21.7.7. Exempt Organizations and Tax Exempt Bonds

(1) When an organization is granted an exemption, EO Rulings and Agreements will input the information on Master File to create the EO account or add the exemption data to an already existing account. When status codes 01 or 02 are present on the EO account, they indicate that an exemption was granted to the organization.

• Most IRC 501(c)(3)

• All IRC 501(c)(4)

• All IRC 501(c)(9)

• All IRC 501(c)(17)

• All IRC 501(c)(29)

• Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

• Form 1023-EZ, Application Form 1023-EZ.

• Form 1024, Application for Recognition of Exemption Under Section 501(a).

• Form 1024-A, Application for Recognition of Exemption under Section 501(c)(4) of the Internal Revenue Code.

• Form 8976

(2) Organizations other than those listed in (1)are not required to file an application for exemption, though they may do so. They may be considered exempt even though they don't apply for a formal exemption as long as they satisfy the requirements of the particular paragraph of IRC 501(c) they claim exemption under. Also, if they don't establish exempt status by application to Cincinnati, they are at risk of retroactive revocation and taxation if they are found not to be engaged in activities described by the subsection under which they filed.

(3) The EO status (EO-STAT) on CC INOLE or CC ENMOD (see Document 6209 or Document 6379, Information System Codes, for a complete list of EO Status Codes) identifies the account as:

• Active

• Inactive (revoked, out of business)

• Has never received an exemption

(4) Refer to the table below for a list of EO statuses and their definitions:

(5) If necessary, the EO Entity unit at the Ogden Campus should be contacted to update the status prior to any adjustment action taken on the account.

(6) A review of ENMOD, INOLES, or BMFOLI must be made prior to inputting a return or extension to an EO account to ensure the account isn't in one of the following statuses:

• Status 18

• Status 19

• Status 20

• Status 21

• Status 22

• Status 26

• Status 28

• Status 29

• Status 41

• Status 42

• Status 70

• Status 71

• Status 72

• Status 97

• Status 98

• Status 99

(1) There are other fields in the EO section, such as the Foundation, Affiliation, and Organization codes, which are useful when researching and resolving EO account related issues. See tables below for specific codes and explanations.
Foundation Codes (FNDTION CD)
(These codes are present with SS 03 accounts only)

(1) The most commonly requested documents which are made available for public inspection in accordance with IRC 6104(a)(1)(A) and IRC 6104(b) are:

• Form 990, Return of Organization Exempt from Income Tax and all related schedules

• Form 990-EZ, Short Form Return of Organization Exempt From Income Tax, and attachments required to be filed with the Service. For organizations (other than a Section 527 with periods beginning after 6-30-2000).

• Schedule A, Organization Exempt Under 501(c)(3)

• Schedule B, Schedule of Contributors

  Note: Except for private foundations and 527 political organizations, any Names and addresses of contributors must not be disclosed. Amounts of contributions may be disclosed but only if amount could not reasonably be expected to identify a contributor.

• Form 990-PF, Return of Private Foundation

• Form 990-T, Exempt Organizations Business Income Tax Return, (501(c)(3) organizations filed after August 17, 2006)

• Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, and supporting documents.

• Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

• Form 1024, Application for Recognition of Exemption Under Section 501(a), and supporting documents

• Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Internal Revenue Code, and supporting documents.

Note: Denied applications are available, in redacted form, pursuant to section 6110.

• Form 1041-A, U.S. Information Return-Trust Accumulation of Charitable Amounts

• Form 5227, Split-Interest Trust Information Return

• Form 1065, U.S. Return of Partnership Income, if filed by an organization described in IRC Section 501(d) (EO submodule-Subsection 40)

  Note: If Schedule K-1 is attached to a Form 1065, redact everything except the title of the schedule.

• Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, if filed by a private foundation (Form 4720 filed by individuals are not subject to disclosure provisions of IRC 6104).

• Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt from Federal Income Tax

• Form 8871, Political Organization Notice of Section 527 Status

• Form 8872, Political Organization Report of Contributions and Expenditures

• Form 8453-X, Political Organization Declaration for Electronic Filing of Notice of Section 527 Status

(2) Certain information in returns otherwise open to public inspection must be withheld by IRS from public inspection (and need not be disclosed by the exempt organization):

• Schedule B, except for contributors to private foundations and 527 political organizations, any names and addresses of contributors must not be disclosed and the amount of contributions is disclosed but only if amount could not reasonably be expected to identify a contributor.

• Schedules K-1 filed by 501(d) organizations

• Schedule A of Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons

• For returns for tax years beginning on or after Jan. 1, 2007, information regarding non-charitable beneficiaries in Form 5227.

(1) Private Foundations must provide copies of the approved applications for exemption and their three (3) most recent Form 990-PF returns to anyone who requests them:

• Immediately, if the request is made in person.

• Within 30 days if the request is made in writing.

• By making the document widely available via the Internet.

(2) Organizations may apply to be excused from fulfilling the requirements if they can prove that requests for their materials are part of a harassment campaign.

(1) If an organization fails to comply with the public inspection requirement by the date and in the manner prescribed under IRC 6104(d), a penalty of $20 a day may be imposed on any person with a duty to comply for each day the failure continues.

(2) The maximum penalty on all persons for any one return is $10,000.

(1) To request a copy of an exempt or political organization return, report, notice or approved exemption application from the IRS, the requestor may submit a complete Form 4506-A, Request for a Copy of Exempt or Political Organization IRS Form.

(2) Use the following chart to determine where to submit the written request or Form 4506-A.

(3) The request should indicate the type of return and the year(s) involved, if applicable. Charges for copies can be found in IRM 3.20.13, Exempt Organizations Photocopy Procedures.

