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charity-nonprofit.md193 lines9.5 KB
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| 1 | --- |
| 2 | name: charity-nonprofit |
| 3 | description: > |
| 4 | Use this skill whenever a charity, nonprofit, foundation, NGO, religious organisation, or social enterprise asks about accounting / tax / reporting specific to the nonprofit sector. Trigger on phrases like "501(c)(3)", "private foundation", "public charity", "UBI", "unrelated business income", "Form 990", "Form 990-PF", "CIO", "Charity Commission", "FRS 102 SORP", "Charities SORP", "fund accounting", "restricted vs unrestricted", "gift aid", "Public Benefit Test", "PBO", "Section 18A", "trustees report", "donor-advised fund", "DAF", "private operating foundation", "minimum distribution requirement", "5% payout", "self-dealing", or any nonprofit-sector question. Covers US §501(c) exemption / Form 990 series, UK CIO / Charities Act 2011 / Charities SORP (FRS 102), EU foundation regimes, fund accounting, and the unrelated business income (UBI) / VAT exemption complications. Does NOT cover: fundraising regulation, donor management, or governance procedure beyond tax accounting. |
| 5 | version: 0.1 |
| 6 | jurisdiction: GLOBAL |
| 7 | category: vertical |
| 8 | depends_on: |
| 9 | - corporate-income-tax-workflow-base |
| 10 | verified_by: pending |
| 11 | --- |
| 12 | |
| 13 | # Charity & Nonprofit Sector Tax & Accounting v0.1 |
| 14 | |
| 15 | ## What this file is |
| 16 | |
| 17 | A sector overlay for charities, nonprofits, foundations, NGOs, religious organisations, and social enterprises. |
| 18 | |
| 19 | --- |
| 20 | |
| 21 | ## Section 1 — Common entity types and exemption regimes |
| 22 | |
| 23 | ### 1.1 United States |
| 24 | |
| 25 | **[T1] IRC §501(c) categories:** |
| 26 | |
| 27 | | Code | Type | Notable | |
| 28 | |---|---|---| |
| 29 | | **§501(c)(3)** | Charitable, religious, educational, scientific, literary | Donations deductible; public charity vs private foundation | |
| 30 | | **§501(c)(4)** | Social welfare; advocacy organisations | Donations NOT deductible; political activity permitted | |
| 31 | | **§501(c)(6)** | Business leagues, trade associations | Member dues deductible as business expense | |
| 32 | | **§501(c)(7)** | Social clubs | Member-only | |
| 33 | | **§501(c)(19)** | Veterans organisations | | |
| 34 | | **§4947(a)(1)** | Charitable trusts | | |
| 35 | |
| 36 | **[T1] Public charity vs private foundation:** |
| 37 | - Public charity: significant public support (>1/3 from broad public or government); fewer restrictions |
| 38 | - Private foundation: typically family-funded; subject to 5% minimum payout (§4942), self-dealing rules (§4941), excess business holdings (§4943), prohibited investments (§4944), taxable expenditures (§4945) |
| 39 | - Net investment income excise tax 1.39% (§4940; previously 2% / 1% two-tier; flattened by TCJA + Inflation Reduction Act amendments) |
| 40 | |
| 41 | **[T1] Filing:** |
| 42 | - Form 1023 / 1024 application |
| 43 | - Form 990 (public charity) / 990-PF (private foundation) / 990-EZ (small) / 990-N (smallest) |
| 44 | - Form 990-T for UBI |
| 45 | - Schedule A (public support test) |
| 46 | - Schedule B (large donors) |
| 47 | |
| 48 | ### 1.2 United Kingdom |
| 49 | |
| 50 | **[T1]** |
| 51 | - **Charity (Charitable Incorporated Organisation — CIO, or trust, or company limited by guarantee)** under Charities Act 2011 |
| 52 | - **Public Benefit Test** — purposes must be charitable and operate for public benefit (post-Charities Act 2006 affirmation) |
| 53 | - **Charity Commission** registers and regulates |
| 54 | - **Charity tax exemptions**: trading income generally exempt if primary purpose trading; ancillary trading limit per Extra-Statutory Concession C4 |
| 55 | - **Gift Aid** — 25% top-up on donor donations (HMRC reclaims basic-rate tax) |
| 56 | - **Charities SORP (Statement of Recommended Practice)** under FRS 102 — sector-specific accounting |
| 57 | |
| 58 | ### 1.3 Germany |
| 59 | |
| 60 | **[T1]** |
| 61 | - **Gemeinnützige Körperschaft** (charitable corporation) under §§51-68 AO |
| 62 | - **Spendenrecht** — donations deductible by donor up to 20% AGI / 4 per mille turnover (companies) |
