Podcast: Applying for Tax-Exempt Status

applying tax-exempt

Written by Jeff Dvorachek

May 19, 2022

Last week we talked about ways to determine if an organization is tax-exempt. If you find out that the organization is not tax-exempt or had its exemption revoked, this podcast will cover the steps that can be taken when applying for tax-exempt status and some general guidelines.

SO WHAT DOES AN ORGANIZATION DO IF THEY WERE EXEMPT, BUT IT HAS BEEN REVOKED?

  • Consequence of losing tax-exempt status is having to file tax returns and paying tax.
  • File an application for exemption and IRS will issue a new determination letter.
  • Effective date of reinstatement –
    • date that the organization’s exemption application was submitted to the IRS
    • organizations may choose to request that reinstatement be retroactive to the effective date of revocation

HOW DO WE APPLY FOR THE FIRST TIME

  • More than just applying with the IRS
    • Determine the state registration requirements
    • Get an Employer Identification Number
    • Prepare legal formation documents –
      • Can be trust, corporation or association
      • Bi-laws
      • Must contain certain language
  • File Form 1023, 1023-EZ, or 1024
    • Completion of the form will take time and require three year’s worth of financial data (actual or projected)
    • User fee is required
    • Once submitted the IRS will take time to process and will probably come back with questions
    • IRS will issue a determination letter that can be provided to others showing the tax-exempt status
    • Effective date

WHAT TYPES OF TAX-EXEMPT ENTITIES NEED TO APPLY?

  • Tax-exempt organizations where contributions are deductible
    • Public charities
    • Private Foundations
  • Tax-exempt organizations where contributions are not tax-deductible
    • Social clubs, Fraternal Societies, political organizations

Be sure to talk to a tax professional if you have any questions about applying for tax-exempt status.

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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