501(c)

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501(c) is a provision of the United States Internal Revenue Code (26 U.S.C. § 501(c)), listing 26 types of non-profit organizations exempt from some federal income taxes. Sections 503 through 505 list the requirements for attaining such exemptions. Many states reference Section 501(c) for definitions of organizations exempt from state taxation as well.

Contents

[edit] Types

According to the IRS Publication 557, in the Organization Reference Chart section, the following is an exact list of 501(c) organization types and their corresponding descriptions.[1]

  • 501(c)(1) — Corporations Organized Under Act of Congress (including Federal Credit Unions)
  • 501(c)(2) — Title Holding Corporation for Exempt Organization
  • 501(c)(3) — Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations
  • 501(c)(4) — Civic Leagues, Social Welfare Organizations, and Local Associations of Employees
  • 501(c)(5) — Labor, Agricultural, and Horticultural Organizations
  • 501(c)(6) — Business Leagues, Chambers of Commerce, Real Estate Boards, etc.
  • 501(c)(7) — Social and Recreational Clubs
  • 501(c)(8) — Fraternal Beneficiary Societies and Associations
  • 501(c)(9) — Voluntary Employees Beneficiary Associations
  • 501(c)(10) — Domestic Fraternal Societies and Associations
  • 501(c)(11) — Teachers' Retirement Fund Associations
  • 501(c)(12) — Benevolent Life Insurance Associations, Mutual Ditch or Irrigation Companies, Mutual or Cooperative Telephone Companies, etc.
  • 501(c)(13) — Cemetery Companies
  • 501(c)(14) — State-Chartered Credit Unions, Mutual Reserve Funds
  • 501(c)(15) — Mutual Insurance Companies or Associations
  • 501(c)(16) — Cooperative Organizations to Finance Crop Operations
  • 501(c)(17) — Supplemental Unemployment Benefit Trusts
  • 501(c)(18) — Employee Funded Pension Trust (created before June 25, 1959)
  • 501(c)(19) — Post or Organization of Past or Present Members of the Armed Forces
  • 501(c)(21) — Black lung Benefit Trusts
  • 501(c)(22) — Withdrawal Liability Payment Fund
  • 501(c)(23) — Veterans Organization (created before 1880)
  • 501(c)(25) — Title Holding Corporations or Trusts with Multiple Parents
  • 501(c)(26) — State-Sponsored Organization Providing Health Coverage for High-Risk Individuals
  • 501(c)(27) — State-Sponsored Workers' Compensation Reinsurance Organization
  • 501(c)(28) — National Railroad Retirement Investment Trust

[edit] General compliance issues

Under IRS's IRC Section 511, a 501(c) organization is subject to tax on its "unrelated business income," whether or not the organization actually makes a profit, but not including selling donated merchandise or other business or trade carried on by volunteers, or certain bingo games.[2] Disposal of donated goods valued over $2,500, or acceptance of goods worth over $5,000 may also trigger special filing and record-keeping requirements.

Note that "tax exempt" also does not excuse an organization from maintaining proper records and filing any required annual or special-purpose tax returns.[3] Previously, annual returns were not generally required from an exempt organization accruing less than $25,000 in gross income yearly.[4] However, from 2008 onwards, many such organizations must file a yearly "e-Postcard" or risk losing their exemption [5]

Failure to file required returns such as Form 990 (Return of Organization Exempt From Income Tax) may result in monetary fines of up to $250,000 per year. Exempt or political organizations (excluding churches or similar religious entities) must make their returns, reports, notices, and exempt applications available for public inspection.

The exempt organization filed IRS Form 990 (or similar such public record as the Form 990-EZ or Form 990-PF) are generally available for public inspection and photocopying at the offices of the exempt organization, through a written request and payment for photocopies by mail from the exempt organization, or through a direct Form 4506-A Request for Public Inspection or Copy or Political Organization IRS Form request to the IRS of the exempt organization filing of Form 990 for the past three tax years. The Form 4506-A also allows the public inspection and/or photocopying access to Form 1023 Application for Recognition of Exemption or Form 1024, Form 8871 Political Organization Notice of Section 527 Status, and Form 8872 Political Organization Report of Contribution and Expenditures.

Failure to timely file such returns and to make other specific information available to the public is also prohibited.[6]

[edit] 501(c)(3)

501(c)(3) exemptions apply to corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational purposes, to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals. [7]

Another provision, 26 U.S.C. § 170, provides a deduction, for federal income tax purposes, for some donors who make charitable contributions to most types of 501(c)(3) organizations, among others. Regulations specify which such deductions must be verifiable in order to be allowed (e.g., receipts for donations over $250).

Testing for public safety is described under section 509(a)(4) of the code which makes the organization a public charity and not a private foundation[8], but contributions to 509(a)(4) organizations are not deductible by the donor for federal income, estate, or gift tax purposes.

