The FACTS about the 501c3

What does it mean to be a 501(c)(3) organization?
For charities, this means that they can accept contributions and offer donors a tax deduction for their gifts. For donors like you, this means your contributions are fully tax-deductible to the amount allowed by law.

What counts as a charitable organization?
A charitable organization is generally defined as any nonprofit organization that is incorporated and identified by the IRS as a 501(c)(3) organization. These organizations have been given tax-exempt status and can accept contributions. Dreamcitynw itself is a registered 501(c)(3) organization, as well as all of its one million charities.

Charitable events: For a charitable event, only a portion of the ticket value is deductible. The charity hosting the event will be able to identify the exact value of the benefits for each event.

How can I take a deduction for my donation?
To claim a deduction, you will need to fill out a 1040 Form, which is available through the IRS website, and itemize your deductions on Schedule A. If you fill out the short form or take standard deductions, you cannot claim your contributions.

Do I need a receipt for donations I make?
Taxable years beginning prior to the effective date of the Pension Protection Act of 2006, the IRS doesn’t require receipts for donations under $250, though it is a good idea to keep this information on file. For all donations made in taxable years beginning after the effective date of the Pension Protection Act of 2006, the IRS requires the donor to maintain the bank record or a written communication from the organization to which you donate. Every time you make a donation be sure to  record in your Giving History by the year, a feature that makes itemizing your taxes easy and convenient.

Do I need any acknowledgement for donations under $250?
Taxable years beginning prior to the effective date of the Pension Protection Act of 2006, the IRS doesn’t require receipts for donations under $250, though it is a good idea to keep this information on file. For donations made in taxable years beginning after the effective date of the Pension Protection Act of 2006, the IRS requires the donor to maintain the bank record or a written communication from the organization to which you donate. Always note the name of the organization, the donation amount, and the date of the contribution.

For donations over $250, what information does the receipt need?
The donor must maintain the bank record or a written communication from the organization to which you donate. The acknowledgment needs to record the name of the organization, the donation amount, and the date the contribution, as well as a written acknowledgement of any property or services that you may have received in return for your donation and an estimate of their value. The IRS should acknowledge an email receipt as an acceptable record of contribution, but to be certain, always consult your tax advisor.

Can I receive a tax deduction for a donation to a nonprofit overseas?
If you want to take a deduction for your donation, be sure to donate to a charity registered in the United States. That doesn’t mean you can’t give to an organization that has an international scope, such as CARE or Save the Children. You just have to make sure the charity is registered in the U.S. if you want to take the deduction.

Can I take a deduction for volunteering my time and services?
You cannot deduct the value of time or services to a charitable organization, but you can deduct any hard costs associated with that volunteering, such as the gas or bus fare it costs to get there. For example, if you volunteer in a charitable hospital and have to wear a uniform, you can deduct the cost of buying and cleaning the uniform. The IRS will let you deduct any out-of-pocket expenses you acquire in the course of volunteering.

Disclaimer: Office of Nonprofit Experts does not warrant or guarantee the accuracy, quality, completeness, or validity of any information it provides.

 

Generally, tax-exempt organizations must file an annual information return. Tax-exempt organizations that have annual gross receipts not normally in excess of $25,000 are not required to file the annual information return, but may be required to file annual electronic notice (e-Postcard) Form 990-N. In addition, churches and certain religious organizations, certain state and local instrumentalities, and other organizations are excepted from the annual return filing requirement. For more information, download Publication 557, Tax-Exempt Status for Your Organization. In addition, Publication 4221, Compliance Guide for 501(c)(3) Tax-Exempt Organizations, explains the filing and recordkeeping rules that apply to organizations that have tax-exempt status under section 501(c)(3).Tax-exempt organizations, other than private foundations, must file Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt From Income Tax. The Form 990-EZ is designed for use by small tax-exempt organizations and nonexempt charitable trusts. An organization may file Form 990-EZ, instead of Form 990, only if (1) its gross receipts during the year were less than $100,000, and (2) its total assets (line 25, Column (B) of Form 990-EZ) at the end of the year were less than $250,000. If your organization fails to meet either of these conditions, you cannot file Form 990-EZ. Instead you must file Form 990. All private foundations exempt under 501(c)(3) must file Form 990-PF, Return of Private Foundation.

