DESCRIPTION OF PRESENT-LAW RULES 

RELATING TO TAX TREATMENT OF

 CHARITABLE ORGANIZATIONS

Scheduled for a Hearing

before the

SUBCOMMITTEE ON OVERSIGHT

of the

HOUSE COMMITTEE ON WAYS AND MEANS

on November 8, 2001

Prepared by

the Staff of the

JOINT COMMITTEE ON TAXATION

November 8, 2001

JCX-77-01
i

CONTENTS

Page

INTRODUCTION.......................................................................................1

I. OVERVIEW OF PRESENT-LAW RULES RELATING TO THE TAX

TREATMENT OF CHARITABLE ORGANIZATIONS.....................................2

II. FEDERAL TAX TREATMENT OF CONTRIBUTIONS TO CHARITABLE

ORGANIZATIONS............................................................................... .6

III. RECOGNITION OF TAX-EXEMPT STATUS AND FILING REQUIREMENTS......9
1

INTRODUCTION

The Subcommittee on Oversight of the House Committee on Ways and Means has 

scheduled a hearing on the response by charitable organizations to the September 11, 2001 

terrorist attacks on the United States.

This document, 1 prepared by the staff of the Joint Committee on Taxation, contains an 

overview of the present-law rules related to the Federal tax treatment of charitable organizations, 

the Federal tax treatment of contributions to charitable organizations, and the rules relating to 

recognition of tax-exempt status and the filing requirements of charitable organizations. 

 

1

 This document may be cited as follows: Joint Committee on Taxation, Description of 

Present-Law Rules Relating to Tax Treatment of Charitable Organizations (JCX-77-01), 

November 8, 2001.
2

I. OVERVIEW OF PRESENT-LAW RULES RELATING TO 

THE TAX TREATMENT OF CHARITABLE ORGANIZATIONS

In general

At present, 25 different types of nonprofit organizations qualify for tax-exempt status 

under section 501(c) of the Internal Revenue Code (the “Code”).2 However, only organizations 

described in section 501(c)(3) of the Code are considered “charitable.” Such charitable 

organizations are subject to organizational and operational restrictions not faced by other taxexempt organizations.

A section 501(c)(3) organization must operate primarily in pursuance of one or more tax 

exempt purposes constituting the basis of its tax exemption. 3 The Code specifies such purposes 

as religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to 

foster international amateur sports competition, or for the prevention of cruelty to children or 

animals. In general, an organization is organized and operated for charitable purposes if it 

provides relief for the poor and distressed or the underprivileged.4 Failure to operate primarily 

for exempt purposes may result in loss of tax exemption or imposition of excise taxes depending 

on the type and severity of the violation. In order to qualify as operating primarily for an exempt 

purpose, the organization must satisfy the following operational requirements: (1) the net 

earnings of the organization may not inure to the benefit of any person in a position to influence 

the activities of the organization;5 (2) the organization must operate to provide a public benefit, 

not a private benefit;6 (3) the organization may not be operated primarily to conduct an unrelated 

trade or business;7 (4) the organization may not engage in substantial legislative lobbying;8 and 

 

2

 For example, certain title and real property holding companies (sec. 501(c)(2)), social 

welfare organizations (sec. 501(c)(4)), labor, agricultural or horticultural organizations (sec. 

501(c)(5)), trade associations (sec. 501(c)(6)), social clubs (sec. 501(c)(7)), cemetery companies 

(sec. 501(c)(13)), and credit unions (sec. 501(c)(14)). In addition, other Code sections provide

general tax-exempt status for other entities, such as political organizations (sec. 527) and 

qualified pension plans (secs. 401(a) and 501(a)).

3

 Treas. Reg. sec. 1.501(c)(3)-1(c)(1).

4

 Treas. Reg. sec. 1.501(c)(3)-1(d)(2).

5

 Violations of the “private inurement” prohibition may result in the imposition of excise 

taxes (commonly referred to as “intermediate sanctions”) on certain persons who engage in 

“excess benefit transactions” with section 501(c)(3) (or section 501(c)(4)) organizations (other 

than private foundations), and on organization managers who knowingly approve such 

transactions. Sec. 4958. In particularly severe cases of private inurement, the IRS may revoke 

an organization’s tax exemption in addition to imposing intermediate sanctions. 

6

 Treas. Reg. sec. 1.501(c)(3)-1(d)(1)(ii). 

