Applying for Tax Exempt 501c3 Status

One of the most powerful advantages of applying for the IRS tax exempt 501c3 status is for the purpose of receiving tax-deductible donations and being waived from paying Federal Taxes (nonprofits must also apply to their local states for state exemption as well) on income that is used solely for the purpose in which your organization was created.  However, please take note that revenue received from the sale of products or services may be subject to taxation.  It is very important to discuss tax deduction and exemption issues with your tax attorney, CPA or tax specialist. 
Many individuals are intimidated when they think of the terms, “IRS Tax Exemption” or “501c3 Application”.  It’s probably because the Internal Revenue Service manages the entire process and is solely responsible for approving all Tax Exempt applications.  However, it’s not really all that complicated and anyone starting a nonprofit organization should familiarize themselves with the process even if they choose to have an expert prepare their application. 
Taken from IRS Publication  557 (Rev. March 2005)

“According to the IRS an organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of the following purposes:  

  • Charitable 
  • Religious
  • Educational
  • Scientific
  • Literary
  • Testing for public safety
  • Fostering national or international amateur sports competition (see publication 557 for full information on this topic) 

To qualify, the organization must be a corporation, community chest, fund, or foundation.  A trust is a fund or foundation and will qualify.  However, an individual or partnership will not qualify. 

Examples.  Qualifying organizations include:

  • Nonprofit old-age homes
  • Parent-teacher associations
  • Charitable hospitals or other charitable organizations 
  • Alumni associations
  • Schools
  • Chapters of the Red Cross or Salvation Army
  • Boys’ or Girls’ clubs and
  • Churches

Some of the challenges in qualifying for the 501c3 status really have nothing to do with the application process itself.  It has more to do with setting a proper foundation and structure under your organization.  This includes ensuring the following tasks are completed properly: 

  • Organization Vision 
  • Organization Name 
  • Board of Directors 
  • Articles of Organization 
  • Filing Your Articles with Your Secretary of State 
  • Organization Bylaws 
  • Organization Business Plan 
  • Organization Executive Summary or Narrative 
  • Fundraising Plan 
  • Volunteer Plan 
  • Cash Flow Projections

By ensuring the above foundational items are taken care you are 75% of the way of getting your 501c3 application approved.  Your next step is to ensure that your organization falls within the guidelines of qualifying as a 501c3 organization.  There’s no secret about these qualifications.  The IRS makes it very clear and provides examples of what types of organizations are approved.  This alone will help to ensure that you get approved once you properly ensure that the aforementioned information is in place. Can Help You!

With our extensive knowledge and experience in forming nonprofit corporations and assisting clients with the IRS 1023 for 501c3 classification, we can: 

  1. Review your organization structure to ensure that it falls within the IRS guidelines for 501c3 
  2. File your articles of organization (if necessary) 
  3. Write or revise your organization’s bylaws 
  4. Write a strong narrative based on your organization’s vision and mission 
  5. Assist you in developing your volunteer and fundraising plans 
  6. Preparation your organization’s financial projections or report. 
  7. Prepare your form 1023 application for 501c3 tax-exemption status. 
  8. Provide resources and consultation on nonprofit management and daily operations.