Application Procedures

Required Inclusions

Requests other than applications. Requests other than applications for recognition of exemption (for example, requests for rulings involving feeder organiza­tions, application of excise taxes to activities of private foundations, taxation of unrelated busi­ness income, etc.) should be sent to:

Rulings Determination

Application, Approval, and Appeal Procedures

Effective Date of Exemption

Revocation or Modification of Exemption

Appeals Office Consideration

1. That the representative prepared the pro­test and accompanying documents, and

2. Whether the representative knows person­ally that the statements of fact contained in the protest and accompanying documents are true and correct.

Be sure the protest contains all of the infor­mation requested. Incomplete protests will be returned for completion.

If a conference is requested, it will be held at the Appeals Office, unless the organization re­quests that the meeting be held at a field office convenient to both parties.

The Appeals Office, after considering the organization's protest as well as information presented in any conference held, will notify the organization of its decision and issue an appro­priate determination letter. An adverse decision may be appealed to the courts (discussed later).

Appeals offices must request technical ad­vice from EO Technical, IRS Headquarters, on any exempt organization issue concerning qual­ification for exemption or foundation status for which there is no published precedent or for which there is reason to believe that nonuniformity exists. If an organization believes that its case involves such an issue, it should

Headquarters Consideration

If an application is referred to IRS Headquarters for issuance of a ruling and an adverse ruling is issued, the organization will be informed of the basis for the conclusion, its right to file a protest within 30 days, and its right to have a conference at Headquarters.

Administrative Remedies

In the case of an application under section 501(c)(3) of the Code, all of the following ac­tions, called administrative remedies, must be completed by your organization before an unfa­vorable ruling or determination letter from the IRS can be appealed to the courts.

1. The filing of a substantially completed ap­plication Form 1023 or the filing of a request for a determination of foundation status (see Private Foundations and Public Charities ).
2. In the case of a late-filed application, re­questing relief under section 301.9100 of the Income Tax Regulations regarding ap­plications for extensions of time for making an election or application for relief from tax (see Application for Recognition of Exemp­ tion ).
3. The timely submission of all additional in­formation requested to perfect an exemp­tion application or request for determination of private foundation status.
4. Exhaustion of all administrative appeals available within the IRS, including protest of an adverse ruling in the Headquarters original jurisdiction exemption application cases.

The actions just described will not be consid­ ered completed until the IRS has had a reasona­ble time to act upon the appeal or protest, as the case may be.

An organization will not be considered to have exhausted its administrative remedies before the earlier of:

1. The completion of the steps just listed and the sending by certified or registered mail of a notice of final determination, or
2. The expiration of the 270-day period in which the IRS has not issued a notice of final determination and the organization has taken, in a timely manner, all reasona­ble steps to secure a ruling or determina­ tion.

270-day period. The 270-day period will be considered by the IRS to begin on the date a substantially completed Form 1023 is sent to the IRS. See Application Procedures, earlier, for information needed to complete Form 1023.

If the application does not contain all of the required items, it will not be further processed and may be returned to the applicantfor comple­ tion. The 270-day period, in this event, will not be considered as starting until the date the appli­cation is remailed to the IRS with the requested information, or, if a postmark is not evident, on the date the IRS receives a substantially com­pleted application.

Appeal to Courts

If the IRS issues an unfavorable determination letter or ruling to your organization and you have exhausted all the administrative remedies just discussed, your organization can seek judicial remedies.

For example, if your organization has paid the tax resulting from the unfavorable determi­nation and met ail other statutory prerequisites, it can file suit for a refund in a United States District Court or the U.S. Court of Federal Claims. Or, if your organization elected not to pay the tax deficiency resulting from the unfa­vorable determination and met all other statutory prerequisites, it can file suit for a redetermina-tion of the tax deficiencies in the United States Tax Court. For more information on these types of suits, get Publication 556, Examination of Returns, Appeal Rights, and Claims for Refund.

In certain situations, your organization can file suit for a declaratory judgment in the U.S. District Court for the District of Columbia, the U.S. Court of Federal Claims, or the U.S. Tax Court. This remedy is available if your organiza­tion received an adverse notice of final deter­mination, or if the IRS failed to make a timely determination on your initial or continuing qualifi­ cation or classification as an exempt organiza­tion. However, your exempt status claim must be as:

• An organization qualifying under section 501(c)(3),
• An organization to which a deduction for a contribution is allowed under section 170(c)(2),
• An organization that is a private founda­tion under section 509, or
• A private operating foundation under sec­ tion 4942(j)(3).

Adverse notice of final determination. The adverse notice of final determination referred to above is a ruling or determination letter sent by certified or registered mail, holding that your organization:

• Is not described in section 501(c)(3) or section 170(c){2) of the Code,
• Is a private foundation as defined in sec­tion 4942(j)(3), or
• Is a public charity described in a part of section 509 or section 170(b)(1)(A) other than the part under which your organiza­tion requested classification.

Favorable court rulings - IRS procedure. If a suit results in a final determination that your organization is exempt from tax, the IRS will issue a favorable ruling or determination letter, provided your organization has filed an application for exemption and submitted a statement that the underlying facts and applicable law are the same as in the period considered by the court.

Group Letter

A group exemption letter is a ruling or determi­nation letter issued to a central organization recognizing on a group basis the exemption under section 501(c) of subordinate organiza­tions on whose behalf the central organization has applied for recognition of exemption.

A central organization is an organization that has one or more subordinates under its general supervision or control.

A subordinate organization is a chapter, local, post, or unit of a central organization. A central organization may be a subordinate itself, such as a state organization that has subordinate units and is itself affiliated with a national (central) organization.

A subordinate organization may or may not be incorporated, but it must have an organizing document. A subordinate that is organized and operated in a foreign country may not be in­ cluded in a group exemption letter. A subordinate described in section 501(c)(3) may not be included in a group exemption letter if it is a private foundation described in section 509(a).

If your organization is a subordinate one con­ trolled by a central organization (for example, a church, the Boy Scouts, or a fraternal organiza­ tion), you should check with the central organi­zation to see if it has been issued a group exemption letter that covers yourorganization . If it has, you do not have to file a separate applica­ tion unless your organization no longer wants to be included in the group exemption letter.

If the group exemption letter does not cover your organization, ask your central organization about being included in the next annual group ruling update that it submits to the IRS.

Central Organization Application Procedure

If yourorganization is a central organization with affiliated subordinates under its control, it may apply fora group exemption letter for its subordi­ nates, provided it has obtained recognition of its own exemption. You should make the applica­tion for such subordinates by letter instead of submitting either Form 1023 or 1024. This pro­cedure relieves each of the subordinates cov­ered by a group exemption letter from filing its own application. A central organization obtains its own recognition of exemption by sending its application to the IRS address shown on Form 8718 for the area in which the central organization's principal place of business or principal office is located.

