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.
- Testing for public safety.
- 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. taxmap/pubs/p557-016.htm#en_us_publink1000200023
Qualifying organizations include:
- Nonprofit old-age homes,
- Parent-teacher associations,
- Charitable hospitals or other charitable organizations,
- Alumni associations,
- Chapters of the Red Cross,
- Boys' or Girls' Clubs, and
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. taxmap/pubs/p557-016.htm#en_us_publink1000200025
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. taxmap/pubs/p557-016.htm#TXMP5d500ca6
You may want to see:
Forms (and Instructions) 1023: Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code
See chapter 6 for information about getting publications and forms.taxmap/pubs/p557-016.htm#en_us_publink1000200026
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. taxmap/pubs/p557-016.htm#en_us_publink1000200027
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 deductible. This may apply to fundraising 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 fundraising 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 cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. taxmap/pubs/p557-016.htm#en_us_publink1000200029
An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, 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. taxmap/pubs/p557-016.htm#en_us_publink1000200030
Generally, no charitable deduction will be allowed for a transfer 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 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.taxmap/pubs/p557-016.htm#en_us_publink1000200031
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).taxmap/pubs/p557-016.htm#en_us_publink1000200032
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.taxmap/pubs/p557-016.htm#en_us_publink1000200033
If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable 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 does not apply if all of the direct and indirect beneficiaries under the contract are organizations.
A charitable organization liable 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 fifteenth day of the fifth month following the close of the organization's tax year.