(4) If an exempt organization requests an "unredacted" copy of its own return under IRC 6103, then a Form 4506, Request for Copy of Tax Return, must be completed and submitted to the address shown below. The fee shown on Form 4506 must be pre-paid.

Internal Revenue Service
RAIVS Team
P.O. Box 9941
Mail Stop 6734
Ogden, UT 84409

(5) Route all Form 4506-A requests received in EO Accounts to OSPC, EO Photocopy Unit, MS: 6716.

(6) Form 4506-B or requests for copies of exemption letters or applications only are sent to the address shown below or faxed to 855-204-6185.

TE/GE Adjustments Unit
P.O. Box 2508 Room: 4024
Cincinnati, OH 45201

(1) Electronic copies (images) of certain exempt organization returns filed with the Internal Revenue Service are no longer available, in USB formats. A bulk download of the images and machine readable data is available on TEOS.

(2) The bulk download is available at no cost.

(3) Refer to IRM 3.20.13, Exempt Organizations Photocopy Procedures, for a complete listing of what returns are available, formats and the related charge for other customers.

(4) Requests for USBs can be submitted on a Form 4506-A, Request for a Copy of Exempt or Political Organization IRS Form; however, RAIVS refers the requester via letter to TEOS. The form can be faxed to the EO Photocopy/RAIVS unit at 855-653-9144 or mailed to the address shown below.

Internal Revenue Service
RAIVS Unit MS: 6716
Ogden, UT, 84201

(5) Additional information regarding bulk downloads can be found at www.irs.gov/charities.

(1) When additional information is received from an organization (i.e., missing forms, schedules, missing signature) the tax examiner must determine what information needs to be scanned. Refer to the following procedures when additional items need to be scanned.

1. Photocopy the document(s) to be imaged. Don’t write on the documents to be imaged.

2. Attach a modified print of BRTVU to the front of the information to be scanned. The BRTVU print must be thoroughly edited and contain only the EIN, tax period, subsection code, form type (F990, 990-EZ, etc., not just the MFT) and entity information of the original filed return.

   Reminder: The subsection code is located in the EO section on BMFOLO, ENMOD or INOLES and must be manually entered on the print.

3. Place the refilm items in a separate folder behind the brown gusset folder containing the current day's closures.

(2) The photocopied information is treated as classified waste and destroyed after the Imaging Unit has scanned the photocopied item(s).

(3) The following is a list of items that may require scanning:

• The entire original return if the lower left-hand margin of the first page of the return has not been stamped "SCANNED" by the Imaging Unit.

• The entire amended return, if the left-hand margin of the first page on the return has not been stamped " SCANNED" by the Imaging Unit.

• All forms/attachments submitted by the organization in response to IRS correspondence for FORM(S)/ATTACHMENT(S) LEFT OFF the return as it was originally filed.

(4)

(5) MeF returns are extracted and imaged by SOI and no longer require special handling. MeF returns are available for viewing on either the Employee User Portal (EUP) or the Statistics of Income Exempt Organizations Return Image Net (-SEIN Research). SEIN Research is a system that allows viewing of an unredacted image of an EO return.

(1) A political organization must have its own employer identification number (EIN), even if it does not have any employees. To get an EIN, an organization must file Form SS-4, Application for Employer Identification Number. See Form SS-4 instructions for more information.

(2) Additionally, many political organizations must electronically file their periodic reports. In order to electronically file these reports, an organization needs the user name and password issued to it after filing its initial notice. If the user name and password are forgotten or misplaced, the political organization can fax or send a letter requesting a new user name and password to:

Internal Revenue Service
Attn: Request for 8872 Password
M/S: 6273
Ogden, UT 84201
EEFax 855-214-7520

(3) The filing requirements in the table below apply to those political organizations that wish to be a tax-exempt political organization and that receive or expect to receive $25,000 or more in gross receipts in any taxable year.

(4) If the organization is:

• A political organization that isn't tax-exempt, or

• A tax-exempt political organization that does not have gross receipts of at least $25,000,

Form 1120-POL must be filed if there is taxable income (after taking the $100 specific deduction) for any taxable year.

(5) To be tax-exempt, certain political organizations must file Form 8871 within 24 hours of establishment and within 30 days of any material change. Both Form 8871 and Form 8872 must be filed electronically.

(1) While all charities and non-profits were encouraged to take advantage of the many benefits of electronic filing before the enactment of the TFA, certain exempt organizations were already required to file their annual information return electronically. For tax years ending on or after December 31, 2006, exempt organizations with $10 million or more in total assets were required to file their return electronically if they also filed at least 250 returns in a calendar year, including income, excise, employment tax, and information returns, e.g., Form 941, Form W-2, Form 1098.

(2) Prior to the enactment of the TFA, private foundations and nonexempt charitable trusts that are treated as private foundations were required to file the Form 990-PF electronically, regardless of their assets, if they filed at least 250 returns annually.

(3) Notice 2010-13 established criteria under which exempt organizations can request a waiver from the electronic filing requirement:

• Where the exempt organization cannot meet electronic filing requirements due to technology constraints; or

• Where compliance with the requirements would result in undue financial burden on the filer.

(4) Waiver requests are processed by the Ogden Campus:

Internal Revenue Service
Ogden Submission Processing Center
Attn: Forms 1120 and 990 e-file Waiver Request, Stop 1057
Ogden, UT 84201

Fax number 877-477-0575

Private Delivery Service

Internal Revenue Service
Ogden Submission Processing Center
Attn: Forms 1120 and 990 e-file Waiver Request, Stop 1057
1973 N. Rulon White Blvd
Ogden, UT 84404

Organizations that request a waiver of the requirement to file their returns electronically will receive Letter 4069C from the e-Help Desk informing them whether their request was granted or not. If the request is denied, the letter will explain why. If the request is granted, the approval applies only to the tax period requested in the waiver.

