With two forms to choose from, an organization must review its activities carefully, and select the more appropriate form to file to become a Nonprofit. In this post, we’ll discuss both types of forms that can be used to file to become a 501(c)(3) Nonprofit.
Organizations that may qualify for exemption under section 501(c)(3) include corporations, unincorporated associations and trusts. A partnership may not qualify for exemption and may not be able to file Form 1023 for nonprofit status.
In order to file for 501(c)(3) tax exemption, you must have consolidated your activities, incorporated, obtained an EIN, prepared bylaws and other internal documents, and come up with financial projections. In other words, you must be prepared!
If your organization does not have the required organizational structure, the IRS will return your application but your user fee is generally not refundable. If your organization can create the required structure within the time specified by the IRS upon return of your form, you can resubmit your application without penalty or paying an additional user fee.
Becoming a 501(c)(3) is EZ as long as you are prepared!
Nonprofits seeking tax exemption under 501(c)(3) can file using Form 1023-EZ instead of the original Form 1023, reducing the average time for a response from months to just a few weeks, but they must meet certain qualifications.
As mentioned, not all nonprofit organizations can use Form 1023-EZ to apply for federal tax exemption as there are three main restrictions:
In order to be eligible, an organization must have under $50,000 in gross receipts, and under $250,000 in total assets. Larger organizations must use the original Form 1023.
* Organizational Structure
The entity must be organized as a nonprofit corporation. LLCs, L3Cs, and other entities are ineligible. The entity must be incorporated in one of the United States, the District of Columbia, or a territory, such as Puerto Rico.
Certain types of organizations are ineligible, including schools, hospitals, churches, housing providers, and foundations. Review the Instructions to Form 1023-EZ and Eligibility Checklist to determine whether your organization must file Form 1023 instead. On the checklist, mark either “Yes” or “No” to each question, according to your organization’s activities. A single “Yes” means your organization is NOT eligible to file Form 1023-EZ, and you must use Form 1023.
By filing Form 1023-EZ, an organization declares that it complies with the IRS’s requirements. While this removes most of the initial scrutiny by the IRS, failure to disclose all of the information truthfully can still land your organization in hot water, and yourself in court.
So Which Form Is Right For Your Organization To File?
Ultimately, make sure someone on your board, or an outside consultant, is able to help you sort through your options and decide which form is right for your organization.
For More Information on the 1023 Form and 1023-EZ Form, Visit the IRS Website and Start The Process of Becoming A Nonprofit Today!