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State Tax Free File

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State Tax Free File

State tax free file 4. State tax free file   Qualified Plans Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Kinds of PlansDefined Contribution Plan Defined Benefit Plan Qualification RulesEarly retirement. State tax free file Loan secured by benefits. State tax free file Waiver of survivor benefits. State tax free file Waiver of 30-day waiting period before annuity starting date. State tax free file Involuntary cash-out of benefits not more than dollar limit. State tax free file Exception for certain loans. State tax free file Exception for QDRO. State tax free file SIMPLE and safe harbor 401(k) plan exception. State tax free file Setting Up a Qualified PlanAdopting a Written Plan Investing Plan Assets Minimum Funding RequirementDue dates. State tax free file Installment percentage. State tax free file Extended period for making contributions. State tax free file ContributionsEmployer Contributions Employee Contributions When Contributions Are Considered Made Employer DeductionDeduction Limits Deduction Limit for Self-Employed Individuals Where To Deduct Contributions Carryover of Excess Contributions Excise Tax for Nondeductible (Excess) Contributions Elective Deferrals (401(k) Plans)Limit on Elective Deferrals Automatic Enrollment Treatment of Excess Deferrals Qualified Roth Contribution ProgramElective Deferrals Qualified Distributions Reporting Requirements DistributionsRequired Distributions Distributions From 401(k) Plans Tax Treatment of Distributions Tax on Early Distributions Tax on Excess Benefits Excise Tax on Reversion of Plan Assets Notification of Significant Benefit Accrual Reduction Prohibited TransactionsTax on Prohibited Transactions Reporting RequirementsOne-participant plan. State tax free file Caution: Form 5500-EZ not required. State tax free file Form 5500. State tax free file Electronic filing of Forms 5500 and 5500-SF. State tax free file Topics - This chapter discusses: Kinds of plans Qualification rules Setting up a qualified plan Minimum funding requirement Contributions Employer deduction Elective deferrals (401(k) plans) Qualified Roth contribution program Distributions Prohibited transactions Reporting requirements Useful Items - You may want to see: Publications 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 3066 Have you had your Check-up this year? for Retirement Plans 3998 Choosing A Retirement Solution for Your Small Business 4222 401(k) Plans for Small Businesses 4530 Designated Roth Accounts under a 401(k), 403(b), or governmental 457(b) plans 4531 401(k) Plan Checklist 4674 Automatic Enrollment 401(k) Plans for Small Businesses 4806 Profit Sharing Plans for Small Businesses Forms (and Instructions) www. State tax free file dol. State tax free file gov/ebsa/pdf/2013-5500. State tax free file pdf www. State tax free file dol. State tax free file gov/ebsa/pdf/2013-5500-SF. State tax free file pdf W-2 Wage and Tax Statement Schedule K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. State tax free file 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. State tax free file 1040 U. State tax free file S. State tax free file Individual Income Tax Return Schedule C (Form 1040) Profit or Loss From Business Schedule F (Form 1040) Profit or Loss From Farming 5300 Application for Determination for Employee Benefit Plan 5310 Application for Determination for Terminating Plan 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts 5330 Return of Excise Taxes Related to Employee Benefit Plans 5500 Annual Return/Report of Employee Benefit Plan. State tax free file For copies of this form, go to: 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan. State tax free file For copies of this form, go to: 8717 User Fee for Employee Plan Determination Letter Request 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs 8955-SSA Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits These qualified retirement plans set up by self-employed individuals are sometimes called Keogh or H. State tax free file R. State tax free file 10 plans. State tax free file A sole proprietor or a partnership can set up one of these plans. State tax free file A common-law employee or a partner cannot set up one of these plans. State tax free file The plans described here can also be set up and maintained by employers that are corporations. State tax free file All the rules discussed here apply to corporations except where specifically limited to the self-employed. State tax free file The plan must be for the exclusive benefit of employees or their beneficiaries. State tax free file These qualified plans can include coverage for a self-employed individual. State tax free file As an employer, you can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. State tax free file The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. State tax free file Kinds of Plans There are two basic kinds of qualified plans—defined contribution plans and defined benefit plans—and different rules apply to each. State tax free file You can have more than one qualified plan, but your contributions to all the plans must not total more than the overall limits discussed under Contributions and Employer Deduction, later. State tax free file Defined Contribution Plan A defined contribution plan provides an individual account for each participant in the plan. State tax free file It provides benefits to a participant largely based on the amount contributed to that participant's account. State tax free file Benefits are also affected by any income, expenses, gains, losses, and forfeitures of other accounts that may be allocated to an account. State tax free file A defined contribution plan can be either a profit-sharing plan or a money purchase pension plan. State tax free file Profit-sharing plan. State tax free file   Although it is called a “profit-sharing plan,” you do not actually have to make a business profit for the year in order to make a contribution (except for yourself if you are self-employed as discussed under Self-employed Individual, later). State tax free file A profit-sharing plan can be set up to allow for discretionary employer contributions, meaning the amount contributed each year to the plan is not fixed. State tax free file An employer may even make no contribution to the plan for a given year. State tax free file   The plan must provide a definite formula for allocating the contribution among the participants and for distributing the accumulated funds to the employees after they reach a certain age, after a fixed number of years, or upon certain other occurrences. State tax free file   In general, you can be more flexible in making contributions to a profit-sharing plan than to a money purchase pension plan (discussed next) or a defined benefit plan (discussed later). State tax free file Money purchase pension plan. State tax free file   Contributions to a money purchase pension plan are fixed and are not based on your business profits. State tax free file For example, if the plan requires that contributions be 10% of the participants' compensation without regard to whether you have profits (or the self-employed person has earned income), the plan is a money purchase pension plan. State tax free file This applies even though the compensation of a self-employed individual as a participant is based on earned income derived from business profits. State tax free file Defined Benefit Plan A defined benefit plan is any plan that is not a defined contribution plan. State tax free file Contributions to a defined benefit plan are based on what is needed to provide definitely determinable benefits to plan participants. State tax free file Actuarial assumptions and computations are required to figure these contributions. State tax free file Generally, you will need continuing professional help to have a defined benefit plan. State tax free file Qualification Rules To qualify for the tax benefits available to qualified plans, a plan must meet certain requirements (qualification rules) of the tax law. State tax free file Generally, unless you write your own plan, the financial institution that provided your plan will take the continuing responsibility for meeting qualification rules that are later changed. State tax free file The following is a brief overview of important qualification rules that generally have not yet been discussed. State tax free file It is not intended to be all-inclusive. State tax free file See Setting Up a Qualified Plan , later. State tax free file Generally, the following qualification rules also apply to a SIMPLE 401(k) retirement plan. State tax free file A SIMPLE 401(k) plan is, however, not subject to the top-heavy plan rules and nondiscrimination rules if the plan satisfies the provisions discussed in chapter 3 under SIMPLE 401(k) Plan. State tax free file Plan assets must not be diverted. State tax free file   Your plan must make it impossible for its assets to be used for, or diverted to, purposes other than the benefit of employees and their beneficiaries. State tax free file As a general rule, the assets cannot be diverted to the employer. State tax free file Minimum coverage requirement must be met. State tax free file   To be a qualified plan, a defined benefit plan must benefit at least the lesser of the following. State tax free file 50 employees, or The greater of: 40% of all employees, or Two employees. State tax free file If there is only one employee, the plan must benefit that employee. State tax free file Contributions or benefits must not discriminate. State tax free file   Under the plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees. State tax free file Contributions and benefits must not be more than certain limits. State tax free file   Your plan must not provide for contributions or benefits that are more than certain limits. State tax free file The limits apply to the annual contributions and other additions to the account of a participant in a defined contribution plan and to the annual benefit payable to a participant in a defined benefit plan. State tax free file These limits are discussed later in this chapter under Contributions. State tax free file Minimum vesting standard must be met. State tax free file   Your plan must satisfy certain requirements regarding when benefits vest. State tax free file A benefit is vested (you have a fixed right to it) when it becomes nonforfeitable. State tax free file A benefit is nonforfeitable if it cannot be lost upon the happening, or failure to happen, of any event. State tax free file Special rules apply to forfeited benefit amounts. State tax free file In defined contribution plans, forfeitures can be allocated to the accounts of remaining participants in a nondiscriminatory way, or they can be used to reduce your contributions. State tax free file   Forfeitures under a defined benefit plan cannot be used to increase the benefits any employee would otherwise receive under the plan. State tax free file Forfeitures must be used instead to reduce employer contributions. State tax free file Participation. State tax free file   In general, an employee must be allowed to participate in your plan if he or she meets both the following requirements. State tax free file Has reached age 21. State tax free file Has at least 1 year of service (2 years if the plan is not a 401(k) plan and provides that after not more than 2 years of service the employee has a nonforfeitable right to all his or her accrued benefit). State tax free file A plan cannot exclude an employee because he or she has reached a specified age. State tax free file Leased employee. State tax free file   A leased employee, defined in chapter 1, who performs services for you (recipient of the services) is treated as your employee for certain plan qualification rules. State tax free file These rules include those in all the following areas. State tax free file Nondiscrimination in coverage, contributions, and benefits. State tax free file Minimum age and service requirements. State tax free file Vesting. State tax free file Limits on contributions and benefits. State tax free file Top-heavy plan requirements. State tax free file Contributions or benefits provided by the leasing organization for services performed for you are treated as provided by you. State tax free file Benefit payment must begin when required. State tax free file   Your plan must provide that, unless the participant chooses otherwise, the payment of benefits to the participant must begin within 60 days after the close of the latest of the following periods. State tax free file The plan year in which the participant reaches the earlier of age 65 or the normal retirement age specified in the plan. State tax free file The plan year in which the 10th anniversary of the year in which the participant began participating in the plan occurs. State tax free file The plan year in which the participant separates from service. State tax free file Early retirement. State tax free file   Your plan can provide for payment of retirement benefits before the normal retirement age. State tax free file If your plan offers an early retirement benefit, a participant who separates from service before satisfying the early retirement age requirement is entitled to that benefit if he or she meets both the following requirements. State tax free file Satisfies the service requirement for the early retirement benefit. State tax free file Separates from service with a nonforfeitable right to an accrued benefit. State tax free file The benefit, which may be actuarially reduced, is payable when the early retirement age requirement is met. State tax free file Required minimum distributions. State tax free file   Special rules require minimum annual distributions from qualified plans, generally beginning after age  70½. State tax free file See Required Distributions , under Distributions, later. State tax free file Survivor benefits. State tax free file   