CHARITIES/NONPROFITS/TRUSTS

Charities, Nonprofits, & Trusts

EXEMPT ORGANIZATION TYPES

Charitable Organizations

Organizations organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes and that meet certain other requirements are tax exempt under Internal Revenue Code Section 501(c)(3).

Churches and Religious Organizations

Churches and religious organizations, like many other charitable organizations, may qualify for exemption from federal income tax under Section 501(c)(3).

Private Foundations

Every organization that qualifies for tax-exempt status under Section 501(c)(3) is classified as a private foundation unless it meets one of the exceptions listed in Section 509(a). Private foundations typically have a single major source of funding (usually gifts from one family or corporation rather than funding from many sources) and most have as their primary activity the making of grants to other charitable organizations and to individuals, rather than the direct operation of charitable programs.

Political Organizations

A political organization subject to Section 527 is a party, committee, association, fund or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function.

Other Nonprofits

Organizations that meet specified requirements may qualify for exemption under subsections other than 501(c)(3). These include social welfare organizations, civic leagues, social clubs, labor organizations and business leagues.

ANNUAL FILING AND FORMS

In general, exempt organizations are required to file annual returns, although there are exceptions. If an organization does not file a required return or files late, the IRS may assess penalties. In addition, if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status.

Effective for tax years beginning after July 1, 2019, the Taxpayer First Act, Pub. L. No. 116-25 Section 2301, requires organizations exempt from taxation under section 501(a) to file their annual Form 990 and Form 990-PF returns electronically, unless covered by one of the exceptions listed in the form instructions. Form 990-EZ filers are required to file electronically for tax years ending July 31, 2021, and later. IRS: Recent legislation requires tax exempt organizations to e-file forms contains a summary of e-filing requirements.

The IRS sends back Form 990 series returns filed on paper – and rejects electronically filed returns – when they are materially incomplete or the wrong return. If we send back your organization's return, follow the instructions in the accompanying letter and on Filing procedures – incomplete returns.

The most common errors causing the return of a Form 990 series returns are missing or incomplete schedules.

Information Reporting

Who Must File

Any person or business that makes reportable payments must file information returns. This includes corporations, partnerships, and individuals engaged in trade or business activities.

Threshold for Electronic Filing

Starting January 1, 2024, businesses that file 10 or more information returns in a calendar year must file them electronically. This is a significant change from the previous threshold of 250 returns.

Most information returns, such as Form W-2 and Form 1099-NEC, must be furnished to recipients by January 31 of the following year.

The deadline for filing these returns with the IRS is also January 31 for Form 1099-NEC, while other forms like 1099-MISC are due by the last day of February if filed on paper, or by March 31 if filed electronically.

Obtaining TIN
Payers must obtain the recipient's Taxpayer Identification Number (TIN) to ensure accurate reporting. This is typically done using Form W-9, which the recipient completes and submits to the payer.

Penalties for Non-Compliance
Failure to file correct information returns on time can result in penalties. The penalties vary based on how late the return is filed and whether the failure to file was intentional. For example, penalties can range from $60 to $310 per return, depending on the circumstances.

TAX EXEMPT ORGANIZATION SEARCH

Tax Exempt Organization Search Tool

You can check an organization's eligibility to receive tax-deductible charitable contributions (Pub 78 Data). You can also search for information about an organization's tax-exempt status and filings:

Form 990 Series Returns
Form 990-N (e-Postcard)
Pub. 78 Data
Automatic Revocation of Exemption List
Determination Letters

Tax Exempt Organization Search Bulk Data Downloads

You can download the latest data sets of information about tax-exempt organizations:

Pub. 78 Data
Automatic Revocation of Exemption List
Form 990-N (e-Postcard)
Form 990 Series

Cumulative Data Files

he Exempt Organizations Business Master File Extract has information about organizations that have received a determination of tax-exempt status from IRS. This information is available by state and region for downloading.

EDUCATION SESSIONS FROM IRS

IRS Exempt Organizations offers specialized education programs to help exempt organizations understand their tax responsibilities.

Webinars - Review archived EO tax law programs from your computer
Virtual workshops - Small and Medium-Sized Exempt Organizations - online programs on exempt organizations tax issues
Nationwide Tax Forums - Latest word from IRS leadership and other experts in the exempt organizations tax law field
Requesting Educational Services - How to request speakers for your organization’s events

TRUST RETURN FILING

The fiduciary of a domestic decedent's estate, trust, or bankruptcy estate files Form 1041 to report:

The income, deductions, gains, losses, etc. of the estate or trust.
The income that is either accumulated or held for future distribution or distributed currently to the beneficiaries.
Any income tax liability of the estate or trust.
Employment taxes on wages paid to household employees.

Decedent's Estate

The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic estate that has:

Gross income for the tax year of $600 or more
OR a beneficiary who is a nonresident alien
OR if you held a qualified investment in a QOF at any time during the year, you must file your return with Form 8997 attached. See the Form 8997 instructions.

An estate is a domestic estate if it isn't a foreign estate. A foreign estate is one the income of which is from sources outside the United States that isn't effectively connected with the conduct of a U.S. trade or business and isn't includible in gross income. If you are the fiduciary of a foreign estate, file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, instead of Form 1041.

Trust

The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has:

Any taxable income for the tax year
OR gross income of $600 or more (regardless of taxable income)
OR a beneficiary who is a nonresident alien
OR if you held a qualified investment in a QOF at any time during the year, you must file your return with Form 8997 attached. See the Form 8997 instructions.

Two or more trusts are treated as one trust if the trusts have substantially the same grantor(s) and substantially the same primary beneficiary/ies and a principal purpose of such trusts is avoidance of tax. This provision applies only to that portion of the trust that is attributable to contributions to corpus made after March 1, 1984.

A trust is a domestic trust if:

A U.S. court is able to exercise primary supervision over the administration of the trust (court test)
AND one or more U.S. persons have the authority to control all substantial decisions of the trust (control test).

See Regulations section 301.7701-7 for more information on the court and control tests.

Also treated as a domestic trust is a trust (other than a trust treated as wholly owned by the grantor) that:

Was in existence on August 20, 1996;
Was treated as a domestic trust on August 19, 1996; and
Elected to continue to be treated as a domestic trust.

A trust that isn't a domestic trust is treated as a foreign trust. If you are the trustee of a foreign trust, file Form 1040-NR instead of Form 1041. Also, a foreign trust with a U.S. owner must generally file Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

If a domestic trust becomes a foreign trust, it is treated under section 684 as having transferred all of its assets to a foreign trust, except to the extent a grantor or another person is treated as the owner of the trust when the trust becomes a foreign trust.

CLOTAX

Tax & Accounting Service