What is the difference between Form 990-PF, Form 990-N, Form 990-EZ, and Form 990? 

·         Form 990-PF is filed by all 501(c)(3) private foundations and 4947(a)(1) non-exempt charitable trusts. Only those types of exempt organizations use Form 990-PF.

·         Form 990-N ("ePostcard") is an eight-question, electronic return that other nonprofits may file if their incomes were <$25,000 for the 2009 tax year and <$50,000 for the 2010 tax year and thereafter.

·         Form 990-EZ is a two-page return that other nonprofits may file if their incomes were <$500,000 and their assets <$1.25 million for the 2009 tax year. Beginning with the 2010 tax year, the thresholds are incomes <$200,000 and assets <$500,000.

·         Form 990 is the "long form" that all other 990 filers must file if their incomes are =$500,000 or assets =$1.25 million for the 2009 tax year. Beginning with the 2010 tax year, the thresholds are incomes =$200,000 or assets =$500,000. 

What is the deadline for filing a 990?

There is no one date on which all Forms 990 must be submitted to the IRS. Instead, a nonprofit's filing date is determined by the end of its fiscal year (the 12-month period for which the organization plans the use of its funds); each filing organization is required to file "by the 15th day of the 5th month after" its fiscal year ends.

Organizations that file Form 990-EZ, 990, or 990-PF can also receive up to two 90-day extensions of time to file. Thus, the Form 990 for a nonprofit whose fiscal year ended on December 31, 2009, might not be filed until November 15, 2010 

Tax Information for Charities & Other Non-Profits

Automatic Revocation of Exemption:
Congress passed the Pension Protection Act in 2006, requiring most tax-exempt organizations to file an annual information return or notice with the IRS. The Internal Revenue Service today released a listing of approximately 275,000 organizations that under the law have automatically lost their tax-exempt status because they have not filed as legally required for the past three years.

Automatic Loss of Exemption for Non-Filing: Overview

What is automatic revocation?

Automatic revocation occurs when an exempt organization that is required to file an annual return (e.g., Form 990, 990-EZ or 990-PF) or submit an annual electronic notice (Form 990-N, or e-Postcard) does not do so for three consecutive years. Under the law, the organization automatically loses its federal tax exemption. This was extended several times since the 2006 ruling, in 2007, then again in 2009, but the final dead-line was May 17, 2010.

Automatic Exemption Revocation for Non-Filing: Reinstating Tax-Exempt Status

How do I get my organization’s tax-exempt status reinstated if it was automatically revoked?

An organization must apply to have its tax-exempt status reinstated, even if it was not originally required to file an application for exemption. It must:

1.   Apply for recognition of tax exemption by filing Form 1023 (if applying under section 501(c)(3)), or Form 1024 or a letter (if applying under a different Code section, like 501(c) 7), regardless of whether the organization was originally required to apply for exemption; and

2.   Pay the appropriate user fee.

In addition, write “Automatically Revoked” at the top of your application and on the mailing envelope. This will ensure that your application goes to a specialist trained to handle these applications. Small organizations eligible for transition relief will instead want to write “Notice 2011-43” at the top of the application and on the mailing envelope. See Notice 2011-43.

In addition, small organizations are eligible for the transition relief in Notice 2011-43 are also eligible for a reduced user fee, if they meet the criteria in Rev. Proc. 2011-36.

An organization may also request retroactive reinstatement as part of its application. 

One of the primary benefits of being tax-exempt under IRC Section 501(c)(3) is the ability to accept contributions and donations that are tax-deductible to the donor. Additional benefits include, but are not limited to:

* Exemption from federal and/or state corporate income taxes
* Possible exemption from state sales and property taxes (varies by state)
* Ability to apply for grants and other public or private allocations available only to IRS-recognized, 501(c)(3) organizations
* Potentially higher thresholds before incurring federal and/or state unemployment tax liabilities
* The public legitimacy of IRS recognition
* Discounts on US Postal bulk-mail rates and other services

Formulate a mission statement. As a non-profit organization, you exist to accomplish your mission, which should be crafted based upon your purpose, services and values. The mission statement is a concise expression that covers in one or two sentences who the organization is, what it does, for whom and where. It should also be compelling, as it will be used in all published materials, funding requests and public relations. It should also portray how your organization is distinct from others. (See Tips for sample mission statements.)

