What is 501c3 Status? Typically what individuals are referring to are organizations that have applied for and recognized by the IRS as a tax-exempt organization under section 501(c)(3) of the IRS Code. (26 IRS § 501(c)(3))
Individuals mistakenly use the terms 5013c or 503c1. As you now know these descriptions or names are incorrect. The term "501c3" comes from the IRS Code section. Section 501c3 of the IRS code identifies purposes for which an organization can be organized and operated to order to qualify for federal tax exempt status.
Here is an excerpt of IRC 501(c)(3):
Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.Organizations with purposes listed above are by far the most commonly recognized type of tax-exempt organization. In fact, in 2010, approximately 65% of tax-exempt trusts and organizations listed in the IRS Master File were 501c3 tax-exempt organizations.
How can an organization get 501c3 Status?
To apply for 501c3 tax-exempt status an applicant must complete and submit IRS Form 1023. In technical terms Form 1023 is the form required by the IRS for "Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code." Form 1023 is comprised of 11 parts, 26 pages, and typically requires a user fee between $400-$850 to apply.
Form 1023 was last substantively revised in June 2006. Additional updates were made to Form 1023 by IRS Notice 1382 in November 2010. One of the initial hopes in revising IRS Form 1023 was that with more detailed and substantive questions on the Form would prevent or reduce the amount of correspondence between the IRS and the 501c3 applicant and would result in faster IRS processing.
How long does it take for the IRS to process a 501c3 Application?
This is a very common question for applicants that spend weeks or months preparing IRS form 1023 for tax-exempt recognition. Applicants often incorrectly believe that once they submit IRS Form 1023 to the IRS they will get a response and be granted tax-exempt status within a couple of months. Unfortunately the IRS tax-exempt recognition process can take longer.
The exact amount of IRS processing time depends. Some of the factors that can affect the IRS processing time of an application include: the type of exemption application the client is submitting, completeness of the application, and current workload of the IRS reviewers.
Getting Help with your 501c3 Application
There are many professionals that can provide assistance when completing your 501c3 Application. Choosing to work with a CPA or an Attorney to complete your application is typically a good choice and these licensed professionals can legally represent you in front of the IRS (see Form 2848). Using a CPA or an Attorney is increasingly more affordable. Law Firms such as Nonprofit Foundry even offer flat fee packages to assist clients. The IRS also offers substantial resources for applicants at http://www.irs.gov/charities/index.html.
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