5 Exempt Organizations

1. Exempt Organizations

1) Sec. 501 (c) (3) Organization
(1) Organization test: the articles of organization must limit to sec. 501 (c) (3)
- Religious
- Charitable
- Scientific
- Literary
- Educational
- Testing for public safety
(2) Operational test
No part of the net earnings may inure to the benefit of any private shareholders or individual.
No substantial part of the activities may be non-exempt activities (e.g., influence legislation).
The organizations may not directly participate or intervene in any political campaign.

* To obtain exempt status, the organization must apply and approved by the IRS
* Tax-exempt organizations may be in the form of a corporation, trust, fund, foundation.

2) Public charity vs. private foundation
(1) Public charity
The following four distinct categories are NOT private foundation:
a) Maximum (50% type) charitable deduction donees
b) Broadly publicly-supported organizations receiving more than 1/3 of their annual support form members and the public and less than 1/3 from investment income and unrelated business income.
c) Public safety testing organizations
(2) Private foundation

3) Filing requirement
An annual information return, Form 990/990-EZ (or 990 PF) by May 15

2. Unrelated Business Income

UBI in excess of $1,000 is subject to tax

UBI is:
a) Derived from an activity that constitutes a trade or business,
b) Regularly carried on, and
c) Not substantially related to the organization's tax-exempt purposes.

Exceptions to UBI tax
(1) Any activity where all of the work is performed by unpaid workers (volunteers).
(2) The sale or exchange of property not held primarily for sale to customers in the ordinary course of trade or business.
(3) The business carried on for the convenience of students, patients, members of 501 (c) (3) organizations.
(4) Income from the research of a college or hospital.
(5) Dividends, interest, and royalties (except income from debt-financed investments)
(6) Activity limited to exempt organizations by state law (e.g., bingo)
(7) Rents from real property, rents from personal property leased with real property (if less than 50% is attributable to the personal property), other than income from debt-financed property.