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What 501(c)(3) Charities need to know about Form 990 Filing?


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An Overview of 501(c)(3) Tax-Exempt Status and IRS Form 990 Filing Requirements for Charities.

- Updated April 21, 2023 - 10.00 AM Admin, ExpressTaxExempt

IRS recognizes the charities under the section 501(c)(3) as tax-exempt. This type of Organization does not pay income tax on its earnings or on the donations it receives. But the Organizations need to file the activities with the IRS.

This article further explores the requirements for charity activities, applying for a tax-exempt status, filing requirements, and more.

1. What are Charities?

Charities or charitable organizations are nonprofit organizations that work for social well-being rather than profits. The charitable organizations operate solely for the welfare of the public. The primary purpose of these charities is to serve charitable, educational, scientific, or other similar purposes.

The organizations that are usually considered as a public charity are churches, hospitals, schools, and other similar organizations. Many of these public charities rely on donations and contributions made to them by the general public. A public charity will always actively work to support the operations of other charitable organizations.

Many of these public charities rely on donations and contributions made to them by the general public.

2. Examples of non-profit charitable organizations

Some of the organizations that can be qualified as non-profit charitable organizations are:

  • Churches and associations of churches.
  • Educational Organizations.
  • Hospitals.
  • Organizations that are affiliated with hospitals.
  • Medical research centers and its affiliates.
  • Governmental units dedicated to charitable purposes.

3. What are 501(c)(3) charity activities?

The primary purpose of a charitable organization is to work for the social well-being of the public. Non-Profit organizations are given their tax-exempt status based on their primary purpose.

The non-profit organizations that fall under section 501(c)(3) are normally classified as Charitable organizations and Private Foundations. Section 501(c)(3) organizations are given tax-exempt status.

The charitable organizations usually conduct fundraising programs to receive a lot of contributions. The majority of the contributions and donations made to the public charities are by the public. These contributions are used by charitable organizations to carry out their charitable operations.

4. What is the difference between public charity and private foundation?

Every exempt charitable organization is classified as either a public charity or a private foundation. Generally, organizations that are classified as public charities are those that:

  • Are churches, hospitals, or are qualified medical research organizations affiliated with hospitals and schools
  • Have an active program of fundraising and receive contributions from many sources
  • Receive income from activities that further the organization’s exempt purpose(s)
  • Organizations that are affiliated with hospitals.
  • Actively function in a supporting relationship to one or more existing public charities.

Private foundations typically have a single major source of funding. Their activities are also primarily to make grants to other charitable organizations and to individuals, rather than directly operating a charitable program.

5. How to apply 501(c)(3) status for charities?

You can acquire 501(c)(3) tax exemption by filing IRS Form 1023. There are two key requirements for an organization to be exempt from federal income tax under section 501(c)(3). A 501(c)(3) organization must be organized as a corporation, trust, or an unincorporated association, with its organization document defining the organization's purpose(s). The organization must also permanently dedicate its assets to exempt purposes, and operate to further one or more of the exempt purposes stated in its organization document.

6. What are the requirements for exemption?

In order to be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization needs to be organized and operated for exempt purposes exclusively. None of the organization's earnings may inure to any private shareholder or individual. Additionally, the organizations may not act for and as a political organization to influence legislation as a part of its functioning activities.

7. What is the power of attorney?

According to the IRS, if your organization is represented by a third party, you need to file a power of attorney authorizing the individual to represent your organization. Form 2848, Power of Attorney and Declaration of Representative, should be used for this purpose. If you want the third party to be able to receive information about your case, but not to represent you, use Form 8821, Tax Information Authorization, instead of Form 2848.

8. What is the unrelated business income tax?

Even if your organization is tax exempt, it may still be responsible for tax on its unrelated business income. Most of the time, unrelated business income is income that is not substantially related to the tax exempt purpose that is the basis of the organization's exemption.

Form 990pf mailing address

9. 990 Filing requirements for Charities

A charitable organization needs to be approved by the IRS under section 501(c)(3) to file the Form 990 series. An organization has to file Form 1023 with the IRS for it to be eligible for the tax-exempt status. The organization has to be operated exclusively for its tax-exempt purposes.

The filing of Form 990 depends upon the gross receipts of the charitable organization:

Form 990-N:

Tax-exempt charitable organizations that have gross receipts of $50,000 or less can file a Form 990-N (e-Postcard) if they chose not to file Form 990 or
Form 990-PF. Organizations whose gross receipts vary from year to year can file
a Form 990-N if the average of their gross receipts is $50,000 or less for the previous three consecutive years.

Form 990-EZ:

Tax-exempt charitable organizations whose gross receipts are lesser than $200,000 and total assets less than $500,000 at the end of the taxable year are supposed to file Form 990-EZ.

Form 990:

Tax-exempt charitable organizations whose gross receipts are equal to or higher than $200,000 and total assets equal to or greater than $500,000 at the end of the taxable year are supposed to file Form 990.

If your Organization is determined as a Private Foundation, you must
file Form 990-PF.

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