Section Library
Exempt Status
Exempt Status of AWWA Sections
Sections of the Association gain their exemption from federal income tax by virtue of a group exemption that applies to the American Water Works Association and its sections. Most states recognize an organization's federal tax exempt status; however, sections must file formal requests for exemption from state and local sales, use, property, and real estate taxes.
A group exemption letter is a ruling or determination letter issued to a central organization recognizing on a group basis, the exemption under Section 501© of subordinate organizations on whose behalf the central organization has applied for recognition of exemption. A central organization is an organization that has one or more subordinates under its general supervision or control. A subordinate is a chapter, section, local post, or unit of a central organization.
AWWA's GROUP EXEMPTION NUMBER (GEN) is 2004.
A subordinate may or may not be incorporated, but it must have an organizing document.
Internal Revenue Service Section 501(c)(3) provides for organizations organized and operated exclusively for charitable and similar purposes. Section 501(c)(3) states, "Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literacy, or educational purposes, or to foster national or international sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise provided in subsection (h), and which does not participate in, or intervene in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate of public office."
The purpose for which the Association is formed is to promote public health, safety, and welfare through the improvement of the quality and quantity of water delivered to the public and the development and furtherance of understanding of the problems relating thereby: (a) Advancing the knowledge of the design, construction operation, water treatment, and management of water utilities, and developing standards for procedures, equipment, and materials used by public water supply systems; (b) Advancing the knowledge of the problems involved in the development of resources, production and distribution of safe and adequate water supplies; (c) Educating the public on the problems of water supply and promoting a spirit of cooperation between consumers and suppliers in solving these problems; and (d) Conducting research to determine the causes of problems of providing a safe and adequate water supply and proposing solutions thereto in an effort to improve the quality and quantity of the water supply provided to the public.
In order to retain its tax exempt status, each section must meet two tests: the organizational test, and the operational test. A section that fails to meet either the organizational or operational test cannot be exempt under Section 501(c)(3). If a section engages in substantial non-exempt activities, it may impair its status as part of the exempt group which includes the American Water Works Association and the other sections, or it may endanger the tax-exempt status of the entire group.
To satisfy the organizational test, a section's articles of incorporation, articles of association, or other written instrument by which it is created, must limit the purposes of the organization to one or more exempt purposes, and must not expressly authorize the organization to engage other than as an insubstantial part of its activities, in any activities which in themselves are not in furtherance of one or more exempt purposes. If a section does not have organizational documents, it will be governed by the organizational documents of the American Water Works Association.
The organizational documents must generally contain the same purposes of AWWA national.
Organizational documents may not empower the organization to conduct nonexempt activities unless they are insubstantial.
Assets in dissolution must be used for the organization's exempt purposes or must be transferred to another organization that is exempt under IRS Section 501(c)(3). THIS PROVISION MUST BE STATED IN THE ORGANIZATION'S ARTICLES.
To satisfy the operational test, an organization must be deemed to operate "exclusively for" its specified exempt purposes. A key element in the operational test is the requirement that the organization benefit the public at large. The IRS considers an organization that benefits private interest in anything more than an insignificant or incidental extent to have failed the test. While some form of private benefit is unavoidable, any benefit that accrues to a private individual, group, or organization must be merely incidental to the organization's serving the public.
AWWA sections may also be required to file annual information returns.