Application for Tax-Exempt Status
Ready to start
You should now have all the documents and information you are going to need in front of you, and you are ready to begin. To recap, these are:
Organizing document and any amendments that conform with the the IRS requirements
Bylaws, if adopted. Check the rules in your state
Signed & completed Form 2848 or Form 8821, if applicable (these are authorizations for third parties like accountants or attorneys to speak to the IRS on your behalf or inspect confidential records)
Supplemental responses, if applicable, and
Expedited handling request, if applicable
EIN number
Applying
The tax-exemption process begins with the filing of IRS Form 1023 or the streamlined version, 1023-EZ which is generally available to smaller nonprofits with assets of $250,000 or less and gross receipts of $50,000 or less.
You can and should read the instructions and watch the tutorials on the IRS website, they really are helpful, but here’s the breakdown.
Identification of Applicant
It may seem obvious, but enter your organization’s name EXACTLY as it appears on your organizational documents. This should also be how it appears on your EIN letter. You will be entering your EIN number, NOT your own social security number. If you don’t have one, you will be able to apply for one on Pay.gov.
You will also enter your organization’s tax year, which we’ve previously discussed here . You will enter your organization’s website and email address if you have one.
Which Form Do I File?
You will file Form 1023-EZ if your organization qualifies, and if not, you must file Form 1023. The eligibility checklist for Form 1023-EZ is found beginning on page 13 of the instructions linked above. If you answer “yes” to any of the questions, you must file the full version of Form 1023.
Where to File
Form 1023 can only be submitted online, and in order to do so you must first set up an account on Pay.gov . Once you create your account, you will fill out the application, pay a user fee, and submit it online.
When to File
In order to receive tax-exemption status going back to when your nonprofit was established, you must file your application within 27 months. If approved, the IRS will consider your organization tax-exempt from the start.
User Fees
These are based on gross receipts of the organization for the last four years and change annually. You can use projections for this amount if your organization has not existed for four years at the time of your application. Check current fees here.
Waiting for Approval
You should receive an acknowledgement from the IRS once they receive your application. Ninety days after you receive your acknowledgement you should receive a Determination Letter. Simple applications are approved pretty quickly, more complex applications are assigned to an Exempt Organization (EO) Specialist. If you do not receive anything after 90 days, you can check here for more information.
You can operate as a tax-exempt organization while you wait for approval. Donors won’t have assurances that their donations are deductible. Take this time to prepare by creating systems for record keeping, banking, accounting, and governance.
Determination Letter
Once you receive this letter from the IRS confirming your tax-exempt status, keep it very carefully! You may be asked to produce it for various purposes including a public disclosure request.
Group Exemption Letters
When more than one organization applies as a central group, the letter received will be a group exemption letter that is applicable to each organization.
Church Exemption
Churches, mosques, temples, synagogues are not required to apply in order to receive tax-exempt status. However, they can still apply in order to receive a Determination Letter.
Good luck! Here are some additional links that you may find useful IRS Links
