Publication 557: Tax-Exempt Status for Your Organization; Chapter 2 - Filing Requirements and Required Disclosures

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Table of Contents

Introduction

Most exempt organizations (including private foundations) must file various returns and reports at some time during (or following the close of) their accounting period.

Topics - This chapter discusses:

Annual information returns that must be filed
The unrelated business income tax return
Employment tax returns
A return to report taxable income from political organizations
Reporting requirements for certain political organizations
A return to report the sale of certain donated property
Information to provide to donors
A report of cash received
Public inspection of certain documents
Certain required disclosures and the penalties for not making them

Useful Items - You may want to see:

Publication

15 Circular E, Employer's Tax Guide
598 Tax on Unrelated Business Income of Exempt Organizations

Form (and Instructions)

990
Return of Organization Exempt From Income Tax
990–EZ
Short Form Return of Organization Exempt From Income Tax
Schedule A (Form 990 or 990–EZ)
Organization Exempt Under Section 501(c)(3)
Schedule B (Form 990 or 990–EZ)
Schedule of Contributors
990–PF
Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation
990–T
Exempt Organization Business Income Tax Return
1120–POL
U.S. Income Tax Return for Certain Political Organizations
8300
Report of Cash Payments Over $10,000 Received in a Trade or Business
8868
Application for Extension of Time to File an Exempt Organization Return
8870
Information Return for Transfers Associated with Certain Personal Benefits Contracts
8871
Political Organization Notice of Section 527 Status
8872
Political Organization Report of Contributions and Expenditures

See chapter 5 for information about getting these publications and forms.

Annual Information Returns

Every organization exempt from federal income tax under section 501(a) must file an annual information return except:

A church, an interchurch organization of local units of a church, a convention or association of churches, or an integrated auxiliary of a church (as defined later under Religious Organizations in chapter 3),
A church-affiliated organization that is exclusively engaged in managing funds or maintaining retirement programs,
A school below college level affiliated with a church or operated by a religious order, even though it is not an integrated auxiliary of a church,
A mission society sponsored by or affiliated with one or more churches or church denominations, more than half of the society's activities are conducted in, or directed at, persons in foreign countries,
An exclusively religious activity of any religious order,
A state institution, the income of which is excluded from gross income under section 115,
A corporation described in section 501(c)(1) [a corporation that is organized under an Act of Congress and is:
1. an instrumentality of the United States, and
2. exempt from federal income taxes],
A black lung benefit trust described in section 501(c)(21) [Required to file Form 990–BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons. See chapter 4 for more information.],
A stock bonus, pension, or profit-sharing trust that qualifies under section 401. [required to file Form 5500, Annual Return/Report of Employee Benefit Plan],
A religious or apostolic organization described in section 501(d) [required to file Form 1065, U.S. Return of Partnership Income],
A foreign organization described in section 501(a) [other than a private foundation] that normally does not have more than $25,000 in annual gross receipts from sources within the United States and has no significant activity in the United States. For further information, see Revenue Procedure 94–17, 1994–1 C.B. 579,
A governmental unit or an affiliate of a governmental unit that meets the requirements of Revenue Procedure 95–48, 1995–2 C.B. 418,
An exempt organization (other than a private foundation, discussed in chapter 3) having gross receipts in each tax year that normally are not more than $25,000. (See the instructions for Form 990 for more information about what constitutes annual gross receipts that are normally not more than $25,000.),
A private foundation exempt under section 501(c)(3) and described in section 509(a). (Required to file Form 990–PF), or
A United States possession organization described in section 501(a) [other than a private foundation] that normally does not have more than $25,000 in annual gross receipts from sources within the United States and has no significant activity in the United States. For further information, see Revenue Procedure 2003-21, Internal Revenue Bulletin 2003-6.

Forms 990 and 990–EZ. Exempt organizations, other than private foundations, must file their annual information returns on Form 990, or Form 990–EZ.

Generally, political organizations with gross receipts of $25,000 ($100,000 for a qualified state or local political organization (QSLPO)) or more for the tax year are required to file Form 990 (990–EZ) unless specifically excepted from filing the annual return. The following political organizations are not required to file Form 990 (Form 990–EZ).

A state or local committee of a political party.
A political committee of a state or local candidate.
A caucus or association of state or local officials.
A political organization that is required to report as a political committee under the Federal Election Campaign Act.
A 501(c) organization that has expenditures for influencing or attempting to influence the selection, nomination, election or appointment of any individual for a federal, state or local public office.

Form 990–EZ. This is a shortened version of Form 990. It is designed for use by small exempt organizations and nonexempt charitable trusts.

An organization may file Form 990–EZ, instead of Form 990, if it meets both of the following requirements.

Its gross receipts during the year were less than $100,000.
Its total assets ( line 25, column (B) of Form 990–EZ) at the end of the year were less than $250,000.

If your organization does not meet either of these conditions, you cannot file Form 990–EZ. Instead you must file Form 990.

Group return. A group return on Form 990 may be filed by a central, parent, or like organization for two or more local organizations, none of which is a private foundation. This return is in addition to the central organization's separate annual return if it must file a return. It cannot be included in the group return. See the instructions for Form 990 for the conditions under which this procedure may be used.

In any year that an organization is properly included as a subordinate organization on a group return, it should not file its own Form 990.

Schedule A (Form 990 or 990–EZ). Organizations, other than private foundations, that are described in section 501(c)(3) and that are otherwise required to file Form 990 or 990–EZ must also complete Schedule A of that form.

Schedule B (Form 990 or 990–EZ). Organizations that file Form 990 or 990–EZ use this schedule to provide required information regarding their contributors.

Form 990–PF. All private foundations exempt under section 501(c)(3) must file Form 990–PF. These organizations are discussed in chapter 3.

