IRS Publication 557: Tax-Exempt Status Guidance for Organizations

Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 8AH XSL/XML Draft Ok to Print Fileid: … tion-557/202501/a/xml/cycle03/source (Init. & Date) _______Page 1 of 76 14:12 - 26-Feb-2025

Publication 557 Contents(Rev. January 2025)Tax-Exempt What's New .................. 2

Reminders ................... 2Status for Your

Introduction .................. 3

Chapter 1. Application, Approval, and Appeal Procedures ........ 4

Application Procedures ......... 4

Forms Required .......... 4

Required Information and Documents ........... 5

Miscellaneous Procedures .... 6

Determination Letters .......... 6

Effective Date of Exemption .... 6

Revocation of Exemption ..... 6

Appeal Procedures ............ 7

Independent Office of Appeals Consideration .... 7

Administrative Remedies ..... 7

Appeal to Courts .......... 8

Group Exemption Letter ......... 8

Central Organization Application Procedure ..... 8

Keeping the Group Exemption Letter in Force .............. 9

Events Causing Loss of Group Exemption ........9

Chapter 2. Filing Requirements and Required Disclosures ..... 10

Annual Information Returns ...... 11

Unrelated Business Income Tax Return ................ 13

Employment Tax Returns ....... 13

Political Organization Income Tax Return .............. 14

Reporting Requirements for a Political Organization ........ 14

Donee Information Return ....... 16

Information Provided to Donors .... 16

Report of Cash Received ....... 18

Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting Forms ................ 18

Required Disclosures ......... 20

Solicitation of Nondeductible Contributions ......... 20

Sales of Information or Services Available Free from Government ....... 21

Dues Used for Lobbying or Political Activities ....... 21

Miscellaneous Rules .......... 21

Organizational Changes and Exempt Status ...... 21

Modify or Obtain an NTEE Code. ............. 22

Chapter 3. Section 501(c)(3) Organizations ............. 22

Contributions to 501(c)(3) Get forms and other information faster and easier at:Page 2 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Organizations ............ 22• IRS.gov (English) •IRS.gov/Korean (한국어)

• IRS.gov/Spanish (Español) Application for Recognition of • IRS.gov/Russian (Pусский) Exemption .............. 23•IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) Articles of Organization ........ 25 Publication 557 (Rev. 1-2025) Catalog Number 46573C Feb 26, 2025 Department of the Treasury Internal Revenue Service www.irs.gov

Educational Organizations and Excise Tax on Executive For Form 4720, any 2020, and any fu-Private Schools ........... 26 Compensation ........... 65 ture year, Form 4720 filed by a private

Organizations Providing Excise Tax on Net Investment foundation with a due date on or after July Insurance .............. 28 Income of Certain Colleges 15, 2021, must be filed electronically and and Universities .......... 65Other Section 501(c)(3) not on paper. Organizations other than pri-Organizations ............ 28 vate foundations that are required to file How To Get Tax Help ............ 66Private Foundations and Public Form 4720 are encouraged, but not re-Charities ............... 30 quired, to file Form 4720 electronically. Organization Reference Chart ...... 69 •Lobbying Expenditures ........ 46 Forms 990, 990-EZ, and 990-PF e-filing.

Form 990, Return of Organization Exempt

Appendix. Sample Articles of From Income Tax, and Form 990-PF, Re-Chapter 4. Other Section 501(c) Organization .............. 70Organizations ............. 48 turn of Private Foundation or Section

501(c)(4) - Civic Leagues and 4947(a)(1) Trust Treated as Private Foun- Appendix. Sample Articles of Social Welfare Organizations ... 48 dation, for tax years ending July 31, 2020, Organization, continued ....... 72501(c)(5) - Labor, Agricultural, and later MUST be filed electronically.

and Horticultural Form 990-EZ, Short Form Return of Or- Index ..................... 75Organizations ............ 49 ganizations Exempt from Income Tax, for

501(c)(6) - Business Leagues, tax years ending July 31, 2021, and later etc. .................. 49 MUST be filed electronically. The transi- What's New501(c)(7) - Social and tional relief applicable to the Form 990-EZ Recreation Clubs .......... 50 under which the IRS accepted either paper

501(c)(8) and 501(c)(10) - or electronic filing of Form 990-EZ applied Future developments. The IRS has created a Fraternal Beneficiary only for tax years ending before July 31, page on IRS.gov for information about Publica-Societies and Domestic 2021. tion 557, at IRS.gov/Pub557. Information about Fraternal Societies ......... 51 More information on software providers any future developments affecting Publication 501(c)(4), 501(c)(9), and 501(c) is available on the Exempt Organizations 557 (such as legislation enacted after we re-(17) - Employees' Modernized e-File (MeF) Providers page. lease it) will be posted on that page.Associations ............ 52 For more information, go to IRS: Recent 501(c)(12) - Local Benevolent Continuous-use publication. Publication 557 legislation requires tax exempt Life Insurance Associations, has been converted from an annual revision to organizations to e-file forms.Mutual Irrigation and continuous use. Use these instructions for tax Section 501(c)(21) trusts. Form 990-BL, In-Telephone Companies, and year 2024 and subsequent years until a super- formation and Initial Excise Tax Return for Black Like Organizations ......... 53 seding revision is issued. Lung Benefit Trusts and Certain Related Per-501(c)(13) - Cemetery

sons, will be a historical form beginning with tax Companies ............. 55

year 2021. Section 501(c)(21) trusts can no lon-501(c)(14) - Credit Unions and Remindersger file Form 990-BL and will file Form 990 (or Other Mutual Financial Organizations ............ 56submit Form 990-N, if eligible) to meet their an-

nual filing obligations under section 6033. Some Electronic Form 1024. As of January 3, 2022, 501(c)(19) - Veterans' Organizations ............ 56section 501(c)(21) trusts may also be required Form 1024, Application for Recognition of Ex-

to file Form 6069, Return of Certain Excise emption Under Section 501(a) or Section 521, 501(c)(21) - Black Lung Benefit Trusts ................ 57Taxes on Mine Operators, Black Lung Trusts, must be submitted for electronic filing on

and Other Persons Under Sections 4951, 4952, Pay.gov. As part of the revision, applications for 501(c)(2) - Title-Holding and 4953.recognition of exemption under Sections 501(c)Corporations for Single Parent Corporations ........ 57(11), (14), (16), (18), (21), (22), (23), (26), (27), Reporting of donor information (Form 990, (28), (29), and 501(d) can no longer be submit-501(c)(25) - Title-Holding 990-EZ, and 990-PF). Final regulations pro-Corporations or Trusts for ted as letter applications. Instead, these re-vide that the requirement to report contributor Multiple Parent Corporations ... 58quests must be made on the electronic Form names and addresses on annual returns gener-501(c)(26) - State-Sponsored 1024.ally applies only to returns filed by Section High-Risk Health Coverage Also, organizations requesting determina-501(c)(3) organizations and Section 527 politi-Organizations ............ 58tions under Section 521 are now able to use the cal organizations. All tax-exempt organizations 501(c)(27) - Qualified electronic Form 1024 instead of Form 1028, Ap-must continue to maintain the names and ad-State-Sponsored Workers' plication for Recognition of Exemption Under dresses of their substantial contributors in their Compensation Organizations ... 59Section 521.books and records.501(c)(29) - CO-OP Health Insurance Issuers ......... 59Update on mandatory e-filing. The Taxpayer IRS not accepting requests for group ex-First Act, enacted July 1, 2019, requires tax-ex-emption numbers. The IRS will not accept Chapter 5. Excise Taxes ......... 59empt organizations to electronically file informa-any requests for group exemption letters start-

tion returns and related forms. The new law af- ing on June 17, 2020, until publication of the fi-Transactions ............ 60fects tax-exempt organizations in tax years nal revenue procedure or other guidance in the Excess Benefit Transactions ..... 60beginning after July 1, 2019. Internal Revenue Bulletin. See Notice 2020-36.•Excess Business Holdings ...... 63 Forms 990-T and 4720 are available for Automatic revocation. Regarding automatic e-filing in 2022. In 2020, the IRS contin-Taxable Distributions of revocation for the failure to file a return or notice Sponsoring Organizations ..... 64 ued to accept paper Form 990-T, Exempt for 3 consecutive years, as required by section Organization Business Income Tax Return, Taxes on Prohibited Benefits 6033, the Taxpayer First Act of 2019, P.L. and Form 4720, Return of Certain Excise Resulting from Donor 116-25, added a requirement that the IRS notify Advised Fund Distributions .... 65 Taxes Under Chapters 41 and 42 of the In- the organization after the organization has failed ternal Revenue Code, pending conversion Excise Taxes on Private to file for 2 consecutive years. See Automatic Foundations ............. 65 into electronic format. As described below, Revocation, later, for more information, includ- in 2021, the IRS announced e-filing is re-Excise Taxes on Black Lung ing applicability dates.Benefit Trusts ............ 65Page 3 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 quired for these forms.

For Form 990-T, any 2020, and any fu-Excise Tax on Failure To Meet Electronic Form 1023. Form 1023, Applica-

the Community Health ture year Form 990-T with a due date on or tion for Recognition of Exemption under Section Needs Assessment after April 15, 2021, must be filed electroni- 501(c)(3) of the Internal Revenue Code, is avail-Requirements ........... 65 cally and not on paper. able only as an electronic form filed on Pay.gov.

2 Publication 557 (1-2025)

Form 1023-EZ, Streamlined Application, is al- Form 8976. Each new section 501(c)(4) organ- Corporations organized under Acts of ready on Pay.gov. ization must notify the IRS of its intent to oper- Congress ....................... 501(c)(1) ate as a section 501(c)(4) organization regard- Teachers' retirement fund associations ... 501(c)(11)Tax on investment income of private foun- less of whether it will seek recognition of its Mutual insurance companies .......... 501(c)(15)dations. The Taxpayer Certainty and Disaster exempt status under section 501(c)(4). Use Corporations organized to finance crop Tax Relief Act of 2019, reduced the 2% excise Form 8976, Notice of Intent to Operate Under operations ...................... 501(c)(16)tax on investment income of private foundations Employee funded pension trusts (created Section 501(c)(4), to provide this notification. to 1.39%. At the same time, the legislation re- before June 25, 1959) .............. 501(c)(18) Form 8976 may only be completed and submit-pealed the 1% special rate that applied if the Withdrawal liability payment fund ....... 501(c)(22) ted electronically at: Electronically Submit Your private foundation met certain distribution re- Veterans' organizations (created before Form 8976, Notice of Intent to Operate Under quirements. The change is effective for taxable 1880) .......................... 501(c)(23) Section 501(c)(4). National Railroad Retirement Investment years beginning after December 20, 2019.

Trust .......................... 501(c)(28)Forms, instructions, and publications. All Increase in UBTI for disallowed fringe re-Religious and apostolic associations .... 501(d)IRS forms, instructions and publications men-pealed. The Taxpayer Certainty and Disaster Cooperative hospital service tioned in this publication can be accessed on Tax Relief Act of 2019 retroactively repealed In-organizations .................... 501(e)IRS.gov from the Forms and Instructions page.Cooperative service organizations of ternal Revenue Code Section 512(a)(7), which

operating educational organizations ..... 501(f)increased unrelated business taxable income

by amounts paid or incurred for qualified trans- Section 501(c)(24) organizations (section portation fringes. Congress had previously 4049 ERISA trusts) are neither discussed in the This publication discusses the rules and proce-enacted this provision for amounts paid or in- text nor listed in the Organization Reference dures for organizations that seek recognition of curred after December 31, 2017. Chart. exemption from federal income tax under sec- Similarly, farmers' cooperative associations Excise tax on executive compensation. tion 501(a) of the Internal Revenue Code (the Section 4960, added by P.L. 115-97, effective that qualify for exemption under section 521, Code). It explains the procedures you must fol-for tax years beginning after December 17, qualified state tuition programs described in low to obtain an appropriate determination letter 2017, imposes an excise tax on an organization section 529, qualified ABLE programs descri- recognizing your organization's exemption, as that pays to any covered employee more than bed in section 529A, and pension, profit-shar- well as certain other information that applies $1 million in remuneration or pays an excess ing, and stock bonus plans described in section generally to all exempt organizations. To qualify parachute payment during the year starting in 401(a) aren't discussed in this publication. Visit for exemption under the Code, your organiza-2018. See Excise Tax on Executive Compensa- IRS.gov for more information on these types of tion must be organized for one or more of the tion, chapter 5. See also section 4960 and Form organizations. For telephone assistance, call 1- purposes specifically designated in the Code. 4720, Return of Certain Excise Taxes Under 877-829-5500. Organizations that are exempt under section Chapters 41 and 42 of the Internal Revenue Check the Table of Contents at the begin- 501(a) include those organizations described in Code, for more information. ning of this publication to determine whether section 501(c). Section 501(c) organizations

your organization is described in this publica-are covered in this publication.Excise tax on net investment income of cer-tion. If it is, read the chapter (or section) that ap-Chapter 1, Application, Approval, and Ap-tain colleges and universities. Section 4968 plies to your type of organization for the specific peal Procedures, provides general information imposes an excise tax on the net investment in-information you must give when applying for about the procedures for obtaining recognition come of certain private colleges and universi-recognition of exemption.of tax-exempt status.ties. See Excise Tax on Net Investment Income

Chapter 2, Filing Requirements and Re-of Certain Colleges and Universities, chapter 5. Organization Reference Chart. The Organi-quired Disclosures, contains information about See also section 4968 and Form 4720, Return zation Reference Chart enables you to locate at annual filing requirements and other matters of Certain Excise Taxes Under Chapters 41 and a glance the section of the Code under which that may affect your organization's tax-exempt 42 of the Internal Revenue Code, for more infor- your organization might qualify for exemption. It status.mation. also shows the required application form and, if Chapter 3, Section 501(c)(3) Organizations, Separate UBTI calculation for each trade or your organization meets the exemption require-contains detailed information on various matters business. Organizations with more than one ments, the annual return to be filed (if any), and affecting section 501(c)(3) organizations, in-unrelated trade or business must compute unre- whether or not a contribution to your organiza-cluding a section on the determination of private lated business taxable income (UBTI), including tion will be deductible by a donor. It also de-foundation status.for purposes of determining any net operating scribes each type of qualifying organization and Chapter 4, Other Section 501(c) Organiza-loss deduction, separately with respect to each the general nature of its activities.tions, includes separate sections for specific such trade or business. See Unrelated Busi- You may use the Organization Reference types of organizations described in section ness Income Tax Return, chapter 2. See also Chart to identify the Code section that you think 501(c).Schedule A (Form 990-T). The UBTI with re- applies to your organization. Any correspond-Chapter 5, Excise Taxes, provides informa-spect to any such trade or business shall not be ence with the IRS (in requesting forms or other-tion on when excise taxes may be imposed.less than zero when computing total UBTI. wise) can be responded to faster if you indicate Chapter 6, How to Get Tax Help, provides

in your correspondence the appropriate Code tips and resources on where to find answers to Exception from the excise tax on excess section. Check the IRS website, IRS.gov, for the tax questions or other assistance.business holdings. Section 4943(g) created

latest updates, Tax Information for Charities & an exception from the excise tax on excess

Other Non-Profits.business holdings for certain independently op-Organizations not discussed in this publi- cation. Certain organizations that may qualify erated enterprises whose voting stock is wholly Comments and suggestions. We welcome for exemption aren't discussed in detail in this owned by a private foundation. For more details,

your comments about this publication and your publication, although they are included in the see Excess Business Holdings, chapter 5. suggestions for future editions.Organization Reference Chart and the applica-Organizational changes. For tax years begin-tion procedures discussed in Chapter 1. These You can send us comments through ning on or after January 1, 2018, the IRS will no organizations (and the Code sections that apply IRS.gov/FormComments. Or, you can write to longer require a new exemption application from to them) are as follows:Internal Revenue Service, Tax Forms and Publi-a domestic section 501(c) organization that un-cations, 1111 Constitution Ave. NW, IR-6526, dergoes certain changes of form or place of or-Washington, DC 20224.ganization, as described in Rev. Proc. 2018-15, Although we can't respond individually to 2018-9 I.R.B. 379.Page 4 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025each comment received, we do appreciate your Group exemptions. Beginning January 2019, feedback and will consider your comments as

the IRS will no longer send the List of Parent and Subsidiary Accounts to the central organi- zations. See Group Exemption Letter, later.

Publication 557 (1-2025) 3

•we revise our tax forms, instructions, and publi-501(c)(8) Fraternal beneficiary societies, Application Procedurescations. Don't send tax questions, tax returns, orders, or associations;•or payments to the above address.501(c)(9) Voluntary employees' beneficiary

associations;•Getting answers to your tax questions. Oral requests for recognition of exemption won't 501(c)(10) Domestic fraternal societies, or-If you have a tax question not answered by this be considered by the IRS. Your application for ders, etc.;publication or How to Get Tax Help section at •recognition of tax-exempt status must be in writ-501(c)(11) Teachers' Retirement Fund As-the end of this publication, go to the IRS Inter-ing using the appropriate forms, as discussed sociations;active Tax Assistant page at IRS.gov/Help/ITA •below.501(c)(12) Benevolent life insurance asso-where you can find topics using the search fea-ciations, mutual ditch or irrigation compa-ture or by viewing the categories listed.Forms Requirednies, mutual or cooperative telephone

companies;Getting tax forms, instructions, and pub-•501(c)(13) Cemetery companies;lications. Visit IRS.gov/Forms to download If your organization is seeking recognition of ex-•501(c)(14) State-Chartered Credit Unions, current and prior-year forms, instructions, and emption from federal income tax, it must use a Mutual Reserve Funds;publications.specific application prescribed by the IRS in the •501(c)(15) Mutual insurance companies or current year revenue procedure. If your organi-associations;Ordering tax forms, instructions, and zation is a central organization with exempt sta-•publications. Go to IRS.gov/OrderForms to or-501(c)(16) Cooperative Organizations to tus, see Group Exemption Letter, later. All appli-der current forms, instructions, and publica-Finance Crop Operations;cations must be signed by an authorized •tions; call 800-829-3676 to order prior-year 501(c)(17) Trusts providing for the payment forms and instructions. The IRS will process of supplemental unemployment compen- your order for forms and publications as soon sation benefits;Form 1023, Application for Recognition of •as possible. Don't resubmit requests you've al-501(c)(18) Employee Funded Pension Exemption Under Section 501(c)(3) of the ready sent us. You can get forms and publica-Trust (created before June 25, 1959);Internal Revenue Code. File Form 1023 if you •tions faster online.501(c)(19) A post, organization, auxiliary are seeking recognition of exemption under unit, etc. of past or present members of the section:Armed Forces of the United States;•501(c)(21) Black Lung Benefit Trusts;•501(c)(3) Corporations, organized and op-•501(c)(22) Withdrawal Liability Payment erated exclusively for religious, charitable, Fund;scientific, testing for public safety, literary, 1.•501(c)(23) Veterans' Organization (created or educational purposes, or to foster na-before 1880);tional or international amateur sports, or •501(c)(25) Title holding corporations or prevention of cruelty for children or ani-trusts;Application, mals, including the following types of or-•501(c)(26) State-Sponsored Organization ganizations to which the specified subsec-Providing Health Coverage for High-Risk tions are applicable;Approval, and Individuals;•501(e) Cooperative hospital service organ-•501(c)(27) State-Sponsored Workers' ization;Compensation Reinsurance Organization;•501(f) Cooperative service organization of Appeal •501(c)(28) National Railroad Retirement operating educational organizations;Investment Trust;•501(k) Certain organizations providing •501(c)(29) CO-OP health insurance issu-Procedureschild care;ers, and•501(n) Charitable risk pools;•501(d) Religious and Apostolic Associa-•501(q) Credit counseling organizations, tions.and•Also, organizations requesting determinations 501(r) Hospital organizations.

under Section 521 are now able to use the elec- Applications for exempt status on a Form tronic Form 1024 instead of Form 1028, Appli-If your organization is one of the organizations 1023 must be electronically submitted through cation for Recognition of Exemption Under Sec-described in this publication and is seeking rec-Pay.gov.tion 521 of the Internal Revenue Codeognition of tax-exempt status from the IRS, you As of January 3, 2022, applications for ex-should follow the procedures described in this Form 1023-EZ, Streamlined Application for empt status on a Form 1024 must be electroni-chapter and the instructions that accompany Recognition of Exemption Under Section cally submitted through Pay.gov.the appropriate application forms.501(c)(3) of the Internal Revenue Code. You For information on section 501(c)(3) organi-may be eligible to file Form 1023-EZ if you are a Form 1024-A, Application for Recognition of zations, go to Section 501(c)(3) Organizations, smaller organization (assets of $250,000 or less Exemption Under Section 501(c)(4) of the chapter 3. If your organization is seeking ex-and annual gross receipts of $50,000 or less) Internal Revenue Code. File Form 1024-A if emption under one of the other paragraphs of seeking recognition of exemption under section you are seeking recognition of exemption under section 501(c), see chapter 4.501(c)(3).section 501(c)(4).

Applications for exempt status on a Form Submitting Form 1024-A does not satisfy an Topics1023-EZ must be electronically submitted organization's requirement to notify the Com-

through Pay.gov. missioner that it is operating under section 501(c)(4), as required by section 506. See •Form 1024, Application for Recognition of IRS.gov for information on satisfying the notifi-Application procedures that generally Exemptions Under Section 501(a) or Sec- cation requirement using Form 8976, Notice of apply to all organizations discussed in this tion 521 of the Internal Revenue Code. File Intent to Operate Under Section 501(c)(4).publication, including the application Form 1024 if you are seeking recognition of ex- Form 1024-A, Application for Recognition of forms;emption under section:• Exemption Under Section 501(c)(4), must be Determination letters (approvals/• 501(c)(2) Title holding corporations; filed electronically on Pay.gov.disapprovals);•Page 5 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 501(c)(5) Labor, agricultural, or horticul-•Appeal procedures available if an adverse tural organizations;determination letter is proposed; and• 501(c)(6) Business leagues, chambers of •Group exemption letters. commerce, etc.;• 501(c)(7) Social clubs; 4 Chapter 1 Application, Approval, and Appeal Procedures Publication 557 (1-2025)

basis of law, regulations, or a clearly applicable complete and was filed and approved by the Form 1028, Application for Recognition of

revenue ruling or other published precedent. state, including the date filed.Exemption Under Section 521 of the Inter- nal Revenue Code. Use Form 1028, Applica- If you are formed as a limited liability com- Reminder. The law requires payment of a user tion for Recognition of Exemption Under Sec- pany and have adopted an operating agree-

fee for determination letter requests. See the tion 521 of the Internal Revenue Code, if your ment, submit the operating agreement along current year issued revenue procedures to find organization is a farmers' cooperative seeking with your state-approved articles of organiza- the required payment. Payment must accom-recognition of exemption under section 521. tion. pany each request.You must also submit Form 8718. If your organization's name has been offi- Alternatively, organizations requesting deter- cially changed by an amendment to your organ-

Non-exemption for terrorist organizations. minations under Section 521 are now able to izing instruments, you should also attach a con-An organization that is identified or designated use the electronic Form 1024 instead of Form formed copy of that amendment to your as a terrorist organization within the meaning of 1028. application.section 501(p)(2) isn't eligible to apply for rec-

Conformed copy. A conformed copy is a ognition of exemption.Form 8871, Political Organization Notice of copy that agrees with the original and all Section 527 Status. Use Form 8871, Political User fee. The law requires the payment of a amendments to it. If the original document re-Organization Notice of Section 527 Status, if user fee for determination letter requests such quired a signature, the copy should either be you are a political organization seeking to be as your application for recognition of tax-exempt signed by a principal officer or, if not signed, be treated as tax-exempt under section 527 unless status. User fees are listed in the current year accompanied by a written declaration signed by an exception applies. See Political Organization issued revenue procedures. If you are filing an authorized officer of the organization. With Income Tax Return, later.Form 1023, Form 1023-EZ, Form 1024 or either option, the officer must certify that the Some organizations don't have to use spe-1024-A, the user fee must be submitted through document is a complete and accurate copy of cific application forms. The application your or-Pay.gov.the original. A certificate of incorporation should ganization must use is specified in the chapter be approved and dated by an appropriate state in this publication dealing with your kind of or-For the current user fee amount and official.ganization. It is also shown in the Organization other information about applying for Reference Chart, later.Bylaws. Bylaws alone aren't organizing tax-exempt status, go to IRS.gov and Form 8871 must be filed at the IRS Political documents. However, if your organization has select "Charities and Non-Profits" from the but-Organizations Filing and Disclosure site.tons near the top. Next, select "Applying for adopted bylaws, include a current copy. The by-

Tax-Exempt Status" for more information. You laws need not be signed if submitted as an at-Power of attorney. If your organization ex- tachment.can also call 1-877-829-5500.pects to be represented by an individual such Bylaws may be considered an organiz-as an attorney, CPA, officer or other person au-Required Information and ing document only if they are properly thorized to practice before the IRS, whether in Documents structured (includes name, purpose, person or by correspondence, you must file a signatures, and intent to form an organization).Form 2848, Power of Attorney and Declaration

of Representative, with your exemption applica- Employer identification number (EIN). Ev-tion. The power of attorney must specifically au- Attachments. When submitting attachments, ery exempt organization must have its own EIN, thorize an individual to represent your organiza- every attachment should show your organiza- whether or not it has any employees. An EIN is tion. You can't name an organization, firm, etc. tion's name and EIN. It should also state that it required before an exemption application is as your representative. Form 2848 can be used is an attachment to your application form and submitted. Information on how to apply for an for this purpose. The categories of individuals identify the part and line item number to which it EIN can be found online at Employer ID who can represent you before the IRS are listed applies. Numbers (EIN). The EIN is issued immediately on the form. once the application information is validated. Original documents. Don't submit original If you previously applied for an EIN and documents because they become part of the Form 8940, Request for Miscellaneous De- haven't yet received it, or you are unsure IRS file and can't be returned.termination. You can request miscellaneous whether you have an EIN, please call our determinations under sections 507, 509(a), toll-free customer account services number, Description of activities. Your application 4940, 4942, 4945, and 6033 using Form 8940. 1-877-829-5500, for assistance. must include a full description of the proposed Nonexempt charitable trusts also file Form 8940 activities of your organization, including each of for an initial determination of section 509(a)(3) Organizing documents. If you are submitting the fundraising activities of a section 501(c)(3) status or change to their type. See Form 8940 an application other than Form 1023-EZ, your organization and a narrative description of an-and instructions for more information. application should include a copy of the organ- ticipated receipts and contemplated expendi- izing or enabling document that is signed by a Requests other than applications. tures. When describing the activities in which principal officer or is accompanied by a written Requests other than applications for your organization expects to engage, you must declaration signed by an authorized individual recognition of exemption or Form 8940 include the standards, criteria, procedures, or certifying that the document is a complete and (for example, requests for letter rulings involving other means that your organization adopted or accurate copy of the original or meets the re-feeder organizations, application of excise taxes planned for carrying out those activities. quirements of a conformed copy in Rev. Proc. to activities of private foundations, taxation of To determine the information you need to 2011-9, section 3.08(5). If you are submitting a unrelated business income, etc.) should be sent provide, you should study the part of this publi- Form 1023-EZ, you don't need to include a to the appropriate address listed in the current cation that applies to your organization. The ap- copy of your organizing documents with the ap-year revenue procedures. propriate chapter will describe the purposes plication. However, you may be asked to pro- and activities that your organization must pur-These requests, similar to applications for vide it during the application review process. sue, engage in, and include in your application recognition of exemption previously discussed, If your organizing or enabling document are in order to achieve exempt status.must be accompanied by the appropriate user articles of incorporation, include evidence that it Often, your organization's articles of organi-fee. The schedule for user fees, including those was filed and approved by a state official. (For zation (or other organizing instruments) contain for requests other than applications, can be example, a stamped "Filed" copy dated by the descriptions of your organization's purposes found in the current year revenue procedures. Secretary of State is prima facie evidence that it and activities. was filed and approved by a state official.) A Exempt Organization (EO) Determinations Page 6 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 Your application should describe completely copy of the articles of incorporation can also be can request technical advice from the Office of and in detail your past, present, and planned submitted with a written declaration signed by Associate Chief Counsel (Employee Benefits, activities. an authorized individual indicating the copy is Exempt Organizations, and Employment Taxes) If you are filing Form 1023-EZ, also review on any question that can't be resolved on the the Instructions for Form 1023-EZ for more Publication 557 (1-2025) Chapter 1 Application, Approval, and Appeal Procedures 5

TIPTIP

information about what to include in your de- the issuance of a determination letter upon the funds, and the nature of its contemplated ex- scription. written request of a principal officer or author- penses. ized representative of your organization. How-

Financial data. Unless you are filing Form Adverse determination. A proposed adverse ever, the withdrawal won't prevent the informa-

1023-EZ, you must include in your application a determination letter will be issued to an organi- tion contained in the application from being statement of revenues and expenses for the zation that has not provided sufficiently detailed used by the IRS in any subsequent examination number of years specified in the applicable form information to establish that it qualifies for ex- of your organization's returns. The information instructions. For each accounting period, you emption or if the information provided estab- forwarded with an application won't be returned must describe the sources of your receipts and lishes that it doesn't qualify for exemption. An to your organization and, generally, when an ap- the nature of your expenditures. You must also organization can appeal a proposed adverse plication is withdrawn, the user fee paid won't include a balance sheet for your most recently determination letter. See Appeal Procedures, be refunded. completed tax year or if you haven't completed later. a full tax year, the most current information Requests for withholding of information Expedited handling. Exempt organization de-available. from the public. The law requires many ex-

termination letter requests may be eligible for empt organizations and private foundations to If you haven't yet begun operations, or have expedited handling under section 4.09 of Rev. make their application forms and annual infor-operated for less than 1 year, a proposed Proc. 2024-5.mation returns available for public inspection. budget for 2 full accounting periods and a cur- The law also requires the IRS to make available rent statement of assets and liabilities will be Effective Date of Exemptionfor public inspection, in accordance with section acceptable.

6104 and the related regulations, your approved application for recognition of exemption (includ-Exempt status established in application. If A determination letter recognizing exemption is ing any papers submitted in support of the ap-your application and its supporting documents usually effective as of the date of formation plication) and the determination letter (dis-show that your organization meets the require- of an organization if, the organization submit-cussed later, under Determination Letters).ments for tax-exempt status under the Code ted the application for recognition of exemption section you applied, the IRS will issue a favora-Any information submitted in the application within 27 months from the end of the month in ble determination letter.or in support of it that relates to any trade se- which it was organized and during the period cret, patent, process, style of work, or appara- before the date of the determination letter, its Miscellaneous Procedurestus, upon request, can be withheld from public purposes and activities are consistent with the inspection if the IRS determines that the disclo- requirements for exempt status under the appli-sure of such information would adversely affect cable section of 501(c). Upon obtaining recog-To help in processing your application, be sure the organization. Your request must: nition of exemption, the organization can file a to attach all schedules, statements, and other

claim for a refund of income taxes paid for the documents required by the application form. If 1. Identify the material to be withheld (the period for which its exempt status is recognized.you don't attach them, you may have to resub-document, page, paragraph, and line) by mit your application or you may otherwise en-clearly marking it "Not Subject to Public An organization that does not submit its ap-counter a delay in processing your application.Inspection."plication for exemption within that 27-month pe- riod but otherwise meets the requirements for 2. Explain why the information is of the type Incomplete application. If an application isn't tax-exempt status will be recognized as exempt that can be withheld from public inspec-complete and doesn't contain all the required from the postmark date of application or the tion.attachments found under Required Inclusions, submission date of its Form 1023, Form 1024, the IRS will return it to you for completion. The 3. Be filed with the office where your organi-Form 1023-EZ, or Form 1024-A, if applicable.IRS will no longer request the missing informa-zation files the documents in which the If an organization is required to alter its activ-tion if the application is incomplete. However, material to be withheld is contained.ities or substantially amend its charter to qualify, the IRS may, but is not required to, request ad-the determination letter recognizing exemption ditional information to validate information pre-Where to file. Submit Form 1023, 1023-EZ, will be effective as of the date specified in sented or to clarify an inconsistency on a Form 1024, or 1024-A through Pay.gov.the letter. If a nonsubstantive amendment is 1023-EZ.EO Determinations will consider your com-made, such as correction of a clerical error in If the IRS returns the application or requests plete application and will issue you a favorable the enabling instrument or the addition of a dis-additional information from you, that application determination letter, an adverse letter denying solution clause, exemption will ordinarily be rec-will be considered filed on the date the substan-the exempt status requested in your application ognized as of the date of formation if the activi-tially completed application is postmarked, or if or, if you are asked to provide supplemental in-ties of the organization before the determination no postmark, received at the IRS.formation and fail to respond, may close your are consistent with the exemption requirements.case without making a determination if you For applications that are returned to the ap-

A determination letter recognizing exemp-don't respond to a request for additional infor-plicant because they aren't complete, the user tion can't be relied on if there is a material mation. EO Determinations will also close your fee will be returned or refunded. change, inconsistent with exemption, in the case without a determination if you withdraw Additional information may be requested if character, the purpose, or the method of opera-your request.necessary to clarify the nature of your organiza- tion of the organization. Also, a determination tion. letter can't be relied on if it is based on any Determination Lettersomission or inaccurate material information IRS responses. Organizations that success-

submitted by the organization.fully submit Form 1023, Form 1023-EZ, Form 1024, or Form 1024-A on Pay.gov will receive Public charity status. A new section 501(c)For more information about the effective an email from Pay.gov confirming payment of (3) organization will be classified as a publicly date of exemption, see the current year issued the user fee. Organizations that submit a com-supported organization and not a private foun-revenue procedures.plete Form 1024 application will receive an ac-dation if it can show when it applies for tax-ex-

knowledgment from the IRS. In addition, any empt status that it reasonably can be expected Revocation of Exemptionapplicant may receive a letter requesting addi- to be publicly supported.

tional information the IRS needs to make its de- A determination letter recognizing exemption termination. These letters will be sent out as An organization must describe fully the ac- may be revoked by:soon as possible after receipt of the organiza- tivities in which it expects to engage. This in-Page 7 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025tion's application. cludes standards, procedures, or other means 1. A notice to the organization to which the adopted or planned by the organization for car- determination letter originally was issued,Withdrawal of application. An organization rying out its activities, expected sources of 2. Enactment of legislation or ratification of a may withdraw an application at any time before tax treaty, 6 Chapter 1 Application, Approval, and Appeal Procedures Publication 557 (1-2025)

1. A decision of the United States Supreme The statement must be submitted within 30 "Under penalties of perjury, I declare that I Court, days from the date of the proposed adverse de- have examined the statement of facts termination letter and must state whether your presented in this protest and in any 4. Issuance of temporary or final regulations, organization wishes Independent Office of Ap- accompanying schedules and statements and, or peals consideration. to the best of my knowledge and belief, it is
2. Issuance of a revenue ruling, a revenue true, correct, and complete." Representation. A principal officer or trustee procedue, or other statement published in Signature.can represent an organization at any level of ap-the Internal Revenue Bulletin or Cumula-

peal within the IRS. Also, an attorney, CPA, or tive Bulletin. If the organization's representative submits the individual enrolled to practice before the IRS appeal, a substitute declaration must be inclu-6. Section 6033(j), for failure to file a required can represent the organization. ded, stating:annual return or notice, for 3 consecutive If the organization's representative attends a years, automatically. 1. That the representative prepared the ap-conference without a principal officer or trustee, peal and accompanying documents, andthe representative must file a proper power of When revocation takes effect. If the organi-attorney or a tax information authorization be- 2. Whether the representative knows person-zation omitted or misstated material informa-fore receiving or inspecting confidential informa- ally that the statements of fact contained in tion, operated in a manner materially different tion. Form 2848 or Form 8821, Tax Information the appeal and accompanying documents from that originally represented, or, with regard Authorization, as appropriate (or any other are true and correct.to organizations to which section 503 applies, properly written power of attorney or authoriza-engaged in a prohibited transaction (such as di- Be sure the appeal contains all of the infor-tion), can be used for this purpose. These forms verting corpus or income from its exempt pur- mation requested. Incomplete appeals will be are available on IRS.gov from the Forms and In-pose), or if there has been a change in the ap- returned for completion.structions page. For more information, see Pub-plicable law, the revocation or modification may lication 947, Practice Before the IRS and Power be retroactive. The Independent Office of Appeals, after of Attorney, which is also available on IRS.gov any requested conference and upon considera-from the Forms and Instructions page.Material change in organization. If there is a tion of the organization's appeal, as well as in-

material change, inconsistent with exemption, in formation presented in any conference held, will Independent Office of the character, purpose, or method of operation generally notify the organization of its decision Appeals Considerationof the organization, revocation or modification and issue an appropriate determination letter.

will ordinarily take effect as of the date of that An adverse decision can be appealed to the material change. An organization may seek re- courts (discussed later). If new information is Before forwarding a case to the Independent lief from retroactive revocation or modification of submitted during Independent Office of Appeals Office of Appeals, Rulings and Agreements will a determination letter under section 7805(b). consideration, the matter may be returned to consider the applicant's statement protesting For more information on requesting section Rulings and Agreements for further considera- and appealing (hereinafter appealing) the pro-7805(b) relief, see the current year issued reve- tion. posed adverse determination. If the organiza-nue procedures. tion does not submit the information that pro- The Independent Office of Appeals must re- vides a basis for Rulings and Agreements to Relief from retroactivity. If a determina- quest technical advice on any exempt organiza- reconsider its adverse determination, it will for-tion letter was issued in error or the IRS tion issue concerning qualification for exemp- ward the appeal and case file to the Independ-changed its position after issuing a letter, and if tion or foundation status for which there is no ent Office of Appeals. For more information section 7805(b) relief is granted, retroactivity of published precedent or for which there is rea- about the role of the Independent Office of Ap-the revocation ordinarily will be limited to a date son to believe that nonuniformity exists. If an or- peals, see Publication 892, How to Appeal an not earlier than that on which the original deter- ganization believes that its case involves such IRS Decision on Tax-Exempt Status. The ap-mination letter was revoked. an issue, it should ask the Independent Office peal should include the following information. of Appeals to request technical advice.Foundations. The determination of the ef- 1. The organization's name, address, day-fective date is the same for the revocation or Any determination letter issued on the basis time telephone number, and employer modification of foundation status or operating of technical advice can't be appealed to the In- identification number.foundation status unless the effective date is ex- dependent Office of Appeals for those issues pressly covered by statute or regulations. 2. A statement that the organization wants to that were the subject of the technical advice. protest the determination.

Written notice. If the IRS concludes, as a re- Administrative Remedies 3. A copy of the letter showing the determi-sult of examining an information return or con- nation you disagree with, or the date and sidering information from any other source, that IRS office symbols on the determination In the case of an application under section a determination letter should be revoked or letter. 501(c) or 501(d) and exempt from tax under modified, the organization will be advised in 501(a), all of the following actions, called ad-writing of the proposed action and the reasons 4. A statement of facts supporting the organi- ministrative remedies, must be completed by for it. zation's position in any contested factual your organization before an unfavorable deter-The organization will also be advised of its issue. mination letter from the IRS can be appealed to right to protest the proposed action by request- 5. A statement outlining the law or other au- the courts.ing Independent Office of Appeals considera- thority the organization is relying on.tion. The appeal procedures are discussed 1. The filing of the correct completed applica-

next. 6. A statement as to whether a conference at tion or group exemption request under the Independent Office of Appeals is de- section 501(c), or 501(d) and exempt from sired.Appeal Procedures tax under 501(a) (described earlier in this

chapter) or the filing of a request for a de-The statement of facts in item 4 must be de-termination of foundation status (see Pri-clared true under penalties of perjury. This may vate Foundations and Public Charities in If your organization applies for recognition of be done by adding to the protest the following chapter 3).tax-exempt status and Rulings and Agreements signed declaration:determines your organization doesn't qualify for 2. In the case of a late-filed application, re-exemption, your organization will be advised of Page 8 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025questing relief under Regulations section its rights to protest the determination by re-301.9100 regarding applications for exten-questing Independent Office of Appeals consid-sions of time for making an election or ap-eration. Your organization must submit a state-plication for relief from tax (see Application ment of its views fully explaining its reasoning. for Recognition of Exemption in chapter 3). Publication 557 (1-2025) Chapter 1 Application, Approval, and Appeal Procedures 7

1. The timely submission of all additional in- qualification or classification as an exempt or- it has, you don't have to file a separate applica-
   formation requested to perfect an exemp- ganization. However, your exempt status claim tion unless your organization no longer wants to tion application or request for determina- must be as: be included in the group exemption letter. •tion of private foundation status. An organization qualifying under section If the group exemption letter doesn't cover 501(c) or 501(d) and exempt from tax un-4. Exhaustion of all administrative appeals your organization, ask your central organization der 501(a),available within the IRS. • about being included in the next annual group An organization to which a deduction for a ruling update that it submits to the IRS. contribution is allowed under section The actions just described won't be consid- 170(c)(2),ered completed until the IRS has had a reason- • See Publication 4573, Group Exemptions, An organization that is a private foundation able time to act upon the appeal or protest, as for additional general information about group under section 509(a),the case may be. • exemption. Go to the Charities & Nonprofits A private operating foundation under sec-An organization won't be considered to have page on IRS.gov for Group Exemption Resour- tion 4942(j)(3), or •exhausted its administrative remedies before ces for the most current information and up- A cooperative organization that is exempt the earlier of: dates. from tax under section 521.

2. The completion of the steps just listed and Central Organization Adverse notice of final determination. The the sending by certified or registered mail adverse notice of final determination referred to Application Procedureof a notice of final determination, or above is a determination letter sent by certified

3. The expiration of the 270-day period in or registered mail holding that your organiza- Note: The content about the Central Organ-which the IRS has not issued a notice of fi- tion: ization Application Procedure is included here •nal determination and the organization has Isn't described in section 501(c) or 501(d) for informational purposes. However, as stated taken, in a timely manner, all reasonable and exempt from tax under 501(a), or sec- in Notice 2020-36, IRB 2020-21, 840 and the steps to secure a ruling or determination. tion 170(c)(2); current year issued revenue procedures, the • Is a private foundation and not a public IRS is not accepting any requests for group ex-270-day period. The 270-day period will be charity described in a part of section 509 or emption letters until publication of the final reve-considered by the IRS to begin on the date a section 170(b)(1)(A); nue procedure described in the Notice or other •completed application, or group exemption re- Is not a private operating foundation, as guidance in the Internal Revenue Bulletin.quest is sent or submitted to the IRS. See Appli- defined in section 4942(j)(3); or •cation Procedures, earlier, for information nee- Is a public charity described in a part of ded to complete the application form. If your organization is a central organization section 509(a) or section 170(b)(1)(A)
   If the application doesn't contain all of the re- with affiliated subordinates under its control, it other than the part under which your or- quired items, it won't be further processed and can apply for a group exemption letter for its ganization requested classification. may be returned to the applicant for completion. subordinates, provided it has obtained recogni- The 270-day period, in this event, won't be con- Favorable court rulings - IRS procedure. If a tion of its own exemption. A central organization

sidered as starting until the date the application suit results in a final determination that your or- obtains recognition of its own exemption by is remailed to the IRS with the requested infor- ganization is exempt from tax, the IRS will issue submitting Form 1023 or 1023-EZ, 1024, or mation, or, if a postmark isn't evident, on the a favorable determination letter, provided your 1024-A, as described in their instructions, with date the IRS receives a completed application. organization has filed an application for exemp- the appropriate user fee. You request the group tion and submitted a statement that the underly- exemption letter for the central organization's Appeal to Courts ing facts and applicable law are the same as in subordinates by letter rather than a specific ap-

the period considered by the court. plication form. The issuance of the group ex- emption letter relieves each of the covered sub-If the IRS issues an unfavorable determination ordinates from filing its own application.Group Exemption Letterletter to your organization and you have exhaus-

ted all the administrative remedies just dis- A central organization that has previously cussed, your organization can seek judicial obtained recognition of its own exemption must A group exemption letter is a determination let-remedies. indicate its employer identification number and ter issued to a central organization recognizing the date of the letter recognizing its exemption, For example, if your organization has paid on a group basis the exemption under section but need not forward documents already sub-the tax resulting from the adverse determination 501(c) of subordinate organizations on whose mitted. However, if it has not already done so, and met all other statutory prerequisites, it can behalf the central organization has applied for the central organization must submit a copy of file suit for a refund in a U.S. District Court or the recognition of exemption. any amendment to its governing instruments or U.S. Court of Federal Claims. Or, if your organi- internal regulations as well as any information A central organization is an organization that zation elected not to pay the tax deficiency re- about changes in its character, purposes, or has one or more subordinates under its general sulting from the adverse determination and met method of operation. supervision or control. A subordinate organiza-all other statutory prerequisites, it can file suit tion is a chapter, local, post, or unit of a central for a redetermination of the tax deficiencies in

Employer identification number. Each sub-the United States Tax Court. For more informa-

ordinate must have its own EIN, even if it has no tion on these types of suits, get Publication 556, A subordinate organization may or may not employees. When submitting its group exemp-Examination of Returns, Appeal Rights, and be incorporated, but it must have an organizing tion application, the central organization must Claims for Refund.document and it must have its own taxpayer provide an EIN for each subordinate organiza-In certain situations, your organization can identification number (EIN). A subordinate that tion.file suit for a declaratory judgment in the U.S. is organized and operated in a foreign country District Court for the District of Columbia, the can't be included in a group exemption letter. A Information required for subordinate organ-U.S. Court of Federal Claims, or the U.S. Tax subordinate described in section 501(c)(3) can't izations. The exempt central organization re-

Court. This remedy is available if your organiza- be included in a group exemption letter if it is a quests the group ruling letter. The central or- tion received an adverse notice of final determi- private foundation described in section 509(a). ganization must submit information for nation, or if the IRS failed to make a timely de- subordinates it will include in the group exemp- If your organization is a subordinate control-termination on your initial or continuing tion letter. The information should be forwarded Page 9 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 led by a central organization (for example, a in a letter signed by a principal officer of the church, a veterans' organization, or a fraternal central organization setting forth or including as organization), you should check with the central attachments the following. organization to see if it has been issued a group

1. Information verifying that the subordinates:exemption letter that covers your organization. If
   8 Chapter 1 Application, Approval, and Appeal Procedures Publication 557 (1-2025)

2. Are affiliated with the central organiza- 9. For any school affiliated with a church, the of the subordinates included in the group
   tion at the close of its annual account- information to show that the provisions of exemption letter. ing period; Revenue Ruling 75-231, 1975-1 C.B. 158, 2. A separate list (that includes the names, have been met.b. Are subject to its general supervision mailing addresses, actual addresses if dif- or control; 10. A list of the names, mailing addresses, ac- ferent, and EINs of the affected subordi- tual addresses if different, and EINs of nates) for each of the three following cate-c. Are all eligible to qualify for exemption subordinates to be included in the group gories.under the same paragraph of section exemption letter. A current directory of 501(c), though not necessarily the a. Subordinates that have changed their subordinates may be furnished instead of paragraph under which the central or- names or addresses during the year. the list if it includes the required informa-ganization itself is exempt; tion and if the subordinates not to be inclu- b. Subordinates no longer to be included ded in the group exemption letter are iden-d. If described in section 501(c)(3), in the group exemption letter because tified.aren't private foundations; they no longer exist or have disaffili- ated from or withdrawn their authori-e. Are all on the same accounting period zation to the central organization. New 501(c)(3) organizations that want to be as the central organization if they are included. A new organization, described in to be included in group returns (de- c. Subordinates to be added to the section 501(c)(3), that wants to be included in a scribed later); and group exemption letter because they group exemption letter must submit its authori- are newly organized or affiliated or be- zation (as explained in item number 5, earlier, f. If described in section 501(c)(3), are cause they have recently authorized under Information required for subordinate or-organizations that have been formed the central organization to include ganizations) to the central organization before within the 15-month period preceding them. the end of the 15th month after it was formed in the date of submission of the group

order to satisfy the requirement of section exemption application if they are sub- An annotated directory of subordinates 508(a). The central organization must also in-ject to the requirements of section won't be accepted for this purpose. If there clude this subordinate in its next annual submis-508(a) and wish to be recognized as were none of the above changes, the cen- sion of information, as discussed later, under In-exempt from their dates of creation . If tral organization must submit a statement formation Required Annually.one or more of the subordinates to that effect.

haven't been organized within the 3. The same information about new subordi- Keeping the Group 15-month period, a group ruling may nates that was required in the initial appli-be issued if all subordinates are will- Exemption Letter in Force cation for group exemption. (This informa-ing to be recognized as exempt only tion is listed in items 1 through 10, under from the date of application. Information required for subordinate or- Continued effectiveness of a group exemption 2. A detailed description of the purposes and ganizations, earlier.) If a new subordinate letter is based on the following conditions.activities of the subordinates, including the doesn't differ in any material respects from

1. The continued existence of the central or-sources of receipts and the nature of ex- the subordinates included in the applica- penditures. tion for group exemption, however, a state- ment to this effect may be submitted in lieu 2. The continued qualification of the central 3. A sample copy of a uniform governing in- of detailed information. organization for exemption under section strument (such as articles of incorpora- 501(c).tion or articles of association) adopted by The organization should send this infor-the subordinates, or, in its absence, copies mation to: 3. The submission by the central organiza-of representative instruments. tion of the information regarding its subor- dinate organizations that is required annu-4. An affirmation to the effect that, to the best Internal Revenue Service Center ally (described under Information Required of the officer's knowledge, the purposes Ogden, UT 84201-0027 Annually).and activities of the subordinates are as

stated in (2) and (3), above. 4. The annual filing of an information return (Form 990, for example) by the central or-5. A statement that each of the subordinates Submitting the required information an- ganization, if required.has provided a written authorization to the nually doesn't relieve the central organ-central organization, signed by an author- ization or any of its subordinates of the In addition, a group exemption letter will not be ized officer of the subordinate, agreeing to duty to submit any other information that may be effective as to a particular subordinate if the be included in the group exemption (see required by an EO area manager to determine subordinate ceases to conform to the require-also New 501(c)(3) organizations that whether the conditions for continued exemption ments for inclusion in a group exemption letter want to be included, later in this section). are being met. and authorization for inclusion (see items 1 and

1. A list of subordinates to be included in the 5 in Information required for subordinate organi- As of 2019, the IRS will no longer send group exemption letter, to which the IRS zations, earlier), and the annual filing of any re- the List of Parent and Subsidiary Ac-has issued an outstanding determination quired information return for the subordinate. A counts to the central organizations.letter.central organization may file a group return for

some or all of its subordinates. If it does so, the 7. An affirmation to the effect that, to the best group return must be filed on Form 990 under a Events Causingof the officer's knowledge and belief, no separate EIN obtained exclusively for the pur- Loss of Group Exemptionsubordinate described in section 501(c)(3) pose of filing the group return. Form 990-EZ is a private foundation, as defined in sec-cannot be used for a group return.tion 509(a). A group exemption letter no longer has effect,

for either a particular subordinate or the group 8. For each subordinate that is a school Information Required Annuallyas a whole, when:claiming exemption under section 501(c)

(3), the information required by Revenue 1. The central organization notifies the IRS To maintain a group exemption letter, the central Ruling 75-50, 1975-2 C.B. 587 (as modi- that it is going out of existence; organization must submit annually, at least 90 fied by Rev. Proc. 71-447, 1971-2 C.B. 230 Page 10 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 days before the close of its annual accounting and Rev. Proc. 2019-22, 2019-2 I.R.B. 2. The central organization notifies the IRS, period, all of the following information.1260) these requirements are described in by its annual submission or otherwise, that chapter 3, under Private Schools. any of its subordinates will no longer fulfill 1. Information about all changes in the pur- poses, character, or method of operation

Publication 557 (1-2025) Chapter 1 Application, Approval, and Appeal Procedures 9!

TIP

CAUTION

Topicsthe conditions for continued effectiveness, Schedule M (Form 990) Schedule M (Form 990) Noncash

explained earlier, or

1. The IRS notifies the central organization or Schedule N (Form 990) Schedule N (Form 990) Liquidation, • Annual information returnsthe affected subordinate that the group ex- Termination, Dissolution, or • Unrelated business income tax returnemption letter will no longer have effect for Significant Disposition of Assets • Employment tax returnssome or all of the group because the con- • Schedule O (Form 990) Schedule O (Form 990) Supplemental Political organization income tax returnditions for continued effectiveness of a • Information to Form 990 Reporting requirements for a political group exemption letter haven't been fulfil- organizationled. 940 940 Employer's Annual Federal •Donee information return Unemployment (FUTA) Tax Return•When notice is given under any of these three Information provided to donors•conditions, the IRS will no longer recognize the Report of cash received Schedule R (Form 990) Schedule R (Form 990) Related •exempt status of the affected subordinates until Public inspection of exemption Organizations and Unrelated they file separate applications on their own be-applications, annual returns, and political Partnershipshalf or the central organization files complete organizations reporting forms• 990-PF 990-PF Return of Private Foundation or supporting information for their inclusion in the Required disclosures• Section 4947(a)(1) Nonexempt group exemption at the time of its annual sub-Miscellaneous rules Charitable Trust Treated as a Private mission. However, when the notice is given by Foundationthe IRS and the withdrawal of recognition is based on the failure of the organization to com- 990-N 990-N Electronic Notice (e-Postcard) for ply with the requirements for recognition of Tax-Exempt Organizations Not tax-exempt status under the particular subsec- Required to File Form 990 or Form Publicationtion of section 501(c), the revocation will ordina- 990-EZrily take effect as of the date of that failure. The 15 15 Circular E, Employer's Tax Guidenotice, however, will be given only after the ap- 990-T 990-T Exempt Organization Business 15-A 15-A Employer's Supplemental Tax Guidepeal procedures described earlier in this chap-

ter are completed. 15-B 15-B Employer's Tax Guide to Fringe Schedule A (Form 990-T) Schedule A (Form 990-T) Unrelated BenefitsIn addition, the IRS will cease to recognize Business Taxable Income from an the subordinates under a group exemption as Unrelated Trade or Business 598 598 Tax on Unrelated Business Income of tax-exempt if the central organization is auto- Exempt Organizations 990-W 990-W Estimated Tax on Unrelated matically revoked for failure to file required re- Business Taxable Income for turns or notices for 3 consecutive years. See Form (and Instructions) Tax-Exempt OrganizationsAutomatic Revocation, later. Subordinates un-

der a group exemption are also subject to auto- 941 941 Employer's Quarterly Federal Tax 1120-POL 1120-POL U.S. Income Tax Return for matic revocation for failure to file required re- Return Certain Political Organizationsturns (or appear on a group return if the 990 990 Return of Organization Exempt From subordinate does not file its own) or notices for 4720 4720 Return of Certain Excise Taxes Income Tax3 consecutive years. A subordinate organization Under Chapters 41 and 42 of the that is automatically revoked must apply to the Internal Revenue Code 990-EZ 990-EZ Short Form Return of IRS for reinstatement of its exempt status. Organization Exempt From Income 5768 5768 Election/Revocation of Election by Thereafter, it may retain independent exempt Tax an Eligible Section 501(c)(3) status or it may seek to resume its status as a Organization To Make Expenditures Schedule A (Form 990) Schedule A (Form 990) Public Charity subordinate of the central organization. See To Influence Legislation Status and Public SupportGroup Exemption Resources .