(5) A TC 971 Action Code indicates whether the waiver request was approved (AC 322) or denied (AC 323). The code will be displayed on CC TXMOD and CC BMFOLT for the period for which the waiver was requested.

(1) If an organization attempts to file a return electronically and is unable to do so, the electronic return originator (ERO) will receive notification from the Service that the return was not accepted for processing. The ERO is required to inform the filer of the reject within 24 hours, provide the filer with an explanation of why the return was not accepted through the electronic system, and inform him/her a paper return must be filed.

(2) A paper return received after the return due date will not be processes or considered timely filed; update the account, as necessary, so filer can file electronically; return the paper return to the filer informing them they need to file electronically. Per the Taxpayer first Act All returns filed for 2020, 2021, 2022 and subsequent have been mandated to file efile and should be sent back to the filer. EUP should be used to determine if these returns were timely filed, not a mail receipt.

(1) Some organizations that file Form 990 receive a group ruling. This type of ruling is identified by a Group Exemption Number (GEN). The central organization of the group ruling is identified by an Affiliation Code (AC) "6" or "8" on CC ENMOD.

(2) A group return entity has its own EIN, which is a dummy entity used to file the group return. The group return entity is identified by a Form 990 filing requirement of "3" and words "Group Return" added to the organization's name.

(3) The central organization of the group receives the ruling and members or subordinates of the group are added as the central organization determines their eligibility. Normally subordinate entities and the central organization have the same name, identified by the presence of a chapter name or local number. The subordinate is identified by an Affiliation Code of "7" or "9" on CC ENMOD.

(1) An organization that has one or more subordinates under its general supervision or control is referred to as a central organization.

(2) The central organization has a separate EIN and is identified by an Affiliation Code "6" (central organization of a group ruling - not a church) or "8" (central organization of a church).

(3) A central organization files one Form 990 for itself based on the income and expenses of only the central organization. It may also file a group return that includes all of the income and expenses for its affiliates who elect to be included on a group return.

(1) A chapter, local, post, or unit of a central organization is referred to as a subordinate organization.

(2) A subordinate is identified by an Affiliation Code "7" (intermediate parent - subordinate by state) or "9" (subordinate of a group ruling or group return).

(3) A subordinate may choose to file as part of a group return or may file a separate return.

(4) Every year, each subordinate must authorize the central organization in writing to include it in the group return. The group return is filed under the group return's EIN. Any subordinate not filing as part of the group must file a separate return using its own EIN. A group code 8 (entered on the edit sheet) means that only some of the affiliates are included in the group return. A group code 7 means that all of the affiliates are included.

(5) A TC 590 014 is input on each of the affiliated subordinate’s EIN that is included in the group return to prevent a delinquency notice from being issued.

(1) Gross receipts are figured as outline below:

• Form 990, Part VIII, Column A - Gross receipts are the total of lines 6b (both columns), 7b (both columns), 8b, 9b, 10b and 12.

• Form 990-EZ, Part I, lines 5b, 6c, and 7b to line 9.

(1) Virgin Islands (VI) EOs must file a timely Form 990 with the Bureau of Internal Revenue (BIR) in the Virgin Islands and the U.S. IRS. In the past, some organizations have sent copies of their return to the Ogden Submission Processing Campus for information purposes only. If the Form 990 was received after the return due date, the organization was assessed a Daily Delinquency Penalty for late filing and a balance due notice was generated to the organization.

(2) In response to the notice, the OAMC EO Accounts units receive correspondence from the organizations requesting abatement of the penalty. Their request is based on the fact that the organization filed their return timely with the VIBIR and, therefore, are not required to file a return with the United States IRS.

(3) The VIBIR and IRSA implemented a Memorandum of Understanding (MOU) establishing procedures for processing applications for recognition of exemption from federal income tax under IRC 501. It also gives guidance on filing returns by tax-exempt organizations chartered in the US Virgin Islands (USVI). Under this agreement, organizations have a choice:

(4) Before you abate the delinquency penalty, follow these procedures:

1. Research command code BMFOLO and ENMOD to determine the current exempt status of the organization. If the account is in Status 97, see IRM 21.7.7.6.24, Reasonable Cause Background, paragraph 11.

2. If the current status is favorable and the organization states in response to the penalty notice that it is chartered in the USVI and files its 990 returns with the BIR, request the organization to provide the BIR certification of the organization's Form 990 filings. The certification provides a record of the filing history and should include the tax year, type of form filed and date it was filed. The certification must be stamped and signed by a representative of the VIBIR. In addition, the organization is required to submit copies of the Forms 990 filed for the three most recent tax years.

3. Suspend the case for 45 days pending reply from the organization. Contact them either telephone or in writing.

4. If the organization provides the certification and copies of the prior year returns, process the returns as normal. Edit the returns in red and restrict penalty assessment on the prior years by using computer condition codes "R" and "V".

5. Abate the DDP on the current account and issue correspondence for penalty abatement.

   Note: If statute periods are involved, follow statute guidelines.

6. If the organization doesn’t submit the information, correspond with them and explain that we won’t adjust the penalty at this time because they didn’t provide the requested information.

7. Give a current balance due and release the STAUP.

8. If the BMFOLO research in step a) above shows the organization doesn’t have favorable exempt status, contact the Cincinnati TE/GE office at 513-263-3758. They secure a copy of the record and send it to a determination specialist for review. The specialist researches the account and determines if the exemption is still valid. If the organization is determined to be exempt, the specialist updates the EO section of the account to reflect a good status and notifies the EO Accounts tax examiner.