Due date. Form 990, 990–EZ, or 990–PF must be filed by the 15th day of the 5th month after the end of your organization's accounting period. Thus, for a calendar year taxpayer, Form 990, 990–EZ, or 990–PF is due May 15 of the following year.

Use Form 8868 to request an automatic 3-month extension of time to file Form 990, 990–EZ, or 990–PF and also to apply for an additional (not automatic) 3-month extension if needed.

Do not apply for both the automatic 3-month extension and the additional 3-month extension at the same time. For more information, see Form 8868 and its instructions.

Application for exemption pending. An organization that claims to be exempt under section 501(a) of the Code but has not established its exempt status by the due date for filing an information return should complete and file Form 990 or 990–EZ (or Form 990–PF if it considers itself a private foundation). If the organization's application is pending with the IRS, it must so indicate on Form 990, 990–EZ, or 990–PF (whichever applies) by checking the application pending block at the top of page 1 of the return.

For more information on the filing requirements, see the instructions for Forms 990, 990–EZ, and 990–PF.

State reporting requirements. Copies of Form 990, 990–EZ, or 990–PF may be used to satisfy state reporting requirements. See the instructions for those forms.

Form 8870. Organizations that filed a Form 990, 990–EZ, or 990–PF, and paid premiums or received transfers on certain life insurance, annuity, and endowment contracts (personal benefit contracts), must file Form 8870. For more information, see Form 8870 and its instructions.

Penalties for failure to file. An exempt organization that fails to file a required return must pay a penalty of $20 a day for each day the failure continues. The same penalty will apply if the organization does not give all the information required on the return or does not give the correct information.

Maximum penalty. The maximum penalty for any one return is the smaller of $10,000 or 5% of the organization's gross receipts for the year.

Organization with gross receipts over $1 million. For an organization that has gross receipts of over $1 million for the year, the penalty is $100 a day up to a maximum of $50,000.

Managers. If the organization is subject to this penalty, the IRS may specify a date by which the return or correct information must be supplied by the organization. Failure to comply with this demand will result in a penalty imposed upon the manager of the organization, or upon any other person responsible for filing a correct return. The penalty is $10 a day for each day that a return is not filed after the period given for filing. The maximum penalty imposed on all persons with respect to any one return is $5,000.

Exception for reasonable cause. No penalty will be imposed if reasonable cause for failure to file timely can be shown.

Unrelated Business Income Tax Return

Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. Unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis for the organization's exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990–T.

The obligation to file Form 990–T is in addition to the obligation to file the annual information return, Form 990, 990–EZ, or 990–PF.

Estimated tax. Exempt organizations must make quarterly payments of estimated tax on unrelated business income. An organization must make estimated tax payments if it expects its tax for the year to be $500 or more.

Travel tour programs. Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose to which tax exemption was granted to the organization.

Whether travel tour activities conducted by an organization are substantially related to the organization's tax exempt purpose is determined by looking at all the relevant facts and circumstances, including, but not limited to, how a travel tour is developed, promoted, and operated.

Example.

ABC, a university alumni association, is tax exempt as an educational organization under section 501(c)(3) of the Code. As part of its activities, ABC operates a travel tour program. The program is open to all current members of ABC and their guests. ABC works with travel agents to schedule approximately ten tours annually to various destinations around the world. Members of ABC pay $1,000 to XYZ Travel Agency to participate in a tour. XYZ pays ABC a per person fee for each participant. Although the literature advertising the tours encourages ABC members to continue their lifelong learning by joining the tours, and a faculty member of ABC's related university frequently joins the tour as a guest of the alumni association, none of the tours include any scheduled instruction or curriculum related to the destinations being visited. The travel tours made available to ABC's members do not contribute importantly to the accomplishment of ABC's educational purpose. Rather, ABC's program is designed to generate revenues for ABC by regularly offering its members travel services. Therefore, ABC's tour program is an unrelated trade or business.

For additional information on unrelated business income, see Publication 598.

Employment Tax Returns

Every employer, including an organization exempt from federal income tax, who pays wages to employees is responsible for withholding, depositing, paying, and reporting federal income tax, social security and Medicare (FICA) taxes, and federal unemployment tax (FUTA), unless that employer is specifically excepted by law from those requirements or if the taxes clearly do not apply.

For more information, get a copy of Publication 15, Circular E, Employer's Tax Guide, which summarizes the responsibilities of an employer, Publication 15–A, Employer's Supplemental Tax Guide, Publication 15–B, Employer's Tax Guide to Fringe Benefits, and Form 941, Employer's Quarterly Federal Tax Return.

Penalty. If any person required to collect, truthfully account for, and pay over any of these taxes willfully fails to satisfy any of these requirements or willfully tries in any way to evade or defeat any of them, that person will be subject to a penalty. The penalty, often called the trust fund recovery penalty is equal to the tax evaded, not collected, or not accounted for and paid over. The term person includes:

An officer or employee of a corporation, or
A member or employee of a partnership.

Exception. The penalty is not imposed on any unpaid volunteer director or member of a board of trustees of an exempt organization if the unpaid volunteer serves solely in an honorary capacity, does not participate in the day-to-day or financial operations of the organization, and does not have actual knowledge of the failure on which the penalty is imposed.

This exception does not apply if it results in no one being liable for the penalty.

FICA and FUTA tax exceptions. Payments for services performed by a minister of a church in the exercise of the ministry, or a member of a religious order performing duties required by the order, are generally not subject to FICA or FUTA taxes.

FUTA tax exception. Payments for services performed by an employee of a religious, charitable, educational, or other organization described in section 501(c)(3) that are generally subject to FICA taxes if the payments are $100 or more for the year, are not subject to FUTA taxes.

