What does being a 501c3, tax-exempt organization mean?
Organizations that meet the requirements of Internal Revenue Code section 501(c)(3) are exempt from federal income tax as charitable organizations.
Is there more than one category of tax-exempt organization? There are many types of tax exempt organizations. The two most popular are public nonprofits and foundations.
What benefit does being 501c3 offer my nonprofit and its contributors?
1. Your organization is exempt from paying income tax on the funds it raises for charitable causes. 2. Your organization’s documents are reviewed by the IRS and credibility is formed when you allow a transparent process and public entities to review and comment on your charitable purpose. 3. Your donors can deduct their contributions to you (within the limits of the law).
What form is required for 501c3 status?
IRS Form 1023 must be completed, filed and approved by the IRS.
What agency is the 1023 filed with? The Internal Revenue Service.
What are the fees to file Form 1023?
The IRS has 2 fees. If your gross receipts average less than $10,000 over 4 years the fee is $400. If more than $10,000 over 4 years the fee is $850. (per IRS 1023, user fee information.
What is cyber assist?
A new program that is designed to help people fill out the 1023 online. Once the bugs are worked out and the program is in effect the new fees will be $200 for organizations to file their 1023 forms online.
Do I have to file an application with my state?
In most states a nonprofit must register as a charitable organization. California is the only state that requires the charitable organization to go through a separate application process. California has streamlined the process making it less arduous a task by simply requiring the charity to file the determination letter after the IRS has approved the 1023 application.(Source: California Franchise Tax board)
How long does it take to complete Form 1023?
Completing a 1023 is a team effort between our consultant and you. It can depend on how fast the client gets information to the consultant to complete it and the amount of information that goes into the narratives and budgets. We do not place a time line on our work but do promise to work as expeditiously as possible to give our clients great service.
How long does it take for the IRS to approve 501c3 status?
IRS 501(c)(3) approval is taking longer these days. On the IRS site under charitable organizations you can monitor when the IRS will initially look at your application.
What happens if the application is rejected?
The IRS will initially give ample time to the applicant time to fix any errors and to clarify any outstanding issues. If the application is denied there is an appeal process. We try to concentrate on issues that may hamper an application process right up front so that you will not encounter any problems during the review process.
Can I complete the 1023 form?
We never discourage anyone from trying. Most of the time frustration sets in after reading a few sentences of the instructions. It is my advice to get assistance from someone who is experienced. We are also offering workshops for the 1023 application. See our home page tabs on workshops.
What questions does the 1023 ask? Or require?
The IRS asks for your organizational documents, your board members names, questions on compensation of those closely related to your organization, conflict of interest statements, budget and financial information, narratives and explanations on various questions concerning your activities. They may require flyers, brochures etc from your organization.
When does Form 1023 need to be filed?
We recommend applying as soon as possible following the formation of your organization, however the IRS asks that you file within the first 27 months of organization.
Does Form 1023 need to be notarized? No
Can Form 1023 be filed online? Not yet. The IRS is working on a program called Cyber assist.
Can I file Form 1023 before having the Articles of Incorporation for my nonprofit?
You must include your organizing documents which are your articles and bylaws. If you need to amend anything it must be done prior to 1023 submission. ( IRS Pub. 557 pg 3)
What is the effective date of my exemption (or can I receive donations?)
The IRS has new rules concerning the effective date. When you get ready to fill your form out your consultant can review that information with you. Generally it will be either the date you organized your corporation or the date the IRS receives the 1023 document. the IRS says in its
Can I apply for grants before I get my IRS determination letter?
Grantors will eventually ask for your IRS determination letter before granting you funding for your project. It is wise to have your IRS determination letter in hand prior to asking for funds. In addition, grantors are now asking for your first annual 990 return, so be prepared to have this information ready before you ask for funding.
What is a 990?
The 990 is a form where the nonprofit annually reports all of its income (charitable and non-related income) and its activities relate to that income.
If my nonprofit is tax-exempt, do I pay any type of taxes?
Yes, your organization may have to pay taxes on the following:1. Taxes on unrelated income or income that does not have to do anything with charitable causes.2. Employment taxes.3. Private foundations are liable for certain taxes.
Do I need an EIN number? What is it?
Yes, you do need an Employer Identification Number. Your organizations EIN number is like its social security number and is used to identify you, especially when corresponding with you. Your state may issue you a different number for state business.
Once my nonprofit organization has its exempt status, is there anything else I need to do to maintain it?
There are federal annual returns that must be filed. Depending on your organizations size and non-profit status you may have to fill out a simple on line postcard or a detailed return on your income and activities. In addition your state may require you to do an annual information on income and activities or update your board and address information periodically.
Does the IRS look at my credit when filing the 1023? I’ve been asked this several times. No the IRS does not do a credit check, but being a nonprofit will not get you corporate credit or automatic funding. You must run a credible nonprofit.
