REG 8 - Tax Exempt Organizations Flashcards
Tax Exempt Organizations (6)
(Form 990)
An organization that is not subject to taxation after demonstrating it qualifies under section 501(c) & receiving approval from the IRS. There are more than 19 different classifications, generally mentioned in the exam are:
- Org w/ specific chartitable, education or scientific intent
- Religious Organization
- Social/Recreation Clubs
- Fraternity/Country Clubs
- Condo Associations
- Credit Unions
- Labor Unions
Tax Exempt Organizations - Formation
(Application, Form, Classification)
Application for Exempt Status:
- 15 months to file paperwork (Form 1023) when it comes into existence (not automatic).
- Gross receipts are NOT >$50K in following 3 years
Organization must Operate in a Form of:
- Corporation or Trust
Classification of Charitable Organization:
- Private - if receive less than 1/3 of its support from the general public
- Public - if receive greater than 1/3 of support from the general public
- Feeder Organization - operated as a business but transfers all of its net profit to charitable organizations.
Tax Exempt Organizations - Form 990
Filing Requirements
Even though an organization is exempt, it is required to file an annual information return (Form 990) identifying its sources of revenue if gross receipts exceed $50K in a year.
- Due Date: 5/15, w/ a 6mo extention available
-
Form 990 - Annual Info Return (if gross receipts >$50K)
- Identify contributors
- Identify amount contributed
- Identify gross receipts/distributions
- Form 990-PF - for private foundations & may be subject to certain taxes on various investment income & transactions that occur with the person who funded the organization.
NOTE: Religious organizations, including churches and internally supported auxiliaries of churches, do not have to file an annual information return (Form 990).
Exempt Status - Denial/Revocation
NOTE: Any organization that attempts to influence political legislation or supports specific political candidates is denied exempt status.
NOTE: Correct! The organizational test requires the articles of organization for a tax exempt organization to specifically limit its activities to those that fit the classification of exempt organization it used as its basis for its application to the IRS. A tax exempt organization does not need to state in its articles of organization that an information return should be filed annually with the Internal Revenue Service.
NOTE: Correct! An organization that otherwise would qualify as an exempt organization, such as one operating for the prevention of cruelty to animals, will fail to qualify as an exempt organization if it has substantial, not insubstantial, activities that are unrelated to its exempt purpose or if it directly participates in any political campaign.
Public Charity
An exempt organization that is a church, school, hospital, governmental unit, entity that undertakes public safety, an organization that has broad financial support from the general public, or an organization that supports one or more organizations that are public charities, qualifying the entity for more favorable tax treatment.
Unrelated Business Income
UBI
- Unrelated business income obtained from operations of business activities not associated with exempt purpose. Must file income tax return (Form 990-T) & pay income taxes if it has more than $1000 of UBI.
- Taxed as Either:
- Corporation or
- Trust
- UBTI = UBI - Expenses - $1K
- Exemptions: Campus bookstore & cafeteria
UBI specifically Excludes (7)
- Legal games of chance used to raised funds, such as Bingo
- Activities carried out on intermittent basis
- Annual charity auctions, bake sale, etc.
- Business activities related to the organization’s purpose
- Sales of educational materials to members
- Most Investment income
- Dividends, interest income
- Activities that are staffed entirely by volunteers working without pay
- Sale of merchandise that was received as a gift or contribution
- Convinience of members, employees, or students
- School cafeteria or bookstore
