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Charity FAQ´s

What is a 501(c)(3) organization and who is eligible to receive 501(c)(3) status?

Certain organizations may qualify for exemption from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. Organizations which are eligible for 501(c)(3) tax exempt status must be organized and operated exclusively for the following exempt purposes: charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, and testing for public safety.

The most common types of 501(c)(3) organizations are charitable, educational and/or religious. These organizations may be organized, for example, for the relief of the distressed or impoverished, eliminating prejudice and discrimination, advancement of religion (e.g., a church or synagogue), and advancement of education (e.g., schools, public discussions groups, instructional courses, promotion of the arts and culture, etc.).

What are the benefits of having 501(c)(3) tax exempt status?

The benefits of having 501(c)(3) status include the exemption from payment of federal (and state) corporate income taxes. Additionally, a significant benefit attributable to 501(c)(3) organizations is that they can receive contributions and donations which are tax-deductible to the donor.

Is a 501(c)(3) organization prohibited or restricted from engaging in certain activities?

Yes. A 501(c)(3) is prohibited or restricted from engaging in certain activities. The following apply to a 501(c)(3) organization:

• The organization must not participate in the political campaigns of candidates for local, state, or federal office.
• The organization must restrict its lobbying activities to an insubstantial part of its total activities.
• The organization must ensure that its earnings do not inure to the benefit of any private shareholder or individual.
• The organization must not operate for the benefit of private interests such as those of its founder, the founder’s family, its shareholders or persons controlled by such interests.
• The organization must not operate for the primary purpose of conducting a trade or business that is not related to its exempt purpose.

How does a non profit organization apply for recognition of 501(c)(3) status with the IRS?

The founders of the charitable organization must incorporate their non profit entity with their State of choice and then obtain a Federal Employer Identification Number for the new organization. Once incorporation is accomplished at the State level, the charitable organization must complete and submit Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, with the IRS. The IRS application is fairly detailed and you may wish to seek professional assistance with preparation of the application. However, there is no legal requirement that the application be prepared by a professional. You can do it yourself.

Is there a fee charged by the IRS to file the 501(c)(3) application?

Yes, you must submit payment of a user fee to the IRS along with the 501(c)(3) application (Form 1023). The fee will be either $750.00 or $300.00 depending upon whether your average annual gross receipts, or expected annual gross receipts, will exceed a certain threshold dollar figure over a 4-year period. Assuming your charitable non profit is newly created, if your average annual gross receipts will exceed $10,000 annually over the first four (4) years, the user fee is $750.00. However, if your average gross receipts will not exceed $10,000 annually over the first four (4) years, the user fee is $300.00.

However, please note that the IRS User fees will increase as of January 2010.

If you decide to retain our services, our service fee does not include the IRS user fee. Accordingly, you would be responsible for payment of the IRS user fee directly to the IRS.

When should I file the 501(c)(3) application with the IRS?

If you file Form 1023 within 27 months after the end of the month in which you were legally formed, and the IRS approves the application, the legal date of formation will be the effective date of your exempt status. If you do not file Form 1023 within 27 months of formation, you may not qualify for exempt status before the date the IRS receives your application. In this case, your organization’s exempt status will be the postmark date of receipt of your application by the IRS.

Can you prepare my charitable organization’s 501(c)(3) application?

Yes, we can assist your charitable nonprofit with preparation of the 501(c)(3) application (Form 1023) to be filed with the IRS. In order to get started, you would need to complete our Information Questionnaire. Please feel welcome to contact us so that we can send to you our Information Questionnaire via email, fax or mail. We charge a reasonable fee for our services. Please contact us for further information.

What happens after my 501(c)(3) application is submitted to the IRS?

Once your application is received, the IRS tax specialist reviewing an application may request additional information in writing. If all information received establishes that an organization meets the requirements for tax exemption, the IRS will issue a Determination Letter recognizing your organization’s exempt status. The IRS Determination Letter is an important document that should be kept in the organization’s permanent records.

Do I need to register my charitable organization with the State?

Most states require charitable organizations that plan to solicit donations from the public to register with that State. Registration usually requires submission of an application, payment of an application fee, and renewing registration on an annual basis. If you are not sure whether your charitable organization must register with the relevant state, please contact and we can assist you.