To be tax-exempt under Section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for any of these purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition or preventing cruelty to children or animals.
If you’re thinking about starting a nonprofit and want to apply for tax-exempt status under Section 501(c)(3) of the tax code, you’ll need to use a Form 1023-series application. Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
Here are seven key items to know about this process:
- Form 1023-series applications for recognition of exemption must be submitted electronically online at Pay.gov. The application must be complete and must include the user fee.
- Some organizations may be able to file Form 1023-EZ, a streamlined version if they meet certain criteria such as projected or past annual gross receipts of $50,000 or less for a period of three years.
- Some types of organizations don’t need to apply for Section 501(c)(3) status to be tax-exempt. These include churches and their integrated auxiliaries (organizations affiliated with a church or association of churches that receives financial support primarily from internal church sources and not public or governmental sources), as well as public charities whose annual gross receipts are normally less than $5,000.
- Every tax-exempt organization, including a church, should have an Employer Identification Number (EIN) regardless of whether the organization has employees. An employer identification number is an organization’s account number with the IRS and is required for the organization to apply for tax-exempt status. Once the EIN is received by the organization, it must be included on the application.
- The effective date of an organization’s tax-exempt status depends on their approved Form 1023. If they submit this form within 27 months after the month they legally formed, the effective date of their organization’s exempt status is the legal date of its formation. If an organization doesn’t submit this form within those 27 months, the effective date of its exempt status is the date it files Form 1023.
- Once the IRS determines an organization qualifies for tax-exempt status under the law, it will also be classified as a private foundation unless the organization meets the requirements to be treated as a public charity. Generally, organizations classified as public charities receive contributions from many sources, including the general public. In contrast, private foundations typically have a single major source of funding (usually gifts from one family or corporation).
- A charitable organization must make certain documents available to the public. These include its approved application for recognition of exemption with all supporting documents and its last three annual information returns.
If you have any questions about applying for tax-exempt status, please call the office for assistance.