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ExpressTaxExempt Blog

Thursday, March 26, 2015

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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