Form a Board of Directors. Forming a board requires careful thought and extensive recruitment efforts. Each state has regulations that determine the minimum size of the board, typically three, but the optimum number of people who sit on the board should be determined by the needs of the organization. Based on what your organization would like to accomplish, you should decide what special skills and qualities you will require of the individuals on your board. Identify qualified individuals who are supportive of your mission and are willing to give of their talents and time. (See Tips for more information.)

File Articles of Incorporation.  Articles of Incorporation are official statements of creation of an organization filed with the appropriate state agency (Secretary of State). They are important to protect both board and staff from legal liabilities incurred by the organization, making the corporation the holder of debts and liabilities, not the individuals and officers who work for the organization. The specific requirements governing how to incorporate are determined by each state. You can obtain the information you need to proceed with this step from your state Attorney General’s office or your state Secretary’s office. Before you spend your money, at least consult with an attorney who is experienced in the area of nonprofit law so that you do not make one of the many major mistakes that people make when they try to incorporate by themselves.

Draft bylaws. Bylaws are simply the "rules" of how the organization operates. Although bylaws are not required to file for 501(c)(3) status, they will help you in governing your organization. Bylaws should be drafted with the help of an attorney and approved by the board early in the organization's development.  

Develop a budget. Creating a budget is often one of the most challenging tasks when creating a nonprofit organization. A budget is the expression, in financial terms, of the plan of operation designed to achieve the objectives of an organization. New organizations may start the budgeting process by looking at potential income – figuring out how much money they have to spend.

Develop a record-keeping system. Legally, you must save all Board documents including minutes and financial statements. It is necessary to preserve your important corporate documents, including board meeting minutes, bylaws, Articles of Incorporation, financial reports, and other official records. You should contact your appropriate state agency for more information on what records you are required to keep in the official files.

Develop an accounting system. If your board does not include someone with a financial or accounting background, it is best to work with an accountant familiar with non-profit organizations. Nonprofits are accountable to the public, their funders, and, in some instances, government granting bodies, and it is vital to establish a system of controls (checks and balances) when establishing the organization’s accounting practices. Responsible financial management requires the establishment of an accounting system that meets both current and anticipated needs.

Apply for a federal employer identification number. Regardless of whether or not you have employees, nonprofits are required to obtain a federal Employer Identification Number (EIN) — also referred to as the federal ID number. Available from the IRS, this number is used to identify the organization when tax documents are filed and is used not unlike an individual’s Social Security number. If you received your number prior to incorporation, you will need to apply for a new number under the corporate name. Ask for Form SS-4 when applying for your EIN. SS-4 Form Preparation

File for 501(c)(3) status. To apply for recognition of tax-exempt, public charity status, obtain Form 1023 (application) and Publication 557 (detailed instructions) from the local IRS office or the IRS web site. The filing fee depends upon the size of the organization’s budget. The application is an important legal document, so it is advisable to seek the assistance of an experienced attorney or certified public accountant when preparing it.

File for state and local tax exemption. In accordance with state, county, and municipal law, you may apply for exemption from income, sales, and property taxes. Contact your state Department of Revenue, your county or municipal Department of Revenue, local Departments of Revenue, and county or municipal clerk’s offices for information on how to do this in your jurisdictions.

Fulfill charitable solicitation law requirements. If your organization’s plans include fundraising, be aware that many states and few local jurisdictions regulate organizations that solicit funds within that state, county, or city. Usually compliance involves obtaining a permit or license and then filing an annual report and financial statement. Contact the state Attorney General’s office, the state Department of Commerce, state and local Departments of Revenue and county or municipal clerk’s offices to get more information.

