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How to Apply for 501c3 Status?

In our previous post, we explained what a 501(c)(3) organization is and the benefits of obtaining 501(c)(3) status. A 501(c)(3) organization operates exclusively for one or more charitable purposes and is exempt from federal taxation. It is an attractive option for many organizations and one that brings a multitude of benefits to the organization and its individual contributors. In this post, we will break down how to apply for 501(c)(3) status.


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Who Should Seek 501(c)(3) Determination?


The IRS will not treat an organization as federally tax exempt unless such organization applies for the tax exemption and is approved by the IRS. Exceptions to this rule include churches, their integrated auxiliaries, and public charities whose annual gross receipts are normally less than $5,000.


The Application Process


To seek a 501(c)(3) determination from the IRS, an organization must apply online using either Form 1023 or Form 1023-EZ. All organizations can use Form 1023, but only organizations that meet the requirements for the streamlined Form 1023-EZ can use that form. 


When applying, an organization should keep in mind a few things. First, Form 1023 is 28 pages long. Once all the supporting documentation is attached, the final application packet can be 50 to 100 pages long. An applicant should ensure their application shows that the organization’s governing structure, purpose, and planned programs align with section 501(c)(3). Our previous post explains which purposes are considered charitable under 501(c)(3). This could take a novice about 100 hours to complete. Second, include your employer identification number (EIN) in the application, even if the organization doesn't have employees.


Upon completing and submitting the appropriate form, the applicant must pay the required user fee. The IRS provides further instructions for Form 1023 and Form 1023-EZ and some video guidance.


Timeline


Organizations that want to seek IRS 501(c)(3) determination should do so within 15-27 months from the date they are formed. However, the sooner the better. 


Generally, Form 1023 should be filed within 15 months of the organization’s formation. Because the determination takes time, however, many organizations prefer to apply as soon as possible following formation. Organizations may be able to apply within 27 months instead if they face certain circumstances. After 27 months, though, retroactivity of 501(c)(3) status is limited.  


If an application is successful, the IRS will send a determination letter confirming their recognition. Congratulations! At this point, make sure to comply with requirements at both the state and federal level — which we will detail in another post. 


Conclusion


Obtaining 501(c)(3) status offers several benefits to designated organizations and the people they serve. 501(c)(3) organizations are exempt from federal tax and its donors are able to claim a tax deduction for their contributions. However, due to their heavily regulated nature, 501(c)(3) applications can be tricky.


If you have further questions, please don't hesitate to contact us or book a meeting.


The information provided on our blog is not legal advice and should not be relied upon as legal advice. Anyone reviewing this post should use it as only a first step in understanding how to apply for 501(c)(3) determination. You should consider consulting with a lawyer when obtaining and complying with 501(c)(3) status. See also: What is 501c3 Status?


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