This book is an indispensable guide to navigating the complex maze of nonprofit tax rules and regulations. A clear and fully cited description of the requirements for the various categories of tax-exempt entities from public charities, private foundations, civic associations, business leagues, and social clubs to title-holding companies and governmental entities can be found. Practical guidance on potential for income tax on revenue-producing enterprises along with explanations of many exceptions to taxability is provided. Issues raised by Internet activity, advertising, publishing, providing services, and much more are explained.
This useful guide covers the many significant issues facing nonprofit organizations, including compensation and possible private inurement, affiliation, separations and mergers, donor disclosures, lobbying and electioneering, and employment taxes.
- Offers a supplemental, annual update to keep subscribers current on relevant changes in IRS forms, requirements, and related tax procedures
- Includes easy-to-use checklists highlighting such critical concerns as tax-exempt eligibility, reporting to the IRS, and comprehensive tax compliance issues
- Features a variety of sample documents for private foundations, including penalty abatement requests and sharing space agreements
- Provides helpful practice aids, such as a comparison of the differences between public and private charities, charts reflecting lobbying limits for different types of entities, and listings of rulings and cases that illustrate permissible activity for each type of organizations compared to impermissible activity
Filled with practical tips and suggestions for handling such critical situations as preparing for and surviving an IRS examination, Tax Planning and Compliance for Tax-Exempt Organizations, Fifth Edition provides guidance for the significant issues facing nonprofit organizations.
Table of Contents
Preface ix
Part I Qualifications of Tax-Exempt Organizations 1
Chapter 2 Qualifying Under IRC 501(c)(3) 3
2.1 Organizational Test 3
2.2 Operational Test 4
Chapter 4 Charitable Organizations 7
4.1 Relief of the Poor 7
4.2 Promotion of Social Welfare 7
4.3 Lessening Burdens of Government 8
4.6 Promotion of Health 9
Chapter 5 Educational, Scientific, and Literary Purposes, and Prevention of Cruelty to Children and Animals 21
5.1 Educational Purposes 21
5.4 Testing for Public Safety 22
Chapter 6 Civic Leagues and Local Associations of Employees: 501(c)(4) 23
6.1 Comparison of (c)(3) and (c)(4) Organizations 23
6.2 Qualifying and Nonqualifying Civic Organizations 25
6.4 Neighborhood and Homeowner’s Associations 27
6.5 Disclosures of Nondeductibility 27
Chapter 7 Labor, Agricultural, and Horticultural Organizations: 501(c)(5) 29
7.2 Agricultural Groups 29
7.4 Disclosure of Nondeductibility 29
Chapter 8 Business Leagues: 501(c)(6) 31
8.2 Meaning of “Common Business Interest” 31
8.3 Line of Business 31
8.4 Rendering Services for Members 32
Chapter 9 Social Clubs: 501(c)(7) 35
9.1 Organizational Requirements and Characteristics 35
9.3 Membership Requirements 36
9.4 Revenue Tests 37
9.5 Unrelated Business Income Tax 37
Chapter 10 Instrumentalities of Government and Title-Holding Organizations 39
10.2 Governmental Units 39
10.3 Qualifying for 501(c)(3) Status 40
Chapter 11 Public Charities 43
11.1 Distinction between Public and Private Charities 43
11.2 “Inherently Public Activity” and Broad Public Support: 509(a)(1) 43
11.3 Community Foundations 47
11.6 Supporting Organizations: 509(a)(3) 51
Part II Standards for Private Foundations 63
Chapter 12 Private Foundations - General Concepts 65
12.2 Special Rules Pertaining to Private Foundations 65
12.4 Termination of Private Foundation Status 66
Chapter 13 Excise Tax Based on Investment Income: IRC 4940 73
13.1 Formula for Taxable Income 73
13.2 Capital Gains 74
13.2A Tax on Private Colleges and Universities 76
Chapter 14 Self-Dealing: IRC 4941 77
14.1 Definition of Self-Dealing 78
14.2 Sale, Exchange, or Lease of Property 78
14.3 Loans 81
14.4 Compensation 82
14.5 Transactions That Benefit Disqualified Persons 83
14.7 Sharing Space, People, and Expenses with Family Office 85
14.8 Indirect Deals 87
14.9 Property Held by Fiduciaries 87
14.10 Issues Once Self-Dealing Occurs 88
Chapter 15 Minimum Distribution Requirements: IRC 4942 89
15.1 Assets Used to Calculate Minimum Investment Return 89
15.2 Measuring Fair Market Value 90
15.4 Qualifying Distributions 91
15.6 Satisfying the Distribution Test 101
Chapter 16 Excess Business Holdings and Jeopardizing Investments: IRC §4943 and 4944 105
16.1 Excess Business Holdings 105
16.2 Jeopardizing Investments 108
16.3 Program-Related Investments 109
16.4 Penalty Taxes 111
Chapter 17 Taxable Expenditures: IRC 4945 113
17.1 Lobbying 113
17.3 Grants to Individuals 114
17.4 Grants to Public Charities 125
17.5 Grants to Foreign Organizations 132
17.8 Excise Taxes Payable 133
Part III Obtaining and Maintaining Tax-Exempt Status 157
Chapter 18 IRS Filings, Procedures, and Policies 159
18.1 IRS Determination Process 159
18.2 Annual Filing of Forms 990 169
18.3 Reporting Organizational Changes to the IRS 176
18.4 Weathering an IRS Examination 177
18.5 When an Organization Loses Its Tax-Exempt Status 178
Chapter 19 Maintaining Exempt Status 197
19.1 Checklists 197
Chapter 20 Private Inurement and Intermediate Sanctions 203
20.1 Defining Inurement 204
20.2 Salaries and Other Compensation 205
20.4 Finding Salary Statistics 205
20.8 Services Rendered for Individuals 206
20.10 Intermediate Sanctions 206
Chapter 21 Unrelated Business Income 209
21.1 IRS Scrutiny of Unrelated Business Income 209
21.4 Definition of Trade or Business 210
21.5 What Is Unrelated Business Income? 211
21.7 “Substantially Related” 211
21.8 Unrelated Activities 213
21.10 Income Modifications 216
21.11 Calculating and Minimizing Taxable Income 217
21.12 Debt-Financed Property 223
21.13 Museums 224
21.15 Publishing 224
Chapter 23 Electioneering and Lobbying 225
23.1 Election Campaign Involvement 225
23.2 Voter Education versus Candidate Promotion 225
Chapter 24 Deductibility and Disclosures 227
24.1 Overview of Deductibility 227
24.2 Substantiation and Quid Pro Quo Rules 232
Chapter 25 Employment Taxes 233
25.2 Ministers 233
Index 239
