Publication 557 (Rev. January 2024)

Contents

What's New .................. 2

Reminders ................... 2

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)

Organizations ............ 22

Application for Recognition of

Exemption .............. 23

Articles of Organization ........ 25

Department

of the

Treasury

Internal

Revenue

Service

Publication 557

(Rev. January 2024)

Cat. No. 46573C

Tax-Exempt

Status for Your

Organization

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Educational Organizations and

Private Schools ........... 26

Organizations Providing

Insurance .............. 28

Other Section 501(c)(3)

Organizations ............ 28

Private Foundations and Public

Charities ............... 30

Lobbying Expenditures ........ 46

Chapter 4. Other Section 501(c)

Organizations ............. 48

501(c)(4) - Civic Leagues and

Social Welfare Organizations ... 48

501(c)(5) - Labor, Agricultural,

and Horticultural

Organizations ............ 49

501(c)(6) - Business Leagues,

etc. .................. 49

501(c)(7) - Social and

Recreation Clubs .......... 50

501(c)(8) and 501(c)(10) -

Fraternal Beneficiary

Societies and Domestic

Fraternal Societies ......... 51

501(c)(4), 501(c)(9), and 501(c)

(17) - Employees'

Associations ............ 52

501(c)(12) - Local Benevolent

Life Insurance Associations,

Mutual Irrigation and

Telephone Companies, and

Like Organizations ......... 53

501(c)(13) - Cemetery

Companies ............. 55

501(c)(14) - Credit Unions and

Other Mutual Financial

Organizations ............ 56

501(c)(19) - Veterans'

Organizations ............ 56

501(c)(21) - Black Lung Benefit

Trusts ................ 57

501(c)(2) - Title-Holding

Corporations for Single

Parent Corporations ........ 57

501(c)(25) - Title-Holding

Corporations or Trusts for

Multiple Parent Corporations ... 58

501(c)(26) - State-Sponsored

High-Risk Health Coverage

Organizations ............ 58

501(c)(27) - Qualified

State-Sponsored Workers'

Compensation Organizations ... 59

501(c)(29) - CO-OP Health

Insurance Issuers ......... 59

Chapter 5. Excise Taxes ......... 60

Prohibited Tax Shelter

Transactions ............ 60

Excess Benefit Transactions ..... 60

Excess Business Holdings ...... 63

Taxable Distributions of

Sponsoring Organizations ..... 64

Taxes on Prohibited Benefits

Resulting from Donor

Advised Fund Distributions .... 65

Excise Taxes on Private

Foundations ............. 65

Excise Taxes on Black Lung

Benefit Trusts ............ 65

Excise Tax on Failure To Meet

the Community Health

Needs Assessment

Requirements ........... 65

Excise Tax on Executive

Compensation ........... 65

Excise Tax on Net Investment

Income of Certain Colleges

and Universities .......... 65

How To Get Tax Help ............ 66

Organization Reference Chart ...... 69

Appendix. Sample Articles of

Organization .............. 70

Appendix. Sample Articles of

Organization, continued ....... 72

Index ..................... 75

What's New

Future developments. The IRS has created a

page on IRS.gov for information about Publica-

tion 557, at IRS.gov/Pub557. Information about

any future developments affecting Publication

557 (such as legislation enacted after we re-

lease it) will be posted on that page.

Reminders

Electronic Form 1024. As of January 3, 2022,

Form 1024, Application for Recognition of Ex-

emption Under Section 501(a) or Section 521,

must be submitted for electronic filing on

Pay.gov. As part of the revision, applications for

recognition of exemption under Sections 501(c)

(11), (14), (16), (18), (21), (22), (23), (26), (27),

(28), (29), and 501(d) can no longer be submit-

ted as letter applications. Instead, these re-

quests must be made on the electronic Form

1024.

Also, organizations requesting determina-

tions under Section 521 are now able to use the

electronic Form 1024 instead of Form 1028, Ap-

plication for Recognition of Exemption Under

Section 521.

Update on mandatory e-filing. The Taxpayer

First Act, enacted July 1, 2019, requires tax-ex-

empt organizations to electronically file informa-

tion returns and related forms. The new law af-

fects tax-exempt organizations in tax years

beginning after July 1, 2019.

•

Forms 990-T and 4720 are available for

e-filing in 2022. In 2020, the IRS contin-

ued to accept paper Form 990-T, Exempt

Organization Business Income Tax Return,

and Form 4720, Return of Certain Excise

Taxes Under Chapters 41 and 42 of the In-

ternal Revenue Code, pending conversion

into electronic format. As described below,

in 2021, the IRS announced e-filing is re-

quired for these forms.

For Form 990-T, any 2020, and any fu-

ture year Form 990-T with a due date on or

after April 15, 2021, must be filed electroni-

cally and not on paper.

For Form 4720, any 2020, and any fu-

ture year, Form 4720 filed by a private

foundation with a due date on or after July

15, 2021, must be filed electronically and

not on paper. Organizations other than pri-

vate foundations that are required to file

Form 4720 are encouraged, but not re-

quired, to file Form 4720 electronically.

•

Forms 990, 990-EZ, and 990-PF e-filing.

Form 990, Return of Organization Exempt

From Income Tax, and Form 990-PF, Re-

turn of Private Foundation or Section

4947(a)(1) Trust Treated as Private Foun-

dation, for tax years ending July 31, 2020,

and later MUST be filed electronically.

Form 990-EZ, Short Form Return of Or-

ganizations Exempt from Income Tax, for

tax years ending July 31, 2021, and later

MUST be filed electronically. The transi-

tional relief applicable to the Form 990-EZ

under which the IRS accepted either paper

or electronic filing of Form 990-EZ applied

only for tax years ending before July 31,

2021.

More information on software providers

is available on the Exempt Organizations

Modernized e-File (MeF) Providers page.

For more information, go to IRS: Recent

legislation requires tax exempt

organizations to e-file forms.

Section 501(c)(21) trusts. Form 990-BL, In-

formation and Initial Excise Tax Return for Black

Lung Benefit Trusts and Certain Related Per-

sons, will be a historical form beginning with tax

year 2021. Section 501(c)(21) trusts can no lon-

ger file Form 990-BL and will file Form 990 (or

submit Form 990-N, if eligible) to meet their an-

nual filing obligations under section 6033. Some

section 501(c)(21) trusts may also be required

to file Form 6069, Return of Certain Excise

Taxes on Mine Operators, Black Lung Trusts,

and Other Persons Under Sections 4951, 4952,

and 4953.

Reporting of donor information (Form 990,

990-EZ, and 990-PF). Final regulations pro-

vide that the requirement to report contributor

names and addresses on annual returns gener-

ally applies only to returns filed by Section

501(c)(3) organizations and Section 527 politi-

cal organizations. All tax-exempt organizations

must continue to maintain the names and ad-

dresses of their substantial contributors in their

books and records.

IRS not accepting requests for group ex-

emption numbers. The IRS will not accept

any requests for group exemption letters start-

ing on June 17, 2020, until publication of the fi-

nal revenue procedure or other guidance in the

Internal Revenue Bulletin. See Notice 2020-36.

Automatic revocation. Regarding automatic

revocation for the failure to file a return or notice

for 3 consecutive years, as required by section

6033, the Taxpayer First Act of 2019, P.L.

116-25, added a requirement that the IRS notify

the organization after the organization has failed

to file for 2 consecutive years. See Automatic

Revocation, later, for more information, includ-

ing applicability dates.

Electronic Form 1023. Form 1023, Applica-

tion for Recognition of Exemption under Section

501(c)(3) of the Internal Revenue Code, is avail-

able only as an electronic form filed on Pay.gov.

Form 1023-EZ, Streamlined Application, is al-

ready on Pay.gov.

Tax on investment income of private foun-

dations. The Taxpayer Certainty and Disaster

Tax Relief Act of 2019, reduced the 2% excise

tax on investment income of private foundations

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2 Publication 557 (1-2024)

to 1.39%. At the same time, the legislation re-

pealed the 1% special rate that applied if the

private foundation met certain distribution re-

quirements. The change is effective for taxable

years beginning after December 20, 2019.

Increase in UBTI for disallowed fringe re-

pealed. The Taxpayer Certainty and Disaster

Tax Relief Act of 2019 retroactively repealed In-

ternal Revenue Code Section 512(a)(7), which

increased unrelated business taxable income

by amounts paid or incurred for qualified trans-

portation fringes. Congress had previously

enacted this provision for amounts paid or in-

curred after December 31, 2017.

Excise tax on executive compensation.

Section 4960, added by P.L. 115-97, effective

for tax years beginning after December 17,

2017, imposes an excise tax on an organization

that pays to any covered employee more than

$1 million in remuneration or pays an excess

parachute payment during the year starting in

2018. See Excise Tax on Executive Compensa-

tion, chapter 5. See also section 4960 and Form

4720, Return of Certain Excise Taxes Under

Chapters 41 and 42 of the Internal Revenue

Code, for more information.

Excise tax on net investment income of cer-

tain colleges and universities. Section 4968

imposes an excise tax on the net investment in-

come of certain private colleges and universi-

ties. See Excise Tax on Net Investment Income

of Certain Colleges and Universities, chapter 5.

See also section 4968 and Form 4720, Return

of Certain Excise Taxes Under Chapters 41 and

42 of the Internal Revenue Code, for more infor-

mation.

Separate UBTI calculation for each trade or

business. Organizations with more than one

unrelated trade or business must compute unre-

lated business taxable income (UBTI), including

for purposes of determining any net operating

loss deduction, separately with respect to each

such trade or business. See Unrelated Busi-

ness Income Tax Return, chapter 2. See also

Schedule A (Form 990-T). The UBTI with re-

spect to any such trade or business shall not be

less than zero when computing total UBTI.

Exception from the excise tax on excess

business holdings. Section 4943(g) created

an exception from the excise tax on excess

business holdings for certain independently op-

erated enterprises whose voting stock is wholly

owned by a private foundation. For more details,

see Excess Business Holdings, chapter 5.

Organizational changes. For tax years begin-

ning on or after January 1, 2018, the IRS will no

longer require a new exemption application from

a domestic section 501(c) organization that un-

dergoes certain changes of form or place of or-

ganization, as described in Rev. Proc. 2018-15,

2018-9 I.R.B. 379.

Group exemptions. Beginning January 2019,

the IRS will no longer send the List of Parent

and Subsidiary Accounts to the central organi-

zations. See Group Exemption Letter, later.

Form 8976. Each new section 501(c)(4) organ-

ization must notify the IRS of its intent to oper-

ate as a section 501(c)(4) organization regard-

less of whether it will seek recognition of its

exempt status under section 501(c)(4). Use

Form 8976, Notice of Intent to Operate Under

Section 501(c)(4), to provide this notification.

Form 8976 may only be completed and submit-

ted electronically at: Electronically Submit Your

Form 8976, Notice of Intent to Operate Under

Section 501(c)(4).

Forms, instructions, and publications. All

IRS forms, instructions and publications men-

tioned in this publication can be accessed on

IRS.gov from the Forms and Instructions page.

Introduction

This publication discusses the rules and proce-

dures for organizations that seek recognition of

exemption from federal income tax under sec-

tion 501(a) of the Internal Revenue Code (the

Code). It explains the procedures you must fol-

low to obtain an appropriate determination letter

recognizing your organization's exemption, as

well as certain other information that applies

generally to all exempt organizations. To qualify

for exemption under the Code, your organiza-

tion must be organized for one or more of the

purposes specifically designated in the Code.

Organizations that are exempt under section

501(a) include those organizations described in

section 501(c). Section 501(c) organizations

are covered in this publication.

Chapter 1, Application, Approval, and Ap-

peal Procedures, provides general information

about the procedures for obtaining recognition

of tax-exempt status.

Chapter 2, Filing Requirements and Re-

quired Disclosures, contains information about

annual filing requirements and other matters

that may affect your organization's tax-exempt

status.

Chapter 3, Section 501(c)(3) Organizations,

contains detailed information on various matters

affecting section 501(c)(3) organizations, in-

cluding a section on the determination of private

foundation status.

Chapter 4, Other Section 501(c) Organiza-

tions, includes separate sections for specific

types of organizations described in section

501(c).

Chapter 5, Excise Taxes, provides informa-

tion on when excise taxes may be imposed.

Chapter 6, How to Get Tax Help, provides

tips and resources on where to find answers to

tax questions or other assistance.

Organizations not discussed in this publi-

cation. Certain organizations that may qualify

for exemption aren't discussed in detail in this

publication, although they are included in the

Organization Reference Chart and the applica-

tion procedures discussed in Chapter 1. These

organizations (and the Code sections that apply

to them) are as follows:

Corporations organized under Acts of

Congress

....................... 501(c)(1)

Teachers' retirement fund associations ... 501(c)(11)

Mutual insurance companies .......... 501(c)(15)

Corporations organized to finance crop

operations ...................... 501(c)(16)

Employee funded pension trusts (created

before June 25, 1959) .............. 501(c)(18)

Withdrawal liability payment fund ....... 501(c)(22)

Veterans' organizations (created before

1880) .......................... 501(c)(23)

National Railroad Retirement Investment

Trust .......................... 501(c)(28)

Religious and apostolic associations .... 501(d)

Cooperative hospital service

organizations .................... 501(e)

Cooperative service organizations of

operating educational organizations ..... 501(f)

Section 501(c)(24) organizations (section

4049 ERISA trusts) are neither discussed in the

text nor listed in the Organization Reference

Chart.

Similarly, farmers' cooperative associations

that qualify for exemption under section 521,

qualified state tuition programs described in

section 529, qualified ABLE programs descri-

bed in section 529A, and pension, profit-shar-

ing, and stock bonus plans described in section

401(a) aren't discussed in this publication. Visit

IRS.gov for more information on these types of

organizations. For telephone assistance, call 1–

877–829–5500.

Check the Table of Contents at the begin-

ning of this publication to determine whether

your organization is described in this publica-

tion. If it is, read the chapter (or section) that ap-

plies to your type of organization for the specific

information you must give when applying for

recognition of exemption.

Organization Reference Chart. The Organi-

zation Reference Chart enables you to locate at

a glance the section of the Code under which

your organization might qualify for exemption. It

also shows the required application form and, if

your organization meets the exemption require-

ments, the annual return to be filed (if any), and

whether or not a contribution to your organiza-

tion will be deductible by a donor. It also de-

scribes each type of qualifying organization and

the general nature of its activities.

You may use the Organization Reference

Chart to identify the Code section that you think

applies to your organization. Any correspond-

ence with the IRS (in requesting forms or other-

wise) can be responded to faster if you indicate

in your correspondence the appropriate Code

section. Check the IRS website, IRS.gov, for the

latest updates, Tax Information for Charities &

Other Non-Profits.

Comments and suggestions. We welcome

your comments about this publication and your

suggestions for future editions.

You can send us comments through

IRS.gov/FormComments. Or, you can write to

Internal Revenue Service, Tax Forms and Publi-

cations, 1111 Constitution Ave. NW, IR-6526,

Washington, DC 20224.

Although we can’t respond individually to

each comment received, we do appreciate your

feedback and will consider your comments as

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Publication 557 (1-2024) 3

we revise our tax forms, instructions, and publi-

cations. Don’t send tax questions, tax returns,

or payments to the above address.

Getting answers to your tax questions.

If you have a tax question not answered by this

publication or How to Get Tax Help section at

the end of this publication, go to the IRS Inter-

active Tax Assistant page at IRS.gov/Help/ITA

where you can find topics using the search fea-

ture or by viewing the categories listed.

Getting tax forms, instructions, and pub-

lications. Visit IRS.gov/Forms to download

current and prior-year forms, instructions, and

publications.

Ordering tax forms, instructions, and

publications. Go to IRS.gov/OrderForms to or-

der current forms, instructions, and publica-

tions; call 800-829-3676 to order prior-year

forms and instructions. The IRS will process

your order for forms and publications as soon

as possible. Don’t resubmit requests you’ve al-

ready sent us. You can get forms and publica-

tions faster online.

Application,

Approval, and

Appeal

Procedures

Introduction

If your organization is one of the organizations

described in this publication and is seeking rec-

ognition of tax-exempt status from the IRS, you

should follow the procedures described in this

chapter and the instructions that accompany

the appropriate application forms.

For information on section 501(c)(3) organi-

zations, go to Section 501(c)(3) Organizations,

chapter 3. If your organization is seeking ex-

emption under one of the other paragraphs of

section 501(c), see chapter 4.

Topics

This chapter discusses:

•

Application procedures that generally

apply to all organizations discussed in this

publication, including the application

forms;

•

Determination letters (approvals/

disapprovals);

•

Appeal procedures available if an adverse

determination letter is proposed; and

•

Group exemption letters.

Application Procedures

Oral requests for recognition of exemption won't

be considered by the IRS. Your application for

recognition of tax-exempt status must be in writ-

ing using the appropriate forms, as discussed

below.

Forms Required

If your organization is seeking recognition of ex-

emption from federal income tax, it must use a

specific application prescribed by the IRS in

Rev. Proc. 2024-5, I.R.B 256. If your organiza-

tion is a central organization with exempt status,

see Group Exemption Letter, later. All applica-

tions must be signed by an authorized individ-

ual.

Form 1023, Application for Recognition of

Exemption Under Section 501(c)(3) of the

Internal Revenue Code. File Form 1023 if you

are seeking recognition of exemption under

section:

•

501(c)(3) Corporations, organized and op-

erated exclusively for religious, charitable,

scientific, testing for public safety, literary,

or educational purposes, or to foster na-

tional or international amateur sports, or

prevention of cruelty for children or ani-

mals, including the following types of or-

ganizations to which the specified subsec-

tions are applicable;

•

501(e) Cooperative hospital service organ-

ization;

•

501(f) Cooperative service organization of

operating educational organizations;

•

501(k) Certain organizations providing

child care;

•

501(n) Charitable risk pools;

•

501(q) Credit counseling organizations,

and

•

501(r) Hospital organizations.

Applications for exempt status on a Form

1023 must be electronically submitted through

Pay.gov. See Rev. Proc. 2024-5.

Form 1023-EZ, Streamlined Application for

Recognition of Exemption Under Section

501(c)(3) of the Internal Revenue Code. You

may be eligible to file Form 1023-EZ if you are a

smaller organization (assets of $250,000 or less

and annual gross receipts of $50,000 or less)

seeking recognition of exemption under section

501(c)(3). See Rev. Proc. 2024-5.

Applications for exempt status on a Form

1023-EZ must be electronically submitted

through Pay.gov.

Form 1024, Application for Recognition of

Exemptions Under Section 501(a) or Sec-

tion 521 of the Internal Revenue Code. File

Form 1024 if you are seeking recognition of ex-

emption under section:

•

501(c)(2) Title holding corporations;

•

501(c)(5) Labor, agricultural, or horticul-

tural organizations;

•

501(c)(6) Business leagues, chambers of

commerce, etc.;

•

501(c)(7) Social clubs;

•

501(c)(8) Fraternal beneficiary societies,

orders, or associations;

•

501(c)(9) Voluntary employees’ beneficiary

associations;

•

501(c)(10) Domestic fraternal societies, or-

ders, etc.;

•

501(c)(11) Teachers’ Retirement Fund As-

sociations;

•

501(c)(12) Benevolent life insurance asso-

ciations, mutual ditch or irrigation compa-

nies, mutual or cooperative telephone

companies;

•

501(c)(13) Cemetery companies;

•

501(c)(14) State-Chartered Credit Unions,

Mutual Reserve Funds;

•

501(c)(15) Mutual insurance companies or

associations;

•

501(c)(16) Cooperative Organizations to

Finance Crop Operations;

•

501(c)(17) Trusts providing for the payment

of supplemental unemployment compen-

sation benefits;

•

501(c)(18) Employee Funded Pension

Trust (created before June 25, 1959);

•

501(c)(19) A post, organization, auxiliary

unit, etc. of past or present members of the

Armed Forces of the United States;

•

501(c)(21) Black Lung Benefit Trusts;

•

501(c)(22) Withdrawal Liability Payment

Fund;

•

501(c)(23) Veterans’ Organization (created

before 1880);

•

501(c)(25) Title holding corporations or

trusts;

•

501(c)(26) State-Sponsored Organization

Providing Health Coverage for High-Risk

Individuals;

•

501(c)(27) State-Sponsored Workers’

Compensation Reinsurance Organization;

•

501(c)(28) National Railroad Retirement

Investment Trust;

•

501(c)(29) CO-OP health insurance issu-

ers, and

•

501(d) Religious and Apostolic Associa-

tions.

Also, organizations requesting determinations

under Section 521 are now able to use the elec-

tronic Form 1024 instead of Form 1028, Appli-

cation for Recognition of Exemption Under Sec-

tion 521 of the Internal Revenue Code

As of January 3, 2022, applications for ex-

empt status on a Form 1024 must be electroni-

cally submitted through Pay.gov.

Form 1024-A, Application for Recognition of

Exemption Under Section 501(c)(4) of the

Internal Revenue Code. File Form 1024-A if

you are seeking recognition of exemption under

section 501(c)(4).

Submitting Form 1024-A does not satisfy an

organization’s requirement to notify the Com-

missioner that it is operating under section

501(c)(4), as required by section 506. See

IRS.gov for information on satisfying the notifi-

cation requirement using Form 8976, Notice of

Intent to Operate Under Section 501(c)(4).

Form 1024-A, Application for Recognition of

Exemption Under Section 501(c)(4), must be

filed electronically on Pay.gov.

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4 Chapter 1 Application, Approval, and Appeal Procedures Publication 557 (1-2024)

Form 1028, Application for Recognition of

Exemption Under Section 521 of the Inter-

nal Revenue Code. Use Form 1028, Applica-

tion for Recognition of Exemption Under Sec-

tion 521 of the Internal Revenue Code, if your

organization is a farmers’ cooperative seeking

recognition of exemption under section 521.

You must also submit Form 8718.

Alternatively, organizations requesting deter-

minations under Section 521 are now able to

use the electronic Form 1024 instead of Form

1028.

Form 8871, Political Organization Notice of

Section 527 Status. Use Form 8871, Political

Organization Notice of Section 527 Status, if

you are a political organization seeking to be

treated as tax-exempt under section 527 unless

an exception applies. See Political Organization

Income Tax Return, later.

Some organizations don’t have to use spe-

cific application forms. The application your or-

ganization must use is specified in the chapter

in this publication dealing with your kind of or-

ganization. It is also shown in the Organization

Reference Chart, later.

Form 8871 must be filed at the IRS Political

Organizations Filing and Disclosure site.

Power of attorney. If your organization ex-

pects to be represented by an individual such

as an attorney, CPA, officer or other person au-

thorized to practice before the IRS, whether in

person or by correspondence, you must file a

Form 2848, Power of Attorney and Declaration

of Representative, with your exemption applica-

tion. The power of attorney must specifically au-

thorize an individual to represent your organiza-

tion. You can't name an organization, firm, etc.

as your representative. Form 2848 can be used

for this purpose. The categories of individuals

who can represent you before the IRS are listed

on the form.

Form 8940, Request for Miscellaneous De-

termination. You can request miscellaneous

determinations under sections 507, 509(a),

4940, 4942, 4945, and 6033 using Form 8940.

Nonexempt charitable trusts also file Form 8940

for an initial determination of section 509(a)(3)

status or change to their type. See Form 8940

and instructions for more information.

Requests other than applications.

Requests other than applications for

recognition of exemption or Form 8940

(for example, requests for letter rulings involving

feeder organizations, application of excise taxes

to activities of private foundations, taxation of

unrelated business income, etc.) should be sent

to the appropriate address listed in Rev. Proc.

2024-1, 2024-1 I.R.B. 1.

These requests, similar to applications for

recognition of exemption previously discussed,

must be accompanied by the appropriate user

fee. The schedule for user fees, including those

for requests other than applications, can be

found in Rev. Proc. 2024-1.

Exempt Organization (EO) Determinations

can request technical advice from the Office of

Associate Chief Counsel (Employee Benefits,

Exempt Organizations, and Employment Taxes)

on any question that can't be resolved on the

basis of law, regulations, or a clearly applicable

revenue ruling or other published precedent.

See section 3, Rev. Proc. 2024-5.

Reminder. The law requires payment of a user

fee for determination letter requests. Go to Rev.

Proc. 2024-1, Appendix A, to find the required

payment. Payment must accompany each re-

quest.

Non-exemption for terrorist organizations.

An organization that is identified or designated

as a terrorist organization within the meaning of

section 501(p)(2) isn't eligible to apply for rec-

ognition of exemption.

User fee. The law requires the payment of a

user fee for determination letter requests such

as your application for recognition of tax-exempt

status. User fees are listed in Rev. Proc. 2024-1,

Appendix A. If you are filing Form 1023, Form

1023-EZ, Form 1024 or 1024-A, the user fee

must be submitted through Pay.gov.

For the current user fee amount and

other information about applying for

tax-exempt status, go to IRS.gov and

select “Charities and Non-Profits” from the but-

tons near the top. Next, select “Applying for

Tax-Exempt Status” for more information. You

can also call 1-877-829-5500.

Required Information and

Documents

Employer identification number (EIN). Ev-

ery exempt organization must have its own EIN,

whether or not it has any employees. An EIN is

required before an exemption application is

submitted. Information on how to apply for an

EIN can be found online at Employer ID

Numbers (EIN). The EIN is issued immediately

once the application information is validated.

If you previously applied for an EIN and

haven't yet received it, or you are unsure

whether you have an EIN, please call our

toll-free customer account services number,

1-877-829-5500, for assistance.

Organizing documents. If you are submitting

an application other than Form 1023-EZ, your

application should include a copy of the organ-

izing or enabling document that is signed by a

principal officer or is accompanied by a written

declaration signed by an authorized individual

certifying that the document is a complete and

accurate copy of the original or meets the re-

quirements of a conformed copy in Rev. Proc.

2011-9, section 3.08(5). If you are submitting a

Form 1023-EZ, you don’t need to include a

copy of your organizing documents with the ap-

plication. However, you may be asked to pro-

vide it during the application review process.

If your organizing or enabling document are

articles of incorporation, include evidence that it

was filed and approved by a state official. (For

example, a stamped “Filed” copy dated by the

Secretary of State is prima facie evidence that it

was filed and approved by a state official.) A

copy of the articles of incorporation can also be

submitted with a written declaration signed by

an authorized individual indicating the copy is

TIP

complete and was filed and approved by the

state, including the date filed.

If you are formed as a limited liability com-

pany and have adopted an operating agree-

ment, submit the operating agreement along

with your state-approved articles of organiza-

tion.

If your organization's name has been offi-

cially changed by an amendment to your organ-

izing instruments, you should also attach a con-

formed copy of that amendment to your

application.

Conformed copy. A conformed copy is a

copy that agrees with the original and all

amendments to it. If the original document re-

quired a signature, the copy should either be

signed by a principal officer or, if not signed, be

accompanied by a written declaration signed by

an authorized officer of the organization. With

either option, the officer must certify that the

document is a complete and accurate copy of

the original. A certificate of incorporation should

be approved and dated by an appropriate state

official.

Bylaws. Bylaws alone aren't organizing

documents. However, if your organization has

adopted bylaws, include a current copy. The by-

laws need not be signed if submitted as an at-

tachment.

Bylaws may be considered an organiz-

ing document only if they are properly

structured (includes name, purpose,

signatures, and intent to form an organization).

Attachments. When submitting attachments,

every attachment should show your organiza-

tion's name and EIN. It should also state that it

is an attachment to your application form and

identify the part and line item number to which it

applies.

Original documents. Don't submit original

documents because they become part of the

IRS file and can't be returned.

Description of activities. Your application

must include a full description of the proposed

activities of your organization, including each of

the fundraising activities of a section 501(c)(3)

organization and a narrative description of an-

ticipated receipts and contemplated expendi-

tures. When describing the activities in which

your organization expects to engage, you must

include the standards, criteria, procedures, or

other means that your organization adopted or

planned for carrying out those activities.

To determine the information you need to

provide, you should study the part of this publi-

cation that applies to your organization. The ap-

propriate chapter will describe the purposes

and activities that your organization must pur-

sue, engage in, and include in your application

in order to achieve exempt status.

Often, your organization's articles of organi-

zation (or other organizing instruments) contain

descriptions of your organization's purposes

and activities.

Your application should describe completely

and in detail your past, present, and planned

activities.

If you are filing Form 1023-EZ, also review

the Instructions for Form 1023-EZ for more

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Publication 557 (1-2024) Chapter 1 Application, Approval, and Appeal Procedures 5

information about what to include in your de-

scription.

Financial data. Unless you are filing Form

1023-EZ, you must include in your application a

statement of revenues and expenses for the

number of years specified in the applicable form

instructions. For each accounting period, you

must describe the sources of your receipts and

the nature of your expenditures. You must also

include a balance sheet for your most recently

completed tax year or if you haven’t completed

a full tax year, the most current information

available.

If you haven't yet begun operations, or have

operated for less than 1 year, a proposed

budget for 2 full accounting periods and a cur-

rent statement of assets and liabilities will be

acceptable.

Exempt status established in application. If

your application and its supporting documents

show that your organization meets the require-

ments for tax-exempt status under the Code

section you applied, the IRS will issue a favora-

ble determination letter.

Miscellaneous Procedures

To help in processing your application, be sure

to attach all schedules, statements, and other

documents required by the application form. If

you don’t attach them, you may have to resub-

mit your application or you may otherwise en-

counter a delay in processing your application.

Incomplete application. If an application isn't

complete and doesn't contain all the required

attachments found under Required Inclusions,

the IRS will return it to you for completion. The

IRS will no longer request the missing informa-

tion if the application is incomplete. However,

the IRS may, but is not required to, request ad-

ditional information to validate information pre-

sented or to clarify an inconsistency on a Form

1023-EZ. See Rev. Proc. 2024-5, 2024–1 I.R.B.

256.

If the IRS returns the application or requests

additional information from you, that application

will be considered filed on the date the substan-

tially completed application is postmarked, or if

no postmark, received at the IRS.

For applications that are returned to the ap-

plicant because they aren't complete, the user

fee will be returned or refunded.

Additional information may be requested if

necessary to clarify the nature of your organiza-

tion.

IRS responses. Organizations that success-

fully submit Form 1023, Form 1023-EZ, Form

1024, or Form 1024-A on Pay.gov will receive

an email from Pay.gov confirming payment of

the user fee. Organizations that submit a com-

plete Form 1024 application will receive an ac-

knowledgment from the IRS. In addition, any

applicant may receive a letter requesting addi-

tional information the IRS needs to make its de-

termination. These letters will be sent out as

soon as possible after receipt of the organiza-

tion's application.

Withdrawal of application. An organization

may withdraw an application at any time before

the issuance of a determination letter upon the

written request of a principal officer or author-

ized representative of your organization. How-

ever, the withdrawal won't prevent the informa-

tion contained in the application from being

used by the IRS in any subsequent examination

of your organization's returns. The information

forwarded with an application won't be returned

to your organization and, generally, when an ap-

plication is withdrawn, the user fee paid won't

be refunded.

Requests for withholding of information

from the public. The law requires many ex-

empt organizations and private foundations to

make their application forms and annual infor-

mation returns available for public inspection.

The law also requires the IRS to make available

for public inspection, in accordance with section

6104 and the related regulations, your approved

application for recognition of exemption (includ-

ing any papers submitted in support of the ap-

plication) and the determination letter (dis-

cussed later, under Determination Letters).

Any information submitted in the application

or in support of it that relates to any trade se-

cret, patent, process, style of work, or appara-

tus, upon request, can be withheld from public

inspection if the IRS determines that the disclo-

sure of such information would adversely affect

the organization. Your request must:

1. Identify the material to be withheld (the

document, page, paragraph, and line) by

clearly marking it “Not Subject to Public

Inspection.”

2. Explain why the information is of the type

that can be withheld from public inspec-

tion.

3. Be filed with the office where your organi-

zation files the documents in which the

material to be withheld is contained.

Where to file. Submit Form 1023, 1023-EZ,

1024, or 1024-A through Pay.gov.

EO Determinations will consider your com-

plete application and will issue you a favorable

determination letter, an adverse letter denying

the exempt status requested in your application

or, if you are asked to provide supplemental in-

formation and fail to respond, may close your

case without making a determination if you

don't respond to a request for additional infor-

mation. EO Determinations will also close your

case without a determination if you withdraw

your request.

Determination Letters

Public charity status. A new section 501(c)

(3) organization will be classified as a publicly

supported organization and not a private foun-

dation if it can show when it applies for tax-ex-

empt status that it reasonably can be expected

to be publicly supported.

An organization must describe fully the ac-

tivities in which it expects to engage. This in-

cludes standards, procedures, or other means

adopted or planned by the organization for car-

rying out its activities, expected sources of

funds, and the nature of its contemplated ex-

penses.

Adverse determination. A proposed adverse

determination letter will be issued to an organi-

zation that has not provided sufficiently detailed

information to establish that it qualifies for ex-

emption or if the information provided estab-

lishes that it doesn't qualify for exemption. An

organization can appeal a proposed adverse

determination letter. See Appeal Procedures,

later.

Expedited handling. Exempt organization de-

termination letter requests may be eligible for

expedited handling under section 4.09 of Rev.

Proc. 2024-5.

Effective Date of Exemption

A determination letter recognizing exemption is

usually effective as of the date of formation

of an organization if, the organization submit-

ted the application for recognition of exemption

within 27 months from the end of the month in

which it was organized and during the period

before the date of the determination letter, its

purposes and activities are consistent with the

requirements for exempt status under the appli-

cable section of 501(c). Upon obtaining recog-

nition of exemption, the organization can file a

claim for a refund of income taxes paid for the

period for which its exempt status is recognized.

An organization that does not submit its ap-

plication for exemption within that 27-month pe-

riod but otherwise meets the requirements for

tax-exempt status will be recognized as exempt

from the postmark date of application or the

submission date of its Form 1023, Form 1024,

Form 1023-EZ, or Form 1024-A, if applicable.

See Rev. Proc. 2024-5.

If an organization is required to alter its activ-

ities or substantially amend its charter to qualify,

the determination letter recognizing exemption

will be effective as of the date specified in

the letter. If a nonsubstantive amendment is

made, such as correction of a clerical error in

the enabling instrument or the addition of a dis-

solution clause, exemption will ordinarily be rec-

ognized as of the date of formation if the activi-

ties of the organization before the determination

are consistent with the exemption requirements.

A determination letter recognizing exemp-

tion can't be relied on if there is a material

change, inconsistent with exemption, in the

character, the purpose, or the method of opera-

tion of the organization. Also, a determination

letter can't be relied on if it is based on any

omission or inaccurate material information

submitted by the organization. See section 11

of Rev. Proc. 2024-5.

For more information about the effective

date of exemption, see Rev. Proc. 2024-5, sec-

tion 6.

Revocation of Exemption

A determination letter recognizing exemption

may be revoked by:

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6 Chapter 1 Application, Approval, and Appeal Procedures Publication 557 (1-2024)

1. A notice to the organization to which the

determination letter originally was issued,

2. Enactment of legislation or ratification of a

tax treaty,

3. A decision of the United States Supreme

Court,

4. Issuance of temporary or final regulations,

5. Issuance of a revenue ruling, a revenue

procedue, or other statement published in

the Internal Revenue Bulletin or Cumula-

tive Bulletin.

6. Section 6033(j), for failure to file a required

annual return or notice, for 3 consecutive

years, automatically.

When revocation takes effect. If the organi-

zation omitted or misstated material informa-

tion, operated in a manner materially different

from that originally represented, or, with regard

to organizations to which section 503 applies,

engaged in a prohibited transaction (such as di-

verting corpus or income from its exempt pur-

pose), or if there has been a change in the ap-

plicable law, the revocation or modification may

be retroactive.

Material change in organization. If there is a

material change, inconsistent with exemption, in

the character, purpose, or method of operation

of the organization, revocation or modification

will ordinarily take effect as of the date of that

material change. An organization may seek re-

lief from retroactive revocation or modification of

a determination letter under section 7805(b).

For more information on requesting section

7805(b) relief, see section 12 of Rev. Proc.

2024-5

Relief from retroactivity. If a determina-

tion letter was issued in error or the IRS

changed its position after issuing a letter, and if

section 7805(b) relief is granted, retroactivity of

the revocation ordinarily will be limited to a date

not earlier than that on which the original deter-

mination letter was revoked.

Foundations. The determination of the ef-

fective date is the same for the revocation or

modification of foundation status or operating

foundation status unless the effective date is ex-

pressly covered by statute or regulations.

Written notice. If the IRS concludes, as a re-

sult of examining an information return or con-

sidering information from any other source, that

a determination letter should be revoked or

modified, the organization will be advised in

writing of the proposed action and the reasons

for it.

The organization will also be advised of its

right to protest the proposed action by request-

ing Independent Office of Appeals considera-

tion. The appeal procedures are discussed

next.

Appeal Procedures

If your organization applies for recognition of

tax-exempt status and Rulings and Agreements

determines your organization doesn't qualify for

exemption, your organization will be advised of

its rights to protest the determination by re-

questing Independent Office of Appeals consid-

eration. Your organization must submit a state-

ment of its views fully explaining its reasoning.

The statement must be submitted within 30

days from the date of the proposed adverse de-

termination letter and must state whether your

organization wishes Independent Office of Ap-

peals consideration.

Representation. A principal officer or trustee

can represent an organization at any level of ap-

peal within the IRS. Also, an attorney, CPA, or

individual enrolled to practice before the IRS

can represent the organization.

If the organization's representative attends a

conference without a principal officer or trustee,

the representative must file a proper power of

attorney or a tax information authorization be-

fore receiving or inspecting confidential informa-

tion. Form 2848 or Form 8821, Tax Information

Authorization, as appropriate (or any other

properly written power of attorney or authoriza-

tion), can be used for this purpose. These forms

are available on IRS.gov from the Forms and In-

structions page. For more information, see Pub-

lication 947, Practice Before the IRS and Power

of Attorney, which is also available on IRS.gov

from the Forms and Instructions page.

Independent Office of

Appeals Consideration

Before forwarding a case to the Independent

Office of Appeals, Rulings and Agreements will

consider the applicant’s statement protesting

and appealing (hereinafter appealing) the pro-

posed adverse determination. If the organiza-

tion does not submit the information that pro-

vides a basis for Rulings and Agreements to

reconsider its adverse determination, it will for-

ward the appeal and case file to the Independ-

ent Office of Appeals. For more information

about the role of the Independent Office of Ap-

peals, see Publication 892, How to Appeal an

IRS Decision on Tax-Exempt Status. The ap-

peal should include the following information.

1. The organization's name, address, day-

time telephone number, and employer

identification number.

2. A statement that the organization wants to

protest the determination.

3. A copy of the letter showing the determi-

nation you disagree with, or the date and

IRS office symbols on the determination

letter.

4. A statement of facts supporting the organi-

zation's position in any contested factual

issue.

5. A statement outlining the law or other au-

thority the organization is relying on.

6. A statement as to whether a conference at

the Independent Office of Appeals is de-

sired.

The statement of facts in item 4 must be de-

clared true under penalties of perjury. This may

be done by adding to the protest the following

signed declaration:

“Under penalties of perjury, I declare that I

have examined the statement of facts

presented in this protest and in any

accompanying schedules and statements and,

to the best of my knowledge and belief, it is

true, correct, and complete.”

Signature.

If the organization's representative submits the

appeal, a substitute declaration must be inclu-

ded, stating:

1. That the representative prepared the ap-

peal and accompanying documents, and

2. Whether the representative knows person-

ally that the statements of fact contained in

the appeal and accompanying documents

are true and correct.

Be sure the appeal contains all of the infor-

mation requested. Incomplete appeals will be

returned for completion.

The Independent Office of Appeals, after

any requested conference and upon considera-

tion of the organization's appeal, as well as in-

formation presented in any conference held, will

generally notify the organization of its decision

and issue an appropriate determination letter.

An adverse decision can be appealed to the

courts (discussed later). If new information is

submitted during Independent Office of Appeals

consideration, the matter may be returned to

Rulings and Agreements for further considera-

tion. See section 9 of Rev. Proc. 2024-5 for

more information.

The Independent Office of Appeals must re-

quest technical advice on any exempt organiza-

tion issue concerning qualification for exemp-

tion or foundation status for which there is no

published precedent or for which there is rea-

son to believe that nonuniformity exists. If an or-

ganization believes that its case involves such

an issue, it should ask the Independent Office

of Appeals to request technical advice.

Any determination letter issued on the basis

of technical advice can't be appealed to the In-

dependent Office of Appeals for those issues

that were the subject of the technical advice.

Administrative Remedies

In the case of an application under section

501(c) or 501(d) and exempt from tax under

501(a), all of the following actions, called ad-

ministrative remedies, must be completed by

your organization before an unfavorable deter-

mination letter from the IRS can be appealed to

the courts.

1. The filing of the correct completed applica-

tion or group exemption request under

section 501(c), or 501(d) and exempt from

tax under 501(a) (described earlier in this

chapter) or the filing of a request for a de-

termination of foundation status (see Pri-

vate Foundations and Public Charities in

chapter 3).

2. In the case of a late-filed application, re-

questing relief under Regulations section

301.9100 regarding applications for exten-

sions of time for making an election or ap-

plication for relief from tax (see Application

for Recognition of Exemption in chapter 3).

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Publication 557 (1-2024) Chapter 1 Application, Approval, and Appeal Procedures 7

3. The timely submission of all additional in-

formation requested to perfect an exemp-

tion application or request for determina-

tion of private foundation status.

4. Exhaustion of all administrative appeals

available within the IRS.

The actions just described won't be consid-

ered completed until the IRS has had a reason-

able time to act upon the appeal or protest, as

the case may be.

An organization won't be considered to have

exhausted its administrative remedies before

the earlier of:

1. The completion of the steps just listed and

the sending by certified or registered mail

of a notice of final determination, or

2. The expiration of the 270-day period in

which the IRS has not issued a notice of fi-

nal determination and the organization has

taken, in a timely manner, all reasonable

steps to secure a ruling or determination.

270-day period. The 270-day period will be

considered by the IRS to begin on the date a

completed application, or group exemption re-

quest is sent or submitted to the IRS. See

Appli-

cation Procedures, earlier, for information nee-

ded to complete the application form.

If the application doesn't contain all of the re-

quired items, it won't be further processed and

may be returned to the applicant for completion.

The 270-day period, in this event, won't be con-

sidered as starting until the date the application

is remailed to the IRS with the requested infor-

mation, or, if a postmark isn't evident, on the

date the IRS receives a completed application.

Appeal to Courts

If the IRS issues an unfavorable determination

letter to your organization and you have exhaus-

ted all the administrative remedies just dis-

cussed, your organization can seek judicial

remedies.

For example, if your organization has paid

the tax resulting from the adverse determination

and met all other statutory prerequisites, it can

file suit for a refund in a U.S. District Court or the

U.S. Court of Federal Claims. Or, if your organi-

zation elected not to pay the tax deficiency re-

sulting from the adverse determination and met

all other statutory prerequisites, it can file suit

for a redetermination of the tax deficiencies in

the United States Tax Court. For more informa-

tion on these types of suits, get Publication 556,

Examination of Returns, Appeal Rights, and

Claims for Refund.

In certain situations, your organization can

file suit for a declaratory judgment in the U.S.

District Court for the District of Columbia, the

U.S. Court of Federal Claims, or the U.S. Tax

Court. This remedy is available if your organiza-

tion received an adverse notice of final determi-

nation, or if the IRS failed to make a timely de-

termination on your initial or continuing

qualification or classification as an exempt or-

ganization. However, your exempt status claim

must be as:

•

An organization qualifying under section

501(c) or 501(d) and exempt from tax un-

der 501(a),

•

An organization to which a deduction for a

contribution is allowed under section

170(c)(2),

•

An organization that is a private foundation

under section 509(a),

•

A private operating foundation under sec-

tion 4942(j)(3), or

•

A cooperative organization that is exempt

from tax under section 521.

Adverse notice of final determination. The

adverse notice of final determination referred to

above is a determination letter sent by certified

or registered mail holding that your organiza-

tion:

•

Isn't described in section 501(c) or 501(d)

and exempt from tax under 501(a), or sec-

tion 170(c)(2);

•

Is a private foundation and not a public

charity described in a part of section 509 or

section 170(b)(1)(A);

•

Is not a private operating foundation, as

defined in section 4942(j)(3); or

•

Is a public charity described in a part of

section 509(a) or section 170(b)(1)(A)

other than the part under which your or-

ganization requested classification.

Favorable court rulings - IRS procedure. If a

suit results in a final determination that your or-

ganization is exempt from tax, the IRS will issue

a favorable determination letter, provided your

organization has filed an application for exemp-

tion and submitted a statement that the underly-

ing facts and applicable law are the same as in

the period considered by the court.

Group Exemption Letter

A group exemption letter is a determination let-

ter issued to a central organization recognizing

on a group basis the exemption under section

501(c) of subordinate organizations on whose

behalf the central organization has applied for

recognition of exemption.

A central organization is an organization that

has one or more subordinates under its general

supervision or control. A subordinate organiza-

tion is a chapter, local, post, or unit of a central

organization.

A subordinate organization may or may not

be incorporated, but it must have an organizing

document and it must have its own taxpayer

identification number (EIN). A subordinate that

is organized and operated in a foreign country

can't be included in a group exemption letter. A

subordinate described in section 501(c)(3) can't

be included in a group exemption letter if it is a

private foundation described in section 509(a).

If your organization is a subordinate control-

led by a central organization (for example, a

church, a veterans' organization, or a fraternal

organization), you should check with the central

organization to see if it has been issued a group

exemption letter that covers your organization. If

it has, you don’t have to file a separate applica-

tion unless your organization no longer wants to

be included in the group exemption letter.

If the group exemption letter doesn't cover

your organization, ask your central organization

about being included in the next annual group

ruling update that it submits to the IRS.

See Publication 4573, Group Exemptions,

for additional general information about group

exemption. Go to the Charities & Nonprofits

page on IRS.gov for Group Exemption Resour-

ces for the most current information and up-

dates.

Central Organization

Application Procedure

Note: The content about the Central Organ-

ization Application Procedure is included here

for informational purposes. However, as stated

in Notice 2020-36, IRB 2020-21, 840 and Rev.

Proc. 2024-5, IRB 2024-1, 256, the IRS is not

accepting any requests for group exemption let-

ters until publication of the final revenue proce-

dure described in the Notice or other guidance

in the Internal Revenue Bulletin.

If your organization is a central organization

with affiliated subordinates under its control, it

can apply for a group exemption letter for its

subordinates, provided it has obtained recogni-

tion of its own exemption. A central organization

obtains recognition of its own exemption by

submitting Form 1023 or 1023-EZ, 1024, or

1024-A, as described in their instructions, with

the appropriate user fee. You request the group

exemption letter for the central organization’s

subordinates by letter rather than a specific ap-

plication form. The issuance of the group ex-

emption letter relieves each of the covered sub-

ordinates from filing its own application.

A central organization that has previously

obtained recognition of its own exemption must

indicate its employer identification number and

the date of the letter recognizing its exemption,

but need not forward documents already sub-

mitted. However, if it has not already done so,

the central organization must submit a copy of

any amendment to its governing instruments or

internal regulations as well as any information

about changes in its character, purposes, or

method of operation.

Employer identification number. Each sub-

ordinate must have its own EIN, even if it has no

employees. When submitting its group exemp-

tion application, the central organization must

provide an EIN for each subordinate organiza-

tion.

Information required for subordinate organ-

izations. The exempt central organization re-

quests the group ruling letter. The central or-

ganization must submit information for

subordinates it will include in the group exemp-

tion letter. The information should be forwarded

in a letter signed by a principal officer of the

central organization setting forth or including as

attachments the following.

1. Information verifying that the subordinates:

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8 Chapter 1 Application, Approval, and Appeal Procedures Publication 557 (1-2024)

a. Are affiliated with the central organiza-

tion at the close of its annual account-

ing period;

b. Are subject to its general supervision

or control;

c. Are all eligible to qualify for exemption

under the same paragraph of section

501(c), though not necessarily the

paragraph under which the central or-

ganization itself is exempt;

d. If described in section 501(c)(3),

aren’t private foundations;

e. Are all on the same accounting period

as the central organization if they are

to be included in group returns (de-

scribed later); and

f. If described in section 501(c)(3), are

organizations that have been formed

within the 15-month period preceding

the date of submission of the group

exemption application if they are sub-

ject to the requirements of section

508(a) and wish to be recognized as

exempt from their dates of creation . If

one or more of the subordinates

haven't been organized within the

15-month period, a group ruling may

be issued if all subordinates are will-

ing to be recognized as exempt only

from the date of application.

2. A detailed description of the purposes and

activities of the subordinates, including the

sources of receipts and the nature of ex-

penditures.

3. A sample copy of a uniform governing in-

strument (such as articles of incorpora-

tion or articles of association) adopted by

the subordinates, or, in its absence, copies

of representative instruments.

4. An affirmation to the effect that, to the best

of the officer's knowledge, the purposes

and activities of the subordinates are as

stated in (2) and (3), above.

5. A statement that each of the subordinates

has provided a written authorization to the

central organization, signed by an author-

ized officer of the subordinate, agreeing to

be included in the group exemption (see

also New 501(c)(3) organizations that

want to be included, later in this section).

6. A list of subordinates to be included in the

group exemption letter, to which the IRS

has issued an outstanding determination

letter.

7. An affirmation to the effect that, to the best

of the officer's knowledge and belief, no

subordinate described in section 501(c)(3)

is a private foundation, as defined in sec-

tion 509(a).

8. For each subordinate that is a school

claiming exemption under section 501(c)

(3), the information required by Revenue

Ruling 75-50, 1975-2 C.B. 587 (as modi-

fied by Rev. Proc. 71-447, 1971-2 C.B. 230

and Rev. Proc. 2019–22, 2019–2 I.R.B.

1260) these requirements are described in

chapter 3, under Private Schools.

9. For any school affiliated with a church, the

information to show that the provisions of

Revenue Ruling 75-231, 1975-1 C.B. 158,

have been met.

10.

A list of the names, mailing addresses, ac-

tual addresses if different, and EINs of

subordinates to be included in the group

exemption letter. A current directory of

subordinates may be furnished instead of

the list if it includes the required informa-

tion and if the subordinates not to be inclu-

ded in the group exemption letter are iden-

tified.

New 501(c)(3) organizations that want to be

included. A new organization, described in

section 501(c)(3), that wants to be included in a

group exemption letter must submit its authori-

zation (as explained in item number 5, earlier,

under Information required for subordinate or-

ganizations) to the central organization before

the end of the 15th month after it was formed in

order to satisfy the requirement of section

508(a). The central organization must also in-

clude this subordinate in its next annual submis-

sion of information, as discussed later, under In-

formation Required Annually.

Keeping the Group

Exemption Letter in Force

Continued effectiveness of a group exemption

letter is based on the following conditions.

1. The continued existence of the central or-

ganization.

2. The continued qualification of the central

organization for exemption under section

501(c).

3. The submission by the central organiza-

tion of the information regarding its subor-

dinate organizations that is required annu-

ally (described under Information Required

Annually).

4. The annual filing of an information return

(Form 990, for example) by the central or-

ganization, if required.

In addition, a group exemption letter will not be

effective as to a particular subordinate if the

subordinate ceases to conform to the require-

ments for inclusion in a group exemption letter

and authorization for inclusion (see items 1 and

5 in Information required for subordinate organi-

zations, earlier), and the annual filing of any re-

quired information return for the subordinate. A

central organization may file a group return for

some or all of its subordinates. If it does so, the

group return must be filed on Form 990 under a

separate EIN obtained exclusively for the pur-

pose of filing the group return. Form 990-EZ

cannot be used for a group return.

Information Required Annually

To maintain a group exemption letter, the central

organization must submit annually, at least 90

days before the close of its annual accounting

period, all of the following information.

1. Information about all changes in the pur-

poses, character, or method of operation

of the subordinates included in the group

exemption letter.

2. A separate list (that includes the names,

mailing addresses, actual addresses if dif-

ferent, and EINs of the affected subordi-

nates) for each of the three following cate-

gories.

a. Subordinates that have changed their

names or addresses during the year.

b. Subordinates no longer to be included

in the group exemption letter because

they no longer exist or have disaffili-

ated from or withdrawn their authori-

zation to the central organization.

c. Subordinates to be added to the

group exemption letter because they

are newly organized or affiliated or be-

cause they have recently authorized

the central organization to include

them.

An annotated directory of subordinates

won't be accepted for this purpose. If there

were none of the above changes, the cen-

tral organization must submit a statement

to that effect.

3. The same information about new subordi-

nates that was required in the initial appli-

cation for group exemption. (This informa-

tion is listed in items 1 through 10, under

Information required for subordinate or-

ganizations, earlier.) If a new subordinate

doesn't differ in any material respects from

the subordinates included in the applica-

tion for group exemption, however, a state-

ment to this effect may be submitted in lieu

of detailed information.

The organization should send this infor-

mation to:

Internal Revenue Service Center

Ogden, UT 84201–0027

Submitting the required information an-

nually doesn't relieve the central organ-

ization or any of its subordinates of the

duty to submit any other information that may be

required by an EO area manager to determine

whether the conditions for continued exemption

are being met.

As of 2019, the IRS will no longer send

the List of Parent and Subsidiary Ac-

counts to the central organizations.

Events Causing

Loss of Group Exemption

A group exemption letter no longer has effect,

for either a particular subordinate or the group

as a whole, when:

1. The central organization notifies the IRS

that it is going out of existence;

2. The central organization notifies the IRS,

by its annual submission or otherwise, that

any of its subordinates will no longer fulfill

CAUTION

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Publication 557 (1-2024) Chapter 1 Application, Approval, and Appeal Procedures 9

the conditions for continued effectiveness,

explained earlier, or

3. The IRS notifies the central organization or

the affected subordinate that the group ex-

emption letter will no longer have effect for

some or all of the group because the con-

ditions for continued effectiveness of a

group exemption letter haven't been fulfil-

led.

When notice is given under any of these three

conditions, the IRS will no longer recognize the

exempt status of the affected subordinates until

they file separate applications on their own be-

half or the central organization files complete

supporting information for their inclusion in the

group exemption at the time of its annual sub-

mission. However, when the notice is given by

the IRS and the withdrawal of recognition is

based on the failure of the organization to com-

ply with the requirements for recognition of

tax-exempt status under the particular subsec-

tion of section 501(c), the revocation will ordina-

rily take effect as of the date of that failure. The

notice, however, will be given only after the ap-

peal procedures described earlier in this chap-

ter are completed.

In addition, the IRS will cease to recognize

the subordinates under a group exemption as

tax-exempt if the central organization is auto-

matically revoked for failure to file required re-

turns or notices for 3 consecutive years. See

Automatic Revocation, later. Subordinates un-

der a group exemption are also subject to auto-

matic revocation for failure to file required re-

turns (or appear on a group return if the

subordinate does not file its own) or notices for

3 consecutive years. A subordinate organization

that is automatically revoked must apply to the

IRS for reinstatement of its exempt status.

Thereafter, it may retain independent exempt

status or it may seek to resume its status as a

subordinate of the central organization. See

Group Exemption Resources .

Filing

Requirements

and Required

Disclosures

Introduction

Most exempt organizations (including private

foundations) must file various returns and re-

ports at some time during (or following the close

of) their accounting period.

