Tax Exempt Organizations

The IRS code classifies tax exempt organizations into 25 categories and each category is treated differently under the law which makes each organization’s tax responsibilities and liabilities quite different. In addition, the laws affecting charitable organizations change frequently depending on the political and public climate. If you exist as or are involved with a tax-exempt entity, you understand that the complexity of the status requires expert tax advice. Esquire Group includes tax professionals who have dedicated years to this field and are skilled in establishing tax exempt organizations, determining the requirements for each section, and at interpreting new laws and regulations. We will evaluate the tax risks and opportunities available to you, prepare tax returns, assist with tax compliance requirements, and assist with IRS exams and determinations.

The following summary only discusses 501(c)(3) organizations since they are the most common. We will, however, be happy to provide your with in-depth explanations/clarifications regarding any 501(c) organizations upon request.

501(c)(3)

This section includes the three types of nonprofit organizations that may gain tax-exempt status allowing donors to claim charitable deductions for any contributions made.

This may include schools and other educational organizations, churches, synagogues, and mosques. Also, American Red Cross and Goodwill would fall under this category. These charities usually spend all of their net revenue on the activities for which they are organized and operated and their support comes almost solely from the general public’s donations or contributions.

These organizations receive the majority of their support from sources outside of the public. Donations may come from philanthropists, other nonprofit organizations, or corporations and the foundation must distribute annually their minimum investment return. The board of directors is usually small—one or two individuals—often a husband and wife or family.

These foundations differ from private foundations in that they operate by being actively engaged in nonprofit charitable, educational, religious, or other tax exempt activities organizations. Examples of a Private Operating Foundation might be a museum, environmental activist, hospital thrift shop, etc. Like private foundations, private operating foundations do not receive the majority of their financial support from the public at large. They are required to distribute almost all of their annual net revenue to the activities for which they were formed. Also like private foundations, the board may often consist of a husband and wife or family.