Why do the Articles of Incorporation for a non-profit corporation require information on the distribution of assets upon dissolution?

Asset distribution information is required by the Internal Revenue Service to determine the tax status of non-profit corporations.

Sometimes. A corporation incorporated in another state, a “foreign” corporation under Arkansas law, should review the provisions of A.C.A. 4-27-1501 (profit) or A.C.A. 4-33-1501 (nonprofit). You will notice that these laws indicate a “A foreign corporation may not transact business in this state until it obtains a certificate of authority from the Secretary of State”.

However, A.C.A. 4-27-1501 lists a number of activities that “do not constitute transacting business.” Thus, if a company’s business in Arkansas falls into one of these categories, it is not required to file with the Secretary of State. The Corporations Division cannot indicate whether or not a particular foreign corporation must qualify. A corporation that is uncertain about this question should consult its legal counsel.

To be recognized as exempt from federal income taxation, most organizations are required to apply for recognition of exemption. For section 501(c)(3) organizations, the law provides only limited exceptions to this requirement. Applying for recognition of exemption results in formal IRS recognition of an organization’s status, and may be preferable for that reason.

The IRS will recognize an organization as tax-exempt if it meets the requirements of the Internal Revenue Code. See Types of Tax-Exempt Organizations and Publication 557, Tax-Exempt Status for Your Organization, for more information.

Organizations applying for tax-exempt status must submit two applications:  First, if they have not previously received an Employer Number (EIN), they must apply for one, and second, an application for recognition of exemption.

The IRS sometimes recognizes a group of organizations as tax-exempt if they are affiliated with a central organization.  This avoids the need for each of the organizations to apply individually.  See Publication 4573, Group Exemptions, for more information.

You can apply for an EIN on-line, over the telephone, via fax or through the mail. See the instructions for Form SS-4, Application for Employer I.D. Number, for further details.

• To apply on-line, use the on-line EIN application available on this website.
• To get an EIN over the IRS’s toll-free telephone number, call (800) 829-4933. Hours of operation are 7:00 a.m. to 10:00 p.m. local time, Monday through Friday. See EIN Toll-Free Telephone Service for more information.
• To request an EIN via fax, 24 hours a day / 7 days a week, dial the fax number at the location accepting applications from your state. The instructions on the Form SS-4 indicate which location will accept your faxed request.
• To receive an EIN through the mail, complete Form SS-4 . The instructions on the form provide the correct address.

Third parties can receive an EIN on a client’s behalf by completing the new “Third Party Designee” section and obtaining the client’s signature on Form SS-4. This avoids having to file a Form 2848 (Power of Attorney) or Form 8821 (Tax Information Authorization) to get an EIN for their client.

If the organization’s organizing documents, purposes, or programs change while the IRS is considering an application, you should report the change in writing to the office processing your application.  If you do not know the office that is processing your exemption application, you may contact Exempt Organizations Customer Account Services.

Because material changes in a charity’s structure or activities may affect its tax-exempt or public charity status, organizations should report such changes to the IRS Exempt Organizations Division.  See procedures for reporting changes for a complete discussion.

Organizations with gross receipts and assets below certain threshholds at the end of their tax years may file Form 990-EZ,Short Form Return of Organizations Exempt from Income Tax. In addition, certain governmental and church-affiliated organizations are not required to file annual information returns. Finally, organizations whose annual gross receipts are normally less than $25,000 are not required to file an annual return, but may be required to file an annual electronic notice – e-Postcard – beginning in 2008.

The following organizations must file another return in lieu of the Form 990:

• Private foundations (Form 990-PF)
• Employee benefit trusts (Form 5500)
• Black lung benefit trusts (Form 990-BL)
• Religious and apostolic organizations described in Code section 501(d)(Form 1065).

The IRS treats an incomplete return the same as a return filed late – the penalties are the same. For example, if an organization fails to attach a required schedule to its annual return – one of the most common errors in filing Forms 990, 990-EZ, and 990-PF – its return is considered incomplete and filing penalties may apply.