6069 6069 Return of Certain Excise Taxes on Schedule B (Form 990)Schedule B (Form 990) Schedule of Mine Operators, Black Lung Trusts, Contributors and Other Persons Under Sections Schedule C (Form 990)Schedule C (Form 990) Political 4951, 4952, and 4953 Campaign and Lobbying Activities2. 7004 7004 Application for Automatic Extension

Schedule D (Form 990) Schedule D (Form 990) Supplemental of Time to File Certain Business Financial Statements Income Tax, Information, and Other Returns Schedule E (Form 990) Schedule E (Form 990) SchoolsFiling

8274 8274 Certification by Churches and Schedule F (Form 990) Schedule F (Form 990) Statement of Qualified Church-Controlled Activities Outside the United StatesRequirements Organizations Electing Exemption

from Employer Social Security and Schedule G (Form 990)Schedule G (Form 990) Supplemental Medicare TaxesInformation Regarding Fundraising or and Required

Gaming Activities 8282 8282 Donee Information Return Schedule H (Form 990) Schedule H (Form 990) HospitalsDisclosures 8300 8300 Report of Cash Payments Over

$10,000 Received in a Trade or Schedule I (Form 990)Schedule I (Form 990) Grants and Other BusinessAssistance to Organizations, Governments, and Individuals in the 8453-X8453-X Political Organization Declaration United Statesfor Electronic Filing of Notice of Section 527 Status Schedule J (Form 990)Schedule J (Form 990) Compensation Most exempt organizations (including private Information 8822-B8822-B Change of Address or foundations) must file various returns and re-Page 11 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Responsible Party--Business Schedule K (Form 990)Schedule K (Form 990) Supplemental ports at some time during (or following the close Information on Tax-Exempt Bondsof) their accounting period. 88688868 Application for Automatic Extension Schedule L (Form 990)Schedule L (Form 990) Transactions of Time to File an Exempt With Interested PersonsOrganization Return

10 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2025)

•8870 Information Return for Transfers committee of a state or local candidate, a Its Internet website address (if any);•Associated with Certain Personal caucus or association of state or local offi-Its taxpayer identification number;•Benefits Contractscials, or required to report under the Fed-The name and address of a principal offi-

eral Election Campaign Act of 1971 as a cer;8871 Political Organization Notice of •political committee; Organization's annual tax period;Section 527 Status • Verification that the organization's annual 14.An exempt organization (other than a pri- 88728872 Political Organization Report of gross receipts are normally $50,000 or vate foundation or a supporting organiza-Contributions and Expenditures less; andtion described in Supporting Organization • Notification if the organization has termina- 8886-T8886-T Disclosure by Tax-Exempt Entity Annual Information Return, later) that nor- ted.Regarding Prohibited Tax Shelter mally has annual gross receipts of Transaction$50,000 or less (required to file Form Form 990-N is due by the 15th day of the 88998899 Notice of Income from Donated 990-N, Electronic Notice (e-Postcard) for fifth month after the close of the tax year. For tax Intellectual PropertyTax-Exempt Organizations Not Required years beginning after December 31, 2006, any to File Form 990 or Form 990-EZ); or 89768976 Notice of Intent to Operate Under organization that fails to meet its annual report-

Section 501(c)(4) ing requirement for 3 consecutive years will au- 15. A foreign organization, or an organization tomatically lose its tax-exempt status. To regain located in a U.S. territory, that normally See chapter 6 for information about getting its exempt status an organization will have to re- has annual gross receipts from sources these publications and forms. apply for recognition as a tax-exempt organiza- within the United States of $50,000 or tion. less.Annual Information

Exceptions. This filing requirement doesn't Supporting Organization Returnsapply to:Annual Information Return•Churches, their integrated auxiliaries, and

conventions or associations of churches;Every organization exempt from federal income •Organizations that are included in a group Each section 509(a)(3) supporting organization tax under section 501(a) must file an Annual return;is required to file Form 990 or 990-EZ with the Exempt Organization Return except:•Private foundations required to file Form IRS regardless of the organization's gross re-990-PF; and1. A church, an interchurch organization of ceipts, unless it qualifies as one of the following:•Section 509(a)(3) supporting organizations local units of a church, a convention or as-1. An integrated auxiliary of a church;required to file Form 990 or Form 990-EZ.sociation of churches;

1. The exclusively religious activities of a reli-2. An integrated auxiliary of a church; Forms 990 and 990-EZgious order; or3. A church-affiliated organization that is ex-
2. An organization, the gross receipts of clusively engaged in managing funds or Exempt organizations, other than private foun-which are normally not more than $5,000, maintaining retirement programs; dations, must file their annual information re-that supports a section 509(a)(3) religious turns on Form 990 or 990-EZ, unless excepted 4. A school below college level affiliated with order. from filing or allowed to submit Form 990-N, de-a church or operated by a religious order; scribed earlier.If the organization is described in item (3) 5. Church-affiliated mission societies if more above, then it must submit Form 990-N (e-Post-than half of their activities are conducted Generally, political organizations with gross card) unless it voluntarily files Form 990 or in, or are directed at persons in, foreign receipts of $25,000 ($100,000 for a qualified 990-EZ.countries; state or local political organization (QSLPO)) or more for the tax year are required to file Form On its annual information return, in Part I, 6. An exclusively religious activity of any reli-990 or 990-EZ unless specifically excepted Schedule A (Form 990) a supporting organiza-gious order;from filing the annual return. The following politi-tion must:7. A state institution, the income of which is •cal organizations aren't required to file Form List the organizations to which it provides excluded from gross income under section 990 or Form 990-EZ.support;•115;• A state or local committee of a political Indicate whether it is a Type I, Type II, or party.Type III supporting organization; and8. A corporation described in section 501(c)•• A political committee of a state or local Certify that the organization isn't controlled (1) that is organized under an Act of Con- candidate.directly or indirectly by disqualified persons gress, an instrumentality of the United • A caucus or association of state or local of-(other than by foundation managers and States, and is exempt from federal income ficials.other than one or more publicly supported taxes;• A political organization that is required to organizations).9. A stock bonus, pension, or profit-sharing report as a political committee under the trust that qualifies under section 401 (re- Federal Election Campaign Act.Annual Electronic Notice Filing quired to file Form 5500, Annual Return/• A 501(c) organization that has expendi-Requirement for Small Tax-Exempt Report of Employee Benefit Plan); tures for influencing or attempting to influ-

ence the selection, nomination, election, or 10.A religious or apostolic organization de- appointment of any individual for a federal, scribed in section 501(d) (required to file Small tax-exempt organizations with annual state, or local public office.Form 1065, U.S. Return of Partnership In-gross receipts normally $50,000 or less that are come);not otherwise required to file an annual informa-Form 990-EZ. This is a shortened version of tion return and are not otherwise exempted en-11.A governmental unit or an affiliate of a gov-Form 990. Form 990-EZ is designed for use by tirely from a filing requirement must submit ernmental unit that meets the require-small exempt organizations and nonexempt Form 990-N, Electronic Notice (e-Postcard) for ments of Rev. Proc. 95-48, 1995-2 C.B. charitable trusts.Tax-Exempt Organizations Not Required to File 418, IRS.gov/pub/irs-tege/rp1995-48.pdf ;An organization can file either Form 990 or Form 990 or 990-EZ, with the IRS each year, if 990-EZ if it satisfies both of the following:12.A private foundation described in section they choose not to file a Form 990 or 990-EZ. 501(c)(3) and exempt under section Page 12 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-20251. Its gross receipts during the year are less Form 990-N requires the following information:501(a) (required to file Form 990-PF, Re-•than $200,000.The organization's legal name, and mailing turn of Private Foundation);address;•13.A political organization that is a state or lo-Any name under which it operates and

cal committee of a political party, a political does business;

Publication 557 (1-2025) Chapter 2 Filing Requirements and Required Disclosures 11

1. Its total assets (line 25, column (B) of electronically, including Form 990, 990-EZ, legal holiday, the return will be due the next Form 990-EZ) at the end of the year are 990-PF, 8872, and 990-T. The e-filing require- business day. less than $500,000. ment is generally effective for tax years begin-

Extension of time to file. Use Form 8868 to ning after July 1, 2019. The Taxpayer First Act If your organization doesn't satisfy both of these request an automatic six month extension of allows transitional relief for certain small organi-conditions, it can't file Form 990-EZ. Instead, time to file Forms 990, 990-EZ, or 990-PF.zations or other organizations for which the IRS the organization must file Form 990.determines that application of the e-filing re-When filing Form 8868 for an automatic ex-

quirement would constitute an undue hardship tension, neither a signature, nor an explanation Group return. A group return on Form 990 in the absence of additional transitional time. is required.may be filed by a central, parent, or like organi- zation for two or more local organizations, none Application for exemption pending. An or-of which is a private foundation. This return is in If an organization is required to file a return ganization that claims to be exempt under sec-addition to the central organization's separate electronically but doesn't, it isn't considered to tion 501(a) but has not established its exempt annual return if it must file a return. The central have filed its return. See Regulations section status by the due date for filing an information organization can't be included in the group re-301.6033-4 for more information. return must complete and file Form 990, turn. See the Instructions for Form 990 for the Form 990. For tax years beginning on or 990-EZ, 990-N, or 990-PF (if it considers itself a conditions under which this procedure may be before July 1, 2019, an organization is required private foundation), unless the organization is used.to file Form 990 electronically if it files at least exempt from Form 990-series filing require-

250 returns during the calendar year and has In any year that an organization is prop- ments. If the organization's application is pend-

total assets of $10 million or more at the end of erly included as a subordinate organi- ing with the IRS, it must so indicate on Forms

the tax year. For tax years beginning after July zation on a group return, it shouldn't file 990, 990-EZ, or 990-PF (whichever applies) by

1, 2019, an organization is required to file Form its own Form 990. checking the application pending block at the

990 electronically unless exceptions described top of page 1 of the return. For more information in the form instructions apply. As of the 2020 on the filing requirements, see the Instructions Schedule A (Form 990). Organizations, other Form 990, the instructions no longer describe for Forms 990, 990-EZ, and 990-PF.than private foundations, that are described in any exceptions to the e-filing requirement.section 501(c)(3) and that are otherwise re- State reporting requirements. Copies of quired to file Form 990 or 990-EZ must also Form 990-EZ. For small exempt organiza- Forms 990, 990-EZ, or 990-PF may be used to complete Schedule A of that form.tions, the legislation specifically allowed a post- satisfy state reporting requirements. See the in-ponement ("transitional relief"). For tax years structions for those forms.Schedule B (Form 990). Organizations that ending before July 31, 2021, the IRS will accept file Form 990, 990-EZ or 990-PF use this either paper or electronic filing of Form 990-EZ, Form 8870. Organizations that filed a Form schedule to provide required information re-Short Form Return of Organization Exempt from 990, 990-EZ, or 990-PF, and paid premiums or garding certain contributors.Income Tax. For tax years ending July 31, 2021, received transfers on certain life insurance, an-and later, Forms 990-EZ must be filed electroni- nuity, and endowment contracts (personal ben-Schedule O (Form 990). Organizations that cally. Generally, Form 990-EZ is for organiza- efit contracts), must file Form 8870. For more in-file Form 990 or 990-EZ, must use this schedule tions with annual gross receipts less than formation, see Form 8870 and the instructions to provide required additional information or if $200,000 and total assets at tax year-end less for that form.additional space is needed.than $500,000.Other schedules may be required to be filed Form 8822-B. If you moved during the year, fill with Form 990 or 990-EZ. See the Instructions Form 990-PF. For tax years beginning on or out Form 8822-B, Change of Address or Re-for Form 990 or the Instructions for Form before July 1, 2019, an organization is required sponsible Party-Business. Also, if your "Re-990-EZ for more information.to file Form 990-PF electronically if it files at sponsible Party" changed this year, you must least 250 returns during the calendar year. For also fill out Form 8822-B. The "Responsible tax years beginning after July 1, 2019, an or-Report significant new or changed program Party" is the tax-exempt organization's "Princi-ganization is required to file Form 990-PF elec-services and changes to organizational pal Officer,"as defined in the Form 990 instruc-documents. An organization should report tronically unless exceptions described in the tions, in the Glossary section.new significant program services or significant form instructions apply. As of the 2020 Form

changes in how it conducts program services, 990-PF, the instructions no longer describe any Automatic Revocationand significant changes to its organizational exceptions to the e-filing requirement.

documents, on its Form 990 rather than in a let- Form 990-N. An organization that is eligible ter to EO Determinations. EO Determinations If the organization fails to file a Form 990, and elects to submit Form 990-N must submit it no longer issues letters confirming the tax-ex- 990-EZ, or 990-PF, or fails to submit a Form electronically.empt status of organizations that report new 990-N, as required, for 3 consecutive years, it services or significant changes, or changes to will automatically lose its tax-exempt status by Form 990-T. The IRS continued to accept organizational documents. See Miscellaneous operation of law effective as of the due date for paper forms Form 990-T into 2021 pending its the third missed return or notice. The list of or-Rules, Organization Changes and Exempt Sta- conversion into electronic format. In March tus, later. ganizations whose tax-exempt status has been 2020, the IRS announced the availability of the automatically revoked is available on IRS.gov. electronic filing of Form 990-T. Any 2020, and This list (Auto-Revocation List) may be viewed Form 990-PF any future year Form 990-T with a due date on and searched on Tax-Exempt Organization or after April 15, 2021, must be filed electroni- Search. The Auto-Revocation List includes cally and not on paper.All private foundations exempt under section each organization's name, employer identifica-501(c)(3) must file Form 990-PF. These organi- Form 8872. Form 8872 must be filed elec- tion number (EIN), and last known address. It zations are discussed in chapter 3. tronically if reporting on periods after 2019. also includes the effective date of the automatic

revocation and the date it was posted to the list. Electronic FilingFor auto-revoked organizations that applied for Due Date

and received reinstatement, the list gives the date of reinstatement. The IRS updates the list For tax years beginning on or before July 1, Forms 990, 990-EZ, or 990-PF must be filed by monthly to include additional organizations that 2019, your organization may be required to file the 15th day of the fifth month after the end of lose their tax-exempt status.Page 13 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Form 990, Form 990-EZ, or Form 990-PF, and your organization's accounting period. Thus, for related forms, schedules, and attachments a calendar year taxpayer, Forms 990, 990-EZ, electronically. For tax years beginning after July or 990-PF are due May 15 of the following year. 1, 2019, under the Taxpayer First Act, organiza-If any due date falls on a Saturday, Sunday, or tions are required to file certain returns

12 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2025)

TIP

Tax Effect of Loss of Tax-Exempt returns required to be filed after December 31, for more details. See also Small Business Status 2014. Health Care Tax Credit.

Exception for reasonable cause. No pen- Trust fund recovery penalty. If any person re-If your organization's tax-exempt status is auto-alty will be imposed if reasonable cause for fail- quired to collect, truthfully account for, and pay matically revoked, you may be required to file ure to file timely can be shown. over any of these taxes willfully fails to satisfy one of the following federal income tax returns any of these requirements or willfully tries in any and pay any applicable income taxes:Unrelated Business way to evade or defeat any of them, that person •Form 1120, U.S. Corporation Income Tax will be subject to a penalty. The penalty is equal Return, due by the 15th day of the 3rd to the tax evaded, not collected, or not accoun-month after the end of your organization's ted for and paid over. The term person includes:tax year, or • An officer or employee of a corporation, or•Form 1041, U.S. Income Tax Return for Es-Even though your organization is recognized as • A member or employee of a partnership.tates and Trusts, due by the 15th day of the tax exempt, it still may be liable for tax on its un-4th month after the end of your organiza-related business income. Unrelated business Exception. The penalty isn't imposed on tion's tax year.income is income from a trade or business, reg- any unpaid volunteer director or member of a

ularly carried on, that isn't substantially related board of trustees of an exempt organization if In addition, a section 501(c)(3) organization to the charitable, educational, or other purpose the unpaid volunteer serves solely in an hono-that loses its tax-exempt status can't receive that is the basis for the organization's exemp- rary capacity, doesn't participate in the tax-deductible contributions and won't be identi-tion. day-to-day or financial operations of the organi-fied in the IRS Business Master File extract as zation, and doesn't have actual knowledge of If your organization has gross income of eligible to receive tax-deductible contributions, the failure on which the penalty is imposed.$1,000 or more from a regularly conducted un-or be included in Tax-Exempt Organization This exception doesn't apply if it results in no related trade or business, you must file Form Search (Pub. 78 database). one being liable for the penalty.990-T in addition to your required annual infor- mation return or notice. The form instructions An organization whose exemption was auto- Certification Program for Professional Em-and IRS.gov should be consulted for electronic matically revoked must apply for tax exemption ployer Organizations (CPEOs). The Tax In-

filing guidance. For tax years beginning after in order to regain its tax exemption (even if it crease Prevention Act of 2014, enacted Dec. December 31, 2017, an organization with more wasn't originally required to apply). In some sit- 19, 2014, requires the IRS to establish a volun- than one unrelated trade or business must com-uations, an organization may be able to obtain tary certification program for professional em- pute its UBTI (unrelated business taxable in-exemption retroactive to its date of revocation. ployer organizations (PEOs). PEOs handle vari- come), including for purposes of determining Similarly, if the central organization with a Group ous payroll administration and tax reporting any net operating loss deduction, separately Exemption Number is automatically revoked, all responsibilities for their business clients and are with respect to each such trade or business. Or-its covered subsidiaries may need to apply for typically paid a fee based on payroll costs. For ganizations complete a separate Schedule A exemption as independent organizations. further information, go to: IRS.gov/for-tax-pros/ (Form 990-T) to calculate UBTI for each of its basic-tools/certified-professional-employer-trades or businesses.For more information about automatic revo-

cation, go to IRS.gov and select Charities & Estimated tax. An organization that ex- FICA and FUTA tax exceptions. Payments for Non-Profits and then select Reinstated? Learn pects to owe $500 or more in tax (including tax services performed by a minister of a church in more with Reinstate Tax-Exempt Status. on unrelated business income) is required to the exercise of the ministry, or a member of a re- make quarterly estimated tax payments. Use ligious order performing duties required by the Penalties Form 990-W to figure your organization's esti- order, are generally not subject to FICA or FUTA mated tax payments. Failure to make appropri- taxes.Penalties for failure to file. Generally, an ex- ate quarterly estimated tax payments may result

empt organization that fails to file a required re- in an underpayment penalty. FUTA tax exception. Payments for serv-turn must pay a penalty of $20 a day for each ices performed by an employee of a religious, See Publication 598, Tax on Unrelated Busi-day the failure continues. The same penalty will charitable, educational, or other organization ness Income of Exempt Organizations for more apply if the organization doesn't give all the in- described in section 501(c)(3) that are generally information on UBTI.formation required on the return or doesn't give subject to FICA taxes if the payments are $100 the correct information. or more for the year, aren't subject to FUTA Employment taxes. However, a section 501(c)(3) organiza-Maximum penalty. The maximum penalty tion is liable for FUTA tax when paying wages for any one return is the smaller of $10,000 or Tax Returns for employees on behalf of others, examples in-5% of the organization's gross receipts for the clude but are not limited to related non-section year. 501(c)(3) organizations, fiscal agents such as Every employer, including an organization ex- IRC 3504, common paymaster, etc.Organization with gross receipts over $1 empt from federal income tax that pays wages million. For an organization that has gross re- to employees is responsible for withholding, de- FICA tax exemption election. Churches ceipts of over $1 million for the year, the penalty positing, paying, and reporting federal income and qualified church-controlled organizations is $100 a day up to a maximum of $50,000. tax, social security and Medicare (FICA) taxes, can elect exemption from employer FICA taxes

and federal unemployment tax (FUTA), unless by filing Form 8274.Managers. If the organization is subject to that employer is specifically excepted by law To elect the exemption, Form 8274 must be this penalty, the IRS may specify a date by from those requirements, or if the taxes clearly filed before the first date on which a quarterly which the return or correct information must be don't apply. employment tax return would otherwise be due supplied by the organization. Failure to comply from the electing organization. The organization with this demand will result in a penalty im-For more information, obtain a copy of Publi- can make the election only if it is opposed for posed upon the manager of the organization, or cation 15, which summarizes the responsibili- religious reasons to the payment of FICA taxes.upon any other person responsible for filing a ties of an employer, Publication 15-A, Publica- The election applies to payments for serv-correct return. The penalty is $10 a day for each tion 15-B, and Form 941. ices of current and future employees other than day that a return isn't filed after the period given services performed in an unrelated trade or for filing. The maximum penalty imposed on all Page 14 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Small Business Health Care Tax Credit. If business.persons with respect to any one return is your small tax-exempt organization provides $5,000. Revoking the election. The election can health care coverage for your workers you may

be revoked by the IRS if the organization fails to Penalties indexed for inflation. These qualify for the small business health care tax file Form W-2, Wage and Tax Statement, for 2 penalty provisions are indexed for inflation for credit. Go to Affordable Care Act Tax Provisions

Publication 557 (1-2025) Chapter 2 Filing Requirements and Required Disclosures 13

years and fails to furnish certain information Exempt function. An exempt function Extension of time to file. Use Form 7004 to

upon request by the IRS. Such revocation will means influencing or attempting to influence the request an automatic extension of time to file apply retroactively to the beginning of the 2-year selection, nomination, election, or appointment Form 1120-POL. The extension will be granted period. of any individual to any federal, state, local pub- if you complete Form 7004 properly, make a lic office or office in a political organization, or proper estimate of the tax (if applicable), file Definitions. For purposes of this election, the election of the Presidential or Vice Presi- Form 1120-POL by the due date, and pay any the term church means a church, a convention dential electors, whether or not such individual tax due.or association of churches, or an elementary or or electors are selected, nominated, elected, or secondary school that is controlled, operated, Failure to file. A political organization that appointed. It also includes certain office expen-or principally supported by a church or by a fails to file Form 1120-POL is subject to a pen- ses of a holder of public office or an office in a convention or association of churches. alty equal to 5% of the tax due for each month political organization.The term qualified church-controlled organi- (or partial month) the return is late up to a maxi-

zation means any church-controlled section mum of 25% of the tax due, unless the organi- Certain political organizations are re-

501(c)(3) tax-exempt organization, other than zation shows the failure was due to reasonable quired to notify the IRS that they are

an organization that both: cause. section 527 organizations. These or- ganizations must use Form 8871. Some of 1. Offers goods, services, or facilities for For more information about filing Form these section 527 organizations must use Form sale, other than on an incidental basis, to 1120-POL, refer to the instructions accompany- 8872 to file periodic reports with the IRS dis- the general public at other than a nominal ing the form. closing their contributions and expenditures. For charge that is substantially less than the a discussion on these forms, see Reporting Re- Failure to pay on time. An organization cost of providing such goods, services, or quirements for a Political Organization, later. that doesn't pay the tax when due generally facilities; and may have to pay a penalty of 1/2 of 1% of the

1. Normally receives more than 25% of its Political organization taxable income. unpaid tax for each month or part of a month Political organization taxable income is the ex-support from the sum of governmental the tax isn't paid, up to a maximum of 25% of cess of:sources and receipts from admissions, the unpaid tax. The penalty won't be imposed if
   sales of merchandise, performance of the organization can show that the failure to pay 1. Gross income for the tax year (excluding services, or furnishing of facilities, in activi- on time was due to reasonable cause. exempt function income) minusties that aren't unrelated trades or busi-

2. Deductions directly connected with the nesses. Reporting Requirements earning of gross income.Effect on employees. If a church or quali- for a Political To figure taxable income, allow for a $100 spe-fied church-controlled organization has made
   cific deduction, but don't allow for the net oper-an election, payment for services performed for ating loss deduction, the dividends-received de-that church or organization, other than in an un- duction, and other special deductions for related trade or business, won't be subject to corporations.FICA taxes. However, the employee, unless oth- Certain political organizations are required to erwise exempt, will be subject to self-employ- notify the IRS that the organization is to be trea- ment tax on the income. The tax applies to in-Exempt organization not a political organi- ted as a section 527 political organization. The zation. An organization exempt under section come of $108.28 or more for the tax year from organization is also required to periodically re-501(c) that spends any amount for an exempt that church or organization, and no deductions port certain contributions received and expendi-function must file Form 1120-POL for any year for trade or business expenses are allowed tures made by the organization. To notify the in which it has political taxable income. These against this self-employment income. IRS of section 527 treatment, an organization organizations must include in gross income the Schedule SE (Form 1040), Self-Employment must file Form 8871. To report contributions and lesser of:Tax, should be attached to the employee's in- expenditures, certain tax-exempt political or-

come tax return. ganizations must file Form 8872. 1. The total amount of its exempt function ex- penditures, or Form 8871Political Organization 2. The organization's net investment income.

Separate fund. A section 501(c) organiza- A political organization must electronically file tion can set up a separate segregated fund that Form 8871 to notify the IRS that it is to be trea- will be treated as an independent political or- ted as a section 527 organization. However, an Generally, a political organization is treated as ganization. The earnings and expenditures organization isn't required to file Form 8871 if:an organization exempt from tax. Certain politi- •made by the separate fund won't be attributed It reasonably expects its annual gross re-cal organizations, however, must file an annual to the section 501(c) organization. ceipts to always be less than $25,000.income tax return, Form 1120-POL, U.S. In- • It is a political committee required to report come Tax Return for Certain Political Organiza- Section 501(c)(3) organizations are under the Federal Election Campaign Act tions, for any year they have political organiza- precluded from, and may suffer loss of of 1971 (FECA) (52 U.S.C. section 30101 tion taxable income in excess of the $100 exemption for, engaging in any political et seq.).specific deduction allowed under section 527.campaign on behalf of, or in opposition to, any • It is a state or local candidate committee.candidate for public office. •A political organization that has It is a state or local committee of a political $25,000 ($100,000 for a qualified state party.Due date. Form 1120-POL is due by the 15th or local political organization) or more All other political organizations are required to day of the 4th month after the end of the tax in gross receipts for the tax year must file Form file Form 8871.year. Thus, for a calendar year taxpayer, Form 990 or Form 990-EZ (and Schedule B of the

1120-POL is due on April 15 of the following form), unless excepted. See Forms 990 and An organization must provide on Form 8871:year. If any due date falls on a Saturday, Sun-990-EZ, earlier. 1. Its name and address (including any busi-day, or legal holiday, the organization can file ness address, if different) and its elec-the return on the next business day.Political organization. A political organization tronic mailing address;is a party, committee, association, fund, or other Form 1120-POL is not required of an 2. Its purpose;organization (whether or not incorporated) or-Page 15 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 exempt organization that makes expen-ganized and operated primarily for the purpose ditures for political purposes if its gross 3. The names and addresses of its officers, of directly or indirectly accepting contributions income doesn't exceed its directly connected highly compensated employees, contact or making expenditures, or both, for an exempt deductions by more than $100 for the tax year. person, custodian of records, and function. members of its board of directors; 14 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2025)!!

TIPTIP

CAUTIONCAUTION

1. The name and address of, and relation- $10,000 ($50,000 in the case of a corporation) Due dates. The due dates for filing Form 8872 ship to, any related entities (within the or imprisoned for not more than 1 year or both. vary depending on whether the form is due for a meaning of section 168(h)(4)); and reporting period that occurs during a calendar Waiver of penalties. The IRS may waive year in which a regularly scheduled election is 5. Whether it intends to claim an exemption any additional tax assessed on an organization held, or any other calendar year (a nonelection from filing Form 8872, Form 990, or Form for failure to file Form 8871 if the failure was due year).990-EZ. to reasonable cause and not willful neglect. If the due date falls on a Saturday, Sunday, or legal holiday, the organization can file on the Employer identification number. If your Additional information. For more information next business day.organization needs an EIN, you can apply for on Form 8871, see the form and its instructions. one online. Click on the Employer ID Numbers For a discussion on the public inspection re- Election year filing. In election years, Form (EINs) link at IRS.gov/businesses/small. quirements for the form, see Public Inspection 8872 must be filed on either a quarterly or a If you previously applied for an EIN and of Exemption Applications, Annual Returns, and monthly basis. Both a pre-election report and a haven't yet received it, or you are unsure Political Organization Reporting Forms, later. post-election report are also required to be filed whether you have an EIN, please call our

in an election year. An election year is any year toll-free customer account services number, Form 8872in which a regularly scheduled general election 1-877-829-5500, for assistance.

for federal office is held (an even-numbered Every tax-exempt section 527 political organiza-year).Due dates. The initial Form 8871 must be filed

tion that accepts a contribution or makes an ex-within 24 hours of the date on which the organi-

Nonelection year filing. In nonelection years, penditure, for an exempt function during the cal-zation was established. If there is a material

the form must be filed on a semiannual or endar year, must file Form 8872 except:change, an amended Form 8871 must be filed •monthly basis. A complete listing of these filing A political organization that isn't required to within 30 days of the material change. When the periods are in the Form 8872 instructions. A file Form 8871 (discussed earlier).organization terminates its existence, it must file •nonelection year is any odd-numbered year.A political organization that is subject to tax a final Form 8871 within 30 days of termination.

on its income because it didn't file or If the due date falls on a Saturday, Sunday, How to file. An organization must file Form amend Form 8871.or legal holiday, the organization can file on the • 8872 electronically if reporting on periods after A qualified state or local political organiza-next business day. 2019. For reporting on periods before 2020, tion (QSLPO), discussed below.How to file. An organization must file Form Form 8872 can be filed either electronically or All other tax-exempt section 527 organizations 8871 electronically via the IRS Internet website by mail, but organizations that have, or expect that accept contributions or make expenditures at IRS.gov/polorgs. to have, contributions or expenditures of for an exempt function are required to file Form $50,000 or more for the year are required to file 8872.Form 8453-X, Political Organization Decla- electronically. ration for Electronic Filing of Notice of Sec-Qualified state or local political organi- Electronic filing. File electronically via the tion 527 Status. After electronically submitting zation. A state or local political organization IRS internet website at IRS.gov/polorgs. You will the initial Form 8871, the political organization may be a QSLPO if: need a user ID and password to electronically must print, sign, and mail Form 8453-X to the

file Form 8872. Organizations that have comple-1. All of its political activities relate solely to IRS. Upon receipt of the Form 8453-X, the IRS ted the electronic filing of Form 8871 and sub-state or local public office (or office in a will send the organization a username and mitted a completed and signed Form 8453-X state or local political organization).password that must be used to file an amended will receive a username and password in the or final Form 8871 or to electronically file Form 2. It is subject to a state law that requires it to mail.8872.report (and it does report) to a state Organizations that have completed the elec-agency information about contributions tronic filing of Form 8871, but haven't received Penaltiesand expenditures that is similar to the in-their user ID and password can request one by formation that the organization would oth-writing to the following address:Failure to file. An organization that is re-erwise be required to report to the IRS.quired to file Form 8871, but fails to do so on a

Internal Revenue Service3. The state agency and the organization timely basis, won't be treated as a tax-exempt Attn: Request for 8872 Passwordmake the reports publicly available.section 527 organization for any period before Mail Stop 6273the date Form 8871 is filed. Also, the taxable in-4. No federal candidate or office holder:Ogden, UT 84201come of the organization for that period will in-

1. Controls or materially participates in clude its exempt function income (including
   the direction of the organization,contributions received, membership dues, and Lost username and password. If you political fundraising receipts) minus any deduc- have forgotten or misplaced the username and b. Solicits contributions for the organiza-tions directly connected with the production of password issued to your organization after you tion, orthat income. filed your initial Form 8871, send a letter re-

2. Directs the disbursements of the or-Failure to file an amended Form 8871 will questing a new username and password to the
   cause the organization to not be treated as a address under Electronic filing. You can also fax tax-exempt section 527 organization. If an or- your request to (801) 620-3249. It may take 3-6 Information required on Form 8872. If an or-ganization is treated as not being a tax-exempt weeks for your new username and password to ganization pays an individual $500 or more for section 527 organization, the taxable income of arrive, as they will be mailed to the organization.

the calendar year, the organization is required the organization will be determined by consider- to disclose the individual's name, address, oc-ing any exempt function income and deductions Penaltycupation, employer, amount of the expense, the during the period beginning on the date of the

date the expense was paid, and the purpose of material change and ending on the date that the A penalty will be imposed if the organization is the expense on Form 8872.amended Form 8871 is filed. required to file Form 8872 and it:If an organization receives contributions of The tax is computed by multiplying the or- • Fails to file the form by the due date, or$200 or more from one contributor for the calen-ganization's taxable income by the highest cor- • Files the form but fails to report all of the in-dar year, the organization must disclose the do-porate tax rate. formation required or reports incorrect in-nor's name, address, occupation, employer, Page 16 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Fraudulent returns. Any individual or cor-and the date the contributions were made.poration that willfully delivers or discloses to the For additional information that is required, IRS any list, return, account, statement or other The penalty is 21% for tax years beginning see Form 8872.document known to be fraudulent or false as to after December 31, 2017 (35% for tax years be- any material matter will be fined not more than ginning before December 31 2017), of the total

Publication 557 (1-2025) Chapter 2 Filing Requirements and Required Disclosures 15

amount of contributions and expenditures to property. For more information, get Publication payment isn't more than $75, a written state- which a failure relates. 561, Determining the Value of Donated Prop- ment must be filed because the total payment is erty. more than $75. If your organization fails to dis-Fraudulent returns. Any individual or cor- close quid pro quo contributions, the organiza-poration that willfully delivers or discloses any Form 8283. For noncash donations over tion may be subject to a penalty.list, return, account, statement, or other docu- $5,000, the donor must attach Form 8283 to the ment known to be fraudulent or false as to any tax return to support the charitable deduction. Disclosure statement. The required written material matter will be fined not more than The donee must sign Part IV of Section B, Form disclosure statement must:$10,000 ($50,000 in the case of a corporation), 8283 unless publicly traded securities are don-

1. Inform the donor that the amount of the or imprisoned for not more than 1 year, or both.ated. The person who signs for the donee must contribution that is deductible for federal be an official authorized to sign the donee's tax Waiver of penalties. The IRS may waive income tax purposes is limited to the ex-or information returns, or a person specifically any additional tax assessed on an organization cess of any money (and the value of any authorized to sign by that official. The signature for failure to file Form 8872 if the failure was due property other than money) contributed by doesn't represent concurrence in the appraised to reasonable cause and not willful neglect.the donor over the fair market value of value of the contributed property. A signed ac- goods or services provided by the charity, knowledgment represents receipt of the prop-Donee Information anderty described on Form 8283 on the date speci-

fied on the form. The signature also indicates 2. Provide the donor with a good faith esti-Returnknowledge of the information reporting require- mate of the fair market value of the goods ments on dispositions, as previously discussed. or services that the donor received.A copy of Form 8283 must be given to the do-Dispositions of donated property. If an or- The charity must furnish the statement in con-nee.ganization receives charitable deduction prop- nection with either the solicitation or the receipt erty and within 3 years sells, exchanges, or oth- of the quid pro quo contribution. If the disclo-Information Provided to erwise disposes of the property, the sure statement is furnished in connection with a organization must file Form 8282, Donee Donors particular solicitation, it isn't necessary for the Information Return. However, an organization organization to provide another statement when isn't required to file Form 8282 if: it actually receives the contribution.•The property is valued at $500 or less, orIn some situations, a donor must obtain certain No disclosure statement is required if any of •The property is consumed or distributed for information from a donee organization to obtain the following are true.charitable purposes.a deduction for a charitable contribution. In 1. The goods or services given to a donor other situations, the donee organization is re-Form 8282 must be filed with the IRS within have insubstantial value, as described in quired to provide information to the donor.125 days after the disposition. Additionally, a Rev. Proc. 90-12, 1990-1 C.B. 471, Rev. copy of Form 8282 must be given to the donor. Proc. 90-12, and Rev. Proc. 92-49, 1992-1 A charitable organization must give a donor If the organization fails to file the required infor- C.B. 507 (as adjusted for inflation), Rev. a disclosure statement for a quid pro quo contri-mation return, penalties may apply. Proc. 92-49.bution over $75. (See Disclosure statement.,

Charitable deduction property. This is later) This is a payment a donor makes to a 2. There is no donative element involved in a any property (other than money or publicly tra- charity partly as a contribution and partly for particular transaction with a charity (for ex-ded securities) for which the donee organization goods or services. See Quid pro quo contribu- ample, there is generally no donative ele-signed an appraisal summary or Form 8283, tion below for an example. ment involved in a visitor's purchase from Noncash Charitable Contributions. a museum gift shop). Failure to make the required disclosure may

Publicly traded securities. These are se- result in a penalty to the organization. A donor 3. There is only an intangible religious benefit curities for which market quotations are readily can't deduct a charitable contribution of $250 or provided to the donor. The intangible reli-available on an established securities market as more unless the donor has a written acknowl- gious benefit must be provided to the do-of the date of the contribution. edgment from the charitable organization. nor by an organization organized exclu- sively for religious purposes, and must be In certain circumstances, an organization Appraisal summary. If the value of the don- of a type that generally isn't sold in a com- may be able to meet both of these requirements ated property exceeds $5,000, the donor must mercial transaction outside the donative with the same written document.get a qualified appraisal for contributions of context. For example, a donor who, for a property, see Exceptions, below. payment, is granted admission to a reli- Disclosure of gious ceremony for which there is no ad-Exceptions. A written appraisal isn't need- Quid Pro Quo Contributions mission charge is provided an intangible ed if the property is:• religious benefit. A donor isn't provided in-Nonpublicly traded stock of $10,000 or tangible religious benefits for payments less; A charitable organization must provide a written • made for tuition for education leading to a A vehicle (including a car, boat, or air- disclosure statement to donors of a quid pro recognized degree, travel services, or con-plane), if your deduction for the vehicle is quo contribution over $75. sumer goods.limited to the gross proceeds from its sale;•Intellectual property; Quid pro quo contribution. A contribution 4. The donor makes a payment of $75 or less •Certain securities considered to have mar- made by a donor in exchange for goods or serv- per year and receives only annual mem-ket quotations readily available (see Regu- ices is known as a quid pro quo contribution. bership benefits that consist of:lations section 1.170A-13(c)(7)(xi)(B)); Your charitable organization must provide the • a. Any rights or privileges (other than the Inventory and other property donated by a donor a written statement informing the donor of right to purchase tickets for college corporation that are qualified contributions the fair market value of the items or services it athletic events) that the taxpayer can for the care of the ill, the needy, or infants, provided in exchange for the contribution. Gen- exercise often during the membership within the meaning of section 170(e)(3)(A), erally, a written statement is required for each period, such as free or discounted ad-or payment, whenever the contribution portion is • missions or parking or preferred ac-Any donation of stock in trade, inventory, or over $75. cess to goods or services; orproperty held primarily for sale to custom-Page 17 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 Example. If a donor gives your charity $100 ers in the ordinary course of your trade or b. Admission to events that are open and receives a concert ticket valued at $40, the business. only to members and the cost per per- donor has made a quid pro quo contribution. In son of which is within the limits for The donee organization isn't a qualified ap- this example, the charitable part of the payment low-cost articles described in Rev. praiser for the purpose of valuing the donated is $60. Even though the deductible part of the 16 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2025)

Proc. 90-12 (as adjusted for inflation), the organization (according to the donor's in- acknowledgment to the donor. The organization

Rev. Proc. 90-12. structions or otherwise) distributes the amount must file the report on Copy A of Form 1098-C.

received to one or more charities.Good faith estimate of fair market value An organization that files Form 1098-C on (FMV). An organization can use any reasona- paper should send it with Form 1096, Annual Quid pro quo contribution. If the donee pro-ble method to estimate the FMV of goods or Summary and Transmittal of U.S. Information vides goods or services to the donor in ex-services it provided to a donor, as long as it ap- Returns. See the Instructions for Form 1096 for change for the contribution (a quid pro quo con-plies the method in good faith. the correct filing location.tribution), the acknowledgment must include a The organization can estimate the FMV of good faith estimate of the value of the goods or goods or services that generally aren't commer- An organization that is required to file 250 or services. See Disclosure of Quid Pro Quo Con-cially available by using the FMV of similar or more Forms 1098-C during the calendar year tributions, earlier.comparable goods or services. Goods or serv- must file the forms electronically or magneti-

ices may be similar or comparable even if they cally. Specifications for filing Form 1098-C elec- Form of acknowledgment. Although there is don't have the unique qualities of the goods or tronically or magnetically can be found in Publi- no prescribed format for the written acknowl-services being valued. cation 1220, Specifications for Filing Forms edgment, it must provide enough information to

1097, 1098, 1099, 3921, 3922, 5498, 8935, and substantiate the amount of the contribution. For Example 1. A charity provides a 1-hour ten-W-2G Electronically at Pub. 1220.more information, see Publication 1771, Chari-nis lesson with a tennis professional for the first table Contributions - Substantiation and Disclo-$500 payment it receives. The tennis professio-sure Requirements.Acknowledgmentnal provides 1-hour lessons on a commercial

Cash contributions. To deduct a contribu-basis for $100. A good faith estimate of the les- For a contribution of a qualified vehicle tion of cash, a check, or other monetary gift (re-son's FMV is $100. with a claimed value of $500 or less, gardless of the amount), a donor must maintain don't file Form 1098-C. However, you Example 2. For a payment of $50,000, a a bank record or a written communication from can use it as the contemporaneous written ac-museum allows a donor to hold a private event the donee organization showing the donee's knowledgment under section 170(f)(8) by pro-in a room of the museum. A good faith estimate name, date, and amount of the contribution. In viding the donor with Copy C only. See the In-of the FMV of the right to hold the event in the the case of a lump-sum contribution (rather than structions for Form 1098-C.museum can be made by using the cost of rent-a contribution by payroll deduction) made

ing a hotel ballroom with a capacity, amenities, through the Combined Federal Campaign or a Generally, the organization should complete and atmosphere comparable to the museum similar program such as a United Way Cam- Form 1098-C as the written acknowledgment to room, even though the hotel ballroom lacks the paign, the written communication must include the donor and the IRS. The contents of the ac-unique art displayed in the museum room. If the the name of the donee organization that is the knowledgment depend upon whether the or-hotel ballroom rents for $2,500, a good faith es- ultimate recipient of the charitable contribution. ganization:timate of the FMV of the right to hold the event • Contributions by payroll deduction. An Sells a qualified vehicle without any signifi-in the museum is $2,500. organization may substantiate an employee's cant intervening use or material improve- contribution by deduction from its payroll by: ment,Example 3. For a payment of $1,000, a • • A pay stub, Form W-2, or other document Intends to make a significant intervening charity provides an evening tour of a museum showing a contribution to a donee organi- use of or material improvement to a quali-conducted by a well-known artist. The artist zation, together with fied vehicle prior to sale, ordoesn't provide tours on a commercial basis. • • A pledge card or other document from the Sells a qualified vehicle to a needy individ-Tours of the museum normally are free to the donee organization that shows its name. ual at a price significantly below fair market public. A good faith estimate of the FMV of the value, or a gratuitous transfer to a needy evening museum tour is $0 even though it is For contributions of $250 or more, the docu- individual in direct furtherance of a charita-conducted by the artist. ment must state that the donee organization ble purpose of the organization of relieving provides no goods or services for any payroll the poor and distressed or the underprivi-Penalty for failure to disclose. A penalty is contributions. The amount withheld from each leged who are in need of a means of trans-imposed on a charity that doesn't make the re- payment of wages to a taxpayer is treated as a portation.quired disclosure of a quid pro quo contribution separate contribution.

of more than $75. The penalty is $10 per contri- bution, not to exceed $5,000 per fundraising For more information on the acknowledg- Acknowledgment of Vehicle

event or mailing. The charity can avoid the pen- ment, see Notice 2005-44. Contributionalty if it can show that the failure was due to rea-

sonable cause. Material improvements or significant inter- vening use. To constitute significant interven- If an exempt organization receives a contribu-Acknowledgment of ing use, the organization must actually use the tion of a qualified vehicle with a claimed value of

vehicle to substantially further the organization's more than $500, the donee organization is re-Charitable Contributions of

regularly conducted activities, and the use must quired to provide a contemporaneous written $250 or Morebe significant, not incidental. Factors in deter-acknowledgment to the donor. The donee or-

mining whether a use is a significant intervening ganization can use a completed Form 1098-C, use depend on the nature, extent, frequency, Contributions of Motor Vehicles, Boats, and Air-A donor can deduct a charitable contribution of and duration. For this purpose, use includes planes, for the contemporaneous written ac-$250 or more only if the donor has a written ac-providing transportation on a regular basis for a knowledgment. See section 3.03 of Notice knowledgment from the charitable organization. significant period of time or significant use di-2005-44, 2005-25 I.R.B. 1287 for guidance on The donor must get the acknowledgment by the rectly related to training in vehicle repair. Use the information that must be included in a con-earlier of:doesn't include the use of a vehicle to provide temporaneous written acknowledgment and the 1. The date the donor files the original return training in business skills, such as marketing or deadline for furnishing the acknowledgment to for the year the contribution is made, orsales. Examples of significant use include:the donor.• Driving a vehicle every day for 1 year to de-2. The due date, including extensions, for fil-Any donee organization that provides a con- liver meals to needy individuals, if deliver-ing the return.temporaneous written acknowledgment to a do- ing meals is an activity regularly conducted Page 18 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025The donor is responsible for requesting and ob-nor is required to report to the IRS the informa- by the organization.•taining the written acknowledgment from the tion contained in the acknowledgment. The Driving a vehicle for 10,000 miles over a

donee. A charitable organization that receives a report is due by February 28 (March 31 if filing 1-year period to deliver meals to needy in- payment made as a contribution is treated as electronically) of the year following the year in dividuals, if delivering meals is an activity the donee organization for this purpose even if which the donee organization provides the regularly conducted by the organization.

Publication 557 (1-2025) Chapter 2 Filing Requirements and Required Disclosures 17!

CAUTION

Material improvements include major repairs the time of the contribution that the donor in- Report of Cash Payments Over $10,000 Re- and additions that improve the condition of the tends to treat the contribution as qualified intel- ceived in a Trade or Business. vehicle in a manner that significantly increases lectual property contribution for purposes of the value. To be a material improvement, the im- sections 170(m) and 6050L. Public Inspection

provement can't be funded by an additional pay- of Exemption Every donee organization described in sec-ment to the organization from the donor of the

tion 170(c) (except a private foundation, as de-vehicle. Material improvements don't include Applications, Annual fined in section 509(a), that isn't described in cleaning, minor repairs, routine maintenance,

section 170(b)(1)(F)) that receives or accrues painting, removal of dents or scratches, clean- Returns, and Political net income from a charitable gift of qualified in-ing or repair of upholstery, and installation of Organization Reporting tellectual property must file Form 8899.theft deterrent devices.

FormsForm 8899. Form 8899, Notice of Income from Penalties. If your charitable organization re-Donated Intellectual Property, is used by a do-ceives contributions of used motor vehicles, nee to report net income from qualified intellec-boats, and airplanes valued over $500, it may The general rule under section 6103 is that re-tual property to the donor of the property and to be subject to a penalty if it knowingly:•turns and return information of all taxpayers are the IRS and is due by the last day of the first full Fails to furnish an acknowledgement in a confidential except as authorized under the month following the close of the donee's tax timely manner, showing the required infor-Code. Section 6104 provides exceptions to the year. This form must be filed for each tax year of mation; or•general rule of confidentiality for disclosure of the donee in which the donated property produ-Furnishes a false or fraudulent acknowl-certain information about exempt organizations.ces net income, but only if all or part of that tax edgement of the contribution.year occurs during the 10-year period beginning In addition, included in this section is a dis-Other penalties may apply. See Part O on the date of the contribution and that tax year cussion on the public inspection requirements in the current General Instructions for doesn't begin after the expiration of the legal life for political organizations filing Forms 8871 and Certain Information Returns.of the donated property.8872.An acknowledgment containing a certifica-Qualified donee income. Qualified donee in-tion will be presumed to be false or fraudulent if Annual Information Returncome is any net income received by or accrued the qualified vehicle is sold to a buyer other to the donee that is properly allocable to the than a needy individual without a significant in-qualified intellectual property for the tax year of An exempt organization must make available for tervening use or material improvement within 6 the donee which ends within or with the tax year public inspection, upon request and without months of the date of the contribution.of the donor. Income isn't treated as allocated to charge, a copy of its original and amended an-If a charity sells a donated vehicle at auc-qualified intellectual property if it is received or nual information returns. Each information re-tion, the IRS won't accept as substantiation an accrued after the earlier of the expiration of the turn must be made available from the date it is acknowledgment from the charity stating that legal life of the qualified intellectual property, or required to be filed (determined with regard to the vehicle is to be transferred to a needy indi-the 10-year period beginning with the date of any extensions), or is actually filed, whichever is vidual for significantly below fair market value. the contribution.later. An original return doesn't have to be made Vehicles sold at auction aren't sold at prices sig-available if more than 3 years have passed from nificantly below fair market value, and the IRS Qualified intellectual property. Qualified in-the date the return was required to be filed (in-won't treat vehicles sold at auction as qualifying tellectual property is generally any patent, copy-cluding any extensions) or was filed, whichever for this exception.right, trademark, trade name, trade secret, is later. An amended return doesn't have to be The penalty for a false or fraudulent ac-know-how, software or similar property, or appli-made available if more than 3 years have knowledgment where the donee certifies that cations or registrations of such property (other passed from the date it was filed.the vehicle won't be transferred for money, other than property contributed to or for the use of a property, or services before completion of mate-An annual information return includes an ex-private foundation, as defined in section 509(a) rial improvements or significant intervening use act copy of the return (Forms 990, 990-EZ, that isn't described in sectionor the donee certifies that the vehicle is to be 990-BL, 990-PF, 990-T, or 1065), and amended 170(b)(1)(F)). See Exceptions below.transferred to a needy individual for significantly return, if any, and all schedules, attachments, below fair market value in furtherance of the do-Exceptions. The following property isn't and supporting documents filed with the IRS.nee's charitable purpose is the larger of $5,000 considered qualified intellectual property for An annual information return doesn't in-or the claimed value of the vehicle multiplied by purposes of the additional charitable deduction:clude:39.6%.•1. Computer software that is readily available Schedule A of Form 990-BL,The penalty for an acknowledgment relating •for purchase by the general public, is sub-Schedule K-1 of Form 1065, orto a qualified vehicle being sold in an arm's •ject to a nonexclusive license, and has not Form 1120-POL.length transaction to an unrelated party is the been substantially modified.larger of the gross proceeds from the sale or the In the case of a tax-exempt organization sales price stated in the acknowledgment multi-2. A copyright held by a taxpayer:other than a private foundation, an annual infor-plied by 39.6%.•mation return doesn't include the names and Whose personal efforts created the prop-addresses of contributors to the organization. erty, orQualified Intellectual •In whose hands the basis of the property is Form 990-T. All section 501(c)(3) or-Propertydetermined, for purposes of determining ganizations that file Form 990-T must gain from a sale or exchange, in whole or make the return public, regardless of A taxpayer who contributes qualified intellectual in part by reference to the basis of the whether the organization is otherwise subject to property to a charity may be entitled to a chari-property in the hands of a taxpayer whose the disclosure requirements of section 6104. table deduction, in addition to any initial deduc-personal efforts created the property.For example, although churches aren't required tion allowed in the year of contribution. The ad-to file Form 1023 or Form 990 with the IRS, they ditional deduction is based on a specified Report of Cash Receivedmust file the Form 990-T with the IRS to report percentage of the qualified donee income with unrelated business taxable income. Thus, respect to the qualified intellectual property. To churches must disclose Form 990-T to the pub-qualify for the additional charitable deduction, Page 19 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025An exempt organization that receives, in the lic.the donor must provide notice to the donee at course of its activities, more than $10,000 cash in one transaction (or two or more related trans-State colleges and universities that have actions) that isn't a charitable contribution must been recognized by the IRS as exempt under report the transaction to the IRS on Form 8300, section 501(a) as organizations described in

18 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2025)!!

