''This article is intended to provide a general description of the process for obtaining 501(c)(3) status under the U.S. Internal Revenue Code and is not intended to substitute for the advice of private counsel on specific issues related to the IRC or the 501(c)(3) application process.'' Original draft by Bobby C. Neal.
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In the United States, a [[non-governmental organization]] (NGO) is generally subject to federal, state, and local taxes unless and until the organization qualifies for tax-exempt status. This article focuses on the process for obtaining a ''federal'' income tax exemption for NGOs. <ref>See http://www.irs.gov/charities/article/0,,id=129028,00.html for a list of state and local tax authority Web sites.</ref>NGOs that meet the criteria set forth in 26 U.S.C. § 501 of the Internal Revenue Code (section 501) are eligible for a federal tax exemption.<ref>For tax year 2004, the IRS received tax returns from approximately 218,000 tax-exempt organizations. See Internal Revenue Service, “SOI Tax Stats - Charities & Other Tax-Exempt Organizations Statistics,” http://www.irs.gov/taxstats/charitablestats/article/0,,id=97176,00.html#top.</ref> The benefits to obtaining tax exempt recognition by the Internal Revenue Service (IRS) include: income tax exemption, eligibility to receive tax-deductible contributions, possible exemption from certain employment taxes, and reduced postal rates. Section 501 describes the organizations that are eligible for tax-exempt status. The most significant category of tax-exempt organizations is section 501(c)(3).

==26 U.S.C. § 501(c)(3) exemption from tax on corporations, certain trusts, and so forth==

Under section 501(c)(3) of the United States Internal Revenue Code , a corporation, community chest,<ref>A community chest is a publicly supported fund for charity or social welfare.</ref> fund, or foundation<ref>A charitable trust is a fund or foundation. Internal Revenue Service, “Exemption Requirements,” http://www.irs.gov/charities/charitable/article/0,,id=96099,00.html.</ref> is eligible for tax-exempt status if:
#the NGO is organized for one or more exempt purposes,
#the NGO is operated for one or more exempt purposes,
#no private shareholder or individual receives a benefit from the NGO’s net earnings, and
#lobbying or political campaigning are not a substantial part of the NGO’s activities.<ref>Ibid.</ref>

<blockquote>'''Exempt Purposes''' 

An exempt purpose includes:

* any religious, charitable, scientific, literary or educational purposes;
* testing for public safety;
* fostering national or international amateur sports competition; or
* preventing cruelty to children or animals.<ref>Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, Pub. 4220 (rev. June 2007), 3, http://www.irs.gov/pub/irs-pdf/p4220.pdf (accessed January 3, 2008).</ref>

The most common are charitable, educational and religious. Charitable activities include: relief of the poor; advancement of religion, education or science; defending human and civil rights; and eliminating discrimination.<ref>Ibid., at 4</ref> Educational organizations include: schools, groups that organize public discussions or panels, museums, zoos, and day-care centers.<ref>Ibid.</ref> For religious purposes, the term church includes synagogues, temples, and mosques.<ref>Ibid.</ref> Churches are automatically considered to be tax-exempt, but many apply for formal recognition of this status regardless.<ref>Ibid.</ref></blockquote>

An NGO is considered ''organized for an exempt purpose'' if the NGO’s organizing documents:
# limit its purpose to an exempt purpose under section 501(c)(3),
# limit its activities to those that further that purpose,
# state that the NGO’s assets will be distributed for the exempt purpose in the event of dissolution.<ref>Ibid., at 2-3; Internal Revenue Service, “Exemption Requirements.”</ref>

An NGO is considered ''operated for an exempt purpose'' if the NGO:

# refrains from political campaigning,
# restricts lobbying to an insubstantial part of its activities,
# does not share it earnings with any shareholders or individuals,
# is not operated to benefit the private interests of the founders,
# is not operated for the primary purpose of conducting trade or business unrelated to the exempt purpose, and
# does not engage in illegal activities or violate public policy.<ref>Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, at 3.</ref>

For an NGO that meets these criteria, to obtain tax-exempt status the organization must file an application for federal income tax exemption with the IRS.<ref>A tax-exempt central organization may apply for a federal income tax exemption on behalf of its subordinate organizations. Internal Revenue Service, Tax-Exempt Status for Your Organization, Pub. 557 (rev. March 2005), 6, http://www.irs.gov/pub/irs-pdf/p557.pdf (accessed January 3, 2008). For more information on the group application process, see ibid., at 6-7.</ref>

==2.1 Applying for tax-exempt status==

An NGO’s application for federal tax-exempt status must include:

# IRS Form SS-4 Employee Identification Number,
# the appropriate application fee,
# IRS Form 1023 Application for Recognition of Exemption,
# the required accompanying documents and statements or explanations,
# the relevant financial data, and
# for certain specific types of NGOs, additional information related to their particular activities.

An NGO’s application package must show that the following is true:

# the NGO is organized and operated exclusively for its exempt purposes;
# no earnings will go to shareholders or individuals; and
# lobbying and political campaigns are not “a substantial part of its activities.”<ref>Ibid., at 17.</ref>

Upon submission the NGO will receive acknowledgement from the IRS of the office’s receipt of the application or a letter seeking more information. Time estimates for processing an application average around four to six months. Applications that do not need additional work, or is not missing information, can be processed in six to ten weeks.

===IRS forms===

Various IRS Forms, described in this section, are required to be submitted as part of the application for tax-exempt status. In addition to these forms, if an NGO will have a designated appointee representing the organization with the IRS, the NGO must also file IRS Form 2848 Power of Attorney and Declaration of Responsibility and IRS Form 8821 Tax Information Authorization. IRS Form 2848 authorizes someone other than the NGO’s principal officer or director to represent the organization on matters regarding the application. IRS Form 8821 authorizes any individual, corporation, firm, organization, or partnership designated by the applicant NGO to inspect and/or receive the NGO’s confidential tax information in any office of the IRS.

=====Form SS-4 Employee Identification Number=====

All applicants for tax exemption are required to have an Employee Identification Number (EIN) even if the organization does not have employees. The IRS uses this number as the organization’s account number for identification purposes with the agency. IRS Form SS-4 requires the name, address, and other identifying information of the NGO. This form should be filed in advance of an application for tax exemption as an EIN is needed to fill out the tax-exempt application.

=====Form 8718 User Fee for Exempt Organization Determination Letter Request=====

IRS Form 8718 serves as the cover letter for an NGO’s tax-exempt application. The form requires the applicant to identify the type of request, which determines the filing fee for the NGO.<ref>There may also be registration fees when an NGO applies for exemption from state and local tax authorities.</ref> If the NGO’s annual gross receipts average less than $10,000 for the preceding four years, the application fee is $300. If the NGO’s annual receipts average more than $10,000, the fee is $750. The form explains where to file the exemption application and provides a space to attach the fee check.