9. Proceed as described in steps b) & c) above.

10. If a record isn't available, Cincinnati TE/GE calls the EO Accounts tax examiner.

11. Refer the case to the Field.

(5) If you determine the organization meets any of the criteria below, send the case to the Field for review:

• Does not qualify for tax exempt status.

• Exempt, but fails to provide the certification or file the prior year returns with the US IRS.

• Is uncooperative in any way in resolving the delinquency penalty issue.

(6) The above procedures apply to all forms required to be filed by the organization.

(1) A foreign organization that has U.S. exemption is required to file an annual information return, unless there is a treaty, MOU or a Revenue Procedure (e.g., Revenue Procedure. 94-17 or Revenue Procedure 2003-21) that applies. Since US doesn’t have any of these treaties with the American Samoa, refer the case to the Field for resolution.

(1) A Private Foundation is a domestic or foreign organization exempt from income tax under IRC 501(a); described in IRC 501(c)(3); and is other than an organization described in IRC 509(a)(1), IRC 509(a)(2), IRC 509(a)(3), or IRC 509(a)(4). In general, churches, hospitals, schools, and broadly public supported organizations are excluded from private foundation status by these sections.

(2) A Non-Operating Private Foundation is a private foundation that isn't a private operating foundation.

(3) A Nonexempt Charitable Trust is treated as a private foundation. It is a trust that isn't exempt from tax under IRC 501(a), that has all its unexpired interests devoted to religious, charitable, or other purposes described in IRC 170(c)(2)(B) and that may take a deduction under IRC 4947(a)(1).

(4) A Taxable Private Foundation is an organization that is no longer exempt under IRC 501(a) as an organization described in IRC 501(c)(3). Though it may operate as a taxable entity, it will continue to be treated as a private foundation until that status is terminated under IRC 507.

(5) A Private Operating Foundation is an organization that is described under IRC 4942(j)(3) or IRC 4942(j)(5). It is a private foundation that meets the income test, which means spending at least 85% of its adjusted net income or its minimum investment return, whichever is less, directly on the operations of its exempt activities. Additionally, the foundation must also meet one of the following tests:

• Assets test

• Endowment test

• Support test

Some private foundations qualify as private operating foundations. These are types of private foundations that, although lacking general public support, make qualifying distributions directly for the active conduct of their educational, charitable, or religious purposes, as distinct from merely making grants to other organizations for these purposes. Most of the restrictions and requirements that apply to private foundations also apply to private operating foundations.

(6) Exempt Operating Foundation is an operating foundation described under IRC 4940(d)(2). The foundation must obtain a letter ruling from the IRS recognizing special status, may not owe any tax and isn’t liable for any tax on net investment income on Form 990-PF.

(1) A private foundation is subject to different taxes on its investment income under IRC 4940 or 4948 depending on various factors.

1. Most private foundations are subject to a 1.39% tax on their investment income under IRC 4940(a) for tax years beginning after December 20, 2019.

2. For tax years beginning on or before December 20, 2019, the excise tax is 2% of net investment income, but can be reduced to 1% in certain cases that meet the requirements of IRC 4940(e).

   Note: IRC 4940(e) was repealed December 20, 2019 with Pub.L. 116-94 [HR 1865]. The instructions from (1)(b) through (4) below that relate to the requirements of IRC 4940(e) are valid for tax years beginning on or before December 20, 2019 only.

3. Different rules apply to private foundations that meet certain distribution requirements (IRC 4940(e)), taxable private foundations and 4947(a)(1) nonexempt charitable trusts (IRC 4940(b)), exempt operating foundations (IRC 4940(d)), and foreign private foundations (IRC 4948(a)).

4. In addition, private operating foundations are not subject to tax under IRC 4942 for failure to distribute income.

(2) Domestic Exempt Private Foundations are subject to a 1.39% (2% for tax years beginning on or before December 20, 2019) tax on net investment income under IRC 4940(a). However, certain private foundations that meet the requirements of IRC 4940(e) may qualify for a reduced tax of 1% (see Form 990-PF, Part V instructions). To qualify for the 1% tax rate, the private foundation must:

• Be subsection 03

• Be Foundation Code 03 or 04

• Not be in its first year of existence

• Have the box on Part VI, Line 1b checked

• Have Part V completed: Line 8 must be greater than or equal to Line 7 in order to qualify for the 1% tax rate

• Be a U.S. domestic organization

The foundation must make a separate computation for each year it wants to qualify for the reduced tax rate of 1%. A private foundation can’t qualify under IRC 4940(e) for its first year of existence, nor can a former public charity qualify for the first year it’s treated as a private foundation. This is an annual election and the taxpayer must meet the above criteria each year to qualify for the reduced tax rate.

(3) Domestic Taxable Private Foundations and IRC 4947(a)(1) Nonexempt Charitable Trusts are subject to a modified 1.39% (2% for tax years beginning on or before December 20, 2019) tax rate on net investment income under IRC 4940(b). If they meet the requirements of IRC 4940(e), they may qualify to use a modified 1% tax on net investment income (see Form 990-PF, Part V instructions). Qualifications for the 1.39% (2% for tax years beginning on or before December 20, 2019) tax rate:

• Subsection 03 or 92

• Foundation Code 03 or 04

• Must be a U.S. domestic organization

(4) POF – A private foundation may qualify for treatment as a Private Operating Foundation (POF). These foundations generally are still subject to the tax on net investment income and to the other requirements and restrictions that generally apply to private foundation activity. However, operating foundations are not subject to the excise tax on failure to distribute income. POF as described in IRC 4942(j)(3) refers to any private foundation that spends at least 85% of its adjusted net income or its minimum investment return, whichever is less, directly for the active conduct of its exempt activities (the income test), and also meets one of the following tests:

• Assets test

• Endowment test

• Support test

Income Test - To qualify as an operating foundation, the organization must make qualifying distributions directly for the active conduct of its exempt activities equal to at least 85% of the lesser of its adjusted net income or minimum investment return.

