Organizations that are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, foster national or international amateur sports competitions, or for the prevention of cruelty to children or animals are eligible to be exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. Unless the organization is a church, or a related-type entity, or  the organization has annual gross receipts less $5,000, the organization is required to file Form 1023 with the IRS. These charitable organizations must be organized and operated exclusively for one or more exempt purposes (as listed above).

Based on Form 1023, the IRS will classify the entity as either a public or private charity. What are the major differences?

A public charity has a broad base of support (contributions typically exceeding 33 1/3% of total support). A private charity has a small base of public support and the majority of the support is derived primarily from the investment earnings of the organization.  For recent legislative information for private foundations, see this post.

So what type of organization are you? Look at the composition of the organization’s support.

Entities that are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes may be eligible for federal income tax exemption. What does exempt from federal income tax mean? The organization does not pay federal income tax on the net earnings of the operation. An organization that has applied and received their exemption under Code 501(c)(3) may be receive charitable contributions that are tax deductible by the donor.

So how does an organization receive exempt status? Read the rest of this entry »

The redesigned Form 990 asks a number of new questions about policies and procedures. In Section C of Part VI Governance, Management and Disclosure, the IRS asks each exempt organization if Forms 1023/1024 and 990, and 990-T are available for public inspection.

How does an organization make this information available to the public? Does your organization post these documents on:
1. its own website
2. another’s website or
3. is it available upon request.

This requirement is not at the discretion of the board or organization, but it is technically the law, under Section 6104.

Has your organization complied?