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An organization may qualify for exemption from federal income tax 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 Athletic Organizations, later in this chapter). |
| The prevention of cruelty to children or animals. |
To qualify, the organization must be a corporation, community chest, fund, or foundation. A trust is a fund or foundation and will qualify. However, an individual or a partnership will not qualify.
| Nonprofit old-age homes, |
| Parent-teacher associations, |
| Charitable hospitals or other charitable organizations, |
| Alumni associations, |
| Schools, |
| Chapters of the Red Cross or Salvation Army, |
| Boys' or Girls' Clubs, and |
| Churches. |
The term educational 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.
A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). Examples of a qualifying instrumentality might include state schools, universities, or hospitals. However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. A state or municipality itself does not qualify for exemption.
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
Lobbying expenditures
1023
Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code
8718
User Fee for Exempt Organization Determination Letter Request
See chapter 6 for information about getting publications and forms.
Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return.
If the donor receives something of value in return for the contribution, a common occurrence with fund-raising efforts, part or all of the contribution may not be deductible. This may apply to fund-raising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise 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 cannot 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 services 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 fund-raising event or solicit their contributions, how much is deductible and how much is for the goods or services. See Disclosure of Quid Pro Quo Contributions in chapter 2.
Donors may not deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so.
An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) may, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. If the fund is organized and operated exclusively for these purposes, it may qualify for exemption 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.
Generally, no charitable deduction will be allowed for a transfer to, or for the use of, a 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 personal 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.
If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not 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).
An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable 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.
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 chapter. For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization later in this chapter. See the organization headings that follow for specific information your organization may need to provide.
The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc.) specified in the introduction to this chapter.
No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests.
The organization will not, 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.
Internal Revenue Service
Attention: EO Letter Rulings
P.O. Box 27720, McPherson Station
Washington, DC 20038
Requests may also be hand delivered between the hours of 8:30 a.m. and 4:00 p.m. to:
Courier's Desk
Internal Revenue Service
Attention: SE:T:EO
1111 Constitution Avenue, N.W. - PE
Washington, DC 20224
A receipt will be given at the courier's desk. The package should be marked: RULING REQUEST SUBMISSION.
If a private delivery service designated by the IRS, rather than the U.S. Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. The following private delivery services have been designated by the IRS.
DHL Worldwide Express (DHL): DHL “Same Day” Service, and DHL Next Day 10:30 am; DHL Next Day 12:00 pm; DHL Next Day 3:00 pm; and DHL 2nd Day Service.
Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First.
United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, and UPS 2nd Day Air A.M., UPS Worldwide Express Plus and UPS Worldwide Express.
If an organization is required to alter its activities or to make substantive amendments to its enabling instrument, the ruling or determination 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 15-month period, or the date the application was filed.
Automatic 12-month extension. Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301.9100-2.”
Discretionary extensions. An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that:
It acted reasonably and in good faith, and
Granting a discretionary extension will not prejudice the interests of the government.
An organization acted reasonably and showed good faith if at least one of the following is true.
The organization requests relief before its failure to file is discovered by the IRS.
The organization failed to file because of intervening events beyond its control.
The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement.
The organization reasonably relied upon the written advice of the IRS.
The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts.
An organization has not acted reasonably and in good faith under the following circumstances.
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.
It was informed of the requirement to file and related tax consequences, but chose not to file.
It uses hindsight in requesting relief. The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization.
The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. The IRS may condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced.
A statement showing the date Form 1023 was required to have been filed and the date it was actually filed.
Any documents relevant to the application.
An affidavit 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 affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her.
This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete.”
Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided.
These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete.”
The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made is being examined by the IRS, an appeals office, or a federal court. The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending.
The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers.
A request for this relief is a request that must be submitted as a request for a letter ruling and be accompanied by the applicable user fee.
For more information about these procedures, see sections 301.9100-1, 301.9100-2, and 301.9100-3 of the regulations.
Some organizations are not required to file Form 1023.
These include:
Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries 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 foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later).
These organizations are exempt automatically if they meet the requirements of section 501(c)(3).
See Private Foundations 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.