Additional information:

• Common Errors – Form 990
• Common Errors – Form 990-EZ
• Common Errors – Form 990-PF

Failure to timely file the information return, absent reasonable cause, can give rise to a penalty under section 6652 of the Code. Generally, the reasonable cause exception to the penalty will be determined on a case-by-case basis taking into account all relevant facts and circumstances.

The regulations provide that a request for abatement of penalties based on reasonable cause must be made in the form of a written statement, containing a declaration by the appropriate person that the statement is made under the penalties of perjury, setting forth all the facts alleged as reasonable cause. When requesting reasonable cause, your letter should include supporting documentation and address the following items:

The reason the penalty was charged. The daily delinquency penalty may be charged for either a late filed return, an incomplete return or both.

Explain what prevented the organization from complying with the law, including:

 

what prevented the organization from requesting an extension of time to file its return;

 

how the organization was not neglectful or careless, but exercised ordinary business care and prudence; and

 

what steps have been taken to prevent the same situation from occurring in the future.

 

Mail your return to the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201-0027.  If your organization’s principal business, office, or agency is located in a foreign country or a U.S. possession, send the return to the Internal Revenue Service Center, P.O. Box 409101, Ogden, UT  84409.

Annual returns may also be filed electronically – a quick, secure, and more accurate method than filing paper returns.  For more information, see e-file for Charities and Non-Profits.

Depending upon the nature of its exemption, a tax-exempt organization may jeopardize its tax-exempt status if it engages in certain activities. For example, section 501(c)(3) charitable organizations may not intervene in political campaigns or conduct substantial lobbying activities. See Types of Tax-Exempt Organizations or Publication 557 for more information.

You may also request a ruling regarding the effect of a proposed transaction on an organization’s tax-exempt status. See Revenue Procedure 2009-4, 2008-1 I.R.B. 121, for the procedures to request a ruling; and our user fee page, which explains the user fee charges for such rulings.

The type of tax exemption determines whether an organization may endorse candidates for public office.  For example, a section 501(c)(3) organization may not publish or distribute printed statements or make oral statements on behalf of, or in opposition to, a candidate for public office.  Consequently, a written or oral endorsement of a candidate is strictly forbidden.  The rating of candidates, even on a nonpartisan basis, is also prohibited.  On the other hand, a section 501(c)(4), (5), or (6) organization may engage in political campaigns, provided that such activities are not the organization’s primary activity.

In addition, section 501(c) organizations that make expenditures for political activity may be subject to tax under section 527(f). For more information, please see Election Year Issues.

Every section 501(c)(3) organization is classified as either a private foundation or a public charity.  Private foundations and public charities are distinguishable primarily by the level of public involvement in their activities.

Public charities generally receive a greater portion of their financial support from the general public or governmental units, and have greater interaction with the public.  A private foundation, on the other hand, is typically controlled by members of a family or by a small group of individuals, and derives much of its support from a small number of sources and from investment income.  Because they are less open to public scrutiny, private foundations are subject to various operating restrictions and to excise taxes for failure to comply with those restrictions.

Under the tax law, a section 501(c)(3) organization is presumed to be a private foundation unless it requests, and qualifies for, a ruling or determination as a public charity.  Organizations that qualify for public charity status include churches, schools, hospitals, medical research organizations, “publicly-supported” organizations (i.e., organizations that receive a specified portion of their total support from public sources), and certain supporting organizations.

A section 501(c)(3) organization may be classified as a public charity (rather than as a private foundation) on the basis that it is publicly supported. An organization is considered publicly supported if:

1. 1. It normally receives a substantial part of its support from a governmental unit or from contributions from the general public; or,

1. 1. It normally receives more than one-third of its support from gifts, grants, contributions, or gross receipts from activities related to its exempt purposes, and not more than one-third of its support from gross investment income.

In addition, the organization must meet the requirements of detailed support tests.

Generally, an organization computes its support over a four-year period.  A new organization, however, may request on its application an advance ruling that it will be treated as a publicly-supported organization for its first five taxable years.  At the end of the five-year advance ruling period, the organization must submit information to the IRS to establish that it met one of the public support tests for its advance ruling period.  If the organization fails to provide such information, it will be reclassified as a private foundation.

