How do you get tax exempt status?
What is tax exempt status?
Tax exempt status allows certain organizations within the United States the privilege of not having to pay income tax. In addition, some organizations don't have to pay other types of taxes, such as property, sales, or other state taxes. Rules vary depending on the state. Most of these organizations are non-profits organizations such as churches, schools, and charity organizations. The ability to get tax exempt status depends on a number of things.
Non-profit organizations aren't the only ones, however, that can have tax exempt status. Organizations such as sports leagues, labor unions, farm and agricultural organizations, veteran and military groups, and some businesses are also sometimes exempt from taxes.
Tax exempt status for businesses is considered controversial, as some view it corporate welfare. However, many times the government will grant tax exempt status to a business so it can draw businesses to areas of economic hardship. As a whole, however, tax exempt status is usually given to organizations that promote the economy or the good of mankind, like charities or churches, as a way to alleviate them from the burden of taxes.
How do you get tax exempt status?
An organization wishing to apply for tax exempt status must apply for tax exemption through the IRS and in writing using the correct forms:
Find the correct forms.
The forms required for tax exempt status by the IRS include Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, and Form 1024, Application for Recognition of Exemption Under Section 501(a). These forms contain the necessary instructions needed to complete the application process. It is very important that you follow them closely, as incomplete applications will not be recognized or processed. Certain organizations will not require specific applications, so check with your local branch of the IRS or online to make sure.
Application for tax exemption requires a written letter to the IRS if your organization doesn't require specific forms. The letter has to be signed by an authorized person having to do with the organization, such as an officer of the organization or a person authorized by a power of attorney. In addition, your letter should have a name and phone number contact and should accompany any other required inclusions.
Know what inclusions to provide
There are a number of things you will need to provide with your application, including:
- Employee Identification Number. If you don't have one of these, you will need to also include a Form SS-4, Application for Employer Identification Number, with your request for exemption.
- Documents. Other applicable documents, including your organization's Articles of Incorporation, Articles of Association, Trust Indenture, and so forth should also be included. Any organization that doesn't have an organizing or enabling document will not qualify for exempt status.
- Bylaws. Include these if your organization has adopted any bylaws.
- Description of activities. Your application should also include a detailed description of your organization's activities as well as the purposes for those activities.
- Financial information. Your company's receipts, expenses, and other financial information for the current year as well as the three preceeding years should also be included in your application.
This is a brief outline of what is required to obtain tax-exempt status for your organization. However, you will want to go to the IRS' website to find out what exactly you will need.