FICA tax exemption election. Churches and qualified church-controlled organizations can elect exemption from employer FICA taxes by filing Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption from Employer Social Security and Medicare Taxes.

To elect exemption, Form 8274 must be filed before the first date on which a quarterly employment tax return would otherwise be due from the electing organization. The organization may make the election only if it is opposed for religious reasons to the payment of FICA taxes.

The election applies to payments for services of current and future employees other than services performed in an unrelated trade or business.

Revoking the election. The election can be revoked by the IRS if the organization fails to file Form W–2, Wage and Tax Statement, for 2 years and fails to furnish certain information upon request by the IRS. Such revocation will apply retroactively to the beginning of the 2-year period.

Definitions. For purposes of this election, the term church means a church, a convention or association of churches, or an elementary or secondary school that is controlled, operated, or principally supported by a church or by a convention or association of churches.

The term qualified church-controlled organization means any church-controlled section 501(c)(3) tax-exempt organization, other than an organization that both:

Offers goods, services, or facilities for sale, other than on an incidental basis, to the general public at other than a nominal charge that is substantially less than the cost of providing such goods, services, or facilities, and
Normally receives more than 25% of its support from the sum of governmental sources and receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activities that are not unrelated trades or businesses.

Effect on employees. If a church or qualified church-controlled organization has made an election, payment for services performed for that church or organization, other than in an unrelated trade or business, will not be subject to FICA taxes. However, the employee, unless otherwise exempt, will be subject to self-employment tax on the income. The tax applies to income of $108.28 or more for the tax year from that church or organization, and no deductions for trade or business expenses are allowed against this self-employment income.

Schedule SE (Form 1040), Self-Employment Tax, should be attached to the employee's income tax return.

Political Organization Income Tax Return

Generally, a political organization is treated as an organization exempt from tax. Certain political organizations, however, must file an annual income tax return, Form 1120–POL, for any year they have political organization taxable income in excess of the $100 specific deduction allowed under section 527 of the Code.

A political organization that has $25,000 ($100,000 for a qualified state or local political organization) or more in gross receipts for the tax year must file Form 990 or 990–EZ (and Schedule B of the form), unless excepted. See Forms 990 and 990–EZ, earlier.

Political organization. A political organization is a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function.

Exempt function. An exempt function means influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state, local public office or office in a political organization, or the election of the Presidential or Vice Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed. It also includes certain office expenses of a holder of public office or an office in a political organization.

Certain political organizations are required to notify the IRS that they are section 527 organizations. These organizations must use Form 8871. Some of these section 527 organizations must use Form 8872 to file periodic reports with the IRS disclosing their contributions and expenditures. For a discussion on these forms, see Reporting Requirements for a Political Organization , later.

Political organization taxable income. Political organization taxable income is the excess of:

Gross income for the tax year (excluding exempt function income) minus
Deductions directly connected with the earning of gross income.

To figure taxable income, allow for a $100 specific deduction, but do not allow for the net operating loss deduction, the dividends-received deduction, and other special deductions for corporations.

Exempt organization not a political organization.

An organization exempt under section 501(c) of the Code that spends any amount for an exempt function must file Form 1120–POL for any year which it has political taxable income. These organizations must include in gross income the lesser of:

The total amount of its exempt function expenditures, or
The organization's net investment income.

Separate fund. A section 501(c) organization can set up a separate segregated fund that will be treated as an independent political organization. The earnings and expenditures made by the separate fund will not be attributed to the section 501(c) organization.

Section 501(c)(3) organizations are precluded from, and suffer loss of exemption for, engaging in any political campaign on behalf of, or in opposition to, any candidate for public office.

Due date. Form 1120–POL is due by the 15th day of the 3rd month after the end of the tax year. Thus, for a calendar year taxpayer, Form 1120–POL is due on March 15 of the following year. If any due date falls on a Saturday, Sunday, or legal holiday, the organization may file the return on the next business day.

Form 1120–POL is not required of an exempt organization that makes expenditures for political purposes if its gross income does not exceed its directly connected deductions by more than $100 for the tax year.

Failure to file. A political organization that fails to file Form 1120–POL, or fails to include the required information on the form, is subject to a penalty of $20 per day for each day such failure continues. The maximum penalty imposed on failures regarding any one return is the lesser of $10,000 or 5% of the gross receipts of the organization for the year. In the case of an organization having gross receipts exceeding $1,000,000 for any year, the penalty is increased to $100 per day with a maximum penalty of $50,000.

For more information about filing Form 1120–POL, refer to the instructions accompanying the form.

Failure to pay on time. An organization that does not pay the tax when due generally may have to pay a penalty of 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the organization can show that the failure to pay on time was due to reasonable cause.

Reporting Requirements for a Political Organization

Certain political organizations are required to notify the IRS that the organization is to be treated as a section 527 political organization. The organization is also required to periodically report certain contributions received and expenditures made by the organization. To notify the IRS of section 527 treatment, an organization must file Form 8871. To report contributions and expenditures, certain tax-exempt political organizations must file Form 8872.

Form 8871. A political organization must electronically file Form 8871 to notify the IRS that it is to be treated as a section 527 organization. However, an organization is not required to file Form 8871 if:

It reasonably expects its gross receipts to always be less than $25,000.
It is a political committee required to report under the Federal Election Campaign Act of 1971 (FECA) (2 U.S.C. 431(4).
It is a state or local candidate committee.
It is a state or local committee of a political party.
It is a section 501(c) organization that has made an “exempt function expenditure”.

All other political organizations are required to file Form 8871.

An organization must provide on Form 8871:

Its name and address (including any business address, if different) and its electronic mailing address,
Its purpose,
The names and addresses of its officers, highly compensated employees, contact person, custodian of records, and members of its Board of Directors,
The name and address of, and relationship to, any related entities (within the meaning of section 168(h)(4) of the Code), and
Whether it intends to claim an exemption from filing Form 8872 or Form 990 (Form 990–EZ).