7

 Treas. Reg. sec. 1.501(c)(3)-1(e)(1). Conducting a certain level of unrelated trade or 

business activity will not jeopardize tax-exempt status; however, too much of such activity will 

result in loss of tax-exempt status. There are no clear arithmetic standards for determining how 
3

(5) the organization may not participate or intervene in any political campaign. 9 In meeting the 

public benefit standard, Treasury’s regulations provide that “it is necessary for an organization to 

establish that it is not organized or operated for the benefit of private interests such as designated 

individuals, the creator or his family, shareholders of the organization, or persons controlled, 

directly or indirectly, by such private interests.”10 Thus, an organization described in section 

501(c)(3) generally must serve a charitable class of persons that is indefinite or of sufficient size. 

Private benefit is permissible if it constitutes merely an “insubstantial part” of an organization’s 

total activities in light of all the facts and circumstances of a particular case. Excessive private 

benefit will result in loss of an organization’s tax-exempt status.

As discussed in more detail below, within certain limitations, donors to section 501(c)(3) 

organizations are entitled to deduct their contributions for Federal income tax purposes (if they 

itemize their deductions) and for Federal estate and gift tax purposes. In turn, recipients of 

charitable assistance may exclude the assistance from income as a gift. 11 Section 501(c)(3) 

organizations also may use the proceeds of tax-exempt financing (also discussed in more detail 

below). In contrast, contributions to other nongovernmental, tax-exempt organizations generally 

are not deductible12 and such organizations are eligible only for the exemption from Federal 

income tax. Section 501(c)(3) organizations also may qualify for exemption from State and local 

taxes, preferential postal rates, and, in certain cases, are exempt from some federal excise taxes 

(e.g., taxes on highway fuels used by section 501(c)(3) school buses).

 

much unrelated activity an organization may conduct without jeopardizing its tax-exempt status. 

Rather, the determination is made based on a series of facts and circumstances determinations.

8

 Treas. Reg. sec. 1.501(c)(3)-1(c)(3). Violation of this limitation may subject a section 

501(c)(3) organization to excise taxes and/or loss of tax-exempt status.

9

 The political activities prohibition for section 501(c)(3) organizations is absolute. 

Thus, it is not necessary for such activities to constitute a substantial part of an organization’s 

activities before the organization’s tax exemption will be in jeopardy. The Code provides three 

penalties that may be applied either as alternatives to revocation of tax exemption or in addition 

to loss of tax-exempt status: an excise tax (sec. 4955), termination assessment of all taxes due 

(sec. 6852(a)(1)), and an injunction against further political expenditures (sec. 7409). 

10 Treas. Reg. sec. 1.501(c)(3)-1(d)(1)(ii). 

11 Sec. 102.

12 Exceptions to the general rule of non-deductibility include certain gifts made to a 

veterans’ organization or a domestic fraternal society. In addition, contributions to certain 

nonprofit cemetery companies are deductible for Federal income tax purposes, but generally are 

not deductible for Federal estate or gift tax purposes. Secs. 170(c)(3), 170(c)(4), 170(c)(5), 

2055(a)(3), 2055(a)(4), 2106(a)(2)(A)(iii), 2522(a)(3), and 2522(a)(4).
4

Section 501(c)(3) organizations are classified as either “public charities” or “private 

foundations.”13 Private foundations are defined under section 509(a) as all organizations 

described in section 501(c)(3) other than an organization granted public charity status by reason 

of (1) being a specified type of organization (i.e., churches, educational institutions, hospitals and 

certain other medical organizations, certain organizations providing assistance to colleges and 

universities, or a governmental unit); (2) receiving a substantial part of its support from 

governmental units or direct or indirect contributions from the general public; or (3) providing 

support to another section 501(c)(3) entity that is not a private foundation. In contrast to public 

charities, private foundations generally are funded from one or a limited number of sources (an 

individual, family, or corporation) and are subject to a number of restrictions not applicable to 

public charities.14 In general, more generous charitable contribution deduction rules apply to 

gifts made to public charities than the rules that apply to gifts made to private foundations.

