Tax Policy Issues

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Federal and state tax laws and policies govern many of the operations of charitable nonprofits.  501(c)(3) nonprofit organizations typically are exempt from paying income and property taxes and donations to their work are deductible on federal and most state tax returns. Policymakers regularly review and propose changes to exemptions, operational rules, and giving incentives.

Charitable Giving Incentives

The tax laws at the federal level and in many states encourage individuals and businesses to give to charitable organizations whose missions they support by providing an itemized deduction or tax credit. Tax reform efforts in recent years have considered capping or eliminating charitable giving incentives.

Estate Tax (Federal)

The federal estate tax is an essential source of revenue for the federal government and serves as an incentive for wealthier individuals to give back to their communities through charitable nonprofit organizations.

Filing Requirements for Nonprofits (Federal)

Most charitable nonprofits that are recognized as tax-exempt have an obligation to file an annual information return with the IRS. There are very few exceptions: church-affiliated organizations and governmental organizations are among those not required to file. (Tools & Resources)

Restrictions on Partisan/Political Activity of Charitable Nonprofits

In return for its favored tax-status, a charitable nonprofit promises the federal government that it will not engage in “political campaign activity” and if it does, IRS regulations mandate that the charitable nonprofit will lose its tax-exempt status. This prohibition against political campaign activity (defined as “supporting or opposing a candidate for public office”) is SEPARATE from lobbying or legislative activities, which charitable nonprofits ARE permitted to engage in, although knowing the rules is important, as limitations apply. (Tools & Resources)

Small Business Health Care Tax Credit for Nonprofits (Federal)

The Council of Nonprofits and its State Association network worked hard to ensure that The Affordable Care Act and related regulations included a provision that gives small nonprofits (those with fewer than 25 employees) the opportunity to receive a refund (referred to as a “credit”) for insurance premiums the nonprofit paid to provide health insurance for its employees. (Tools & Resources)

Revocation of Tax Exemption (Federal)

If your nonprofit fails to file its annual return (Form 990) for three consecutive years, the IRS will automatically revoke its tax-exempt status. This automatic revocation happens by operation of law – there are no exceptions. (Tools & Resources)

Taxes, Fees, and PILOTs (Payments in Lieu of Taxes)

Every state exempts some or all of the properties owned by charitable nonprofits from property taxes. However, despite a lack of legal authority to do so, some municipalities attempt to impose discriminatory taxes or fees on nonprofits, or demanding so-called “voluntary” payments in lieu of taxes (PILOTs). Different jurisdictions call the assessment different terms – taxes, fees, or PILOTs – but the goal is the same, to divert nonprofit resources away from mission and into government coffers.

Volunteer Mileage Rate (Federal)

Volunteers who drive their vehicles when they perform work on behalf of a nonprofit are restricted in tax law to deducting only 14 cents per mile, a rate that is set in statute and has not been changed in years. 

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