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The Nonprofit FAQ: IRS

Select an FAQ   (69):

'Excess benefit transactions' and 990s
Nonprofits are required to report 'excess benefit transactions' on Form 990. Is that enough, or are there other things an organization might do?
AICPA SOP 98-2 and its Impact on Financial Reporting
Rules that took effect 12/15/98 require organizations to screen activities carefully if they include a fund-raising appeal and are not classified as fund-raising in the accounts; three writers explain the background.
Are churches required to register as 501(c)(3)s?
Generally, no. But some organizations connected to churches do apply for recognition as tax-exempt by the IRS.
Are donations always tax deductible?
Not always. Even when the recipient is an organization recognized by the IRS under section 501(c)(3), the donor may not be able to deduct the gift from personal income taxes.
Are donations to Canadian organization deductible for US taxpayers?
Taxpayers with income in Canada can deduct charitable gifts to Canadian organizations. US taxpayers can only deduct gifts to US organizations from US income.
Are there statistics about nonprofits online?
The National Center for Charitable Statistics offers quite a lot of statistical information at its website and provides access to detailed 990 data for researchers who pay small fees. There are other sources as well.
Board Basics
Some first principles about the board of directors and pointers to other information on the subject.
Can 501(c)(3)s get involved in helping (or hindering) candidates for public office?
Basically no. 501(c)(3)s are not permitted to do anything to help or hinder the election of any candidate to public office. This item reproduces the texts of IRS statements on this question and provides links to other IRS materials.
Can a 501(c)(4) become a 501(c)(3)?
Yes. Filing a new application (1023) is the most direct route.
Can a non-US organization receive tax deductible donations?
Deductions may be taken from US personal income tax only for gifts to US organizations; some gifts to Canada, Mexico and Israel may also qualify.
Can donated equipment be deductible for the donor?
Donations are deductible if made to a recognized 501(c)(3) organization, or one that meets the qualifications of such.
Can I Get a Tax Deduction if I Charge a Nonprofit Below-Market Prices?
In general 'no.' Deductions only reduce tax liability on income that has actually been received.
Can I sell things for a profit and be tax-exempt?
Selling items does not risk an organization's tax-exempt status if the revenue generated is used to promote the organization's exempt function and the applicable taxes are paid on any unrelated business income.
Can I set up a corporate foundation for my company?
There are lots of things to worry about.
Can more than one member of a family serve on a single nonprofit board?
Laws vary. California is often cited as a model.
Can US corporations contribute to activities outside the USA?
Depending on the position of the corporate donor, contributions used for activities outside the US may or may not generate a tax benefit for the corporation.
Can volunteers and board members deduct out-of-pocket expenses?
In general, yes. Volunteers for charitable organizations can deduct unreimbursed expenses.
Can we convert our swim club to 501(c)(3) status?
501(c)(3) organizations must be dedicated to a charitable purpose. A social club will have to make very significant changes to qualify for 'public charity' status.
Can we re-incorporate in another state?
Although the organization may feel it is just a formality when the state of incorporation is changed, in fact one organization has gone out of existence and a new one has been formed. New standing with the IRS is necessary.
Can We Sell Ads in a Program Book?
Sure. But there are some factors that should be considered carefully before starting down this road.
Do we need to report volunteer time to the IRS on Form 990?
New information about volunteers is required in the new Form 990, to be used by many nonprofits in 2009 and beyond.
General resources about nonprofit taxation
See the Free Management Library at http://www.mapnp.org/library/tax/np_tax.htm
How can I determine my program costs easily?
A number of factors need to be considered when determining program costs.
How Can We Make a Budget for the IRS Before We Start Work?
Form 1023 requires a three-year projected budget. What approach should be used to prepare one?
How do we apply for a grant if we're part of a group exemption?
The process is more complicated and will depend on what the prospective funder requires.
How do we get our Federal tax-exempt number?
There really isn't any such thing. The Federal Employer Identification Number (EIN) is used for identifying nonprofit organizations. Local tax exemptions are set by local jurisdictions and must be researched locally.
How does the IRS treat nonprofits' gambling revenues?
Many nonprofits rely on gambling activities to bring in much-needed revenue. IRS publication 3079 covers related taxes and other issues in detail.
How is Unrelated Business Income Tax (UBIT) Calculated?
UBIT is based on the corporate income tax rates. The IRS and NPOs have struggled with figuring out what is 'related' and what is not.
How must NPOs respond to public requests for 990s?
New laws and regulations greatly expand public access. They took effect June 8, 1999.
How should donors calculate fair market value of premiums?
The IRS defines fair market value as the amount a willing buyer would pay a willing seller.
How should we acknowledge in-kind gifts?
Enthusiastically, of course. But there are some errors that must be avoided in this specialized area. Auctions require further attention.
How should we thank an anonymous donor?
Obviously, the donor's name isn't published anywhere. But other ways of saying 'thank you' may be appropriate.
How to comply with the 'Intermediate Sanctions' regulations
Federal law and IRS regulations impose severe penalties on individuals who profit unduly from nonprofit organizations. This item explains what to do to avoid questions.
