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It 1040ez 3. It 1040ez Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. It 1040ez Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. It 1040ez Certain contracts held by a charitable remainder trust. It 1040ez Excise Taxes. It 1040ez Indoor tanning services. It 1040ez Application for Recognition of ExemptionPolitical activity. It 1040ez Private delivery service. It 1040ez Amendments to organizing documents required. It 1040ez How to show reasonable action and good faith. It 1040ez Not acting reasonably and in good faith. It 1040ez Prejudicing the interest of the Government. It 1040ez Procedure for requesting extension. It 1040ez More information. It 1040ez Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. It 1040ez Grass roots expenditures. It 1040ez Lobbying nontaxable amount. It 1040ez Grass roots nontaxable amount. It 1040ez Organization that no longer qualifies. It 1040ez Tax on organization. It 1040ez Tax on managers. It 1040ez Taxes on organizations. It 1040ez Taxes on managers. It 1040ez Political expenditures. It 1040ez Correction of expenditure. It 1040ez Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. It 1040ez Religious. It 1040ez Charitable. It 1040ez Scientific. It 1040ez Testing for public safety. It 1040ez Literary. It 1040ez Educational. It 1040ez Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). It 1040ez The prevention of cruelty to children or animals. It 1040ez To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. It 1040ez A trust is a fund or foundation and will qualify. It 1040ez However, an individual or a partnership will not qualify. It 1040ez Examples. It 1040ez Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. It 1040ez Child care organizations. It 1040ez The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. It 1040ez Instrumentalities. It 1040ez A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). It 1040ez Examples of a qualifying instrumentality might include state schools, universities, or hospitals. It 1040ez However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. It 1040ez A state or municipality itself does not qualify for exemption. It 1040ez Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. It 1040ez Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. It 1040ez Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. It 1040ez Fundraising events. It 1040ez If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. It 1040ez This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. It 1040ez If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. It 1040ez If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. It 1040ez You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. It 1040ez See Disclosure of Quid Pro Quo Contributions in chapter 2. It 1040ez Exemption application not filed. It 1040ez Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. It 1040ez Separate fund—contributions that are deductible. It 1040ez An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. It 1040ez If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. It 1040ez A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. It 1040ez Personal benefit contracts. It 1040ez Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. It 1040ez A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. It 1040ez Certain annuity contracts. It 1040ez If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). It 1040ez Certain contracts held by a charitable remainder trust. It 1040ez An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. It 1040ez Excise tax. It 1040ez If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. It 1040ez The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. It 1040ez Excise Taxes. It 1040ez A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. It 1040ez Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. It 1040ez Indoor tanning services. It 1040ez If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. It 1040ez For more information, go to IRS. It 1040ez gov and select Affordable Care Act Tax Provisions. It 1040ez Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. It 1040ez For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. It 1040ez See the organization headings that follow for specific information your organization may need to provide. It 1040ez Form 1023. It 1040ez Your organization must file its application for recognition of exemption on Form 1023. It 1040ez See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. It 1040ez Some organizations are not required to file Form 1023. It 1040ez See Organizations Not Required To File Form 1023, later. It 1040ez Additional information to help you complete your application can be found online. It 1040ez Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. It 1040ez See Exemption Requirements - Section 501(c)(3) Organizations. It 1040ez Form 1023 and accompanying statements must show that all of the following are true. It 1040ez The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. It 1040ez ) specified in the introduction to this chapter. It 1040ez No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. It 1040ez You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. It 1040ez The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. It 1040ez See Political activity, next, and Lobbying Expenditures , near the end of this chapter. It 1040ez Political activity. It 1040ez If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). It 1040ez Such participation or intervention includes the publishing or distributing of statements. It 1040ez Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. It 1040ez Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. It 1040ez Effective date of exemption. It 1040ez Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. It 1040ez These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. It 1040ez If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. It 1040ez Otherwise, exemption will be recognized only from the date of receipt. It 1040ez The date of receipt is the date of the U. It 1040ez S. It 1040ez postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. It 1040ez Private delivery service. It 1040ez If a private delivery service designated by the IRS, rather than the U. It 1040ez S. It 1040ez Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. It 1040ez The following private delivery services have been designated by the IRS. It 1040ez DHL Express (DHL): DHL “Same Day” Service. It 1040ez Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. It 1040ez United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. It 1040ez M. It 1040ez , UPS Worldwide Express Plus, and UPS Worldwide Express. It 1040ez Amendments to organizing documents required. It 1040ez If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. It 1040ez If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. It 1040ez Extensions of time for filing. It 1040ez There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. It 1040ez Automatic 12-month extension. It 1040ez Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. It 1040ez To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. It 1040ez 9100-2. It 