All aspects of the organization's structure, mission, finances, and relationships are explored in the process of answering the questions. All aspects of the organization's structure, mission, finances and relationships are explored in the process of answering the questions required to achieve tax-exempt status.
BEFORE YOU BEGIN
IRS Customer Account Service staff will undoubtedly experience a significant increase in calls in response to the filing assistance suggestions (page 4 of the instructions).
SUITABILITY TEST
Before embarking on the time-consuming process of preparing and submitting the application, the following questions, distilled from the suitability and new organization checklists in Appendix E, should be assessed. Is there a need to establish a new organization locally? to carry out the project through an existing organization.
STATUTORY REQUIREMENTS FOR EXEMPTION
Exemption from other taxes, such as the federal unemployment tax and some state and local taxes. Potential for other benefits, such as taking advantage of charitable trusts and deferred annuities and postal rate privileges.
One or more of the eight listed purposes must be named in the organizational documents of the organization. About the first page of the instructions for Form 1023 also contains an overview of 501(c)(3) organizations.
An entity established "to promote the benefit of the community" and "to develop the art of dance" does not qualify unless its charter also states that such activities are to be conducted exclusively for educational or charitable purposes. 14. Finally, instructions to III. part of the form, they briefly define the term charitable purposes and give examples of acceptable and unacceptable clauses on purpose, limitation of activities and dissolution.
PROPER TIMING
To prove timely filing, it is preferred that the application be sent by certified mail, return receipt requested, or an IRS-approved private delivery service. The postmark stamped on the envelope or delivery receipt sending the application determines the date of submission.
EXPEDITIOUS HANDLING
It usually takes up to 21 days for the IRS to acknowledge receipt of an application. Applications that involve requests for additional information may take up to 120 to 180 days to receive the approved decision letter.
NATIONAL OFFICE
A cover letter requesting special handling and describing the reason why speed is needed must be attached. The instructions maintain that the reason for processing the application before others must be compelling.
ORGANIZATIONS THAT NEED NOT FILE
GROUP EXEMPTIONS
Affirmative statement that all subordinates have given written authorization to be included in the group exemption and acknowledge that they are under the control of the central EO. Subordinates will no longer be included in the group exclusion letter because they have ceased to exist, disaffiliated, or withdrawn their authorization to the central organization.
Subordinates to be added to the group exemption letter because they are newly organized or affiliated, or they have recently authorized the central organization to include them. If none of the above changes have occurred, the central organization must issue a statement to that effect.
WHERE TO SEND APPLICATION
Applications are first procedurally and technically reviewed and added to Ohio's main tracking system. As explained in §1.4 of this chapter, applications for certain types of activities are forwarded to the National Office in Washington, D.C.
PUBLIC INSPECTION
If the copy charge exceeds $20 and advance payment is not required, the organization must obtain the requester's consent to the charge. If the organization is the subject of a harassment campaign, it can apply to the key district office for relief.
PART I—IDENTIFICATION OF APPLICANT (a) Line 1: Full Name of Organization
Readers may find the blank copy of Form 1023 that follows the text helpful. In addition, as a further guide to completing Form 1023, readers should refer to Form 1023 completed for two fictitious entities—.
PART I—IDENTIFICATION OF APPLICANT
PART II—ORGANIZATIONAL STRUCTURE
PART III—INFORMATION ABOUT THE REQUIRED PROVISIONS IN YOUR ORGANIZING DOCUMENT
In practice, most legal advisors with knowledge of exempt organizations do include the language as illustrated in the Forms 1023 contained in Schedules C and D.
- PART III—INFORMATION ABOUT THE REQUIRED PROVISIONS
- PART IV—NARRATIVE DESCRIPTION OF YOUR ACTIVITIES This part fleshes out the candidate for tax exemption and paints a picture of
- PART IV—NARRATIVE DESCRIPTION OF YOUR ACTIVITIES
- PART V—COMPENSATION AND OTHER FINANCIAL ARRANGEMENTS WITH YOUR OFFICERS, DIRECTORS,
The essence of the applicant's charitable nature should be reflected in the description of activities. For example, if the description indicates that financial assistance will be provided to needy families, the IRS technician may want to know how the recipients will be selected and will see Part VI, line 2 for a description of the criteria.
