What records must a tax-exempt organization keep?
An exempt organization must keep books and records needed to show that it complies with the tax rules. The organization must be able to document the sources of receipts and expenditures reported on its annual return and on any tax returns it must file. Records must support income, expenses, and credits reported on exempt organization annual returns and tax returns. For example, an organization needs to keep records of revenues derived from, and expenses attributable to, an unrelated trade or business so that it can properly prepare Form 990-T, Unrelated Business Income Tax Return, and calculate its unrelated business taxable income.
Books and records must be available for inspection by the IRS. If the IRS examines an organization’s returns, the organization must have records to explain items reported. Having a complete set of records will speed up the examination.
For more information about required records, see Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities, Publication 4221-PF, Compliance Guide for 501(c)(3) Private Foundations; or Publication 4221-NC, Compliance Guide for Tax-Exempt Organizations (other than 501(c)(3) Public Charities and Private Foundations)
Are there limitations on the activities in which a tax-exempt organization may engage?
Depending upon the nature of its exemption, a tax-exempt organization may jeopardize its tax-exempt status if it engages in certain activities. For example, section 501(c)(3) charitable organizations may not intervene in political campaigns or conduct substantial lobbying activities. See Types of Tax-Exempt Organizations or Publication 557 for more information.
Can a tax-exempt organization endorse candidates for public office?
The type of tax exemption determines whether an organization may endorse candidates for public office. For example, a section 501(c)(3) organization may not publish or distribute printed statements or make oral statements on behalf of, or in opposition to, a candidate for public office. Consequently, a written or oral endorsement of a candidate is strictly forbidden. The rating of candidates, even on a nonpartisan basis, is also prohibited. On the other hand, a section 501(c)(4), (5), or (6) organization may engage in political campaigns, provided that such activities are not the organization's primary activity.
In addition, section 501(c) organizations that make expenditures for political activity may be subject to tax under section 527(f). For more information, please see Election Year Issues.
What is the difference between a private foundation and a public charity?
Every section 501(c)(3) organization is classified as either a private foundation or a public charity. Private foundations and public charities are distinguished primarily by the level of public involvement in their activities.
Public charities generally receive a greater portion of their financial support from the general public or governmental units, and have greater interaction with the public. A private foundation, on the other hand, is typically controlled by members of a family or by a small group of individuals, and derives much of its support from a small number of sources and from investment income. Because they are less open to public scrutiny, private foundations are subject to various operating restrictions and to excise taxes for failure to comply with those restrictions.
Under the tax law, a section 501(c)(3) organization is presumed to be a private foundation unless it requests, and qualifies for, a ruling or determination as a public charity. Organizations that qualify for public charity status include churches, schools, hospitals, medical research organizations, publicly-supported organizations (i.e., organizations that receive a specified portion of their total support from public sources), and certain supporting organizations.
What is an advance ruling period and what are the requirements?
A section 501(c)(3) organization may be classified as a public charity (rather than as a private foundation) on the basis that it is publicly supported. An organization is considered publicly supported if:
-
It normally receives a substantial part of its support from a governmental unit or from contributions from the general public; or,
-
It normally receives more than one-third of its support from gifts, grants, contributions, or gross receipts from activities related to its exempt purposes, and not more than one-third of its support from gross investment income.
In addition, the organization must meet the requirements of detailed support tests.
Generally, an organization computes its support over a four-year period. A new organization, however, may request on its application an advance ruling that it will be treated as a publicly-supported organization for its first five taxable years. At the end of the five-year advance ruling period, the organization must submit information to the IRS to establish that it met one of the public support tests for its advance ruling period. If the organization fails to provide such information, it will be reclassified as a private foundation.
An organization that wishes to continue to be treated as a public charity after the end of its advance ruling period should submit Form 8734, Support Schedule for Advance Ruling Period, within ninety days after the end of the advance ruling period. Failure to submit Form 8734 results in your organization automatically being reclassified as a private foundation required to file Form 990-PF.
Must an exempt organization notify the IRS if it changes its purposes or activities?
Once the IRS recognizes an organization’s tax-exempt status, it must notify the IRS if it amends its organizing documents or by-laws, or materially changes its activities from those described in its exemption application.
Must an organization whose corporate charter is reinstated after being administratively revoked or suspended by the state submit a new exemption application?
No. If a corporation is reinstated by the state after an administrative suspension or dissolution of its corporate charter, its exempt status may be reinstated without the need for the corporation to reapply. The organization must submit evidence from the state that its charter has been reinstated, indicating the effective date of reinstatement. In addition, the organization should provide evidence that it has complied with any filing requirement for annual returns during the period during which its corporate status was administratively suspended or dissolved.
If, however, an organization's exempt status has been automatically revoked for failing to file annual returns, exempt status cannot be reinstated unless it submits a new exemption application, even if the state reinstates its corporate status.
How can I get a copy of my organization's exemption letter?
To get a letter affirming that the IRS recognizes your organization's tax-exempt status under Code section 501, contact Customer Account Services. See Help from the IRS for contact information. The affirmation letter serves the same purpose for grantors and contributors as the original determination letter and will be prepared for you during your contact with Customer Account Services. You can expect to receive the affirmation letter within 10 - 14 business days from the contact.
If the affirmation letter will not meet your needs and you wish to obtain a copy of the original determination letter, you must send a written request to the EO Determinations office in Cincinnati. The request should be submitted using Form 4506-A, or in a letter containing the name and employer identification number of the organization along with the name, address, and phone number of the requester. Securing a copy of the original determination letter to send to you may take up to 60 days or longer.
As discussed in Publication 4573, Group Exemptions, subordinate organizations under group exemption rulings should contact the central organization that holds the group ruling to obtain confirmation of their status as members of the group.
Additional information
