Certain United States organizations may get federal tax-exempt status. This is an important step for new nonprofits to take to keep as much money as possible within the nonprofit organizations for its charitable and social causes. IRS Publication 557 is mandatory reading for those seeking to start a nonprofit.
The timing and sequence of using Publication 557 is very important. In the United States, nonprofit entities are filed with state governments. But while a state government handles the filing of the actual organization, states do not have the legal authority to grant tax-exempt status at the federal level. The Internal Revenue Service performs this task, not the individual states.
And this is why the IRS’s Publication 557 is so crucial to this process. Before filing for a nonprofit with any state government filing agency (usually but not always the Secretary of State), filers need to learn how to structure the nonprofit and what provisions to use in the articles of incorporation of a nonprofit corporation. The articles of incorporation are used at the state level to file the nonprofit company.
It is Publication 557 that will instruct you on how to do this right at the time of state filing to ensure that you qualify for federal nonprofit tax-exempt status after filing. In other words, you actually file with the state first and then apply for the tax exemption with the Internal Revenue Service. But you need to read and plan out your nonprofit pursuant to IRS Publication 557 so you know how to draft the state’s articles of incorporation in such a way that you will be awarded tax-exempt status by the IRS.
Now, this is a rather long and complicated publication that you need to either read and absorb or spend the money on a corporate attorney in your area who can file for you. But it is possible to highlight some things in Publication 557 that will greatly help you in qualifying for IRS federal tax exemptions for a charity.
First, there are sample articles of organization (incorporation) in the appendix. Refer to that to see examples of the specific provisions (articles) that you must include on your state form wheh filing your nonprofit entity. Of course, you will have to read the rest of this Internal Revenue Service document if you do not understand these samples. But at least you will get an idea of what has to be included.
You should also study up on the difference between 501(c)(3) organizations and other nonprofits. Most charities file as a 501(c)(3) nonprofit, but there are multiple other kinds of nonprofit organizations. The type that you are filing is important because, unlike articles of incorporation, which are essentially the same basic form for everybody, the IRS has separate forms and procedures for different organizations when applying for tax-exempt status.
Speaking of filing, you must apply with the IRS and then wait for a determination letter. This letter tells you whether you have been accepted as a tax-exempt charity or other nonprofit. Look at the “Filing Requirements” section to see how to apply. It is also possible to appeal if you are rejected for a federal tax exemption. There is a separate section in Publication 557 to appeal a negative letter of determination.
Other sections of the publication include information on excise taxes, and it includes a great deal of information on required disclosures and other filing and compliance information for political and other organizations. Certain tax-exempt organizations, such as political action committees, have special disclosure and reporting requirements.
IRS Publication 557