Form 990, Form 990-EZ, or Form 990-PF must be filed by the 15th day of the 5th month after the end of your organization’s accounting period. The Form 990 and Form 990-EZ instructions and the Form 990-PF instructions indicate the ServiceCenter to which they must be sent.

A tax-exempt organization that fails to file a required return is subject to a penalty of $20 a day for each day the failure continues. The same penalty will apply if the organization fails to give correct and complete information or required information on its return. The maximum penalty for any one return is the lesser of $10,000 or 5 percent of the organization’s gross receipts for the year. If the organization has gross receipts in excess of $1,000,000, the penalties are increased to $100 per day with a maximum penalty of $50,000.

Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. An exempt organization that has $1,000 or more gross income from an unrelated business must file Form 990-T, Exempt Organization Business Income Tax Return. The obligation to file Form 990-T is in addition to the obligation to file the annual information return. Tax-exempt organizations must make quarterly payments of estimated tax on unrelated business income. An organization must make estimated tax payments if it expects its tax for the year to be $500 or more. The Form 990-T of a tax-exempt organization must be filed by the 15th day of the 5th month after the tax year ends. An employees’ trust must file Form 990-T by the 15th day of the 4th month after its tax year ends. A tax-exempt organization’s Form 990-T is not available for public inspection. For additional information, see the Form 990-T instructions or Publication 598, Tax on Unrelated Business Income of Exempt Organizations.

Every employer, including a tax-exempt organization, who pays wages to employees is responsible for withholding, depositing, paying, and reporting federal income tax, social security taxes (FICA), and federal unemployment tax (FUTA) for such wage payments, unless that employer is specifically excepted by statute from such requirements or if the taxes are clearly inapplicable. For more information, download Publication 15, Circular E, Employer’s Tax Guide, Publication 15-A, Employer’s Supplemental Tax Guide, Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return and Form 941, Employer’s Quarterly Federal Tax Return.

 

 

In general, a 501(c)(3) organization cannot “create” a 501(c)(9) organization, simply because neither organization can have an owner, so neither can be a subsidiary.

As you probably know, a 501(c)(3) organization is a “charitable organization”, which has a public benefit component. Such an organization has no “owners” and thus no shareholders.

A 501(c)(9) organization is a voluntary employees’ beneficiary association, which provides for the payment of life, sick, accident, or other benefits to its members and its members’ dependents or designated beneficiaries. It too has no owners or shareholders.

Can I apply for grants before Form 1023 is approved?

Technically, yes, but most foundations, government agencies and other funders, will require an organization to possess an approved IRS 501(c)(3) determination letter.

 


If my nonprofit is tax-exempt, do I pay any type of taxes?

Possibly. Private foundations may still be subject to taxes on investment earnings and undistributed minimum grant allocations. All 501(c)(3) organizations may be subject to taxes on “unrelated business income.” 501(c)(3) organizations that have employees are generally subject to federal and state employment taxes. Additionally, some states do not exempt 501(c)(3) organizations from sales and/or property taxes. It is important for the organization to know what is required in its state and locality.

 


 

 

Will my nonprofit be given a 501c3 number separate from its EIN?

No. Your EIN is the only number federally associated with your organization. If you apply for and receive sales tax-exemption in your state (if available), you may have a number issued by that state agency that is different from your EIN.

 


Once my nonprofit has been granted 501c3 status, what needs to be done to maintain that status?

At a minimum, the organization must continue to operate for the purposes for which it received tax exemption. In addition, certain federal and state compliance filings may be required. These vary by organization; therefore, it is imperative to get competent advice from your state.