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H&r Block Free Tax Prep

H&r block free tax prep 3. H&r block free tax prep   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. H&r block free tax prep Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. H&r block free tax prep Certain contracts held by a charitable remainder trust. H&r block free tax prep Excise Taxes. H&r block free tax prep Indoor tanning services. H&r block free tax prep Application for Recognition of ExemptionPolitical activity. H&r block free tax prep Private delivery service. H&r block free tax prep Amendments to organizing documents required. H&r block free tax prep How to show reasonable action and good faith. H&r block free tax prep Not acting reasonably and in good faith. H&r block free tax prep Prejudicing the interest of the Government. H&r block free tax prep Procedure for requesting extension. H&r block free tax prep More information. H&r block free tax prep Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. H&r block free tax prep Grass roots expenditures. H&r block free tax prep Lobbying nontaxable amount. H&r block free tax prep Grass roots nontaxable amount. H&r block free tax prep Organization that no longer qualifies. H&r block free tax prep Tax on organization. H&r block free tax prep Tax on managers. H&r block free tax prep Taxes on organizations. H&r block free tax prep Taxes on managers. H&r block free tax prep Political expenditures. H&r block free tax prep Correction of expenditure. H&r block free tax prep Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. H&r block free tax prep Religious. H&r block free tax prep Charitable. H&r block free tax prep Scientific. H&r block free tax prep Testing for public safety. H&r block free tax prep Literary. H&r block free tax prep Educational. H&r block free tax prep Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). H&r block free tax prep The prevention of cruelty to children or animals. H&r block free tax prep To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. H&r block free tax prep A trust is a fund or foundation and will qualify. H&r block free tax prep However, an individual or a partnership will not qualify. H&r block free tax prep Examples. H&r block free tax prep   Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. H&r block free tax prep Child care organizations. H&r block free tax prep   The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. H&r block free tax prep Instrumentalities. H&r block free tax prep   A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). H&r block free tax prep Examples of a qualifying instrumentality might include state schools, universities, or hospitals. H&r block free tax prep However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. H&r block free tax prep A state or municipality itself does not qualify for exemption. H&r block free tax prep Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. H&r block free tax prep Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. H&r block free tax prep Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. H&r block free tax prep Fundraising events. H&r block free tax prep   If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. H&r block free tax prep This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. H&r block free tax prep   If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. H&r block free tax prep If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. H&r block free tax prep You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. H&r block free tax prep See Disclosure of Quid Pro Quo Contributions in chapter 2. H&r block free tax prep Exemption application not filed. H&r block free tax prep   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. H&r block free tax prep Separate fund—contributions that are deductible. H&r block free tax prep   An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. H&r block free tax prep   If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. H&r block free tax prep A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. H&r block free tax prep Personal benefit contracts. H&r block free tax prep   Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. H&r block free tax prep   A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. H&r block free tax prep Certain annuity contracts. H&r block free tax prep   If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). H&r block free tax prep Certain contracts held by a charitable remainder trust. H&r block free tax prep   An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. H&r block free tax prep Excise tax. H&r block free tax prep   If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. H&r block free tax prep The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. H&r block free tax prep Excise Taxes. H&r block free tax prep   A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. H&r block free tax prep Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. H&r block free tax prep Indoor tanning services. H&r block free tax prep   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. H&r block free tax prep For more information, go to IRS. H&r block free tax prep gov and select Affordable Care Act Tax Provisions. H&r block free tax prep Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. H&r block free tax prep For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. H&r block free tax prep See the organization headings that follow for specific information your organization may need to provide. H&r block free tax prep Form 1023. H&r block free tax prep   Your organization must file its application for recognition of exemption on Form 1023. H&r block free tax prep See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. H&r block free tax prep Some organizations are not required to file Form 1023. H&r block free tax prep See Organizations Not Required To File Form 1023, later. H&r block free tax prep    Additional information to help you complete your application can be found online. H&r block free tax prep Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. H&r block free tax prep See Exemption Requirements - Section 501(c)(3) Organizations. H&r block free tax prep   Form 1023 and accompanying statements must show that all of the following are true. H&r block free tax prep The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. H&r block free tax prep ) specified in the introduction to this chapter. H&r block free tax prep No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. H&r block free tax prep You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. H&r block free tax prep The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. H&r block free tax prep See Political activity, next, and Lobbying Expenditures , near the end of this chapter. H&r block free tax prep Political activity. H&r block free tax prep   If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). H&r block free tax prep Such participation or intervention includes the publishing or distributing of