Frequently asked Questions About Tax-Exempt Organizations
Prepared for Members and Committees of Congress
This report answers frequently asked questions about tax-exempt organizations. It focuses on the
types of organizations described in Internal Revenue Code (IRC) § 501(c), with the main
emphasis on IRC § 501(c)(3) charitable organizations. One set of questions addresses some of the
primary characteristics of tax-exempt organizations, including whether they may participate in
lobbying and election-related activities, and defines the terms “tax-exempt,” “nonprofit (not-for-
profit),” and “private foundation.” Another group of questions provides general information on
how to form a tax-exempt organization, what information must be disclosed to the IRS and the
public, and how an organization might lose its tax-exempt status. The report ends with questions
intended to help the reader find resources that provide information on specific organizations and
additional information on tax-exempt organizations in general. Although this report summarizes
such information with respect to tax-exempt organizations, it should not be relied on for specific
tax advice—such advice should be sought directly from the IRS or qualified tax professionals.
1. What Is a Tax-Exempt Organization?...................................................................................1
2. What Is a Nonprofit (Not-for-Profit) Organization?.............................................................1
3. What Are the Differences Between IRC §§ 501(c)(3) and 501(c)(4) Organizations?...........1
4. What Is a Private Foundation?..............................................................................................3
5. Are Contributions to an Organization Tax-Deductible?........................................................3
6. Can Tax-Exempt Organizations Lobby?...............................................................................4
7. Can Tax-Exempt Organizations Participate in Election Activities?......................................5
8. How Do You Set Up a Tax-Exempt Organization?...............................................................6
9. How Does an Organization Lose Its Tax-Exempt Status?....................................................7
10. What Tax Records Do Tax-Exempt Organizations Have To Prepare?................................8
11. Are Tax-Exempt Organizations Required to Disclose Information to the Public?..............9
12. Are There Organizations That Evaluate Charities or Report on Their Activities?............10
13. What Resources Provide Information on General Issues Involving Tax-Exempt
Orga niza tions? ................................................................................................................. ..... 11
Table 1. Types of Tax Exempt Organizations................................................................................14
Author Contact Information..........................................................................................................15
A tax-exempt organization is an organization that is exempt from federal income taxes under the
Internal Revenue Code (IRC). To become exempt, an organization must meet the IRC’s
requirements and usually must file an application with the Internal Revenue Service (IRS).
Although the Code describes more than 30 types of organizations that qualify for exemption, the
type of organization that people often mean when using the term “tax-exempt organization” is
described in IRC § 501(c)(3):
Corporations ... organized and operated exclusively for religious, charitable, scientific,
testing for public safety, literary, or educational purposes, or to foster national or
international amateur sports competition (but only if no part of its activities involve the
provision of athletic facilities or equipment), or for the prevention of cruelty to children or
Other types of organizations that qualify for tax-exempt status include social welfare
organizations, labor unions, trade associations, social clubs, veterans’ organizations, and fraternal
organizations. A list of the types of tax-exempt organizations appears at the end of this report.
The term “tax-exempt organization” is often used interchangeably with the term “nonprofit
organization.” This can be misleading. A tax-exempt organization meets the criteria in federal law
(the IRC) to be exempt from federal income taxes, whereas the status and privileges of a
nonprofit organization are determined under state law. The term “nonprofit organization”
generally means a corporation that is not intended to be a profit-making corporation. The
requirements vary by state but usually take into account the fact that nonprofit corporations
typically do not have shareholders or the same business motives as for-profit corporations.
A nonprofit corporation is not automatically a tax-exempt organization. Because the
qualifications for nonprofit status vary among states, it is possible for the term “nonprofit
organization” to be broader than, narrower than, or identical to the term “tax-exempt
organization.” For a nonprofit organization to be exempt from federal income taxes, it must meet
the statutory requirements found in the IRC and usually must file an application with the IRS.
IRC § 501(c) describes many types of organizations that qualify for tax-exempt status. When an
organization applies for exemption, it must tell the IRS under which paragraph of IRC § 501(c) it
qualifies. In general, this is not difficult to determine because most paragraphs describe discrete
categories; for example, § 501(c)(5) describes agricultural organizations, § 501(c)(8) describes
fraternal societies, and § 501(c)(14) describes credit unions. However, IRC §§ 501(c)(3) and 1
1 IRC § 501(c)(3) reads:
Corporations, and any community chest, fund, or foundation, organized and operated exclusively
for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to
501(c)(3) charitable organizations and IRC § 501(c)(4) social welfare organizations operate for
charitable purposes and are restricted so that none of the organization’s earnings may benefit a
private shareholder or individual.
