The Corporate Transparency Act provides 23 exemptions from the requirement to file a BOI report. Corporations exempt from tax under any paragraph of section 501(c) are not required to file a BOI report.
The actual text of the statute provides that the following type of organization is exempt from the BOI reporting requirement:
“… a church, charity, nonprofit entity, or other organization that is described in section 501(c), 527, or 4947(a)(1) of the Internal Revenue Code of 1986, that has not been denied tax exempt status, and that has filed the most recently due annual information return with the Internal Revenue Service, if required to file such a return; ” https://www.congress.gov/bill/116th-congress/house-bill/2513/text#H0C5309F8039D4E02AED6F20AE674BBC8
So the exemption would cover 501(c)(3), 501(c)(4), 501(c)(5), 501(c)(6), etc.
For further reading in plain English (mostly) Wolters Kluwer is a trustworthy provider of technical reference materials and offers this:
The reason certain entities are exempt from BOI registration is either because they are already subject to strict regulation and the government already knows who the beneficial owners are, or, in the case of a tax-exempt corporation, because there are no beneficial owners, and the officers and directors are reported on their Form 990 filing.
Tax-exempt corporations revoked under Section 6033(j) for failure to file an annual report or notice for three consecutive years remain exempt from BOI reporting for 180 days.
I’m getting so many emails lately from small nonprofits that have made an error on their Form 1023-EZ application and have mistakenly classified themselves as a private foundation.
This is a difficult mistake to correct. The IRS takes forever to respond, and then they fail to update their databases to reflect the correct classification. This leads to the IRS rejecting e-filed tax returns and possibly to a revocation for failure to file returns.
Form 1023-EZ is not so much an “application” as it is a “self-certification.” It’s not as simple as it looks.
People fail to understand the meaning of questions being asked on the 1023-EZ and they mark answers in ways that cause the IRS to delay their application and request more information. Ignorance can be costly.
Nonprofits that have been revoked need to know how and when the 1023-EZ can be used to have their exempt status reinstated. This free course explains what you need to know.
Not all organizations feel like they have the money to pay a professional to help with the paperwork. I get it. So, I have created this FREE video-based instructional course.
I hesitate slightly to offer the course for free. It took more than a week to record and edit the videos for the course, and I know that people often don’t value something they got for free.
To register for the course on the sign-up page, just enter your email address and create a password. If you already have an account because you’ve purchased something from me before, just enter the email address you used when you signed up and it will recognize you.
Here’s what’s in the course:
In the introduction video I highlight the important part of the form instructions provided by the IRS. One of the biggest mistakes people make is failing to look at the instructions.
In the second video lesson I go through the IRS Eligibility Checklist to help you correctly determine if your organization is eligible to use the Form 1023-EZ.
In the third video I show you how to access a PDF version of the 1023-EZ and I walk you through the form step-by-step.
In the fourth video I actually log in to the Pay.gov website and we fill out a form 1023-EZ together.
In the fifth video I go over IRS Revenue Procedure 2014-11, which is only relevant to organizations that have had their exempt status revoked and are trying to get it back by using Form 1023-EZ.
There will probably be additional videos added in the near future.
Did your nonprofit organization file a Form 990 after the due date? Are you faced with paying a penalty to the IRS?
If so, you may have heard that the IRS will “waive” or “abate” the penalty if there was a “reasonable cause” for not filing on time. You may be thinking that your reason certainly is not good enough for the IRS to accept. THIS IS A HUGE MISTAKE! Don’t be so hard on yourself.
The IRS tends to be a lot more lenient on nonprofits than on regular for-profit businesses. Especially if the organization is directed and managed by volunteers or part-timers. Here are some very common reasons (simplified) that the IRS will accept as reasonable cause for filing IRS Form 990 late if all the required elements are present in the written request for abatement:
Our CPA (or other tax return preparer) agreed to file for us but he didn’t.
We thought the treasurer filed, but she never mailed the return.
A volunteer agreed to prepare the return but it was too complicated and it didn’t get done.
We just started our nonprofit last year and didn’t know we had to file anything.
