How to Apply for 501(c)(3) Status: A Guide to Tax-exempt Status

Once your organization is granted 501(c)(3) status, it can save more on taxes. More importantly, winning grants and receiving donations will be much easier. But how does one apply for the 501(c)(3) status and which organizations can apply?

Below, we’ll discuss everything you must know about applying for tax-exempt status. From which organizations are qualified to apply to how long it takes to approve an application, this guide covers it all.

What is A 501(c)(3) Organization?

A 501(c)(3) organization is a nonprofit entity the IRS recognizes as tax-exempt, meaning they do not pay federal income taxes.

There is a common misconception that all nonprofits are tax-exempt. However, this tax election is granted only to those who meet the IRS requirements for the 501(c)(3) status.

If a charity organization does not qualify for the 501(c)(3) status, the IRS will tax it as a for-profit entity.

Who Can Apply For the 501(c)(3) Status?

According to the IRS, public charities, private foundations, and other nonprofit organizations can apply for the 501(c)(3) status. But to qualify for the tax election, they must fall under one of the following purposes:

• Charitable.
• Religious.
• Political
• Educational.
• Scientific.
• Literary.
• Public safety.
• Fostering national/international amateur sports competitions.
• Prevention of cruelty to children or animals.

Public charities, churches, and religious organizations are some examples of nonprofits eligible for 501(c)(3) status.

Other entities, such as civic leagues, agricultural organizations, and social clubs, may also qualify for tax-exempt status under Section 501(c)(4) of the Internal Revenue Code.

Benefits of Qualifying For the 501(c)(3) Status

Tax savings are one of the primary benefits of having tax-exempt status. Once your nonprofit becomes a 501(c)(3) organization, it can maximize the good it’s doing with its funds.

More importantly, qualifying for the 501(c)(3) status helps your nonprofit attract more donors and volunteers.

Some donors do background checks on the charity they want to work with to ensure its legitimacy. Charity Navigator, a charity assessment organization, encourages benefactors to look for employee identification numbers (EINs) or 501(c)(3) qualifications before donating.

This way, they can ensure that their contributions are being used for the right reasons.

How to Apply For 501(c)(3) Status

Applying for the 501(c)(3) status is relatively easy. It only involves the following steps:

Incorporate Your Nonprofit

The first step to applying for tax-exempt status is incorporating your nonprofit as a corporation.

Most charitable organizations are incorporated as corporations. However, there are specific nonprofits that are structured as LLCs.

Some states allow charities to be organized as LLCs, but this approach is typically considered a bad idea due to its complexity.

Complete Your Supporting Documents

Once you’ve incorporated your nonprofit, your next step is to complete your supporting documents. This includes the following:

• Articles of incorporation.
• Bylaws.
• EIN certificate from the IRS.
• Other important paperwork, such as your nonprofit’s financial records.

This step will help you streamline your application process.

Submit Your Form 1023/1023-EZ

Forms 1023 and 1023-EZ are the primary documents you must file with the IRS when applying for the 501(c)(3) status.

Form 1023 is designed for organizations that generate over $50,000 in annual gross revenues during their first three years of operation or have total assets worth $250,000 or more. In contrast, Form 1023-EZ is for smaller nonprofits not within that revenue bracket.

Once you complete the form, submit it alongside your supporting documents at Pay.gov. You can also mail your form to these two addresses:

Internal Revenue Service

Mail Stop 31A: Team 105

7940 Kentucky Drive

Florence, KY 41042

Or

Internal Revenue Service

Mail Stop 31A: Team 105

7940 Kentucky Drive

Florence, KY 41042

You must also pay $600 and $275 for Forms 1023 and 1023-EZ, respectively.

How long does it take to get approval for 501(c)(3) status? The processing time varies for each form.

The IRS typically processes Form 1023s in 6 to 12 months, especially since these documents are lengthy. In contrast, it only takes 8 to 12 weeks to process Form 1023-EZs.

If you want to check the status of your 501(c)(3) application, you can call the IRS toll-free number: 877-829-5500. We also suggest you use the IRS website’s Tax Exempt Organization Search (TEOS) feature to check if your approval letter has been posted.

How to Maintain Your 501(c)(3) Status

Once the IRS approves your nonprofit’s tax-exempt application, it must maintain its 501(c)(3) status for the coming years. Here’s how:

Submit Annual Reports

The form 501(c)(3) organizations use to file annual returns varies depending on their financial activity:

• Form 990-N for gross receipts worth less than $50,000.
• Form 990/990-EZ for gross receipts less than $200,000 and total assets greater than $500,000.
• Form 990-PN for private foundations.

Avoid Contradicting Activities

Your nonprofit must also avoid activities that contradict its 501(c)(3) election. Examples include lobbying, participating in political campaigns, and giving significant benefits to private individuals, like board members or officers.

Maintain Proper Records

Proper documentation is crucial for 501(c)(3) organizations. It’s one of the best ways a nonprofit can demonstrate compliance with the IRS. You must keep the following documents in a secure and safe place:

• Financial records.
• Donation records.
• Board meeting minutes.
• Compliance documents.
• Employee records.

This way, you can easily access them when needed.

Comply with State Requirements

Lastly, your organization must comply with state regulations to maintain its tax-exempt status. Each state has laws and regulations for nonprofits, so we suggest you familiarize yourself with your state’s laws.

Get Tax-exempt Status Today

Applying for 501(c)(3) status is easy, but if you’re having trouble processing your application, Inc. Authority is here to help you.

Our team of business formation specialists will assist you in submitting your 501(c)(3) application so that you can get your nonprofit up and running as quickly as possible.

At Inc. Authority, we understand how expensive setting up a charity organization can be. So, we’ve made it our mission to offer assistance to those who want to leave a positive mark on their community.

To learn more, visit our website here.