Defined benefit and money purchase pension plans must provide automatic survivor benefits in both the following forms. State tax free file A qualified joint and survivor annuity for a vested participant who does not die before the annuity starting date. State tax free file A qualified pre-retirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. State tax free file   The automatic survivor benefit also applies to any participant under a profit-sharing plan unless all the following conditions are met. State tax free file The participant does not choose benefits in the form of a life annuity. State tax free file The plan pays the full vested account balance to the participant's surviving spouse (or other beneficiary if the surviving spouse consents or if there is no surviving spouse) if the participant dies. State tax free file The plan is not a direct or indirect transferee of a plan that must provide automatic survivor benefits. State tax free file Loan secured by benefits. State tax free file   If automatic survivor benefits are required for a spouse under a plan, he or she must consent to a loan that uses as security the accrued benefits in the plan. State tax free file Waiver of survivor benefits. State tax free file   Each plan participant may be permitted to waive the joint and survivor annuity or the pre-retirement survivor annuity (or both), but only if the participant has the written consent of the spouse. State tax free file The plan also must allow the participant to withdraw the waiver. State tax free file The spouse's consent must be witnessed by a plan representative or notary public. State tax free file Waiver of 30-day waiting period before annuity starting date. State tax free file    A plan may permit a participant to waive (with spousal consent) the 30-day minimum waiting period after a written explanation of the terms and conditions of a joint and survivor annuity is provided to each participant. State tax free file   The waiver is allowed only if the distribution begins more than 7 days after the written explanation is provided. State tax free file Involuntary cash-out of benefits not more than dollar limit. State tax free file   A plan may provide for the immediate distribution of the participant's benefit under the plan if the present value of the benefit is not greater than $5,000. State tax free file   However, the distribution cannot be made after the annuity starting date unless the participant and the spouse or surviving spouse of a participant who died (if automatic survivor benefits are required for a spouse under the plan) consents in writing to the distribution. State tax free file If the present value is greater than $5,000, the plan must have the written consent of the participant and the spouse or surviving spouse (if automatic survivor benefits are required for a spouse under the plan) for any immediate distribution of the benefit. State tax free file   Benefits attributable to rollover contributions and earnings on them can be ignored in determining the present value of these benefits. State tax free file   A plan must provide for the automatic rollover of any cash-out distribution of more than $1,000 to an individual retirement account or annuity, unless the participant chooses otherwise. State tax free file A section 402(f) notice must be sent prior to an involuntary cash-out of an eligible rollover distribution. State tax free file See Section 402(f) Notice under Distributions, later, for more details. State tax free file Consolidation, merger, or transfer of assets or liabilities. State tax free file   Your plan must provide that, in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan, each participant would (if the plan then terminated) receive a benefit equal to or more than the benefit he or she would have been entitled to just before the merger, etc. State tax free file (if the plan had then terminated). State tax free file Benefits must not be assigned or alienated. State tax free file   Your plan must provide that a participant's or beneficiary's benefits under the plan cannot be taken away by any legal or equitable proceeding except as provided below or pursuant to certain judgements or settlements against the participant for violations of plan rules. State tax free file Exception for certain loans. State tax free file   A loan from the plan (not from a third party) to a participant or beneficiary is not treated as an assignment or alienation if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions under section 4975(d)(1) or would be exempt if the participant were a disqualified person. State tax free file A disqualified person is defined later in this chapter under Prohibited Transactions. State tax free file Exception for QDRO. State tax free file   Compliance with a QDRO (qualified domestic relations order) does not result in a prohibited assignment or alienation of benefits. State tax free file   Payments to an alternate payee under a QDRO before the participant attains age 59½ are not subject to the 10% additional tax that would otherwise apply under certain circumstances. State tax free file Benefits distributed to an alternate payee under a QDRO can be rolled over tax free to an individual retirement account or to an individual retirement annuity. State tax free file No benefit reduction for social security increases. State tax free file   Your plan must not permit a benefit reduction for a post-separation increase in the social security benefit level or wage base for any participant or beneficiary who is receiving benefits under your plan, or who is separated from service and has nonforfeitable rights to benefits. State tax free file This rule also applies to plans supplementing the benefits provided by other federal or state laws. State tax free file Elective deferrals must be limited. State tax free file   If your plan provides for elective deferrals, it must limit those deferrals to the amount in effect for that particular year. State tax free file See Limit on Elective Deferrals later in this chapter. State tax free file Top-heavy plan requirements. State tax free file   A top-heavy plan is one that mainly favors partners, sole proprietors, and other key employees. State tax free file   A plan is top-heavy for a plan year if, for the preceding plan year, the total value of accrued benefits or account balances of key employees is more than 60% of the total value of accrued benefits or account balances of all employees. State tax free file Additional requirements apply to a top-heavy plan primarily to provide minimum benefits or contributions for non-key employees covered by the plan. State tax free file   Most qualified plans, whether or not top-heavy, must contain provisions that meet the top-heavy requirements and will take effect in plan years in which the plans are top-heavy. State tax free file These qualification requirements for top-heavy plans are explained in section 416 and its regulations. State tax free file SIMPLE and safe harbor 401(k) plan exception. State tax free file   The top-heavy plan requirements do not apply to SIMPLE 401(k) plans, discussed earlier in chapter 3, or to safe harbor 401(k) plans that consist solely of safe harbor contributions, discussed later in this chapter. State tax free file QACAs (discussed later) also are not subject to top-heavy requirements. State tax free file Setting Up a Qualified Plan There are two basic steps in setting up a qualified plan. State tax free file First you adopt a written plan. State tax free file Then you invest the plan assets. State tax free file You, the employer, are responsible for setting up and maintaining the plan. State tax free file If you are self-employed, it is not necessary to have employees besides yourself to sponsor and set up a qualified plan. State tax free file If you have employees, see Participation, under Qualification Rules, earlier. State tax free file Set-up deadline. State tax free file   To take a deduction for contributions for a tax year, your plan must be set up (adopted) by the last day of that year (December 31 for calendar-year employers). State tax free file Credit for startup costs. State tax free file   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a qualified plan that first became effective in 2013. State tax free file For more information, see Credit for startup costs under Reminders, earlier. State tax free file Adopting a Written Plan You must adopt a written plan. State tax free file The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. State tax free file Or it can be an individually designed plan. State tax free file Written plan requirement. State tax free file   To qualify, the plan you set up must be in writing and must be communicated to your employees. State tax free file The plan's provisions must be stated in the plan. State tax free file It is not sufficient for the plan to merely refer to a requirement of the Internal Revenue Code. State tax free file Master or prototype plans. State tax free file   Most qualified plans follow a standard form of plan (a master or prototype plan) approved by the IRS. State tax free file Master and prototype plans are plans made available by plan providers for adoption by employers (including self-employed individuals). State tax free file Under a master plan, a single trust or custodial account is established, as part of the plan, for the joint use of all adopting employers. State tax free file Under a prototype plan, a separate trust or custodial account is established for each employer. State tax free file Plan providers. State tax free file   The following organizations generally can provide IRS-approved master or prototype plans. State tax free file Banks (including some savings and loan associations and federally insured credit unions). State tax free file Trade or professional organizations. State tax free file Insurance companies. State tax free file Mutual funds. State tax free file Individually designed plan. State tax free file   If you prefer, you can set up an individually designed plan to meet specific needs. State tax free file Although advance IRS approval is not required, you can apply for approval by paying a fee and requesting a determination letter. State tax free file You may need professional help for this. State tax free file See Rev. State tax free file Proc. State tax free file 2014-6, 2014-1 I. State tax free file R. State tax free file B. State tax free file 198, available at www. State tax free file irs. State tax free file gov/irb/2014-1_IRB/ar10. State tax free file html, as annually updated, that may help you decide whether to apply for approval. State tax free file Internal Revenue Bulletins are available on the IRS website at IRS. State tax free file gov They are also available at most IRS offices and at certain libraries. State tax free file User fee. State tax free file   The fee mentioned earlier for requesting a determination letter does not apply to employers who have 100 or fewer employees who received at least $5,000 of compensation from the employer for the preceding year. State tax free file At least one of them must be a non-highly compensated employee participating in the plan. State tax free file The fee does not apply to requests made by the later of the following dates. State tax free file The end of the 5th plan year the plan is in effect. State tax free file The end of any remedial amendment period for the plan that begins within the first 5 plan years. State tax free file The request cannot be made by the sponsor of a prototype or similar plan the sponsor intends to market to participating employers. State tax free file   For more information about whether the user fee applies, see Rev. State tax free file Proc. State tax free file 2014-8, 2014-1 I. State tax free file R. State tax free file B. State tax free file 242, available at www. State tax free file irs. State tax free file gov/irb/2014-1_IRB/ar12. State tax free file html, as may be annually updated; Notice 2003-49, 2003-32 I. State tax free file R. State tax free file B. State tax free file 294, available at www. State tax free file irs. State tax free file gov/irb/2003-32_IRB/ar13. State tax free file html; and Notice 2011-86, 2011-45 I. State tax free file R. State tax free file B. State tax free file 698, available at www. State tax free file irs. State tax free file gov/irb/2011-45_IRB/ar11. State tax free file html. State tax free file Investing Plan Assets In setting up a qualified plan, you arrange how the plan's funds will be used to build its assets. State tax free file You can establish a trust or custodial account to invest the funds. State tax free file You, the trust, or the custodial account can buy an annuity contract from an insurance company. State tax free file Life insurance can be included only if it is incidental to the retirement benefits. State tax free file You set up a trust by a legal instrument (written document). State tax free file You may need professional help to do this. State tax free file You can set up a custodial account with a bank, savings and loan association, credit union, or other person who can act as the plan trustee. State tax free file You do not need a trust or custodial account, although you can have one, to invest the plan's funds in annuity contracts or face-amount certificates. State tax free file If anyone other than a trustee holds them, however, the contracts or certificates must state they are not transferable. State tax free file Other plan requirements. State tax free file   For information on other important plan requirements, see Qualification Rules , earlier in this chapter. State tax free file Minimum Funding Requirement In general, if your plan is a money purchase pension plan or a defined benefit plan, you must actually pay enough into the plan to satisfy the minimum funding standard for each year. State tax free file Determining the amount needed to satisfy the minimum funding standard for a defined benefit plan is complicated, and you should seek professional help in order to meet these