We’re happy to offer news, updates, and thought leadership to our clients, friends, and subscribers. Please feel free to look around and subscribe to whatever topics you’re interested in using the form to the right.

What is a “Tax-Exempt Number” and Why do you Need One?

by | Nov 14, 2019 | Not-for-Profits

Happy volunteer family putting their hands together on a sunny dayThere are a number of reasons that your organization could be asked to provide a tax-exempt number or other proof that you are actually a charitable entity. These reasons include:

  • Applications for grants from a private foundation or a charitable organization often require this information as part of the application process.
  • Donors will ask for this information as substantiation that their contribution is tax deductible.
  • Vendors will request this information to ensure that the organization is exempt from sales or excise taxes. (Exemption from sales taxes is made under state law, not Federal law.)

The Internal Revenue Service does not provide a tax-exempt number. As a governmental entity, you may use your Federal TIN (taxpayer identification number), also referred to as an EIN (Employer Identification Number), for identification purposes.

Governmental entities, such as states and their political subdivisions, are usually not subject to federal income tax. Political subdivisions of a state are entities with one or more of the sovereign powers of the state, including the power to tax. These often include counties or municipalities and their agencies or departments. Charitable contributions to governmental units are tax-deductible under section 170(c)(1) of the Internal Revenue Code, if they are made for a public purpose.

An entity that is not a political subdivision but that performs an essential government function may not be subject to federal income tax, pursuant to Code section 115(1). The income of such entities is excluded from the definition of gross income as long as the income:

  • is derived from a public utility or the exercise of an essential government function; and
  • accrues to a State, a political subdivision of a state, or the District of Columbia.

Contributions made to entities whose income is excluded income under section 115 may be tax deductible to contributors.

A governmental entity must obtain a letter ruling from the Internal Revenue Service to determine its status as a political subdivision, instrumentality of government, or whether its revenue is exempt under Internal Revenue Code section 115. You can obtain this letter from the Internal Revenue Service by following the procedures specified in Internal Revenue Service Bulletin: 2018-1 in the Administrative Revenue Procedure 2018-1 or its successor. There is a fee associated with obtaining this ruling.

As a special service to governmental entities, the IRS will issue a “governmental information letter” free of charge. This letter describes government entity exemption from Federal income tax and cites the applicable Internal Revenue Code sections pertaining to deductible contributions and income exclusion. Most organizations and individuals will accept the governmental information letter as the substantiation they need.

You can request a governmental information letter by calling the Internal Revenue Service Tax Exempt Government Entity line at 1-877-829-5500.


Subscribe to Email Updates

Posts by Topic

Skip to content