Despite these similarities, IRC §§ 501(c)(3) and 501(c)(4) organizations differ in two significant
ways. First, IRC § 501(c)(3) organizations are eligible to receive tax-deductible charitable
contributions, while IRC § 501(c)(4) organizations are not. When a contribution is deductible, the
donor may deduct the amount of the contribution from income, subject to the restrictions in IRC §
170. (See Question 5.) This is an important benefit for the organization because it encourages
donors to contribute in order to lower their taxable income and to make larger contributions since
the after-tax cost of each contribution is reduced. The second difference is that IRC § 501(c)(3)
organizations are substantially limited in their ability to lobby and are prohibited from engaging
in political campaigns; IRC § 501(c)(4) organizations are not so limited. (See Questions 6 and 7.)
These two differences are important when an organization is choosing whether to apply for tax-
exempt status as an IRC § 501(c)(3) or IRC § 501(c)(4) organization. If the organization’s agenda
depends on influencing public opinion or the legislative process, it may be appropriate to form as
an IRC § 501(c)(4) organization. For other organizations, it will usually make more sense to be an
IRC § 501(c)(3) organization in order to have the advantage of tax-deductible contributions.
Finally, although an organization must identify itself as one type of IRC § 501(c) organization, it
may be linked with another IRC § 501(c) organization under certain circumstances. For example,
an IRC § 501(c)(3) organization may be linked with an IRC § 501(c)(4) social welfare
organization or IRC § 501(c)(6) trade association. It is common to see a group that wants to lobby
as well as conduct charitable activities set up both an IRC § 501(c)(4) organization and an IRC §
501(c)(3) organization. It is also not unusual for a trade association, such as the American Bar
Association or the American Medical Association, to have a similarly named charitable
foundation that conducts charitable activities. In these situations, the organizations must be
legally separate entities and their activities and funds must be kept separate. In addition, an IRC §
501(c) organization may be linked with another type of tax-exempt organization, such as an IRC
§ 527 political organization. (See Question 7.)
foster national or international amateur sports competition (but only if no part of its activities
involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children
or animals, no part of the net earnings of which inures to the benefit of any private shareholder or
individual, no substantial part of the activities of which is carrying on propaganda, or otherwise
attempting, to influence legislation (except as otherwise provided in subsection (h)), and which
does not participate in, or intervene in (including the publishing or distributing of statements), any
political campaign on behalf of (or in opposition to) any candidate for public office.
IRC § 501(c)(4) reads:
(A) Civic leagues or organizations not organized for profit but operated exclusively for the
promotion of social welfare, or local associations of employees, the membership of which is limited
to the employees of a designated person or persons in a particular municipality, and the net
earnings of which are devoted exclusively to charitable, educational, or recreational purposes.
(B) Subparagraph (A) shall not apply to an entity unless no part of the net earnings of such entity
inures to the benefit of any private shareholder or individual.
The IRS recognizes that an organization qualifying under § 501(c)(4) may also meet the criteria to qualify under §
501(c)(3). See Treas. Reg. § 1.501(c)(4)-1(a)(2)(i).
All IRC § 501(c)(3) organizations are either a public charity or private foundation. Public
charities have broad public support and tend to provide charitable services directly to the intended
beneficiaries. Private foundations often are tightly controlled, receive significant portions of their
funds from a small number of donors or a single source, and make grants to other organizations
rather than directly carry out charitable activities. Because these factors create the potential for
self-dealing or abuse of position by the small group controlling the organization, private
foundations are more closely regulated than public charities. Private foundations are subject to
penalty taxes for doing things such as failing to distribute a certain amount of their income each
year, making investments that jeopardize their charitable purpose, having excess business 2
holdings, and failing to maintain expenditure responsibility over certain grants. IRC § 501(c)(3)
organizations are presumed to be private foundations and must tell the IRS how they qualify for
public charity status based on the support and control tests found in IRC § 509.
A contribution to a tax-exempt organization may only be deducted under two circumstances: (1) it
is a donation that qualifies as a charitable contribution under IRC § 170 or (2) it is dues that
qualify as business expenses under IRC § 162.
Under IRC § 170, contributions made for charitable purposes are tax deductible when made to
qualifying IRC § 501(c)(3) organizations, governmental units, veterans’ organizations, fraternal
organizations, and cemetery companies. The IRS determines whether an IRC § 501(c)(3)
organization is eligible to receive tax-deductible contributions at the time it considers the
organization’s application for exempt status. A list of the organizations eligible to receive
deductible contributions is found in IRS Publication 78, Cumulative List of Organizations
Described in Section 170(c) of the Internal Revenue Code of 1986. This publication is available
on the IRS website at http://www.irs.gov.