1040ez ” Discretionary extensions. It 1040ez An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. It 1040ez How to show reasonable action and good faith. It 1040ez An organization acted reasonably and showed good faith if at least one of the following is true. It 1040ez The organization requests relief before its failure to file is discovered by the IRS. It 1040ez The organization failed to file because of intervening events beyond its control. It 1040ez The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. It 1040ez The organization reasonably relied upon the written advice of the IRS. It 1040ez The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. It 1040ez An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. It 1040ez Not acting reasonably and in good faith. It 1040ez An organization has not acted reasonably and in good faith under the following circumstances. It 1040ez It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. It 1040ez It was informed of the requirement to file and related tax consequences, but chose not to file. It 1040ez It uses hindsight in requesting relief. It 1040ez The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. It 1040ez Prejudicing the interest of the Government. It 1040ez Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. It 1040ez Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. It 1040ez The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. It 1040ez The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. It 1040ez Procedure for requesting extension. It 1040ez To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. It 1040ez A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. It 1040ez Any documents relevant to the application. It 1040ez An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. It 1040ez If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. It 1040ez This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. It 1040ez ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. It 1040ez This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. It 1040ez The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. It 1040ez These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. It 1040ez ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. It 1040ez The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. It 1040ez The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. It 1040ez A request for this relief in connection with an application for exemption does not require payment of an additional user fee. It 1040ez Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. It 1040ez More information. It 1040ez For more information about these procedures, see Regulations sections 301. It 1040ez 9100-1, 301. It 1040ez 9100-2, 301. It 1040ez 9100-3, Revenue Procedure 2013-4, section 6. It 1040ez 04, 2013-1 I. It 1040ez R. It 1040ez B. It 1040ez 126, and Revenue Procedure 2013-8, 2013-1 I. It 1040ez R. It 1040ez B. It 1040ez 237. It 1040ez See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. It 1040ez Notification from the IRS. It 1040ez Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. It 1040ez Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. It 1040ez These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. It 1040ez Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). It 1040ez These organizations are exempt automatically if they meet the requirements of section 501(c)(3). It 1040ez Filing Form 1023 to establish exemption. It 1040ez If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. It 1040ez By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. It 1040ez A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. It 1040ez Private foundations. It 1040ez See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. It 1040ez Gross receipts test. It 1040ez For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. It 1040ez An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. It 1040ez For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. It 1040ez The organization must file Form 1023 within 90 days after the end of its second tax year. It 1040ez If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. It 1040ez However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. It 1040ez Example. It 1040ez An organization is organized and operated exclusively for charitable purposes and is not a private foundation. It 1040ez It was incorporated on January 1, 2009, and files returns on a calendar-year basis. It 1040ez It did not file a Form 1023. It 1040ez The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600 The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. It 1040ez Therefore, it did not have to file Form 1023 and is exempt for those years. It 1040ez However, for 2010, 2011, and 2012 the total gross receipts were $15,900. It 1040ez Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. It 1040ez If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. It 1040ez The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. It 1040ez The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. It 1040ez See the procedures for this extension discussed earlier. It 1040ez Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. It 1040ez This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. It 1040ez Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. It 1040ez These conditions for exemption are referred to as the organizational test. It 1040ez Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. It 1040ez Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). It 1040ez The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. It 1040ez Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. It 1040ez Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. It 1040ez In interpreting an organization's articles, the law of the state where the organization was created is controlling. It 1040ez If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. It 1040ez The following are examples illustrating the organizational test. It 1040ez Example 1. It 1040ez Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). It 1040ez These articles appropriately limit the organization's purposes. It 1040ez The organization meets the organizational test. It 1040ez Example 2. It 1040ez An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. It 1040ez The organization will not be properly limited as to its purposes since all research is not scientific. It 1040ez The organization does not meet the organizational test. It 1040ez Example 3. It 1040ez An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). It 1040ez The organization meets the organizational test. It 1040ez Example 4. It 1040ez If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. It 1040ez Example 5. It 1040ez If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. It 1040ez On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. It 1040ez Example 6. It 1040ez If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. It 1040ez Such purposes are vague and may be accomplished other than in an exempt manner. It 1040ez Example 7. It 1040ez A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. It 1040ez A hospital may or may not be exempt depending on the manner in