statements. H&r block free tax prep   Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. H&r block free tax prep Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. H&r block free tax prep Effective date of exemption. H&r block free tax prep   Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. H&r block free tax prep These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. H&r block free tax prep If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. H&r block free tax prep Otherwise, exemption will be recognized only from the date of receipt. H&r block free tax prep The date of receipt is the date of the U. H&r block free tax prep S. H&r block free tax prep postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. H&r block free tax prep Private delivery service. H&r block free tax prep   If a private delivery service designated by the IRS, rather than the U. H&r block free tax prep S. H&r block free tax prep Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. H&r block free tax prep The following private delivery services have been designated by the IRS. H&r block free tax prep DHL Express (DHL): DHL “Same Day” Service. H&r block free tax prep Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. H&r block free tax prep United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. H&r block free tax prep M. H&r block free tax prep , UPS Worldwide Express Plus, and UPS Worldwide Express. H&r block free tax prep Amendments to organizing documents required. H&r block free tax prep   If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. H&r block free tax prep If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. H&r block free tax prep Extensions of time for filing. H&r block free tax prep   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. H&r block free tax prep Automatic 12-month extension. H&r block free tax prep Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. H&r block free tax prep To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. H&r block free tax prep 9100-2. H&r block free tax prep ” Discretionary extensions. H&r block free tax prep An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. H&r block free tax prep How to show reasonable action and good faith. H&r block free tax prep   An organization acted reasonably and showed good faith if at least one of the following is true. H&r block free tax prep The organization requests relief before its failure to file is discovered by the IRS. H&r block free tax prep The organization failed to file because of intervening events beyond its control. H&r block free tax prep The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. H&r block free tax prep The organization reasonably relied upon the written advice of the IRS. H&r block free tax prep The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. H&r block free tax prep An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. H&r block free tax prep Not acting reasonably and in good faith. H&r block free tax prep   An organization has not acted reasonably and in good faith under the following circumstances. H&r block free tax prep It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. H&r block free tax prep It was informed of the requirement to file and related tax consequences, but chose not to file. H&r block free tax prep It uses hindsight in requesting relief. H&r block free tax prep The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. H&r block free tax prep Prejudicing the interest of the Government. H&r block free tax prep   Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. H&r block free tax prep Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. H&r block free tax prep The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. H&r block free tax prep The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. H&r block free tax prep Procedure for requesting extension. H&r block free tax prep   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. H&r block free tax prep A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. H&r block free tax prep Any documents relevant to the application. H&r block free tax prep An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. H&r block free tax prep If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. H&r block free tax prep This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. H&r block free tax prep ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. H&r block free tax prep This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. H&r block free tax prep The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. H&r block free tax prep These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. H&r block free tax prep ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. H&r block free tax prep The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. H&r block free tax prep The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. H&r block free tax prep   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. H&r block free tax prep Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. H&r block free tax prep More information. H&r block free tax prep   For more information about these procedures, see Regulations sections 301. H&r block free tax prep 9100-1, 301. H&r block free tax prep 9100-2, 301. H&r block free tax prep 9100-3, Revenue Procedure 2013-4, section 6. H&r block free tax prep 04, 2013-1 I. H&r block free tax prep R. H&r block free tax prep B. H&r block free tax prep 126, and Revenue Procedure 2013-8, 2013-1 I. H&r block free tax prep R. H&r block free tax prep B. H&r block free tax prep 237. H&r block free tax prep See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. H&r block free tax prep Notification from the IRS. H&r block free tax prep   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. H&r block free tax prep Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. H&r block free tax prep These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. H&r block free tax prep Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). H&r block free tax prep These organizations are exempt automatically if they meet the requirements of section 501(c)(3). H&r block free tax prep Filing Form 1023 to establish exemption. H&r block free tax prep   If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. H&r block free tax prep By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. H&r block free tax prep A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. H&r block free tax prep Private foundations. H&r block free tax prep   See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. H&r block free tax prep Gross receipts test. H&r block free tax prep   For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. H&r block free tax prep   An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. H&r block free tax prep For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. H&r block free tax prep The organization must file Form 1023 within 90 days after the end of its second tax year. H&r block free tax prep   