Charitable contributions that otherwise meet the requirements of IRC § 170 are not deductible if
the organization provides goods or services in exchange for the contribution. If the contribution
exceeds the fair market value of the goods or services provided, then the excess may be
deductible. When an organization receives more than $75 in exchange for goods or services, IRC
§ 6115 requires the organization inform the donor of the amount of the contribution, if any, that is
Even if a contribution is deductible, individual taxpayers may not be able to deduct the entire
contribution. For example, only donors who itemize deductions may deduct their charitable 3
contributions, and IRC § 170 may restrict the amount of the deduction depending on the size and
2 See IRC §§ 4940-4946.
3 Legislation was introduced in prior Congresses that would have allowed taxpayers who do not itemize deductions to
deduct a portion of their charitable contributions. For example, a provision was included in the Care Act of 2005 (S. ththth
1780, 109 Congress), the More Act (S. 6, 109 Congress), the Charitable Giving Act of 2005 (H.R. 3908, 109 th
Congress), and the Senate-passed versions of the Tax Relief Act of 2005 (H.R. 4297 and S. 2020, 109 Congress). In th
the 110 Congress, a narrower provision has been introduced. The Volunteer Emergency Responder Fair Mileage Act
nature of the contribution. In addition, taxpayers must comply with certain substantiation
requirements, including obtaining a written acknowledgment from the organization for any
contribution that exceeds $250 in value. The Pension Protection Act of 2006 (P.L. 109-280)
imposes a new requirement that any cash donation be substantiated by a bank record or written
communication from the organization showing its name and the date and amount of the
When a charitable contribution to a tax-exempt organization is not deductible, IRC § 6113
generally requires the organization notify the potential contributor of that fact at the time of
solicitation. Thus, for example, IRC § 501(c)(4) organizations must inform potential contributors
that contributions may not be deducted. Under IRC § 6710, an organization that fails to provide
the notification faces a fine of $1,000 for each day the failure occurs, with an annual cap of
$10,000. The fines are higher and the cap is eliminated for organizations that intentionally
disregard the notification requirement.
Dues to some tax-exempt organizations, such as IRC § 501(c)(5) labor unions and IRC §
Individuals face restrictions in being able to claim the deduction. For example, only donors who
itemize deductions may deduct the dues, and an individual must have significant business
expenses (i.e., exceeding 2% of adjusted gross income) to be able to claim the deduction. In
addition, if an organization conducts lobbying activities, IRC § 162(e) disallows a deduction for
the portion of dues that represents lobbying expenditures. IRC § 6033(e) generally requires that
an organization notify its members of the amount that is nondeductible or be subject to a proxy
tax on its lobbying expenditures
Under the Internal Revenue Code, some types of tax-exempt organizations are prohibited from
lobbying, others are restricted in the amount of lobbying they may do, and the rest may conduct 4
unlimited lobbying. Among the organizations prohibited from lobbying are those described in
IRC §§ 501(c)(2), (c)(17), (c)(18), (c)(21), (c)(22), (c)(24), and (c)(25). Most of these are trusts
that must use their income exclusively for the purposes for which they are established.
For IRC § 501(c)(3) organizations, “no substantial part” of their activities can be lobbying. The
definition of “no substantial part” is unclear. Some courts have looked at the amount of 5
expenditures or time spent on lobbying, whereas others have rejected this approach and instead
of 2007 (H.R. 606) would, among other things, provide an above-the-line charitable deduction for individuals who
allow their automobiles to be used by qualified volunteer fire departments.
4 For more information, see CRS Report RL33377, Tax-Exempt Organizations: Political Activity Restrictions and
Disclosure Requirements, by Erika Lunder.
5 See Seasongood v. Comm’r, 227 F.2d 907 (6th Cir. 1955) (where the court found that an organization whose lobbying
was about 5% of its activities was not engaged in a substantial amount of lobbying); League of Women Voters v.
United States, 180 F. Supp. 379 (Ct. Cl. 1960) (where the court looked at the amount of hours the organization spent on
legislative activities); Haswell v. United States, 205 Ct. Cl. 421 (Ct. Cl. 1975) (where the court found the fact that
between 19% and 20.5% of the organization’s expenditures were for lobbying was evidence that the organization
examined the lobbying in the broad context of the organization’s purpose and activities.6 Because
the “no substantial part” standard is indefinite, IRC § 501(c)(3) organizations, with the exception
of churches and related organizations, may elect under IRC § 501(h) to have their lobbying
activities measured by a numerical limit found in IRC § 4911. Most organizations do not make
this election. An IRC § 501(c)(3) organization that conducts substantial lobbying may lose its
exempt status and face possible excise taxes under IRC §§ 4911 and 4912. In addition, IRC §
501(c)(3) organizations that are private foundations are taxed under IRC § 4945 on any lobbying
expenditures made during the year, regardless of whether such activities are substantial.
The other types of tax-exempt organizations are not subject to any tax law limits on the amount of
lobbying that can be done, so long as the lobbying is related to their tax-exempt purpose. These
include IRC § 501(c)(4) social welfare organizations, IRC § 501(c)(5) labor unions, and IRC §
501(c)(6) trade associations. A tax-exempt organization’s lobbying may affect the amount that its
contributors would otherwise be able to deduct as dues. (See Question 5.)
