ExpressTaxExempt Blog

How to Report Lobbying Expenditures on IRS Form 990/990-EZ

Reporting additional information about political campaign activities or lobbying activities requires exempt organizations to file a Schedule C along with their IRS Form 990 or 990-EZ. 501(c)(3) organizations needing to complete a Schedule C are those that

  • Participate in lobbying activities
  • Have a Section 501(h) election in effect during the tax year
  • Engage in political campaign activities either on behalf or opposition to candidates for public office

Public charities with valid section 501(h) elections can spend a certain amount of its exempt purpose expenditures to influence without paying taxes or losing exemption status. Part II-A of the Schedule C allows any nonprofit organization with a 501(h) election in effect to report lobbying expenditure - even if the organization didn’t engage in lobbying activities for that filing year.

Affiliated Groups
The first section of Part II-A confirms whether the filing organization belongs to an affiliated group with Box A. If so, you need to complete both columns for this section:

  • Column A for the filing organization’s totals
  • Column B for the affiliated group totals

Tax-exempt groups with limited control provisions need to check Box B and should only complete column A for this section. Organizations that don’t check Box A should not check Box B either.

Later, in Part IV, you can provide a list of each affiliated group member’s name, address, EIN, and expenses. You also need to indicate which members made the election under 501(h), and include the share of the excess lobbying expenditures for each electing member on your list.

Limits on Lobbying Expenditures
The second section is to determine if your organization’s current year lobbying expenditures are subject to tax under section 4911. If so, the IRS requires you to file Form 4720 and pay the excise tax. Complete Lines 1a through 1i in Column A, and any for Column B, if applicable.

For Line 1a, enter the amount the organization spent on grassroots lobbying communications, and then for Line 1b, enter the expense for direct lobbying communication. Add Line 1a and 1b to get your amount for Line 1c. Enter all other amounts, minus lobbying, that your organization spent to achieve its exempt purpose. And then add Line 1c and 1d to get Line 1e, which is the organization's total exempt purpose expenditures.

Follow the table provided on the Schedule C to answer Line 1f and enter 25 percent of that amount on Line 1g. For Line 1h, subtract your value of Line 1g from Line 1a - if there is a negative difference, just enter zero. On Line 1i, subtract Line 1f from Line 1c and put zero if the amount is negative.

If you don’t have any excess lobbying expenditures on Line 1h or 1i for Column B, you should treat each electing member of the affiliated group as having none. But if there are amounts listed for Column B on those lines, then each electing member has that amount for excess lobbying expenditures. In that case, the IRS requires each electing member to file Form 4720 and pay the tax on its share of the affiliated group’s excess lobbying spending.

You can enter proportionate shares in Column A for Line 1h, 1i, or both. And in Part IV, you can show what amounts apply to which group member. For Line 1j, indicate whether your organization filed Form 4720 to report section 4911 tax for the filing year if the amount on Line 1h or 1i is other than zero.

Lobbying Expenditures During 4-Year Averaging Period
Line 2 is to determine whether your organization exceeded lobbying spending limits during a 4-year averaging period. Any exempt organization with a lobbying expenditure election in effect during the filing year must complete Columns A through E for Lines 2a through 2f except for the following circumstances:

  • If the filing year is the first year the organization is tax-exempt, you won’t need to complete any of Lines 2a through 2f
  • If any of the tax years were before the organization became exempt, you wouldn't need to complete Lines 2a through 2f
  • If the filing year is the first year the organization has a section 501(h) election in effect, then you must complete Line 2a for Columns D and E
  • If the filing year is the second or third year the organization’s first section 501(h) election is in effect, then you’re required to complete only the columns for the years the election was in effect and enter the totals for those years in Column E

Important: Check the Schedule C Instruction Sheet for more detailed information about these exceptions.

Complete Line 2a through 2f as follows for the filing year and applicable prior years based on the Schedule C for each respective year:

  • Line 2a - Enter the amount from Part II-A, Line 1f
  • Line 2c - Enter the amount from Part II-A, Line 1c
  • Line 2d - Enter the amount from Part II-A, Line 1g
  • Line 2f - Enter the amount from Part II-A, Line 1a

Once you finish, you need to enter the total for each line in Column E. If your organization belongs to an affiliated group, you should input the appropriate group totals from Column B, Lines 1a through 1i when entering Line 2a through 2f. If you have any questions regarding details about your organization’s section 501(h) election, spending limits, or affiliated groups, please contact a tax professional or reach out to the IRS Tax-Exempt Hotline at 877.829.5500.