Section 501(c)(3) organizations generally are not subject to Federal income tax on 

contributions received, on income from activities that are substantially related to the purpose of 

the organization’s tax exemption, or on investment income; although private foundations are 

subject to a two percent excise tax on their net investment income, as well as excise taxes for 

certain acts of self-dealing, failure to make sufficient charitable distributions, excess business 

holdings, jeopardizing business investments, and taxable expenditures (generally, expenditures 

for certain purposes, including lobbying, political activities, grants to individuals (without prior 

IRS approval), grants to organizations other than public charities unless special procedures are 

followed, and expenditures for noncharitable purposes).15 If a section 501(c)(3) organization 

engages in business activities unrelated to its exempt purpose, the organization may be subject to 

unrelated business income tax. 16

Unrelated business income tax

Section 501(c)(3) organizations (and other tax-exempt organizations) are subject to the 

unrelated business income tax on income derived from a trade or business regularly carried on by 

the organization that is not substantially related to the performance of the organization's 

tax-exempt functions.17 Certain types of income, however, are exempt specifically from the 

 

13 Sec. 509(a). Private foundations are either private operating foundations or private 

non-operating foundations. In general, private operating foundations operate their own 

charitable programs in contrast to private non-operating foundations, which generally are grantmaking organizations. Most private foundations are non-operating foundations.

14 Secs. 4940-4945.

15

 Id.

16 Secs. 511-514.

17 Secs. 511-514. Tax-exempt organizations are taxed on their unrelated business 

taxable income at the regular corporate tax rates (sec. 511(a)). Charitable trusts and other 

generally tax-exempt trusts are subject to tax on their unrelated business taxable income under 

the rates generally applicable to taxable trusts (sec. 511(b)).
5

unrelated business income tax, such as dividends, interest, royalties, and certain rents, unless 

derived from debt-financed property or from certain 50-percent controlled subsidiaries.18 Other 

exemptions from the unrelated business income tax are provided for activities in which 

substantially all the work is performed by volunteers, for income from the sale of donated goods, 

and for certain activities carried on for the convenience of members, students, patients, officers, 

or employees of a charitable organization. 19 In addition, special unrelated business income tax 

provisions exempt from tax certain activities of trade shows and State fairs, income from bingo 

games, and income from the distribution of certain low-cost items incidental to the solicitation of 

charitable contributions.20

Tax-exempt financing

Section 501(c)(3) organizations have access to tax-exempt financing through State or 

local governments. Interest on State or local government bonds is tax exempt when the proceeds 

are used to finance activities of those governmental units or the bonds are repaid with 

governmental funds (e.g., taxes). State and local governments also may act as conduits to 

provide tax-exempt financing for limited activities conducted and paid for by nongovernmental 

entities or individuals. One permitted type of such private activity conduit financing is for the 

exempt activities of section 501(c)(3) organizations. This exception generally does not include 

financing for unrelated business activities of such organizations.

 

18 Sec. 512(b).

19 Sec. 513(a).

20 Secs. 513(d), (f), and (h).
6

II. FEDERAL TAX TREATMENT OF CONTRIBUTIONS TO 

CHARITABLE ORGANIZATIONS

In general

In computing taxable income, a taxpayer who itemizes deductions generally is allowed to 

deduct the amount of cash and the fair market value of property contributed to an organization 

described in section 501(c)(3) or a Federal, State, or local governmental entity. 21 The amount of 

the deduction allowable for a taxable year with respect to a charitable contribution of property 

may be reduced depending on the type of property contributed, the type of charitable 

organization to which the property is contributed, and the income of the taxpayer.22

In the case of a charitable contribution of inventory or other ordinary-income or shortterm capital gain property, the amount of the deduction generally is limited to the taxpayer's 

basis in the property. In the case of a charitable contribution of tangible personal property, the 

deduction is limited to the taxpayer's basis in such property if the use by the recipient charitable 

organization is unrelated to the organization's tax-exempt purpose. In cases involving 

contributions to a private foundation (other than certain private operating foundations), the 

amount of the deduction is limited to the taxpayer's basis in the property. 23

A payment to a section 501(c)(3) organization (regardless of whether it is termed a 

“contribution”) in exchange for which the donor receives an economic benefit is not deductible, 

except to the extent that the donor can demonstrate that the payment exceeds the fair market 

value of the benefit received from the section 501(c)(3) organization. To facilitate distinguishing 

charitable contributions from purchases of goods or services from charities, present law provides 

that no charitable contribution deduction is allowed for a separate contribution of $250 or more 

unless the donor obtains a contemporaneous written acknowledgement of the contribution from 

the charity indicating whether the charity provided any good or service (and an estimate of the 

value of any such good or service) to the taxpayer in consideration for the contribution. 24 In 

addition, present law requires that any section 501(c)(3) organization that receives a contribution 

exceeding $75 made partly as a gift and partly as consideration for goods or services furnished 

by the section 501(c)(3) organization is required to inform the contributor in writing of an 

estimate of the value of the goods or services furnished by the section 501(c)(3) organization and 

that only the portion exceeding the value of the goods or services is deductible as a charitable 

contribution. 25

 

21 The deduction also is allowed for purposes of calculating alternative minimum taxable 

income.

