The IRS writes and publishes an informational booklet that gives taxpayers detailed guidance on tax issues. IRS Publication 557 deals specifically with non-profit organizations.[i] This publication discusses and provides explanations for the rules and procedures that organizations must adhere to in order to receive an appropriate tax-exempt status ruling or determination letter.[ii] Directors, officers, and other persons responsible for ensuring an organization’s compliance with tax laws and maintaining exempt status should always keep a copy and refer back to Publication 557 and be aware of any possible changes to it. The publication is divided into six chapters, five of which are summarized below.
Chapter 1: Application, Approval, and Appeal Procedures
The first chapter of this “guidebook” provides general information about the procedures for obtaining recognition of tax-exempt status.[iii] It discusses the application procedures that generally apply to all organizations discussed in this publication.[iv] This section helps the organization determine the appropriate form that must be filed and what information to include. This includes, Employer Identification Number (EIN), organizing documents, bylaws, description of activities, and financial data.[v] Additionally, this chapter explains in detail the rulings and determination letters, the appeals procedure if an adverse letter is proposed, and group exemption letters.[vi]
Chapter 2: Filing Requirements and Required Disclosures
Most exempt organizations, including private foundations, must file various returns and reports at some time during or following the close of their accounting period.[vii] This chapter contains detailed information about annual filing requirements and other matters that may affect your organization’s tax-exempt status.[viii] Additionally, this section explains what information relating to the activities of the organization must be disclosed for an exempt organization to maintain its exempt status.[ix] Therefore, this is a very important chapter for exempt organizations to have handy.
Chapter 3: Section 501(c)(3) Organizations
An organization may qualify for exemption under Section 501(c)(3) from federal income tax if it is organized and operated exclusively for religious, charitable, scientific, public safety testing, literary, educational, fostering national or international amateur sports, or the prevention of cruelty to children or animals.[x]
This chapter is important because it contains detailed information on various matters affecting section 501(c)(3) organizations, including contributions to 501(c)(3) organizations, applications for recognition of exemption, articles of organization, educational organizations and private schools, organizations providing insurance, private foundations and public charities, and lobbying expenditures.[xi]
Chapter 4: Other Section 501(c) Organizations
The IRS recognizes 32 different Section 501 categories.[xii] This chapter provides specific information for each organization described in section 501(c), other than those organizations that are described in section 501(c)(3).[xiii] To qualify for exempt status, an organization under 501(c) must meet specific tests outlined in this chapter.[xiv]
Chapter 5: Excise Taxes
An excise tax may be imposed on certain tax-exempt organizations.[xv] This chapter provides information on when excise taxes may be imposed.[xvi] It also 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 501(c)(21) black lung benefit trusts, and excise tax on failure to meet the community health needs assessment requirements of hospitals.[xvii]
IRS Publication 557 provides necessary guidance to filing a well-articulated form 1023 and 1024. If your organization is one of the organizations described in this publication and is seeking recognition of tax-exempt status from the IRS, you should begin by downloading the full version found on the IRS’ website.
[i] See Internal Revenue Service, Publication 557: Tax Exempt Status for Your Organization, Department of the Treasury: Internal Revenue Service (05/27/2016), https://www.irs.gov/pub/irs-pdf/p557.pdf.
[x] I.R.C. § 501(c)(3) (2016).
[xi] Internal Revenue Service, supra note 1.