a. Would use of property qualify it for exemption?

b. For property classed as exempt, is it devoted to exempt use or has it been converted to commercial use?

If total comp of >$110,000 per individual is paid, complete Intermediate Sanction Checklist.

• Have all exemptions been applied for in a timely manner? [Ch. 18]

• Federal final determination received? [§18.1]

• Are state franchise, income, sales, property tax, or other exemptions in place?

• Were there changes in charter, bylaws, or purposes? [§18.3]

• Were there transactions with board members, officers, or other insiders? If so, did private inurement occur? [Chs. 20 and 22]

• Any new activities? Are new programs in furtherance of exempt purposes? [Chs. 3–5]

• Do new activities need to be reported to IRS? [§18.3]

• Are files maintained to document nature of activities?

• If the EO lobbies, should Form 5768 be filed? [Ch. 23]

• Any prohibited political activity? [Ch. 23]

• Is there unrelated business revenue? [Ch. 21]

• Are employees vs. contractors properly documented and reported? Is payroll tax withholding required? [Ch. 25]

• Are exempt disbursements sufficient for commensurate test? [Ch. 2]

• Are fund balances excessive? [Ch. 2]

• If the EO is a (c)(7), complete social club revenue tests. [Ch. 9]

• Review website with checklist. [Exhibit 19.10]

• Is Form 990 required? If so, can and should EZ be filed? Is electronic filing required? [§18.2]

• Is Form 990‐T required? (Complete Exhibit 19.8) [Ch. 21]

• Are payroll and information returns filed? [Exhibit 25.1]

• Should extension of time to file be requested?

• Has change of accounting method occurred? [§18.3]

• Should tax filing year be changed? [§18.3]

• Is Form 4720 required for excise taxes?

• Is either Form 8283 or 8282 due for property gifts received?

• Do fund solicitations reveal fair market value or nondeductibility of benefits to donors? [Ch. 24]

• For non‐(c)(3), is nondeductibility conspicuously disclosed? [Ch. 6]

• Are Forms 990 and 1023 made available for public inspection? [Ch. 18]

• If the EO is part of a group, should group exemption be obtained? [Ch. 18]

• Has there been an IRS examination? If changes were recommended, have they been implemented? [§18.3]

• Does the EO have any state or local filing requirements?

• Is the EO entitled to any state tax exemptions?

• Obtain a copy of any state tax exemption(s) certificates or prepare application for exemption(s).

• Does the EO use the proper form to claim exemptions it is entitled to?

• Must the EO collect sales tax on goods or services sold?

• Are timely returns filed? Is tax deposited on time?

• Does the EO pay real or personal property tax?

• Would use of property qualify it for exemption?

• For property classed as exempt, is it devoted to exempt use, or has it been converted to commercial use?

• Were there any changes to the charter or bylaws this year?

• If so, obtain copy for attachment to Form 990.

• Were there any substantial changes in structure or purpose that require reporting to the IRS?

• Change reported on Form 990? [§18.3]

• New 8976 or 1024 required?

• Review the minutes of director’s meetings. Do they reflect the exempt purpose of the EO’s activities?

• Does the EO provide benefits to persons who control, manage, or fund it? [§20.1]

• Have excess benefits been paid to a disqualified person? [§20.10]

• Is the compensation paid to directors, officers, and others reasonable? [§20.2]

• Are loans made to officers or directors? [§20.5]

• Does the organization benefit an identifiable class of exempt constituents? [Chs. 6–10]

• Does the organization sell services or goods that don’t advance the mission? [§21.5]

• Does the EO provide impermissible member services? [§8.4(b)]

• Has a compilation, review, or audit checklist been completed to ensure proper financial reporting and adherence to accounting principles?

• Do activities further the purposes for which the EO was determined to be exempt (as described in Form 8976,1024, or subsequently reported to the IRS)?

• Are files maintained to document and provide an archive of the nature of activities? For example: copy of program notices, peer review boards, member services, etc.?

• Does the EO lobby? If so, is it germane to purposes?