22 Secs. 170(b) and (e).

23 Sec. 170(e)(1)(B).

24 Sec. 170(f)(8).

25 Sec. 6115.
7

Contribution limits

Individual taxpayers

Under present law, total deductible contributions of an individual taxpayer to public 

charities, private operating foundations, and certain types of private nonoperating foundations 

may not exceed 50 percent of the taxpayer’s contribution base, which is the taxpayer’s adjusted 

gross income (“AGI”) for a taxable year (disregarding any net operating loss carryback).26 To 

the extent a taxpayer has not exceeded the 50-percent limitation, (1) contributions of capital gain 

property to public charities generally may be deducted up to 30 percent of the taxpayer’s 

contribution base, (2) contributions of cash to private foundations and certain other charitable 

organizations generally may be deducted up to 30 percent of the taxpayer’s contribution base, 

and (3) contributions of capital gain property to private foundations and certain other charitable 

organizations generally may be deducted up to 20 percent of the taxpayer’s contribution base.27

Contributions by individuals in excess of the 50-percent limit may be carried over and 

deducted over the next five taxable years, subject to the relevant percentage limitations on the 

deduction in each of those years.

In addition to the percentage limitations imposed specifically on charitable contributions, 

present law imposes a reduction on most itemized deductions, including charitable contribution 

deductions, for taxpayers with AGI in excess of a threshold amount, which is indexed annually 

for inflation. 28 The threshold amount for 2001 is $132,950 ($66,475 for married individuals 

filing separate returns). For those deductions that are subject to the limit, the total amount of 

itemized deductions is reduced by 3 percent of AGI over the threshold amount, but not by more 

than 80 percent of itemized deductions subject to the limit. Beginning in 2006, the Economic 

Growth and Tax Relief Reconciliation Act of 2001 phases-out the overall limitation on itemized 

deductions for all taxpayers. The overall limitation on itemized deductions is reduced by onethird in taxable years beginning in 2006 and 2007, and by two-thirds in taxable years beginning 

in 2008 and 2009. The overall limitation on itemized deductions is eliminated for taxable years 

beginning after December 31, 2009; however, this elimination of the limitation sunsets on

December 31, 2010. 

Corporate taxpayers

Under present law, a corporation is allowed to deduct charitable contributions up to 10 

percent of the corporation’s modified taxable income for the year. For this purpose, taxable 

income is determined without regard to (1) the charitable contributions deduction, (2) any net 

operating loss carryback, (3) deductions for dividends received, (4) deductions for dividends paid 

on certain preferred stock of public utilities, and (5) any capital loss carryback for the taxable 

 

26 Sec. 170(b)(1)(A).

27 Sec. 170(b)(1)(B), (C), and (D).

28 Sec. 68.
8

year.29 Any charitable contribution by a corporation that is not currently deductible because of 

the percentage limitation may be carried over for up to five taxable years.

A transfer of property by a business to a charity might qualify as either a charitable 

contribution or a deductible business expense, but not both. No deduction is allowed as a 

business expense under section 162 for any contribution that would be deductible as a charitable 

gift were it not for the percentage limitations on the charitable contributions deduction. 30 

Likewise, a business transfer made with a reasonable expectation of financial return 

commensurate with the amount of the transfer is not deductible as a charitable contribution, but 

may be deductible under section 162.

Contributions of inventory

A taxpayer’s deduction for charitable contributions of inventory generally is limited to 

the taxpayer’s basis (typically, cost) in the inventory. However, corporations31 may claim a 

deduction in excess of basis for certain charitable contributions, including, in general, 

contributions of inventory to the ill, the needy, or infants, contributions of scientific property 

used for research, and contributions of computer technology and equipment for educational 

purposes. Sec. 170(e). This augmented deduction is equal to the lesser of (1) basis plus one-half 

of the item’s appreciated value or (2) two times basis. To be eligible for an enhanced deduction, 

the taxpayer must establish that the fair market value of the donated item exceeds basis.

