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Becoming Tax Exempt

Question:  How does an organization become tax-exempt?

Answer:  To be recognized as exempt from federal income taxation, most organizations are required to apply for recognition of exemption. For section 501(c)(3) organizations, the law provides only limited exceptions to this requirement. Applying for recognition of exemption results in formal IRS recognition of an organization’s status, and may be preferable for that reason.

2018-01-14T10:38:14-07:00March 8th, 2014|FAQs|0 Comments

Tax Exempt Number?

Question:  Do I need a tax-exempt number for my organization?

Answer:  No.  Unlike some states that issue numbers to organizations to indicate that these organizations are exempt from state sales taxes, the IRS does not issue numbers specifically for exempt organizations.  While the Internal Revenue Service does issue Employer Identification Numbers (EINs), these are merely a unique identifier, similar to a Social Security number for an individual.  Applying for and receiving an EIN says nothing about the organization’s tax status; however, your organization needs an EIN to apply for tax exemption.

2014-08-08T19:40:29-07:00March 6th, 2014|FAQs|0 Comments

Getting an Employer ID Number

Question:  How do I get an Employer Identification Number (EIN) for my organization?

Answer:  You can apply for an EIN on-line, over the telephone, via fax or through the mail. See the instructions for Form SS-4 , Application for Employer I.D. Number, for further details.

  • To apply on-line, use the on-line EIN application available on this website.
  • To get an EIN over the IRS’s toll-free telephone number, call (800) 829-4933.   See EIN Toll-Free Telephone Service for more information.
  • To request an EIN via fax, 24 hours a day / 7 days a week, dial the fax number at the location accepting applications from your state. The instructions on the Form SS-4 indicate which location will accept your faxed request.
  • To receive an EIN through the mail, complete Form SS-4 . The instructions for the form provide the correct address.

Third parties can receive an EIN on a client’s behalf by completing the new “Third Party Designee” section and obtaining the client’s signature on Form SS-4. This avoids having to file a Form 2848 (Power of Attorney) or Form 8821 (Tax Information Authorization) to get an EIN for their client.

Note: Don’t apply for an EIN until your organization is legally formed. Nearly all organizations are subject to automatic revocation of their tax-exempt status if they fail to file a required return or notice for three consecutive years. When you apply for an EIN, the IRS presumes the organization has been legally formed and the clock starts running on this three-year period.

2018-05-13T12:21:21-07:00March 5th, 2014|FAQs|0 Comments

Beware of Impersonation of Charitable Organizations Scams

Another long-standing type of abuse or fraud is scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims. The IRS cautions both victims of natural disasters and people wishing to make charitable donations to avoid scam artists by following these tips:

  • To help disaster victims, donate to recognized charities.
  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
  • Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

2018-01-14T10:38:14-07:00March 4th, 2014|IRS News, Miscellaneous|0 Comments

Difference between Tax Exempt & Nonprofit

Question:  What is the difference between nonprofit and tax-exempt status?

Answer:  Nonprofit status is a state law concept.  Nonprofit status may make an organization eligible for certain benefits, such as state sales, property and income tax exemptions.  Although most federal tax-exempt organizations are nonprofit organizations, organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax.  To qualify as exempt from federal income tax, an organization must meet requirements set forth in the Internal Revenue Code. See Types of Tax-Exempt Organizations or Publication 557 for more information.

2014-08-08T19:32:23-07:00March 3rd, 2014|FAQs|0 Comments

Will the IRS Expedite Review of an Application for Exemption?

Question:  How can my application for tax-exempt status be expedited?

Answer: In general, applications are processed in the order received by the IRS. Sometimes, however, the IRS will work a case outside the regular order. For expedited processing to be granted, however, there must be a compelling reason to process the case ahead of others. Compelling reasons include the following:

  • A pending grant, where failure to secure the grant will have an adverse impact on the organization’s ability to continue operating.
  • A newly created organization providing disaster relief to victims of emergencies.
  • IRS errors have caused undue delays in issuing a determination letter.

For a pending grant, the following specific information would help support a request for expedited processing:

  • The name of the person or organization committed to giving the grant or asset,
  • The amount of the grant or the value of the asset,
  • The date the grant will be forfeited or permanently redirected to another organization,
  • The impact on the organization’s operations if it does not receive the grant/asset, and
  • The signature of a principal officer or authorized representative.

A request for expedited processing must be made in writing and must fully explain the compelling reason.  Granting expedited processing is at the discretion of the IRS.

Note: An optional expedited process is available for certain 501(c)(4) applicants.

Additional information – Examples

2018-05-13T12:21:22-07:00March 2nd, 2014|FAQs|0 Comments

Application for a Tax Exemption

Question:  How do I obtain an application for tax-exempt status?

Answer:  Most organizations applying for exemption must use specific application forms. Two forms currently prescribed by the Service are Application for Recognition of Exemption Form 1023 (and instructions) (for charitable organizations); and Package 1024, Application for Recognition of Exemption (for other tax-exempt organizations). The application your organization is required to submit is specified in Publication 557 . You may request forms by calling 1-800-TAX-FORM (1-800-829-3676).

2018-10-28T09:03:48-07:00March 2nd, 2014|FAQs|0 Comments

Change in Purpose While Tax Exempt Application is Pending

Question:  What if purposes or programs change after an application is submitted?

Answer: If the organization’s organizing documents, purposes, or programs change while the IRS is considering an application, you should report the change in writing to the office processing your application.  If you do not know the office that is processing your exemption application, contact Exempt Organizations Customer Account Services.

Because material changes in a charity’s structure or activities may affect its tax-exempt or public charity status, organizations should report such changes to the IRS Exempt Organizations Division.  See procedures for reporting changes for a complete discussion

2014-08-08T20:29:07-07:00February 28th, 2014|FAQs|0 Comments

How Do I Learn More about the Tax Exempt Application Process?

Question:  Where can I get more information about how an organization can apply for exemption from federal income tax?

Answer:  The following IRS materials provide more information about the application process:

2016-12-19T21:45:48-07:00February 26th, 2014|FAQs|0 Comments