Tax Exempt Organization

Registration with the IRS as an exempt organization (501c3) either as a private charity or public foundation

To be a tax-exempt organization or entity under the numerous 501(c) exemptions, it is necessary to apply to the IRS. Tax-exempt organizations can be either public charities or private foundations. Both types of nonprofit organizations must follow a very similar process. However, there is a difference in what info the organization needs to submit to the IRS.

Differences Between Public Charities & Private Foundations

Public charities are nonprofit organizations that are primarily funded by the general public and the government. Common types of public charities include schools, hospitals, churches, and community-supported organizations.

Private foundations are usually funded by small numbers of involved persons. Many are often controlled by families. Very wealthy families have traditionally used these organizations to donate large sums to non-profits in an organized manner. The smaller, more insular nature of private foundations can lead to abuse of the charitable purpose for which it was organized. This is why the IRS places much stricter restrictions on how private foundations can operate. These restrictions are primarily great levels of reporting and a requirement that a certain amount of the organization’s resources be spent each year.

All 501(c)(3) organizations are automatically classified by default as private foundations unless the organization requests (and is approved for) a determination as a private charity. They must request this determination when they file their Form 1023 with the IRS.

The Steps to Register as a 501c3 Organization

Register With the State

Organizations that plan to register as a 501(c)(3) nonprofit must first form a non-profit corporation in their own state, although there are some exceptions to this rule. 

Write Bylaws

Next, the organization must create their bylaws. The bylaws are the rules and procedures that the organization will follow. It is acceptable for the organization to create these bylaws after they register with the state. This is because they do not have to submit their bylaws to the state. However, the organization must create its bylaws before it applies for 501(c)(3) status. The creation of bylaws and other governance documents is a great opportunity to define what the organization will do and how it will operate. The reality and perception of good governance is critical in a non-profit in order to attract donors and volunteers. 

Apply for an EIN

The organization must generally obtain an Employer Identification Number (EIN) from the IRS. You can get an EIN for free through the IRS website.

Choose Between Form 1023-EZ & Form 1023

There are two forms that nonprofit organizations must choose between when preparing to file for 501(c)(3) status: Form 1023-EZ and Form 1023. Form 1023-EZ is intended for nonprofits that have less than $250,00 in assets and are projected to have less than $50,000 in receipts per year. All other nonprofits must use Form 1023. The forms have different levels of complexity.

Complete the Form

Next, you must complete the Form 1023 variant you have chosen. This form requires you to submit the contact info of the organization as well as the director and the board. You will also have to specify what type of organization your nonprofit is (e.g. corporation, trust, etc.). In addition to the form itself, you will be required to submit supporting documentation. These supporting documents may include:

  • A check for the filing fee (up to $600)
  • Explanation of operations, financial data, and financial records
  • Bylaws
  • Articles of incorporation and any amendments

Public Charity vs. Private Foundation

When you complete Form 1023, you will also have to request public charity status (unless you are planning on registering as a private foundation). To do so, you will have to submit evidence (or at least a plan) of funding from the general public and/or the government. If your organization has not yet begun fundraising, you must submit a concrete plan for funding from the general public and/or the government.

Submit the Form

After you have completed the form and collected the supporting documents, you have to submit the documentation to the IRS. You must do so online. However, you have to mail the supporting documents.

Respond to IRS Inquiries

The IRS may send inquiries if it needs more info. If you are trying to be classified as a public charity, there is a higher chance that you will receive multiple inquiries. Be sure to answer these queries promptly and to provide plenty of supporting evidence.

Receive Your Determination Letter

When the IRS has finished processing your application, they will send you a determination letter. This letter will state whether your organization has been approved for 501(c)(3) status. It will also state whether your organization has been ruled a public charity.

An Experienced Nonprofit Lawyer Can Guide You Through This Process

As you can see, the process of registering as a 501(c)(3) organization can be time-consuming. This is why many people hire a law firm to help them through the process.

DeLong, Caldwell, Bridgers, Fitzpatrick, & Benjamin have assisted many people in forming 501(c)(3) organizations. Our expert attorneys can guide you through every step of the process, including helping you fill out the many forms you will have to file. Contact us today to learn more about how we can help you form your 501(c)(3) organization.