I had a conversation with the IRS today and it shifted the way I look at 501(c)(3)s, so I thought I'd post and we could discuss.
A 501(c)(3) is a tax-exempt organization that:
1) received a Ruling/Determination Letter from the IRS awarding them this status based on successful filing the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code (form 1023)
OR
2) normally has annual gross receipts of not more than $5,000 (see Gross receipts test) and meets all the requirements of section 501(c)(3). These organizations are exempt automatically.
I knew about the $5000 rule of thumb, but I didn't understand (or had forgotten) that those orgs can also be considered 501(c)(3)'s.
This has implications because:
** Donations to an informal 501c3 (#2) can be tax deductible. It's just not as easy to prove/document as the formal 501c3 (#1) who have an IRS ruling.
** Both types of orgs need to be following IRS rules, including reporting
** With the new 990N e-postcard filing coming into play, all "tax-exempt" organizations must file. That means both of these. The #2's never mattered before because if their annual gross receipts never exceed $5000, then they certainly never hit the $25K threshold that required an annual filing.
Note - I'm skipping some parts, like exemption for churches and references to private foundations - so this conversation is specific to traditional PTOs. Also, the "gross receipts" test is a bit more complicated than stated. You can read the whole thing in
Publication 557
.