=====Form 1023 Application for Recognition of Exemption=====

IRS Form 1023, which consists of eleven parts, is the application for obtaining a federal tax exemption under section 501(c)(3). In Part I the applicant NGO must provide its administrative information, such as the NGO’s address. In Parts II and III the applicant must check the required boxes concerning the organizational structure of the NGO and verify the inclusion of certain provisions in the NGO’s organizing documents. Part IV requires the NGO to provide a narrative description of the organization’s activities in detail on a separate attachment. The description must include the standards, criteria, procedures or other means for carrying out the NGO’s activities.<ref>Internal Revenue Service, Tax-Exempt Status for Your Organization, at 3.</ref> The description must also specify that the NGO is not “financially accountable to another organization or involved in politics” or lobbying.<ref>Rural Community Empowerment Program, “501(c)(3) Fact Sheet.”</ref> Parts V and VI request compensation and beneficiary information. Part VII requests information about the history of the NGO. Part VIII requires the NGO to answer questions about the organization’s specific activities, such as its methods of fundraising. In Part IX the NGO applicant must provide its financial data. Part X requires the NGO to classify itself as either a private foundation or public charity.<ref>See [[#Classes of section 501(c)(3) organizations|Classes of section 501(c)(3) organizations]] below.</ref> Part XI requires the applicant to include the appropriate fee. The application also includes Schedules A-H, which need to be completed if they apply to the applicant NGO’s specific type of organization.<ref>See [[#Additional requirements for particular types of 501(c)(3) NGOs|Additional requirements for particular types of 501(c)(3) NGOs]] below.</ref>

===Accompanying documents===

In addition to the required IRS forms, the applicant must submit the NGO’s articles of organization, such as the articles of incorporation, certificate of incorporation, articles of association, trust deed, constitution, or other enabling documents.<ref>Internal Revenue Service, Tax-Exempt Status for Your Organization, at 19. The IRS also provides sample articles of organization. See ibid., at 20-21.</ref> As stated above, the articles or organization must limit the purpose and activities of the NGO to its exempt purposes and state that if the NGO is dissolved, the assets must be distributed for its exempt purposes or to a qualified beneficiary.<ref>Ibid., at 19. This is referred to by the IRS as the organizational test. It is not enough that this limitation is stated in the bylaws or the signed officers’ statements. Ibid. But, the test is met if the document refers to the limits in section 501(c)(3). Ibid. In interpreting the meaning of the articles of organization, the law of the state in which the NGO was organized controls. Ibid.</ref>

The applicant must also include any amendments to the articles of organization. All copies of the NGO’s enabling documents must be conformed copies, that is, the copy must agree with the original and all amendments.<ref>Ibid., at 3.</ref> An officer of the NGO must certify that the document is complete and accurate, and the certification of incorporation must be “approved and dated by an appropriate state official.”<ref>Ibid.</ref> Each attachment to the application must be labeled properly with the name, address and EIN of the NGO applicant, and the applicable section of the application.<ref>Ibid.</ref>

===Financial data===

A tax-exempt applicant must provide the required financial data on its application, including the receipts and expenditures for the current year and the last three years or for the number of years in existence if the NGO is less than four years old.<ref>Ibid.</ref> The applicant must also include the balance sheet for the current year.<ref>Ibid.</ref> If the NGO applicant has been in operation for less than one year, the organization must include “a proposed budget for two full accounting periods and a current statement of assets and liabilities” with its application.<ref>Ibid.</ref>

===Additional requirements for particular types of 501(c)(3) NGOs===

There are additional requirements to those described above for specific types of NGOs when applying for tax-exempt status under section 501(c)(3). Educational organizations, charitable organizations, churches, scientific foundations, literary organizations, amateur sports organizations, and organizations dedicated to the prevention of cruelty to animals or children must meet additional eligibility criteria and/or file additional documents or information with their application.

=====Educational organizations=====

:*''Eligibility''

Organizations that may qualify as tax-exempt educational organizations include:<ref>Ibid., at 22; Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, at 4.</ref>

# schools or colleges;
# groups that hold public discussions and lectures;
# correspondence schools;
# museums and zoos; and
# day-care centers.

The IRS defines educational as the instruction of individuals to improve and/or develop their capabilities or “the instruction of the public on subjects useful to individuals and beneficial to the community.”<ref>Internal Revenue Service, Tax-Exempt Status for Your Organization, at 22.</ref> An NGO’s educational method determines whether an NGO qualifies as educational.<ref>Ibid.</ref> The IRS looks at four factors:<ref>Ibid.</ref>
# if viewpoints unsupported by facts are a significant part of communications;
# if distorted facts are used to support the NGO’s viewpoint;
# if the NGO uses “inflammatory and disparaging terms” and makes conclusions based on emotions; and
# if viewpoints are “not aimed at developing an understanding on the part of the audience.”

:*''Required additional documents and information''

In addition to Form 1023 and the other accompanying documents and statements, educational organizations must explain “by whom and where their activities are or will be conducted and the amount of admission fees, if any.”<ref>Ibid.</ref> These NGOs must also submit a copy of any “pertinent contracts, agreements, publications, programs,” or similar documents with their tax-exempt application.<ref>Ibid.</ref> If the NGO is a school, it must submit information to the IRS regarding tuition, the number of faculty and students, the courses of study and degrees, and a copy of the school catalog.<ref>Ibid.</ref>
Private schools must complete and file Schedule B of Form 1023, which requires information on the operations and racial nondiscriminatory policy of the NGO, such as:<ref>Ibid.</ref>
# the racial composition of students, faculty, and staff for the current year,
# the amount of scholarships and loan funds awarded to students and their racial composition,
# a list of founders and donors,
# a statement as to whether the founders or donors have “the objective of maintaining segregated public or private school education,” and
# the district and county of the school’s location.

Additionally, the schools must include a statement in their governing documents that it has a racially nondiscriminatory policy and the NGO must circulate information on the school’s admission policies.<ref>Ibid. Further, private schools must keep four specific types of records for a minimum of three years beginning after the year of compilation. See ibid. at 23-24.</ref>

=====Charitable organizations=====

:*''Required additional documents and information''

In addition to Form 1023 and the other accompanying documents and statements, a charitable organization must include information in its application that shows that the NGO is organized and operated for a purpose “beneficial to the public interest.”<ref>Ibid., at 24.</ref> For example:<ref>Ibid. at 25.</ref>
# a charitable organization that supports education must submit information on its methods of operation and scholarship grants, if any;
# a hospital must submit Section 1 of Schedule C of Form 1023 and a list showing the names of its staff and doctors;
# a clinic must attach a statement which includes a description of its facilities, services, beneficiaries, and charges, who administers the clinic, and how compensation is determined;
# a home for the aged must submit Schedule F of Form 1023 describing its housing and charges, if any, whether all residents pay at the same rate, and its federal mortgage financing;
# a community nursing bureau must show that the NGO is “operated as a community project” and is primarily supported by public contributions;
# an NGO that provides loans must submit an explanation of how loans are made, selection criteria, terms of repayment, and copies of its loan applications and other literature; or
# a public interest law firm must submit an explanation describing the public interest the firm’s business serves, any fees charged, cases litigated and their public benefit, who is responsible for the firm’s policies, and whether the firm can be confused for a private law firm.

=====Churches=====
:*''Eligibility''

The IRS follows two main guidelines to determine if an NGO qualifies as a religious organization under section 501(c)(3):<ref>Ibid.</ref>
# if the NGO’s religious beliefs are truly and sincerely held and
# if its practices and rituals are not illegal or contrary to public policy.

Churches are not required to file Form 1023 to be considered tax-exempt or receive deductible contributions, but the NGO may find it advantageous.<ref>Ibid.</ref> The IRS does not define the concept of a church; it determines the classification on a case by case basis.<ref>Ibid.</ref>

=====Scientific foundations=====

:*''Eligibility''

In addition to Form 1023 and the other accompanying documents and statements, scientific foundations must show their research is “carried on in the public interest.”<ref>Ibid. at 26.</ref> The IRS considers it in the public interest if the research is publicly available, performed for a government entity, or carried on to:<ref>Ibid.</ref>
# aid in the scientific education of college students,
# publish scientific information available to the public,
# discover a cure for a disease, or
# aid a community in bringing industry development to the area.

:*''Required additional documents and information''

If the foundation engages in scientific research, along with its application materials the NGO must submit:<ref>Ibid.</ref>
# an explanation of its research,
# a description of its projects,
# information on project selection,
# sponsorship details, if any,
# the disposition of results,
# information on the ownership and control of the results of the research, and
# a copy of the NGO’s publications.

=====Literary organizations=====

:*''Required additional documents and information''

In addition to Form 1023 and the other accompanying documents and statements, a literary organization must explain the NGO’s operations, including whether the organization makes any sales to the public and the “type of literature” sold.<ref>Ibid.</ref>

=====Amateur sports organizations=====

:*''Eligibility''

There are two types of amateur sports organizations that may be eligible for tax-exempt status:<ref>Ibid.</ref>
# NGOs that foster national and/or international amateur sports competition, but do not provide athletic facilities or equipment or
# qualified amateur sports organizations.

