How Long Does it Take to Get 501c3 Status?

Oct 27, 2023 

How Long Does it Take to Get 501(c)(3) Status?

Disclaimer: Although we do not provide legal advice, we can assist you with your filings and corporate documents and help you apply for 501(c)(3) status under the Internal Revenue Code (IRC). Visit our service pages to find out more about what Pearl Solutions can offer.  

What is 501(c)(3) status?

How long does it take to get 501(c)(3) status? If you have started the nonprofit development process, you know that there are a lot of things to take care of when creating your organization. To qualify for tax-exempt status, organizations need to apply for 501(c)(3) status with the IRS. 

As noted in this post; the difference between 501(c)(3) and 501(c)(4) organizations is 501(c)(3) refers to section 501(c)(3) of the Internal Revenue Code (IRC). The 501(c)(3) and 501(c)(4) designations are used to categorize organizations and explain their tax-exempt status. 

According to the IRS, to be tax-exempt under section 501(c)(3) of the IRC, an organization must: 

“…be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.”

You can read about how the IRS defines publicly-supported charitable organizations, what you need to do when applying for 501(c)(3) status, and more on the IRS website.

Benefits of 501(c)(3) Status

As a 501(c)(3) organization, your organization will be exempt from paying federal income tax. Donations to organizations with tax-exempt status under section 501(c)(3) are also tax deductible. This information could serve as an incentive for people to give to your organization for the first time or encourage existing donors to give more than they have in the past.

People may also feel more comfortable making a donation once you have secured this status because having approval from the IRS lends credibility and legitimacy to your organization. 

Another important benefit is that some grants are only available to organizations with 501(c)(3) status. If that is the case and you have this status, you automatically meet one of the eligibility requirements. 

Understanding the Application Process for 501(c)(3) Status

There are certain steps you need to take before applying for 501(c)(3) status. Once you take care of those, you can move forward with the application process.

Types of Organizations Eligible for Tax Exemption

Eligible organizations are those that are formed for certain exempt purposes. Those exempt purposes refer to the work your organization does and the way it operates. 

Your organization likely qualifies for this status under section 501(c)(3) if it was formed to address one of these exempt purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. 

Organizations with 501(c)(3) status include Black Girls Code, charity: water, and Habitat for Humanity International. 

Completing the Application Form and Paying the Filing Fee

To apply for 501(c)(3) tax-exempt status, you must fill out Form 1023 or Form 1023-EZ. Form 1023-EZ is a streamlined version of Form 1023. 

To see if your organization is eligible to file Form 1023, take a look at this PDF. You can find instructions for filling out Form 1023-EZ here. 

In addition to filling out the correct form, you must pay the required filing fees. 

Financial Projections

Part VI-A of Form 1023 requires that you provide certain financial information, including actual or projected financial information for three to five years. You can learn more about the financial information you’ll disclose in Form 1023 and why you need to disclose it in this FAQ

Processing Time for Approval

So, how long does it take to get 501(c)(3) status? Unfortunately, there is no way to say for sure exactly how long it takes to process an application. The IRS usually processes the applications in the order in which they are received.  

The IRS provides some guidance on how to shorten the application process here. Their top 10 tips are: 

  1. Pay the correct user fee.
  2. Attach a complete copy of the organizing document and all amendments.
  3. Provide enough information about the organization’s activities to show how it will achieve the exempt purpose.
  4. Complete all required pages.
  5. Attach all required schedules.
  6. Include the month the organization’s annual accounting period ends.
  7. Include all of the necessary financial data. 
  8. Submit a copy of adopted by-laws.
  9. Ensure a director, trustee, principal officer, or other authorized individual signs the Form 1023, Form 1024, or Form 1024-A.
  10.  Provide the required information on the principal officers and board of directors.

Once you file your application, the IRS will send you an acknowledgment notice letting you know that they have received it. If they need more information to process your application, someone will reach out to you. 

