How to Get Tax-Exempt Status for Your Non-Profit Organization

Before applying for your tax exempt status with the IRS, you have to form your non-profit at the state level. A major reason that companies are denied their non-profit, tax-exempt status after filing their application with the IRS is because they have done it wrong at the state level. When filing your non-profit at the state level, you are required to include three clauses in your formation documents.

What Happens After You Apply for Tax Exempt Status

After you apply for your tax exempt status with the IRS, they will immediately check your formation documents at the state level to verify that you have included the appropriate three clauses. If you haven’t included these three clauses, your request for tax-exempt status for your non-profit will be denied. Completing the application incorrectly (the first time you apply) can also prolong getting your tax-exempt status if you reapply (even if it’s done correctly the second time). Download the 3 Clauses.

 

Want to learn how we help entrepreneurs fund their business? Register for our free webinar! (Scroll down to continue reading this blog).

 

This is why it’s extremely important to do the application right the first time. If you want to get to do it right and get your tax-exempt status for your non-profit quickly, here are the three clauses that you need to include on your application documents:

  • Purpose Statement Clause – The IRS defines a purpose for a 501(c)(3) as anything that is “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.  The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.” Your purpose much match the IRS definition otherwise you run the risk of having your request for tax-exempt status denied.

 

  • Dissolution Clause – This clause should clearly state that all assets owned by your non-profit will go to a charitable cause upon dissolution.

 

  • No Benefit of the Founders Except for Reasonable Compensation Clause – This clause should clearly state that the founders will not benefit from any revenue generated (or grants received) by the non-profit organization except for reasonable compensation (i.e. their salaries).

Posted in

QT Business Solutions

Categories

Subscribe!