An essential, timesaving guide for accountants, lawyers, nonprofit executives and directors, consultants, and volunteers – Completely updated for 2023

This book is an indispensable guide to navigating the complex maze of nonprofit tax rules and regulations. A clear and fully cited description of the requirements for the various categories of tax-exempt entities from public charities, private foundations, civic associations, business leagues, and social clubs to title-holding companies and governmental entities can be found. Practical guidance on potential for income tax on revenue-producing enterprises along with explanations of many exceptions to taxability is provided. Issues raised by Internet activity, advertising, publishing, providing services, and much more are explained.

This useful annual supplement for 2023 will cover any and all changes and updates to the law within the previous 12 month period and will keep accountants, attorneys, and others up-to-date for the year ahead.

Features a variety of sample documents for private foundations, including penalty abatement requests and sharing space agreements
Provides helpful practice aids, such as a comparison of the differences between public and private charities, charts reflecting lobbying limits for different types of entities, and listings of rulings and cases that illustrate permissible activity for each type of organizations compared to impermissible activity

Preface ix

Part I Qualifications Of Tax-Exempt Organizations 1

Chapter 1 Distinguishing Characteristics of Tax-Exempt Organizations 3

§ 1.4 Role of the Internal Revenue Service 3

§ 1.8 Developments Responding to COVID-19 16

Chapter 2 Qualifying Under IRC § 501(c)(3) 25

§ 2.2 Operational Test 25

Chapter 3 Religious Organizations 33

§ 3.2 Churches 33

Chapter 4 Charitable Organizations 37

§ 4.1 Relief of the Poor 37

§ 4.3 Lessening the Burdens of Government 39

§ 4.5 Advancement of Education and Science 39

§ 4.6 Promotion of Health 42

Chapter 5 Educational, Scientific, and Literary Purposes and Prevention of Cruelty to Children and Animals 43

§ 5.1 Educational Purposes 43

Chapter 6 Civic Leagues and Local Associations of Employees: § 501(c)(4) 45

§ 6.2 Qualifying and Nonqualifying Civic Organizations 45

Chapter 9 Social Clubs: § 501(c)(7) 49

§ 9.1 Organizational Requirements and Characteristics 49

§ 9.4 Revenue Tests 50

Chapter 10 Instrumentalities of Government and Title-Holding Corporations 51

§ 10.6 Requirements for IRC §501(c)(8) and (c)(10) 51

Chapter 11 Public Charities 59

§ 11.2 “Inherently Public Activity” and Broad Public Support: § 509(a)(1) 59

§ 11.5 Difference Between § 509(a)(1) and § 509(a)(2) 60

§ 11.9 Supporting Organization: §509(a)(3) 60

Part II STANDARDS FOR PRIVATE FOUNDATIONS 61

Chapter 12 Private Foundations—General Concepts 63

§ 12.4 Termination of Private Foundation Status 63

Chapter 13 Excise Tax Based on Investment Income: IRC §4940 65

§ 13.2 Capital Gains 65

Chapter 14 Self-Dealing: IRC § 4941 67

§ 14.2 Sale, Exchange, or Lease of Property 67

§ 14.5 Transactions That Benefit Disqualified Persons 67

Chapter 15 Minimum Distribution Requirements: IRC § 4942 69

§ 15.1 Assets Used to Calculate Minimum Investment Return 69

§ 15.2 Measuring Fair Market Value 70

§ 15.4 Qualifying Distributions 72

Chapter 16 Excess Business Holdings and Jeopardizing Investments: IRC §§ 4943 and 4944 77

§ 16.1 Excess Business Holdings 77

§ 16.2 Jeopardizing Investments 78

Chapter 17 Taxable Expenditures: IRC § 4945 79

§ 17.3 Grants to Individuals 79

§ 17.4 Grants to Public Charities 84

Part III OBTAINING AND MAINTAINING TAX-EXEMPT STATUS 87

Chapter 18 IRS Filings, Procedures, and Policies 89

§ 18.1 IRS Determination Process 92

§ 18.2 Annual Filing of Forms 990 107

§ 18.3 Reporting Organizational Changes to the IRS 116

§ 18.4 Weathering an IRS Examination 116

Chapter 19 Maintaining Exempt Status 123

§ 19.1 Checklists 123

Chapter 20 Private Inurement and Intermediate Sanctions 131

§ 20.2 Salaries and Other Compensation 131

§ 20.10 Intermediate Sanctions 132

§ 20.11 New § 4960 Excise Tax on Excess Compensation 142

Chapter 21 Unrelated Business Income 147

§ 21.4 Definition of Trade or Business 147

§ 21.8 Unrelated Activities 148

§ 21.10 Income Modifications 148

§ 21.11 Calculating and Minimizing Taxable Income 149

Chapter 23 Electioneering and Lobbying 153

§ 23.3 Tax on Political Expenditures 153

Chapter 24 Deductibility and Disclosures 157

§ 24.1 Overview of Deductibility 157

§ 24.2 The Substantiation and Quid Pro Quo Rules 160

§ 24.3 Valuing Donor Benefits 161

Chapter 25 Employment Taxes 163

§ 25.1 Distinctions Between Employees and Independent Contractors 163

§ 25.3 Reporting Requirements 167

Chapter 27 Cryptocurrency 169

§ 27.1 What Is Cryptocurrency? 169

§ 27.2 What Are the Various Kinds of Cryptocurrency? 170

§ 27.3 Should Nonprofits Be Involved in Cryptocurrency? 171

§ 27.4 Cryptocurrencies and the Internal Revenue Service 173

Index 185

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Tax Planning and Compliance for Tax-Exempt Organizations, 2022 Cumulative Supplement

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