which it is operated. It 1040ez Example 8. It 1040ez An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. It 1040ez Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. It 1040ez This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. It 1040ez If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. It 1040ez Dedication. It 1040ez To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. It 1040ez Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. It 1040ez Distribution. It 1040ez Revenue Procedure 82-2, 1982-1 C. It 1040ez B. It 1040ez 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. It 1040ez The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. It 1040ez If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. It 1040ez Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. It 1040ez Sample articles of organization. It 1040ez See sample articles of organization in the Appendix in the back of this publication. It 1040ez Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. It 1040ez In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. It 1040ez You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. It 1040ez If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. It 1040ez See also Private Schools , discussed later. It 1040ez Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. It 1040ez Advocacy of a position. It 1040ez Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. It 1040ez The mere presentation of unsupported opinion is not educational. It 1040ez Method not educational. It 1040ez The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). It 1040ez The following factors may indicate that the method is not educational. It 1040ez The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. It 1040ez The facts that purport to support the viewpoint are distorted. It 1040ez The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. It 1040ez The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. It 1040ez Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. It 1040ez Qualifying organizations. It 1040ez The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. It 1040ez College book stores, cafeterias, restaurants, etc. It 1040ez These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. It 1040ez Alumni association. It 1040ez An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. It 1040ez If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . It 1040ez Athletic organization. It 1040ez This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. It 1040ez If it is not so engaged, your organization may be exempt as a social club described in chapter 4. It 1040ez Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. It 1040ez If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. It 1040ez Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. It 1040ez The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. It 1040ez (This information also must be projected, so far as may be feasible, for the next academic year. It 1040ez ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. It 1040ez A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. It 1040ez A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. It 1040ez The public school district and county in which the school is located. It 1040ez How to determine racial composition. It 1040ez The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. It 1040ez Nevertheless, a statement of the method by which the racial composition was determined must be supplied. It 1040ez The identity of individual students or members of the faculty and administrative staff should not be included with this information. It 1040ez A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. It 1040ez Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. It 1040ez Also, the school must circulate information that clearly states the school's admission policies. It 1040ez A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. It 1040ez The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. It 1040ez The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. It 1040ez Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. It 1040ez A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. It 1040ez A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. It 1040ez Policy statement. It 1040ez The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. It 1040ez Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. It 1040ez Publicity requirement. It 1040ez The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. It 1040ez Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. It 1040ez To satisfy this requirement, the school must use one of the following two methods. It 1040ez Method one. It 1040ez The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. It 1040ez Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. It 1040ez When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. It 1040ez If this method is used, the notice must meet the following printing requirements. It 1040ez It must appear in a section of the newspaper likely to be read by prospective students and their families. It 1040ez It must occupy at least 3 column inches. It 1040ez It must have its title printed in at least 12 point bold face type. It 1040ez It must have the remaining text printed in at least 8 point type. It 1040ez The following is an acceptable example of the notice: NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. It 1040ez It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. It 1040ez Method two. It 1040ez The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. It 1040ez If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. It 1040ez In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. It 1040ez The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. It 1040ez Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. It 1040ez Exceptions. It 1040ez The publicity requirements will not apply in the following situations. It 1040ez First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. It 1040ez These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. It 1040ez If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. It 1040ez Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . It 1040ez The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. It 1040ez The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. It 1040ez The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. It 1040ez Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. It 1040ez The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. It 1040ez The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. It 1040ez In this regard, it is each school's responsibility to determine whether either of the exceptions applies. It 1040ez Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. It 1040ez Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. It 1040ez Facilities and programs. It 1040ez A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. It 1040ez Scholarship and loan programs. It 1040ez As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. It 1040ez This must be known throughout the general community being served by the school and should be referred to in its publicity. It 