contribution requirements. State tax free file For information on this funding requirement, see section 412 and its regulations. State tax free file Quarterly installments of required contributions. State tax free file   If your plan is a defined benefit plan subject to the minimum funding requirements, you generally must make quarterly installment payments of the required contributions. State tax free file If you do not pay the full installments timely, you may have to pay interest on any underpayment for the period of the underpayment. State tax free file Due dates. State tax free file   The due dates for the installments are 15 days after the end of each quarter. State tax free file For a calendar-year plan, the installments are due April 15, July 15, October 15, and January 15 (of the following year). State tax free file Installment percentage. State tax free file   Each quarterly installment must be 25% of the required annual payment. State tax free file Extended period for making contributions. State tax free file   Additional contributions required to satisfy the minimum funding requirement for a plan year will be considered timely if made by 8½ months after the end of that year. State tax free file Contributions A qualified plan is generally funded by your contributions. State tax free file However, employees participating in the plan may be permitted to make contributions, and you may be permitted to make contributions on your own behalf. State tax free file See Employee Contributions and Elective Deferrals later. State tax free file Contributions deadline. State tax free file   You can make deductible contributions for a tax year up to the due date of your return (plus extensions) for that year. State tax free file Self-employed individual. State tax free file   You can make contributions on behalf of yourself only if you have net earnings (compensation) from self-employment in the trade or business for which the plan was set up. State tax free file Your net earnings must be from your personal services, not from your investments. State tax free file If you have a net loss from self-employment, you cannot make contributions for yourself for the year, even if you can contribute for common-law employees based on their compensation. State tax free file Employer Contributions There are certain limits on the contributions and other annual additions you can make each year for plan participants. State tax free file There are also limits on the amount you can deduct. State tax free file See Deduction Limits , later. State tax free file Limits on Contributions and Benefits Your plan must provide that contributions or benefits cannot exceed certain limits. State tax free file The limits differ depending on whether your plan is a defined contribution plan or a defined benefit plan. State tax free file Defined benefit plan. State tax free file   For 2013, the annual benefit for a participant under a defined benefit plan cannot exceed the lesser of the following amounts. State tax free file 100% of the participant's average compensation for his or her highest 3 consecutive calendar years. State tax free file $205,000 ($210,000 for 2014). State tax free file Defined contribution plan. State tax free file   For 2013, a defined contribution plan's annual contributions and other additions (excluding earnings) to the account of a participant cannot exceed the lesser of the following amounts. State tax free file 100% of the participant's compensation. State tax free file $51,000 ($52,000 for 2014). State tax free file   Catch-up contributions (discussed later under Limit on Elective Deferrals) are not subject to the above limit. State tax free file Employee Contributions Participants may be permitted to make nondeductible contributions to a plan in addition to your contributions. State tax free file Even though these employee contributions are not deductible, the earnings on them are tax free until distributed in later years. State tax free file Also, these contributions must satisfy the actual contribution percentage (ACP) test of section 401(m)(2), a nondiscrimination test that applies to employee contributions and matching contributions. State tax free file See Regulations sections 1. State tax free file 401(k)-2 and 1. State tax free file 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). State tax free file When Contributions Are Considered Made You generally apply your plan contributions to the year in which you make them. State tax free file But you can apply them to the previous year if all the following requirements are met. State tax free file You make them by the due date of your tax return for the previous year (plus extensions). State tax free file The plan was established by the end of the previous year. State tax free file The plan treats the contributions as though it had received them on the last day of the previous year. State tax free file You do either of the following. State tax free file You specify in writing to the plan administrator or trustee that the contributions apply to the previous year. State tax free file You deduct the contributions on your tax return for the previous year. State tax free file A partnership shows contributions for partners on Form 1065. State tax free file Employer's promissory note. State tax free file   Your promissory note made out to the plan is not a payment that qualifies for the deduction. State tax free file Also, issuing this note is a prohibited transaction subject to tax. State tax free file See Prohibited Transactions , later. State tax free file Employer Deduction You can usually deduct, subject to limits, contributions you make to a qualified plan, including those made for your own retirement. State tax free file The contributions (and earnings and gains on them) are generally tax free until distributed by the plan. State tax free file Deduction Limits The deduction limit for your contributions to a qualified plan depends on the kind of plan you have. State tax free file Defined contribution plans. State tax free file   The deduction for contributions to a defined contribution plan (profit-sharing plan or money purchase pension plan) cannot be more than 25% of the compensation paid (or accrued) during the year to your eligible employees participating in the plan. State tax free file If you are self-employed, you must reduce this limit in figuring the deduction for contributions you make for your own account. State tax free file See Deduction Limit for Self-Employed Individuals , later. State tax free file   When figuring the deduction limit, the following rules apply. State tax free file Elective deferrals (discussed later) are not subject to the limit. State tax free file Compensation includes elective deferrals. State tax free file The maximum compensation that can be taken into account for each employee in 2013 is $255,000 ($260,000 for 2014). State tax free file Defined benefit plans. State tax free file   The deduction for contributions to a defined benefit plan is based on actuarial assumptions and computations. State tax free file Consequently, an actuary must figure your deduction limit. State tax free file    In figuring the deduction for contributions, you cannot take into account any contributions or benefits that are more than the limits discussed earlier under Limits on Contributions and Benefits, earlier. State tax free file Table 4–1. State tax free file Carryover of Excess Contributions Illustrated—Profit-Sharing Plan (000's omitted) Year Participants' compensation Participants' share of required contribution (10% of annual profit) Deductible  limit for current year (25% of compensation) Contribution Excess contribution carryover used1 Total  deduction including carryovers Excess contribution carryover available at end of year 2010 $1,000 $100 $250 $100 $ 0 $100 $ 0 2011 400 165 100 165 0 100 65 2012 500 100 125 100 25 125 40 2013 600 100 150 100 40 140 0  1There were no carryovers from years before 2010. State tax free file Deduction Limit for Self-Employed Individuals If you make contributions for yourself, you need to make a special computation to figure your maximum deduction for these contributions. State tax free file Compensation is your net earnings from self-employment, defined in chapter 1. State tax free file This definition takes into account both the following items. State tax free file The deduction for the deductible part of your self-employment tax. State tax free file The deduction for contributions on your behalf to the plan. State tax free file The deduction for your own contributions and your net earnings depend on each other. State tax free file For this reason, you determine the deduction for your own contributions indirectly by reducing the contribution rate called for in your plan. State tax free file To do this, use either the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed in chapter 5. State tax free file Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. State tax free file Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. State tax free file For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040); partnerships deduct them on Form 1065; and corporations deduct them on Form 1120, or Form 1120S. State tax free file Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. State tax free file (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065) you get from the partnership. State tax free file ) Carryover of Excess Contributions If you contribute more to the plans than you can deduct for the year, you can carry over and deduct the difference in later years, combined with your contributions for those years. State tax free file Your combined deduction in a later year is limited to 25% of the participating employees' compensation for that year. State tax free file For purposes of this limit, a SEP is treated as a profit-sharing (defined contribution) plan. State tax free file However, this percentage limit must be reduced to figure your maximum deduction for contributions you make for yourself. State tax free file See Deduction Limit for Self-Employed Individuals, earlier. State tax free file The amount you carry over and deduct may be subject to the excise tax discussed next. State tax free file Table 4-1, earlier, illustrates the carryover of excess contributions to a profit-sharing plan. State tax free file Excise Tax for Nondeductible (Excess) Contributions If you contribute more than your deduction limit to a retirement plan, you have made nondeductible contributions and you may be liable for an excise tax. State tax free file In general, a 10% excise tax applies to nondeductible contributions made to qualified pension and profit-sharing plans and to SEPs. State tax free file Special rule for self-employed individuals. State tax free file   The 10% excise tax does not apply to any contribution made to meet the minimum funding requirements in a money purchase pension plan or a defined benefit plan. State tax free file Even if that contribution is more than your earned income from the trade or business for which the plan is set up, the difference is not subject to this excise tax. State tax free file See Minimum Funding Requirement , earlier. State tax free file Reporting the tax. State tax free file   You must report the tax on your nondeductible contributions on Form 5330. State tax free file Form 5330 includes a computation of the tax. State tax free file See the separate instructions for completing the form. State tax free file Elective Deferrals (401(k) Plans) Your qualified plan can include a cash or deferred arrangement under which participants can choose to have you contribute part of their before-tax compensation to the plan rather than receive the compensation in cash. State tax free file A plan with this type of arrangement is popularly known as a “401(k) plan. State tax free file ” (As a self-employed individual participating in the plan, you can contribute part of your before-tax net earnings from the business. State tax free file ) This contribution is called an “elective deferral” because participants choose (elect) to defer receipt of the money. State tax free file In general, a qualified plan can include a cash or deferred arrangement only if the qualified plan is one of the following plans. State tax free file A profit-sharing plan. State tax free file A money purchase pension plan in existence on June 27, 1974, that included a salary reduction arrangement on that date. State tax free file Partnership. State tax free file   A partnership can have a 401(k) plan. State tax free file Restriction on conditions of participation. State tax free file   The plan cannot require, as a condition of participation, that an employee complete more than 1 year of service. State tax free file Matching contributions. State tax free file   If your plan permits, you can make matching contributions for an employee who makes an elective deferral to your 401(k) plan. State tax free file For example, the plan might provide that you will contribute 50 cents for each dollar your participating employees choose to defer under your 401(k) plan. State tax free file Matching contributions are generally subject to the ACP test discussed earlier under Employee Contributions. State tax free file Nonelective contributions. State tax free file   You can also make contributions (other than matching contributions) for your participating employees without giving them the choice to take cash instead. State tax free file These are called nonelective contributions. State tax free file Employee compensation limit. State tax free file   No more than $255,000 of the employee's compensation can be taken into account when figuring contributions other than elective deferrals in 2013. State tax free file This limit is $260,000 in 2014. State tax free file SIMPLE 401(k) plan. State tax free file   If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan. State tax free file A SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy plan requirements discussed earlier under Qualification Rules. State tax free