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Amend My Taxes

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Amend My Taxes

Amend my taxes 6. Amend my taxes   How To Figure Cost of Goods Sold Table of Contents Introduction Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42Line 35 Inventory at Beginning of Year Line 36 Purchases Less Cost of Items Withdrawn for Personal Use Line 37 Cost of Labor Line 38 Materials and Supplies Line 39 Other Costs Line 40 Add Lines 35 through 39 Line 41 Inventory at End of Year Line 42 Cost of Goods Sold Introduction If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. Amend my taxes However, to determine these costs, you must value your inventory at the beginning and end of each tax year. Amend my taxes This chapter applies to you if you are a manufacturer, wholesaler, or retailer or if you are engaged in any business that makes, buys, or sells goods to produce income. Amend my taxes This chapter does not apply to a personal service business, such as the business of a doctor, lawyer, carpenter, or painter. Amend my taxes However, if you work in a personal service business and also sell or charge for the materials and supplies normally used in your business, this chapter applies to you. Amend my taxes If you must account for an inventory in your business, you must generally use an accrual method of accounting for your purchases and sales. Amend my taxes For more information, see chapter 2. Amend my taxes Figuring Cost of Goods Sold on Schedule C, Lines 35 Through 42 Figure your cost of goods sold by filling out lines 35 through 42 of Schedule C. Amend my taxes These lines are reproduced below and are explained in the discussion that follows. Amend my taxes 35 Inventory at beginning of year. Amend my taxes If different from last year's closing inventory, attach explanation   36 Purchases less cost of items withdrawn for personal use   37 Cost of labor. Amend my taxes Do not include any amounts paid to yourself   38 Materials and supplies   39 Other costs   40 Add lines 35 through 39   41 Inventory at end of year   42 Cost of goods sold. Amend my taxes Subtract line 41 from line 40. Amend my taxes  Enter the result here and on line 4   Line 35 Inventory at Beginning of Year If you are a merchant, beginning inventory is the cost of merchandise on hand at the beginning of the year that you will sell to customers. Amend my taxes If you are a manufacturer or producer, it includes the total cost of raw materials, work in process, finished goods, and materials and supplies used in manufacturing the goods (see Inventories in chapter 2). Amend my taxes Opening inventory usually will be identical to the closing inventory of the year before. Amend my taxes You must explain any difference in a schedule attached to your return. Amend my taxes Donation of inventory. Amend my taxes   If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis. Amend my taxes The basis of donated inventory is any cost incurred for the inventory in an earlier year that you would otherwise include in your opening inventory for the year of the contribution. Amend my taxes You must remove the amount of your contribution deduction from your opening inventory. Amend my taxes It is not part of the cost of goods sold. Amend my taxes   If the cost of donated inventory is not included in your opening inventory, the inventory's basis is zero and you cannot claim a charitable contribution deduction. Amend my taxes Treat the inventory's cost as you would ordinarily treat it under your method of accounting. Amend my taxes For example, include the purchase price of inventory bought and donated in the same year in the cost of goods sold for that year. Amend my taxes   A special rule may apply to certain donations of food inventory. Amend my taxes See Publication 526, Charitable Contributions. Amend my taxes Example 1. Amend my taxes You are a calendar year taxpayer who uses an accrual method of accounting. Amend my taxes In 2013, you contributed property from inventory to a church. Amend my taxes It had a fair market value of $600. Amend my taxes The closing inventory at the end of 2012 properly included $400 of costs due to the acquisition of the property, and in 2012, you properly deducted $50 of administrative and other expenses attributable to the property as business expenses. Amend my taxes The charitable contribution allowed for 2013 is $400 ($600 − $200). Amend my taxes The $200 is the amount that would be ordinary income if you had sold the contributed inventory at fair market value on the date of the gift. Amend my taxes The cost of goods sold you use in determining gross income for 2013 must not include the $400. Amend my taxes You remove that amount from opening inventory for 2013. Amend my taxes Example 2. Amend my taxes If, in Example 1, you acquired the contributed property in 2013 at a cost of $400, you would include the $400 cost of the property in figuring the cost of goods sold for 2013 and deduct the $50 of administrative and other expenses attributable to the property for that year. Amend my taxes You would not be allowed any charitable contribution deduction for the contributed property. Amend my taxes Line 36 Purchases Less Cost of Items Withdrawn for Personal Use If you are a merchant, use the cost of all merchandise you bought for sale. Amend my taxes If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into a finished product. Amend my taxes Trade discounts. Amend my taxes   The differences between the stated prices of articles and the actual prices you pay for them are called trade discounts. Amend my taxes You must use the prices you pay (not the stated prices) in figuring your cost of purchases. Amend my taxes Do not show the discount amount separately as an item in gross income. Amend my taxes   An automobile dealer must record the cost of a car in inventory reduced by any manufacturer's rebate that represents a trade discount. Amend my taxes Cash discounts. Amend my taxes   Cash discounts are amounts your suppliers let you deduct from your purchase invoices for prompt payments. Amend my taxes There are two methods of accounting for cash discounts. Amend my taxes You can either credit them to a separate discount account or deduct them from total purchases for the year. Amend my taxes Whichever method you use, you must be consistent. Amend my taxes If you want to change your method of figuring inventory cost, you must file Form 3115, Application for Change in Accounting Method. Amend my taxes For more information, see Change in Accounting Method in chapter 2. Amend my taxes   If you credit cash discounts to a separate account, you must include this credit balance in your business income at the end of the tax year. Amend my taxes If you use this method, do not reduce your cost of goods sold by the cash discounts. Amend my taxes Purchase returns and allowances. Amend my taxes   You must deduct all returns and allowances from your total purchases during the year. Amend my taxes Merchandise withdrawn from sale. Amend my taxes   If you withdraw merchandise for your personal or family use, you must exclude this cost from the total amount of merchandise you bought for sale. Amend my taxes Do this by crediting the purchases or sales account with the cost of merchandise you withdraw for personal use. Amend my taxes You must also charge the amount to your drawing account. Amend my taxes   A drawing account is a separate account you should keep to record the business income you withdraw to pay for personal and family expenses. Amend my taxes As stated above, you also use it to record withdrawals of merchandise for personal or family use. Amend my taxes This account is also known as a “withdrawals account” or “personal account. Amend my taxes ” Line 37 Cost of Labor Labor costs are usually an element of cost of goods sold only in a manufacturing or mining business. Amend my taxes Small merchandisers (wholesalers, retailers, etc. Amend my taxes ) usually do not have labor costs that can properly be charged to cost of goods sold. Amend my taxes In a manufacturing business, labor costs properly allocable to the cost of goods sold include both the direct and indirect labor used in fabricating the raw material into a finished, saleable product. Amend my taxes Direct labor. Amend my taxes   Direct labor costs are the wages you pay to those employees who spend all their time working directly on the product being manufactured. Amend my taxes They also include a part of the wages you pay to employees who work directly on the product part time if you can determine that part of their wages. Amend my taxes Indirect labor. Amend my taxes   Indirect labor costs are the wages you pay to employees who perform a general factory function that does not have any immediate or direct connection with making the saleable product, but that is a necessary part of the manufacturing process. Amend my taxes Other labor. Amend my taxes   Other labor costs not properly chargeable to the cost of goods sold can be deducted as selling or administrative expenses. Amend my taxes Generally, the only kinds of labor costs properly chargeable to your cost of goods sold are the direct or indirect labor costs and certain other costs treated as overhead expenses properly charged to the manufacturing process, as discussed later under Line 39 Other Costs. Amend my taxes Line 38 Materials and Supplies Materials and supplies, such as hardware and chemicals, used in manufacturing