1040ez Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. It 1040ez Certification. It 1040ez An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. It 1040ez Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. It 1040ez Recordkeeping requirements. It 1040ez With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. It 1040ez Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. It 1040ez Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. It 1040ez Copies of all materials used by or on behalf of the school to solicit contributions. It 1040ez Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. It 1040ez (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. It 1040ez ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. It 1040ez However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. It 1040ez The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. It 1040ez Similarly, the IRS does not require a school to keep records prohibited under state or federal law. It 1040ez Exceptions. It 1040ez The school does not have to independently maintain these records for IRS use if both of the following are true. It 1040ez Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. It 1040ez The school maintains copies of these reports from which this information is readily obtainable. It 1040ez If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. It 1040ez Failure to maintain records. It 1040ez Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. It 1040ez Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. It 1040ez However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. It 1040ez Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). It 1040ez Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. It 1040ez Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. It 1040ez Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. It 1040ez The rest of this section contains a description of the information to be provided by certain specific organizations. It 1040ez This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. It 1040ez Each of the following organizations must submit the information described. It 1040ez Charitable organization supporting education. It 1040ez Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. It 1040ez Scholarships. It 1040ez If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. It 1040ez Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. It 1040ez How and by whom the recipients are or will be selected. It 1040ez If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. It 1040ez If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. It 1040ez A copy of the scholarship application form and any brochures or literature describing the scholarship program. It 1040ez Hospital. It 1040ez If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. It 1040ez If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. It 1040ez You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. It 1040ez Submit also an appraisal showing the fair rental value of the rented space. It 1040ez Clinic. It 1040ez If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. It 1040ez Home for the aged. It 1040ez If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. It 1040ez Community nursing bureau. It 1040ez If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. It 1040ez Organization providing loans. It 1040ez If you make, or will make, loans for charitable and educational purposes, submit the following information. It 1040ez An explanation of the circumstances under which such loans are, or will be, made. It 1040ez Criteria for selection, including the rules of eligibility. It 1040ez How and by whom the recipients are or will be selected. It 1040ez Manner of repayment of the loan. It 1040ez Security required, if any. It 1040ez Interest charged, if any, and when payable. It 1040ez Copies in duplicate of the loan application and any brochures or literature describing the loan program. It 1040ez Public-interest law firms. It 1040ez If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. It 1040ez How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. It 1040ez Whether the organization will accept fees for its services. It 1040ez A description of the cases litigated or to be litigated and how they benefit the public generally. It 1040ez Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. It 1040ez Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. It 1040ez Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. It 1040ez Acceptance of attorneys' fees. It 1040ez A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. It 1040ez Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. It 1040ez Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. It 1040ez All fee awards must be paid to the organization and not to its individual staff attorneys. It 1040ez Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. It 1040ez Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. It 1040ez The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. It 1040ez If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. It 1040ez Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. It 1040ez That the particular religious beliefs of the organization are truly and sincerely held. It 1040ez That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. It 1040ez Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. It 1040ez If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. It 1040ez Churches. It 1040ez Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. It 1040ez In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. It 1040ez In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. It 1040ez Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. It 1040ez The IRS considers the facts and circumstances of each organization applying for church status. It 1040ez Convention or association of churches. It 1040ez Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. It 1040ez Integrated auxiliaries. It 1040ez An organization is an integrated auxiliary of a church if all the following are true. It 1040ez The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). It 1040ez It is affiliated with a church or a convention or association of churches. It 1040ez It is internally supported. It 1040ez An organization is internally supported unless both of the following are true. It 1040ez It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). It 1040ez It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. It 1040ez Special rule. It 1040ez Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. It 1040ez In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. It 1040ez Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. It 1040ez Scientific Organizations You must show that your organization's research will be carried on in the public interest. It 1040ez Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. It 1040ez Aiding in the scientific education of college or university students. It 1040ez Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th
Understanding your CP27 Notice
We've sent you this notice because our records indicate you may be eligible for the Earned Income Credit (EIC), but didn't claim it on your tax return.
