Section 501(c)(3) Tax Exempt Status
For an organization to be exempted under the Section 501(c)(3) of the Internal Revenue Code, it needs to be operated and organized exclusively for the exempt purpose which are described in the section 501(c)(3) and its earning must not be given to any individual or private shareholder. Also, the organization shouldn't be an action organization, so a substantial part of its activities won't be related to influencing the legislation and it won't take part in any activities which are against or for political candidates.
Organization which fall in the category of the Section 501(c)(3) are called as charitable organization. Besides the testing for public safety organizations, these charitable organizations are even eligible to get tax-deductible contributions which are in accordance to the Code section 170.
Why Should Schools & Education Institutions Apply for Tax Exempt Status?
There are various benefits available for schools and educational institutions by applying for tax exempt status. Some of them are
- It shows to the community that the school and educational institution takes itself and its mission seriously.
- Schools and educational institutions are exempted from paying any state or federal income taxes.
- Schools don’t need to make payments for the state or federal employment taxes.
- Individuals who donate to the school or educational institution will be able to deduct those donations from taxes.
- Schools will get many grants if you are a tax-exempt organization.
How to Apply for Tax Exempt Status?
It is easy for schools and educational institutions to get the 501(c)(3) status. All they have to do is apply to the IRS and get the tax exempt status by filing the IRS Form 1023.
For getting the 501(c)(3) status for schools, a paperwork is submitted by organization to the IRS along with the details on how it plans to perform its educational activities. Now once the application is approved, a determination letter will be send by the IRS which identifies and approves the school as the 501(c)(3) organization.
Procedures Involved In Getting A Tax Exempt Status
Incorporation
The nonprofit is incorporated in a state and the copy of the Articles of Incorporation is submitted to the IRS for getting the tax exempt status.
Provide Details Of The Business Purpose
You must provide a detailed explanation of what the nonprofit is created for or provides in the Articles of Incorporation. This particular information will be considered by the IRS when it reviews your application for the tax-exempt status.
Filing Form 1023
Being 30 pages long and without any attachments and schedules, IRS estimates that more than 100 hours is needed for completing the Form 1023. It may take couple of months for getting the IRS approval and it depends on the number of written follow-up questions that IRS has and how much fast you can provide answers for them.
Paying Filing Fees
The IRS charges certain structured fees for filing Form 1023. Once the fees is paid, then Form 1023 will be checked and processed by the IRS.
State Level Application (If applicable)
There are various states which don’t have a separate tax-exempt application. Certain states have one or two page form which needs to be completed.
