---
name: charity-nonprofit
description: "> 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."
license: AGPL-3.0-or-later (code) / OpenAccountants Guide License v1.0 (content)
metadata:
  source: openaccountants
  jurisdiction: GLOBAL
  category: vertical
  quality: source-cited draft
  openaccountants_url: "https://openaccountants.com/skills/charity-nonprofit"
  obligation: VERT
---

# Charity & Nonprofit Sector Tax & Accounting v0.1

> **General reference only.** This skill is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, filing status, or local procedures. Do not rely on it to file, pay, amend, or take a tax position without review by a qualified professional in the relevant jurisdiction.

## What this file is

A sector overlay for charities, nonprofits, foundations, NGOs, religious organisations, and social enterprises.

---

## Section 1 — Common entity types and exemption regimes

### 1.1 United States

**[T1] IRC §501(c) categories:**

| Code | Type | Notable |
|---|---|---|
| **§501(c)(3)** | Charitable, religious, educational, scientific, literary | Donations deductible; public charity vs private foundation |
| **§501(c)(4)** | Social welfare; advocacy organisations | Donations NOT deductible; political activity permitted |
| **§501(c)(6)** | Business leagues, trade associations | Member dues deductible as business expense |
| **§501(c)(7)** | Social clubs | Member-only |
| **§501(c)(19)** | Veterans organisations | |
| **§4947(a)(1)** | Charitable trusts | |

**[T1] Public charity vs private foundation:**
- Public charity: significant public support (>1/3 from broad public or government); fewer restrictions
- 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)
- Net investment income excise tax 1.39% (§4940; previously 2% / 1% two-tier; flattened by TCJA + Inflation Reduction Act amendments)

**[T1] Filing:**
- Form 1023 / 1024 application
- Form 990 (public charity) / 990-PF (private foundation) / 990-EZ (small) / 990-N (smallest)
- Form 990-T for UBI
- Schedule A (public support test)
- Schedule B (large donors)

### 1.2 United Kingdom

**[T1]**
- **Charity (Charitable Incorporated Organisation — CIO, or trust, or company limited by guarantee)** under Charities Act 2011
- **Public Benefit Test** — purposes must be charitable and operate for public benefit (post-Charities Act 2006 affirmation)
- **Charity Commission** registers and regulates
- **Charity tax exemptions**: trading income generally exempt if primary purpose trading; ancillary trading limit per Extra-Statutory Concession C4
- **Gift Aid** — 25% top-up on donor donations (HMRC reclaims basic-rate tax)
- **Charities SORP (Statement of Recommended Practice)** under FRS 102 — sector-specific accounting

### 1.3 Germany

**[T1]**
- **Gemeinnützige Körperschaft** (charitable corporation) under §§51-68 AO
- **Spendenrecht** — donations deductible by donor up to 20% AGI / 4 per mille turnover (companies)
- Categories: gemeinnützig (charitable), mildtätig (relieving distress), kirchlich (religious)
- Filing: Steuererklärung + verbindliche Bestätigung from Finanzamt

### 1.4 EU foundation regimes

**[T1]** Country-specific; harmonisation limited. Major regimes:
- **Netherlands** — ANBI (Algemeen Nut Beogende Instelling)
- **France** — Fondation d'utilité publique; Association loi 1901
- **Italy** — Onlus (now ETS — Ente del Terzo Settore under reform 2017)
- **Spain** — Fundación under Ley 50/2002
- **Belgium** — Fondation reconnue d'utilité publique
- **Switzerland** — Stiftung under Civil Code Art. 80
- **Luxembourg** — Fondation d'utilité publique; ASBL

### 1.5 Other major jurisdictions

| Country | Status |
|---|---|
| **Canada** | Registered Charity under Income Tax Act; T3010 annual filing |
| **Australia** | DGR (Deductible Gift Recipient) endorsement |
| **South Africa** | PBO (Public Benefit Organisation) §30 ITA; Section 18A donations deductible to donor |
| **India** | §12A / §80G registration |
| **Singapore** | IPC (Institution of a Public Character) |
| **Hong Kong** | §88 Inland Revenue Ordinance |
| **Japan** | Public-interest incorporated foundation |