If the central organization has previously ob­tained recognition of its own exemption, it must indicate its employer identification number, the date of the letter recognizing its exemption, and the IRS office that issued it. It need not forward documents already submitted. However, if it has not already done so, the central organization must submit a copy of any amendment to its

Governing instruments or internai reguiations as weil as any information about changes in its character, purposes, or method of operation.

Employer identification number. If the cen-trai organization does not have an employer identification number (EIN), it must send a com- pieted Form SS-4 with its exemption applica-tion . Each subordinate must have its own EIN even if it has no empioyees . The centrai organi­zation must send with the group exemption ap­plication a completed Form SS-4 on behalf of each subordinate not having an EIN.

Information required for subordinate organizations. In addition to the information required to obtain recognition of its own exemp­tion, the central organization must submit infor­mation for those subordinates to be included in the group exemption letter. The information should be forwarded in a letter signed by a principal officer of the central organization set­ting forth or including as attachments the follow­ ing.

1. Information verifying that the subordinates:

1. Are affiliated with the central organiza­ tion,
2. Are subject to its general supervision or control,
3. Are all eligible to qualify for exemption under the same paragraph of section 501 (c), though not necessarily the para­graph under which the centrai organiza­ tion is exempt,
4. Are not private foundations if the appli­cation for a group exemption letter in­volves section 501(c){3),
5. Are all on the same accounting period as the centrai organization if they are to be included in group returns, and

Are organizations that have been formed within the 15-month period pre­ceding the date of submission of the group exemption application if they are claiming section 501{c){3) status and are subject to the requirements of sec­tion 508(a) and wish to be recognized as exempt from their dates of creation (a group exemption letter may be is­sued covering subordinates, one or more of which have not been organized within the 15-rnonth period preceding the date of submission, if all subordi­ nates are willing to be recognized as exempt only from the date of application.

2. A detailed description of the purposes and activities of the subordinates, including the sources of receipts and the nature of ex­ penditures.

3. A sample copy of a uniform governing in­strument (such as a charter or articles of association) adopted by the subordinates, or, in its absence, copies of representative instruments.

4. An affirmation to the effect that, to the best of the officer's knowledge, the purposes and activities of the subordinates are as stated in (2) and (3), above.

5. A statement that each subordinate to be included in the group exemption letter has given written authorization to that effect, signed by an authorized officer of the subordinate, to the central organization (see also New 501 (c)(3) organizations that want to be included, later in this section).

6. A list of subordinates to be included in the group exemption letter to which the IRS has issued an outstanding ruling or deter­mination letter relating to exemption.

7. If the application for a group exemption letter involves section 501(c){3) and is sub­ject to the provisions of the Code requiring that it give timely notice that it is not a private foundation (see Private Founda­tions ), an affirmation to the effect that, to the best of the officer's knowledge and belief, no subordinate to be included in the group exemption letter is a private foundation as defined in section 509(a).

8. For each subordinate that is a school claiming exemption under section 501(c)(3), the information required by Rev­enue Ruling 71 -447 and Revenue Proce­dure 75-50 (these requirements are fully described in chapters, under Private Schools', see also Schedule B, Form 1023).

9. For any school affiliated with a church, the information to show that the provisions of Revenue Ruling 75-231 have been met.

10. A list of the names, mailing addresses, ac­tual addresses if different, and EINs of subordinates to be included in the group exemption letter. A current directory of subordinates may be furnished instead of the list if it includes the required informa­tion and if the subordinates not to be in­cluded in the group exemption letter are identified.

New 501{c){3) organizations that want to be included. A new organization, described in section 501(c)(3), that wants to be included in a group exemption letter, must submit its authori­zation (as explained in item number 5 above, under Information required for subordinate orga­ nizations) to the central organization before the end of the 15th month after it was formed in order to satisfy the requirement of section 508{a). The central organization must also in­clude this subordinate in its nextannuai submis­sion of information as discussed below under Information Required Annually.

Keeping the Group Exemption Letter in Force

Continued effectiveness of a group exemption letter is based on the following conditions.

1. The continued existence of the central or­ ganization.
2. The continued qualification of the central organization for exemption under section 501(c).
3. The submission by the central organization of the information required annually (described below under Information Required Annually).
4. The annual filing of an information return (Form 990, for example) by the central or­ganization if required.

The continued effectiveness of a group exemp­tion letter as to a particular' subordinate is based on these fourconditions , as well as on the continued conformity by the subordinate to the requirements for inclusion in a group exemption letter, the authorization for inclusion, and the annual filing of any required information return for the subordinate.

Information Required Annually

To maintain a group exemption letter, the central organization must submit annually, at least 90 days before the close of its annual accounting period, ail of the following information.

1. Information about all changes in the pur­poses, character, or method of operation of the subordinates included in the group exemption letter.

2. A separate list (that includes the names, mailing addresses, actual addresses if dif­ferent, and EINs of the affected subordi­nates) for each of the three following categories.

a. Subordinates that have changed their names or addresses during the year.

b. Subordinates no longer to be included in the group exemption letter because they no longer exist or have disaffiliated or withdrawn their authorization to the central organization.

c. Subordinates to be added to the group exemption letter because they are newly organized or affiliated or because they have recently authorized the cen­tral organization to include them.

An annotated directory of subordinates will not be accepted for this purpose. If there were none of the above changes, the central organization must submit a statement to that effect.

3. The information required to be submitted by a central organization on behalf of sub­ordinates to be included in the group ex­emption letter is required for subordinates to be added to the letter. (This information is listed in items 1 through 9, under Infor­ mation required for subordinate organiza­ tions, earlier. However, if the information upon which the group exemption letter was based applies in all material respects to these subordinates, a statement to this ef­ fect may be submitted instead of the infor­mation required by items 1 through 4 of that list.)

The organization should send this in­formation to:

Ogden Service Center Mail Stop 6271 1000 South 1200 West Ogden, UT 84404-4749

Application, Approval, and Appeal Procedures Page 7

Submitting the required information an­ nually does not relieve the centra ! or­ ganization or any of its subordinates of the duty to submit any other information that may be required by an EO area manager to determine whether the conditions for continued exemption are being met.

Events Causing Loss of Group Exemption

A group exemption letter no longer has effect, for either a particular subordinate or the group as a whole, when:

1. The central organization notifies the IRS that it is going out of existence,

2. The centra ! organization notifies the IRS, by its annual submission or otherwise, that any of its subordinates will no longer fulfill the conditions for continued effectiveness, explained earlier, or

3. The IRS notifies the central organization or the affected subordinate that the group ex­emption letter will no longer have effect for some or all of the group because the con­ditions for continued effectiveness of a group exemption letter have not been ful­ filled.

