The Good:
That current tax law allows churches to set up life-time, tax-free income for pastors when they retire? That because of favorable tax laws, a $50,000 ministerial income could be the
equivalent of $80,000? That a Community Development Corporation (CDC) could be the best way to
raise all the funds you’ll ever need for outreach?
The Bad:
That if your church or ministry pays out reimbursements without adopting a Section 62 reimbursement plan, those that receive the reimbursement have to pay income taxes on it?
That paying a guest speaker an honorarium without W9 information makes the church liable for a 28% penalty? That cash donations may no longer be deductible to the donor?
The Ugly:
That failure to issue 1099s to paid musicians or other service providers can result in fines as high as $10,000? That paying a guest minister cash from the offering is considered a criminal
offense? That pastoral salary packages adopted without a written compensation contract
could result in a 200% IRS penalty?
| What does being a 501c3, tax-exempt organization mean?
The term “tax-exempt,” when used in reference to nonprofit organizations, generally refers to the net ——————————————————————————– Is there more than one category of tax-exempt organization? Yes. The one most familiar (and addressed in subsequent questions below) is the Internal Revenue Code What benefit does being 501c3 offer my nonprofit and its contributors? One of the primary benefits of being considered tax-exempt under IRC Section 501(c)(3) is the ability to Exemption from federal and/or state corporate income taxes Possible exemption from state sales and property taxes (varies by state) Ability to apply for grants and other public or private allocations available only to IRS-recognized, 501(c) Potentially higher thresholds before incurring federal and/or state unemployment tax liabilities The public legitimacy of IRS recognition Discounts on US Postal bulk-mail rates and other services Return to top ——————————————————————————–What form is required for 501c3 status? To apply for IRS 501(c)(3) recognition, IRS Form 1023 must be completed and filed. Return to top ——————————————————————————–With whom is Form 1023 filed? Form 1023 is filed with the Cincinnati Service Center of the Internal Revenue Service. Return to top ——————————————————————————–What are the fees to file Form 1023? The IRS has a two-tiered filing fee structure. Most organizations pay the standard $750 filing fee when Is there a state application as well as federal? In most states, no. While a handful of states have a simple, one- or two-page form that must be prepared, How long does it take to complete Form 1023? IRS Form 1023 is 28-pages long, plus required schedules and attachments. While every organization How long does it take for the IRS to approve 501c3 status? Typically, IRS 501(c)(3) approval takes between 2 and 12 months, inclusive of likely written follow-up What happens if the application is rejected? A negative 501(c)(3) determination by the IRS can be appealed. Alternatively, the organization may Can anyone complete Form 1023? Technically, anyone can complete Form 1023. From a practical standpoint, it is usually advisable to enlist Will my personal tax or financial situation affect my nonprofit receiving 501c3 status? No. There is no direct correlation between the organization and the financial, tax or credit status of any What information will be required on Form 1023? In order for the IRS to make a determination, specific questions must be answered relative to the When does Form 1023 need to be filed? Generally, Form 1023 should be filed within 15 months of the organization’s formation. For practical Does Form 1023 need to be notarized? Form 1023 requires the signature of an officer of the organization, but it does not need to be notarized. Return to top ——————————————————————————–Can Form 1023 be filed online? Form 1023 cannot be filed online. Return to top ——————————————————————————–Can I file Form 1023 before having the Articles of Incorporation for my nonprofit? Yes, but it is generally not recommended. The IRS will allow unincorporated associations to apply, but Can I start receiving contributions before Form 1023 is approved? Generally, yes. The IRS 501(c)(3) recognition is usually retroactively effective to the earlier of 1) the Can I apply for grants before Form 1023 is approved? Technically, yes, but most foundations, government agencies and other funders, will require an If my nonprofit is tax-exempt, do I pay any type of taxes? Possibly. Private foundations may still be subject to taxes on investment earnings and undistributed Will my nonprofit be given a 501c3 number separate from its EIN? No. Your EIN is the only number federally associated with your organization. If you apply for and receive Once my nonprofit has been granted 501c3 status, what needs to be done to maintain that status? At a minimum, the organization must continue to operate for the purposes for which it received tax |
| 501c3 |
