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A Guide to Federal Tax Exempt Status and Internal Revenue Service (IRS) Annual Filing Requirements
All undergraduate organizations are expected to comply with the Undergraduate Regulations, and must also comply with applicable federal and state tax laws. Yale University’s tax exempt status does not extend to its undergraduate organizations. Nonetheless, Yale College requires all undergraduate organizations to operate exclusively on a not-for-profit basis. Filing federal and state returns for an organization and complying with related federal and state tax laws is the responsibility of each undergraduate organization.
This guide will summarize:
- the rules relating to federal tax exempt status
- how to apply for federal tax exempt status, if applicable
- IRS annual filing requirements
- Other federal and state tax information
Note: This information is intended only for Yale University undergraduate student organizations. Although the information contained in this website is designed to offer general tax information, it is not a substitute for advice obtained from the Internal Revenue Service, Connecticut Department of Revenue Services or a qualified tax professional. The information on this website is subject to change or further interpretation by the Internal Revenue Service or other tax authorities.
If you have any questions about the information outlined herein, or if you wish to seek assistance with any of your organization's financial or tax matters, please contact Dean John Meeske (firstname.lastname@example.org) in the Yale College Dean's Office.
Important: The Pension Protection Act of 2006 mandates that most tax-exempt organizations must file an annual return or submit an electronic notice, with the IRS. The Act also requires that any tax-exempt organization that fails to file the required documents for three consecutive years automatically loses its federal tax-exempt status.
FEDERAL TAX EXEMPT STATUS IN GENERAL
In order to qualify as a tax exempt organization (i.e., exempt from Federal taxation under Internal Revenue Code (IRC) Section 501(a)), a student organization must generally be a type of organization described in IRC Section 501(c). Organizations that meet the requirements of IRC Section 501(a) are generally exempt from federal income taxation. In addition, charitable contributions made to some section 501(a) organizations by individuals and corporations are deductible as charitable contributions under IRC Section 170.
Although IRC Section 501(c) includes organizations operating as title holding companies (501(c)(2)), membership organizations (501(c)(4)), trade associations (501(c)(6)), and fraternal beneficiary societies (501(c)(8)), the majority of undergraduate student organizations will qualify for tax exemption under IRC Section 501(c)(3).
An organization exempt under IRC Section 501(c)(3) is an organization organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes. Please refer to IRS publication 557, Tax-Exempt Status for your Organization, for a description of the types of organizations included under IRC Section 501(c).
In order to support its entitlement to this exemption, every organization should have a written Constitution, Bylaws, and/or Article of Association which would typically include the following basic information:
- The name and purpose of the organization;
- A description of its activities in terms that indicate the organization's tax‐exempt character;
- A description of its membership (e.g., how does someone become a member? Is the group composed predominately of Yale students? Is there membership by audition? Is the group exclusive in any other way?);
- A list of officers and a description of how officers are chosen;
- An indication of how and for what purpose the organization disburses its funds;
- A dissolution provision stating that if the group dissolves, its assets will be distributed to Yale University or to some other designated tax‐exempt organization.
501(c)(3) Restrictions: Private Benefit and Lobbying
An absolute requirement for federal tax exemption under IRC Section 501(c)(3) and certain other organizations described under IRC Section 501(c) is that none of the organization’s net income or profits can inure to the benefit of private interests, such as the creator or the creator’s family, shareholders or other designated individuals or persons controlled directly or indirectly by such private interests. Further, an organization exempt from taxation under IRC Section 501(c)(3) is limited in its ability to attempt to influence legislation and is prohibited from intervening in a political campaign for or against any candidate for public office.
For additional information regarding federal tax exempt status, please refer to the IRS public charities and non-profits site and IRS Publication 557, Tax-Exempt Status for Your Organization.
OBTAINING FEDERAL TAX EXEMPT STATUS
The benefits of 501(c)(3) status include exemption from federal income tax and eligibility to receive tax-deductible charitable contributions. To qualify for these benefits most organizations must file an application with and be recognized as exempt under IRC Section 501(c)(3) by the IRS.
Organizations with Gross Receipts of Not More than $5,000 per Year
An organization that normally has gross receipts of not more than $5,000 per year (see gross receipts test below) and which is organized and operated exclusively for tax‐exempt purposes will generally be recognized as tax‐exempt under Internal Revenue Service Code (IRC) Section 501(a) without applying to the IRS for approval of IRC Section 501(c)(3) status.