A sports organization is a qualified amateur sports organization if it is organized and operated:<ref>Ibid. Qualified sports organizations may provide athletic facilities and equipment. Ibid.</ref>
# to foster national and/or international amateur sports competition and
# to conduct national or international sports competition or “to support and develop amateur athletes for that competition.”

=====Prevention of cruelty to animals or children organizations=====

:*''Eligibility''

The IRS provides three examples of organizations that are dedicated to the prevention of cruelty to animals or children that may qualify for tax-exempt status, including organizations that:<ref>Ibid.</ref>
* prevent children from working in hazard trades,
* promote high standards for care of lab animals, or
* provide funds to pet owners to have pets spayed or neutered.

===Other application factors===

=====Time for filing a tax-exempt application and effective date=====

Applications for recognition of section 501(c)(3) status should be filed by the end of the fifteenth month after an NGO is created.<ref>Ibid., at 17.</ref> If an NGO files its application within twelve months of that date, it will receive an automatic twelve-month extension from the original deadline.<ref>Ibid., at 18. See also IRS Form 872-C Consent Fixing Period of Limitation Upon Assessment of Tax included in Package 1023.</ref> Thereafter, the IRS may grant extensions for submitting a tax-exempt application at its discretion if the NGO acted “reasonably and in good faith” and the extension would not prejudice the government.<ref>Ibid.</ref> A successful application filed before the deadline will receive recognition as tax-exempt from the date of the NGO’s creation.<ref>Ibid., at 17.</ref> If a successful application was filed after the deadline, the NGO is considered tax-exempt as of the date of the application.<ref>Ibid.</ref>

If the applicant NGO must change information in its enabling documents to qualify, the effective date of exemption may be affected. If “substantial amendments” must be made then the determination letter will recognize the NGO’s tax exemption status effective as of the date the changes were made.<ref>Ibid. at 18.</ref> If “nonsubstantial amendments” must be made, the effective date will be the date the NGO was created, if the application was filed within the first fifteen months, or the date the application was filed if it was filed after the fifteen months.<ref>Ibid.</ref>

=====Ruling/determination letter=====

If the information received by the IRS establishes that the NGO meets the requirements for tax exemption, the IRS issues a determination letter recognizing the NGO’s exempt status and providing its public charity classification, if appropriate.<ref>See Ibid., at 4. See § 2.2 for the requirements to qualify as a public charity.</ref> The NGO must keep this letter for its records. A determination letter may be revoked or modified in certain circumstances.<ref>See Ibid., at 5. The IRS will advise the NGO of this in writing, which the NGO has a right to appeal. Ibid.</ref>

=====Appeal=====

If the IRS issues an adverse ruling or determination letter, the NGO may appeal the decision.<ref>Ibid., at 5.</ref> The NGO must file a written protest containing certain required information with the office that issued the adverse determination.<ref>Ibid.</ref> The IRS appeals office will then issue a decision in a determination letter.<ref>Ibid.</ref> This decision may be appealed to the district court. Before an NGO may appeal to the court all administrative remedies must be exhausted.<ref>For more information on the administrative remedies, see ibid., at 6.</ref>

=====Amendments and terminations=====

After obtaining tax-exempt status, if an NGO experiences changes to its status or operations, the organization is required to perform certain acts. If a tax-exempt NGO experiences changes to its “legal structure” it must file a new tax exemption application.<ref>Ibid. at 16</ref> If an NGO is inactive, its tax exemption is not terminated, but the NGO must still file annual returns with the IRS.<ref>Ibid. For more information on section 501(c)(3) filing requirements, see § 2.3.2.</ref> If the NGO is “liquidated, dissolved, terminated or substantially contracted”, the NGO must file an annual return by the fifteenth day of the fifth month after the change.<ref>Ibid.</ref> If the NGO amends its articles of organization or bylaws it must send a conformed copy to the IRS area manager.<ref>Ibid.</ref>

==Classes of section 501(c)(3) organizations==

Section 501(c)(3) organizations fall into two classes. In applying for tax-exempt status, an NGO must indicate whether it is a private foundation or public charity. By definition, private foundations have a limited financial support base, compared to the broad base of financial support of public charities.<ref>Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status., at 5.</ref> Unlike a public charity, a private foundation is subject to excise taxes, restrictions on financial dealings, and there is limited deductibility for contributions.<ref>Internal Revenue Service, Tax-Exempt Status for Your Organization, at 27</ref> An NGO is considered a private foundation unless it falls under subsection (a) of 26 U.S.C. § 509 of the Internal Revenue Code (section 509), because the organization has broad public support or actively supports a publicly supported organization.

===26 U.S.C. § 509 Private Foundations===

Private foundations are NGOs that are not generally publicly supported. Thus, this class of NGOs is subject to excise taxes on net investment income. Additionally, in comparison to a public charity, a private foundation faces:<ref>Ibid. at 27. See also ibid., for samples.</ref>
# restrictions on self-dealing between the NGO and those with an interest in the organization;
# requirements to “annually distribute income for charitable purposes;”
# limits on its private business holdings; and
# requirements to include specific provisions in its enabling documents regarding investment income and expenditures.

Some private foundations may qualify as private operating foundations (POFs), which has some advantages.

====Private Operating Foundations====

<blockquote>''Private foundations versus private operating foundations''

* POFs can receive grants from a private foundation and not have to distribute it within one year and the funds “nevertheless may be considered a qualifying distribution by the donating private foundation.”<ref>Ibid., at 45. The IRS does not define qualifying distribution.</ref>
* Contributions to POFs are subject to a “higher charitable deduction limit on the donor’s tax return.”<ref>Ibid.</ref>
* Excise taxes do not apply to an exempt operating foundation.<ref>Ibid. An exempt operating foundation is any private foundation that is a POF; has been publicly supported for at least 10 years; has a governing body that is representative of the public; and does not have any disqualified individual serving as an officer. Ibid.</ref> </blockquote>

A private foundation is considered a POF if it meets the ''assets'', ''support'', or ''endowment'' test and makes qualifying distributions of substantially all (at least 85%) “of the lesser of its adjusted net income or minimum investment return” towards activities related to its organizational purposes.<ref>Ibid.</ref> The assets test is met if 65% or more of the POF’s assets are:<ref>Ibid.</ref>
# devoted “to the active conduct of an exempt activity and/or to a functionally related business;”
# “stock of a corporation controlled by the foundation;” or
# a combination thereof.
 
The support test is met if:<ref>Ibid.</ref>

# 85% or more of the POF’s support is normally received from the general public and five or more unrelated exempt organizations;
# not more than 25% of its support … is normally received from any one exempt organization; and
# not more than 50% of its support is normally received from gross investment income.
 

The endowment test is met if the POF

<blockquote>normally makes qualifying distributions for the active conduct of its exempt function of at least two-thirds of its minimum investment return [that is,] 5% of the excess of the total fair market value of all assets of the foundation … over the amount of indebtedness incurred to acquire those assets.<ref>Ibid.</ref></blockquote>

To establish an NGO as a POF, the NGO must complete Schedule E of Form 1023.

===26 U.S.C. § 509(a) Public Charities===

NGOs that are considered public charities include:<ref>See Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, at 5-6.</ref>

# churches;
# schools;
# medical organizations;
# organizations that receive “a substantial part of their support” from publicly supported organizations, the government, or the public;
# organizations that receive one-third or less of their support from investment income and one-third or more from contributions, member fees, and activities related to their exempt purposes; and
# “organizations that support other public charities.”