The two exempt classifications of 501(c)(3) organizations are as follows[9]:

A public charity, identified by the Internal Revenue Service (IRS) as "not a private foundation," normally receives a substantial part of its income, directly or indirectly, from the general public or from the government. The public support must be fairly broad, not limited to a few individuals or families. Public charities are defined in the Internal Revenue Code under sections 509(a)(1) through 509(a)(4).

A private foundation, sometimes called a non-operating foundation, receives most of its income from investments and endowments. This income is used to make grants to other organizations, rather than being dispersed directly for charitable activities. Private foundations are defined in the Internal Revenue Code under section 509(a) as 501(c)(3) organizations which do not qualify as public charities.

[edit] Obtaining status

Some organizations automatically acquire 501(c)(3) status upon filing of proper organizational documents (e.g., articles of incorporation as a church), at least until annual income exceeds a statutory threshold. Others will not receive 501(c)(3) status until they file an application and supporting documentation to the IRS and have a certification letter issued. The 501(c)3 application must be accompanied by a $300 application fee if annual income for 1st 4 years is $10,000 or less ($750 if annual income is more than that). [10]

[edit] Political activity

Section 501(c)(3) organizations are subject to limits or absolute prohibitions on engaging in political activities.

[edit] Elections

Organizations described in section 501(c)(3) are prohibited from conducting political campaign activities to intervene in elections to public office. [1] The Internal Revenue Service website elaborates upon this prohibition as follows:

"Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity. Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.

"Certain activities or expenditures may not be prohibited depending on the facts and circumstances. For example, certain voter education activities (including presenting public forums and publishing voter education guides) conducted in a non-partisan manner do not constitute prohibited political campaign activity. In addition, other activities intended to encourage people to participate in the electoral process, such as voter registration and get-out-the-vote drives, would not be prohibited political campaign activity if conducted in a non-partisan manner.

"On the other hand, voter education or registration activities with evidence of bias that (a) would favor one candidate over another; (b) oppose a candidate in some manner; or (c) have the effect of favoring a candidate or group of candidates, will constitute prohibited participation or intervention.

"The Internal Revenue Service provides resources to exempt organizations and the public to help them understand the prohibition. As part of its examination program, the IRS also monitors whether organizations are complying with the prohibition."

[edit] Lobbying

In contrast to the absolute prohibition on political campaign interventions by all section 501(c)(3) organizations, public charities (but not private foundations) are permitted to conduct a limited amount of lobbying to influence legislation. Although the law states that "no substantial part" of a public charity's activities may be devoted to lobbying, charities with very large budgets may lawfully expend a million dollars (under the "expenditure" test) or more (under the "substantial part" test) per year on lobbying. [11]

[edit] 501(c)(4)

501(c)(4) exemptions are given to civic leagues and other organizations operated exclusively for the promotion of social welfare, or local associations of employees the membership of which is limited to a designated company or persons in a particular municipality or neighborhood and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes.[12] Characteristics that set these organizations apart from 501(c)(3) organizations include an unlimited ability to lobby for legislation and the ability to participate in political campaigns and elections.[13]

[edit] Notes

  1. ^ IRS, Publication 557 "Tax-Exempt Status For Your Organization", Pages 65-66, (Rev. June 2008), Cat. No 46573C. http://www.irs.gov/pub/irs-pdf/p557.pdf, Retrieved 1/27/2009
  2. ^ 26 U.S.C. § 513(f).
  3. ^ E.g., 26 U.S.C. § 6033 and 26 U.S.C. § 6050L.
  4. ^ Internal Revenue Bulletin 23, 1982, exercising 26 U.S.C. § 6033(a)(2)(B).
  5. ^ http://www.irs.gov/charities/article/0,,id=169250,00.html.
  6. ^ 26 U.S.C. § 6652 and 26 U.S.C. § 6104.
  7. ^ IRS, Publication 557 "Tax-Exempt Status For Your Organization", Page 19, (Rev. June 2008), Cat. No 46573C. http://www.irs.gov/pub/irs-pdf/p557.pdf, Retrieved 3/9/2009
  8. ^ IRS, Publication 557 "Tax-Exempt Status For Your Organization", Page 43, (Rev. June 2008), Cat. No 46573C. http://www.irs.gov/pub/irs-pdf/p557.pdf, Retrieved 3/9/2009
  9. ^ IRS, "Life Cycle of a Public Charity/Private Foundation", http://www.irs.gov/charities/charitable/article/0,,id=136459,00.html, Retrieved 3/9/2009
  10. ^ Info from IRS Form 1023 (Rev. 6-2006)p.12
  11. ^ Political and Lobbying Activities
  12. ^ See 26 U.S.C. § 501(c)(4)(A).
  13. ^ http://www.t-tlaw.com/lr-05.htm

[edit] See also

[edit] External links

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