An overview of filing requirements for tax-exempt organizations. (Federal Taxation)by Kreuze, Jerry G.
Certain organizations are considered tax-exempt under IRC Sec. 501 (c)(3) even if they do not file Form 1023: a) churches, their integrated auxiliaries, and conventions or associations of churches or b) any organization which is not a private foundation and the gross receipts are not normally more than $5,000 annually.
Organizations which qualify for tax-exempt status under either of these exceptions may still want to file Form 1023 with the IRS to obtain certain other benefits such as public recognition of tax-exempt status, exemption from certain state taxes, assurance to donors of deductibility of contributions, exemption from Federal excise taxes, and non-profit mailing privileges. Taxpayer deductions for charitable contributions are not allowed for any gifts or bequests made to organizations that do not qualify under IRC Sec. 501 (c)(3).
An organization intending to file Form 1023 should file its tax-exempt application within 15 months after it was formed. If the IRS approves the application, the effective date of tax-exempt status will be the date the organization was formed.
An organization which does not file Form 1023 within 15 months after it was formed will generally not qualify for tax-exempt status during the period before the date of application. The IRS also requires organizations to submit Form 8718, User Fee for Exempt Organization Determination Letter Request, along with Form 1023 or Form 1024. The fee must accompany each application and ranges from $150 to $500. In addition, newly formed organizations need to apply for a Federal employer identification number by attaching Form SS-4 to Form 1023 (or Form 1024).
Annual Filing Requirements For Tax-Exempt Organizations
Almost every tax-exempt organization must file an annual information return. The most widely used returns are IRS Form 990, Return of Organization Exempt from Income Tax, and Form 990EZ. Form 990EZ is a shortened version of Form 990 designed for use by smaller tax-exempt organizations. Form 990EZ is available only if the organization's annual gross receipts are less than $100,000 and its total assets at year end are less than $250,000.
Unless specifically excluded, every type of organization which has annual gross receipts of more than $25,000 and is tax exempt under IRC Sec. 501(a) |including foreign organizations and cooperative service organizations described in IRC Secs. 501(e) and 501(f), and child care organizations described in IRC Sec. 501(k), is required to file Form 990 or Form 990EZ. In addition, any non-exempt charitable trust |described in IRC Sec. 4947(a)(1) not treated as a private foundation is also required to file Form 990 or Form 990EZ if its annual gross receipts are more than $25,000. The following types of organizations are specifically exempted under IRC Sec. 501(a) from having to file Form 990 (or Form 990EZ) with the IRS:
* A church, an inter-church organization of local units of a church, a convention or association of churches, an integrated auxiliary of a church, or an internally supported, church controlled organization.
* A school below college level affiliated with a church or operated by a religious order.
* A mission society sponsored by, or affiliated with, one or more churches or church denominations, if more than one-half of the society's activities are conducted in, or directed at persons, in foreign countries.
* An exclusively religious activity of any religious order.
* A state institution whose income is excluded from gross income under IRC Sec. 115.
* An organization described in IRC Sec. 501 (c)(1) that is organized under an Act of Congress, which is also an instrumentality of the U.S., and exempt from Federal income taxes.
* A private foundation exempt under IRC Sec. 501 (c)(3) and described in Section 509(a) (Required to file Form 990-PF, Return of Private Foundation).
* A black lung benefit trust described in IRC Sec. 501 (c)(21). (Required to file Form 990-BL Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons).
* A farmers' cooperative association described in IRC Sec. 521 (Required to file Form 990-C, Farmers' Cooperative Income Tax Return).
* A stock bonus, pension, or profit-sharing trust that qualifies under IRC Sec. 401.
* A religious or apostolic organization described in IRC Sec. 501(d).
Organizations exempt from taxes under IRC Secs. 501 (c)(3) (except private foundations), 501 (e) (cooperative hospital service organizations), 501(f) (cooperative service organizations of operating educational organizations), 501(k) (child care organizations) and IRC Sec. 4947(a)(1) (charitable trusts), are required to provide certain supplementary information to Form 990 or Form 990EZ on Schedule A (Form 990).
An organization exempt from taxes under IRC Sec. 501(a) may still be taxed on its unrelated business income. A tax-exempt organization is required to file Form 990-T, Exempt Organization Business Income Tax Return, if it has gross income from an unrelated trade or business of $1000 or more. For tax purposes gross income is defined as gross receipts minus the cost of goods sold. In addition, a tax-exempt organization must file Form 990-W, Estimated Tax on Unrelated Business Taxable Income for Tax Exempt Organizations and make estimated tax payments on unrelated business income if it expects its total tax to be $500 or more for the year.
Form 990 or Form 990EZ is required to be filed by the 15th day of the 5th month after the end of the accounting year. If the return cannot be filed by the due date, Form 2758 should be used to request an extension of time to file. The penalty against the organization for late filing, filing an incomplete return, or furnishing incorrect information is $10 a day (beginning on the due date) not to exceed the lesser of $5,000 or 5% of the gross receipts of the organization for the year. In addition, person(s) responsible for filing who file an incomplete return or furnish incorrect information can be charged a penalty of $10 a day, not to exceed $5,000.
Annual returns (Forms 990 and 990EZ) of tax-exempt organizations, as well as approved exemption applications (Forms 1023 and 1024), are available for public inspection upon request from the IRS. However, the IRS may not disclose the portions of an application for exemption relating to trade secrets, nor can the IRS disclose the schedule of contributors required by Forms 990 and 990EZ. In addition, except for the schedule of contributors, a tax-exempt organization must during the three-year period beginning with the due date of the Form 990 or Form 990EZ make its return available for public inspection upon request.
IRS FORMS AND APPLICABLE PUBLICATIONS
FORMS FILED DURING INITIAL EXEMPTION APPLICATION PROCESS
Form 1023: Application for Recognition of Exemption Under Section 501 (c)(3) of the Internal Revenue Code
Form 1024: Application for Recognition of Exemption under 501(a) or for Determination under Section 120
Form 1028: Application for Recognition of Exemption under 521 of the Internal Revenue Code
Form 8718: User Fee for Exempt Organization Determination Letter Request
Form SS-4: Application for Federal Employer Identification Number
Annual Information Forms
Form 990: Return of Organization Exempt from Income Tax
Form 990 EZ: (Short Form) Return of Organization Exempt from Income Tax
Schedule A: Organization Exempt under 501 (c)(3) Supplementary Information
Form 990-PF: Return of Private Foundation
Form 990-BL: Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons
Form 990-C: Farmers Cooperative Association Income Tax Return
Form 990-T: Exempt Organization Business Income Tax Return
Form 990-W: Estimated Tax on Unrelated Business Taxable Income for Tax- Exempt Organizations
Form 2758: Application for Extension of Time to File Certain Excise, Income, and Other Returns
Form 1128: Application to Adopt, Change, or Retain a Tax Year
Form 5768: Election/Revocation of Election by an Eligible Section 501 (c)(3) Organization to Make Expenditures to Influence Legislation
Relevant IRS Publication
Publication 557: Tax-Exempt Status for Your Organization
Publication 578: Tax Information for Private Foundations and Foundation Managers
Publication 598: Tax on Unrelated Business Income of Exempt Organizations
Publication 892: Exempt Organization Appeal Procedures
Sheldon A. Langsam, PhD, CPA, and Jerry G. Kreuze, PhD, CPA, Western Michigan University
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