Nonprofit Donations: How To Apply for 501(c)(3) Status
Becoming eligible to accept nonprofit donations has become easier and more streamlined in recent years.
In the past, the 1023 application form was 28 pages long, and could exceed 50 pages with the attached documentation required.
In 2014, the IRS introduced a shortened version of the application, the 1023-EZ, which greatly reduces the amount of paperwork involved with a 501(c)(3) application.
There are certain cases where your organization is not required to apply for 501(c)(3) status. According to the IRS:
Except for churches, their integrated auxiliaries, and public charities whose annual gross receipts are normally less than $5,000, organizations will not be treated as described in section 501(c)(3) unless they notify the IRS by applying for recognition of section 501(c)(3) status.
Unless your organization meets these criteria, you must apply for nonprofit status. Here are the steps you must follow and resources to help you along the way to accepting nonprofit donations.
State Application
Before you begin your federal application, though, you should first become a legal entity in your own state by filing articles of incorporation, trust, or association. This establishes your organization as a legal entity. Which type of organizational articles you file can depend on a variety of factors including size and purpose.
Most nonprofits file articles of incorporation to become a Limited Liabilities Corporation (LLC). This status provides financial and other liability protections for officers, directors, and other members of the organization. The I.R.S. provides a suggested language template for this application.
Federal Application
There are multiple steps involved with your federal application: obtaining a tax I.D. or Employer Identification Number (E.I.N.), and the 501(c)(3) application itself. You must apply for an E.I.N. even if your organization has no employees. This application may be completed over the phone or online following these instructions.
Next comes the Application for Recognition of Exemption, which establishes your organization’s 501(c)(3) status. The I.R.S. provides a walk-through of the application process, as well as online courses with tools to help guide you along the way. This application will determine whether your organization qualifies as a private foundation or a public charity.
State Compliance
Once your application for 501(c)(3) status has been approved, there are a few more steps you must complete before you can accept nonprofit donations. Some of these requirements vary state-to-state, so it’s important to find out which apply to you. They are:
- Charitable Solicitations Registration: 40 states require this registration prior to soliciting donations from the public.
- State Corporate Tax Exemption: A registered nonprofit is not automatically exempt from federal and state taxes. You must file this application in order to quality as tax-exempt.
- State Sales Tax Exemption: Just like corporate tax, a nonprofit must apply for a sales tax exemption if you are going to sell goods. The process varies state-by-state and is outlined here.
Yes, Nonprofit Donations Are Complicated
Keep in mind that this information is not legal advice. You should always consult with your organization’s legal advisor to make sure you are in full compliance with federal and state law. It can be a daunting process, but if you get your ducks in a row and get the right help, you’ll be on your way to nonprofit fundraising success.
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