Now that you’ve incorporated your non-profit organization, you are ready to apply for tax exempt status under IRS code 501(c)(3). The following three legal forms can apply for tax exemption:
- Trusts, which are usually set up for individual and personal purposes.
- Corporations, which operate for business purposes.
- Associations, which is a group of people who come together for a shared purpose, for example a sports club.
Your corporation also must meet one of the exemption purposes set out in the IRS code. These include business purposes that are “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals”. You can read more about charitable purposes on the IRS website.
You may need to use a different code for businesses that are fraternities (501(c)(8)), social and recreational clubs (501(c)(7)) and trade associations (501(c)(6)).
Besides the costs involved, you should be aware that when you’re starting a non-profit corporation, it can take 3 to 12 months for your application to be approved. Applications can also be denied. The most common reasons include organizations that are operating for-profit, those that apply using the incorrect code for their type of organization, and businesses that operate for private benefit rather than public good.
If you’ve assembled all the necessary information, you can apply for tax exemption via the IRS website.