R3.3 – Exempt Organizations

Question 1

Forms

Answer 1

Form 990 – Return of Organization Exempt from Income

Form 990EZ

Form 990-N “postcard”

Question 2

Types of Exempt Organizations

Answer 2

Section 501(c)(1) Corporations

Section 501(c)(2) Corporations

Section 501(c)(3) Corporations

Section 509 Private Foundations

Question 3

Types of Exempt Organizations – Section 501(c)(1) Corporations

Answer 3

Section 501(c)(1) Corporations
– Created by an act of Congress
– Doesn’t require application

Question 4

Types of Exempt Organizations – Section 501(c)(2) Corporations

Answer 4

Section 501(c)(2) Corporations
– Organized for an exclusive purpose to hold title to property, collect income from the property, and turn over the net income to an exempt organization

Question 5

Types of Exempt Organizations – Section 501(c)(3) Corporations

Answer 5

Section 501(c)(3) Corporations
– Community chest/community fund/foundation organized and operated exclusively for religious, charitable, scientific, public safety testing, literary, or educational services/foundation organized to foster national or international amateur sports competitions or two prevent cruelty to animals or children

Corporation must apply and be approved by the IRS

Requirements
– No net earnings can be used for benefit of any private shareholder or individual
– No substantial part of its activities maybe non–exempt activities
– No direct participation or intervention in any political campaign

Question 6

Types of Exempt Organizations – Section 509 Private Foundations

Answer 6

Includes all 501(c)(3) corporations other than those specifically excluded

Foreign corporations can qualify as a private foundation

Excluded organizations = public organizations
– 50% charitable deduction donees
– Broadly publicly-supported organizations receiving > 1/3 annual support from members and the public and < 1/3 from investment and unrelated business income
– Supporting organizations
– Public Safety testing organizations

Must file information Form 990-PF that discloses substantial contributions and amounts of contributions received

Involuntary termination of 509 status if become public charity or violate requirements.

Voluntary termination
– Notify IRS want to terminate
– Termination tax: pay back lowe of aggregate tax benefits or net assets
– No termination tax: distribute assets to to 50% chargeable contribution organization or operate as a public charity for at least five years

Question 7

Unrelated Business Income (UBI)

Answer 7

Exempt organizations are taxed on unrelated business income

Unrelated business income
1. Derived from an activity that constitutes a trade or business
2. Regularly carried on
and
3. Not substantially related to the organization’s tax exempt purposes

Does not include any activity where all of the work is performed by unpaid workers (volunteers).

UBI taxed if it exceeds $1000
– There is a $1000 deduction from UBI

Question 8

Unrelated Business Income (UBI) – Excluded Items of Income

Answer 8

Royalties, dividends, interest, and annuities

Rents from real property and from personal property leased with real property other than income from deb-finance property

Gains and losses on the sale or exchange of property not held primarily for sale

Income from research of a college or hospital

Income of labor unions used to establish a retirement home, hospital, or similar exclusive-use facilities

Activities limited to exempt organizations by state law

Value of securities loaned to a broker and the income received for such a loan, if identical securities returned

Income from the exchange or rental of membership list of text-exempt chat organizations

Question 9

Annual Return Requirements – Form 990/990EZ/990N

Answer 9

Must file Form 990

Form 990 is information return form stating gross income, receipts, contributions, disbursements

Form 990 open to public inspection

510 (c)(3) must also include Schedule A – Supplementary Information

Form 990 due by 15th day of the 5th month (May 15th) after tax year end
Six month extension with Form 8868

Can use Form 990-EZ if:

1. gross receipts < $200,000, and
2. year-end assets < $500,000

Organizations with < $50,000 in gross receipts file 990-N “postcard” instead

Some organizations exempt from filing Form 990/990EZ/990N

Penalty if fail to file 990/990EZ/990-N if required. Can also have tax-exempt status revoked

Question 10

Annual Return Requirements – Form 990/990EZ/990N: Exempt organizations

Answer 10

Religious or internally supporting organizations

Certain organizations e.g. education organizations, religious organizations that normally have less than $5000 in gross receipts