Certain private foundations that provide long-term care facilities are treated as operating foundations only for the purposes of the excise tax on failure to distribute income.

Private Operating Foundations are taxed at either 1.39% (2% for tax years beginning on or before December 20, 2019) or 1% if they qualify for a reduced rate under IRC 4940(e). Qualifications for these tax rates are the same as for Domestic Taxable Private Foundations as shown above.

(5) Exempt Operating Foundations described in IRC 4940(d)(2) that have a determination letter from IRS establishing its exempt operating foundation status have a 0% tax. These letters, issued by the Cincinnati ruling group, specifically refer to the organization as an "exempt operating foundation." If the organization doesn’t have this letter, they don’t qualify for the 0% rate. The organization must also meet these additional qualifications:

• Subsection 03

• Foundation Code 02

• Check the box on Line 1a in Part VI and enter the ruling date

• It is an operating foundation described in IRC 4942(j)(3)

• It was publicly supported for at least 10 years

• Its governing body during the tax year consists of individuals fewer than 25% of whom are disqualified individuals and it is broadly representative of the general public

• It has no officer who was a disqualified individual at any time during the tax year

If an organization enters into a 60-month termination, it does not lose its tax exempt operating foundation status if it continues to meet all the requirements described above.

(6) Foreign Organizations are exempt foreign private foundations that have been granted tax-exempt status under U.S. tax law. They are required to pay an excise tax equal to 4% of their gross investment income received from sources in the United States, any territory, any political subdivision of a territory, or the District of Columbia. An exception to this rule is made when a tax treaty between the U.S. and the foreign country of which the private foundation is a resident specifically exempts income received by these organizations from any tax and the organization meets a limitations on benefits test in the treaty. Qualification for the 4% tax rate:

• Subsection 03 or 92

• Foundation Code 03 or 04

• Box D1 on page 1 must be checked to indicate the organization is a foreign organization.

  Note: Foreign private foundations receiving at least 85% of their support (excluding gross investment income) from sources outside the U.S. are not subject to the excise taxes on self-dealing, failure to distribute income, excess business holdings, investments that jeopardize charitable purposes, and taxable expenditures. Such foundations are also not subject to IRC 507, relating to termination of private foundation status, and IRC 508, regarding special rules for giving notice when they are applying for recognition of exempt status.

Some other unique requirements for foreign organizations are:

• Foreign organizations don't have to have a foreign address.

• Foreign organizations don't have to complete Parts XI, XIII, or XV and also don't have to complete Part X if they are not private operating foundations (SC 03 with FC 02 or FC 03).

• If they say they are a domestic organization and should be taxed at a lower tax rate, the organizations need to provide us with a copy of their determination letter and complete all parts of the return.

• A Canadian foundation may or may not be treated as a foreign organization depending on what treaty it falls under. They will usually reference the treaty on the return. A foreign organization cannot claim expenses against its income.

(1) Once an organization is determined to be a private foundation, its status may be terminated only under the provisions of IRC 507.

1. An organization's status as a private foundation may be terminated voluntarily or involuntarily.

2. IRC 507 lists four methods of changing or terminating an organization's status as a private foundation.

(2) If the organization's status is terminated either voluntarily or involuntarily under IRC 507(a), the organization becomes liable for tax under IRC 507(c)

• IRC 507(a)(1) - Voluntary Termination

• IRC 507(a)(2) - Involuntary Termination

• IRC 507(b)(1)(A) - Transfer of Assets to a Public Charity

• IRC 507(b)(1)(B) - Operation as a Public Charity

(1) Unrelated trade or business income is the gross income derived from any trade or business that is regularly carried on and not substantially related (other than through the production of funds) to the organization's exempt purpose or function except that the organization uses the profits derived from this activity. Refer to Publication 598, Tax on Unrelated Business Income of Exempt Organizations, for additional information.

(2) Fiduciaries for the following trusts that have $1,000 or more of unrelated trade or business gross income must file Form 990-T:

• Individual Retirement Accounts (IRAs) - IRC 408(a)

• Simplified Employee Pensions (SEPs) - IRC 408(k)

• Simple Retirement Accounts (SIMPLEs) - IRC 408(p)

• Roth IRAs - IRC 408A(b)

• Education IRAs - IRC 530(b)

• Medical Savings Accounts (MSAs) - IRC 220(d)

• Qualified tuition programs - Section 529.

(1) Every IRC 511(a)(2) organization’s UBTI is taxed at the corporate rate (IRC 511(a)(1)). Individual IRAs are exempt from taxation under IRC 408(e). An IRA that has UBTI is taxable under IRC 511(a)(1) and is taxed at the corporate rate. Identify these accounts by researching ENMOD to verify that the entity has the word IRA in the name line (i.e., John Smith IRA) and the FR is 2.

(2) If correspondence is received from a taxpayer indicating their Form 990-T is an IRA filed under IRC 511(a)(1), but was assessed tax at the trust rate, adjust the tax:

1. Verify taxpayer is a IRC 511(a)(1) filer (see paragraph one above).

2. Recompute tax based on applicable corporate tax rate (see IRM 21.7.7.6.3.3, Tax Rates).

3. Input TC 291 for appropriate dollar amount.

(1) The tax rate charged on Form 990-T varies according to the type of organization.

