How to help clients apply for tax-exempt status

In your career as a tax pro, chances are you’ve been asked about how to apply for tax-except status. There are specific requirements when it comes to qualifying for the status, so here’s a quick refresher.

Organizations applying for tax-exempt status must be organized and operated exclusively for any of these purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, or preventing cruelty to children or animals.

Organizations that want to apply for recognition of tax-exempt status under IRC 501(c)(3) will complete and file a Form 1023-series application.

The application process on IRS.gov includes a step-by-step guide explaining how to apply for tax-exempt status.

Key things to know about this process

• Form 1023-series applications for recognition of exemption must be submitted electronically online at Pay.gov. The application must be complete and include the user fee.
• Some types of organizations don’t need to apply for Section 501(c)(3) status to be tax exempt. These include churches and their integrated auxiliaries, and public charities with annual gross receipts normally no more than $5,000.
• Every tax-exempt organization needs an employer identification number (EIN), even if they don’t have any employees. An EIN is a nine-digit number the IRS assigns for tax filing and reporting purposes. An organization must include their EIN on the application. Organizations can apply for an EIN online.
• The effective date of an organization’s tax-exempt status depends on their approved Form 1023. If they submit this form within 27 months after the month they legally formed, the effective date of the organization’s exempt status is the legal date of its formation. If an organization doesn’t submit this form within those 27 months, the effective date of its exempt status is the date it files Form 1023.
• An organization that qualifies for tax-exempt status under IRC 501(c)(3) will be classified as a private foundation unless the organization meets the requirements to be treated as a public charity.
• 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. See Publication 557, Tax Exempt Status For Your Organization, for additional information on public inspection requirements.

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