If you’re thinking about starting a 501c3 nonprofit organization, you’ll want to learn about the process for obtaining 501(c)3 status with the IRS. This status is important as it allows your nonprofit to operate as a tax-exempt entity. This article will provide an overview of the requirements for obtaining 501(c)3 status as well as the application process.
What Is 501(c)3 Status?
An organization that is granted 501(c)(3) status by the IRS is exempt from paying federal income tax. Also, donors who contribute to the nonprofit organization can deduct the expense on personal tax returns. This dual advantage means that the organization keeps most of its income, while donors recapture some of the benefits of giving donations. However, the money donated cannot be used to pay investors, but instead must be solely used for the organization and its programs.
What are The Requirements to Become A 501(c)3?
To be eligible for 501(c)3 status, your nonprofit must be organized and operated for one or more of the following exempt purposes:
-testing for public safety
-prevention of cruelty to animals and children
Your nonprofit must also meet the following requirements:
-It must be a nonprofit organization: This means that your organization cannot be organized for profit and no part of the net income may go to any private shareholder or individual.
-It must have a definite charitable purpose: Your organization must be created for the purpose of benefiting the public in some way, rather than serving a private interest.
-It must be operated in a non-partisan manner: This means that your organization cannot support or oppose any political candidate or party.
-It must not engage in illegal activities: Obviously, your organization cannot engage in any illegal activities. If it does, it will lose its nonprofit tax-exempt status.
-It cannot call for discrimination of any kind: Your organization cannot discriminate against any person or group based on race, religion, gender, etc.
What is the Application Process to Get a 501(c)3 Status?
The IRS has a lengthy application process to get a 501(c)3 status, but it is not difficult to follow if you have all of the required information. Below are the main steps and tips to help you through the application process.
Apply For an Employer Identification Number
The first step is to apply for an employer identification number (EIN), even if you don’t have any employees. This number is used by the IRS to identify your organization. You can apply for an EIN online, by fax, or by mail.
Fill Out Form 1023
To apply for 501(c)3 status, you will need to complete and submit IRS Form 1023. This is the application for 501(c)3 status. This form is fairly long and is used to provide the IRS with information about your nonprofit, including its purpose, structure, and finances.
Get All Required Documentation
In addition to a Form 1023, you will also need to include the following documentation:
-Your articles of incorporation.
-Your conflict of interest policy.
-Your most recent nonprofit tax return.
When to File Your Application
The official due date for the application is the end of the 27th month after the organization was formed. However, you should file your application as soon as possible after your organization is formed. The IRS can take up to six months to process your application, so you don’t want to delay in starting the process.
What to Do While Your Application is Pending
Once you’ve submitted your application, there are a few things you can do while you wait for the IRS to make a decision:
-Start fundraising. Even though you’re not officially a 501(c)3 organization yet, you can still start raising money. Just be sure to keep track of all the donations you receive and how they are used.
-Get your financial house in order. This is a good time to start working on your budget and getting your financial records in order. This will make it easier for you to track your expenses once you are officially a 501(c)3 organization.
-Start planning your programs. If you know what programs you want to run, start planning them now. This way, you can hit the ground running once you receive your 501(c)3 status.
-Apply for grants. Many foundations and other organizations will not give grants to organizations that don’t have 501(c)3 status, but some will make exceptions. It’s worth checking into various grants while you’re waiting for your application to be approved.
Applying for 501(c)3 status can be a lengthy and complicated process, but it’s worth it if you want your organization to be exempt from federal taxes. Be sure to gather all the required documentation and file your application as soon as possible. And while you’re waiting for your application to be approved, start planning your programs and fundraising efforts.