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Are Public Libraries Considered Nonprofit Organizations?

public library: tax-exempt status for librariesIn 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.

people sit in tax-exempt public library

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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Reporting Bad Debt, Medicare, & Collection Practices with Schedule H

Hospitals with 501(c)(3) exemption status must report information about activities, policies, and community benefit of its hospital facilities and other non-hospital health care buildings it operated during the tax year. Those who are submitting a 990 form for hospitals can provide this information using a Schedule H.

With a Schedule H, you can also list any bad debt expenses, Medicare, and collection practices. Here are some guidelines to follow when reporting your information.

Part III of Schedule H breaks down into three sections:

Section A - Bad Debt Expenses
In this section, the IRS requires you to

  • Report combined bad debt expense
  • Provide an estimate of how much bad debt reasonably belongs to patients that likely qualify for financial assistance through the hospital’s policy, if applicable
  • Provide logic for what portion of bad debt comes from community benefit

In Line 1, you should indicate whether the hospital reported any bad debt expense listed with Statement No. 15 from the Healthcare Financial Management Association. Even though some hospitals rely on Statement 15 in reporting audited financial statements, the American Institute of Certified Public Accountants (AICPA) doesn't commonly use it, and the IRS doesn’t require organizations to use it for financial assistance costs.

On Line 2, enter the amount of the hospital’s bad debt expense. For patients’ bills partially written as bad debt, you only need to include the proportionate amount. You should also include any share of bad debt expense from any joint ventures the hospital participated in during the tax year. Later, in Part VI, you can describe the method used the determine your bad debt amount.

With Line 3, list the estimated amount of bad debt from Line 2 that comes from patients that qualify for the hospital’s financial assistance policy. You can also use Part VI to explain how you determined the amount or include portions of the bad debt as a community benefit, if applicable.

Line 4 requires you to provide a footnote in Part VI referring to the hospital’s financial statements describing bad debt expense or the page number where this note is located in the attached financial statements. If the financial statements don’t include a footnote discussing bad debt expense, "accounts receivable,” or “allowance for doubtful accounts,” you need to include a statement about how the organization’s statements don’t reflect the information and also explain how the hospital possibly accounts for bad debt.

Section B - Medicare
This section requires you to combine

  • Allowable costs to provide services reimbursed by Medicare
  • Medicare reimbursements attributable to such costs
  • Medicare surplus or shortfall

You should only include allowable costs and reimbursements reported in the hospital’s Medicare Cost Report for the filing year. You won’t need to provide Medicare-related expenses or revenue that you already listed in Part I of the Schedule H.

On Line 5, enter the total income received from Medicare - this includes payments for indirect medical education (IME), Medicare disproportionate share hospital (DSH) revenue, and other amounts paid to the hospital from the Medicare Cost Report. Don’t repeat any costs related to subsidized health services, research, or direct graduate medical education (GME) that you reported in Part I.

In Line 6, list the Medicare allowable costs of care from the amount you have on Line 5. Once again, you’re excluding any subsidized health services, and GMEs that you have in Part I. The Schedule H instructions from the IRS has a worksheet available to calculate your amount. Hospitals with multiple Medicare provider numbers should combine the costs reported in the Medicare Cost Reports for each provider and put the total sum on Line 6.

With Line 7, you just need to subtract Line 6 from Line 5 - a normal amount is a surplus while a negative value is a shortfall. And on Line 8, indicate the available method used to determine the amount on Line 6.

Section C - Collection Practices
The last part only asks you to report the hospital’s written debt collection policy. For Line 9a, indicate whether or not the hospital utilized a debt collection policy for the tax year. Your policy can be either a written billing and collections policy or a written financial assistance policy detailing the hospital’s actions for non-payment situations.

If you answered “Yes” for Line 9a, continue to confirm whether the collection policy contains provisions on collection practices for patients qualifying for financial assistance. If so, describe in Part VI the methods listed for such patients and if those practices also apply to other types of patients.

The IRS requires you to completely fill out 990 forms and any mandatory schedules regarding your exempt organization. If you have any tax-related questions, please consult with a certified professional or contact the IRS Tax-Exempt Hotline at 877.829.5500 for information about your organization.