| 63 | - Categories: gemeinnützig (charitable), mildtätig (relieving distress), kirchlich (religious) |
| 64 | - Filing: Steuererklärung + verbindliche Bestätigung from Finanzamt |
| 65 | |
| 66 | ### 1.4 EU foundation regimes |
| 67 | |
| 68 | **[T1]** Country-specific; harmonisation limited. Major regimes: |
| 69 | - **Netherlands** — ANBI (Algemeen Nut Beogende Instelling) |
| 70 | - **France** — Fondation d'utilité publique; Association loi 1901 |
| 71 | - **Italy** — Onlus (now ETS — Ente del Terzo Settore under reform 2017) |
| 72 | - **Spain** — Fundación under Ley 50/2002 |
| 73 | - **Belgium** — Fondation reconnue d'utilité publique |
| 74 | - **Switzerland** — Stiftung under Civil Code Art. 80 |
| 75 | - **Luxembourg** — Fondation d'utilité publique; ASBL |
| 76 | |
| 77 | ### 1.5 Other major jurisdictions |
| 78 | |
| 79 | | Country | Status | |
| 80 | |---|---| |
| 81 | | **Canada** | Registered Charity under Income Tax Act; T3010 annual filing | |
| 82 | | **Australia** | DGR (Deductible Gift Recipient) endorsement | |
| 83 | | **South Africa** | PBO (Public Benefit Organisation) §30 ITA; Section 18A donations deductible to donor | |
| 84 | | **India** | §12A / §80G registration | |
| 85 | | **Singapore** | IPC (Institution of a Public Character) | |
| 86 | | **Hong Kong** | §88 Inland Revenue Ordinance | |
| 87 | | **Japan** | Public-interest incorporated foundation | |
| 88 | |
| 89 | --- |
| 90 | |
| 91 | ## Section 2 — Fund accounting |
| 92 | |
| 93 | **[T1]** Nonprofit accounting distinguishes: |
| 94 | |
| 95 | | Fund category | Definition | |
| 96 | |---|---| |
| 97 | | **Unrestricted (net assets without donor restrictions — US ASC 958)** | Donor-imposed restrictions exhausted or never applied | |
| 98 | | **Donor-restricted (with restrictions — US ASC 958)** | Donor specifies purpose or time | |
| 99 | | **Endowment** | Donor specifies permanent or term capital preservation | |
| 100 | | **Quasi-endowment** | Board-designated for long-term investment but not donor-restricted | |
| 101 | |
| 102 | **[T1] UK Charities SORP** has parallel categories (unrestricted general funds; designated funds; restricted income funds; endowment funds — permanent and expendable). |
| 103 | |
| 104 | --- |
| 105 | |
| 106 | ## Section 3 — Unrelated Business Income (UBI) — US |
| 107 | |
| 108 | **[T1] IRC §511-514:** Tax-exempt organisations pay corporate income tax (21%) on income from any unrelated trade or business regularly carried on. |
| 109 | |
| 110 | **[T1] Specific rules:** |
| 111 | - §512(a)(6) — UBI computed separately for each unrelated trade or business (post-TCJA "silo" rule) |
| 112 | - §513(c) — advertising as unrelated business |
| 113 | - §514 — debt-financed income (rental income from leveraged property partly UBI) |
| 114 | - §511(b) — split-interest trusts subject to UBI on the unrelated portion |
| 115 | |
| 116 | **[T1] Exceptions:** |
| 117 | - Volunteer-labour exception |
| 118 | - Convenience exception |
| 119 | - Donated goods exception |
| 120 | - Bingo (in some jurisdictions) |
| 121 | - Royalties (passive royalty income generally not UBI) |
| 122 | |
| 123 | **Form 990-T:** UBI return. |
| 124 | |
| 125 | --- |
| 126 | |
| 127 | ## Section 4 — VAT / GST for charities |
| 128 | |
| 129 | **[T1]** Charity VAT treatment is highly jurisdiction-specific: |
| 130 | |
| 131 | | Country | Treatment | |
| 132 | |---|---| |
| 133 | | **UK** | Charity-specific zero-rated supplies (zero-rated charity sales of donated goods); reduced rate on fuel/power for charity buildings; relief on capital goods for charity buildings | |
| 134 | | **EU** | Article 132 PVD: exempt activities including health, education, social, cultural, sport, religious — but exemption is mandatory for the activity, not optional, and may not align with the charity's profitable activities | |
| 135 | | **US** | n/a (sales/use tax state-level; many states exempt nonprofit purchases) | |
| 136 | | **Australia** | GST-free supplies for charity (e.g., gifts received, donated goods sold) | |
| 137 | |
| 138 | --- |
| 139 | |
| 140 | ## Section 5 — Self-dealing and minimum distribution (US private foundations) |
| 141 | |