Although IRC § 501(c)(4) organizations may lobby under the tax laws, section 18 of the
Lobbying Disclosure Act of 1995 (P.L. 104-65) prohibits them from receiving federal grants,
loans, or other awards if they engage in lobbying activities. This prohibition applies even if the
lobbying is conducted with the organization’s own funds. The Lobbying Disclosure Act also
imposes registration and disclosure requirements on organizations with paid lobbyists whose
lobbying activities exceed time and monetary limits. For more information, see CRS Report 96-
Some tax-exempt organizations are prohibited from participating in political campaign activity, 7
while others may participate so long as it is consistent with their exempt purposes. The
organizations that may not engage in political campaign activity include those described in IRC
§§ 501(c)(2), (c)(17), (c)(18), (c)(21), (c)(22), (c)(24), and (c)(25). Most of these are trusts that
must use their income exclusively for the purposes for which they are established.
In addition, IRC § 501(c)(3) organizations are prohibited from participating in, or intervening in,
“any political campaign on behalf of (or in opposition to) any candidate for public office.” Thus,
IRC § 501(c)(3) organizations can lose their tax-exempt status for engaging in activity that is
specifically linked to election periods and supports or opposes particular candidates. IRC §
501(c)(3) organizations may, however, participate in political activities that are not “campaign
activities.” Permissible activities under the tax laws, so long as no candidate is endorsed or
opposed, include conducting public forums, publishing candidate responses to a questionnaire on
a variety of subjects, issue advertising, nonpartisan public opinion polling, and non-partisan voter
registration drives. Although these non-campaign political activities are not prohibited, they may
violated the “no substantial part” rule).
6 See Christian Echoes Nat’l Ministry, Inc. v. Untied States, 470 F.2d 849 (10th Cir. 1972); Kuper v. Commissioner,
332 F.2d 562 (3rd Cir. 1964); Dulles v. Johnson, 273 F.2d 362 (2nd Cir. 1959); Krohn v. United States, 246 F. Supp. 341
(D. Colo. 1965).
7 For more information, see CRS Report RL33377, Tax-Exempt Organizations: Political Activity Restrictions and
Disclosure Requirements, by Erika Lunder.
be subject to tax under IRC §§ 527, 4945, or 4955 or regulated or taxed as lobbing activities. (See
The IRC generally allows the other types of IRC § 501(c) organizations to engage in election-
related activities so long as such activities are consistent with the organization’s exempt purpose
and are not the organization’s primary activities. The activities may be subject to tax under IRC §
527(f). It is important to note that while the IRC may allow these organizations to participate in
such activities, the organizations must still comply with applicable election laws. For example,
election laws ban corporations and labor unions from making any contribution or expenditure in 8
connection with federal elections, and these rules apply to tax-exempt and/or nonprofit
corporations. In addition, tax-exempt organizations are generally subject to the requirements in
the Bipartisan Campaign Reform Act of 2002 (P.L. 107-155) relating to the disclosure of
“electioneering communications” and the prohibition on incorporated entities and labor unions 9
using general treasury funds to finance them.
One way that corporations and labor unions participate in election campaigns without violating
federal election laws is by setting up political action committees (PACs). PACs are creatures of
federal election law, but they are subject to the special tax rules for “political organizations” in 10
IRC § 527. Other IRC § 501(c) organizations may also set up an IRC § 527 organization to 11
avoid the tax under IRC § 527(f) on their election activities. In general, IRC § 527 political
organizations are expected to raise money for, and to try to influence, the selection, nomination,
election or appointment of candidates for public office. Although considered tax-exempt
organizations, IRC § 527 organizations are subject to special tax rules that exempt income used
for political activities from tax and that tax other types of income, such as that from investments.
For many tax-exempt organizations, the first step is to incorporate the organization. Incorporation
is not required for tax-exempt status from the IRS, but organizations incorporate for a variety of
reasons, including to receive limited personal liability for members of the organization.
Formation of the organization is achieved under state law and requirements vary by state. An
organization will likely need to register with the appropriate Secretary of State to reserve that 12
organization’s name and to enable the group to solicit charitable contributions, do business, and
own property in the state. If the organization incorporates, it will also usually have to file articles
of incorporation that include the organization’s purposes and names of incorporators. Some states
do not have special nonprofit corporation status and the organization will be incorporated under
regular corporation laws.
8 2 USC § 441b.
9 Electioneering communications are broadcast, cable, or satellite advertisements that refer to a clearly-identified
federal candidate within 60 days of a general election or 30 days of a primary election and, if a House or Senate
election, are targeted to the relevant electorate. 2 USC § 434(f)(3)(A)(i).
10 For more information on IRC § 527 organizations, see CRS Report RS21716, Political Organizations Under Section
527 of the Internal Revenue Code, by Erika Lunder.
11 Any IRC § 501(c) organization that is prohibited from participating in political activities, such as IRC § 501(c)(3)
organizations, may not use an IRC § 527 organization to get around that prohibition.
12 The National Association of State Charity Officials website provides links to state offices that regulate charitable
solicitations at http://www.nasconet.org/. The site includes the unified registration form for charities seeking to solicit
in multiple states.
