Are Public Libraries Considered Nonprofit Organizations?

In general, public libraries do not receive 501(c)(3) exemption status from the IRS; however, tax officials recognize them as a governmental unit under the 501(c)(3) Internal Revenue Code which allows exemption from federal taxes.

For grant applications from foundations or charitable organizations, government entities usually need to provide proof of its tax-exempt or charity status.

Are Public Libraries Considered Nonprofit Organizations?

Tax-Exempt Status for Libraries

A public library can use its federal taxpayer identification number, commonly known as its Employer Identification Number (EIN), to identify itself. The IRS can also distribute a “governmental information letter” upon request which proves the library’s exemption from federal taxes. The letter also explains how the entity is applicable for deductible contributions and income exclusion.

When a new public library gets commissioned by an administration of public education, it is automatically exempt from state taxes and typically doesn’t pay federal taxes because of its governing entity status. In particular circumstances, a library can request to qualify as a 501(c)(3) organization instead of a government entity but has to submit a Form 1023 to receive a determination from the IRS.

While operating as a government entity, libraries can enlist another 501(c)(3) organization to accept funds or donations on its behalf - these nonprofit organizations are typically friends groups, community foundations, or library associations. They use public contributions and grants towards charity, education, the promotion of literature, and related administrative costs. Among other activities, these exempt organizations' charitable efforts are for improving public libraries, promoting literacy, and awarding scholarships.

Please Read: File Form 990-N, 990-EZ, 990, 990-PF Securely

Tax Deductible Contributions for Public Libraries

Public libraries and their associations are eligible to receive tax-deductible charitable contributions. The IRS requires a receipt written to donors who contribute over $250. You can give receipts or a “thank you” for lesser amounts if you choose, but the primary reason is for those planning to deduct their donation from their tax bill.

The tax receipt should contain the following information:

• Name and address of the organization
• Date the contribution was given
• The amount of a cash contribution or the description of a non-cash donation
• A statement of goods or services that are given in return for a contribution, if necessary

If there’s a donor that gives numerous small donations throughout the year, and their total amount is over $250, they will also need a written receipt for tax purposes. 501(c)(3) organizations or associations that are accepting contributions on behalf of a library will need to report individual donations of $5,000 or greater on Schedule B of their Form 990.

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Can Religious Organizations Become Tax-Exempt?

In Section 501(c)(3) of the Internal Revenue Code, one of the exempt purposes that is specified is “religious.” Because of constitutional issues, Treasury Regulation doesn't have a precise definition of "religious" like other functions such as charitable, educational, or scientific.

According to the IRS, the First Amendment typically prohibits the Internal Revenue Service from judging what can or cannot be a religion. As far as tax-exempt groups are concerned, the IRS lists the following as 501(c)(3) religious organizations:

• Churches
• Nondenominational ministries
• Integrated auxiliaries of churches
• Conventions and associations of churches
• Interdenominational and ecumenical organizations
• Other entities with the principal purpose of studying or advancing religion

The IRS also grants 501(c)(3) exemption status for religious organizations that primarily participates in the following activities:

• Distributing a newspaper devoted to religious news, articles, or editorials
• Organizing religious retreats for diverse Christian denominations where members use recreational facilities for limited amount of time and free of charge

Because 501(c)(3) regulations state that organizations must operate exclusively for one or more exempt purposes, it is possible for religious groups to not qualify for exemption status if they significantly endorse a nonexempt purpose. For instance, the following activities can cause a religious organization to be ineligible for tax exempt status:

• Producing literature for profit that has little to no connection with the religious beliefs of the organization
• Conducting a religious retreat facility that caters to recreational and social activities rather than religious

It’s also common for organizations to have activities to serve more than just one purpose. For religious groups, they can also qualify for 501(c)(3) status as an organization operating primarily for educational or charitable purposes.

Churches are typically different from other types of religious organizations - the federal government automatically recognizes them as tax-exempt without reviewing a Form 1023. But there are various conditions that the IRS considers when determining a church for federal tax purposes. These are, but not limited to

• An established place of worship
• A formal code of doctrine and discipline
• A recognized belief and form of worship
• A regular congregation of religious services
• A distinct legal existence of the organization
• An organization comprised of ordained ministers
• A precise and accurate clerical government and religious history
• A membership system exclusive of any other churches or denomination

Like many other tax-exempt organizations, the IRS still requires churches to follow standard 501(c)(3) regulations such as no private inurement and no significant lobbying. The main difference between churches and other tax-exempt groups is that churches are not required to file an annual 990 form. For churches that choose to submit a nonprofit tax return, your gross receipts will determine which 990 form to file.

