Tax Exempt

Forming a nonprofit corporation with the state does not automatically make the organization tax-exempt. A nonprofit corporation is created under state law, while federal tax-exempt status is granted by the Internal Revenue Service.

Most organizations seeking recognition of federal tax-exempt status must apply to the IRS by filing the appropriate exemption application. The correct application depends on the organization’s purpose, activities, size, structure, and the section of the Internal Revenue Code under which exemption is requested.

Accumera can assist with preparing and filing federal tax-exempt applications, including Form 1023, Form 1023-EZ, and Form 1024. Contact us for more information.

Form 1023 is used by organizations applying for recognition of exemption under Section 501(c)(3) of the Internal Revenue Code. This is the most common tax-exempt classification for charitable, religious, educational, scientific, literary, and similar organizations. The IRS identifies qualifying 501(c)(3) purposes as charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.

Organizations that may file Form 1023 include:

• Charitable organizations;
• Educational organizations;
• Religious organizations;
• Scientific organizations;
• Literary organizations;
• Private foundations;
• Public charities;
• Scholarship organizations;
• Certain museums, schools, and cultural organizations;
• Organizations supporting other 501(c)(3) organizations; and
• Other organizations organized and operated for qualifying 501(c)(3) purposes.

Form 1023 is the full application and generally requires detailed information about the organization, including its formation documents, purposes, activities, finances, governance, compensation arrangements, fundraising plans, relationships with insiders, and operational structure.

An organization may need to file the full Form 1023 if it is not eligible to use Form 1023-EZ, has more complex activities, expects higher revenue, has significant assets, is classified as a private foundation, operates internationally, provides grants, conducts certain fundraising activities, or otherwise does not meet the IRS eligibility requirements for the streamlined application.

Form 1023-EZ is a shorter, streamlined application used by certain eligible organizations seeking recognition under Section 501(c)(3). The IRS states that organizations must complete the Form 1023-EZ Eligibility Worksheet in the instructions to determine whether they are eligible to file Form 1023-EZ. If an organization is not eligible to file Form 1023-EZ, it must file the full Form 1023.

Form 1023-EZ is generally intended for smaller, less complex organizations. It may be appropriate for certain organizations with limited gross receipts, limited assets, and straightforward charitable, religious, educational, or similar 501(c)(3) activities.

However, Form 1023-EZ is not available to every 501(c)(3) applicant. The organization must confirm eligibility by reviewing the IRS eligibility worksheet before filing. Certain organizations, activities, financial thresholds, foreign activities, structural issues, or other factors may require the full Form 1023 instead.

Although Form 1023-EZ is shorter than Form 1023, the organization is still certifying to the IRS that it is properly organized and operated for 501(c)(3) purposes. The organization’s formation documents should contain the required charitable purpose and dissolution provisions, and the organization must operate in accordance with 501(c)(3) rules.

Form 1024 is used by certain organizations applying for recognition of exemption under Section 501(a) for classifications other than 501(c)(3) or 501(c)(4). The IRS states that organizations must electronically file Form 1024 to apply for recognition of exemption under Section 501(a) for being described in Section 501(c), other than Section 501(c)(3) or 501(c)(4), or under Section 501(d).

Organizations that may use Form 1024 include certain:

• Social clubs;
• Business leagues;
• Chambers of commerce;
• Trade associations;
• Labor organizations;
• Agricultural or horticultural organizations;
• Civic leagues or other organizations, depending on classification;
• Cemetery companies;
• Fraternal beneficiary societies;
• Voluntary employees’ beneficiary associations;
• Teachers’ retirement fund associations;
• Benevolent life insurance associations;
• Mutual ditch or irrigation companies;
• Cooperative telephone companies;
• Cooperative organizations; and
• Other organizations seeking recognition under applicable non-501(c)(3) exemption categories.

The correct exemption category depends on the organization’s purpose, membership structure, activities, funding sources, and operations. Form 1024 is generally more appropriate for organizations that are nonprofit in nature but are not charitable organizations under 501(c)(3).

Important note: Organizations seeking recognition under Section 501(c)(4) generally use Form 1024-A, not Form 1024. The IRS separately identifies Form 1024-A as the application for recognition of exemption under Section 501(c)(4).

The appropriate form depends primarily on the type of exemption being requested.

Selecting the correct application is important. Filing the wrong form, filing an incomplete application, or submitting inconsistent information can delay IRS review or result in rejection or denial.

The information required for the applicaiton process depends on the form being filed, but an organization may need to provide or confirm:

• Legal name of the organization;
• State and date of formation;
• EIN;
• Mailing address and contact information;
• Names and titles of officers, directors, trustees, or key individuals;
• Formation document, such as the Certificate of Incorporation or Articles of Incorporation;
• Bylaws or other governing documents;
• Detailed statement of purposes and activities;
• Financial information, budgets, or revenue and expense projections;
• Compensation arrangements;
• Fundraising activities;
• Grantmaking activities, if applicable;
• Membership structure, if applicable;
• Relationships with related organizations or insiders;
• Conflict of interest policy, where applicable;
• Public charity or private foundation classification information, for 501(c)(3) applicants;
• Required organizing language, including purpose and dissolution clauses; and
• Supporting schedules or attachments, depending on the organization’s activities.

For 501(c)(3) applicants, the organization’s formation document is especially important. The document should generally limit the organization’s purposes to one or more exempt purposes and provide that assets will be distributed for exempt purposes upon dissolution.

Accumera can assist organizations with the federal tax-exempt application process by helping collect, organize, prepare, and submit the required filing materials.

Our services may include:

• Reviewing the organization’s entity type and formation status;
• Confirming whether the organization has obtained an EIN;
• Reviewing formation documents for tax-exemption application readiness;
• Assisting with required amendments if formation documents need updated purpose or dissolution language;
• Helping determine whether Form 1023, Form 1023-EZ, Form 1024, or another application may be appropriate;
• Preparing the applicable IRS exemption application based on information provided by the organization;
• Coordinating required schedules and attachments;
• Assisting with Pay.gov submission;
• Monitoring the status of the application;
• Assisting with IRS correspondence or requests for additional information; and
• Providing the IRS determination letter when issued.

Accumera can also assist with related nonprofit services, including nonprofit formation, obtaining certified copies, filing amendments, applying for EINs, registered agent services, state tax exemption filings where applicable, and charitable solicitation registration support.

Federal tax-exempt recognition is separate from state nonprofit formation. It is also separate from state tax exemption, sales tax exemption, property tax exemption, charitable solicitation registration, business licensing, and annual reporting requirements.

After receiving federal tax-exempt recognition, an organization may still have ongoing compliance obligations, including annual IRS filings such as Form 990, Form 990-EZ, or Form 990-N, depending on the organization’s size and classification.

IRS processing times vary by application type, IRS workload, and whether the IRS requests additional information. The IRS provides an online resource for checking current processing status for Forms 1023-EZ, 1023, 1024, 1024-A, and related exemption applications.