Whether or not the organization incorporates, it will generally need to file for recognition of tax-13
exempt status from the IRS. Some organizations that qualify for IRC § 501(c)(3) status,
including churches and small organizations, are exempt from the filing requirement. IRS
Publication 557, Tax-Exempt Status for Your Organization, provides a detailed explanation of the
procedures and forms for establishing tax-exempt status. Organizations seeking exemption under
IRC § 501(c)(3) file IRS Form 1023, whereas other organizations file IRS Form 1024. The
exemption application must usually include a statement of the organization’s activities, a copy of
its articles of incorporation and bylaws, and current financial statements. The organization must
also obtain an employer identification number (IRS Form SS-4), even if it does not have any
employees. IRS Publication 557 and the applicable forms are available on the IRS website at
In addition, organizations filing for recognition of tax-exempt status must also pay a filing fee
with IRS Form 8718 (User Fee for Exempt Organization Determination Letter Request). For
exemption applications postmarked on or after July 1, 2006, the fees for exemption applications
are as follows. For an organization filing for exemption under IRC § 501 that has had annual
gross receipts averaging $10,000 or less during the past four years, or for a new organization that
anticipates gross receipts averaging $10,000 or less during the next four years, the application fee
is $300. The application fee is $750 for an IRC § 501(c) organization with more than an average
of $10,000 in gross receipts for the prior four years, as well as for a new IRC § 501(c)
organization anticipating more than an average of more than $10,000 in gross receipts for the
coming four years.
An organization that is applying for exempt status under IRC §§ 501(c)(3), (c)(9), (17) or (20)
should file its application within 27 months of its formation to ensure that the recognition of
exempt status dates back to the organization’s formation. If the application is filed after that time,
the general rule is that the determination will date back only to the date of the application. For
other types of tax-exempt organizations, the recognition of exempt status will date back to the
date of the organization’s formation so long as the organization’s activities and purposes are the
same as those at the time recognition was granted. If the organization is required to alter its
activities or substantially amend its charter to qualify for exempt status, then the recognition of
exempt status will be effective as of a date determined by the IRS.
In general, once an organization has tax-exempt status, it can continue as a tax-exempt
organization unless there is a material change in its character, purposes, or methods of operation.
Organizations are required to report any material changes to the IRS. An IRC § 501(c)(3)
organization can lose its tax-exempt status for excessive lobbying or engaging in political
campaign activities, or if its principal purpose becomes operating a for-profit business.
Furthermore, the IRS may revoke an organization’s exempt status because of changes in the law
or regulations or for other good causes. In 2004, the IRS was given the authority to suspend the
tax-exempt status of or the application for such status by any organization that is (1) designated a
terrorist organization by executive order or under authority found in the Immigration and
Nationality Act, the International Emergency Economic Powers Act, or the United Nations
Participation Act or (2) designated by executive order as supporting terrorism or engaging in
13 For an overview of the application process for IRC § 501(c)(3) organizations, see CRS Report RS21892, Application
Process for Seeking Section 501(c)(3) Tax-Exempt Status, by Erika Lunder.
terrorist activity.14 With the exception of organizations whose status is suspended due to terrorism
issues, organizations may ask for court review of any IRS attempt to revoke their exempt status.
An individual who believes that an organization should lose its exempt status may contact the
IRS at Exempt Organizations Examination Division, 1100 Commerce Street, ATTN: T:EO:E,
Dallas, TX 75242. The complaint should contain all relevant facts concerning the alleged
violation of tax law. The complaint may cause the IRS to review the propriety of the
organization’s exempt status, but the IRS cannot reveal whether it has followed up on a particular
complaint because of confidentiality rules.
It is not possible to bring a legal suit to challenge the IRS’s granting of an exemption to an
organization. Although third parties had been successful in bringing suits to challenge IRS 15
policies in administering the tax laws, the Supreme Court severely limited this practice by
requiring plaintiffs to show a direct personal injury that is likely to be redressed by a favorable 1617
decision in the case. In United States Catholic Conference v. Baker, the Second Circuit Court
of Appeals reviewed the standing of various parties to force the IRS to examine the tax-exempt
status of the Catholic Church because of its political activities and concluded that it would be a
very rare case when a third party would have standing to bring such a suit.
Under IRC § 6033, most tax-exempt organizations are required to file an annual information
return (Form 990 series) that discloses such information as income, receipts, expenses and
disbursements, a balance sheet of assets, liabilities and net worth, and the names and
compensation of managers and highly compensated employees. Some organizations are required
to report their aggregate political and lobbying expenditures. In addition, organizations must
report their substantial donors, which are generally donors that have contributed more than
$5,000 during the year. The penalty for failure to file the required information return is found in
IRC § 6652(c)(1)(A). It is $20 per day for each day the failure continues. If the organization has
annual gross receipts exceeding $1 million in any year, then the daily penalty is $100 per day. The
maximum penalty is the lesser of $10,000 or 5% of the organization’s gross receipts. For
organizations exceeding $1 million in gross receipts, the maximum penalty is $50,000.
