ExpressTaxExempt Blog

Are Nonprofit & Tax Exempt Organizations the Same Thing?

There’s an old proverb you may have heard before—”Nonprofits are tax exempt organizations, but not all tax-exempt organizations are nonprofits.”

Okay, maybe it’s not a proverb—but you get what I’m saying. Sometimes, we use these phrases interchangeably, but there are significant differences that justify their separate designation.

Nonprofit Designation

The labeling of your organization as a nonprofit or for-profit is a perception of state law.

As the law states, for-profit organizations generate revenue specifically for the benefit of their owners and investors.

If you’re recognized as a nonprofit, you are stating that your organization has some other purpose besides creating revenue for owners and investors. But that purpose alone doesn’t necessarily qualify for an exemption from taxes.

Tax Exempt Designation

Like we said earlier, just because you call your organization a nonprofit doesn’t mean it’s automatically recognized as “tax exempt.” You actually need to apply to the IRS for a determination of a tax exempt status.

A 501(c)(3) organization is the most common type of tax exempt organization you will come across.

To become a 501(c)(3) organization, you have to file Form 1023, the Application for Recognition of Exemption Under Section 501(c)(3), with the IRS.

You may also be required to submit an application with your state to be exempt from state income tax and other state taxes.

But as it goes, nonprofit and tax exempt organizations CAN still earn money. If they earn funds that aren’t needed to fulfill a current expense, they can be put towards furthering your organization’s mission (or they can be saved for future activities).

Whether you’re a tax exempt organization or a nonprofit specifically, there’s something for you at ExpressTaxExempt. If you have any questions about your tax exempt or nonprofit organization-filing Form 990, call us at 704.839.2321.
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What Really Happens When You Lose Tax Exempt Status

A lot of organizations know they can lose their tax exempt status, but not many know the details of what happens during these periods.

So we’ve taken it upon ourselves to see what the IRS has to say about losing your tax exempt status.

How Do You Reinstate Your Tax Exempt Status?

How do you reinstate your tax exempt status reinstated if it was automatically revoked?

First, you must apply to have your organization’s tax exempt status reinstated. You still need to do this, even if you originally didn't have to.

According to the IRS, here’s what you need to do:

  1. Apply for recognition of tax exemption by filing Form 1023 (if applying under section 501(c)(3)), or Form 1024 or a letter (if applying under a different Code section), regardless of whether the organization was originally required to apply for exemption; and
  2. Pay the appropriate user fee.
An organization can also ask for retroactive reinstatement as part of its application.

What Happens When You Lose Tax-Exempt Status?

Well, first the IRS sends you a letter informing the organizations of the revocation!

When you lose your tax exempt status, you are automatically no longer exempt from federal income tax.

So you may be required to file one of the following federal income tax returns and pay the applicable taxes of said forms:

  • Form 1120, U.S. Corporation Income Tax Return, due by the 15th day of the 3rd month after the end of the organization’s tax year
  • Form 1041, U.S. Income Tax Return for Estates and Trusts, due by the 15th day of the 4th month after the end of your organization’s tax year
When your organization has its status automatically revoked, it is not eligible to receive tax-deductible contributions and will not qualify for the cumulative list of tax-exempt organizations, Publication 78.

For donors—they are able to deduct contributions made before an organization’s name appears on the Automatic Revocation List.

Be aware, there may be state and local laws as well as taxes that affect you once your exempt status is revoked.

What Happens When You Are Reinstated?

Most likely, your organization’s effective date of reinstated exemption will be the date that your application was submitted to the IRS.

Thankfully, you can request retroactive reinstatement for the effective date of revocation. However, the IRS only grants retroactive reinstatement of exemption under certain limited circumstances.

Once you’re back and running, be sure to e-file IRS Form 990 with ExpressTaxExempt!

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3 Strategies to Boost Donations

Let’s face it—you are probably always in a state of fundraising.

Which makes sense, as an exempt organization, the money you earn usually comes from donors. Which also means the inevitable. You run the risk of burning out donors and losing their interest over time.

If you find yourself in that situation, you need to reevaluate what you can do for your nonprofit marketing plan.

Take these 3 marketing strategies and see how you can implement them.

Tailor Your Message

You want to get more donations? Pay attention to how you craft your messages. If you’re planning on a quick, one weekend only push—your marketing strategy will be simple. For a long term campaign, be prepared to plan, test, and implement all the time.

Make sure you tailor your message to the right audience, too.

Melissa Kushner of goods for good says, “Some people can’t make it through the elevator pitch, while others want to know every detail.”

Most of all, be prepared to switch things around and do testing—it all depends on your audience’s level of engagement.

Share the Right Stories

Whether it’s your nonprofit leader or newest volunteer, your organization has someone with a story to tell. But could that harm your fundraising mission?

If you want to really spur donations, share the story of where the money is going. If a donor sees how far a donation goes inside your organization, they’ll ready to donate more.

With transparency, you can keep your core audience engaged and eager to participate.

Of course, every now and then you can share the stories of your staff, just don’t always lead with that.

Pair Your Brand

So you want to stick to your mission, but you have some opportunities to partner with other organizations and companies. If their brand and ideal match your brand and ideal, it’s a good path to go.

How can this help you? By pairing with an organization that has similar values, you’ll introduce your nonprofit to a new donor cohort and believers in your mission.

This could be a church, a green tech startup, or even a similar nonprofit.

With the bulk upload feature of ExpressTaxExempt, reporting your donations is easier than ever. Simply download and fill out our spreadsheet, then upload it back into our system.

As always, if you run into any issues reporting and e-filing your Form 990 return, reach out to us at Support@ExpressTaxExempt.com.

Do you have any lesser known strategies for boosting donations? Join the conversation on Twitter!

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Our live support specialists in Rock Hill, SC are always ready to offer professional service and assistance.


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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