Organizational leadership can learn more about these topics and the benefits, limitations and expectations of tax-exempt organizations by attending the 10 courses at the online Small to Mid-Size Tax Exempt Organization Workshop.
Nonprofit status is a state law concept. Nonprofit status may make an organization eligible for certain benefits, such as state sales, property and income tax exemptions. Although most federal tax-exempt organizations are nonprofit organizations, organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax. To qualify as exempt from federal income tax, an organization must meet requirements set forth in the Internal Revenue Code. See Types of Tax-Exempt Organizations or Publication 557 PDF for more information.
To be recognized as exempt from federal income taxation, most organizations are required to apply for recognition of exemption. For section 501(c)(3) organizations, the law provides only limited exceptions to this requirement. Applying for recognition of exemption results in formal IRS recognition of an organization's status, and may be preferable for that reason.
Most organizations applying for exemption must use specific application forms. Four forms currently used by the IRS are:
The application your organization is required to submit is specified in Publication 557. Note that for some types of organizations no application form is specified. You may preview a copy of Form 1023, Form 1023-EZ, Form 1024, and Form 1024-A at www.pay.gov.
Yes, user fees apply to all requests for determination letters, including exemption applications. See User Fees for complete information.
You'll submit your completed Form 1023, Form 1023-EZ, Form 1024, or Form 1024-A exemption application electronically at www.pay.gov.
Applications are processed as quickly as possible. The process can be delayed, however, for reasons ranging from simple errors on the application to issues concerning the qualification of the organization for exemption. See the Top Ten Reasons for Delay in Processing Applications. To find the status of a current application, see Where's My Application?
Answering all questions completely and submitting all required items will ensure agents reviewing your application are able to process it as quickly as possible. Also, review the Top Ten Tips to shorten the tax-exempt application process.
In general, applications are processed in the order received by the IRS. Sometimes, however, the IRS will work an application outside the regular order. For expedited processing to be granted, however, there must be a compelling reason to process the case ahead of others. Compelling reasons include the following:
For a pending grant, the following specific information would help support a request for expedited processing:
A request for expedited processing must be made in writing and must fully explain the compelling reason. Granting expedited processing is at the discretion of the IRS.
An organization may not request expedited handling of a Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
If the organization's organizing documents, purposes, or programs change while the IRS is considering an application, you should report the change in writing to the office processing your application. If you do not know the office that is processing your exemption application, contact Exempt Organizations Customer Account Services.
Because material changes in a charity's structure or activities may affect its tax-exempt or public charity status, organizations should report such changes to the IRS Exempt Organizations Division. See procedures for reporting changes for a complete discussion.
An exemption application is subject to public disclosure once it has been finally approved or denied.
No. Unlike some states that issue numbers to organizations to indicate that these organizations are exempt from state sales taxes, the IRS does not issue numbers specifically for exempt organizations. While the IRS does issue Employer Identification Numbers (EINs), these are merely a unique identifier, similar to a Social Security number for an individual. Applying for and receiving an EIN says nothing about the organization's tax status; however, your organization needs an EIN to apply for tax exemption.
No. If a corporation is reinstated by the state after an administrative suspension or dissolution of its corporate charter, its exempt status may be reinstated without the need for the corporation to reapply. The organization must submit evidence from the state that its charter has been reinstated, indicating the effective date of reinstatement. In addition, the organization should provide evidence that it has complied with any filing requirement for annual returns during the period during which its corporate status was administratively suspended or dissolved.
If, however, an organization's exempt status has been automatically revoked for failing to file annual returns, exempt status cannot be reinstated unless it submits a new exemption application, even if the state reinstates its corporate status.
Most state and local government entities are not required to pay federal income tax. For non-tax reasons, though, government entities are sometimes asked to provide a tax-exempt number or determination letter to prove their status as a tax-exempt organization. State and local governments are not required to apply for this exempt status, however. As discussed in Affirmation of Your Tax-Exempt Status, the IRS will issue a letter describing the tax status of government entities. Most organizations and individuals will accept this letter as the substantiation that they need. No application is required, and no fee is associated with this letter.