#3 of 3 Filing for Exempt Status

In our previous posts we have discussed the criteria or the "14 point test" for churches. Churches are not required to file a Form 1023, however religious organizations with annual gross receipts greater than $5,000 must file.

In order for an organization to be tax-exempt, IRC 501(c)(3) requires the entity meet the following requirements:

1. organized and operated exclusively for religious, educational, scientific or other charitable purposes
2. net earnings may not inur to the benefit of any private individuals or shareholders
3. no substantial part of its activity may be attempting to influence legislation
4. not intervene in political campaigns
5. purposes and activities may not be illegal or violate fundamental public policy.

Churches that meet the above requirements are considered tax-exempt. Churches are not required to file a Form 1023, however religious organizations are required to file this form if their annual gross receipts exceed $5,000. Some churches are voluntarily filing this form in order to meet donor expectations.

Form 1023 is a twelve-page form, plus additional schedules required to be completed depending on the type of organization. The form includes questions and information relating to:
1. applicant information
2. organizational structure,
3. compensation arrangements
4. history of organization
5. activities
6. financial data
7. public charity status

The following additional schedules are required depending on organizational type:

Schedule A – Churches
Schedule B – Schools, Colleges and Universities
Schedule C – Hospitals
Schedule D – Section 509(a)(3) Supporting Organizations
Schedule E – Organizations not filing Form 1023 within 27 months of formation
Schedule F – Homes for the Elderly or Handicapped and Low-Income Housing
Schedule G – Successors to Other Organizations
Schedule H – Organizations Providing Scholarships, Fellowships, Educational Loans or Other Educational Grants to Individuals and Private Foundations Requesting Advance Approval of Individual Grant Procedures.

A checklist should also be completed which requires attaching a number of additional documents and information. A user fee is also required.

Form 1023 is a form for federal tax exemption. An organization may be required to register with one or more state agencies in order to solicit contributions or be exempt from state income taxes. The National Association of State Charity Officials (NASCO) maintains a website at www.nasconet.org that lists state filing requirements.

When to File: If the entity files Form 1023 within 27 months after the end of the month of legal formation, the legal date of formation will be the effective date for the exempt status. If the entity does not file the form within 27 months of formation, the effective date becomes is the postmark date of Form 1023.

IRS Approval: When the Form 1023 is approved the IRS will issue a determination letter recognizing the entity’s tax-exempt status and its qualification to receive tax-deductible charitable contributions. The determination letter will also disclose if the organization is recognized as a public charity or as a private foundation.

Additional Information: Go to the IRS website or contact us.