goods are charged to cost of goods sold. Amend my taxes Those that are not used in the manufacturing process are treated as deferred charges. Amend my taxes You deduct them as a business expense when you use them. Amend my taxes Business expenses are discussed in chapter 8. Amend my taxes Line 39 Other Costs Examples of other costs incurred in a manufacturing or mining process that you charge to your cost of goods sold are as follows. Amend my taxes Containers. Amend my taxes   Containers and packages that are an integral part of the product manufactured are a part of your cost of goods sold. Amend my taxes If they are not an integral part of the manufactured product, their costs are shipping or selling expenses. Amend my taxes Freight-in. Amend my taxes   Freight-in, express-in, and cartage-in on raw materials, supplies you use in production, and merchandise you purchase for sale are all part of cost of goods sold. Amend my taxes Overhead expenses. Amend my taxes   Overhead expenses include expenses such as rent, heat, light, power, insurance, depreciation, taxes, maintenance, labor, and supervision. Amend my taxes The overhead expenses you have as direct and necessary expenses of the manufacturing operation are included in your cost of goods sold. Amend my taxes Line 40 Add Lines 35 through 39 The total of lines 35 through 39 equals the cost of the goods available for sale during the year. Amend my taxes Line 41 Inventory at End of Year Subtract the value of your closing inventory (including, as appropriate, the allocable parts of the cost of raw materials and supplies, direct labor, and overhead expenses) from line 40. Amend my taxes Inventory at the end of the year is also known as closing or ending inventory. Amend my taxes Your ending inventory will usually become the beginning inventory of your next tax year. Amend my taxes Line 42 Cost of Goods Sold When you subtract your closing inventory (inventory at the end of the year) from the cost of goods available for sale, the remainder is your cost of goods sold during the tax year. 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Once you establish a Direct Debit Installment Agreement (DDIA), you have agreed to the IRS debiting the fixed payment on the established date every month. Unless you made other arrangements, your payment plan is by DDIA, so even if you mailed in a payment, we’ll still attempt to withdraw your monthly payment from your account.

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You’ll have to contact your bank to clarify the situation. In addition, if your installment agreement is now in default and you believe you had sufficient funds in your bank account on the payment due date, please write to the address shown on your notice. Be sure to include a signed statement of explanation along with proof you had sufficient funds. The lower portion of your notice must accompany any correspondence you send us.

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The notice I received mentioned that "interest may increase" if there are insufficient funds in my bank account. What’s the current interest, and how much will it increase?
Interest is charged on any unpaid balances on your account, so as long as you owe money, interest is charged and added to your account balance(s). The interest amount you owe on your unpaid balance will increase, but not the interest rate.

The rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.


Tips for next year

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 26-Mar-2014

The Amend My Taxes

Amend my taxes 3. Amend my taxes   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. Amend my taxes Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. Amend my taxes Certain contracts held by a charitable remainder trust. Amend my taxes Excise Taxes. Amend my taxes Indoor tanning services. Amend my taxes Application for Recognition of ExemptionPolitical activity. Amend my taxes Private delivery service. Amend my taxes Amendments to organizing documents required. Amend my taxes How to show reasonable action and good faith. Amend my taxes Not acting reasonably and in good faith. Amend my taxes Prejudicing the interest of the Government. Amend my taxes Procedure for requesting extension. Amend my taxes More information. Amend my taxes Organizations Not Required To File Form 1023 Articles of OrganizationOrganizational Test Dedication and Distribution of Assets Educational Organizations and Private SchoolsEducational Organizations Private Schools Organizations Providing InsuranceCharitable Risk Pools Other Section 501(c)(3) OrganizationsCharitable Organizations Religious Organizations Scientific Organizations Literary Organizations Amateur Athletic Organizations Prevention of Cruelty to Children or Animals Private Foundations and Public CharitiesPrivate Foundations Public Charities Private Operating Foundations Lobbying ExpendituresLobbying expenditures. Amend my taxes Grass roots expenditures. Amend my taxes Lobbying nontaxable amount. Amend my taxes Grass roots nontaxable amount. Amend my taxes Organization that no longer qualifies. Amend my taxes Tax on organization. Amend my taxes Tax on managers. Amend my taxes Taxes on organizations. Amend my taxes Taxes on managers. Amend my taxes Political expenditures. Amend my taxes Correction of expenditure. Amend my taxes Introduction An organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. Amend my taxes Religious. Amend my taxes Charitable. Amend my taxes Scientific. Amend my taxes Testing for public safety. Amend my taxes Literary. Amend my taxes Educational. Amend my taxes Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment; however, see Amateur Athletic Organizations , later in this chapter). Amend my taxes The prevention of cruelty to children or animals. Amend my taxes To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. Amend my taxes A trust is a fund or foundation and will qualify. Amend my taxes However, an individual or a partnership will not qualify. Amend my taxes Examples. Amend my taxes   Qualifying organizations include: Nonprofit old-age homes, Parent-teacher associations, Charitable hospitals or other charitable organizations, Alumni associations, Schools, Chapters of the Red Cross, Boys' or Girls' Clubs, and Churches. Amend my taxes Child care organizations. Amend my taxes   The term educational purposes includes providing for care of children away from their homes if substantially all the care provided is to enable individuals (the parents) to be gainfully employed and the services are available to the general public. Amend my taxes Instrumentalities. Amend my taxes   A state or municipal instrumentality may qualify under section 501(c)(3) if it is organized as a separate entity from the governmental unit that created it and if it otherwise meets the organizational and operational tests of section 501(c)(3). Amend my taxes Examples of a qualifying instrumentality might include state schools, universities, or hospitals. Amend my taxes However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. Amend my taxes A state or municipality itself does not qualify for exemption. Amend my taxes Topics - This chapter discusses: Contributions to 501(c)(3) organizations, Applications for recognition of exemption, Articles of Organization, Educational organizations and private schools, Organizations providing insurance, Other section 501(c)(3) organizations, Private foundations and public charities, and Lobbying expenditures. Amend my taxes Useful Items - You may want to see: Forms (and Instructions) 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code See chapter 6 for information about getting publications and forms. Amend my taxes Contributions to 501(c)(3) Organizations Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return. Amend my taxes Fundraising events. Amend my taxes   If the donor receives something of value in return for the contribution, a common occurrence with fundraising efforts, part or all of the contribution may not be deductible. Amend my taxes This may apply to fundraising activities such as charity balls, bazaars, banquets, auctions, concerts, athletic events, and solicitations for membership or contributions when merchandise or benefits are given in return for payment of a specified minimum contribution. Amend my taxes   If the donor receives or expects to receive goods or services in return for a contribution to your organization, the donor cannot deduct any part of the contribution unless the donor intends to, and does, make a payment greater than the fair market value of the goods or services. Amend my taxes If a deduction is allowed, the donor can deduct only the part of the contribution, if any, that is more than the fair market value of the goods or services received. Amend my taxes You should determine in advance the fair market value of any goods or services to be given to contributors and tell them, when you publicize the fundraising event or solicit their contributions, how much is deductible and how much is for the goods or services. Amend my taxes See Disclosure of Quid Pro Quo Contributions in chapter 2. Amend my taxes Exemption application not filed. Amend my taxes   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. Amend my taxes Separate fund—contributions that are deductible. Amend my taxes   An organization that is exempt from federal income tax other than as an organization described in section 501(c)(3) can, if