For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if:
During its first tax year the organization received gross receipts of $7,500 or less,
During its first 2 years the organization had a total of $12,000 or less in gross receipts, and
In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less.
| 2003 | $3,600 |
| 2004 | 2,900 |
| 2005 | 400 |
| 2006 | 12,600 |
Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created.
The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not 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 organizational 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 articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. Also, the test is not satisfied by the fact that your actual operations are for exempt purposes.
In interpreting an organization's articles, the law of the state where the organization was created is controlling. If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities.
The following are examples illustrating the organizational test.
Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). These articles appropriately limit the organization's purposes. The organization meets the organizational test.
An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. The organization will not be properly limited as to its purposes since all research is not scientific. The organization does not meet the organizational test.
An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). The organization meets the organizational test.
If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited.
If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily 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 will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law.
If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further 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 will not be sufficiently limited. Such purposes are vague and may be accomplished other than in an exempt manner.
A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. A hospital may or may not be exempt depending on the manner in which it is operated.
An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes.
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 described in this chapter, or to the federal government or to a state or local government for a public purpose. If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met.
To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision insuring their distribution for an exempt purpose in the event of dissolution. Although reliance may be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision insuring permanent dedication of assets for exempt purposes.
Revenue Procedure 82-2, 1982-1 C.B. 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. If a named beneficiary is to be the distributee, 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 assets 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.
See sample articles or organizations in the Appendix in the back of this publication.
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 museums, 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 enrolled, courses of study and degrees conferred, together with a copy of your school catalog. See also Private Schools, discussed later.
The term educational relates to:
The instruction or training of individuals for the purpose of improving or developing their capabilities, or
The instruction of the public on subjects useful to individuals and beneficial to the community.
Advocacy of a particular 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 conclusion. The mere presentation of unsupported opinion is not educational.
The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). The following factors may indicate that the method is not educational.
The presentation of viewpoints unsupported by facts is a significant part of the organization's communications.
The facts that purport to support the viewpoint are distorted.
The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations.
The approach used is not aimed at developing an understanding on the part of the audience because it does not 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.
The following types of organizations may qualify as educational:
An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on,
An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs,
An organization that presents a course of instruction by correspondence or through the use of television or radio,
A museum, zoo, planetarium, symphony orchestra, or other similar organization,
A nonprofit children's day-care center, and
A credit counseling organization.
These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve.
An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. If your association does not 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.
This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. If it is not so engaged, your organization may be exempt as a social club described in chapter 4. Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. If your organization is not exempt as an educational organization, see Amateur Athletic Organizations, later in this chapter.
Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information.
The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. (This information also must be projected, so far as may be feasible, for the next academic year.)
The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards.
A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations.
A statement indicating whether any of the organizations 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 application is filed.
The public school district and county in which the school is located.
The racial composition of the student body, faculty, and administrative staff may be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not 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 should not be included with this information. A school that is a state or municipal instrumentality (see Instrumentalities, near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion.
To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis 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 students means that the school admits the students 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 does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs.
The IRS considers discrimination on the basis 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 discriminatory policy as to students. Conversely, 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 minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy.
A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis.
The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs.
The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. To satisfy this requirement, the school must use one of the following two methods.
If this method is used, the notice must meet the following printing requirements.
It must appear in a section of the newspaper likely to be read by prospective students and their families.
It must occupy at least 3 column inches.
It must have its title printed in at least 12 point bold face type.
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 does not 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. |
The school may use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community 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 announcements 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 during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period.
| First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school may make known its racially nondiscriminatory 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 may be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. |
| Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained, earlier, under Policy statement. |
A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner.
As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. This must be known throughout the general community being served by the school and should be referred to in its publicity. Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status.
Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year.
Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis.
Copies of all materials used by or on behalf of the school to solicit contributions.
Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. (Schools advertising nationally or in a large geographic segment or segments of the United 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, faculty, and administrative staff may be determined in the same manner as that described at the beginning of this section. However, a school may not discontinue maintaining a system of records that reflects the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS.
The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. Similarly, the IRS does not require a school to keep records prohibited under state or federal law.
The school does not have to independently maintain these records for IRS use if both of the following are true.
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 information is current within 1 year.
The school maintains copies of these reports from which this information is readily obtainable.
If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use.
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.
An organization described in section 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance.