Topics

This chapter discusses:

•

Annual information returns

•

Unrelated business income tax return

•

Employment tax returns

•

Political organization income tax return

•

Reporting requirements for a political

organization

•

Donee information return

•

Information provided to donors

•

Report of cash received

•

Public inspection of exemption

applications, annual returns, and political

organizations reporting forms

•

Required disclosures

•

Miscellaneous rules

Useful Items

You may want to see:

Publication

15 Circular E, Employer's Tax Guide

15-A Employer's Supplemental Tax Guide

15-B Employer's Tax Guide to Fringe

Benefits

598 Tax on Unrelated Business Income of

Exempt Organizations

Form (and Instructions)

941 Employer's Quarterly Federal Tax

Return

990 Return of Organization Exempt From

Income Tax

990-EZ Short Form Return of

Organization Exempt From Income

Tax

Schedule A (Form 990) Public Charity

Status and Public Support

Schedule B (Form 990) Schedule of

Contributors

Schedule C (Form 990) Political

Campaign and Lobbying Activities

Schedule D (Form 990) Supplemental

Financial Statements

Schedule E (Form 990) Schools

Schedule F (Form 990) Statement of

Activities Outside the United States

Schedule G (Form 990) Supplemental

Information Regarding Fundraising or

Gaming Activities

Schedule H (Form 990) Hospitals

Schedule I (Form 990) Grants and Other

Assistance to Organizations,

Governments, and Individuals in the

United States

Schedule J (Form 990) Compensation

Information

Schedule K (Form 990) Supplemental

Information on Tax-Exempt Bonds

Schedule L (Form 990) Transactions

With Interested Persons

15-A

15-B

598

941

990

990-EZ

Schedule A (Form 990)

Schedule B (Form 990)

Schedule C (Form 990)

Schedule D (Form 990)

Schedule E (Form 990)

Schedule F (Form 990)

Schedule G (Form 990)

Schedule H (Form 990)

Schedule I (Form 990)

Schedule J (Form 990)

Schedule K (Form 990)

Schedule L (Form 990)

Schedule M (Form 990) Noncash

Contributions

Schedule N (Form 990) Liquidation,

Termination, Dissolution, or

Significant Disposition of Assets

Schedule O (Form 990) Supplemental

Information to Form 990

940 Employer's Annual Federal

Unemployment (FUTA) Tax Return

Schedule R (Form 990) Related

Organizations and Unrelated

Partnerships

990-PF Return of Private Foundation or

Section 4947(a)(1) Nonexempt

Charitable Trust Treated as a Private

Foundation

990-N Electronic Notice (e-Postcard) for

Tax-Exempt Organizations Not

Required to File Form 990 or Form

990-EZ

990-T Exempt Organization Business

Income Tax Return

Schedule A (Form 990-T) Unrelated

Business Taxable Income from an

Unrelated Trade or Business

990-W Estimated Tax on Unrelated

Business Taxable Income for

Tax-Exempt Organizations

1120-POL U.S. Income Tax Return for

Certain Political Organizations

4720 Return of Certain Excise Taxes

Under Chapters 41 and 42 of the

Internal Revenue Code

5768 Election/Revocation of Election by

an Eligible Section 501(c)(3)

Organization To Make Expenditures

To Influence Legislation

6069 Return of Certain Excise Taxes on

Mine Operators, Black Lung Trusts,

and Other Persons Under Sections

4951, 4952, and 4953

7004 Application for Automatic Extension

of Time to File Certain Business

Income Tax, Information, and Other

Returns

8274 Certification by Churches and

Qualified Church-Controlled

Organizations Electing Exemption

from Employer Social Security and

Medicare Taxes

8282 Donee Information Return

8300 Report of Cash Payments Over

$10,000 Received in a Trade or

Business

8453-X Political Organization Declaration

for Electronic Filing of Notice of

Section 527 Status

8822-B Change of Address or

Responsible Party—Business

8868 Application for Automatic Extension

of Time to File an Exempt

Organization Return

Schedule M (Form 990)

Schedule N (Form 990)

Schedule O (Form 990)

940

Schedule R (Form 990)

990-PF

990-N

990-T

Schedule A (Form 990-T)

990-W

1120-POL

4720

5768

6069

7004

8274

8282

8300

8453-X

8822-B

8868

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10 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2024)

8870 Information Return for Transfers

Associated with Certain Personal

Benefits Contracts

8871 Political Organization Notice of

Section 527 Status

8872 Political Organization Report of

Contributions and Expenditures

8886-T Disclosure by Tax-Exempt Entity

Regarding Prohibited Tax Shelter

Transaction

8899 Notice of Income from Donated

Intellectual Property

8976 Notice of Intent to Operate Under

Section 501(c)(4)

See chapter 6 for information about getting

these publications and forms.

Annual Information

Returns

Every organization exempt from federal income

tax under section 501(a) must file an Annual

Exempt Organization Return except:

1. A church, an interchurch organization of

local units of a church, a convention or as-

sociation of churches;

2. An integrated auxiliary of a church;

3. A church-affiliated organization that is ex-

clusively engaged in managing funds or

maintaining retirement programs;

4. A school below college level affiliated with

a church or operated by a religious order;

5. Church-affiliated mission societies if more

than half of their activities are conducted

in, or are directed at persons in, foreign

countries;

6. An exclusively religious activity of any reli-

gious order;

7. A state institution, the income of which is

excluded from gross income under section

115;

8. A corporation described in section 501(c)

(1) that is organized under an Act of Con-

gress, an instrumentality of the United

States, and is exempt from federal income

taxes;

9. A stock bonus, pension, or profit-sharing

trust that qualifies under section 401 (re-

quired to file Form 5500, Annual Return/

Report of Employee Benefit Plan);

10.

A religious or apostolic organization de-

scribed in section 501(d) (required to file

Form 1065, U.S. Return of Partnership In-

come);

11.

A governmental unit or an affiliate of a gov-

ernmental unit that meets the require-

ments of Rev. Proc. 95-48, 1995-2 C.B.

418, IRS.gov/pub/irs-tege/rp1995-48.pdf ;

12.

A private foundation described in section

501(c)(3) and exempt under section

501(a) (required to file Form 990-PF, Re-

turn of Private Foundation);

13.

A political organization that is a state or lo-

cal committee of a political party, a political

8870

8871

8872

8886-T

8899

8976

committee of a state or local candidate, a

caucus or association of state or local offi-

cials, or required to report under the Fed-

eral Election Campaign Act of 1971 as a

political committee;

14.

An exempt organization (other than a pri-

vate foundation or a supporting organiza-

tion described in Supporting Organization

Annual Information Return, later) that nor-

mally has annual gross receipts of

$50,000 or less (required to file Form

990-N, Electronic Notice (e-Postcard) for

Tax-Exempt Organizations Not Required

to File Form 990 or Form 990-EZ); or

15.

A foreign organization, or an organization

located in a U.S. territory, that normally

has annual gross receipts from sources

within the United States of $50,000 or

less.

Supporting Organization

Annual Information Return

Each section 509(a)(3) supporting organization

is required to file Form 990 or 990-EZ with the

IRS regardless of the organization's gross re-

ceipts, unless it qualifies as one of the following:

1. An integrated auxiliary of a church;

2. The exclusively religious activities of a reli-

gious order; or

3. An organization, the gross receipts of

which are normally not more than $5,000,

that supports a section 509(a)(3) religious

order.

If the organization is described in item (3)

above, then it must submit Form 990-N (e-Post-

card) unless it voluntarily files Form 990 or

990-EZ.

On its annual information return, in Part I,

Schedule A (Form 990) a supporting organiza-

tion must:

•

List the organizations to which it provides

support;

•

Indicate whether it is a Type I, Type II, or

Type III supporting organization; and

•

Certify that the organization isn't controlled

directly or indirectly by disqualified persons

(other than by foundation managers and

other than one or more publicly supported

organizations).

Annual Electronic Notice Filing

Requirement for Small Tax-Exempt

Organizations

Small tax-exempt organizations with annual

gross receipts normally $50,000 or less that are

not otherwise required to file an annual informa-

tion return and are not otherwise exempted en-

tirely from a filing requirement must submit

Form 990-N, Electronic Notice (e-Postcard) for

Tax-Exempt Organizations Not Required to File

Form 990 or 990-EZ, with the IRS each year, if

they choose not to file a Form 990 or 990-EZ.

Form 990-N requires the following information:

•

The organization's legal name, and mailing

address;

•

Any name under which it operates and

does business;

•

Its Internet website address (if any);

•

Its taxpayer identification number;

•

The name and address of a principal offi-

cer;

•

Organization's annual tax period;

•

Verification that the organization's annual

gross receipts are normally $50,000 or

less; and

•

Notification if the organization has termina-

ted.

Form 990-N is due by the 15th day of the

fifth month after the close of the tax year. For tax

years beginning after December 31, 2006, any

organization that fails to meet its annual report-

ing requirement for 3 consecutive years will au-

tomatically lose its tax-exempt status. To regain

its exempt status an organization will have to re-

apply for recognition as a tax-exempt organiza-

tion.

Exceptions. This filing requirement doesn't

apply to:

•

Churches, their integrated auxiliaries, and

conventions or associations of churches;

•

Organizations that are included in a group

return;

•

Private foundations required to file Form

990-PF; and

•

Section 509(a)(3) supporting organizations

required to file Form 990 or Form 990-EZ.

Forms 990 and 990-EZ

Exempt organizations, other than private foun-

dations, must file their annual information re-

turns on Form 990 or 990-EZ, unless excepted

from filing or allowed to submit Form 990-N, de-

scribed earlier.

Generally, political organizations with gross

receipts of $25,000 ($100,000 for a qualified

state or local political organization (QSLPO)) or

more for the tax year are required to file Form

990 or 990-EZ unless specifically excepted

from filing the annual return. The following politi-

cal organizations aren't required to file Form

990 or Form 990-EZ.

•

A state or local committee of a political

party.

•

A political committee of a state or local

candidate.

•

A caucus or association of state or local of-

ficials.

•

A political organization that is required to

report as a political committee under the

Federal Election Campaign Act.

•

A 501(c) organization that has expendi-

tures for influencing or attempting to influ-

ence the selection, nomination, election, or

appointment of any individual for a federal,

state, or local public office.

Form 990-EZ. This is a shortened version of

Form 990. Form 990-EZ is designed for use by

small exempt organizations and nonexempt

charitable trusts.

An organization can file either Form 990 or

990-EZ if it satisfies both of the following:

1. Its gross receipts during the year are less

than $200,000.

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Publication 557 (1-2024) Chapter 2 Filing Requirements and Required Disclosures 11

2. Its total assets (line 25, column (B) of

Form 990-EZ) at the end of the year are

less than $500,000.

If your organization doesn't satisfy both of these

conditions, it can't file Form 990-EZ. Instead,

the organization must file Form 990.

Group return. A group return on Form 990

may be filed by a central, parent, or like organi-

zation for two or more local organizations, none

of which is a private foundation. This return is in

addition to the central organization's separate

annual return if it must file a return. The central

organization can't be included in the group re-

turn. See the Instructions for Form 990 for the

conditions under which this procedure may be

used.

In any year that an organization is prop-

erly included as a subordinate organi-

zation on a group return, it shouldn't file

its own Form 990.

Schedule A (Form 990). Organizations, other

than private foundations, that are described in

section 501(c)(3) and that are otherwise re-

quired to file Form 990 or 990-EZ must also

complete Schedule A of that form.

Schedule B (Form 990). Organizations that

file Form 990, 990-EZ or 990-PF use this

schedule to provide required information re-

garding certain contributors.

Schedule O (Form 990). Organizations that

file Form 990 or 990-EZ, must use this schedule

to provide required additional information or if

additional space is needed.

Other schedules may be required to be filed

with Form 990 or 990-EZ. See the Instructions

for Form 990 or the Instructions for Form

990-EZ for more information.

Report significant new or changed program

services and changes to organizational

documents. An organization should report

new significant program services or significant

changes in how it conducts program services,

and significant changes to its organizational

documents, on its Form 990 rather than in a let-

ter to EO Determinations. EO Determinations

no longer issues letters confirming the tax-ex-

empt status of organizations that report new

services or significant changes, or changes to

organizational documents. See Miscellaneous

Rules, Organization Changes and Exempt Sta-

tus, later.

Form 990-PF

All private foundations exempt under section

501(c)(3) must file Form 990-PF. These organi-

zations are discussed in chapter 3.

Electronic Filing

For tax years beginning on or before July 1,

2019, your organization may be required to file

Form 990, Form 990-EZ, or Form 990-PF, and

related forms, schedules, and attachments

electronically. For tax years beginning after July

1, 2019, under the Taxpayer First Act, organiza-

tions are required to file certain returns

TIP

electronically, including Form 990, 990-EZ,

990-PF, 8872, and 990-T. The e-filing require-

ment is generally effective for tax years begin-

ning after July 1, 2019. The Taxpayer First Act

allows transitional relief for certain small organi-

zations or other organizations for which the IRS

determines that application of the e-filing re-

quirement would constitute an undue hardship

in the absence of additional transitional time.

If an organization is required to file a return

electronically but doesn't, it isn't considered to

have filed its return. See Regulations section

301.6033-4 for more information.

Form 990. For tax years beginning on or

before July 1, 2019, an organization is required

to file Form 990 electronically if it files at least

250 returns during the calendar year and has

total assets of $10 million or more at the end of

the tax year. For tax years beginning after July

1, 2019, an organization is required to file Form

990 electronically unless exceptions described

in the form instructions apply. As of the 2020

Form 990, the instructions no longer describe

any exceptions to the e-filing requirement.

Form 990-EZ. For small exempt organiza-

tions, the legislation specifically allowed a post-

ponement (“transitional relief”). For tax years

ending before July 31, 2021, the IRS will accept

either paper or electronic filing of Form 990-EZ,

Short Form Return of Organization Exempt from

Income Tax. For tax years ending July 31, 2021,

and later, Forms 990-EZ must be filed electroni-

cally. Generally, Form 990-EZ is for organiza-

tions with annual gross receipts less than

$200,000 and total assets at tax year-end less

than $500,000.

Form 990-PF. For tax years beginning on or

before July 1, 2019, an organization is required

to file Form 990-PF electronically if it files at

least 250 returns during the calendar year. For

tax years beginning after July 1, 2019, an or-

ganization is required to file Form 990-PF elec-

tronically unless exceptions described in the

form instructions apply. As of the 2020 Form

990-PF, the instructions no longer describe any

exceptions to the e-filing requirement.

Form 990-N. An organization that is eligible

and elects to submit Form 990-N must submit it

electronically.

Form 990-T. The IRS continued to accept

paper forms Form 990-T into 2021 pending its

conversion into electronic format. In March

2020, the IRS announced the availability of the

electronic filing of Form 990-T. Any 2020, and

any future year Form 990-T with a due date on

or after April 15, 2021, must be filed electroni-

cally and not on paper.

Form 8872. Form 8872 must be filed elec-

tronically if reporting on periods after 2019.

Due Date

Forms 990, 990-EZ, or 990-PF must be filed by

the 15th day of the fifth month after the end of

your organization's accounting period. Thus, for

a calendar year taxpayer, Forms 990, 990-EZ,

or 990-PF are due May 15 of the following year.

If any due date falls on a Saturday, Sunday, or

legal holiday, the return will be due the next

business day.

Extension of time to file. Use Form 8868 to

request an automatic six month extension of

time to file Forms 990, 990-EZ, or 990-PF.

When filing Form 8868 for an automatic ex-

tension, neither a signature, nor an explanation

is required.

Application for exemption pending. An or-

ganization that claims to be exempt under sec-

tion 501(a) but has not established its exempt

status by the due date for filing an information

return must complete and file Form 990,

990-EZ, 990-N, or 990-PF (if it considers itself a

private foundation), unless the organization is

exempt from Form 990-series filing require-

ments. If the organization's application is pend-

ing with the IRS, it must so indicate on Forms

990, 990-EZ, or 990-PF (whichever applies) by

checking the application pending block at the

top of page 1 of the return. For more information

on the filing requirements, see the Instructions

for Forms 990, 990-EZ, and 990-PF.

State reporting requirements. Copies of

Forms 990, 990-EZ, or 990-PF may be used to

satisfy state reporting requirements. See the in-

structions for those forms.

Form 8870. Organizations that filed a Form

990, 990-EZ, or 990-PF, and paid premiums or

received transfers on certain life insurance, an-

nuity, and endowment contracts (personal ben-

efit contracts), must file Form 8870. For more in-

formation, see Form 8870 and the instructions

for that form.

Form 8822-B. If you moved during the year, fill

out Form 8822-B, Change of Address or Re-

sponsible Party-Business. Also, if your “Re-

sponsible Party” changed this year, you must

also fill out Form 8822-B. The “Responsible

Party” is the tax-exempt organization’s “Princi-

pal Officer,”as defined in the Form 990 instruc-

tions, in the Glossary section.

Automatic Revocation

If the organization fails to file a Form 990,

990-EZ, or 990-PF, or fails to submit a Form

990-N, as required, for 3 consecutive years, it

will automatically lose its tax-exempt status by

operation of law effective as of the due date for

the third missed return or notice. The list of or-

ganizations whose tax-exempt status has been

automatically revoked is available on IRS.gov.

This list (Auto-Revocation List) may be viewed

and searched on Tax-Exempt Organization

Search. The Auto-Revocation List includes

each organization's name, employer identifica-

tion number (EIN), and last known address. It

also includes the effective date of the automatic

revocation and the date it was posted to the list.

For auto-revoked organizations that applied for

and received reinstatement, the list gives the

date of reinstatement. The IRS updates the list

monthly to include additional organizations that

lose their tax-exempt status.

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12 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2024)

Tax Effect of Loss of Tax-Exempt

Status

If your organization’s tax-exempt status is auto-

matically revoked, you may be required to file

one of the following federal income tax returns

and pay any applicable income taxes:

•

Form 1120, U.S. Corporation Income Tax

Return, due by the 15th day of the 3rd

month after the end of your organization’s

tax year, or

•

Form 1041, U.S. Income Tax Return for Es-

tates and Trusts, due by the 15th day of the

4th month after the end of your organiza-

tion’s tax year.

In addition, a section 501(c)(3) organization

that loses its tax-exempt status can't receive

tax-deductible contributions and won't be identi-

fied in the IRS Business Master File extract as

eligible to receive tax-deductible contributions,

or be included in Tax-Exempt Organization

Search (Pub. 78 database).

An organization whose exemption was auto-

matically revoked must apply for tax exemption

in order to regain its tax exemption (even if it

wasn't originally required to apply). In some sit-

uations, an organization may be able to obtain

exemption retroactive to its date of revocation.

Similarly, if the central organization with a Group

Exemption Number is automatically revoked, all

its covered subsidiaries may need to apply for

exemption as independent organizations.

For more information about automatic revo-

cation, go to IRS.gov and select Charities &

Non-Profits and then select Reinstated? Learn

more with Reinstate Tax-Exempt Status.

Penalties

Penalties for failure to file. Generally, an ex-

empt organization that fails to file a required re-

turn must pay a penalty of $20 a day for each

day the failure continues. The same penalty will

apply if the organization doesn't give all the in-

formation required on the return or doesn't give

the correct information.

Maximum penalty. The maximum penalty

for any one return is the smaller of $10,000 or

5% of the organization's gross receipts for the

year.

Organization with gross receipts over $1

million. For an organization that has gross re-

ceipts of over $1 million for the year, the penalty

is $100 a day up to a maximum of $50,000.

Managers. If the organization is subject to

this penalty, the IRS may specify a date by

which the return or correct information must be

supplied by the organization. Failure to comply

with this demand will result in a penalty im-

posed upon the manager of the organization, or

upon any other person responsible for filing a

correct return. The penalty is $10 a day for each

day that a return isn't filed after the period given

for filing. The maximum penalty imposed on all

persons with respect to any one return is

$5,000.

Penalties indexed for inflation. These

penalty provisions are indexed for inflation for

returns required to be filed after December 31,

2014.

Exception for reasonable cause. No pen-

alty will be imposed if reasonable cause for fail-

ure to file timely can be shown.

Unrelated Business

Income Tax Return

Even though your organization is recognized as

tax exempt, it still may be liable for tax on its un-

related business income. Unrelated business

income is income from a trade or business, reg-

ularly carried on, that isn't substantially related

to the charitable, educational, or other purpose

that is the basis for the organization's exemp-

tion.

If your organization has gross income of

$1,000 or more from a regularly conducted un-

related trade or business, you must file Form

990-T in addition to your required annual infor-

mation return or notice. The form instructions

and IRS.gov should be consulted for electronic

filing guidance. For tax years beginning after

December 31, 2017, an organization with more

than one unrelated trade or business must com-

pute its UBTI (unrelated business taxable in-

come), including for purposes of determining

any net operating loss deduction, separately

with respect to each such trade or business. Or-

ganizations complete a separate Schedule A

(Form 990-T) to calculate UBTI for each of its

trades or businesses.

Estimated tax. An organization that ex-

pects to owe $500 or more in tax (including tax

on unrelated business income) is required to

make quarterly estimated tax payments. Use

Form 990-W to figure your organization's esti-

mated tax payments. Failure to make appropri-

ate quarterly estimated tax payments may result

in an underpayment penalty.

See Publication 598, Tax on Unrelated Busi-

ness Income of Exempt Organizations for more

information on UBTI.

Employment

Tax Returns

Every employer, including an organization ex-

empt from federal income tax that pays wages

to employees is responsible for withholding, de-

positing, paying, and reporting federal income

tax, social security and Medicare (FICA) taxes,

and federal unemployment tax (FUTA), unless

that employer is specifically excepted by law

from those requirements, or if the taxes clearly

don't apply.

For more information, obtain a copy of Publi-

cation 15, which summarizes the responsibili-

ties of an employer, Publication 15-A, Publica-

tion 15-B, and Form 941.

Small Business Health Care Tax Credit. If

your small tax-exempt organization provides

health care coverage for your workers you may

qualify for the small business health care tax

credit. Go to Affordable Care Act Tax Provisions

for more details. See also Small Business

Health Care Tax Credit.

Trust fund recovery penalty. If any person re-

quired to collect, truthfully account for, and pay

over any of these taxes willfully fails to satisfy

any of these requirements or willfully tries in any

way to evade or defeat any of them, that person

will be subject to a penalty. The penalty is equal

to the tax evaded, not collected, or not accoun-

ted for and paid over. The term person includes:

•

An officer or employee of a corporation, or

•

A member or employee of a partnership.

Exception. The penalty isn't imposed on

any unpaid volunteer director or member of a

board of trustees of an exempt organization if

the unpaid volunteer serves solely in an hono-

rary capacity, doesn't participate in the

day-to-day or financial operations of the organi-

zation, and doesn't have actual knowledge of

the failure on which the penalty is imposed.

This exception doesn't apply if it results in no

one being liable for the penalty.

Certification Program for Professional Em-

ployer Organizations (CPEOs). The Tax In-

crease Prevention Act of 2014, enacted Dec.

19, 2014, requires the IRS to establish a volun-

tary certification program for professional em-

ployer organizations (PEOs). PEOs handle vari-

ous payroll administration and tax reporting

responsibilities for their business clients and are

typically paid a fee based on payroll costs. For

further information, go to: IRS.gov/for-tax-pros/

basic-tools/certified-professional-employer-

organization.

FICA and FUTA tax exceptions. Payments for

services performed by a minister of a church in

the exercise of the ministry, or a member of a re-

ligious order performing duties required by the

order, are generally not subject to FICA or FUTA

taxes.

FUTA tax exception. Payments for serv-

ices performed by an employee of a religious,

charitable, educational, or other organization

described in section 501(c)(3) that are generally

subject to FICA taxes if the payments are $100

or more for the year, aren't subject to FUTA

taxes. However, a section 501(c)(3) organiza-

tion is liable for FUTA tax when paying wages

for employees on behalf of others, examples in-

clude but are not limited to related non-section

501(c)(3) organizations, fiscal agents such as

IRC 3504, common paymaster, etc.

FICA tax exemption election. Churches

and qualified church-controlled organizations

can elect exemption from employer FICA taxes

by filing Form 8274.

To elect the exemption, Form 8274 must be

filed before the first date on which a quarterly

employment tax return would otherwise be due

from the electing organization. The organization

can make the election only if it is opposed for

religious reasons to the payment of FICA taxes.

The election applies to payments for serv-

ices of current and future employees other than

services performed in an unrelated trade or

business.

Revoking the election. The election can

be revoked by the IRS if the organization fails to

file Form W-2, Wage and Tax Statement, for 2

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Publication 557 (1-2024) Chapter 2 Filing Requirements and Required Disclosures 13

years and fails to furnish certain information

upon request by the IRS. Such revocation will

apply retroactively to the beginning of the 2-year

period.

Definitions. For purposes of this election,

the term church means a church, a convention

or association of churches, or an elementary or

secondary school that is controlled, operated,

or principally supported by a church or by a

convention or association of churches.

The term qualified church-controlled organi-

zation means any church-controlled section

501(c)(3) tax-exempt organization, other than

an organization that both:

1. Offers goods, services, or facilities for

sale, other than on an incidental basis, to

the general public at other than a nominal

charge that is substantially less than the

cost of providing such goods, services, or

facilities; and

2. Normally receives more than 25% of its

support from the sum of governmental

sources and receipts from admissions,

sales of merchandise, performance of

services, or furnishing of facilities, in activi-

ties that aren't unrelated trades or busi-

nesses.

Effect on employees. If a church or quali-

fied church-controlled organization has made

an election, payment for services performed for

that church or organization, other than in an un-

related trade or business, won't be subject to

FICA taxes. However, the employee, unless oth-

erwise exempt, will be subject to self-employ-

ment tax on the income. The tax applies to in-

come of $108.28 or more for the tax year from

that church or organization, and no deductions

for trade or business expenses are allowed

against this self-employment income.

Schedule SE (Form 1040), Self-Employment

Tax, should be attached to the employee's in-

come tax return.

Political Organization

Income Tax Return

Generally, a political organization is treated as

an organization exempt from tax. Certain politi-

cal organizations, however, must file an annual

income tax return, Form 1120-POL, U.S. In-

come Tax Return for Certain Political Organiza-

tions, for any year they have political organiza-

tion taxable income in excess of the $100

specific deduction allowed under section 527.

A political organization that has

$25,000 ($100,000 for a qualified state

or local political organization) or more

in gross receipts for the tax year must file Form

990 or Form 990-EZ (and Schedule B of the

form), unless excepted. See Forms 990 and

990-EZ, earlier.

Political organization. A political organization

is a party, committee, association, fund, or other

organization (whether or not incorporated) or-

ganized and operated primarily for the purpose

of directly or indirectly accepting contributions

or making expenditures, or both, for an exempt

function.

TIP

Exempt function. An exempt function

means influencing or attempting to influence the

selection, nomination, election, or appointment

of any individual to any federal, state, local pub-

lic office or office in a political organization, or

the election of the Presidential or Vice Presi-

dential electors, whether or not such individual

or electors are selected, nominated, elected, or

appointed. It also includes certain office expen-

ses of a holder of public office or an office in a

political organization.

Certain political organizations are re-

quired to notify the IRS that they are

section 527 organizations. These or-

ganizations must use Form 8871. Some of

these section 527 organizations must use Form

8872 to file periodic reports with the IRS dis-

closing their contributions and expenditures. For

a discussion on these forms, see Reporting Re-

quirements for a Political Organization, later.

Political organization taxable income.

Political organization taxable income is the ex-

cess of:

1. Gross income for the tax year (excluding

exempt function income) minus

2. Deductions directly connected with the

earning of gross income.

To figure taxable income, allow for a $100 spe-

cific deduction, but don't allow for the net oper-

ating loss deduction, the dividends-received de-

duction, and other special deductions for

corporations.

Exempt organization not a political organi-

zation. An organization exempt under section

501(c) that spends any amount for an exempt

function must file Form 1120-POL for any year

in which it has political taxable income. These

organizations must include in gross income the

lesser of:

1. The total amount of its exempt function ex-

penditures, or

2. The organization's net investment income.

Separate fund. A section 501(c) organiza-

tion can set up a separate segregated fund that

will be treated as an independent political or-

ganization. The earnings and expenditures

made by the separate fund won't be attributed

to the section 501(c) organization.

Section 501(c)(3) organizations are

precluded from, and may suffer loss of

exemption for, engaging in any political

campaign on behalf of, or in opposition to, any

candidate for public office.

Due date. Form 1120-POL is due by the 15th

day of the 4th month after the end of the tax

year. Thus, for a calendar year taxpayer, Form

1120-POL is due on April 15 of the following

year. If any due date falls on a Saturday, Sun-

day, or legal holiday, the organization can file

the return on the next business day.

Form 1120-POL is not required of an

exempt organization that makes expen-

ditures for political purposes if its gross

income doesn't exceed its directly connected

deductions by more than $100 for the tax year.

CAUTION

TIP

Extension of time to file. Use Form 7004 to

request an automatic extension of time to file

Form 1120-POL. The extension will be granted

if you complete Form 7004 properly, make a

proper estimate of the tax (if applicable), file

Form 1120-POL by the due date, and pay any

tax due.

Failure to file. A political organization that

fails to file Form 1120-POL is subject to a pen-

alty equal to 5% of the tax due for each month

(or partial month) the return is late up to a maxi-

mum of 25% of the tax due, unless the organi-

zation shows the failure was due to reasonable

cause.

For more information about filing Form

1120-POL, refer to the instructions accompany-

ing the form.

Failure to pay on time. An organization

that doesn't pay the tax when due generally

may have to pay a penalty of 1/2 of 1% of the

unpaid tax for each month or part of a month

the tax isn't paid, up to a maximum of 25% of

the unpaid tax. The penalty won't be imposed if

the organization can show that the failure to pay

on time was due to reasonable cause.

Reporting Requirements

for a Political

Organization

Certain political organizations are required to

notify the IRS that the organization is to be trea-

ted as a section 527 political organization. The

organization is also required to periodically re-

port certain contributions received and expendi-

tures made by the organization. To notify the

IRS of section 527 treatment, an organization

must file Form 8871. To report contributions and

expenditures, certain tax-exempt political or-

ganizations must file Form 8872.

Form 8871

A political organization must electronically file

Form 8871 to notify the IRS that it is to be trea-

ted as a section 527 organization. However, an

organization isn't required to file Form 8871 if:

•

It reasonably expects its annual gross re-

ceipts to always be less than $25,000.

•

It is a political committee required to report

under the Federal Election Campaign Act

of 1971 (FECA) (52 U.S.C. section 30101

et seq.).

•

It is a state or local candidate committee.

•

It is a state or local committee of a political

party.

All other political organizations are required to

file Form 8871.

An organization must provide on Form 8871:

1. Its name and address (including any busi-

ness address, if different) and its elec-

tronic mailing address;

2. Its purpose;

3. The names and addresses of its officers,

highly compensated employees, contact

person, custodian of records, and

members of its board of directors;

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14 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2024)

4. The name and address of, and relation-

ship to, any related entities (within the

meaning of section 168(h)(4)); and

5. Whether it intends to claim an exemption

from filing Form 8872, Form 990, or Form

990-EZ.

Employer identification number. If your

organization needs an EIN, you can apply for

one online. Click on the Employer ID Numbers

(EINs) link at IRS.gov/businesses/small.

If you previously applied for an EIN and

haven't yet received it, or you are unsure

whether you have an EIN, please call our

toll-free customer account services number,

1-877-829-5500, for assistance.

Due dates. The initial Form 8871 must be filed

within 24 hours of the date on which the organi-

zation was established. If there is a material

change, an amended Form 8871 must be filed

within 30 days of the material change. When the

organization terminates its existence, it must file

a final Form 8871 within 30 days of termination.

If the due date falls on a Saturday, Sunday,

or legal holiday, the organization can file on the

next business day.

How to file. An organization must file Form

8871 electronically via the IRS Internet website

at IRS.gov/polorgs.

Form 8453-X, Political Organization Decla-

ration for Electronic Filing of Notice of Sec-

tion 527 Status. After electronically submitting

the initial Form 8871, the political organization

must print, sign, and mail Form 8453-X to the

IRS. Upon receipt of the Form 8453-X, the IRS

will send the organization a username and

password that must be used to file an amended

or final Form 8871 or to electronically file Form

8872.

Penalties

Failure to file. An organization that is re-

quired to file Form 8871, but fails to do so on a

timely basis, won't be treated as a tax-exempt

section 527 organization for any period before

the date Form 8871 is filed. Also, the taxable in-

come of the organization for that period will in-

clude its exempt function income (including

contributions received, membership dues, and

political fundraising receipts) minus any deduc-

tions directly connected with the production of

that income.

Failure to file an amended Form 8871 will

cause the organization to not be treated as a

tax-exempt section 527 organization. If an or-

ganization is treated as not being a tax-exempt

section 527 organization, the taxable income of

the organization will be determined by consider-

ing any exempt function income and deductions

during the period beginning on the date of the

material change and ending on the date that the

amended Form 8871 is filed.

The tax is computed by multiplying the or-

ganization's taxable income by the highest cor-

porate tax rate.

Fraudulent returns. Any individual or cor-

poration that willfully delivers or discloses to the

IRS any list, return, account, statement or other

document known to be fraudulent or false as to

any material matter will be fined not more than

$10,000 ($50,000 in the case of a corporation)

or imprisoned for not more than 1 year or both.

Waiver of penalties. The IRS may waive

any additional tax assessed on an organization

for failure to file Form 8871 if the failure was due

to reasonable cause and not willful neglect.

Additional information. For more information

on Form 8871, see the form and its instructions.

For a discussion on the public inspection re-

quirements for the form, see Public Inspection

of Exemption Applications, Annual Returns, and

Political Organization Reporting Forms, later.

Form 8872

Every tax-exempt section 527 political organiza-

tion that accepts a contribution or makes an ex-

penditure, for an exempt function during the cal-

endar year, must file Form 8872 except:

•

A political organization that isn't required to

file Form 8871 (discussed earlier).

•

A political organization that is subject to tax

on its income because it didn't file or

amend Form 8871.

•

A qualified state or local political organiza-

tion (QSLPO), discussed below.

All other tax-exempt section 527 organizations

that accept contributions or make expenditures

for an exempt function are required to file Form

8872.

Qualified state or local political organi-

zation. A state or local political organization

may be a QSLPO if:

1. All of its political activities relate solely to

state or local public office (or office in a

state or local political organization).

2. It is subject to a state law that requires it to

report (and it does report) to a state

agency information about contributions

and expenditures that is similar to the in-

formation that the organization would oth-

erwise be required to report to the IRS.

3. The state agency and the organization

make the reports publicly available.

4. No federal candidate or office holder:

a. Controls or materially participates in

the direction of the organization,

b. Solicits contributions for the organiza-

tion, or

c. Directs the disbursements of the or-

ganization.

Information required on Form 8872. If an or-

ganization pays an individual $500 or more for

the calendar year, the organization is required

to disclose the individual's name, address, oc-

cupation, employer, amount of the expense, the

date the expense was paid, and the purpose of

the expense on Form 8872.

If an organization receives contributions of

$200 or more from one contributor for the calen-

dar year, the organization must disclose the do-

nor's name, address, occupation, employer,

and the date the contributions were made.

For additional information that is required,

see Form 8872.

Due dates. The due dates for filing Form 8872

vary depending on whether the form is due for a

reporting period that occurs during a calendar

year in which a regularly scheduled election is

held, or any other calendar year (a nonelection

year).

If the due date falls on a Saturday, Sunday,

or legal holiday, the organization can file on the

next business day.

Election year filing. In election years, Form

8872 must be filed on either a quarterly or a

monthly basis. Both a pre-election report and a

post-election report are also required to be filed

in an election year. An election year is any year

in which a regularly scheduled general election

for federal office is held (an even-numbered

year).

Nonelection year filing. In nonelection years,

the form must be filed on a semiannual or

monthly basis. A complete listing of these filing

periods are in the Form 8872 instructions. A

nonelection year is any odd-numbered year.

How to file. An organization must file Form

8872 electronically if reporting on periods after

2019. For reporting on periods before 2020,

Form 8872 can be filed either electronically or

by mail, but organizations that have, or expect

to have, contributions or expenditures of

$50,000 or more for the year are required to file

electronically.

Electronic filing. File electronically via the

IRS internet website at IRS.gov/polorgs. You will

need a user ID and password to electronically

file Form 8872. Organizations that have comple-

ted the electronic filing of Form 8871 and sub-

mitted a completed and signed Form 8453-X

will receive a username and password in the

mail.

Organizations that have completed the elec-

tronic filing of Form 8871, but haven't received

their user ID and password can request one by

writing to the following address:

Internal Revenue Service

Attn: Request for 8872 Password

Mail Stop 6273

Ogden, UT 84201

Lost username and password. If you

have forgotten or misplaced the username and

password issued to your organization after you

filed your initial Form 8871, send a letter re-

questing a new username and password to the

address under Electronic filing. You can also fax

your request to (801) 620-3249. It may take 3-6

weeks for your new username and password to

arrive, as they will be mailed to the organization.

Penalty

A penalty will be imposed if the organization is

required to file Form 8872 and it:

•

Fails to file the form by the due date, or

•

Files the form but fails to report all of the in-

formation required or reports incorrect in-

formation.

The penalty is 21% for tax years beginning

after December 31, 2017 (35% for tax years be-

ginning before December 31 2017), of the total

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Publication 557 (1-2024) Chapter 2 Filing Requirements and Required Disclosures 15

amount of contributions and expenditures to

which a failure relates.

Fraudulent returns. Any individual or cor-

poration that willfully delivers or discloses any

list, return, account, statement, or other docu-

ment known to be fraudulent or false as to any

material matter will be fined not more than

$10,000 ($50,000 in the case of a corporation),

or imprisoned for not more than 1 year, or both.

Waiver of penalties. The IRS may waive

any additional tax assessed on an organization

for failure to file Form 8872 if the failure was due

to reasonable cause and not willful neglect.

Donee Information

Return

Dispositions of donated property. If an or-

ganization receives charitable deduction prop-

erty and within 3 years sells, exchanges, or oth-

erwise disposes of the property, the

organization must file Form 8282, Donee

Information Return. However, an organization

isn't required to file Form 8282 if:

•

The property is valued at $500 or less, or

•

The property is consumed or distributed for

charitable purposes.

Form 8282 must be filed with the IRS within

125 days after the disposition. Additionally, a

copy of Form 8282 must be given to the donor.

If the organization fails to file the required infor-

mation return, penalties may apply.

Charitable deduction property. This is

any property (other than money or publicly tra-

ded securities) for which the donee organization

signed an appraisal summary or Form 8283,

Noncash Charitable Contributions.

Publicly traded securities. These are se-

curities for which market quotations are readily

available on an established securities market as

of the date of the contribution.

Appraisal summary. If the value of the don-

ated property exceeds $5,000, the donor must

get a qualified appraisal for contributions of

property, see Exceptions, below.

Exceptions. A written appraisal isn't need-

ed if the property is:

•

Nonpublicly traded stock of $10,000 or

less;

•

A vehicle (including a car, boat, or air-

plane), if your deduction for the vehicle is

limited to the gross proceeds from its sale;

•

Intellectual property;

•

Certain securities considered to have mar-

ket quotations readily available (see Regu-

lations section 1.170A-13(c)(7)(xi)(B));

•

Inventory and other property donated by a

corporation that are qualified contributions

for the care of the ill, the needy, or infants,

within the meaning of section 170(e)(3)(A),

•

Any donation of stock in trade, inventory, or

property held primarily for sale to custom-

ers in the ordinary course of your trade or

business.

The donee organization isn't a qualified ap-

praiser for the purpose of valuing the donated

property. For more information, get Publication

561, Determining the Value of Donated Prop-

erty.

Form 8283. For noncash donations over

$5,000, the donor must attach Form 8283 to the

tax return to support the charitable deduction.

The donee must sign Part IV of Section B, Form

8283 unless publicly traded securities are don-

ated. The person who signs for the donee must

be an official authorized to sign the donee's tax

or information returns, or a person specifically

authorized to sign by that official. The signature

doesn't represent concurrence in the appraised

value of the contributed property. A signed ac-

knowledgment represents receipt of the prop-

erty described on Form 8283 on the date speci-

fied on the form. The signature also indicates

knowledge of the information reporting require-

ments on dispositions, as previously discussed.

A copy of Form 8283 must be given to the do-

nee.

Information Provided to

Donors

In some situations, a donor must obtain certain

information from a donee organization to obtain

a deduction for a charitable contribution. In

other situations, the donee organization is re-

quired to provide information to the donor.

A charitable organization must give a donor

a disclosure statement for a quid pro quo contri-

bution over $75. (See Disclosure statement.,

later) This is a payment a donor makes to a

charity partly as a contribution and partly for

goods or services. See Quid pro quo contribu-

tion below for an example.

Failure to make the required disclosure may

result in a penalty to the organization. A donor

can't deduct a charitable contribution of $250 or

more unless the donor has a written acknowl-

edgment from the charitable organization.

In certain circumstances, an organization

may be able to meet both of these requirements

with the same written document.

Disclosure of

Quid Pro Quo Contributions

A charitable organization must provide a written

disclosure statement to donors of a quid pro

quo contribution over $75.

Quid pro quo contribution. A contribution

made by a donor in exchange for goods or serv-

ices is known as a quid pro quo contribution.

Your charitable organization must provide the

donor a written statement informing the donor of

the fair market value of the items or services it

provided in exchange for the contribution. Gen-

erally, a written statement is required for each

payment, whenever the contribution portion is

over $75.

Example. If a donor gives your charity $100

and receives a concert ticket valued at $40, the

donor has made a quid pro quo contribution. In

this example, the charitable part of the payment

is $60. Even though the deductible part of the

payment isn't more than $75, a written state-

ment must be filed because the total payment is

more than $75. If your organization fails to dis-

close quid pro quo contributions, the organiza-

tion may be subject to a penalty.

Disclosure statement. The required written

disclosure statement must:

1. Inform the donor that the amount of the

contribution that is deductible for federal

income tax purposes is limited to the ex-

cess of any money (and the value of any

property other than money) contributed by

the donor over the fair market value of

goods or services provided by the charity,

and

2. Provide the donor with a good faith esti-

mate of the fair market value of the goods

or services that the donor received.

The charity must furnish the statement in con-

nection with either the solicitation or the receipt

of the quid pro quo contribution. If the disclo-

sure statement is furnished in connection with a

particular solicitation, it isn't necessary for the

organization to provide another statement when

it actually receives the contribution.

No disclosure statement is required if any of

the following are true.

1. The goods or services given to a donor

have insubstantial value, as described in

Rev. Proc. 90-12, 1990-1 C.B. 471, Rev.

Proc. 90-12, and Rev. Proc. 92-49, 1992-1

C.B. 507 (as adjusted for inflation), Rev.

Proc. 92-49.

2. There is no donative element involved in a

particular transaction with a charity (for ex-

ample, there is generally no donative ele-

ment involved in a visitor's purchase from

a museum gift shop).

3. There is only an intangible religious benefit

provided to the donor. The intangible reli-

gious benefit must be provided to the do-

nor by an organization organized exclu-

sively for religious purposes, and must be

of a type that generally isn't sold in a com-

mercial transaction outside the donative

context. For example, a donor who, for a

payment, is granted admission to a reli-

gious ceremony for which there is no ad-

mission charge is provided an intangible

religious benefit. A donor isn't provided in-

tangible religious benefits for payments

made for tuition for education leading to a

recognized degree, travel services, or con-

sumer goods.

4. The donor makes a payment of $75 or less

per year and receives only annual mem-

bership benefits that consist of:

a. Any rights or privileges (other than the

right to purchase tickets for college

athletic events) that the taxpayer can

exercise often during the membership

period, such as free or discounted ad-

missions or parking or preferred ac-

cess to goods or services; or

b. Admission to events that are open

only to members and the cost per per-

son of which is within the limits for

low-cost articles described in Rev.

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16 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2024)

Proc. 90-12 (as adjusted for inflation),

Rev. Proc. 90-12.

Good faith estimate of fair market value

(FMV). An organization can use any reasona-

ble method to estimate the FMV of goods or

services it provided to a donor, as long as it ap-

plies the method in good faith.

The organization can estimate the FMV of

goods or services that generally aren't commer-

cially available by using the FMV of similar or

comparable goods or services. Goods or serv-

ices may be similar or comparable even if they

don't have the unique qualities of the goods or

services being valued.

Example 1. A charity provides a 1-hour ten-

nis lesson with a tennis professional for the first

$500 payment it receives. The tennis professio-

nal provides 1-hour lessons on a commercial

basis for $100. A good faith estimate of the les-

son's FMV is $100.

Example 2. For a payment of $50,000, a

museum allows a donor to hold a private event

in a room of the museum. A good faith estimate

of the FMV of the right to hold the event in the

museum can be made by using the cost of rent-

ing a hotel ballroom with a capacity, amenities,

and atmosphere comparable to the museum

room, even though the hotel ballroom lacks the

unique art displayed in the museum room. If the

hotel ballroom rents for $2,500, a good faith es-

timate of the FMV of the right to hold the event

in the museum is $2,500.

Example 3. For a payment of $1,000, a

charity provides an evening tour of a museum

conducted by a well-known artist. The artist

doesn't provide tours on a commercial basis.

Tours of the museum normally are free to the

public. A good faith estimate of the FMV of the

evening museum tour is $0 even though it is

conducted by the artist.

Penalty for failure to disclose. A penalty is

imposed on a charity that doesn't make the re-

quired disclosure of a quid pro quo contribution

of more than $75. The penalty is $10 per contri-

bution, not to exceed $5,000 per fundraising

event or mailing. The charity can avoid the pen-

alty if it can show that the failure was due to rea-

sonable cause.

Acknowledgment of

Charitable Contributions of

$250 or More

A donor can deduct a charitable contribution of

$250 or more only if the donor has a written ac-

knowledgment from the charitable organization.

The donor must get the acknowledgment by the

earlier of:

1. The date the donor files the original return

for the year the contribution is made, or

2. The due date, including extensions, for fil-

ing the return.

The donor is responsible for requesting and ob-

taining the written acknowledgment from the

donee. A charitable organization that receives a

payment made as a contribution is treated as

the donee organization for this purpose even if

the organization (according to the donor's in-

structions or otherwise) distributes the amount

received to one or more charities.

Quid pro quo contribution. If the donee pro-

vides goods or services to the donor in ex-

change for the contribution (a quid pro quo con-

tribution), the acknowledgment must include a

good faith estimate of the value of the goods or

services. See Disclosure of Quid Pro Quo Con-

tributions, earlier.

Form of acknowledgment. Although there is

no prescribed format for the written acknowl-

edgment, it must provide enough information to

substantiate the amount of the contribution. For

more information, see Publication 1771, Chari-

table Contributions – Substantiation and Disclo-

sure Requirements.

Cash contributions. To deduct a contribu-

tion of cash, a check, or other monetary gift (re-

gardless of the amount), a donor must maintain

a bank record or a written communication from

the donee organization showing the donee's

name, date, and amount of the contribution. In

the case of a lump-sum contribution (rather than

a contribution by payroll deduction) made

through the Combined Federal Campaign or a

similar program such as a United Way Cam-

paign, the written communication must include

the name of the donee organization that is the

ultimate recipient of the charitable contribution.

Contributions by payroll deduction. An

organization may substantiate an employee's

contribution by deduction from its payroll by:

•

A pay stub, Form W-2, or other document

showing a contribution to a donee organi-

zation, together with

•

A pledge card or other document from the

donee organization that shows its name.

For contributions of $250 or more, the docu-

ment must state that the donee organization

provides no goods or services for any payroll

contributions. The amount withheld from each

payment of wages to a taxpayer is treated as a

separate contribution.

Acknowledgment of Vehicle

Contribution

If an exempt organization receives a contribu-

tion of a qualified vehicle with a claimed value of

more than $500, the donee organization is re-

quired to provide a contemporaneous written

acknowledgment to the donor. The donee or-

ganization can use a completed Form 1098-C,

Contributions of Motor Vehicles, Boats, and Air-

planes, for the contemporaneous written ac-

knowledgment. See section 3.03 of Notice

2005-44, 2005-25 I.R.B. 1287 for guidance on

the information that must be included in a con-

temporaneous written acknowledgment and the

deadline for furnishing the acknowledgment to

the donor.

Any donee organization that provides a con-

temporaneous written acknowledgment to a do-

nor is required to report to the IRS the informa-

tion contained in the acknowledgment. The

report is due by February 28 (March 31 if filing

electronically) of the year following the year in

which the donee organization provides the

acknowledgment to the donor. The organization

must file the report on Copy A of Form 1098-C.

An organization that files Form 1098-C on

paper should send it with Form 1096, Annual

Summary and Transmittal of U.S. Information

Returns. See the Instructions for Form 1096 for

the correct filing location.

An organization that is required to file 250 or

more Forms 1098-C during the calendar year

must file the forms electronically or magneti-

cally. Specifications for filing Form 1098-C elec-

tronically or magnetically can be found in Publi-

cation 1220, Specifications for Filing Forms

1097, 1098, 1099, 3921, 3922, 5498, 8935, and

W-2G Electronically at Pub. 1220.

Acknowledgment

For a contribution of a qualified vehicle

with a claimed value of $500 or less,

don't file Form 1098-C. However, you

can use it as the contemporaneous written ac-

knowledgment under section 170(f)(8) by pro-

viding the donor with Copy C only. See the In-

structions for Form 1098-C.

Generally, the organization should complete

Form 1098-C as the written acknowledgment to

the donor and the IRS. The contents of the ac-

knowledgment depend upon whether the or-

ganization:

•

Sells a qualified vehicle without any signifi-

cant intervening use or material improve-

ment,

•

Intends to make a significant intervening

use of or material improvement to a quali-

fied vehicle prior to sale, or

•

Sells a qualified vehicle to a needy individ-

ual at a price significantly below fair market

value, or a gratuitous transfer to a needy

individual in direct furtherance of a charita-

ble purpose of the organization of relieving

the poor and distressed or the underprivi-

leged who are in need of a means of trans-

portation.

For more information on the acknowledg-

ment, see Notice 2005-44.

Material improvements or significant inter-

vening use. To constitute significant interven-

ing use, the organization must actually use the

vehicle to substantially further the organization's

regularly conducted activities, and the use must

be significant, not incidental. Factors in deter-

mining whether a use is a significant intervening

use depend on the nature, extent, frequency,

and duration. For this purpose, use includes

providing transportation on a regular basis for a

significant period of time or significant use di-

rectly related to training in vehicle repair. Use

doesn't include the use of a vehicle to provide

training in business skills, such as marketing or

sales. Examples of significant use include:

•

Driving a vehicle every day for 1 year to de-

liver meals to needy individuals, if deliver-

ing meals is an activity regularly conducted

by the organization.

•

Driving a vehicle for 10,000 miles over a

1-year period to deliver meals to needy in-

dividuals, if delivering meals is an activity

regularly conducted by the organization.

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Publication 557 (1-2024) Chapter 2 Filing Requirements and Required Disclosures 17

Material improvements include major repairs

and additions that improve the condition of the

vehicle in a manner that significantly increases

the value. To be a material improvement, the im-

provement can't be funded by an additional pay-

ment to the organization from the donor of the

vehicle. Material improvements don't include

cleaning, minor repairs, routine maintenance,

painting, removal of dents or scratches, clean-

ing or repair of upholstery, and installation of

theft deterrent devices.

Penalties. If your charitable organization re-

ceives contributions of used motor vehicles,

boats, and airplanes valued over $500, it may

be subject to a penalty if it knowingly:

•

Fails to furnish an acknowledgement in a

timely manner, showing the required infor-

mation; or

•

Furnishes a false or fraudulent acknowl-

edgement of the contribution.

Other penalties may apply. See Part O

in the current General Instructions for

Certain Information Returns.

An acknowledgment containing a certifica-

tion will be presumed to be false or fraudulent if

the qualified vehicle is sold to a buyer other

than a needy individual without a significant in-

tervening use or material improvement within 6

months of the date of the contribution.

If a charity sells a donated vehicle at auc-

tion, the IRS won't accept as substantiation an

acknowledgment from the charity stating that

the vehicle is to be transferred to a needy indi-

vidual for significantly below fair market value.

Vehicles sold at auction aren't sold at prices sig-

nificantly below fair market value, and the IRS

won't treat vehicles sold at auction as qualifying

for this exception.

The penalty for a false or fraudulent ac-

knowledgment where the donee certifies that

the vehicle won't be transferred for money, other

property, or services before completion of mate-

rial improvements or significant intervening use

or the donee certifies that the vehicle is to be

transferred to a needy individual for significantly

below fair market value in furtherance of the do-

nee's charitable purpose is the larger of $5,000

or the claimed value of the vehicle multiplied by

39.6%.

The penalty for an acknowledgment relating

to a qualified vehicle being sold in an arm's

length transaction to an unrelated party is the

larger of the gross proceeds from the sale or the

sales price stated in the acknowledgment multi-

plied by 39.6%.

Qualified Intellectual

Property

A taxpayer who contributes qualified intellectual

property to a charity may be entitled to a chari-

table deduction, in addition to any initial deduc-

tion allowed in the year of contribution. The ad-

ditional deduction is based on a specified

percentage of the qualified donee income with

respect to the qualified intellectual property. To

qualify for the additional charitable deduction,

the donor must provide notice to the donee at

CAUTION

the time of the contribution that the donor in-

tends to treat the contribution as qualified intel-

lectual property contribution for purposes of

sections 170(m) and 6050L.

Every donee organization described in sec-

tion 170(c) (except a private foundation, as de-

fined in section 509(a), that isn't described in

section 170(b)(1)(F)) that receives or accrues

net income from a charitable gift of qualified in-

tellectual property must file Form 8899.

Form 8899. Form 8899, Notice of Income from

Donated Intellectual Property, is used by a do-

nee to report net income from qualified intellec-

tual property to the donor of the property and to

the IRS and is due by the last day of the first full

month following the close of the donee’s tax

year. This form must be filed for each tax year of

the donee in which the donated property produ-

ces net income, but only if all or part of that tax

year occurs during the 10-year period beginning

on the date of the contribution and that tax year

doesn't begin after the expiration of the legal life

of the donated property.

Qualified donee income. Qualified donee in-

come is any net income received by or accrued

to the donee that is properly allocable to the

qualified intellectual property for the tax year of

the donee which ends within or with the tax year

of the donor. Income isn't treated as allocated to

qualified intellectual property if it is received or

accrued after the earlier of the expiration of the

legal life of the qualified intellectual property, or

the 10-year period beginning with the date of

the contribution.

Qualified intellectual property. Qualified in-

tellectual property is generally any patent, copy-

right, trademark, trade name, trade secret,

know-how, software or similar property, or appli-

cations or registrations of such property (other

than property contributed to or for the use of a

private foundation, as defined in section 509(a)

that isn't described in section

170(b)(1)(F)). See Exceptions below.

Exceptions. The following property isn't

considered qualified intellectual property for

purposes of the additional charitable deduction:

1. Computer software that is readily available

for purchase by the general public, is sub-

ject to a nonexclusive license, and has not

been substantially modified.

2. A copyright held by a taxpayer:

•

Whose personal efforts created the prop-

erty, or

•

In whose hands the basis of the property is

determined, for purposes of determining

gain from a sale or exchange, in whole or

in part by reference to the basis of the

property in the hands of a taxpayer whose

personal efforts created the property.

Report of Cash Received

An exempt organization that receives, in the

course of its activities, more than $10,000 cash

in one transaction (or two or more related trans-

actions) that isn't a charitable contribution must

report the transaction to the IRS on Form 8300,

Report of Cash Payments Over $10,000 Re-

ceived in a Trade or Business.

Public Inspection

of Exemption

Applications, Annual

Returns, and Political

Organization Reporting

Forms

The general rule under section 6103 is that re-

turns and return information of all taxpayers are

confidential except as authorized under the

Code. Section 6104 provides exceptions to the

general rule of confidentiality for disclosure of

certain information about exempt organizations.

In addition, included in this section is a dis-

cussion on the public inspection requirements

for political organizations filing Forms 8871 and

8872.

Annual Information Return

An exempt organization must make available for

public inspection, upon request and without

charge, a copy of its original and amended an-

nual information returns. Each information re-

turn must be made available from the date it is

required to be filed (determined with regard to

any extensions), or is actually filed, whichever is

later. An original return doesn't have to be made

available if more than 3 years have passed from

the date the return was required to be filed (in-

cluding any extensions) or was filed, whichever

is later. An amended return doesn't have to be

made available if more than 3 years have

passed from the date it was filed.

An annual information return includes an ex-

act copy of the return (Forms 990, 990-EZ,

990-BL, 990-PF, 990-T, or 1065), and amended

return, if any, and all schedules, attachments,

and supporting documents filed with the IRS.

An annual information return doesn't in-

clude:

•

Schedule A of Form 990-BL,

•

Schedule K-1 of Form 1065, or

•

Form 1120-POL.

In the case of a tax-exempt organization

other than a private foundation, an annual infor-

mation return doesn't include the names and

addresses of contributors to the organization.

Form 990-T. All section 501(c)(3) or-

ganizations that file Form 990-T must

make the return public, regardless of

whether the organization is otherwise subject to

the disclosure requirements of section 6104.

For example, although churches aren't required

to file Form 1023 or Form 990 with the IRS, they

must file the Form 990-T with the IRS to report

unrelated business taxable income. Thus,

churches must disclose Form 990-T to the pub-

lic.

State colleges and universities that have

been recognized by the IRS as exempt under

section 501(a) as organizations described in

CAUTION

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18 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2024)

section 501(c)(3) must disclose Form 990-T to

the public. However, state colleges and univer-

sities that are subject to tax under section

511(a) solely by virtue of section 511(a)(2)(B)

and that haven't been recognized by the IRS as

exempt under section 501(a) as organizations

described in section 501(c)(3) aren't required to

make their Forms 990-T public.