it desires, establish a fund, separate and apart from its other funds, exclusively for religious, charitable, scientific, literary, or educational purposes, fostering national or international amateur sports competition, or for the prevention of cruelty to children or animals. Amend my taxes   If the fund is organized and operated exclusively for these purposes, it may qualify for exemption as an organization described in section 501(c)(3), and contributions made to it will be deductible as provided by section 170. Amend my taxes A fund with these characteristics must be organized in such a manner as to prohibit the use of its funds upon dissolution, or otherwise, for the general purposes of the organization creating it. Amend my taxes Personal benefit contracts. Amend my taxes   Generally, charitable deductions will not be allowed for a transfer to, or for the use of, a section 501(c)(3) or (c)(4) organization if in connection with the transfer: The organization directly or indirectly pays, or previously paid, a premium on a personal benefit contract for the transferor, or There is an understanding or expectation that anyone will directly or indirectly pay a premium on a personal benefit contract for the transferor. Amend my taxes   A personal benefit contract with respect to the transferor is any life insurance, annuity, or endowment contract, if any direct or indirect beneficiary under the contract is the transferor, any member of the transferor's family, or any other person designated by the transferor. Amend my taxes Certain annuity contracts. Amend my taxes   If an organization incurs an obligation to pay a charitable gift annuity, and the organization purchases an annuity contract to fund the obligation, individuals receiving payments under the charitable gift annuity will not be treated as indirect beneficiaries if the organization owns all of the incidents of ownership under the contract, is entitled to all payments under the contract, and the timing and amount of the payments are substantially the same as the timing and amount of payments to each person under the obligation (as such obligation is in effect at the time of the transfer). Amend my taxes Certain contracts held by a charitable remainder trust. Amend my taxes   An individual will not be considered an indirect beneficiary under a life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust solely by reason of being entitled to the payment if the trust owns all of the incidents of ownership under the contract, and the trust is entitled to all payments under the contract. Amend my taxes Excise tax. Amend my taxes   If the premiums are paid in connection with a transfer for which a deduction is not allowable under the deduction denial rule, without regard to when the transfer to the charitable organization was made, an excise tax will be applied that is equal to the amount of the premiums paid by the organization on any life insurance, annuity, or endowment contract. Amend my taxes The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. Amend my taxes Excise Taxes. Amend my taxes   A charitable organization liable for excise taxes must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. Amend my taxes Generally, the due date for filing Form 4720 occurs on the fifteenth day of the fifth month following the close of the organization's tax year. Amend my taxes Indoor tanning services. Amend my taxes   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. Amend my taxes For more information, go to IRS. Amend my taxes gov and select Affordable Care Act Tax Provisions. Amend my taxes Application for Recognition of Exemption This discussion describes certain information to be provided upon application for recognition of exemption by all organizations created for any of the purposes described earlier in this chapter. Amend my taxes For example, the application must include a conformed copy of the organization's articles of incorporation, as discussed under Articles of Organization , later in this chapter. Amend my taxes See the organization headings that follow for specific information your organization may need to provide. Amend my taxes Form 1023. Amend my taxes   Your organization must file its application for recognition of exemption on Form 1023. Amend my taxes See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. Amend my taxes Some organizations are not required to file Form 1023. Amend my taxes See Organizations Not Required To File Form 1023, later. Amend my taxes    Additional information to help you complete your application can be found online. Amend my taxes Go to Exemption Requirement – Section 501(c)(3) Organizations and select the link at the bottom of the Web page for step by step help with the application process. Amend my taxes See Exemption Requirements - Section 501(c)(3) Organizations. Amend my taxes   Form 1023 and accompanying statements must show that all of the following are true. Amend my taxes The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. Amend my taxes ) specified in the introduction to this chapter. Amend my taxes No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. Amend my taxes You must establish that your organization will not be organized or operated for the benefit of private interests, such as the creator or the creator's family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. Amend my taxes The organization will not, as a substantial part of its activities, attempt to influence legislation (unless it elects to come under the provisions allowing certain lobbying expenditures) or participate to any extent in a political campaign for or against any candidate for public office. Amend my taxes See Political activity, next, and Lobbying Expenditures , near the end of this chapter. Amend my taxes Political activity. Amend my taxes   If any of the activities (whether or not substantial) of your organization consist of participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office, your organization will not qualify for tax-exempt status under section 501(c)(3). Amend my taxes Such participation or intervention includes the publishing or distributing of statements. Amend my taxes   Whether your organization is participating or intervening, directly or indirectly, in any political campaign on behalf of (or in opposition to) any candidate for public office depends upon all of the facts and circumstances of each case. Amend my taxes Certain voter education activities or public forums conducted in a nonpartisan manner may not be prohibited political activity under section 501(c)(3), while other so-called voter education activities may be prohibited. Amend my taxes Effective date of exemption. Amend my taxes   Most organizations described in this chapter that were organized after October 9, 1969, will not be treated as tax exempt unless they apply for recognition of exemption by filing Form 1023. Amend my taxes These organizations will not be treated as tax exempt for any period before they file Form 1023, unless they file the form within 27 months from the end of the month in which they were organized. Amend my taxes If the organization files the application within this 27-month period, the organization's exemption will be recognized retroactively to the date it was organized. Amend my taxes Otherwise, exemption will be recognized only from the date of receipt. Amend my taxes The date of receipt is the date of the U. Amend my taxes S. Amend my taxes postmark on the cover in which an exemption application is mailed or, if no postmark appears on the cover, the date the application is stamped as received by the IRS. Amend my taxes Private delivery service. Amend my taxes   If a private delivery service designated by the IRS, rather than the U. Amend my taxes S. Amend my taxes Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. Amend my taxes The following private delivery services have been designated by the IRS. Amend my taxes DHL Express (DHL): DHL “Same Day” Service. Amend my taxes Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. Amend my taxes United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. Amend my taxes M. Amend my taxes , UPS Worldwide Express Plus, and UPS Worldwide Express. Amend my taxes Amendments to organizing documents required. Amend my taxes   If an organization is required to alter its activities or to make substantive amendments to its organizing document, the ruling or determination letter recognizing its exempt status will be effective as of the date the changes are made. Amend my taxes If only a nonsubstantive amendment is made, exempt status will be effective as of the date it was organized, if the application was filed within the 15-month period, or the date the application was filed. Amend my taxes Extensions of time for filing. Amend my taxes   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. Amend my taxes Automatic 12-month extension. Amend my taxes Organizations will receive an automatic 12-month extension if they file an application for recognition of exemption with the IRS within 12 months of the original deadline. Amend my taxes To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. Amend my taxes 9100-2. Amend my taxes ” Discretionary extensions. Amend my taxes An organization that fails to file a Form 1023 within the extended 12-month period will be granted an extension to file if it submits evidence (including affidavits) to establish that: It acted reasonably and in good