When notice is given under any of these three conditions, the IRS will no longer recognize the exempt status of the affected subordinates until they file separate applications on their own be­half or the central organization files complete supporting information for their reinclusion in the group exemption at the time of its annual sub­mission. However, when the notice is given by the IRS and the withdrawal of recognition is based on the failure of the organization to com­ply with the requirements for recognition of tax-exempt status under the particular subsec­ tion of section 501 (c), the revocation will ordinar­ ily take effect as of the date of that failure. The notice, however, will be given only after the appeal procedures.

Filing Disclosures

Most exempt organizations (including private foundations) must file various returns and re­ports at some time during (or following the close of) their accounting period.

Annual Information Returns

Every organization exempt from federal income tax under section 501(a) must file an annual information return except:

1. A church, an interchurch organization of local units of a church, a convention or association of churches, or an integrated auxiliary of a church (as defined later under Religious Organizations ),

2. A church-affiliated organization that is ex­clusively engaged in managing funds or maintaining retirement programs,

3. A school below college level affiliated with a church or operated by a religious order, even though it is not an integrated auxiliary of a church,

4. A mission society sponsored by or affili­ated with one or more churches or church denominations, more than half of the society's activities are conducted in, or di­rected at, persons in foreign countries,

5. An exclusively religious activity of any re­ ligious order,

6. A state institution, the income of which is excluded from gross income under section 115,

7. A corporation described in section 501(c)(1) [a corporation that is organized under an Act of Congress and is:

a. an instrumentality of the United States, and

b. exempt from federal income taxes],

8. A black lung benefit trust described in sec­tion 501(c)(21) [Required to file Form 99Q-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons. ,

9. A stock bonus, pension, or profit-sharing trust that qualifies under section 401. [re­ quired to file Form 5500, Annual Return/ Report of Employee Benefit Plan],

10. A religious or apostolic organization de­scribed in section 501 (d) [required to file Form 1065, U.S. Return of Partnership In­ come],

11. A foreign organization described in section 501(a) [other than a private foundation] that normally does not have more than $25,000 in annual gross receipts from sources within the United States and has no significant activity in the United States. For further information, see Revenue Pro­cedure 94-17, 1994-1 C.B. 579,

12. A governmental unit or an affiliate of a gov­ernmental unit that meets the requirements of Revenue Procedure 95-48, 1995-2 C.B. 418,

13. An exempt organization (other than a pri­vate foundation, discussed having gross receipts in each tax year that normally are not more than $25,000. (See the instructions for Form 990 for more information about what constitutes annuai gross receipts that are normally not more than $25,000.),

14. A private foundation exempt under section 501(c)(3) and described in section 509(a). (Required to file Form 990-PF), or

15. A United States possession organization described in section 501 (a) [other than a private foundation] that normally does not have more than $25,000 in annuai gross receipts from sources within the United States and has no significant activity in the United States. For further information, see Revenue Procedure 2003-21, Internal Revenue Bulletin 2003-6.

Use Form 8868 to request an auto­ matic 3-month extension of time to file Form 990, 990-EZ, or 990-PF and also to apply for an additional (not automatic) 3-month extension if needed. Do not apply for both the automatic 3-month extension and the additional 3-month extension at the same time. For more information, see Form 8868 and its instructions.

Application for exemption pending. An or­ganization that claims to be exempt under sec­tion 501 (a) of the Code but has not established its exempt status by the due date for filing an information return should complete and file Form 990 or 990-EZ (or Form 990-PF if it considers itself a private foundation). If the organization's application is pending with the IRS, it must so indicate on Form 990, 990-EZ, or 990-PF (whichever applies) by checking the application pending block at the top of page 1 of the return.

For more information on the filing require­ments, see the instructions for Forms 990, 990-EZ, and 990-PF.

State reporting requirements. Copies of Form 990, 990-EZ, or 990-PF may be used to satisfy state reporting requirements. See the instructions for those forms.

Form 8870. Organizations that filed a Form 990, 990-EZ, or 990-PF, and paid premiums or received transfers on certain life insurance, annuity, and endowment contracts (personal benefit contracts), must file Form 8870. For more information, see Form 8870 and its in­ structions.

Penalties for failure to file. An exempt organ­ ization that fails to file a required return must pay a penalty of $20 a day for each day the failure continues. The same penalty will apply if the organization does not give all the information required on the return or does not give the cor­ rect information.

Maximum penalty. The maximum penalty for any one return is the smaller of $10,000 or 5% of the organization's gross receipts for the year.

Organization with gross receipts over $1 million. For an organization that has gross receipts of over $1 million for the year, the pen­ alty is $100 a day up to a maximum of $50,000.

Managers. If the organization is subject to this penalty, the IRS may specify a date by which the return or correct information must be supplied by the organization. Failure to comply with this demand will result in a penalty imposed upon the manager of the organization, or upon any other person responsible for filing a correct return. The penalty is $10 a day for each day that a return is not filed after the period given for filing. The maximum penalty imposed on all per­sons with respect to any one return is $5,000.

Exception for reasonable cause. No pen­ alty will be imposed if reasonable cause for failure to file timely can be shown.

Tax Return

Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. Unrelated business income is income from a trade or business, regularly carried on, that is not substantially re­ lated to the charitable, educational, or other pur­ pose that is the basis for the organization's exemption. An exempt organization that has $1,000 or more of gross income from an unre­lated business must file Form 990-T.

The obligation to file Form 990-T is in addi­tion to the obligation to file the annual informa­tion return, Form 990, 990-EZ, or 990-PF.

Estimated tax. Exempt organizations must make quarterly payments of estimated tax on unrelated business income. An organization must make estimated tax payments if it expects its tax for the year to be $500 or more.

Travel tour programs. Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not sub­stantially related to the purpose to which tax exemption was granted to the organization.

Whether travel tour activities conducted by an organization are substantially related to the organization's tax exempt purpose is deter­mined by looking at all the relevant facts and circumstances, including, but not limited to, how a travel tour is developed, promoted, and oper­ ated.

Example. ABC, a university alumni associa­ tion, is tax exempt as an educational organiza­tion under section 501(c){3) of the Code. As part of its activities, ABC operates a travel tour pro­gram. The program is open to ail current mem­bers of ABC and their guests. ABC works with travel agents to schedule approximately ten tours annually to various destinations around the world. Members of ABC pay $1,000 to XYZ Travel Agency to participate in a tour. XYZ pays ABC a per person fee for each participant. Al­though the literature advertising the tours en­courages ABC members to continue their lifelong learning by joining the tours, and a faculty member of ABC's related university fre­quently joins the tour as a guest of the alumni association, none of the tours include any

Employment Tax

Every employer, including an organization ex­empt from federal income tax, who pays wages to employees is responsible for withholding, de­ positing, paying, and reporting federal income tax, social security and Medicare (PICA) taxes, and federal unemployment tax (FUTA), unless that employer is specifically excepted by law from those requirements or if the taxes clearly do not apply.