Public Inspection of

Exemption Application

An exempt organization must also make availa-

ble for public inspection, without charge, its ap-

plication for tax-exempt status. An application

for tax exemption includes the application form

(such as Forms 1023 or 1024), all documents

and statements the IRS requires the organiza-

tion to file with the form, any statement or other

supporting document submitted by an organiza-

tion in support of its application, and any letter

or other document issued by the IRS concern-

ing the application.

The application for exemption doesn't in-

clude:

•

Any application from an organization that

isn't yet recognized as exempt;

•

Any material that is required to be withheld

from public inspection, see Material re-

quired to be withheld from public inspec-

tion, next;

•

In the case of a tax-exempt organization

other than a private foundation, the names

and addresses of contributors to the or-

ganization; or

•

Any applications filed before July 15, 1987,

if the organization didn't have a copy of the

application on July 15, 1987.

If there is no prescribed application form,

see Regulations section 301.6104(d)-1(b)(3)(ii)

for a list of the documents that must be made

available.

Material required to be withheld from

public inspection. Material that is required to

be withheld from public inspection includes:

•

Trade secrets, patents, processes, styles

of work, or apparatus for which withholding

was requested and granted;

•

National defense material;

•

Unfavorable rulings or determination letters

issued in response to applications for tax

exemption;

•

Rulings or determination letters revoking or

modifying a favorable determination letter;

•

Technical advice memoranda relating to a

disapproved application for tax exemption

or the revocation or modification of a favor-

able determination letter;

•

Any letter or document filed with or issued

by the IRS relating to whether a proposed

or accomplished transaction is a prohibited

transaction under section 503; and

•

Any other letter or document filed with or

issued by the IRS which, although it relates

to an organization's tax-exempt status as

an organization described in section 501(c)

or 501(d), doesn't relate to that organiza-

tion's application for tax exemption.

Time, place, and manner restrictions. The

annual returns and exemption application must

be made available for inspection, without

charge, at the organization's principal, regional,

and district offices during regular business

hours. The organization can have an employee

present during inspection, but must allow the in-

dividual to take notes freely and to photocopy at

no charge if the individual provides the photo-

copying equipment. Generally, regional and dis-

trict offices are those that have paid employees

who together are normally paid for at least 120

hours a week.

If the organization doesn't maintain a perma-

nent office, it must make its application for tax

exemption and its annual information returns

available for inspection at a reasonable location

of its choice. It must permit public inspection

within a reasonable amount of time after receiv-

ing a request for inspection (normally not more

than 2 weeks) and at a reasonable time of day.

At its option, it can mail, within 2 weeks of re-

ceiving the request, a copy of its application for

tax exemption and annual information returns to

the requester in lieu of allowing an inspection.

The organization can charge the requester for

copying and actual postage costs only if the re-

quester consents to the charge.

An organization that has a permanent office,

but has no office hours or very limited hours

during certain times of the year, must make its

documents available during those periods when

office hours are limited or not available as

though it were an organization without a perma-

nent office.

Furnishing copies. An exempt organization

must also provide a copy of all, or any specific

part or schedule, of its three most recent annual

information returns and/or exemption applica-

tion to anyone who requests a copy either in

person or in writing at its principal, regional, or

district office during regular business hours. If

the individual made the request in person, the

copy must be provided on the same business

day the request is made unless there are un-

usual circumstances. Unusual circumstances

are defined in Regulations section

301.6104(d)-1(d)(1)(ii).

The organization must honor a written re-

quest for a copy of documents or specific parts

or schedules of documents that are required to

be disclosed. However, this rule only applies if

the request:

•

Is addressed to the exempt organization's

principal, regional, or district office;

•

Is sent to that address by mail, electronic

mail (e-mail), facsimile (fax), or a private

delivery service approved by the IRS; and

•

Gives the address to where the copy of the

document should be sent.

The organization must mail the copy within

30 days from the date it receives the request.

The organization can request payment in ad-

vance and must then provide the copies within

30 days from the date it receives payment.

Fees for copies. The organization can

charge a reasonable fee for providing copies. It

can charge no more for the copies than the per

page rate the IRS charges for providing copies.

The IRS can't charge more for copies than the

fees listed in the Freedom of Information Act

(FOIA) fee schedule. Although the IRS charges

no fee for the first 100 pages, the organization

can charge a fee for all copies. For noncommer-

cial requesters, the FOIA schedule currently

provides a rate of $0.10 per page for black and

white pages, and $0.20 per page for color pa-

ges. The organization can also charge the ac-

tual postage costs it pays to provide the copies.

Regional and district offices. Generally, the

same rules regarding public inspection and pro-

viding copies of applications and annual infor-

mation returns that apply to a principal office of

an exempt organization also apply to its re-

gional and district offices. However, a regional

or district office isn't required to make its annual

information return available for inspection or to

provide copies until 30 days after the date the

return is required to be filed (including any ex-

tensions) or is actually filed, whichever is later.

Local and subordinate organizations. A lo-

cal or subordinate organization is an exempt or-

ganization that didn't file its own application for

tax exemption because it is covered by a group

exemption letter. Generally, a local or subordi-

nate organization of an exempt organization

must, upon request, make available for public

inspection, or provide copies of:

1. The application submitted to the IRS by

the central or parent organization to obtain

the group exemption letter, and

2. Those documents which were submitted

by the central or parent organization to in-

clude the local or subordinate organization

in the group exemption letter.

However, if the central or parent organization

submits to the IRS a list or directory of local or

subordinate organizations covered by the group

exemption letter, the local or subordinate organ-

ization is required to provide only the applica-

tion for the group exemption ruling and the pa-

ges of the list or directory that specifically refer

to it.

The local or subordinate organization must

permit public inspection or comply with a re-

quest for copies made in person, within a rea-

sonable amount of time (normally not more than

2 weeks) after receiving a request made in per-

son for public inspection or copies and at a rea-

sonable time of day. In lieu of allowing an in-

spection, the local or subordinate organization

can mail a copy of the applicable documents to

the person requesting inspection within the

same time period. In that case, the organization

can charge the requester for copying and actual

postage costs only if the requester consents to

the charge. If the local or subordinate organiza-

tion receives a written request for a copy of its

application for exemption, it must fulfill the re-

quest in the time and manner specified earlier.

The requester has the option of requesting

from the central or parent organization, at its

principal office, inspection or copies of the ap-

plication for group exemption and the material

submitted by the central or parent organization

to include a local or subordinate organization in

the group ruling. If the central or parent organi-

zation submits to the IRS a list or directory of lo-

cal or subordinate organizations covered by the

group exemption letter, it must make the list or

directory available for public inspection, but it is

required to provide copies only of those pages

of the list or directory that refer to particular lo-

cal or subordinate organizations specified by

the requester. The central or parent

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Publication 557 (1-2024) Chapter 2 Filing Requirements and Required Disclosures 19

organization must fulfill such requests in the

time and manner specified earlier.

A local or subordinate organization that

doesn't file its own annual information return

(because it is affiliated with a central or parent

organization that files a group return) must, on

request, make available for public inspection, or

provide copies of, the group returns filed by the

central or parent organization. However, if the

group return includes separate schedules for

each local or subordinate organization included

in the group return, the local or subordinate or-

ganization receiving the request can omit any

schedules relating only to other organizations

included in the group return. The local or subor-

dinate organization must permit public inspec-

tion, or comply with a request for copies made

in person, within a reasonable amount of time

(normally not more than 2 weeks) after receiv-

ing a request made in person for public inspec-

tion or copies and at a reasonable time of day.

In lieu of allowing an inspection, the local or

subordinate organization can mail a copy of the

applicable documents to the person requesting

inspection within the same time period. In this

case, the organization can charge the requester

for copying and actual postage costs only if the

requester consents to the charge. If the local or

subordinate organization receives a written re-

quest for a copy of its annual information return,

it must fulfill the request by providing a copy of

the group return in the time and manner speci-

fied earlier. The requester has the option of re-

questing from the central or parent organization,

at its principal office, inspection or copies of

group returns filed by the central or parent or-

ganization. The central or parent organization

must fulfill such requests in the time and man-

ner specified earlier.

If an organization fails to comply, it may be li-

able for a penalty. See Penalties, later.

Making applications and annual informa-

tion returns widely available. An exempt or-

ganization doesn't have to comply with requests

for copies of its annual information returns or

exemption application if it makes them widely

available. However, making these documents

widely available doesn't relieve the organization

from making its documents available for public

inspection.

The organization can make its application

and annual information returns widely available

by posting the application and annual informa-

tion returns on the Internet. For the rules to fol-

low so that the Internet posting will be consid-

ered widely available, see Regulations section

301.6104(d)-2(b).

If the organization has made its application

for tax exemption and/or annual information re-

turns widely available, it must inform any individ-

ual requesting a copy where the documents are

available, including the website address on the

Internet, if applicable. If the request is made in

person, the notice must be provided immedi-

ately. If the request is made in writing, the notice

must be provided within 7 days.

Harassment campaign. If the tax-exempt or-

ganization is the subject of a harassment cam-

paign, the organization may not have to fulfill re-

quests for information. For more information,

see Regulations section 301.6104(d)-3.

Political Organization

Reporting Forms

Forms 8871 and 8872 (discussed earlier under

Reporting Requirements for a Political Organi-

zation) are open to public inspection.

Form 8871. Form 8871 (including any sup-

porting papers), and any letter or other docu-

ment the IRS issues with regard to Form 8871,

are open to public inspection online at IRS.gov/

polorgs.

Form 8872. Form 8872 (including Sched-

ules A and B) are open to public inspection on-

line at IRS.gov/polorgs.

Electronically filed Forms 8871 and 8872 are

available online 48 hours after the form has

been filed. Forms 8872 that are filed by mail are

available online after being imaged by the IRS.

These forms are considered widely available if

you provide the online address to the requester.

In addition, your organization must make a copy

of these materials available for public inspection

during regular business hours at the organiza-

tion’s principal office and at each of its regional

or district offices having at least three paid em-

ployees.

Penalties

The penalty for failure to allow public inspection

of annual returns is $20 for each day the failure

continues. The maximum penalty on all persons

for failures involving any one return is $10,000.

The penalty for failure to allow public inspec-

tion of exemption applications is $20 for each

day the failure continues.

The penalty for willful failure to allow public

inspection of a return or exemption application

is $5,000 for each return or application. The

penalty also applies to a willful failure to provide

copies.

The penalty for failure to allow public inspec-

tion of a political organization's section 527 no-

tice (Form 8871) is $20 for each day the failure

continues.

The penalty for failure to allow public inspec-

tion of a section 527 organization's contribu-

tions and expenditures report (Form 8872) is

$20 for each day the failure continues. The

maximum penalty on all persons for failures in-

volving any one report is $10,000.

Required Disclosures

Certain exempt organizations must disclose to

the IRS or the public certain information about

their activities. Generally, an organization dis-

closes this information by entering it on the ap-

propriate lines of its annual return. In addition,

there are disclosure requirements for:

•

Solicitation of nondeductible contributions,

•

Sales of information or services that are

available free from the government,

•

Dues paid to the organization that aren't

deductible because they are used for lob-

bying or political activities, and

•

Prohibited tax shelter transactions.

Solicitation of Nondeductible

Contributions

Solicitations for contributions or other payments

by certain exempt organizations (including lob-

bying groups and political action committees)

must include a statement that payments to

those organizations aren't deductible as charita-

ble contributions for federal income tax purpo-

ses. The statement must be included in the

fundraising solicitation and be conspicuous and

easily recognizable.

Organizations subject to requirements. An

organization must follow these disclosure re-

quirements if it is exempt under section 501(c),

other than section 501(c)(1), or under section

501(d), unless the organization is eligible to re-

ceive tax deductible charitable contributions un-

der section 170(c). These requirements must

be followed by, among others:

1. Social welfare organizations (section

501(c)(4));

2. Labor unions (section 501(c)(5));

3. Trade associations (section 501(c)(6));

4. Social clubs (section 501(c)(7));

5. Fraternal organizations (section 501(c)(8)

and 501(c)(10)) (however, fraternal organi-

zations described in section 170(c)(4)

must follow these requirements only for

solicitations for funds that are to be used

for noncharitable purposes not described

in section 170(c)(4));

6. Any political organization described in

section 527(e), including political cam-

paign committees and political action

committees; and

7. Any organization not eligible to receive

tax-deductible contributions if the organi-

zation or a predecessor organization was,

at any time during the 5-year period end-

ing on the date of the fundraising solicita-

tion, an organization of the type to which

this disclosure requirement applies.

Fundraising solicitation. This disclosure re-

quirement applies to a fundraising solicitation if

all of the following are true.

1. The organization soliciting the funds nor-

mally has gross receipts over $100,000

per year.

2. The solicitation is part of a coordinated

fundraising campaign that is soliciting

more than 10 persons during the year.

3. The solicitation is made in written or prin-

ted form, by television or radio, or by tele-

phone.

Penalties. Failure by an organization to make

the required statement will result in a penalty of

$1,000 for each day the failure occurred, up to a

maximum penalty of $10,000 for a calendar

year. No penalty will be imposed if it is shown

that the failure was due to reasonable cause. If

the failure was due to intentional disregard of

the requirements, the penalty may be higher

and isn't subject to a maximum amount.

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20 Chapter 2 Filing Requirements and Required Disclosures Publication 557 (1-2024)

Sales of Information or

Services Available Free from

Government

Certain organizations that offer to sell to individ-

uals (or solicit money for) information or routine

services that could be readily obtained free (or

for a nominal fee) from the federal government

must include a statement that the information or

service can be so obtained. The statement

must be made in a conspicuous and easily rec-

ognized format when the organization makes an

offer or solicitation to sell the information or

service. Organizations affected are those ex-

empt under section 501(c) or 501(d) and politi-

cal organizations defined in section 527(e).

Penalty. A penalty is provided for failure to

comply with this requirement if the failure is due

to intentional disregard of the requirement. The

penalty is the greater of $1,000 for each day the

failure occurred, or 50% of the total cost of all

offers and solicitations that were made by the

organization the same day that it fails to meet

the requirement.

Dues Used for Lobbying

or Political Activities

Certain exempt organizations must notify any-

one paying dues to the organization whether

any part of the dues isn't deductible because it

is related to lobbying or political activities.

An organization must provide the notice if it

is exempt from tax under section 501(a) and is

one of the following.

1. A social welfare organization described in

section 501(c)(4) that isn't a veterans' or-

ganization.

2. An agricultural or horticultural organization

described in section 501(c)(5).

3. A business league, chamber of com-

merce, real estate board, or other organi-

zation described in section 501(c)(6).

However, an organization described in (1), (2),

or (3) doesn't have to provide the notice if it es-

tablishes that substantially all the dues paid to it

aren't deductible anyway or if certain other con-

ditions are met. For more information, see Rev.

Proc. 98-19, 1998-1 C.B. 547 (or later update).

If the organization doesn't provide the re-

quired notice, it may have to pay a tax that is re-

ported on Form 990-T. But the tax doesn't apply

to any amount on which the section 527 tax has

been paid on Form 1120-POL. See Political Or-

ganization Income Tax Return, earlier.

For more information about nondeductible

dues, see Deduction not allowed for dues used

for political or legislative activities. under Sec-

tion 501(c)(6) organizations, later.

Prohibited Tax Shelter

Transactions

Every exempt organization (as defined in sec-

tion 4965(c)) that is a party to a prohibited tax

shelter transaction is required to disclose to the

IRS the following information:

•

Whether such organization is a party to the

prohibited tax shelter transaction (as de-

fined in section 4965(e)); and

•

The identity of any other party to the trans-

action that is known to the exempt organi-

zation.

Party to a prohibited tax shelter transac-

tion. An exempt organization is a party to a

prohibited tax shelter transaction if the organi-

zation:

1. Facilitates a prohibited tax shelter transac-

tion by reason of its tax-exempt, tax-indif-

ferent, or tax-favored status; or

2. Is identified in published guidance by type,

class, or role as a party to a prohibited tax

shelter transaction.

See Prohibited Tax Shelter Transactions,

later, for further information.

Disclosure. A single disclosure is made by the

organization for each prohibited tax shelter

transaction. The disclosure is made on Form

8886-T, Disclosure by Tax-Exempt Entity Re-

garding Prohibited Tax Shelter Transaction.

Due date. Generally, for exempt organiza-

tions described in 1 above, the disclosure is due

on or before May 15 of the calendar year follow-

ing the close of the calendar year that the ex-

empt organization entered into the prohibited

tax shelter transaction. If any date falls on a Sat-

urday, Sunday, or legal holiday, substitute the

next business day. However, the disclosure for

subsequently listed transactions (as defined in

section 4965(e)(2)) is due on or before May 15

of the calendar year following the close of the

calendar year that the transaction was identified

by the Secretary as a listed transaction.

The disclosure for exempt organizations de-

scribed in 2 above is due on or before the date

the first tax return (whether original or amended

return) is filed that reflects a reduction or elimi-

nation of the exempt organization's liability for

applicable federal employment, excise, or unre-

lated business income taxes that is derived di-

rectly or indirectly from tax consequences or tax

strategy described in the published guidance

that lists the transaction.

Penalty. Exempt organizations that fail to file

the required disclosure are subject to a nondi-

sclosure penalty of $100 for each day the failure

continues with a maximum penalty for any one

disclosure of $50,000.

Also, if the IRS makes a written demand on

any exempt organization subject to this penalty,

giving the organization a reasonable date to

make the disclosure, and the organization fails

to make the disclosure by that date, the organi-

zation is subject to a penalty of $100 for each

day after the date specified by the IRS until dis-

closure is made (with a maximum penalty for

any one disclosure of $10,000).

Miscellaneous Rules

Organizational Changes and

Exempt Status

If you’ve changed your form or place of organi-

zation, review Rev. Proc. 2018-15, 2018-9 I.R.B.

379, to determine whether you’re required to file

a new exemption application. If your organiza-

tion becomes inactive for a period of time but

doesn't cease being an entity under the laws of

the state in which it was formed, you will have to

continue to file an annual information return dur-

ing the period of inactivity, unless a filing excep-

tion applies. If your organization has been liqui-

dated, dissolved, terminated, or substantially

contracted, you should file your annual return of

information by the 15th day of the 5th month af-

ter the change and follow the applicable instruc-

tions for the form.

If your organization amends its articles of or-

ganization or its internal regulations (bylaws),

then follow the instructions for Form 990, Form

990-EZ, or Form 990-PF for reporting these

changes. Regardless of whether your organiza-

tion files an annual information return, you may

also report these changes to the EO Determina-

tions office; however, such reporting doesn't re-

lieve your organization from reporting the

changes on its annual information return. For in-

formation about informing the IRS of a termina-

tion or merger, see Publication 4779, Facts

about Terminating or Merging Your Exempt Or-

ganization.

An organization should report new signifi-

cant program services or significant changes in

how it conducts program services, and signifi-

cant changes to its organizational documents,

on its Form 990 rather than in a letter to EO De-

terminations. EO Determinations no longer is-

sues letters confirming the tax-exempt status of

organizations that report new services or signifi-

cant changes, or changes to organizational

documents.

Change in Accounting Period

The procedures that an organization must follow

to change its accounting period differ for an in-

dependent organization and for a central organ-

ization that seeks a group change for its subor-

dinate organizations.

Independent organizations. If an organiza-

tion isn't required to file an annual information

return, but files a Form 990-T, it can change its

annual accounting period by timely filing the

Form 990-T. If neither an information return nor

a Form 990-T is required to be filed, an organi-

zation must notify the IRS by letter that it has

changed its fiscal period.

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-

quirement, the organization must file a Form

1128, Application to Adopt, Change, or Retain a

Tax Year, with its timely filed annual information

return or Form 990-T, as appropriate, whether or

not the filing of the information return or Form

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Publication 557 (1-2024) Chapter 2 Filing Requirements and Required Disclosures 21

990-T would have otherwise been required for

that year.

Central organizations. A central organization

can obtain approval for a group change in an

annual accounting period for its subordinate or-

ganizations on a group basis only by filing Form

1128 with the IRS Service Center where it files

its annual information return. For more informa-

tion, see Rev. Proc. 76-10, 1976-1 C.B. 548, as

modified by Rev. Proc. 79-3, 1979-1 C.B. 483,

or any later updates.

Due date. Form 1128 must be filed by the 15th

day of the 5th month following the close of the

short period.

Modify or Obtain an NTEE

Code.

Organizations that wish to modify or obtain a

National Taxonomy of Exempt Entities (NTEE)

Code should send a written request to the Cor-

respondence Unit with the relevant facts, includ-

ing the Code currently assigned, if any, and the

requested Code, as well as who selected the

currently assigned Code initially, if known. The

Correspondence Unit will refer to EO Determi-

nations, if necessary, and will notify the organi-

zation if a form or user fee is required to make

the requested change. The written request must

be sent or faxed to:

Internal Revenue Service

Attn: Correspondence Unit

P.O. Box 2508, Room 6403

Cincinnati, OH 45201

Fax: (855) 204-6184

Express and Overnight Delivery:

Internal Revenue Service

Attn: Correspondence Unit

500 Main Street, Room 6403

Cincinnati, OH 45202

Section

501(c)(3)

Organizations

Introduction

An organization may qualify for exemption from

federal income tax under section 501(c)(3) if it

is organized and operated exclusively for one or

more of the following purposes.

•

Religious.

•

Charitable.

•

Scientific.

•

Testing for public safety.

•

Literary.

•

Educational.

•

Fostering national or international amateur

sports competition (but only if none of its

activities involve providing athletic facilities

or equipment; however, see Amateur Ath-

letic Organizations, later in this chapter).

•

The prevention of cruelty to children or ani-

mals.

To qualify, the organization must be organ-

ized as a corporation (including a limited liability

company), unincorporated association, or trust.

Sole proprietorships, partnerships, individuals,

or loosely associated groups of individuals

won't qualify.

Examples. Qualifying organizations include:

•

Nonprofit old-age homes,

•

Parent-teacher associations,

•

Charitable hospitals or other charitable or-

ganizations,

•

Alumni associations,

•

Schools,

•

Chapters of the Red Cross,

•

Boys' or Girls' Clubs, and

•

Churches.

Child care organizations. The term edu-

cational purposes includes providing for care of

children away from their homes if substantially

all the care provided is to enable individuals

(the parents) to be gainfully employed and the

services are available to the general public.

Instrumentalities. A state or municipal instru-

mentality may qualify under section 501(c)(3) if

it is organized as a separate entity from the gov-

ernmental unit that created it and if it otherwise

meets the organizational and operational tests

of section 501(c)(3). Examples of a qualifying

instrumentality may include state schools, uni-

versities, or hospitals. However, if an organiza-

tion is an integral part of the local government or

possesses governmental powers, it doesn't

qualify for exemption. A state or municipality it-

self doesn't qualify for exemption under section

501(c)(3).

Topics

This chapter discusses:

•

Contributions to 501(c)(3) organizations,

•

Applications for recognition of exemption,

•

Articles of Organization,

•

Educational organizations and private

schools,

•

Organizations providing insurance,

•

Other section 501(c)(3) organizations,

•

Private foundations and public charities,

and

•

Lobbying expenditures.

Useful Items

You may want to see:

Forms (and Instructions)

1023 Application for Recognition of

Exemption Under Section 501(c)(3)

of the Internal Revenue Code

1023-EZ Streamlined Application for

Recognition of Exemption Under

1023

1023-EZ

Section 501(c)(3) of the Internal

Revenue Code

Form 1023 and Form 1023-EZ must be filed

electronically on Pay.gov.

See chapter 6 for information about getting pub-

lications and forms.

Contributions to

501(c)(3) Organizations

Contributions to domestic organizations descri-

bed in this chapter, except organizations testing

for public safety, are deductible as charitable

contributions on the donor's federal income tax

return.

Fundraising events. If the donor receives

something of value in return for the contribution,

a common occurrence with fundraising efforts,

part or all of the contribution may not be deduc-

tible. This may apply to fundraising activities

such as charity balls, bazaars, banquets, auc-

tions, concerts, athletic events, and solicitations

for membership or contributions when merchan-

dise or benefits are given in return for payment

of a specified minimum contribution.

If the donor receives or expects to receive

goods or services in return for a contribution to

your organization, the donor can't deduct any

part of the contribution unless the donor intends

to, and does, make a payment greater than the

fair market value of the goods or services. If a

deduction is allowed, the donor can deduct only

the part of the contribution, if any, that is more

than the fair market value of the goods or serv-

ices received. You should determine in advance

the fair market value of any goods or services to

be given to contributors and tell them, when you

publicize the fundraising event or solicit their

contributions, how much is deductible and how

much is for the goods or services. See Disclo-

sure of Quid Pro Quo Contributions in chap-

ter 2.

Exemption application not filed. Generally,

donors can't deduct any charitable contribution

to an organization that is required to apply for

recognition of exemption but has not done so.

Separate fund—contributions that are de-

ductible. An organization that is exempt from

federal income tax other than as an organiza-

tion described in section 501(c)(3) can, if it de-

sires, establish a fund, separate and apart from

its other funds, exclusively for religious, charita-

ble, scientific, literary, or educational purposes,

fostering national or international amateur

sports competition, or for the prevention of cru-

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

deductible, as provided by section 170. A fund

with these characteristics must be organized in

such a manner as to prohibit the use of its funds

upon dissolution, or otherwise, for the general

purposes of the organization creating it.

Personal benefit contracts. Generally, chari-

table deductions won't be allowed for a transfer

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22 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

to, or for the use of, a section 501(c)(3) or (c)(4)

organization if in connection with the transfer:

•

The organization directly or indirectly pays,

or previously paid, a premium on a per-

sonal benefit contract for the transferor; or

•

There is an understanding or expectation

that anyone will directly or indirectly pay a

premium on a personal benefit contract for

the transferor.

A personal benefit contract with respect to

the transferor is any life insurance, annuity, or

endowment contract, if any direct or indirect

beneficiary under the contract is the transferor,

any member of the transferor's family, or any

other person designated by the transferor.

Certain annuity contracts. If an organiza-

tion incurs an obligation to pay a charitable gift

annuity, and the organization purchases an an-

nuity contract to fund the obligation, individuals

receiving payments under the charitable gift an-

nuity won't be treated as indirect beneficiaries if

the organization owns all of the incidents of

ownership under the contract, is entitled to all

payments under the contract, and the timing

and amount of the payments are substantially

the same as the timing and amount of payments

to each person under the obligation (as such

obligation is in effect at the time of the transfer).

Certain contracts held by a charitable

remainder trust. An individual won't be con-

sidered an indirect beneficiary under a life insur-

ance, annuity, or endowment contract held by a

charitable remainder annuity trust or a charita-

ble remainder unitrust solely by reason of being

entitled to the payment if the trust owns all of

the incidents of ownership under the contract,

and the trust is entitled to all payments under

the contract.

Excise tax. If the premiums are paid in con-

nection with a transfer for which a deduction

isn't allowable under the deduction denial rule,

without regard to when the transfer to the chari-

table organization was made, an excise tax will

be applied that is equal to the amount of the

premiums paid by the organization on any life

insurance, annuity, or endowment contract. The

excise tax doesn't apply if all of the direct and

indirect beneficiaries under the contract are or-

ganizations.

Excise taxes. A charitable organization lia-

ble for excise taxes must file Form 4720, Return

of Certain Excise Taxes Under Chapters 41 and

42 of the Internal Revenue Code. Generally, the

due date for filing Form 4720 occurs on the 15th

day of the 5th month following the close of the

organization's tax year.

Indoor tanning services. If your organiza-

tion provides an indoor tanning bed service, the

ACA imposed a 10% excise tax on services pro-

vided after June 30, 2010. For more informa-

tion, go to IRS.gov and select Affordable Care

Act Tax Provisions.

Application for

Recognition of

Exemption

This discussion describes certain information to

be provided upon application for recognition of

exemption by all organizations created for any

of the purposes described earlier in this chap-

ter. See the organization headings that follow

for specific information your organization may

need to provide.

Form 1023 or Form 1023-EZ. Your organiza-

tion must file its application for recognition of ex-

emption on Form 1023 or Form 1023-EZ. See

chapter 1 and the instructions accompanying

Form 1023 or Form 1023-EZ for the procedures

to follow in applying. Some organizations aren't

required to file Form 1023 or Form 1023-EZ.

See Organizations Not Required to File Form

1023 or 1023-EZ, later.

If you are a small organization, you may be

eligible to apply for recognition of exemption by

filing Form 1023-EZ instead of Form 1023. Spe-

cific eligibility requirements apply. You can find

more information about eligibility to use Form

1023-EZ at Instructions for Form 1023-EZ.

Additional information to help you com-

plete your application can be found on-

line. Go to Exemption Requirement –

Section 501(c)(3) Organizations and select the

link at the bottom of the web page for step by

step help with the application process. See

Exemption Requirements - Section 501(c)(3)

Organizations.

Form 1023 and accompanying statements

must show that all of the following are true.

1. The organization is organized exclusively

for, and will be operated exclusively for,

one or more of the purposes (religious,

charitable, etc.) specified in the introduc-

tion to this chapter.

2. No part of the organization's net earnings

will inure to the benefit of private share-

holders or individuals. You must establish

that your organization won't be organized

or operated for the benefit of private inter-

ests, such as the creator or the creator's

family, shareholders of the organization,

other designated individuals, or persons

controlled directly or indirectly by such pri-

vate interests.

3. The organization won't, as a substantial

part of its activities, attempt to influence

legislation (unless it elects to come under

the provisions allowing certain lobbying

expenditures) or participate to any extent

in a political campaign for or against any

candidate for public office. See Political

activity, next, and Lobbying Expenditures,

near the end of this chapter.

Political activity. If any of the activities

(whether or not substantial) of your organization

consist of participating in, or intervening in, any

political campaign on behalf of (or in opposition

to) any candidate for public office, your organi-

zation won't qualify for tax-exempt status under

TIP

section 501(c)(3). Such participation or inter-

vention includes the publishing or distributing of

statements. See the Form 1023 instructions.

Whether your organization is participating or

intervening, directly or indirectly, in any political

campaign on behalf of (or in opposition to) any

candidate for public office depends upon all of

the facts and circumstances of each case. Cer-

tain voter education activities or public forums

conducted in a nonpartisan manner may not be

prohibited political activity under section 501(c)

(3), while other so-called voter education activi-

ties may be prohibited.

Effective date of exemption. Most organiza-

tions described in this chapter that were organ-

ized after October 9, 1969, won't be treated as

tax exempt unless they apply for recognition of

exemption by filing Form 1023 or Form

1023-EZ. These organizations won't be treated

as tax exempt for any period before they file

Form 1023 or Form 1023-EZ, unless they file

the form within 27 months from the end of the

month in which they were organized. If the or-

ganization files the application within this

27-month period, the organization's exemption

will generally be recognized retroactively to the

date it was organized. Otherwise, exemption will

be recognized only from the date of receipt. The

date of receipt is the date of the U.S. postmark

on the cover in which an exemption application

is mailed or, if no postmark appears on the

cover, the date the application is stamped as re-

ceived by the IRS or, for an electronic submis-

sion, the date submitted to the IRS. See section

6.08 of Rev. Proc. 2024-5.

Private delivery service. You can use cer-

tain private delivery services (PDS) designated

by the IRS to meet the “timely mailing as timely

filing” rule for tax returns. Go to IRS.gov/PDS for

the current list of designated services.

The PDS can tell you how to get written proof of

the mailing date.

For the IRS mailing address to use if you're us-

ing a PDS, go to IRS.gov/PDStreetAddresses.

Private delivery services can't deliver

items to P.O. boxes. You must use the

U.S. Postal Service to mail any item to

an IRS P.O. box address.

Amendments to organizing documents

required. If an organization is required to alter

its activities or to make substantive amend-

ments to its organizing document, the determi-

nation letter recognizing its exempt status will

be effective as of the date the changes are

made. If only a nonsubstantive amendment is

made, exempt status will be effective as of the

date it was organized, if the application was

filed within the 27-month period, or the date the

application was filed.

Discretionary extension of time for filing.

An organization that fails to file a Form 1023

within the 27-month period may be granted an

extension to file if it submits evidence (including

affidavits) to establish that:

1. It acted reasonably and in good faith, and

CAUTION

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 23

2. Granting a discretionary extension won't

prejudice the interests of the government.

The discretionary extension of the time for filing

Form 1023 does not apply if granting relief

would result in the organization’s exempt status

being automatically revoked for failure to file a

required annual information return or notice for

3 consecutive years, effective before the appli-

cation date. See Rev. Proc. 2024-5.

Additionally, organizations that are not re-

quired to apply for recognition of exemption in

order to be exempt are not eligible to request

the discretionary extension. See Rev. Proc.

2024-5. However, these organizations may be

exempt prior to the effective date the IRS recog-

nizes exempt status because they may be

tax-exempt under Section 501(c)(3) without fil-

ing an application. See Organizations Not Re-

quired to File Form 1023 or Form 1023-EZ.

How to show reasonable action and

good faith. The following factors are consid-

ered in determining whether an organization ac-

ted reasonably and showed good faith.

1. The organization failed to file an applica-

tion because of intervening events beyond

its control.

2. The organization exercised reasonable dil-

igence (taking into account the complexity

of the filing or issue and the organization's

experience in these matters) but wasn't

aware of the application filing requirement.

3. The organization reasonably relied upon

the written advice of the IRS.

4. The organization reasonably relied upon

the advice of a qualified tax professional

who failed to file or advise the organization

to file Form 1023 or Form 1023-EZ. An or-

ganization can't rely on the advice of a tax

professional if it knows or should know that

they aren’t competent to render advice on

filing exemption applications or isn't aware

of all the relevant facts.

5. The organization filed required Form

990-series returns or notices consistent

with its requested status.

Not acting reasonably and in good faith.

An organization has not acted reasonably and

in good faith under the following circumstances.

1. It seeks to change a return position for

which an accuracy-related penalty has

been or could be imposed at the time the

relief is requested.

2. It was informed of the requirement to file

and related tax consequences, but chose

not to file.

3. It uses hindsight in requesting relief. The

IRS won't ordinarily grant an extension if

specific facts have changed since the due

date that makes filing an application ad-

vantageous to an organization.

4. Granting the request for relief would result

in the organization’s tax-exempt status be-

ing automatically revoked effective before

the application date.

Prejudicing the interest of the govern-

ment. Prejudice to the interest of the

government results if granting an extension of

time to file to an organization results in a lower

total tax liability for the years to which the filing

applies than would have been the case if the or-

ganization had filed on time. Before granting an

extension, the IRS can require the organization

requesting it to submit a statement from an in-

dependent auditor certifying that no prejudice

will result if the extension is granted.

The interests of the government are ordina-

rily prejudiced if the tax year in which the appli-

cation should have been filed (or any tax year

that would have been affected had the filing

been timely) are closed by the statute of limita-

tions before relief is granted. Therefore, the re-

quest for relief will not be granted if the period of

limitations on assessment under section

6501(a) for any taxable year for which the or-

ganization claims tax-exempt status has expired

prior to the date of application. See Rev. Proc

2024-5. The IRS can condition a grant of relief

on the organization providing the IRS with a

statement from an independent auditor certify-

ing that the interests of the Government aren't

prejudiced.

Procedure for requesting extension. To

request a discretionary extension, an organiza-

tion must submit the relevant portions of Form

1023, Schedule E, including describing in detail

the events that led to the failure to apply and to

the discovery of that failure. If the organization

relied on a tax professional's advice, the sched-

ule should describe the engagement and re-

sponsibilities of the professional and the extent

to which the organization relied on the tax pro-

fessional. An organization applying for section

501(c)(3) status can no longer request the ex-

tension by filing Form 1023-EZ and then sub-

mitting correspondence to the IRS.

A request for this relief in connection with an

application for exemption doesn't require pay-

ment of an additional user fee. Also, a request

for relief under the automatic 12-month exten-

sion doesn't require payment of a user fee.

More information. For more information

about these procedures, see Regulations sec-

tions 301.9100-1, 301.9100-2, and 301.9100-3,

Rev. Proc. 2024-5.

Notification from the IRS. Organizations filing

Form 1023 or Form 1023-EZ and satisfying all

requirements of section 501(c)(3) will be noti-

fied of their exempt status in writing.

Organizations Not Required

to File Form 1023 or Form

1023-EZ

Some organizations aren't required to file Form

1023 or 1023-EZ. These include:

•

Churches, interchurch organizations of lo-

cal units of a church, conventions or asso-

ciations of churches, or integrated auxilia-

ries of a church, such as a men's or

women's organization, religious school,

mission society, or youth group.

•

Any organization (other than a private foun-

dation) normally having annual gross re-

ceipts of not more than $5,000 (see Gross

receipts test, later).

These organizations are exempt automati-

cally if they meet the requirements of section

501(c)(3). However, such organizations will not

appear on the Tax-Exempt Organization Search

list of organizations eligible to receive tax-de-

ductible contributions. These organizations also

cannot obtain a written affirmation of their ex-

empt status. To be included in the IRS database

of exempt organizations and be eligible to re-

ceive a written determination or affirmation of

exempt status, these organization must file

Form 1023 or 1023-EZ.

Filing Form 1023 or 1023-EZ to establish

exemption. If the organization wants to estab-

lish its exemption with the IRS and receive a de-

termination letter recognizing its exempt status,

it should file Form 1023 or 1023-EZ (if eligible).

By establishing its exemption, potential contrib-

utors are assured by the IRS that contributions

will be deductible. A subordinate organization

(other than a private foundation) covered by a

group exemption letter doesn't have to submit a

Form 1023 or Form 1023-EZ for itself.

Private foundations. See Private Founda-

tions and Public Charities, later in this chapter,

for more information about the additional notice

required from an organization in order for it not

to be presumed to be a private foundation and

for the additional information required from a

private foundation claiming to be an operating

foundation.

Gross receipts test. For purposes of the

gross receipts test, an organization normally

doesn't have more than $5,000 annually in

gross receipts if:

1. During its first tax year the organization re-

ceived gross receipts of $7,500 or less,

2. During its first 2 years the organization had

a total of $12,000 or less in gross receipts,

and

3. In the case of an organization that has

been in existence for at least 3 years, the

total gross receipts received by the organi-

zation during the immediately preceding 2

years, plus the current year, are $15,000

or less.

An organization with gross receipts more

than the amounts in the gross receipts test, un-

less otherwise exempt from filing Form 1023 or

Form 1023-EZ, must apply for recognition of ex-

emption within 90 days after the end of the pe-

riod in which the amounts are exceeded. For ex-

ample, an organization's gross receipts for its

first tax year were less than $7,500, but at the

end of its second tax year its gross receipts for

the 2-year period were more than $12,000. The

organization must apply for recognition of ex-

emption within 90 days after the end of its sec-

ond tax year.

If the organization had existed for at least 3

tax years and had met the gross receipts test for

all prior tax years but fails to meet the require-

ment for the current tax year, its tax-exempt sta-

tus for the prior years won't be lost even if it

does not apply for recognition of exemption

within 90 days after the close of the current tax

year. However, the organization won't be treated

as a section 501(c)(3) organization for the pe-

riod beginning with the current tax year and

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24 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

ending with the filing of its application for recog-

nition of exemption .

Example. An organization is organized and

operated exclusively for charitable purposes

and isn't a private foundation. It was incorpora-

ted on January 1, 2017, and files returns on a

calendar-year basis. It didn't apply for recogni-

tion of exemption. The organization's gross re-

ceipts during the years 2017 through 2020 were

as follows:

2017 ............................ $3,600

2018 ............................ 2,900

2019 ............................ 400

2020 ............................ 12,600

The organization's total gross receipts for

2017, 2018, and 2019 were $6,900. Therefore,

it didn't have to apply for recognition of exemp-

tion and is exempt for those years. However, for

2018, 2019, and 2020 the total gross receipts

were $15,900. Therefore, the organization must

apply for recognition of exemption within 90

days after the end of its 2020 tax year. If it

doesn't apply within this time period, it won't be

exempt under section 501(c)(3) for the period

beginning with tax year 2020 ending when the

application for recognition of exemption is re-

ceived by the IRS. The organization, however,

won't lose its exempt status for the tax years

ending before January 1, 2020.

The IRS will consider applying the Commis-

sioner's discretionary authority to extend the

time for filing an application for recognition of

exemption. See the procedures for this exten-

sion discussed earlier.

Articles of Organization

Your organization must be a legal entity (corpo-

ration, trust, or association) separate from its or-

ganizers and must have written articles of or-

ganization. Depending upon the type of entity,

its articles of organization may be a corporate

charter (filed articles of incorporation), trust in-

strument, articles of association, or any other

written instrument by which the organization

was created. If applying for recognition of ex-

emption using Form 1023, a conformed copy of

the articles of organization must be uploaded

with the application for recognition of exemp-

tion. See Form 1023, Part II. An organization

applying for exemption using Form 1023-EZ

does not submit a copy of the articles of organi-

zation with its application; however, the organi-

zation could be asked to provide a copy at any

time as part of a compliance check or examina-

tion.

Organizational Test

The articles of organization must limit the organ-

ization's purposes to one or more of those de-

scribed at the beginning of this chapter and

mustn't expressly empower it to engage, other

than as an insubstantial part of its activities, in

activities that don't further one or more of those

purposes. These conditions for exemption are

referred to as the organizational test.

Section 501(c)(3) is the provision of law that

grants exemption to the organizations

described in this chapter. Therefore, the organi-

zational test may be met if the purposes stated

in the articles of organization are limited in

some way by reference to section 501(c)(3).

The requirement that your organization's

purposes and powers must be limited by the ar-

ticles of organization isn't satisfied if the limit is

contained only in the bylaws or other rules or

regulations. Moreover, the organizational test

isn't satisfied by statements of your organiza-

tion's officers that you intend to operate only for

exempt purposes. Also, the test isn't satisfied by

the fact that your actual operations are for ex-

empt purposes.

In interpreting an organization's articles, the

law of the state where the organization was cre-

ated is controlling. If an organization contends

that the terms of its articles have a different

meaning under state law than their generally ac-

cepted meaning, such meaning must be estab-

lished by a clear and convincing reference to

relevant court decisions, opinions of the state

attorney general, or other appropriate state au-

thorities.

The following are examples illustrating the

organizational test.

Example 1. Articles of organization state

that an organization is formed exclusively for lit-

erary and scientific purposes within the mean-

ing of section 501(c)(3). These articles appro-

priately limit the organization's purposes. The

organization meets the organizational test.

Example 2. An organization, by the terms

of its articles, is formed to engage in research

without any further description or limitation. The

organization won't be properly limited as to its

purposes since all research isn't scientific. The

organization doesn't meet the organizational

test.

Example 3. An organization's articles state

that its purpose is to receive contributions and

pay them over to organizations that are descri-

bed in section 501(c)(3) and exempt from taxa-

tion under section 501(a). The organization

meets the organizational test.

Example 4. If a stated purpose in the arti-

cles is the conduct of a school of adult educa-

tion and its manner of operation is described in

detail, such a purpose will be satisfactorily limi-

ted.

Example 5. If the articles state the organi-

zation is formed for charitable purposes, without

any further description, such language ordina-

rily will be sufficient since the term charitable

has a generally accepted legal meaning. On the

other hand, if the purposes are stated to be

charitable, philanthropic, and benevolent, the

organizational requirement won't be met since

the terms philanthropic and benevolent have no

generally accepted legal meaning and, there-

fore, the stated purposes may, under the laws of

the state, permit activities that are broader than

those intended by the exemption law.

Example 6. If the articles state an organiza-

tion is formed to promote American ideals, or to

foster the best interests of the people, or to fur-

ther the common welfare and well-being of the

community, without any limitation or provision

restricting such purposes to accomplishment

only in a charitable manner, the purposes won't

be sufficiently limited. Such purposes are vague

and may be accomplished other than in an ex-

empt manner.

Example 7. A stated purpose to operate a

hospital doesn't meet the organizational test

since it isn't necessarily charitable. A hospital

may or may not be exempt depending on the

manner in which it is operated.

Example 8. An organization that is ex-

pressly empowered by its articles to carry on

social activities won't be sufficiently limited as to

its power, even if its articles state that it is or-

ganized and will be operated exclusively for

charitable purposes.

Dedication and

Distribution of Assets

Assets of an organization must be permanently

dedicated to an exempt purpose. This means

that should an organization dissolve, its assets

must be distributed for an exempt purpose de-

scribed in this chapter, or to the Federal Gov-

ernment or to a state or local government for a

public purpose. If the assets could be distrib-

uted to members or private individuals or for

any other purpose, the organizational test isn't

met.

Dedication. To establish that your organi-

zation's assets will be permanently dedicated to

an exempt purpose, the articles of organization

should contain a provision ensuring their distri-

bution for an exempt purpose in the event of dis-

solution. Although reliance can be placed upon

state law to establish permanent dedication of

assets for exempt purposes, review of an appli-

cation for exemption may be facilitated if the ar-

ticles of organization include a provision ensur-

ing permanent dedication of assets for exempt

purposes.

Distribution. Rev. Proc. 82-2, 1982-1 C.B.

367, identifies the states and circumstances in

which the IRS won't require an express provi-

sion for the distribution of assets upon dissolu-

tion in the articles of organization. The proce-

dure also provides a sample of an acceptable

dissolution provision for organizations required

to have one.

If a named beneficiary is to be the distribu-

tee, it must be one that would qualify and would

be exempt within the meaning of section 501(c)

(3) at the time the dissolution takes place. Since

the named beneficiary at the time of dissolution

may not be qualified, may not be in existence,

or may be unwilling or unable to accept the as-

sets of the dissolving organization, a provision

should be made for distribution of the assets for

one or more of the purposes specified in this

chapter in the event of any such contingency.

Sample articles of organization. See sample

articles of organization in the Appendix in the

back of this publication.

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 25

Educational

Organizations

and Private Schools

If your organization wants to obtain recognition

of exemption as an educational organization,

you must submit complete information as to

how your organization carries on or plans to

carry on its educational activities, such as by

conducting a school, by panels, discussions,

lectures, forums, radio and television programs,

or through various cultural media such as muse-

ums, symphony orchestras, or art exhibits. In

each instance, you must explain by whom and

where these activities are or will be conducted

and the amount of admission fees, if any. You

must submit a copy of the pertinent contracts,

agreements, publications, programs, etc.

If you are organized to conduct a school,

you must submit full information regarding your

tuition charges, number of faculty members,

number of full-time and part-time students en-

rolled, courses of study and degrees conferred,

together with a copy of your school catalog. See

Form 1023, Schedule B and Private Schools,

discussed later.

Educational Organizations

The term educational relates to:

1. The instruction or training of individuals for

the purpose of improving or developing

their capabilities, or

2. The instruction of the public on subjects

useful to individuals and beneficial to the

community.

Advocacy of a position. Advocacy of a partic-

ular position or viewpoint may be educational if

there is a sufficiently full and fair exposition of

pertinent facts to permit an individual or the

public to form an independent opinion or con-

clusion. The mere presentation of unsupported

opinion isn't educational.

Method not educational. The method

used by an organization to develop and present

its views is a factor in determining if an organi-

zation qualifies as educational within the mean-

ing of section 501(c)(3). The following factors

may indicate that the method isn't educational.

1. The presentation of viewpoints unsuppor-

ted by facts is a significant part of the or-

ganization's communications.

2. The facts that purport to support the view-

point are distorted.

3. The organization's presentations make

substantial use of inflammatory and dis-

paraging terms and express conclusions

more on the basis of emotion than of ob-

jective evaluations.

4. The approach used isn't aimed at develop-

ing an understanding on the part of the au-

dience because it doesn't consider their

background or training.

Exceptional circumstances, however, may

exist where an organization's advocacy may be

educational even if one or more of the factors

listed above are present.

Qualifying organizations. The following types

of organizations may qualify as educational:

1. An organization, such as a primary or sec-

ondary school, a college, or a professional

or trade school, that has a regularly sched-

uled curriculum, a regular faculty, and a

regularly enrolled student body in attend-

ance at a place where the educational ac-

tivities are regularly carried on;

2. An organization whose activities consist of

conducting public discussion groups, fo-

rums, panels, lectures, or other similar pro-

grams;

3. An organization that presents a course of

instruction by correspondence or through

the use of television or radio;

4. A museum, zoo, planetarium, symphony

orchestra, or other similar organization;

5. A nonprofit children's day-care center; and

6. A credit counseling organization.

College book stores, cafeterias, restau-

rants, etc. These and other on-campus organi-

zations should submit information to show that

they are controlled by and operated for the con-

venience of the faculty and student body or by

whom they are controlled and whom they serve.

Alumni association. An alumni associa-

tion should establish that it is organized to pro-

mote the welfare of the university with which it is

affiliated, is subject to the control of the univer-

sity as to its policies and destination of funds,

and is operated as an integral part of the univer-

sity or is otherwise organized to promote the

welfare of the college or university. If your asso-

ciation doesn't have these characteristics, it

may still be exempt as a social club if it meets

the requirements described in chapter 4, under

501(c)(7) - Social and Recreation Clubs.

Athletic organization. This type of organi-

zation must submit evidence that it is engaged

in activities such as directing and controlling in-

terscholastic athletic competitions, conducting

tournaments, and prescribing eligibility rules for

contestants. If it isn't so engaged, your organi-

zation may be exempt as a social club descri-

bed in chapter 4. Raising funds to be used for

travel and other activities to interview and per-

suade prospective students with outstanding

athletic ability to attend a particular university

doesn't show an exempt purpose. If your organi-

zation isn't exempt as an educational organiza-

tion, see Amateur Athletic Organizations, later

in this chapter.

Private Schools

Every private school filing an application for rec-

ognition of tax-exempt status must supply the

IRS (on Schedule B, Form 1023) with the follow-

ing information.

1. The racial composition of the student

body, and of the faculty and administrative

staff, as of the current academic year.

(This information must also be projected,

so far as may be feasible, for the next aca-

demic year.)

2. The amount of scholarship and loan funds,

if any, awarded to students enrolled and

the racial composition of students who

have received the awards.

3. A list of the school's incorporators, found-

ers, board members, and donors of land or

buildings, whether individuals or organiza-

tions.

4. A statement indicating whether any of the

persons described in item (3) above have

an objective of maintaining segregated

public or private school education at the

time the application is filed and, if so,

whether any of the individuals described in

item (3) are officers or active members of

those organizations at the time the appli-

cation is filed.

5. The public school district and county in

which the school is located.

How to determine racial composition. The

racial composition of the student body, faculty,

and administrative staff can be an estimate

based on the best information readily available

to the school, without requiring student appli-

cants, students, faculty, or administrative staff to

submit to the school information that the school

otherwise doesn't require. Nevertheless, a

statement of the method by which the racial

composition was determined must be supplied.

The identity of individual students or members

of the faculty and administrative staff shouldn't

be included with this information.

A school that is a state or municipal instru-

mentality (see Instrumentalities, near the begin-

ning of this chapter), whether or not it qualifies

for exemption under section 501(c)(3), isn't con-

sidered to be a private school for purposes of

the following discussion.

Racially Nondiscriminatory Policy

To qualify as an organization exempt from fed-

eral income tax, a private school must include a

statement in its charter, bylaws, or other govern-

ing instrument, or in a resolution of its governing

body, that it has a racially nondiscriminatory pol-

icy as to students and that it doesn't discrimi-

nate against applicants and students on the ba-

sis of race, color, or national or ethnic origin.

Also, the school must circulate information that

clearly states the school's admission policies. A

racially nondiscriminatory policy toward stu-

dents means that the school admits the stu-

dents of any race to all the rights, privileges,

programs, and activities generally accorded or

made available to students at that school and

that the school doesn't discriminate on the ba-

sis of race in administering its educational poli-

cies, admission policies, scholarship and loan

programs, and athletic and other school-admin-

istered programs.

The IRS considers discrimination on the ba-

sis of race to include discrimination on the basis

of color or national or ethnic origin.

The existence of a racially discriminatory

policy with respect to the employment of faculty

and administrative staff is indicative of a racially

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26 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

discriminatory policy as to students. Con-

versely, the absence of racial discrimination in

the employment of faculty and administrative

staff is indicative of a racially nondiscriminatory

policy as to students.

A policy of a school that favors racial minor-

ity groups with respect to admissions, facilities

and programs, and financial assistance isn't dis-

crimination on the basis of race when the pur-

pose and effect of this policy is to promote es-

tablishing and maintaining the school's

nondiscriminatory policy.

A school that selects students on the basis

of membership in a religious denomination or

unit isn't discriminating if membership in the de-

nomination or unit is open to all on a racially

nondiscriminatory basis.

Policy statement. The school must include a

statement of its racially nondiscriminatory policy

in all its brochures and catalogs dealing with

student admissions, programs, and scholar-

ships. Also, the school must include a reference

to its racially nondiscriminatory policy in other

written advertising that it uses to inform pro-

spective students of its programs.

Publicity requirement. The school must make

its racially nondiscriminatory policy known to all

segments of the general community served by

the school. Selective communication of a ra-

cially nondiscriminatory policy that a school pro-

vides solely to leaders of racial groups won't be

considered an effective means of communica-

tion to make the policy known to all segments of

the community. To satisfy this requirement, the

school must use one of the following three

methods.

Method one. The school can publish a no-

tice of its racially nondiscriminatory policy in a

newspaper of general circulation that serves all

racial segments of the community. Such publi-

cation must be repeated at least once annually

during the period of the school's solicitation for

students or, in the absence of a solicitation pro-

gram, during the school's registration period.

When more than one community is served by a

school, the school can publish the notice in

those newspapers that are reasonably likely to

be read by all racial segments in the communi-

ties that the school serves.

If this method is used, the notice must meet

the following printing requirements.

1. It must appear in a section of the newspa-

per likely to be read by prospective stu-

dents and their families.

2. It must occupy at least 3 column inches.

3. It must have its title printed in at least 12

point bold face type.

4. It must have the remaining text printed in

at least 8 point type.

The following is an acceptable example of

the notice:

NOTICE OF

NONDISCRIMINATORY POLICY

AS TO STUDENTS

The M School admits students of any race,

color, national and ethnic origin to all the

rights, privileges, programs, and activities

generally accorded or made available to

students at the school. It doesn't

discriminate on the basis of race, color,

national and ethnic origin in administration

of its educational policies, admissions

policies, scholarship and loan programs,

and athletic and other school-administered

programs.

Method two. The school can use the

broadcast media to publicize its racially nondis-

criminatory policy if this use makes the policy

known to all segments of the general commun-

ity the school serves. If the school uses this

method, it must provide documentation showing

that the means by which this policy was com-

municated to all segments of the general com-

munity was reasonably expected to be effective.

In this case, appropriate documentation would

include copies of the tapes or scripts used and

records showing that there was an adequate

number of announcements. The documentation

also would include proof that these announce-

ments were made during hours when they were

likely to be communicated to all segments of the

general community, that they were long enough

to convey the message clearly, and that they

were broadcast on radio or television stations

likely to be listened to by substantial numbers of

members of all racial segments of the general

community. Announcements must be made dur-

ing the period of the school's solicitation for stu-

dents or, in the absence of a solicitation pro-

gram, during the school's registration period.

Method three. Rev. Proc. 2019-22,

2019-22 I.R.B. 1260 modifies Rev. Proc. 75-50,

1975-2 C.B. 587, to reflect technological advan-

ces since its publication and provides a third

method for a private school to satisfy the re-

quirement contained in section 4.03 of the reve-

nue procedure by using its Internet website to

publicize the school’s racially nondiscriminatory

policy as to students. To satisfy the requirement

using this method, the school may display a no-

tice (consisting of the same language as in

Method 1) of its racially nondiscriminatory pol-

icy on its primary publicly accessible Internet

homepage at all times during its taxable year

(excluding temporary outages due to website

maintenance or technical problems) in a man-

ner reasonably expected to be noticed by visi-

tors to the homepage. See Rev. Proc. 2019-22

for more information about satisfying the publi-

city requirement using this method.

Exceptions. The publicity requirements

won't apply in the following situations.

First, if for the preceding 3 years the en-

rollment of a parochial or other church-rela-

ted school consists of students at least

75% of whom are members of the sponsor-

ing religious denomination or unit, the

school can make known its racially nondis-

criminatory policy in whatever newspapers

or circulars the religious denomination or

unit uses in the communities from which

the students are drawn. These newspapers

and circulars can be distributed by a partic-

ular religious denomination or unit or by an

association that represents a number of re-

ligious organizations of the same denomi-

nation. If, however, the school advertises in

newspapers of general circulation in the

community or communities from which its

students are drawn and the second excep-

tion (discussed next) doesn't apply to the

school, then it must comply with either of

the publicity requirements explained ear-

lier.

