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Post Date:  7/29/2015
Last Updated:  7/29/2015

Summary
Cross References
- GAO-15-514, July 24, 2015

The tax code provides for 35 different categories of exempt organizations, each covering one or more types of permissible activities. The majority of these organizations are cov- ered by IRC section 501, which includes private foundations, public charities, social wel- fare organizations, business leagues, and veterans' organizations. Other types of entities are also wholly or partially tax exempt, such as farmers' cooperatives, political organiza- tions, educational savings accounts, and tuition programs.

Most organizations seeking exemption must submit an application to the IRS. If the in- formation in the application meets the requirements for tax exempt status, the IRS will issue a determination letter approving tax exempt status. Tax exempt organizations are generally not required to file an income tax return. Instead, if an organization normally has $50,000 or more in gross receipts, and meets other requirements, it must annually file one of three versions of the Form 990 information return, which requires information on employees, revenue and income, assets and liabilities, program activities, and compensa- tion. Most organizations that fall below the $50,000 threshold that need to file an informa- tion return are required instead to file an electronic postcard (Form 990-N) which asks for names and contacts associated with the organization, and confirmation of the organiza- tion's annual gross receipts. Other organizations such as churches are not required to file any of the versions of Form 990.

When the IRS audits a tax-exempt organization, it does so to enforce their compliance with the tax code. Examinations can result in assessment of taxes or revocation of tax- exempt status, among other things. Regulations require the IRS to use certain criteria, processes, and controls for selecting organizations for audit. A recent report from the U.S. Government Accountability Office (GAO) found that the IRS should strengthen its selection process for choosing which exempt organizations to examine.

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