For more information, get a copy of Publica­tion 15, Circular E, Employer's Tax Guide, which summarizes the responsibilities of an employer, Publication 15 — A, Employer's Supplemental Tax Guide, Publication 15-B, Employer's Tax Guide to Fringe Benefits, and Form 941, Employer's Quarterly Federal Tax Return.

Penalty. If any person required to collect, truthfully account for, and pay over any of these taxes willfully fails to satisfy any of these require­ ments or willfully tries in any way to evade or defeat any of them, that person will be subject to a penalty. The penalty, often called the frost fund recovery penalty is equal to the tax evaded, not collected, or not accounted for and paid over. The term person includes:

» An officer or employee of a corporation, or * A member or employee of a partnership.

Exception. The penalty is not imposed on any unpaid volunteer director or member of a board of trustees of an exempt organization if the unpaid volunteer serves solely in an honor­ary capacity, does not participate in the day-to-day or financial operations of the organi­zation, and does not have actual knowledge of the failure on which the penalty is imposed.

This exception does not apply if it results in no one being liable for the penalty.

PICA and FUTA tax exceptions. Payments for services performed by a minister of a church in the exercise of the ministry, or a member of a religious order performing duties required by the order, are generally not subject to FICA or FUTA taxes.

FUTA tax exception. Payments for serv­ices performed by an employee of a religious, charitable, educational, or other organization described in section 501 (c)(3) that are generally subject to FICA taxes if the payments are $100 or more for the year, are not subject to FUTA taxes.

FICA tax exemption election. Churches and qualified church-controlled organizations can elect exemption from employer FICA taxes

by filing Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption from Employer Social Se­ curity and Medicare Taxes.

To elect exemption, Form 8274 must be filed before the first date on which a quarterly em­ployment tax return would otherwise be due from the electing organization. The organization may make the election only if it is opposed for religious reasons to the payment of FICA taxes.

The election applies to payments for serv­ices of current and future employees other than services performed in an unrelated trade or business.

Revoking the election. The election can be revoked by the IRS if the organization fails to file Form W-2, Wage and Tax Statement, for 2 years and fails to furnish certain information upon request by the IRS. Such revocation will apply retroactively to the beginning of the 2-year period.

Definitions. For purposes of this election, the term church means a church, a convention or association of churches, or an elementary or secondary school that is controlled, operated, or principally supported by a church or by a con­vention or association of churches.

The term qualified church-controlled or­ganization means any church-controlled sec­tion 501(c)(3) tax-exempt organization, other than an organization that both:

1 . Offers goods, services, or facilities for sale, other than on an incidental basis, to the general public at other than a nominal charge that is substantially less than the cost of providing such goods, services, or facilities, and

2. Normally receives more than 25% of its support from the sum of governmental sources and receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activi­ ties that are not unrelated trades or busi -

Effect on employees. If a church or quali­fied church-controlled organization has made an election, payment for services performed for that church or organization, other than in an unre­lated trade or business, will not be subject to FICA taxes. However, the employee, unless oth­ erwise exempt, will be subject to self-employ­ment tax on the income. The tax applies to income of $1 08.28 or more for the tax year from that church or organization, and no deductions for trade or business expenses are allowed against this self-employment income.

Schedule SE (Form 1040), Self-Employment Tax, should be attached to the employee's in­come tax return.

Political Tax

Generally, a political organization is treated as an organization exempt from tax. Certain politi­cal organizations, however, must file an annual income tax return, Form 1120-POL, for any year they have political organization taxable in­come in excess of the $100 specific deduction allowed under section 527 of the Code.

A political organization that has $25,000 ($100,000 for a qualified state or local political organization) or more in gross receipts for the tax year must file Form 990 or 990- EZ (and Schedule B of the form), unless excepted. See Forms 990 and 990- EZ. earlier.

Political organization. A political organiza­tion is a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the pur­pose of directly or indirectly accepting contribu­tions or making expenditures, or both, for an exempt function.

Exempt function. An exempt function means influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state, local pub­lic office or office in a political organization, or the election of the Presidential or Vice Presiden­ tial electors, whether or not such individual or electors are selected, nominated, elected, or appointed. It also includes certain office ex­penses of a holder of public office or an office in a political organization.

Certain political organizations are re­ quired to notify the IRS that they are section 527 organizations. These orga­ nizations must use Form 8871. Some of these section 527 organizations must use Form 8872 to file periodic reports with the IRS disclosing their contributions and expenditures. For a dis­ cussion on these forms, see Reporting Require­ ments fora Political Organization, later.

Political organization taxable income, Political organization taxable income is the ex­ cess of:

1. Gross income for the tax year (excluding exempt function income) minus

2. Deductions directly connected with the earning of gross income.

To figure taxable income, allow for a $100 spe­ cific deduction, but do not allow for the net oper­ ating loss deduction, the dividends-received deduction, and other special deductions for cor­porations.

Exempt organization not a political organi­ zation.

An organization exempt under section 501(c) of the Code that spends any amount for an exempt function must file Form 1120-POL for any year which it has political taxable in­come. These organizations must include in gross income the lesser of:

1. The total amount of its exempt function expenditures, or

2. The organization's net investment income.

Separate fund. A section 501 (c) organiza­tion can set up a separate segregated fund that will be treated as an independent political organ­ization. The earnings and expenditures made by the separate fund will not be attributed to the section 501 (c) organization.

Section 501(c)(3) organizations are precluded from, and suffer loss of ex- emption for, engaging in any political

campaign on behalf of, or in opposition to, any

candidate for public office.

Due date. Form 1120-POL is due by the 15th day of the 3rd month after the end of the tax year. Thus, for a calendar year taxpayer, Form 1120-POL is due on March 15 of the following year. If any due date falls on a Saturday, Sun­day, or legal holiday, the organization may file the return on the next business day.

Form 1120-POL is not required of an exempt organization that makes ex- penditures for political purposes if its gross income does not exceed its directly con­ nected deductions by more than $100 for the tax year.

Failure to file. A political organization that fails to file Form 1120-POL, or fails to include the required information on the form, is subject to a penalty of $20 per day for each day such failure continues. The maximum penalty im­posed on failures regarding any one return is the lesser of $10,000 or 5% of the gross receipts of the organization for the year. In the case of an organization having gross receipts exceeding $1,000,000 for any year, the penalty is in­creased to $100 per day with a maximum pen­ alty of $50,000.

