IRS Grants Small Nonprofits No-File Tax Exempt Status Under 501(c)(3)

Uncle Sam pointing toward the viewer with the title, :Small nonprofits no-file tax exempt status under 501(c)(3)"

Small organizations that, normally, have a gross of $5,000 or less, as well as not being a private foundation, have no requirement to file Form 1023 for registered 501(c)(3) status approval. All donations would still be considered tax deductible.

This advice is mainly for nonprofits that are just starting out or who maybe do a once a year fundraiser for something like a scholarship. Getting funding before or while you are working on becoming a registered 501(c)(3), it is the best practice. While it is good, and some times necessary, in the long run to file the proper paperwork with the IRS, you do not have to wait to get to work on your organization’s mission. 

Who Does This Apply To?

This is applicable to all organizations that meet the above criteria, including, churches, synagogues, and mosques or any integrated auxiliaries of these organizations.

“The following types of organizations are not required to file Form 1023 for recognition of exemption under Internal Revenue Code section 501(c)(3):

…Any organization (other than a private foundation) that has gross receipts in each taxable year of normally not more than $5,000.

Contributors’ contributions to these types of organizations are tax deductible. Although there is no requirement to do so, many churches and small organizations seek IRS recognition because recognition assures contributors that contributions are deductible.”

(IRS, Organizations Not Required to File Form 1023, Web, 4/24/2020)

Reasons To Apply Anyway

While organizations that meet the stated criteria do not have to file for 501(c)(3) status, many organizations still send in Form 1023 inorder to get status any way. Keep in mind, the 501(c)(3) determination letter, and/or Employment Identification Number (EIN), is needed to fundraise on anything but the smallest scale. Lots of donors, particularly regional and national businesses, require an organization’s determination letter in order to approve a donation request. This includes getting donations of even software, Microsoft products for instance.

Individuals who are donors might think you are not a “real charity” or that their donation won’t be tax deductible without a determination letter. Remember that how well an organization does has a lot to do with perception. The 501(c)(3) determination letter adds to the legitimacy and trust in people’s minds.

Send An IRS 990 Form, No Matter What

All organizations, even if they already have or are going to apply for, 501(c)(3) status, must send an annual information return to the IRS. Submit the required documentation so as not to lose 501(c)(3) status,

“Form 990, Form 990-EZ, Form 990-N (see below) or Form 990-PF along with certain schedules that may be required for your organization.”

(IRS, Applying for 501(c)(3) Tax-Exempt Status, Pg. 6, Web, 4/24/2020)

While technically this information should be provided every year, there is a consecutive three year stretch without filing before losing 501(c)(3) status. So it all comes down to submitting your organization’s Form 1023 once and then filling out the proper 990 form yearly.

Final Thoughts

Bear in mind, this is all on the federal level; make sure to look into your individual state’s rules and regulations around nonprofit status.

Further Reading on Form 1023

Tax Guide for Religious Organizations

IRS Document on Applying for 501(c)(3) Tax-Exempt Status

IRS Exempt Organizations Hotline: (877) 829-5500

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