How a 501(c)(3) may Jeopardize its Tax-Exempt Status

An approved 501(c)(3) tax-exempt nonprofit organization may undoubtedly lose its tax-exempt status if it stops operating for any of the exempt purposes outlined in section 501(c)(3) of the Internal Revenue Code. In addition, a 501(c)(3) organization must restrict itself from participating either directly or indirectly in political campaigns of candidates for local, state, or federal office. The organization must restrict its lobbying activities to an insubstantial part of its total activities. Earnings must not inure to the benefit of any private shareholder or individual. It must not operate for the primary purpose of conducting a trade or business unrelated to its exempt purpose. The organization may not provide commercial type insurance as a substantial part of its activities. It may not have purposes or activities that are illegal or violate fundamental public policy. In addition, it must comply with annual filing requirements, including filing Form 990-EZ, 990-N, or Form 990 annually. A tax-exempt organization that does not file a required annual return or notice for three consecutive years automatically loses its tax-exempt status.

IRS Releases a New Form for Miscellaneous Determination Requests

The IRS has recently released a new form that tax-exempt organizations will utilize to request specific determinations regarding their tax-exempt status. Organizations will use Form 8940 (Request for Miscellaneous Determination) to obtain advance approval for certain activities and exemption from Form 990 Filing requirements.

Form 8940 is a relatively simple one-page form accompanied by instructions specifying what needs to be included to support each of the nine types of requests that may be submitted. A user fee payable to the Department of Treasury must accompany most requests.

The form can be used for the following types of requests: 1) Advance approval of certain private foundation set-asides, 2) Advance approval of private foundation voter registration activities, 3) Advance approval of private foundation scholarship procedures, 4) Exemption from Form 990 filing requirements, 5) Advance determination that a potential grant or contribution is an unusual grant, excluded from certain public support calculations, 6) Change in or initial determination of Type of a Section 509(a)(3) supporting organization, 7) Reclassification of foundation status, including a voluntary request from a public charity for private foundation status, 8) Termination of private foundation status under Internal Revenue Code section 507(b)(1)(B) (advance ruling request), 9) Termination of private foundation status under Code section 507(b)(1)(B) (60-month period ended).