Difference between revisions of "How to obtain tax-exempt status"
From NGO Handbook
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| − | ===Other | + | ===Other Application Factors=== |
| − | =====Time for | + | =====Time for Filing a Tax-Exempt Application and Effective Date===== |
Applications for recognition of section 501(c)(3) status should be filed by the end of the fifteenth month after an NGO is created.<ref>Ibid., at 17.</ref> If an NGO files its application within twelve months of that date, it will receive an automatic twelve-month extension from the original deadline.<ref>Ibid., at 18. See also IRS Form 872-C Consent Fixing Period of Limitation Upon Assessment of Tax included in Package 1023.</ref> Thereafter, the IRS may grant extensions for submitting a tax-exempt application at its discretion if the NGO acted “reasonably and in good faith” and the extension would not prejudice the government.<ref>Ibid.</ref> A successful application filed before the deadline will receive recognition as tax-exempt from the date of the NGO’s creation.<ref>Ibid., at 17.</ref> If a successful application was filed after the deadline, the NGO is considered tax-exempt as of the date of the application.<ref>Ibid.</ref> | Applications for recognition of section 501(c)(3) status should be filed by the end of the fifteenth month after an NGO is created.<ref>Ibid., at 17.</ref> If an NGO files its application within twelve months of that date, it will receive an automatic twelve-month extension from the original deadline.<ref>Ibid., at 18. See also IRS Form 872-C Consent Fixing Period of Limitation Upon Assessment of Tax included in Package 1023.</ref> Thereafter, the IRS may grant extensions for submitting a tax-exempt application at its discretion if the NGO acted “reasonably and in good faith” and the extension would not prejudice the government.<ref>Ibid.</ref> A successful application filed before the deadline will receive recognition as tax-exempt from the date of the NGO’s creation.<ref>Ibid., at 17.</ref> If a successful application was filed after the deadline, the NGO is considered tax-exempt as of the date of the application.<ref>Ibid.</ref> | ||
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If the applicant NGO must change information in its enabling documents to qualify, the effective date of exemption may be affected. If “substantial amendments” must be made then the determination letter will recognize the NGO’s tax exemption status effective as of the date the changes were made.<ref>Ibid. at 18.</ref> If “nonsubstantial amendments” must be made, the effective date will be the date the NGO was created, if the application was filed within the first fifteen months, or the date the application was filed if it was filed after the fifteen months.<ref>Ibid.</ref> | If the applicant NGO must change information in its enabling documents to qualify, the effective date of exemption may be affected. If “substantial amendments” must be made then the determination letter will recognize the NGO’s tax exemption status effective as of the date the changes were made.<ref>Ibid. at 18.</ref> If “nonsubstantial amendments” must be made, the effective date will be the date the NGO was created, if the application was filed within the first fifteen months, or the date the application was filed if it was filed after the fifteen months.<ref>Ibid.</ref> | ||
| − | =====Ruling/ | + | =====Ruling/Determination Letter===== |
If the information received by the IRS establishes that the NGO meets the requirements for tax exemption, the IRS issues a determination letter recognizing the NGO’s exempt status and providing its public charity classification, if appropriate.<ref>See Ibid., at 4. See § 2.2 for the requirements to qualify as a public charity.</ref> The NGO must keep this letter for its records. A determination letter may be revoked or modified in certain circumstances.<ref>See Ibid., at 5. The IRS will advise the NGO of this in writing, which the NGO has a right to appeal. Ibid.</ref> | If the information received by the IRS establishes that the NGO meets the requirements for tax exemption, the IRS issues a determination letter recognizing the NGO’s exempt status and providing its public charity classification, if appropriate.<ref>See Ibid., at 4. See § 2.2 for the requirements to qualify as a public charity.</ref> The NGO must keep this letter for its records. A determination letter may be revoked or modified in certain circumstances.<ref>See Ibid., at 5. The IRS will advise the NGO of this in writing, which the NGO has a right to appeal. Ibid.</ref> | ||
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If the IRS issues an adverse ruling or determination letter, the NGO may appeal the decision.<ref>Ibid., at 5.</ref> The NGO must file a written protest containing certain required information with the office that issued the adverse determination.<ref>Ibid.</ref> The IRS appeals office will then issue a decision in a determination letter.<ref>Ibid.</ref> This decision may be appealed to the district court. Before an NGO may appeal to the court all administrative remedies must be exhausted.<ref>For more information on the administrative remedies, see ibid., at 6.</ref> | If the IRS issues an adverse ruling or determination letter, the NGO may appeal the decision.<ref>Ibid., at 5.</ref> The NGO must file a written protest containing certain required information with the office that issued the adverse determination.<ref>Ibid.</ref> The IRS appeals office will then issue a decision in a determination letter.<ref>Ibid.</ref> This decision may be appealed to the district court. Before an NGO may appeal to the court all administrative remedies must be exhausted.<ref>For more information on the administrative remedies, see ibid., at 6.</ref> | ||
| − | =====Amendments and | + | =====Amendments and Terminations===== |
After obtaining tax-exempt status, if an NGO experiences changes to its status or operations, the organization is required to perform certain acts. If a tax-exempt NGO experiences changes to its “legal structure” it must file a new tax exemption application.<ref>Ibid. at 16</ref> If an NGO is inactive, its tax exemption is not terminated, but the NGO must still file annual returns with the IRS.<ref>Ibid. For more information on section 501(c)(3) filing requirements, see § 2.3.2.</ref> If the NGO is “liquidated, dissolved, terminated or substantially contracted”, the NGO must file an annual return by the fifteenth day of the fifth month after the change.<ref>Ibid.</ref> If the NGO amends its articles of organization or bylaws it must send a conformed copy to the IRS area manager.<ref>Ibid.</ref> | After obtaining tax-exempt status, if an NGO experiences changes to its status or operations, the organization is required to perform certain acts. If a tax-exempt NGO experiences changes to its “legal structure” it must file a new tax exemption application.<ref>Ibid. at 16</ref> If an NGO is inactive, its tax exemption is not terminated, but the NGO must still file annual returns with the IRS.<ref>Ibid. For more information on section 501(c)(3) filing requirements, see § 2.3.2.</ref> If the NGO is “liquidated, dissolved, terminated or substantially contracted”, the NGO must file an annual return by the fifteenth day of the fifth month after the change.<ref>Ibid.</ref> If the NGO amends its articles of organization or bylaws it must send a conformed copy to the IRS area manager.<ref>Ibid.</ref> | ||
Revision as of 10:30, 11 August 2008
This article is intended to provide a general description of the process for obtaining 501(c)(3) status under the U.S. Internal Revenue Code and is not intended to substitute for the advice of private counsel on specific issues related to the IRC or the 501(c)(3) application process. Original draft by Bobby C. Neal.
In the United States, a non-governmental organization (NGO) is generally subject to federal, state, and local taxes unless and until the organization qualifies for tax-exempt status. This article focuses on the process for obtaining a federal income tax exemption for NGOs.[1] NGOs that meet the criteria set forth in 26 U.S.C. § 501 of the Internal Revenue Code (section 501) are eligible for a federal tax exemption.[2] The benefits to obtaining tax exempt recognition by the Internal Revenue Service (IRS) include: income tax exemption, eligibility to receive tax-deductible contributions, possible exemption from certain employment taxes, and reduced postal rates. Section 501 describes the organizations that are eligible for tax-exempt status. The most significant category of tax-exempt organizations is section 501(c)(3).
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