General 501(c)(3) Questions
501(c)(3) is an IRS designation identifying tax-exempt organizations. Receiving 501(c)(3) status requires an organization to engage in charitable activities such as providing relief to the poor, advancing education, or promoting religion. 501(c)(3) refers to nonprofits as a whole, but not all nonprofit organizations receive 501(c)(3) status.
501(c)(3) organizations are exempt from federal taxes, and donations are tax-deductible. However, the organization may still need to pay state and local taxes.
The most common type of 501(c)3) organization is one whose following purposes are charitable, religious, educational, scientific, literary, testing for public safety, fostering amateur sports competition, or preventing cruelty to children or animals.
Starting a 501(c)(3) organization requires incorporating a company in your State, establishing a legal Board of Directors, and applying for 501(c)(3) tax-exempt status. Depending on your State, other requirements may exist, such as filing a charity registration.
Bylaws are the governing document that establishes how a nonprofit organization operates. The IRS has specific requirements that must be included in the Bylaws for a 501(c)(3) tax-exempt nonprofit.
According to the IRS, “the term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”
Nonprofit organizations seeking designation as a church must demonstrate distinct religious beliefs, a place of worship, regularly scheduled services, and an established and active congregation.
Fostering national and international amateur sports is an exempt purpose for 501(c)(3) nonprofit organizations. However, the organization must also be focused on providing education (e.g., teaching youth how to play), affiliated with an educational organization like a school, promoting youth development, or involving international training without procuring facilities or equipment (e.g., Olympic athletes).
501(c)(3) Application Process
Nonprofit status is a state law concept. Nonprofit status may make an organization eligible for certain benefits, such as state sales and property tax exemptions. Organizing as a nonprofit organization at the state level does not automatically exempt the organization from federal income tax. To qualify as exempt from federal income tax, an organization must meet the Internal Revenue Code requirements.
Applying for 501(c)(3) tax-exempt status requires filing IRS Form 1023 or 1023 EZ. The EZ form has rigorous requirements based on donations and types of organizations. Specialized organizations, such as churches or schools, cannot file the EZ form.
Incorporated nonprofit businesses can apply for 501(c)(3) tax-exempt status by filing IRS Form 1023 or 1023 EZ. The EZ form has particular requirements based on the type of organization and annual revenue.
Nonprofit companies organized for charitable purposes are eligible for 501(c)(3) tax-exempt status. These include religious, charitable, scientific, testing for public safety, literary, educational, fostering amateur sports, or preventing cruelty to children or animals.
The processing time for us to complete and file the 1023 application is remarkably swift, ranging from 1 to 2 business days from when we receive all your information. This efficient process is designed to provide you with a sense of reassurance and confidence.
The IRS then takes 3 to 12 weeks to hear back, depending on the type of application submitted.
You can check to see the status online directly with the IRS at https://apps.irs.gov/app/eos/
No, you may file directly with the IRS for 990 and 501(c)(3) applications or with your State for Solicitation of Contributions applications. We are a third-party filing company, so we are not to be confused with any local government agency or the IRS.
Establishing a projected budget is vital for every nonprofit organization. Depending on the type of 501(c)(3) application (1023 or 1023 EZ), up to five years of budget information may be required to apply for tax-exempt status.
501(c)(3) tax-exempt nonprofit organizations must file a Form 990 Annual Report with the IRS each year. Additional filing requirements vary by State but generally include annual reports, charity registration renewals, and sales tax-exemption renewals.
501(c)(3) status does not exempt organizations from state and local taxes. Most states provide a process for exemption from franchise and sales taxes, though some state and local taxes (like property or employment) may still be required.
Click here to see if the IRS has started working on your 1023 tax-exempt application!
Once a 501(c)(3) has been approved, it becomes public record. You can look up your 501(c)(3) using the IRS lookup tool here.
The Tax Exempt Organization Search Tool
You can check an organization’s:
- Eligibility to receive tax-deductible charitable contributions
- Review information about the organization’s tax-exempt status and past filings.
Benefits of 501(c)(3) Exemption
There are 2 major benefits of receiving a 501(C)(3) exemption:
- Nonprofit organizations exempt under 501(c)(3) do not pay federal income taxes. If you do not apply for the exemption, you most likely will be subject to these.
- Becoming exempt under 501(c)(3) could allow donors who contribute to your organization to deduct this expense from their tax returns. Donating to your organization would make it much more attractive, as potential donors would now receive an individual benefit for doing so.
Operating a 501(c)(3) Nonprofit
The Board of Directors oversees the operation and compliance of the nonprofit organization. The Board may directly facilitate programming and direct services in smaller organizations. The Board may hire and manage people in larger organizations to operate these functions.
Every nonprofit organization requires at least three board members. The Board has three required roles (President, Treasurer, and Secretary) that unique individuals must fulfill.
501(c)(3) organizations can have paid employees like any other corporation. Employees with high salaries must be disclosed on the annual report, and organizations must still pay employment taxes.
