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How do nonprofits gain tax-exempt status?

To qualify under section 501(c)(3) of the IRC, nonprofits must file Form 1023 with the IRS within 27 months of having their articles of incorporation approved by the state. However, after the articles of incorporation are approved, but before filing Form 1023, it is necessary to take care of a few other preliminary matters.

For instance, you may need to obtain local licenses and permits required to conduct business. You will also need to fulfill any insurance requirements necessary for operating. Finally, you will need to obtain your federal Employer Identification Number (EIN) by submitting Form SS-4 online with the IRS. The EIN is needed to identify your corporation when corresponding with the IRS.

At this point, you are ready to apply for your tax-exempt status. Due to the amount of legal and tax technicalities involved, completing Form 1023 is often a difficult and time-consuming task. This form is much longer than the articles of incorporation and is meant to demonstrate to the IRS that the nonprofit’s planned purpose and activities exclusively fall under the types of activities permitted by section 501(c)(3). You may refer to section 501(a) for a full list of the relevant requirements.

Do not let the length or complexity of requirements scare you. There are many resources available to help you through the application process, including the Exempt Organizations (EO) division of the IRS. The EO provides excellent information and resources on its website, including tools to help you apply and stay exempt. The site includes an expedited application form, Form 1023-EZ, available for certain nonprofits. There is also an interactive web version that guides the users through completing Form 1023. Finally, you may also ask the IRS any questions by calling the Tax Exempt and Government Entities Customer Account Services number at (877) 829-5500 (toll-free).