• Has the organization participated in any political campaigns? Does campaigning further the exempt purpose? Do expenses of electioneering exceed 50% of annual expenses? [§23.1]

• Should Form 1120POL, 8871, or 8872 be filed? [§23.3]

• Are expense allocations and expenses shared with related §501(c)(3), (4), (5), or (6)s accurately calculated? [§22.1]

• If a social club, can it meet the gross revenue tests? [§9.4]

• Does the EO have unrelated business income? [§21.5] If so, complete Form 990‐T and UBI checklist [Exhibit 19.8].

• Does the EO make payments for personal services? If so, complete Employee vs. Independent Contractor Checklist [Exhibit 25.1].

• Does the EO have a policy for distinguishing between employees and contractors? Are Forms W‐9 obtained for all contractors?

• Does the EO comply with federal/payroll requirements? [Exhibit 25.3]

• Are payroll taxes deposited in a timely fashion?

• Are Forms 5500 due to be filed for employee benefit plans?

• Has the IRS ever examined the organization? Review reports for compliance with any changes.

• Should an amended return be filed to reflect restatement of prior year(s)? [§18.3]

• Obtain the organization’s website address.

• Complete website checklist. [Exhibit 19.10]

• Form 990‐N: EO with gross receipts <$50,000

• Form 990EZ: EOs with gross receipts >50,000 and <$200,000 and assets <$500,000.

• Form 990: EOs with gross receipts >$200,000 or assets >$500,000 file long form.

• If the EO is exempt from filing, consider filing. [§18.1] Address is kept current and statutory time starts.

• Is the EO a chapter or affiliate of a central organization holding a group exemption? If so,

• Must the chapter file its own 990?

• Will the central EO file a group 990?

• Have changes in address been reported to central?

• Was an extension of time requested? [Form 8868]

• If the return is being filed late, has penalty abatement been requested?

• Does the EO need to change its fiscal year or its accounting method for tax purposes? [§18.3]

• Fund‐raising solicitations must “conspicuously” say that payments do not qualify for charitable deduction. [§6.4]

• For (c)(4), (5), and (6) organizations that lobby, has the portion of member dues attributable to lobbying been calculated? If so, have members been informed of nondeductible amount? [§6.4]

• Has the EO chosen to pay proxy tax for lobbying expenses? If so, has Form 990‐T been filed to pay tax?

• Do accounting records identify lobbying expense?

• Has the EO furnished Forms 990 and 1024 to persons asking to inspect them? [§18.2]

• Review Form 1023 and determination letter for exempt status and purposes originally represented to the IRS.

• Were there any substantial change(s) in the PF’s exempt purpose(s) that require disclosing on Form 990‐PF or reporting to the IRS Cincinnati office? [§18.3]

• Was there a change in the charter or bylaws to be attached?

• Should PF consider conversion to a public charity? [§12.4]

• Could PF qualify as a private operating foundation? [§15.5]

• Ask for copies of any IRS notices and reports of IRS exam. Review reports for compliance with any changes.

• Obtain a copy of state tax exemption(s) letter or prepare application for exemption(s).

• Does the organization use the proper form to claim exemption on purchases?

• Must the PF collect sales tax on goods or services sold? If so, are timely returns filed? Is tax deposited on time?

• Does the organization pay real or personal property tax?

• Would use of property qualify it for exemption?

• For property classed as exempt, is it devoted to exempt use or has it been converted to investment property?

• Instruct client to send copy of 990‐PF to state attorney(s) general and determine other state return filing requirements.

• Secure list of officers/directors; update disqualified persons (DPs) and substantial contributor record. [Ch. 12]

• Did a sale, exchange, or other transactions involving property of any sort occur between the PF and its DPs? [§14.2]

• If so, did the financial transactions involve one of the exceptions?

• Was the payment for reasonable compensation? [§14.4]

• If so, complete Compensation of Disqualified Person Checklist [Exhibit 14.1]

• Did the PF reimburse exempt function expenses? [§§14.4(d) and 14.7]

• Was interest‐free loan being repaid? [§14.3]

• If the PF shares people or space, does PF have an expenditure‐documentation policy? [Exhibit 14.2]

• Did the <$5,000 transaction occur during “normal course” of retail business? [§14.2(c)]

• Were benefit tickets accepted for PF grant? [§14.5(c)]

• Does the PF pay for memberships? [§14.5(c)]

• Does the PF indirectly do business with a DP? [§14.8]

• For property bequeathed to the PF, should distributions from estate be delayed until property sold or divided? [§14.9]

• Review the following issues to determine if the PF has spent a sufficient amount on its charitable programs.