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How to Donate Tax Deductible Books to Libraries

One way to reduce the clutter around your office or home is to donate any old books you have to your local library - not only are you giving to a great cause, but you could also be lowering your annual tax bill.

Because the federal government classifies most libraries as nonprofit educational institutions, they are qualified charities that can receive tax-deductible, charitable contributions.

You can find information about your local library’s tax-exempt status through the IRS charity database, or speak with the library’s administrator. Here are some tips about donating books to a qualified, tax-exempt library:

Valuation of Books
Under normal circumstances, the IRS allows you to deduct the fair market value of your donated books. There aren’t many federal rules about what comprises a fair market value of an item; it’s typically an agreed price in the open market that’s considerably lower than the original value.

You can search second-hand shops or online stores to find prices for similar used items. In exceptional cases, your book may be worth more than fair market value. For instance, the author signed the cover or a page. You may want an appraisal for the book’s actual value.

Proper Recordkeeping
Like many other deductions, you need to provide proof to claim the credit. According to experts, if your contribution is less than $250, the library should give you a receipt displaying its name and address, the date you contributed, and a description of your donation. Your personal record should list the description along with how much you paid for the books and their fair market values.

With donations over $250, your receipt from the library needs to include any benefits or gifts given in return for your contribution. If your “Thank You” gift has monetary value, the IRS requires you to deduct the amount from the value of your donation. And any contributions totaling over $5,000 in books requires an appraisal for the fair market value.

Itemize Your Deduction
To properly claim a deduction for your book donations, you must itemize what you gave. Choosing standard deductions depends on your filing status and the standard changes for inflation each year - you typically want to itemize deductions if the amount is going to be larger than standard. But the choice is ultimately up to you - if you only donated a couple of novels that were just lying around, it may not be worth the extra effort to itemize.

Reporting Donations and Contributions
Taxpayers can report the value of their book donations on Schedule A, Line 17 of their personal tax return. If you’re donating a substantial monetary value, you may need to file additional forms and include an appraisal signature. For libraries reporting their received contributions, you can list donations worth $5,000 or more from any one donor on the Schedule B of your annual 990 form.

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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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Tax Deductible Contributions to Nonprofit Schools

Taxpayers can claim deductions towards their annual tax bill from donations they make to recognized 501(c)(3) organizations. Qualified 501(c)(3) groups typically include nonprofit schools operating solely for literary and education purposes.

But if the school significantly participates in activities that are unrelated to its charitable purposes, then the donation may not be tax deductible.

Here are some relevant guidelines from the IRS about donating contributions to your local nonprofit schools:

Value of School Donations
When filing your personal taxes, you can deduct the monetary value of cash or items you donated to a nonprofit school during the tax year. The process requires you to determine the fair market value of the donation on the day you gave it away.

There are various ways to find the valuation based on the type of item, and while the IRS won’t endorse one method over the other, they firmly state that the value must accurately indicate pricing that the item could sell for in an open market. An example would be donating clothes - you could check local thrift shops to find out how much the clothes would sell for or find prices from online stores selling similarly conditioned clothing.

Receiving Benefits from Nonprofit School
If the school gives you a gift or some benefit in return for your contribution, then the IRS requires you to reduce the value of your donation by the value of the gift you received from the school. The gift may be something of little to no monetary value such as a certificate, card, or plaque - in such a case, you won’t have to reduce your donation. But if the school happens to give you a $50 shopping card, you’ll need to subtract that amount from the value of your contribution.

Proof of Contribution and Penalties
Beware of filing overvalued charitable contributions. The IRS charges 20% of the underpaid tax from a valuation that exceeds 150% of its actual value and 40% from valuations exceeding 200% of normal value.

Furthermore, the IRS can deny your deduction if you don’t have proper documentation. You are responsible for maintaining a record of all your contributions - cash or items. You should have a description of the contribution and the name of the organization that received it. If your donation was cash, you should provide a bank statement, canceled check, or receipt. For large cash contributions, usually over $250, the IRS requests a written acknowledgment or receipt from the organization before deducting the donation.

Claiming tax deductible contributions towards nonprofit schools is only possible through itemizing your personal expenses. Taxpayers can claim itemized deductions on Schedule A of IRS Form 1040 if total deductible expenses are greater than standard deductions for the tax year. And for schools needing to report received contributions, you can do so by submitting a Schedule B with your IRS 990 form.

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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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