faith, and Granting a discretionary extension will not prejudice the interests of the government. Amend my taxes How to show reasonable action and good faith. Amend my taxes   An organization acted reasonably and showed good faith if at least one of the following is true. Amend my taxes The organization requests relief before its failure to file is discovered by the IRS. Amend my taxes The organization failed to file because of intervening events beyond its control. Amend my taxes The organization exercised reasonable diligence (taking into account the complexity of the return or issue and the organization's experience in these matters) but was not aware of the filing requirement. Amend my taxes The organization reasonably relied upon the written advice of the IRS. Amend my taxes The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. Amend my taxes An organization cannot rely on the advice of a tax professional if it knows or should know that he or she is not competent to render advice on filing exemption applications or is not aware of all the relevant facts. Amend my taxes Not acting reasonably and in good faith. Amend my taxes   An organization has not acted reasonably and in good faith under the following circumstances. Amend my taxes It seeks to change a return position for which an accuracy-related penalty has been or could be imposed at the time the relief is requested. Amend my taxes It was informed of the requirement to file and related tax consequences, but chose not to file. Amend my taxes It uses hindsight in requesting relief. Amend my taxes The IRS will not ordinarily grant an extension if specific facts have changed since the due date that makes filing an application advantageous to an organization. Amend my taxes Prejudicing the interest of the Government. Amend my taxes   Prejudice to the interest of the Government results if granting an extension of time to file to an organization results in a lower total tax liability for the years to which the filing applies than would have been the case if the organization had filed on time. Amend my taxes Before granting an extension, the IRS can require the organization requesting it to submit a statement from an independent auditor certifying that no prejudice will result if the extension is granted. Amend my taxes The interests of the Government are ordinarily prejudiced if the tax year in which the application should have been filed (or any tax year that would have been affected had the filing been timely) are closed by the statute of limitations before relief is granted. Amend my taxes The IRS can condition a grant of relief on the organization providing the IRS with a statement from an independent auditor certifying that the interests of the Government are not prejudiced. Amend my taxes Procedure for requesting extension. Amend my taxes   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. Amend my taxes A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. Amend my taxes Any documents relevant to the application. Amend my taxes An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. Amend my taxes If the organization relied on a tax professional's advice, the affidavit must describe the engagement and responsibilities of the professional and the extent to which the organization relied on him or her. Amend my taxes This affidavit must be accompanied by a dated declaration, signed by an individual who has personal knowledge of the facts and circumstances, who is authorized to act for the organization, which states, “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Amend my taxes ” Detailed affidavits from individuals having knowledge or information about the events that led to the failure to make the application and to the discovery of that failure. Amend my taxes This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. Amend my taxes The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. Amend my taxes These affidavits must include the name, current address, and taxpayer identification number of the individual, and be accompanied by a dated declaration, signed by the individual, which states: “Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and, to the best of my knowledge and belief, the request contains all the relevant facts relating to the request, and such facts are true, correct, and complete. Amend my taxes ” The organization must state whether the returns for the tax year in which the application should have been filed or any tax years that would have been affected by the application had it been timely made are being examined by the IRS, an appeals office, or a federal court. Amend my taxes The organization must notify the IRS office considering the request for relief if the IRS starts an examination of any such return while the organization's request for relief is pending. Amend my taxes The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. Amend my taxes   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. Amend my taxes Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. Amend my taxes More information. Amend my taxes   For more information about these procedures, see Regulations sections 301. Amend my taxes 9100-1, 301. Amend my taxes 9100-2, 301. Amend my taxes 9100-3, Revenue Procedure 2013-4, section 6. Amend my taxes 04, 2013-1 I. Amend my taxes R. Amend my taxes B. Amend my taxes 126, and Revenue Procedure 2013-8, 2013-1 I. Amend my taxes R. Amend my taxes B. Amend my taxes 237. Amend my taxes See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. Amend my taxes Notification from the IRS. Amend my taxes   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. Amend my taxes Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. Amend my taxes These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group. Amend my taxes Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). Amend my taxes These organizations are exempt automatically if they meet the requirements of section 501(c)(3). Amend my taxes Filing Form 1023 to establish exemption. Amend my taxes   If the organization wants to establish its exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023. Amend my taxes By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. Amend my taxes A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. Amend my taxes Private foundations. Amend my taxes   See Private Foundations and Public Charities, later in this chapter, for more information about the additional notice required from an organization in order for it not to be presumed to be a private foundation and for the additional information required from a private foundation claiming to be an operating foundation. Amend my taxes Gross receipts test. Amend my taxes   For purposes of the gross receipts test, an organization normally does not have more than $5,000 annually in gross receipts if: During its first tax year the organization received gross receipts of $7,500 or less, During its first 2 years the organization had a total of $12,000 or less in gross receipts, and In the case of an organization that has been in existence for at least 3 years, the total gross receipts received by the organization during the immediately preceding 2 years, plus the current year, are $15,000 or less. Amend my taxes   An organization with gross receipts more than the amounts in the gross receipts test, unless otherwise exempt from filing Form 1023, must file a Form 1023 within 90 days after the end of the period in which the amounts are exceeded. Amend my taxes For example, an organization's gross receipts for its first tax year were less than $7,500, but at the end of its second tax year its gross receipts for the 2-year period were more than $12,000. Amend my taxes The organization must file Form 1023 within 90 days after the end of its second tax year. Amend my taxes   If the organization had existed for at least 3 tax years and had met the gross receipts test for all prior tax years but fails to meet the requirement for the current tax year, its tax-exempt status for the prior years will not be lost even if Form 1023 is not filed within 90 days after the close of the current tax year. Amend my taxes However, the organization will not be treated as a section 501(c)(3) organization for the period beginning with the current tax year and ending with the filing of Form 1023. Amend my taxes Example. Amend my taxes   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. Amend my taxes It was incorporated on January 1, 2009, and files returns on a calendar-year basis. Amend my taxes It did not file a Form 1023. Amend my taxes The organization's gross receipts during the years 2009 through 2012 were as follows: 2009 $3,600 2010 2,900 2011 400 2012 12,600   The organization's total gross receipts for 2009, 2010, and 2011 were $6,900. Amend my taxes Therefore, it did not have to file Form 1023 and is exempt for those years. Amend my taxes However, for 2010, 2011, and 2012 the total gross receipts were $15,900. Amend my taxes Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. Amend my taxes If it does not file within this time period, it will not be exempt under section 501(c)(3) for the period beginning with tax year 2012 ending when the Form 1023 is received by the IRS. Amend my taxes The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. Amend my taxes   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. Amend my taxes See the procedures for this extension discussed earlier. Amend my