Nonprofit Organizations Archives

Private Foundation or Charity? Cracking the "Code" on 501(c)(3) Organizations

If you have been involved in the not-for-profit sector, particularly that subsect of the industry involving federally tax-exempt organizations under 501(c)(3) of the Internal Revenue Code, then you have probably come across well-intentioned colleagues using the words "foundation" and "public charity" interchangeably. The fact of the matter is that while all organizations qualifying for federal tax-exempt status under 501(c)(3) are categorized as either private foundations or public charities, there are significant differences between the two. Generally speaking, public charity status is considered to be most preferential. So what makes private foundation status so relatively disadvantageous compared to public charity status? In a nutshell, private foundations are subject to additional operating requirements by the IRS, and excise taxes for failing to meeting internal revenue mandates. For instance, unlike public charities, private foundations are required to annually distribute a percentage of income for charitable purposes or face penalties from the IRS for failing to do so. In contrast, public charities have no such requirement.

Is A Not For Profit Organization Permitted To Engage In Lobbying Activities?

Lobbying provides an avenue through which charities can create change in communities and be a voice for the marginalized or disenfranchised in society. However, organizations exempt from taxation under the Internal Revenue Code ("IRC") Section 501(c)(3) are expressly prohibited from intervening in a political campaign, and lobbying activities must remain within permissible limits in order to maintain their tax exempt status.

Automatic Revocation of Tax-Exempt Status: A New Streamlined Process for Retroactive Reinstatement

Federal law mandates that most tax-exempt organizations file annual returns with the Internal Revenue Service (IRS). Following the enactment of the Pension Protection Act of 2006, and commencing in the 2007 tax year, tax-exempt organizations which fail to file requisite annual returns for three consecutive years are subject to automatic revocation of their tax-exempt status as of the due date of the third filing. Among other consequences, auto-revocation causes tax-exempt organizations to be ineligible to accept tax-deductible contributions and places once exempt organizations onto the IRS's publicly available Auto-Revocation List.

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