Nonprofit organizations filing IRS Form 1023 – Application for Recognition of Exemption must include a Form 1023 User Fee payment as part of their application for either $400 or $850, made payable by check to the United States Treasury. The Form 1023 filing fee amount is determined by your organization’s annual revenue over the next four years, and the IRS uses $10,000 per year as its benchmark. For example, if your organization’s projected annual revenue averages $10,000 or more during the next four years, then your application fee is $850. If your organization’s projected annual revenue averages less than $10,000 during the next four years, then your application fee is $400.
Just weeks ago we posted that our clients were reporting an even slower 501c3 approval process, as happens from time-to-time. Ok, no big deal. We just buckle down and begin reminding everyone that things may take a little longer. Patience…out of our hands…stay encouraged… Then last Sunday we received this email: Dear Ben, Just wanted to let you know the wonderful news. I received my approval letter from the IRS!!! I mailed the application on Sept. 6 and it was approved on Oct. 18. Wow! I’m thankful that this went through so quickly and smoothly!
The IRS allows for expedited requests of Form 1023 under two specific circumstances: First, if your organization is applying in direct response to a national disaster that demands urgent action, such as a major hurricane or other natural disaster. And second, if your organization has a significant (very large) grant that is pending IRS approval and will be lost if your approval is not awarded quickly. Even in these situations, however, expedited applications are rare.
The last few months we’ve noticed a significant increase in the amount of time that the IRS is taking to review and approve applications for 501c tax exemption. During the first six months of 2012, our clients were receiving their Letters of Determination on average within 3-5 months. More recently, a number of our clients are well into their fifth and sixth month of waiting. Since there is no effective way to expedite the process, we encourage you to plan accordingly and to contact us if you have questions.
[custom_frame_right shadow="on"][/custom_frame_right] What steps are involved in the 501c3 application process, and how long does it take to gain approval? For a brand-new nonprofit organization, the 501c3 application process usually includes the following: - Create Articles of Incorporation (Certificate of Formation) and file with state - Apply for EIN (Tax ID#) - Create Bylaws - Prepare IRS Form 1023 or Form 1024, Application for Recognition of Exemption, including narratives, financial information, schedules, and additional notes - Respond to any IRS follow up questions or requests
[custom_frame_right shadow="on"] [/custom_frame_right] Sometimes we’re approached by clients who have already filled out IRS Form1023 but want us to review their work before filing — and we are happy to do it. Here are three common mistakes that we see again and again: 1. Incomplete Purpose Clause and/or Missing Dissolution Clause in Organizing Document (Articles of Incorporation) – Section 501c3 of the Internal Revenue Code requires that your organizing document state your exempt purpose(s), such as charitable, religious, educational, and/or scientific purposes. Likewise, the code states that upon dissolution of your organization, your remaining assets must be used exclusively for exempt purposes, such as charitable, religious, educational, and/or scientific purposes.
Understandably, this is one question that we hear over and over again from startup nonprofit organizations looking for 501c3 tax exemption from the IRS. Just yesterday I heard from a woman who told me that an online startup “service” had told her it was possible to have her 501c3 application successfully processed within 30 days. Of course, now she wanted to know if we could do it even faster. The truth is, the IRS can take between 2-5 months to review your 501c3 application packet, depending on a number of circumstances. These include the time of year, type and classification of the nonprofit organization, and complexity of your application. Most recently, our clients have received their Letters of Determination within 2-3 months, a relatively quick response compared to previous years. While a 30 day response is not totally out of the question, especially for churches or nonprofit organizations with no paid employees, such a turnaround is extremely rare. [...]
[custom_frame_right shadow="on"][/custom_frame_right] This is the fourth part in a five-part series on how to start a nonprofit organization. Keep in mind that the sequence in which you complete these tasks may vary, but each is important. This post will explore the steps involved in applying for 501c3 tax exemption and state and local permits. 501c3 Tax Exemption 1. Prepare IRS Form 1023