An organization that wishes to continue to be treated as a public charity after the end of its advance ruling period should submit Form 8734, Support Schedule for Advance Ruling Period, within ninety days after the end of the advance ruling period. Failure to submit Form 8734 results in your organization automatically being reclassified as a private foundation required to file Form 990-PF.

NOTE: New regulations change the requirements for rulings and determinations that organizations are publicly supported. See Elimination of the Advance Ruling Process, for the latest information, including changes to filing requirements for organizations that have received advance rulings of their status as publicly supported organizations.

Publication 78 provides a partial listing of organizations that have been recognized by the IRS as eligible to receive tax-deductible contributions. For information on other organizations that have been recognized by the IRS as tax-exempt organizations, you may call IRS Customer Service at 877-829-5500. You can also contact us through any of the other methods described in Publication 557.

A contributor can also check an organization’s exemption letter, which states the Code section that describes the organization and whether contributions made to the organization are deductible.

The IRS sometimes recognizes a group of organizations as tax-exempt if they are affiliated with a central organization. This avoids the need for each of the organizations to apply for exemption individually. For more information, see Publication 4573, Group Exemptions.  Subordinate organizations exempt under group rulings are not separately listed in Publication 78; see Eligible Donees Generally Not Listed in Publication 78.

You have the right to inspect, and obtain a copy of, a tax-exempt organization’s:

• • annual information returns (e.g., Form 990);

• • exempt status application materials; and

• • notice of status under section 527(i)

in person at the organization’s principal office, or its regional or district offices, during regular business hours. You may also request copies of such materials in writing. The organization may charge a reasonable fee to cover copying and mailing costs. Note: An organization that filed its application before July 15, 1987, is required to make the application available only if it had a copy of the application on July 15, 1987. See Notice 88-120 for details.

You are entitled to inspect, or receive a copy of, any annual return for three years from the date the return was required to be filed (or, for an amended return, from the date it was filed). For more information, see our frequently asked questions on public disclosure, the final regulations, or Disclosure Requirements.

For exemption application materials, you are entitled to inspect, or receive a copy of, the organization’s exemption application (Form 1023, 1024, or other document required to be filed), any papers filed in support of the application, and any determination letter issued by the IRS with respect to the application.

You may also obtain copies of annual returns, exempt applications, or determination letters from the IRS by filing Form 4506-A, Request for Public Inspection or Copy of Exempt or Political Organization IRS Form.  A fee may be charged for copies.  In addition, notices of status under section 527(i) are generally available for inspection and printing from the Internet at www.irs.gov/polorgs .  If an organization wants a complete copy of its Form 990 (one that includes donor information), it can file Form 4506,  Request for Copy of Tax Return.  There is a fee of $57.00 for each return copy.

Additional information

• • Public Inspection and Disclosure of Form 990-T

• • Fee Schedule – Public Inspection of Exempt Organizations Material

Information about donors is specifically excluded from the information available for public inspection, except for donors to private foundations and political organizations.

Write to IRS EO Classification, Mail Code 4910, 1100 Commerce Street. Dallas, TX  75242.  Your letter should provide the name and address of the organization that refuses to allow public inspection or provide copies of its documents, and request that the documents be made available for public inspection.

The Tax Exempt/Government Entities Division of the IRS will contact the organization and arrange a time during which the documents may be inspected.  If the organization fails to provide the documents at the agreed upon time, statutory penalties may be assessed.  For more information, see our frequently asked questions, the final regulations published

in IR Bulletin 1999-17, or Disclosure Requirements.

If you believe that the activities or operations of a tax-exempt organization are inconsistent with its tax-exempt status, you may file a complaint with the Exempt Organizations Examination Division, at the following address:

IRS EO Classification

Mail Code 4910

1100 Commerce Street

Dallas, TX 75242

You may also use Form 13909, Tax-Exempt Organization Complaint (Referral) Form, for this purpose.   The complaint should contain all relevant facts concerning the alleged violation of tax law.

The IRS cannot advise you of any action it has taken or may take in response to a complaint.  The confidentiality and disclosure provisions of the Internal Revenue Code preclude the Service from discussing matters relating to any activity it might undertake regarding the tax-exempt status of an entity with anyone other than the principal officers or authorized representatives of that entity.  These provisions were enacted by Congress to protect the privacy of all taxpayers.