If an NGO wants to be deemed a public charity it must state so on Part III of Form 1023.<ref>Public charities are not required to file an application unless their annual charitable gross receipts are at least $5,000. Ibid., at 10. Such organizations receive an automatic tax exemption. A tax-exempt NGO must file an application for recognition of its tax exempt status within 90 days of the end of the year of exceeding the $5,000 gross receipts threshold. Ibid. To meet the gross receipts test an NGO must have received $7,500 or less its first tax year, $12,000 or less during its first two years and $15,000 or less for the current and preceding two years. Internal Revenue Service, Tax-Exempt Status for Your Organization, at 19.</ref> Generally, the IRS considers information from the current and preceding four tax years to determine if an NGO qualifies as a public charity. However, new organizations, or organizations that have been in operation less than five years, may request an advance ruling of its public charity status.<ref>Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, at 6.</ref> At the end of the advanced ruling period the NGO must show it received significant public support to receive official public charity status.<ref>Ibid. If the NGO did not receive sufficient support, it will be deemed a private foundation. Public charities must continue to seek “significant and diversified public support” throughout its existence. Ibid.</ref> There are four categories of NGOs that may qualify as a public charity and fall under the exceptions of subsections (a)(1) through (4) of section 509.

====Section 509 (a)(1) organizations====

The NGOs found in this public charity category include: churches, educational organizations, hospitals or medical research organizations, endowment funds, government units, and publicly supported organizations.<ref>Internal Revenue Service, Tax-Exempt Status for Your Organization at 30.</ref> While the former organizations are specifically defined by the IRS,<ref>For specific definitions of the first five types of NGOs, see Internal Revenue Service, Tax-Exempt Status for Your Organization at 30.</ref> to be identified as a publicly supported organization, an NGO must pass several tests. Unless an NGO is committed to raising funds from the public it may want to consider an alternative public charity type.<ref>Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status at 6.</ref>

An NGO qualifies as publicly supported if it passes the ''one-third support test'', that is, if it normally receives one-third of its support from the government, public contributions, or a combination of the two.<ref>Internal Revenue Service, Tax-Exempt Status for Your Organization at 31.</ref> Normally is defined as, if in the four previous tax years before the current year, the NGO met the test on an aggregate basis.<ref>Ibid. See page 16 for the computation period used for newer organizations.</ref> If the NGO cannot pass the one-third support test, it must pass the ''facts and circumstances test'', that is, an NGO qualifies as publicly supported if under all the facts and circumstances, the NGO normally receives substantial support from the government, the public, or a combination of the two.<ref>Ibid. If an NGO is unable in a later tax year to normally meet this test, it will not in itself prevent the NGO from meeting the test. Ibid.</ref>

The facts and circumstances test is broken down into two requirements, the ''10% of support requirement'' and the ''attraction of public support requirement''. Under the first requirement, the NGO receives substantial support from the government and/or the public, if the total amount normally received by an NGO from these two sources is at least 10% of its total support.<ref>Ibid.</ref> The second requirement is determined by whether an NGO is organized and operated “to attract new and additional public or government support on a continuous basis.”<ref>Ibid.</ref> This requirement is met if the NGO maintains “continuous and bona fide” programs for soliciting funds from a broad base or it performs activities to attract support from the government or other public charities.<ref>Ibid.</ref> Whether the program is continuous and bona fide is partly determined by whether the scope of the NGO’s fund-raising is “reasonable in light of its charitable activities.” <ref>Ibid.</ref>

In addition, the IRS considers five public support factors to determine if an NGO is publicly supported. The NGO does not have to satisfy all five requirements; it just must show “a sufficient combination of the factors.”<ref>Ibid., at 31-32.</ref> The weight the IRS gives to each factor depends on the nature, purpose, and age of the NGO.<ref>Ibid., at 32.</ref> The five factors include:<ref>See Ibid. In considering these additional factors the IRS may consider facts outside the “normal” time period (i.e., outside the current and four preceding tax years). Ibid.</ref>

# '''Percentage of financial support factor'''. If an NGO receives at least 10% but less than one-third of its support from public and government sources, the percentage of financial support will be considered. The higher the percent, the lower the burden the NGO has to meet. If the percentage is low, the sources of the NGO’s financial support will also be considered in determining compliance with this factor.
# '''Sources of support factor'''. If an NGO receives at least 10% but less than one-third of its support from public and government sources, the IRS will consider whether it receives support from the government or from a “representative number of persons” rather than receiving most support from an individual or family. The representative number of persons needed to comply with this factor will be determined by the type of organization, its age, and whether its activities are limited to a particular geographic area.
# '''Representative governing body factor'''. Whether an NGO’s governing body represents “the broad interests of the public” rather than of “a limited number of donors” is considered. An NGO is in compliance with this factor if the governing body is composed of: public officials, individuals selected by those public officials, persons with specialized knowledge, community leaders, or individuals elected by a broad base of the NGO’s members.
# '''Availability of public facilities or services factor'''. Evidence of public support under this factor include:
:* if an NGO regularly provides facilities or services to benefit the public;
:* if an educational or research institution “regularly publishes scholarly studies” that are widely used;
:* participating or sponsoring programs by public officials or individuals with special expertise;
:* maintaining programs to accomplish charitable work in the community; and
:* receiving grants from a charity or government agency.

<ol start="5">
<li>'''Membership organizations factors'''. There are additional factors pertinent to whether a membership organization will be deemed to be publicly supported. A membership organization is publicly supported if:
:* its solicitation for dues is designed to enroll “a substantial number of persons;”
:* membership dues have fixed rates to ensure they are financially available to a “broad cross section” of the public; and
:* activities appeal to a “broad common interest or purpose.” </li>
</ol>

<blockquote>'''Support''' 

The IRS defines support as including:<ref>Ibid., at 33. Amounts received from activities in furtherance of the NGO’s exempt purpose and from contributions of services where a deduction is not allowed are not considered support with regards to the tests a public charity must meet. Ibid.</ref>

* gifts,
* grants,
* contributions,
* membership fees (if the fees are to provide support and not to buy admission or merchandise),
* net income from unrelated business activities,
* gross investment income,
* tax revenues, and
* the value of services or facilities furnished by the government without charge.

Support from the public includes “direct or indirect contributions” from individuals, trusts, or corporations during the four years preceding the current tax year (or the substituted computation period for new organizations discussed below) that are less than 2% of the total support for that period.<ref>Ibid.</ref> In other words, public contributions can only count for 2% of the NGO’s total financial support that goes into consideration as to whether the NGO receives one-third or 10% of its support from the public. Grants from public charities or the government are not subject to the 2% limit unless the grants represent amounts set aside by the donor for the NGO’s claim of public support status.<ref>Ibid., p. 34.</ref> Additionally, unusual grants, or contributions by disinterested parties attracted to the publicly supported nature of the NGO in an unusual or unexpected amount that would adversely affect the NGO’s public support status, are not subject to the 2% limit.<ref>Ibid.</ref></blockquote>

'''New organizations''' 

NGOs in existence for more than eight months but less than five years can substitute the ''preceding four-year computation period requirement'' with the number of tax years in existence before the current tax year to meet the one-third or facts and circumstances tests.<ref>Ibid. at 33.</ref> If the NGO’s first tax year was at least eight months, the computation period for status determination consists of “either the first tax year or the first and second tax years.” <ref>Ibid.</ref> If an NGO’s first tax year was less than eight months, the computation period consists of “either the first and second or the first, second and third tax years.”<ref>Ibid.</ref>

If a NGO cannot meet the computation period requirements, the NGO may qualify for an advanced ruling to be treated as a section 509(a)(1) public charity for five years to develop an “adequate support history” to reinforce an initial determination.<ref>Ibid., at p. 35.</ref> An NGO will qualify if it can show that its organizational structure, programs, activities, and methods of operation are “likely to attract” wide support from the public, other public charities, and the government.<ref>Ibid.</ref> A request for an advance ruling must be accompanied by Form 872-C Consent Fixing Period of Limitation Upon Assessment of Tax stating that the NGO will be subject to taxes if it fails to qualify.<ref>Ibid.</ref> “Thirty to forty-five days before the end of the advanced ruling period,” the IRS will request “financial support information” to make the final determination.<ref>Ibid.</ref> If an NGO received an advanced ruling of its determination status as a public charity, the computation period for meeting the requirements discussed above is based on all years in the five year advance ruling period.<ref>Ibid, at p. 33.</ref>

====Section 509(a)(2) organizations====

There are two differences between section 509(a)(1) and (2) organizations. For section 509(a)(2) organizations:<ref>Ibid., at 37.</ref>
# the term support includes support allowed under section 509(a)(1) and income from activities related to the NGO’s exempt purpose (which is not allowed to be considered income under the support test for section 509(a)(1) organizations) and
# there is “a limit on the total gross investment income and unrelated business income an [NGO] may have,” whereas there is no limit under section 509(a)(1).