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How Schools Can Acquire 501(c)(3) Tax-Exempt Status

It’s typical for schools and Parent-Teacher Association (PTA)/Parent-Teacher Organization (PTO) to be recognized as a 501(c)(3) organization and have tax-exempt status. However, there is a common misunderstanding when a school has 501(c)(3) status, but the PTA/PTO does not and vice-versa.

Both groups are eligible to apply for tax-exempt status, and with it comes benefits from being a 501(c)(3) organization. Here is some important information for schools or PTAs/PTOs interested in becoming tax-exempt.

Exemption Status for Schools
Schools usually receive a tax identification number (TIN) from the IRS - this number works much like a regular social security number, so there isn’t any tax exemption implied with it. The IRS typically views public schools as government entities in which they are automatically exempt from federal income tax.

Even though schools are automatically tax-exempt, that doesn’t mean the IRS recognizes them as 501(c)(3) groups. Like many other organizations, schools must complete an application to receive 501(c)(3) status from the federal government. Any organization seeking exemption status has to file IRS Form 1023 - if approved, the IRS mails a “Determination Letter” that identifies the organization as a 501(c)(3) group.

You can ask your school’s principal whether or not it has 501(c)(3) status - the determination letter from the IRS is mostly likely filed in the school or district office.

Exemption Status for PTAs/PTOs
A PTA/PTO can operate independently from the school - in such cases, the PTA/PTO is not automatically tax-exempt and will need to file a 1023 form to apply. Conversely, if the PTA/PTO is storing its funds using the school’s tax identification number, then the organization is seen as an extension of the school.

Most parent-teacher groups use their school’s TIN thinking that it’s common; however, experts explain that as long as the organization’s money is not from an account using the school’s TIN, then their group classifies separate from the school. If it is separate, the PTA/PTO can register for its own tax identification number.

There are a few services available for PTAs/PTOs to automatically register as a 501(c)(3) tax-exempt organization without submitting a Form 1023 or paying any filing fees. These services can also assist with getting a federal TIN, state incorporation, and 990 returns for your group. After receiving 501(c)(3) status. Donors may ask for a copy of the determination letter - this letter ensures your organization is a federally recognized charity and that charitable contributions towards your PTA/PTO are tax deductible.

Why Apply for Section 501(c)(3) Status
Other than preventing income taxes imposed on revenue earned by your school or PTA/PTO, there are more benefits with receiving 501(c)(3) status. With an exemption status, you can request for an increased number of grants - public and private donors usually require tax-exempt status for funding which can bring in more money and resources for the school.

Organizations that are recognized as 501(c)(3) legally exist as separate entities. Key members and employees typically aren’t held directly responsible for debts from the organization though special circumstances may apply. And with any litigation event, courts can only access assets that belong directly to the organization - not from individual members.

The most common advantage is that purchases are exempt from state sales tax. Keep in mind that regulations may vary from state to state, so check with your nonprofit association for more information. And once your organization or school receives its tax-exempt status, remember to stay compliant with IRS rules and file your 990 form each year.

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5 Reasons for an IRS 990 Form Rejection

As easy as it is to submit a 990 form to the IRS electronically, there are instances when your form can get rejected. At that point, it’s up to you to figure out why the IRS rejected your return and how to correct it before incurring any penalties.

The IRS can deny your 990 form for a wide variety of reasons - each tax-exempt organization can have different financial situations. But here are five of the most common reasons your 990 tax return can get rejected.

1. Organization Hasn’t Received Exemption Status
Before filing any 990 form with the IRS, your organization must have exemption status. To apply for tax exemption, you should file either IRS Form 1023 or Form 1024. Exempt organizations usually wait a full year after receiving exemption status before filing a 990 form.

2. Tax Exempt Application is Still Pending
Even if you’ve submitted a 1023 or 1024 form, your exemption status isn’t official until you get a Determination Letter from the IRS - this will confirm your tax-exempt certification along with other pertinent information.

If the IRS requests you to file a 990 form before receiving a Determination Letter, there is an option to select a pending application. Failing to indicate this option when applicable will cause a rejection.

3. Incorrect Tax Year Periods
Your tax year period, or accounting period, must match the IRS database unless the organization terminates within the reporting tax year. Some mistake their group as operating on a calendar tax year when it’s a fiscal tax year - others think they can change their tax period simply by putting the dates they desire on the tax return.

You can find your correct tax year period dates from previous 990 forms, your exemption application form, or you can call the IRS tax-exempt hotline at 877.829.5500. If you wish to change your tax year period, you must follow the procedures mandated by the IRS.

4. Exemption Status is Automatically Revoked
Failing to file for three consecutive years results in an automatic loss of tax-exempt status. Before filing a Form 990, you must reapply for exemption status with Form 1023 or 1024 and get a Determination Letter from the IRS. You can contact the IRS directly to inquire about your status before filing.