Funds raised by a 501(c)(3) nonprofit organization can be used to operate the business for charitable purposes. This includes providing services, paying employees, renting space, and more.
Nonprofit organizations can charge for goods and services that align with their exempt purpose. In general, fees should be less than similar commercial options in the area. Any fees charged for goods or services outside the organization’s exempt purpose may be subject to unrelated business income taxes (UBIT).
The majority of a nonprofit organization’s Board of Directors must be unrelated. Family members can serve on a board, but unrelated individuals must outnumber them. For example, a husband and wife can sit on a board if three additional unrelated individuals are on the same Board.
It’s never a good idea to show favoritism and give scholarships to members of the Board, award committee, or their family members.
Nonprofit organizations are generally prohibited from lobbying or engaging in political activities. However, a 501c4 organization can spend unlimited time lobbying and is often a better choice for politically active nonprofit organizations that want to maintain their 501(c)(3) status.
Most states require nonprofit organizations to file a charity registration before asking for funding or donations. The process depends on your State but usually includes filing with the Attorney General or Department of Consumer Services.
501(c)(3) status exempts organizations from federal taxes but not from state taxes. Filing for state tax exemption removes an operational burden. It ensures that more funds are available for the organization’s exempt purpose. You are not required to apply for state exemption. In fat depending on your activities, it might cost more to maintain than the benefits received.
How to Maintain 501(c)(3) Tax-Exempt Status
Once approved for tax-exempt status, you must file an annual 990 with the IRS to stay in good standing. Failure to do so can result in penalties or loss of tax-exempt status. The deadline to file the 990 return is May 15 for December 31 fiscal year organizations.
The 990n filing asks if the organization’s revenue is generally below $50,000.
How do you define “generally“?
Gross receipts are considered to be usually $50,000 or less if the organization:
Has been in existence for one year or less and received, or donors have pledged to give, $75,000 or less during its first taxable year;
Has been in existence between 1 and 3 years and averaged $60,000 or less in gross receipts during each of its first two tax years; and
It is at least three years old and averaged $50,000 or less in gross receipts for the immediately preceding three tax years (including the year for which calculations are made).
501(c)(3) organizations are exempt from federal taxes. However, they must still file Form 990 with the IRS each year. This annual report is due on the 15th day of the 5th month after a nonprofit’s fiscal year ends. Typically, this is May 15 for organizations with a fiscal year ending on December 31.
The “organizational test” is how the IRS determines a 501(c)(3) tax-deductible organization. The test ensures that the Bylaws and Articles of Incorporation restrict operations to the organization’s exempt purpose. Additionally, the organizational test establishes how assets are distributed should the nonprofit dissolve and ensures no one financially benefits from the organization’s operation.
Ongoing 990 Filing Requirements
There are quite a few benefits to working with our company:
Organizations can’t go back and file past years’ Form 990ns on the IRS’s website. To do so, they must file through an e-file provider, and 501(c)(3) Center is one such authorized IRS e-file provider.
Our commitment to providing annual reminders to our clients regarding filing requirements is a testament to the support and guidance we offer. This ensures that you are up to date on all your federal filings, and if the organization’s officers change, the reminder may be pivotal to the newest officer, who may not be aware of the filing requirement or how to do so.
We found that some organizations were unsure of how to file the form independently, so we have made it more streamlined for them. This also means not having to research the requirements or create a user login with the IRS regarding the 990n.
With 501(C)(3) Center Co., you can rest assured that your filing is done correctly and promptly. Our commitment to accuracy and timeliness is designed to provide you with a sense of security and confidence.
Not all organizations remember to make a copy of the filing when filing the 990n, as the IRS gives only one opportunity to print this. We ensure this is done and will have a record on file for you at your request.
Our customer support staff always answers questions within 24 hours and can be reached through our contact page.
501(c)(3) nonprofit organizations are public charities and must have public records. Once received, the IRS publishes 990 annual reports publicly, and organizations must provide other financial records to the public if requested.
Losing 501(C)(3) Status
The IRS automatically revokes 501(c)(3) tax-exempt status from nonprofit organizations that don’t file tax returns for three years. While revocation is automatic, reinstatement of 501(c)(3) is not. The IRS requires a fair amount of time and effort to bring an organization back into compliance. Like any challenging puzzle, reinstating 501(c)(3) status requires time, and an organized arrangement of key pieces. The 501(c)(3) Center does not provide reinstatement services. We do recommend BryteBridge Nonprofit Solutions if you need help reinstating your nonprofit. You may visit BryteBridge here!
501(C)(3) Center Services
Our mission is to educate and help nonprofits obtain and maintain their 501(c)(3) tax-exempt status, so they impact their local communities and the causes they passionately believe in. At 501(c)(3) Center Co., we help incorporate nonprofits by completing the incorporation and 501(c)(3) process. Additionally, we help 501(c)(3) Nonprofits keep their tax-exempt status by filing 990Ns each year to eligible nonprofits.
Our fees can be found on the pricing page by clicking here.