Which organizations can qualify for tax-exempt status? The short answer: nonprofit organizations or charities.However, your new charity or nonprofit won’t be immediately granted 501c3 status. In fact, only certain subsets of organizations are considered for this qualification. Here’s everything you need to know about 501c3 organizations, rules, and the application process.
Does my organization qualify for 501c3 status?
Before we delve into the application process, let’s go over the types of entities that actually qualify for this specific type of tax-exempt status. First of all, it must be a charitable organization that can receive tax- contributions. The two main classifications are public charities, which get a significant amount of funds from the government, and private foundations, which are primarily supported by investments and endowments.
More specifically, there are certain types of nonprofit charities that fall under the 501c3 classification. Organizations with the following purposes can be considered:
- Religious affiliation
- Charitable
- Scientific
- Prevention of Cruelty to Animals and Children
- Public Safety Testing
- Literary
- International or National Amateur Sports Competition
What are the 501c3 rules?
501c3 organizations can’t act in the benefit of private interests, nor can their funds benefit a private shareholder, person, or the owner’s family. These organizations aren’t allowed to lobby extensively or support political candidates of any kind. They can’t even participate in a political campaign or try to sway legislation; that would classify the group as an “action organization”, not a charity. Violation of these rules can result in an organization’s tax-exempt status being revoked. In that instance, the organization can’t apply for 501c4 tax-exempt status.
What is the 501c3 application process?
If you are seeking 501c3 status or a church (or an association of a church) or an non-private organization with receipts showing less than $5,000 in earnings, you don’t need to go through the trouble of applying for this status. Your organization will automatically be granted 501c3 status.
All other organizations need to apply for this specific tax-exemption. Before you proceed with the process, make sure your organization is officially registered as a trust, corporation, or an association. Your organization must also have an exempt purpose, which we’ve listed above, and should be at least three tax years old.
You’ll have to fill out Form 1023 along with a form for your application fee; the user fee ranges from $400 to $3,000. Be sure to put the employer’s identification number on your paperwork, and include copies of your organizing documents and financial statements. If an attorney is representing your organization throughout the process, you’ll have to include a Power of Attorney and Declaration of Representative form. Once you have completed all the necessary paperwork, you have to submit your application through the mail to the IRS.