1. IRC 501(c) corporations, associations and state colleges and universities are taxed using corporate tax rates (Form 1120).

2. IRC 501(c) trusts, IRC 401(a) trusts and IRC 408(a) trusts are taxed using trust tax rates (Form 1041).

3. Form 990-T returns filed for the Proxy tax under IRC 6033(d)(2) on nondeductible lobbying and political expenditures should have a copy of the tax computation attached.

(2) Trusts exempt under IRC 501(a) which otherwise would be subject to subchapter J (estates, trusts, etc.) are taxed at trust rates. This rule also applies to employees' trusts that qualify under IRC 401(a). Most trusts figure the tax on the amount on line 11 (line 11 for 2020 revision, line 39 for 2019 revision, line 38 for 2018 revision) using the Tax Rate Schedule for Trusts below:

(1) When adjusting tax on a Form 990-T, you may need to adjust taxable income. Use TC 886 as the reference number.

(1) Recipients of dividend or interest payments must generally certify their tax identification number to the payer on Form W-9, Request for Taxpayer Identification Number and Certification. If the payer does not get this information, it must withhold part of the payments as Backup Withholding (BUWH).

(2) If an organization was subject to erroneous backup withholding because the payer did not realize it was an exempt organization and not subject to this withholding, the organization may claim the amount withheld as a credit on Form 990-T or Form 990-PF.

(3) When BUWH is claimed on Form 990-T, the erroneously withheld amount is reported in Part III, line 6e (Part V, line 51e for 2019, Part V, line 50e for 2018 and Part IV, line 45e for 2017 and prior). If claimed on Form 990-PF, the credit is claimed on Part V, line 6d (Part VI, line 6d for 2020 and prior).

(4) EOs claiming backup withholding of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ must be supported by either Form 1099 or confirmed using CC IRPTR. Allow amounts of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ without supporting documentation. See IRM 21.7.4.4.10, Federal Income Tax Withheld (FITW)/Backup Withholding (BUWH) on Income Tax Returns, for instructions on how to process erroneous backup withholding claims.

(5) Refunds for backup withholding are not issued as manual refunds from Form 941 or Form 945.

(6) If Form 843 is filed, reject the claim and explain to the organization that they must file an income tax return (Form 990-PF or Form 990-T) to claim the credit.

(7) If the organization isn't required to file Form 990-PF, instruct them to report it on Form 990-T.

(1) IRAs or other tax-exempt shareholders that have invested in a Regulated Investment Company (RIC) or a Real Estate Investment Trust (REIT) file Form 990-T in order to obtain a refund of income tax paid on undistributed long-term capital gains.

(2) Most claims for refund of taxes paid by a RIC on amounts reported on Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, are claimed on a Composite Form 990-T, citing Notice 90–18. A trustee can file a composite Form 990-T to claim one refund of tax paid on undistributed long-term capital gains flowing through from a RIC to two or more IRA accounts managed by the trustee. The top of the Form 990-T should be annotated "Composite", "Notice 90–18" or "IRC 852(b)".

(3) Refunds of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ must be supported by Form 2439 and reviewed by the Field. You can allow refunds of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ without supporting documentation.

(4) Action required:

1. Input TC 290 $.00 and TC 766 with a positive amount to allow the credit.

2. Input TC 290 $.00 and TC 767 with a negative amount to reduce the credit.

(5) Loose Forms 2439, copies A and B, are filed by the nominee if they are not the actual owner of the shares for which the form is issued. Follow IRM 21.7.4.4.9.2.2, Loose Form 2439, Copies A and B, procedures for processing loose Forms 2439 received for IRA trusts.

(1) The Tax Cuts and Jobs Act of 2017 (TCJA), Section 12001, repealed the alternative minimum tax for corporations for taxable years beginning after December 31, 2017.

(2) TCJA Section 12002 amended IRC Section 53 to allow corporations to treat a portion of their prior year minimum tax credit carryover as refundable. The amount of the refundable credit is equal to 50% for taxable years beginning in 2018, 2019, or 2020 (100% in taxable years beginning in 2021) of the excess (if any) of the minimum tax credit carryover to the taxable year over the amount of the otherwise allowable credit against regular tax liability.

(3) The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Section 2305 modifies the credit for prior-year minimum tax liability of corporations as previously allowed by TCJA Section 12002 referenced in paragraph (2) above. Corporate filers can now accelerate the recovery of remaining minimum tax credits for its 2019 taxable year from its 2021 taxable year and elect instead to recover 100% of any of its remaining minimum tax credits in its 2018 taxable year.

(4) Use the following table to resolve:

(1) The Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017, created IRC section 199A, Qualified Business Income Deduction (QBID), which allows eligible taxpayers (other than corporations) a deduction for income earned in a qualified trade or business conducted as a sole proprietorship or through a partnership, S corporation, estate, or trust, subject to certain limitations. Wages earned as an employee are not eligible for the deduction.

(2) The QBID includes a deduction of up to 20% of Qualified Business Income (QBI) from a qualified trade or business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate. QBI includes income from a qualified domestic trade or business. Amounts received as wages, capital gain, interest, and dividend income are not considered QBI, and are excluded from the calculation.

(3) The QBID also includes a deduction of up to 20% of eligible taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.

(4) The QBID is limited to the lesser of (a) the sum of the amounts described in the paragraphs (2) and (3) above, or (b) an amount equal to 20% of the excess (if any) of taxable income of the taxpayer for the taxable year over the net capital gain of the taxpayer for the taxable year.

