ExpressTaxExempt Blog

How To Apply For and Maintain Your Tax Exempt Status

Applying for tax-exempt status isn't as difficult as you may think and with Express990 it is easy to maintain your status after you receive it. Before we get started, let's take a look at the difference between nonprofit and tax exempt status...

What's the difference?
Non-profit status is a state law concept. Non-profit status may make an organization eligible for certain benefits, such as state sales, property, and income tax exemptions.
  • Important: although most federal tax exempt organization are nonprofit organizations, organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax. 
To qualify as exempt from federal income tax, an organization must meet requirements set forth in the Internal Revenue Code (IRC). 

How does an organization become tax exempt?
To be recognized as EXEMPT from federal income taxation, most organizations are required to apply for recognition of exemption. For Section 501(c)(3) organizations, listed in the IRC, the law provides only limited exceptions to this requirement. Applying for recognition of exemption results in formal IRS recognition of an organization's status, and may be preferable for that reason. 

Organizations applying for tax-exempt status must submit 2 applications ( or just 1 if you already have an EIN): 
  • If an organization has not previously received an EIN, they must apply for one.
  • to be recognized as EXEMPT under section 501(a), most organizations must file an application for recognition of exemption with the IRS. Most organizations applying for exemption under section 501(a) (other than section 501(c)(3)) use Form 1024. Form 1024 has instructions and checklists to help you provide the information required to process your application. 
    • To be recognized as exempt under section 501(c)(3) use Form 1023. There is an interactive version that includes helpful hints and links to help applicants submit a complete application. 
The IRS will recognize an organization as tax exempt if it meets the requirements of the IRC. See Types of Tax-Exempt Organizations and Publication 557, Tax Exempt Status for Your Organization for more information. 

The IRS sometimes recognizes a group of organizations as tax-exempt if they are affiliated with a central organization. This avoids the needs for each organization to apply for exemption individually. A group exemption letter has the same effect as an individual letter except that it applies to more than one organization. 

* The information listed above came from IRS.gov. If you are considering applying for tax-exempt status, be sure to consult your tax professional to help you navigate the Internal Revenue Code. 

Maintaining your Tax Exempt Status
Maintaining your tax-exempt status is simple; file your tax-exempt organization information return, aka Form 990. No matter what size your organization is, there is a corresponding 990 form you need to file annually. Express990 provides Form 990-N (e-postcard) and Form 990-EZ and new the Form 990 and 990-PF will be available soon. 

It is also good to know What Can Cause Your Tax-Exempt Status To Be Revoked. If you have any questions about e-filing your Form 990, contact the Express990 Support Team via phone: 704-839-2321 or email: support@expresstaxexempt.com 

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E-filing Form 990-EZ with Express990

E-filing Form 990-EZ is a brand new service being provided by Express990.com. It is a major breakthrough in the world of filing tax exempt returns. The e-filing process designed by the team at Express990 has been incredibly streamlined to save you time and headache when entering information. Let's take a look at how everything works...

Form 990-EZ
Before we get into all the e-filing fun, I wanted to go over the basic information about Form 990-EZ. This form is used by tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations to provide the IRS with information required by section 6033.

Form 990-EZ is made up of different schedules to enter specific information. You can find out about 990-EZ schedules in my blogs: Schedules A,B, and C  &  Schedules E,G,L,O.
There is lot of information that needs to be entered when filing a Form 990-EZ, including:
- Gross income
- Expenses incurred within the last year
- Disbursements within the year that are the reason the organization is exempt
- Balance sheet showing assets, liabilities, and net worth
- Total of contributions and gifts received during the year and the names and addresses of all substantial contributors
- Names and addresses of the foundation's managers and highly-compensated employees
- Compensation and other payments made during the year
- Lobbying expenditures and nontaxable amounts
- Direct or indirect transfers and relationships with other organizations of the same type
- Respective amounts of the taxes imposed on the organization or any manager of the organization
- Amounts of reimbursements paid by the organization during the taxable year for any taxes imposed
- Information on any excess benefit transaction
- Information on any disqualified persons
- Information on disaster relief activities

It's really is a lot and e-filing makes it so much easier to enter information and know where you are in the process at all times. And just think of all the paper you are saving; going Green has never been so easy.

How it all works
I could explain the e-filing process, but a video just seems a lot more entertaining.

Extend your deadline
If you need more time to e-file your 990-EZ, there is an extension form that will automatically extend your deadline for 3 months. IRS Form 8868 is the Application for Extension of Time to File an Exempt Organization Return. You can easily e-file this form with Express990, click here for more information on Form 8868.

If you have any question about e-filing your 990-EZ or Form 8868, don't hesitate to contact the Express990 Support Team via phone: 704-839-2321 or email: support@expresstaxexempt.com

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E-filing An Exempt Organization Tax Return

So you have gone through all the necessary obstacles to obtain your tax exempt status and now you have to file your Form 990. There are multiple versions of Form 990 to match different size organizations. The Express990 team has put together a road map to understanding the 990 and information on how to e-file it.