What you need to do
- Read your notice carefully — it will explain the steps needed to determine your qualifications.
- Complete the Earned Income Credit Eligibility Worksheet.
If you are eligible for the credit,
- Sign and date the worksheet.
- Mail the signed worksheet in the envelope provided.
If you are not eligible for the credit,
- Do not return the eligibility worksheet to us.
What we will do
We will review your worksheet and make a determination.
- If you're eligible for the credit, we'll send you a refund check in 6 ― 8 weeks, as long as you don't owe tax or any other debts we're required to collect.
- If we deny the credit, we will send you a letter of explanation.
- If you don't hear from us after 8 weeks, call our toll free line at 1-800-829-0922 to check the status.
You may want to...
Answers to Common Questions
Why did the IRS send me this notice?
You may be eligible for the Earned Income Credit (EIC). The EIC is a credit for certain people who work and have earned income. People without dependent children may qualify for a refund up to $464, even if they do not owe any tax.
I lost the return envelope. Where do I mail my Earned Income Credit Eligibility Worksheet?
Mail the completed worksheet to the address listed on the top left corner of the worksheet. This office handles cases in your region, so it's important you send it there to avoid potential delays in processing.
Tips for next year
Claim the credit if you are still eligible.
Ask the IRS to figure the earned income credit for you by writing "EIC" on the EIC line, complete Schedule EIC, and attach it to your return. If you qualify for the credit, the IRS will calculate it for you.
Write "NO" on the EIC line if you do not want or you do not qualify for the credit.
Page Last Reviewed or Updated: 03-Mar-2014
Printable samples of this notice (PDF)
Tax publications you may find useful
How to get help
- Call the 1-800 number listed on the top right corner of your notice.
- Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
- See if you qualify for help from a Low Income Taxpayer Clinic.
The It 1040ez
It 1040ez Publication 225 - Introductory Material Table of Contents IntroductionOrdering forms and publications. It 1040ez Tax questions. It 1040ez Future Developments What's New for 2013 What's New for 2014 Reminders Introduction You are in the business of farming if you cultivate, operate, or manage a farm for profit, either as owner or tenant. It 1040ez A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. It 1040ez It also includes plantations, ranches, ranges, and orchards. It 1040ez This publication explains how the federal tax laws apply to farming. It 1040ez Use this publication as a guide to figure your taxes and complete your farm tax return. It 1040ez If you need more information on a subject, get the specific IRS tax publication covering that subject. It 1040ez We refer to many of these free publications throughout this publication. It 1040ez See chapter 16 for information on ordering these publications. It 1040ez The explanations and examples in this publication reflect the Internal Revenue Service's interpretation of tax laws enacted by Congress, Treasury regulations, and court decisions. It 1040ez However, the information given does not cover every situation and is not intended to replace the law or change its meaning. It 1040ez This publication covers subjects on which a court may have made a decision more favorable to taxpayers than the interpretation of the Service. It 1040ez Until these differing interpretations are resolved by higher court decisions, or in some other way, this publication will continue to present the interpretation of the Service. It 1040ez The IRS Mission. It 1040ez Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. It 1040ez Comments and suggestions. It 1040ez We welcome your comments about this publication and your suggestions for future editions. It 1040ez You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. It 1040ez NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. It 1040ez Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. It 1040ez You can email us at taxforms@irs. It 1040ez gov. It 1040ez Please put “Publications Comment” on the subject line. It 1040ez You can also send us comments from www. It 1040ez irs. It 1040ez gov/formspubs/, select “Comment on Tax Forms and Publications” under “More Information. It 