Applying for Tax-Exempt Status
When deciding whether or not to apply for 501(c)3 status here are some things to consider.
Tax-Exempt Status Overview: 501(c)(3) Public Charities
Benefits & Responsibilities:
Benefits: Federal income tax exemption, tax-deductible contributions, reduced postal rates.
Responsibilities: Detailed financial and non-financial recordkeeping, annual Form 990 filing, and multiple public disclosures.
The 5-Stage Life Cycle:
Commencement: Establishment as a state non-profit organization. Obtain an EIN, and define the exempt organization type with the Federal Government.
Application for Exemption: Apply to the IRS using Form 1023 or 1023-EZ.
Mandatory Filings: Submit an annual report with the IRS called Form 990. Additional reports that are required, but having completed your 990 simplifies the others.
Sustained Compliance: Continue to fulfill all mandatory requirements at the Federal, State, and local levels.
Noteworthy Events: Events such as Audits are required from time to time. While these may or may not be predictable, they are a part of operating as a Public Charity.
Public Charity Requirement: Must prove broad public support, either by substantial public funding or by limiting investment/unrelated business income and having significant support from contributions, fees, and exempt activities.
Application Prep: Register with your state as a public charity, and then obtain an EIN from the IRS. Having organizing documents, bylaws and a dissolution plan are required to complet a 1023.
Application Process: File Form 1023 with the IRS. Response times from the IRS vary, but application needs to be filed within 27 months of the organization’s inception. The organization will be recognized as exempt from its’ creation.
Exceptions: Group Exemptions are available for smaller, affiliated groups. Churches are automatically exempt, but often file a 1023 just to receive a Determination Letter. Some donors want to see proof of their status as an exempt organization.
Post-Filing: Maintain meticulous records (financial and non-financial, including all application documents). Track status online.
Determination Letter: This is a permanent record required and must be available for public disclosure.
State Compliance: Organizations must also meet state-level nonprofit requirements, especially for fundraising. States also have requirements for specific types of fundraising, such as raffles.
Additional Questions?
If you would like to discuss these items in more detail, schedule a phone call at
https://calendly.com/chuck-simsbookkeeping/