(5) Qualified business income includes domestic income from a qualified trade or business. Employee wages, capital gain, interest and dividend income other than REIT dividends are not considered qualified business income and are excluded from the calculation. See Tax Cuts and Jobs Act, Provision 11011 Section 199A - Qualified Business Income Deduction FAQs for additional information.

(6) The QBID is available for tax years ending after December 31, 2017. For more information, see the Form 1040 Instructions or Publication 535, Business Expenses.

(7) The Form 1041, 5227 and Form 990-T Instructions will direct taxpayers to refer to the Form 1040 Instructions for the appropriate tax year.

(8) The Tax Cuts and Jobs Acts of 2017 (TCJA), Section 13823, allows a taxpayer to elect to defer capital gains timely invested in a Qualified Opportunity Fund (QO Fund).

(1) The QBID can be claimed on Form 1041, Form 1041-N, Form 1041-QFT, Form 5227 and 990-T. See the table below for the lines the QBID can be reported:

(2) QBID is subject to CAT-A criteria. See IRM 21.5.3-2, Examination Criteria (CAT-A) - General, for more information. If CAT-A criteria is met, forward to CAT-A. See IRM 21.7.7.6.16.2 Claim for Refund/Reconsideration ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , for more information.

(1) Notice 90–18 provided a method under which trustees of IRAs that have invested in regulated investment companies file a composite return for such IRAs to claim a refund under IRC 852(b).

(2) An IRA that has invested in a regulated investment company that elected to retain a long term capital gain must file a Form 990-T to claim a refund of its share of tax paid by the RIC under IRC 852(b). In lieu of filing a separate Form 990-T for each IRA, a common trustee of more than one IRA entitled to refunds under IRC 852(b) may now file a single composite Form 990-T for all IRAs.

(3) This composite filing is done as follows:

• The trustee must apply to the IRS for a special EIN on Form SS-4, Application for Employer Identification Number. The trustee must indicate that the application is for a special EIN by writing "Notice 90–18" on the top of the Form SS-4. The special EIN is effective only for making a composite claim for refund of tax under IRC 852(b) on behalf of the IRAs administered by the trustee. The trustee shouldn’t apply for a separate specialized EIN for each year it makes a claim for refund.

• The trustee files one composite return on Form 990-T for each year it makes a claim. It must attach a list of the IRAs for which the claim is being made showing the names and social security numbers of the persons who established the IRAs and the allocated shares of tax paid by the RICs. The IRAs must be grouped according to the RIC in which it has made an investment. Form 2439 must be attached for each RIC according to such grouping.

• The trustee must write on the top of the Form 990-T"Composite Return per Notice 90–18". It must enter the special EIN assigned for the composite return (and only the EIN) in the block provided for EINs.

• The IRS issues a refund check to the IRA trustee. The trustee must allocate the refund to the IRA trusts according to the amounts due as shown on the composite return.

(4) A composite return isn't available for:

• A person acting merely as a nominee (owner of record) of RIC shares owned by an IRA. A composite return may only be filed by a common trustee on more than one IRA.

• An IRA that has Unrelated Business Taxable Income (UBTI). The trustee of that IRA must file a separate Form 990-T for the IRA reporting the income on that return and claiming credit under IRC 852(b) as an offset against the IRA's UBTI tax liability.

(1) The forms below are associated with Form 990-T.

(1) Form 6069, Return of Certain Excise Taxes on Mine Operators, Black Lung Trusts, and Other Persons Under Sections 4951, 4952 and 4953, is primarily a worksheet (Schedule A) used to determine the maximum allowable income tax deduction (under IRC 192) for contributions made by coal mine operators to tax-exempt black lung benefit trusts. The form is also used to determine the amount of excise tax imposed under IRC 4953 for contributions that are more than the maximum allowable deduction (see Schedule B).

(2) The MFT is 57 and the tax class is "6" (NMF). Form 6069 is due by the 15th day of the 5th month after the end of the tax year.

(3) Form 6069 is processed at the KCSPC to NMF. Route cases involving Form 6069 to:

Internal Revenue Service
NMF Unit
333 W. Pershing Road
Kansas City, MO 64108

(1) A political organization is subject to tax on its political organization taxable income. Generally, the tax is calculated:

1. By multiplying the political organization taxable income by the highest rate of tax 21% for tax years beginning after December 31, 2017.

2. Using the graduated rates shown in IRM 21.7.7.6.5.2, Tax Rate, if the organization is the principal campaign committee of a candidate for U.S. Congress.

(2) The exempt function income is the part of a political organization's income that it sets aside to use for its exempt function. The organization may receive it as any one of the following four types of income:

• A contribution of money or other property.

• Membership dues, fees, or assessments from a member of the political organization.

• Proceeds from a political fund-raising or entertainment event or from the sale of political campaign materials, which are not received in the ordinary course of any trade or business.

• Proceeds from conducting bingo games that are defined in IRC 513(f)(2).

Taxable income includes exempt function income (such as contributions) for any period of time that a political organization doesn’t file a Form 8871 as required.

(3) The exempt function income is the portion of a political organization's income that the organization sets aside for use for its exempt function. It may be received as any one of the following four types of income:

• A contribution of money or other property;

• Membership dues, fees, or assessments from a member of the political organization;

• Proceeds from a political fund-raising or entertainment event or from the sale of political campaign materials, which are not received in the ordinary course of any trade or business; or

• Proceeds from conducting bingo games that are defined in IRC 513(f)(2)

Taxable income includes exempt function income (such as contributions) for any period of time that a political organization does not file a Form 8871 as required.

(4) Taxable income is figured with the following adjustments:

• A specific deduction of $100 is allowed (but not for Newsletter funds);

• The net operating loss deduction isn't allowed;

• The dividends-received deduction and other special deductions for corporations are not allowed. See IRC 527(c)(2)(C).