TRUSTEES, EMPLOYEES, AND INDEPENDENT CONTRACTORS The request for information about financial transactions with the organiza-
EO is a private grant-making foundation and will receive significant funding through donations from its founders. These funds will be used to acquire investments to generate income to meet the foundation's charitable distribution needs and administrative assets, such as computers, telephone systems, filing cabinets and other office equipment and furnishings.
For example, consider a new school that plans to lend the principal funds to move and buy a house near the school. However, the applicant must disclose his intention to treat the value of the forgiven interest and principal as part of his compensation.
Lines 9a–f: Leases, Contracts, or Loans with an Insider’s Business The same information requested on line 8 must be submitted if the organiza-
PART VI—YOUR MEMBERS AND OTHER INDIVIDUALS AND ORGANIZATIONS THAT RECEIVE BENEFITS FROM YOU
The loan will be granted during the five-year period of the initial employment contract. Lines 9a–f: Leases, contracts, or loans with a domestic business The same information required on line 8 must be submitted if the organization-.
PART VI—YOUR MEMBERS AND OTHER INDIVIDUALS
A relatively small group of individuals may benefit as long as the group is not limited to identifiable individuals. Rule 1b can be a trap for the unwary when it asks if the applicant provides his benefits to another organization.
Conceptually, a charitable organization must limit its benefits to charitable purposes, and the organization to which it limits its benefits must also serve a charitable purpose. An applicant who limits his benefits to an eligible §501(c)(3) organization can certainly answer Yes to this question.
As long as the applicant's activities are limited to one of the eight listed charitable purposes and procedures are put in place to maintain a separation between the organizations with different categories of exemption, this answer can safely be Yes. A membership application or flyer must be provided if the organization has no formal membership application form.
PART VII—YOUR HISTORY (a) Line 1: Successor Organization
You have acquired (or are about to acquire) virtually all assets or activities of another organization. 29These rules are the subject of Chapter 24, Tax Planning and Compliance for Tax-Exempt Organizations, and require careful consideration once the organization requests funding.
PART VIII—YOUR SPECIFIC ACTIVITIES
This part highlights the issues that can threaten tax-exempt status in addition to the private insider dealing explored in Part V. The guidance for this part is inconsistent – sometimes attached, sometimes not – what guidance exists should be examined if the answer is yes.
For many lines, the required information is repeated or is a slightly different version of the information provided in other parts of the form that can be appropriately cross-referenced. The issues to consider for some programs, such as joint ventures and foreign organizations, are complicated by years of case law and IRS rulings and new developments that may affect eligibility.
Providing the required information in response to this question is particularly difficult for an organization that has unclear plans to carry out a specific range of lobbying activities in the future. Depending on other facts, such a communication could be considered lobbying under the essential work test.
Net winnings from bingo games not conducted in violation of any state or local law are not taxable.36 Bingo is defined as "a game of chance played with cards usually printed with five rows of five squares each contestants place markers to form a pre-selected pattern to win.” Other games of chance, including, but not limited to, keno, dice, cards and lotteries, are not bingo and may create unrelated business income37 despite classification by state gambling authorities The possibility that future raffles of donated goods in connection with fundraising events can be done, may not need to be reported.
Because such activities are not normally carried out in an arm's length manner, that is, carried out by volunteers or carried out irregularly over a short period of time, they are not treated as taxable income and the net income is excluded from ordinary income tax. 39 In an inconspicuous place below the left list of boxes there is a request for explanation for each fundraising program. If fundraising events and exempt income are to be the primary sources of support, the IRS expects detailed information.
Line 4b: Fundraising Contracts
The line requires a description of fundraising activities, including all income and expenses for the same periods reported in Part IX. If the person(s) will receive incentive compensation based on the fundraising outcome, the concepts discussed in Part V, line 6 should be carefully considered.
If the person(s) who will be carrying out the fundraising are highly paid, reference may be made to the details in Part V. If the persons to be compensated are government officials or their related parties, the information should also be coordinated with the information in Part V, line 6.
Organizers of such funds can find useful information online about the policies and procedures of established donor-advised funds.
The key to qualifying for such an organization is that the focus area for development must be one that has been declared blighted or economically depressed by a government finding. An organization failed to qualify when it was designed to increase patronage for existing stores in such an area.44 A project located in a non-burn area may be classified as a qualified community welfare organization under §501(c). (4) or a business league defined in.