 

29 Sec. 170(b)(2).

30 Sec. 162(b).

31 The augmented deduction for inventory applies only to corporations organized under 

subchapter C of the Code, not to corporations organized under subchapter S. The augmented 

deduction for scientific property and computer technology and equipment is generally available 

to corporations except for S corporations, personal holding companies (sec. 542), and service 

organizations (sec. 414(m)(3)).
9

III. RECOGNITION OF TAX-EXEMPT STATUS 

AND FILING REQUIREMENTS

In general

In 1969, Congress required that section 501(c)(3) organizations (with certain exceptions) 

seek formal recognition of tax-exempt status by filing an application with the IRS (Form 1023).32 

In response to the application, the IRS issues a determination letter or ruling either recognizing 

the applicant as tax-exempt or not. 33 Certain organizations are not required to apply for 

recognition of tax-exempt status in order to qualify as tax-exempt under section 501(c)(3) but 

may elect to do so. These organizations include churches, certain church-related organizations, 

organizations (other than private foundations) the gross receipts of which in each taxable year are 

normally not more than $5,000, organizations (other than private foundations) subordinate to 

another tax-exempt organization that are covered by a group exemption letter, and for certain 

purposes only, charitable trusts described in section 4947(a)(1) that were organized before 

October 9, 1969.

Application process

A favorable determination by the IRS on an application for recognition of tax-exempt 

status (Form 1023) will be retroactive to the date that the section 501(c)(3) organization was 

created if it files a completed Form 1023 within 15 months from the end of the month it was 

formed.34 If the organization does not file Form 1023 or files a late notice, it will not be treated 

as tax exempt under section 501(c)(3) for any period prior to the filing of an application for 

recognition of tax exemption. 35 Contributions to section 501(c)(3) organizations that are subject 

to the requirement that the organization apply for recognition of tax-exempt status are not 

deductible from income, gift, or estate tax until the organization receives a determination letter 

from the IRS.36

Information required on Form 1023 includes: (1) information about previously filed 

Federal income tax and exempt organization returns; (2) a statement of receipts and expenditures 

 

32 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal 

Revenue Code.

33 Internal Revenue Manual 7751, Exempt Organizations Handbook, sec. 111. 

34 Pursuant to Treas. Reg. sec. 301.9100-2(a)(2)(iv), organizations are allowed an 

automatic 12-month extension as long as the application for recognition of tax exemption is filed 

within the extended, i.e., 27-month period. The IRS also may grant an extension beyond the 27-

month period if the organization is able to establish that it acted reasonably and in good faith and 

that granting relief will not prejudice the interests of the government. Treas. Reg. secs. 

301.9100-1 and 301.9100-3.

35 Treas. Reg. sec. 1.508-1(a)(1).

36 Sec. 508(d)(2)(B).
10

for the current year and the three preceding years (or for the number of years of the 

organization’s existence, if less than four years); (3) a balance sheet for the current year; (4) a 

detailed statement of actual and proposed activities; (5) a description of anticipated receipts and 

contemplated expenditures; (6) a copy of the articles of incorporation, trust document, or other 

organizational or enabling document; and (7) organization bylaws (if any).

A determination letter issued by the IRS will state that the application for recognition of 

tax exemption and supporting documents establish that the organization submitting the 

application meets the requirements section 501(c)(3) and will classify the organization as either a 

public charity or a private foundation. An organization that has received a favorable taxexemption determination from the IRS generally may continue to rely on the determination as 

long as “there are no substantial changes in the organization’s character, purposes or methods of 

operation.”37

An organization can request that the IRS expedite a determination letter application. 

Under the Internal Revenue Manual, requests for expedited treatment must be made in writing 

and contain a compelling reason why a case should be worked ahead of its normal date order. In 

general, expedited treatment is granted in the following circumstances: (1) when a grant to the 

applicant is pending and the failure to secure the grant may have an adverse impact on the 

organization’s ability to continue operations; (2) when the purpose of the newly created 

organization is to provide disaster relief to victims of emergencies such as flood and hurricane; 

(3) when there have been undue delays in issuing a determination letter caused by problems 

within the IRS; and (4) in any other situation where the Division Chief or his or her delegate 

feels expedited service is warranted. The IRS has established a special expedited review and 

approval process for new organizations seeking tax-exempt status to provide relief to the victims 

of the September 11, 2001 attacks on the United States. Such new organizations should apply 

for tax-exempt status by filing Form 1023 and writing at the top of the form “Disaster Relief, 

September 11, 2001” and the IRS will give such applications immediate attention. 38

