Attaining 501(c)(3) Status (Not-For-Profit Determination)

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Form 1023 is the IRS Application for Recognition of Exemption. A lawyer is not required in order to file Form 1023, although you may have had a lawyer involved in drawing up your organization’s organizing documents. Nolo Press has a very nice webpage about starting a nonprofit organization, starting with state activities, and also sells a "plain-English guide" to filing for nonprofit determination at http://www.nolo.com/product.cfm/objectID/54BF1B91-E31F-4726-8D0A2916A64B19B3/111/182/241/.

An "advance" (issued to newly created organizations) not-for-profit determination from the IRS is a useful document to obtain. It establishes that your organization may operate tax-exempt for five years. Although very small organizations, with less than $5,000 in annual gross revenues, may not have to file Form 1023 in order to operate as tax-exempt, the not-for-profit determination letter is only provided for organizations that file. Having this determination letter has several benefits:

  • Public recognition of your status as a tax-exempt organization
  • Advance assurance of your status to potential donors
  • Exemption from certain state taxes
  • Exemption from certain federal excise taxes
  • Nonprofit mailing privileges

If you are planning to file for nonprofit status and your organization is less than 15 months old, consider filing soon. Filing within this window makes the determination retroactive to the date of your founding. This effective date determines the dates during which your donors can take a deduction for contributions made to your group.

The IRS may respond in as little as four to six weeks, but review may take closer to three to four months. If your application is approved, the initial determination letter is in effect for five years. Then your organization files documentation of activities in order to receive a permanent designation from the IRS.

IRS Forms and Publications for Nonprofits at a Glance

Form 1023: The tax-exemption application

Form 872-C: An attachment to the 1023, included in the 1023 package, for certain filers

Publication 557: Instructions for completing Form 1023

Form 8718: "User Fee for Exempt Organization Determination Letter Request," which, along with a check, accompanies Form 1023

Form 990/990EZ: Annual information filings, similar to personal Forms 1040 (also Schedule A and sometimes Schedule B)

SS-4: Application for Employer Identification Number, required as an identifier on your organization’s filings with the IRS

Publication 598: "Tax on Unrelated Business Income of Exempt Organizations," gives information for organizations that must file the 990-T

Publication 578: Gives information for private foundations and their managers

Form 1023 filings are public records, and the IRS will make your Form 1023 available for public inspection if your request is approved. Your organization, too, will be responsible for responding to requests from the public to inspect these documents, at risk of financial penalties.

Form 1023 Checklist

File on time! Your application will be returned for missing information or attachments, and this could affect the effective date of your determination and even cause you to incur additional user fees.

Attach Form 8718 with the appropriate fee.

Prepare the application for mailing. Use an address from Form 8718, not your local IRS Service Center.

Complete all the sections of the form and all schedules that apply to your organization.

Include appropriate copies (conformed copies with approvals or declarations) of organizing instruments.

Include financial statements and, if your organization is less than a year old, proposed budgets.

Have the application signed by an officer or trustee that is authorized to sign or by a person authorized by power of attorney.

The IRS has a list of the "Top Ten Reasons for Delays in Processing Exempt Organization Applications”, which covers the above items in more detail.

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