1040ez ” Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. It 1040ez Ordering forms and publications. It 1040ez Visit www. It 1040ez irs. It 1040ez gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. It 1040ez Internal Revenue Service 1201 N. It 1040ez Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. It 1040ez If you have a tax question, check the information available on IRS. It 1040ez gov or call 1-800-829-1040. It 1040ez We cannot answer tax questions sent to either of the above addresses. It 1040ez Comments on IRS enforcement actions. It 1040ez The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small business about federal agency enforcement actions. It 1040ez The Ombudsman will annually evaluate the enforcement activities of each agency and rate its responsiveness to small business. It 1040ez If you wish to comment on the enforcement actions of the IRS, you can: Call 1-888-734-3247, Fax your comments to 202-481-5719, Write to Office of the National Ombudsman U. It 1040ez S. It 1040ez Small Business Administration 409 3rd Street, S. It 1040ez W. It 1040ez Washington, DC 20416 Send an email to ombudsman@sba. It 1040ez gov, or Download the appraisal form at www. It 1040ez sba. It 1040ez gov/ombudsman. It 1040ez Treasury Inspector General for Tax Administration. It 1040ez If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (1-800-877-8339 for TTY/TDD users). It 1040ez You can remain anonymous. It 1040ez Farm tax classes. It 1040ez Many state Cooperative Extension Services conduct farm tax workshops in conjunction with the IRS. It 1040ez Contact your county extension office for more information. It 1040ez Rural tax education website. It 1040ez The Rural Tax Education website is a source for information concerning agriculturally related income and deductions and self-employment tax. It 1040ez The website is available for farmers and ranchers, other agricultural producers, Extension educators, and any one interested in learning about the tax side of the agricultural community. It 1040ez Members of the National Farm Income Tax Extension Committee are contributors for the website and the website is hosted by Utah State University Cooperative Extension. It 1040ez You can visit the website at www. It 1040ez ruraltax. It 1040ez org. It 1040ez Future Developments The IRS has created a page on IRS. It 1040ez gov for information about Publication 225, at www. It 1040ez irs. It 1040ez gov/pub225. It 1040ez Information about recent developments affecting Publication 225 will be posted on that page. It 1040ez What's New for 2013 The following items highlight a number of administrative and tax law changes for 2013. It 1040ez They are discussed in more detail throughout the publication. It 1040ez Standard mileage rate. It 1040ez For 2013, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck for each mile of business use is 56. It 1040ez 5 cents. It 1040ez See chapter 4. It 1040ez Simplified method for business use of home deduction. It 1040ez The IRS now provides a simplified method to determine your expenses for business use of your home. It 1040ez For more information, see Schedule C (Form 1040), Part II, and its instructions. It 1040ez See chapter 4. It 1040ez Increased section 179 expense deduction dollar limits. It 1040ez The maximum amount you can elect to deduct for most section 179 property you placed in service in 2013 is $500,000. It 1040ez This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. It 1040ez See chapter 7. It 1040ez Extension of special depreciation allowance for certain qualified property acquired after December 31, 2007. It 1040ez You may be able to take a 50% special depreciation allowance for certain qualified property acquired after December 31, 2007, and placed in service before January 1, 2014. It 1040ez See chapter 7. It 1040ez Expiration of the 3-year recovery period for certain race horses. It 1040ez . It 1040ez The 3-year recovery period for race horses two years old or younger will expire for such horses placed in service after December 31, 2013. It 1040ez See chapter 7. It 1040ez Tax rates. It 1040ez For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. It 1040ez 4% to 12. It 1040ez 4%. It 1040ez As a result, the self-employment tax is increased from 13. It 1040ez 3% to 15. It 1040ez 3%. It 1040ez See chapter 12. It 1040ez Maximum net earnings. It 1040ez The maximum net self-employment