Again, most of the detailed information suitable for explaining the organization's programs will be available in the narrative description of your activities, Part IV, and may be referred to rather than repeated. Whether the fee is performance-related (eg, a percentage of profits or other arrangement that reflects a business transaction).
How it compares to the prevailing rates charged by other businesses or the general budget. To qualify, substantially all (at least 85%) of the care must be provided to enable persons to work (line 9c) and the facility must be open to the general public.
Research that serves the public interest is certainly a charitable activity, but the IRS may want to place restrictions on potential commercialization of the results.49. Too often, they find that retailers who handle the donation program keep the majority of the sales proceeds.
Determining that the beneficiary is listed in IRS Publication 78 as a qualified §501(c)(3) may be sufficient evidence of the charitable nature of its activities. A private foundation's (PF) letter may also require the beneficiary to be a public charity and to agree not to spend its funds on lobbying or other activities prohibited for a PF.51 This remains to be seen. how the IRS will respond to an organization that says it does not plan to develop paperwork and will make grants to other charities of its choice.
Contracts and loan documents are requested from the beneficiaries, together with a description of the data held in relation to each grant. Providing subsidies to the foreign organization falls under the exclusive authority of the board of directors of the domestic organization.
Reports should include copies of exhibition catalogs, photographs of installations, and other factual evidence of the program.54 For a private foundation, this report may be contractually agreed in advance in the Expenditure Responsibility Agreement.55. A grant payment accompanied by an award letter that reiterates the terms of the contract and outlines the documentation requirements to be met by grantees.
PART IX—FINANCIAL DATA
The presentation in which the information in this section is reported differs from the financial statements presented in accordance with generally accepted accounting principles (GAAP) and IRS Forms 990 and 8734 (Public Support Test Calculation). The financials presented in this section are key information that, whether past, present or projected, must be consistent with other information presented in the application.
The organization must provide a copy of the loan agreement to avoid a later request from the IRS. If the amount is more than 5% of the total expenditure, details must be attached. xxi).
PART X—PUBLIC CHARITY STATUS
The significance of "public charity" status for tax-exempt organizations under IRC §501(c)(3) is multifaceted and is of great importance to both private and public exempt organizations. Knowing the meaning of the four parts of IRC §509 is key to understanding public charities.
It then submits either (1) an affidavit or opinion of an attorney, CPA, or accounting firm with expertise in tax matters that contains facts sufficient to enable the tests to be satisfied; or (2) its own statement describing the proposed operation (and financial information) indicating that it may qualify as a POF. Finally, service organizations that receive fees from providing goods and services may qualify under §509(a)(2).
A list of >2% donors is requested; if there is none, the box for that line is checked. ii) Line 6b(ii), Non-public support. When calculating the §509(a)(2) test, donations and exemption function income (lines 1, 2 and 9 of Part IX) received from disqualified persons76 are not included [paragraph 6b(ii)(a)].
PART XI—USER FEE INFORMATION
This part reminds filers that Form 1023 will not be processed until a user fee is paid. The schedule that had been titled Successor to for-Profit Organization has been given a new title in the new Form 1023: Successors to Other Organizations.
SCHEDULE A—CHURCHES
The decision in an early case noted that Congress left the definition of church to "the ordinary use of the word."3 A religious order organized under the auspices of the Roman Catholic Church to train members to teach in schools. Catholic, was found not to be a church. Similarly, an organization formed by missionaries affiliated with various Christian churches was not a church. 4 The Court stated that Congress used church in the sense of a denomination or sect rather than in a general or universal sense, although to consider a church, organizational hierarchy or buildings are not required, yet a congregational component is necessary.
SCHEDULE B—SCHOOLS, COLLEGES, AND UNIVERSITIES
Will the school have a racially nondiscriminatory policy (lines 4–6 of Section I and lines 1–6 and 8 of Section II).
The IRS addressed specific issues related to charter school qualification in its 2000 training material. Early childhood education centers qualified.17 Boards of education that employ all teachers in the school system and that oversee all schools in the district qualified.18.