Before filing Form 8871, the political organization must have its own EIN even if it has no employees. To get an EIN, file Form SS-4 with the IRS. Form SS-4 can be obtained by downloading it from the IRS Internet web site at www.irs.gov or by calling 1–800–TAX–FORM.

Due dates. The initial Form 8871 must be filed within 24 hours of the date on which the organization was established. If there is a material change an amended Form 8871 must be filed within 30 days of the material change. When the organization terminates its existence, it must file a final Form 8871 within 30 days of termination.

If the due date falls on a Saturday, Sunday, or legal holiday, the organization may file on the next business day.

How to file. An organization must file Form 8871 electronically via the IRS Internet web site at www.irs.gov/polorgs (Keyword: political orgs).

Failure to file. An organization that is required to file Form 8871, but fails to do so on a timely basis, will not be treated as a tax-exempt section 527 organization for any period before the date Form 8871 is filed. Also, the taxable income of the organization for that period will include its exempt function income (including contributions received, membership dues, and political fund-raising receipts) minus any deductions directly connected with the production of that income.

Failure to file an amended Form 8871 will cause the organization not to be treated as a tax-exempt section 527 organization. If an organization is treated as not being a tax-exempt section 527 organization, the taxable income of the organization will be determined by considering any exempt function income and deductions during the period beginning on the date of the material change and ending on the date that the amended Form 8871 is filed.

The tax is computed by multiplying the organization's taxable income by the highest corporate tax rate.

Fraudulent returns. Any individual or corporation that willfully delivers or discloses to the IRS any list, return, account, statement or other document known to be fraudulent or false as to any material matter will be fined not more than $10,000 ($50,000 in the case of a corporation) or imprisoned not more than 1 year or both.

Waiver of penalties. The IRS may waive any additional tax assessed on an organization for failure to file Form 8871 if the failure was due to reasonable cause and not willful neglect.

Additional information. For more information on Form 8871, see the form and its instructions. For a discussion on the public inspection requirements for the form, see Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting Forms, later.

Form 8872. Every tax-exempt section 527 political organization that accepts a contribution or makes an expenditure, for an exempt function during the calendar year, must file Form 8872 except:

A political organization that is not required to file Form 8871 (discussed earlier).
A political organization that is subject to tax on its income because it did not file or amend Form 8871.
A qualified state or local political organization (QSLPO), discussed below.

All other tax-exempt section 527 organizations that accept contributions or make expenditures for an exempt function are required to file Form 8872.

Qualified state or local political organization. A state or local political organization may be a QSLPO if:

All of its political activities relate solely to state or local public office (or office in a state or local political organization).
It is subject to a state law that requires it to report (and it does report) to a state agency information about contributions and expenditures that is similar to the information that the organization would otherwise be required to report to the IRS.
The state agency and the organization make the reports publicly available.
No federal candidate or office holder:
1. Controls or materially participates in the direction of the organization,
2. Solicits contributions for the organization, or
3. Directs the disbursements of the organization.

Information required on Form 8872. If an organization pays an individual $500 or more for the calendar year, the organization is required to disclose the individual's name, address, occupation, employer, amount of the expense, the date the expense was paid, and the purpose of the expense on Form 8872.

If an organization receives contributions of $200 or more from one contributor for the calendar year, the organization must disclose the donor's name, address, occupation, employer, and the date the contributions were made.

For additional information that is required, see Form 8872.

Due dates. The due dates for filing Form 8872 vary depending on whether the form is due for a reporting period that occurs during a calendar year in which a regularly scheduled election is held, or any other calendar year ( a non-election year).

In election years, Form 8872 must be filed on either a quarterly or a monthly basis. Both a pre-election report and a post-election report are also required to be filed in an election years.

In non-election years, the form must be filed on a semiannual or monthly basis. A complete listing of these filing periods are in the Form 8872 instructions.

An election year is any year in which a regularly scheduled general election for federal office is held (an even-numbered year). A non-election year is any odd-numbered year.

How to file. For Forms 8872 filed before June 30, 2003, complete and file Form 8872 in one of two ways:

Electronically via the IRS Internet web site at www.irs.gov/polorgs, or
By sending a signed copy of the form to the Internal Revenue Service Center, Ogden, UT 84201.

The form must be signed by an official authorized by the organization to sign Form 8872.

An organization that files Form 8871 electronically will receive a user ID and a password needed to file Form 8872 electronically. If an organization does not receive its user ID and password, it may request one by writing to the following address:

Internal Revenue Service
Room 4010
P.O. Box 2508
Cincinnati, OH 45201

Organizations required to file Form 8872 on or after June 30, 2003, must file the form electronically if the organization expects to have contributions or expenditures exceeding $50,000.

Penalty for failure to file. A penalty will be imposed if the organization is required to file Form 8872 and it:

Fails to file the form by the due date, or
Files the form but fails to report all of the information required or reports incorrect information.

The penalty is 35% of the total amount of contributions and expenditures to which a failure relates.

Fraudulent returns. Any individual or corporation that willfully delivers or discloses any list, return, account, statement or other document known to be fraudulent or false as to any material matter, will be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.

Waiver of penalties. The IRS may waive any additional tax assessed on an organization for failure to file Form 8872 if the failure was due to reasonable cause and not willful neglect.

Donee Information Return

Dispositions of donated property. If an organization receives charitable deduction property and within 2 years sells, exchanges, or disposes of the property, the organization must file Form 8282, Donee Information Return. However, an organization is not required to file Form 8282 if :

The property is valued at $500 or less, or
The property is distributed for charitable purposes.