The IRS maintains an active examination program to ensure that tax-exempt organizations, as well as taxpayers, meet the requirements imposed on them by the Internal Revenue Code.

Additional information:
Fact Sheet 2008-13, IRS Complaint Process for Tax-Exempt Organizations

In general, exempt organizations must make available for public inspection certain annual returns and applications for exemption, and must provide copies of such returns and applications to individuals who request them.  Copies usually must be provided immediately in the case of in-person requests, and within 30 days in the case of written requests.  The tax-exempt organization may charge a reasonable copying fee plus actual postage, if any.

The law affects organizations exempt from federal income tax under section 501(a) and described in section 501(c) and section 501(d). Examples of the type of tax-exempt organization to which the law applies include: charities, schools, labor organizations, business leagues, fraternities, social clubs, veterans organizations, and voluntary employees’ beneficiary associations.  See Types of Organizations for more information about these organizations.  It also applies to political organizations exempt from taxation under section 527(a).

This law does not apply to certain split-interest trusts. Additionally, the law does not affect those organizations that are exempt under other provisions of the Code, for example farmers’ cooperatives exempt under section 521; homeowners’ associations exempt under section 528; and qualified state tuition programs exempt under section 529.

An exempt organization must make available for public inspection its exemption application. An exemption application includes the Form 1023 (for organizations recognized as exempt under § 501(c)(3)), Form 1024 (for organizations recognized as exempt under most other paragraphs of § 501(c)), or the letter submitted under the paragraphs for which no form is prescribed, together with supporting documents and any letter or document issued by the IRS concerning the application. A political organization exempt from taxation under § 527(a) must make available for public inspection and copying its notice of status, Form 8871.

In addition, an exempt organization must make available for public inspection and copying its annual return. Such returns include Form 990 , Return of Organization Exempt From Income Tax, Form 990-EZ , Short Form Return of Organization Exempt From Income Tax, Form 990-PF, Return of Private Foundation, Form 990-BL , Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons, and the Form 1065 , U.S. Partnership Return of Income.

An organization exempt under § 501(c)(3) must make available for public inspection and copying any Form 990-T, Exempt Organization Business Income Tax Return, filed after August 17, 2006.  Returns must be available for a three-year period beginning with the due date of the return (including any extension of time for filing).  For this purpose, the return includes any schedules, attachments, or supporting documents that relate to the imposition of tax on the unrelated business income of the charity.  See Public Inspection and Disclosure of Form 990-T for more information.

An exempt organization is not required to disclose Schedule K-1 of Form 1065 or Schedule A of Form 990-BL. With the exception of private foundations, an exempt organization is not required to disclose the name and address of any contributor to the organization.

A political organization exempt from taxation under § 527(a) must make available for inspection and copying its report of contributions and expenditures on Form 8872, Political Organization Report of Contributions and Expenditures. However, such organization is not required to make available its return on Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations.

Private foundation returns (Form 990-PF) filed on or after March 13, 2000, are subject to the same disclosure rules  as apply to other exempt organizations.

A private foundation must also make its exemption application, supporting documents, and letters sent from the IRS available for public inspection, and provide copies of these documents in the same manner as other exempt organizations.

In response to a written or in-person request by an individual at the principal office of the organization, and if the organization regularly maintains one or more regional or district offices having three or more employees, at each such regional or district office, a copy of the covered tax documents must be provided to the requester.  If the request for copies is made in person, the request will generally be honored on the day of the request; if the request is written, then the organization usually has thirty days to respond.  (A request that is faxed, e-mailed or sent by private courier is considered a written request.)

The organization may want to charge reasonable copying costs and the actual cost of postage before providing the copies.  The law permits this.  But the organization must provide timely notice of the approximate cost and acceptable form of payment within seven days of receipt of the request.  Acceptable forms of payment must include cash and money order (in the case of an in-person request) and certified check, money order, and personal check or credit card, in the case of a written request.