Not all organizations have to file an information return. For example, churches, certain church-
related organizations, and organizations with gross receipts that are normally less than $25,000 do
not have to file an annual return. There are other exceptions contained in IRC § 6033(a)(3).
Sometimes, tax-exempt organizations are subject to tax and must then file a tax return. For
example, an exempt organization that conducts business activities unrelated to their exempt
purpose must file a Form 990-T. Any exempt organization with political organization taxable
14 IRC § 501(p), enacted by P.L. 108-121.
15 See e.g., Green v. Kennedy, 309 F.Supp. 1127 (D.D.C. 1970) (where a class action was brought to force the IRS to
stop granting exempt status to racially discriminatory private schools) and its subsequent history found at 398 U.S. 956
(1970), 330 F.Supp. 1150 (D.D.C. 1971), culminating in a summary affirmance, Coit v. Green, 404 U.S. 997 (1971)).
16 Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26 (1976).
17 United States Catholic Conference v. Baker, 885 F.2d 1020 (2nd Cir. 1989).
income will need to file a Form 1120-POL, and one that has been assessed a penalty tax must file
Form 4720. Furthermore, exempt organizations must generally pay the same employment taxes as
for-profit employers. Thus, if they have employees, exempt organizations usually must file the
employment tax returns for income tax withholding and social security and medicare taxes (Form
941), income reporting (W-2, W-3, Form 1099), and unemployment taxes (Form 940). Exempt
organizations are subject to the same penalties as other taxpayers for failing to file a tax return or
pay their taxes, including failing to make estimated tax payments and failing to properly handle
and deposit employment taxes. For more information, see IRS Publication 15, Circular E,
Employer’s Tax Guide, which is available on the IRS website at http://www.irs.gov.
Finally, some organizations are subject to additional requirements. For example, under IRC §
527(j), political organizations must, with several exceptions, file periodic reports to the IRS that
disclose contributions and expenditures (Form 8872). If an IRC § 527 organization fails to file a
timely or accurate form, it is subject to a penalty that equals the highest corporate tax rate
multiplied by the amount of contributions and/or expenditures to which the failure relates.
Under IRC § 6104(d), the application for exempt status and the annual information return (Form 18
990) of a tax-exempt organization are open to public inspection. In addition, the Pension
Protection Act of 2006 (P.L. 109-280) added a requirement that IRC § 501(c)(3) organizations
also disclose their unrelated business tax returns (Form 990-T).
This requirement has two parts: the organization must allow the public to inspect the documents
and must provide copies upon request. For inspection purposes, the information must be made
available during normal business hours at the organization’s principal office and any district
office with more than three employees. With respect to providing copies, requests for copies of
the documents may be made in writing or in person. The organization must furnish copies
immediately if the request is made in person and within 30 days for written requests. The
organization is permitted to charge a reasonable fee for reproduction and mailing costs. An
organization is not required to provide individual copies if either (1) the organization makes these 19
documents widely available on the internet or (2) the requests are part of a harassment campaign 20
and compliance is not in the public interest.
Certain information does not have to be disclosed. Organizations are generally not required to
disclose the names and addresses of any contributors. Furthermore, the IRS is permitted to create
exceptions to public disclosure of information relating to trade secrets, patents, processes, styles
18 If an organization is denied exempt status, its application for exemption is not open to public inspection.
19 26 U.S.C. 6104(d)(4); see also 26 C.F.R. 301.6104(d)-2, which states that a tax-exempt organization can make its
annual information return “widely available” by posting the document on a World Wide Web page established and
maintained by the organization or by having the document posted, as part of a database of similar documents of other
tax-exempt organizations, on a World Wide Web page established and maintained by another entity. This regulation
also states what criteria must be met for a document to be considered widely available (e.g., the website must inform
readers that the document is available and how it can be downloaded, the document must be an exact reproduction and
be accessible without special hardware or software).
20 See 26 C.F.R. 301.610(d)-3 for discussion of what constitutes harassment.
of work, or apparatus, if public disclosure would adversely affect the organization or if the
information would adversely affect the national defense.
If an organization refuses to provide a copy of its returns, the IRS suggests that the requestor
write to the IRS EO Classification, Mail Code 4910, 1100 Commerce Street, Dallas, TX, 75242.
The requestor should be prepared to provide the name and address of the organization. The IRS
will contact the organization and arrange a time during which the return may be inspected. If the
organization fails to provide the return, the IRS may assess statutory penalties under IRC § 6652.
Any return or application that must be disclosed to the public by the organization must also be
made publicly available by the IRS. The information may be obtained from the IRS by using
Form 4506-A, Request for Public Inspection or Copy of Exempt or Political Organization. In
addition, the IRS has some information submitted by IRC § 527 political organizations on its
website at http://www.irs.gov.
