Does a Volunteer Organization Need to File Taxes?
Volunteer organizations can run the gamut from business associations to recreational clubs to charitable organizations. All may rely solely or heavily upon community volunteers or members to run the organization and conduct their activities. If a volunteer organization files for tax-exempt status and receives approval, then that organization does not need to file taxes. Instead, it must file an information report. However, if the organization has no tax exempt status, it must file taxes.
Volunteer organizations include all entities that rely on volunteers to operate. For-profit companies conducting a trade or business for the sole benefit of its owners can run afoul of labor laws if they attempt to use “volunteers” when the companies should have paid the individuals as employees or independent contractors. However, exceptions are made for volunteer organizations that operate as for-profit organizations. These either did not quite qualify for tax exemption or the members or organizers never filed for it.
Although volunteer organizations include charitable organizations, to be considered “charitable” and eligible for tax-deductible donations as well as federal and state government grants, charitable entities must officially incorporate or organize as a trust or association and file for tax exemption. However, the vast array of volunteer organizations have no such requirement. These include business and trade associations, agricultural associations and recreational clubs. These also include social and recreational clubs, civic leagues and social welfare groups and labor and horticultural groups.
A charitable organization must claim exemption under Section 501(c)3 of the Internal Revenue Code. All donations to these nonprofits are fully tax-deductible unless the donation goes to support the organization’s lobbying efforts. Civic leagues and social welfare associations file for tax exemption under 501(c)4; labor and horticultural groups under 501(c)5; business and trade associations under 501(c)6; and social and recreational clubs under 501(c)7. If the Internal Revenue Service approves the filing, the association or group will receive a notification letter. Thereafter, the organization must file the applicable information report, Form 990 -- Return of Organization Exempt from Income Tax.
Volunteer organizations operating as an unincorporated group of two or more people who came together for a common purpose by mutual decision are considered unincorporated associations. This differs from a business partnership, which occurs whenever two or more people or entities come together to transact business to earn a profit. An unincorporated association serving in a volunteer capacity for the public good is considered an unincorporated nonprofit association. These organizations do not have to pay taxes or file a tax return if they have no more than $5,000 in revenues.
Unincorporated nonprofit associations must establish a formal structure and formally file for a tax exemption in order to remain exempt from taxes once revenues exceed $5,000. Otherwise, they must file tax returns as taxable entities.