If you are considering obtaining 501(c)(3) status for your California nonprofit, contact A People’s Choice for help. Below is a detailed overview of filing for 501c3 status in California for your nonprofit organization. Read on to learn more.

501c3 Tax Exempt Purpose

The IRS grants 501(c)(3) status to a nonprofit that meets a tax exempt purpose. The nonprofit organization must be organized and operated exclusively for one or more tax exempt purposes. The IRS recognizes the following nonprofit organization tax exempt purposes:

  • Charitable
  • Educational
  • Religious
  • Scientific
  • Literary
  • Preventing cruelty to children and animals
  • Fostering sports competition
  • Public safety testing

In order for the IRS to recognize your organization’s tax exemption request, you must first be organized as a trust, corporation, or an association. You will need to file the proper documentation with the California Secretary of State to legally form your business entity. Your nonprofit’s organizing documents (example – articles of incorporation, trust documents, or articles of association) must detail the following:

The nonprofit organization must limit its purpose to those described in IRC section 501(c)(3);

  • Must be engaged in activities that furthers its exempt purposes; and
  • Permanently dedicate all assets to tax exempt purposes.

In addition to being organized, the nonprofit organization must show that it is operated to further its exempt purpose. This means the nonprofit must prohibit certain activity within its organization. For example, 501(c)(3) organizations must refrain from participating in political campaigns for federal, state, and local politicians. In addition, lobbying activities must be an insubstantial part of its activities and its activities must not be illegal or violate widely accepted public policy.

How to Get 501c3 Status

Complete IRS Form 1023, the Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, to apply for 501(c)(3) status. A smaller nonprofit may be eligible to file IRS Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3). This form is shorter than the standard IRS Form 1023 and can be completed online.

Form 1023 is complex. We recommend you complete and file this form within 27 months of filing your articles of incorporation. If you file this tax exempt application at the same time as your articles of incorporation, your nonprofit tax exemption status will take effect on the date of the filing. This mean all donations received as of that date will be considered tax deductible. If you complete the application at a later date, your nonprofit tax exempt status will be effective as of the date of postage.

IRS Form 1023

IRS Form 1023 consists primarily of 11 sections and includes 8 schedules. Below is a brief overview of what each section covers:

  • Identification of Applicant

This section provides a detailed overview of the nonprofit organization. It asks for the organization’s business name, contact information, and the date organizing documents were filed.

  • Organizational Structure

Under this section, you will have to attach a copy of your organization’s bylaws and articles of incorporation to the application.

  • Required Provisions in Your Organizing Document

Your articles of incorporation must contain certain clauses to obtain 501(c)(3) tax exempt status: 1) A clause that states your organization was formed for a 501(c)(3) tax exempt purpose; and 2) A clause that states all your organization’s assets will be distributed to another 501(c)(3) nonprofit upon business dissolution.

  • Narrative Description of Activities

Under this section, you must detail all of your organization’s activities and how it furthers its tax exempt purpose.

  • Compensation and Financial Arrangements

In this section, you will have to detail all proposed compensation to and financial arrangements with the top 5 paid employees, independent contractors, and trustees.

Under this section, you must report the goods and services your nonprofit will offer to the public.

  • Your History

In this section, you need to identify whether or not your organization is a successor to an incorporation preexisting organization.

  • Your Specific Activities

In this section, you will need to disclose any political or fundraising activities your nonprofit engages in.

  • Financial Data

In this section, you must provide information regarding your organization’s revenues and expenses.

  • Public Charity Status

In this section, you provide information about your nonprofit’s charity or foundation status.

  • User Fee Information

You will have to pay a fee to the IRS in order for them to process your 501(c)(3) application.

Once the form is complete and filed, the IRS may either grant your application for 501(c)(3) status, request for more information from you, or deny your application. Note, the information discussed above is applicable to federal tax exempt status. Depending on your state tax law, you will also have to apply for income tax exemption for your nonprofit in accordance to state guidelines.

Contact A People’s Choice For 501(c)(3) Application Help!

Contact A People’s Choice to learn about filing for 501c3 status in California for your nonprofit organization. We help nonprofit organizations complete and file all required information to complete the IRS Form 1023 and successfully obtain tax exempt status. Call us toll free at 1-800-747-2780.