and Revenue Procedure 92-49,
the date specified on the form. The signature erty and within 3 years sells, exchanges, or 1992-1 C.B. 507 (as adjusted for inflation).
REL 00898
2. There is no donative element involved in a conducted by a well-known artist. The artist A pay stub, Form W-2, or other document
particular transaction with a charity (for ex- does not provide tours on a commercial basis. showing a contribution to a donee organi-
ample, there is generally no donative ele- Tours of the museum normally are free to the zation, together with
ment involved in a visitors purchase from public. A good faith estimate of the FMV of the
A pledge card or other document from the
a museum gift shop).
evening museum tour is $0 even though it is
donee organization that shows its name.
conducted by the artist.
3. There is only an intangible religious benefit
provided to the donor. The intangible relig-
For contributions of $250 or more, the docu-
Penalty for failure to disclose. A penalty is
ious benefit must be provided to the donor
ment must state that the donee organization
imposed on a charity that does not make the
by an organization organized exclusively
provides no goods or services for any payroll
required disclosure of a quid pro quo contribu-
for religious purposes, and must be of a
contributions. The amount withheld from each
tion of more than $75. The penalty is $10 per
type that generally is not sold in a commer-
payment of wages to a taxpayer is treated as a
contribution, not to exceed $5,000 per fundrais- cial transaction outside the donative con-
separate contribution.
ing event or mailing. The charity can avoid the text. For example, a donor who, for a
penalty if it can show that the failure was due to payment, is granted admission to a relig-
Acknowledgment of Vehicle
reasonable cause. ious ceremony for which there is no admis-
Contribution sion charge is provided an intangible
religious benefit. A donor is not provided
Acknowledgment of
If an exempt organization receives a contribu-
intangible religious benefits for payments
Charitable Contributions of
tion of a qualified vehicle with a claimed value of
made for tuition for education leading to a
more than $500, the donee organization is re- $250 or More
recognized degree, travel services, or con-
quired to provide a contemporaneous written
sumer goods.
A donor can deduct a charitable contribution of
acknowledgment to the donor. The donee or-
4. The donor makes a payment of $75 or less
$250 or more only if the donor has a written
ganization can use a completed Form 1098-C,
per year and receives only annual mem-
acknowledgment from the charitable organiza-
Contributions of Motor Vehicles, Boats, and Air-
bership benefits that consist of:
tion. The donor must get the acknowledgment
planes, for the contemporaneous written ac-
by the earlier of:
knowledgment. See section 3.03 of Notice
a. Any rights or privileges (other than the
2005-44 for guidance on the information that
right to purchase tickets for college ath-
1. The date the donor files the original return
must be included in a contemporaneous written letic events) that the taxpayer can exer-
for the year the contribution is made, or
acknowledgment and the deadline for furnishing cise often during the membership
2. The due date, including extensions, for fil-
the acknowledgment to the donor. period, such as free or discounted ad-
ing the return.
missions or parking or preferred access
Any donee organization that provides a con-
to goods or services, or
temporaneous written acknowledgment to a do-
The donor is responsible for requesting and ob-
nor is required to report to the IRS the
taining the written acknowledgment from the do-
b. Admission to events that are open only
information contained in the acknowledgment.
nee. A charitable organization that receives a to members and the cost per person of
The report is due by February 28 (March 31 if
payment made as a contribution is treated as the which is within the limits for low-cost
filing electronically) of the year following the year
donee organization for this purpose even if the articles described in Revenue Proce-
in which the donee organization provides the
organization (according to the donors instruc- dure 90-12 (as adjusted for inflation).
acknowledgment to the donor. The organization
tions or otherwise) distributes the amount re-
must file the report on Copy A of Form 1098-C.
ceived to one or more charities.
Good faith estimate of fair market value
An organization that files Form 1098-C on
(FMV). An organization can use any reasona-
paper should send it with Form 1096, Annual Quid pro quo contribution. If the donee pro-
ble method to estimate the FMV of goods or
Summary and Transmittal of U.S. Information vides goods or services to the donor in ex-
services it provided to a donor, as long as it
Returns. See the Instructions for Form 1096 for change for the contribution (a quid pro quo
applies the method in good faith.
the correct filing location. contribution), the acknowledgment must include
The organization can estimate the FMV of
a good faith estimate of the value of the goods or
An organization that is required to file 250 or
goods or services that generally are not com-
services. See Disclosure of Quid Pro Quo Con-
more Forms 1098-C during the calendar year
mercially available by using the FMV of similar
tributions, earlier.
must file the forms electronically or magneti-
or comparable goods or services. Goods or
cally. Specifications for filing Form 1098-C elec-
services may be similar or comparable even if
Form of acknowledgment. Although there is tronically or magnetically can be found in
they do not have the unique qualities of the
no prescribed format for the written acknowledg-
Publication 1220, Specifications for Filing Forms
goods or services being valued.
ment, it must provide enough information to sub-
1097-BTC, 1098, 1099, 3921, 3922, 5498,
stantiate the amount of the contribution. For
8935, and W-2G Electronically at www.IRS.gov/
Example 1. A charity provides a 1-hour ten-
more information, get IRS Publication 1771,
pub/irs-pdf/p1220.pdf.
nis lesson with a tennis professional for the first
Charitable Contributions Substantiation and
$500 payment it receives. The tennis profes-
Disclosure Requirements.
sional provides 1-hour lessons on a commercial
Acknowledgment
basis for $100. A good faith estimate of the Cash contributions. To deduct a contribu-
lessons FMV is $100. tion of cash, a check, or other monetary gift
For a contribution of a qualified vehicle
(regardless of the amount), a donor must main-
with a claimed value of $500 or less, do Example 2. For a payment of $50,000, a
tain a bank record or a written communication
not file Form 1098-C. However, you museum allows a donor to hold a private event
CAUTION
!
from the donee organization showing the do-
can use it as the contemporaneous written ac- in a room of the museum. A good faith estimate
nees name, date, and amount of the contribu-
knowledgment under section 170(f)(8) by proof the FMV of the right to hold the event in the
tion. In the case of a lump-sum contribution
viding the donor with Copy C only. See the museum can be made by using the cost of
(rather than a contribution by payroll deduction)
renting a hotel ballroom with a capacity, ameni- Instructions for Form 1098-C.
made through the Combined Federal Campaign
ties, and atmosphere comparable to the mu-
Generally, the organization should complete or a similar program such as a United Way
seum room, even though the hotel ballroom
Form 1098-C as the written acknowledgment to Campaign, the written communication must in-
lacks the unique art displayed in the museum
the donor and the IRS. The contents of the clude the name of the donee organization that is
room. If the hotel ballroom rents for $2,500, a
the ultimate recipient of the charitable contribu- acknowledgment depend upon whether the or-
good faith estimate of the FMV of the right to
tion. ganization:
hold the event in the museum is $2,500.
Contributions by payroll deduction. An Sells a qualified vehicle without any signifi-
organization may substantiate an employees cant intervening use or material improve- Example 3. For a payment of $1,000, a
contribution by deduction from its payroll by: charity provides an evening tour of a museum ment,
REL 00899
Intends to make a significant intervening a needy individual without a significant interven- legal life of the qualified intellectual property, or
ing use or material improvement within 6 months the 10-year period beginning with the date of the use of or material improvement to a quali-
of the date of the contribution. contribution. fied vehicle prior to sale, or
If a charity sells a donated vehicle at auction,
Sells a qualified vehicle to a needy individ-
the IRS will not accept as substantiation an
Qualified intellectual property. Qualified in-
ual at a price significantly below fair mar-
acknowledgment from the charity stating that
tellectual property is generally any patent, copy-
ket value, or a gratuitous transfer to a
the vehicle is to be transferred to a needy indi-
right, trademark, trade name, trade secret,
needy individual in direct furtherance of a
vidual for significantly below fair market value.
know-how, software or similar property, or appli-
charitable purpose of the organization of
Vehicles sold at auction are not sold at prices
cations or registrations of such property (other
relieving the poor and distressed or the
significantly below fair market value, and the
than property contributed to or for the use of a
underprivileged who are in need of a
IRS will not treat vehicles sold at auction as
private foundation as defined in section 509(a)
means of transportation.
qualifying for this exception.
that is not described in section 170(b)(1)(F)).
The penalty for a false or fraudulent acknowl-
See Exceptions below.
For more information on the acknowledg-
edgment where the donee certifies that the vehi-
Exceptions. The following property is not
ment, see Notice 2005-44, 2005-25 I.R.B. 1287 cle will not be transferred for money, other
considered qualified intellectual property for pur-
at www.IRS.gov/pub/irs-irbs/irb05-25.pdf. property, or services before completion of mate-
poses of the additional charitable deduction:
rial improvements or significant intervening use
Material improvements or significant inter- or the donee certifies that the vehicle is to be
1. Computer software that is readily available
transferred to a needy individual for significantly vening use. To constitute significant interven-
for purchase by the general public, is sub-
below fair market value in furtherance of the ing use, the organization must actually use the
ject to a nonexclusive license, and has not
donees charitable purpose is the larger of vehicle to substantially further the organizations
been substantially modified.
$5,000 or the claimed value of the vehicle multi-
regularly conducted activities, and the use must
2. A copyright held by a taxpayer:
plied by 39.6%.
be significant, not incidental. Factors in deter-
The penalty for an acknowledgment relating
mining whether a use is a significant intervening
Whose personal efforts created the prop-
to a qualified vehicle being sold in an arms
use depend on its nature, extent, frequency, and
erty, or
length transaction to an unrelated party is the
duration. For this purpose, use includes provid-
larger of the gross proceeds from the sale or the
ing transportation on a regular basis for a signifi- In whose hands the basis of the property
sales price stated in the acknowledgment multi-
cant period of time or significant use directly is determined, for purposes of determining
plied by 39.6%.
related to training in vehicle repair. Use does not gain from a sale or exchange, in whole or
in part by reference to the basis of the include the use of a vehicle to provide training in
Qualified Intellectual property in the hands of a taxpayer whose business skills, such as marketing or sales. Ex-
personal efforts created the property. amples of significant use include: Property
Driving a vehicle every day for 1 year to
A taxpayer who contributes qualified intellectual
deliver meals to needy individuals, if deliv-
property to a charity may be entitled to a charita-
ering meals is an activity regularly con-
ble deduction, in addition to any initial deduction
ducted by the organization.
Report of Cash
allowed in the year of contribution. The addi-
tional deduction is based on a specified percent-
Driving a vehicle for 10,000 miles over a
Received
age of the qualified donee income with respect
1-year period to deliver meals to needy
to the qualified intellectual property. To qualify
individuals, if delivering meals is an activ-
An exempt organization that receives, in the
for the additional charitable deduction, the donor
ity regularly conducted by the organiza-
course of its activities, more than $10,000 cash
must provide notice to the donee at the time of
tion.
in one transaction (or two or more related trans-
the contribution that the donor intends to treat
actions) that is not a charitable contribution must
the contribution as qualified intellectual property
Material improvements include major repairs
report the transaction to the IRS on Form 8300,
contribution for purposes of sections 170(m) and
and additions that improve the condition of the
Report of Cash Payments Over $10,000 Re-
6050L.
vehicle in a manner that significantly increases
ceived in a Trade or Business.
Every donee organization described in sec-
the value. To be a material improvement, the
tion 170(c) (except private foundation as defined
improvement cannot be funded by an additional
in section 509(a) that is not described in section
payment to the organization from the donor of
170(b)(1)(F)) that receives or accrues net in-
the vehicle. Material improvements do not in-
come from a charitable gift of qualified intellec- Public Inspection
clude cleaning, minor repairs, routine mainte-
tual property must file Form 8899.
nance, painting, removal of dents or scratches,
of Exemption
cleaning or repair of upholstery, and installation
Form 8899. Form 8899, Notice of Income
of theft deterrent devices.
Applications, Annual From Donated Intellectual Property, is used by a
donee to report net income from qualified intel-
Returns, and Political Penalties. Section 6720 imposes penalties on
lectual property to the donor of the property and
any organization that is required under section
to the IRS and is due by the last day of the first
Organization Reporting
170(f)(12) to furnish an acknowledgment to a full month following the close of the donees tax
donor if the organization knowingly: year. This form must be filed for each tax year of
Forms
the donee in which the donated property pro-
Furnishes a false or fraudulent acknowl-
duces net income, but only if all or part of that tax
edgment, or
The following rules apply to private foundations
year occurs during the 10-year period beginning
as well as other tax-exempt organizations. Pri-
Fails to furnish an acknowledgment in the on the date of the contribution and that tax year
vate foundations filing annual returns are sub-
manner, at the time, and showing the in- does not begin after the expiration of the legal
ject to the public disclosure requirements under
life of the donated property. formation required by section 170(f)(12).
section 6104(d).
Included in this section is a discussion on the Qualified donee income. Qualified donee in-
Other penalties may apply. See part O
public inspection requirements for political orga- come is any net income received by or accrued
in the 2010 General Instructions for
nizations filing Forms 8871 and 8872. to the donee that is properly allocable to the
Certain Information Returns (Forms
CAUTION
!
qualified intellectual property for the tax year of
1098, 1099, 3921, 3922, 5498, and W-2G).
the donee which ends within or with the tax year
Annual Information Return
An acknowledgment containing a certifica- of the donor. Income is not treated as allocated
tion will be presumed to be false or fraudulent if An exempt organization must make available for to qualified intellectual property if it is received or
the qualified vehicle is sold to a buyer other than public inspection, upon request and without accrued after the earlier of the expiration of the
REL 00900
charge, a copy of its original and amended an- Any material that is required to be withheld within a reasonable amount of time after receiv-
ing a request for inspection (normally not more from public inspection, see Material re- nual information returns. Each information re-
than 2 weeks) and at a reasonable time of day. quired to be withheld from public inspec- turn must be made available from the date it is
At its option, it can mail, within 2 weeks of receiv- tion, next;
required to be filed (determined with regard to
ing the request, a copy of its application for tax
any extensions), or is actually filed, whichever is
In the case of a tax-exempt organization
exemption and annual information returns to the
later. An original return does not have to be
other than a private foundation, the names
requester in lieu of allowing an inspection. The
made available if more than 3 years have
and addresses of contributors to the or-
organization can charge the requester for copy-
passed from the date the return was required to
ganization; or
ing and actual postage costs only if the re-
be filed (including any extensions) or was filed,
quester consents to the charge. Any applications filed before July 15,
whichever is later. An amended return does not
An organization that has a permanent office, 1987, if the organization did not have a
have to be made available if more than 3 years
but has no office hours or very limited hours copy of the application on July 15, 1987.
have passed from the date it was filed.
during certain times of the year, must make its
documents available during those periods when An annual information return includes an ex- If there is no prescribed application form, see
office hours are limited or not available as act copy of the return (Forms 990, 990-EZ, Regulations section 301.6104(d)-1(b)(3)(ii) for a
though it were an organization without a perma- list of the documents that must be made avail- 990-BL, 990-PF, 990-T, or 1065), and amended
nent office. able. return if any, and all schedules, attachments,
and supporting documents filed with the IRS.
Material required to be withheld from pub- Furnishing copies. An exempt organization
lic inspection. Material that is required to be also must provide a copy of all, or any specific An annual information return does not in-
withheld from public inspection includes: part or schedule, of its three most recent annual clude:
information returns and/or exemption applica-
Trade secrets, patents, processes, styles Schedule A of Form 990-BL,
tion to anyone who requests a copy either in
of work, or apparatus for which withhold-
person or in writing at its principal, regional, or Schedule K-1 of Form 1065, or
ing was requested and granted;
district office during regular business hours. If
Form 1120-POL.
National defense material; the individual made the request in person, the
copy must be provided on the same business
Unfavorable rulings or determination let- In the case of a tax-exempt organization other
day the request is made unless there are unu-
ters issued in response to applications for
than a private foundation, an annual information
sual circumstances. Unusual circumstances are
tax exemption;
return does not include the names and ad-
d e f i n e d i n Re g u l a t i o n s s e c t i o n
dresses of contributors to the organization.
Rulings or determination letters revoking 301.6104(d)-1(d)(1)(ii).
or modifying a favorable determination let- The organization must honor a written re-
Form 990-T. All section 501(c)(3) or-
ter; quest for a copy of documents or specific parts
ganizations that file Form 990-T must
or schedules of documents that are required to
make the return public, regardless of
Technical advice memoranda relating to a
CAUTION
!
be disclosed. However, this rule only applies if
whether the organization is otherwise subject to
disapproved application for tax exemption
the request:
the disclosure requirements of section 6104. For
or the revocation or modification of a
example, although churches are not required to favorable determination letter; Is addressed to the exempt organizations
file Form 1023 or Form 990 with the IRS, they principal, regional, or district office;
Any letter or document filed with or issued
must file the Form 990-T with the IRS to report
by the IRS relating to whether a proposed Is sent to that address by mail, electronic
unrelated business taxable income. Thus,
or accomplished transaction is a prohib- mail (e-mail), facsimile (fax), or a private
churches must disclose Form 990-T to the pub-
ited transaction under section 503; delivery service approved by the IRS; and
lic.
Any letter or document filed with or issued Gives the address to where the copy of
State colleges and universities have been
by the IRS relating to an organizations the document should be sent.
recognized by the IRS as exempt under section
status as an organization described in
501(a) as organizations described in section
section 509(a) or 4942(j)(3), unless the let- The organization must mail the copy within 30
501(c)(3) must disclose Form 990-T to the pub-
ter or document relates to the organiza- days from the date it receives the request. The
lic. However, state colleges and universities that
tions application for tax exemption; and organization can request payment in advance
are subject to tax under section 511(a) solely by
and must then provide the copies within 30 days
Any other letter or document filed with or
virtue of section 511(a)(2)(B) and that have not
from the date it receives payment.
issued by the IRS which, although it re-
been recognized by the IRS as exempt under
lates to an organizations tax-exempt sta- Fees for copies. The organization can
section 501(a) as organizations described in
tus as an organization described in section charge a reasonable fee for providing copies. It
section 501(c)(3) are not required to make their
501(c) or 501(d), does not relate to that can charge no more for the copies than the per
Forms 990-T public.
organizations application for tax exemp- page rate the IRS charges for providing copies.
tion. The IRS cannot charge more for copies than the
Public Inspection of
fees listed in the Freedom of Information Act
(FOIA) fee schedule. Although the IRS charges
Exemption Application
Time, place, and manner restrictions. The
no fee for the first 100 pages, the organization
annual returns and exemption application must
An exempt organization must also make avail- can charge a fee for all copies. For noncommer-
be made available for inspection, without
cial requesters, the FOIA schedule currently able for public inspection without charge its ap-
charge, at the organizations principal, regional,
provides a rate of $.20 per page. The organiza-
plication for tax-exempt status. An application
and district offices during regular business
tion can also charge the actual postage costs it
for tax exemption includes the application form
hours. The organization can have an employee
pays to provide the copies.
(such as Forms 1023 or 1024), all documents
present during inspection, but must allow the
and statements the IRS requires the organiza- individual to take notes freely and to photocopy
Regional and district offices. Generally, the
tion to file with the form, any statement or other at no charge if the individual provides the photo-
same rules regarding public inspection and pro-
copying equipment. Generally, regional and dis- supporting document submitted by an organiza- viding copies of applications and annual infor-
trict offices are those that have paid employees tion in support of its application, and any letter or mation returns that apply to a principal office of
who together are normally paid for at least 120
other document issued by the IRS concerning an exempt organization also apply to its regional
hours a week.
and district offices. However, a regional or dis- the application.
If the organization does not maintain a per- trict office is not required to make its annual
The application for exemption does not in-
manent office, it must make its application for tax information return available for inspection or to
clude:
exemption and its annual information returns provide copies until 30 days after the date the
Any application from an organization that available for inspection at a reasonable location return is required to be filed (including any ex-
is not yet recognized as exempt; of its choice. It must permit public inspection tensions) or is actually filed, whichever is later.
REL 00901
Local and subordinate organizations. A lo- receiving a request made in person for public copy of these materials available for public in-
cal or subordinate organization is an exempt inspection or copies and at a reasonable time of spection during regular business hours at the
organization that did not file its own application day. organizations principal office and at each of its
for tax exemption because it is covered by a regional or district offices having at least three In lieu of allowing an inspection, the local or
group exemption letter. Generally, a local or paid employees. subordinate organization can mail a copy of the
subordinate organization of an exempt organi- applicable documents to the person requesting
Form 8872. Form 8872 (including Sched-
zation must, upon request, make available for inspection within the same time period. In this
ules A and B) is open to public inspection. Cop-
public inspection, or provide copies of: case, the organization can charge the requester
ies of Form 8872 that are required to be filed
for copying and actual postage costs only if the
electronically will be made available on the In-
1. The application submitted to the IRS by
requester consents to the charge. If the local or
ternet website, www.IRS.gov/polorgs, within 48
the central or parent organization to obtain
subordinate organization receives a written re-
hours after they have been filed.
the group exemption letter, and
quest for a copy of its annual information return,
In addition, the organization is required to
it must fulfill the request by providing a copy of
2. Those documents which were submitted
make a copy of this form available for public
the group return in the time and manner speci-
by the central or parent organization to in-
inspection during regular business hours at the
fied earlier. The requester has the option of
clude the local or subordinate organization
organizations principal office and at each of its
requesting from the central or parent organiza-
in the group exemption letter.
regional or district offices having at least three
tion, at its principal office, inspection or copies of
paid employees. However, if the central or parent organization
group returns filed by the central or parent or-
submits to the IRS a list or directory of local or
ganization. The central or parent organization
subordinate organizations covered by the group
must fulfill such requests in the time and manner
Penalties
exemption letter, the local or subordinate organi-
specified earlier.
zation is required to provide only the application
If an organization fails to comply, it may be
The penalty for failure to allow public inspection
for the group exemption ruling and the pages of
liable for a penalty. See Penalties, later.
of annual returns is $20 for each day the failure
the list or directory that specifically refer to it.
continues. The maximum penalty on all persons
The local or subordinate organization must
Making applications and annual information
for failures involving any one return is $10,000.
permit public inspection or comply with a re-
returns widely available. An exempt organi-
The penalty for failure to allow public inspec-
quest for copies made in person, within a rea-
zation does not have to comply with requests for
tion of exemption applications is $20 for each
sonable amount of time (normally not more than
copies of its annual information returns or ex-
day the failure continues.
2 weeks) after receiving a request made in per-
emption application if it makes them widely
The penalty for willful failure to allow public
son for public inspection or copies and at a
available. However, making these documents
inspection of a return or exemption application is
reasonable time of day. In lieu of allowing an
widely available does not relieve the organiza-
$5,000 for each return or application. The pen-
inspection, the local or subordinate organization
tion from making its documents available for
alty also applies to a willful failure to provide
can mail a copy of the applicable documents to
public inspection.
copies.
the person requesting inspection within the
The organization can make its application
The penalty for failure to allow public inspec- same time period. In that case, the organization
and annual information returns widely available
tion of a political organizations section 527 no- can charge the requester for copying and actual
by posting the application and annual informa-
tice (Form 8871) is $20 for each day the failure postage costs only if the requester consents to
tion returns on the Internet. For the rules to
continues. the charge. If the local or subordinate organiza-
follow so that the Internet posting will be consid-
tion receives a written request for a copy of its
The penalty for failure to allow public inspec-
ered widely available, see Regulations section
application for exemption, it must fulfill the re-
tion of a section 527 organizations contributions
301.6104(d)-2(b).
quest in the time and manner specified earlier.
and expenditures report (Form 8872) is $20 for
If the organization has made its application
The requester has the option of requesting each day the failure continues. The maximum
for tax exemption and/or annual information re-
from the central or parent organization, at its penalty on all persons for failures involving any
turns widely available, it must inform any individ-
principal office, inspection or copies of the appli- one report is $10,000.
ual requesting a copy where the documents are
cation for group exemption and the material sub-
available, including the website address on the
mitted by the central or parent organization to
Internet, if applicable. If the request is made in
include a local or subordinate organization in the
person, the notice must be provided immedi-
group ruling. If the central or parent organization
ately. If the request is made in writing, the notice Required Disclosures
submits to the IRS a list or directory of local or
must be provided within 7 days.
subordinate organizations covered by the group
Certain exempt organizations must disclose to
exemption letter, it must make the list or direc-
Harassment campaign. If the tax-exempt or-
the IRS or the public certain information about
tory available for public inspection, but it is re-
ganization is the subject of a harassment cam-
their activities. Generally, an organization dis-
quired to provide copies only of those pages of
paign, the organization may not have to fulfill
closes this information by entering it on the ap-
the list or directory that refer to particular local or
requests for information. For more information,
propriate lines of its annual return. In addition,
subordinate organizations specified by the re-
see Regulations section 301.6104(d)-3.
there are disclosure requirements for:
quester. The central or parent organization must
Solicitation of nondeductible contributions,
fulfill such requests in the time and manner
specified earlier.
Sales of information or services that are
Reporting Forms
A local or subordinate organization that does
available free from the government,
not file its own annual information return (be-
Forms 8871 and 8872 (discussed earlier under
Dues paid to the organization that are not
cause it is affiliated with a central or parent
Reporting Requirements for a Political Organi-
deductible because they are used for lob-
organization that files a group return) must, on
zation) are open to public inspection.
bying or political activities, and
request, make available for public inspection, or
Form 8871. Form 8871 (including any sup- provide copies of, the group returns filed by the
Prohibited tax shelter transactions.
porting papers) and any letter or other document central or parent organization. However, if the
the IRS issues with regard to Form 8871 is open group return includes separate schedules for
to public inspection at the IRS in Washington, Solicitation of Nondeductible each local or subordinate organization included
DC. in the group return, the local or subordinate
Contributions
organization receiving the request can omit any Copies of Form 8871 that have been filed will
schedules relating only to other organizations be made available on the IRS website, www. Solicitations for contributions or other payments
included in the group return. The local or IRS.gov/polorgs, 48 hours after the notice has by certain exempt organizations (including lob-
subordinate organization must permit public in- been filed and are considered widely available bying groups and political action committees)
spection, or comply with a request for copies as long as the organization provides the IRS must include a statement that payments to those
made in person, within a reasonable amount of website address to the person making the re- organizations are not deductible as charitable
time (normally not more than 2 weeks) after quest. In addition, the organization must make a contributions for federal income tax purposes.
REL 00902
The statement must be included in the fundrais- be made in a conspicuous and easily recog- 1. Facilitates a prohibited tax shelter transac-
ing solicitation and be conspicuous and easily tion by reason of its tax-exempt, nized format when the organization makes an
recognizable. tax-indifferent, or tax-favored status; or offer or solicitation to sell the information or
service. Organizations affected are those ex-
2. Is identified in published guidance by type,
Organizations subject to requirements. An
empt under section 501(c) or 501(d) and political
class, or role as a party to a prohibited tax
organization must follow these disclosure re-
organizations defined in section 527(e).
shelter transaction.
quirements if it is exempt under section 501(c),
other than section 501(c)(1), or under section
See Prohibited Tax Shelter Transactions
Penalty. A penalty is provided for failure to
501(d), unless the organization is eligible to re-
later for further information.
comply with this requirement if the failure is due
ceive tax deductible charitable contributions
to intentional disregard of the requirement. The
under section 170(c). These requirements must Disclosure. A single disclosure is made by
penalty is the greater of $1,000 for each day the
be followed by, among others: the organization for each prohibited tax shelter
failure occurred, or 50% of the total cost of all
transaction. The disclosure is made on Form
offers and solicitations that were made by the
1. Social welfare organizations (section
8886-T.
organization the same day that it fails to meet
501(c)(4)),
the requirement. Due date. Generally, for exempt organiza-
2. Labor unions (section 501(c)(5)),
tions described in 1 above, the disclosure is due
on or before May 15 of the calendar year follow-
3. Trade associations (section 501(c)(6)), Dues Used for Lobbying
ing the close of the calendar year that the ex-
or Political Activities
4. Social clubs (section 501(c)(7)),
empt organization entered into the prohibited tax
shelter transaction. However, the disclosure for
5. Fraternal organizations (section 501(c)(8)
Certain exempt organizations must notify any-
subsequently listed transactions (as defined in
and 501(c)(10)) (however, fraternal organi-
one paying dues to the organization whether
section 4965(e)(2)) is due on or before May 15
zations described in section 170(c)(4) must
any part of the dues is not deductible because it
of the calendar year following the close of the
follow these requirements only for solicita-
is related to lobbying or political activities.
calendar year that the transaction was identified
tions for funds that are to be used for non-
An organization must provide the notice if it is
by the Secretary as a listed transaction.
charitable purposes not described in
exempt from tax under section 501(a) and is one
The disclosure for exempt organizations de-
section 170(c)(4)),
of the following.
scribed in 2 above is due on or before the date
6. Any political organization described in sec-
the first tax return (whether original or amended
1. A social welfare organization described in
tion 527(e), including political campaign
return) is filed that reflects a reduction or elimi-
section 501(c)(4) that is not a veterans
committees and political action commit-
nation of the exempt organizations liability for
organization.
tees, and
applicable federal employment, excise, or unre-
2. An agricultural or horticultural organization
lated business income taxes that is derived di-
7. Any organization not eligible to receive
described in section 501(c)(5).
rectly or indirectly from tax consequences or tax
tax-deductible contributions if the organiza-
strategy described in the published guidance
tion or a predecessor organization was, at 3. A business league, chamber of commerce,
that lists the transaction.
any time during the 5-year period ending real estate board, or other organization de-
on the date of the fundraising solicitation, scribed in section 501(c)(6).
Penalty. Exempt organizations that fail to file
an organization of the type to which this
the required disclosure are subject to a nondis- However, an organization described in (1), (2),
disclosure requirement applies.
closure penalty of $100 for each day the failure or (3) does not have to provide the notice if it
continues with a maximum penalty for any one establishes that substantially all the dues paid to
Fundraising solicitation. This disclosure re-
disclosure of $50,000. it are not deductible anyway or if certain other
quirement applies to a fundraising solicitation if
Also, if the IRS makes a written demand on conditions are met. For more information, see
all of the following are true.
any exempt organization subject to this penalty, Revenue Procedure 98-19 in Cumulative Bulle-
giving the organization a reasonable date to tin 1998-1 or later update.
1. The organization soliciting the funds nor-
make the disclosure, and the organization fails
If the organization does not provide the
mally has gross receipts over $100,000
to make the disclosure by that date, the organi-
required notice, it may have to pay a tax that is
per year.
zation is subject to a penalty of $100 for each
reported on Form 990-T. But the tax does not
2. The solicitation is part of a coordinated
day after the date specified by the IRS until
apply to any amount on which the section 527
fundraising campaign that is soliciting
disclosure is made (with a maximum penalty for
tax has been paid on Form 1120-POL. See
more than 10 persons during the year.
any one disclosure of $10,000).
Political Organization Income Tax Return, ear-
lier.
3. The solicitation is made in written or
printed form, by television or radio, or by For more information about nondeductible
telephone. dues, see Deduction not allowed for dues used
Miscellaneous Rules
for political or legislative activities under
501(c)(6) Business Leagues, etc.
Penalties. Failure by an organization to make
the required statement will result in a penalty of
$1,000 for each day the failure occurred, up to a
maximum penalty of $10,000 for a calendar
Transactions
Organizational Changes and
year. No penalty will be imposed if it is shown
Exempt Status
that the failure was due to reasonable cause. If
Every exempt organization (as defined in sec-
the failure was due to intentional disregard of the
tion 4965(c)) that is a party to a prohibited tax
If your exempt organization changes its legal
requirements, the penalty may be higher and is
shelter transaction is required to disclose to the
structure, such as from a trust to a corporation,
not subject to a maximum amount.
IRS the following information:
you must file a new exemption application to
establish that the new legal entity qualifies for
Whether such organization is a party to
Sales of Information or
exemption. If your organization becomes inac- the prohibited tax shelter transaction (as
Services Available Free From tive for a period of time but does not cease being defined in section 4965(e); and
an entity under the laws of the state in which it
Government
The identity of any other party to the trans-
was formed, its exemption will not be termi-
action that is known to the exempt organi-
Certain organizations that offer to sell to individ- nated. However, unless you are covered by one
zation.
uals (or solicit money for) information or routine of the filing exceptions, you will have to continue
services that could be readily obtained free (or to file an annual information return during the
Party to a prohibited tax shelter transaction. for a nominal fee) from the Federal Government period of inactivity. If your organization has been
An exempt organization is a party to a prohibited must include a statement that the information or liquidated, dissolved, terminated, or substan-
tax shelter transaction if the organization: service can be so obtained. The statement must tially contracted, you should file your annual
REL 00903
return of information by the 15th day of the 5th possesses governmental powers, it does not
month after the change and follow the applicable qualify for exemption. A state or municipality
instructions to the form. itself does not qualify for exemption.
3.
If your organization amends its articles of
organization or its internal regulations (bylaws), Topics
then follow the instructions to Form 990, Form This chapter discusses:
990-EZ, or Form 990-PF for reporting these
Section
changes. Regardless of whether your organiza- Contributions to 501(c)(3) organizations
tion files an annual information return, you may
Applications for recognition of exemption
also report these changes to the EO Determina- 501(c)(3)
tions office; however, such reporting does not Articles of Organization
relieve your organization from reporting the
Educational organizations and private Organizations
changes on its annual information return. For
schools
information about informing the IRS of a termi-
nation or merger, see Pub. 4779, Facts about Organizations providing insurance
Terminating or Merging Your Exempt Organiza-
Introduction
Other section 501(c)(3) organizations
tion.
An organization may qualify for exemption from
Private foundations and public charities
federal income tax if it is organized and operated
Lobbying expenditures exclusively for one or more of the following pur-
Change in Accounting Period
poses.
The procedures that an organization must follow
Religious. Useful Items
to change its accounting period differ for an
You may want to see:
Charitable. individual organization and for a central organi-
zation that seeks a group change for its
Scientific. Forms (and Instructions)
subordinate organizations.
Testing for public safety.
J 1023 Application for Recognition of
Individual organizations. If an organization
Exemption Under Section 501(c)(3)
Literary. is not required to file an annual information re-
of the Internal Revenue Code
turn, but files a Form 990-T, it can change its
Educational.
annual accounting period by timely filing the
See chapter 6 for information about getting
Fostering national or international amateur Form 990-T. If neither an information return nor
publications and forms.
sports competition (but only if none of its a Form 990-T is required to be filed, an organi-
activities involve providing athletic facilities zation must notify the IRS by letter that it has
or equipment; however, see Amateur Ath- changed its fiscal period.
letic Organizations, later in this chapter). If an organization changed its annual ac-
Contributions to
counting period at any time within the previous
The prevention of cruelty to children or
10 years and within that time it had a filing
animals.
501(c)(3) Organizations
requirement, the organization must file a Form
1128, Application to Adopt, Change, or Retain a
To qualify, the organization must be a corpo-
Contributions to domestic organizations de-
Tax Year, with its timely filed annual information
ration, community chest, fund, or foundation. A
scribed in this chapter, except organizations
return or Form 990-T, as appropriate, whether or
trust is a fund or foundation and will qualify.
testing for public safety, are deductible as chari-
not the filing of the information return or Form
However, an individual or a partnership will not
table contributions on the donors federal in-
990-T would have otherwise been required for
qualify.
come tax return.
that year.
Examples. Qualifying organizations include:
Fundraising events. If the donor receives
Central organizations. A central organization
something of value in return for the contribution,
can obtain approval for a group change in an
Nonprofit old-age homes,
a common occurrence with fundraising efforts,
annual accounting period for its subordinate or-
Parent-teacher associations,
part or all of the contribution may not be deducti-
ganizations on a group basis only by filing Form
ble. This may apply to fundraising activities such
1128 with the Service Center where it files its
Charitable hospitals or other charitable or-
as charity balls, bazaars, banquets, auctions,
annual information return. For more information,
ganizations,
concerts, athletic events, and solicitations for
see Revenue Procedure 76-10, as modified by
Alumni associations,
membership or contributions when merchandise
Revenue Procedure 79-3 or any later updates.
or benefits are given in return for payment of a
Schools,
Due date. Form 1128 must be filed by the 15th
specified minimum contribution.
day of the 5th month following the close of the
Chapters of the Red Cross,
If the donor receives or expects to receive
short period.
goods or services in return for a contribution to
Boys or Girls Clubs, and
your organization, the donor cannot deduct any
Churches.
part of the contribution unless the donor intends
to, and does, make a payment greater than the
Child care organizations. The term educa-
fair market value of the goods or services. If a
tional purposes includes providing for care of
deduction is allowed, the donor can deduct only
children away from their homes if substantially
the part of the contribution, if any, that is more
all the care provided is to enable individuals (the
than the fair market value of the goods or serv-
parents) to be gainfully employed and the serv-
ices received. You should determine in advance
ices are available to the general public.
the fair market value of any goods or services to
be given to contributors and tell them, when you
Instrumentalities. A state or municipal instru-
publicize the fundraising event or solicit their
mentality may qualify under section 501(c)(3) if it
contributions, how much is deductible and how
is organized as a separate entity from the gov-
much is for the goods or services. See Disclo-
ernmental unit that created it and if it otherwise
sure of Quid Pro Quo Contributions in chapter 2.
meets the organizational and operational tests
of section 501(c)(3). Examples of a qualifying Exemption application not filed. Donors
instrumentality might include state schools, uni- cannot deduct any charitable contribution to an
versities, or hospitals. However, if an organiza- organization that is required to apply for recogni-
tion is an integral part of the local government or tion of exemption but has not done so.
Page 20 Chapter 3 Section 501(c)(3) Organizations
REL 00904
Separate fundcontributions to which are indirect beneficiaries under the contract are or- Whether your organization is participating or
deductible. An organization that is exempt intervening, directly or indirectly, in any political ganizations.
from federal income tax other than as an organi- campaign on behalf of (or in opposition to) any
A charitable organization liable for excise
zation described in section 501(c)(3) can, if it candidate for public office depends upon all of
taxes must file Form 4720, Return of Certain
desires, establish a fund, separate and apart the facts and circumstances of each case. Cer-
Excise Taxes Under Chapters 41 and 42 of the
from its other funds, exclusively for religious, tain voter education activities or public forums
Internal Revenue Code. Generally, the due date
conducted in a nonpartisan manner may not be charitable, scientific, literary, or educational pur-
for filing Form 4720 occurs on the fifteenth day
prohibited political activity under section poses, fostering national or international ama-
of the fifth month following the close of the or-
501(c)(3), while other so-called voter education teur sports competition, or for the prevention of
ganizations tax year.
activities may be prohibited. cruelty to children or animals.
If the fund is organized and operated exclu-
Effective date of exemption. Most organiza-
sively for these purposes, it may qualify for ex-
tions described in this chapter that were organ-
emption as an organization described in section
Application for ized after October 9, 1969, will not be treated as
501(c)(3), and contributions made to it will be
tax exempt unless they apply for recognition of
deductible as provided by section 170. A fund
Recognition of
exemption by filing Form 1023. These organiza-
with these characteristics must be organized in
tions will not be treated as tax exempt for any
such a manner as to prohibit the use of its funds
Exemption
period before they file Form 1023, unless they
upon dissolution, or otherwise, for the general
file the form within 15 months from the end of the
purposes of the organization creating it.
This discussion describes certain information to
month in which they were organized. If the or-
be provided upon application for recognition of
ganization files the application within this
Personal benefit contracts. Generally, no
exemption by all organizations created for any of
15-month period, the organizations exemption
charitable deduction will be allowed for a trans-
the purposes described earlier in this chapter.
will be recognized retroactively to the date it was
fer to, or for the use of, a section 501(c)(3) or
For example, the application must include a con-
organized. Otherwise, exemption will be recog-
(c)(4) organization if in connection with the
formed copy of the organizations articles of in-
nized only from the date of receipt. The date of
transfer:
corporation, as discussed under Articles of
receipt is the date of the U.S. postmark on the
Organization, later in this chapter. See the or- The organization directly or indirectly cover in which an exemption application is
ganization headings that follow for specific infor- pays, or previously paid, a premium on a mailed or, if no postmark appears on the cover,
mation your organization may need to provide. personal benefit contract for the transferor, the date the application is stamped as received
or by the IRS.
Form 1023. Your organization must file its ap-
There is an understanding or expectation Private delivery service. If a private deliv-
plication for recognition of exemption on Form
that anyone will directly or indirectly pay a ery service designated by the IRS, rather than
1023. See chapter 1 and the instructions accom-
premium on a personal benefit contract for the U.S. Postal Service, is used to deliver the
panying Form 1023 for the procedures to follow
the transferor. application, the date of receipt is the date re-
in applying. Some organizations are not re-
corded or marked by the private delivery serv-
quired to file Form 1023. These are discussed
A personal benefit contract with respect to the ice. The following private delivery services have
later in this section.
transferor is any life insurance, annuity, or en- been designated by the IRS.
Form 1023 and accompanying statements
dowment contract, if any direct or indirect bene-
DHL Express (DHL): DHL Same Day
must show that all of the following are true.
ficiary under the contract is the transferor, any
Service.
member of the transferors family, or any other
1. The organization is organized exclusively
person designated by the transferor. Federal Express (FedEx): FedEx Priority
for, and will be operated exclusively for,
Overnight, FedEx Standard Overnight,
Certain annuity contracts. If an organiza- one or more of the purposes (religious,
FedEx 2Day, FedEx International Priority,
tion incurs an obligation to pay a charitable gift charitable, etc.) specified in the introduc-
and FedEx International First.
annuity, and the organization purchases an an- tion to this chapter.
nuity contract to fund the obligation, individuals United Parcel Service (UPS): UPS Next
2. No part of the organizations net earnings
receiving payments under the charitable gift an- Day Air, UPS Next Day Air Saver, UPS
will inure to the benefit of private share-
nuity will not be treated as indirect beneficiaries 2nd Day Air, UPS 2nd Day Air A.M., UPS
holders or individuals. You must establish
if the organization owns all of the incidents of Worldwide Express Plus, and UPS World-
that your organization will not be organized
ownership under the contract, is entitled to all wide Express.
or operated for the benefit of private inter-
payments under the contract, and the timing and
ests, such as the creator or the creators
Amendments to enabling instrument re- amount of the payments are substantially the
family, shareholders of the organization,
quired. If an organization is required to alter same as the timing and amount of payments to
other designated individuals, or persons
its activities or to make substantive amend- each person under the obligation ( as such obli-
controlled directly or indirectly by such pri-
ments to its enabling instrument, the ruling or gation is in effect at the time of the transfer).
vate interests.
determination letter recognizing its exempt sta-
Certain contracts held by a charitable re-
tus will be effective as of the date the changes
3. The organization will not, as a substantial
mainder trust. An individual will not be con-
are made. If only a nonsubstantive amendment
part of its activities, attempt to influence
sidered an indirect beneficiary under a life
is made, exempt status will be effective as of the
legislation (unless it elects to come under
insurance, annuity, or endowment contract held
date it was organized, if the application was filed
the provisions allowing certain lobbying ex-
by a charitable remainder annuity trust or a char-
within the 15-month period, or the date the appli-
penditures) or participate to any extent in a
itable remainder unitrust solely by reason of
cation was filed.
political campaign for or against any candi-
being entitled to the payment if the trust owns all
date for public office. See Political activity,
of the incidents of ownership under the contract,
Extensions of time for filing. There are two
next, and Lobbying Expenditures, near the
and the trust is entitled to all payments under the
ways organizations seeking exemption can re-
end of this chapter.
contract.
ceive an extension of time for filing Form 1023.
Political activity. If any of the activities Excise tax. If the premiums are paid in con- 1. Automatic 12-month extension. Organiza-
(whether or not substantial) of your organization nection with a transfer for which a deduction is tions will receive an automatic 12-month
consist of participating in, or intervening in, any not allowable under the deduction denial rule, extension if they file an application for rec-
political campaign on behalf of (or in opposition without regard to when the transfer to the chari- ognition of exemption with the IRS within
to) any candidate for public office, your organi- table organization was made, an excise tax will 12 months of the original deadline. To get
zation will not qualify for tax-exempt status be applied that is equal to the amount of the this extension, an organization must add
under section 501(c)(3). Such participation or premiums paid by the organization on any life the following statement at the top of its
intervention includes the publishing or distribut- insurance, annuity, or endowment contract. The application: Filed Pursuant to Section
excise tax does not apply if all of the direct and ing of statements. 301.9100-2.
Chapter 3 Section 501(c)(3) Organizations Page 21
REL 00905
2. Discretionary extensions. An organization grant of relief on the organization providing the A request for this relief in connection with an
that fails to file a Form 1023 within the application for exemption does not require pay- IRS with a statement from an independent audi-
extended 12-month period will be granted ment of an additional user fee. Also, a request tor certifying that the interests of the Govern-
an extension to file if it submits evidence for relief under the automatic 12-month exten- ment are not prejudiced.
(including affidavits) to establish that: sion does not require payment of a user fee.
Procedure for requesting extension. To
More information. For more information request a discretionary extension, an organiza-
a. It acted reasonably and in good faith,
about these procedures, see Regulations section must submit (to the IRS address shown on
and
tions 301.9100-1, 301.9100-2, 301.9100-3, and Form 1023 and Notice 1382) the following.
b. Granting a discretionary extension will
Rev. Proc. 2010-4, section 6.04 and Rev. Proc.
A statement showing the date Form 1023
not prejudice the interests of the gov-
2010-8, sec. 6.08.
was required to have been filed and the
ernment.
Notification from IRS. Organizations filing date it was actually filed.
Form 1023 and satisfying all requirements of
Any documents relevant to the application. How to show reasonable action and good
section 501(c)(3) will be notified of their exempt
faith. An organization acted reasonably and
status in writing. An affidavit describing in detail the events
showed good faith if at least one of the following
that led to the failure to apply and to the
is true.
discovery of that failure. If the organization
Organizations Not Required
relied on a tax professionals advice, the
1. The organization requests relief before its
To File Form 1023
affidavit must describe the engagement
failure to file is discovered by the IRS.
and responsibilities of the professional and
Some organizations are not required to file Form
2. The organization failed to file because of
the extent to which the organization relied
1023. These include:
intervening events beyond its control.
on him or her.
Churches, interchurch organizations of lo-
3. The organization exercised reasonable dili-
This affidavit must be accompanied by a
cal units of a church, conventions or as-
gence (taking into account the complexity
dated declaration, signed by an individual
sociations of churches, or integrated
of the return or issue and the organiza-
who has personal knowledge of the facts
auxiliaries of a church, such as a mens or
tions experience in these matters) but was
and circumstances, who is authorized to
womens organization, religious school,
not aware of the filing requirement.
act for the organization, which states,
mission society, or youth group.
Under penalties of perjury, I declare that I
4. The organization reasonably relied upon
Any organization (other than a private
have examined this request, including ac-
the written advice of the IRS.
foundation) normally having annual gross
companying documents, and, to the best
receipts of not more than $5,000 (see 5. The organization reasonably relied upon
of my knowledge and belief, the request
Gross receipts test, later). the advice of a qualified tax professional
contains all the relevant facts relating to
who failed to file or advise the organization
the request, and such facts are true, cor-
These organizations are exempt automati- to file Form 1023. An organization cannot
rect, and complete.
cally if they meet the requirements of section rely on the advice of a tax professional if it
Detailed affidavits from individuals having 501(c)(3). knows or should know that he or she is not
knowledge or information about the events
competent to render advice on filing ex-
Filing Form 1023 to establish exemption. If
that led to the failure to make the applica-
emption applications or is not aware of all
the organization wants to establish its exemp-
tion and to the discovery of that failure. the relevant facts.
tion with the IRS and receive a ruling or determi-
This includes the organizations return
nation letter recognizing its exempt status, it
preparer, and any accountant or attorney, Not acting reasonably and in good faith.
should file Form 1023. By establishing its ex-
knowledgeable in tax matters, who ad- An organization has not acted reasonably and in
emption, potential contributors are assured by
good faith under the following circumstances. vised the taxpayer on the application. The
the IRS that contributions will be deductible. A
affidavits must describe the engagement
subordinate organization (other than a private
1. It seeks to change a return position for
and responsibilities of the individual and
foundation) covered by a group exemption letter
which an accuracy-related penalty has
the advice that he or she provided.
does not have to submit a Form 1023 for itself.
been or could be imposed at the time the
These affidavits must include the name,
relief is requested.
Private foundations. See Private Founda-
current address, and taxpayer identifica-
tions and Public Charities, later in this chapter,
2. It was informed of the requirement to file
tion number of the individual, and be ac-
for more information about the additional notice
and related tax consequences, but chose
companied by a dated declaration, signed
required from an organization in order for it not
not to file.
by the individual, which states: Under
to be presumed to be a private foundation and
penalties of perjury, I declare that I have
3. It uses hindsight in requesting relief. The
for the additional information required from a
examined this request, including accom-
IRS will not ordinarily grant an extension if
private foundation claiming to be an operating
panying documents, and, to the best of my
specific facts have changed since the due
foundation.
knowledge and belief, the request con-
date that makes filing an application ad-
Gross receipts test. For purposes of the tains all the relevant facts relating to the vantageous to an organization.
gross receipts test, an organization normally
request, and such facts are true, correct,
does not have more than $5,000 annually in
and complete. Prejudicing the interest of the Govern-
gross receipts if:
ment. Prejudice to the interest of the Govern-
The organization must state whether the
ment results if granting an extension of time to
returns for the tax year in which the appli- 1. During its first tax year the organization
file to an organization results in a lower total tax
cation should have been filed or any tax received gross receipts of $7,500 or less,
liability for the years to which the filing applies
years that would have been affected by
than would have been the case if the organiza- 2. During its first 2 years the organization had
the application had it been timely made
tion had filed on time. Before granting an exten- a total of $12,000 or less in gross receipts,
are being examined by the IRS, an ap-
sion, the IRS can require the organization and
peals office, or a federal court. The organi-
requesting it to submit a statement from an inde-
zation must notify the IRS office 3. In the case of an organization that has
pendent auditor certifying that no prejudice will
considering the request for relief if the IRS been in existence for at least 3 years, the
result if the extension is granted.
starts an examination of any such return total gross receipts received by the organi-
The interests of the Government are ordinar-
while the organizations request for relief is zation during the immediately preceding 2
ily prejudiced if the tax year in which the applica-
pending. years, plus the current year, are $15,000
tion should have been filed (or any tax year that
or less.
would have been affected had the filing been The organization, if requested, has to sub-
timely) are closed by the statute of limitations mit copies of its tax returns, and copies of An organization with gross receipts more
before relief is granted. The IRS can condition a the returns of other affected taxpayers. than the amounts in the gross receipts test,
REL 00906
unless otherwise exempt from filing Form 1023, Section 501(c)(3) is the provision of law that foster the best interests of the people, or to
must file a Form 1023 within 90 days after the grants exemption to the organizations described further the common welfare and well-being of
end of the period in which the amounts are in this chapter. Therefore, the organizational test the community, without any limitation or provi-
exceeded. For example, an organizations gross
may be met if the purposes stated in the articles sion restricting such purposes to accomplish-
receipts for its first tax year were less than
of organization are limited in some way by refer- ment only in a charitable manner, the purposes
$7,500, but at the end of its second tax year its
ence to section 501(c)(3). will not be sufficiently limited. Such purposes are
gross receipts for the 2-year period were more
vague and may be accomplished other than in The requirement that your organizations
than $12,000. The organization must file Form
an exempt manner. purposes and powers must be limited by the
1023 within 90 days after the end of its second
articles of organization is not satisfied if the limit
tax year.
Example 7. A stated purpose to operate a
is contained only in the bylaws or other rules or
If the organization had existed for at least 3
hospital does not meet the organizational test
regulations. Moreover, the organizational test is
tax years and had met the gross receipts test for
since it is not necessarily charitable. A hospital
not satisfied by statements of your organiza-
all prior tax years but fails to meet the require-
may or may not be exempt depending on the
tions officers that you intend to operate only for
ment for the current tax year, its tax-exempt
manner in which it is operated.
exempt purposes. Also, the test is not satisfied
status for the prior years will not be lost even if
by the fact that your actual operations are for
Form 1023 is not filed within 90 days after the
Example 8. An organization that is ex-
exempt purposes.
close of the current tax year. However, the or-
pressly empowered by its articles to carry on
ganization will not be treated as a section In interpreting an organizations articles, the
social activities will not be sufficiently limited as
501(c)(3) organization for the period beginning law of the state where the organization was
to its power, even if its articles state that it is
with the current tax year and ending with the
created is controlling. If an organization con-
organized and will be operated exclusively for
filing of Form 1023.
tends that the terms of its articles have a differ-
charitable purposes.
ent meaning under state law than their generally
Example. An organization is organized and
accepted meaning, such meaning must be es-
operated exclusively for charitable purposes
Dedication and
tablished by a clear and convincing reference to
and is not a private foundation. It was incorpo-
Distribution of Assets relevant court decisions, opinions of the state
rated on January 1, 2007, and files returns on a
attorney general, or other appropriate state au- calendar-year basis. It did not file a Form 1023.
Assets of an organization must be permanently
thorities. The organizations gross receipts during the
dedicated to an exempt purpose. This means
years 2007 through 2010 were as follows:
The following are examples illustrating the
that should an organization dissolve, its assets
organizational test.
must be distributed for an exempt purpose de-
2007 . . . . . . . . . . . . . . . . . . . . . . $3,600
scribed in this chapter, or to the Federal Govern- 2008 . . . . . . . . . . . . . . . . . . . . . . 2,900
Example 1. Articles of organization state
2009 . . . . . . . . . . . . . . . . . . . . . . 400 ment or to a state or local government for a
that an organization is formed exclusively for
2010 . . . . . . . . . . . . . . . . . . . . . . 12,600
public purpose. If the assets could be distributed
literary and scientific purposes within the mean-
to members or private individuals or for any
ing of section 501(c)(3). These articles appropri- The organizations total gross receipts for
other purpose, the organizational test is not met.
2007, 2008, and 2009 were $6,900. Therefore, it ately limit the organizations purposes. The
did not have to file Form 1023 and is exempt for organization meets the organizational test.
Dedication. To establish that your organi-
those years. However, for 2008, 2009, and 2010
zations assets will be permanently dedicated to
the total gross receipts were $15,900. There- Example 2. An organization, by the terms of
an exempt purpose, the articles of organization
fore, the organization must file Form 1023 within its articles, is formed to engage in research
should contain a provision ensuring their distri-
90 days after the end of its 2010 tax year. If it
without any further description or limitation. The
bution for an exempt purpose in the event of
does not file within this time period, it will not be
organization will not be properly limited as to its
dissolution. Although reliance can be placed
exempt under section 501(c)(3) for the period
purposes since all research is not scientific. The
upon state law to establish permanent dedica-
beginning with tax year 2010 ending when the
organization does not meet the organizational
tion of assets for exempt purposes, your organi-
Form 1023 is received by the IRS. The organiza-
test.
zations application probably can be processed
tion, however, will not lose its exempt status for
much more rapidly if its articles of organization
the tax years ending before January 1, 2010.
Example 3. An organizations articles state
include a provision ensuring permanent dedica-
The IRS will consider applying the Commis-
that its purpose is to receive contributions and
tion of assets for exempt purposes.
sioners discretionary authority to extend the
pay them over to organizations that are de-
time for filing Form 1023. See the procedures for
Distribution. Revenue Procedure 82-2,
scribed in section 501(c)(3) and exempt from
this extension discussed earlier.
1982-1 C.B. 367, identifies the states and cir-
taxation under section 501(a). The organization
cumstances in which the IRS will not require an
meets the organizational test.
express provision for the distribution of assets
upon dissolution in the articles of organization. Example 4. If a stated purpose in the arti-
Articles of
The procedure also provides a sample of an cles is the conduct of a school of adult education
acceptable dissolution provision for organiza- and its manner of operation is described in de-
Organization
tions required to have one. tail, such a purpose will be satisfactorily limited.
If a named beneficiary is to be the distribu-
Your organization must include a conformed
Example 5. If the articles state the organiza-
tee, it must be one that would qualify and would copy of its articles of organization with the appli-
tion is formed for charitable purposes, without
be exempt within the meaning of section cation for recognition of exemption. This may be
any further description, such language ordinarily
its trust instrument, corporate charter, articles of 501(c)(3) at the time the dissolution takes place.
will be sufficient since the term charitable has a
association, or any other written instrument by Since the named beneficiary at the time of disso-
generally accepted legal meaning. On the other
which it is created.
lution may not be qualified, may not be in exis-
hand, if the purposes are stated to be charitable,
tence, or may be unwilling or unable to accept
philanthropic, and benevolent, the organiza-
the assets of the dissolving organization, a pro- Organizational Test
tional requirement will not be met since the
vision should be made for distribution of the
terms philanthropic and benevolent have no
The articles of organization must limit the organ-
assets for one or more of the purposes specified
generally accepted legal meaning and, there-
izations purposes to one or more of those de-
in this chapter in the event of any such contin-
fore, the stated purposes may, under the laws of scribed at the beginning of this chapter and must
gency.
the state, permit activities that are broader than not expressly empower it to engage, other than
those intended by the exemption law. as an insubstantial part of its activities, in activi-
Sample articles of organization. See sam-
ties that do not further one or more of those
Example 6. If the articles state an organiza- ple articles of organization in the Appendix in the purposes. These conditions for exemption are
tion is formed to promote American ideals, or to back of this publication. referred to as the organizational test.
REL 00907
Qualifying organizations. The following 2. The amount of scholarship and loan funds,
if any, awarded to students enrolled and types of organizations may qualify as educa-
Educational
the racial composition of students who tional:
have received the awards.
Organizations
1. An organization, such as a primary or sec-
3. A list of the schools incorporators, foun-
ondary school, a college, or a professional
and Private Schools
ders, board members, and donors of land
or trade school, that has a regularly sched-
or buildings, whether individuals or organi-
uled curriculum, a regular faculty, and a
If your organization wants to obtain recognition
zations.
regularly enrolled student body in attend- of exemption as an educational organization,
ance at a place where the educational ac- you must submit complete information as to how 4. A statement indicating whether any of the
tivities are regularly carried on, your organization carries on or plans to carry on organizations described in item (3) above
its educational activities, such as by conducting have an objective of maintaining segre-
2. An organization whose activities consist of
a school, by panels, discussions, lectures, fo- gated public or private school education at
conducting public discussion groups, fo-
rums, radio and television programs, or through
the time the application is filed and, if so,
rums, panels, lectures, or other similar pro-
various cultural media such as museums, sym-
whether any of the individuals described in
grams,
phony orchestras, or art exhibits. In each in-
item (3) are officers or active members of
stance, you must explain by whom and where 3. An organization that presents a course of those organizations at the time the applica-
these activities are or will be conducted and the
instruction by correspondence or through tion is filed.
amount of admission fees, if any. You must
the use of television or radio,
5. The public school district and county in
submit a copy of the pertinent contracts, agree-
4. A museum, zoo, planetarium, symphony which the school is located.
ments, publications, programs, etc.