A tax-exempt organization may charge a reasonable fee for providing copies, which is generally defined as the amount charged by the IRS for providing copies. Under regulations issued in July 2004, the IRS may not charge more for copies than the fees listed in the Freedom of Information Act (FOIA) fee schedule.  In addition, although the FOIA fee schedule directs the IRS to provide the first 100 pages free, the regulations allow the exempt organization to charge a fee for all copies.  For non-commercial requesters, the FOIA schedule currently provides a charge of $.20 per page.

An organization may require payment before it provides copies, but must advise requesters of the total cost of the copies requested if adequate payment is not included with the request.  The organization may also charge the actual postage costs it incurred to mail copies to the requester.

A tax-exempt organization is generally not required to disclose the names or addresses of its contributors on its annual return, including Schedule B (Form 990, 990-EZ, or 990-PF).  The regulations specifically exclude the name and address of any contributor to the organization from the definition of discloseable documents.  Contributor names and addresses listed on an exempt organization’s exemption application are subject to disclosure, however.

This general exclusion for contributor information on annual returns does not apply to private foundations, or to political organizations described in section 527.  Certain tax-exempt political organizations are required to report the name and address, and the occupation and employer (if an individual), of any person that contributes in the aggregate $200 or more in a calendar year on the Schedule A of Form 8872.  Tax-exempt political organizations may also be required to file Form 990, including Schedule B.  Political organizations are required to make both of these forms available to the public, including the contributor information.

An organization whose exemption application was filed before July 15, 1987, and which lacked the exemption application on July 15, 1987, need not make a copy of the exemption application available.  The requirement to provide a copy of the annual information return is separate from the requirement to provide of the exemption application.  Tax-exempt organizations are required to provide copies of annual information returns even if they are not required to provide copies of the exemption application.

If an organization filed its exemption application after July 15, 1987, but is unable to find a copy, the organization may contact TE/GE Division, Customer Service to request a copy of the application.

A tax-exempt organization does not have to comply with individual requests for copies if it makes the documents widely available as described in the regulations.  This can be done by posting the documents on a readily accessible World Wide Web site, either its own or on a database of exempt organization documents maintained by another organization.  To be withn this discussion, however, the documents must be posted in a format that meets the criteria set forth in the regulations.  In general, the format must exactly reproduce the image of the original document and allow an Internet user to access, download, view and print the posted document without the payment of a fee.  One format that currently meets the criteria is Portable Document Format (.pdf).  An organization that makes its documents widely available in this manner must advise requesters how to access the forms.

Yes.  Making documents widely available satisfies the requirement to provide copies of the documents.  This requirement is separate from the requirement to make the documents available for public inspection.  There is no exception (similar to the widely available exception) from the requirement to make documents available for public inspection.

Responsible persons of a tax-exempt organization who fail to provide the documents as required may be subject to a penalty of $20 per day for as long as the failure continues.  There is a maximum penalty of $10,000 for each failure to provide a copy of an annual information return.  There is no maximum penalty for the failure to provide a copy of an exemption application.

The complaint should be addressed to:

IRS EO Classification

Mail Code 4910

1100 Commerce Street

Dallas, TX  75242

To request a copy of either the exemption application or the annual information or tax return, submit Form 4506-A, Request for Public Inspection or Copy of Exempt Organization IRS Form.  Mail the form to the applicable address listed below:

You may also purchase copies of scanned Forms 990, 990-EZ for IRC section 501(c)(3) organizations, and all 990-PF returns on CD-Rom from the Ogden Submission Processing Center.

Sometimes, an organization’s application for recognition of tax-exempt status is denied, or its exempt status is revoked after an examination.  Internal Revenue Code section 6110 requires the IRS to publish final letters that revoke or deny an organization’s exempt status, but with taxpayer identifying information deleted.  Upon written request, the IRS will also provide a copy of the background file with taxpayer identifying information deleted.  The background file includes a copy of the ruling request or application for exempt status and all supporting documents.

The regulations ask taxpayers to help the IRS comply with these requirements by submitting a statement of proposed deletions with the ruling request or application.  Organizations should submit the following with their request or application:

 

A statement indicating that no deletions need be made except names, addresses, and taxpayer identifying numbers, or

 

A statement of proposed deletions, citing the statutory basis for each one, and a copy of the ruling request or application (and supporting documents, submitted with or subsequent to the application) on which it indicates, in brackets, each deletion requested.