Our president was sick and there were no other active volunteers to step up.
We never received any contributions so we thought we didn’t have to file.
Our return was filed electronically and was rejected by the IRS, but we didn’t know it.
The board of directors was dysfunctional and let the filings lapse, but we are new directors and want to get back into compliance.
Our treasurer was confused about the due date.
We thought no extension form had to be filed because we heard it was “automatic.”
Generally, unless there was a deliberate intent not to file, you almost certainly have reasonable cause. Still, if you don’t have experience writing convincing letters to the government, it can be intimidating. Honestly, even a lot of CPA’s don’t have much experience in convincing the IRS that a nonprofit has reasonable cause for filing IRS Form 990 late. Since not everyone wants to pay an experienced IRS problem resolution specialist $500 to $1,000 to have a penalty removed, I’ve prepared some do-it-yourself materials that can guide most any nonprofit organization to successful IRS penalty relief.
My materials include a letter template, 12 examples of successful letters, a PDF manual explaining the entire process–what to do and what not to do–and several videos explaining reasonable cause. I’ve been providing these materials in various formats since 2007. All totaled I’ve kept over $1 million out of the hands of the IRS and in the bank accounts of the nonprofits where it belongs.
Should you request an extension of time to file your organization’s Form 990 even if you are able to file by the due date?
People worry that requesting an extension of time to file reflects poorly on their organization, or that it might cause an IRS audit. Neither of these things is true.
Most smaller tax-exempt organizations do not have the resources to respond properly to such a demand from the IRS within 10 days. If the rejected return was filed close to the due date, the organization may incur a daily delinquency penalty until it responds in a way that satisfies the IRS.
Buy yourself some time by filing Form 8868 to request an extension even though you plan to file on time. As long as a valid extension is in place, no penalties will accrue while the organization is correcting its errors and responding to the IRS.
UPDATE! Form 1023 can no longer be filed on paper. It must be filed electronically at the pay.gov website. You must register for an account (free) at pay.gov in order to fill out and submit Form 1023, Form 1023-EZ, Form 1024, and Form 1024-A. You can go to pay.gov and search for the form you want by entering the form name in the search box. Once you arrive at the page for the form, scroll down and click on “preview form” to view a PDF.
If you are applying for tax-exempt status for a 501(c)(3) organization in 2018, be sure to use the most recent release of Form 1023.
The IRS has just released the December 2017 revision of this lengthy form. The significant changes are:
It dropped the questions pertaining to the advance ruling period, which has been out of use beginning in 2008. This should eliminate considerable confusion.
It added agricultural research organizations to the list of reasons for not being a private foundation.
And be sure to use the updated instructions as well.
Question: Our nonprofit organization (public charity or private foundation) is collecting relief aid to help people in Texas, Florida or Puerto Rico who were seriously affected by the hurricanes. Disaster relief is not our normal charitable activity. If we collect money and supplies, can we tell our donors that their donations are tax deductible?
Answer: In most cases, yes. Largely because of the terrorist attacks on 9-11 and the subsequent formation of many hundreds of charities across the U.S., the IRS has issued special guidance for charities providing disaster relief.
The IRS states on its web site that a charitable organization may engage in charitable activities that were not described in its Form 1023 Application for Tax-Exempt Status as long as those activities do qualify as charitable and as long as the activities are described on the tax return it files.
In Disaster Relief Publication 3833, page 3, the IRS specifically states that charities may engage in disaster relief activities even though it was not specifically organized to provide disaster relief, as long as the activities are disclosed on the tax return. The IRS also indicates that it may be a good idea to report the activities to Determinations. https://www.irs.gov/pub/irs-pdf/p3833.pdf
Here are some of the IRS’s primary concerns regarding the provision of disaster relief by a charity:
1. Earmarking: A donation cannot be solicited which is earmarked for a particular individual or family if it is to be treated as tax-deductible. So, you could not say that you are asking for donations for the Rodriguez family whose house was destroyed. That would not be a deductible donation. You should simply say that you are collecting relief aid for Houston (or Florida, or Puerto Rico). You could specifically mention that it is for people in a certain city or district if you wish and you could mention the types of assistance you are providing to the people.