However, this rule does not 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.
A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it:
Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management,
Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a),
Is organized under state law authorizing this type of risk pooling,
Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization),
Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations,
Is controlled by a board of directors elected by its members, and
Is organized under documents requiring that:
Each member be a section 501(c)(3) organization exempt from tax under section 501(a),
Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and
Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b).
In addition to the information required for all organizations, as described earlier, you should include any other information described in this section.
If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes 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 underprivileged,
Advancement of religion,
Advancement of education or science,
Erection or maintenance of public buildings, 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 specific organizations. This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. Each of the following organizations must submit the information described.
Submit information showing how your organization 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 research.
Criteria used for selecting recipients, including the rules of eligibility.
How and by whom the recipients are or will be selected.
If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school.
If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer—
Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary,
Whether as a condition of the award the recipient must upon graduation accept employment with the company, and
Whether the award will be continued even if the parent's employment ends.
A copy of the scholarship application form and any brochures or literature describing the scholarship program.
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
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 appraisal showing the fair rental value of the rented space.
If you are organized to operate a clinic, attach a statement including:
A description of the facilities and services,
To whom the services are offered, such as the public at large or a specific group,
How charges are determined, such as on a profit basis, to recover costs, or at less than cost,
By whom administered and controlled,
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
How compensation paid the professional staff is or will be determined.
If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals.
If you make, or will make loans for charitable and educational purposes, submit the following information.
An explanation of the circumstances under which such loans are, or will be, made.
Criteria for selection, including the rules of eligibility.
How and by whom the recipients are or will be selected.
Manner of repayment of the loan.
Security required, if any.
Interest charged, if any, and when payable.
Copies in duplicate of the loan application and any brochures or literature describing the loan program.
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 information.
How the litigation can reasonably be said to be representative of a broad public interest rather than a private one.
Whether the organization will accept fees for its services.
A description of the cases litigated or to be litigated and how they benefit the public generally.
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 organization that is not itself an organization described in this chapter.
Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm.
Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor.
A nonprofit public-interest law firm can accept attorneys' fees in public interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. Once undertaking a representation, the organization cannot 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 do not use the likelihood or probability of fee awards as a consideration in the selection of cases. All fee awards must be paid to the organization and not to its individual staff attorneys. Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. Private attorneys, whose services are retained 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) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption.
To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines.
That the particular religious beliefs of the organization are truly and sincerely held.
That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy.
Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs.
Any organization which is otherwise a convention or association of a church will not 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.
An organization is an integrated auxiliary of a church if all the following are true.
The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3).
It is affiliated with a church or a convention or association of churches.
It is internally supported. An organization is internally supported unless both of the following are true.
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).
It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses.
Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings may inure to any individual. Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer.
You must show that your organization's research 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 performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes.
Aiding in the scientific education of college or university students.
Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form that is available to the interested public.
Discovering a cure for a disease.
Aiding a community or geographical area by attracting new industry to the community or area, or by encouraging the development or retention of an industry in the community or area.
Scientific research, for exemption purposes, does not include activities of a type ordinarily incidental to commercial or industrial operations such as the ordinary inspection or testing of materials or products, or the designing or constructing of equipment, buildings, etc.
If you engage or plan to engage in research, submit all of the following.
An explanation of the nature of the research.
A brief description of research projects completed or presently being engaged in.
How and by whom research projects are determined and selected.
Whether you have, or contemplate, contracted or sponsored research and, if so, names of past sponsors or grantors, terms of grants or contracts, together with copies of any executed contracts or grants.
Disposition made or to be made of the results of your research, including whether preference has been or will be given to any organization or individual either as to results or time of release.
Who will retain ownership or control of any patents, copyrights, processes or formulas resulting from your research.
A copy of publications or other media showing reports of your research activities. Only reports of your research activities or those conducted in your behalf, as distinguished from those of your creators or members conducted in their individual capacities, should be submitted.
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.
There are two types of amateur athletic organizations that can qualify for tax-exempt status. The first type is an organization that fosters national or international amateur sports competition but only if none of its activities involve providing athletic facilities or equipment. The second type is a Qualified amateur sports organization (discussed below). The difference is that a qualified amateur sports organization may provide athletic facilities and equipment.