Second, if a school customarily draws a

substantial percentage of its students na-

tionwide, worldwide, from a large geo-

graphic section or sections of the United

States, or from local communities, and if

the school follows a racially nondiscrimina-

tory policy as to its students, the school

may satisfy the publicity requirement by

complying with the instructions explained

earlier under Policy statement.

The school can demonstrate that it follows a

racially nondiscriminatory policy either by show-

ing that it currently enrolls students of racial mi-

nority groups in meaningful numbers or, except

for local community schools, when minority stu-

dents aren't enrolled in meaningful numbers,

that its promotional activities and recruiting ef-

forts in each geographic area were reasonably

designed to inform students of all racial seg-

ments in the general communities within the

area of the availability of the school. The ques-

tion as to whether a school demonstrates such

a policy satisfactorily will be determined on the

basis of the facts and circumstances of each

case.

The IRS recognizes that the failure by a

school drawing its students from local commun-

ities to enroll racial minority group students may

not necessarily indicate the absence of a ra-

cially nondiscriminatory policy when there are

relatively few or no such students in these com-

munities. Actual enrollment is, however, a

meaningful indication of a racially nondiscrimi-

natory policy in a community in which a public

school or schools became subject to a desegre-

gation order of a federal court or are otherwise

expressly obligated to implement a desegrega-

tion plan under the terms of any written contract

or other commitment to which any federal

agency was a party.

The IRS encourages schools to satisfy the

publicity requirement by using either of the

methods described earlier, even though a

school considers itself to be within one of the

Exceptions. The IRS believes that these publi-

city requirements are the most effective meth-

ods to make known a school's racially nondis-

criminatory policy. In this regard, it is each

school's responsibility to determine whether ei-

ther of the exceptions applies. Such responsibil-

ity will prepare the school, if it is audited by the

IRS, to demonstrate that the failure to publish its

racially nondiscriminatory policy in accordance

with either one of the publicity requirements

was justified by one of the exceptions. Also, a

school must be prepared to demonstrate that it

has publicly disavowed or repudiated any state-

ments purported to have been made on its be-

half (after November 6, 1975) that are contrary

to its publicity of a racially nondiscriminatory

policy as to students, to the extent that the

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 27

school or its principal official was aware of these

statements.

Facilities and programs. A school must be

able to show that all of its programs and facili-

ties are operated in a racially nondiscriminatory

manner.

Scholarship and loan programs. As a gen-

eral rule, all scholarship or other comparable

benefits obtainable at the school must be of-

fered on a racially nondiscriminatory basis. This

must be known throughout the general com-

munity being served by the school and should

be referred to in its publicity. Financial assis-

tance programs, as well as scholarships and

loans made under financial assistance pro-

grams, that favor members of one or more racial

minority groups and that don't significantly de-

tract from or are designed to promote a school's

racially nondiscriminatory policy won't ad-

versely affect the school's exempt status.

Certification. An individual authorized to take

official action on behalf of a school that claims

to be racially nondiscriminatory as to students

must certify annually, under penalties of perjury,

on Schedule E (Form 990) or Form 5578, An-

nual Certification of Racial Nondiscrimination

for a Private School Exempt From Federal In-

come Tax, whichever applies, that to the best of

their knowledge and belief the school has satis-

fied all requirements that apply, as previously

explained.

Failure to comply with the guidelines ordina-

rily will result in the proposed revocation of the

exempt status of a school.

Recordkeeping requirements. With

certain exceptions, given later, each

exempt private school must maintain

the following records for a minimum period of 3

years, beginning with the year after the year of

compilation or acquisition.

1. Records indicating the racial composition

of the student body, faculty, and adminis-

trative staff for each academic year.

2. Records sufficient to document that schol-

arship and other financial assistance is

awarded on a racially nondiscriminatory

basis.

3. Copies of all materials used by or on be-

half of the school to solicit contributions.

4. Copies of all brochures, catalogs, and ad-

vertising dealing with student admissions,

programs, and scholarships. (Schools ad-

vertising nationally or in a large geo-

graphic segment or segments of the Uni-

ted States need only maintain a record

sufficient to indicate when and in what

publications their advertisements were

placed.)

The racial composition of the student body, fac-

ulty, and administrative staff can be determined

in the same manner as that described at the be-

ginning of this section. However, a school can't

discontinue maintaining a system of records

that reflect the racial composition of its stu-

dents, faculty, and administrative staff used on

November 6, 1975, unless it substitutes a differ-

ent system that compiles substantially the same

RECORDS

information, without advance approval of the

IRS.

The IRS doesn't require that a school release

any personally identifiable records or personal

information except in accordance with the re-

quirements of the Family Educational Rights

and Privacy Act of 1974. Similarly, the IRS

doesn't require a school to keep records pro-

hibited under state or federal law.

Exceptions. The school doesn't have to in-

dependently maintain these records for IRS use

if both of the following are true.

1. Substantially the same information has

been included in a report or reports filed

with an agency or agencies of federal,

state, or local governments, and this infor-

mation is current within 1 year.

2. The school maintains copies of these re-

ports from which this information is readily

obtainable.

If these reports don't include all of the informa-

tion required, as discussed earlier, records pro-

viding such remaining information must be

maintained by the school for IRS use.

Failure to maintain records. Failure to

maintain or to produce the required records and

information, upon proper request, will create a

presumption that the organization has failed to

comply with these guidelines.

See Rev. Proc. 2019–22 for more informa-

tion on private school's racially nondiscrimina-

tory policy requirements.

Organizations Providing

Insurance

An organization described in sections 501(c)(3)

or 501(c)(4) may be exempt from tax only if no

substantial part of its activities consists of pro-

viding commercial-type insurance.

However, this rule doesn't apply to

state-sponsored organizations described in

sections 501(c)(26) or 501(c)(27), which are

discussed in chapter 4, or to charitable risk

pools, discussed next.

Charitable Risk Pools

A charitable risk pool is treated as organized

and operated exclusively for charitable purpo-

ses if it satisfies all of the following require-

ments:

1. Is organized and operated only to pool in-

surable risks of its members (not including

risks related to medical malpractice) and

to provide information to its members

about loss control and risk management,

2. Consists only of members that are section

501(c)(3) organizations exempt from tax

under section 501(a),

3. Is organized under state law authorizing

this type of risk pooling,

4. Is exempt from state income tax (or will be

after qualifying as a section 501(c)(3) or-

ganization),

5. Has obtained at least $1,000,000 in

startup capital from nonmember charitable

organizations,

6. Is controlled by a board of directors elec-

ted by its members, and

7. Is organized under documents requiring

that:

a. Each member be a section 501(c)(3)

organization exempt from tax under

section 501(a),

b. Each member that receives a final de-

termination that it no longer qualifies

under section 501(c)(3) notify the pool

immediately, and

c. Each insurance policy issued by the

pool provide that it won't cover events

occurring after a final determination

described in (b).

Other Section 501(c)(3)

Organizations

In addition to the information required for all or-

ganizations, as described earlier, you should in-

clude any other information described in this

section.

Charitable Organizations

If your organization is applying for recognition of

exemption as a charitable organization, it must

show that it is organized and operated for pur-

poses that are beneficial to the public interest.

Some examples of this type of organization are

those organized for:

•

Relief of the poor, the distressed, or the un-

derprivileged;

•

Advancement of religion;

•

Advancement of education or science;

•

Erection or maintenance of public build-

ings, monuments, or works;

•

Lessening the burdens of government;

•

Lessening of neighborhood tensions;

•

Elimination of prejudice and discrimination;

•

Defense of human and civil rights secured

by law; and

•

Combating community deterioration and

juvenile delinquency.

The rest of this section contains a description of

the information to be provided by certain spe-

cific organizations. This information is in addi-

tion to the required inclusions described in

chapter 1, and other statements requested on

Form 1023 or 1023-EZ. Each of the following

organizations must submit the information de-

scribed.

Charitable organization supporting educa-

tion. Submit information showing how your or-

ganization supports education — for example,

contributes to an existing educational institution,

endows a professorial chair, contributes toward

paying teachers' salaries, or contributes to an

educational institution to enable it to carry on re-

search.

Scholarships. If the organization awards or

plans to award scholarships, complete Sched-

ule H of Form 1023. Also, submit the following:

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28 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

1. Criteria used for selecting recipients, in-

cluding the rules of eligibility;

2. How and by whom the recipients are or will

be selected;

3. If awards are or will be made directly to in-

dividuals, whether information is required

assuring that the student remains in

school;

4. If awards are or will be made to recipients

of a particular class, for example, children

of employees of a particular employer—

a. Whether any preference is or will be

accorded an applicant by reason of

the parent's position, length of em-

ployment, or salary;

b. Whether as a condition of the award

the recipient must upon graduation

accept employment with the com-

pany; and

c. Whether the award will be continued

even if the parent's employment ends.

5. A copy of the scholarship application form

and any brochures or literature describing

the scholarship program.

Hospital. If you are organized to operate a

charitable hospital, complete and attach Sec-

tion I of Schedule C, Form 1023.

If your hospital was transferred to you from

proprietary ownership, complete and attach

Schedule G of Form 1023. You must attach a

list showing:

1. The names of the active and courtesy staff

members of the proprietary hospital, as

well as the names of your medical staff

members after the transfer to nonprofit

ownership; and

2. The names of any doctors who continued

to lease office space in the hospital after

its transfer to nonprofit ownership and the

amount of rent paid. Submit also an ap-

praisal showing the fair rental value of the

rented space.

Clinic. Schedule C, Form 1023, is also de-

signed to encompass outpatient clinics. If you

are organized to operate a clinic, provide infor-

mation regarding:

1. A description of the facilities and services;

2. To whom the services are offered, such as

the public at large or a specific group;

3. How charges are determined, such as on

a profit basis, to recover costs, or at less

than cost;

4. By whom administered and controlled;

5. Whether any of the professional staff (that

is, those who perform or will perform the

clinical services) also serve or will serve in

an administrative capacity; and

6. How compensation paid to the professio-

nal staff is or will be determined.

Organization providing loans. If you make,

or will make, loans for charitable and educa-

tional purposes, submit the following informa-

tion.

1. An explanation of the circumstances under

which such loans are, or will be, made.

2. Criteria for selection, including the rules of

eligibility.

3. How and by whom the recipients are or will

be selected.

4. Manner of repayment of the loan.

5. Security required, if any.

6. Interest charged, if any, and when payable.

7. Copies in duplicate of the loan application

and any brochures or literature describing

the loan program.

Public-interest law firms. If your organization

was formed to litigate in the public interest (as

opposed to providing legal services to the

poor), such as in the area of protection of the

environment, you should submit the following in-

formation.

1. How the litigation can reasonably be said

to be representative of a broad public in-

terest rather than a private one.

2. Whether the organization will accept fees

for its services.

3. A description of the cases litigated or to be

litigated and how they benefit the public

generally.

4. Whether the policies and program of the

organization are the responsibility of a

board or committee representative of the

public interest, which is neither controlled

by employees or persons who litigate on

behalf of the organization nor by any or-

ganization that isn't itself an organization

described in this chapter.

5. Whether the organization is operated,

through sharing of office space or other-

wise, in a way to create identification or

confusion with a particular private law firm.

6. Whether there is an arrangement to pro-

vide, directly or indirectly, a deduction for

the cost of litigation that is for the private

benefit of the donor.

Acceptance of attorneys' fees. A non-

profit public-interest law firm can accept attor-

neys' fees in public-interest cases if the fees are

paid directly by its clients and the fees aren't

more than the actual costs incurred in the case.

Upon undertaking a representation, the organi-

zation can't withdraw from the case because the

litigant is unable to pay the fee.

Firms can accept fees awarded or approved

by a court or an administrative agency and paid

by an opposing party if the firms don't use the

likelihood or probability of fee awards as a con-

sideration in the selection of cases. All fee

awards must be paid to the organization and not

to its individual staff attorneys. Instead, a pub-

lic-interest law firm can reasonably compensate

its staff attorneys, but only on a straight salary

basis. Private attorneys, whose services are re-

tained by the firm to assist it in particular cases,

can be compensated by the firm, but only on a

fixed fee or salary basis.

The total amount of all attorneys' fees (court

awarded and those received from clients)

mustn't be more than 50% of the total cost of

operations of the organization's legal functions,

calculated over a 5-year period.

If, to carry out its program, an organization

violates applicable canons of ethics, disrupts

the judicial system, or engages in any illegal ac-

tion, the organization will jeopardize its exemp-

tion.

Religious Organizations

To determine whether an organization meets

the religious purposes test of section 501(c)(3),

the IRS maintains two basic guidelines.

1. That the particular religious beliefs of the

organization are truly and sincerely held.

2. That the practices and rituals associated

with the organization's religious belief or

creed aren't illegal or contrary to clearly

defined public policy.

Therefore, your group (or organization) may not

qualify for treatment as an exempt religious or-

ganization for tax purposes if its actions, as con-

trasted with its beliefs, are contrary to well es-

tablished and clearly defined public policy. If

there is a clear showing that the beliefs (or doc-

trines) are sincerely held by those professing

them, the IRS won't question the religious na-

ture of those beliefs.

Churches. Although a church, its integrated

auxiliaries, or a convention or association of

churches isn't required to file Form 1023 to be

exempt from federal income tax or to receive tax

deductible contributions, the organization may

find it advantageous to obtain recognition of ex-

emption. See Form 1023, Schedule A. In this

event, you should submit information showing

that your organization is a church, synagogue,

association or convention of churches, religious

order, or religious organization that is an integral

part of a church, and that it is engaged in carry-

ing out the function of a church.

In determining whether an admittedly reli-

gious organization is also a church, the IRS

doesn't accept every assertion that the organi-

zation is a church. Because beliefs and practi-

ces vary widely, there is no single definition of

the word church for tax purposes. The IRS con-

siders the facts and circumstances of each or-

ganization applying for church status.

Convention or association of churches.

Any organization that is otherwise a convention

or association of churches won't fail to qualify

as a church merely because the membership of

the organization includes individuals as well as

churches or because the individuals have voting

rights in the organization.

Integrated auxiliaries. An organization is

an integrated auxiliary of a church if all the fol-

lowing are true.

1. The organization is described both in sec-

tions 501(c)(3) and 509(a)(1), 509(a)(2),

or 509(a)(3).

2. It is affiliated with a church or a convention

or association of churches.

3. It is internally supported. An organization

is internally supported unless both of the

following are true.

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 29

a. It offers admissions, goods, services,

or facilities for sale, other than on an

incidental basis, to the general public

(except goods, services, or facilities

sold at a nominal charge or for a small

part of the cost).

b. It normally gets more than 50% of its

support from a combination of govern-

mental sources, public solicitation of

contributions, and receipts from the

sale of admissions, goods, perform-

ance of services, or furnishing of fa-

cilities in activities that aren't unrela-

ted trades or businesses.

Special rule. Men's and women's organiza-

tions, seminaries, mission societies, and youth

groups that satisfy (1) and (2) shown earlier are

integrated auxiliaries of a church even if they

aren't internally supported.

In order for an organization (including a

church and religious organization) to qualify for

tax exemption, no part of its net earnings can in-

ure to any individual.

Although an individual is entitled to a chari-

table deduction for contributions to a church,

the assignment or similar transfer of compensa-

tion for personal services to a church generally

doesn't relieve a taxpayer of federal income tax

liability on the compensation, regardless of the

motivation behind the transfer.

Scientific Organizations

You must show that your organization's re-

search will be carried on in the public interest.

Scientific research will be considered to be in

the public interest if the results of the research

(including any patents, copyrights, processes,

or formulas) are made available to the public on

a nondiscriminatory basis; if the research is per-

formed for the United States or a state, county,

or municipal government; or if the research is

carried on for one of the following purposes.

1. Aiding in the scientific education of college

or university students.

2. Obtaining scientific information that is pub-

lished in a treatise, thesis, trade publica-

tion, or in any other form that is available to

the interested public.

3. Discovering a cure for a disease.

4. Aiding a community or geographical area

by attracting new industry to the commun-

ity or area, or by encouraging the develop-

ment or retention of an industry in the

community or area.

Scientific research, for exemption purposes,

doesn't include activities of a type ordinarily in-

cidental to commercial or industrial operations

such as the ordinary inspection or testing of ma-

terials or products, or the designing or con-

structing of equipment, buildings, etc.

If you engage or plan to engage in research,

submit all of the following.

1. An explanation of the nature of the re-

search.

2. A brief description of research projects

completed or presently being engaged in.

3. How and by whom research projects are

determined and selected.

4. Whether you have contracted or spon-

sored research, or contemplated doing so,

and, if so, names of past sponsors or gran-

tors, terms of grants or contracts, together

with copies of any executed contracts or

grants.

5. Disposition made or to be made of the re-

sults of your research, including whether

preference has been or will be given to any

organization or individual either as to re-

sults or time of release.

6. Who will retain ownership or control of any

patents, copyrights, processes, or formu-

las resulting from your research.

7. A copy of publications or other media

showing reports of your research activities.

Only reports of your research activities or

those conducted on your behalf, as distin-

guished from those of your creators or

members conducted in their individual ca-

pacities, should be submitted.

Literary Organizations

If your organization is established to operate a

book store or engage in publishing activities of

any nature (printing, publication, or distribution

of your own material or that printed or published

by others and distributed by you), explain fully

the nature of the operations, including whether

sales are or will be made to the general public,

the type of literature involved, and how these

activities are related to your stated purposes.

Amateur Athletic

Organizations

There are two types of amateur athletic organi-

zations that can qualify for tax-exempt status.

The first type is an organization that fosters na-

tional or international amateur sports competi-

tion but only if none of its activities involve pro-

viding athletic facilities or equipment. The

second type is a Qualified amateur sports or-

ganization (discussed below). The difference is

that a qualified amateur sports organization can

provide athletic facilities and equipment.

Donations to either type of amateur athletic

organization are deductible as charitable contri-

butions on the donor's federal income tax re-

turn. However, no deduction is allowed if there

is a direct personal benefit to the donor or any

other person other than the organization.

Qualified amateur sports organization. An

organization will be a qualified amateur sports

organization if it is organized and operated:

1. Exclusively to foster national or interna-

tional amateur sports competition, and

2. Primarily to conduct national or interna-

tional competition in sports or to support

and develop amateur athletes for that

competition.

The organization's membership can be local or

regional in nature.

Prevention of Cruelty

to Children or Animals

Examples of activities that may qualify this type

of organization for exempt status are:

1. Preventing children from working in haz-

ardous trades or occupations,

2. Promoting high standards of care for labo-

ratory animals, and

3. Providing funds to pet owners to have their

pets spayed or neutered to prevent over-

breeding.

Private Foundations

and Public Charities

It is important that you determine if your organi-

zation is a private foundation. Most organiza-

tions exempt from income tax (such as organi-

zations described in section 501(c)(3)) are

presumed to be private foundations unless they

notify the IRS within a specified period of time

that they meet the requirements of section

509(a) to be treated as other than a private

foundation. This notice requirement applies to

most section 501(c)(3) organizations regardless

of when they were formed. See Form 1023, Part

VII.

Private Foundations

Every organization that qualifies for tax exemp-

tion as an organization described in section

501(c)(3) is a private foundation unless it falls

into one of the categories specifically excluded

from the definition of that term (referred to in

sections 509(a)(1), 509(a)(2), 509(a)(3), or

509(a)(4)). In effect, the definition divides these

organizations into two classes, namely private

foundations and public charities. Public chari-

ties are discussed later.

Organizations that fall into the excluded cat-

egories are generally those that either have

broad public support or actively function in a

supporting relationship to those organizations.

Organizations that test for public safety are also

excluded.

Application to IRS. Even if an organization

falls within one of the categories excluded from

the definition of private foundation, it will be pre-

sumed to be a private foundation, with some ex-

ceptions, unless it files a timely Form 1023 or

Form 1023-EZ with the IRS showing it isn't a pri-

vate foundation. This application requirement

applies to an organization regardless of when it

was organized. The only exceptions to this re-

quirement are those organizations that are ex-

cepted from the requirement of filing Form 1023

or 1023-EZ as discussed, earlier, under Organi-

zations Not Required To File Form 1023.

When to file application. If an organiza-

tion has to file the application, it must do so

within 27 months from the end of the month in

which it was organized.

If your organization is newly applying for rec-

ognition of exemption as an organization descri-

bed in this chapter (a section 501(c)(3)

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30 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

organization) and you wish to establish that

your organization is a public charity rather than

a private foundation, you must complete the ap-

plicable lines of Part VII of Form 1023 or Part IV

of Form 1023-EZ. See Application for Recogni-

tion of Exemption, earlier in this chapter, for

more information.

In determining the date on which a corpora-

tion is organized for purposes of applying for

recognition of section 501(c)(3) status, the IRS

looks to the date the corporation came into exis-

tence under the law of the state in which it is in-

corporated. For example, where state law pro-

vides that existence of a corporation begins on

the date its articles are filed by a certain state

official in the appropriate state office, the corpo-

ration is considered organized on that date.

Later nonsubstantive amendments to the ena-

bling instrument won't change the date of or-

ganization, for purposes of the filing require-

ment.

Application filed late. An organization that

states it is a private foundation when it files its

application for recognition of exemption after

the 27-month period will be treated as a section

501(c)(3) organization and as a private founda-

tion only from the date it files its application,

rather than the date that it was created or first

became described in section 501(c)(3). The or-

ganization may obtain retroactive exemption,

however, if it establishes that it qualifies for relief

from the 27-month deadline.

An organization that states it is a publicly

supported charity when it files its application for

recognition of exemption after the 27-month pe-

riod can't be treated as a section 501(c)(3) or-

ganization before the date it files the applica-

tion, except as discussed above. Financial

support received before that date can't be used

for purposes of determining whether the organi-

zation is publicly supported. However, an organ-

ization that can reasonably be expected to meet

the support requirements (discussed later un-

der Public Charities) when it applies for tax-ex-

empt status will be classified as a publicly sup-

ported charity and not a private foundation.

Excise taxes on private foundations. There

is an excise tax on the net investment income of

most domestic private foundations. In addition,

excise taxes may be imposed on the private

foundation or disqualified persons if the founda-

tion or disqualified persons have engaged in

certain transactions or activities. Managers may

also be subject to excise tax for their role in ap-

proving the activity. See Chapter 5 for more in-

formation on excise taxes.

Governing instrument. A private foundation

can't be tax exempt nor will contributions to it be

deductible as charitable contributions unless its

governing instrument contains special provi-

sions in addition to those that apply to all organ-

izations described in section 501(c)(3).

Sample governing instruments. The fol-

lowing samples of governing instrument provi-

sions illustrate the special charter requirements

that apply to private foundations. Draft A is a

sample of provisions in articles of incorporation;

Draft B, a trust indenture.

Draft A

General

1. The corporation will distribute its income

for each tax year at a time and in a manner

as not to become subject to the tax on un-

distributed income imposed by section

4942 of the Internal Revenue Code, or the

corresponding section of any future fed-

eral tax code.

2. The corporation won't engage in any act of

self-dealing, as defined in section 4941(d)

of the Internal Revenue Code, or the corre-

sponding section of any future federal tax

code.

3. The corporation won't retain any excess

business holdings, as defined in section

4943(c) of the Internal Revenue Code, or

the corresponding section of any future

federal tax code.

4. The corporation won't make any invest-

ments in a manner as to subject it to tax

under section 4944 of the Internal Reve-

nue Code, or the corresponding section of

any future federal tax code.

5. The corporation won't make any taxable

expenditures, as defined in section

4945(d) of the Internal Revenue Code, or

the corresponding section of any future

federal tax code.

Draft B

Any other provisions of this instrument notwith-

standing, the trustees shall distribute its income

for each tax year at a time and in a manner as

not to become subject to the tax on undistrib-

uted income imposed by section 4942 of the In-

ternal Revenue Code, or the corresponding

section of any future federal tax code.

Any other provisions of this instrument not-

withstanding, the trustees won't engage in any

act of self-dealing as defined in section 4941(d)

of the Internal Revenue Code, or the corre-

sponding section of any future federal tax code;

nor retain any excess business holdings as de-

fined in section 4943(c) of the Internal Revenue

Code, or the corresponding section of any fu-

ture federal tax code; nor make any investments

in a manner as to incur tax liability under section

4944 of the Internal Revenue Code, or the cor-

responding section of any future federal tax

code; nor make any taxable expenditures as de-

fined in section 4945 (d) of the Internal Revenue

Code, or the corresponding section of any fu-

ture federal tax code.

Effect of state law. A private foundation's gov-

erning instrument will be considered to meet

these charter requirements if valid provisions of

state law have been enacted that:

1. Require it to act or refrain from acting so

as not to subject the foundation to the

taxes imposed on prohibited transactions,

2. Treat the required provisions as contained

in the foundation's governing instrument.

The IRS has published a list of states with

this type of law. The list is in Revenue Ruling

75-38, 1975-1 C.B. 161 (or later update).

Public Charities

A private foundation is any organization descri-

bed in Section 501(c)(3), unless it falls into one

of the categories specifically excluded from the

definition of that term in section 509(a), which

lists four basic categories of exclusions. These

categories are discussed under the Section

509(a)(1), 509(a)(2), 509(a)(3), and 509(a)(4)

Organizations headings that follow this introduc-

tion. See Section 509(a)(1) Organizations, etc.

If your organization falls into one of these

categories, it isn't a private foundation and you

should state this in Part VII of Form 1023 or Part

IV of Form 1023-EZ.

If your organization doesn't fall into one of

these categories, it is a private foundation and

is subject to the applicable rules and restrictions

until it terminates its private foundation status.

Some private foundations also qualify as private

operating foundations; these are discussed

near the end of this chapter.

Generally speaking, a large class of organi-

zations excluded under section 509(a)(1) and

all organizations excluded under section 509(a)

(2) depend upon a support test. This test is

used to assure a minimum percentage of

broad-based public support in the organiza-

tion's total support pattern. Thus, in the follow-

ing discussions, when the one-third support test

(see Qualifying as Publicly Supported, later) is

referred to, it means the following fraction nor-

mally must equal at least one-third.

Qualifying support

Total support

Including items of support in qualifying

support (the numerator of the fraction)

or excluding items of support from total

support (the denominator of the fraction) may

decide whether an organization is excluded

from the definition of a private foundation, and

thus from the liability for certain excise taxes. It

is very important to classify items of support

correctly.

Section 509(a)(1) Organizations

Section 509(a)(1) organizations include:

1. A church or a convention or association of

churches (section 170(b)(1)(A)(i)),

2. An educational organization such as a

school or college (section 170(b)(1)(A)(ii)),

3. A hospital or medical research organiza-

tion operated in conjunction with a hospital

(section 170(b)(1)(A)(iii)),

4. Endowment funds operated for the benefit

of certain state and municipal colleges

and universities (section 170(b)(1)(A)(iv)),

5. A governmental unit (section 170(b)(1)(A)

(v)),

6. An agricultural research organization (sec-

tion 170(b)(1)(A)(xi)), and

CAUTION

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 31

7. A publicly supported organization (section

170(b)(1)(A)(vi)).

Church. The characteristics of a church are

discussed earlier in this chapter under Religious

Organizations.

Educational organizations. An educational

organization that qualifies as a public charity un-

der section 170(b)(1)(A)(ii) is one whose pri-

mary function is to present formal instruction

that normally maintains a regular faculty and

curriculum and that normally has a regularly en-

rolled body of pupils or students in attendance

at the place where it regularly carries on its edu-

cational activities. The term includes institutions

such as primary, secondary, preparatory, or

high schools, and colleges and universities. It

includes federal, state, and other publicly sup-

ported schools that otherwise come within the

definition. It doesn't include organizations en-

gaged in both educational and noneducational

activities, unless the latter are merely incidental

to the educational activities. A recognized uni-

versity that incidentally operates a museum or

sponsors concerts is an educational organiza-

tion. However, the operation of a school by a

museum doesn't necessarily qualify the mu-

seum as an educational organization.

An exempt organization that operates a tu-

toring service for students on a one-to-one ba-

sis in their homes, maintains a small center to

test students to determine their need for tutor-

ing, and employs tutors on a part-time basis

isn't an educational organization for these pur-

poses. Nor is an exempt organization that con-

ducts an internship program by placing college

and university students with cooperating gov-

ernment agencies an educational organization.

Hospitals and medical research organiza-

tions. A hospital described in section 170(b)(1)

(A)(iii) is an organization whose principal pur-

pose or function is to provide hospital or medi-

cal care or either medical education or medical

research. A rehabilitation institution, outpatient

clinic, or community mental health or drug treat-

ment center may qualify as a hospital if its prin-

cipal purpose or function is providing hospital or

medical care. If the accommodations of an or-

ganization qualify as being part of a skilled

nursing facility, that organization may qualify as

a hospital if its principal purpose or function is

providing hospital or medical care.

Exceptions. The term hospital doesn't in-

clude convalescent homes, homes for children

or the aged, or institutions whose principal pur-

pose or function is to train handicapped individ-

uals to pursue a vocation. An organization that

mainly provides medical education or medical

research won't be considered a hospital, unless

it is also actively engaged in providing medical

or hospital care to patients on its premises or in

its facilities, on an in-patient or out-patient ba-

sis, as an integral part of its medical education

or medical research functions.

A cooperative hospital service organization

that meets the requirements of section 501(e)

will qualify as a hospital.

Hospitals participating in provider-spon-

sored organizations. An organization can be

treated as organized and operated exclusively

for a charitable purpose even if it owns and

operates a hospital that participates in a pro-

vider-sponsored organization, whether or not

the provider-sponsored organization is tax ex-

empt. For section 501(c)(3) purposes, any per-

son with a material financial interest in the pro-

vider-sponsored organization is treated as a

private shareholder or individual with respect to

the hospital.

Requirements for section 501(c)(3) hos-

pitals under the Affordable Care Act. The

Affordable Care Act (ACA), enacted March 23,

2010, added requirements that hospital organi-

zations must satisfy in order to be described in

section 501(c)(3), as well as reporting and ex-

cise taxes.

Requirements for charitable hospitals.

Section 501(r), added to the Code by the ACA,

imposes requirements on section 501(c)(3) or-

ganizations that operate one or more hospital

facilities (hospital organizations). Each section

501(c)(3) hospital organization is required to

meet four general requirements on a fa-

cility-by-facility basis:

•

establish written financial assistance and

emergency medical care policies,

•

limit amounts charged for emergency or

other medically necessary care to individu-

als eligible for assistance under the hospi-

tal's FAP,

•

make reasonable efforts to determine

whether an individual is eligible for assis-

tance under the hospital’s FAP before en-

gaging in extraordinary collection actions

against the individual, and

•

conduct a community health needs as-

sessment (CHNA) at least once every 3

years. (This CHNA requirement is effective

for tax years beginning after March 23,

2012).

The ACA also added section 4959, which

imposes an excise tax for failure to meet the

CHNA requirements, and added reporting re-

quirements under section 6033(b) related to

sections 501(r) and 4959. See Regulations sec-

tions 1.501(r)-1 through 1.501(r)-7.

Correction and disclosure procedures

under section 501(r). Revenue Procedure

2015–21 provides correction and disclosure

procedures under which certain failures to meet

the requirements of section 501(r) will be ex-

cused for purposes of sections 501(r)(1) and

501(r)(2)(B). See Rev. Proc. 2015–21, 2015-13

I.R.B. 817, or later guidance.

Medical research organization. A medi-

cal research organization must be directly en-

gaged in the continuous active conduct of medi-

cal research in conjunction with a hospital, and

that activity must be the organization's principal

purpose or function.

Endowment funds. Organizations operated

for the benefit of certain state and municipal col-

leges and universities may be endowment

funds described in section 170(b)(1)(A)(iv).

They are organized and operated exclusively to:

1. Receive, hold, invest, and administer prop-

erty for a college or university; and

2. Make expenditures to or for the benefit of a

college or university;

The college or university must be:

1. An agency or instrumentality of a state or

political subdivision; or

2. Owned or operated by:

a. A state or political subdivision; or

b. An agency or instrumentality of one or

more states or political subdivisions.

The phrase “expenditures to or for the bene-

fit of a college or university” includes expendi-

tures made for any one or more of the normal

functions of a college or university. These ex-

penditures include those for:

1. Acquiring and maintaining real property

comprising part of the campus area;

2. Erecting (or participating in erecting) col-

lege or university buildings;

3. Acquiring and maintaining equipment and

furnishings used for, or in conjunction with,

normal functions of colleges and universi-

ties;

4. Libraries;

5. Scholarships; and

6. Student loans.

The organization must normally receive a

substantial part of its support from the United

States or any state or political subdivision, or

from direct or indirect contributions from the

general public, or from a combination of these

sources.

Support. Support doesn't include income

received in the exercise or performance by the

organization of its charitable, educational, or

other purpose or function constituting the basis

for exemption.

In determining the amount of support re-

ceived by an organization for a contribution of

property when the value of the contribution by

the donor is subject to reduction for certain ordi-

nary income and capital gain property, the fair

market value of the property is taken into ac-

count.

Indirect contribution. An example of an

indirect contribution from the public is the re-

ceipt by the organization of its share of the pro-

ceeds of an annual collection campaign of a

community chest, community fund, or united

fund.

Governmental units. A governmental unit de-

scribed in section 170(b)(1)(A)(v) includes a

state, a territory of the United States, or a politi-

cal subdivision of either of the foregoing, or the

United States or the District of Columbia.

Agricultural research organizations. Agri-

cultural research organizations described in

section 170(b)(1)(A)(ix) operated in conjunction

with a land-grant college or university or a

non-land-grant college of agriculture may now

qualify for public charity status. See the Instruc-

tions for Form 1023 for more information.

Publicly supported organizations. An organ-

ization is a publicly supported organization if it

is one that normally receives a substantial part

of its support from a governmental unit or from

the general public.

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32 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

Types of organizations that generally qualify

are:

•

Museums of history, art, or science;

•

Libraries;

•

Community centers to promote the arts;

•

Organizations providing facilities for the

support of an opera, symphony orchestra,

ballet, or repertory drama, or for some

other direct service to the general public;

and

•

Organizations such as the American Red

Cross or the United Way.

Qualifying as Publicly Supported

An organization will qualify as publicly suppor-

ted under section 170(b)(1)(A)(vi) if it passes

the one-third support test. If it fails that test, it

may qualify under the facts and circumstances

test. An organization may also qualify as pub-

licly supported under section 509(a)(2). See

Section 509(a)(2) Organizations, later.

One-third support test. An organization will

qualify as publicly supported under section

170(b)(1)(A)(vi) if it normally receives at least

one-third of its total support from governmental

units, from contributions made directly or indi-

rectly by the general public, or from a combina-

tion of these sources. For a definition of sup-

port, see Support, later.

Definition of normally for one-third sup-

port test. An organization will be considered

as normally meeting the one-third support test

under section 170(b)(1)(A)(vi) for its current tax

year and the next tax year if, for the current tax

year and the 4 tax years immediately before the

current tax year, the organization meets the

one-third support test on an aggregate basis.

See also Computation period for public support

(Special computation period for new organiza-

tions) later, in this discussion.

Facts and circumstances test. The facts and

circumstances test is for organizations failing to

meet the one-third support test. If your organi-

zation fails to meet the one-third support test, it

may still be treated as a publicly supported or-

ganization described in section 170(b)(1)(A)(vi)

if it normally receives a substantial part of its

support from governmental units, from direct or

indirect contributions from the general public, or

from a combination of these sources. To qualify,

an organization must meet the ten-per-

cent-of-support requirement and the attraction

of public support requirement. These require-

ments establish, under all the facts and circum-

stances, that an organization normally receives

a substantial part of its support from govern-

mental units or from direct or indirect contribu-

tions from the general public. The organization

must also be in the nature of a publicly suppor-

ted organization, taking into account five differ-

ent factors. See Additional requirements (the

five public support factors), later.

Ten-percent-of-support requirement.

The percentage of support normally received by

an organization from governmental units, from

contributions made directly or indirectly by the

general public, or from a combination of these

sources must be substantial. An organization

won't be treated as normally receiving a sub-

stantial amount of governmental or public

support unless the total amount of governmen-

tal and public support normally received is at

least 10% of the total support normally received

by that organization.

Attraction of public support require-

ment. An organization must be organized and

operated in a manner to attract new and addi-

tional public or governmental support on a con-

tinuous basis. An organization will meet this re-

quirement if it maintains a continuous and bona

fide program for solicitation of funds from the

general public, community, or membership

group involved, or if it carries on activities de-

signed to attract support from governmental

units or other charitable organizations descri-

bed in section 509(a)(1). In determining

whether an organization maintains a continuous

and bona fide program for solicitation of funds

from the general public or community, consider-

ation will be given to whether the scope of its

fundraising activities is reasonable in light of its

charitable activities. Consideration will also be

given to the fact that an organization may, in its

early years of existence, limit the scope of its

solicitation to persons who would be most likely

to provide seed money sufficient to enable it to

begin its charitable activities and expand its so-

licitation program.

Definition of normally for facts and cir-

cumstances test. An organization will nor-

mally meet the requirements of the facts and

circumstances test for its current tax year and

the next tax year if, for the current tax year and

the 4 tax years immediately before the current

tax year, the organization meets the ten-per-

cent-of-support and the attraction of public sup-

port requirements on an aggregate basis and

satisfies a sufficient combination of the factors

discussed later. The combination of factors that

an organization normally must meet doesn't

have to be the same for each 4-year period as

long as a sufficient combination of factors exists

to show compliance.

Additional requirements (the five public

support factors). In addition to the two re-

quirements of the facts and circumstances test,

the following five public support factors will be

considered in determining whether an organiza-

tion is publicly supported. However, an organi-

zation generally doesn't have to satisfy all of the

factors. The factors relevant to each case and

the weight accorded to any one of them may dif-

fer depending upon the nature and purpose of

the organization and the length of time it has ex-

isted. The combination of factors that an organi-

zation normally must meet doesn't have to be

the same for each 4-year period as long as a

sufficient combination of factors exists to show

that the organization is publicly supported.

1. Percentage of financial support factor.

When an organization normally receives at least

10% but less than one-third of its total support

from public or governmental sources, the per-

centage of support received from those sources

will be considered in determining whether the

organization is publicly supported. As the per-

centage of support from public or governmental

sources increases, the burden of establishing

the publicly supported nature of the organiza-

tion through other factors decreases, while the

lower the percentage, the greater the burden.

If the percentage of the organization's sup-

port from the general public or governmental

sources is low because it receives a high per-

centage of its total support from investment in-

come on its endowment funds, the organization

will be treated as complying with this factor if

the endowment fund was originally contributed

by a governmental unit or by the general public.

However, if the endowment funds were origi-

nally contributed by a few individuals or mem-

bers of their families, this fact will increase the

burden on the organization to establish compli-

ance with other factors. Facts pertinent to years

before the 4 tax years immediately before the

current tax year may also be considered.

2. Sources of support factor. If an organi-

zation normally receives at least 10% but less

than one-third of its total support from public or

governmental sources, the fact that it receives

the support from governmental units or directly

or indirectly from a representative number of

persons, rather than receiving almost all of its

support from the members of a single family, will

be considered in determining whether the or-

ganization is publicly supported. In determining

what is a representative number of persons,

consideration will be given to the type of organi-

zation involved, the length of time it has existed,

and whether it limits its activities to a particular

community or region or to a special field that

can be expected to appeal to a limited number

of persons. Facts pertinent to years before the 4

tax years immediately before the current tax

year may also be considered.

3. Representative governing body factor.

The fact that an organization has a governing

body that represents the broad interests of the

public rather than the personal or private inter-

est of a limited number of donors will be consid-

ered in determining whether the organization is

publicly supported.

An organization will meet this requirement if

it has a governing body composed of:

1. Public officials acting in their public ca-

pacities,

2. Individuals selected by public officials act-

ing in their public capacities,

3. Persons having special knowledge or ex-

pertise in the particular field or discipline in

which the organization is operating, and

4. Community leaders, such as elected or

appointed officials, members of the clergy,

educators, civic leaders, or other such per-

sons representing a broad cross-section

of the views and interests of the commun-

ity.

In a membership organization, the governing

body should also include individuals elected by

a broadly based membership according to the

organization's governing instrument or bylaws.

4. Availability of public facilities or serv-

ices factor. The fact that an organization gen-

erally provides facilities or services directly for

the benefit of the general public on a continuing

basis is evidence that the organization is pub-

licly supported. Examples are:

•

A museum or library that is open to the

public,

•

A symphony orchestra that gives public

performances,

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 33

•

A conservation organization that provides

educational services to the public through

the distribution of educational materials, or

•

An old-age home that provides domiciliary

or nursing services for members of the

general public.

The fact that an educational or research institu-

tion regularly publishes scholarly studies widely

used by colleges and universities or by mem-

bers of the general public is also evidence that

the organization is publicly supported.

Similarly, the following factors are also evi-

dence that an organization is publicly suppor-

ted.

1. Participating in, or sponsoring, the pro-

grams of the organization by members of

the public having special knowledge or ex-

pertise, public officials, or civic or com-

munity leaders.

2. Maintaining a definitive program by the or-

ganization to accomplish its charitable

work in the community, such as slum

clearance or developing employment op-

portunities.

3. Receiving a significant part of its funds

from a public charity or governmental

agency to which it is in some way held ac-

countable as a condition of the grant, con-

tract, or contribution.

5. Additional factors pertinent to mem-

bership organizations. The following are ad-

ditional factors in determining whether a mem-

bership organization is publicly supported.

1. Whether the solicitation for dues-paying

members is designed to enroll a substan-

tial number of persons in the community or

area, or in a particular profession or field of

special interest (taking into account the

size of the area and the nature of the or-

ganization's activities).

2. Whether membership dues for individual

(rather than institutional) members have

been fixed at rates designed to make

membership available to a broad cross

section of the interested public, rather than

to restrict membership to a limited number

of persons.

3. Whether the activities of the organization

will be likely to appeal to persons having

some broad common interest or purpose,

such as educational activities in the case

of alumni associations, musical activities

in the case of symphony societies, or civic

affairs in the case of parent-teacher asso-

ciations.

Special rule. The fact that an organization

has normally met the one-third support test re-

quirements for a current tax year, but is unable

normally to meet the requirements for a later tax

year, won't in itself prevent the organization from

meeting the requirements of the facts and cir-

cumstances test for the later tax year.

Example. X is recognized as an organiza-

tion described in section 501(c)(3). On the ba-

sis of support received during tax years 2019,

2020, 2021, 2022, and 2023, it meets the

one-third support test for tax year 2023 (the cur-

rent tax year). X also meets the one-third

support test for 2024, as the immediately suc-

ceeding tax year.

In tax years 2019, 2020, 2021, 2022, and

2023, in the aggregate, X doesn't receive at

least one-third of its support from governmental

units referred to in section 170(c)(1), from con-

tributions made directly or indirectly by the gen-

eral public, or from a combination of these sour-

ces. X still meets the one-third support test for

tax year 2023 based on the aggregate support

received for tax years 2019 through 2023.

In tax years 2020, 2021, 2022, 2023, and

2024, in the aggregate, X doesn't receive at

least one-third of its support from governmental

units referred to in section 170(c)(1), from con-

tributions made directly or indirectly by the gen-

eral public, or from a combination of these sour-

ces. X doesn't meet the one-third support test

for tax year 2023.

Based on the aggregate support and other

factors listed in Regulations section 1.170A-9(f)

(3)(iii)(A) through (E) for tax years 2019, 2020,

2021, 2022, and 2023, X meets the facts and

circumstances test for tax year 2023 and for tax

year 2024 (as the immediately succeeding tax

year). Therefore, X is still an organization de-

scribed in section 170(b)(1)(A)(vi) for tax year

2023 even though X didn't meet the one-third

support test for that year.

Special computation period for new organi-

zations (Computation period for public sup-

port). If, at the time of applying for tax-exempt

status, an organization can reasonably be ex-

pected to meet the one-third support test or the

facts and circumstances test during its first 5 tax

years, the organization will qualify as publicly

supported for its first 5 years. The organization

will be classified as a public charity for its first 5

years, regardless of the public support actually

received during this period. Beginning with the

organization's sixth tax year, the organization

will qualify as publicly supported if it meets the

one-third support test or the facts and circum-

stances test for its sixth year (based on support

received in its second through sixth tax years),

or as a carryover for its fifth tax year (based on

support received in its first through fifth tax

years). If the organization is required to file

Form 990 or 990-EZ, it must establish that it

meets the public support test each year on

Schedule A (Form 990).

Reasonable expectation of public sup-

port. An organization that can reasonably be

expected to meet the one-third support test or

the facts and circumstances test during its first

5 years is one that can show that its organiza-

tional structure, current or proposed programs

and activities, and actual or intended method of

operation can reasonably be expected to attract

the type of broadly based support from the gen-

eral public, public charities, and governmental

units that is necessary to meet the public sup-

port requirements discussed earlier under Qual-

ifying As Publicly Supported.

Example. Organization Y was formed in

January 2017 and uses a December 31 tax

year. After September 9, 2017, and before De-

cember 31, 2017, Organization Y filed a Form

1023 requesting recognition of exemption as an

organization described in section 501(c)(3) and

in sections 170(b)(1)(A)(vi) and 509(a)(1). In its

application, Organization Y established that it

can reasonably be expected to meet the

one-third support test. Organization Y receives

a determination letter that it is an organization

described in section 501(c)(3) and sections

170(b)(1)(A)(vi) and 509(a)(1) effective as of

the date of formation.

Organization Y is described in sections

170(b)(1)(A)(vi) and 509(a)(1) for its first 5 tax

years (tax years ending December 31, 2017,

through December 31, 2021). Organization Y

can qualify as a public charity beginning with

the tax year ending December 31, 2021, if Or-

ganization Y meets the one-third support test or

facts and circumstances test for the tax years

ending December 31, 2018, through December

31, 2022, or for the tax years ending December

31, 2017, through December 31, 2021.

Determinations of public support status.

An organization may request a determination

letter that it is described in section 170(b)(1)(A)

(vi). This request is made on Form 1023 or

Form 1023-EZ, or at such other time as the or-

ganization believes it is described in section

170(b)(1)(A)(vi). The IRS may revoke the sec-

tion 170(b)(1)(A)(vi) determination letter if, on

examination, the organization has not met the

requirements. The IRS may also revoke the sec-

tion 170(b)(1)(A)(vi) determination letter if the

organization's application for a determination

contained an omission or inaccurate material in-

formation.

Reliance by grantors or contributors. As

a general rule, grantors or contributors may rely

on a determination that an organization is de-

scribed in section 170(b)(1)(A)(vi) until notice of

change of status of the organization is made to

the public. The IRS publishes such notices from

time to time in the Internal Revenue Bulletin,

IRS.gov/irb/. Grantors and contributors can also

find information about an organization’s exempt

status under section 501(c)(3) and its status as

a public charity or private foundation from Tax-

Exempt Organization Search. However, a gran-

tor or contributor can’t rely on a detrermination

letter or information on Tax-Exempt Organiza-

tion Search if the grantor or contributor was re-

sponsible for, or aware of, the act or failure to

act that resulted in the organization's loss of

classification as a publicly supported organiza-

tion.

Support. For purposes of publicly supported

organizations, the term support includes (but

isn't limited to):

1. Gifts, grants, contributions, or membership

fees;

2. Net income from unrelated business activi-

ties, whether or not those activities are

carried on regularly as a trade or business;

3. Gross investment income;

4. Tax revenues levied for the benefit of an

organization and either paid to or spent on

behalf of the organization; and

5. The value of services or facilities furnished

by a governmental unit to an organization

without charge (except services or facili-

ties generally furnished to the public with-

out charge).

Amounts that aren't support. The term

support doesn't include:

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34 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

1. Any amount received from the exercise or

performance by an organization of the pur-

pose or function constituting the basis for

its exemption (in general, these amounts

include amounts received from any activity

the conduct of which is substantially rela-

ted to the furtherance of the exempt pur-

pose or function, other than through the

production of income); or

2. Contributions of services for which a de-

duction isn't allowed.

These amounts are excluded from both the nu-

merator and the denominator of the fractions in

determining compliance with the one-third sup-

port test and ten-percent-of-support require-

ment. The following discusses an exception to

this general rule.

Organizations dependent primarily on

gross receipts from related activities. Or-

ganizations won't satisfy the one-third support

test or the ten-percent-of-support requirement if

they receive:

1. Almost all support from gross receipts

from related activities; and

2. An insignificant amount of support from

governmental units (without regard to

amounts referred to in (3) in the list of

items included in support) and contribu-

tions made directly or indirectly by the

general public.

Example. Z, an organization described in

section 501(c)(3), is controlled by Thomas Blue,

its president. Z received $500,000 during the

current tax year and the 4 tax years immediately

before its current tax year under a contract with

the Department of Transportation, under which

Z engaged in research to improve a particular

vehicle used primarily by the federal govern-

ment. During the same period, the only other

support received by Z was $5,000 in small con-

tributions primarily from Z's employees and

business associates. The $500,000 is gross re-

ceipts from a related activity and not support

from a governmental unit, because the services

are provided to serve the direct and immediate

needs of the payor rather than primarily to con-

fer a direct benefit on the public. Because of this

fact, and because Z's contributions from the

public are insignificant, Z doesn't meet the

one-third support test or the ten-percent-of-sup-

port requirement.

For the rules that apply to organizations that

fail to qualify as section 509(a)(1) publicly sup-

ported organizations because of these provi-

sions, see Section 509(a)(2) Organizations,

later. See also Gross receipts from a related ac-

tivity in the discussion on section 509(a)(2) or-

ganizations.

Membership fees. Membership fees are

included in the term support if they are paid to

provide support for the organization rather than

to buy admissions, merchandise, services, or

the use of facilities.

Support from a governmental unit. For pur-

poses of the one-third support test and the

ten-percent-of-support requirement, the term

support from a governmental unit includes any

amounts received from a governmental unit, in-

cluding donations or contributions and amounts

received on a contract entered into with a gov-

ernmental unit for the performance of services,

or from a government research grant. However,

these amounts aren't support from a govern-

mental unit for these purposes if they constitute

amounts received from the exercise or perform-

ance of the organization's exempt functions.

Any amount paid by a governmental unit to

an organization won't be treated as received

from the exercise or performance of its exempt

function if the purpose of the payment is primar-

ily to enable the organization to provide a serv-

ice to, or maintain a facility for, the direct benefit

of the public (regardless of whether part of the

expense of providing the service or facility is

paid for by the public), rather than to serve the

direct and immediate needs of the payor. This

includes:

1. Amounts paid to maintain library facilities

that are open to the public,

2. Amounts paid under government pro-

grams to nursing homes or homes for the

aged to provide health care or domiciliary

services to residents of these facilities,

and

3. Amounts paid to child placement or child

guidance organizations under government

programs for services rendered to children

in the community.

These payments are mainly to enable the recipi-

ent organization to provide a service or maintain

a facility for the direct benefit of the public,

rather than to serve the direct and immediate

needs of the payor. Furthermore, any amount

received from a governmental unit under cir-

cumstances in which the amount would be trea-

ted as a grant will generally constitute support

from a governmental unit. See the discussion of

Grants, later, under Section 509(a)(2) Organiza-

tions.

Medicare and Medicaid payments. Medi-

care and Medicaid payments are received from

contracts entered into with state and federal

governmental units. However, payments are

made for services already provided to eligible

individuals, rather than to encourage or enable

an organization to provide services to the pub-

lic. The individual patient, not a governmental

unit, actually controls the ultimate recipient of

these payments by selecting the health care or-

ganization. As a result, these payments aren't

considered support from a governmental unit.

Medicare and Medicaid payments are gross re-

ceipts derived from the exercise or performance

of exempt activities and, therefore, aren't inclu-

ded in the term support.

Support from the general public. In deter-

mining whether the one-third support test or the

ten-percent-of-support requirement is met, in-

clude in your computation support from direct or

indirect contributions from the general public.

This includes contributions from an individual,

trust, or corporation but only to the extent that

the total contributions from the individual, trust,

or corporation, during the current tax year and

the 4-year period immediately before the cur-

rent tax year, aren't more than 2% of the organi-

zation's total support for the same period.

Thus, a contribution by any one individual

will be included in full in the denominator of the

fraction used in the one-third support test or the

ten-percent-of-support requirement. However,

the contribution will be included in the numera-

tor only to the extent that it isn't more than 2% of

the denominator. In applying the 2% limit, all

contributions made by a donor and by any per-

son in a special relationship to the donor (cer-

tain Disqualified persons discussed under Ab-

sence of control by disqualified persons, later)

are considered made by one person. The 2%

limit doesn't apply to support received from gov-

ernmental units or to contributions from other

publicly supported charities, except as provided

under Grants from public charities, later.

Indirect contributions. The term indirect

contributions from the general public includes

contributions received by the organization from

organizations (such as publicly supported or-

ganizations) that normally receive a substantial

part of their support from direct contributions

from the general public, except as provided un-

der Grants from public charities, next.

Grants from public charities. Contribu-

tions received from a governmental unit or from

a publicly supported organization (including a

church that meets the requirements for being

publicly supported) aren't subject to the 2% limit

unless the contributions represent amounts ei-

ther expressly or impliedly earmarked by a do-

nor to the governmental unit or publicly suppor-

ted organization as being for, or for the benefit

of, the particular organization claiming a publicly

supported status.

Example 1. M, a national foundation for the

encouragement of the musical arts, is a publicly

supported organization. George Spruce gives

M a donation of $5,000 without imposing any

restrictions or conditions upon the gift. M later

makes a $5,000 grant to X, an organization de-

voted to giving public performances of chamber

music. Since the grant to X is treated as being

received from M, it is fully includible in the nu-

merator of X's support fraction for the tax year

of receipt.

Example 2. Assume M is the same organi-

zation described in Example 1. Tom Grove

gives M a donation of $10,000, but requires that

M spend the money to support organizations

devoted to the advancement of contemporary

American music. M has complete discretion as

to the organizations of the type described to

which it will make a grant. M decides to make

grants of $5,000 each to Y and Z, both being or-

ganizations described in section 501(c)(3) and

devoted to furthering contemporary American

music. Since the grants to Y and Z are treated

as having been received from M, Y and Z each

may include one of the $5,000 grants in the nu-

merator of its support fraction. Although the

donation to M was conditioned upon the use of

the funds for a particular purpose, M was free to

select the ultimate recipient.

Example 3. N is a national foundation for

the encouragement of art and is a publicly sup-

ported organization. Grants to N are permitted

to be earmarked for particular purposes. O,

which is an art workshop devoted to training

young artists and which is claiming status as a

publicly supported organization, persuades C, a

private foundation, to make a grant of $25,000

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 35

to N. C is a disqualified person with respect to

O. C makes the grant to N with the understand-

ing that N would be bound to make a grant to O

in the sum of $25,000, in addition to a matching

grant of N's funds to O in the sum of $25,000.

Only the $25,000 received directly from N is

considered a grant from N. The other $25,000 is

an indirect contribution from C to O and is to be

excluded from the numerator of O's support

fraction to the extent it exceeds the 2% limit.

Unusual grants. In applying the 2% limit to de-

termine whether the one-third support test or

the ten-percent-of-support requirement is met,

exclude contributions that are considered un-

usual grants from both the numerator and de-

nominator of the appropriate percent-of-support

fraction. Generally, unusual grants are substan-

tial contributions or bequests from disinterested

parties if the contributions:

1. Are attracted by the publicly supported na-

ture of the organization;

2. Are unusual or unexpected in amount; and

3. Would adversely affect, because of the

size, the status of the organization as nor-

mally being publicly supported. (The or-

ganization must otherwise meet the sup-

port test in that year without benefit of the

grant or contribution.)

For a grant (see Grants, later) that meets the re-

quirements for exclusion, if the terms of the

granting instrument require that the funds be

paid to the recipient organization over a period

of years, the amount received by the organiza-

tion each year under the terms of the grant may

be excluded for that year. However, no item of

gross investment income (defined under Sec-

tion 509(a)(2) Organizations, later) may be ex-

cluded under this rule.

Characteristics of an unusual grant. A

grant or contribution will be considered an un-

usual grant if the previous three factors apply

and if it has all of the following characteristics. If

these factors and characteristics apply, then

even without the benefit of an advance ruling,

grantors or contributors have assurance that

they won't be considered responsible for sub-

stantial and material changes in the organiza-

tion's sources of support status. See section

7.08 of Rev. Proc. 2018-32, 2018-23 I.R.B. 739.

