As an Orlando non profit accounting firm, we have help numerous non profit organizations with their specific accounting and tax needs.  Section 501(c)(3) is the IRS exemption for non-profit charitable, educational or religious organizations. The main significance of this exemption is that only 501(c) (3) organizations are qualified for foundation grants. As foundation grants are the corner-stone of yearly fundraising of any charitable organization, Section 501 (c)(3) exemption is absolutely essential for the organization. Also, contributions to exempted organizations are tax-deductible, that is also a noticeable perk.

Today, in this Orlando non profit accounting blog we focus on explaining how the restriction on these exemptions works for charitable organizations.  As a corporation, all charitable organizations are, firstly, advised to pay income tax returns until IRS grants you an exemption under this section.

Avoid internal monetary benefits that are not well defined. IRS is weary of institutions that seem to be distributing wealth internally or whose charity seems to be focused on exceptionally limited number of people. These situations include board members or their relatives benefiting from the charity, highly paid managers, any major donor and founders indirectly utilizing charitable funds. This situation is called ‘private inurnment’ and it happens in various forms. Avoid unreasonably high salaries and business transactions between the organization and its officers and directors. IRS application form includes detailed query on this topic, a form called 1023 deals with potential inurnment.

Secondly, avoid any involvement with legislation influence, including any local legislative debate before county or city commission. Public charities get a relative lee way in this regard but that also ends after five percent of your budget and time. No charitable organization, even if public charity should spend more than five percent of their time or budget on lobbying for or against any legislation whatsoever. If a charity does indulge in legislation with less than 25% of their time and budget once, they can make an election with the IRS by filling right forms, but exceeding this limit in subsequent years may lead to forfeiture of exemption.

Lobbying does not include discussing such legislations that may affect the exempt status of the organization itself, excluding financial matters. Charitable organizations are allowed to lobby for and against regulation and other non-legislative matters as well research and result distribution of non-partisan research and studies. They are also allowed to respond to requests for testifying on legislative committees given that they were invited through written invitation from chairman of the committee.

Public education may not be lobbying as long as there is no urging the masses to contact their local legislators. Non-partisan research, websites, newsletters, policy papers, training, conferences and other matters are permissible.

Exempted organizations can neither support nor oppose any political candidates; neither can they take part in partisan political campaigning activities. They are allowed to educate the voter in a non-partisan way but with assurance of complete non-allegiance and no partiality towards or against any political person. Such organizations cannot allow any partisan groups or individuals to use their property in any form, direct or indirect, to campaign for any political candidate.

If you need more information about our, Orlando accounting and tax services, please contact us at 407-502-2400.  Freedomtax Accounting’s staff has been providing honest accounting services and tax services for 15 years.  Our Orlando accounting and tax firm has its main offices in Kissimmee, FL.  Our services are provided nationwide, but mainly in the Central Florida market to areas like Orlando, South Orlando, Kissimmee, St. Cloud, Poinciana, and Hunters Creek, FL.  Our tax accountants and IRS enrolled agents (irs ea) specialize in corporate accounting and bookkeeping, tax services, tax preparation, back taxes help, tax debt relief, tax resolution, tax planning, itin numbers, incorporations, and non profit 501c3 tax exempt status applications.

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