---

## Section 2 — Fund accounting

**[T1]** Nonprofit accounting distinguishes:

| Fund category | Definition |
|---|---|
| **Unrestricted (net assets without donor restrictions — US ASC 958)** | Donor-imposed restrictions exhausted or never applied |
| **Donor-restricted (with restrictions — US ASC 958)** | Donor specifies purpose or time |
| **Endowment** | Donor specifies permanent or term capital preservation |
| **Quasi-endowment** | Board-designated for long-term investment but not donor-restricted |

**[T1] UK Charities SORP** has parallel categories (unrestricted general funds; designated funds; restricted income funds; endowment funds — permanent and expendable).

---

## Section 3 — Unrelated Business Income (UBI) — US

**[T1] IRC §511-514:** Tax-exempt organisations pay corporate income tax (21%) on income from any unrelated trade or business regularly carried on.

**[T1] Specific rules:**
- §512(a)(6) — UBI computed separately for each unrelated trade or business (post-TCJA "silo" rule)
- §513(c) — advertising as unrelated business
- §514 — debt-financed income (rental income from leveraged property partly UBI)
- §511(b) — split-interest trusts subject to UBI on the unrelated portion

**[T1] Exceptions:**
- Volunteer-labour exception
- Convenience exception
- Donated goods exception
- Bingo (in some jurisdictions)
- Royalties (passive royalty income generally not UBI)

**Form 990-T:** UBI return.

---

## Section 4 — VAT / GST for charities

**[T1]** Charity VAT treatment is highly jurisdiction-specific:

| Country | Treatment |
|---|---|
| **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 |
| **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 |
| **US** | n/a (sales/use tax state-level; many states exempt nonprofit purchases) |
| **Australia** | GST-free supplies for charity (e.g., gifts received, donated goods sold) |

---

## Section 5 — Self-dealing and minimum distribution (US private foundations)

**[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.

**[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.

**[T1] IRC §4943 — Excess business holdings**: limits private foundation ownership of business enterprises to 20% (or 35% with limited exceptions); 10% excise.

**[T1] IRC §4944 — Jeopardising investments**: investment that risks the foundation's carrying out its exempt purposes (highly speculative investments) — 10% excise.

**[T1] IRC §4945 — Taxable expenditures**: certain prohibited expenditures (lobbying, voter registration, grants to non-charitable, etc.) — 20% excise + 100% if not corrected.

---

## Section 6 — Donor-Advised Funds (DAFs)

**[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.

US §4966 — distributions from a DAF to certain disqualified persons or to non-public-charity grantees attract excise tax.

UK has limited DAF equivalents through Charities Aid Foundation and others.

---

## Section 7 — Cross-border philanthropy

**[T1]** Cross-border charitable giving faces:
- US: deduction generally only for §170(c) US charity; foreign equivalent only via "friends of" intermediary or §4945 expenditure responsibility
- EU: Persche/Stauffer case law extended deduction to equivalent EU charities (subject to equivalency determination)
- UK: HMRC equivalency requirements for foreign charities

---

## Section 8 — Self-checks

- [ ] Entity correctly classified within country's exempt regime
- [ ] Public charity vs private foundation status confirmed (US)
- [ ] Public benefit test satisfied (UK)
- [ ] Restricted vs unrestricted funds segregated in accounting
- [ ] UBI computation per silo rule (US §512(a)(6))
- [ ] Form 990 / 990-PF / 990-T per applicable status
- [ ] 5% minimum distribution met (US private foundation)
- [ ] Self-dealing transactions reviewed
- [ ] Donor-restricted funds released only when restriction satisfied
- [ ] Charities SORP applied (UK)
- [ ] VAT charity reliefs claimed where applicable
- [ ] Output flags every [T2]/[T3] item for reviewer judgement

---

## Section 9 — Disclaimer

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).

---

_Source: [OpenAccountants](https://openaccountants.com/skills/charity-nonprofit) — open tax Guides for AI, reviewed by named CPAs/CAs/EAs. Quality: **source-cited draft**. For always-current figures and named-accountant backing, connect the OpenAccountants MCP server (`openaccountants-mcp`)._