Difference between revisions of "How to obtain tax-exempt status"
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If an NGO wants to be deemed a public charity it must state so on Part III of Form 1023.<ref>Public charities are not required to file an application unless their annual charitable gross receipts are at least $5,000. Ibid., at 10. Such organizations receive an automatic tax exemption. A tax-exempt NGO must file an application for recognition of its tax exempt status within 90 days of the end of the year of exceeding the $5,000 gross receipts threshold. Ibid. To meet the gross receipts test an NGO must have received $7,500 or less its first tax year, $12,000 or less during its first two years and $15,000 or less for the current and preceding two years. Internal Revenue Service, Tax-Exempt Status for Your Organization, at 19.</ref> Generally, the IRS considers information from the current and preceding four tax years to determine if an NGO qualifies as a public charity. However, new organizations, or organizations that have been in operation less than five years, may request an advance ruling of its public charity status.<ref>Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, at 6.</ref> At the end of the advanced ruling period the NGO must show it received significant public support to receive official public charity status.<ref>Ibid. If the NGO did not receive sufficient support, it will be deemed a private foundation. Public charities must continue to seek “significant and diversified public support” throughout its existence. Ibid.</ref> There are four categories of NGOs that may qualify as a public charity and fall under the exceptions of subsections (a)(1) through (4) of section 509. | If an NGO wants to be deemed a public charity it must state so on Part III of Form 1023.<ref>Public charities are not required to file an application unless their annual charitable gross receipts are at least $5,000. Ibid., at 10. Such organizations receive an automatic tax exemption. A tax-exempt NGO must file an application for recognition of its tax exempt status within 90 days of the end of the year of exceeding the $5,000 gross receipts threshold. Ibid. To meet the gross receipts test an NGO must have received $7,500 or less its first tax year, $12,000 or less during its first two years and $15,000 or less for the current and preceding two years. Internal Revenue Service, Tax-Exempt Status for Your Organization, at 19.</ref> Generally, the IRS considers information from the current and preceding four tax years to determine if an NGO qualifies as a public charity. However, new organizations, or organizations that have been in operation less than five years, may request an advance ruling of its public charity status.<ref>Internal Revenue Service, Applying for 501(c)(3) Tax-Exempt Status, at 6.</ref> At the end of the advanced ruling period the NGO must show it received significant public support to receive official public charity status.<ref>Ibid. If the NGO did not receive sufficient support, it will be deemed a private foundation. Public charities must continue to seek “significant and diversified public support” throughout its existence. Ibid.</ref> There are four categories of NGOs that may qualify as a public charity and fall under the exceptions of subsections (a)(1) through (4) of section 509. | ||
| − | ====Section 509 (a)(1) | + | ====Section 509 (a)(1) Organizations==== |
The NGOs found in this public charity category include: | The NGOs found in this public charity category include: | ||
Revision as of 11:57, 11 August 2008
This article is intended to provide a general description of the process for obtaining 501(c)(3) status under the U.S. Internal Revenue Code and is not intended to substitute for the advice of private counsel on specific issues related to the IRC or the 501(c)(3) application process. Original draft by Bobby C. Neal.
In the United States, a non-governmental organization (NGO) is generally subject to federal, state, and local taxes unless and until the organization qualifies for tax-exempt status. This article focuses on the process for obtaining a federal income tax exemption for NGOs.[1] NGOs that meet the criteria set forth in 26 U.S.C. § 501 of the Internal Revenue Code (section 501) are eligible for a federal tax exemption.[2] The benefits to obtaining tax exempt recognition by the Internal Revenue Service (IRS) include: income tax exemption, eligibility to receive tax-deductible contributions, possible exemption from certain employment taxes, and reduced postal rates. Section 501 describes the organizations that are eligible for tax-exempt status. The most significant category of tax-exempt organizations is section 501(c)(3).