(1) The rate of tax imposed depends on whether the political organization is a principal campaign committee as defined in IRC 527(h). The tax rate is lower for a principal campaign committee.

(2) An organization that isn't a principal campaign committee is taxed as follows:

Tax periods 201812 to present

If taxable income on Line 19 is over:	But not over:	Tax is:
$0	or greater	21%

Note: If the taxpayer filed a fiscal return (tax year ending 201801 through 201811) and used the Corporate Tax Rate, compute the tax using the following computation:

Step	Action	Amount
Step 1	Figure the corporate tax for entire tax year using the corporate tax rate schedule below.	Line 1 amount
Step 2	Figure the corporate tax for entire tax year using the 21% flat tax.	Line 2 amount
Step 3	Multiply Line 1 by the number of days in the filer’s tax year before January 1, 2018.	Line 3 amount
Step 4	Multiply Line 2 by the number of days in the filer’s tax year after December 31, 2017.	Line 4 amount
Step 5	Divide Line 3 by the total number of days in the filer’s tax year.	Line 5 amount
Step 6	Divide Line 4 by the total number of days in the filer’s tax year.	Line 6 amount
Step 7	Add Lines 5 and 6. This is the filer’s total tax for the fiscal year.	Total tax amount

• 201712 and prior compute by multiplying line 19 by 35%

(3) A political organization that is a principal campaign committee of a candidate for U.S. Congress computes its tax in the same manner as provided in IRC 11(b) for corporations. The tax is computed as follows:

(4) For tax periods beginning prior to 201812, compute as listed below:

(5) Estimated tax and alternative minimum tax don't apply to political organizations.

(1) Penalties may be imposed if the organization is required to file Form 1120-POL and it fails to:

• File the form by the due date;

• Pay the tax by the due date;

• Report all the information required or it reports incorrect information.

(2) See IRM 20.1.8.3, Exempt Organizations and Certain Trusts, , for additional information.

(1) Form 8871 (including any supporting papers) and any letter or other document the IRS issues about Form 8871 is open to public inspection at the IRS in Washington, D.C. The forms may be viewed and downloaded from a searchable database.

(2) In addition, the organization is required to make a copy of these materials available for public inspection during regular business hours at the organization's principal office and at each of its regional or district offices having at least three paid employees.

(3) A penalty of $20 per day is imposed on any person with a duty to comply with the public inspection requirement for each day a failure to comply continues.

(4) See IRM 20.1.8, Employee Plans and Exempt Organizations Miscellaneous Civil Penalties, for additional information.

(1) Route correspondence issues involving either Form 8871 or Form 8872 as follows:

• Route any entity related changes or questions on Form 8871 or Form 8872 to OSPC EO Entity for resolution. This includes amended returns.

• Refer technical questions on Form 8871 or Form 8872 to the CAS toll free number: 877-829-5500.

• Route correspondence addressing reasonable cause requests for late filing to OAMC EO Accounts.

(2) Correspondence issues received in EO Accounts generally have to do with extension requests or determining whether an organization is required to file Form 8871. For extension requests, inform the organization that there is no extension of time to file Form 8871.

(1) When an organization files an SS-4 and indicates that it is a political organization, the entity is coded with a "1" in the "527 Indicator" field located on INOLES (527-POL-ORG-CD). If certain filing requirements are not met, the IRS issues one of the following notices.

• CP 249A, Form 8871- Political Organization Notice of Section 527 Status- Not Filed, Request for Information, requests that the organization file a Form 8871.

• CP 249B, Form 8872 Filed Late, Request for Information, informs the organization that it filed the Form 8872 late and that there is a penalty for late filing. The CP notice requests a reason for the late filing.

• CP 249C, Form 8872 Not Filed, Request for Information, notifies an organization that it filed a Form 8871 and that it is required to file the Form 8872 (unless the organization is a QSLPO). The notice requests the organization to file a Form 8872 or to amend its Form 8871 to identify itself as a QSLPO.

(2) If any of the above notices are received in EO Accounts, route to EO Entity MS: 6273. For additional information, refer to IRM 21.3.8.10.2.12, CP 249 Notices for IRC 527 Organizations.

(1) The IRS will make Form 8872 (including Schedules A and B) open to public inspection on the IRS web site at https://www.irs.gov/charities-non-profits/political-organizations/political-organization-filing-and-disclosure, Political Organization Filing and Disclosure. In addition, the organization must make available for public inspection a copy of this report during regular business hours at the organization's principal office and at each of its regional or district offices having at least three paid employees.

(2) A penalty of $20 per day will be imposed on any person under a duty to comply with the public inspection requirement for each day a failure to comply continues. The maximum penalty imposed on all persons for failures relating to one report is $10,000.

(3) A penalty will be imposed if the organization is required to file Form 8872 and it:

• Fails to file the form by the due date or

• Files the form but fails to report all of the information required or it reports incorrect information.

The penalty is 21% for tax years beginning after December 31, 2017 (35% for tax years beginning before December 31, 2017) of the total amount of contributions and expenditures to which a failure relates.

(4) See IRM 20.1.8, Employee Plans and Exempt Organizations Miscellaneous Civil Penalties, for additional information.

(1) The table below provides a summary of forms required to be filed by political organizations:

(1) Correspondence issues relating to Form 4720 may include any of the following:

• Balance due notices;

• Missing payments;

• Requests for penalty abatement;

• Abatement of First Tier Tax;

• Missing required attachments;

• Erroneous refunds.

(1) The following penalties apply to public charities, private foundations, foundation managers, and self-dealers required to file Form 4720.