Are Contributions to an Organization Deductible while the Organization’s Application for Exemption is Pending?
Contributors to the organization do not have advance assurance of deductibility while the organization’s application is pending. If the organization ultimately qualifies for exemption for the period in which the contribution is made, the contribution will be tax deductible by the donor. Alternatively, if the organization ultimately does not qualify for exemption, then the contribution will not be tax deductible.
To be exempt under section 501(c)(3), most organizations must file Form 1023 or Form 1023-EZ by the end of the 27th month after they were created. If an organization does so, and the application is approved, charitable contributions to it will be deductible back to the date of formation.
The effective date of tax-exempt status (and the deductibility of contributions) depends on whether the organization has:
Timely filed Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, but has not yet received a letter recognizing its exempt status (explained above),
Filed Form 1023 later than the prescribed time, or
As of January 31, 2020, the IRS requires that Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, be completed and submitted online through a U.S. government website called Pay.gov. There is a 90-day grace period during which the IRS will continue to accept paper versions of Form 1023. The IRS also increased the length of Form 1023 from 36 pages to 40 pages.
To submit Form 1023, you must:
- Register for an account on Pay.gov.
- Enter “1023” in the search box and select Form 1023.
- Complete the form.
We prepare Form 1023. See Hire Us to Get an IRS Tax Exemption for a Charitable Organization.
Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business income. For most organizations, unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990-T. An organization must pay estimated tax if it expects its tax for the year to be $500 or more.
The obligation to file Form 990-T is in addition to the obligation to file the annual information return, Form 990, 990-EZ or 990-PF. Each organization must file a separate Form 990-T, except title holding corporations and organizations receiving their earnings that file a consolidated return under Internal Revenue Code section 1501.
Although they are exempt from income taxation, exempt organizations are generally required to file annual returns of their income and expenses with the Internal Revenue Service. Small tax-exempt organizations with gross receipts under a certain threshold may be required to file an annual electronic notice. Some organizations, such as churches and certain church-affiliated organizations, are not required to file annual returns or notices.
If an organization has unrelated business income, it must file an unrelated business income tax return. In addition to filing an annual exempt organization return, exempt organizations may be required to file other returns of and pay employment taxes. Some organizations may be required to file certain returns electronically.
In addition to required filings, a charity may have other ongoing compliance obligations.
Use the tables linked below to find the due date of returns that a tax-exempt organization must file. To use the tables, you must know when your organization’s tax year ends.
Return Due Dates for Exempt Organizations: Excise Tax Returns (Forms 4720 and 6069)
In general, exempt organizations are required to file annual returns, although there are exceptions. If an organization does not file a required return or files late, the IRS may assess penalties. In addition, if an organization does not file as required for three consecutive years, it automatically loses its tax-exempt status.
The IRS sends back Form 990 series returns filed on paper – and rejects electronically filed returns – when they are materially incomplete or the wrong return. If we send back your organization’s return, follow the instructions in the accompanying letter and on this page.
The most common errors causing the return of a Form 990 series returns are missing or incomplete schedules .
Review these pages for Form 990, 990-EZ, and 990-PF filing tips:
- 990-series forms and schedules
- Filing thresholds – which 990-series return to file
- Table of due dates for exempt organizations annual returns
- Which form should I use?
- Annual electronic notice (e-Postcard) for small exempt organizations
- Filing tips
- Annual Reporting Requirements FAQs