1. Choosing The Right Form
Let's start with the most popular - Form 990. This form is the complete return for tax exempt organizations. It has a lot of different parts and takes some time to file. Organizations with at least $200,000 in gross receipts are required to file Form 990. This form will soon be available for e-filing through Express990, which will be amazing because right now, this form can only be paper filed with the IRS.

The next popular 990 form in the series is Form 990-N (e-postcard). This form can only be e-filed and it is a much shorter (like the length of a postcard) version of the complete Form 990. The 990-N is e-filed by organizations with $50,000 or less in gross receipts. You don't need to be an accountant to understand and e-file the Form 990-N. It is really simple to file and will save you from losing your tax exempt status when e-filed annually. E-filing Form 990-N with Express990.com is free for the current tax year.

Form 990-EZ is also one of the most used forms in the 990 series. It is filed by organizations with gross receipts of less than $200,000. The 990-EZ consists of many different schedules that are technically different sections to be filled out with specific information. This form is available to be e-filed through Express990. I wrote two blogs on the different schedules so if you want to learn more, check out:

Form 990-EZ: Schedules A, B, and C

Form 990-EZ: Schedules E,G,L,O

2. Know Your 990 Deadline
Your deadline to file whichever Form 990 from the series can be a little tricky. There isn't one set deadline. The deadline is based on your type of tax year: fiscal or calendar. Once you know what type of tax year you follow, then you can determine your deadline date. It is going to be the 15th day of the 5th month after the last day of your tax year. For example; if your tax year ended on December 31st, then your deadline is May 15th of the following year.

3. Know Your Filing Options
As written above the complete Form 990 will be available for e-file through Express990.com very, very soon. As for Form 990-EZ and Form 990-N, you have a few options available for e-filing.

990-N E-filing App
If you aren't always in an office, then e-filing might seem like an option that isn't practical. Express990 released a 990-N e-filing app just for that purpose. It's free to download and e-filing the 990-N is free for the current tax year. Check out my 990-N App blog for more information.

990-EZ E-filing
E-filing Form 990-EZ is so much easier than the traditional paper form. You don't have to worry about using the right color ink and mistakes can be easily fixed. Express990 provides easy to follow prompts and guides you through the entire e-filing process. Check out my Tax Guide To File Form 990-EZ With The IRS blog for more information.

4. Don't Hesitate To Call The Express990 Team
If you have any questions about e-filing your 990, contact the Express990 team via phone: 704-839-2321 or email: support@expresstaxexempt.com.

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IRS Audit of Exempt Organizations

If you are not prepared, just the word - Audit - can create stress and fear. It's an unsettling feeling anytime the IRS wants to look at your financial documents. But when you know what to expect and how everything is done, the entire experience is much less frightening. Let's begin...

Will Your Organization Be Audited?
This one is tricky to answer. The IRS isn't required to audit a certain percentage of exempt organizations every year, so that is good. But then you have to accept the random selection process. It could happen, you just don't know when. The main issues that trigger an audit are described by the IRS as an organization's tax-exempt status and private foundation classification, whether it paid employment taxes and tax on unrelated business income when required, and whether it filed required returns and reports.

If you keep your exempt status in good standing by filing your Form 990 every year, and properly document everything and file your returns on time, you can still be randomly selected for an audit.

Are There Different Types of Audits?
There are different types of audit procedures implemented depending on the size of your organization and the potential issued involved. There are three main audit procedures used by the IRS: field, office, and correspondence/OCEP (Office Correspondence Examination Program). If you are used to seeing audits in movies or on television where a team of auditors rolls in and goes through everything, that is considered a field audit and is typically only used for very large organizations. If you are a smaller organization and receive an audit notification, you will most likely be asked to go to an IRS office for an interview, or be asked to send in specific documents. You can even be asked to an audit interview at your accountant's office. However you are audited, the IRS is kind enough to tell you exactly what records are needed so you don't get too stressed out.

What is Publication 892?
Publication 892, also known as, Exempt Organization Appeal Procedures for Unagreed Issues, is a way for you to appeal an IRS decision based on your audit. Like if the IRS proposes to revoke or modify your organization's exempt status, you can appeal the decision and stop the IRS from taking away your status.

IRS audits in a whole can be a bit overwhelming at first to understand. There is a lot of information out there about the procedures and what to do. Don't let the popularized fear of audits stress you out. The IRS will tell you exactly how it will all go down, what you need and what to do.

To keep your tax exempt status in good standing, be sure to file your Form 990 every year, and by your deadline date. Express990 provides e-filing of Form 990-N, 990-EZ, and soon to come the complete Form 990 and 990-PF.
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Frequently Asked Questions

Find answers related to e-filing IRS Form 990, 990-EZ, 990-PF, 990-N (e-Postcard), Form 1120-POL and Extension Form 8868 with our Frequently Asked Questions.

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