To be considered a public charity under section 509(a)(2), an NGO must meet two tests: the one-third support test and the not-more-than-one-third support test. The one-third support test is met if the NGO normally receives more than one-third of its financial support from “gifts, grants, contributions or membership fees” and gross receipts from a related trade or business.<ref>Ibid. The definition of normally is the same as for section 509(a)(1) organizations.</ref> Gross receipts may be included only to the extent that they are “not more than the greater of $5,000 or 1% of the [NGO’s] total support” for the applicable tax year.<ref>Ibid.</ref> For this test permitted sources of support include section 509(a)(1) organizations, the government, and non-disqualified persons.<ref>Ibid. For the definition of disqualified persons see ibid., at 42. Like section 509(a)(1) organizations, unusual grants are not subject to any percentage limitations. Ibid., at 38.</ref> The not-more-than-one-third support test is met if the NGO normally receives not more than one-third of its support from: gross investment income and the excess of unrelated business income from unrelated trades or business “over the tax imposed on that income.”<ref>Ibid., at 37. Amounts received from section 509(a)(3) organizations are considered gross investment income rather than gifts or contributions to the extent it is gross investment income of the section 509(a)(3) organization. Ibid., at 44.</ref>

'''New organizations'''
 

Like 509(a)(1) organizations, section 509(a)(2) organizations must have operated for at least eight months before the IRS will make a final determination.<ref>Ibid., p. 39.</ref> However, as for section 509(a)(1) organizations, new NGOs are eligible to use the advanced ruling period to meet section 509(a)(2) requirements.<ref>Ibid., p. 38.</ref> If the NGO reasonably expects to meet the two tests, the IRS may issue an advanced ruling granting the NGO status as a section 509(a)(2) public charity.<ref>Ibid.</ref> At the end of the period, the NGO must establish that it satisfies the tests.<ref>Ibid.</ref> If not, the NGO will be considered a private foundation. A request for an advanced ruling must be filed with the consent to extend statute, Form 872-C, that it will be subject to private foundation taxes if it does not qualify.<ref>Ibid, p. 39.</ref>

To determine if the NGO meets the support tests, the IRS will consider on a case by case basis whether the NGO’s organizational structure, programs, activities, and methods of operation will attract wide support from the public, other public charities, and the government.<ref>Ibid.</ref> All pertinent facts will be considered including whether:<ref>Ibid.</ref>
# the governing body includes members with special knowledge, who are community leaders, or are elected by a “broadly based membership;”
# a substantial part of the NGO’s original funding is provided by the public, public charities, or government grants;
# a substantial part of the NGO’s initial funding is in an endowment fund and whether investment of the fund is “unlikely to result in more than one-third” of the NGO’s total support;
# the NGO has a plan to raise funds;
# the NGO has a plan to carry on its activities;
# the NGO has set a fixed rate fee for membership to attract diverse members; and
# the NGO provides products, services or facilities to the public, public charities, or the government.

====Section 509(a)(3) organizations====

Certain private foundations that support section 509(a)(1) and (2) organizations may be considered public charities under section 509(a)(3) if they meet the following requirements:<ref>Ibid., at 40. The term publicly supported organization refers to a section 509(a)(1) or (2) organization. Ibid. Disqualified persons refer to those with an interest in the NGO, such as substantial contributors, managers, owners, or family members. For more information, see ibid., p. 42.</ref>
# the NGO is organized and operated to carry out the purposes of a publicly supported organization,
# the NGO is “operated, supported, and controlled by or in connection with” a publicly supported organization, and
# the NGO is not controlled by a disqualified person.

Thus, an NGO funded by a “single donor, family, or corporation” may qualify as a pubic charity, not for its activities, but because of its relationship with a publicly supported organization.<ref>Ibid.</ref> To satisfy requirement (2) that the NGO is operated, supported, and controlled by or in connection with a publicly supported organization, the NGO must have a specific type of relationship with the publicly supported organization.<ref>Ibid, p. 41.</ref> The NGO must be either:<ref>Ibid.</ref>
# operated, supervised or controlled by a publicly supported organization,
# supervised or controlled in connection with a publicly supported organization, or
# operated in connection with a publicly supported organization.

For the first two types of relationships to satisfy requirement (1) that the NGO is organized and operated to carry out the purposes of the publicly supported organization, the NGO needs to satisfy the ''organizational'' and ''operational'' tests. The organizational test is met if the articles of organization of the NGO:<ref>Ibid.</ref>
# limit its purpose to one or more of the purposes in requirement (1),
# do not expressly empower the NGO to engage in activities that do not further that purpose,
# specify the publicly supported organization the NGO supports, and
# do not expressly empower the NGO to support other organizations than those specified.

The operational test is met if the NGO performs only permissible activities for permissible beneficiaries. Permitted activities are those activities that support or benefit the specified organizations.<ref>Ibid, p. 42.</ref> These may include providing payments or services to the class benefitting from the specified organization; using “income to carry on an independent activity or program that supports or benefits” the specified organization; or raising funds for the specified organization or its beneficiaries.<ref>Ibid. An NGO does not have to pay its income to the specified organization to meet this test.</ref> Permitted beneficiaries are the specified publicly supported organizations or the beneficiaries of those specified organizations.<ref>Ibid, p. 41.</ref>

For the third type of relationship to satisfy requirement (1) that the NGO is organized and operated to carry out the purposes of the publicly supported organization, the NGO needs to meet the ''organizational'', ''responsiveness'', ''integral-part'', and ''operational tests''.<ref>For more detailed information on these tests, see ibid, pp. 42-44.</ref>

The '''organizational test''' is similar to that for the first two types of relationships. The test is met if the NGO’s governing instrument:<ref>Ibid, p. 42. For more information on the designate requirement, see ibid at pp. 42-43..</ref>
# limits its purpose to supporting a publicly supported organization,
# designates the organization the NGO is “operated, supervised, or controlled by,” and
# does not give “express powers inconsistent with [its] purpose.”

The '''responsiveness test''' is met if the NGO is responsive to the publicly supported organization by either:<ref>Ibid, p. 43.</ref>
# the publicly supported organization electing, appointing, or maintaining a close relationship with the officers of the NGO, or
# the NGO is a trust and the publicly supported organization is the named beneficiary.

The '''integral-part test''' is met if the NGO is significantly involved in the operations of the publicly supported organization and the publicly supported organization is dependant on the NGO because:<ref>Ibid.</ref>
# the NGO is performing the functions or carrying out the purpose of the publicly supported organization or
# the NGO is making payments of “substantially all of its income to or for the use of” the publicly supported organization and the amount is significant to the publicly supported organization.

The '''operational test''' has limited applicability because the integral-part test is more specific.<ref>Ibid.</ref> An NGO can fail the operational test and the integral-part test if the NGO performs activities that do not constitute activities that, but for the NGO, a publicly supported organization would have performed.<ref>Ibid.</ref>

====Section 509(a)(4) organizations====

Private foundations or other organizations that test products for public safety are considered public charities under section 509(a)(4).<ref>Ibid, p. 44.</ref>

==Responsibilities of tax-exempt NGOs==

If an NGO is granted tax-exempt status, it incurs several responsibilities to maintain this status, including keeping records, filing annual returns with the IRS, making certain information publicly available, handling unrelated business income properly, and filing an employer’s return, if applicable.