The organizations listed under Question 12 also provide information on various tax-exempt
organizations. In particular, GuideStar may have copies of the organization’s recent Form 990 on
The following are examples of organizations that report on the activities of charities. The
information comes from the organizations’ websites.
American Institute of Philanthropy
3450 Lake Shore Drive, Suite 2802E
P.O. Box 578460
Chicago, IL 60657
Phone: (773) 529-2300
The American Institute of Philanthropy (AIP) is a nonprofit charity watchdog and information
service that provides ratings, opinions, and other information on the financial and managerial
practices of selected charities. It publishes the Charity Rating Guide, which gives a letter grade
rating and other statistics on the financial performance of about 500 major American charities in
Senior Citizens, and more. The Guide provides information on the percentage of funds each
charity spends on its charitable purpose, its cost to raise $100, whether it holds massive asset
reserves, and an overall grade from “A+ to F.” The Guide is not free, but the website does list the
charities that are included in the Guide and those that have received the highest grades.
BBB Wise Giving Alliance
Arlington, VA 22203-1804
Phone: (703) 276-0100
The BBB Wise Giving Alliance was formed in 2001 with the merger of the Council of Better
Business Bureaus’ Philanthropic Advisory Service and the National Charities Information
Bureau. The Alliance collects information and prepares reports on several hundred national
charitable organizations. The Alliance does not recommend or rate charities, but serves to report
information on the organization’s background, staff and governance, financial status and fund
raising practices. The report will also state whether the charity meets the Alliance’s standards for
charitable solicitations. These reports are available on the Alliance’s comprehensive website or
upon request. The Alliance also publishes the quarterly BBB Wise Giving Guide for its donors.
4801 Courthouse Street, Suite 220
Williamsburg, VA 23188
Phone: (757) 229-4631
The GuideStar website, produced by Philanthropic Research, Inc., contains information on more
than 1 million nonprofit organizations. The information can be searched by a variety of fields
(e.g., organization name, state, category, or income level). The site provides information on the
organization’s address, finances, employee and volunteer levels, and general activities; more in-
depth information is available for a membership fee. For some organizations, the site contains a
wealth of information, including the annual returns (Form 990).
The following organization and books may provide further information on general topics related
to tax-exempt organizations, including management, accountability, and fund-raising practices.
1200 Eighteenth Street, NW, Suite 200
Washington, D.C. 20036
The Independent Sector is a coalition of charitable organizations and others interested in the
nonprofit sector. A prime focus of the group is to help nonprofit organizations implement
effective accountability and ethical standards, and the group’s website includes various standards
and models to address these issues. The group also provides information on public policy issues
of interest to nonprofit organizations and conducts and publishes research on various aspects of
charitable giving and volunteering in the United States.
Federal Trade Commission: Consumer Protection
Washington, D.C. 20580
Phone: 1-877-FTC-HELP (382-4357)
The Federal Trade Commission website, particularly the Charity Fraud page, offers information
to consumers, businesses, and nonprofit organizations about how to guard against charity fraud.
The site provides numerous FTC articles highlighting common scam practices and offering
advice on safe methods to donate as well as ways to determine if a charitable organization is
legitimate, such as a Charity Checklist, available at http://www.ftc.gov/bcp/conline/pubs/misc/
charitycheck.htm. The site instructs consumers on how to file a complaint with the FTC if they
feel they have been defrauded by an allegedly nonprofit organization. There is also information
for nonprofit organizations regarding acceptable solicitation practices and tips on hiring
professional fund-raisers. The site also provides numerous links to other organizations that
provide information about nonprofit entities.
The FTC has also undertaken “Operation Phoney Philanthropy,” a law enforcement and public 21
education campaign, in conjunction with state charity regulators to stop fraudulent fundraising.
“Phone-y” refers to deceptive fundraising calls made to individuals and businesses by 22
Society for Nonprofit Organizations
5820 Canton Center Road, Suite 165
Canton, MI 48187
Telephone: (734) 451-3582
The Society for Nonprofit Organizations (SNPO) is an organization whose purpose is to provide a
forum for the exchange of information on nonprofit organizations, offering services to directors,
board members, volunteers, and anyone interested in nonprofit organizations operations. It offers
professional support services and referral services to members and maintains an information
center of books, periodicals, and tapes. SNPO publishes a bimonthly journal, Nonprofit World:
21 FTC and States Unite to Fight Fundraising Fraud, http://www.ftc.gov/opa/2003/05/opp.htm.
22 “Operation Phoney Philanthropy” Launched to Fight Charity Fraud, http://www.guidestar.org/news/features/
The National Nonprofit Leadership and Management Journal, which focuses on the management
of nonprofit organizations. SNPO also issues a monthly electronic newsletter, Nonprofit World
Funding Alert, that details funding opportunities and includes profiles of various foundations.
Limited information is available to non-member website visitors.