For more information about filing Form 1120 — POL, refer to the instructions accompa­nying the form.

Failure to pay on time. An organization that does not pay the tax when due generally may have to pay a penalty of 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the organ­ ization can show that the failure to pay on time was due to reasonable cause.

Reporting for a Political

Certain political organizations are required to notify the IRS that the organization is to be treated as a section 527 political organization. The organization is also required to periodically report certain contributions received and expen­ditures made by the organization. To notify the IRS of section 527 treatment, an organization must file Form 8871. To report contributions and expenditures, certain tax-exempt political orga­nizations must file Form 8872.

Form 8871. A political organization must elec­ tronically file Form 8871 to notify the IRS that it is to be treated as a section 527 organization. However, an organization is not required to file Form 8871 if:

• It reasonably expects its gross receipts to always be less than $25,000.

• It is a political committee required to report under the Federal Election Campaign Act of 1971 (FECA) (2 U.S.C. 431(4).

* It is a state or local candidate committee.

* It is a state or local committee of a politi­cal party.

* It is a section 501 (c) organization that has made an "exempt function expenditure".

All other political organizations are required to file Form 8871.

An organization must provide on Form 8871:

1. Its name and address (including any busi­ness address, if different) and its electronic mailing address,

2. Its purpose,

3. The names and addresses of its officers, highly compensated employees, contact person, custodian of records, and mem­bers of its Board of Directors,

4. The name and address of, and relationship to, any related entities (within the meaning of section 168(h)(4) of the Code), and

5. Whether it intends to claim an exemption from filing Form 8872 or Form 990 (Form 990-EZ).

Doe dates. The initial Form 8871 must be filed within 24 hours of the date on which the organization was established. If there is a mate­rial change an amended Form 8871 must be filed within 30 days of the material change. When the organization terminates its existence, it must file a final Form 8871 within 30 days of termination.

If the due date falls on a Saturday, Sunday, or legal holiday, the organization may file on the next business day.

How to file. An organization must file Form 8871 electronically via the IRS Internet web site at www.irs.gov/polorgs (Keyword: political orgs).

Failure to file. An organization that is re­quired to file Form 8871, but fails to do so on a timely basis, will not be treated as a tax-exempt section 527 organization for any period before the date Form 8871 is filed. Also, the taxable income of the organization for that period will include its exempt function income (including contributions received, membership dues, and political fund-raising receipts) minus any deduc­tions directly connected with the production of that income.

Failure to file an amended Form 8871 will cause the organization not to be treated as a tax-exempt section 527 organization. If an or­ganization is treated as not being a tax-exempt section 527 organization, the taxable income of the organization will be determined by consider­ing any exempt function income and deductions during the period beginning on the date of the material change and ending on the date that the amended Form 8871 is filed.

The tax is computed by multiplying the organization's taxable income by the highest corporate tax rate.

Fraudulent returns. Any individual or cor­poration that willfully delivers or discloses to the IRS any list, return, account, statement or other document known to be fraudulent or false as to any material matter will be fined not more than $10,000 ($50,000 in the case of a corporation) or imprisoned not more than 1 year or both.

Waiver of penalties. The IRS may waive any additional tax assessed on an organization forfailure to file Form 8871 if the failure was due to reasonable cause and not willful neglect.

Additional information. For more information on Form 8871, see the form and its instructions. For a discussion on the public inspection re­quirements for the form, see Public Inspection of Exemption Applications, Annual Returns, and Political Organization Reporting Forms, later.

Form § 872. Every tax-exempt section 527 po­litical organization that accepts a contribution or makes an expenditure, for an exempt function during the calendar year, must file Form 8872 except:

» A political organization that is not required to file Form 8871 (discussed earlier).

* A political organization that is subject to tax on its income because it did not file or amend Form 8871.

» A qualified state or local political organiza­tion (QSLPO), discussed below.

All other tax-exempt section 527 organizations that accept contributions or make expenditures for an exempt function are required to file Form 8872.

Qualified state or local political organization. A state or local political organization may be a QSLPO if:

1. All of its political activities relate solely to state or local public office (or office in a state or local political organization).

2. It is subject to a state law that requires it to report (and it does report) to a state agency information about contributions and expenditures that is similar to the in­formation that the organization would oth­erwise be required to report to the IRS.

3. The state agency and the organization make the reports publicly available.

4. No federal candidate or office holder:

a. Controls or materially participates in the direction of the organization,

b. Solicits contributions for the organiza­ tion, or

c. Directs the disbursements of the organi­ zation.

Information required on Form 8872. If an organization pays an individual $500 or more for the calendar year, the organization is required to disclose the individual's name, address, occu­pation, employer, amount of the expense, the date the expense was paid, and the purpose of the expense on Form 8872.

If an organization receives contributions of $200 or more from one contributor for the calen­ dar year, the organization must disclose the donor's name, address, occupation, employer, and the date the contributions were made.

For additional information that is required, see Form 8872.

Due dates. The due dates for filing Form 8872 vary depending on whether the form is due fora reporting period that occurs during a calen­dar year in which a regularly scheduled election is held, or any other calendar year ( a non-elec­tion year).

In election years, Form 8872 must be filed on either a quarterly or a monthly basis. Both a pre-election report and a post-election report are also required to be filed in an election years.

In non-election years, the form must be filed on a semiannual or monthly basis. A complete listing of these filing periods are in the Form 8872 instructions.

An election year is any year in which a regularly scheduled general election for federal office is held (an even-numbered year). A non-election year is any odd-numbered year.

How to file. For Forms 8872 filed before June 30, 2003, complete and file Form 8872 in one of two ways:

1. Electronically via the IRS Internet web site at www.irs.gov/polorgs , or

2. By sending a signed copy of the form to the Internal Revenue Service Center, Ogden.UT 84201.

The form must be signed by an official author­ized by the organization to sign Form 8872.

An organization that files Form 8871 elec­tronically will receive a user ID and a password needed to file Form 8872 electronically. If an organization does not receive its user ID and password, it may request one by writing to the following address:

Organizations required to file Form 8872 on or after June 30, 2003, must file the form electronically if the organi­ zation expects to have contributions or expendi­ tures exceeding $50,000.

Penalty for failure to file. A penalty will be imposed if the organization is required to file Form 8872 and it:

* Fails to file the form by the due date, or

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

The penalty is 35% of the total amount of contributions and expenditures to which a failure relates.

Fraudulent returns. Any individual or cor­poration that willfully delivers or discloses any list, return, account, statement or other docu­ment known to be fraudulent or false as to any material matter, will be fined not more than $10,000 ($50,000 in the case of a corporation), or imprisoned not more than 1 year, or both.

