About This Guide
This guide covers applying for tax-exempt status under the Internal Revenue Code (IRC) Section 501(c)(3).
Minimum Requirements Before Applying
- To be incorporated at the state level
- A registered agent
- An EIN
- Organizing documents - Bylaws and Articles of Incorporation
- Define your Charitable Purpose
Items you will need for Form 1023
- Employer Identification Number (EIN)
- Note that a nonprofit must be established in a US state or territory before applying for an EIN.
- Organizing documents
- Current Bylaws
- Articles of Incorporation
- Description of Charitable Purpose
- This can be found in your Bylaws or Articles of Incorporation or Association
- Financial data, which includes statements of revenues and expenses
- New organizations must give financial statements for the current year and proposed budgets for the next two years, including a detailed breakdown of revenue and expenses.
- Previously existing organizations must give financial statements for the current year and four prior tax years.
- You will be asked to provide a 509(a) designation
Form 1023-Series Applications
The Application for Recognition of Exemption Under Section 501(c)(3) is completed online through Pay.gov.
The form is long, currently 40 pages. But the online application process guides you through and most pages are questions answered “no” and left blank.
There are different types of forms, according to the type of nonprofit:
- For Charitable, Religious, and Educational Organizations 501(c)(3)
- For Social Welfare Organizations 501(c)(4) -
- For organizations that do not any of the qualifying Charitable Activities, and therefore are tax-exempt but donations to the organization are not tax-deductible.
- Form 8976 - Notice of Intent to Operate Under Section 501(c)(4)
- Form 1024-A recognition of exemption from federal income tax under section 501(c)(4))
- Other Nonprofit or Tax-Exempt Organizations 501(a)
- This is rare for an EA organization. The organization is tax-exempt but not a charitable organization; for example, a publicly supported hospital or school.
- Form 1024 - Recognition of Exemption Under Section 501(a) or Section 521
- For recognition of exemption under section 501(a), for being described in section 501(c) (other than section 501(c)(3) or (4)) or section 501(d).
Tax-Exempt Effective Date
Your tax-exempt status goes into effect either:
- Retroactive to date of incorporation if you filed within 27 months of the date of incorporation
- Retroactive to the date the Form 1023 application was filed, if you filed after 27 months from the date of incorporation
Appendix
Most Common EA Nonprofit Types
- Public charities
- This includes religious, educational, scientific, and literary organizations.
- This is a standard charity status with a Charitable Purpose.
- Foundations
- A foundation is a type of 501(c)3. Typical missions include funding other nonprofits and sponsoring events and programs for awareness or education.
- In order to remain classified as a foundation, it must donate a certain portion of its income on an annual basis. This is to prevent the misuse of a foundation for personal gain or tax avoidance.
- Foundations are also prohibited from any sort of political activity, although they may support organizations that engage in political lobbying.
- Social Advocacy Groups, Social Welfare Organizations
- These are organizations classified under 501(c)(4) to lobby or promote a social or political effort. These organizations may engage in fundraising, lobbying, and efforts to educate the general public about their cause.
- “Seeking legislation germane to the organization's programs is a permissible means of attaining social welfare purposes. Thus, a section 501(c)(4) social welfare organization may further its exempt purposes through lobbying as its primary activity without jeopardizing its exempt status.” - IRS
- Donations to these organizations are not tax-deductible.
Foundation Designations
The organization will be asked to choose a 509(a) designation regarding where or how funding is acquired and how it is used. The list of choices are below.
The first option, 509(a)(1) and 170(b)(1)(A)(vi), is the most common EA organization designation.
- You are described in 509(a)(1) and 170(b)(1)(A)(vi) as an organization that receives a substantial part of its financial support in the form of contributions from publicly supported organizations, from a governmental unit, or from the general public.
- For example, financial support is substantially from grants or donations.
- You are described in 509(a)(2) as an organization that normally receives no more than one-third of its financial support from gross investment income and receives more than one-third of its financial support from contributions, membership fees, and gross receipts from activities related to its exempt functions (subject to certain exceptions).
- Most commonly for an organization providing a public service, such as a zoo or museum.
- Some organizations that provide paid healthcare services may qualify. Nonprofit therapist offices offering these services to the public will fall under 509a2 since a majority of their revenue may come from a combination of donations, grants, and payments for services provided.
- You are described in 509(a)(1) and 170(b)(1)(A)(i) as a church or a convention or association of churches.
- You are described in 509(a)(1) and 170(b)(1)(A)(ii) as a school.
- You are described in 509(a)(1) and 170(b)(1)(A)(iii) as a hospital, a cooperative hospital service organization, or a medical research organization operated in conjunction with a hospital.
- You are described in 509(a)(1) and 170(b)(1)(A)(iv) as an organization operated for the benefit of a college or university that is owned or operated by a governmental unit.
- You are described in 509(a)(1) and 170(b)(1)(A)(ix) as an agricultural research organization directly engaged in the continuous active conduct of agricultural research in conjunction with a college or university.
- You are described in 509(a)(3) as an organization supporting either one or more organizations described in 509(a)(1) or 509(a)(2) or a publicly supported section 501(c)(4), (5) or (6) organization.
- Your income can be from sales or services provided, but only for the organization types listed.
- You are described in 509(a)(4) as an organization organized and operated exclusively for testing for public safety.
- You are a private foundation.