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Exempt or Not Exempt

What to know about the tax-exempt application process for charities

This blog is in response to questions from some or our clients regarding the process of filling the tax exempt application for non profit organizations.

Organizations that meet specified requirements under Section 501(c) of the Internal Revenue Code may qualify for tax-exempt status. These include charities, social welfare organizations, civic leagues, social clubs, labor organizations and business leagues. Most organizations are required to apply for recognition as tax-exempt.

Here are some key things that charities should know about the application process:

  • Application includes a fee The application must be complete. It must also include a user fee of $275.

  • Step-by-step review process available The application process on includes a step-by-step review of what an organization needs to know and what to do in order to apply for tax-exempt status.

  • Organizations that don’t need to apply There are a few types of organizations that do not need to apply for 501(c)(3) status to be tax-exempt. These are churches and also public charities whose annual gross receipts are normally less than $5,000.

  • Employer identification number required An employer identification number is an organization's account number with the IRS and is required for the organization to apply for tax exempt status. Every tax-exempt organization should have an EIN, regardless of whether the organization has employees. Organizations may apply online, by fax or by mail.

  • Timeframe to notify the IRS Generally, a charitable organization that is required to apply for recognition of exemption must notify the IRS within 27 months from the date it was formed to be recognized as exempt from formation.

  • Classification as a private foundation or public charity When the agency determines an organization qualifies for exemption under Section 501(c)(3), it will also be classified as a private foundation, unless the organization meets the requirements to be treated as a public charity.

  • Documents available to the public A charitable organization must make certain documents available to the public. These include its approved application for recognition of exemption with all supporting documents and its last three annual information returns.

Requests for documents The organization must provide copies of these documents upon request. Organizations that fail to comply may face penalties.

Source: IRS

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