Form 8282 must be filed within 125 days after the disposition. A copy of Form 8282 must be given to the previous donor. If the organization fails to file the required information return, penalties may apply.

Charitable deduction property. This is any property (other than money or publicly traded securities) for which the donee organization signed an appraisal summary or Form 8283, Noncash Charitable Contributions.

Publicly traded securities. These are securities for which market quotations are readily available on an established securities market as of the date of the contribution.

Appraisal summary. If the value of the donated property exceeds $5,000, the donor must get a qualified appraisal for contributions of property (other than money or publicly traded securities). The donee organization is not a qualified appraiser for the purpose of valuing the donated property. For more information, get Publication 561, Determining the Value of Donated Property.

Form 8283. For noncash donations over $5,000, the donor must attach Form 8283 to the tax return to support the charitable deduction. The donee must sign Part IV of Section B, Form 8283 unless publicly traded securities are donated. The person who signs for the donee must be an official authorized to sign the donee's tax or information returns, or a person specifically authorized to sign by that official. The signature does not represent concurrence in the appraised value of the contributed property. A signed acknowledgement represents receipt of the property described on Form 8283 on the date specified on the form. The signature also indicates knowledge of the information reporting requirements on dispositions, as previously discussed. A copy of Form 8283 must be given to the donee.

Information Provided to Donors

A charitable organization must give a donor a disclosure statement for a quid pro quo contribution over $75. A donor cannot deduct a charitable contribution of $250 or more unless the donor has a written acknowledgement from the charitable organization.

In certain circumstances, an organization may be able to meet both of these requirements with the same written document.

Disclosure of Quid Pro Quo Contributions

A charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution over $75.

Quid pro quo contribution. This is a payment a donor makes to a charity partly as a contribution and partly for goods or services. For example, if a donor gives a charity $100 and receives a concert ticket valued at $40, the donor has made a quid pro quo contribution. In this example, the charitable contribution part of the payment is $60. Even though the deductible part of the payment is not more than $75, a disclosure statement must be filed because the donor's payment (quid pro quo contribution) is more than $75.

Disclosure statement. The required written disclosure statement must:

Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of any money (and the value of any property other than money) contributed by the donor over the fair market value of goods or services provided by the charity, and
Provide the donor with a good faith estimate of the fair market value of the goods or services that the donor received.

The charity must furnish the statement in connection with either the solicitation or the receipt of the quid pro quo contribution. If the disclosure statement is furnished in connection with a particular solicitation, it is not necessary for the organization to provide another statement when it actually receives the contribution.

No disclosure statement is required if any of the following are true.

The goods or services given to a donor have insubstantial value as described in Revenue Procedure 90–12, in Cumulative Bulletin 1990–1, and Revenue Procedure 92–49, in Cumulative Bulletin 1992–1.
There is no donative element involved in a particular transaction with a charity (for example, there is generally no donative element involved in a visitor's purchase from a museum gift shop).
There is only an intangible religious benefit provided to the donor. The intangible religious benefit must be provided to the donor by an organization organized exclusively for religious purposes, and must be of a type that generally is not sold in a commercial transaction outside the donative context. For example, a donor who, for a payment, is granted admission to a religious ceremony for which there is no admission charge is provided an intangible religious benefit. A donor is not provided intangible religious benefits for payments made for tuition for education leading to a recognized degree, travel services, or consumer goods.
The donor makes a payment of $75 or less per year and receives only annual membership benefits that consist of:
1. Any rights or privileges (other than the right to purchase tickets for college athletic events) that the taxpayer can exercise often during the membership period, such as free or discounted admissions or parking or preferred access to goods or services, or
2. Admission to events that are open only to members and the cost per person of which is within the limits for low-cost articles described in Revenue Procedure 90-12 (as adjusted for inflation).

Good faith estimate of fair market value. An organization may use any reasonable method to estimate the fair market value (FMV) of goods or services it provided to a donor, as long as it applies the method in good faith.

The organization may estimate the FMV of goods or services that generally are not commercially available by using the FMV of similar or comparable goods or services. Goods or services may be similar or comparable even if they do not have the unique qualities of the goods or services being valued.

Example 1.

A charity provides a one-hour tennis lesson with a tennis professional for the first $500 payment it receives. The tennis professional provides one-hour lessons on a commercial basis for $100. A good faith estimate of the lesson's FMV is $100.

Example 2.

For a payment of $50,000, a museum allows a donor to hold a private event in a room of the museum. A good faith estimate of the FMV of the right to hold the event in the museum can be made by using the cost of renting a hotel ballroom with a capacity, amenities, and atmosphere comparable to the museum room, even though the hotel ballroom lacks the unique art displayed in the museum room. If the hotel ballroom rents for $2,500, a good faith estimate of the FMV of the right to hold the event in the museum is $2,500.

Example 3.

For a payment of $1,000, a charity provides an evening tour of a museum conducted by a well-known artist. The artist does not provide tours on a commercial basis. Tours of the museum normally are free to the public. A good faith estimate of the FMV of the evening museum tour is $0 even though it is conducted by the artist.

Penalty for failure to disclose. A penalty is imposed on a charity that does not make the required disclosure of a quid pro quo contribution of more than $75. The penalty is $10 per contribution, not to exceed $5,000 per fund-raising event or mailing. The charity can avoid the penalty if it can show that the failure was due to reasonable cause.

Acknowledgement of Charitable Contributions of $250 or More

A donor can deduct a charitable contribution of $250 or more only if the donor has a written acknowledgement from the charitable organization. The donor must get the acknowledgement by the earlier of:

The date the donor files the original return for the year the contribution is made, or
The due date, including extensions, for filing the return.

The donor is responsible for requesting and obtaining the written acknowledgement from the donee.

