Not all non-profit organizations are tax exempt from either state or federal taxes. Just because it is non-profit does not automatically qualify it to be tax-exempt. The term 501(c) or 501(c)(3) is mistakenly assumed as a title for charitable or non-profit organizations in general. This is incorrect. Those numbers and letters refer to a specific internal revenue code tax category. Whether the association is unincorporated or incorporated, it must file for tax exemption (and its eligibility approved) before it can be legally referred to as tax exempt.
There are nearly 30 kinds of organizations that qualify as nonprofit and are, as a result, federal income tax exempt to some extent. A 501(c)(3) organization is one of those kinds. Typical activities involved in these nonprofit organizations are (as examples) the prevention of cruelty to animals, the prevention of cruelty to children, fostering amateur sports competitions, testing for public safety, literary, scientific, educational, religious, and charitable. The exemption term 501(c)(3) also can be used for any organized foundation, cooperating association, fund, or unincorporated community chest that operates solely for the purposes just listed.
What Should Be Done To File For 501(c)(3) Status?
When incorporating a 501(c)(3) non-profit organization, no other steps should be taken until you file, with the New York Department of State, a Certificate of Incorporation. This certificate is the most important organizational document. It will include your nonprofit company’s information such as directors, charitable purposes, address, name, etc.
After filing your Certificate of Incorporation, take the following steps to finish incorporating your non-profit organization:
- Make sure that the Certificate of Incorporation meets all of the state of New York’s legal requirements
- If your intention is the application for 501(c)(3) federal tax-exempt status, then it is important to meet all of the requirements of the IRS. Note: the IRS is not to be messed around with. They will go over your documents with a fine tooth comb.
- It is best to have a professional prepare any and all forms if your company is claiming that they should not have to pay taxes because of their non-profit status. ‘Professional’ does not mean a site that helps you with legal forms that you can download. It means a real legal professional.
- Once your non-profit is all set up and you have your VIN (number), it is time to draft and submit form 1023. This form, which is for your IRS tax exemption, can be very involved. It may take the better part of a day to properly fill it in.
- The IRS may go back and forth with you for a while, and there may be re-submissions to deal with. The chances of this are less if the form is filled out slowly and correctly.
Again, this process is best executed by a professional in the legal or accounting field.
Once your exemption has been taken care of you will need to maintain it – but that is for another day. It cannot be stressed enough the need for professional assistance when filling out these forms and filing. Having someone who knows what they’re doing right from the start is far preferable. Especially if you end up having to resubmit paperwork over and over or eventually get backed into a corner and wind up needing professional help anyways. Head disaster off at the pass by requesting the assistance of a professional lawyer or accountant right from the get-go.