CAUTIONCAUTION

section 501(c)(3) must disclose Form 990-T to charge, at the organization's principal, regional, provides a rate of $0.10 per page for black and the public. However, state colleges and univer- and district offices during regular business white pages, and $0.20 per page for color pa- sities that are subject to tax under section hours. The organization can have an employee ges. The organization can also charge the ac- 511(a) solely by virtue of section 511(a)(2)(B) present during inspection, but must allow the in- tual postage costs it pays to provide the copies. and that haven't been recognized by the IRS as dividual to take notes freely and to photocopy at

Regional and district offices. Generally, the exempt under section 501(a) as organizations no charge if the individual provides the photo-

same rules regarding public inspection and pro-described in section 501(c)(3) aren't required to copying equipment. Generally, regional and dis- viding copies of applications and annual infor-make their Forms 990-T public.trict offices are those that have paid employees mation returns that apply to a principal office of who together are normally paid for at least 120 Public Inspection of an exempt organization also apply to its re-hours a week.

gional and district offices. However, a regional If the organization doesn't maintain a perma-Exemption Applicationor district office isn't required to make its annual nent office, it must make its application for tax

information return available for inspection or to exemption and its annual information returns An exempt organization must also make availa-provide copies until 30 days after the date the available for inspection at a reasonable location ble for public inspection, without charge, its ap-return is required to be filed (including any ex-of its choice. It must permit public inspection plication for tax-exempt status. An application tensions) or is actually filed, whichever is later.within a reasonable amount of time after receiv-for tax exemption includes the application form ing a request for inspection (normally not more (such as Forms 1023 or 1024), all documents Local and subordinate organizations. A lo-than 2 weeks) and at a reasonable time of day. and statements the IRS requires the organiza-cal or subordinate organization is an exempt or-At its option, it can mail, within 2 weeks of re-tion to file with the form, any statement or other ganization that didn't file its own application for ceiving the request, a copy of its application for supporting document submitted by an organiza-tax exemption because it is covered by a group tax exemption and annual information returns to tion in support of its application, and any letter exemption letter. Generally, a local or subordi-the requester in lieu of allowing an inspection. or other document issued by the IRS concern-nate organization of an exempt organization The organization can charge the requester for ing the application.must, upon request, make available for public copying and actual postage costs only if the re-inspection, or provide copies of:quester consents to the charge.The application for exemption doesn't in-

An organization that has a permanent office, clude: 1. The application submitted to the IRS by •but has no office hours or very limited hours Any application from an organization that the central or parent organization to obtain during certain times of the year, must make its isn't yet recognized as exempt; the group exemption letter, and•documents available during those periods when Any material that is required to be withheld 2. Those documents which were submitted office hours are limited or not available as from public inspection, see Material re- by the central or parent organization to in-though it were an organization without a perma-quired to be withheld from public inspec- clude the local or subordinate organization nent office.tion, next; in the group exemption letter.•In the case of a tax-exempt organization Furnishing copies. An exempt organization other than a private foundation, the names However, if the central or parent organization must also provide a copy of all, or any specific and addresses of contributors to the or- submits to the IRS a list or directory of local or part or schedule, of its three most recent annual ganization; or subordinate organizations covered by the group •information returns and/or exemption applica-Any applications filed before July 15, 1987, exemption letter, the local or subordinate organ-tion to anyone who requests a copy either in if the organization didn't have a copy of the ization is required to provide only the applica-person or in writing at its principal, regional, or application on July 15, 1987. tion for the group exemption ruling and the pa-district office during regular business hours. If ges of the list or directory that specifically refer If there is no prescribed application form, the individual made the request in person, the to it.see Regulations section 301.6104(d)-1(b)(3)(ii) copy must be provided on the same business The local or subordinate organization must for a list of the documents that must be made day the request is made unless there are un- permit public inspection or comply with a re-available.usual circumstances. Unusual circumstances quest for copies made in person, within a rea-are defined in Regulations section Material required to be withheld from sonable amount of time (normally not more than 301.6104(d)-1(d)(1)(ii).public inspection. Material that is required to 2 weeks) after receiving a request made in per-The organization must honor a written re-be withheld from public inspection includes: son for public inspection or copies and at a rea-•quest for a copy of documents or specific parts Trade secrets, patents, processes, styles sonable time of day. In lieu of allowing an in-or schedules of documents that are required to of work, or apparatus for which withholding spection, the local or subordinate organization be disclosed. However, this rule only applies if was requested and granted; can mail a copy of the applicable documents to •the request:National defense material; the person requesting inspection within the ••Is addressed to the exempt organization's Unfavorable rulings or determination letters same time period. In that case, the organization principal, regional, or district office;issued in response to applications for tax can charge the requester for copying and actual •Is sent to that address by mail, electronic exemption; postage costs only if the requester consents to •mail (e-mail), facsimile (fax), or a private Rulings or determination letters revoking or the charge. If the local or subordinate organiza-delivery service approved by the IRS; andmodifying a favorable determination letter; tion receives a written request for a copy of its ••Gives the address to where the copy of the Technical advice memoranda relating to a application for exemption, it must fulfill the re-document should be sent.disapproved application for tax exemption quest in the time and manner specified earlier.

or the revocation or modification of a favor- The organization must mail the copy within The requester has the option of requesting able determination letter; 30 days from the date it receives the request. from the central or parent organization, at its •Any letter or document filed with or issued The organization can request payment in ad- principal office, inspection or copies of the ap-by the IRS relating to whether a proposed vance and must then provide the copies within plication for group exemption and the material or accomplished transaction is a prohibited 30 days from the date it receives payment. submitted by the central or parent organization transaction under section 503; and to include a local or subordinate organization in • Fees for copies. The organization can Any other letter or document filed with or the group ruling. If the central or parent organi- charge a reasonable fee for providing copies. It issued by the IRS which, although it relates zation submits to the IRS a list or directory of lo- can charge no more for the copies than the per to an organization's tax-exempt status as cal or subordinate organizations covered by the page rate the IRS charges for providing copies. an organization described in section 501(c) group exemption letter, it must make the list or The IRS can't charge more for copies than the or 501(d), doesn't relate to that organiza- directory available for public inspection, but it is Page 20 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 fees listed in the Freedom of Information Act tion's application for tax exemption. required to provide copies only of those pages (FOIA) fee schedule. Although the IRS charges of the list or directory that refer to particular lo- no fee for the first 100 pages, the organization Time, place, and manner restrictions. The cal or subordinate organizations specified by can charge a fee for all copies. For noncommer-annual returns and exemption application must the requester. The central or parent cial requesters, the FOIA schedule currently be made available for inspection, without Publication 557 (1-2025) Chapter 2 Filing Requirements and Required Disclosures 19

Political Organization •organization must fulfill such requests in the Prohibited tax shelter transactions.Reporting Formstime and manner specified earlier. Solicitation of Nondeductible A local or subordinate organization that doesn't file its own annual information return Forms 8871 and 8872 (discussed earlier under (because it is affiliated with a central or parent Reporting Requirements for a Political Organi-organization that files a group return) must, on zation) are open to public inspection. Solicitations for contributions or other payments request, make available for public inspection, or by certain exempt organizations (including lob-provide copies of, the group returns filed by the Form 8871. Form 8871 (including any sup- bying groups and political action committees) central or parent organization. However, if the porting papers), and any letter or other docu- must include a statement that payments to group return includes separate schedules for ment the IRS issues with regard to Form 8871, those organizations aren't deductible as charita-each local or subordinate organization included are open to public inspection online at IRS.gov/ ble contributions for federal income tax purpo-in the group return, the local or subordinate or-polorgs. ses. The statement must be included in the ganization receiving the request can omit any fundraising solicitation and be conspicuous and Form 8872. Form 8872 (including Sched-schedules relating only to other organizations easily recognizable.ules A and B) are open to public inspection on-included in the group return. The local or subor-line at IRS.gov/polorgs.dinate organization must permit public inspec- Organizations subject to requirements. An tion, or comply with a request for copies made Electronically filed Forms 8871 and 8872 are organization must follow these disclosure re-in person, within a reasonable amount of time available online 48 hours after the form has quirements if it is exempt under section 501(c), (normally not more than 2 weeks) after receiv-been filed. Forms 8872 that are filed by mail are other than section 501(c)(1), or under section ing a request made in person for public inspec-available online after being imaged by the IRS. 501(d), unless the organization is eligible to re-tion or copies and at a reasonable time of day.These forms are considered widely available if ceive tax deductible charitable contributions un-In lieu of allowing an inspection, the local or you provide the online address to the requester. der section 170(c). These requirements must subordinate organization can mail a copy of the In addition, your organization must make a copy be followed by, among others:applicable documents to the person requesting of these materials available for public inspection 1. Social welfare organizations (section inspection within the same time period. In this during regular business hours at the organiza- 501(c)(4)); case, the organization can charge the requester tion's principal office and at each of its regional for copying and actual postage costs only if the or district offices having at least three paid em- 2. Labor unions (section 501(c)(5));requester consents to the charge. If the local or ployees. 3. Trade associations (section 501(c)(6));subordinate organization receives a written re-quest for a copy of its annual information return, 4. Social clubs (section 501(c)(7));Penaltiesit must fulfill the request by providing a copy of 5. Fraternal organizations (section 501(c)(8) the group return in the time and manner speci-The penalty for failure to allow public inspection and 501(c)(10)) (however, fraternal organi-fied earlier. The requester has the option of re-of annual returns is $20 for each day the failure zations described in section 170(c)(4) questing from the central or parent organization, continues. The maximum penalty on all persons must follow these requirements only for at its principal office, inspection or copies of for failures involving any one return is $10,000. solicitations for funds that are to be used group returns filed by the central or parent or- for noncharitable purposes not described ganization. The central or parent organization The penalty for failure to allow public inspec- in section 170(c)(4));must fulfill such requests in the time and man-tion of exemption applications is $20 for each ner specified earlier. 6. Any political organization described in day the failure continues.If an organization fails to comply, it may be li- section 527(e), including political cam-able for a penalty. See Penalties, later. paign committees and political action The penalty for willful failure to allow public committees; andinspection of a return or exemption application Making applications and annual informa-is $5,000 for each return or application. The 7. Any organization not eligible to receive tion returns widely available. An exempt or-penalty also applies to a willful failure to provide tax-deductible contributions if the organi-ganization doesn't have to comply with requests copies. zation or a predecessor organization was, for copies of its annual information returns or at any time during the 5-year period end-exemption application if it makes them widely ing on the date of the fundraising solicita-The penalty for failure to allow public inspec-available. However, making these documents tion, an organization of the type to which tion of a political organization's section 527 no-widely available doesn't relieve the organization this disclosure requirement applies.tice (Form 8871) is $20 for each day the failure from making its documents available for public continues.inspection. Fundraising solicitation. This disclosure re-The organization can make its application quirement applies to a fundraising solicitation if The penalty for failure to allow public inspec-and annual information returns widely available all of the following are true.tion of a section 527 organization's contribu-by posting the application and annual informa-tions and expenditures report (Form 8872) is tion returns on the Internet. For the rules to fol- 1. The organization soliciting the funds nor-$20 for each day the failure continues. The low so that the Internet posting will be consid- mally has gross receipts over $100,000 maximum penalty on all persons for failures in-ered widely available, see Regulations section per year.volving any one report is $10,000.301.6104(d)-2(b). 2. The solicitation is part of a coordinated If the organization has made its application fundraising campaign that is soliciting Required Disclosuresfor tax exemption and/or annual information re- more than 10 persons during the year.turns widely available, it must inform any individ-ual requesting a copy where the documents are 3. The solicitation is made in written or prin-Certain exempt organizations must disclose to available, including the website address on the ted form, by television or radio, or by tele-the IRS or the public certain information about Internet, if applicable. If the request is made in phone.their activities. Generally, an organization dis-person, the notice must be provided immedi-closes this information by entering it on the ap- Penalties. Failure by an organization to make ately. If the request is made in writing, the notice propriate lines of its annual return. In addition, the required statement will result in a penalty of must be provided within 7 days.there are disclosure requirements for: $1,000 for each day the failure occurred, up to a •Harassment campaign. If the tax-exempt or-Solicitation of nondeductible contributions, maximum penalty of $10,000 for a calendar •Page 21 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025ganization is the subject of a harassment cam-Sales of information or services that are year. No penalty will be imposed if it is shown paign, the organization may not have to fulfill re-available free from the government, that the failure was due to reasonable cause. If •quests for information. For more information, Dues paid to the organization that aren't the failure was due to intentional disregard of see Regulations section 301.6104(d)-3.deductible because they are used for lob- the requirements, the penalty may be higher bying or political activities, and and isn't subject to a maximum amount.

20 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2025)

Sales of Information or shelter transaction is required to disclose to the Miscellaneous RulesServices Available Free from IRS the following information: • Whether such organization is a party to the Government prohibited tax shelter transaction (as de- Organizational Changes and fined in section 4965(e)); and • The identity of any other party to the trans-Certain organizations that offer to sell to individ- Exempt Status action that is known to the exempt organi-uals (or solicit money for) information or routine zation.services that could be readily obtained free (or If you've changed your form or place of organi-for a nominal fee) from the federal government zation, review Rev. Proc. 2018-15, 2018-9 I.R.B. must include a statement that the information or Party to a prohibited tax shelter transac- 379, to determine whether you're required to file tion. An exempt organization is a party to a service can be so obtained. The statement a new exemption application. If your organiza- prohibited tax shelter transaction if the organi-must be made in a conspicuous and easily rec- tion becomes inactive for a period of time but zation:ognized format when the organization makes an doesn't cease being an entity under the laws of offer or solicitation to sell the information or 1. Facilitates a prohibited tax shelter transac- the state in which it was formed, you will have to service. Organizations affected are those ex- tion by reason of its tax-exempt, tax-indif- continue to file an annual information return dur-empt under section 501(c) or 501(d) and politi- ferent, or tax-favored status; or ing the period of inactivity, unless a filing excep-cal organizations defined in section 527(e). tion applies. If your organization has been liqui- 2. Is identified in published guidance by type, dated, dissolved, terminated, or substantially class, or role as a party to a prohibited tax Penalty. A penalty is provided for failure to contracted, you should file your annual return of shelter transaction.comply with this requirement if the failure is due information by the 15th day of the 5th month af-to intentional disregard of the requirement. The See Prohibited Tax Shelter Transactions, ter the change and follow the applicable instruc-penalty is the greater of $1,000 for each day the later, for further information. tions for the form.failure occurred, or 50% of the total cost of all offers and solicitations that were made by the Disclosure. A single disclosure is made by the If your organization amends its articles of or-organization the same day that it fails to meet organization for each prohibited tax shelter ganization or its internal regulations (bylaws), the requirement. transaction. The disclosure is made on Form then follow the instructions for Form 990, Form 8886-T, Disclosure by Tax-Exempt Entity Re- 990-EZ, or Form 990-PF for reporting these Dues Used for Lobbying garding Prohibited Tax Shelter Transaction. changes. Regardless of whether your organiza-or Political Activities tion files an annual information return, you may Due date. Generally, for exempt organiza- also report these changes to the EO Determina- tions described in 1 above, the disclosure is due tions office; however, such reporting doesn't re-Certain exempt organizations must notify any- on or before May 15 of the calendar year follow- lieve your organization from reporting the one paying dues to the organization whether ing the close of the calendar year that the ex- changes on its annual information return. For in-any part of the dues isn't deductible because it empt organization entered into the prohibited formation about informing the IRS of a termina-is related to lobbying or political activities. tax shelter transaction. If any date falls on a Sat- tion or merger, see Publication 4779, Facts urday, Sunday, or legal holiday, substitute the about Terminating or Merging Your Exempt Or-An organization must provide the notice if it next business day. However, the disclosure for is exempt from tax under section 501(a) and is subsequently listed transactions (as defined in one of the following. section 4965(e)(2)) is due on or before May 15 An organization should report new signifi- of the calendar year following the close of the 1. A social welfare organization described in cant program services or significant changes in calendar year that the transaction was identified section 501(c)(4) that isn't a veterans' or- how it conducts program services, and signifi- by the Secretary as a listed transaction. cant changes to its organizational documents, The disclosure for exempt organizations de- on its Form 990 rather than in a letter to EO De-2. An agricultural or horticultural organization scribed in 2 above is due on or before the date terminations. EO Determinations no longer is-described in section 501(c)(5). the first tax return (whether original or amended sues letters confirming the tax-exempt status of return) is filed that reflects a reduction or elimi-3. A business league, chamber of com- organizations that report new services or signifi- nation of the exempt organization's liability for merce, real estate board, or other organi- cant changes, or changes to organizational applicable federal employment, excise, or unre-zation described in section 501(c)(6). documents. lated business income taxes that is derived di-However, an organization described in (1), (2), rectly or indirectly from tax consequences or tax Change in Accounting Periodor (3) doesn't have to provide the notice if it es- strategy described in the published guidance tablishes that substantially all the dues paid to it that lists the transaction.aren't deductible anyway or if certain other con- The procedures that an organization must follow Penalty. Exempt organizations that fail to file ditions are met. For more information, see Rev. to change its accounting period differ for an in- the required disclosure are subject to a nondi-Proc. 98-19, 1998-1 C.B. 547 (or later update). dependent organization and for a central organ- sclosure penalty of $100 for each day the failure ization that seeks a group change for its subor-If the organization doesn't provide the re- continues with a maximum penalty for any one dinate organizations.quired notice, it may have to pay a tax that is re- disclosure of $50,000.ported on Form 990-T. But the tax doesn't apply Also, if the IRS makes a written demand on Independent organizations. If an organiza-to any amount on which the section 527 tax has any exempt organization subject to this penalty, tion isn't required to file an annual information been paid on Form 1120-POL. See Political Or- giving the organization a reasonable date to return, but files a Form 990-T, it can change its ganization Income Tax Return, earlier. make the disclosure, and the organization fails annual accounting period by timely filing the to make the disclosure by that date, the organi- Form 990-T. If neither an information return nor For more information about nondeductible zation is subject to a penalty of $100 for each a Form 990-T is required to be filed, an organi-dues, see Deduction not allowed for dues used day after the date specified by the IRS until dis- zation must notify the IRS by letter that it has for political or legislative activities. under Sec- closure is made (with a maximum penalty for changed its fiscal period.tion 501(c)(6) organizations, later. any one disclosure of $10,000). If an organization changed its annual ac- counting period at any time within the previous 10 years and within that time it had a filing re-Page 22 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Transactions quirement, the organization must file a Form 1128, Application to Adopt, Change, or Retain a Tax Year, with its timely filed annual information Every exempt organization (as defined in sec- return or Form 990-T, as appropriate, whether or tion 4965(c)) that is a party to a prohibited tax not the filing of the information return or Form

Publication 557 (1-2025) Chapter 2 Filing Requirements and Required Disclosures 21

•990-T would have otherwise been required for Literary. Section 501(c)(3) of the Internal •that year.Educational. Revenue Code•Fostering national or international amateur Form 1023 and Form 1023-EZ must be filed Central organizations. A central organization sports competition (but only if none of its electronically on Pay.gov.can obtain approval for a group change in an activities involve providing athletic facilities annual accounting period for its subordinate or-or equipment; however, see Amateur Ath- See chapter 6 for information about getting pub-ganizations on a group basis only by filing Form letic Organizations, later in this chapter). lications and forms.•1128 with the IRS Service Center where it files The prevention of cruelty to children or ani-its annual information return. For more informa-mals. Contributions totion, see Rev. Proc. 76-10, 1976-1 C.B. 548, as To qualify, the organization must be organ-modified by Rev. Proc. 79-3, 1979-1 C.B. 483, 501(c)(3) Organizationsized as a corporation (including a limited liability or any later updates.company), unincorporated association, or trust.

Sole proprietorships, partnerships, individuals, Due date. Form 1128 must be filed by the 15th or loosely associated groups of individuals Contributions to domestic organizations descri-day of the 5th month following the close of the won't qualify. bed in this chapter, except organizations testing short period. for public safety, are deductible as charitable Examples. Qualifying organizations include: contributions on the donor's federal income tax Modify or Obtain an NTEE • Nonprofit old-age homes, return.Code.• Parent-teacher associations,• Charitable hospitals or other charitable or- Fundraising events. If the donor receives

ganizations, something of value in return for the contribution, Organizations that wish to modify or obtain a •Alumni associations, a common occurrence with fundraising efforts, National Taxonomy of Exempt Entities (NTEE) •Schools, part or all of the contribution may not be deduc-Code should send a written request to the Cor-•Chapters of the Red Cross, tible. This may apply to fundraising activities respondence Unit with the relevant facts, includ-•Boys' or Girls' Clubs, and such as charity balls, bazaars, banquets, auc-ing the Code currently assigned, if any, and the •Churches. tions, concerts, athletic events, and solicitations requested Code, as well as who selected the for membership or contributions when merchan-currently assigned Code initially, if known. The Child care organizations. The term edu- dise or benefits are given in return for payment Correspondence Unit will refer to EO Determi-cational purposes includes providing for care of of a specified minimum contribution.nations, if necessary, and will notify the organi-children away from their homes if substantially If the donor receives or expects to receive zation if a form or user fee is required to make all the care provided is to enable individuals goods or services in return for a contribution to the requested change. The written request must (the parents) to be gainfully employed and the your organization, the donor can't deduct any be sent or faxed to:services are available to the general public. part of the contribution unless the donor intends

to, and does, make a payment greater than the Internal Revenue ServiceInstrumentalities. A state or municipal instru-fair market value of the goods or services. If a Attn: Correspondence Unitmentality may qualify under section 501(c)(3) if deduction is allowed, the donor can deduct only P.O. Box 2508, Room 6403it is organized as a separate entity from the gov-the part of the contribution, if any, that is more Cincinnati, OH 45201ernmental unit that created it and if it otherwise than the fair market value of the goods or serv-Fax: (855) 204-6184meets the organizational and operational tests ices received. You should determine in advance of section 501(c)(3). Examples of a qualifying the fair market value of any goods or services to Express and Overnight Delivery:instrumentality may include state schools, uni-be given to contributors and tell them, when you versities, or hospitals. However, if an organiza-publicize the fundraising event or solicit their Internal Revenue Servicetion is an integral part of the local government or contributions, how much is deductible and how Attn: Correspondence Unitpossesses governmental powers, it doesn't much is for the goods or services. See Disclo-500 Main Street, Room 6403qualify for exemption. A state or municipality it-sure of Quid Pro Quo Contributions in chap-Cincinnati, OH 45202self doesn't qualify for exemption under section ter 2.501(c)(3). Exemption application not filed. Generally, Topicsdonors can't deduct any charitable contribution

to an organization that is required to apply for recognition of exemption but has not done so.3.•Contributions to 501(c)(3) organizations,•Separate fund--contributions that are de-Applications for recognition of exemption,•ductible. An organization that is exempt from Articles of Organization,•Sectionfederal income tax other than as an organiza-Educational organizations and private

tion described in section 501(c)(3) can, if it de-schools,•sires, establish a fund, separate and apart from Organizations providing insurance,501(c)(3)•its other funds, exclusively for religious, charita-Other section 501(c)(3) organizations,•ble, scientific, literary, or educational purposes, Private foundations and public charities,

fostering national or international amateur and•sports competition, or for the prevention of cru-Lobbying expenditures. elty to children or animals. If the fund is organized and operated exclu- sively for these purposes, it may qualify for ex- emption as an organization described in section 501(c)(3), and contributions made to it will be Forms (and Instructions)An organization may qualify for exemption from deductible, as provided by section 170. A fund

federal income tax under section 501(c)(3) if it with these characteristics must be organized in 1023 1023 Application for Recognition of is organized and operated exclusively for one or such a manner as to prohibit the use of its funds Exemption Under Section 501(c)(3) Page 23 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025more of the following purposes. upon dissolution, or otherwise, for the general of the Internal Revenue Code• Religious. purposes of the organization creating it.• Charitable. 1023-EZ 1023-EZ Streamlined Application for • Scientific. Personal benefit contracts. Generally, chari- Recognition of Exemption Under • Testing for public safety. table deductions won't be allowed for a transfer 22 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

to, or for the use of, a section 501(c)(3) or (c)(4) section 501(c)(3). Such participation or inter- Application fororganization if in connection with the transfer: vention includes the publishing or distributing of • The organization directly or indirectly pays, statements. See the Form 1023 instructions. Recognition of or previously paid, a premium on a per- Whether your organization is participating or

sonal benefit contract for the transferor; or intervening, directly or indirectly, in any political Exemption•There is an understanding or expectation campaign on behalf of (or in opposition to) any

that anyone will directly or indirectly pay a candidate for public office depends upon all of premium on a personal benefit contract for the facts and circumstances of each case. Cer- This discussion describes certain information to the transferor. tain voter education activities or public forums be provided upon application for recognition of conducted in a nonpartisan manner may not be exemption by all organizations created for any A personal benefit contract with respect to prohibited political activity under section 501(c) of the purposes described earlier in this chap-the transferor is any life insurance, annuity, or (3), while other so-called voter education activi- ter. See the organization headings that follow endowment contract, if any direct or indirect ties may be prohibited. for specific information your organization may beneficiary under the contract is the transferor, need to provide.any member of the transferor's family, or any Effective date of exemption. Most organiza-other person designated by the transferor. tions described in this chapter that were organ- Form 1023 or Form 1023-EZ. Your organiza- ized after October 9, 1969, won't be treated as Certain annuity contracts. If an organiza- tion must file its application for recognition of ex- tax exempt unless they apply for recognition of tion incurs an obligation to pay a charitable gift emption on Form 1023 or Form 1023-EZ. See exemption by filing Form 1023 or Form annuity, and the organization purchases an an- chapter 1 and the instructions accompanying 1023-EZ. These organizations won't be treated nuity contract to fund the obligation, individuals Form 1023 or Form 1023-EZ for the procedures as tax exempt for any period before they file receiving payments under the charitable gift an- to follow in applying. Some organizations aren't Form 1023 or Form 1023-EZ, unless they file nuity won't be treated as indirect beneficiaries if required to file Form 1023 or Form 1023-EZ. the form within 27 months from the end of the the organization owns all of the incidents of See Organizations Not Required to File Form month in which they were organized. If the or-ownership under the contract, is entitled to all 1023 or 1023-EZ, later. ganization files the application within this payments under the contract, and the timing If you are a small organization, you may be 27-month period, the organization's exemption and amount of the payments are substantially eligible to apply for recognition of exemption by will generally be recognized retroactively to the the same as the timing and amount of payments filing Form 1023-EZ instead of Form 1023. Spe- date it was organized. Otherwise, exemption will to each person under the obligation (as such cific eligibility requirements apply. You can find be recognized only from the date of receipt. The obligation is in effect at the time of the transfer). more information about eligibility to use Form date of receipt is the date of the U.S. postmark 1023-EZ at Instructions for Form 1023-EZ.Certain contracts held by a charitable on the cover in which an exemption application remainder trust. An individual won't be con- Additional information to help you com- is mailed or, if no postmark appears on the sidered an indirect beneficiary under a life insur- plete your application can be found on- cover, the date the application is stamped as re-ance, annuity, or endowment contract held by a line. Go to Exemption Requirement - ceived by the IRS or, for an electronic submis-charitable remainder annuity trust or a charita- Section 501(c)(3) Organizations and select the sion, the date submitted to the IRS.ble remainder unitrust solely by reason of being link at the bottom of the web page for step by Private delivery service. You can use cer-entitled to the payment if the trust owns all of step help with the application process. See tain private delivery services (PDS) designated the incidents of ownership under the contract, Exemption Requirements - Section 501(c)(3) by the IRS to meet the "timely mailing as timely and the trust is entitled to all payments under Organizations. filing" rule for tax returns. Go to IRS.gov/PDS for the contract. Form 1023 and accompanying statements the current list of designated services. must show that all of the following are true. Excise tax. If the premiums are paid in con-

The PDS can tell you how to get written proof of nection with a transfer for which a deduction 1. The organization is organized exclusively the mailing date.isn't allowable under the deduction denial rule, for, and will be operated exclusively for, without regard to when the transfer to the chari-one or more of the purposes (religious, For the IRS mailing address to use if you're us-table organization was made, an excise tax will charitable, etc.) specified in the introduc-ing a PDS, go to IRS.gov/PDStreetAddresses.be applied that is equal to the amount of the tion to this chapter. premiums paid by the organization on any life 2. No part of the organization's net earnings insurance, annuity, or endowment contract. The Private delivery services can't deliver will inure to the benefit of private share-excise tax doesn't apply if all of the direct and items to P.O. boxes. You must use the holders or individuals. You must establish indirect beneficiaries under the contract are or- U.S. Postal Service to mail any item to that your organization won't be organized an IRS P.O. box address.or operated for the benefit of private inter-

Excise taxes. A charitable organization lia- ests, such as the creator or the creator's ble for excise taxes must file Form 4720, Return Amendments to organizing documents family, shareholders of the organization, required. If an organization is required to alter of Certain Excise Taxes Under Chapters 41 and other designated individuals, or persons its activities or to make substantive amend-42 of the Internal Revenue Code. Generally, the controlled directly or indirectly by such pri- ments to its organizing document, the determi-due date for filing Form 4720 occurs on the 15th vate interests. nation letter recognizing its exempt status will day of the 5th month following the close of the 3. The organization won't, as a substantial be effective as of the date the changes are organization's tax year. part of its activities, attempt to influence made. If only a nonsubstantive amendment is legislation (unless it elects to come under Indoor tanning services. If your organiza- made, exempt status will be effective as of the the provisions allowing certain lobbying tion provides an indoor tanning bed service, the date it was organized, if the application was expenditures) or participate to any extent ACA imposed a 10% excise tax on services pro- filed within the 27-month period, or the date the in a political campaign for or against any vided after June 30, 2010. For more informa- application was filed. candidate for public office. See Political tion, go to IRS.gov and select Affordable Care

activity, next, and Lobbying Expenditures, Act Tax Provisions. Discretionary extension of time for filing. near the end of this chapter. An organization that fails to file a Form 1023

within the 27-month period may be granted an Political activity. If any of the activities extension to file if it submits evidence (including (whether or not substantial) of your organization affidavits) to establish that:Page 24 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025consist of participating in, or intervening in, any political campaign on behalf of (or in opposition 1. It acted reasonably and in good faith, and to) any candidate for public office, your organi- zation won't qualify for tax-exempt status under

Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 23!

TIP

CAUTION

1. Granting a discretionary extension won't government results if granting an extension of These organizations are exempt automati- prejudice the interests of the government. time to file to an organization results in a lower cally if they meet the requirements of section total tax liability for the years to which the filing 501(c)(3). However, such organizations will not applies than would have been the case if the or- appear on the Tax-Exempt Organization Search The discretionary extension of the time for filing ganization had filed on time. Before granting an list of organizations eligible to receive tax-de-Form 1023 does not apply if granting relief extension, the IRS can require the organization ductible contributions. These organizations also would result in the organization's exempt status requesting it to submit a statement from an in- cannot obtain a written affirmation of their ex-being automatically revoked for failure to file a dependent auditor certifying that no prejudice empt status. To be included in the IRS database required annual information return or notice for will result if the extension is granted. of exempt organizations and be eligible to re-3 consecutive years, effective before the appli- ceive a written determination or affirmation of cation date. The interests of the government are ordina- exempt status, these organization must file rily prejudiced if the tax year in which the appli-Additionally, organizations that are not re- Form 1023 or 1023-EZ. cation should have been filed (or any tax year quired to apply for recognition of exemption in that would have been affected had the filing order to be exempt are not eligible to request Filing Form 1023 or 1023-EZ to establish been timely) are closed by the statute of limita-the discretionary extension. However, these or- exemption. If the organization wants to estab- tions before relief is granted. Therefore, the re-ganizations may be exempt prior to the effective lish its exemption with the IRS and receive a de- quest for relief will not be granted if the period of date the IRS recognizes exempt status because termination letter recognizing its exempt status, limitations on assessment under section they may be tax-exempt under Section 501(c) it should file Form 1023 or 1023-EZ (if eligible). 6501(a) for any taxable year for which the or-(3) without filing an application. See Organiza- By establishing its exemption, potential contrib- ganization claims tax-exempt status has expired tions Not Required to File Form 1023 or Form utors are assured by the IRS that contributions prior to the date of application. The IRS can 1023-EZ. will be deductible. A subordinate organization condition a grant of relief on the organization (other than a private foundation) covered by a How to show reasonable action and providing the IRS with a statement from an in- group exemption letter doesn't have to submit a good faith. The following factors are consid- dependent auditor certifying that the interests of Form 1023 or Form 1023-EZ for itself.ered in determining whether an organization ac- the Government aren't prejudiced.ted reasonably and showed good faith. Private foundations. See Private Founda- Procedure for requesting extension. To tions and Public Charities, later in this chapter, 1. The organization failed to file an applica- request a discretionary extension, an organiza- for more information about the additional notice tion because of intervening events beyond tion must submit the relevant portions of Form required from an organization in order for it not its control. 1023, Schedule E, including describing in detail to be presumed to be a private foundation and the events that led to the failure to apply and to 2. The organization exercised reasonable dil- for the additional information required from a the discovery of that failure. If the organization igence (taking into account the complexity private foundation claiming to be an operating relied on a tax professional's advice, the sched-of the filing or issue and the organization's foundation. ule should describe the engagement and re-experience in these matters) but wasn't

Gross receipts test. For purposes of the sponsibilities of the professional and the extent aware of the application filing requirement. gross receipts test, an organization normally to which the organization relied on the tax pro-3. The organization reasonably relied upon doesn't have more than $5,000 annually in fessional. An organization applying for section the written advice of the IRS.gross receipts if:501(c)(3) status can no longer request the ex- tension by filing Form 1023-EZ and then sub-4. The organization reasonably relied upon 1. During its first tax year the organization re-mitting correspondence to the IRS.the advice of a qualified tax professional ceived gross receipts of $7,500 or less,A request for this relief in connection with an who failed to file or advise the organization

1. During its first 2 years the organization had application for exemption doesn't require pay-to file Form 1023 or Form 1023-EZ. An or- a total of $12,000 or less in gross receipts, ment of an additional user fee. Also, a request ganization can't rely on the advice of a tax andfor relief under the automatic 12-month exten-professional if it knows or should know that sion doesn't require payment of a user fee.they aren't competent to render advice on 3. In the case of an organization that has filing exemption applications or isn't aware been in existence for at least 3 years, the More information. For more information of all the relevant facts.total gross receipts received by the organi-about these procedures, see Regulations sec- zation during the immediately preceding 2 5. The organization filed required Form tions 301.9100-1, 301.9100-2, and 301.9100-3, years, plus the current year, are $15,000 990-series returns or notices consistent along with the current year issued revenue pro- or less.with its requested status.cedures. An organization with gross receipts more Not acting reasonably and in good faith. Notification from the IRS. Organizations filing than the amounts in the gross receipts test, un-An organization has not acted reasonably and Form 1023 or Form 1023-EZ and satisfying all less otherwise exempt from filing Form 1023 or in good faith under the following circumstances.requirements of section 501(c)(3) will be noti-Form 1023-EZ, must apply for recognition of ex-fied of their exempt status in writing.1. It seeks to change a return position for emption within 90 days after the end of the pe-which an accuracy-related penalty has riod in which the amounts are exceeded. For ex-Organizations Not Required been or could be imposed at the time the ample, an organization's gross receipts for its to File Form 1023 or Form relief is requested.first tax year were less than $7,500, but at the 1023-EZend of its second tax year its gross receipts for 2. It was informed of the requirement to file

the 2-year period were more than $12,000. The and related tax consequences, but chose organization must apply for recognition of ex-not to file.Some organizations aren't required to file Form emption within 90 days after the end of its sec-1023 or 1023-EZ. These include:3. It uses hindsight in requesting relief. The ond tax year.•Churches, interchurch organizations of lo-IRS won't ordinarily grant an extension if If the organization had existed for at least 3 cal units of a church, conventions or asso-specific facts have changed since the due tax years and had met the gross receipts test for ciations of churches, or integrated auxilia-date that makes filing an application ad-all prior tax years but fails to meet the require-ries of a church, such as a men's or vantageous to an organization.ment for the current tax year, its tax-exempt sta-women's organization, religious school, tus for the prior years won't be lost even if it 4. Granting the request for relief would result mission society, or youth group.does not apply for recognition of exemption in the organization's tax-exempt status be-•Any organization (other than a private foun-Page 25 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025within 90 days after the close of the current tax ing automatically revoked effective before dation) normally having annual gross re-year. However, the organization won't be treated the application date.ceipts of not more than $5,000 (see Gross as a section 501(c)(3) organization for the pe-receipts test, later).Prejudicing the interest of the govern-riod beginning with the current tax year and

ment. Prejudice to the interest of the

24 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

ending with the filing of its application for recog- described in this chapter. Therefore, the organi- community, without any limitation or provision nition of exemption . zational test may be met if the purposes stated restricting such purposes to accomplishment in the articles of organization are limited in only in a charitable manner, the purposes won't Example. An organization is organized and some way by reference to section 501(c)(3). be sufficiently limited. Such purposes are vague operated exclusively for charitable purposes and may be accomplished other than in an ex- The requirement that your organization's and isn't a private foundation. It was incorpora- empt manner. purposes and powers must be limited by the ar-ted on January 1, 2017, and files returns on a ticles of organization isn't satisfied if the limit is calendar-year basis. It didn't apply for recogni- Example 7. A stated purpose to operate a contained only in the bylaws or other rules or tion of exemption. The organization's gross re- hospital doesn't meet the organizational test regulations. Moreover, the organizational test ceipts during the years 2017 through 2020 were since it isn't necessarily charitable. A hospital isn't satisfied by statements of your organiza-as follows: may or may not be exempt depending on the tion's officers that you intend to operate only for manner in which it is operated. exempt purposes. Also, the test isn't satisfied by 2017 ............................ $3,600 the fact that your actual operations are for ex- Example 8. An organization that is ex-2018 ............................ 2,900 empt purposes. pressly empowered by its articles to carry on 2019 ............................ 400

2020 ............................ 12,600 social activities won't be sufficiently limited as to In interpreting an organization's articles, the its power, even if its articles state that it is or- law of the state where the organization was cre-The organization's total gross receipts for ganized and will be operated exclusively for ated is controlling. If an organization contends 2017, 2018, and 2019 were $6,900. Therefore, charitable purposes. that the terms of its articles have a different it didn't have to apply for recognition of exemp-

meaning under state law than their generally ac-tion and is exempt for those years. However, for Dedication andcepted meaning, such meaning must be estab-2018, 2019, and 2020 the total gross receipts Distribution of Assetslished by a clear and convincing reference to were $15,900. Therefore, the organization must

relevant court decisions, opinions of the state apply for recognition of exemption within 90 attorney general, or other appropriate state au-days after the end of its 2020 tax year. If it Assets of an organization must be permanently thorities.doesn't apply within this time period, it won't be dedicated to an exempt purpose. This means exempt under section 501(c)(3) for the period that should an organization dissolve, its assets The following are examples illustrating the beginning with tax year 2020 ending when the must be distributed for an exempt purpose de-organizational test.application for recognition of exemption is re- scribed in this chapter, or to the Federal Gov-ceived by the IRS. The organization, however, ernment or to a state or local government for a Example 1. Articles of organization state won't lose its exempt status for the tax years public purpose. If the assets could be distrib-that an organization is formed exclusively for lit-ending before January 1, 2020. uted to members or private individuals or for erary and scientific purposes within the mean-The IRS will consider applying the Commis- any other purpose, the organizational test isn't ing of section 501(c)(3). These articles appro-sioner's discretionary authority to extend the met.priately limit the organization's purposes. The time for filing an application for recognition of organization meets the organizational test. Dedication. To establish that your organi-exemption. See the procedures for this exten- zation's assets will be permanently dedicated to sion discussed earlier.Example 2. An organization, by the terms an exempt purpose, the articles of organization of its articles, is formed to engage in research should contain a provision ensuring their distri-Articles of Organizationwithout any further description or limitation. The bution for an exempt purpose in the event of dis-organization won't be properly limited as to its solution. Although reliance can be placed upon purposes since all research isn't scientific. The state law to establish permanent dedication of Your organization must be a legal entity (corpo-organization doesn't meet the organizational assets for exempt purposes, review of an appli-ration, trust, or association) separate from its or-test. cation for exemption may be facilitated if the ar-ganizers and must have written articles of or- ticles of organization include a provision ensur-Example 3. An organization's articles state ganization. Depending upon the type of entity, ing permanent dedication of assets for exempt that its purpose is to receive contributions and its articles of organization may be a corporate purposes.pay them over to organizations that are descri-charter (filed articles of incorporation), trust in-

bed in section 501(c)(3) and exempt from taxa-strument, articles of association, or any other Distribution. Rev. Proc. 82-2, 1982-1 C.B. tion under section 501(a). The organization written instrument by which the organization 367, identifies the states and circumstances in meets the organizational test.was created. If applying for recognition of ex- which the IRS won't require an express provi-emption using Form 1023, a conformed copy of sion for the distribution of assets upon dissolu-Example 4. If a stated purpose in the arti-the articles of organization must be uploaded tion in the articles of organization. The proce-cles is the conduct of a school of adult educa-with the application for recognition of exemp- dure also provides a sample of an acceptable tion and its manner of operation is described in tion. See Form 1023, Part II. An organization dissolution provision for organizations required detail, such a purpose will be satisfactorily limi-applying for exemption using Form 1023-EZ to have one.ted.does not submit a copy of the articles of organi- If a named beneficiary is to be the distribu-zation with its application; however, the organi- tee, it must be one that would qualify and would Example 5. If the articles state the organi-zation could be asked to provide a copy at any be exempt within the meaning of section 501(c)zation is formed for charitable purposes, without time as part of a compliance check or examina- (3) at the time the dissolution takes place. Since any further description, such language ordina-tion. the named beneficiary at the time of dissolution rily will be sufficient since the term charitable may not be qualified, may not be in existence, has a generally accepted legal meaning. On the Organizational Test or may be unwilling or unable to accept the as-other hand, if the purposes are stated to be sets of the dissolving organization, a provision charitable, philanthropic, and benevolent, the should be made for distribution of the assets for The articles of organization must limit the organ-organizational requirement won't be met since one or more of the purposes specified in this ization's purposes to one or more of those de-the terms philanthropic and benevolent have no chapter in the event of any such contingency.scribed at the beginning of this chapter and generally accepted legal meaning and, there-

mustn't expressly empower it to engage, other fore, the stated purposes may, under the laws of Sample articles of organization. See sample than as an insubstantial part of its activities, in the state, permit activities that are broader than articles of organization in the Appendix in the activities that don't further one or more of those those intended by the exemption law. back of this publication.Page 26 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025purposes. These conditions for exemption are

referred to as the organizational test. Example 6. If the articles state an organiza- tion is formed to promote American ideals, or to Section 501(c)(3) is the provision of law that foster the best interests of the people, or to fur- grants exemption to the organizations ther the common welfare and well-being of the

Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 25

educational even if one or more of the factors so far as may be feasible, for the next aca-Educational listed above are present. demic year.)

1. The amount of scholarship and loan funds, Qualifying organizations. The following types if any, awarded to students enrolled and of organizations may qualify as educational:and Private Schoolsthe racial composition of students who
2. An organization, such as a primary or sec- have received the awards. ondary school, a college, or a professional 3. A list of the school's incorporators, found-or trade school, that has a regularly sched- ers, board members, and donors of land or of exemption as an educational organization, uled curriculum, a regular faculty, and a buildings, whether individuals or organiza-you must submit complete information as to regularly enrolled student body in attend- tions.how your organization carries on or plans to ance at a place where the educational ac-carry on its educational activities, such as by tivities are regularly carried on; 4. A statement indicating whether any of the conducting a school, by panels, discussions, persons described in item (3) above have 2. An organization whose activities consist of lectures, forums, radio and television programs, an objective of maintaining segregated conducting public discussion groups, fo-or through various cultural media such as muse- public or private school education at the rums, panels, lectures, or other similar pro-ums, symphony orchestras, or art exhibits. In time the application is filed and, if so, grams;each instance, you must explain by whom and whether any of the individuals described in where these activities are or will be conducted 3. An organization that presents a course of item (3) are officers or active members of and the amount of admission fees, if any. You instruction by correspondence or through those organizations at the time the appli-must submit a copy of the pertinent contracts, the use of television or radio; cation is filed.agreements, publications, programs, etc.4. A museum, zoo, planetarium, symphony 5. The public school district and county in If you are organized to conduct a school, orchestra, or other similar organization; which the school is located.you must submit full information regarding your 5. A nonprofit children's day-care center; andtuition charges, number of faculty members, How to determine racial composition. The

number of full-time and part-time students en- racial composition of the student body, faculty, 6. A credit counseling organization.rolled, courses of study and degrees conferred, and administrative staff can be an estimate College book stores, cafeterias, restau-together with a copy of your school catalog. See based on the best information readily available rants, etc. These and other on-campus organi-Form 1023, Schedule B and Private Schools, to the school, without requiring student appli- zations should submit information to show that discussed later. cants, students, faculty, or administrative staff to they are controlled by and operated for the con- submit to the school information that the school venience of the faculty and student body or by Educational Organizations otherwise doesn't require. Nevertheless, a whom they are controlled and whom they serve. statement of the method by which the racial

composition was determined must be supplied. The term educational relates to:Alumni association. An alumni associa-The identity of individual students or members tion should establish that it is organized to pro-1. The instruction or training of individuals for of the faculty and administrative staff shouldn't mote the welfare of the university with which it is the purpose of improving or developing be included with this information.affiliated, is subject to the control of the univer-their capabilities, orA school that is a state or municipal instru-sity as to its policies and destination of funds, mentality (see Instrumentalities, near the begin-2. The instruction of the public on subjects and is operated as an integral part of the univer- ning of this chapter), whether or not it qualifies useful to individuals and beneficial to the sity or is otherwise organized to promote the for exemption under section 501(c)(3), isn't con-community.welfare of the college or university. If your asso- sidered to be a private school for purposes of ciation doesn't have these characteristics, it the following discussion.Advocacy of a position. Advocacy of a partic-may still be exempt as a social club if it meets

ular position or viewpoint may be educational if the requirements described in chapter 4, under there is a sufficiently full and fair exposition of Racially Nondiscriminatory Policy 501(c)(7) - Social and Recreation Clubs.

pertinent facts to permit an individual or the Athletic organization. This type of organi-public to form an independent opinion or con- To qualify as an organization exempt from fed- zation must submit evidence that it is engaged clusion. The mere presentation of unsupported eral income tax, a private school must include a in activities such as directing and controlling in-opinion isn't educational. statement in its charter, bylaws, or other govern- terscholastic athletic competitions, conducting ing instrument, or in a resolution of its governing Method not educational. The method tournaments, and prescribing eligibility rules for body, that it has a racially nondiscriminatory pol-used by an organization to develop and present contestants. If it isn't so engaged, your organi- icy as to students and that it doesn't discrimi-its views is a factor in determining if an organi- zation may be exempt as a social club descri- nate against applicants and students on the ba-zation qualifies as educational within the mean- bed in chapter 4. Raising funds to be used for sis of race, color, or national or ethnic origin. ing of section 501(c)(3). The following factors travel and other activities to interview and per- Also, the school must circulate information that may indicate that the method isn't educational. suade prospective students with outstanding clearly states the school's admission policies. A athletic ability to attend a particular university 1. The presentation of viewpoints unsuppor- racially nondiscriminatory policy toward stu- doesn't show an exempt purpose. If your organi- ted by facts is a significant part of the or- dents means that the school admits the stu- zation isn't exempt as an educational organiza- ganization's communications. dents of any race to all the rights, privileges, tion, see Amateur Athletic Organizations, later programs, and activities generally accorded or 2. The facts that purport to support the view- in this chapter. made available to students at that school and point are distorted. that the school doesn't discriminate on the ba- Private Schools3. The organization's presentations make sis of race in administering its educational poli-

substantial use of inflammatory and dis- cies, admission policies, scholarship and loan paraging terms and express conclusions Every private school filing an application for rec- programs, and athletic and other school-admin- more on the basis of emotion than of ob- ognition of tax-exempt status must supply the istered programs. jective evaluations. IRS (on Schedule B, Form 1023) with the follow- ing information. The IRS considers discrimination on the ba-4. The approach used isn't aimed at develop- sis of race to include discrimination on the basis ing an understanding on the part of the au- 1. The racial composition of the student Page 27 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 of color or national or ethnic origin.dience because it doesn't consider their body, and of the faculty and administrative background or training. staff, as of the current academic year. The existence of a racially discriminatory (This information must also be projected, Exceptional circumstances, however, may policy with respect to the employment of faculty exist where an organization's advocacy may be and administrative staff is indicative of a racially

26 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

discriminatory policy as to students. Con- and circulars can be distributed by a partic- NOTICE OFversely, the absence of racial discrimination in ular religious denomination or unit or by an NONDISCRIMINATORY POLICYthe employment of faculty and administrative association that represents a number of re- AS TO STUDENTSstaff is indicative of a racially nondiscriminatory ligious organizations of the same denomi- The M School admits students of any race, policy as to students. nation. If, however, the school advertises in color, national and ethnic origin to all the newspapers of general circulation in the rights, privileges, programs, and activities A policy of a school that favors racial minor- community or communities from which its generally accorded or made available to ity groups with respect to admissions, facilities students are drawn and the second excep- students at the school. It doesn't

and programs, and financial assistance isn't dis- tion (discussed next) doesn't apply to the discriminate on the basis of race, color, crimination on the basis of race when the pur- school, then it must comply with either of national and ethnic origin in administration pose and effect of this policy is to promote es- of its educational policies, admissions the publicity requirements explained ear- policies, scholarship and loan programs, tablishing and maintaining the school's lier. and athletic and other school-administered nondiscriminatory policy. Second, if a school customarily draws a programs. substantial percentage of its students na- A school that selects students on the basis tionwide, worldwide, from a large geo- of membership in a religious denomination or graphic section or sections of the United Method two. The school can use the unit isn't discriminating if membership in the de- States, or from local communities, and if broadcast media to publicize its racially nondis-nomination or unit is open to all on a racially the school follows a racially nondiscrimina- criminatory policy if this use makes the policy nondiscriminatory basis. tory policy as to its students, the school known to all segments of the general commun- may satisfy the publicity requirement by ity the school serves. If the school uses this Policy statement. The school must include a complying with the instructions explained method, it must provide documentation showing statement of its racially nondiscriminatory policy earlier under Policy statement. that the means by which this policy was com-in all its brochures and catalogs dealing with The school can demonstrate that it follows a municated to all segments of the general com-student admissions, programs, and scholar- racially nondiscriminatory policy either by show- munity was reasonably expected to be effective. ships. Also, the school must include a reference ing that it currently enrolls students of racial mi- In this case, appropriate documentation would to its racially nondiscriminatory policy in other nority groups in meaningful numbers or, except include copies of the tapes or scripts used and written advertising that it uses to inform pro- for local community schools, when minority stu- records showing that there was an adequate spective students of its programs. dents aren't enrolled in meaningful numbers, number of announcements. The documentation that its promotional activities and recruiting ef- also would include proof that these announce-Publicity requirement. The school must make forts in each geographic area were reasonably ments were made during hours when they were its racially nondiscriminatory policy known to all designed to inform students of all racial seg- likely to be communicated to all segments of the segments of the general community served by ments in the general communities within the general community, that they were long enough the school. Selective communication of a ra- area of the availability of the school. The ques- to convey the message clearly, and that they cially nondiscriminatory policy that a school pro- tion as to whether a school demonstrates such were broadcast on radio or television stations vides solely to leaders of racial groups won't be a policy satisfactorily will be determined on the likely to be listened to by substantial numbers of considered an effective means of communica- basis of the facts and circumstances of each members of all racial segments of the general tion to make the policy known to all segments of case. community. Announcements must be made dur-the community. To satisfy this requirement, the The IRS recognizes that the failure by a ing the period of the school's solicitation for stu-school must use one of the following three school drawing its students from local commun- dents or, in the absence of a solicitation pro-methods. ities to enroll racial minority group students may gram, during the school's registration period. not necessarily indicate the absence of a ra-Method one. The school can publish a no- Method three. Rev. Proc. 2019-22, cially nondiscriminatory policy when there are tice of its racially nondiscriminatory policy in a 2019-22 I.R.B. 1260 modifies Rev. Proc. 75-50, relatively few or no such students in these com-newspaper of general circulation that serves all 1975-2 C.B. 587, to reflect technological advan- munities. Actual enrollment is, however, a racial segments of the community. Such publi- ces since its publication and provides a third meaningful indication of a racially nondiscrimi-cation must be repeated at least once annually method for a private school to satisfy the re- natory policy in a community in which a public during the period of the school's solicitation for quirement contained in section 4.03 of the reve- school or schools became subject to a desegre-students or, in the absence of a solicitation pro- nue procedure by using its Internet website to gation order of a federal court or are otherwise gram, during the school's registration period. publicize the school's racially nondiscriminatory expressly obligated to implement a desegrega-When more than one community is served by a policy as to students. To satisfy the requirement tion plan under the terms of any written contract school, the school can publish the notice in using this method, the school may display a no- or other commitment to which any federal those newspapers that are reasonably likely to tice (consisting of the same language as in agency was a party.be read by all racial segments in the communi- Method 1) of its racially nondiscriminatory pol- The IRS encourages schools to satisfy the ties that the school serves. icy on its primary publicly accessible Internet publicity requirement by using either of the

homepage at all times during its taxable year methods described earlier, even though a If this method is used, the notice must meet (excluding temporary outages due to website school considers itself to be within one of the the following printing requirements. maintenance or technical problems) in a man- Exceptions. The IRS believes that these publi-1. It must appear in a section of the newspa-ner reasonably expected to be noticed by visi- city requirements are the most effective meth-per likely to be read by prospective stu-tors to the homepage. See Rev. Proc. 2019-22 ods to make known a school's racially nondis-dents and their families.for more information about satisfying the publi- criminatory policy. In this regard, it is each

city requirement using this method. school's responsibility to determine whether ei-2. It must occupy at least 3 column inches. ther of the exceptions applies. Such responsibil-Exceptions. The publicity requirements 3. It must have its title printed in at least 12 ity will prepare the school, if it is audited by the won't apply in the following situations.point bold face type. IRS, to demonstrate that the failure to publish its First, if for the preceding 3 years the en- racially nondiscriminatory policy in accordance 4. It must have the remaining text printed in rollment of a parochial or other church-rela- with either one of the publicity requirements at least 8 point type. ted school consists of students at least was justified by one of the exceptions. Also, a 75% of whom are members of the sponsor- school must be prepared to demonstrate that it The following is an acceptable example of ing religious denomination or unit, the has publicly disavowed or repudiated any state-the notice: school can make known its racially nondis-Page 28 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 ments purported to have been made on its be- criminatory policy in whatever newspapers half (after November 6, 1975) that are contrary or circulars the religious denomination or to its publicity of a racially nondiscriminatory unit uses in the communities from which policy as to students, to the extent that the the students are drawn. These newspapers

Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 27

school or its principal official was aware of these information, without advance approval of the 5. Has obtained at least $1,000,000 in statements. IRS. startup capital from nonmember charitable organizations, The IRS doesn't require that a school release Facilities and programs. A school must be 6. Is controlled by a board of directors elec- any personally identifiable records or personal able to show that all of its programs and facili- ted by its members, and information except in accordance with the re-ties are operated in a racially nondiscriminatory

quirements of the Family Educational Rights manner. 7. Is organized under documents requiring and Privacy Act of 1974. Similarly, the IRS that:

Scholarship and loan programs. As a gen- doesn't require a school to keep records pro- a. Each member be a section 501(c)(3) eral rule, all scholarship or other comparable hibited under state or federal law. organization exempt from tax under benefits obtainable at the school must be of- section 501(a), Exceptions. The school doesn't have to in-fered on a racially nondiscriminatory basis. This dependently maintain these records for IRS use must be known throughout the general com- b. Each member that receives a final de- if both of the following are true.munity being served by the school and should termination that it no longer qualifies

be referred to in its publicity. Financial assis- under section 501(c)(3) notify the pool 1. Substantially the same information has tance programs, as well as scholarships and immediately, and been included in a report or reports filed loans made under financial assistance pro- with an agency or agencies of federal, c. Each insurance policy issued by the grams, that favor members of one or more racial state, or local governments, and this infor- pool provide that it won't cover events minority groups and that don't significantly de- mation is current within 1 year. occurring after a final determination tract from or are designed to promote a school's described in (b). 2. The school maintains copies of these re-racially nondiscriminatory policy won't ad- ports from which this information is readily versely affect the school's exempt status. obtainable. Other Section 501(c)(3) Certification. An individual authorized to take If these reports don't include all of the informa-official action on behalf of a school that claims tion required, as discussed earlier, records pro-to be racially nondiscriminatory as to students viding such remaining information must be must certify annually, under penalties of perjury, maintained by the school for IRS use. In addition to the information required for all or-on Schedule E (Form 990) or Form 5578, An-

ganizations, as described earlier, you should in-Failure to maintain records. Failure to nual Certification of Racial Nondiscrimination clude any other information described in this maintain or to produce the required records and for a Private School Exempt From Federal In- section.information, upon proper request, will create a come Tax, whichever applies, that to the best of presumption that the organization has failed to their knowledge and belief the school has satis-Charitable Organizationscomply with these guidelines.fied all requirements that apply, as previously

See Rev. Proc. 2019-22 for more informa-explained. tion on private school's racially nondiscrimina-Failure to comply with the guidelines ordina- If your organization is applying for recognition of tory policy requirements.rily will result in the proposed revocation of the exemption as a charitable organization, it must exempt status of a school. show that it is organized and operated for pur-Organizations Providing poses that are beneficial to the public interest. Recordkeeping requirements. With

Some examples of this type of organization are certain exceptions, given later, each Insurancethose organized for:exempt private school must maintain • Relief of the poor, the distressed, or the un-the following records for a minimum period of 3

derprivileged;years, beginning with the year after the year of An organization described in sections 501(c)(3) •Advancement of religion;compilation or acquisition.or 501(c)(4) may be exempt from tax only if no •Advancement of education or science;substantial part of its activities consists of pro-1. Records indicating the racial composition •Erection or maintenance of public build-viding commercial-type insurance.of the student body, faculty, and adminis-ings, monuments, or works;trative staff for each academic year.•Lessening the burdens of government;However, this rule doesn't apply to •Lessening of neighborhood tensions;2. Records sufficient to document that schol-state-sponsored organizations described in •Elimination of prejudice and discrimination;arship and other financial assistance is sections 501(c)(26) or 501(c)(27), which are •Defense of human and civil rights secured awarded on a racially nondiscriminatory discussed in chapter 4, or to charitable risk by law; andbasis.pools, discussed next.•Combating community deterioration and 3. Copies of all materials used by or on be-juvenile delinquency.Charitable Risk Poolshalf of the school to solicit contributions.

