What to know about the tax-exempt application process for charities

IRS Tax Tip 2020-121, September 17, 2020

Organizations that meet specified requirements under Section 501(c) of the Internal Revenue Code may qualify for tax-exempt status. These include charities, social welfare organizations, civic leagues, social clubs, labor organizations and business leagues.

Most organizations are required to apply for recognition as tax-exempt.

Here are some key things that charities should know about the application process:

Application includes a fee

The application must be complete. It must also include a user fee.

Step-by-step review process available

The application process on IRS.gov includes a step-by-step review of what an organization needs to know and what to do in order to apply for tax-exempt status.

Organizations that don't need to apply

There are a few types of organizations that do not need to apply for 501(c)(3) status to be tax-exempt. These are churches and their integrated auxiliaries, and also public charities whose annual gross receipts are normally less than $5,000.

Employer identification number required

An employer identification number is an organization's account number with the IRS and is required for the organization to apply for tax exempt status. Every tax-exempt organization should have an EIN, regardless of whether the organization has employees. Organizations may apply for an EIN online, by fax or by mail. International applicants may apply by phone.

Timeframe to notify the IRS

Generally, a charitable organization that is required to apply for recognition of exemption must notify the IRS within 27 months from the date it was formed to be recognized as exempt from formation.

Classification as a private foundation or public charity

When the agency determines an organization qualifies for exemption under Section 501(c)(3), it will also be classified as a private foundation, unless the organization meets the requirements to be treated as a public charity.

Documents available to the public

A charitable organization must make certain documents available to the public. These include its approved application for recognition of exemption with all supporting documents and its last three annual information returns. 

Requests for documents

The organization must provide copies of these documents upon request. The organization may charge a reasonable fee for reproduction and copying costs. Organizations that fail to comply may face penalties.

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