2. Impermissible Benefits: Expenditures would be problematic if they were made to benefit family members or employees of a person who is an officer/director/ of the foundation.
3. Documentation: A charity should document who receives the money and goods (and how much–FMV) and what they do with it. I recommend reading IRS publication 3833 regarding documentation, pages 8-13 for specific guidance on the documentation requirements for long-term vs short-term disaster relief aid.
Deducting Contributions
In order for a donor to take a tax deduction for their donation, if the donation has a value of $250 or more, the foundation will need to provide a “contemporaneous acknowledgement” of the donation to the donor: A thank-you letter. Please see IRS Publication 1771, pages 2 and 3: https://www.irs.gov/pub/irs-pdf/p1771.pdf The thank you letter must say that “no goods or services were provided to you by the foundation in exchange for your donation” if that is the case, which it most likely should be.
Regarding a statement of deductibility: “We are a charitable private foundation (or a public charity, as appropriate) exempt under Section 501(c)(3) of the Internal Revenue Code. Donations are deductible to the extent allowed by law. Consult your tax adviser to determine the amount of any charitable deduction you may take.”
While donations would be tax deductible, they are subject to the 30% of AGI limitation for private foundations, and the 50% AGI limitation for donations to public charities. Other deductibility rules and limitations may apply to donations of non-cash items or inventory donated by businesses. A charity should generally not provide tax advice. Refer the donor to his or her tax adviser to determine if their donation will result in a benefit on their tax return. It is important to advise the donor whether the charity is a public charity or a private foundation, since that MAY impact the amount of the donation.
Registering to Solicit Charitable Donations
Another issue is the state charitable solicitation registration requirements. A charitable organization is usually required to register with the state to solicit contributions in that state. Most public charities have already registered, but some private foundations may not have been required to register previously since they often do not solicit contributions.
The IRS is making it easier to investigate charities and other tax-exempt organizations that applied for tax-exempt status using Form 1023-EZ. Only data from approved applications will be available. The Form 1023-EZ discloses limited information and currently does not contain copies of Articles of Incorporation or detailed descriptions of purposes and activities. Form 1023-EZ does not result in a determination by the IRS that the organization qualifies for tax-exempt status, rather, it is a “self-declaration” to be used by small organizations that qualify to file the 1023-EZ rather than the full Form 1023 Application for Tax-Exempt Status.
The following announcement was published by the IRS:
IR-2017-41, Feb. 22, 2017
WASHINGTON — The Internal Revenue Service announced today that publicly available information from approved applications for tax exemption using Form 1023-EZ, Streamlined Application for Recognition of Exemption, is now available electronically for the first time.
The data on IRS.gov is available in spreadsheet format and includes information for approved applications beginning in mid-2014, when the 1023-EZ form was introduced, through 2016. The information will be updated quarterly, starting with the first quarter of calendar year 2017. The IRS’s Tax Exempt and Government Entities division approved more than 105,000 applications for exemption submitted on the Form 1023-EZ from 2014 through 2016.
Previously, Form 1023-EZ data was only available through a lengthier process that included completing and submitting Form 4506-A to the IRS.
“The new online availability of Form 1023-EZ data is an important step forward and will allow taxpayers to more easily research information on tax-exempt organizations,” said IRS Commissioner John Koskinen. The IRS is committed to ongoing improvements in taxpayer service across the agency and we continue to look for innovative ways like this to provide taxpayers the information they need, when they need it.”
Information in the Form 1023-EZ includes basic identifying information such as the name of the organization, Employer Identification Number and the names of officers, directors and trustees. The Form also contains information regarding items such as the organizing documents, state of incorporation, purpose and activities of the organization.
Form 1023-EZ must be filed electronically. The IRS reminds filers that they should not include Social Security numbers on their submissions.
This is part of continuing effort to provide information about the tax-exempt community. In June 2016, the IRS announced that it was making publicly available data on electronically filed Forms 990 in machine-readable format through Amazon Web Services.