The rest of this section contains a description of 4. Copies of all brochures, catalogs, and ad-the information to be provided by certain spe-A charitable risk pool is treated as organized vertising dealing with student admissions, cific organizations. This information is in addi-and operated exclusively for charitable purpo-programs, and scholarships. (Schools ad-tion to the required inclusions described in ses if it satisfies all of the following require-vertising nationally or in a large geo-chapter 1, and other statements requested on ments:graphic segment or segments of the Uni-Form 1023 or 1023-EZ. Each of the following ted States need only maintain a record organizations must submit the information de-1. Is organized and operated only to pool in-sufficient to indicate when and in what scribed.surable risks of its members (not including publications their advertisements were risks related to medical malpractice) and placed.)to provide information to its members Charitable organization supporting educa- tion. Submit information showing how your or-about loss control and risk management,

ganization supports education -- for example, 2. Consists only of members that are section The racial composition of the student body, fac-contributes to an existing educational institution, 501(c)(3) organizations exempt from tax ulty, and administrative staff can be determined endows a professorial chair, contributes toward under section 501(a),in the same manner as that described at the be-paying teachers' salaries, or contributes to an ginning of this section. However, a school can't educational institution to enable it to carry on re-3. Is organized under state law authorizing Page 29 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025discontinue maintaining a system of records search.this type of risk pooling,that reflect the racial composition of its stu- dents, faculty, and administrative staff used on 4. Is exempt from state income tax (or will be Scholarships. If the organization awards or November 6, 1975, unless it substitutes a differ-after qualifying as a section 501(c)(3) or-plans to award scholarships, complete Sched- ent system that compiles substantially the same ganization),ule H of Form 1023. Also, submit the following:

28 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

RECORDS

1. Criteria used for selecting recipients, in- 1. An explanation of the circumstances under operations of the organization's legal functions,
   cluding the rules of eligibility; which such loans are, or will be, made. calculated over a 5-year period. If, to carry out its program, an organization 2. How and by whom the recipients are or will 2. Criteria for selection, including the rules of violates applicable canons of ethics, disrupts be selected; eligibility. the judicial system, or engages in any illegal ac- tion, the organization will jeopardize its exemp-3. If awards are or will be made directly to in- 3. How and by whom the recipients are or will tion.dividuals, whether information is required be selected. assuring that the student remains in 4. Manner of repayment of the loan. Religious Organizationsschool;

2. Security required, if any.4. If awards are or will be made to recipients
   To determine whether an organization meets of a particular class, for example, children 6. Interest charged, if any, and when payable. the religious purposes test of section 501(c)(3), of employees of a particular employer--7. Copies in duplicate of the loan application the IRS maintains two basic guidelines.a. Whether any preference is or will be and any brochures or literature describing

3. That the particular religious beliefs of the accorded an applicant by reason of the loan program.
   organization are truly and sincerely held.the parent's position, length of em-

Public-interest law firms. If your organization ployment, or salary; 2. That the practices and rituals associated was formed to litigate in the public interest (as with the organization's religious belief or b. Whether as a condition of the award opposed to providing legal services to the creed aren't illegal or contrary to clearly the recipient must upon graduation poor), such as in the area of protection of the defined public policy.accept employment with the com-environment, you should submit the following in-pany; and Therefore, your group (or organization) may not

1. Whether the award will be continued qualify for treatment as an exempt religious or- 1. How the litigation can reasonably be said even if the parent's employment ends. ganization for tax purposes if its actions, as con- to be representative of a broad public in- trasted with its beliefs, are contrary to well es- terest rather than a private one.5. A copy of the scholarship application form tablished and clearly defined public policy. If and any brochures or literature describing 2. Whether the organization will accept fees there is a clear showing that the beliefs (or doc-the scholarship program. for its services. trines) are sincerely held by those professing them, the IRS won't question the religious na-Hospital. If you are organized to operate a 3. A description of the cases litigated or to be ture of those beliefs.charitable hospital, complete and attach Sec-litigated and how they benefit the public

tion I of Schedule C, Form 1023. generally. Churches. Although a church, its integrated If your hospital was transferred to you from 4. Whether the policies and program of the auxiliaries, or a convention or association of proprietary ownership, complete and attach organization are the responsibility of a churches isn't required to file Form 1023 to be Schedule G of Form 1023. You must attach a board or committee representative of the exempt from federal income tax or to receive tax list showing: public interest, which is neither controlled deductible contributions, the organization may

by employees or persons who litigate on find it advantageous to obtain recognition of ex-1. The names of the active and courtesy staff behalf of the organization nor by any or- emption. See Form 1023, Schedule A. In this members of the proprietary hospital, as ganization that isn't itself an organization event, you should submit information showing well as the names of your medical staff described in this chapter. that your organization is a church, synagogue, members after the transfer to nonprofit association or convention of churches, religious ownership; and5. Whether the organization is operated, order, or religious organization that is an integral through sharing of office space or other-2. The names of any doctors who continued part of a church, and that it is engaged in carry-wise, in a way to create identification or to lease office space in the hospital after ing out the function of a church.confusion with a particular private law firm.its transfer to nonprofit ownership and the In determining whether an admittedly reli-amount of rent paid. Submit also an ap-6. Whether there is an arrangement to pro- gious organization is also a church, the IRS praisal showing the fair rental value of the vide, directly or indirectly, a deduction for doesn't accept every assertion that the organi-rented space.the cost of litigation that is for the private zation is a church. Because beliefs and practi- benefit of the donor. ces vary widely, there is no single definition of Clinic. Schedule C, Form 1023, is also de- the word church for tax purposes. The IRS con-signed to encompass outpatient clinics. If you Acceptance of attorneys' fees. A non- siders the facts and circumstances of each or-are organized to operate a clinic, provide infor-profit public-interest law firm can accept attor- ganization applying for church status.mation regarding:neys' fees in public-interest cases if the fees are

paid directly by its clients and the fees aren't Convention or association of churches. 1. A description of the facilities and services;more than the actual costs incurred in the case. Any organization that is otherwise a convention 2. To whom the services are offered, such as Upon undertaking a representation, the organi- or association of churches won't fail to qualify the public at large or a specific group;zation can't withdraw from the case because the as a church merely because the membership of litigant is unable to pay the fee. the organization includes individuals as well as 3. How charges are determined, such as on Firms can accept fees awarded or approved churches or because the individuals have voting a profit basis, to recover costs, or at less by a court or an administrative agency and paid rights in the organization.than cost;by an opposing party if the firms don't use the Integrated auxiliaries. An organization is 4. By whom administered and controlled;likelihood or probability of fee awards as a con- an integrated auxiliary of a church if all the fol-sideration in the selection of cases. All fee 5. Whether any of the professional staff (that lowing are true.awards must be paid to the organization and not is, those who perform or will perform the to its individual staff attorneys. Instead, a pub- 1. The organization is described both in sec-clinical services) also serve or will serve in lic-interest law firm can reasonably compensate tions 501(c)(3) and 509(a)(1), 509(a)(2), an administrative capacity; andits staff attorneys, but only on a straight salary or 509(a)(3).6. How compensation paid to the professio-basis. Private attorneys, whose services are re- 2. It is affiliated with a church or a convention nal staff is or will be determined.tained by the firm to assist it in particular cases, or association of churches.can be compensated by the firm, but only on a Page 30 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Organization providing loans. If you make, fixed fee or salary basis. 3. It is internally supported. An organization or will make, loans for charitable and educa-The total amount of all attorneys' fees (court is internally supported unless both of the tional purposes, submit the following informa-awarded and those received from clients) following are true.tion.mustn't be more than 50% of the total cost of Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 29

Prevention of Crueltya. It offers admissions, goods, services, 3. How and by whom research projects are to Children or Animalsor facilities for sale, other than on an determined and selected.incidental basis, to the general public 4. Whether you have contracted or spon-(except goods, services, or facilities sored research, or contemplated doing so, Examples of activities that may qualify this type sold at a nominal charge or for a small and, if so, names of past sponsors or gran-of organization for exempt status are:part of the cost).tors, terms of grants or contracts, together 1. Preventing children from working in haz-b. It normally gets more than 50% of its with copies of any executed contracts or ardous trades or occupations,support from a combination of govern-grants.mental sources, public solicitation of 2. Promoting high standards of care for labo-5. Disposition made or to be made of the re-contributions, and receipts from the ratory animals, andsults of your research, including whether sale of admissions, goods, perform-preference has been or will be given to any 3. Providing funds to pet owners to have their ance of services, or furnishing of fa-organization or individual either as to re-pets spayed or neutered to prevent over-cilities in activities that aren't unrela-sults or time of release.breeding.ted trades or businesses.6. Who will retain ownership or control of any Special rule. Men's and women's organiza-patents, copyrights, processes, or formu-Private Foundationstions, seminaries, mission societies, and youth las resulting from your research.groups that satisfy (1) and (2) shown earlier are and Public Charities7. A copy of publications or other media integrated auxiliaries of a church even if they showing reports of your research activities. aren't internally supported.Only reports of your research activities or In order for an organization (including a It is important that you determine if your organi-those conducted on your behalf, as distin-church and religious organization) to qualify for zation is a private foundation. Most organiza-guished from those of your creators or tax exemption, no part of its net earnings can in-tions exempt from income tax (such as organi-members conducted in their individual ca-ure to any individual.zations described in section 501(c)(3)) are pacities, should be submitted.Although an individual is entitled to a chari-presumed to be private foundations unless they table deduction for contributions to a church, notify the IRS within a specified period of time Literary Organizationsthe assignment or similar transfer of compensa-that they meet the requirements of section tion for personal services to a church generally 509(a) to be treated as other than a private doesn't relieve a taxpayer of federal income tax foundation. This notice requirement applies to If your organization is established to operate a liability on the compensation, regardless of the most section 501(c)(3) organizations regardless book store or engage in publishing activities of motivation behind the transfer.of when they were formed. See Form 1023, Part any nature (printing, publication, or distribution VII.of your own material or that printed or published Scientific Organizationsby others and distributed by you), explain fully Private Foundationsthe nature of the operations, including whether sales are or will be made to the general public, You must show that your organization's re-the type of literature involved, and how these search will be carried on in the public interest. Every organization that qualifies for tax exemp-activities are related to your stated purposes.Scientific research will be considered to be in tion as an organization described in section the public interest if the results of the research 501(c)(3) is a private foundation unless it falls Amateur Athletic (including any patents, copyrights, processes, into one of the categories specifically excluded or formulas) are made available to the public on from the definition of that term (referred to in a nondiscriminatory basis; if the research is per-sections 509(a)(1), 509(a)(2), 509(a)(3), or formed for the United States or a state, county, 509(a)(4)). In effect, the definition divides these There are two types of amateur athletic organi-or municipal government; or if the research is organizations into two classes, namely private zations that can qualify for tax-exempt status. carried on for one of the following purposes.foundations and public charities. Public chari-The first type is an organization that fosters na-ties are discussed later.1. Aiding in the scientific education of college tional or international amateur sports competi-or university students.tion but only if none of its activities involve pro-Organizations that fall into the excluded cat-viding athletic facilities or equipment. The 2. Obtaining scientific information that is pub-egories are generally those that either have second type is a Qualified amateur sports or-lished in a treatise, thesis, trade publica-broad public support or actively function in a ganization (discussed below). The difference is tion, or in any other form that is available to supporting relationship to those organizations. that a qualified amateur sports organization can the interested public.Organizations that test for public safety are also provide athletic facilities and equipment.excluded.3. Discovering a cure for a disease.Donations to either type of amateur athletic 4. Aiding a community or geographical area Application to IRS. Even if an organization organization are deductible as charitable contri-by attracting new industry to the commun-falls within one of the categories excluded from butions on the donor's federal income tax re-ity or area, or by encouraging the develop-the definition of private foundation, it will be pre-turn. However, no deduction is allowed if there ment or retention of an industry in the sumed to be a private foundation, with some ex-is a direct personal benefit to the donor or any community or area.ceptions, unless it files a timely Form 1023 or other person other than the organization.Form 1023-EZ with the IRS showing it isn't a pri-Scientific research, for exemption purposes, vate foundation. This application requirement Qualified amateur sports organization. An doesn't include activities of a type ordinarily in-applies to an organization regardless of when it organization will be a qualified amateur sports cidental to commercial or industrial operations was organized. The only exceptions to this re-organization if it is organized and operated:such as the ordinary inspection or testing of ma-quirement are those organizations that are ex-terials or products, or the designing or con-1. Exclusively to foster national or interna-cepted from the requirement of filing Form 1023 structing of equipment, buildings, etc.tional amateur sports competition, andor 1023-EZ as discussed, earlier, under Organi-2. Primarily to conduct national or interna-If you engage or plan to engage in research, zations Not Required To File Form 1023.tional competition in sports or to support submit all of the following.When to file application. If an organiza-and develop amateur athletes for that 1. An explanation of the nature of the re-tion has to file the application, it must do so competition.Page 31 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025search.within 27 months from the end of the month in which it was organized.The organization's membership can be local or 2. A brief description of research projects If your organization is newly applying for rec-regional in nature.completed or presently being engaged in.ognition of exemption as an organization descri-bed in this chapter (a section 501(c)(3)

30 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

Draft Aorganization) and you wish to establish that The IRS has published a list of states with

your organization is a public charity rather than this type of law. The list is in Revenue Ruling a private foundation, you must complete the ap- 75-38, 1975-1 C.B. 161 (or later update). General

plicable lines of Part VII of Form 1023 or Part IV 1. The corporation will distribute its income Public Charitiesof Form 1023-EZ. See Application for Recogni- for each tax year at a time and in a manner tion of Exemption, earlier in this chapter, for as not to become subject to the tax on un-more information. A private foundation is any organization descri- distributed income imposed by section In determining the date on which a corpora- bed in Section 501(c)(3), unless it falls into one 4942 of the Internal Revenue Code, or the tion is organized for purposes of applying for of the categories specifically excluded from the corresponding section of any future fed-recognition of section 501(c)(3) status, the IRS definition of that term in section 509(a), which eral tax code.looks to the date the corporation came into exis- lists four basic categories of exclusions. These tence under the law of the state in which it is in- 2. The corporation won't engage in any act of categories are discussed under the Section corporated. For example, where state law pro- self-dealing, as defined in section 4941(d) 509(a)(1), 509(a)(2), 509(a)(3), and 509(a)(4) vides that existence of a corporation begins on of the Internal Revenue Code, or the corre- Organizations headings that follow this introduc-the date its articles are filed by a certain state sponding section of any future federal tax tion. See Section 509(a)(1) Organizations, etc.official in the appropriate state office, the corpo- code.

ration is considered organized on that date. If your organization falls into one of these 3. The corporation won't retain any excess Later nonsubstantive amendments to the ena- categories, it isn't a private foundation and you business holdings, as defined in section bling instrument won't change the date of or- should state this in Part VII of Form 1023 or Part 4943(c) of the Internal Revenue Code, or ganization, for purposes of the filing require- IV of Form 1023-EZ. the corresponding section of any future ment. federal tax code. If your organization doesn't fall into one of Application filed late. An organization that these categories, it is a private foundation and 4. The corporation won't make any invest-states it is a private foundation when it files its is subject to the applicable rules and restrictions ments in a manner as to subject it to tax application for recognition of exemption after until it terminates its private foundation status. under section 4944 of the Internal Reve-the 27-month period will be treated as a section Some private foundations also qualify as private nue Code, or the corresponding section of 501(c)(3) organization and as a private founda- operating foundations; these are discussed any future federal tax code.tion only from the date it files its application, near the end of this chapter. 5. The corporation won't make any taxable rather than the date that it was created or first Generally speaking, a large class of organi- expenditures, as defined in section became described in section 501(c)(3). The or- zations excluded under section 509(a)(1) and 4945(d) of the Internal Revenue Code, or ganization may obtain retroactive exemption, all organizations excluded under section 509(a) the corresponding section of any future however, if it establishes that it qualifies for relief (2) depend upon a support test. This test is federal tax code.from the 27-month deadline. used to assure a minimum percentage of An organization that states it is a publicly broad-based public support in the organiza-supported charity when it files its application for Draft B tion's total support pattern. Thus, in the follow-recognition of exemption after the 27-month pe-

ing discussions, when the one-third support test riod can't be treated as a section 501(c)(3) or-Any other provisions of this instrument notwith-(see Qualifying as Publicly Supported, later) is ganization before the date it files the applica-standing, the trustees shall distribute its income referred to, it means the following fraction nor-tion, except as discussed above. Financial for each tax year at a time and in a manner as mally must equal at least one-third.support received before that date can't be used not to become subject to the tax on undistrib- for purposes of determining whether the organi-uted income imposed by section 4942 of the In- zation is publicly supported. However, an organ-ternal Revenue Code, or the corresponding Qualifying supportization that can reasonably be expected to meet section of any future federal tax code. Total supportthe support requirements (discussed later un- der Public Charities) when it applies for tax-ex-Any other provisions of this instrument not- Including items of support in qualifying empt status will be classified as a publicly sup-withstanding, the trustees won't engage in any support (the numerator of the fraction) ported charity and not a private foundation.act of self-dealing as defined in section 4941(d) or excluding items of support from total

of the Internal Revenue Code, or the corre- support (the denominator of the fraction) may Excise taxes on private foundations. There sponding section of any future federal tax code; decide whether an organization is excluded is an excise tax on the net investment income of nor retain any excess business holdings as de- from the definition of a private foundation, and most domestic private foundations. In addition, fined in section 4943(c) of the Internal Revenue thus from the liability for certain excise taxes. It excise taxes may be imposed on the private Code, or the corresponding section of any fu- is very important to classify items of support foundation or disqualified persons if the founda-ture federal tax code; nor make any investments correctly.tion or disqualified persons have engaged in in a manner as to incur tax liability under section

certain transactions or activities. Managers may 4944 of the Internal Revenue Code, or the cor- Section 509(a)(1) Organizationsalso be subject to excise tax for their role in ap- responding section of any future federal tax

proving the activity. See Chapter 5 for more in- code; nor make any taxable expenditures as de- Section 509(a)(1) organizations include:formation on excise taxes. fined in section 4945 (d) of the Internal Revenue Code, or the corresponding section of any fu- 1. A church or a convention or association of Governing instrument. A private foundation ture federal tax code. churches (section 170(b)(1)(A)(i)),can't be tax exempt nor will contributions to it be

1. An educational organization such as a deductible as charitable contributions unless its Effect of state law. A private foundation's gov-school or college (section 170(b)(1)(A)(ii)),governing instrument contains special provi-erning instrument will be considered to meet
   sions in addition to those that apply to all organ- these charter requirements if valid provisions of 3. A hospital or medical research organiza-izations described in section 501(c)(3). state law have been enacted that: tion operated in conjunction with a hospital (section 170(b)(1)(A)(iii)),Sample governing instruments. The fol- 1. Require it to act or refrain from acting so lowing samples of governing instrument provi- as not to subject the foundation to the 4. Endowment funds operated for the benefit sions illustrate the special charter requirements taxes imposed on prohibited transactions, of certain state and municipal colleges that apply to private foundations. Draft A is a or and universities (section 170(b)(1)(A)(iv)),sample of provisions in articles of incorporation; Page 32 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 2. Treat the required provisions as contained 5. A governmental unit (section 170(b)(1)(A)Draft B, a trust indenture. in the foundation's governing instrument. (v)),

2. An agricultural research organization (sec-
   tion 170(b)(1)(A)(xi)), and

Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 31!

CAUTION

1. A publicly supported organization (section operates a hospital that participates in a pro- 1. An agency or instrumentality of a state or 170(b)(1)(A)(vi)). vider-sponsored organization, whether or not political subdivision; or the provider-sponsored organization is tax ex- 2. Owned or operated by:Church. The characteristics of a church are empt. For section 501(c)(3) purposes, any per-

discussed earlier in this chapter under Religious son with a material financial interest in the pro- a. A state or political subdivision; or vider-sponsored organization is treated as a Organizations. b. An agency or instrumentality of one or private shareholder or individual with respect to more states or political subdivisions.Educational organizations. An educational the hospital.

organization that qualifies as a public charity un- The phrase "expenditures to or for the bene- Requirements for section 501(c)(3) hos-der section 170(b)(1)(A)(ii) is one whose pri- fit of a college or university" includes expendi- pitals under the Affordable Care Act. The mary function is to present formal instruction tures made for any one or more of the normal Affordable Care Act (ACA), enacted March 23, that normally maintains a regular faculty and functions of a college or university. These ex- 2010, added requirements that hospital organi-curriculum and that normally has a regularly en- penditures include those for: zations must satisfy in order to be described in rolled body of pupils or students in attendance section 501(c)(3), as well as reporting and ex- 1. Acquiring and maintaining real property at the place where it regularly carries on its edu- cise taxes. comprising part of the campus area;cational activities. The term includes institutions

Requirements for charitable hospitals. such as primary, secondary, preparatory, or 2. Erecting (or participating in erecting) col-Section 501(r), added to the Code by the ACA, high schools, and colleges and universities. It lege or university buildings;imposes requirements on section 501(c)(3) or-includes federal, state, and other publicly sup-ganizations that operate one or more hospital 3. Acquiring and maintaining equipment and ported schools that otherwise come within the facilities (hospital organizations). Each section furnishings used for, or in conjunction with, definition. It doesn't include organizations en-501(c)(3) hospital organization is required to normal functions of colleges and universi-gaged in both educational and noneducational meet four general requirements on a fa- ties;activities, unless the latter are merely incidental cility-by-facility basis:to the educational activities. A recognized uni- 4. Libraries;•establish written financial assistance and versity that incidentally operates a museum or emergency medical care policies, 5. Scholarships; andsponsors concerts is an educational organiza-•limit amounts charged for emergency or tion. However, the operation of a school by a 6. Student loans.other medically necessary care to individu-museum doesn't necessarily qualify the mu-als eligible for assistance under the hospi- The organization must normally receive a seum as an educational organization.tal's FAP, substantial part of its support from the United An exempt organization that operates a tu-•make reasonable efforts to determine States or any state or political subdivision, or toring service for students on a one-to-one ba-whether an individual is eligible for assis- from direct or indirect contributions from the sis in their homes, maintains a small center to tance under the hospital's FAP before en- general public, or from a combination of these test students to determine their need for tutor-gaging in extraordinary collection actions sources.ing, and employs tutors on a part-time basis against the individual, andisn't an educational organization for these pur-• Support. Support doesn't include income conduct a community health needs as-poses. Nor is an exempt organization that con- received in the exercise or performance by the sessment (CHNA) at least once every 3 ducts an internship program by placing college organization of its charitable, educational, or years. (This CHNA requirement is effective and university students with cooperating gov- other purpose or function constituting the basis for tax years beginning after March 23, ernment agencies an educational organization. for exemption.2012).

In determining the amount of support re-The ACA also added section 4959, which Hospitals and medical research organiza-ceived by an organization for a contribution of tions. A hospital described in section 170(b)(1)imposes an excise tax for failure to meet the property when the value of the contribution by (A)(iii) is an organization whose principal pur-CHNA requirements, and added reporting re-the donor is subject to reduction for certain ordi-pose or function is to provide hospital or medi-quirements under section 6033(b) related to nary income and capital gain property, the fair cal care or either medical education or medical sections 501(r) and 4959. See Regulations sec-market value of the property is taken into ac-research. A rehabilitation institution, outpatient tions 1.501(r)-1 through 1.501(r)-7.count.clinic, or community mental health or drug treat-

Correction and disclosure procedures ment center may qualify as a hospital if its prin- Indirect contribution. An example of an under section 501(r). Revenue Procedure cipal purpose or function is providing hospital or indirect contribution from the public is the re-2015-21 provides correction and disclosure medical care. If the accommodations of an or- ceipt by the organization of its share of the pro-procedures under which certain failures to meet ganization qualify as being part of a skilled ceeds of an annual collection campaign of a the requirements of section 501(r) will be ex-nursing facility, that organization may qualify as community chest, community fund, or united cused for purposes of sections 501(r)(1) and a hospital if its principal purpose or function is fund.501(r)(2)(B). See Rev. Proc. 2015-21, 2015-13 providing hospital or medical care.I.R.B. 817, or later guidance. Governmental units. A governmental unit de-Exceptions. The term hospital doesn't in- scribed in section 170(b)(1)(A)(v) includes a Medical research organization. A medi-clude convalescent homes, homes for children state, a territory of the United States, or a politi-cal research organization must be directly en-or the aged, or institutions whose principal pur- cal subdivision of either of the foregoing, or the gaged in the continuous active conduct of medi-pose or function is to train handicapped individ- United States or the District of Columbia.cal research in conjunction with a hospital, and uals to pursue a vocation. An organization that that activity must be the organization's principal mainly provides medical education or medical Agricultural research organizations. Agri-purpose or function.research won't be considered a hospital, unless cultural research organizations described in it is also actively engaged in providing medical section 170(b)(1)(A)(ix) operated in conjunction Endowment funds. Organizations operated or hospital care to patients on its premises or in with a land-grant college or university or a for the benefit of certain state and municipal col-its facilities, on an in-patient or out-patient ba- non-land-grant college of agriculture may now leges and universities may be endowment sis, as an integral part of its medical education qualify for public charity status. See the Instruc-funds described in section 170(b)(1)(A)(iv). or medical research functions. tions for Form 1023 for more information.They are organized and operated exclusively to:A cooperative hospital service organization

that meets the requirements of section 501(e) 1. Receive, hold, invest, and administer prop- Publicly supported organizations. An organ-will qualify as a hospital. erty for a college or university; and ization is a publicly supported organization if it Page 33 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 is one that normally receives a substantial part 2. Make expenditures to or for the benefit of a Hospitals participating in provider-spon- of its support from a governmental unit or from sored organizations. An organization can be college or university; the general public.treated as organized and operated exclusively The college or university must be:for a charitable purpose even if it owns and 32 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

Types of organizations that generally qualify support unless the total amount of governmen- If the percentage of the organization's sup- are: tal and public support normally received is at port from the general public or governmental •Museums of history, art, or science; least 10% of the total support normally received sources is low because it receives a high per-•Libraries; by that organization. centage of its total support from investment in-•Community centers to promote the arts; come on its endowment funds, the organization • Attraction of public support require-Organizations providing facilities for the will be treated as complying with this factor if ment. An organization must be organized and support of an opera, symphony orchestra, the endowment fund was originally contributed operated in a manner to attract new and addi-ballet, or repertory drama, or for some by a governmental unit or by the general public. tional public or governmental support on a con-other direct service to the general public; However, if the endowment funds were origi- tinuous basis. An organization will meet this re-and nally contributed by a few individuals or mem- quirement if it maintains a continuous and bona •Organizations such as the American Red bers of their families, this fact will increase the fide program for solicitation of funds from the Cross or the United Way. burden on the organization to establish compli- general public, community, or membership ance with other factors. Facts pertinent to years group involved, or if it carries on activities de- before the 4 tax years immediately before the Qualifying as Publicly Supported signed to attract support from governmental current tax year may also be considered. units or other charitable organizations descri-An organization will qualify as publicly suppor- bed in section 509(a)(1). In determining 2. Sources of support factor. If an organi-ted under section 170(b)(1)(A)(vi) if it passes whether an organization maintains a continuous zation normally receives at least 10% but less the one-third support test. If it fails that test, it and bona fide program for solicitation of funds than one-third of its total support from public or may qualify under the facts and circumstances from the general public or community, consider- governmental sources, the fact that it receives test. An organization may also qualify as pub- ation will be given to whether the scope of its the support from governmental units or directly licly supported under section 509(a)(2). See fundraising activities is reasonable in light of its or indirectly from a representative number of Section 509(a)(2) Organizations, later. charitable activities. Consideration will also be persons, rather than receiving almost all of its

given to the fact that an organization may, in its support from the members of a single family, will One-third support test. An organization will early years of existence, limit the scope of its be considered in determining whether the or-qualify as publicly supported under section solicitation to persons who would be most likely ganization is publicly supported. In determining 170(b)(1)(A)(vi) if it normally receives at least to provide seed money sufficient to enable it to what is a representative number of persons, one-third of its total support from governmental begin its charitable activities and expand its so- consideration will be given to the type of organi-units, from contributions made directly or indi-licitation program. zation involved, the length of time it has existed, rectly by the general public, or from a combina- and whether it limits its activities to a particular tion of these sources. For a definition of sup-Definition of normally for facts and cir- community or region or to a special field that port, see Support, later.cumstances test. An organization will nor- can be expected to appeal to a limited number mally meet the requirements of the facts and of persons. Facts pertinent to years before the 4 Definition of normally for one-third sup-circumstances test for its current tax year and tax years immediately before the current tax port test. An organization will be considered the next tax year if, for the current tax year and year may also be considered.as normally meeting the one-third support test the 4 tax years immediately before the current under section 170(b)(1)(A)(vi) for its current tax tax year, the organization meets the ten-per- 3. Representative governing body factor. year and the next tax year if, for the current tax cent-of-support and the attraction of public sup- The fact that an organization has a governing year and the 4 tax years immediately before the port requirements on an aggregate basis and body that represents the broad interests of the current tax year, the organization meets the satisfies a sufficient combination of the factors public rather than the personal or private inter-one-third support test on an aggregate basis. discussed later. The combination of factors that est of a limited number of donors will be consid-See also Computation period for public support an organization normally must meet doesn't ered in determining whether the organization is (Special computation period for new organiza-have to be the same for each 4-year period as publicly supported.tions) later, in this discussion.long as a sufficient combination of factors exists An organization will meet this requirement if

to show compliance. it has a governing body composed of:Facts and circumstances test. The facts and

1. Public officials acting in their public ca-circumstances test is for organizations failing to Additional requirements (the five public pacities,meet the one-third support test. If your organi-support factors). In addition to the two re-
   zation fails to meet the one-third support test, it quirements of the facts and circumstances test, 2. Individuals selected by public officials act-may still be treated as a publicly supported or- the following five public support factors will be ing in their public capacities,ganization described in section 170(b)(1)(A)(vi) considered in determining whether an organiza- 3. Persons having special knowledge or ex-if it normally receives a substantial part of its tion is publicly supported. However, an organi- pertise in the particular field or discipline in support from governmental units, from direct or zation generally doesn't have to satisfy all of the which the organization is operating, andindirect contributions from the general public, or factors. The factors relevant to each case and from a combination of these sources. To qualify, the weight accorded to any one of them may dif- 4. Community leaders, such as elected or an organization must meet the ten-per- fer depending upon the nature and purpose of appointed officials, members of the clergy, cent-of-support requirement and the attraction the organization and the length of time it has ex- educators, civic leaders, or other such per-of public support requirement. These require- isted. The combination of factors that an organi- sons representing a broad cross-section ments establish, under all the facts and circum- zation normally must meet doesn't have to be of the views and interests of the commun-stances, that an organization normally receives the same for each 4-year period as long as a ity.a substantial part of its support from govern- sufficient combination of factors exists to show mental units or from direct or indirect contribu- In a membership organization, the governing that the organization is publicly supported. tions from the general public. The organization body should also include individuals elected by

2. Percentage of financial support factor. must also be in the nature of a publicly suppor- a broadly based membership according to the When an organization normally receives at least ted organization, taking into account five differ- organization's governing instrument or bylaws.10% but less than one-third of its total support ent factors. See Additional requirements (the from public or governmental sources, the per- 4. Availability of public facilities or serv-five public support factors), later. ices factor. The fact that an organization gen-centage of support received from those sources
   erally provides facilities or services directly for will be considered in determining whether the Ten-percent-of-support requirement. The percentage of support normally received by the benefit of the general public on a continuing organization is publicly supported. As the per- an organization from governmental units, from basis is evidence that the organization is pub-centage of support from public or governmental Page 34 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025contributions made directly or indirectly by the licly supported. Examples are:sources increases, the burden of establishing •general public, or from a combination of these A museum or library that is open to the the publicly supported nature of the organiza- sources must be substantial. An organization public,tion through other factors decreases, while the •won't be treated as normally receiving a sub- A symphony orchestra that gives public lower the percentage, the greater the burden. stantial amount of governmental or public performances,

Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 33

•A conservation organization that provides support test for 2025, as the immediately suc- can reasonably be expected to meet the

educational services to the public through ceeding tax year. one-third support test. Organization Y receives the distribution of educational materials, or In tax years 2020, 2021, 2022, 2023, and a determination letter that it is an organization •An old-age home that provides domiciliary 2024, in the aggregate, X doesn't receive at described in section 501(c)(3) and sections or nursing services for members of the least one-third of its support from governmental 170(b)(1)(A)(vi) and 509(a)(1) effective as of units referred to in section 170(c)(1), from con- the date of formation. tributions made directly or indirectly by the gen- Organization Y is described in sections The fact that an educational or research institu- eral public, or from a combination of these sour- 170(b)(1)(A)(vi) and 509(a)(1) for its first 5 tax tion regularly publishes scholarly studies widely ces. X still meets the one-third support test for years (tax years ending December 31, 2017, used by colleges and universities or by mem- tax year 2024 based on the aggregate support through December 31, 2021). Organization Y bers of the general public is also evidence that received for tax years 2020 through 2024. can qualify as a public charity beginning with the organization is publicly supported. In tax years 2021, 2022, 2023, 2024, and the tax year ending December 31, 2021, if Or-Similarly, the following factors are also evi- 2025, in the aggregate, X doesn't receive at ganization Y meets the one-third support test or dence that an organization is publicly suppor- least one-third of its support from governmental facts and circumstances test for the tax years ted. units referred to in section 170(c)(1), from con- ending December 31, 2018, through December

1. Participating in, or sponsoring, the pro- tributions made directly or indirectly by the gen- 31, 2022, or for the tax years ending December grams of the organization by members of eral public, or from a combination of these sour- 31, 2017, through December 31, 2021. the public having special knowledge or ex- ces. X doesn't meet the one-third support test Determinations of public support status. pertise, public officials, or civic or com- for tax year 2024. An organization may request a determination munity leaders. Based on the aggregate support and other letter that it is described in section 170(b)(1)(A) factors listed in Regulations section 1.170A-9(f)2. Maintaining a definitive program by the or- (vi). This request is made on Form 1023 or (3)(iii)(A) through (E) for tax years 2020, 2021, ganization to accomplish its charitable Form 1023-EZ, or at such other time as the or- 2022, 2023, and 2024, X meets the facts and work in the community, such as slum ganization believes it is described in section circumstances test for tax year 2024 and for tax clearance or developing employment op- 170(b)(1)(A)(vi). The IRS may revoke the sec- year 2025 (as the immediately succeeding tax portunities. tion 170(b)(1)(A)(vi) determination letter if, on year). Therefore, X is still an organization de- examination, the organization has not met the 3. Receiving a significant part of its funds scribed in section 170(b)(1)(A)(vi) for tax year requirements. The IRS may also revoke the sec-from a public charity or governmental 2024 even though X didn't meet the one-third tion 170(b)(1)(A)(vi) determination letter if the agency to which it is in some way held ac- support test for that year. organization's application for a determination countable as a condition of the grant, con- contained an omission or inaccurate material in-tract, or contribution. Special computation period for new organi- zations (Computation period for public sup-5. Additional factors pertinent to mem- port). If, at the time of applying for tax-exempt Reliance by grantors or contributors. As bership organizations. The following are ad- status, an organization can reasonably be ex- a general rule, grantors or contributors may rely ditional factors in determining whether a mem- pected to meet the one-third support test or the on a determination that an organization is de-bership organization is publicly supported. facts and circumstances test during its first 5 tax scribed in section 170(b)(1)(A)(vi) until notice of years, the organization will qualify as publicly 1. Whether the solicitation for dues-paying change of status of the organization is made to supported for its first 5 years. The organization members is designed to enroll a substan- the public. The IRS publishes such notices from will be classified as a public charity for its first 5 tial number of persons in the community or time to time in the Internal Revenue Bulletin, years, regardless of the public support actually area, or in a particular profession or field of IRS.gov/irb/. Grantors and contributors can also received during this period. Beginning with the special interest (taking into account the find information about an organization's exempt organization's sixth tax year, the organization size of the area and the nature of the or- status under section 501(c)(3) and its status as will qualify as publicly supported if it meets the ganization's activities). a public charity or private foundation from Tax- one-third support test or the facts and circum- Exempt Organization Search. However, a gran-2. Whether membership dues for individual stances test for its sixth year (based on support tor or contributor can't rely on a detrermination (rather than institutional) members have received in its second through sixth tax years), letter or information on Tax-Exempt Organiza-been fixed at rates designed to make or as a carryover for its fifth tax year (based on tion Search if the grantor or contributor was re-membership available to a broad cross support received in its first through fifth tax sponsible for, or aware of, the act or failure to section of the interested public, rather than years). If the organization is required to file act that resulted in the organization's loss of to restrict membership to a limited number Form 990 or 990-EZ, it must establish that it classification as a publicly supported organiza-of persons. meets the public support test each year on tion. Schedule A (Form 990).3. Whether the activities of the organization

will be likely to appeal to persons having Support. For purposes of publicly supported Reasonable expectation of public sup-some broad common interest or purpose, organizations, the term support includes (but port. An organization that can reasonably be such as educational activities in the case isn't limited to): expected to meet the one-third support test or of alumni associations, musical activities the facts and circumstances test during its first 1. Gifts, grants, contributions, or membership in the case of symphony societies, or civic 5 years is one that can show that its organiza- fees;affairs in the case of parent-teacher asso- tional structure, current or proposed programs ciations. 2. Net income from unrelated business activi- and activities, and actual or intended method of ties, whether or not those activities are operation can reasonably be expected to attract Special rule. The fact that an organization carried on regularly as a trade or business; the type of broadly based support from the gen-has normally met the one-third support test re-

eral public, public charities, and governmental quirements for a current tax year, but is unable 3. Gross investment income; units that is necessary to meet the public sup-normally to meet the requirements for a later tax 4. Tax revenues levied for the benefit of an port requirements discussed earlier under Qual-year, won't in itself prevent the organization from organization and either paid to or spent on ifying As Publicly Supported.meeting the requirements of the facts and cir- behalf of the organization; andcumstances test for the later tax year.Example. Organization Y was formed in 5. The value of services or facilities furnished January 2017 and uses a December 31 tax Example. X is recognized as an organiza- by a governmental unit to an organization year. After September 9, 2017, and before De-tion described in section 501(c)(3). On the ba- without charge (except services or facili-Page 35 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025cember 31, 2017, Organization Y filed a Form sis of support received during tax years 2020, ties generally furnished to the public with-1023 requesting recognition of exemption as an 2021, 2022, 2023, and 2024, it meets the out charge).organization described in section 501(c)(3) and one-third support test for tax year 2024 (the cur-in sections 170(b)(1)(A)(vi) and 509(a)(1). In its Amounts that aren't support. The term rent tax year). X also meets the one-third application, Organization Y established that it support doesn't include: 34 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

1. Any amount received from the exercise or received on a contract entered into with a gov- fraction used in the one-third support test or the performance by an organization of the pur- ernmental unit for the performance of services, ten-percent-of-support requirement. However, pose or function constituting the basis for or from a government research grant. However, the contribution will be included in the numera- its exemption (in general, these amounts these amounts aren't support from a govern- tor only to the extent that it isn't more than 2% of include amounts received from any activity mental unit for these purposes if they constitute the denominator. In applying the 2% limit, all the conduct of which is substantially rela- amounts received from the exercise or perform- contributions made by a donor and by any per- ted to the furtherance of the exempt pur- ance of the organization's exempt functions. son in a special relationship to the donor (cer- pose or function, other than through the tain Disqualified persons discussed under Ab- Any amount paid by a governmental unit to production of income); or sence of control by disqualified persons, later) an organization won't be treated as received

are considered made by one person. The 2% from the exercise or performance of its exempt 2. Contributions of services for which a de-limit doesn't apply to support received from gov-function if the purpose of the payment is primar-duction isn't allowed.ernmental units or to contributions from other ily to enable the organization to provide a serv- publicly supported charities, except as provided ice to, or maintain a facility for, the direct benefit These amounts are excluded from both the nu- under Grants from public charities, later.of the public (regardless of whether part of the merator and the denominator of the fractions in expense of providing the service or facility is determining compliance with the one-third sup-Indirect contributions. The term indirect paid for by the public), rather than to serve the port test and ten-percent-of-support require-contributions from the general public includes direct and immediate needs of the payor. This ment. The following discusses an exception to contributions received by the organization from includes:this general rule.organizations (such as publicly supported or-

1. Amounts paid to maintain library facilities ganizations) that normally receive a substantial Organizations dependent primarily on that are open to the public, part of their support from direct contributions gross receipts from related activities. Or- from the general public, except as provided un-ganizations won't satisfy the one-third support 2. Amounts paid under government pro-der Grants from public charities, next.test or the ten-percent-of-support requirement if grams to nursing homes or homes for the they receive:aged to provide health care or domiciliary Grants from public charities. Contribu- services to residents of these facilities, tions received from a governmental unit or from 1. Almost all support from gross receipts anda publicly supported organization (including a from related activities; and church that meets the requirements for being 3. Amounts paid to child placement or child 2. An insignificant amount of support from publicly supported) aren't subject to the 2% limit guidance organizations under government governmental units (without regard to unless the contributions represent amounts ei-programs for services rendered to children amounts referred to in (3) in the list of ther expressly or impliedly earmarked by a do-in the community.items included in support) and contribu-nor to the governmental unit or publicly suppor-tions made directly or indirectly by the These payments are mainly to enable the recipi-ted organization as being for, or for the benefit ent organization to provide a service or maintain of, the particular organization claiming a publicly a facility for the direct benefit of the public, supported status.Example. Z, an organization described in rather than to serve the direct and immediate section 501(c)(3), is controlled by Thomas Blue, Example 1. M, a national foundation for the needs of the payor. Furthermore, any amount its president. Z received $500,000 during the encouragement of the musical arts, is a publicly received from a governmental unit under cir-current tax year and the 4 tax years immediately supported organization. George Spruce gives cumstances in which the amount would be trea-before its current tax year under a contract with M a donation of $5,000 without imposing any ted as a grant will generally constitute support the Department of Transportation, under which restrictions or conditions upon the gift. M later from a governmental unit. See the discussion of Z engaged in research to improve a particular makes a $5,000 grant to X, an organization de-Grants, later, under Section 509(a)(2) Organiza-vehicle used primarily by the federal govern-voted to giving public performances of chamber tions.ment. During the same period, the only other music. Since the grant to X is treated as being support received by Z was $5,000 in small con-Medicare and Medicaid payments. Medi-received from M, it is fully includible in the nu-tributions primarily from Z's employees and care and Medicaid payments are received from merator of X's support fraction for the tax year business associates. The $500,000 is gross re-contracts entered into with state and federal of receipt.ceipts from a related activity and not support governmental units. However, payments are

from a governmental unit, because the services made for services already provided to eligible Example 2. Assume M is the same organi-are provided to serve the direct and immediate individuals, rather than to encourage or enable zation described in Example 1. Tom Grove needs of the payor rather than primarily to con- an organization to provide services to the pub- gives M a donation of $10,000, but requires that fer a direct benefit on the public. Because of this lic. The individual patient, not a governmental M spend the money to support organizations fact, and because Z's contributions from the unit, actually controls the ultimate recipient of devoted to the advancement of contemporary public are insignificant, Z doesn't meet the these payments by selecting the health care or- American music. M has complete discretion as one-third support test or the ten-percent-of-sup- ganization. As a result, these payments aren't to the organizations of the type described to port requirement. considered support from a governmental unit. which it will make a grant. M decides to make For the rules that apply to organizations that Medicare and Medicaid payments are gross re- grants of $5,000 each to Y and Z, both being or-fail to qualify as section 509(a)(1) publicly sup- ceipts derived from the exercise or performance ganizations described in section 501(c)(3) and ported organizations because of these provi- of exempt activities and, therefore, aren't inclu- devoted to furthering contemporary American sions, see Section 509(a)(2) Organizations, ded in the term support. music. Since the grants to Y and Z are treated later. See also Gross receipts from a related ac- as having been received from M, Y and Z each tivity in the discussion on section 509(a)(2) or- Support from the general public. In deter- may include one of the $5,000 grants in the nu- mining whether the one-third support test or the merator of its support fraction. Although the ten-percent-of-support requirement is met, in- donation to M was conditioned upon the use of Membership fees. Membership fees are clude in your computation support from direct or the funds for a particular purpose, M was free to included in the term support if they are paid to indirect contributions from the general public. select the ultimate recipient.provide support for the organization rather than This includes contributions from an individual, to buy admissions, merchandise, services, or trust, or corporation but only to the extent that Example 3. N is a national foundation for the use of facilities. the total contributions from the individual, trust, the encouragement of art and is a publicly sup- or corporation, during the current tax year and ported organization. Grants to N are permitted Support from a governmental unit. For pur- the 4-year period immediately before the cur- to be earmarked for particular purposes. O, Page 36 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025poses of the one-third support test and the rent tax year, aren't more than 2% of the organi- which is an art workshop devoted to training ten-percent-of-support requirement, the term zation's total support for the same period. young artists and which is claiming status as a support from a governmental unit includes any Thus, a contribution by any one individual publicly supported organization, persuades C, a amounts received from a governmental unit, in- will be included in full in the denominator of the private foundation, to make a grant of $25,000 cluding donations or contributions and amounts Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 35

to N. C is a disqualified person with respect to exempt purposes, such as a gift of a paint- 5. Whether the organization has a represen-

1. C makes the grant to N with the understand- ing to a museum. tative governing body. ing that N would be bound to make a grant to O 4. The donee organization has received a fi-in the sum of $25,000, in addition to a matching Comprehensive Examples nal determination letter classifying it as a grant of N's funds to O in the sum of $25,000. publicly supported organization and the Only the $25,000 received directly from N is Example 1. M is recognized as an organi- organization is actively engaged in a pro-considered a grant from N. The other $25,000 is zation described in section 501(c)(3). For the gram of activities in furtherance of its ex-an indirect contribution from C to O and is to be years 2017 through 2021 (the applicable period empt purpose.excluded from the numerator of O's support for the tax year 2021 under Regulations section fraction to the extent it exceeds the 2% limit. 5. No material restrictions or conditions have 1.170A-9(f)(3)), M received support (as defined been imposed by the grantor or contributor in paragraphs Regulations section 1.170A-9(f)Unusual grants. In applying the 2% limit to de- upon the organization in connection with (6) through (8)) of $600,000 from the following termine whether the one-third support test or the grant or contribution. sources:the ten-percent-of-support requirement is met, 6. If the grant or contribution is intended for exclude contributions that are considered un- operating expenses, rather than capital Investment Income ............... $300,000usual grants from both the numerator and de- items, the terms and amount of the grant City Y (a governmental unit described in 40,000nominator of the appropriate percent-of-support or contribution are expressly limited to 1 section 170(c)(1)) ................fraction. Generally, unusual grants are substan- United Way (an organization described in 40,000 year's operating expenses.tial contributions or bequests from disinterested section 170(b)(1)(A)(vi)) ............parties if the contributions: Determination request. Before any grant Contributions ................... 220,000

or contribution is made, a potential grantee or- Total support .................... $600,0001. Are attracted by the publicly supported na-ganization can request a determination as to ture of the organization;whether the grant or contribution may be exclu- For tax year 2021, M's public support is compu-2. Are unusual or unexpected in amount; andded as an unusual grant. This request can be ted as follows:filed by the grantee organization by submitting 3. Would adversely affect, because of the Form 8940, Request for Miscellaneous Determi-size, the status of the organization as nor- One-third of total support ........... $200,000nation, supporting documents described in the mally being publicly supported. (The or-Instructions for Form 8940, and the appropriate ganization must otherwise meet the sup- Support from a governmental unit user fee. The organization must submit all infor- described in section 170(c)(1) ........ $40,000port test in that year without benefit of the mation necessary to support a determination, Indirect contributions from the general grant or contribution.)including information relating to the factors and public (United Way) ............... 40,000

For a grant (see Grants, later) that meets the re- Contributions by various donors (no one characteristics listed in the preceding para-

having made contributions that total more quirements for exclusion, if the terms of the graphs. If a favorable determination is issued,

than $12,000--2% of total support) .... 50,000granting instrument require that the funds be the determination can be relied upon by the Six contributions (each in excess of paid to the recipient organization over a period grantor or contributor of the particular contribu-$12,000--2% of total support) 6 × of years, the amount received by the organiza-tion in question. The issuance of the determina- 72,000$12,000 .......................tion each year under the terms of the grant may tion will be at the sole discretion of the IRS. $202,000be excluded for that year. However, no item of Grants and contributions that fail to qualify

gross investment income (defined under Sec- for exclusion will affect the way the support tests M's support from governmental units and from tion 509(a)(2) Organizations, later) may be ex- are applied. See Additional requirements (the direct and indirect contributions from the gen-cluded under this rule. five public support factors), earlier. eral public for the 2019 tax year normally ex- If a determination is requested, in addition to ceeds one-third of M's total support Characteristics of an unusual grant. A the characteristics listed earlier under Charac- ($202,000/$600,000 = 33.67%) for the applica-grant or contribution will be considered an un- teristics of an unusual grant, the following fac- ble period (2016 through 2020). M meets the usual grant if the previous three factors apply tors may be considered by the IRS in determin- one-third support test for 2020 and is therefore and if it has all of the following characteristics. If ing if the grant or contribution is an unusual publicly supported for the tax years 2021 and these factors and characteristics apply, then grant. 2022.even without the benefit of an advance ruling,

1. Whether the contribution was a bequest or grantors or contributors have assurance that Example 2. N is recognized as an organi-a transfer while living. A bequest will be they won't be considered responsible for sub- zation described in section 501(c)(3). It was given more favorable consideration than a stantial and material changes in the organiza- created to maintain public gardens containing transfer while living.tion's sources of support status. See section botanical specimens and displaying statuary 7.08 of Rev. Proc. 2018-32, 2018-23 I.R.B. 739.2. Whether, before the receipt of the contri- and other art objects. The facilities, works of art, bution, the organization has carried on an 1. The grant or contribution isn't made by a and a large endowment were all contributed by active program of public solicitation and person (or related person) who created a single contributor. The members of the gov-exempt activities and has been able to at-the organization or was a substantial con- erning body of the organization are unrelated to tract a significant amount of public sup-tributor to the organization before the grant its creator. The gardens are open to the public port.or contribution. without charge and attract many visitors each year. For the current tax year and the 4 tax 3. Whether, before the year of contribution, 2. The grant or contribution isn't made by a years preceding the current tax year, 95% of the the organization met the one-third support person (or related person) who is in a po-organization's total support was received from test without benefit of any exclusions of sition of authority, such as a foundation investment income from its original endowment. unusual grants.manager, or who otherwise has the ability N also maintains a membership society that is to exercise control over the organization. 4. Whether the organization may reasonably supported by members of the general public Similarly, the grant or contribution isn't be expected to attract a significant amount who wish to contribute to the upkeep of the gar-made by a person (or related person) who, of public support after the contribution. dens by paying a small annual membership fee. because of the grant or contribution, ob-Continued reliance on unusual grants to Over the 5-year period in question, these fees tains a position of authority or the ability to fund an organization's current operating from the general public constituted the remain-otherwise exercise control over the organi-expenses (as opposed to providing new ing 5% of the organization's total support. Un-zation.endowment funds) may be evidence that Page 37 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025der these circumstances, N doesn't meet the the organization can't reasonably be ex-3. The grant or contribution is in the form of one-third support test for its current tax year. pected to attract future support from the cash, readily marketable securities, or as-Furthermore, since only 5% was received from sets that directly further the organization's the general public, N doesn't satisfy the 10%

36 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

support limitation under Regulations section community. P is recognized as an organization tax year, Q received $12,000 in investment in- 1.170A-9(f)(3)(i), and therefore doesn't qualify described in section 501(c)(3). The orchestra is come from its original endowment. Each year Q as publicly supported under the facts and cir- composed of professional musicians who are solicits funds by operating a charity ball at C's cumstances test. Because N has failed to sat- paid by the association. Twelve performances, residence. Guests are invited and asked to isfy the 10% support limitation, none of the open to the public, are scheduled each year. A make contributions of $100 per couple. During other requirements or factors in Regulations small admission charge is made for each of the 5-year period involved, $15,000 was re- section 1.170A-9(f)(3)(iii)(A) through (E) can be these performances. In addition, several per- ceived from the proceeds of these events. C considered in determining whether N qualifies formances are staged annually without charge. and his family have also made contributions to as a publicly supported organization. For its cur- During the current tax year and the 4 tax Q of $25,000 over the 5-year period at issue. Q rent tax year, N isn't an organization described years immediately preceding the current tax makes disbursements each year of substan- in section 170(b)(1)(A)(vi). year, P received separate contributions of tially all of its net income to the public charities $200,000 each from A and B (not members of a chosen by the trustees. Example 3. O, an art museum, is recog- single family) and support of $120,000 from the Q's sources of support for the current tax nized as an organization described in section T Community Chest, a public federated fund- year and the 4 tax years immediately preceding 501(c)(3). In 1930, O was founded in S City by raising organization operating in T City. P de- the current tax year are as follows: members of a single family to collect, preserve, pends on these funds to carry out its activities interpret, and display to the public important and will continue to depend on contributions of Investment income ................. $60,000 works of art. O is governed by a Board of Trust- this type to be made in the future. P has also Contributions ..................... $40,000ees that originally consisted almost entirely of begun a fundraising campaign in an attempt to Total support ................... $100,000 members of the founding family. However, since expand its activities for the coming years.