orchestra, or other similar organization,
If you are organized to conduct a school, you
must submit full information regarding your tui-
5. A nonprofit childrens day-care center, and How to determine racial composition. The
tion charges, number of faculty members, num-
racial composition of the student body, faculty,
6. A credit counseling organization.
ber of full-time and part-time students enrolled,
and administrative staff can be an estimate
courses of study and degrees conferred, to-
based on the best information readily available
College book stores, cafeterias, restau-
gether with a copy of your school catalog. See
to the school, without requiring student appli-
rants, etc. These and other on-campus orga-
also Private Schools, discussed later.
cants, students, faculty, or administrative staff to
nizations should submit information to show that
submit to the school information that the school
they are controlled by and operated for the con-
Educational Organizations otherwise does not require. Nevertheless, a
venience of the faculty and student body or by
statement of the method by which the racial
whom they are controlled and whom they serve.
The term educational relates to:
composition was determined must be supplied.
Alumni association. An alumni association The identity of individual students or members of
1. The instruction or training of individuals for
should establish that it is organized to promote the faculty and administrative staff should not be
the purpose of improving or developing
included with this information. the welfare of the university with which it is
their capabilities, or
affiliated, is subject to the control of the univer- A school that is a state or municipal instru-
2. The instruction of the public on subjects
sity as to its policies and destination of funds, mentality (see Instrumentalities, near the begin-
useful to individuals and beneficial to the
and is operated as an integral part of the univer- ning of this chapter), whether or not it qualifies
community.
sity or is otherwise organized to promote the for exemption under section 501(c)(3), is not
considered to be a private school for purposes of welfare of the college or university. If your asso-
the following discussion. ciation does not have these characteristics, it Advocacy of a position. Advocacy of a par-
may still be exempt as a social club if it meets ticular position or viewpoint may be educational
if there is a sufficiently full and fair exposition of the requirements described in chapter 4, under
Racially Nondiscriminatory Policy
pertinent facts to permit an individual or the 501(c)(7) - Social and Recreation Clubs.
public to form an independent opinion or conclu-
Athletic organization. This type of organi- To qualify as an organization exempt from fed-
sion. The mere presentation of unsupported
zation must submit evidence that it is engaged in eral income tax, a private school must include a
opinion is not educational.
statement in its charter, bylaws, or other govern- activities such as directing and controlling inter-
Method not educational. The method used
ing instrument, or in a resolution of its governing scholastic athletic competitions, conducting
by an organization to develop and present its
body, that it has a racially nondiscriminatory tournaments, and prescribing eligibility rules for
views is a factor in determining if an organization
policy as to students and that it does not discrim-
contestants. If it is not so engaged, your organi-
qualifies as educational within the meaning of
inate against applicants and students on the
zation may be exempt as a social club described
section 501(c)(3). The following factors may in-
basis of race, color, or national or ethnic origin.
in chapter 4. Raising funds to be used for travel
dicate that the method is not educational.
Also, the school must circulate information that
and other activities to interview and persuade
clearly states the schools admission policies. A
prospective students with outstanding athletic
1. The presentation of viewpoints unsup-
racially nondiscriminatory policy toward stu-
ability to attend a particular university does not
ported by facts is a significant part of the
dents means that the school admits the students
show an exempt purpose. If your organization is
organizations communications.
of any race to all the rights, privileges, programs,
not exempt as an educational organization, see
2. The facts that purport to support the view- and activities generally accorded or made avail-
Amateur Athletic Organizations, later in this
point are distorted. able to students at that school and that the
chapter.
school does not discriminate on the basis of race
3. The organizations presentations make
in administering its educational policies, admis-
substantial use of inflammatory and dispar-
Private Schools
sion policies, scholarship and loan programs,
aging terms and express conclusions more
and athletic and other school-administered pro-
on the basis of emotion than of objective Every private school filing an application for rec-
grams.
evaluations. ognition of tax-exempt status must supply the
The IRS considers discrimination on the ba-
IRS (on Schedule B, Form 1023) with the follow-
4. The approach used is not aimed at devel-
sis of race to include discrimination on the basis
ing information.
oping an understanding on the part of the
of color or national or ethnic origin.
audience because it does not consider
1. The racial composition of the student body, The existence of a racially discriminatory pol-
their background or training.
and of the faculty and administrative staff, icy with respect to the employment of faculty and
as of the current academic year. (This in- administrative staff is indicative of a racially dis- Exceptional circumstances, however, may
formation also must be projected, so far as criminatory policy as to students. Conversely, exist where an organizations advocacy may be
may be feasible, for the next academic the absence of racial discrimination in the em- educational even if one or more of the factors
ployment of faculty and administrative staff is listed above are present. year.)
REL 00908
indicative of a racially nondiscriminatory policy Method two. The school can use the broad- basis of the facts and circumstances of each
as to students. case. cast media to publicize its racially nondiscrimi-
A policy of a school that favors racial minority natory policy if this use makes the policy known The IRS recognizes that the failure by a
groups with respect to admissions, facilities and to all segments of the general community the school drawing its students from local communi-
programs, and financial assistance is not dis- school serves. If the school uses this method, it ties to enroll racial minority group students may
crimination on the basis of race when the pur- must provide documentation showing that the not necessarily indicate the absence of a racially
pose and effect of this policy is to promote
nondiscriminatory policy when there are rela- means by which this policy was communicated
establishing and maintaining the schools non-
tively few or no such students in these communi- to all segments of the general community was
discriminatory policy.
ties. Actual enrollment is, however, a meaningful reasonably expected to be effective. In this
A school that selects students on the basis of
indication of a racially nondiscriminatory policy case, appropriate documentation would include
membership in a religious denomination or unit
in a community in which a public school or copies of the tapes or scripts used and records
is not discriminating if membership in the de-
schools became subject to a desegregation or-
showing that there was an adequate number of
nomination or unit is open to all on a racially
der of a federal court or are otherwise expressly
announcements. The documentation also would
nondiscriminatory basis.
obligated to implement a desegregation plan
include proof that these announcements were
under the terms of any written contract or other
made during hours when they were likely to be
Policy statement. The school must include a
commitment to which any federal agency was a
communicated to all segments of the general
statement of its racially nondiscriminatory policy
party.
community, that they were long enough to con-
in all its brochures and catalogs dealing with
The IRS encourages schools to satisfy the
vey the message clearly, and that they were
student admissions, programs, and scholar-
publicity requirement by using either of the
broadcast on radio or television stations likely to
ships. Also, the school must include a reference
methods described earlier, even though a
be listened to by substantial numbers of mem-
to its racially nondiscriminatory policy in other
school considers itself to be within one of the
bers of all racial segments of the general com-
written advertising that it uses to inform prospec-
Exceptions. The IRS believes that these public-
munity. Announcements must be made during
tive students of its programs.
ity requirements are the most effective methods
the period of the schools solicitation for stu-
to make known a schools racially nondiscrimi-
dents or, in the absence of a solicitation pro-
Publicity requirement. The school must
natory policy. In this regard, it is each schools
gram, during the schools registration period. make its racially nondiscriminatory policy known
responsibility to determine whether either of the
to all segments of the general community served
Exceptions. The publicity requirements will
exceptions applies. Such responsibility will pre-
by the school. Selective communication of a
not apply in the following situations.
pare the school, if it is audited by the IRS, to
racially nondiscriminatory policy that a school
demonstrate that the failure to publish its racially
provides solely to leaders of racial groups will
First, if for the preceding 3 years the
nondiscriminatory policy in accordance with ei-
not be considered an effective means of com-
enrollment of a parochial or other
ther one of the publicity requirements was justi-
munication to make the policy known to all seg-
church-related school consists of students
fied by one of the exceptions. Also, a school
ments of the community. To satisfy this
at least 75% of whom are members of the
must be prepared to demonstrate that it has
requirement, the school must use one of the
sponsoring religious denomination or unit,
publicly disavowed or repudiated any state-
following two methods.
the school can make known its racially non-
ments purported to have been made on its be-
discriminatory policy in whatever newspa-
Method one. The school can publish a no-
half (after November 6, 1975) that are contrary
pers or circulars the religious denomination
tice of its racially nondiscriminatory policy in a
to its publicity of a racially nondiscriminatory
or unit uses in the communities from which
newspaper of general circulation that serves all
policy as to students, to the extent that the
the students are drawn. These newspapers
racial segments of the community. Such publi-
school or its principal official was aware of these
and circulars can be distributed by a partic-
cation must be repeated at least once annually
statements.
ular religious denomination or unit or by an during the period of the schools solicitation for
association that represents a number of re- students or, in the absence of a solicitation pro- Facilities and programs. A school must be
ligious organizations of the same denomi- gram, during the schools registration period. able to show that all of its programs and facilities
nation. If, however, the school advertises in When more than one community is served by a are operated in a racially nondiscriminatory
newspapers of general circulation in the school, the school can publish the notice in manner.
those newspapers that are reasonably likely to community or communities from which its
Scholarship and loan programs. As a gen- be read by all racial segments in the communi- students are drawn and the second excep-
eral rule, all scholarship or other comparable ties that the school serves. tion (discussed next) does not apply to the
benefits obtainable at the school must be of- If this method is used, the notice must meet school, then it must comply with either of
fered on a racially nondiscriminatory basis. This the following printing requirements. the publicity requirements explained earlier.
must be known throughout the general commu-
Second, if a school customarily draws a
1. It must appear in a section of the newspa-
nity being served by the school and should be
substantial percentage of its students na-
per likely to be read by prospective stu-
referred to in its publicity. Financial assistance
tionwide, worldwide, from a large geo-
dents and their families.
programs, as well as scholarships and loans
graphic section or sections of the United
made under financial assistance programs, that
2. It must occupy at least 3 column inches.
States, or from local communities, and if the
favor members of one or more racial minority
school follows a racially nondiscriminatory 3. It must have its title printed in at least 12
groups and that do not significantly detract from
policy as to its students, the school may point bold face type.
or are designed to promote a schools racially
satisfy the publicity requirement by comply-
nondiscriminatory policy will not adversely affect
4. It must have the remaining text printed in
ing with the instructions explained earlier
the schools exempt status.
at least 8 point type.
under Policy statement.
The following is an acceptable example of
Certification. An individual authorized to take
the notice: The school can demonstrate that it follows a official action on behalf of a school that claims to
racially nondiscriminatory policy either by show- be racially nondiscriminatory as to students
NOTICE OF
ing that it currently enrolls students of racial must certify annually, under penalties of perjury,
NONDISCRIMINATORY POLICY
minority groups in meaningful numbers or, ex- on Schedule E (Form 990 or 990-EZ) or Form
AS TO STUDENTS
5578, Annual Certification of Racial Nondiscrim- cept for local community schools, when minority The M School admits students of any race, color,
national and ethnic origin to all the rights, ination for a Private School Exempt From Fed- students are not enrolled in meaningful num-
privileges, programs, and activities generally
eral Income Tax, whichever applies, that to the bers, that its promotional activities and recruiting
accorded or made available to students at the
best of his or her knowledge and belief the efforts in each geographic area were reasonably
school. It does not discriminate on the basis of
school has satisfied all requirements that apply, designed to inform students of all racial seg-
race, color, national and ethnic origin in
as previously explained. ments in the general communities within the administration of its educational policies,
admissions policies, scholarship and loan area of the availability of the school. The ques- Failure to comply with the guidelines ordinar-
pr ogr ams , and at hl et i c and ot her
tion as to whether a school demonstrates such a ily will result in the proposed revocation of the
school-administered programs.
policy satisfactorily will be determined on the exempt status of a school.
REL 00909
Recordkeeping requirements. With Some examples of this type of organization are
certain exceptions, given later, each those organized for:
Organizations
exempt private school must maintain
RECORDS
Relief of the poor, the distressed, or the
the following records for a minimum period of 3
Providing Insurance
underprivileged,
years, beginning with the year after the year of
compilation or acquisition. Advancement of religion,
An organization described in sections 501(c)(3)
or 501(c)(4) may be exempt from tax only if no
1. Records indicating the racial composition Advancement of education or science,
substantial part of its activities consists of pro-
of the student body, faculty, and adminis-
Erection or maintenance of public build-
viding commercial-type insurance.
trative staff for each academic year.
ings, monuments, or works,
However, this rule does not apply to
2. Records sufficient to document that schol-
state-sponsored organizations described in sec-
Lessening the burdens of government,
arship and other financial assistance is
tions 501(c)(26) or 501(c)(27), which are dis-
awarded on a racially nondiscriminatory Lessening of neighborhood tensions,
cussed in chapter 4, or to charitable risk pools,
basis.
discussed next.
Elimination of prejudice and discrimina-
3. Copies of all materials used by or on be- tion,
half of the school to solicit contributions.
Charitable Risk Pools
Defense of human and civil rights secured
4. Copies of all brochures, catalogs, and ad- by law, and
A charitable risk pool is treated as organized and
vertising dealing with student admissions,
operated exclusively for charitable purposes if it: Combating community deterioration and
programs, and scholarships. (Schools ad-
juvenile delinquency.
vertising nationally or in a large geographic
1. Is organized and operated only to pool in-
segment or segments of the United States The rest of this section contains a description of
surable risks of its members (not including
need only maintain a record sufficient to the information to be provided by certain specific
risks related to medical malpractice) and to
indicate when and in what publications organizations. This information is in addition to
provide information to its members about
their advertisements were placed.) the required inclusions described in chapter 1,
loss control and risk management,
and other statements requested on Form 1023.
The racial composition of the student body,
2. Consists only of members that are section
Each of the following organizations must submit
faculty, and administrative staff can be deter-
501(c)(3) organizations exempt from tax
the information described.
mined in the same manner as that described at
under section 501(a),
the beginning of this section. However, a school
Charitable organization supporting educa-
3. Is organized under state law authorizing
cannot discontinue maintaining a system of rec-
tion. Submit information showing how your or-
this type of risk pooling,
ords that reflect the racial composition of its
ganization supports education for example,
students, faculty, and administrative staff used
4. Is exempt from state income tax (or will be
contributes to an existing educational institution,
on November 6, 1975, unless it substitutes a
after qualifying as a section 501(c)(3) or-
endows a professorial chair, contributes toward
different system that compiles substantially the
ganization),
paying teachers salaries, or contributes to an
same information, without advance approval of
educational institution to enable it to carry on
5. Has obtained at least $1,000,000 in startup
the IRS.
research. capital from nonmember charitable organi-
The IRS does not require that a school release
zations,
any personally identifiable records or personal Scholarships. If the organization awards or
information except in accordance with the re- plans to award scholarships, complete Sched- 6. Is controlled by a board of directors
quirements of the Family Educational Rights ule H of Form 1023. Submit the following also. elected by its members, and
and Privacy Act of 1974. Similarly, the IRS does
7. Is organized under documents requiring
1. Criteria used for selecting recipients, in-
not require a school to keep records prohibited
that:
cluding the rules of eligibility.
under state or federal law.
2. How and by whom the recipients are or will a. Each member be a section 501(c)(3)
Exceptions. The school does not have to
be selected. organization exempt from tax under
independently maintain these records for IRS
section 501(a),
use if both of the following are true. 3. If awards are or will be made directly to
individuals, whether information is required b. Each member that receives a final de-
1. Substantially the same information has
assuring that the student remains in termination that it no longer qualifies
been included in a report or reports filed
school. under section 501(c)(3) notify the pool
with an agency or agencies of federal,
immediately, and
4. If awards are or will be made to recipients
state, or local governments, and this infor-
of a particular class, for example, children c. Each insurance policy issued by the mation is current within 1 year.
of employees of a particular employer pool provide that it will not cover events
2. The school maintains copies of these re-
occurring after a final determination de-
ports from which this information is readily
a. Whether any preference is or will be
scribed in (b).
obtainable.
accorded an applicant by reason of the
parents position, length of employment,
If these reports do not include all of the informa-
or salary,
tion required, as discussed earlier, records pro-
viding such remaining information must be
b. Whether as a condition of the award the
maintained by the school for IRS use.
recipient must upon graduation accept Other Section 501(c)(3)
employment with the company, and
Failure to maintain records. Failure to
Organizations
maintain or to produce the required records and
c. Whether the award will be continued
information, upon proper request, will create a
even if the parents employment ends.
In addition to the information required for all
presumption that the organization has failed to
organizations, as described earlier, you should
comply with these guidelines. 5. A copy of the scholarship application form
include any other information described in this
and any brochures or literature describing
section.
the scholarship program.
Charitable Organizations
Hospital. If you are organized to operate a
charitable hospital, complete and attach Section
If your organization is applying for recognition of
I of Schedule C, Form 1023.
exemption as a charitable organization, it must
If your hospital was transferred to you from show that it is organized and operated for pur-
proprietary ownership, complete and attach poses that are beneficial to the public interest.
REL 00910
Schedule G of Form 1023. You must attach a list poor), such as in the area of protection of the creed are not illegal or contrary to clearly
showing: environment, you should submit the following defined public policy.
information.
Therefore, your group (or organization) may not
1. The names of the active and courtesy staff
qualify for treatment as an exempt religious or-
members of the proprietary hospital, as 1. How the litigation can reasonably be said
ganization for tax purposes if its actions, as
well as the names of your medical staff to be representative of a broad public inter-
contrasted with its beliefs, are contrary to well
members after the transfer to nonprofit est rather than a private one.
established and clearly defined public policy. If
ownership, and
2. Whether the organization will accept fees
there is a clear showing that the beliefs (or
2. The names of any doctors who continued for its services.
doctrines) are sincerely held by those professing
to lease office space in the hospital after
them, the IRS will not question the religious
3. A description of the cases litigated or to be
its transfer to nonprofit ownership and the
nature of those beliefs.
litigated and how they benefit the public
amount of rent paid. Submit also an ap-
generally.
praisal showing the fair rental value of the
Churches. Although a church, its integrated
rented space.
4. Whether the policies and program of the
auxiliaries, or a convention or association of
organization are the responsibility of a
churches is not required to file Form 1023 to be
Clinic. If you are organized to operate a clinic,
board or committee representative of the
exempt from federal income tax or to receive tax
attach a statement including:
public interest, which is neither controlled
deductible contributions, the organization may
by employees or persons who litigate on
find it advantageous to obtain recognition of 1. A description of the facilities and services,
behalf of the organization nor by any or-
exemption. In this event, you should submit in-
2. To whom the services are offered, such as ganization that is not itself an organization
formation showing that your organization is a
the public at large or a specific group, described in this chapter.
church, synagogue, association or convention
3. How charges are determined, such as on a of churches, religious order, or religious organi- 5. Whether the organization is operated,
profit basis, to recover costs, or at less zation that is an integral part of a church, and through sharing of office space or other-
than cost, that it is engaged in carrying out the function of a wise, in a way to create identification or
church. confusion with a particular private law firm.
4. By whom administered and controlled,
In determining whether an admittedly relig-
6. Whether there is an arrangement to pro-
5. Whether any of the professional staff (that
ious organization is also a church, the IRS does
vide, directly or indirectly, a deduction for
is, those who perform or will perform the
not accept every assertion that the organization
the cost of litigation that is for the private
clinical services) also serve or will serve in
is a church. Because beliefs and practices vary
benefit of the donor.
an administrative capacity, and
so widely, there is no single definition of the
word church for tax purposes. The IRS consid-
6. How compensation paid the professional
Acceptance of attorneys fees. A nonprofit
ers the facts and circumstances of each organi- staff is or will be determined.
public-interest law firm can accept attorneys
zation applying for church status.
fees in public-interest cases if the fees are paid
Home for the aged. If you are organized to
directly by its clients and the fees are not more Convention or association of churches.
operate a home for the aged, complete and
than the actual costs incurred in the case. Upon Any organization that is otherwise a convention
attach Schedule F of Form 1023 and required
undertaking a representation, the organization or association of churches will not fail to qualify
attachments.
cannot withdraw from the case because the liti- as a church merely because the membership of
gant is unable to pay the fee. the organization includes individuals as well as Community nursing bureau. If you provide a
churches or because the individuals have voting nursing register or community nursing bureau, Firms can accept fees awarded or approved
rights in the organization. provide information showing that your organiza- by a court or an administrative agency and paid
tion will be operated as a community project and by an opposing party if the firms do not use the
Integrated auxiliaries. An organization is
will receive its primary support from public con- likelihood or probability of fee awards as a con-
an integrated auxiliary of a church if all the fol-
tributions to maintain a nonprofit register of qual-
sideration in the selection of cases. All fee
lowing are true.
ified nursing personnel, including graduate
awards must be paid to the organization and not
nurses, unregistered nursing school graduates,
to its individual staff attorneys. Instead, a pub- 1. The organization is described both in sec-
licensed attendants and practical nurses for the
lic-interest law firm can reasonably compensate tions 501(c)(3) and 509(a)(1), 509(a)(2), or
benefit of hospitals, health agencies, doctors,
its staff attorneys, but only on a straight salary 509(a)(3).
and individuals.
basis. Private attorneys, whose services are re-
2. It is affiliated with a church or a convention
tained by the firm to assist it in particular cases,
Organization providing loans. If you make,
or association of churches.
can be compensated by the firm, but only on a
or will make, loans for charitable and educa-
3. It is internally supported. An organization is fixed fee or salary basis.
tional purposes, submit the following informa-
internally supported unless both of the fol-
The total amount of all attorneys fees (court tion.
lowing are true.
awarded and those received from clients) must
1. An explanation of the circumstances under
not be more than 50% of the total cost of opera-
a. It offers admissions, goods, services, or
which such loans are, or will be, made.
tions of the organizations legal functions, calcu-
facilities for sale, other than on an inci-
lated over a 5-year period.
2. Criteria for selection, including the rules of
dental basis, to the general public (ex-
If, in order to carry out its program, an organi- eligibility.
cept goods, services, or facilities sold at
zation violates applicable canons of ethics, dis-
a nominal charge or for a small part of
3. How and by whom the recipients are or will
rupts the judicial system, or engages in any
the cost).
be selected.
illegal action, the organization will jeopardize its
b. It normally gets more than 50% of its
4. Manner of repayment of the loan. exemption.
support from a combination of govern-
5. Security required, if any.
mental sources, public solicitation of
Religious Organizations
contributions, and receipts from the sale 6. Interest charged, if any, and when pay-
of admissions, goods, performance of able.
To determine whether an organization meets
services, or furnishing of facilities in ac-
the religious purposes test of section 501(c)(3),
7. Copies in duplicate of the loan application
tivities that are not unrelated trades or
the IRS maintains two basic guidelines.
and any brochures or literature describing
businesses.
the loan program.
1. That the particular religious beliefs of the
organization are truly and sincerely held.
Special rule. Mens and womens organiza- Public-interest law firms. If your organiza-
tions, seminaries, mission societies, and youth 2. That the practices and rituals associated tion was formed to litigate in the public interest
groups that satisfy (1) and (2) shown earlier are (as opposed to providing legal services to the with the organizations religious belief or
REL 00911
integrated auxiliaries of a church even if they are Only reports of your research activities or
not internally supported. those conducted on your behalf, as distin-
Private Foundations
guished from those of your creators or
In order for an organization (including a
members conducted in their individual ca-
church and religious organization) to qualify for
and Public Charities
pacities, should be submitted.
tax exemption, no part of its net earnings can
inure to any individual. It is important that you determine if your organi-
zation is a private foundation. Most organiza- Although an individual is entitled to a charita-
Literary Organizations
tions exempt from income tax (as organizations ble deduction for contributions to a church, the
described in section 501(c)(3)) are presumed to assignment or similar transfer of compensation
If your organization is established to operate a
be private foundations unless they notify the IRS for personal services to a church generally does
book store or engage in publishing activities of
within a specified period of time that they meet not relieve a taxpayer of federal income tax
any nature (printing, publication, or distribution
the requirements of section 509(a) to be liability on the compensation, regardless of the
of your own material or that printed or published
treated as other than a private foundation. motivation behind the transfer.
by others and distributed by you), explain fully
This notice requirement applies to most section
the nature of the operations, including whether
501(c)(3) organizations regardless of when they
sales are or will be made to the general public, Scientific Organizations
were formed.
the type of literature involved, and how these
You must show that your organizations re-
activities are related to your stated purposes.
search will be carried on in the public interest.
Private Foundations
Scientific research will be considered to be in the
Amateur Athletic
public interest if the results of the research (in- Every organization that qualifies for tax exemp-
Organizations
cluding any patents, copyrights, processes, or tion as an organization described in section
formulas) are made available to the public on a 501(c)(3) is a private foundation unless it falls
There are two types of amateur athletic organi-
nondiscriminatory basis; if the research is per- into one of the categories specifically excluded
zations that can qualify for tax-exempt status.
formed for the United States or a state, county, from the definition of that term (referred to in
The first type is an organization that fosters
or municipal government; or if the research is sections 509(a)(1), 509(a)(2), 509(a)(3), or
national or international amateur sports compe-
carried on for one of the following purposes. 509(a)(4)). In effect, the definition divides these
tition but only if none of its activities involve
organizations into two classes, namely private
providing athletic facilities or equipment. The
1. Aiding in the scientific education of college
foundations and public charities. Public charities
second type is a Qualified amateur sports or-
or university students.
are discussed later.
ganization. (discussed below). The difference is
2. Obtaining scientific information that is pub- Organizations that fall into the excluded cat-
that a qualified amateur sports organization can
lished in a treatise, thesis, trade publica- egories are generally those that either have
provide athletic facilities and equipment.
tion, or in any other form that is available broad public support or actively function in a
Donations to either type of amateur athletic
to the interested public. supporting relationship to those organizations.
organization are deductible as charitable contri-
Organizations that test for public safety also are
butions on the donors federal income tax return.
3. Discovering a cure for a disease.
excluded.
However, no deduction is allowed if there is a
4. Aiding a community or geographical area
direct personal benefit to the donor or any other
by attracting new industry to the commu-
Notice to IRS. Even if an organization falls person other than the organization.
nity or area, or by encouraging the devel-
within one of the categories excluded from the
Qualified amateur sports organization. An
opment or retention of an industry in the
definition of private foundation, it will be pre-
organization will be a qualified amateur sports
community or area.
sumed to be a private foundation, with some
organization if it is organized and operated:
exceptions, unless it gives timely notice to the
Scientific research, for exemption purposes,
IRS that it is not a private foundation. This notice
1. Exclusively to foster national or interna- does not include activities of a type ordinarily
requirement applies to an organization regard-
tional amateur sports competition, and incidental to commercial or industrial operations
less of when it was organized. The only excep-
such as the ordinary inspection or testing of
2. Primarily to conduct national or interna-
tions to this requirement are those organizations
materials or products, or the designing or con-
tional competition in sports or to support
that are excepted from the requirement of filing
structing of equipment, buildings, etc.
and develop amateur athletes for that com-
Form 1023 as discussed, earlier, under Organi-
If you engage or plan to engage in research,
petition.
zations Not Required To File Form 1023.
submit all of the following.
The organizations membership can be local or
When to file notice. If an organization has
1. An explanation of the nature of the re- regional in nature.
to file the notice, it must do so within 15 months
search.
from the end of the month in which it was organ-
Prevention of Cruelty
ized. 2. A brief description of research projects
completed or presently being engaged in. to Children or Animals If your organization is newly applying for rec-
ognition of exemption as an organization de-
3. How and by whom research projects are
Examples of activities that may qualify this type
scribed in this chapter (a section 501(c)(3)
determined and selected.
of organization for exempt status are:
organization) and you wish to establish that your
4. Whether you have contracted or spon-
organization is a public charity rather than a
1. Preventing children from working in haz-
sored research, or contemplated doing so,
private foundation, you must complete the appli-
ardous trades or occupations,
and, if so, names of past sponsors or
cable lines of Part X of Form 1023 (however, see
grantors, terms of grants or contracts, to- 2. Promoting high standards of care for labo- Notice 1382 about changes to Part X). An exten-
gether with copies of any executed con- ratory animals, and sion of time for filing this application may be
tracts or grants.
granted by the IRS if your request is timely and
3. Providing funds to pet owners to have their
you demonstrate that additional time is needed.
5. Disposition made or to be made of the pets spayed or neutered to prevent over-
See Application for Recognition of Exemption,
results of your research, including whether breeding.
earlier in this chapter, for more information.
preference has been or will be given to any
In determining the date on which a corpora- organization or individual either as to re-
tion is organized for purposes of applying for sults or time of release.
recognition of section 501(c)(3) status, the IRS
6. Who will retain ownership or control of any
looks to the date the corporation came into exis-
patents, copyrights, processes, or formulas
tence under the law of the state in which it is
resulting from your research.
incorporated. For example, where state law pro-
vides that existence of a corporation begins on 7. A copy of publications or other media
showing reports of your research activities. the date its articles are filed by a certain state
REL 00912
official in the appropriate state office, the corpo- 5. The corporation will not make any taxable pattern. Thus, in the following discussions, when
expenditures as defined in section 4945(d) the one-third support test (see Qualifying as ration is considered organized on that date.
of the Internal Revenue Code, or the corre- Publicly Supported, later) is referred to, it means Later nonsubstantive amendments to the ena-
sponding section of any future federal tax the following fraction normally must equal at bling instrument will not change the date of or-
code. least one-third. ganization, for purposes of the notice
requirement.
Qualifying support
Notice filed late. An organization that
Total support
Draft B
states it is a private foundation when it files its
application for recognition of exemption after the
Including items of support in qualifying
Any other provisions of this instrument notwith-
15-month period will be treated as a section
support (the numerator of the fraction)
standing, the trustees shall distribute its income
501(c)(3) organization and as a private founda-
or excluding items of support from total
for each tax year at a time and in a manner as
CAUTION
!
tion only from the date it files its application.
support (the denominator of the fraction) may
not to become subject to the tax on undistributed
An organization that states it is a publicly
decide whether an organization is excluded from
income imposed by section 4942 of the Internal
supported charity when it files its application for
the definition of a private foundation, and thus
Revenue Code, or the corresponding section of
recognition of exemption after the 15-month pe-
from the liability for certain excise taxes. So it is
any future federal tax code.
riod cannot be treated as a section 501(c)(3)
very important to classify items of support cor-
Any other provisions of this instrument not-
organization before the date it files the applica-
rectly.
withstanding, the trustees will not engage in any
tion. Financial support received before that date
act of self-dealing as defined in section 4941(d)
cannot be used for purposes of determining
of the Internal Revenue Code, or the corre-
whether the organization is publicly supported.
Section 509(a)(1) Organizations sponding section of any future federal tax code;
However, an organization that can reasonably
nor retain any excess business holdings as de-
be expected to meet the support requirements Section 509(a)(1) organizations include:
fined in section 4943(c) of the Internal Revenue
(discussed later under Public Charities) when it
Code, or the corresponding section of any future
1. A church or a convention or association of
applies for tax-exempt status will be classified
federal tax code; nor make any investments in a
churches,
as a publicly supported charity and not a private
manner as to incur tax liability under section
foundation.
2. An educational organization such as a 4944 of the Internal Revenue Code, or the corre-
school or college, sponding section of any future federal tax code;
Excise taxes on private foundations. There
nor make any taxable expenditures as defined in
3. A hospital or medical research organiza-
is an excise tax on the net investment income of
section 4945 (d) of the Internal Revenue Code,
tion operated in conjunction with a hospi-
most domestic private foundations. See Chapter
or the corresponding section of any future fed-
tal,
5 for more information on excise taxes.
eral tax code.
4. Endowment funds operated for the benefit
Governing instrument. A private foundation Effect of state law. A private foundations of certain state and municipal colleges and
governing instrument will be considered to meet cannot be tax exempt nor will contributions to it universities,
these charter requirements if valid provisions of be deductible as charitable contributions unless
5. A governmental unit, and
state law have been enacted that: its governing instrument contains special provi-
sions in addition to those that apply to all organi- 6. A publicly supported organization.
1. Require it to act or refrain from acting so
zations described in section 501(c)(3).
as not to subject the foundation to the
Sample governing instruments. The fol-
Church. The characteristics of a church are taxes imposed on prohibited transactions,
lowing samples of governing instrument provi-
discussed earlier in this chapter under Religious or
sions illustrate the special charter requirements
Organizations.
2. Treat the required provisions as contained
that apply to private foundations. Draft A is a
in the foundations governing instrument.
sample of provisions in articles of incorporation,
Educational organizations. An educational
Draft B, a trust indenture.
The IRS has published a list of states with organization is one whose primary function is to
this type of law. The list is in Revenue Ruling present formal instruction that normally main-
75-38, 1975-1 C.B. 161 (or later update). tains a regular faculty and curriculum and that
Draft A
normally has a regularly enrolled body of pupils
or students in attendance at the place where it
Public Charities
General regularly carries on its educational activities.
The term includes institutions such as primary, A private foundation is any organization de-
1. The corporation will distribute its income
secondary, preparatory, or high schools, and scribed in section 501(c)(3) , unless it falls into
for each tax year at a time and in a manner
colleges and universities. It includes federal, one of the categories specifically excluded from
as not to become subject to the tax on
state, and other publicly supported schools that the definition of that term in section 509(a),
undistributed income imposed by section
otherwise come within the definition. It does not which lists four basic categories of exclusions.
4942 of the Internal Revenue Code, or the
include organizations engaged in both educa- These categories are discussed under the Sec-
corresponding section of any future federal
tional and noneducational activities, unless the tion 509(a) heading that follow this introduction.
tax code.
latter are merely incidental to the educational If your organization falls into one of these
activities. A recognized university that inciden- categories, it is not a private foundation and you 2. The corporation will not engage in any act
tally operates a museum or sponsors concerts is should state this in Part X of your application for of self-dealing as defined in section
an educational organization. However, the oper- recognition of exemption (Form 1023). 4941(d) of the Internal Revenue Code, or
ation of a school by a museum does not neces-
If your organization does not fall into one of the corresponding section of any future
sarily qualify the museum as an educational
these categories, it is a private foundation and is federal tax code.
organization.
subject to the applicable rules and restrictions
3. The corporation will not retain any excess
until it terminates its private foundation status. An exempt organization that operates a
business holdings as defined in section
Some private foundations also qualify as private tutoring service for students on a one-to-one
4943(c) of the Internal Revenue Code, or
operating foundations; these are discussed near basis in their homes, maintains a small center to
the corresponding section of any future
the end of this chapter. test students to determine their need for tutor-
federal tax code.
Generally speaking, a large class of organi- ing, and employs tutors on a part-time basis is
4. The corporation will not make any invest- zations excluded under section 509(a)(1) and all not an educational organization for these pur-
ments in a manner as to subject it to tax organizations excluded under section 509(a)(2) poses. Nor is an exempt organization that con-
under section 4944 of the Internal Reve- depend upon a support test. This test is used to ducts an internship program by placing college
nue Code, or the corresponding section of assure a minimum percentage of broad-based and university students with cooperating gov-
any future federal tax code. public support in the organizations total support ernment agencies an educational organization.
REL 00913
Hospitals and medical research organiza- b. An agency or instrumentality of one or Qualifying as Publicly Supported
tions. A hospital is an organization whose more states or political subdivisions.
An organization will qualify as publicly supported
principal purpose or function is to provide hospi-
if it passes the one-third support test. If it fails
The phrase expenditures to or for the bene- tal or medical care or either medical education or
that test, it may qualify under the facts and
fit of a college or university includes expendi- medical research. A rehabilitation institution,
circumstances test.
tures made for any one or more of the normal outpatient clinic, or community mental health or
functions of a college or university. These ex- drug treatment center may qualify as a hospital if
One-third support test. An organization will
penditures include those for: its principal purpose or function is providing hos-
qualify as publicly supported if it normally re-
pital or medical care. If the accommodations of
ceives at least one-third of its total support from
1. Acquiring and maintaining real property
an organization qualify as being part of a skilled
governmental units, from contributions made di-
comprising part of the campus area,
nursing facility, that organization may qualify as
rectly or indirectly by the general public, or from
a hospital if its principal purpose or function is
2. Erecting (or participating in erecting) col-
a combination of these sources. For a definition
providing hospital or medical care. A coopera-
lege or university buildings,
of support, see Support, later.
tive hospital service organization that meets the
3. Acquiring and maintaining equipment and
Definition of normally for one-third sup-
requirements of section 501(e) will qualify as a
furnishings used for, or in conjunction with,
port test. An organization will be considered
hospital.
normal functions of colleges and universi-
as normally meeting the one-third support test
Exceptions. The term hospital does not in-
ties,
for its current tax year and the next tax year if, for
clude convalescent homes, homes for children
the current tax year and the 4 tax years immedi-
4. Libraries,
or the aged, or institutions whose principal pur-
ately before the current tax year, the organiza-
pose or function is to train handicapped individu- 5. Scholarships, and
tion meets the one-third support test on an
als to pursue a vocation. An organization that
aggregate basis. See also Special computation
6. Student loans.
mainly provides medical education or medical
period for new organizations, later, in this dis-
The organization must normally receive a research will not be considered a hospital, un-
cussion.
substantial part of its support from the United less it is also actively engaged in providing medi-
States or any state or political subdivision, or cal or hospital care to patients on its premises or Facts and circumstances test. The facts and
from direct or indirect contributions from the in its facilities, on an in-patient or out-patient circumstances test is for organizations failing to
general public, or from a combination of these meet the one-third support test. If your organiza- basis, as an integral part of its medical education
sources. tion fails to meet the one-third support test, it or medical research functions.
may still be treated as a publicly supported or-
Hospi t al s par t i ci pat i ng i n pr o- Support. Support does not include income
ganization if it normally receives a substantial
vider-sponsored organizations. An organi- received in the exercise or performance by the
part of its support from governmental units, from
zation can be treated as organized and operated organization of its charitable, educational, or
direct or indirect contributions from the general
exclusively for a charitable purpose even if it other purpose or function constituting the basis
public, or from a combination of these sources.
owns and operates a hospital that participates in for exemption.
To qualify, an organization must meet the
a provider-sponsored organization, whether or
In determining the amount of support re-
ten-percent-of-support requirement and the at-
not the provider-sponsored organization is tax
ceived by an organization for a contribution of
traction of public support requirement. These
exempt. For section 501(c)(3) purposes, any
property when the value of the contribution by
requirements establish, under all the facts and
person with a material financial interest in the
the donor is subject to reduction for certain ordi-
circumstances, that an organization normally re-
provider-sponsored organization is treated as a
nary income and capital gain property, the fair ceives a substantial part of its support from gov-
private shareholder or individual with respect to
market value of the property is taken into ac- ernmental units or from direct or indirect
the hospital.
count. contributions from the general public. The or-
ganization also must be in the nature of a pub-
Medical research organization. A medical
Indirect contribution. An example of an in-
licly supported organization, taking into account
research organization must be directly engaged
direct contribution from the public is the receipt
five different factors. See Additional require-
in the continuous active conduct of medical re-
by the organization of its share of the proceeds
ments (the five public support factors), later.
search in conjunction with a hospital, and that
of an annual collection campaign of a commu-
activity must be the organizations principal pur-
Ten-percent-of-support requirement.
nity chest, community fund, or united fund.
pose or function.
The percentage of support normally received by
an organization from governmental units, from
Governmental units. A governmental unit in- Publicly supported. A hospital or medical
contributions made directly or indirectly by the
cludes a state, a possession of the United research organization that wants the additional
general public, or from a combination of these
States, or a political subdivision of either of the classification of a publicly supported organiza-
sources must be substantial. An organization
foregoing, or the United States or the District of tion (described later in this chapter under Quali-
will not be treated as normally receiving a sub-
Columbia. fying As Publicly Supported) can specifically
stantial amount of governmental or public sup-
request that classification. The organization
port unless the total amount of governmental
must establish that it meets the public support Publicly supported organizations. An or-
and public support normally received is at least
requirements of section 170(b)(1)(A)(vi). ganization is a publicly supported organization if
10% of the total support normally received by
it is one that normally receives a substantial part
that organization.
of its support from a governmental unit or from Endowment funds. Organizations operated
Attraction of public support requirement.
the general public. for the benefit of certain state and municipal
An organization must be organized and oper-
colleges and universities are endowment funds.
Types of organizations that generally qualify
ated in a manner to attract new and additional
They are organized and operated exclusively to:
are:
public or governmental support on a continuous
Museums of history, art, or science, 1. Receive, hold, invest, and administer prop- basis. An organization will meet this requirement
erty for a college or university, and if it maintains a continuous and bona fide pro-
Libraries,
gram for solicitation of funds from the general
2. Make expenditures to or for the benefit of a
Community centers to promote the arts,
public, community, or membership group in-
college or university.
volved, or if it carries on activities designed to
Organizations providing facilities for the
The college or university must be: attract support from governmental units or other
support of an opera, symphony orchestra,
charitable organizations described in section
ballet, or repertory drama, or for some
1. An agency or instrumentality of a state or
509(a)(1). In determining whether an organiza-
other direct service to the general public,
political subdivision, or
tion maintains a continuous and bona fide pro-
and
gram for solicitation of funds from the general
2. Owned or operated by:
Organizations such as the American Red public or community, consideration will be given
a. A state or political subdivision, or Cross or the United Way. to whether the scope of its fundraising activities
REL 00914
is reasonable in light of its charitable activities. be considered in determining whether the or- clearance or developing employment op-
Consideration also will be given to the fact that ganization is publicly supported. In determining portunities.
an organization may, in its early years of exis- what is a representative number of persons,
3. Receiving a significant part of its funds
tence, limit the scope of its solicitation to per- consideration will be given to the type of organi-
from a public charity or governmental
sons who would be most likely to provide seed zation involved, the length of time it has existed,
agency to which it is in some way held
money sufficient to enable it to begin its charita- and whether it limits its activities to a particular
accountable as a condition of the grant,
ble activities and expand its solicitation program. community or region or to a special field that can
contract, or contribution.
be expected to appeal to a limited number of
Definition of normally for facts and circum-
persons. Facts pertinent to years before the 4
stances test. An organization will normally 5. Additional factors pertinent to member-
tax years immediately before the current tax
meet the requirements of the facts and circum- ship organizations. The following are addi-
year also may be considered.
stances test for its current tax year and the next tional factors in determining whether a
tax year if, for the current tax year and the 4 tax 3. Representative governing body factor. membership organization is publicly supported.
years immediately before the current tax year, The fact that an organization has a governing
1. Whether the solicitation for dues-paying
t h e o r g a n i z a t i o n m e e t s t h e body that represents the broad interests of the
members is designed to enroll a substan-
ten-percent-of-support and the attraction of pub- public rather than the personal or private interest
tial number of persons in the community or
lic support requirements on an aggregate basis of a limited number of donors will be considered
area, or in a particular profession or field of
and satisfies a sufficient combination of the fac- in determining whether the organization is pub-
special interest (taking into account the
tors discussed later. The combination of factors licly supported.
size of the area and the nature of the or-
that an organization normally must meet does
An organization will meet this requirement if
ganizations activities).
not have to be the same for each 4-year period
it has a governing body composed of:
as long as a sufficient combination of factors
2. Whether membership dues for individual
1. Public officials acting in their public capaci- exists to show compliance.
(rather than institutional) members have
ties,
been fixed at rates designed to make Additional requirements (the five public
membership available to a broad cross support factors). In addition to the two re- 2. Individuals selected by public officials act-
section of the interested public, rather than quirements of the facts and circumstances test, ing in their public capacities,
to restrict membership to a limited number the following five public support factors will be
3. Persons having special knowledge or ex-
of persons. considered in determining whether an organiza-
pertise in the particular field or discipline in
tion is publicly supported. However, an organi-
3. Whether the activities of the organization which the organization is operating, and
zation generally does not have to satisfy all of
will be likely to appeal to persons having
the factors. The factors relevant to each case 4. Community leaders, such as elected or ap-
some broad common interest or purpose,
and the weight accorded to any one of them may pointed officials, members of the clergy,
such as educational activities in the case
differ depending upon the nature and purpose of educators, civic leaders, or other such per-
of alumni associations, musical activities in
the organization and the length of time it has sons representing a broad cross-section of
the case of symphony societies, or civic
existed. The combination of factors that an or- the views and interests of the community.
affairs in the case of parent-teacher as-
ganization normally must meet does not have to
In a membership organization, the governing sociations.
be the same for each 4-year period as long as a
body also should include individuals elected by
sufficient combination of factors exists to show
a broadly based membership according to the Special rule. The fact that an organization
that the organization is publicly supported.
organizations governing instrument or bylaws. has normally met the one-third support test re-
1. Percentage of financial support factor.
quirements for a current tax year, but is unable
4. Availability of public facilities or serv-
When an organization normally receives at least
normally to meet the requirements for a later tax
ices factor. The fact that an organization gen-
10% but less than one-third of its total support
year, will not in itself prevent the organization
erally provides facilities or services directly for
from public or governmental sources, the per-
from meeting the requirements of the facts and
the benefit of the general public on a continuing
centage of support received from those sources
circumstances test for the later tax year.
basis is evidence that the organization is pub-
will be considered in determining whether the
licly supported. Examples are:
organization is publicly supported. As the per-
Example. X is recognized as an organiza-
centage of support from public or governmental A museum or library that is open to the tion described in section 501(c)(3). On the basis
sources increases, the burden of establishing public,
of support received during tax years 2008, 2009,
the publicly supported nature of the organization
2010, 2011, and 2012, it meets the one-third
A symphony orchestra that gives public
through other factors decreases, while the lower
support test for tax year 2012 (the current tax
performances,
the percentage, the greater the burden.
year). X also meets the one-third support test for
A conservation organization that provides
2013, as the immediately succeeding tax year. If the percentage of the organizations sup-
educational services to the public through
port from the general public or governmental In tax years 2009, 2010, 2011, 2012, and
the distribution of educational materials, or
sources is low because it receives a high per-
2013, in the aggregate, X does not receive at
centage of its total support from investment in-
least one-third of its support from governmental
An old-age home that provides domiciliary
come on its endowment funds, the organization
units referred to in section 170(c)(1), from contri-
or nursing services for members of the
will be treated as complying with this factor if the
butions made directly or indirectly by the general
general public.
endowment fund was originally contributed by a
The fact that an educational or research institu-
governmental unit or by the general public. How-
X still meets the one-third support test for tax
tion regularly publishes scholarly studies widely
ever, if the endowment funds were originally
year 2013 based on the aggregate support re-
used by colleges and universities or by mem-
contributed by a few individuals or members of
ceived for tax years 2008 through 2012.
bers of the general public is also evidence that
their families, this fact will increase the burden
In tax years 2010, 2011, 2012, 2013, and
the organization is publicly supported.
on the organization of establishing compliance
2014, in the aggregate, X does not receive at
with other factors. Facts pertinent to years
Similarly, the following factors are also evi- least one-third of its support from governmental
before the 4 tax years immediately before the
dence that an organization is publicly supported. units referred to in section 170(c)(1), from contri-
current tax year also may be considered.
butions made directly or indirectly by the general
1. Participating in, or sponsoring, the pro-
2. Sources of support factor. If an organi-
grams of the organization by members of
X does not meet the one-third support test for
zation normally receives at least 10% but less
the public having special knowledge or ex-
tax year 2014.
than one-third of its total support from public or
pertise, public officials, or civic or commu-
Based on the aggregate support and other governmental sources, the fact that it receives
nity leaders.
f act ors l i st ed i n Regul at i ons sect i on the support from governmental units or directly
1.170A-9T(f)(3)(iii)(A) through (E) for tax years or indirectly from a representative number of 2. Maintaining a definitive program by the or-
2009, 2010, 2011, 2012, and 2013, X meets the persons, rather than receiving almost all of its ganization to accomplish its charitable
facts and circumstances test for tax year 2013 support from the members of a single family, will work in the community, such as slum
REL 00915
and for tax year 2014 (as the immediately suc- met the requirements. The IRS may also revoke items included in support) and contribu-
ceeding tax year). Therefore, X is still an organi- tions made directly or indirectly by the gen- the section 170(b)(1)(A)(vi) ruling or determina-
zation described in section 170(b)(1)(A)(vi) for eral public. tion letter if the organizations application for a
tax year 2014, even though X did not meet the ruling or determination contained a material mis-
one-third support test for that year. statement of fact.
Example. X, an organization described in
section 501(c)(3), is controlled by Thomas Blue, Reliance by grantors or contributors.
Computation period for public support. If,
its president. X received $500,000 during the Grantors or contributors may rely on a determi-
at the time of applying for tax-exempt status, an
current tax year and the 4 tax years immediately nation or ruling letter that an organization is
organization can reasonably be expected to
before its current tax year under a contract with described in section 170(b)(1)(A)(vi) until notice
meet the one-third support test or the facts and
the Department of Transportation, under which of change of status of the organization is made
circumstances test during its first 5 tax years, the
X engaged in research to improve a particular to the public (such as by publication in the Inter-
organization will qualify as publicly supported for
vehicle used primarily by the Federal Govern- nal Revenue Bulletin, or Publication 78, Cumu-
its first 5 years. The organization will be classi-
ment. During the same period, the only other
lative List of Organizations descried in Section
fied as a public charity for its first 5 years, re-
support received by X was $5,000 in small con-
170(c) of the Internal Revenue Code of 1986, gardless of the public support actually received
tributions primarily from Xs employees and
either of which can be searched at IRS.gov). during this period. Beginning with the organiza-
business associates. The $500,000 is support
However, this will not apply if the grantor or tions sixth tax year, the organization will qualify
under (1) above. Under these circumstances, X
contributor was responsible for, or aware of, the as publicly supported if it meets the one-third
meets the conditions of (1) and (2) above and so
act or failure to act that resulted in the organiza- support test or the facts and circumstances test
does not meet the one-third support test or the
tions loss of classification as a publicly sup- for its sixth year (based on support received in
ten-percent-of-support requirement.
ported organization. its second through sixth tax years), or as a
For the rules that apply to organizations that
carryover for its fifth tax year (based on support
fail to qualify as section 509(a)(1) publicly sup-
received in its first through fifth tax years). If the Support. For purposes of publicly supported
ported organizations because of these provi-
organization is required to file Form 990 or organizations, the term support includes (but is
sions, see Section 509(a)(2) Organizations,
990-EZ, it must establish that it meets the public not limited to):
later. See also Gross receipts from a related
support test each year on Schedule A (Form 990
activity in the discussion on section 509(a)(2) 1. Gifts, grants, contributions, or membership
or 990-EZ).
organizations. fees,
Reasonable expectation of public support.
Membership fees. Membership fees are in- 2. Net income from unrelated business activi-
An organization that can reasonably be ex-
cluded in the term support if they are paid to ties, whether or not those activities are car- pected to meet the one-third support test or the
provide support for the organization rather than ried on regularly as a trade or business, facts and circumstances test during its first 5
to buy admissions, merchandise, services, or
years is one that can show that its organizational
3. Gross investment income,
the use of facilities.
structure, current or proposed programs and
4. Tax revenues levied for the benefit of an activities, and actual or intended method of op-
Support from a governmental unit. For pur-
organization and either paid to or spent on eration can reasonably be expected to attract
poses of the one-third support test and the
behalf of the organization, and the type of broadly based support from the gen-
ten-percent-of-support requirement, the term
eral public, public charities, and governmental
5. The value of services or facilities furnished
support from a governmental unit includes any
units that is necessary to meet the public sup-
by a governmental unit to an organization
amounts received from a governmental unit, in-
port requirements discussed earlier under Qual-
without charge (except services or facilities
cluding donations or contributions and amounts
ifying As Publicly Supported.
generally furnished to the public without
received on a contract entered into with a gov-
charge). Example. Organization Y was formed in
ernmental unit for the performance of services,
January 2008 and uses a December 31 tax year.
or from a government research grant. However,
Amounts that are not support. The term After September 9, 2008, and before December
these amounts are not support from a govern-
support does not include: 31, 2008, Organization Y filed a Form 1023
mental unit for these purposes if they constitute
requesting recognition of exemption as an or-
amounts received from the exercise or perform-
1. Any amount received from the exercise or
ganization described in section 501(c)(3) and in
ance of the organizations exempt functions.
performance by an organization of the pur-
sections 170(b)(1)(A)(vi) and 509(a)(1). In its
Any amount paid by a governmental unit to
pose or function constituting the basis for
application, Organization Y established that it
an organization will not be treated as received
its exemption (in general, these amounts
can reasonably be expected to meet the
from the exercise or performance of its exempt
include amounts received from any activity
one-third support test. Organization Y receives a
function if the purpose of the payment is prima-
the conduct of which is substantially re-
determination letter that it is an organization
rily to enable the organization to provide a serv-
lated to the furtherance of the exempt pur-
described in section 501(c)(3) and sections
ice to, or maintain a facility for, the direct benefit
pose or function, other than through the
170(b)(1)(A)(vi) and 509(a)(1) effective as of the
of the public (regardless of whether part of the
production of income), or
date of formation.
expense of providing the service or facility is
Organization Y is described in sections
paid for by the public), rather than to serve the 2. Contributions of services for which a de-
170(b)(1)(A)(vi) and 509(a)(1) for its first 5 tax
direct and immediate needs of the payor. This duction is not allowed.
years (tax years ending December 31, 2008,
includes:
These amounts are excluded from both the nu-
through December 31, 2012). Organization Y
merator and the denominator of the fractions in
1. Amounts paid to maintain library facilities can qualify as a public charity beginning with the
determining compliance with the one-third sup-
that are open to the public, tax year ending December 31, 2013, if Organi-
port test and ten-percent-of-support require-
zation Y meets the one-third support test or facts
2. Amounts paid under government programs
ment. The following discusses an exception to
and circumstances test for the tax years ending
to nursing homes or homes for the aged to
this general rule.
December 31, 2009, through December 31,
provide health care or domiciliary services
2013, or for the tax years ending December 31,
Organizations dependent primarily on
to residents of these facilities, and
2008, through December 31, 2012.
gross receipts from related activities. Orga-
3. Amounts paid to child placement or child
nizations will not satisfy the one-third support
Rulings or determinations of public sup-
guidance organizations under government
test or the ten-percent-of-support requirement if
port status. An organization may request a
programs for services rendered to children
they receive:
ruling or determination letter that it is described
in the community.
in section 170(b)(1)(A)(vi). This request is made
1. Almost all support from gross receipts from
on Form 1023, or at such other time as the These payments are mainly to enable the recipi-
related activities, and
organization believes it is described in section ent organization to provide a service or maintain
2. An insignificant amount of support from 170(b)(1)(A)(vi). The IRS may revoke the sec- a facility for the direct benefit of the public, rather
governmental units (without regard to tion 170(b)(1)(A)(vi) ruling or determination let- than to serve the direct and immediate needs of
amounts referred to in (3) in the list of ter if, on examination, the organization has not the payor. Furthermore, any amount received
REL 00916
from a governmental unit under circumstances a donation of $5,000 without imposing any re- gross investment income (defined under Sec-
in which the amount would be treated as a grant strictions or conditions upon the gift. M later tion 509(a)(2) Organizations, later) may be ex-
will generally constitute support from a govern- makes a $5,000 grant to X, an organization cluded under this rule.
mental unit. See the discussion of Grants, later, devoted to giving public performances of cham-
Characteristics of an unusual grant. A
under Section 509(a)(2) Organizations. ber music. Since the grant to X is treated as
grant or contribution will be considered an unu-
being received from M, it is fully includible in the
Medicare and Medicaid payments. Medi- sual grant if the above three factors apply and if
numerator of Xs support fraction for the tax year
care and Medicaid payments are received from it has all of the following characteristics. If these
of receipt.
contracts entered into with state and federal factors and characteristics apply, then even
governmental units. However, payments are without the benefit of an advance ruling, grant-
Example 2. Assume M is the same organi-
made for services already provided to eligible ors or contributors have assurance that they will
zation described in Example 1. Tom Grove gives
individuals, rather than to encourage or enable not be considered responsible for substantial
M a donation of $10,000, but requires that M
an organization to provide services to the public. and material changes in the organizations
spend the money to support organizations de-
The individual patient, not a governmental unit, sources of support.
voted to the advancement of contemporary
actually controls the ultimate recipient of these
American music. M has complete discretion as
1. The grant or contribution is not made by a
payments by selecting the health care organiza-
to the organizations of the type described to
person (or related person) who created the
tion. As a result, these payments are not consid-
which it will make a grant. M decides to make
organization or was a substantial contribu-
ered support from a governmental unit.
grants of $5,000 each to Y and Z, both being
tor to the organization before the grant or
Medicare and Medicaid payments are gross re-
organizations described in section 501(c)(3) and
contribution.
ceipts derived from the exercise or performance
devoted to furthering contemporary American
of exempt activities and, therefore, are not in-
2. The grant or contribution is not made by a
music. Since the grants to Y and Z are treated as
cluded in the term support.
person (or related person) who is in a posi-
having been received from M, Y and Z each may
tion of authority, such as a foundation
include one of the $5,000 grants in the numera- Support from the general public. In deter-
manager, or who otherwise has the ability
tor of its support fraction. Although the donation mining whether the one-third support test or the
to exercise control over the organization.
to M was conditioned upon the use of the funds ten-percent-of-support requirement is met, in-
Similarly, the grant or contribution is not
for a particular purpose, M was free to select the clude in your computation support from direct or
made by a person (or related person) who,
ultimate recipient. indirect contributions from the general public.
because of the grant or contribution, ob-
This includes contributions from an individual,
tains a position of authority or the ability to Example 3. N is a national foundation for trust, or corporation but only to the extent that
otherwise exercise control over the organi- the encouragement of art and is a publicly sup- the total contributions from the individual, trust,
zation. ported organization. Grants to N are permitted to or corporation, during the current tax year and
be earmarked for particular purposes. O, which the 4-year period immediately before the current
3. The grant or contribution is in the form of
is an art workshop devoted to training young tax year, are not more than 2% of the organiza-
cash, readily marketable securities, or as-
artists and which is claiming status as a publicly tions total support for the same period.
sets that directly further the organizations
supported organization, persuades C, a private Thus, a contribution by any one individual
exempt purposes, such as a gift of a paint-
foundation, to make a grant of $25,000 to N. C is will be included in full in the denominator of the
ing to a museum.
a disqualified person with respect to O. C makes fraction used in the one-third support test or the
4. The donee organization has received a fi- the grant to N with the understanding that N ten-percent-of-support requirement. However,
nal ruling or determination letter classifying would be bound to make a grant to O in the sum the contribution will be included in the numerator
it as a publicly supported organization and of $25,000, in addition to a matching grant of Ns only to the extent that it is not more than 2% of
the organization is actively engaged in a funds to O in the sum of $25,000. Only the the denominator. In applying the 2% limit, all
program of activities in furtherance of its $25,000 received directly from N is considered a contributions made by a donor and by any per-
exempt purpose. grant from N. The other $25,000 is an indirect son in a special relationship to the donor (certain
contribution from C to O and is to be excluded Disqualified persons discussed under Absence
5. No material restrictions or conditions have
from the numerator of Os support fraction to the of control by disqualified persons) are consid-
been imposed by the grantor or contributor
extent it exceeds the 2% limit. ered made by one person. The 2% limit does not
upon the organization in connection with
apply to support received from governmental
the grant or contribution.
Unusual grants. In applying the 2% limit to
units or to contributions from other publicly sup-
determine whether the one-third support test or
6. If the grant or contribution is intended for
ported charities, except as provided under
the ten-percent-of-support requirement is met,
operating expenses, rather than capital
Grants from public charities, later.
exclude contributions that are considered unu-
items, the terms and amount of the grant
Indirect contributions. The term indirect
sual grants from both the numerator and denom-
or contribution are expressly limited to 1
contributions from the general public includes
inator of the appropriate percent-of-support
years operating expenses.
contributions received by the organization from
fraction. Generally, unusual grants are substan-
organizations (such as publicly supported orga-
tial contributions or bequests from disinterested Ruling request. Before any grant or contri-
nizations) that normally receive a substantial
parties if the contributions: bution is made, a potential grantee organization
part of their support from direct contributions
can request a ruling as to whether the grant or
1. Are attracted by the publicly supported na- from the general public, except as provided
contribution may be excluded as an unusual
ture of the organization, under Grants from public charities, next.
grant. This request can be filed by the grantee
organization with the Manager, EO Determina-
2. Are unusual or unexpected in amount, and Grants from public charities. Contribu-
tions, for its area. The organization must submit
tions received from a governmental unit or from
3. Would adversely affect, because of the
all information necessary to make a determina-
a publicly supported organization (including a
size, the status of the organization as nor-
tion, including information relating to the factors
church that meets the requirements for being
mally being publicly supported. (The or-
and characteristics listed in the preceding
publicly supported) are not subject to the 2%
ganization must otherwise meet the
paragraphs. If a favorable ruling is issued, the
limit unless the contributions represent amounts
support test in that year without benefit of
ruling can be relied upon by the grantor or con-
either expressly or impliedly earmarked by a
the grant or contribution.)
tributor of the particular contribution in question.
donor to the governmental unit or publicly sup-
The issuance of the ruling will be at the sole
For a grant (see Grants, later) that meets the ported organization as being for, or for the bene-
discretion of the IRS. The potential grantee or-
requirements for exclusion, if the terms of the fit of, the particular organization claiming a
ganization should follow the procedures set out
granting instrument require that the funds be publicly supported status.
in Revenue Procedure 2010-4 (or any later up-
paid to the recipient organization over a period
date) to request a ruling.
Example 1. M, a national foundation for the of years, the amount received by the organiza-
encouragement of the musical arts, is a publicly tion each year under the terms of the grant may Grants and contributions that fail to qualify
supported organization. George Spruce gives M be excluded for that year. However, no item of for exclusion will affect the way the support tests
REL 00917
are applied. See Exception for material changes public for the 2012 tax year normally exceeds Os total support. O expends substantially all of
one-third of Ms total support ($202,000/ its annual income for its exempt purposes and in sources of support, earlier.
$600,000 = 33.67 percent) for the applicable thus depends on the funds it annually solicits
If a ruling is requested, in addition to the
period (2008 through 2012). M meets the from the public as well as its investment income
characteristics listed earlier under Characteris-
one-third support test for 2012 and is therefore in order to carry out its activities on a normal and
tics of an unusual grant, the following factors
publicly supported for the tax years 2012 and continuing basis and to acquire new works of art.
may be considered by the IRS in determining if
2013. O has, for the entire period of its existence, been
the grant or contribution is an unusual grant.
open to the public and more than 300,000 peo-
1. Whether the contribution was a bequest or Example 2. N is recognized as an organiza- ple (from S City and elsewhere) have visited the
a transfer while living. A bequest will be tion described in section 501(c)(3). It was cre- museum in the current tax year and the 4 years
given more favorable consideration than a ated to maintain public gardens containing immediately preceding the current tax year.
transfer while living. botanical specimens and displaying statuary Under these circumstances, O does not
and other art objects. The facilities, works of art, meet the one-third support test for its current
2. Whether, before the receipt of the contribu-
and a large endowment were all contributed by a year because it has received only 25 percent of
tion, the organization has carried on an
single contributor. The members of the govern- its total support for the applicable 5-year period
active program of public solicitation and
ing body of the organization are unrelated to its from the general public. However, under the
exempt activities and has been able to at-
creator. The gardens are open to the public facts set forth, O has met the 10 percent support
tract a significant amount of public support.
without charge and attract many visitors each l i mi t at i on under Temp. Reg. sect i on
3. Whether, before the year of contribution, year. For the current tax year and the 4 tax years 1.170A-9T(f)(3)(i), as well as the requirements
the organization met the one-third support preceding the current tax year, 95% of the or- of Temp. Reg. section 1.170A-9T(f)(3)(ii). Under
test without benefit of any exclusions of ganizations total support was received from in- all of the facts set forth, O is considered as
unusual grants. vestment income from its original endowment. N meeting the requirements of the facts and cir-
also maintains a membership society that is cumstances test on the basis of satisfying
4. Whether the organization may reasonably
supported by members of the general public Temp. Reg. section 1.170A-T9(f)(3)(iii)(A)
be expected to attract a significant amount
who wish to contribute to the upkeep of the through (D). O is therefore publicly supported for
of public support after the contribution.
gardens by paying a small annual membership its current tax year and the immediately suc-
Continued reliance on unusual grants to
fee. Over the 5-year period in question, these ceeding tax year.
fund an organizations current operating
fees from the general public constituted the re-
expenses (as opposed to providing new
maining 5% of the organizations total support. Example 4. In 1960, the P Philharmonic
endowment funds) may be evidence that
Under these circumstances, N does not meet Orchestra was organized in T City by a local
the organization cannot reasonably be ex-
the one-third support test for its current tax year. music society and a local womens club to pres-
pected to attract future support from the
Furthermore, since only 5% was received from ent to the public a wide variety of musical pro-
general public.
the general public, N does not satisfy the 10 grams intended to foster music appreciation in
5. Whether the organization has a represen- percent support limitation under Temp. Reg. the community. P is recognized as an organiza-
tative governing body. section 1.170A-9T(f)(3)(i), and therefore does tion described in section 501(c)(3). The orches-
not qualify as publicly supported under the facts tra is composed of professional musicians who
and circumstances test. Because N has failed to are paid by the association. Twelve perform-
satisfy the 10 percent support limitation, none of ances, open to the public, are scheduled each
Comprehensive Examples
the other requirements or factors in Temp. year. A small admission charge is made for each
Regs. section 1.170A-9T(f)(3)(iii)(A) through (E) of these performances. In addition, several per-
Example 1. M is recognized as an organiza-
can be considered in determining whether N formances are staged annually without charge.
tion described in section 501(c)(3). For the years
qualifies as a publicly supported organization. During the current tax year and the 4 tax
2008 through 2012 (the applicable period for the
For its current tax year, N is not an organization years immediately preceding the current tax
tax year 2012 under Temp. Regs. section
described in section 170(b)(1)(A)(vi). year, P received separate contributions of
1.170A-9T(f)(3)), M received support (as de-
$200,000 each from A and B (not members of a
fined in paragraphs Temp. Regs. section
Example 3. O, an art museum, is recog- single family) and support of $120,000 from the
1.170A-9T(f)(6) through (8) of $600,000 from
nized as an organization described in section T Community Chest, a public federated fun-
the following sources:
501(c)(3). In 1930, O was founded in S City by draising organization operating in T City. P de-
members of a single family to collect, preserve, pends on these funds to carry out its activities
Investment Income . . . . . . . . . . . . $300,000
interpret, and display to the public important and will continue to depend on contributions of
City Y (a governmental unit described 40,000
works of art. O is governed by a Board of Trust- this type to be made in the future. P has also
in section 170(c)(1)) . . . . . . . . . . .
ees that originally consisted almost entirely of begun a fundraising campaign in an attempt to
United Way (an organization
members of the founding family. However, since expand its activities for the coming years.
described in section 170(b)(1)(A)(vi)) 40,000
1945, members of the founding family or per- P is governed by a Board of Directors com-
Contributions . . . . . . . . . . . . . . . 220,000
sons standing in relationship to the members of posed of five individuals. A faculty member of a
Total support . . . . . . . . . . . . . . . . $600,000
that family described in section 4946(a)(1)(C) local college, the president of a local music soci-
through (G) have annually constituted less than ety, the head of a local banking institution, a
For tax year 2012, Ms public support is com-
one-fifth of the Board of Trustees. The remain- prominent doctor, and a member of the govern-
puted as follows:
ing board members are citizens of S City from a ing body of the local Chamber of Commerce
variety of professions and occupations who rep- currently serve on the Board and represent the One-third of total support . . . . . . . . $200,000
resent the interests and views of the people of S interests and views of the community in the
Support from a governmental unit
City in the activities carried on by the organiza- activities carried on by P.
described in section 170(c)(1) . . . . $40,000
tion rather than the personal or private interests For Ps current tax year, its sources of sup-
Indirect contributions from the
of the founding family. O solicits contributions port are computed on the basis of the current tax
general public (United Way) . . . . . . 40,000
from the general public, and for the current tax year and the 4 immediately preceding tax years,
Contributions by various donors (no
year and each of the 4 tax years immediately as follows.
one having made contributions that
preceding the current tax year, O has received
total more than $12,0002% of total
Contributions . . . . . . . . . . . . . . . $520,000 total contributions (in small sums of less than
support) . . . . . . . . . . . . . . . . . . . 50,000
Receipts from performances . . . . . 100,000 $100, none of which exceeds 2 percent of Os
Six contributions (each in excess of
$620,000
total support for such period) in excess of
$12,0002% of total support) 6
Less:
$10,000. These contributions from the general $12,000 . . . . . . . . . . . . . . . . . . . 72,000
Receipts from performances
public represent 25 percent of the organizations $202,000
(excluded, see Support) . . . . . . . . 100,000
total support for that 5-year period. For the same
Total support . . . . . . . . . . . . . . $520,000
Ms support from governmental units and from period, investment income form several large
direct and indirect contributions from the general endowment funds has constituted 75 percent of
REL 00918
a. To modify any restriction or condition on Community Trusts
T Community Chest (indirect support
the distribution of funds for any speci-
from the general public) . . . . . . . . $120,000
Community trusts are often established to at-
fied charitable purposes or to specified
Two contributions (each over
tract large contributions of a capital or endow-
organizations if in the sole judgment of
$10,4002% of total support) 2
ment nature for the benefit of a particular
the governing body (without the neces-
$10,400 . . . . . . . . . . . . . . . . . . . 20,800
community or area. Often these contributions
sity of the approval of any participating
Total support from general public . . $140,800
come initially from a small number of donors.
trustee, custodian, or agent), the restric-
While the community trust generally has a gov-
tion or condition becomes, in effect, un-
Ps support from the general public, directly and
erning body composed of representatives of the
necessary, incapable of fulfillment, or
indirectly, does not meet the one-third support
particular community or area, its contributions
inconsistent with the charitable needs of
test ($140,800/$520,000 = 27% of total sup-
are often received and maintained in the form of
the community or area served,
port). However, because P receives 27 percent
separate trusts or funds that are subject to vary-
of its total support from the general public, it
b. To replace any participating trustee,
ing degrees of control by the governing body.
meets the 10 percent support limitation under
custodian, or agent for breach of fiduci-
To qualify as a publicly supported organiza-
Temp. Reg. section 1.170A-T9(f)(3)(i). P also
ary duty under state law, and
tion, a community trust must meet the one-third
meets the requirements of Temp. Reg. section
support test, explained earlier under Qualifying
c. To replace any participating trustee,
1.170A-T9(f)(3)(ii). As a result of satisfying
As Publicly Supported. If it cannot meet that test,
etc., for failure to produce a reasonable
these requirements and factors, P is considered
it must be organized and operated so as to
return of net income over a reasonable
to meet the facts and circumstances test and
attract new and additional public or governmen-
period of time. (The governing body will
therefore qualifies as a publicly supported or-
tal support on a continuous basis sufficient to
determine what is reasonable.)
ganization for its current tax year and the imme-
meet the facts and circumstances test, also ex-
diately succeeding tax year.
plained earlier. Community trusts are generally
4. The organization must prepare periodic fi-
able to satisfy the attraction of public support
nancial reports treating all of the funds that
Example 5. Q is recognized as an organiza-
requirement (as contained in the facts and cir-
are held by the community trust, either di-
tion described in section 501(c)(3) and it is a
cumstances test) if they seek gifts and bequests
rectly or in component parts, as funds of
philanthropic organization. Q was founded in
from a wide range of potential donors in the
the organization.
1965 by C for the purpose of making annual
community or area served, through banks or
contributions to worthy charities. C created Q as
A community trust can meet the requirement
trust companies, through attorneys or other pro-
a charitable trust by transferring $500,000 worth
in (3) above even if its exercise of the powers in
fessional persons, or in other appropriate ways
of appreciated securities to Q.
(3)(a), (b), or (c) is reviewable by an appropriate
that call attention to the community trust as a
Under the trust agreement, C and two other
state authority.
potential recipient of gifts and bequests made
family members are the sole trustees of Q and
for the benefit of the community or area served.
Component part. To be treated as a com-
are vested with the right to appoint successor
A community trust, however, does not have to
ponent part of a community trust (rather than as
trustees. In each of the current tax year and the
engage in periodic, community-wide, fundrais-
a separate trust or a not-for-profit corporation), a
4 tax years immediately preceding the current
ing campaigns directed toward attracting a large
trust or fund:
tax year, Q received $15,000 in investment in-
number of small contributions in a manner simi-
come from its original endowment. Each year Q
1. Must be created by gift, bequest, legacy,
lar to campaigns conducted by a community
solicits funds by operating a charity ball at Cs
devise, or other transfer to a community
chest or a united fund.
residence. Guests are invited and asked to
trust that is treated as a single entity (de-
make contributions of $100 per couple. During
scribed above), and
Separate trusts or funds. Any community
the 5-year period involved, $15,000 was re-
trust may be treated as a single entity, rather
ceived from the proceeds of these events. C and 2. May not be directly or indirectly subjected
than as an aggregation of separate funds, in
his family have also made contributions to Q of by the transferor to any material restriction
which case all qualifying funds associated with
$25,000 over the 5-year period at issue. Q or condition with respect to the transferred
that organization (whether a trust, not-for-profit
makes disbursements each year of substantially assets.
corporation, unincorporated association, or a
all of its net income to the public charities cho-
combination thereof) will be treated as compo-
sen by the trustees.
Grantors and contributors. Grantors, con-
nent parts of the organization.
Qs sources of support for the current tax
tributors, or distributors to a community trust
year and the 4 tax years immediately preceding
Single entity. To be treated as a single en-
may rely on the public charity status, which the
the current tax year are as follows:
tity, a community trust must meet all of the fol-
organization has claimed in a timely filed notice,
lowing requirements.
on or before the date the IRS informs the public
Investment income . . . . . . . . . . . . . $60,000
(through such means as publication in the Inter-
Contributions . . . . . . . . . . . . . . . . $40,000 1. The organization must be commonly
nal Revenue Bulletin) that such reliance has
Total support . . . . . . . . . . . . . . . $100,000
known as a community trust, fund, founda-
expired. However, if the grantor, contributor, or
tion, or other similar name conveying the
Contributions from the general public $15,000
distributor acquires knowledge that the IRS has
concept of a capital or endowment fund to
notified the community trust that it has failed to
One contribution (over $2,0002%
support charitable activities in the commu-
establish that it is a public charity, then reliance
of total support) 1 $2,000 . . . . . . . 2,000
nity or area it serves.
on the claimed status expires at the time such Total support from general public . . . $17,000
2. All funds of the organization must be sub- knowledge is acquired.
ject to a common governing instrument (or
Qs support from the general public does not
a master trust or agency agreement) that
meet the one-third support test ($17,000/
may be embodied in a single (or several) Section 509(a)(2) Organizations
$100,000 = 17% of total support). Even though it
document(s) containing common lan-
does meet the ten-percent-of-support require-
Section 509(a)(2) excludes certain types of
guage.
ment, its method of solicitation makes it ques-
broadly based, publicly supported organizations
3. The organization must have a common
tionable whether Q satisfies Temp. Reg. section from private foundation status. Generally, an
governing body (or distribution committee)
organization described in section 509(a)(2) may 1.170A-9T(f)(3)(ii). Because of its method of op-
that either directs or, in the case of a fund
also fit the description of a publicly supported
erating, Q also has a greater burden of estab-
designated for specified beneficiaries,
organization under section 509(a)(1). There are,
lishing its publicly supported nature. Based on
monitors the distribution of all funds exclu-
however, two basic differences.
these facts and on Qs failure to receive
sively for charitable purposes. The govern-
favorable consideration under the remaining
ing body must have the power in the 1. For section 509(a)(2) organizations, the
f a c t o r s o f T e mp . Re g . s e c t i o n
governing instrument, the instrument of term support includes items of support dis-
1.170A-9T(f)(3)(iii), Q does not satisfy the facts
transfer, the resolutions or bylaws of the cussed earlier (under Support, in the dis-
and circumstances test and therefore does not governing body, a written agreement, or cussion of Section 509(a)(1)
qualify as a publicly supported organization. otherwise Organizations) and income from activities
REL 00919
directly related to their exempt function. included in computing tax on unrelated business 2. Whether a substantial part of the organiza-
tions initial funding is to be provided by the This income is not included in meeting the income from trades or businesses.
general public, by public charities, or by support test for a publicly supported organ-
Definition of normally. Both support tests
government grants rather than by a limited ization under section 509(a)(1).
are computed on the basis of the nature of the
number of grantors or contributors who are
2. Section 509(a)(2) places a limit on the total organizations normal sources of support. An
disqualified persons with respect to the or-
gross investment income and unrelated organization will be considered to have normally
ganization,
business taxable income (in excess of the met both tests for its current tax year and the tax
3. Whether a substantial proportion of the or- unrelated business tax) an organization year immediately following, if it meets those
ganizations initial funds are placed, or will may have, while section 509(a)(1) does tests on the basis of the total support received
remain, in an endowment and whether the not. for the current tax year and the 4 tax years
investment of those funds is unlikely to re- immediately before the current tax year.
To be excluded from private foundation treat-
sult in more than one-third of its total sup-
ment under section 509(a)(2), an organization
Computation period for public support. If at port being received from gross investment
must meet two support tests.
the time of applying for tax-exempt status, an income and from unrelated business tax-
able income in excess of the tax imposed organization can reasonably be expected to
1. The one-third support test.
on that income, meet the one-third support test and the
2. The not-more-than-one-third support test.
not-more-than-one-third support test during its
4. Whether an organization that carries on
first 5 tax years, the organization will qualify for
Both these tests are designed to insure that
fundraising activities has developed a con-
classification as a public charity under section
an organization excluded from private founda-
crete plan for solicitation of funds on a
509(a)(2) for its first 5 years. Beginning with the
tion treatment is responsive to the general pub-
community or area-wide basis,
organizations sixth tax year, the organization
lic, rather than to the private interests of a limited
5. Whether an organization that carries on will be described in section 509(a)(2) if it meets
number of donors or other persons.
community service activities has a con- t h e o n e - t h i r d s u p p o r t t e s t a n d
crete program to carry out its work in the
not-more-than-one-third support test for its sixth
One-third support test. The one-third sup-
community,
year (based on support received in its second port test will be met if an organization normally
through sixth tax years) or as a carryover for its receives more than one-third of its support in
6. Whether membership dues for individual
fifth tax year (based on support received in its each tax year from any combination of:
(rather than institutional) members of an
first through fifth tax years). If the organization is
organization that carries on education or
1. Gifts, grants, contributions, or membership
required to file Form 990 or 990-EZ, it must
other exempt activities for or on behalf of
fees, and
establish that it meets the one-third support test
members have been fixed at rates de-
and not-more-than-one-third support test each
2. Gross receipts from admissions, sales of signed to make membership available to a
year on Schedule A (Form 990 or 990-EZ).
merchandise, performance of services, or broad cross section of the public rather
furnishing facilities in an activity that is not than to restrict membership to a limited
Reasonable expectation of public support.
an unrelated trade or business, subject to number of persons, and
An organization that can reasonably be ex-
certain limits, discussed below under Limit
pected to meet the one-third support test and
7. Whether an organization that provides
on gross receipts.
not-more-than-one-third support test under sec-
goods, services, or facilities is or will be
tion 509(a)(2) during its first 5 years is one that
For this purpose, the support must be from required to make its services, facilities,
can show that its organizational structure, cur-
permitted sources, which include: performances, or products available (re-
rent or proposed programs and activities, and
gardless of whether a fee is charged) to
Section 509(a)(1) organizations, described
actual or intended method of operation can rea-
the general public, public charities, or gov-
earlier,
sonably be expected to attract the type of
ernmental units rather than to a limited
broadly based support from the general public,
Governmental units, described under Sec- number of persons or organizations.
public charities, and governmental units that is
tion 509(a)(1) Organizations, earlier, and
necessary to meet these tests. The facts that are
Unusual grants. An unusual grant can be ex-
Persons other than Disqualified persons
relevant to this determination and the weight
cluded from the support test computation if it:
(defined under Section 509(a)(3) Organi-
accorded each fact may differ from case to case.
zations), later.
An organization cannot reasonably be expected
1. Was attracted by the publicly supported
to meet the one-third support test and the
nature of the organization,
Limit on gross receipts. In computing the
not-more-than-one-third support test when the
2. Was unusual or unexpected in amount, amount of support received from gross receipts
facts indicate that an organization is likely during
and under (2) above, gross receipts from related
its first 5 tax years to receive less than one-third
activities received from any person or from any
of its support from permitted sources or to re-
3. Would, because of its size, adversely af-
bureau or similar agency of a governmental unit
ceive more than one-third of its support from
fect the status of the organization as nor-
are includible in any tax year only to the extent
gross investment income and unrelated busi-
mally meeting the one-third support test.
the gross receipts are not more than the greater
ness taxable income.
(The organization must otherwise meet the
of $5,000 or 1% of the organizations total sup-
All pertinent facts and circumstances are test in that year without benefit of the grant
port in that year.
taken into account in determining whether the or contribution.)
organizational structure, programs, or activities,
Not-more-than-one-third support test. This
and method of operation of an organization will Characteristics of an unusual grant. A
test will be met if an organization normally re-
give that organization a reasonable expectation grant or contribution will be considered an unu-
ceives no more than one-third of its support in
that it will meet the support tests. Some pertinent sual grant if the above three factors apply and it
each tax year from the total of:
factors considered are: has all of the following characteristics. If these
factors and characteristics apply, then even
1. Gross investment income, and
1. Whether the organization has or will have
without the benefit of an advance ruling, grant-
2. The excess (if any) of unrelated business a governing body that is composed of per-
ors or contributors have assurance that they will
taxable income from unrelated trades or sons having special knowledge in the par-
not be considered responsible for an act that
businesses acquired after June 30, 1975, ticular field in which the organization is
results in an organizations change of support
over the tax imposed on that income. operating or of community leaders, such
status.
as elected officials, members of the clergy,
Gross investment income. Gross invest- and educators, or, in the case of a mem- 1. The grant or contribution is not made by a
ment income means the gross amount of in- bership organization, of individuals elected person (or related person) who created the
come from interest, dividends, payments with under the organizations governing instru- organization or was a substantial contribu-
respect to securities loans, rents, and royalties, ment or bylaws by a broadly based mem- tor to the organization before the grant or
but it does not include any income that would be bership, contribution.
REL 00920
2. The grant or contribution is not made by a 4. Whether the organization met the one-third M may submit a request for a private letter ruling
support test in the past without the benefit that the $500,000 contribution from Z qualifies person (or related person) who is in a posi-
of any exclusions of unusual grants. as an unusual grant. tion of authority, such as a foundation
Under the above circumstances, even manager, or who otherwise has the ability
5. Whether the organization has a represen-
though Albert was a founder and member of the to exercise control over the organization.
tative governing body.
governing body of M, M may exclude Zs contri- Similarly, the grant or contribution is not
bution of $500,000 in 2010 as an unusual grant made by a person (or related person) who,
Example 1. Y, an organization described in under Temp. Reg. section 1.509(a)-3T(c)(3) for because of the grant or contribution, ob-
section 501(c)(3), was created by Marshall Pine, purposes of determining whether M meets the tains a position of authority or the ability to
the holder of all the common stock in M corpora- one-third support test under section 509(a)(2) otherwise exercise control over the organi-
tion, Lisa, Marshalls wife, and Edward Forest, for 2014. zation.
Marshalls business associate. The purpose of Y
3. The grant or contribution is in the form of Gifts, contributions, and grants distin-
was to sponsor and equip athletic teams com-
cash, readily marketable securities, or as- guished from gross receipts. In determining
posed of underprivileged children in the commu-
sets that directly further the organizations whether an organization normally receives more
nity. Each of the three creators makes small
exempt purposes, such as a gift of a paint- than one-third of its support from permitted
cash contributions to Y. Marshall, Lisa, and Ed-
ing to a museum. sources, include all gifts, contributions, and
ward have been active participants in the affairs
grants received from permitted sources in the
of Y since its creation. Y regularly raises small
4. The donee organization has received ei-
numerator of the support fraction in each tax
amounts of contributions through fundraising
ther an advance or final ruling or determi-
year. However, gross receipts from admissions,
drives and selling admission to some of the
nation letter classifying it as a publicly
sales of merchandise, performance of services,
sponsored sporting events. The operations of Y
supported organization and, except for an
or furnishing facilities, in an activity that is not an
are carried out on a small scale, usually being
organization operating under an advance
unrelated trade or business, are includible in the
restricted to the sponsorship of two to four base-
ruling or determination letter, the organiza-
numerator of the support fraction in any tax year
ball teams of underprivileged children.
tion is actively engaged in a program of
only to the extent that the amounts received
In 2009, M Corporation recapitalizes and
activities in furtherance of its exempt pur-
from any person or from any bureau or similar
creates a first and second class of 6 percent
pose.
agency of a governmental unit are not more than
nonvoting preferred stock, most of which is held
the greater of $5,000 or 1% of support. 5. No material restrictions or conditions have
by Marshall and Lisa. In 2010, Marshall contrib-
been imposed by the grantor or contributor
utes 49 percent of his common stock in M to Y.
Rulings or determinations of public sup-
upon the organization in connection with
Marshalls contribution of Ms common stock
port status. An organization may request a
the grant or contribution.
was substantial and constitutes 90 percent of
ruling or determination letter that it is described
Ys total support for 2010. A combination of the
in section 509(a)(2). This request is made on 6. If the grant or contribution is intended for
facts and circumstances of the determining fac-
Form 1023, or at such other time as the organi- operating expenses, rather than capital
tors preclude Marshalls contribution of Ms com-
zation believes it is described in section items, the terms and amount of the grant
mon stock in 2010 from being excluded as an
509(a)(2). The IRS may revoke the section or contribution are expressly limited to one
unusual grant under Temp. Reg. section
509(a)(2) ruling or determination letter if, upon years operating expenses.
1.509(a)-3T(c)(3) for purposes of determining
examination, the organization has not met the
whether Y meets the one-third support test
requirements. The IRS may also revoke the sec- Ruling request. If there is any doubt that a
under section 509(a)(2).
tion 509(a)(2) ruling or determination letter if the grant or contribution can be excluded as an
organizations application for a ruling or determi- unusual grant, the grantee organization can re-
Example 2. M was organized in 2009 to
nation contained a material misstatement of quest a ruling, submitting all of the necessary
promote the appreciation of ballet in a particular
fact. information for making a determination to the
region of the United States. Its principal activi-
Manager, EO Determinations. The IRS has the
Reliance by grantors or contributors.
ties consist of erecting a theater for the perform-
sole discretion of issuing a ruling, but if a
Grantors or contributors may rely on a determi-
ance of ballet and the organization and
favorable ruling is issued, it can be relied on by
nation or ruling letter that an organization is
operation of a ballet company. M receives a
the grantor or contributor for purposes of a chari-
described in section 509(a)(2) until notice of
determination letter that it is an organization
table contributions deduction and by the organi-
change of status of the organization is made to
described in section 501(c)(3) and that it is a
zation for purposes of the exclusion for unusual
the public (such as by publication in the Internal
public charity described in section 509(a)(2).
grants. The organization should follow the pro-
Revenue Bulletin, or Publication 78, Cumulative
The governing body of M consists of nine promi-
cedures set out in Revenue Procedure 2010-4
List of Organizations described in section 170(c)
nent unrelated citizens residing in the region
(or later update) to request a ruling on an unu-
of the Internal Revenue Code of 1986, either of
who have either an expertise in ballet or a strong
sual grant.
which can be searched at IRS.gov. However,
interest in encouraging appreciation of the art
In addition to the characteristics listed above,
this will not apply if the grantor or contributor was
form.
the following factors may be considered by the
responsible for, or aware of, the act or failure to
In 2010, Z, a private foundation, proposes to
IRS in determining if the grant or contribution is
act that resulted in the organizations loss of
make a grant of $500,000 in cash to M to provide
an unusual grant.
classification as a publicly supported organiza-
sufficient capital for M to commence its activi-
tion.
ties. Although Albert Cedar, the creator of Z, is 1. Whether the contribution was a bequest or
one of the nine members of Ms governing body, Gifts and contributions. Any payment of a transfer while living. A bequest will ordi-
was one of Ms original founders, and continues money or transfer of property without adequate narily be given more favorable considera-
to lend his prestige to Ms activities and fundrais- consideration is considered a gift or contribution. tion than a transfer while living.
ing efforts, Albert does not, directly or indirectly, When payment is made or property is trans-
2. Whether, before the contribution, the or-
exercise any control over M. By the close of its ferred as consideration for admissions, sales of
ganization carried on an actual program of
first tax year, M also has received a significant merchandise, performance of services, or fur-
public solicitation and exempt activities
amount of support from a number of smaller nishing facilities to the donor, the status of the
and was able to attract a significant
contributions and pledges from members of the payment or transfer under section 170(c) deter-
amount of public support.
general public. M charges admission to the bal- mines whether and to what extent the payment
let performances to the general public. 3. Whether the organization may reasonably or transfer is a gift or contribution as distin-
be expected to attract a significant amount Although the support received in 2010 will guished from gross receipts from related activi-
of public support after the contribution. not impact Ms status as a public charity for its ties.
Continued reliance on unusual grants to first 5 tax years, it will be relevant to the determi- The amount includible in computing support
fund an organizations current operating nation of whether M meets the one-third support from gifts, grants, or contributions of property or
expenses can be evidence that the organi- test under section 509(a)(2) for the 2014 tax use of property is the fair market or rental value
zation cannot attract future support from year, using the computation period 2010 of the property at the date of the gift or contribu-
the general public. through 2014. Within the appropriate timeframe, tion.
REL 00921
Example. P is a local agricultural club and is organization uses membership fees as a means public charitys donors, it will retain its character
an organization described in section 501(c)(3). It of selling admissions, merchandise, services, or as a contribution from the donor, and if, for
makes awards at its annual fair for outstanding the use of facilities to members of the general example, the donor is a substantial contributor
specimens of produce and livestock to en- public who have no common goal or interest to the ultimate recipient, the amount is excluded
courage interest and proficiency by young peo- (other than the desire to buy the admissions, from the numerator of the support fraction. If a
ple in farming and raising livestock. Most of merchandise, services, or use of facilities), the public charity makes both an indirect contribu-
these awards are cash or other property fees are not membership fees but are gross tion from its donor and an additional grant to the
donated by local businessmen. When the receipts. ultimate recipient, the indirect contribution is
awards are made, the donors are given recogni- treated as made first. On the other hand, to the extent the basic
tion for their donations by being identified as the
purpose of the payment is to provide support for
An indirect contribution is one that is ex-
donor of the award. The recognition given to
the organization rather than to buy admissions,
pressly or impliedly earmarked by the donor as
donors is merely incidental to the making of the
merchandise, services, or the use of facilities,
being for, or for the benefit of, a particular recipi-
award to worthy youngsters. For these reasons,
the payment is a membership fee.
ent rather than for a particular purpose.
the donations are contributions. The amount in-
cludible in computing support is equal to the Bureau defined. The term bureau or similar
Method of accounting. An organizations
cash contributed or the fair market value of other agency of a governmental unit for determining
support is determined under the same account-
property on the dates contributed. amounts subject to the $5,000 or 1% limit means
ing method that it uses in keeping its books and
a specialized operating unit of the executive,
that it otherwise uses to report on its Form 990 Grants. Grants often contain certain terms
judicial, or legislative branch of government in
or 990-EZ, if it is required to file Form 990 or and conditions imposed by the grantor. Because
which business is conducted under certain rules
990-EZ. For example, if a grantor makes a grant of the imposition of terms and conditions, the
and regulations. Since the term bureau refers to
to an organization payable over a term of years, frequent similarity of public purposes of grantor
a unit functioning at the operating, as distinct
the grant will be includible in the support fraction and grantee, and the possibility of benefit to the
from the policy-making, level of government, it
of the grantee organization under the account- grantor, amounts received as grants for carrying
normally means a subdivision of a department of
ing method it regularly uses in keeping its books. on exempt activities are sometimes difficult to
government. The term would not usually include
distinguish from amounts received as gross re-
those levels of government that are basically
Gross receipts from a related activity. ceipts from carrying on exempt activities.
policy-making or administrative, such as the of-
When the charitable purpose of an organization
In distinguishing the term gross receipts from
fice of the Secretary or Assistant Secretary of a
described in section 501(c)(3) is accomplished
the term grants, the term gross receipts means
department, but would consist of the highest
through furnishing facilities for a rental fee or
amounts received from an activity that is not an
operational level under the policy-making or ad-
loans to a particular class of persons, such as
unrelated trade or business, if a specific service,
ministrative levels.
aged, sick, or needy persons, the support re-
facility, or product is provided to serve the direct
Amounts received from a unit functioning at
ceived from those persons will be considered
and immediate needs of the payor rather than
the policy-making or administrative level of gov-
gross receipts from a related exempt activity
primarily to confer a direct benefit on the general
ernment are treated as received from one bu-
rather than gross investment income or unre-
public. In general, payments made primarily to
reau or similar agency of the unit. Units of a
lated business taxable income.
enable the payor to realize or receive some
governmental agency above the operating level
However, if the organization also furnishes economic or physical benefit as a result of the
are combined and considered a separate bu-
facilities or loans to persons who are not mem- service, facility, or product obtained will be
reau for this purpose. Thus, an organization that
bers of a particular class and furnishing the treated as gross receipts by the payee.
has gross receipts from both a policy-making or
facilities or funds does not contribute importantly
For example, a profit-making organization,
administrative unit and an operational unit of a
to accomplishing the organizations exempt pur-
primarily for its own betterment, contracts with a
department will be treated as having gross re-
poses, the support received from furnishing the
nonprofit organization for a service from that
ceipts from two bureaus. For this purpose, the
facilities or funds will be considered rents or
organization. Any payments received by the
Departments of Air Force, Army, and Navy are
interest and will be treated as gross investment
nonprofit organization (whether from the
separate departments and each has its own
income or unrelated business taxable income.
profit-making organization or from another non-
policy-making, administrative, and operating
profit) for similar services are primarily for the
units.
Example. X, an organization described in
benefit of the payor and are therefore gross
section 501(c)(3), is organized and operated to
receipts, rather than grants.
Example 1. The Bureau for Africa and the
provide living facilities for needy widows of de-
Research leading to the development of tan- Bureau for Latin America are considered sepa-
ceased servicemen. X charges the widows a
gible products for the use or benefit of a payor rate bureaus. Each is an operating unit under
small rental fee for the use of the facilities. Since
generally will be treated as a service provided to the Administrator of the Agency for International
X is accomplishing its exempt purpose through
serve the direct and immediate needs of the Development, a policy-making official. If an or-
the rental of the facilities, the support received
payor, while basic research or studies carried on ganization had gross receipts from both of these
from the widows is considered gross receipts
in the physical or social sciences generally will bureaus, the amount of gross receipts from each
from a related exempt activity. However, if X
be treated as primarily to confer a direct benefit would be subject to the greater of $5,000 or the
rents part of its facilities to persons having no
upon the general public. 1% limit.
relationship to Xs exempt purpose, the support
Medicare and Medicaid payments are gross
received from these rentals will be considered
Example 2. A bureau is an operating unit
receipts from the exercise or performance of an
gross investment income or unrelated business
under the administrative office of the Executive
exempt function. The individual patient, not a
taxable income.
Director. The subdivisions of the bureau are
governmental unit, actually controls the ultimate
Geographic Areas and Project Development
recipient of these payments. Therefore, Medi-
Staff. If an organization had gross receipts from
care and Medicaid receipts for services provided
Section 509(a)(3) Organizations
these subdivisions, the total gross receipts from
to each patient are included as gross receipts to
these subdivisions would be considered gross
the extent they are not more than the greater of Section 509(a)(3) excludes from the definition of
receipts from the same bureau and would be
$5,000 or 1% of the organizations total support private foundation those organizations that meet
subject to the greater of $5,000 or the 1% limit.
for the tax year. all of the three following requirements.
Grants from public charities. For purposes 1. The organization must be organized and Membership fees distinguished from gross
of the one-third support test, grants received operated exclusively for the benefit of, to receipts. The fact that a membership organi-
from a section 509(a)(1) organization (public perform the functions of, or to carry out the zation provides services, admissions, facilities,
charity) are generally includible in full in comput- purposes of one or more specified organi- or merchandise to its members as part of its
ing the numerator of the support fraction for that zations as described in sections 509(a)(1) overall activities will not, in itself, result in the
tax year. or 509(a)(2). These section 509(a)(1) and classification of fees received from members as
509(a)(2) organizations are commonly gross receipts subject to the $5,000 or 1% limit However, if the amount received is consid-
called publicly supported organizations. rather than membership fees. However, if an ered an indirect contribution from one of the
REL 00922
2. The organization has one of three types of performs the functions of or carries out the pur- controlled in connection with one or more sec-
relationships with one or more organiza- poses of such supported organization. tion 509(a)(1) or 509(a)(2) organizations is a
tions described in sections 509(a)(1) or Type II supporting organization. The control or
Organizations controlled by donors. Gen-
509(a)(2). It must be: management of the supporting organization
erally, if a Type I or Type III supporting organiza-
must be vested in the same persons that control
tion supports an organization that is controlled
a. Operated, supervised, or controlled by
or manage the publicly supported organization.
by a donor, the supporting organization is
one or more section 509(a)(1) or
In order for an organization to be supervised or
treated as a private foundation (rather than as a
509(a)(2) organizations (Type I support-
controlled in connection with a publicly sup-
public charity) for purposes of the relationship
ing organization),
ported organization, common supervision or
test. Type I and Type III organizations will not
control by the persons supervising or controlling
b. Supervised or controlled in connection
satisfy the relationship test if they accept any
both organizations must exist to ensure that the
with one or more section 509(a)(1) or
gifts or contributions from:
supporting organization will be responsive to the
509(a)(2) organizations (Type II sup-
needs and requirements of the publicly sup-
1. Any person (other than an organization de- porting organization), or
ported organization.
scribed in section 509(a)(1), (2), or (4))
c. Operated in connection with one or
An organization will not be considered super-
who controls, directly or indirectly, either
more section 509(a)(1) or 509(a)(2) or-
vised or controlled in connection with one or
alone or together with persons listed in (2)
ganizations (Type III supporting organi-
more publicly supported organizations if it
or (3) below, the governing body of a sup-
zation).
merely makes payments (mandatory or discre-
ported organization;
tionary) to the publicly supported organizations.
2. A family member of a person described in 3. The organization must not be controlled
This is true even if the obligation to make pay-
(1), above; or directly or indirectly by disqualified persons
ments is legally enforceable and the organiza-
(defined later) other than foundation man-
tions governing instrument contains provisions
3. A 35-percent controlled entity.
agers and other than one or more organi-
requiring the distribution. These arrangements
zations described in section 509(a)(1) or
do not provide a sufficient connection between
Category one. This category includes organi-
509(a)(2).
the payor organization and the needs and re-
zations either operated, supervised, or con-
quirements of the publicly supported organiza-
trolled by or supervised or controlled in Section 509(a)(3) differs from the other pro-
tions to constitute supervision or control in
connection with organizations described in sec- visions of section 509 that describe a publicly
connection with the organizations.
tion 509(a)(1) or 509(a)(2) (which can be either supported organization. Instead of describing an
domestic or foreign). organization that conducts a particular kind of
Organizational and operational tests. To
These kinds of organizations have a govern- activity or that receives financial support from
qualify as a section 509(a)(3) organization (sup-
ing body that either includes a majority of mem- the general public, section 509(a)(3) describes
porting organization), the organization must be
bers elected or appointed by one or more organizations that have established certain rela-
both organized and operated exclusively for the
publicly supported organizations or that consists tionships in support of section 509(a)(1) or
purposes set out in requirement (1) at the begin-
of the same persons that control or manage the 509(a)(2) organizations. Thus, an organization
ning of this section. If an organization fails to
publicly supported organizations. If an organiza- can qualify as other than a private foundation
meet either the organizational or the operational
tion is to qualify under this category, it also must even though it may be funded by a single donor,
test, it cannot qualify as a supporting organiza-
meet an organizational test, an operational test, family, or corporation (with certain exceptions
tion.
and not be controlled by disqualified persons. described in Organizations controlled by do-
These requirements are covered later in this nors). This kind of funding ordinarily would indi-
Organizational test. An organization is or-
discussion. cate private foundation status, but a section
ganized exclusively for one or more of the pur-
509(a)(3) organization has limited purposes and
poses specified in requirement (1) only if its
Operated, supervised, or controlled by.
activities and gives up a significant degree of
articles of organization:
An organization that is operated, supervised, or
independence.
controlled by one or more section 509(a)(1) or
1. Limit the purposes of the organization to
More than one type of relationship may exist
509(a)(2) organizations is a Type I supporting
one or more of those purposes,
between a supporting organization and a pub-
organization. Each of these terms, as used for
licly supported organization. Any relationship,
2. Do not expressly empower the organiza- supporting organizations, presupposes a sub-
however, must ensure that the supporting or-
tion to engage in activities that are not in stantial degree of direction over the policies,
ganization will be responsive to the needs or
furtherance of those purposes, programs, and activities of a supporting organi-
demands of, and will be an integral part of or
zation by one or more publicly supported organi-
3. Specify (as explained later under Specified
maintain a significant involvement in, the opera-
zations. The relationship required under any one
organizations) the publicly supported orga-
tions of one or more publicly supported organi-
of these terms is comparable to that of a parent
nizations on whose behalf the organization
zations.
and subsidiary, in which the subsidiary is under
is operated, and
The first two relationships, operated, super-
the direction of and is accountable or responsi-
vised, or controlled by and supervised or con-
4. Do not expressly empower the organiza- ble to the parent organization. This relationship
trolled in connection with, are based on an
tion to operate to support or benefit any is established when a majority of the officers,
existence of majority control of the governing
organization other than the ones specified directors, or trustees of the supporting organiza-
body of the supporting organization by the pub-
in item (3). tion are appointed or elected by the governing
licly supported organization. They have the
body, members of the governing body, officers
In meeting the organizational test, the organ-
same rules for meeting the tests under require-
acting in their official capacity, or the member-
izations purposes as stated in its articles can be
ment (1) and are discussed in Category one
ship of one or more publicly supported organiza-
as broad as, or more specific than, the purposes
below. The operated in connection with relation-
tions.
set forth in requirement (1) at the beginning of
ship requires that the supporting organization be
A supporting organization can be operated,
the discussion of Section 509(a)(3) Organiza-
responsive to and have operational relation-
supervised, or controlled by one or more publicly
tions. Therefore, an organization that by the
ships with publicly supported organizations.
supported organizations even though its gov-
terms of its articles is formed for the benefit of
This third relationship has different rules for
erning body is not made up of representatives of
one or more specified publicly supported organi-
meeting the requirement (1) tests and is dis-
the specified publicly supported organizations
zations will, if it otherwise meets the other re-
cussed separately in Category two, later.
for whose benefit it is operated. This occurs only
quirements, be considered to have met the
if it can be demonstrated that the purposes of
Supported organizations. Supported organi- organizational test.
the publicly supported organizations are carried
zation means, with respect to a supporting or- For example, articles stating that an organi-
out by benefiting the specified publicly sup-
ganization described in section 509(a)(3), an zation is formed to perform the publishing func-
ported organizations (discussed later under
organization described in section 509(a)(1) or tions of a specified university are enough to
Specified organizations).
509(a)(2) for whose benefit the supporting or- comply with the organizational test. An organi-
ganization is organized and operated, or with Supervised or controlled in connection zation operated, supervised, or controlled by, or
respect to which the supporting organization with. An organization that is supervised or supervised or controlled in connection with, one
REL 00923
or more publicly supported organizations to class for another publicly supported organ- Disqualified persons. For the purposes of
the rules discussed in this publication, the fol- ization either in the same or a different carry out the purposes of those organizations
lowing persons are considered disqualified per- class designated in the articles, will be considered to have met these require-
sons:
ments if the purposes set forth in its articles are
2. Permit the supporting organization to oper-
similar to but no broader than the purposes set
ate for the benefit of new or additional pub-
1. All substantial contributors to the founda-
forth in the articles of its controlling organiza-
licly supported organizations of the same
tion.
tions. If, however, the organization by which it is
or a different class designated in the arti-
2. All foundation managers of the foundation.
operated, supervised, or controlled is a publicly
cles, or
supported section 501(c)(4), 501(c)(5), or
3. An owner of more than 20% of:
3. Permit the supporting organization to vary
501(c)(6) organization, the supporting organiza-
the amount of its support among different
a. The total combined voting power of a tion will be considered to have met these re-
publicly supported organizations within the
corporation that is (during such owner-
quirements if its articles require it to carry on
class or classes of organizations desig-
ship) a substantial contributor to the
charitable, etc., activities within the meaning of
nated by the articles.
foundation,
section 170(c)(2).
See also the rules considered under the Organi-
b. The profits interest of a partnership that
Limits. An organization is not organized ex-
zational test, in the later discussion for organiza-
is (during such ownership) a substantial
clusively for the purposes specified in require-
tions in Category two. contributor to the foundation, or
ment (1) if its articles expressly permit it to
Operational test permissible beneficia- operate to support or to benefit any organization
c. The beneficial interest of a trust or unin-
ries. A supporting organization will be re- other than the specified publicly supported orga- corporated enterprise that is (during
garded as operated exclusively to support one nizations. It will not meet the organizational test such ownership) a substantial contribu-
or more specified publicly supported organiza- tor to the foundation. even though the actual operations of the organi-
tions only if it engages solely in activities that
zation have been exclusively for the benefit of
support or benefit the specified organizations. 4. A member of the family of any of the indi-
the specified publicly supported organizations.
viduals just listed. These activities may include making payments
Specified organizations. In order to meet
to or for the use of, or providing services or
5. A corporation of which more than 35% of
requirement (1), an organization must be organ-
facilities for, individual members of the charita-
the total combined voting power is owned
ized and operated exclusively to support or ben-
ble class benefited by the specified publicly sup-
by persons just listed.
efit one or more specified publicly supported
ported organization.
organizations. The manner in which the publicly
6. A partnership of which more than 35% of
For example, a supporting organization may
supported organizations must be specified in the the profits interest is owned by persons
make a payment indirectly through another un-
articles will depend on whether the supporting described in (1), (2), (3), or (4).
related organization to a member of a charitable
organization is operated, supervised, or con-
class benefited by a specified publicly supported
7. A trust, or estate, of which more than 35%
trolled by or supervised or controlled in connec-
organization, but only if the payment is a grant to
of the beneficial interest is owned by per-
tion with the organizations or whether it is
an individual rather than a grant to an organiza-
sons described in (1), (2), (3), or (4).
operated in connection with the organizations.
tion. Similarly, an organization will be regarded
Remember, however, that foundation manag-
Generally, the articles of the supporting or- as operated exclusively to support or benefit one
ers and publicly supported organizations are
ganization must designate each of the specified or more specified publicly supported organiza-
not disqualified persons for purposes of the
organizations by name, unless: tions even if it supports or benefits a section
third requirement under section 509(a)(3).
501(c)(3) organization, other than a private
1. The supporting organization is operated,
foundation, that is operated, supervised, or con- If a person who is a disqualified person with
supervised, or controlled by or supervised
trolled directly by or in connection with a publicly respect to a supporting organization, such as a
or controlled in connection with one or
substantial contributor, is appointed or desig- supported organization, or an organization that
more publicly supported organizations and
nated as a foundation manager of the support- is a publicly owned college or university. How-
the articles of organization of the support-
ing organization by a publicly supported ever, an organization will not be regarded as one
ing organization require that it be operated
beneficiary organization to serve as the repre- that is operated exclusively to support or benefit
to support or benefit one or more benefi-
sentative of the publicly supported organization, a publicly supported organization if any part of
ciary organizations that are designated by that person is still a disqualified person, rather
its activities is in furtherance of a purpose other
class or purpose and include: than a representative of the publicly supported
than supporting or benefiting one or more speci-
organization.
fied publicly supported organizations.
a. The publicly supported organizations
An organization is considered controlled for Operational test permissible activities.
referred to above (without designating
this purpose if the disqualified persons, by com- A supporting organization does not have to pay
the organizations by name), or
bining their votes or positions of authority, can its income to the publicly supported organiza-
b. publicly supported organizations that
require the organization to perform any act that
tions to meet the operational test. It can satisfy
are closely related in purpose or func-
significantly affects its operations or can prevent
the test by using its income to carry on an inde-
tion to those publicly supported organi-
the organization from performing the act. This
pendent activity or program that supports or
zations, or
includes, but is not limited to, the right of any
benefits the specified publicly supported organi-
substantial contributor or spouse to designate
zations. All such support, however, must be lim-
2. A historic and continuing relationship ex-
annually the recipients from among the publicly
ited to permissible beneficiaries described
ists between the supporting organization
supported organizations of the income from his
earlier. The supporting organization also may
and the publicly supported organizations, or her contribution. Except as explained under
engage in fundraising activities, such as solicita-
and because of this relationship, a sub- Proof of independent control, next, a supporting
tions, fundraising dinners, and unrelated trade
organization will be considered to be controlled stantial identity of interests has developed
or business, to raise funds for the publicly sup-
directly or indirectly by one or more disqualified between the organizations.
ported organizations or for the permissible ben-
persons if the voting power of those persons is
eficiaries.
If a supporting organization is operated, su-
50% or more of the total voting power of the
pervised, or controlled by, or is supervised or
organizations governing body, or if one or more
Absence of control by disqualified persons.
controlled in connection with, one or more pub-
of those persons have the right to exercise veto
The third requirement an organization must
licly supported organizations, it will not fail the
power over the actions of the organization.
meet to qualify as a supporting organization
test of being organized for the benefit of speci-
requires that the organization not be controlled Thus, if the governing body of a foundation is
fied organizations solely because its articles:
directly or indirectly by one or more disqualified composed of five trustees, none of whom has a
1. Permit the substitution of one publicly sup- persons (other than foundation managers or one veto power over the actions of the foundation,
or more publicly supported organizations). ported organization within a designated and no more than two trustees are at any time
REL 00924
disqualified persons, the foundation is not con- name to satisfy the test. But a supporting organi- way of regulation or otherwise, designed to en-
sidered controlled directly or indirectly by one or zation that has one or more specified organiza- sure that the supporting organization remains
more disqualified persons by reason of this fact tions designated by name in its articles will not responsive to the needs and demands of the
alone. However, all pertinent facts and circum- fail the organizational test solely because its supported organization.
stances (including the nature, diversity, and in- articles:
come yield of an organizations holdings, the
Integral-part test. The organization will meet
1. Permit a publicly supported organization
length of time particular stocks, securities, or
this test if it maintains a significant involvement
that is designated by class or purpose
other assets are retained, and its manner of
in the operations of one or more publicly sup-
rather than by name to be substituted for
exercising its voting rights with respect to stocks
ported organizations and these organizations
the publicly supported organization or or-
in which members of its governing body also
are in turn dependent upon the supporting or-
ganizations designated by name in the arti- have some interest) are considered in determin-
ganization for the type of support that it provides.
cles, but only if the substitution is ing whether a disqualified person does in fact
To meet this test, either of the following must be
conditioned upon the occurrence of an indirectly control an organization.
satisfied.
event that is beyond the control of the sup-
Proof of independent control. An organi-
porting organization, such as loss of ex-
1. The activities engaged in for, or on behalf
zation is permitted to establish to the satisfaction
emption, substantial failure or
of, the publicly supported organizations are
of the IRS that disqualified persons do not di-
abandonment of operations, or dissolution
activities to perform the functions of or to
rectly or indirectly control it. For example, in the
of the organization or organizations desig-
carry out the purposes of the organiza-
case of a religious organization operated in con-
nated in the articles,
tions, and, but for the involvement of the
nection with a church, the fact that the majority
supporting organization, would normally be
2. Permit the supporting organization to oper- of the organizations governing body is com-
engaged in by the publicly supported orga-
ate for the benefit of an organization that is posed of lay persons who are substantial con-
nizations themselves, or
tributors to the organization will not disqualify not a publicly supported organization, but
the organization under section 509(a)(3) if a only if the supporting organization is cur-
2. The supporting organization makes pay-
representative of the church, such as a bishop or rently operating for the benefit of a publicly
ments of substantially all of its income to,
other official, has control over the policies and supported organization and the possibility
or for the use of, publicly supported organi-
decisions of the organization. of its operating for the benefit of other than
zations, and the amount of support re-
a publicly supported organization is re-
ceived by one or more of these publicly
Category two. This category includes organi-
mote, or
supported organizations is enough to en-
zations operated in connection with one or more
sure the attentiveness of these organiza-
3. Permit the supporting organization to vary
organizations described in section 509(a)(1) or
tions to the operations of the supporting
the amount of its support between different
509(a)(2). These organizations are Type III sup-
organization.
designated organizations, as long as it
porting organizations. They cannot be operated
meets the requirements of the integral-part
If item (2) is being relied on, a substantial in connection with any supported organization
test (discussed later) with respect to at
amount of the total support of the supporting that is not organized in the United States. How-
least one beneficiary organization.
organization also must go to those publicly sup- ever, for a supporting organization that supports
ported organizations that meet the attentiveness a foreign organization on August 17, 2006, this
If the beneficiary organization referred to in
requirement with respect to the supporting or- does not apply until the first day of the organiza-
(2) is not a publicly supported organization, the
ganization. Except as explained in the next par- tions third tax year beginning after August 17,
supporting organization will not meet the opera-
agraph, the amount of support received by a 2006.
tional test. Therefore, if a supporting organiza-
publicly supported organization must represent This kind of section 509(a)(3) organization is
tion substituted a beneficiary other than a
a large enough part of the organizations total one that has certain types of operational rela-
publicly supported organization and operated in
support to ensure such attentiveness. In apply- tionships. If an organization is to qualify as a
support of that beneficiary, the supporting or-
ing this, if the supporting organization makes section 509(a)(3) organization because it is op-
ganization would not be one described in sec-
payments to, or for the use of, a particular de- erated in connection with one or more publicly
tion 509(a)(3).
supported organizations, it must not be con- partment or school of a university, hospital, or
Method two. If a historic and continuing re-
trolled by disqualified persons (as described church, the total support of the department or
lationship exists between the supporting organi-
earlier) and it must meet an organizational test, school must be substituted for the total support
zation and the publicly supported organizations,
a responsiveness test, an integral-part test, and of the beneficiary organization.
and because of this relationship, a substantial
an operational test.