===Recordkeeping===

Section 501(c)(3) organizations must keep books and records on their sources of financial and non-financial support.<ref>For more information, see Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, p. 7</ref>

===Filing requirements===

Generally, section 501(c)(3) organizations must file annual information returns.<ref>For exceptions to this filing requirement see Internal Revenue Service, Tax-Exempt Status for Your Organization, at 8. Group returns may be filed by the central NGO on behalf of its subordinate NGOs along with the central NGO’s annual return. Ibid., at 9. There may also be state reporting requirements for NGOs.</ref> Public charities must file annual information returns on Form 990 Return of Organization Exempt from Income Tax or Form 990-EZ.<ref>The IRS is in the process of redesigning Form 990. See http://www.irs.gov/charities/article/0,,id=171216,00.html for more information.</ref> An NGO may file an EZ form if its gross receipts were less than $100,000 and its total assets were less than $25,000.<ref>Internal Revenue Service, ''Tax-Exempt Status for Your Organization'', p. 9. If an NGO’s gross receipts are less than $25,000, Form 990/990-EZ does not have to be filed. However, it may be better to file a blank return than no return. Rural Community Empowerment Program, “501(c)(3) Fact Sheet.” To do so an NGO should fill out the “identifying information on the form and check the box indicating that gross receipts are less than $25,000,” sign, date, and send it to the appropriate IRS office. Ibid.</ref> Public charities that file Form 990/990-EZ must also complete and file Schedule A and Schedule B.<Ibid, p. 9.</ref> Private foundations must file Form 990-PF and Schedule B.<ref>Ibid.</ref>

The annual returns are due “the fifteenth day of the fifth month after the end of the [NGO’s] accounting period.”<ref> Ibid. Exempt NGOs that are not political organizations, but that have political taxable income must also file Form 1120-POL for the year. Ibid., at 10. Exempt NGOs may set up a separate and segregated fund that is treated as an independent political organization, so that the income is not attributed to the exempt NGO. Ibid. Section 501(c)(3) organizations may lose their tax exemption for campaigning for or against any political candidate. Ibid., at 10-11.</ref> If an NGO’s application is pending, the NGO should complete and file the appropriate Form 990 and indicate its application is pending.<ref>Ibid.</ref> There are penalties for failing to file an annual return.

===Donor information===

Tax-exempt NGOs must provide certain donors with information regarding their charitable contribution. For contributions over $75, NGOs must provide donors with a disclosure statement.<ref>Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, at 8-9. For more information on the acknowledgment and reporting requirements with respect to contributions, see Internal Revenue Service, Tax-Exempt Status for Your Organization, at 12-13.</ref> Additionally, for a donor to deduct a charitable contribution of $250 or more, the NGO must provide the donor with a written acknowledgment.<ref>Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, pages 8-9.</ref>

===Disclosures===

An NGO must make available for public inspection its tax-exempt application and all supporting documents, as well as its last three annual returns.<ref>See Internal Revenue Service, Tax-Exempt Status for Your Organization, at 13; Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, at 8; Internal Revenue Service, “Application for Recognition of Exemption,” http://www.irs.gov/charities/article/0,,id=96109,00.html.</ref> The documents must be available during regular business hours and the NGO must furnish copies of the documents upon request unless they are widely available, for example, on the internet.<ref>Internal Revenue Service, Tax-Exempt Status for Your Organization at 14.</ref> If any of the information in the application materials is a trade secret or otherwise confidential under the law, the NGO may withhold the specific material from public inspection.<ref>Ibid, pages 13-14.</ref>

===Unrelated business income===

An exempt NGO may still be liable for tax on unrelated business income. Unrelated business income is income “not substantially related to the charitable, educational, or other purpose that is the basis for the [NGO’s] tax exemption.”<ref>Ibid, p. 9</ref> Tax-exempt NGOs must file tax returns for any unrelated business income of $1,000 or more by using ''Form 990-T'', in addition to its annual return.<ref>Ibid.</ref>

===Reporting employer’s taxes===

If an NGO has employees it must file ''Form 941'' Employer’s Quarterly Federal Tax Return. If an NGO does not have a payroll during a quarter or does not have employees, the NGO does not need to file the form.<ref>Rural Community Empowerment Program, “501(c)(3) Fact Sheet.”</ref> However, it may be better to complete the return and file it regardless.<ref>Ibid.</ref> A common issue raised by the IRS with NGOs is misclassifying employees as independent contractors.<ref>Ibid.</ref>

Additionally, compensation over $600 needs to be reported on Form 1099-MISC. The form must be sent to the recipient by January 31 and to the IRS on Form 1096 by February 28.<ref>Ibid.</ref> Moreover, tax-exempt NGOs that pay wages are responsible for “withholding, depositing, paying, and reporting federal income tax, social security and Medicare (FICA) taxes, and federal unemployment tax (FUTA), unless that employer is specifically excepted by law from those requirements or if the taxes clearly do not apply.”<ref>Internal Revenue Service, Tax-Exempt Status for Your Organization, at 10.</ref>

==Conclusion==

NGOs seeking tax-exempt status from U.S. federal taxes must apply under section 501(c)(3) of the Internal Revenue Code, which governs the application, categorization, and responsibilities of tax-exempt organizations. NGOs must submit the applicable IRS forms, documentation and financial data to the IRS. For specific types of NGOs there are also additional requirements which must be satisfied and/or additional documents which must be submitted. Section 501(c)(3) separates NGOs into two classes: private foundations, which have limited or private financial sources, and public charities, which have broad public financial support. The distinction determines whether the NGO will be subject to the restrictions and excise taxes of a private foundation. The four types of public charities under section 509(a) each has specific financial support tests that the NGO must meet to qualify. After obtaining section 501(c)(3) status an NGO has continuing duties regarding recordkeeping, public disclosures, and IRS filing and reporting requirements. An NGO must successfully navigate these technical requirements and responsibilities to obtain and maintain a federal tax-exemption.

==References==
<references/>
{{reflist}}

==Additional Links==

Internal Revenue Service, “Tax Information for Charitable Organizations,” http://www.irs.gov/charities/charitable/index.html (IRS Resource Links for Non-Profit Organizations).

26 U.S.C. § 501, Exemption from Tax on Corporations, Certain Trusts, etc., http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+26USC501.

2008-04-18T09:58:16Z

Wangowiki:

==Introduction==

As early as its pre-colonial era, civil society in Ghana has been a key actor in shaping, as well as being shaped by, the country’s political developments. After independence in 1957, the government created economic and social reconstruction development plans and also charged local development committees and the emerging nonprofit sector to provide education, health and social services to the country’s citizens. During the period of political and economic instability that followed independence, citizens were dependent on humanitarian aid and emergency services provided by churches and charities (Atingdui 1995: 11-12).
By the early 1980s, the country’s subsequent reorganization of the public and private sectors directly affected religious and church-related organizations, requiring them to reapply for registration with the government (Atingdui 1995: 12). Despite the government’s move to exert more control over NGOs, local groups continued to grow and expand unabated. A sharp increase in international development assistance to Ghana occurred between 1989 and 1990, with a significant amount of funds going to the nonprofit sector (World Bank, World Tables). The 1990s saw an exponential growth in the non-profit sector and non-governmental organizations in Ghana, both in the number of groups and their range of activities. By the mid 1990s, the number of registered nonprofit organizations grew to over 700 (Atingdui 1995: 15).
Today, the sector encompasses thousands of organizations of all sizes and types. Nonprofit organizations in Ghana are defined as “civil society organizations that are formed independently of the State but register voluntarily under specified laws in order to gain official recognition to pursue purposes that are not self-serving but oriented towards public benefit.” (NGC National Draft Policy). As Ghana moves into the 21st century, civil society in the country is a sector that is still growing and defining itself.

