Hi, I’m Bette Hochberger, CPA, CGMA. Today I am going to discuss charitable organization eligibility. Charitable organizations play a crucial role in our society, offering aid, support, and various services to communities and causes. 

But not all organizations are automatically eligible for tax benefits. What distinguishes an eligible charitable organization is its compliance with a set of critical criteria defined by the IRS. Let’s go ahead and dive into what these criteria are and how they shape the landscape of charitable giving and tax exemption.

The Basics of Charitable Organization Eligibility

To qualify for tax-exempt status, charitable organizations must adhere to specific IRS criteria. This status is significant as it affects the organization’s operations and its ability to receive tax-deductible contributions from donors.

Key IRS Criteria for Eligibility

  1. Organizational Structure: The organization must be established as a trust, corporation, or association.
  2. Exempt Purpose: It must be organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.
  3. Earnings Distribution: Earnings should not benefit any private shareholder or individual.
  4. Political and Legislative Activities: The organization must not participate in any political campaign or substantially engage in lobbying activities.
  5. Asset Dedication: Upon dissolution, its assets must be dedicated to another exempt purpose entity.

Impact on Donors

For donors, the eligibility of a charitable organization is crucial. Contributions made to a qualified organization can be tax-deductible, reducing the donor’s taxable income. However, donations made to non-eligible organizations do not offer this tax benefit.

Verifying Eligibility

– IRS Database: Donors can use tools like the IRS’s Tax Exempt Organization Search to verify the eligibility of a charitable organization.

– Donation Receipts: Ensure the organization provides a receipt indicating its tax-exempt status and other necessary details for tax deduction purposes.

Compliance and Reporting

Eligible charitable organizations are required to adhere to various reporting and compliance requirements:

– Form 990 Filing: Most tax-exempt organizations must file an annual information return or notice with the IRS (Form 990).

– Public Disclosure: They must make their financial and operating information public, fostering transparency and accountability.

Understanding what makes a charitable organization eligible for tax benefits is essential for both the organization and its donors. It ensures that the contributions are used effectively for the intended charitable purposes and provides donors with the benefit of tax deductions. 

As always, it’s advisable to consult with a tax professional or directly check with the IRS to confirm the status of a charitable organization. I hope you all learned something new today, and I’ll see you again next time!