Applying for 501 (c)(3) status?
Applying for 501 (c)(3) status?
Are you running a museum, leading a worship group, or operating a performing arts group in your backyard that's starting to outgrow its humble origins? Well, maybe it's time to consider becoming a nonprofit corporation. While this process requires lots of paperwork, many organizations find the long-term benefits outweigh the initial investment of time.
Becoming a nonprofit corporation means you can apply for grants, receive tax-exempt status, and have personal liability protection. Not only is your group tax-exempt, but donations from individuals and organizations are tax-deductible.
Completing the application process can be difficult, time-consuming and confusing. However, the benefits can be well worth the trouble.
Does this sound like just what the doctor ordered? Here's how to get the application process started:
First, your group should review Section 501 (c)(3) of the Internal Revenue Code (IRC). Why? To qualify for nonprofit status, you must fulfill at least one of the code's described purposes. These purposes include organizations that are "charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals."
Another important requirement: none of the organization's earnings can be used for private shareholders. A full list of exemption requirements can be found in IRC section 501(a).
If your group meets all of the code's requirements and your application is approved, you will receive a letter from the IRS telling you about your public charity classification.
Once you receive this letter of determination, your organization is ready to start reaping the nonprofit benefits. You will qualify for public and private grants available to nonprofits. In addition, you'll be protected from personal liability. This means no organizational member can be held personally liable for the corporation's debts or other obligations. Should a lawsuit occur, private assets like your home and bank accounts remain untouchable.
Most importantly, your group will be tax-exempt. Any donations will be tax-deductible.
If your group meets IRC qualifications, then it's time to get an Employer Identification Number (EIN). Any business with employees has an EIN number, which is also your IRS account number. You must complete the Application for Employer Identification Number (Form SS-4) to obtain an EIN.
After your EIN is in hand, you will need to fill out the Application for Recognition of Exemption (Form 1023). Most nonprofits file Form 1023 within 15 months. But don't worry if you miss this cutoff. There's a 12 month extension just in case that first year and three months flies by. If your group is not a private foundation, you won't have to file Form 1023 unless your annual gross receipts go over $5,000.
Completing the application process can be difficult, time-consuming and confusing. However, the benefits can be well worth the trouble. Plus, there are resources along the way. If you start to feel overwhelmed, the Exempt Organizations (EO) division of the IRS is there to help. For more information, contact the EO division at www.irs.gov/eo or at (877) 829-5500. After all, it was probably your desire to do good that drew you into the nonprofit life. Thanks to the EO, the nonprofit path doesn't have to be a solitary one.