file For details about SIMPLE 401(k) plans, see SIMPLE 401(k) Plan in chapter 3. State tax free file Distributions. State tax free file   Certain rules apply to distributions from 401(k) plans. State tax free file See Distributions From 401(k) Plans , later. State tax free file Limit on Elective Deferrals There is a limit on the amount an employee can defer each year under these plans. State tax free file This limit applies without regard to community property laws. State tax free file Your plan must provide that your employees cannot defer more than the limit that applies for a particular year. State tax free file For 2013 and 2014, the basic limit on elective deferrals is $17,500. State tax free file This limit applies to all salary reduction contributions and elective deferrals. State tax free file If, in conjunction with other plans, the deferral limit is exceeded, the difference is included in the employee's gross income. State tax free file Catch-up contributions. State tax free file   A 401(k) plan can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. State tax free file The catch-up contribution limit for 2013 and 2014 is $5,500. State tax free file Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the $17,500 limit, the actual deferral percentage (ADP) test limit of section 401(k)(3), or the plan limit (if any). State tax free file However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. State tax free file The catch-up contribution limit. State tax free file The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. State tax free file Treatment of contributions. State tax free file   Your contributions to your own 401(k) plan are generally deductible by you for the year they are contributed to the plan. State tax free file Matching or nonelective contributions made to the plan are also deductible by you in the year of contribution. State tax free file Your employees' elective deferrals other than designated Roth contributions are tax free until distributed from the plan. State tax free file Elective deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. State tax free file Forfeiture. State tax free file   Employees have a nonforfeitable right at all times to their accrued benefit attributable to elective deferrals. State tax free file Reporting on Form W-2. State tax free file   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. State tax free file You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. State tax free file You must also include them in box 12. State tax free file Mark the “Retirement plan” checkbox in box 13. State tax free file For more information, see the Form W-2 instructions. State tax free file Automatic Enrollment Your 401(k) plan can have an automatic enrollment feature. State tax free file Under this feature, you can automatically reduce an employee's pay by a fixed percentage and contribute that amount to the 401(k) plan on his or her behalf unless the employee affirmatively chooses not to have his or her pay reduced or chooses to have it reduced by a different percentage. State tax free file These contributions are elective deferrals. State tax free file An automatic enrollment feature will encourage employees' saving for retirement and will help your plan pass nondiscrimination testing (if applicable). State tax free file For more information, see Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses. State tax free file Eligible automatic contribution arrangement. State tax free file   Under an eligible automatic contribution arrangement (EACA), a participant is treated as having elected to have the employer make contributions in an amount equal to a uniform percentage of compensation. State tax free file This automatic election will remain in place until the participant specifically elects not to have such deferral percentage made (or elects a different percentage). State tax free file There is no required deferral percentage. State tax free file Withdrawals. State tax free file   Under an EACA, you may allow participants to withdraw their automatic contributions to the plan if certain conditions are met. State tax free file The participant must elect the withdrawal no later than 90 days after the date of the first elective contributions under the EACA. State tax free file The participant must withdraw the entire amount of EACA default contributions, including any earnings thereon. State tax free file   If the plan allows withdrawals under the EACA, the amount of the withdrawal other than the amount of any designated Roth contributions must be included in the employee's gross income for the tax year in which the distribution is made. State tax free file The additional 10% tax on early distributions will not apply to the distribution. State tax free file Notice requirement. State tax free file   Under an EACA, employees must be given written notice of the terms of the EACA within a reasonable period of time before each plan year. State tax free file The notice must be written in a manner calculated to be understood by the average employee and be sufficiently accurate and comprehensive in order to apprise the employee of his or her rights and obligations under the EACA. State tax free file The notice must include an explanation of the employee's right to elect not to have elective contributions made on his or her behalf, or to elect a different percentage, and the employee must be given a reasonable period of time after receipt of the notice before the first elective contribution is made. State tax free file The notice also must explain how contributions will be invested in the absence of an investment election by the employee. State tax free file Qualified automatic contribution arrangement. State tax free file    A qualified automatic contribution arrangement (QACA) is a type of safe harbor plan. State tax free file It contains an automatic enrollment feature, and mandatory employer contributions are required. State tax free file If your plan includes a QACA, it will not be subject to the ADP test (discussed later) nor the top-heavy requirements (discussed earlier). State tax free file Additionally, your plan will not be subject to the actual contribution percentage (ACP) test if certain additional requirements are met. State tax free file Under a QACA, each employee who is eligible to participate in the plan will be treated as having elected to make elective deferral contributions equal to a certain default percentage of compensation. State tax free file In order to not have default elective deferrals made, an employee must make an affirmative election specifying a deferral percentage (including zero, if desired). State tax free file If an employee does not make an affirmative election, the default deferral percentage must meet the following conditions. State tax free file It must be applied uniformly. State tax free file It must not exceed 10%. State tax free file It must be at least 3% in the first plan year it applies to an employee and through the end of the following year. State tax free file It must increase to at least 4% in the following plan year. State tax free file It must increase to at least 5% in the following plan year. State tax free file It must increase to at least 6% in subsequent plan years. State tax free file Matching or nonelective contributions. State tax free file   Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms. State tax free file Matching contributions. State tax free file You must make matching contributions on behalf of each non-highly compensated employee in the following amounts. State tax free file An amount equal to 100% of elective deferrals, up to 1% of compensation. State tax free file An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation. State tax free file Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. State tax free file The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. State tax free file Nonelective contributions. State tax free file You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation. State tax free file Vesting requirements. State tax free file   All accrued benefits attributed to matching or nonelective contributions under the QACA must be 100% vested for all employees who complete 2 years of service. State tax free file These contributions are subject to special withdrawal restrictions, discussed later. State tax free file Notice requirements. State tax free file   Each employee eligible to participate in the QACA must receive written notice of their rights and obligations under the QACA, within a reasonable period before each plan year. State tax free file The notice must be written in a manner calculated to be understood by the average employee, and it must be accurate and comprehensive. State tax free file The notice must explain their right to elect not to have elective contributions made on their behalf, or to have contributions made at a different percentage than the default percentage. State tax free file Additionally, the notice must explain how contributions will be invested in the absence of any investment election by the employee. State tax free file The employee must have a reasonable period of time after receiving the notice to make such contribution and investment elections prior to the first contributions under the QACA. State tax free file Treatment of Excess Deferrals If the total of an employee's deferrals is more than the limit for 2013, the employee can have the difference (called an excess deferral) paid out of any of the plans that permit these distributions. State tax free file He or she must notify the plan by April 15, 2014 (or an earlier date specified in the plan), of the amount to be paid from each plan. State tax free file The plan must then pay the employee that amount, plus earnings on the amount through the end of 2013, by April 15, 2014. State tax free file Excess withdrawn by April 15. State tax free file   If the employee takes out the excess deferral by April 15, 2014, it is not reported again by including it in the employee's gross income for 2014. State tax free file However, any income earned in 2013 on the excess deferral taken out is taxable in the tax year in which it is taken out. State tax free file The distribution is not subject to the additional 10% tax on early distributions. State tax free file   If the employee takes out part of the excess deferral and the income on it, the distribution is treated as made proportionately from the excess deferral and the income. State tax free file   Even if the employee takes out the excess deferral by April 15, the amount will be considered for purposes of nondiscrimination testing requirements of the plan, unless the distributed amount is for a non-highly compensated employee who participates in only one employer's 401(k) plan or plans. State tax free file Excess not withdrawn by April 15. State tax free file   If the employee does not take out the excess deferral by April 15, 2014, the excess, though taxable in 2013, is not included in the employee's cost basis in figuring the taxable amount of any eventual distributions under the plan. State tax free file In effect, an excess deferral left in the plan is taxed twice, once when contributed and again when distributed. State tax free file Also, if the employee's excess deferral is allowed to stay in the plan and the employee participates in no other employer's plan, the plan can be disqualified. State tax free file Reporting corrective distributions on Form 1099-R. State tax free file   Report corrective distributions of excess deferrals (including any earnings) on Form 1099-R. State tax free file For specific information about reporting corrective distributions, see the Instructions for Forms 1099-R and 5498. State tax free file Tax on excess contributions of highly compensated employees. State tax free file   The law provides tests to detect discrimination in a plan. State tax free file If tests, such as the actual deferral percentage test (ADP test) (see section 401(k)(3)) and the actual contribution percentage test (ACP test) (see section 401(m)(2)), show that contributions for highly compensated employees are more than the test limits for these contributions, the employer may have to pay a 10% excise tax. State tax free file Report the tax on Form 5330. State tax free file The ADP test does not apply to a safe harbor 401(k) plan (discussed next) nor to a QACA. State tax free file Also, the ACP test does not apply to these plans if certain additional requirements are met. State tax free file   The tax for the year is 10% of the excess contributions for the plan year ending in your tax year. State tax free file Excess contributions are elective deferrals, employee contributions, or employer matching or nonelective contributions that are more than the amount permitted under the ADP test or the ACP test. State tax free file   See Regulations sections 1. State tax free file 401(k)-2 and 1. State tax free file 401(m)-2 for further guidance relating to the nondiscrimination rules under sections 401(k) and 401(m). State tax free file    If the plan fails the ADP or ACP testing, and the failure is not corrected by the end of the next plan year, the plan can be disqualified. State tax free file Safe harbor 401(k) plan. State tax free file If you meet the requirements for a safe harbor 401(k) plan, you do not have to satisfy the ADP test, nor the ACP test, if certain additional requirements are met. State tax free file For your plan to be a safe harbor plan, you must meet the following conditions. State tax free file Matching or nonelective contributions. State tax free file You must make matching or nonelective contributions according to one of the following formulas. State tax free file Matching contributions. State tax free file You must make matching contributions according to the following rules. State tax free file You must contribute an amount equal to 100% of each non-highly compensated employee's elective deferrals, up to 3% of compensation. State tax free file You must contribute an amount equal to 50% of each non-highly compensated employee's elective deferrals, from 3% up to 5% of compensation. State tax free file The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees. State tax free file Nonelective contributions. State tax free file You must make nonelective contributions, without regard to whether the employee made elective deferrals, on behalf of all non-highly compensated employees eligible to participate in the plan, equal to at least 3% of the employee's compensation. State tax free file These mandatory matching and nonelective contributions must be immediately 100% vested and are subject to special withdrawal restrictions. State tax free file Notice requirement. State tax free file You must give eligible employees written notice of their rights and obligations with regard to contributions under the plan, within a reasonable period before the plan year. State tax free file The other requirements for a 401(k) plan, including withdrawal and vesting rules, must also be met for your plan to qualify as a safe harbor 401(k) plan. State tax free file Qualified Roth Contribution Program Under this program an eligible employee can designate all or a portion of his or her elective deferrals as after-tax Roth contributions. State tax free file Elective deferrals designated as Roth contributions must be maintained in a separate Roth account. State tax free file However, unlike other elective deferrals, designated Roth contributions are not excluded from employees' gross income, but qualified distributions from a Roth account are excluded from employees' gross income. State tax free file Elective Deferrals Under a qualified Roth contribution program, the amount of elective deferrals that an employee may designate as a Roth contribution is limited to the maximum amount of elective deferrals excludable from gross income for the year (for 2013 and 2014, $17,500 if under age 50 and $23,000 if age 50 or over) less the total amount of the employee's elective deferrals not designated as Roth contributions. State tax free file Designated Roth deferrals are treated the same as pre-tax elective deferrals for most purposes, including: The annual individual elective deferral limit (total of all designated Roth contributions and traditional, pre-tax elective deferrals) of $17,500 for 2013 and 2014, with an additional $5,500 if age 50 or over for 2013 and 2014, Determining the maximum employee and employer annual contributions of the lesser of 100% of compensation or $51,000 for 2013 ($52,000 for 2014), Nondiscrimination testing, Required distributions, and Elective deferrals not taken into account for purposes of deduction limits. State tax free file Qualified Distributions A qualified distribution is a distribution that is made after the employee's nonexclusion period and: On or after the employee attains age   59½, On account of the employee's being disabled, or On or after the employee's death. State tax free file An employee's nonexclusion period for a plan is the 5-tax-year period beginning with the earlier of the following tax years. State tax free file The first tax year in which the employee made a contribution to his or her Roth account in the plan, or If a rollover contribution was made to the employee's designated Roth account from a designated Roth account previously established for the employee under another plan, then the first tax year the employee made a designated Roth contribution to the previously established account. State tax free file Rollover. State tax free file   Beginning September 28, 2010, a rollover from another account can be made to a designated Roth account in the same plan. State tax free file For additional information on these in-plan Roth rollovers, see Notice 2010-84, 2010-51 I. State tax free file R. State tax free file B. State tax free file 872, available at www. State tax free file irs. State tax free file gov/irb/2010-51_IRB/ar11. State tax free file html, and Notice 2013-74. State tax free file A distribution from a designated Roth account can only be rolled over to another designated Roth account or a Roth IRA. State tax free file Rollover amounts do not apply toward the annual deferral limit. State tax free file Reporting Requirements You must report a contribution to a Roth account on Form W-2 and a distribution from a Roth account on Form 1099-R. State tax free file See the Form W-2 and 1099-R instructions for detailed information. State tax free file Distributions Amounts paid to plan participants from a qualified plan are called distributions. State tax free file Distributions may be nonperiodic, such as lump-sum distributions, or periodic, such as annuity payments. State tax free file Also, certain loans may be treated as distributions. State tax free file See Loans Treated as Distributions in Publication 575. State tax free file Required Distributions A qualified plan must provide that each participant will either: Receive his or her entire interest (benefits) in the plan by the required beginning date (defined later), or Begin receiving regular periodic distributions by the required beginning date in annual amounts calculated to distribute the participant's entire interest (benefits) over his or her life expectancy or over the joint life expectancy of the participant and the designated beneficiary (or over a shorter period). State tax free file These distribution rules apply individually to each qualified plan. State tax free file You cannot satisfy the requirement for one plan by taking a distribution from another. State tax free file The plan must provide that these rules override any inconsistent distribution options previously offered. State tax free file Minimum distribution. State tax free file   If the account balance of a qualified plan participant is to be distributed (other than as an annuity), the plan administrator must figure the minimum amount required to be distributed each distribution calendar year. State tax free file This minimum is figured by dividing the account balance by the applicable life expectancy. State tax free file The plan administrator can use the life expectancy tables in Appendix C of Publication 590 for this purpose. State tax free file For more information on figuring the minimum distribution, see Tax on Excess Accumulation in Publication 575. State tax free file Required beginning date. State tax free file   Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the plan by the required beginning date. State tax free file   A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the following years. State tax free file Calendar year in which he or she reaches age 70½. State tax free file Calendar year in which he or she retires from employment with the employer maintaining the plan. State tax free file However, the plan may require the participant to begin receiving distributions by April 1 of the year after the participant reaches age 70½ even if the participant has not retired. State tax free file   If the participant is a 5% owner of the employer maintaining the plan, the participant must begin receiving distributions by April 1 of the first year after the calendar year in which the participant reached age 70½. State tax free file For more information, see Tax on Excess Accumulation in Publication 575. State tax free file Distributions after the starting year. State tax free file   The distribution required to be made by April 1 is treated as a distribution for the starting year. State tax free file (The starting year is the year in which the participant meets (1) or (2) above, whichever applies. State tax free file ) After the starting year, the participant must receive the required distribution for each year by December 31 of that year. State tax free file If no distribution is made in the starting year, required distributions for 2 years must be made in the next year (one by April 1 and one by December 31). State tax free file Distributions after participant's death. State tax free file   See Publication 575 for the special rules covering distributions made after the death of a participant. State tax free file Distributions From 401(k) Plans Generally, distributions cannot be made until one of the following occurs. State tax free file The employee retires, dies, becomes disabled, or otherwise severs employment. State tax free file The plan ends and no other defined contribution plan is established or continued. State tax free file In the case of a 401(k) plan that is part of a profit-sharing plan, the employee reaches age 59½ or suffers financial hardship. State tax free file For the rules on hardship distributions, including the limits on them, see Regulations section 1. State tax free file 401(k)-1(d). State tax free file The employee becomes eligible for a qualified reservist distribution (defined next). State tax free file Certain distributions listed above may be subject to the tax on early distributions discussed later. State tax free file Qualified reservist distributions. State tax free file   A qualified reservist distribution is a distribution from an IRA or an elective deferral account made after September 11, 2001, to a military reservist or a member of the National Guard who has been called to active duty for at least 180 days or for an indefinite period. State tax free file All or part of a qualified reservist distribution can be recontributed to an IRA. State tax free file The additional 10% tax on early distributions does not apply to a qualified reservist distribution. State tax free file Tax Treatment of Distributions Distributions from a qualified plan minus a prorated part of any cost basis are subject to income tax in the year they are distributed. State tax free file Since most recipients have no cost basis, a distribution is generally fully taxable. State tax free file An exception is a distribution that is properly rolled over as discussed under Rollover, next. State tax free file The tax treatment of distributions depends on whether they are made periodically over several years or life (periodic distributions) or are nonperiodic distributions. State tax free file See Taxation of Periodic Payments and Taxation of Nonperiodic Payments in Publication 575 for a detailed description of how distributions are taxed, including the 10-year tax option or capital gain treatment of a lump-sum distribution. State tax free file Note. State tax free file A recipient of a distribution from a designated Roth account will have a cost basis since designated Roth contributions are made on an after-tax basis. State tax free file Also, a distribution from a designated Roth account is entirely tax-free if certain conditions are met. State tax free file See Qualified distributions under Qualified Roth Contribution Program, earlier. State tax free file Rollover. State tax free file   The recipient of an eligible rollover distribution from a qualified plan can defer the tax on it by rolling it over into a traditional IRA or another eligible retirement plan. State tax free file However, it may be subject to withholding as discussed under Withholding requirement, later. State tax free file A rollover can also be made to a Roth IRA, in which case, any previously untaxed amounts are includible in gross income unless the rollover is from a designated Roth account. State tax free file Eligible rollover distribution. State tax free file   This is a distribution of all or any part of an employee's balance in a qualified retirement plan that is not any of the following. State tax free file A required minimum distribution. State tax free file See Required Distributions , earlier. State tax free file Any of a series of substantially equal payments made at least once a year over any of the following periods. State tax free file The employee's life or life expectancy. State tax free file The joint lives or life expectancies of the employee and beneficiary. State tax free file A period of 10 years or longer. State tax free file A hardship distribution. State tax free file The portion of a distribution that represents the return of an employee's nondeductible contributions to the plan. State tax free file See Employee Contributions , earlier, and Rollover of nontaxable amounts, next. State tax free file Loans treated as distributions. State tax free file Dividends on employer securities. State tax free file The cost of any life insurance coverage provided under a qualified retirement plan. State tax free file Similar items designated by the IRS in published guidance. State tax free file See, for example, the Instructions for Forms 1099-R and 5498. State tax free file Rollover of nontaxable amounts. State tax free file   You may be able to roll over the nontaxable part of a distribution to another qualified retirement plan or a section 403(b) plan, or to an IRA. State tax free file If the rollover is to a qualified retirement plan or a section 403(b) plan that separately accounts for the taxable and nontaxable parts of the rollover, the transfer must be made through a direct (trustee-to-trustee) rollover. State tax free file If the rollover is to an IRA, the transfer can be made by any rollover method. State tax free file Note. State tax free file A distribution from a designated Roth account can be rolled over to another designated Roth account or to a Roth IRA. State tax free file If the rollover is to a Roth IRA, it can be rolled over by any rollover method, but if the rollover is to another designated Roth account, it must be rolled over directly (trustee-to-trustee). State tax free file More information. State tax free file   For more information about rollovers, see Rollovers in Pubs. State tax free file 575 and 590. State tax free file Withholding requirement. State tax free file   If, during a year, a qualified plan pays to a participant one or more eligible rollover distributions (defined earlier) that are reasonably expected to total $200 or more, the payor must withhold 20% of the taxable portion of each distribution for federal income tax. State tax free file Exceptions. State tax free file   If, instead of having the