501(c) 3 Tax Exemption Status

Overview

One of the fundamental steps in forming a non-profit organization is becoming a recognized 501(c)3 tax exempt entity. This status is vital to ensure the entity is properly categorized for tax purposes. The status is also a prerequisite for many of the state charitable solicitation registrations. Let the experts at LicenseLogix help your nonprofit with this important process!

Background

The first step is to create the proper legal entity. The organization must be organized as a trust, a corporation, or an association for the Internal Revenue Service (IRS) to recognize an organization’s exemption. The formation documents must include IRS language required by the tax exemption application. Next, the nonprofit must have an exempt purpose that is recognized by the IRS. The nonprofit must also have an EIN prior to apply for the tax exemption.

Finally the 501(c) 3 tax exemption application must be prepared and filed with the IRS. The application is very detailed and requires a great deal of information, including financial statements. The application fee ranges from $300 - $750 depending on estimated annual donations. Once the application is filed, the IRS will review it for 2-3 months prior to making a decision and issuing the exemption. It is important to plan ahead for this lengthy time frame.

Ramifications of Non-Compliance

Operating a charity without the proper tax exemption is very difficult. The finances of the nonprofit will not be in order without the proper tax exemption in place. The nonprofit will also be prevented from obtaining local and state licenses. Operating without the proper state registration and charitable solicitation license will result in fines and orders to cease operations.

How we help your business:

  1. Preparation of IRS Forms, including Narrative and all applicable forms.
  2. Review formation documents for IRS required language.
  3. Application monitoring throughout the review period.

More Resources:

- Tax Information for Charitable Organizations
- National Council of NonProfits


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