If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. H&r block free tax prep However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. H&r block free tax prep Example. H&r block free tax prep   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. H&r block free tax prep It was incorporated on January 1, 2009, and files returns on a calendar-year basis. H&r block free tax prep It did not file a Form 1023. H&r block free tax prep The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600   The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. H&r block free tax prep Therefore, it did not have to file Form 1023 and is exempt for those years. H&r block free tax prep However, for 2010, 2011, and 2012 the total gross receipts were $15,900. H&r block free tax prep Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. H&r block free tax prep If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. H&r block free tax prep The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. H&r block free tax prep   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. H&r block free tax prep See the procedures for this extension discussed earlier. H&r block free tax prep Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. H&r block free tax prep This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. H&r block free tax prep Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. H&r block free tax prep These conditions for exemption are referred to as the organizational test. H&r block free tax prep Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. H&r block free tax prep Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). H&r block free tax prep The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. H&r block free tax prep Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. H&r block free tax prep Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. H&r block free tax prep In interpreting an organization's articles, the law of the state where the organization was created is controlling. H&r block free tax prep If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. H&r block free tax prep The following are examples illustrating the organizational test. H&r block free tax prep Example 1. H&r block free tax prep Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). H&r block free tax prep These articles appropriately limit the organization's purposes. H&r block free tax prep The organization meets the organizational test. H&r block free tax prep Example 2. H&r block free tax prep An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. H&r block free tax prep The organization will not be properly limited as to its purposes since all research is not scientific. H&r block free tax prep The organization does not meet the organizational test. H&r block free tax prep Example 3. H&r block free tax prep An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). H&r block free tax prep The organization meets the organizational test. H&r block free tax prep Example 4. H&r block free tax prep If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. H&r block free tax prep Example 5. H&r block free tax prep If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. H&r block free tax prep On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. H&r block free tax prep Example 6. H&r block free tax prep If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. H&r block free tax prep Such purposes are vague and may be accomplished other than in an exempt manner. H&r block free tax prep Example 7. H&r block free tax prep A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. H&r block free tax prep A hospital may or may not be exempt depending on the manner in which it is operated. H&r block free tax prep Example 8. H&r block free tax prep An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. H&r block free tax prep Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. H&r block free tax prep This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. H&r block free tax prep If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. H&r block free tax prep Dedication. H&r block free tax prep   To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. H&r block free tax prep Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. H&r block free tax prep Distribution. H&r block free tax prep   Revenue Procedure 82-2, 1982-1 C. H&r block free tax prep B. H&r block free tax prep 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. H&r block free tax prep The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. H&r block free tax prep   If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. H&r block free tax prep Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. H&r block free tax prep Sample articles of organization. H&r block free tax prep   See sample articles of organization in the Appendix in the back of this publication. H&r block free tax prep Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. H&r block free tax prep In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. H&r block free tax prep You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. H&r block free tax prep If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. H&r block free tax prep See also Private Schools , discussed later. H&r block free tax prep Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. H&r block free tax prep Advocacy of a position. H&r block free tax prep   Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. H&r block free tax prep The mere presentation of unsupported opinion is not educational. H&r block free tax prep Method not educational. H&r block free tax prep   The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). H&r block free tax prep The following factors may indicate that the method is not educational. H&r block free tax prep The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. H&r block free tax prep The facts that purport to support the viewpoint are distorted. H&r block free tax prep The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. H&r block free tax prep The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. H&r block free tax prep   Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. H&r block free tax prep Qualifying organizations. H&r block free tax prep   The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. H&r block free tax prep College book stores, cafeterias, restaurants, etc. H&r block free tax prep   These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. H&r block free tax prep Alumni association. H&r block free tax prep   An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. H&r block free tax prep If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . H&r block free tax prep Athletic organization. H&r block free tax prep   This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. H&r block free tax prep If it is not so engaged, your organization may be exempt as a social club described in chapter 4. H&r block free tax prep Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. H&r block free tax