Quid pro quo contribution. If the donee provides goods or services to the donor in exchange for the contribution (a quid pro quo contribution), the acknowledgement must include a good faith estimate of the value of the goods or services. See Disclosure of Quid Pro Quo Contributions, earlier.

Form of acknowledgement. Although there is no prescribed format for the written acknowledgement, it must provide enough information to substantiate the amount of the contribution. For more information, get IRS Publication 1771, Charitable Contributions – Substantiation and Disclosure Requirements.

Report of Cash Received

An exempt organization that receives, in the course of its activities, more than $10,000 cash in one transaction (or 2 or more related transactions) that is not a charitable contribution, must report the transaction to the IRS on Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting Forms

The following rules apply to private foundations as well as other tax-exempt organizations. Private foundations filing annual returns are subject to the public disclosure requirements under section 6104(d) of the Code.

Included in this section is a discussion on the public inspection requirements for political organizations filing Forms 8871 and 8872.

Annual return. An exempt organization must make available for public inspection, upon request and without charge, a copy of its original and amended annual information returns. Each information return must be made available from the date it is required to be filed (determined without regard to any extensions), or is actually filed, whichever is later. An original return does not have to be made available if more than 3 years have passed from the date the return was required to be filed (including any extensions) or was filed, whichever is later. An amended return does not have to be made available if more than 3 years have passed from the date it was filed.

An annual information return includes an exact copy of the return (Form 990, 990–EZ, 990–BL, 990–PF, or 1065), and amended return if any, and all schedules, attachments, and supporting documents filed with the IRS. It does not include Schedule A of Form 990–BL, Form 990–T, Schedule K–1 of Form 1065, or Form 1120–POL. In the case of a tax-exempt organization other than a private foundation, an annual information return does not include the names and addresses of contributors to the organization.

Exemption application. An exempt organization must also make available for public inspection without charge its application for tax-exempt status. An application for tax exemption includes the application form (such as Form 1023 or 1024), all documents and statements the IRS requires the organization to file with the form, any statement or other supporting document submitted by an organization in support of its application, and any letter or other document issued by the IRS concerning the application.

The application for exemption does not include:

Any application from an organization that is not yet recognized as exempt,
Any material that is required to be withheld from public inspection, see Material required to be withheld from public inspection, next,
In the case of a tax-exempt organization other than a private foundation, the names and addresses of contributors to the organization, or
Any applications filed before July 15, 1987, if the organization did not have a copy of the application on July 15, 1987.

If there is no prescribed application form, see section 301.6104(d)–1(b)(3)(ii) of the regulations for a list of the documents that must be made available.

Material required to be withheld from public inspection. Material that is required to be withheld from public inspection includes:

Trade secrets, patents, processes, styles of work, or apparatus for which withholding was requested and granted,
National defense material,
Unfavorable rulings or determination letters issued in response to applications for tax exemption,
Rulings or determination letters revoking or modifying a favorable determination letter,
Technical advice memoranda relating to a disapproved application for tax exemption or the revocation or modification of a favorable determination letter,
Any letter or document filed with or issued by the IRS relating to whether a proposed or accomplished transaction is a prohibited transaction under section 503,
Any letter or document filed with or issued by the IRS relating to an organization's status as an organization described in section 509(a) or 4942(j)(3), unless the letter or document relates to the organization's application for tax exemption, and
Any other letter or document filed with or issued by the IRS which, although it relates to an organization's tax-exempt status as an organization described in section 501(c) or 501(d), does not relate to that organization's application for tax exemption.

Time, place, and manner restrictions. The annual returns and exemption application must be made available for inspection, without charge, at the organization's principal, regional, and district offices during regular business hours. The organization may have an employee present during inspection, but must allow the individual to take notes freely and to photocopy at no charge if the individual provides the photocopying equipment. Generally, regional and district offices are those that have paid employees who together are normally paid at least 120 hours a week.

If the organization does not maintain a permanent office, it must make its application for tax exemption and its annual information returns available for inspection at a reasonable location of its choice. It must permit public inspection within a reasonable amount of time after receiving a request for inspection (normally not more than 2 weeks) and at a reasonable time of day. At its option, it may mail, within 2 weeks of receiving the request, a copy of its application for tax exemption and annual information returns to the requester in lieu of allowing an inspection. The organization may charge the requester for copying and actual postage costs only if the requester consents to the charge.

An organization that has a permanent office, but has no office hours or very limited hours during certain times of the year, must make its documents available during those periods when office hours are limited or not available as though it were an organization without a permanent office.

Furnishing copies. An exempt organization also must provide a copy of all, or any specific part or schedule, of its three most recent annual information returns and/or exemption application to anyone who requests a copy either in person or in writing at its principal, regional or district office during regular business hours. If the individual made the request in person, the copy must be provided on the same business day the request is made unless there are unusual circumstances. Unusual circumstances are defined in section 301.6104(d)–1(d)(1)(ii) of the regulations.

The organization must honor a written request for a copy of documents or specific parts or schedules of documents that are required to be disclosed. However, this rule only applies if the request:

Is addressed to the exempt organization's principal, regional, or district office,
Is sent to that address by mail, electronic mail (e-mail), facsimile (fax), or a private delivery service approved by the IRS, and
Gives the address to where the copy of the document should be sent.

The organization must mail the copy within 30 days from the date it receives the request. The organization may request payment in advance and must then provide the copies within 30 days from the date it receives payment.

Fees for copies. The organization may charge a reasonable fee for providing copies. It can charge no more for the copies than the per page rate the IRS charges for providing copies. That rate is stated in section 601.702(f)(5)(iv)(B) of the regulations. (As of June 2001, the rate was $1.00 for the first page and 15 cents for each additional page.) The organization can also charge the actual postage costs it pays to provide the copies.