According to Pay.gov, which is where you will file your form and pay the filing fee, you can check the status of your application by doing the following: 

“…go to Where’s My Application on IRS.gov. If you submitted your application before the date indicated in the chart on that page and haven’t been contacted, you can call the toll-free Customer Account Services number at 877-829-5500 Monday through Friday, 8 a.m. – 5p.m. (local time), to check on the status.”

Quick Approval Options Available

The application time for organizations applying for tax-exempt status with Form 1023-EZ is usually shorter than those applying with Form 1023. 

There are some cases where the IRS will expedite an organization’s application. You can find examples of when the IRS would expedite an organization’s application here.  

Determination Letter

When you apply for tax-exempt status, you will receive an acknowledgment notice that your application is under review. Once your application has been reviewed, you will receive a determination letter.  

If the IRS approves your application, you will receive a favorable determination letter. This letter serves as proof that you have received tax-exempt status under section 501(c)(3).  

If the IRS does not approve your application, you will receive an adverse determination letter. This is what the IRS says about adverse determination letters or adverse rulings: 

“A proposed adverse ruling or determination letter will be issued to an organization that has not provided sufficiently detailed information to establish that it qualifies for exemption or if the information provided establishes that it does not qualify for exemption. An organization can appeal a proposed adverse ruling or determination letter.”

Maintaining 501(c)(3) Status Once Approved

Board of Directors and Charitable Organizations

Your organization does not automatically retain its tax-exempt status. Each year, you will be required to file certain forms with the IRS. The information you provide will inform whether or not your organization maintains its status. 

On those forms, you will be asked to provide information on things like your organization’s governing body. According to this Compliance Guide for 501(c)(3) charities, the IRS believes that: 

“An active and engaged board is important to the success of a public charity and compliance with the tax law. A governing board should be composed of persons who are informed and active in overseeing a charity’s operations and finances. To guard against insider transactions that could result in misuse of charitable assets, the governing board should include independent members and should not be dominated by employees or others who are not independent because of business or family relationships.” 

The IRS also encourages board members to “regularly review the organization’s financial statements and information returns, and consider whether an independent auditor is appropriate.”

Learn more about governance and related topics.

Federal Income Tax Requirements and Unrelated Business Income Rules

If you see “UBI” on your tax forms, it likely refers to “Unrelated Business Income.” UBI is defined as “income that an exempt organization receives from conducting activities that are not related to its exempt purpose. Even if an organization uses the income from an unrelated activity to help pay for its exempt activities, that income is still UBI.” How your organization handles UBI can jeopardize your 501(c)(3) tax-exempt status.

As far as federal tax income requirements go, 501(c)(3) organizations that are exempt from paying federal income tax and pay employees are responsible for “withholding, depositing, paying, and reporting federal income tax, social security and Medicare (FICA) taxes, and federal unemployment tax (FUTA), unless that employer is specifically excepted by law from those requirements, or if the taxes clearly don’t apply.” 

Learn more about employment issues as they relate to exemption status here.

Re-filing Procedures for Tax Returns

Each year, the IRS expects you to file certain forms. If you submit a return that is not accurate or incomplete, you will have to file it again. 

Keep in mind that you may receive a penalty for not filing a form correcting within a certain period of time after being notified that your return is incomplete. You may also incur fees if you file your return late.

For more information on maintaining your tax-exempt status, visit the stayexempt.irs.gov website.

Conclusion

You will be required to fill out several forms* and submit documentation to receive and maintain your tax-exempt status. Our team can assist you with your filings and corporate documents and help you apply for 501(c)(3) status. You can learn more about the nonprofit creation and development services we provide at Pearl Solutions here.

*You can find a comprehensive list of the forms and instructions that exempt organizations may need on the IRS website.

If you’re looking to apply for and win a world-changing grant, we’d love to support you. Learn more about the grant proposal writing services we provide at Pearl Solutions. 


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