Contributions from the general public .... $15,0001945, members of the founding family or per-P is governed by a Board of Directors com-

sons standing in relationship to the members of posed of five individuals. A faculty member of a One contribution (over $2,000--2% of total 2,000that family described in section 4946(a)(1)(C) local college, the president of a local music so- support) 1 × $2,000 ................

through (G) have annually constituted less than Total support from general public ....... $17,000 ciety, the head of a local banking institution, a

one-fifth of the Board of Trustees. The remain- prominent doctor, and a member of the govern- Q's support from the general public doesn't ing board members are citizens of S City from a ing body of the local Chamber of Commerce meet the one-third support test variety of professions and occupations who rep- currently serve on the Board and represent the ($17,000/$100,000 = 17% of total support). resent the interests and views of the people of S interests and views of the community in the ac- Even though it does meet the ten-per-City in the activities carried on by the organiza- tivities carried on by P. cent-of-support requirement, its method of so-tion rather than the personal or private interests For P's current tax year, its sources of sup- licitation makes it questionable whether Q satis-of the founding family. O solicits contributions port are computed on the basis of the current fies Regulations section 1.170A-9(f)(3)(ii). from the general public, and for the current tax tax year and the 4 immediately preceding tax Because of its method of operating, Q also has year and each of the 4 tax years immediately years, as follows. a greater burden of establishing its publicly sup-preceding the current tax year, O has received ported nature. Based on these facts and on Q's total contributions (in small sums of less than ..................... $520,000 failure to receive favorable consideration under $100, none of which exceeds 2% of O's total Receipts from performances .......... 100,000 the remaining factors of Regulations section support for such period) in excess of $10,000. $620,000 1.170A-9(f)(3)(iii), Q doesn't satisfy the facts These contributions from the general public rep- Less: and circumstances test and therefore doesn't resent 25% of the organization's total support Receipts from performances (excluded, qualify as a publicly supported organization.for that 5-year period. For the same period, in- 100,000 see Support) .....................vestment income from several large endowment Total support ................... $520,000 Community Trustsfunds has constituted 75% of O's total support. T Community Chest (indirect support from O expends substantially all of its annual income the general public) ................. $120,000for its exempt purposes and thus depends on Community trusts are often established to at- Two contributions (each over $10,400--2% the funds it annually solicits from the public as 20,800 tract large contributions of a capital or endow- of total support) 2 × $10,400 ...........well as its investment income in order to carry Total support from general public ....... $140,800 ment nature for the benefit of a particular com-out its activities on a normal and continuing ba- munity or area. Often these contributions come sis and to acquire new works of art. O has, for initially from a small number of donors. While P's support from the general public, directly and the entire period of its existence, been open to the community trust generally has a governing indirectly, doesn't meet the one-third support the public and more than 300,000 people (from body composed of representatives of the partic- test ($140,800/$520,000 = 27% of total sup-S City and elsewhere) have visited the museum ular community or area, its contributions are of- port). However, because P receives 27% of its in the current tax year and the 4 years immedi- ten received and maintained in the form of sep- total support from the general public, it meets ately preceding the current tax year. arate trusts or funds that are subject to varying the 10% support limitation under Regulations Under these circumstances, O doesn't meet degrees of control by the governing body. section 1.170A-9(f)(3)(i). P also meets the re-the one-third support test for its current year be- quirements of Regulations section 1.170A-9(f)cause it has received only 25% of its total sup- (3)(ii). As a result of satisfying these require- To qualify as a publicly supported organiza-port for the applicable 5-year period from the ments and factors, P is considered to meet the tion, a community trust must meet the one-third general public. However, under the facts set facts and circumstances test and therefore support test, explained earlier under Qualifying forth, O has met the 10% support limitation un- qualifies as a publicly supported organization as Publicly Supported. If it can't meet that test, it der Regulations section 1.170A-9(f)(3)(i), as for its current tax year and the immediately suc- must be organized and operated so as to attract well as the requirements of Regulations section ceeding tax year. new and additional public or governmental sup-1.170A-9(f)(3)(ii). Under all of the facts set forth, port on a continuous basis sufficient to meet the O is considered as meeting the requirements of Example 5. Q is recognized as an organi- facts and circumstances test, also explained the facts and circumstances test on the basis of zation described in section 501(c)(3) and it is a earlier. Community trusts are generally able to satisfying Regulations section 1.170A-9(f)(3)(iii) philanthropic organization. Q was founded in satisfy the attraction of public support require-(A) through (D). O is therefore publicly suppor- 1965 by C for the purpose of making annual ment (as contained in the facts and circumstan-ted for its current tax year and the immediately contributions to worthy charities. C created Q as ces test) if they seek gifts and bequests from a succeeding tax year. a charitable trust by transferring $500,000 worth wide range of potential donors in the community

of appreciated securities to Q. or area served, through banks or trust compa-Example 4. In 1960, the P Philharmonic Or-Page 38 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Under the trust agreement, C and two other nies, through attorneys or other professional chestra was organized in T City by a local music family members are the sole trustees of Q and persons, or in other appropriate ways that call society and a local women's club to present to are vested with the right to appoint successor attention to the community trust as a potential the public a wide variety of musical programs in-trustees. In each of the current tax year and the recipient of gifts and bequests made for the tended to foster music appreciation in the 4 tax years immediately preceding the current benefit of the community or area served. A

Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 37

community trust, however, doesn't have to en- A community trust can meet the requirement 1. Gifts, grants, contributions, or membership gage in periodic, community-wide, fundraising in (3) above even if its exercise of the powers in fees; and campaigns directed toward attracting a large (3)(a), (b), or (c) is reviewable by an appropriate 2. Gross receipts from admissions, sales of number of small contributions in a manner simi- state authority. merchandise, performance of services, or lar to campaigns conducted by a community furnishing facilities in an activity that isn't Component part. To be treated as a com-chest or a united fund. an unrelated trade or business, subject to ponent part of a community trust (rather than as certain limits, discussed under Limit on a separate trust or a not-for-profit corporation Separate trusts or funds. Any community gross receipts, later. for public support purposes), a trust or fund:trust may be treated as a single entity for public

support purposes, rather than as an aggrega- 1. Must be created by gift, bequest, legacy, For this purpose, the support must be from tion of separate funds, in which case all qualify- devise, or other transfer to a community permitted sources, which include: •ing funds associated with that organization trust that is treated as a single entity (de- Section 509(a)(1) organizations, described (whether a trust, not-for-profit corporation, unin- scribed above), and earlier; •corporated association, or a combination Governmental units, described under Sec- 2. May not be directly or indirectly subjected thereof) will be treated as component parts of tion 509(a)(1) Organizations, earlier; and by the transferor to any material restriction •the organization for public support purposes. Persons other than Disqualified persons or condition with respect to the transferred (defined under Section 509(a)(3) Organi- assets.Single entity. To be treated as a single en- zations), later.tity for public support purposes, a community Grantors and contributors. Grantors, contrib-trust must meet all of the following require- Limit on gross receipts. In computing the utors, or distributors to a community trust may ments. amount of support received from gross receipts rely on the public charity status, which the or- under (2) above, gross receipts from related ac-1. The organization must be commonly ganization has claimed in a timely filed notice, tivities received from any person or from any bu- known as a community trust, fund, founda- on or before the date the IRS informs the public reau or similar agency of a governmental unit tion, or other similar name conveying the (through such means as publication in the Inter- are includible in any tax year only to the extent concept of a capital or endowment fund to nal Revenue Bulletin) that such reliance has ex- the gross receipts aren't more than the greater support charitable activities in the com- pired. However, if the grantor, contributor, or of $5,000 or 1% of the organization's total sup- munity or area it serves. distributor acquires knowledge that the IRS has port in that year. notified the community trust that it has failed to 2. All funds of the organization must be sub-

establish that it is a public charity, then reliance ject to a common governing instrument (or Not-more-than-one-third support test. This on the claimed status expires at the time such a master trust or agency agreement) that test will be met if an organization normally re-knowledge is acquired.may be embodied in a single (or several) ceives no more than one-third of its support in

document(s) containing common lan- each tax year from the total of: guage. Section 509(a)(2) Organizations 1. Gross investment income, and

1. The organization must have a common 2. The excess (if any) of unrelated business Section 509(a)(2) excludes certain types of governing body (or distribution committee) taxable income from unrelated trades or broadly based, publicly supported organizations that either directs or, in the case of a fund businesses acquired after June 30, 1975, from private foundation status. Generally, an or-designated for specified beneficiaries, over the tax imposed on that income. ganization described in section 509(a)(2) may monitors the distribution of all funds exclu- also fit the description of a publicly supported sively for charitable purposes. The govern- Gross investment income. Gross invest- organization under section 509(a)(1). There are, ing body must have the power in the gov- ment income means the gross amount of in- however, two basic differences.erning instrument, the instrument of come from interest, dividends, payments with transfer, the resolutions or bylaws of the 1. For section 509(a)(2) organizations, the respect to securities loans, rents, and royalties, governing body, a written agreement, or term support includes items of support dis- but it doesn't include any income that would be otherwise-- cussed earlier (under Support, in the dis- included in computing tax on unrelated busi- cussion of Section 509(a)(1) Organiza- ness income from trades or businesses.a. To modify any restriction or condition tions) and income from activities directly on the distribution of funds for any Definition of normally. Both support tests related to their exempt function. This in-specified charitable purposes or to are computed on the basis of the nature of the come isn't included in meeting the support specified organizations if in the sole organization's normal sources of support. An or-test for a publicly supported organization judgment of the governing body (with- ganization will be considered to have normally under section 509(a)(1).out the necessity of the approval of met both tests for its current tax year and the tax any participating trustee, custodian, or 2. Section 509(a)(2) places a limit on the to- year immediately following, if it meets those agent), the restriction or condition be-tal gross investment income and unrelated tests on the basis of the total support received comes, in effect, unnecessary, inca-business taxable income (in excess of the for the current tax year and the 4 tax years im-pable of fulfillment, or inconsistent unrelated business tax) an organization mediately before the current tax year.with the charitable needs of the com-may have, while section 509(a)(1) doesn't.

munity or area served; Computation period for public support. If at To be excluded from private foundation treat- the time of applying for tax-exempt status, an b. To replace any participating trustee, ment under section 509(a)(2), an organization organization can reasonably be expected to custodian, or agent for breach of fidu- must meet two support tests. meet the one-third support test and the ciary duty under state law; and

not-more-than-one-third support test during its 1. The one-third support test.c. To replace any participating trustee, first 5 tax years, the organization will qualify for 2. The not-more-than-one-third support test.etc., for failure to produce a reasona-classification as a public charity under section ble return of net income over a rea-509(a)(2) for its first 5 years. Beginning with the Both these tests are designed to ensure that sonable period of time. (The govern-organization's sixth tax year, the organization an organization excluded from private founda-ing body will determine what is will be described in section 509(a)(2) if it meets tion treatment is responsive to the general pub-reasonable.)the one-third support test and lic, rather than to the private interests of a limi-not-more-than-one-third support test for its sixth 4. The organization must prepare periodic fi-ted number of donors or other persons.year (based on support received in its second nancial reports treating all of the funds that Page 39 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025through sixth tax years) or as a carryover for its are held by the community trust, either di-One-third support test. The one-third support fifth tax year (based on support received in its rectly or in component parts, as funds of test will be met if an organization normally re-first through fifth tax years). If the organization is ceives more than one-third of its support in required to file Form 990 or 990-EZ, it must each tax year from any combination of: 38 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

establish that it meets the one-third support test other exempt activities for or on behalf of 5. No material restrictions or conditions have and not-more-than-one-third support test each members have been fixed at rates de- been imposed by the grantor or contributor year on Schedule A (Form 990). signed to make membership available to a upon the organization in connection with broad cross section of the public rather the grant or contribution.Reasonable expectation of public sup- than to restrict membership to a limited 6. If the grant or contribution is intended for port. An organization that can reasonably be number of persons, and operating expenses, rather than capital expected to meet the one-third support test and

1. Whether an organization that provides items, the terms and amount of the grant not-more-than-one-third support test under sec- goods, services, or facilities is or will be re- or contribution are expressly limited to one tion 509(a)(2) during its first 5 tax years is one quired to make its services, facilities, per- year's operating expenses.that can show that its organizational structure, formances, or products available (regard-current or proposed programs and activities, Determination request. If there is any less of whether a fee is charged) to the and actual or intended method of operation can doubt that a grant or contribution can be exclu-general public, public charities, or govern-reasonably be expected to attract the type of ded as an unusual grant, the grantee organiza-mental units rather than to a limited num-broadly based support from the general public, tion can request a determination by submitting ber of persons or organizations.public charities, and governmental units that is Form 8940, Request for Miscellaneous Determi-necessary to meet these tests. The facts that nation, supporting documents described in the Unusual grants. An unusual grant can be ex-are relevant to this determination and the weight Instructions for Form 8940 and the appropriate cluded from the support test computation if it:accorded each fact may differ from case to user fee. The IRS has the sole discretion of is-case. An organization can't reasonably be ex-1. Was attracted by the publicly supported suing a determination, but if a favorable deter-pected to meet the one-third support test and nature of the organization, mination is issued, it can be relied on by the the not-more-than-one-third support test when grantor or contributor for purposes of a charita-2. Was unusual or unexpected in amount, the facts indicate that an organization is likely, ble contributions deduction and by the organi-andduring its first 5 tax years, to receive less than zation for purposes of the exclusion for unusual one-third of its support from permitted sources 3. Would, because of its size, adversely af- grants.or to receive more than one-third of its support fect the status of the organization as nor- In addition to the characteristics listed from gross investment income and unrelated mally meeting the one-third support test. above, the following factors may be considered business taxable income.(The organization must otherwise meet by the IRS in determining if the grant or contri-All pertinent facts and circumstances are the test in that year without benefit of the bution is an unusual grant.taken into account in determining whether the grant or contribution.)organizational structure, programs, or activities, 1. Whether the contribution was a bequest or

Characteristics of an unusual grant. A and method of operation of an organization will a transfer while living. A bequest will ordi- grant or contribution will be considered an un-give that organization a reasonable expectation narily be given more favorable considera- usual grant if the above three factors apply and that it will meet the support tests. Some perti- tion than a transfer while living. it has all of the following characteristics. If these nent factors considered are: 2. Whether, before the contribution, the or-factors and characteristics apply, then even 1. Whether the organization has or will have ganization carried on an actual program of without the benefit of an advance ruling, gran-a governing body that is composed of per- public solicitation and exempt activities tors or contributors have assurance that they sons having special knowledge in the par- and was able to attract a significant won't be considered responsible for an act that ticular field in which the organization is op- amount of public support.results in an organization's change of support erating or of community leaders, such as status. See Rev. Proc. 2018-32, 2018-23 I.R.B. 3. Whether the organization may reasonably elected officials, members of the clergy, 739. be expected to attract a significant amount and educators, or, in the case of a mem- of public support after the contribution. bership organization, of individuals elected 1. The grant or contribution isn't made by a Continued reliance on unusual grants to under the organization's governing instru-person (or related person) who created fund an organization's current operating ment or bylaws by a broadly based mem-the organization or was a substantial con- expenses can be evidence that the organi-bership,tributor to the organization before the grant zation can't attract future support from the or contribution.2. Whether a substantial part of the organiza- tion's initial funding is to be provided by 2. The grant or contribution isn't made by a 4. Whether the organization met the the general public, by public charities, or person (or related person) who is in a po- one-third support test in the past without by government grants rather than by a limi-sition of authority, such as a foundation the benefit of any exclusions of unusual ted number of grantors or contributors who manager, or who otherwise has the ability grants.are disqualified persons with respect to to exercise control over the organization. the organization,Similarly, the grant or contribution isn't 5. Whether the organization has a represen- made by a person (or related person) who, tative governing body.3. Whether a substantial proportion of the or-because of the grant or contribution, ob-ganization's initial funds are placed, or will tains a position of authority or the ability to Example 1. Y, an organization described in remain, in an endowment and whether the otherwise exercise control over the organi- section 501(c)(3), was created by Marshall investment of those funds is unlikely to re-zation. Pine, the holder of all the common stock in M sult in more than one-third of its total sup- corporation, Lisa, Marshall's wife, and Edward port being received from gross investment 3. The grant or contribution is in the form of Forest, Marshall's business associate. The pur-income and from unrelated business taxa-cash, readily marketable securities, or as- pose of Y was to sponsor and equip athletic ble income in excess of the tax imposed sets that directly further the organization's teams composed of underprivileged children in on that income,exempt purposes, such as a gift of a paint- the community. Each of the three creators ing to a museum.4. Whether an organization that carries on makes small cash contributions to Y. Marshall, fundraising activities has developed a spe- Lisa, and Edward have been active participants 4. The donee organization has received ei- cific plan for solicitation of funds on a com- in the affairs of Y since its creation. Y regularly ther an advance ruling or final determina- munity or area-wide basis, raises small amounts of contributions through tion letter classifying it as a publicly sup- fundraising drives and selling admission to ported organization and, except for an 5. Whether an organization that carries on some of the sponsored sporting events. The op-organization operating under an advance community service activities has a specific erations of Y are carried out on a small scale, ruling or determination letter, the organiza-program to carry out its work in the com-Page 40 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 usually being restricted to the sponsorship of tion is actively engaged in a program of munity, two to four baseball teams of underprivileged activities in furtherance of its exempt pur-

1. Whether membership dues for individual children. pose.(rather than institutional) members of an organization that carries on education or

Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 39

In 2012, M Corporation recapitalizes and numerator of the support fraction in any tax year Grants. Grants often contain certain terms creates a first and second class of 6% nonvot- only to the extent that the amounts received and conditions imposed by the grantor. Be- ing preferred stock, most of which is held by from any person or from any bureau or similar cause of the imposition of terms and conditions, Marshall and Lisa. In 2013, Marshall contributes agency of a governmental unit aren't more than the frequent similarity of public purposes of 49% of his common stock in M to Y. Marshall's the greater of $5,000 or 1% of support. grantor and grantee, and the possibility of bene- contribution of M's common stock was substan- fit to the grantor, amounts received as grants for Determinations of public support status. tial and constitutes 90% of Y's total support for carrying on exempt activities are sometimes dif- An organization may request a determination 2013. A combination of the facts and circum- ficult to distinguish from amounts received as letter that it is described in section 509(a)(2). stances of the determining factors preclude gross receipts from carrying on exempt activi- This request is made on Form 1023 or Form Marshall's contribution of M's common stock in ties. 1023-EZ, or at such other time as the organiza-2013 from being excluded as an unusual grant In distinguishing the term gross receipts tion believes it is described in section 509(a)(2). under Temporary Regulations section from the term grants, the term gross receipts The IRS may revoke the section 509(a)(2) de-1.509(a)-3T(c)(3) for purposes of determining means amounts received from an activity that termination letter if, upon examination, the or-whether Y meets the one-third support test un- isn't an unrelated trade or business, if a specific ganization has not met the requirements. The der section 509(a)(2). service, facility, or product is provided to serve IRS may also revoke the section 509(a)(2) de- the direct and immediate needs of the payor termination letter if the organization's applica-Example 2. M was organized in 2012 to rather than primarily to confer a direct benefit on tion for determination contained an omission or promote the appreciation of ballet in a particular the general public. In general, payments made inaccurate material information.region of the United States. Its principal activi- primarily to enable the payor to realize or re- ties consist of erecting a theater for the perform- ceive some economic or physical benefit as a Reliance by grantors or contributors. ance of ballet and the organization and opera- result of the service, facility, or product obtained Grantors or contributors may rely on a determi-tion of a ballet company. M receives a will be treated as gross receipts by the payee. nation that an organization is described in sec-determination letter that it is an organization de- For example, a profit-making organization, tion 509(a)(2) until notice of change of status of scribed in section 501(c)(3) and that it is a pub- primarily for its own betterment, contracts with a the organization is made to the public (such as lic charity described in section 509(a)(2). The nonprofit organization for a service from that or- by publication in the Internal Revenue Bulletin, governing body of M consists of nine prominent ganization. Any payments received by the non- or Tax-Exempt Organization Search, either of unrelated citizens residing in the region who profit organization (whether from the profit-mak- which can be searched at IRS.gov). See Rev. have either an expertise in ballet or a strong in- ing organization or from another nonprofit) for Proc. 2018-32, 2018-23 I.R.B. 739. Tax-Exempt terest in encouraging appreciation of the art similar services are primarily for the benefit of Organization Search is only available online at form. the payor and are therefore gross receipts, Tax-Exempt Organization Search. However, this In 2013, Z, a private foundation, proposes to rather than grants. won't apply if the grantor or contributor was re-make a grant of $500,000 in cash to M to pro- Research leading to the development of tan- sponsible for, or aware of, the act or failure to vide sufficient capital for M to commence its ac- gible products for the use or benefit of a payor act that resulted in the organization's loss of tivities. Although Albert Cedar, the creator of Z, generally will be treated as a service provided classification as a publicly supported organiza-is one of the nine members of M's governing to serve the direct and immediate needs of the tion.body, was one of M's original founders, and payor, while basic research or studies carried

Gifts and contributions. Any payment of continues to lend his prestige to M's activities on in the physical or social sciences generally money or transfer of property without adequate and fundraising efforts, Albert doesn't, directly will be treated as primarily to confer a direct consideration is considered a gift or contribu-or indirectly, exercise any control over M. By the benefit upon the general public. tion. When payment is made or property is close of its first tax year, M also has received a Medicare and Medicaid payments are gross transferred as consideration for admissions, significant amount of support from a number of receipts from the exercise or performance of an sales of merchandise, performance of services, smaller contributions and pledges from mem- exempt function. The individual patient, not a or furnishing facilities to the donor, the status of bers of the general public. M charges admission governmental unit, actually controls the ultimate the payment or transfer under section 170(c) to the ballet performances to the general public. recipient of these payments. Therefore, Medi- determines whether and to what extent the pay-Although the support received in 2013 won't care and Medicaid receipts for services provi- ment or transfer is a gift or contribution as dis-impact M's status as a public charity for its first ded to each patient are included as gross re- tinguished from gross receipts from related ac-5 tax years, it will be relevant to the determina- ceipts to the extent they aren't more than the tivities.tion of whether M meets the one-third support greater of $5,000 or 1% of the organization's to- The amount includible in computing support test under section 509(a)(2) for the 2017 tax tal support for the tax year. from gifts, grants, or contributions of property or year, using the computation period 2013 use of property is the fair market or rental value through 2017. Within the appropriate timeframe, Membership fees distinguished from gross of the property at the date of the gift or contribu-M may submit a request for a determination let- receipts. The fact that a membership organiza-

tion.ter that the $500,000 contribution from Z quali- tion provides services, admissions, facilities, or fies as an unusual grant. merchandise to its members as part of its over- Example. P is a local agricultural club and Under the above circumstances, even all activities won't, in itself, result in the classifi- is an organization described in section 501(c)though Albert was a founder and member of the cation of fees received from members as gross (3). It makes awards at its annual fair for out-governing body of M, M may exclude Z's contri- receipts subject to the $5,000 or 1% limit rather standing specimens of produce and livestock to bution of $500,000 in 2013 as an unusual grant than membership fees. However, if an organiza- encourage interest and proficiency by young under Regulations section 1.509(a)-3T(c)(3) for tion uses membership fees as a means of sell- people in farming and raising livestock. Most of purposes of determining whether M meets the ing admissions, merchandise, services, or the these awards are cash or other property dona-one-third support test under section 509(a)(2) use of facilities to members of the general pub- ted by local businessmen. When the awards are for 2017. lic who have no common goal or interest (other made, the donors are given recognition for their than the desire to buy the admissions, mer- donations by being identified as the donor of chandise, services, or use of facilities), the fees Gifts, contributions, and grants distin-the award. The recognition given to donors is guished from gross receipts. In determining aren't membership fees but are gross receipts.

merely incidental to the making of the award to whether an organization normally receives more On the other hand, to the extent the basic worthy youngsters. For these reasons, the don-than one-third of its support from permitted purpose of the payment is to provide support for ations are contributions. The amount includible sources, include all gifts, contributions, and the organization rather than to buy admissions, in computing support is equal to the cash con-grants received from permitted sources in the merchandise, services, or the use of facilities, tributed or the fair market value of other prop-numerator of the support fraction in each tax the payment is a membership fee.Page 41 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025erty on the dates contributed.year. However, gross receipts from admissions, sales of merchandise, performance of services, Bureau defined. The term bureau or similar

or furnishing facilities, in an activity that isn't an agency of a governmental unit for determining unrelated trade or business, are includible in the amounts subject to the $5,000 or 1% limit

40 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

means a specialized operating unit of the exec- method that it uses in keeping its books and c. Operated in connection with one or utive, judicial, or legislative branch of govern- that it otherwise uses to report on its Form 990 more section 509(a)(1) or 509(a)(2) ment in which business is conducted under cer- or 990-EZ, if it is required to file Form 990 or organizations (Type III supporting or- tain rules and regulations. Since the term 990-EZ. For example, if a grantor makes a grant ganization). bureau refers to a unit functioning at the operat- to an organization payable over a term of years, 3. The organization mustn't be controlled di-ing, as distinct from the policy-making, level of the grant will be includible in the support frac- rectly or indirectly by disqualified persons government, it normally means a subdivision of tion of the grantee organization under the ac- (defined later) other than foundation man-a department of government. The term wouldn't counting method it regularly uses in keeping its agers and other than one or more organi-usually include those levels of government that books. zations described in section 509(a)(1) or are basically policy-making or administrative, 509(a)(2). Gross receipts from a related activity. When such as the office of the Secretary or Assistant

the charitable purpose of an organization de-Secretary of a department, but would consist of Section 509(a)(3) differs from the other pro-scribed in section 501(c)(3) is accomplished the highest operational level under the pol- visions of section 509 that describe a publicly through furnishing facilities for a rental fee or icy-making or administrative levels. supported organization. Instead of describing loans to a particular class of persons, such as Amounts received from a unit functioning at an organization that conducts a particular kind aged, sick, or needy persons, the support re-the policy-making or administrative level of gov- of activity or that receives financial support from ceived from those persons will be considered ernment are treated as received from one bu- the general public, section 509(a)(3) describes gross receipts from a related exempt activity reau or similar agency of the unit. Units of a organizations that have established certain rela-rather than gross investment income or unrela-governmental agency above the operating level tionships in support of section 509(a)(1) or ted business taxable income.are combined and considered a separate bu- 509(a)(2) organizations. Thus, an organization However, if the organization also furnishes reau for this purpose. Thus, an organization that can qualify as other than a private foundation facilities or loans to persons who aren't mem-has gross receipts from both a policy-making or even though it may be funded by a single donor, bers of a particular class and furnishing the fa-administrative unit and an operational unit of a family, or corporation (with certain exceptions cilities or funds doesn't contribute importantly to department will be treated as having gross re- described in Organizations controlled by do-accomplishing the organization's exempt purpo-ceipts from two bureaus. For this purpose, the nors, later). This kind of funding ordinarily would ses, the support received from furnishing the fa-Departments of Air Force, Army, and Navy are indicate private foundation status, but a section cilities or funds will be considered rents or inter-separate departments and each has its own 509(a)(3) organization has limited purposes and est and will be treated as gross investment policy-making, administrative, and operating activities and gives up a significant degree of in-income or unrelated business taxable income.units. dependence.

Example. X, an organization described in Example 1. The Bureau for Africa and the More than one type of relationship may exist section 501(c)(3), is organized and operated to Bureau for Latin America are considered sepa- between a supporting organization and a pub-provide living facilities for needy widows of de-rate bureaus. Each is an operating unit under licly supported organization. Any relationship, ceased servicemen. X charges the widows a the Administrator of the Agency for International however, must ensure that the supporting or-small rental fee for the use of the facilities. Since Development, a policy-making official. If an or- ganization will be responsive to the needs or X is accomplishing its exempt purpose through ganization had gross receipts from both of demands of, and will be an integral part of or the rental of the facilities, the support received these bureaus, the amount of gross receipts maintain a significant involvement in, the opera-from the widows is considered gross receipts from each would be subject to the greater of tions of one or more publicly supported organi-from a related exempt activity. However, if X $5,000 or the 1% limit. zations.rents part of its facilities to persons having no Example 2. A bureau is an operating unit relationship to X's exempt purpose, the support The Type I and Type II relationships rely on under the administrative office of the Executive received from these rentals will be considered majority control of the governing body of the Director. The subdivisions of the bureau are gross investment income or unrelated business supporting organization by the publicly suppor-Geographic Areas and Project Development taxable income. ted organization. They have the same rules for Staff. If an organization had gross receipts from meeting the tests under requirement (1) and are these subdivisions, the total gross receipts from Section 509(a)(3) Organizations discussed in Category one below. The operated these subdivisions would be considered gross in connection with relationship requires that the receipts from the same bureau and would be Section 509(a)(3) excludes from the definition supporting organization be responsive to and subject to the greater of $5,000 or the 1% limit.of private foundation those organizations that have operational relationships with publicly sup-meet all of the three following requirements. ported organizations. This third relationship has Grants from public charities. For purposes different rules for meeting the requirement (1) 1. The organization must be organized and of the one-third support test, grants received tests and is discussed separately in Category operated exclusively for the benefit of, to from a section 509(a)(1) organization (public two, later.perform the functions of, or to carry out the charity) are generally includible in full in com-

purposes of one or more specified organi-puting the numerator of the support fraction for Supported organizations. Supported organi-zations, as described in sections 509(a)(1) that tax year. zations are organizations described in section or 509(a)(2). These section 509(a)(1) and However, if the amount received is consid- 509(a)(1) or 509(a)(2) for whose benefit the 509(a)(2) organizations are commonly ered an indirect contribution from one of the supporting organization is organized and oper-called publicly supported organizations.public charity's donors, it will retain its character ated. A section 501(c)(4), (c)(5), or (c)(6) organ-as a contribution from the donor, and if, for ex-2. The organization has one of three types of ization that would be described in section ample, the donor is a substantial contributor to relationships with one or more organiza- 509(a)(2) if it were a 501(c)(3) organization may the ultimate recipient, the amount is excluded tions described in sections 509(a)(1) or be treated as a 509(a)(2) organization for pur-from the numerator of the support fraction. If a 509(a)(2). It must be: poses of these rules, and therefore may be a public charity makes both an indirect contribu- supported organization as well, subject to cer-a. Operated, supervised, or controlled tion from its donor and an additional grant to the tain restrictions. See Supporting other than sec- by one or more section 509(a)(1) or ultimate recipient, the indirect contribution is tion 501(c)(3) organizations, later. 509(a)(2) organizations (Type I sup-treated as made first. porting organization),An indirect contribution is one that is ex- Organizations controlled by donors. Gener-pressly or impliedly earmarked by the donor as b. Supervised or controlled in connec- ally, if a Type I or Type III supporting organiza-being for, or for the benefit of, a particular recipi-Page 42 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 tion with one or more section 509(a) tion supports an organization that is controlled ent rather than for a particular purpose. (1) or 509(a)(2) organizations (Type II by a donor, the supporting organization is trea-

supporting organization), or ted as a private foundation (rather than as a Method of accounting. An organization's sup- public charity). Type I and Type III organizations port is determined under the same accounting may not accept any gifts or contributions from: Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 41

1. Any person (other than an organization Organizational test. An organization is or- 3. By demonstrating that the supporting or-
   described in section 509(a)(1), (2), or (4)) ganized exclusively for one or more of the pur- ganization and its supported organiza- who controls, directly or indirectly, either poses specified in requirement (1) only if its arti- tion(s) have a historic and continuing rela- alone or together with persons listed in (2) cles of organization: tionship, because of which a substantial or (3) below, the governing body of a sup- identity of interests has developed be- 1. Limit the purposes of the organization to ported organization; tween or among the organizations. one or more of those purposes,

2. A family member of a person described in The articles of a Type I or Type II supporting or- 2. Don't expressly empower the organization (1), above; or ganization may also: to engage in activities that aren't in further-

3. A 35% controlled entity. ance of those purposes, 1. Permit the substitution of one publicly sup-
   ported organization within a designated 3. Specify (as explained later under Speci-Category one - Type I and Type II support-class for another publicly supported or-fied organizations) the publicly supported ing organizations. This category includes or-ganization either in the same or a different organizations on whose behalf the organi-ganizations either operated, supervised, or con-class designated in the articles,zation is operated, andtrolled by (Type I) or supervised or controlled in 2. Permit the supporting organization to oper-connection with (Type II) organizations descri-4. Don't expressly empower the organization ate for the benefit of new or additional pub-bed in section 509(a)(1) or 509(a)(2) (which can to operate to support or benefit any organi-licly supported organizations of the same be either domestic or foreign).zation other than the ones specified in or a different class designated in the arti-item (3).These kinds of organizations have a govern-cles, oring body that either includes a majority of mem-In meeting the organizational test, the organ-bers elected or appointed by one or more pub-3. Permit the supporting organization to vary ization's purposes as stated in its articles can licly supported organizations (Type I) or that the amount of its support among different be as broad as, or more specific than, the pur-consists of the same persons that control or publicly supported organizations within the poses set forth in requirement (1) at the begin-manage the publicly supported organizations class or classes of organizations designa-ning of the discussion of Section 509(a)(3) Or-(Type II). If an organization is to qualify under ted by the articles.ganizations. Therefore, an organization that by this category, it must also meet an organiza-the terms of its articles is formed for the benefit See also the rules considered under the Organi-tional test and an operational test, and mustn't of one or more specified publicly supported or-zational test, in the later discussion for organi-be controlled by disqualified persons. These re-ganizations will, if it otherwise meets the other zations in Category two - Type III supporting or-quirements are covered later in this discussion.requirements, be considered to have met the or-ganizations..

ganizational test.Type I - Operated, supervised, or con- Operational test -- permissible benefi-For example, articles stating that an organi-trolled by. The Type I relationship presuppo- ciaries. A supporting organization must en-zation is formed to perform the publishing func-ses a substantial degree of direction over the gage solely in activities that support or benefit tions of a specified university are enough to policies, programs, and activities of a support- its specified supported organizations. These ac-comply with the organizational test. A Type I or ing organization by its supported organizations. tivities may include making payments to or for Type II supporting organization meets these re-The relationship required is comparable to that the use of, or providing services or facilities for, quirements if the purposes set forth in its arti-of a parent and subsidiary, in which the subsid- individual members of the charitable class cles are similar to but no broader than the pur-iary is under the direction of, and is accountable benefited by its supported organization(s).poses set forth in the articles of its controlling or responsible to, the parent organization. This For example, a supporting organization may organizations. However, a Type I or Type II sup-relationship is typically established when the make a payment indirectly through another un-porting organization that supports a publicly supported organization(s) may regularly appoint related organization to a member of a charitable supported section 501(c)(4), 501(c)(5), or or elect a majority of the directors or trustees of class benefited by a specified publicly suppor-501(c)(6) organization (see Supporting other the supporting organization. ted organization, but only if the payment is a than section 501(c)(3) organizations, later) grant to an individual rather than a grant to an Type II - Supervised or controlled in con-meets these requirements if its articles require it nection with. An organization that is super- organization. Similarly, a supporting organiza-to carry on charitable, etc., activities within the vised or controlled in connection with one or tion may support or benefit a section 501(c)(3) meaning of section 170(c)(2).more section 509(a)(1) or 509(a)(2) organiza- organization, other than a private foundation,

Limits. An organization isn't organized ex-tions is a Type II supporting organization. The that is operated, supervised, or controlled di- clusively for the purposes specified in require-control or management of the supporting organ- rectly by or in connection with its supported or- ment (1) if its articles expressly permit it to oper-ization must be vested in the same persons that ganization(s). However, a supporting organiza- ate to support or to benefit any organization control or manage the publicly supported or- tion's activities may not further its purpose other other than the specified publicly supported or-ganization. In order for an organization to be su- than supporting or benefiting its supported or- ganizations. It won't meet the organizational test pervised or controlled in connection with a sup- ganization(s). even though the actual operations of the organi-ported organization, common supervision or Operational test -- permissible activi-zation have been exclusively for the benefit of control by the persons supervising or controlling ties. A supporting organization may make pay-the specified publicly supported organizations.both organizations must exist to ensure that the ments to its supported organization(s) or to per-supporting organization will be responsive to Specified organizations. All supporting missible beneficiaries, or may carry on the needs and requirements of the supported organizations must ensure that their supported independent activities or programs that support organization. This relationship is typically estab-organizations are specified in their articles. or benefit its supported organization(s). All such lished when a majority of the directors or trust-However, Type I and Type II supporting organi- support, however, must be limited to permissi-ees of the supporting organization also serve as zations have greater flexibility regarding how ble beneficiaries described earlier. The support-directors or trustees of one or more supported their supported organizations may be "speci- ing organization may also engage in fundraising fied." activities, such as solicitations, fundraising din- Type I and Type II supporting organizations ners, and unrelated trade or business, to raise Organizational and operational tests. Like may specify their supported organizations: funds for its supported organization(s) or for the all supporting organizations, Type I and II sup- permissible beneficiaries.porting organizations must be both organized 1. By name,

and operated exclusively for the purposes set 2. By class or purpose designated in a man- Absence of control by disqualified persons. out in requirement (1) at the beginning of this ner sufficient to identify the supported or- The third requirement an organization must Page 43 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025section. If an organization fails to meet either ganizations, or meet to qualify as a supporting organization re-the organizational or the operational test, it can't quires that the organization not be controlled di-qualify as a supporting organization. rectly or indirectly by one or more disqualified

42 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

persons (other than foundation managers or considered controlled directly or indirectly by Organizational test. The organizational one or more publicly supported organizations). one or more disqualified persons by reason of test for a Type III supporting organization is gen- this fact alone. However, all pertinent facts and erally the same as for a Type I or Type II sup-Disqualified persons. For the purposes of circumstances (including the nature, diversity, porting organization (described earlier). How-the rules discussed in this publication, the fol- and income yield of an organization's holdings, ever, Type III supporting organizations are more lowing persons are considered disqualified per- the length of time particular stocks, securities, limited regarding how their supported organiza-sons: or other assets are retained, and its manner of tions must be "specified" in their articles. A Type exercising its voting rights with respect to stocks III supporting organization's articles must spec-1. All substantial contributors to the founda- in which members of its governing body also ify its supported organization(s) by name, or the tion. have some interest) are considered in determin- organization must demonstrate that the sup-2. All foundation managers of the foundation. ing whether a disqualified person does in fact porting organization and its supported organiza- indirectly control an organization. tion(s) have a historic and continuing relation-3. An owner of more than 20% of: ship, because of which a substantial identity of Proof of independent control. An organi- a. The total combined voting power of a interests has developed between or among the zation is permitted to establish to the satisfac- corporation that is (during such own- organizations. "Class or purpose" designations tion of the IRS that disqualified persons don't di- ership) a substantial contributor to the don't satisfy the organizational test for Type III rectly or indirectly control it. For example, in the foundation, supporting organizations. However, a Type III case of a religious organization operated in con- supporting organization's articles may: b. The profits interest of a partnership nection with a church, the fact that the majority that is (during such ownership) a sub- 1. Permit a publicly supported organization of the organization's governing body is com- stantial contributor to the foundation, that is designated by class or purpose posed of lay persons who are substantial con- or rather than by name to be substituted for tributors to the organization won't disqualify the the publicly supported organization or or- organization under section 509(a)(3) if a repre- c. The beneficial interest of a trust or un- ganizations designated by name in the ar- sentative of the church, such as a bishop or incorporated enterprise that is (during ticles, but only if the substitution is condi- other official, has control over the policies and such ownership) a substantial contrib- tioned upon the occurrence of an event decisions of the organization. utor to the foundation. that is beyond the control of the supporting 4. A member of the family of any of the indi- organization, such as loss of exemption, Category two - Type III supporting organiza- viduals just listed. substantial failure or abandonment of op- tions. This category includes organizations op-

erations, or dissolution of the organization erated in connection with one or more organiza-5. A corporation of which more than 35% of or organizations designated in the articles,tions described in section 509(a)(1) or 509(a)the total combined voting power is owned (2).by persons just listed.2. Permit the supporting organization to oper-All supporting organizations must be re-ate for the benefit of an organization that 6. A partnership of which more than 35% of sponsive to the needs and demands of, and isn't a publicly supported organization, but the profits interest is owned by persons must constitute an integral part of or maintain only if the supporting organization is cur-described in (1), (2), (3), or (4).significant involvement in, their supported or-rently operating for the benefit of a publicly 7. A trust, or estate, of which more than 35% ganizations. Type I and Type II supporting or-supported organization and the possibility of the beneficial interest is owned by per-ganizations are deemed to accomplish these of its operating for the benefit of other than sons described in (1), (2), (3), or (4).responsiveness and integral part requirements a publicly supported organization is re-by virtue of the control relationships discussed mote, orRemember, however, that foundation man-earlier. However, a Type III supporting organiza-agers and publicly supported organizations 3. Permit the supporting organization to vary tion isn't subject to the same level of control by aren't disqualified persons for purposes of this the amount of its support between differ-its supported organization(s). Therefore, Type III control requirement.ent designated organizations, as long as it supporting organizations must pass separate If a person who is a disqualified person with meets the requirements of the integral-part responsiveness and integral part tests, in addi-respect to a supporting organization, such as a test (discussed later) with respect to at tion to the organizational and operational tests substantial contributor, is appointed or designa-least one beneficiary organization.applicable to all supporting organizations. Type ted as a foundation manager of the supporting III supporting organizations mustn't be control-If the remote possibility referred to in (2) organization by a supported organization to led by disqualified persons (as described ear-comes to pass and the supporting organization serve as its representative, that person is still a lier), and may not receive contributions from thereafter operates for the benefit of an organi-disqualified person.certain controlling donors (see Contributions zation that isn't a publicly supported organiza-An organization is considered controlled for from controlling donors, later). In addition, a tion, it will no longer qualify under section this purpose if the disqualified persons, by com-Type III supporting organization may not sup-509(a)(3).bining their votes or positions of authority, can port any organization not organized in the Uni-require the organization to perform any act that ted States.Operational test. The operational rules descri-significantly affects its operations or can prevent Functional integration. A Type III support-bed earlier for Type I and Type II supporting or-the organization from performing the act. This ing organization may be "functionally-integra-ganizations apply as well to Type III supporting includes, but isn't limited to, the right of any sub-ted" or "non-functionally integrated" depending organizations (see Operational test - permissi-stantial contributor or spouse to designate an-on the manner in which it meets the integral part ble beneficiaries, and Operational test - permis-nually the recipients from among the supported test (see Integral part test - functionally-integra-sible activities, earlier). In addition, a Type III organizations of the income from the contribu-ted, and Integral part test - non-functionally inte-supporting organization must operate in a man-tion. Except as explained under Proof of inde-grated, later). Type III functionally-integrated ner consistent with the requirements of the re-pendent control, next, a supporting organization supporting organizations are subject to fewer sponsiveness test and the integral-part test, dis-will be considered to be controlled directly or in-restrictions and requirements than Type III cussed laterdirectly by one or more disqualified persons if non-functionally integrated supporting organiza-the voting power of those persons is 50% or tions. In particular, distributions from private Responsiveness test. A Type III supporting more of the total voting power of the organiza-foundations to Type III non-functionally integra-organization must be responsive to the needs tion's governing body, or if one or more of those ted supporting organizations aren't qualifying or demands of its supported organization(s). To persons has the right to exercise veto power distributions for purposes of satisfying a private meet this test, the supported organizations over the actions of the organization.foundation's required annual distributions under must (1) elect one or more officers, directors, or Page 44 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Thus, if the governing body of a foundation section 4942, and may be taxable expenditures trustees; (2) have one or more officers, direc-is composed of five trustees, none of whom has under section 4945.tors, or trustees of the supported organiza-a veto power over the actions of the foundation, tion(s) serving simultaneously as officers, direc-and no more than two trustees are at any time tors, or trustees of the supporting organization; disqualified persons, the foundation isn't Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 43

or (3) maintain a close and continuous working Attentiveness requirement. Each year, a considered distributed will be prorated among

relationship with the officers, directors, or trust- Type III non-functionally integrated supporting the distributees. ees of the supporting organization. In addition, organization must distribute one-third or more of Also, treat amounts paid by an organization as a result of this representation or close work- the amount that it must distribute that year to to provide goods, services, or facilities for the ing relationship, the supported organization(s) one or more supported organizations that are direct benefit of an organization seeking section must have a significant voice in the investment attentive to the operations of the supporting or- 509(a)(2) status (rather than for the direct bene- policies of the supporting organization, the tim- ganization and to which the supporting organi- fit of the general public) in the same manner as ing of grants and the manner of making them, zation is responsive. A supported organization amounts received by the latter organization. the selection of recipients, and generally the is "attentive" for these purposes if the amount These amounts will be treated as gross invest- use of the income or assets of the supporting received by the supported organization from the ment income to the extent they are gross invest- supporting organization: ment income of the organization spending the amounts. An organization seeking section 1. Equals at least 10% of the supported or-Notification requirement. In each tax 509(a)(2) status must file a separate statement ganization's total support for the year in year, the Type III supporting organization must with its annual information return, Form 990 or question;notify each supported organization of its sup- 990-EZ, listing all amounts received from sup-port and provide a copy of the supporting or- 2. was necessary to avoid interruption of a porting organizations.ganization's most recently filed Form 990 or particular function or activity of the suppor-990-EZ and copies of any amendments to its ted organization; or Relationships created for avoidance purpo-articles, bylaws, or other governing documents. ses. If a relationship between an organization 3. was, based on all facts and circumstances seeking section 509(a)(3) status and an organi-Integral part test - functionally integra- (including evidence of actual attentive- zation seeking section 509(a)(2) status is estab-ted. A Type III supporting organization may sat- ness), a sufficient part of the supported or- lished or used to avoid classification as a pri-isfy the integral part test as functionally-integra- ganization's total support to ensure atten- vate foundation with respect to either ted in one of three ways: tiveness. organization, then the character and amount of 1. Engaging in activities substantially all of support received by the section 509(a)(3) or- Supporting other than section 501(c)(3) or- which directly further the exempt purposes ganization will be attributed to the section ganizations. An organization operated in con- of its supported organization(s) and which, 509(a)(2) organization for purposes of deter- junction with a social welfare organization, labor but for the supporting organization's in- mining whether the latter meets the support or agricultural organization, business league, volvement, the supported organization tests under section 509(a)(2). If this type of rela- chamber of commerce, or other organization would normally engage in; tionship is established or used between an or- described in section 501(c)(4), 501(c)(5), or ganization seeking 509(a)(3) status and two or 2. Being the parent of, appointing a majority 501(c)(6) may qualify as a supporting organiza- more organizations seeking 509(a)(2) status, of the directors or trustees of, and exercis- tion under section 509(a)(3) and therefore not the amount and character of support received ing a substantial degree of direction over be classified as a private foundation if both the by the former organization will be prorated the policies, programs, and activities of its following conditions are met. among the latter organizations. supported organizations; or 1. The supporting organization meets all the In determining whether a relationship exists 3. Supporting a governmental entity. requirements previously specified (the or- between an organization seeking 509(a)(3) sta-

ganizational tests, the operational test, tus (supporting organization) and one or more Direct furtherance activities. For purpo-and one of the relationship tests and not organizations seeking 509(a)(2) status (benefi-ses of the test in item (1), activities "directly fur-be controlled by disqualified persons). ciary organizations) for the purpose of avoiding ther" a supported organization's exempt purpo- private foundation status, all pertinent facts and ses only if conducted by the supporting 2. The section 501(c)(4), 501(c)(5), or 501(c) circumstances will be taken into account. The organization itself. Direct furtherance activities (6) organization would be described in following facts may be used as evidence that include holding title to and managing ex-section 509(a)(2) if it was a charitable or- such a relationship wasn't established or empt-use assets, but not fundraising or invest-ganization described in section 501(c)(3). availed of to avoid classification as a private ing and managing non-exempt-use assets. This provision allows separate charitable foundation.Grantmaking may qualify as direct furtherance funds of certain noncharitable organiza-

activities if the requirements of Regulations sec- tions to be described in section 509(a)(3) 1. The supporting organization is operated to tion 1.509(a)-4(i)(4)(ii)(D) are met. if the noncharitable organizations receive support or benefit several specified benefi- their support and otherwise operate in the Integral-part test - non-functionally inte- ciary organizations.grated. A Type III supporting organization that manner specified by section 509(a)(2). 2. The beneficiary organization has a sub-doesn't satisfy the integral part test as function- stantial number of dues-paying members ally-integrated will still qualify as a Type III Special rules of attribution. To determine who have an effective voice in the man-non-functionally integrated supporting organiza- whether an organization meets the agement of both the supporting and the tion if it satisfies a distribution requirement and not-more-than-one-third support test in section beneficiary organizations.an attentiveness requirement. Alternatively, cer- 509(a)(2), amounts received by the organization

tain trusts established before November 20, from an organization that seeks to be a section 3. The beneficiary organization is composed 1970 may qualify if they meet the requirements 509(a)(3) organization because of its support of of several membership organizations, of Regulations section 1.509(a)-4(i)(5)(i)(9). the organization are deemed gross investment each of which has a substantial number of Distribution requirement. A Type III income (rather than gifts or contributions) to the members, and the membership organiza-non-functionally integrated supporting organiza- extent they are gross investment income of the tions have an effective voice in the man-tion must distribute a certain amount annually to distributing organization. (This rule also applies agement of the supporting and beneficiary or for the benefit of its supported organiza- to amounts received from a charitable trust, cor-

tion(s). That amount is equal to the greater of poration, fund, association, or similar organiza- 4. The beneficiary organization receives a 85% of the organization's adjusted net income tion that is required by its governing instrument substantial amount of support from the and 3.5% of the fair market value of the organi- or otherwise to distribute, or that normally does general public, public charities, or govern-zation's non-exempt-use assets (with certain distribute, at least 25% of its adjusted net in- mental grants.adjustments). See Regulations section come to the organization, and whose distribu- 1.509(a)-4(i)(5) and (8) for more information re- tion normally comprises at least 5% of its adjus- 5. The supporting organization uses its funds garding the distribution requirement and valua- ted net income.) All income that is gross to carry on a meaningful program of activi-Page 45 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025tion of non-exempt-use assets. See Regulations investment income of the distributing organiza- ties to support or benefit the beneficiary section 1.509(a)-4(i)(6) for more information re- tion will be considered distributed first by that organization and, if the supporting organi-garding what distributions or expenditures count organization. If the supporting organization zation were a private foundation, this use towards the distribution requirement. makes distributions to more than one organiza- tion, the amount of gross investment income

44 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

would be sufficient to avoid the imposition contributions made after the date of the an- foundations generally accomplish their charita- of the tax on failure to distribute income. nouncement will depend on the statutory qualifi- ble purpose by making grants to other charities. cation of the organization as an organization de- Operating foundations make qualifying distribu-6. The operations of the beneficiary and sup- scribed in Section 509(a)(1), Section 509(a)(2), tions directly for the active conduct of their edu-porting organizations are managed by dif- or Section 509(a)(3). cational, charitable, and religious purposes.ferent persons, and each organization per- forms a different function. Most of the restrictions and requirements The preceding paragraph shall not ap-

that apply to private foundations also apply to ply if the grantor or contributor:7. The supporting organization isn't able to private operating foundations. However, there exercise substantial control or influence are advantages to being classified as a private 1. Had knowledge of the revocation of the over the beneficiary organization because operating foundation. For example, a private op-ruling or determination letter classifying the beneficiary organization receives sup-erating foundation (as compared to a private the organization as an organization descri-port or holds assets that are disproportion-foundation) can be the recipient of grants from a bed in section 509(a)(1), 509(a)(2), or ately large in comparison with the support private foundation without having to distribute 509(a)(3); orreceived or assets held by the supporting the funds received currently within 1 year, and 2. Was in part responsible for, or was aware the funds nevertheless may be treated as quali-of, the act, the failure to act, or the sub-fying distributions by the donating private foun-Effect on section 509(a)(3) organizations. If stantial and material change on the part of dation; charitable contributions to a private op-a beneficiary organization fails to meet either of the organization that gave rise to the revo-erating foundation qualify for a higher charitable the support tests of section 509(a)(2) due to cation.deduction limit on the donor's tax return; and these provisions, and the beneficiary organiza-the excise tax on net investment income doesn't tion is one for whose support the organization apply to an exempt operating foundation (a pri-seeking section 509(a)(3) status is operated, Interim guidance for supporting organiza-vate operating foundation that meets certain ad-then the supporting organization won't be con-tions and grantors. Notice 2014-4 provides ditional requirements - see Exempt operating sidered to be operated exclusively to support or further interim guidance for section 509(a)(3) foundations, later).benefit one or more section 509(a)(1) or 509(a)supporting organizations and their grantors

(2) organizations and therefore wouldn't qualify A private operating foundation is any private about the application of certain requirements for section 509(a)(3) status. foundation that meets the assets test, the sup- enacted as part of the Pension Protection Act of port test, or the endowment test, and makes 2006. The notice provides transitional rules for qualifying distributions directly, for the active Request change in public charity classifica- Type III supporting organizations that want to tion. A section 501(c)(3) tax-exempt organiza- conduct of its activities for which it was organ- qualify as "functionally integrated" because they tion seeking to change its public charity classifi- ized, of substantially all (85% or more) of the support governmental entities. The notice also cation from a section 509(a)(3) supporting lesser of its: provides additional interim guidance for private

organization to a section 509(a)(1) or 509(a)(2) foundations and sponsoring organizations that 1. Adjusted net income, ororganization must file Form 8940, Request for maintain donor-advised funds on the proce-Miscellaneous Determination. See the Instruc- 2. Minimum investment return. dures to be followed in determining whether a tions for Form 8940 for more information regard- potential grantee is a Type I, Type II or function- Assets test. A private foundation will meet ing supporting material and applicable user ally integrated Type III supporting organization. the assets test if substantially more than half fees. See Notice 2014-4, 2014-2 I.R.B. 274 (exten- (65% or more) of its assets are: ded as described in the preamble to the 2015 fi-For more information about applying for sec- 1. Devoted directly to the active conduct of nal regulations regarding the distribution re-tion 501(c)(3) status see Life Cycle of a Private its exempt activity, to a functionally related quirement for non-functionally integrated Type Foundation at IRS.gov. business, or to a combination of the two; III supporting organizations (T.D. 9746)).

