Once a foundation has been created under state law and begins to operate, it may want to be recognized as exempt under Internal Revenue Code section 501(c)(3). In addition to exemption from federal income taxation, foundations recognized as exempt under the Internal Revenue Code may enjoy collateral benefits under the Internal Revenue Code, as well as under state or local income, property, sales, use or other tax provisions.
To apply for exemption, a foundation should obtain and complete the required forms (applications for employer identification number and exemption) and submit them along with the required user fee. If a foundation will be represented by an attorney or other representative, it must also submit a power of attorney. See When to File for a discussion of deadlines for filing an application.
Public disclosure requirements apply to exemption applications that the IRS approves. In addition, cases in which the IRS has issued a letter denying or revoking a foundation's exempt status are subject to public disclosure under Internal Revenue Code.
Eligible organization may submit a shortened version of the standard Form 1023 application, Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. Private operating foundations and certain other organizations cannot file a Form 1023-EZ. To learn more about this process and whether your organization is eligible refer to Revenue Procedure 2018-5, which is updated annually.
Help from the IRS
You can get help with questions about applying for tax exemption through the IRS Exempt Organizations Division:
EO Web Site [/eo]
The EO Web site includes a step-by-step explanation of the Application Process.
You may also obtain help from IRS Publication 4220, Applying for 501(c)(3) Tax-Exempt Status (PDF) and Publication 557, Tax-Exempt Status for Your Organization (PDF).
IRS Processing of Exemption Applications
The foundation's exemption application may provide enough information for the IRS to issue a determination letter (this is explained in Publication 4220 (PDF) on the foundation’s exempt status under Internal Revenue Code section 501(c)(3)). Frequently, however, the IRS reviewer will need additional information to complete the foundation’syour application. The reviewer will write a letter requesting the additional information by a specified date.
While You Wait
If an annual exempt foundation return is due while the foundation's application for recognition of exempt status is pending with the IRS (including any appeal of a proposed adverse determination), the foundation must file it, indicating that its exemption application is pending.
If a foundation has gross income of $1,000 or more from a regularly conducted unrelated trade or business, it must also file Form 990-T, Exempt Organization Business Income Tax Return.
The foundation should comply with tax law requirements applicable to Internal Revenue Code section 501(c)(3) tax-exempt organizations. See Publication 4221-PF. Compliance Guide for 501(c)(3) Private Foundations (PDF) for more information.
Foundations that submit a complete application on www.pay.gov will receive an email acknowledgment from Pay.gov that the user fee payment was processed.