distribution paid to him or her, the participant chooses to have the plan pay it directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. State tax free file   If the distribution is not an eligible rollover distribution, defined earlier, the 20% withholding requirement does not apply. State tax free file Other withholding rules apply to distributions that are not eligible rollover distributions, such as long-term periodic distributions and required distributions (periodic or nonperiodic). State tax free file However, the participant can choose not to have tax withheld from these distributions. State tax free file If the participant does not make this choice, the following withholding rules apply. State tax free file For periodic distributions, withholding is based on their treatment as wages. State tax free file For nonperiodic distributions, 10% of the taxable part is withheld. State tax free file Estimated tax payments. State tax free file   If no income tax is withheld or not enough tax is withheld, the recipient of a distribution may have to make estimated tax payments. State tax free file For more information, see Withholding Tax and Estimated Tax in Publication 575. State tax free file Section 402(f) Notice. State tax free file   If a distribution is an eligible rollover distribution, as defined earlier, you must provide a written notice to the recipient that explains the following rules regarding such distributions. State tax free file That the distribution may be directly transferred to an eligible retirement plan and information about which distributions are eligible for this direct transfer. State tax free file That tax will be withheld from the distribution if it is not directly transferred to an eligible retirement plan. State tax free file That the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date the recipient receives the distribution. State tax free file Certain other rules that may be applicable. State tax free file   Notice 2009-68, 2009-39 I. State tax free file R. State tax free file B. State tax free file 423, available at www. State tax free file irs. State tax free file gov/irb/2009-39_IRB/ar14. State tax free file html, contains two updated safe harbor section 402(f) notices that plan administrators may provide recipients of eligible rollover distributions. State tax free file If the plan allows in-plan Roth rollovers, the 402(f) notice must be amended to reflect this. State tax free file Notice 2010-84 contains guidance on how to modify a 402(f) notice for in-plan Roth rollovers. State tax free file Timing of notice. State tax free file   The notice generally must be provided no less than 30 days and no more than 180 days before the date of a distribution. State tax free file Method of notice. State tax free file   The written notice must be provided individually to each distributee of an eligible rollover distribution. State tax free file Posting of the notice is not sufficient. State tax free file However, the written requirement may be satisfied through the use of electronic media if certain additional conditions are met. State tax free file See Regulations section 1. State tax free file 401(a)-21. State tax free file Tax on failure to give notice. State tax free file   Failure to give a 402(f) notice will result in a tax of $100 for each failure, with a total not exceeding $50,000 per calendar year. State tax free file The tax will not be imposed if it is shown that such failure is due to reasonable cause and not to willful neglect. State tax free file Tax on Early Distributions If a distribution is made to an employee under the plan before he or she reaches age 59½, the employee may have to pay a 10% additional tax on the distribution. State tax free file This tax applies to the amount received that the employee must include in income. State tax free file Exceptions. State tax free file   The 10% tax will not apply if distributions before age 59½ are made in any of the following circumstances. State tax free file Made to a beneficiary (or to the estate of the employee) on or after the death of the employee. State tax free file Made due to the employee having a qualifying disability. State tax free file Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary. State tax free file (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period. State tax free file ) Made to an employee after separation from service if the separation occurred during o
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The State Tax Free File

State tax free file 3. State tax free file   Section 501(c)(3) Organizations Table of Contents IntroductionChild care organizations. State tax free file Topics - This chapter discusses: Useful Items - You may want to see: Contributions to 501(c)(3) OrganizationsCertain annuity contracts. State tax free file Certain contracts held by a charitable remainder trust. State tax free file Excise Taxes. State tax free file Indoor tanning services. State tax free file Application for Recognition of ExemptionPolitical activity. State tax free file Private delivery service. State tax free file Amendments to organizing documents required. State tax free file How to show reasonable action and good faith. State tax free file Not acting reasonably and in good faith. State tax free file Prejudicing the interest of the Government. State tax free file Procedure for requesting extension. State tax free file More information. State tax free file 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. State tax free file Grass roots expenditures. State tax free file Lobbying nontaxable amount. State tax free file Grass roots nontaxable amount. State tax free file Organization that no longer qualifies. State tax free file Tax on organization. State tax free file Tax on managers. State tax free file Taxes on organizations. State tax free file Taxes on managers. State tax free file Political expenditures. State tax free file Correction of expenditure. State tax free file 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. State tax free file Religious. State tax free file Charitable. State tax free file Scientific. State tax free file Testing for public safety. State tax free file Literary. State tax free file Educational. State tax free file 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). State tax free file The prevention of cruelty to children or animals. State tax free file To qualify, the organization must be a corporation, community chest, fund, articles of association, or foundation. State tax free file A trust is a fund or foundation and will qualify. State tax free file However, an individual or a partnership will not qualify. State tax free file Examples. State tax free file   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. State tax free file Child care organizations. State tax free file   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. State tax free file Instrumentalities. State tax free file   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). State tax free file Examples of a qualifying instrumentality might include state schools, universities, or hospitals. State tax free file However, if an organization is an integral part of the local government or possesses governmental powers, it does not qualify for exemption. State tax free file A state or municipality itself does not qualify for exemption. State tax free file 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. State tax free file 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. State tax free file 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. State tax free file Fundraising events. State tax free file   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. State tax free file 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. State tax free file   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. State tax free file 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. State tax free file 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. State tax free file See Disclosure of Quid Pro Quo Contributions in chapter 2. State tax free file Exemption application not filed. State tax free file   Donors cannot deduct any charitable contribution to an organization that is required to apply for recognition of exemption but has not done so. State tax free file Separate fund—contributions that are deductible. State tax free file   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. State tax free file   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. State tax free file 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. State tax free file Personal benefit contracts. State tax free file   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. State tax free file   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. State tax free file Certain annuity contracts. State tax free file   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). State tax free file Certain contracts held by a charitable remainder trust. State tax free file   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. State tax free file Excise tax. State tax free file   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. State tax free file The excise tax does not apply if all of the direct and indirect beneficiaries under the contract are organizations. State tax free file Excise Taxes. State tax free file   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. State tax free file 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. State tax free file Indoor tanning services. State tax free file   If your organization provides an indoor tanning bed service, the ACA imposed a 10% excise tax on services provided after June 30, 2010. State tax free file For more information, go to IRS. State tax free file gov and select Affordable Care Act Tax Provisions. State tax free file 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. State tax free file 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. State tax free file See the organization headings that follow for specific information your organization may need to provide. State tax free file Form 1023. State tax free file   Your organization must file its application for recognition of exemption on Form 1023. State tax free file See chapter 1 and the instructions accompanying Form 1023 for the procedures to follow in applying. State tax free file Some organizations are not required to file Form 1023. State tax free file See Organizations Not Required To File Form 1023, later. State tax free file    Additional information to help you complete your application can be found online. State tax free file 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. State tax free file See Exemption Requirements - Section 501(c)(3) Organizations. State tax free file   Form 1023 and accompanying statements must show that all of the following are true. State tax free file The organization is organized exclusively for, and will be operated exclusively for, one or more of the purposes (religious, charitable, etc. State tax free file ) specified in the introduction to this chapter. State tax free file No part of the organization's net earnings will inure to the benefit of private shareholders or individuals. State tax free file 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. State tax free file 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. State tax free file See Political activity, next, and Lobbying Expenditures , near the end of this chapter. State tax free file Political activity. State tax free file   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). State tax free file Such participation or intervention includes the publishing or distributing of statements. State tax free file   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. State tax free file 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. State tax free file Effective date of exemption. State tax free file   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. State tax free file 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. State tax free file 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. State tax free file Otherwise, exemption will be recognized only from the date of receipt. State tax free file The date of receipt is the date of the U. State tax free file S. State tax free file 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. State tax free file Private delivery service. State tax free file   If a private delivery service designated by the IRS, rather than the U. State tax free file S. State tax free file Postal Service, is used to deliver the application, the date of receipt is the date recorded or marked by the private delivery service. State tax free file The following private delivery services have been designated by the IRS. State tax free file DHL Express (DHL): DHL “Same Day” Service. State tax free file Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. State tax free file United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A. State tax free file M. State tax free file , UPS Worldwide Express Plus, and UPS Worldwide Express. State tax free file Amendments to organizing documents required. State tax free file   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. State tax free file 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. State tax free file Extensions of time for filing. State tax free file   There are two ways organizations seeking exemption can receive an extension of time for filing Form 1023. State tax free file Automatic 12-month extension. State tax free file 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. State tax free file To get this extension, an organization must add the following statement at the top of its application: “Filed Pursuant to Section 301. State tax free file 9100-2. State tax free file ” Discretionary extensions. State tax free file 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. State tax free file How to show reasonable action and good faith. State tax free file   An organization acted reasonably and showed good