==Historical Background==

From the mid-1980s to the end of the 1990s, government policies and laws towards NGOs lacked a standard or coherent framework. This period of disagreement between NGOs and government was characterized by concerns on both sides. Government was concerned about unregistered NGOs, allegations of fraudulent practices and violations of nonprofit rules by some NGOs, not consulting district and regional planning authorities before starting projects, and a general lack of reports and information from NGOs on their operations.
NGOs were concerned that government attitudes and actions threatened their status, autonomy, and right to participate. They charged that government did not consult NGOs before putting policies into place that might have affected their operations. They stated that government did not keep adequate records of NGO reports. NGOs also alleged government overlooked their need for financial support.

It was in this atmosphere that the NGO Draft Bill of 1993 was rejected. NGOs felt the existing Companies Code/Act 179 was sufficient to regulate them. They also objected to sections in the Bill which they believed violated their constitutional rights. NGOs campaigned against the NGO Draft Bill in 1995 and it was never enacted into law. (Draft National Policy for Strategic Partnership with NGOs: 19-20).

Although there was no official legal framework in place, NGOs still operated among themselves and with government Ministries, Departments and Agencies (MDAs). In February 1999, the Ministry of Employment and Social Welfare (MESW), as it was known then , circulated the “Ghana National Policy on Non-Governmental Organizations” and invited NGOs to discuss a broad range of issues. The NGOs and the MESW agreed to form a joint working committee to discuss the document. In April 1999, at the “Beyond Aid: Strategies for Sustainable Support of Community Development,” held in Accra, representatives from NGOs resolved to hold consultations on the issue of a national NGO policy and make recommendations (Comprehensive Policy Framework for the Non-Profit Sector in Ghana. Draft Discussion Document, 2000: 5).
The years 1999-2000 thus saw a renewed cooperation between government and NGOs. A National Consultative Group (NCG) made up of national, regional, sector networks and umbrella organizations along with government representatives worked in a joint consultation process. The Ghana Association of Private Voluntary Organizations in Development (GAPVOD) Secretariat was chosen as the operational coordinator (IDEG Framework Draft Document, 2000: 6). In August 2000, NGC organized a series of workshops across 10 regions with broad representation of NGOs and government representatives, who made suggestions and recommendations.

==Civil Society in Ghana==

===Size and Scope===

Ghana’s nonprofit sector exhibits a great depth and breadth in the amount and types of groups actively working, making official numbers difficult to quantify. In 2004, Kojo Amoakwe, Chief Director of the Ministry of Manpower, Development and Employment, told the BBC that there were as many as 3,000 non-governmental organizations in the country.
Additionally, the sector is currently working with government, and especially the ministry responsible for NGOs, the Ministry of Manpower, Development and Employment, to build a national policy delineating self-regulation and code of conduct for groups working within the sector. Part of the working document is a proposal to form the National Commission of NGOs (NCNGO). When these laws and regulations are in place, the country may establish procedures and policies for collecting and disseminating information on exact numbers of nonprofit organizations working in Ghana.

Until a definitive reported number exists, there are contrasting statistics from government, national, international, and independent sources. In its 2003 revised edition of the Directory of African NGOs, the Office of the Special Coordinator for Africa and the Least Developed Countries (OSCAL), listed detailed information for 81 NGOs in Ghana, with additional contact information on hundreds of other groups . WANGO’s own directory, for example, currently lists 271 organizations . The Directory of Development Organizations (2007), published by an independent nonprofit company, lists 553 development organizations and international aid agencies operating in Ghana .

==Types and classification of organizations in the nonprofit sector==

Civil society in Ghana is a diverse body which includes a wide variety of indigenous grassroots organizations, community-based organizations, religious organizations, local unions, women’s associations, and village associations. They are generally classified as follows: traditional associations, community-based organizations (CBO), religious, church-related or charitable institutions, voluntary organizations (VOLU), private voluntary organizations (PVO), and non-governmental organizations (NGO) (Atingdui, 1995).
An attempt to classify nonprofit organizations was made at a 1990 conference in Accra, placing groups into the following categories: local grassroots organizations without external affiliations; national organizations without external affiliations; international organizations operating locally; and national affiliates of international organizations (Atingdui, 1995).
In the early discussion of the national policy for NGOs, the Sector Ministry classified NGOs and civil society organizations as:
*Foundations
*Community development
*Health
*Animal/environment
*Employment and job training
*Education/Research
*Social Services
*Arts/Culture
*Human Rights and Criminal Justice
*Advocacy/Legal Services and
*International

A further classification determined by a National Advisory Group working with CIVICUS, World Alliance for Citizen Participation, created a list of eighteen separate types of civil society organizations (CSO) in Ghana ranging across social, cultural and economic categories. Within these categories were three main tiers of civil society and their levels of influence, with the most influential being the trade union congresses, international NGOs, and the major political parties (New Patriotic Party and National Democratic Congress). The report identified faith-based organizations (Christian and Muslim), professional bodies, local NGOs and CBOs in the second tier, with women’s groups and consumer groups exerting the least influence (CIVICUS report: 26-27).
Generally, the nonprofit sector encompassing NGOs and CSOs/CBOs group Ghanaian civil society into three types: traditional, religious, and modern (Atingdui 3-7).

==Traditional Groups==

Traditional associations and community-based organizations are grounded in Ghanaian society and culture, reflecting the nation’s traditions, cultures and social structures. They include self-help groups, village associations, and mutual aid societies . They are typically membership-based and rarely formally registered. These community-based organizations emerged from village or town committees and maintain local institutions. Their operations are limited to specific geographical areas or ethnic groups, and cover a wide range of activities, including but not limited to water and sanitation projects, health care, and agriculture. They are likely to play an increased role in the social and economic development of Ghana. (Atingui 5).

==Religious Organizations==

Many of the charitable groups that fall within this type are affiliated with two major religions, Christianity and Islam. This follows from the country’s history of Christian missionary societies and later, other church-related organizations, which had an impact on education and skills development. Islamic organizations, which are found mostly in the northern part of the country, provide similar, but fewer, services to that of the Christian groups. (This is due mainly because these Islamic groups tend to be politicized and fragmented). (Atingui 6). Many of the church-related groups are classified as charitable organizations, providing special assistance and immediate emergency relief after natural disasters, or to refugees, orphans, the elderly and disabled.

==Private Voluntary and Non-governmental Organizations==

These two terms have been used interchangeably in Ghana since the early 1980s. They include local and nonprofit organizations who provide development assistance, emergency relief, and social and health services. (Anang 1994).

The term voluntary organization (VOLU) originated in the 1970s and evolved throughout the 1980s as a result of the work of foreign relief agencies and student volunteers working in community development projects. Their great number and variety, however, makes classification difficult. (Atingdui 1995: 7).

In 1981, the Christian Council of Ghana, a coalition of fourteen Protestant churches, formed the umbrella organization Ghana Association of Private Voluntary Organizations in Development (GAPVOD). Today, GAPVOD is the largest umbrella organization in Ghana. It has over 400 members including national and international NGOs, local agencies, and community-based organizations across Ghana. GAPVOD has played an active and prominent role in the efforts of the nonprofit sector and government to build a national policy for NGOs. Regional networks such as the Brong Ahafo NGOs (BANGO) also act as organizing consortium for the sector.

==Civil Society Organizations (CSOs)==

The CIVICUS Civil Society Index (CSI), a worldwide study conducted by CIVICUS to assess the characteristics, roles, and impact of civil society, was undertaken in Ghana to collect information from a variety of stakeholders, including governments, academics and the community at large . The study found Ghanaian society characterized by widespread citizen participation at the community level. According to the CSI, 51 percent of the respondents are members of civil society organizations (CSOs) and 80 percent had participated in community activities or meetings. In addition, 57 percent of respondents did volunteer work during the year preceding the survey. Most CSOs in Ghana are urban-based, operating in the main cities where technological and financial resources are most likely to be available; however, those resources remain inadequate.

