How to Set Up a 501(c)(3)
501(c)(3) status identifies an organization as a non-profit, according to the Internal Revenue Code. According to Darren B. Moore of Bourland, Wall & Wenzel P.C., "Benefits include exemption from federal income tax...and the ability for donors to receive deductions for donations given on their personal income tax returns." Registering your organization as a 501(c)(3) has advantages and disadvantages, which include the prohibition of the organization from distributing profits to owners; however, if your organization exists only to help others and there is no interest in profit, registering as a 501(c)(3) may be beneficial.
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Things You'll Need
- IRS form SS-4
- IRS form 1023
- IRS form 2848
- IRS form 8821
- Annual gross receipt records, past 4 years
Instructions
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File IRS form SS-4, "Application for Employer Identification Number" (EIN). You will need this form regardless of whether your organization has employees. Use your EIN on all correspondence to the IRS.
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Complete IRS form 1023, "Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code."
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Complete IRS form 1028, "Power of Attorney and Declaration of Representative," if someone other than the principal officer or director of the organization will represent them in matters having to do with the 1023 application.
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Complete Form 8821, "Tax Information Authorization," if you will allow the IRS to provide information about the 1023 application to a person other than a principal officer or director of the organization.
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Add the organization's annual gross receipts from the previous four years to calculate the required user fee. Enclose the required fee with form 1023.
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Mail the IRS forms 1023, 8821 and 1028 (if applicable) and the required user fee for the organization to the address included on the i1023 form; note that the IRS will not approve any application that does not provide the application fee.
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Tips & Warnings
The organization must be a corporation, trust or unincorporated association to apply for 501(c)(3) status.
Once you mail the application, the organization can operate as tax exempt until it receives a final determination letter.
As of September 2010, the user fee for organizations whose gross receipts totaled over $10,000 is $850; the user fee for those whose organization's gross receipts was equal to or under $10,000 is $400.
It may be beneficial for your organization to seek the assistance of a tax professional before filing for 501(c)(3) status to ensure that you are well informed of all aspects of filing.
To qualify for 501(c)(3) status, there are rules and regulations regarding the type of organization applying and the purpose of that organization.
501(c)(3) status requires a great deal of paperwork and record-keeping; the organization can lose its exempt status and receive penalties if returns are not filed on time.
If the organization is not approved as a 501(c)(3) and it has received donations (while waiting for a determination letter), it would be required to file a Federal income tax return unless it is found to be otherwise exempt.