Apply for a nonprofit mailing permit. The federal government provides further subsidies for nonprofits with reduced postage rates on bulk mailings. While first-class postage rates for nonprofits remain the same as those for the for-profit sector, second- and third-class rates are substantially less when nonprofits mail to a large number of addresses. For more information on eligibility, contact the U.S. Postal Service and ask for Publication 417, Nonprofit Standard Mail Eligibility (also available at the link below). 

-You (officers & members) of a nonprofit origination or nonprofit entity can be personally sued by a third party if not incorporated.

-No federal corporation income tax, no state corporate tax, franchise, excise, sales and use taxes.

-They do pay tax on income from regular trade or business activities, that are unrelated to their exempt purposes.

-Offer individual and corporate donors a tax deduction for their contribution.

-Eligible to receive foundations grants.

-Eligible for lower postal rates

-Viewed as a whole as a reputable organization, a legal, legitimate, non-profit corporation,

- all nonprofit organizations (except Churches) have to file an annual “information return”  990, 990N, or 990EZ anyways to keep their status, so why not go ahead and incorporate as a 501(c) 3
  and get the tax benefits.

Frequently Asked Questions: 501(c)(3)

Q. What form is used to apply for 501(c)(3) tax exemption?

A. Form 1023 is used to apply for exemption under IRC 501(c)(3).

Q. What types of organizations will qualify for 501(c)(3) tax exemption?

A. Religious, Charitable, Scientific, Testing for public safety, Literary, Educational, Fostering amateur sports or Prevention of cruelty to children or animals.

Q. How long will the IRS take to make a determination?

A. On average the IRS takes 3-6 months from the time they receive the application package, however there are exceptions. Animal organizations tend to receive determinations quite quickly, and foreign or housing organizations may take an extended period of time. Doing it right the first time is critical, and that is where CharityNet's experience helps. Also, If you are in a hurry our staff can assist with tips to help expedite the process.

Q. What is the definition of "charitable"?

A. Charitable - Reg. l. 501(c)(3)-1(d)(2) provide that the term "charitable" is used in IRS 5Ol(c)(3) in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening of the burdens of government; promotion of social welfare.

Q. What do I need to be considered a church?

A. For the IRS to approve an organization as a church, they must demonstrate that they have a set of distinct religious beliefs, a place of worship, regularly scheduled services, and an established congregation. Lately the IRS has been requesting photographs of the church facility, the signage outside that invites the public to attend services, and the congregation at worship. In addition they have requested a list of members of the congregation, includes names, addresses, and phone numbers.

Q. Do sports team qualify for 501(c)(3) exemption?

A. Fostering Amateur Sports- Sports activity is not in and of itself an exempt activity under IRS 5Ol(c)(3)! To qualify:
1) An organization may be educational within the meaning of IRS 501(c)(3) if it teaches sports to youth or by being affiliated with an exempt educational organization. Such educational organizations may also provide facilities and equipment.
2) An organization that develops, promotes, and regulates a sport for youths may be charitable within the meaning of IRS 5Ol(c)(3) as combating juvenile delinquency or lessening the burdens of government.
3) The organization is organized and operated to foster national or international amateur sports competition and no part of its activities involve the provision of athletic facilities or equipment. (Think Olympic training).

Q. What are Articles of Incorporation?

A. Organizing document for the company. States the organization's specific purposes, incorporators, etc. Outline will vary from state to state.

Q. What are Articles of Organization?

A. Similar to Articles of Incorporation, but used for LLCs.

Q. What are Bylaws?

A. Internal operating rules for an organization. States who should do what, how they should do it, when they should do it, etc. Basic non profit template discusses board duties and elections, memberships, meetings, etc.

Q. What type of financials are necessary for the application?

A. If your organization has been operational for 5 years or more, then actual financial information for the last 5 years is required. If the organization has been in operation 1-4 years, we must have actual financial information for the periods of operation, and projected financials to include a total of 4 years of information. If the organization is a startup, a 3 year projection is required.