taxes Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. Amend my taxes This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. Amend my taxes Organizational Test The articles of organization must limit the organization's purposes to one or more of those described at the beginning of this chapter and must not expressly empower it to engage, other than as an insubstantial part of its activities, in activities that do not further one or more of those purposes. Amend my taxes These conditions for exemption are referred to as the organizational test. Amend my taxes Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. Amend my taxes Therefore, the organizational test may be met if the purposes stated in the articles of organization are limited in some way by reference to section 501(c)(3). Amend my taxes The requirement that your organization's purposes and powers must be limited by the articles of organization is not satisfied if the limit is contained only in the bylaws or other rules or regulations. Amend my taxes Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. Amend my taxes Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. Amend my taxes In interpreting an organization's articles, the law of the state where the organization was created is controlling. Amend my taxes If an organization contends that the terms of its articles have a different meaning under state law than their generally accepted meaning, such meaning must be established by a clear and convincing reference to relevant court decisions, opinions of the state attorney general, or other appropriate state authorities. Amend my taxes The following are examples illustrating the organizational test. Amend my taxes Example 1. Amend my taxes Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). Amend my taxes These articles appropriately limit the organization's purposes. Amend my taxes The organization meets the organizational test. Amend my taxes Example 2. Amend my taxes An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. Amend my taxes The organization will not be properly limited as to its purposes since all research is not scientific. Amend my taxes The organization does not meet the organizational test. Amend my taxes Example 3. Amend my taxes An organization's articles state that its purpose is to receive contributions and pay them over to organizations that are described in section 501(c)(3) and exempt from taxation under section 501(a). Amend my taxes The organization meets the organizational test. Amend my taxes Example 4. Amend my taxes If a stated purpose in the articles is the conduct of a school of adult education and its manner of operation is described in detail, such a purpose will be satisfactorily limited. Amend my taxes Example 5. Amend my taxes If the articles state the organization is formed for charitable purposes, without any further description, such language ordinarily will be sufficient since the term charitable has a generally accepted legal meaning. Amend my taxes On the other hand, if the purposes are stated to be charitable, philanthropic, and benevolent, the organizational requirement will not be met since the terms philanthropic and benevolent have no generally accepted legal meaning and, therefore, the stated purposes may, under the laws of the state, permit activities that are broader than those intended by the exemption law. Amend my taxes Example 6. Amend my taxes If the articles state an organization is formed to promote American ideals, or to foster the best interests of the people, or to further the common welfare and well-being of the community, without any limitation or provision restricting such purposes to accomplishment only in a charitable manner, the purposes will not be sufficiently limited. Amend my taxes Such purposes are vague and may be accomplished other than in an exempt manner. Amend my taxes Example 7. Amend my taxes A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. Amend my taxes A hospital may or may not be exempt depending on the manner in which it is operated. Amend my taxes Example 8. Amend my taxes An organization that is expressly empowered by its articles to carry on social activities will not be sufficiently limited as to its power, even if its articles state that it is organized and will be operated exclusively for charitable purposes. Amend my taxes Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. Amend my taxes This means that should an organization dissolve, its assets must be distributed for an exempt purpose described in this chapter, or to the Federal Government or to a state or local government for a public purpose. Amend my taxes If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. Amend my taxes Dedication. Amend my taxes   To establish that your organization's assets will be permanently dedicated to an exempt purpose, the articles of organization should contain a provision ensuring their distribution for an exempt purpose in the event of dissolution. Amend my taxes Although reliance can be placed upon state law to establish permanent dedication of assets for exempt purposes, your organization's application probably can be processed much more rapidly if its articles of organization include a provision ensuring permanent dedication of assets for exempt purposes. Amend my taxes Distribution. Amend my taxes   Revenue Procedure 82-2, 1982-1 C. Amend my taxes B. Amend my taxes 367, identifies the states and circumstances in which the IRS will not require an express provision for the distribution of assets upon dissolution in the articles of organization. Amend my taxes The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. Amend my taxes   If a named beneficiary is to be the distributee, it must be one that would qualify and would be exempt within the meaning of section 501(c)(3) at the time the dissolution takes place. Amend my taxes Since the named beneficiary at the time of dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the assets of the dissolving organization, a provision should be made for distribution of the assets for one or more of the purposes specified in this chapter in the event of any such contingency. Amend my taxes Sample articles of organization. Amend my taxes   See sample articles of organization in the Appendix in the back of this publication. Amend my taxes Educational Organizations and Private Schools If your organization wants to obtain recognition of exemption as an educational organization, you must submit complete information as to how your organization carries on or plans to carry on its educational activities, such as by conducting a school, by panels, discussions, lectures, forums, radio and television programs, or through various cultural media such as museums, symphony orchestras, or art exhibits. Amend my taxes In each instance, you must explain by whom and where these activities are or will be conducted and the amount of admission fees, if any. Amend my taxes You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. Amend my taxes If you are organized to conduct a school, you must submit full information regarding your tuition charges, number of faculty members, number of full-time and part-time students enrolled, courses of study and degrees conferred, together with a copy of your school catalog. Amend my taxes See also Private Schools , discussed later. Amend my taxes Educational Organizations The term educational relates to: The instruction or training of individuals for the purpose of improving or developing their capabilities, or The instruction of the public on subjects useful to individuals and beneficial to the community. Amend my taxes Advocacy of a position. Amend my taxes   Advocacy of a particular position or viewpoint may be educational if there is a sufficiently full and fair exposition of pertinent facts to permit an individual or the public to form an independent opinion or conclusion. Amend my taxes The mere presentation of unsupported opinion is not educational. Amend my taxes Method not educational. Amend my taxes   The method used by an organization to develop and present its views is a factor in determining if an organization qualifies as educational within the meaning of section 501(c)(3). Amend my taxes The following factors may indicate that the method is not educational. Amend my taxes The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. Amend my taxes The facts that purport to support the viewpoint are distorted. Amend my taxes The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of emotion than of objective evaluations. Amend my taxes The approach used is not aimed at developing an understanding on the part of the audience because it does not consider their background or training. Amend my taxes   Exceptional circumstances, however, may exist where an organization's advocacy may be educational even if one or more of the factors listed above are present. Amend my taxes Qualifying organizations. Amend my taxes   The following types of organizations may qualify as educational: An organization, such as a primary or secondary school, a college, or a professional or trade school, that has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled student body in attendance at a place where the educational activities are regularly carried on, An organization whose activities consist of conducting public discussion groups, forums, panels, lectures, or other similar programs, An organization that presents a course of instruction by correspondence or through the use of television or radio, A museum, zoo, planetarium, symphony orchestra, or other similar organization, A nonprofit children's day-care center, and A credit counseling organization. Amend my taxes College book stores, cafeterias, restaurants, etc. Amend my taxes   These and other on-campus organizations should submit information to show that they are controlled by and operated for the convenience of the faculty and student body or by whom they are controlled and whom they serve. Amend my taxes Alumni association. Amend my taxes   An alumni association should establish that it is organized to promote the welfare of the university with which it is affiliated, is subject to the control of the university as to its policies and destination of funds, and is operated as an integral part of the university or is otherwise organized to promote the welfare of the college or university. Amend my taxes If your association does not have these characteristics, it may still be exempt as a social club if it meets the requirements described in chapter 4, under 501(c)(7) - Social and Recreation Clubs . Amend my taxes Athletic organization. Amend my taxes   This type of organization must submit evidence that it is engaged in activities such as directing and controlling interscholastic athletic competitions, conducting tournaments, and prescribing eligibility rules for contestants. Amend my taxes If it is not so engaged, your organization may be exempt as a social club described in chapter 4. Amend my taxes Raising funds to be used for travel and other activities to interview and persuade prospective students with outstanding athletic ability to attend a particular university does not show an exempt purpose. Amend my taxes If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. Amend my taxes Private Schools Every private school filing an application for recognition of tax-exempt status must supply the IRS (on Schedule B, Form 1023) with the following information. Amend my taxes The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. Amend my taxes (This information also must be projected, so far as may be feasible, for the next academic year. Amend my taxes ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. Amend my taxes A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. Amend my taxes A statement indicating whether any of the organizations described in item (3) above have an objective of maintaining segregated public or private school education at the time the application is filed and, if so, whether any of the individuals described in item (3) are officers or active members of those organizations at the time the application is filed. Amend my taxes The public school district and county in which the school is located. Amend my taxes How to determine racial composition. Amend my taxes   The racial composition of the student body, faculty, and administrative staff can be an estimate based on the best information readily available to the school, without requiring student applicants, students, faculty, or administrative staff to submit to the school information that the school otherwise does not require. Amend my taxes Nevertheless, a statement of the method by which the racial composition was determined must be supplied. Amend my taxes The identity of individual students or members of the faculty and administrative staff should not be included with this information. Amend my taxes   A school that is a state or municipal instrumentality (see Instrumentalities , near the beginning of this chapter), whether or not it qualifies for exemption under section 501(c)(3), is not considered to be a private school for purposes of the following discussion. Amend my taxes Racially Nondiscriminatory Policy To qualify as an organization exempt from federal income tax, a private school must include a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy as to students and that it does not discriminate against applicants and students on the basis of race, color, or national or ethnic origin. Amend my taxes Also, the school must circulate information that clearly states the school's admission policies. Amend my taxes A racially nondiscriminatory policy toward students means that the school admits the students of any race to all the rights, privileges, programs, and activities generally accorded or made available to students at that school and that the school does not discriminate on the basis of race in administering its educational policies, admission policies, scholarship and loan programs, and athletic and other school-administered programs. Amend my taxes The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. Amend my taxes The existence of a racially discriminatory policy with respect to the employment of faculty and administrative staff is indicative of a racially discriminatory policy as to students. Amend my taxes Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. Amend my taxes A policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance is not discrimination on the basis of race when the purpose and effect of this policy is to promote establishing and maintaining the school's nondiscriminatory policy. Amend my taxes A school that selects students on the basis of membership in a religious denomination or unit is not discriminating if membership in the denomination or unit is open to all on a racially nondiscriminatory basis. Amend my taxes Policy statement. Amend my taxes   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. Amend my taxes Also, the school must include a reference to its racially nondiscriminatory policy in other written advertising that it uses to inform prospective students of its programs. Amend my taxes Publicity requirement. Amend my taxes   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. Amend my taxes Selective communication of a racially nondiscriminatory policy that a school provides solely to leaders of racial groups will not be considered an effective means of communication to make the policy known to all segments of the community. Amend my taxes To satisfy this requirement, the school must use one of the following two methods. Amend my taxes Method one. Amend my taxes   The school can publish a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community. Amend my taxes Such publication must be repeated at least once annually during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Amend my taxes When more than one community is served by a school, the school can publish the notice in those newspapers that are reasonably likely to be read by all racial segments in the communities that the school serves. Amend my taxes If this method is used, the notice must meet the following printing requirements. Amend my taxes It must appear in a section of the newspaper likely to be read by prospective students and their families. Amend my taxes It must occupy at least 3 column inches. Amend my taxes It must have its title printed in at least 12 point bold face type. Amend my taxes It must have the remaining text printed in at least 8 point type. Amend my taxes The following is an acceptable example of the notice:   NOTICE OF NONDISCRIMINATORY POLICY AS TO STUDENTS     The M School admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. Amend my taxes It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs. Amend my taxes   Method two. Amend my taxes   The school can use the broadcast media to publicize its racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves. Amend my taxes If the school uses this method, it must provide documentation showing that the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective. Amend my taxes In this case, appropriate documentation would include copies of the tapes or scripts used and records showing that there was an adequate number of announcements. Amend my taxes The documentation also would include proof that these announcements were made during hours when they were likely to be communicated to all segments of the general community, that they were long enough to convey the message clearly, and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community. Amend my taxes Announcements must be made during the period of the school's solicitation for students or, in the absence of a solicitation program, during the school's registration period. Amend my taxes Exceptions. Amend my taxes   The publicity requirements will not apply in the following situations. Amend my taxes First, if for the preceding 3 years the enrollment of a parochial or other church-related school consists of students at least 75% of whom are members of the sponsoring religious denomination or unit, the school can make known its racially nondiscriminatory policy in whatever newspapers or circulars the religious denomination or unit uses in the communities from which the students are drawn. Amend my taxes These newspapers and circulars can be distributed by a particular religious denomination or unit or by an association that represents a number of religious organizations of the same denomination. Amend my taxes If, however, the school advertises in newspapers of general circulation in the community or communities from which its students are drawn and the second exception (discussed next) does not apply to the school, then it must comply with either of the publicity requirements explained earlier. Amend my taxes Second, if a school customarily draws a substantial percentage of its students