Charity Nonprofit

---
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
  openaccountants_url: "https://www.openaccountants.com/skills/charity-nonprofit"
  jurisdiction: "GLOBAL"
  tax_year: "2025"
  last_updated: "2026-07-13"
---

# Charity Nonprofit

## 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 |  |

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

### 1.2 United Kingdom

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

### 1.3 Germany

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

### 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

**Other major jurisdictions status table**

| 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

**Fund category definitions**  _([T1])_

| 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 |

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

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

- **UBI corporate tax** — Tax-exempt organisations pay corporate income tax (21%) on income from any unrelated trade or business regularly carried on.  _([T1] IRC §511-514)_
- **§512(a)(6) silo rule** — UBI computed separately for each unrelated trade or business (post-TCJA "silo" rule)  _([T1] §512(a)(6))_
- **§513(c) advertising** — Advertising as unrelated business  _([T1] §513(c))_
- **§514 debt-financed income** — Debt-financed income (rental income from leveraged property partly UBI)  _([T1] §514)_
- **§511(b) split-interest trusts** — Split-interest trusts subject to UBI on the unrelated portion  _([T1] §511(b))_
- **UBI exceptions** — Volunteer-labour exception; Convenience exception; Donated goods exception; Bingo (in some jurisdictions); Royalties (passive royalty income generally not UBI)  _([T1])_
- **Form 990-T** — UBI return

## Section 4 — VAT / GST for charities

**Charity VAT treatment by country**  _([T1])_

| 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)

- **§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 §4941)_
- **§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 §4942)_
- **§4943 Excess business holdings** — Limits private foundation ownership of business enterprises to 20% (or 35% with limited exceptions); 10% excise.  _([T1] IRC §4943)_
- **§4944 Jeopardising investments** — Investment that risks the foundation's carrying out its exempt purposes (highly speculative investments) — 10% excise.  _([T1] IRC §4944)_
- **§4945 Taxable expenditures** — Certain prohibited expenditures (lobbying, voter registration, grants to non-charitable, etc.) — 20% excise + 100% if not corrected.  _([T1] IRC §4945)_

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

- **Donor-advised fund** — A charitable account held at a sponsoring organisation. Donor receives immediate tax deduction; gets non-binding advisory right over investment and distribution.  _([T1])_
- **§4966 DAF distributions excise** — Distributions from a DAF to certain disqualified persons or to non-public-charity grantees attract excise tax.  _(US §4966)_

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

## Section 7 — Cross-border philanthropy

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

## 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).

## Today's figures and who stands behind this skill

This file is an AI skill (tax rules your AI follows) from OpenAccountants, copied on 2026-07-13. Rates, thresholds and deadlines change. For the current version of this skill, its official sources and the named accountant (if any) who stands behind it, call `get_skill` with slug `charity-nonprofit` on the OpenAccountants connector (https://www.openaccountants.com/connect), or read https://www.openaccountants.com/skills/charity-nonprofit. If neither is available, confirm every figure against the official source pages cited above before relying on it.