1. Stock of a corporation that is controlled by Classification under section 509(a). If an or-Section 509(a)(4) Organizationsthe foundation (by ownership of at least ganization is described in section 509(a)(1), 80% of the total voting power of all classes and is also described in either Section 509(a)(2) Section 509(a)(4) excludes from classification of stock entitled to vote and at least 80% or Section 509(a)(3), it will be treated as a sec-as private foundations those organizations that of the total shares of all other classes of tion 509(a)(1) organization. The organization qualify under section 501(c)(3) as organized stock) and substantially all (at least 85%) should file Form 8940, Request for Miscellane-and operated for the purpose of testing prod-the assets of which are devoted as provi-ous Determination, if it wishes to receive a letter ucts for public safety. Generally, these organiza-ded above; orshowing a change in classification.tions test consumer products to determine their 3. Any combination of (1) and (2).acceptability for use by the general public.Reliance by grantors and contributors. This test is intended to apply to organizations Once an organization has received a ruling or Loss of Qualification as Public such as museums and libraries.determination letter classifying it as an organi-Charityzation described in Section 509(a)(1), Section Support test. A private foundation will 509(a)(2), or Section 509(a)(3), the treatment of meet the support test if:If your organization ceases to qualify as a public grants and contributions and the status of gran-

charity under section 509(a)(1)-(4), it becomes tors and contributors to the organization will 1. Substantially all (at least 85%) of its sup- a private foundation. The organization must file generally not be affected by reason of a later port (other than gross investment income) Form 990-PF, Return of Private Foundation or revocation by the IRS of the organization's clas- is normally received from the general pub- sification until the date on which notice of lic and five or more unrelated exempt or-Section 4947(a)(1) Trust Treated as a Private Foundation to satisfy its filing obligation. The or-change of status is made to the public (gener- ganizations,

ganization can no longer file Form 990, 990-EZ, ally by publication in the Internal Revenue Bulle- 2. Not more than 25% of its support (other or 990-N. A private foundation retains that sta-tin) or another applicable date, if any, specified than gross investment income) is normally tus unless or until it terminates its private foun-in the public notice. In appropriate cases, how- received from any one exempt organiza-dation status under section 507.ever, the treatment of grants and contributions tion, andand the status of grantors and contributors to an Private Operating organization described in Section 509(a)(1), 3. Not more than 50% of its support is nor-

Section 509(a)(2), or Section 509(a)(3) may be mally received from gross investment in- FoundationsPage 46 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025affected pending verification of the continued come.

classification of the organization. Notice to this Private foundations are divided into two catego- This test is intended to apply to special-purpose effect will be made in a public announcement by ries - nonoperating private foundations and foundations, such as learned societies and as-the IRS. In these cases, the effect of grants and private operating foundations. Nonoperating sociations of libraries.

Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 45!

CAUTION

Endowment test. A foundation will meet integrated auxiliary of a church or of a conven- est to the organization and the members, unless the endowment test if it normally makes qualify- tion or association of churches, or a member of these communications directly encourage the ing distributions directly for the active conduct an affiliated group of organizations that includes members to attempt to influence legislation or of its exempt function of at least two-thirds of its a church, etc.) may elect instead an expenditure directly encourage the members to urge non- minimum investment return. test under section 501(h) as an alternative to members to attempt to influence legislation, as The minimum investment return for any pri- measure its lobbying activity. Under the Section explained earlier. vate foundation for any tax year is 5% of the ex- 501(h) test, the lobbying limit is defined in terms

Lobbying expenditures limits. If a public cess of the total fair market value of all assets of of expenditures for influencing legislation in-

charity makes the election under section 501(h) the foundation (other than those used directly in stead of whether lobbying is a substantial part to be subject to the lobbying expenditures limits the active conduct of its exempt purpose) over of the organization's activities. Private founda- rules (instead of the substantial part of activities the amount of indebtedness incurred to acquire tions can't make this election. test), it won't lose its tax-exempt status under those assets.

Making the election. Use Form 5768, Elec- section 501(c)(3), unless it normally makes:In determining whether the amount of quali- •tion/Revocation of Election by an Eligible Sec- Lobbying expenditures that are more than fying distributions is at least two-thirds of the or-

tion 501(c)(3) Organization To Make Expendi- 150% of the lobbying nontaxable amount ganization's minimum investment return, the or- tures To Influence Legislation, to make the for the organization for each tax year, organization isn't required to trace the source of •election. The form must be signed and post- Grass roots expenditures that are more the expenditures to determine whether they marked within the first tax year to which it ap- than 150% of the grass roots nontaxable were derived from investment income or from plies. If the form is used to revoke the election, it amount for the organization for each tax contributions. must be signed and postmarked before the first year.This test is intended to apply to organiza- day of the tax year to which it applies.tions such as research organizations that ac- See Tax on excess expenditures to influence tively conduct charitable activities but whose Eligible section 501(c)(3) organizations that legislation, later, in this section.personal services are so great in relationship to have made the election to be subject to the lim-

charitable assets that the cost of those services Lobbying expenditures. These are any its on lobbying expenditures must use Part II-A can't be met out of small endowments. expenditures that are made for the purpose of of Schedule C (Form 990) to figure these limits. attempting to influence legislation, as discussed Exempt operating foundations. The ex- Attempting to influence legislation. Attempt- earlier under Attempting to influence legislation.cise tax on net investment income doesn't apply ing to influence legislation, for this purpose, to an exempt operating foundation. An exempt Grass roots expenditures. This term re- means:operating foundation for the tax year is any pri- fers only to those lobbying expenditures that are

1. Any attempt to influence any legislation vate foundation that: made to influence legislation by attempting to
   through an effort to affect the opinions of affect the opinions of the general public or any 1. Is an operating foundation, as described the general public or any segment thereof segment thereof.previously;(grass roots lobbying), and Lobbying nontaxable amount. The lobby-2. Has been publicly supported for at least 2. Any attempt to influence any legislation ing nontaxable amount for any organization for 10 tax years or was an operating founda-through communication with any member any tax year is the lesser of $1,000,000 or:tion on January 1, 1983, or for its last tax or employee of a legislative body or with year ending before January 1, 1983; 1. 20% of the exempt purpose expenditures any government official or employee who if the exempt purpose expenditures aren't may participate in the formulation of legis-3. Has a governing body that, at all times over $500,000,lation (direct lobbying).during the tax year, is broadly representa- tive of the general public and consists of 2. $100,000 plus 15% of the excess of the However, the term attempting to influence legis-individuals no more than 25% of whom are exempt purpose expenditures over lation doesn't include the following activities.disqualified individuals; and $500,000 if the exempt purpose expendi-1. Making available the results of nonpartisan tures are over $500,000 but not over 4. Doesn't have any officer, at any time dur-analysis, study, or research. $1,000,000,ing the tax year, who is a disqualified indi-

2. Examining and discussing broad social, vidual. 3. $175,000 plus 10% of the excess of the economic, and similar problems. exempt purpose expenditures over The foundation must obtain a determination let- $1,000,000 if the exempt purpose expen-3. Providing technical advice or assistance ter from the IRS recognizing this special status ditures are over $1,000,000 but not over (where the advice would otherwise consti-(see Existing organization, later). $1,500,000, ortute the influencing of legislation) to a gov-
   ernmental body or to a committee or other New organization. If you are applying for 4. $225,000 plus 5% of the excess of the ex-subdivision thereof in response to a writ-recognition of exemption as an organization de- empt purpose expenditures over ten request by that body or subdivision.scribed in section 501(c)(3) and you wish to es- $1,500,000 if the exempt purpose expen-

tablish that your organization is a private operat- ditures are over $1,500,000. 4. Appearing before, or communicating with, ing foundation, you should complete Part VII of any legislative body about a possible deci- The term exempt purpose expenditures your exemption application (Form 1023). sion of that body that might affect the exis- means the total of the amounts paid or incurred tence of the organization, its powers and (including depreciation and amortization, but Existing organization. If you are an existing duties, its tax-exempt status, or the deduc- not capital expenditures) by an organization for organization seeking reclassification as a pri- tion of contributions to the organization. the tax year to accomplish its exempt purposes. vate operating foundation or as an exempt oper- 5. Communicating with a government official In addition, it includes:ating foundation, you must file Form 8940, Re- or employee, other than:quest for Miscellaneous Determination. 1. Administrative expenses paid or incurred

1. A communication with a member or for the organization's exempt purposes, employee of a legislative body (when Lobbying Expenditures and

the communication would otherwise 2. Amounts paid or incurred for the purpose constitute the influencing of legisla- of influencing legislation, whether or not tion), orIn general, if a substantial part of the activities the legislation promotes the organization's of your organization consists of carrying on b. A communication with the principal exempt purposes.Page 47 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025propaganda or otherwise attempting to influ-purpose of influencing legislation.ence legislation, your organization will not qual- Exempt purpose expenditures don't include Also excluded are communications between an ify for exemption under section 501(c)(3). How- amounts paid or incurred to or for: organization and its bona fide members about ever, a public charity (other than a church, an legislation or proposed legislation of direct inter-

46 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2025)

1. A separate fundraising unit of the organi- fect for an organization and that organization 100% of the expenditure is imposed if the politi- zation, or exceeds the lobbying expenditures limits, an ex- cal expenditure that resulted in the imposition of cise tax of 25% of the excess lobbying expendi- the initial (first-tier) tax isn't corrected within a 2. One or more other organizations, if the tures for the tax year will be imposed. Excess specified period. These taxes must be paid by amounts are paid or incurred primarily for lobbying expenditures for a tax year, in this fundraising. case, means the greater of: Taxes on managers. An initial tax of 2 /2% 1Grass roots nontaxable amount. The 1. The amount by which the lobbying expen- of the amount of certain political expenditures grass roots nontaxable amount for any organi- ditures made by the organization during (up to $5,000 for each expenditure) is imposed zation for any tax year is 25% of the lobbying the tax year are more than the lobbying on a manager of an organization who agrees to nontaxable amount for the organization for that nontaxable amount for the organization for such expenditures knowing that they are politi-tax year. that tax year, or cal expenditures. No tax will be imposed if the manager's agreement wasn't willful and was 2. The amount by which the grass roots ex-Years for which election is effective. Once due to reasonable cause. A second tax of 50% penditures made by the organization dur-an organization elects to come under these pro- of the expenditures (up to $10,000 for each ex- ing the tax year are more than the grass visions, the election will be in effect for all tax penditure) is imposed on a manager if they re- roots nontaxable amount for the organiza-years that end after the date of the election and fuse to agree to a correction of the expenditures tion for that tax year.begin before the organization revokes this elec- that resulted in the imposition of the initial tion. (first-tier) tax. For purposes of these taxes, an Eligible organizations that have made the elec-

organization manager is generally an officer, di-tion to be subject to the limits on lobbying ex-Note. These elective provisions for lobbying rector, trustee, or any employee having author-penditures and that owe the tax on excess lob-activities by public charities don't apply to a ity or responsibility concerning the organiza-bying expenditures (as computed in Part II-A of church, an integrated auxiliary of a church or of tion's political expenditures. These taxes must Schedule C (Form 990)) must file Form 4720, a convention or association of churches, or a be paid by the manager of the organization.Return of Certain Excise Taxes Under Chapters member of an affiliated group of organizations 41 and 42 of the Internal Revenue Code, to re-that includes a church, etc., or a private founda-Political expenditures. Generally, political port and pay the tax.tion. Moreover, these provisions won't apply to expenditures that will trigger these taxes are any organization for which an election isn't in ef-amounts paid or incurred by a section 501(c)(3) Organization that no longer qualifies. An fect.organization in any participation or intervention organization that no longer qualifies for exemp-

in any political campaign for or against any can-tion under section 501(c)(3) because of sub-Expenditures of affiliated organizations. If didate for public office. Political expenditures in-stantial lobbying activities won't at any time two or more section 501(c)(3) organizations are clude publication or distribution of statements thereafter be treated as an organization descri-members of an affiliated group of organizations for these purposes. Political expenditures also bed in section 501(c)(4). This provision, how-and at least one of these organizations has include certain expenditures by organizations ever, doesn't apply to certain organizations made the election regarding the treatment of that are formed primarily to promote the candi-(churches, etc.) that can't make the election dis-certain lobbying expenditures, then the determi-dacy (or prospective candidacy) of an individual cussed earlier.nation as to whether excess lobbying expendi-for public office and by organizations that are ef-tures has been made and the determination as fectively controlled by a candidate and are used Tax on disqualifying lobbying expenditures. to whether the expenditure limits, described The law imposes a tax on certain organizations primarily to promote that candidate.earlier, has been exceeded by more than 150% if they no longer qualify under section 501(c)(3) Correction of expenditure. A correction of will be made as though the affiliated group is by reason of having made disqualifying lobbying a political expenditure is the recovery, if possi-one organization.expenditures. An additional tax may be im-ble, of all or part of the expenditure and the es-If the group has excess lobbying expendi-posed on the managers of those organizations.tablishment of safeguards to prevent future po-tures, each organization for which the election is Tax on organization. Organizations that litical expenditures.effective for the year will be treated as an organ-lose their exemption under section 501(c)(3) ization that has excess lobbying expenditures in due to lobbying activities generally will be sub-Status after loss of exemption for lobbying an amount that equals the organization's pro-or political activities. As explained earlier, an ject to an excise tax of 5% of the lobbying ex-portionate share of the group's excess lobbying organization can lose its tax-exempt status un-penditures. The tax doesn't apply to private expenditures. Further, if the expenditure limits der section 501(c)(3) because of lobbying activ-foundations. Also, the tax doesn't apply to or-described in this section are exceeded by more ities or participation or intervention in a political ganizations that have elected the lobbying limits than 150%, each organization for which the campaign on behalf of or in opposition to a can-of section 501(h) or to churches or church-rela-election is effective for that year will lose its didate for public office. If this happens to an or-ted organizations that can't elect these limits. tax-exempt status under section 501(c)(3).ganization, it can't later qualify for exemption This tax must be paid by the organization.Two organizations will be considered mem-under section 501(c)(4).bers of an affiliated group of organizations if:Tax on managers. Managers may also be

liable for a 5% tax on the lobbying expenditures 1. The governing instrument of one of the or-that result in the disqualification of the organiza-ganizations requires it to be bound by de-tion. For the tax to apply, a manager would have cisions of the other organization on legisla-to agree to the expenditures knowing that the tive issues, orexpenditures were likely to result in the organi-2. The governing board of one of the organi-zation's not being described in section 501(c)zations includes persons who:(3). No tax will be imposed if the manager's agreement isn't willful and is due to reasonable a. Are specifically designated represen-cause.tatives of the other organization or are members of the governing board, offi-Excise taxes on political expenditures. The cers, or paid executive staff members law imposes an excise tax on the political ex-of the other organization; andpenditures of section 501(c)(3) organizations. A b. Have enough voting power to cause two-tier tax is imposed on both the organiza-or prevent action on legislative issues tions and the managers of those organizations.Page 48 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025by the controlled organization by com-

Taxes on organizations. An initial tax of bining their votes. 10% of certain political expenditures is imposed on a charitable organization. A second tax of Tax on excess expenditures to influence legislation. If an election for a tax year is in ef- Publication 557 (1-2025) Chapter 3 Section 501(c)(3) Organizations 47

Nonprofit operation. You must submit evi- ever, see Deduction not allowed for dues used

dence that your organization is organized and for political or legislative activities, under 501(c)4.

will be operated on a nonprofit basis. However, (6) - Business Leagues, etc. for more informa-

such evidence, including the fact that your or- tion. ganization is organized under a state law relat- For more information on social welfare or-Other Section ing to nonprofit corporations, won't in itself es- ganizations, see Life Cycle of a Social Welfare tablish a social welfare purpose. Organization.501(c) Social welfare. To establish that your organi- Specific Organizationszation is operated primarily to promote social

welfare, you should submit evidence with your application showing that your organization will The following information should be contained operate primarily to further (in some way) the in the application form and accompanying state-common good and general welfare of the peo- ments of certain types of civic leagues or social ple of the community (such as by bringing about welfare organizations.civic betterment and social improvements). An organization that restricts the use of its Volunteer fire companies. If your organiza-

This chapter contains specific information for facilities to employees of selected corporations tion wishes to obtain exemption as a volunteer certain organizations described in section and their guests is primarily benefiting a private fire company or similar organization, you should 501(c), other than those organizations that are group rather than the community. It therefore submit evidence that its members are actively described in section 501(c)(3). Section 501(c) doesn't qualify as a section 501(c)(4) organiza- engaged in firefighting and similar disaster as- (3) organizations are covered in chapter 3 of tion. Similarly, an organization formed to repre- sistance, whether it actually owns the firefight- this publication. sent member-tenants of an apartment complex ing equipment, and whether it provides any as- The Table of Contents at the beginning of doesn't qualify, since its activities benefit the sistance for its members, such as death and this publication, as well as the Organization Ref- member-tenants and not all tenants in the com- medical benefits in case of injury to them. erence Chart, may help you locate at a glance munity. However, an organization formed to pro- If your organization doesn't have an inde-the type of organization discussed in this chap- mote the legal rights of all tenants in a particular pendent social purpose, such as providing rec-ter. community may qualify under section 501(c)(4) reational facilities for members, it may be ex- as a social welfare organization. empt under section 501(c)(3). In this event, your organization should file Form 1023.501(c)(4) - Civic Leagues Political activity. Promoting social welfare

doesn't include direct or indirect participation or Homeowners' associations. A membership and Social Welfare intervention in political campaigns on behalf of organization formed by a real estate developer or in opposition to any candidate for public of- to own and maintain common green areas, fice. However, if you submit proof that your or- streets, and sidewalks and to enforce covenants ganization is organized primarily to promote so- to preserve the appearance of the development cial welfare, it can obtain exemption even if it If your organization isn't organized for profit and should show that it is operated for the benefit of participates legally in some political activity on will be operated primarily to promote social wel- all the residents of the community. The term behalf of or in opposition to candidates for pub-fare to benefit the community, it may qualify for community generally refers to a geographical lic office. See the discussion in chapter 2 under exemption under section 501(c)(4). unit recognizable as a governmental subdivi-Political Organization Income Tax Return. sion, unit, or district thereof. Whether a particu- Notice requirement. Every new section lar association meets the requirement of bene-Social or recreational activity. If social activi-501(c)(4) organization must use Form 8976, fiting a community depends on the facts and ties will be the primary purpose of your organi-Notice of Intent to Operate Under Section circumstances of each case. Even if an area zation, you shouldn't file an application for ex-501(c)(4), to provide notice to the Internal Reve- represented by an association isn't a commun-emption as a social welfare organization but you nue Service. The organization must file Form ity, the association can still qualify for exemption may qualify for exemption as a social club de-8976 within 60 days of establishment. Providing if its activities benefit a community.scribed in section 501(c)(7).notice on Form 8976 is not a determination that The association should submit evidence that the IRS recognizes your organization as exempt areas such as roadways and park land that it Retirement benefit program. An organization under section 501(c)(4). owns and maintains are open to the general established by its members that has as its pri- public and not just its own members. It also mary activity providing supplemental retirement Optional application for recognition of ex- must show that it doesn't engage in exterior benefits to its members or death benefits to emption. Your organization may (but is not re- maintenance of private homes.their beneficiaries doesn't qualify as an exempt quired to) file Form 1024-A, Application for Rec- A homeowners' association that isn't exempt social welfare organization. It may qualify under ognition of Exemption under Section 501(c)(4), under section 501(c)(4) and that is a condomin-another paragraph of section 501(c) depending to apply for recognition of exemption from fed- ium management association, a residential real on all the facts.eral income tax under section 501(c)(4). The estate management association, or a timeshare However, a nonprofit association that is es-discussion that follows describes the informa- association generally can elect, under the provi-tablished, maintained, and funded by a local tion you must provide when applying. For appli- sions of section 528, to receive certain tax ben-government to provide the only retirement ben-cation procedures, see chapter 1. efits that, in effect, permit it to exclude its ex-efits to a class of employees may qualify as a To qualify for exemption under section empt function income from its gross income.social welfare organization under section 501(c)501(c)(4), no part of the organization's net earn-(4). Other organizations. Other nonprofit organi-ings can inure to the benefit of any private

zations that qualify as social welfare organiza-shareholder or individual. If the organization Tax treatment of donations. Donations to vol-tions include:provides an excess benefit to certain persons, unteer fire companies are deductible on the do-• An organization operating an airport that is an excise tax may be imposed. See Excise tax nor's federal income tax return, but only if made on land owned by a local government, on excess benefit transactions, under Excess for exclusively public purposes. However, contri- which supervises the airport's operation, Benefit Transactions in chapter 5 for more infor-butions to civic leagues or other section 501(c) and that serves the general public in an mation about this tax.(4) organizations generally aren't deductible as Page 49 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 area with no other airport;charitable contributions for federal income tax •Examples. Types of organizations that are A community association that works to im-purposes. They may be deductible as trade or considered to be social welfare organizations prove public services, housing, and resi-business expenses, if ordinary and necessary are civic associations and volunteer fire compa- dential parking; publishes a free commun-in the conduct of the taxpayer's business. How-nies. ity newspaper; sponsors a community 48 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2025)

sports league, holiday programs, and ees or representatives of the employees (in the 3. Testing soil for members and nonmembers meetings; and contracts with a private se- form of collective bargaining agents) and similar of the farm bureau on a cost basis, the re- curity service to patrol the community; employee groups, evidence that an organiza- sults of the tests and other recommenda-•A community association devoted to pre- tion's membership consists mainly of workers tions being furnished to the community serving the community's traditions, archi- doesn't in itself indicate an exempt purpose. members to educate them in soil treat- tecture, and appearance by representing it You must show in your application that your or- ment. before the local legislature and administra- ganization has the purposes described in the 4. Guarding the purity of a specific breed of tive agencies in zoning, traffic, and parking preceding paragraph. These purposes can be livestock.matters; accomplished by a single labor organization •An organization that tries to encourage in- acting alone or by several organizations acting 5. Encouraging improvements in the produc- dustrial development and relieve unem- together through a separate organization. tion of fish on privately owned fish farms. ployment in an area by making loans to 6. Negotiating with processors for the price Benefits to members. The payment by a la-businesses so they will relocate to the to be paid to members for their crops. bor organization of death, sick, accident, and area; and• similar benefits to its individual members with An organization that holds an annual festi- For more information on agricultural or horti-

funds contributed by its members, if made un-val of regional customs and traditions. cultural organizations, see Life Cycle of an der a plan to better the conditions of the mem- Agricultural or Horticultural Organization.

bers, doesn't preclude exemption as a labor or-501(c)(5) - Labor, ganization. However, an organization doesn't 501(c)(6) -Agricultural, and qualify for exemption as a labor organization if

its primary activity is to provide a strike fund that Business Leagues, etc.Horticultural is controlled by private individuals who control-

led the organization that paid benefits to work- ers. If your organization wants to apply for recogni- For more information on labor organizations, tion of exemption from federal income tax as a see Life Cycle of a Labor Organization. nonprofit business league, chamber of com-If you are a member of an organization that merce, real estate board, or board of trade, it wants to obtain recognition of exemption from Agricultural and should file Form 1024. For a discussion of the federal income tax as a labor, agricultural, or procedure to follow, see chapter 1.Horticultural Organizationshorticultural organization, you should submit an

application on Form 1024. You must indicate in Your organization must indicate in its appli-your application for exemption and accompany- Agricultural and horticultural organizations are cation form and attached statements that no ing statements that no part of the organization's connected with raising livestock, cultivating part of its net earnings will inure to the benefit of net earnings will inure to the benefit of any land, raising and harvesting crops or aquatic re- any private shareholder or individual and that it member. In addition, you should follow the pro- sources, cultivating useful or ornamental plants, isn't organized for profit or organized to engage cedure for obtaining recognition of exempt sta- and similar pursuits. in an activity ordinarily carried on for profit (even tus described in chapter 1. Submit any addi- if the business is operated on a cooperative ba- For the purpose of these provisions, aquatic tional information that may be required, as sis or produces only sufficient income to be resources include only animal or vegetable life, described in this section. self-sustaining). but not mineral resources. The term harvesting, in this case, includes fishing and related pur-Tax treatment of donations. Contributions to In addition, your organization must be pri- suits.labor, agricultural, and horticultural organiza- marily engaged in activities or functions that are tions aren't deductible as charitable contribu- Agricultural organizations are often de- the basis for its exemption. It must be primarily tions on the donor's federal income tax return. signed to encourage the development of better supported by membership dues and other in-However, such payments may be deductible as agricultural and horticultural products through a come from activities substantially related to its business expenses if they are ordinary and nec- system of awards, using income from entry exempt purpose.essary in the conduct of the taxpayer's trade or fees, gate receipts, and donations to meet the business. For more information about certain A business league, in general, is an associa- necessary expenses of upkeep and operation. limits affecting the deductibility of these busi- tion of persons having some common business When the activities are directed toward the im-ness expenses, see Deduction not allowed for interest, the purpose of which is to promote that provement of marketing or other business con-dues used for political or legislative activities, common interest and not to engage in a regular ditions in one or more lines of business, rather under 501(c)(6) - Business Leagues, etc. business of a kind ordinarily carried on for profit. than the improvement of production techniques

Trade associations and professional associa-or the betterment of the conditions of persons Labor Organizationstions are considered business leagues.engaged in agriculture, the organization must

qualify for exemption as a business league, Chamber of commerce. A chamber of com-board of trade, or other organization, as dis-A labor organization is an association of work- merce is usually composed of the merchants cussed next in the section on 501(c)(6) organi-ers who have combined to protect and promote and traders of a city.zations.the interests of the members by bargaining col-

lectively with their employers to secure better The primary purpose of exempt agricultural Board of trade. A board of trade often con-working conditions, wages, and similar benefits. and horticultural organizations must be to better sists of persons engaged in similar lines of busi- the conditions of those engaged in agriculture ness. For example, a nonprofit organization To show that your organization has the pur- or horticulture, develop more efficiency in agri- formed to regulate the sale of a specified agri-pose of a labor organization, you should include culture or horticulture, or improve the products. cultural commodity to assure equal treatment of in your organizing document or accompanying

producers, warehouse workers, and buyers is a statements (submitted with your exemption ap-The following list contains some examples of board of trade.plication) information establishing that the or-activities that show an agricultural or horticul- ganization is organized to better the conditions Chambers of commerce and boards of trade tural purpose. of workers, improve the grade of their products, usually promote the common economic inter-1. Promoting various cooperative agricul-and develop a higher degree of efficiency in ests of all the commercial enterprises in a given tural, horticultural, and civic activities their respective occupations. In addition, no net trade community.among rural residents by a state, farm, or Page 50 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025earnings of the organization can inure to the home bureau.Real estate board. A real estate board con-benefit of any member.

1. Exhibiting livestock, farm products, and sists of members interested in improving the Composition of membership. While a labor other characteristic features of agriculture business conditions in the real estate field. It

organization is generally composed of employ- and horticulture. isn't organized for profit and no part of the net

Publication 557 (1-2025) Chapter 4 Other Section 501(c) Organizations 49

earnings inures to the benefit of any private board of trade and isn't exempt under section substantially all of its activities are for these pur- shareholder or individual. 501(c)(6). poses, it should file Form 1024 to apply for rec- ognition of exemption from federal income tax.

Professional football leagues. The Internal Legislative activity. An organization that is ex- In applying for recognition of exemption, you Revenue Code specifically defines professional empt under section 501(c)(6) can work for the should submit the information described in this football leagues as exempt organizations under enactment of laws to advance the common section. Also see chapter 1 for the procedures section 501(c)(6). They are exempt whether or business interests of the organization's mem- to follow.not they administer a pension fund for football bers.

players. Typical organizations that should file for rec- Deduction not allowed for dues used for po- ognition of exemption as social clubs include:General purpose. You must indicate in the litical or legislative activities. A taxpayer • College alumni associations that aren't de-material submitted with your application that can't deduct the part of dues or other payments scribed in chapter 3 under Alumni associa-your organization will be devoted to the im- to a business league, trade association, labor tion;provement of business conditions of one or union, or similar organization that is reported to • College fraternities or sororities operating more lines of business as distinguished from the taxpayer by the organization as having been chapter houses for students;the performance of particular services for indi- used for any of the following activities. • Country clubs;vidual persons. It must be shown that the condi- • Amateur hunting, fishing, tennis, swim- 1. Influencing legislation.tions of a particular trade or the interests of the ming, and other sport clubs;community will be advanced. Merely indicating 2. Participating or intervening in a political • Dinner clubs that provide a meeting place, the name of the organization or the object of the campaign for, or against, any candidate for library, and dining room for members;local statute under which it is created isn't public office. • Hobby clubs;enough to demonstrate the required general • Garden clubs; and 3. Trying to influence the general public, or purpose. • Variety clubs. part of the general public, with respect to

elections, legislative matters, or referen-Line of business. This term generally re- Discrimination prohibited. Your organization dums (also known as grass roots lobby-fers either to an entire industry or to all compo- won't be recognized as tax exempt if its charter, ing).nents of an industry within a geographic area. It bylaws, or other governing instrument, or any doesn't include a group composed of busi-4. Communicating directly with certain exec- written policy statement provides for discrimina-nesses that market a particular brand within an utive branch officials to try to influence tion against any person on the basis of race, industry.their official actions or positions. color, or religion.

However, a club that in good faith limits its Common business interest. A common busi-See Dues Used for Lobbying or Political Activi-

membership to the members of a particular reli-ness interest of all members of the organization ties under Required Disclosures in chapter 2 for

gion to further the teachings or principles of that must be established by the application docu-more information. religion and not to exclude individuals of a par-ments.De minimis exception. In-house expendi-ticular race or color won't be considered as dis-Examples. Activities that would tend to il-tures of $2,000 or less for the year for activities criminating on the basis of religion. Also, the re-lustrate a common business interest are:(1) - (4) listed earlier won't prevent a deduction striction on religious discrimination doesn't for dues if the dues meet all other tests to be apply to a club that is an auxiliary of a fraternal 1. Promotion of higher business standards deductible as a business expense.beneficiary society (discussed later) if that soci-and better business methods and encour- ety is described in section 501(c)(8) and ex-agement of uniformity and cooperation by Grass roots lobbying. A tax-exempt trade empt from tax under section 501(a) and limits a retail merchants association,association, labor union, or similar organization its membership to the members of a particular is considered to be engaging in grass roots lob-2. Education of the public in the use of credit,religion.bying if it contacts prospective members or calls 3. Establishment of uniform casualty rates upon its own members to contact their employ-Private benefit prohibited. No part of the or-and compilation of statistical information ees and customers for the purpose of urging ganization's net earnings can inure to the bene-by an insurance rating bureau operated by such persons to communicate with their elected fit of any person having a personal and private casualty insurance companies,state or Congressional representatives to sup-interest in the activities of the organization. For port the promotion, defeat, or repeal of legisla-4. Establishment and maintenance of the in-purposes of this requirement, it isn't necessary tion that is of direct interest to the organization. tegrity of a local commercial market,that net earnings be actually distributed. Even Any dues or assessments directly related to undistributed earnings can benefit members. 5. Operation of a trade publication primarily such activities aren't deductible by the taxpayer, Examples of this include a decrease in mem-intended to benefit an entire industry, andsince the individuals being contacted, who bership dues or an increase in the services the aren't members of the organization, are a seg-6. Encouragement of the use of goods and club provides to its members without a corre-ment of the general public.services of an entire industry (such as a sponding increase in dues or other fees paid for lawyer referral service whose main pur-club support. However, fixed-fee payments to Tax treatment of donations. Contributions to pose is to introduce individuals to the use members who bring new members into the club organizations described in this section aren't of the legal profession in the hope that aren't an inurement of the club's net earnings, if deductible as charitable contributions on the they will enter into lawyer-client relation-the payments are reasonable compensation for donor's federal income tax return. They may be ships on a paying basis as a result).performance of a necessary administrative deductible as trade or business expenses if or-service.Improvement of business conditions. dinary and necessary in the conduct of the tax-Generally, this must be shown to be the pur-payer's business.Purposes. To show that your organization pos-pose of the organization. This isn't established For more information on business leagues, sesses the characteristics of a club within the by evidence of particular services that provide a see Life Cycle of a Business League (Trade meaning of the exemption law, you should sub-convenience or economy to individual members Association) on IRS.gov.mit evidence with your application that personal in their businesses, such as advertising that

contact, commingling, and fellowship exist carries the name of members, interest-free 501(c)(7) - Social and among members. You must show that members loans, assigning exclusive franchise areas, op-

are bound together by a common objective of eration of a real estate multiple listing system, or Recreation ClubsPage 51 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025pleasure, recreation, and other nonprofitable operation of a credit reporting agency.

purposes.

Stock or commodity exchange. A stock or Fellowship need not be present between If your club is organized for pleasure, recreation, commodity exchange isn't a business league, each member and every other member of a and other similar nonprofitable purposes and chamber of commerce, real estate board, or club if it is a material part in the life of the 50 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2025)

organization. A statewide or nationwide organi- income, and thus is included as income from If your organization is controlled by a central zation that is made up of individual members, sources outside of the membership. Of the 35% organization, you should check with your con- but is divided into local groups, satisfies this re- gross receipts listed above, up to 15% of the trolling organization to determine whether your quirement if fellowship is a material part of the gross receipts can be derived from the use of unit has been included in a group exemption let- life of each local group. the club's facilities or services by the general ter or can be added. If so, your organization public. If an organization has outside income need not apply for individual recognition of ex-The term other nonprofitable purposes that is more than these limits, all the facts and emption. For more information, see Group Ex-means other purposes similar to pleasure and circumstances will be taken into account in de- emption Letter in chapter 1 of this publication.recreation. For example, a club that, in addition

termining whether the organization qualifies for to its social activities, has a plan for the pay-

Tax treatment of donations. Donations by an exempt status.ment of sick and death benefits isn't operating

individual to a domestic fraternal beneficiary so-exclusively for pleasure, recreation, and other Gross receipts. Gross receipts, for this ciety or a domestic fraternal society operating nonprofitable purposes.purpose, are receipts from the normal and usual under the lodge system are deductible as chari-(traditionally conducted) activities of the club. Limited membership. The membership in table contributions only if used exclusively for These receipts include charges, admissions, a social club must be limited. To show that your religious, charitable, scientific, literary, or educa-membership fees, dues, assessments, invest-organization has a purpose that would charac-tional purposes or for the prevention of cruelty ment income, and normal recurring capital terize it as a club, you should submit evidence to children or animals.gains on investments. Receipts don't include in-with your application that there are limits on ad- itiation fees and capital contributions. Unusual mission to membership consistent with the Fraternal Beneficiary amounts of income, such as from the sale of a character of the club.Societies (501(c)(8))clubhouse or similar facility, aren't included in A social club that issues corporate member-

gross receipts or in figuring the percentageship is dealing with the general public in the limits. A fraternal beneficiary society, order, or associ-form of the corporation's employees. Corporate ation must file an application for recognition of members of a club aren't the kind of members Nontraditional activities. Traditional busi- exemption from federal income tax on Form contemplated by the law. Gross receipts from ness activities are those that further a social 1024. The application and accompanying state-these members would be a factor in determin-club's exempt purposes. Nontraditional busi- ments should establish that the organization:ing whether the club qualifies as a social club. ness activities don't further the exempt purpo-See Gross receipts from nonmembership 1. Is a fraternal organization;ses of a social club even if conducted solely on sources., later. Bona fide individual member-a membership basis. Nontraditional business 2. Operates under the lodge system or for ships paid for by a corporation wouldn't have an activities are prohibited (subject to an insub- the exclusive benefit of the members of a effect on the gross receipts source.stantial, trivial, and nonrecurrent test) for busi- fraternal organization itself operating un-The fact that a social club may have an as-nesses conducted with both members and non- der the lodge system; andsociate (nonvoting) class of membership won't members. Examples of nontraditional business be, in and of itself, a cause for nonrecognition of 3. Provides for the payment of life, sick, acci-activities include sale of package liquor, exemption. However, if one membership class dent, or other benefits to the members of take-out food, and long-term room rental.pays substantially lower dues and fees than an- the society, order, or association or their other membership class, although both classes dependents.Fraternity foundations. If your organization is enjoy the same rights and privileges in using the a foundation formed for the exclusive purpose club facilities, there may be an inurement of in- Lodge system. Operating under the lodge of acquiring and leasing a chapter house to a come to the benefited class, resulting in a de- system means carrying on activities under a local fraternity chapter or sorority chapter main-nial of the club's exemption. form of organization that comprises local tained at an educational institution and doesn't

branches, chartered by a parent organization engage in any social or recreational activities, it Support. In general, your club should be and largely self-governing, called lodges, chap-may be a title holding corporation (discussed supported solely by membership fees, dues, ters, or the like.later under section 501(c)(2) organizations and and assessments. However, if otherwise enti- under section 501(c)(25) organizations) rather tled to exemption, your club won't be disquali-Payment of benefits. It isn't essential thatthan a social club.fied because it raises revenue from members every member be covered by the society's pro-through the use of club facilities or in connec-gram of sick, accident, or death benefits. An or-Tax treatment of donations. Donations to ex-tion with club activities.ganization can qualify for exemption if most of empt social and recreation clubs aren't deducti-

its members are eligible for benefits, and the ble as charitable contributions on the donor's Business activities. If your club will engage in benefits are paid from contributions or dues federal income tax return.business, such as selling real estate, timber, or paid by those members.other products or services, it generally will be

The benefits must be limited to members denied exemption. However, evidence submit-501(c)(8) and

and their dependents. If members will have the ted with your application form that your organi-501(c)(10) - Fraternal ability to confer benefits to other than them-zation will provide meals, refreshments, or ser-

selves and their dependents, exemption won't vices related to its exempt purposes only to its Beneficiary Societies be recognized.own members or their dependents or guests

won't cause denial of exemption. and Domestic Fraternal Whole-life insurance. Whole-life insur-

ance constitutes a life benefit under section Facilities open to public. Evidence that Societies501(c)(8) even though the policy may contain your club's facilities will be open to the general

investment features such as a cash surrender public (persons other than members or their de- value or a policy loan.pendents or guests) may cause denial of ex-This section describes the information to be emption. This doesn't mean, however, that any provided upon application for recognition of ex-Reinsurance pool. Payments by a fraternal dealing with outsiders will automatically deprive emption by two types of fraternal societies: ben-beneficiary society into a state-sponsored rein-a club of exemption.eficiary and domestic. The major distinction is surance pool that protects participating insurers that fraternal beneficiary societies provide for against excessive losses on major medical Gross receipts from nonmembership the payment of life, sick, accident, or other ben-health and accident insurance won't preclude sources. A section 501(c)(7) organization can efits to their members or their dependents, exemption as a fraternal beneficiary society.receive up to 35% of its gross receipts, includ-while domestic fraternal societies don't provide Page 52 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025ing investment income, from sources outside of these benefits but rather devote their earnings its membership without losing its tax-exempt to fraternal, religious, charitable, etc., purposes. status. Income from nontraditional business ac-The procedures to follow in applying for recog-tivity with members isn't exempt function nition of exemption are described in chapter 1.

Publication 557 (1-2025) Chapter 4 Other Section 501(c) Organizations 51

Domestic Fraternal Societies 1024-A. The organization must submit evidence for section 501(c)(3) organizations in chapter 3 (501(c)(10)) that: under Application for Recognition of Exemption.

1. It is of a purely local character; Membership. Membership of a section 501(c)A domestic fraternal society, order, or associa- (9) organization must consist of individuals who 2. Its membership is limited to employees of tion must file an application for recognition of are employees and have an employment-rela-a designated person or persons in a par-exemption from federal income tax on Form ted common bond. This common bond can be a ticular locality; and1024. The application and accompanying state- common employer (or affiliated employers), ments should establish that the organization:3. Its net earnings will be devoted exclusively coverage under one or more collective bargain-to charitable, educational, or recreational ing agreements, membership in a labor union, 1. Is a domestic fraternal organization organ-purposes. or membership in one or more locals of a na-ized in the United States;
   tional or international labor union.A local association of employees that has 2. Operates under the lodge system;The membership of an association can in-established a system of paying retirement or

2. Devotes its net earnings exclusively to reli- clude some individuals who aren't employees, death benefits, or both, to its members won't
   gious, charitable, scientific, literary, educa- provided they have an employment-related qualify for exemption since the payment of tional, and fraternal purposes; and bond with the employee-members. For exam- these benefits isn't considered as being for ple, the owner of a business whose employees charitable, educational, or recreational purpo-4. Doesn't provide for the payment of life, are members of the association can be a mem- ses. Similarly, a local association of employees sick, accident, or other benefits to its ber. An association will be considered com- that is operated primarily as a cooperative buy-members. posed of employees if 90% of its total member- ing service for its members in order to obtain ship on 1 day of each quarter of its tax year The organization can arrange with insurance discount prices on merchandise, services, and consists of employees.companies to provide optional insurance to its activities doesn't qualify for exemption. members without jeopardizing its exempt sta- Employees. Employees include individuals Voluntary Employees'tus. who became entitled to membership because Beneficiary Associations they are or were employees. For example, an in-501(c)(4), 501(c)(9), and (501(c)(9)) dividual will qualify as an employee even though

the individual is on a leave of absence or has 501(c)(17) -been terminated due to retirement, disability, or An application for recognition of exemption as a Employees' layoff.voluntary employees' beneficiary association Generally, membership is voluntary if an af-must be filed on Form 1024. The material sub-firmative act is required on the part of an em-mitted with the application must show that your ployee to become a member. Conversely, mem-organization:bership is involuntary if the designation as a This section describes the information to be 1. Is a voluntary association of employees;member is due to employee status. However, provided upon application for recognition of ex-an association will be considered voluntary if 2. Will provide for payment of life, sick, acci-emption by the following types of employees' employees are required to be members of the dent, or other benefits to members or their associations:organization as a condition of their employment dependents or designated beneficiaries and they don't incur a detriment (such as a pay-1. A voluntary employees' beneficiary associ-and substantially all of its operations are roll deduction) as a result of their membership. ation (including federal employees' associ-for this purpose; andAn employer has not imposed involuntary mem-ations) organized to pay life, sick, acci-3. Won't allow any of its net earnings to inure bership on the employee if membership is re-dent, and similar benefits to members or to the benefit of any private individual or quired as the result of a collective bargaining their dependents, or designated beneficia-shareholder except in the form of sched-agreement or as an incident of membership in a ries, if no part of the net earnings of the as-uled benefit payments.labor organization.sociation inures to the benefit of any pri-

vate shareholder or individual; and To be complete, an application must include a Payment of benefits. The information submit- copy of the document (such as the trust instru-2. A supplemental unemployment benefit ted with your application must show that your ment) by which the organization was created; a trust whose primary purpose is providing organization will pay life, sick, accident, supple- full description of the benefits available to par-for payment of supplemental unemploy- mental unemployment, or other similar benefits. ticipants and the terms and conditions of eligi-ment benefits. The benefits can be provided directly by your bility for benefits (usually contained in a plan association or indirectly by your association Both the application form to file and the in- document); and, if providing benefits pursuant through the payments of premiums to an insur-formation to provide are discussed later under to a collective bargaining agreement, a copy of ance company (or fees to a medical clinic). the section that describes your employee asso- that agreement. Benefits can be in the form of medical, clinical, ciation. Chapter 1 describes the procedures to or hospital services, transportation furnished for follow in applying for exemption. Note. Under section 4976, the reversion of medical care, or money payments. funds from a section 501(c)(9) organization to Tax treatment of donations. Donations to the employer who created the beneficiary asso- Nondiscrimination requirements. An organi-these organizations aren't deductible as charita- ciation may subject the employer to a 100% zation that is part of a plan won't be exempt un-ble contributions on the donor's federal income penalty excise tax on the amount of the rever- less the plan meets certain nondiscrimination tax return. sion. requirements. However, if the organization is

part of a plan that is a collective bargaining Local Employees' Notice requirement. An organization won't be agreement that was the subject of good faith considered tax exempt under this section un-Associations (501(c)(4))bargaining between employee organizations less the organization gives notice to the IRS that and employers, the plan need not meet these it is applying for recognition of exempt status. requirements for the organization to qualify as A local association of employees whose mem-The organization gives notice by filing Form tax exempt.bership is limited to employees of a designated 1024. If the notice isn't given by 15 months after A plan meets the nondiscrimination require-person or persons in a particular municipality, the end of the month in which the organization ments only if both of the following statements and whose income will be devoted exclusively Page 53 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025was created, the organization won't be exempt are true.to charitable, educational, or recreational purpo-for any period before notice is given. An exten-ses. A local employees' association must apply sion of time for filing the notice can be granted 1. Each class of benefits under the plan is for recognition of exemption by filing Form under the same procedures as those described provided under a classification of employ-

ees that is set forth in the plan and doesn't

52 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2025)

discriminate in favor of employees who are One employee. A trust created to provide ben- Discrimination in benefits. Neither the terms

highly compensated individuals. efits to one employee won't qualify as a volun- of the plan nor the actual payment of benefits tary employees' beneficiary association under can be discriminatory in favor of the company's 2. The benefits provided under each class of section 501(c)(9). officers, stockholders, supervisors, or highly benefits don't discriminate in favor of paid employees. However, a plan isn't discrimi-highly compensated individuals. Supplemental natory merely because benefits bear a uniform

relationship to compensation or the rate of com-A life insurance, disability, severance pay, or Unemployment Benefit

pensation.supplemental unemployment compensation Trusts (501(c)(17))benefit doesn't discriminate in favor of highly Prohibited transactions and exemption. If compensated individuals merely because the

your organization is a supplemental unemploy-benefits available bear a uniform relationship to A trust or trusts forming part of a written plan ment benefit trust and has received a denial of the total compensation, or the basic or regular (established and maintained by an employer, exemption because it engaged in a prohibited rate of compensation, of employees covered by the employees, or both) providing solely for the transaction, as defined by section 503(b), it can the plan.payment of supplemental unemployment com-file a claim for exemption in any tax year follow-If a plan provides a benefit for which there is pensation benefits must file the application for ing the tax year in which the notice of denial a nondiscrimination provision provided under recognition of exemption on Form 1024. The was issued. It must file the claim on Form 1024. Chapter 1 of the Internal Revenue Code as a trust must be a valid, existing trust under local The organization must include a written declara-condition of that benefit being excluded from law and must be evidenced by an executed tion that it won't knowingly again engage in a gross income, these nondiscrimination require-document. A conformed copy of the plan of prohibited transaction. An authorized principal ments don't apply. The benefit will be consid-which the trust is a part should be attached to officer of your organization must make this dec-ered nondiscriminatory only if it meets the non-the application.laration under the penalties of perjury.discrimination provision of the applicable Code If your organization has satisfied all require-section. For example, benefits provided under a To be complete, an application must include ments as a supplemental unemployment benefit medical reimbursement plan would meet the a copy of the document (such as the trust in-trust described in section 501(c)(17), it will be nondiscrimination requirements for an associa-strument) by which the organization was cre-notified in writing that it has been recognized as tion, if the benefits meet the nondiscrimination ated; a full description of the benefits available exempt. However, the organization will be ex-requirements of section 105(h)(3) and 105(h)to participants and the terms and conditions of empt only for those tax years after the tax year (4).eligibility for benefits (usually contained in a in which the claim for exemption (Form 1024) is plan document); and, if providing benefits pur-Excluded employees. Certain employees filed. Tax year in this case means the estab-suant to a collective bargaining agreement, a who aren't covered by a plan can be excluded lished annual accounting period of the organi-copy of that agreement.from consideration in applying these require-zation or, if the organization has not established ments. These include employees:an annual accounting period, the calendar year. Note. Under section 4976, the reversion of

For more information about the requirements for funds from a section 501(c)(17) organization to 1. Who haven't completed 3 years of service,re-establishing an exemption previously denied, the employer who created the supplemental un-2. Who haven't attained age 21,contact the IRS.employment benefit trust may subject the em- ployer to a 100% penalty excise tax on the 3. Who are seasonal or less than half-time amount of the reversion.501(c)(12) - Local employees,

1. Who aren't in the plan and who are inclu- Benevolent Life Notice requirement. An organization won't be ded in a unit of employees covered by a considered tax exempt under this section un- Insurance Associations, collective bargaining agreement if the less the organization gives notice to the IRS that class of benefits involved was the subject it is applying for recognition of exempt status. Mutual Irrigation and of good faith bargaining, or The organization gives notice by filing Form Telephone Companies, 1024. If the notice isn't given by 15 months after 5. Who are nonresident aliens and who re- the end of the month in which the organization ceive no earned income from the employer and Like Organizations was created, the organization won't be exempt that has United States sourced income. for any period before such notice is given. An
   Highly compensated individual. A highly extension of time for filing the notice is granted Each of the following organizations apply for compensated individual is one who: under the same procedures as those described recognition of exemption from federal income for section 501(c)(3) organizations in chapter 3 1. Owned 5% or more of the employer at any tax by filing Form 1024. under Application for Recognition of Exemption.time during the current year or the preced- 1. Benevolent life insurance associations of a ing year, Types of payments. You must show that the purely local character and like organiza-

2. Received more than $125,000 in compen- supplemental unemployment compensation tions.
   sation from the employer for the preceding benefits will be benefits paid to an employee 2. Mutual ditch or irrigation companies and year (the amount is annualized for infla- because of the employee's involuntary separa- like organizations.tion. Go to IRS.gov, and search "Pension tion from employment (whether or not the sepa- Plan Limitation" for the year), and ration is temporary) resulting directly from a re- 3. Mutual or cooperative telephone compa- duction-in-force, discontinuance of a plant or nies and like organizations.3. Was among the top 20% of employees by operation, or other similar conditions. In addi-compensation for the preceding year. A like organization is an organization that per- tion, sickness and accident benefits (but not va- forms a service comparable to that performed cation, retirement, or death benefits) may be in-However, the employer can choose not to have by any one of the above organizations. cluded in the plan if these are subordinate to the (3) apply. unemployment compensation benefits. The information to be provided upon appli-Aggregation rules. The employer can cation by each of these organizations is descri-choose to treat two or more plans as one plan Diversion of funds. It must be impossible un- bed in this section. For information as to the for purposes of meeting the nondiscrimination der the plan (at any time before the satisfaction procedures to follow in applying for exemption, requirements. Employees of controlled groups of all liabilities with respect to employees under see chapter 1.of corporations, trades, or businesses under the plan) to use or to divert any of the corpus or Page 54 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025common control, or members of an affiliated income of the trust to any purpose other than General requirements. These organizations service group, are treated as employees of a the payment of supplemental unemployment must use their income solely to cover losses single employer. Leased employees are treated compensation benefits (or sickness or accident and expenses, with any excess being returned as employees of the recipient. benefits to the extent just explained). to members or retained to cover future losses Publication 557 (1-2025) Chapter 4 Other Section 501(c) Organizations 53

and expenses. They must collect at least 85% 6. Grants, contributions, and assistance pro- Mutual or cooperative telephone company.

of their income from members for the sole pur- A mutual or cooperative telephone company will vided under the Robert T. Stafford Disaster pose of meeting losses and expenses. exclude from the computation of the 85% re- Relief and Emergency Assistance Act or quirement any income received or accrued by local, state, or regional governmental

Mutual character. These organizations, other from: entities for disasters or emergencies; and

than benevolent life insurance associations, certain grants or contributions provided by 1. A nonmember telephone company for the must be organized and operated on a mutual or a government entity for electric, communi- performance of communication services cooperative basis. They are associations of per- cations, broadband, Internet, or other util- involving the completion of long distance sons or organizations, or both, banded together ity facilities or services. This is effective for calls to, from, or between members of the to provide themselves a mutually desirable taxable years beginning after December mutual or cooperative telephone company;service approximately at cost and on a mutual 31, 2017. basis. To maintain the mutual characteristic of 2. Qualified pole rentals; An electric cooperative's sale of excess fuel democratic ownership and control, they must be 3. The sale of display listings in a directory at cost in the year of purchase isn't income for so organized and operated that their members furnished to its members; or purposes of determining compliance with the have the right to choose the management, to re- 85% requirement.ceive services at cost, to receive a return of any 4. The prepayment of a loan created in 1987, excess of payments over losses and expenses, 1988, or 1989, under section 306A, 306B, Qualified pole rental. The term qualified and to share in any assets upon dissolution. or 311 of the Rural Electrification Act of pole rental means any rental of a pole (or other 1936;The rights and interests of members in the structure used to support wires) if the pole (or annual savings of the organization must be de- other structure) is used: 5. Grants, contributions, and assistance pro-termined in proportion to their business with the vided under the Robert T. Stafford Disaster 1. By the telephone or electric company to organization. Upon dissolution, gains from the Relief and Emergency Assistance Act or support one or more wires that are used sale of appreciated assets must be distributed by local, state, or regional governmental by the company in providing telephone or to all persons who were members during the entities for disasters or emergencies; and electric services to its members, andperiod the assets were owned by the organiza- certain grants or contributions provided by tion in proportion to the amount of business 2. Pursuant to the rental to support one or a government entity for electric, communi-done during that period. The bylaws mustn't more wires (in addition to wires described cations, broadband, Internet, or other util-provide for forfeiture of a member's rights and in (1)) for use in connection with the trans- ity facilities or services. This is effective for interest upon withdrawal or termination. mission by wire of electricity or of tele- taxable years beginning after December phone or other communications. 31, 2017.Membership. Membership of a mutual or- ganization consists of those who join the organi- The term rental, for this purpose, includes Mutual or cooperative electric company. A zation to obtain its services, and have a voice in any sale of the right to use the pole (or other mutual or cooperative electric company will ex-its management. In a stock company, the stock- structure). clude from the computation of the 85% require-holders are members. However, a mutual life in- ment any income received or accrued from:surance organization can't have policyholders The 85% requirement is applied on the ba-

other than its members. sis of an annual accounting period. Failure of an 1. Qualified pole rentals; organization to meet the requirement in a partic-Losses and expenses. In furnishing serv- 2. Any provision or sale of electric energy ular year precludes exemption for that year, but ices substantially at cost, an organization must transmission services or ancillary service has no effect upon exemption for years in which use its income solely for paying losses and ex- if the services are provided on a nondiscri- the 85% requirement is met.penses. Any excess income not retained in rea- minatory open access basis under an sonable reserves for future losses and expen- open-access transmission tariff approved Gain from the sale or conversion of the or- ses belongs to members in proportion to their or accepted by the Federal Energy Regu- ganization's property isn't considered an patronage or business done with the organiza- latory Commission (FERC) or under an in- amount received from members in determining tion. If such patronage refunds are retained in dependent transmission provider agree- whether the organization's income consists of reasonable amounts for purposes of expanding ment approved or accepted by FERC amounts collected from members. and improving facilities, retiring capital indebt- (other than income received or accrued di- edness, acquiring other assets, and unexpec- Because the 85% income test is based on rectly or indirectly from a member); ted expenses, the organization must maintain gross income, capital losses can't be used to 3. The provision or sale of electric energy records sufficient to reflect the equity of each reduce capital gains for purposes of this test. distribution services or ancillary services if member in the assets acquired with the funds. Example. The books of an organization re- the services are provided on a nondiscri- Distributions of proceeds. The coopera- flect the following for the calendar year. minatory open-access basis to distribute tive may distribute the unexpended balance of electric energy not owned by the mutual or collections or assessments remaining on hand electric cooperative company: Collections from members ............. $2,400at the end of the year to members or patrons Short-term capital gains ............... 600 a. To end-users who are served by distri-prorated on the basis of their patronage or busi- Short-term capital losses .............. 400 bution facilities not owned by the com-ness done with the cooperative. Such distribu- Other income ...................... None pany or any of its members (other tion represents a refund in the costs of services Gross income ($2,400 + $600 = $3000) .... 100% than income received or accrued di- Collected from members ($2,400) ........ 80%rendered to the member. rectly or indirectly from a member), or

Since amounts collected from members The 85% Requirementb. Generated by a generation facility not don't constitute at least 85% of gross income, owned or leased by the company or the organization isn't entitled to exemption from any of its members and which is di-All of the organizations listed above must sub-federal income tax for the year.rectly connected to distribution facili-mit evidence with their application that they re-Voluntary contributions in the nature of gifts ties owned by the company or any of ceive 85% or more of their gross income from aren't taken into account for purposes of the its members (other than income re-their members for the sole purpose of meeting 85% computation.ceived or accrued directly or indirectly losses and expenses. Nevertheless, certain Other tax-exempt income besides gifts is from a member),items of income are excluded from the compu-considered as income received from other than Page 55 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025tation of the 85% requirement if the organization members in applying the 85% test.4. Any nuclear decommissioning transaction,

is a mutual or cooperative telephone or electric If the 85% test isn't met, your organization, if 5. Any asset exchange or conversion trans-company. classifiable under this section, won't qualify for action; or exemption as any other type of organization de- scribed in this publication.