Donations to either amateur athletic organization are deductible as charitable contributions on the donor's federal income tax return. However, no deduction is allowed if there is a direct personal benefit to the donor or any other person other than the organization.
An organization will be a qualified amateur sports organization if it is organized and operated:
Exclusively to foster national or international amateur sports competition, and
Primarily to conduct national or international competition in sports or to support and develop amateur athletes for that competition.
The organization's membership may be local or regional in nature.
Examples of activities that may qualify this type of organization for exempt status are:
Preventing children from working in hazardous trades or occupations,
Promoting high standards of care for laboratory animals, and
Providing funds to pet owners to have their pets spayed or neutered to prevent overbreeding.
It is important that you determine if your organization is a private foundation. Most organizations exempt from income tax (as organizations described in section 501(c)(3)) are presumed to be private foundations unless they notify the Internal Revenue Service within a specified period of time that they are not. This notice requirement applies to most section 501(c)(3) organizations regardless of when they were formed.
Every organization that qualifies for tax exemption 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 section 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 charities are discussed later.
Organizations that fall into the excluded categories 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 also are excluded.
An organization that states it is a private foundation when it files its application for recognition of exemption after the 15-month period will be treated as a section 501(c)(3) organization and as a private foundation only from the date it files its application. An organization that states it is a publicly supported charity when it files its application for recognition of exemption after the 15-month period cannot be treated as a section 501(c)(3) organization before the date it files the application. Financial support received before that date may not be used for purposes of determining whether the organization is publicly supported. However, an organization that can reasonably be expected to meet the support requirements (discussed later under Public Charities) can obtain an advance ruling from the IRS that it is a publicly supported organization.
There is an excise tax on the net investment income of most domestic private foundations. See Chapter 5 for more information on excise taxes.
A private foundation cannot be tax exempt nor will contributions to it be deductible as charitable contributions unless its governing instrument contains special provisions in addition to those that apply to all organizations described in section 501(c)(3).
The following samples of governing instrument provisions 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.
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 undistributed income imposed by section 4942 of the Internal Revenue Code, or the corresponding section of any future federal tax code.
The corporation will not engage in any act of self-dealing as defined in section 4941(d) of the Internal Revenue Code, or the corresponding section of any future federal tax code.
The corporation will not 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.
The corporation will not make any investments in a manner as to subject it to tax under section 4944 of the Internal Revenue Code, or the corresponding section of any future federal tax code.
The corporation will not 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.
Any other provisions of this instrument notwithstanding, 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 undistributed income imposed by section 4942 of the Internal Revenue Code, or the corresponding section of any future federal tax code.
Any other provisions of this instrument notwithstanding, the trustees will not engage in any act of self-dealing as defined in section 4941(d) of the Internal Revenue Code, or the corresponding section of any future federal tax code; nor 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; nor make any investments in a manner as to incur tax liability under section 4944 of the Internal Revenue Code, or the corresponding section of any future federal tax code; nor 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.
A private foundation's governing instrument will be considered to meet these charter requirements if valid provisions of state law have been enacted that:
Require it to act or refrain from acting so as not to subject the foundation to the taxes imposed on prohibited transactions, or
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 CB 161(or later update).
A private foundation is any organization described 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) heading that follow this introduction.
If your organization falls into one of these categories, it is not a private foundation and you should state this in Part X of your application for recognition of exemption (Form 1023).
If your organization does not 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 organizations 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 organization's total support pattern. Thus, in the following discussions, when the one-third support test (see Qualifying As Publicly Supported, later) is referred to, it means the following fraction normally must equal at least one-third.
| Qualifying support | ||
| Total support |
Section 509(a)(1) organizations include:
A church or a convention or association of churches,
An educational organization such as a school or college,
A hospital or medical research organization operated in conjunction with a hospital,
Endowment funds operated for the benefit of certain state and municipal colleges and universities,
A governmental unit, and
A publicly supported organization.
The characteristics of a church are discussed earlier in this chapter under Religious Organizations.