• Evaluate calculation of minimum investment return. [§15.1]

• Are methods of valuation consistently applied? [§15.2]

• Are non‐readily marketable asset valuations updated?

• Are exempt function assets excluded?

• Is dual‐use property reasonably allocated?

• Can >1½% cash reserves be justified?

• Can discount be applied for nonmarketable assets?

• Has real estate declined in value since last appraisal?

• Do all grants reported in Part XV count as qualifying distributions? [§15.4]

• Any grants to organization controlled by the PF?

• Any grants to non‐functionally integrated Type III SO PF?

• Any grants to private foundation?

• Any redistributions to be offset against corpus?

• Must portion of program expenses be reported in column (c) to offset revenues from exempt activities?

• Is Part I, column (d) prepared on a cash basis?

• Should PF seek approval for set‐aside of funds for program better accomplished with several years of income?

• Complete Part XII to determine whether minimum distribution requirements are satisfied. [§15.6]

• Determine if adjustments to “qualifying distributions” are needed for the following: [§15.3]

• Sale of exempt assets previously classified as distribution?

• Amounts not redistributed in a timely manner by another private foundation or controlled organization?

• Set‐asides not used for an approved purpose?

• If operating foundation, verify data to complete Part XIV: [§15.5]

• Amount spent for active conduct of programs.

• Value of assets devoted to active programs.

• Evaluate character of grants to other organizations to distinguish active program activity.

• Determine if individual grant program qualifies as an active exempt function activity.

• Does PF conduct active programs to report in Part IX‐A?

• If the PF owns more than 2% of a corporation, partnership, or other business holding, ascertain whether disqualified persons’ holdings must be aggregated. [§16.1]

• Calculate permitted stock holdings to identify whether excess business holdings exist.

• If the PF has permitted excess business holdings acquired through gift or bequest, evaluate status of planning for timely disposition of excess.

• Review PF’s investment listings to evaluate presence of a jeopardizing investment. [§16.2]

• Is the fair market value of assets more than cost basis?

• Does the foundation hold properties that produce no income?

• If net capital loss reported, review past years of investment returns for trend indicating jeopardizing investments.

• Does PF have “alternative investments”? If so, complete Checklist for Alternative Investments [Exhibit 19.11]

• Obtain a list of grants paid during year and determine if PF spent money for any of following: [Answers should be NO]

• Organizations listed as §509(a)(3) Type III—Other*

• Organizations classified as private foundations*

• Organizations classified as other than a permitted public charity*

• *unless expenditure responsibility exercised.

• Lobbying or a grant to finance lobbying [§17.1]

• Political campaign [§17.1]

• Unapproved individual grant [§17.3]

• Support of noncharitable program [§17.7]

• Are files (IRS approves electronic) maintained to evidence charitable nature of the PF’s activities? For example: files for grantees, copies of exhibitions, class schedules, articles published.

• Do grant files contain the grant approval checklist [Exhibit 17.2], grant transmittal letter [Exhibit 17.4], and grant agreement [Exhibit 17.5] for each grant paid?

• Was Certification of SO Type [Exhibit 17.3] completed for supporting organization grants?

• Did the PF make an expenditure responsibility grant to another PF or a non‐(c)(3) entity? [§17.6] If so:

• Prepare control checklist of 8 steps [Exhibit 17.6]

• Pregrant inquiry [Exhibit 17.7]

• Expenditure responsibility agreement, Version 1 or 2 [Exhibits17.8 and 17.9]

• Report in Form 990‐PF [Exhibit 17.10]

• Does the list of grantees for Part XV reflect the purpose of each grant, and is it summarized to reflect the PF’s mission? (Does this part paint a clear picture of type of organizations the PF wants to support?)

• Did a violation of §§4941–4945 rules occur?

• Verify correct answers given in Part VII‐B. A “Yes” indicates Form 4720 may have to be filed.

• Coordinate answer to question 5(c) of Part VII‐B with attachment of Expenditure Responsibility Report.

• Should a Form 4720 be prepared?