Even when the amount of support received
identity of interests has developed between the
by a publicly supported beneficiary organization
organizations, then the articles of organization Organizational test. This test requires that
does not represent a large enough part of the
will not have to designate the specified organi- the organization, in its governing instrument:
beneficiary organizations total support, the
zation by name.
amount of support received from a supporting
1. Limit its purposes to supporting one or
organization may be large enough to meet the
more publicly supported organizations,
Responsiveness test. An organization will
requirements of item (2) of the integral-part test
meet this test if it is responsive to the needs or
2. Designate the organizations operated, su-
if it can be demonstrated that, in order to avoid
demands of the publicly supported organiza-
pervised, or controlled by, and
the interruption of a particular function or activ-
tions. To meet this test, the publicly supported
ity, the beneficiary organization will be suffi-
3. Not have express powers inconsistent with
organizations must elect, appoint, or maintain a
ciently attentive to the operations of the
these purposes.
close and continuous working relationship with
supporting organization. This may occur when
the officers, directors, or trustees of the support-
These tests apply to all supporting organiza-
either the supporting organization or the benefi-
ing organization; consequently, the officers, ditions.
ciary organization earmarks the support re-
rectors, or trustees of the publicly supported
In the case of an organization that is oper-
ceived from the supporting organization for a
organizations have a significant voice in the in- ated in connection with one or more publicly
particular program or activity, even if the pro-
vestment policies of the supporting organiza- supported organizations, however, the designa-
gram or activity is not the beneficiary organiza-
tion, the timing of grants and the manner of tion requirement under the organizational test
tions primary program or activity, as long as the
making them, the selection of recipients, and can be satisfied using either of the following two
program or activity is a substantial one.
generally the use of the income or assets of the methods.
All factors, including the number of beneficia-
supporting organization.
ries, the length and nature of the relationship Method one. If an organization is organized
Notification requirement. In each tax year, between the beneficiary and supporting organi- and operated to support one or more publicly
the Type III supporting organization must notify zation, and the purpose to which the funds are supported organizations and it is operated in
each supported organization of its support and put, will be considered in determining whether connection with that type of organization or or-
provide each supported organization with any the amount of support received by a publicly ganizations, then its articles of organization
information that may be required by the IRS, by supported beneficiary organization is large must designate the specified organizations by
REL 00925
enough to ensure the attentiveness of the or- chamber of commerce, or other organization under section 509(a)(2). If this type of relation-
ganization to the operations of the supporting described in section 501(c)(4), 501(c)(5), or ship is established or used between an organi-
organization. 501(c)(6) may qualify as a supporting organiza- zation seeking 509(a)(3) status and two or more
Normally, the attentiveness of a beneficiary tion under section 509(a)(3) and therefore not
organizations seeking 509(a)(2) status, the
organization is motivated by the amounts re- be classified as a private foundation if both the
amount and character of support received by the
ceived from the supporting organization. Thus, following conditions are met.
former organization will be prorated among the
the more substantial the amount involved, in
latter organizations.
1. The supporting organization must meet all
terms of a percentage of the publicly supported
In determining whether a relationship exists
the requirements previously specified (the
organizations total support, the greater the like-
between an organization seeking 509(a)(3) sta-
organizational tests, the operational test,
lihood that the required degree of attentiveness
tus (supporting organization) and one or more
and one of the relationship tests and not
will be present. However, in determining
organizations seeking 509(a)(2) status (benefi-
be controlled by disqualified persons).
whether the amount received from the support-
ciary organizations) for the purpose of avoiding
ing organization is large enough to ensure the
2. The section 501(c)(4), 501(c)(5), or
private foundation status, all pertinent facts and
attentiveness of the beneficiary organization to
501(c)(6) organization would be described
circumstances will be taken into account. The
the operations of the supporting organization
in section 509(a)(2) if it was a charitable
following facts may be used as evidence that
(including attentiveness to the nature and yield
organization described in section
such a relationship was not established or
of the supporting organizations investments),
501(c)(3). This provision allows separate
availed of to avoid classification as a private evidence of actual attentiveness by the benefi-
charitable funds of certain noncharitable
foundation. ciary organization is of almost equal importance.
organizations to be described in section
Imposing this requirement is merely one of
509(a)(3) if the noncharitable organizations
1. The supporting organization is operated to
the factors in determining whether a supporting
receive their support and otherwise oper-
support or benefit several specified benefi-
organization is complying with the attentiveness
ate in the manner specified by section
ciary organizations.
test. The absence of this requirement will not
509(a)(2).
preclude an organization from classification as a
2. The beneficiary organization has a sub-
supporting organization if it complies with the
stantial number of dues-paying members
Special rules of attribution. To determine
other factors.
who have an effective voice in the man-
whet her an or gani zat i on meet s t he
However, when none of the beneficiary orga-
agement of both the supporting and the
not-more-than-one-third support test in section
nizations are dependent upon the supporting
beneficiary organizations.
509(a)(2), amounts received by the organization
organization for a large enough amount of their
from an organization that seeks to be a section
3. The beneficiary organization is composed support, the requirements of item (2) of the inte-
509(a)(3) organization because of its support of
of several membership organizations, each gral-part test will not be satisfied, even though
the organization are gross investment income
the beneficiary organizations have enforceable of which has a substantial number of mem-
(rather than gifts or contributions) to the extent
rights against the supporting organization under bers, and the membership organizations
they are gross investment income of the distrib-
state law. have an effective voice in the management
uting organization. (This rule also applies to
If an organization cannot meet the require- of the supporting and beneficiary organiza-
amounts received from a charitable trust, corpo-
ments of item (2) of the integral-part test for its
tions.
ration, fund, association, or similar organization
current tax year solely because the amount re-
4. The beneficiary organization receives a
that is required by its governing instrument or
ceived by one or more of the beneficiaries from
substantial amount of support from the
otherwise to distribute, or that normally does
the supporting organization is no longer large
general public, public charities, or govern-
distribute, at least 25% of its adjusted net in-
enough, it can still qualify under the integral-part
mental grants.
come to the organization, and whose distribution test if it can establish that it has met the require-
normally comprises at least 5% of its adjusted ments of item (2) of the integral-part test for any
5. The supporting organization uses its funds
net income.) All income that is gross investment 5-year period and that there has been an historic
to carry on a meaningful program of activi-
income of the distributing organization will be and continuing relationship of support between
ties to support or benefit the beneficiary
considered distributed first by that organization. the organizations between the end of the 5-year
organization and, if the supporting organi-
If the supporting organization makes distribu- period and the tax year in question.
zation were a private foundation, this use
tions to more than one organization, the amount
would be sufficient to avoid the imposition
of gross investment income considered distrib- Operational test. The requirements for meet-
of the tax on failure to distribute income.
uted will be prorated among the distributees. ing the operational test for organizations oper-
ated, supervised, or controlled by publicly 6. The operations of the beneficiary and sup- Also, treat amounts paid by an organization
supported organizations (discussed earlier, porting organizations are managed by dif- to provide goods, services, or facilities for the
under Qualifying as Publicly Supported) have direct benefit of an organization seeking section ferent persons, and each organization
limited applicability to organizations operated in 509(a)(2) status (rather than for the direct bene- performs a different function.
connection with one or more publicly supported fit of the general public) in the same manner as
7. The supporting organization is not able to
organizations. This is because the operational amounts received by the latter organization.
exercise substantial control or influence
requirements of the integral-part test, just dis- These amounts will be treated as gross invest-
over the beneficiary organization because
cussed, generally are more specific than the ment income to the extent they are gross invest-
the beneficiary organization receives sup-
general rules found for the operational test in the ment income of the organization spending the
port or holds assets that are disproportion-
preceding category. However, a supporting or- amounts. An organization seeking section
ately large in comparison with the support
ganization can fail both the integral-part test and 509(a)(2) status must file a separate statement
received or assets held by the supporting
the operational test if it conducts activities of its with its annual information return, Form 990 or
organization. own that do not constitute activities or programs 990-EZ, listing all amounts received from sup-
that would, but for the supporting organization, porting organizations.
have been conducted by any publicly supported
Effect on 509(a)(3) organizations. If a bene-
Relationships created for avoidance pur- organization named in the supporting organiza-
ficiary organization fails to meet either of the
poses. If a relationship between an organizations governing instrument. A similar result oc-
support tests of section 509(a)(2) due to these
tion seeking section 509(a)(3) status and an curs for such activities or programs that would
provisions, and the beneficiary organization is
organization seeking section 509(a)(2) status is not have been conducted by an organization
one for whose support the organization seeking
established or used to avoid classification as a with which the supporting organization has es-
section 509(a)(3) status is operated, then the
private foundation with respect to either organi- tablished an historic and continuing relationship.
supporting organization will not be considered to
zation, then the character and amount of sup-
be operated exclusively to support or benefit
port received by the section 509(a)(3) Supporting other than section 501(c)(3) or-
one or more section 509(a)(1) or 509(a)(2) orga- organization will be attributed to the section ganizations. An organization operated in con-
nizations and therefore would not qualify for 509(a)(2) organization for purposes of determin- junction with a social welfare organization, labor
ing whether the latter meets the support tests section 509(a)(3) status. or agricultural organization, business league,
REL 00926
Request change in public charity classifica- by publication in the Internal Revenue Bulletin) conduct of its activities for which it was organ-
tion. A section 501(c)(3) tax-exempt organiza- or another applicable date, if any, specified in ized, of substantially all (85% or more) of the
tion seeking to change its public charity the public notice. In appropriate cases, however, lesser of its:
classification from a section 509(a)(3) support- the treatment of grants and contributions and
1. Adjusted net income, or
ing organization to a section 509(a)(1) or the status of grantors and contributors to an
509(a)(2) organization has to submit a written organization described in Section 509(a)(1),
2. Minimum investment return.
request for a determination as to public charity Section 509(a)(2), or Section 509(a)(3) may be
status under Revenue Procedure 2010-4, affected pending verification of the continued
Assets test. A private foundation will meet
2010-1 I.R.B. 122 available at www.IRS.gov/ classification of the organization. Notice to this
the assets test if substantially more than half
pub/irs-tege/rp2010-4.pdf. This request has to effect will be made in a public announcement by
(65% or more) of its assets are:
include the following: the IRS. In these cases, the effect of grants and
contributions made after the date of the an- 1. Devoted directly to the active conduct of its
1. A subject line or other indicator on the first
nouncement will depend on the statutory qualifi- exempt activity, to a functionally related
page of the request in bold, underlined, or
cation of the organization as an organization business, or to a combination of the two,
all capitals font indicating REQUEST FOR
described in section Section 509(a)(1), Section
2. Stock of a corporation that is controlled by
DETERMINATION AS TO PUBLIC CHAR-
509(a)(2), or Section 509(a)(3).
the foundation (by ownership of at least
ITY STATUS;
The preceding paragraph shall not ap- 80% of the total voting power of all classes
2. A statement requesting reclassification
ply if the grantor or contributor: of stock entitled to vote and at least 80% of
from section 509(a)(3) to another public
the total shares of all other classes of
CAUTION
!
charity classification under sections
stock) and substantially all (at least 85%)
509(a)(1) and 170(b)(1)(A)(vi) or section 1. Had knowledge of the revocation of the
the assets of which are devoted as pro-
509(a)(2); and ruling or determination letter classifying the
vided above, or
organization as an organization described
3. Either
3. Any combination of (1) and (2).
in section 509(a)(1), 509(a)(2), or
509(a)(3), or
a. A copy of the organizations signed
This test is intended to apply to organizations
Form 990, Parts I through XI of Form
such as museums and libraries.
2. Was in part responsible for, or was aware
990-EZ, Parts I through VI, with the
of, the act, the failure to act, or the sub-
Support test. A private foundation will meet
completed Schedule A (Form 990 or
stantial and material change on the part of
the support test if:
990-EZ), Public Charity Status and
the organization that gave rise to the revo-
Public Support, as filed with the IRS for
cation. 1. Substantially all (at least 85%) of its sup-
the tax year immediately before the tax
port (other than gross investment income)
year in which the request is made; or
is normally received from the general pub-
lic and five or more unrelated exempt orga- b. The organizations support information Section 509(a)(4) Organizations
nizations, for the past 5 completed tax years, us-
Section 509(a)(4) excludes from classification
ing the organizations method of ac-
2. Not more than 25% of its support (other
as private foundations those organizations that
counting used to complete the Form
than gross investment income) is normally
qualify under section 501(c)(3) as organized and
990 or Form 990-EZ for such years.
received from any one exempt organiza-
operated for the purpose of testing products for
This information can be provided to the
tion, and
public safety. Generally, these organizations
IRS on a completed Schedule A (Form
test consumer products to determine their ac-
3. Not more than 50% of its support is nor- 990 or 990-EZ).
ceptability for use by the general public.
mally received from gross investment in-
The request must be signed under penalties come.
of perjury by an authorized official and mailed to: Private Operating
This test is intended to apply to special-purpose
Foundations
IRS-TEGE foundations, such as learned societies and as-
Attn: Correspondence Unit, Room 4024 sociations of libraries.
Some private foundations qualify as private op-
P.O. Box 2508
Endowment test. A foundation will meet erating foundations. These are types of private
Cincinnati, OH 45201
the endowment test if it normally makes qualify- foundations that, although lacking general pub-
ing distributions directly for the active conduct of lic support, make qualifying distributions directly
The organization will receive a determination
its exempt function of at least two-thirds of its for the active conduct of their educational, chari-
letter indicating whether the change in public
minimum investment return. table, and religious purposes, as distinct from
charity classification has been made. There is
merely making grants to other organizations for
The minimum investment return for any pri-
no user fee for this determination letter.
these purposes.
vate foundation for any tax year is 5% of the
excess of the total fair market value of all assets Most of the restrictions and requirements
Classification under section 509(a). If an or-
that apply to private foundations also apply to of the foundation (other than those used directly
ganization is described in section 509(a)(1), and
private operating foundations. However, there in the active conduct of its exempt purpose) over
is also described in either Section 509(a)(2) or
are advantages to being classified as a private the amount of indebtedness incurred to acquire
Section 509(a)(3), it will be treated as a section
operating foundation. For example, a private those assets.
509(a)(1) organization.
operating foundation (as compared to a private
In determining whether the amount of quali- The organization will receive a determination
foundation) can be the recipient of grants from a
fying distributions is at least two-thirds of the letter indicating whether the change in public
private foundation without having to distribute
organizations minimum investment return, the charity classification has been made. There is
the funds received currently within 1 year, and
organization is not required to trace the source no user fee for this determination letter.
the funds nevertheless may be treated as quali-
of the expenditures to determine whether they
Reliance by grantors and contributors. fying distributions by the donating private foun-
were derived from investment income or from
Once an organization has received a ruling or dation; charitable contributions to a private
contributions.
determination letter classifying it as an organiza- operating foundation qualify for a higher charita-
This test is intended to apply to organizations
tion described in Section 509(a)(1), Section ble deduction limit on the donors tax return; and
such as research organizations that actively
509(a)(2), or Section 509(a)(3), the treatment of the excise tax on net investment income does
conduct charitable activities but whose personal
grants and contributions and the status of grant- not apply to an exempt operating foundation.
services are so great in relationship to charitable
ors and contributors to the organization will gen-
assets that the cost of those services cannot be
erally not be affected by reason of a later Private operating foundation means any pri-
met out of small endowments.
revocation by the IRS of the organizations clas- vate foundation that meets the assets test, the
Exempt operating foundations. The ex- sification until the date on which notice of support test, or the endowment test, and makes
cise tax on net investment income does not change of status is made to the public (generally qualifying distributions directly, for the active
REL 00927
apply to an exempt operating foundation. An may participate in the formulation of legis- 1. 20% of the exempt purpose expenditures if
exempt operating foundation for the tax year is the exempt purpose expenditures are not lation (direct lobbying).
any private foundation that: over $500,000,
However, the term attempting to influence legis-
2. $100,000 plus 15% of the excess of the lation does not include the following activities.
1. Is an operating foundation, as described
exempt purpose expenditures over
previously,
1. Making available the results of nonpartisan
$500,000 if the exempt purpose expendi-
2. Has been publicly supported for at least 10
analysis, study, or research.
tures are over $500,000 but not over
tax years or was an operating foundation
$1,000,000,
2. Examining and discussing broad social,
on January 1, 1983, or for its last tax year
economic, and similar problems. 3. $175,000 plus 10% of the excess of the
ending before January 1, 1983,
exempt purpose expenditures over
3. Providing technical advice or assistance
3. Has a governing body that, at all times
$1,000,000 if the exempt purpose expendi-
(where the advice would otherwise consti-
during the tax year, is broadly representa-
tures are over $1,000,000 but not over
tute the influencing of legislation) to a gov-
tive of the general public and consists of
$1,500,000, or
ernmental body or to a committee or other
individuals no more than 25% of whom are
4. $225,000 plus 5% of the excess of the subdivision thereof in response to a written
disqualified individuals, and
exempt purpose expenditures over request by that body or subdivision.
4. Does not have any officer, at any time dur-
$1,500,000 if the exempt purpose expendi-
4. Appearing before, or communicating with,
ing the tax year, who is a disqualified indi-
tures are over $1,500,000.
any legislative body about a possible deci-
vidual.
The term exempt purpose expenditures
sion of that body that might affect the exis-
The foundation must obtain a ruling letter from
means the total of the amounts paid or incurred
tence of the organization, its powers and
the IRS recognizing this special status.
(including depreciation and amortization, but not
duties, its tax-exempt status, or the deduc-
capital expenditures) by an organization for the
tion of contributions to the organization.
New organization. If you are applying for rec-
tax year to accomplish its exempt purposes. In
ognition of exemption as an organization de-
5. Communicating with a government official
addition, it includes:
scribed in section 501(c)(3) and you wish to
or employee, other than:
establish that your organization is a private op-
1. Administrative expenses paid or incurred
erating foundation, you should complete Part X a. A communication with a member or em-
for the organizations exempt purposes,
of your exemption application (Form 1023).
ployee of a legislative body (when the
and
communication would otherwise consti-
2. Amounts paid or incurred for the purpose
tute the influencing of legislation), or
of influencing legislation, whether or not
b. A communication with the principal pur-
the legislation promotes the organizations
Lobbying Expenditures
pose of influencing legislation.
exempt purposes.
In general, if a substantial part of the activities of
Exempt purpose expenditures do not include
Also excluded are communications between an
your organization consists of carrying on propa-
amounts paid or incurred to or for:
organization and its bona fide members about
ganda or otherwise attempting to influence leg-
legislation or proposed legislation of direct in-
1. A separate fundraising unit of the organi- islation, your organizations exemption from
terest to the organization and the members,
zation, or federal income tax will be denied. However, a
unless these communications directly en-
public charity (other than a church, an integrated
2. One or more other organizations, if the
courage the members to attempt to influence
auxiliary of a church or of a convention or asso-
amounts are paid or incurred primarily for
legislation or directly encourage the members
ciation of churches, or a member of an affiliated
fundraising.
to urge nonmembers to attempt to influence
group of organizations that includes a church,
legislation, as explained earlier.
etc.) may avoid this result. Such a charity can
Grass roots nontaxable amount. The
elect to replace the substantial part of activities
grass roots nontaxable amount for any organi-
Lobbying expenditures limits. If a public test with a limit defined in terms of expenditures
zation for any tax year is 25% of the lobbying
charitable organization makes the election to be for influencing legislation. Private foundations
nontaxable amount for the organization for that
cannot make this election. subject to the lobbying expenditures limits rules
tax year.
(instead of the substantial part of activities test),
Making the election. Use Form 5768, Elec-
Years for which election is effective. Once it will not lose its tax-exempt status under sec-
tion/Revocation of Election By an Eligible Sec-
an organization elects to come under these pro- tion 501(c)(3), unless it normally makes:
t i on 501(c)(3) Organi zat i on To Make
visions, the election will be in effect for all tax
Lobbying expenditures that are more than Expenditures To Influence Legislation, to make
years that end after the date of the election and
150% of the lobbying nontaxable amount the election. The form must be signed and post-
begin before the organization revokes this elec-
for the organization for each tax year, or marked within the first tax year to which it ap-
tion.
plies. If the form is used to revoke the election, it
Grass roots expenditures that are more
must be signed and postmarked before the first
Note. These elective provisions for lobbying
than 150% of the grass roots nontaxable
day of the tax year to which it applies.
activities by public charities do not apply to a
amount for the organization for each tax
Eligible section 501(c)(3) organizations that
church, an integrated auxiliary of a church or of a
year.
have made the election to be subject to the limits
convention or association of churches, or a
on lobbying expenditures must use Part II-A of See Tax on excess expenditures to influence
member of an affiliated group of organizations
Schedule C (Form 990 or 990-EZ) to figure legislation, later, in this section.
that includes a church, etc., or a private founda-
these limits.
tion. Moreover, these provisions will not apply to
Lobbying expenditures. These are any
any organization for which an election is not in
expenditures that are made for the purpose of Attempting to influence legislation. At-
effect.
tempting to influence legislation, for this pur- attempting to influence legislation, as discussed
pose, means: earlier under Attempting to influence legislation.
Expenditures of affiliated organizations. If
two or more section 501(c)(3) organizations are
Grass roots expenditures. This term re-
1. Any attempt to influence any legislation
members of an affiliated group of organizations
fers only to those lobbying expenditures that are
through an effort to affect the opinions of
and at least one of these organizations has
made to influence legislation by attempting to
the general public or any segment thereof
made the election regarding the treatment of
affect the opinions of the general public or any (grass roots lobbying), and
certain lobbying expenditures, then the determi-
segment thereof.
2. Any attempt to influence any legislation nation as to whether excess lobbying expendi-
Lobbying nontaxable amount. The lobby- through communication with any member tures have been made and the determination as
ing nontaxable amount for any organization for or employee of a legislative body or with to whether the expenditure limits, described ear-
any tax year is the lesser of $1,000,000 or: any government official or employee who lier, have been exceeded by more than 150%
REL 00928
will be made as though the affiliated group is one expenditures. An additional tax may be imposed establishment of safeguards to prevent future
political expenditures. organization. on the managers of those organizations.
If the group has excess lobbying expendi-
Tax on organization. Organizations that Status after loss of exemption for lobbying
tures, each organization for which the election is
lose their exemption under section 501(c)(3) or political activities. As explained earlier, an
effective for the year will be treated as an organi-
organization can lose its tax-exempt status due to lobbying activities generally will be sub-
zation that has excess lobbying expenditures in
under section 501(c)(3) because of lobbying ac- ject to an excise tax of 5% of the lobbying expen-
an amount that equals the organizations pro-
tivities or participation or intervention in a politi- ditures. The tax does not apply to private
portionate share of the groups excess lobbying
cal campaign on behalf of or in opposition to a foundations. Also, the tax does not apply to
expenditures. Further, if the expenditure limits,
candidate for public office. If this happens to an organizations that have elected the lobbying lim-
described in this section, are exceeded by more
organization, it cannot later qualify for exemp- its of section 501(h) or to churches or
than 150%, each organization for which the
tion under section 501(c)(4). church-related organizations that cannot elect
election is effective for that year will lose its
these limits. This tax must be paid by the organi-
tax-exempt status under section 501(c)(3).
zation.
Two organizations will be considered mem-
Tax on managers. Managers may also be
bers of an affiliated group of organizations if:
liable for a 5% tax on the lobbying expenditures
1. The governing instrument of one of the or- that result in the disqualification of the organiza-
ganizations requires it to be bound by deci- tion. For the tax to apply, a manager would have
4.
sions of the other organization on to agree to the expenditures knowing that the
legislative issues, or expenditures were likely to result in the organi-
zations not being described in section
2. The governing board of one of the organi-
501(c)(3). No tax will be imposed if the man-
Other Section
zations includes persons who:
agers agreement is not willful and is due to
reasonable cause.
a. Are specifically designated representa-
501(c)
tives of the other organization or are
Excise taxes on political expenditures. The
members of the governing board, of-
law imposes an excise tax on the political expen-
ficers, or paid executive staff members
Organizations
ditures of section 501(c)(3) organizations. A
of the other organization, and
two-tier tax is imposed on both the organizations
b. Have enough voting power to cause or
and the managers of those organizations.
prevent action on legislative issues by
Introduction
Taxes on organizations. An initial tax of
the controlled organization by combin-
10% of certain political expenditures is imposed This chapter contains specific information for
ing their votes.
on a charitable organization. A second tax of certain organizations described in section
100% of the expenditure is imposed if the politi- 501(c), other than those organizations that are
cal expenditure that resulted in the imposition of described in section 501(c)(3). Section
Tax on excess expenditures to influence leg-
the initial (first-tier) tax is not corrected within a 501(c)(3) organizations are covered in chapter 3
islation. If an election for a tax year is in effect
specified period. These taxes must be paid by of this publication.
for an organization and that organization ex-
the organization. The Table of Contents at the beginning of
ceeds the lobbying expenditures limits, an ex-
this publication, as well as the Organization Ref-
cise tax of 25% of the excess lobbying
Taxes on managers. An initial tax of 2
1
/2%
erence Chart, may help you locate at a glance
expenditures for the tax year will be imposed.
of the amount of certain political expenditures
the type of organization discussed in this chap-
Excess lobbying expenditures for a tax year, in
(up to $5,000 for each expenditure) is imposed
ter.
this case, means the greater of:
on a manager of an organization who agrees to
such expenditures knowing that they are politi-
1. The amount by which the lobbying expen-
cal expenditures. No tax will be imposed if the
ditures made by the organization during
managers agreement was not willful and was
the tax year are more than the lobbying
501(c)(4) - Civic
due to reasonable cause. A second tax of 50%
nontaxable amount for the organization for
of the expenditures (up to $10,000 for each
that tax year, or Leagues and Social
expenditure) is imposed on a manager if he or
she refuses to agree to a correction of the ex- 2. The amount by which the grass roots ex-
Welfare Organizations
penditures that resulted in the imposition of the penditures made by the organization dur-
initial (first-tier) tax. For purposes of these taxes, ing the tax year are more than the grass
If your organization is not organized for profit
an organization manager is generally an officer, roots nontaxable amount for the organiza-
and will be operated only to promote social wel-
director, trustee, or any employee having au- tion for that tax year.
fare to benefit the community, you should file
thority or responsibility concerning the organiza-
Form 1024 to apply for recognition of exemption
Eligible organizations that have made the elec-
tions political expenditures. These taxes must
from federal income tax under section 501(c)(4).
tion to be subject to the limits on lobbying expen-
be paid by the manager of the organization.
The discussion that follows describes the infor-
ditures and that owe the tax on excess lobbying
mation you must provide when applying. For Political expenditures. Generally, political
expenditures (as computed in Part VI-A of
application procedures, see chapter 1. expenditures that will trigger these taxes are
Schedule A (Form 990)) must file Form 4720 to
To qualify for exemption under section amounts paid or incurred by a section 501(c)(3)
report and pay the tax.
501(c)(4), the organizations net earnings must organization in any participation or intervention
Organization that no longer qualifies. An
be devoted only to charitable, educational, or in any political campaign for or against any can-
organization that no longer qualifies for exemp-
recreational purposes. In addition, no part of the didate for public office. Political expenditures
tion under section 501(c)(3) because of sub-
organizations net earnings can inure to the ben- include publication or distribution of statements
stantial lobbying activities will not at any time
efit of any private shareholder or individual. If the for these purposes. Political expenditures also
thereafter be treated as an organization de-
organization provides an excess benefit to cer- include certain expenditures by organizations
scribed in section 501(c)(4). This provision,
tain persons, an excise tax may be imposed. that are formed primarily to promote the candi-
however, does not apply to certain organizations
See Excise tax on excess benefit transactions, dacy (or prospective candidacy) of an individual
(churches, etc.) that cannot make the election
under Excess Benefit Transactions in chapter 5 for public office and by organizations that are
discussed earlier.
for more information about this tax. effectively controlled by a candidate and are
used primarily to promote that candidate.
Tax on disqualifying lobbying expenditures. Examples. Types of organizations that are
The law imposes a tax on certain organizations if Correction of expenditure. A correction of considered to be social welfare organizations
they no longer qualify under section 501(c)(3) by a political expenditure is the recovery, if possi- are civic associations and volunteer fire compa-
reason of having made disqualifying lobbying ble, of all or part of the expenditure and the nies.
Chapter 4 Other Section 501(c) Organizations Page 45
REL 00929
Nonprofit operation. You must submit evi- 501(c)(6) - Business Leagues, etc. for more in- before the local legislature and administra-
dence that your organization is organized and formation. tive agencies in zoning, traffic, and parking
will be operated on a nonprofit basis. However, matters,
such evidence, including the fact that your or-
Specific Organizations
An organization that tries to encourage in-
ganization is organized under a state law relat-
dustrial development and relieve unem-
ing to nonprofit corporations, will not in itself The following information should be contained in
ployment in an area by making loans to
establish a social welfare purpose. the application form and accompanying state-
businesses so they will relocate to the
ments of certain types of civic leagues or social
area, and
Social welfare. To establish that your organi-
welfare organizations.
zation is organized exclusively to promote social
An organization that holds an annual festi-
Volunteer fire companies. If your organiza-
welfare, you should submit evidence with your
val of regional customs and traditions.
tion wishes to obtain exemption as a volunteer
application showing that your organization will
fire company or similar organization, you should
operate primarily to further (in some way) the
submit evidence that its members are actively
common good and general welfare of the people
engaged in fire fighting and similar disaster as-
of the community (such as by bringing about
sistance, whether it actually owns the fire fight- 501(c)(5) - Labor,
civic betterment and social improvements).
ing equipment, and whether it provides any
An organization that restricts the use of its
Agricultural and assistance for its members, such as death and
facilities to employees of selected corporations
medical benefits in case of injury to them.
and their guests is primarily benefiting a private
Horticultural
If your organization does not have an inde-
group rather than the community. It therefore
pendent social purpose, such as providing rec-
does not qualify as a section 501(c)(4) organiza-
Organizations
reational facilities for members, it may be
tion. Similarly, an organization formed to repre-
exempt under section 501(c)(3). In this event,
sent member-tenants of an apartment complex
If you are a member of an organization that
your organization should file Form 1023.
does not qualify, since its activities benefit the
wants to obtain recognition of exemption from
member-tenants and not all tenants in the com-
Homeowners associations. A membership
federal income tax as a labor, agricultural, or
munity. However, an organization formed to pro-
organization formed by a real estate developer
horticultural organization, you should submit an
mote the legal rights of all tenants in a particular
to own and maintain common green areas,
application on Form 1024. You must indicate in
community may qualify under section 501(c)(4)
streets, and sidewalks and to enforce covenants
your application for exemption and accompany-
as a social welfare organization.
to preserve the appearance of the development
ing statements that no part of the organizations
should show that it is operated for the benefit of
net earnings will inure to the benefit of any mem-
Political activity. Promoting social welfare
all the residents of the community. The term
ber. In addition, you should follow the procedure
does not include direct or indirect participation or
community generally refers to a geographical
for obtaining recognition of exempt status de-
intervention in political campaigns on behalf of
unit recognizable as a governmental subdivi-
scribed in chapter 1. Submit any additional infor-
or in opposition to any candidate for public of-
sion, unit, or district thereof. Whether a particu-
mation that may be required, as described in this
fice. However, if you submit proof that your or-
lar association meets the requirement of
section.
ganization is organized exclusively to promote
benefiting a community depends on the facts
social welfare, it can obtain exemption even if it
and circumstances of each case. Even if an area Tax treatment of donations. Contributions to
participates legally in some political activity on
represented by an association is not a commu- labor, agricultural, and horticultural organiza-
behalf of or in opposition to candidates for public
nity, the association can still qualify for exemptions are not deductible as charitable contribu-
office. See the discussion in chapter 2 under
tion if its activities benefit a community. tions on the donors federal income tax return.
Political Organization Income Tax Return.
The association should submit evidence that However, such payments may be deductible as
areas such as roadways and park land that it business expenses if they are ordinary and nec-
Social or recreational activity. If social activ-
owns and maintains are open to the general essary in the conduct of the taxpayers trade or
ities will be the primary purpose of your organi-
public and not just its own members. It also must business. For more information about certain
zation, you should not file an application for
show that it does not engage in exterior mainte- limits affecting the deductibility of these busi-
exemption as a social welfare organization but
nance of private homes. ness expenses, see Deduction not allowed for
should file for exemption as a social club de-
A homeowners association that is not ex- dues used for political or legislative activities,
scribed in section 501(c)(7).
empt under section 501(c)(4) and that is a con- under 501(c)(6) - Business Leagues, etc.
domi ni um management associ ati on, a
Retirement benefit program. An organiza-
residential real estate management association,
tion established by its members that has as its
Labor Organizations
or a timeshare association generally can elect
primary activity providing supplemental retire-
under the provisions of section 528 to receive
A labor organization is an association of workers ment benefits to its members or death benefits
certain tax benefits that, in effect, permit it to
who have combined to protect and promote the to their beneficiaries does not qualify as an ex-
exclude its exempt function income from its
interests of the members by bargaining collec- empt social welfare organization. It may qualify
gross income.
tively with their employers to secure better work- under another paragraph of section 501(c) de-
ing conditions. pending on all the facts.
Other organizations. Other nonprofit organi-
To show that your organization has the pur- However, a nonprofit association that is es-
zations that qualify as social welfare organiza-
pose of a labor organization, you should include tablished, maintained, and funded by a local
tions include:
in the articles of organization or accompanying government to provide the only retirement bene-
An organization operating an airport that is
statements (submitted with your exemption ap- fits to a class of employees may qualify as a
on land owned by a local government,
plication) information establishing that the or- social welfare organization under section
which supervises the airports operation,
ganization is organized to better the conditions 501(c)(4).
and that serves the general public in an
of workers, improve the grade of their products,
Tax treatment of donations. Donations to area with no other airport,
and develop a higher degree of efficiency in their
volunteer fire companies are deductible on the
respective occupations. In addition, no net earn-
A community association that works to im-
donors federal income tax return, but only if
ings of the organization can inure to the benefit
prove public services, housing, and resi-
made for exclusively public purposes. Contribu-
of any member.
dential parking; publishes a free
tions to civic leagues or other section 501(c)(4)
community newspaper; sponsors a com-
organizations generally are not deductible as Composition of membership. While a labor
munity sports league, holiday programs,
charitable contributions for federal income tax organization generally is composed of employ-
and meetings; and contracts with a private
purposes. They may be deductible as trade or ees or representatives of the employees (in the
security service to patrol the community,
business expenses, if ordinary and necessary in form of collective bargaining agents) and similar
the conduct of the taxpayers business. How- A community association devoted to pre- employee groups, evidence that an organiza-
ever, see Deduction not allowed for dues used serving the communitys traditions, archi- tions membership consists mainly of workers
for political or legislative activities, under tecture, and appearance by representing it does not in itself indicate an exempt purpose.
Page 46 Chapter 4 Other Section 501(c) Organizations
REL 00930
You must show in your application that your 5. Encouraging improvements in the produc- Line of business. This term generally re-
organization has the purposes described in the tion of fish on privately owned fish farms. fers either to an entire industry or to all compo-
preceding paragraph. These purposes can be nents of an industry within a geographic area. It
6. Negotiating with processors for the price to
accomplished by a single labor organization act- does not include a group composed of busi-
be paid to members for their crops.
ing alone or by several organizations acting to- nesses that market a particular brand within an
gether through a separate organization. industry.
Benefits to members. The payment by a la-
Common business interest. A common
bor organization of death, sick, accident, and
business interest of all members of the organi-
501(c)(6) -
similar benefits to its individual members with
zation must be established by the application
funds contributed by its members, if made under
documents.
Business Leagues, etc.
a plan to better the conditions of the members,
Examples. Activities that would tend to il-
does not preclude exemption as a labor organi-
If your association wants to apply for recognition
lustrate a common business interest are:
zation. However, an organization does not qual-
of exemption from federal income tax as a non-
ify for exemption as a labor organization if it has
1. Promotion of higher business standards profit business league, chamber of commerce,
no authority to represent members in job-related
and better business methods and encour- real estate board, or board of trade, it should file
matters, even if it provides weekly income to its
agement of uniformity and cooperation by Form 1024. For a discussion of the procedure to
members in the event of a lawful strike by the
a retail merchants association, follow, see chapter 1.
members union, in return for an annual pay-
Your organization must indicate in its appli-
2. Education of the public in the use of credit, ment by the member.
cation form and attached statements that no part
3. Establishment of uniform casualty rates of its net earnings will inure to the benefit of any
Agricultural and
and compilation of statistical information by private shareholder or individual and that it is not
an insurance rating bureau operated by organized for profit or organized to engage in an Horticultural Organizations
casualty insurance companies, activity ordinarily carried on for profit (even if the
Agricultural and horticultural organizations are
business is operated on a cooperative basis or
4. Establishment and maintenance of the in-
connected with raising livestock, forestry, culti-
produces only sufficient income to be
tegrity of a local commercial market,
vating land, raising and harvesting crops or
self-sustaining).
aquatic resources, cultivating useful or orna- 5. Operation of a trade publication primarily
In addition, your organization must be prima-
mental plants, and similar pursuits. intended to benefit an entire industry, and
rily engaged in activities or functions that are the
For the purpose of these provisions, aquatic
basis for its exemption. It must be primarily sup-
6. Encouragement of the use of goods and
resources include only animal or vegetable life,
ported by membership dues and other income
services of an entire industry (such as a
but not mineral resources. The term harvesting,
from activities substantially related to its exempt
lawyer referral service whose main pur-
in this case, includes fishing and related pur-
purpose.
pose is to introduce individuals to the use
suits.
A business league, in general, is an associa-
of the legal profession in the hope that
Agr i cul t ur al or gani zat i ons can be
tion of persons having some common business
they will enter into lawyer-client relation-
quasi-public in character and are often designed
interest, the purpose of which is to promote that
ships on a paying basis as a result).
to encourage the development of better agricul-
common interest and not to engage in a regular
tural and horticultural products through a system
business of a kind ordinarily carried on for profit.
Improvement of business conditions.
of awards, using income from entry fees, gate
Trade associations and professional associa-
Generally, this must be shown to be the purpose
receipts, and donations to meet the necessary
tions are considered business leagues.
of the organization. This is not established by
expenses of upkeep and operation. When the
evidence of particular services that provide a
Chamber of commerce. A chamber of com- activities are directed toward the improvement
convenience or economy to individual members
merce usually is composed of the merchants of marketing or other business conditions in one
in their businesses, such as advertising that
and traders of a city. or more lines of business, rather than the im-
carries the name of members, interest-free
provement of production techniques or the bet-
loans, assigning exclusive franchise areas, op-
Board of trade. A board of trade often con-
terment of the conditions of persons engaged in
eration of a real estate multiple listing system, or
sists of persons engaged in similar lines of busi-
agriculture, the organization must qualify for ex-
operation of a credit reporting agency.
ness. For example, a nonprofit organization
emption as a business league, board of trade, or
formed to regulate the sale of a specified agricul-
other organization, as discussed next in the sec-
Stock or commodity exchange. A stock or
tural commodity to assure equal treatment of
tion on 501(c)(6) organizations.
commodity exchange is not a business league,
producers, warehouse workers, and buyers is a
The primary purpose of exempt agricultural
chamber of commerce, real estate board, or
board of trade.
and horticultural organizations must be to better
board of trade and is not exempt under section
Chambers of commerce and boards of trade
the conditions of those engaged in agriculture or
501(c)(6).
usually promote the common economic inter-
horticulture, develop more efficiency in agricul-
ests of all the commercial enterprises in a given
Legislative activity. An organization that is
ture or horticulture, or improve the products.
trade community.
exempt under section 501(c)(6) can work for the
The following list contains some examples of
enactment of laws to advance the common busi-
activities that show an agricultural or horticul-
Real estate board. A real estate board con-
ness interests of the organizations members.
tural purpose.
sists of members interested in improving the
business conditions in the real estate field. It is Deduction not allowed for dues used for po-
1. Promoting various cooperative agricultural,
not organized for profit and no part of the net litical or legislative activities. A taxpayer
horticultural, and civic activities among ru-
earnings inures to the benefit of any private cannot deduct the part of dues or other pay-
ral residents by a state and county farm
shareholder or individual. ments to a business league, trade association,
and home bureau.
labor union, or similar organization that is for any
General purpose. You must indicate in the 2. Exhibiting livestock, farm products, and
of the following activities.
material submitted with your application that other characteristic features of agriculture
your organization will be devoted to the improve- and horticulture. 1. Influencing legislation.
ment of business conditions of one or more lines
3. Testing soil for members and nonmembers 2. Participating or intervening in a political
of business as distinguished from the perform-
of the farm bureau on a cost basis, the campaign for, or against, any candidate for
ance of particular services for individual per-
results of the tests and other recommenda- public office.
sons. It must be shown that the conditions of a
tions being furnished to the community
particular trade or the interests of the community 3. Trying to influence the general public, or
members to educate them in soil treat-
will be advanced. Merely indicating the name of part of the general public, with respect to
ment.
the organization or the object of the local statute elections, legislative matters, or referen-
4. Guarding the purity of a specific breed of under which it is created is not enough to dums (also known as grass roots lobby-
livestock. demonstrate the required general purpose. ing).
REL 00931
4. Communicating directly with certain execu- College alumni associations that are not of sick and death benefits is not operating exclu-
tive branch officials to try to influence their described in chapter 3 under Alumni asso- sively for pleasure, recreation, and other non-
official actions or positions. ciation, profitable purposes.
See Dues Used for Lobbying or Political Activi- College fraternities or sororities operating Limited membership. The membership in
ties under Required Disclosures in chapter 2 for chapter houses for students, a social club must be limited. To show that your
more information. organization has a purpose that would charac-
Country clubs,
terize it as a club, you should submit evidence
Exception for local legislation. Members
Amateur hunting, fishing, tennis, swim- with your application that there are limits on
can deduct dues (or assessments) to an organi-
ming, and other sport clubs, admission to membership consistent with the
zation that are for expenses of:
character of the club.
Dinner clubs that provide a meeting place,
A social club that issues corporate member-
1. Appearing before, submitting statements
library, and dining room for members,
ship is dealing with the general public in the form
to, or sending communications to mem-
Hobby clubs, of the corporations employees. Corporate
bers of a local council or similar governing
members of a club are not the kind of members
body with respect to legislation or pro-
Garden clubs, and
contemplated by the law. Gross receipts from
posed legislation of direct interest to the
Variety clubs. these members would be a factor in determining
member, or
whether the club qualifies as a social club. See
2. Communicating information between the
Gross receipts from nonmembership sources,
Discrimination prohibited. Your organiza-
member and the organization with respect
later. Bona fide individual memberships paid for
tion will not be recognized as tax exempt if its
to local legislation or proposed legislation
by a corporation would not have an effect on the
charter, bylaws, or other governing instrument,
of direct interest to the organization or the
gross receipts source.
or any written policy statement provides for dis-
member.
The fact that a social club may have an
crimination against any person on the basis of
associate (nonvoting) class of membership will
Legislation or proposed legislation is of direct
race, color, or religion.
not be, in and of itself, a cause for nonrecogni-
interest to a taxpayer if it will, or can reasonably
However, a club that in good faith limits its
tion of exemption. However, if one membership
be expected to, affect the taxpayers trade or
membership to the members of a particular re-
class pays substantially lower dues and fees
business.
ligion to further the teachings or principles of that
than another membership class, although both
religion and not to exclude individuals of a partic-
De minimis exception. In-house expendi-
classes enjoy the same rights and privileges in
ular race or color will not be considered as dis-
tures of $2,000 or less for the year for activities
using the club facilities, there may be an inure-
criminating on the basis of religion. Also, the
(1) (4) listed earlier will not prevent a deduc-
ment of income to the benefited class, resulting
restriction on religious discrimination does not
tion for dues if the dues meet all other tests to be
in a denial of the clubs exemption.
apply to a club that is an auxiliary of a fraternal
deductible as a business expense.
beneficiary society (discussed later) if that soci- Support. In general, your club should be
Grass roots lobbying. A tax-exempt trade
ety is described in section 501(c)(8) and exempt supported solely by membership fees, dues,
association, labor union, or similar organization
from tax under section 501(a) and limits its and assessments. However, if otherwise enti-
is considered to be engaging in grass roots
membership to the members of a particular re- tled to exemption, your club will not be disquali-
lobbying if it contacts prospective members or
ligion. fied because it raises revenue from members
calls upon its own members to contact their
through the use of club facilities or in connection
Private benefit prohibited. No part of the or-
employees and customers for the purpose of
with club activities.
ganizations net earnings can inure to the benefit
urging such persons to communicate with their
of any person having a personal and private
Business activities. If your club will engage elected state or Congressional representatives
interest in the activities of the organization. For
in business, such as selling real estate, timber, to support the promotion, defeat, or repeal of
purposes of this requirement, it is not necessary
or other products or services, it generally will be legislation that is of direct interest to the organi-
that net earnings be actually distributed. Even
denied exemption. However, evidence submit- zation. Any dues or assessments directly related
undistributed earnings can benefit members.
ted with your application form that your organi- to such activities are not deductible by the tax-
Examples of this include a decrease in member-
zation will provide meals, refreshments, or payer, since the individuals being contacted,
ship dues or an increase in the services the club
services related to its exempt purposes only to who are not members of the organization, are a
provides to its members without a correspond-
its own members or their dependents or guests segment of the general public.
ing increase in dues or other fees paid for club
will not cause denial of exemption.
support. However, fixed-fee payments to mem-
Tax treatment of donations. Contributions to
Facilities open to public. Evidence that
bers who bring new members into the club are
organizations described in this section are not
your clubs facilities will be open to the general
not an inurement of the clubs net earnings, if the
deductible as charitable contributions on the do-
public (persons other than members or their
payments are reasonable compensation for per-
nors federal income tax return. They may be
dependents or guests) may cause denial of ex-
formance of a necessary administrative service.
deductible as trade or business expenses if ordi-
emption. This does not mean, however, that any
nary and necessary in the conduct of the tax-
Purposes. To show that your organization dealing with outsiders will automatically deprive
payers business.
possesses the characteristics of a club within a club of exemption.
the meaning of the exemption law, you should
Gross receipts from nonmembership
submit evidence with your application that per-
sources. A section 501(c)(7) organization can
sonal contact, commingling, and fellowship exist
receive up to 35% of its gross receipts, including
501(c)(7) - Social and
among members. You must show that members
investment income, from sources outside of its
are bound together by a common objective of
membership without losing its tax-exempt sta-
Recreation Clubs
pleasure, recreation, and other nonprofitable
tus. Of the 35%, up to 15% of the gross receipts
purposes.
can be derived from the use of the clubs facili-
If your club is organized for pleasure, recreation,
Fellowship need not be present between
ties or services by the general public or from
and other similar nonprofitable purposes and
each member and every other member of a club
other activities not furthering social or recrea-
substantially all of its activities are for these
if it is a material part in the life of the organiza-
tional purposes for members. If an organization
purposes, it should file Form 1024 to apply for
tion. A statewide or nationwide organization that
has outside income that is more than these
recognition of exemption from federal income
is made up of individual members, but is divided
limits, all the facts and circumstances will be
tax.
into local groups, satisfies this requirement if
taken into account in determining whether the
In applying for recognition of exemption, you
fellowship is a material part of the life of each
organization qualifies for exempt status.
should submit the information described in this
local group.
section. Also see chapter 1 for the procedures to
The term other nonprofitable purposes Gross receipts. Gross receipts, for this pur-
follow.
means other purposes similar to pleasure and pose, are receipts from the normal and usual
Typical organizations that should file for rec- recreation. For example, a club that, in addition (traditionally conducted) activities of the club.
ognition of exemption as social clubs include: to its social activities, has a plan for the payment These receipts include charges, admissions,
REL 00932
membership fees, dues, assessments, invest- 1. Is a fraternal organization,
ment income, and normal recurring capital gains
2. Operates under the lodge system or for the 501(c)(4), 501(c)(9), and
on investments. Receipts do not include initia-
exclusive benefit of the members of a fra-
tion fees and capital contributions. Unusual
ternal organization itself operating under 501(c)(17) -
amounts of income, such as from the sale of a
the lodge system, and
clubhouse or similar facility, are not included in
Employees
3. Provides for the payment of life, sick, acci- gross receipts or in figuring the percentage lim-
dent, or other benefits to the members of its.
Associations
the society, order, or association or their
Fraternity foundations. If your organization dependents.
This section describes the information to be pro-
is a foundation formed for the exclusive purpose
vided upon application for recognition of exemp-
of acquiring and leasing a chapter house to a Lodge system. Operating under the lodge
tion by the following types of employees
local fraternity chapter or sorority chapter main- system means carrying on activities under a
associations: tained at an educational institution and does not form of organization that comprises local
engage in any social or recreational activities, it branches, chartered by a parent organization
1. A voluntary employees beneficiary associ-
may be a title holding corporation (discussed, and largely self-governing, called lodges, chap-
ation (including federal employees as-
later, under section 501(c)(2) organizations and ters, or the like.
sociations) organized to pay life, sick,
under section 501(c)(25) organizations) rather
Payment of benefits. It is not essential that
accident, and similar benefits to members than a social club.
every member be covered by the societys pro-
or their dependents, or designated benefi-
gram of sick, accident, or death benefits. An
Tax treatment of donations. Donations to
ciaries, if no part of the net earnings of the
organization can qualify for exemption if most of
exempt social and recreation clubs are not de-
association inures to the benefit of any pri-
its members are eligible for benefits, and the
ductible as charitable contributions on the do-
vate shareholder or individual, and
benefits are paid from contributions or dues paid
nors federal income tax return.
by those members.
2. A supplemental unemployment benefit
The benefits must be limited to members and
trust whose primary purpose is providing
their dependents. If members will have the abil-
for payment of supplemental unemploy-
ity to confer benefits to other than themselves
ment benefits.
501(c)(8) and 501(c)(10)
and their dependents, exemption will not be rec-
Both the application form to file and the infor- ognized.
- Fraternal Beneficiary
mation to provide are discussed later under the
Whole-life insurance. Whole-life insurance
section that describes your employee associa-
Societies and constitutes a life benefit under section 501(c)(8)
tion. Chapter 1 describes the procedures to fol-
even though the policy may contain investment
low in applying for exemption. Domestic Fraternal
features such as a cash surrender value or a
policy loan.
Societies
Reinsurance pool. Payments by a fraternal
these organizations are not deductible as chari- beneficiary society into a state-sponsored rein-
This section describes the information to be pro-
surance pool that protects participating insurers table contributions on the donors federal in-
vided upon application for recognition of exemp-
against excessive losses on major medical
come tax return.
tion by two types of fraternal societies:
health and accident insurance will not preclude
beneficiary and domestic. The major distinction
exemption as a fraternal beneficiary society.
is that fraternal beneficiary societies provide for
Local Employees
the payment of life, sick, accident, or other bene-
Associations (501(c)(4))
fits to their members or their dependents, while Domestic Fraternal Societies
domestic fraternal societies do not provide these
(501(c)(10)) A local association of employees whose mem-
benefits but rather devote their earnings to fra-
bership is limited to employees of a designated
ternal, religious, charitable, etc., purposes. The A domestic fraternal society, order, or associa-
person or persons in a particular municipality,
procedures to follow in applying for recognition tion must file an application for recognition of
and whose income will be devoted exclusively to
of exemption are described in chapter 1. exemption from federal income tax on Form
charitable, educational, or recreational pur-
1024. The application and accompanying state- If your organization is controlled by a central
poses. A local employees association must ap-
ments should establish that the organization: organization, you should check with your con-
ply for recognition of exemption by filing Form
trolling organization to determine whether your
1. Is a domestic fraternal organization, 1024. The organization must submit evidence
unit has been included in a group exemption
that:
letter or can be added. If so, your organization
2. Operates under the lodge system,
need not apply for individual recognition of ex-
1. It is of a purely local character,
3. Devotes its net earnings exclusively to re-
emption. For more information see Group Ex-
ligious, charitable, scientific, literary, edu-
emption Letter in chapter 1 of this publication. 2. Its membership is limited to employees of
cational, and fraternal purposes, and
a designated person or persons in a partic-
Tax treatment of donations. Donations by an
4. Does not provide for the payment of life, ular locality, and
individual to a domestic fraternal beneficiary so-
sick, accident, or other benefits to its mem-
3. Its net earnings will be devoted exclusively
ciety or a domestic fraternal society operating
bers.
to charitable, educational, or recreational under the lodge system are deductible as chari-
The organization can arrange with insurance
purposes. table contributions only if used exclusively for
companies to provide optional insurance to its
religious, charitable, scientific, literary, or educa-
A local association of employees that has
members without jeopardizing its exempt status.
tional purposes or for the prevention of cruelty to
established a system of paying retirement or
children or animals.
death benefits, or both, to its members will not
qualify for exemption since the payment of these
Fraternal Beneficiary
benefits is not considered as being for charita-
Societies (501(c)(8))
ble, educational, or recreational purposes. Simi-
larly, a local association of employees that is
A fraternal beneficiary society, order, or associa-
operated primarily as a cooperative buying serv-
tion must file an application for recognition of
ice for its members in order to obtain discount
exemption from federal income tax on Form
prices on merchandise, services, and activities 1024. The application and accompanying state-
does not qualify for exemption. ments should establish that the organization:
REL 00933
they are or were employees. For example, an gross income, these nondiscrimination require-
Voluntary Employees
individual will qualify as an employee even ments do not apply. The benefit will be consid-
Beneficiary Associations
though the individual is on a leave of absence or ered nondiscriminatory only if it meets the
(501(c)(9))
has been terminated due to retirement, disabil- nondiscrimination provision of the applicable
ity, or layoff. Code section. For example, benefits provided
An application for recognition of exemption as a
Generally, membership is voluntary if an af- under a medical reimbursement plan would
voluntary employees beneficiary association
firmative act is required on the part of an em- meet the nondiscrimination requirements for an
must be filed on Form 1024. The material sub-
ployee to become a member. Conversely, association, if the benefits meet the nondiscrimi-
mitted with the application must show that your
membership is involuntary if the designation as nation requirements of Code section 105(h)(3)
organization:
a member is due to employee status. However, and 105(h)(4).
an association will be considered voluntary if
1. Is a voluntary association of employees,
Excluded employees. Certain employees
employees are required to be members of the
who are not covered by a plan can be excluded
2. Will provide for payment of life, sick, acci-
organization as a condition of their employment
from consideration in applying these require-
dent, or other benefits to members or their
and they do not incur a detriment (such as a
ments. These include employees:
dependents or designated beneficiaries
payroll deduction) as a result of their member-
and substantially all of its operations are
ship. An employer has not imposed involuntary
1. Who have not completed 3 years of serv-
for this purpose, and
membership on the employee if membership is
ice,
required as the result of a collective bargaining
3. Will not allow any of its net earnings to
2. Who have not attained age 21,
agreement or as an incident of membership in a
inure to the benefit of any private individual
labor organization.
3. Who are seasonal or less than half-time or shareholder except in the form of sched-
employees, uled benefit payments.
Payment of benefits. The information submit-
ted with your application must show that your 4. Who are not in the plan and who are in- To be complete, an application must include a
organization will pay life, sick, accident, supple- cluded in a unit of employees covered by a copy of the document (such as the trust instru-
mental unemployment, or other similar benefits. collective bargaining agreement if the ment) by which the organization was created; a
The benefits can be provided directly by your class of benefits involved was the subject full description of the benefits available to par-
association or indirectly by your association of good faith bargaining, or ticipants and the terms and conditions of eligibil-
through the payments of premiums to an insur-
ity for benefits (usually contained in a plan
5. Who are nonresident aliens and who re-
ance company (or fees to a medical clinic). Ben-
document); and, if providing benefits pursuant to
ceive no earned income from the employer
efits can be in the form of medical, clinical, or
a collective bargaining agreement, a copy of that
that has United States source income.
hospital services, transportation furnished for
agreement.
medical care, or money payments.
Highly compensated individual. A highly
Note. Under section 4976, the reversion of
compensated individual is one who:
Nondiscrimination requirements. An organ-
funds from a section 501(c)(9) organization to
ization that is part of a plan will not be exempt
the employer who created the beneficiary asso-
1. Owned 5 percent or more of the employer
unless the plan meets certain nondiscrimination
ciation may subject the employer to a 100 %
at any time during the current year or the
requirements. However, if the organization is
penalty excise tax on the amount of the rever-
preceding year,
part of a plan that is a collective bargaining
sion.
agreement that was the subject of good faith 2. Received more than $110,000 in 2009 (the
bargaining between employee organizations amount is adjusted annually for inflation
Notice requirement. An organization will not
and employers, the plan need not meet these in 2010 the amount remains at $110,000)
be considered tax exempt under this section
requirements for the organization to qualify as in compensation from the employer for the
unless the organization gives notice to the IRS
tax exempt. preceding year, and
that it is applying for recognition of exempt sta-
A plan meets the nondiscrimination require-
tus. The organization gives notice by filing Form
3. Was among the top 20% of employees by
ments only if both of the following statements
1024. If the notice is not given by 15 months
compensation for the preceding year.
are true.
after the end of the month in which the organiza-
But the employer can choose not to have (3)
tion was created, the organization will not be
1. Each class of benefits under the plan is
apply.
exempt for any period before notice is given. An
provided under a classification of employ-
extension of time for filing the notice can be
Aggregation rules. The employer can
ees that is set forth in the plan and does
granted under the same procedures as those
choose to treat two or more plans as one plan for
not discriminate in favor of employees who
described for section 501(c)(3) organizations in
purposes of meeting the nondiscrimination re-
are highly compensated individuals.
chapter 3 under Application for Recognition of
quirements. Employees of controlled groups of
2. The benefits provided under each class of Exemption.
corporations, trades, or businesses under com-
benefits do not discriminate in favor of
mon control, or members of an affiliated service
Membership. Membership of a section highly compensated individuals.