1. The grant or contribution isn't made by a

person (or related person) who created

the organization or was a substantial con-

tributor to the organization before the grant

or contribution.

2. The grant or contribution isn't made by a

person (or related person) who is in a po-

sition of authority, such as a foundation

manager, or who otherwise has the ability

to exercise control over the organization.

Similarly, the grant or contribution isn't

made by a person (or related person) who,

because of the grant or contribution, ob-

tains a position of authority or the ability to

otherwise exercise control over the organi-

zation.

3. The grant or contribution is in the form of

cash, readily marketable securities, or as-

sets that directly further the organization's

exempt purposes, such as a gift of a paint-

ing to a museum.

4. The donee organization has received a fi-

nal determination letter classifying it as a

publicly supported organization and the

organization is actively engaged in a pro-

gram of activities in furtherance of its ex-

empt purpose.

5. No material restrictions or conditions have

been imposed by the grantor or contributor

upon the organization in connection with

the grant or contribution.

6. If the grant or contribution is intended for

operating expenses, rather than capital

items, the terms and amount of the grant

or contribution are expressly limited to 1

year's operating expenses.

Determination request. Before any grant

or contribution is made, a potential grantee or-

ganization can request a determination as to

whether the grant or contribution may be exclu-

ded as an unusual grant. This request can be

filed by the grantee organization by submitting

Form 8940, Request for Miscellaneous Determi-

nation, supporting documents described in the

Instructions for Form 8940, and the appropriate

user fee. The organization must submit all infor-

mation necessary to support a determination,

including information relating to the factors and

characteristics listed in the preceding para-

graphs. If a favorable determination is issued,

the determination can be relied upon by the

grantor or contributor of the particular contribu-

tion in question. The issuance of the determina-

tion will be at the sole discretion of the IRS.

Grants and contributions that fail to qualify

for exclusion will affect the way the support tests

are applied. See Additional requirements (the

five public support factors), earlier.

If a determination is requested, in addition to

the characteristics listed earlier under Charac-

teristics of an unusual grant, the following fac-

tors may be considered by the IRS in determin-

ing if the grant or contribution is an unusual

grant.

1. Whether the contribution was a bequest or

a transfer while living. A bequest will be

given more favorable consideration than a

transfer while living.

2. Whether, before the receipt of the contri-

bution, the organization has carried on an

active program of public solicitation and

exempt activities and has been able to at-

tract a significant amount of public sup-

port.

3. Whether, before the year of contribution,

the organization met the one-third support

test without benefit of any exclusions of

unusual grants.

4. Whether the organization may reasonably

be expected to attract a significant amount

of public support after the contribution.

Continued reliance on unusual grants to

fund an organization's current operating

expenses (as opposed to providing new

endowment funds) may be evidence that

the organization can't reasonably be ex-

pected to attract future support from the

general public.

5. Whether the organization has a represen-

tative governing body.

Comprehensive Examples

Example 1. M is recognized as an organi-

zation described in section 501(c)(3). For the

years 2017 through 2021 (the applicable period

for the tax year 2021 under Regulations section

1.170A-9(f)(3)), M received support (as defined

in paragraphs Regulations section 1.170A-9(f)

(6) through (8)) of $600,000 from the following

sources:

Investment Income ............... $300,000

City Y (a governmental unit described in

section 170(c)(1)) ................

40,000

United Way (an organization described in

section 170(b)(1)(A)(vi)) ............

40,000

Contributions ................... 220,000

Total support .................... $600,000

For tax year 2021, M's public support is compu-

ted as follows:

One-third of total support

........... $200,000

Support from a governmental unit

described in section 170(c)(1) ........ $40,000

Indirect contributions from the general

public (United Way) ............... 40,000

Contributions by various donors (no one

having made contributions that total more

than $12,000—2% of total support) .... 50,000

Six contributions (each in excess of

$12,000—2% of total support) 6 ×

$12,000 .......................

72,000

$202,000

M's support from governmental units and from

direct and indirect contributions from the gen-

eral public for the 2019 tax year normally ex-

ceeds one-third of M's total support

($202,000/$600,000 = 33.67%) for the applica-

ble period (2016 through 2020). M meets the

one-third support test for 2020 and is therefore

publicly supported for the tax years 2021 and

2022.

Example 2. N is recognized as an organi-

zation described in section 501(c)(3). It was

created to maintain public gardens containing

botanical specimens and displaying statuary

and other art objects. The facilities, works of art,

and a large endowment were all contributed by

a single contributor. The members of the gov-

erning body of the organization are unrelated to

its creator. The gardens are open to the public

without charge and attract many visitors each

year. For the current tax year and the 4 tax

years preceding the current tax year, 95% of the

organization's total support was received from

investment income from its original endowment.

N also maintains a membership society that is

supported by members of the general public

who wish to contribute to the upkeep of the gar-

dens by paying a small annual membership fee.

Over the 5-year period in question, these fees

from the general public constituted the remain-

ing 5% of the organization's total support. Un-

der these circumstances, N doesn't meet the

one-third support test for its current tax year.

Furthermore, since only 5% was received from

the general public, N doesn't satisfy the 10%

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36 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

support limitation under Regulations section

1.170A-9(f)(3)(i), and therefore doesn't qualify

as publicly supported under the facts and cir-

cumstances test. Because N has failed to sat-

isfy the 10% support limitation, none of the

other requirements or factors in Regulations

section 1.170A-9(f)(3)(iii)(A) through (E) can be

considered in determining whether N qualifies

as a publicly supported organization. For its cur-

rent tax year, N isn't an organization described

in section 170(b)(1)(A)(vi).

Example 3. O, an art museum, is recog-

nized as an organization described in section

501(c)(3). In 1930, O was founded in S City by

members of a single family to collect, preserve,

interpret, and display to the public important

works of art. O is governed by a Board of Trust-

ees that originally consisted almost entirely of

members of the founding family. However, since

1945, members of the founding family or per-

sons standing in relationship to the members of

that family described in section 4946(a)(1)(C)

through (G) have annually constituted less than

one-fifth of the Board of Trustees. The remain-

ing board members are citizens of S City from a

variety of professions and occupations who rep-

resent the interests and views of the people of S

City in the activities carried on by the organiza-

tion rather than the personal or private interests

of the founding family. O solicits contributions

from the general public, and for the current tax

year and each of the 4 tax years immediately

preceding the current tax year, O has received

total contributions (in small sums of less than

$100, none of which exceeds 2% of O's total

support for such period) in excess of $10,000.

These contributions from the general public rep-

resent 25% of the organization's total support

for that 5-year period. For the same period, in-

vestment income from several large endowment

funds has constituted 75% of O's total support.

O expends substantially all of its annual income

for its exempt purposes and thus depends on

the funds it annually solicits from the public as

well as its investment income in order to carry

out its activities on a normal and continuing ba-

sis and to acquire new works of art. O has, for

the entire period of its existence, been open to

the public and more than 300,000 people (from

S City and elsewhere) have visited the museum

in the current tax year and the 4 years immedi-

ately preceding the current tax year.

Under these circumstances, O doesn't meet

the one-third support test for its current year be-

cause it has received only 25% of its total sup-

port for the applicable 5-year period from the

general public. However, under the facts set

forth, O has met the 10% support limitation un-

der Regulations section 1.170A-9(f)(3)(i), as

well as the requirements of Regulations section

1.170A-9(f)(3)(ii). Under all of the facts set forth,

O is considered as meeting the requirements of

the facts and circumstances test on the basis of

satisfying Regulations section 1.170A-9(f)(3)(iii)

(A) through (D). O is therefore publicly suppor-

ted for its current tax year and the immediately

succeeding tax year.

Example 4. In 1960, the P Philharmonic Or-

chestra was organized in T City by a local music

society and a local women's club to present to

the public a wide variety of musical programs in-

tended to foster music appreciation in the

community. P is recognized as an organization

described in section 501(c)(3). The orchestra is

composed of professional musicians who are

paid by the association. Twelve performances,

open to the public, are scheduled each year. A

small admission charge is made for each of

these performances. In addition, several per-

formances are staged annually without charge.

During the current tax year and the 4 tax

years immediately preceding the current tax

year, P received separate contributions of

$200,000 each from A and B (not members of a

single family) and support of $120,000 from the

T Community Chest, a public federated fund-

raising organization operating in T City. P de-

pends on these funds to carry out its activities

and will continue to depend on contributions of

this type to be made in the future. P has also

begun a fundraising campaign in an attempt to

expand its activities for the coming years.

P is governed by a Board of Directors com-

posed of five individuals. A faculty member of a

local college, the president of a local music so-

ciety, the head of a local banking institution, a

prominent doctor, and a member of the govern-

ing body of the local Chamber of Commerce

currently serve on the Board and represent the

interests and views of the community in the ac-

tivities carried on by P.

For P's current tax year, its sources of sup-

port are computed on the basis of the current

tax year and the 4 immediately preceding tax

years, as follows.

Contributions

..................... $520,000

Receipts from performances .......... 100,000

$620,000

Less:

Receipts from performances (excluded,

see Support) .....................

100,000

Total support ................... $520,000

T Community Chest (indirect support from

the general public) ................. $120,000

Two contributions (each over $10,400—2%

of total support) 2 × $10,400 ...........

20,800

Total support from general public ....... $140,800

P's support from the general public, directly and

indirectly, doesn't meet the one-third support

test ($140,800/$520,000 = 27% of total sup-

port). However, because P receives 27% of its

total support from the general public, it meets

the 10% support limitation under Regulations

section 1.170A-9(f)(3)(i). P also meets the re-

quirements of Regulations section 1.170A-9(f)

(3)(ii). As a result of satisfying these require-

ments and factors, P is considered to meet the

facts and circumstances test and therefore

qualifies as a publicly supported organization

for its current tax year and the immediately suc-

ceeding tax year.

Example 5. Q is recognized as an organi-

zation described in section 501(c)(3) and it is a

philanthropic organization. Q was founded in

1965 by C for the purpose of making annual

contributions to worthy charities. C created Q as

a charitable trust by transferring $500,000 worth

of appreciated securities to Q.

Under the trust agreement, C and two other

family members are the sole trustees of Q and

are vested with the right to appoint successor

trustees. In each of the current tax year and the

4 tax years immediately preceding the current

tax year, Q received $12,000 in investment in-

come from its original endowment. Each year Q

solicits funds by operating a charity ball at C's

residence. Guests are invited and asked to

make contributions of $100 per couple. During

the 5-year period involved, $15,000 was re-

ceived from the proceeds of these events. C

and his family have also made contributions to

Q of $25,000 over the 5-year period at issue. Q

makes disbursements each year of substan-

tially all of its net income to the public charities

chosen by the trustees.

Q's sources of support for the current tax

year and the 4 tax years immediately preceding

the current tax year are as follows:

Investment income

................. $60,000

Contributions ..................... $40,000

Total support ................... $100,000

Contributions from the general public .... $15,000

One contribution (over $2,000—2% of total

support) 1 × $2,000 ................

2,000

Total support from general public ....... $17,000

Q's support from the general public doesn't

meet the one-third support test

($17,000/$100,000 = 17% of total support).

Even though it does meet the ten-per-

cent-of-support requirement, its method of so-

licitation makes it questionable whether Q satis-

fies Regulations section 1.170A-9(f)(3)(ii).

Because of its method of operating, Q also has

a greater burden of establishing its publicly sup-

ported nature. Based on these facts and on Q's

failure to receive favorable consideration under

the remaining factors of Regulations section

1.170A-9(f)(3)(iii), Q doesn't satisfy the facts

and circumstances test and therefore doesn't

qualify as a publicly supported organization.

Community Trusts

Community trusts are often established to at-

tract large contributions of a capital or endow-

ment nature for the benefit of a particular com-

munity or area. Often these contributions come

initially from a small number of donors. While

the community trust generally has a governing

body composed of representatives of the partic-

ular community or area, its contributions are of-

ten received and maintained in the form of sep-

arate trusts or funds that are subject to varying

degrees of control by the governing body.

To qualify as a publicly supported organiza-

tion, a community trust must meet the one-third

support test, explained earlier under Qualifying

as Publicly Supported. If it can't meet that test, it

must be organized and operated so as to attract

new and additional public or governmental sup-

port on a continuous basis sufficient to meet the

facts and circumstances test, also explained

earlier. Community trusts are generally able to

satisfy the attraction of public support require-

ment (as contained in the facts and circumstan-

ces test) if they seek gifts and bequests from a

wide range of potential donors in the community

or area served, through banks or trust compa-

nies, through attorneys or other professional

persons, or in other appropriate ways that call

attention to the community trust as a potential

recipient of gifts and bequests made for the

benefit of the community or area served. A

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 37

community trust, however, doesn't have to en-

gage in periodic, community-wide, fundraising

campaigns directed toward attracting a large

number of small contributions in a manner simi-

lar to campaigns conducted by a community

chest or a united fund.

Separate trusts or funds. Any community

trust may be treated as a single entity for public

support purposes, rather than as an aggrega-

tion of separate funds, in which case all qualify-

ing funds associated with that organization

(whether a trust, not-for-profit corporation, unin-

corporated association, or a combination

thereof) will be treated as component parts of

the organization for public support purposes.

Single entity. To be treated as a single en-

tity for public support purposes, a community

trust must meet all of the following require-

ments.

1. The organization must be commonly

known as a community trust, fund, founda-

tion, or other similar name conveying the

concept of a capital or endowment fund to

support charitable activities in the com-

munity or area it serves.

2. All funds of the organization must be sub-

ject to a common governing instrument (or

a master trust or agency agreement) that

may be embodied in a single (or several)

document(s) containing common lan-

guage.

3. The organization must have a common

governing body (or distribution committee)

that either directs or, in the case of a fund

designated for specified beneficiaries,

monitors the distribution of all funds exclu-

sively for charitable purposes. The govern-

ing body must have the power in the gov-

erning instrument, the instrument of

transfer, the resolutions or bylaws of the

governing body, a written agreement, or

otherwise—

a. To modify any restriction or condition

on the distribution of funds for any

specified charitable purposes or to

specified organizations if in the sole

judgment of the governing body (with-

out the necessity of the approval of

any participating trustee, custodian, or

agent), the restriction or condition be-

comes, in effect, unnecessary, inca-

pable of fulfillment, or inconsistent

with the charitable needs of the com-

munity or area served;

b. To replace any participating trustee,

custodian, or agent for breach of fidu-

ciary duty under state law; and

c. To replace any participating trustee,

etc., for failure to produce a reasona-

ble return of net income over a rea-

sonable period of time. (The govern-

ing body will determine what is

reasonable.)

4. The organization must prepare periodic fi-

nancial reports treating all of the funds that

are held by the community trust, either di-

rectly or in component parts, as funds of

the organization.

A community trust can meet the requirement

in (3) above even if its exercise of the powers in

(3)(a), (b), or (c) is reviewable by an appropriate

state authority.

Component part. To be treated as a com-

ponent part of a community trust (rather than as

a separate trust or a not-for-profit corporation

for public support purposes), a trust or fund:

1. Must be created by gift, bequest, legacy,

devise, or other transfer to a community

trust that is treated as a single entity (de-

scribed above), and

2. May not be directly or indirectly subjected

by the transferor to any material restriction

or condition with respect to the transferred

assets.

Grantors and contributors. Grantors, contrib-

utors, or distributors to a community trust may

rely on the public charity status, which the or-

ganization has claimed in a timely filed notice,

on or before the date the IRS informs the public

(through such means as publication in the Inter-

nal Revenue Bulletin) that such reliance has ex-

pired. However, if the grantor, contributor, or

distributor acquires knowledge that the IRS has

notified the community trust that it has failed to

establish that it is a public charity, then reliance

on the claimed status expires at the time such

knowledge is acquired.

Section 509(a)(2) Organizations

Section 509(a)(2) excludes certain types of

broadly based, publicly supported organizations

from private foundation status. Generally, an or-

ganization described in section 509(a)(2) may

also fit the description of a publicly supported

organization under section 509(a)(1). There are,

however, two basic differences.

1. For section 509(a)(2) organizations, the

term support includes items of support dis-

cussed earlier (under Support, in the dis-

cussion of Section 509(a)(1) Organiza-

tions) and income from activities directly

related to their exempt function. This in-

come isn't included in meeting the support

test for a publicly supported organization

under section 509(a)(1).

2. Section 509(a)(2) places a limit on the to-

tal gross investment income and unrelated

business taxable income (in excess of the

unrelated business tax) an organization

may have, while section 509(a)(1) doesn't.

To be excluded from private foundation treat-

ment under section 509(a)(2), an organization

must meet two support tests.

1. The one-third support test.

2. The not-more-than-one-third support test.

Both these tests are designed to ensure that

an organization excluded from private founda-

tion treatment is responsive to the general pub-

lic, rather than to the private interests of a limi-

ted number of donors or other persons.

One-third support test. The one-third support

test will be met if an organization normally re-

ceives more than one-third of its support in

each tax year from any combination of:

1. Gifts, grants, contributions, or membership

fees; and

2. Gross receipts from admissions, sales of

merchandise, performance of services, or

furnishing facilities in an activity that isn't

an unrelated trade or business, subject to

certain limits, discussed under Limit on

gross receipts, later.

For this purpose, the support must be from

permitted sources, which include:

•

Section 509(a)(1) organizations, described

earlier;

•

Governmental units, described under Sec-

tion 509(a)(1) Organizations, earlier; and

•

Persons other than Disqualified persons

(defined under Section 509(a)(3) Organi-

zations), later.

Limit on gross receipts. In computing the

amount of support received from gross receipts

under (2) above, gross receipts from related ac-

tivities received from any person or from any bu-

reau or similar agency of a governmental unit

are includible in any tax year only to the extent

the gross receipts aren't more than the greater

of $5,000 or 1% of the organization's total sup-

port in that year.

Not-more-than-one-third support test. This

test will be met if an organization normally re-

ceives no more than one-third of its support in

each tax year from the total of:

1. Gross investment income, and

2. The excess (if any) of unrelated business

taxable income from unrelated trades or

businesses acquired after June 30, 1975,

over the tax imposed on that income.

Gross investment income. Gross invest-

ment income means the gross amount of in-

come from interest, dividends, payments with

respect to securities loans, rents, and royalties,

but it doesn't include any income that would be

included in computing tax on unrelated busi-

ness income from trades or businesses.

Definition of normally. Both support tests

are computed on the basis of the nature of the

organization's normal sources of support. An or-

ganization will be considered to have normally

met both tests for its current tax year and the tax

year immediately following, if it meets those

tests on the basis of the total support received

for the current tax year and the 4 tax years im-

mediately before the current tax year.

Computation period for public support. If at

the time of applying for tax-exempt status, an

organization can reasonably be expected to

meet the one-third support test and the

not-more-than-one-third support test during its

first 5 tax years, the organization will qualify for

classification as a public charity under section

509(a)(2) for its first 5 years. Beginning with the

organization's sixth tax year, the organization

will be described in section 509(a)(2) if it meets

the one-third support test and

not-more-than-one-third support test for its sixth

year (based on support received in its second

through sixth tax years) or as a carryover for its

fifth tax year (based on support received in its

first through fifth tax years). If the organization is

required to file Form 990 or 990-EZ, it must

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38 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

establish that it meets the one-third support test

and not-more-than-one-third support test each

year on Schedule A (Form 990).

Reasonable expectation of public sup-

port. An organization that can reasonably be

expected to meet the one-third support test and

not-more-than-one-third support test under sec-

tion 509(a)(2) during its first 5 tax years is one

that can show that its organizational structure,

current or proposed programs and activities,

and actual or intended method of operation can

reasonably be expected to attract the type of

broadly based support from the general public,

public charities, and governmental units that is

necessary to meet these tests. The facts that

are relevant to this determination and the weight

accorded each fact may differ from case to

case. An organization can't reasonably be ex-

pected to meet the one-third support test and

the not-more-than-one-third support test when

the facts indicate that an organization is likely,

during its first 5 tax years, to receive less than

one-third of its support from permitted sources

or to receive more than one-third of its support

from gross investment income and unrelated

business taxable income.

All pertinent facts and circumstances are

taken into account in determining whether the

organizational structure, programs, or activities,

and method of operation of an organization will

give that organization a reasonable expectation

that it will meet the support tests. Some perti-

nent factors considered are:

1. Whether the organization has or will have

a governing body that is composed of per-

sons having special knowledge in the par-

ticular field in which the organization is op-

erating or of community leaders, such as

elected officials, members of the clergy,

and educators, or, in the case of a mem-

bership organization, of individuals elected

under the organization’s governing instru-

ment or bylaws by a broadly based mem-

bership,

2. Whether a substantial part of the organiza-

tion’s initial funding is to be provided by

the general public, by public charities, or

by government grants rather than by a limi-

ted number of grantors or contributors who

are disqualified persons with respect to

the organization,

3. Whether a substantial proportion of the or-

ganization’s initial funds are placed, or will

remain, in an endowment and whether the

investment of those funds is unlikely to re-

sult in more than one-third of its total sup-

port being received from gross investment

income and from unrelated business taxa-

ble income in excess of the tax imposed

on that income,

4. Whether an organization that carries on

fundraising activities has developed a spe-

cific plan for solicitation of funds on a com-

munity or area-wide basis,

5. Whether an organization that carries on

community service activities has a specific

program to carry out its work in the com-

munity,

6. Whether membership dues for individual

(rather than institutional) members of an

organization that carries on education or

other exempt activities for or on behalf of

members have been fixed at rates de-

signed to make membership available to a

broad cross section of the public rather

than to restrict membership to a limited

number of persons, and

7. Whether an organization that provides

goods, services, or facilities is or will be re-

quired to make its services, facilities, per-

formances, or products available (regard-

less of whether a fee is charged) to the

general public, public charities, or govern-

mental units rather than to a limited num-

ber of persons or organizations.

Unusual grants. An unusual grant can be ex-

cluded from the support test computation if it:

1. Was attracted by the publicly supported

nature of the organization,

2. Was unusual or unexpected in amount,

and

3. Would, because of its size, adversely af-

fect the status of the organization as nor-

mally meeting the one-third support test.

(The organization must otherwise meet

the test in that year without benefit of the

grant or contribution.)

Characteristics of an unusual grant. A

grant or contribution will be considered an un-

usual grant if the above three factors apply and

it has all of the following characteristics. If these

factors and characteristics apply, then even

without the benefit of an advance ruling, gran-

tors or contributors have assurance that they

won't be considered responsible for an act that

results in an organization's change of support

status. See Rev. Proc. 2018-32, 2018-23 I.R.B.

739.

1. The grant or contribution isn't made by a

person (or related person) who created

the organization or was a substantial con-

tributor to the organization before the grant

or contribution.

2. The grant or contribution isn't made by a

person (or related person) who is in a po-

sition of authority, such as a foundation

manager, or who otherwise has the ability

to exercise control over the organization.

Similarly, the grant or contribution isn't

made by a person (or related person) who,

because of the grant or contribution, ob-

tains a position of authority or the ability to

otherwise exercise control over the organi-

zation.

3. The grant or contribution is in the form of

cash, readily marketable securities, or as-

sets that directly further the organization's

exempt purposes, such as a gift of a paint-

ing to a museum.

4. The donee organization has received ei-

ther an advance ruling or final determina-

tion letter classifying it as a publicly sup-

ported organization and, except for an

organization operating under an advance

ruling or determination letter, the organiza-

tion is actively engaged in a program of

activities in furtherance of its exempt pur-

pose.

5. No material restrictions or conditions have

been imposed by the grantor or contributor

upon the organization in connection with

the grant or contribution.

6. If the grant or contribution is intended for

operating expenses, rather than capital

items, the terms and amount of the grant

or contribution are expressly limited to one

year's operating expenses.

Determination request. If there is any

doubt that a grant or contribution can be exclu-

ded as an unusual grant, the grantee organiza-

tion can request a determination by submitting

Form 8940, Request for Miscellaneous Determi-

nation, supporting documents described in the

Instructions for Form 8940 and the appropriate

user fee. The IRS has the sole discretion of is-

suing a determination, but if a favorable deter-

mination is issued, it can be relied on by the

grantor or contributor for purposes of a charita-

ble contributions deduction and by the organi-

zation for purposes of the exclusion for unusual

grants.

In addition to the characteristics listed

above, the following factors may be considered

by the IRS in determining if the grant or contri-

bution is an unusual grant.

1. Whether the contribution was a bequest or

a transfer while living. A bequest will ordi-

narily be given more favorable considera-

tion than a transfer while living.

2. Whether, before the contribution, the or-

ganization carried on an actual program of

public solicitation and exempt activities

and was able to attract a significant

amount of public support.

3. Whether the organization may reasonably

be expected to attract a significant amount

of public support after the contribution.

Continued reliance on unusual grants to

fund an organization's current operating

expenses can be evidence that the organi-

zation can't attract future support from the

general public.

4. Whether the organization met the

one-third support test in the past without

the benefit of any exclusions of unusual

grants.

5. Whether the organization has a represen-

tative governing body.

Example 1. Y, an organization described in

section 501(c)(3), was created by Marshall

Pine, the holder of all the common stock in M

corporation, Lisa, Marshall's wife, and Edward

Forest, Marshall's business associate. The pur-

pose of Y was to sponsor and equip athletic

teams composed of underprivileged children in

the community. Each of the three creators

makes small cash contributions to Y. Marshall,

Lisa, and Edward have been active participants

in the affairs of Y since its creation. Y regularly

raises small amounts of contributions through

fundraising drives and selling admission to

some of the sponsored sporting events. The op-

erations of Y are carried out on a small scale,

usually being restricted to the sponsorship of

two to four baseball teams of underprivileged

children.

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 39

In 2012, M Corporation recapitalizes and

creates a first and second class of 6% nonvot-

ing preferred stock, most of which is held by

Marshall and Lisa. In 2013, Marshall contributes

49% of his common stock in M to Y. Marshall's

contribution of M's common stock was substan-

tial and constitutes 90% of Y's total support for

2013. A combination of the facts and circum-

stances of the determining factors preclude

Marshall's contribution of M's common stock in

2013 from being excluded as an unusual grant

under Temporary Regulations section

1.509(a)-3T(c)(3) for purposes of determining

whether Y meets the one-third support test un-

der section 509(a)(2).

Example 2. M was organized in 2012 to

promote the appreciation of ballet in a particular

region of the United States. Its principal activi-

ties consist of erecting a theater for the perform-

ance of ballet and the organization and opera-

tion of a ballet company. M receives a

determination letter that it is an organization de-

scribed in section 501(c)(3) and that it is a pub-

lic charity described in section 509(a)(2). The

governing body of M consists of nine prominent

unrelated citizens residing in the region who

have either an expertise in ballet or a strong in-

terest in encouraging appreciation of the art

form.

In 2013, Z, a private foundation, proposes to

make a grant of $500,000 in cash to M to pro-

vide sufficient capital for M to commence its ac-

tivities. Although Albert Cedar, the creator of Z,

is one of the nine members of M's governing

body, was one of M's original founders, and

continues to lend his prestige to M's activities

and fundraising efforts, Albert doesn't, directly

or indirectly, exercise any control over M. By the

close of its first tax year, M also has received a

significant amount of support from a number of

smaller contributions and pledges from mem-

bers of the general public. M charges admission

to the ballet performances to the general public.

Although the support received in 2013 won't

impact M's status as a public charity for its first

5 tax years, it will be relevant to the determina-

tion of whether M meets the one-third support

test under section 509(a)(2) for the 2017 tax

year, using the computation period 2013

through 2017. Within the appropriate timeframe,

M may submit a request for a determination let-

ter that the $500,000 contribution from Z quali-

fies as an unusual grant.

Under the above circumstances, even

though Albert was a founder and member of the

governing body of M, M may exclude Z's contri-

bution of $500,000 in 2013 as an unusual grant

under Regulations section 1.509(a)-3T(c)(3) for

purposes of determining whether M meets the

one-third support test under section 509(a)(2)

for 2017.

Gifts, contributions, and grants distin-

guished from gross receipts. In determining

whether an organization normally receives more

than one-third of its support from permitted

sources, include all gifts, contributions, and

grants received from permitted sources in the

numerator of the support fraction in each tax

year. However, gross receipts from admissions,

sales of merchandise, performance of services,

or furnishing facilities, in an activity that isn't an

unrelated trade or business, are includible in the

numerator of the support fraction in any tax year

only to the extent that the amounts received

from any person or from any bureau or similar

agency of a governmental unit aren't more than

the greater of $5,000 or 1% of support.

Determinations of public support status.

An organization may request a determination

letter that it is described in section 509(a)(2).

This request is made on Form 1023 or Form

1023-EZ, or at such other time as the organiza-

tion believes it is described in section 509(a)(2).

The IRS may revoke the section 509(a)(2) de-

termination letter if, upon examination, the or-

ganization has not met the requirements. The

IRS may also revoke the section 509(a)(2) de-

termination letter if the organization’s applica-

tion for determination contained an omission or

inaccurate material information.

Reliance by grantors or contributors.

Grantors or contributors may rely on a determi-

nation that an organization is described in sec-

tion 509(a)(2) until notice of change of status of

the organization is made to the public (such as

by publication in the Internal Revenue Bulletin,

or Tax-Exempt Organization Search, either of

which can be searched at IRS.gov). See Rev.

Proc. 2018-32, 2018-23 I.R.B. 739. Tax-Exempt

Organization Search is only available online at

Tax-Exempt Organization Search. However, this

won't apply if the grantor or contributor was re-

sponsible for, or aware of, the act or failure to

act that resulted in the organization's loss of

classification as a publicly supported organiza-

tion.

Gifts and contributions. Any payment of

money or transfer of property without adequate

consideration is considered a gift or contribu-

tion. When payment is made or property is

transferred as consideration for admissions,

sales of merchandise, performance of services,

or furnishing facilities to the donor, the status of

the payment or transfer under section 170(c)

determines whether and to what extent the pay-

ment or transfer is a gift or contribution as dis-

tinguished from gross receipts from related ac-

tivities.

The amount includible in computing support

from gifts, grants, or contributions of property or

use of property is the fair market or rental value

of the property at the date of the gift or contribu-

tion.

Example. P is a local agricultural club and

is an organization described in section 501(c)

(3). It makes awards at its annual fair for out-

standing specimens of produce and livestock to

encourage interest and proficiency by young

people in farming and raising livestock. Most of

these awards are cash or other property dona-

ted by local businessmen. When the awards are

made, the donors are given recognition for their

donations by being identified as the donor of

the award. The recognition given to donors is

merely incidental to the making of the award to

worthy youngsters. For these reasons, the don-

ations are contributions. The amount includible

in computing support is equal to the cash con-

tributed or the fair market value of other prop-

erty on the dates contributed.

Grants. Grants often contain certain terms

and conditions imposed by the grantor. Be-

cause of the imposition of terms and conditions,

the frequent similarity of public purposes of

grantor and grantee, and the possibility of bene-

fit to the grantor, amounts received as grants for

carrying on exempt activities are sometimes dif-

ficult to distinguish from amounts received as

gross receipts from carrying on exempt activi-

ties.

In distinguishing the term gross receipts

from the term grants, the term gross receipts

means amounts received from an activity that

isn't an unrelated trade or business, if a specific

service, facility, or product is provided to serve

the direct and immediate needs of the payor

rather than primarily to confer a direct benefit on

the general public. In general, payments made

primarily to enable the payor to realize or re-

ceive some economic or physical benefit as a

result of the service, facility, or product obtained

will be treated as gross receipts by the payee.

For example, a profit-making organization,

primarily for its own betterment, contracts with a

nonprofit organization for a service from that or-

ganization. Any payments received by the non-

profit organization (whether from the profit-mak-

ing organization or from another nonprofit) for

similar services are primarily for the benefit of

the payor and are therefore gross receipts,

rather than grants.

Research leading to the development of tan-

gible products for the use or benefit of a payor

generally will be treated as a service provided

to serve the direct and immediate needs of the

payor, while basic research or studies carried

on in the physical or social sciences generally

will be treated as primarily to confer a direct

benefit upon the general public.

Medicare and Medicaid payments are gross

receipts from the exercise or performance of an

exempt function. The individual patient, not a

governmental unit, actually controls the ultimate

recipient of these payments. Therefore, Medi-

care and Medicaid receipts for services provi-

ded to each patient are included as gross re-

ceipts to the extent they aren't more than the

greater of $5,000 or 1% of the organization's to-

tal support for the tax year.

Membership fees distinguished from gross

receipts. The fact that a membership organiza-

tion provides services, admissions, facilities, or

merchandise to its members as part of its over-

all activities won't, in itself, result in the classifi-

cation of fees received from members as gross

receipts subject to the $5,000 or 1% limit rather

than membership fees. However, if an organiza-

tion uses membership fees as a means of sell-

ing admissions, merchandise, services, or the

use of facilities to members of the general pub-

lic who have no common goal or interest (other

than the desire to buy the admissions, mer-

chandise, services, or use of facilities), the fees

aren't membership fees but are gross receipts.

On the other hand, to the extent the basic

purpose of the payment is to provide support for

the organization rather than to buy admissions,

merchandise, services, or the use of facilities,

the payment is a membership fee.

Bureau defined. The term bureau or similar

agency of a governmental unit for determining

amounts subject to the $5,000 or 1% limit

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40 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

means a specialized operating unit of the exec-

utive, judicial, or legislative branch of govern-

ment in which business is conducted under cer-

tain rules and regulations. Since the term

bureau refers to a unit functioning at the operat-

ing, as distinct from the policy-making, level of

government, it normally means a subdivision of

a department of government. The term wouldn't

usually include those levels of government that

are basically policy-making or administrative,

such as the office of the Secretary or Assistant

Secretary of a department, but would consist of

the highest operational level under the pol-

icy-making or administrative levels.

Amounts received from a unit functioning at

the policy-making or administrative level of gov-

ernment are treated as received from one bu-

reau or similar agency of the unit. Units of a

governmental agency above the operating level

are combined and considered a separate bu-

reau for this purpose. Thus, an organization that

has gross receipts from both a policy-making or

administrative unit and an operational unit of a

department will be treated as having gross re-

ceipts from two bureaus. For this purpose, the

Departments of Air Force, Army, and Navy are

separate departments and each has its own

policy-making, administrative, and operating

units.

Example 1. The Bureau for Africa and the

Bureau for Latin America are considered sepa-

rate bureaus. Each is an operating unit under

the Administrator of the Agency for International

Development, a policy-making official. If an or-

ganization had gross receipts from both of

these bureaus, the amount of gross receipts

from each would be subject to the greater of

$5,000 or the 1% limit.

Example 2. A bureau is an operating unit

under the administrative office of the Executive

Director. The subdivisions of the bureau are

Geographic Areas and Project Development

Staff. If an organization had gross receipts from

these subdivisions, the total gross receipts from

these subdivisions would be considered gross

receipts from the same bureau and would be

subject to the greater of $5,000 or the 1% limit.

Grants from public charities. For purposes

of the one-third support test, grants received

from a section 509(a)(1) organization (public

charity) are generally includible in full in com-

puting the numerator of the support fraction for

that tax year.

However, if the amount received is consid-

ered an indirect contribution from one of the

public charity's donors, it will retain its character

as a contribution from the donor, and if, for ex-

ample, the donor is a substantial contributor to

the ultimate recipient, the amount is excluded

from the numerator of the support fraction. If a

public charity makes both an indirect contribu-

tion from its donor and an additional grant to the

ultimate recipient, the indirect contribution is

treated as made first.

An indirect contribution is one that is ex-

pressly or impliedly earmarked by the donor as

being for, or for the benefit of, a particular recipi-

ent rather than for a particular purpose.

Method of accounting. An organization's sup-

port is determined under the same accounting

method that it uses in keeping its books and

that it otherwise uses to report on its Form 990

or 990-EZ, if it is required to file Form 990 or

990-EZ. For example, if a grantor makes a grant

to an organization payable over a term of years,

the grant will be includible in the support frac-

tion of the grantee organization under the ac-

counting method it regularly uses in keeping its

books.

Gross receipts from a related activity. When

the charitable purpose of an organization de-

scribed in section 501(c)(3) is accomplished

through furnishing facilities for a rental fee or

loans to a particular class of persons, such as

aged, sick, or needy persons, the support re-

ceived from those persons will be considered

gross receipts from a related exempt activity

rather than gross investment income or unrela-

ted business taxable income.

However, if the organization also furnishes

facilities or loans to persons who aren't mem-

bers of a particular class and furnishing the fa-

cilities or funds doesn't contribute importantly to

accomplishing the organization's exempt purpo-

ses, the support received from furnishing the fa-

cilities or funds will be considered rents or inter-

est and will be treated as gross investment

income or unrelated business taxable income.

Example. X, an organization described in

section 501(c)(3), is organized and operated to

provide living facilities for needy widows of de-

ceased servicemen. X charges the widows a

small rental fee for the use of the facilities. Since

X is accomplishing its exempt purpose through

the rental of the facilities, the support received

from the widows is considered gross receipts

from a related exempt activity. However, if X

rents part of its facilities to persons having no

relationship to X's exempt purpose, the support

received from these rentals will be considered

gross investment income or unrelated business

taxable income.

Section 509(a)(3) Organizations

Section 509(a)(3) excludes from the definition

of private foundation those organizations that

meet all of the three following requirements.

1. The organization must be organized and

operated exclusively for the benefit of, to

perform the functions of, or to carry out the

purposes of one or more specified organi-

zations, as described in sections 509(a)(1)

or 509(a)(2). These section 509(a)(1) and

509(a)(2) organizations are commonly

called publicly supported organizations.

2. The organization has one of three types of

relationships with one or more organiza-

tions described in sections 509(a)(1) or

509(a)(2). It must be:

a. Operated, supervised, or controlled

by one or more section 509(a)(1) or

509(a)(2) organizations (Type I sup-

porting organization),

b. Supervised or controlled in connec-

tion with one or more section 509(a)

(1) or 509(a)(2) organizations (Type II

supporting organization), or

c. Operated in connection with one or

more section 509(a)(1) or 509(a)(2)

organizations (Type III supporting or-

ganization).

3. The organization mustn't be controlled di-

rectly or indirectly by disqualified persons

(defined later) other than foundation man-

agers and other than one or more organi-

zations described in section 509(a)(1) or

509(a)(2).

Section 509(a)(3) differs from the other pro-

visions of section 509 that describe a publicly

supported organization. Instead of describing

an organization that conducts a particular kind

of activity or that receives financial support from

the general public, section 509(a)(3) describes

organizations that have established certain rela-

tionships in support of section 509(a)(1) or

509(a)(2) organizations. Thus, an organization

can qualify as other than a private foundation

even though it may be funded by a single donor,

family, or corporation (with certain exceptions

described in

Organizations controlled by do-

nors, later). This kind of funding ordinarily would

indicate private foundation status, but a section

509(a)(3) organization has limited purposes and

activities and gives up a significant degree of in-

dependence.

More than one type of relationship may exist

between a supporting organization and a pub-

licly supported organization. Any relationship,

however, must ensure that the supporting or-

ganization will be responsive to the needs or

demands of, and will be an integral part of or

maintain a significant involvement in, the opera-

tions of one or more publicly supported organi-

zations.

The Type I and Type II relationships rely on

majority control of the governing body of the

supporting organization by the publicly suppor-

ted organization. They have the same rules for

meeting the tests under requirement (1) and are

discussed in Category one below. The operated

in connection with relationship requires that the

supporting organization be responsive to and

have operational relationships with publicly sup-

ported organizations. This third relationship has

different rules for meeting the requirement (1)

tests and is discussed separately in Category

two, later.

Supported organizations. Supported organi-

zations are organizations described in section

509(a)(1) or 509(a)(2) for whose benefit the

supporting organization is organized and oper-

ated. A section 501(c)(4), (c)(5), or (c)(6) organ-

ization that would be described in section

509(a)(2) if it were a 501(c)(3) organization may

be treated as a 509(a)(2) organization for pur-

poses of these rules, and therefore may be a

supported organization as well, subject to cer-

tain restrictions. See Supporting other than sec-

tion 501(c)(3) organizations, later.

Organizations controlled by donors. Gener-

ally, if a Type I or Type III supporting organiza-

tion supports an organization that is controlled

by a donor, the supporting organization is trea-

ted as a private foundation (rather than as a

public charity). Type I and Type III organizations

may not accept any gifts or contributions from:

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 41

1. Any person (other than an organization

described in section 509(a)(1), (2), or (4))

who controls, directly or indirectly, either

alone or together with persons listed in (2)

or (3) below, the governing body of a sup-

ported organization;

2. A family member of a person described in

(1), above; or

3. A 35% controlled entity.

Category one - Type I and Type II support-

ing organizations. This category includes or-

ganizations either operated, supervised, or con-

trolled by (Type I) or supervised or controlled in

connection with (Type II) organizations descri-

bed in section 509(a)(1) or 509(a)(2) (which can

be either domestic or foreign).

These kinds of organizations have a govern-

ing body that either includes a majority of mem-

bers elected or appointed by one or more pub-

licly supported organizations (Type I) or that

consists of the same persons that control or

manage the publicly supported organizations

(Type II). If an organization is to qualify under

this category, it must also meet an organiza-

tional test and an operational test, and mustn't

be controlled by disqualified persons. These re-

quirements are covered later in this discussion.

Type I - Operated, supervised, or con-

trolled by. The Type I relationship presuppo-

ses a substantial degree of direction over the

policies, programs, and activities of a support-

ing organization by its supported organizations.

The relationship required is comparable to that

of a parent and subsidiary, in which the subsid-

iary is under the direction of, and is accountable

or responsible to, the parent organization. This

relationship is typically established when the

supported organization(s) may regularly appoint

or elect a majority of the directors or trustees of

the supporting organization.

Type II - Supervised or controlled in con-

nection with. An organization that is super-

vised or controlled in connection with one or

more section 509(a)(1) or 509(a)(2) organiza-

tions is a Type II supporting organization. The

control or management of the supporting organ-

ization must be vested in the same persons that

control or manage the publicly supported or-

ganization. In order for an organization to be su-

pervised or controlled in connection with a sup-

ported organization, common supervision or

control by the persons supervising or controlling

both organizations must exist to ensure that the

supporting organization will be responsive to

the needs and requirements of the supported

organization. This relationship is typically estab-

lished when a majority of the directors or trust-

ees of the supporting organization also serve as

directors or trustees of one or more supported

organizations.

Organizational and operational tests. Like

all supporting organizations, Type I and II sup-

porting organizations must be both organized

and operated exclusively for the purposes set

out in requirement (1) at the beginning of this

section. If an organization fails to meet either

the organizational or the operational test, it can't

qualify as a supporting organization.

Organizational test. An organization is or-

ganized exclusively for one or more of the pur-

poses specified in requirement (1) only if its arti-

cles of organization:

1. Limit the purposes of the organization to

one or more of those purposes,

2. Don’t expressly empower the organization

to engage in activities that aren't in further-

ance of those purposes,

3. Specify (as explained later under Speci-

fied organizations) the publicly supported

organizations on whose behalf the organi-

zation is operated, and

4. Don’t expressly empower the organization

to operate to support or benefit any organi-

zation other than the ones specified in

item (3).

In meeting the organizational test, the organ-

ization's purposes as stated in its articles can

be as broad as, or more specific than, the pur-

poses set forth in requirement (1) at the begin-

ning of the discussion of Section 509(a)(3) Or-

ganizations. Therefore, an organization that by

the terms of its articles is formed for the benefit

of one or more specified publicly supported or-

ganizations will, if it otherwise meets the other

requirements, be considered to have met the or-

ganizational test.

For example, articles stating that an organi-

zation is formed to perform the publishing func-

tions of a specified university are enough to

comply with the organizational test. A Type I or

Type II supporting organization meets these re-

quirements if the purposes set forth in its arti-

cles are similar to but no broader than the pur-

poses set forth in the articles of its controlling

organizations. However, a Type I or Type II sup-

porting organization that supports a publicly

supported section 501(c)(4), 501(c)(5), or

501(c)(6) organization (see Supporting other

than section 501(c)(3) organizations, later)

meets these requirements if its articles require it

to carry on charitable, etc., activities within the

meaning of section 170(c)(2).

Limits. An organization isn't organized ex-

clusively for the purposes specified in require-

ment (1) if its articles expressly permit it to oper-

ate to support or to benefit any organization

other than the specified publicly supported or-

ganizations. It won't meet the organizational test

even though the actual operations of the organi-

zation have been exclusively for the benefit of

the specified publicly supported organizations.

Specified organizations. All supporting

organizations must ensure that their supported

organizations are specified in their articles.

However, Type I and Type II supporting organi-

zations have greater flexibility regarding how

their supported organizations may be “speci-

fied.”

Type I and Type II supporting organizations

may specify their supported organizations:

1. By name,

2. By class or purpose designated in a man-

ner sufficient to identify the supported or-

ganizations, or

3. By demonstrating that the supporting or-

ganization and its supported organiza-

tion(s) have a historic and continuing rela-

tionship, because of which a substantial

identity of interests has developed be-

tween or among the organizations.

The articles of a Type I or Type II supporting or-

ganization may also:

1. Permit the substitution of one publicly sup-

ported organization within a designated

class for another publicly supported or-

ganization either in the same or a different

class designated in the articles,

2. Permit the supporting organization to oper-

ate for the benefit of new or additional pub-

licly supported organizations of the same

or a different class designated in the arti-

cles, or

3. Permit the supporting organization to vary

the amount of its support among different

publicly supported organizations within the

class or classes of organizations designa-

ted by the articles.

See also the rules considered under the Organi-

zational test, in the later discussion for organi-

zations in Category two - Type III supporting or-

ganizations..

Operational test — permissible benefi-

ciaries. A supporting organization must en-

gage solely in activities that support or benefit

its specified supported organizations. These ac-

tivities may include making payments to or for

the use of, or providing services or facilities for,

individual members of the charitable class

benefited by its supported organization(s).

For example, a supporting organization may

make a payment indirectly through another un-

related organization to a member of a charitable

class benefited by a specified publicly suppor-

ted organization, but only if the payment is a

grant to an individual rather than a grant to an

organization. Similarly, a supporting organiza-

tion may support or benefit a section 501(c)(3)

organization, other than a private foundation,

that is operated, supervised, or controlled di-

rectly by or in connection with its supported or-

ganization(s). However, a supporting organiza-

tion's activities may not further its purpose other

than supporting or benefiting its supported or-

ganization(s).

Operational test — permissible activi-

ties. A supporting organization may make pay-

ments to its supported organization(s) or to per-

missible beneficiaries, or may carry on

independent activities or programs that support

or benefit its supported organization(s). All such

support, however, must be limited to permissi-

ble beneficiaries described earlier. The support-

ing organization may also engage in fundraising

activities, such as solicitations, fundraising din-

ners, and unrelated trade or business, to raise

funds for its supported organization(s) or for the

permissible beneficiaries.

Absence of control by disqualified persons.

The third requirement an organization must

meet to qualify as a supporting organization re-

quires that the organization not be controlled di-

rectly or indirectly by one or more disqualified

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42 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

persons (other than foundation managers or

one or more publicly supported organizations).

Disqualified persons. For the purposes of

the rules discussed in this publication, the fol-

lowing persons are considered disqualified per-

sons:

1. All substantial contributors to the founda-

tion.

2. All foundation managers of the foundation.

3. An owner of more than 20% of:

a. The total combined voting power of a

corporation that is (during such own-

ership) a substantial contributor to the

foundation,

b. The profits interest of a partnership

that is (during such ownership) a sub-

stantial contributor to the foundation,

c. The beneficial interest of a trust or un-

incorporated enterprise that is (during

such ownership) a substantial contrib-

utor to the foundation.

4. A member of the family of any of the indi-

viduals just listed.

5. A corporation of which more than 35% of

the total combined voting power is owned

by persons just listed.

6. A partnership of which more than 35% of

the profits interest is owned by persons

described in (1), (2), (3), or (4).

7. A trust, or estate, of which more than 35%

of the beneficial interest is owned by per-

sons described in (1), (2), (3), or (4).

Remember, however, that foundation man-

agers and publicly supported organizations

aren't disqualified persons for purposes of this

control requirement.

If a person who is a disqualified person with

respect to a supporting organization, such as a

substantial contributor, is appointed or designa-

ted as a foundation manager of the supporting

organization by a supported organization to

serve as its representative, that person is still a

disqualified person.

An organization is considered controlled for

this purpose if the disqualified persons, by com-

bining their votes or positions of authority, can

require the organization to perform any act that

significantly affects its operations or can prevent

the organization from performing the act. This

includes, but isn't limited to, the right of any sub-

stantial contributor or spouse to designate an-

nually the recipients from among the supported

organizations of the income from the contribu-

tion. Except as explained under Proof of inde-

pendent control, next, a supporting organization

will be considered to be controlled directly or in-

directly by one or more disqualified persons if

the voting power of those persons is 50% or

more of the total voting power of the organiza-

tion's governing body, or if one or more of those

persons has the right to exercise veto power

over the actions of the organization.

Thus, if the governing body of a foundation

is composed of five trustees, none of whom has

a veto power over the actions of the foundation,

and no more than two trustees are at any time

disqualified persons, the foundation isn't

considered controlled directly or indirectly by

one or more disqualified persons by reason of

this fact alone. However, all pertinent facts and

circumstances (including the nature, diversity,

and income yield of an organization's holdings,

the length of time particular stocks, securities,

or other assets are retained, and its manner of

exercising its voting rights with respect to stocks

in which members of its governing body also

have some interest) are considered in determin-

ing whether a disqualified person does in fact

indirectly control an organization.

Proof of independent control. An organi-

zation is permitted to establish to the satisfac-

tion of the IRS that disqualified persons don't di-

rectly or indirectly control it. For example, in the

case of a religious organization operated in con-

nection with a church, the fact that the majority

of the organization's governing body is com-

posed of lay persons who are substantial con-

tributors to the organization won't disqualify the

organization under section 509(a)(3) if a repre-

sentative of the church, such as a bishop or

other official, has control over the policies and

decisions of the organization.

Category two - Type III supporting organiza-

tions. This category includes organizations op-

erated in connection with one or more organiza-

tions described in section 509(a)(1) or 509(a)

(2).

All supporting organizations must be re-

sponsive to the needs and demands of, and

must constitute an integral part of or maintain

significant involvement in, their supported or-

ganizations. Type I and Type II supporting or-

ganizations are deemed to accomplish these

responsiveness and integral part requirements

by virtue of the control relationships discussed

earlier. However, a Type III supporting organiza-

tion isn't subject to the same level of control by

its supported organization(s). Therefore, Type III

supporting organizations must pass separate

responsiveness and integral part tests, in addi-

tion to the organizational and operational tests

applicable to all supporting organizations. Type

III supporting organizations mustn't be control-

led by disqualified persons (as described ear-

lier), and may not receive contributions from

certain controlling donors (see Contributions

from controlling donors, later). In addition, a

Type III supporting organization may not sup-

port any organization not organized in the Uni-

ted States.

Functional integration. A Type III support-

ing organization may be “functionally-integra-

ted” or “non-functionally integrated” depending

on the manner in which it meets the integral part

test (see Integral part test - functionally-integra-

ted, and Integral part test - non-functionally inte-

grated, later). Type III functionally-integrated

supporting organizations are subject to fewer

restrictions and requirements than Type III

non-functionally integrated supporting organiza-

tions. In particular, distributions from private

foundations to Type III non-functionally integra-

ted supporting organizations aren't qualifying

distributions for purposes of satisfying a private

foundation's required annual distributions under

section 4942, and may be taxable expenditures

under section 4945.

Organizational test. The organizational

test for a Type III supporting organization is gen-

erally the same as for a Type I or Type II sup-

porting organization (described earlier). How-

ever, Type III supporting organizations are more

limited regarding how their supported organiza-

tions must be “specified” in their articles. A Type

III supporting organization's articles must spec-

ify its supported organization(s) by name, or the

organization must demonstrate that the sup-

porting organization and its supported organiza-

tion(s) have a historic and continuing relation-

ship, because of which a substantial identity of

interests has developed between or among the

organizations. “Class or purpose” designations

don't satisfy the organizational test for Type III

supporting organizations. However, a Type III

supporting organization's articles may:

1. Permit a publicly supported organization

that is designated by class or purpose

rather than by name to be substituted for

the publicly supported organization or or-

ganizations designated by name in the ar-

ticles, but only if the substitution is condi-

tioned upon the occurrence of an event

that is beyond the control of the supporting

organization, such as loss of exemption,

substantial failure or abandonment of op-

erations, or dissolution of the organization

or organizations designated in the articles,

2. Permit the supporting organization to oper-

ate for the benefit of an organization that

isn't a publicly supported organization, but

only if the supporting organization is cur-

rently operating for the benefit of a publicly

supported organization and the possibility

of its operating for the benefit of other than

a publicly supported organization is re-

mote, or

3. Permit the supporting organization to vary

the amount of its support between differ-

ent designated organizations, as long as it

meets the requirements of the integral-part

test (discussed later) with respect to at

least one beneficiary organization.

If the remote possibility referred to in (2)

comes to pass and the supporting organization

thereafter operates for the benefit of an organi-

zation that isn't a publicly supported organiza-

tion, it will no longer qualify under section

509(a)(3).

Operational test. The operational rules descri-

bed earlier for Type I and Type II supporting or-

ganizations apply as well to Type III supporting

organizations (see Operational test - permissi-

ble beneficiaries, and Operational test - permis-

sible activities, earlier). In addition, a Type III

supporting organization must operate in a man-

ner consistent with the requirements of the re-

sponsiveness test and the integral-part test, dis-

cussed later

Responsiveness test. A Type III supporting

organization must be responsive to the needs

or demands of its supported organization(s). To

meet this test, the supported organizations

must (1) elect one or more officers, directors, or

trustees; (2) have one or more officers, direc-

tors, or trustees of the supported organiza-

tion(s) serving simultaneously as officers, direc-

tors, or trustees of the supporting organization;

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 43

or (3) maintain a close and continuous working

relationship with the officers, directors, or trust-

ees of the supporting organization. In addition,

as a result of this representation or close work-

ing relationship, the supported organization(s)

must have a significant voice in the investment

policies of the supporting organization, the tim-

ing of grants and the manner of making them,

the selection of recipients, and generally the

use of the income or assets of the supporting

organization.

Notification requirement. In each tax

year, the Type III supporting organization must

notify each supported organization of its sup-

port and provide a copy of the supporting or-

ganization's most recently filed Form 990 or

990-EZ and copies of any amendments to its

articles, bylaws, or other governing documents.

Integral part test - functionally integra-

ted. A Type III supporting organization may sat-

isfy the integral part test as functionally-integra-

ted in one of three ways:

1. Engaging in activities substantially all of

which directly further the exempt purposes

of its supported organization(s) and which,

but for the supporting organization's in-

volvement, the supported organization

would normally engage in;

2. Being the parent of, appointing a majority

of the directors or trustees of, and exercis-

ing a substantial degree of direction over

the policies, programs, and activities of its

supported organizations; or

3. Supporting a governmental entity.

Direct furtherance activities. For purpo-

ses of the test in item (1), activities “directly fur-

ther” a supported organization's exempt purpo-

ses only if conducted by the supporting

organization itself. Direct furtherance activities

include holding title to and managing ex-

empt-use assets, but not fundraising or invest-

ing and managing non-exempt-use assets.

Grantmaking may qualify as direct furtherance

activities if the requirements of Regulations sec-

tion 1.509(a)-4(i)(4)(ii)(D) are met.

Integral-part test - non-functionally inte-

grated. A Type III supporting organization that

doesn't satisfy the integral part test as function-

ally-integrated will still qualify as a Type III

non-functionally integrated supporting organiza-

tion if it satisfies a distribution requirement and

an attentiveness requirement. Alternatively, cer-

tain trusts established before November 20,

1970 may qualify if they meet the requirements

of Regulations section 1.509(a)-4(i)(5)(i)(9).

Distribution requirement. A Type III

non-functionally integrated supporting organiza-

tion must distribute a certain amount annually to

or for the benefit of its supported organiza-

tion(s). That amount is equal to the greater of

85% of the organization's adjusted net income

and 3.5% of the fair market value of the organi-

zation's non-exempt-use assets (with certain

adjustments). See Regulations section

1.509(a)-4(i)(5) and (8) for more information re-

garding the distribution requirement and valua-

tion of non-exempt-use assets. See Regulations

section 1.509(a)-4(i)(6) for more information re-

garding what distributions or expenditures count

towards the distribution requirement.