prep If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. H&r block free tax prep Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. H&r block free tax prep The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. H&r block free tax prep (This information also must be projected, so far as may be feasible, for the next academic year. H&r block free tax prep ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. H&r block free tax prep A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. H&r block free tax prep A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. H&r block free tax prep The public school district and county in which the school is located. H&r block free tax prep How to determine racial composition. H&r block free tax prep   The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. H&r block free tax prep Nevertheless, a statement of the method by which the racial composition was determined must be supplied. H&r block free tax prep The identity of individual students or members of the faculty and administrative staff should not be included with this information. H&r block free tax prep   A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. H&r block free tax prep Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. H&r block free tax prep Also, the school must circulate information that clearly states the school's admission policies. H&r block free tax prep A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. H&r block free tax prep The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. H&r block free tax prep The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. H&r block free tax prep Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. H&r block free tax prep A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. H&r block free tax prep A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. H&r block free tax prep Policy statement. H&r block free tax prep   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. H&r block free tax prep Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. H&r block free tax prep Publicity requirement. H&r block free tax prep   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. H&r block free tax prep Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. H&r block free tax prep To satisfy this requirement, the school must use one of the following two methods. H&r block free tax prep Method one. H&r block free tax prep   The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. H&r block free tax prep Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. H&r block free tax prep When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. H&r block free tax prep If this method is used, the notice must meet the following printing requirements. H&r block free tax prep It must appear in a section of the newspaper likely to be read by prospective students and their families. H&r block free tax prep It must occupy at least 3 column inches. H&r block free tax prep It must have its title printed in at least 12 point bold face type. H&r block free tax prep It must have the remaining text printed in at least 8 point type. H&r block free tax prep The following is an acceptable example of the notice:   NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS     The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. H&r block free tax prep It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. H&r block free tax prep   Method two. H&r block free tax prep   The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. H&r block free tax prep If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. H&r block free tax prep In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. H&r block free tax prep The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. H&r block free tax prep Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. H&r block free tax prep Exceptions. H&r block free tax prep   The publicity requirements will not apply in the following situations. H&r block free tax prep First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. H&r block free tax prep These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. H&r block free tax prep If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. H&r block free tax prep Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . H&r block free tax prep   The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. H&r block free tax prep The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. H&r block free tax prep   The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. H&r block free tax prep Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. H&r block free tax prep   The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. H&r block free tax prep The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. H&r block free tax prep In this regard, it is each school's responsibility to determine whether either of the exceptions applies. H&r block free tax prep Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. H&r block free tax prep Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. H&r block free tax prep Facilities and programs. H&r block free tax prep   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. H&r block free tax prep Scholarship and loan programs. H&r block free tax prep   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. H&r block free tax prep This must be known throughout the general community being served by the school and should be referred to in its publicity. H&r block free tax prep Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. H&r block free tax prep Certification. H&r block free tax prep   An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. H&r block free tax prep   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. H&r block free tax prep Recordkeeping requirements. H&r block free tax prep With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. H&r block free tax prep Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. H&r block free tax prep Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. H&r block free tax prep Copies of all materials used by or on behalf of the school to solicit contributions. H&r block free tax prep Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. H&r block free tax prep (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. H&r block free tax prep ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. H&r block free tax prep However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. H&r block free tax prep The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. H&r block free tax prep Similarly, the IRS does not require a school to keep records prohibited under state or federal law. H&r block free tax prep Exceptions. H&r block free tax prep   The school does not have to independently maintain these records for IRS use if both of the following are true. H&r block free tax prep Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. H&r block free tax prep The school maintains copies of these reports from which this information is readily