group, are treated as employees of a single
501(c)(9) organization must consist of individu-
employer. Leased employees are treated as
A life insurance, disability, severance pay, or
als who are employees and have an employ-
employees of the recipient.
supplemental unemployment compensation
ment-related common bond. This common bond
benefit does not discriminate in favor of highly
One employee. A trust created to provide can be a common employer (or affiliated em-
compensated individuals merely because the
benefits to one employee will not qualify as a ployers), coverage under one or more collective
benefits available bear a uniform relationship to
voluntary employees beneficiary association bargaining agreements, membership in a labor
the total compensation, or the basic or regular
under section 501(c)(9). union, or membership in one or more locals of a
rate of compensation, of employees covered by
national or international labor union.
the plan.
The membership of an association can in-
Supplemental
For purposes of determining whether a plan
clude some individuals who are not employees,
Unemployment Benefit meets the nondiscrimination requirements, the
provided they have an employment-related
employer can elect to exclude all disability or
Trusts (501(c)(17))
bond with the employee-members. For exam-
severance payments payable to individuals who
ple, the owner of a business whose employees
are in pay status as of January 1, 1985. This will A trust or trusts forming part of a written plan
are members of the association can be a mem-
not apply to any increase in such payment by (established and maintained by an employer, his
ber. An association will be considered com-
any plan amendment adopted after June 22, or her employees, or both) providing solely for
posed of employees if 90% of its total
1984. the payment of supplemental unemployment
membership on one day of each quarter of its
If a plan provides a benefit for which there is compensation benefits must file the application
tax year consists of employees.
a nondiscrimination provision provided under for recognition of exemption on Form 1024. The
Employees. Employees include individuals Chapter 1 of the Internal Revenue Code as a trust must be a valid, existing trust under local
who became entitled to membership because condition of that benefit being excluded from law and must be evidenced by an executed
REL 00934
document. A conformed copy of the plan of that it will not knowingly again engage in a pro- any excess of payments over losses and ex-
hibited transaction. An authorized principal of- which the trust is a part should be attached to penses, and to share in any assets upon disso-
ficer of your organization must make this the application. lution.
declaration under the penalties of perjury.
To be complete, an application must include The rights and interests of members in the
If your organization has satisfied all require-
a copy of the document (such as the trust instru- annual savings of the organization must be de-
ments as a supplemental unemployment benefit
ment) by which the organization was created; a termined in proportion to their business with the
trust described in section 501(c)(17), it will be
full description of the benefits available to par- organization. Upon dissolution, gains from the
notified in writing that it has been recognized as
ticipants and the terms and conditions of eligibil-
sale of appreciated assets must be distributed to
exempt. However, the organization will be ex-
ity for benefits (usually contained in a plan
all persons who were members during the pe-
empt only for those tax years after the tax year in
document); and, if providing benefits pursuant to
riod the assets were owned by the organization
which the claim for exemption (Form 1024) is
a collective bargaining agreement, a copy of that
in proportion to the amount of business done
filed. Tax year in this case means the estab-
agreement.
during that period. The bylaws must not provide
lished annual accounting period of the organiza-
for forfeiture of a members rights and interest
tion or, if the organization has not established an
Note. Under Code section 4976, the rever-
upon withdrawal or termination.
annual accounting period, the calendar year.
sion of funds from a section 501(c)(17) organi-
Membership. Membership of a mutual or- For more information about the requirements for
zation to the employer who created the
ganization consists of those who join the organi- reestablishing an exemption previously denied,
supplemental unemployment benefit trust may
zation to obtain its services, and have a voice in contact the IRS.
subject the employer to a 100% penalty excise
its management. In a stock company, the stock-
tax on the amount of the reversion.
holders are members. However, a mutual life
insurance organization cannot have policyhold- Notice requirement. An organization will not
ers other than its members. be considered tax exempt under this section 501(c)(12) - Local
unless the organization gives notice to the IRS
Losses and expenses. In furnishing serv-
Benevolent Life that it is applying for recognition of exempt sta-
ices substantially at cost, an organization must
tus. The organization gives notice by filing Form
use its income solely for paying losses and ex-
Insurance
1024. If the notice is not given by 15 months
penses. Any excess income not retained in rea-
after the end of the month in which the organiza-
sonable reserves for future losses and
Associations, Mutual
tion was created, the organization will not be
expenses belongs to members in proportion to
exempt for any period before such notice is
their patronage or business done with the organ- Irrigation and
given. An extension of time for filing the notice is
ization. If such patronage refunds are retained in
granted under the same procedures as those
Telephone Companies, reasonable amounts for purposes of expanding
described for section 501(c)(3) organizations in
and improving facilities, retiring capital indebted-
chapter 3 under Application for Recognition of
and Like Organizations
ness, acquiring other assets, and unexpected
Exemption.
expenses, the organization must maintain rec-
Each of the following organizations apply for
ords sufficient to reflect the equity of each mem-
Types of payments. You must show that the
ber in the assets acquired with the funds.
supplemental unemployment compensation
tax by filing Form 1024.
benefits will be benefits paid to an employee
Distributions of proceeds. The coopera-
because of the employees involuntary separa- 1. Benevolent life insurance associations of a tive may distribute the unexpended balance of
tion from employment (whether or not the sepa- purely local character and like organiza- collections or assessments remaining on hand
ration is temporary) resulting directly from a tions.
at the end of the year to members or patrons
reduction-in-force, discontinuance of a plant or
prorated on the basis of their patronage or busi-
2. Mutual ditch or irrigation companies and
operation, or other similar conditions. In addi-
ness done with the cooperative. Such distribu-
like organizations.
tion, sickness and accident benefits (but not
tion represents a refund in the costs of services
3. Mutual or cooperative telephone compa- vacation, retirement, or death benefits) may be
rendered to the member.
nies and like organizations. included in the plan if these are subordinate to
the unemployment compensation benefits.
The 85% Requirement A like organization is an organization that per-
forms a service comparable to that performed by
Diversion of funds. It must be impossible
All of the organizations listed above must submit
any one of the above organizations.
under the plan (at any time before the satisfac-
evidence with their application that they receive
The information to be provided upon appli-
tion of all liabilities with respect to employees
85% or more of their gross income from their
cation by each of these organizations is de-
under the plan) to use or to divert any of the
members for the sole purpose of meeting losses
scribed in this section. For information as to the
corpus or income of the trust to any purpose
and expenses. Nevertheless, certain items of
procedures to follow in applying for exemption,
other than the payment of supplemental unem-
income are excluded from the computation of see chapter 1.
ployment compensation benefits (or sickness or
the 85% requirement if the organization is a
accident benefits to the extent just explained).
General requirements. These organizations
mutual or cooperative telephone or electric com-
must use their income solely to cover losses and
pany.
Discrimination in benefits. Neither the terms
expenses, with any excess being returned to
of the plan nor the actual payment of benefits
members or retained to cover future losses and
Mutual or cooperative telephone company.
can be discriminatory in favor of the companys
expenses. They must collect at least 85% of
A mutual or cooperative telephone company will
officers, stockholders, supervisors, or highly
their income from members for the sole purpose
exclude from the computation of the 85% re-
paid employees. However, a plan is not discrimi-
of meeting losses and expenses.
quirement any income received or accrued from:
natory merely because benefits bear a uniform
Mutual character. These organizations, other relationship to compensation or the rate of com-
1. A nonmember telephone company for the
than benevolent life insurance associations, pensation.
performance of communication services in-
must be organized and operated on a mutual or
volving the completion of long distance
Prohibited transactions and exemption. If cooperative basis. They are associations of per-
calls to, from, or between members of the
your organization is a supplemental unemploy- sons or organizations, or both, banded together
mutual or cooperative telephone company,
ment benefit trust and has received a denial of to provide themselves a mutually desirable serv-
exemption because it engaged in a prohibited 2. Qualified pole rentals, ice approximately at cost and on a mutual basis.
transaction, as defined by section 503(b), it can To maintain the mutual characteristic of demo-
3. The sale of display listings in a directory
file a claim for exemption in any tax year follow- cratic ownership and control, they must be so
furnished to its members, or
ing the tax year in which the notice of denial was organized and operated that their members
issued. It must file the claim on Form 1024. The 4. The prepayment of a loan created in 1987, have the right to choose the management, to
organization must include a written declaration 1988, or 1989, under section 306A, 306B, receive services at cost, to receive a return of
REL 00935
or 311 of the Rural Electrification Act of has no effect upon exemption for years in which include those that in addition to paying death
the 85% requirement is met. benefits also provide for the payment of sick, 1936.
Gain from the sale or conversion of the or- accident, or health benefits. However, an organ-
ganizations property is not considered an ization that pays only sick, accident, or health
Mutual or cooperative electric company. A
amount received from members in determining benefits, but not life insurance benefits, is not an
mutual or cooperative electric company will ex-
whether the organizations income consists of organization similar to a benevolent life insur-
clude from the computation of the 85% require-
amounts collected from members. ance association and should not apply for recog-
ment any income received or accrued from:
Because the 85% income test is based on nition of exemption as described in this section.
gross income, capital losses cannot be used to
1. Qualified pole rentals, Burial and funeral benefit insurance or-
reduce capital gains for purposes of this test.
ganization. This type of organization can ap-
2. Any provision or sale of electric energy
Example. The books of an organization reply for recognition of exemption as an
transmission services or ancillary service if
flect the following for the calendar year. organization similar to a benevolent life insur-
the services are provided on a nondiscrimi-
ance company if it establishes that the benefits
natory open access basis under an open
Collections from members . . . . . . . . $2,400
are paid in cash and if it is not engaged directly
access transmission tariff approved or ac-
Short-term capital gains . . . . . . . . . 600
in the manufacture of funeral supplies or the
cepted by the Federal Energy Regulatory
Short-term capital losses . . . . . . . . . 400
performance of funeral services. An organiza-
Commission (FERC) or under an indepen-
Other income . . . . . . . . . . . . . . . . None
tion that provides its benefits in the form of
dent transmission provider agreement ap- Gross income ($2,400 + $600 =$3000) 100%
supplies and service is not a life insurance com-
proved or accepted by FERC (other than Collected from members ($2,400) . . . 80%
pany. Such an organization can seek recogni-
income received or accrued directly or indi-
tion of exemption from federal income tax, Since amounts collected from members do
rectly from a member),
however, as a mutual insurance company other not constitute at least 85% of gross income, the
than life. organization is not entitled to exemption from 3. The provision or sale of electric energy dis-
federal income tax for the year. tribution services or ancillary services if the
Voluntary contributions in the nature of gifts services are provided on a nondiscrimina-
Mutual or Cooperative
are not taken into account for purposes of the tory open-access basis to distribute elec-
Associations
85% computation. tric energy not owned by the mutual or
Other tax-exempt income besides gifts is
electric cooperative company:
Mutual ditch or irrigation companies, mutual or
considered as income received from other than
cooperative telephone companies, and like or-
a. To end-users who are served by distri-
members in applying the 85% test.
ganizations need not establish that they are of a
bution facilities not owned by the com-
If the 85% test is not met, your organization,
purely local character. They can serve noncon-
pany or any of its members (other than if classifiable under this section, will not qualify
tiguous areas.
income received or accrued directly or for exemption as any other type of organization
Like organization. A like organization is a indirectly from a member), or described in this publication.
cooperative or mutual organization that per-
b. Generated by a generation facility not
Tax treatment of donations. Donations to an
forms a service similar to mutual ditch, irrigation,
owned or leased by the company or any organization described in this section are not
telephone, or electric companies. Examples in-
of its members and which is directly deductible as charitable contributions on the do-
clude the following: cooperatives that provide
connected to distribution facilities nors federal income tax return.
protection of river banks to prevent erosion,
owned by the company or any of its
water and sewer services, cable television, sat-
members (other than income received
Local Life Insurance
ellite, television, cellular phone services,
or accrued directly or indirectly from a
two-way radio service, or natural gas services.
Associations
member),
A benevolent life insurance association or an
4. Any nuclear decommissioning transaction,
organization seeking recognition of exemption
or
on grounds of similarity to a benevolent life in-
501(c)(13) - Cemetery
surance association must submit evidence upon
5. Any asset exchange or conversion trans-
applying for recognition of exemption that it will
action. Companies
be of a purely local character, that its excess
An electric cooperatives sale of excess fuel
funds will be refunded to members or retained in
If your organization wishes to obtain recognition
at cost in the year of purchase is not income for
reasonable reserves to meet future losses and
of exemption from federal income tax as a cem-
purposes of determining compliance with the
expenses, and that it meets the 85% income
etery company or a corporation chartered solely
85% requirement.
requirement. If an organization issues policies
for the purpose of the disposal of human bodies
for stipulated cash premiums, or if it requires
by burial or cremation, it must file an application Qualified pole rental. The term qualified
advance deposits to cover the cost of the insur-
on Form 1024. For the procedure to follow to file pole rental means any rental of a pole (or other
ance and maintains investments from which
an application, see Application, Approval, and structure used to support wires) if the pole (or
more than 15% of its income is derived, it will not
Appeal Procedures in chapter 1. other structure) is used:
be entitled to exemption.
A nonprofit mutual cemetery company that
To establish that your organization is of a 1. By the telephone or electric company to
seeks recognition of exemption should submit
purely local character, it should show that its support one or more wires that are used by
evidence with its application that it is owned and
activities will be confined to a particular commu-
the company in providing telephone or
operated exclusively for the benefit of its lot
nity, place, or district irrespective of political sub-
electric services to its members, and
owners who hold lots for bona fide burial pur-
divisions. If the activities of an organization are
poses and not for purposes of resale. A mutual
2. Pursuant to the rental to support one or
limited only by the borders of a state, it cannot
cemetery company that also engages in charita-
more wires (in addition to wires described
be purely local in character. A benevolent life
ble activities, such as the burial of paupers, will
in (1)) for use in connection with the trans-
insurance association that does not terminate
be regarded as operating within this standard.
mission by wire of electricity or of tele-
membership when a member moves from the
The fact that a mutual cemetery company limits
phone or other communications.
local area in which the association operates will
its membership to a particular class of individu-
qualify for exemption if it meets the other re-
The term rental, for this purpose, includes
als, such as members of a family, will not affect
quirements.
any sale of the right to use the pole (or other
its status as mutual so long as all the other
A copy of each type of policy issued by your
structure).
requirements of section 501(c)(13) are met.
organization should be included with the appli-
The 85% requirement is applied on the basis If your organization is a nonprofit corporation
cation for recognition of exemption.
of an annual accounting period. Failure of an chartered solely for the purpose of the disposal
organization to meet the requirement in a partic- of human bodies by burial or cremation, you Organizations similar to local benevolent life
ular year precludes exemption for that year, but should show that it is not permitted by its charter insurance companies. These organizations
REL 00936
to engage in any business not necessarily inci- perpetual care and maintenance of an aban-
dent to that purpose. Operating a mortuary is not doned cemetery as a whole, may qualify for
501(c)(14) - Credit
permitted. However, selling monuments, mark-
exemption.
ers, vaults, and flowers solely for use in the
Unions and Other
Care of individual plots. When funds are
cemetery is permitted if the profits from these
received by a cemetery company for the perpet-
sales are used to maintain the cemetery as a
Mutual Financial
ual care of an individual lot or crypt, a trust is whole.
created that is subject to federal income tax. Any
Organizations
How income can be used. You should show
trust income that is used or permanently set
that your organizations earnings are or will be
aside for the care, maintenance, or beautifica- If your organization wants to obtain recognition
used only in one or more of the following ways.
of exemption as a credit union without capital tion of a particular family burial lot or mausoleum
stock, organized and operated under state law crypt is not deductible in computing the trusts
1. To pay the ordinary and necessary ex-
for mutual purposes and without profit, it must
taxable income. penses of operating, maintaining, and im-
file an application that includes the facts, infor-
proving the cemetery or crematorium.
mation, and attachments described in this sec-
2. To buy cemetery property. Common and preferred stock. A cemetery
tion. In addition, it should follow the procedures
company that issues common stock can qualify
3. To create a fund that will provide a source for filing an application described in Application
for exemption only if no dividends may be paid.
of income for the perpetual care of the Procedures in chapter 1.
The payment of dividends must be legally pro-
cemetery or a reasonable reserve for any
Federal credit unions organized and oper-
hibited either by the corporations charter or by ordinary or necessary purpose.
ated in accordance with the Federal Credit
applicable state law.
Union Act, as amended, are instrumentalities of
No part of the net earnings of your organiza-
Generally, a cemetery company or cremato- the United States and, therefore, are exempt tion can inure to the benefit of any private share-
rium is not exempt if it issues preferred stock. under section 501(c)(1). They are included in a holder or individual.
Ordinary and necessary expenses in con- group exemption letter issued to the National However, it can still be exempt if the preferred
nection with the operation, management, main- Credit Union Administration. They are not dis- stock was issued before November 28, 1978, or
tenance, and improvement of the cemetery are
cussed in this publication.
was issued after that date under a written plan
permitted, as are reasonable fees for the serv-
State-chartered credit unions and other mu- adopted before that date. The adoption of the
ices of a manager.
tual financial organizations file applications for
plan must be shown by the acts of the responsi-
Buying cemetery property. Payments can ble officers and appear on the official records of
tax under section 501(c)(14). The other mutual be made to amortize debt incurred to buy land,
the organization.
financial organizations must be corporations or but cannot be in the nature of profit distributions.
The preferred stock issued either before No-
You must show the method used to finance the associations without capital stock organized
vember 28, 1978, or under a plan adopted
purchase of the cemetery property and that the before September 1, 1957, and operated for
before that date, must meet all the following
purchase price of the land at the time of its sale
mutual purposes and without profit to provide
requirements.
to the cemetery was not unreasonable.
reserve funds for, and insurance of, shares or
Except for holders of preferred stock (dis-
deposits in:
1. The preferred stock entitles the holders to
cussed later), no person can have any interest in
dividends at a fixed rate that is not more
1. Domestic building and loan associations, the net earnings of a tax-exempt cemetery com-
than the greater of the legal rate of interest
pany or crematorium. Therefore, if property is
2. Cooperative banks (without capital stock)
in the state of incorporation or 8% a year
transferred to the organization in exchange for
organized and operated for mutual pur-
on the value of the consideration for which an interest in the organizations net earnings,
poses and without profit,
the organization will not be exempt so long as the stock was issued.
that interest remains outstanding. 3. Mutual savings banks (not having capital
2. The organizations articles of incorporation
An equity interest in the organization is an
stock represented by shares), or
require:
interest in the net earnings of the organization.
4. Mutual savings banks described in section
However, an interest in the organization that is
a. That the preferred stock be retired at
591(b).
not an equity interest may still be an interest in
par as rapidly as funds become avail-
the organizations net earnings. For example, a
Similar organizations, formed before September
able from operations, and
bond issued by a cemetery company that pro-
1, 1957, that provide reserve funds for (but not
vides for a fixed rate of interest and also pro-
b. That all funds not required for the pay-
insurance of shares or deposits in) one of the
vides for additional interest payments based on
ment of dividends on or for the retire- types of savings institutions described in (1), (2),
the income of the organization is considered an
ment of preferred stock be used by the or (3) above may be exempt from tax if 85% or
interest in the net earnings of the organization.
more of the organizations income is from pro- company for the care and improvement
Similarly, a convertible debt obligation issued
viding reserve funds and from investments. of the cemetery property.
after July 7, 1975, is considered an interest in
There is no specific restriction against the issu-
the net earnings of the organization.
ance of capital stock for these organizations.
Perpetual care organization. A perpetual
Building and loan associations, savings and
care organization, including, for example, a trust
loan associations, mutual savings banks, and
exempt cemetery companies, corporations
organized to receive, maintain, and administer
cooperative banks, other than those described
chartered solely for human burial purposes, and
funds that it receives from a nonprofit
in this section, are not exempt from tax. How-
perpetual care funds (operated in connection tax-exempt cemetery under state law and con-
ever, certain corporations organized and oper-
tracts, can apply for recognition of exemption on with such exempt organizations) are deductible
ated in conjunction with farmers cooperatives
Form 1024, even though it does not own the as charitable contributions on the donors fed-
can be exempt under section 521.
land used for burial. However, the income from
eral income tax return. However, a donor cannot
these funds must be devoted exclusively to the
deduct a contribution made for the perpetual
Application form. The IRS does not provide a
perpetual care and maintenance of the nonprofit
care of a particular lot or crypt. Payments made
printed application form for the use of organiza-
cemetery as a whole. Also, no part of the net
to a cemetery company or corporation as part of
tions described in this section. Any form of writ-
earnings can inure to the benefit of any private
the purchase price of a burial lot or crypt,
ten application is acceptable as long as it shows
shareholder or individual.
whether irrevocably dedicated to the perpetual
the information indicated in this section and in-
In addition, a perpetual care organization not
care of the cemetery as a whole or earmarked cludes a declaration that it is made under the
operated for profit, but established as a civic
for the care of a particular lot, are also not penalties of perjury. The application must be enterprise to maintain and administer funds, the
submitted in duplicate. deductible. income of which is devoted exclusively to the
REL 00937
income is from providing reserve funds and from 7. To provide insurance benefits for its mem-
State-Chartered
bers or dependents of its members or investments. There should be attached a con-
Credit Unions
both. formed copy of the articles of incorporation or
other document setting forth the permitted pow-
Your organization must show on its application
8. To provide social and recreational activi-
ers or activities of the organization; the bylaws or
that it is formed under a state credit union law,
ties for its members.
other similar code of regulations; and the latest
the state and date of incorporation, and that the
annual financial statement showing the receipts,
state credit union law with respect to loans,
Auxiliary unit. An auxiliary unit or society of a
disbursements, assets, and liabilities of the or-
investments, and dividends, if any, is being com-
veterans organization can apply for recognition
ganization. plied with.
of exemption provided that the veterans organi-
A form of statement furnished to applicants
zation (parent organization) meets the require-
by the Credit Union National Association is ac-
ments explained earlier in this section. The
ceptable in meeting the application require-
auxiliary unit or society must also meet all the
ments for credit unions, and may be used
501(c)(19) - Veterans
following additional requirements.
instead of the statement form of application just
described. The following is a reproduction of that Organizations 1. It is affiliated with, and organized in accor-
form. dance with, the bylaws and regulations for-
A post or organization of past or present mem- mulated by the parent organization.
Claim for Exemption from Federal Income
bers of the Armed Forces of the United States
2. At least 75% of its members are either
T a x ( D a t e ) T h e
must file Form 1024 to apply for recognition of
past or present members of the U.S.
undersigned (Complete name)
exemption from federal income tax. You should
Armed Forces, spouses of those mem-
Credit Union, Inc., (Complete ad-
follow the general procedures outlined in chap-
bers, or related to those members within
dress, including street and number), a credit
ter 1. The organization must also meet the quali-
two degrees of kinship (grandparent,
union operating under the credit union law of the
fications described in this section.
brother, sister, and grandchild represent
State of , claims exemption from
Examples of groups that qualify for exemp-
the most distant allowable relationship).
federal income tax and supplies the following
tion are posts or auxiliaries of the American
information relative to its operation.
3. All of its members either are members of
Legion, Veterans of Foreign Wars, and similar
the parent organization, spouses of a
organizations.
1. Date of incorporation .
member of the parent organization, or re-
To qualify for recognition of exemption, your
2. It was incorporated under the credit union lated to a member of such organization
application should show:
law of the State of , and is within two degrees of kinship.
being operated under uniform bylaws
1. That the post or organization is organized
4. No part of its net earnings inure to the
adopted by said state.
in the United States or any of its posses-
benefit of any private shareholder or indi-
sions,
3. In making loans, the state credit union law vidual.
requirements, including their purposes, se-
2. That at least 75% of the members are past
curity, and rate of interest charged
or present members of the U.S. Armed Trusts or foundations. Trusts or foundations
thereon, are complied with.
for a veterans organization also can apply for Forces and that at least 97.5% of all mem-
recognition of exemption provided that the par- bers of the organization are past or pres-
4. Its investments are limited to securities
ent organization meets the requirements ex- ent members of the U.S. Armed Forces,
which are legal investments for credit un-
plained earlier. The trust or foundation must also cadets (including only students in college
ions under the state credit union law.
meet all the following qualifications. or university ROTC programs or at armed
5. Its dividends on shares, if any, are distrib-
services academies) or spouses, widows,
uted as prescribed by the state credit 1. The trust or foundation is in existence
widowers, ancestors, or lineal descendants
union law. under local law and, if it is organized for
of any of those listed here, and
charitable purposes, has a dissolution pro-
I, the undersigned, a duly authorized officer of
3. That no part of net earnings inure to the vision similar to charitable organizations.
the Credit Union, Inc., declare
benefit of any private shareholder or indi- (See Articles of Organization in chapter 3
that the above information is a true statement of
vidual. of this publication.)
facts concerning the credit union.
In addition to these requirements, a veter- 2. The corpus or income cannot be diverted S i g n a t u r e o f
ans organization also must be operated exclu- or used other than for: Officer Title
sively for one or more of the following purposes.
a. The funding of a veterans organization,
Other Mutual
1. To promote the social welfare of the com- described in this section,
Financial Organizations
munity (that is, to promote in some way the
b. Religious, charitable, scientific, literary,
common good and general welfare of the
or educational purposes or for the pre-
Every other organization included in this section
people of the community).
vention of cruelty to children or animals,
must show in its application the state in which
or 2. To assist disabled and needy war veterans the organization is incorporated and the date of
and members of the U.S. Armed Forces incorporation; the character of the organization;
c. An insurance set aside.
and their dependents and the widows and the purpose for which it was organized; its actual
orphans of deceased veterans. activities; the sources of its receipts and the
3. The trust income is not unreasonably ac-
disposition thereof; whether any of its income
cumulated and, if the trust or foundation is
3. To provide entertainment, care, and assis-
may be credited to surplus or may benefit any
not an insurance set aside, a substantial
tance to hospitalized veterans or members
private shareholder or individual; whether the
portion of the income is in fact distributed
of the U.S. Armed Forces.
law relating to loans, investments, and dividends
to the parent organization or for the pur-
4. To carry on programs to perpetuate the is being complied with; and, in general, all facts
poses described in item 2(b).
relating to its operations that affect its right to memory of deceased veterans and mem-
4. It is organized exclusively for one or more
exemption. bers of the Armed Forces and to comfort
of the purposes listed earlier in this section
their survivors. The application must include detailed infor-
that are specifically applicable to the par-
mation showing either that the organization pro-
5. To conduct programs for religious, charita-
ent organization.
vides both reserve funds for and insurance of
ble, scientific, literary, or educational pur-
shares and deposits of its member financial or-
poses.
ganizations or that the organization provides Tax treatment of donations. Donations to
6. To sponsor or participate in activities of a reserve funds for shares or deposits of its mem- war veterans organizations are deductible as
bers and 85% or more of the organizations patriotic nature. charitable contributions on the donors federal
REL 00938
income tax return. At least 90% of the organiza- d. To pay accident and health benefits or must file its application on Form 1024. The infor-
tions membership must consist of war veterans. insurance premiums and other adminis- mation to submit upon application is described
The term war veterans means persons, whether trative expenses for retired coal miners in this section. For a discussion of the proce-
or not present members of the U.S. Armed and their spouses. The amount of as- dures for obtaining recognition of exemption,
Forces, who have served in the U.S. Armed sets available for such use is generally see chapter 1, Application Procedures.
Forces during a period of war (including the limited to 110% of the present value of You must show that your organization is a
Korean and Vietnam conflicts, the Persian Gulf the liability for black lung benefits. corporation. If you are in doubt as to whether
war, and later declared wars). your organization qualifies as a corporation for
2. No part of its assets can be used for, or
this purpose, contact your IRS office.
diverted to, any purposes other than:
A title-holding corporation will qualify for ex-
emption only if there is effective ownership and
a. The purposes described in 1,
501(c)(20) - Group control over it by the distributee exempt organi-
zation. For example, the distributee organization b. Payments into the Black Lung Disability
Legal Services Plan
may control the title-holding corporation by own- Trust Fund or into the general fund of
ing its voting stock or possessing the power to the U.S. Treasury (other than in satis-
Organizations
select nominees to hold its voting stock. faction of any tax or other civil or crimi-
nal liability of the person who
An organization or trust created in the U.S. for
Corporate charter. The corporate charter established or contributed to the trust),
the exclusive function of forming a part of a
must confine the purposes and powers of your
c. Investment in public debt securities of
qualified group legal services plan or plans can-
organization to holding title to property, collect-
the U.S., obligations of a state or local
not be exempt under section 501(c)(20) after
ing income from the property, and turning the
government that are not in default as to
June 30, 1992. However, an organization that
income over to an exempt organization. If the
principal or interest, or time or demand
has already received a determination or ruling
charter authorizes your organization to engage
deposits in a bank or an insured credit
letter from the IRS recognizing its exemption
in activities that go beyond these limits, its ex-
union located in the United States.
under section 501(c)(2) may, if it otherwise qual-
emption may not be recognized even if its actual
(These investments are restricted to the
ifies, request a ruling or determination modifying
operations are so limited. If your organizations
extent that the trustee determines that a
its exemption from section 501(c)(2) to section
original charter does not limit its powers, you can
portion of the assets is not currently
501(c)(9) effective July 1, 1992.
amend the charter to conform to the required
needed for the purposes described in
limits and submit evidence with your application
1.)
that the charter has been amended.
Payment of income. You must show that your 501(c)(21) - Black Lung
An annual information return is required of
corporation is required to turn over the entire
exempt trusts described in section 501(c)(21).
Benefit Trusts income from the property, less expenses, to one
Form 990-BL, Information and Initial Excise Tax
or more exempt organizations.
Return for Black Lung Benefit Trusts and Cer-
If your organization wishes to obtain recognition
Actual payment of the income is required. A
tain Related Persons, must be used for this
of exemption as a black lung benefit trust, it must
mere obligation to use the income for the ex-
purpose. A trust that normally has gross receipts
file its application by letter and include a copy of
empt organizations benefit, or the fact that such
in each tax year of no more than $25,000 is
its trust instrument. The general procedures to
organization has control over the income does
excepted from this filing requirement. However,
follow for obtaining recognition are discussed in
not satisfy this requirement.
it must submit an annual electronic notice, Form
chapter 1 of this publication. This section de-
990-N (e-Postcard). Expenses. Expenses may reduce the
scribes the additional (or specific) information to
amount of income required to be turned over to
be provided upon application.
Excise taxes. See Chapter 5 for informa-
the tax-exempt organization for which your or-
tion on the excise tax that may be imposed on
Requirements. A black lung benefit trust that ganization holds property. The term expenses
the organization.
is established in writing, created or organized in (for this purpose) includes not only ordinary and
the United States, and contributed to by any necessary expenses paid or incurred, but also
Tax treatment of donations. Contributions
person (except an insurance company) will qual- reasonable additions to depreciation reserves
by a taxpayer (generally, the coal mine operator)
ify for tax-exempt status if it meets both of the and other reserves that would be proper for a
to a black lung benefit trust are deductible for
following requirements. The trust must be irrevo- business corporation holding title to and main-
federal income tax purposes under section 192.
cable and there can be no right or possibility or taining property.
The deduction is limited, and any excess contri-
reversion of the corpus or income of the trust to
In addition, the title-holding corporation can
butions are subject to an excise tax of 5%. Form
the coal mine operator or other creator, except
retain part of its income each year to apply to
6069, Return of Excise Tax on Excess Contribu-
that the creator may recover excess contribu-
debt on property to which it holds title. This
tions to Black Lung Benefit Trust Under Section
tions.
transaction is treated as if the income had been
4953 and Computation of Section 192 Deduc-
turned over to the exempt organization and the
tion, is used to compute the allowable deduction
1. Its only purpose is:
latter had used the income to make a contribu-
and any excise tax liability. The form does not
tion to the capital of the title-holding corporation
have to be filed if there is no excise tax liability. a. To satisfy in whole or in part the liability
that in turn applied the contribution to the debt.
For more information about these contributions, of that person (generally, the coal mine
see Form 6069 and its instructions. operator contributing to the trust) for, or
Waiver of payment of income. Generally,
with respect to, claims for compensa-
there is no payment of rent when the occupant of
tion arising under federal or state stat-
property held by your title-holding corporation is
utes for disability or death due to
the exempt organization for which your corpora-
pneumoconiosis,
tion holds the title. In this situation, the statutory 501(c)(2) - Title-Holding
requirement that income be paid over to the
b. To pay the premiums for insurance that
Corporations for Single exempt organization is satisfied if your corpora-
covers only that liability,
tion turns over whatever income is available.
c. To pay the administrative and other in- Parents
cidental expenses of that trust (includ- Application for recognition of exemption.
ing legal, accounting, actuarial, and If your organization wants to obtain recognition In addition to the information required by Form
trustee expenses) in connection with of exemption from federal income tax as a cor- 1024, the title-holding corporation must furnish
the operation of the trust and process- poration organized to hold title to property, col- evidence that the organization for which title is
ing of black lung claims against such lect income from that property, and turn over the held has obtained recognition of exempt status.
person arising under federal or state entire amount less expenses to a single parent If that organization has not been specifically
statutes, and organization that is exempt from income tax, it notified in writing by the IRS that it is exempt, the
REL 00939
title-holding corporation must submit the neces- 1. By selling or exchanging their stock or
sary application and supporting documents to beneficial interest to any organization de-
501(c)(26) -
enable the IRS to determine whether the organi-
scribed in section 501(c)(25)(C), provided
zation for which title is held qualifies for exemp-
State-Sponsored that the sale or exchange does not cause
tion. A copy of a ruling or determination letter
the number of shareholders or beneficia-
issued to the organization for which title is held High-Risk Health
ries to exceed 35.
will be proof that it qualifies for exemption. How-
2. By having their stock or beneficial interest Coverage ever, until the organization for which title is held
redeemed by the section 501(c)(25) organ- obtains recognition of exempt status or proof is
Organizations
submitted to show that it qualifies, the ti- ization upon 90 days notice.
tle-holding corporation cannot obtain recogni-
If state law prevents a corporation from including
A state-sponsored organization established to
tion of exemption.
in its articles of incorporation the above provi-
provide medical care to high-risk individuals
sions, such provisions must instead be included
should apply by letter for recognition of exemp- Tax treatment of donations. Donations to an
in the bylaws of the corporation. tion from federal income tax under section exempt title-holding corporation generally are
501(c)(26). not deductible as charitable contributions on the
A 501(c)(25) organization can be organized
To qualify for exemption, the organization donors federal income tax return.
as a nonstock corporation if its articles of incor-
must be a membership organization established
poration or bylaws provide members with the
by a state exclusively to provide coverage for
same rights as described above.
medical care on a nonprofit basis to high-risk
individuals who are state residents. It can pro-
501(c)(25) -
Subsidiaries. A wholly owned subsidiary will vide coverage either by issuing insurance itself
or by entering into an arrangement with a health not be treated as a separate corporation, and all
Title-Holding
maintenance organization (HMO). assets, liabilities, and items of income, deduc-
The state must determine the composition of
tion, and credit will be treated as belonging to Corporations or Trusts
membership in the organization. No part of the
the section 501(c)(25) organization. Subsidiar-
net earnings of the organization can inure to the for Multiple Parents
ies should not apply separately for recognition of
benefit of any private shareholder or individual.
exemption.
If your organization wants to obtain recognition
High-risk individuals. These are individuals,
of exemption from federal income tax as an
their spouses and qualifying children, who, be-
Tax treatment of donations. Donations to an
organization organized for the exclusive pur-
cause of a pre-existing medical condition:
exempt title-holding corporation generally are
pose of acquiring, holding title to, and collecting
not deductible as charitable contributions on the income from real property, and turning over the
1. Cannot get medical care coverage for that
entire amount less expenses to member organi- donors federal income tax return.
condition through insurance or an HMO, or
zations exempt from income tax, it should file its
2. Can get coverage for that condition only at
application on Form 1024. For a discussion of
Unrelated Business Income
a rate that is substantially higher than the
the procedures for obtaining recognition of ex-
rate for the same coverage from the
emption, see chapter 1, Application Procedures. In general, the receipt of unrelated business
state-sponsored organization.
income by a section 501(c)(25) organization will
Who can control the organization. Organi-
subject the organization to loss of exempt status
zations recognized as exempt under this section
since the organization cannot be exempt from
can have up to 35 shareholders or beneficiaries,
taxation if it engages in any business other than
in contrast to title-holding organizations recog-
that of holding title to real property and collecting
501(c)(27) - Qualified
nized as exempt under section 501(c)(2), which
the income from the property. However, exempt
can have only one controlling parent organiza-
State-Sponsored status generally will not be affected by the re-
tion.
ceipt of debt-financed income that is treated as
Workers
unrelated business taxable income solely be-
Organizational requirements. A 501(c)(25)
cause of section 514. organization must be either a corporation or a
Compensation
trust. Only one class of stock is permitted in the
Under section 514(c)(9), certain sharehold-
case of a corporation. In the case of a trust, only
ers or beneficiaries are not subject to unrelated Organizations
one class of beneficial interest is allowed.
debt-financed income tax under section 514 on
Organizations eligible to acquire or hold in-
their investments through the organization.
501(c)(27)(A) -- Pre-June 1, 1986, Organiza-
terests in this type of title-holding organization
These shareholders are generally schools, col-
tions. A state-sponsored workers compensa-
are qualified pension, profit-sharing, or stock
leges, universities, or supporting organizations
tion reinsurance organization should apply by
bonus plans, governmental plans, governments
of such educational institutions. Organizations letter for recognition of exemption from federal
and their agencies and instrumentalities, and
income tax under section 501(c)(27). other than these will take into account as gross
charitable organizations.
To qualify for exemption, any membership income from an unrelated trade or business their
The articles of incorporation or trust instru-
organization must meet all the following require-
pro rata share of income that is treated as unre-
ment must include provisions showing that the
ments.
lated debt-financed income because section
corporation or trust is organized to meet the
514(c)(9) does not apply. These organizations
requirements of the statute, including compli-
1. It was established by a state before June
will also take their pro rata share of the allowable
ance with the limitations on membership and
1, 1986, exclusively to reimburse its mem-
deductions from unrelated taxable income.
classes of stock or beneficial interest, and com-
bers for losses under workers compensa-
pliance with the income distribution require-
tion acts.
ments. The organizing document must permit
Real property. Real property can include per-
2. The state requires that the membership
the organizations shareholders or beneficiaries
sonal property leased in connection with real
consist of all persons who issue insurance
to dismiss the organizations investment advi-
property, but only if the rent from the personal
covering workers compensation losses in
sor, if any, upon a vote of the shareholders or
property is not more than 15% of the total rent
the state and all persons and government
beneficiaries holding a majority interest in the
for both the real property and the personal prop- entities who self-insure against those
organization.
erty. losses.
The organizing document must permit the
Real property acquired after June 10, 1987,
shareholders or beneficiaries to terminate their 3. It operates as a nonprofit organization by
cannot include any interest as a tenant in com- interests by at least one of the following meth- returning surplus income to its members or
mon (or similar interest) or any indirect interest. ods. workers compensation policyholders on a
REL 00940
periodic basis and by reducing initial pre- Excise taxes on private foundations 2. Religious or apostolic associations or cor-
miums in anticipation of investment in- porations described in section 501(d).
Excise taxes on 501(c)(21) black lung
come.
3. Entities described in section 170(c), includ- benefit trusts
ing states, possessions of the United
501(c)(27)(B) -- Organizations formed after
States, the District of Columbia, political
Useful Items
December 31, 1987. Any organization (includ-
subdivisions of states and political subdivi-
ing a mutual insurance company) can qualify for You may want to see:
sions of possessions of the United States
exemption if it meets all of the following require-
(but not including the United States).
ments. Forms (and Instructions)
4. Indian tribal governments within the mean-
1. It is created by state law and is organized ing of section 7701(a)(40). J 4720 Return of Certain Excise Taxes
and operated under state law exclusively Under Chapters 41 and 42 of the
to: Internal Revenue Code
Entity manager. An entity manager is any
person with authority or responsibility similar to
a. Provide workmens compensation insur-
See chapter 6 for more information about get-
that exercised by an officer, director, or trustee,
ance which is required by state law or
ting this form.
and, for any act, the person that has authority or
state law must provide significant disin-
responsibility with respect to the prohibited
centives if employers fail to purchase
transaction.
such insurance, and
b. Provide related coverage which is inci-
Prohibited tax shelter transaction. A prohib-
dental to workmens compensation in-
ited tax shelter transaction is any listed transac-
surance.
Transactions
tion, within the meaning of section 6707A(c)(2),
and any prohibited reportable transactions. A
2. It provides workmens compensation insur- Section 4965 imposes an excise tax on:
prohibited reportable transaction is a confiden-
ance to any employer in the state (for em-
tial transaction within the meaning of Regula-
Certain tax-exempt entities that are party
ployees in the state or temporarily
tions section 1.6011-4(b)(3), and a transaction
to prohibited tax shelter transactions, and
assigned out-of-state) which seeks such
with contractual protection within the meaning of
insurance and meets other reasonable re-
Any entity manager who approves or oth-
Regulations section 1.6011-4(b)(4). See the In-
quirements relating to the insurance.
erwise causes the entity to be a party to a
structions for Form 8886 for more information on
prohibited tax shelter transaction and
3. The state makes a financial commitment to listed transactions and prohibited reportable
knows or has reason to know that the
such organization either by extending its transactions.
transaction is a prohibited tax shelter
full faith and credit to the initial debt of the
transaction.
organization or by providing the initial op- Subsequently listed transaction. Any trans-
erating capital of the organization. action to which the tax-exempt entity is a party
and is later determined to be a listed transaction
Additionally, section 6033 provides new disclo-
4. The assets of the organization revert to the
after the entity has become a party to it, is a
sure requirements on a tax-exempt entity that is
state upon dissolution or the organization
subsequently listed transaction.
a party to a prohibited tax shelter transaction.
is not permitted to dissolve under state
law.
Tax-exempt entities. Tax-exempt entities
5. The majority of the board of directors or
that are subject to section 4965 include:
oversight body of such organization are
Entity Level Tax
appointed by the chief executive officer or 1. Entities described in section 501(c), includ-
other executive branch official of the state,
ing but not limited to the following common
Section 4965(a)(1) imposes an entity level ex-
by the state legislature, or by both.
types of entities:
cise tax on any tax-exempt entity described in 1,
2, 3, or 4 above that becomes a party to a
a. Instrumentalities of the United States
prohibited tax shelter transaction or is a party to
described in section 501(c)(1);
a subsequently listed transaction (defined ear-
b. Churches, hospitals, museums, lier). The excise tax imposed on a tax-exempt
schools, scientific research organiza- entity applies to tax years in which the entity
tions, and other charities described in becomes a party to the prohibited tax shelter
transaction and any subsequent tax years. The section 501(c)(3); 5.
amount of the excise tax depends on whether
c. Civic leagues, social welfare organi-
the tax-exempt entity knew or had reason to
zations, and local associations of em-
know that the transaction was a prohibited tax
ployees described in section 501(c)(4);
Excise Taxes
shelter transaction at the time it became a party
to the transaction. d. Labor, agricultural, or horticultural or-
To figure and report the excise tax imposed ganizations described in section
on a tax-exempt entity for being a party to a 501(c)(5);
Introduction
prohibited tax shelter transaction, file Form
e. Business leagues, chambers of com-
An excise tax may be imposed on certain
4720.
merce, trade associations, and other or-
tax-exempt organizations.
For more information about this excise tax,
ganizations described in section
including information about how it is figured, see
501(c)(6);
Topics
the Instructions for Form 4720.
This chapter discusses:
f. Voluntary employees beneficiary as-
sociations (VEBAs) described in section
Prohibited tax shelter transactions
Manager Level Tax
501(c)(9);
Excess benefit transactions
g. Credit unions described in section Section 4965(a)(2) imposes an excise tax on
501(c)(14); any tax-exempt entity manager who approves or Excess business holdings
otherwise causes the entity to be a party to a
h. Insurance companies described in Taxable distributions of sponsoring organi-
prohibited tax shelter transaction and knows (or
section 501(c)(15); and zations
has reason to know) that the transaction is a
i. Veterans organizations described in Taxes on prohibited benefits distributed prohibited tax shelter transaction. The excise
section 501(c)(19). from donor advised funds tax, in the amount of $20,000, is assessed for
Chapter 5 Excise Taxes Page 57
REL 00941
each approval or other act causing the organiza- The date on which the initial tax on the provided by the organization exceeds the value
tion to be a party to the prohibited tax shelter excess benefit transaction for the disquali- of the consideration (including the performance
transaction. To report this tax, file Form 4720. fied person is assessed. of services) received for providing such benefit.
The excess benefit transaction rules apply to all
transactions with disqualified persons, regard-
Tax on Organization
less of whether the amount of the benefit pro-
Managers vided is determined in whole or in part by the
Excess Benefit
revenues of one or more activities of the organi-
If tax is imposed on a disqualified person for any
zation. Transactions
excess benefit transaction, an excise tax equal
to 10% of the excess benefit is imposed on an
Excise tax on excess benefit transactions.
To determine whether an excess benefit
organization manager who knowingly partici-
A disqualified person who benefits from an ex-
transaction has occurred, all consideration and
pated in an excess benefit transaction, unless
cess benefit transaction, such as compensation,
benefits exchanged between a disqualified per-
such participation was not willful and was due to
fringe benefits, or contract payments from cer-
son and the applicable tax-exempt organization,
reasonable cause. This tax cannot exceed
tain section 501(c)(3) or 501(c)(4) organiza-
and all entities it controls, are taken into account.
$20,000 ($10,000 for transactions entered in a
tions, may have to pay an excise tax under
For purposes of determining the value of eco-
tax year beginning before August 18, 2006), for
section 4958. A manager of the organization
nomic benefits, the value of property, including
each transaction. There is also joint and several
may also have to pay an excise tax under sec-
the right to use property, is the fair market value.
liability for this tax. A person can be liable for
tion 4958. These taxes are reported on Form
Fair market value is the price at which property,
both the tax paid by the disqualified person and
4720.
or the right to use property, would change hands
the organization manager tax.
The excise taxes are imposed if an applica-
between a willing buyer and a willing seller,
An organization manager is any officer, di-
ble tax-exempt organization provides an excess
neither being under any compulsion to buy, sell,
rector, or trustee of an applicable tax-exempt
benefit to a disqualified person and that benefit
or transfer property or the right to use property,
organization, or any individual having powers or
exceeds the value of the benefit an organization
and both having reasonable knowledge of rele-
responsibilities similar to officers, directors, or
received in the exchange.
vant facts.
trustees of the organization, regardless of title.
There are three taxes under section 4958.
An organization manager is not considered to
Disqualified persons are liable for the first two
Donor advised fund transactions occurring
have participated in an excess benefit transac-
taxes and certain organization managers are
after August 17, 2006. For a donor advised
tion where the manager has opposed the trans-
liable for the third tax.
fund, an excess benefit transaction includes a
action in a manner consistent with the fulfillment
Taxes imposed on excess benefit transac-
grant, loan, compensation, or other similar pay-
of the managers responsibilities to the organi-
tions apply to transactions occurring on or after
ment from the fund to a:
zation. For example, a director who votes
September 14, 1995. However, these taxes do
against giving an excess benefit would ordinarily
Donor or donor advisor,
not apply to a transaction under a written con-
not be subject to the 10% tax.
tract that was binding on September 13, 1995,
Family member of a donor, or donor advi-
A person participates in a transaction know-
and at all times thereafter before the transaction
sor,
ingly if the person:
occurred.
35% controlled entity of a donor, or donor
Has actual knowledge of sufficient facts so
advisor, or
that, based solely upon those facts, such
Tax on Disqualified Persons
transaction would be an excess benefit
35% controlled entity of a family member
An excise tax equal to 25% of the excess benefit transaction;
of a donor, or donor advisor.
is imposed on each excess benefit transaction
Is aware that such a transaction under
between an applicable tax-exempt organization
The excess benefit in this transaction is the
these circumstances may violate the provi-
and a disqualified person. The disqualified per-
amount of the grant, loan, compensation, or
sions of federal tax law governing excess
son who benefited from the transaction is liable
other similar payment. For additional informa-
benefit transactions; and
for the tax.
tion see the Instructions for Form 4720.
Negligently fails to make reasonable at-
Additional tax on the disqualified person. If
tempts to ascertain whether the transac-
Supporting organization transactions occur-
the 25% tax is imposed and the excess benefit
tion is an excess benefit transaction, or
ring after July 25, 2006. For any supporting
transaction is not corrected within the taxable
the manager is in fact aware that it is such
organization, defined in section 509(a)(3), an
period, an additional excise tax equal to 200% of
a transaction.
excess benefit transaction includes grants,
the excess benefit is imposed on any disquali-
loans, compensation, or other similar payment
Knowing does not mean having reason to know. fied person involved.
provided by the supporting organization to a:
The organization manager ordinarily will not be If a disqualified person makes a payment of
considered knowing if, after full disclosure of the less than the full correction amount, the 200%
Substantial contributor,
factual situation to an appropriate professional, tax is imposed only on the unpaid portion of the
Family member of a substantial contribu-
the organization manager relied on the profes- correction amount. If more than one disqualified
tor,
sionals reasoned written opinion on matters person received an excess benefit from an ex-
within the professionals expertise or if the man- cess benefit transaction, all such disqualified
35% controlled entity of a substantial con-
ager relied on the fact that the requirements for persons are jointly and severally liable for the
tributor, or
the rebuttable presumption of reasonableness taxes.
35% controlled entity of a family member
have been satisfied. Participation by an organi- To avoid the 200% tax, a disqualified person
of a substantial contributor.
zation manager is willful if it is voluntary, con- must correct the excess benefit transaction dur-
scious, and intentional. An organization ing the taxable period. The 200% tax is abated
Additionally, an excess benefit transaction in-
managers participation is due to reasonable (refunded if collected) if the excess benefit
cludes any loans provided by the supporting
cause if the manager has exercised responsibil- transaction is corrected within a 90-day correc-
organization to a disqualified person (other than
ity on behalf of the organization with ordinary tion period beginning on the date a statutory
an organization described in section 509(a)(1),
business care and prudence. notice of deficiency is issued.
(2), or (4)).
Taxable period. The taxable period means
The excess benefit for substantial contribu-
Excess Benefit Transaction
the period beginning with the date on which the
tors and parties related to those contributors
excess benefit transaction occurs and ending on
includes the amount of the grant, loan, compen-
An excess benefit transaction is a transaction in
the earlier of:
sation, or other similar payment. For additional
which an economic benefit is provided by an
information see the Instructions for Form 4720.
The date a notice of deficiency was mailed applicable tax-exempt organization, directly or
Excess benefit transaction rules generally do to the disqualified person for the initial tax indirectly, to or for the use of any disqualified
not apply to transactions between a supporting on the excess benefit transaction, or person, and the value of the economic benefit
Page 58 Chapter 5 Excise Taxes
REL 00942
organization and its supported organization that Exception. For a correction of an excess Investment advisor. Investment advisor
is described in sections 501(c)(4), (5), or (6). benefit transaction (discussed earlier), no means for any sponsoring organization, any per-
amount repaid in a manner prescribed by the son compensated by such organization (but not
Secretary can be held in a donor advised fund. an employee of such organization) for managing
Date of Occurrence the investment of, or providing investment ad-
vice for, assets maintained in donor advised
An excess benefit transaction occurs on the
Applicable Tax-Exempt funds maintained by such sponsoring organiza-
date the disqualified person receives the eco-
Organization tion.
nomic benefit from the organization for federal
Substantial contributor. In general, a sub-
income tax purposes. However, when a single An applicable tax-exempt organization is a sec-
stantial contributor means any person who con-
contractual arrangement provides for a series of tion 501(c)(3) or 501(c)(4) organization that is
tributed or bequeathed an aggregate of more
compensation or other payments to or for the tax-exempt under section 501(a), or was such
than $5,000 to the organization, if that amount is
use of a disqualified person during the disquali- an organization at any time during a 5-year pe-
more than 2% of the total contributions and
fied persons tax year, any excess benefit trans- riod ending on the day of the excess benefit
bequests received by the organization before
action with respect to these payments occurs on transaction.
the end of the tax year of the organization in
the last day of the taxpayers tax year.
An applicable tax-exempt organization does
which the contribution or bequest is received by
In the case of benefits provided to a qualified
not include:
the organization from such person. A substantial
pension, profit-sharing, or stock bonus plan, the
contributor includes the grantor of a trust.
transaction occurs on the date the benefit is
1. A private foundation as defined in section
vested. In the case of the transfer of property
509(a),
Family members. Family members of a dis-
subject to a substantial risk of forfeiture, or in the
qualified person include a disqualified persons
2. A governmental entity that is:
case of rights to future compensation or prop-
spouse, brothers or sisters (whether by whole or
erty, the transaction occurs on the date the prop-
a. Exempt from (or not subject to) taxation half-blood), spouses of brothers or sisters
erty, or the rights to future compensation or
without regard to section 501(a), or (whether by whole or half-blood), ancestors,
property, is not subject to a substantial risk of
children (including a legally adopted child),
b. Not required to file an annual return,
forfeiture. Where the disqualified person elects
grandchildren, great grandchildren, and
to include an amount in gross income in the tax
spouses of children, grandchildren, and great
3. A foreign organization, recognized by the
year of transfer under section 83(b), the excess
grandchildren (whether by whole or half-blood).
IRS or by treaty, that receives substantially
benefit transaction occurs on the date the dis-
all of its support (other than gross invest-
qualified person receives the economic benefit 35% controlled entity. The term 35% con-
ment income) from sources outside the
for federal income tax purposes. trolled entity means:
United States.
1. A corporation in which a disqualified per-
Correcting the excess benefit. An excess
An organization is not treated as a section
son owns more than 35% of the total com-
benefit transaction is corrected by undoing the
501(c)(3) or 501(c)(4) organization for any pe-
bined voting power,
excess benefit to the extent possible, and by
riod covered by a final determination that the
taking any additional measures necessary to 2. A partnership in which such persons own organization was not tax-exempt under section
place the organization in a financial position not more than 35% of the profits interest, or 501(a), but only if the determination was not
worse than what it would have been if the dis-
based on private inurement or one or more ex-
3. A trust or estate in which such persons
qualified person were dealing under the highest
cess benefit transactions.
own more than 35% of the beneficial inter-
fiduciary standards.
est.
A disqualified person corrects an excess
benefit by making a payment in cash or cash In determining the holdings of a business Disqualified Person
equivalents, excluding payment by a promissory enterprise, any stock or other interest owned
A disqualified person is:
note, equal to the correction amount to the appli- directly or indirectly shall apply.
cable tax-exempt organization. The correction
Any person (at any time during the 5-year
Persons having substantial influence. Per-
amount equals the excess benefit plus the inter-
period ending on the date of the transac-
sons who hold certain powers, responsibilities,
est on the excess benefit. The interest rate can
tion) in a position to exercise substantial
or interests are among those who are in a posi-
be no lower than the applicable federal rate,
influence over the affairs of the organiza-
tion to exercise substantial influence over the
compounded annually, for the month the trans-
tion,
affairs of the organization. This includes, for
action occurred.
example, voting members of the governing
A family member of an individual de-
A disqualified person can, with the agree-
body, and persons holding the power of:
scribed in 1, and
ment of the applicable tax-exempt organization,
make a payment by returning the specific prop-
Presidents, chief executives, or chief oper-
A 35% controlled entity.
erty previously transferred in the excess trans- ating officers.
action. In this case, the disqualified person is
Treasurers and chief financial officers. For donor advised funds, sponsoring organi-
treated as making a payment equal to the lesser
zations, and certain supporting organiza-
of: Persons with a material financial interest
tions occurring after August 17, 2006. The
in a provider-sponsored organization.
The fair market value of the property on following persons will be considered disqualified
the date the property is returned to the persons along with certain family members and
Persons not considered to have substan-
organization, or 35% controlled entities associated with them.
tial influence. Persons who are not consid-
The fair market value of the property on ered to be in a position to exercise substantial Donors of donor advised funds,
the date the excess benefit transaction oc- influence over the affairs of an organization in-
Investment advisors of sponsoring organi-
curred. clude:
zations, and
An employee who receives benefits that
If the payment resulting from the return of
Disqualified persons of a section 509(a)(3)
total less than the highly compensated
property is less than the correction amount, the supporting organization for the organiza-
amount in section 414(q)(1)(B)(i) and who
disqualified person must make an additional tions that organization supports.
does not hold the executive or voting pow-
cash payment to the organization equal to the
ers mentioned earlier in the discussion on
difference. For certain supporting organization trans-
Disqualified Person is not a family mem-
If the payment resulting from the return of the actions occurring after July 25, 2006. Sub-
ber of a disqualified person, and is not a
property exceeds the correction amount de- stantial contributors to supporting organizations
substantial contributor,
scribed above, the organization can make a will also be considered disqualified persons
cash payment to the disqualified person equal to along with their family members and 35% con- Tax-exempt organizations described in
the difference. trolled entities. section 501(c)(3), and
REL 00943
Section 501(c)(4) organizations with re- as compared to the organization as a The disqualified person reports the benefit
spect to transactions engaged in with whole. as income on the persons original Form
other section 501(c)(4) organizations. 1040, or on an amended form filed before
In the case of multiple organizations affiliated starting an IRS examination.
Facts and circumstances. The determina- by common control or governing documents, the
tion of whether a person has substantial influ- determination of whether a person does or does Exception. If the economic benefit is ex-
ence over the affairs of an organization is based cluded from the disqualified persons gross in- not have substantial influence is made sepa-
on all the facts and circumstances. Facts and come for income tax purposes, the applicable rately for each applicable tax-exempt organiza-
circumstances that show a person has substan- tax-exempt organization is not required to indi- tion. A person may be a disqualified person with
tial influence over the affairs of an organization cate its intent to provide an economic benefit as respect to transactions with more than one or-
include, but are not limited to, the following.
compensation for services. ganization.
The person founded the organization. Rebuttable presumption that a transaction Reasonable compensation. Reasonable
is not an excess benefit transaction. Pay- compensation is the value that would ordinarily
The person is a substantial contributor to
ments under a compensation arrangement are be paid for like services by like enterprises under
the organization under the section
presumed to be reasonable and the transfer of like circumstances. The section 162 standard
507(d)(2)(A) definition, only taking into ac-
property (or right to use property) is presumed to will apply in determining the reasonableness of
count contributions to the organization for
be at fair market value, if the following three compensation. The fact that a bonus or reve-
the past 5 years.
conditions are met. nue-sharing arrangement is subject to a cap is a
The persons compensation is primarily
relevant factor in determining reasonableness of
1. The transaction is approved in advance by
based on revenues derived from activities
compensation.
an authorized body of the organization (or
of the organization that the person con-
To determine the reasonableness of com-
an entity it controls) which is composed of trols.
pensation, all items of compensation provided
individuals who do not have a conflict of
by an applicable tax-exempt organization in ex- The person has or shares authority to con-
