Non-Profit Tax Exempt Status with the IRS . . . 501(c)(3) Applications
One of the main benefits of a non-profit corporation is tax exempt status. However, simply filing articles of incorporation with the Secretary of State doesn’t mean you have tax exempt status. After all, taxes are the only certainty besides death, right? In order to gain tax exempt status, thereby only having to worry about that little death certainty, you must apply for it with the IRS. You do this by completing and filing IRS form 1023.
Several requirements must be met before the IRS will grant tax exempt status:
1. The purpose must be an exempt purpose. These include charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety
2. Private shareholders or individuals may not receive earnings from a non-profit organization.
3. The organization cannot be an “action organization”. The IRS defines an action organization as one that attempts to influence legislation as a large part of its activities and it may not participate in campaign activities or for or against any political candidate.
4. The organization must dedicate all of its assets to the purpose set out in the articles and provided in form 1023.
5. An EIN or, Employer Identification Number. This is required whether or not the organization hires any employees.
Presto! If your organization can meet these requirements, the IRS will grant it tax exempt recognition provided all the documentation is submitted.
The IRS has an application filing fee. For organizations whose gross receipts are $10,000 or less the filing fee is $400.00. If gross receipts exceed $10,000 per year over a four year period the filing fee increases to $850.00.
After the IRS receives the application for exempt status it will make a determination. If the organization is found to qualify for exempt status the IRS will mail notification to the organization. Tax exempt status is effective as of the date the organization is formed.
There are many considerations for the new non-profit organization. Filing to obtain tax exempt status is just one. It’s important to get good legal advice if you are thinking about starting a non-profit company.