The IRS grants tax-exempt status to charitable groups provided they meet the agency's guidelines. An organization granted an exemption under section 501(c)(3)(3)-Organizations) of the tax code, for example, cannot contribute directly or indirectly to a political campaign, or allow income to accrue to the benefit of an organization insider. The IRS also sets down annual reporting requirements, and will revoke tax-exempt status if a charity fails to meet them.
Annual Information Reports
A 501(c)(3) group must file an annual report updating the IRS on its current activities, income and financial status. It must complete these forms by the 15th day of the fifth month following its fiscal year-end. The form required depends on the group's annual revenue. An organization with more than $200,000 in receipts or $500,000 in assets files Form 990, while groups with less than $200,000 in receipts may file the shorter 990-EZ. The 990-N, also known as an electronic notice or E-postcard, is available online for the use of groups receiving less than $50,000 annually.
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Form 990 requires a review of a charity's current activities and structure. The form asks for the number of employees and volunteers; the amount of revenue, investment income and grants received; and the salaries and benefits paid out. A group filing Form 990 must give a snapshot of assets and liabilities, and a statement of program services provided. The IRS requires additional schedules under certain conditions, or if the group engages in certain activities. For example, if the group maintains an art collection or museum, it must complete Schedule D, Supplemental Financial Statements. The 990-EZ goes into slightly less detail but also requires a report of income, expenses, assets and liabilities. The 990-N requires just eight items, including the employer ID number; a website address if applicable; the organization's legal name and address; and the name and address of a principle officer.
States enforce their own reporting requirements for non-profit and charitable groups. In Massachusetts, for example, a charity seeking tax-exempt status needs to file an exemption notice from the IRS with the Department of Revenue, Corporate Exemptions Division. Once exempt status is granted, the group does not need to file corporate income tax returns in Massachusetts, and may also qualify for sales tax and property tax exemptions. For Minnesota non-profits, an annual report must be sent to the Attorney General's office, as is a Minnesota Franchise Tax return if the group earned income unrelated to its tax-exempt purpose. An annual registration renewal is also required by the Minnesota Secretary of State's office.