| 142 | **[T1] IRC §4941 — Self-dealing**: a per-se prohibition on most transactions between the foundation and "disqualified persons" (substantial contributors, foundation managers, families). 10% excise on disqualified person + 5% on manager. |
| 143 | |
| 144 | **[T1] IRC §4942 — Minimum distribution**: 5% of average net investment assets must be distributed annually for qualifying charitable purposes; 30% excise tax on undistributed amount. |
| 145 | |
| 146 | **[T1] IRC §4943 — Excess business holdings**: limits private foundation ownership of business enterprises to 20% (or 35% with limited exceptions); 10% excise. |
| 147 | |
| 148 | **[T1] IRC §4944 — Jeopardising investments**: investment that risks the foundation's carrying out its exempt purposes (highly speculative investments) — 10% excise. |
| 149 | |
| 150 | **[T1] IRC §4945 — Taxable expenditures**: certain prohibited expenditures (lobbying, voter registration, grants to non-charitable, etc.) — 20% excise + 100% if not corrected. |
| 151 | |
| 152 | --- |
| 153 | |
| 154 | ## Section 6 — Donor-Advised Funds (DAFs) |
| 155 | |
| 156 | **[T1]** A donor-advised fund is a charitable account held at a sponsoring organisation. Donor receives immediate tax deduction; gets non-binding advisory right over investment and distribution. |
| 157 | |
| 158 | US §4966 — distributions from a DAF to certain disqualified persons or to non-public-charity grantees attract excise tax. |
| 159 | |
| 160 | UK has limited DAF equivalents through Charities Aid Foundation and others. |
| 161 | |
| 162 | --- |
| 163 | |
| 164 | ## Section 7 — Cross-border philanthropy |
| 165 | |
| 166 | **[T1]** Cross-border charitable giving faces: |
| 167 | - US: deduction generally only for §170(c) US charity; foreign equivalent only via "friends of" intermediary or §4945 expenditure responsibility |
| 168 | - EU: Persche/Stauffer case law extended deduction to equivalent EU charities (subject to equivalency determination) |
| 169 | - UK: HMRC equivalency requirements for foreign charities |
| 170 | |
| 171 | --- |
| 172 | |
| 173 | ## Section 8 — Self-checks |
| 174 | |
| 175 | - [ ] Entity correctly classified within country's exempt regime |
| 176 | - [ ] Public charity vs private foundation status confirmed (US) |
| 177 | - [ ] Public benefit test satisfied (UK) |
| 178 | - [ ] Restricted vs unrestricted funds segregated in accounting |
| 179 | - [ ] UBI computation per silo rule (US §512(a)(6)) |
| 180 | - [ ] Form 990 / 990-PF / 990-T per applicable status |
| 181 | - [ ] 5% minimum distribution met (US private foundation) |
| 182 | - [ ] Self-dealing transactions reviewed |
| 183 | - [ ] Donor-restricted funds released only when restriction satisfied |
| 184 | - [ ] Charities SORP applied (UK) |
| 185 | - [ ] VAT charity reliefs claimed where applicable |
| 186 | - [ ] Output flags every [T2]/[T3] item for reviewer judgement |
| 187 | |
| 188 | --- |
| 189 | |
| 190 | ## Section 9 — Disclaimer |
| 191 | |
| 192 | Charity / nonprofit accounting and tax are sector-specific. Outputs must be reviewed by credentialed nonprofit-sector practitioners. The most up-to-date version is at [openaccountants.com](https://openaccountants.com). |
| 193 |
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About
Use this skill whenever a charity, nonprofit, foundation, NGO, religious organisation, or social enterprise asks about accounting / tax / reporting specific to the nonprofit sector. Trigger on phrases like "501(c)(3)", "private foundation", "public charity", "UBI", "unrelated business income", "Form 990", "Form 990-PF", "CIO", "Charity Commission", "FRS 102 SORP", "Charities SORP", "fund accounting", "restricted vs unrestricted", "gift aid", "Public Benefit Test", "PBO", "Section 18A", "trustees report", "donor-advised fund", "DAF", "private operating foundation", "minimum distribution requirement", "5% payout", "self-dealing", or any nonprofit-sector question. Covers US §501(c) exemption / Form 990 series, UK CIO / Charities Act 2011 / Charities SORP (FRS 102), EU foundation regimes, fund accounting, and the unrelated business income (UBI) / VAT exemption complications. Does NOT cover: fundraising regulation, donor management, or governance procedure beyond tax accounting.
GLOBALty-2025
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