Organizations with Gross Receipts in Excess of $5,000 per Year
An organization that normally has gross receipts in excess of $5,000 per year (see gross receipts test below) and which is organized and operated exclusively for tax‐exempt must formally request recognition of exemption in order to be recognized as an entity exempt from federal income taxes. The request is generally made on IRS Form 1023, Application for Recognition of Exemption under IRC Section 501(c)(3) of the Internal Revenue Code.* Where the form is timely filed, the organization will generally be treated as tax‐exempt until the IRS acts on the application. In order to ensure that the Form 1023 is complete and accurate, it is strongly recommended that an organization seek professional tax assistance in completing this application.
*Note: Organizations which are not described in IRC Section 501(c)(3) may be required to file IRS Form 1024, Application for Recognition of Exemption under Section 501(a) or for Determination under Section 120, rather than Form 1023, in order to formally request recognition of exempt status.
Gross Receipts Test
The gross receipts of an organization are not more than $5,000 if: i) during the first taxable year of the organization, the organization received gross receipts of less than $7,500; ii) during its first two taxable years, the aggregate gross receipts received by the organization are $12,000 or less; and iii) in the case of an organization which has been in existence for at least three taxable years, the aggregate gross receipts received by the organization during the immediately preceding two taxable years plus the currenåt year are $15,000 or less.
ANNUAL IRS FILING REQUIREMENTS
Organizations recognized as tax exempt under IRC Section 501(c)(3) are generally required to file an annual information return. The type of annual filing is determined by the organization’s annual gross receipts and assets.
Important: The Pension Protection Act of 2006 mandates that most tax-exempt organizations must file an annual return or submit an electronic notice with the IRS. The Act also requires that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status.
Organizations with Gross Receipts of Not More than $50,000 per Year
Organizations with gross receipts that are not normally more than $50,000 per year (see gross income test below) must electronically submit IRS Form 990-N, also known as the e-Postcard, annually (unless the organization chooses to file a complete Form 990 or 990-EZ). The e-Postcard is due by the 15th day of the 5th month after the close of the organization’s tax year.
Note: Organizations that were not formally granted federal tax exempt status through the filing of either Forms 1023 or 1024, but that are recognized as tax exempt (because their annual gross receipts are not more than $5,000 and they are organized and operated exclusively for tax exempt purposes) should contact the IRS Account Services Unit prior to the initial e-Postcard filing at (877)-829-5500 to request the IRS to set up the organization’s account to allow filing of the e-Postcard. Organizations that received formal IRS approval of exempt status do not need to contact the IRS prior to filing the e-Postcard.
Further information on Form 990-N (E-Postcard) can be found at: http://www.irs.gov/charities/article/0,,id=177782,00.html
Organizations with Gross Receipts in Excess of $50,000 per Year
Whether it has received recognition of its tax‐exempt status or is awaiting notification of exempt status, an organization that normally has gross receipts in excess of $50,000 per year (see gross income test below) must file IRS Form 990, Return or Organization Exempt from Income Tax, or IRS Form 990-EZ, Short Form, Return of Organization Exempt from Income Tax, annually, with the IRS. Forms 990 and 990-EZ are due by the 15th day of the 5th month after the close of the organization’s tax year.
An organization that has gross receipts during the year of less than $200,000 and total assets at the end of the year of less than $500,000, however, may file Form 990‐EZ rather than Form 990.
A Form 990 or Form 990‐EZ must be filed even if the organization has little or no net income (e.g., because its expenses equal its income) or has income only from carrying on its exempt activities. If your organization is required to file an annual information return, it is strongly recommended that you consult with a tax professional to ensure that it is filed in a complete, accurate and timely manner.
Gross Receipts Test
An organization's gross receipts are considered normally to be in excess of $50,000 if the organization is: i) up to a year old and has received, or donors have pledged to give, more than $75,000 during its first tax year; ii) between one and three years old and averaged more than $60,000 in gross receipts during each of its first two tax years; or, iii) three years old or more and averaged more than $50,000 in gross receipts for the immediately preceding three tax years (including the year for which the return would be filed).
