501(c)3 charitable organizations are tax-exempt organizations. They are nonprofit organizations that are organized with a permanent charitable purpose. This means that their funds must be distributed to match the organization’s stated purpose. If the funds are distributed in a manner that matches the purpose, the organization may retain its charitable status.
To become a tax-exempt organization, a corporation must apply for a 501(c)3 status. This process requires the organization to submit the IRS Form 1023, an application for tax exemption recognition. Organizations must also maintain their tax-exempt status, which involves reporting changes to governing documents annually to the IRS.
The IRS defines a public charity as an organization that receives substantial revenue from the general public. Public charities include nonprofit organizations, government entities, and companies that provide charitable services. Generally, public charities must receive at least one-third of their income from the general public. This type of charity includes animal welfare agencies, churches, educational organizations, and benevolent organizations.
Using a 501c3 application is a legal requirement for charitable organizations to receive the federal tax exemption. The IRS reviews all applications in depth to ensure applicants are eligible for this tax break. However, it can take a long time for the process to get approved.
You may also qualify for a state income tax exemption if you are a nonprofit. The state can provide state benefits to nonprofits, such as state sales tax exemption, but it is important to meet certain requirements to qualify.
There are several ways to apply for a 501c3 status. Depending on your organization’s size, getting approved may take three to 12 months. However, the IRS has resources available to help you submit your application on time.
You need to complete a Form 1023 series for the application. This is a 28-page document that requires additional documents to be submitted. A nonprofit corporation must also obtain an Employer Identification Number, or EIN, from the IRS. The application is optional for smaller organizations with projected annual gross receipts under $50,000.
Form 1023-EZ is a streamlined version of the standard Form 1023. It’s shorter and easier to fill out, but not all nonprofits are eligible for this form. The Form 1023-EZ Eligibility Worksheet determines whether or not an organization is eligible to fill out this form. The information listed on the worksheet will help an organization prepare for this application.