Waiver of penalties. The IRS may waive any additional tax assessed on an organization for failure to file Form 8872 if the failure was due to reasonable cause and not willful neglect.

Dispositions of donated property. If an or­ ganization receives charitable deduction property and within 2 years sells, exchanges, or disposes of the property, the organization must file Form 8282, Donee Information Return. However, an organization is not required to file Form 8282 if:

» The property is valued at $500 or less, or

* The property is distributed for charitable purposes.

Form 8282 must be filed within 125 days after the disposition. A copy of Form 8282 must be given to the previous donor. If the organization fails to file the required information return, penal­ ties may apply.

Charitable deduction property. This is any property (other than money or publicly traded securities) for which the donee organi­zation signed an appraisal summary or Form 8283, Noncash Charitable Contributions.

Publicly traded securities. These are se­ curities for which market quotations are readily available on an established securities market as of the date of the contribution.

Appraisal summary. If the value of the donated property exceeds $5,000, the donor must get a qualified appraisal for contributions of property (other than money or publicly traded securities). The donee organization is not a qualified appraiser for the purpose of valuing the donated property. For more information, get Publication 561, Determining the Value of Donated Property.

Form 8283. For noncash donations over $5,000, the donor must attach Form 8283 to the tax return to support the charitable deduction. The donee must sign Part IV of Section B, Form 8283 unless publicly traded securities are donated. The person who signs for the donee must be an official authorized to sign the donee's tax or information returns, or a person specifically authorized to sign by that official. The signature does not represent concurrence in the appraised value of the contributed prop­erty. A signed acknowledgement represents re­ceipt of the property described on Form 8283 on the date specified on the form. The signature also indicates knowledge of the information re­porting requirements on dispositions, as previ­ously discussed. A copy of Form 8283 must be given to the donee .ble contribution of $250 or more unless the donor has a written acknowledgement from the charitable organization.

In certain circumstances, an organization may be able to meet both of these requirements with the same written document.

A charitable organization must provide a written disclosure statement to donors of a quid pro quo contribution over $75.

Quid pro quo contribution. This is a pay­ment a donor makes to a charity partly as a contribution and partly for goods or services. For example, if a donor gives a charity $100 and receives a concert ticket valued at $40, the do­nor has made a quid pro quo contribution, in this example, the charitable contribution part of the payment is $60. Even though the deductible part of the payment is not more than $75, a disclo­sure statement must be filed because the donor's payment (quid pro quo contribution) is more than $75.

Disclosure statement. The required written disclosure statement must:

1. Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the ex­cess of any money (and the value of any property other than money) contributed by the donor over the fair market value of goods or services provided by the charity, and

2. Provide the donor with a good faith esti­mate of the fair market value of the goods or services that the donor received.

The charity must furnish the statement in con­nection with either the solicitation or the receipt of the quid pro quo contribution. If the disclosure statement is furnished in connection with a par­ticular solicitation, it is not necessary for the organization to provide another statement when it actually receives the contribution.

No disclosure statement is required if any of the following are true.

1. The goods or services given to a donor have insubstantial value as described in Revenue Procedure 90-12, in Cumulative Bulletin 1990-1, and Revenue Procedure 92-49, in Cumulative Bulletin 1992-1.

2. There is no donative element involved in a particular transaction with a charity (for ex­ ample, there is generally no donative ele­ ment involved in a visitor's purchase from a museum gift shop).

3. There is only an intangible religious benefit provided to the donor. The intangible relig­ious benefit must be provided to the donor by an organization organized exclusively for religious purposes, and must be of a type that generally is not sold in a commer­cial transaction outside the donative con­ text. For example, a donor who, fora payment, is granted admission to a relig­ious ceremony for which there is no admis­sion charge is provided an intangible religious benefit. A donor is not provided intangible religious benefits for payments made for tuition for education ieading to a recognized degree, travel services, or con­sumer goods.

4. The donor makes a payment of $75 or iess per year and receives only annual mem­bership benefits that consist of:

a. Any rights or privileges (other than the right to purchase tickets for college ath­letic events) that the taxpayer can exer­cise often during the membership period, such as free or discounted ad­missions or parking or preferred access to goods or services, or

b. Admission to events that are open only to members and the cost per person of which is within the limits for low-cost articles described in Revenue Proce­dure 90-12 (as adjusted for inflation).

Good faith estimate of fair market value, An organization may use any reasonable method to estimate the fair market value (FMV) of goods or services it provided to a donor, as long as it applies the method in good faith.

The organization may estimate the FMV of goods or services that generally are not com­mercially available by using the FMV of similar or comparable goods or services. Goods or services may be similar or comparable even if they do not have the unique qualities of the goods or services being valued,

Example 1. A charity provides a one-hour tennis lesson with a tennis professional for the first $500 payment it receives. The tennis pro­fessional provides one-hour lessons on a com­mercial basis for $100. A good faith estimate of the lesson's FMV is $100.

Example 2. For a payment of $50,000, a museum allows a donor to hold a private event in a room of the museum. A good faith estimate of the FMV of the right to hold the event in the museum can be made by using the cost of renting a hotel ballroom with a capacity, ameni­ties, and atmosphere comparable to the mu­seum room, even though the hotel ballroom lacks the unique art displayed in the museum room. If the hotel ballroom rents for $2,500, a good faith estimate of the FMV of the right to hold the event in the museum is $2,500.

Example 3. For a payment of $1,000, a charity provides an evening tour of a museum conducted by a well-known artist. The artist does not provide tours on a commercial basis. Tours of the museum normally are free to the public. A good faith estimate of the FMV of the evening museum tour is $0 even though it is conducted by the artist.

Penalty for failure to disclose. A penalty is imposed on a charity that does not make the required disclosure of a quid pro quo contribu­tion of more than $75. The penalty is $10 per contribution, not to exceed $5,000 per fund-rais­ ing event or mailing. The charity can avoid the penalty if it can show that the failure was due to reasonable cause.

Acknowledgement of Charitable Contributions of $250 or More

A donor can deduct a charitable contribution of $250 or more only if the donor has a written acknowledgement from the charitable organiza­ tion. The donor must get the acknowledgement by the earlier of:

1. The date the donor files the original return for the year the contribution is made, or

2. The due date, including extensions, for fil­ing the return.

The donor is responsible for requesting and ob­taining the written acknowledgement from the donee .

Quid pro quo contribution. If the donee pro­ vides goods or services to the donor in ex­change for the contribution (a quid pro quo contribution), the acknowledgement must in­clude a good faith estimate of the value of the goods or services. See Disclosure of Quid Pro Quo Contributions, earlier.

