Starting a nonprofit organization can be an excellent way to make a difference in your community, but navigating the IRS application process requires careful attention to detail. Here’s what you need to know about forming a 501(c)(3) and obtaining tax-exempt status from the IRS.
First Steps: Creating Your Nonprofit Entity
Before applying for tax-exempt status, you must first establish your nonprofit at the state level. This typically involves filing articles of incorporation with your state’s Secretary of State office. Your articles must include specific language about your charitable purpose and what will happen to assets if the organization dissolves. These provisions are required by the IRS for tax-exempt status.
Obtaining Your EIN
Once your state recognizes your nonprofit, you’ll need to obtain an Employer Identification Number (EIN) from the IRS, even if you don’t plan to have employees. You can apply for an EIN online through the IRS website: https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online
Filing Form 1023
The main application for tax-exempt status is IRS Form 1023. As of January 2024, all Form 1023 applications must be submitted electronically through Pay.gov. The application is comprehensive and requires detailed information about your:
- Organizational structure and governance
- Specific charitable activities and programs
- Financial projections or actual financial data
- Compensation arrangements for officers and key employees
- Relationships with other organizations
The current user fee for Form 1023 is substantial, so ensure you have all required documentation ready before submitting. Some organizations may qualify to file Form 1023-EZ, a streamlined version with a lower fee. You can check eligibility through the IRS website: https://www.irs.gov/charities-non-profits/charitable-organizations/form-1023-ez-eligibility-requirements
Timing Considerations
If possible, file Form 1023 within 27 months of forming your nonprofit. This allows your tax-exempt status to be retroactive to your date of formation. Applications filed after this period will typically result in tax-exempt status starting from the application date.
State Compliance Requirements
After receiving federal tax-exempt status, you’ll need to obtain state tax exemptions and register for charitable solicitation in states where you’ll fundraise. The National Association of State Charity Officials (NASCO) provides helpful information about state requirements: http://www.nasconet.org/resources/
Professional Assistance
While it’s possible to complete the application process yourself, many organizations choose to work with legal counsel or nonprofit formation specialists. The application process can be complex, and mistakes can lead to delays or denial. Professional assistance can help ensure your application addresses all IRS requirements and presents your organization in the best light.
For more detailed information about starting a nonprofit, the IRS provides comprehensive resources at: https://www.irs.gov/charities-non-profits/charitable-organizations
Remember that obtaining 501(c)(3) status is just the beginning. Maintaining tax-exempt status requires ongoing compliance with IRS regulations, including annual filing requirements and adherence to restrictions on political activity and private benefit.
Our firm assists nonprofits with formation, tax-exempt applications, and ongoing compliance. Contact us to discuss how we can help your organization navigate the process successfully.
[Note: This blog post is for informational purposes only and does not constitute legal advice. Please consult with qualified legal counsel regarding your specific situation.]