earnings subject to the social security part (12. It 1040ez 4%) of the self-employment tax increased to $113,700 for 2013. It 1040ez There is no maximum limit on earnings subject to the Medicare part (2. It 1040ez 9%). It 1040ez See chapter 12. It 1040ez Net investment income tax. It 1040ez For tax years beginning in 2013, individuals, estates, and trusts may be subject to the net investment income tax (NIIT). It 1040ez If you are a trader in financial instruments and commodities and required to file Schedule C (Form 1040), your investment income (for purposes of the NIIT) may be reduced by your interest and other investment expenses to the extent those expenses are not used to reduce your self-employment income. It 1040ez For information about NIIT and the special rule for traders in financial instruments and commodities, see the Instructions for Form 8960. It 1040ez Social Security and Medicare Tax for 2013. It 1040ez The employee tax rate for social security is 6. It 1040ez 2%. It 1040ez The employer tax rate for social security remains unchanged at 6. It 1040ez 2%. It 1040ez The social security wage base limit is $113,700. It 1040ez The Medicare tax rate is 1. It 1040ez 45% each for the employee and employer, unchanged from 2012. It 1040ez There is no wage base limit for Medicare tax. It 1040ez See chapter 13. It 1040ez Additional Medicare Tax. It 1040ez For tax years beginning in 2013, a 0. It 1040ez 9% Additional Medicare Tax applies to your Medicare wages, Railroad Tax Act (RRTA) compensation, and self-employment income above a threshold amount. It 1040ez Use Form 8959, Additional Medicare Tax, to figure this tax. It 1040ez For more information, see the Instructions for Form 8959 and the Instructions for Schedule SE (Form 1040). It 1040ez In addition to withholding Medicare tax at 1. It 1040ez 45%, you must withhold a 0. It 1040ez 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. It 1040ez You are required to begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. It 1040ez Additional Medicare Tax is only imposed on the employee. It 1040ez There is no employer share of Additional Medicare Tax. It 1040ez All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold. It 1040ez For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 of Publication 15 (Circular E), Employer's Tax Guide. It 1040ez For more information on Additional Medicare Tax, visit IRS. It 1040ez gov and enter “Additional Medicare Tax” in the search box. It 1040ez See chapter 13. It 1040ez Leave-Based donation programs to aid victims of Hurricane Sandy. It 1040ez Under these programs, employees may donate their vacation, sick, or personal leave in exchange for employer cash payments made before January 1, 2014, to qualified tax-exempt organizations providing relief for the victims of Hurricane Sandy. It 1040ez The donated leave will not be included in the income or wages of the employee. It 1040ez The employer may deduct the cash payments as business expenses or charitable contributions. It 1040ez See chapter 13. It 1040ez Work opportunity tax credit for qualified tax-exempt organizations hiring qualified veterans extended. It 1040ez The work opportunity tax credit is now available for eligible unemployed veterans who begin work before January 1, 2014. It 1040ez Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans. It 1040ez For more information, visit IRS. It 1040ez gov and enter “work opportunity credit” in the search box. It 1040ez See chapter 13. It 1040ez Estimated tax. It 1040ez For tax years beginning in 2013, the Net Investment Income Tax (NIIT) may need to be included when calculating your estimated tax. It 1040ez Also, when figuring your estimated tax, you may need to include the 0. It 1040ez 9% Additional Medicare Tax applicable to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above the threshold amount based on your filing status. It 1040ez For more information, see Publication 505. It 1040ez What's New for 2014 Maximum net earnings. It 1040ez The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. It 1040ez See chapter 12. It 1040ez Social security and Medicare tax for 2014. It 1040ez The employee and employer tax rates for social security and the maximum amount of wages subject to social security tax for 2014 will be discussed in Publication 51 (Circular A), Agricultural Employer's Tax Guide (For use in 2014). It 1040ez The Medicare