How to Get a 501(c)(3) Determination Letter

A 501(c)(3) determination letter is the official document from the Internal Revenue Service (IRS) that recognizes an organization as exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. This letter is the definitive proof of an organization’s tax-exempt status. Its primary function is to provide assurance to donors that their contributions are tax-deductible, a factor that is important to fundraising efforts.

Eligibility Requirements for 501(c)(3) Status

To qualify for 501(c)(3) status, an organization must first satisfy the organizational test. This test focuses on the entity’s founding documents, such as its articles of incorporation or trust instrument. These documents must explicitly limit the organization’s purposes to one or more exempt purposes as defined by the IRS and permanently dedicate its assets to these purposes. This ensures that upon dissolution, any remaining assets will be distributed for an exempt purpose, rather than to private individuals.

An organization must also meet the operational test. This test scrutinizes the actual activities of the organization to ensure they primarily further its stated exempt purposes. A substantial part of its activities cannot be for non-exempt purposes, such as engaging in political campaigns or generating excessive profits for private interests. The test ensures the organization focuses its resources on public benefit rather than private gain.

Required Information and Documentation for the Application

Before an organization can apply for tax-exempt status, it must first obtain an Employer Identification Number (EIN), even if it does not have employees. The EIN is a unique nine-digit number that the IRS uses to identify the business entity for tax purposes and is a prerequisite for the application.

The core of the application is either Form 1023-EZ, Streamlined Application for Recognition of Exemption, or the more detailed Form 1023. Eligibility for the shorter Form 1023-EZ is limited to smaller organizations, typically those with projected annual gross receipts of $50,000 or less in each of the next three years and total assets valued at $250,000 or less. Organizations that do not meet these criteria must file Form 1023.

Applicants must attach a conformed copy of their organizing documents to the application. A conformed copy is one that has been signed by an authorized officer and agrees with the original document, including all amendments. For a corporation, this would include its articles of incorporation and bylaws.

Preparing the application requires a detailed narrative describing the organization’s activities—past, present, and planned. Applicants also need to prepare detailed financial data, including statements of revenue and expenses for previous years and a projected budget for the upcoming three years, as detailed in Part IX of Form 1023.

The Application Submission Process

All applications for 501(c)(3) status must be submitted electronically through the government portal, Pay.gov. The IRS no longer accepts paper applications for either Form 1023 or Form 1023-EZ. Applicants create an account to complete the form and upload all required documents as attachments.

A user fee must be paid at the time of submission through the Pay.gov platform. The fee for Form 1023-EZ is $275, while the fee for Form 1023 is $600. This payment is non-refundable, regardless of whether the application is approved or denied.

After the application is submitted, the IRS will send an electronic acknowledgment of receipt. Processing time for applications can vary, from a few months for a straightforward Form 1023-EZ to over a year for a complex Form 1023. During the review, an IRS Exempt Organizations specialist may contact the organization to request additional information.

Maintaining and Using Your Determination Letter

Once an organization receives its determination letter, its tax-exempt status becomes public record. The IRS provides an online tool called the Tax Exempt Organization Search (TEOS), which allows anyone to verify an organization’s exempt status. This tool is frequently used by grantors and donors to confirm an organization’s eligibility to receive tax-deductible contributions.

To maintain its 501(c)(3) status, an organization must adhere to all operational restrictions, including limitations on lobbying and a complete prohibition on political campaign intervention. A primary compliance duty is the annual filing of an informational return from the Form 990 series, with the specific version depending on the organization’s annual gross receipts.

Should an organization lose its original determination letter, it can request a replacement. For letters issued on or after January 1, 2014, a copy can often be downloaded from the TEOS site. For older letters, a copy can be requested by submitting Form 4506-B. An organization can also request an affirmation letter, which serves the same purpose as the original for verifying status.