Lectures and short courses on a number of general topics that do not lead to a degree or accreditation do not constitute a curriculum.21 Also, invited authorities and personalities recognized in the field are not considered to be members of a regular faculty.22 The duration of the courses are not necessarily a barrier. An outdoor survival school whose instruction lasted only 26 days but was conducted with regular teachers, students and course studies was classified as a school despite the fact that part of the facilities it used were wide open spaces.23 A home school that offers private tutoring is not a school for this purpose. 24 A correspondence school was also not approved under this section because it lacked a physical place where classes were held. 25.
- SCHEDULE C—HOSPITALS AND MEDICAL RESEARCH ORGANIZATIONS
- SCHEDULE D—IRC §509(A)(3) SUPPORTING ORGANIZATIONS Charitable organizations that are sufficiently responsive to and controlled or su-
- SCHEDULE E—ORGANIZATIONS NOT FILING FORM 1023 WITHIN 27 MONTHS OF FORMATION
- SCHEDULE E—ORGANIZATIONS NOT FILING FORM 1023
- SCHEDULE F—HOMES FOR THE ELDERLY OR HANDICAPPED AND LOW-INCOME HOUSING
You exercised reasonable diligence but were unaware of the filing requirements.” The complexity of your presentation and experience in these matters is taken into account. The form reminds applicants to "ensure that the answer is consistent with the information provided in Part VIII, lines 7 and 8." The information must evidence a dedication of assets to serve the elderly or disabled rather than the officers of the organization and their businesses.
As a charity, homes for the elderly or disabled are only eligible for tax exemption if they meet the special needs of the elderly or disabled. Charging fees that are affordable to a significant portion of the elderly population so as to benefit the community in which it is located (line 2c).
SCHEDULE F—HOMES FOR THE ELDERLY OR HANDICAPPED
It provides its services at the lowest practicable cost, taking into account the facts and circumstances of the home (for example, the cost of the facility or wages in the area). Adopt policies to protect yourself financially and allow him to fulfill his obligation not to evict elderly residents who become unable to pay. The Home may require applicants to deposit upon admission an amount of funds calculated to ensure their care.44 The Home may also permit residents to establish trusts whose income is paid to the Home during the resident's lifetime.
SCHEDULE G—SUCCESSORS TO OTHER ORGANIZATIONS There are many aspects of a conversion from a for-profit to a not-for-profit en-
For all applicants, line 6 asks for a description of assets transferred, whether by sale or gift, detailing how the value of each asset was determined, an explanation of any restrictions on use or sale of the assets , and a copy of agreements on sale or transfer.
SCHEDULE G—SUCCESSORS TO OTHER ORGANIZATIONS
SCHEDULE H—ORGANIZATIONS PROVIDING SCHOLARSHIPS, FELLOWSHIPS, EDUCATIONAL LOANS, OR OTHER
EDUCATIONAL GRANTS, AND THE LIKE TO INDIVIDUALS A charitable organization that provides scholarships, grants, loans, and other
SCHEDULE H—ORGANIZATIONS PROVIDING EDUCATIONAL GRANTS
Prizes are paid to a charitable class in terms of being available to an open group rather than to pre-selected individuals.
Adequate records and case studies showing the name and address of each recipient are requested in accordance with Revenue Ruling 56-304”.
- APPLICATION PROCESSING SYSTEM
- BEST CASE SCENARIO
- WHEN QUESTIONS ARE ASKED
- DISPUTED CASES
Failure to receive such a notice means that something is amiss and the IRS Exempt Organization Group office in Cincinnati should be contacted at. What if the IRS examiner suggests that the applicant is not eligible for exemption under §501(c)(3).
When the IRS specialist cannot make a favorable determination, there are a number of steps an organization can take.
- DECLARATORY JUDGMENT
- DEFINITIVE RULING
- ADVANCE RULING
- REPORTING BACK TO THE IRS
- FAILURE TO MEET SUPPORT TESTS AT END OF ADVANCE-RULING PERIOD
- FAILURE TO SUBSEQUENTLY MEET SUPPORT TEST
- CHANGES OF PUBLIC CHARITY STATUS
- CHECKING CURRENT STATUS
- NAMES MISSING FROM PUBLICATION 78
- CONTACT THE IRS
No information submitted to the IRS will be returned, but such information may be used by the IRS in any subsequent investigation of the organization's returns or requests. Submitting information about the annual return has not previously requested a response from the IRS.
Appendix A Suitability Checklist
Appendix B Form 1023 for a Public Charity
Appendix C Form 1023 for a Private Operating Foundation