Further instructions on which form to file can be found at: http://www.irs.gov/charities/article/0,,id=184445,00.html
OTHER FEDERAL AND STATE INFORMATION
Federal Employer Identification Number (EIN)
Undergraduate organizations are not permitted to utilize the University’s EIN for any purposes. Any organization that has at least one employee, files tax or information returns and/or opens a bank account will be required to obtain an EIN. An organization can apply for an EIN by completing IRS Form SS-4 online, by telephone, by fax or by mail (Please refer to SS-4 instructions for further information). To avoid the issuance of multiple EINs, it is advised that an organization check its records before applying, in order to verify that the organization was not already issued an EIN.
Note: An individual's social security number should not be utilized on a student organization’s bank account as the funds in the account may be treated by the IRS as part of that individual's assets and any earnings on the account will be deemed earnings of the individual for income tax purposes.
Typically, undergraduate organizations are not permitted to employ students directly. Organizations wishing to pay wages to students must receive advance written approval to do so from the Dean of Student Affairs. An undergraduate organization that employs anyone directly is responsible for all related federal and state employment tax and compliance issues (i.e., payment of all taxes and the filing of all related federal and state tax returns and information returns) associated with the wages paid. In general, employers are required to withhold and remit federal income and FICA taxes (including the employer’s share of FICA taxes paid on a matching basis) and state income taxes to the appropriate taxing authorities. Tax exempt employers may also be responsible for the payment of federal and state unemployment taxes. In addition to the tax returns required for taxes above, federal and state information returns (Forms W-3, W-2, etc.) must be provided to direct workers and/or filed with the appropriate taxing authorities.
Federal Income Taxes
If an organization qualifies for tax exempt status under IRC Section 501(a), it may still be subject to federal income tax on income from an unrelated trade or business. Unrelated trade or business income is the gross income derived from any trade or business that is regularly carried on and that is not substantially related to the organization's exempt purpose. There are several exceptions to the definition of unrelated trade or business income. An exempt organization which has gross income from an unrelated trade or business of $1,000 or more in any year must file Form 990-T, Exempt Organization Business Income Tax Return, and pay the related federal income tax. Gross income is defined as gross receipts minus the cost of goods sold.
If you believe that your organization will generate unrelated business income, you should contact a tax professional for a complete analysis and assistance in the completion of Form 990-T, if required. Please refer to IRS Publication 598, Tax on Unrelated Business Income of Exempt Organization, for additional information regarding unrelated business income is available at www.irs.gov.
State Filing Requirements
An organization which is required to file a Form 990 or Form 990‐EZ is not required to file a copy of the federal information return or an equivalent state information return with the State of Connecticut. If your organization is required to file a Federal income tax return (e.g., Form 990-T), however, it will generally be required to file a state income tax return. Please consult a tax advisor or state tax authority sites for filing requirements with respect to states, other than Connecticut, if the organization is organized or has activities in states other than Connecticut.
CT Sale Tax
Tax Exempt Purchases
Undergraduate organizations are not permitted to use Yale University's sales tax exemption to make sales tax free purchases. A 501(c)(3) organization wishing to make a purchase exempt from Connecticut sales tax must issue its own Connecticut CERT-119 to a vendor. The CERT-119 must be accompanied by the organization’s IRS 501(c)(3) determination letter. Organizations not receiving a formal IRS determination letter indicating 501(c)(3) tax exempt status will be unable to make sales tax exempt purchases in Connecticut.
Remitting Sales Tax to the State of Connecticut
Even if your organization qualifies to make sales tax exempt purchases, it still may be required to collect sales tax on any sales made by the organization. However, Connecticut law provides that nonprofit organizations may sell goods, including meals, at five social or fundraising events of one day’s duration during any calendar year without charging sales tax.
If you sell goods or meals in excess of the exemption above or your organization sells services,
you should determine whether you are required to register to obtain a Connecticut sales tax permit in order to collect and remit Connecticut sales tax.
All organizations must maintain accurate and complete financial records and must keep them for at least six years. Failure to maintain proper records may make it difficult to substantiate to tax authorities that the organization does not owe taxes, interest and penalties for prior years. The Yale College Dean's Office can retain copies of your financial records for safekeeping.
Public Disclosure Requirements
An organization must, during the three‐year period beginning with the due date (including extensions, if any) of the Form 990 (or Form 990‐EZ), make its return available for public inspection upon request. The entire information return, with the exception of the schedule of contributors, must be made available. In addition, certain other information, including the Form 1023, must be made available for public inspection. Inspection must be permitted during regular business hours at the organization's principal office.