Attentiveness requirement. Each year, a

Type III non-functionally integrated supporting

organization must distribute one-third or more of

the amount that it must distribute that year to

one or more supported organizations that are

attentive to the operations of the supporting or-

ganization and to which the supporting organi-

zation is responsive. A supported organization

is “attentive” for these purposes if the amount

received by the supported organization from the

supporting organization:

1. Equals at least 10% of the supported or-

ganization's total support for the year in

question;

2. was necessary to avoid interruption of a

particular function or activity of the suppor-

ted organization; or

3. was, based on all facts and circumstances

(including evidence of actual attentive-

ness), a sufficient part of the supported or-

ganization's total support to ensure atten-

tiveness.

Supporting other than section 501(c)(3) or-

ganizations. An organization operated in con-

junction with a social welfare organization, labor

or agricultural organization, business league,

chamber of commerce, or other organization

described in section 501(c)(4), 501(c)(5), or

501(c)(6) may qualify as a supporting organiza-

tion under section 509(a)(3) and therefore not

be classified as a private foundation if both the

following conditions are met.

1. The supporting organization meets all the

requirements previously specified (the or-

ganizational tests, the operational test,

and one of the relationship tests and not

be controlled by disqualified persons).

2. The section 501(c)(4), 501(c)(5), or 501(c)

(6) organization would be described in

section 509(a)(2) if it was a charitable or-

ganization described in section 501(c)(3).

This provision allows separate charitable

funds of certain noncharitable organiza-

tions to be described in section 509(a)(3)

if the noncharitable organizations receive

their support and otherwise operate in the

manner specified by section 509(a)(2).

Special rules of attribution. To determine

whether an organization meets the

not-more-than-one-third support test in section

509(a)(2), amounts received by the organization

from an organization that seeks to be a section

509(a)(3) organization because of its support of

the organization are deemed gross investment

income (rather than gifts or contributions) to the

extent they are gross investment income of the

distributing organization. (This rule also applies

to amounts received from a charitable trust, cor-

poration, fund, association, or similar organiza-

tion that is required by its governing instrument

or otherwise to distribute, or that normally does

distribute, at least 25% of its adjusted net in-

come to the organization, and whose distribu-

tion normally comprises at least 5% of its adjus-

ted net income.) All income that is gross

investment income of the distributing organiza-

tion will be considered distributed first by that

organization. If the supporting organization

makes distributions to more than one organiza-

tion, the amount of gross investment income

considered distributed will be prorated among

the distributees.

Also, treat amounts paid by an organization

to provide goods, services, or facilities for the

direct benefit of an organization seeking section

509(a)(2) status (rather than for the direct bene-

fit of the general public) in the same manner as

amounts received by the latter organization.

These amounts will be treated as gross invest-

ment income to the extent they are gross invest-

ment income of the organization spending the

amounts. An organization seeking section

509(a)(2) status must file a separate statement

with its annual information return, Form 990 or

990-EZ, listing all amounts received from sup-

porting organizations.

Relationships created for avoidance purpo-

ses. If a relationship between an organization

seeking section 509(a)(3) status and an organi-

zation seeking section 509(a)(2) status is estab-

lished or used to avoid classification as a pri-

vate foundation with respect to either

organization, then the character and amount of

support received by the section 509(a)(3) or-

ganization will be attributed to the section

509(a)(2) organization for purposes of deter-

mining whether the latter meets the support

tests under section 509(a)(2). If this type of rela-

tionship is established or used between an or-

ganization seeking 509(a)(3) status and two or

more organizations seeking 509(a)(2) status,

the amount and character of support received

by the former organization will be prorated

among the latter organizations.

In determining whether a relationship exists

between an organization seeking 509(a)(3) sta-

tus (supporting organization) and one or more

organizations seeking 509(a)(2) status (benefi-

ciary organizations) for the purpose of avoiding

private foundation status, all pertinent facts and

circumstances will be taken into account. The

following facts may be used as evidence that

such a relationship wasn't established or

availed of to avoid classification as a private

foundation.

1. The supporting organization is operated to

support or benefit several specified benefi-

ciary organizations.

2. The beneficiary organization has a sub-

stantial number of dues-paying members

who have an effective voice in the man-

agement of both the supporting and the

beneficiary organizations.

3. The beneficiary organization is composed

of several membership organizations,

each of which has a substantial number of

members, and the membership organiza-

tions have an effective voice in the man-

agement of the supporting and beneficiary

organizations.

4. The beneficiary organization receives a

substantial amount of support from the

general public, public charities, or govern-

mental grants.

5. The supporting organization uses its funds

to carry on a meaningful program of activi-

ties to support or benefit the beneficiary

organization and, if the supporting organi-

zation were a private foundation, this use

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44 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

would be sufficient to avoid the imposition

of the tax on failure to distribute income.

6. The operations of the beneficiary and sup-

porting organizations are managed by dif-

ferent persons, and each organization per-

forms a different function.

7. The supporting organization isn't able to

exercise substantial control or influence

over the beneficiary organization because

the beneficiary organization receives sup-

port or holds assets that are disproportion-

ately large in comparison with the support

received or assets held by the supporting

organization.

Effect on section 509(a)(3) organizations. If

a beneficiary organization fails to meet either of

the support tests of section 509(a)(2) due to

these provisions, and the beneficiary organiza-

tion is one for whose support the organization

seeking section 509(a)(3) status is operated,

then the supporting organization won't be con-

sidered to be operated exclusively to support or

benefit one or more section 509(a)(1) or 509(a)

(2) organizations and therefore wouldn't qualify

for section 509(a)(3) status.

Request change in public charity classifica-

tion. A section 501(c)(3) tax-exempt organiza-

tion seeking to change its public charity classifi-

cation from a section 509(a)(3) supporting

organization to a section 509(a)(1) or 509(a)(2)

organization must file Form 8940, Request for

Miscellaneous Determination. See the Instruc-

tions for Form 8940 for more information regard-

ing supporting material and applicable user

fees.

For more information about applying for sec-

tion 501(c)(3) status see Life Cycle of a Private

Foundation at IRS.gov.

Classification under section 509(a). If an or-

ganization is described in section 509(a)(1),

and is also described in either Section 509(a)(2)

or Section 509(a)(3), it will be treated as a sec-

tion 509(a)(1) organization. The organization

should file Form 8940, Request for Miscellane-

ous Determination, if it wishes to receive a letter

showing a change in classification.

Reliance by grantors and contributors.

Once an organization has received a ruling or

determination letter classifying it as an organi-

zation described in Section 509(a)(1), Section

509(a)(2), or Section 509(a)(3), the treatment of

grants and contributions and the status of gran-

tors and contributors to the organization will

generally not be affected by reason of a later

revocation by the IRS of the organization's clas-

sification until the date on which notice of

change of status is made to the public (gener-

ally by publication in the Internal Revenue Bulle-

tin) or another applicable date, if any, specified

in the public notice. In appropriate cases, how-

ever, the treatment of grants and contributions

and the status of grantors and contributors to an

organization described in Section 509(a)(1),

Section 509(a)(2), or Section 509(a)(3) may be

affected pending verification of the continued

classification of the organization. Notice to this

effect will be made in a public announcement by

the IRS. In these cases, the effect of grants and

contributions made after the date of the an-

nouncement will depend on the statutory qualifi-

cation of the organization as an organization de-

scribed in Section 509(a)(1), Section 509(a)(2),

or Section 509(a)(3).

The preceding paragraph shall not ap-

ply if the grantor or contributor:

1. Had knowledge of the revocation of the

ruling or determination letter classifying

the organization as an organization descri-

bed in section 509(a)(1), 509(a)(2), or

509(a)(3); or

2. Was in part responsible for, or was aware

of, the act, the failure to act, or the sub-

stantial and material change on the part of

the organization that gave rise to the revo-

cation.

Interim guidance for supporting organiza-

tions and grantors. Notice 2014-4 provides

further interim guidance for section 509(a)(3)

supporting organizations and their grantors

about the application of certain requirements

enacted as part of the Pension Protection Act of

2006. The notice provides transitional rules for

Type III supporting organizations that want to

qualify as “functionally integrated” because they

support governmental entities. The notice also

provides additional interim guidance for private

foundations and sponsoring organizations that

maintain donor-advised funds on the proce-

dures to be followed in determining whether a

potential grantee is a Type I, Type II or function-

ally integrated Type III supporting organization.

See Notice 2014–4, 2014-2 I.R.B. 274 (exten-

ded as described in the preamble to the 2015 fi-

nal regulations regarding the distribution re-

quirement for non-functionally integrated Type

III supporting organizations (T.D. 9746)).

Section 509(a)(4) Organizations

Section 509(a)(4) excludes from classification

as private foundations those organizations that

qualify under section 501(c)(3) as organized

and operated for the purpose of testing prod-

ucts for public safety. Generally, these organiza-

tions test consumer products to determine their

acceptability for use by the general public.

Loss of Qualification as Public

Charity

If your organization ceases to qualify as a public

charity under section 509(a)(1)-(4), it becomes

a private foundation. The organization must file

Form 990-PF, Return of Private Foundation or

Section 4947(a)(1) Trust Treated as a Private

Foundation to satisfy its filing obligation. The or-

ganization can no longer file Form 990, 990-EZ,

or 990-N. A private foundation retains that sta-

tus unless or until it terminates its private foun-

dation status under section 507.

Private Operating

Foundations

Private foundations are divided into two catego-

ries - nonoperating private foundations and

private operating foundations. Nonoperating

CAUTION

foundations generally accomplish their charita-

ble purpose by making grants to other charities.

Operating foundations make qualifying distribu-

tions directly for the active conduct of their edu-

cational, charitable, and religious purposes.

Most of the restrictions and requirements

that apply to private foundations also apply to

private operating foundations. However, there

are advantages to being classified as a private

operating foundation. For example, a private op-

erating foundation (as compared to a private

foundation) can be the recipient of grants from a

private foundation without having to distribute

the funds received currently within 1 year, and

the funds nevertheless may be treated as quali-

fying distributions by the donating private foun-

dation; charitable contributions to a private op-

erating foundation qualify for a higher charitable

deduction limit on the donor's tax return; and

the excise tax on net investment income doesn't

apply to an exempt operating foundation (a pri-

vate operating foundation that meets certain ad-

ditional requirements - see

Exempt operating

foundations, later).

A private operating foundation is any private

foundation that meets the assets test, the sup-

port test, or the endowment test, and makes

qualifying distributions directly, for the active

conduct of its activities for which it was organ-

ized, of substantially all (85% or more) of the

lesser of its:

1. Adjusted net income, or

2. Minimum investment return.

Assets test. A private foundation will meet

the assets test if substantially more than half

(65% or more) of its assets are:

1. Devoted directly to the active conduct of

its exempt activity, to a functionally related

business, or to a combination of the two;

2. Stock of a corporation that is controlled by

the foundation (by ownership of at least

80% of the total voting power of all classes

of stock entitled to vote and at least 80%

of the total shares of all other classes of

stock) and substantially all (at least 85%)

the assets of which are devoted as provi-

ded above; or

3. Any combination of (1) and (2).

This test is intended to apply to organizations

such as museums and libraries.

Support test. A private foundation will

meet the support test if:

1. Substantially all (at least 85%) of its sup-

port (other than gross investment income)

is normally received from the general pub-

lic and five or more unrelated exempt or-

ganizations,

2. Not more than 25% of its support (other

than gross investment income) is normally

received from any one exempt organiza-

tion, and

3. Not more than 50% of its support is nor-

mally received from gross investment in-

come.

This test is intended to apply to special-purpose

foundations, such as learned societies and as-

sociations of libraries.

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 45

Endowment test. A foundation will meet

the endowment test if it normally makes qualify-

ing distributions directly for the active conduct

of its exempt function of at least two-thirds of its

minimum investment return.

The minimum investment return for any pri-

vate foundation for any tax year is 5% of the ex-

cess of the total fair market value of all assets of

the foundation (other than those used directly in

the active conduct of its exempt purpose) over

the amount of indebtedness incurred to acquire

those assets.

In determining whether the amount of quali-

fying distributions is at least two-thirds of the or-

ganization's minimum investment return, the or-

ganization isn't required to trace the source of

the expenditures to determine whether they

were derived from investment income or from

contributions.

This test is intended to apply to organiza-

tions such as research organizations that ac-

tively conduct charitable activities but whose

personal services are so great in relationship to

charitable assets that the cost of those services

can't be met out of small endowments.

Exempt operating foundations. The ex-

cise tax on net investment income doesn't apply

to an exempt operating foundation. An exempt

operating foundation for the tax year is any pri-

vate foundation that:

1. Is an operating foundation, as described

previously;

2. Has been publicly supported for at least

10 tax years or was an operating founda-

tion on January 1, 1983, or for its last tax

year ending before January 1, 1983;

3. Has a governing body that, at all times

during the tax year, is broadly representa-

tive of the general public and consists of

individuals no more than 25% of whom are

disqualified individuals; and

4. Doesn't have any officer, at any time dur-

ing the tax year, who is a disqualified indi-

vidual.

The foundation must obtain a determination let-

ter from the IRS recognizing this special status

(see Existing organization, later).

New organization. If you are applying for

recognition of exemption as an organization de-

scribed in section 501(c)(3) and you wish to es-

tablish that your organization is a private operat-

ing foundation, you should complete Part VII of

your exemption application (Form 1023).

Existing organization. If you are an existing

organization seeking reclassification as a pri-

vate operating foundation or as an exempt oper-

ating foundation, you must file Form 8940, Re-

quest for Miscellaneous Determination.

Lobbying Expenditures

In general, if a substantial part of the activities

of your organization consists of carrying on

propaganda or otherwise attempting to influ-

ence legislation, your organization will not qual-

ify for exemption under section 501(c)(3). How-

ever, a public charity (other than a church, an

integrated auxiliary of a church or of a conven-

tion or association of churches, or a member of

an affiliated group of organizations that includes

a church, etc.) may elect instead an expenditure

test under section 501(h) as an alternative to

measure its lobbying activity. Under the Section

501(h) test, the lobbying limit is defined in terms

of expenditures for influencing legislation in-

stead of whether lobbying is a substantial part

of the organization's activities. Private founda-

tions can't make this election.

Making the election. Use Form 5768, Elec-

tion/Revocation of Election by an Eligible Sec-

tion 501(c)(3) Organization To Make Expendi-

tures To Influence Legislation, to make the

election. The form must be signed and post-

marked within the first tax year to which it ap-

plies. If the form is used to revoke the election, it

must be signed and postmarked before the first

day of the tax year to which it applies.

Eligible section 501(c)(3) organizations that

have made the election to be subject to the lim-

its on lobbying expenditures must use Part II-A

of Schedule C (Form 990) to figure these limits.

Attempting to influence legislation. Attempt-

ing to influence legislation, for this purpose,

means:

1. Any attempt to influence any legislation

through an effort to affect the opinions of

the general public or any segment thereof

(grass roots lobbying), and

2. Any attempt to influence any legislation

through communication with any member

or employee of a legislative body or with

any government official or employee who

may participate in the formulation of legis-

lation (direct lobbying).

However, the term attempting to influence legis-

lation doesn't include the following activities.

1. Making available the results of nonpartisan

analysis, study, or research.

2. Examining and discussing broad social,

economic, and similar problems.

3. Providing technical advice or assistance

(where the advice would otherwise consti-

tute the influencing of legislation) to a gov-

ernmental body or to a committee or other

subdivision thereof in response to a writ-

ten request by that body or subdivision.

4. Appearing before, or communicating with,

any legislative body about a possible deci-

sion of that body that might affect the exis-

tence of the organization, its powers and

duties, its tax-exempt status, or the deduc-

tion of contributions to the organization.

5. Communicating with a government official

or employee, other than:

a. A communication with a member or

employee of a legislative body (when

the communication would otherwise

constitute the influencing of legisla-

tion), or

b. A communication with the principal

purpose of influencing legislation.

Also excluded are communications between an

organization and its bona fide members about

legislation or proposed legislation of direct inter-

est to the organization and the members, unless

these communications directly encourage the

members to attempt to influence legislation or

directly encourage the members to urge non-

members to attempt to influence legislation, as

explained earlier.

Lobbying expenditures limits. If a public

charity makes the election under section 501(h)

to be subject to the lobbying expenditures limits

rules (instead of the substantial part of activities

test), it won't lose its tax-exempt status under

section 501(c)(3), unless it normally makes:

•

Lobbying expenditures that are more than

150% of the lobbying nontaxable amount

for the organization for each tax year, or

•

Grass roots expenditures that are more

than 150% of the grass roots nontaxable

amount for the organization for each tax

year.

See Tax on excess expenditures to influence

legislation, later, in this section.

Lobbying expenditures. These are any

expenditures that are made for the purpose of

attempting to influence legislation, as discussed

earlier under Attempting to influence legislation.

Grass roots expenditures. This term re-

fers only to those lobbying expenditures that are

made to influence legislation by attempting to

affect the opinions of the general public or any

segment thereof.

Lobbying nontaxable amount. The lobby-

ing nontaxable amount for any organization for

any tax year is the lesser of $1,000,000 or:

1. 20% of the exempt purpose expenditures

if the exempt purpose expenditures aren't

over $500,000,

2. $100,000 plus 15% of the excess of the

exempt purpose expenditures over

$500,000 if the exempt purpose expendi-

tures are over $500,000 but not over

$1,000,000,

3. $175,000 plus 10% of the excess of the

exempt purpose expenditures over

$1,000,000 if the exempt purpose expen-

ditures are over $1,000,000 but not over

$1,500,000, or

4. $225,000 plus 5% of the excess of the ex-

empt purpose expenditures over

$1,500,000 if the exempt purpose expen-

ditures are over $1,500,000.

The term exempt purpose expenditures

means the total of the amounts paid or incurred

(including depreciation and amortization, but

not capital expenditures) by an organization for

the tax year to accomplish its exempt purposes.

In addition, it includes:

1. Administrative expenses paid or incurred

for the organization's exempt purposes,

and

2. Amounts paid or incurred for the purpose

of influencing legislation, whether or not

the legislation promotes the organization's

exempt purposes.

Exempt purpose expenditures don't include

amounts paid or incurred to or for:

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46 Chapter 3 Section 501(c)(3) Organizations Publication 557 (1-2024)

1. A separate fundraising unit of the organi-

zation, or

2. One or more other organizations, if the

amounts are paid or incurred primarily for

fundraising.

Grass roots nontaxable amount. The

grass roots nontaxable amount for any organi-

zation for any tax year is 25% of the lobbying

nontaxable amount for the organization for that

tax year.

Years for which election is effective. Once

an organization elects to come under these pro-

visions, the election will be in effect for all tax

years that end after the date of the election and

begin before the organization revokes this elec-

tion.

Note. These elective provisions for lobbying

activities by public charities don't apply to a

church, an integrated auxiliary of a church or of

a convention or association of churches, or a

member of an affiliated group of organizations

that includes a church, etc., or a private founda-

tion. Moreover, these provisions won't apply to

any organization for which an election isn't in ef-

fect.

Expenditures of affiliated organizations. If

two or more section 501(c)(3) organizations are

members of an affiliated group of organizations

and at least one of these organizations has

made the election regarding the treatment of

certain lobbying expenditures, then the determi-

nation as to whether excess lobbying expendi-

tures has been made and the determination as

to whether the expenditure limits, described

earlier, has been exceeded by more than 150%

will be made as though the affiliated group is

one organization.

If the group has excess lobbying expendi-

tures, each organization for which the election is

effective for the year will be treated as an organ-

ization that has excess lobbying expenditures in

an amount that equals the organization's pro-

portionate share of the group's excess lobbying

expenditures. Further, if the expenditure limits

described in this section are exceeded by more

than 150%, each organization for which the

election is effective for that year will lose its

tax-exempt status under section 501(c)(3).

Two organizations will be considered mem-

bers of an affiliated group of organizations if:

1. The governing instrument of one of the or-

ganizations requires it to be bound by de-

cisions of the other organization on legisla-

tive issues, or

2. The governing board of one of the organi-

zations includes persons who:

a. Are specifically designated represen-

tatives of the other organization or are

members of the governing board, offi-

cers, or paid executive staff members

of the other organization; and

b. Have enough voting power to cause

or prevent action on legislative issues

by the controlled organization by com-

bining their votes.

Tax on excess expenditures to influence

legislation. If an election for a tax year is in ef-

fect for an organization and that organization

exceeds the lobbying expenditures limits, an ex-

cise tax of 25% of the excess lobbying expendi-

tures for the tax year will be imposed. Excess

lobbying expenditures for a tax year, in this

case, means the greater of:

1. The amount by which the lobbying expen-

ditures made by the organization during

the tax year are more than the lobbying

nontaxable amount for the organization for

that tax year, or

2. The amount by which the grass roots ex-

penditures made by the organization dur-

ing the tax year are more than the grass

roots nontaxable amount for the organiza-

tion for that tax year.

Eligible organizations that have made the elec-

tion to be subject to the limits on lobbying ex-

penditures and that owe the tax on excess lob-

bying expenditures (as computed in Part II-A of

Schedule C (Form 990)) must file Form 4720,

Return of Certain Excise Taxes Under Chapters

41 and 42 of the Internal Revenue Code, to re-

port and pay the tax.

Organization that no longer qualifies. An

organization that no longer qualifies for exemp-

tion under section 501(c)(3) because of sub-

stantial lobbying activities won't at any time

thereafter be treated as an organization descri-

bed in section 501(c)(4). This provision, how-

ever, doesn't apply to certain organizations

(churches, etc.) that can't make the election dis-

cussed earlier.

Tax on disqualifying lobbying expenditures.

The law imposes a tax on certain organizations

if they no longer qualify under section 501(c)(3)

by reason of having made disqualifying lobbying

expenditures. An additional tax may be im-

posed on the managers of those organizations.

Tax on organization. Organizations that

lose their exemption under section 501(c)(3)

due to lobbying activities generally will be sub-

ject to an excise tax of 5% of the lobbying ex-

penditures. The tax doesn't apply to private

foundations. Also, the tax doesn't apply to or-

ganizations that have elected the lobbying limits

of section 501(h) or to churches or church-rela-

ted organizations that can't elect these limits.

This tax must be paid by the organization.

Tax on managers. Managers may also be

liable for a 5% tax on the lobbying expenditures

that result in the disqualification of the organiza-

tion. For the tax to apply, a manager would have

to agree to the expenditures knowing that the

expenditures were likely to result in the organi-

zation's not being described in section 501(c)

(3). No tax will be imposed if the manager's

agreement isn't willful and is due to reasonable

cause.

Excise taxes on political expenditures. The

law imposes an excise tax on the political ex-

penditures of section 501(c)(3) organizations. A

two-tier tax is imposed on both the organiza-

tions and the managers of those organizations.

Taxes on organizations. An initial tax of

10% of certain political expenditures is imposed

on a charitable organization. A second tax of

100% of the expenditure is imposed if the politi-

cal expenditure that resulted in the imposition of

the initial (first-tier) tax isn't corrected within a

specified period. These taxes must be paid by

the organization.

Taxes on managers. An initial tax of 2

/2%

of the amount of certain political expenditures

(up to $5,000 for each expenditure) is imposed

on a manager of an organization who agrees to

such expenditures knowing that they are politi-

cal expenditures. No tax will be imposed if the

manager's agreement wasn't willful and was

due to reasonable cause. A second tax of 50%

of the expenditures (up to $10,000 for each ex-

penditure) is imposed on a manager if they re-

fuse to agree to a correction of the expenditures

that resulted in the imposition of the initial

(first-tier) tax. For purposes of these taxes, an

organization manager is generally an officer, di-

rector, trustee, or any employee having author-

ity or responsibility concerning the organiza-

tion's political expenditures. These taxes must

be paid by the manager of the organization.

Political expenditures. Generally, political

expenditures that will trigger these taxes are

amounts paid or incurred by a section 501(c)(3)

organization in any participation or intervention

in any political campaign for or against any can-

didate for public office. Political expenditures in-

clude publication or distribution of statements

for these purposes. Political expenditures also

include certain expenditures by organizations

that are formed primarily to promote the candi-

dacy (or prospective candidacy) of an individual

for public office and by organizations that are ef-

fectively controlled by a candidate and are used

primarily to promote that candidate.

Correction of expenditure. A correction of

a political expenditure is the recovery, if possi-

ble, of all or part of the expenditure and the es-

tablishment of safeguards to prevent future po-

litical expenditures.

Status after loss of exemption for lobbying

or political activities. As explained earlier, an

organization can lose its tax-exempt status un-

der section 501(c)(3) because of lobbying activ-

ities or participation or intervention in a political

campaign on behalf of or in opposition to a can-

didate for public office. If this happens to an or-

ganization, it can't later qualify for exemption

under section 501(c)(4).

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Publication 557 (1-2024) Chapter 3 Section 501(c)(3) Organizations 47

Other Section

501(c)

Organizations

Introduction

This chapter contains specific information for

certain organizations described in section

501(c), other than those organizations that are

described in section 501(c)(3). Section 501(c)

(3) organizations are covered in chapter 3 of

this publication.

The Table of Contents at the beginning of

this publication, as well as the Organization Ref-

erence Chart, may help you locate at a glance

the type of organization discussed in this chap-

ter.

501(c)(4) - Civic Leagues

and Social Welfare

Organizations

If your organization isn't organized for profit and

will be operated primarily to promote social wel-

fare to benefit the community, it may qualify for

exemption under section 501(c)(4).

Notice requirement. Every new section

501(c)(4) organization must use Form 8976,

Notice of Intent to Operate Under Section

501(c)(4), to provide notice to the Internal Reve-

nue Service. The organization must file Form

8976 within 60 days of establishment. Providing

notice on Form 8976 is not a determination that

the IRS recognizes your organization as exempt

under section 501(c)(4).

Optional application for recognition of ex-

emption. Your organization may (but is not re-

quired to) file Form 1024-A, Application for Rec-

ognition of Exemption under Section 501(c)(4),

to apply for recognition of exemption from fed-

eral income tax under section 501(c)(4). The

discussion that follows describes the informa-

tion you must provide when applying. For appli-

cation procedures, see chapter 1.

To qualify for exemption under section

501(c)(4), no part of the organization's net earn-

ings can inure to the benefit of any private

shareholder or individual. If the organization

provides an excess benefit to certain persons,

an excise tax may be imposed. See Excise tax

on excess benefit transactions, under Excess

Benefit Transactions in chapter 5 for more infor-

mation about this tax.

Examples. Types of organizations that are

considered to be social welfare organizations

are civic associations and volunteer fire compa-

nies.

Nonprofit operation. You must submit evi-

dence that your organization is organized and

will be operated on a nonprofit basis. However,

such evidence, including the fact that your or-

ganization is organized under a state law relat-

ing to nonprofit corporations, won't in itself es-

tablish a social welfare purpose.

Social welfare. To establish that your organi-

zation is operated primarily to promote social

welfare, you should submit evidence with your

application showing that your organization will

operate primarily to further (in some way) the

common good and general welfare of the peo-

ple of the community (such as by bringing about

civic betterment and social improvements).

An organization that restricts the use of its

facilities to employees of selected corporations

and their guests is primarily benefiting a private

group rather than the community. It therefore

doesn't qualify as a section 501(c)(4) organiza-

tion. Similarly, an organization formed to repre-

sent member-tenants of an apartment complex

doesn't qualify, since its activities benefit the

member-tenants and not all tenants in the com-

munity. However, an organization formed to pro-

mote the legal rights of all tenants in a particular

community may qualify under section 501(c)(4)

as a social welfare organization.

Political activity. Promoting social welfare

doesn't include direct or indirect participation or

intervention in political campaigns on behalf of

or in opposition to any candidate for public of-

fice. However, if you submit proof that your or-

ganization is organized primarily to promote so-

cial welfare, it can obtain exemption even if it

participates legally in some political activity on

behalf of or in opposition to candidates for pub-

lic office. See the discussion in chapter 2 under

Political Organization Income Tax Return.

Social or recreational activity. If social activi-

ties will be the primary purpose of your organi-

zation, you shouldn't file an application for ex-

emption as a social welfare organization but you

may qualify for exemption as a social club de-

scribed in section 501(c)(7).

Retirement benefit program. An organization

established by its members that has as its pri-

mary activity providing supplemental retirement

benefits to its members or death benefits to

their beneficiaries doesn't qualify as an exempt

social welfare organization. It may qualify under

another paragraph of section 501(c) depending

on all the facts.

However, a nonprofit association that is es-

tablished, maintained, and funded by a local

government to provide the only retirement ben-

efits to a class of employees may qualify as a

social welfare organization under section 501(c)

(4).

Tax treatment of donations. Donations to vol-

unteer fire companies are deductible on the do-

nor's federal income tax return, but only if made

for exclusively public purposes. However, contri-

butions to civic leagues or other section 501(c)

(4) organizations generally aren't deductible as

charitable contributions for federal income tax

purposes. They may be deductible as trade or

business expenses, if ordinary and necessary

in the conduct of the taxpayer's business. How-

ever, see Deduction not allowed for dues used

for political or legislative activities, under 501(c)

(6) - Business Leagues, etc. for more informa-

tion.

For more information on social welfare or-

ganizations, see Life Cycle of a Social Welfare

Organization.

Specific Organizations

The following information should be contained

in the application form and accompanying state-

ments of certain types of civic leagues or social

welfare organizations.

Volunteer fire companies. If your organiza-

tion wishes to obtain exemption as a volunteer

fire company or similar organization, you should

submit evidence that its members are actively

engaged in firefighting and similar disaster as-

sistance, whether it actually owns the firefight-

ing equipment, and whether it provides any as-

sistance for its members, such as death and

medical benefits in case of injury to them.

If your organization doesn't have an inde-

pendent social purpose, such as providing rec-

reational facilities for members, it may be ex-

empt under section 501(c)(3). In this event, your

organization should file Form 1023.

Homeowners' associations. A membership

organization formed by a real estate developer

to own and maintain common green areas,

streets, and sidewalks and to enforce covenants

to preserve the appearance of the development

should show that it is operated for the benefit of

all the residents of the community. The term

community generally refers to a geographical

unit recognizable as a governmental subdivi-

sion, unit, or district thereof. Whether a particu-

lar association meets the requirement of bene-

fiting a community depends on the facts and

circumstances of each case. Even if an area

represented by an association isn't a commun-

ity, the association can still qualify for exemption

if its activities benefit a community.

The association should submit evidence that

areas such as roadways and park land that it

owns and maintains are open to the general

public and not just its own members. It also

must show that it doesn't engage in exterior

maintenance of private homes.

A homeowners' association that isn't exempt

under section 501(c)(4) and that is a condomin-

ium management association, a residential real

estate management association, or a timeshare

association generally can elect, under the provi-

sions of section 528, to receive certain tax ben-

efits that, in effect, permit it to exclude its ex-

empt function income from its gross income.

Other organizations. Other nonprofit organi-

zations that qualify as social welfare organiza-

tions include:

•

An organization operating an airport that is

on land owned by a local government,

which supervises the airport's operation,

and that serves the general public in an

area with no other airport;

•

A community association that works to im-

prove public services, housing, and resi-

dential parking; publishes a free commun-

ity newspaper; sponsors a community

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48 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2024)

sports league, holiday programs, and

meetings; and contracts with a private se-

curity service to patrol the community;

•

A community association devoted to pre-

serving the community's traditions, archi-

tecture, and appearance by representing it

before the local legislature and administra-

tive agencies in zoning, traffic, and parking

matters;

•

An organization that tries to encourage in-

dustrial development and relieve unem-

ployment in an area by making loans to

businesses so they will relocate to the

area; and

•

An organization that holds an annual festi-

val of regional customs and traditions.

501(c)(5) - Labor,

Agricultural, and

Horticultural

Organizations

If you are a member of an organization that

wants to obtain recognition of exemption from

federal income tax as a labor, agricultural, or

horticultural organization, you should submit an

application on Form 1024. You must indicate in

your application for exemption and accompany-

ing statements that no part of the organization's

net earnings will inure to the benefit of any

member. In addition, you should follow the pro-

cedure for obtaining recognition of exempt sta-

tus described in chapter 1. Submit any addi-

tional information that may be required, as

described in this section.

Tax treatment of donations. Contributions to

labor, agricultural, and horticultural organiza-

tions aren't deductible as charitable contribu-

tions on the donor's federal income tax return.

However, such payments may be deductible as

business expenses if they are ordinary and nec-

essary in the conduct of the taxpayer's trade or

business. For more information about certain

limits affecting the deductibility of these busi-

ness expenses, see Deduction not allowed for

dues used for political or legislative activities,

under 501(c)(6) - Business Leagues, etc.

Labor Organizations

A labor organization is an association of work-

ers who have combined to protect and promote

the interests of the members by bargaining col-

lectively with their employers to secure better

working conditions, wages, and similar benefits.

To show that your organization has the pur-

pose of a labor organization, you should include

in your organizing document or accompanying

statements (submitted with your exemption ap-

plication) information establishing that the or-

ganization is organized to better the conditions

of workers, improve the grade of their products,

and develop a higher degree of efficiency in

their respective occupations. In addition, no net

earnings of the organization can inure to the

benefit of any member.

Composition of membership. While a labor

organization is generally composed of employ-

ees or representatives of the employees (in the

form of collective bargaining agents) and similar

employee groups, evidence that an organiza-

tion's membership consists mainly of workers

doesn't in itself indicate an exempt purpose.

You must show in your application that your or-

ganization has the purposes described in the

preceding paragraph. These purposes can be

accomplished by a single labor organization

acting alone or by several organizations acting

together through a separate organization.

Benefits to members. The payment by a la-

bor organization of death, sick, accident, and

similar benefits to its individual members with

funds contributed by its members, if made un-

der a plan to better the conditions of the mem-

bers, doesn't preclude exemption as a labor or-

ganization. However, an organization doesn't

qualify for exemption as a labor organization if

its primary activity is to provide a strike fund that

is controlled by private individuals who control-

led the organization that paid benefits to work-

ers.

For more information on labor organizations,

see Life Cycle of a Labor Organization.

Agricultural and

Horticultural Organizations

Agricultural and horticultural organizations are

connected with raising livestock, cultivating

land, raising and harvesting crops or aquatic re-

sources, cultivating useful or ornamental plants,

and similar pursuits.

For the purpose of these provisions, aquatic

resources include only animal or vegetable life,

but not mineral resources. The term harvesting,

in this case, includes fishing and related pur-

suits.

Agricultural organizations are often de-

signed to encourage the development of better

agricultural and horticultural products through a

system of awards, using income from entry

fees, gate receipts, and donations to meet the

necessary expenses of upkeep and operation.

When the activities are directed toward the im-

provement of marketing or other business con-

ditions in one or more lines of business, rather

than the improvement of production techniques

or the betterment of the conditions of persons

engaged in agriculture, the organization must

qualify for exemption as a business league,

board of trade, or other organization, as dis-

cussed next in the section on 501(c)(6) organi-

zations.

The primary purpose of exempt agricultural

and horticultural organizations must be to better

the conditions of those engaged in agriculture

or horticulture, develop more efficiency in agri-

culture or horticulture, or improve the products.

The following list contains some examples of

activities that show an agricultural or horticul-

tural purpose.

1. Promoting various cooperative agricul-

tural, horticultural, and civic activities

among rural residents by a state, farm, or

home bureau.

2. Exhibiting livestock, farm products, and

other characteristic features of agriculture

and horticulture.

3. Testing soil for members and nonmembers

of the farm bureau on a cost basis, the re-

sults of the tests and other recommenda-

tions being furnished to the community

members to educate them in soil treat-

ment.

4. Guarding the purity of a specific breed of

livestock.

5. Encouraging improvements in the produc-

tion of fish on privately owned fish farms.

6. Negotiating with processors for the price

to be paid to members for their crops.

For more information on agricultural or horti-

cultural organizations, see Life Cycle of an

Agricultural or Horticultural Organization.

501(c)(6) -

Business Leagues, etc.

If your organization wants to apply for recogni-

tion of exemption from federal income tax as a

nonprofit business league, chamber of com-

merce, real estate board, or board of trade, it

should file Form 1024. For a discussion of the

procedure to follow, see chapter 1.

Your organization must indicate in its appli-

cation form and attached statements that no

part of its net earnings will inure to the benefit of

any private shareholder or individual and that it

isn't organized for profit or organized to engage

in an activity ordinarily carried on for profit (even

if the business is operated on a cooperative ba-

sis or produces only sufficient income to be

self-sustaining).

In addition, your organization must be pri-

marily engaged in activities or functions that are

the basis for its exemption. It must be primarily

supported by membership dues and other in-

come from activities substantially related to its

exempt purpose.

A business league, in general, is an associa-

tion of persons having some common business

interest, the purpose of which is to promote that

common interest and not to engage in a regular

business of a kind ordinarily carried on for profit.

Trade associations and professional associa-

tions are considered business leagues.

Chamber of commerce. A chamber of com-

merce is usually composed of the merchants

and traders of a city.

Board of trade. A board of trade often con-

sists of persons engaged in similar lines of busi-

ness. For example, a nonprofit organization

formed to regulate the sale of a specified agri-

cultural commodity to assure equal treatment of

producers, warehouse workers, and buyers is a

board of trade.

Chambers of commerce and boards of trade

usually promote the common economic inter-

ests of all the commercial enterprises in a given

trade community.

Real estate board. A real estate board con-

sists of members interested in improving the

business conditions in the real estate field. It

isn't organized for profit and no part of the net

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Publication 557 (1-2024) Chapter 4 Other Section 501(c) Organizations 49

earnings inures to the benefit of any private

shareholder or individual.

Professional football leagues. The Internal

Revenue Code specifically defines professional

football leagues as exempt organizations under

section 501(c)(6). They are exempt whether or

not they administer a pension fund for football

players.

General purpose. You must indicate in the

material submitted with your application that

your organization will be devoted to the im-

provement of business conditions of one or

more lines of business as distinguished from

the performance of particular services for indi-

vidual persons. It must be shown that the condi-

tions of a particular trade or the interests of the

community will be advanced. Merely indicating

the name of the organization or the object of the

local statute under which it is created isn't

enough to demonstrate the required general

purpose.

Line of business. This term generally re-

fers either to an entire industry or to all compo-

nents of an industry within a geographic area. It

doesn't include a group composed of busi-

nesses that market a particular brand within an

industry.

Common business interest. A common busi-

ness interest of all members of the organization

must be established by the application docu-

ments.

Examples. Activities that would tend to il-

lustrate a common business interest are:

1. Promotion of higher business standards

and better business methods and encour-

agement of uniformity and cooperation by

a retail merchants association,

2. Education of the public in the use of credit,

3. Establishment of uniform casualty rates

and compilation of statistical information

by an insurance rating bureau operated by

casualty insurance companies,

4. Establishment and maintenance of the in-

tegrity of a local commercial market,

5. Operation of a trade publication primarily

intended to benefit an entire industry, and

6. Encouragement of the use of goods and

services of an entire industry (such as a

lawyer referral service whose main pur-

pose is to introduce individuals to the use

of the legal profession in the hope that

they will enter into lawyer-client relation-

ships on a paying basis as a result).

Improvement of business conditions.

Generally, this must be shown to be the pur-

pose of the organization. This isn't established

by evidence of particular services that provide a

convenience or economy to individual members

in their businesses, such as advertising that

carries the name of members, interest-free

loans, assigning exclusive franchise areas, op-

eration of a real estate multiple listing system, or

operation of a credit reporting agency.

Stock or commodity exchange. A stock or

commodity exchange isn't a business league,

chamber of commerce, real estate board, or

board of trade and isn't exempt under section

501(c)(6).

Legislative activity. An organization that is ex-

empt under section 501(c)(6) can work for the

enactment of laws to advance the common

business interests of the organization's mem-

bers.

Deduction not allowed for dues used for po-

litical or legislative activities. A taxpayer

can't deduct the part of dues or other payments

to a business league, trade association, labor

union, or similar organization that is reported to

the taxpayer by the organization as having been

used for any of the following activities.

1. Influencing legislation.

2. Participating or intervening in a political

campaign for, or against, any candidate for

public office.

3. Trying to influence the general public, or

part of the general public, with respect to

elections, legislative matters, or referen-

dums (also known as grass roots lobby-

ing).

4. Communicating directly with certain exec-

utive branch officials to try to influence

their official actions or positions.

See Dues Used for Lobbying or Political Activi-

ties under Required Disclosures in chapter 2 for

more information.

De minimis exception. In-house expendi-

tures of $2,000 or less for the year for activities

(1) – (4) listed earlier won't prevent a deduction

for dues if the dues meet all other tests to be

deductible as a business expense.

Grass roots lobbying. A tax-exempt trade

association, labor union, or similar organization

is considered to be engaging in grass roots lob-

bying if it contacts prospective members or calls

upon its own members to contact their employ-

ees and customers for the purpose of urging

such persons to communicate with their elected

state or Congressional representatives to sup-

port the promotion, defeat, or repeal of legisla-

tion that is of direct interest to the organization.

Any dues or assessments directly related to

such activities aren't deductible by the taxpayer,

since the individuals being contacted, who

aren't members of the organization, are a seg-

ment of the general public.

Tax treatment of donations. Contributions to

organizations described in this section aren't

deductible as charitable contributions on the

donor's federal income tax return. They may be

deductible as trade or business expenses if or-

dinary and necessary in the conduct of the tax-

payer's business.

For more information on business leagues,

see Life Cycle of a Business League (Trade

Association) on IRS.gov.

501(c)(7) - Social and

Recreation Clubs

If your club is organized for pleasure, recreation,

and other similar nonprofitable purposes and

substantially all of its activities are for these pur-

poses, it should file Form 1024 to apply for rec-

ognition of exemption from federal income tax.

In applying for recognition of exemption, you

should submit the information described in this

section. Also see chapter 1 for the procedures

to follow.

Typical organizations that should file for rec-

ognition of exemption as social clubs include:

•

College alumni associations that aren't de-

scribed in chapter 3 under Alumni associa-

tion;

•

College fraternities or sororities operating

chapter houses for students;

•

Country clubs;

•

Amateur hunting, fishing, tennis, swim-

ming, and other sport clubs;

•

Dinner clubs that provide a meeting place,

library, and dining room for members;

•

Hobby clubs;

•

Garden clubs; and

•

Variety clubs.

Discrimination prohibited. Your organization

won't be recognized as tax exempt if its charter,

bylaws, or other governing instrument, or any

written policy statement provides for discrimina-

tion against any person on the basis of race,

color, or religion.

However, a club that in good faith limits its

membership to the members of a particular reli-

gion to further the teachings or principles of that

religion and not to exclude individuals of a par-

ticular race or color won't be considered as dis-

criminating on the basis of religion. Also, the re-

striction on religious discrimination doesn't

apply to a club that is an auxiliary of a fraternal

beneficiary society (discussed later) if that soci-

ety is described in section 501(c)(8) and ex-

empt from tax under section 501(a) and limits

its membership to the members of a particular

religion.

Private benefit prohibited. No part of the or-

ganization's net earnings can inure to the bene-

fit of any person having a personal and private

interest in the activities of the organization. For

purposes of this requirement, it isn't necessary

that net earnings be actually distributed. Even

undistributed earnings can benefit members.

Examples of this include a decrease in mem-

bership dues or an increase in the services the

club provides to its members without a corre-

sponding increase in dues or other fees paid for

club support. However, fixed-fee payments to

members who bring new members into the club

aren't an inurement of the club's net earnings, if

the payments are reasonable compensation for

performance of a necessary administrative

service.

Purposes. To show that your organization pos-

sesses the characteristics of a club within the

meaning of the exemption law, you should sub-

mit evidence with your application that personal

contact, commingling, and fellowship exist

among members. You must show that members

are bound together by a common objective of

pleasure, recreation, and other nonprofitable

purposes.

Fellowship need not be present between

each member and every other member of a

club if it is a material part in the life of the

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50 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2024)

organization. A statewide or nationwide organi-

zation that is made up of individual members,

but is divided into local groups, satisfies this re-

quirement if fellowship is a material part of the

life of each local group.

The term other nonprofitable purposes

means other purposes similar to pleasure and

recreation. For example, a club that, in addition

to its social activities, has a plan for the pay-

ment of sick and death benefits isn't operating

exclusively for pleasure, recreation, and other

nonprofitable purposes.

Limited membership. The membership in

a social club must be limited. To show that your

organization has a purpose that would charac-

terize it as a club, you should submit evidence

with your application that there are limits on ad-

mission to membership consistent with the

character of the club.

A social club that issues corporate member-

ship is dealing with the general public in the

form of the corporation's employees. Corporate

members of a club aren't the kind of members

contemplated by the law. Gross receipts from

these members would be a factor in determin-

ing whether the club qualifies as a social club.

See Gross receipts from nonmembership

sources., later. Bona fide individual member-

ships paid for by a corporation wouldn't have an

effect on the gross receipts source.

The fact that a social club may have an as-

sociate (nonvoting) class of membership won't

be, in and of itself, a cause for nonrecognition of

exemption. However, if one membership class

pays substantially lower dues and fees than an-

other membership class, although both classes

enjoy the same rights and privileges in using the

club facilities, there may be an inurement of in-

come to the benefited class, resulting in a de-

nial of the club's exemption.

Support. In general, your club should be

supported solely by membership fees, dues,

and assessments. However, if otherwise enti-

tled to exemption, your club won't be disquali-

fied because it raises revenue from members

through the use of club facilities or in connec-

tion with club activities.

Business activities. If your club will engage in

business, such as selling real estate, timber, or

other products or services, it generally will be

denied exemption. However, evidence submit-

ted with your application form that your organi-

zation will provide meals, refreshments, or ser-

vices related to its exempt purposes only to its

own members or their dependents or guests

won't cause denial of exemption.

Facilities open to public. Evidence that

your club's facilities will be open to the general

public (persons other than members or their de-

pendents or guests) may cause denial of ex-

emption. This doesn't mean, however, that any

dealing with outsiders will automatically deprive

a club of exemption.

Gross receipts from nonmembership

sources. A section 501(c)(7) organization can

receive up to 35% of its gross receipts, includ-

ing investment income, from sources outside of

its membership without losing its tax-exempt

status. Income from nontraditional business ac-

tivity with members isn't exempt function

income, and thus is included as income from

sources outside of the membership. Of the 35%

gross receipts listed above, up to 15% of the

gross receipts can be derived from the use of

the club's facilities or services by the general

public. If an organization has outside income

that is more than these limits, all the facts and

circumstances will be taken into account in de-

termining whether the organization qualifies for

exempt status.

Gross receipts. Gross receipts, for this

purpose, are receipts from the normal and usual

(traditionally conducted) activities of the club.

These receipts include charges, admissions,

membership fees, dues, assessments, invest-

ment income, and normal recurring capital

gains on investments. Receipts don't include in-

itiation fees and capital contributions. Unusual

amounts of income, such as from the sale of a

clubhouse or similar facility, aren't included in

gross receipts or in figuring the percentage

limits.

Nontraditional activities. Traditional busi-

ness activities are those that further a social

club's exempt purposes. Nontraditional busi-

ness activities don't further the exempt purpo-

ses of a social club even if conducted solely on

a membership basis. Nontraditional business

activities are prohibited (subject to an insub-

stantial, trivial, and nonrecurrent test) for busi-

nesses conducted with both members and non-

members. Examples of nontraditional business

activities include sale of package liquor,

take-out food, and long-term room rental.

Fraternity foundations. If your organization is

a foundation formed for the exclusive purpose

of acquiring and leasing a chapter house to a

local fraternity chapter or sorority chapter main-

tained at an educational institution and doesn't

engage in any social or recreational activities, it

may be a title holding corporation (discussed

later under section 501(c)(2) organizations and

under section 501(c)(25) organizations) rather

than a social club.

Tax treatment of donations. Donations to ex-

empt social and recreation clubs aren't deducti-

ble as charitable contributions on the donor's

federal income tax return.

501(c)(8) and

501(c)(10) - Fraternal

Beneficiary Societies

and Domestic Fraternal

Societies

This section describes the information to be

provided upon application for recognition of ex-

emption by two types of fraternal societies: ben-

eficiary and domestic. The major distinction is

that fraternal beneficiary societies provide for

the payment of life, sick, accident, or other ben-

efits to their members or their dependents,

while domestic fraternal societies don't provide

these benefits but rather devote their earnings

to fraternal, religious, charitable, etc., purposes.

The procedures to follow in applying for recog-

nition of exemption are described in chapter 1.

If your organization is controlled by a central

organization, you should check with your con-

trolling organization to determine whether your

unit has been included in a group exemption let-

ter or can be added. If so, your organization

need not apply for individual recognition of ex-

emption. For more information, see Group Ex-

emption Letter in chapter 1 of this publication.

Tax treatment of donations. Donations by an

individual to a domestic fraternal beneficiary so-

ciety or a domestic fraternal society operating

under the lodge system are deductible as chari-

table contributions only if used exclusively for

religious, charitable, scientific, literary, or educa-

tional purposes or for the prevention of cruelty

to children or animals.

Fraternal Beneficiary

Societies (501(c)(8))

A fraternal beneficiary society, order, or associ-

ation must file an application for recognition of

exemption from federal income tax on Form

1024. The application and accompanying state-

ments should establish that the organization:

1. Is a fraternal organization;

2. Operates under the lodge system or for

the exclusive benefit of the members of a

fraternal organization itself operating un-

der the lodge system; and

3. Provides for the payment of life, sick, acci-

dent, or other benefits to the members of

the society, order, or association or their

dependents.

Lodge system. Operating under the lodge

system means carrying on activities under a

form of organization that comprises local

branches, chartered by a parent organization

and largely self-governing, called lodges, chap-

ters, or the like.

Payment of benefits. It isn't essential that

every member be covered by the society's pro-

gram of sick, accident, or death benefits. An or-

ganization can qualify for exemption if most of

its members are eligible for benefits, and the

benefits are paid from contributions or dues

paid by those members.

The benefits must be limited to members

and their dependents. If members will have the

ability to confer benefits to other than them-

selves and their dependents, exemption won't

be recognized.

Whole-life insurance. Whole-life insur-

ance constitutes a life benefit under section

501(c)(8) even though the policy may contain

investment features such as a cash surrender

value or a policy loan.

Reinsurance pool. Payments by a fraternal

beneficiary society into a state-sponsored rein-

surance pool that protects participating insurers

against excessive losses on major medical

health and accident insurance won't preclude

exemption as a fraternal beneficiary society.

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Publication 557 (1-2024) Chapter 4 Other Section 501(c) Organizations 51

Domestic Fraternal Societies

(501(c)(10))

A domestic fraternal society, order, or associa-

tion must file an application for recognition of

exemption from federal income tax on Form

1024. The application and accompanying state-

ments should establish that the organization:

1. Is a domestic fraternal organization organ-

ized in the United States;

2. Operates under the lodge system;

3. Devotes its net earnings exclusively to reli-

gious, charitable, scientific, literary, educa-

tional, and fraternal purposes; and

4. Doesn’t provide for the payment of life,

sick, accident, or other benefits to its

members.

The organization can arrange with insurance

companies to provide optional insurance to its

members without jeopardizing its exempt sta-

tus.

501(c)(4), 501(c)(9), and

501(c)(17) -

Employees'

Associations

This section describes the information to be

provided upon application for recognition of ex-

emption by the following types of employees'

associations:

1. A voluntary employees' beneficiary associ-

ation (including federal employees' associ-

ations) organized to pay life, sick, acci-

dent, and similar benefits to members or

their dependents, or designated beneficia-

ries, if no part of the net earnings of the as-

sociation inures to the benefit of any pri-

vate shareholder or individual; and

2. A supplemental unemployment benefit

trust whose primary purpose is providing

for payment of supplemental unemploy-

ment benefits.

Both the application form to file and the in-

formation to provide are discussed later under

the section that describes your employee asso-

ciation. Chapter 1 describes the procedures to

follow in applying for exemption.

Tax treatment of donations. Donations to

these organizations aren't deductible as charita-

ble contributions on the donor's federal income

tax return.

Local Employees'

Associations (501(c)(4))

A local association of employees whose mem-

bership is limited to employees of a designated

person or persons in a particular municipality,

and whose income will be devoted exclusively

to charitable, educational, or recreational purpo-

ses. A local employees' association must apply

for recognition of exemption by filing Form

1024-A. The organization must submit evidence

that:

1. It is of a purely local character;

2. Its membership is limited to employees of

a designated person or persons in a par-

ticular locality; and

3. Its net earnings will be devoted exclusively

to charitable, educational, or recreational

purposes.

A local association of employees that has

established a system of paying retirement or

death benefits, or both, to its members won't

qualify for exemption since the payment of

these benefits isn't considered as being for

charitable, educational, or recreational purpo-

ses. Similarly, a local association of employees

that is operated primarily as a cooperative buy-

ing service for its members in order to obtain

discount prices on merchandise, services, and

activities doesn't qualify for exemption.

Voluntary Employees'

Beneficiary Associations

(501(c)(9))

An application for recognition of exemption as a

voluntary employees' beneficiary association

must be filed on Form 1024. The material sub-

mitted with the application must show that your

organization:

1. Is a voluntary association of employees;

2. Will provide for payment of life, sick, acci-

dent, or other benefits to members or their

dependents or designated beneficiaries

and substantially all of its operations are

for this purpose; and

3. Won't allow any of its net earnings to inure

to the benefit of any private individual or

shareholder except in the form of sched-

uled benefit payments.

To be complete, an application must include a

copy of the document (such as the trust instru-

ment) by which the organization was created; a

full description of the benefits available to par-

ticipants and the terms and conditions of eligi-

bility for benefits (usually contained in a plan

document); and, if providing benefits pursuant

to a collective bargaining agreement, a copy of

that agreement.

Note. Under section 4976, the reversion of

funds from a section 501(c)(9) organization to

the employer who created the beneficiary asso-

ciation may subject the employer to a 100%

penalty excise tax on the amount of the rever-

sion.

Notice requirement. An organization won't be

considered tax exempt under this section un-

less the organization gives notice to the IRS that

it is applying for recognition of exempt status.

The organization gives notice by filing Form

1024. If the notice isn't given by 15 months after

the end of the month in which the organization

was created, the organization won't be exempt

for any period before notice is given. An exten-

sion of time for filing the notice can be granted

under the same procedures as those described

for section 501(c)(3) organizations in chapter 3

under Application for Recognition of Exemption.

Membership. Membership of a section 501(c)

(9) organization must consist of individuals who

are employees and have an employment-rela-

ted common bond. This common bond can be a

common employer (or affiliated employers),

coverage under one or more collective bargain-

ing agreements, membership in a labor union,

or membership in one or more locals of a na-

tional or international labor union.

The membership of an association can in-

clude some individuals who aren't employees,

provided they have an employment-related

bond with the employee-members. For exam-

ple, the owner of a business whose employees

are members of the association can be a mem-

ber. An association will be considered com-

posed of employees if 90% of its total member-

ship on 1 day of each quarter of its tax year

consists of employees.

Employees. Employees include individuals

who became entitled to membership because

they are or were employees. For example, an in-

dividual will qualify as an employee even though

the individual is on a leave of absence or has

been terminated due to retirement, disability, or

layoff.

Generally, membership is voluntary if an af-

firmative act is required on the part of an em-

ployee to become a member. Conversely, mem-

bership is involuntary if the designation as a

member is due to employee status. However,

an association will be considered voluntary if

employees are required to be members of the

organization as a condition of their employment

and they don't incur a detriment (such as a pay-

roll deduction) as a result of their membership.

An employer has not imposed involuntary mem-

bership on the employee if membership is re-

quired as the result of a collective bargaining

agreement or as an incident of membership in a

labor organization.

Payment of benefits. The information submit-

ted with your application must show that your

organization will pay life, sick, accident, supple-

mental unemployment, or other similar benefits.

The benefits can be provided directly by your

association or indirectly by your association

through the payments of premiums to an insur-

ance company (or fees to a medical clinic).

Benefits can be in the form of medical, clinical,

or hospital services, transportation furnished for

medical care, or money payments.

Nondiscrimination requirements. An organi-

zation that is part of a plan won't be exempt un-

less the plan meets certain nondiscrimination

requirements. However, if the organization is

part of a plan that is a collective bargaining

agreement that was the subject of good faith

bargaining between employee organizations

and employers, the plan need not meet these

requirements for the organization to qualify as

tax exempt.

A plan meets the nondiscrimination require-

ments only if both of the following statements

are true.

1. Each class of benefits under the plan is

provided under a classification of employ-

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

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52 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2024)

discriminate in favor of employees who are

highly compensated individuals.

2. The benefits provided under each class of

benefits don't discriminate in favor of

highly compensated individuals.

A life insurance, disability, severance pay, or

supplemental unemployment compensation

benefit doesn't discriminate in favor of highly

compensated individuals merely because the

benefits available bear a uniform relationship to

the total compensation, or the basic or regular

rate of compensation, of employees covered by

the plan.

