What Is the Difference Between a Private Foundation and a Public Charity?

An Estate Planning FAQ with Mary E. Vandenack.

Private foundations and public charities are both tax exempt entities under section 501c3 of the Internal Revenue Code. The differences are that a public charity qualifies for a little more in terms of tax benefits. If you make a contribution to an organization that qualifies as a public charity, there is a little bit larger percentage that you can deduct in certain circumstances. The limitations aren’t as significant on the private foundation. The public charity is typically one that benefits the public at large rather than a smaller group. The private foundation is more typically formed by a smaller group and benefits a smaller group of individuals.

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How Do I Form a 501c3 Public Charity?

An Estate Planning FAQ with M. Thomas Langan II.

A 501(c)(3) public charity is a non-profit organization that is exempt from federal income tax. These organizations must be organized and carried out for certain exempt purposes, which include charitable, educational, religious and scientific purposes.

There are several ways to create a 501(c)(3) entity. The most common way is to first form a non-profit corporation. This is typically done by filing articles of incorporation with your state’s Secretary of State. At this point you just have a non-profit corporation. In order to be tax exempt federally, you need to take the extra step of filing for exempt status with the IRS by filing Form 1023. The application must be complete and accompanied with the appropriate user fee.

If the application is approved, you then have a 501(c)(3) public charity and are subject to annual reporting requirements.

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What Is a 501c3?

An Estate Planning FAQ with Mary E. Vandenack.

501(c)(3) is actually a section of the tax code that provides for the ability of an entity to fit into certain parameters and claim tax exempt status. In the section 501(c)(3) there are actually quite a few different types of organizations that will qualify for tax exempt status. The type that most people are familiar with is the public charity, so the American Red Cross and organizations like that are typically tax exempt entities and are actually subject to certain types of taxes but they have a general tax exempt status.

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IRS Now Accepting Streamlined Form 1023-EZ

By M. Thomas Langan II.

The IRS is now accepting a new shorter tax-exempt application form intended to help small charities apply for 501(c)(3) tax-exempt status more easily. The form, 1023-EZ, is only 3 pages long compared to full form that is 26 pages. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible to use the form.  The IRS expects around 70% of all applicants will qualify to use the shorter form.  Form 1023-EZ must be filed online and there is a $400 filing fee.

The form can be viewed here: http://www.irs.gov/pub/irs-pdf/f1023ez.pdf

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IRS to Offer Simplified Tax-Exempt Application

The IRS has announced plans to offer a much simpler form for many charities to apply for tax-exempt status. Most charities that expect to have no more than $200,000 in annual gross receipts and total assets of less than $500,000 will be eligible to use the form.  Whereas the current Form 1023 is 26 pages, the draft Form 1023-EZ is only 3 pages. The IRS’s goal is to streamline the application process while also freeing up resources to concentrate more on compliance with established charities. The IRS is currently accepting comments on the draft Form 1023-EZ and is expected to begin accepting them later this summer.

The draft Form 1023-EZ is available at: http://www.irs.gov/pub/irs-dft/f1023ez–dft.pdf

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Reminder to Not Include Social Security Numbers on Form 990s

As the due date for filing Form 990 approaches for many nonprofit organizations, the IRS has issued a reminder to not include unnecessary personal information, including social security numbers, when completing and filing Form 990.  Because Form 990s are generally required to be publicly disclosed, any personal information contained it in will be available to the general public; therefore, filers should use caution and not include unnecessary personal information.  Form 990s are due by May 15th for calendar year tax filers.

 The IRS notice can be located here: IR-2014-57

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