Regional and district offices. Generally, the same rules regarding public inspection and providing copies of applications and annual returns that apply to a principal office of an exempt organization also apply to its regional and district offices. However, a regional or district office is not required to make its annual information return available for inspection or to provide copies until 30 days after the date the return is required to be filed (including any extensions) or is actually filed, whichever is later.

Local and subordinate organizations. A local or subordinate organization is an exempt organization that did not file its own application for tax exemption because it is covered by a group exemption letter. Generally, a local or subordinate organization of an exempt organization must, upon request, make available for public inspection, or provide copies of:

The application submitted to the IRS by the central or parent organization to obtain the group exemption letter, and
Those documents which were submitted by the central or parent organization to include the local or subordinate organization in the group exemption letter.

However, if the central or parent organization submits to the IRS a list or directory of local or subordinate organizations covered by the group exemption letter, the local or subordinate organization is required to provide only the application for the group exemption ruling and the pages of the list or directory that specifically refer to it.

The local or subordinate organization must permit public inspection or comply with a request for copies made in person, within a reasonable amount of time (normally not more than 2 weeks) after receiving a request made in person for public inspection or copies and at a reasonable time of day. In lieu of allowing an inspection, the local or subordinate organization may mail a copy of the applicable documents to the person requesting inspection within the same time period. In that case, the organization may charge the requester for copying and actual postage costs only if the requester consents to the charge. If the local or subordinate organization receives a written request for a copy of its application for exemption, it must fulfill the request in the time and manner specified earlier.

The requester has the option of requesting from the central or parent organization, at its principal office, inspection or copies of the application for group exemption and the material submitted by the central or parent organization to include a local or subordinate organization in the group ruling. If the central or parent organization submits to the IRS a list or directory of local or subordinate organizations covered by the group exemption letter, it must make the list or directory available for public inspection, but it is required to provide copies only of those pages of the list or directory that refer to particular local or subordinate organizations specified by the requester. The central or parent organization must fulfill such requests in the time and manner specified earlier.

A local or subordinate organization that does not file its own annual information return (because it is affiliated with a central or parent organization that files a group return) must, upon request, make available for public inspection, or provide copies of, the group returns filed by the central or parent organization. However, if the group return includes separate schedules for each local or subordinate organization included in the group return, the local or subordinate organization receiving the request may omit any schedules relating only to other organizations included in the group return. The local or subordinate organization must permit public inspection, or comply with a request for copies made in person, within a reasonable amount of time (normally not more than 2 weeks) after receiving a request made in person for public inspection or copies and at a reasonable time of day.

In lieu of allowing an inspection, the local or subordinate organization may mail a copy of the applicable documents to the person requesting inspection within the same time period. In this case, the organization can charge the requester for copying and actual postage costs only if the requester consents to the charge. If the local or subordinate organization receives a written request for a copy of its annual information return, it must fulfill the request by providing a copy of the group return in the time and manner specified earlier. The requester has the option of requesting from the central or parent organization, at its principal office, inspection or copies of group returns filed by the central or parent organization. The central or parent organization must fulfill such requests in the time and manner specified earlier.

If an organization fails to comply, it may be liable for a penalty. See Penalties, later.

Making applications and returns widely available. An exempt organization does not have to comply with requests for copies of its annual returns or exemption application if it makes them widely available. However, making these documents widely available does not relieve the organization from making its documents available for public inspection.

The organization can make its application and returns widely available by posting the application and returns on a World Wide Web page. For the rules to follow so that the Internet posting will be considered widely available, see section 301.6104(d)–2(b) of the regulations.

If the organization has made its application for tax exemption and/or annual returns widely available, it must inform any individual requesting a copy where the documents are available, including the address on the World Wide Web, if applicable. If the request is made in person, the notice must be provided immediately. If the request is made in writing, the notice must be provided within 7 days.

Harassment campaign. If the tax-exempt organization is the subject of a harassment campaign, the organization may not have to fulfill requests for information. For more information, see section 301.6104(d)–3 of the regulations.

Political organization reporting forms. Forms 8871 and 8872 (discussed earlier under Reporting Requirements for a Political Organization) are open to public inspection.

Form 8871. Form 8871 (including any supporting papers) and any letter or other document the IRS issues with regard to Form 8871 is open to public inspection at the IRS in Washington, DC.

Copies of Form 8871 that have been filed will be made available on the IRS Internet web site (www.irs.gov/polorgs) 48 hours after the notice has been filed and are considered widely available as long as the organization provides the IRS web site address to the person making the request. In addition, the organization must make a copy of these materials available for public inspection during regular business hours at the organization's principal office and at each of its regional or district offices having at least 3 paid employees.

Form 8872. Form 8872 (including Schedules A and B) is open to public inspection. Copies of Form 8872 that are required to be filed electronically will be made available on the Internet web site (www.irs.gov/polorgs) within 48 hours after it has been filed.

An organization is required to file Form 8872 electronically if it has, or has reason to expect to have, contributions or expenditures exceeding $50,000 for the tax year.

In addition, the organization is required to make a copy of this form available for public inspection during regular business hours at the organization's principal office and at each of its regional or district offices having at least 3 paid employees.

Penalties. The penalty for failure to allow public inspection of annual returns is $20 for each day the failure continues. The maximum penalty on all persons for failures involving any one return is $10,000.

The penalty for failure to allow public inspection of exemption applications is $20 for each day the failure continues.

The penalty for willful failure to allow public inspection of a return or exemption application is $5,000 for each return or application. The penalty also applies to a willful failure to provide copies.

The penalty for failure to allow public inspection of a political organization's section 527 notice (Form 8871) is $20 for each day the failure continues.

The penalty for failure to allow public inspection of a section 527 organization's contributions and expenditures report (Form 8872) is $20 for each day the failure continues. The maximum penalty on all persons for failures involving any one report is $10,000.

