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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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how do i get 503(c) tax exemption status for my not ...

Customer Question

how do i get 503(c) tax exemption status for my not for profit organization?
Submitted: 8 years ago.
Category: Tax
Expert:  Christopher Phelps replied 8 years ago.

Setting Up A 501(c)(3)


The only way to be able to accept tax-deductible contributions is to qualify as a 501(c)(3) non-profit entity with both the IRS and your state.


You will need to complete IRS Form 1023 (http://www.irs.gov/pub/irs-pdf/f1023.pdf) and any required schedules. The instructions for this form are at http://www.irs.gov/pub/irs-pdf/i1023.pdf. If your expected revenues may exceed $5,000, there will be a $500 fee that needs to accompany the application.


Preferably, you should organize as a corporation with an exempt purpose. You should engage an attorney who can draft your Articles of Incorporation and By-Laws with the appropriate language. There may be a fee for incorporation as well as legal fees.


Alternatively, you may consider qualifying as an exempt organization under IRC Sec. 501(c)(7) (i.e. a social club or other membership based organization). Contributions to an organization exempt under this provision would not be tax deductible, however, any fundraising income you generate (i.e. rummage sales, bake salesm etc.) will also not be taxable. Consequently, most of these types of organizations operate by charging membership or service related fees. Generally, this type of organization will only be taxed on its investment income (if any) net of related expenses.


For PA you will need to register with the PA Bureau of Charitable Organizations if you intend to solicit donations. You may do this at http://www.dos.state.pa.us/char/site/default.asp. You may also request exemption from paying sales tax by completing and filing Form REV-72 (http://www.revenue.state.pa.us/revenue/lib/revenue/rev-72.pdf).


I would also direct you to the Pennsylvania Association of Nonprofit organization (PANO) website for additional tips on setting up a PA non-profit organization at http://www.pano.org/tipsuccess.php.


Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.

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