Tolkien Gateway

Tolkien Gateway:Meetings/31 July 2011/US proposal

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[edit] Tolkien Gateway as a charitable organisation in the United States

[edit] Preamble:

This document assumes that Tolkien Gateway seeks to become a not-for-profit organisation with tax exemption status in the United States of America.

Section 501(c)(3) of the Internal Revenue Code states that 'an organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes. […]

  • Educational.'[1]

It goes on to assert that a charitable organisation 'must show that it is organized and operated for purposes that are beneficial to the public interest'.[2] In terms of "public interest", Tolkien Gateway would be organised for the 'advancement of education'.[3]

There are two main types of charitable organisations in the US,

  • private foundations and
  • public charities.

Every organisation that qualifies as tax exempt is considered a private foundation unless it can show that it falls into a different category. Organisations that can prove this are are known as public charities.[4]

[edit] Private foundations vs public charities:

'Every organization that qualifies for tax exemption as an organisation described in section 501(c)(3) is a private foundation unless it falls into one of the categories specifically excluded from the definition of that term […] In effect, the definition divides these organizations into two classes, namely private foundations and public charities'. [5]

Section 501(c)(3) organisations were described in the preamble; all tax-exempt organisations that do not qualify as public charities are presumed to be a private foundation. [6]

Section 509(a)1 describes public charity organisations: 'Section 509(a)(1) organizations include:

  1. A church or a convention or association of churches,
  2. An educational organization such as a school or college,
  3. A hospital or medical research organization operated in conjunction with a hospital,
  4. Endowment funds operated for the benefit of certain state and municipal colleges and universities,
  5. A government unit, and
  6. A publicly supported organization.'[7]

Therefore Tolkien Gateway would not be considered a public charity; instead it would be considered a private foundation.

[edit] Tolkien Gateway as a private foundation:

For Tolkien Gateway to become a private foundation it would have to submit information to the IRS to prove how it supports education.[8]

To apply for tax-exempt status Tolkien Gateway must first 'be organized as a corporation, trust, or unincorporated association. An organization’s organizing documents (articles of incorporation, trust documents, articles of association) must: limit its purposes to those described in section 501(c)(3) of the IRC; not expressly permit activities that do not further its exempt purpose(s), i.e., unrelated activities; and permanently dedicate its assets to exempt purposes.'[9]

Responsibilities that accompany 501(c)(3) status include:

  • Record keeping – 501(c)(3) organisations are required to keep books on all financial and non-financial records.
  • Filing requirements – 501(c)(3) organisations are required to file an annual information return: Form 90, Form 990-EZ, or Form 990-PF. However very small organisations are excepted from filing Form 990 or Form 990-EZ – this is likely to be the case with Tolkien Gateway, more information is available on the forms. Organisations that have gross receipts of under $25,000 must submit Form 990-N (only possible to do online).
  • Disclosure requirements – Section 501(c)(3)organisations must make their application (Form 1023)and the annual returns available to the public for inspection for three years. [10]

Forms which need to be filed include:

  • Form SS-4 – the organisation will require an employer identification number (EIN), this form is used to do this.
  • Form 1023 – main form of application for tax-exemption, requires a fee.
  • Forms 2848 and 8821 – used to accompany Form 1023 if someone other than your principal officer or director will represent you on matters about the application.[11]

[edit] Conclusion:

In conclusion US charity, or tax exemption, law is annoyingly tedious and the federal government doesn’t make it easy for organisations to become tax-exempt or set up as charities. Explaining how Tolkien Gateway contributes towards the advancement of education will be difficult and we may find that our tax-exempt application is rejected on these grounds. However becoming organised would be a hurdle in itself. In saying that, we probably do not need to apply for tax-exemption anyway; Tolkien Gateway would be organised and not the responsibility of a single individual but many, and it is unknown whether how much we would save from paying no federal taxes would outweigh the fee with Form 1023 (and indeed all the administration and paper work that goes into the tax-exemption application and status!). Overall I believe that Tolkien Gateway should simply become a not-for-profit organisation but that applying for tax emption would not be worth the effort.


  1. Internal Revenue Service, Tax-Exempt Status for Your Organization, p. 20. (accessed 24/07/11)
  2. Ibid., p. 26.
  3. Ibid.
  4. Ibid., p. 28.
  5. Ibid.
  6. Ibid.
  7. Ibid., p. 29.
  8. Ibid., p. 26.
  9. Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, pp. 2-3. (accessed 24/07/11)
  10. Ibid., pp. 7-9.
  11. Ibid., p. 10.