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Once the nonprofit organization is formed under a state’s corporations division, there is a lengthy application for exemption status (along with filing fees) that must be submitted to the IRS. This application is due twenty-seven (27) months after the company is incorporated with the state. Simply incorporating as a nonprofit under state laws is not enough. The application goes through activities of the business including, but not limited to:
- What is the activity?
- Who conducts the activity?
- When is the activity conducted?
- Where is the activity conducted?
- How does the activity further the organization’s exempt purposes?
- What percentage of the organization’s total time is allocated to the activity?
- How is the activity funded?
The formalities do not end once the business receives its determination letter with the exemption status. The charitable organization is required to file annual reports (both state and federal in most cases) and refrain from operating in any way that would jeopardize the exemption. All corporate documents (as with any other business) should be adhered to, including officer meetings, annual reporting to the state, etc.
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In 2008, the IRS eliminated the requirement of filing Form 8734 for approved 501(c)(3) organizations with a advance ruling ending date that has not yet expired or that has expired on or after June 09, 2016. The significance of this relates to whether the exempt organization continues to be a public not for profit or converts into a private not for profit (which requires more cumbersome IRS filings). As the law states now, the nonprofit remains a public charity during its initial five (5) years, but then certain filings must be submitted to the IRS to maintain that public status. If such filings are not made, then the nonprofit converts into a private foundation status.
Learn more about nonprofit corporations:
- Overview of Nonprofit Organizations
- Incorporating the Nonprofit Corporation
- Types of Tax-exempt Organizations
- Qualifying as a 501(c)(3) for Tax-exempt Status
- Required Annual Filings to Maintain the Tax-exempt Status
- Termination of 501(c)(3) Exemption Status
Contact Capital Planning Law, PLLC for your complimentary consultation to discuss your business law and corporate transactions, estate planning, probate, guardianship and/or real estate needs.