Tax Exempt

How does an organization become tax-exempt?

To be exempt from federal income tax, an organization must be described in one of the sections of the Internal Revenue Code providing for exemption. Download a copy of Publication 557, Tax-Exempt Status for Your Organization for more information.

Most organizations seeking recognition of exemption from federal income tax must use application forms specifically prescribed by the Service. Two forms currently prescribed by the Service are Package 1023, Application for Recognition of Exemption, (for charitable organizations) and Package 1024, Application for Recognition of Exemption, (for other tax-exempt organizations). A few types of organizations are not required to submit specific application forms. The application your organization is required to submit is specified in Publication 557.

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How can an application for tax-exempt status be expedited?

Requests for expedited treatment of an application must be made in writing and must contain a compelling reason why the case should be worked ahead of its normal date order. Generally, expedited treatment will be granted in the following circumstances:

  • 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 operations;

  • The purpose of the newly created organization is to provide disaster relief to victims of emergencies such as flood and hurricane;

  • There have been undue delays in issuing a letter caused by problems within the Service;

  • Any other situation where the Division Chief or his/her delegate feels expedited service is warranted.

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How can I determine if a particular organization is tax-exempt?

Publication 78 provides a listing of organizations that have been recognized by the Service as eligible to receive tax deductible contributions. Tax-exempt organizations that are not eligible to receive tax deductible contributions are not included.

For information concerning other organizations that have been recognized by the IRS as tax-exempt organizations, you may contact the IRS Customer Service for the appropriate Key District in which those organizations are located.

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How can I obtain copies of Form 990?

You can download Form 990 from the IRS website. You may also request these forms by calling 1-800-TAX-FORM (1-800-829-3676).

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How do I obtain a copy of the organization's exemption letter?

As a result of the recent enactment of the Taxpayer Bill of Rights 2, once regulations are issued and become effective, a tax-exempt organization will be required to provide one or more copies of its three most recent information returns, its exemption letter, and its approved application with supporting documentation without charge (other than a reasonable fee for any reproduction and mailing costs) to persons requesting copies (with certain exceptions). Until regulations are issued, the organization is required to make these documents available for public inspection at their place of business. For more information, download Publicity and Disclosure of Form 990.

You may also contact the local Disclosure office of the IRS, or send requests to IRS, Chief, FOIA Branch, c/o Ben Franklin Station, P.O. Box 795, Washington, DC 20044. A fee is charged for reproduction and mailing costs.

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Can I get a list of donors to an organization?

Information about donors is specifically excluded from the information available for public inspection, except for donors to private foundations. The annual information return (Form 990) and its attachments (except donor lists), and the approved application for recognition of exemption and supporting documents, and any letters issued to the organization can be inspected at the organization's place of business.

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What should I do if a § 501(c) organization will not let me see its Form 990 returns?

Write to the IRS Customer Service office having jurisdiction over the organization. Provide the name and address of the organization that refuses to allow public inspection or provide copies of its return, and request that the return be made available for public inspection. The Employee Plans/Exempt Organizations Division of the appropriate IRS Key District will contact the organization and arrange a time during which the return may be inspected. If the organization fails to provide the return at the agreed upon time, statutory penalties will start to be assessed.

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Do individual members of a group ruling have to file separate Form 990 returns?

If the parent organization files a group return on behalf of the subordinate members of the group, the subordinate member organizations included in the group return are not required to file a separate Form 990. However, if the individual member of a group ruling is not included in a group return filed by the parent organization, it is required to file a separate Form 990 unless it otherwise meets an exception to the filing requirements. See Form 990Filing Requirements for more information.

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What happens if the Form 990 is incomplete?

Under § 6652(c) of the Code, a tax-exempt organization required to file a Form 990 that files an incomplete return may be subject to a $20 a day penalty up to a maximum of $10,000 (or 5% of the organization's gross receipts, whichever is less) for returns for taxable years ending on or after July 30, 1996. The penalty increases to $100 per day up to a maximum of $50,000 for organization whose gross receipts exceed $1,000,000. No penalty will be imposed if the incomplete return is due to reasonable cause.

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Can penalties for filing Form 990 late be abated?

Failure to timely file the information return, absent reasonable cause, can give rise to a penalty under § 6652 of the Code. Generally, the reasonable cause exception to the penalty will be determined on a case-by-case basis taking into account all relevant facts and circumstances. The regulations provide that an affirmative showing of reasonable cause must be made in the form of a written statement, containing a declaration by the appropriate person that the statement is made under the penalties of perjury, setting forth all the facts alleged as reasonable cause. The request for abatement may be made by using Form 4571, which may be obtained by calling 1-800-TAX-FORM (1-800-829-3676), and should include supporting documentation.

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What is the difference between not-for-profit and tax-exempt?

Non-profit and not-for-profit are state law concepts. Most states have laws whereby an entity can be incorporated as a non-profit or not-for-profit organization. However, the mere fact that an entity is organized as a non-profit or not-for-profit organization does not indicate that it is exempt from federal income tax. To qualify as a tax-exempt organization, an entity must meet requirements set forth in the Internal Revenue Code. See Publication 557 for more information.

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Can tax-exempt organizations endorse candidates for public office?

Whether a tax-exempt organization may endorse candidates for public office without jeopardizing its tax-exempt status depends upon the type of tax-exempt organization it is. For example, § 501(c)(3) organizations may not engage in political activity, including endorsing candidates, but other organizations, such as § 501(c)(4) organizations, may engage in political activity so long as that is not their primary activity. However, § 501(c) organizations that make expenditures for political activity may be subject to tax under § 527(f).

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Can my organization engage in a certain activity?

The activities that a tax-exempt organization may engage in without jeopardizing its tax-exempt status vary depending upon the nature of its exemption. See Publication 557 for more information. You may also request a ruling regarding the effect of a proposed transaction on your organization's tax-exempt status. See Rev. Proc. 98-4, 1998-1 I.R.B. 113, for the procedures to request a ruling and Rev. Proc. 98-8, 1998-1 I.R.B. 225, which explains the user fee charges for such rulings.

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Where do I send complaints about the activities/operations of tax-exempt organizations?

Complaints about the activities or operations of tax-exempt organizations that are inconsistent with exemption should be sent to the IRS Customer Service office having jurisdiction over the organization. The complaint should contain all relevant facts concerning the alleged violation of tax law.

The IRS cannot advise you of any action it has taken or may take in response to a complaint because the confidentiality and disclosure provisions of the Internal Revenue Code, which were enacted by Congress to protect the privacy of all taxpayers, preclude it from discussing matters relating to any activity it might undertake regarding the tax-exempt status of an entity, other than with principal officers or authorized representatives of that entity. The IRS does maintain an active examination program to insure that tax-exempt organizations, as well as taxpayers, meet the requirements imposed on them by the Internal Revenue Code.

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Why is it taking so long to process an exemption for application?

There are many reasons why it may take some time to process a particular application. These range from simple administrative errors on the application to issues concerning the qualification of the organization for exemption.

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