• Has violation been corrected? [§15.6 or §17.8]

• Can the penalty (not including self‐dealing) be abated for reasonable cause? [Exhibits 15.2 and 17.11]

• Does the PF maintain records to support allocation to identify disbursements directly related to its investments, grant‐making and program activity, and management and general expenses? [§13.4]

• Are expense allocations consistent with prior years?

• Is the tax basis of assets (donee’s basis for gifts received) maintained separately from the book basis? [§13.2]

• Does the PF have substantially appreciated property it could distribute (rather than cash) to grantees to reduce excise tax on capital gain from sale of the property? [§13.5]

• Might estate income distributions be considered taxable because termination of estate is unreasonably delayed?

• Does the PF have any nontaxable investment income? [§13.1]

• Does the PF have unrelated business income? [Ch. 21] If so:

• Complete UBI checklist [Exhibit 19.8] and prepare Form 990‐T.

• Is the unrelated income excluded from Part I, column (b)?

• Was excise tax paid in a timely fashion? [§13.6]

• Should Form 2220 be attached to Form 990‐PF?

• Must large corporation method for estimating be used?

• Is tax properly paid electronically?

• Has the PF followed the public disclosure rules for its past three years of 990‐PFs and Form 1023? [§18.2(a)]

• All PFs and PFs converting to public status must file Form 990‐PF regardless of support levels. [§12.4]

• Was an extension(s) of time requested on Form 8868?

• If the return is being filed late, has penalty abatement been requested?

• If the PF wants to change its fiscal year, set up due date for automatic change for next year.

• Does the PF need to file Form 3115 to adopt change in tax accounting method?

• Does Part XVI‐A, Analysis of Income Producing Activity, indicate that the PF has unrelated business income?

• Has Form 990‐T been filed? Investigate application of exceptions and modifications that make unrelated income not taxable. [§21.11]

• Does the PF make payments for personal services? If so,

• Determine whether the PF has a policy to distinguish between employees and independent contractors.

• Does the PF comply with federal and state payroll withholding and reporting requirements?

• Are payroll taxes deposited in a timely fashion?

• Are Forms 941, 5500, W‐2, and other tax reports timely filed?

• Has substantial contributor list been updated?

• Has the PF received gifts of property (other than listed securities) for which Form 8283 is required?

• Must sales of $5,000+ donated property made within two years from date of gift be reported on Form 8282?

• Has the PF furnished its funders §170 donation acknowledgments indicating no benefits provided?

• Did the PF have financial transactions with disqualified persons?

• Did the PF reimburse exempt function expenses?

• For property bequeathed to the PF, should distributions from estate be delayed until property is sold or divided, to avoid self‐dealing?

• Do Parts XIII or XIV indicate that the PF failed to spend a sufficient amount on its charitable programs?

• There are returned grants to be added back.

• Does the PF own more than 2% of a corporation, partnership, or other business?

• Does the PF’s investment list reflect significant declines in value?

• Did the PF spend money on:

• Organizations not listed as public charities (PC) in Pub 78 or classified as §509(a)(3)

• Lobbying or a grant to finance lobbying

• Political campaign

• Unapproved individual grant

• Noncharitable programs

• The PF does not maintain grant files with Grants Checklist.

• The PF does not have documentation for expense allocations.

• Estimated tax payments not made in timely fashion.

• Can the PF time capital gains to offset capital losses?

• The PF failed to comply with public disclosure requests for past three years of 990‐PFs and Form 1023. [§18.2]

• Part XVI‐A, Analysis of Income Producing Activity, indicates that the PF has unrelated business income. [Ch. 21]

• The PF makes payments for personal services. [Ch. 25]

• Has the PF failed to furnish its funders §170 donation acknowledgments indicating no benefits provided? [Ch. 24] (Provision of benefits would indicate self‐dealing.)

• There are change(s) to report to the IRS. [§18.3]

• The PF does not have local and state exemptions in place.

• If not, is the PO required to report as a political committee to the Federal Election Commission?

• If not, are annual receipts expected to always be less than $25,000?

• Does the PO have any state or local filing requirements?

• Is the PO a state or local candidate committee or a local committee of a political party?

• Must the PO collect sales tax on goods or services sold? Are timely returns filed? Is tax deposited on time?

• If so, obtain copy for attachment to Form 990.

• Do activities further the purposes for which the PO was determined to be exempt?