5. Duplicate Tax Return
In some cases, the IRS may already have approved a 990 return for the tax year you’re attempting to file. You might have a CPA, tax professional, or parent company that already filed on your behalf - you’ll need to clarify that information within your organization. At the very least, you can reach the IRS and ask for the date they received the filing.

With ExpressTaxExempt.com, we automatically identify the reason for a rejected return and allow you to make corrections so you can re-transmit with no extra charges - you can also re-transmit however many times is necessary.

Our U.S. - based support team in Rock Hill, South Carolina can assist you with a rejected e-file - call us at 704.839.2321, Monday through Friday from 9 a.m to 6 p.m. EST or send a message with support@ExpressTaxExempt.com.

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Don’t Get Revoked! Retain Your Tax-Exempt Status

For exempt organizations, the IRS requires that you file a tax return each year that reports your total revenue, total expenses, and activities. You submit these annual tax returns based on your gross receipts:

• IRS Form 990-N (e-Postcard) - For organizations with gross receipts less than $50,000
• IRS Form 990-EZ - For organizations with gross receipts between $50,000 and $200,000
• IRS Form 990 - For organizations with gross receipts greater than $200,000

Keep Your Exempt Status
The easiest way to maintain your organization’s tax-exempt status is to file your mandatory 990 form each and every year. Even if you miss the deadline, which may result in IRS penalties, you should still file the return as soon as possible.

Having tax-exempt status allows your donors to write off contributions from their tax return, and it also keeps the federal government from imposing taxes on the income your organization brings in - so it’s important to maintain your status.

Losing Tax Exemption
Failing to file your 990 returns for three consecutive years is the quickest way to lose your exemption status automatically. You can use the EO Select Check to see if the IRS automatically revoked your organization - it’ll list the exact date the revocation became effective.

There are also other ways your organization can lose its exemption status such as participating in political or lobbying activities, but failing to file three years straight is an automatic loss - no questions asked. Conversely, there are particular types of organizations that are naturally exempt - they aren’t required to file a 990 form.

Reclaim Your Exemption Status
If you lose your tax-exempt status, you’ll need to file the correct application for exemption based on your gross receipts and pay the processing fee. You may even be eligible to request reinstatement back to the revocation date.

After you’ve obtained your exemption status again, the IRS may ask you to file 990 forms for the years you’ve missed. With ExpressTaxExempt.com, you have our easy-to-use, cloud-based service to e-file the 990 series for the available tax years within the IRS e-filing system.

You can also keep your tax-exempt status up to date by e-filing with ExpressTaxExempt.com every year. Contact our helpful U.S. - based support team for any questions about the e-filing experience. We’re available at 704.839.2321 - business hours are Monday through Friday from 9 a.m. to 6 p.m. EST, or you can email us 24/7 with support@ExpressTaxExempt.com.

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IRS Lowers Nonprofit Applications

Outstanding news for organizations trying to seek tax-exemption status - the Internal Revenue Service reduced its processing fee for Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

The change, implemented this past July 1, slashes the original application fee from $400 to $275.

What is Form 1023-EZ
The EZ version of IRS Form 1023 was introduced back in 2014 as a quicker and simpler process for small organizations applying for exemption status under Section 501(c)(3) of the Tax Code. This shorter 3-page form made it possible for the IRS to cut down the backlog of the tens of thousands of organizations seeking tax-exemption each year.

If your organization makes less than $50,000 and have assets less than $250,000, the short application form is the best way to go. You can also learn more about what the form requires with our easy blog: Section 501(c)(3) Applications

How To Pay
The IRS states that organizations can pay their processing fees through Pay.gov when filing the application. You’ll need to provide either bank account information or a valid credit card or debit card to process the payment.

IRS Compliance
After your organization applies and receives exemption status, the next thing to do is preserve your tax-exemption by e-filing the required form each year with the IRS. Because your gross receipts are less than $50,000, you’ll need to e-file IRS Form 990-N (e-Postcard), and no other service makes that easier than ExpressTaxExempt.com.

With ExpressTaxExempt.com, all you need to enter is basic organization details, select your tax year period, and confirm your organization makes less than $50,000. Afterward, you can authorize and transmit to the IRS along with receiving real-time, email notifications of your filing status. And the best part - the process takes only minutes to complete.

If you’re nowhere near a computer, that’s not a problem. Our FREE downloadable ExpressTaxExempt Mobile app, for iOS and Android devices, allows you to e-file anywhere there is Wi-Fi access for smartphones and tablets. And the process is no different - complete your filing within minutes.

As easy as we’ve made it, we still understand the severity that comes with federal tax filings. If you have any questions or need assistance with your e-filing experience, contact our U.S. - based support team in Rock Hill, South Carolina. We’re available at 704.839.2321, Monday through Friday from 9 a.m. to 6 p.m. EST. We also offer 24/7 email messaging with support@ExpressTaxExempt.com.

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