Q. Can my organization charge for goods or services?

A. Yes. However, the fees should be for provision of services which help to achieve the exempt purpose. These fees should be reduced in comparison with a commercial entity that may offer the same service. If fees are charged for any goods or services that do not directly involve the exempt services, the revenue may be subject to unrelated business income taxes.

Q. What is the "organizational test"?

A. Reg. 1.501(c)(3)-1(b)(l)(i) provide that an organization is organized exclusively for one or more exempt purposes only if its articles of organization:
Limit the purposes of such organization to one or more exempt purposes; and Do not expressly empower the organization to engage, other than as an insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more exempt purposes. In addition, the organization's assets must be dedicated to an exempt purpose, either by an express provision in its governing instrument or by operation of law. Reg. lRS 501(c)(3)-1(b)(4).
IRS 508(e) imposes additional requirements for governing instruments of private foundations. These are discussed in the Private Foundations Manual.
The term "articles" includes "the trust instrument, the corporate charter, the articles of association, or any other written instrument by which an organization is created." Reg. 1.501(c)(3)-1(b)(2). The organizational test cannot be met by any document that is not the creating document.
A corporation's bylaws cannot remedy a defect in its corporate charter. A charter can be amended only in accordance with the State's non profit corporation law. States generally require that any amendments be filed with and approved by the chartering authority. In the case of a trust, operating rules cannot substitute for the trust indenture. For an unincorporated association, the test must be met by the basic creating document, whatever it is called, and any amendments. Subsidiary documents that are not amendments to the creating document may not be relied on.

Q. What does the Board of Directors do?

A. The Board is the governing body of the organization. In most non profits the board does not participate in the daily operations of the organization. They must approve major organizational decisions, such as budget, salaries, amending articles or bylaws, etc. These individuals are there to ensure that the organization has the public's interest at heart, and that all operations are done appropriately. Board functions must be offered on a volunteer basis. Board members may be recompensed for any out of pocket expenses. Sometimes, members of the board may also hold a day to day position in the organization. This is a separate position from that which they hold on the board. An individual who happens to be on the board may receive compensation for their daily role in the organization.

Q. How many people do I need on my Board?

A. 501 Board Requirements: Must have at least 3 individuals, a President, Secretary, and Treasurer.

Q. Can I put family members on my organization's Board?

A. Yes, however there must always be a majority of "uninterested" individuals on the board. This means unrelated by blood, marriage, adoption, or business; and not receiving compensation for any reason.

Q. My organization grants scholarships. Can my children be recipients?

A. Members of the Board, award committee, or their family members should not be eligible to receive funding.

Q. What filings are required each year once I'm approved?

A. To remain in compliance, the organization must submit a form 990 each year. This form (which comes in a variety of formats depending on the organization's specific financial situation) must be submitted following the end of the fiscal year. Each year, the organization must file annual reports with their state to ensure that the corporation remains in good standing. 2009 Tax Year (To be filed in 2010) Gross Receipts Normally less than $25K file 990N, Gross Receipts between $25K & $500K and Total Assets less than $1,250K file 990EZ,  Gross Receipts Greater than $500K or Total Assets Greater than $1,250K file 990.

Q. What is Charitable Organization Registration?

A. Most states require non profit organizations to register with the Attorney General or Department of Consumer Services before soliciting donations from the public. This ensures that all organizations requesting donations are in fact legitimate.

Q. Is state tax exemption required?

A. Not necessarily, but it is a good idea. This will prevent your organization from paying state level corporate and franchise taxes, freeing up more funds to put toward programs. In addition, sales tax exemption may be available to save you money on purchases made for the organization. The good news is the process is a lot simpler than federal tax exemption, however the state's department of revenue may require you to first submit a copy of your IRS determination letter.

Q. If my 501 c 3 is approved do I till have to pay state income tax and sales tax?

A. This varies by state. Some states will automatically exempt organizations that have been deemed exempt at the federal level. Other states require organizations to apply separately for state level exemptions.

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