I want to start a campaign to raise money for a cause. What do I need to worry about?
Besides finding the money, you mean? Well, there are actually several issues that you should consider before running your own fundraising campaign.
Is IRS recognition necessary before we receive donations?
Strictly speaking, no. But many larger donors require evidence of 501(c)(3) status and it offers reassurance to all.
Is it difficult and expensive to establish a charitable trusts?
There are legal and tax complications which must be handled carefully.
Is it possible to find the 501(c)(3) applications of non-profits?
Once approved, an organization's Form 1023 is a public document; anyone can request a copy.
Is the cost of a members' magazine tax-deductible?
Answering the question is complicated. Here is some guidance.
Is the federal tax code available online?
Yes. The US House of Representatives provides a copy and there are more convenient versions available online as well.
Is the IRS List of Recognized Charities Available On Line?
Yes. And there are other resources for finding information on nonprofits on line as well.
Is there a difference between 'nonprofit' and 'not-for-profit'?
Both terms are frequently used and frequently seen. There is no firmly established distinction, though some people have strong preferences between them.
Is there a toll-free phone number for the I.R.S.?
Yes. And there are other ways to get information from the IRS as well.
Is there any way to be eligible for grants before getting 501(c)3) status?
Sometimes, a fiscal sponsor will assume responsibility for a grant-supported project that is not connected to any existing agency or organization.
New Form 1023 Effective 2005
Form 1023 is used to file for recognition as a tax-exempt charity (etc.) with the IRS. The new form must be used after April 2005.
Nonprofit Legal Self-Assessment Checklist
An inventory of many topics that should be considered by nonprofits in order to keep their legal house in order.
Should the executive director be a consultant?
There are organizational and regulatory reasons to be cautious about such arrangements.
Should we incorporate a 'private' or a 'public' nonprofit?
In general, it is probably better to be a 'public charity' than a 'private foundation.' This note explores the question briefly.
Statement about Importance of Policy Advocacy
The Alliance for Justice, the Center for Lobbying in the Public Interest, and OMB Watch jointly issued this statement in the Summer of 1998. It provides a rationale for and guidance about policy advocacy for charitable nonprofits in the United States.
Summary of federal rules about lobbying for 501(c)(3) organizations
Extensive discussions of the definition of and limits on lobbying by nonprofits.
We want to change the mission and work we do. How difficult is it to make such a change?
You may need to notify your state corporations office, the IRS, and officials in states where you do fundraising. More details in this item.
What About Posting 990s and Other IRS Forms Online?
A new website discusses related questions and offers space for organizations to do this if they wish.
What actual steps do I take? Which filings come first?
The practical details (in the USA) of incorporating a nonprofit and filing for tax-exempt status and a nonprofit mailing permit.
What are the principal differences among charitable trusts?
An informal introduction to the options for planned giving.
What are the various tax benefits available to a donor?
Charitable gifts can result in lowered taxes in many ways; here is a brief discussion of some of them.
What happens when nonprofits go out of business?
A plan of dissolution is supposed to be filed. Often that doesn't happen. Assets must be passed on to another organization with a similar purpose.
What if we lose our determination letter from the IRS?
There is a simple procedure for getting a replacement. (These letters are sometimes also called 'recognition' letters.)
What is 'substantiation'? Why should donors care?
If you make a cash contribution of any size, you have to have 'substantiation' for the gift in order to deduct the gift from personal income taxes.
What is Form 990? How is it Used?
The annual information return filed with the IRS by tax-exempt organizations provides a great deal of information about the organization, its finances and its operations. The completed returns are available to the public.
What kinds of gifting by individual donors are most common?
A classification of various kinds of gifts.
What kinds of gifts would be most useful for new organizations?
Which should fundraisers concentrate on first?
What kinds of retirement plans can NPOs have?
In 1995, there were two kinds.
What sorts of organizations are exempt from federal income taxes?
The Internal Revenue Code specifies many sorts of exempt organizations besides the familiar 501(c)(3). Donations to most other types, though, cannot be deducted from the donor's income taxes. The IRS website offers a complete list.
What's a 'supporting organization'?
A special kind of tax-exempt organization, dedicated to supporting one other 501(c)(3) -- or a short list of such groups.
Where can I find detailed information on IRS treatment of nonprofits?
The IRS itself has a detailed website.
Where can I learn about the laws affecting nonprofits?
There are several websites and of course books.
Where is the 'Nonprofit Locater'?
This service is no longer offered. But there are other online sources of information about charities.
Which kind? 501(3)(3), 501(c)(4) or 501(c)(6)?
Resources for making a decision when choosing which kind of tax-exempt organization fits.
Who should see board minutes?
Organizations need to consider carefully how and when discussions and decisions of the board should be accessible to others.
Will signing a petition get us in trouble for lobbying?
A 501(c)(3) can express an occassional opinion about a matter of public policy without risking being challenged for lobbying. This item discusses the rules about lobbying and advocacy and points to some more detailed resources.