The IRS levies taxes on the majority of U.S. citizens, including individuals who work for government entities or corporations. The only individuals exempt from federal taxation are soldiers engaged in war or peace-making efforts. All other workers, land owners, or employers are subject to federal taxation. The reach of the IRS extends to government entities for both collection purposes and to meet financial reporting requirements. The IRS has outlined policies on its website-www.IRS.gov-to document its procedures, goals, organizational efforts, and directions to fill out all IRS forms.
The primary IRS form required for filing for government entities is the 990, entitled “Return of Organization Exempt from Income Tax.” This IRS form can be found at www.IRS.gov, and fulfillment is necessary for all tax-exempt and non-profit organizations.
The 990 is not an IRS form that calculates a tax or requires filing for levying purposes, but instead, filed for annual information purposes. The IRS must document and file all financial statements and information gathered by all forms of businesses in America. Forms such as the 990 force non-profits, government organizations, and other tax-exempt groups to keep “clean” books and stray away from illegitimate or corrupt business practices.
The filing requirements of the various non-profit organizations vary based on size and amount of financial impact. For instance, organizations with under $25,000 in gross annual receipts are not required to file the 990, while a short version of the IRS form (990-EZ) is available to government entities with gross receipts between $25,000-$500,000 and total assets of under $2.5 million. The 990 provides the IRS with public information that otherwise would not be made transparent.
The information-gathering form extends to “higher ups” of the varying agencies and documents salaries, executive maneuvers, investments, and other significant disclosures. The information acquired from the IRS form is made public under the IRC 6104 (d) which states that an organization must supply a requester with all public information. The 990 simply impedes non-profits from abusing their non-exempt status.
Government entities are freed from the federal income tax levied administered by the IRS. In order to be considered tax-exempt a government agency is required to file a “determination” letter to prove its exempt status. Once the letter has been filed the IRS will review it and act accordingly in determining an exempt status. To avoid procedural red tape, government entities usually just supply the IRS with a tax-exempt number for identification purposes. For example, a federal government entity may use its Federal
Taxpayer Identification Number (FTIN) to prove its non-exempt status. Governmental units such as, states, counties, municipalities, or their agency departments are also freed from paying the federal income tax. The exemption of such governmental units arises pursuant to tax code section 170(c)(1) which the IRS must follow. The income of such entities is excluded from the typical definition of gross income so long as the assets incurred are, (1) derived from public service or utility that offers an essential governmental function or (2) is gathered from a State government or subdivision of a political office.
The “government affirmation letter”, which is sent by the IRS, documents the special exemptions awarded to government agencies in the United States. This letter pursuant to the Internal Revenue Code details the reason for income tax exemption as well as permissible deductible contributions. The letter itself is available for download at the IRS website-www.IRS.gov.