• Are files maintained to document or provide an archive of the nature of activities?

• Does the PO make payments for personal services? If so, complete Employees vs. Independent Contractor Checklist in §25.1 [Exhibits 25.1 and 25.2]

• Does the PO have a policy for distinguishing between employees and contractors? Are Forms W‐9 obtained for all contractors?

• Does the PO comply with federal/payroll requirements? Timely deposits?

• Has the IRS ever examined the organization? Review reports for compliance with any changes.

• Obtain the organization’s website address.

• Qualifying state and local PACs with gross receipts <$100,000 need not file this form. POs do not file Form 990‐N.
• Form 990‐EZ is due for all other POs with gross receipts >$50,000, but less than $200,000 with assets of <$500,000

• Form 990 filed by POs with gross receipts >$200,000 or assets >$500,000.

• Form 1120POL: The PO must file if taxable income (doesn’t include exempt function revenue) is >$100.

• The PO is required to report under the FEC Act as a political committee.

• The PO anticipates that annual receipts will always be less than $25,000.

• The PO is a political committee of a state or local candidate.

• The PO is a state or local committee of a political party.

• Fund‐raising solicitations must “conspicuously” say payments don’t qualify for charitable deduction.

• Has the PO furnished Forms 990, 8871, and 8872 to persons asking to inspect them?

• Sell advertisements in its publications? [§21.8(d) and Exhibit 21.4 for calculation of taxable portion]

2. Provide substantial benefits to corporate sponsorships? [§21.8(e)]

3. Rent personal or real property? [§21.10(c)]

4. Earn any income from indebted property, margin accounts, or loans? [§21.12]

5. Receive revenues from Subchapter S corporation or partnership? [§21.10(g)]

6. Receive interest, dividends, rents, or royalties from >50% subsidiary?

7. Sell its mailing list? [§21.9(h)]

8. Operate a bookstore, restaurant, or parking lot for member convenience? If so, are any sales made to unrelated parties causing the fragmentation rule to apply? [§21.4(c)]

9. Furnish or sell services? [§21.8(b)]

10. Carry out any of the above activities through a separate, but controlled, business corporation or partnership? [§22.4]

1. The activity is not regularly carried on. [§21.6]

2. Substantially all (85%) work in carrying out the trade or business is performed by volunteers. [§21.9(a)]

3. The facility is operated for the convenience of persons participating in the organization’s activities. [§21.9(c)]

4. Items sold are either donated, educational, or directly related to the exempt function. [§21.9(b)]

5. Items are “low‐cost” premiums sold for significantly more than their value. [§21.9(g)]

6. The income is of a passive nature (e.g., dividends, interests, rents, or royalties). [§21.10]

1. Time records for staff.

2. Square footage of spaces used.

3. Allocation of membership dues to publications.

• Was “significant compensation in relation to services performed” paid to an employee or independent contractor who is a disqualified person?

• Was more or less than the fair market value paid for purchase or sale of goods, services, or other property between the EO and a disqualified person?

• Is there a revenue‐sharing (incentive pay) agreement?

• Comparable data gathered (independent surveys, offers, appraisals, availability of others for job, Forms 990 of other nonprofits or other evidence of value).

• Are total terms of agreement documented (all fringes and allowances) and fully reported on employment tax returns and 990?

• Records of meeting when arrangements approved are kept, with who voted yes, no, abstained (conflict), and when.

• Complete rebuttable presumption checklist, if any doubt about excess benefits.

• Do products or services sold relate to accomplishing exempt purposes?

2. Does site link to a commercial site for sale of its goods or services?

3. Is revenue produced from “hits” on the linked site or some other site?

• If so, is state registration required?

2. Are disclosures for quid pro quo transactions provided? [§24.2]

3. Are sponsors recognized with banners on the site? If so, does the information on the site qualify as an acknowledgment? [§21.8(e)]

• If so, is there a “call to action” urging viewers to contact legislators that constitutes grassroots lobbying? [§23.4]

2. Does the information presented regarding issues of public policy (gun control, abortion, etc.) present a biased viewpoint? [§5.1]

• Links provide information/resources pertaining to mission.

