There are many intimidating processes in the world of charitable causes. Sometimes, they change over time due to new laws passed by Congress and enforced by the IRS.
It can be difficult keeping track. Your accountant should always be up-to-date on these changes, for sure.
However, when it comes to tax-exemption, once your charitable organization has incorporated, it is fairly cut-and-dry, as they say. But, for a review, here is How to Get Your Non-Profit Tax Exemption, Part 1:
- Complete IRS Form 1023 Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code: Ironically, this first step may be the most difficult. This form has a number of legal and tax-related technical prose within it, making it a laborious venture. You may want to seek advice from your accountant as you embark on this first part.
- File for Non-exempt Status within 27 months of Articles of Incorporation: When you file during this time period, your charitable organization’s tax exemption will take effect on the date you filed for incorporation. When you do that, then all donations received will be tax-deductible. However, should you delay incorporating during this 27-month period without a “reasonable cause”, then your non-profit’s tax-exempt status starts the date of the postmark on the IRS Form 1023 application.
- Form 1023 Completion: This long form has eleven parts to it. If you have a smaller non-profit, then you may want to do the 1023 EZ Form Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. It is quite evident how this form is so much easier for smaller non-profits so go the IRS website and see if your non-profit is eligible.
- Applicant Identification: This is all basic information about your non-profit organization. Your organization needs an EIN (federal employee identification number). Don’t use the old one when you began this process. Request a new on from the IRS as you start this process. It’s actually pretty easy and they send one fairly quickly.
- Structure of the Organization: You need to attach a copy of articles of incorporation and your bylaws. (Just an FYI: If your non-profit is a LLC, unincorporated association or non-profit trust, please contact your tax lawyer. It gets very complicated if you have those designations.)
- Organizational Document’s Required Provisions: You need to add certain clauses to get your 501(c)(3) exemption: a clause stating that your corporation was formed for a recognized 501(c)(3) tax-exempt purpose and a clause stating that that any assets of the nonprofit that remain after the entity dissolves will be distributed to another 501(c)(3) tax-exempt nonprofit or to a federal, state, or local government for a public purpose.
There are several more steps and we will cover those in our next blog. If you need assistance with your non-profit’s tax-exempt status, we can take you through the entire process (and help reduce the stress).
Call us at if you need personal or professional counseling, from tax planning, to payroll to choice of Business/Financial Entity planning and many other services, A. K. Burton, PC, can meet all your private and business accounting needs. Call us at (301) 365-1974 for more information.