Form of acknowledgement. Although there is no prescribed format for the written acknowl­ edgement, it must provide enough information to substantiate the amount of the contribution. For more information, get IRS Publication 1771, Charitable Contributions - Substantiation and Disclosure Requirements.

Political Forms

The following rules apply to private foundations as well as other tax-exempt organizations. Pri­vate foundations filing annual returns are sub­ject to the public disclosure requirements under section 6104(d)of the Code.

Included in this section is a discussion on the public inspection requirements for political orga­nizations filing Forms 8871 and 8872.

Annual return. An exempt organization must make available for public inspection, upon re­quest and without charge, a copy of its original and amended annual information returns. Each information return must be made available from the date it is required to be filed (determined without regard to any extensions), or is actually filed, whichever is later. An original return does not have to be made available if more than 3 years have passed from the date the return was required to be filed (including any extensions) or was filed, whichever is later. An amended return does not have to be made available if more than 3 years have passed from the date it was filed. An annual information return includes an ex­act copy of the return (Form 990, 990-EZ, 990-BL, 990-PF, or 1065), and amended re­turn if any, and all schedules, attachments, and supporting documents filed with the IRS. It does not include Schedule A of Form 990-BL, Form 990-T, Schedule K-1 of Form 1065, or Form 1120 — POL. In the case of a tax-exempt organi­zation other than a private foundation, an annual information return does not include the names and addresses of contributors to the organization. Exemption application. An exempt organiza­ tion must also make available for public inspec­tion without charge its application for tax-exempt status. An application for tax exemption includes the application form (such as Form 1023 or 1024), all documents and statements the IRS requires the organization to file with the form, any statement or other supporting document submitted by an organization in support of its application, and any letter or other document issued by the IRS concerning the application.

The application for exemption does not in­ clude:

» Any application from an organization that is not yet recognized as exempt,

* Any material that is required to be withheld from public inspection, see Material re­ quired to be withheld from public inspec­tion, next,

* In the case of a tax-exempt organization other than a private foundation, the names and addresses of contributors to the or­ ganization, or

» Any applications filed before July 15, 1987, if the organization did not have a copy of the application on July 15, 1987.

If there is no prescribed application form, see section 301.6104{d)-1(b)(3)(ii) of the regula­tions for a list of the documents that must be made available.

Material required to be withheld from pub­ lic inspection. Material that is required to be withheld from public inspection includes:

* Trade secrets, patents, processes, styles of work, or apparatus for which withhold­ ing was requested and granted,

« National defense material,

* Unfavorable rulings or determination let­ters issued in response to applications for tax exemption,

» Rulings or determination letters revoking or modifying a favorable determination let­ ter,

* Technical advice memoranda relating to a disapproved application for tax exemption

or the revocation or modification of a favorable determination letter,

« Any letter or document filed with or issued by the IRS relating to whether a proposed or accomplished transaction is a prohib­ited transaction under section 503,

* Any letter or document filed with or issued by the IRS relating to an organization's status as an organization described in section 509{a) or 4942{j}(3), unless the let­ter or document relates to the organization's application for tax exemp­tion, and

* Any other letter or document filed with or issued by the IRS which, although it re­ lates to an organization's tax-exempt sta­ tus as an organization described in section 501(c)or501(d), does not relate to that organization's application for tax exemp­tion.

Time, place, and manner restrictions. The annual returns and exemption application must be made available for inspection, without charge, at the organization's principal, regional, and district offices during regular business hours. The organization may have an employee present during inspection, but must allow the individual to take notes freely and to photocopy at no charge if the individual provides the photo­ copying equipment. Generally, regional and dis­ trict offices are those that have paid employees who together are normally paid at least 120 hours a week.

be disclosed. However, this rule only applies if the request:

• Is addressed to the exempt organization's principal, regional, or district office,

» Is sent to that address by mail, electronic mail (e-mail), facsimile (fax), or a private delivery service approved by the IRS, and

* Gives the address to where the copy of the document should be sent.

The organization must mail the copy within 30 days from the date it receives the request. The organization may request payment in advance and must then provide the copies within 30 days from the date it receives payment.

Fees for copies. The organization may charge a reasonable fee for providing copies. It can charge no more for the copies than the per page rate the IRS charges for providing copies. That rate is stated in section 601.702{f)(5)(iv)(B) of the regulations. (As of June 2001, the rate was $1.00 for the first page and 15 cents for each additional page.) The organization can also charge the actual postage costs it pays to provide the copies.

Regional and district offices. Generally, the same rules regarding public inspection and providing copies of applications and annual re­turns that apply to a principal office of an exempt organization also apply to its regional and dis­trict offices. However, a regional or district office is not required to make its annual information return available for inspection or to provide cop­ies until 30 day postage costs only if the requester consents to the charge. If the local or subordinate organiza­tion receives a written request for a copy of its application for exemption, it must fulfill the re­quest in the time and manner specified earlier.

The requester has the option of requesting from the central or parent organization, at its principal office, inspection or copies of the appli­ cation for group exemption and the material sub­ mitted by the central or parent organization to include a local or subordinate organization in the group ruling, if the central or parent organization submits to the IRS a list or directory of local or subordinate organizations covered by the group exemption letter, it must make the list or direc­tory available for public inspection, but it is re­quired to provide copies only of those pages of the list ordirectory that refer to particular local or subordinate organizations specified by the re­quester. The central or parent organization must fulfill such requests in the time and manner specified earlier.

A local or subordinate organization that does not file its own annual information return (be­cause it is affiliated with a central or parent organization that files a group return) must, upon request, make available for public inspec­tion, or provide copies of, the group returns filed by the central or parent organization. However, if the group return includes separate schedules for each local or subordinate organization in­cluded in the group return, the local or subordinate organization receiving the request may omit any schedules relating only to other organizations included in the group return. The local or subordinate organization must permit during certain times of the year, must make its documents available during those periods when office hours are limited or not available as though it were an organization without a perma­nent office.

Furnishing copies. An exempt organization also must provide a copy of all, or any specific part or schedule, of its three most recent annual information returns and/or exemption applica­tion to anyone who requests a copy either in person or in writing at its principal, regional or district office during regular business hours. If the individual made the request in person, the copy must be provided on the same business day the request is made unless there are unu­sual circumstances. Unusual circumstances are defined in section 301.6104(d)-1(d)(1)(ii)of the regulations.

The organization must honor a written re­quest for a copy of documents or specific parts or schedules of documents that are required to rent organization to in­ clude the local or subordinate organization in the group exemption letter.

However, if the central or parent organization submits to the IRS a list or directory of local or subordinate organizations covered by the group exemption letter, the local or subordinate organi­ zation is required to provide only the application for the group exemption ruling and the pages of the list or directory that specifically refer to it.