obtainable. H&r block free tax prep If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. H&r block free tax prep Failure to maintain records. H&r block free tax prep   Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. H&r block free tax prep Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. H&r block free tax prep However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. H&r block free tax prep Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). H&r block free tax prep Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. H&r block free tax prep Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. H&r block free tax prep Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. H&r block free tax prep The rest of this section contains a description of the information to be provided by certain specific organizations. H&r block free tax prep This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. H&r block free tax prep Each of the following organizations must submit the information described. H&r block free tax prep Charitable organization supporting education. H&r block free tax prep   Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. H&r block free tax prep Scholarships. H&r block free tax prep   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. H&r block free tax prep Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. H&r block free tax prep How and by whom the recipients are or will be selected. H&r block free tax prep If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. H&r block free tax prep If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. H&r block free tax prep A copy of the scholarship application form and any brochures or literature describing the scholarship program. H&r block free tax prep Hospital. H&r block free tax prep   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. H&r block free tax prep   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. H&r block free tax prep You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. H&r block free tax prep Submit also an appraisal showing the fair rental value of the rented space. H&r block free tax prep Clinic. H&r block free tax prep   If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. H&r block free tax prep Home for the aged. H&r block free tax prep   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. H&r block free tax prep Community nursing bureau. H&r block free tax prep   If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. H&r block free tax prep Organization providing loans. H&r block free tax prep   If you make, or will make, loans for charitable and educational purposes, submit the following information. H&r block free tax prep An explanation of the circumstances under which such loans are, or will be, made. H&r block free tax prep Criteria for selection, including the rules of eligibility. H&r block free tax prep How and by whom the recipients are or will be selected. H&r block free tax prep Manner of repayment of the loan. H&r block free tax prep Security required, if any. H&r block free tax prep Interest charged, if any, and when payable. H&r block free tax prep Copies in duplicate of the loan application and any brochures or literature describing the loan program. H&r block free tax prep Public-interest law firms. H&r block free tax prep   If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. H&r block free tax prep How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. H&r block free tax prep Whether the organization will accept fees for its services. H&r block free tax prep A description of the cases litigated or to be litigated and how they benefit the public generally. H&r block free tax prep Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. H&r block free tax prep Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. H&r block free tax prep Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. H&r block free tax prep Acceptance of attorneys' fees. H&r block free tax prep   A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. H&r block free tax prep Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. H&r block free tax prep   Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. H&r block free tax prep All fee awards must be paid to the organization and not to its individual staff attorneys. H&r block free tax prep Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. H&r block free tax prep Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. H&r block free tax prep   The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. H&r block free tax prep   If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. H&r block free tax prep Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. H&r block free tax prep That the particular religious beliefs of the organization are truly and sincerely held. H&r block free tax prep That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. H&r block free tax prep Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. H&r block free tax prep If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. H&r block free tax prep Churches. H&r block free tax prep   Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. H&r block free tax prep In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. H&r block free tax prep   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. H&r block free tax prep Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. H&r block free tax prep The IRS considers the facts and circumstances of each organization applying for church status. H&r block free tax prep Convention or association of churches. H&r block free tax prep   Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. H&r block free tax prep Integrated auxiliaries. H&r block free tax prep   An organization is an integrated auxiliary of a church if all the following are true. H&r block free tax prep The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). H&r block free tax prep It is affiliated with a church or a convention or association of churches. H&r block free tax prep It is internally supported. H&r block free tax prep An organization is internally supported unless both of the following are true. H&r block free tax prep It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). H&r block free tax prep It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. H&r block free tax prep Special rule. H&r block free tax prep   Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. H&r block free tax prep   In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. H&r block free tax prep   Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. H&r block free tax prep Scientific Organizations You must show that your organization's research will be carried on in the public interest. H&r block free tax prep Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. H&r block free tax prep Aiding in the scientific education of college or university students. H&r block free tax prep Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th
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