Although certain groups are NOT required to file IRS Form 1023, it is recommended that these exempt organizations nonetheless submit the filing to ensure that the IRS views the organization as a 501C3 tax-exempt entity.
For example, if your corporation’s tax-exempt status is for some reason challenged by the IRS, you could be liable for back taxes and severe penalties for the period your company operated as a corporation. Only after a corporation is approved by the IRS as a tax-exempt organization can it rest assured that it is in fact a tax-exempt company.
How To Qualify for 501C3 Status
To qualify for federal tax-exempt status under 501(c)(3) of the federal tax code, the nonprofit corporation must be organized and operate for some religious, charitable, educational, literary, or scientific purpose permitted under this section of the code. Nonprofit corporations may also be formed for other purposes pursuant to different sections of the IRS code.
To qualify for federal tax-exempt status as a nonprofit under a different section of the code, your corporation must comply with the requirements of that federal tax code section.
- Religious category refers to general types of religious organizations and more formal institutionalized churches.
- Charitable purpose is defined in section 501C3 as providing services beneficial to the public interest.
- Scientific research that is carried on in the public interest qualifies for tax-exempt status; however, research incidental to commercial or industrial operations does not qualify.
- The literary purpose includes writing, publishing and distribution of books which are directed toward promoting the public interest rather than engaging in commercial book writing and selling.
- The educational purpose is a broad purpose that allows instruction for both self-development and the benefit of the community.
- The amount of the application fee depends on the nonprofit’s annual gross receipts over a four-year period.
If receipts exceed or will exceed $10,000 annually, the application fee is $850.00
If receipts have not or will not exceed $10,000 annually, the application fee is $400.00.
For organizations applying for reinstatement of automatically revoked exempt status under transition relief granted in Notice 2011-43., the application fee is $100.00. The IRS changes these fees periodically. Click here for a comprehensive mini-course of the IRS 501C3 tax exemption process.
The IRS 591(c)(3) application and approval process typically takes between two and twelve months. depending on a number of circumstances. Things that may affect the length of the application process include the time of year the application is submitted, the type of nonprofit organization and how complex the application is. Some of our clients have received their organization’s Letter of Determination within 2 to 3 months, but an average response time would be about 4 months.