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.
As of July 2014, a shortened version of the standard application (Form 1023) was made available as 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.
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) on the foundation’syour 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 for more information.
If an exemption application does not contain the required information, the IRS will return it with a letter of explanation, and will not consider the application. The user fee will also be returned to the applicant.
Different Application Form Needed
When a specific application form is needed for the Internal Revenue Code provision under which your a foundation qualifies, that form is required before a letter recognizing exemption can be issued. This includes applications in which an exemption letter is modified to recognize a foundation's exempt status under a Code section other than the section for which it originally established exemption.
Foundations that submit a complete application will receive an acknowledgment from the IRS. If the application is incomplete, the application and user fee will be returned.