A ruling or determination letter may be revoked or modified by (1) notice from the IRS to 

the organization to which the ruling or determination letter was originally issued; (2) enactment 

of legislation or ratification of a tax treaty; (3) a decision of the United States Supreme Court; (4) 

issuance of temporary or final Regulations by the Treasury Department; or (5) issuance of a 

revenue ruling, a revenue procedure, or other statement in the Internal Revenue Bulletin. 39 An 

organization’s tax exemption will not be termi nated if it becomes inactive for a time so long as 

 

37 Treas. Reg. sec. 1.501(a)-1(a)(2). 

38 IRS News Release No: IR-2001-82 (Sept. 18, 2001).

39 Rev. Proc. 90-27, 1990-1 C.B. 514; IRS Pub. No. 557 at 4.
11

the organization does not cease to be a legal entity under the laws of the State in which it is 

organized.40

Upon revocation of tax-exemption or change in the classification of an organization (e.g., 

from public charity to private foundation status), the IRS publishes an announcement of such 

revocation or change in the Internal Revenue Bulletin. 41 Contributions made to organizations by 

donors who are unaware of the revocation or change in status ordinarily will be deductible if 

made on or before the date of publication of the announcement. 42

Annual filing requirements for section 501(c)(3) organizations

Section 501(c)(3) organizations generally are required to file an annual information 

return with the IRS. An organization that has not received a determination of its tax-exempt 

status, but that claims tax-exempt status under section 501(a), is subject to the same annual 

reporting requirements and exceptions as organizations that have received a tax-exemption 

determination.

Section 501(c)(3) organizations that are classified as public charities must file Form 990 

(Return of Organization Exempt From Income Tax) and an additional form, Schedule A, which 

requests information specific to section 501(c)(3) organizations. An organization that is required 

to file Form 990, but that has gross receipts of less than $100,000 during its taxable year, and 

total assets of less than $250,000 at the end of its taxable year, may file Form 990-EZ instead of 

Form 990. Private foundations are required to file Form 990-PF rather than Form 990.43

On the applicable annual information return, organizations are required to report their 

gross income, information on their finances, functional expenses, compensation, activities, and 

other information required by the IRS in order to review the organization’s activities and 

operations during the previous taxable year and to review whether the organization continues to 

meet the statutory requirements for exemption. Examples of the information required by Form 

990 include (1) a statement of program accomplishments, (2) a description of the relationship of 

 

40 An inactive organization, however, is required to file an annual information return 

unless it is covered by one of the exceptions to the filing requirements described below. IRS 

Pub. No. 557 at 11.

41 Rev. Proc. 82-39, 1982-2 C.B. 759.

42 Id.

43 Form 990-PF requires, among other things: information about the foundation’s gross 

income for the year; information about expenses attributable to such income; information about 

disbursements for exempt purposes; information about total contributions and gifts received, and 

the names of all substantial contributors; names, addresses, and compensation of officers and 

directors; an itemized statement of securities and other assets held at the close of the year; an 

itemized statement of all grants made or approved; and information about whether the 

organization has complied with the restrictions applicable to private foundations (secs. 4941-

4945). 
12

the organization’s activities to the accomplishment of the organization’s exempt purposes, (3) a 

description of payments to individuals, including compensation to officers and directors, highly 

paid employees and contractors, grants, and certain insider transactions and loans, (4) disclosure 

of certain activities, such as expenses of conferences and conventions, political expenditures, 

compliance with public inspection requirements, and lobbying activities.

Any organization that is subject to the unrelated business income tax and that has $1,000 

or more of gross unrelated business taxable income must file Form 990-T. An organization 

described in section 501(c) must file Form 1120-POL for any year in which it has net investment 

income and expends any amount to influence the selection, nomination, election or appointment 

of any individual to office, unless either the amount of such expenditures or the organization’s 

net investment income does not exceed $100 for the taxable year. Public charities that make an 

election under section 501(h) regarding permitted lobbying expenditures and that incur tax for 

excess lobbying expenditures must also file Form 4720. Section 501(c)(3) organizations 

generally must file reports and returns applicable to taxable entities with respect to Social 

Security taxes but not with respect to Federal unemployment taxes.

The requirement of filing an annual information return does not apply to churches, their 

integrated auxiliaries, and conventions or associations of churches; certain organizations (other 

than private foundations), the gross receipts of which in each taxable year are normally not more 

than $25,000; the exclusively religious activities of any religious order; an interchurch 

organization of local units of a church; certain mission societies; and certain church-affiliated 

elementary and high schools.44

 

44 Sec. 6033(a)(2)(A); Treas. Reg. sec. 1.6033-2(a)(2)(i); Treas. Reg. sec. 1.6033-

2(g)(1).