interest concerning the transaction.
change for performance of services are taken trol or determine a substantial portion of
2. Before making its determination, the au- into account in determining the value of com- the organizations capital expenditures,
thorized body obtained and relied upon ap- pensation (except for economic benefits that are operating budget, or compensation for em-
propriate data as to comparability. (There disregarded under the discussion Disregarded ployees.
is a special safe harbor for small organiza- benefits, later). Items of compensation include:
The person manages a discrete segment
tions. If the organization has gross receipts
or activity of the organization that repre- All forms of cash and noncash compensa-
of less than $1 million, appropriate compa-
sents a substantial portion of the activities, tion, including salary, fees, bonuses, sev-
rability data includes data on compensa-
assets, income, or expenses of the organi- erance payments, and deferred noncash
tion paid by three comparable
zation, as compared to the organization as compensation.
organizations in the same or similar com-
a whole.
munities for similar services.) The payment of liability insurance premi-
The person owns a controlling interest ums for, or the payment or reimbursement
3. The authorized body adequately docu-
(measured by either vote or value) in a by the organization of penalties, taxes, or
ments the basis for its determination con-
corporation, partnership, or trust that is a certain expenses under section 4958, un-
currently with making that determination.
disqualified person. less excludable from income as a de
The documentation should include:
minimis fringe benefit under section
The person is a nonstock organization
132(a)(4),
a. The terms of the approved transaction
controlled directly or indirectly by one or
and the date approved,
more disqualified persons. All other compensatory benefits, whether
or not included in gross income for income
b. The members of the authorized body
Facts and circumstances tending to show that
tax purposes,
who were present during debate on the
a person does not have substantial influence
transaction that was approved and
Taxable and nontaxable fringe benefits,
over the affairs of an organization include, but
those who voted on it,
except fringe benefits described in section
are not limited to, the following.
132, and
c. The comparability data obtained and re-
The person has taken a bona fide vow of
lied upon by the authorized body and
Foregone interest on loans.
poverty as an employee, agent, or on be-
how the data was obtained,
half of a religious organization.
An economic benefit is not treated as consid-
d. Any actions by a member of the author-
The person is an independent contractor
eration for the performance of services unless
ized body having conflict of interest,
whose sole relationship to the organization
the organization providing the benefit clearly in-
and
is providing professional advice (without
dicates its intent to treat the benefit as compen-
e. Documentation of the basis of the de-
having decision-making authority) with re-
sation when the benefit is paid.
termination before the later of the next
spect to transactions from which the inde-
An applicable tax-exempt organization (or
meeting of the authorized body or 60 pendent contractor will not economically
entity that it controls) is treated as clearly indicat-
days after the final actions of the au- benefit either directly or indirectly aside
ing its intent to provide an economic benefit as
thorized body are taken, and approval from customary fees received for the pro-
compensation for services only if the organiza-
of records as reasonable, accurate, and fessional advice rendered.
tion provides written substantiation that is con-
complete within a reasonable time
temporaneous with the transfer of the economic Any preferential treatment the person re-
thereafter.
benefits under consideration. Ways to provide ceives based on the size of the persons
contemporaneous written substantiation of its donation is also offered to others making
intent to provide an economic benefit as com- Disregarded benefits. The following eco- comparable widely solicited donations.
pensation include: nomic benefits are disregarded for section 4958
The direct supervisor of the person is not
purposes.
The organization produces a signed writ- a disqualified person.
ten employment contract, Nontaxable fringe benefits that are ex-
The person does not participate in any
cluded from income under section 132.
The organization reports the benefit as management decisions affecting the or-
compensation on an original Form W-2, Benefits provided to a volunteer for the ganization as a whole or a discrete seg-
Form 1099, or Form 990, or on an organization if the benefit is provided to ment of the organization that represents a
amended form filed before starting an IRS the general public in exchange for a mem- substantial portion of the activities, assets,
income, or expenses of the organization, examination, or bership fee or contribution of $75 or less.
Page 60 Chapter 5 Excise Taxes
REL 00944
Benefits provided to a member of an or- donors that is owned and controlled by a spon- The tax on taxable distributions applies to
ganization due to the payment of a mem- soring organization and for which the donor has distributions occurring in tax years beginning
bership fee or to a donor as a result of a or expects to have advisory privileges concern- after August 17, 2006.
deductible contribution, if a significant ing the distribution or investment of the funds.
number of disqualified persons make simi-
Sponsoring organization. A sponsoring or-
lar payments or contributions and are of-
Supporting organizations. Only certain sup- ganization is a section170(c) organization that is
fered a similar economic benefit.
porting organizations are subject to the excess not a government organization (as referred to in
business holdings tax under section 4943. section 170(c)(1) and (2)(A)) or a private foun-
Benefits provided to a person solely as a
These include (1) Type III supporting organiza- dation and maintains one or more donor advised
member of a charitable class that the ap-
tions that are not functionally integrated and (2) funds.
plicable tax-exempt organization intends
Type II supporting organizations that accept any
to benefit as part of the accomplishment of
gift or contribution from a person who by himself
Donor advised fund. A donor advised fund is
its exempt purpose.
or in connection with a related party controls the
a fund or account:
A transfer of an economic benefit to or for
supported organization that the Type II support-
the use of a governmental unit, as defined
1. Which is separately identified by reference ing organization supports.
in section 170(c)(1), if exclusively for pub-
to contributions of a donor or donors,
lic purposes.
Taxes. A private foundation that has excess
2. Which is owned and controlled by a spon-
holdings in a business enterprise may become
soring organization, and
Special exception for initial contracts.
liable for an excise tax based on the amount of
Section 4958 does not apply to any fixed pay-
3. For which the donor (or any person ap-
holdings. The initial tax is 10% (5% for tax years
ment made to a person under an initial contract.
pointed or designated by the donor) has or
beginning before August 18, 2006) of the value
A fixed payment is an amount of cash or
expects to have advisory privileges con- of the excess holdings and is imposed on the
other property specified in the contract, or deter-
cerning the distribution or investment of last day of each tax year that ends during the
mined by a fixed formula that is specified in the
the funds held in the donor advised funds taxable period. The excess holdings are deter-
contract, which is to be paid or transferred in
or accounts because of the donors status mined on the day during the tax year when they
exchange for the provision of specified services
as a donor. were the largest.
or property.
If the foundation keeps the excess business
Exception. A donor advised fund does not A fixed formula can, generally, incorporate
holdings after the initial tax has been imposed, it
an amount that depends upon future specified include:
becomes liable for an additional tax of 200% of
events or contingencies, as long as no one has
the remaining excess business holdings unless
1. A fund or account that makes distributions
discretion when calculating the amount of a pay-
it disposes of them within the taxable period.
only to a single identified organization or
ment or deciding whether to make a payment
For more information on the tax on excess
governmental entity, or
(such as a bonus).
business holdings, see the Instructions for Form
An initial contract is a binding written contract
2. Any fund or account for a person de-
4720.
between an applicable tax-exempt organization
scribed in 3 above that gives advice about
and a person who was not a disqualified person
which individuals receive grants for travel,
immediately before entering into the contract.
study, or similar purposes, if:
A binding written contract, providing it can be
Taxable Distributions
a. The persons advisory privileges are
terminated or canceled by the applicable
performed exclusively by such person
tax-exempt organization without the other
of Sponsoring
in their capacity as a committee mem-
partys consent (except as a result of substantial
ber of which all the committee members
nonperformance) and without substantial pen-
Organizations
are appointed by the sponsoring organi- alty, is treated as a new contract, as of the
zation. earliest date any termination or cancellation
An excise tax is imposed on a sponsoring organ-
would be effective. Also, if the parties make a
ization for each taxable distribution it makes
b. No combination of persons with advi-
material change to a contract, which includes an
from a donor advised fund. An excise tax is also
sory privileges, described in 3 above, or
extension or renewal of the contract (except for
imposed on any fund manager of the sponsoring
persons related to those in 3 above di-
an extension or renewal resulting from the exer-
organization who agreed to the making of a
rectly or indirectly control the commit-
cise of an option by the disqualified person), or a
distribution, knowing that it is a taxable distribu-
tee, or
more than incidental change to the amount pay-
tion.
c. All grants from the fund or account are able under the contract, it is treated as a new
contract as of the effective date of the material awarded on an objective and nondis-
Taxable distribution. A taxable distribution is
change. criminatory basis according to a proce-
any distribution from a donor advised fund to any
dure approved in advance by the board
natural person or to any other person if:
More information. For more information,
of directors of the sponsoring organiza-
see the Instructions to Forms 990 and 4720.
1. The distribution is for any purpose other tion. The procedure must be designed
than one specified in section 170(c)(2)(B), to ensure that all grants meet the re-
or quirements of section 4945(g)(1), (2), or
(3).
2. The sponsoring organization maintaining
Excess Business
the donor advised fund does not exercise
expenditure responsibility with respect to
Holdings
Disqualified supporting organization. A dis-
the distribution in accordance with section
qualified supporting organization includes a
4945(h). Private foundations are generally not permitted
Type III supporting organization that is not func-
to hold more than a 20% interest in an unrelated
However, a taxable distribution does not
tionally integrated and any Type I, Type II, or
business enterprise. They may be subject to an
include a distribution from a donor advised fund
functionally integrated Type III supporting or-
excise tax on the amount of any excess busi-
to:
ganization where the donor or donor advisor
ness holdings. For purposes of section 4943, for
(and any related parties) directly or indirectly
Any organization described in section
tax years beginning after August 17, 2006, do-
controls a supported organization of the sup-
170(b)(1)(A) (other than a disqualified sup-
nor advised funds and certain supporting organi-
porting organization.
porting organization),
zations are considered private foundations.
The sponsoring organization of the donor
Tax on sponsoring organization. A tax of Donor advised fund. In general, a donor ad-
advised fund, or
20% of the amount of each taxable distribution is vised fund is a fund or account separately identi-
imposed on the sponsoring organization. Any other donor advised fund. fied by reference to contributions of a donor or
REL 00945
Tax on fund manager. If a tax is imposed on a For more information on taxes on prohibited
taxable distribution of the sponsoring organiza- benefits distributed from donor advised funds,
tion, a tax of 5% of the distribution will be im- see the Instructions for Form 4720.
posed on any fund manager who agreed to the
distribution knowing that it was a taxable distri-
bution. Any fund manager who took part in the
distribution and is liable for the tax must pay the
Excise Taxes On
tax. The maximum amount of tax on all fund
managers for any one taxable distribution is Private Foundations
6. $10,000. If more than one fund manager is liable
for tax on a taxable distribution, all such manag- There is an excise tax on the net investment
ers are jointly and severally liable for the tax. income of most domestic private foundations.
For more information on the tax on taxable This tax must be reported on Form 990-PF and
How To Get Tax distributions of sponsoring organizations, see must be paid annually at the time for filing that
the Instructions for Form 4720. return or in quarterly estimated tax payments if
the total tax for the year (section 4940 tax minus
Help
credits) is $500 or more. Report estimated taxes
on Form 990-W.
In addition, there are several other rules that
Taxes on Prohibited
You can get help with unresolved tax issues,
apply to excise taxes on private foundations.
order free publications and forms, ask tax ques-
These include: Benefits Distributed
tions, and get information from the IRS in sev-
eral ways. By selecting the method that is best
1. Restrictions on self-dealing between pri-
From Donor Advised
for you, you will have quick and easy access to
vate foundations and their substantial con-
tax help.
tributors and other disqualified persons, Funds
2. Requirements that the foundation annually
Contacting your Taxpayer Advocate. The
distribute income for charitable purposes, Prohibited benefit. If any donor, donor advi-
Taxpayer Advocate Service (TAS) is an inde-
sor, or related party advises the sponsoring or-
pendent organization within the IRS. We help
3. Limits on their holdings in any business
ganization about making a distribution which
taxpayers who are experiencing economic
enterprise,
results in a donor, donor advisor, or related party
harm, such as not being able to provide necessi-
4. Provisions that investments must not jeop- receiving (either directly or indirectly) a more
ties like housing, transportation, or food; taxpay-
ardize the carrying out of exempt pur- than incidental benefit, then such benefit is a
ers who are seeking help in resolving tax
poses, and prohibited benefit. The tax on prohibited benefits
problems with the IRS; and those who believe
applies to distributions occurring in tax years
that an IRS system or procedure is not working
5. Provisions to assure that expenditures fur-
beginning after August 17, 2006.
as it should. Here are seven things every tax-
ther the organizations exempt purposes.
payer should know about TAS:
Donor advisor. A donor advisor is any person
Violations of these provisions give rise to
appointed or designated by a donor to advise a
The Taxpayer Advocate Service is your
taxes and penalties against the private founda-
sponsoring organization on the distribution or
voice at the IRS.
tion and, in some cases, its managers, its sub-
investment of amounts held in the donors fund
stantial contributors, and certain related
Our service is free, confidential, and tai-
or account.
persons.
lored to meet your needs.
For more information on the excise taxes
Related party. A related party includes any
You may be eligible for our help if you
imposed on private foundations, see the Instruc-
family member or 35% controlled entity. See the
have tried to resolve your tax problem
tions for Form 4720 and the Instructions for
definition of those terms under Disqualified Per-
through normal IRS channels and have
Form 990-PF.
son.
gotten nowhere, or you believe an IRS
Tax on donor, donor advisor, or related per- procedure just isnt working as it should.
son. A tax of 125% of the benefit resulting
We help taxpayers whose problems are
from the distribution is imposed on both the party
Excise Taxes on Black
causing financial difficulty or significant
who advised as to the distribution (which might
cost, including the cost of professional
be a donor, donor advisor, or related party) and
Lung Benefit Trusts
representation. This includes businesses
the party who received such benefit (which
as well as individuals.
might be a donor, donor advisor, or related
If your organization makes any expenditures,
party). The advisor and the party who received Our employees know the IRS and how to
payments, or investments other than those de-
the benefit are jointly and severally liable for the navigate it. If you qualify for our help, well
scribed in chapter 4 under 501(c)(21) Black
tax. assign your case to an advocate who will
Lung Benefit Trusts, a tax equal to 10% of the
listen to your problem, help you under-
amount of such expenditures is imposed on that
Tax on fund managers. If a tax is imposed on
stand what needs to be done to resolve it,
trust. If there are any acts of self-dealing be-
a prohibited benefit received by a donor, donor
and stay with you every step of the way
tween the trust and a disqualified person, a tax
advisor, or related person, a tax of 10% of the
until your problem is resolved.
equal to 10% of the amount involved is imposed
amount of the prohibited benefit is imposed on
on the disqualified person. Both of these excise
any fund manager who agreed to the distribution We have at least one local taxpayer advo-
taxes are reported on Schedule A (Form
knowing that it would confer a prohibited benefit. cate in every state, the District of Colum-
990-BL). See the Form 990-BL instructions for
Any fund manager who took part in the distribu- bia, and Puerto Rico. You can call your
more information on these taxes and what has to
tion and is liable for the tax must pay the tax. The local advocate, whose number is in your
be filed, even if the trust is excepted from filing.
maximum amount of tax on all fund managers phone book, in Pub. 1546, Taxpayer Ad-
for any one taxable distribution is $10,000. If vocate ServiceYour Voice at the IRS,
more than one fund manager is liable for tax on and on our website at www.irs.gov/advo-
a taxable distribution, all such managers are cate. You can also call our toll-free line at
jointly and severally liable for the tax. 1-877-777-4778 or TTY/TDD
1-800-829-4059.
Exception. If a person engaged in an excess
You can learn about your rights and re- benefit transaction and received a prohibited
sponsibilities as a taxpayer by visiting our benefit for the same transaction, the person is
online tax toolkit at www.taxtoolkit.irs.gov. taxed under section 4958, and no tax is imposed
You can get updates on hot tax topics by under section 4967 for a prohibited benefit.
Page 62 Chapter 6 How To Get Tax Help
REL 00946
visiting our YouTube channel www.you- social security number, your filing status, security number, your filing status, and the
tube.com/tasta and our Facebook page at and the exact whole dollar amount of your exact whole dollar amount of your refund.
www.facebook.com/YourVoiceAtIRS, or refund. If you check the status of your refund and
by following our tweets at www.twitter. are not given the date it will be issued,
Download forms, including talking tax
com/YouVoiceatIRS.
please wait until the next week before
forms, instructions, and publications.
checking back.
Low Income Taxpayer Clinics (LITCs).
Order IRS products online.
Other refund information. To check the
The Low Income Taxpayer Clinic program
Research your tax questions online.
status of a prior year refund or amended
serves individuals who have a problem with the
return refund, call 1-800-829-1040.
IRS and whose income is below a certain level.
Search publications online by topic or
LITCs are independent from the IRS. Most
keyword.
Evaluating the quality of our telephone
LITCs can provide representation before the
Use the online Internal Revenue Code,
services. To ensure IRS representatives give
IRS or in court on audits, tax collection disputes,
Regulations, or other official guidance.
accurate, courteous, and professional answers,
and other issues for free or a small fee. If an
we use several methods to evaluate the quality
individuals native language is not English, some
View Internal Revenue Bulletins (IRBs)
of our telephone services. One method is for a clinics can provide multilingual information
published in the last few years.
second IRS representative to listen in on or about taxpayer rights and responsibilities. For
Figure your withholding allowances using
record random telephone calls. Another is to ask more information, see Publication 4134, Low
the withholding calculator online at www.
some callers to complete a short survey at the Income Taxpayer Clinic List. This publication is
irs.gov/individuals.
av ai l abl e at I RS. gov, by cal l i ng end of the call.
1-800-TAX-FORM (1-800-829-3676), or at your
Determine if Form 6251 must be filed by
Walk-in. Many products and services
local IRS office.
using our Alternative Minimum Tax (AMT)
are available on a walk-in basis.
Assistant.
Free tax services. Publication 910, IRS
Sign up to receive local and national tax Guide to Free Tax Services, is your guide to IRS
Products. You can walk in to many post
news by email. services and resources. Learn about free tax
offices, libraries, and IRS offices to pick up
information from the IRS, including publications,
Get information on starting and operating certain forms, instructions, and publica-
services, and education and assistance pro-
a small business. tions. Some IRS offices, libraries, grocery
grams. The publication also has an index of over
stores, copy centers, city and county gov-
100 TeleTax topics (recorded tax information)
ernment offices, credit unions, and office
you can listen to on the telephone. The majority
supply stores have a collection of products Phone. Many services are available by
of the information and services listed in this
available to print from a CD or photocopy phone.
publication are available to you free of charge. If
from reproducible proofs. Also, some IRS
there is a fee associated with a resource or
offices and libraries have the Internal Rev-
service, it is listed in the publication.
Ordering forms, instructions, and publica-
enue Code, regulations, Internal Revenue
Accessible versions of IRS published prod-
tions. Call 1-800-TAX FORM
Bulletins, and Cumulative Bulletins avail-
ucts are available on request in a variety of
(1-800-829-3676) to order current-year
able for research purposes.
alternative formats for people with disabilities.
forms, instructions, and publications, and
prior-year forms and instructions. You Services. You can walk in to your local
Free help with your return. Free help in pre-
should receive your order within 10 days. Taxpayer Assistance Center every busi-
paring your return is available nationwide from
ness day for personal, face-to-face tax
Asking tax questions. Call the IRS with IRS-trained volunteers. The Volunteer Income
help. An employee can explain IRS letters,
your tax questions at 1-800-829-1040. Tax Assistance (VITA) program is designed to
request adjustments to your tax account,
help low-income taxpayers and the Tax Coun-
Solving problems. You can get
or help you set up a payment plan. If you
seling for the Elderly (TCE) program is designed
face-to-face help solving tax problems
need to resolve a tax problem, have ques-
to assist taxpayers age 60 and older with their
every business day in IRS Taxpayer As-
tions about how the tax law applies to your
tax returns. Many VITA sites offer free electronic
sistance Centers. An employee can ex-
individual tax return, or you are more com-
filing and all volunteers will let you know about
plain IRS letters, request adjustments to
fortable talking with someone in person,
credits and deductions you may be entitled to
your account, or help you set up a pay-
visit your local Taxpayer Assistance
claim. To find the nearest VITA or TCE site, call
ment plan. Call your local Taxpayer Assis-
Center where you can spread out your
1-800-829-1040.
tance Center for an appointment. To find
records and talk with an IRS representa-
As part of the TCE program, AARP offers the
the number, go to www.irs.gov/localcon-
tive face-to-face. No appointment is nec-
Tax-Aide counseling program. To find the near-
tacts or look in the phone book under
essaryjust walk in. If you prefer, you est AARP Tax-Aide site, call 1-888-227-7669 or
United States Government, Internal Reve-
can call your local Center and leave a visit AARPs website at
nue Service.
message requesting an appointment to re- www.aarp.org/money/taxaide.
solve a tax account issue. A representa- For more information on these programs, go
TTY/TDD equipment. If you have access
tive will call you back within 2 business to IRS.gov and enter keyword VITA in the
to TTY/TDD equipment, call
upper right-hand corner. days to schedule an in-person appoint-
1-800-829-4059 to ask tax questions or to
ment at your convenience. If you have an
order forms and publications.
Internet. You can access the IRS web-
ongoing, complex tax account problem or
site at IRS.gov 24 hours a day, 7 days
TeleTax topics. Call 1-800-829-4477 to lis-
a special need, such as a disability, an
a week to:
ten to pre-recorded messages covering
appointment can be requested. All other
various tax topics.
E-file your return. Find out about commer-
issues will be handled without an appoint-
cial tax preparation and e-file services
ment. To find the number of your local
Refund information. To check the status of
available free to eligible taxpayers.
office, go to
your 2010 refund, call 1-800-829-1954 or
www.irs.gov/localcontacts or look in the
1-800-829-4477 (automated refund infor-
Check the status of your 2010 refund. Go
phone book under United States Govern-
mation 24 hours a day, 7 days a week).
to IRS.gov and click on Wheres My Re-
ment, Internal Revenue Service.
Wait at least 72 hours after the IRS ac- fund. Wait at least 72 hours after the IRS
knowledges receipt of your e-filed return, acknowledges receipt of your e-filed re-
or 3 to 4 weeks after mailing a paper re- Mail. You can send your order for turn, or 3 to 4 weeks after mailing a paper
turn. If you filed Form 8379 with your re- forms, instructions, and publications to return. If you filed Form 8379 with your
turn, wait 14 weeks (11 weeks if you filed the address below. You should receive return, wait 14 weeks (11 weeks if you
a response within 10 days after your request is electronically). Have your 2010 tax return filed electronically). Have your 2010 tax
return available so you can provide your available so you can provide your social received.
Chapter 6 How To Get Tax Help Page 63
REL 00947
Tax law frequently asked questions. Two releases during the year.
Internal Revenue Service The first release will ship the beginning
Tax Topics from the IRS telephone re-
1201 N. Mitsubishi Motorway of January 2011.
sponse system.
Bloomington, IL 61705-6613 The final release will ship the beginning
Internal Revenue CodeTitle 26 of the of March 2011.
DVD for tax products. You can order
U.S. Code.
Publication 1796, IRS Tax Products
Purchase the DVD from National Technical
Fill-in, print, and save features for most tax
DVD, and obtain:
Information Service (NTIS) at www.irs.gov/
forms.
cdorders for $30 (no handling fee) or call
Current-year forms, instructions, and pub-
Internal Revenue Bulletins. 1-877-233-6767 toll free to buy the DVD for $30
lications.
(plus a $6 handling fee).
Toll-free and email technical support.
Prior-year forms, instructions, and publica-
tions.
Tax Map: an electronic research tool and
finding aid.
REL 00948
Organization Reference Chart
Section of Application Annual return Contributions
1986 Code Description of organization General nature of activities Form No. 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
Unions) public purposes
501(c)(2) Title Holding Corporation For Holding title to property of an 1024 990
1
or 990-EZ
8
No
2
Exempt Organization exempt organization
501(c)(3) Religious, Educational, Charitable, Activities of nature implied by 1023 990
1
or 990-EZ
8
, Yes, generally
Scientific, Literary, Testing for Public description 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; 1024 990
1
or 990-EZ
8
No, generally
2, 3
Organizations, and Local charitable, educational, or recreational
Associations of Employees
501(c)(5) Labor, Agricultural, and Horticultural Educational or instructive, the 1024 990
1
or 990-EZ
8
No
2
Organizations purpose being to improve conditions of
work, and to improve products of
efficiency
501(c)(6) Business Leagues, Chambers of Improvement of business 1024 990
1
or 990-EZ
8
No
2
Commerce, Real Estate Boards, conditions of one or more lines of
etc. business
501(c)(7) Social and Recreational Clubs Pleasure, recreation, social activities 1024 990
1
or 990-EZ
8
No
2
501(c)(8) Fraternal Beneficiary Societies Lodge providing for payment of life, 1024 990
1
or 990-EZ
8
Yes, if for certain
and Associations sickness, accident or other benefits Sec. 501(c)(3)
to members purposes
501(c)(9) Voluntary Employees Beneficiary Providing for payment of life, sickness, 1024 990
1
or 990-EZ
8
No
2
Associations accident, or other benefits to members
501(c)(10) Domestic Fraternal Societies Lodge devoting its net earnings to 1024 990
1
or 990-EZ
8
Yes, if for certain
and Associations charitable, fraternal, and other Sec. 501(c)(3)
specified purposes. No life, sickness, or purposes
accident benefits to members
501(c)(11) Teachers Retirement Fund Teachers association for payment of No Form
6
990
1
or 990-EZ
8
No
2
Associations retirement benefits
501(c)(12) Benevolent Life Insurance Activities of a mutually beneficial 1024 990
1
or 990-EZ
8
No
2
Associations, Mutual Ditch or nature similar to those implied by the
Irrigation Companies, Mutual or description of class of organization
Cooperative Telephone Companies,
etc.
501(c)(13) Cemetery Companies Burials and incidental activities 1024 990
1
or 990-EZ
8
Yes, generally
501(c)(14) State-Chartered Credit Unions, Loans to members No Form
6
990
1
or 990-EZ
8
No
2
Mutual Reserve Funds
501(c)(15) Mutual Insurance Companies or Providing insurance to members 1024 990
1
or 990-EZ
8
No
2
Associations substantially at cost
501(c)(16) Cooperative Organizations to Financing crop operations in conjunction Form 1120-C
6
990
1
or 990-EZ
8
No
2
Finance Crop Operations with activities of a
marketing or purchasing association
501(c)(17) Supplemental Unemployment Provides for payment of 1024 990
1
or 990-EZ
8
No
2
Benefit Trusts supplemental unemployment
compensation benefits
501(c)(18) Employee Funded Pension Trust Payment of benefits under a No Form
6
990
1
or 990-EZ
8
No
2
(created before June 25, 1959) pension plan funded by employees
501(c)(19) Post or Organization of Past or Activities implied by nature of 1024 990
1
or 990-EZ
8
No, generally
7
Present Members of the Armed organization
Forces
501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to No Form
6
990-BL No
4
satisfy their liability for disability or
death due to black lung diseases
Chapter 6 How To Get Tax Help Page 65
REL 00949
Section of Application Annual return Contributions
1986 Code Description of organization General nature of activities Form No. required to be allowable
filed
501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the No Form
6
990 or 990-EZ
8
No
5
liability of employers withdrawing from
a multi-employer pension fund
501(c)(23) Veterans Organization (created To provide insurance and other No Form
6
990 or 990-EZ
8
No, generally
7
before 1880) benefits to veterans
501(c)(25) Title Holding Corporations or Trusts Holding title and paying over 1024 990 or 990-EZ No
with Multiple Parents income from property to 35 or fewer
parents or beneficiaries
501(c)(26) State-Sponsored Organization Provides health care coverage to No Form
6
990
1
or 990-EZ
8
No
Providing Health Coverage for high-risk individuals
High-Risk Individuals
501(c)(27) State-Sponsored Workers Reimburses members for losses No Form
6
990
1
or 990-EZ
8
No
Compensation Reinsurance under workers compensation acts
Organization
501(c)(28) National Railroad Retirement Manages and invests the assets of the No Form None No
11
Investment Trust Railroad Retirement Account
501(d) Religious and Apostolic Associations Regular business activities. No Form 1065
9
No
2
Communal religious community
501(e) Cooperative Hospital Service Performs cooperative services for 1023 990
1
or 990-EZ
8
Yes
Organizations hospitals
501(f) Cooperative Service Organizations Performs collective investment 1023 990
1
or 990-EZ
8
Yes
of Operating Educational services for educational organizations
Organizations
501(k) Child Care Organizations Provides cares for children 1023 990 or 990-EZ
8
Yes
501(n) Charitable Risk Pools Pools certain insurance risks of 1023 990
1
or 990-EZ
8
Yes
501(c)(3)
501(q) Credit Counseling Organization Credit counseling services 1023 1023
12
No
521(a) Farmers Cooperative Associations Cooperative marketing and 1028 990-C No
purchasing for agricultural procedures
527 Political organizations A party, committee, fund, 8871 1120-POL
10
No
association, etc., that directly or 990 or 990-EZ
8
indirectly accepts contributions or
makes expenditures for political
campaigns
1
For exceptions to the filing requirement, see chapter 2 and the form
6
Application is by letter to the address shown on Form 8718. A copy of the
instructions. Note: For annual tax periods beginning after 2006, most organizing document should be attached and the letter should be signed by
tax-exempt organizations, other than churches, are required to file an annual an officer.
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
7
Contributions to these organizations are deductible only if 90% or more of
to file an annual return or submit an annual notice as required for 3 the organizations members are war veterans.
consecutive years, it will automatically lose their tax-exempt status
8
For limits on the use of Form 990-EZ, see chapter 2 and the general
2
An organization exempt under a subsection of Code sec. 501 other than instructions for Form 990-EZ (or Form 990).
501(c)(3) can establish a charitable fund, contributions to which are
deductible. Such a fund must itself meet the requirements of section
9
Although the organization files a partnership return, all distributions are
501(c)(3) and the related notice requirements of section 508(a). deemed dividends. The members are not entitled to pass through treatment
of the organizations income or expenses.
3
Contributions to volunteer fire companies and similar organizations are
deductible, but only if made for exclusively public purposes.
10
Form 1120-POL is required only if the organization has taxable income as
defined in Code section 527(c).
4
Deductible as a business expense to the extent allowed by Code section
192.
11
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,
5
Deductible as a business expense to the extent allowed by Code section and their titles, compensation, and hours devoted to their positions (Part VII
194A. of Form 990) and complete Tax exempt status (Item I in the Heading of Form
990).
12
See Code section 501(q) if the organization provides credit counseling
services and seeks recognition of exemption under section 501(c)(4). Use
Form 1024 if applying for recognition under Code section 501(c)(4).
REL 00950
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.
Contributions, Filing requirements . . . . . . . . . . 9 A H
charitable . . . . . . . . . . . . . 15, 20 Annual information
Acknowledgment of Health coverage
returns . . . . . . . . . . . . . . . . . . . 9 Court appeals . . . . . . . . . . . . . . . . 6 contributions . . . . . . . . . . . . . 15 organization . . . . . . . . . . . . . . 56
Donee information
Credit union . . . . . . . . . . . . . . . . . 53 Advance ruling . . . . . . . . . . . . . . . 5 Help (See Tax help)
return . . . . . . . . . . . . . . . . . . . 14
Adverse determination . . . . . . . 5 High-risk health coverage
Due date . . . . . . . . . . . . . . . . . . 12
organization . . . . . . . . . . . . . . 56 Aged, home for . . . . . . . . . . . . . . 27
D Employment tax . . . . . . . . . . . . 11
Home for the aged . . . . . . . . . . 27 Agricultural organization . . . . 47
Determination letter . . . . . . . . . . 5 Excise tax . . . . . . . . . . . . . 29, 62
Homeowners Airport . . . . . . . . . . . . . . . . . . . . . . 46
Political organization. . . . . . . . 12 Disclosures, required . . . . . . . 14
association . . . . . . . . . . . . . . . 46
Alumni association . . . . . . . . . . 24
Private foundations . . . . . . . . . 10 Dues used for lobbying . . . . . 19
Horticultural
Amateur athletic
Unrelated business Nondeductible
organization . . . . . . . . . . . . . . 47
organizations . . . . . . . . . . . . . 28
income . . . . . . . . . . . . . . . . . . 11 contributions . . . . . . . . . . . . . 18
Hospital . . . . . . . . . . . . . . . . . 26, 30
Animals, prevention of cruelty
Quid pro quo Form 990-N. . . . . . . . . . . . . . . . . . 10
to . . . . . . . . . . . . . . . . . . . . . . . . . 28
contributions . . . . . . . . . . . . . 14
Forms . . . . . . . . . . . . . . . . . . . . . . . . 3
Appeal procedures . . . . . . . . . . . 6
Services available from
990 . . . . . . . . . . . . . . 8, 10, 17, 44
I
Application procedures . . . . 3, 4
government . . . . . . . . . . . . . . 19
990-BL . . . . . . . . . . . . . . . . . . 9, 55
Inactive organization . . . . . . . . 19
Bylaws . . . . . . . . . . . . . . . . . . . . . 4
Dispositions of donated
990-EZ . . . . . . . . . . . . . . . . . . . . 10
Industrial development . . . . . . 46
Conformed copy . . . . . . . . . . . . 4
property. . . . . . . . . . . . . . . . . . . 14
990-PF . . . . . . . . . . . . . 10, 29, 62
Instrumentalities . . . . . . . . . . . . 20
Description of activities . . . . . . 4
Disqualified persons . . . . . . . . 40 990-T . . . . . . . . . . . . . . . . . . . . . . 11
Insurance, organizations
Employer identification
Domestic fraternal 1023 . . . 3, 6, 7, 17, 21, 22, 24,
providing . . . . . . . . . . . . . . . . . 26
number . . . . . . . . . . . . . . . . . . . 4
society . . . . . . . . . . . . . . . . . . . . 49 28, 44, 46
Integral-part test . . . . . . . . . . . . 41
Financial data . . . . . . . . . . . . . . . 4
1024 . . . . . . 3, 4, 17, 45, 47, 48, Donor advised funds:
Organizing documents . . . . . . . 4
49, 50, 52, 54, 55, 56 Excess benefit
Aquatic resources . . . . . . . . . . . 47 1040 . . . . . . . . . . . . . . . . . . . . . . 12 transaction . . . . . . . . . . . . . . . 58
L
Articles of organization . . . . . 23 1065 . . . . . . . . . . . . . . . . . . . . . . . 9
Dues used for political or
Labor organization . . . . . . 19, 46
1120POL . . . . . . . . . . . . . . . . 12 Assistance (See Tax help) legislative activities . . . . . . 19,
Law, public interest . . . . . . . . . 27
1128 . . . . . . . . . . . . . . . . . . . . . . 20 47 Athletic organization . . . . 24, 28
Legislative activity . . . . . . 44, 47
2848 . . . . . . . . . . . . . . . . . . . . . 5, 6
Attorneys fees . . . . . . . . . . . . . . 27
Listed transaction . . . . . . . . . . . 57
4720 . . . . . . . . . . . . . . . . . . . . . . 45
Attribution, special rules . . . . 42
Literary organizations . . . . . . . 28
E
5578 . . . . . . . . . . . . . . . . . . . . . . 25
Loans, organizations
Educational 5768 . . . . . . . . . . . . . . . . . . . . . . 44
providing . . . . . . . . . . . . . . . . . 27
organizations . . . . . . . . . 24, 29 6069 . . . . . . . . . . . . . . . . . . . . . . 55 B
Lobbying expenditures . . . . . . 44
Employees association . . . . . 49 8274 . . . . . . . . . . . . . . . . . . . . . . 12
Black lung benefit trust . . . . . 55
Local benevolent life insurance
8282 . . . . . . . . . . . . . . . . . . . . . . 14 Employment taxes . . . . . . . . . . 11
Board of trade . . . . . . . . . . . . . . . 47
associations . . . . . . . . . . . . . . 52
8283 . . . . . . . . . . . . . . . . . . . . . . 14
Endowment fund . . . . . . . . . . . . 30
Bureau defined . . . . . . . . . . . . . . 38
Local employees 8300 . . . . . . . . . . . . . . . . . . . . . . 16
Estimated tax . . . . . . . . . . . . . . . 11
Burial benefit insurance . . . . . 52
association . . . . . . . . . . . . . . . 49
8718 . . . . . . . . . . . . . . . . . . . . . 3, 5
Excess benefit
Business income,
Lodge system . . . . . . . . . . . . . . . 49 8821 . . . . . . . . . . . . . . . . . . . . . . . 6
transaction . . . . . . . . . . . . . . . . 58
unrelated. . . . . . . . . . . . . . . . . . 11
8871 . . . . . . . . . . . . . . . . . . 12, 17
Disqualified person . . . . . 58, 59
Business league . . . . . . . . . . . . 47
8872 . . . . . . . . . . . . . . . . . . 12, 17
Controlled entity, 35% . . . . 59
M
SS-4 . . . . . . . . . . . . . . . . . . . . . 4, 7
Family members . . . . . . . . . 59
Medical research
W2 . . . . . . . . . . . . . . . . . . . . . . 12
Substantial influence . . . . . 59 C
organization . . . . . . . . . . . . . . 30
Fraternal beneficiary
Disregarded benefits . . . . . . . 60
Cemetery company . . . . . . . . . . 52
Medicare and Medicaid
society . . . . . . . . . . . . . . . . . . . . 49
Donor advised funds . . . . 58, 59
Chamber of commerce . . . . . . 47
payments . . . . . . . . . . . . . . . . . 33
Fraternal societies . . . . . . 19, 49 Excise tax . . . . . . . . . . . . . . . . . 58
Change in legal
Membership fee . . . . . . . . . 32, 38
Initial contracts . . . . . . . . . . . . . 61 Free tax services . . . . . . . . . . . . 62
structure . . . . . . . . . . . . . . . . . . 19
Modification of exemption . . . . 5
Reasonable
Funeral benefit
Charitable contributions . . . . 15,
More information (See Tax help) compensation . . . . . . . . . . . . 60
insurance . . . . . . . . . . . . . . . . . 52
20
Mutual financial Rebuttable presumption . . . . 60
Charitable organization . . . . 20,
organization . . . . . . . . . . . . . . 53
Excise tax:
26
G
Mutual or cooperative Black lung benefit trust . . . . . 55
Charitable risk pools . . . . . . . . 26
Gifts and contributions, public association . . . . . . . . . . . . . . . 52 Lobbying expenditures . . . . . . 45
Child care organization . . . . . . 20
charity . . . . . . . . . . . . . . . . . . . . 37 Political expenditures . . . . . . . 45
Children, prevention of cruelty
Private foundations . . . . . 29, 62 Governmental unit . . . . . . . . . . 30
to . . . . . . . . . . . . . . . . . . . . . . . . . 28
N
Exempt function. . . . . . . . . . . . . 12 Grant:
Church . . . . . . . . . . . . . . . . . . . . . . 27
Nursing bureau . . . . . . . . . . . . . 27
Distinguished from gross Exempt purposes . . . . . . . . . . . 20
Integrated auxiliaries . . . . . . . 27
receipts . . . . . . . . . . . . . . . . . . 38
Exemption for terrorist
Civic leagues . . . . . . . . . . . . . . . . 45
Exclusion for unusual
organization . . . . . . . . . . . . . . . 3
O
Clinic. . . . . . . . . . . . . . . . . . . . . . . . 27
grant . . . . . . . . . . . . . . . . 33, 36
Extensions of time . . . . . . . . . . 21
One-third support test . . . . . . . 30
College bookstore, From public charity . . . . . 33, 38
Organization assets . . . . . . . . . 23
restaurant . . . . . . . . . . . . . . . . . 24
Grantor and contributor,
Dedication . . . . . . . . . . . . . . . . . 23 Comments . . . . . . . . . . . . . . . . . . . 3
F reliance on ruling . . . . . . . . . 43
Community association . . . . . 46 Distribution . . . . . . . . . . . . . . . . 23 Facts and circumstances Gross receipts from
Community nursing test . . . . . . . . . . . . . . . . . . . . . . . 30 nonmembership Organization Reference
bureau . . . . . . . . . . . . . . . . . . . . 27 sources . . . . . . . . . . . . . . . . . . . 48 Chart . . . . . . . . . . . . . . . . . . . . . . 65 Fair market value, estimate
Community trust . . . . . . . . . . . . 35 of . . . . . . . . . . . . . . . . . . . . . . . . . 15 Group exemption letter . . . . . . . 7 Organizational changes . . . . . 19
Publication 557 (October 2010) Page 67
REL 00951
Section 509(a)(4) . . . . . . . . . . . 43 Charitable . . . . . . . . . . . . . . . . . 26 Taxpayer Advocate . . . . . . . . . . 62 P
Support test . . . . . . . . . . . . 30, 36 Educational . . . . . . . . . . . . . . . . 24 Technical advice . . . . . . . . . . . . . 6 Penalties . . . . . . . . . . . . . . . . . . . . 11
Literary . . . . . . . . . . . . . . . . . . . . 28 Public inspection: Failure to allow public Testing for public safety . . . . . 43
Prevention of cruelty . . . . . . . . 28 Annual return . . . . . . . . . . . . . . 17 inspection . . . . . . . . . . . . . . . 18
Title-holding corporation . . . . 55
Private foundations . . . . . . . . . 28 Exemption applications . . . . . 16 Failure to disclose . . . . . . 15, 19
TTY/TDD information . . . . . . . . 62
Public charities . . . . . . . . . . . . . 29 Forms 8871 and 8872 . . . . . . 16 Failure to file . . . . . . . . . . . . . . . 11
Qualifications . . . . . . . . . . . . . . 20
Publications (See Tax help) Perpetual care
U
Religious . . . . . . . . . . . . . . . . . . 27
organization . . . . . . . . . . . . . . 53 Public-interest law firm. . . . . . 27
Unemployment benefit Scientific . . . . . . . . . . . . . . . . . . . 28
Political activity . . . . . . 19, 21, 46 Publicly supported
trust . . . . . . . . . . . . . . . . . . . . . . 50
Single entity . . . . . . . . . . . . . . . . . 35
organization . . . . . . . . . . . . . . 30 Political organization:
Unrelated business
Social clubs . . . . . . . . . . . . . 19, 48
Attraction of public Income tax return . . . . . . . . . . 12
income . . . . . . . . . . . . . . . . . . . . 11
Social welfare support . . . . . . . . . . . . . . . . . . 30 Taxable income . . . . . . . . . . . . 12
Unusual grants . . . . . . . . . . 33, 36
organization . . . . . . . . . . 19, 45 Ten-percent-of-support . . . . . 30
Power of attorney . . . . . . . . . . . . 5
User fee . . . . . . . . . . . . . . . . . . . . 3, 5
Specified organizations . . . . . 40
Preferred stock . . . . . . . . . . . . . . 53
Sports organization,
Prevention of cruelty to children R
amateur . . . . . . . . . . . . . . . . . . . 28
V or animals . . . . . . . . . . . . . . . . 28
Racial composition . . . . . . . . . . 24
State-sponsored . . . . . . . . . . . . 56
Veterans organization . . . . . . 54 Private delivery service . . . . . 21
Racially nondiscriminatory
High-risk health coverage
Voluntary employees Private foundations . . . . . . . . . 28 policy . . . . . . . . . . . . . . . . . . . . . 24
organization . . . . . . . . . . . . . 56
beneficiary
Private operating Real estate board . . . . . . . . . . . 47
Workers compensation
association . . . . . . . . . . . . . . . 50
foundation . . . . . . . . . . . . . . . . 43
Recognition of exemption,
reinsurance
Volunteer fire company . . . . . 46
Private school . . . . . . . . . . . . . . . 24 application . . . . . . . . . . . . . . . . 21
organization . . . . . . . . . . . . . 56
Prohibited tax shelter Religious organizations . . . . . 27
Stock or commodity
transactions:
Requests other than W
exchange . . . . . . . . . . . . . . . . . 47
Entity managers . . . . . . . . . . . . 57
applications . . . . . . . . . . . . . . . . 5 War veterans
Suggestions . . . . . . . . . . . . . . . . . 3
Entity managers excise
Responsiveness test . . . . . . . . 41 organization . . . . . . . . . . . . . . 54
Supplemental unemployment
tax . . . . . . . . . . . . . . . . . . . . . . 57
Revocation of exemption . . . . . 5 Withdrawal of application . . . . 4
benefit trust . . . . . . . . . . . . . . . 50
Listed transaction . . . . . . . . . . 57
Ruling letter . . . . . . . . . . . . . . . . . . 5 Withholding information from
Support . . . . . . . . . . . . . . . . . 32, 33
Prohibited reportable
public . . . . . . . . . . . . . . . . . . . . . . 4
Support test . . . . . . . . . . . . . . . . . 30
transactions . . . . . . . . . . . . . 57
Workers compensation
Facts and S Subsequently listed
reinsurance
circumstances . . . . . . . . . . . 30
transaction . . . . . . . . . . . . . . . 57 Scholarship:
organization . . . . . . . . . . . . . . 56
One-third . . . . . . . . . . . . . . . . . . 30
Tax-exempt entities . . . . . . . . 57 Private school . . . . . . . . . . . . . . 25
Public charity . . . . . . . . . . . . . . 36
Public charity: Scholarships . . . . . . . . . . . . . . . . 26 I
Supporting organization. . . . . 58
Gifts and contributions . . . . . . 37
School, private . . . . . . . . . . . . . . 24
Grant from . . . . . . . . . . . . . . . . . 38
Scientific organizations . . . . . 28
Section 509(a)(1) . . . . . . . . . . . 29
T Section 501(c)(3) organizations:
Section 509(a)(2) . . . . . . . . . . . 35
Amateur athletic . . . . . . . . . . . . 28 Tax help . . . . . . . . . . . . . . . . . . . . . 62
Section 509(a)(3) . . . . . . . . . . . 38
REL 00952
Appendix. Sample Articles of Organization
The following are examples of a charter (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 for the special provisions required in a private foundations 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 are
not 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 .
REL 00953
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.
REL 00954
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 do not
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 would not 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.
REL 00955
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.
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
REL 00956
Group Exemptions
Tax Exempt and Government Entities Division
What is a group exemption letter?
The IRS sometimes recognizes a group of or-
ganizations as tax-exempt if they are affiliated
with a central organization. This avoids the
need for each of the organizations to apply
for exemption individually. A group exemp-
tion letter has the same effect as an individual
exemption letter except that it applies to more
than one organization.
What is the reason for group exemptions?
Group exemptions are an administrative
convenience for both the IRS and organiza-
tions with many affiliated organizations. Sub-
ordinates in a group exemption do not have
to file, and the IRS does not have to process,
separate applications for exemption. Conse-
quently, subordinates do not receive individual
exemption letters.
What types of organizations can qualify
for group exemptions?
Exempt organizations that have or plan to
have related organizations that are very
similar to each other may apply for a group
exemption.
What are central and subordinate
organizations?
Groups of organizations with group exemption
letters have a "head" or main organization,
referred to as a central organization. The
central organization generally supervises or
controls many chapters, called subordinate
organizations. The subordinate organizations
typically have similar structures, purposes,
and activities.
Example: X is a national, fraternal
organization exempt under Internal
Revenue Code ("IRC") section 501 (c)(8).
X has several state and hundreds of
local chapters that have nearly identical
articles of incorporation, by-laws, pur-
poses, and activities. As the national
organization, X is considered the central
organization: the state and local chap-
ters are subordinate organizations and
are covered under X's group exemption.
What criteria must organizations meet to
be included in a group exemption?
To qualify for a group exemption, the central
organization and its subordinates must have a
defined relationship. Subordinates must be:
Affiliated with the central organization;
Subject to the central organization's gen-
eral supervision or control; and
Exempt under the same paragraph of
IRC 501 (c), though not necessarily the
paragraph under which the central orga-
nization is exempt.
Rev. Proc. 80-27, 1980-1 C.B. 677 sets forth
additional criteria.
Must the central organization be
recognized by the IRS as tax-exempt
before the organization can obtain a
group exemption?
No. A central organization may submit its re-
quest for a group exemption at the same time
it submits its exemption application on Form
1023 or Form 1024. Although churches are
not required to apply for recognition of their
own status in order to be tax-exempt, under
the procedures for group rulings, a church
REL 00957
must request recognition of its own exempt
status in order to be the central organization
in a group ruling.
Are there any special rules for churches?
With limited exceptions, churches are subject
to the same general requirements relating to
group rulings as other organizations. How-
ever, churches are not required to file annual
updates notifying the IRS of changes in the
composition of the group.
Where does a central organization apply
for exemption and submit a request for a
group exemption?
A central organization sends its application for
exemption, the request for a group exemption,
and the required user fee, to:
PO. Box 192
Covington, KY 41012-0192
Or, if using express mail or a delivery service,
to:
201 West Rivercenter Blvd.
Attn: Extracting Stop 312
Covington, KY 41011
What must a request for a group
exemption contain?
The central organization submits a letter to
the IRS on behalf of itself and its subordi-
nates. The letter includes:
a. Information verifying the existence of the
required relationship;
b. A sample copy of a uniform governing in-
strument (such as a charter, trust indenture,
articles of association, etc.) adopted by the
subordinates;
c. A detailed description of the purposes and
activities of the subordinates including the
sources of receipts and the nature of expen-
ditures;
d. An affirmation by a principal officer that,
to the best of the officer's knowledge, the
purposes and activities of the subordinates
are as set forth in (b) and (c) above;
e. A statement that each subordinate to be
included in the group exemption letter has
furnished written authorization to the central
organization;
f. A list of subordinates to be included in the
group exemption letter to which the IRS has
issued an outstanding ruling or determina-
tion letter relating to exemption;
g. If the application for a group exemption
letter involves IRC 501(c)(3), an affirmation
to the effect that, to the best of the officer's
knowledge and belief, no subordinate to be
included in the group exemption letter is a
private foundation as defined in IRC 509(a);
h. For each subordinate that is a school claim-
ing exemption under IRC 501(c)(3), the
information reqUired by Rev. Proc. 75-50,
1975-2 C.B, 834 and Rev. Rul. 71-447,
1971-2C.B. 230; and
i. A list of the names, mailing addresses
(inclUding zip code), actual addresses (if dif-
ferent), and employer identification numbers
of subordinates to be included in the group
exemption letter. A current directory of
subordinates may be furnished in lieu of the
list if it includes the required information and
if the subordinates not to be included in the
group exemption letter are identified.
The rules for applying for a group exemption
are set forth in Rev. Proc, 80-27, 1980-1 C,B.
677.
REL 00958
How does the group exemption process
work?
Upon receipt of an application Form 1023
or 1024 and a request for group exemption,
the IRS first determines whether the central
organization and the existing subordinates
qualify for tax exemption. Once the IRS
grants the exemption, the central organiza-
tion is responsible for: (1) ensuring that its
current subordinates continue to qualify to
be exempt; (2) verifying that any new sub-
ordinates are exempt; and (3) updating the
IRS on an annual basis of new subordinates,
subordinates no longer to be included, and
subordinates that have changed their names
or addresses.
What is included in an annual update?
Annual updates must contain the following
information:
a. Information about changes in purposes,
character, or method of operation of sub-
ordinates included in the group exemption
letter.
b. Lists of :
1. subordinates that have changed their
names or addresses during the year;
2. subordinates no longer to be included
in the group exemption letter because
they have ceased to exist, disaffiliated,
or withdrawn their authorization to the
central organization; and
3. subordinates to be added to the group
exemption letter because they are
newly organized or affiliated or have
newly authorized the central organiza-
tion to include them.
Each list must show the names, mailing
address (including zip codes), actual ad-
dress if different, and employer identifica-
tion numbers of the affected subordinates.
An annotated directory of subordinates will
not be accepted for this purpose. If none
of these changes occurred, the central or-
ganization must submit a statement to that
effect.
c. The same information about new subordi-
nates that was required in the initial re-
quest. If a new subordinate does not differ
in any material respects from the subor-
dinates included in the original request,
however, a statement to this effect may be
submitted in lieu of detailed information.
Where does a central organization
submit an annual update?
Annual updates go to the Ogden Service
Center, Mail Stop 6271, Ogden, UT 84404-
4749. Six months before the update is due,
the IRS sends the central organization a list
of currently listed subordinates, sometimes
called List of Parent and Subsidiary Ac-
counts.
What are the filing requirements
for organizations that hold group
exemptions?
A group exemption letter does not change
the filing requirements for exempt organiza-
tions. The central organization and the sub-
ordinates must file Forms 990 (or 990-EZ),
unless they meet a filing exception. If it is
required to file an annual return, the central
organization must file its own separate return
but may also file a group return on behalf of
some or all of its subordinates. If the central
organization files on behalf of some of its
subordinates, rather than all, it must attach a
list of the subordinates included in the return.
REL 00959
How do I verify that an organization is
included as a subordinate in a group
exemption ruling?
The central organization that holds a group
exemption (rather than the IRS) determines
which organizations are included as sub-
ordinates under its group exemption ruling.
Therefore, you can verify that an organiza-
tion is a subordinate under a group exemp-
tion ruling by consulting the official subordi-
nate listing approved by the central organiza-
tion or by contacting the central organization
directly. You may use either method to
verify that an organization is a subordinate
under a group exemption ruling.
How do donors verify that contributions
are deductible under section 170 with
respect to a subordinate organization
in a section 501(c)(3) group exemption
ruling?
Donors should consult IRS Publication 78,
Cumulative List of Organizations described
in Section 170(c) of the Internal Revenue
Code of 1986, or obtain a copy of the group
exemption letter from the central organiza-
tion. The central organization's listing in
Publication 78 will indicate that contributions
to its subordinate organizations covered by
the group exemption ruling are also deduct-
ible, even though most subordinate organiza-
tions are not separately listed in Publication
78 or on the EO Business Master File. Do-
nors should then verify with the central orga-
nization, by either of the methods indicated
above, whether the particular subordinate is
included in the central organization's group
ruling. The subordinate organization need
not itself be listed in Publication 78 or on the
EO Business Master File. Donors may rely
upon central organization verification with
respect to deductibility of contributions to
subordinates covered in a section 501 (c)(3)
group exemption ruling.
Where can an organization get additional
information?
You can get more information about group
exemptions and the group ruling process
from the IRS Exempt Organizations Division:
EO Web Site [www.irs.gov/eol
Publication 557, Tax-Exempt Status for
Your Organization.
EO Customer Account Services
You may direct questions about group
exemptions to the IRS Tax Exempt and
Government Entities Customer Account
Services at (877) 829-5500 (toll-free
number).
If you prefer to write, you may write us at:
Exempt Organizations Determinations
P.O. Box 2508
Cincinnati, OH 45201
~ S
Department of the Treasury
www.lrs.gov
Publication 4573 (Rev. 6-2007)
Calalog Number 49351 Q
REL 00960
-------------------------------
--------------------------------
Governance Check Sheet
This check sheet is to be IIsed by EO Reve/ll/e Agents in the examination ofI. R. C. 50! (c)(3) public charities. Please complete all parts of this check sheet.
Part 1 - Revenue Agent and Exempt Organization Information
I. Agent Name I Group Number
2. Organiz?ltion Name I
r-------------------------------
3. EIN I
4. Tax Pericd(s) Examined I
5. Form Being Examined I
6. Foundation Code 1-----------------------------------------
Part 2 - Governing Body and Management
7. Does the organization have a written mission statement that articulates its current I.R.C. 50 I(c)(3) purpose(s)?
Select on e of the options.
8. Do the organization's bylaws set forth the following information for the members of the governing body and the organization's
officers? Select one of the options from each of the drop down boxes.
Compositi on 1 Duties I Qualifications I Voting Rights I
9. Have copies of the most recent versions of the organization's articles and bylaws been provided to the following? Select all that apply.
I All Board Members I Only Voting Board Members I General Public (by request) I General Public (online) 1- Not Provided
10. At the beginning of the primary year under examination, what was the number of board members with voting
rights? Enter a whole number.
I Ia. How often did a quorum of voting board members meet during the primary year under examination? Enter a
whole number.
II b. How often did the full board meet during the primary year under examination? Select one of the options.
12. Did the n umber of meetings referred in Ita and 11 b meet or exceed the meeting requirements set forth in the
organization's bylaws? Select one of the options.
Part 3 - Compensation
13. Are compensation arrangements for all officers, directors, trustees, and key employees approved in advance by
an authorized body of the organization composed of individuals with no conflict of interest with respect to
the compensation arrangement? Select one of the options.
14a. Does the authorized body rely upon comparability data in making compensation determinations? Select one
of the options.
14b. If "Always" or "Sometimes" for 14a, select the comparability data considered by the organization? Select all that apply.
r- .. Non-Profit Entities Not ..
/ Exempt OrganizatIOns I EFT I Governmental Entities I For-Profit EntIties I Other
xempt rom ax
14c. 1f the "Other" box is checked for 14b, provide a brief explanation of the other source. I
15. Is the basis for all compensation determinations contemporaneously documented. Select one of the options.
Part 4 - Organizational Control
16a. Did any of the organization's voting board members have a family relationship and/or outside business
relationship with any other voting or non-voting board member, officer, director, trustee, or key
employee? Select one of the options.
16b. If YES to 16a, list the number of relationships between the officers, directors, trustees, or key employees.
16c. Numher with Family Relationships I Number with Business Relationships I Number with Both Relationships
Total Number of Relationships (should equal the amount listed in 16b)
10
17. Does effecti ve control of the organization rest with a single or select few individuals? Select one of the options. I
Form 14114 (12-2009) Catalog Number 54282M
pUblish.no.irs.gov Department of the Treasury - Internal Revenue Service
REL 00961
Part 5 - Conflict of Interest
18a. Does the organization have a written conflict of interest policy? Select one of the options.
18b. If YES to 18a, does the policy address recusals? Select one of the options.
18c. If YES to I8a, does the policy require annual written disclosures of conflicts of interest? Select one of the
options.
ISd. If YES to 18a, during the primary year under examination, if any actual or potential conflicts of interest were
disclosed, was the organization's conflict of interest policy adhered to? Select one of the options.
Part 6 - Financial Oversight
19. Are there systems or procedures in place intended to make sure assets are properly used, consistent with the
organization's mission? Select one of the options.
20a. How often did the organization provide board members with written reports of the organization's financial
activities? Select one of the options.
20b. How often did the board discuss/consider reports of the organization's financial activities? Select one of
the options.
21. Prior to filing, was the Form 990 reviewed by the full board and/or a designated committee? Select one
of the options.
22a. During the primary year under examination, was an independent accountant's report prepared? Select one
of the options.
22b. If YES to 22a, was the accountant's report discussed/considered by the full board and/or a designated
committee? Select one of the options.
23a. Was a management letter prepared by the independent accountant? Select one of the options.
23b. If YES to 23a, was the management letter reviewed by the full board and/or a designated committee?
Select one of the options.
23c. If YES to 23a, did the organization adopt any of the recommendations contained in the management letter?
Part 7 - Document Retention
24a. Does the organization have a written policy for document retention and destruction? Select one of the options. I
24b. If YES to 24a, does the organization adhere to its written policy for document retention and destruction?
25. Does the board contemporaneously document its meetings and retain this documentation? Select one of the
options.
26. Was your examination hindered by a lack of necessary documentation? Select one of the options.
Part 8 - Disposition
27. Examination Disposal Code for Primary Retum
28. Principal Issue Codes for Primary Return
First Issue
Second Issue
Third Issue
Fourth Issue
Submit Form .I
Form 14114 (12-2009) Catalog Number 54282M
pUblish.no.irs,gov Department of the Treasury - Internal Revenue Service
REL 00962
Table 3. Form 990 Returns of 501 (c)(3)-(9) Organizations: Balance Sheet and Income Statement Items, by Code Section, Tax
Year 2008
[All figures are estimates based on samples-money amounts are In thousands of dollarsl
Internal Revenue Code Section
Ilem
501(e){3) PI 501(eX4) 501(e)(5) 501(eX6) 501(e)(7) 501(eX6) 501(e)(9)
(1) (2) (3) (4) (5) (6) (7)
Number of return.
..
148,821 9,316 8,618 13,076 7,851 2,471 4,813
Total a...ta 2,464,425,896 90,215,515 28,054,220 57,293.124 22,227,439 98,601,263 125,383.807
Cash - non-Interest bearing 56,150.449 2.601.059 1.741.005 2.672,141 909,619 370.119 2,690,268
SaVings and temporary cash ,nvestments 179,666,433 9,190.332 6.439,311 10.066.417 1,501,271 3,459.722 16.696,633
Pledges and grants receIvable 66.577.163 303.746 13.124 497.164 12.276 '13,249 161.035
Accounts recelvabl-e 126.843,041 5.883.244 1.062.202 2.860.622 1.187.488 225.989 6.594.270
ReceIVables from officers, etc. 734.481 168.483 1.735 86.453 3.302 9,187 3,263
Recer .... ables from disqualified persons 500.628 0 112
441 5 0 0
Notes and loans receivables 103.760,470 28.962,038 386,172 1,956,376 147,777 1.660,523 96,274
InventOries ror sale or use 15.073.566 1.036.919 47,649 229,834 261,172 27,729 7,650
PrepaId expenses or deferred charges 16.916,696 996.142 125,641 749.090 201,129 50.758 280,373
Land. bUildings, & equlpmenl (nel) 769.169,220 12.146.992 4,316,373 5.493,550 16,941,062 1,901,213 414,768
Investments In publiC secuntl6S 531.835.544 17,190,688 10,289,351 25,209,964 401,659 6O,639,9'0 75,299,518
Investments In other securities 392,925.886 5,400,872 2,748,858 4,444.283 185,147 19,858.213 16.816.492
Program.relaled Investments 39,332,526 766,544 103,779 912,415 33.574 8.735,479 805.567
Intangible assets 4,881,915 394,605 19.348
93,563 53.264 999
0
Other assels 172.037,654 5,171,846 755.360 1.820.769 366.675 1.448.173 5.315.457
TolaIU.bllltl 1,078,229,&45 50,527,149 7,181,024 34,201,749 7,910,358 87,284,136 26,935,283
Accounts payable and accrued expenses 201,321.306 11,603.305 3,401.189 6.280,499 1.034.972 528.965 12.574,402
Granls payable 16.060.289 706.160 56,092 57.674 499 1.329
50.079
Deferred revenue 55,668.321 3.739.109 266.818 4.720.223 871.449 115.733 472.722
Tax-exempt bond liabilities 359.498,224 5.125,062 0 58.961 1.350 393.933 0
Escrow account liability 4,723.411 371.615 124.582 174.849 2.251 260
27.615
Payables to officers, dIrectors, etc 764.581 30,615 0 1.692 7.356
0 6.388
Secured mortgages and notes payable 160.396.667 9.692.083 990,776 3.216.671 4.805,574 283.286 1,623.907
-
Unsecured ..... Ot95 and loans payable 24,696,469 12.172,819 169.796 279,044 254.752 647 56.625
Other habllihes 235,080.377 7.086,381 2.169.770 19,412.136 932.152 85.959.985 12.123.545
Tota' fevenUI 1,352,265,885 83,773,550 19,690,361 35,134,454 10,931,202 14,100,009 130,348,787
Total contributions 306,824.811 5.223.096 3.626,482 7.063,619 1,455,411 220,640 200,649
Federated campaIgns 3.392.058 1,544
13.445
41,755 '14.966 129
0
Membership dues 3,794.038 1.044,959 3.004.625 3,509,661 1,331.053 113,165 129,140
Fundralsing events 5,919.225 60,886 19,046 41.521 36,844 4,672 795
Related organizatIons 17.533.250 379.063 83.147 62,922 2,291 5,226
-
35,007
Government granls (contnbullons) _.
130.976,527 1.580.906 109,221 1,978,852
..
4,275 45,164
-
9,832
All other contributions. giftS, etc. 145.209.711 2.155.737 396,999 1,428,910 65,982 52,264 26,075
Program service revenue 1,029,516,081 75,525,794 14,900,594 25,197.892 7,086,404 10,474,486 133,829,043
Investment Income 24,664,299 1,240,047 594,524 1,408,768 54,555 3,773,170 3,280,710
bond proceeds 350,669 29,240
364 708 460 36.778 2.502
RoyaltIes 2,638,738 722,113 103,109 433,479 10,705 1,407 -761
Total net rental Income 2,804,250 203,950 82,263 33,897 69.180 22,167 -24.120
Net rent . Real estate 2,775,472 221,022 81.779 33,679 62.619 20.099 -24.120
Gross rents -- Real estate 6,523,431 324,802 194.908 178,648 99.542 37.717 52,697
Renlal expense Real estate 3.747,960 103.760 113,130 144,769 36.722 17.618 76,817
Net rent -- Personal property 28,779 -17.072 484 18
6.361 2.068
0
Gross rents -- Personal property 60,366 -16.252 1.716 1,229
8,138 2,068
0
Rental expense - Personal property 31.587 820 1,232 1.211
1,777 0 0
Tatal net gain from sales of assets -40.092,904 -373,569 -523.902 -580.418 -5,865 -640.175 -2.826.223
Net gain from sales .- Secunt,es -41.839,585 .420.462 -529.728 -643,266 2,387 -859.260 -2.850.235
Gross sales -. Securttles 657,763,029 25,864,592 8.616.935 18.683,699 358,244 3.491,345 112.672.494
Sales expense - SecUfltWlS 699.602,614 26,285.054 9.146.664 19.326.965 355.857 4,150,604 115,522.729
Net gaIn from sales _. Other assets 1.746.680 46.893 5.826 62.648 -6.253 19,084 24.012
Gross sales -- Other assets ',.472,722 307.840 173.177 151.883 22.906 47,308 1,187,707
Sales expense -- Other assets 9.726.041 260.947 167.351 89.035 31.158 28.223
1,163.695
Nttl fundralsing Income 1.618.222 50.823 1.610 83,565 21.380 21 .767 451
Gross fundraising 4.672,291 113.508 20.386 273.933 93,444 45,724 480
Fundrslslng expenses 3,054,069 62.684 21,996 190.368 72,064 23,957 29
Net gaming Income 397,711 17,355 421 13 '7,600
18,355 0
Gross Income from gamIng 3.263.220 '59,228 1,316 13 66,647 111,583 0
Gaming expenses 2.865,509 141,873
895
0 49.248 93,229 0
Net Income from sales of Inventory 5,382,581 136,010 31.777 199,612 1,860,923 54.546 -1.099
Gross sales of Inventory 14,977,492 453,304 89,193 311.638 3.541.057 149.105 25.976
Cosl of goods sold (lnvenlory) 9,594,911 317,294 57,417 112.026 1.680.134 94.559 27.075
Other revenue 18,141,426 996,689 876,341 1.293.320 360.449 116.867 -4.114.566
Total expenses 1,370,874,288 81.761,325 19.789,969 37,162,253 10,818,431 14,668,075 138,242,830
Program services 1,191,052,391 74,589,249 [2) [2] (2) [2) (21
Management and general 164.483,477 6,949,273 [2] (2]
1
2
1
(2) [2J
FundralSlng 15,338,419 222,803 (2) [2J [2) [2] 12]
E-.cesl at revenue over expenses (net) -18,6118,402 2,012,224 99,607 -2,027,799 112,771 -566,066 -7,896,063
shoufd be U-!loQ WIth Cliubon tUK..iItIlJfOe ot the small numbel of sampIe lolu(l'\S on wt>Jeh 'liS c,)s/fO
(11 Ell"cludO$ pfNSle loun(lOJllOns, most churchoa. and CCf131n other lypos ol/AllQlQUS
1:11 Nol rBQU'frtd 10 be ropOl'1oo
NOTES Data exdvdo most ofgantZ<JtlOt,!!.......lh lacetOts \4,85 lhan $25.000 001&11 may nOI aIM \0 1010'115 bec..aUl>9 of
SQU'Ctl IRS. 01 Jncon'l6 DIVISion. 2011
REL 00963
--
- - -- - --
- - - -
-- -- - -
--
Table 4. Form 990EZ Returns of 501(c)(3)-(9) Organizations: Selected Items, by Code Section, Tax Year 2008
[All figures are esti mates based on samples--money amounts are In thousands of dollars]
Internal Revenue Code Section
Item
501(cX3) [1J 501(cX4) 501(cX5) 501(c)(6) 501(cX7) 501(cX8) 501(c)(9)
(1) (2) (3) (4) (5) (6) (7)
- -- --
- --- -. ...- _._.. ,_.
Number of returns 166,363 19,819 13,538 18,596 14,570 4,692 1,336
Total assets 36,790,465 3,238,884 3,029,980 3,057,738 2,562,525 1,530,423 397,58.4
Cash, savings, and Investments 17,568,580 1,832,012 2,196,452 2,333,937 950,057 560,124 342,396
Land and buildings (net) 12,095,262 932,357 618,834 358,777 1,239,139 856,998 206
Other assets 7,126.623 474,516 214,694 365,024 373,328 113,300 54,982
Total liabilities 8,246,422 833,620 244,202 523,195 700,383 224,709 17,978
Total revenue 26,003,541 2,042,167 2,225,321 3,120,534 1,711,907 635,193 330,240
Contnbutlons, g,fts, and grants 13,851,212 697,985 181,056 385.971 101,921 53,147 93,417
Program service revenue 8,498,388 564,041 153,400 1,079,340 437,940 247,646
Membership dues and assessments 1,339,956 406,482 1,569,752 1,244,741 904,597 78,519 34,910
..
_.
Investment income (loss) 538,821 63.431 78,726 53,563 33,312 26,217 12,376
-- -.
Gam (loss) from sales of assets -147,465 11,222 -234 2,616 6,116 10,356 55
Gross amount from sales 1,362,026 120,797 66,241 78,600 27,227 46,867 4,022
Cost or other basis and sales expense 1,509,490 109,575 66,474 75,984 21,111 36,511 3,967
.
-
.. ., - .-
Net income (loss), special events and activities 1,002,284 164,176 21,019 112,789 41,564 77,657 2,187
.0_- - . .
-- - - -' - -'- --
Gross revenue 2,650,356 585,156 68,919 347,733 156,987 216,025 3,829
Direct expenses 1,648,070 420,979 47,900 234,944 115,423 138,368 1.642
Gross profit (loss), sales of Inventories 283,738 52,825 1,891 40,435 94,598 95,425 0
.- - -- - -- - -- - -"- -- - -
-..
- -
-_... ..
_._-
Gross sales minus relurns and allowances
765,522 129,080 4,953 59,370 217,652 303,429 0
-
Cost of goods sold 481,783 76,255 3,062 18.935 123,053 208,004 0
O1her revenue (loss)
636,592 82,002 219,710 201,077 91,858 46,225 1,923
... .. ...- ..... -
--
Total expenses 25,490,287 2,029,672 2,101,361 3,023,018 1,630,234 637,202 277,095