An educational organization is one whose primary function is to present formal instruction, that normally maintains a regular faculty and curriculum, and that normally has a regularly enrolled body of pupils or students in attendance at the place where it regularly carries on its educational activities. The term includes institutions such as primary, secondary, preparatory, or high schools, and colleges and universities. It includes federal, state, and other publicly supported schools that otherwise come within the definition. It does not include organizations engaged in both educational and noneducational activities, unless the latter are merely incidental to the educational activities. A recognized university that incidentally operates a museum or sponsors concerts is an educational organization. However, the operation of a school by a museum does not necessarily qualify the museum as an educational organization. An exempt organization that operates a tutoring service for students on a one-to-one basis in their homes, maintains a small center to test students to determine their need for tutoring, and employs tutors on a part-time basis is not an educational organization for these purposes. Nor is an exempt organization that conducts an internship program by placing college and university students with cooperating government agencies an educational organization.
A hospital is an organization whose principal purpose or function is to provide hospital or medical care or either medical education or medical research. A rehabilitation institution, outpatient clinic, or community mental health or drug treatment center may qualify as a hospital if its principal purpose or function is providing hospital or medical care. If the accommodations of an organization 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. A cooperative hospital service organization that meets the requirements of section 501(e) will qualify as a hospital.
The term hospital does not include convalescent homes, homes for children or the aged, or institutions whose principal purpose or function is to train handicapped individuals to pursue a vocation. An organization that mainly provides medical education or medical research will not 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 basis, as an integral part of its medical education or medical research functions.
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 provider-sponsored organization, whether or not the provider-sponsored organization is tax exempt. For section 501(c)(3) purposes, any person with a material financial interest in the provider-sponsored organization is treated as a private shareholder or individual with respect to the hospital.
A medical research organization must be directly engaged in the continuous active conduct of medical research in conjunction with a hospital, and that activity must be the organization's principal purpose or function.
A hospital or medical research organization that wants the additional classification of a publicly supported organization (described later in this chapter under Qualifying As Publicly Supported) may specifically request that classification. The organization must establish that it meets the public support requirements of section 170(b)(1)(A)(vi).
Organizations operated for the benefit of certain state and municipal colleges and universities are endowment funds. They are organized and operated exclusively to:
Receive, hold, invest, and administer property for a college or university, and
Make expenditures to or for the benefit of a college or university.
An agency or instrumentality of a state or political subdivision, or
Owned or operated by:
A state or political subdivision, or
An agency or instrumentality of one or more states or political subdivisions.
Acquiring and maintaining real property comprising part of the campus area,
Erecting (or participating in erecting) college or university buildings,
Acquiring and maintaining equipment and furnishings used for, or in conjunction with, normal functions of colleges and universities,
Libraries,
Scholarships, and
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 does not 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 received by an organization for a contribution of property when the value of the contribution by the donor is subject to reduction for certain ordinary income and capital gain property, the fair market value of the property is taken into account.
An example of an indirect contribution from the public is the receipt by the organization of its share of the proceeds of an annual collection campaign of a community chest, community fund, or united fund.
A governmental unit includes a state, a possession of the United States, or a political subdivision of either of the foregoing, or the United States or the District of Columbia.
An organization 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. 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.
An organization will qualify as publicly supported if it passes the one-third support test. If it fails that test, it may qualify under the facts and circumstances test.
An organization will qualify as publicly supported if it normally receives at least one-third of its total support from governmental units, from contributions made directly or indirectly by the general public, or from a combination of these sources. For a definition of support, see Support, later.
An organization will be considered as normally meeting the one-third support test for its current tax year and the next tax year if, for the 4 tax years immediately before the current tax year, the organization meets the one-third support test on an aggregate basis. See also Special computation period for new organizations, later, in this discussion.
The facts and circumstances test is for organizations failing to meet the one-third support test. If your organization fails to meet the one-third support test, it may still be treated as a publicly supported organization 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-percent-of-support requirement and the attraction of public support requirement. These requirements establish, under all the facts and circumstances, that an organization normally receives a substantial part of its support from governmental units or from direct or indirect contributions from the general public. The organization also must be in the nature of a publicly supported organization, taking into account five different factors. See Additional requirements (the five public support factors), later.
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 will not be treated as normally receiving a substantial amount of governmental or public support unless the total amount of governmental and public support normally received is at least 10% of the total support normally received by that organization.