Certain 501 (c)(4) organizations now have a requirement to notify the IRS that they are claiming tax-exempt status under IRC section 501c4. In the video above I explain the basics of the new rules and how to comply.
Understanding the New 501(c)(4) Rules
There are many types of tax-exempt nonprofit organizations. Two of the most common are the 501(c)(3) public charity, and the 501(c)(4) social welfare organization. There are three main differences between these organizations:
A 501(c)(3) public charity is eligible to receive donations that are deductible as a charitable contribution on the donor’s tax return. A 501(c)(4) organization can receive donations tax-free, but they are not deductible as charitable contributions on the donor’s tax return.
A 501(c)(3) public charity is subject to strict limits as to the amount of money it can expend on lobbying to influence legislation. A 501(c)(4) organization can engage in lobbying as its primary activity.
A 501(c)(3) public charity is absolutely prohibited from engaging in any political speech undertaken to influence an election. A 501(c)(4) organization is not prohibited from attempting to influence elections by political speech, but influencing elections cannot be the primary purpose of a 501(c)(4). Note that all election-related activities are not limited. For instance, voter registration and non-partisan voter education activities are not considered activities that influence an election and can be engaged in by a 501(c)(4) organization in an unlimited amount.
Both types of organizations are prohibited–at least in theory–from disseminating propaganda.
Since Congress and the IRS create the rules under which tax-exempt organizations operate, those official bodies have an interest in monitoring the activities of organizations claiming to be tax-exempt under the laws and regulations. Section 508 requires most 501(c)(3) organizations to let the IRS know of their existence and that they are operating under section 501(c)(3). Churches are exempt from this notice requirement.
Until now, there has been no requirement that 501(c)(4) organizations notify the IRS of their existence beyond the filing of Form 990.
Why is filing Form 990 not enough to satisfy Congress and the IRS? It has to do with time. Because 501(c)(4) organizations have the ability to influence an election, and because electioneering cannot be the primary activity of a 501(c)(4), the IRS must somehow be able to monitor the extent of the electioneering activities of c4’s in a timely fashion, and must be able to do so without violating the rights of the organizations.
Since 501(c)(4) organizations have not had a requirement to notify the IRS up front, there is no way for the IRS and Congress to monitor the political activities of these organizations. The filing of Form 990 does serve as notice to the IRS, but a tax-exempt organization can delay the filing of a tax return for quite some time. As a typical example, assume that a 501(c)(4) organization is incorporated on January 1, 2016. The following is a typical timeline for filing a Form 990:
The organization operates for a full 12 months after formation. (Elapsed time: 12 months)
The organization’s first return is due four and one-half months after its year end. (Elapsed time: 16 1/2 months)
As you can see, a new organization may not have to submit its first filing for 22 1/2 months, which is more than enough time to exert political influence.
As part of the Protecting Americans From Tax Hikes Act of 2015, Congress added section 506 to the Internal Revenue Code. This created the new notice requirement for 501(c)(4) organizations.
Essentially, the requirement is that all new organizations claiming to be tax-exempt under section 501(c)(4) are required to notify the IRS of their existence and their intent by electronically submitting the newly created Form 8976 within 60 days of formation. That’s not much time.
I won’t go into the entire history of the implementation of this new law. Suffice it to say that when Congress passed the law, the IRS was not ready to implement it. As a result there were some extensions of time to comply and some transition rules put into place. These can be confusing. All you really need to know to meet the filing deadlines (and avoid penalties) is this:
If the organization was formed after July 8, 2016, it has 60 days to notify the IRS by electronically submitting Form 8976.
If the organization was formed on or before July 8, 2016, it has until September 6, 2016 to notify the IRS by electronically submitting Form 8976.
If the organization was formed on or before July 8, 2016 and by that date has filed either Form 990 or Form 1024, it does not have to submit Form 8976.
Early reports are that the IRS website for submitting Form 8976 has some bugs that may prevent some organizations from properly completing the form. I expect that these bugs will eventually be worked out. However, if problems with the IRS website prevent an organization from filing Form 8976 by the due date, this should constitute reasonable cause for filing late.
