How to Get 501(c)(3) Status for a Non Profit

An organization operating as a 501(c)(3) has a specific designation under the Internal Revenue Code exempting it from federal income tax. This status is granted due to its dedication to exempt purposes, such as charitable, religious, or educational activities. A benefit of this classification is that it allows donors to receive tax deductions for their contributions.

This status requires a formal application and approval process with the Internal Revenue Service (IRS). The organization must be structured and operated in a way that aligns with federal law, which involves careful planning, documentation, and adherence to ongoing compliance rules.

Qualifying for 501(c)(3) Status

To qualify for 501(c)(3) status, an organization must be organized and operated exclusively for one or more exempt purposes. The IRS recognizes purposes such as:

• Charitable
• Religious
• Educational
• Scientific
• Literary
• Testing for public safety
• Fostering national or international amateur sports competition
• The prevention of cruelty to children or animals

The term “charitable” is interpreted broadly to include relief of the poor, advancement of religion or science, and maintaining public buildings.

This requirement is evaluated through an organizational test and an operational test. The organizational test examines the nonprofit’s founding documents, such as its articles of incorporation. These documents must limit the organization’s purposes to one or more exempt activities and include a clause ensuring that upon dissolution, any remaining assets will be distributed for an exempt purpose rather than to private individuals.

The operational test examines the organization’s actual activities. An organization must be primarily engaged in activities that further its exempt purposes, and any non-exempt activities must be an insubstantial part of its operations.

An organization must also follow certain prohibitions. No part of the organization’s net earnings can benefit any private shareholder or individual. The organization is also forbidden from participating or intervening in any political campaign for a candidate for public office. While some lobbying may be permissible, it cannot be a substantial part of the organization’s activities.

Required Information and Documents for Application

Before applying for 501(c)(3) status, an organization must be a formal legal entity, such as a corporation, trust, or unincorporated association. Forming a nonprofit corporation at the state level is a common choice because it provides a liability shield for its operators. This state-level formation must be completed before the federal application.

A prerequisite for the application is obtaining an Employer Identification Number (EIN) from the IRS. An EIN is a unique nine-digit number that identifies the business for tax purposes. An organization must have its EIN before submitting its application for tax-exempt status, as the number is required on the form.

The organization’s foundational documents, such as the Articles of Incorporation and Bylaws, must be submitted with the application. To meet the organizational test, these documents must state the exempt purpose and include a dissolution clause that dedicates remaining assets to another exempt purpose upon termination.

The application, IRS Form 1023, requires a detailed narrative of the organization’s past, present, and future activities. It also demands information about all officers, directors, and trustees. Detailed financial data is required, including statements of revenue and expenses for prior years and a projected budget for at least two future years.

The Application Process

An organization applies to the IRS using either the comprehensive Form 1023 or the streamlined Form 1023-EZ. Form 1023-EZ is for smaller organizations, generally those with projected annual gross receipts of $50,000 or less and total assets of $250,000 or less.

Many organizations are ineligible for Form 1023-EZ regardless of size, including churches, schools, hospitals, and private foundations. An organization must complete the Form 1023-EZ Eligibility Worksheet to confirm it can use the streamlined application. If not, it must file the more detailed Form 1023.

Applications are submitted exclusively through the online portal, Pay.gov, as paper forms are not accepted. The process requires creating an account, completing the form electronically, and uploading all supporting documents, such as the articles of incorporation and bylaws.

A non-refundable user fee must be paid at the time of submission. The fee is $600 for Form 1023 and $275 for Form 1023-EZ. The IRS will not process the application until the payment is made.

After submission, the organization will receive an electronic acknowledgment. The application is then assigned to an IRS agent for review, who may request additional information. The timeline for receiving a final determination letter granting or denying status can take several months.

Maintaining Tax-Exempt Status

After obtaining 501(c)(3) status, an organization has ongoing responsibilities. An obligation is the annual filing of an informational return with the IRS, usually a version of Form 990. The specific form—Form 990-N, 990-EZ, or the full Form 990—depends on the organization’s financial size.

Public disclosure is another requirement. A 501(c)(3) organization must make its approved application for exemption and its annual information returns available for public inspection upon request.

An organization must maintain detailed financial and non-financial records to substantiate the information on its annual returns. These records must show that the organization continues to operate for its exempt purpose and adheres to prohibitions against private inurement and political activity. Proper documentation is necessary to support tax-exempt status during an IRS audit.

Organizations must also remain compliant with state-level regulations. These obligations vary but often include filing annual corporate reports and registering with a state agency to solicit charitable donations. Failure to meet state requirements can jeopardize an organization’s good standing and ability to operate.