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 Frequently
Asked Questions |
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Tax Exempt Organization |
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What is the difference between not-for-profit and tax-exempt status? |
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Non-profit status is a state law concept. Non-profit 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 non-profit organizations, organizing as a non-profit organization at the state level does not automatically grant the organization exemption from federal income tax. To qualify as tax-exempt from federal income taxes, an organization must meet requirements set forth in the Internal Revenue Code. See Types of Tax-Exempt Organizations or Publication 557 for more information.
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How does an organization become tax-exempt? |
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An organization becomes tax-exempt by applying for recognition of exemption from the Internal Revenue Service (IRS). The IRS will recognize an organization as tax-exempt if it meets the requirements of the Internal Revenue Code. See Types of Tax-Exempt Organizations and Publication 557 , Tax-Exempt Status for Your Organization, for more information.
Organizations applying for tax-exempt status must submit two applications: First, one requesting an Employer Identification Number (EIN); and second, the other applying for recognition of exemption.
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Do I need a tax-exempt number for my organization? |
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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.
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How do I get an Employer Identification Number for my organization? |
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You can apply for an EIN over the telephone, via fax or through the mail. See
the instructions of Form SS-4 , Application for Employer I.D. Number, for further
details.
- To get an EIN over the IRS's toll-free telephone number, call (800) 829-4933.
Hours of operation are 7:00 a.m. to 10:00 p.m. local time, Monday through
Friday. 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
on 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.
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How do I obtain an application for tax-exempt status? |
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Most organizations applying for exemption must use specific application forms. Two forms currently prescribed by the Service are Form 1023 , Application for Recognition of Exemption (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 . See Tax-Exempt Organizations Tax Kit for a list of forms and publications of interest to tax-exempt organizations. You may also request these forms by calling 1-800-TAX-FORM (1-800-829-3676).
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How long does it take to process an application for exemption? |
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Applications are processed as soon as possible. The process can be delayed, however, for reasons ranging from simple errors on the application to issues concerning the qualification of the organization for exemption. See the Top Ten Reasons for Delay in Processing Applications
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Is an exemption application subject to public disclosure? |
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An exemption application is subject to public disclosure once it has been finally approved or denied.
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What is e-file for charities and nonprofits (tax-exempt organizations)? |
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The 990 series of forms are used by tax-exempt organizations, including charities, private foundations and other nonprofit organizations, to provide information about their programs and activities to verify that they are operating in accordance with their tax-exempt purpose. Information on these returns is disclosable to the public as provided by law.
IRS e-file is the name for the electronic filing of tax and information returns. When a nonprofit organization e-files, it sends its information return data to IRS electronically instead of on paper forms. In 2004 IRS started a new e-file system for tax-exempt organizations and corporations, referred to as Modernized e-File (MeF). MeF is a web-based system allowing electronic filing through the Internet. MeF uses the widely accepted XML format, a standardized way of identifying, storing and transmitting data. MeF also currently accepts filings through IRS' existing Electronic Management System (EMS).
E-file became available for most charities and non-profits in February 2004. Exempt organizations can e-file Forms 990, Return of Organization Exempt from Income Tax; 990-EZ, Short Form Return of Organization Exempt from Income Tax; 1120-POL, U.S. Income Tax Return for Certain Political Organizations; Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as a Private Foundation; Form 8868, Application for Extension of Time to File an Exempt Organization Return; and the extension form associated with the 1120-POL - Form 7004, Application for Automatic 6-Month Extension of Time To File Certain Business Income Tax, Information, and Other Returns.
Certain tax-exempt organizations are required to electronically file as explained in these FAQs. With a few exceptions, all tax-exempt organizations that file Forms 990, 990-EZ, 990-PF, or 1120-POL can file electronically.
IRS e-file is available to tax-exempt organizations that prepare and/or transmit their own returns and to those that rely upon a tax professional to prepare and/or transmit their returns.
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What are the benefits of e-file? |
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E-file is faster, easier and more accurate than filing a paper return.
E-file makes compliance with reporting and disclosure requirements easier by eliminating the need to make copies, assemble all of the appropriate schedules and attachments, and pay for postage. Organizations can comply with public disclosure requirements by posting electronic forms on the web.
E-file results in benefits for both IRS and taxpayers, including:
- More explicit error conditions - New error code explanations pinpoint the
location of the error in the return and provide complete information in the
Acknowledgement File.
- Faster acknowledgements - Transmissions are processed upon receipt and
acknowledgments are returned in near real-time. No more waiting for once or
twice daily system processing cycles.
- Built-in accuracy checks - Paper Form 990 returns have an average error
rate of 27 percent. Built-in accuracy checks in electronic return preparation
software catch the majority of taxpayer errors before the return is submitted.
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