Required Disclosures

Certain exempt organizations must disclose to the IRS or the public certain information about their activities. Generally, an organization discloses this information by entering it on the appropriate lines of its annual return. In addition, there are disclosure requirements for:

Solicitation of nondeductible contributions,
Sales of information or services that are available free from the government, and
Dues paid to the organization that are not deductible because they are used for lobbying or political activities.

Solicitation of Nondeductible Contributions

Solicitations for contributions or other payments by certain exempt organizations (including lobbying groups and political action committees) must include a statement that payments to those organizations are not deductible as charitable contributions for federal income tax purposes. The statement must be included in the fund-raising solicitation and be conspicuous and easily recognizable.

Organizations subject to requirements. An organization must follow these disclosure requirements if it is exempt under section 501(c), other than section 501(c)(1), or under section 501(d), unless the organization is eligible to receive tax deductible charitable contributions under section 170(c). These requirements must be followed by, among others:

Social welfare organizations (section 501(c)(4)),
Labor unions (section 501(c)(5)),
Trade associations (section 501(c)(6)),
Social clubs (section 501(c)(7)),
Fraternal organizations (section 501(c)(8) and 501 (c)(10)) (however, fraternal organizations described in section 170(c)(4) must follow these requirements only for solicitations for funds that are to be used for noncharitable purposes not described in section 170(c)(4)),
Any political organization described in section 527(e), including political campaign committees and political action committees, and
Any organization not eligible to receive tax-deductible contributions if the organization or a predecessor organization was, at any time during the 5-year period ending on the date of the fund-raising solicitation, an organization of the type to which this disclosure requirement applies.

Fund-raising solicitation. This disclosure requirement applies to a fund-raising solicitation if all of the following are true.

The organization soliciting the funds normally has gross receipts over $100,000 per year.
The solicitation is part of a coordinated fund-raising campaign that is soliciting more than 10 persons during the year.
The solicitation is made in written or printed form, by television or radio, or by telephone.

Penalties. Failure by an organization to make the required statement will result in a penalty of $1,000 for each day the failure occurred, up to a maximum penalty of $10,000 for a calendar year. No penalty will be imposed if it is shown that the failure was due to reasonable cause. If the failure was due to intentional disregard of the requirements, the penalty may be higher and is not subject to a maximum amount.

Sales of Information or Services Available Free From Government

Certain organizations that offer to sell to individuals (or solicit money for) information or routine services that could be readily obtained free (or for a nominal fee) from the federal government must include a statement that the information or service can be so obtained. The statement must be made in a conspicuous and easily recognized format when the organization makes an offer or solicitation to sell the information or service. Organizations affected are those exempt under section 501(c) or 501(d) and political organizations defined in section 527(e).

Penalty. A penalty is provided for failure to comply with this requirement if the failure is due to intentional disregard of the requirement. The penalty is the greater of $1,000 for each day the failure occurred, or 50% of the total cost of all offers and solicitations that were made by the organization the same day that it fails to meet the requirement.

Dues Used for Lobbying or Political Activities

Certain exempt organizations must notify anyone paying dues to the organization whether any part of the dues is not deductible because it is related to lobbying or political activities.

An organization must provide the notice if it is exempt from tax under section 501(a) and is one of the following.

A social welfare organization described in section 501(c)(4) that is not a veterans' organization.
An agricultural or horticultural organization described in section 501(c)(5).
A business league, chamber of commerce, real estate board, or other organization described in section 501(c)(6).

However, an organization described in (1), (2), or (3) does not have to provide the notice if it establishes that substantially all the dues paid to it are not deductible anyway or if certain other conditions are met. For more information, see Revenue Procedure 98–19 in Cumulative Bulletin 1998–1 or later update.

If the organization does not provide the required notice, it may have to pay a tax that is reported on Form 990–T. But the tax does not apply to any amount on which the section 527 tax has been paid on Form 1120–POL. See Political Organization Income Tax Return, earlier.

For more information about nondeductible dues, see Deduction not allowed for dues used for political or legislative activities under 501(c)(6) — Business Leagues, Etc.

Miscellaneous Rules

Organizational changes and exempt status. If your exempt organization changes its legal structure, such as from a trust to a corporation, you must file a new exemption application to establish that the new legal entity qualifies for exemption. If your organization becomes inactive for a period of time but does not cease being an entity under the laws of the state in which it was formed, its exemption will not be terminated. However, unless you are covered by one of the filing exceptions, you will have to continue to file an annual information return during the period of inactivity. If your organization has been liquidated, dissolved, terminated, or substantially contracted, you should file your annual return of information by the 15th day of the 5th month after the change and follow the applicable instructions to the form.

If your organization amends its articles of organization or its internal regulations (bylaws), you should send a conformed copy of these changes to the appropriate EO area manager. (An organization that is covered by a group exemption letter should send two copies of these changes.) If you did not give the IRS a copy of the amendments previously, you may include it when you file Form 990 (or 990–EZ or Form 990–PF), if that return is required.

Change in accounting period. The procedures that an organization must follow to change its accounting period differ for an individual organization and for a central organization that seeks a group change for its subordinate organizations.

Individual organizations that wish to change annual accounting periods generally need only file an information return for the short period indicating that a change is being made. However, if the organization has changed its accounting period within the previous 10 years, it must file Form 1128, Application to Adopt, Change, or Retain a Tax Year. Form 1128 is attached to the short period return. See Revenue Procedure 85–58.

Central organizations may obtain approval for a group change in an annual accounting period for their subordinate organizations on a group basis only by filing Form 1128 with the Service Center where it files its annual information return. For more information, see Revenue Procedure 76–10, as modified by Revenue Procedure 79–3 or later update.

Form 1128 must be filed by the 15th day of the 5th month following the close of the short period.