tax rate for 2014 will also be discussed in Publication 51 (Circular A) (For use in 2014). It 1040ez There is no limit on the amount of wages subject to Medicare tax. It 1040ez See chapter 13. It 1040ez Reminders The following reminders and other items may help you file your tax return. It 1040ez IRS e-file (Electronic Filing) You can file your tax returns electronically using an IRS e-file option. It 1040ez The benefits of IRS e-file include faster refunds, increased accuracy, and acknowledgment of IRS receipt of your return. It 1040ez You can use one of the following IRS e-file options. It 1040ez Use an authorized IRS e-file provider. It 1040ez Use a personal computer. It 1040ez Visit a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) site. It 1040ez For details on these fast filing methods, see your income tax package. It 1040ez Principal agricultural activity codes. It 1040ez You must enter on line B of Schedule F (Form 1040) a code that identifies your principal agricultural activity. It 1040ez It is important to use the correct code because this information will identify market segments of the public for IRS Taxpayer Education programs. It 1040ez The U. It 1040ez S. It 1040ez Census Bureau also uses this information for its economic census. It 1040ez See the list of Principal Agricultural Activity Codes on page 2 of Schedule F (Form 1040). It 1040ez Publication on employer identification numbers (EIN). It 1040ez Publication 1635, Understanding Your Employer Identification Number, provides general information on employer identification numbers. It 1040ez Topics include how to apply for an EIN and how to complete Form SS-4. It 1040ez Change of address. It 1040ez If you change your home address, you should use Form 8822, Change of Addres, to notify the IRS. It 1040ez If you change your business address, you should use Form 8822-B, Change of Address or Responsible Party — Business, to notify the IRS. It 1040ez Be sure to include your suite, room, or other unit number. It 1040ez Reportable transactions. It 1040ez You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. It 1040ez You may have to pay a penalty if you are required to file Form 8886 but do not do so. It 1040ez Reportable transactions include (1) transactions the same as or substantially similar to tax avoidance transactions identified by the IRS, (2) transactions offered to you under conditions of confidentiality and for which you paid an advisor a minimum fee, (3) transactions for which you have or a related party has a right to a full or partial refund of fees if all or part of the intended tax consequences from the transaction are not sustained, (4) transactions that result in losses of at least $2 million in any single year or $4 million in any combination of years, and (5) transactions with asset holding periods of 45 days or less and that result in a tax credit of more than $250,000. It 1040ez For more information, see the Instructions for Form 8886. It 1040ez Form W-4 for 2014. It 1040ez You should make new Forms W-4 available to your employees and encourage them to check their income tax withholding for 2014. It 1040ez Those employees who owed a large amount of tax or received a large refund for 2013 may need to submit a new Form W-4. It 1040ez See Publication 919, How Do I Adjust My Tax Withholding. It 1040ez Form 1099-MISC. It 1040ez Generally, file Form 1099-MISC if you pay at least $600 in rents, services, and other miscellaneous payments in your farming business to an individual (for example, an accountant, an attorney, or a veterinarian) who is not your employee. It 1040ez Limited Liability Company (LLC). It 1040ez For purposes of this publication, a limited liability company (LLC) is a business entity organized in the United States under state law. It 1040ez Unlike a partnership, all of the members of an LLC have limited personal liability for its debts. It 1040ez An LLC may be classified for federal income tax purposes as a partnership, corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301. It 1040ez 7701-3. It 1040ez See Publication 3402 for more details. It 1040ez Photographs of missing children. It 1040ez The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. It 1040ez Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. It 1040ez You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. It 1040ez Prev Up Next Home More Online Publications