Nonprofit-Tax-ExemptionApplying for 501(c)(3) Nonprofit Tax Exemption Status

Section 501(c) of the United States Internal Revenue Code addresses various business organizations that are exempt from federal taxation. Specifically, section 501(c)(3), the most common tax exempt organization, affords tax exempt status to corporations that are organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purpose, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals… This is called the nonprofit tax exemption.

Any organization seeking 501(c)(3) status must apply with the IRS. A standard application package for a nonprofit corporation seeking 501(c)(3) exemption status typically includes:

  • A Tax ID/EIN
  • New IRS Form 1023
  • IRS Form 8718
  • Articles of Incorporation filed with the South Carolina Secretary of State
  • Description of Activities
  • Financial Records
  • Application/User Fee

In addition to the required documents, the IRS may require additional information necessary to clarify the nature of the corporation, including a suggested new Conflicts of Interest Policy.

A business must show it is organized and operated for at least one of the purposes stated in IRC § 501(c)(3) in order to obtain tax exempt status from the IRS.

The primary objective of the nonprofit tax exemption application package is to show that the organization is organized and operated for one or more of the exempt purposes enumerated in IRC § 501(c)(3). The application must also show that all of the following are true:

  • No part of the organization’s net earnings will inure to the benefit of private shareholders or individuals; and
  • The organization will not, as a substantial part of its activities, attempt to influence legislation or participate to any extent in the political campaign for or against any candidate for public office.

As previously indicated, these provisions should be included in the Optional Provisions  in the Articles filed with the Secretary of State.

New IRS Form 1023

Tax-Exempt Status IRS Form 1023 is the official application form prescribed by the IRS for tax-exempt status under IRC 501(c)(3). The form is entitled “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code” and is a required document in the application package.