The local or subordinate organization must permit public inspection or comply with a re­quest for copies made in person, within a rea­sonable amount of time (normally not more than 2 weeks) after receiving a request made in per­son for public inspection or copies and at a reasonable time of day. In lieu of allowing an inspection, the local or subordinate organization may mail a copy of the applicable documents to the person requesting inspection within the same time period. In that case, the organization may charge the requester for copying and actual fied earlier. The requester has the option of requesting from the central or parent organiza­tion, at its principal office, inspection or copies of group returns filed by the central or parent or­ganization. The central or parent organization must fulfill such requests in the time and manner specified earlier.

If an organization fails to comply, it may be liable fora penalty. See Penalties, later.

Making applications and returns widely available. An exempt organization does not have to comply with requests for copies of its annual returns or exemption application if it makes them widely available. However, making these documents widely available does not re­lieve the organization from making its docu­ments available for public inspection.

The organization can make its application and returns widely available by posting the ap­plication and returns on a World Wide Web page. For the rules to follow so that the Internet posting will be considered widely available, see section 301.6104(d)-2(b) of the regulations.

If the organization has made its application for tax exemption and/or annual returns widely available, it must inform any individual request­ing a copy where the documents are available, including the address on the World Wide Web, if applicable. If the request is made in person, the notice must be provided immediately. If the re­quest is made in writing, the notice must be provided within 7 days.

Harassment campaign. If the tax-exempt or­ ganization is the subject of a harassment cam­paign, the organization may not have to fulfill requests for information. For more information, see section 301.6104{d)-3 of the regulations.

Political organization reporting forms. Forms 8871 and 8872 (discussed earlier under Reporting Requirements for a Political Organi­ zation) are open to public inspection.

Form 8871. Form 8871 (including any sup­ porting papers) and any letter or other document the IRS issues with regard to Form 8871 is open to public inspection at the IRS in Washington, DC.

Copies of Form 8871 that have been filed will be made available on the IRS Internet web site ( www.irs.gov/polorgs ) 48 hours after the notice has been filed and are considered widely avail­able as long as the organization provides the IRS web site address to the person making the request. In addition, the organization must make a copy of these materials available for public inspection during regular business hours at the organization's principal office and at each of its regional or district offices having at least 3 paid employees.

Form 8872. Form 8872 (including Sched­ules A and B) is open to public inspection. Cop­ies of Form 8872 that are required to be filed electronically will be made available on the In­ternet web site ( www.irs.gov/polorgs ) within 48 hours after it has been filed.

An organization is required to file Form 8872 electronically if it has, or has reason to expect to have, contributions or expenditures exceeding $50,000 for the tax year.

In addition, the organization is required to make a copy of this form available for public inspection during regular business hours at the organization's principal office and at each of its regional or district offices having at least 3 paid employees.

Penalties. The penalty for failure to allow pub­ lic inspection of annual returns is $20 for each day the failure continues. The maximum penalty on all persons for failures involving any one return is $10,000.

The penalty for failure to allow public inspec­ tion of exemption applications is $20 for each day the failure continues.

The penalty for willful failure to allow public inspection of a return or exemption application is $5,000 for each return or application. The pen­alty also applies to a willful failure to provide copies.

The penalty for failure to allow public inspec­ tion of a political organization's section 527 no­tice (Form 8871) is $20 for each day the failure continues.

The penalty for failure to allow public inspec­ tion of a section 527 organization's contributions and expenditures report (Form 8872) is $20 for each day the failure continues. The maximum penalty on all persons for failures involving any one report is $10,000.

Certain exempt organizations must disclose to the IRS or the public certain information about their activities. Generally, an organization dis­closes this information by entering it on the ap­propriate lines of its annual return. In addition, there are disclosure requirements for:

» Solicitation of nondeductible contributions,

* Sales of information or services that are available free from the government, and

* Dues paid to the organization that are not deductible because they are used for lob­bying or political activities.

Solicitation of Nondeductible Contributions

Solicitations for contributions or other payments by certain exempt organizations (including lob­bying groups and political action committees) must include a statement that payments to those organizations are not deductible as charitable contributions for federal income tax purposes. The statement must be included in the fund-rais­ ing solicitation and be conspicuous and easily recognizable.

Organisations subject to requirements. An organization must follow these disclosure re­quirements if it is exempt under section 501(c), other than section 501(c)(1), or under section 501(d), unless the organization is eligible to re­ceive tax deductible charitable contributions under section 170(c). These requirements must be followed by, among others:

1. Social welfare organizations (section 501(c)(4)),

2. Labor unions (section 501(c)(5)),

3. Trade associations (section 501(c)(6)),

4. Social clubs (section 501(c)(7)),

5. Fraternal organizations (section 501{c)(8) and 501 (c)(10)) (however, fraternal orga­nizations described in section 170(c)(4) must follow these requirements only for so­licitations for funds that are to be used for noncharitable purposes not described in section 170(c)(4)),

6. Any political organization described in sec­tion 527(e), including political campaign committees and political action commit­ tees, and

7. Any organization not eligible to receive tax-deductible contributions if the organiza­ tion or a predecessor organization was, at any time during the 5-year period ending on the date of the fund-raising solicitation, an organization of the type to which this disclosure requirement applies.

Fund-raising solicitation. This disclosure re­ quirement applies to a fund-raising solicitation if all of the following are true.

1. The organization soliciting the funds nor­mally has gross receipts over $100,000 per year.

2. The solicitation is part of a coordinated fund-raising campaign that is soliciting more than 10 persons during the year.

3. The solicitation is made in written or printed form, by television or radio, or by telephone.

Penalties. Failure by an organization to make the required statement will result in a penalty of $1,000 for each day the failure occurred, up to a maximum penalty of $10,000 for a calendar year. No penalty will be imposed if it is shown that the failure was due to reasonable cause. If the failure was due to intentional disregard of the requirements, the penalty may be higher and is not subject to a maximum amount.

Certain organizations that offer to sell to individ­uals (or solicit money for) information or routine services that could be readily obtained free (or for a nominal fee) from the federal government must include a statement that the information or service can be so obtained. The statement must be made in a conspicuous and easily recog­nized format when the organization makes an offer or solicitation to sell the information or service. Organizations affected are those ex­empt under section 501 (c) or 501 (d) and political organizations defined in section 527(e).

Penalty. A penalty is provided for failure to comply with this requirement if the failure is due to intentional disregard of the requirement. The penalty is the greater of $1,000 for each day the failure occurred, or 50% of the total cost of all offers and solicitations that were made by the organization the same day that it fails to meet the requirement.

Dues Used for Lobbying or Political Activities

Certain exempt organizations must notify any­one paying dues to the organization whether any part of the dues is not deductible because it is related to lobbying or political activities.