These recently-published books deal with various aspects of starting and managing nonprofit
Blazek, Jody. (2004). Tax planning and compliance for tax-exempt organizations: Forms,
checklists, procedures. Hoboken, N.J.: Wiley.
LC CALL NUMBER: KF6449 .B58 2004
Colombo, J.D., & Hall, M.A. (1995). The charitable tax exemption. Boulder: Westview Press.
LC CALL NUMBER: KF6449 .C59 1995
Connors, T.D. (Ed). (2001). The nonprofit handbook. Management. (3rd ed.). New York: Wiley.
LC CALL NUMBER: HD62.6 .N662 2001b
Greenfield, J.M. (2001). The nonprofit handbook. Fund raising. (3rd ed.). New York: Wiley.
LC CALL NUMBER: HD62.6 .N662 2001
Gross, M.J., Jr., McCarthy, J.H., & Shelmon, N.E. (2005). Financial and accounting guide for th
not-for-profit organizations. (6 ed.). Hoboken, NJ: Wiley.
LC CALL NUMBER: HF5686.N56 G76 2005
Grobman, G.M. (2005). The nonprofit handbook: Everything you need to know to start up and run th
your nonprofit organization. (4 ed.). Harrisburg, PA: White Hat Communications.
LC CALL NUMBER: HD62.6 .G762 2005
Hopkins, B.R. (2003). The law of tax-exempt organizations. (8th ed.). Hoboken: NJ: J. Wiley &
Sons. (2004 & 2005 Supplements available).
LC CALL NUMBER: KF6449 .H6 2003
Kitrosser, E., & Dropkin, M. (1993). Tax considerations in non-profit organizations. New York:
American Institute of Certified Public Accountants.
LC CALL NUMBER: KF6449.Z9 K57 1993
Listro, J.P., & RuJoub, M.A. (2001). Accounting and financial reporting for governmental units rd
and not-for-profit organizations. (3 ed.). Dubuque, Iowa: Kendall/Hunt Pub.
LC CALL NUMBER: HF5686.N56 L57 2001
National directory of nonprofit organizations. (1990 - ). Rockville, MD: Taft Group. (Published
LC CALL NUMBER: AS29.5.N38
Nonprofit executive’s tax desk annual. (2001 - ). Gaithersburg, MD: Aspen Publishers, Inc.
LC CALL NUMBER: KF6449 .A15 N66
Whaley, J., & Stratton, J. (Eds.). (2001). Nonprofit organization management: Forms, checklists nd
& guidelines. (2 ed.). Gaithersburg, MD: Aspen Publishers.
LC CALL NUMBER: HD62.6 .N666 2001
Table 1. Types of Tax Exempt Organizations
501(c)(1) Corporations organized by Act of Congress; including Federal Credit Unions, Resolution Trust
Corporation and Resolution Funding Corporation
501(c)(2) Title-holding corporations
501(c)(3) Religious, educational, charitable, scientific, literary, testing for public safety, fostering national or
international amateur sports competition, prevention of cruelty to children or animals
501(c)(4) Civic leagues, social welfare organizations, local associations of employees dedicated to charitable,
educational, or recreational purposes
501(c)(5) Labor unions, agricultural and horticultural organizations
501(c)(6) Trade associations, chambers of commerce, professional football leagues
501(c)(7) Social and recreational clubs
501(c)(8) Fraternal benefit societies and associations
501(c)(9) VEBAs (Voluntary employees’ beneficiary associations providing the payment of certain employee
501(c)(10) Domestic fraternal societies whose net earnings are devoted to religious, charitable, scientific, literary,
educational, and fraternal purposes, which do not provide benefits to members
501(c)(11) Teachers’ retirement fund associations
501(c)(12) Benevolent life insurance associations, mutual ditch or irrigation companies, mutual or cooperative
telephone, electric, or water companies
501(c)(13) Cemetery companies
501(c)(14) Credit unions
501(c)(15) Small mutual insurance companies
501(c)(16) Cooperatives to finance crop operations
501(c)(17) Supplemental unemployment benefit trusts
501(c)(18) Pre-June 25, 1959 employee funded pension trust
501(c)(19) Veterans’ groups
501(c)(20) Group legal service organizations
501(c)(21) Black lung benefit trusts
501(c)(22) Multi-employer pension plan trusts
501(c)(23) Veterans organization established before 1880
501(c)(24) ERISA trusts for certain terminated plans
501(c)(25) Multi-parent real property title-holding companies
501(c)(26) State-sponsored organizations providing health coverage to high risk individuals
501(c)(27) State-sponsored workers’ compensation reinsurance organization
501(c)(28) National Railroad Retirement Investment Trust
501(d) Religious and apostolic organizations with common or communal treasury
501(e) Cooperative hospital service organizations
501(f) Cooperative educational investment organizations
501(k) Child care organizations
501(n) Charitable risk pools
521 Farmers’ cooperatives
526 Shipowners’ protection and indemnity associations
527 Political organizations
528 Homeowners’ associations
Supervisory Legislative Attorney