If you found a nonprofit organization, you will likely want to apply to the IRS to be exempt from federal income tax and to let people who give you money deduct their donations from their own taxes. If you do so successfully, you'll get what's called an IRS determination letter confirming this status. If you don't follow the legal rules for nonprofits, this status can be revoked.
TL;DR (Too Long; Didn't Read)
A 501(c)(3) determination letter is a formal notice from the IRS that a nonprofit has been approved as exempt from income tax and can take tax-deductible donations.
Getting a 501(c)(3) Letter From the IRS
If you found or run a nonprofit organization, a critical step is usually registering with the IRS to get tax exempt status under section 501(c)(3) of the tax code. This lets donors deduct from their taxes when they make donations to your organization and is seen as a validating step for many individual donors and grant-giving organizations. Some state charity regulators may also ask for copies of this form.
To get such an IRS determination letter, you'll need to file a formal application with the IRS, generally using Form 1023. You're also required to get an employee identification number from the IRS, even if your nonprofit doesn't employ anyone. You can apply for this number online.
Form 1023 will include information about your nonprofit's purpose, its legal organizational structure and bylaws, financial data and information about who is running the organization and how any officers and employees are compensated. As with any government filing, you might want to get professional assistance from a lawyer, an accountant or other professionals to fill out the form.
The information you file in your application is public, and the IRS will require you to make it available to people upon request if your application is approved. Once your application is reviewed by the IRS and approved, you'll receive a determination letter in the mail.
Keeping Your Nonprofit Status
Once your nonprofit status is approved and you receive the letter, you'll generally be required to file annual returns with the IRS describing your nonprofit's activities and finances. These can be filed with Form 990. If you fail to file this form, your nonprofit status can be revoked. You may be required to file additional paperwork with any state where you operate. These filings are generally available to the public, unlike personal tax returns.
You'll also generally want to send a donation receipt letter to anyone who gives money or goods to your nonprofit, which they can use as a receipt in the event of an IRS audit to prove that they gave to your charity.
You should hang on to your IRS determination letter once you receive it. If you lose it, you should be able to get an additional copy from the IRS. You can also get another type of tax exempt letter confirming your nonprofit status, known as an affirmation letter. This can be useful if your nonprofit changes its address, since the determination letter will reflect the old address, and donors and other organizations may want to see an up to date document confirming you're still tax exempt.
- IRS: Public Charity – IRS Processing of Exemption Applications
- LegalBeagle: What Is a 501(c)(3) Determination Letter?
- IRS: EO Operational Requirements: Obtaining Copies of Exemption Determination Letter from IRS
- IRS: Charity – Required Provisions for Organizing Documents
- IRS: Application for Recognition of Exemption
- IRS: Public Disclosure of Determination Letters
- IRS: Instructions for Form 990 Return of Organization Exempt From Income Tax (2017)
- IRS: About Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code
- IRS: Exempt Organizations – Affirmation Letters
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.