nationwide, worldwide, from a large geographic section or sections of the United States, or from local communities, and if the school follows a racially nondiscriminatory policy as to its students, the school may satisfy the publicity requirement by complying with the instructions explained earlier under Policy statement . Amend my taxes   The school can demonstrate that it follows a racially nondiscriminatory policy either by showing that it currently enrolls students of racial minority groups in meaningful numbers or, except for local community schools, when minority students are not enrolled in meaningful numbers, that its promotional activities and recruiting efforts in each geographic area were reasonably designed to inform students of all racial segments in the general communities within the area of the availability of the school. Amend my taxes The question as to whether a school demonstrates such a policy satisfactorily will be determined on the basis of the facts and circumstances of each case. Amend my taxes   The IRS recognizes that the failure by a school drawing its students from local communities to enroll racial minority group students may not necessarily indicate the absence of a racially nondiscriminatory policy when there are relatively few or no such students in these communities. Amend my taxes Actual enrollment is, however, a meaningful indication of a racially nondiscriminatory policy in a community in which a public school or schools became subject to a desegregation order of a federal court or are otherwise expressly obligated to implement a desegregation plan under the terms of any written contract or other commitment to which any federal agency was a party. Amend my taxes   The IRS encourages schools to satisfy the publicity requirement by using either of the methods described earlier, even though a school considers itself to be within one of the Exceptions. Amend my taxes The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. Amend my taxes In this regard, it is each school's responsibility to determine whether either of the exceptions applies. Amend my taxes Such responsibility will prepare the school, if it is audited by the IRS, to demonstrate that the failure to publish its racially nondiscriminatory policy in accordance with either one of the publicity requirements was justified by one of the exceptions. Amend my taxes Also, a school must be prepared to demonstrate that it has publicly disavowed or repudiated any statements purported to have been made on its behalf (after November 6, 1975) that are contrary to its publicity of a racially nondiscriminatory policy as to students, to the extent that the school or its principal official was aware of these statements. Amend my taxes Facilities and programs. Amend my taxes   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. Amend my taxes Scholarship and loan programs. Amend my taxes   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. Amend my taxes This must be known throughout the general community being served by the school and should be referred to in its publicity. Amend my taxes Financial assistance programs, as well as scholarships and loans made under financial assistance programs, that favor members of one or more racial minority groups and that do not significantly detract from or are designed to promote a school's racially nondiscriminatory policy will not adversely affect the school's exempt status. Amend my taxes Certification. Amend my taxes   An individual authorized to take official action on behalf of a school that claims to be racially nondiscriminatory as to students must certify annually, under penalties of perjury, on Schedule E (Form 990 or 990-EZ) or Form 5578, Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax, whichever applies, that to the best of his or her knowledge and belief the school has satisfied all requirements that apply, as previously explained. Amend my taxes   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. Amend my taxes Recordkeeping requirements. Amend my taxes With certain exceptions, given later, each exempt private school must maintain the following records for a minimum period of 3 years, beginning with the year after the year of compilation or acquisition. Amend my taxes Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. Amend my taxes Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. Amend my taxes Copies of all materials used by or on behalf of the school to solicit contributions. Amend my taxes Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. Amend my taxes (Schools advertising nationally or in a large geographic segment or segments of the United States need only maintain a record sufficient to indicate when and in what publications their advertisements were placed. Amend my taxes ) The racial composition of the student body, faculty, and administrative staff can be determined in the same manner as that described at the beginning of this section. Amend my taxes However, a school cannot discontinue maintaining a system of records that reflect the racial composition of its students, faculty, and administrative staff used on November 6, 1975, unless it substitutes a different system that compiles substantially the same information, without advance approval of the IRS. Amend my taxes The IRS does not require that a school release any personally identifiable records or personal information except in accordance with the requirements of the Family Educational Rights and Privacy Act of 1974. Amend my taxes Similarly, the IRS does not require a school to keep records prohibited under state or federal law. Amend my taxes Exceptions. Amend my taxes   The school does not have to independently maintain these records for IRS use if both of the following are true. Amend my taxes Substantially the same information has been included in a report or reports filed with an agency or agencies of federal, state, or local governments, and this information is current within 1 year. Amend my taxes The school maintains copies of these reports from which this information is readily obtainable. Amend my taxes If these reports do not include all of the information required, as discussed earlier, records providing such remaining information must be maintained by the school for IRS use. Amend my taxes Failure to maintain records. Amend my taxes   Failure to maintain or to produce the required records and information, upon proper request, will create a presumption that the organization has failed to comply with these guidelines. Amend my taxes Organizations Providing Insurance An organization described in sections 501(c)(3) or 501(c)(4) may be exempt from tax only if no substantial part of its activities consists of providing commercial-type insurance. Amend my taxes However, this rule does not apply to state-sponsored organizations described in sections 501(c)(26) or 501(c)(27), which are discussed in chapter 4, or to charitable risk pools, discussed next. Amend my taxes Charitable Risk Pools A charitable risk pool is treated as organized and operated exclusively for charitable purposes if it: Is organized and operated only to pool insurable risks of its members (not including risks related to medical malpractice) and to provide information to its members about loss control and risk management, Consists only of members that are section 501(c)(3) organizations exempt from tax under section 501(a), Is organized under state law authorizing this type of risk pooling, Is exempt from state income tax (or will be after qualifying as a section 501(c)(3) organization), Has obtained at least $1,000,000 in startup capital from nonmember charitable organizations, Is controlled by a board of directors elected by its members, and Is organized under documents requiring that: Each member be a section 501(c)(3) organization exempt from tax under section 501(a), Each member that receives a final determination that it no longer qualifies under section 501(c)(3) notify the pool immediately, and Each insurance policy issued by the pool provide that it will not cover events occurring after a final determination described in (b). Amend my taxes Other Section 501(c)(3) Organizations In addition to the information required for all organizations, as described earlier, you should include any other information described in this section. Amend my taxes Charitable Organizations If your organization is applying for recognition of exemption as a charitable organization, it must show that it is organized and operated for purposes that are beneficial to the public interest. Amend my taxes Some examples of this type of organization are those organized for: Relief of the poor, the distressed, or the underprivileged, Advancement of religion, Advancement of education or science, Erection or maintenance of public buildings, monuments, or works, Lessening the burdens of government, Lessening of neighborhood tensions, Elimination of prejudice and discrimination, Defense of human and civil rights secured by law, and Combating community deterioration and juvenile delinquency. Amend my taxes The rest of this section contains a description of the information to be provided by certain specific organizations. Amend my taxes This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. Amend my taxes Each of the following organizations must submit the information described. Amend my taxes Charitable organization supporting education. Amend my taxes   Submit information