If a plan provides a benefit for which there is

a nondiscrimination provision provided under

Chapter 1 of the Internal Revenue Code as a

condition of that benefit being excluded from

gross income, these nondiscrimination require-

ments don't apply. The benefit will be consid-

ered nondiscriminatory only if it meets the non-

discrimination provision of the applicable Code

section. For example, benefits provided under a

medical reimbursement plan would meet the

nondiscrimination requirements for an associa-

tion, if the benefits meet the nondiscrimination

requirements of section 105(h)(3) and 105(h)

(4).

Excluded employees. Certain employees

who aren't covered by a plan can be excluded

from consideration in applying these require-

ments. These include employees:

1. Who haven't completed 3 years of service,

2. Who haven't attained age 21,

3. Who are seasonal or less than half-time

employees,

4. Who aren't in the plan and who are inclu-

ded in a unit of employees covered by a

collective bargaining agreement if the

class of benefits involved was the subject

of good faith bargaining, or

5. Who are nonresident aliens and who re-

ceive no earned income from the employer

that has United States sourced income.

Highly compensated individual. A highly

compensated individual is one who:

1. Owned 5% or more of the employer at any

time during the current year or the preced-

ing year,

2. Received more than $125,000 in compen-

sation from the employer for the preceding

year (the amount is annualized for infla-

tion. Go to IRS.gov, and search “Pension

Plan Limitation” for the year), and

3. Was among the top 20% of employees by

compensation for the preceding year.

However, the employer can choose not to have

(3) apply.

Aggregation rules. The employer can

choose to treat two or more plans as one plan

for purposes of meeting the nondiscrimination

requirements. Employees of controlled groups

of corporations, trades, or businesses under

common control, or members of an affiliated

service group, are treated as employees of a

single employer. Leased employees are treated

as employees of the recipient.

One employee. A trust created to provide ben-

efits to one employee won't qualify as a volun-

tary employees' beneficiary association under

section 501(c)(9).

Supplemental

Unemployment Benefit

Trusts (501(c)(17))

A trust or trusts forming part of a written plan

(established and maintained by an employer,

the employees, or both) providing solely for the

payment of supplemental unemployment com-

pensation benefits must file the application for

recognition of exemption on Form 1024. The

trust must be a valid, existing trust under local

law and must be evidenced by an executed

document. A conformed copy of the plan of

which the trust is a part should be attached to

the application.

To be complete, an application must include

a copy of the document (such as the trust in-

strument) by which the organization was cre-

ated; a full description of the benefits available

to participants and the terms and conditions of

eligibility for benefits (usually contained in a

plan document); and, if providing benefits pur-

suant to a collective bargaining agreement, a

copy of that agreement.

Note. Under section 4976, the reversion of

funds from a section 501(c)(17) organization to

the employer who created the supplemental un-

employment benefit trust may subject the em-

ployer to a 100% penalty excise tax on the

amount of the reversion.

Notice requirement. An organization won't be

considered tax exempt under this section un-

less the organization gives notice to the IRS that

it is applying for recognition of exempt status.

The organization gives notice by filing Form

1024. If the notice isn't given by 15 months after

the end of the month in which the organization

was created, the organization won't be exempt

for any period before such notice is given. An

extension of time for filing the notice is granted

under the same procedures as those described

for section 501(c)(3) organizations in chapter 3

under Application for Recognition of Exemption.

Types of payments. You must show that the

supplemental unemployment compensation

benefits will be benefits paid to an employee

because of the employee's involuntary separa-

tion from employment (whether or not the sepa-

ration is temporary) resulting directly from a re-

duction-in-force, discontinuance of a plant or

operation, or other similar conditions. In addi-

tion, sickness and accident benefits (but not va-

cation, retirement, or death benefits) may be in-

cluded in the plan if these are subordinate to the

unemployment compensation benefits.

Diversion of funds. It must be impossible un-

der the plan (at any time before the satisfaction

of all liabilities with respect to employees under

the plan) to use or to divert any of the corpus or

income of the trust to any purpose other than

the payment of supplemental unemployment

compensation benefits (or sickness or accident

benefits to the extent just explained).

Discrimination in benefits. Neither the terms

of the plan nor the actual payment of benefits

can be discriminatory in favor of the company's

officers, stockholders, supervisors, or highly

paid employees. However, a plan isn't discrimi-

natory merely because benefits bear a uniform

relationship to compensation or the rate of com-

pensation.

Prohibited transactions and exemption. If

your organization is a supplemental unemploy-

ment benefit trust and has received a denial of

exemption because it engaged in a prohibited

transaction, as defined by section 503(b), it can

file a claim for exemption in any tax year follow-

ing the tax year in which the notice of denial

was issued. It must file the claim on Form 1024.

The organization must include a written declara-

tion that it won't knowingly again engage in a

prohibited transaction. An authorized principal

officer of your organization must make this dec-

laration under the penalties of perjury.

If your organization has satisfied all require-

ments as a supplemental unemployment benefit

trust described in section 501(c)(17), it will be

notified in writing that it has been recognized as

exempt. However, the organization will be ex-

empt only for those tax years after the tax year

in which the claim for exemption (Form 1024) is

filed. Tax year in this case means the estab-

lished annual accounting period of the organi-

zation or, if the organization has not established

an annual accounting period, the calendar year.

For more information about the requirements for

re-establishing an exemption previously denied,

contact the IRS.

501(c)(12) - Local

Benevolent Life

Insurance Associations,

Mutual Irrigation and

Telephone Companies,

and Like Organizations

Each of the following organizations apply for

recognition of exemption from federal income

tax by filing Form 1024.

1. Benevolent life insurance associations of a

purely local character and like organiza-

tions.

2. Mutual ditch or irrigation companies and

like organizations.

3. Mutual or cooperative telephone compa-

nies and like organizations.

A like organization is an organization that per-

forms a service comparable to that performed

by any one of the above organizations.

The information to be provided upon appli-

cation by each of these organizations is descri-

bed in this section. For information as to the

procedures to follow in applying for exemption,

see chapter 1.

General requirements. These organizations

must use their income solely to cover losses

and expenses, with any excess being returned

to members or retained to cover future losses

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Publication 557 (1-2024) Chapter 4 Other Section 501(c) Organizations 53

and expenses. They must collect at least 85%

of their income from members for the sole pur-

pose of meeting losses and expenses.

Mutual character. These organizations, other

than benevolent life insurance associations,

must be organized and operated on a mutual or

cooperative basis. They are associations of per-

sons or organizations, or both, banded together

to provide themselves a mutually desirable

service approximately at cost and on a mutual

basis. To maintain the mutual characteristic of

democratic ownership and control, they must be

so organized and operated that their members

have the right to choose the management, to re-

ceive services at cost, to receive a return of any

excess of payments over losses and expenses,

and to share in any assets upon dissolution.

The rights and interests of members in the

annual savings of the organization must be de-

termined in proportion to their business with the

organization. Upon dissolution, gains from the

sale of appreciated assets must be distributed

to all persons who were members during the

period the assets were owned by the organiza-

tion in proportion to the amount of business

done during that period. The bylaws mustn't

provide for forfeiture of a member's rights and

interest upon withdrawal or termination.

Membership. Membership of a mutual or-

ganization consists of those who join the organi-

zation to obtain its services, and have a voice in

its management. In a stock company, the stock-

holders are members. However, a mutual life in-

surance organization can't have policyholders

other than its members.

Losses and expenses. In furnishing serv-

ices substantially at cost, an organization must

use its income solely for paying losses and ex-

penses. Any excess income not retained in rea-

sonable reserves for future losses and expen-

ses belongs to members in proportion to their

patronage or business done with the organiza-

tion. If such patronage refunds are retained in

reasonable amounts for purposes of expanding

and improving facilities, retiring capital indebt-

edness, acquiring other assets, and unexpec-

ted expenses, the organization must maintain

records sufficient to reflect the equity of each

member in the assets acquired with the funds.

Distributions of proceeds. The coopera-

tive may distribute the unexpended balance of

collections or assessments remaining on hand

at the end of the year to members or patrons

prorated on the basis of their patronage or busi-

ness done with the cooperative. Such distribu-

tion represents a refund in the costs of services

rendered to the member.

The 85% Requirement

All of the organizations listed above must sub-

mit evidence with their application that they re-

ceive 85% or more of their gross income from

their members for the sole purpose of meeting

losses and expenses. Nevertheless, certain

items of income are excluded from the compu-

tation of the 85% requirement if the organization

is a mutual or cooperative telephone or electric

company.

Mutual or cooperative telephone company.

A mutual or cooperative telephone company will

exclude from the computation of the 85% re-

quirement any income received or accrued

from:

1. A nonmember telephone company for the

performance of communication services

involving the completion of long distance

calls to, from, or between members of the

mutual or cooperative telephone company;

2. Qualified pole rentals;

3. The sale of display listings in a directory

furnished to its members; or

4. The prepayment of a loan created in 1987,

1988, or 1989, under section 306A, 306B,

or 311 of the Rural Electrification Act of

1936;

5. Grants, contributions, and assistance pro-

vided under the Robert T. Stafford Disaster

Relief and Emergency Assistance Act or

by local, state, or regional governmental

entities for disasters or emergencies; and

certain grants or contributions provided by

a government entity for electric, communi-

cations, broadband, Internet, or other util-

ity facilities or services. This is effective for

taxable years beginning after December

31, 2017.

Mutual or cooperative electric company. A

mutual or cooperative electric company will ex-

clude from the computation of the 85% require-

ment any income received or accrued from:

1. Qualified pole rentals;

2. Any provision or sale of electric energy

transmission services or ancillary service

if the services are provided on a nondiscri-

minatory open access basis under an

open-access transmission tariff approved

or accepted by the Federal Energy Regu-

latory Commission (FERC) or under an in-

dependent transmission provider agree-

ment approved or accepted by FERC

(other than income received or accrued di-

rectly or indirectly from a member);

3. The provision or sale of electric energy

distribution services or ancillary services if

the services are provided on a nondiscri-

minatory open-access basis to distribute

electric energy not owned by the mutual or

electric cooperative company:

a. To end-users who are served by distri-

bution facilities not owned by the com-

pany or any of its members (other

than income received or accrued di-

rectly or indirectly from a member), or

b. Generated by a generation facility not

owned or leased by the company or

any of its members and which is di-

rectly connected to distribution facili-

ties owned by the company or any of

its members (other than income re-

ceived or accrued directly or indirectly

from a member),

4. Any nuclear decommissioning transaction,

5. Any asset exchange or conversion trans-

action; or

6. Grants, contributions, and assistance pro-

vided under the Robert T. Stafford Disaster

Relief and Emergency Assistance Act or

by local, state, or regional governmental

entities for disasters or emergencies; and

certain grants or contributions provided by

a government entity for electric, communi-

cations, broadband, Internet, or other util-

ity facilities or services. This is effective for

taxable years beginning after December

31, 2017.

An electric cooperative's sale of excess fuel

at cost in the year of purchase isn't income for

purposes of determining compliance with the

85% requirement.

Qualified pole rental. The term qualified

pole rental means any rental of a pole (or other

structure used to support wires) if the pole (or

other structure) is used:

1. By the telephone or electric company to

support one or more wires that are used

by the company in providing telephone or

electric services to its members, and

2. Pursuant to the rental to support one or

more wires (in addition to wires described

in (1)) for use in connection with the trans-

mission by wire of electricity or of tele-

phone or other communications.

The term rental, for this purpose, includes

any sale of the right to use the pole (or other

structure).

The 85% requirement is applied on the ba-

sis of an annual accounting period. Failure of an

organization to meet the requirement in a partic-

ular year precludes exemption for that year, but

has no effect upon exemption for years in which

the 85% requirement is met.

Gain from the sale or conversion of the or-

ganization's property isn't considered an

amount received from members in determining

whether the organization's income consists of

amounts collected from members.

Because the 85% income test is based on

gross income, capital losses can't be used to

reduce capital gains for purposes of this test.

Example. The books of an organization re-

flect the following for the calendar year.

Collections from members

............. $2,400

Short-term capital gains ............... 600

Short-term capital losses .............. 400

Other income ...................... None

Gross income ($2,400 + $600 = $3000) .... 100%

Collected from members ($2,400) ........ 80%

Since amounts collected from members

don't constitute at least 85% of gross income,

the organization isn't entitled to exemption from

federal income tax for the year.

Voluntary contributions in the nature of gifts

aren't taken into account for purposes of the

85% computation.

Other tax-exempt income besides gifts is

considered as income received from other than

members in applying the 85% test.

If the 85% test isn't met, your organization, if

classifiable under this section, won't qualify for

exemption as any other type of organization de-

scribed in this publication.

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54 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2024)

Tax treatment of donations. Donations to an

organization described in this section aren't de-

ductible as charitable contributions on the do-

nor's federal income tax return.

Government grants. In the past, government

grants were not treated as income but as contri-

butions to capital. Under the Tax Cuts & Jobs

Act, P.L. No. 115-97, section 13312, section

118 was amended so that government grants

may no longer be treated as capital contribu-

tions. In 2019, P.L. No. 116-94 amended section

501(c)(12) to exclude from the 85% requirement

certain government grants for assistance to mu-

tual and cooperative telephone and electric

companies.

Local Life Insurance

Associations

A benevolent life insurance association or an or-

ganization seeking recognition of exemption on

grounds of similarity to a benevolent life insur-

ance association must submit evidence upon

applying for recognition of exemption that it will

be of a purely local character, that its excess

funds will be refunded to members or retained

in reasonable reserves to meet future losses

and expenses, and that it meets the 85% in-

come requirement. If an organization issues

policies for stipulated cash premiums, or if it re-

quires advance deposits to cover the cost of the

insurance and maintains investments from

which more than 15% of its income is derived, it

won't be entitled to exemption.

To establish that your organization is of a

purely local character, it should show that its ac-

tivities will be confined to a particular commun-

ity, place, or district irrespective of political sub-

divisions. If the activities of an organization are

limited only by the borders of a state, it can't be

purely local in character. A benevolent life insur-

ance association that doesn't terminate mem-

bership when a member moves from the local

area in which the association operates will qual-

ify for exemption if it meets the other require-

ments.

A copy of each type of policy issued by your

organization should be included with the appli-

cation for recognition of exemption.

Organizations similar to local benevolent

life insurance companies. These organiza-

tions include those that, in addition to paying

death benefits, also provide for the payment of

sick, accident, or health benefits. However, an

organization that pays only sick, accident, or

health benefits, but not life insurance benefits,

isn't an organization similar to a benevolent life

insurance association and shouldn't apply for

recognition of exemption, as described in this

section.

Burial and funeral benefit insurance or-

ganization. This type of organization can apply

for recognition of exemption as an organization

similar to a benevolent life insurance company if

it establishes that the benefits are paid in cash

and if it isn't engaged directly in the manufac-

ture of funeral supplies or the performance of

funeral services. An organization that provides

its benefits in the form of supplies and service

isn't a life insurance company. Such an organi-

zation can seek recognition of exemption from

federal income tax, however, as a mutual insur-

ance company other than life.

Mutual or Cooperative

Associations

Mutual ditch or irrigation companies, mutual or

cooperative telephone companies, and like or-

ganizations need not establish that they are of a

purely local character. They can serve noncon-

tiguous areas.

Like organization. A like organization is a

cooperative or mutual organization that per-

forms a service similar to mutual ditch, irriga-

tion, telephone, or electric companies. Exam-

ples include the following: cooperatives that

provide protection of river banks to prevent ero-

sion, water and sewer services, cable televi-

sion, satellite, television, cellular phone serv-

ices, two-way radio service, or natural gas

services.

501(c)(13) - Cemetery

Companies

If your organization wishes to obtain recognition

of exemption from federal income tax as a cem-

etery company or a corporation chartered solely

for the purpose of the disposal of human bodies

by burial or cremation, it must file an application

on Form 1024. For the procedure to follow to file

an application, see Application, Approval, and

Appeal Procedures in chapter 1.

A nonprofit mutual cemetery company that

seeks recognition of exemption should submit

evidence with its application that it is owned and

operated exclusively for the benefit of its lot

owners who hold lots for bona fide burial purpo-

ses and not for purposes of resale. A mutual

cemetery company that also engages in chari-

table activities, such as the burial of paupers,

will be regarded as operating within this stan-

dard. The fact that a mutual cemetery company

limits its membership to a particular class of in-

dividuals, such as members of a family, won't

affect its status as mutual so long as all the

other requirements of section 501(c)(13) are

met.

If your organization is a nonprofit corporation

chartered solely for the purpose of the disposal

of human bodies by burial or cremation, you

should show that it isn't permitted by its charter

to engage in any business not necessarily inci-

dent to that purpose. Operating a mortuary isn't

permitted. However, selling monuments, mark-

ers, vaults, and flowers solely for use in the

cemetery is permitted if the profits from these

sales are used to maintain the cemetery as a

whole.

How income can be used. You should show

that your organization's earnings are or will be

used only in one or more of the following ways.

1. To pay the ordinary and necessary expen-

ses of operating, maintaining, and improv-

ing the cemetery or crematorium.

2. To buy cemetery property.

3. To create a fund that will provide a source

of income for the perpetual care of the

cemetery or a reasonable reserve for any

ordinary or necessary purpose.

No part of the net earnings of your organiza-

tion can inure to the benefit of any private share-

holder or individual.

Ordinary and necessary expenses in con-

nection with the operation, management, main-

tenance, and improvement of the cemetery are

permitted, as are reasonable fees for the serv-

ices of a manager.

Buying cemetery property. Payments can

be made to amortize debt incurred to buy land,

but can't be in the nature of profit distributions.

You must show the method used to finance the

purchase of the cemetery property and that the

purchase price of the land at the time of its sale

to the cemetery wasn't unreasonable.

Except for holders of preferred stock (dis-

cussed later), no person can have any interest

in the net earnings of a tax-exempt cemetery

company or crematorium. Therefore, if property

is transferred to the organization in exchange for

an interest in the organization's net earnings,

the organization won't be exempt so long as

that interest remains outstanding.

An equity interest in the organization is an

interest in the net earnings of the organization.

However, an interest in the organization that

isn't an equity interest may still be an interest in

the organization's net earnings. For example, a

bond issued by a cemetery company that pro-

vides for a fixed rate of interest and also pro-

vides for additional interest payments based on

the income of the organization is considered an

interest in the net earnings of the organization.

Similarly, a convertible debt obligation issued

after July 7, 1975, is considered an interest in

the net earnings of the organization.

Perpetual care organization. A perpetual

care organization, including, for example, a trust

organized to receive, maintain, and administer

funds that it receives from a nonprofit tax-ex-

empt cemetery under state law and contracts,

can apply for recognition of exemption on Form

1024, even though it doesn't own the land used

for burial. However, the income from these

funds must be devoted exclusively to the per-

petual care and maintenance of the nonprofit

cemetery as a whole. Also, no part of the net

earnings can inure to the benefit of any private

shareholder or individual.

In addition, a perpetual care organization not

operated for profit, but established as a civic en-

terprise to maintain and administer funds, the

income of which is devoted exclusively to the

perpetual care and maintenance of an aban-

doned cemetery as a whole, may qualify for ex-

emption.

Care of individual plots. When funds are

received by a cemetery company for the perpet-

ual care of an individual lot or crypt, a trust is

created that is subject to federal income tax.

Any trust income that is used or permanently

set aside for the care, maintenance, or beautifi-

cation of a particular family burial lot or mauso-

leum crypt isn't deductible in computing the

trust's taxable income.

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Publication 557 (1-2024) Chapter 4 Other Section 501(c) Organizations 55

Common and preferred stock. A cemetery

company that issues common stock can qualify

for exemption only if no dividends may be paid.

The payment of dividends must be legally pro-

hibited either by the corporation's charter or by

applicable state law.

Generally, a cemetery company or cremato-

rium isn't exempt if it issues preferred stock.

However, it can still be exempt if the preferred

stock was issued before November 28, 1978, or

was issued after that date under a written plan

adopted before that date. The adoption of the

plan must be shown by the acts of the responsi-

ble officers and appear on the official records of

the organization.

The preferred stock issued either before No-

vember 28, 1978, or under a plan adopted be-

fore that date, must meet all the following re-

quirements.

1. The preferred stock entitles the holders to

dividends at a fixed rate that isn't more

than the greater of the legal rate of interest

in the state of incorporation or 8% a year

on the value of the consideration for which

the stock was issued.

2. The organization's articles of incorporation

require:

a. That the preferred stock be retired at

par as rapidly as funds become avail-

able from operations, and

b. That all funds not required for the pay-

ment of dividends on or for the retire-

ment of preferred stock be used by

the company for the care and im-

provement of the cemetery property.

Tax treatment of donations. Donations to ex-

empt cemetery companies, corporations char-

tered solely for human burial purposes, and per-

petual care funds (operated in connection with

such exempt organizations) are deductible as

charitable contributions on the donor's federal

income tax return. However, a donor can't de-

duct a contribution made for the perpetual care

of a particular lot or crypt. Payments made to a

cemetery company or corporation as part of the

purchase price of a burial lot or crypt, whether

irrevocably dedicated to the perpetual care of

the cemetery as a whole or earmarked for the

care of a particular lot, are also not deductible.

501(c)(14) - Credit

Unions and Other Mutual

Financial Organizations

If your organization wants to obtain recognition

of exemption as a credit union without capital

stock, organized and operated under state law

for mutual purposes and without profit, it must

file the application for recognition of exemption

on Form 1024.

Federal credit unions organized and oper-

ated in accordance with the Federal Credit Un-

ion Act, as amended, are instrumentalities of

the United States and, therefore, are exempt

under section 501(c)(1). They are included in a

group exemption letter issued to the National

Credit Union Administration. They aren't

discussed in this publication.

State-chartered credit unions and other mu-

tual financial organizations file applications for

recognition of exemption from federal income

tax under section 501(c)(14). The other mutual

financial organizations must be corporations or

associations without capital stock organized be-

fore September 1, 1957, and operated for mu-

tual purposes and without profit to provide re-

serve funds for, and insurance of, shares or

deposits in:

1. Domestic building and loan associations,

2. Cooperative banks (without capital stock)

organized and operated for mutual purpo-

ses and without profit,

3. Mutual savings banks (not having capital

stock represented by shares), or

4. Mutual savings banks described in section

591(b).

Similar organizations, formed before September

1, 1957, that provide reserve funds for (but not

insurance of shares or deposits in) one of the

types of savings institutions described in (1),

(2), or (3) above may be exempt from tax if 85%

or more of the organization's income is from

providing reserve funds and from investments.

There is no specific restriction against the issu-

ance of capital stock for these

organizations.

Building and loan associations, savings and

loan associations, mutual savings banks, and

cooperative banks, other than those described

in this section, aren't exempt from tax. However,

certain corporations organized and operated in

conjunction with farmers' cooperatives can be

exempt under section 521.

State-Chartered

Credit Unions

Your organization must show on its application

that it is formed under a state credit union law,

the state and date of incorporation, and that the

state credit union law with respect to loans, in-

vestments, and dividends, if any, your organiza-

tion is operated in compliance with.

Other Mutual

Financial Organizations

Every other organization included in this section

must show in its application the state in which

the organization is incorporated and the date of

incorporation; the character of the organization;

the purpose for which it was organized; its ac-

tual activities; the sources of its receipts and the

disposition thereof; whether any of its income

may be credited to surplus or may benefit any

private shareholder or individual; whether the

law relating to loans, investments, and divi-

dends is being complied with; and, in general,

all facts relating to its operations that affect its

right to exemption.

The application must include detailed infor-

mation showing either that the organization pro-

vides both reserve funds for and insurance of

shares and deposits of its member financial or-

ganizations or that the organization provides re-

serve funds for shares or deposits of its mem-

bers and 85% or more of the organization's

income is from providing reserve funds and

from investments. There should be attached a

conformed copy of the articles of incorporation

or other document setting forth the permitted

powers or activities of the organization; the by-

laws or other similar code of regulations; and

the latest annual financial statement showing

the receipts, disbursements, assets, and liabili-

ties of the organization.

501(c)(19) - Veterans'

Organizations

A post or organization of past or present mem-

bers of the Armed Forces of the United States

must file Form 1024 to apply for recognition of

exemption from federal income tax. You should

follow the general procedures outlined in chap-

ter 1. The organization must also meet the qual-

ifications described in this section.

Examples of groups that qualify for exemp-

tion are posts or auxiliaries of the American Le-

gion, Veterans of Foreign Wars, and similar or-

ganizations.

To qualify for recognition of exemption, your

application should show:

1. That the post or organization is organized

in the United States or any of its posses-

sions;

2. That at least 75% of the members are past

or present members of the U.S. Armed

Forces and that at least 97.5% of all mem-

bers of the organization are past or

present members of the U.S. Armed

Forces, cadets (including only students in

college or university ROTC programs or at

armed services academies) or spouses,

widows, widowers, ancestors, or lineal de-

scendants of any of those listed here; and

3. That no part of net earnings inure to the

benefit of any private shareholder or

individual.

In addition to these requirements, a veter-

ans' organization must also be operated exclu-

sively for one or more of the following purposes.

1. To promote the social welfare of the com-

munity (that is, to promote in some way the

common good and general welfare of the

people of the community).

2. To assist disabled and needy war veterans

and members of the U.S. Armed Forces

and their dependents and the widows and

orphans of deceased veterans.

3. To provide entertainment, care, and assis-

tance to hospitalized veterans or members

of the U.S. Armed Forces.

4. To carry on programs to perpetuate the

memory of deceased veterans and mem-

bers of the U.S. Armed Forces and to

comfort their survivors.

5. To conduct programs for religious, charita-

ble, scientific, literary, or educational pur-

poses.

6. To sponsor or participate in activities of a

patriotic nature.

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56 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2024)

7. To provide insurance benefits for its mem-

bers or dependents of its members or

both.

8. To provide social and recreational activi-

ties for its members.

Auxiliary unit. An auxiliary unit or society of a

veterans' organization can apply for recognition

of exemption provided that the veterans' organi-

zation (parent organization) meets the require-

ments explained earlier in this section. The aux-

iliary unit or society must also meet all the

following additional requirements.

1. It is affiliated with, and organized in ac-

cordance with, the bylaws and regulations

formulated by the parent organization.

2. At least 75% of its members are either

past or present members of the U.S.

Armed Forces, spouses of those mem-

bers, or related to those members within

two degrees of kinship (grandparent,

brother, sister, and grandchild represent

the most distant allowable relationship).

3. All of its members either are members of

the parent organization, spouses of a

member of the parent organization, or rela-

ted to a member of such organization

within two degrees of kinship.

4. No part of its net earnings inure to the ben-

efit of any private shareholder or

individual.

Trusts or foundations. Trusts or foundations

for a veterans' organization can also apply for

recognition of exemption provided that the pa-

rent organization meets the requirements ex-

plained earlier. The trust or foundation must

also meet all the following qualifications.

1. The trust or foundation is in existence un-

der local law and, if it is organized for char-

itable purposes, has a dissolution provi-

sion similar to charitable organizations.

(See Articles of Organization in chapter 3

of this publication.)

2. The corpus or income can't be diverted or

used other than for:

a. The funding of a veterans' organiza-

tion, described in this section;

b. Religious, charitable, scientific, liter-

ary, or educational purposes or for the

prevention of cruelty to children or ani-

mals; or

c. An insurance set aside.

3. The trust income isn't unreasonably accu-

mulated and, if the trust or foundation isn't

an insurance set aside, a substantial por-

tion of the income is in fact distributed to

the parent organization or for the purposes

described in item 2(b).

4. It is organized exclusively for one or more

of the purposes listed earlier in this section

that are specifically applicable to the pa-

rent organization.

Tax treatment of donations. Donations to war

veterans' organizations are deductible as chari-

table contributions on the donor's federal in-

come tax return. At least 90% of the organiza-

tion's membership must consist of war veterans.

The term war veterans means persons, whether

or not present members of the U.S. Armed

Forces, who have served in the U.S. Armed

Forces during a period of war (including the Ko-

rean and Vietnam conflicts, the Persian Gulf

war, and later declared wars).

501(c)(21) - Black Lung

Benefit Trusts

If your organization wishes to obtain recognition

of exemption as a black lung benefit trust, it

must file the application for recognition of ex-

emption on Form 1024 and include a copy of its

trust instrument. The general procedures to fol-

low for obtaining recognition are discussed in

chapter 1 of this publication. This section de-

scribes the additional (or specific) information to

be provided upon application.

Requirements. A black lung benefit trust that

is established in writing, created or organized in

the United States, and contributed to by any

person (except an insurance company) will

qualify for tax-exempt status if it meets both of

the following requirements. The trust must be ir-

revocable and there can be no right or possibil-

ity or reversion of the corpus or income of the

trust to the coal mine operator or other creator,

except that the creator may recover excess con-

tributions.

1. Its only purpose is:

a. To satisfy in whole or in part the liabil-

ity of that person (generally, the coal

mine operator contributing to the trust)

for, or with respect to, claims for com-

pensation arising under federal or

state statutes for disability or death

due to pneumoconiosis,

b. To pay the premiums for insurance

that covers only that liability,

c. To pay the administrative and other in-

cidental expenses of that trust (includ-

ing legal, accounting, actuarial, and

trustee expenses) in connection with

the operation of the trust and process-

ing of black lung claims against such

person arising under federal or state

statutes, and

d. To pay accident and health benefits or

insurance premiums and other admin-

istrative expenses for retired coal min-

ers and their spouses. The amount of

assets available for such use is gener-

ally limited to 110% of the present

value of the liability for black lung

benefits.

2. No part of its assets can be used for, or di-

verted to, any purposes other than:

a. The purposes described in 1,

b. Payments into the Black Lung Disabil-

ity Trust Fund or into the general fund

of the U.S. Treasury (other than in sat-

isfaction of any tax or other civil or

criminal liability of the person who es-

tablished or contributed to the trust),

c. Investment in public debt securities of

the U.S., obligations of a state or local

government that aren't in default as to

principal or interest, or time or de-

mand deposits in a bank or an insured

credit union located in the United

States. (These investments are re-

stricted to the extent that the trustee

determines that a portion of the as-

sets isn't currently needed for the pur-

poses described in 1.)

An annual information return is required of ex-

empt trusts described in section 501(c)(21).

Formerly, Form 990-BL, Information and Initial

Excise Tax Return for Black Lung Benefit Trusts

and Certain Related Persons, was used for this

purpose However, Form 990-BL is a historical

form beginning with tax year 2021. Section

501(c)(21) trusts can no longer file Form

990-BL and will file Form 990 to meet their an-

nual filing obligation. A trust that normally has

gross receipts in each tax year of no more than

$50,000 is excepted from this filing requirement.

However, it must submit an annual electronic

notice, Form 990-N (e-Postcard).

Excise taxes. See Chapter 5 for informa-

tion on the excise tax that may be imposed on

the organization.

Tax treatment of donations. Contributions by

a taxpayer (generally, the coal mine operator) to

a black lung benefit trust are deductible for fed-

eral income tax purposes under section 192.

The deduction is limited, and any excess contri-

butions are subject to an excise tax of 5%. Form

6069, Return of Certain Excise Taxes on Mine

Operators, Black Lung Trusts, and Other Per-

sons Under Sections 4951, 4952, and 4953, is

used to compute the allowable deduction and

any excise tax liability. The form doesn't have to

be filed if there is no excise tax liability. For more

information about these contributions, see Form

6069 and its instructions.

501(c)(2) - Title-Holding

Corporations for Single

Parent Corporations

If your organization wants to obtain recognition

of exemption from federal income tax as a cor-

poration organized to hold title to property, col-

lect income from that property, and turn over the

entire amount less expenses to a single parent

organization that is exempt from income tax, it

must file its application on Form 1024. The in-

formation to submit upon application is descri-

bed in this section. For a discussion of the pro-

cedures for obtaining recognition of exemption,

see chapter 1, Application Procedures.

You must show that your organization is a

corporation. If you are in doubt as to whether

your organization qualifies as a corporation for

this purpose, contact your IRS office.

A title-holding corporation will qualify for ex-

emption only if there is effective ownership and

control over it by the distributee exempt organi-

zation. For example, the distributee organization

may control the title-holding corporation by own-

ing its voting stock or possessing the power to

select nominees to hold its voting stock.

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Publication 557 (1-2024) Chapter 4 Other Section 501(c) Organizations 57

Corporate charter. The corporate charter

must confine the purposes and powers of your

organization to holding title to property, collect-

ing income from the property, and turning the in-

come over to an exempt organization. If the

charter authorizes your organization to engage

in activities that go beyond these limits, its ex-

emption may not be recognized even if its ac-

tual operations are so limited. If your organiza-

tion's original charter doesn't limit its powers,

you can amend the charter to conform to the re-

quired limits and submit evidence with your ap-

plication that the charter has been amended.

Payment of income. You must show that your

corporation is required to turn over the entire in-

come from the property, less expenses, to one

or more exempt organizations.

Actual payment of the income is required. A

mere obligation to use the income for the ex-

empt organization's benefit, or the fact that such

organization has control over the income,

doesn't satisfy this requirement.

Expenses. Expenses may reduce the

amount of income required to be turned over to

the tax-exempt organization for which your or-

ganization holds property. The term expenses

(for this purpose) includes not only ordinary and

necessary expenses paid or incurred, but also

reasonable additions to depreciation reserves

and other reserves that would be proper for a

business corporation holding title to and main-

taining property.

In addition, the title-holding corporation can

retain part of its income each year to apply to

debt on property to which it holds title. This

transaction is treated as if the income had been

turned over to the exempt organization and the

latter had used the income to make a contribu-

tion to the capital of the title-holding corporation

that in turn applied the contribution to the debt.

Waiver of payment of income. Generally,

there is no payment of rent when the occupant

of property held by your title-holding corporation

is the exempt organization for which your corpo-

ration holds the title. In this situation, the statu-

tory requirement that income be paid over to the

exempt organization is satisfied if your corpora-

tion turns over whatever income is available.

Application for recognition of exemption. In

addition to the information required by Form

1024, the title-holding corporation must furnish

evidence that the organization for which title is

held has obtained recognition of exempt status.

If that organization has not been specifically no-

tified in writing by the IRS that it is exempt, the

title-holding corporation must submit the neces-

sary application and supporting documents to

enable the IRS to determine whether the organi-

zation for which title is held qualifies for exemp-

tion. A copy of a ruling or determination letter is-

sued to the organization for which title is held

will be proof that it qualifies for exemption. How-

ever, until the organization for which title is held

obtains recognition of exempt status or proof is

submitted to show that it qualifies, the title-hold-

ing corporation can't obtain recognition of ex-

emption.

Tax treatment of donations. Donations to an

exempt title-holding corporation generally aren't

deductible as charitable contributions on the

donor's federal income tax return.

501(c)(25) - Title-Holding

Corporations or Trusts

for Multiple Parent

Corporations

If your organization wants to obtain recognition

of exemption from federal income tax as an or-

ganization organized for the exclusive purpose

of acquiring, holding title to, and collecting in-

come from real property, and turning over the

entire amount less expenses to member organi-

zations exempt from income tax, it should file its

application on Form 1024. For a discussion of

the procedures for obtaining recognition of ex-

emption, see chapter 1, Application Proce-

dures.

Who can control the organization. Organiza-

tions recognized as exempt under this section

can have up to 35 shareholders or beneficiaries,

in contrast to title-holding organizations recog-

nized as exempt under section 501(c)(2), which

can have only one controlling parent organiza-

tion.

Organizational requirements. A section

501(c)(25) organization must be either a corpo-

ration or a trust. Only one class of stock is per-

mitted in the case of a corporation. In the case

of a trust, only one class of beneficial interest is

allowed.

Organizations eligible to acquire or hold in-

terests in this type of title-holding organization

are qualified pension, profit-sharing, or stock

bonus plans, governmental plans, governments

and their agencies and instrumentalities, and

charitable organizations.

The articles of incorporation or trust instru-

ment must include provisions showing that the

corporation or trust is organized to meet the re-

quirements of the statute, including compliance

with the limitations on membership and classes

of stock or beneficial interest, and compliance

with the income distribution requirements. The

organizing document must permit the organiza-

tion's shareholders or beneficiaries to dismiss

the organization's investment advisor, if any,

upon a vote of the shareholders or beneficiaries

holding a majority interest in the organization.

The organizing document must permit the

shareholders or beneficiaries to terminate their

interests by at least one of the following meth-

ods.

1. By selling or exchanging their stock or

beneficial interest to any organization de-

scribed in section 501(c)(25)(C), provided

that the sale or exchange doesn't cause

the number of shareholders or beneficia-

ries to exceed 35.

2. By having their stock or beneficial interest

redeemed by the section 501(c)(25) or-

ganization upon 90 days notice.

If state law prevents a corporation from includ-

ing in its articles of incorporation the above pro-

visions, such provisions must instead be inclu-

ded in the bylaws of the corporation.

A 501(c)(25) organization can be organized

as a nonstock corporation if its articles of incor-

poration or bylaws provide members with the

same rights as described above.

Subsidiaries. A wholly owned subsidiary won't

be treated as a separate corporation, and all as-

sets, liabilities, and items of income, deduction,

and credit will be treated as belonging to the

section 501(c)(25) organization. Subsidiaries

shouldn't apply separately for recognition of ex-

emption.

Tax treatment of donations. Donations to an

exempt title-holding corporation generally aren't

deductible as charitable contributions on the

donor's federal income tax return.

Unrelated Business Income

In general, the receipt of unrelated business in-

come by a section 501(c)(25) organization will

subject the organization to loss of exempt status

since the organization can't be exempt from tax-

ation if it engages in any business other than

that of holding title to real property and collect-

ing the income from the property. However, ex-

empt status generally won't be affected by the

receipt of debt-financed income that is treated

as unrelated business taxable income solely

because of section 514.

Under section 514(c)(9), certain sharehold-

ers or beneficiaries aren't subject to unrelated

debt-financed income tax under section 514 on

their investments through the organization.

These shareholders are generally schools, col-

leges, universities, or supporting organizations

of such educational institutions. Organizations

other than these will take into account as gross

income from an unrelated trade or business

their pro rata share of income that is treated as

unrelated debt-financed income because sec-

tion 514(c)(9) doesn't apply. These organiza-

tions will also take their pro rata share of the al-

lowable deductions from unrelated taxable

income.

Real property. Real property can include per-

sonal property leased in connection with real

property, but only if the rent from the personal

property isn't more than 15% of the total rent for

both the real property and the personal prop-

erty.

Real property acquired after June 10, 1987,

can't include any interest as a tenant in com-

mon (or similar interest) or any indirect interest.

501(c)(26) -

State-Sponsored

High-Risk Health

Coverage Organizations

A state-sponsored organization established to

provide medical care to high-risk individuals ap-

plies on Form 1024 for recognition of exemption

from federal income tax under section 501(c)

(26).

To qualify for exemption, the organization

must be a membership organization established

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58 Chapter 4 Other Section 501(c) Organizations Publication 557 (1-2024)

by a state exclusively to provide coverage for

medical care on a nonprofit basis to high-risk in-

dividuals who are state residents. It can provide

coverage either by issuing insurance itself or by

entering into an arrangement with a health

maintenance organization (HMO).

The state must determine the composition of

membership in the organization. No part of the

net earnings of the organization can inure to the

benefit of any private shareholder or individual.

High-risk individuals. These are individuals,

their spouses, and qualifying children, who, be-

cause of a pre-existing medical condition:

1. Can't get medical care coverage for that

condition through insurance or an HMO, or

2. Can get coverage for that condition only at

a rate that is substantially higher than the

rate for the same coverage from the

state-sponsored organization.

501(c)(27) - Qualified

State-Sponsored

Workers' Compensation

Organizations

501(c)(27)(A) -- Pre-June 1, 1996, Organiza-

tions. A state-sponsored workers' compensa-

tion reinsurance organization applies on Form

1024 for recognition of exemption from federal

income tax under section 501(c)(27).

To qualify for exemption, any membership

organization must meet all the following require-

ments.

1. It was established by a state before June

1, 1996, exclusively to reimburse its mem-

bers for losses under workers' compensa-

tion acts.

2. The state requires that the membership

consist of all persons who issue insurance

covering workers' compensation losses in

the state and all persons and government

entities who self-insure against those los-

ses.

3. It operates as a nonprofit organization by

returning surplus income to its members or

workers' compensation policyholders on a

periodic basis and by reducing initial pre-

miums in anticipation of investment in-

come.

501(c)(27)(B) -- Organizations formed after

December 31, 1997. Any organization (includ-

ing a mutual insurance company) can qualify for

exemption if it meets all of the following require-

ments.

1. It is created by state law and is organized

and operated under state law exclusively

to:

a. Provide workmen's compensation in-

surance which is required by state law

or state law must provide significant

disincentives if employers fail to pur-

chase such insurance, and

b. Provide related coverage which is in-

cidental to workmen's compensation

insurance.

2. It provides workmen's compensation in-

surance to any employer in the state (for

employees in the state or temporarily as-

signed out-of-state) which seeks such in-

surance and meets other reasonable re-

quirements relating to the insurance.

3. The state makes a financial commitment

to such organization either by extending its

full faith and credit to the initial debt of the

organization or by providing the initial op-

erating capital of the organization.

4. The assets of the organization revert to the

state upon dissolution or the organization

isn't permitted to dissolve under state law.

5. The majority of the board of directors or

oversight body of such organization are

appointed by the chief executive officer or

other executive branch official of the state,

by the state legislature, or by both.

501(c)(29) - CO-OP

Health Insurance Issuers

This includes a qualified nonprofit health insur-

ance issuer which has received a loan or grant

under the CO-OP Program under this section of

the Code.

Guidance for Section

501(c)(29) Qualified

Nonprofit Health

Insurance Issuers

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

tion 1322(h)(1) of the Affordable Care Act, pro-

vides for the exemption of qualified nonprofit

health insurance issuers (QNHIIs) that have re-

ceived a loan or grant under the Centers for

Medicare and Medicaid Services (CMS)

CO-OP program for periods that they meet both

the requirements of section 1322 of the Afforda-

ble Care Act and of any loan agreement with

CMS. The CO-OP program provides loans and

repayable grants to foster the creation of mem-

ber governed QNHIIs that will operate with a

strong consumer focus and offer qualified

health insurance plans. Notice 2011-23,

2011-13 I.R.B. 588, discussed requirements for

tax exemption for QNHIIs described in Internal

Revenue Code section 501(c)(29). The Notice

provides guidance on the annual filing require-

ment for organizations that intend to apply for

recognition of section 501(c)(29) status and

modified and superseded by Rev. Proc. 2022-8.

Under Rev. Proc. 2022-8, an organization ap-

plying for recognition of exemption from federal

income tax under section 501(c)(29) applies on

Form 1024. Rev. Proc. 2015-17, 2015-7 I.R.B.

599, sets out the procedures for issuing deter-

mination letters on the exempt status of QNHIIs

and provides guidance on the effective date of

exempt status. Rev. Proc. 2015-17, supplemen-

ted by Rev. Proc. 2024-5 exemption from fed-

eral income tax under section 501(c)(29) ap-

plies on Form 1024.

General Requirements

for Exemption under

501(c)(29) and Annual

Filing Requirement

In general, section 501(c)(29) applies to certain

organizations receiving loans or repayable

grants under the CO-OP program. An organiza-

tion will qualify for exemption under section

501(c)(29) only if:

•

The organization has received a loan or a

repayable grant under the CO-OP program

and is in compliance with all requirements

of the CO-OP program and any agreement

with CMS;

•

The organization has applied for recogni-

tion of exemption;

•

No part of the organization’s net earnings

inures to the benefit of any private share-

holder or individual, except that the organi-

zation is required by section 1322(c)(4) of

the Affordable Care Act to use its profits to

lower premiums, improve benefits or im-

prove the quality of health care delivered to

its members;

•

No substantial part of the organization’s

activities involves attempts to influence

legislation; and

•

The organization doesn't participate or in-

tervene in political campaigns. See Rev.

Proc. 2015-17 for complete instructions for

filing exemption applications.

Additional Guidance for

Prospective 501(c)(29)

Organizations

An organization claiming exempt status under

section 501(c)(29) that intends to file an appli-

cation for recognition of exemption should begin

by filing Form 990, Return of Organization Ex-

empt from Income Tax, and indicate on its re-

turn that it has not yet received a determination

letter. In addition to the general information re-

quired on Form 990, these organizations must

report certain information regarding required re-

serves.

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Publication 557 (1-2024) Chapter 4 Other Section 501(c) Organizations 59

Excise Taxes

Introduction

An excise tax may be imposed on certain

tax-exempt organizations.

Topics

This chapter discusses:

•

Prohibited tax shelter transactions

•

Excess benefit transactions

•

Excess business holdings

•

Taxable distributions of sponsoring

organizations

•

Taxes on prohibited benefits distributed

from donor advised funds

•

Excise taxes on private foundations

•

Excise taxes on section 501(c)(21) black

lung benefit trusts

•

Excise Tax on Failure To Meet the

Community Health Needs Assessment

Requirements of Hospitals

•

Excise tax on excess tax-exempt

organization executive compensation

•

Excise tax on net investment income of

private colleges and universities

Useful Items

You may want to see:

Forms (and Instructions)

4720 Return of Certain Excise Taxes

Under Chapters 41 and 42 of the

Internal Revenue Code

See chapter 6 for more information about get-

ting Form 4720.

Prohibited Tax Shelter

Transactions

Section 4965 imposes an excise tax on:

•

Certain tax-exempt entities that are party to

prohibited tax shelter transactions, and

•

Any entity manager who approves or other-

wise causes the entity to be a party to a

prohibited tax shelter transaction and

knows or has reason to know that the

transaction is a prohibited tax shelter trans-

action.

Additionally, section 6033 provides new disclo-

sure requirements on a tax-exempt entity that is

a party to a prohibited tax shelter transaction.

Tax-exempt entities. Tax-exempt entities that

are subject to section 4965 include:

1. Entities described in section 501(c), in-

cluding but not limited to the following

common types of entities:

a. Instrumentalities of the United

States described in section 501(c)(1);

4720

b. Churches, hospitals, museums,

schools, scientific research organiza-

tions, and other charities described in

section 501(c)(3);

c. Civic leagues, social welfare organi-

zations, and local associations of em-

ployees described in section 501(c)

(4);

d. Labor, agricultural, or horticultural

organizations described in section

501(c)(5);

e. Business leagues, chambers of

commerce, trade associations, and

other organizations described in sec-

tion 501(c)(6);

f. Voluntary employees' beneficiary

associations (VEBAs) described in

section 501(c)(9);

g. Credit unions described in section

501(c)(14);

h. Insurance companies described in

section 501(c)(15); and

i. Veterans' organizations described

in section 501(c)(19).

2. Religious or apostolic associations or cor-

porations described in section 501(d).

3. Entities described in section 170(c), in-

cluding states, possessions of the United

States, the District of Columbia, political

subdivisions of states and political subdivi-

sions of possessions of the United States

(but not including the United States).

4. Indian tribal governments within the mean-

ing of section 7701(a)(40).

Entity manager. An entity manager is any per-

son with authority or responsibility similar to that

exercised by an officer, director, or trustee, and,

for any act, the person that has authority or re-

sponsibility with respect to the prohibited trans-

action.

Prohibited tax shelter transaction. A pro-

hibited tax shelter transaction is any listed

transaction, within the meaning of section

6707A(c)(2), and any prohibited reportable

transactions. A prohibited reportable transac-

tion is a confidential transaction within the

meaning of Regulations section 1.6011-4(b)(3),

and a transaction with contractual protection

within the meaning of Regulations section

1.6011-4(b)(4). See the Instructions for Form

8886-T for more information on listed transac-

tions and prohibited reportable transactions.

Subsequently listed transaction. Any trans-

action to which the tax-exempt entity is a party

and is later determined to be a listed transaction

after the entity has become a party to it, is a

subsequently listed transaction.

Entity Level Tax

Section 4965(a)(1) imposes an entity level ex-

cise tax on any tax-exempt entity described in 1,

2, 3, or 4 above that becomes a party to a pro-

hibited tax shelter transaction or is a party to a

subsequently listed transaction (defined ear-

lier). The excise tax imposed on a tax-exempt

entity applies to tax years in which the entity be-

comes a party to the prohibited tax shelter

transaction and any subsequent tax years. The

amount of the excise tax depends on whether

the tax-exempt entity knew or had reason to

know that the transaction was a prohibited tax

shelter transaction at the time it became a party

to the transaction.

To figure and report the excise tax imposed

on a tax-exempt entity for being a party to a pro-

hibited tax shelter transaction, file Form 4720.

For more information about this excise tax,

including information about how it is figured,

see the Instructions for Form 4720.

Manager Level Tax

Section 4965(a)(2) imposes an excise tax on

any tax-exempt entity manager who approves

or otherwise causes the entity to be a party to a

prohibited tax shelter transaction and knows (or

has reason to know) that the transaction is a

prohibited tax shelter transaction. The excise

tax, in the amount of $20,000, is assessed for

each approval or other act causing the organi-

zation to be a party to the prohibited tax shelter

transaction. To report this tax, file Form 4720.

Excess Benefit

Transactions

Excise tax on excess benefit transactions.

A disqualified person who benefits from an ex-

cess benefit transaction, such as compensa-

tion, fringe benefits, or contract payments from

certain section 501(c)(3), 501(c)(4), or 501(c)

(29) organizations, must correct the transaction

and may have to pay an excise tax under sec-

tion 4958. A manager of the organization may

also have to pay an excise tax under section

4958. These taxes are reported on Form 4720.

The excise taxes are imposed if an applica-

ble tax-exempt organization provides an excess

benefit to a disqualified person and that benefit

exceeds the value of the benefit received in ex-

change.

There are three taxes under section 4958.

Disqualified persons are liable for the first two

taxes and certain organization managers are li-

able for the third tax.

Taxes imposed on excess benefit transac-

tions don't apply to a transaction under a written

contract that was binding on September 13,

1995, and at all times thereafter before the

transaction occurred.

Tax on Disqualified Persons

An excise tax equal to 25% of the excess bene-

fit is imposed on each excess benefit transac-

tion between an applicable tax-exempt organi-

zation and a disqualified person. The

disqualified person who benefited from the

transaction is liable for the tax. See definition of

disqualified person, later at Disqualified person.

Additional tax on the disqualified person. If

the 25% tax is imposed and the excess benefit

transaction isn't corrected within the taxable pe-

riod, an additional excise tax equal to 200% of

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60 Chapter 5 Excise Taxes Publication 557 (1-2024)

the excess benefit is imposed on any disquali-

fied person involved.

If a disqualified person makes a payment of

less than the full correction amount, the 200%

tax is imposed only on the unpaid portion of the

correction amount. If more than one disqualified

person received an excess benefit from an ex-

cess benefit transaction, all such disqualified

persons are jointly and severally liable for the

taxes.

To avoid the 200% tax, a disqualified person

must correct the excess benefit transaction dur-

ing the taxable period. The 200% tax is abated

(refunded if collected) if the excess benefit

transaction is corrected within a 90-day correc-

tion period beginning on the date a statutory no-

tice of deficiency is issued.

Taxable period. The taxable period means

the period beginning with the date on which the

excess benefit transaction occurs and ending

on the earlier of:

•

The date a notice of deficiency was mailed

to the disqualified person for the initial tax

on the excess benefit transaction, or

•

The date on which the initial tax on the ex-

cess benefit transaction for the disqualified

person is assessed.

Tax on Organization

Managers

If tax is imposed on a disqualified person for

any excess benefit transaction, an excise tax

equal to 10% of the excess benefit is imposed

on an organization manager who knowingly par-

ticipated in an excess benefit transaction, un-

less such participation wasn't willful and was

due to reasonable cause. This tax can't exceed

$20,000 ($10,000 for transactions entered in a

tax year beginning before August 18, 2006), for

each transaction. There is also joint and several

liability for this tax. A person can be liable for

both the tax paid by the disqualified person and

the organization manager tax for a particular ex-

cess benefit transaction.

Organization manager. An organization man-

ager is any officer, director, or trustee of an ap-

plicable tax-exempt organization, or any individ-

ual having powers or responsibilities similar to

officers, directors, or trustees of the organiza-

tion, regardless of title. An organization man-

ager isn't considered to have participated in an

excess benefit transaction where the manager

has opposed the transaction in a manner con-

sistent with the fulfillment of the manager's re-

sponsibilities to the organization. For example,

a director who votes against giving an excess

benefit would ordinarily not be subject to the

10% tax.

A person participates in a transaction know-

ingly if the person:

•

Has actual knowledge of sufficient facts so

that, based solely upon those facts, such

transaction would be an excess benefit

transaction;

•

Is aware that such a transaction under

these circumstances may violate the provi-

sions of federal tax law governing excess

benefit transactions; and

•

Negligently fails to make reasonable at-

tempts to ascertain whether the

transaction is an excess benefit transac-

tion, or the manager is in fact aware that it

is such a transaction.

Knowing doesn't mean having reason to know.

The organization manager ordinarily won't be

considered knowing if, after full disclosure of the

factual situation to an appropriate professional,

the organization manager relied on the profes-

sional's reasoned written opinion on matters

within the professional's expertise or if the man-

ager relied on the fact that the requirements for

the rebuttable presumption of reasonableness

have been satisfied. Participation by an organi-

zation manager is willful if it is voluntary, con-

scious, and intentional. An organization manag-

er's participation is due to reasonable cause if

the manager has exercised responsibility on be-

half of the organization with ordinary business

care and prudence.

Excess Benefit Transaction

An excess benefit transaction is a transaction in

which an economic benefit is provided by an

applicable tax-exempt organization, directly or

indirectly, to or for the use of any disqualified

person, and the value of the economic benefit

provided by the organization exceeds the value

of the consideration (including the performance

of services) received for providing such benefit.

The excess benefit transaction rules apply to all

transactions with disqualified persons, regard-

less of whether the amount of the benefit provi-

ded is determined in whole or in part by the rev-

enues of one or more activities of the

organization.

To determine whether an excess benefit

transaction has occurred, all consideration and

benefits exchanged between a disqualified per-

son and the applicable tax-exempt organization,

and all entities it controls, are taken into ac-

count. For purposes of determining the value of

economic benefits, the value of property, includ-

ing the right to use property, is the fair market

value. Fair market value is the price at which

property, or the right to use property, would

change hands between a willing buyer and a

willing seller, neither being under any compul-

sion to buy, sell, or transfer property or the right

to use property, and both having reasonable

knowledge of relevant facts.

Donor advised fund transactions occurring

after August 17, 2006. For a donor advised

fund, an excess benefit transaction includes a

grant, loan, compensation, or other similar pay-

ment from the fund to a:

•

Donor or donor advisor;

•

Family member of a donor, or donor advi-

sor;

•

35% controlled entity of a donor, or donor

advisor; or

•

35% controlled entity of a family member

of a donor, or donor advisor.

The excess benefit in this transaction is the

amount of the grant, loan, compensation, or

other similar payment. For additional informa-

tion, see the Instructions for Form 4720.

Supporting organization transactions oc-

curring after July 25, 2006. For any support-

ing organization, defined in section 509(a)(3),

an excess benefit transaction includes grants,

loans, compensation, or other similar payment

provided by the supporting organization to a:

•

Substantial contributor,

•

Family member of a substantial contributor,

•

35% controlled entity of a substantial con-

tributor, or

•

35% controlled entity of a family member

of a substantial contributor.

Additionally, an excess benefit transaction

includes any loans provided by the supporting

organization to a disqualified person (other than

an organization described in section 509(a)(1),

(2), or (4)).

The excess benefit for substantial contribu-

tors and parties related to those contributors in-

cludes the amount of the grant, loan, compen-

sation, or other similar payment. For additional

information, see the Instructions for Form 4720.

Excess benefit transaction rules generally

don't apply to transactions between a support-

ing organization and its supported organization

described in section 501(c)(4), (5), or (6) in fur-

therance of charitable purposes.

Date of Occurrence

An excess benefit transaction occurs on the

date the disqualified person receives the eco-

nomic benefit from the organization for federal

income tax purposes. However, when a single

contractual arrangement provides for a series of

compensation or other payments to or for the

use of a disqualified person during the disquali-

fied person's tax year, any excess benefit trans-

action with respect to these payments occurs

on the last day of the taxpayer's tax year.