54 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2025)

Tax treatment of donations. Donations to an isn't a life insurance company. Such an organi- 3. To create a fund that will provide a source

organization described in this section aren't de- zation can seek recognition of exemption from of income for the perpetual care of the ductible as charitable contributions on the do- federal income tax, however, as a mutual insur- cemetery or a reasonable reserve for any nor's federal income tax return. ance company other than life. ordinary or necessary purpose. No part of the net earnings of your organiza- Mutual or Cooperative Government grants. In the past, government tion can inure to the benefit of any private share-grants were not treated as income but as contri- holder or individual.butions to capital. Under the Tax Cuts & Jobs

Act, P.L. No. 115-97, section 13312, section Ordinary and necessary expenses in con- Mutual ditch or irrigation companies, mutual or 118 was amended so that government grants nection with the operation, management, main- cooperative telephone companies, and like or-may no longer be treated as capital contribu- tenance, and improvement of the cemetery are ganizations need not establish that they are of a tions. In 2019, P.L. No. 116-94 amended section permitted, as are reasonable fees for the serv- purely local character. They can serve noncon-501(c)(12) to exclude from the 85% requirement ices of a manager. tiguous areas.certain government grants for assistance to mu- Buying cemetery property. Payments can tual and cooperative telephone and electric Like organization. A like organization is a be made to amortize debt incurred to buy land, companies. cooperative or mutual organization that per- but can't be in the nature of profit distributions. forms a service similar to mutual ditch, irriga-Local Life Insurance You must show the method used to finance the tion, telephone, or electric companies. Exam- purchase of the cemetery property and that the ples include the following: cooperatives that purchase price of the land at the time of its sale provide protection of river banks to prevent ero- to the cemetery wasn't unreasonable. sion, water and sewer services, cable televi- Except for holders of preferred stock (dis-A benevolent life insurance association or an or- sion, satellite, television, cellular phone serv- cussed later), no person can have any interest ganization seeking recognition of exemption on ices, two-way radio service, or natural gas in the net earnings of a tax-exempt cemetery grounds of similarity to a benevolent life insur- services. company or crematorium. Therefore, if property ance association must submit evidence upon

is transferred to the organization in exchange for applying for recognition of exemption that it will 501(c)(13) - Cemetery an interest in the organization's net earnings, be of a purely local character, that its excess

the organization won't be exempt so long as funds will be refunded to members or retained Companiesthat interest remains outstanding.in reasonable reserves to meet future losses

An equity interest in the organization is an and expenses, and that it meets the 85% in- interest in the net earnings of the organization. come requirement. If an organization issues If your organization wishes to obtain recognition However, an interest in the organization that policies for stipulated cash premiums, or if it re-of exemption from federal income tax as a cem-isn't an equity interest may still be an interest in quires advance deposits to cover the cost of the etery company or a corporation chartered solely the organization's net earnings. For example, a insurance and maintains investments from for the purpose of the disposal of human bodies bond issued by a cemetery company that pro-which more than 15% of its income is derived, it by burial or cremation, it must file an application vides for a fixed rate of interest and also pro-won't be entitled to exemption.on Form 1024. For the procedure to follow to file vides for additional interest payments based on an application, see Application, Approval, and the income of the organization is considered an To establish that your organization is of a Appeal Procedures in chapter 1.interest in the net earnings of the organization. purely local character, it should show that its ac- Similarly, a convertible debt obligation issued A nonprofit mutual cemetery company that tivities will be confined to a particular commun- after July 7, 1975, is considered an interest in seeks recognition of exemption should submit ity, place, or district irrespective of political sub- evidence with its application that it is owned and the net earnings of the organization.divisions. If the activities of an organization are operated exclusively for the benefit of its lot limited only by the borders of a state, it can't be Perpetual care organization. A perpetual owners who hold lots for bona fide burial purpo-purely local in character. A benevolent life insur-care organization, including, for example, a trust ses and not for purposes of resale. A mutual ance association that doesn't terminate mem-organized to receive, maintain, and administer cemetery company that also engages in chari-bership when a member moves from the local funds that it receives from a nonprofit tax-ex-table activities, such as the burial of paupers, area in which the association operates will qual-empt cemetery under state law and contracts, will be regarded as operating within this stan-ify for exemption if it meets the other require-can apply for recognition of exemption on Form dard. The fact that a mutual cemetery company ments.1024, even though it doesn't own the land used limits its membership to a particular class of in-for burial. However, the income from these A copy of each type of policy issued by your dividuals, such as members of a family, won't funds must be devoted exclusively to the per-organization should be included with the appli-affect its status as mutual so long as all the petual care and maintenance of the nonprofit cation for recognition of exemption.other requirements of section 501(c)(13) are cemetery as a whole. Also, no part of the net met.earnings can inure to the benefit of any private Organizations similar to local benevolent If your organization is a nonprofit corporation shareholder or individual.life insurance companies. These organiza-chartered solely for the purpose of the disposal In addition, a perpetual care organization not tions include those that, in addition to paying of human bodies by burial or cremation, you operated for profit, but established as a civic en-death benefits, also provide for the payment of should show that it isn't permitted by its charter terprise to maintain and administer funds, the sick, accident, or health benefits. However, an to engage in any business not necessarily inci-income of which is devoted exclusively to the organization that pays only sick, accident, or dent to that purpose. Operating a mortuary isn't perpetual care and maintenance of an aban-health benefits, but not life insurance benefits, permitted. However, selling monuments, mark-doned cemetery as a whole, may qualify for ex-isn't an organization similar to a benevolent life ers, vaults, and flowers solely for use in the emption.insurance association and shouldn't apply for cemetery is permitted if the profits from these recognition of exemption, as described in this Care of individual plots. When funds are sales are used to maintain the cemetery as a section.received by a cemetery company for the perpet-whole.ual care of an individual lot or crypt, a trust is Burial and funeral benefit insurance or-created that is subject to federal income tax. ganization. This type of organization can apply How income can be used. You should show Any trust income that is used or permanently for recognition of exemption as an organization that your organization's earnings are or will be set aside for the care, maintenance, or beautifi-similar to a benevolent life insurance company if used only in one or more of the following ways.cation of a particular family burial lot or mauso-Page 56 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025it establishes that the benefits are paid in cash 1. To pay the ordinary and necessary expen-leum crypt isn't deductible in computing the and if it isn't engaged directly in the manufac-ses of operating, maintaining, and improv-trust's taxable income.ture of funeral supplies or the performance of ing the cemetery or crematorium.funeral services. An organization that provides

its benefits in the form of supplies and service 2. To buy cemetery property.

Publication 557 (1-2025) Chapter 4 Other Section 501(c) Organizations 55

Common and preferred stock. A cemetery State-chartered credit unions and other mu- income is from providing reserve funds and

company that issues common stock can qualify tual financial organizations file applications for from investments. There should be attached a for exemption only if no dividends may be paid. recognition of exemption from federal income conformed copy of the articles of incorporation The payment of dividends must be legally pro- tax under section 501(c)(14). The other mutual or other document setting forth the permitted hibited either by the corporation's charter or by financial organizations must be corporations or powers or activities of the organization; the by- applicable state law. associations without capital stock organized be- laws or other similar code of regulations; and fore September 1, 1957, and operated for mu- the latest annual financial statement showing Generally, a cemetery company or cremato- tual purposes and without profit to provide re- the receipts, disbursements, assets, and liabili-rium isn't exempt if it issues preferred stock. serve funds for, and insurance of, shares or ties of the organization.However, it can still be exempt if the preferred deposits in:stock was issued before November 28, 1978, or was issued after that date under a written plan 501(c)(19) - Veterans' 1. Domestic building and loan associations,adopted before that date. The adoption of the

1. Cooperative banks (without capital stock) plan must be shown by the acts of the responsi-
   organized and operated for mutual purpo-ble officers and appear on the official records of ses and without profit, A post or organization of past or present mem-The preferred stock issued either before No-3. Mutual savings banks (not having capital bers of the Armed Forces of the United States vember 28, 1978, or under a plan adopted be-stock represented by shares), or must file Form 1024 to apply for recognition of fore that date, must meet all the following re- exemption from federal income tax. You should 4. Mutual savings banks described in section quirements. follow the general procedures outlined in chap-591(b).1. The preferred stock entitles the holders to ter 1. The organization must also meet the qual-Similar organizations, formed before September dividends at a fixed rate that isn't more ifications described in this section.1, 1957, that provide reserve funds for (but not than the greater of the legal rate of interest insurance of shares or deposits in) one of the in the state of incorporation or 8% a year Examples of groups that qualify for exemp-types of savings institutions described in (1), on the value of the consideration for which tion are posts or auxiliaries of the American Le-(2), or (3) above may be exempt from tax if 85% the stock was issued. gion, Veterans of Foreign Wars, and similar or-or more of the organization's income is from 2. The organization's articles of incorporation providing reserve funds and from investments. require:There is no specific restriction against the issu- To qualify for recognition of exemption, your ance of capital stock for thesea. That the preferred stock be retired at application should show: par as rapidly as funds become avail- 1. That the post or organization is organized able from operations, andBuilding and loan associations, savings and in the United States or any of its posses-

2. That all funds not required for the pay- loan associations, mutual savings banks, and sions;
   ment of dividends on or for the retire- cooperative banks, other than those described 2. That at least 75% of the members are past ment of preferred stock be used by in this section, aren't exempt from tax. However, or present members of the U.S. Armed the company for the care and im- certain corporations organized and operated in Forces and that at least 97.5% of all mem-provement of the cemetery property. conjunction with farmers' cooperatives can be bers of the organization are past or exempt under section 521. present members of the U.S. Armed Tax treatment of donations. Donations to ex- Forces, cadets (including only students in empt cemetery companies, corporations char- State-Chartered college or university ROTC programs or at tered solely for human burial purposes, and per- Credit Unions armed services academies) or spouses, petual care funds (operated in connection with widows, widowers, ancestors, or lineal de-such exempt organizations) are deductible as scendants of any of those listed here; and Your organization must show on its application charitable contributions on the donor's federal

that it is formed under a state credit union law, income tax return. However, a donor can't de- 3. That no part of net earnings inure to the the state and date of incorporation, and that the duct a contribution made for the perpetual care benefit of any private shareholder orstate credit union law with respect to loans, in-of a particular lot or crypt. Payments made to a vestments, and dividends, if any, your organiza-cemetery company or corporation as part of the In addition to these requirements, a veter-tion is operated in compliance with.purchase price of a burial lot or crypt, whether ans' organization must also be operated exclu-irrevocably dedicated to the perpetual care of Other Mutual sively for one or more of the following purposes.the cemetery as a whole or earmarked for the

care of a particular lot, are also not deductible. Financial Organizations 1. To promote the social welfare of the com-

munity (that is, to promote in some way the 501(c)(14) - Credit common good and general welfare of the Every other organization included in this section people of the community).must show in its application the state in which Unions and Other Mutual the organization is incorporated and the date of 2. To assist disabled and needy war veterans Financial Organizationsincorporation; the character of the organization; and members of the U.S. Armed Forces the purpose for which it was organized; its ac-and their dependents and the widows and tual activities; the sources of its receipts and the orphans of deceased veterans.disposition thereof; whether any of its income 3. To provide entertainment, care, and assis-may be credited to surplus or may benefit any of exemption as a credit union without capital tance to hospitalized veterans or members private shareholder or individual; whether the stock, organized and operated under state law of the U.S. Armed Forces.law relating to loans, investments, and divi-for mutual purposes and without profit, it must

dends is being complied with; and, in general, file the application for recognition of exemption 4. To carry on programs to perpetuate the all facts relating to its operations that affect its on Form 1024. memory of deceased veterans and mem-right to exemption. bers of the U.S. Armed Forces and to Federal credit unions organized and oper- comfort their survivors.ated in accordance with the Federal Credit Un-The application must include detailed infor- ion Act, as amended, are instrumentalities of mation showing either that the organization pro- 5. To conduct programs for religious, charita-Page 57 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025the United States and, therefore, are exempt vides both reserve funds for and insurance of ble, scientific, literary, or educational pur- under section 501(c)(1). They are included in a shares and deposits of its member financial or- poses. group exemption letter issued to the National ganizations or that the organization provides re- 6. To sponsor or participate in activities of a Credit Union Administration. They aren't serve funds for shares or deposits of its mem- patriotic nature.discussed in this publication.bers and 85% or more of the organization's

56 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2025)

1. To provide insurance benefits for its mem- The term war veterans means persons, whether government that aren't in default as to
   bers or dependents of its members or or not present members of the U.S. Armed principal or interest, or time or de- both. Forces, who have served in the U.S. Armed mand deposits in a bank or an insured Forces during a period of war (including the Ko- credit union located in the United 8. To provide social and recreational activi- rean and Vietnam conflicts, the Persian Gulf States. (These investments are re-ties for its members. war, and later declared wars). stricted to the extent that the trustee determines that a portion of the as-Auxiliary unit. An auxiliary unit or society of a sets isn't currently needed for the pur- 501(c)(21) - Black Lung veterans' organization can apply for recognition poses described in 1.)of exemption provided that the veterans' organi- Benefit Trustszation (parent organization) meets the require- An annual information return is required of ex-ments explained earlier in this section. The aux- empt trusts described in section 501(c)(21). iliary unit or society must also meet all the If your organization wishes to obtain recognition Formerly, Form 990-BL, Information and Initial following additional requirements. of exemption as a black lung benefit trust, it Excise Tax Return for Black Lung Benefit Trusts

2. It is affiliated with, and organized in ac- must file the application for recognition of ex- and Certain Related Persons, was used for this
   cordance with, the bylaws and regulations emption on Form 1024 and include a copy of its purpose However, Form 990-BL is a historical formulated by the parent organization. trust instrument. The general procedures to fol- form beginning with tax year 2021. Section low for obtaining recognition are discussed in 501(c)(21) trusts can no longer file Form 2. At least 75% of its members are either chapter 1 of this publication. This section de- 990-BL and will file Form 990 to meet their an-past or present members of the U.S. scribes the additional (or specific) information to nual filing obligation. A trust that normally has Armed Forces, spouses of those mem- be provided upon application. gross receipts in each tax year of no more than bers, or related to those members within $50,000 is excepted from this filing requirement. two degrees of kinship (grandparent, Requirements. A black lung benefit trust that However, it must submit an annual electronic brother, sister, and grandchild represent is established in writing, created or organized in notice, Form 990-N (e-Postcard).the most distant allowable relationship). the United States, and contributed to by any Excise taxes. See Chapter 5 for informa-3. All of its members either are members of person (except an insurance company) will tion on the excise tax that may be imposed on the parent organization, spouses of a qualify for tax-exempt status if it meets both of

member of the parent organization, or rela- the following requirements. The trust must be ir- ted to a member of such organization revocable and there can be no right or possibil- Tax treatment of donations. Contributions by within two degrees of kinship. ity or reversion of the corpus or income of the a taxpayer (generally, the coal mine operator) to trust to the coal mine operator or other creator, 4. No part of its net earnings inure to the ben- a black lung benefit trust are deductible for fed- except that the creator may recover excess con-efit of any private shareholder or eral income tax purposes under section 192. tributions. The deduction is limited, and any excess contri-

1. Its only purpose is: butions are subject to an excise tax of 5%. Form Trusts or foundations. Trusts or foundations 6069, Return of Certain Excise Taxes on Mine a. To satisfy in whole or in part the liabil-for a veterans' organization can also apply for Operators, Black Lung Trusts, and Other Per- ity of that person (generally, the coal recognition of exemption provided that the pa- sons Under Sections 4951, 4952, and 4953, is mine operator contributing to the trust) rent organization meets the requirements ex- used to compute the allowable deduction and for, or with respect to, claims for com-plained earlier. The trust or foundation must any excise tax liability. The form doesn't have to pensation arising under federal or also meet all the following qualifications. be filed if there is no excise tax liability. For more state statutes for disability or death information about these contributions, see Form 1. The trust or foundation is in existence un- due to pneumoconiosis, 6069 and its instructions.der local law and, if it is organized for char- b. To pay the premiums for insurance itable purposes, has a dissolution provi- that covers only that liability,sion similar to charitable organizations. 501(c)(2) - Title-Holding (See Articles of Organization in chapter 3 c. To pay the administrative and other in- Corporations for Single of this publication.) cidental expenses of that trust (includ-

ing legal, accounting, actuarial, and Parent Corporations2. The corpus or income can't be diverted or trustee expenses) in connection with used other than for:the operation of the trust and process-a. The funding of a veterans' organiza-ing of black lung claims against such tion, described in this section;person arising under federal or state of exemption from federal income tax as a cor-statutes, andb. Religious, charitable, scientific, liter- poration organized to hold title to property, col-

ary, or educational purposes or for the lect income from that property, and turn over the d. To pay accident and health benefits or prevention of cruelty to children or ani- entire amount less expenses to a single parent insurance premiums and other admin-mals; or organization that is exempt from income tax, it istrative expenses for retired coal min- must file its application on Form 1024. The in- ers and their spouses. The amount of c. An insurance set aside. formation to submit upon application is descri- assets available for such use is gener-3. The trust income isn't unreasonably accu- bed in this section. For a discussion of the pro- ally limited to 110% of the present mulated and, if the trust or foundation isn't cedures for obtaining recognition of exemption, value of the liability for black lungan insurance set aside, a substantial por- see chapter 1, Application Procedures. benefits.tion of the income is in fact distributed to

1. No part of its assets can be used for, or di-the parent organization or for the purposes You must show that your organization is a verted to, any purposes other than:described in item 2(b). corporation. If you are in doubt as to whether your organization qualifies as a corporation for a. The purposes described in 1,4. It is organized exclusively for one or more this purpose, contact your IRS office.of the purposes listed earlier in this section b. Payments into the Black Lung Disabil-that are specifically applicable to the pa- ity Trust Fund or into the general fund A title-holding corporation will qualify for ex-rent organization. of the U.S. Treasury (other than in sat- emption only if there is effective ownership and isfaction of any tax or other civil or control over it by the distributee exempt organi-Page 58 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Tax treatment of donations. Donations to war criminal liability of the person who es- zation. For example, the distributee organization veterans' organizations are deductible as chari- tablished or contributed to the trust), may control the title-holding corporation by own-table contributions on the donor's federal in- ing its voting stock or possessing the power to come tax return. At least 90% of the organiza-c. Investment in public debt securities of select nominees to hold its voting stock.tion's membership must consist of war veterans. the U.S., obligations of a state or local Publication 557 (1-2025) Chapter 4 Other Section 501(c) Organizations 57

Corporate charter. The corporate charter deductible as charitable contributions on the A 501(c)(25) organization can be organized

must confine the purposes and powers of your donor's federal income tax return. as a nonstock corporation if its articles of incor- organization to holding title to property, collect- poration or bylaws provide members with the ing income from the property, and turning the in- same rights as described above. 501(c)(25) - Title-Holding

come over to an exempt organization. If the Corporations or Trusts Subsidiaries. A wholly owned subsidiary won't charter authorizes your organization to engage

be treated as a separate corporation, and all as-in activities that go beyond these limits, its ex-for Multiple Parent sets, liabilities, and items of income, deduction, emption may not be recognized even if its ac-

and credit will be treated as belonging to the tual operations are so limited. If your organiza-Corporationssection 501(c)(25) organization. Subsidiaries tion's original charter doesn't limit its powers,

shouldn't apply separately for recognition of ex-you can amend the charter to conform to the re- emption.quired limits and submit evidence with your ap- plication that the charter has been amended.of exemption from federal income tax as an or-Tax treatment of donations. Donations to an ganization organized for the exclusive purpose exempt title-holding corporation generally aren't Payment of income. You must show that your of acquiring, holding title to, and collecting in-deductible as charitable contributions on the corporation is required to turn over the entire in-come from real property, and turning over the donor's federal income tax return.come from the property, less expenses, to one entire amount less expenses to member organi-or more exempt organizations.zations exempt from income tax, it should file its Unrelated Business IncomeActual payment of the income is required. A application on Form 1024. For a discussion of mere obligation to use the income for the ex-the procedures for obtaining recognition of ex-empt organization's benefit, or the fact that such emption, see chapter 1, Application Proce-In general, the receipt of unrelated business in-organization has control over the income, dures.come by a section 501(c)(25) organization will doesn't satisfy this requirement.subject the organization to loss of exempt status Who can control the organization. Organiza-since the organization can't be exempt from tax-Expenses. Expenses may reduce the tions recognized as exempt under this section ation if it engages in any business other than amount of income required to be turned over to can have up to 35 shareholders or beneficiaries, that of holding title to real property and collect-the tax-exempt organization for which your or-in contrast to title-holding organizations recog-ing the income from the property. However, ex-ganization holds property. The term expenses nized as exempt under section 501(c)(2), which empt status generally won't be affected by the (for this purpose) includes not only ordinary and can have only one controlling parent organiza-receipt of debt-financed income that is treated necessary expenses paid or incurred, but also tion.as unrelated business taxable income solely reasonable additions to depreciation reserves

because of section 514.and other reserves that would be proper for a Organizational requirements. A section business corporation holding title to and main-501(c)(25) organization must be either a corpo-Under section 514(c)(9), certain sharehold-taining property.ration or a trust. Only one class of stock is per-ers or beneficiaries aren't subject to unrelated In addition, the title-holding corporation can mitted in the case of a corporation. In the case debt-financed income tax under section 514 on retain part of its income each year to apply to of a trust, only one class of beneficial interest is their investments through the organization. debt on property to which it holds title. This allowed.These shareholders are generally schools, col-transaction is treated as if the income had been leges, universities, or supporting organizations Organizations eligible to acquire or hold in-turned over to the exempt organization and the of such educational institutions. Organizations terests in this type of title-holding organization latter had used the income to make a contribu-other than these will take into account as gross are qualified pension, profit-sharing, or stock tion to the capital of the title-holding corporation income from an unrelated trade or business bonus plans, governmental plans, governments that in turn applied the contribution to the debt.their pro rata share of income that is treated as and their agencies and instrumentalities, and

unrelated debt-financed income because sec-Waiver of payment of income. Generally, charitable organizations. tion 514(c)(9) doesn't apply. These organiza-there is no payment of rent when the occupant The articles of incorporation or trust instru- tions will also take their pro rata share of the al-of property held by your title-holding corporation ment must include provisions showing that the lowable deductions from unrelated taxable is the exempt organization for which your corpo-corporation or trust is organized to meet the re- income.ration holds the title. In this situation, the statu-quirements of the statute, including compliance tory requirement that income be paid over to the with the limitations on membership and classes

Real property. Real property can include per-exempt organization is satisfied if your corpora-of stock or beneficial interest, and compliance

sonal property leased in connection with real tion turns over whatever income is available.with the income distribution requirements. The property, but only if the rent from the personal organizing document must permit the organiza- property isn't more than 15% of the total rent for Application for recognition of exemption. In tion's shareholders or beneficiaries to dismiss

both the real property and the personal prop-addition to the information required by Form the organization's investment advisor, if any, erty.1024, the title-holding corporation must furnish upon a vote of the shareholders or beneficiaries evidence that the organization for which title is Real property acquired after June 10, 1987, holding a majority interest in the organization. held has obtained recognition of exempt status. can't include any interest as a tenant in com-The organizing document must permit the If that organization has not been specifically no-mon (or similar interest) or any indirect interest.shareholders or beneficiaries to terminate their tified in writing by the IRS that it is exempt, the interests by at least one of the following meth-title-holding corporation must submit the neces-ods.501(c)(26) -sary application and supporting documents to 1. By selling or exchanging their stock or State-Sponsored enable the IRS to determine whether the organi-beneficial interest to any organization de-zation for which title is held qualifies for exemp-High-Risk Health scribed in section 501(c)(25)(C), provided tion. A copy of a ruling or determination letter is-that the sale or exchange doesn't cause sued to the organization for which title is held Coverage Organizationsthe number of shareholders or beneficia-will be proof that it qualifies for exemption. How-ries to exceed 35.ever, until the organization for which title is held

obtains recognition of exempt status or proof is 2. By having their stock or beneficial interest A state-sponsored organization established to submitted to show that it qualifies, the title-hold- redeemed by the section 501(c)(25) or- provide medical care to high-risk individuals ap-ing corporation can't obtain recognition of ex- ganization upon 90 days notice. plies on Form 1024 for recognition of exemption Page 59 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025emption. from federal income tax under section 501(c) If state law prevents a corporation from includ- (26). ing in its articles of incorporation the above pro-Tax treatment of donations. Donations to an

visions, such provisions must instead be inclu-exempt title-holding corporation generally aren't To qualify for exemption, the organization ded in the bylaws of the corporation. must be a membership organization established

58 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2025)

by a state exclusively to provide coverage for b. Provide related coverage which is in- tax under section 501(c)(29) applies on Form medical care on a nonprofit basis to high-risk in- cidental to workmen's compensation 1024. dividuals who are state residents. It can provide insurance. coverage either by issuing insurance itself or by General Requirements 2. It provides workmen's compensation in-entering into an arrangement with a health surance to any employer in the state (for for Exemption under maintenance organization (HMO). employees in the state or temporarily as-

signed out-of-state) which seeks such in- 501(c)(29) and Annual The state must determine the composition of

surance and meets other reasonable re-membership in the organization. No part of the Filing Requirementquirements relating to the insurance.net earnings of the organization can inure to the

benefit of any private shareholder or individual. 3. The state makes a financial commitment to such organization either by extending its In general, section 501(c)(29) applies to certain High-risk individuals. These are individuals, full faith and credit to the initial debt of the organizations receiving loans or repayable their spouses, and qualifying children, who, be- organization or by providing the initial op- grants under the CO-OP program. An organiza-cause of a pre-existing medical condition: erating capital of the organization. tion will qualify for exemption under section 1. Can't get medical care coverage for that 501(c)(29) only if: 4. The assets of the organization revert to the • condition through insurance or an HMO, or The organization has received a loan or a state upon dissolution or the organization

repayable grant under the CO-OP program isn't permitted to dissolve under state law.2. Can get coverage for that condition only at and is in compliance with all requirements a rate that is substantially higher than the 5. The majority of the board of directors or of the CO-OP program and any agreement rate for the same coverage from the oversight body of such organization are with CMS;state-sponsored organization.appointed by the chief executive officer or •The organization has applied for recogni-other executive branch official of the state, tion of exemption;by the state legislature, or by both.501(c)(27) - Qualified •No part of the organization's net earnings

inures to the benefit of any private share-State-Sponsored holder or individual, except that the organi-501(c)(29) - CO-OP

zation is required by section 1322(c)(4) of Workers' Compensation Health Insurance Issuersthe Affordable Care Act to use its profits to

lower premiums, improve benefits or im- prove the quality of health care delivered to This includes a qualified nonprofit health insur-its members;•ance issuer which has received a loan or grant 501(c)(27)(A) -- Pre-June 1, 1996, Organiza-No substantial part of the organization's under the CO-OP Program under this section of tions. A state-sponsored workers' compensa-activities involves attempts to influence the Code.tion reinsurance organization applies on Form legislation; and•1024 for recognition of exemption from federal The organization doesn't participate or in-income tax under section 501(c)(27).Guidance for Section tervene in political campaigns. See Rev.

To qualify for exemption, any membership Proc. 2015-17 for complete instructions for 501(c)(29) Qualified organization must meet all the following require- filing exemption applications.

ments. Nonprofit Health Additional Guidance for 1. It was established by a state before June Insurance Issuers 1, 1996, exclusively to reimburse its mem- Prospective 501(c)(29) bers for losses under workers' compensa-

tion acts. Section 501(c)(29), added to the Code by sec-

1. The state requires that the membership tion 1322(h)(1) of the Affordable Care Act, pro- consist of all persons who issue insurance vides for the exemption of qualified nonprofit An organization claiming exempt status under covering workers' compensation losses in health insurance issuers (QNHIIs) that have re- section 501(c)(29) that intends to file an appli-the state and all persons and government ceived a loan or grant under the Centers for cation for recognition of exemption should begin entities who self-insure against those los- Medicare and Medicaid Services (CMS) by filing Form 990, Return of Organization Ex-ses. CO-OP program for periods that they meet both empt from Income Tax, and indicate on its re- the requirements of section 1322 of the Afforda-3. It operates as a nonprofit organization by turn that it has not yet received a determination ble Care Act and of any loan agreement with returning surplus income to its members or letter. In addition to the general information re- CMS. The CO-OP program provides loans and workers' compensation policyholders on a quired on Form 990, these organizations must repayable grants to foster the creation of mem-periodic basis and by reducing initial pre- report certain information regarding required re- ber governed QNHIIs that will operate with a miums in anticipation of investment in- serves. strong consumer focus and offer qualified come. health insurance plans. Notice 2011-23, 2011-13 I.R.B. 588, discussed requirements for 501(c)(27)(B) -- Organizations formed after tax exemption for QNHIIs described in Internal December 31, 1997. Any organization (includ- Revenue Code section 501(c)(29). The Notice ing a mutual insurance company) can qualify for provides guidance on the annual filing require- 5.exemption if it meets all of the following require- ment for organizations that intend to apply for ments. recognition of section 501(c)(29) status and 1. It is created by state law and is organized modified and superseded by Rev. Proc. 2022-8. and operated under state law exclusively Excise Taxes Under Rev. Proc. 2022-8, an organization ap-to: plying for recognition of exemption from federal

income tax under section 501(c)(29) applies on a. Provide workmen's compensation in-Form 1024. Rev. Proc. 2015-17, 2015-7 I.R.B. surance which is required by state law 599, sets out the procedures for issuing deter-or state law must provide significant Page 60 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025mination letters on the exempt status of QNHIIs disincentives if employers fail to pur-and provides guidance on the effective date of chase such insurance, and An excise tax may be imposed on certain exempt status. Rev. Proc. 2015-17, supplemen- tax-exempt organizations.ted by current year issued revenue procedures also apply to exemptions from federal income

Publication 557 (1-2025) Chapter 5 Excise Taxes 59

Topics Manager Level Tax other organizations described in sec-

tion 501(c)(6); Section 4965(a)(2) imposes an excise tax on f. Voluntary employees' beneficiary any tax-exempt entity manager who approves •Prohibited tax shelter transactionsassociations (VEBAs) described in or otherwise causes the entity to be a party to a •Excess benefit transactionssection 501(c)(9); prohibited tax shelter transaction and knows (or •Excess business holdingsg. Credit unions described in section has reason to know) that the transaction is a •Taxable distributions of sponsoring 501(c)(14); prohibited tax shelter transaction. The excise organizations tax, in the amount of $20,000, is assessed for •Taxes on prohibited benefits distributed h. Insurance companies described in each approval or other act causing the organi-from donor advised fundssection 501(c)(15); and zation to be a party to the prohibited tax shelter •Excise taxes on private foundationsi. Veterans' organizations described transaction. To report this tax, file Form 4720.•Excise taxes on section 501(c)(21) black in section 501(c)(19).lung benefit trusts• Excess Benefit Excise Tax on Failure To Meet the 2. Religious or apostolic associations or cor-

Community Health Needs Assessment porations described in section 501(d). TransactionsRequirements of Hospitals 3. Entities described in section 170(c), in-•Excise tax on excess tax-exempt cluding states, possessions of the United organization executive compensation States, the District of Columbia, political • Excise tax on excess benefit transactions. Excise tax on net investment income of subdivisions of states and political subdivi- A disqualified person who benefits from an ex-private colleges and universities sions of possessions of the United States cess benefit transaction, such as compensa-

(but not including the United States). tion, fringe benefits, or contract payments from certain section 501(c)(3), 501(c)(4), or 501(c)4. Indian tribal governments within the mean- (29) organizations, must correct the transaction ing of section 7701(a)(40). and may have to pay an excise tax under sec- tion 4958. A manager of the organization may Forms (and Instructions)Entity manager. An entity manager is any per- also have to pay an excise tax under section son with authority or responsibility similar to that 47204720 Return of Certain Excise Taxes 4958. These taxes are reported on Form 4720.exercised by an officer, director, or trustee, and, Under Chapters 41 and 42 of the The excise taxes are imposed if an applica-for any act, the person that has authority or re-Internal Revenue Code ble tax-exempt organization provides an excess sponsibility with respect to the prohibited trans-

benefit to a disqualified person and that benefit See chapter 6 for more information about get-action. exceeds the value of the benefit received in ex-ting Form 4720. change.Prohibited tax shelter transaction. A pro-

There are three taxes under section 4958. hibited tax shelter transaction is any listed Disqualified persons are liable for the first two transaction, within the meaning of section Transactionstaxes and certain organization managers are li-6707A(c)(2), and any prohibited reportable

able for the third tax.transactions. A prohibited reportable transac- tion is a confidential transaction within the Taxes imposed on excess benefit transac-Section 4965 imposes an excise tax on:meaning of Regulations section 1.6011-4(b)(3), tions don't apply to a transaction under a written •Certain tax-exempt entities that are party to and a transaction with contractual protection contract that was binding on September 13, prohibited tax shelter transactions, andwithin the meaning of Regulations section 1995, and at all times thereafter before the •Any entity manager who approves or other-1.6011-4(b)(4). See the Instructions for Form transaction occurred.wise causes the entity to be a party to a 8886-T for more information on listed transac- prohibited tax shelter transaction and tions and prohibited reportable transactions.Tax on Disqualified Persons

knows or has reason to know that the transaction is a prohibited tax shelter trans- Subsequently listed transaction. Any trans- An excise tax equal to 25% of the excess bene-action. action to which the tax-exempt entity is a party fit is imposed on each excess benefit transac- and is later determined to be a listed transaction Additionally, section 6033 provides new disclo- tion between an applicable tax-exempt organi- after the entity has become a party to it, is a sure requirements on a tax-exempt entity that is zation and a disqualified person. The subsequently listed transaction.a party to a prohibited tax shelter transaction. disqualified person who benefited from the

transaction is liable for the tax. See definition of Entity Level TaxTax-exempt entities. Tax-exempt entities that disqualified person, later at Disqualified person.are subject to section 4965 include:

Section 4965(a)(1) imposes an entity level ex- Additional tax on the disqualified person. If 1. Entities described in section 501(c), in-cise tax on any tax-exempt entity described in 1, the 25% tax is imposed and the excess benefit cluding but not limited to the following 2, 3, or 4 above that becomes a party to a pro- transaction isn't corrected within the taxable pe-common types of entities:hibited tax shelter transaction or is a party to a riod, an additional excise tax equal to 200% of a. Instrumentalities of the United subsequently listed transaction (defined ear- the excess benefit is imposed on any disquali-States described in section 501(c)(1);lier). The excise tax imposed on a tax-exempt fied person involved.

entity applies to tax years in which the entity be- If a disqualified person makes a payment of b. Churches, hospitals, museums, comes a party to the prohibited tax shelter less than the full correction amount, the 200% schools, scientific research organiza-transaction and any subsequent tax years. The tax is imposed only on the unpaid portion of the tions, and other charities described in amount of the excise tax depends on whether correction amount. If more than one disqualified section 501(c)(3);the tax-exempt entity knew or had reason to person received an excess benefit from an ex-c. Civic leagues, social welfare organi-know that the transaction was a prohibited tax cess benefit transaction, all such disqualified zations, and local associations of em-shelter transaction at the time it became a party persons are jointly and severally liable for the ployees described in section 501(c)to the transaction. taxes.(4); To avoid the 200% tax, a disqualified person To figure and report the excise tax imposed must correct the excess benefit transaction dur-d. Labor, agricultural, or horticultural on a tax-exempt entity for being a party to a pro-Page 61 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 ing the taxable period. The 200% tax is abated organizations described in section hibited tax shelter transaction, file Form 4720. (refunded if collected) if the excess benefit 501(c)(5);For more information about this excise tax,

1. Business leagues, chambers of including information about how it is figured, commerce, trade associations, and see the Instructions for Form 4720.

60 Chapter 5 Excise Taxes Publication 557 (1-2025)

transaction is corrected within a 90-day correc- conscious, and intentional. An organization The excess benefit for substantial contribu- tion period beginning on the date a statutory no- manager's participation is due to reasonable tors and parties related to those contributors in- tice of deficiency is issued. cause if the manager has exercised responsibil- cludes the amount of the grant, loan, compen- ity on behalf of the organization with ordinary sation, or other similar payment. For additional Taxable period. The taxable period means business care and prudence. information, see the Instructions for Form 4720.the period beginning with the date on which the Excess benefit transaction rules generally excess benefit transaction occurs and ending Excess Benefit Transaction don't apply to transactions between a support-on the earlier of: ing organization and its supported organization • The date a notice of deficiency was mailed described in section 501(c)(4), (5), or (6) in fur- to the disqualified person for the initial tax An excess benefit transaction is a transaction in therance of charitable purposes. on the excess benefit transaction, or which an economic benefit is provided by an • The date on which the initial tax on the ex- applicable tax-exempt organization, directly or Date of Occurrence cess benefit transaction for the disqualified indirectly, to or for the use of any disqualified

person is assessed. person, and the value of the economic benefit An excess benefit transaction occurs on the provided by the organization exceeds the value date the disqualified person receives the eco-Tax on Organization of the consideration (including the performance nomic benefit from the organization for federal of services) received for providing such benefit. Managers income tax purposes. However, when a single The excess benefit transaction rules apply to all contractual arrangement provides for a series of transactions with disqualified persons, regard- compensation or other payments to or for the If tax is imposed on a disqualified person for less of whether the amount of the benefit provi- use of a disqualified person during the disquali-any excess benefit transaction, an excise tax ded is determined in whole or in part by the rev- fied person's tax year, any excess benefit trans-equal to 10% of the excess benefit is imposed enues of one or more activities of the action with respect to these payments occurs on an organization manager who knowingly par-

on the last day of the taxpayer's tax year.ticipated in an excess benefit transaction, un- less such participation wasn't willful and was To determine whether an excess benefit In the case of benefits provided to a quali-due to reasonable cause. This tax can't exceed transaction has occurred, all consideration and fied pension, profit-sharing, or stock bonus $20,000 ($10,000 for transactions entered in a benefits exchanged between a disqualified per-plan, the transaction occurs on the date the tax year beginning before August 18, 2006), for son and the applicable tax-exempt organization, benefit is vested. In the case of the transfer of each transaction. There is also joint and several and all entities it controls, are taken into ac-property subject to a substantial risk of forfei-liability for this tax. A person can be liable for count. For purposes of determining the value of ture, or in the case of rights to future compensa-both the tax paid by the disqualified person and economic benefits, the value of property, includ-tion or property, the transaction occurs on the the organization manager tax for a particular ex-ing the right to use property, is the fair market date the property, or the rights to future com-cess benefit transaction.value. Fair market value is the price at which pensation or property, isn't subject to a substan-property, or the right to use property, would tial risk of forfeiture. Where the disqualified per-Organization manager. An organization man-change hands between a willing buyer and a son elects to include an amount in gross ager is any officer, director, or trustee of an ap-willing seller, neither being under any compul-income in the tax year of transfer under section plicable tax-exempt organization, or any individ-sion to buy, sell, or transfer property or the right 83(b), the excess benefit transaction occurs on ual having powers or responsibilities similar to to use property, and both having reasonable the date the disqualified person receives the officers, directors, or trustees of the organiza-knowledge of relevant facts.economic benefit for federal income tax purpo-tion, regardless of title. An organization man-

ses.ager isn't considered to have participated in an Donor advised fund transactions occurring excess benefit transaction where the manager after August 17, 2006. For a donor advised Correcting the excess benefit. An excess has opposed the transaction in a manner con-fund, an excess benefit transaction includes a benefit transaction is corrected by undoing the sistent with the fulfillment of the manager's re-grant, loan, compensation, or other similar pay-excess benefit to the extent possible, and by sponsibilities to the organization. For example, ment from the fund to a:taking any additional measures necessary to a director who votes against giving an excess •Donor or donor advisor;place the organization in a financial position not benefit would ordinarily not be subject to the •Family member of a donor, or donor advi-worse than what it would have been if the dis-10% tax.sor;qualified person were dealing under the highest •35% controlled entity of a donor, or donor A person participates in a transaction know-fiduciary standards.advisor; oringly if the person:•A disqualified person corrects an excess 35% controlled entity of a family member •Has actual knowledge of sufficient facts so benefit by making a payment in cash or cash of a donor, or donor advisor.that, based solely upon those facts, such equivalents, excluding payment by a promissory transaction would be an excess benefit The excess benefit in this transaction is the note, equal to the correction amount to the ap-transaction;amount of the grant, loan, compensation, or plicable tax-exempt organization. The correc-•Is aware that such a transaction under other similar payment. For additional informa-tion amount equals the excess benefit plus the these circumstances may violate the provi-tion, see the Instructions for Form 4720.interest on the excess benefit. The interest rate sions of federal tax law governing excess can be no lower than the applicable federal rate, benefit transactions; andSupporting organization transactions oc-compounded annually, for the month the trans-•Negligently fails to make reasonable at-curring after July 25, 2006. For any support-action occurred.tempts to ascertain whether the transac-ing organization, defined in section 509(a)(3), A disqualified person can, with the agree-tion is an excess benefit transaction, or the an excess benefit transaction includes grants, ment of the applicable tax-exempt organization, manager is in fact aware that it is such a loans, compensation, or other similar payment make a payment by returning the specific prop-transaction.provided by the supporting organization to a:erty previously transferred in the excess trans-•Substantial contributor,Knowing doesn't mean having reason to know. action. In this case, the disqualified person is •Family member of a substantial contributor,The organization manager ordinarily won't be treated as making a payment equal to the lesser •35% controlled entity of a substantial con-considered knowing if, after full disclosure of the of:tributor, or•factual situation to an appropriate professional, The fair market value of the property on the •35% controlled entity of a family member the organization manager relied on the profes- date the property is returned to the organi-of a substantial contributor.sional's reasoned written opinion on matters zation, orPage 62 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025•within the professional's expertise or if the man-Additionally, an excess benefit transaction The fair market value of the property on the

ager relied on the fact that the requirements for includes any loans provided by the supporting date the excess benefit transaction occur- the rebuttable presumption of reasonableness organization to a disqualified person (other than red. have been satisfied. Participation by an organi- an organization described in section 509(a)(1), zation manager is willful if it is voluntary, (2), or (4)).

Publication 557 (1-2025) Chapter 5 Excise Taxes 61

•If the payment resulting from the return of Disqualified persons of a section 509(a)(3) doesn't hold the executive or voting powers

property is less than the correction amount, the supporting organization that supports the mentioned earlier in the discussion on Dis- disqualified person must make an additional applicable tax-exempt organization. qualified Person, isn't a family member of a

cash payment to the organization equal to the disqualified person, and isn't a substantial For certain supporting organization difference. contributor; • transactions occurring after July 25, 2006. Tax-exempt organizations described in If the payment resulting from the return of Substantial contributors to supporting organiza- section 501(c)(3); andthe property exceeds the correction amount de- tions will also be considered disqualified per- • Section 501(c)(4) organizations with re-scribed above, the organization can make a sons with respect to the supporting organiza- spect to transactions engaged in with other cash payment to the disqualified person equal tions, along with their family members and 35% section 501(c)(4) organizations.to the difference. controlled entities. Facts and circumstances. The determina-Exception. For a correction of an excess Investment advisor. Investment advisor tion of whether a person has substantial influ-benefit transaction (discussed earlier), no means for any sponsoring organization, any ence over the affairs of an organization is based amount repaid in a manner prescribed by the person compensated by such organization (but on all the facts and circumstances. Facts and Secretary can be held in a donor advised fund. not an employee of such organization) for man- circumstances that tend to show a person has aging the investment of, or providing investment substantial influence over the affairs of an or-Applicable Tax-Exempt advice for, assets maintained in donor advised ganization include, but aren't limited to, the fol- funds owned by such sponsoring organization. lowing. • The person founded the organization. Substantial contributor. In general, a sub-An applicable tax-exempt organization is a sec- • The person is a substantial contributor to stantial contributor means any person who con-tion 501(c)(3), 501(c)(4), or 501(c)(29) organi- the organization under the section 507(d) tributed or bequeathed an aggregate of more zation that is tax-exempt under section 501(a), (2)(A) definition, only taking into account than $5,000 to the organization, if that amount or was such an organization at any time during contributions to the organization for the is more than 2% of the total contributions and a 5-year period ending on the day of the excess past 5 years. bequests received by the end of the organiza-benefit transaction. • The person's compensation is primarily tion's tax year in which the contribution or be- based on revenues derived from activities quest is received. A substantial contributor in-An applicable tax-exempt organization of the organization that the person con- cludes the grantor of a trust.doesn't include: trols. • The person has or shares authority to con- Family members. Family members of a dis-1. A private foundation as defined in section trol or determine a substantial portion of qualified person include a disqualified person's 509(a), the organization's capital expenditures, op- spouse, brothers or sisters (whether by whole 2. A governmental entity that is: erating budget, or compensation for em- or half-blood), spouses of brothers or sisters ployees. (whether by whole or half-blood), ancestors, a. Exempt from (or not subject to) taxa- • The person manages a discrete segment children (including a legally adopted child), tion without regard to section 501(a), or activity of the organization that repre- grandchildren, great grandchildren, and spou- or sents a substantial portion of the activities, ses of children, grandchildren, and great grand- b. Not required to file an annual return, assets, income, or expenses of the organi- children (whether by whole or half-blood). or zation, as compared to the organization as

a whole.35% controlled entity. A 35% controlled entity 3. A foreign organization, recognized by the •The person owns a controlling interest is:IRS or by treaty, that receives substantially (measured by either vote or value) in a cor-all of its support (other than gross invest-1. A corporation in which disqualified per-poration, partnership, or trust that is a dis-ment income) from sources outside the sons own more than 35% of the total com-qualified person.United States.bined voting power,•The person is a nonstock organization con-

trolled directly or indirectly by one or more 2. A partnership in which such persons own An organization isn't treated as a section disqualified persons.more than 35% of the profits interest, or501(c)(3), 501(c)(4), or 501(c)(29) organization for any period covered by a final determination Facts and circumstances tending to show 3. A trust or estate in which such persons that the organization wasn't tax-exempt under that a person doesn't have substantial influence own more than 35% of the beneficial inter- section 501(a), but only if the determination over the affairs of an organization include, but est. wasn't based on private inurement or one or aren't limited to, the following.•In determining the holdings of a business more excess benefit transactions.The person has taken a bona fide vow of enterprise, any stock or other interest owned di-poverty as an employee or agent of a reli-rectly or indirectly shall apply.gious organization or on its behalf.Disqualified Person•The person is an independent contractor Persons having substantial influence. whose sole relationship to the organization A disqualified person is:Among those who are in a position to exercise is providing professional advice (without •Any person (at any time during the 5-year substantial influence over the affairs of the or-having decision-making authority) with re-period ending on the date of the transac-ganization are, for example, voting members of spect to transactions from which the inde-tion) in a position to exercise substantial in-the governing body, and persons holding the pendent contractor won't economically fluence over the affairs of the organization,power of:benefit either directly or indirectly aside •A family member of an individual described •Presidents, chief executives, or chief oper-from customary fees received for the pro-in (1), andating officers;fessional advice rendered.•A 35% controlled entity.••Treasurers and chief financial officers; orAny preferential treatment the person re-•Persons with a material financial interest in ceives based on the size of the person's For donor advised funds, sponsoring or-a provider-sponsored organization.donation is also offered to others making ganizations, and certain supporting organi-comparable widely solicited donations.zations occurring after August 17, 2006. Persons not considered to have sub-•The direct supervisor of the person isn't a The following persons will be considered dis-stantial influence. Persons who aren't consid-disqualified person.qualified persons along with certain family ered to be in a position to exercise substantial •The person doesn't participate in any man-Page 63 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025members and 35% controlled entities associ-influence over the affairs of an organization in-agement decisions affecting the organiza-ated with them.clude:tion as a whole or a discrete segment of ••Donors of donor advised funds,An employee who receives benefits that to-the organization that represents a substan-•Investment advisors of sponsoring organi-tal less than the highly compensated tial portion of the activities, assets, income, zations, andamount in section 414(q)(1)(B)(i) and who 62 Chapter 5 Excise Taxes Publication 557 (1-2025)

•or expenses of the organization, as com-Exception. If the economic benefit is exclu-Benefits provided to a person solely as a

pared to the organization as a whole. ded from the disqualified person's gross income member of a charitable class that the appli- for income tax purposes, the applicable tax-ex- cable tax-exempt organization intends to In the case of multiple organizations affili- empt organization isn't required to indicate its benefit as part of the accomplishment of its ated by common control or governing docu- intent to provide an economic benefit as com- exempt purpose.ments, the determination of whether a person • pensation for services. A transfer of an economic benefit to or for does or doesn't have substantial influence is the use of a governmental unit, as defined made separately for each applicable tax-ex- Rebuttable presumption that a transac- in section 170(c)(1), if exclusively for public empt organization. A person may be a disquali- tion isn't an excess benefit transaction. purposes.fied person with respect to transactions with Payments under a compensation arrangement more than one organization. are presumed to be reasonable and the transfer Special exception for initial contracts. of property (or right to use property) is pre- Section 4958 doesn't apply to any fixed pay-Reasonable compensation. Reasonable sumed to be at fair market value, if the following ment made to a person under an initial contract.compensation is the value that would ordinarily three conditions are met. A fixed payment is an amount of cash or be paid for like services by like enterprises un- other property specified in the contract, or de-der like circumstances. The section 162 stand- 1. The transaction is approved in advance by termined by a fixed formula that is specified in ard will apply in determining the reasonable- an authorized body of the organization (or the contract, which is to be paid or transferred in ness of compensation. The fact that a bonus or an entity it controls) which is composed of exchange for the provision of specified services revenue-sharing arrangement is subject to a individuals who don't have a conflict of in- or property.cap is a relevant factor in determining reasona- terest concerning the transaction. A fixed formula can, generally, incorporate bleness of compensation. an amount that depends upon future specified 2. Before making its determination, the au-To determine the reasonableness of com- events or contingencies, as long as no one has thorized body obtained and relied upon pensation, all items of compensation provided discretion when calculating the amount of a appropriate data as to comparability. by an applicable tax-exempt organization in ex- payment or deciding whether to make a pay- (There is a special safe harbor for small or-change for performance of services are taken ment (such as a bonus). ganizations. If the organization has gross into account in determining the value of com- An initial contract is a binding written con- receipts of less than $1 million, appropri-pensation (except for economic benefits that tract between an applicable tax-exempt organi- ate comparability data includes data on are disregarded under the discussion Disregar- zation and a person who wasn't a disqualified compensation paid by three comparable ded benefits, later). Items of compensation in- person immediately before entering into the organizations in the same or similar com-clude: contract. munities for similar services.)•All forms of cash and noncash compensa- A binding written contract, providing it can tion, including salary, fees, bonuses, sever- 3. The authorized body adequately docu- be terminated or canceled by the applicable ance payments, and deferred noncash ments the basis for its determination con- tax-exempt organization without the other par-compensation; currently with making that determination. ty's consent (except as a result of substantial •The payment of liability insurance premi- The documentation should include: nonperformance) and without substantial pen-ums for, or the payment or reimbursement alty, is treated as a new contract, as of the earli- a. The terms of the approved transaction by the organization of penalties, taxes, or est date any termination or cancellation would and the date approved,certain expenses under section 4958, un- be effective. Also, if the parties make a material less excludable from income as a de mini- b. The members of the authorized body change to a contract, which includes an exten-mis fringe benefit under section 132(a)(4); who were present during debate on sion or renewal of the contract (except for an ex-•All other compensatory benefits, whether the transaction that was approved and tension or renewal resulting from the exercise of or not included in gross income for income those who voted on it, an option by the disqualified person), or a more tax purposes; than incidental change to the amount payable c. The comparability data obtained and •Taxable and nontaxable fringe benefits, ex- under the contract, it is treated as a new con- relied upon by the authorized body cept fringe benefits described in section tract as of the effective date of the material and how the data was obtained,132; and change.•Foregone interest on loans. d. Any actions by a member of the au-

thorized body having conflict of inter- More information. For more information, Intent to treat benefits as compensation. est, and see the Instructions for Forms 990 and 4720.An economic benefit isn't treated as considera-

tion for the performance of services unless the e. Documentation of the basis of the de- Excess Business organization providing the benefit clearly indi- termination before the later of the next

cates its intent to treat the benefit as compensa- meeting of the authorized body or 60 Holdingstion when the benefit is paid. days after the final actions of the au-An applicable tax-exempt organization (or thorized body are taken, and approval

entity that it controls) is treated as clearly indi- of records as reasonable, accurate, General rule. Private foundations are gener-cating its intent to provide an economic benefit and complete within a reasonable ally not permitted to hold more than a 20% inter-as compensation for services only if the organi- time thereafter. est in an unrelated business enterprise. They zation provides written substantiation that is may be subject to an excise tax on the amount Disregarded benefits. The following eco-contemporaneous with the transfer of the eco- of any excess business holdings. For purposes nomic benefits are disregarded for section 4958 nomic benefits under consideration. Ways to of section 4943, for tax years beginning after purposes.provide contemporaneous written substantia- • August 17, 2006, donor advised funds and cer- Nontaxable fringe benefits that are exclu-tion of its intent to provide an economic benefit tain supporting organizations are considered ded from income under section 132.as compensation include: •• private foundations. Benefits provided to a volunteer for the or- The organization produces a signed writ-

ganization if the benefit is provided to the ten employment contract; Exception under section 4943(g). Section •general public in exchange for a member-The organization reports the benefit as 4943(g) added by the Bipartisan Budget Act of ship fee or contribution of $75 or less.compensation on an original Form W-2, • 2018, P.L. No. 115-123, 132 Stat. 64 (2018), Benefits provided to a member of an or-Form 1099, or Form 990, or on an amen- provides an exception for certain limited hold-ganization due to the payment of a mem-ded form filed before starting an IRS ex- ings to independently operated businesses. In bership fee or to a donor as a result of a amination; or general, the excess business holdings provi-Page 64 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025•deductible contribution, if a significant The disqualified person reports the benefit sions of section 4943(a) shall not apply with re-number of disqualified persons make simi-as income on the person's original Form spect to the holdings of a private foundation in lar payments or contributions and are of-1040 or 1040-SR, or on an amended form any business enterprise which meets all the re-fered a similar economic benefit.filed before starting an IRS examination. quirements of section 4943(g)(2), (3), and (4). Publication 557 (1-2025) Chapter 5 Excise Taxes 63

or expects to have advisory privileges concern- Sponsoring organization. A sponsoring or-