In terms of the legal environment, the survey reported that respondents found “the registration process for CSOs…undermined by inconsistencies that make the whole process cumbersome, time-consuming and drain the already limited financial resources of most organizations.” At a CSI national workshop held in April 2006 in Accra, attended by more than 140 participants from civil society, government, academia, business, the donor community and media, it was recommended that registration and reporting procedures be clarified, making the registration process simpler and decentralized.
NGO/CSO Registration in Ghana is governed by the Companies Code Act 179 (1963), the Trustees Incorporation/Amendment Law (1962/63), the Constitution of the Republic of Ghana (1992) and Cabinet directives (CIVICUS 2006: 54). Respondents to the CSI Survey believed that the registration service was not simple or inexpensive. The importance of registration issues is a main point of the National NGO Policy (Civicus: Ibid).

==Foreign aid and NGO operations in Ghana==

Funding from overseas is a key factor that impacts and influences NGOs and their operations. The NGO sector, like Ghana itself, is heavily dependent on foreign aid. In 1998, development assistance amounted to nearly 10 percent of its GNP. (Porter 131-32). As major recipients for donor investment, NGOs provide emergency relief and engage in capacity building, however, they also directly contribute to social policy development in Ghana. (Aryeetey and Goldstein).
The amount of aid channeled through NGOs is not easily quantifiable but the Red Cross estimates that NGOs also disburse large amounts of money, perhaps even more than the World Bank. As noted by Fowler, during the 1980s, funding to NGOs grew at five times the rate the official development funding. (Mohan 4).

The majority of foreign NGOs in Ghana operate in the North. This is a result of colonial underdevelopment, and in contrast to the center and southern areas, there is a lack of a major export base. (Mohan 13-20). A key element is the relationship between indigenous or Southern NGOs (SNGOs) and external, often Northern-based or international NGOs (NNGOs; INGOs). This inter-NGO relationship, a local-global collaboration, creates the perception of a civil society that is internationally networked, but in reality, reflects a “major line of tension.” NNGO’s reliance on funding breeds a conservative outlook and a reluctance to allow local NGOs freedom to administer their programs because so many SNGOs lack capacity and transparency, a suggestion which SNGOs then react against. As donors seek reliable and successful NGOs in which to sink foreign capital, civil society trends towards “niched NGOs” or just a few large organizations. (Mohan 14).

There is a risk that the official aid channeled through these NGOs compromises their autonomy and affects their ability to carry out successful programs. Partnerships between NGOs and their donors refocuses NGO efforts towards satisfying donor demands (Porter 136-37). Decentralization has impacted these circumstances and encourage participation by the target communities receiving aid. Porter notes two relevant types of decentralization that impact NGOs: the establishment of local offices by INGOs, and state administrative decentralization. The latter is promoted by the World Bank as a means for good governance, a way in which local districts can work in partnership with NGOs and community-based organizations. But there is evidence that donor-supported decentralization to the 110 administrative districts is creating a tier of local NGOs whose principal aim is job- and wealth-creation for the entrepreneurs who establish them. The result has been misappropriation of funds under decentralization. (Porter 138).

==Transparency and Good Governance==

Public and press reports highlight government’s allegations of corruption in Ghana’s third sector. In 2003, Director of Ministry of Manpower Development and Employment Amoakwe said that NGOs were directing eighty percent of aid towards administrative costs such as operational expenses and salaries, and only twenty percent towards programs. He also stated only a fraction of the country’s 3,000 NGOs had submitted the annual reports and statements of accounts required by law. NGOs not in compliance faced blacklisting. (BBC News, 25 February; South African Institute of International Affairs, April 2004). While these allegations reflect the tensions between government and civil society organizations, there have been instances of graft and corruption. Mohan observed evidence of NGOs being used as patronage structures and political vehicles. As Mohan notes,

“More insidious is the use of NGOs as vehicles for personal and party political gain by local officers. This is achieved through various mechanisms — petty corruption, largesse, interlocking political affiliations, and ‘status’ —and, as we have seen, the less obvious ways in which indigenous NGOs defend local culture in the face of ‘outsider’ intervention. In effect, some NGOs become fiefdoms for local élites to further their material and political status.” (Mohan 2005: 18).

Field research by Mohan looked at two SNGOs which he termed “A” and “B” to preserve confidentiality. He found that the Director of ‘A’ is a District Assembly Member and the NGO is seen as “indivisible” from the former ruling party. The Director of ‘B’ was placed under investigation by the National Bureau of Investigation for writing checks without accounting for the funds’ destination. The NGO’s operations were suspended pending the outcome of the inquiry. (Mohan 18).

To combat corruption and to promote transparency and accountability, the suggestion of freedom of information (FOI) laws is slowly gaining currency. A survey by freedominfo.org notes in 2006 that none of the 38 poorest countries classified by the World Bank as Highly Indebted Poor Countries (HIPC) had an FOI law. In February 2003, Ghana and its donors agreed to enact a freedom of information law as part of its Ghana Poverty Reduction Strategy (World Bank 2003). A goal of adopting an FOI law was set for 2004, but passage of a bill into law has lagged.

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==Conclusion==

Despite this recent history of embattled relations between government and civil society, the nonprofit sector can look forward to renewed progress. In June 2006, Akosua Frema Osei Opare, Deputy Minister for Manpower, Youth and Employment, indicated that the national NGO policy was currently being prepared for cabinet and parliamentary approval.
There is indication that the NGO sector, with government assistance, is moving towards establishing a quantifiable method for tracking the number and type of organizations in the sector. Also in June of 2006, a revised and updated directory of NGOs in Ghana, covering 2005-2008, was published (The first edition was published in 1999). In making the announcement of the directory, Deputy Minister Opare said the ministry was engaged in developing a computerized database on NGOs and community-based organizations nationwide in order to maintain updated information and accreditation.
The nonprofit sector acted to further establish and regulate itself in the 1990s. Now in the new century, challenges remain, but with further building of local and national coalitions, and working with global networks, nonprofits will be supported and can continue to be a significant actor in Ghanaian society.
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==References==

Adam, Iliasu. (2004, February 25). Ghana to Blacklist NGOs. BBC News Africa. Retrieved February 21, 2007, from http://news.bbc.co.uk/2/hi/africa/3517827.stm

Anang, Frederick T. “Evaluating the Role and Impact of Foreign NGOs in Ghana,” in The Changing Politics of Nongovernmental Organizations and African States, edited by Eve Sandberg, pp. 101-120. Westport: Praeger, 1994.

Amankwah, Ama Achiaa. Revised NGO Directory Launched. 2006. Public Agenda. June 16.

Aryeetey Ernest, and Markus Goldstein. “Social Policy reform in Africa: Ghana,” in Reforming Social Policy: Changing Perspectives on Sustainable Human Development, IDRC Books, 1999. Daniel Morales-Gómez, Necla Tschirgi, and Jennifer L. Moher, editors.

Atingdui, Lawrence. Defining the Nonprofit Sector: Ghana. Working Papers of the Johns Hopkins Comparative Nonprofit Sector Project, no. 14, edited by Lester M. Salamon and Helmut K. Anheier, pp. 1-7. Baltimore: The Johns Hopkins Institute for Policy Studies, 1995.

Draft National Policy for Strategic Partnership with NGOs. National Consultative Group (NCG), Ghana, October 2000.

Civil Society in a Changing Ghana: An Assessment of the Current State of Civil Society in Ghana. Civil Society Index Report for Ghana. Akosua Darkwa, Nicholas Amponsah and Evans Gyampoh. CIVICUS, World Alliance for Citizen Participation.

Directory of African NGOs. Revised edition 2003. Office of the Special Coordinator for Africa and the Least Developed Countries (OSCAL), Department of Economic and Social Affairs.

“Comprehensive Policy Framework for the Non-Profit Sector in Ghana. Draft Discussion Document.” Institute for Democratic Governance, Osu. March 2000.

Mohan, Giles. “The Disappointments of Civil Society: the politics of NGO intervention in Northern Ghana,” Political Geography, 21: 125-154.

Porter, Gina. “NGOs and poverty reduction in a globalizing world: perspectives from Ghana.” Progress in Development Studies 3,2 (2003), pp. 131-145.