In the case of benefits provided to a quali-

fied pension, profit-sharing, or stock bonus

plan, the transaction occurs on the date the

benefit is vested. In the case of the transfer of

property subject to a substantial risk of forfei-

ture, or in the case of rights to future compensa-

tion or property, the transaction occurs on the

date the property, or the rights to future com-

pensation or property, isn't subject to a substan-

tial risk of forfeiture. Where the disqualified per-

son elects to include an amount in gross

income in the tax year of transfer under section

83(b), the excess benefit transaction occurs on

the date the disqualified person receives the

economic benefit for federal income tax purpo-

ses.

Correcting the excess benefit. An excess

benefit transaction is corrected by undoing the

excess benefit to the extent possible, and by

taking any additional measures necessary to

place the organization in a financial position not

worse than what it would have been if the dis-

qualified person were dealing under the highest

fiduciary standards.

A disqualified person corrects an excess

benefit by making a payment in cash or cash

equivalents, excluding payment by a promissory

note, equal to the correction amount to the ap-

plicable tax-exempt organization. The correc-

tion amount equals the excess benefit plus the

interest on the excess benefit. The interest rate

can be no lower than the applicable federal rate,

compounded annually, for the month the trans-

action occurred.

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Publication 557 (1-2024) Chapter 5 Excise Taxes 61

A disqualified person can, with the agree-

ment of the applicable tax-exempt organization,

make a payment by returning the specific prop-

erty previously transferred in the excess trans-

action. In this case, the disqualified person is

treated as making a payment equal to the lesser

of:

•

The fair market value of the property on the

date the property is returned to the organi-

zation, or

•

The fair market value of the property on the

date the excess benefit transaction occur-

red.

If the payment resulting from the return of

property is less than the correction amount, the

disqualified person must make an additional

cash payment to the organization equal to the

difference.

If the payment resulting from the return of

the property exceeds the correction amount de-

scribed above, the organization can make a

cash payment to the disqualified person equal

to the difference.

Exception. For a correction of an excess

benefit transaction (discussed earlier), no

amount repaid in a manner prescribed by the

Secretary can be held in a donor advised fund.

Applicable Tax-Exempt

Organization

An applicable tax-exempt organization is a sec-

tion 501(c)(3), 501(c)(4), or 501(c)(29) organi-

zation that is tax-exempt under section 501(a),

or was such an organization at any time during

a 5-year period ending on the day of the excess

benefit transaction.

An applicable tax-exempt organization

doesn't include:

1. A private foundation as defined in section

509(a),

2. A governmental entity that is:

a. Exempt from (or not subject to) taxa-

tion without regard to section 501(a),

b. Not required to file an annual return,

3. A foreign organization, recognized by the

IRS or by treaty, that receives substantially

all of its support (other than gross invest-

ment income) from sources outside the

United States.

An organization isn't treated as a section

501(c)(3), 501(c)(4), or 501(c)(29) organization

for any period covered by a final determination

that the organization wasn't tax-exempt under

section 501(a), but only if the determination

wasn't based on private inurement or one or

more excess benefit transactions.

Disqualified Person

A disqualified person is:

•

Any person (at any time during the 5-year

period ending on the date of the transac-

tion) in a position to exercise substantial in-

fluence over the affairs of the organization,

•

A family member of an individual described

in (1), and

•

A 35% controlled entity.

For donor advised funds, sponsoring or-

ganizations, and certain supporting organi-

zations occurring after August 17, 2006.

The following persons will be considered dis-

qualified persons along with certain family

members and 35% controlled entities associ-

ated with them.

•

Donors of donor advised funds,

•

Investment advisors of sponsoring organi-

zations, and

•

Disqualified persons of a section 509(a)(3)

supporting organization that supports the

applicable tax-exempt organization.

For certain supporting organization

transactions occurring after July 25, 2006.

Substantial contributors to supporting organiza-

tions will also be considered disqualified per-

sons with respect to the supporting organiza-

tions, along with their family members and 35%

controlled entities.

Investment advisor. Investment advisor

means for any sponsoring organization, any

person compensated by such organization (but

not an employee of such organization) for man-

aging the investment of, or providing investment

advice for, assets maintained in donor advised

funds owned by such sponsoring organization.

Substantial contributor. In general, a sub-

stantial contributor means any person who con-

tributed or bequeathed an aggregate of more

than $5,000 to the organization, if that amount

is more than 2% of the total contributions and

bequests received by the end of the organiza-

tion's tax year in which the contribution or be-

quest is received. A substantial contributor in-

cludes the grantor of a trust.

Family members. Family members of a dis-

qualified person include a disqualified person's

spouse, brothers or sisters (whether by whole

or half-blood), spouses of brothers or sisters

(whether by whole or half-blood), ancestors,

children (including a legally adopted child),

grandchildren, great grandchildren, and spou-

ses of children, grandchildren, and great grand-

children (whether by whole or half-blood).

35% controlled entity. A 35% controlled entity

is:

1. A corporation in which disqualified per-

sons own more than 35% of the total com-

bined voting power,

2. A partnership in which such persons own

more than 35% of the profits interest, or

3. A trust or estate in which such persons

own more than 35% of the beneficial inter-

est.

In determining the holdings of a business

enterprise, any stock or other interest owned di-

rectly or indirectly shall apply.

Persons having substantial influence.

Among those who are in a position to exercise

substantial influence over the affairs of the or-

ganization are, for example, voting members of

the governing body, and persons holding the

power of:

•

Presidents, chief executives, or chief oper-

ating officers;

•

Treasurers and chief financial officers; or

•

Persons with a material financial interest in

a provider-sponsored organization.

Persons not considered to have sub-

stantial influence. Persons who aren't consid-

ered to be in a position to exercise substantial

influence over the affairs of an organization in-

clude:

•

An employee who receives benefits that to-

tal less than the highly compensated

amount in section 414(q)(1)(B)(i) and who

doesn't hold the executive or voting powers

mentioned earlier in the discussion on Dis-

qualified Person, isn't a family member of a

disqualified person, and isn't a substantial

contributor;

•

Tax-exempt organizations described in

section 501(c)(3); and

•

Section 501(c)(4) organizations with re-

spect to transactions engaged in with other

section 501(c)(4) organizations.

Facts and circumstances. The determina-

tion of whether a person has substantial influ-

ence over the affairs of an organization is based

on all the facts and circumstances. Facts and

circumstances that tend to show a person has

substantial influence over the affairs of an or-

ganization include, but aren't limited to, the fol-

lowing.

•

The person founded the organization.

•

The person is a substantial contributor to

the organization under the section 507(d)

(2)(A) definition, only taking into account

contributions to the organization for the

past 5 years.

•

The person's compensation is primarily

based on revenues derived from activities

of the organization that the person con-

trols.

•

The person has or shares authority to con-

trol or determine a substantial portion of

the organization's capital expenditures, op-

erating budget, or compensation for em-

ployees.

•

The person manages a discrete segment

or activity of the organization that repre-

sents a substantial portion of the activities,

assets, income, or expenses of the organi-

zation, as compared to the organization as

a whole.

•

The person owns a controlling interest

(measured by either vote or value) in a cor-

poration, partnership, or trust that is a dis-

qualified person.

•

The person is a nonstock organization con-

trolled directly or indirectly by one or more

disqualified persons.

Facts and circumstances tending to show

that a person doesn't have substantial influence

over the affairs of an organization include, but

aren't limited to, the following.

•

The person has taken a bona fide vow of

poverty as an employee or agent of a reli-

gious organization or on its behalf.

•

The person is an independent contractor

whose sole relationship to the organization

is providing professional advice (without

having decision-making authority) with

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62 Chapter 5 Excise Taxes Publication 557 (1-2024)

respect to transactions from which the in-

dependent contractor won't economically

benefit either directly or indirectly aside

from customary fees received for the pro-

fessional advice rendered.

•

Any preferential treatment the person re-

ceives based on the size of the person's

donation is also offered to others making

comparable widely solicited donations.

•

The direct supervisor of the person isn't a

disqualified person.

•

The person doesn't participate in any man-

agement decisions affecting the organiza-

tion as a whole or a discrete segment of

the organization that represents a substan-

tial portion of the activities, assets, income,

or expenses of the organization, as com-

pared to the organization as a whole.

In the case of multiple organizations affili-

ated by common control or governing docu-

ments, the determination of whether a person

does or doesn't have substantial influence is

made separately for each applicable tax-ex-

empt organization. A person may be a disquali-

fied person with respect to transactions with

more than one organization.

Reasonable compensation. Reasonable

compensation is the value that would ordinarily

be paid for like services by like enterprises un-

der like circumstances. The section 162 stand-

ard will apply in determining the reasonable-

ness of compensation. The fact that a bonus or

revenue-sharing arrangement is subject to a

cap is a relevant factor in determining reasona-

bleness of compensation.

To determine the reasonableness of com-

pensation, all items of compensation provided

by an applicable tax-exempt organization in ex-

change for performance of services are taken

into account in determining the value of com-

pensation (except for economic benefits that

are disregarded under the discussion Disregar-

ded benefits, later). Items of compensation in-

clude:

•

All forms of cash and noncash compensa-

tion, including salary, fees, bonuses, sever-

ance payments, and deferred noncash

compensation;

•

The payment of liability insurance premi-

ums for, or the payment or reimbursement

by the organization of penalties, taxes, or

certain expenses under section 4958, un-

less excludable from income as a de mini-

mis fringe benefit under section 132(a)(4);

•

All other compensatory benefits, whether

or not included in gross income for income

tax purposes;

•

Taxable and nontaxable fringe benefits, ex-

cept fringe benefits described in section

132; and

•

Foregone interest on loans.

Intent to treat benefits as compensation.

An economic benefit isn't treated as considera-

tion for the performance of services unless the

organization providing the benefit clearly indi-

cates its intent to treat the benefit as compensa-

tion when the benefit is paid.

An applicable tax-exempt organization (or

entity that it controls) is treated as clearly indi-

cating its intent to provide an economic benefit

as compensation for services only if the organi-

zation provides written substantiation that is

contemporaneous with the transfer of the eco-

nomic benefits under consideration. Ways to

provide contemporaneous written substantia-

tion of its intent to provide an economic benefit

as compensation include:

•

The organization produces a signed writ-

ten employment contract;

•

The organization reports the benefit as

compensation on an original Form W-2,

Form 1099, or Form 990, or on an amen-

ded form filed before starting an IRS ex-

amination; or

•

The disqualified person reports the benefit

as income on the person's original Form

1040 or 1040-SR, or on an amended form

filed before starting an IRS examination.

Exception. If the economic benefit is exclu-

ded from the disqualified person's gross income

for income tax purposes, the applicable tax-ex-

empt organization isn't required to indicate its

intent to provide an economic benefit as com-

pensation for services.

Rebuttable presumption that a transac-

tion isn't an excess benefit transaction.

Payments under a compensation arrangement

are presumed to be reasonable and the transfer

of property (or right to use property) is pre-

sumed to be at fair market value, if the following

three conditions are met.

1. The transaction is approved in advance by

an authorized body of the organization (or

an entity it controls) which is composed of

individuals who don't have a conflict of in-

terest concerning the transaction.

2. Before making its determination, the au-

thorized body obtained and relied upon

appropriate data as to comparability.

(There is a special safe harbor for small or-

ganizations. If the organization has gross

receipts of less than $1 million, appropri-

ate comparability data includes data on

compensation paid by three comparable

organizations in the same or similar com-

munities for similar services.)

3. The authorized body adequately docu-

ments the basis for its determination con-

currently with making that determination.

The documentation should include:

a. The terms of the approved transaction

and the date approved,

b. The members of the authorized body

who were present during debate on

the transaction that was approved and

those who voted on it,

c. The comparability data obtained and

relied upon by the authorized body

and how the data was obtained,

d. Any actions by a member of the au-

thorized body having conflict of inter-

est, and

e. Documentation of the basis of the de-

termination before the later of the next

meeting of the authorized body or 60

days after the final actions of the au-

thorized body are taken, and approval

of records as reasonable, accurate,

and complete within a reasonable

time thereafter.

Disregarded benefits. The following eco-

nomic benefits are disregarded for section 4958

purposes.

•

Nontaxable fringe benefits that are exclu-

ded from income under section 132.

•

Benefits provided to a volunteer for the or-

ganization if the benefit is provided to the

general public in exchange for a member-

ship fee or contribution of $75 or less.

•

Benefits provided to a member of an or-

ganization due to the payment of a mem-

bership fee or to a donor as a result of a

deductible contribution, if a significant

number of disqualified persons make simi-

lar payments or contributions and are of-

fered a similar economic benefit.

•

Benefits provided to a person solely as a

member of a charitable class that the appli-

cable tax-exempt organization intends to

benefit as part of the accomplishment of its

exempt purpose.

•

A transfer of an economic benefit to or for

the use of a governmental unit, as defined

in section 170(c)(1), if exclusively for public

purposes.

Special exception for initial contracts.

Section 4958 doesn't apply to any fixed pay-

ment made to a person under an initial contract.

A fixed payment is an amount of cash or

other property specified in the contract, or de-

termined by a fixed formula that is specified in

the contract, which is to be paid or transferred in

exchange for the provision of specified services

or property.

A fixed formula can, generally, incorporate

an amount that depends upon future specified

events or contingencies, as long as no one has

discretion when calculating the amount of a

payment or deciding whether to make a pay-

ment (such as a bonus).

An initial contract is a binding written con-

tract between an applicable tax-exempt organi-

zation and a person who wasn't a disqualified

person immediately before entering into the

contract.

A binding written contract, providing it can

be terminated or canceled by the applicable

tax-exempt organization without the other par-

ty's consent (except as a result of substantial

nonperformance) and without substantial pen-

alty, is treated as a new contract, as of the earli-

est date any termination or cancellation would

be effective. Also, if the parties make a material

change to a contract, which includes an exten-

sion or renewal of the contract (except for an ex-

tension or renewal resulting from the exercise of

an option by the disqualified person), or a more

than incidental change to the amount payable

under the contract, it is treated as a new con-

tract as of the effective date of the material

change.

More information. For more information,

see the Instructions for Forms 990 and 4720.

Excess Business

Holdings

General rule. Private foundations are gener-

ally not permitted to hold more than a 20% inter-

est in an unrelated business enterprise. They

may be subject to an excise tax on the amount

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Publication 557 (1-2024) Chapter 5 Excise Taxes 63

of any excess business holdings. For purposes

of section 4943, for tax years beginning after

August 17, 2006, donor advised funds and cer-

tain supporting organizations are considered

private foundations.

Exception under section 4943(g). Section

4943(g) added by the Bipartisan Budget Act of

2018, P.L. No. 115-123, 132 Stat. 64 (2018),

provides an exception for certain limited hold-

ings to independently operated businesses. In

general, the excess business holdings provi-

sions of section 4943(a) shall not apply with re-

spect to the holdings of a private foundation in

any business enterprise which meets all the re-

quirements of section 4943(g)(2), (3), and (4).

The requirements of section 4943(g)(2) are met

if:

1. 100% of the voting stock in the business

enterprise is held by the private foundation

at all times during the tax year, and

2. All of the private foundation’s ownership

interests were acquired by means other

than purchase, such as a gift or bequest.

The requirements of section 4943(g)(3) are met

if the business enterprise, no later than 120

days after the close of the tax year, distributes

an amount equal to its net operating income for

such tax year to the private foundation. For pur-

poses of section 4943(g), the net operating in-

come of any business enterprise for any tax

year is an amount equal to the gross income of

the business enterprise for the tax year, re-

duced by the sum of:

1. The deductions allowed by chapter 1 of

the Code for the tax year that are directly

connected with the production of such in-

come,

2. The tax imposed by chapter 1 of the Code

on the business enterprise for the tax year,

and

3. An amount for a reasonable reserve for

working capital and other business needs

of the business enterprise.

The requirements of section 4943(g)(4) are met

if, at all times during the tax year:

1. No substantial contributor (as defined in

section 4958(c)(3)(C)) to the private foun-

dation or family member (as determined

under section 4958(f)(4)) of such a con-

tributor is a director, officer, trustee, man-

ager, employee, or contractor of the busi-

ness enterprise (or an individual having

powers or responsibilities similar to any of

the foregoing);

2. At least a majority of the board of directors

of the private foundation are persons who

are not (i) directors or officers of the busi-

ness enterprise, or (ii) family members of a

substantial contributor to the private foun-

dation; and

3. There is no loan outstanding from the

business enterprise to a substantial con-

tributor to the private foundation or to any

family member of such a contributor.

This provision does not apply to any donor ad-

vised fund treated as a private foundation by

section 4943(e), a supporting organization trea-

ted as a private foundation by section 4943(f), a

trust described in section 4947(a)(1), or a trust

described in section 4947(a)(2).

Section 4943(g) shall apply to tax years begin-

ning after December 31, 2017.

Donor advised fund. In general, a donor ad-

vised fund is a fund or account separately iden-

tified by reference to contributions of a donor or

donors that is owned and controlled by a spon-

soring organization and for which the donor has

or expects to have advisory privileges concern-

ing the distribution or investment of the funds.

Supporting organizations. Only certain sup-

porting organizations are subject to the excess

business holdings tax under section 4943.

These include (1) Type III supporting organiza-

tions that aren't functionally integrated and (2)

Type II supporting organizations that accept any

gift or contribution from a person who alone or

in connection with a related party controls the

supported organization that the Type II support-

ing organization supports.

Taxes. A private foundation that has excess

holdings in a business enterprise may become

liable for an excise tax based on the amount of

holdings. The initial tax is 10% (5% for tax years

beginning before August 18, 2006) of the value

of the excess holdings and is imposed on the

last day of each tax year that ends during the

taxable period. The excess holdings are deter-

mined on the day during the tax year when they

were the largest.

A foundation that fails to correct the excess

business holdings becomes liable for an addi-

tional tax of 200% of the remaining excess busi-

ness holdings as of the earlier of tax assess-

ment or mailing of a notice of deficiency.

For more information on the tax on excess

business holdings, see the Instructions for Form

4720.

Taxable Distributions of

Sponsoring

Organizations

An excise tax under section 4966 is imposed on

a sponsoring organization for each taxable dis-

tribution it makes from a donor advised fund. An

excise tax is also imposed on any fund manager

of the sponsoring organization who agreed to

the making of a distribution, knowing that it is a

taxable distribution.

Taxable distribution. A taxable distribution is

any distribution from a donor advised fund to

any natural person or to any other person if:

1. The distribution is for any purpose other

than one specified in section 170(c)(2)(B),

2. The sponsoring organization maintaining

the donor advised fund doesn't exercise

expenditure responsibility with respect to

the distribution in accordance with section

4945(h).

However, a taxable distribution doesn't in-

clude a distribution from a donor advised fund

to:

•

Any organization described in section

170(b)(1)(A) (other than a disqualified sup-

porting organization),

•

The sponsoring organization of the donor

advised fund, or

•

Any other donor advised fund.

The tax on taxable distributions applies to

distributions occurring in tax years beginning af-

ter August 17, 2006.

Sponsoring organization. A sponsoring or-

ganization is a section 170(c) organization that

is neither a government organization (as refer-

red to in section 170(c)(1) and (2)(A)) nor a pri-

vate foundation.

Donor advised fund. A donor advised fund is

a fund or account:

1. Which is separately identified by reference

to contributions of a donor or donors,

2. Which is owned and controlled by a spon-

soring organization, and

3. For which the donor (or any person ap-

pointed or designated by the donor) has or

expects to have advisory privileges con-

cerning the distribution or investment of

the funds held in the donor advised funds

or accounts because of the donor's status

as a donor.

Exception. A donor advised fund doesn't

include:

1. A fund or account that makes distributions

only to a single identified organization or

governmental entity; or

2. Any fund or account for a person descri-

bed in 3 above that gives advice about

which individuals receive grants for travel,

study, or similar purposes, if the following

three requirements are met:

a. The person's advisory privileges are

performed exclusively by such person

in their capacity as a committee mem-

ber of which all the committee mem-

bers are appointed by the sponsoring

organization,

b. No combination of persons with advi-

sory privileges, described in 3 above,

or persons related to those in 3 above

directly or indirectly control the com-

mittee, and

c. All grants from the fund or account are

awarded on an objective and nondis-

criminatory basis according to a pro-

cedure approved in advance by the

board of directors of the sponsoring

organization. The procedure must be

designed to ensure that all grants

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64 Chapter 5 Excise Taxes Publication 557 (1-2024)

meet the requirements of section

4945(g)(1), (2), or (3).

Disqualified supporting organization. A dis-

qualified supporting organization includes (1) a

Type III supporting organization that isn't func-

tionally integrated, and (2) any supporting or-

ganization where the donor or donor advisor

(and any related parties) directly or indirectly

controls a supported organization of the sup-

porting organization.

Tax on sponsoring organization. A tax of

20% of the amount of each taxable distribution

is imposed on the sponsoring organization.

Tax on fund manager. If a tax is imposed on a

taxable distribution of the sponsoring organiza-

tion, a tax of 5% of the distribution will be im-

posed on any fund manager who agreed to the

distribution knowing that it was a taxable distri-

bution. Any fund manager who took part in the

distribution and is liable for the tax must pay the

tax. The maximum amount of tax on all fund

managers for any one taxable distribution is

$10,000. If more than one fund manager is lia-

ble for tax on a taxable distribution, all such

managers are jointly and severally liable for the

tax.

For more information on the tax on taxable

distributions of sponsoring organizations, see

the Instructions for Form 4720.

Taxes on Prohibited

Benefits Resulting from

Donor Advised Fund

Distributions

Prohibited benefit. If any donor, donor advi-

sor, or related party advises the sponsoring or-

ganization about making a distribution which re-

sults in a donor, donor advisor, or related party

receiving (either directly or indirectly) a more

than incidental benefit, then such benefit is a

prohibited benefit. The tax on prohibited bene-

fits applies to distributions occurring in tax years

beginning after August 17, 2006.

Donor advisor. A donor advisor is any person

appointed or designated by a donor to advise a

sponsoring organization on the distribution or

investment of amounts held in the donor's fund

or account.

Related party. A related party includes any

family member or 35% controlled entity. See the

definition of those terms under Disqualified Per-

son, earlier.

Tax on donor, donor advisor, or related per-

son. A tax of 125% of the benefit resulting from

the distribution is imposed on both the party

who advised as to the distribution (which might

be a donor, donor advisor, or related party) and

the party who received such benefit (which

might be a donor, donor advisor, or related

party). The advisor and the party who received

the benefit are jointly and severally liable for the

tax.

Tax on fund managers. If a tax is imposed on

a prohibited benefit received by a donor, donor

advisor, or related person, a tax of 10% of the

amount of the prohibited benefit is imposed on

any fund manager who agreed to the distribu-

tion knowing that it would confer a prohibited

benefit. Any fund manager who took part in the

distribution and is liable for the tax must pay the

tax. The maximum amount of tax on all fund

managers for any one taxable distribution is

$10,000. If more than one fund manager is lia-

ble for tax on a taxable distribution, all such

managers are jointly and severally liable for the

tax.

Exception. If a person engaged in an excess

benefit transaction and received a prohibited

benefit for the same transaction, the person is

taxed under section 4958, and no tax is im-

posed under section 4967 for a prohibited ben-

efit.

For more information on taxes on prohibited

benefits distributed from donor advised funds,

see the Instructions for Form 4720.

Excise Taxes on Private

Foundations

There is an excise tax on the net investment in-

come of most domestic private foundations.

Capital gains from appreciation are included in

the tax base on private foundation net invest-

ment income. This tax must be reported on

Form 990-PF and must be paid annually at the

time for filing that return or in quarterly estima-

ted tax payments if the total tax for the year

(section 4940 tax minus credits) is $500 or

more. Form 990-W is used to calculate the esti-

mated tax.

In addition, there are several other rules that

apply to excise taxes on private foundations.

These include:

1. Restrictions on self-dealing between pri-

vate foundations and their substantial con-

tributors and other disqualified persons,

2. Requirements that the foundation annually

distribute income for charitable purposes,

3. Limits on their holdings in any business

enterprise (see Excess Business Hold-

ings, earlier),

4. Provisions that investments mustn't jeop-

ardize the carrying out of exempt purpo-

ses, and

5. Provisions to assure that expenditures fur-

ther the organization's exempt purposes.

Violations of these provisions give rise to

taxes and penalties against the private founda-

tion and, in some cases, its managers, its sub-

stantial contributors, and certain related per-

sons.

For more information on the excise taxes im-

posed on private foundations, see the Instruc-

tions for Form 4720 and the Instructions for

Form 990-PF.

Excise Taxes on Black

Lung Benefit Trusts

A black lung benefit trust that makes any expen-

ditures, payments, or investments other than

those described in chapter 4 under 501(c)(21) -

Black Lung Benefit Trusts must pay a tax equal

to 10% of the amount of such expenditures. If

there are any acts of self-dealing between the

trust and a disqualified person, a tax equal to

10% of the amount involved is imposed on the

disqualified person. Both of these excise taxes

are reported on Form 6069. See the Instructions

for Form 6069 and Form 990 for more informa-

tion on these taxes and what has to be filed,

even if the trust is excepted from filing.

Excise Tax on Failure To

Meet the Community

Health Needs

Assessment

Requirements

For tax years beginning after March 23, 2012,

new section 4959 imposes an excise tax on

hospital organizations which fail to meet certain

section 501(r) requirements for each of their

hospital facilities. These entities must meet sec-

tion 501(r)(3) requirements at all times during

their tax year. Section 501(r)(3) requirements

pertain to a hospital organization preparing a

community health needs assessment (CHNA).

See Schedule H, Hospitals (Form 990), for de-

tails.

Excise Tax on Executive

Compensation

New section 4960 imposes an excise tax on an

organization that pays to any covered employee

more than $1 million in remuneration or pays an

excess parachute payment during the year

starting in 2018. See section 4960 and Form

4720, Return of Certain Excise Taxes Under

Chapters 41 and 42 of the Internal Revenue

Code, final regulations TD 9938 (Regulations

sections 53.4960-0 through 53.4960-6), and

Notice 2019-09, 2019-04 I.R.B. 403, for more

information.

Excise Tax on Net

Investment Income of

Certain Colleges and

Universities

New section 4968 imposes an excise tax on the

net investment income of certain private col-

leges and universities. A private college or uni-

versity will be subject to the excise tax on net in-

vestment income under section 4968 if four

tests are met.

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Publication 557 (1-2024) Chapter 5 Excise Taxes 65

1. The organization must be an eligible edu-

cational institution as defined in section

25A(f)(2). Section 25A(f)(2) defines “eligi-

ble educational institution” as an institution

that is described in section 481 of the

Higher Education Act of 1965 (20 U.S.C.

section 1088), as in effect on August 5,

1997, and is eligible to participate in a pro-

gram under Title IV of such Act (20 U.S.C.

sections 1070 et seq.).

2. The organization must have had at least

500 tuition-paying students, based upon a

daily average student count, during the

preceding tax year.

3. More than 50% of those students must

have been located in the United States.

4. The aggregate fair market value, at the

end of the preceding tax year, of the as-

sets not used directly in carrying out the

organization’s exempt purpose, held by

the organization and related organizations,

must be at least $500,000 per student.

See the Instructions for Form 990, Part V,

Line 16 for more information about organiza-

tions subject to the excise tax. See Instructions

for Form 4720, Schedule O, and final regula-

tions TD 9917 (Regulations sections 53.4968-1

through 53.4968-4) for more information about

calculating the excise tax.

How To Get Tax Help

If you have questions about a tax issue; need

help preparing your tax return; or want to down-

load free publications, forms, or instructions, go

to IRS.gov to find resources that can help you

right away.

Preparing and filing your tax return. After

receiving all your wage and earnings state-

ments (Forms W-2, W-2G, 1099-R, 1099-MISC,

1099-NEC, etc.); unemployment compensation

statements (by mail or in a digital format) or

other government payment statements (Form

1099-G); and interest, dividend, and retirement

statements from banks and investment firms

(Forms 1099), you have several options to

choose from to prepare and file your tax return.

You can prepare the tax return yourself, see if

you qualify for free tax preparation, or hire a tax

professional to prepare your return.

Free options for tax preparation. Go to

IRS.gov to see your options for preparing and

filing your return online or in your local commun-

ity, if you qualify, which include the following.

•

Free File. This program lets you prepare

and file your federal individual income tax

return for free using brand-name tax-prep-

aration-and-filing software or Free File filla-

ble forms. However, state tax preparation

may not be available through Free File. Go

to IRS.gov/FreeFile to see if you qualify for

free online federal tax preparation, e-filing,

and direct deposit or payment options.

•

VITA. The Volunteer Income Tax Assis-

tance (VITA) program offers free tax help to

people with low-to-moderate incomes, per-

sons with disabilities, and limited-Eng-

lish-speaking taxpayers who need help

preparing their own tax returns. Go to

IRS.gov/VITA, download the free IRS2Go

app, or call 800-906-9887 for information

on free tax return preparation.

•

TCE. The Tax Counseling for the Elderly

(TCE) program offers free tax help for all

taxpayers, particularly those who are 60

years of age and older. TCE volunteers

specialize in answering questions about

pensions and retirement-related issues

unique to seniors. Go to IRS.gov/TCE,

download the free IRS2Go app, or call

888-227-7669 for information on free tax

return preparation.

•

MilTax. Members of the U.S. Armed

Forces and qualified veterans may use Mil-

Tax, a free tax service offered by the De-

partment of Defense through Military One-

Source. For more information, go to

MilitaryOneSource (MilitaryOneSource.mil/

MilTax).

Also, the IRS offers Free Fillable Forms,

which can be completed online and then

filed electronically regardless of income.

Using online tools to help prepare your re-

turn. Go to IRS.gov/Tools for the following.

•

The Earned Income Tax Credit Assistant

(IRS.gov/EITCAssistant) determines if

you’re eligible for the earned income credit

(EIC).

•

The Online EIN Application (IRS.gov/EIN)

helps you get an employer identification

number (EIN) at no cost.

•

The Tax Withholding Estimator (IRS.gov/

W4app) makes it easier for you to estimate

the federal income tax you want your em-

ployer to withhold from your paycheck.

This is tax withholding. See how your with-

holding affects your refund, take-home pay,

or tax due.

•

The First-Time Homebuyer Credit Account

Look-up (IRS.gov/HomeBuyer) tool pro-

vides information on your repayments and

account balance.

•

The Sales Tax Deduction Calculator

(IRS.gov/SalesTax) figures the amount you

can claim if you itemize deductions on

Schedule A (Form 1040).

Getting answers to your tax ques-

tions. On IRS.gov, you can get

up-to-date information on current

events and changes in tax law.

•

IRS.gov/Help: A variety of tools to help you

get answers to some of the most common

tax questions.

•

IRS.gov/ITA: The Interactive Tax Assistant,

a tool that will ask you questions and,

based on your input, provide answers on a

number of tax law topics.

•

IRS.gov/Forms: Find forms, instructions,

and publications. You will find details on

the most recent tax changes and interac-

tive links to help you find answers to your

questions.

•

You may also be able to access tax law in-

formation in your electronic filing software.

Need someone to prepare your tax return?

There are various types of tax return preparers,

including enrolled agents, certified public ac-

countants (CPAs), accountants, and many oth-

ers who don’t have professional credentials. If

you choose to have someone prepare your tax

return, choose that preparer wisely. A paid tax

preparer is:

•

Primarily responsible for the overall sub-

stantive accuracy of your return,

•

Required to sign the return, and

•

Required to include their preparer tax iden-

tification number (PTIN).

Although the tax preparer always signs the

return, you're ultimately responsible for provid-

ing all the information required for the preparer

to accurately prepare your return. Anyone paid

to prepare tax returns for others should have a

thorough understanding of tax matters. For

more information on how to choose a tax pre-

parer, go to Tips for Choosing a Tax Preparer on

IRS.gov.

Coronavirus. Go to IRS.gov/Coronavirus for

links to information on the impact of the corona-

virus, as well as tax relief available for individu-

als and families, small and large businesses,

and tax-exempt organizations.

Employers can register to use Business

Services Online. The Social Security Adminis-

tration (SSA) offers online service at SSA.gov/

employer for fast, free, and secure online W-2

filing options to CPAs, accountants, enrolled

agents, and individuals who process Form W-2,

Wage and Tax Statement, and Form W-2c, Cor-

rected Wage and Tax Statement.

IRS social media. Go to IRS.gov/SocialMedia

to see the various social media tools the IRS

uses to share the latest information on tax

changes, scam alerts, initiatives, products, and

services. At the IRS, privacy and security are

our highest priority. We use these tools to share

public information with you. Don’t post your so-

cial security number (SSN) or other confidential

information on social media sites. Always pro-

tect your identity when using any social net-

working site.

The following IRS YouTube channels provide

short, informative videos on various tax-related

topics in English, Spanish, and ASL.

•

Youtube.com/irsvideos.

•

Youtube.com/irsvideosmultilingua.

•

Youtube.com/irsvideosASL.

Watching IRS videos. The IRS Video portal

(IRSVideos.gov) contains video and audio pre-

sentations for individuals, small businesses,

and tax professionals.

Online tax information in other languages.

You can find information on IRS.gov/

MyLanguage if English isn’t your native lan-

guage.

Free Over-the-Phone Interpreter (OPI) Serv-

ice. The IRS is committed to serving our multi-

lingual customers by offering OPI services. The

OPI Service is a federally funded program and

is available at Taxpayer Assistance Centers

(TACs), other IRS offices, and every VITA/TCE

return site. The OPI Service is accessible in

more than 350 languages.

Accessibility Helpline available for taxpay-

ers with disabilities. Taxpayers who need in-

formation about accessibility services can call

833-690-0598. The Accessibility Helpline can

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66 Publication 557 (1-2024)

answer questions related to current and future

accessibility products and services available in

alternative media formats (for example, braille,

large print, audio, etc.). The Accessibility Help-

line does not have access to your IRS account.

For help with tax law, refunds, or account-rela-

ted issues, go to IRS.gov/LetUsHelp.

Note. Form 9000, Alternative Media Prefer-

ence, or Form 9000(SP) allows you to elect to

receive certain types of written correspondence

in the following formats.

•

Standard Print.

•

Large Print.

•

Braille.

•

Audio (MP3).

•

Plain Text File (TXT).

•

Braille Ready File (BRF).

Disasters. Go to Disaster Assistance and

Emergency Relief for Individuals and

Businesses to review the available disaster tax

relief.

Getting tax forms and publications. Go to

IRS.gov/Forms to view, download, or print all

the forms, instructions, and publications you

may need. Or, you can go to IRS.gov/

OrderForms to place an order.

Getting tax publications and instructions in

eBook format. You can also download and

view popular tax publications and instructions

(including the Instructions for Form 1040) on

mobile devices as eBooks at IRS.gov/eBooks.

Note. IRS eBooks have been tested using

Apple's iBooks for iPad. Our eBooks haven’t

been tested on other dedicated eBook readers,

and eBook functionality may not operate as in-

tended.

Access your online account (individual tax-

payers only). Go to IRS.gov/Account to se-

curely access information about your federal tax

account.

•

View the amount you owe and a break-

down by tax year.

•

See payment plan details or apply for a

new payment plan.

•

Make a payment or view 5 years of pay-

ment history and any pending or sched-

uled payments.

•

Access your tax records, including key

data from your most recent tax return, and

transcripts.

•

View digital copies of select notices from

the IRS.

•

Approve or reject authorization requests

from tax professionals.

•

View your address on file or manage your

communication preferences.

Tax Pro Account. This tool lets your tax pro-

fessional submit an authorization request to ac-

cess your individual taxpayer IRS online

account. For more information, go to IRS.gov/

TaxProAccount.

Using direct deposit. The fastest way to re-

ceive a tax refund is to file electronically and

choose direct deposit, which securely and elec-

tronically transfers your refund directly into your

financial account. Direct deposit also avoids the

possibility that your check could be lost, stolen,

destroyed, or returned undeliverable to the IRS.

Eight in 10 taxpayers use direct deposit to re-

ceive their refunds. If you don’t have a bank ac-

count, go to IRS.gov/DirectDeposit for more in-

formation on where to find a bank or credit

union that can open an account online.

Getting a transcript of your return. The

quickest way to get a copy of your tax transcript

is to go to IRS.gov/Transcripts. Click on either

“Get Transcript Online” or “Get Transcript by

Mail” to order a free copy of your transcript. If

you prefer, you can order your transcript by call-

ing 800-908-9946.

Reporting and resolving your tax-related

identity theft issues.

•

Tax-related identity theft happens when

someone steals your personal information

to commit tax fraud. Your taxes can be af-

fected if your SSN is used to file a fraudu-

lent return or to claim a refund or credit.

•

The IRS doesn’t initiate contact with tax-

payers by email, text messages (including

shortened links), telephone calls, or social

media channels to request or verify per-

sonal or financial information. This includes

requests for personal identification num-

bers (PINs), passwords, or similar informa-

tion for credit cards, banks, or other finan-

cial accounts.

•

Go to IRS.gov/IdentityTheft, the IRS Iden-

tity Theft Central webpage, for information

on identity theft and data security protec-

tion for taxpayers, tax professionals, and

businesses. If your SSN has been lost or

stolen or you suspect you’re a victim of

tax-related identity theft, you can learn

what steps you should take.

•

Get an Identity Protection PIN (IP PIN). IP

PINs are six-digit numbers assigned to tax-

payers to help prevent the misuse of their

SSNs on fraudulent federal income tax re-

turns. When you have an IP PIN, it pre-

vents someone else from filing a tax return

with your SSN. To learn more, go to

IRS.gov/IPPIN.

Ways to check on the status of your refund.

•

Go to IRS.gov/Refunds.

•

Download the official IRS2Go app to your

mobile device to check your refund status.

•

Call the automated refund hotline at

800-829-1954.

Note. The IRS can’t issue refunds before

mid-February for returns that claimed the EIC or

the additional child tax credit (ACTC). This ap-

plies to the entire refund, not just the portion as-

sociated with these credits.

Making a tax payment. Go to IRS.gov/

Payments for information on how to make a pay-

ment using any of the following options.

•

IRS Direct Pay: Pay your individual tax bill

or estimated tax payment directly from your

checking or savings account at no cost to

you.

•

Debit or Credit Card: Choose an approved

payment processor to pay online or by

phone.

•

Electronic Funds Withdrawal: Schedule a

payment when filing your federal taxes us-

ing tax return preparation software or

through a tax professional.

•

Electronic Federal Tax Payment System:

Best option for businesses. Enrollment is

required.

•

Check or Money Order: Mail your payment

to the address listed on the notice or in-

structions.

•

Cash: You may be able to pay your taxes

with cash at a participating retail store.

•

Same-Day Wire: You may be able to do

same-day wire from your financial institu-

tion. Contact your financial institution for

availability, cost, and time frames.

Note. The IRS uses the latest encryption

technology to ensure that the electronic pay-

ments you make online, by phone, or from a

mobile device using the IRS2Go app are safe

and secure. Paying electronically is quick, easy,

and faster than mailing in a check or money or-

der.

What if I can’t pay now? Go to IRS.gov/

Payments for more information about your op-

tions.

•

Apply for an online payment agreement

(IRS.gov/OPA) to meet your tax obligation

in monthly installments if you can’t pay

your taxes in full today. Once you complete

the online process, you will receive imme-

diate notification of whether your agree-

ment has been approved.

•

Use the Offer in Compromise Pre-Qualifier

to see if you can settle your tax debt for

less than the full amount you owe. For

more information on the Offer in Compro-

mise program, go to IRS.gov/OIC.

Filing an amended return. Go to IRS.gov/

Form1040X for information and updates.

Checking the status of your amended re-

turn. Go to IRS.gov/WMAR to track the status

of Form 1040-X amended returns.

Note. It can take up to 3 weeks from the

date you filed your amended return for it to

show up in our system, and processing it can

take up to 16 weeks.

Understanding an IRS notice or letter

you’ve received. Go to IRS.gov/Notices to find

additional information about responding to an

IRS notice or letter.

Note. You can use Schedule LEP (Form

1040), Request for Change in Language Prefer-

ence, to state a preference to receive notices,

letters, or other written communications from

the IRS in an alternative language. You may not

immediately receive written communications in

the requested language. The IRS’s commitment

to LEP taxpayers is part of a multi-year timeline

that is scheduled to begin providing translations

in 2024. You will continue to receive communi-

cations, including notices and letters in English

until they are translated to your preferred lan-

guage.

Contacting your local IRS office. Keep in

mind, many questions can be answered on

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Publication 557 (1-2024) 67

IRS.gov without visiting an IRS TAC. Go to

IRS.gov/LetUsHelp for the topics people ask

about most. If you still need help, IRS TACs pro-

vide tax help when a tax issue can’t be handled

online or by phone. All TACs now provide serv-

ice by appointment, so you’ll know in advance

that you can get the service you need without

long wait times. Before you visit, go to IRS.gov/

TACLocator to find the nearest TAC and to

check hours, available services, and appoint-

ment options. Or, on the IRS2Go app, under the

Stay Connected tab, choose the Contact Us op-

tion and click on “Local Offices.”

The Taxpayer Advocate

Service (TAS) Is Here To

Help You

What Is TAS?

TAS is an independent organization within the

IRS that helps taxpayers and protects taxpayer

rights. Their job is to ensure that every taxpayer

is treated fairly and that you know and under-

stand your rights under the Taxpayer Bill of

Rights.

How Can You Learn About Your

Taxpayer Rights?

The Taxpayer Bill of Rights describes 10 basic

rights that all taxpayers have when dealing with

the IRS. Go to TaxpayerAdvocate.IRS.gov to

help you understand what these rights mean to

you and how they apply. These are your rights.

Know them. Use them.

What Can TAS Do for You?

TAS can help you resolve problems that you

can’t resolve with the IRS. And their service is

free. If you qualify for their assistance, you will

be assigned to one advocate who will work with

you throughout the process and will do every-

thing possible to resolve your issue. TAS can

help you if:

•

Your problem is causing financial difficulty

for you, your family, or your business;

•

You face (or your business is facing) an im-

mediate threat of adverse action; or

•

You’ve tried repeatedly to contact the IRS

but no one has responded, or the IRS

hasn’t responded by the date promised.

How Can You Reach TAS?

TAS has offices in every state, the District of

Columbia, and Puerto Rico. Your local advo-

cate’s number is in your local directory and at

TaxpayerAdvocate.IRS.gov/Contact-Us. You

can also call them at 877-777-4778.

How Else Does TAS Help

Taxpayers?

TAS works to resolve large-scale problems that

affect many taxpayers. If you know of one of

these broad issues, report it to them at IRS.gov/

SAMS.

TAS for Tax Professionals

TAS can provide a variety of information for tax

professionals, including tax law updates and

guidance, TAS programs, and ways to let TAS

know about systemic problems you’ve seen in

your practice.

Low Income Taxpayer Clinics

(LITCs)

LITCs are independent from the IRS. LITCs rep-

resent individuals whose income is below a cer-

tain level and need to resolve tax problems with

the IRS, such as audits, appeals, and tax collec-

tion disputes. In addition, LITCs can provide in-

formation about taxpayer rights and responsibil-

ities in different languages for individuals who

speak English as a second language. Services

are offered for free or a small fee for eligible tax-

payers. To find an LITC near you, go to

TaxpayerAdvocate.IRS.gov/about-us/Low-

Income-Taxpayer-Clinics-LITC or see IRS Pub.

4134, Low Income Taxpayer Clinic List.

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Organization Reference Chart

Section of

1986 Code Description of organization General nature of activities

Application

Form

Annual return

required to be

filed

Contributions

allowable

501(c)(1) Corporations Organized under Act

of Congress (including Federal Credit

Unions)

Instrumentalities of the

United States

No Form None Yes, if made for

exclusively public

purposes

501(c)(2) Title Holding Corporation For

Exempt Organization

Holding title to property of an

exempt organization and distributing

net income to it

1024 990

or 990-EZ

501(c)(3) Religious, Educational, Charitable,

Scientific, Literary, Testing for Public

Safety, to Foster National or International

Amateur Sports Competition, or

Prevention of Cruelty to Children or

Animals Organizations

Activities of nature implied by description

of class of organization

1023, 1023-EZ 990

or 990-EZ

or 990-PF

Yes, generally

501(c)(4) Civic Leagues, Social Welfare

Organizations; and Local

Associations of Employees

Promotion of community welfare;

charitable, educational, or recreational

Must provide

notice on Form

8976; may also

submit

Form1024-A

990

or 990-EZ

No, generally

3, 4

501(c)(5) Labor, Agricultural, and Horticultural

Organizations

Educational or instructive, the

purpose being to improve conditions of

work, and to improve products and/or

efficiency

1024 990

or 990-EZ

501(c)(6) Business Leagues, Chambers of

Commerce, Real Estate Boards,

etc.

Improvement of business

conditions of one or more lines of business

1024 990

or 990-EZ

501(c)(7) Social and Recreational Clubs Pleasure, recreation, social activities 1024 990

or 990-EZ

501(c)(8) Fraternal Beneficiary Societies

and Associations

Providing for payment of life, sickness,

accident or other benefits

to members within a lodge system

1024 990

or 990-EZ

Yes, if for certain

Sec. 501(c)(3)

purposes

501(c)(9) Voluntary Employees Beneficiary

Associations

Employee association providing for

payment

of life, sickness, accident, or other

benefits to members

1024 990

or 990-EZ

501(c)(10) Domestic Fraternal Societies

and Associations

Earnings devoted to charitable, fraternal,

and

other specified purposes within a domestic

lodge system. No benefits to members

1024 990

or 990-EZ

Yes, if for certain

Sec. 501(c)(3)

purposes

501(c)(11) Teachers' Retirement Fund Associations Teachers' association for payment of

retirement benefits

1024

990

or 990-EZ

501(c)(12) Benevolent Life Insurance Associations,

Mutual Ditch or

Irrigation Companies, Mutual or

Cooperative Telephone Companies, and

Like Organizations

Activities of a mutual or cooperative

nature

1024 990

or 990-EZ

501(c)(13) Cemetery Companies Burials and incidental activities 1024 990

or 990-EZ

Yes, generally

501(c)(14) State-Chartered Credit Unions,

Mutual Reserve Funds

Loans to members 1024

990

or 990-EZ

501(c)(15) Mutual Insurance Companies or

Associations

Providing insurance to members

substantially at cost

1024 990

or 990-EZ

501(c)(16) Cooperative Organizations to

Finance Crop Operations

Financing crop operations in

conjunction with activities of a marketing

or purchasing association

Form 1120-C,

1024

990

or 990-EZ

501(c)(17) Supplemental Unemployment

Benefit Trusts

Provides for payment of

supplemental unemployment

compensation benefits

1024 990

or 990-EZ

501(c)(18) Employee Funded Pension Trust

(created before June 25, 1959)

Payment of benefits under a

pension plan funded by employees

1024

990

or 990-EZ

501(c)(19) Post or Organization of Past or

Present Members of the Armed Forces

Activities implied by nature of organization 1024 990

or 990-EZ

No, generally

501(c)(21) Black Lung Benefit Trusts Funded by coal mine operators to satisfy

their liability for disability or

death due to black lung diseases

1024

990 No

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Section of

1986 Code Description of organization General nature of activities

Application

Form

Annual return

required to be

filed

Contributions

allowable

501(c)(22) Withdrawal Liability Payment Fund To provide funds to meet the

liability of employers withdrawing from

a multi-employer pension fund

1024

990

or 990-EZ

501(c)(23) Veterans' Organization (created

before 1880)

To provide insurance and other

benefits to veterans

1024

990

or 990-EZ

No, generally

501(c)(25) Title Holding Corporations or Trusts with

Multiple Parent Corporations

Holding title and paying over

income from real property to 35 or fewer

parents or beneficiaries

1024 990

or 990-EZ

501(c)(26) State-Sponsored Organization Providing

Health Coverage for High-Risk

Individuals

Provides health care coverage to high-risk

individuals

1024

990

or 990-EZ

501(c)(27) State-Sponsored Workers'

Compensation Reinsurance Organization

Reimburses members for losses

under workers' compensation acts

1024

990

or 990-EZ

501(c)(28) National Railroad Retirement Investment

Trust

Manages and invests the assets of the

Railroad Retirement Account

1024 990

501(c)(29) CO-OP health insurance issuers A qualified health insurance issuer which

has received a loan or grant under the

CO-OP program

1024 and Form

8718

990

501(d) Religious and Apostolic Associations Regular business activities;

Communal religious community

1024 1065

501(e) Cooperative Hospital Service

Organizations

Performs cooperative services for hospitals 1023 990

or 990-EZ

Yes

501(f) Cooperative Service Organizations

of Operating Educational Organizations

Performs collective investment

services for educational organizations

1023 990

or 990-EZ

Yes

501(k) Child Care Organizations Provides care for children 1023 990

or 990-EZ

Yes

501(n) Charitable Risk Pools Pools certain insurance risks of sec. 501(c)

(3) organizations

1023 990

or 990-EZ

Yes

501(q) Credit Counseling Organization Credit counseling services 1023 990

521(a) Farmers' Cooperative Associations Cooperative marketing and

purchasing for agricultural procedures

1028 or 1024 1120-C No

527 Political organizations A party, committee, fund,

association, etc., that directly or indirectly

accepts contributions or makes

expenditures for political campaigns

8871 1120-POL

990

or 990-EZ

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

of 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

churches, 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

meet 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.

Deductible as a business expense to the extent allowed by section 192.

Deductible as a business expense to the extent allowed by section 194A.

Reserved

Contributions to these organizations are deductible only if 90% or more of the organization's members are war veterans.

For limits on the use of Form 990-EZ, see chapter 2 and the general instructions for Form 990-EZ (or Form 990).

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

income or expenses.

Form 1120-POL is required only if the organization has taxable income as defined in section 527(c).

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,

compensation, 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

recognition under section 501(c)(4).

See section 501(c)(29) for details.

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.

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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

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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:

a) 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.

b) 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.

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c) 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.

d) 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.

a) 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.

b) 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

duration of the trust.

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c) 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.

d) 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.

e) 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.

f) 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

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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

Acknowledgment of

contributions 17

Adverse determination 6

Affordable Care Act:

Hospitals 32

Agricultural organization 49

Airport 48

Alumni association 26

Amateur athletic

organizations 30

Animals, prevention of cruelty

to 30

Appeal procedures 7

Application procedures 4, 5

Bylaws 5

Conformed copy 5

Description of activities 5

Employer identification

number 5

Financial Unless you are filing

Form 1023-EZ, y 6

Organizing If you are submitting

a Form 1023 or Form 1024,

y 5

Aquatic resources 49

Articles of organization 25

Assistance (See Tax help)

Athletic organization 26, 30

Attorney's fees 29

Attribution, special rules 44

Black lung benefit trust 57

Board of trade 49

Bureau defined 40

Burial benefit insurance 55

Business income, unrelated 13

Business league 49

Cemetery company 55

Chamber of commerce 49

Change in legal structure 21

Charitable contributions 17, 22

Charitable organization 22, 28

Charitable risk pools 28

Child care organization 22

Children, prevention of cruelty

to 30

Church 29

Integrated auxiliaries 29

Civic leagues 48

Clinic 29

CO-OP Health Insurance

Issuers 59

College bookstore,

restaurant 26

Community association 48

Community trust 37

Contributions, charitable 17, 22

Court appeals 8

Credit union 56

Determination letter 6

Disclosures, required 16

Dues used for lobbying 21

Nondeductible

contributions 20

Quid pro quo contributions 16

Services available from

government 20

Dispositions of donated

property 16

Disqualified persons 43

Domestic fraternal society 52

Donor advised funds:

Excess benefit transaction 61

Dues used for political or

legislative activities 21, 50

Educational organizations 26,

Employees' association 52

Employment taxes 13

Endowment fund 32

Estimated tax 13

Excess benefit transaction 61

Disqualified person 60, 62

Controlled entity, 35% 62

Family members 62

Substantial influence 62

Disregarded benefits 63

Donor advised funds 61, 62

Excise tax 60

Initial contracts 63

Reasonable compensation 63

Rebuttable presumption 63

Excise tax:

Black lung benefit trust 57

Lobbying expenditures 47

Political expenditures 47

Private foundations 31, 65

Exempt function 14

Exempt purposes 22

Exemption for terrorist

organization 5

Extensions of time 23

Facts and circumstances

test 33

Fair market value, estimate

of 17

Filing requirements 11

Annual information returns 11

Donee information return 16

Due date 14

Employment tax 13

Excise tax 31, 65

Political organization 14

Private foundations 12

Unrelated business income 13

Form 990-N 11

Forms 4

1023 4, 7, 8, 18, 23, 24, 26, 30,

46, 48

1023-EZ 4, 23

1024 4, 18, 48-53, 55-58

1040 14

1065 11

1120–POL 14

1128 22

2848 5, 7

4720 47

5578 28

5768 46

6069 57

8274 13

8282 16

8283 16

8300 18

8718 4, 5

8821 7

8871 14, 18

8872 14, 18

990 9, 11, 18, 46

990-BL 11, 57

990-EZ 11

990-PF 12, 31, 65

990-T 13

SS-4 5, 8

W–2 13

Fraternal beneficiary society 51

Fraternal societies 20, 51

Funeral benefit insurance 55

Gifts and contributions, public

charity 40

Governmental unit 32

Grant:

Distinguished from gross

receipts 40

Exclusion for unusual grant 36,

From public charity 35, 41

Grantor and contributor,

reliance on ruling 45

Gross receipts from

nonmembership sources 51

Group exemption letter 8

Health coverage

organization 58

High-risk health coverage

organization 58

Homeowners' association 48

Horticultural organization 49

Hospital 29, 32

Inactive organization 21

Industrial development 48

Instrumentalities 22

Insurance, organizations

providing 28

Labor organization 20, 49

Law, public interest 29

Legislative activity 46, 50

Listed transaction 60

Literary organizations 30

Loans, organizations

providing 29

Lobbying expenditures 46

Local benevolent life insurance

associations 55

Local employees'

association 52

Lodge system 51

Medical research

organization 32

Medicare and Medicaid

payments 35

Membership fee 35, 40

Modification of exemption 6

Mutual financial

organization 56

Mutual or cooperative

association 55

Notice:

Notice 2014–4 45

One-third support test 33

Organization assets 25

Dedication 25

Distribution 25

Organization Reference

Chart 69

Organizational changes 21

Penalties 13

Failure to allow public

inspection 20

Failure to disclose 17, 20, 21

Failure to file 13

Perpetual care organization 55

Political activity 21, 23, 48

Political organization:

Income tax return 14

Taxable income 14

Power of attorney 5

Preferred stock 56

Prevention of cruelty to children

or animals 30

Private delivery service 23

Private foundations 30

Private operating foundation 45

Private school 26

Prohibited tax shelter

transactions:

Entity managers 60

Entity managers excise tax 60

Listed transaction 60

Prohibited reportable

transactions 60

Subsequently listed

transaction 60

Tax-exempt entities 60

Public charity:

Gifts and contributions 40

Grant from 41

Section 509(a)(1) 31

Section 509(a)(2) 38

Section 509(a)(3) 41

Section 509(a)(4) 45

Support test 33, 38

Public inspection:

Annual return 18

Exemption applications 18

Forms 8871 and 8872 18

Public-interest law firm 29

Publications (See Tax help)

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Publicly supported

organization 32, 33

Attraction of public support 33

Ten-percent-of-support 33

Racial composition 26

Racially nondiscriminatory

policy 26

Real estate board 49

Recognition of exemption,

application 23

Religious organizations 29

Requests other than

applications 5

Responsiveness test 43

Revocation of exemption 6

Ruling letter 6

Scholarship:

Private school 28

Scholarships 28

School, private 26

Scientific organizations 30

Section 501(c)(3) organizations:

Amateur athletic 30

Literary 30

Prevention of cruelty 30

Private foundations 30

Public charities 31

Qualifications 22

Religious 29

Scientific 30

Section 501(c)(3)

Organizations:

Charitable 28

Educational 26

Single entity 38

Social clubs 20, 50

Social welfare organization 20,

Specified organizations 42

Sports organization,

amateur 30

State-sponsored 58

High-risk health coverage

organization 58

Workers' compensation

reinsurance organization 59

Stock or commodity

exchange 50

Supplemental unemployment

benefit trust 53

Support 34, 35

Support test 33

Facts and circumstances 33

One-third 33

Public charity 38

Supporting organization 61

Tax help 66

Technical advice 7

Testing for public safety 45

Title-holding corporation 57

Unemployment benefit trust 53

Unrelated business income 13

Unusual grants 36, 39

User fee 5

Veterans' organization 56

Voluntary employees'

beneficiary association 52

Volunteer fire company 48

War veterans' organization 56

Withdrawal of application 6

Withholding information from

public 6

Workers' compensation

reinsurance organization 59

76 Publication 557 (1-2024)