2. There are links to the organization’s sponsors or contributors.

• If so, does the link represent advertising for the sponsor? [§21.8(e)]

3. Is there a link to a political party or another site that contains candidate endorsements? [§23.2]

• Is the investment entity a partnership or LLC taxed as a partnership (income passes through with same character, i.e., ordinary, dividends, interest, capital gain)?

• Is the investment entity a Subchapter S corporation (all income taxed as UBI)?

• Is investment entity a corporation taxed itself on the income generated (no UBI)?

• Is the entity an offshore company that reports no U.S. taxable income?

• Is the organization’s share of distributable income comprised of passive interest, dividends, rents, and royalties? [IRC §§512(b) and 4940]

• If ordinary taxable income is distributed, are there any deductible (allocable) expenses, such as the investment management fees and legal and accounting fees?

• Is current income or gains from options, futures, derivatives, currency transactions, and types of alternative investment income taxable?

• Does the venture have indebtedness or operate an active business (creates UBI)?

• Does the partnership agreement provide UBI protection for exempt partners?

• Does the venture operate outside the United States (special rules apply)?

• Does the organization engage independent investment advisors?

• Were the investments purchased under a plan to diversify the organization’s investments following the Prudent Investor Rules? [IRC §4943]

• What portion of the organization’s overall investment assets do the alternative investments comprise?

• If purchased by a private foundation, was an opinion of independent counsel that the investments would not be jeopardizing sought? [IRC §4944]

• Is the investment readily marketable? “No” answer means more risk. Does lock‐in (cannot withdraw money from venture) mean valuation should be discounted?

• Does the capital account reported on Form K‐1 reflect the organization’s actual tax basis? Is a system in place to record annual changes in tax basis?

• Does the venture book increases and decreases in value into the capital accounts?

• Do special allocations of deductions apply?

• Does the investment entity have assets purchased with indebtedness? [IRC §514]

• Will gain on sale be taxable due to acquisition indebtedness?

• Does manager provide periodic valuation information for calculation of average values for minimum investment return purposes? [IRC §4942]

• Is the investment marketable? Do the terms of the investment limit sale or withdrawal so that a discount in value is indicated?

• For PF purposes, must the investment be valued monthly or annually?

• Does the organization own more than 20% of the venture? What percentage do the organization’s insiders own? [IRC §4943]

• Is more than 95% of the income produced by the investment passive?

• Must the income be reported and taxed on Form 990‐T?

• Does K‐1 report information regarding unrelated business character of distributions?

• Must the organization make deposits of estimated income tax?

• Does the grant allow the exempt organization (EO) to carry on programs or activities that further its exempt purposes? [Reg. §1.509(a)‐3(g)]

• Do programs supported by the grant give a direct benefit primarily to the general public rather than an economic/physical benefit to the grantor?

• Is the activity subsidized or the services performed not generally recognized as the responsibility of government or another grantor?

• Does the EO express its goal and develop methodology for the program funded?

• Government or other grantor does not normally contract with commercial concerns for the same services.

• Are payment terms structured to subsidize efforts of the EO?

• No return of funding or penalty for failure to perform specific activities.

• Timing and methodology of conducting activities are under control of the EO.

• Services of particular benefit to and/or delivered directly to grantor.

• Recipients of services are defined and determined by funding entity.

• Granting organization determines the “how‐to.” (For example, research conducted under protocol furnished by sponsor.)

• Granting entity also contracts with commercial firms for same services.

• Penalties beyond amount of grant can be imposed for failure to perform.

• Specific delivery required within specific timeframe?

• Are services to grantor related to the EO’s exempt purposes, such as health care, child care, education services, housing homeless, and the like?

• Is research performed for a governmental unit, not a for‐profit company?

• Is research performed for a commercial sponsor? Will results will be made available to the general public?

• Is income payable as a royalty, or other income excludable from UBI?

• Must the income be reported and taxed on Form 990‐T?

• Do accounting records contain sufficient information to allocate costs to activities conducted with grant funding?

• The EO is acting as an agent or intermediary possessing an obligation to pay the funds over to another organization.

• The EO seeks funding on behalf of other named organization(s) and has no dominion and control over the disposition of funding.

• Conditions imposed by the transferor make the transfer revocable, repayable, or otherwise subject to restrictions on its use.

• Resource provider (term used when transferor is not a donor) is related to recipient in a way, such as common control, that causes the transfer to be reciprocal.