Section 501(c)(3) of the IRS Code allows non-profit entities to receive grants from foundations, as well as large contributions from individuals and organizations. There are several steps that need to be taken before the IRS will recognize a non-profit as tax exempt. Let’s take a look at the process.
1: Make sure that your non-profit has an appropriate legal form. The IRS will not consider you for exempt status unless your organization is legally recognized as a trust, corporation, or association.
2: Ensure that you have a tax-exempt purpose. The IRS recognizes charitable, religious, scientific, literary, and other organizations under section 501(c)(3).
3: Complete and file Form 1023, Application for Recognition of Exemption. You may need to take a mini-course to learn more about how to complete this form, which the IRS provides on its website.
4: Request an employer identification number (EIN). Even if your non-profit does not have any employees, the IRS requires you to have an EIN. This can be done by filing form SS-4, Application for Employer Identification Number online or by calling 1-800-829-4933. You need an EIN to complete Form 1023 mentioned above.
5: Provide an exact copy of your non-profit’s organizing documents.
6: Provide financial/budgetary information for three years. Assuming that you are in year one of being a non-profit entity, you will need to give the IRS your current year’s financial statements and budgeted statements for the next two years. A detailed breakdown of revenue and expenses is required.
7: Determine if a third party will represent you. If you will be using a third party, regardless of whether in person or in correspondence, you will need to file Form 2848, Power of Attorney and Declaration of Representative. This form authorizes the individual to represent you, and it must be attached to your application Form 1023, from item #3 above.
8: Enclose the required user fee. This must be made payable to the United States Treasury in the form of a check or money order.
9: Submit completed application.
For help with the above procedures, please refer to Publication 4220, Applying for 501(c)(3) Tax-Exempt Status. Bear in mind that the application process must be completed within 27 months of the date of formation in order for a non-profit to be considered exempt from the date formed. The IRS website has all of the information that you need to become tax-exempt. Visit irs.gov for details.