The following FAQs are from several experts with IRS tax laws knowledge we consulted to clarify the letter from IRS that was sent to some ICDA-US Chapters.
- Revoked tax exempt status -- what does this mean?
This means ICDA-US is no longer tax exempt and must file IRS corporate income tax forms. - Why some Chapters received the letter?
At one time in the past, the Chapter(s) were included as part of ICDA-US's IRS Form 990 filing as a member of the group exemption. This means that instead of the Chapter filing its own IRS Form 990 form, the Chapter can report the income and expenses to ICDA-US and be included as part of ICDA-US IRS Form 990 filing. - Will this impact the Chapter's tax exempt status?
It depends. If the Chapter has its own EIN and has been filing its own IRS Form 990 reports, the Chapter is still considered tax exempt. The key document that the Chapter should have is "IRS Letter of Determination" - What is the "IRS Letter of Determination"?
This is a document from IRS that states the entity (organization) is (or not) tax exempt and also says what the entity must do annually (file a specific form, usually IRS 990 series) - What does it mean to have IRS 501(c)3 tax exempt?
A qualified entity with IRS 501(c)3 tax exempt status is able to accept charity donations from anyone. In some cases, it also exempts the entity from filing federal corporate income taxes. In general, the entities are still required to file IRS Form 990 annually. - Why can't a Chapter be exempt from paying taxes on things it buys or sells?
IRS 501(c)3 tax exempt status exempts the entity from filing federal income taxes. The IRS 501(c)3 does not exempt the entity from sales tax. The sales tax exemption is handled at the state level. Any entity doing business (selling or purchasing goods in the state) may qualify for sales tax exemption in each state that it does business in. The entity should check with appropriate state agency. Sales tax exemption varies in each state. Some allow sales tax exemption on certain things, while other state does not allow exemptions. - How does the IRS 501(c)3 tax exempt get revoked?
IRS automatically revokes the tax exempt status for failure to file required reports for three (3) consecutive years. There are other less-common reasons for revoking the tax exempt status.
Link to Automatic revocation of exemption for nonfiling (opens in new window) - What ICDA-US can or cannot do if its IRS 501(c)(3) status is revoked?
- They can still host community-based, informal events, but:
- They must not claim donations as tax-deductible, because they are no longer legally a tax-exempt charity.
- They should disclose their revoked status to donors, sponsors, and attendees.
- They should pause any public fundraising or formal sponsorships until compliance is confirmed.
- Ideally ICDA-US should clarify their IRS status first.
- They might be violating IRS rules if they collect donations under the assumption of being a valid nonprofit.
- They can still host community-based, informal events, but: