Applying for Tax-Exempt Status
Entities applying for federal tax-exempt status should know the following:
Organized and operated. To qualify for tax-exempt status under Code Sec. 501(c)(3), an entity must be organized and operated exclusively for an exempt purpose. The statutory exempt purposes are: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, or preventing cruelty to children or animals.
Organizational test. To satisfy the organizational test, an entity must be organized as a corporation, a limited liability company (LLC), an unincorporated association, or a trust. Its organizing document (corporate articles of incorporation, LLC articles of organization, articles of association or constitution of an unincorporated association, trust agreement or declaration of trust) must limit the organization’s purpose(s) to one of the statutory exempt purposes and permanently dedicate its assets to those purposes with a proper dissolution clause.
Note. The instructions for Form 1023, Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code provide examples of both an acceptable purpose clause and acceptable dissolution clause.
Operational test. To satisfy the operation test, an organization must show that it will be operated to further one or more of the exempt purposes stated in its organizing document. In addition, the organization must show that it will:
Form 1023, Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, and
Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.
Note. Both Form 1023 and Form 1023-EZ must be filed electronically. However, gathering all the required information and filing in a paper form may help with completing the form online.
Note. Only certain organizations are eligible to use Form 1023-EZ to apply for tax exemption. An organization must use the 1023-EZ Eligibility Worksheet to determine its eligibility to use Form 1023-EZ.
The application process. Here are some key things to know about the tax-exemption application process.
Note. An employer identification number is a nine-digit number the IRS assigns to entities, such as corporations and limited liability companies, for tax filing and reporting purposes.
Note. Generally, organizations that are classified as public charities are those that: