Non-profit organizations is among the small businesses that Cassius Blue Consulting services. Often clients and prospects have questions about the process of incorporating and filing for the 501(c)(3) status. Vanessa Parker, owner of Pink Boss, Inc. has been kind enough to shed some light on the process. Thank you Vanessa for guest blogging!
Many individuals are joining the nonprofit industry to solve a problem or bring awareness to an issue within their community. One of the major differences for nonprofits is the process of applying for 501(c)(3) tax exemption status with the IRS.
The process of obtaining 501(c)(3) tax exemption can be a little overwhelming but proper planning and understanding of the required documents can help you throughout the process. The filing fee depends on the size of the organizations budget. If the organization plans to have less than $40,000 in gross receipts over the next four years (An average of $10,000 a year) the fee is $400. If the organization plans to have more than $40,000 in gross receipts over the next four years the filing fee to the IRS is $850.
Steps to Obtaining Tax Exemption for Nonprofits
- Incorporate. All nonprofits must first incorporate within their state to receive 501(c)(3) tax exemption status. You will be required to include your Articles of Incorporation with your application. Remember to include your mission statement within your Articles, this will aid with your approval and grant eligibility in the future.
- Obtain Your Employer Identification Number (EIN). Your EIN is an identification number issued by the IRS used to identify a business entity. You can obtain your EIN by completing the SS-4 form or on the IRS website. (http://www.IRS.gov)
- Bylaws and Conflict of Interest Policy. Every nonprofit organization needs to have Bylaws and a Conflict of Interest Policy in place. Bylaws are the rules adopted by the board to govern the management of the board and its members. The Conflict of Interest Policy helps to protect the organization by managing any conflicts that may arise.
- Complete Form 1023. The form 1023 is a 28 page Application for Recognition of Exemption from the IRS. The application will ask questions about the programs and services the organizations plans to provide as well as financial data and projections. The IRS has provided Publication 557 as an instructional manual for completing the form on their website.
- Await Approval. The IRS estimates the approval time to range from 3-6 months depending on any additional inquiries that the organization may receive. Once approved the IRS will send the organization a determination letter. This determination letter is very important and will be requested from donors and grant makers to prove tax exemption status.
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