faith if at least one of the following is true. State tax free file The organization requests relief before its failure to file is discovered by the IRS. State tax free file The organization failed to file because of intervening events beyond its control. State tax free file 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. State tax free file The organization reasonably relied upon the written advice of the IRS. State tax free file The organization reasonably relied upon the advice of a qualified tax professional who failed to file or advise the organization to file Form 1023. State tax free file 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. State tax free file Not acting reasonably and in good faith. State tax free file   An organization has not acted reasonably and in good faith under the following circumstances. State tax free file 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. State tax free file It was informed of the requirement to file and related tax consequences, but chose not to file. State tax free file It uses hindsight in requesting relief. State tax free file 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. State tax free file Prejudicing the interest of the Government. State tax free file   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. State tax free file 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. State tax free file 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. State tax free file 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. State tax free file Procedure for requesting extension. State tax free file   To request a discretionary extension, an organization must submit (to the IRS address shown on Form 1023 and Notice 1382) the following. State tax free file A statement showing the date Form 1023 was required to have been filed and the date it was actually filed. State tax free file Any documents relevant to the application. State tax free file An affidavit describing in detail the events that led to the failure to apply and to the discovery of that failure. State tax free file 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. State tax free file 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. State tax free file ” 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. State tax free file This includes the organization's return preparer, and any accountant or attorney, knowledgeable in tax matters, who advised the taxpayer on the application. State tax free file The affidavits must describe the engagement and responsibilities of the individual and the advice that he or she provided. State tax free file 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. State tax free file ” 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. State tax free file 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. State tax free file The organization, if requested, has to submit copies of its tax returns, and copies of the returns of other affected taxpayers. State tax free file   A request for this relief in connection with an application for exemption does not require payment of an additional user fee. State tax free file Also, a request for relief under the automatic 12-month extension does not require payment of a user fee. State tax free file More information. State tax free file   For more information about these procedures, see Regulations sections 301. State tax free file 9100-1, 301. State tax free file 9100-2, 301. State tax free file 9100-3, Revenue Procedure 2013-4, section 6. State tax free file 04, 2013-1 I. State tax free file R. State tax free file B. State tax free file 126, and Revenue Procedure 2013-8, 2013-1 I. State tax free file R. State tax free file B. State tax free file 237. State tax free file See Revenue Procedure 2013-4 and Revenue Procedure 2013-8. State tax free file Notification from the IRS. State tax free file   Organizations filing Form 1023 and satisfying all requirements of section 501(c)(3) will be notified of their exempt status in writing. State tax free file Organizations Not Required To File Form 1023 Some organizations are not required to file Form 1023. State tax free file 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. State tax free file Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later). State tax free file These organizations are exempt automatically if they meet the requirements of section 501(c)(3). State tax free file Filing Form 1023 to establish exemption. State tax free file   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. State tax free file By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible. State tax free file A subordinate organization (other than a private foundation) covered by a group exemption letter does not have to submit a Form 1023 for itself. State tax free file Private foundations. State tax free file   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. State tax free file Gross receipts test. State tax free file   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. State tax free file   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. State tax free file 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. State tax free file The organization must file Form 1023 within 90 days after the end of its second tax year. State tax free file   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. State tax free file 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. State tax free file Example. State tax free file   An organization is organized and operated exclusively for charitable purposes and is not a private foundation. State tax free file It was incorporated on January 1, 2009, and files returns on a calendar-year basis. State tax free file It did not file a Form 1023. State tax free file 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. State tax free file Therefore, it did not have to file Form 1023 and is exempt for those years. State tax free file However, for 2010, 2011, and 2012 the total gross receipts were $15,900. State tax free file Therefore, the organization must file Form 1023 within 90 days after the end of its 2012 tax year. State tax free file 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. State tax free file The organization, however, will not lose its exempt status for the tax years ending before January 1, 2012. State tax free file   The IRS will consider applying the Commissioner's discretionary authority to extend the time for filing Form 1023. State tax free file See the procedures for this extension discussed earlier. State tax free file Articles of Organization Your organization must include a conformed copy of its articles of organization with the application for recognition of exemption. State tax free file This may be its trust instrument, corporate charter, articles of association, or any other written instrument by which it is created. State tax free file 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. State tax free file These conditions for exemption are referred to as the organizational test. State tax free file Section 501(c)(3) is the provision of law that grants exemption to the organizations described in this chapter. State tax free file 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). State tax free file 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. State tax free file Moreover, the organizational test is not satisfied by statements of your organization's officers that you intend to operate only for exempt purposes. State tax free file Also, the test is not satisfied by the fact that your actual operations are for exempt purposes. State tax free file In interpreting an organization's articles, the law of the state where the organization was created is controlling. State tax free file 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. State tax free file The following are examples illustrating the organizational test. State tax free file Example 1. State tax free file Articles of organization state that an organization is formed exclusively for literary and scientific purposes within the meaning of section 501(c)(3). State tax free file These articles appropriately limit the organization's purposes. State tax free file The organization meets the organizational test. State tax free file Example 2. State tax free file An organization, by the terms of its articles, is formed to engage in research without any further description or limitation. State tax free file The organization will not be properly limited as to its purposes since all research is not scientific. State tax free file The organization does not meet the organizational test. State tax free file Example 3. State tax free file 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). State tax free file The organization meets the organizational test. State tax free file Example 4. State tax free file 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. State tax free file Example 5. State tax free file 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. State tax free file 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. State tax free file Example 6. State tax free file 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. State tax free file Such purposes are vague and may be accomplished other than in an exempt manner. State tax free file Example 7. State tax free file A stated purpose to operate a hospital does not meet the organizational test since it is not necessarily charitable. State tax free file A hospital may or may not be exempt depending on the manner in which it is operated. State tax free file Example 8. State tax free file 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. State tax free file Dedication and Distribution of Assets Assets of an organization must be permanently dedicated to an exempt purpose. State tax free file 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. State tax free file If the assets could be distributed to members or private individuals or for any other purpose, the organizational test is not met. State tax free file Dedication. State tax free file   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. State tax free file 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. State tax free file Distribution. State tax free file   Revenue Procedure 82-2, 1982-1 C. State tax free file B. State tax free file 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. State tax free file The procedure also provides a sample of an acceptable dissolution provision for organizations required to have one. State tax free file   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. State tax free file 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. State tax free file Sample articles of organization. State tax free file   See sample articles of organization in the Appendix in the back of this publication. State tax free file 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. State tax free file 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. State tax free file You must submit a copy of the pertinent contracts, agreements, publications, programs, etc. State tax free file 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. State tax free file See also Private Schools , discussed later. State tax free file 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. State tax free file Advocacy of a position. State tax free file   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. State tax free file The mere presentation of unsupported opinion is not educational. State tax free file Method not educational. State tax free file   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). State tax free file The following factors may indicate that the method is not educational. State tax free file The presentation of viewpoints unsupported by facts is a significant part of the organization's communications. State tax free file The facts that purport to support the viewpoint are distorted. State tax free file 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. State tax free file 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. State tax free file   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. State tax free file Qualifying organizations. State tax free file   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. State tax free file College book stores, cafeterias, restaurants, etc. State tax free file   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. State tax free file Alumni association. State tax free file   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. State tax free file 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 . State tax free file Athletic organization. State tax free file   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. State tax free file If it is not so engaged, your organization may be exempt as a social club described in chapter 4. State tax free file 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. State tax free file If your organization is not exempt as an educational organization, see Amateur Athletic Organizations , later in this chapter. State tax free file 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. State tax free file The racial composition of the student body, and of the faculty and administrative staff, as of the current academic year. State tax free file (This information also must be projected, so far as may be feasible, for the next academic year. State tax free file ) The amount of scholarship and loan funds, if any, awarded to students enrolled and the racial composition of students who have received the awards. State tax free file A list of the school's incorporators, founders, board members, and donors of land or buildings, whether individuals or organizations. State tax free file 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. State tax free file The public school district and county in which the school is located. State tax free file How to determine racial composition. State tax free file   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. State tax free file Nevertheless, a statement