.. - .., , .. --- - ..
-'
- ---
-
--- -- --
-
Grants and similar amounts paid
3,444,088 208,523 393,782 120,552 29,012 40,717 3,270
- - .- . ..
Benefits paid to or for members 155,142 58,718 108,475 53,279 50,110 4,932 211,482
Salaries, other compensation, and benefits 8,240,226 266,460 655,767 871.732 301,493 105,773 7,177
ProfeSSional fees 1,888,808 224,003 89,280 287,985 67,476 17,998 31,330
-
.. ....
-- '--
..
-
.. ,.. ---,
-
---_._-
---
Occupancy, rent, and utilities

2,542,383 324,733 168,661 169,216 454,750
...
__.n___ 2,188 178,472

. - .
- - -- -
Printing, publications, and postage 714,187 75,609 49,303 154,338 43,424 14,060 2,720
Other expenses
8.505,439 871,625 636,090 1,365,917 683,967 275,249 18,928
Excess of revenue over expenses (net)
513.253 12,495 123,960 97,516 81,673 -2,009 '53,1451
'Eatlmate 8hould be used IMth cauhon because 01 the small number of sample retume on \N'hlch It I!I based
[1 J Excludee pnvate foundations, most church&!, 8nd certain othEtf types of religious orgamzallons
NOTES For T8;l Year 2008. organizations ""th end-()fyear tolal assets under $2.500.000 and gr08s receipts under $1.000,000 could elect to me Forms 990-EZ rather then Forms 990 Data e;lclude most organizations 'oMth receIpts lesa than
$25,000 Detail may not add to lolale because of roundIng
Source IRS, StallsflC8 or Income OtvtelOn. July 2011
REL 00964
Table 1. Number of Returns, Gross Unrelated Business Income (UBI), Total Deductions, Unrelated Business Taxable Income (less Deficit), Unrelated Business Taxable
Income, and Total Tax, by Type of Tax-Exempt Organization, Tax Year 2008
[All figures are estimates based on samples-money amounts are in thousands of dollars]
Unrelated business
Type of tax-exempt organization, as defined by Intemal Revenue Code Section
Number of
returns
Gross
unrelated
Total deductions [1,2]
taxable income (less
deficrt) [3)
Unrelated business
taxable income [4J Total tax [5J
business
income (UBI)
Number of
retums
Amount
Number of
retums
Amount
Numberof
retums
Amount
Number of
returns
Amount
(1 ) (2) (3) (4) (5) (6) (7) (8) (9) (10l
All organizations
42,066 10,300,903 41,806 10,218,223 34,234 82,682 20,371 1,209,470 20,311 336,314
220(e) Archer Medical Savings Accounts 0 0 0 0 0 0 0 0 0 0
401(a) Qualified pension, profit-sharing, or stock bonus plans 417 140,835 410 73,997 412 66,838 379 73,196 381 23,408
408(e) Traditional Individual Retirement Accounts 6,279 49,205 6,245 16,393 5,780 32,812 5,577 33,650 5,577 9,082
408(A) Roth Individual Retirement Accounts 171 8.569 171 760 138 7,809 138 7,809 138 2,231
501 (c)(2) Title-holding corporations for exempt organizations [6J 311 53,541 311 51,092 270 2,449 179 6.222 179 1,667
501 (c)(3) Religious. educational, charitable, scientific, or Irterary organizations 14,057 6,418,708 13,970 6.614,711 11,331 -196,003 5,276 572,933 5,254 167,022
501 (c}(4) Civic leagues and social organizations 1,356 540,059 1,356 527,916 999 12,143 439 42,439 441 13,228
501(e)(5) Labor, and organizations 2,171 265,624 2,171 260,643 1,731 4,982 811 25,560 811 6,716
501 (e)(6) Business leagues, chambers of commerce. and real estate boards 5,352 1,009,264 5,352 1,014,260 3,836 -4,995 1,752 78,893 1,821 23,356
501(e)(7) Social and recreational clubs 6,102 649,284 6,035 601,135 4,987 48,149 3,577 93,699 3,540 23,894
501(e)(8) Fraternal beneficiary societies and associations 1.027 85,478 1,027 84,635 784 843 427 6,632 427 1,139
501(e)(9) Voluntary employees' beneficiary associations 550 434,174 550 245,523 372 188.651 343 229,327 343 55,179
501 (e)(10) Domestic fraternal beneficiary societies and associations 306 26,104 273 27,352 241 -1.248 125 676 125 101
501(c)(11) Teachers' retirement fund associations 0 0 0 0 0 0 0 0 0 0
501(c)(12) Benevolent life insurance associations and certain mutual companies 278 75,961 278 71,789 218 4,172 156 10,245 156 2,416
501 (c )( 13) Cemetery companies d d d d d d d d d d
501(c)(14) StatEH:hartered credrt unions 1.637 312,529 1,637 395,367 1,392 -82,837 361 16,659 326 4.515
501(c)(15) Mutual insurance companies 0 0 0 0 0 0 0 0 0 0
501(c)(1,6) Corporations organized to finance crop operations 0 0 0 0 0 0 0 0 0 0
501 (c)(17) Supplemental unemployment benefit trusts 0 0 0 0 0 0 0 0 0 0
501 (c)(18) Employee-funded pension trusts 0 0 0 0 0 0 0 0 0 0
501(c)(19) War veterans' pests or organizations 1,986 219,486 1,953 219.557 1,683 -71 797 11,243 757 2,297
501(c)(21) Black Lung Benefit Trusts [7] 0 0 0 0 0 0 0 0 0 0
501 (c)(22) Wrthdrawalliabilrty payment funds 0 0 0 0 0 0 0 0 0 0
501 (c)(23) Veterans' associations founded before 1880 0 0 0 0 0 0 0 0 0 0
501(c)(24) Trusts described in section 4049 of ERISA 0 0 0 0 0 0 0 0 0 0
501 (c)(25) Title-holding companies with no more lt1an 35 shareholders 0 0 0 0 0 0 0 0 0 0
501(c)(26) High-risk insurance plans 0 0 0 0 0 0 0 0 0 0
501(c)(27) Workers' compensation reinsurance plans d d d d d d d d d d
529(a) Qualified State Turtion Plans d d d d d d d d d d
530(a) Coverdell Education Savings Accounts
0 0 0 0 0 0 0 0 0 0
d - Dn1n deleted to avoid dl&Ck>$ure of WormatlOn lor tax 1-\0W'evef, data is IOCluded in appropnale totals.
(lJ EuJuct.. c:o:Jt of sales and which was ,ubtracted from groa.s re<::!!;pts from sales and $8T"\IIClJS in oornputhg gross profit from sales and set'W:e:3. Gross prof( from sales and Hrvic.e:s was a component of gro93 unrelatoo buslfl8SS ncome (UBI). Cost of sales and Soe1"kct5 CSIn nclude amounts
to salariM and and certain othOf ded1JCti)le 18ms For all axempl: organizations reportng gross US!. Q::)$ of sal_ and services wa" S2 -4 billion.
[2] Includes both expemes and dedUcbons.-.ported on Form 900-T. hnes 13{B), 29, 31, and 33.
{3] Exch.d1!t:5 da'tlI from 7.832 returns with equal amounts of gross UBI snd Ioral deduc:tt;ms
(4J Inch..rlll data from returns with posliYe amounts of unre\aled buMless ta..qbie only
[SJ Totel tax is ltle regular unrelated busrles.s income tax after reductaon by any la1 credb (foreign tax Cledl., genenll busi:ness credit. profyear mf1rmum tax credJ.. and other allowable credits), plus !he "ahernati...e mln"'urn tax.. the taxon nondeductible lobby;ng and e;r;pendltures. and
The proxy tax wa"5 reported on Form goo.. T and was ncluded in total tax.. but I. had no oonnecti:>n to the tax on unrelated bUSiness income or an irr.otvemen1 n unrelated bUUlMS actr..cies For organczatiom rvporbng 9r05.1 USlabove rtle S1.000 filing th",shold. totll PT01:'flaX W815
$14mflllon.
16J Corporab:>1l$ that are oryentzed under an Ad of Congrea.s and lire instTumeru.lbe5 of the Un.ed StalO$. dGSCCbed.,.s.ectt>n 501{cX1} of ttlelnt!!mal Re...enue Cod!!. are not 5UbJed to unrelated busnMs income taxation.
[7] PrepUt set'Vice ful"lli.!o. prew,usly described., Secbon 501(cX20) of the ln1emal R0'f'8nue Code. were no longer beglming W'f11 tu: yeal"!lsftel June 30.'992 ThereJore. Ihese 0l"98l"l'lZati::>ns are not liBted iJ'l this table
NOTE Ofr'bW may no! add to total5 becaUSol!l of rounding For mom complete descriptJonsof tt'Ie types orgamzab:lns fin; Form Q9O-T, by the Internal RfWel'lUe Code seemn describulg them see the AppendIX to the rnost Unrelated Income Tax (UBfT) amcle listed under
PubllC*t..)rm _nd Papen; 00 the Exernpt 0l"98ntzaborL3' UBrr StstssOC$ page of [he IRS"""bsle (http.ltwww.o html)
SOURCE. fRS, St.atiIIticI of h::ome OMsion. October 201 1.
REL 00965
Royalty Income Reported by Tax-Exempt Organizations. Tax Year 2008
All figures are estimales based on samples. Money amounts are in thousands of dollars.
501(c)(3) [1) 501(c)(4) 501(c)(5) 501(c)(6) 501(c)(7) 501(c)(8) 501(c)(9)
Number of
returns
Amount
Number of
returns
Amount
Number of
returns
Amount
Number of
returns
Amount
Number of
returns
Amount
Number of
returns
Amount
Number of
returns
Amount
Total Royalty income 2,794 2.638.738 68 722.113 101 103,109 636 433,479 116 10,705 "8 "1,407 " 9 " (761)
Royalty income - Related or exempt 589 355,137 " 3 " 5,291 "19 " 8,336 89 50,408 15 " 261 "5 " 600 "2 " (773)
Royalty income - Unrelated business 71 3,588 " 2 " 264 " 2 "187 42 6,070 82 9,825 0 0 "4 "0
Royalty income - Excluded 2,017 2,272,875 63 713,813 80 94,586 543 376,266 "18 "619 "3 " 807 " 7 " 13
[1] Excludes private foundations, which do not report royalty Income as a separate line item on Form 990-PF .
Estimate Should be used WIth caution due to the small number of sample returns On whIch it is based
Source: Intemal Revenue Service. Statistics of Income DiviSion. October 2011.
Net Rental Income Reported by Tax-Exempt Organizations (including Private Foundations). Tax Year 2008
All figures are estimates based on samples. Money amounts are in thousands of dollars.
501(c)(3) 501(c)(4) 501(c)(5) 501(c)(6) 501(c)(7) 501(c)(8) 501(c)(9)
Number of
returns
Amount
Number of
retums
Amount
Number of
returns
Amount
Number of
retums
Amount
Numberof
returns
Amount
Numberof
returns
Amount
Number of
returns
Amount
Total Net Rental Income 23,239 3,226,363 1,645 203,950 1,082 82,263 1.392 33.897 1,754 69,180 1,074 22.167 74 (24.120)
Net rental income - Related or exempt 7.788 749,641 942 154,191 393 25,748 318 8,545 912 34.086 386 12.530 37 (1,577)
Net rental income - Unrelated business 2,931 84,479 114 1,090 225 8,587 420 (11,908) 769 31,629 " 236 "1,508 " 5 "877
Net rental income - Excluded 12,531 2,301,434 398 38,816 385 48.588 727 37,479 137 1,036 275 6,339 32 (23,420)
Estimate should be used With caution due to the small number of sample retums on which it tS based.
Source" Intemal Revenue Service, Statistics of Income Division. October 2011.
REL 00966
EXEMPTORGANIZATIONS
LETTERFROMTHE DIRECTOR
Dear Colleagues:
Exempt Organizations (EO) respects the nonprofit sector's work and supports its efforts by helping to ensure that
the public maintains trust in the exempt sector. Over this past year, our leadership and staff have continued to
support these efforts through a robust educational program, a more efficient determination process, and a
comprehensive compliance program. We also have continued to communicate the importance of organizational
governance and its expected impact on compliance with the tax law.
As we move forward into a new year, we view Fiscal Year 2011 as an opportunity to build on our recent efforts,
fine-tune certain projects and programs, and prepare for the inevitable changes in the landscape of exempt
organizations. Our work for this year comes together around three major themes:
EOIntegrates. In recent years, EO initiated several projects focusing on specific segments of the sector, as
well as particular compliance issues affecting a cross-section of exempt organizations. We believe it is now
appropriate to incorporate these projects and lessons learned into the overall EO processes, rather than keeping
these efforts as separate projects.
EO Supportsand Collaborates. In the coming year, IRS leadership will focus agency-wide attention on certain
critical issues, including international activities and compliance with the passage of recent legislation. These
important efforts require significant resources from EO. Other key projects will involve collaborative work with
the National Research Program and non-filer initiatives.
EO Invests. In order to keep up with the ever-changing exempt organization sector, EO will invest time and
resources in a wide array of initiatives, which will touch a broader audience.
This report provides updated statistics and discussions of our accomplishments in FY 2010, as well as a preview
of our programs in FY 2011. We look forward to working with the exempt community and our stakeholders and
continuing to share what we learn.
Respectfully yours,
Lois G. Lerner
INSIDETHISREPORT SPOTLIGHTSON THE:
Compliance 2 Filing Relief Program.......8
Applications for
Tax Exemption 3 Redesigned 2008
Form 990 Filings 10
Education & Formal
Guidance 4
Organizational
Information 6
Lois G. Lerner
Director, Exempt Organizations
FY 2011 Workplan ..... 16
REL 00967
Co pliance
This graph displays the combined total EO Examinations
. number of returns examined through the
traditional examination process and the less EO Examinations is responsible for
compliance checks. enforcement activities, including both
compliance checks and audits of exempt
organizations. EO Examinations is
Compliance checks inquire about an item ona . made up of field exam groups; the
return or solicit information about an Exempt Organization Compliance Unit
, organization's operations, enabling us to (EOCU), which conducts compliance
touch more organizations than we could by checks; Review of Operations (ROO),
using an eXfJusiyely exam-based which does follow-up reviews of
organizations; and Compliance
Total number of returns examined
Strategies Critical Initiative (CSCI), which
18000
coordinates EO's strategic planning,
16000
monitors progress of critical initiatives,
and analyzes the results of these
14000 proj ects. r;==========;]
12000
10000
8000
6000
4000
Nan Downing
2000
Director, EO Examinations
0
FY04 FY07 FY08 FY09 FY10
(Baseline)
oTraditional Examinations III Compliance Checks
EO's traditional examinations, coupled with less resource-intensive compliance checks, continue to
deliver impressive compliance results. * By expanding our collaboration with outside agencies -
including the Social Security Administration and the states - we obtained valuable electronic data
that allowed us to more readily identify potential nonfilers and to focus our exam resources on
noncompliant organizations. Our methods of case selection for examinations resulted in a higher
percentage of cases selected involving significant issues and agents securing a considerably higher
number of delinquent returns than in any recent year.
*2010 legislation provisions necessitated a higher ratio of traditional exams to compliance checks than
in the past, resulting in fewer overall closures.
2
REL 00968
70
ApplicationsforTax
Exemption
RulingsandAgreements
EO Rulings and Agreements (R&A),
made up of Determinations and
Technical, is responsible for reviewing
applications for exemption, issuing
private letter rulings, providing
technical advice, and collaborating with
Chief Counsel's office and the
Department of the Treasury to deliver
formal guidance.
Rob Choi, Director
EO Rulings & Agreements
EO Determinations Closures
I Saeemng e Full Development
In 2008, the revision of the Form 990 eliminated the
need for the advance ruling process for section
501(c)(3) organizations. Under the former
an applicant organization was granted public chanty
status conditionally for its first five years, after which
it had to come back and demonstrate it had
sufficient public support to be classified as a public
charity rather than a private foundation.
Under the new process, in lieu of coming back in
five years, an organization shows that it has
met and continues to meet the public support test
on either Schedule A (Public Charity Status and
Public Support) of Form 990 or Form 990-EZ.
The new process eliminated about 20,000 follow-up
cases from the workload, which traditionally were
disposed of through the screening process. While
the number of cases went down, those remaining
were more complex.
This chart compares
the number of cases
closed through the
screening process
I
and cases closed
after in-depth
developmentin FY
2003-2010.
Despite a more
difficult caseload,
experience gained
and efficiencies
initiated to the v
screening program
over the last several
years have enabled
2010
us to continue to
maintain a -high level
of screening.
FullDevelopment
3
REL 00969
d cation &
ormal Guidance
With the expanded responsibilities imposed by new
legislation and a growing customer base, EO continued
its extensive education and communication efforts in
FY 2010.
Provided an online toolkit to internal and external
stakeholders to alert the tax-exempt community of
the filing relief program available to small
organizations at risk for losing their tax exemption
for failure to file
Prepared and distributed information about new
legislation, including the American Recovery and
Reinvestment Act and Affordable Care Act, to the
tax-exempt community
Hosted the inaugural joint workshops with Seton
Hall University, West Virginia University and
Lawrence Technological University to kick off the
work of the Academic Institution Initiative
Hosted 18 Small & Midsize 501(c)(3) Workshops
nationwide, which offered guidance on a variety of
topics such as EO filing requirements, unrelated
business income, and public inspection and
disclosure requirements
Released an updated gaming publication, Tax-
Exempt Organizations and Gaming, which helps
organizations understand how their activities
impact their tax-exempt status by describing the
unique reporting and filing responsibilities of each
type of exempt organization
Customer Education
and Outreach
Customer Education and Outreach (CE&O)
offers specialized education and outreach
programs to help exempt organizations
understand their tax responsibilities. CE&O
oversees the Charities and Nonprofits pages of
IRS.gov, develops publications and web-based
materials, manages the Academic Institution
Initiative, and offers face-to-face workshops and
seminars on EO tax laws. In addition to CE&O
core staff, subject-area experts from
Examinations and R&A support EO outreach
efforts and augment CE&O's mission.
Bobby larin, Director
EO Customer Education & Outreach
The a ~ bel.ow shows FY 2010 outreacheffqrts, as well as the changes from FY 2009.
EO Education and Outreach Efforts
Outreach Efforts FY 2008
Total
(Baseline)
EO Update subscribers
75,473
Speeches, Tax Forums
and Workshops*
289
HIRS.gov/eoH website
FY 2009
Total
FY 2010
Total*
Change
from
FY 2009
101,730 130,176 28%
305 194 -36%
4,960,256 4,994,022 5,333,380 7%
views
*The number of outreach events, most of which are generated externally, reached an all-time high in
FY2008/2009, due to presentations describing the redesigned Form 990, a major EO initiative.
4
REL 00970
ducation &
Formal Guidance(cant.)
EO makestechnical interpretationsofthe lawsand procedurespublicly
availablethrough regulations, revenuerulings, revenue procedures,
. announcements, and notices.
In FY201O,J>\jblishedguidancehighlights included:
One-TimeFilingReliefforSmall
Organizations
May 17, 2010, was the first filing deadline to
trigger revocation under the Pension Protection
Act (PPA) for organizations that failed to file for
three consecutive years.
On July 26, 2010, IRS Commissioner Doug
Schulman announced a one-time, two-part filing
relief program to provide an additional
opportunity for small organizations at risk for
revocation to file.
The IRS posted a list of names and last-known
addresses of possible at-risk organizations on
the IRS.gov website and provided guidance on
coming back into compliance. This guidance
included details about completing filing
requirements, along with frequently asked
questions.
The guidance extended that the deadline to file
to October 15, 2010, for the smallest
organizations. Those with gross receipts of
$25,000 or less could retain exemption by filing
the simple Form 990-N, the e-Postcard, by the
October 15 date.
Organizations eligible to file the Form 990-EZ for
the past three years could save their tax-exempt
status by filing their three delinquent returns and
pay a small compliance fee by October 15, 2010.
5
Notice2010-39
The Affordable Care Act (ACA) imposed four
additional requirements for hospitals to qualify as
section 501(c)(3) organizations. Notice 2010-39
explained the new requirements and additional
reporting and excise taxes enacted in the ACA, and
requested comments from the public on how the IRS
should provide guidance on the new provisions.
Regulation4965- ProhibitedTax
ShelterTransactions
Section 4965 imposes an excise tax on tax-exempt
organizations and associated employees who
engage in prohibited tax shelter transactions. These
regulations explain the tax and the associated
disclosure rules. The regulations finalized temporary
regulations issued in 2007.
Announcement2010-19
The announcement explains procedures that a trust
may use to request a ruling that it was-- and
continues to be-- a Type III supporting organization.
It further describes how to request a refund for
private foundation excise taxes paid in 2008.
This announcement also describes the procedure
under which a private foundation can terminate its
private foundation status by operating as a public
charity for 60 months.
REL 00971
Organizational Informaton
EO Staffing
The EO Rulings and Agreements office (R&A) processes applications for tax
exemption and provides direction through private letter rulings and technical
guidance.
The EO Examinations office (Exam) promotes compliance by analyzing
operational and financial activities of exempt organizations. These activities
include developing processes to identify areas of noncompliance, developing
corrective strategies and assisting other EO functions in implementing these
strategies.
The EO Customer Education and Outreach office (CE&O) coordinates, assists
and supports the development of internal and external communications, forms
and publications and external education and outreach efforts.
EO continues to grow in order to meet the needs of the tax-exempt community.
Table of EO On-Roll Employees over a 3-Year Period
Customer
Rulings & Education Director's Total
Examinations
Agreements & Office
Outreach
2008 364 449 12 12 837
2009 366 525 8 11 910
2010 366 549 14 13 942
EO On-Roll Employee Growth over a 3-Year Period
I
,CR&A
... 2010 jlElExam
til
ell I
DCE&O
> 2009
I o Director's Office
2008
.-1
o 200 400 600 800 1000
Total On-Roll Employees
6
REL 00972
EXEMPT
ORGANIZATIONS
I ~ ~ - - - - - - - - - - ~ _ . _ - ~ 1-:"
CUSTOMER
EDUCATION&
OUTREACH(CE&O)
Determinations
1
-.....J
Determinations
& QualityAssurance
ExemptOrganization
ComplianceUnit
(EOCU)
Technical
2Determinations
FieldAreas
DIRECTOR'S
PROGRAMSTAFF
ExemptOrganizations
ComplianceArea
(EOCA)
Compliance
Strategies Critical
Initiative (CSCI)
ExaminationProgram
& Review(EPR)
5ExaminationField
Areas
REL 00973
Spotlight: Filing Reref
Progra
Background: The Pension Protection Act of 2006 made two important changes
affecting tax-exempt organizations, effective the beginning of 2007. First, it
requires all tax-exempt organizations, other than churches and church-related
organizations, must file an annual return with the IRS. That includes small tax-
exempt organizations with gross receipts of $25,000 or less and had not
previously had a filing requirement. They now are required to submit a Form
990-N, also known as an e-Postcard. Second, it mandates that any tax-exempt
organization that fails to file for three consecutive years automatically loses it
federal tax-exempt status.
Current Efforts: The first three-year filing deadline that could trigger
revocation for failure to file was May 17, 2010. Despite an extensive outreach
effort for the past three years, once the filing date arrived, the IRS realized that
many organizations continued to be unaware of the tax law changes. On May
18, Commissioner Shulman announced that the IRS would provide additional
guidance to help these small organizations maintain their tax-exempt status-
even if they had missed the filing deadline. The Commissioner encouraged them
to continue filing and reassured them that the IRS would do what it could to help
them avoid losing their tax-exempt status.
On July 26, 2010, the IRS announced a one-time two-part relief program to
bring these small nonprofit organizations back into compliance. First, the
program extended the filing deadline to October 15 for the smallest
organizations, those eligible to file the Form 990-N, the e-Postcard. Second, it
provided for a voluntary compliance program for those eligible to file the Form
990-EZ for the past three years. Under this program, an organization had to file
its three delinquent returns and pay a small fee by October 15. Form 990 and
990-PF filers were not eligible to participate in this program.
The IRS posted a list of the names and last-known addresses of more than
300,000 at risk organizations with filing due dates from May 17 through
October 15, 2010, and no record of having filed a required annual return or notice
for 2007, 2008 or 2009.
Immediately following the Commissioner's announcement, the IRS expanded its
outreach efforts to alert the tax-exempt sector of the relief program. As a result,
during the Filing Relief Program (between May 18 and October 15), more
organizations filed 990-Ns than during the previous five-month period.
8
REL 00974
'These figures only reflect the number
I!ilJanuary 1- May 17, of 990-Ns filed, not the number of
2010
organizations that have filed or the
number that originally were not filed
1 May 18- October 15,
2010
timely and took advantage of the filing
relief program. In addition, 4,621
organizations filed the 990-EZ form
during the at-risk period.
Total: 335,952 990-Ns filed by October 15,2010
Post-October 15: Eligible organizations that properly filed according to the
Filing Relief Program will remain tax exempt.
Revocation: By operation of law, organizations that failed to file annual
information returns for three consecutive years, and organizations eligible to
participate in the filing relief program that failed to do so by the October 15
deadline, automatically will be revoked as of the original due date of their third
return. In early 2011, the IRS will notify these organizations, and will publish their
names by posting a list of revoked organizations on IRS.gov.
Each month, as subsequent filing due dates pass, the IRS will expand the list to
include the names of additional organizations that are revoked for failure to file
for three consecutive years.
Contributions and tax deductions: Donors who contribute to organizations
otherwise eligible to receive tax-deductible contributions can continue to take a
tax deduction until the IRS publishes the name of the organization on the list of
revoked organizations. A contribution to an organization listed on the IRS site as
having lost its tax-exempt status is not tax deductible.
Reinstatement: An organization that wishes to retain its tax-exempt status must
apply to have its tax-exempt status reinstated, even if it was not originally
required to file an application for exemption. To do so, it must:
File either Form 1023 or 1024, as appropriate;
Pay the appropriate user fee; and
Write automatically revoked on the top of the application and envelope.
EO Determinations will review the applications received in the normal course of
business.
On-going Education: EO will continue its aggressive educational program to
alert tax-exempt organizations of their annual filing requirements and the
consequences of not filing.
Compliance Review: EO will conduct a compliance review of organizations that
filed a Form 990-N but previously reported financial activity indicated they were
ineligible to do so.
9
REL 00975
Spotlight: Redesigned 2008
Form 990 Filings
Statistics and Demographics for Redesigned 2008 Form
990 Filings
The IRS significantly redesigned Form 990, Return of Organization Exempt From
Income Tax, for tax year 2008. Now that the filing season for tax year 2008 is
nearly complete, the IRS has compiled the following demographic and statistical
information on 2008 Form 990 (along with certain statistics on Forms 990-EZ and
990-N) filings and filing organizations, based on data available through
September 30, 2010:
Demographics of Filing Population
AGE OF ORGANIZA nONS
Age of Tax-Exempt Organizations Filing 2008 Form 990-Series
Returns
100%
90%
33%
80%
47%
70%
60%
DOver 25 years old
50% II1II5-25 years old
40%
IliI Less than 5 years old
30%
20%
10%
0%
Form 990 Form 990EZ
* Age reflects the date on which the organization's federal Employer Identification Number (EIN)
was assigned. This does not necessarily reflect the date on which the organization was formally
organized, received recognition of exemption by the IRS or filed its first return with the IRS.
10
REL 00976
SIZE OF ORGANIZATION by Gross Annual Receipts, as Reported by 2008
Filers of:
Form 990-EZ
Form 990
32%
I!lI Lessthan $200,000
iii Less than$200,000
..$200,000to $499,999
.. $200,000to$499,999
0$500,000to $999,999
0$500,000to $999,999
0$1,000,000to $4,999,999
0$5,000,000orrmre
SIZE OF ORGANIZATION by End of Year Total Assets, as Reported by 2008
Filers of:
Form 990
Form 990-EZ
12%
10%
47%
CI Less than$500,000
I!lI Lessthan$500,000
$500,000to 1,249,999.
$9.:10,000to $1,249,999
o 1,250,000to$2,499,999
0$1,250,000to $2,499,999
0$2,500,000to$9,999,999
o $10,000,000orrmre
11
REL 00977
GEOGRAPHY OF ORGANIZATlONS by U.S. Regions, Tax Year 2008:
Geography by U.S. Regions*
Form 990 Form 990-EZ
% %
Northeast 18% 19%
Mid Atlantic 22% 22%
Gulf Coast 21% 19%
Great Lakes 18% 16%
Pacific Coast 21% 24%
Total 100% 100%
For more information on identification of U.S. states in the geographical regions, go to:
http://www.irs.gov/charities/articie/0.. id=137767.00.html
12
REL 00978
2008 Forms 990 and 990-EZ Statistics
p
aper v. Electronic FI i ing'
*
Form 990 Form 990-EZ Form 990-N
(electronically filed)
2007 2008 2007 2008 2007 2008
Paper 327,579 160,362 147,960 266,008
Returns
-
Electronic 59,664 57,975 11,864 44,362 242,614 292,002
Returns
Note: 52% of the organizations that filed the Form 990 for tax year 2008 could have filed the
Form 990-EZ, based on assets and gross receipts thresholds for filing Form 990-EZ.
'Number of returns posted to IRS Business Master File as of September 30, 2010
Percentage of Forms 990 and 990-EZ Bectronicatly-Filed Versus Paper-Filed, Tax
Years 2007 and 2008
100%
93%
90%
85%
80%
73%
70% .
60%
50%
40%
30%
20%
10%
0%
13
REL 00979
Most Commonly Filed Form 990 and 990-EZ Schedules for Tax Year 2008*
100%
90%
19%
80%
71%
70%
1%
60%
50%
l3 Form 990
40%
Form 990-EI
40%
30%
23%
~
20%
10%
0%
0 D A B R J G
Schedule Type"
Note: To date, approximately 90 percent of 2009 Form 990 filers have filed
Schedule 0, as compared to 79.4 percent for tax year 2008. All Form 990 filers
are required to file Schedule O.
* Number of returns posted to IRS Business Master File as of September 30, 2010
** This chart includes the most commonly filed of the 16 Form 990 schedules:
Schedule A: Public Charity Status and Public Support
Schedule B: Schedule of Contributors
Schedule D: Supplemental Financial Statements
Schedule G: Supplemental Information Regarding Fundraising or Gaming Activities
Schedule I: Grants and Other Assistance to Organizations, Governments, and Individuals in
the United States
Schedule J: Compensation Information
Schedule 0: Supplemental Information to Form 990
Schedule R: Related Organizations
Schedules D, I, J, R, and 0 apply only to Form 990 filers.
14
REL 00980
PreparerStatistics
Paid-Prepared v. Self-Prepared
2007 2008 2007 2008
Paid-Prepared 81% 87% 50% 68%
Self-Prepared 19% 13% 50% 32%
Internet resources available to help with preparation of Form 990
Tohelpfilers completethe Forms 990, 990-EZand 990-N, the IRSoffers the
followingfree, web-based resources availableon www.irs.gov/charltiesand
www.stayexempt.org:
Interactivevirtual workshopsand mini-courseson multipletopics,
including Form 990
Compiled FAQs listingannualreporting requirementsfortax-exempt
organizations
Case Studyvideos featuring ahypothetical tax-exemptorganization and
step-by-stepinstructionsforcompletingthatorganization's Form 990
The NEWForm 990. What Tax-ExemptOrganizationsNeedto know:
publicationand related checklist
EO Update, aperiodicnewsletterwith informationofinteresttotax-exempt
organizationsand tax practitionerswhorepresentthem, including Form
990-related updates
The IRS encourages comments and suggestions on how to improve the
Form 990, schedules, and/or instructions. Please send to:
Form990Revision@irs.gov
15
REL 00981
FY 2011 WORK LAN
EO Integrates - Project to Process
Through our project work, EO has developed extensive knowledge and improved
skills on a wide range of subjects, allowing us to develop training materials and
tools to help our staff effectively address these issues when they encounter
them. It is now time to take a "project to process" approach by winding down
these separate, formal projects, and assimilating them into our general casework.
Below are the brief descriptions and reporting results of some of the projects that
we are merging into our overall process.
Combined Annual Wage Reporting - The "CAWR" Project. In FY 2007-2010,
EO took a close look at employment tax reporting by exempt organizations
using CAWR data, which compares information reported to the Social
Security Administration (SSA) on Form W-2 with information reported to the
IRS by employers on Form 941. EO CAWR populations consisted of
approximately 4,000 organizations each year. Using CAWR, EO was able to
identify organizations that reported wages on their W-2s but had not filed
Form 941; other organizations showed officer compensation on Form 990, but
had not filed Forms W-2 or 941, and non-501 (c)(3) organizations that had not
filed Form 940 to report and pay federal unemployment tax. (Section
501(c)(3) organizations are exempt from this tax.)
This project helped EO improve case selection and focus examination
resources on organizations with high potential for non-compliance.
Consumer Credit Counseling Project. One of EO's most complex and wide-
ranging efforts has been its multi-year focus on consumer credit counseling
organizations. Throughout the course of this project, the IRS developed
enhancements to its tax-exempt Examination program and refined its
Determinations program to better identify potential abuses.
During the initial phase of the project, the IRS examined the 63 largest credit
counseling organizations, based on their revenues. The IRS revoked,
terminated or proposed revoking the exemptions of 41 of these organizations.
In light of high levels of abuse, we sent questionnaires to the remaining
organizations that appeared to be involved in credit counseling activities. EO
examined the most egregious, and has revoked, terminated, or proposed
revocation of over 59 percent of the group to date. This project helped to
stimulate the Pension Protection Act law change, in which Congress
strengthened the tax rules governing exempt credit counseling organizations.
16
REL 00982
Our experience in this area and the lessons learned prepared us to deal with
a new type of organization that increased in numbers as a result of the
economic downturn in the area of mortgage foreclosure assistance
organizations.
DownPaymentAssistanceProject. Traditional down-payment assistance
(OPA) programs provide financial and educational assistance to low-income
homebuyers who cannot afford to make the minimum down payment on a
home or to pay the closing costs involved in obtaining a mortgage.
Traditionally, these tax-exempt homeowner assistance programs are funded
through grants or contributions from the general public, use accepted
eligibility criteria to ensure that recipients are low-income individuals, and
conduct financial counseling and educational activities to prepare potential
homebuyers for the responsibilities of home ownership.
The IRS began to see a rise in applications for tax exemption from
organizations that varied from the traditional OPA model by relying solely on
service fees and payments - often referred to as "donations" - from builders
and homesellers to fund their activities. In 2006, the IRS issued a revenue
ruling holding that such seller-financed OPA programs primarily serve the
private interests of home sellers by funneling down-payment assistance from
sellers to buyers through self-serving arrangements. The revenue ruling
further held that OPA organizations structured in this manner do not
accomplish a primary charitable purpose and should not receive or be able to
maintain 501(c)(3) tax exemption.
EO examined those OPA organizations that were funded solely by
homesellers, and revoked, terminated or proposed revocation for 87 of 91
organizations.
To prevent additional seller-financed OPA organizations from obtaining tax-
exempt status, EO initiated a screening program to identify applicants that
planned to conduct OPA activities, and required them to answer detailed
questions about their proposed activities to determine whether they were
eligible for tax exemption. Of the nearly 600 OPA applications reviewed, over
half were denied, closed for failure to respond, or withdrawn.
In 2008, Congress passed legislation prohibiting the use of down-payment
assistance programs funded by those who have a financial interest in the sale
in order to qualify for FHA insured mortgages.
Executive Compensation ComplianceInitiative: LoansProject. In 2004, the
Internal Revenue Service, through the Exempt Organizations Office of the
Tax Exempt and Government Entities Division (EO), implemented the
Executive Compensation Compliance Initiative (the Project). A report
17
REL 00983
discussing the results was issued in March 2007. That report raised concerns
about substantial loans to officers, directors, trustees and key employees with
issues involving proper reporting and potential excess benefit issues.
Consequently, we opened the Loans Project; the report is what follows.
The loan project began with 200 compliance checks and 50 single-issue
examinations. Based upon the results of the compliance checks, additional
organizations were selected for single-issue examinations for a total of 169
examinations.
The issues identified in these examinations include the following:
o Assessment of over $5.5 million in section 4958 taxes.
o Assessment of over $480 thousand in employment taxes reported on
Form 941 and Form 945 for items of income not previously reported for
disqualified persons and other employees.
o Assessment of over $400 thousand in discrepancy adjustments for
omitted income on Form 1040.
o Agents determined that loans to officers were not correctly reported on
Form 990 in 91 instances. The errors were predominantly due either to
misclassification on the balance sheet or to section 4958 adjustments.
The results of the 169 examinations were as follows:
Examination Results # of Orgs %of
Total
No Chanqe 37 22%
Written Advisory Issued 75 44%
Change or Delinquent Return Secured (InclUding Related 39 23%
Returns)
Proposed Revocation or Termination 18 11%
Total 169 100%
The information gained from the Loans Project will be valuable as we
continue to evaluate compensation in future projects.
Investment Income -IRC 501 (c)(7) Compliance Project. Investment income
- interest on bank deposits, stock dividends, royalties and the like - is
generally non-taxable for many types of exempt organizations. This is not
true for section 501(c)(7) organizations (social clubs), whose income is taxed
unless it comes directly from a member of the club, or has been "set aside"
for certain charitable purposes.
EO reviewed Form 990 filings from section 501 (c)(7) organizations to
determine whether some were reporting investment income, but not reporting
income on Form 990-T or paying the tax, and examined over 80
organizations. We secured delinquent Forms 990-T and collected the tax,
18
REL 00984
revoked the tax-exempt status or changed the subsection of 60 percent of the
examined organizations.
Non-ExemptCharitable TrustProject. Although not exempt under section
501(a), a non-exempt charitable trust (NECT) must devote all of its assets
and income to charitable purposes, according to the terms of its trust
document. The grantor can claim a charitable deduction for contributions of
money or other assets placed into the trust.
A NECT has unique filing requirements. Because it is a trust, it must file
Form 1041 and pay tax on its taxable income. However, because of its
charitable purpose, it is subject to many of the same restrictions and excise
taxes as section 501(c)(3) organizations, and it must file either a Form 990 or
990-PF.
Because some organizations were filing Forms 990 or 990-PF but not Form
1041, EO sent compliance check letters, seeking the missing returns or an
explanation as to why they were not required.
Some older NECTs proved that they were established before 1969, when the
regulations permitted "setting aside" amounts earmarked for charitable
contributions, eliminating the Form 1041 filing requirement. Others were
determined to have been misclassified in IRS records or had applied for and
received tax exemption. The remaining entities filed the required returns and
paid the delinquent tax, or were referred for further examination.
The chart below details the findings of the compliance check letters:
Number
Eligible for set-aside
deduction
125
Filed correct returns 10
Required examinations 15
IRS classification
corrected
20
PoliticalActivitiesComplianceInitiative (PACI). This initiative addressed
allegations of prohibited political campaign activities by 501(c)(3)
organizations.
Treasury and the IRS issued a revenue ruling to educate section 501(c)(3)
exempt organizations about permissible and impermissible activities in the
political arena. Additionally, EO updated Publication 1828, Tax Guidefor
ChurchesandReligiousOrganizations. EO also provided guidance about
19
REL 00985
political activities in public presentations, including the IRS Nationwide Tax
Forums and Tax Talk Today, the IRS web-based program for practitioners.
In addition to guidance and education, EO has examined over 250
organizations based on allegations of political activity during the 2004, 2006
and 2008 federal election years. EO substantiated the allegations in over half
of the examinations and closed most of these with a warning to comply with
the ban on political activities in the future. EO revoked the tax-exempt status
of seven non-compliant organizations.
The chart below tracks the most common types of PACI allegations: *
ALLEGATION 2004 2006 2008
1. Exempt organization distributed
printed documents supporting 24 14 24
candidates.
2. Church official made a statement
during normal services endorsing 19 14 47
candidates.
3. Candidate spoke at an official EO
11 16 2
function.
4. Organization distributed improper
14 8 3
voter guides or candidate ratinqs.
5. Organization posted a sign on its
12 13 11
property endorsinq a candidate.
6. Organization endorsed candidates on
its website or through links on its 15 11 16
website.
7. Organization official verbally
8 5 2
endorsed a candidate.
8. Organization made a political
7 11 12
contribution to a candidate.
9. Organization allowed a non-candidate
to endorse a candidate during a speech 4 2 1
at the organization function.
10. Other 0 16 15
TOTAL 114 110 133
* Because the majority of complaints for the 2010 election year came in during the
later part of the year, they are still going through the classification process, so they
are not included in the chart.
As we move review of allegations of political campaign intervention from
project to process, the guidance and expertise developed over the past few
election cycles will enable us to continue to handle these allegations
appropriately, both at the classification stage and through the examination
process.
Qualified State and Local Political Organizations (QSLPO) Project. In 2002,
Congress enacted legislation creating a sub-category of IRC section 527
20
REL 00986
political organizations known as Qualified Stateand Local Political
Organizations, orQSLPOs. Theseorganizationswererequired to notifythe
IRS oftheir"QSLPO"statusby electronicallyfiling Form 8871. This status
exempts them from therequirementto file Form 8872.
Afterthelawchange, approximately3,600organizationsidentified
themselves as QSLPOsand stopped filing Forms8872.
In response, EO launched theQSLPOprojectto ascertaintheaccuracyof
theseorganizations'claims. EO identified astatisticallyvalid sampleof
QSLPOsand senteach oneacompliancequestionnaire.
Overall, ourfindings indicatethatorganizationsarecorrectlyidentifying
themselvesas QSLPOsand thereforehaveno Form 8872filing
requirements.
SupportingOrganizations- The 509(a)(3) ComplianceProject. Supporting
organizations(SOs)arecharities thatcarryouttheirexemptpurposesby
assistingotherexemptorganizations, usuallyotherpubliccharities. The key
feature ofan SO is astrong relationshipwiththe organizationthatitsupports.
Priortothe Pension ProtectionActof2006, somepromotersencouraged
individualsto establishandoperateSOsfortheirown benefit. Someofthese
scenarios involvedpurported charitablecontributionsmadetothesupporting
organization, which werethen returned to thedonor, often in theform ofa
loan. To disguisethis abuse, thetransactionwas sometimesrouted through
intermediaryorganizationscontrolled bythepromoter.
EO took atwo-prongedapproachto combatthisabuse. First, EOissued new
instructionsto Determinationsagentsto identifypotentiallynoncompliantSOs
attheapplicationstage. Then, overthe span ofthe project, EO selected over
300organizationsforexamination; ofthe280 examinationsclosed thusfar,
30 were terminated, 72 had theirexemptstatusrevoked and 59were
reclassifiedas eitherprivatefoundationsorpubliccharities.
The Pension ProtectionActdrasticallychanged thelegal landscapeand rules
regarding theoperationofsupportingorganizations. Congressimposed
additional restrictionson certain typesofSOsand addressed certain abuses.
In lightofwhatwe havelearnedthroughthevarious enforcementactivities
discussedabove, theresourceswehavedevelopedforourstaffand thepublic,
and changesresultingfrom legislation,wearewinding down separateprojects
and incorporatingthem intooverall complianceprocesses.
21
REL 00987
EO Supports and Collaborates
Support of IRS Initiatives - This year, EO will support five overarching IRS
focus areas:
Impact of Recent Legislation. With the passage of several pieces of
legislation, EO is working with the whole of IRS to implement effective
changes and laws.
o The Affordable Care Act (ACA) was enacted on March 23, 2010. It
contains certain tax provisions that take effect this year and more that
will be implemented during the next several years.
Several provisions, primarily those involving tax-exempt hospitals and
exempt organizations as employers, fall under the purview of EO.
Each of the EO offices has a role in putting together a comprehensive
program to implement the changes and fulfill ACA requirements.
Customer Education and Outreach (CE&O), working with the other IRS
Communication offices, will educate the public on those aspects of the
ACA impacting exempt organizations; Rulings & Agreements will
analyze new legal issues raised by the legislation, work with Chief
Counsel and Treasury on related guidance, and coordinate with other
IRS offices to implement appropriate form changes; Determinations
anticipates an increase in tax-exempt applications; and Examinations
will establish a separate EOCA group to focus on healthcare-related
compliance issues.
o The Hiring Incentives to Restore Employment (HIRE) Act was signed
into law on March 18, 2010. The legislation identified tax-exempt
organizations as employers eligible to claim the payroll tax exemption
and new hire retention credit for eligible newly-hired employees.
Beginning in July 2010, the EOCA began conducting examinations of
these credits claimed under the HIRE Act.
o The American Recovery and Reinvestment Act (ARRA) established a
65 percent subsidy on COBRA health insurance premiums to help
workers who lost their jobs as a result of the recession maintain their
employer sponsored health insurance.
The Continuing Extension Act of 2010, enacted April 15, reinstated the
ARRA COBRA subsidy, which had expired on March 31.
Employers, including tax-exempt organizations other than churches
and some religious organizations, were required to provide COBRA
coverage to eligible individuals who pay 35 percent of the COBRA
22
REL 00988
premium. Employers were reimbursed for the other 65 percent by
claiming a credit for the subsidy on their Form 941 or Form 944.
Employers, including tax-exempt organizations, are required to
maintain supporting documentation for the claimed credit.
EO will be examining the employment tax returns of organizations
claiming the credit for the subsidy.
InternationalFocus. International tax enforcement is an ongoing priority for
the IRS. Taxpayers with international activities, transactions and accounts
pose unique compliance issues for the IRS. Globalization of markets,
taxpayers and transactions affect all segments of our economy, including the
exempt sector.
EO's concern in this area is whether charitable assets of exempt
organizations are being diverted internationally for non-charitable purposes.
We have efforts underway that will explore:
o foreign entities receiving IRS recognition of exemption from US tax;
o information referred from the Joint International Tax Shelter
Information Center (JITSIC);
o charities reporting foreign addresses on Forms 990;
o charities that participate in "Gifts-in-Kind" programs, where
valuation issues surface when charities send non-cash items to
foreign organizations; and
o large private foundations with international operations or
international transactions.
To help educate the sector, EO is developing new publications describing
the special rules that apply to both foreign charities and domestic charities
that conduct activities abroad.
MedicalResidents. IRS worked with Government Entities, the Chief
Counsel's Office, Wage & Investment, Small Business/Self-Employed and the
. Social Security Administration to develop a comprehensive program to except
medical residents from FICA (Social Security and Medicare tax) taxes based
on the student exception for certain tax periods.
Beginning in May 2010, the Service began contacting hospitals, universities
and medical residents who filed FICA refund claims, in order to provide them
with additional information and procedures for obtaining their refunds.
NationalResearchProgram- Studyof EmploymentTaxReturns. IRS
estimates employment tax misreporting constitutes a large part of the tax
gap-close to $54 billion per year. In light of this sizeable amount, the
Service has updated its understanding of compliance in this area and has
implemented a comprehensive IRS-wide study to measure compliance,
23
REL 00989
improve IRS ability to detect and reduce non-compliance, and ensure the
fairness of the tax system. Specifically, the National Research Program
(NRP) project looks at employment tax on both taxable and tax-exempt
organizations, large and small businesses, and the government sector.
Because tax-exempt organizations have the same responsibilities as for-profit
businesses to properly classify workers and report and pay employment
taxes, EO has been participating with other IRS operating divisions in the
NRP.
EO's portion of the project involves examining the employment tax returns of
1500 organizations, with 500 selected randomly each year over a three-year
period. Specific areas of interest during the examinations are worker
classification, fringe benefits, officer compensation, employee expense
reimbursements, and non-filers. Tax year 2008 returns are currently being
examined, and examinations of tax year 2009 returns will begin in early FY
2011.
The results of this project will contribute toward developing and refining
Servicewide procedures for auditing, processing and resolving employment
tax return cases.
Non-filer Initiatives. The goals of the IRS' Servicewide Non-filer Strategy are
to:
o Help taxpayers understand and meet their filing obligations;
o Improve voluntary compliance by reducing taxpayer burden;
o Leverage technology to identify non-filers; and
o Effectively use enforcement resources to deter non-filers.
EO will pursue several avenues to help support this Servicewide effort.
Working with the TE/GE Research Office, we are collecting data about
organizations with erratic filing patterns. To begin this effort, the EOCA will
conduct compliance checks on intermittent filers in early FY 2011.
Collaboration With External Stakeholders - Collaborating with external
stakeholders and leveraging their resources makes us more efficient and
improves the final product. For FY 2011, we have planned the following joint
efforts:
Academic Institutions Initiative. In 2009, EO established its Academic
Institutions Initiative to work with educational entities that work to develop,
cultivate and promote professionals who shape the non-profit sector. Our
goal is to help prepare the non-profit leaders of the future by providing
consistent training about federal tax law responsibilities.
24
REL 00990
A September 2009 kick-off meeting generated a number of helpful ideas from
educational institutions. In FY 2010, EO began implementing those
recommendations by placing resources for educators on
StayExempt.lRS.gov, co-sponsoring workshops for small and mid-size
exempt organizations with universities, and identifying and collaborating with
existing educational networks, such as the National Association of Schools of
Public Affairs and Administration (NASPAA) and the Nonprofit Academic
Centers Council (NACC).
In FY 2010, CE&O hosted its first-ever workshop for small and mid-size
501(c)(3) organizations in conjunction with an academic host institution. In
FY 2011, CE&O will continue to expand its partnerships with existing
educational networks across the country. At least eight additional similar
workshops have been scheduled for the first half of FY 2011.
Also in FY 2011, CE&O will develop a page on IRS.gov specifically geared
toward educators. Additionally, we will begin offering an internship program
for graduate students whose concentration lies in nonprofit leadership and
management. The graduate student internship program will broaden our
reach to interact with a new generation of non-profit leaders. EO hopes to
gain a better understanding of current nonprofit education while offering
students the chance to deepen their knowledge base and become familiar
with Federal tax provisions that govern exempt organizations.
Gaming Non-Filer Project. Beginning in 2007, EO secured information from
17 state gaming regulatory tax agencies to cross-reference with its own Form
990 database. We discovered a large number of organizations had filed at
the state level in order to maintain eligibility to continue gaming activities, but
had not filed Form 990 with the IRS.
In response, we initiated examinations and have thus far secured over 1,300
delinquent returns in the cases closed. These include information, tax and
employment returns.
EO will continue to expand its cooperative efforts with state regulators to
identify organizations conducting gaming activities that may have federal filing
requirements, and educate these organizations about their filing obligations
25
REL 00991
EO Invests
EO will continue to invest time in both new and ongoing initiatives in order to
keep up with the ever-changing exempt organization sector. With these
initiatives, EO will touch a broader audience of exempt organizations.
Controlling Organizations- The IRe 512(b)(13) Project. The tax treatment of
payments between controlled entities and their controlling tax-exempt parent
organizations touches on several areas of tax law including unrelated
business income, the allocation of income and deductions among taxpayers,
and the transfer of property to controlled organizations.
PPA 2006 made changes to the tax treatment of certain payments from a
controlled entity to its exempt parent. The IRS is gathering information on this
issue through the Colleges and Universities project and other exam initiatives.
The information collected will give us a better understanding of the
prevalence of 512(b)(13) and related issues.
Charitable Spending Initiative. This is a study to learn more about sources
and uses of funds in the charitable sector and their relationship to the
accomplishment of charitable purposes. Under the first phase of this
project, organizations selected for examination include those with high levels
of fundraising expenses, organizations reporting unrelated trade or business
activity with relatively low levels of program service expenditures,
organizations with high ratios of officer compensation in comparison to
program service expenditures, and organizations with low levels of program
service expenditures in comparison to total revenue. These examinations
began in FY 2010 and will continue into FY 2011.
Colleges and Universities. In September 2008, EO sent 400 questionnaires
to public and private four-year colleges and universities asking about their
unrelated business income, endowments and executive compensation
practices. The goal is to gain a better understanding of one of the largest,
most complex segments in our sector and identify issues and areas that may
need more outreach and education or further scrutiny. EO analyzed the
responses and an interim report was published in May 2010. The interim
report contained preliminary information on the respondents' organizational
structures, demographics. exempt and unrelated business activities,
endowments, executive compensation and governance practices.
In addition, over 30 entities are undergoing examinations that focus on
unrelated business income and compensation practices. Because some of
the issues under consideration may affect other areas of TE/GE (specifically,
Employee Plans and Federal State and Local Governments), we are
coordinating with those offices when appropriate, along with utilizing
engineering assistance.
26
REL 00992
Exempt Organizations Services and Assistance (EOSA). The objective of
EOSA research project is to study the communications preferences and
educational needs of small tax-exempt organizations and to develop a
targeted multi-year outreach plan to provide improved education and outreach
services to these organizations.
CE&O, working with TE/GE Research, initiated this project which involves
three phases: 1) focus groups; 2) a quantitative analysis based on telephone
surveys; and 3) a cost-benefit analysis.
Form 990-N Mis-filers. The Pension Protection Act of 2006 added the Form
990-N filing requirement to ensure that the IRS and potential donors have
current information about exempt organizations. Small tax-exempt
organizations whose annual gross receipts are normally $25,000 or less may
be required to electronically submit Form 990-N, also known as the e-
Postcard, unless they choose to file a complete Form 990 or Form 990-EZ.
The failure of an organization that is required to file a Form 990 series return
for three consecutive years results in automatic revocation of the
organization's exempt status.
The objective of this project is to identify organizations that incorrectly file the
Form 990-N.
Form 990 as a Compliance Tool. The Form 990 is the IRS' primary tool to
increase transparency and to promote and enforce compliance with Federal
tax law. The recent design brings the Form 990 into the 21 st century,
reflecting changes in the tax-exempt sector and the tax law. It helps secure
fuller, more relevant compliance data and provides a more comprehensive
picture of each filing organization.
As more organizations file the redesigned Form 990, EO Examinations will
use the updated form to identify non-compliant and potentially non-compliant
organizations for examination, to develop targeted compliance projects and to
inform and supplement educational efforts.
In FY 2011, EO will continue to work with our research office to develop more
robust risk models and refine compliance queries to promote a more finely-
tuned compliance approach and more tailored education efforts.
Governance. Starting in FY 2010, EO began using a check sheet to capture
governance practices and the related internal controls of the organizations
being examined. EO will analyze the data over the long term to gain a better
understanding of the intersection between governance practices and tax
compliance.
27
REL 00993
Mortgage Foreclosure Assistance. Over the past few years, there has been
an increase in foreclosures, as well as exempt organizations that have
become involved in foreclosure assistance activities. This project is modeled
after the successful EO credit counseling project that took place several years
ago. EO is developing enhancements to its examinations program and
refining its determinations program to better identify potential abuses in the
system.
The focus of the project will be to determine whether organizations are
engaged in foreclosure assistance activities, whether their activities are
fulfilling their exempt purpose in accordance with the Internal Revenue Code
section under which they are recognized as tax-exempt, and whether they are
complying with the requirements of section 501 (q) of the Code (when
applicable).
"Mutual" Organizations- The IRe 501 (c)(12) Project. Organizations exempt
under section 501(c)(12) include benevolent life insurance associations of a
purely local character, mutual ditch or irrigation companies, or cooperative
telephone companies. An organization that performs any comparable service
can also qualify.
These organizations must use their income solely to cover losses and
expenses, with any excess being returned to members or retained for future
losses and expenses. They must collect at least 85 percent of their income
from members for the sole purpose of meeting losses and expenses. The
results of the member-income "test" determine the organization's yearly filing
requirement. An organization should file Form 990 for the years in which it
meets the 85 percent member-income test, and it should file Form 1120 for
the years in which it fails to meet the test.
The Forms 990 filed by some section 501(c)(12) organizations indicate that
these organizations are not meeting the 85 percent member-income test
every year. To address this issue, questionnaires were mailed to affected
organizations in early FY 2010, and 40 percent of the questionnaire
respondents were selected for examination. In FY 2011, we will begin
conducting these examinations.
Section 501 (c)(4) , (5) and (6) Organizations. In recent years, our examination
program has concentrated on section 501 (c)(3) organizations. Beginning in
FY 2011, we are increasing our focus on section 501(c)(4), (5) and (6)
organizations. With the additional information available on the new Form 990,
we will look at issues including political activity, inurement and the extent of
compliance with the requirements for tax exemption by organizations that
self-identified themselves as a section 501 (c)(4), (5) or (6) organization
28
REL 00994
Voluntary Employees' Beneficiary Associations (VEBAs). A voluntary
employees' beneficiary association is defined under Internal Revenue
Code section 501(c)(9) as an organization designed to pay life, sick, accident
and similar benefits to members, their dependents or designated beneficiaries
as long as no part of the net earnings of the association inures to the benefit
of any private shareholder or individual.
Working with EP and IRS Counsel, EO developed a project to learn more
about VEBAs and their compliance under this section of the code. In FY
2010, EO developed training materials and initiated its training program.
These activities will continue during FY 2011. EO Examinations will begin a
statistically valid sample of 100 organizations with assets greater than
$100,000 in FY 2011.
29
REL 00995
Table 1. Excise Taxes Reported by Charities, Private Foundations, and Spllt.lnterest Trusts on Form 4720, Calendar Year
2010
Tolal Organizations [1 J Individuals [2]
Item Number of Number of Number of
relurns [3)
Amount returns 13) Amount
returns [3) Amount
(1) (2) (3) (4) (5) (6)
Tolall'" 2,158 14,408,724 1,911 12.561,479 247 1,847,245
Tax on undistributed income 1,614 7.806,681 1,614 7,806,681 NIA N/A
Tax on self-<leallng 201 1,005,447 NtA N/A 201 1,005,447
Tax on taxable expendnures 105 248,894 105 238,989 16 9,905
Taxon excess lobbying expendnures 84 271.604 84 271,604 NIA NlA
Tax on charnHbIe remainder trusts' urrelated taxable income 79 1,103,521 79 1,103,521 N/A NlA
Tax on eX(;8SS benefillransacliOns 26 831,052 NlA NlA 26 831,052
Tax on poInical expendnures .. 32 .. 41,254 .. 31 .. 40,413 "10
00841
Tax on excess business holdings 6 3,100,271 6 3,100,211 N/A NlA
..
0'
.. .. .. ..
Taxon taxable distributions
.. .. ..
Tax on premiums paid on personal benefrt contracts
o
N/A NlA
.. .. .. ..
Tax on being party to prohibned lax shB/ler transactions 0 0
.. .. .. ..
Tax on prohlbned beneflls from donor advised funds N/A NIA
Tax on disqualifying lobbying expendnures 0 0 0 0 0 0
Tax on investments thai jeopardize charnable purposes 0 0 0 0 0 0
0.0.. """'binOdlO __d-'"' ....,._.
N/A - Nol .ppIIcoblo.
(11 0'1l"....."'n .._ ........... by c""_,I'ri-I.rotnl_, on:! "'*........
(2) IndMdtal"...re r8POf1.t by omc..., arwoi olt_ inlIMdu*.
(3) ThiloCIil"...,'" 01 returre nuy rIJI 8qUlllhe Itn d lhe runbet oIl"11lurN'or..m tI.... .n OfQlIr1Ulion Of nlMdual may ('..,art rnorw u.nonII type 0( "'. ptW f1Illm. AddIklndy, hI_uumay be inc\.ded on ,......

