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A to Z of Becoming Tax-Exempt

You’ve formed a non-profit group and now you want to become tax-exempt in the eyes of the IRS.  Lucky for you, there’s an easy and free way to do this, in spite of what you may hear from third-party companies offering to “help” you become tax exempt.  They charge a “small fee” of course, and that’s absolutely not necessary.  IRS form 1023 is all you need, plus a little bit o’ internet guidance from me!

IRS Form 1023 Looks Intimidating But Don’t Let That Stop You!

But before we get Form 1023, which is the application for tax-exempt status, let’s start at the very beginning…

Step One: Get an EIN

Obtain an EIN (Employer Identification Number) for your organization.  That can be done in minutes over the phone, on the IRS website here, or by mail if you insist on being old-fashioned.

Step Two:  Make Sure Your Organization is Structured Properly

Your organization must be a corporation or a trust.  It can also be something called an unincorporated association, which means a group of people who volunteer to come together for the same purpose…like a trade union or an environmental group.
Partnerships are NOT eligible to become tax-exempt under Section 501(3)(c).

Your organization must also have a mission statement or other such organizing document that limits its activities to furthering only its stated exempt purpose.

Step Three:  Fill Our IRS Form 1023

Yes it’s a long form so just take your time and step by step you’ll make it through.  Here are the things you’ll be asked about on the form:

  • who are the members
  • what is the history of your group?
  • do the officers/directors/key players get compensated?  if so, how and how much?
  • does anyone get benefits?  who and what are the benefits?
  • what are the activities of your group?
  • supply detailed financial records of your group
  • is your group a public charity?
Step Four:  Use the IRS Website as a Resource

Go here for an online tutorial on becoming tax-exempt under Section 501(3)(c).  There are also FAQs and publications you can read here.  And just remember: you don’t have to pay somebody to help you apply to become tax-exempt.  You can do it!

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