of the method by which the racial composition was determined must be supplied. State tax free file The identity of individual students or members of the faculty and administrative staff should not be included with this information. State tax free file   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. State tax free file 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. State tax free file Also, the school must circulate information that clearly states the school's admission policies. State tax free file 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. State tax free file The IRS considers discrimination on the basis of race to include discrimination on the basis of color or national or ethnic origin. State tax free file 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. State tax free file Conversely, the absence of racial discrimination in the employment of faculty and administrative staff is indicative of a racially nondiscriminatory policy as to students. State tax free file 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. State tax free file 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. State tax free file Policy statement. State tax free file   The school must include a statement of its racially nondiscriminatory policy in all its brochures and catalogs dealing with student admissions, programs, and scholarships. State tax free file 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. State tax free file Publicity requirement. State tax free file   The school must make its racially nondiscriminatory policy known to all segments of the general community served by the school. State tax free file 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. State tax free file To satisfy this requirement, the school must use one of the following two methods. State tax free file Method one. State tax free file   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. State tax free file 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. State tax free file 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. State tax free file If this method is used, the notice must meet the following printing requirements. State tax free file It must appear in a section of the newspaper likely to be read by prospective students and their families. State tax free file It must occupy at least 3 column inches. State tax free file It must have its title printed in at least 12 point bold face type. State tax free file It must have the remaining text printed in at least 8 point type. State tax free file 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. State tax free file 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. State tax free file   Method two. State tax free file   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. State tax free file 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. State tax free file 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. State tax free file 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. State tax free file 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. State tax free file Exceptions. State tax free file   The publicity requirements will not apply in the following situations. State tax free file 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. State tax free file 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. State tax free file 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. State tax free file 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 . State tax free file   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. State tax free file 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. State tax free file   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. State tax free file 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. State tax free file   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. State tax free file The IRS believes that these publicity requirements are the most effective methods to make known a school's racially nondiscriminatory policy. State tax free file In this regard, it is each school's responsibility to determine whether either of the exceptions applies. State tax free file 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. State tax free file 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. State tax free file Facilities and programs. State tax free file   A school must be able to show that all of its programs and facilities are operated in a racially nondiscriminatory manner. State tax free file Scholarship and loan programs. State tax free file   As a general rule, all scholarship or other comparable benefits obtainable at the school must be offered on a racially nondiscriminatory basis. State tax free file This must be known throughout the general community being served by the school and should be referred to in its publicity. State tax free file 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. State tax free file Certification. State tax free file   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. State tax free file   Failure to comply with the guidelines ordinarily will result in the proposed revocation of the exempt status of a school. State tax free file Recordkeeping requirements. State tax free file 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. State tax free file Records indicating the racial composition of the student body, faculty, and administrative staff for each academic year. State tax free file Records sufficient to document that scholarship and other financial assistance is awarded on a racially nondiscriminatory basis. State tax free file Copies of all materials used by or on behalf of the school to solicit contributions. State tax free file Copies of all brochures, catalogs, and advertising dealing with student admissions, programs, and scholarships. State tax free file (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. State tax free file ) 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. State tax free file 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. State tax free file 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. State tax free file Similarly, the IRS does not require a school to keep records prohibited under state or federal law. State tax free file Exceptions. State tax free file   The school does not have to independently maintain these records for IRS use if both of the following are true. State tax free file 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. State tax free file The school maintains copies of these reports from which this information is readily obtainable. State tax free file 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. State tax free file Failure to maintain records. State tax free file   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. State tax free file 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. State tax free file 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. State tax free file 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). State tax free file 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. State tax free file 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. State tax free file 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. State tax free file The rest of this section contains a description of the information to be provided by certain specific organizations. State tax free file This information is in addition to the required inclusions described in chapter 1, and other statements requested on Form 1023. State tax free file Each of the following organizations must submit the information described. State tax free file Charitable organization supporting education. State tax free file   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. State tax free file Scholarships. State tax free file   If the organization awards or plans to award scholarships, complete Schedule H of Form 1023. State tax free file Also, submit the following: Criteria used for selecting recipients, including the rules of eligibility. State tax free file How and by whom the recipients are or will be selected. State tax free file If awards are or will be made directly to individuals, whether information is required assuring that the student remains in school. State tax free file 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. State tax free file A copy of the scholarship application form and any brochures or literature describing the scholarship program. State tax free file Hospital. State tax free file   If you are organized to operate a charitable hospital, complete and attach Section I of Schedule C, Form 1023. State tax free file   If your hospital was transferred to you from proprietary ownership, complete and attach Schedule G of Form 1023. State tax free file 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. State tax free file Submit also an appraisal showing the fair rental value of the rented space. State tax free file Clinic. State tax free file   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. State tax free file Home for the aged. State tax free file   If you are organized to operate a home for the aged, complete and attach Schedule F of Form 1023 and required attachments. State tax free file Community nursing bureau. State tax free file   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. State tax free file Organization providing loans. State tax free file   If you make, or will make, loans for charitable and educational purposes, submit the following information. State tax free file An explanation of the circumstances under which such loans are, or will be, made. State tax free file Criteria for selection, including the rules of eligibility. State tax free file How and by whom the recipients are or will be selected. State tax free file Manner of repayment of the loan. State tax free file Security required, if any. State tax free file Interest charged, if any, and when payable. State tax free file Copies in duplicate of the loan application and any brochures or literature describing the loan program. State tax free file Public-interest law firms. State tax free file   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. State tax free file How the litigation can reasonably be said to be representative of a broad public interest rather than a private one. State tax free file Whether the organization will accept fees for its services. State tax free file A description of the cases litigated or to be litigated and how they benefit the public generally. State tax free file 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. State tax free file 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. State tax free file 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. State tax free file Acceptance of attorneys' fees. State tax free file   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. State tax free file Upon undertaking a representation, the organization cannot withdraw from the case because the litigant is unable to pay the fee. State tax free file   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. State tax free file All fee awards must be paid to the organization and not to its individual staff attorneys. State tax free file Instead, a public-interest law firm can reasonably compensate its staff attorneys, but only on a straight salary basis. State tax free file 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. State tax free file   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. State tax free file   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. State tax free file Religious Organizations To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines. State tax free file That the particular religious beliefs of the organization are truly and sincerely held. State tax free file That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy. State tax free file 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. State tax free file 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. State tax free file Churches. State tax free file   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. State tax free file 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. State tax free file   In determining whether an admittedly religious organization is also a church, the IRS does not accept every assertion that the organization is a church. State tax free file Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. State tax free file The IRS considers the facts and circumstances of each organization applying for church status. State tax free file Convention or association of churches. State tax free file   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. State tax free file Integrated auxiliaries. State tax free file   An organization is an integrated auxiliary of a church if all the following are true. State tax free file The organization is described both in sections 501(c)(3) and 509(a)(1), 509(a)(2), or 509(a)(3). State tax free file It is affiliated with a church or a convention or association of churches. State tax free file It is internally supported. State tax free file An organization is internally supported unless both of the following are true. State tax free file 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). State tax free file 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. State tax free file Special rule. State tax free file   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. State tax free file   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. State tax free file   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. State tax free file Scientific Organizations You must show that your organization's research will be carried on in the public interest. State tax free file 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. State tax free file Aiding in the scientific education of college or university students. State tax free file Obtaining scientific information that is published in a treatise, thesis, trade publication, or in any other form th