An organization must be organized and operated in a manner to attract new and additional public or governmental support on a continuous basis. An organization will meet this requirement 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 designed to attract support from governmental units or other charitable organizations described 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, consideration will be given to whether the scope of its fund-raising activities is reasonable in light of its charitable activities. Consideration also will 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 solicitation program.
An organization will normally meet the requirements of the facts and circumstances test for its current tax year and the next tax year if, for the 4 tax years immediately before the current tax year, the organization meets the ten-percent-of-support and the attraction of public support 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 does not have to be the same for each 4-year period as long as a sufficient combination of factors exists to show compliance. See also Special computation period for new organizations, later, in this discussion.
The fact that an organization has normally met the one-third support test requirements for a current tax year, but is unable normally to meet the requirements for a later tax year, will not in itself prevent the organization from meeting the requirements of the facts and circumstances test for the later tax year.
X organization meets the one-third support test in its 2003 tax year on the basis of support received during 1999, 2000, 2001, and 2002. It therefore normally meets the requirements for both 2003 and 2004. For the 2004 tax year, X is unable to meet the one-third support test on the basis of support received during 2000, 2001, 2002, and 2003. If X can meet the facts and circumstances test on the basis of those years, X will normally meet the requirements for 2005 (the tax year immediately after 2004). However, if on the basis of both 4-year periods (2000 through 2003 and 2001 through 2004), X fails to meet both the one-third and the facts and circumstances tests, X will not be a publicly supported organization for 2005.
However, X will not be disqualified as a publicly supported organization for the 2004 tax year because it normally met the one-third support test requirements on the basis of the tax years 1999 through 2002 unless the provisions governing the Exception for material changes in sources of support (discussed later) become applicable.
In addition to the two requirements of the facts and circumstances test, the following five public support factors will be considered in determining whether an organization is publicly supported. However, an organization generally does not have to satisfy all of the factors. The factors relevant to each case and the weight accorded to any one of them may differ depending upon the nature and purpose of the organization and the length of time it has existed. The combination of factors that an organization normally must meet does not 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.
When an organization normally receives at least 10% but less than one-third of its total support from public or governmental sources, the percentage of support received from those sources will be considered in determining whether the organization is publicly supported. As the percentage of support from public or governmental sources increases, the burden of establishing the publicly supported nature of the organization through other factors decreases, while the lower the percentage, the greater the burden. If the percentage of the organization's support from the general public or governmental sources is low because it receives a high percentage of its total support from investment income 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 originally contributed by a few individuals or members of their families, this fact will increase the burden on the organization of establishing compliance with other factors. Facts pertinent to years before the 4 tax years immediately before the current tax year also may be considered.
If an organization 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 organization is publicly supported. In determining what is a representative number of persons, consideration will be given to the type of organization 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 also may be considered.
The fact that an organization has a governing body that represents the broad interests of the public rather than the personal or private interest of a limited number of donors will be considered in determining whether the organization is publicly supported. An organization will meet this requirement if it has a governing body composed of:
Public officials acting in their public capacities,
Individuals selected by public officials acting in their public capacities,
Persons having special knowledge or expertise in the particular field or discipline in which the organization is operating, and
Community leaders, such as elected or appointed officials, members of the clergy, educators, civic leaders, or other such persons representing a broad cross-section of the views and interests of the community.
In a membership organization, the governing body also should include individuals elected by a broadly based membership according to the organization's governing instrument or bylaws.
The fact that an organization generally provides facilities or services directly for the benefit of the general public on a continuing basis is evidence that the organization is publicly supported. Examples are:
A museum or library that is open to the public,
A symphony orchestra that gives public performances,
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.
Participating in, or sponsoring, the programs of the organization by members of the public having special knowledge or expertise, public officials, or civic or community leaders.
Maintaining a definitive program by the organization to accomplish its charitable work in the community, such as slum clearance or developing employment opportunities.
Receiving a significant part of its funds from a public charity or governmental agency to which it is in some way held accountable as a condition of the grant, contract, or contribution.
The following are additional factors in determining whether a membership organization is publicly supported.
Whether the solicitation for dues-paying members is designed to enroll a substantial 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 organization's activities).
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.
Whether the activities of the organization will be likely to appeal to persons having some broad common interest or purpose,