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501c(3) Frequently Asked Questions

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    What is a "Tax-Exempt" or 501(c)(3) Organization?

    The term "tax-exempt" is used in reference to non-profit corporations and generally refers to the net profits (proceeds over and above expenses) of a corporation being exempt from federal and/or state income tax.

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    Who is Eligible for Section 501(c)(3) Tax-Exempt Status?

    Only non-profit corporations formed for the following purposes are eligible for 501(c)(3) tax-exempt status: religious, charitable, scientific, testing for public safety, literary, educational, fostering national or international amateur sports competitions, preventing cruelty to children or animals, civic leagues and social welfare organizations, labor, agricultural and horticultural organizations, business leagues, social and recreational clubs, fraternal societies, employee associations, or veterans' organizations.

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    Are there any activities that a 501(c)(3) tax-exempt Organization cannot engage in?

    Yes, the following activities are prohibited by a 501(c)(3) organization:

    1. Participating in the political campaigns of candidates for local, state or federal office;
    2. Unfairly enriching board members, officers, key employees or other insiders;
    3. Furthering a non-exempt purposes more than substantially;
    4. Operating for the primary purpose of conducting a trade or business unrelated to its
    tax-exempt purpose;
    5. Participating in substantial legislative activities.

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    What is the difference between a Public Charity and a Private Foundation?

    Under section 508 of the Internal Revenue Code, every non-profit organization is automatically classified as a private foundation unless it meets one of the exceptions listed in IRC Section 509(a) to be classified as a public charity. Public charities conduct regular fundraising programs and receive contributions from a number of sources such as the general public, government agencies, corporations, or other public charities. Private Foundations generally have a single main source of contribution.

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    What are the Benefits of being tax-exempt?

    The primary benefit of being tax-exempt under IRS Section 501(c)(3) is the ability to accept contributions and donations that are tax-deductible to the donor. Additional benefits include exemption from federal and/or state income tax, exemption from state sales and property tax (varies by state), ability to apply for grants and other public and private allocations available only to 501(c)(3) organizations, potentially higher thresholds before incurring federal and/or state unemployment tax liabilities, discounts on USPS bulk-mail rates, and reduced rates for radio and public service announcements in the local media.

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    What are the Disadvantages of becoming tax-exempt?

    The primarily disadvantage is the requirement to complete mounds of official government paperwork, the time and energy needed to comply with the federal and state exemption status approval requirements, and strict restrictions on activities the organization may engage in.

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    How does a non-profit corporation become tax-exempt?

    Corporation that want to be recognized as exempt from federal income tax under IRC section 501(c)(3) must incorporate with their state by filing their articles of incorporation, file IRS Form SS-4 and obtain an Employer Identification Number, complete and file IRS Form 1023, The Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code and any additional Schedules of Form 1023 required based upon organization's activities, and IRS Form 8821, Declaration of Representative.

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    Can IRS Form 1023 be filed online?

    No, the IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the IRC cannot be filed online.

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    Do I need to notarize IRS Form 1023 before submitting it to the IRS?

    No. IRS Form 1023 only requires the signature of an officer of the non-profit corporation. It does not require notarization.

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    How long does it take to complete the IRS Forms to gain tax exempt 501(c)(3) status?

    IRS Form 1023 is 28 pages long, contains several schedules and attachments and requires approximately 25-50 additional pages of required documents. Furthermore, obtaining 501(c)(3) status requires the filing of several other IRS forms. On average, the completion of the required IRS forms and subsequent correspondence with the IRS agents takes approximately 100 hours and 6-8 months to compete the process. (See page 24 of the Instructions for Form 1023.) The IRS estimates well over 150 hours of work for a novice and/or individuals unfamiliar with tax law and governmental paperwork to complete the application. (See Publication 557, Tax-Exempt Status for your Organization). However, with the assistance of QuickCorps, your 501(c)(3) application process is made simple, clear, and manageable. The time frame for completion of the IRS forms, additional schedules, and required documents depends upon the cooperation of our customers for submission of all the information QuickCorps will need to complete your application.

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    How long does it take the IRS to approve a non-profit corporation as 501(c)(3) tax-exempt?

    This depends. Once your IRS forms and additional schedules and documents are submitted by QuickCorps to the IRS, the estimated time frame for approval of your documents and securing 501(c)(3) status is 3-6 months.

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    Can anyone complete the IRS forms and gain 501(c)(3) tax-exempt status?

    Technically, yes, anyone can complete IRS Form 1023 and other required IRS forms and documents. However, from a practical perspective, it is highly unadvisable to attempt to complete the arduous applications, forms, schedules and other requested documents by a novice. It is highly recommended that an applicant procure the assistance of a professional who is familiar with the process. At the least, is it highly advisable that an applicant have the applications and documents reviewed by an attorney or tax specialist before submitting them to the IRS. IRS agents have found that a delay in completion of the process is primarily due to insufficient submission of the application. Submitting incomplete, incorrect and/or inaccurate documents and/or applications can delay the process with the IRS for up to 12 months. (See page 24 of the Instructions for Form 1023). The average cost to prepare IRS Form 1023 and the additional schedules and documents required by an attorney or tax specialist can range from $2,500-$5,500. On average, the IRS declines, either through an express denial or a denial for the lack of providing additional information requested, 27% of applications submitted by individuals without the assistance of an attorney or tax specialist. (See an IRS document on applying for Tax-Exempt Status)

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    What information will be required for completion of IRS Form 1023 for 501(c)(3) tax-exempt status?

    The information required includes identifying information of the corporation, its legal structure and formation details, the corporation's exempt purpose, activities the corporation will engage in, the type and method of fundraising, the corporation's anticipated annual gross receipts, membership information, name and compensation amounts of directors, officers and/or employees, and its budget and financial history.

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    What are the fees for Filing IRS Form 1023?

    If annual gross receipts will exceed $10,000 annually over a 4 year period, the fee is $750; If annual gross receipts will not exceed $10,000 annually over a 4 year period, the fee is $300.

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    When do I need to apply for 501(c)(3) tax-exempt status?

    A non-profit corporation should apply for 501(c)(3) tax-exempt status with the IRS within 27 months of formation. However, it is highly advisable to apply as soon as possible after forming your non-profit to avoid possible delays in approval by the IRS.

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    What happens if my application for 501(c)(3) tax-exempt status is rejected by the IRS?

    A determination of a rejection as 501(c)(3) tax-exempt by the IRS may be appealed.

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    Is there a state application as well as a federal application for tax-exempt status?

    In most states, there is no separate state application for tax-exempt status. These states simply require notice be given to the state regarding federal tax-exempt status. There are a handful of states which require a simple, 1 to 2 page form that must be prepared. (See the State Requirement Chart). California, New York and Pennsylvania are the only states which require a separate state application process.

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    Are there other categories of tax-exempt organizations with the IRS other than a 501(c)(3) organization?

    Yes. A 501(c)(3) is the most common type of tax-exempt organization, however, there are several other types. For the purposes of incorporating your non-profit with QuickCorps, QuickCorps will prepare your organizing documents pursuant to only Section 501(c)(3) of the IRC. For more information on other types of IRS tax-exempt organizations, see the IRS Organization Reference Chart.