fllfIe: Fonn 472015 l!If1IltIId"ReIun of C...... Exc:_ fa..U..... CNipt..C1 .nd 42 of the ....Code,
_.IRS, S"""d ,,,,,,,,,,,,0_. Jdt2011.
REL 00996
Table 1. Excise Taxes Reported by Charities, Private Foundations, and Split-Interest Trusts on Form 4720, Calendar Year
2009
Total Organizations [1] Individuals [2)
lIem Number of. Number of Number of
returns [3) Amount returns [3] Amount returns [31 Amount
(1) (2) (3) (4) (5) (6)
TOI8I tax 2,031 15,414,533 1,757 12,026,527 303 3.388,006
Tax on undistributed income 1,454 7,764,403 1,454 7,764,403 N/A N/A
Individual tax on self-dealing 261 3.097,030 N/A N/A 261 3,097,030
Tax on taxable expenditures 104 770,354 104 758,756 20 11,598
Tax on excess lobbying expenditures 59 360,922 59 360,922 N/A N/A
Tax on excess benefit transactions 13 275,835 N/A N/A 13 275,835
Tax on charitable remainder trusts' unrelated taxable income 92 1,771,270 92 1,771,270 N/A N/A
Tax on political expenditures 48 1,374,719 48 1,371,176 9 3,543
Tax on Investments that jeopardize charitable purposes 0 0 0 0 0 0
.. .. .. ..
Tax on excess business holdings 0 0
.. .. .. ..
Tex on prohibited 18K shelters 0 0
...h...
..
-
.. .. .. ..
Tax on taxable.d.lstrib.utlons of Sponsoring organlzat.ions
.. .. .. .. .. ..
Tax
.. _.....
.. .. .. ..
Tax on premiums paid on personal benefit contracts 0 0
Oalll combined to prwwent dildoeuJII 01 Indlvidu.1 datil.
NlA - Nol .ppt_.
(1JOrgUriz.tkm taa...,. reported ch.-ttiee, priv." foundallonl. and sphl.in',,' trueta.
(2) Individual tuea .r. r.paned by found_han manllQ". office directofll, trw.... and olttef IndivkjUllhi
(31 The tobl' number of return. may not equ.-l the lum of the number of retum. for Hdl tu., II an 0'Vlnizatian Of Individual may more than one type of tu per r.un. AdlWon.tty. InOIvidueil may be included on
,.tuma filed by organlationa.
Note" Form 4720 .. ended "Relum or C.-n Eaelae T.... Un_ Ch.p1era 41 and 42 or the Intern.l Revenue Code:
Soulee: IRS. St.tl.tice of Income Dlvlaion, AUQUIII 2010.
REL 00997
Excise Taxes Reported by Charities, Private Foundations, and Split-Interest Trusts on Form 4720. Calendar YE
IMoney .mount. Itrw ,n -.::.1. doW.,. J
Item
Total tax
Tax on undistributed income
Individual tax on self-<leallng
Tax on taxable expenditures

Ta,x .()n holdings
Tax on excess benefit transactions
Tax on charitable remainder trusts' unrelated taxable income
,A__',
.. " ..-
Tax. oninvestnlllnts th.atj':()pardlzll charita.ble purpose .
Tax on prohibited tax shelter
Tax
.
Total Organizations [1 ) Indiv
Number of
retums [3J
(1)
1,858
1,328
178
137
50
12
26
97
.. 30
0
,.,.. ,
..
..
Number of
Amount retums (3J
(2) (3)
12,269,330 1,654
5.391,365 1.328
1.146.999 N/A
1.870.351 137
409,974 50
1.938.303 12
158,004 NlA
1.265.665 97
88!6!2 .. 30
0 0
.. ..
.. ..
...... ..... I ..
.. .. ..
Number of
Amount retums (3)
(4) (5)

229
-
5.391.365 N/A
-.
N/A 178
1.865.273 19
409.974 N/A
1.938.303 N/A
N/A 26
1.265.665 N/A
"6
0 0
...
..
0
.. ..
.. ..
. .. ...._. .. ,... ' .. -, "_..,,. _ ,,_v .-. ...u_, __ ..... _ .
.. .. ..
Tax on premiums paid on personal benefit contracts 0 0
... Date combln" to prevent d.ao.u... of IndlvAdUlillupaver dete.
NlA - Not o",,_le.
(1) Organization (alii.. ara reported by charitl_, ptfvale roundlltiona, lind aptit-inlera' 1Nl1a,
(2J Indhl'ldu.lw... are by foundation rnllnag... office direc""', truat.... and orherlndrviduata.
(3) Th. total numb_ of returN m8Y not equ. the.urn of ttl. number of retuma for ..ch 'a., ...n org.Olution or IndivtdUIII may report mof. th.n one type of tax pM ...tum. Addlbon8lly, indlvldu.1
rlftume 'ned by org8nlation8.
,..,..: Fonn ..720 enbd.s -Return of Cwtain ExclM Tu_Under Ch.p" 41 and 42 of !he Intern" Rev8nue Cod8.-
Sou,,,,,: IRS. Stollob 01 IncomoC.vIOIon. 0c10M' 2009.
REL 00998
2007
Excise Taxes Reported by Charities, Private Foundations, and Split-Interest Trusts on Form 4720. Calendar Year
[Money amounts Ire in whoe dOla'" J
Total Organizations [1] Individuals [2]
Number of Number of Number of
Item retums [3] Amount retums [3] Amount returns [3] Amount
(1) (2) (3) (4) (5) (6)
Total ta:K 1,788 5,459,045 1,594 3,693,116 223 1,765,934
Tax on undistributed income 1,432 3,166,994 1,432 3,166,994 N/A N/A
Individual tax on self-dealing 203 1,721,285 N/A N/A 203 1,721,285
Tax on taxable expenditures 94 154,053 94 151,834 9 2,219
Tax on excess lobbying expenditures 37 182,932 37 182,932 N/A NiA
Tax on excess business holdings 5 132,052 5 132,052 N/A N/A
Tax on excess benefit transactions 10 42,372 N/A N/A 10 42,372
Tax on political expenditures
Tax on investments that jeopardize charitable purpose
Tax on prohibited tax sheller
Tax on disqualifying lobbying expenditures
Tax on premiums paid on personal benefit contracts
38
..
..
..
..
"59,374
..
..
..
..
"37
..
..
..
..
59,316
..
..
..
..
"6
..
..
..
..
"58
..
..
..
..
"" Data combined to p....ent d1_ure d individual taxpayer dlta.
NJA - Noleppllcable.
(11 OrganlzeUon tax...... reported by chlritles, private foundationl, lind
(2] Indlvidueltall.. are reporled by loundltlon monagere, oIIIee dlrectDrll, trull2tls, and other Individual.
(3) The totel nurnbe< 01 returns mlY n<ll equal the sum d the nurnbe< of returns lor each tall, IS .n organization f1I indlvldull may report more than one type of ta. per relurn. A_"lly, Indivldua18 may
be Included on returns filed byorganlutlon.
Nola: Form 472018 entlUed "Return ofC_n Excise r .... Und8r ChaplefS 41 Ind 42 of the IntemlIl Revenue Code."
SouraJ: IRS, Stati.tics of Income Division, August 2008.
REL 00999
Excise Taxes Reported by Charities, Private Foundations, and Split-Interest Trusts on Form 4720,
Calendar Year 2006
[Money amounts a", in whole dollars J
Total Organizations [1] Individuals [2]
Item
Number of Number of Number of
Amount Amount Amount
returns [3) returns [3) returns (3)
(1 ) (2) (3) (4) (5) (6)
Total tax.......................................................................................... 1,840 5,808,220 1,663 3,538,096 217 2,270,124
Tax on undistributed income ...................................................... 1,532 2,994,453 1,532 2,994,453 N/A N/A
Individual tax on self-dealing....................................................... 186 2,248,367 N/A N/A 186 2,248,367
Tax on taxable expenditures ...................................................... 77 145,874 76 139,826 22 6,048
Tax on excess lobbying expenditures......................................... 36 214,771 36 214,771 N/A N/A
Tax on political expenditures...................................................... 23 2,992 17 2,831 5 161
Tax on excess business holdings .............................................. 8 186,215 8 186,215 N/A N/A
Tax on excess benefit transactions............................................. 7 15,548 N/A N/A 7 15,548
Tax on investments that jeopardize charitable purpose.............. 0 0 0 0 0 0
Tax on disqualifying lobbying expenditures................................ 0 0 0 0 0 0
Tax on premiums paid on personal benefit contracts................. 0 0 0 0 0 0
N1A - not applicable.
(1 JOrganization taxel a", ",ported by chanlJee, private foundatlonl, and spln-int_t trultl.
(2J Indlvtdual taxel I'" ",ported by foundatiOn managers, office directors, trultees, and other Individuall.
[3J The total number of ",tuml may not equal the lum of the number of ",turns for each tax, as an organizatiOn or Individual may ",port more than one type of tax per ",tum. Additlonally,
individuals may be included on ",tuml filed by organizations.
Note: Form 4720 JI entitlad "Retum of Certain Exciu Taxel UnderChapiers 41 and 42 of the Intamal Revenue Code."
SOURCE: IRS, Statilllca of Income Ohllslon. October 2007.
REL 01000 REL 01000
REL 01001 REL 01001
REL 01002 REL 01002
REL 01003 REL 01003
REL 01004 REL 01004
REL 01005 REL 01005
REL 01006 REL 01006
REL 01007 REL 01007
REL 01008 REL 01008
REL 01009 REL 01009
REL 01010 REL 01010
REL 01011 REL 01011
REL 01012 REL 01012
REL 01013 REL 01013
REL 01014 REL 01014
REL 01015 REL 01015
REL 01016 REL 01016
REL 01017 REL 01017

REL 01018

b(3) IRC 6103
b(3)
IRC
REL 01019

REL 01020

REL 01021

REL 01022

REL 01023
INTERNALREVENUESERVICE
COMMISSIONER
November18, 2011
TAXEXEMPTAND
GOVERNMENTENTITIES
DIVISION
TheHonorableCharlesBoustany, Jr., MD
Chairman
DearMr. Chairman:
Iam respondingto yourlettertoCommissionerShulmandated October6, 2011,
requesting informationaboutthe tax-exemptsector. Weappreciateyourinterestand
supportfortheIRSeffortsin the administrationoftheexemptorganizationstaxlaw.
Reportsofthe IRSdatayou requested arecreated and published byourStatisticsof
Income(SOl)Division. SOl publishesawide rangeoftables, articles, and datathat
describeand measureelementsofthe U.S. taxsystem and are availableto the publicat
http://www.irs.gov/taxstats/index.html. Unlessotherwiseindicated,SOl data current
through FY2010and isgenerallybasedon valid statistical samples.
Also, unlessotherwise stated, anydata compiled from theannualfilingsofForm990
returnsand supplementaryschedulesorformswill be provided onlyforthe2008tax
year, themostrecentyearin which all voluntarilyreported information has been
processed.
1) OverviewoftheTax-ExemptSector
a) Provideadetailedbreakdownofthenumberofactivetax-exempt
organizationsingoodstandingwiththeIRS, brokendownbytype(e.g.,
501(c){4),501(c){10.
Enclosedas Exhibit1(a)-1 is Table25: Tax-ExemptOrganizationsand Nonexempt
CharitableTrusts, Fiscal Years2007-2010from the2010 IRS Data Book. TheFY2010
totalsdonottakeintoaccountorganizationsautomaticallyrevoked underInternal
RevenueCodesection6033U) beginning in June2011, organizationsthatterminatedor
whosetax-exemptstatuswas revoked through the examination processduring
FY2011,orneworganizationsrecognized astax-exemptin FY2011. Data Book
informationis updatedannually, with the FY2011 informationexpected in March2012.
REL 01024
2
b) ProvideadetailedbreakdownoftheIRSTaxExemptandGovernment
EntitiesDivision'sbudgetfor2008through2011. Specifythetotalnumber
ofemployeesdedicatedtotax-exemptorganizationworkandhowthese
resourcesareallocatedacrossthedivision.
Pursuantto clarificationfrom LegislativeAffairsthatthisquestionisintendedtoreflect
theTE/GEbudgetforFY2008- FY2011 and the staffing informationforonlythe
EOdivision,we offerthefollowing information. Theenclosed Exhibit1(b)-1 providesa
breakdownofTE/GEbudgetdataforFY2008- FY2011. Exhibit1(b)-2 provides
EOstaffinginformationasofthelastdayofeachfiscal year.
c)Howmanytax-exemptorganizationshavebeenauditedsince2008?
Provideabreakdownofall auditsopenedforeachtypeoftax-exempt
entity,theissuesidentifiedforaudit,andthecurrentstatusofsuchaudits.
Whatwastheaveragelengthofatax-exemptauditduringthisperiod?
Oursystemstrackexaminationinformationby return ratherthan byorganization, and
informationisentered intothesystematthe time eachreturn isclosed. Enclosedas
Exhibit1(c)-1 isIRS FY2008, FY2009 and FY2010Data BookTable 13: Returnsof
Tax-ExemptOrganizations, EmployeePlans, GovernmentEntities, and Tax-Exempt
BondsExamined, byTypeofReturn. According to theTable 13data, IRSTE/GE,
EOexaminedthefollowing numbersoftax-exemptorganization returnsand related
taxablereturnsduringFY2008- FY2010:
FY2008: 7,861
FY2009: 10,187
FY2010: 11,449
With respecttotheissuesidentifiedforaudit, theenclosed Exhibit1(c)-2 containsalist
ofallthePrincipal IssueCodes(PICcodes) used forclosedexaminationsinvolvingtax-
exemptorganizationsforFY2008- FY 2011. The Internal RevenueManualproVisions
governingtheuseofPICcodesarelocated atsection4.75.16.9.
1
Thereare96 PIC
codesforagentsto useaspartofthe processofclosingacase. PICcodesare
designedto proVide historicaldatato createamodelto distinguishcompliantfrom non-
compliantreturns. In no-changecases, agentsare instructedto selectthePICcode
thatcapturestheissuesonwhichtheagentspenttimeduringtheexamination. Ina
changecase, theagentisinstructedto selectthePICcodethatcapturestheissueor
issuesresulting inthechange. Agentsmaychoose uptofourPICcodes, and ifmore
thanonePICcode ischosen, theagentis to listthem in orderofpriority, beginningwith
themostimportant. In boththe no-changeand changecases, thedeterminationof
which PICcodesareapplicableto aparticularcaseisajudgmentmadebytheagent.
I The Internal Revenue Manual is available at http://www.irs.govlinnlindex.html.
REL 01025
3
Theenclosed Exhibit1(c)-2showstheten mostfrequentlyemployed PICcodes:
42: Delinquent940/941 Returns
83: EmploymentTax- OtherIssues
39: Delinquent990/990-EZReturns
21: OperationalTest
34: Other
78: EmploymentTax- WorkerClassification Issues
65: ClaimforRefund
5: DelinquentFilingofReturn(Other)
57: Gaming- Pull Tabs
79: EmploymentTax- 1099Issues
Theaveragelengthoftimeforcompleting examinationreturnsthatwereclosed in
FY2011 is210days.
d) Howmanynewtax-exemptorganizationsdidtheIRS recognizeineachof
thelastthreeyearsforwhichdataisavailable? Provideabreakdownofall
newapplicationsfortax-exemptstatusbyorganizationtypeandyearfor
thoseyears. Describetheprocessbywhichan entityisgrantedtax-
exemptstatus. WhatistheIRS procedureforconductingperiodicreviews
ofanorganization'stax-exempteligibility?
Enclosed asExhibits1(d)-1 is Table24: ClosuresofApplicationsforTax-Exempt
Status, byOrganizationTypeand Internal RevenueCodeSection,forFY2008through
FY2010fromthe2008,2009and 2010 IRS DataBook. The information inTable24for
eachfiscal yearistracked attheend ofthedeterminationprocess;thatis,the
informationreflectsthenumberofcasesclosed in eachfiscal year, notthenumberof
applicationsreceived.
ProcessforIRSTax-ExemptRecognition
With regardto recognitionfortax-exemptstatus, enclosedforyourgeneralreferenceas
Exhibit1(d)-2is IRS Publication557, Tax-ExemptStatusforYourOrganization. Most
organizationsseeking recognition ofexemptionfromfederal incometaxmustuse
specificapplicationsformsprescribed bythe IRS; primarily, Form 1023,Applicationfor
RecognitionofExemption UnderSection501(c)(3)ofthe Internal RevenueCode, and
Form 1024,ApplicationforRecognition UnderSection501(a). Someorganizationsdo
nothaveto usespecificapplicationformsand applyfortax-exemptstatusbyletterto
theaddressshownon Form8718, UserFeeforExemptOrganization Determination
LetterRequest. A copyoftheorganization documentshould beenclosed and the letter
should besigned byan officerofthe applicantorganization. All applicationsfor
exemption aresentto EODeterminations, headquartered in Cincinnati, Ohio.
Ifan applicationforexemptiondoesnotcontain the required information, itmaybe
returned withaletterofexplanationwithoutbeing consideredon itsmerits.
REL 01026
4
Alternatively, if the application is substantially complete, the IRS may retain the
application and request additional information as needed. If an application for
exemption raises issues on qualification for exemption or foundation status for which no
published precedent exists or for which nonuniformity may exist, EO Determinations will
refer the application to EO Technical in Washington, D.C.
If the IRS receives information sufficiently establishing that an organization meets the
requirements for exemption from federal income tax, the IRS will issue a determination
letter recognizing the organization's exempt status and providing its public charity
classification, if applicable. A proposed adverse determination letter will be issued to an
organization that has not provided sufficiently detailed information to establish that it
qualifies for exemption or if the information provided establishes that it does not qualify
for exemption.
The IRS also grants group exemptions to organizations that have or plan to have
related organizations that are very similar to each other. Groups of organizations with
group exempt letters have a "head" or main organization, referred to as a central
organization. To qualify for a group exemption, the central organization and its
subordinates must be affiliated with the central organization, subject to the central
organization's general supervision or control, and exempt under the same paragraph of
section 501 (c), through not necessarily the paragraph under which the central
organization is exempt.
A central organization seeking a group exemption request follows the same application
format as a single organization - it sends its Form 1023 or Form 1024 application
exemption to the IRS. Upon receipt of an application Form 1023 or 1024 and a request
for group exemption, the IRS first determines whether the central organization and the
existing subordinates qualify for tax exemption. Once the IRS grants the exemption, the
central organization is responsible for: (1) ensuring that its current subordinates
continue to qualify to be exempt; (2) verifying that any new subordinates are exempt;
and (3) updating the IRS on an annual basis of new subordinates, subordinates no
longer to be included, and subordinates that have changed their names or addresses.
Enclosed for your additional reference as Exhibit 1(d)-3 is IRS PUblication 4573, Group
Exemptions, TE/GE Division.
In terms of follow-up and as a regular part of its annual workplan, the Review of
Operations (ROO) performs follow-up compliance reviews of a statistical sample of
organizations that were granted tax-exempt status in the past 3-5 years. Based upon
results of reviews, organizations may be referred for examination where appropriate.
In addition to the statistical sample, ROO performs compliance reviews on organizations
that have recently gone through the determination process, including organizations that
are recognized as tax-exempt because their applications meet all the legal requirements
for tax-exempt status, but the agent has concerns about future activities of the
organization so follow up is appropriate.
REL 01027
5
2) Compliance
a) ProvideadetailedexplanationofhowtheIRS isusingthenewinformation
obtainedfrom the newForm990 to improvecurrentenforcementefforts
andfuturecompliance.
Weundertookacomprehensiveredesign ofForm990, ReturnofOrganizationExempt
from IncomeTax, thatwaseffectivebeginningwith taxyear2008. Oneelementofthe
redesignwastoprovideastructured formatforreporting information- boththe
additional informationbeing requested and theinformationthatpreviousversionsofthe
form had required withoutspecifyingtheformatto be used. Byprovidingthatstructure,
theinformationreported onthe Form 990 is more readilycomparable, whichenablesus
touse dataanalytictechniquesto identifyareasofpotential noncompliance. The
redesigned Form990alsooffersthetaxpayerabetterunderstandingofwhat
informationto provideandthe publicwith amoreaccuratepictureofan organization's
activities.
Asorganizationshavehad an opportunityto transition into and provideinformation
usingthenewreporting requirements, we are nowdevelopingand testing risk modelsto
improveourexaminationcase selectionprocess. Forinstance, such riskmodels
includeanalyzing issuesrelated to: compliance practicesofself-declared section
501(c)(4), section501(c)(5)and section 501(c)(6)organizations; unrelated business
incomeandfilings ofForm 990-T; and governance, particularlycompositionofboards.
Thiseffortisin linewithTE/GE'swiderstrategyofusingdata-driventoolstotargethigh-
risk areas.
b) Provideadetailedexplanationofhowthe redesigned Form 990 increased
transparency
The redesigned Form990proVidesastructureforproviding informationthatmakesit
morereadilycomparableacrossdifferentorganizations. Byadoptingtheformatofa
coreformwith aseriesofschedules,the redesigned Formallowsthepublic, pressand
othersto moreeasilylocatethe informationtheyareinterested in. Theredesigned core
formalsoallowsanorganizationto describeitsexemptaccomplishmentsand mission
upfrontand providesmoreopportunitiesthroughouttheformfortheorganizationto
explainitsactivities.
Forthe2010Form990, examplesofoureffortsto refinethe Formto increase
transparencyincludechangesto thefollowing Schedules:
ScheduleC, Political Campaign and LobbyingActivities:
InstructionsforPartII-Aclarifythatthis Partneedstobe completed byall
Form990filersforwhichthe501(h)lobbyingexpenditureelectionwas
valid and in effectduringthe2010tax year, whetherornotthe
organizationengaged in lobbying activitiesduringthattaxyear.
REL 01028
6
ScheduleF, StatementofActivitiesOutsidethe United States: ScheduleFand
itsinstructionswere revisedto:
Clarifythatthe numberofindependentcontractorsin aforeign region
shouldbe reported, along withthe numberofemployeesand agentsin
thatregion.
Requirereporting ofthetotal bookvalue ofinvestmentsin aforeign
region.
Clarifyhowtoreporttotal numberofforeignoffices, agents, employees
and independentcontractors.
Clarifythattypesofindirectexpendituresforforeign activitythatdonot
havetobereported iftheyarenotseparatelytracked includeexpensesfor
listingstudyabroadprogramson aschoolwebsiteorin apapercatalog.
Clarifythatforeign program related investmentsare reportablein Part"of
ScheduleF.
PartII instructionsstatethatafilershould reportnotonlygrantsandother
assistancetoforeignorganizationsorentities, butalsoto U.S.
organizationsorentitiesforforeignactivity.
Parts"and III instructionsclarifythatorganizationsusingtheaccrual
methodofaccountingthat makeforeign grantstobe paid infutureyears
should reportthe grants' presentvalue in Part"and reportanyaccrualsof
additionalvalue in futureyears.
PartsII and III instructionsclarifythatthefiling organizationshould report
foreigngrantsregardlessofthe sourceofthegrantfunds(whether
restrictedorunrestricted)orwhetherthefiling organization selectedthe
grantee.
A newPartIVrequires reporting ofwhethertheorganizationengaged in
foreign activitiesthatrequirefiling ofotherIRSforms.
ScheduleR, Related Organizations:
Newcolumn(g)in Part"askswhethereach related tax-exempt
organizationisasection 512(b)(13)controlled entityofthefiling
organization.
Newcolumn(k)in PartIII asksforthefiling organization's percentage
ownershipinterestin each related partnership.
Newcolumn(d)in PartVasks howtheorganizationdeterminedthe
amountofeachtypeofrelated partytransaction reported in PartV.
Instructionsprovideexamplesto illustratehowthefilingorganizationcan
controlorbe controlled by multiplepersons, and howmultiplenonprofit
organizationscan bedirectlyand indirectlyrelatedtooneanother.
REL 01029
7
c)HavetaxpayersexpressedconcernstotheIRS regardingthecompliance
burdenassociatedwiththeredesignedForm990? Ifso,describethe
primarycomplianceissuesidentifiedbytaxpayersandwhattheIRS has
done,orplanstodo,toaddresstaxpayerconcerns.
TheIRS extensivelyredesigned Form990fortaxyear2008to promotetaxcompliance
and increasetransparency.Theredesignwasacomprehensive, collaborativeprocess
thatincluded meetingswith taxpayergroupsandfeedbackfromtheEOsector
(includingthepublic, statecharityregulators, the media, and policymakers)during
conferencesand speeches. 'Also, based on feedbackfrom theover800formal public
commentsondraftsofthe2008 Form 990, schedules, and instructions,the IRS
recognized thatthetransitionfromtheold to the redesigned Form990would change
thewaysomeorganizationscaptureandtrackdataforthemto completetheForm.
Thus,to helpallfilersbecomefamiliarwiththe Form,wereleasedtwo draftsofthe2008
Form990intheyearand ahalfpriorto publicationofthefinal Form, along with multiple
educationalresourceson howthe Form had changed and tipsforcompleting it. Togive
small and mid-sizedorganizationswith fewerlegal, accounting, and administrative
resourcesmoretimetoadapttothe reportingtransitions, we also implementeda3-year
phase-in periodI raisingtheassetand grossreceiptsthresholdsforForm990filing by
ten-fold(from$100,000in grossreceiptsand $250,000in assetsto$1 millionand $2.5
million, respectively)fortaxyear2008, byfive-foldfortaxyear2009($500,000and
$1.25million), and ending at$200,000and $500,000fortaxyears2010and later. The
transitionperiodallowed hundredsofthousandsofsmallerand mid-sized organizations
thatwould have been requiredtofile the Form 990fortaxyears 2008and 2009tofile
theshorterForm 990-EZforoneorbothofthoseyears. Thistransition period alsogave
organizationstimetoprogressivelyenabletheirinternalsystemsto respondtothe new
requirements.
Themajorredesign oftheForm990 iscomplete. The IRSredesignedtheForm to
makeitmorestreamlined andbetterorganized. Weeliminatedunstructured
attachments, replacingthem with structured schedulesto promoteuniformityand
reduceambiguityoverhowto reportsupplementalinformation. Wealso added many
toolstothe instructions, includingaGlossary, Appendices, examplesand illustrations,
andasequencing list, to helpfilerscompletethe Form moreeasily.
TheIRScontinuesto refinethe Form, schedules, and instructionsbased on public
comment. Wehavemadeclarifications, corrected errors, and added examplesto make
the Form easierto understandand complete. AsrecentlyasJune2, 2011,we
requested publiccommenton 11 transitional issuesand frequentlyasked questions
involvingtheredesigned Form990 inAnnouncement2011-36. We havereceivedjust
over100commentsin responsetoAnnouncement2011-36, whichwe areinthe
processofanalyzing. Anychangesin responseto thecommentswill bemadeas
appropriate. Wewilldoso on an ongoing basisto minimizeanypotentialburdens
whereconsistentwith ourobjectivesto increasecomplianceand transparency.
REL 01030
8
In responsetotheAffordableCareAct(ACA), the IRS added anewPartV, Section Bto
the2010Form 990, Schedule H(Hospitals)to gatherinformationrelatedto new
requirementsfortax-exempthospitalfacilities and to related policiesand practices.
Further, in responseto meetingswith EO stakeholdersthatmoretimewasneededfor
thehospitalcommunitytofamiliarize itselfwith the newquestionsandto adjusttheir
systemstogatherthe informationneeded aswell as publiccommentson ambiguitiesin
the questions,the IRSissuedAnnouncement2011-37thatmadetheentirePartV,
SectionBoptionalforthe 2010taxyear. The IRS continuesto solicitand reviewpublic
commentsonScheduleHrevisions and implementationoftheACArequirementsfor
tax-exempthospitals.
Wehavepostedonourwebsite, IRS.gov/eo, manyaudio, visual, and writtentoolsto
assistfilersin understandingandcompleting the Form 990and schedules. Wealso
speakatdozensofconferences, seminars, and webinarsthroughouttheyeartoreach
thousandsofrepresentativesoftax-exemptorganizationsand answertheirquestions
aboutForm990 preparation. Wewill alsocontinueto acceptcommentsthroughthe
IRSForm990commentmailbox.
d) IstheIRScontemplatinganyadditionalchangestoForm990 tofurther
compliancegoals? Ifso,describethe plannedmodificationsandtheir
estimatedeffectoncompliance.
Whilethe majorredesigniscomplete, we continueto refinetheForm990, schedules,
and instructionsin responseto publiccomment received informallyandthroughour
commentmailboxand requestforclarification. See responsetoquestion2(c), above,
foradescriptionoftheIRS'songoingeffortsto solicitand respond to pUbliccommenton
the Form 990. Inaddition,theIRSExemptOrganizations(EO)division seeksand
coordinatesinputfrom itsvariousoperating units, including EORulingsand
Agreements, EOExaminations, and EODeterminationsin consideringchangestothe
Form990, schedules, and instructions. EO also consultswith itsChiefCounsel'soffice
in considering anddraftingsuch changes.
e) HowistheIRSusingtherelatedorganizationinformationfromthe
ScheduleR? Whattypeofcomplianceproblemsisthisscheduledesigned
tocurb? IstheinformationreportedontheSchedulehelpfulinimproving
compliance? Ifnot,arefurtherchangestotheschedulecontemplated? If
so,pleasedescribetheplannedmodificationsandtheirestimatedeffecton
compliance.
Theredesigned Form990fortaxyearsbeginning in 2008providesmore
comprehensiveinformationaboutan organizationthanthepriorForm 990 in allareas,
includingtheorganization'sactivities, thecompensationofitsofficersand key
employees, and relationshipswith otherentities. Forinstance, theScheduleRis
designedto increasetransparencybyproViding amorecomplete pictureofthefiling
organization'sstructure, relationshipswith related organizations,typesoftransactions
with related organizations, and involvementinjointventureswith non-exemptentities.
REL 01031
9
Thisdisclosurealsoservesourcompliance purposes, as itmaysuggestpotential
inurement, privatebenefit, ornon-exemptactivity.
Weareusingthisnewinformation, including informationontherelated organizations
reported in ScheduleR. todesignadaptablerisk modelsto allowusto identify
organizationswith higherpotentialfornoncompliance. Weplanto usethesetoolsto
identifyorganizationsthatwemaycontactthroughspecificcomplianceprojectsand
throughourregularexaminationprogram. Forinstance, we maylookatcompensation
from related organizationsaspartofourdeterminationwhetherthecompensationof
certain officers, directors, and keyemployeesis reasonable.
No changesto theScheduleRarepresentlyunderway, butwe maymakemodifications
totheScheduleRand/orinstructionsbased on commentssubmitted in responseto
.Announcement2011-36.
f) HastheIRSidentifiedanyspecificgovernanceissuesbasedonthe
additionalinformationprovidedontheredesignedForm990? Ifso,
provideadetaileddescriptionofthenewissuesidentified.
Basedonfeedbackfromthe regulated community,wehavelearnedthatexempt
organizations'governingboardshavebecomemore involved in Form 990preparation
and reviewsincetheForm990wasredesigned and questionswereadded in PartVI
(Governance)on governancepoliciesand board reviewofthe Form990. Similarly, we
havelearnedofgreateradoptionofsound risk managementpoliciesbyexempt
organizations'governingboardsin responseto PartVI questions.
Wealsohave learnedthatgoverning boardsofexemptorganizationsaremaking
greatereffortstoadd independentboard members, and tomorecarefullyscrutinize
transactionswith board membersto ensurethatsuchtransactionsdo notcompromise
theirindependence.
In 2010,weinitiatedalong-termstudyontheintersectionofgovernancepracticesand
taxcompliance. Togatherdata,we began using achecksheet, enclosedas
Exhibit2(f)-1, attheend ofeveryexaminationofareturn associatedwithasection
501(c)(3)organization. Weareusingthechecksheetdatato betterunderstandhowthe
compositionofgoverningbodiesand generalgovernancepracticesimpacttax
compliance. Inaddition, we are usingresponsesto Form990to continuedeveloping
andtesting risk modelsto improveourexamination case selection process. Aswe
compilesufficientinformation,we plan toworkwithourresearchfunctionto analyze
long-termdataand publiclyreportthefindings.
REL 01032
10
g) TheIRSrecentlyrevokedthetax-exemptstatusofthousandsof
organizationsacrossthecountryforfailuretofiletaxreturnsaspartofthe
automaticrevocationprogram.
i) Whatisthecurrentstatusofthisprogram?
Pursuantto the Pension ProtectionActof2006, Pub. L. No.109-280, 120Stat. 780,
section 1223(2006)(PensionProtectionAct), the IRS is implementingthe revocation,
whichoccursbyoperationoflaw, ofthetax-exemptstatusofanyorganizationthatfails
tofile arequired annual returnorForm990-N e-Postcardforthreeconsecutiveyears.
In June2011,theIRSfirstsentnoticestoand publishedthe namesofapproximately
275,000organizationswhosetax-exemptstatuswasautomaticallyrevoked because
theydid notfile legallyrequired annualreportsforthreeconsecutiveyears. TheIRS
believesthevastmajorityoftheseorganizationsaredefunct, butalsoannounced
specialstepsto helpanyeXisting organizationsto applyforreinstatementoftheirtax-
exemptstatus. AsofOctober7,2011,around 385,000organizationshave been
automaticallyrevoked. As ofOctober14,2011,about5,500organizationshave applied
forreinstatement.
TheIRScontinuesto send notices, remindingorganizationsoftheirfiling reqUirements,
and publishesthenamesofadditionalorganizationswhoseexemptstatushasbeen
automaticallyrevokedeverymonth. TheIRSalreadyis processingapplicationsfrom
thoseorganizationsthatrequestreinstatementoftheirtax-exemptstatus(theonly
administrative remedyallowed undersection6033(j)(2)). The IRS recognizesthatmany
smallorganizationsweredisproportionatelyaffected bythelawchange, and is
administeringatransitionreliefprogramforcertain smalltax-exemptorganizationsthat
weremadesubjecttothe newForm 990-N e-Postcardfiling requirementbythePension
ProtectionAct. Theorganizationseligibleforthetransition reliefprogrampayareduced
userfeewiththeirapplication. Ifthe applicationis approvedformeetingthe
requirementsforexemption,theyautomaticallyregain theirtax-exemptstatusretroactive
tothedateofrevocation.
ii)Howmanytaxpayersreinstatedtheirtax-exemptstatususingthe
proceduresinRevenueProcedures2011-8,2011-36,and2011-43?
iii)Howmanytaxpayersarecurrentlyintheprocessofbeingreinstated?
On June8, 2011, the samedaywe publishedthefirstAuto-RevocationList(List)on
IRS.gov, we alsopublished several piecesofguidanceto proVideorganizationsonthe
Listwith informationregarding reinstatementoftheirtax-exemptstatus. Transitionrelief
wasofferedto certainsmallorganizationsunderNotice2011-43. Thetransition relief
includedareduced userfeeoffered in Rev. Proc. 2011-36and, iftheorganization's
applicationforexemptionwasapproved, retroactive reinstatement. All other
organizationsontheListthatappliedforreinstatementoftax-exemptstatusare
reqUired to paytheuserfee provided in Rev. Proc. 2011-8.
REL 01033
11
In responseto questions2(g)(ii)and (iii)above, asofOctober14,2011, the IRS has
received about5,500applicationsseeking reinstatementandclosed about2,000
(includesapprovalsand asmall numberofapplicationsthatwerewithdrawnorclosed
forfailuretoprovide informationsubstantiating exemption). About 1,550ofthe
applicationswereapprovedforreinstatementunderthetransitionreliefproVided in
Notice2011-43(and Rev. Proc. 2011-36), and the remaindercamein withthe regular
userfeesprovided in Rev. Proc. 2011-8.
iv) Whatistheaveragelengthoftimefortheprocessingofa
reinstatementrequest?
Wedonottrackreinstatementrequestsseparatelyfrom otherrequestsfor
determinations. Theaveragelengthoftimeforprocessing all typesofEO
Determinationscaseswas 104daysforFY2011.
v) IstheIRS planningtoissueanyfurtherguidancerelatedtothe
automaticrevocationprogram?
TheIRScontinuesto send noticestoorganizationsto remindthemoftheirfiling
responsibilities. In addition,the IRScontinuesto updateitscustomeroutreachand
educational materialstoofferongoing informalguidanceand addressnewissues
relatingtothe automaticrevocation program, such asupdatingapplicableFAQsonthe
IRSwebsite(www.irs.gov).
3) UnrelatedBusinessIncome
a} In2009,theCongressionalResearchServiceestimatedthatrevenuesfrom
tax-exemptorganizationswere$1.4trillionandthevalueofassetsheldby
tax-exemptorganizationstotaled$2.6trillion.
2
ProvideIRSdataregarding
therevenueandassetsoftax-exemptorganizationsfor2008, 2009, and
2010.
TheSOl Divisionpublishesthebalancesheetand incomestatementitemsfor
sections501(c)(3)-(9)tax-exemptorganizationsonly, basedon informationreceived on
Forms990and990-EZ. ThemostrecentSOl dataisfrom taxyear2008. All figures
arebasedonstatisticallyvalid samples, and moneyamountsare in thousandsof
dollars. EnclosedasExhibits3(a)-1 and 3(a)-2areTable3: Form990-Returnsof
501(c)(3-(9)Organizations: BalanceSheetand IncomeStatementItems, byCode
Section,TaxYear2008, andTable4: Form 990-EZReturnsof501(c)(3)-(9)
Organizations: Selected Items, byCodeSection, TaxYear2008.
2 See An Overview ofthe Nonprofit and Charitable Sector, Congressional Research Service (Nov. 17,2009).
REL 01034
12
b)HowdoestheIRSidentifyunrelatedbusinesstaxableincomeissuesfor
audit? Provideabreakdownofthetotalnumberoftax-exemptaudits
openedbytheIRS in2009and2010 thatinvolvedunrelatedbusiness
taxableincomeissues.
TheIRSidentifiesunrelatedbusinesstaxableincome(UBTI)issuesforauditin two
mainways:
ByusingForm990datatodevelopdataanalyticsand risk modelsfromthe
reported information, includingunrelated businessincome; and
Throughthestrategicplanningworking group,which looksatdataanalytics
trendsin examand applicationsforexemption, newspaperarticles, websites, and
otherpublicinformationto identifypotential areasofnoncomplianceand
developsprojectsto addresssuch noncompliance.
AsofOctober19,2011,oursystemsshow874closed returnswithatleastoneUBTI
PICcodeforFY2009,and 1,028returnshadatleastoneUBTI PICcodeforFY2010.
Limitationsin PICcodedataarediscussed in the responseto question 1(c). See
enclosed Exhibit1(c)-2, whichcontainsalistofall the Principal IssueCodes(PIC
codes)usedforclosedexaminationsto identifyissuesinvolvingtax-exempt
organizationsforfiscalyears2008- 2011.
c)Providethefollowingfiguresconcerningall501(c)organizationsforthe
2009and2010taxyear, identifyingeachtypeseparately.
i) Howmanyorganizationsreportedunrelatedbusinesstaxableincome
andincomeexemptfromtheunrelatedbusinessincometax?
ii) Howmanyorganizationsreportedbothunrelatedbusinesstaxableand
incomeexemptfromthe unrelatedbusinessincometax?
In responsetoquestions3(c)(i)and (ii)above,theSOl Divisionpublishesinformationon
unrelatedbusinessincomeattributedto tax-exemptorganizationsbasedon information
received on Form990-T. ThemostrecentSOl data isfromtaxyear2008. The
informationrequested isshownonSOlTable 1: NumberofReturns, GrossUnrelated
BusinessIncome(UBI), TotalDeductions, Unrelated BusinessTaxable Income(Less
Deficit), UnrelatedBusinessTaxable Income,and TotalTax, byTypeofTax-Exempt
Organization, TaxYear2008, and isenclosed as Exhibit3(c)(i)-1.
iii)Whatisthetotalamountoftax-exemptroyaltyincome,andtax-exempt
rentalincomereported? Whatistheaverageamountofthosesources
ofincomeamongtheentitiesthatreportedreceivingatleastsomesuch
income?
Although notpublished in anannualSOltableorIRS Data Book, saldoestrack
informationrelatingtoroyaltyincomereported on Form 990and rental incomereported
REL 01035
13
on Form990and Form990-EZ. Please notethatForm 9 9 ~ Z doesnotaskfor
informationon royaltyincome. Attached asExhibit3(c)(iii)-1 isthefollowing SOldata:
RoyaltyIncomeReported by501(c)(3)-(9)Organizationson Form990, TaxYear2008.
and NetRental IncomeReported by501(c)(3)-(9) Organizationson Forms990and
990-PF,TaxYear2008.
iv)Whatarethemostcommontax-exemptorganizationerrorsrelatedto
reportingtradeorbusinessincome?
Asnoted intheresponseto question1(c), PIC codesare usedtoprovidehistoricaldata
tocreateamodeltodistinguishcompliantfrom non-compliantreturns. ThespecificPIC
codesthatrelateto UBTI are listed in the orderoffrequencyon the enclosed
Exhibit1(c)-2,which listsall usedPICcodesforclosed examinationsinvolvingtax-
exemptorganizationsforfiscal years2008- 2011. ThespecificPIC codesthat
describeUBTI issuesare:
33: UnrelatedTradeofBusiness(Other)
35: UBI- ExpenseAllocation Issues
36: UBI- NOLAdjustment
37: UBI-Incomefrom Controlled Corp. underIRC 512(b)(13)
38: UBI- Other
v)DescribeIRS proceduresforreviewingreturnsbytax-exempt
organizationsthatreportunrelatedbusinesstaxableincome.
Whenagentsareassigned anyreturnforafull-scopeaudit, theylookatall issueson
thereturn, includingunrelatedbusinesstaxable income(UBTI). TheInternal Revenue
Manualcontainsproceduresforconductingexaminationsinvolving UBTI issues.
See,e.g., IRM 4.76.2.8, enclosedas Exhibit3(c)(v)-1.
4) Audits
a) WhatpercentageoftheTaxExemptandGovernmentEntitiesDivision's
budgetisallocatedtowardsauditsandexaminations?
Pursuantto clarificationfrom LegislativeAffairsthatthequestionisintendedtoreflect
onlytheEObudgetin FY2011,60.27percentofEO'sbudgetis allocatedtowards
auditsand examinations.
b) ExplainhowtheIRS reviewsallegationsofexcessivepoliticalcampaign
activitybytax-exemptorganizations.
All referralsfromWhateversourcethatallegesthatatax-exemptorganizationis in
potential noncompliancewiththetaxlaw, includingpolitical campaign intervention, are
sentto EOExaminations'Classification in Dallas, Texas. Classificationstaffreviews
eachallegationto determinewhetherthe referralfalls underEOExamination's
REL 01036
14
jurisdiction. Ifitdoes, Classification staffinitiates"case building", which includespulling
transcriptsofForm990 and performingotherresearch as appropriatetoallowthe IRS
tomakeadecisionbased on a"reasonablebeliefstandard"thatfurtheraction is
warranted. Ifitis notan EOcase, thereferralisforwarded totheappropriateIRS
OperatingDivisionto beworked throughtheirreferral process.
All EO Examinationreferralsareentered intoadatabasefortracking purposes. Notall
referralsentered intothedatabasewill be selectedforexamination.
Proceduresexisttoensurethatno single individual makescaseselection
determinationswhensensitive issuesare potentiallyinvolved. All referrals involving
politicalactivitiesare sentto an EO referral committeemadeupofexperienced, career
civil servantExammanagers. Ifthereferral committeedeterminesthatthereis
examinationpotential,the referral is assigned to afield group. Whenareferral is
received byafield groupforexamination, the Group Managergenerallyreviewsthe
caseand assignsittoan agentwiththeappropriate levelofexperience.
c)WhatissuesdoestheIRS prioritizewhenconductingauditsoftax-exempt
organizations,orreviewingthereturnsofsuchorganizations?
OurstrategicplanningprocessinfluenceshowwefocusourExamination resources.
Theprocessincludesreviewing Form990data, Examtrendingdata, Determinations
trendingdata, inputfrom otherIRSfunctional areas, referralsfrom the public, news
media, and otherpublicinformation. Asalsodescribed in the responseto question3(b),
ourstrategicplanningworkinggroupusesdatafromthe Form990returnsto review
dataanalyticstrendsand developriskmodelsto identifypotentialareasof
noncompliance. ThisallowstheIRSto determinehowto allocateresources andto
developprojectsthatfocuson areaswherewe see aneedtogathermoreinformation.
Thisalsoallows ustodeterminetypesofoutreachwarranted to assisttax-exempt
organizationsin theircomplianceefforts. Enclosed asExhibit4(c)-1 isacopyofthe
mostrecentlypublished EOworkplan (FY2011), which listssomeoftheprojects
initiatedthroughourstrategicplanningworking group.
d) The redesignedForm990 requiresadditionalinformationonrelatedand
subsidiaryorganizations. Hasthenewinformationpromptedan auditor
beenofassistanceduringthecourseofanaudit? Ifso,pleasedescribe
themannerinwhichtheinformationhasbeen used.
Seethe responseto question2(e)regardingrelatedorganizationinformation.
5) CurrentTax-ExemptEnforcementInitiatives
a) InadditiontotheHospitalsandUniversitiesprojects(referencedin
sections(c)and(d,arethereanytax-exemptcomplianceprojectsthatthe
IRS iscurrentlyundertaking? DoestheIRShaveplanstolaunchanysuch
REL 01037
15
projectsintheupcomingyear? Ifso,pleasedescribetheanticipated
complianceproject.
Each yearthe EODivisionputsoutits workplan thatincludesaccomplishmentsfromthe
previousfiscalyearand complianceprioritiesfortheupcomingfiscal year, and also
providesupdated statistics. Enclosed as Exhibit4(c)-1 isacopyofthemostrecently
published EOworkplan(FY2011). Someoftheworkplanhighlightsincludethe
following:
Filingdemographicsand statistical informationonthe redesigned 2008Form 990
ImplementationoftheACAlegislation
Colleges and Universitiesstudyand related examinationsprojectthatasked
questionsrelatingtotheirexecutivecompensation, endowments, and unrelated
businessincome
International-focusedtaxenforcementefforts, suchastheGifts-in-Kind
examination project, thatexplorewhethercharitableassetsofexempt
organizationsarebeingdiverted internationallyfornon-charitablepurposes
Non-filerInitiativesto helptaxpayerscomplywiththeirvoluntaryfiling obligations
andto improveenforcement
b) ExciseTaxes/Penalties
i) Howmanydisqualifiedpersonsororganizationmanagersweresubject
topenaltiesunderIRC 4958forviolatingtheexcessbenefitrules
between2006and20101
ii)Howmanydonoradvisedfundsorsupportingorganizationswere
subjecttotheexcessbenefitrulesofIRC 4958between2006and
2010? Haveanyoftheseorganizationslosttheir x ~ x m p t status?
iii)Howmanytax-exemptorganizationshavebeensubjecttotheexcisetax
underIRC 4911 between2006and2010forfailuretocomplywiththe
lobbyingrules?
In responsetoquestions5(b)(i)- (iii)above, all supportingorganizationsanddonor
advisedfunds, aswellasanydisqualified personsand organization managers, are
subjecttothevarious rulesand applicableexcisetaxes underChapter41 (including
section4911)and Chapter42 (includingsection 4958).
Ourautomatedexaminationssystemstrackexcisetaxreturnsoforganizationsor
individualswhowerefoundtohaveviolated Chapters41 or42filed asaresultof
examinations. However, ourexaminationssystemsonlycapturethe aggregateof
Chapter41 and Chapter42excisetax assessmentsanddo notseparatelybreakdown
thedifferenttypesofexcisetaxesdescribedwithinthe subsectionsofChapter41 and
Chapter42. Thus, ourautomated examinationssystemdoesnotseparatelytrackor
reportsections4911 or4958assessmentdata.
REL 01038
16
In additionto Examinationdata,theSOl Division analyzesdatafrom estimatesbased
onstatisticallyvalid samplesofexcisetax returns (Forms4720)filed voluntarily, notas
aresultofan examination. Althoughthe SOl Division providessomedataon Chapters
41 and42 excisetaxes,theyalsodo notdifferentiateorseparatethedatafurther
amongthevarioustypesoftaxeswithin each chapter. TheSOl estimates, based on
self-initiated Forms4720filed duringaparticularcalendaryear, mayincludeChapter41
orChapter42violationsoccurring in varioustax years.
EnclosedasExhibit5(b)1 - 5isSOlTable 1: ExciseTaxesReported byCharities,
PrivateFoundations, and Split-InterestTrustsofForm 4720forcalendaryears
2006- 2010. Duringthistimeperiod, SOl estimatesthatForm4720filers self-
assessed approximately$1,440,203in section4911 excisetaxesand $1,322,811 in
section4958excisetaxes.
iv) How many tax-exempt organizations has the IRS found to be engaged in
tax shelter transactions between 2006 and 2010? Provide a breakdown
of the type of transaction and the results of the audit/investigation.
TheIRSOfficeofTaxShelterAnalysis(OTSA)capturesTE/GE-wideinformationontax
shelteractivitiesthataresubjectto thedisclosure requirementsundersection6011 and
section6033.
PursuanttoTreasuryRegulationssection 1.6011-4,ataxable partythathasparticipated
in alistedtransaction mustfileaForm 8886to meetitsdisclosurerequirements. OTSA
datashows68 ListedTransaction Form 8886 Disclosuresfrom2006- 2010. The
following table summarizesthe numberofdisclosuresbysheltertype. OTSA's
databasedoesnottracktheresultsofthe audit/examinations.
#of
tE/GE
DescriptionofListedTr.3nsaction Disclosures
IRC419A(f)(6)- Multi EmployerWelfarePlans 6
IntermediaryTransactions 5
ContingentLiabilities
*
Roth IRAs 26
IRC4 I 2(i) - RetirementPlans 8
SC2- S-CorpStockTransaction 15
IRC419A- AbusiveTrustusingLifeInsurancePlans 6
NotionalPrincipalContracts/Swaps
*
Total 68
*3 orfewer
Also, pursuantto Treas. Reg'. section 1.6033-5,certaintax-exemptentitiesthatare
subjecttosection4965taxesare requiredto file Form8886-T, DisclosurebyTax-
REL 01039
17
ExemptEntityRegarding ProhibitedTaxShelterTransaction, todiscloseinformation
with respecttoeach prohibitedtaxsheltertransactionto whichtheentityisaparty.
OTSAdata shows42ListedTransaction Form8886-TDisclosuresfrom 2006- 2010.
Thefollowing tablesummarizesthe numberofdisclosuresbysheltertype. OTSA's
databasedoesnottrackthe results ofthe audiUexaminations.
#of
TE/GE
Description of i ~ t e Transaction Disclosures
VEBA Welfare Benefit Fund - 419A(f)(5)
*
Retirement Plans - 412(i)
*
Notional Principal Contracts and Swaps 34
Abusive Trusts providing welfare benefits 4
Unknown
*
Total 42
* 3 orfewer
Further, beginningin 2008,theredesigned Form990expandsthequestionsrelatingto
taxshelterreporting. TheFormaskswhetheran organizationwasapartytoorwere
notified byataxableentitythattheywereapartyto aprohibited partytransaction, and
whetherForm8886-Twasfiled, unlikein previousyears. Intaxyear2008,87
organizationsindicatedtheywereapartytoorwere notified byataxableentitythatthey
wereapartyto aprohibited partytransactionon theirForm990. Ofthese87
organizations, 28 reportedfiling aForm8886-1.
c) Hospitals
i) Describethe IRS'scurrentplanstocomplywiththe newrequirementin
IRC 4959to review, atleastonceeverythreeyears, the community
benefitactivitiesofeach hospitalorganizationthatissubjecttothe
requirementsunderIRC 501(r).
The IRSformedand trained adedicatedgroupto conductthe communitybenefit
activitiesreviewofeach hospitalorganizationthatissubjecttotherequirements under
section501(r). Thisgroupwasformed in October2010, and reviewsstartedin March
2011. Approximatelyonethird ofthe required hospitalreviewswillbeconductedeach
year.
ii) Whatsteps arethe IRStakingto complywiththe requirementunderIRe
9007(e)ofPub. L. 111-148,PatientProtection and AffordableCareAct,
tosubmitan annualreportto Congress, includingthe Ways and Means
Committee, regardingthe levelofcharitycareprovidedbyall hospitals
(taxable,charitable, and government)?
The IRS iscoordinatingwiththeDepartmentofTreasury(Treasury)and Healthand
HumanServices(HHS)to developand gatherthe information necessaryforthereport
REL 01040
19
all examinations looked at both issues regardless of why the entity was selected. As
noted, many of these examinations are still ongoing and we will be reporting our
findings in the final report.
I hope this information is helpful. If you have any questions, please contact me or have
your staff contact Mary Jo Salins at (202) 283-8791.
Sincerely,

J sep . Grant
ting Commissioner
Tax Exempt & Government Entities
Enclosures
REL 01041

Responsive Documents - CREW: IRS: Regarding Policy On Investigating 501 (C) (3) Organizations

Enviado por

Dados do documento

Título original

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Responsive Documents - CREW: IRS: Regarding Policy On Investigating 501 (C) (3) Organizations

Enviado por

Direitos autorais:

Formatos disponíveis

CHARL W. HOUS I ANY, ,lH lOOISIANA DAVE CAMP.MICHIGAN.

Você também pode gostar