501(c)(3) Tax-Exempt
Federal law provides tax benefits to nonprofit organizations recognized as exempt from federal income tax under Section 501(c)(3) of the IRC. The 501(c)(3) application with the IRS is a significant step in incorporating your nonprofit. Forming a nonprofit corporation does not automatically mean that the nonprofit corporation is tax-exempt for federal and, in some instances, state income tax. A "tax-exempt" organization is a distinctive entity that has gained an exemption from income tax liability from the IRS. A nonprofit corporation is not eligible for exemption from income tax liability until it applies for and has been approved by the IRS for 501(c)(3) tax-exempt status.
The benefits of being classified as 501(c)(3) tax-exempt by the IRS include:
exemption from federal income tax and, in some instances, state income tax; eligibility to receive tax-deductible charitable contributions; eligibility for property tax exemptions; the ability to apply for grants and other public allocations; discounts on USPS bulk-mail rates; and reduced rates for radio and public service announcements. To be eligible for 501(c)(3) status, an organization must limit its purpose to an exempt purpose as described in section 501(c)(3) of the of the IRC and engage in activities that further its exempt purpose.
The most common types of 501(c)(3) organization are:
Organizations that want to be recognized as exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code need to incorporate in their state, obtain an Employer Identification Number, file IRS Form 1023, The Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, all applicable Schedules and supporting documents, and IRS Form 8821, Declaration of Representative.
*NOTE:* INCFILE.COM does not prepare or file the 501(c)(3) application for federal tax exempt status. INCFILE.COM can help you file your nonprofit corporation with the state, which is the first step in the process. The 501(c)(3) information on this page and this website is intended for informational purposes only and we hope you find it helpful.
The preparation and filing of the application for the 501(c)(3) or other federal exempt tax status is a separate process from the filing of the nonprofit corporation with the state, which is usually the first step in the process. Applying for federal tax exempt status is handled through the IRS, while the forming of the nonprofit corporation is handled with the state.