showing how your organization supports education — for example, contributes to an existing educational institution, endows a professorial chair, contributes toward paying teachers' salaries, or contributes to an educational institution to enable it to carry on research. Amend my taxes Scholarships. Amend my taxes   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. Amend my taxes Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. Amend my taxes How and by whom the recipients are or will be selected. Amend my taxes If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. Amend my taxes If awards are or will be made to recipients of a particular class, for example, children of employees of a particular employer— Whether any preference is or will be accorded an applicant by reason of the parent's position, length of employment, or salary, Whether as a condition of the award the recipient must upon graduation accept employment with the company, and Whether the award will be continued even if the parent's employment ends. Amend my taxes A copy of the scholarship application form and any brochures or literature describing the scholarship program. Amend my taxes Hospital. Amend my taxes   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. Amend my taxes   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. Amend my taxes You must attach a list showing: The names of the active and courtesy staff members of the proprietary hospital, as well as the names of your medical staff members after the transfer to nonprofit ownership, and The names of any doctors who continued to lease office space in the hospital after its transfer to nonprofit ownership and the amount of rent paid. Amend my taxes Submit also an appraisal showing the fair rental value of the rented space. Amend my taxes Clinic. Amend my taxes   If you are organized to operate a clinic, attach a statement including: A description of the facilities and services, To whom the services are offered, such as the public at large or a specific group, How charges are determined, such as on a profit basis, to recover costs, or at less than cost, By whom administered and controlled, Whether any of the professional staff (that is, those who perform or will perform the clinical services) also serve or will serve in an administrative capacity, and How compensation paid the professional staff is or will be determined. Amend my taxes Home for the aged. Amend my taxes   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. Amend my taxes Community nursing bureau. Amend my taxes   If you provide a nursing register or community nursing bureau, provide information showing that your organization will be operated as a community project and will receive its primary support from public contributions to maintain a nonprofit register of qualified nursing personnel, including graduate nurses, unregistered nursing school graduates, licensed attendants and practical nurses for the benefit of hospitals, health agencies, doctors, and individuals. Amend my taxes Organization providing loans. Amend my taxes   If you make, or will make, loans for charitable and educational purposes, submit the following information. Amend my taxes An explanation of the circumstances under which such loans are, or will be, made. Amend my taxes Criteria for selection, including the rules of eligibility. Amend my taxes How and by whom the recipients are or will be selected. Amend my taxes Manner of repayment of the loan. Amend my taxes Security required, if any. Amend my taxes Interest charged, if any, and when payable. Amend my taxes Copies in duplicate of the loan application and any brochures or literature describing the loan program. Amend my taxes Public-interest law firms. Amend my taxes   If your organization was formed to litigate in the public interest (as opposed to providing legal services to the poor), such as in the area of protection of the environment, you should submit the following information. Amend my taxes How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. Amend my taxes Whether the organization will accept fees for its services. Amend my taxes A description of the cases litigated or to be litigated and how they benefit the public generally. Amend my taxes Whether the policies and program of the organization are the responsibility of a board or committee representative of the public interest, which is neither controlled by employees or persons who litigate on behalf of the organization nor by any organization that is not itself an organization described in this chapter. Amend my taxes Whether the organization is operated, through sharing of office space or otherwise, in a way to create identification or confusion with a particular private law firm. Amend my taxes Whether there is an arrangement to provide, directly or indirectly, a deduction for the cost of litigation that is for the private benefit of the donor. Amend my taxes Acceptance of attorneys' fees. Amend my taxes   A nonprofit public-interest law firm can accept attorneys' fees in public-interest cases if the fees are paid directly by its clients and the fees are not more than the actual costs incurred in the case. Amend my taxes Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. Amend my taxes   Firms can accept fees awarded or approved by a court or an administrative agency and paid by an opposing party if the firms do not use the likelihood or probability of fee awards as a consideration in the selection of cases. Amend my taxes All fee awards must be paid to the organization and not to its individual staff attorneys. Amend my taxes Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. Amend my taxes Private attorneys, whose services are retained by the firm to assist it in particular cases, can be compensated by the firm, but only on a fixed fee or salary basis. Amend my taxes   The total amount of all attorneys' fees (court awarded and those received from clients) must not be more than 50% of the total cost of operations of the organization's legal functions, calculated over a 5-year period. Amend my taxes   If, in order to carry out its program, an organization violates applicable canons of ethics, disrupts the judicial system, or engages in any illegal action, the organization will jeopardize its exemption. Amend my taxes Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. Amend my taxes That the particular religious beliefs of the organization are truly and sincerely held. Amend my taxes That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. Amend my taxes Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. Amend my taxes If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs. Amend my taxes Churches. Amend my taxes   Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. Amend my taxes In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church. Amend my taxes   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. Amend my taxes Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. Amend my taxes The IRS considers the facts and circumstances of each organization applying for church status. Amend my taxes Convention or association of churches. Amend my taxes   Any organization that is otherwise a convention or association of churches will not fail to qualify as a church merely because the membership of the organization includes individuals as well as churches or because the individuals have voting rights in the organization. Amend my taxes Integrated auxiliaries. Amend my taxes   An organization is an integrated auxiliary of a church if all the following are true. Amend my taxes The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). Amend my taxes It is affiliated with a church or a convention or association of churches. Amend my taxes It is internally supported. Amend my taxes An organization is internally supported unless both of the following are true. Amend my taxes It offers admissions, goods, services, or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for a small part of the cost). Amend my taxes It normally gets more than 50% of its support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses. Amend my taxes Special rule. Amend my taxes   Men's and women's organizations, seminaries, mission societies, and youth groups that satisfy (1) and (2) shown earlier are integrated auxiliaries of a church even if they are not internally supported. Amend my taxes   In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. Amend my taxes   Although an individual is entitled to a charitable deduction for contributions to a church, the assignment or similar transfer of compensation for personal services to a church generally does not relieve a taxpayer of federal income tax liability on the compensation, regardless of the motivation behind the transfer. Amend my taxes Scientific Organizations You must show that your organization's research will be carried on in the public interest. Amend my taxes Scientific research will be considered to be in the public interest if the results of the research (including any patents, copyrights, processes, or formulas) are made available to the public on a nondiscriminatory basis; if the research is performed for the United States or a state, county, or municipal government; or if the research is carried on for one of the following purposes. Amend my taxes Aiding in the scientific education of college or university students. Amend my taxes Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th