The requirements of section 4943(g)(2) are met ing the distribution or investment of the funds. ganization is a section 170(c) organization that if: is neither a government organization (as refer-

Supporting organizations. Only certain sup- red to in section 170(c)(1) and (2)(A)) nor a pri-1. 100% of the voting stock in the business porting organizations are subject to the excess vate foundation.enterprise is held by the private foundation business holdings tax under section 4943. at all times during the tax year, andThese include (1) Type III supporting organiza- Donor advised fund. A donor advised fund is

tions that aren't functionally integrated and (2) a fund or account:2. All of the private foundation's ownership Type II supporting organizations that accept any interests were acquired by means other 1. Which is separately identified by reference gift or contribution from a person who alone or than purchase, such as a gift or bequest. to contributions of a donor or donors,in connection with a related party controls the supported organization that the Type II support- 2. Which is owned and controlled by a spon-The requirements of section 4943(g)(3) are met ing organization supports. soring organization, andif the business enterprise, no later than 120

1. For which the donor (or any person ap-days after the close of the tax year, distributes Taxes. A private foundation that has excess pointed or designated by the donor) has or an amount equal to its net operating income for holdings in a business enterprise may become expects to have advisory privileges con-such tax year to the private foundation. For pur-liable for an excise tax based on the amount of cerning the distribution or investment of poses of section 4943(g), the net operating in-holdings. The initial tax is 10% (5% for tax years the funds held in the donor advised funds come of any business enterprise for any tax beginning before August 18, 2006) of the value or accounts because of the donor's status year is an amount equal to the gross income of of the excess holdings and is imposed on the as a donor.the business enterprise for the tax year, re-last day of each tax year that ends during the duced by the sum of:taxable period. The excess holdings are deter- mined on the day during the tax year when they 1. The deductions allowed by chapter 1 of were the largest. the Code for the tax year that are directly A foundation that fails to correct the excess connected with the production of such in- business holdings becomes liable for an addi- come, Exception. A donor advised fund doesn't tional tax of 200% of the remaining excess busi-2. The tax imposed by chapter 1 of the Code include: ness holdings as of the earlier of tax assess-on the business enterprise for the tax year, ment or mailing of a notice of deficiency. 1. A fund or account that makes distributions andFor more information on the tax on excess only to a single identified organization or business holdings, see the Instructions for Form 3. An amount for a reasonable reserve for governmental entity; or4720.working capital and other business needs 2. Any fund or account for a person descri-of the business enterprise. bed in 3 above that gives advice about Taxable Distributions of which individuals receive grants for travel,

The requirements of section 4943(g)(4) are met study, or similar purposes, if the following Sponsoring

if, at all times during the tax year: three requirements are met:

1. No substantial contributor (as defined in a. The person's advisory privileges are
   section 4958(c)(3)(C)) to the private foun- performed exclusively by such person dation or family member (as determined in their capacity as a committee mem- An excise tax under section 4966 is imposed on under section 4958(f)(4)) of such a con- ber of which all the committee mem- a sponsoring organization for each taxable dis-tributor is a director, officer, trustee, man- bers are appointed by the sponsoring tribution it makes from a donor advised fund. An ager, employee, or contractor of the busi- organization, excise tax is also imposed on any fund manager ness enterprise (or an individual having of the sponsoring organization who agreed to b. No combination of persons with advi-powers or responsibilities similar to any of the making of a distribution, knowing that it is a sory privileges, described in 3 above, the foregoing); taxable distribution. or persons related to those in 3 above

2. At least a majority of the board of directors directly or indirectly control the com-
   Taxable distribution. A taxable distribution is of the private foundation are persons who mittee, and

any distribution from a donor advised fund to are not (i) directors or officers of the busi- c. All grants from the fund or account are any natural person or to any other person if:ness enterprise, or (ii) family members of a awarded on an objective and nondis-substantial contributor to the private foun-1. The distribution is for any purpose other criminatory basis according to a pro-dation; and than one specified in section 170(c)(2)(B), cedure approved in advance by the or3. There is no loan outstanding from the board of directors of the sponsoring business enterprise to a substantial con- organization. The procedure must be 2. The sponsoring organization maintaining tributor to the private foundation or to any designed to ensure that all grants the donor advised fund doesn't exercise family member of such a contributor. meet the requirements of section expenditure responsibility with respect to 4945(g)(1), (2), or (3). the distribution in accordance with section 4945(h).This provision does not apply to any donor ad- Disqualified supporting organization. A dis-vised fund treated as a private foundation by qualified supporting organization includes (1) a However, a taxable distribution doesn't in-section 4943(e), a supporting organization trea- Type III supporting organization that isn't func-clude a distribution from a donor advised fund ted as a private foundation by section 4943(f), a tionally integrated, and (2) any supporting or-to:trust described in section 4947(a)(1), or a trust • ganization where the donor or donor advisor Any organization described in section described in section 4947(a)(2). (and any related parties) directly or indirectly 170(b)(1)(A) (other than a disqualified sup- controls a supported organization of the sup- porting organization),Section 4943(g) shall apply to tax years begin-• porting organization. The sponsoring organization of the donor ning after December 31, 2017. advised fund, or• Tax on sponsoring organization. A tax of Any other donor advised fund.Donor advised fund. In general, a donor ad-Page 65 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 20% of the amount of each taxable distribution vised fund is a fund or account separately iden-The tax on taxable distributions applies to is imposed on the sponsoring organization.tified by reference to contributions of a donor or distributions occurring in tax years beginning af-

donors that is owned and controlled by a spon- ter August 17, 2006. soring organization and for which the donor has

64 Chapter 5 Excise Taxes Publication 557 (1-2025)

Tax on fund manager. If a tax is imposed on a benefit for the same transaction, the person is Excise Tax on Failure To taxable distribution of the sponsoring organiza- taxed under section 4958, and no tax is im-

tion, a tax of 5% of the distribution will be im- posed under section 4967 for a prohibited ben- Meet the Community posed on any fund manager who agreed to the efit.

distribution knowing that it was a taxable distri- For more information on taxes on prohibited Health Needs

bution. Any fund manager who took part in the benefits distributed from donor advised funds, Assessment distribution and is liable for the tax must pay the see the Instructions for Form 4720.

tax. The maximum amount of tax on all fund Requirementsmanagers for any one taxable distribution is Excise Taxes on Private $10,000. If more than one fund manager is lia- Foundationsble for tax on a taxable distribution, all such For tax years beginning after March 23, 2012, managers are jointly and severally liable for the new section 4959 imposes an excise tax on tax. hospital organizations which fail to meet certain There is an excise tax on the net investment in-For more information on the tax on taxable section 501(r) requirements for each of their come of most domestic private foundations. distributions of sponsoring organizations, see hospital facilities. These entities must meet sec- Capital gains from appreciation are included in the Instructions for Form 4720. tion 501(r)(3) requirements at all times during the tax base on private foundation net invest- their tax year. Section 501(r)(3) requirements ment income. This tax must be reported on Taxes on Prohibited pertain to a hospital organization preparing a Form 990-PF and must be paid annually at the community health needs assessment (CHNA). Benefits Resulting from time for filing that return or in quarterly estima- See Schedule H, Hospitals (Form 990), for de- ted tax payments if the total tax for the year tails.Donor Advised Fund (section 4940 tax minus credits) is $500 or

more. Form 990-W is used to calculate the esti-Distributions Excise Tax on Executive mated tax.

CompensationIn addition, there are several other rules that Prohibited benefit. If any donor, donor advi-apply to excise taxes on private foundations. sor, or related party advises the sponsoring or-These include:ganization about making a distribution which re-New section 4960 imposes an excise tax on an 1. Restrictions on self-dealing between pri-sults in a donor, donor advisor, or related party organization that pays to any covered employee vate foundations and their substantial con-receiving (either directly or indirectly) a more more than $1 million in remuneration or pays an tributors and other disqualified persons,than incidental benefit, then such benefit is a excess parachute payment during the year prohibited benefit. The tax on prohibited bene-starting in 2018. See section 4960 and Form 2. Requirements that the foundation annually fits applies to distributions occurring in tax years 4720, Return of Certain Excise Taxes Under distribute income for charitable purposes,beginning after August 17, 2006.Chapters 41 and 42 of the Internal Revenue 3. Limits on their holdings in any business Code, final regulations TD 9938 (Regulations enterprise (see Excess Business Hold-Donor advisor. A donor advisor is any person sections 53.4960-0 through 53.4960-6), and ings, earlier),appointed or designated by a donor to advise a Notice 2019-09, 2019-04 I.R.B. 403, for more sponsoring organization on the distribution or information.4. Provisions that investments mustn't jeop-investment of amounts held in the donor's fund ardize the carrying out of exempt purpo-or account.ses, andExcise Tax on Net

1. Provisions to assure that expenditures fur-Related party. A related party includes any Investment Income of ther the organization's exempt purposes.family member or 35% controlled entity. See the Certain Colleges and definition of those terms under Disqualified Per-Violations of these provisions give rise to son, earlier. Universitiestaxes and penalties against the private founda-

tion and, in some cases, its managers, its sub-Tax on donor, donor advisor, or related per-stantial contributors, and certain related per-son. A tax of 125% of the benefit resulting from sons. New section 4968 imposes an excise tax on the the distribution is imposed on both the party net investment income of certain private col-who advised as to the distribution (which might For more information on the excise taxes im- leges and universities. A private college or uni-be a donor, donor advisor, or related party) and posed on private foundations, see the Instruc- versity will be subject to the excise tax on net in-the party who received such benefit (which tions for Form 4720 and the Instructions for vestment income under section 4968 if four might be a donor, donor advisor, or related Form 990-PF. tests are met.party). The advisor and the party who received

the benefit are jointly and severally liable for the 1. The organization must be an eligible edu- Excise Taxes on Black tax. cational institution as defined in section Lung Benefit Trusts 25A(f)(2). Section 25A(f)(2) defines "eligi- Tax on fund managers. If a tax is imposed on ble educational institution" as an institution

a prohibited benefit received by a donor, donor that is described in section 481 of the advisor, or related person, a tax of 10% of the Higher Education Act of 1965 (20 U.S.C. A black lung benefit trust that makes any expen-amount of the prohibited benefit is imposed on section 1088), as in effect on August 5, ditures, payments, or investments other than any fund manager who agreed to the distribu- 1997, and is eligible to participate in a pro- those described in chapter 4 under 501(c)(21) -tion knowing that it would confer a prohibited gram under Title IV of such Act (20 U.S.C. Black Lung Benefit Trusts must pay a tax equal benefit. Any fund manager who took part in the sections 1070 et seq.). to 10% of the amount of such expenditures. If distribution and is liable for the tax must pay the there are any acts of self-dealing between the 2. The organization must have had at least tax. The maximum amount of tax on all fund trust and a disqualified person, a tax equal to 500 tuition-paying students, based upon a managers for any one taxable distribution is 10% of the amount involved is imposed on the daily average student count, during the $10,000. If more than one fund manager is lia- disqualified person. Both of these excise taxes preceding tax year.ble for tax on a taxable distribution, all such are reported on Form 6069. See the Instructions Page 66 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025managers are jointly and severally liable for the 3. More than 50% of those students must for Form 6069 and Form 990 for more informa-tax. have been located in the United States. tion on these taxes and what has to be filed, even if the trust is excepted from filing.Exception. If a person engaged in an excess

benefit transaction and received a prohibited

Publication 557 (1-2025) Chapter 5 Excise Taxes 65

1. The aggregate fair market value, at the OneSource. For more information, go to more information on how to choose a tax pre- end of the preceding tax year, of the as- MilitaryOneSource (MilitaryOneSource.mil/ parer, go to Tips for Choosing a Tax Preparer on

sets not used directly in carrying out the MilTax). IRS.gov.

organization's exempt purpose, held by Also, the IRS offers Free Fillable Forms,

Coronavirus. Go to IRS.gov/Coronavirus for the organization and related organizations, which can be completed online and then

links to information on the impact of the corona-must be at least $500,000 per student.filed electronically regardless of income. virus, as well as tax relief available for individu-See the Instructions for Form 990, Part V, als and families, small and large businesses, Using online tools to help prepare your re-Line 16 for more information about organiza-turn. Go to IRS.gov/Tools for the following.and tax-exempt organizations.tions subject to the excise tax. See Instructions •The Earned Income Tax Credit Assistant for Form 4720, Schedule O, and final regula-(IRS.gov/EITCAssistant) determines if Employers can register to use Business tions TD 9917 (Regulations sections 53.4968-1 Services Online. The Social Security Adminis-you're eligible for the earned income credit through 53.4968-4) for more information about tration (SSA) offers online service at SSA.gov/(EIC).calculating the excise tax.•employer for fast, free, and secure online W-2 The Online EIN Application (IRS.gov/EIN)

filing options to CPAs, accountants, enrolled helps you get an employer identification How To Get Tax Helpagents, and individuals who process Form W-2, number (EIN) at no cost.•Wage and Tax Statement, and Form W-2c, Cor-The Tax Withholding Estimator (IRS.gov/

rected Wage and Tax Statement.W4app) makes it easier for you to estimate

If you have questions about a tax issue; need the federal income tax you want your em-

IRS social media. Go to IRS.gov/SocialMedia help preparing your tax return; or want to down-ployer to withhold from your paycheck.

to see the various social media tools the IRS load free publications, forms, or instructions, go This is tax withholding. See how your with- uses to share the latest information on tax to IRS.gov to find resources that can help you holding affects your refund, take-home pay, changes, scam alerts, initiatives, products, and right away.or tax due. services. At the IRS, privacy and security are •The First-Time Homebuyer Credit Account Preparing and filing your tax return. After our highest priority. We use these tools to share Look-up (IRS.gov/HomeBuyer) tool pro-receiving all your wage and earnings state-public information with you. Don't post your so-vides information on your repayments and ments (Forms W-2, W-2G, 1099-R, 1099-MISC, cial security number (SSN) or other confidential account balance.1099-NEC, etc.); unemployment compensation information on social media sites. Always pro-•The Sales Tax Deduction Calculator statements (by mail or in a digital format) or tect your identity when using any social net-(IRS.gov/SalesTax) figures the amount you other government payment statements (Form working site.can claim if you itemize deductions on 1099-G); and interest, dividend, and retirement The following IRS YouTube channels provide Schedule A (Form 1040).statements from banks and investment firms short, informative videos on various tax-related

(Forms 1099), you have several options to topics in English, Spanish, and ASL. Getting answers to your tax ques- •choose from to prepare and file your tax return. tions. On IRS.gov, you can get Youtube.com/irsvideos. •You can prepare the tax return yourself, see if up-to-date information on current Youtube.com/irsvideosmultilingua. •you qualify for free tax preparation, or hire a tax events and changes in tax law. Youtube.com/irsvideosASL.

professional to prepare your return. • IRS.gov/Help: A variety of tools to help you Watching IRS videos. The IRS Video portal get answers to some of the most common Free options for tax preparation. Go to (IRSVideos.gov) contains video and audio pre- tax questions.IRS.gov to see your options for preparing and sentations for individuals, small businesses, • IRS.gov/ITA: The Interactive Tax Assistant, filing your return online or in your local commun- and tax professionals. a tool that will ask you questions and, ity, if you qualify, which include the following. based on your input, provide answers on a • Free File. This program lets you prepare Online tax information in other languages. number of tax law topics. You can find information on IRS.gov/ and file your federal individual income tax • IRS.gov/Forms: Find forms, instructions, MyLanguage if English isn't your native lan- return for free using brand-name tax-prep- and publications. You will find details on guage. aration-and-filing software or Free File filla- the most recent tax changes and interac- ble forms. However, state tax preparation tive links to help you find answers to your may not be available through Free File. Go Free Over-the-Phone Interpreter (OPI) Serv- questions. ice. The IRS is committed to serving our multi- to IRS.gov/FreeFile to see if you qualify for • You may also be able to access tax law in- lingual customers by offering OPI services. The free online federal tax preparation, e-filing, formation in your electronic filing software. OPI Service is a federally funded program and and direct deposit or payment options.• is available at Taxpayer Assistance Centers VITA. The Volunteer Income Tax Assis-

(TACs), other IRS offices, and every VITA/TCE tance (VITA) program offers free tax help to Need someone to prepare your tax return? return site. The OPI Service is accessible in people with low-to-moderate incomes, per-There are various types of tax return preparers, more than 350 languages.sons with disabilities, and limited-Eng-including enrolled agents, certified public ac-lish-speaking taxpayers who need help countants (CPAs), accountants, and many oth-Accessibility Helpline available for taxpay-preparing their own tax returns. Go to ers who don't have professional credentials. If ers with disabilities. Taxpayers who need in-IRS.gov/VITA, download the free IRS2Go you choose to have someone prepare your tax formation about accessibility services can call app, or call 800-906-9887 for information return, choose that preparer wisely. A paid tax 833-690-0598. The Accessibility Helpline can on free tax return preparation.preparer is:•answer questions related to current and future TCE. The Tax Counseling for the Elderly •Primarily responsible for the overall sub-accessibility products and services available in (TCE) program offers free tax help for all stantive accuracy of your return,alternative media formats (for example, braille, taxpayers, particularly those who are 60 •Required to sign the return, andlarge print, audio, etc.). The Accessibility Help-years of age and older. TCE volunteers •Required to include their preparer tax iden-line does not have access to your IRS account. specialize in answering questions about tification number (PTIN).For help with tax law, refunds, or account-rela-pensions and retirement-related issues

ted issues, go to IRS.gov/LetUsHelp.Although the tax preparer always signs the unique to seniors. Go to IRS.gov/TCE, return, you're ultimately responsible for provid-download the free IRS2Go app, or call Note. Form 9000, Alternative Media Prefer-ing all the information required for the preparer 888-227-7669 for information on free tax ence, or Form 9000(SP) allows you to elect to to accurately prepare your return. Anyone paid return preparation.Page 67 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025•to prepare tax returns for others should have a MilTax. Members of the U.S. Armed

thorough understanding of tax matters. For Forces and qualified veterans may use Mil- Tax, a free tax service offered by the De- partment of Defense through Military

66 Publication 557 (1-2025)

•receive certain types of written correspondence Getting a transcript of your return. The Cash: You may be able to pay your taxes

in the following formats. quickest way to get a copy of your tax transcript with cash at a participating retail store.• • Standard Print. is to go to IRS.gov/Transcripts. Click on either Same-Day Wire: You may be able to do

"Get Transcript Online" or "Get Transcript by same-day wire from your financial institu-•Large Print.Mail" to order a free copy of your transcript. If tion. Contact your financial institution for •Braille.you prefer, you can order your transcript by call- availability, cost, and time frames.

• ing 800-908-9946.Audio (MP3). Note. The IRS uses the latest encryption •Plain Text File (TXT). technology to ensure that the electronic pay- Reporting and resolving your tax-related • ments you make online, by phone, or from a identity theft issues. Braille Ready File (BRF). • Tax-related identity theft happens when mobile device using the IRS2Go app are safe someone steals your personal information and secure. Paying electronically is quick, easy, Disasters. Go to Disaster Assistance and

to commit tax fraud. Your taxes can be af- and faster than mailing in a check or money or-Emergency Relief for Individuals and fected if your SSN is used to file a fraudu- der.Businesses to review the available disaster tax

lent return or to claim a refund or credit.relief.

What if I can't pay now? Go to IRS.gov/•The IRS doesn't initiate contact with tax-Payments for more information about your op-Getting tax forms and publications. Go to payers by email, text messages (including tions.IRS.gov/Forms to view, download, or print all shortened links), telephone calls, or social • Apply for an online payment agreement the forms, instructions, and publications you media channels to request or verify per- (IRS.gov/OPA) to meet your tax obligation may need. Or, you can go to IRS.gov/sonal or financial information. This includes in monthly installments if you can't pay OrderForms to place an order.requests for personal identification num- your taxes in full today. Once you complete bers (PINs), passwords, or similar informa- the online process, you will receive imme-Getting tax publications and instructions in tion for credit cards, banks, or other finan- diate notification of whether your agree-eBook format. You can also download and cial accounts. ment has been approved.view popular tax publications and instructions •Go to IRS.gov/IdentityTheft, the IRS Iden-• Use the Offer in Compromise Pre-Qualifier (including the Instructions for Form 1040) on tity Theft Central webpage, for information to see if you can settle your tax debt for mobile devices as eBooks at IRS.gov/eBooks.on identity theft and data security protec- less than the full amount you owe. For tion for taxpayers, tax professionals, and Note. IRS eBooks have been tested using more information on the Offer in Compro-businesses. If your SSN has been lost or Apple's iBooks for iPad. Our eBooks haven't mise program, go to IRS.gov/OIC.stolen or you suspect you're a victim of been tested on other dedicated eBook readers, tax-related identity theft, you can learn Filing an amended return. Go to IRS.gov/and eBook functionality may not operate as in-what steps you should take.Form1040X for information and updates.tended.•Get an Identity Protection PIN (IP PIN). IP

PINs are six-digit numbers assigned to tax- Checking the status of your amended re-Access your online account (individual tax-payers to help prevent the misuse of their turn. Go to IRS.gov/WMAR to track the status payers only). Go to IRS.gov/Account to se-SSNs on fraudulent federal income tax re- of Form 1040-X amended returns.curely access information about your federal tax turns. When you have an IP PIN, it pre-account.vents someone else from filing a tax return • Note. It can take up to 3 weeks from the View the amount you owe and a break-with your SSN. To learn more, go to date you filed your amended return for it to down by tax year.IRS.gov/IPPIN.• show up in our system, and processing it can See payment plan details or apply for a

take up to 16 weeks.new payment plan.Ways to check on the status of your refund. •Make a payment or view 5 years of pay-•Go to IRS.gov/Refunds.Understanding an IRS notice or letter ment history and any pending or sched-•Download the official IRS2Go app to your you've received. Go to IRS.gov/Notices to find uled payments.mobile device to check your refund status.•additional information about responding to an Access your tax records, including key •Call the automated refund hotline at IRS notice or letter.data from your most recent tax return, and 800-829-1954.transcripts.•Note. You can use Schedule LEP (Form View digital copies of select notices from Note. The IRS can't issue refunds before 1040), Request for Change in Language Prefer-the IRS.mid-February for returns that claimed the EIC or •ence, to state a preference to receive notices, Approve or reject authorization requests the additional child tax credit (ACTC). This ap-letters, or other written communications from from tax professionals.plies to the entire refund, not just the portion as-•the IRS in an alternative language. You may not View your address on file or manage your sociated with these credits.immediately receive written communications in communication preferences.the requested language. The IRS's commitment Making a tax payment. Go to IRS.gov/to LEP taxpayers is part of a multi-year timeline Tax Pro Account. This tool lets your tax pro-Payments for information on how to make a pay-that is scheduled to begin providing translations fessional submit an authorization request to ac-ment using any of the following options.in 2024. You will continue to receive communi-cess your individual taxpayer IRS online •IRS Direct Pay: Pay your individual tax bill cations, including notices and letters in English account. For more information, go to IRS.gov/or estimated tax payment directly from your until they are translated to your preferred lan-TaxProAccount.checking or savings account at no cost to guage.you.Using direct deposit. The fastest way to re-•Debit or Credit Card: Choose an approved Contacting your local IRS office. Keep in ceive a tax refund is to file electronically and payment processor to pay online or by mind, many questions can be answered on choose direct deposit, which securely and elec-phone.IRS.gov without visiting an IRS TAC. Go to tronically transfers your refund directly into your •Electronic Funds Withdrawal: Schedule a IRS.gov/LetUsHelp for the topics people ask financial account. Direct deposit also avoids the payment when filing your federal taxes us-about most. If you still need help, IRS TACs pro-possibility that your check could be lost, stolen, ing tax return preparation software or vide tax help when a tax issue can't be handled destroyed, or returned undeliverable to the IRS. through a tax professional.online or by phone. All TACs now provide serv-Eight in 10 taxpayers use direct deposit to re-•Electronic Federal Tax Payment System: ice by appointment, so you'll know in advance ceive their refunds. If you don't have a bank ac-Page 68 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025Best option for businesses. Enrollment is that you can get the service you need without count, go to IRS.gov/DirectDeposit for more in-required.long wait times. Before you visit, go to IRS.gov/formation on where to find a bank or credit •Check or Money Order: Mail your payment TACLocator to find the nearest TAC and to union that can open an account online.to the address listed on the notice or in-check hours, available services, and structions. Publication 557 (1-2025) 67

TAS for Tax Professionalsappointment options. Or, on the IRS2Go app, free. If you qualify for their assistance, you will

under the Stay Connected tab, choose the Con- be assigned to one advocate who will work with tact Us option and click on "Local Offices." you throughout the process and will do every- TAS can provide a variety of information for tax thing possible to resolve your issue. TAS can professionals, including tax law updates and The Taxpayer Advocate help you if: guidance, TAS programs, and ways to let TAS • Your problem is causing financial difficulty know about systemic problems you've seen in Service (TAS) Is Here To

for you, your family, or your business; your practice.Help You•You face (or your business is facing) an im- Low Income Taxpayer Clinics mediate threat of adverse action; orWhat Is TAS?•You've tried repeatedly to contact the IRS (LITCs)

but no one has responded, or the IRS TAS is an independent organization within the hasn't responded by the date promised.IRS that helps taxpayers and protects taxpayer LITCs are independent from the IRS. LITCs rep-rights. Their job is to ensure that every taxpayer resent individuals whose income is below a cer-How Can You Reach TAS?is treated fairly and that you know and under- tain level and need to resolve tax problems with stand your rights under the Taxpayer Bill of the IRS, such as audits, appeals, and tax collec-TAS has offices in every state, the District of Rights. tion disputes. In addition, LITCs can provide in-Columbia, and Puerto Rico. Your local advo- formation about taxpayer rights and responsibil-cate's number is in your local directory and at How Can You Learn About Your ities in different languages for individuals who TaxpayerAdvocate.IRS.gov/Contact-Us. You Taxpayer Rights? speak English as a second language. Services can also call them at 877-777-4778. are offered for free or a small fee for eligible tax-

payers. To find an LITC near you, go to The Taxpayer Bill of Rights describes 10 basic How Else Does TAS Help rights that all taxpayers have when dealing with TaxpayerAdvocate.IRS.gov/about-us/Low-Taxpayers?Income-Taxpayer-Clinics-LITC or see IRS Pub. the IRS. Go to TaxpayerAdvocate.IRS.gov to

4134, Low Income Taxpayer Clinic List.help you understand what these rights mean to TAS works to resolve large-scale problems that you and how they apply. These are your rights. affect many taxpayers. If you know of one of Know them. Use them.these broad issues, report it to them at IRS.gov/

SAMS.What Can TAS Do for You?

TAS can help you resolve problems that you can't resolve with the IRS. And their service is

Page 69 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025

68 Publication 557 (1-2025)

Organization Reference Chart

Section of Application Annual return 1986 Code Description of organization General nature of activities Form required to be allowable 1 filed

501(c)(1) Corporations Organized under Act Instrumentalities of the No Form None Yes, if made for of Congress (including Federal Credit United States exclusively public Unions) purposes 501(c)(2) Title Holding Corporation For Holding title to property of an 1024 990 or 990-EZ No 2 9 3 Exempt Organization exempt organization and distributing net income to it 501(c)(3) Religious, Educational, Charitable, Activities of nature implied by description 1023, 1023-EZ 990 or 990-EZ , Yes, generally 2 9 Scientific, Literary, Testing for Public of class of organization or 990-PF Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations 501(c)(4) Civic Leagues, Social Welfare Promotion of community welfare; Must provide 990 or 990-EZ No, generally 2 9 3, 4 Organizations; and Local charitable, educational, or recreational notice on Form Associations of Employees 8976; may also submit Form1024-A 501(c)(5) Labor, Agricultural, and Horticultural Educational or instructive, the 1024 990 or 990-EZ No 2 1 3 purpose being to improve conditions of work, and to improve products and/or efficiency 501(c)(6) Business Leagues, Chambers of Improvement of business 1024 990 or 990-EZ No 2 9 3 Commerce, Real Estate Boards, conditions of one or more lines of business etc. 501(c)(7) Social and Recreational Clubs Pleasure, recreation, social activities 1024 990 or 990-EZ No 2 9 3 501(c)(8) Fraternal Beneficiary Societies Providing for payment of life, sickness, 1024 990 or 990-EZ Yes, if for certain 2 9 and Associations accident or other benefits Sec. 501(c)(3) to members within a lodge system purposes 501(c)(9) Voluntary Employees Beneficiary Employee association providing for 1024 990 or 990-EZ No 2 9 3 payment of life, sickness, accident, or other benefits to members 501(c)(10) Domestic Fraternal Societies Earnings devoted to charitable, fraternal, 1024 990 or 990-EZ Yes, if for certain 2 9 and Associations and Sec. 501(c)(3) other specified purposes within a domestic purposes lodge system. No benefits to members 501(c)(11) Teachers' Retirement Fund Associations Teachers' association for payment of 1024 990 or 990-EZ No 7 2 9 3 retirement benefits 501(c)(12) Benevolent Life Insurance Associations, Activities of a mutual or cooperative 1024 990 or 990-EZ No 2 9 3 Mutual Ditch or nature Irrigation Companies, Mutual or Cooperative Telephone Companies, and Like Organizations 501(c)(13) Cemetery Companies Burials and incidental activities 1024 990 or 990-EZ Yes, generally 2 9 501(c)(14) State-Chartered Credit Unions, Loans to members 1024 990 or 990-EZ No 7 2 9 3 Mutual Reserve Funds 501(c)(15) Mutual Insurance Companies or Providing insurance to members 1024 990 or 990-EZ No 2 9 3 substantially at cost 501(c)(16) Cooperative Organizations to Financing crop operations in Form 1120-C, 990 or 990-EZ No 2 9 3 Finance Crop Operations conjunction with activities of a marketing 1024 7 or purchasing association 501(c)(17) Supplemental Unemployment Provides for payment of 1024 990 or 990-EZ No 2 9 3 Benefit Trusts supplemental unemployment compensation benefits 501(c)(18) Employee Funded Pension Trust Payment of benefits under a 1024 990 or 990-EZ No 7 2 9 3 (created before June 25, 1959) pension plan funded by employeesPage 70 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025501(c)(19) Post or Organization of Past or Activities implied by nature of organization 1024 990 or 990-EZ No, generally 2 9 8 Present Members of the Armed Forces 501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to satisfy 1024 990 No 7 5 their liability for disability or death due to black lung diseases

Publication 557 (1-2025) 69

Section of Application Annual return 1986 Code Description of organization General nature of activities Form required to be allowable filed

501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the 1024 990 or 990-EZ No 7 2 9 6 liability of employers withdrawing from a multi-employer pension fund 501(c)(23) Veterans' Organization (created To provide insurance and other 1024 990 or 990-EZ No, generally 7 2 9 8 before 1880) benefits to veterans 501(c)(25) Title Holding Corporations or Trusts with Holding title and paying over 1024 990 or 990-EZ No 2 9 Multiple Parent Corporations income from real property to 35 or fewer parents or beneficiaries 501(c)(26) State-Sponsored Organization Providing Provides health care coverage to high-risk 1024 990 or 990-EZ No 7 2 9 Health Coverage for High-Risk individuals Individuals 501(c)(27) State-Sponsored Workers' Reimburses members for losses 1024 990 or 990-EZ No 7 2 9 Compensation Reinsurance Organization under workers' compensation acts 501(c)(28) National Railroad Retirement Investment Manages and invests the assets of the 1024 990 No 12 12 Trust Railroad Retirement Account 501(c)(29) CO-OP health insurance issuers A qualified health insurance issuer which 1024 and Form 990 No 2 14 has received a loan or grant under the 8718 15 CO-OP program 501(d) Religious and Apostolic Associations Regular business activities; 1024 1065 No 10 3 Communal religious community 501(e) Cooperative Hospital Service Performs cooperative services for hospitals 1023 990 or 990-EZ Yes 2 9 501(f) Cooperative Service Organizations Performs collective investment 1023 990 or 990-EZ Yes 2 9 of Operating Educational Organizations services for educational organizations 501(k) Child Care Organizations Provides care for children 1023 990 or 990-EZ Yes 2 9 501(n) Charitable Risk Pools Pools certain insurance risks of sec. 501(c) 1023 990 or 990-EZ Yes 2 9 (3) organizations 501(q) Credit Counseling Organization Credit counseling services 1023 990 No 13 521(a) Farmers' Cooperative Associations Cooperative marketing and 1028 or 1024 1120-C No purchasing for agricultural procedures 527 Political organizations A party, committee, fund, 8871 1120-POL No 11 association, etc., that directly or indirectly 990 or 990-EZ 2 8 accepts contributions or makes expenditures for political campaigns Most 501(c) organizations, other than those described in sections 501(c)(3) (exceptions apply), (9), and (17), may, but are not required to, submit an application for recognition 1of tax-exempt status from the IRS. These organizations may self-declare their tax exempt status by operating within the requirements of the applicable code section and filing the required annual returns or notices. For exceptions to the filing requirement, see chapter 2 and the form instructions. Note: For annual tax periods beginning after 2006, most tax-exempt organizations, other than 2churches, are required to file an annual Form 990, 990-EZ, or 990-PF with the IRS or to submit an annual electronic notice, Form 990-N (e-Postcard), to the IRS. Tax-exempt organizations failing to file an annual return or submit an annual notice as required for 3 consecutive years will automatically lose their tax-exempt status. See form instructions as to which 990 series, and other series, forms, after the Taxpayer First Act, are required to be filed electronically. An organization exempt under a subsection of section 501 other than 501(c)(3) can establish a charitable fund, contributions to which are deductible. Such a fund must itself 3meet the requirements of section 501(c)(3) and the related notice requirements of section 508(a). Contributions to volunteer fire companies and similar organizations are deductible, but only if made for exclusively public purposes.4 Deductible as a business expense to the extent allowed by section 192.5 Deductible as a business expense to the extent allowed by section 194A. 6 Reserved7 Contributions to these organizations are deductible only if 90% or more of the organization's members are war veterans. 8 For limits on the use of Form 990-EZ, see chapter 2 and the general instructions for Form 990-EZ (or Form 990). 9 Although the organization files a partnership return, all distributions are deemed dividends. The members aren't entitled to pass through treatment of the organization's 10income or expenses. Form 1120-POL is required only if the organization has taxable income as defined in section 527(c). 11 Only required to annually file so much of the Form 990 that relates to the names and addresses of the officers, directors, trustees, and key employees, and their titles, 12compensation, and hours devoted to their positions (Part VII of Form 990), and to complete Item I in the Heading of Form 990 to confirm its tax-exempt status under section 501(c)(28). See section 501(q) if the organization provides credit counseling services and seeks recognition of exemption under section 501(c)(4). Use Form 1024-A if applying for 13recognition under section 501(c)(4). See section 501(c)(29) for details.14 See Rev. Proc. 2015-17, sec. 4.01, 2015-7 I.R.B. 599, as modified and superseded by Rev. Proc. 2022-8, for details.15Page 71 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025

70 Publication 557 (1-2025)

Appendix. Sample Articles of Organization

The following are examples of Articles of Incorporation (Draft A) and a declaration of trust (Draft B) that contain the required information as to purposes and powers of an organization and disposition of its assets upon dissolution. You should bear in mind that requirements for these instruments may vary under applicable state law. See Private Foundations and Public Charities, earlier for the special provisions required in a private foundation's governing instrument in order for it to qualify for exemption.

DRAFT A Articles of Incorporation of the undersigned, a majority of whom are citizens of the United States, desiring to form a

Non-Profit Corporation under the Non-Profit Corporation Law of , do hereby certify:

First: The name of the Corporation shall be . Second: The place in this state where the principal office of the Corporation is to be located is the City of

, County.

Third: Said corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including, for

such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.

Fourth: The names and addresses of the persons who are the initial trustees of the corporation are as follows:

Name , Address

Fifth: No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to its members, trustees,

officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of the purposes set forth in Article Third hereof. No substantial part of the activities of the corporation shall be the carrying on of propaganda, or otherwise attempting to influence legislation, and the corporation shall not participate in, or intervene in (including the publishing or distribution of statements) any political campaign on behalf of or in opposition to any candidate for public office. Notwithstanding any other provision of these articles, the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or (b) by a corporation, contributions to which are deductible under section 170(c)(2) of the Internal Revenue Code, or the corresponding section of any future federal tax code. If reference to federal law in articles of incorporation imposes a limitation that is invalid in your state, you may wish to substitute the following for the last sentence of the preceding paragraph: "Notwithstanding any other provision of these articles, this corporation shall not, except to an insubstantial degree, engage in any activities or exercise any powers that aren't in furtherance of the purposes of this corporation."

Sixth: Upon the dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the

meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes. In witness whereof, we have hereunto subscribed our names this day of , 20 .

Page 72 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025

Publication 557 (1-2025) 71

Appendix. Sample Articles of Organization, continued

Draft B

The Charitable Trust. Declaration of Trust made as of the day of , 20 , by , of , and , of , who hereby declare and agree that they have received this day from , as Donor, the sum of Ten Dollars ($10) and that they will hold and manage the same, and any additions to it, in trust, as follows:

First: This trust shall be called "The Charitable Trust." Second: The trustees may receive and accept property, whether real, personal, or mixed, by way of gift, bequest, or devise,

from any person, firm, trust, or corporation, to be held, administered, and disposed of in accordance with and pursuant to the provisions of this Declaration of Trust; but no gift, bequest, or devise of any such property shall be received and accepted if it is conditioned or limited in such manner as to require the disposition of the income or its principal to any person or organization other than a "charitable organization" or for other than "charitable purposes" within the meaning of such terms as defined in Article Third of this Declaration of Trust, or as shall, in the opinion of the trustees, jeopardize the federal income tax exemption of this trust pursuant to section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.

Third:

1. The principal and income of all property received and accepted by the trustees to be administered under this Declaration
   of Trust shall be held in trust by them, and the trustees may make payments or distributions from income or principal, or both, to or for the use of such charitable organizations, within the meaning of that term as defined in paragraph C, in such amounts and for such charitable purposes of the trust as the trustees shall from time to time select and determine; and the trustees may make payments or distributions from income or principal, or both, directly for such charitable purposes, within the meaning of that term as defined in paragraph D, in such amounts as the trustees shall from time to time select and determine without making use of any other charitable organization. The trustees may also make payments or distributions of all or any part of the income or principal to states, territories, or possessions of the United States, any political subdivision of any of the foregoing, or to the United States or the District of Columbia but only for charitable purposes within the meaning of that term as defined in paragraph D. Income or principal derived from contributions by corporations shall be distributed by the trustees for use solely within the United States or its possessions. No part of the net earnings of this trust shall inure or be payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of this trust shall be the carrying on of propaganda, or otherwise attempting to influence legislation. No part of the activities of this trust shall be the participation in, or intervention in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office.

2. The trust shall continue forever unless the trustees terminate it and distribute all of the principal and income, which action
   may be taken by the trustees in their discretion at any time. On such termination, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. The donor authorizes and empowers the trustees to form and organize a nonprofit corporation limited to the uses and purposes provided for in this Declaration of Trust, such corporation to be organized under the laws of any state or under the laws of the United States as may be determined by the trustees; such corporation when organized to have power to administer and control the affairs and property and to carry out the uses, objects, and purposes of this trust. Upon the creation and organization of such corporation, the trustees are authorized and empowered to convey, transfer, and deliver to such corporation all the property and assets to which this trust may be or become entitled. The charter, bylaws, and other provisions for the organization and management of such corporation and its affairs and property shall be such as the trustees shall determine, consistent with the provisions of this paragraph.

Page 73 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025

72 Publication 557 (1-2025)

1. In this Declaration of Trust and in any amendments to it, references to "charitable organizations" or "charitable
   organization" mean corporations, trusts, funds, foundations, or community chests created or organized in the United States or in any of its possessions, whether under the laws of the United States, any state or territory, the District of Columbia, or any possession of the United States, organized and operated exclusively for charitable purposes, no part of the net earnings of which inures or is payable to or for the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, and which don't 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. It is intended that the organization described in this paragraph C shall be entitled to exemption from federal income tax under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.

2. In this Declaration of Trust and in any amendments to it, the term "charitable purposes" shall be limited to and shall include
   only religious, charitable, scientific, literary, or educational purposes within the meaning of those terms as used in section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, but only such purposes as also constitute public charitable purposes under the law of trusts of the State of .

Fourth: This Declaration of Trust may be amended at any time or times by written instrument or instruments signed and

sealed by the trustees, and acknowledged by any of the trustees, provided that no amendment shall authorize the trustees to conduct the affairs of this trust in any manner or for any purpose contrary to the provisions of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code. An amendment of the provisions of this Article Fourth (or any amendment to it) shall be valid only if and to the extent that such amendment further restricts the trustees' amending power. All instruments amending this Declaration of Trust shall be noted upon or kept attached to the executed original of this Declaration of Trust held by the trustees.

Fifth: Any trustee under this Declaration of Trust may, by written instrument, signed and acknowledged, resign his office. The

number of trustees shall be at all times not less than two, and whenever for any reason the number is reduced to one, there shall be, and at any other time there may be, appointed one or more additional trustees. Appointments shall be made by the trustee or trustees for the time in office by written instruments signed and acknowledged. Any succeeding or additional trustee shall, upon his or her acceptance of the office by written instrument signed and acknowledged, have the same powers, rights, and duties, and the same title to the trust estate jointly with the surviving or remaining trustee or trustees as if originally appointed. None of the trustees shall be required to furnish any bond or surety. None of them shall be responsible or liable for the acts or omissions of any other of the trustees or of any predecessor or of a custodian, agent, depositary, or counsel selected with reasonable care. The one or more trustees, whether original or successor, for the time being in office, shall have full authority to act even though one or more vacancies may exist. A trustee may, by appropriate written instrument, delegate all or any part of his or her powers to another or others of the trustees for such periods and subject to such conditions as such delegating trustee may determine. The trustees serving under this Declaration of Trust are authorized to pay to themselves amounts for reasonable expenses incurred and reasonable compensation for services rendered in the administration of this trust, but in no event shall any trustee who has made a contribution to this trust ever receive any compensation thereafter.

Sixth: In extension and not in limitation of the common law and statutory powers of trustees and other powers granted in this

Declaration of Trust, the trustees shall have the following discretionary powers.

1. To invest and reinvest the principal and income of the trust in such property, real, personal, or mixed, and in such manner
   as they shall deem proper, and from time to time to change investments as they shall deem advisable; to invest in or retain any stocks, shares, bonds, notes, obligations, or personal or real property (including without limitation any interests in or obligations of any corporation, association, business trust, investment trust, common trust fund, or investment company) although some or all of the property so acquired or retained is of a kind or size which but for this express authority wouldn't be considered proper and although all of the trust funds are invested in the securities of one company. No principal or income, however, shall be loaned, directly or indirectly, to any trustee or to anyone else, corporate or otherwise, who has at any time made a contribution to this trust, nor to anyone except on the basis of an adequate interest charge and with adequate security.

2. To sell, lease, or exchange any personal, mixed, or real property, at public auction or by private contract, for such
   consideration and on such terms as to credit or otherwise, and to make such contracts and enter into such undertakings relating to the trust property, as they consider advisable, whether or not such leases or contracts may extend beyond the Page 74 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025duration of the trust.

Publication 557 (1-2025) 73

1. To borrow money for such periods, at such rates of interest, and upon such terms as the trustees consider advisable, and
   as security for such loans to mortgage or pledge any real or personal property with or without power of sale; to acquire or hold any real or personal property, subject to any mortgage or pledge on or of property acquired or held by this trust.

2. To execute and deliver deeds, assignments, transfers, mortgages, pledges, leases, covenants, contracts, promissory
   notes, releases, and other instruments, sealed or unsealed, incident to any transaction in which they engage.

3. To vote, to give proxies, to participate in the reorganization, merger, or consolidation of any concern, or in the sale, lease,
   disposition, or distribution of its assets; to join with other security holders in acting through a committee, depositary, voting trustees, or otherwise, and in this connection to delegate authority to such committee, depositary, or trustees and to deposit securities with them or transfer securities to them; to pay assessments levied on securities or to exercise subscription rights in respect of securities.

4. To employ a bank or trust company as custodian of any funds or securities and to delegate to it such powers as they deem
   appropriate; to hold trust property without indication of fiduciary capacity but only in the name of a registered nominee, provided the trust property is at all times identified as such on the books of the trust; to keep any or all of the trust property or funds in any place or places in the United States of America; to employ clerks, accountants, investment counsel, investment agents, and any special services, and to pay the reasonable compensation and expenses of all such services in addition to the compensation of the trustees.

Seventh: The trustees' powers are exercisable solely in the fiduciary capacity consistent with and in furtherance of the

charitable purposes of this trust as specified in Article Third and not otherwise.

Eighth: In this Declaration of Trust and in any amendment to it, references to "trustees" mean the one or more trustees,

whether original or successor, for the time being in office.

Ninth: Any person may rely on a copy, certified by a notary public, of the executed original of this Declaration of Trust held by

the trustees, and of any of the notations on it and writings attached to it, as fully as he might rely on the original documents themselves. Any such person may rely fully on any statements of fact certified by anyone who appears from such original documents or from such certified copy to be a trustee under this Declaration of Trust. No one dealing with the trustees need inquire concerning the validity of anything the trustees purport to do. No one dealing with the trustees need see to the application of anything paid or transferred to or upon the order of the trustees of the trust.

Tenth: This Declaration of Trust is to be governed in all respects by the laws of the State of .•Trustee •Trustee

Page 75 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025

74 Publication 557 (1-2025)

To help us develop a more useful index, please let us know if you have ideas for index entries. See "Comments and Suggestions" in the "Introduction" for the ways you can reach us.Index

Nondeductible 5768 46 contributions 20 M 6069 57

Quid pro quo contributions 16 8274 13AAcknowledgment of BMedical research Services available from 8282 16contributions 17 organization 32government 20 8283 16Adverse determination 6 Medicare and Medicaid Dispositions of donated 8300 18 payments 35Affordable Care Act:property 16 8718 4, 5 Membership fee 35, 40Hospitals 32Disqualified persons 43 8821 7 Modification of exemption 6Agricultural organization 49Domestic fraternal society 52 8871 14, 18 Mutual financial Airport 48Donor advised funds: 8872 14, 18 organization 56Alumni association 26Excess benefit transaction 61 990 9, 11, 18, 46 Mutual or cooperative Amateur athletic Dues used for political or association 55 990-BL 11, 57organizations 30legislative activities 21, 50 990-EZ 11Animals, prevention of cruelty Nto 30 990-PF 12, 31, 65EAppeal procedures 7 990-T 13 Notice:Educational organizations 26, Application procedures 4, 5 SS-4 5, 8 Notice 2014-4 4532Bylaws 5 W-2 13Employees' association 52Conformed copy 5 Fraternal beneficiary society 51 OEmployment taxes 13Description of activities 5 Fraternal societies 20, 51Endowment fund 32 One-third support test 33Employer identification Funeral benefit insurance 55Estimated tax 13 Organization assets 25number 5 Excess benefit transaction 61 Dedication 25Financial Unless you are filing GForm 1023-EZ, y 6Disqualified person 60, 62 Distribution 25 Gifts and contributions, public Organizing If you are submitting Controlled entity, 35% 62 Organization Reference charity 40a Form 1023 or Form 1024, Chart 69Family members 62 Governmental unit 32y 5 Organizational changes 21Substantial influence 62 Grant:Aquatic resources 49Disregarded benefits 63 Distinguished from gross Articles of organization 25 PDonor advised funds 61, 62 receipts 40Assistance (See Tax help)Excise tax 60 Penalties 13 Exclusion for unusual grant 36, Athletic organization 26, 30Initial contracts 63 39 Failure to allow public Attorney's fees 29Reasonable compensation 63 inspection 20 From public charity 35, 41Attribution, special rules 44Rebuttable presumption 63 Failure to disclose 17, 20, 21 Grantor and contributor, Excise tax: reliance on ruling 45 Failure to file 13Black lung benefit trust 57 Perpetual care organization 55 Gross receipts from Lobbying expenditures 47 nonmembership sources 51Black lung benefit trust 57 Political activity 21, 23, 48Political expenditures 47 Group exemption letter 8Board of trade 49 Political organization:Private foundations 31, 65Bureau defined 40 Income tax return 14 HExempt function 14Burial benefit insurance 55 Taxable income 14Exempt purposes 22Business income, unrelated 13 Power of attorney 5 Health coverage Exemption for terrorist Business league 49 Preferred stock 56 organization 58organization 5 Prevention of cruelty to children High-risk health coverage Extensions of time 23 or animals 30C organization 58 Private delivery service 23 Homeowners' association 48Cemetery company 55F Private foundations 30 Horticultural organization 49Chamber of commerce 49 Private operating foundation 45 Hospital 29, 32Facts and circumstances Change in legal structure 21 Private school 26test 33Charitable contributions 17, 22 I Prohibited tax shelter Fair market value, estimate Charitable organization 22, 28 transactions:of 17Charitable risk pools 28 Inactive organization 21 Entity managers 60Filing requirements 11Child care organization 22 Industrial development 48 Entity managers excise tax 60Annual information returns 11 Instrumentalities 22Children, prevention of cruelty Listed transaction 60Donee information return 16to 30 Insurance, organizations Prohibited reportable Due date 14Church 29 providing 28 transactions 60Employment tax 13Integrated auxiliaries 29 Subsequently listed Excise tax 31, 65 LCivic leagues 48 transaction 60Political organization 14Clinic 29 Tax-exempt entities 60 Labor organization 20, 49Private foundations 12CO-OP Health Insurance Public charity: Law, public interest 29Unrelated business income 13Issuers 59 Gifts and contributions 40 Legislative activity 46, 50Form 990-N 11College bookstore, Grant from 41 Listed transaction 60Forms 4restaurant 26 Section 509(a)(1) 31 Literary organizations 301023 4, 7, 8, 18, 23, 24, 26, 30, Community association 48 Section 509(a)(2) 3846, 48 Loans, organizations Community trust 37 Section 509(a)(3) 41 providing 291023-EZ 4, 23Contributions, charitable 17, 22 Section 509(a)(4) 45 Lobbying expenditures 461024 4, 18, 48-53, 55-58Court appeals 8 Support test 33, 381040 14 Local benevolent life insurance Credit union 56 associations 55 Public inspection:1065 11 Annual return 18 Local employees' 1120-POL 14D association 52Page 76 of 76 Fileid: … tion-557/202501/a/xml/cycle03/source 14:12 - 26-Feb-2025 Exemption applications 181128 22 Lodge system 51Determination letter 6 Forms 8871 and 8872 182848 5, 7Disclosures, required 16 Public-interest law firm 294720 47Dues used for lobbying 21 Publications (See Tax help)5578 28 Publication 557 (1-2025) 75

RScholarships 28 STitle-holding corporation 57Publicly supported Sports organization, organization 32, 33 amateur 30School, private 26

Attraction of public support 33 State-sponsored 58 U Scientific organizations 30

Ten-percent-of-support 33 High-risk health coverage Section 501(c)(3) organizations: Unemployment benefit trust 53 organization 58 Amateur athletic 30 Unrelated business income 13 Workers' compensation Literary 30 Unusual grants 36, 39 reinsurance organization 59 Prevention of cruelty 30Racial composition 26 User fee 5 Stock or commodity Private foundations 30 exchange 50Racially nondiscriminatory Public charities 31policy 26 V Supplemental unemployment Qualifications 22Real estate board 49 benefit trust 53 Veterans' organization 56 Religious 29 Support 34, 35Recognition of exemption, application 23 Scientific 30 Voluntary employees' Support test 33 beneficiary association 52Religious organizations 29 Section 501(c)(3) Facts and circumstances 33 Volunteer fire company 48 Organizations:Requests other than One-third 33applications 5 Charitable 28 Public charity 38 WResponsiveness test 43 Educational 26 Supporting organization 61Revocation of exemption 6 Single entity 38 War veterans' organization 56Ruling letter 6 Social clubs 20, 50 T Withdrawal of application 6 Social welfare organization 20, Withholding information from 48 Tax help 66 public 6 Specified organizations 42 Technical advice 7 Workers' compensation Scholarship: Testing for public safety 45 reinsurance organization 59Private school 28

76 Publication 557 (1-2025)